-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WwU1J7sLanmuIkHmX4R1328rPvt8uP8Cl278dY7jizLrXzvtgtJuuEHPP5qQFweh v3WWaQeStIkFLkUnc4eB7g== 0000950123-97-005778.txt : 19970714 0000950123-97-005778.hdr.sgml : 19970714 ACCESSION NUMBER: 0000950123-97-005778 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19970711 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: INSILCO CORP/DE/ CENTRAL INDEX KEY: 0000863204 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 060635844 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: 1934 Act SEC FILE NUMBER: 005-44625 FILM NUMBER: 97639538 BUSINESS ADDRESS: STREET 1: 425 METRO PL N STE 500 CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147920468 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: INSILCO CORP/DE/ CENTRAL INDEX KEY: 0000863204 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 060635844 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 425 METRO PL N STE 500 CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147920468 SC 13E4 1 SCHEDULE 13E-4 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13E-4 Issuer Tender Offer Statement (Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934) INSILCO CORPORATION ------------------------------------------------------------------ (Name of Issuer) INSILCO CORPORATION ------------------------------------------------------------------ (Name of Person(s) Filing Statement) COMMON STOCK, $.001 PAR VALUE PER SHARE ------------------------------------------------------------------ (Title of Class of Securities) 457659704 ------------------------------------------------------------------ (CUSIP Number of Class of Securities) KENNETH H. KOCH Vice President and General Counsel Insilco Corporation 425 Metro Place N. Fifth Floor Dublin, Ohio 43017 (614) 791-3137 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) COPIES TO: AVIVA DIAMANT Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 (212) 859-8185 July 11, 1997 ------------------------------------------------------------------ (Date Tender Offer First Published, Sent or Given to Security Holders) CALCULATION OF FILING FEE - -------------------------------------------------------------------------------- Transaction Valuation*: Amount of Filing Fee: $110,000,000 $22,000 - --------------------------------------------------------------------------------------------
* Calculated solely for purposes of determining the filing fee, based upon the purchase of 2,857,142 shares at the maximum tender offer price per share of $38.50. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: N/A Filing Party: N/A Form or Registration No.: N/A Date Filed N/A
2 ITEM 1. SECURITY AND ISSUER. (a) The issuer of the securities to which this Schedule 13E-4 relates is Insilco Corporation, a Delaware corporation (the "Company"), and the address of its principal executive office is 425 Metro Place N., Fifth Floor, Dublin, Ohio, 43017. (b) This Schedule 13E-4 relates to the offer by the Company to purchase up to 2,857,142 shares (or such lesser number of shares as are validly tendered and not withdrawn) of its Common Stock, $.001 par value per share (the "Shares"), for a purchase price of $38.50 per Share net to the Seller in cash upon the terms and subject to the conditions set forth in the Offer to Purchase, dated July 11, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"), copies of which are attached as Exhibits (a)(1) and (a)(2), respectively, and incorporated herein by reference. As of July 3, 1997, 9,568,436 Shares were issued and outstanding, of which 5,802,494 Shares (approximately 61%) were owned by Water Street Corporate Recovery Fund I, L.P., an investment partnership of which Goldman, Sachs & Co. ("Goldman Sachs") is the general partner ("Water Street"). Two directors of the Company, Terence M. O'Toole and Barry S. Volpert, are Managing Directors of Goldman Sachs. As more fully discussed in Section 8, "Background and Purpose of the Offer," of the Offer to Purchase, on October 7, 1996, the Company announced that it had retained Goldman Sachs to assist in the review of the Company's strategic alternatives. After considering the sale of the entire Company to a single purchaser or the sale of each of the Company's operating units separately, the Board of Directors determined that the strategic alternative that would best maximize stockholder value was for the Company to refinance its existing indebtedness, issue new debt and repurchase Shares (the latter, the "Share Repurchase"). The Offer is being made by the Company to implement the Share Repurchase. Under Section 302 of the Internal Revenue Code of 1986, as amended (the "Code") (discussed more fully in Section 14, "Certain Federal Income Tax Consequences," of the Offer to Purchase), it would be highly unlikely that Water Street would obtain capital gains tax treatment with respect to the proceeds of any tender by it of its Shares in the Offer. Accordingly, on July 10, 1997, pursuant to a Stock Purchase Agreement between Water Street and the Company (the "Water Street Purchase Agreement"), the Company purchased 2,805,194 Shares from Water Street at $38.50 per Share in cash for an aggregate purchase price of $107,999,969 (the "Water Street Purchase"), which was paid out of the proceeds (the "Rolodex Proceeds") of the March 1997 sale by the Company of its Rolodex office products business (the "Rolodex Business"), in a transaction intended to qualify for capital gains tax treatment under the partial liquidation rules of the Code (a "Partial Liquidation Transaction"). In the Water Street Purchase Agreement, Water Street has agreed with the Company, among other things, to maintain the proceeds received by it from the sale in a segregated account and, upon consummation of the Offer, pay to the Company the interest actually earned thereon. In addition, Water Street has agreed in the Water Street Purchase Agreement that, if the Offer expires or terminates without any Shares having been purchased thereunder, the purchase of the Shares by the Company from Water Street will be rescinded, and the purchase price (together with interest actually earned thereon) will be repaid to the Company. Water Street has further agreed in the Water Street Purchase Agreement that it will tender no more than 960,577 Shares in the Offer so that the percentage of Shares to be purchased by the Company from Water Street in the Water Street Purchase and the Offer will be lower than the percentage of Shares which the Company is offering to purchase pursuant to the Offer from stockholders other than Water Street. Under Section 302 of the Code, there is a significant risk that Robert L. Smialek, Chairman of the Board and President of the Company, would not obtain capital gains tax treatment with respect to the proceeds of any tender by him of his Shares in the Offer. Accordingly, on July 10, 1997, pursuant to a Stock Purchase Agreement between Mr. Smialek and the Company (the "Smialek Purchase Agreement"), the Company purchased 51,948 Shares from Mr. Smialek at $38.50 per Share in cash for an aggregate purchase price of $1,999,998 (the "Smialek Purchase"), which was also paid out of the Rolodex Proceeds in a Partial Liquidation Transaction. In the Smialek Purchase Agreement, Mr. Smialek has agreed with the Company, among other things, to maintain the proceeds received by him from the sale in a segregated account and, upon consummation of the Offer, pay to the Company the interest actually earned thereon. In addition, 2 3 Mr. Smialek has agreed in the Smialek Purchase Agreement that, if the Offer expires or terminates without any Shares having been purchased thereunder, the purchase will be rescinded, and the purchase price (together with interest actually earned thereon) will be repaid to the Company. Mr. Smialek has further agreed in the Smialek Purchase Agreement that he will not tender any Shares in the Offer. In the Water Street Purchase Agreement and the Smialek Purchase Agreement, the Company has agreed that it will not (i) accept for purchase or purchase more than 2,857,142 Shares in the Offer (including Odd Lot Shares), (ii) pay more than $38.50 per Share, or (iii) extend the Offer past 45 days from the date of its commencement, unless the Company and Water Street and Mr. Smialek, respectively, shall first have entered into a written agreement amending the respective stock purchase agreements. As a result of these agreements, the Company believes, subject to certain limitations described in Section 14, "Certain Federal Income Tax Consequences," of the Offer to Purchase, that stockholders who tender ALL of the Shares they own (actually and constructively) in the Offer (even though only a pro rata portion of such Shares will be purchased if the Offer is oversubscribed) should qualify for capital gains tax treatment with respect to the proceeds of the Offer. Except as set forth above, officers, directors and affiliates of the Company may participate in the Offer on the same basis as the other stockholders of the Company. The Company has been advised that, except for Water Street's participation in the Offer, none of the officers, directors or affiliates of the Company intends to tender Shares in the Offer. The information set forth in "Introduction," Section 1, "Number of Shares; Proration," Section 8, "Background and Purpose of the Offer," Section 10, "Transactions and Agreements Concerning Shares," and Section 14, "Certain Federal Income Tax Consequences," of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in "Introduction" and Section 7, "Price Range of Shares; Dividends," of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. This Statement is being filed by the Issuer. ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(b) The information set forth in Section 9, "Source and Amount of Funds," of the Offer to Purchase is incorporated herein by reference. ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(j) The information set forth in "Introduction," Section 8, "Background and Purpose of the Offer," Section 9, "Source and Amount of Funds," Section 10, "Transactions and Agreements Concerning Shares," Section 12, "Effects of the Offer on the Market for Shares; Registration under the Exchange Act," and Section 14, "Certain Federal Income Tax Consequences," of the Offer to Purchase is incorporated herein by reference. ITEM 4. INTEREST IN SECURITIES OF THE ISSUER. The information set forth in "Introduction," Section 8, "Background and Purpose of the Offer," and Section 10, "Transactions and Agreements Concerning Shares," of the Offer to Purchase is incorporated herein by reference. ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE ISSUER'S SECURITIES. The Information set forth in "Introduction," Section 8, "Background and Purpose of the Offer," Section 9, "Source and Amount of Funds," Section 10, "Transactions and Agreements Concerning Shares," Section 14, "Certain Federal Income Tax Consequences," and Section 16, "Fees, Expenses and Other Arrangements," of the Offer to Purchase is incorporated herein by reference. 3 4 ITEM 6. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED. The information set forth in "Introduction" and Section 16, "Fees, Expenses and Other Arrangements," of the Offer to Purchase is incorporated herein by reference. ITEM 7. FINANCIAL INFORMATION. (a)-(b) The information set forth in Section 11, "Financial Information Concerning the Company" of the Offer to Purchase and the financial statements and notes related thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, copies of which are attached hereto as Exhibits (g)(1) and (g)(2), respectively, are incorporated herein by reference. ITEM 8. ADDITIONAL INFORMATION. (a)-(e) Not Applicable. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) -- Form of Offer to Purchase dated July 11, 1997. (2) -- Form of Letter of Transmittal (including Certification of Taxpayer Identification Number on Substitute Form W-9). (3) -- Form of Notice of Guaranteed Delivery. (4) -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (5) -- Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (6) -- Form of Letter to Participants in the Insilco Corporation Employee Thrift Plan (including Memorandum of Questions and Answers) and Tender Instruction Form. (7) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (8) -- Text of Press Release issued by the Company dated July 11, 1997. (9) -- Form of Summary Advertisement dated July 11, 1997. (10) -- Form of Letter to Stockholders of the Company, dated July 11, 1997 from Robert L. Smialek, Chairman of the Board and President. (b)(1) -- Amended and Restated Credit Agreement, dated July 3, 1997. (c)(1) -- Stock Purchase Agreement by and between the Company and Water Street Corporate Recovery Fund I, L.P., dated July 10, 1997. (2) -- Stock Purchase Agreement by and between the Company and Robert L. Smialek, dated July 10, 1997. (d) -- Not Applicable. (e) -- Not Applicable. (f) -- Not Applicable. (g)(1) -- The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (2) -- The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (3) -- Opinion of Houlihan, Lokey, Howard & Zukin, Inc. dated July 10, 1997.
4 5 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. INSILCO CORPORATION By: /S/ ROBERT L. SMIALEK ------------------------- Name: Robert L. Smialek Title: Chairman of the Board and President Dated: July 11, 1997 5 6 EXHIBIT INDEX
EXHIBIT DESCRIPTION ------- ------------------------------------------------------------------------------ (a)(1) -- Form of Offer to Purchase dated July 11, 1997. (2) -- Form of Letter of Transmittal (including Certification of Taxpayer Identification Number on Substitute Form W-9). (3) -- Form of Notice of Guaranteed Delivery. (4) -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (5) -- Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (6) -- Form of Letter to Participants in the Insilco Corporation Employee Thrift Plan (including Memorandum of Questions and Answers) and Tender Instruction Form. (7) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (8) -- Text of Press Release issued by the Company dated July 11, 1997. (9) -- Form of Summary Advertisement dated July 11, 1997. (10) -- Form of Letter to Stockholders of the Company, dated July 11, 1997 from Robert L. Smialek, Chairman of the Board and President. (b)(1) -- Amended and Restated Credit Agreement, dated July 3, 1997. (c)(1) -- Stock Purchase Agreement by and between the Company and Water Street Corporate Recovery Fund I, L.P., dated July 10, 1997. (2) -- Stock Purchase Agreement by and between the Company and Robert L. Smialek, dated July 10, 1997. (d) -- Not Applicable. (e) -- Not Applicable. (f) -- Not Applicable. (g)(1) -- The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (2) -- The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (3) -- Opinion of Houlihan, Lokey, Howard & Zukin, Inc. dated July 10, 1997.
6 EX-99.A.1 2 FORM OF OFFER TO PURCHASE 1 Exhibit (a)(1) INSILCO CORPORATION OFFER TO PURCHASE FOR CASH UP TO 2,857,142 SHARES OF ITS COMMON STOCK AT $38.50 NET PER SHARE THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 7, 1997, UNLESS THE OFFER IS EXTENDED. Insilco Corporation, a Delaware corporation (the "Company"), invites its stockholders to tender shares of its Common Stock, par value $.001 per share (the "Shares"), at $38.50 per Share (the "Purchase Price"), net to the seller in cash, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (which together constitute the "Offer"). The Company will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration described herein. Shares not purchased because of proration will be returned. ------------------------------------- THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 6. ------------------------------------- IMPORTANT Any stockholder desiring to tender all or any portion of his or her Shares should either (1) complete and sign the Letter of Transmittal or a photocopy thereof in accordance with the instructions in the Letter of Transmittal, mail or deliver it and any other required documents to National City Bank (the "Depositary") and either deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal or deliver such Shares pursuant to the procedure for book-entry transfer set forth in Section 3, or (2) request his or her broker, dealer, commercial bank, trust company or nominee to effect the transaction for him or her. A stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or nominee must contact such broker, dealer, commercial bank, trust company or nominee if he or she desires to tender such Shares. Any stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Stockholders who are participants in the Insilco Corporation Employee Thrift Plan (the "401(k) Plan") cannot use the Letter of Transmittal to tender the Shares that are held in their accounts under such plan, but must instruct the plan administrator pursuant to the Tender Instruction Form to have those Shares tendered on their behalf. See the caption "401(k) Plan" contained in Section 3. NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS, OFFICERS OR EMPLOYEES MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. ------------------------------------- The Shares are quoted on the NASDAQ National Market under the symbol "INSL". The Shares are not listed on any national securities exchange. Questions or requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal or other tender offer materials may be directed to the Information Agent at the address and telephone number set forth on the back cover of this Offer to Purchase. ------------------------------------- THE INFORMATION AGENT FOR THE OFFER IS: CORPORATE INVESTOR COMMUNICATIONS, INC. ------------------------------------- July 11, 1997 2 NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. TABLE OF CONTENTS INTRODUCTION ....................................................................... 1 THE OFFER .......................................................................... 3 1. Number of Shares; Proration..................................................... 3 2. Tenders by Holders of Five or Fewer Shares...................................... 4 3. Procedure for Tendering Shares.................................................. 5 4. Withdrawal Rights............................................................... 7 5. Acceptance for Payment of Shares and Payment of Purchase Price.................. 8 6. Certain Conditions of the Offer................................................. 8 7. Price Range of Shares; Dividends................................................ 10 8. Background and Purpose of the Offer............................................. 10 9. Source and Amount of Funds...................................................... 13 10. Transactions and Agreements Concerning Shares................................... 14 11. Financial Information Concerning the Company.................................... 16 Effects of the Offer on the Market for Shares; Registration Under the Exchange 12. Act............................................................................. 24 13. Regulatory Approvals............................................................ 24 14. Certain Federal Income Tax Consequences......................................... 24 15. Extension of Tender Period; Termination; Amendments............................. 27 16. Fees, Expenses and Other Arrangements........................................... 28 17. Miscellaneous................................................................... 28
i 3 SUMMARY This general summary is provided solely for the convenience of holders of Shares and is qualified in its entirety by reference to the full text of and the more specific details contained in this Offer to Purchase and the related Letter of Transmittal and any amendments hereto and thereto. Capitalized terms used in this summary without definition shall have the respective meanings ascribed to such terms in this Offer to Purchase. The Company................ Insilco Corporation, a Delaware corporation with principal executive offices at 425 Metro Place N., Fifth Floor, Dublin, Ohio 43017. The Shares................. Shares of the Company's Common Stock, par value $.001 per Share. Number of Shares Sought.... 2,857,142 Shares. Purchase Price............. $38.50 per Share, net to the seller in cash. Expiration Date of Offer... Thursday, August 7, 1997, at 12:00 Midnight, New York City time, unless extended by the Company pursuant to the terms hereof. How to Tender Shares....... See Section 3. For further information, consult your broker for assistance or call the Information Agent, Corporate Investor Communications, Inc., 111 Commerce Rd., Carlstadt, NJ 07072, (800) 631-0983. Proration.................. If more than 2,857,142 Shares have been validly tendered and not withdrawn on or prior to the Expiration Date, the purchase of Shares will be subject to proration. After the purchase of Odd Lot Shares as described below, Shares will be purchased on a pro rata basis. Proration of Shares will be based on the ratio of the number of Shares to be purchased by the Company pursuant to the Offer (less Odd Lot Shares purchased) to the total number of Shares validly tendered by all stockholders and not withdrawn (less Odd Lot Shares purchased). This ratio will be applied to all Shares validly tendered by each stockholder (other than Odd Lot Owners) to determine the number of Shares that will be purchased from each stockholder pursuant to the Offer. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Odd Lot Owners............. There will be no proration of Shares validly tendered and not withdrawn by any stockholder beneficially owning five or fewer Shares (including Shares held in the 40l(k) Plan) as of the close of business on July 3, 1997 and as of the Expiration Date, who tenders all such Shares and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery, and, if Shares are held for the account of such stockholder in the 401(k) Plan, the box captioned "Odd Lots" on the Tender Instruction Form being sent to participants in the 401(k) Plan. Stockholders validly tendering Odd Lots will avoid the payment of brokerage commissions and the applicable odd lot discount payable in a sale of Shares in a transaction effected through a broker. Withdrawal Rights.......... Tendered Shares may be withdrawn at any time until the Expiration Date of the Offer and, unless previously purchased, after 12:00 Midnight, New York City time, September 4, 1997. See Section 4. Market Price of Shares..... On July 10, 1997, the closing price of the Shares on the NASDAQ National Market was $37.00 per Share. See Section 7. Brokerage Commissions...... Not payable by stockholders. ii 4 Stock Transfer Tax......... None, except as provided in Instruction 6 of the Letter of Transmittal. Payment Date............... As promptly as practicable after the Expiration Date of the Offer. Further Information........ Any questions, requests for assistance or requests for additional copies of this Offer to Purchase, the Letter of Transmittal or other tender offer materials may be directed to the Information Agent, Corporate Investor Communications, Inc., 111 Commerce Rd., Carlstadt, NJ 07072, (800) 631-0983. iii 5 To the Holders of Common Stock of Insilco Corporation: INTRODUCTION Insilco Corporation, a Delaware corporation (the "Company"), invites its stockholders to tender shares of its Common Stock, par value $.001 per share (the "Shares"), at $38.50 per Share (the "Purchase Price"), net to the seller in cash, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (which together constitute the "Offer"). NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS, OFFICERS OR EMPLOYEES MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. Each stockholder who has properly tendered and not withdrawn Shares will receive $38.50 per Share, net to the seller in cash, with respect to all Shares purchased, upon the terms and subject to the conditions of the Offer, including the provisions relating to proration and "odd lot" tenders described below. The Purchase Price will be paid in cash, net to the seller, with respect to all Shares purchased. Shares tendered and not purchased because of proration or invalid tender will be returned to the tendering stockholders. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 6. Tendering stockholders will not be obligated to pay brokerage commissions, solicitation fees or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the sale of their Shares to the Company pursuant to the Offer. The Company will pay all charges and expenses of National City Bank (the "Depositary") and Corporate Investor Communications, Inc. (the "Information Agent") incurred in connection with the Offer. See Section 16. HOWEVER, ANY TENDERING STOCKHOLDER WHO FAILS TO COMPLY WITH THE PROCEDURES SET FORTH IN THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OR OTHER WITHHOLDING ON THE GROSS PAYMENTS PAYABLE TO SUCH STOCKHOLDER PURSUANT TO THE OFFER. SEE SECTION 3. As more fully discussed in Section 8, on October 7, 1996, the Company announced that it had retained Goldman, Sachs & Co. ("Goldman Sachs") to assist in the review of the Company's strategic alternatives. After considering the sale of the entire Company to a single purchaser or the sale of each of the Company's operating units separately, the Board of Directors determined that the strategic alternative that would best maximize stockholder value was for the Company to refinance its existing indebtedness, issue new debt and repurchase Shares (the latter, the "Share Repurchase"). The Offer is being made by the Company to implement the Share Repurchase. At July 3, 1997, Water Street Corporate Recovery Fund I, L.P., an investment partnership of which Goldman Sachs is the general partner ("Water Street"), owned 5,802,494 (approximately 61%) of the 9,568,436 Shares then outstanding. Under Section 302 of the Internal Revenue Code of 1986, as amended (the "Code") (discussed more fully in Section 14), it would be highly unlikely that Water Street would obtain capital gains tax treatment with respect to the proceeds of any tender by it of its Shares in the Offer. Accordingly, on July 10, 1997, pursuant to a Stock Purchase Agreement between Water Street and the Company (the "Water Street Purchase Agreement"), the Company purchased 2,805,194 Shares from Water Street at $38.50 per Share in cash for an aggregate purchase price of $107,999,969 (the "Water Street Purchase"), which was paid out of the proceeds (the "Rolodex Proceeds") of the March 1997 sale by the Company of its Rolodex office products business (the "Rolodex Business") in a transaction intended to qualify for capital gains tax treatment under the partial liquidation rules of the Code (a "Partial Liquidation Transaction"). In the Water Street Purchase Agreement, Water Street has agreed with the Company, among 1 6 other things, to maintain the proceeds received by it from the sale in a segregated account until consummation of the Offer, and then to pay to the Company the interest actually earned thereon. In addition, Water Street has agreed in the Water Street Purchase Agreement that, if the Offer expires or terminates without any Shares having been purchased thereunder, the purchase of the Shares by the Company from Water Street will be rescinded, and the purchase price (together with interest actually earned thereon) will be repaid to the Company. Water Street has further agreed in the Water Street Purchase Agreement that it will tender no more than 960,577 Shares in the Offer so that the percentage of Shares to be purchased by the Company from Water Street in the Water Street Purchase and the Offer will be lower than the percentage of Shares which the Company is offering to purchase pursuant to the Offer from stockholders other than Water Street. Under Section 302 of the Code there is a significant risk that Robert L. Smialek, Chairman of the Board and President of the Company, would not obtain capital gains tax treatment with respect to the proceeds of any tender by him of his Shares in the Offer. Accordingly, on July 10, 1997, pursuant to a Stock Purchase Agreement between Mr. Smialek and the Company (the "Smialek Purchase Agreement"), the Company purchased 51,948 Shares from Mr. Smialek, at $38.50 per Share in cash for an aggregate purchase price of $1,999,998 (the "Smialek Purchase") which was also paid out of the Rolodex Proceeds in a Partial Liquidation Transaction. In the Smialek Purchase Agreement, Mr. Smialek has agreed with the Company, among other things, to maintain the proceeds received by him from the sale in a segregated account until consummation of the Offer, and then to pay to the Company the interest actually earned thereon. In addition, Mr. Smialek has agreed in the Smialek Purchase Agreement that, if the Offer expires or terminates without any Shares having been purchased thereunder, the purchase will be rescinded, and the purchase price (together with interest actually earned thereon) will be repaid to the Company. Mr. Smialek has further agreed in the Smialek Purchase Agreement that he will not tender any Shares in the Offer. In the Water Street Purchase Agreement and the Smialek Purchase Agreement, the Company has agreed that it will not (i) accept for purchase or purchase more than 2,857,142 Shares in the Offer (including Odd Lot Shares), (ii) pay more than $38.50 per Share, or (iii) extend the Offer past 45 days from the date of its commencement, unless the Company and Water Street and Mr. Smialek, respectively, shall first have entered into a written agreement amending the respective stock purchase agreements. As a result of these agreements, the Company believes, subject to certain limitations described in Section 14, that stockholders who tender ALL of the Shares they own (actually and constructively) in the Offer (even though only a pro rata portion of such Shares will be purchased if the Offer is oversubscribed) should qualify for capital gains tax treatment with respect to the proceeds of the Offer. As of July 3, 1997, the Company had issued and outstanding 9,568,436 Shares. As of July 3, 1997, there were approximately 748 holders of record of Shares, with one holder of record, The Depository Trust Company, acting as the record holder of shares of beneficial owners holding in the names of brokers and nominees. Because of the agreements made by Water Street and Mr. Smialek in their respective stock purchase agreements regarding participation in the Offer, the proration factor (if every stockholder other than Water Street and Mr. Smialek, as described above, tenders all of the Shares he or she owns in the Offer) will be approximately 62%. The Company currently intends to cancel and retire Shares purchased pursuant to the Offer. Such Shares will return to the status of authorized and unissued Shares. The Shares are quoted on the NASDAQ National Market under the symbol "INSL." The Shares are not listed on any national securities exchange. On July 10, 1997, the last full day of trading prior to the announcement of the Offer, the closing price of the Shares on the NASDAQ National Market was $37.00 per share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. See Section 7. 2 7 THE OFFER 1. NUMBER OF SHARES; PRORATION. Upon the terms and subject to the conditions described herein and in the Letter of Transmittal, the Company will purchase up to 2,857,142 Shares that are validly tendered prior to the Expiration Date (and not properly withdrawn in accordance with Section 4) at $38.50 per Share net to the Seller in cash. The later of 12:00 Midnight, New York City time, on Thursday, August 7, 1997, or the latest time and date to which the Offer is extended, is referred to herein as the "Expiration Date." If the Offer is oversubscribed as described below, only Shares validly tendered and not withdrawn prior to the Expiration Date will be eligible for proration. The Offer is not conditioned on any minimum number of Shares being tendered, but is subject to certain other conditions. See Section 6. All Shares not purchased pursuant to the Offer, including Shares not purchased because of proration, will be returned to the tendering stockholders at the Company's expense as promptly as practicable following the Expiration Date. Upon the terms and subject to the conditions of the Offer, if 2,857,142 or fewer Shares have been validly tendered and not withdrawn prior to the Expiration Date, the Company will purchase all such Shares. Upon the terms and subject to the conditions of the Offer, if more than 2,857,142 Shares have been validly tendered and not withdrawn prior to the Expiration Date, the Company will purchase Shares in the following order of priority: (a) first, all Shares validly tendered and not withdrawn prior to the Expiration Date by any stockholder (an "Odd Lot Owner") who was as of the close of business on July 3, 1997, and will continue to be at the Expiration Date, the record or beneficial owner of an aggregate of five or fewer Shares ("Odd Lot Shares")(including Shares held for the account of such stockholder by the Insilco Corporation Employee Thrift Plan (the "401(k) Plan")), all of which are being tendered (partial tenders will not qualify for this preference), and who completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery and, if the stockholder has Shares held for his or her account in the 401(k) Plan, on the Tender Instruction Form being sent to participants in the 401(k) Plan; and (b) then, after purchase of all of the foregoing Shares, all Shares validly tendered and not withdrawn prior to the Expiration Date on a pro rata basis if necessary (with appropriate adjustments to avoid purchases of fractional Shares). If proration of tendered Shares is required, the Company does not expect that it will be able to announce the final proration factor or to commence payment for any Shares purchased pursuant to the Offer until approximately seven business days after the Expiration Date because of the difficulty in determining the number of Shares validly tendered (including Shares tendered by the guaranteed delivery procedure described in Section 3) and as a result of the "odd lot" procedure described in Section 2 (the "Odd Lot Procedure"). Proration of Shares, other than Shares tendered pursuant to the Odd Lot Procedure, will be based on the ratio of the number of Shares to be purchased by the Company pursuant to the Offer (less Odd Lot Shares purchased) to the total number of Shares validly tendered by all stockholders and not withdrawn (less Odd Lot Shares purchased). This ratio will be applied to all Shares tendered by each stockholder (other than an Odd Lot Owner) to determine the number of Shares that will be purchased from such stockholder pursuant to the Offer. Preliminary results of proration will be announced by the Company in a press release as promptly as practicable after the Expiration Date. Holders of Shares may obtain such preliminary information from the Information Agent and may also be able to obtain such information from their brokers. As described in Section 14, the number of Shares that the Company will purchase from a stockholder may affect the United States federal income tax consequences to the stockholder of such purchase and therefore may be relevant to a stockholder's decision whether to tender Shares, and if tendering, how many Shares to tender. The Letter of Transmittal affords each tendering stockholder tendering Shares in certificate 3 8 form the opportunity to designate the order of priority in which Shares tendered are to be purchased in the event of proration, which may also affect the tax consequences to a stockholder. THE COMPANY EXPRESSLY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO PURCHASE ADDITIONAL SHARES PURSUANT TO THE OFFER OR TO DECREASE THE NUMBER OF SHARES BEING SOUGHT PURSUANT TO THE OFFER, SUBJECT TO FIRST ENTERING INTO A WRITTEN AGREEMENT WITH EACH OF WATER STREET AND MR. SMIALEK AMENDING THE WATER STREET PURCHASE AGREEMENT AND SMIALEK PURCHASE AGREEMENT, RESPECTIVELY. If (i) the Company increases or decreases the price to be paid for Shares, increases the number of Shares being sought and such increase in the number of Shares being sought exceeds 2% of the outstanding Shares, or decreases the number of Shares being sought and (ii) the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner described in Section 15, the Offer will be extended until the expiration of ten business days from the date of publication of such notice. The Company also expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary, subject to first entering into a written agreement with each of Water Street and Mr. Smialek amending the Water Street Purchase Agreement and Smialek Purchase Agreement, respectively. See Section 15. There can be no assurance, however, that the Company will exercise its right to extend the Offer. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. Copies of this Offer to Purchase and the Letter of Transmittal are being mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. TENDERS BY HOLDERS OF FIVE OR FEWER SHARES. All Shares validly tendered and not withdrawn on or prior to the Expiration Date by or on behalf of any stockholder who was, as of the close of business on July 3, 1997, and will continue to be at the Expiration Date, the record or beneficial owner of an aggregate of five or fewer Shares (including Shares held for the account of such stockholder by the 401(k) Plan) all of which are being tendered will be accepted without proration, provided that the stockholder completes (i) the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery, and (ii) if the stockholder has Shares held for his or her account in the 401(k) Plan, the box captioned "Odd Lots" on the Tender Instruction Form being sent to participants in the 401(k) Plan. See Section 1. Partial tenders will not qualify for this preference, and it is not available to beneficial holders of more than five Shares, even if such holders have separate stock certificates for five or fewer Shares. By accepting the Offer, an Odd Lot Owner will avoid the payment of brokerage commissions and the applicable odd lot discount payable in a sale of Shares in a transaction effected through a broker. As of July 3, 1997, there were approximately 748 holders of record of Shares, with one holder of record, The Depository Trust Company, acting as the record holder of Shares of beneficial owners holding in the names of brokers and nominees. Approximately 56% of the holders of record of Shares held individually five or fewer Shares and held in the aggregate approximately 872 Shares. Because of the large number of Shares held in the names of brokers and nominees, the Company is unable to estimate the number of beneficial owners of five or fewer Shares or the aggregate number of Shares they own. Any Odd Lot Owner wishing to tender all of his or her Shares free of proration must complete (i) the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery, and (ii) if the stockholder has Shares held for his or her account in the 401(k) Plan, the box captioned "Odd Lots" on the Tender Instruction Form being sent to participants in the 401(k) Plan. 4 9 3. PROCEDURE FOR TENDERING SHARES. Proper Tender of Shares. To tender Shares validly pursuant to the Offer, either (a) the certificates for such Shares (or confirmation of receipt of such Shares pursuant to the procedures for book-entry transfer set forth below), together with a properly completed and duly executed Letter of Transmittal or photocopy thereof with any required signatures guaranteed (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other documents required by the Letter of Transmittal must be received prior to the Expiration Date by the Depositary at its address set forth on the back cover of this Offer to Purchase, or (b) the tendering holder of Shares must comply with the guaranteed delivery procedure described below. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility (defined below) to, and received by, the Depositary and forming a part of a book-entry confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against the participant. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at The Depository Trust Company and the Philadelphia Depository Trust Company (referred to collectively as the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of the Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, a properly completed and duly executed Letter of Transmittal, or photocopy thereof, together with any required signature guarantees or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the tendering holder of Shares must comply with the guaranteed delivery procedure described below. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. Signature Guarantees. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed if (a) the Letter of Transmittal is signed by the registered holder of the Shares (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares tendered therewith) and such holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" in the Letter of Transmittal or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 7 of the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and cannot deliver certificates for such Shares and all other required documents to the Depositary on or prior to the Expiration Date or the procedure for book-entry transfer cannot be complied with in a timely manner, such Shares may nevertheless be tendered if all of the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (with any required signature guarantees) is received by the Depositary as provided below prior to the Expiration Date; and (iii) the certificates for such physically delivered Shares in proper form for transfer by delivery (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically), together with a properly completed and duly 5 10 executed Letter of Transmittal (or facsimile thereof or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other documents required by the Letter of Transmittal, are received by the Depositary no later than 12:00 Midnight, New York City time, on the third business day after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. The method of delivery of Shares and all other required documents is at the election and risk of the tendering stockholder and delivery will be deemed made only when actually received by the Depositary. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to assure timely delivery. 401(k) Plan. Participants in the 401(k) Plan who wish to have the trustee of the 401(k) Plan tender Shares attributable to their accounts should so indicate by completing, executing and returning to American Century Services, Inc., the plan administrator, the Tender Instruction Form included in the materials sent to such participants. THE PARTICIPANTS IN THE 401(k) PLAN MAY NOT USE THE LETTER OF TRANSMITTAL TO DIRECT THE TENDER OF SUCH SHARES, BUT MUST USE THE SEPARATE TENDER INSTRUCTION FORM ENCLOSED WITH THE OFFER. Participants are urged to read the separate Tender Instruction Form and related materials carefully. See Instruction 13 of the Letter of Transmittal. Federal Income Tax Withholding. To prevent backup federal income tax withholding equal to 31% of the gross payments payable pursuant to the Offer, each stockholder who does not otherwise establish an exemption from backup withholding must notify the Depositary of such stockholder's correct taxpayer identification number (or certify that such taxpayer is awaiting a taxpayer identification number) and provide certain other information by completing, under penalties of perjury, the Substitute Form W-9 included in the Letter of Transmittal. Noncorporate foreign stockholders should generally complete and sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. As more fully described below, in the case of a foreign stockholder, even if such stockholder has provided the required certification to avoid backup withholding, the Depositary will withhold 30% of the gross payments made pursuant to the Offer unless a reduced rate of withholding or an exemption from withholding is applicable. The Depositary will withhold United States federal income taxes equal to 30% of the gross payments payable to a foreign stockholder unless the Company and the Depositary determine that (i) a reduced rate of withholding is available pursuant to a tax treaty or (ii) an exemption from withholding is applicable because such gross proceeds are effectively connected with the conduct of a trade or business within the United States. For this purpose, a foreign stockholder is any stockholder that is not (a) a citizen or resident of the United States, (b) a corporation, partnership, or other entity created or organized in or under the laws of the United States, any State or any political subdivision thereof or (c) an estate or trust, the income of which is subject to United States federal income taxation regardless of the source of such income. In order to obtain a reduced rate of withholding pursuant to a tax treaty, a foreign stockholder must deliver to the Depositary before any payment a properly completed and executed IRS Form 1001. In order to obtain an exemption from withholding on the grounds that the gross proceeds paid pursuant to the Offer are effectively connected with the conduct of a trade or business within the United States, a foreign stockholder must deliver to the Depositary before any payment a properly completed and executed IRS Form 4224. The Company and the Depositary will determine a stockholder's status as a foreign stockholder and eligibility for a reduced rate of, or exemption from, withholding by reference to any outstanding certificates or statements concerning eligibility for a reduced rate of, or exemption from, withholding (e.g., IRS Form 1001 or IRS Form 4224) unless facts and circumstances indicate that such reliance thereon is not warranted. A foreign stockholder may be eligible to obtain a refund of all or a portion of any tax withheld if such stockholder meets the "complete redemption", "substantially disproportionate" or "not essentially equivalent to a dividend" tests described in Section 14 or is 6 11 otherwise able to establish that no tax or a reduced amount of tax is due. Backup withholding generally will not apply to amounts subject to the 30% or a treaty-reduced rate of withholding. For a discussion of certain United States federal income tax consequences generally applicable to tendering stockholders, see Section 14. Determination of Validity. All questions as to the Purchase Price, the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding on all parties. The Company reserves the absolute right to reject any or all tenders of Shares that it determines are not in proper form or the acceptance for payment of which or payment for which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any of the Conditions of the Offer and defect or irregularity in any tender of any particular Shares. No tender of Shares will be deemed validly made until all defaults or irregularities have been cured or waived. None of the Company, the Depositary, the Information Agent or any other person is or will be under any duty to give notice of any defects or irregularities in tenders, and none of them will incur any liability for failure to give any such notice. Rule 14e-4. It is a violation of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a person, directly or indirectly, to tender Shares for his or her own account unless, at the time of tender and at the end of the proration period or period during which Shares are accepted by lot (including any extensions thereof), the person so tendering (i) has a net long position equal to or greater than the amount tendered (x) in Shares or (y) in other securities immediately convertible into, or exercisable or exchangeable for, Shares and, upon the acceptance of such tender, will acquire such Shares for tender by conversion, exercise or exchange of such other securities and (ii) will cause such Shares to be delivered in accordance with the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. The tender of Shares pursuant to any one of the procedures described above will constitute the tendering stockholder's representation and warranty that (i) such stockholder has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Exchange Act, and (ii) the tender of such Shares complies with Rule 14e-4. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Company upon the terms and subject to the conditions of the Offer. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after 12:00 Midnight, New York City time, September 4, 1997 unless theretofore accepted for payment as provided in this Offer to Purchase. If the Company extends the period of time during which the Offer is open, or is delayed in accepting for payment or paying for Shares, or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Company's rights under the Offer, the Depositary may, on behalf of the Company, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 4, subject to Rule 13e-4(f)(5) under the Exchange Act, which provides that the issuer making the tender offer shall either pay the consideration offered, or return the tendered securities, promptly after the termination or withdrawal of the tender offer. To be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the certificates evidencing the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry 7 12 transfer, the name and number of the account at the applicable Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in Section 3 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Company, in its sole discretion, which determination shall be final and binding. None of the Company, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such notification. 5. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE. Upon the terms and subject to the conditions of the Offer, and as promptly as practicable after the Expiration Date, the Company will (subject to the proration provisions of the Offer) accept for payment and pay for Shares validly tendered. Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted for payment pursuant to the Offer will be made by the Depositary by check as promptly as practicable. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for Shares (or of a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal or manually signed photocopy thereof (or, in the case of a book-entry transfer, an Agent's Message), and any other required documents. For purposes of the Offer, the Company will be deemed to have accepted for payment (and thereby purchased), subject to proration, Shares that are validly tendered and not withdrawn as, if and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. The Company will pay for Shares that it has purchased pursuant to the Offer by depositing the Purchase Price therefor with the Depositary. The Depositary will act as agent for tendering stockholders for the purpose of receiving payment from the Company and transmitting payment to tendering stockholders. Under no circumstances will interest be paid on amounts to be paid to tendering stockholders, regardless of any delay in making such payment. Certificates for all Shares not purchased will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility) as promptly as practicable without expense to the tendering stockholder. Payment for Shares may be delayed in the event of difficulty in determining the number of Shares properly tendered or if proration is required. See Section 1. In addition, if certain events occur, the Company may not be obligated to purchase Shares pursuant to the Offer. See Section 6. The Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder, such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 of the Letter of Transmittal. 6. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the Offer, the Company shall not be required to accept for payment or, subject to the provisions of the Offer, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate or amend the Offer, if at any time prior to the Expiration Date any of the following events shall have occurred (or shall have been determined by the Company in its sole judgment to have occurred) regardless of the circumstances giving rise thereto (including any action or omission to act by the Company): 8 13 (a) there shall have been threatened, instituted or pending any action or proceeding by any government or governmental, regulatory or administrative agency or authority or tribunal or any other person, domestic or foreign, or before any court, authority, agency or tribunal or any other person, domestic or foreign, or any judgment, order or injunction entered, enforced or deemed applicable by any such court, authority, agency, tribunal or other person, that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer, or (ii) in the sole judgment of the Company, would or might materially and adversely affect the business, condition (financial or other), income, operations or prospects of the Company or any of its subsidiaries or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries or materially impair the contemplated benefits of the Offer to the Company; (b) there shall have been any action threatened, pending or taken, or approval withheld, withdrawn or abrogated or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer, or to the Company or any of its subsidiaries, by any legislative body, court, authority, agency or tribunal, domestic or foreign, which, in the Company's sole judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer, (ii) delay or restrict the ability of the Company, or render the Company unable, to accept for payment or pay for some or all of the Shares, or (iii) materially and adversely affect the business, condition (financial or other), income, operations or prospects of the Company or any of its subsidiaries or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries or materially impair the contemplated benefits of the Offer to the Company; (c) it shall have been publicly disclosed or the Company shall have learned that (i) any person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) has acquired or proposes to acquire beneficial ownership of more than 5% of the outstanding Shares whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise (other than as disclosed in a Schedule 13D or 13G (or an amendment thereto) on file with the Securities and Exchange Commission (the "Commission") on July 3, 1997), (ii) any such person or group that on or prior to July 3, 1997, had filed such a Schedule with the Commission thereafter shall have acquired or shall propose to acquire whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise, beneficial ownership of additional Shares representing 2% or more of the outstanding Shares, (iii) any new group shall have been formed which beneficially owns more than 5% of the outstanding Shares, or (iv) any person, entity or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made a public announcement reflecting an intent to acquire the Company or any or its subsidiaries or any of their respective assets or securities; (d) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market, (ii) any significant decline in the market price of the Shares or in the general level of market prices of equity securities in the United States or abroad, (iii) any change in the general political, market, economic or financial condition in the United States or abroad which, in the Company's sole judgment, would or might have a material adverse effect on the business, condition (financial or other), income, operations or prospects of the Company or any of its subsidiaries or on the trading in the Shares, (iv) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event which, in the Company's sole judgment, might affect, the extension of credit by lending institutions in the United States, (v) the commencement of a war, armed hostilities or other international or national crisis directly or indirectly involving the United States or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in the Company's sole judgment, a material acceleration or worsening thereof; 9 14 (e) a tender or exchange offer with respect to some or all of the Shares (other than the Offer), or a merger, acquisition or other business combination proposal for the Company or any subsidiary, shall have been proposed, announced or made by a person other than the Company; (f) the Company shall have been unable to obtain $150 million of new debt on terms satisfactory to it; or (g) there shall have occurred any event or events that in the Company's sole judgment would or might result in an actual or possible change in the business, condition (financial or other), income, operations or prospects of the Company or any of its subsidiaries or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries or materially impair the contemplated benefits of the Offer to the Company; and, in the sole judgment of the Company, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. Any of the foregoing conditions may be waived by the Company, in whole or in part, at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of 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. Any determination by the Company concerning the events described above will be final and binding on all parties. 7. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are quoted on the NASDAQ National Market under the symbol "INSL". The Shares are not listed on any national securities exchange. The following table sets forth for the periods indicated the high and low closing prices of the Shares as reported on the NASDAQ National Market.
1997 1996 1995 ------------------- ------------------- ------------------- HIGH LOW HIGH LOW HIGH LOW ------- ------- ------- ------- ------- ------- First Quarter.................. $41.000 $34.000 $36.375 $27.750 $28.375 $23.625 Second Quarter................. 39.000 36.750 36.875 33.500 38.375 26.750 Third Quarter.................. 37.250 31.000 37.750 34.500 Fourth Quarter................. 41.063 36.500 41.250 31.250
The high and low closing prices for the Shares, as reported on the NASDAQ National Market, for the period July 1, 1997 though July 10, 1997 were: High -- $37.00, Low -- $36.00. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. On July 10, 1997, the last full day of trading prior to the announcement of the Offer, the closing price of the Shares was $37.00 per Share. The Company has not paid any dividends within the past two years. Future dividend policy will depend upon the earnings and financial condition of the Company, the Company's needs for funds and other factors. The payment of dividends is restricted by the terms of the Company's bank credit agreement. See Section 9. The average daily trading volume for the Shares over the past two years has been 12,298 Shares per day. 8. BACKGROUND AND PURPOSE OF THE OFFER. On October 7, 1996, the Company announced that it had retained Goldman Sachs as its financial advisor to assist in the review of the Company's strategic alternatives to maximize shareholder value, including selling the Rolodex Business. Goldman Sachs is the general partner of Water Street. In addition to the sale of the Rolodex Business, the strategic alternatives the Board of Directors and Goldman Sachs considered were (i) selling the entire Company to a single purchaser, (ii) selling each of the Company's operating units 10 15 separately or (iii) refinancing the Company's existing indebtedness, incurring new debt and repurchasing Shares. In order to explore the possibility of selling the entire Company to a single purchaser, Goldman Sachs, on behalf of the Company, solicited expressions of interest from potential purchasers. However, the preliminary indications of interest received did not, in the opinion of the Board of Directors based in part on the advice of its financial advisor, adequately reflect the value of the Company; thus, the Board of Directors determined that an acquisition of the entire Company by any of the potential purchasers was not likely to maximize stockholder value. After consulting with its advisors, the Board of Directors concluded that, with the exception of the sale of the Rolodex Business, selling each of the Company's remaining operating units separately also would not maximize stockholder value. The Board of Directors determined that piece-meal sales would entail substantial transaction costs and would not be tax efficient, since such sales would utilize the Company's net operating loss carryforwards. Moreover, since such loss carryforwards would be insufficient to shelter entirely the anticipated gains on such sales, the Company would be required to make cash payments of income taxes, thereby reducing the amount of sales proceeds available for debt repayment or distribution. Accordingly, the Board of Directors determined that the strategic alternative which would best maximize stockholder value was the Share Repurchase. As explained more fully below, the Board of Directors concluded that this would create an opportunity for liquidity for stockholders and at the same time improve the Company's potential return on equity. Concurrently with the exploration of these three strategic alternatives, the Company proceeded with its plan to sell the Rolodex Business. On March 5, 1997, the Company announced that it had completed the sale of the Rolodex Business. The Rolodex Proceeds were $117 million, less transaction costs. Following the sale of the Rolodex Business, the Board determined that, subject to the concurrence of its lenders, the Company should (i) refinance its existing indebtedness, (ii) seek to obtain up to $150 million of new debt and (iii) effect a repurchase of Shares in an amount of approximately $220 million (consisting in part of the Rolodex Proceeds) (collectively, the "Transactions"). The Board of Directors further considered whether the Share Repurchase could be effected in a manner that would be tax advantageous to all stockholders. Because Water Street owns approximately 61% of the Company, the sale of Shares by Water Street, as opposed to a sale of Shares by other stockholders, to the Company in a self tender by the Company would be highly unlikely to qualify for capital gains tax treatment as a "sale or exchange" under any of the three Code Section 302 tests discussed in Section 14. As well, under Section 302 of the Code, there is a significant risk that any sale of Shares by Mr. Smialek in a Company self tender offer would not qualify for capital gains tax treatment. However, to the extent that Water Street or Mr. Smialek were to sell Shares to the Company in exchange for funds from the Rolodex Proceeds, such sale should generally qualify for capital gains tax treatment under the "partial liquidation" rules of the Code. Accordingly, the Board of Directors determined to use the Rolodex Proceeds to purchase a portion of the Shares owned by Water Street and Mr. Smialek and to utilize the proceeds of bank borrowings and the new debt to purchase Shares pursuant to the Offer. In consideration for this, (x) Water Street entered into the Water Street Purchase Agreement pursuant to which Water Street agreed with the Company, among other things, that it would tender no more than 960,577 Shares in the Offer so that the percentage of Shares that would be purchased by the Company from Water Street in the Water Street Purchase and the Offer would be lower than the percentage of Shares which the Company would be offering to purchase pursuant to the Offer from stockholders other than Water Street, and (y) Mr. Smialek entered into the Smialek Purchase Agreement pursuant to which he agreed with the Company, among other things, that he would not tender any Shares in the Offer. See Section 10, "Transactions and Agreements Concerning Shares." The Board of Directors believes that, as a result of these agreements, subject to certain limitations described in Section 14, stockholders who tender ALL of the Shares they own (actually and constructively) in the Offer (even though only a pro rata portion of such Shares will be purchased if the Offer is oversubscribed) should qualify for capital gains tax treatment on the proceeds of the Offer. 11 16 For the foregoing reasons, the Board of Directors concluded that the Share Repurchase was the strategic alternative that would maximize stockholder value because (i) it would provide participating stockholders (particularly those who, because of the size of their stockholdings, might not be able to sell their Shares efficiently without potential disruption to the Share price) with an opportunity to obtain liquidity with respect to their Shares in a tax advantaged transaction; (ii) it would give the Company a capital structure in which the Company's average after-tax cost of capital is reduced; (iii) it will permit each Share outstanding after the Share Repurchase to participate in a greater percentage of any earnings of the Company; (iv) to the extent the Offer results in a reduction in the number of stockholders of record, it would reduce the costs to the Company for stockholder services, including mailing and printing costs; and (v) it would afford any Odd Lot Owners whose Shares are purchased pursuant to the Offer the opportunity to avoid any brokerage fees and discounts payable on sales of Odd Lots. In order to assist management of the Company and the Board of Directors in concluding that the Transactions would comply with applicable law, on June 25, 1997, the Company engaged Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan Lokey") as financial advisor to review the Company's financial condition and capital structure and to render an opinion (the "Opinion") regarding whether, after giving effect to the Transactions, (i) the fair value and present fair saleable value of the Company's assets would exceed the Company's stated liabilities and identified contingent liabilities by an amount at least equal to the total par value of the Company's issued and outstanding stock; (ii) the Company would be able to pay its debts as they became absolute and mature and (iii) the capital remaining in the Company after the Transactions would not be unreasonably small for the business in which the Company is engaged. The Board of Directors did not place any limitation on Houlihan Lokey with respect to the procedures followed or factors considered by Houlihan Lokey in rendering the Opinion nor did they give Houlihan Lokey any instruction outside the scope of engagement, and Houlihan Lokey received all information requested in connection with its analysis. Houlihan Lokey was selected to render the Opinion because it is a nationally recognized financial advisory expert with substantial experience in transactions. As part of its financial advisory business, Houlihan Lokey is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, recapitalizations and other corporate purposes. Houlihan Lokey is not under contract to provide future advisory services to the Company. As compensation for Houlihan Lokey's services as financial advisor to the Company in connection with the Transactions, the Company agreed to pay Houlihan Lokey a fee of $75,000, of which $37,500 was paid upon Houlihan Lokey's engagement and $37,500 was paid upon Houlihan Lokey's delivery of the Opinion. No portion of the fee was contingent upon the consummation of the Offer or the conclusions reached in the Opinion. In addition, the Company has agreed to pay Houlihan Lokey's reasonable out-of-pocket expenses and to indemnify Houlihan Lokey against certain liabilities directly or indirectly in connection with, arising out of, based upon, or in any way related to its engagement by the Company (including with respect to federal securities laws). On July 10, 1997, Houlihan Lokey rendered its written opinion to the Board of Directors that (a) immediately after and giving effect to the Transactions, (i) the fair value and present fair saleable value of the Company's assets would exceed the Company's stated liabilities and identified contingent liabilities, (ii) the Company should be able to pay its debts as they become absolute and mature, (iii) the capital remaining in the Company after the Transactions would not be unreasonably small for the business in which the Company is engaged, as management has indicated it is now being conducted and is proposed to be conducted following the consummation of the Transactions, and (iv) the fair value and present fair saleable value of the Company's assets would exceed the amount that will be required to pay the Company's stated liabilities and identified contingent liabilities as they become absolute and mature; and (b) immediately prior to the consummation of the Transactions, the fair value and the present fair saleable value of the Company's assets would exceed the Company's stated liabilities and identified contingent liabilities by an amount greater than the amount to be paid pursuant to the Share Repurchase plus an amount equal to the aggregate par value of the issued capital stock of the Company, and immediately following the consummation of the Transactions, 12 17 the fair value and present fair saleable value of the Company's assets will exceed the Company's stated liabilities and identified contingent liabilities by an amount at least equal to the aggregate par value of the outstanding capital stock of the Company. The full text of the written opinion, which sets forth the assumptions made, procedures followed, matters considered and scope of review by Houlihan Lokey in rendering its opinion is on file with the Securities and Exchange Commission as an Exhibit to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed in connection with the Offer. The Company currently intends to cancel and retire Shares purchased pursuant to the Offer. Such Shares will return to the status of authorized and unissued Shares. Except as disclosed in this Offer to Purchase, the Company has no plans or proposals which relate to or would result in: (a) the acquisition by any person of additional securities of the Company, or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present Board of Directors or management of the Company; (e) any material change in the present dividend rate or policy or indebtedness or capitalization of the Company; (f) any material change in the Company's corporate structure or business; (g) any change in the Company's certificate of incorporation or bylaws or any action which may impede the acquisition of control of the Company by any person; (h) causing the Shares to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) the Shares becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of the Company's obligation to file reports pursuant to Section 15(d) of the Exchange Act. Statements contained in this Offer to Purchase, and particularly in this Section 8, regarding the future earnings prospects, growth in earnings per share, dividends and debt-to-capital ratio of the Company are not historical facts and are forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Each of these items is dependent on the earnings of the Company. A number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Some of the most important factors which would impact the Company's earnings include, but are not limited to: the Company's higher leverage, the Company's higher debt service requirements, the Company's ability to refinance the indebtedness incurred to finance purchases of Shares in the Offer, restrictions under the Company's debt instruments, the concentrated ownership of the Company, the risks associated with competition and technological innovation by competitors, general economic conditions in industries that use the Company's products, general business cycles, political, economic or other disruptions in the Company's foreign markets, the Company's concentration of customers, increases in interest rates, exchange rate fluctuations, fluctuations in the prices of raw materials used by the Company, departures of the Company's key personnel for any reason, the uncovering of any liability currently unknown to the Company, and new and different legal and regulatory requirements and governmental approvals. NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS, OFFICERS OR EMPLOYEES MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. 9. SOURCE AND AMOUNT OF FUNDS. The Company estimates that its maximum cost of purchasing 2,857,142 Shares pursuant to the Offer (including all fees and expenses relating to the Offer, but excluding interest on, and fees with respect to, funds borrowed to finance such purchase of Shares) will approximate $110,500,000. The funds to pay all such costs will be obtained under an amended and restated bank credit agreement among the Company, the financial institutions party thereto as lenders and issuing banks (collectively, the "Lenders"), The First National Bank of Chicago and Goldman Sachs Credit Partners L.P., as co-syndication agents, and Citicorp USA, Inc. as 13 18 collateral and administrative agent for the Lenders, dated July 3, 1997 (the "New Credit Agreement"), and by the issuance of new debt. The New Credit Agreement consists of a $200,000,000 revolving credit facility with a $50,000,000 sublimit for issuances of letters of credit and a $50,000,000 sublimit for multicurrency borrowings. Upon entering into the New Credit Agreement, the Company utilized approximately $170 million to prepay all amounts outstanding under its preexisting bank credit agreement. Amounts drawn under the New Credit Agreement bear interest at various floating rates, at the Company's option, which approximate the one to six month LIBOR rates plus 1.375% (such LIBOR rates approximated 5.8% to 5.9% on the date the New Credit Agreement was entered into). The Company has limited its exposure to fluctuations of interest rates on a portion of its debt. The annual commitment fee under the New Credit Agreement is currently .375% of the average daily unused commitment. Additionally, letter of credit fees of 1.375% of the average daily balance of outstanding letters of credit are payable to the Lenders. The interest rate margin, the annual commitment fee and the letter of credit fee are subject to decreases (or increases) with decreases (or increases) in the Company's ratio of debt to earnings before interest, taxes and depreciation and amortization expense ("EBITDA"). Some or all of the net proceeds from asset sales (depending on the circumstances) must be applied to reduce the commitments under the New Credit Agreement, and the commitment itself is scheduled to be reduced by $20 million at each of the third, fourth and fifth anniversaries of the closing of the New Credit Agreement. The New Credit Agreement will terminate and all amounts outstanding, if any, will be due on July 8, 2003. The New Credit Agreement is guaranteed on a joint and several basis by the Company's directly and indirectly wholly owned material domestic subsidiaries (the "Guarantors") and has been secured by substantially all of the assets of the Company and the Guarantors. The New Credit Agreement contains various restrictions and conditions regarding capital expenditures, payment of dividends, asset sales, investments, sales of stock, incurrence of additional indebtedness, financial covenants and other matters. The Company was in compliance with these covenants as of July 10, 1997. The Company intends to obtain up to $150 million of new debt prior to or concurrently with the consummation of the Offer. The debt will be subordinated to the indebtedness under the New Credit Agreement. The Company anticipates that the interest rate on the new subordinated debt will be higher than the interest rate applicable to borrowings under the New Credit Agreement and that the new debt will contain usual and customary (x) affirmative and negative covenants, including restrictions on the Company's ability and the ability of certain of its subsidiaries, subject to certain exceptions, to incur debt, pay dividends, and effectuate mergers, acquisitions, divestitures or stock redemptions, and (y) events of default, including failure to pay principal and interest, breaches of covenants, certain events of bankruptcy or insolvency and a change in control (as defined therein). The Company expects to repay borrowings incurred to finance the purchases of Shares in the Offer out of the proceeds of public or private offerings of securities, additional bank borrowings, internally generated funds or other financings, or a combination of the foregoing, as the Company may deem appropriate depending on business and market conditions at the time. 10. TRANSACTIONS AND AGREEMENTS CONCERNING SHARES. As previously noted, and as more fully discussed in Section 14, under Section 302 of the Code it would be highly unlikely that Water Street would obtain capital gains tax treatment with respect to the proceeds of any tender by it of its Shares in the Offer. Accordingly, on July 10, 1997, pursuant to the Water Street Purchase Agreement, the Company purchased 2,805,194 Shares from Water Street at $38.50 per Share in cash for an aggregate purchase price of $107,999,969, which was paid out of the Rolodex Proceeds, in a Partial Liquidation Transaction. In the Water Street Purchase Agreement, Water Street has agreed with the Company, among other things, to maintain the proceeds received by it from the sale in a segregated account until consummation of the Offer, and then to pay to the Company the interest actually earned thereon. In 14 19 addition, Water Street has agreed in the Water Street Purchase Agreement that, if the Offer expires or terminates without any Shares having been purchased thereunder, the purchase of the Shares by the Company from Water Street will be rescinded, and the purchase price (together with interest actually earned thereon) will be repaid to the Company. Water Street has further agreed in the Water Street Purchase Agreement that it will tender no more than 960,577 Shares in the Offer so that the percentage of Shares to be purchased by the Company from Water Street in the Water Street Purchase and the Offer will be lower than the percentage of Shares which the Company is offering to purchase pursuant to the Offer from stockholders other than Water Street. Under Section 302 of the Code, there is a significant risk that Robert L. Smialek, Chairman of the Board and President of the Company, would not obtain capital gains tax treatment with respect to the proceeds of any tender by him of his Shares in the Offer. Accordingly, on July 10, 1997, pursuant to the Smialek Purchase Agreement, the Company purchased 51,948 Shares from Mr. Smialek, at $38.50 per Share in cash, for an aggregate purchase price of $1,999,998 which was also paid out of the Rolodex Proceeds in a Partial Liquidation Transaction. In the Smialek Purchase Agreement, Mr. Smialek has agreed with the Company, among other things, to maintain the proceeds received by him from the sale in a segregated account until consummation of the Offer, and then to pay to the Company the interest actually earned thereon. In addition, Mr. Smialek has agreed in the Smialek Purchase Agreement that, if the Offer expires or terminates without any Shares having been purchased thereunder, the purchase will be rescinded, and the purchase price (together with interest actually earned thereon) will be repaid to the Company. Mr. Smialek has further agreed in the Smialek Purchase Agreement that he will not tender any Shares in the Offer. In the Water Street Purchase Agreement and the Smialek Purchase Agreement, the Company has agreed that it will not (i) accept for purchase or purchase more than 2,857,142 Shares in the Offer (including Odd Lot Shares), (ii) pay more than $38.50 per Share, or (iii) extend the Offer past 45 days from the date of its commencement, unless the Company and Water Street and Mr. Smialek, respectively, shall first have entered into a written agreement amending the respective stock purchase agreements. As a result of these agreements, the Company believes, subject to certain limitations described in Section 14, that stockholders who tender ALL of the Shares they own (actually and constructively) in the Offer (even though only a pro rata portion of such Shares will be purchased if the Offer is oversubscribed) should qualify for capital gains tax treatment with respect to the proceeds of the Offer. Goldman Sachs is the general partner of Water Street. Two directors of the Company, Terence M. O'Toole and Barry S. Volpert, are Managing Directors of Goldman Sachs. On April 21, 1997 and again on May 16, 1997, Mr. Smialek exercised stock options in an aggregate amount of 160,000 Shares and, as permitted by the Insilco Corporation 1993 Long-Term Incentive Plan, exchanged 96,986 of his owned Shares to satisfy the exercise price of the options and income taxes associated with such exercise. On June 25, 1997, the Company adopted a plan pursuant to which certain officers were granted the opportunity to earn restricted Shares. To be eligible to participate in the plan, an officer must make or have an "investment" in the Company of at least 25% of such officer's annual base salary, but any investment in excess of 100% of the officer's annual base salary will not be counted in determining the size of the award. Each participating officer has the opportunity to earn two tranches of restricted Shares, with each tranche set at that number of Shares which had a value on the date of the award equal to the value of such officer's investment. An officer's investment is determined by the value of the Shares the officer owns (or acquires within the time specified by the plan) plus the value at that date of such officer's vested and unvested stock options (measured by the difference between the fair market value of the Shares underlying such officer's stock options and the exercise price of such options). Pursuant to the plan, the first tranche of restricted Shares will be earned (but not issued until the third anniversary of the date of the award) if, during the three year period following the date of the award, the Share price increases by 30% over the Share price at the date of the award; and the second tranche of restricted Shares will be earned (but not issued until the third anniversary from the date of the award) if during the three year period following the date of the award, the Share price increases by 60%. The number of Shares in each tranche of restricted Shares generally will be reduced, and not thereafter 15 20 increased, if such officer's investment is reduced below the initial qualifying amount (by such officer selling Shares or exercising and selling options that were counted in determining the officer's investment) and will be forfeited if the officer terminates employment with the Company (other than for certain permitted reasons) within three years from the date of the award. Except as set forth above, based upon the Company's records and upon information provided to the Company by its directors and executive officers, (i) neither the Company nor, to the Company's knowledge, any of its associates, subsidiaries, directors, executive officers or any associate of any such director or executive officer, or any director or executive officer of its subsidiaries, has engaged in any transactions involving the Shares during the 40 business days preceding the date hereof and (ii) except for outstanding options to purchase Shares and certain restricted Shares, neither the Company nor, to the Company's knowledge, any of its directors or officers is a party to any contract, arrangement, understanding or relationship relating directly or indirectly to the Offer with any other person with respect to the Shares. Immediately prior to the Transactions, (i) Water Street owned 5,802,494 Shares, representing 60.6% of the then outstanding Shares, (ii) Mr. Smialek owned 127,014 Shares, representing 1.3% of the then outstanding Shares, and (iii) all executive officers and directors as a group owned 5,934,709 Shares (which number includes the 5,802,494 Shares owned by Water Street that were attributable to Messrs. O'Toole and Volpert pursuant to Rule 13d-3 under the Exchange Act ("Rule 13d-3")), representing 62% of the then outstanding Shares. After giving effect to the Transactions (assuming that Water Street tenders all 960,577 Shares it is permitted to tender under the Water Street Purchase Agreement, that Mr. Smialek tenders no Shares, and that all other outstanding Shares are tendered), (i) Water Street will own 2,400,001 Shares, representing 62.3% of the then outstanding Shares, (ii) Mr. Smialek will own 75,066 Shares, representing 1.9% of the then outstanding Shares, and (iii) all executive officers and directors as a group will own 2,480,268 Shares (which number includes 2,400,001 Shares that will be owned by Water Street, and will be attributable to Messrs. O'Toole and Volpert pursuant to Rule 13d-3), representing 64.4% of the then outstanding Shares. If, in the Share Repurchase, the Company purchases Shares with an aggregate value of less than $220 million, under certain circumstances set forth in the New Credit Agreement, the Company may purchase additional Shares (including from Water Street) with an aggregate value up to the difference between the value of the Shares purchased pursuant to the Share Repurchase and $220 million. 11. FINANCIAL INFORMATION CONCERNING THE COMPANY. SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS) Set forth below is certain summary historical consolidated financial information of the Company and its subsidiaries. The historical financial information (other than the ratio of earnings to fixed charges) has been derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "Company's 1996 Annual Report") and from the unaudited condensed consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the "Company's 1997 First Quarter Report"), each of which is incorporated by reference herein, and other information and data contained in the Company's 1996 Annual Report and the Company's 1997 First Quarter Report. More comprehensive financial information is included in such reports and the financial information which follows is qualified in its entirety by reference to 16 21 such reports and all of the financial statements and related notes contained therein, copies of which may be obtained as set forth below under the caption "Miscellaneous."
YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, -------------------- ------------------- 1996 1995 1997 1996 -------- ------- ------- ------- INCOME STATEMENT DATA:(1) Net sales.......................................... $572,474 561,203 117,341 122,449 Operating income................................... 59,101 24,617 11,555 13,300 Gain on sale of Rolodex............................ -- -- 95,001 -- Income before income taxes......................... 51,863 18,774 103,912 9,390 Net income......................................... 39,053 2,575 63,319 6,146 Net income per share............................... $ 3.95 0.25 6.39 0.62 Weighted average shares outstanding, including common share equivalents......................... 9,892 10,132 9,912 9,954 Ratio of earnings to fixed charges(2).............. 3.54 1.83 26.17 2.80
AS OF DECEMBER 31, AS OF MARCH 31, -------------------- ------------------- 1996 1995 1997 1996 -------- ------- ------- ------- BALANCE SHEET DATA:(1) Working capital.................................... $ 47,956 44,920 130,914 59,753 Total assets....................................... 352,000 340,129 432,520 351,680 Total assets, less goodwill........................ 338,341 340,129 419,387 348,967 Total debt......................................... 161,042 186,489 168,700 197,078 Shareholders' equity (deficit)..................... 33,402 (15,779) 97,460 (8,300) Book value (deficit) per common share(3)........... 3.52 (1.64) 10.15 (0.87)
Notes to Summary Historical Consolidated Financial Information: (1) During 1996 the Company divested its Rolodex electronics product line and Curtis Manufacturing Co., Inc. and acquired the automotive aluminum tubing business of Helmut Lingemann GmbH & Co. (the "Lingemann Business"). During the three months ended March 31, 1997 the Company divested the Rolodex Business. (See Summary Unaudited Pro Forma Consolidated Financial Information.) (2) The ratio of earnings to fixed charges was computed by dividing pre-tax income before fixed charges by fixed charges. Fixed charges consist of interest expense and the interest component of operating leases. The Company's earnings before fixed charges for the year ended December 31, 1995 includes the deduction of amortization of Reorganization Goodwill of $32,172,000. For the three months ended March 31, 1997, the Company's earnings before fixed charges includes a $95,001,000 pre-tax gain on the sale of the Rolodex Business. (3) Book value (deficit) per common share is calculated as total stockholders' equity (deficit) divided by the number of common shares outstanding, net of treasury shares, at the end of the period. 17 22 SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION INSILCO CORPORATION AND SUBSIDIARIES Set forth below is certain unaudited pro forma consolidated financial information of the Company and its subsidiaries based on historical information which has been adjusted to reflect significant acquisitions and divestitures which have occurred during the respective periods and all transactions directly or indirectly related to the Offer. The income statement data gives effect to the following transactions as if all had occurred at the beginning of each period presented: (i) the sale of the Rolodex Business (which occurred on March 5, 1997), (ii) the Company's purchase of 2,805,194 Shares from Water Street and 51,948 Shares from Mr. Smialek at a price of $38.50 per Share, (iii) the purchase of 2,857,142 Shares at a price of $38.50 per Share pursuant to the Offer, (iv) the New Credit Agreement and (v) the issuance of the new debt. In addition, the income statement data for the fiscal year ended December 31, 1996 has also been adjusted to reflect (i) the divestiture of the Rolodex electronics product line, (ii) the divestiture of Curtis Manufacturing Co., Inc. and (iii) the acquisition of the Lingemann Business, as if all had occurred at the beginning of the fiscal year ended December 31, 1996. (These divestitures and acquisition actually occurred in the third and fourth quarters of 1996.) The balance sheet data gives effect to the aforementioned transactions as if all had occurred as of the date of the respective balance sheets (except any acquisitions or divestitures which had taken place prior to the respective balance sheet dates are included in the respective balance sheet data as of the date of the actual sale or purchase). The nonrecurring transactions directly related to the aforementioned transactions are excluded from the pro forma statements of income. The summary pro forma consolidated financial information should be read in conjunction with the accompanying notes thereto and the financial statements and related notes set forth in the Company's 1996 Annual Report and the Company's 1997 First Quarter Report, as well as the summary historical consolidated financial information set forth above. The summary pro forma consolidated financial information 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. 18 23 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT RATIO DATA)
SALE OF REFINANCING INSILCO THE ROLODEX AND HISTORICAL BUSINESS(1) SUBTOTAL SHARE REPURCHASE(2) PRO FORMA ---------- ----------- -------- ------------------- --------- ASSETS Current assets: Cash and cash equivalents......... $ 3,481 112,610 116,091 (110,000) 6,091 Trade receivables, net............ 73,874 (8,481) 65,393 65,393 Other receivables................. 8,499 (325) 8,174 8,174 Inventories....................... 66,385 (8,460) 57,925 57,925 Deferred tax asset................ 29,859 (28,652) 1,207 1,207 Prepaid expenses.................. 7,010 (1,095) 5,915 5,915 --------- --------- -------- -------- --------- Total current assets........... 189,108 65,597 254,705 (110,000) 144,705 Property, plant and equipment, net............................... 114,379 (3,944) 110,435 110,435 Deferred tax asset.................. 7,542 7,542 7,542 Goodwill............................ 13,659 13,659 13,659 Other assets........................ 27,312 (4,990) 22,322 7,993(3) 30,315 --------- --------- -------- -------- --------- Total assets................... $ 352,000 56,663 408,663 (102,007) 306,656 ========= ========= ======== ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt........................... $ 24,272 24,272 (23,250) 1,022 Current portion of long-term liabilities.................... 6,661 6,661 6,661 Accounts payable.................. 37,984 (4,797) 33,187 33,187 Accrued income taxes.............. 9,400 9,400 (1,350) 8,050 Accrued expenses and other........ 72,235 (7,033) 65,202 65,202 --------- --------- -------- -------- --------- Total current liabilities...... 141,152 (2,430) 138,722 (24,600) 114,122 Long-term debt...................... 136,770 136,770 145,250 282,020 Other long-term liabilities......... 40,676 40,676 40,676 Stockholders' equity (deficit)...... 33,402 59,093 92,495 (222,657) (130,162) --------- --------- -------- -------- --------- Total liabilities and stockholders' equity (deficit).................... $ 352,000 56,663 408,663 (102,007) 306,656 ========= ========= ======== ======== ========= Shares outstanding.................. 9,488 (5,714) 3,774 Book value (deficit) per share...... $ 3.52 (34.49)
19 24 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 (IN THOUSANDS, EXCEPT RATIO DATA)
REFINANCING INSILCO AND HISTORICAL SHARE REPURCHASE(2) PRO FORMA ---------- ------------------- --------- ASSETS Current assets: Cash and cash equivalents.......................... $ 115,523 (110,000) 5,523 Trade receivables, net............................. 71,375 71,375 Other receivables.................................. 10,493 10,493 Inventories........................................ 70,500 70,500 Deferred tax asset................................. 2,710 2,710 Prepaid expenses................................... 11,853 11,853 -------- -------- -------- Total current assets............................ 282,454 (110,000) 172,454 Property, plant and equipment, net................... 109,282 109,282 Deferred tax asset................................... 7,263 7,263 Goodwill............................................. 13,133 13,133 Other assets......................................... 20,388 8,173(3) 28,561 -------- -------- -------- Total assets.................................... $ 432,520 (101,827) 330,693 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt.................. $ 24,057 (23,250) 807 Current portion of long-term liabilities........... 6,602 6,602 Accounts payable................................... 34,923 34,923 Accrued income taxes............................... 15,248 (1,281) 13,967 Accrued expenses and other......................... 70,710 70,710 -------- -------- -------- Total current liabilities....................... 151,540 (24,531) 127,009 Long-term debt....................................... 144,643 145,250 289,893 Other long-term liabilities.......................... 38,877 38,877 Stockholders' equity (deficit)....................... 97,460 (222,546) (125,086) -------- -------- -------- Total liabilities and stockholders' equity (deficit)..................................... $ 432,520 (101,827) 330,693 ======== ======== ======== Shares outstanding................................... 9,606 (5,714) 3,892 Book value (deficit) per share....................... $ 10.15 (32.14)
20 25 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
ACQUISITION REFINANCING AND AND HISTORICAL DIVESTITURES(4) SUBTOTAL SHARE REPURCHASE(5) PRO FORMA ---------- --------------- -------- ------------------- --------- Net sales........................ $572,474 (65,334) 507,140 507,140 Cost of goods sold............... 389,893 (32,187) 357,706 357,706 Depreciation and amortization.... 16,831 308 17,139 17,139 Selling, general and administrative expenses........ 106,649 (21,048) 85,601 85,601 -------- ------- -------- ------- ------- Operating income............ 59,101 (12,407) 46,694 46,694 Interest expense, net............ (17,376) 5,632 (11,744) (19,371) (31,115) Other income, net................ 10,138 (2,432) 7,706 7,706 -------- ------- -------- ------- ------- Income before income taxes..................... 51,863 (9,207) 42,656 (19,371) 23,285 Income tax expense............... (12,810) (1,689) (14,499) 7,458 (7,041) -------- ------- -------- ------- ------- Net income.................. $ 39,053 (10,896) 28,157 (11,913) 16,244 ======== ======= ======== ======= ======= Net income per common share and common share equivalent........ $ 3.95 2.85 3.89 ======== ======== ======= Weighted average number of common shares and common share equivalents.................... 9,892 (5,714) 4,178 Ratio of earnings to fixed charges(7)..................... 3.54 1.68
21 26 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
SALE OF REFINANCING THE ROLODEX AND HISTORICAL BUSINESS(6) SUBTOTAL SHARE REPURCHASE(5) PRO FORMA ---------- --------------- -------- ------------------- --------- Net sales........................ $ 117,341 (10,797) 106,544 106,544 Cost of goods sold............... 82,789 (5,483) 77,306 77,306 Depreciation and amortization.... 4,065 (194) 3,871 3,871 Selling, general and administrative expenses........ 18,932 (2,954) 15,978 15,978 -------- ------- -------- ------- ------- Operating income............ 11,555 (2,166) 9,389 9,389 Interest expense, net............ (3,154) 955 (2,199) (4,927) (7,126) Other income, net................ 510 (1) 509 509 Gain on sale of Rolodex.......... 95,001 (95,001) -------- ------- -------- ------- ------- Income before income taxes..................... 103,912 (96,213) 7,699 (4,927) 2,772 Income tax expense............... (40,593) 37,680 (2,913) 1,897 (1,016) -------- ------- -------- ------- ------- Net income.................. $ 63,319 (58,533) 4,786 (3,030) 1,756 ======== ======= ======== ======= ======= Net income per common share and common share equivalent........ $ 6.39 0.48 0.42(8) ======== ======== ======= Weighted average number of common shares and common share equivalents.................... 9,912 (5,714) 4,198 Ratio of earnings to fixed charges(7)..................... 26.17 1.34
22 27 The notes to the unaudited pro forma condensed consolidated balance sheets and statements of income follow: (1) To record the sale of the Rolodex Business as if it had been sold as of the date of the balance sheet presented. (2) To record as of the date of the balance sheet presented (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 New Credit Agreement and the issuance of $150,000,000 of new debt, 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 Offer. (3) To write off debt issue costs related to the Company's prior credit agreement and to record $9,500,000 in debt issue costs related to the New Credit Agreement and the new debt. (4) To record the effect on sales and costs and expenses assuming that the divestiture of the Company's Office Products businesses and the acquisition of the Lingemann Business had occurred as of the beginning of the period presented. The divested operations consisted of the Company's Office Products businesses, comprised of the Rolodex Business, the Rolodex electronics product line and Curtis Manufacturing Co., Inc. Proceeds from the sale of the Rolodex Business were assumed to have been held in short term investments from the beginning of the period. Proceeds from the sales of the Rolodex electronics product line and Curtis Manufacturing Co., Inc. 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 (benefit). The acquisition of the Lingemann Business was assumed to have occurred and to have been funded through borrowings under the Company's prior credit agreement as of the beginning of the period presented. (5) 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 for an aggregate purchase price of $109,999,967, (ii) the entering into of the New Credit Agreement and the issuance of $150,000,000 of new debt, 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 Offer, as if the aforementioned transactions had occurred at the beginning of the periods presented. Interest income which was assumed to have been earned on the proceeds from the sale of the Rolodex Business was reversed as part of this adjustment. (6) To record the effect on sales and costs and expenses assuming the Rolodex Business had been sold at the beginning of the period presented. (7) The ratio of earnings to fixed charges was computed by dividing pre-tax income before fixed charges by fixed charges. Fixed charges consist of interest expense and the interest component of operating leases. The Company's historical earnings before fixed charges for the three months ended March 31, 1997 includes a $95,001,000 pre-tax gain on the sale of the Rolodex Business. (8) The Company's quarterly sales and net income are affected by the seasonality of its yearbook publishing business, with the majority of such sales occurring in the quarters ended June 30 and September 30. As a result, the dilutive impact of the Transactions for the quarter ended March 31, 1997 is not necessarily indicative of the remaining quarters. See the Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 31, 1996 for the pro forma net income per common share and common share equivalent before and after the Transactions. 23 28 12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE EXCHANGE ACT. The Company's purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and the number of holders of Shares, which may reduce the liquidity of the market for Shares. The Shares are currently "margin securities" under the rules of the Federal Reserve Board. This has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. The Company believes that, following the repurchase of Shares pursuant to the Offer, the Shares will continue to be "margin securities" for purposes of the Federal Reserve Board's margin regulations. The Shares are registered under the Exchange Act, which requires, among other things, that the Company furnish certain information to its stockholders and the Commission and comply with the Commission's proxy rules in connection with meetings of the Company's stockholders. The Company believes that its purchase of Shares pursuant to the Offer will not result in the Shares becoming eligible for deregistration under the Exchange Act. Stockholders who determine not to tender Shares in the Offer or whose Shares are not purchased in the Offer will realize an increase in their percentage ownership interest in the common equity of the Company and thus, in the Company's assets and any future earnings of the Company. Because of the smaller number of Shares outstanding after consummation of the Offer, increases or decreases in net earnings will result in proportionately greater increases or decreases in earnings per Share. See Sections 8 and 10 for a discussion of Water Street's and Mr. Smialek's ownership of the Company after the Transactions. 13. REGULATORY APPROVALS. The Company is not aware of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the Company's acquisition or ownership of Shares as contemplated by the Offer or of any license or regulatory permit that appears to be material to its business that might be adversely affected by its acquisition of Shares as contemplated in the Offer, except as may otherwise be required under federal or state securities laws. Should any such approval or other action be required, the Company currently contemplates that it will seek such approval or other action. The Company cannot predict whether it may determine that it is required to delay the acceptance of, or payment for, Shares tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to the Company's business. The Company's obligations under the Offer to accept for payment and pay for Shares are subject to certain conditions. See Section 6. 14. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion describes certain United States federal income tax consequences of participating in the Offer, is for general information only, and does not purport to consider all aspects of federal income taxation that may be relevant to stockholders. The consequences to any particular stockholder may differ depending upon that stockholder's own circumstances and tax position. The discussion deals only with Shares held as capital assets within the meaning of Section 1221 of the Code, and does not address matters that may be relevant to stockholders in special tax situations, such as financial institutions, insurance companies, stockholders liable for the alternative minimum tax, dealers in securities or currencies, tax-exempt organizations, foreign stockholders (as determined in accordance with Section 3), directors, employees, former employees or other persons who acquired their Shares as compensation, including upon the exercise of employee stock options, and persons who are holding such Shares as part of a straddle, conversion, hedge or hedging transaction, who may be subject to special rules. The discussion also does not address the special tax consequences applicable to Water Street and Mr. Smialek. This discussion does not consider the effect of any applicable state, local or foreign tax laws. In addition, this discussion is based upon tax laws in effect on the date of this Offer to Purchase, which are subject to change, including by virtue of the adoption of pending and proposed budget and tax legislation, that could affect the taxation of the Offer. EACH STOCKHOLDER IS 24 29 URGED TO CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE TAX LAW CHANGES. Characterization of the Sale. The sale of Shares pursuant to the Offer will be a taxable transaction for United States federal income tax purposes. The United States federal income tax consequences to a stockholder may vary depending on the stockholder's particular facts and circumstances. Under the stock redemption rules of Section 302 of the Code, a sale by a stockholder to the Company pursuant to the Offer will be treated as a "sale or exchange" of such Shares (rather than as a distribution by the Company with respect to the Shares held by the tendering stockholder) if the sale of Shares: (a) results in a "complete redemption" of the stockholder's stock in the Company, (b) is "substantially disproportionate" with respect to the stockholder or (c) is "not essentially equivalent to a dividend" with respect to the stockholder (each as described below). Treatment as a Sale or Exchange. If any of the above three tests is satisfied with respect to a stockholder, and the sale is therefore treated as a "sale or exchange" of such Shares for United States federal income tax purposes, the tendering stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder pursuant to the Offer and the stockholder's tax basis in the Shares sold pursuant to the Offer. Any such gain or loss will be capital gain or loss and will be long-term capital gain or loss if such Shares have been held for more than one year. Certain individuals are subject to taxation at a reduced rate on their net capital gains. Stockholders should consider that recent legislative proposals would provide for reduced rates of taxation of net capital gains compared to the rates currently applicable to such income, which reduced rates, if effective as of the date proposed in such legislation, would be applicable to any capital gains realized pursuant to the Offer. Treatment as a Dividend. If none of the above three tests is satisfied with respect to a stockholder, such stockholder will be treated as having received a distribution, taxable as a dividend to the extent of the Company's available "earnings and profits," in an amount equal to the amount of cash received by the stockholder pursuant to the Offer (without reduction for the tax basis of the Shares sold pursuant to the Offer), no gain or loss will be recognized, and the stockholder's basis in the Shares sold pursuant to the Offer will be added to the stockholder's basis in his remaining Shares. Any cash received in excess of such earnings and profits will be treated, first, as a non-taxable return of capital to the extent of the stockholder's basis in all of his Shares, and, thereafter, as a capital gain to the extent it exceeds the stockholder's basis. The Company anticipates that its available earnings and profits will be such that all amounts treated as a distribution will be taxed as a dividend. Application of Section 302 Tests. In determining whether any of the tests under Section 302 is satisfied, a stockholder must take into account both Shares actually owned by such stockholder and any Shares considered as owned by such stockholder by reason of certain constructive ownership rules set forth in Section 318 of the Code. Under these rules, a stockholder generally will be considered to own Shares which such stockholder has the right to acquire by the exercise of an option (which may include an unvested option) or warrant and Shares owned (and, in some cases, constructively owned) by certain members of the stockholder's family and by certain entities (such as corporations, partnerships, trusts and estates) in which such stockholder, a member of such stockholder's family or a related entity has an interest. In addition, while not free from doubt, it is possible that an acquisition or disposition of Shares (including market purchases and sales) substantially contemporaneous with the Offer will be taken into account in determining whether any of the tests described above is satisfied. In this regard, it is expected that the purchase by the Company of Shares owned by Water Street and Mr. Smialek on July 10, 1997 would be integrated with the Offer in measuring the percentage decline of any given stockholder. Each stockholder should also be aware that, in the event the Offer is over-subscribed, resulting in a proration, less than all the Shares tendered by a stockholder (other than an Odd Lot Owner who elects not to have his or her Shares prorated) will be purchased by the Company in the Offer. Thus, proration may affect whether a sale by a stockholder pursuant to the Offer will satisfy any of the Section 302 tests discussed below: 25 30 a. Complete Termination. A sale of Shares pursuant to the Offer will result in a "complete redemption" of a stockholder's stock in the Company if, pursuant to the Offer, either (i) the Company purchases all of the Shares actually and constructively owned by the stockholder pursuant to the Offer or (ii) all Shares actually owned by the stockholder are sold pursuant to the Offer and, with respect to constructively owned Shares, such stockholder is eligible to waive (and effectively waives) constructive ownership of all such Shares under procedures described in Section 302(c) of the Code. STOCKHOLDERS IN THIS POSITION SHOULD CONSULT THEIR TAX ADVISORS AS TO THE AVAILABILITY OF SUCH A WAIVER. b. Substantially Disproportionate. The sale of Shares pursuant to the Offer will be "substantially disproportionate" with respect to a stockholder if, immediately after the sale pursuant to the Offer (treating as not outstanding all Shares purchased pursuant to the Offer), such stockholder's actual and constructive percentage ownership of Shares is less than 80% of the stockholder's actual and constructive percentage ownership of Shares immediately before the purchase of Shares pursuant to the Offer (treating as outstanding all Shares purchased pursuant to the Offer and the Shares purchased by the Company from Water Street and Mr. Smialek on July 10, 1997). c. Not Essentially Equivalent to a Dividend. In order for the sale of Shares by a stockholder pursuant to the Offer to qualify as "not essentially equivalent to a dividend," the stockholder must experience a "meaningful reduction" in his or her proportionate interest in the Company as a result of such sale, taking into account the constructive ownership rules. Whether the sale by a stockholder pursuant to the Offer will result in a "meaningful" reduction of the stockholder's proportionate interest will depend on the stockholder's particular facts and circumstances. The Internal Revenue Service has held in a published ruling that, under the particular facts of that ruling, a "meaningful reduction" occurred where there was a 3.3% reduction in the proportionate interest of a small minority stockholder who owned substantially less than 1% in a public company and who did not exercise any control over corporate affairs. As previously discussed in Section 10, the Company has used the Rolodex Proceeds to purchase Shares held by Water Street and Mr. Smialek. It is intended that such purchase be taxed pursuant to the "partial liquidation" rules of the Code and thus be treated as a "sale or exchange" giving rise to capital gain tax treatment in the hands of certain partners of Water Street and Mr. Smialek. As part of the Water Street Purchase Agreement, Water Street has agreed that the percentage of its Shares to be purchased by the Company (aggregating the purchase from Water Street on July 10, 1997 and the purchase of additional Shares from Water Street pursuant to the Offer) will be lower than the percentage of Shares that the Company will offer to purchase from stockholders other than Water Street pursuant to the Offer. As part of the Smialek Purchase Agreement, Mr. Smialek has agreed not to tender any Shares in the Offer. As a result of those agreements, stockholders who tender all of the Shares they own (actually and constructively) in the Offer should experience a reduction of at least 3.3% in their ownership of stock of the Company. Based on the foregoing, the Company believes that small minority stockholders who do not exercise any control over the affairs of the Company and who tender all of the Shares actually and constructively owned by them should experience a "meaningful reduction" in their proportionate interest in the Company and hence should qualify for capital gains tax treatment under the "not essentially equivalent to a dividend" test. However, stockholders who tender all of the Shares actually owned by them in the Offer, but are not considered to have tendered all of the Shares constructively owned by them (such as Shares issuable upon exercise of options) or who acquire additional Shares contemporaneously with the Offer, may not experience a "meaningful reduction" in their proportionate interest in the Company. The Company expects that stockholders who tender less than all of their Shares in the Offer may well experience an increase in their proportionate interest, in which case any proceeds of the Offer will be taxed as a dividend. STOCKHOLDERS SEEKING TO RELY ON THE "NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND" TEST ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO ITS APPLICATION TO THEIR PARTICULAR SITUATIONS. Special Rules for Corporate Stockholders. Any income which is treated as a dividend pursuant to the rules described above will be eligible for the 70% dividends received deduction generally allowable to corporate 26 31 stockholders under Section 243 of the Code, subject to applicable limitations, including those relating to "debt-financed portfolio stock" under Section 246A of the Code and to the holding period requirement of Section 246 of the Code. Also, since not all stockholders will be selling the same proportionate interest in their Shares in the Offer, any amount treated as a dividend to a corporate stockholder will constitute an "extraordinary dividend" subject to the provisions of Section 1059 of the Code (except as may otherwise be provided in Treasury Regulations yet to be promulgated). Under Section 1059, a corporate stockholder must reduce the tax basis in all of such stockholder's Shares (but not below zero) by the "nontaxed portion" of any "extraordinary dividend" and, if such portion exceeds the stockholder's tax basis for the Shares, must treat any such excess as additional gain on the subsequent sale or other disposition of Shares. Corporate stockholders should also consider the effect of pending legislative proposals that, if enacted in their current form, could affect the foregoing summary of the tax consequences to a corporate stockholder of participation in the Offer. Certain proposals to amend Section 1059 of the Code are proposed to be enacted with retroactive effect and would, if enacted in current form, apply to the taxation of the Offer. The Company cannot predict whether these proposals or other legislation will ultimately be enacted or, if enacted, will be enacted as currently proposed. Corporate stockholders should consult their tax advisors concerning these proposals and other possible changes to the tax laws. For a discussion of certain withholding tax consequences to tendering stockholders, see Section 3. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER (INCLUDING THE APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE OWNERSHIP RULES AND FOREIGN, STATE AND LOCAL TAX LAWS AND POSSIBLE TAX LAW CHANGES) OF THE SALE OF SHARES PURSUANT TO THE OFFER. 15. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The Company expressly reserves the right, in its sole discretion and at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary and making a public announcement thereof, subject to the Company and each of Water Street and Mr. Smialek first entering into a written agreement amending the Water Street Purchase Agreement and Smialek Purchase Agreement, respectively. There can be no assurance, however, that the Company will exercise its right to extend the Offer. During any such extension, all Shares previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in Section 4. The Company also expressly reserves the right, in its sole discretion, (i) to terminate the Offer and not accept for payment any Shares not theretofore accepted for payment by giving oral or written notice of such termination to the Depositary and making a public announcement thereof or, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires the Company either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer, to postpone payment for Shares, in each case, upon the occurrence of any of the conditions specified in Section 6 and (ii) at any time or from time to time, to amend the Offer in any respect. Amendments to the Offer may be effected by public announcement. Without limiting the manner in which the Company may choose to make public announcement of any termination or amendment, the Company shall have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement, other than by making a release to the PR Newswire, except in the case of an announcement of an extension of the Offer, in which case the Company shall have no obligation to publish, advertise or otherwise communicate such announcement other than by issuing a notice of such extension by press release or other public announcement, which notice shall be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Material changes to information previously provided to holders of the Shares in this Offer or in documents furnished subsequent thereto will be disseminated to holders of Shares in compliance with Rule 13e-4(e)(2) promulgated under the Exchange Act. 27 32 If the Company materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, the Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price, change in dealer's soliciting fee or change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of such terms or information. In a published release, the Commission has stated that in its view, an Offer should remain open for a minimum of five business days from the date that notice of such a material change is first published, sent or given. Pursuant to Rule 13e-4(f)(1), the Offer will continue or be extended for at least ten business days from the time the Company publishes, sends or gives to holders of Shares a notice that it will (a) increase or decrease the price it will pay for Shares or (b) increase (except for an increase not exceeding 2% of the outstanding Shares) or decrease the number of Shares it seeks. 16. FEES, EXPENSES AND OTHER ARRANGEMENTS. The Company has retained National City Bank as Depositary and Corporate Investor Communication, Inc. as Information Agent in connection with the Offer. The Information Agent may contact stockholders by mail, telephone, facsimile transmission and personal interviews, and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners. The Depositary and the Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for certain out-of-pocket expenses. The Company has agreed to indemnify the Depositary and the Information Agent against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. Neither the Information Agent nor the Depositary has been retained to make solicitations or recommendations in connection with the Offer. Certain directors, officers, or employees of the Company may, from time to time, contact stockholders to provide them with information regarding the Offer. Such directors, officers or employees will not make any recommendation to any stockholder as to whether to tender all or any Shares and will not solicit the tender of any Shares. The Company will not compensate any director, officer or employee for this service. The Company will not pay any solicitation fees to any broker, dealer, bank, trust company or other person for any Shares purchased in connection with the Offer. The Company will reimburse such persons for customary handling and mailing expenses incurred in connection with the Offer. The Company will pay all stock transfer taxes, if any, payable on account of the acquisition of the Shares by the Company pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized pursuant to Instruction 6 of the Letter of Transmittal. Goldman Sachs is acting as financial advisor to the Company in connection with the Transactions. Pursuant to such engagement, the Company has agreed to pay to Goldman Sachs a fee of $2,000,000 for advice in connection with the Transactions (other than the Share Repurchase) and a fee of $200,000 for advice in connection with the Share Repurchase. The Company has also agreed to reimburse Goldman Sachs for certain of its out-of-pocket expenses and to indemnify Goldman Sachs against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Transactions. In addition, Goldman Sachs has acted as a co-syndication agent of the New Credit Agreement and will assist the Company in its new debt offering for which Goldman Sachs has received or will receive customary fees and indemnification undertakings. 17. MISCELLANEOUS. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Certain information as of particular dates concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is filed with the 28 33 Commission. The Company has also filed an Issuer Tender Offer Statement on Schedule 13E-4 with the Commission, which includes certain additional information relating to the Offer. Such reports, as well as such other material, may be inspected and copies may be obtained at the Commission's public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. The Commission maintains a Web site that contains such reports, and other information regarding registrants that file electronically with the Commission. The address of such site is http://www.sec.gov. Copies of such material may be obtained by mail, upon payment of the Commission's customary fees, from the Commission's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's Schedule 13E-4 may not be available at the Commission's regional offices. The Offer is being made to all holders of Shares. The Company is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to a valid state statute. If the Company becomes aware of any valid state statute prohibiting the making of the Offer, the Company will make a good faith effort to comply with such statute. If, after such good faith effort, the Company cannot comply with such statute, the Offer will not be made to, nor will tenders be accepted from or on behalf of, holders of Shares in such state. In those jurisdictions whose securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Company or one or more registered brokers or dealers licensed under the laws of such jurisdiction. INSILCO CORPORATION July 11, 1997 29 34 Facsimile copies of the Letter of Transmittal will be accepted for Eligible Institutions only. The Letter of Transmittal, certificates evidencing Shares and any other required documents should be sent or delivered by each holder of Shares, or such holder's broker, dealer, commercial bank or trust company, to the Depositary at one of its addresses set forth below. The Depositary for the Offer is: NATIONAL CITY BANK By Mail: By Facsimile Transmission By Hand or Overnight (for Eligible Institutions Delivery: National City Bank, only): Depositary Fax: (216) 476-8367 National City Bank, P. O. Box 94720 Depositary Cleveland, Ohio 44101-4720 Corporate Trust Operations (800) 622-6757 (Shareholder Third Floor -- North Annex Questions) 4100 West 150th Street Cleveland, Ohio 44135-1385
Confirm Facsimile Transmission by Telephone: (216) 476-8049 ------------------------------------------------------ Questions and requests for assistance may directed to the Information Agent at the address and telephone number set forth below. Additional copies of this Offer to Purchase, the Letter of Transmittal and other related materials may be obtained from the Information Agent or brokers, dealers, commercial banks and trust companies. The Information Agent for the Offer is: CORPORATE INVESTOR COMMUNICATIONS, INC. 111 Commerce Road Carlstadt, NJ 07072 Banks or Brokers Call Collect: (201) 896-1900 All Others Can Call Toll-Free: (800) 631-0983 30 EX-99.A.2 3 FORM OF LETTER OF TRANSMITTAL 1 Exhibit (a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF INSILCO CORPORATION PURSUANT TO THE OFFER TO PURCHASE DATED JULY 11, 1997 THE OFFER, THE PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 7, 1997, UNLESS THE OFFER IS EXTENDED. TO: NATIONAL CITY BANK, DEPOSITARY By Mail: National City Bank, Depositary P. O. Box 94720 Cleveland, Ohio 44101-4720 (800) 622-6757 (Shareholder Questions) By Facsimile Transmission (for Eligible Institutions only): Fax: (216) 476-8367 Confirm Facsimile Transmission by Telephone: (216) 476-8049 By Hand or Overnight Delivery: National City Bank, Depositary Corporate Trust Operations Third Floor -- North Annex 4100 West 150th Street Cleveland, Ohio 44135-1385 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. 2 NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE ACCOMPANYING INSTRUCTIONS, CAREFULLY BEFORE CHECKING ANY BOX DESCRIPTION OF SHARES TENDERED (SEE INSTRUCTIONS 3 AND 4) - --------------------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) SHARES TENDERED ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - --------------------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- TOTAL SHARES - ---------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Indicate in this box the order (by certificate number) in which Shares are to be purchased in the event of proration. (Attach an additional signed list if necessary.) See Instruction 14. 1st ____________ 2nd ____________ 3rd ____________ 4th ____________ 5th ____________ - -------------------------------------------------------------------------------- * Need not be completed by stockholders tendering Shares by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by each Share certificate delivered to the Depositary are being tendered hereby. See Instruction 4. DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE VALID DELIVERY. DELIVERIES TO BOOK-ENTRY TRANSFER FACILITIES WILL NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY. This Letter of Transmittal is to be used only if certificates are to be forwarded herewith or if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (hereinafter collectively referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). THIS LETTER OF TRANSMITTAL MAY NOT BE USED FOR SHARES ATTRIBUTABLE TO INDIVIDUAL ACCOUNTS UNDER THE INSILCO CORPORATION EMPLOYEE THRIFT PLAN (THE "401(K) PLAN"). TO TENDER SHARES HELD BY THE 401(K) PLAN YOU MUST USE THE TENDER INSTRUCTION FORM. SEE INSTRUCTION 13. Stockholders who desire to tender shares pursuant to the Offer and who cannot deliver their Share certificates and any other documents required to the Depositary by the Expiration Date (as defined in the Offer to Purchase) (or who are unable to comply with the procedures for book-entry transfer on a timely basis) must tender their Shares using the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. 3 (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution Check Applicable Box: [ ] DTC [ ] PDTC Account No. Transaction Code No. [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) Date of Execution of Notice of Guaranteed Delivery Name of Institution that Guaranteed Delivery If delivery is by book-entry transfer: Name of Tendering Institution Account No. ______________ at [ ] DTC [ ] PDTC (check one) Transaction Code No. Ladies and Gentlemen: The undersigned hereby tenders to Insilco Corporation, a Delaware corporation (the "Company"), the above-described shares of its common stock, par value $.001 per share (the "Shares"), at the price per Share of $38.50 net to the seller in cash, (the "Purchase Price") upon the terms and subject to the conditions set forth in the Offer to Purchase, dated July 11, 1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Offer"). Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to all the Shares that are being tendered hereby or orders the registration of such Shares tendered by book-entry transfer that are purchased pursuant to the Offer to or upon the order of the Company and hereby irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to: (i) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Company upon receipt by the Depositary, as the undersigned's agent, of the Purchase Price with respect to such Shares; (ii) present certificates for such Shares for cancellation and transfer on the books of the Company; and 4 (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants to the Company that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by the Company, the Company will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. The undersigned represents and warrants to the Company that the undersigned has read and agrees to all of the terms of the Offer. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the Instructions will constitute the undersigned's representation and warranty to the Company that (i) the undersigned has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, and (ii) the tender of such Shares complies with Rule 14e-4. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. The names and addresses of the registered holders should be printed, if they are not already printed above, exactly as they appear on the certificates representing Shares tendered hereby. The certificate numbers, the number of Shares represented by such certificates and the number of Shares that the undersigned wishes to tender should be indicated in the appropriate boxes on this Letter of Transmittal. The undersigned understands that upon the terms and subject to the conditions of the Offer, the Company will pay $38.50 per Share for Shares validly tendered and not withdrawn pursuant to the Offer, taking into account the number of Shares so tendered. The undersigned understands that all Shares validly tendered and not withdrawn will be purchased at the Purchase Price upon the terms and subject to the conditions of the Offer, including its proration provisions, and that the Company will return all other Shares, including Shares not purchased because of proration. The undersigned recognizes that, under certain circumstances set forth in the Offer to Purchase, the Company may terminate or amend the Offer or may not be required to purchase any of the Shares tendered hereby or may accept for payment fewer than all of the Shares tendered hereby. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased (less the amount of any federal income or backup withholding tax required to be withheld), and/or return any Shares not tendered or not purchased, in the name(s) of the undersigned (or, in the case of Shares tendered by book-entry transfer, by credit to the account at the applicable Book-Entry Transfer Facility). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the Purchase Price of any Shares purchased (less the amount of any federal income or backup withholding tax required to be withheld), and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate), to the undersigned at the address shown below the undersigned's signature. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased (less the amount of any federal income or backup withholding tax required to be withheld), and/or return any Shares not tendered or not purchased, in the name(s) of, and mail such check and/or any certificates to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof or to order the registration or transfer of such Shares tendered by book-entry transfer if the Company does not accept for payment any of the Shares so tendered. 5 ODD LOTS (SEE INSTRUCTION 8) This section is to be completed ONLY if Shares are being tendered by or on behalf of a person who was, as of the close of business on July 3, 1997, and who continues to be at the Expiration Date, the record or beneficial owner of an aggregate of five or fewer Shares (including Shares held for the account of such person by the 401(k) Plan) and elects to have all of his or her Shares purchased without proration. The undersigned either (check one box): [ ] owned beneficially, as of the close of business on July 3, 1997, and continues to own beneficially at the Expiration Date, an aggregate of five or fewer Shares (including Shares held for the account of such person by the 401(k) Plan), all of which are being tendered; or [ ] is a broker, dealer, commercial bank, trust company or other nominee that (i) is tendering, for the beneficial owner thereof, Shares with respect to which it is the record owner, and (ii) believes, based upon representations made to it by such beneficial owner, that such beneficial owner owned beneficially, as of the close of business on July 3, 1997, and continues to own beneficially at the Expiration Date, an aggregate of five or fewer Shares (including Shares held for the account of such person by the 401(k) Plan) and is tendering all of his or her Shares. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the aggregate Purchase Price of Shares purchased (less the amount of any federal income and backup withholding tax required to be withheld), and/or certificates for Shares not tendered or not purchased, are to be issued in the name of someone other than the undersigned. Issue [ ] check and/or [ ] certificates to: Name (Please Print) Address (Include Zip Code) - ------------------------------------------------------ (Tax Identification or Social Security No.) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 7) To be completed ONLY if the check for the Purchase Price of Shares purchased (less the amount of any federal income and backup withholding tax required to be withheld), and/or certificates for Shares not tendered or not purchased, are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown below the undersigned's signatures). Mail [ ] check and/or [ ] certificates to: Name (Please Print) Address (Include Zip Code) 6 PLEASE SIGN HERE (TO BE COMPLETED BY ALL STOCKHOLDERS) SIGNATURE(S) OF OWNER(S) Dated , 1997 Name(s) (PLEASE PRINT) Capacity (full title) Address (INCLUDE ZIP CODE) Area Code and Telephone No. (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Name of Firm Authorized Signature Name (PLEASE PRINT) Title Address (INCLUDE ZIP CODE) Area Code and Telephone No. Dated , 1997 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm that is a recognized member of an Eligible Institution (as defined in the Offer to Purchase), unless (i) this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal, or (ii) such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. To tender Shares validly pursuant to the Offer, either (a) the certificates for such Shares (or confirmation of receipt of such Shares pursuant to the procedures for book-entry transfer set forth below), together with a properly completed and duly executed Letter of Transmittal or photocopy thereof, with any required signatures guaranteed (or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal) must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal prior to the Expiration Date. If certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Stockholders whose Share certificates are not immediately available, who cannot deliver their Share certificates and all other required documents to the Depositary or who cannot complete the procedure for delivery by book-entry transfer prior to the Expiration Date may tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (with any required signature guarantees) must be received by the Depositary prior to the Expiration Date, and (iii) the certificates for all physically delivered Shares in proper form for transfer by delivery, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, in each case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (or in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other documents required by this Letter of Transmittal, must be received by the Depositary no later than midnight, New York City time, on the third business day after the date of the execution of the Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Instruction on the form set forth in such notice. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative or contingent tenders will be accepted. By executing this Letter of Transmittal (or facsimile thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate signed schedule and attached to this Letter of Transmittal. 8 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the Shares not purchased by the Company in the Offer will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the "Special Payment Instructions" or "Special Delivery Instructions" boxes on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signatures(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), in which case the certificates evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such certificates. Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on such certificate(s). Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as provided in this Instruction, the Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the aggregate Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Section 5 of the Offer to Purchase. Except as provided in this Instruction 6, it will not be necessary to affix transfer tax stamps to the certificates representing Shares tendered hereby. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the Purchase Price of any Shares tendered hereby is to be issued in the name of, and/or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal, or if the check and/or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to an address other than that shown above in the box captioned "Description of Shares Tendered," then the boxes captioned "Special Payment Instructions" and/or "Special 9 Delivery Instructions" on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such stockholder at the Book-Entry Transfer Facility from which such transfer was made. 8. ODD LOTS. As described in Section 1 of the Offer to Purchase, if fewer than all Shares validly tendered and not withdrawn prior to the Expiration Date are to be purchased, the Shares purchased first will consist of all Shares validly tendered and not withdrawn by any stockholder who owned of record or beneficially, as of the close of business on July 3, 1997, and continues to own of record or beneficially at the Expiration Date, an aggregate of five or fewer Shares (including Shares held for the account of such stockholder in the 401(k) Plan), and who validly tendered all such Shares (partial tenders of Shares will not qualify for this preference) and completed the box captioned "Odd Lots" in this Letter of Transmittal, and, if applicable, the Notice of Guaranteed Delivery and, if the stockholder has Shares held for his or her account in the 401(k) Plan, on the Tender Instruction Form being sent to participants in the 401(k) Plan. 9. SUBSTITUTE FORM W-9 AND FORM W-8. To prevent backup federal income tax withholding equal to 31% of the gross payments payable pursuant to the Offer, each stockholder who does not otherwise establish an exemption from backup withholding must notify the Depositary of such stockholder's correct taxpayer identification number (or certify that such taxpayer is awaiting a taxpayer identification number) and provide certain other information by completing, under penalties of perjury, the Substitute Form W-9 included in the Letter of Transmittal. Noncorporate foreign stockholders should generally complete and sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. As more fully described below in Instruction 10, in the case of a foreign stockholder, even if such stockholder has provided the required certification to avoid backup withholding, the Depositary will withhold 30% of the gross payments made pursuant to the Offer unless a reduced rate of withholding or an exemption from withholding is applicable. 10. WITHHOLDING ON FOREIGN STOCKHOLDERS. The Depositary will withhold United States federal income taxes equal to 30% of the gross payments payable to a foreign stockholder unless the Company and the Depositary determine that (i) a reduced rate of withholding is available pursuant to a tax treaty or (ii) an exemption from withholding is applicable because such gross proceeds are effectively connected with the conduct of a trade or business within the United States. For this purpose, a foreign stockholder is any stockholder that is not (i) a citizen or resident of the United States, (ii) a corporation, partnership, or other entity created or organized in or under the laws of the United States, any State or any political subdivision thereof or (iii) an estate or trust, the income of which is subject to United States federal income taxation regardless of the source of such income. In order to obtain a reduced rate of withholding pursuant to a tax treaty, a foreign stockholder must deliver to the Depositary before the payment a properly completed and executed IRS Form 1001. In order to obtain an exemption from withholding on the grounds that the gross proceeds paid pursuant to the Offer are effectively connected with the conduct of a trade or business within the United States, a foreign stockholder must deliver to the Depositary before the payment a properly completed and executed IRS Form 4224. The Company and the Depositary will determine a stockholder's status as a foreign stockholder and eligibility for a reduced rate of, or exemption from, withholding by reference to any outstanding certificates or statements concerning eligibility for a reduced rate of, or exemption from, withholding (e.g., IRS Form 1001 or IRS Form 4224) unless facts and circumstances indicate that such reliance thereon is not warranted. A foreign stockholder may be eligible to obtain a refund of all or a portion of any tax withheld if such stockholder meets the "complete redemption", "substantially disproportionate" or "not essentially equivalent to a dividend" tests described in Section 14 of the Offer to Purchase or is otherwise able to establish that no tax or a reduced amount of tax is due. Backup withholding generally will not apply to amounts subject to the 30% or a treaty-reduced rate of withholding. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent at its telephone number and address listed below. Requests for additional copies of the Offer to Purchase, this Letter of Transmittal or other tender offer materials may likewise be directed to the Information Agent, and such copies will be furnished promptly at the Company's expense. Stockholders may also contact their local broker, dealer, commercial bank or trust company for documents relating to, or assistance concerning, the Offer. 10 12. IRREGULARITIES. All questions as to the Purchase Price, the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Company, in its sole discretion, which determination shall be final and binding on all parties. The Company reserves the absolute right to reject any or all tenders of Shares that it determines are not in proper form or the acceptance for payment of which or payment for which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular Shares or by any particular stockholder, and the Company's interpretation of the terms of the Offer (including these Instructions) will be final and binding on all parties. No tender of Shares will be deemed to be validly made until all defects or irregularities have been cured or waived. None of the Company, the Depositary, the Information Agent or any other person is or will be under any duty to give notice of any defects or irregularities in tenders, and none of them will incur any liability for failure to give any such notice. 13. 401(K) PLAN. Participants in the 401(K) Plan who wish to have the trustee of the 401(K) Plan tender shares attributable to their accounts should so indicate by completing, executing and returning to American Century Services, Inc., the plan administrator, the Tender Instruction Form included in the materials sent to such participants. PARTICIPANTS IN THE 401(K) PLAN MAY NOT USE THIS LETTER OF TRANSMITTAL TO DIRECT THE TENDER OF SUCH SHARES, BUT MUST USE THE SEPARATE TENDER INSTRUCTION FORM SENT TO THEM. 14. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in Section 1 of the Offer to Purchase, stockholders tendering Shares in certificate form may designate the order of priority in which their Shares are to be purchased in the event of proration. The order of purchase may have an effect on the United States federal income tax consequences of any gain or loss on the Shares purchased. See Sections 1 and 14 of the Offer to Purchase. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF) TOGETHER WITH SHARE CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY TRANSFER TOGETHER WITH THIS LETTER OF TRANSMITTAL OR AN AGENT'S MESSAGE, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION DATE. STOCKHOLDERS ARE ENCOURAGED TO RETURN A COMPLETED SUBSTITUTE FORM W-9 WITH THEIR LETTER OF TRANSMITTAL. 11 - ----------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social security number RIGHT ------------------------------ FORM W-9 AND CERTIFY BY SIGNING AND DATING BELOW. OR Employer identification number DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE ---------------------------------------------------------------------------------- PART 2 -- CERTIFICATION -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am awaiting for a number to be issued to me) and (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue PAYER'S REQUEST FOR Service (the "IRS") that I am subject to backup withholding as a result of a TAXPAYER failure to report all interest or dividends, or (c) the IRS has notified me IDENTIFICATION that I am no longer subject to backup withholding. NUMBER (TIN) ---------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). SIGNATURE DATE - -------------------------------------------------------------------------------------------
I,1 NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld; but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature Date ____________________ - -------------------------------------------------------------------------------- PART 3 Awaiting TIN [ ] 12 The Information Agent for the Offer is: CORPORATE INVESTOR COMMUNICATIONS, INC. 111 Commerce Road Carlstadt, New Jersey 07072-2586 Banks and Brokers Call Collect: (201) 896-1900 or All Others Can Call Toll-Free: 1 (800) 631-0983 EX-99.A.3 4 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT (A)(3) INSILCO CORPORATION NOTICE OF GUARANTEED DELIVERY OF SHARES OF COMMON STOCK THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 7, 1997, UNLESS THE OFFER IS EXTENDED. This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if certificates for the shares of Common Stock, par value $.001 per share, of Insilco Corporation are not immediately available, if the procedure for book-entry transfer cannot be completed on a timely basis, or if time will not permit all other documents required by the Letter of Transmittal to be delivered to the Depositary (as defined below) prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase defined below). Such form may be delivered by hand or transmitted by mail or overnight courier, or (for Eligible Institutions only) by facsimile transmission, to the Depositary. See Section 3 of the Offer to Purchase. THE ELIGIBLE INSTITUTION WHICH COMPLETES THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE DEPOSITARY AND MUST DELIVER THE LETTER OF TRANSMITTAL AND CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THE TIME SHOWN HEREIN. FAILURE TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION. The Depositary for the Offer is: NATIONAL CITY BANK BY MAIL: FACSIMILE TRANSMISSION: BY HAND OR National City Bank, (for Eligible Institutions Only) Fax: (216) OVERNIGHT Depositary 476-8367 COURIER: P. O. Box 94720 FOR INFORMATION National City Cleveland, Ohio TELEPHONE: Bank, 44101-4720 (216) 476-8049 Depositary (800) 622-6757 Corporate Trust (Shareholder Questions) Operations Third Floor -- North Annex 4100 West 150th Street Cleveland, Ohio 44135-1385
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONES LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. 2 Ladies and Gentlemen: The undersigned hereby tenders to Insilco Corporation, a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated July 11, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of common stock, par value $.001 per share, of the Company listed below, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. ODD LOTS This section is to be completed ONLY if Shares are being tendered by or on behalf of a person who owned beneficially, as of the close of business on July 3, 1997, and who continues to own beneficially as of the Expiration Date, an aggregate of five or fewer Shares. The undersigned either (check one box): [ ] owned beneficially, as of the close of business on July 3, 1997, and continues to own beneficially as of the Expiration Date, an aggregate of five or fewer Shares (including Shares held for the account of the undersigned by the Insilco Corporation Employee Thrift Plan), all of which are being tendered and elects to have all such Shares purchased without proration, or [ ] is a broker, dealer, commercial bank, trust company or other nominee who (i) is tendering, for the beneficial owners thereof, Shares with respect to which it is the record owner, and (ii) believes, based upon representations made to it by each such beneficial owner, that such beneficial owner owned beneficially, as of the close of business on July 3, 1997, and continues to own beneficially as of the Expiration Date, an aggregate of five or fewer Shares (including Shares held for the account of the undersigned by the Insilco Corporation Employee Thrift Plan) and is tendering all of such Shares. Number of Shares Certificate No.(s) (If Available) - ------------------------------------------------------ - ------------------------------------------------------ If Shares will be tendered by book-entry transfer: - ------------------------------------------------------ - ------------------------------------------------------ Name of Transferring Institution: - ------------------------------------------------------ Account No. at The Depository Trust Company SIGN HERE - ------------------------------------------------------ - ------------------------------------------------------ Name(s) (Please Print) - ------------------------------------------------------ - ------------------------------------------------------ (ADDRESS) - ------------------------------------------------------ AREA CODE AND TELEPHONE NUMBER - ------------------------------------------------------ SIGNATURE(S) 2 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program, hereby guarantees the delivery to the Depositary at one of its addresses set forth above certificates for the Shares tendered hereby, in proper form for transfer (or a confirmation of a book-entry transfer of the Shares delivered electronically) together with a properly completed and duly executed Letter(s) of Transmittal (or facsimiles thereof), with any required signature guarantees and any other required documents, all within three business days after the date hereof. - ------------------------------------------------------ NAME OF FIRM - ------------------------------------------------------ ADDRESS - ------------------------------------------------------ CITY, STATE, ZIP CODE Area Code and Tel. No. - ------------------------------------------------------ AUTHORIZED SIGNATURE Name PLEASE TYPE OR PRINT Title Date , 199 DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. YOUR SHARE CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL. 3 EX-99.A.4 5 FORM OF BROKER DEALER LETTER 1 Exhibit (a)(4) INSILCO CORPORATION OFFER TO PURCHASE FOR CASH UP TO 2,857,142 SHARES OF ITS COMMON STOCK AT $38.50 NET PER SHARE THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 7, 1997, UNLESS THE OFFER IS EXTENDED. July 11, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Insilco Corporation (the "Company") to act as Information Agent in connection with its offer to purchase up to $110 million of its issued and outstanding shares of Common Stock, par value $.001 per share (the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated July 11, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"). THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 6 OF THE OFFER TO PURCHASE. We are asking you to contact your clients for whom you hold Shares registered in your name (or in the name of your nominee) or who hold Shares registered in their own names. Please bring the Offer to their attention as promptly as possible. For your information and for forwarding to your clients, we are enclosing the following documents: 1. The Offer to Purchase, dated July 11, 1997. 2. The Letter of Transmittal for your use and for the information of your clients. 3. A letter to stockholders of the Company from Robert L. Smialek. 4. Press release issued by the Company, dated July 11, 1997. 5. The Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to the Depositary by the Expiration Date (each as defined in the Offer to Purchase). 6. A letter that may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space for obtaining such clients' instructions with regard to the Offer. 7. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding. 8. A return envelope addressed to National City Bank, the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 7, 1997, UNLESS THE OFFER IS EXTENDED. 2 The Company will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. The Company will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary handling and mailing expenses incurred by them in forwarding materials relating to the Offer to their customers. The Company will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS, OFFICERS OR EMPLOYEES MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. Any questions or requests for assistance or additional copies of the enclosed materials may be directed to the Information Agent at its address and telephone number set forth on the back cover of the enclosed Offer to Purchase. Very truly yours, CORPORATE INVESTOR COMMUNICATIONS, INC. Enclosures NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE COMPANY, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.A.5 6 FORM OF CLIENT LETTER 1 EXHIBIT (a)(5) INSILCO CORPORATION OFFER TO PURCHASE FOR CASH UP TO 2,857,142 SHARES OF ITS COMMON STOCK AT $38.50 NET PER SHARE THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 7, 1997, UNLESS THE OFFER IS EXTENDED To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated July 11, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer") setting forth an offer by Insilco Corporation, a Delaware corporation (the "Company"), to purchase up to 2,857,142 shares of its Common Stock, par value $.001 per share, at $38.50 per share, net to the seller in cash, upon the terms and subject to the conditions of the Offer. Also enclosed herewith is certain other material related to the Offer, including a letter from Robert L. Smialek, Chairman, President and Chief Executive Officer of the Company, to stockholders. This material is being forwarded to you as the beneficial owner of Shares carried by us in your account but not registered in your name. The Company will pay $38.50 per Share net to the seller in cash (the "Purchase Price") for all Shares validly tendered pursuant to the Offer and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions relating to proration described in Section 1 of the Offer to Purchase. The Purchase Price will be paid in cash, net to the seller, with respect to all Shares purchased. Shares tendered and not purchased because of proration or invalid tender will be returned to stockholders. WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. AS SUCH, A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The tender price is $38.50 per Share, as indicated in the attached Instruction Form, net to you in cash. 2. The Offer is extended for up to 2,857,142 Shares. The Offer is not conditioned on any minimum number of Shares being tendered. The Offer is, however, subject to certain other conditions set forth in the Offer to Purchase. 3. The Offer, proration period and withdrawal rights will expire at 12:00 Midnight, New York City time, on Thursday, August 7, 1997, unless the Offer is extended. Your instructions to us should be forwarded to us in ample time to permit us to submit a tender on your behalf. 4. As described in the Offer to Purchase, if more than 2,857,142 Shares have been validly tendered and not withdrawn prior to the Expiration Date, as defined in Section 1 of the Offer to Purchase, the Company will purchase Shares in the following order of priority: 2 (i) first, all Shares validly tendered and not withdrawn prior to the Expiration Date by any stockholder who was, as of the close of business on July 3, 1997, and who will continue to be at the Expiration Date the record or beneficial owner of an aggregate of five or fewer Shares (including Shares held for the account of such stockholder by the Insilco Corporation Employee Thrift Plan (the "401(k) Plan")) all of which are being tendered (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" in the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery and, if the stockholder has Shares held for his or her account in the 401(k) Plan, on the Tender Instruction Form being sent to participants in the 401(k) Plan; and (ii) then, after purchase of all the foregoing Shares, all Shares validly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. See Section 1 of the Offer to Purchase for a discussion of proration. 5. Tendering stockholders will not be obligated to pay any brokerage commissions or solicitation fees on the Company's purchase of Shares in the Offer. Any stock transfer taxes applicable to the purchase of Shares by the Company pursuant to the Offer will be paid by the Company, except as otherwise provided in Instruction 6 of the Letter of Transmittal. NEITHER THE COMPANY, NOR ANY OF ITS DIRECTORS OR OFFICERS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. SEE SECTIONS 8, 10, AND 14 OF THE OFFER TO PURCHASE. If you wish to have us tender any or all of your Shares held by us for your account upon the terms and subject to the conditions set forth in the Offer to Purchase, please so instruct us by completing, executing and returning to us the attached Instruction Form. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the Instruction Form. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF BY THE EXPIRATION OF THE OFFER. The Offer is being made solely by the Offer to Purchase, dated July 11, 1997 and the related Letter of Transmittal. The Offer is not being made to, nor will tenders be accepted from or on behalf of holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would violate the laws of such jurisdiction. In any jurisdiction the securities laws of which require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on the Company's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 3 INSTRUCTION FORM WITH RESPECT TO OFFER TO PURCHASE FOR CASH UP TO 2,857,142 SHARES OF COMMON STOCK OF INSILCO CORPORATION AT A PURCHASE PRICE OF $38.50 NET PER SHARE The undersigned acknowledges receipt of your letter and the enclosed Offer to Purchase, dated July 11, 1997, and the related Letter of Transmittal (which together constitute the "Offer") in connection with the offer by Insilco Corporation (the "Company") to purchase up to 2,857,142 shares of its Common Stock, par value $.001 per share (the "Shares") at a price of $38.50 per share, net to the undersigned in cash upon the terms and subject to the terms and conditions of the Offer. This will instruct you to tender to the Company the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, at the Purchase Price, upon the terms and subject to the conditions of the Offer. SHARES TO BE TENDERED* ________ Shares *Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. ODD LOTS [ ] By checking this box, the undersigned represents that the undersigned owned beneficially (including Shares held for the account of the undersigned by the Insilco Corporation Employee Thrift Plan), as of the close of business on July 3, 1997, and continues to own beneficially as of the Expiration Date, an aggregate of five or fewer Shares and is tendering all of such Shares in the Offer. THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY. SIGN HERE --------------------------------- Signature(s) Dated: July 11, 1997 Name --------------------------------- Address ------------------------------ --------------------------------- Social Security or Taxpayer ID No. EX-99.A.6 7 FORM OF LETTER TO PARTICIPANTS 1 EXHIBIT (a)(6) INSILCO CORPORATION 425 METRO PLACE N. FIFTH FLOOR DUBLIN, OHIO 43017 July 11, 1997 OFFER TO PURCHASE COMMON STOCK OF INSILCO CORPORATION Dear Participant in the Insilco Corporation Employee Thrift Plan: Insilco Corporation (the "Company") recently announced that it was offering to purchase up to 2,857,142 shares of its Common Stock, $.001 par value per share (together with all other outstanding shares of Common Stock of the Company, the "Shares"), at a price per Share equal to $38.50, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated July 11, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"). As a participant in the Insilco Corporation Employee Thrift Plan (the "401(k) Plan") you may elect to "tender" (offer to sell) some or all of the Shares (excluding fractional Shares) which were allocated to your Insilco Stock Fund in the 401(k) Plan as of July 3, 1997 ("Fund Shares") by following the procedures described in the materials enclosed with this letter. Since your Fund Shares are held in the name of UMB (the "Trustee"), only the Trustee can actually tender those Shares. However, it is your right, under the terms of the 401(k) Plan, to direct the Trustee whether to tender Fund Shares and, if so, how many Fund Shares to tender. Enclosed are the materials relating to the Offer that are being sent to all stockholders of the Company, as well as a Memorandum of Questions and Answers describing the Offer and the procedures for tendering Fund Shares and a Tender Instruction Form. PLEASE NOTE THAT, ALTHOUGH THE DEADLINE FOR THE TRUSTEE TO TENDER YOUR FUND SHARES IS THURSDAY, AUGUST 7, 1997, YOU MUST SEND YOUR TENDER INSTRUCTION FORM TO AMERICAN CENTURY SERVICES, INC., THE ADMINISTRATOR OF THE 401(k) PLAN ("AMERICAN CENTURY") FOR RECEIPT BY 4:00 PM, NEW YORK CITY TIME, TUESDAY, AUGUST 5, 1997. American Century will process the Tender Instruction Forms and forward them to the Trustee. You also may withdraw any tender you have made under the Offer provided you do so prior to August 5, 1997. You may tender some or all of your Fund Shares which were allocated to your account as of July 3, 1997 (excluding fractional Shares). The number of Fund Shares you own as of July 3, 1997 can be found on the label at the bottom of the Tender Instruction Form. If more Shares are tendered than the Company has offered to purchase, only a pro rata portion of any Fund Shares tendered on your behalf may be purchased. Proration will not apply to the tender of Fund Shares owned by any stockholder who owns an aggregate of five or fewer shares (counting both Fund Shares and Shares owned outside the 401(k) Plan) if such person tenders all of his or her shares. If you are such a person, you must check the box under the caption "ODD LOTS" in the letter. Before making a decision, you should carefully read this letter, including the attached Memorandum of Questions and Answers on 401(k) Plan Rights and Procedures, the Offer to Purchase and other enclosed materials, and the Tender Instruction Form. If you take no action, none of your Fund Shares will be tendered by the Trustee. NEITHER THE COMPANY OR ANY OF ITS DIRECTORS, OFFICERS OR EMPLOYEES, NOR THE TRUSTEE, NOR AMERICAN CENTURY INVESTMENTS, MAKES ANY RECOMMENDATION TO ANY 401(k) PLAN PARTICIPANTS AS TO WHETHER TO DIRECT THAT THEIR FUND SHARES BE TENDERED. EACH 401(k) PLAN PARTICIPANT MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO DIRECT THAT FUND SHARES BE TENDERED AND, IF SO, HOW MANY SHARES TO TENDER. 2 If you instruct American Century to direct the Trustee to tender all or some of your Fund Shares, the cash that is paid for such Shares will be reinvested in the American Century-Benham Premium Government Reserve Fund (the "Money Market"), and you may direct that such amount be deposited in any other 401(k) Plan fund upon notification to you that the proceeds have been received. PLEASE NOTE THAT TO THE EXTENT SUCH CASH IS NOT REINVESTED IN THE INSILCO STOCK FUND WITHIN 90 DAYS OF ITS DEPOSIT IN THE MONEY MARKET, YOU MAY NOT QUALIFY FOR CERTAIN FAVORABLE TAX TREATMENT UPON SUBSEQUENT DISTRIBUTIONS TO YOU FROM THE 401(k) PLAN. SEE "CERTAIN TAX INFORMATION" THAT CAN BE FOUND AT THE END OF THE ENCLOSED QUESTIONS AND ANSWERS. Any distributions and purchases of Shares that may be requested during the offer period may be delayed until ten business days following the expiration of the Offer. If you elect to tender Fund Shares, the enclosed yellow Tender Instruction Form must be received by American Century by 4:00 P.M., New York City time, Tuesday, August 5, 1997. Please use the enclosed reply envelope to return your tender instruction form. If you do not wish to tender your Fund Shares, you need not take any action. If you have any questions after reviewing the materials, please call: - Corporate Investor Communications, Inc., the Information Agent for the Offer, at (800) 631-0983 for questions on the terms and conditions of the Offer. Sincerely, INSILCO CORPORATION MEMORANDUM OF QUESTIONS AND ANSWERS ON 401(K) PLAN TENDER RIGHTS AND PROCEDURES A. DESCRIPTION OF THE OFFER 1. WHAT IS THE OFFER? On July 11, 1997 the Company offered to purchase up to 2,857,142 shares of common stock of Insilco Corporation (the "Shares") at a price of $38.50 per Share. The Offer will be open from July 11, 1997 until it expires at 12:00 midnight, New York City time, Thursday, August 7, 1997, unless it is extended by the Company. The Company's offer to purchase Shares extends to the Fund Shares currently held by the Insilco Corporation Employee Thrift Plan (the "401(k) Plan"). Participants who hold Fund Shares may provide for the tender of their Fund Shares for purchase pursuant to the Offer by so indicating on the enclosed Tender Instruction Form and returning it to American Century as directed by 4:00 P.M., New York City time, Tuesday, August 5, 1997. If the number of Shares tendered exceeds 2,857,142, all Shares tendered (except as described below) will be accepted on a pro rata basis. "Pro rata" simply means that the Company will purchase an equal proportion of the Shares tendered to the Company. For example, if the number of Shares tendered was twice the number of Shares that the Company has offered to purchase, the Company will purchase one-half of the Shares tendered by each tendering stockholder. Proration will not apply to the tender of Fund Shares owned by any stockholder who owns five or fewer Shares (counting both Fund Shares and Shares owned outside the 401(k) Plan) if such person tenders all of his or her Shares. Thus, if you own five or fewer Shares (counting both Fund Shares and Shares owned outside the 401(k) Plan) and you tender all of your Shares, and you check the box labeled "Odd Lots" on the enclosed Tender Instruction Form and, if you own Shares outside of the 401(k) Plan, the Letter of Transmittal or Notice of Guaranteed Delivery, as applicable, the Company will purchase all of your Shares. Fund Shares held in your 401(k) Plan Account that are not purchased in the Offer will remain in the Insilco Stock Fund subject to normal 401(k) Plan rules. 2 3 The Offer is fully described in the Offer to Purchase provided to you. PLEASE READ IT CAREFULLY. 2. WHAT ARE MY RIGHTS UNDER THE OFFER? The records of the 401(k) Plan indicate that Shares are allocated to the Insilco Stock Fund. You may tender some or all of these Shares. Because all of these Shares are held in trust for your benefit, they are registered in the name of the Trustee. So, the Trustee will actually tender Fund Shares in accordance with your instructions to American Century. YOU MUST INSTRUCT AMERICAN CENTURY IF AND, IF SO, TO WHAT EXTENT, YOU WANT TO TENDER ANY OF YOUR FUND SHARES. AMERICAN CENTURY WILL HAVE YOUR FUND SHARES TENDERED ONLY IF DIRECTED. IF YOU DO NOT RESPOND, YOUR FUND SHARES WILL REMAIN IN THE INSILCO STOCK FUND ACCOUNT. 3. IF I DECIDE TO INSTRUCT AMERICAN CENTURY TO HAVE MY FUND SHARES TENDERED, WILL I RECEIVE THE PROCEEDS? No. All proceeds from any Fund Shares that are tendered (although you may subsequently change the form of investment; see below) will be automatically invested by American Century in the American Century-Benham Premium Government Reserve Fund (the "Money Market"). The proceeds will be part of your individual account and may not be distributed except in accordance with the applicable terms of the 401(k) Plan. 4. WHICH DOCUMENTS DID I RECEIVE IN THE TENDER MATERIALS AND WHAT IS THEIR PURPOSE? You received the following materials in this mailing: - Letter from the Company. - Press Release announcing the Offer. - Offer to Purchase dated July 11, 1997. This document (white, bound document) describes the Offer. - Letter of Transmittal. This document (long blue document) is part of the "Offer" and therefore is being provided to you. However, it does not apply to, or provide any instructions for, tendering Fund Shares. Do NOT use it to tender Fund Shares. However, if you hold Shares outside of the 401(k) Plan, please refer to this Letter of Transmittal for instructions on how to tender those Shares. - Letter from Insilco Corporation (the white document you are reading) which includes information about the 401(k) Plan and the Offer and Q&As. - Tender Instruction Form. (yellow form) YOU MUST COMPLETE, SIGN AND MAIL THIS DOCUMENT TO AMERICAN CENTURY IN THE ENCLOSED ENVELOPE IF YOU WISH THE TRUSTEE TO BE DIRECTED TO TENDER YOUR FUND SHARES. A LABEL WITH YOUR NAME, SOCIAL SECURITY NUMBER AND THE NUMBER OF FUND SHARES YOU OWN AS OF JULY 3, 1997 IS ATTACHED TO THIS DOCUMENT. USE THIS DOCUMENT IF YOU WISH TO DIRECT A TENDER OF YOUR FUND SHARES. - Reply Envelope. A pre-addressed envelope for your reply. WE URGE YOU TO READ THESE MATERIALS CAREFULLY. 5. HOW DO I DIRECT AMERICAN CENTURY? The only way that you can tender your Fund Shares is by completing the Tender Instruction Form (yellow) as described, and signing and returning it to American Century, which will process your instructions. The address of American Century is on the return envelope which you may use to return the Tender Instruction form. THE TENDER INSTRUCTION FORM MUST BE RECEIVED BY AMERICAN CENTURY BEFORE 4:00 P.M., NEW YORK CITY TIME, ON TUESDAY, AUGUST 5, 1997. YOU MUST SIGN AND COMPLETE THE FORM FOR YOUR DIRECTION TO BE VALID. 6. HOW DO I COMPLETE THE TENDER INSTRUCTION FORM? To complete the Tender Instruction Form you will need to do the following: 3 4 - INSTRUCTIONS. Read carefully and follow exactly the instructions in the Letter from Insilco Corporation and the Tender Instruction Form. - SHARES. Designate on the Tender Instruction Form the number of Fund Shares (excluding fractional shares) you wish to be tendered. - SIGNATURE. You must sign the Tender Instruction Form to complete your instruction. Unless you sign the Tender Instruction Form, your direction cannot be honored and the Tender Instruction Form will be void. Please be precise in providing your instruction and please act PROMPTLY. IF YOU DO NOT WISH TO TENDER FUND SHARES, YOU DO NOT NEED TO TAKE ANY ACTION. 7. HOW DO I SEND INSTRUCTIONS TO AMERICAN CENTURY? Please return your Tender Instruction Form PROMPTLY, recognizing the slow delivery time inherent in the U.S. mail today. You may mail your Tender Instruction Form to American Century in the preaddressed reply envelope that has been provided for your reply or send it by an alternate faster means (such as overnight courier). You may NOT fax your instructions. PLEASE DO NOT DELIVER YOUR INSTRUCTIONS TO THE COMPANY'S HUMAN RESOURCES DEPARTMENT OR THE COMPANY'S BENEFITS ADMINISTRATOR. 8. HOW MANY FUND SHARES MAY I TENDER AND HOW DO I LEARN THAT NUMBER? The number of Fund Shares that you held under the 401(k) Plan as of July 3, 1997, is set forth on the label at the bottom of the Tender Instruction Form. You may tender all or any number of such Shares (excluding fractional Shares, if any). 9. WHAT IF I OWN SHARES IN MY 401(k) PLAN ACCOUNT AND SHARES OUTSIDE OF THE 401(k) PLAN? If you own Fund Shares and also own Shares outside the 401(k) Plan you would need to complete (i) the Tender Instruction Form to tender your Fund Shares and (ii) the Letter of Transmittal to tender Shares held outside of the 401(k) Plan. You should be careful to follow the directions that apply to each kind of Shares. 10. IF I TENDERED FUND SHARES AND THEN CHANGE MY MIND, CAN I WITHDRAW THE FUND SHARES THAT I TENDERED? Yes, but only if you perform the following steps: - You must send a signed notice of withdrawal to American Century at P.O. Box 419784, Kansas City, Missouri 64141-6784. - The notice of withdrawal must be in writing. You may fax your notice of withdrawal to American Century at fax number (816) 340-4015. - The notice of withdrawal must state your name, social security number, the number of Fund Shares that you wish to withdraw from the offer and that you are withdrawing Fund Shares that you instructed American Century to have tendered on your behalf. - The notice of withdrawal must be received by American Century before 4:00 p.m., New York City time, on Tuesday, August 5, 1997. 11. CAN I RE-TENDER MY FUND SHARES? Yes, If you wish to re-tender your Fund Shares you must complete another Tender Instruction Form and return it to American Century for receipt by Tuesday, August 5, 1997. You may obtain another Tender Instruction Form by faxing your request to Corporate Investors Communications, Inc., the Information Agent at (800) 631-0983. 4 5 B. RESULTS OF THE TENDER: SHARES SOLD AND PRICE RECEIVED 12. HOW WILL I KNOW IF MY FUND SHARES HAVE BEEN PURCHASED? After expiration of the Offer, all tender directions will be tabulated, which may take up to two weeks. Soon thereafter you will be sent a statement of the number of your Fund Shares which were accepted. 13. WHAT HAPPENS IF I REQUEST A DISTRIBUTION, WITHDRAWAL OR REALLOCATION FOLLOWING THE ANNOUNCEMENT OF THE TENDER OFFER DURING THE OFFER PERIOD? Distributions, withdrawals or reallocations from the 401(k) Plan may be delayed until after the conclusion of the Offer. Authorized distributions, withdrawals or reallocations received before or during this period will be processed as soon as reasonably feasible. 14. WHEN MAY I REQUEST A CHANGE IN MY INVESTMENT ELECTIONS? You may change your investment election for future contributions or reallocate your existing Account balances on a daily basis under the 401(k) Plan's normal rules. 15. WILL I BE TAXED ON ANY PROCEEDS RECEIVED IN 1997 FROM THE COMPANY STOCK THAT IS TENDERED UNDER THE 401(k) PLAN? No. Because tender proceeds received from Fund Shares will be received by and held in the 401(k) Plan, they will not be subject to current income taxes. However, please see the Section entitled "Certain Tax Information" below as to certain other tax consequences to you of any tender of your Fund Shares. C. REINVESTMENT OF TENDER OFFER PROCEEDS 16. HOW WILL THE 401(k) PLAN INVEST THE PROCEEDS RECEIVED FROM THE FUND SHARES THAT ARE TENDERED? Proceeds received from the Offer will be initially reinvested by American Century in the American Century-Benham Premium Government Reserve Fund (the "Money Market"). Once the money has been deposited to your account you may transfer it to any 401(k) Plan fund. A notification will be mailed to your address of record once the proceeds have been deposited. D. CERTAIN TAX INFORMATION Participants in the 401(k) Plan should be aware that the reinvestment of the cash proceeds received in the Offer may, in certain circumstances, result in adverse tax consequences to those participants who, as part of the ultimate distributions of their accounts, would receive Shares. Special tax rules apply to certain distributions from the 401(k) Plan that consist, in whole or in part, of Shares. Generally, taxation of net unrealized appreciation ("NUA"), i.e., the amount by which the value of such Shares at the time of distribution exceeds the cost or other basis of such Shares (which will vary depending on whether the distribution qualifies for lump sum treatment), will be deferred until the Shares are sold following distribution. Moreover, if prior to a distribution, Shares are disposed of, as would be the case in the Offer, and the proceeds of such disposition are reinvested within 90 days thereafter in the Insilco Stock Fund, the cost or other basis of such newly acquired Shares for NUA purposes will be the cost or other basis of the tendered Shares. Accordingly, if the cash proceeds received upon the tender of Shares is not within 90 days reinvested in the Insilco Stock Fund under the 401(k) Plan, the opportunity to retain for NUA purposes the cost or other basis of the Shares tendered, and the tax-deferral treatment of the NUA calculated in reference to such basis, will be lost. The foregoing is only a brief summary of complicated provisions of the Internal Revenue Code. You are strongly urged to consult with your tax advisor as to the issues described above. ------------------------ 5 6 TENDER INSTRUCTION FORM FOR SHARES IN THE INSILCO CORPORATION EMPLOYEE THRIFT PLAN TO THE TRUSTEE OF THE INSILCO CORPORATION EMPLOYEE THRIFT PLAN: I am a participant in the Insilco Corporation Employee Thrift Plan (the "401(k) Plan") who owns shares of Common Stock of Insilco Corporation ("Shares") in the Insilco Stock Fund ("Fund Shares") and I have received a copy of the Offer to Purchase, dated July 11, 1997 (the "Offer to Purchase"), relating to the offer by Insilco Corporation, a Delaware corporation (the "Company"), to purchase up to 2,857,142 Shares (the "Offer") at a price of $38.50 per Share, net to the seller in cash. I wish to tender Fund Shares as indicated below: TENDER INSTRUCTIONS [ ] By checking this space, I represent that I wish to have the trustee of the 401(k) Plan (the "Trustee") tender ____________ Shares which are held in my Insilco Stock Fund in the 401(k) Plan. ODD LOTS [ ] By checking this space, I represent that I owned beneficially as of the close of business on July 3, 1997, and will continue to own beneficially as of the Expiration Date (as defined in the Offer to Purchase), an aggregate (including Shares held beneficially in the 401(k) Plan or otherwise) of five or fewer Shares, that I am instructing the Trustee to tender all Shares which are held in my Insilco Stock Fund in the 401(k) Plan and that I have tendered all other shares which I beneficially own in the Offer. I have read and understand the Offer to Purchase and the Letter from the Company and I agree to be bound by the terms of the Offer. I hereby direct the Trustee to tender these Shares on my behalf and to hold and invest the proceeds from the sale of these Shares in the American Century-Benham Government Reserve Fund. I understand that I may transfer these proceeds to any 401(k) Plan fund once the proceeds have been deposited to my account. I also understand and declare that if the tender of my Fund Shares is accepted, the payment therefor will be full and adequate compensation for these Fund Shares in my judgment, notwithstanding any potential fluctuation in the price of the Shares between the last day I can withdraw my tender and the date the Trustee sells the Shares. ---------------------------------- ---------------------------------- DATE SIGNATURE OF PARTICIPANT ---------------------------------- NOTE: THIS TENDER INSTRUCTION FORM MUST BE COMPLETED AND SIGNED IF SHARES HELD IN THE 401(K) PLAN ARE TO BE TENDERED. IF THE FORM IS NOT SIGNED, THE DIRECTIONS INDICATED WILL NOT BE ACCEPTED. PLEASE RETURN THIS TENDER INSTRUCTION FORM TO AMERICAN CENTURY AT P.O. BOX 419784, KANSAS CITY, MISSOURI, 64141-6784, USING THE PREADDRESSED REPLY ENVELOPE PROVIDED WITH YOUR TENDER MATERIALS. YOUR INSTRUCTION FORM MUST BE RECEIVED BY 4:00 PM, NEW YORK CITY TIME, ON TUESDAY, AUGUST 5, 1997. 6 EX-99.A.7 8 GUIDELINES FOR CERTIFICATION OF TAXPAYER ID NO. 1 EXHIBIT (A)(7) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - -------------------------------------------------------------------------------- GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF --
- -------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner of the account) account or, if joint funds, either person(2) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the minor account) is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for incompetent a designated ward, minor, or incompetent person(3) 7. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under State law 8. Sole proprietorship The Owner(4) account 9. A valid trust, estate, or Legal entity (Do not furnish pension trust the trust identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- -------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - - A corporation. - - A financial institution. - - An organization exempt from tax under section 501(a), or an individual retirement plan. - - The United States or any agency or instrumentality thereof. - - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - - An international organization or any agency or instrumentality thereof. - - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - - A real estate investment trust. - - A common trust fund operated by a bank under section 584(a). - - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - - An entity registered at all times under the Investment Company Act of 1940. - - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received is not paid in money. - - Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - - Payments described in section 6049(b)(5) to nonresident aliens. - - Payments on tax-free covenant bonds under section 1451. - - Payments made by certain foreign organizations. - - Payments of mortgage interest to you. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS -- If you fail to include any portion of an includable payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 20% on any portion of an underpayment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.A.8 9 TEXT OF PRESS RELEASE 1 EXHIBIT (A)(8) [INSILCO] NEWS RELEASE FOR IMMEDIATE RELEASE CONTACT: DAVID A. KAUER VICE PRESIDENT AND TREASURER (614) 692-0468 INSILCO CORPORATION ANNOUNCES $220 MILLION SHARE REPURCHASE COLUMBUS, OHIO, JULY 11, 1997 -- INSILCO CORPORATION (NASDAQ:INSL) today announced that its Board of Directors has approved the purchase of up to $220 million of its shares of Common Stock. The Company said that it expects the share repurchase to enhance shareholder value by, among other things: providing participating stockholders with an opportunity to obtain liquidity with respect to their shares in a tax advantaged transaction; giving the Company a capital structure in which the Company's average after-tax cost of capital is reduced; and permitting each share outstanding after the share repurchase to participate in a greater percentage of any earnings of the Company. The share repurchase is taking place in two steps in order to provide a tax-efficient distribution to all shareholders: First, on July 10, 1997, Insilco purchased 2,805,194 shares from its majority shareholder, Water Street Corporate Recovery Fund I, L.P., and 51,948 shares from Robert L. Smialek, Insilco Chairman and CEO, at $38.50 per share, for an aggregate purchase price of $110 million. These purchases were financed with proceeds from the sale of Insilco's Rolodex division, completed on March 5, 1997. Second, Insilco today has commenced a $110 million self-tender offer for up to 2,857,142 shares of Insilco's outstanding shares, at $38.50 per share. Water Street has agreed that it will tender no more than 960,577 shares in the Offer so that the percentage of shares to be purchased by the Company from Water Street will be less than the percentage of shares which the Company will offer to purchase from shareholders other than Water Street. Mr. Smialek has agreed that he will not tender any additional shares in the Offer. Water Street and Mr. Smialek have agreed that their sales will be rescinded if the Offer if not completed. On July 10, 1997, the Company refinanced its existing debt under a new six year $200 million credit agreement with a bank group including Citicorp USA, Inc., Goldman Sachs Credit Partners, L.P. and First National Bank of Chicago. The Offer will be financed out of borrowings under the new credit agreement and the proceeds of a potential offering of up to $150 million of new debt. If the new debt offering is completed, the Company will have approximately $290 million of outstanding debt and approximately $50 million of available credit. Robert L. Smialek, Insilco Chairman and CEO said, "This share repurchase plan reflects our clear commitment to maximizing value for all Insilco shareholders. The planned distribution monetizes a portion of our shareholders' investment, and our new capital structure also provides the opportunity to enhance future returns to shareholders. In addition, Insilco will benefit from a reduced average after-tax cost of capital while maintaining sufficient financial flexibility to make capital investments aimed at future growth." On a pro forma basis, after giving effect to the new capital structure, the completion of the share repurchases, and the acquisitions and divestitures completed in 1996 and 1997, the Company's 1996 earnings per share would have been $3.89. 2 Assuming full participation in the Offer, the Company will have approximately 3,854,152 shares of common stock outstanding, of which Water Street will own 2,400,001 shares, or 62.3% of the total outstanding, as compared to its 60.6% ownership before these transactions. Shareholders who wish to participate must decide how many shares, if any, they will tender. The Offer, the proration period and withdrawal rights will expire at 12:00 midnight, New York City time, on Thursday, August 7, 1997, unless the Offer is extended by the Company. The Information Agent for the Offer is Corporate Investor Communications, Inc. Copies of the Offer to Purchase and related materials, dated July 11, 1997, are being mailed to all Insilco shareholders. A detailed explanation of the terms of the Offer and tender procedures is included in these materials. Shareholders are urged to carefully read these materials prior to making any decision with respect to the Offer. Shareholders are also urged to consult their tax advisor concerning the tax treatment of the self-tender. Additional copies of these materials may be obtained through the Information Agent by calling 1-800-631-0983. Banks and brokerage firms should contact (201) 896-1900 for further information. Insilco Corporation, based in suburban Columbus, Ohio, is a diversified manufacturer of industrial components and a supplier of specialty publications. The Company's industrial business units serve the automotive, electronics, telecommunications and other industrial markets, and its publishing business serves the school yearbook market. It has revenues in 1996 of $572 million. Investor Relations Contact: David A. Kauer, (614) 792-0468 or write to Insilco Corporation, Investor Relations, 425 Metro Place North, Box 7196, Dublin, OH 43017 or call Melodye Demastus, Melrose Consulting (614) 771-0860. EX-99.A.9 10 FORM OF SUMMARY ADVERTISEMENT 1 EXHIBIT (a)(9) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is being made solely by the Offer to Purchase, dated July 11, 1997, and the related Letter of Transmittal. Capitalized terms not defined in this announcement have the respective meanings ascribed to such terms in the Offer to Purchase. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would violate the laws of such jurisdiction. In any jurisdiction the securities laws of which require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed made on behalf of the Company by one or more brokers or dealers licensed under the laws of such jurisdiction. NOTICE OF OFFER TO PURCHASE FOR CASH BY INSILCO CORPORATION UP TO 2,857,142 SHARES OF ITS COMMON STOCK AT $38.50 NET PER SHARE Insilco Corporation, a Delaware corporation (the "Company"), invites its shareholders to tender up to 2,857,142 shares of its Common Stock, par value $.001 per share ("Shares"), at $38.50 per Share (the "Purchase Price"), net to the seller in cash. The Offer is for 2,857,142 Shares or any lesser number of Shares validly tendered and not withdrawn. The Offer is being made upon the terms and subject to the conditions set forth in the Company's Offer to Purchase, dated July 11, 1997, and in the related Letter of Transmittal (which together constitute the "Offer"). The Offer is not conditioned upon any minimum number of Shares being tendered, but is subject to certain other conditions set forth in the Offer to Purchase. - -------------------------------------------------------------------------------- THE OFFER, THE PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 7, 1997, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Company expressly reserves the right, in its sole discretion, (i) to extend the period of time during which the Offer is open by giving oral or written notice to the Depositary and (ii) to amend the Offer in any respect by making a public announcement of such amendment. The term "Expiration Date" means 12:00 Midnight, New York City time, on Thursday, August 7, 1997, unless and until the Company shall have extended the period of time during which the Offer will remain open, in which event the term "Expiration Date" will refer to the latest time and date at which the Offer, as so extended by the Company, will expire. Upon the terms and subject to the conditions of the Offer, if 2,857,142 or fewer Shares have been validly tendered and not withdrawn prior to the Expiration Date, the Company will purchase all such Shares. Upon the terms and subject to the conditions of the Offer, if more than 2,857,142 Shares have been validly tendered and not withdrawn prior to the Expiration Date, the 2 Company will purchase Shares in the following order of priority: (i) first, all Shares validly tendered and not withdrawn prior to the Expiration Date by any stockholder who was as of the close of business on July 3, 1997, and will continue to be at the Expiration Date, the record or beneficial owner of an aggregate of five or fewer Shares (including Shares held for the account of such stockholder by the 401(k) Plan) all of which are being tendered (partial tenders will not qualify for this preference) and who completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery and, if the stockholder has Shares held for his or her account in the 401(k) Plan, on the Tender Instruction Form, and (ii) then, after purchase of all of the foregoing Shares, all Shares validly tendered and not withdrawn prior to the Expiration Date, on a pro rata basis, if necessary. It is expected that the final proration results will be announced approximately seven business days after the Expiration Date. For purposes of the Offer, the Company will be deemed to have accepted for payment (and thereby purchased), subject to proration, Shares that are validly tendered and not withdrawn as, if and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares pursuant to the Offer. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or of a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal or manually signed photocopy thereof (or, in the case of a book-entry transfer, an Agent's Message), and any other required documents. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that Shares may be withdrawn after 12:00 Midnight, New York City time, September 4, 1997 unless theretofore accepted for payment as provided in the Offer to Purchase. To be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the certificates evidencing the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering holder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the applicable Book-Entry Transfer Facility to be credited with the withdrawn Shares. The purpose of the Offer is to (i) provide participating stockholders with an opportunity to obtain liquidity with respect to their Shares in a tax advantaged transaction; (ii) give the Company a capital structure in which the Company's average after-tax cost of capital is reduced; (iii) permit each Share outstanding after the Share Repurchase to participate in a greater percentage of any earnings of the Company; (iv) to the extent the Offer results in a reduction in the number of stockholders of record, reduce the costs to the Company for stockholders services, including mailing and printing costs; and (v) afford any Odd Lot Owners whose Shares are purchased pursuant to the Offer the opportunity to avoid any brokerage fees and discounts payable on sales of Odd Lots. NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS, OFFICERS OR EMPLOYEES MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES, AND, IF SO, HOW MANY SHARES TO TENDER. -2- 3 THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY TENDERS ARE MADE. The information required to be disclosed by Rule 13e-4(d)(1) under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Offer to Purchase and the related Letter of Transmittal are being mailed to record holders of Shares and are being furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for transmittal to beneficial owners of Shares. Additional copies of the Offer to Purchase and the Letter of Transmittal may be obtained from the Information Agent and will be furnished promptly at the Company's expense. Questions and requests for assistance may be directed to the Information Agent as set forth below. The Information Agent for the Offer is: CORPORATE INVESTOR COMMUNICATIONS, INC. ------------------ 111 Commerce Road Carlstadt, New Jersey 07072-2586 Banks and Brokers Call Collect: (201) 896-1900 or ALL OTHERS CALL TOLL FREE: (800) 631-0983 July 11, 1997 EX-99.A.10 11 FORM OF LETTER TO STOCKHOLDERS 1 EXHIBIT (A)(10) July 11, 1997 Dear Fellow Stockholder, As I have previously communicated, we have been actively exploring alternatives to maximize stockholder value, and to provide stockholders with the opportunity to obtain liquidity with respect to their shares in a tax-efficient manner. In implementing this strategy, your Board of Directors has approved a self tender to repurchase approximately $110 million of the Company's stock. This offer is explained in detail in the enclosed Offer to Purchase and Letter of Transmittal. Please note that the Offer is scheduled to expire at midnight on Thursday, August 7, 1997. If you wish to tender your shares, instructions on how to tender shares are provided in the enclosed materials. I encourage you to read these materials carefully before making any decision with respect to the Offer. Neither the Company nor its Board of Directors makes any recommendation to any stockholder whether to tender any or all shares. We have retained Corporate Investor Communications, Inc. ("CIC") as our Information Agent to help you respond to this tender offer. Please contact CIC at its toll free number, 1-800-631-0983, if you have any questions. Its representatives will be pleased to answer your questions and can help you complete the correct documents. Sincerely, Robert L. Smialek Chairman and CEO RLS/bpt Enclosures EX-99.B.1 12 AMENDED AND RESTATED CREDIT AGREEMENT 1 EXHIBIT (b)(1) EXECUTION COPY ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of July 3, 1997 among INSILCO CORPORATION and INSILCO DEUTSCHLAND GMBH as Borrowers THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO AS LENDERS THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO AS ISSUING BANKS and THE FIRST NATIONAL BANK OF CHICAGO and GOLDMAN SACHS CREDIT PARTNERS L.P. as Syndication Agents and CITICORP USA, INC. as Administrative Agent ================================================================================ 2 CREDIT AGREEMENT This Amended and Restated Credit Agreement dated as of July 3, 1997 (as amended, supplemented or otherwise modified from time to time, this "Agreement"), entered into among Insilco Corporation, a Delaware corporation (with its successors and permitted assigns, the "Company"), Insilco Deutschland GmbH, a corporation organized under the laws of the Federal Republic of Germany and wholly owned Subsidiary of the Company ("Insilco GmbH"), certain other foreign subsidiaries of the Company designated herein as Foreign Borrowers (together with Insilco GmbH, the "Foreign Borrowers"; and together with the Company, the "Borrowers"), the institutions from time to time party hereto as Lenders, whether by execution of this Agreement or an Assignment and Acceptance, the institutions from time to time party hereto as Issuing Banks, whether by execution of this Agreement or an Assignment and Acceptance, The First National Bank of Chicago ("First Chicago") and Goldman Sachs Credit Partners L.P. ("GSCP"), in their separate capacities as syndication agents for the Lenders and the Issuing Banks (collectively, the "Co-Agents"), and Citicorp USA, Inc. ("Citicorp"), in its separate capacity as administrative and collateral agent for the Lenders and Issuing Banks (with its successors in such capacity, the "Administrative Agent"), amends and restates in its entirety that certain Credit Agreement dated as of October 21, 1994, as amended through the date hereof (the "Existing Credit Agreement"), among the Company, the Lenders, the Issuing Banks, Citicorp and GSCP, as Co-Agents (the "Existing Co-Agents") and the Administrative Agent. W I T N E S S E T H: WHEREAS, the Company has requested the Administrative Agent and the Lenders to amend certain terms of the Existing Credit Agreement, among other things, (i) to increase the Revolving Credit Commitments from $130,000,000 to $200,000,000, which amount will be reduced on a scheduled basis during the term of this Agreement, (ii) to extend the Revolving Credit Termination Date from March 31, 2001 to July 8, 2003, (iii) to refinance the entire outstanding amount of the Term Loans on the Effective Date (as defined herein) with proceeds of new Revolving Loans, (iv) to permit the Company to issue Subordinated Notes (as defined herein) by December 31, 1997 in an aggregate principal amount of up to $175,000,000, the net proceeds of which will be used, among other things, to finance the redemption or repurchase of the Company's Common Stock and (vi) to permit the Company and the Foreign Borrowers to borrow Revolving Loans in Alternative Currencies (as defined herein); WHEREAS, the Company, the Lenders, the Existing Co-Agents and the Administrative Agent have agreed to amend and 3 restate the Existing Credit Agreement to provide for such amendments on the terms set forth in this Agreement, which Agreement shall become effective upon satisfaction of certain conditions precedent set forth herein; NOW, THEREFORE, in consideration of the above premises, the Borrowers, the Lenders, the Issuing Banks, the Co-Agents and the Administrative Agent agree as follows: ARTICLE I DEFINITIONS 1.01. Certain Defined Terms. In addition to the terms defined above, the following terms used herein shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "Accommodation Obligation" means (without duplication) any Contractual Obligation, contingent or otherwise, of one Person with respect to any Indebtedness, obligation or liability of another, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability shall be paid or discharged, or that any agreements relating thereto shall be complied with, or that the holders thereof shall be protected (in whole or in part) against loss in respect thereof including, without limitation, direct and indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co-made, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase security therefor (other than such agreements to purchase in the ordinary course of business) or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received. "Administrative Agent" is defined in the preamble hereto and shall include any successor Administrative Agent appointed pursuant to Section 12.07. "Affiliate" of any specified Person means any other Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person, (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock or other equity interest of such specified Person or (iii) of which 5% or more of the Voting Stock or other equity interest is beneficially owned or held by such specified Person or a Subsidiary of such specified Person. For the purposes of this definition, (i) -2- 4 "control" when used with respect to any specified Person means the power to direct the management and policies of such Person directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing and (ii) Affiliates of the Company and Subsidiaries of the Company shall not include the Company and Subsidiaries of the Company. "Agents" means, collectively, the Administrative Agent and each of the Co-Agents. "Alternative Currency" means (i) the lawful currency of the United Kingdom, Japan, France or the Federal Republic of Germany and (ii) any additional currency approved by the Administrative Agent (subject to the Administrative Agent's confirmation that funding in such currency is generally provided by the Lenders); provided that in the case of any such currency, such currency is freely transferable and convertible into Dollars. "Applicable Base Rate Margin" means at all times during the applicable periods set forth below, the applicable rate per annum set forth below under the heading "Applicable Base Rate Margin":
Applicable Leverage Ratio Base Rate Margin -------------- ---------------- greater than 5.00 to 1 0.75% greater than 4.50 to 1 less than or equal to 5.00 to 1 0.375% greater than 4.00 to 1 less than or equal to 4.50 to 1 0.125% less than or equal to 4.00 to 1 0%
The Leverage Ratio used to compute the Applicable Base Rate Margin following the Effective Date shall be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Company to the Administrative Agent pursuant to Section 7.01(d); changes in the Applicable Base Rate Margin resulting from a change in the Leverage Ratio shall become effective as to all Base Rate Loans upon delivery by the Company to the Administrative Agent of a new Compliance Certificate pursuant to Section 7.01(d) and notice by the Company to the Administrative Agent that a rate change is required. Notwithstanding anything to the contrary set forth in this Agreement (including the then effective Leverage Ratio), the Applicable Base Rate Margin shall be 0.125% for the period commencing on the Effective Date and ending on the delivery of the Compliance Certificate in respect of the Borrowers' second fiscal quarter of Fiscal Year 1997. If -3- 5 the Company shall fail to deliver a Compliance Certificate within 50 days after the end of any fiscal quarter (or within 95 days, in the case of the last fiscal quarter of any Fiscal Year) as required pursuant to Section 7.01(d), the Applicable Base Rate Margin from and including the 51st (or 96th, as the case may be) day after the end of such fiscal quarter to but not including the date the Company delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Base Rate Margin set forth above. "Applicable Eurocurrency Rate Margin" means at all times during the applicable periods set forth below, the applicable rate per annum set forth below under the heading "Applicable Eurocurrency Rate Margin":
Applicable Leverage Ratio Eurocurrency Rate Margin -------------- ------------------------ greater than 5.00 to 1 2.00% greater than 4.50 to 1 less than or equal to 5.00 to 1 1.625% greater than 4.00 to 1 less than or equal to 4.50 to 1 1.375% greater than 3.50 to 1 less than or equal to 4.00 to 1 1.25% greater than 3.00 to 1 less than or equal to 3.50 to 1 1.00% less than or equal to 3.00 to 1 0.875%
The Leverage Ratio used to compute the Applicable Eurocurrency Rate Margin following the Effective Date shall be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Company to the Administrative Agent pursuant to Section 7.01(d); changes in the Applicable Eurocurrency Margin resulting from a change in the Leverage Ratio shall become effective as to all Eurocurrency Rate Loans upon delivery by the Company to the Administrative Agent of a new Compliance Certificate pursuant to Section 7.01(d) and notice by the Company to the Administrative Agent that a rate change is required. Notwithstanding anything to the contrary set forth in this Agreement (including the then effective Leverage Ratio), the Applicable Eurocurrency Rate Margin shall be 1.375% for the period commencing on the Effective Date and ending on the delivery of the Compliance Certificate in respect of the Borrowers' second fiscal quarter of Fiscal Year 1997. If the Company shall fail to deliver a Compliance Certificate within 50 days after the end of any fiscal quarter (or within 95 days, in the case of the last fiscal quarter of any Fiscal Year) as required pursuant to Section 7.01(d), the Applicable Eurocurrency -4- 6 Rate Margin from and including the 51st (or 96th, as the case may be) day after the end of such fiscal quarter to but not including the date the Company delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Eurocurrency Rate Margin set forth above. "Applicable Lending Office" means, with respect to a particular Lender, its Eurocurrency Lending Office in respect of provisions relating to Eurocurrency Rate Loans and its Domestic Lending Office in respect of provisions relating to Base Rate Loans. "Applicable Payment Office" means, with respect to Obligations payable in Dollars, the principal office of Citicorp in New York, New York, and, with respect to Obligations payable in any Alternative Currency, the principal office of Citibank London in London, England or such other office or offices as determined by the Administrative Agent from time to time of which notice is given to the Borrowers, the Lenders and the Issuing Banks in accordance with the provisions of Section 13.08. "ARUP" means ARUP Alu-Rohr und -Profil GmbH, a corporation formed under the laws of the Federal Republic of Germany. "Assignment and Acceptance" means an Assignment and Acceptance in substantially the form of Exhibit A attached hereto and made a part hereof (with blanks appropriately completed) delivered to the Administrative Agent in connection with an assignment of a Lender's interest hereunder in accordance with the provisions of Section 13.01. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. Sections 101 et seq.), as amended from time to time, and any successor statute. "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the highest of: (i) the rate of interest announced publicly by Citibank in New York, New York from time to time, as Citibank's base rate; and (ii) the sum (adjusted to the nearest one quarter of one percent (0.25%) or, if there is no nearest one quarter of one percent (0.25%), to the next higher one quarter of one percent (0.25%)) of (A) one half of one percent (0.50%) per annum plus (B) the rate per annum obtained by dividing (I) the latest three-week moving average of secondary market morning offering rates in the United States for three-month -5- 7 certificates of deposit of major United States money market banks, such three-week moving average (adjusted to the basis of a year of 360 days) being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday (or, if such day is not a Business Day, on the next preceding Business Day) by Citibank on the basis of such rates reported by certificate of deposit dealers to, and published by, the Federal Reserve Bank of New York, or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three (3) New York certificate of deposit dealers of recognized standing selected by Citibank, by (II) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank in respect of liabilities which consist of or which include (among other liabilities) three-month Dollar nonpersonal time deposits in the United States plus (C) the average during such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring Dollar deposits of Citibank in the United States; and (iii) the sum of (A) one half of one percent (0.50%) per annum plus (B) the Federal Funds Rate in effect from time to time during such period. "Base Rate Loans" means all Loans denominated in Dollars which bear interest at a rate determined by reference to the Base Rate as provided in Section 4.01(a). "Benefit Plan" means a defined benefit plan as defined in Section 3(35) of ERISA subject to Title IV of ERISA or Section 412 of the Internal Revenue Code (other than a Multiemployer Plan) in respect of which the Company or any ERISA Affiliate is, or within the immediately preceding three (3) years was, an "employer" as defined in Section 3(5) of ERISA. "Borrower" is defined in the preamble. "Borrowing" means a borrowing consisting of Loans of the same Type and in the same currency made, continued or converted on the same day and, in the case of Eurocurrency Rate Loans, for the same Eurocurrency Interest Period. "Business Day" means a day, in the applicable local time, which is not a Saturday or Sunday or a legal holiday and on -6- 8 which banks are not required or permitted by law or other governmental action to close (i) in New York, New York, (ii) in the case of Eurocurrency Rate Loans, in London, England and in the country of issue of the currency of such Eurocurrency Rate Loans, and (iii) in the case of Letter of Credit transactions for a particular Issuing Bank, in the place where its office for issuance or administration of the pertinent Letter of Credit is located. "Capital Expenditures" means, for any period with respect to any Person, the aggregate of all expenditures (net of any insurance proceeds or condemnation awards used to replace fixed assets, plant and equipment following a casualty event or event of condemnation or taking with respect thereto) by such Person to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs and maintenance, and any amount credited to, or received by, such Person in connection with a substantially contemporaneous trade in or sale of the Property being replaced) during such period computed in accordance with GAAP; provided, however, Capital Expenditures shall include, whether or not such a designation would be in conformity with GAAP, that portion of Capital Leases which is incurred and capitalized during such period on the consolidated balance sheet of such Person and provided, further, Capital Expenditures shall exclude, whether or not such a designation would be in conformity with GAAP, Permitted Acquisitions to the extent such expenditures are permitted under the terms of this Agreement. "Capital Lease", as applied to any Person, means any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capital Stock", with respect to any Person, means any capital stock of such Person, regardless of class or designation, and all warrants, options, purchase rights, conversion or exchange rights, voting rights, calls or claims of any character with respect thereto. "Cash Collateral" means cash or Cash Equivalents held by the Administrative Agent, either Co-Agent, any of the Issuing Banks or any of the Lenders as security for the Obligations. "Cash Equivalents" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; (ii) domestic and eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or -7- 9 its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Corporation (or its successors) or P-1 (or better) by Moody's Investors Service, Inc. (or its successors); (iii) commercial paper of United States and foreign banks and bank holding companies and their subsidiaries and United States and foreign finance, commercial industrial or utility companies which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Corporation (or its successors) or P-1 (or better) by Moody's Investors Service, Inc. (or its successors); (iv) marketable direct obligations of any state of the United States or any political subdivision of any such state given on the date of such investment the highest credit rating by Moody's Investor Service, Inc. (or its successors) and Standard & Poor's Corporation (or its successors); (v) money market funds organized under the laws of the United States or any state thereof that invests in any of the Investments identified under clauses (i), (ii), (iii) and (iv) of this definition; and (vi) reverse purchase agreements covering obligations of the type specified in clause (i) of this definition; provided, that the maturities of any such Cash Equivalents referred to in clauses (i) through (vi) shall not exceed one hundred eighty (180) days. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., as amended, and any regulations promulgated thereunder. "CERCLIS" is defined in Section 6.01(o). "Change of Control" means (i) the replacement of a majority of the Board of Directors of the Company from the directors who constituted the Board of Directors on October 21, 1994 for any reason other than death, retirement or disability, and such replacement shall not have been approved by the Board of Directors of the Company as constituted on October 21, 1994 (or as changed over time with the approval of the Board of Directors of the Company), or (ii) a Person or entity or group of Persons or entities acting in concert, other than Water Street Corporate Recovery Fund I, L.P. ("Water Street") or its Affiliates or any Person or entity or group of Persons or entities acting in concert and controlled by Water Street or its Affiliates, shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become the beneficial owner (within the meaning of Rule 13d.3 under the Securities Exchange Act of 1934, as amended) of securities of the Company representing more than 40% of the Voting Stock of the Company. "Citibank" means Citibank, N.A., a national banking association, and its successors. -8- 10 "Citibank London" means Citibank International plc, an Affiliate of Citibank and Citicorp. "Claim" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. "Co-Agents" means, collectively, First Chicago and GSCP in their respective capacities as syndication agents. "Collateral" means all Property and interests in Property now owned or hereafter acquired by the Company or any of the Subsidiary Guarantors upon which a Lien is granted under any of the Loan Documents. "Collection Account Agreement" means a collection account agreement executed by each Collection Account Bank, the Company or any Subsidiary Guarantor and the Administrative Agent substantially in the form of Exhibit B (with such changes thereto requested by the Collection Account Bank as may be acceptable to the Administrative Agent and the Company), as such agreement may be amended, supplemented or otherwise modified from time to time. "Collection Account Bank" means each bank identified as such on Schedule 6.01-Z that has executed a Collection Account Agreement, at which the Company and the Subsidiary Guarantors deposit proceeds of Collateral. "Collection Accounts" means, collectively, the collection accounts established at the Collection Account Banks; and "Collection Account" means any one of the Collection Accounts. "Commercial Letter of Credit" means any documentary letter of credit issued by an Issuing Bank pursuant to Section 2.04 for the account of the Company or a Subsidiary of the Company, which is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by the Company or such Subsidiary in the ordinary course of its business. "Common Stock" means the Company's common stock, $0.001 par value. "Company" is defined in the preamble. "Company's Projections" means the consolidated financial projections dated June 20, 1997 prepared by the Company with respect to the Company and its Subsidiaries on a monthly basis for Fiscal Year 1997 and an annual basis for Fiscal Years 1998 through 2003, and supporting materials delivered in -9- 11 connection therewith delivered by the Company to the Lenders on or prior to the Effective Date. "Compliance Certificate" is defined in Section 7.01(d). "Concentration Account" means account number 40604861 of the Company at the offices of Citibank at 1 Court Plaza, 7th Floor, Long Island City, New York 11120, Attention: Ed Volwinkel, into which all funds from the Blocked Accounts may be transferred on a daily basis in accordance with Section 3.05. The Concentration Account shall be under the sole dominion and control of the Administrative Agent; provided that all amounts deposited therein shall be held by the Administrative Agent as Cash Collateral for the benefit of the Administrative Agent, the Co-Agents, the Lenders, the Issuing Banks and the other Holders and shall be subject to the terms of this Agreement. "Consolidated Cash Interest Expense" means, for any period on a consolidated basis for any Person and its Subsidiaries, all of the following as determined in conformity with GAAP, (i) total interest expense (including the interest component of Capital Lease obligations for such period), including, without limitation, bank fees, commissions, discounts and other fees and charges owed with respect to letters of credit (including, without limitation, the Letter of Credit Fee but excluding customary fees and charges with respect to the issuance, administration, amendment and payment or cancellation of letters of credit), interest expense capitalized during such period and net interest costs under Interest Rate Contracts, minus (ii) to the extent included in the determination of total interest expense, the sum of (A) the amount of financing costs and expenses which are capitalized and amortized, (B) amortization of debt discount, (C) interest paid in Property other than cash, (D) any other interest expense not payable in cash and (E) cash payments made to purchase interest rate caps, collars or similar derivatives for any period and the amortized portion of such payments, minus (iii) the sum of (A) any interest income received in respect of its Investments in cash and Cash Equivalents and (B) to the extent not deducted from total interest expense, any net payments received during such period under Interest Rate Contracts. "Consolidated Fixed Charges" means, for any period on a consolidated basis for any Person and its Subsidiaries, the sum of the amounts for such period of (i) Consolidated Cash Interest Expense of such Person and its Subsidiaries and (ii) scheduled payments of principal on Funded Debt of such Person and its Subsidiaries (including, without limitation, the principal component of Capital Lease obligations and, in the case of the Company, the Term Loans (other than Term Loans repaid on the -10- 12 Effective Date) and excluding any scheduled reductions of the Revolving Credit Commitments pursuant to Section 3.01(c)). "Consolidated Net Income" means, for any period on a consolidated basis for any Person and its Subsidiaries, the net income (or loss) after taxes for such period taken as a single accounting period, determined in conformity with GAAP. "Consolidated Net Worth" means, with respect to any Person, at any time, (i) consolidated stockholders' equity of such Person and its consolidated Subsidiaries plus (or minus) (ii) any negative (or positive) cumulative foreign currency translation adjustments applicable to such Person in accordance with GAAP minus (iii) to the extent included in stockholders' equity, minority interests in such Person's Subsidiaries held by Persons other than such Person. "Constituent Document" means, with respect to any entity, (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such entity, (ii) the by-laws (or the equivalent governing documents) of such entity and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such entity's Capital Stock. "Contaminant" means any pollutant, hazardous substance, radioactive substance, toxic substance, hazardous waste, radioactive waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, polychlorinated biphenyls (PCBs), or any hazardous or toxic constituent thereof, as these terms are defined under Environmental, Health or Safety Requirements of Law. "Contractual Obligation", as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its Properties is bound, or to which it or any of its Properties is subject. "Cure Loans" is defined in Section 3.02(b)(v)(C). "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "Customary Permitted Liens" means Liens on the Property of any Person (other than Environmental Liens and Liens in favor of the PBGC) -11- 13 (i) with respect to the payment of taxes, assessments or governmental charges or levies in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) of landlords arising by statute and Liens of suppliers, mechanics, carriers, materialmen, warehouse-men or workmen, banker's liens and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) incurred or pledges and deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance, pensions or other types of social security benefits, or to secure the performance of statutory obligations or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety, warranty, advance payment, appeal, customs, performance bonds and similar obligations; (iv) arising with respect to zoning restrictions, licenses, covenants, building restrictions and other similar charges or encumbrances on the use of Real Property of such Person which do not materially interfere with the ordinary conduct of such Person's business; (v) any interest or title of a lessor under any lease permitted hereunder; (vi) any interest or title of any lessee under any leases or subleases of Real Property of such Person, provided that all such Liens do not in the aggregate materially detract from the value of such Person's Property or materially impair the use thereof in the operation of the businesses; (vii) constituting the filing of notice financing statements of a lessor's rights in and to personal Property leased to such Person in the ordinary course of such Person's business; (viii) attachment, prejudgment or judgment Liens in existence less than 60 days after the entry thereof or with -12- 14 respect to which execution has been stayed or with respect to which payment in full above any applicable deductible is covered by insurance or a bond or, with respect to any prejudgment Lien, the underlying claim for which is being contested in good faith and for which reserves or other appropriate provisions, if any, as required by GAAP have been made; (ix) Liens incurred to secure any surety bonds, appeal bonds, supersedeas bonds or other instruments serving a similar purpose in connection with the appeal of any judgment or defense of any claim relating to a prejudgment Lien; and (x) defects and irregularities in titles, survey exceptions, encumbrances, easements or reservations of others for rights-of-way, roads, pipelines, railroad crossings, services, utilities or other similar purposes; outstanding mineral rights or reservations (including rights with respect to the removal of material resource) which do not materially diminish the value of the surface estate, assuming usage of such surface estate similar to that being carried on by the Company or its Subsidiaries as of the Effective Date. "Decision Period" is defined in Section 8.07. "Decision Reserve" is defined in Section 8.07. "Default" means an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "Default Notice", with respect to any Collection Account, has the meaning specified in the Collection Account Agreement governing such Collection Account. "Disbursement Account" means account number 40604888 of the Company at Citibank, or such other bank account as shall subsequently be designated as the Disbursement Account of the Company by notice to the Administrative Agent. "DOL" means the United States Department of Labor and any successor department or agency. "Dollars" and "$" mean the lawful money of the United States. "Dollar Equivalent" means, with respect to any Alternative Currency at the time of determination thereof, the equivalent of such currency in Dollars determined at the rate of exchange quoted by (i) the Administrative Agent in New York, New -13- 15 York at 12:00 noon (New York time) on the date of determination, to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of Dollars with such Alternative Currency or, (ii) solely for purposes of any determination made by Citibank London pursuant to the last sentence of Section 2.02(a), Citibank London, in London, England at 12:00 noon (London time) on the date of determination, to prime banks in London for the spot purchase in the London foreign exchange market of such amount of Dollars with such Alternative Currency. "Domestic Lending Office" means, with respect to any Lender, such Lender's office, located in the United States, specified as the "Domestic Lending Office" under its name on the signature pages hereof or on the Assignment and Acceptance by which it became a Lender or such other United States office of such Lender as it may from time to time specify by written notice to the Company and the Administrative Agent. "Domestic Subsidiary" means a Subsidiary of the Company which is organized and existing under the laws of the United States of America, any State thereof, the District of Columbia, Puerto Rico or the United States Virgin Islands. "EBITDA" means, for any period on a consolidated basis for any Person and its Subsidiaries, (i) the sum of the amounts for such period of (A) Consolidated Net Income, (B) depreciation, amortization expense and non-cash expenses related to employee stock options and stock incentive plans, (C) total interest expense, (D) charges for federal, state, local and foreign income taxes, (E) extraordinary losses (and any unusual losses arising outside the ordinary course of business not included in extraordinary losses determined in accordance with GAAP) and (F) other non-operating expenses which have been deducted in the determination of Consolidated Net Income, minus (ii) the sum of the amounts for such period of (A) extraordinary gains (and any unusual gains arising outside the ordinary course of business not included in extraordinary gains determined in accordance with GAAP), (B) other non-operating income not already excluded from the determination of Consolidated Net Income and (C) to the extent not deducted from total interest expense, any net payments received during such period under Interest Rate Contracts and any interest income received in respect of its Investments in cash and Cash Equivalents. "Effective Date" is defined in Section 5.01. "Eligible Assignee" means (i) a Lender or any Affiliate thereof; (ii) a commercial bank having total assets in excess of $1,000,000,000; (iii) a finance company, insurance company, other financial institution or fund, reasonably acceptable to the Administrative Agent and approved by the Company (which approval -14- 16 shall not be unreasonably withheld), which is regularly engaged in making or purchasing loans; (iv) a savings and loan association or savings bank organized under the laws of the United States or any state thereof having total assets in excess of $500,000,000; or (v) a finance company, insurance company, bank, other financial institution or fund reasonably acceptable to the Administrative Agent and approved by the Company, which approval shall not be unreasonably withheld. In addition to the foregoing, an Eligible Assignee must be an "accredited investor" or "qualified institutional buyer" (as defined in Regulation D and Rule 144A, respectively, under the Securities Act) to the extent it is not a bank or other financial institution regularly engaged in making commercial loans. "Environmental, Health or Safety Requirements of Law" means all Requirements of Law relating to or addressing the environment, health or safety, including but not limited to any law, regulation, or order relating to the use, handling, or disposal of any Contaminant, any law, regulation, or order relating to Remedial Action and any law, regulation, or order relating to workplace or worker safety and health, each as from time to time hereafter in effect. "Environmental Lien" means a Lien in favor of any Governmental Authority for any (i) liabilities arising under any Environmental, Health or Safety Requirements of Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "Environmental Property Transfer Acts" means any applicable Requirement of Law that conditions, restricts, prohibits or requires any notification or disclosure triggered by the closure of any Property or the transfer, mortgage, sale or lease of any Property or deed or title for any Property for environmental reasons, including, but not limited to, any so-called "Environmental Cleanup Responsibility Acts" or "Responsible Transfer Acts". "Equipment" means, with respect to any Person, all of such Person's present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal Property (other than such Person's Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. -15- 17 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA Affiliate" means any (i) corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as the Company, (ii) partnership or other trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Company, and (iii) member of the same affiliated service group (within the meaning of section 414(m) of the Internal Revenue Code) as the Company, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "Eurocurrency Affiliate" means, with respect to each Lender, the Affiliate of such Lender (if any) set forth below such Lender's name under the heading "Eurocurrency Affiliate" on the signature pages hereof or on the Assignment and Acceptance by which it became a Lender or such Affiliate of a Lender as it may from time to time specify by written notice to the Company and the Administrative Agent. "Eurocurrency Interest Payment Date" means (i) with respect to any Eurocurrency Rate Loan, the last day of each Eurocurrency Interest Period applicable to such Loan and (ii) with respect to any Eurocurrency Rate Loan having a Eurocurrency Interest Period in excess of three (3) calendar months, the last day of each three (3) calendar month interval during such Eurocurrency Interest Period. "Eurocurrency Interest Period" is defined in Section 4.02(b). "Eurocurrency Interest Rate Determination Date" is defined in Section 4.02(c). "Eurocurrency Lending Office" means, with respect to any Lender, the office or offices of such Lender (if any) set forth below such Lender's name under the heading "Eurocurrency Lending Office" on the signature pages hereof or on the Assignment and Acceptance by which it became a Lender or such office or offices of such Lender as it may from time to time specify by written notice to the Company and the Administrative Agent. "Eurocurrency Rate" shall mean, with respect to any Eurocurrency Interest Period applicable to a Borrowing of Eurocurrency Rate Loans, (i) with respect to any Eurocurrency Loan for which the interest rate is not ascertainable pursuant to clause (ii) of this definition, an interest rate per annum obtained by dividing (A) the interest rate per annum determined -16- 18 by the Administrative Agent to be the rate per annum at which deposits in Dollars or in the relevant Alternative Currency are offered by the principal office of Citibank in London, England to major banks in the London interbank market at approximately 11:00 a.m. (London time) on the Eurocurrency Interest Rate Determination Date for such Eurocurrency Interest Period for a period equal to such Eurocurrency Interest Period and in an amount substantially equal to the amount of the Eurocurrency Rate Loan to be outstanding to Citicorp for such Eurocurrency Interest Period, by (B) a percentage equal to 100% minus the Eurocurrency Reserve Percentage and (ii) with respect to all other Eurocurrency Loans, an interest rate per annum determined by dividing (A) the interest rate per annum obtained by the Administrative Agent by reference to "Telerate page 3750" or "Telerate page 3740", as appropriate (or if such page on such service ceases to display such information, such other page as may replace it on that service for the purpose of display of such information) to be the rate per annum at which deposits in Dollars or in the applicable Alternative Currency are offered to leading banks in the London interbank market at approximately 11:00 a.m. (London time) on the Eurocurrency Interest Rate Determination Date for a period equal to such Eurocurrency Interest Period (rounded upward to the nearest whole multiple of one-sixteenth of one percent (0.0625%)) by (B) a percentage equal to 100% minus the Eurocurrency Reserve Percentage. The Eurocurrency Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Percentage. For purposes of this definition, "Telerate page 3750" means the display designated as "Page 3750", and "Telerate page 3740" means the display designated as "Page 3740", in each case on the Telerate Service (or such other page as may replace Page 3750 or Page 3740 on the service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for deposits in the currency concerned). "Eurocurrency Rate Loans" means those Loans denominated in Dollars or in an Alternative Currency which bear interest at a rate determined by reference to the Eurocurrency Rate and the Applicable Eurocurrency Rate Margin as provided in Section 4.01(a). "Eurocurrency Reserve Percentage" means, for any day, that percentage which is in effect on such day, as prescribed by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York, New York with deposits exceeding one billion Dollars in respect of "Certificate of Deposit Liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurocurrency Rate Loans is determined or any -17- 19 category of extensions of credit or other assets which includes loans by a non-United States office of any bank to United States residents). "Event of Default" means any of the occurrences set forth in Section 11.01 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in Section 11.01. "Existing Credit Agreement" is defined in the preamble to this Agreement. "Fair Market Value" means, (i) with respect to any Property (other than Property covered in clauses (ii), (iii) and (iv) below) of any Person, the value of the consideration obtainable in a sale or other disposition of such Property in the open market, assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time, each having reasonable knowledge of the nature and characteristics of such Property, neither being under any compulsion to act and such transaction has been approved by the board of directors of such Person, (ii) with respect to Property, the value of the consideration obtainable in a sale or other disposition of such Property as determined (A) in good faith by the board of directors of such Person or (B) by an appraisal of such Property, provided that such appraisal was performed relatively contemporaneously with such determination of the fair market value by an independent third party appraiser and the basic assumptions underlying such appraisal have not materially changed since the date thereof, (iii) with respect to any Property for which the consideration for such sale or other disposition is less than $500,000, as reflected on the bill of sale or invoice or in the relevant contract for the same or (iv) with respect to any marketable security at any date, the market price of such security at the time of sale, or in a private transaction, the closing price of such security on the business day (on which any national securities exchange is open for the normal transaction of business) next preceding such date, as appearing in any published list of any national securities exchange or in the National Market List of the National Association of Securities Dealers, Inc. or, if there is no such closing price of such security, the final price for the purchase of such security at face value quoted on such business day by a financial institution of recognized standing which regularly deals in securities of such type. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, -18- 20 if such day is not a Business Day in New York, New York, for the next preceding Business Day) in New York, New York by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day in New York, New York, the average of the quotations for such day on such transactions received by Citibank from three federal funds brokers of recognized standing selected by the Administrative Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any Governmental Authority succeeding to its functions. "Fiscal Year" means the fiscal year of the Company, which shall be the 12-month period ending on December 31 of each calendar year. "Fixed Charge Coverage Ratio" means, with respect to any period, the ratio of (i) EBITDA of the Company and its Subsidiaries for such period, minus Capital Expenditures of the Company and its Subsidiaries during such period (excluding Capital Expenditures financed by Capital Leases or purchase money Indebtedness pursuant to Section 9.01(vi)), minus cash dividends on the Capital Stock of the Company paid during such period other than dividends made pursuant to Section 9.06(v) and other than the Stock Repurchase made pursuant to Section 9.06(vii) or any stock repurchase, dividend or other distribution to shareholders made pursuant to Section 9.06(viii), to (ii) Consolidated Fixed Charges of the Company and its Subsidiaries for such period. "Foreign Borrower" is defined in the preamble and included any Wholly Owned Foreign Subsidiary designated by the Company and approved by the Requisite Lenders pursuant to Section 2.07. "Foreign Borrower Sublimit" means (i) with respect to Insilco GmbH, $15,000,000 and (ii) with respect to any other Foreign Borrower, the amount designated by the Company as such Borrower's "Foreign Borrower Sublimit" and approved by the Requisite Lenders pursuant to Section 2.07. "Foreign Employee Benefit Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Company, any of its Subsidiaries or any of its ERISA Affiliates, but which is not covered by ERISA pursuant to ERISA Section 4(b)(4). "Foreign Pension Plan" means any Foreign Employee Benefit Plan which, under applicable local law, is required to be funded through a trust or other funding vehicle. -19- 21 "Foreign Subsidiary" means any Subsidiary of the Company other than a Domestic Subsidiary. "Funded Debt" means, to the extent the following would be reflected on a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP, the principal amount of all Indebtedness of the Company and its Subsidiaries in respect of borrowed money, evidenced by debt securities, debentures, acceptances, notes or other similar instruments, in respect of Capital Lease Obligations, in respect of Reimbursement Obligations or in respect of the deferred purchase price of Property or services, except (i) accounts payable and accrued expenses arising in the ordinary course of business and (ii) payment obligations owing to Governmental Authorities or other Persons (excluding the principal portion owing to trade creditors) subject to the Plan of Reorganization. "Funding Date" means, with respect to any Loan, the date of the funding of such Loan. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board, the American Institute of Certified Public Accountants and the Financial Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect from time to time (unless otherwise specified pursuant to Section 13.04). "General Intangibles" means, with respect to any Person, all of such Person's present and future choses in action, causes of action, and all other intangible personal Property of every kind and nature (other than Receivables), including, without limitation, corporate, partnership and other business records, inventions, designs, patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, registrations, copyrights, licenses, franchises, customer lists, tax refunds, tax refund claims, rights and claims against carriers, shippers, franchisees, lessors, and lessees, and rights to indemnification. "Governmental Authority" means any federal, state or local government or other political subdivision and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to such government or political subdivision. "GSCP" is defined in the preamble. "Guarantor" means the Company and each Subsidiary Guarantor. -20- 22 "Holder" means any Person entitled to the benefits of the Collateral as security for any of the Obligations, including, without limitation, the Administrative Agent, the Co-Agents, each Lender and each Issuing Bank. "Indebtedness", as applied to any Person, means, at any time (without duplication), (a) all indebtedness, obligations or other liabilities of such Person (i) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and charges relating thereto, (ii) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person or to pay dividends in respect of any Capital Stock, (iii) with respect to letters of credit issued for such Person's account, (iv) to pay the deferred purchase price of Property or services, except accounts payable and accrued expenses arising in the ordinary course of business, (v) in respect of Capital Leases or (vi) for payment of obligations owing to Governmental Authorities or other Persons (other than for obligations to trade creditors that arose prior to the effective date of the Plan of Reorganization in the ordinary course of business) subject to the Plan of Reorganization; (b) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien on any Property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person, all as of such time; (c) all indebtedness, obligations or other liabilities of such Person in respect of Interest Rate Contracts and Currency Agreements, net of liabilities owed to such Person by the counterparties thereon; and (d) the guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, of all or any part of the indebtedness, obligations or liabilities referred to in clauses (a) through (c) above. "Indemnitee" is defined in Section 13.03. "Indemnified Matter" is defined in Section 13.03. "Insilco GmbH" is defined in the preamble. "Interbank Rate" means, for any period, (i) in respect of Revolving Loans denominated in Dollars, the Federal Funds Rate, and (ii) in respect of Multicurrency Loans, Citibank London's costs of funds for such period. "Interest Coverage Ratio" means, with respect to any period, the ratio of (i) EBITDA of the Company and its Subsidiaries for such period to (ii) Consolidated Cash Interest Expense of the Company and its Subsidiaries for such period. -21- 23 "Interest Rate Contracts" means interest rate exchange, swap, collar or cap or similar agreements providing interest rate protection. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, any successor statute and any regulations or guidance promulgated thereunder. "Inventory" means, with respect to any Person, all of such Person's present and future (i) inventory (including unbilled accounts receivable), (ii) goods, merchandise and other personal Property of such Person furnished or to be furnished under any contract of service or intended for sale or lease, and all goods consigned by such Person and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of such Person's business, (iii) raw materials, work-in-process and finished goods, (iv) materials and supplies of any kind, nature or description used or consumed in such Person's business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property of such Person described in clauses (i) through (iii) above, (v) goods in which such Person has a joint or other interest to the extent of such Person's interest therein or right of any kind (including, without limitation, goods in which such Person has an interest or right as consignee), and (vi) goods which are returned to or repossessed by such Person; in each case whether in the possession of such Person, a bailee, a consignee, or any other Person for sale, storage, transit, processing, use or otherwise, and any and all documents for or relating to any of the foregoing. "Investment" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities issued by or other equity ownership interest in any other Person, (ii) any purchase by that Person of all or a significant part of the Property of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable and similar items made or incurred in the ordinary course of business as presently conducted), or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of Property by such Person other than in the ordinary course of its business. "IRS" means the Internal Revenue Service and any Governmental Authority succeeding to the functions thereof. "Issue" means, with respect to any Letter of Credit, either to issue, or to extend the expiry of, or to renew, or to -22- 24 increase the amount of, such Letter of Credit, and the terms "Issued" and "Issuance" shall have corresponding meanings. "Issuing Banks" means Citibank and each other Lender (or Affiliate of a Lender) selected by the Company and reasonably acceptable to the Administrative Agent who has agreed to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2.04. "Leases" means those leases, tenancies or occupancies of Real Property entered into by the Company or one of its Subsidiaries, as tenant, sublessor or sublessee either directly or as the successor in interest to the Company or any of the Domestic Subsidiaries. "Lender" means, as of the Effective Date, each of Citicorp, First Chicago and GSCP and each other institution which is a signatory hereto and identified as such and, at any other given time, each institution which is a party hereto as a Lender, whether as a signatory hereto or pursuant to an Assignment and Acceptance. "Letter Agreement" means the fee letter dated June 24, 1997 from Citicorp and Citicorp Securities and accepted and agreed to by the Company on June 25, 1997. "Letter of Credit" means any Commercial Letter of Credit or Standby Letter of Credit. "Letter of Credit Availability" means, at any particular time, the amount by which the Letter of Credit Sublimit exceeds the Letter of Credit Obligations outstanding at such time. "Letter of Credit Fee" is defined in Section 4.03(a). "Letter of Credit Obligations" means, at any particular time, the sum of (i) all outstanding Reimbursement Obligations, plus (ii) the aggregate undrawn face amount of all outstanding Letters of Credit, plus (iii) the aggregate face amount of all Letters of Credit requested by the Borrowers but not yet issued (unless the request for an unissued Letter of Credit has been denied pursuant to Section 2.04(c)(i)). For purposes of determining the amount of Letter of Credit Obligations (or any component thereof) in respect of any Letter of Credit that is denominated in an Alternative Currency, such amount shall equal the Dollar Equivalent of the amount of such Alternative Currency at the time of determination thereof. "Letter of Credit Reimbursement Agreement" means, with respect to a Letter of Credit, such form of application therefor and form of reimbursement agreement therefor (whether in a single -23- 25 or several documents, taken together) as the Issuing Bank from which the Letter of Credit is requested may employ in the ordinary course of business for its own account, with such modifications thereto as may be agreed upon by the Issuing Bank and the Borrower requesting such Letter of Credit and as are not materially adverse (in the judgment of the Issuing Bank) to the interests of the Lenders; provided, however, in the event of any conflict between the terms hereof and of any Letter of Credit Reimbursement Agreement, the terms hereof shall control. "Letter of Credit Sublimit" means Fifty Million Dollars ($50,000,000). "Leverage Ratio" means, for any period, the ratio of Funded Debt of the Company and its Subsidiaries on a consolidated basis as of the end of such period to EBITDA of the Company and its Subsidiaries for such period. "Liabilities and Costs" means all liabilities, obligations, responsibilities, losses and damages with respect to or arising out of any of the following: personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, voluntary disclosures made to, or settlements with, the United States Government, direct or indirect, known or unknown, absolute or contingent, past, present or future, including interest, if any, thereon. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, security interest, encumbrance, lien (statutory or other), priority or other security agreement (including, without limitation, any negative pledge arrangement outside of the ordinary course of business and any agreement to provide equal and ratable security) of any kind or nature whatsoever in respect of any Property of a Person intended to assure payment of any Indebtedness, obligation or other liability, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor pursuant to Section 9-408 of the Uniform Commercial Code), naming the lessee of such property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "Loan Account" is defined in Section 2.05(b). -24- 26 "Loan Documents" means this Agreement, the Notes, the Letter Agreement, the Letter of Credit Reimbursement Agreements, the Collection Account Agreements, the Pledge and Assignment Agreement, the documents executed or delivered pursuant to Section 5.01(a) of the Existing Credit Agreement and Section 5.01(a) of this Agreement by the Borrowers, any Subsidiary Guarantor or any other Subsidiary of the Company, any Interest Rate Contracts to which any Lender or any Affiliate of a Lender is a party, and all other instruments, agreements and written Contractual Obligations between the Company or any Subsidiary of the Company, on the one hand, and any of the Administrative Agent, either Co-Agent, the Lenders or the Issuing Banks, on the other hand, in each case delivered to either the Administrative Agent, a Co-Agent, such Lender or such Issuing Bank pursuant to or in connection with this Agreement or the Revolving Credit Commitments (it being understood that Loan Documents do not include agreements relating to the opening and maintenance of bank accounts with financial institutions that are also Lenders hereunder entered into by the Company or any of the Company's Subsidiaries in the ordinary course of business). "Loans" means all the Revolving Loans, the Swing Loans and all Base Rate Loans and Eurocurrency Rate Loans. "Lockboxes" means, collectively, the lockboxes established at the Collection Account Banks for collection of payments in respect of Receivables or other Collateral; and "Lockbox" means any one of the Lockboxes. "Margin Stock" means "margin stock" as such term is defined in Regulation U and Regulation G. "Material Adverse Effect" means a material adverse effect upon (i) the business, condition (financial or otherwise), operations, performance, Property or prospects of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Borrowers and the Subsidiary Guarantors to perform their obligations under the Loan Documents or (iii) the rights and remedies of the Lenders, the Issuing Banks or the Administrative Agent under the Loan Documents. "Maximum Revolving Credit Amount" means, at any particular time, an amount equal to the Revolving Credit Commitments, less the amount of the Non-Facility Letter of Credit Reserve in effect at such time and less the amount of the Decision Reserve in effect at such time. "Maximum Non-Guarantor Subsidiary Investment Amount" means, at any time (without duplication) an amount equal to (i) the sum of (A) the amount of all cash Investments of the Company or any Subsidiary Guarantor, or which the Company or any Subsidiary Guarantor is under a Contractual Obligation to make, -25- 27 since the Effective Date in, (B) the aggregate outstanding amount of all Accommodation Obligations (including, without limitation, Letters of Credit and Non-Facility Letters of Credit but excluding Permitted Existing Accommodation Obligations) of the Company or any Subsidiary Guarantor at such time in respect of obligations of, and (C) the Fair Market Value of all Property (other than cash) of the Company or any Subsidiary Guarantor contributed, sold or otherwise transferred since the Effective Date (other than the sale of Inventory made in the ordinary course of business on commercially reasonable terms (but in no event greater than 60 day terms) and on an arms length basis) to, any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary minus (ii) the sum of (A) any cash dividends, other cash distributions or cash repayments of Indebtedness owing to the Company or any Subsidiary Guarantor (but not intercompany loans to the Company or any Subsidiary Guarantor) received by the Company or any Subsidiary Guarantor since the Effective Date (x) from any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary or (y) in respect of any Permitted Existing Investment (other than the Company's Investment in the Subsidiary Guarantors), and (B) cash proceeds of asset sales received by the Company in respect of the Capital Stock of or Property (other than cash) transferred to any such Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary since the Effective Date. "Maximum Stock Repurchase Amount" means an amount equal to $220,000,000 minus the amount, if any, by which $150,000,000 exceeds the gross proceeds of the issuance of the Subordinated Notes. "Multicurrency Loan" means a Revolving Loan made in an Alternative Currency. "Multicurrency Sublimit" means, with respect to Multicurrency Loans, a maximum aggregate outstanding amount of such Loans, the Dollar Equivalent of which shall not exceed $50,000,000. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either the Company or any ERISA Affiliate. "Net Cash Proceeds" means (i) proceeds received by any Borrower or any of the Domestic Subsidiaries in cash or Cash Equivalents from the sale (including, without limitation, any Sale and Leaseback Transaction), assignment or other disposition of any Property of such Borrower or any Domestic Subsidiary, other than sales, assignments and other dispositions permitted under clauses (i), (iii), (iv), (v) and (vi) of Section 9.02, net of (A) the cash costs and expenses of sale, assignment or other -26- 28 disposition and (B) taxes paid or payable as a result thereof; provided that, at the request of the Administrative Agent, evidence of each of (A) and (B) are provided to the Administrative Agent; (ii) proceeds of insurance on account of the loss of or damage to any such Property, and payments of compensation for any such Property taken by condemnation or eminent domain, to the extent such proceeds or payments are required pursuant to Section 8.07 to be applied to prepay the Loans, and (iii) proceeds received after the Effective Date by any Borrower or any of the Domestic Subsidiaries in cash or Cash Equivalents from (A) the issuance of any Capital Stock by such Borrower or any Domestic Subsidiary (other than any such issuance occurring in the ordinary course of business to any past or present member of the management or board of directors of such Borrower or such Subsidiary in connection with such Person's employment or service with such Borrower or such Subsidiary, any such issuance occurring in connection with an Investment made by the Company or any Domestic Subsidiary in any Domestic Subsidiary or any such issuance described in Section 9.06(ii)), or any other additions to the equity of the Company (other than retained earnings) or any contributions to capital of the Company or (B) issuance of any Indebtedness by such Borrower or any Domestic Subsidiary (except for such Indebtedness or Accommodation Obligations permitted under Sections 9.01 and 9.05 and any such Indebtedness incurred in connection with Currency Agreements or Interest Rate Contracts to the extent such Borrower is permitted to enter into such contracts pursuant to the terms hereof), in each case net of reasonable costs incurred in connection with such transaction; provided that, upon the request of the Administrative Agent, evidence of such costs is provided to the Administrative Agent. "Non-Facility Letter of Credit" means any letter of credit issued on an unsecured basis from a financial institution other than any Issuing Bank for the account of a Borrower. "Non-Facility Letter of Credit Reserve" means a reserve established by notice of the Company pursuant to Section 9.01(iii) against Revolving Credit Availability in an amount equal to the aggregate face amount of all outstanding Non-Facility Letters of Credit issued in excess of those Non-Facility Letters of Credit permitted pursuant to Section 9.01(xiii). "Non-Guarantor Domestic Subsidiary" means any Domestic Subsidiary (other than any Subsidiary Guarantor). "Non Pro Rata Loan" is defined in Section 3.02(b)(v). "Note" is defined in Section 2.05(a). "Notice of Borrowing" means a notice substantially in the form of Exhibit C. -27- 29 "Notice of Continuation/Conversion" means a notice substantially in the form of Exhibit D. "NPL" is defined in Section 6.01(o). "Obligations" means, in each instance arising hereunder, under the Notes or under any other Loan Document, all Loans, advances, debts, liabilities, obligations, covenants and duties owing by any Borrower to the Administrative Agent, either Co-Agent, any Lender, any Issuing Bank, any Affiliate of the Administrative Agent, either Co-Agent, any Lender or any Issuing Bank, or any Person entitled to indemnification pursuant to Section 13.03, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising under or in connection with an Interest Rate Contract with any Lender or any Affiliate of a Lender (to the extent otherwise permitted hereunder), or by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, reasonable attorneys' fees and disbursements and any other sum chargeable to any Borrower hereunder or under any other Loan Document. "Officer's Certificate" means, as to a corporation, a certificate executed on behalf of such corporation by an officer or director of such corporation. "Operating Lease" means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which is not a Capital Lease. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "Permits" means any permit, approval, authorization license, variance, or permission required from a Governmental Authority under an applicable Requirement of Law. "Permitted Acquisition" means any acquisition of all or substantially all of the Capital Stock of any Person or of all or substantially all of the assets or operations of any Person (or division or operating unit of any Person) by the Company or any Subsidiary Guarantor, provided that: (i) such acquisition is made at a time when, after giving effect to such acquisition and the related financing thereof, (a) no Default or Event of Default exists or would -28- 30 occur based upon a pro forma historical calculation for the most recent twelve (12) month period of the covenants set forth in Article X performed in accordance with GAAP giving effect to the EBITDA of the acquired operations and any higher levels of Indebtedness associated with the acquired operations, together with interest thereon as though accrued for such twelve (12) month period, and (b) after giving effect to such acquisition, the Borrower or such Subsidiary Guarantor would remain Solvent; (ii) after giving effect to the acquisition, no Default or Event of Default exists or would occur based on a pro forma prospective calculation of the covenants set forth in Article X performed in accordance with GAAP; (iii) the acquired Person or post-merger Person, if the acquisition is of Capital Stock, (a) provides to the Administrative Agent a Lien upon all of the Property of such acquired Person (except for Real Property with respect to which no notice is given pursuant to Section 8.12) and otherwise complies with the requirements of Sections 8.12 and 8.13 and (b) executes and delivers such documentation as the Administrative Agent deems appropriate with respect to intercompany borrowings from the Company and the granting of security therefor; (iv) if the acquisition is of Capital Stock, the Company or Subsidiary Guarantor acquiring such Capital Stock provides the Administrative Agent a Lien upon such Capital Stock pursuant to a pledge agreement in form and substance satisfactory to the Administrative Agent; (v) the acquired assets are subject to Liens in favor of the Administrative Agent for the benefit of the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders and are free and clear of all other Liens except as permitted under Section 9.03; (vi) the Company delivers written notice to the Administrative Agent and the Lenders of its or a Subsidiary Guarantor's intention to make such acquisition no less than fourteen (14) Business Days prior to the proposed closing date for such acquisition that sets forth, among other things, information regarding liabilities and obligations with respect to environmental matters to be incurred by the Company or any Subsidiary of the Company (including, without limitation, the acquired Person in the event of an acquisition of Capital Stock) as a result of such acquisition, any indemnities afforded under the terms of such acquisition and the scope and results of any environmental review undertaken by the Company in connection therewith; -29- 31 (vii) the sum for any Permitted Acquisition of (a) the original principal amount thereof, including any deferred purchase price therefor, plus (b) the reasonably estimated transaction costs associated with such acquisition plus (c) the amount of Indebtedness for borrowed money assumed (directly or indirectly) as a result thereof shall not exceed $25,000,000 (excluding any portion of any of the foregoing payable in common equity of the Company) in the aggregate for all Permitted Acquisitions consummated after the Effective Date; (viii) on the date of the closing of the Permitted Acquisition and after giving effect thereto and to any Revolving Loans made to finance such Permitted Acquisition, (i) no Default or Event of Default shall have occurred and be continuing and (ii) all representations and warranties under the Loan Documents shall be true and correct in all material respects as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date; (ix) the consideration for the Permitted Acquisition shall have been paid only (i) in cash, (ii) in common equity of the Company or (iii) in deferred installment payments provided that any indebtedness incurred in connection therewith is permitted pursuant to Section 9.01(xv); and (x) after giving effect to the acquisition, such acquired Person shall either (i) become a Subsidiary of the Company or of any Subsidiary Guarantor or (ii) be merged with and into the Company or any Subsidiary Guarantor. "Permitted Existing Accommodation Obligations" means those Accommodation Obligations of the Company and its Subsidiaries identified as such on Schedule 1.01.1 and shall exclude Accommodation Obligations otherwise permitted by Section 9.05 of this Agreement. "Permitted Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries identified as such on Schedule 1.01.2 and shall exclude Indebtedness otherwise permitted by Section 9.01 of this Agreement. "Permitted Existing Investments" means those Investments of the Company and the Domestic Subsidiaries on the Effective Date identified as such on Schedule 1.01.3 and shall exclude Investments otherwise permitted by Section 9.04 of this Agreement. "Permitted Existing Liens" means the Liens on Property of the Company or any of its Subsidiaries identified as such on -30- 32 Schedule 1.01.4 and shall exclude Liens otherwise permitted by Section 9.03 of this Agreement. "Permitted Joint Venture" means (i) Thermalex and (ii) any other joint venture entered into by the Company or any Subsidiary Guarantor with any other Person in the same or similar line of the Company's or such Subsidiary Guarantor's business, which joint venture may be in the form of a minority Investment in a partnership or corporation, a Non-Guarantor Domestic Subsidiary or an Foreign Subsidiary; provided, however, that the Company or such Subsidiary Guarantor shall not, pursuant to such joint venture, be under a Contractual Obligation to make cash contributions or incur Accommodation Obligations after the initial formation thereof other than in fixed Dollar amounts. "Person" means any natural person, corporation, limited partnership, limited liability company, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "Plan" means an employee pension benefit plan defined in Section 3(2) of ERISA in respect of which the Company or any ERISA Affiliate is, or within the immediately preceding three (3) years was, an "employer" as defined in Section 3(5) of ERISA. "Plan of Reorganization" means the Second Amended Plan of Reorganization Jointly Proposed by the Company and certain of its Subsidiaries and the Official Joint Committee of Unsecured Creditors as confirmed pursuant to an order entered on November 24, 1992 by the bankruptcy court having jurisdiction over the Company. "Pledge and Assignment Agreement" means the Pledge and Assignment Agreement dated as of March 3, 1997 between the Company and the Administrative Agent, as the same may be amended, supplemented or otherwise modified from time to time. "Process Agent" is defined in Section 13.17. "Property" means, with respect to any Person, any Real Property or personal property, plant, building, facility, structure, underground storage tank or unit, Equipment, Inventory, General Intangible, Receivable, or other asset owned, leased or operated by such Person (including any surface water thereon or adjacent thereto, and soil and groundwater thereunder). "Pro Rata Share" means, with respect to any Lender, the percentage obtained by dividing the sum of (a) such Lender's Revolving Credit Commitment at such time by (b) the sum of the -31- 33 aggregate amount of all Revolving Credit Commitments at such time; provided, however, if all of the Revolving Credit Commitments are terminated pursuant to the terms hereof, then "Pro Rata Share" means the percentage obtained by dividing (x) the sum of the aggregate amount of such Lender's Revolving Credit Obligations by (y) the aggregate amount of all Revolving Credit Obligations. "Protective Advance" is defined in Section 12.09. "Qualifying Lender" means, in respect of any Lender which is or is entitled to receive payments under this Agreement from any Foreign Borrower, any of the following: (i) any institution which is a bank within the meaning given by Section 840A of the Income and Corporation Taxes Act 1988, which is beneficially entitled to interest payable under this Agreement and subject to United Kingdom corporation tax in respect of that interest; (ii) any Lender which is an assignee of a Lender falling within clause (i) above and is beneficially entitled to the interest payable hereunder and subject to United Kingdom corporation tax thereon; and (iii) any Lender which, pursuant to the terms of a double tax treaty as in force at the time that Lender becomes party to this Agreement is entitled to exemption from United Kingdom taxation in respect of the interest and which at the time of the relevant interest payment has made all appropriate filings and declarations in order to obtain the benefit of those terms. "Real Property" means, with respect to any Person, all of such Person's present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever (the rights and interests described in clauses (i) and (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in Property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in or on the Premises and (v) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replace- -32- 34 ments to or of any of the rights and interests described in clauses (iii) and (iv) above. "Receivables" means, with respect to any Person, all of such Person's present and future (i) accounts, (ii) accounts receivable, (iii) rights to payment for goods sold or leased or for services rendered (except those evidenced by instruments or chattel paper), whether or not earned by performance, (iv) all rights in any merchandise or goods which any of the same may represent, and (v) all rights, title, security and guaranties with respect to each of the foregoing, including, without limitation, any right of stoppage in transit. "Register" is defined in Section 13.01(c). "Regulation A" means Regulation A of the Federal Reserve Board as in effect from time to time. "Regulation D" means Regulation D of the Federal Reserve Board as in effect from time to time. "Regulation G" means Regulation G of the Federal Reserve Board as in effect from time to time. "Regulation U" means Regulation U of the Federal Reserve Board as in effect from time to time. "Regulation X" means Regulation X of the Federal Reserve Board as in effect from time to time. "Reimbursement Date" is defined in Section 2.04(d)(i)(A). "Reimbursement Obligations" means, as to any Borrower, the aggregate non-contingent reimbursement or repayment obligations of such Borrower with respect to amounts drawn under Letters of Credit Issued for the account of such Borrower. "Related Obligations" is defined in Section 12.09(f). "Release" means release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Property. "Remedial Action" means actions required to (i) clean up, remove, treat or in any other way respond to Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants; or (iii) investigate and determine if a remedial -33- 35 response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "Reportable Event" means any of the events described in Section 4043 of ERISA other than the events described in Regulation Sections 2615.13, 2615.14, 2615.18 and 2615.19 promulgated by the PBGC. "Requirements of Law" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject including, without limitation, the Securities Act, the Securities Exchange Act, Regulations G, U and X, ERISA, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building, or land use requirement or Permit or labor or employment rule or regulation. "Requisite Lenders" means, at any time, Lenders holding, in the aggregate, at least fifty-one percent (51%) of the sum of the then aggregate amount of the Revolving Credit Commitments in effect at such time; provided, however, that, in the event any of the Lenders shall have failed to fund its Pro Rata Share, of any Revolving Loan requested by a Borrower which such Lenders are obligated to fund under the terms hereof and any such failure has not been cured, then for so long as such failure continues, "Requisite Lenders" means Lenders (excluding Lenders whose failure to fund their respective Pro Rata Share of such Loans have not been so cured) whose Pro Rata Shares represent at least fifty-one percent (51%) of the aggregate Pro Rata Shares of such Lenders; provided, further, however, that, in the event that the Commitments have been terminated pursuant to the terms hereof, "Requisite Lenders" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Revolving Credit Obligations are at least fifty-one percent (51%). "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Company or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Company or any of its Subsidiaries now or hereafter outstanding, (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, -34- 36 any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Company or any of its Subsidiaries now or hereafter outstanding and (iv) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim to rescission with respect to, any Indebtedness expressly subordinated in writing to the Obligations. "Revolving Credit Availability" means, at any particular time, the amount by which the Maximum Revolving Credit Amount exceeds the Revolving Credit Obligations outstanding at such time. "Revolving Credit Commitment" means, with respect to any Lender, the obligation of such Lender to make Revolving Loans and to participate in Letters of Credit and Swing Loans pursuant to the terms and conditions hereof, which obligation shall not exceed the principal amount set forth opposite the heading "Revolving Credit Commitment" under such Lender's name on the signature pages hereof or the signature page of the Assignment and Acceptance by which it became a Lender, as modified from time to time pursuant to the terms hereof or to give effect to any applicable Assignment and Acceptance, and "Revolving Credit Commitments" means the aggregate principal amount of the Revolving Credit Commitments of all the Lenders, the maximum aggregate principal amount of which shall not exceed $200,000,000, as reduced from time to time pursuant to the terms hereof. "Revolving Credit Notes" means notes evidencing each Borrower's Obligation to repay the Revolving Loans made to it. "Revolving Credit Obligations" means, at any particular time, the sum of (i) the outstanding principal amount of the Swing Loans at such time, plus (ii) the outstanding principal amount of the Revolving Loans at such time, plus (iii) the Letter of Credit Obligations outstanding at such time plus (iv) the aggregate principal amount of Protective Advances outstanding at such time. For purposes of determining the amount of Revolving Credit Obligations (or any component thereof) in respect of any Revolving Loan that is denominated in an Alternative Currency, such amount shall equal the Dollar Equivalent of the amount of such Alternative Currency at the time of determination thereof. "Revolving Credit Termination Date" means the earlier to occur of (i) the date of termination of the Revolving Credit Commitments pursuant to the terms hereof and (ii) July 8, 2003. "Revolving Loan" is defined in Section 2.02(a). -35- 37 "Rolodex Proceeds" means the proceeds of approximately $110,000,000 received by the Company from the Rolodex Sale and deposited in the Account (as defined in the Pledge and Assignment Agreement). "Rolodex Sale" means the sale by the Company and INR Holding Co. (formerly Rolodex Corporation) of the Company's Rolodex business, the sale of which was consummated on March 5, 1997. "Sale and Leaseback Transaction" means, with respect to any Person, any direct or indirect arrangement pursuant to which Property of such Person is sold or transferred by such Person or a Subsidiary of such Person and is thereafter leased back from the purchaser thereof by such Person or one of its Subsidiaries. "Securities" means any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participation in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Solvent", when used with respect to any Person, means that at the time of determination: (i) the sum of its Properties at a fair valuation is greater than the sum of its liabilities (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its Properties is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature in the ordinary course of business; and (iv) it is not engaged in a business or transaction and is not about to engage in a business or transaction, for which its Properties, including contractual lines of credit, -36- 38 and, with respect to the Borrowers and the Subsidiary Guarantors, the ability of any Borrower or any Subsidiary Guarantor to borrow money from the Company or any Subsidiary of the Company, would constitute an unreasonably small capital after giving due consideration to the prevailing practice in the business in which it is engaged or about to engage. The determination of whether a Person is Solvent shall take into account all such Person's Properties and liabilities regardless of whether, or the amount at which, any such Property or liability is included on a balance sheet of such Person prepared in accordance with GAAP, including Properties such as contingent contribution or subrogation rights, business prospects, distribution channels and goodwill. The determination of the sum of a Person's Properties at a fair valuation or the present fair saleable value of a Person's Properties shall be made on a going concern basis unless, at the time of such determination, the liquidation of the business in which such Properties are used or useful is in process or is demonstrably imminent. In computing the amount of contingent or unrealized Properties or contingent or unliquidated liabilities at any time, such Properties and liabilities will be computed at the amounts which, in light of all the facts and circumstances existing at such time, represent the amount that reasonably can be expected to become realized Properties or matured liabilities, as the case may be. In computing the amount that would be required to pay a Person's probable liability on its existing debts as they become absolute and matured, reasonable valuation techniques, including a present value analysis, shall be applied using such rates over such periods as are appropriate under the circumstances, and it is understood that, in appropriate circumstances, the present value of contingent liabilities may be zero. "Standby Letter of Credit" means any letter of credit issued by an Issuing Bank pursuant to Section 2.04 for the account of a Borrower, which is not a Commercial Letter of Credit. "Stock Repurchase" means, collectively, (i) the private purchase by the Company from its majority shareholder and certain other shareholders of its Common Stock and (ii) a tender offer made by the Company to the existing holders of its Common Stock for the redemption or repurchase by the Company of shares of such Common Stock, the aggregate maximum purchase price of which (in the case of both clauses (i) and (ii) above) does not exceed the Maximum Stock Repurchase Amount. "Subordinated Notes" means the Subordinated Notes due 2007 to be issued by the Company by no later than December 31, 1997 in an aggregate principal amount of up to $175,000,000 and governed by the terms of the Subordinated Note Indenture. -37- 39 "Subordinated Note Indenture" means the Indenture to be entered into between the Company and the trustee thereunder, the form of which indenture shall have been approved in writing by the Lenders, as such agreement may be amended, supplemented or otherwise modified from time to time. "Subsidiary" of a Person means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof; provided, however, for purposes of this definition the term "Subsidiary" shall not include Thermalex. "Subsidiary Guarantor" means each Domestic Subsidiary of the Company party to the Subsidiary Guaranty. "Subsidiary Guaranty" means the Subsidiary Guaranty dated as of November 21, 1994 duly executed and delivered to the Administrative Agent by the Subsidiary Guarantors, as such guaranty has been amended and supplemented prior to the Effective Date and may be amended, supplemented or otherwise modified from time to time thereafter. "Survey" means a survey of the Real Property owned by the Company or a Subsidiary Guarantor, dated no earlier than ninety (90) days prior to the date of the delivery of mortgage or deed of trust on such property in favor of the Administrative Agent pursuant to the terms hereof and reasonably acceptable to the Administrative Agent. "Swing Loan" is defined in Section 2.03(a). "Swing Loan Bank" means Citicorp, in its individual capacity or, in the event Citicorp is not the Administrative Agent, the Administrative Agent (or any Affiliate of the Administrative Agent designated by the Administrative Agent), in its individual capacity. "Swing Loan Note" means one or more notes evidencing the Company's Obligation to repay the Swing Loans. "Taxes" is defined in Section 3.03(a). "Termination Event" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Company or any ERISA Affiliate from a Benefit Plan during a plan year in which the Company or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations which results in the termination of employment of 20% of Benefit Plan participants who are employees -38- 40 of the Company or any ERISA Affiliate; (iii) the imposition of an obligation on the Company or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar foreign Governmental Authority of proceedings to terminate a Benefit Plan or a Foreign Pension Plan; (v) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; (vi) a foreign Governmental Authority shall appoint or institute proceedings to appoint a trustee to administer any Foreign Pension Plan; or (vii) the partial or complete withdrawal of the Company or any ERISA Affiliate from a Multiemployer Plan or a Foreign Pension Plan. "Term Loans" is defined in Section 2.01. "Term Loan Notes" means notes evidencing the Company's obligation to repay the Term Loans. "Thermalex" means Thermalex, Inc., an Alabama corporation. "Title Company" means Commonwealth Land Title Insurance Company. "Title Policy" means an ALTA Mortgagee Policy (or equivalent) of title insurance with extended coverage over the standard or general exceptions and such endorsements reasonably required by the Administrative Agent issued by the Title Company covering each parcel of Real Property of the Company or any Subsidiary Guarantor included in the Collateral or required to be so included pursuant to Section 8.12, showing title vested in either the Company or such Subsidiary Guarantor subject only to the Liens set forth in Section 9.03 herein, which Title Policy shall show the Administrative Agent as the insured and an insurance amount equal to the lesser of the Commitments or the book value of the Real Property covered by such Title Policy. "Type" means, with respect to any Loan, its nature as a Eurocurrency Rate Loan or a Base Rate Loan. "Uniform Commercial Code" means the Uniform Commercial Code as enacted in the State of New York, as it may be amended from time to time. "Unused Commitment Fee" is defined in Section 4.03(b). "Unused Commitment Fee Rate" means at all times during the applicable periods set forth below, the applicable rate per -39- 41 annum set forth below under the heading "Unused Commitment Fee Rate":
Unused Commitment Leverage Ratio Fee Rate greater than 5.00 to 1 0.50% greater than 4.00 to 1 less than or equal to 5.00 to 1 0.375% greater than 3.50 to 1 less than or equal to 4.00 to 1 0.30% less than or equal to 3.50 to 1 0.25%
The Leverage Ratio used to compute the Unused Commitment Fee Rate following the Effective Date shall be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Company to the Administrative Agent pursuant to Section 7.01(d); changes in the Unused Commitment Fee Rate resulting from a change in the Leverage Ratio shall become effective upon delivery by the Company to the Administrative Agent of a new Compliance Certificate pursuant to Section 7.01(d) and notice by the Company to the Administrative Agent that a rate change is required. Notwithstanding anything to the contrary set forth in this Agreement (including the then effective Leverage Ratio), the Unused Commitment Fee Rate shall be 0.375% for the period commencing on the Effective Date and ending on the delivery of the Compliance Certificate in respect of the Borrowers' second fiscal quarter of Fiscal Year 1997. If the Company shall fail to deliver a Compliance Certificate within 50 days after the end of any fiscal quarter (or within 95 days, in the case of the last fiscal quarter of any Fiscal Year) as required pursuant to Section 7.01(d), the Unused Commitment Fee Rate from and including the 51st (or 96th, as the case may be) day after the end of such fiscal quarter to but not including the date the Company delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Unused Commitment Fee Rate set forth above. "Voting Stock" means, with respect to any Person, securities with respect to any class or classes of Capital Stock of such Person entitling the holders thereof ordinarily (and apart from rights arising under special circumstances) to vote in the election of members of the board of directors of such Person. "Wholly Owned" means, with respect to a Subsidiary of a Person, a Subsidiary of such Person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person. -40- 42 1.02. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the date numerically corresponding to the first day of such period, provided that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month during which such period is to end), such period shall, unless otherwise expressly required by the other provisions of this Agreement, end on the last day of the calendar month. 1.03. Accounting Terms. Subject to Section 13.04, for purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. Other Definitional Provisions. References to "Articles", "Sections", "subsections", "Schedules" and "Exhibits" shall be to Articles, Sections, subsections, Schedules and Exhibits, respectively, of this Agreement unless otherwise specifically provided. The words "hereby", "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. 1.05. Other Terms. All other terms contained herein shall, unless the context indicates otherwise, have the meanings assigned to such terms by the Uniform Commercial Code to the extent the same are defined therein. ARTICLE II AMOUNTS AND TERMS OF LOANS 2.01. The Term Loans. On November 21, 1994 the Lenders made term loans in Dollars to the Company in an aggregate amount equal to $155,000,000 (each individually, a "Term Loan" and, collectively, the "Term Loans"). All Term Loans outstanding on the Effective Date shall be refinanced in full on the Effective Date with proceeds of Revolving Loans made on the Effective Date. Each Term Loan Note shall be cancelled and be of no further force and effect. 2.02. Revolving Credit Facility. (a) Subject to the terms and conditions set forth herein, each Lender hereby severally and not jointly agrees to make revolving loans, in -41- 43 Dollars or an Alternative Currency (each individually, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrowers from time to time during the period from the Effective Date to the Business Day next preceding the Revolving Credit Termination Date, in an amount not to exceed at any time outstanding such Lender's Revolving Credit Commitment at such time; provided, that (i) the aggregate amount of the Revolving Loans made to the Borrowers by each Lender on a Funding Date shall not exceed the Dollar amount of such Lender's Pro Rata Share of the Revolving Credit Availability on such Funding Date, (ii) the aggregate outstanding amount of Multicurrency Loans shall not exceed at any time the Multicurrency Sublimit less the outstanding amount of Letter of Credit Obligations denominated in Alternative Currencies and (iii) the aggregate outstanding amount of Revolving Credit Obligations owing by any Foreign Borrower shall not exceed at any time such Foreign Borrower's Foreign Borrower Sublimit in effect at such time. All Revolving Loans comprising the same Borrowing hereunder shall be made by such Lenders simultaneously and proportionately to their then respective Revolving Credit Commitments. Subject to the provisions hereof (including, without limitation, Sections 3.01(a) and 5.02), any Borrower may repay any outstanding Revolving Loan on any day which is a Business Day and any amounts so repaid may be reborrowed, up to the amount available under this Section 2.02(a) at the time of such Borrowing, until the Business Day next preceding the Revolving Credit Termination Date. Borrowings of Revolving Loans denominated in Dollars shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount. Borrowings of Multicurrency Loans shall be Eurocurrency Loans denominated in a single Alternative Currency in an aggregate minimum amount equal to an integral multiple of 100,000 units in such Alternative Currency and (converted to the Dollar Equivalent thereof) equal to or greater than $1,000,000. For the purposes of determining compliance with this Section 2.02(a), the Dollar Equivalent of a Multicurrency Loan in an Alternative Currency shall be determined by Citibank London upon receipt from the Company of the Notice of Borrowing requesting such Multicurrency Loan, and such Dollar Equivalent shall be recalculated on each date that it shall be necessary to determine the unused portion of each Lender's Revolving Credit Commitment or any or all of the Loans outstanding on such date. (b) Notice of Borrowing. When any Borrower desires to borrow under this Section 2.02, the Company shall deliver to the Administrative Agent (with a copy to Citibank London, in the case of a Borrowing of Multicurrency Loans) an irrevocable Notice of Borrowing, signed by it, (x) on the Effective Date, in the case of a Borrowing of Revolving Loans on the Effective Date and (y) no later than 12:00 noon (New York time) (or 2:00 p.m. (London time) in the case of a Borrowing of Multicurrency Loans) (I) on the Business Day immediately preceding the proposed -42- 44 Funding Date, in the case of a Borrowing of Base Rate Loans after the Effective Date and (II) at least three (3) Business Days in advance of the proposed Funding Date, in the case of a Borrowing of Eurocurrency Rate Loans after the Effective Date. Such Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and currency of the proposed Borrowing, (iii) the Revolving Credit Availability as of the date of such Notice of Borrowing, (iv) whether the proposed Borrowing will be of Base Rate Loans or Eurocurrency Rate Loans (it being understood and agreed that no Multicurrency Loans may be made as Base Rate Loans), (v) in the case of Eurocurrency Rate Loans, the requested Interest Period, (vi) the Borrower making such Borrowing, (vii) instructions for the disbursement of the proceeds of the proposed Borrowing and (viii) whether the proposed Borrowing will be used for the purpose of consummating a Permitted Acquisition. In lieu of delivering such a Notice of Borrowing (except with respect to a Borrowing on the Effective Date), the Company shall give the Administrative Agent (and Citibank London, in the case of a Borrowing of Multicurrency Loans) irrevocable telephonic notice of any proposed Borrowing by the time required under this Section 2.02(b), and shall confirm such notice by delivery of the Notice of Borrowing by telecopy to the Administrative Agent (with a copy to Citibank London, in the case of a Borrowing of Multicurrency Loans) promptly, but in no event later than 5:00 p.m. (New York time) on the same day. Any Notice of Borrowing delivered in connection with a Permitted Acquisition shall be accompanied by the Officer's Certificate required pursuant to Section 8.17(b). (c) Making of Revolving Loans. (i) Promptly after receipt of a Notice of Borrowing under Section 2.02(b) (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender by telex or telecopy, or other similar form of transmission, of the proposed Borrowing. Each Lender shall deposit an amount equal to its Pro Rata Share of the amount requested by the Company to be made as Revolving Loans, (A) in the case of a Borrowing in Dollars, with the Administrative Agent at its office in New York, New York, in immediately available funds, and (B) in the case of a Borrowing in an Alternative Currency, with Citibank London at its office in London, England in immediately available funds, in either instance (1) on the Effective Date specified in the initial Notice of Borrowing and (2) not later than 2:00 p.m. (New York or London time, as applicable) on any other Funding Date applicable thereto. Subject to the fulfillment of the conditions precedent set forth in Section 5.01 or Section 5.02, as applicable, the Administrative Agent or Citibank London, as applicable, shall make the proceeds of such amounts received by it available to the applicable Borrower at the respective office of the Administrative Agent or Citibank London on such Funding Date (or on the date received if later than such Funding Date) and shall disburse such proceeds to the Disbursement Account or otherwise -43- 45 in accordance with the Company's disbursement instructions set forth in the applicable Notice of Borrowing. The failure of any Lender to deposit the amount described above with the Administrative Agent or Citibank London on the applicable Funding Date shall not relieve any other Lender of its obligations hereunder to make its Revolving Loan on such Funding Date. No Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Revolving Loan hereunder nor shall the Revolving Credit Commitment of any Lender be increased or decreased as a result of any such failure. (ii) Anything hereinabove to the contrary notwithstanding, if any Lender shall, not later than 10:00 a.m. (London time) two Business Days before the date of any requested Borrowing of Multicurrency Loans, notify the Administrative Agent that such Lender is not satisfied that deposits in the relevant Alternative Currency will be freely available to it in the relevant amount and for the relevant Interest Period, the right of the Borrowers to request Multicurrency Loans in such Alternative Currency from such Lender as part of such Borrowing or any subsequent Borrowing of Multicurrency Loans shall be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and, at the option of the Borrowers, either (i) the applicable Notice of Borrowing may be withdrawn and such Borrowing shall not be made, or (ii) the Multicurrency Loan to be made by such Lender as part of such Borrowing (and the Multicurrency Loan to be made by such Lender as part of any subsequent Borrowing of Multicurrency Loans in respect of which such Alternative Currency shall have been requested during such period of suspension) shall be a Eurocurrency Rate Loan denominated in Dollars and having an Interest Period coextensive with the Interest Period in effect in respect of all other Multicurrency Loans comprising a part of such Borrowing. If any Borrower elects to withdraw its Notice of Borrowing, such Borrower shall be liable to each other Lender for any damages suffered on account thereof of a nature described in Section 4.02(f). The Administrative Agent shall, upon receiving notice from such Lender that the circumstances causing any such suspension no longer apply, promptly so notify the Borrowers; provided, that the failure of the Administrative Agent to so notify the Borrowers shall not impair the rights of the Lenders under this Section 2.02(c)(ii) or expose the Administrative Agent to any liability. (iii) Unless the Administrative Agent shall have been notified by any Lender on the Business Day immediately preceding the applicable Funding Date in respect of any Borrowing of Revolving Loans that such Lender does not intend to fund its Revolving Loan requested to be made on such Funding Date, the Administrative Agent may assume that such Lender has funded its Revolving Loan and is depositing the proceeds thereof with the Administrative Agent or Citibank London, as applicable, on the -44- 46 Funding Date, and the Administrative Agent or Citibank London, as applicable, in its sole discretion may, but shall not be obligated to, disburse a corresponding amount to the applicable Borrower on the Funding Date. If the Revolving Loan proceeds corresponding to that amount are advanced to the applicable Borrower by the Administrative Agent or Citibank London, as applicable, but are not in fact deposited with the Administrative Agent or Citibank London, as applicable, by such Lender on or prior to the applicable Funding Date, such Lender agrees to pay, and in addition the applicable Borrower agrees to repay, to the Administrative Agent or Citibank London, as applicable, forthwith on demand such corresponding amount, together with (x) interest thereon, for each day from the date such amount is disbursed to or for the benefit of such Borrower until the date such amount is paid or repaid to the Administrative Agent or Citibank London, as applicable, (A) in the case of such Borrower, at the interest rate applicable to such Borrowing and (B) in the case of such Lender, at the Interbank Rate for the first Business Day, and thereafter at the interest rate applicable to such Borrowing and (y), in the case of a Borrowing in an Alternative Currency, any other cost or loss suffered or incurred by Citibank London in connection therewith. If such Lender shall pay to the Administrative Agent or Citibank London, as applicable, the corresponding amount, the amount so paid shall constitute such Lender's Revolving Loan, and if both such Lender and such Borrower shall pay and repay such corresponding amount, the Administrative Agent shall promptly pay to such Borrower such corresponding amount. This Section 2.02(c)(ii) does not relieve any Lender of its obligation to make its Revolving Loan on any Funding Date. (d) Use of Proceeds of Revolving Loans. (i) Proceeds sufficient to repay the Term Loans in full and to pay the interest, fees and expenses required to be paid under the Existing Credit Agreement under Section 5.01(j) shall be used on the Effective Date to repay or pay such amounts, and (ii) after the Effective Date, the proceeds of the Revolving Loans may be used (A) to pay the purchase price of any Permitted Acquisition and other related transaction costs and expenses and to fund any refinancing of Indebtedness in connection with a Permitted Acquisition as set forth and certified in the Notice of Borrowing pertaining thereto, (B) to fund working capital in the ordinary course of the business of the Company and its Subsidiaries and (C) for other lawful general corporate purposes not prohibited hereunder. Notwithstanding anything herein to the contrary, no proceeds of Revolving Loans may be used to fund Restricted Junior Payments made pursuant to Section 9.06(vii) or (viii); provided, however, in the event proceeds of the issuance of the Subordinated Notes have been used to repay Revolving Loans, then Revolving Loans up to the amount of such proceeds applied to the Revolving Loans may be used to fund such Restricted Junior Payments. -45- 47 (e) Revolving Credit Termination Date. The Revolving Credit Commitments shall terminate, and all outstanding Revolving Credit Obligations shall be paid in full (or, in the case of unmatured Letter of Credit Obligations, provision for payment of Cash Collateral shall be made to the satisfaction of the Issuing Banks and the Administrative Agent), on the Revolving Credit Termination Date. Each Lender's obligation to make Revolving Loans shall terminate at the close of business in New York City on the Business Day next preceding the Revolving Credit Termination Date. 2.03. Swing Loans. (a) Availability. Subject to the terms and conditions set forth herein, the Swing Loan Bank may, in its sole discretion, make loans (the "Swing Loans") to the Company, from time to time during the period from the Effective Date and at any time up to the Business Day next preceding the Revolving Credit Termination Date, up to an aggregate principal amount at any one time outstanding which shall not exceed an amount equal to the lesser of (i) $10,000,000 and (ii) the Revolving Credit Availability at such time. The Swing Loan Bank shall have no duty to make or to continue to make Swing Loans. All Swing Loans shall be payable on demand with accrued interest thereon and shall be secured as part of the Obligations by the Collateral and shall otherwise be subject to all the terms and conditions applicable to Revolving Loans, except that (x) Swing Loans shall not have a minimum amount requirement, (y) all interest on the Swing Loans made by the Swing Loan Bank shall be payable to the Swing Loan Bank solely for its own account and (z) all Swing Loans shall be denominated in Dollars. (b) Notice of Borrowing. When the Company desires to borrow under this Section 2.03, it shall deliver to the Administrative Agent an irrevocable Notice of Borrowing, signed by it, no later than 12:00 p.m. (New York time) on the day of the proposed Borrowing of a Swing Loan. Such Notice of Borrowing shall specify (i) the date of the proposed Borrowing (which shall be a Business Day), (ii) the amount of the proposed Borrowing and (iii) instructions for the disbursement of the proceeds of the proposed Borrowing. Any Notice of Borrowing delivered pursuant to this Section 2.03(b) shall be deemed to constitute a Notice of Borrowing under Section 2.02(b) in the event the Administrative Agent determines in its sole discretion that a Borrowing of Swing Loans is not possible or feasible. In lieu of delivering such a Notice of Borrowing, the Company shall give the Administrative Agent irrevocable telephonic notice of any proposed Borrowing by 1:00 p.m. on the day of the proposed Borrowing, and shall confirm such notice by delivery of the Notice of Borrowing by telecopy to the Administrative Agent promptly, but in no event later than 3:00 p.m. (New York time) on the same day. All Swing Loans shall be Base Rate Loans. -46- 48 (c) Making of Swing Loans. The Swing Loan Bank shall deposit the amount it intends to fund, if any, in respect of the Swing Loans requested by the Company with the Administrative Agent at its office in New York, New York not later than 2:00 p.m. (New York time) in immediately available funds on the date of the proposed Borrowing applicable thereto. The Swing Loan Bank shall not make any Swing Loan in the period commencing on the first Business Day after it receives written notice from any Lender that one or more of the conditions precedent contained in Section 5.02 shall not on such date be satisfied, and ending when such conditions are satisfied or waived pursuant to Section 13.07 hereof, and the Swing Loan Bank shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 5.02 hereof have been satisfied in connection with the making of any Swing Loan. Subject to the preceding sentence, the Administrative Agent shall make such proceeds available to the Company at the Administrative Agent's office in New York, New York on the date of the proposed Borrowing and shall disburse such proceeds to the Disbursement Account. (d) Repayment of Swing Loans. The Company shall repay the outstanding Swing Loans owing to the Swing Loan Bank (i) upon demand by the Swing Loan Bank or, if no such demand is made, within seven (7) Business Days after the Borrowing thereof and (ii) in any event, on the Revolving Credit Termination Date. In the event that the Company fails to repay any Swing Loans, together with interest thereon, as set forth in the first sentence of this paragraph, then, upon the request of the Swing Loan Bank, each Lender shall make Revolving Loans to the Company (irrespective of the satisfaction of the conditions in Section 5.02 or the requirement to deliver a Notice of Borrowing in Section 2.02(b), which conditions and requirement such Lenders irrevocably waive) in an amount equal to such Lender's Pro Rata Share of the aggregate amount of the Swing Loans then outstanding (net of that portion of such Swing Loan, if any, owing to such Lender in its capacity as a Swing Loan Bank) after giving effect to any prepayments and repayments made by the Company, and the Company hereby authorizes the Administrative Agent to apply the proceeds of such Revolving Loans to the repayment of such Swing Loans. To the extent the Administrative Agent receives any amounts in prepayment or repayment of outstanding Revolving Loans prior to such request, the Administrative Agent shall apply such amounts when received to the repayment of the Swing Loans then outstanding. The failure of any Lender to make available to the Administrative Agent its Pro Rata Share of such Revolving Loans shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent such other Lender's Pro Rata Share of such Revolving Loans on the date of such request. No Lender shall be responsible for any failure by any other Lender to perform its obligations to make such Revolving -47- 49 Loans hereunder nor shall the Revolving Credit Commitment of any Lender be increased or decreased as a result of such failure. (e) Use of Proceeds of Swing Loans. The proceeds of the Swing Loans may be used for working capital in the ordinary course of the Company's business and for lawful general corporate purposes of the Company not prohibited hereunder. 2.04. Letters of Credit. Subject to the terms and conditions set forth herein, each Issuing Bank hereby severally agrees to Issue for the account of the Borrowers one or more Letters of Credit, up to an aggregate face amount at any one time outstanding equal to the Letter of Credit Availability, subject to the following provisions: (a) Types and Amounts. An Issuing Bank shall not have any obligation to Issue, and shall not Issue any Letter of Credit at any time: (i) if the aggregate Letter of Credit Obligations with respect to such Issuing Bank, after giving effect to the Issuance of the Letter of Credit requested hereunder, shall exceed any limit imposed by law or regulation upon such Issuing Bank; (ii) if the Issuing Bank receives written notice (A) from the Administrative Agent at or before 11:00 a.m. (New York time) on the date of the proposed Issuance of such Letter of Credit that immediately after giving effect to the Issuance of such Letter of Credit, (1) the Revolving Credit Obligations at such time would exceed the Maximum Revolving Credit Amount at such time, (2) the undrawn face amount of the Letter of Credit Obligations denominated in Alternative Currencies, when aggregated with all other Revolving Credit Obligations denominated in Alternative Currencies, would exceed the Multicurrency Sublimit, or (3) in the case such Letter of Credit is being issued for the account of a Foreign Borrower, the Revolving Credit Obligations owing by such Foreign Borrower at such time would exceed such Foreign Borrower's Foreign Borrower Sublimit or (B) from any of the Lenders at or before 11:00 a.m. (New York time) on the date of the proposed Issuance of such Letter of Credit that one or more of the conditions precedent contained in Sections 5.01 or 5.02, as applicable, would not on such date be satisfied (or waived pursuant to Section 13.07), unless such conditions are thereafter satisfied or waived and written notice of such satisfaction or waiver is given to the Issuing Bank by the Administrative Agent (and an Issuing Bank shall not otherwise be required to determine that, or take notice whether, the conditions -48- 50 precedent set forth in Sections 5.01 or 5.02, as applicable, have been satisfied or waived); or (iii) which has an expiration date later than the earlier of (A) the date one (1) year after the date of issuance (without regard to any renewal provisions thereof) or (B) the Revolving Credit Termination Date; or (iv) which is in a currency other than Dollars or an Alternative Currency in which such Issuing Bank is then issuing letters of credit. (b) Conditions. In addition to being subject to the satisfaction of the conditions precedent contained in Sections 5.01 and 5.02, as applicable, the obligation of an Issuing Bank to Issue any Letter of Credit for the account of a Borrower is subject to the satisfaction in full of the following conditions: (i) if the Issuing Bank so requests, such Borrower shall have executed and delivered to such Issuing Bank and the Administrative Agent a Letter of Credit Reimbursement Agreement and such other documents and materials as may be required pursuant to the terms thereof; and (ii) the terms of the proposed Letter of Credit shall be satisfactory to the Issuing Bank in its sole discretion consistent with commercial practices. (c) Issuance of Letters of Credit. (i) The Company shall give an Issuing Bank and the Administrative Agent written notice that it has selected such Issuing Bank to Issue a Letter of Credit (A) not later than 11:00 a.m. (New York time) on the requested date (which shall be a Business Day) for Issuance of any Letter of Credit denominated in Dollars and (B) not later than 2:00 p.m. (London time) on the fourth Business Day preceding the requested date (which shall be a Business Day) for Issuance of any Letter of Credit denominated in an Alternative Currency. Such notice shall be irrevocable unless and until such request is denied by the applicable Issuing Bank and shall specify (A) that the requested Letter of Credit is either a Commercial Letter of Credit or a Standby Letter of Credit, (B) the stated amount and currency of the Letter of Credit requested, (C) the effective date (which shall be a Business Day) of Issuance of such Letter of Credit, (D) the date on which such Letter of Credit is to expire, (E) the Person for whose benefit such Letter of Credit is to be Issued, (F) the Borrower for whose account the requested Letter of Credit is to be Issued, (G) other relevant terms of such Letter of Credit and (H) the amount of the then outstanding Letter of Credit Obligations. Such Issuing Bank shall notify the Administrative Agent immediately upon receipt of a written notice -49- 51 from the Company requesting that a Letter of Credit be Issued and, upon the Administrative Agent's request therefor, send a copy of such notice to the Administrative Agent. (ii) The Issuing Bank shall give the Administrative Agent written notice, or telephonic notice confirmed promptly thereafter in writing, of the Issuance of a Letter of Credit (which notice the Administrative Agent shall promptly transmit by telegram, telex, telecopy, telephone or similar transmission to each Lender). (d) Reimbursement Obligations; Duties of Issuing Banks. (i) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (A) the Borrower for whose account a Letter of Credit has been Issued shall reimburse the Issuing Bank for amounts drawn under such Letter of Credit pursuant to subsection (e)(ii) below, in the currency in which such Letter of Credit is denominated, no later than the date (the "Reimbursement Date") which is one (1) Business Day after such Borrower receives written notice from the Issuing Bank that payment has been made under such Letter of Credit by the Issuing Bank; and (B) all Reimbursement Obligations with respect to any Letter of Credit shall bear interest at the rate applicable to Base Rate Loans (if such Letter of Credit is denominated in Dollars) or Eurocurrency Rate Loans with Eurocurrency Rate Interest Periods determined by the Administrative Agent (if such Letter of Credit is denominated in an Alternative Currency), in each case in accordance with Section 4.01(a) from the date of the relevant drawing under such Letter of Credit until the Reimbursement Date and thereafter at the rate applicable in accordance with Section 4.01(d). (ii) The applicable Issuing Bank shall give the Administrative Agent written notice, or telephonic notice confirmed promptly thereafter in writing, of all drawings under a Letter of Credit and the payment (or the failure to pay when due) by the applicable Borrower on account of a Reimbursement Obligation (which notice the Administrative Agent shall promptly transmit by telegram, telex, telecopy or similar transmission to each Lender). (iii) No action taken or omitted in good faith by an Issuing Bank under or in connection with any Letter of Credit shall put such Issuing Bank under any resulting liability to any Lender or, so long as such Letter of Credit is not Issued in violation of Section 2.04(a), relieve any Lender of its obligations hereunder to such Issuing Bank. Solely as between -50- 52 the Issuing Banks and such Lenders, in determining whether to pay under any Letter of Credit, the respective Issuing Bank shall have no obligation to the Lenders other than to confirm that any documents required to be delivered under a respective Letter of Credit appear to have been delivered and that they appear on their face to comply with the requirements of such Letter of Credit. (e) Participations. (i) Immediately upon Issuance by an Issuing Bank of any Letter of Credit in accordance with the procedures set forth in this Section 2.04, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from that Issuing Bank, without recourse or warranty, an undivided interest and participation in such Letter of Credit to the extent of such Lender's Pro Rata Share, including, without limitation, all obligations of applicable Borrower with respect thereto (other than amounts owing to the Issuing Bank under Section 2.04(g)) and any security therefor and guaranty pertaining thereto. (ii) If any Issuing Bank makes any payment under any Letter of Credit and the applicable Borrower does not repay such amount to the Issuing Bank on the Reimbursement Date, the Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Lender, and each such Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuing Bank, in immediately available funds, the amount of such Lender's Pro Rata Share of such payment (net of that portion of such payment, if any, made by such Lender in its capacity as an Issuing Bank), and the Administrative Agent shall promptly pay to the Issuing Bank's account, pursuant to this Section 2.04(e). All such payments shall constitute Revolving Loans made to the applicable Borrower pursuant to Section 2.02 (irrespective of the satisfaction of the conditions in Section 5.02 or the requirement in Section 2.02(b) to deliver a Notice of Borrowing which conditions and requirement, for the purpose of refunding any Reimbursement Obligation owing to any Issuing Bank, the Lenders irrevocably waive) and shall thereupon cease to be unpaid Reimbursement Obligations. Such Revolving Loans shall be Base Rate Loans (if such Letter of Credit is denominated in Dollars) or Eurocurrency Rate Loans with Eurocurrency Rate Interest Periods determined by the Administrative Agent (if such Letter of Credit is denominated in an Alternative Currency). If a Lender does not make its Pro Rata Share of the amount of such payment available to the Administrative Agent, such Lender agrees to pay to the Administrative Agent for the account of the Issuing Bank, forthwith on demand, such amount together with interest thereon, for the first Business Day after the date such payment was first due at the Interbank Rate, and thereafter at the interest rate then applicable to Base Rate Loans (in the case of Revolving -51- 53 Loans denominated in Dollars) and Eurocurrency Loans with a Eurocurrency Interest Period of one week (in the case of Multicurrency Loans), in each case in accordance with Section 4.01(a). The failure of any such Lender to make available to the Administrative Agent for the account of an Issuing Bank its Pro Rata Share of any such payment shall neither relieve any other Lender of its obligation hereunder to make available to the Administrative Agent for the account of such Issuing Bank such other Lender's Pro Rata Share of any payment on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Administrative Agent. This Section does not relieve any Lender of its obligation to purchase Pro Rata Share participations in Letters of Credit; nor does this Section relieve the applicable Borrower of its obligation to pay or repay any Issuing Bank funding its Pro Rata Share of such payment pursuant to this Section interest on the amount of such payment from such date such payment is to be made until the date on which payment is repaid in full. (iii) Whenever an Issuing Bank receives a payment on account of a Reimbursement Obligation, including any interest thereon, as to which any Lender has made a Revolving Loan pursuant to clause (ii) of this Section, such Issuing Bank shall promptly pay to the Administrative Agent such payment in accordance with Section 3.02. Each such payment shall be made by such Issuing Bank or the Administrative Agent, as the case may be, on the Business Day on which such Person receives the funds paid to such Person pursuant to the preceding sentence, if received prior to 11:00 a.m. (New York time) on such Business Day, and otherwise on the next succeeding Business Day. (iv) Upon the request of any Lender to the Administrative Agent, an Issuing Bank shall furnish such Lender copies of any Letter of Credit or Letter of Credit Reimbursement Agreement to which such Issuing Bank is party and such other documentation as reasonably may be requested by such Lender. (v) The obligations of a Lender to make payments to the Administrative Agent for the account of any Issuing Bank with respect to a Letter of Credit issued for the account of any Borrower, shall be irrevocable, shall not be subject to any qualification or exception whatsoever except willful misconduct or gross negligence of such Issuing Bank as determined in a final, non-appealable judgment by a court of competent jurisdiction, and shall be honored in accordance with this Article II (irrespective of the satisfaction of the conditions described in Sections 5.01 and 5.02, as applicable which conditions, for the purposes of the repayment of Letters of Credit to the Issuing Bank, such Lenders irrevocably waive) under all circumstances, including, without limitation, any of the following circumstances: -52- 54 (A) any lack of validity or enforceability hereof or of any of the other Loan Documents; (B) the existence of any claim, setoff, defense or other right which such Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of a beneficiary named in a Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Co-Agent, any Issuing Bank, any Lender, or any other Person, whether in connection herewith, with any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the account party and beneficiary named in any Letter of Credit); (C) any draft, certificate or any other document presented under the Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (D) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (E) any failure by such Issuing Bank to make any reports required pursuant to Section 2.04(h) or the inaccuracy of any such report; or (F) the occurrence of any Event of Default or Default. (f) Payment of Reimbursement Obligations. Subject to the terms hereof, (i) the Borrower for whose account a Letter of Credit is Issued unconditionally agrees to pay to each Issuing Bank, in Dollars, the amount of all Reimbursement Obligations, interest and other amounts payable to such Issuing Bank under or in connection with such Letter of Credit when such amounts are due and payable, irrespective of any claim, setoff, defense or other right which such Borrower may have at any time against any Issuing Bank or any other Person. (ii) In the event any payment by a Borrower received by an Issuing Bank with respect to a Letter of Credit and distributed by the Administrative Agent to the Lenders on account of their participation is thereafter set aside, avoided or recovered from such Issuing Bank in connection with any receivership, liquidation or bankruptcy proceeding, each such Lender which received such distribution shall, upon demand by such Issuing Bank, contribute such Lender's Pro Rata Share of the amount set aside, avoided or recovered together with interest at the -53- 55 rate required to be paid by such Issuing Bank upon the amount required to be repaid by it. (g) Issuing Bank Charges. Each Borrower shall pay to each Issuing Bank, solely for its own account, the standard charges assessed by such Issuing Bank in connection with the issuance, administration, amendment and payment or cancellation of Letters of Credit and such compensation in respect of such Letters of Credit for such Borrower's account as may be agreed upon by such Borrower and such Issuing Bank from time to time. (h) Issuing Bank Reporting Requirements. Each Issuing Bank shall, no later than the tenth (10th) Business Day following the last day of each calendar month, provide to the Administrative Agent and the Company separate schedules for Commercial Letters of Credit and Standby Letters of Credit issued by the Borrowers, in form and substance reasonably satisfactory to the Administrative Agent and the Company, setting forth the aggregate Letter of Credit Obligations outstanding to the Borrowers at the end of each month and any information requested by the Administrative Agent or the Company relating to the date of issue, account party, amount, expiration date and reference number of each Letter of Credit issued by the Borrowers. (i) Indemnification; Exoneration. (A) In addition to all other amounts payable to an Issuing Bank, each Borrower hereby agrees to defend, indemnify, and save the Administrative Agent, each Co-Agent, each Issuing Bank and each Lender harmless from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasonable attorneys' fees but excluding taxes) which the Administrative Agent, such Co-Agent, such Issuing Bank or such Lender may incur or be subject to as a consequence, direct or indirect, of (i) the Issuance of any Letter of Credit other than as a result of the gross negligence or willful misconduct of the Issuing Bank, as determined by a court of competent jurisdiction, or (ii) the failure of the Issuing Bank issuing a Letter of Credit to honor a drawing under such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. (B) As between a Borrower on the one hand and the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks on the other hand, such Borrower assumes all risks of the acts and omissions of, or misuse of Letters of Credit by, the respective beneficiaries of the Letters of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit Reimbursement Agreements, the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders shall not be responsible for: (i) the form, validity, legality, sufficiency, accuracy, genuineness or legal -54- 56 effect of any document submitted by any party in connection with the application for and Issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity, legality or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; (viii) any litigation, proceeding or charges with respect to such Letter of Credit; and (ix) any consequences arising from causes beyond the control of the Administrative Agent, the Co-Agents, the Issuing Banks or the Lenders, except in the cases of clauses (i), (iii), (iv), (v), (vi), (viii) and (ix) above, in each instance for the gross negligence or willful misconduct of the Issuing Bank, as determined in a final, non-appealable judgment by a court of competent jurisdiction. (j) Obligations Several. The obligations of each Issuing Bank and each Lender under this Section 2.04 are several and not joint, and no Issuing Bank or Lender shall be responsible for the obligation to issue Letters of Credit or participation obligation hereunder, respectively, of any other Issuing Bank or Lender. 2.05. Promise to Repay; Evidence of Indebtedness. (a) Promise to Repay. Each Borrower hereby agrees to pay when due the principal amount of each Loan which is made to it, and further agrees to pay when due all unpaid interest accrued thereon, in accordance with the terms hereof and of the Notes. Each Borrower shall execute and deliver to each Lender, as applicable on the Effective Date, an amended and restated Swing Loan Note substantially in the form of Exhibit I and amended and restated Revolving Credit Notes substantially in the form of Exhibit H, evidencing the Loans and thereafter shall execute and deliver such other promissory notes as are necessary to evidence the Loans owing to the Lenders after giving effect to any assignment thereof pursuant to Section 13.01, all in form and substance acceptable to the Administrative Agent and the parties to such assignment (all such promissory notes and all amendments thereto, replacements thereof and substitutions therefor being -55- 57 collectively referred to as the "Notes"; and "Note" means any one of the Notes). (b) Loan Account. Each Lender shall maintain in accordance with its usual practice an account or accounts (a "Loan Account") evidencing the Indebtedness of each Borrower to such Lender resulting from each Loan owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder and under each of the Notes. 2.06. Authorized Officers and Agents. On the Effective Date and from time to time thereafter, the Company shall deliver to the Administrative Agent an Officers' Certificate setting forth the names of the officers, employees and agents of the Borrowers authorized to request Revolving Loans, Swing Loans and Letters of Credit and containing a specimen signature of each such officer, employee or agent. The officers, employees and agents so authorized shall also be authorized to act for the Borrowers in respect of all other matters relating to the Loan Documents. The Administrative Agent shall be entitled to rely conclusively on such officer's or employee's authority to request such Loan or Letter of Credit until the Administrative Agent receives written notice to the contrary. In addition, the Administrative Agent shall be entitled to rely conclusively on any written notice sent to it by telecopy. The Administrative Agent shall have no duty to verify the authenticity of the signature appearing on, or any telecopy or facsimile of, any written Notice of Borrowing or any other document, and, with respect to an oral request for such a Loan or Letter of Credit, the Administrative Agent shall have no duty to verify the identity of any person representing himself or herself as one of the officers, employees or agents authorized to make such request or otherwise to act on behalf of the Borrowers. None of the Administrative Agent, either Co-Agent, any Lender or any Issuing Bank shall incur any liability to the Borrowers or any other Person in acting upon any telecopy or facsimile or telephonic notice referred to above which the Administrative Agent reasonably believes to have been given by a duly authorized officer, employee or agent set forth in the most recent Officers' Certificate delivered by the Company to the Administrative Agent. 2.07. Designation of Foreign Borrowers. (a) The Company shall have the right to designate one or more Wholly Owned Foreign Subsidiaries (other than Insilco GmbH) to become "Foreign Borrowers" for all purposes under this Agreement by giving the Administrative Agent at least 30 days written notice of its intention to designate a Foreign Borrower. The Company shall also specify in such written notice the Foreign Borrower Sublimit for such designated Foreign Borrower. No Foreign Borrower (including Insilco GmbH) shall be entitled to request Revolving Loans or Letters of Credit hereunder unless the -56- 58 following conditions precedent are satisfied (it being understood and agreed that Insilco GmbH, by being a party to this Agreement, has already satisfied the condition in clause (i)(A) below): (i) The Administrative Agent (on behalf of itself and the Lenders) shall have received on or before the initial funding of any Revolving Loan to, or the date of issuance of any Letter of Credit for the account of, such Foreign Borrower, all of the following in form and substance satisfactory to the Administrative Agent: (A) A Foreign Borrower Assumption Agreement substantially in the form of Exhibit K, duly executed by such Foreign Borrower, the Company, the Administrative Agent and Lenders constituting the Requisite Lenders, pursuant to which, among other things, (I) such Foreign Borrower agrees to be bound by the terms of this Agreement applicable to Foreign Borrowers, (II) the Requisite Lenders approve of the designation of such Foreign Borrower and (III) the Requisite Lenders approve of the Foreign Borrower Sublimit of such Foreign Borrower; (B) A pledge of 65% of the Capital Stock of such Foreign Borrower as security for the Obligations; (C) A Revolving Credit Note payable to each Lender in a principal amount equal to such Lender's Pro Rata Share of such Foreign Borrower's Foreign Borrower Sublimit; and (D) Such corporation documentation, opinions of counsel and other documentation as the Administrative Agent may reasonably request. (ii) No Event of Default or Default shall have occurred and be continuing or would result from the making of any Loans to such Foreign Borrower. (iii) All of the representations and warranties contained in Section 6.01 and in any of the other Loan Documents shall be true and correct in all material respects on and as of the effective date of the designation of such Foreign Borrower (other than representations and warranties which expressly speak as of a different date). (iv) Such Foreign Borrower shall have received all consents and authorizations required pursuant to any material Contractual Obligation with any other Person and shall have obtained all consents and authorizations of, and effected all notices to and filings with, any Governmental Authority as may be necessary to allow such Foreign Borrower lawfully to execute, deliver and perform, in all material respects, its obligations -57- 59 hereunder, under the other Loan Documents to which it is, or shall be, a party and each other agreement or instrument to be executed and delivered by it pursuant thereto or in connection therewith. (b) Any Foreign Borrower may cease to be a Foreign Borrower for all purposes hereunder upon (i) at least 30 days written notice from the Company to the Administrative Agent specifying such Foreign Borrower and (ii) the payment in full by such Foreign Borrower of all its Revolving Loans and other Obligations (other than Obligations in respect of indemnities not yet due). ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. Prepayments; Reductions in Revolving Credit Commitments. (a) Voluntary Repayments/Reductions. (i) Voluntary Repayments of Revolving Loans. Upon at least three (3) Business Days' prior notice to the Administrative Agent (which the Administrative Agent shall promptly transmit to each Lender), the Borrower may repay any Base Rate Loan, in whole or in part. Eurocurrency Rate Loans may be repaid (A) in whole or in part on the expiration date of the then applicable Eurocurrency Interest Period, as the case may be, and (B) upon payment of the amounts described in Section 4.02(f) on any other Business Day upon at least three (3) Business Days' prior written notice to the Administrative Agent (which the Administrative Agent shall promptly transmit to each Lender). Voluntary repayments of Loans denominated in Dollars shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000. Voluntary repayments of Multicurrency Loans shall be in an aggregate amount equal to an integral multiple of 100,000 units in such Alternative Currency and (converted to the Dollar Equivalent thereof) equal to or greater than $500,000. Any notice of repayment given to the Administrative Agent under this Section 3.01(a)(i) shall specify, in accordance with the terms hereof, the date (which shall be a Business Day) of repayment, the aggregate principal amount and currency of the repayment, any allocation of such amount among Loans outstanding to the Company and the Foreign Borrowers, and any allocation of such amount among Base Rate Loans and Eurocurrency Rate Loans. When notice of repayment is delivered as provided herein, the principal amount of the Loans specified in the notice shall become due and payable on the repayment date specified in such notice, subject to the right to reborrow the same in accordance with Section 2.02. The Company may repay Swing Loans, without prior written notice to the Administrative Agent or the Swing Loan Bank, at any time and from time to time. -58- 60 (ii) Voluntary Revolving Credit Commitment Reductions. The Company, upon at least three (3) Business Days' prior written notice to the Administrative Agent (which the Administrative Agent shall promptly transmit to each Lender), shall have the right, from time to time, to terminate in whole or permanently reduce in part the Revolving Credit Commitments, provided that the Borrowers shall have made whatever payment may be required to reduce the Revolving Credit Obligations to an amount less than or equal to the Maximum Revolving Credit Amount after giving effect to such reduction or termination of the Revolving Credit Commitments. Any partial reduction of the Revolving Credit Commitments shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount, and shall reduce the Revolving Credit Commitment of each Lender proportionately in accordance with its Pro Rata Share. Any notice of termination or reduction given to the Administrative Agent under this Section 3.01(a)(ii) shall specify the date (which shall be a Business Day) of such termination or reduction and, with respect to a partial reduction, the aggregate principal amount thereof. When notice of termination or reduction is delivered as provided herein, the principal amount of the Revolving Loans specified in the notice shall become due and payable on the date specified in such notice. (iii) No Prepayment Fee. The repayments and payments in respect of reductions and terminations described in clauses (i) and (ii) of this Section 3.01(a) may be made without premium or penalty (except as provided in Section 4.02(f)). (b) Mandatory Prepayments of Loans and Revolving Credit Commitment Reductions. (i) Immediately after the Borrowers' or any of the Domestic Subsidiaries' receipt of any Net Cash Proceeds on account of (A) the sale, assignment or other disposition of, or (B) subject to Section 8.07, the loss of or damage to, or taking by condemnation or eminent domain of, all or any portion of the Property of the Borrowers or any of the Domestic Subsidiaries (other than pursuant to a Sale and Leaseback Transaction permitted pursuant to Section 9.10), the Borrower shall make or cause to be made a mandatory prepayment of the Loans in an amount equal to 100% of such Net Cash Proceeds; provided, however, the Borrowers and the Domestic Subsidiaries taken as a whole may retain (w) Net Cash Proceeds of the type referred to in clause (A) or (B) above in an aggregate amount not in excess of the first $5,000,000 in the aggregate received by them in any Fiscal Year arising from any sale, assignment or other disposition (or series of related sales, assignments or other dispositions), or loss, damage or condemnation, (x) the Rolodex Proceeds, (y) any net cash proceeds received in respect of a certain promissory note from Sinclair Properties II, LLC to Insilco dated December 27, 1995 in the principal amount of $3,500,000 and (z) -59- 61 any net cash proceeds received in respect of the sale of certain assets of Thermal Components Division, Inc. identified on Schedule 9.02. (ii) Immediately after the Borrowers' or any of the Domestic Subsidiaries' receipt of any Net Cash Proceeds identified in clause (iii)(A) of the definition of "Net Cash Proceeds" (other than a return of the Rolodex Proceeds by certain of the Company's shareholders in connection with an unwind, rescission or other reversal of the private repurchase of shares pursuant to clause (i) of the definition of Stock Repurchase), the Borrowers shall make or cause to be made a mandatory prepayment of the Loans in an amount equal to twenty-five percent (25%) of such Net Cash Proceeds. (iii) Immediately after the Company's or any of the Domestic Subsidiaries' receipt of any Net Cash Proceeds from the issuance of Indebtedness, the Company shall make or cause to be made a mandatory prepayment of the Loans in an amount equal to 100% of such Net Cash Proceeds. (iv) Immediately after the Company's or any of its Domestic Subsidiaries' receipt of any Net Cash Proceeds from any Sale and Leaseback Transaction, the Company shall make or cause to be made a mandatory prepayment in the amount equal to 100% of such Net Cash Proceeds; provided, however, the Borrower and the Domestic Subsidiaries taken as a whole may retain Net Cash Proceeds not in excess of $10,000,000 in the aggregate since the Effective Date arising from any Sale and Leaseback Transaction. (v) Nothing in this Section 3.01(b) shall be construed to constitute the Lenders' consent to any transaction which is not permitted by Article IX. (vi) On the date any mandatory prepayment is received by the Administrative Agent pursuant to clause (i), (ii), (iii) or (iv) above (each such payment being a "Designated Prepayment"), such Designated Prepayment shall be allocated and applied to the Revolving Credit Obligations in accordance with Section 3.02(b) (with a corresponding permanent reduction in the Revolving Credit Commitments equal to the amount of such Designated Prepayment); provided, however, (A) in the case of any Net Cash Proceeds arising from the sale the Company's Wholly Owned Subsidiary, Taylor Publishing Company, or all or any portion of the assets thereof, the Revolving Credit Commitments shall only be permanently reduced by 50% of the amount of any such Designated Prepayment and (B) any Net Cash Proceeds of the type set forth in clause (i)(A) or (B) above received by the Borrowers or any of the Domestic Subsidiaries after the receipt of the Administrative Agent of financial statements pursuant to Section 7.01(b) indicating that the Leverage Ratio of the Company and its Subsidiaries (pro forma after giving effect to the sale -60- 62 or other disposition giving rise to such Net Cash Proceeds) is less than or equal to 4.0 to 1, the Revolving Credit Commitments shall only be permanently reduced by 50% of the amount of any such Designated Prepayment; provided, further, however, solely in the case of clause (vi)(B) above, in the event an amount equal to 50% of the amount of such Designated Prepayment is not reinvested in any Investment or Capital Expenditure in the business of the Borrowers or any of the Domestic Subsidiaries (to the extent otherwise permitted hereunder) within 180 days after the receipt thereof, the Revolving Credit Commitments shall be further permanently reduced by an amount equal to that portion of the remaining 50% of such Designated Prepayment that was not so reinvested on the last day of such 180-day period. Any such prepayments shall be applied first to Base Rate Loans (if in Dollars) and then to any Eurocurrency Rate Loans with those Loans which have earlier expiring Interest Periods being repaid prior to those which have later expiring Interest Periods. (vii) Immediately, (A) if at any time the Revolving Credit Obligations are greater than the Maximum Revolving Credit Amount, the Borrowers shall make a mandatory repayment of the Revolving Credit Obligations in an amount equal to such excess, such amount to be applied in accordance with Section 3.02(b); (B) to the extent the Maximum Revolving Credit Amount is at any time less than the amount of contingent Letter of Credit Obligations outstanding at such time, the Borrowers shall deposit Cash Collateral with the Administrative Agent in an amount equal to the amount by which such Letter of Credit Obligations exceed such Maximum Revolving Credit Amount; (C) if at any time the Dollar Equivalent of the aggregate outstanding amount of Revolving Credit Obligations denominated in Alternative Currencies exceeds the Multicurrency Sublimit for a period of 30 days, the Borrowers shall make a mandatory repayment of the Multicurrency Loans in the amount of such excess on the last day of such period and (D) if at any time the Dollar Equivalent of aggregate outstanding amount of Revolving Credit Obligations owing by any Foreign Borrower exceeds the Foreign Borrower Sublimit applicable to such Borrower for a period of 30 days, such Borrower shall make a mandatory repayment of Revolving Loans in the amount of such excess on the last day of such period. (viii) Following delivery by the Administrative Agent to the Collection Account Banks of a Blockage Notice, funds transferred to the Administrative Agent in accordance with Section 3.05 shall be applied to the repayment of the Revolving Credit Obligations in the following order, except as otherwise provided in Section 3.02(b)(ii): first, to any and all Non Pro Rata Loans on a pro rata basis, second, to any and all outstanding Protective Advances, third, to any and all outstanding Swing Loans, and fourth, to the repayment of the Revolving Loans then outstanding. -61- 63 (c) Scheduled Revolving Credit Commitment Reductions. In addition to any mandatory reductions in the Revolving Credit Commitments made pursuant to Section 3.01(b)(vi), the Revolving Credit Commitments shall be permanently reduced by an additional $20,000,000 on each of the third, fourth and fifth anniversaries of the Effective Date; provided, however, in the event the Net Cash Proceeds arising from the sale of Taylor Publishing Company or all or any portion of the assets thereof exceed $40,000,000, resulting in a reduction of the Revolving Credit Commitments of at least $20,000,000, then the next scheduled commitment reduction of $20,000,000, if any, will be automatically waived. 3.02. Payments. (a) Manner and Time of Payment. All payments of principal of and interest on the Loans and Reimbursement Obligations and other Obligations (including, without limitation, fees and expenses) which are payable to the Administrative Agent, the Co-Agent, the Lenders or any Issuing Bank shall be made without condition or reservation of right, in immediately available funds in the applicable currency, delivered to the Administrative Agent (or, in the case of Reimbursement Obligations, to the pertinent Issuing Bank) not later than 1:00 p.m. (in the location of the Applicable Payment Office) on the date and at the place due, to such account of the Administrative Agent (or such Issuing Bank) as it may designate, for the account of the Administrative Agent, the Lenders or such Issuing Bank. Thereafter, payments in respect of any Swing Loans received by the Administrative Agent shall be distributed to the Swing Loan Bank and payments in respect of any Revolving Loan received by the Administrative Agent shall be distributed to each Lender in accordance with its Pro Rata Share in accordance with the provisions of Section 3.02(b), in each case on the date received, if received prior to 1:00 p.m. (in the location of the Applicable Payment Office), and (except in the case of repayment of Swing Loans) on the next succeeding Business Day, if received thereafter, by the Administrative Agent. (b) Apportionment of Payments. (i) Subject to the provisions of Section 3.02(b)(ii) and (v), except as otherwise provided herein (A) all payments of principal and interest in respect of outstanding Revolving Loans, and all payments in respect of Reimbursement Obligations, shall be allocated among such of the Lenders and Issuing Banks as are entitled thereto, in proportion to their respective Pro Rata Shares and (B) all payments of fees and all other payments in respect of any other Obligations shall be allocated among such of the Lenders and Issuing Banks as are entitled thereto, in proportion to their respective Pro Rata Shares. All such payments and any other amounts received by the Administrative Agent from or for the benefit of the Borrowers shall be applied first, to pay principal of and interest on any portion of the Loans which the Administrative Agent may have advanced pursuant to the express provisions of this Agreement on behalf of any Lender other than -62- 64 the Lender then acting as Administrative Agent, for which the Administrative Agent has not then been reimbursed by such Lender or the Borrowers, second, to pay principal of and interest on any Protective Advance for which the Administrative Agent has not then been paid by the Borrowers or reimbursed by the Lenders, third, to pay all other Obligations then due and payable and fourth, as the Company so designates. Except as set forth in Sections 3.01(a), (b) and (c) and unless otherwise designated by the Company, all principal payments in respect of outstanding Swing Loans or Revolving Loans, as the case may be, shall be applied first, to the outstanding Swing Loans and second, to the outstanding Revolving Loans, in each case, first, to repay outstanding Base Rate Loans, and then to repay outstanding Eurocurrency Rate Loans with those Loans which have earlier expiring Interest Periods being repaid prior to those which have later expiring Interest Periods. (ii) After the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and shall upon the acceleration of the Obligations pursuant to Section 11.02(a), apply all payments in respect of any Obligations and all proceeds of Collateral in the following order; provided that payments made by a Foreign Borrower shall be applied first to the Obligations of such Foreign Borrower: (A) first, to pay interest on and then principal of any portion of the Revolving Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrowers; (B) second, to pay interest on and then principal of first any outstanding Protective Advance and then any Swing Loan; (C) third, to pay Obligations in respect of any expense reimbursements or indemnities then due to the Administrative Agent; (D) fourth, to pay Obligations in respect of any expense reimbursements or indemnities then due to the Co-Agents, the Lenders and the Issuing Banks; (E) fifth, to pay Obligations in respect of any fees then due to the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks; (F) sixth, to pay interest due in respect of the Loans and Reimbursement Obligations; (G) seventh, to pay or prepay (or, to the extent such Obligations are contingent, provide Cash Collateral pursuant -63- 65 to Section 11.02(b) in respect of) principal outstanding on Loans and all outstanding Letter of Credit Obligations; (H) eighth, to the ratable payment of Interest Rate Contracts and Currency Agreements to which any of the Lenders or any Affiliate of the Lenders is a party; and (I) ninth, to the ratable payment of all other Obligations; provided, however, if sufficient funds are not available to fund the payments to be made in respect of any of the Obligations described in any of the foregoing clauses (A) through (I), the available funds being applied with respect to any such Obligations referred to in any one such clause (unless otherwise specified in such clause) shall be allocated in accordance with the order of priority established by such clause to the payment of such Obligations ratably, based on the proportion of the Administrative Agent's and each Co-Agent's, Lender's or Issuing Bank's interest in the aggregate outstanding Obligations described in such clause. The order of priority set forth in this Section 3.02(b)(ii) and the related provisions hereof are set forth solely to determine the rights and priorities of the Administrative Agent, the Co-Agents, the Lenders, the Issuing Banks and other Holders as among themselves. The order of priority set forth in clauses (A) through (I) of this Section 3.02(b)(ii) may at any time and from time to time be changed by the agreement of the Requisite Lenders without necessity of notice to or consent of or approval by the Borrower, any Holder which is not a Lender or Issuing Bank, or any other Person; provided, however, the order of priority set forth in clauses (A) through (E) of this Section 3.02(b)(ii) may not be changed without the prior written consent of the Administrative Agent. (iii) All payments of principal on the Swing Loans, Protective Advances, Reimbursement Obligations, interest, fees and other sums payable in respect of the Revolving Loans may, at the option of the Administrative Agent, be paid from the proceeds of the Revolving Loans. The Borrower hereby authorizes the Swing Loan Bank to make pursuant to Section 2.03(a) and the Lenders to make pursuant to Section 2.02(a) in Dollars, from time to time in the Swing Loan Bank's or the Administrative Agent's discretion, Revolving Loans which are in the amounts of any and all principal on the Swing Loans, interest, fees and other sums payable in respect of the Revolving Loans (or the Dollar Equivalent thereof if not denominated in Dollars), and further authorizes the Administrative Agent (A) to give the Lenders notice of any Borrowing with respect to such Revolving Loans and (B) to distribute the proceeds of such Revolving Loans to pay such amounts. The Administrative Agent agrees to give the Borrower -64- 66 notice of any such Borrowing, but the failure to give such notice shall in no way limit the rights of the Administrative Agent in the preceding sentence. The Borrower agrees that all such Revolving Loans so made shall be deemed to have been requested by it and directs that all proceeds thereof shall be used to pay such amounts. All such Revolving Loans shall be Base Rate Loans. (iv) The Administrative Agent shall promptly distribute to each Lender and Issuing Bank at its primary address set forth on the appropriate signature page hereof or the signature page to the Assignment and Acceptance by which it became a Lender or Issuing Bank, or to each Lender, Issuing Bank or other Holder at such other address as such Lender, Issuing Bank or other Holder may request in writing, such funds as such Person may be entitled to receive, subject to the provisions of Article XII; provided that, as between the Holders and the Administrative Agent, the Administrative Agent shall under no circumstances be bound to inquire into or determine the validity, scope or priority of any interest or entitlement of any Holder and may suspend all payments or seek appropriate relief (including, without limitation, instructions from the Requisite Lenders or an action in the nature of interpleader) in the event of any doubt or dispute as to any apportionment or distribution contemplated hereby. (v) If any Lender fails to fund its Pro Rata Share of any Revolving Loan Borrowing requested by a Borrower which such Lender is obligated to fund under the terms hereof (the funded portion of such Revolving Loan Borrowing being hereinafter referred to as a "Non Pro Rata Loan"), excluding any such Lender who has delivered to the Administrative Agent written notice that one or more of the conditions precedent contained in Section 5.02 shall not on the date of such request be satisfied and until such conditions are satisfied, then until the earlier of such Lender's cure of such failure and the termination of the Revolving Credit Commitments, the proceeds of all amounts thereafter repaid to the Administrative Agent by such Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms hereof shall be deemed to have been advanced to such Borrower by the Administrative Agent on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations. Notwithstanding anything contained herein to the contrary: (A) the foregoing provisions of this Section 3.02(b)(v) shall apply only with respect to the proceeds of payments of Obligations; (B) a Lender shall be deemed to have cured its failure to fund its Pro Rata Share of any Revolving Loan at such time as an amount equal to such Lender's -65- 67 original Pro Rata Share of the requested principal portion of such Revolving Loan is fully funded to such Borrower, whether made by such Lender itself or by operation of the terms of this Section 3.02(b)(v), and whether or not the Non Pro Rata Loan with respect thereto has been repaid; (C) amounts advanced to such Borrower to cure, in full or in part, any such Lender's failure to fund its Pro Rata Share of any Revolving Loan Borrowing ("Cure Loans") shall bear interest at the rate applicable to the other Revolving Loans comprising such Borrowing and shall be treated as Revolving Loans comprising such Borrowing for all purposes herein; (D) regardless of whether or not an Event of Default has occurred or is continuing, and notwithstanding the instructions of such Borrower as to its desired application, all repayments of principal which, in accordance with the other terms of this Section 3.02, would be applied to the outstanding Revolving Loans shall be applied first, ratably to all Revolving Loans constituting Non Pro Rata Loans, second, ratably to Revolving Loans other than those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to Revolving Loans constituting Cure Loans; and (E) No Lender shall be relieved of any obligation such Lender may have to the Borrowers under the terms of this Agreement as a result of the provisions of this Section 3.02(b)(v). (c) Payments on Non-Business Days. Whenever any payment to be made by the Borrowers hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the next succeeding Business Day (or, as set forth in Section 4.02(b)(iv), the next preceding Business Day), and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. (d) Payment Currency. Except as expressly set forth herein to the contrary, all payments made by any Borrower in respect of principal and interest on the Loans and Reimbursement Obligations shall be made (i) with respect to Loans and Reimbursement Obligations denominated in Dollars, in Dollars, and (ii) with respect to Multicurrency Loans or Reimbursement Obligations denominated in an Alternative Currency, in the Alternative Currency in which such Loan or the Letter of Credit giving rise to such Reimbursement Obligation was made. -66- 68 3.03. Taxes. (a) Payment of Taxes. Any and all payments by any Borrower hereunder or under any Note or other document evidencing any Obligations shall be made free and clear of and without reduction for any and all taxes, levies, imposts, deductions, charges, withholdings, and all stamp or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Property of the Company and its Subsidiaries, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, any of the Loan Documents or the Revolving Credit Commitments and all other liabilities with respect thereto excluding, in the case of each Lender, each Issuing Bank, each Co-Agent and the Administrative Agent, taxes imposed on its income, capital, profits or gains and franchise taxes imposed on it by (i) the United States, except certain withholding taxes contemplated pursuant to Section 3.03(d)(ii)(C), (ii) the Governmental Authority of the jurisdiction in which such Lender's Applicable Lending Office is located or any political subdivision thereof or (iii) the Governmental Authority of the jurisdiction in which such Person is organized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under any such Note or document to any Lender, any Issuing Bank, any Co-Agent or the Administrative Agent, (x) the sum payable to such Lender, such Issuing Bank, such Co-Agent or the Administrative Agent shall be increased as may be necessary so that after making all required withholding or deductions of Taxes (including withholding or deductions of Taxes applicable to additional sums payable under this Section 3.03 of Taxes) such Lender, such Issuing Bank, such Co-Agent or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such withholding or deductions of Taxes been made, (y) such Borrower shall make such withholding or deductions, and (z) such Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) Indemnification. Each Borrower will indemnify each Lender, each Issuing Bank, each Co-Agent and the Administrative Agent against, and reimburse each on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this Section 3.03 and any additional income or franchise taxes resulting therefrom) incurred or paid by such Lender, such Issuing Bank, such Co-Agent or the Administrative Agent (as the case may be) or any of their respective Affiliates and any liability (including penalties, interest, and reasonable out-of- -67- 69 pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes were lawfully payable. A certificate as to any additional amount payable to any Person under this Section 3.03 submitted by it to such Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. In determining such additional amount, such Person shall take into account and reduce the amount otherwise payable by such Borrower pursuant to this Section 3.03 by an amount equal to the tax credits and other tax benefits actually utilized (as determined by such Person in its reasonable judgment). Each Lender, each Co-Agent, the Administrative Agent and each Issuing Bank agrees, within a reasonable time after receiving a written request from a Borrower, to provide such Borrower and the Administrative Agent with such certificates as are reasonably required, and to take such other actions as are reasonably necessary to claim such exemptions as such Lender, such Co-Agent, the Administrative Agent, such Issuing Bank or Affiliate may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this Section 3.03 in respect of any payments under this Agreement or under the Notes. (c) Receipts. Within thirty (30) days after the date of any payment of Taxes by the Company or any of its Subsidiaries, the Company will furnish to the Administrative Agent, at its address referred to in Section 13.08, the original or a copy of a receipt, if any, or other documentation reasonably satisfactory to the Administrative Agent, evidencing payment thereof. The Company shall furnish to the Administrative Agent upon the request of the Administrative Agent from time to time an Officer's Certificate stating that all Taxes of which it has obtained knowledge are due have been paid and that no additional Taxes of which it has obtained knowledge are due. (d) Foreign Bank Certifications. (i) Each Lender or Issuing Bank that is not created or organized under the laws of the United States or a political subdivision thereof has delivered to the Company and the Administrative Agent on the date on which such Lender became a Lender or such Issuing Bank became an Issuing Bank or shall deliver to the Company on the date such Lender becomes a Lender or such Issuing Bank becomes an Issuing Bank, if such date is after the Effective Date, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender or Issuing Bank to the effect that such Lender or Issuing Bank is eligible to receive payments hereunder and under the Notes without deduction or withholding (or with reduced deduction or withholding) of United States federal income tax (I) under the provisions of an applicable tax treaty concluded by the United States (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 1001 (or any successor or substitute form or forms)) or (II) under Section 1441(c)(1) as modified for purposes of Section -68- 70 1442(a) of the Internal Revenue Code (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 4224 (or any successor or substitute form or forms)). (ii) Each Lender and each Issuing Bank further agrees to deliver to the Company and the Administrative Agent from time to time, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender or such Issuing Bank before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to the Company and the Administrative Agent pursuant to this Section 3.03(d) (including, but not limited to, a change in such Lender's or such Issuing Bank's lending office). Each certificate required to be delivered pursuant to this Section 3.03(d)(ii) shall certify as to one of the following: (A) that such Lender or such Issuing Bank can continue to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax; (B) that such Lender or such Issuing Bank cannot continue to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein but does not require additional payments pursuant to Section 3.03(a) because it is entitled to recover the full amount of any such deduction or withholding from a source other than the Borrowers; (C) that such Lender or Issuing Bank is no longer capable of receiving payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein by reason of a change in law (including, without limitation, the Internal Revenue Code or applicable tax treaty) after the later of the Effective Date or the date on which such Lender became a Lender or such Issuing Bank became an Issuing Bank and that it is not capable of recovering the full amount of the same from a source other than the Borrowers; or (D) that such Lender or such Issuing Bank is no longer capable of receiving payments hereunder without deduction or withholding of United States federal income tax as specified therein other than by reason of a change in law (including the Internal Revenue Code or applicable tax treaty) after the later of the Effective Date or the date on which such Lender became a Lender or such Issuing Bank became an Issuing Bank. Each Lender and each Issuing Bank agrees to deliver to the Company and the Administrative Agent further duly completed copies of the above-mentioned IRS forms on or before the earlier -69- 71 of (x) the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding from United States federal income tax and (y) fifteen (15) days after the occurrence of any event requiring a change in the most recent form previously delivered by such Lender or such Issuing Bank to the Company and the Administrative Agent, unless any change in treaty, law, regulation, or official interpretation thereof which would render such form inapplicable or which would prevent the Lender from duly completing and delivering such form has occurred prior to the date on which any such delivery would otherwise be required and the Lender or the Issuing Bank promptly advises the Company that it is not capable of receiving payments hereunder or under the Notes without any deduction or withholding of United States federal income tax. (e) Qualifying Lenders. In connection with the Revolving Loans made by each Lender to the Foreign Borrowers, each Lender represents to the Administrative Agent and Citibank London that it (or its Eurocurrency Affiliate through which it is making such Revolving Loans) is a Qualifying Lender. 3.04. Increased Capital. If after the date hereof any Lender or Issuing Bank determines that (i) the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising jurisdiction, power or control over any Lender, Issuing Bank or banks or financial institutions generally (whether or not having the force of law), compliance with which affects or would affect the amount of capital required or expected to be maintained by such Lender or Issuing Bank or any corporation controlling such Lender or Issuing Bank and (ii) the amount of such capital is increased by or based upon (A) the making or maintenance by any Lender of its Loans, any Lender's participation in or obligation to participate in the Loans, Letters of Credit or other advances made hereunder or the existence of any Lender's obligation to make Loans or (B) the issuance or maintenance by any Issuing Bank of, or the existence of any Issuing Bank's obligation to issue, Letters of Credit, then, in any such case, upon written demand by such Lender or Issuing Bank (with a copy of such demand to the Administrative Agent), the Company shall immediately pay to the Administrative Agent for the account of such Lender or Issuing Bank, from time to time as specified by such Lender or Issuing Bank, additional amounts sufficient to compensate such Lender or Issuing Bank or such corporation therefor. Such demand shall be accompanied by a statement as to the amount of such compensation and include a detailed summary of the basis for such demand with detailed calculations. Such statement shall be conclusive and binding for all purposes, absent manifest error. -70- 72 3.05. Cash Management. (a) The Company shall, and shall cause each Subsidiary Guarantor to, maintain the Collection Accounts with such banks selected by the Company or such Subsidiary Guarantor in the ordinary course of business that have executed a Collection Account Agreement in form and substance satisfactory to the Administrative Agent. The Company shall, and shall cause each Subsidiary Guarantor to, promptly upon receipt thereof, immediately deposit in its Collection Accounts all monies, checks, drafts or funds received by it or such Subsidiary Guarantor and including, without limitation, all proceeds of Collateral, Receivables of the Company or such Subsidiary Guarantor, Net Cash Proceeds and other cash proceeds of operations, whether arising in the ordinary course of business or otherwise. The Company shall maintain a Concentration Account with the Administrative Agent into which all funds deposited in each Collection Account shall be transferred by ACH or electronic transfer from such account pursuant to the terms of the Collection Account Agreement governing such account. (b) At any time after an Event of Default has occurred and is continuing, the Administrative Agent may, or at the request of the Requisite Lenders, shall, and is hereby authorized by the Company to, do either or both of the following: (i) deliver a Default Notice to any Collection Account Bank or (ii) upon notice to the Company, cease honoring all checks, demands, withdrawal requests or remittance instructions from the Company or any Subsidiary Guarantor with respect to the Concentration Account or any funds on deposit therein. So long as any notice is in effect pursuant to clause (ii) above, the Administrative Agent shall apply any and all amounts received from the Collection Account Banks or held in the Concentration Account or otherwise held as Cash Collateral, to the repayment of the Obligations, such amounts to be applied in accordance with the provisions of Section 3.02(b). Notwithstanding the foregoing, so long as any Event of Default has occurred and is continuing and the Administrative Agent has delivered a notice pursuant to clause (ii) above, funds held in the Concentration Account may be transferred by the Administrative Agent to the Disbursement Account (and, subject to the terms hereof, used by the Company or any of its Subsidiaries) at the request of the Company only if such transfer is consented to in writing by the Requisite Lenders and, following the acceleration of any of the Obligations pursuant to Section 11.02(a), no such withdrawal or transfer may be made without the prior written consent of each Lender. The Administrative Agent shall revoke any Default Notice or any notice delivered pursuant to clause (ii) above at the direction of the Requisite Lenders, prior to the acceleration of any of the Obligations pursuant to Section 11.02(a) or in connection with a rescission of acceleration pursuant to Section 11.02(c), or by all the Lenders, at any other time after such acceleration that has not been rescinded pursuant to Section 11.02(c). -71- 73 (c) The Company shall, and shall cause each of the Subsidiary Guarantors to, enter into a Collection Account Agreement prior to establishing any Collection Account after the Effective Date; provided, however, neither the Company nor the Subsidiary Guarantors shall be required to enter into any new Collection Account Agreement in respect of any deposit account into which proceeds of no more than $10,000 of Collateral are deposited at any time. (d) The Company agrees to pay to the Administrative Agent any and all reasonable fees, costs and expenses which the Administrative Agent incurs in connection with opening and maintaining the Collection Accounts, Lockboxes and depositing for collection any check or item of payment received by and/or delivered to the Collection Account Banks or the Administrative Agent on account of the Obligations. The Company agrees to reimburse the Administrative Agent for any amounts paid to any Collection Account Bank arising out of any required indemnification by the Administrative Agent of such Collection Account Bank against damages incurred by the Collection Account Bank in the operation of a Lockbox. (e) Notwithstanding anything in this Section 3.05 to the contrary, in the event the Company has delivered to the Administrative Agent a Compliance Certificate for any fiscal quarter indicating that the Leverage Ratio of the Company and its Subsidiaries for the twelve month period ending on the last day of such fiscal quarter is less than 3.5 to 1, then, so long as no Default or Event of Default has occurred and is continuing, upon the written request of the Company to the Administrative Agent, the Company and the Subsidiary Guarantors shall not be required to comply with the requirements set forth in clauses (a) and (c) of this Section 3.05 in respect of any deposit account of the Company or such Subsidiary Guarantor that is not the subject of an effective Collection Account Agreement unless and until the Company has delivered to the Administrative Agent a Compliance Certificate for any subsequent fiscal quarter indicating that the Leverage Ratio of the Company and its Subsidiaries for the twelve month period ending on the last day of such subsequent fiscal quarter is greater than 4.0 to 1 (it being understood and agreed that the Company and the Subsidiary Guarantors shall not be permitted to terminate any effective Collection Account Agreement entered into pursuant to this Section 3.5 and the Administrative Agent shall retain any rights it has under clause (b) of this Section 3.05 with respect to any Collection Account subject to an effective Collection Account Agreement, regardless of whether the Company's obligation to establish new Collection Account Agreements has been terminated pursuant to this Section). 3.06. Right to Remove Affected Lender. In the event that (i) the Company receives certification of the type described in Section 3.03(d)(ii)(C) or (D) or notice under Section 5.02(c) -72- 74 from any Lender or any Issuing Bank, (ii) any Lender gives notice to the Administrative Agent pursuant to Section 2.02(c)(ii) (and the circumstances specified in such notice are not generally applicable to the Lenders) or (iii) any Lender makes a demand for compensation from any Borrower pursuant to Section 3.04 (if such increase in capital requirements is not generally applicable to the Lenders) or Section 4.01(f), the Company, at its option and in its sole discretion, shall have the right to designate an Eligible Assignee which is not an Affiliate of the Company and which is reasonably acceptable to the Administrative Agent, to purchase for cash, pursuant to an Assignment and Acceptance, the outstanding Loans and Reimbursement Obligations (if any) of such Lender or Issuing Bank and to assume all of such Lender's or Issuing Bank's other rights and obligations (including, without limitation, such Lender's obligation to participate in all outstanding Letters of Credit pursuant to Section 2.04(e)) hereunder without recourse to or warranty by, or expense to, such Lender or Issuing Bank, for a purchase price equal to the principal amount of all of such Lender's outstanding Loans or such Issuing Bank's Reimbursement Obligations plus any accrued but unpaid interest thereon and the accrued but unpaid Unused Commitment Fees and Letter of Credit Fees in respect of that Lender's Revolving Credit Commitment hereunder or any accrued but unpaid Letter of Credit Fees in respect of that Issuing Bank's outstanding Letters of Credit and any other amounts that may be owing to such Lender or Issuing Bank hereunder. The Company agrees to pay to such Lender any breakage costs incurred by such Lender pursuant to Section 4.02(f). ARTICLE IV INTEREST AND FEES 4.01. Interest on the Loans and Other Obligations. (a) Rate of Interest. All Loans and the outstanding principal balance of all other Obligations shall bear interest on the unpaid principal amount thereof from the date such Loans are made and such other Obligations are due and payable until paid in full, except as otherwise provided in Section 4.01(d), as follows: (i) If a Base Rate Loan or such other Obligation, at a rate per annum equal to the sum of (A) the Base Rate as in effect from time to time as interest accrues and (B) the Applicable Base Rate Margin in effect from time to time; and (ii) If a Eurocurrency Rate Loan, at a rate per annum equal to the sum of (A) the Eurocurrency Rate determined for the applicable Eurocurrency Interest Period, plus (B) the Applicable Eurocurrency Rate -73- 75 Margin in effect from time to time during such Eurocurrency Interest Period. The applicable basis for determining the rate of interest on the Loans shall be selected by the Company at the time a Notice of Borrowing or a Notice of Conversion/Continuation is delivered by the Company to the Administrative Agent; provided, however, the Company may not select the Eurocurrency Rate as the applicable basis for determining the rate of interest on such a Loan if (x) such Loan is to be made on the Effective Date or (y) at the time of such selection an Event of Default has occurred and is continuing; provided, further, however, during the period (the "Syndication Period") beginning on the Effective Date and ending on the earlier of (i) sixty (60) days after the Effective Date and (ii) the date on which the Administrative Agent determines, in its sole discretion, that the primary syndication of the Revolving Credit Commitments is completed, the Company will not have the right to select the Eurocurrency Rate as the applicable basis for determining the rate of interest on such a Loan unless the Company agrees to pay all breakage costs incurred pursuant to Section 4.02(f) as a result of the execution of Assignment and Acceptances during the Syndication Period (it being understood and agreed that if the Company nonetheless selects the Eurocurrency Rate during the Syndication Period, the Company may be able to select interest periods of less than one month to the extent available and reasonably acceptable to the Administrative Agent). If on any day any Loan is outstanding with respect to which notice has not been timely delivered to the Administrative Agent in accordance with the terms hereof specifying the basis for determining the rate of interest on that day, then for that day interest on that Loan shall be determined by reference to the Base Rate (if denominated in Dollars) or the Eurocurrency Rate with a Eurocurrency Interest Period of one month (if denominated in an Alternative Currency). (b) Interest Payments. (i) Interest accrued on each Base Rate Loan shall be payable in arrears (A) on the first day of each calendar month for the preceding calendar month, commencing on the first such day following the making of such Base Rate Loan and (B) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Base Rate Loan. (ii) Interest accrued on each Eurocurrency Rate Loan shall be payable in arrears (A) on each Eurocurrency Interest Payment Date applicable to such Loan and (B) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Eurocurrency Rate Loan. (iii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears (A) on the first day of each month, commencing on the first such day following the -74- 76 incurrence of such Obligation and (B) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (c) Conversion or Continuation. (i) The applicable Borrower shall have the option (A) to convert at any time all or any part of outstanding Base Rate Loans (other than Swing Loans) to Eurocurrency Rate Loans; (B) to convert all or any part of outstanding Eurocurrency Rate Loans denominated in Dollars having Eurocurrency Interest Periods which expire on the same date to Base Rate Loans on such expiration date; and (C) to continue all or any part of outstanding Eurocurrency Rate Loans having Eurocurrency Interest Periods which expire on the same date as Eurocurrency Rate Loans, and the succeeding Eurocurrency Interest Period of such continued Loans shall commence on such expiration date; provided, however, no such outstanding Loan may be continued as, or be converted into, a Eurocurrency Rate Loan (i) if the continuation of, or the conversion into, would violate any of the provisions of Section 4.02 or (ii) if an Event of Default has occurred and is continuing; provided, further, however, during the continuance of an Event of Default, Eurocurrency Rate Loans denominated in Alternative Currencies shall be continued as Eurocurrency Rate Loans with Eurocurrency Interest Periods determined by the Administrative Agent. Any conversion into or continuation of Eurocurrency Rate Loans under this Section 4.01(c) shall, in the case of such Loans denominated in Dollars, be in a minimum amount of $5,000,000 and in integral multiples of $1,000,000 in excess of that amount and, in the case of such Loans denominated in Alternative Currencies, in an aggregate minimum amount equal to an integral multiple of 100,000 units of such currency and (converted to the Dollar Equivalent thereof) equal to or greater than $1,000,000. (ii) To convert or continue a Loan under Section 4.01(c)(i), the Company shall deliver a Notice of Conversion/Continuation to the Administrative Agent (with a copy to Citibank London, in the case of a conversion or continuation of a Multicurrency Loan) no later than 12:00 noon (New York time) (or 2:00 p.m. London time, as applicable) at least three (3) Business Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (A) the proposed conversion/continuation date (which shall be a Business Day), (B) the principal amount and currency of the Loan to be converted/continued, (C) whether such Loan shall be converted and/or continued and (D) in the case of a conversion to, or continuation of, a Eurocurrency Rate Loan, the requested Eurocurrency Interest Period. In lieu of delivering a Notice of Conversion/Continuation, the Company may give the Administrative Agent (and Citibank London, in the case of a conversion or continuation of a Multicurrency Loan) telephonic notice of any proposed conversion/continuation by the time required under this Section 4.01(c)(ii), and such notice shall be confirmed in -75- 77 writing delivered to the Administrative Agent promptly (but in no event later than 5:00 p.m. (New York time) on the same day). Promptly after receipt of a Notice of Conversion/Continuation under this Section 4.01(c)(ii) (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender by telex or telecopy, or other similar form of transmission, of the proposed conversion/continuation. Any Notice of Conversion/Continuation for conversion to, or continuation of, a Loan (or telephonic notice in lieu thereof) shall be irrevocable, and the Borrowers shall be bound to convert or continue in accordance therewith. (d) Default Interest. Notwithstanding the rates of interest specified in Section 4.01(a) or elsewhere herein, effective immediately upon the occurrence of any Event of Default and for as long thereafter as such Event of Default shall be continuing, the principal balance of all Loans and, to the extent permitted by law, interest accrued but unpaid thereon shall bear interest at a rate which is two percent (2.0%) per annum in excess of the rate of interest applicable to such Loans from time to time (unless waived in writing by the Requisite Lenders). (e) Computation of Interest. Interest on (i) Base Rate Loans and all other Obligations shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a 365/366 day year and (ii) Eurocurrency Rate Loans shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days or, in the case of any Alternative Currency, as market practice may differ for such currency, but in no event less than a year of 360 days. In computing interest on any Loan, the date of the making of the Loan shall be included and the date of payment shall be excluded. (f) Changes; Legal Restrictions. If after the date hereof any Lender or Issuing Bank determines that the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising jurisdiction, power or control over any Lender, Issuing Bank or over banks or financial institutions generally (whether or not having the force of law), compliance with which, in each case after the date hereof: (i) subjects a Lender or an Issuing Bank (or its Applicable Lending Office) to charges (other than Taxes) of any kind which is applicable to the Revolving Credit Commitments of the Lenders and/or the Issuing Banks to make Eurocurrency Rate Loans or to issue and/or participate in Letters of Credit or changes the basis of taxation of payments to that Lender or Issuing Bank of principal, fees, interest, or any other amount -76- 78 payable hereunder with respect to Eurocurrency Rate Loans or Letters of Credit; or (ii) imposes, modifies, or holds applicable, any reserve (other than reserves taken into account in calculating the Eurocurrency Rate), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities (including those pertaining to Letters of Credit) in or for the account of, advances or loans by, commitments made, or other credit extended by, or any other acquisition of funds by, a Lender or an Issuing Bank or any Applicable Lending Office or Eurocurrency Affiliate of that Lender or Issuing Bank; and the result of any of the foregoing is to increase the cost to that Lender or Issuing Bank of making, renewing or maintaining the Loans or its Revolving Credit Commitments or issuing or participating in the Letters of Credit or to reduce any amount receivable thereunder; then, in any such case, upon written demand by such Lender or Issuing Bank (with a copy of such demand to the Administrative Agent), the Company shall immediately pay to the Administrative Agent for the account of such Lender or Issuing Bank, from time to time as specified by such Lender or Issuing Bank, such amount or amounts as may be necessary to compensate such Lender or Issuing Bank or its Eurocurrency Affiliate for any such additional cost incurred or reduced amount received. Such demand shall be accompanied by a statement as to the amount of such compensation and include a detailed summary of the basis for such demand. Such statement shall be conclusive and binding for all purposes, absent manifest error. (g) Confirmation of Eurocurrency Rate. Upon the reasonable request of the Company from time to time, the Administrative Agent shall promptly provide to the Company such information with respect to the applicable Eurocurrency Rate as may be so requested. 4.02. Special Provisions Governing Eurocurrency Rate Loans. With respect to Eurocurrency Rate Loans: (a) Amount of Advance. Each Eurocurrency Rate Loan shall be in the minimum amount specified in Section 2.02(a). (b) Determination of Interest Period. By giving notice as set forth in Section 2.02(b) (with respect to a Borrowing of a Eurocurrency Rate Loan) or Section 4.01(c) (with respect to a conversion into or continuation of a Eurocurrency Rate Loan), the Company shall have the option, subject to the other provisions of this Section 4.02, to select an interest period (each a "Eurocurrency Interest Period") to apply to the -77- 79 Loans described in such notice, subject to the following provisions: (i) Except as otherwise agreed pursuant to Section 4.01(a), the Company may only select, as to a particular Borrowing of Eurocurrency Rate Loans, a Eurocurrency Interest Period of either one, two, three or six months in duration; (ii) In the case of immediately successive Interest Periods applicable to a Borrowing of Eurocurrency Rate Loans, each successive Interest Period shall commence on the day on which the next preceding Eurocurrency Interest Period expires; (iv) If any Eurocurrency Interest Period would otherwise expire on a day which is not a Business Day, such Eurocurrency Interest Period shall be extended to expire on the next succeeding Business Day if the next succeeding Business Day occurs in the same calendar month, and if there shall be no succeeding Business Day in such calendar month, such Eurocurrency Interest Period shall expire on the immediately preceding Business Day; (v) The Borrower may not select a Eurocurrency Interest Period as to any Loan if such Interest Period terminates later than the Revolving Credit Termination Date; (vi) There shall be no more than fifteen (15) Eurocurrency Interest Periods in effect at any one time. (c) Determination of Interest Rate. As soon as practicable on the second Business Day prior to the first day of each Eurocurrency Interest Period (the "Eurocurrency Interest Rate Determination Date"), the Administrative Agent shall determine (pursuant to the procedures set forth in the definition of "Eurocurrency Rate") the interest rate which shall apply to Eurocurrency Rate Loans, for which an interest rate is then being determined for the applicable Eurocurrency Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and to each Lender. The Administrative Agent's determination shall be presumed to be correct, absent manifest error, and shall be binding upon the Borrowers. (d) Interest Rate Unascertainable, Inadequate or Unfair. In the event that at least one (1) Business Day before the Eurocurrency Interest Rate Determination Date: -78- 80 (i) the Administrative Agent determines that adequate and fair means do not exist for ascertaining the applicable interest rates by reference to which the Eurocurrency Rate then being determined is to be fixed; (ii) the Requisite Lenders advise the Administrative Agent that deposits in Dollars or in the applicable Alternative Currency in the principal amounts of the Eurocurrency Rate Loans comprising such Borrowing are not generally available in the London interbank market for a period equal to such Eurocurrency Interest Period; or (iii) the Requisite Lenders advise the Administrative Agent that the Eurocurrency Rate, as the case may be, as determined by the Administrative Agent, after taking into account the adjustments for reserves and increased costs provided for in Section 4.01(f), will not adequately and fairly reflect the cost to such Lenders of funding Loans of such Type and in the currency in which such Loans are denominated; then the Administrative Agent shall forthwith give notice thereof to the Borrower, whereupon (until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist) the right of the Borrower to elect to have Loans bear interest based upon the Eurocurrency Rate shall be suspended and each outstanding Eurocurrency Rate Loan shall be converted into a Base Rate Loan in Dollars (regardless of the currency of such Loan) on the last day of the then current Interest Period therefor, and any Notice of Borrowing for which Revolving Loans have not then been made that requests a Loan of a Type that has been suspended shall be deemed to be a request for Base Rate Loans in Dollars, notwithstanding any prior election by the Borrower to the contrary. (e) Illegality. (i) If at any time any Lender determines (which determination shall, absent manifest error, be final and conclusive and binding upon all parties) that the making or continuation of any Eurocurrency Rate Loan has become unlawful or impermissible by compliance by that Lender with any law, governmental rule, regulation or order of any Governmental Authority (whether or not having the force of law and whether or not failure to comply therewith would be unlawful or would result in costs or penalties), then, and in any such event, such Lender may give notice of that determination, in writing, to the Company and the Administrative Agent, and the Administrative Agent shall promptly transmit the notice to each other Lender. (ii) When notice is given by a Lender under Section 4.02(e)(i), (A) the Borrowers' right to request from such Lender and such Lender's obligation, if any, to make Eurocurrency Rate -79- 81 Loans shall be immediately suspended, and such Lender shall make a Base Rate Loan in Dollars as part of any requested Borrowing of Eurocurrency Rate Loans and (B) if the affected Eurocurrency Loans are then outstanding, the Borrower shall immediately, or if permitted by applicable law, no later than the date permitted thereby, upon at least one (1) Business Day's prior written notice to the Administrative Agent and the affected Lender, convert each such Loan into a Base Rate Loan in Dollars (regardless of the currency of such Loan). (iii) If at any time after a Lender gives notice under Section 4.02(e)(i) in respect of a Eurocurrency Rate Loan such Lender determines that it may lawfully make Loans of such Type, such Lender shall promptly give notice of that determination, in writing, to the Company and the Administrative Agent, and the Administrative Agent shall promptly transmit the notice to each other Lender. The Borrowers' right to request, and such Lender's obligation, if any, to make Loans of such Type shall thereupon be restored. (f) Compensation. In addition to all amounts required to be paid by the Borrowers pursuant to Section 4.01, the Borrowers shall compensate each Lender, upon demand, for all losses, expenses and liabilities (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Lender's Eurocurrency Rate Loans to the Borrowers but excluding any loss of the Applicable Eurocurrency Rate Margin on the relevant Loans) which that Lender may sustain (i) if for any reason (other than the gross negligence or willful misconduct of a Lender or the Administrative Agent) a Borrowing, conversion into or continuation of Eurocurrency Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion/Continuation given by the Company or in a telephonic request by it for borrowing or conversion/continuation or a successive Interest Period does not commence after notice therefor is given pursuant to Section 4.01(c), (ii) if for any reason any Eurocurrency Rate Loan is prepaid (including, without limitation, mandatorily pursuant to Section 3.01) on a date which is not the last day of the applicable Interest Period, (iii) as a consequence of a required conversion of a Eurocurrency Rate Loan to a Base Rate Loan as a result of any of the events indicated in Section 4.02(e) or (iv) as a consequence of any failure by any Borrower to repay Eurocurrency Rate Loans when required by the terms hereof. The Lender making demand for such compensation shall deliver to the Company concurrently with such demand a written statement in reasonable detail as to such losses, expenses and liabilities, and this statement shall be conclusive as to the amount of compensation due to that Lender, absent manifest error. -80- 82 (g) Currency Exchanges. At any time Eurocurrency Rate Loans denominated in an Alternative Currency are required to be converted to Base Rate Loans pursuant to Sections 4.01(d) and (e) or otherwise, the Borrowers shall indemnify the Lenders against any loss or liability arising out of or as a result of the conversion of such Alternative Currency into Dollars and exchange costs and taxes payable in connection with such conversion and the Borrower to which such Loan was made shall forthwith on written demand therefor pay to the Agent, for the benefit of the applicable Lenders, the amount of such loss, liability, costs and taxes. (h) Booking of Eurocurrency Rate Loans. Any Lender may make, carry or transfer Eurocurrency Rate Loans at, to, or for the account of, its Eurocurrency Lending Office or Eurocurrency Affiliate or its other offices or Affiliates. No Lender shall be entitled, however, to receive any greater amount under Sections 3.03, 3.04, 4.01(f) or 4.02(f) as a result of the transfer of any such Eurocurrency Rate Loan to any office (other than such Eurocurrency Lending Office) or any Affiliate (other than such Eurocurrency Affiliate) than such Lender would have been entitled to receive immediately prior thereto, unless (i) the transfer occurred at a time when circumstances giving rise to the claim for such greater amount did not exist and (ii) such claim would have arisen even if such transfer had not occurred. (i) Affiliates Not Obligated. No Eurocurrency Affiliate or other Affiliate of any Lender shall be deemed a party hereto or shall have any liability or obligation hereunder. 4.03. Fees. (a) Letter of Credit Fee. In addition to any charges paid pursuant to Section 2.04(g), the Company shall pay to the Administrative Agent, for the account of the Lenders and the Issuing Banks as provided in the following sentence, with respect to any Letter of Credit issued by any Issuing Bank, a fee per annum (the "Letter of Credit Fee") equal to the Applicable Eurocurrency Rate Margin as of the date of each such payment on the undrawn face amount of such Letter of Credit, payable in arrears on the first day of each calendar month for the preceding calendar month. The Administrative Agent shall pay to the Issuing Bank for its own account from the Letter of Credit Fee in respect of any Letter of Credit issued by it in an amount equal to one-eighth percent (0.125%) per annum on the undrawn face amount of such Letter of Credit, and that the Administrative Agent shall pay the remainder of each such Letters of Credit Fee to the Lenders in accordance with their respective Pro Rata Shares. (b) Unused Commitment Fee. The Company shall pay to the Administrative Agent, for the account of the Lenders in accordance with their respective Pro Rata Shares, a fee (the -81- 83 "Unused Commitment Fee"), accruing from the period beginning on the Effective Date and ending on but not including the Revolving Credit Termination Date at the Unused Commitment Fee Rate in effect from time to time on the average amount by which the Revolving Credit Commitments exceed the Revolving Credit Obligations for such period, the accrued portion of such fee being payable (A) quarterly, in arrears, commencing on the last day of the quarter in which the Effective Date occurs and (B) on the Revolving Credit Termination Date. Notwithstanding the foregoing, in the event that any Lender fails to fund its Pro Rata Share of any Loan requested by any Borrower which such Lender is obligated to fund under the terms hereof, such Lender shall not be entitled to any Unused Commitment Fees with respect to its Revolving Credit Commitment until such failure has been cured in accordance with Section 3.02(b)(v)(B) and the Company shall not be required to pay any Unused Commitment Fees to such Lender or to the Administrative Agent for the account of such Lender for such period. (c) Other Fees. The Company shall pay to the Administrative Agent such other fees as the Company is obligated to pay pursuant to the Letter Agreement. (d) Calculation and Payment of Fees. All of the above fees shall be calculated on the basis of the actual number of days elapsed in a 365/366-day year. All such fees shall be payable in addition to, and not in lieu of, interest, expense reimbursements, indemnification and other Obligations. Fees shall be payable to the Administrative Agent at its Applicable Payment Office in accordance with Section 3.02. All fees shall be fully earned and nonrefundable when paid. All fees specified or referred to herein due to the Administrative Agent, either Co- Agent, any Issuing Bank or any Lender, including, without limitation, those referred to in this Section 4.03, shall bear interest, if not paid when due, at the interest rate for Loans in accordance with Section 4.01(d), shall constitute Obligations and shall be secured by the Collateral. ARTICLE V CONDITIONS TO LOANS AND LETTERS OF CREDIT 5.01. Conditions Precedent to the Effectiveness of this Agreement. This Agreement shall become effective on the date (the "Effective Date") when the following conditions precedent have been satisfied: (a) Documents. The Administrative Agent (on behalf of itself and the Lenders) shall have received on or before the Effective Date all of the following: -82- 84 (i) this Agreement, the Notes and all other agreements, documents and instruments described in the List of Closing Documents attached hereto and made a part hereof as Exhibit E, each duly executed where appropriate and in form and substance satisfactory to the Lenders and in sufficient copies for each of the Lenders; without limiting the foregoing, the Company hereby directs its counsel, Porter, Wright, Morris & Arthur, to prepare and deliver to the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks, the opinion referred to in such List of Closing Documents with respect to such counsel; (ii) a pro forma estimated balance sheet of the Borrower and its Subsidiaries as of the Effective Date, as referred to in Section 6.01(h) giving effect to the transactions contemplated in the Loan Documents, the issuance of the Subordinated Notes and the consummation of the Stock Repurchase; and (iii) such additional documentation as the Administrative Agent or either Co-Agent may reasonably request. (b) Perfection of Liens. If not previously delivered in connection with the Existing Credit Agreement, all certificates representing Capital Stock included in the Collateral shall have been delivered to the Administrative Agent (with duly executed stock powers, as appropriate) and all instruments included in the Collateral shall have been delivered to the Administrative Agent (duly endorsed to the Administrative Agent, as appropriate). If not previously filed in connection with the Existing Credit Agreement, the Administrative Agent shall have received UCC-1 Financing Statements duly executed that shall, when filed in the appropriate jurisdictions, be sufficient to perfect Liens on all of the Collateral, to the extent that such Liens may be perfected by the filing of UCC-1 Financing Statements. (c) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Administrative Agent shall not have received any notice that any action, suit, investigation, litigation or proceeding is pending or threatened in any court or before any arbitrator or Governmental Authority which purports to (i) enjoin, prohibit, restrain or otherwise affect (A) the making of the Loans on the Effective Date or (B) the consummation of the transactions contemplated pursuant to the Loan Documents or (ii) would be reasonably expected to have a Material Adverse Effect. (d) No Change in Condition. No change in the condition (financial or otherwise), business, performance, -83- 85 Properties, operations or prospects of the Borrower and its Subsidiaries taken as whole shall have occurred since December 31, 1996, which change has had or is reasonably likely to have a Material Adverse Effect (other than any such change resulting from the consummation of the Rolodex Sale, the consummation of the Stock Repurchase or the issuance of the Subordinated Notes). (e) No Default. No Event of Default or Default shall have occurred and be continuing or would result from the making of the Loans. (f) Representations and Warranties. All of the representations and warranties contained in Section 6.01 and in any of the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date (other than representations and warranties which expressly speak as of a different date), in each case both before and after giving effect to the funding of the Loans. (g) Fees and Expenses Paid. On the Effective Date there shall have been paid to the Administrative Agent, for the account of the Lenders, the Co-Agents and the Administrative Agent, for their respective individual accounts, all fees (including, without limitation, the reasonable legal fees of counsel to the Administrative Agent and local counsel to the Administrative Agent for the benefit of the Lenders) due and payable on or before the Effective Date (including, without limitation, all such fees described in the Letter Agreement), and all expenses (including, without limitation, legal expenses) due and payable on or before the Effective Date, in each case for which invoices (containing, where appropriate, a description of all such fees and expenses) have been provided to the Borrower. (h) Effective Date. The Effective Date shall have occurred on or before August 31, 1997. (i) Consents, Etc. Except as set forth on Schedule 6.01-E, each of the Borrowers and the Company's Subsidiaries shall have received all consents and authorizations required pursuant to any material Contractual Obligation with any other Person and shall have obtained all consents and authorizations of, and effected all notices to and filings with, any Governmental Authority as may be necessary to allow each of the Borrowers and the Company's Subsidiaries lawfully (A) to execute, deliver and perform, in all material respects, their respective obligations hereunder, under the other Loan Documents to which each of them is, or shall be, a party and each other agreement or instrument to be executed and delivered by each of them pursuant thereto or in connection therewith and (B) to create and perfect the Liens on the Collateral to be owned by each of them in the manner and for the purpose contemplated by the Loan Documents, -84- 86 except for Liens that cannot be created or perfected by filings with or notices to a Governmental Authority. No such consent or authorization shall impose any conditions upon the Company or any of its Subsidiaries that are not reasonably acceptable to the Lenders. (j) Repayment of Obligations under the Existing Credit Agreement. On the Effective Date the Company shall have refinanced in full the outstanding principal amount of the Term Loans, including any interest accrued thereon through the Effective Date and all other interest, fees and expenses accrued under the Existing Credit Agreement through the Effective Date whether or not due and payable on the Effective Date. 5.02. Conditions Precedent to All Subsequent Revolving Loans, Swing Loans and Letters of Credit. The obligation of each Lender to make any Revolving Loan and of the Swing Loan Bank to make any Swing Loan, requested to be made by it on any date after the Effective Date, and the agreement of each Issuing Bank to Issue any Letter of Credit on any date after the Effective Date is subject to the following conditions precedent as of each such date: (a) Representations and Warranties. As of such date, both before and after giving effect to the Loans to be made or the Letter of Credit to be Issued on such date, all of the representations and warranties of the Company and its Subsidiaries contained in Section 6.01 and in any other Loan Document (other than representations and warranties which expressly speak as of a different date) shall be true and correct in all material respects. (b) No Default. No Event of Default or Default shall have occurred and be continuing or would result from the making of the requested Loan or the issuance of the requested Letter of Credit. (c) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Administrative Agent shall not have received from any Lender, the Swing Loan Bank or Issuing Bank, as the case may be, notice that, in the reasonable judgment of such Person, any action, suit, investigation, litigation or proceeding is pending or threatened in any court or before any arbitrator or Governmental Authority which is likely to enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, (i) such Lender's making of the requested Loan or participation in the requested Letter of Credit, (ii) the Swing Loan Bank's making of the requested Swing Loan or (iii) such Issuing Bank's issuance of the requested Letter of Credit. -85- 87 (d) No Material Adverse Change. No change shall have occurred in the condition (financial or otherwise), business, performance, Properties, operations or prospects of the Borrower and its Subsidiaries taken as a whole since December 31, 1996 which has had or is reasonably likely to have a Material Adverse Effect (other than any such change resulting from the consummation of the Rolodex Sale, the consummation of the Stock Repurchase or the issuance of the Subordinated Notes). Each submission by the Company to the Administrative Agent of a Notice of Borrowing with respect to a Revolving Loan or Swing Loan, each acceptance by the applicable Borrower of the proceeds of each such Loan so made, each submission by the Company to an Issuing Bank of a request for issuance of a Letter of Credit and the issuance of such Letter of Credit, shall constitute a representation and warranty by the Company as of the Funding Date in respect of such Revolving Loan, as of the Swing Loan Funding Date in respect of such Swing Loan, and as of the date of issuance of such Letter of Credit, that all the conditions contained in this Section 5.02(a), (b) and (d) have been satisfied or waived in accordance with Section 13.07. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.01. Representations and Warranties of the Borrowers. In order to induce the Lenders and the Issuing Banks to enter into this Agreement and to make the Loans and the other financial accommodations to the Borrowers and to issue the Letters of Credit described herein, each Borrower represents and warrants (only with respect to those representations and warranties set forth below applicable to itself and its Subsidiaries) to each Lender, each Issuing Bank, each Co-Agent and the Administrative Agent as of the Effective Date and thereafter on each date as required by Section 5.02(a) that the following statements are true and correct: (a) Organization; Corporate Powers. Each of the Company and the Company's Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing has or is reasonably likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own, operate and encumber its Property and to conduct its business as presently conducted. (b) Authority. (i) Each of the Company and the Company's Subsidiaries has the requisite corporate power and -86- 88 authority to execute, deliver and perform each of the Loan Documents to which it is a party. (ii) The execution, delivery and performance, as the case may be, of each of the Loan Documents which have been executed and to which any of the Company or the Company's Subsidiaries is a party and the consummation of the transactions contemplated thereby, have been duly approved by each of the boards of directors and (to the extent required by law) the shareholders of the Company and the Company's Subsidiaries, respectively, and such approvals have not been rescinded, revoked or modified in any manner. No other corporate action or proceedings on the part of the Company or the Company's Subsidiaries is necessary to consummate such transactions. (iii) Each of the Loan Documents to which the Company or the Company's Subsidiaries is a party has been duly executed, or delivered on behalf of the Company or the Company's Subsidiaries, as the case may be, and constitutes its legal, valid and binding obligation, enforceable against such Person in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights and remedies generally and general principles of equity), is in full force and effect and no Default or Event of Default has occurred and is continuing. (c) Subsidiaries; Ownership of Capital Stock. Schedule 6.01-C (i) contains a diagram indicating the corporate structure of the Company, the Company's Subsidiaries and any other Person in which the Company or any of the Company's Subsidiaries holds an equity interest as of the Effective Date; and (ii) accurately sets forth as of the Effective Date, (A) the correct legal name, the jurisdiction of incorporation, and Employer Identification Number of each of the Company and the Company's Subsidiaries, and the jurisdictions in which each of the Company and the Company's Subsidiaries is qualified to transact business as a foreign corporation, (B) the authorized, issued and outstanding shares of each class of Capital Stock of the Company and each of the Company's Subsidiaries and, with respect to the Company's Subsidiaries, the owners of such shares and (C) a summary of the direct and indirect partnership, joint venture, or other equity interests, if any, of the Company and each Subsidiary of the Company in any Person that is not a corporation. Except as set forth in Schedule 6.01-C, none of the issued and outstanding Capital Stock of the Company or the Company's Subsidiaries is subject to any vesting, redemption, or repurchase agreement, and there are no warrants or options outstanding with respect to such Capital Stock. The outstanding Capital Stock of the Company and each of its Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and the -87- 89 outstanding Capital Stock of the Company's Subsidiaries is not Margin Stock. (d) No Conflict. The execution, delivery and performance of each of the Loan Documents to which the Company or any of the Company's Subsidiaries is a party do not and shall not (i) conflict with the Constituent Documents of the Company or any such Subsidiary, (ii) except as set forth on Schedule 6.01-D, conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any material Requirement of Law or any material Contractual Obligation of the Company or any such Subsidiary, or require the termination of any material Contractual Obligation, (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the Property of the Company or any such Subsidiary, other than Liens contemplated by the Loan Documents, or (iv) require any approval of the Company's or any such Subsidiary's shareholders that has not been obtained. (e) Governmental Consents, etc. Except as set forth on Schedule 6.01-E, the execution, delivery and performance of each of the Loan Documents to which the Company or any of the Company's Subsidiaries is a party do not and shall not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, except (i) filings, consents or notices which have been made, obtained or given, or, in a timely manner, shall be made, obtained, or given and (ii) filings necessary to perfect security interests in the Collateral to the extent that such security interests may be perfected by filings. None of the Company or any of the Company's Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, or any other federal or state statute or regulation which limits its ability to incur the Obligations or its ability to consummate the transactions contemplated in the Loan Documents. (f) Accommodation Obligations; Contingencies. Except as set forth on Schedule 1.01.1, none of the Company or any of the Company's Subsidiaries has any Accommodation Obligation, contingent liability or liability for any Taxes, long-term lease or commitment, not reflected in its financial statements dated December 31, 1996 delivered to the Administrative Agent or otherwise disclosed to the Administrative Agent, the Co-Agents and the Lenders in the other Schedules hereto, which has or is reasonably likely to have a Material Adverse Effect, except as permitted pursuant to Section 9.01 or 9.05 hereof. (g) Restricted Junior Payments. None of the Company or any of the Company's Subsidiaries has directly or indirectly declared, ordered, paid or made or set apart any sum or Property of the Company or such Subsidiary for any Restricted Junior -88- 90 Payment or agreed to do so, except as permitted pursuant to Section 9.06 hereof. (h) Financial Position. (i) The Company's pro forma estimated balance sheet and the notes thereto referred to in Section 5.01(a)(ii) was prepared in good faith and fairly presents on a pro forma basis (after giving effect to the transactions contemplated herein) as of the Effective Date the Company's consolidated financial condition, based on the information available to the Company at the time so furnished. (ii) The Company's Projections were prepared in good faith and are based upon facts and assumptions that were reasonable in light of the then current and foreseeable business conditions of the Company and represented management's reasonable best estimate of the projected financial performance of the Company and its Subsidiaries based on the information available to the Company at the time so furnished. (i) Litigation; Adverse Effects. Except as set forth in Schedule 6.01-I or as disclosed on Schedule 6.01-O, (A) there is no action, suit, audit, proceeding, investigation or arbitration (or series of related actions, suits, proceedings, investigations or arbitrations) before or by any Governmental Authority or private arbitrator pending or, to the knowledge of the Borrowers, threatened against the Company or any of the Company's Subsidiaries or any Property of any of them (i) challenging the validity or the enforceability of any of the Loan Documents or (ii) which has had or is reasonably likely to have a Material Adverse Effect and (B) none of the Company or any of the Company's Subsidiaries is (i) in violation of any applicable Requirements of Law which violation has had or is reasonably likely to have a Material Adverse Effect, or (ii) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority, in each case which has had or is reasonably likely to have a Material Adverse Effect. (j) No Material Adverse Change. Since December 31, 1996, there has occurred no event which has had or is reasonably likely to have a Material Adverse Effect (other than the consummation of the Rolodex Sale, the consummation of the Stock Repurchase or the issuance of the Subordinated Notes). (k) Payment of Taxes. Except as set forth in Schedule 6.01-K, all tax returns and reports of each of the Company and the Company's Subsidiaries required to be filed have been timely filed, and all taxes, assessments, fees and other governmental charges thereupon and upon their respective Property, income and franchises which are shown in such returns or reports to be due and payable have been paid, other than such taxes, assessments, -89- 91 fees and other governmental charges (i) which are being contested in good faith by the Company or such Subsidiary, as the case may be, by appropriate proceedings diligently instituted and conducted and without danger of any material risk to the Collateral and (ii) with respect to which a reserve or other appropriate provision, if any, as is required in conformity with GAAP shall have been made. The Company has no knowledge of any proposed tax assessment against the Company or any of the Company's Subsidiaries that would have or is reasonably likely to have a Material Adverse Effect. (l) Performance. None of the Company or any of the Company's Subsidiaries has received notice or has actual knowledge that (i) it is in default in the performance, observance or fulfillment of any Contractual Obligation applicable to it or (ii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute a default with respect to any such Contractual Obligation; in each case, except where such default or defaults, if any, would not have or are not reasonably likely to have a Material Adverse Effect. (m) Disclosure. The representations and warranties of each of the Company and the Company's Subsidiaries contained in the Loan Documents, and all schedules, certificates and documents delivered to the Administrative Agent, the Co-Agents and the Lenders pursuant to the terms hereof and the other Loan Documents do not contain any statement of a material fact untrue when made or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading when made. (n) Requirements of Law. Each of the Company and the Company's Subsidiaries is in compliance with all Requirements of Law applicable to it and its business, in each case where the failure to so comply individually or in the aggregate would have or is reasonably likely to have a Material Adverse Effect. (o) Environmental Matters. Except as set forth in Schedule 6.01-O and except for matters, conditions, operations and noncompliance which would not have or be reasonably likely to have a Material Adverse Effect: (A) the operations of the Company and the Company's Subsidiaries comply in all material respects with all applicable Environmental, Health or Safety Requirements of Law; (B) the Company and each of the Company's Subsidiaries have obtained or have taken appropriate steps, as required by Environmental, Health or Safety Requirements of Law, to obtain all environmental, health and safety Permits -90- 92 necessary for their respective operations, and all such Permits are in good standing and each of the Company and each of the Company's Subsidiaries are currently in compliance in all material respects with all terms and conditions of such Permits; (C) none of the Company or the Company's Subsidiaries or any of their respective operations or present Property or, to the knowledge of the Company or any of the Company's Subsidiaries, their past Property, are subject to any judicial or administrative proceeding, order, judgment, decree, or other agreement, or to the knowledge of the Company or any of the Company's Subsidiaries, any investigation, alleging or addressing (i) a material violation of any Environmental, Health or Safety Requirement of Law; (ii) any Remedial Action; or (iii) any material Claims or Liabilities and Costs arising from the Release or threatened Release of a Contaminant into the environment nor has the Company or the Company's Subsidiaries received any notice of the foregoing; (D) none of the Company or the Company's Subsidiaries is the owner or operator of any Property which has any of the following: (i) any past or present on-site generation, treatment, recycling, storage or disposal of any hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any state equivalent; (ii) any present or known past landfill, wastepile, underground storage tank or surface impoundment; (iii) any asbestos-containing material; or (iv) any polychlorinated biphenyls (PCBs) used by the Company or the Company's Subsidiaries in hydraulic oils, electrical transformers or other Equipment of the Company or the Company's Subsidiaries; (E) no Environmental Lien has attached to any Property of the Company or any of the Company's Subsidiaries; (F) there have been no Releases of any Contaminants into the environment in reportable quantities by the Company or the Company's Subsidiaries; (G) the Company and the Company's Subsidiaries have no material contingent liability in connection with any Release or threatened Release of any Contaminants into the environment; -91- 93 (H) to the knowledge of the Company, the Company and the Company's Subsidiaries have not sent or directly arranged for the transport of any waste to any site listed or proposed for listing on the National Priorities List ("NPL") pursuant to CERCLA or on the Comprehensive Environmental Response Compensation Liability Information System List ("CERCLIS"), or any similar state list; (I) to the knowledge of the Company, none of the Company's or the Company's Subsidiaries' present or past Property is listed or proposed for listing on the NPL pursuant to CERCLA or on the CERCLIS or any similar state list of sites that requires Remedial Action, and the Company and the Company's Subsidiaries are presently unaware of any conditions on such Property which would qualify such Property for inclusion on any such list. (J) none of the Company or the Company's Subsidiaries is subject to any Environmental Property Transfer Act as a result of the transactions contemplated by the Loan Documents or to the extent such acts are applicable to any such Property upon which a Lien will be or has been granted in connection with the transactions contemplated by the Loan Documents, the Company has fully complied with the requirements of such acts. (p) ERISA Matters. Neither the Company nor any ERISA Affiliate maintains or contributes to any Plan and its related trust, if applicable, other than those listed on Schedule 6.01-P hereto. Each Plan and its related trust, if applicable, which is intended to be qualified under Sections 401(a) and 501(a) of the Internal Revenue Code as currently in effect received a favorable determination letter from the IRS as to its qualified status, or such a letter will be applied for with the IRS for the Plan and its related trust on or before December 31, 1994. Except as disclosed in Schedule 6.01-P, neither Company nor any ERISA Affiliate knows of any reason why such Plans or trusts are no longer qualified or exempt following such determination by the IRS. Except as disclosed in Schedule 6.01-P, neither the Company nor any of its Subsidiaries maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(l) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. Except as disclosed in Schedule 6.01-P the Company and all of its ERISA Affiliates are in compliance with the responsibilities, obligations or duties imposed on them by ERISA, the Internal Revenue Code and regulations promulgated thereunder with respect to all Plans, except where the failure to so comply individually or in the aggregate would have or is reasonably likely to have a Material Adverse Effect. No Benefit Plan has incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Internal Revenue Code) whether or not -92- 94 waived. Except as disclosed in Schedule 6.01-P, neither the Company nor any ERISA Affiliate nor any fiduciary of any Plan which is not a Multiemployer Plan (i) has engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code, which prohibited transaction has had or is reasonably likely to have a Material Adverse Effect or (ii) has taken or failed to take any action which would constitute or result in a Termination Event. Neither the Company nor any ERISA Affiliate has any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA with respect to a Benefit Plan. Neither the Company nor any ERISA Affiliate has incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan and furnished to the Administrative Agent is complete and accurate in all material respects. Since the date of each such Schedule B, there has been no material adverse change in the funding status or financial condition of the Benefit Plan relating to such Schedule B. Neither the Company nor any ERISA Affiliate has (i) failed to make a required contribution or payment to a Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan. Neither the Company nor any ERISA Affiliate has failed to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment. Neither the Company nor any ERISA Affiliate is required to provide security to a Benefit Plan under Section 401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in an increase in current liability for the plan year. The Company has made available to the Administrative Agent copies of all of the following: each Benefit Plan and related trust agreement (including all amendments to such Plan and trust) in existence, or for which the Company or any ERISA Affiliate has taken any corporate action to authorize the adoption thereof, as of the Effective Date and in respect of which the Company or any ERISA Affiliate is currently an "employer" as defined in section 3(5) of ERISA, and the most recent summary plan description, actuarial report, determination letter issued by the IRS and Form 5500 filed in respect of each such Benefit Plan in existence; a listing of all of the Multiemployer Plans currently contributed to by the Company or any ERISA Affiliate with the aggregate amount of the most recent annual contributions required to be made by the Company and all ERISA Affiliates to each such Multiemployer Plan, any information which has been provided to the Company or an ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan and the collective bargaining agreement pursuant to which such contribution is required to be made; each employee welfare benefit plan within the meaning of Section 3(l) of ERISA which provides benefits to employees of the Company or any of its Subsidiaries after termination of -93- 95 employment other than as required by Section 601 of ERISA, the most recent summary plan description for such plan and the aggregate amount of the most recent annual payments made to terminated employees under each such plan. (q) Foreign Employee Benefit Matters. Each Foreign Employee Benefit Plan is in compliance with all Requirements of Laws applicable thereto and the respective requirements of the governing documents for such Plan, except where the failure to so comply individually or in the aggregate would not have or be reasonably likely to have a Material Adverse Effect. With respect to any Foreign Employee Benefit Plan maintained by the Company, any of its subsidiaries or any ERISA Affiliate, reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained. No such plan has aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, which have or are reasonably likely to have a Material Adverse Effect. There are no actions, suits or claims pending or, to the knowledge of the Borrowers or any of the Subsidiary Guarantors, threatened against the Company, any of its Subsidiaries or any ERISA Affiliate with respect to any Foreign Employee Benefit Plan which have had or are reasonably likely to have a Material Adverse Effect. (r) Labor Matters. Except as set forth in Schedule 6.01-R, as of the Effective Date there is no collective bargaining agreement covering any of the employees of the Company or any Subsidiary of the Company. (s) Securities Activities. None of the Company or any of the Company's Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (t) Solvency. After giving effect to the transactions contemplated in the Loan Documents (including, without limitation, the issuance of the Subordinated Notes and the consummation of the Stock Repurchase) and the Loans to be made on the Effective Date or such other date as Loans requested hereunder are made and the disbursement of the proceeds of such Loans pursuant to the Company's instructions, each of the Borrowers and the Subsidiary Guarantors is Solvent. (u) Patents, Trademarks, Permits, Etc.; Government Approvals. (i) The Company and each of the Company's Subsidiaries own, are licensed or otherwise have the lawful right to use, or have all permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of their businesses as currently conducted except where the failure to do -94- 96 so would not have or be reasonably likely to have a Material Adverse Effect. Except as set forth on Schedule 6.01-U, no claims are pending or, to the best of Company's knowledge, threatened in writing that the Company or any of its Subsidiaries is infringing upon the rights of any Person with respect to such permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how and processes, except for such claims which would not have or are not reasonably likely to have a Material Adverse Effect. (ii) Except for Liens granted to the Administrative Agent for the benefit of the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders, the transactions contemplated by the Loan Documents shall not impair the ownership of or rights under (or the license or other right to use, as the case may be) any permits and governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how or processes by the Company or any of the Company's Subsidiaries in any manner which would have or is reasonably likely to have a Material Adverse Effect. (v) Properties. Each of the Company and the Company's Subsidiaries has good, and in the case of Real Property, indefeasible title to all of its Property (tangible and intangible) owned by it or a valid leasehold interest in all of its leased Property (except insofar as indefeasibility may be limited by any laws or regulations of any Governmental Authority affecting such Property), and all such Property is free and clear of all Liens, except Liens securing the Obligations and Liens permitted under Section 9.03. Schedule 6.01-V contains a true and complete list of all of the Real Property owned in fee simple by each of the Company and the Company's Domestic Subsidiaries as of the Effective Date with a book value in excess of $500,000, and a true and complete list of all Leases in effect on the Effective Date which, pursuant to the terms thereof, have annual rental payments in excess of $750,000. Substantially all of the assets and Property owned by or leased to the Company and each such Subsidiary and being used by the Company or each such Subsidiary are in adequate operating condition and repair, reasonable and ordinary wear and tear excepted, and are free and clear of any known defects except such defects that do not substantially interfere with the continued use thereof in the conduct of normal operations of the Company or such Subsidiaries. Except for Liens granted to the Administrative Agent neither this Agreement nor any other Loan Document, nor any transaction contemplated herein or therein, shall affect any right, title or interest of the Company or any such Subsidiary in and to any of such Properties in a manner that has or is reasonably likely to have a Material Adverse Effect. (w) Insurance. Schedule 6.01-W accurately sets forth as of June 30, 1997 all insurance policies and programs -95- 97 (including self-insurance programs) currently in effect with respect to the respective Properties and business of the Company and its Subsidiaries, specifying for each such policy and program, (i) the amount thereof, (ii) the risks insured against thereby, (iii) the name of the insurer, if any, and each insured party thereunder, (iv) the policy or other identification number thereof, (v) the expiration date thereof and (vi) the annual premium, if any, with respect thereto. Such insurance policies and programs are, except as disclosed on Schedule 6.01-W, in amounts sufficient to cover the replacement value of the respective Properties of the Company and its Subsidiaries in excess of deductible amounts. (x) Pledge of Collateral. The grant and perfection of the security interests in the Capital Stock of each of the Company's Subsidiaries constituting a portion of the Collateral for the benefit of the Administrative Agent, the Co-Agents, the Issuing Banks, the Lenders and the other Holders, as contemplated by the terms of the Loan Documents, are not made in violation of the registration provisions of the Securities Act, any applicable provisions of other federal securities laws, state securities or "Blue Sky" law, foreign securities law, or applicable general corporation law or in violation of any other Requirement of Law. (y) Transactions with Affiliates. Schedule 6.01-Y lists as of the Effective Date each existing material agreement and arrangement that is in effect on the Effective Date that any of the Company or the Company's Subsidiaries has entered into with any of their respective Affiliates. The Administrative Agent shall have the right to request a true, accurate and complete copy of each existing written agreement or arrangement set forth on Schedule 6.01-Y and a true, accurate and complete description of each existing or proposed agreement or arrangement set forth in Schedule 6.01-Y that is not in writing. (z) Bank Accounts. Schedule 6.01-Z sets forth at the Effective Date (i) all of the Company's and the Subsidiary Guarantors' Collection Account Banks as of the Effective Date and (ii) all other banks where funds are from time to time deposited, including the Lockboxes, their addresses and the relevant account numbers. (aa) Subordinated Notes. The Subordinated Note Indenture, when executed, has been duly executed and delivered on behalf of the Company and constitutes its legal, valid and binding obligation, enforceable against the Company in accordance with its terms, subject, as to enforceability, to applicable bankruptcy, insolvency, reorganization, moratorium and other law affecting creditors' rights generally, and to general principles of equity, is in full force and effect. No material term or condition in the Subordinated Note Indenture has been amended, modified or waived from the form of such indenture approved in -96- 98 writing by the Lenders, except as permitted under Section 9.16. The Company has performed and complied in all material respects with all the terms, provisions, agreements and conditions set forth in the Subordinated Note Indenture and required to be performed or complied with by the Company and no default, event of default or breach of any covenant by any such party exists thereunder. The Subordinated Notes, when issued, have been duly issued in accordance with the terms of the Subordinated Note Indenture and are subordinated to the Obligations. ARTICLE VII REPORTING COVENANTS The Company covenants and agrees that so long as any Revolving Credit Commitment is outstanding and thereafter until payment in full of all of the Obligations, unless the Requisite Lenders shall otherwise give prior written consent thereto or shall have waived compliance: 7.01. Financial Statements. The Company shall maintain, and shall cause each of the Company's Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated and consolidating financial statements on a business unit basis and proper books of records and account and each of the financial statements described below shall be prepared from such system and records. The Company shall deliver or cause to be delivered to the Administrative Agent, with sufficient copies for the Lenders, each of the following within the time periods set forth below (which upon the written consent of the Administrative Agent may be extended for up to fifteen (15) additional days): (a) Monthly Reports. Within thirty (30) days after the end of each fiscal month in each Fiscal Year, a "Flash Report" substantially in the form of Exhibit G. (b) Quarterly Reports. Within fifty (50) days after the end of each of the first three fiscal quarters of each Fiscal Year, the consolidated and consolidating balance sheets of the Company and its Subsidiaries and divisions by business unit as at the end of such period and the related consolidated and consolidating statements of income and cash flow of the Company and its Subsidiaries and divisions by business unit (in respect of the consolidating cash flow statements, in the format customarily prepared by the Company for internal reporting purposes) for such fiscal quarter and for the period from the beginning of the then current Fiscal Year to the end of such fiscal quarter, and for the corresponding period during the previous Fiscal Year, all certified by the chief financial officer, treasurer or controller of the Company as fairly -97- 99 (subject to normal year end adjustments) presenting in all material respects the consolidated and consolidating financial position of the Company and its Subsidiaries and divisions by business unit as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP. (c) Annual Reports. Within ninety-five (95) days after the end of each Fiscal Year, (i) audited consolidated financial statements of the Company and its Subsidiaries certified by KPMG Peat Marwick or other independent certified public accountants of recognized national standing reasonably acceptable to the Co-Agents, which report shall be certified without qualification or modification as to scope of audit and as to the Company being a going concern and shall state that such financial statements fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which such independent certified public accountants shall concur and which shall have been disclosed in the notes to the financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards and (ii) annual consolidating financial statements of the Company and its Subsidiaries and divisions, by business unit, prepared by the Company. (d) Officer's Certificate. Together with each delivery of any financial statement pursuant to paragraphs (b) and (c) of this Section 7.01, an Officer's Certificate of the Company substantially in the form of Exhibit F (the "Compliance Certificate"), signed by the Company's chief financial officer, treasurer or controller and setting forth calculations for the period then ended, if applicable, for the Leverage Ratio (for purposes of determining the Applicable Base Rate Margin, the Applicable Eurocurrency Rate Margin and the Unused Commitment Fee Rate), Section 3.01(b) (including, without limitation, calculations of Net Cash Proceeds and mandatory prepayments and commitment reductions), the negative covenants of Article IX and the financial covenants of Article X (including, without limitation, calculations made to reflect changes in GAAP from GAAP in effect on the Effective Date). (e) Business Plans; Financial Projections. Within (x) 10 Business Days prior to the end of each Fiscal Year, a preliminary draft of each of the following, and (y) 55 days after the end of each Fiscal year, each of the following: (i) a consolidated annual budget (in the format customarily utilized by the Company for making financial -98- 100 projections) of the Company and its Subsidiaries for the succeeding Fiscal Year, displaying on a quarterly basis anticipated balance sheets, and on a monthly and quarterly basis forecasted revenues, operating income and cash flow, all for each business unit of the Company and its Subsidiaries and (ii) a forecast (in the format customarily utilized by the Company for making financial projections) of balance sheets, income statements and cash flow statements of the Company and its Subsidiaries on a consolidated basis for each fiscal month in such Fiscal Year and on an annual basis and for each business unit of the Company and its Subsidiaries for each of the next succeeding Fiscal Years up to and including the Fiscal Year during which it is anticipated that the Obligations will be paid in full; (f) Accountant's Statement. Together with each delivery of the financial statements referred to in Section 7.01(c), a written statement of KPMG Peat Marwick or another firm of independent certified public accountants of recognized national standing acceptable to the Co-Agents giving the report stating (i) that their audit examination has included a review of the terms hereof as it relates to accounting matters and (ii) whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Default has come to their attention, and if such condition or event has come to their attention, specifying the nature and period of existence thereof. The statement referred to above shall be accompanied by a copy of the management letter or any similar report delivered to the Company or to any officer or employee thereof by such accountants in connection with such financial statements. Upon prior notice to the Company and, at the Company's option, in the Company's presence, the Company shall authorize Administrative Agent, each Co-Agent and each Lender to communicate directly with such accountants. 7.02. Notice of Events of Default. Within five (5) Business Days after any of the chief executive officer, chief operating officer, chief financial officer, treasurer or controller of the Company (i) obtains knowledge of any condition or event which constitutes an Event of Default or Default, or receives notice from any Lender, any Issuing Bank, either Co- Agent or the Administrative Agent with respect to a claimed Event of Default or Default, (ii) obtains knowledge that any Person has given any written notice to the Company or any Domestic Subsidiary or taken any other action with respect to a claimed default or event or condition of the Type referred to in Section 11.01(e) or (iii) obtains knowledge of any condition or event which has or is reasonably likely to have a Material Adverse Effect, the Company shall deliver to the Administrative Agent an Officer's Certificate specifying (A) the nature and period of -99- 101 existence of any such claimed default, Event of Default, Default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) the remedial action the Company has taken, is taking or proposes to take with respect thereto. 7.03. Lawsuits. (i) Within twenty (20) Business Days after the Company obtains knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company or any of the Company's Subsidiaries or any Property of the Company or any of the Company's Subsidiaries not previously disclosed pursuant to Section 6.01(i), which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Company's reasonable judgment, the Company or any of the Company's Subsidiaries to liability in an amount aggregating $10,000,000 or more, the Company shall give written notice thereof to the Administrative Agent and provide such other information as may be reasonably available to enable the Administrative Agent and its counsel to evaluate such matters; and (ii) in addition to the requirements set forth in clause (i) of this Section 7.03, the Company upon request of the Administrative Agent shall as soon as practicable give to the Administrative Agent written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to clause (i) above and provide such other information as may be reasonably available to it to enable the Administrative Agent and its counsel to evaluate such matters. 7.04. Insurance. Within ninety (90) days (or, upon the written consent of the Administrative Agent, up to an additional fifteen (15) days) after the end of each Fiscal Year ending after the Effective Date, the Company shall deliver to the Administrative Agent (i) a report in form and substance satisfactory to the Administrative Agent, the Co-Agents and the Lenders outlining all material insurance coverage (including any self-insurance provided by the Company) maintained as of the date of such report by the Company and its Subsidiaries and the duration of such coverage and (ii) to the extent such insurance coverage is not provided by the Company, an insurance broker's statement that all premiums then due and payable with respect to such coverage have been paid. 7.05. ERISA Notices. The Company shall deliver or cause to be delivered to the Administrative Agent, at the Company's expense, the following information and notices within twenty (20) Business Days after: -100- 102 (i) the Company or any ERISA Affiliate knows or has reason to know after diligent inquiry that a Termination Event has occurred, a written statement of the chief financial officer of the Company describing such Termination Event and the action, if any, which the Company or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto; (ii) the Company or any ERISA Affiliate knows or has reason to know after diligent inquiry that a prohibited transaction (defined in Sections 406 of ERISA and 4975 of the Internal Revenue Code) has occurred, a statement of the chief financial officer of the Company describing such transaction and the action which the Company or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto; (iii) the filing thereof with the DOL, IRS or PBGC, copies of each annual report (form 5500 series), including Schedule B thereto, filed with respect to each Benefit Plan; (iv) receipt by the Company or any ERISA Affiliate of each actuarial report for any Benefit Plan or Multiemployer Plan and each annual report for any Multiemployer Plan, copies of each such report; (v) the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by the Company or any ERISA Affiliate with respect to such request; (vi) the occurrence thereof, notification of any material increase in the benefits of any existing Plan or the establishment of any new Plan (excluding supplemental employee retirement plans which are not material) or the commencement of contributions to any Plan (excluding supplemental employee retirement plans which are not material) to which the Company or any ERISA Affiliate was not previously contributing; (vii) receipt by the Company or any ERISA Affiliate of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice; (viii) receipt by the Company or any ERISA Affiliate of any unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Internal Revenue Code, copies of each such letter; -101- 103 (ix) receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan regarding the imposition of withdrawal liability, copies of each such notice; (x) the Company or any ERISA Affiliate fails to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or payment, a notification of such failure; (xi) the Company or any ERISA Affiliate knows or has reason to know after diligent inquiry (a) a Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan; and (xii) receipt by the Company of a written notice from the Administrative Agent, copies of any Foreign Employee Benefit Plan and related documents, reports and correspondence as requested by the Administrative Agent in such notice. For purposes of clause (i) of this Section 7.05, the Company and any ERISA Affiliate shall be deemed to know all facts known by the administrator of any Plan of which the Company or any ERISA Affiliate is the plan sponsor. 7.06. Environmental Notices. (a) The Company shall notify the Administrative Agent in writing, within twenty (20) Business Days after the Company learns thereof, of any of the following: (i) written notice or claim by a Governmental Authority or any third party to the effect that the Company or any of the Company's Subsidiaries is or may be liable to any Person, or is subject to an investigation by a Governmental Authority, relating to a material Release or threatened material Release of any Contaminant into the environment; (ii) written notice that any Property of the Company or any of the Company's Subsidiaries is subject to an Environmental Lien; (iii) commencement or written threat of any judicial or administrative proceeding alleging a material violation by the Company or any of the Company's Subsidiaries of any Environmental, Health or Safety Requirement of Law; -102- 104 (iv) new and material changes to any existing Environmental, Health or Safety Requirement of Law that would reasonably be expected to have a Material Adverse Effect; or (v) any intent to execute an agreement, letter of intent or commitment to acquire stock, Property, or to lease Real Property, or to take any other action by the Company or any of its Subsidiaries that would subject the Company or any of the Company's Subsidiaries to environmental, health or safety Liabilities and Costs that would reasonably be expected to have a Material Adverse Effect. (b) The Company shall notify the Administrative Agent, in writing, within 20 Business Days after any filing or report made by the Company or any of its Subsidiaries with any Governmental Authority with respect to (i) the material violation of any Environmental, Health or Safety Requirement of Law, (ii) any material unpermitted Release or threatened Release of a Contaminant or (iii) any material unsafe or unhealthful condition at any Property of the Company or its Subsidiaries; (c) Within ninety (90) days (or, upon the written request of the Administrative Agent, up to an additional fifteen (15) days) after the end of each calendar year, commencing at the end of Fiscal Year 1997, the Company shall submit to the Administrative Agent a report prepared by the appropriate officers of the Company summarizing the status of any environmental, health or safety non-compliance, hazard or liability issues identified in notices required pursuant to Section 7.06(a), disclosed on Schedule 6.01-O or identified in any notice or report required herein. 7.07. Labor Matters. The Company shall notify the Administrative Agent in writing, promptly after the Company knows of, of (i) any material labor dispute to which the Company or any of its Subsidiaries is or is reasonably likely to become a party, including, without limitation, any strikes, lockouts or other disputes relating to such Persons' plants and other facilities and (ii) any material liability related to Worker Adjustment and Retraining Notification Act or related liability incurred with respect to the closing of any plant or other facility of such Persons. 7.08. Public Filings and Reports. Promptly upon the filing thereof with the Securities and Exchange Commission or the mailing thereof to the public shareholders or debtholders of the Company generally, the Company shall deliver to the Administrative Agent, with copies sufficient for each of the Lenders, copies of all filings or reports made in connection with outstanding Indebtedness and Capital Stock of the Company other than amendments to this Agreement and any amendments to -103- 105 management contracts, compensatory plans or other plans in which directors or officers of the Company or its Subsidiaries participate, which filings shall be delivered to the Administrative Agent, with copies sufficient for each of the Lenders, promptly upon the request of the Administrative Agent. 7.09. Bank Accounts. The Company shall, together with the financial statements delivered pursuant to Section 7.01(c), (a) notify the Administrative Agent in writing of all additions, subtractions and modifications to the Company's and the Subsidiary Guarantor's Collection Accounts with banks other than the Collection Account Banks listed on Schedule 6.01-Z, and (b) deliver to the Administrative Agent a list of all banks (other than Collection Account Banks) where funds of the Company and the Subsidiary Guarantors are from time to time deposited, including the Lockboxes, their addresses and the relevant account numbers. 7.10. Other Information. As soon as reasonably practical after receipt of a request therefor from the Administrative Agent, the Company shall prepare and deliver to the Administrative Agent such other information with respect to the Company, any of the Company's Subsidiaries or the Collateral including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Administrative Agent. ARTICLE VIII AFFIRMATIVE COVENANTS Each of the Borrowers covenants and agrees (with respect to those covenants set forth below applicable to itself and its Subsidiaries) that so long as any Revolving Credit Commitment is outstanding and thereafter until payment in full of all of the Obligations, unless the Requisite Lenders shall otherwise give prior written consent or shall have waived compliance: 8.01. Corporate Existence, Etc. (a) The Company shall, and shall cause each Subsidiary Guarantor to, at all times maintain its corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to their respective businesses; (b) The Company shall cause each Non-Guarantor Domestic Subsidiary at all times to maintain its respective corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its respective business, except where the Board of Directors of such Non-Guarantor Domestic Subsidiary determines that the -104- 106 maintenance or preservation of its business is not in the best interest of the Company or such Non-Guarantor Domestic Subsidiary; (c) Each Foreign Borrower shall, and the Company shall cause each Foreign Subsidiary at all times to, maintain its respective corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its respective rights and franchises material to its business; except in each instance described in clauses (a) through (c) above, where the failure to so maintain or preserve would not have or be reasonably likely to have a Material Adverse Effect. 8.02. Corporate Powers; Conduct of Business, Etc. The Company shall, and shall cause each of its Subsidiaries to, qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified except where the failure to be so qualified would not have or be reasonably likely to have a Material Adverse Effect. 8.03. Compliance with Laws, Etc. The Company shall, and shall cause each of its respective Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, Property, assets or operations of such Person, and (b) obtain as needed all Permits necessary for such Person's operations and maintain such Permits in good standing, except, in the case of (a) and (b) above, where the failure to do so would not have or be reasonably likely to have a Material Adverse Effect. 8.04. Payment of Taxes and Claims; Tax Consolidation. The Company shall, and shall cause each of its Subsidiaries to, pay (a) all taxes, assessments and other governmental charges imposed upon it or on any of its Property or assets or in respect of any of its franchises, business, income or Property before any penalty or interest for late payment (except as such penalty or interest relates to underpayment of estimated tax payments) accrues thereon, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by Section 9.03) upon any of the Company's or such Subsidiary's Property, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments and governmental charges referred to in clause (a) above or claims referred to in clause (b) above are required to be paid if being contested in good faith by the Company or such Subsidiary, as the case may be, by appropriate proceedings diligently instituted and conducted and without danger of any material risk to the Collateral and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP -105- 107 shall have been made therefor; provided, further, however, to the extent there exists any unpaid taxes resulting from the failure to file the tax returns referred to in Schedule 6.01-K, the Company shall use its best efforts to satisfy such tax obligations as soon as practicable after the Effective Date. The Company shall not and shall not permit any Subsidiary of the Company to, file or consent to the filing of any consolidated income tax return with any Person (other than the Company and its Subsidiaries). 8.05. Insurance. The Company shall maintain for itself and its Subsidiaries, or shall cause each of its Subsidiaries to maintain, in full force and effect the insurance policies and programs listed on Schedule 6.01-W or substantially similar policies and programs or other policies and programs as are acceptable to the Administrative Agent. Each certificate and policy relating to Property damage and boiler and machinery insurance shall contain an endorsement, in form and substance acceptable to the Administrative Agent, showing loss payable to the Administrative Agent, for the benefit of the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders and naming the Administrative Agent as an additional insured under such policy and providing that no act, whether willful or negligent, or default of the Company, any of its Subsidiaries or any other Person shall affect the right of the Administrative Agent to recover under such policy or policies of insurance in case of loss or damage. Each certificate and policy relating to coverages other than the foregoing shall contain an endorsement naming the Administrative Agent as an additional insured under such policy. Such endorsement or an independent instrument furnished to the Administrative Agent shall provide that the insurance companies shall give the Administrative Agent at least thirty (30) days' written notice before any such policy or policies of insurance shall be cancelled or altered adversely to the interests of the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders. In the event that the Company or any of its Subsidiaries, at any time or times hereafter, shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Administrative Agent, without waiving or releasing any obligations or resulting Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Administrative Agent deems advisable. All sums so disbursed by the Administrative Agent shall constitute Protective Advances and be part of the Obligations, payable as provided herein. 8.06. Inspection of Property; Books and Records; Discussions. The Company shall permit, and shall cause each of its Subsidiaries to permit, any authorized representative(s) -106- 108 designated by the Administrative Agent or any Lender to visit and inspect any of the Properties of such Person, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby and by the Loan Documents (including, in connection with environmental compliance, hazard or liability) (in each case, except such documents and data required to be maintained as confidential or such documents as contain privileged or legally protected communications), and to discuss their affairs, finances and accounts with their officers and, in the presence of the Company or such Subsidiary, their independent certified public accountants, all of the foregoing upon reasonable notice and at such times during normal business hours, as often as may be reasonably requested. All reasonable costs and expenses incurred by the Administrative Agent or, after the occurrence and during the continuance of any Event of Default, any Lender, in each case as a result of such inspection, audit or examination conducted pursuant to this Section 8.06 shall be paid by the Company. 8.07. Insurance and Condemnation Proceeds. The Company hereby directs (and, if applicable, shall cause its Domestic Subsidiaries to direct) all insurers under policies of Property damage and boiler and machinery insurance and payors of any condemnation claim or award relating to the Property of the Company and its Domestic Subsidiaries to pay all proceeds payable under such policies or with respect to such claim or award for any loss directly to the Administrative Agent, for the benefit of the Administrative Agent, the Co-Agents, the Issuing Banks, the Lenders and the other Holders, except to the extent such proceeds, claims or awards are required to be paid to alternate loss payees pursuant to the terms of any purchase money Indebtedness or Capital Lease permitted under Section 9.01(vi) or any Operating Lease permitted hereunder, in each case solely with respect to the Property covered by such Indebtedness, Capital Lease or Operating Lease; and in no case to the Company or one or more of its Subsidiaries. The Administrative Agent shall, upon receipt of such proceeds and at the Company's direction, either apply the same to the principal amount of the Revolving Loans outstanding at the time of such receipt and create a corresponding reserve against Revolving Credit Availability in an amount equal to such application (the "Decision Reserve") or hold such proceeds as Cash Collateral for the Obligations; provided, however, claims and awards not in excess of $5,000,000 per occurrence or (series of related occurrences) shall be remitted to the Company within a reasonable time following the Administrative Agent's receipt thereof. For up to 180 days after the date of any loss (the "Decision Period"), the Company may notify the Administrative Agent that it intends to restore, rebuild or replace the Property subject to the receipt of any insurance payment or condemnation award and -107- 109 shall, as soon as practicable thereafter, provide the Administrative Agent detailed information, including a construction schedule and cost estimates. Should the Company notify the Administrative Agent that it has decided not to rebuild or replace such Property during the Decision Period, or should the Company fail to notify the Administrative Agent of the Company's decision during the Decision Period, then the amounts held as Cash Collateral or as the Decision Reserve shall automatically be applied as a mandatory prepayment of the Loans pursuant to Section 3.01(b)(i). In the event the Company notifies the Administrative Agent that it intends to rebuild or replace such Property during the Decision Period, proceeds held as Cash Collateral or constituting the Decision Reserve shall be disbursed as necessary; provided, however, should a Default or an Event of Default occur after the Company has notified the Administrative Agent that it intends to rebuild or replace such Property, the Decision Reserve or Cash Collateral may, at the Administrative Agent's discretion, or shall, upon the direction of Requisite Lenders, be applied as a mandatory prepayment of the Loans pursuant to Section 3.01(b)(i). In the event the Decision Reserve is to be used to rebuild or replace such Property or applied as a mandatory prepayment of the Loans, the Company shall be deemed to have requested Revolving Loans in an amount equal to the Decision Reserve, and, in the case of a mandatory prepayment of the Loans, such Revolving Loans shall be made regardless of any failure of the Company to meet the conditions set forth in Section 5.02. Upon completion of the restoration, rebuilding or replacement of such Property, the unused proceeds held as Cash Collateral shall constitute Net Cash Proceeds and shall be applied as a mandatory prepayment of the Loans pursuant to Section 3.01(b)(i). 8.08. ERISA Compliance. The Company shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Plans to comply with the provisions of ERISA, the Internal Revenue Code, all other applicable laws, and the regulations and interpretations thereunder and the respective requirements of the governing documents for such Plans except where the failure to do so would not have or be reasonably likely to have a Material Adverse Effect. 8.09. Foreign Employee Benefit Plan Compliance. The Company shall, and shall cause each of its Subsidiaries and ERISA Affiliates to establish, maintain and operate all Foreign Employee Benefit Plans to comply with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plans except where the failure to do so would not have or be reasonably likely to have a Material Adverse Effect. -108- 110 8.10. Maintenance of Property. The Company shall cause all Property used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof; provided, however, that nothing in this Section shall prevent the Company or such Subsidiary from discontinuing the operation or maintenance of any of such Property if such discontinuance is, in the judgment of the Company or such Subsidiary, necessary or appropriate in the conduct of its business or the business of such Subsidiary. 8.11. Condemnation. Promptly upon learning of the institution of any proceeding for the condemnation or other taking of any of the (a) owned Real Property of the Company or any of its Domestic Subsidiaries with a book value in excess of $500,000 or (b) leased Real Property of the Company or any of its Domestic Subsidiaries for which the annual rental payments of the applicable Lease exceed $750,000, the Company shall notify the Administrative Agent of the pendency of such proceeding, and permit the Administrative Agent to participate in any such proceeding, and from time to time shall deliver to the Administrative Agent all instruments reasonably requested by the Administrative Agent to permit such participation. 8.12. Future Liens on Real Property. After the Effective Date, with respect to Real Property located in the United States, at least fifteen (15) Business Days prior to the entering into of any Lease by the Company or any of the Subsidiary Guarantors with respect to which the annual rental payments are anticipated to equal or exceed $750,000, or the acquisition of any Real Property acquired by the Company or any of the Subsidiary Guarantors after the date hereof and located in the United States with a book value in excess of $2,000,000, the Company shall, and shall cause each of the Subsidiary Guarantors to, provide the Administrative Agent written notice thereof and with respect to any such Lease, the Company or such Subsidiary Guarantor agrees to use its best efforts in negotiating such Lease to obtain the consent of the landlord or owner of such Real Property, as the case may be, to the granting of a Lien on such Lease in favor of the Administrative Agent. Upon written request of the Administrative Agent, and, in the case of any Lease, provided that the landlord or owner, as the case may be, of the Real Property to which such Lease relates, has provided its written consent to the granting of a Lien on such Lease, the Company shall, and shall cause each of the Subsidiary Guarantors to, execute and deliver to the Administrative Agent, for the benefit of the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders, immediately upon the acquisition or lease of such Real Property (other than Real Property acquired with the -109- 111 proceeds of Indebtedness permitted by Section 9.01(vi) and subject to a Lien permitted by Section 9.03(iv)) a mortgage, deed of trust, assignment or other appropriate instrument evidencing a Lien upon any such Real Property, together with such Title Policies, certified Surveys, and local counsel opinions with respect thereto and such other agreements, documents and instruments which the Administrative Agent deems necessary or desirable, the same to be in form and substance substantially the same as the mortgages and other Loan Documents relating to Real Property of the Company and the Subsidiary Guarantors executed and delivered in connection with this Agreement, and to be subject only to (i) Liens permitted under Section 9.03 and (ii) such other Liens as the Administrative Agent may reasonably approve, it being understood that the granting of such additional security for the Obligations pursuant to this Section 8.12 is a material inducement to the execution and delivery of this Agreement by each Lender. 8.13. Future Liens on Personal Property. (a) The Company shall, and shall cause each of the Subsidiary Guarantors to, provide to the Administrative Agent, for the benefit of the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders (i) a Lien upon the personal Property located in the United States of each Subsidiary Guarantor becoming party to the Subsidiary Guaranty after the Effective Date, pursuant to a Security Agreement substantially in the form of the Subsidiary Security Agreement dated as of November 21, 1994, as amended, delivered in connection with the Existing Credit Agreement, together with such other agreements, documents and instruments which the Administrative Agent deems necessary or desirable, the same to be in form and substance substantially the same as the Loan Documents relating to personal Property of the other Subsidiary Guarantors executed and delivered in connection with this Agreement, and to be subject only to Liens permitted by Section 9.03 and such other Liens as the Administrative Agent may reasonably approve and (ii) a pledge of (A) 100% of the Capital Stock of any Non-Guarantor Domestic Subsidiary or domestic Permitted Joint Venture (other than Thermalex or Thermal Components, Inc.) held by the Company or any Subsidiary Guarantor and (B) all of the Capital Stock of (I) any Foreign Borrower held by the Company or any Subsidiary Guarantor and (II) any other Foreign Subsidiary or foreign Permitted Joint Venture held by the Company or any Subsidiary Guarantor with net assets with an aggregate book value in excess of $10,000,000 (but in either case no greater than 65% of the outstanding Capital Stock of such Subsidiary or joint venture shall be pledged as security for the Obligations (other than the Obligations of the Company and the Subsidiary Guarantors in respect of their guaranty of the Obligations of the Foreign Borrowers)), pursuant to a pledge agreement in form and substance satisfactory to the Administrative Agent, together with such other agreements, documents and instruments which the Administrative Agent deems -110- 112 necessary or desirable, and (b) the Company shall cause any Wholly Owned Domestic Subsidiary (other than Thermal Components, Inc.) with net assets with an aggregate book value in excess of $5,000,000 to become a Subsidiary Guarantor pursuant to the terms of the Subsidiary Guaranty, it being understood that the granting of the additional security for the Obligations pursuant to this Section 8.13 is a material inducement to the execution and delivery of this Agreement by each Lender. 8.14. Landlord Waivers. On or prior to the Effective Date, the Company has obtained and delivered to the Administrative Agent landlord waivers (with copies of the relevant leases attached) in form and substance reasonably satisfactory to the Administrative Agent relating to the Company's Leases, except for landlord waivers that the Company, despite its best efforts as of the Effective Date, has been unable to obtain. The Company shall use its best efforts to obtain and deliver to the Administrative Agent landlord waivers (with copies of the relevant Lease attached) with respect to any Lease entered into after the Effective Date which relates to a location in which there is, or is reasonably expected to be, Collateral with a book value of $3,000,000 or more. 8.15. Environmental Compliance. The Company and the Company's Subsidiaries shall comply with all Environmental, Health or Safety Requirements of Law, except where the failure to so comply would not have or be reasonably likely to have a Material Adverse Effect. 8.16. Post-Closing Matters. To the extent not delivered prior to or on the Effective Date, the Company shall deliver to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, each of the agreements, instruments, opinions and other documents listed under the heading "Postclosing Matters" on the List of Closing Documents attached hereto as Exhibit N within the time periods set forth on such List of Closing Documents. 8.17. Permitted Acquisitions. (a) In addition to any other limitation set forth in this Agreement, neither the Company nor any of its Domestic Subsidiaries shall, in connection with any Permitted Acquisition, enter into any acquisition or purchase agreement providing for a Permitted Acquisition which does not allow for the assignment of the Company's or such Subsidiary's rights thereunder to the Administrative Agent as security for the Obligations. (b) On the Funding Date for any Borrowing of Revolving Loans for the purpose of consummating a Permitted Acquisition, (i) the Administrative Agent shall have received an Officer's Certificate certifying that (a) the acquisition meets the requirements of the definition of Permitted Acquisition (setting -111- 113 forth detailed calculations of all financial covenants), (b) such acquisition complies with the requirements of Sections 9.12 and 9.17 and (c) the liabilities of the type referred to in Sections 9.12 and 9.17 with respect to such Permitted Acquisition and any other liabilities assumed in connection with such Permitted Acquisition do not or are not reasonably likely to have a Material Adverse Effect, (ii) the Company shall have delivered to the Administrative Agent copies of (or to the extent unavailable, forms of) all material documentation evidencing the Permitted Acquisition, including, without limitation, the relevant acquisition or purchase agreement, corporate resolutions approving such Permitted Acquisition and opinions of counsel delivered in connection therewith (and the Company will use reasonable efforts to enable the Administrative Agent and the Lenders to be entitled to rely thereon) each certified by the Secretary or Assistant Secretary of the Company to be either (A) true and correct copies of such documents in full force and effect or (B) substantially in the form of the final documentation evidencing such Permitted Acquisition (provided that any such final documentation not delivered to the Administrative Agent on the Funding Date shall be delivered to the Administrative Agent no later than five Business Days after the Funding Date) and (iii) the Company shall have delivered to the Administrative Agent copies of all material business and financial information (with appropriate supporting detail) relating to the business purchased in the Permitted Acquisition as the Administrative Agent may reasonably request. ARTICLE IX NEGATIVE COVENANTS Each of the Borrowers covenants and agrees (with respect to those covenants set forth below applicable to itself and its Subsidiaries) that it shall comply with the following covenants so long as any Revolving Credit Commitment is outstanding and thereafter until payment in full of all of the Obligations, unless (except as otherwise provided below) the Requisite Lenders shall otherwise give prior written consent thereto or shall have waived compliance: 9.01. Indebtedness. None of the Company or any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (i) the Obligations; (ii) Permitted Existing Indebtedness, and any extensions, renewals, refundings or replacements of Permitted Existing Indebtedness; provided that any such extension, renewal, refunding or replacement is in an -112- 114 aggregate principal amount not greater than the principal amount of, and is on terms no less favorable to the Company or such Subsidiary than the terms of, the Permitted Existing Indebtedness so extended, renewed, refunded or replaced; (iii) Non-Facility Letters of Credit for which a Non- Facility Letter of Credit Reserve has been established by the Administrative Agent following receipt of a written notice from the Company instructing the Administrative Agent to establish such reserve; provided, however, the aggregate amount available for drawing under all Letters of Credit and Non-Facility Letters of Credit shall not exceed the sum of (A) $50,000,000 and (B) the aggregate amount available for drawing under any Non-Facility Letter of Credit incurred pursuant to clause (xiii) of this Section 9.01; (iv) Indebtedness in respect of taxes, assessments, governmental charges and claims for labor, materials or supplies, to the extent that payment thereof is not required pursuant to Section 8.04; (v) Indebtedness constituting Accommodation Obligations to the extent permitted by Section 9.05(i) through (viii); (vi) to the extent permitted by Article X and in any event in an aggregate outstanding principal amount not to exceed $15,000,000 at any time, Capital Leases and purchase money Indebtedness incurred by the Company and/or any Domestic Subsidiary (or by the Person whose Capital Stock or assets were purchased by the Company or any Domestic Subsidiary in connection with a Permitted Acquisition) to finance the acquisition of fixed assets, and Indebtedness incurred by the Company and/or any such Domestic Subsidiary to refinance, extend, renew, refund or replace such Capital Leases and purchase money Indebtedness; (vii) Indebtedness (other than Funded Debt) incurred in connection with Customary Permitted Liens; (viii) Indebtedness arising from intercompany loans (A) from the Company to any Subsidiary Guarantor or from any Subsidiary Guarantor to any Subsidiary of such Subsidiary Guarantor that is also a Guarantor; (B) from the Company or any Subsidiary Guarantor to any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or any Foreign Subsidiary which Indebtedness shall not cause the Maximum Non-Guarantor Subsidiary Investment Amount to exceed $20,000,000 in the aggregate at any time; (C) from any Subsidiary of any Subsidiary Guarantor to such Guarantor; or (D) from any Subsidiary of the Company to the Company; -113- 115 provided that the loans referred to in clause (A) shall be evidenced by an intercompany promissory notes substantially in the form of Exhibit J, payable to the Company or the applicable Subsidiary Guarantor, as the case may be, which promissory notes shall be secured by a Lien on the personal Property of such Guarantor and shall be delivered and pledged to the Administrative Agent as part of Collateral; (ix) Indebtedness of (A) the Company arising pursuant to Interest Rate Contracts entered into with any Lender for the purpose of hedging the Company's interest rate exposure and not for speculative purposes, (B) the Company or any Subsidiary of the Company arising pursuant to Currency Agreements entered into in the ordinary course of the Company's or such Subsidiary's business and (C) the Company arising pursuant to Currency Agreements entered into for the purpose of hedging the Company's foreign exchange exposure in respect of Revolving Loans made for the purpose of financing the acquisition of ARUP and providing for its working capital needs in a notional principal amount not to exceed $30,000,000; (x) Indebtedness incurred by any Foreign Subsidiary (other than Indebtedness owing to the Company or any Domestic Subsidiary) not in excess of an aggregate outstanding principal amount of $10,000,000 at any time (plus the aggregate outstanding principal amount of any Indebtedness in support of which the Company or any Subsidiary Guarantor has entered into an Accommodation Obligation pursuant to Section 9.05(iv)); (xi) Indebtedness in respect of the Subordinated Notes; provided that (A) the gross proceeds of the issuance of such notes do not exceed $175,000,000, (B) the issuance of such Subordinated Notes occurs on or prior to December 31, 1997 and (C) the terms of the Subordinated Notes and the Subordinated Note Indenture (including, without limitation, as to subordination, covenants, cross-default, interest rate and maturity) are approved by the Lenders (it being understood that an interest rate of 15% per annum or less is acceptable to the Lenders); (xii) Indebtedness in respect of metals futures contracts entered into by the Company and its Subsidiaries in the ordinary course of business and not for speculative purposes; (xiii) In addition to Indebtedness permitted by clauses (i) through (xi) above, Indebtedness of the Company or any Subsidiary incurred after the date hereof (in respect of Non-Facility Letters of Credit or otherwise) in an amount not to exceed an aggregate outstanding principal amount of -114- 116 $30,000,000 (less the amount of Indebtedness incurred pursuant to clause (vi) of this Section 9.01) at any time; (xiv) Indebtedness in connection with borrowings against the cash surrender value of life insurance maintained by the Company or any of its Subsidiaries; provided, however, that unless such Indebtedness is otherwise permitted to be incurred pursuant to clause (xiii) above, the proceeds of such borrowings shall be used solely to pay the premiums with respect to such insurance policies and any accrued and unpaid interest on, and any premiums or penalties relating to, any such borrowings, and any extensions, renewals, refundings or replacements of such Indebtedness; provided that any such extension, renewal, refunding or replacement is in an aggregate principal amount not greater than the principal amount of, and is on terms no less favorable to the Company or such Subsidiary than the terms of, the Indebtedness so extended, renewed, refunded or replaced; and (xv) Indebtedness incurred (other than the Obligations) or assumed in connection with or as a result of a Permitted Acquisition in an aggregate amount not to exceed $15,000,000 at any time outstanding. 9.02. Sales of Assets. None of the Company or any of the Domestic Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (i) sales, leases, assignments, transfers, conveyances or other dispositions of Inventory in the ordinary course of business; provided, however, that any such sale, transfer or other disposition of Inventory to any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary shall not cause the Maximum Non-Guarantor Subsidiary Investment Amount to exceed $20,000,000 in the aggregate at any time; (ii) sales, assignments, transfers, conveyances or other dispositions (other than Leases or subleases of Leases) of Properties outside of the ordinary course of business not to exceed in the aggregate more than $5,000,000 in any Fiscal Year (exclusive of any sales or other dispositions permitted in clause (vii) below); provided, however, that any such sale, transfer or other disposition of such Properties to any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary shall not cause the Maximum Non-Guarantor Subsidiary Investment Amount to exceed $20,000,000 in the aggregate at any time; -115- 117 (iii) in addition to dispositions permitted under clauses (i) and (ii) of this Section 9.02, the disposition of Equipment of the Company or any of the Domestic Subsidiaries if such Equipment is obsolete or no longer useful in the ordinary course of the Company's or such Domestic Subsidiary's business or otherwise is not required to be maintained by the Company or such Domestic Subsidiary pursuant to Section 8.10; (iv) assignments and licenses of intellectual Property of the Company or any of its Subsidiaries in the ordinary course of business; (v) the sale or transfer of Property of the Company or any Domestic Subsidiary to any Subsidiary Guarantor or the Company (other than a sale of all or a substantial portion of the assets of such Person in any transaction or series of related transactions); (vi) (A) subleases of Leases or Leases, to the extent at any point in time such subleases or Leases have anticipated annual rental payments of not more than $2,000,000 in the aggregate since the Effective Date and (B) subleases of Leases or Leases of any Real Property listed on Schedule 9.02; (vii) the Company may from time to time sell, assign, transfer, convey or otherwise dispose of any or all of the Properties specified in Schedule 9.02; provided that if in connection with a sale or similar disposition of any such Property, the Company receives a note or similar obligation as all or part of the consideration therefor, the Company shall secure such note or obligation with a mortgage or similar Lien on such Property and pledge such note or other obligation to the Administrative Agent as security for the Obligations pursuant to the terms of the Loan Documents; and (viii) Sale and Leaseback Transactions to the extent permitted by Section 9.10. 9.03. Liens. None of the Company or any of the Domestic Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective Property except: (i) Liens created by the Loan Documents; (ii) Permitted Existing Liens; (iii) Customary Permitted Liens; -116- 118 (iv) purchase money Liens granted by the Company or any Domestic Subsidiary (including the interest of a lessor under a Capital Lease) and Liens to which any Property is subject at the time of the Company's or any Domestic Subsidiary's acquisition thereof) securing Indebtedness permitted under Section 9.01(vi) and limited in each case to the Property purchased or subject to such lease; (v) to the extent Indebtedness secured thereby is permitted to be extended, renewed, refunded or refinanced pursuant to clauses (ii), (vi) or (xiv) of Section 9.01, a future Lien on any Property which is subject to a Lien described in clause (ii), (iv) or (vii) of this Section 9.03, if such future Lien attaches only to the same Property and secures only such permitted extensions, renewals, replacements or refinancings; (vi) Liens securing reimbursement obligations with respect to commercial letters of credit which constitute Non-Facility Letters of Credit; provided that such Liens only attach to the Property being acquired with the proceeds of such Non-Facility Letters of Credit; (vii) other Liens securing not more than $5,000,000 of any Indebtedness or Accommodation Obligation permitted hereunder; (viii) Liens securing Indebtedness assumed in connection with, or continuing to exist after but not incurred in connection with, a Permitted Acquisition as permitted by Section 9.01(xv), which Liens were in effect prior to the consummation of the Permitted Acquisition; and (ix) A negative pledge granted by the Company and its Subsidiaries in favor of the trustee under the Subordinated Note Indenture. 9.04. Investments. None of the Company or any of the Domestic Subsidiaries shall directly or indirectly make or own any Investment except: (i) Investments in cash and Cash Equivalents; (ii) Permitted Existing Investments; (iii) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; -117- 119 (iv) Investments (A) by the Company or any Subsidiary Guarantor in any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary which Investments shall not cause the Maximum Non-Guarantor Subsidiary Investment Amount to exceed $20,000,000 in the aggregate at any time or (B) by the Company or any Guarantor in any Subsidiary Guarantor to the extent a loan or loans made by the Company or such Guarantor are permitted pursuant to Section 9.01(viii)(A) or Section 9.01(viii)(C); (v) (A) loans or advances to employees of the Company or any of its Subsidiaries, which loans and advances shall not in the aggregate (but excluding advances referred to in clause (B) hereof) exceed $3,000,000 outstanding at any time and (B) advances to sales representatives of the Company or any of its Subsidiaries in the ordinary course of business and consistent with past practices; (vi) additional Investments not otherwise permitted in this Section 9.04 not to exceed $10,000,000 in the aggregate at any one time outstanding; (vii) Investments not to exceed $6,500,000 at any one time outstanding in the aggregate in certificates of deposit and bank deposits with maturities of up to five years in Puerto Rican financial institutions necessary to maintain the Company's or any Subsidiary's preferred tax treatment in Puerto Rico; (viii) Investments received by the Company or any Domestic Subsidiary as consideration for the sale or other disposition of Property permitted by Section 9.02; (ix) Investments made pursuant to Permitted Acquisitions; provided, however, no Investment made in any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary (whether existing before, or after giving effect to, such Permitted Acquisition) pursuant to such Permitted Acquisition shall cause the Maximum Non-Guarantor Subsidiary Investment Amount to exceed $20,000,000 in the aggregate at any time; (x) in addition to Investments in Permitted Acquisitions permitted pursuant to clause (ix) above, Investments made by the Company in Insilco GmbH and its Subsidiaries of up to $5,000,000 in the aggregate since the Effective Date; and (xi) Investments in Interest Rate Contracts permitted pursuant to Section 9.01(ix)(A) and metals future contracts permitted pursuant to Section 9.01(xii). -118- 120 9.05. Accommodation Obligations. None of the Company or any of the Subsidiaries shall directly or indirectly create or become or be liable with respect to any Accommodation Obligation, except: (i) Permitted Existing Accommodation Obligations; (ii) Accommodation Obligations arising under the Loan Documents; (iii) obligations, warranties and indemnities, not with respect to Indebtedness of any Person, which have been or are undertaken or made in the ordinary course of business; (iv) Accommodation Obligations of the Company or any Subsidiary Guarantor in respect of any Non-Guarantor Domestic Subsidiary, Permitted Joint Venture or Foreign Subsidiary, which Accommodation Obligations shall not cause the Maximum Non-Guarantor Subsidiary Investment Amount to exceed $20,000,000 at any time; (v) Accommodation Obligations of any Subsidiary Guarantor in respect of obligations of the Company or of any Subsidiary of such Subsidiary Guarantor that is also a Guarantor; (vi) reimbursement obligations under Non-Facility Letters of Credit; (vii) Accommodation Obligations with respect to Customary Permitted Liens, other obligations, warranties and indemnities (other than with respect to Indebtedness) in the ordinary course of business and with respect to customary representations, warranties and indemnities entered into in connection with the sale or other disposition of Property or in connection with any Permitted Acquisition; (viii) Accommodation Obligations of the Company in respect of any Subsidiary Guarantor; and (ix) Accommodation Obligations constituting Indebtedness to the extent permitted under Section 9.01. 9.06. Restricted Junior Payments. Subject to Section 9.16, none of the Company or any of the Domestic Subsidiaries shall declare or make any Restricted Junior Payment except: (i) dividends or other distributions made to the Company or any of the Domestic Subsidiaries by any Subsidiary of the Company; -119- 121 (ii) the purchase or redemption of Capital Stock in connection with a simultaneous sale of an equivalent amount of Capital Stock for the same purchase or redemption price; (iii) purchase of shares of Capital Stock in connection with claims made in bankruptcy proceedings pursuant to the Plan of Reorganization not to exceed $2,000,000 in the aggregate in any Fiscal Year; (iv) payments with respect to employee or director stock options, stock incentive plans or restricted stock plans of the Company; provided, the aggregate amount of such payments do not exceed $2,500,000 in any Fiscal Year or $6,500,000 in the aggregate since November 21, 1994; (v) [Intentionally omitted]; (vi) regularly scheduled payments of interest and principal in respect of the Subordinated Notes (to the extent the issuance thereof is permitted pursuant to Section 9.01(xi)) and Indebtedness of the Company or any Domestic Subsidiary that is expressly subordinated in writing to the Obligations and permitted pursuant to Section 9.01(xiii), but only if, in each case, such payment is permitted to be made pursuant to the terms of the Subordinated Note Indenture or such subordinated Indebtedness, as the case may be (it being understood that no scheduled payments of principal on the Subordinated Notes or such subordinated Indebtedness will be required to be made prior to the seventh anniversary of the Effective Date); (vii) so long as no Default or Event of Default has occurred or would result therefrom, redemptions or repurchases of Common Stock of the Company pursuant to the Stock Repurchase (it being understood and agreed that, subject to clause (ix) below,any redemption or repurchase pursuant to the Stock Repurchase in excess of the amount of the Rolodex Proceeds may only be made after the receipt by the Company of at least $100,000,000 in gross proceeds from the issuance of the Subordinated Notes); provided, however, no distribution of the Rolodex Proceeds pursuant to the Stock Repurchase or otherwise may be made after December 31, 1997; and (viii) in the event the Stock Repurchase is consummated and the Company has received at least $100,000,000 in gross proceeds from the issuance of the Subordinated Notes, purchases for no greater than Fair Market Value by the Company of Common Stock or dividends or other distributions in respect of such Common Stock in an amount not to exceed the excess, if any, of the Maximum Stock Repurchase Amount over the amount of redemptions or repurchases made pursuant -120- 122 to the Stock Repurchase; provided that (A) no Event of Default shall have occurred and be continuing prior to such purchase or after giving effect thereto and (B) no such purchase may be made after the first anniversary of the completion of the Stock Repurchase, but if, at the end of such one-year period, the Leverage Ratio of the Company and its Subsidiaries for the most recently ended fiscal quarter for which the Company has delivered a Compliance Certificate to the Administrative Agent is less than 3.5 to 1, the Company may continue to make such purchases so long as (I) it maintains a Leverage Ratio of less than 3.5 to 1 for each subsequent fiscal quarter and (II) in connection with any such purchase, the Company's Leverage Ratio on a pro forma basis after giving effect to any Indebtedness incurred for the purpose of making such purchase is also less than 3.5 to 1; and (ix) if within 90 days after the issuance of the Subordinated Notes, no portion of the Stock Repurchase in excess of the Rolodex Proceeds has been consummated and the Stock Repurchase has been terminated or withdrawn, then the Subordinated Notes may be rescinded or otherwise prepaid or redeemed in accordance with the terms of the Subordinated Note Indenture, but only to the extent of the proceeds received by the Company from the issuance of the Subordinated Notes together with any premium and associated transaction costs incurred in connection therewith (it being understood and agreed that if the Subordinated Notes are repaid pursuant to this clause (ix) then no portion of the Stock Repurchase in excess of the Rolodex Proceeds may be made pursuant to Section 9.06(vii)). 9.07. Conduct of Business. None of the Company or any of its Subsidiaries shall engage in any business (pursuant to a Permitted Joint Venture, Permitted Acquisition or otherwise) other than the businesses engaged in by the Company or such Subsidiaries on the date hereof and any business or activities which are substantially similar, related or incidental thereto, except to the extent otherwise permitted hereunder. The Company agrees to cause Insilco GmbH not to engage in any business or activity other than acting as a holding company for each of its Subsidiaries and engaging in the transactions contemplated in any agreement for the acquisition of any such Subsidiary. 9.08. Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries, except as otherwise expressly permitted herein, to do any of the following: (i) make any Investment in an Affiliate of the Company or any of the Company's Subsidiaries; (ii) transfer, sell, lease, assign or otherwise dispose of any Property to any Affiliate of the Company or any of the Company's Subsidiaries; (iii) merge into or consolidate with or purchase or acquire assets from any Affiliate -121- 123 of the Company or any of the Company's Subsidiaries; (iv) repay any Indebtedness to any Affiliate of the Company or any of the Company's Subsidiaries; (v) pay any royalties to any Affiliate of the Company or any of the Company's Subsidiaries; (vi) pay any management fees to any Affiliate of the Company or any of the Company's Subsidiaries; or (vii) enter into any other transaction directly or indirectly with or for the benefit of any Affiliate of the Company or any of the Company's Subsidiaries (including, without limitation, guaranties and assumptions of obligations of any such Affiliate) except in each case for transactions (A) in the ordinary course of business and (B) either on a basis no less favorable to the Company or such Subsidiary as would be obtained in a comparable arm's length transaction with a Person not an Affiliate, or in the case of compensation payable to any officer or director of the Company or such Subsidiary, in an amount approved by the Board of Directors of the Company or such Subsidiary. 9.09. Restriction on Fundamental Changes. (a) Except in connection with a Permitted Joint Venture or a Permitted Acquisition, none of the Company or any of the Domestic Subsidiaries or Foreign Borrowers shall (i) enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), except for a merger or consolidation of (A) any Non-Guarantor Domestic Subsidiary into another Non-Guarantor Domestic Subsidiary, (B) any Wholly Owned Non-Guarantor Domestic Subsidiary into the Company or a Subsidiary Guarantor (with the Company or such Subsidiary Guarantor as the surviving corporation) or (C) INR Holding Co. into the Company or a Subsidiary Guarantor (with the Company or such Subsidiary Guarantor as the surviving corporation); provided that, after giving effect to any such merger or consolidation, no Default or Event of Default shall have occurred or be continuing, (ii) enter into any partnership or joint venture, or (iii) enter into or permit any transaction or series of transactions in which the Company and/or any of the Domestic Subsidiaries acquire all or any significant portion of the Capital Stock and/or assets of another Person. (b) The Company shall not permit any Subsidiary Guarantor or Foreign Borrower to cease to be a direct or indirect Wholly Owned Subsidiary of the Company. 9.10. Sales and Leasebacks. None of the Company or any of the Domestic Subsidiaries shall enter into any Sale and Leaseback Transaction other than a Sale and Leaseback Transaction on terms and conditions satisfactory to the Administrative Agent relating to the sale and lease of owned Property where, after giving effect to all such Sale and Leaseback Transactions, the aggregate Fair Market Value of all such Property sold does not exceed $20,000,000 since the Effective Date. -122- 124 9.11. Margin Regulations; Securities Laws. None of the Company or any of the Company's Subsidiaries, shall use all or any portion of the proceeds of any credit extended hereunder to purchase or carry Margin Stock in violation of Regulation G or Regulation U. 9.12. ERISA. The Company shall not, to the extent the following actions, individually or in the aggregate, would have, or are reasonably likely to have, a Material Adverse Effect: (i) engage, or permit any ERISA Affiliate to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL; (ii) permit to exist any accumulated funding deficiency (as defined in sections 302 of ERISA and 412 of the Internal Revenue Code), with respect to any Benefit Plan, whether or not waived; (iii) terminate, or permit any ERISA Affiliate to terminate, any Benefit Plan which would result in any material liability of Company or any ERISA Affiliate under Title IV of ERISA; (iv) fail to make any contribution or payment to any Multiemployer Plan which Company or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (v) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment; (vi) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability for the plan year such that the Company or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Internal Revenue Code; (vii) permit any unfunded liabilities with respect to any Foreign Pension Plan; or (viii) fail, or permit any Subsidiary or ERISA Affiliate to fail, to pay any required contributions or payments to a Foreign Pension Plan on or before the due date for such required installment or payment. -123- 125 9.13. Issuance or Sale of Capital Stock. None of the Company's Subsidiaries shall (i) grant any rights (either preemptive or others) to subscribe for or to purchase, or any option for the purchase of, Capital Stock or (ii) create calls, commitments, claims of any character relating to any of its Capital Stock, other than as permitted pursuant to Section 9.07 or Section 9.09 or pursuant to the management incentive plans listed on Schedule 9.13, as amended from time to time (it being understood that any such amendment would not increase the Company's obligation to make Restricted Junior Payments beyond the amounts permitted in Section 9.06(iv)). Other than as permitted pursuant to Section 9.09(a), the Company shall not sell or otherwise dispose of, or permit the sale or disposition of, any shares of Capital Stock of any Subsidiary Guarantor or Foreign Borrower. 9.14. Constituent Documents. None of the Company or any of the Company's Subsidiaries shall materially amend, modify or otherwise change any of the terms or provisions in any of their respective Constituent Documents as in effect on the Effective Date (except for amendments, modifications or other changes to such Constituent Documents that, in the judgment of the Administrative Agent, do not materially affect the rights and privileges of the Company or any of its Subsidiaries under the Loan Documents, or the interests of the Administrative Agent, the Co-Agents, the Lenders or the Issuing Banks under the Loan Documents or in the Collateral). 9.15. Fiscal Year. None of the Company or any of the Company's consolidated Subsidiaries shall change its Fiscal Year for accounting or tax purposes from a period consisting of the 12-month period ending on December 31 of each calendar year. 9.16. Cancellation of Debt; Prepayment; Certain Amendments. Neither the Company nor any of the Domestic Subsidiaries shall (i) cancel any material claim or debt or amend or modify the terms thereof, except in the ordinary course of its business, in connection with the reasonable modification to payment terms, in connection with the Plan of Reorganization, in connection with those notes set forth in Section 3 of Schedule 1.01.3 or otherwise in connection with the compromise and settlement of disputes and except for Indebtedness (whether or not evidenced by a promissory note pledged to the Administrative Agent) incurred prior to the Effective Date arising from intercompany loans not in excess of the amounts of such Indebtedness set forth on Schedule 9.16, (ii) voluntarily prepay, redeem, purchase, repurchase, defease or retire the Subordinated Notes or any other long-term Indebtedness (other than the Obligations) or (iii) after the issuance of the Subordinated Notes, amend, supplement or otherwise modify the terms of the Subordinated Notes or the Subordinated Note Indenture (except amendments, supplements or other modifications to such terms -124- 126 that, in the reasonable judgment of the Administrative Agent, do not materially adversely affect the rights and privileges of the Borrower under the Subordinated Notes or the Subordinated Note Indenture or the interests of the Administrative Agent, the Lenders or the Issuing Banks under the Loan Documents or in the Collateral). 9.17. Environmental Matters. None of the Company nor any of Company's Subsidiaries shall become subject to any Liabilities and Costs which would have a Material Adverse Effect arising out of or related to (a) the Release or threatened Release at any location of any Contaminant into the environment, or any Remedial Action in response thereto, or (b) any violation of any Environmental, Health and Safety Requirements of Law. 9.18. Foreign Subsidiary. No Foreign Subsidiary shall enter into any Accommodation Obligation with respect to any Indebtedness of the Company or any Domestic Subsidiary (other than the Obligations) or grant or permit to exist any Lien on its Property to secure any such Indebtedness (other than those Accommodation Obligations and Liens set forth on Schedule 9.18 hereto). 9.19. No New Restrictions on Subsidiary Dividends. Except as may be required by any applicable Requirements of Law or pursuant to the Loan Documents, the Company will not agree, or permit any of the Domestic Subsidiaries to agree, to create or otherwise become effective any consensual encumbrance or restriction of any kind on the ability of any Domestic Subsidiary to (i) pay, directly or indirectly, dividends or make any other distributions in respect of its Capital Stock, (ii) make any other distribution or transfer of funds or assets or (iii) make loans or advances to or other Investments in, or pay any Indebtedness or other obligation owing to, the Company. 9.20. Accounting Changes. The Company shall not make, nor permit any of its Subsidiaries to make, any material (as defined in GAAP) change in accounting treatment and reporting practices or tax reporting treatment, except as required or permitted by GAAP or law and concurred with, if applicable, by the Company's independent accountants and disclosed to the Administrative Agent or as otherwise permitted by the Loan Documents. ARTICLE X FINANCIAL COVENANTS Each of the Borrowers covenants and agrees that so long as any Revolving Credit Commitment is outstanding and thereafter until payment in full of all of the Obligations, unless the -125- 127 Requisite Lenders shall otherwise give prior written consent thereto: 10.01. Minimum Consolidated Net Worth. The Consolidated Net Worth of the Company and its Subsidiaries at all times during any period set forth below shall not be less than the minimum amount set forth opposite such period:
Period Minimum Amount ------ -------------- Effective Date through June 29, 1998 ($130,000,000) June 30, 1998 through March 30, 1999 ($120,000,000) March 31, 1999 through June 29, 1999 ($115,000,000) June 30, 1999 through December 30, 1999 ($110,000,000) December 31, 1999 through March 30, 2000 ($105,000,000) March 31, 2000 through June 29, 2000 ($100,000,000) June 30, 2000 through September 29, 2000 ($ 90,000,000) September 30, 2000 through December 30, 2000 ($ 85,000,000) December 31, 2000 through March 30, 2001 ($ 80,000,000) March 31, 2001 through June 29, 2001 ($ 75,000,000) June 30, 2001 through September 29, 2001 ($ 70,000,000) September 30, 2001 through December 30, 2001 ($ 65,000,000) December 31, 2001 through March 30, 2002 ($ 60,000,000) March 31, 2002 through June 29, 2002 ($ 50,000,000) June 30, 2002 through September 29, 2002 ($ 45,000,000) September 30, 2002 through December 30, 2002 ($ 40,000,000) December 31, 2002 through March 30, 2003 ($ 35,000,000) March 31, 2003 through June 29, 2003 ($ 30,000,000) June 30, 2003 and thereafter ($ 25,000,000)
10.02. Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio of the Company and its Subsidiaries on a consolidated basis, as determined as of the last day of each -126- 128 fiscal quarter of the Company set forth below for the twelve month period ending on such date, shall not be less than the minimum ratio set forth opposite such fiscal quarter:
Fiscal Quarter Minimum Ratio -------------- ------------- Third fiscal quarter of 1997 1.50 to 1 Fourth fiscal quarter of 1997 1.50 to 1 First fiscal quarter of 1998 1.25 to 1 Second fiscal quarter of 1998 1.10 to 1 Third fiscal quarter of 1998 1.15 to 1 Fourth fiscal quarter of 1998 1.15 to 1 First fiscal quarter of 1999 1.15 to 1 Second fiscal quarter of 1999 1.25 to 1 Third fiscal quarter of 1999 1.25 to 1 Fourth fiscal quarter of 1999 1.30 to 1 First fiscal quarter of 2000 1.30 to 1 Second fiscal quarter of 2000 1.40 to 1 Third fiscal quarter of 2000 1.40 to 1 Fourth fiscal quarter of 2000 1.40 to 1 First fiscal quarter of 2001 1.40 to 1 Second fiscal quarter of 2001 1.50 to 1 Third fiscal quarter of 2001 1.50 to 1 Fourth fiscal quarter of 2001 1.50 to 1 First fiscal quarter of 2002 1.50 to 1 Second fiscal quarter of 2002 1.75 to 1 Third fiscal quarter of 2002 1.75 to 1 Fourth fiscal quarter of 2002 and each fiscal quarter thereafter 2.00 to 1
10.03. Minimum Interest Coverage Ratio. The Interest Coverage Ratio of the Company and its Subsidiaries on a consolidated basis, as determined as of the last day of each fiscal quarter of the Company set forth below for the twelve month period ending on such date, shall not be less than the minimum ratio set forth opposite such fiscal quarter:
Fiscal Quarter Minimum Ratio -------------- ------------- Third fiscal quarter of 1997 2.50 to 1 Fourth fiscal quarter of 1997 2.50 to 1 First fiscal quarter of 1998 2.25 to 1 Second fiscal quarter of 1998 2.00 to 1 Third fiscal quarter of 1998 2.00 to 1 Fourth fiscal quarter of 1998 2.00 to 1 First fiscal quarter of 1999 2.00 to 1 Second fiscal quarter of 1999 2.10 to 1 Third fiscal quarter of 1999 2.10 to 1 Fourth fiscal quarter of 1999 2.20 to 1 First fiscal quarter of 2000 2.20 to 1
-127- 129 Second fiscal quarter of 2000 2.25 to 1 Third fiscal quarter of 2000 2.25 to 1 Fourth fiscal quarter of 2000 2.35 to 1 First fiscal quarter of 2001 2.35 to 1 Second fiscal quarter of 2001 2.50 to 1 Third fiscal quarter of 2001 2.50 to 1 Fourth fiscal quarter of 2001 2.75 to 1 First fiscal quarter of 2002 2.75 to 1 Second fiscal quarter of 2002 2.75 to 1 Third fiscal quarter of 2002 2.75 to 1 Fourth fiscal quarter of 2002 3.00 to 1 First fiscal quarter of 2003 and each fiscal quarter thereafter 3.25 to 1
10.04. Maximum Leverage Ratio. The Leverage Ratio of the Company and its Subsidiaries on a consolidated basis, as determined as of the last day of each fiscal quarter of the Company set forth below for the twelve month period ending on such date, shall not be greater than the maximum amount set forth opposite such fiscal quarter:
Fiscal Quarter Maximum Ratio -------------- ------------- Third fiscal quarter of 1997 5.00 to 1 Fourth fiscal quarter of 1997 5.00 to 1 First fiscal quarter of 1998 5.00 to 1 Second fiscal quarter of 1998 5.00 to 1 Third fiscal quarter of 1998 5.00 to 1 Fourth fiscal quarter of 1998 4.75 to 1 First fiscal quarter of 1999 4.75 to 1 Second fiscal quarter of 1999 4.75 to 1 Third fiscal quarter of 1999 4.75 to 1 Fourth fiscal quarter of 1999 4.50 to 1 First fiscal quarter of 2000 4.50 to 1 Second fiscal quarter of 2000 4.50 to 1 Third fiscal quarter of 2000 4.50 to 1 Fourth fiscal quarter of 2000 4.00 to 1 First fiscal quarter of 2001 4.00 to 1 Second fiscal quarter of 2001 4.00 to 1 Third fiscal quarter of 2001 4.00 to 1 Fourth fiscal quarter of 2001 3.50 to 1 First fiscal quarter of 2002 3.50 to 1 Second fiscal quarter of 2002 3.50 to 1 Third fiscal quarter of 2002 3.50 to 1 Fourth fiscal quarter of 2002 and each fiscal quarter thereafter 3.00 to 1
10.05. Maximum Capital Expenditures. Capital Expenditures made or incurred by the Company and its Subsidiaries on a consolidated basis during each Fiscal Year set forth below shall not exceed in the aggregate the amount set forth opposite such Fiscal Year: -128- 130
Fiscal Year Maximum Amount ----------- -------------- Fiscal Year 1997 $30,000,000 Fiscal Year 1998 30,000,000 Fiscal Year 1999 30,000,000 Fiscal Year 2000 30,000,000 Fiscal Year 2001 32,000,000 Fiscal Year 2002 34,000,000 Fiscal Year 2003 36,000,000;
provided, however, if the maximum amount set forth above opposite any Fiscal Year exceeds the amount of Capital Expenditures made or incurred by the Company and its Subsidiaries on a consolidated basis for such Fiscal Year, then Capital Expenditures made or incurred by the Company and its Subsidiaries on a consolidated basis for the succeeding Fiscal Year may exceed the maximum amount set forth above opposite such succeeding Fiscal Year by the lesser of (i) 25% of the maximum amount for the preceding Fiscal Year and (ii) the amount of such excess from the immediately preceding Fiscal Year (such excess amount being available only for use in such succeeding Fiscal Year but being treated as the first amount spent in such succeeding Fiscal Year). ARTICLE XI EVENTS OF DEFAULT; RIGHTS AND REMEDIES 11.01. Events of Default. Each of the following occurrences shall constitute an Event of Default hereunder: (a) Failure to Make Payments When Due. Any Borrower shall fail to pay (i) when due any principal or interest on the Loans (including the Reimbursement Obligations) or (ii) any other Obligation, and (x) if such non-payment relates to interest on the Loans (including the Reimbursement Obligations), such non-payment continues for a period of three (3) Business Days after the due date thereof and (y) if such non-payment relates to Obligations other than interest or principal, such non-payment continues for a period of five (5) Business Days after the due date thereof. (b) Breach of Certain Covenants. Any Borrower or any Subsidiary Guarantor shall fail to perform or observe duly and punctually any agreement, covenant or obligation binding on such Person under (i) Sections 7.02, 7.03, 8.01, 8.02 or 8.06; or (ii) Article IX (other than Sections 9.08, 9.12, 9.16(i) and 9.19 and, solely with respect to Environmental Liens, Section 9.03) or Article X. (c) Breach of Representation or Warranty. Any written representation or warranty made or deemed made by any Borrower, -129- 131 any Subsidiary Guarantor or any other Subsidiary of the Borrower to the Administrative Agent, the Co-Agents, any Lender or any Issuing Bank herein or in any other Loan Document or in any written statement or certificate at any time given by any such Person pursuant to any Loan Document shall be false or misleading in any material respect on the date made (or deemed made). (d) Other Defaults. Any Borrower shall default in the performance of or compliance with any term contained herein (other than as covered by paragraphs (a), (b) or (c) of this Section 11.01), or any Borrower or any of its Subsidiaries shall default in the performance of or compliance with any term contained in any other Loan Document, and such default shall continue for (i) fifteen (15) Business Days after the occurrence thereof with respect to any term contained in Sections 7.01, 7.05, 7.06, 8.07 or 9.08; and (ii) thirty (30) days after the occurrence thereof with respect to any other term. (e) Default as to Other Indebtedness; Operating Leases. Any Borrower or any of the Domestic Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than an Obligation) in excess of a principal amount of $10,000,000; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness, if the effect thereof is to cause an acceleration, mandatory redemption or other required repurchase of such Indebtedness, or permit the holder(s) of such Indebtedness to accelerate the maturity of such Indebtedness or require the redemption or other repurchase of such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by such Borrower or any of the Domestic Subsidiaries (other than by a regularly scheduled required prepayment, mandatory redemption or required repurchase) prior to the stated maturity thereof; or any material breach, default or event of default remaining uncured for a period of thirty (30) days after notice from the applicable landlord or owner on the part of such Borrower or any of the Domestic Subsidiaries shall occur under any Operating Lease to which such Borrower or any of the Domestic Subsidiaries is a party pursuant to which the annual rental payments of such Operating Lease equal or exceed $1,000,000, unless such default under any such Operating Lease is being contested in good faith by such Borrower or such Domestic Subsidiary, as the case may be, by appropriate proceedings diligently instituted and conducted and with respect to which appropriate reserves have been set aside therefor in conformity with GAAP. -130- 132 (f) Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) An involuntary case shall be commenced against the Company or any of its Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of its Subsidiaries or over all or a substantial part of the Property of the Company or any of its Subsidiaries shall be entered; or an interim receiver, trustee or other custodian of the Company or any of its Subsidiaries or of all or a substantial part of the Property of the Company or any of its Subsidiaries shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the Property of the Company or any of its Subsidiaries shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance. (g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Company or any of its Subsidiaries shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its Property; or the Company or any of its Subsidiaries shall make any assignment for the benefit of creditors. (h) Judgments. Any judgment, writ, order or warrant of attachment, or other similar process shall be rendered against any Borrower or any of the Domestic Subsidiaries or any of their respective Properties involving in any single case or in the aggregate an amount exceeding $10,000,000 in excess of applicable insurance coverage is (are) entered and remains undischarged, unvacated and unstayed for a period of sixty (60) days. (i) Dissolution. Any order, judgment or decree shall be entered against the Company or any of its Subsidiaries, decreeing its involuntary dissolution or other similar -131- 133 proceeding, and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or any Borrower or any of the Domestic Subsidiaries shall otherwise dissolve or cease to exist except as specifically permitted hereby. (j) Loan Documents; Failure of Security. At any time, for any reason (i) any Loan Document ceases to be in full force and effect or the Company or any of its Subsidiaries party thereto seeks to repudiate its obligations thereunder and the Liens intended to be created thereby are, or the Company or any such Subsidiary seeks to render such Liens, invalid or unperfected, or (ii) Liens in favor of the Administrative Agent, the Co-Agents, the Issuing Banks and/or the Lenders contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated hereby or by the other Loan Documents. (k) Termination Event. Any Termination Event occurs which the Administrative Agent believes has or is reasonably likely to have a Material Adverse Effect. (l) Waiver of Minimum Funding Standard. If the plan administrator of any Plan applies under Section 412(d) of the Internal Revenue Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code and the Administrative Agent believes the substantial business hardship upon which the application for the waiver is based has or is reasonably likely to have a Material Adverse Effect. (m) Change of Control. A Change of Control shall occur. A Default or an Event of Default shall be deemed "continuing" until cured or until waived in accordance with Section 13.07; provided, however, a Default under Sections 7.01, 7.04 or 7.06(c) arising from the failure of the Company to deliver to the Administrative Agent any item required to be delivered pursuant to such sections within the appropriate time period specified for such item shall not be deemed "continuing" if the Administrative Agent has extended the time period for the delivery of such item pursuant to the terms of such sections and such time period has not expired. 11.02. Rights and Remedies. (a) Acceleration and Termination. Upon the occurrence of any Event of Default described in Sections 11.01(f) or 11.01(g) other than with respect to a Subsidiary that is a Non-Guarantor Domestic Subsidiary or an Foreign Subsidiary, the Revolving Credit Commitments shall automatically and immediately terminate and the unpaid principal amount of, and any and all -132- 134 accrued interest on, the Obligations and all accrued fees shall automatically become immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrowers; and upon the occurrence and during the continuance of any other Event of Default (including, without limitation, an Event of Default described in Sections 11.01(f) or 11.01(g) with respect to a Subsidiary that is a Non-Guarantor Domestic Subsidiary or an Foreign Subsidiary), the Administrative Agent shall at the request, or may with the consent, of the Requisite Lenders, by written notice to the Company, (i) declare that all or any portion of the Revolving Credit Commitments are terminated, whereupon the Revolving Credit Commitments and the obligation of each Lender to make any Loan hereunder and of each Lender or Issuing Bank to issue or participate in any Letter of Credit not then issued shall immediately terminate, and/or (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obligations to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrowers. (b) Deposit for Letters of Credit. In addition, after the occurrence and during the continuance of an Event of Default, the Borrowers shall, promptly upon demand by the Administrative Agent (given upon the written instructions of the Requisite Lenders or, in the absence of such instructions, in its sole discretion), deliver to the Administrative Agent, Cash Collateral in such form and currency as requested by the Administrative Agent, together with such endorsements, and execution and delivery of such documents and instruments as the Administrative Agent may request in order to perfect or protect the Administrative Agent's Lien with respect thereto, in an aggregate principal amount equal to the then outstanding Letter of Credit Obligations. (c) Rescission. If at any time after termination of the Revolving Credit Commitments and/or acceleration of the maturity of the Loans, the Borrowers shall pay all arrears of interest and all payments on account of principal of the Loans and Reimbursement Obligations which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified herein) and all Events of Default and Defaults (other than nonpayment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 13.07, then upon the written -133- 135 consent of the Requisite Lenders and written notice to the Company, the termination of the Revolving Credit Commitments and/or the acceleration and the consequences of such termination and/or acceleration may be rescinded and annulled; but such action shall not affect any subsequent Event of Default or Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders and the Issuing Banks to a decision which may be made at the election of the Requisite Lenders; they are not intended to benefit the Borrowers and do not give the Borrowers the right to require the Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. (d) Enforcement. Each of the Borrowers acknowledges that in the event such Borrower or any of its Subsidiaries fails to perform, observe or discharge any of its respective obligations or liabilities hereunder or under any other Loan Document, any remedy of law may prove to be inadequate relief to the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders; therefore, such Borrower agrees that the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders shall be entitled after the occurrence and during the continuance of an Event of Default to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. ARTICLE XII THE AGENTS 12.01. Appointment. (a) Each Lender and each Issuing Bank hereby designates and appoints (i) Citicorp as the Administrative Agent and (ii) First Chicago and GSCP as syndication agents hereunder, and each Lender and each Issuing Bank hereby irrevocably authorizes the Administrative Agent to execute such documents (including, without limitation, the Loan Documents to which the Administrative Agent is a party) and irrevocably authorizes the Agents to take such other action on such Person's behalf under the provisions hereof and of the Loan Documents and to exercise such powers as are set forth herein or therein together with such other powers as are reasonably incidental thereto. As to any matters not expressly provided for hereby (including, without limitation, enforcement or collection of the Notes or any amount payable under any provision of Article III when due) or the other Loan Documents, none of the Agents shall be required to exercise any discretion or take any action. Notwithstanding the foregoing, the Administrative Agent shall be required to act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders (unless the instructions or consent of all of the Lenders is required hereunder or thereunder) and such instructions shall be binding upon all -134- 136 Lenders, Issuing Banks and Holders; provided, however, the Administrative Agent shall not be required to take any action which (i) the Administrative Agent reasonably believes shall expose it to personal liability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders with respect to such action or (ii) is contrary hereto, to the other Loan Documents or applicable law. The Agents agree to act as such on the express conditions contained in this Article XII. (b) The provisions of this Article XII are solely for the benefit of the Agents, the Lenders and Issuing Banks, and none of the Borrowers or any Subsidiary of the Company shall have any rights to rely on or enforce any of the provisions hereof (other than as expressly set forth in Sections 12.07 and 12.09). In performing their respective functions and duties hereunder, each of the Agents shall act solely as agent of the Lenders and the Issuing Banks and does not assume and shall not be deemed to have assumed any obligation or relationship of agency, trustee or fiduciary with or for the Borrowers or any Subsidiary of the Company. The Agents may perform any of their respective duties hereunder, or under the Loan Documents, by or through its agents or employees. 12.02. Nature of Duties. None of the Agents shall have any duties or responsibilities except those expressly set forth herein or in the Loan Documents. The duties of the Agents shall be mechanical and administrative in nature. None of the Agents shall have by reason hereof a fiduciary relationship in respect of any Holder. Nothing herein or in any of the Loan Documents, expressed or implied, is intended to or shall be construed to impose upon any Agent any obligations in respect hereof or any of the Loan Documents except as expressly set forth herein or therein. Each Lender and each Issuing Bank shall make its own independent investigation of the financial condition and affairs of the Borrowers and their Subsidiaries in connection with the making and the continuance of the Loans hereunder and with the issuance of the Letters of Credit and shall make its own appraisal of the creditworthiness of the Borrowers and their Subsidiaries initially and on a continuing basis, and none of the Agents shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Holder with any credit or other information with respect thereto (except for reports required to be delivered by any Agent under the terms hereof). If any Agent seeks the consent or approval of any of the Lenders to the taking or refraining from taking of any action hereunder, such Agent shall send notice thereof to each Lender. The Administrative Agent shall promptly notify each Lender at any time that the Lenders so required hereunder have instructed any Agent to act or refrain from acting pursuant hereto. 12.03. Rights, Exculpation, Etc. (a) Liabilities; Responsibilities. None of the Agents or any Affiliate of any of -135- 137 the Agents, nor any of their respective officers, directors, employees or agents shall be liable to any Holder for any action taken or omitted by them hereunder or under any of the Loan Documents, or in connection therewith, except that no Person shall be relieved of any liability imposed by law for gross negligence or willful misconduct. None of the Agents shall be liable for any apportionment or distribution of payments made by it in good faith pursuant to Section 3.02(b), and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Holder to whom payment was due, but not made, shall be to recover from other Holders any payment in excess of the amount to which they are determined to have been entitled. None of the Agents shall be responsible to any Holder for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, legality, enforceability, collectibility, or sufficiency hereof or of any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of the Borrowers or any of their Subsidiaries. None of the Agents shall be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions hereof or of any of the Loan Documents or the financial condition of the Borrowers or any of their Subsidiaries, or the existence or possible existence of any Default or Event of Default. (b) Right to Request Instructions. Any Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of any of the Loan Documents such Agent is permitted or required to take or to grant, and such Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from those Lenders from whom such Agent is required to obtain such instructions for the pertinent matter in accordance with the Loan Documents. Without limiting the generality of the foregoing, no Holder shall have any right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting under the Loan Documents in accordance with the instructions of the Requisite Lenders or, where required by the express terms hereof, a greater proportion of the Lenders. 12.04. Reliance. The Agents shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining hereto or to any of the Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel (including -136- 138 counsel for the Borrowers), independent public accountants and other experts selected by it. 12.05. Indemnification. To the extent that any Agent is not reimbursed and indemnified by the Borrowers, the Lenders shall reimburse and indemnify such Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents, in proportion to each Lender's Pro Rata Share; provided, however, the Lenders shall have no obligation to such Agent with respect to the matters indemnified pursuant to this Section resulting from the willful misconduct or gross negligence of such Agent, as determined in a final, non-appealable judgment by a court of competent jurisdiction. The obligations of the Lenders under this Section 12.05 shall survive the payment in full of the Loans, the Reimbursement Obligations and all other Obligations and the termination hereof. 12.06. Citicorp, First Chicago and GSCP Individually. With respect to their respective Pro Rata Shares of the Revolving Credit Commitments hereunder, if any, and the Loans made by each of them, if any, Citicorp, First Chicago and GSCP shall each have and may exercise the same rights and powers hereunder and are each subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include Citicorp, First Chicago and GSCP in their respective individual capacities as a Lender or as one of the Requisite Lenders. Citicorp, First Chicago, GSCP and their respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrowers or any of their Subsidiaries as if Citicorp were not acting as Administrative Agent pursuant hereto or First Chicago or GSCP were not acting as Co-Agent pursuant hereto. 12.07. Successor Administrative Agent; Resignation of Administrative Agent and Co-Agents. (a) Resignation. Any of the Co-Agents or the Administrative Agent may resign from the performance of its respective functions and duties hereunder at any time by giving at least thirty (30) Business Days' prior written notice to the Company and the Lenders. The resignation of such Co-Agent shall take effect upon the expiration of such thirty-day period. The resignation of the Administrative Agent shall take effect upon the acceptance by a successor Administrative Agent of appointment pursuant to this Section 12.07. -137- 139 (b) Appointment by Requisite Lenders. Upon any such notice of resignation by the Administrative Agent, the Requisite Lenders shall have the right to appoint a successor Administrative Agent selected from among the Lenders which appointment shall be subject to the prior written approval of the Company (which may not be unreasonably withheld, and shall not be required upon the occurrence and during the continuance of an Event of Default). Upon any such notice of resignation by either Co-Agent, no successor Co-Agent shall be appointed. (c) Appointment by Retiring Administrative Agent. If a successor Administrative Agent shall not have been appointed within the thirty (30) Business Day period provided in paragraph (a) of this Section 12.07, the retiring Administrative Agent, with the consent of the Company (which may not be unreasonably withheld, and shall not be required upon the occurrence and during the continuance of an Event of Default), shall then appoint a successor Administrative Agent who shall serve as Administrative Agent until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided above. (d) Rights of the Successor and Retiring Administrative Agents. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder thereafter to be performed. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent hereunder. 12.08. Relations Among Lenders. Each Lender and each Issuing Bank agrees that it shall not take any legal action, nor institute any actions or proceedings, against the Borrowers or any other obligor hereunder or with respect to any Collateral without the prior written consent of the Requisite Lenders. Without limiting the generality of the foregoing, no Lender may accelerate or otherwise enforce its portion of the Obligations, or terminate its Revolving Credit Commitments except in accordance with Section 11.02(a) or a setoff permitted under Section 13.05. 12.09. Concerning the Collateral and the Loan Documents. (a) Protective Advances. The Administrative Agent may from time to time, after the occurrence and during the continuance of an Event of Default, make such disbursements and advances in Dollars pursuant to the Loan Documents which the Administrative Agent, in its sole discretion, deems necessary or -138- 140 desirable to preserve or protect the Collateral or any portion thereof or to enhance the likelihood or maximize the amount of repayment of the Loans and other Obligations up to an amount not in excess of the lesser of the Revolving Credit Availability at such time and $5,000,000 ("Protective Advances"). The Administrative Agent shall notify the Company and each Lender in writing of each such Protective Advance, which notice shall include a description of the purpose of such Protective Advance. The Company agrees to pay the Administrative Agent, upon demand, the principal amount of all outstanding Protective Advances, together with interest thereon at the Base Rate applicable to the Loans from the date of such Protective Advance until the outstanding principal balance thereof is paid in full. If the Company fails to make payment in respect of any Protective Advance within one (1) Business Day after the date the Company receives written demand therefor from the Administrative Agent, the Administrative Agent shall promptly notify each Lender and each Lender agrees that it shall thereupon make available to the Administrative Agent, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of such Protective Advance. If such funds are not made available to the Administrative Agent by such Lender within one (1) Business Day after the Administrative Agent's demand therefor, the Administrative Agent shall be entitled to recover any such amount from such Lender together with interest thereon at the Federal Funds Rate for each day during the period commencing on the date of such demand and ending on the date such amount is received. The failure of any Lender to make available to the Administrative Agent its Pro Rata Share of any such Protective Advance shall neither relieve any other Lender of its obligation hereunder to make available to the Agent such other Lender's Pro Rata Share of such Protective Advance on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Administrative Agent. All outstanding principal of, and interest on, Protective Advances shall constitute Obligations secured by the Collateral until paid in full by the Company. (b) Authority. Each Lender and each Issuing Bank authorizes and directs the Administrative Agent to enter into the Loan Documents relating to the Collateral for the benefit of the Lenders and the Issuing Banks. Each Lender and each Issuing Bank agrees that any action taken by the Administrative Agent or the Requisite Lenders (or, where required by the express terms hereof, a different proportion of the Lenders) in accordance with the provisions hereof or of the other Loan Documents, and the exercise by the Administrative Agent or the Requisite Lenders (or, where so required, such different proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders and Issuing Banks. Without limiting the generality of the foregoing, the Administrative -139- 141 Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders and the Issuing Banks with respect to all payments and collections arising in connection herewith and with the Loan Documents relating to the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by the Borrowers or any of their Subsidiaries; (iii) act as collateral agent for the Lenders and the Issuing Banks for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein, provided, however, the Administrative Agent hereby appoints, authorizes and directs each Lender and each Issuing Bank to act as collateral sub-agent for the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks for purposes of the perfection of all security interests and Liens with respect to the Company's and its Subsidiaries' respective deposit accounts maintained with, and cash and Cash Equivalents held by, such Lender or such Issuing Bank; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and liens created or purported to be created by the Loan Documents; and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all remedies given to the Administrative Agent, the Co-Agents, the Lenders or the Issuing Banks with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise. (c) Release of Collateral. (i) Each of the Co-Agents, the Lenders, the Issuing Banks and the Holders hereby directs the Administrative Agent to release any Lien held by the Administrative Agent for the benefit of the Administrative Agent, the Co-Agents, the Lenders, the Issuing Banks and the other Holders: (A) against all of the Collateral, upon final payment in full of the Obligations and termination hereof; (B) against any part of the Collateral sold or disposed of by the Borrowers or any of their Subsidiaries, if such sale or disposition is permitted by Section 9.02 (or permitted pursuant to a waiver or consent of a transaction otherwise prohibited by such Section) or, if not pursuant to such sale or disposition, against any other part of the Collateral if such release is consented to by Lenders whose Pro Rata Shares, in the aggregate, are equal to 100%; (C) against any of the Real Property listed on Schedule 9.02 at the request of the Company at any time on or after the Effective Date; and -140- 142 (D) against the Rolodex Proceeds upon the consummation of the private repurchase of shares pursuant to clause (i) of the definition of Stock Repurchase, but only such amount thereof actually used by the Company to redeem or repurchase its Common Stock. (ii) Each of the Lenders and the Issuing Banks hereby directs the Administrative Agent to execute and deliver or file such termination and partial release statements and do such other things as are necessary to release Liens to be released pursuant to this Section 12.09(c) promptly upon the effectiveness of any such release. (d) Confirmation by Lenders. Without in any manner limiting the Administrative Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in subsection (c) above), each Lender agrees to confirm in writing, upon request by the Company, the authority to release Collateral conferred upon the Administrative Agent under clauses (A) and (B) of subsection (c) above. So long as no Event of Default is then continuing, upon receipt by the Administrative Agent of any such written confirmation from the Lenders of the Administrative Agent's authority to release any particular items or types of Collateral, and in any event upon any sale and transfer of Collateral which is expressly permitted pursuant to the terms of this Agreement, and upon at least five (5) Business Days' prior written request by the Company, the Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens upon such Collateral granted to the Administrative Agent for the benefit of Administrative Agent, the Co-Agents, the Lenders, the Issuing Banks and the other Holders; provided, however, that (i) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agent's opinion, would expose the Administrative Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of the Borrowers or any of their Subsidiaries in respect of) all interests retained by the Borrowers and/or any of their Subsidiaries, including (without limitation) the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (e) No Obligation. The Administrative Agent shall not have any obligation whatsoever to any Lender or to any other Person to assure that the Collateral exists or is owned by the Borrowers or any of their Subsidiaries or is cared for, protected or insured or has been encumbered or that the Liens granted to the Administrative Agent herein or pursuant to the Loan Documents have been properly or sufficiently or lawfully created, -141- 143 perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Administrative Agent in this Section 12.09 or in any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Administrative Agent may act in any manner it may deem appropriate, in its sole discretion, given the Administrative Agent's own interests in the Collateral as one of the Lenders and that the Administrative Agent shall not have any duty or liability whatsoever to any Lender. (f) Collateral Matters Relating to Related Obligations. The benefit of the Loan Documents and of the provisions of this Agreement relating to the Collateral shall extend to and be available in respect of any Obligations ("Related Obligations") which arise under any Interest Rate Contracts or which are otherwise owed to Persons other than the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks, solely on the condition and understanding, as among the Administrative Agent and all Holders, that (i) the Related Obligations shall be entitled to the benefit of the Collateral to the extent expressly set forth in this Agreement and the Loan Documents, and to such extent the Administrative Agent shall hold, and have the right and power to act with respect to, the Collateral on behalf of and as agent for the Holders of the Related Obligations; but the Administrative Agent is otherwise acting solely as agent for the Lenders and the Issuing Banks and shall have no fiduciary duty, duty of loyalty, duty of care, duty of disclosure or other obligations whatsoever to any Holder of Related Obligations; and (ii) all matters, acts and omissions relating in any manner to the Collateral, or the omission, creation, perfection, priority, abandonment or release of any Lien, shall be governed solely by the provisions of this Agreement and the Loan Documents and no separate Lien, right, power or remedy shall arise or exist in favor of any Holder under any separate instrument or agreement or in respect of any Related Obligations; and (iii) each Holder shall be bound by all actions taken or omitted, in accordance with the provisions of this Agreement and the Loan Documents, by the Administrative Agent and the Requisite Lenders, each of whom shall be entitled to act at its sole discretion and exclusively in its own interest given its own Revolving Credit Commitments and its own interest in the Loans, Letter of Credit Obligations and other Obligations to it arising under this Agreement or the other Loan Documents, without any duty or liability to any other Holder or as to any Related Obligations and without regard to whether any Related Obligations remain outstanding or are deprived of the benefit of the Collateral or become unsecured or are otherwise affected or put in jeopardy thereby; and (iv) no holder of Related Obligations and no other Holder (except the Administrative Agent, the Co- -142- 144 Agents and the Lenders, to the extent set forth in this Agreement) shall have any right to be notified of, or to direct, require or be heard with respect to, any action taken or omitted in respect of the Collateral or under this Agreement or the Loan Documents; and (v) no holder of any Related Obligations shall exercise any right of setoff, banker's lien or similar right except as expressly provided in Section 13.05. ARTICLE XIII MISCELLANEOUS 13.01. Assignments. (a) Assignments. No assignments or participations of any Lender's rights or obligations hereunder shall be made except in accordance with this Section 13.01. Subject to compliance with all Requirements of Law, each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations hereunder (including all of its rights and obligations with respect to the Revolving Loans and the Letters of Credit) in accordance with the provisions of this Section 13.01. (b) Limitations on Assignments. Each assignment by a Lender shall be subject to the following conditions: (i) each assignment (other than to a Lender or an Affiliate of a Lender) shall be approved by the Administrative Agent and the Company, which approval shall not be unreasonably withheld; (ii) each such assignment shall be to an Eligible Assignee; (iii) each such assignment shall be in an amount at least equal to $5,000,000, except if the Eligible Assignee is a Lender or an Affiliate of Lender or if such assignment shall constitute all the assigning Lender's interest hereunder; (iv) any such assignment (other than any such assignment to an Affiliate of the Assigning Lender) shall consist of the simultaneous assignment of corresponding pro rata portions of the assigning Lender's Revolving Credit Commitment and Revolving Loans, and (v) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance. Upon such execution, delivery, acceptance and recording in the Register, from and after the effective date specified in each Assignment and Acceptance and agreed to by the Administrative Agent, (x) the assignee thereunder shall, in addition to any rights and obligations hereunder held by it immediately prior to such effective date, if any, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and shall, to the fullest extent permitted by law, have the same rights and benefits hereunder as if it were an original Lender hereunder and (y) the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations hereunder (and, in the case of an Assignment and -143- 145 Acceptance covering all or the remaining portion of such assigning Lender's rights and obligations hereunder, the assigning Lender shall cease to be a party hereto). (c) The Register. The Administrative Agent shall maintain at its address referred to in Section 13.08 a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment under each Loan of, and principal amount of the Loans under each facility owing to, each Lender from time to time and whether such Lender is an original Lender or the assignee of another Lender pursuant to an Assignment and Acceptance. The Register shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, (ii) the effective date and amount of each Assignment and Acceptance delivered to and accepted by it and the parties thereto, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder or under the Notes, and (iv) the amount of any sum received by the Administrative Agent from the Borrowers or any Subsidiary Guarantor hereunder and each Lender's share thereof. The Administrative Agent shall deliver a statement of such account to the Company whenever an Assignment and Acceptance is accepted by it and the parties hereto; provided, however, the Administrative Agent shall not be obligated to deliver such statement more frequently than once a month. Each such statement shall be deemed final, binding and conclusive upon the Borrowers in all respects as to all matters reflected therein (absent manifest error) unless the Company, within thirty (30) days after the date such statement is delivered to the Company, delivers to the Administrative Agent written notice of any objections which the Company may have to any such statement. In that event, only those items expressly objected to in such notice shall be deemed to be disputed by the Company. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Company and each of its Subsidiaries, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes hereof. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Fee. Upon its receipt of an Assignment and Acceptance executed by the assigning Lender and an Eligible Assignee and a processing and recordation fee of $3,500 (payable by the assigning Lender or the assignee, as shall be agreed between them), the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in compliance herewith and in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information -144- 146 contained therein in the Register and (iii) give prompt notice thereof to the Company and the other Lenders. (e) Information Regarding the Borrowers. Any Lender may, in connection with any assignment or proposed assignment pursuant to this Section 13.01, disclose to the assignee or proposed assignee any information relating to the Borrowers or their Subsidiaries furnished to such Lender by the Administrative Agent or by or on behalf of the Borrowers; provided that, prior to any such disclosure, such assignee or proposed assignee shall agree (for the Borrowers' benefit) to preserve in accordance with Section 13.20 the confidentiality of any information described therein. (f) Lenders' Creation of Security Interests. Notwithstanding any other provision set forth herein, any Lender may at any time create a security interest in all or any portion of its rights hereunder (including, without limitation, Obligations owing to it and Notes held by it) in favor of any Federal Reserve bank in accordance with Regulation A. (g) Assignments by an Issuing Bank. If any Issuing Bank ceases to be a Lender hereunder by virtue of any assignment made pursuant to this Section 13.01, then, as of the effective date of such cessation, such Issuing Bank's obligations to issue Letters of Credit pursuant to Section 2.04 shall terminate and such Issuing Bank shall be an Issuing Bank hereunder only with respect to outstanding Letters of Credit issued prior to such date. (h) Participations. Subject to compliance with all Requirements of Law, each Lender may sell participations to one or more other financial institutions in or to all or a portion of its rights and obligations under and in respect of any and all facilities hereunder (including, without limitation, all or a portion of any or all of its Revolving Credit Commitments hereunder and the Loans owing to it and its undivided interest in the Letters of Credit); provided, however, that (i) such Lender's obligations hereunder (including, without limitation, its Revolving Credit Commitments hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations hereunder and (iv) such participant's rights to agree or to restrict such Lender's ability to agree to the modification, waiver or release of any of the terms of the Loan Documents or to the release of any Collateral covered by the Loan Documents, to consent to any action or failure to act by any party to any of the Loan Documents or any of their respective Subsidiaries or Affiliates, or to exercise or refrain from exercising any powers or rights -145- 147 which any Lender may have under or in respect of the Loan Documents or any Collateral, shall be limited to the right to consent to (A) reduction of the principal of, or rate or amount of interest on the Loans(s) subject to such participation (other than by the payment or prepayment thereof and excluding any waiver of default interest pursuant to Section 4.01(d)), (B) postponement of any scheduled date for any payment of principal of, or interest on, the Loan(s) subject to such participation (except with respect to any modifications of the application provisions relating to the prepayments of Loans and other Obligations and any rescission of acceleration pursuant to Section 11.02(c)) and (C) release of any Guarantor or all or any portion of the Collateral, except as provided in Section 12.09(c) or in connection with the sale of all or substantially all of the Capital Stock or Property of any Subsidiary Guarantor or a merger of a Subsidiary Guarantor into another Subsidiary Guarantor or into the Company, in each case approved by the Requisite Lenders. No holder of a participation in all or any part of the Loans shall be a "Lender" or a "Holder" for any purposes hereunder by reason of such participation; provided, however, that each holder of a participation shall have the rights and obligations of a Lender (including any right to receive payment) under Sections 3.03, 3.04, 4.01(f), 4.02(f), 12.05 and 13.02; provided, however, that all requests for any such payments shall be made by a participant through the Lender granting such participation. The right of each holder of a participation to receive payment under Sections 3.03, 3.04, 4.01(f), 4.02(f) and 13.02 shall be limited to the lesser of (i) the amounts actually incurred by such holder for which payment is provided under said Sections and (ii) the amounts that would have been payable under said Sections by the applicable Borrower to the Lender granting the participation in respect of the participated interest to such holder had such participation not been granted. (i) Payment to Participants. Anything herein to the contrary notwithstanding, in the case of any participation, all amounts payable by the Borrowers under the Loan Documents shall be calculated and made in the manner and to the parties required hereby as if no such participation had been sold. (j) No Registration. Notwithstanding any other provisions of this Section 13.01, no transfer or assignment of interests or obligations of any Lender hereunder or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Company or any Subsidiary Guarantor to file a registration statement under the Securities Act with the Securities and Exchange Commission or to qualify the Loans or the Notes under the state securities or "Blue Sky" laws of any state. The approval of any proposed assignee by the Company required by this Agreement shall not be deemed to be unreasonably withheld if the approval of such Person would -146- 148 require any Loan or Note to be registered or qualified under any applicable securities law. (k) Investment Representation. Each Lender party to this Agreement on the Effective Date hereby represents, and each Person that becomes a Lender pursuant to an assignment permitted by this Section 13.01 will represent, and shall be deemed to have represented, upon becoming a party to this Agreement, to the Borrowers and each Subsidiary Guarantor and the other parties to this Agreement that it is a commercial lender, other financial institution regularly engaged in making commercial loans or an "accredited investor" or "qualified institutional investor" (as defined in Regulation D and Rule 144A, respectively, of the Securities Act) and that it will make or acquire Loans hereunder for its own account in the ordinary course of its business. (l) Notes Not Securities. Notwithstanding the foregoing provisions of this Section 13.01, no provision of this Agreement shall be construed to mean or imply that any Loan, any Note, the Revolving Credit Commitments or any assignment thereof or grant of a participation therein is a "security" under any applicable securities law. 13.02. Expenses. (a) Generally. The Company agrees upon demand to pay, or reimburse the Administrative Agent for, all of the Administrative Agent's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of the Administrative Agent's counsel, Sidley & Austin, local legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents retained by the Administrative Agent, it being understood that the Administrative Agent will discuss with the Company the proposed use of a consultant or agent prior to seeking reimbursement for such consultant's expense) incurred by the Administrative Agent in connection with (A) the Administrative Agent's audit and investigation of the Company and the Company's Subsidiaries in connection with the preparation, negotiation, and execution of the Loan Documents and the Administrative Agent's periodic audits of the Company or the Company's Subsidiaries; (B) the preparation, negotiation, execution and interpretation hereof (including, without limitation, the satisfaction or attempted satisfaction of any of the conditions set forth in Article V), the other Loan Documents and any proposal letter or commitment letter issued in connection therewith and the making of the Loans hereunder; (C) the creation, perfection or protection of the Liens under the Loan Documents (including, without limitation, any reasonable fees and -147- 149 expenses for local counsel in various jurisdictions); (D) the ongoing administration hereof and of the Loans, including consultation with attorneys in connection therewith and with respect to the Administrative Agent's rights and responsibilities hereunder and under the other Loan Documents; (E) the protection, collection or enforcement of any of the Obligations or the enforcement of any of the Loan Documents; (F) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, the Property of the Borrowers or any of the Domestic Subsidiaries, the Borrowers, any of the Company's Subsidiaries, this Agreement or any of the other Loan Documents; (G) the response to, and preparation for, any subpoena or request for document production with which the Administrative Agent is served or deposition or other proceeding in which the Administrative Agent is called to testify, in each case, relating in any way to the Obligations, the Property of the Borrowers or any of the Domestic Subsidiaries, the Borrowers, any of the Company's Subsidiaries, this Agreement or any of the other Loan Documents; and (H) any amendments, consents, waivers, assignments, restatements, or supplements to any of the Loan Documents and the preparation, negotiation, and execution of the same. (b) After Default. The Company further agrees to pay or reimburse the Administrative Agent, the Co-Agents, the Issuing Banks and the Lenders upon demand for all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees (including allocated costs of internal counsel and costs of settlement), incurred by the Administrative Agent, the Co-Agents, any Issuing Bank or any Lender after the occurrence of an Event of Default (i) in enforcing any Loan Document or Obligation or any security therefor or exercising or enforcing any other right or remedy available by reason of any Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleadings in any legal proceeding relating to the Obligations, the Property, the Borrowers or any of the Company's Subsidiaries and related to or arising out of the transactions contemplated hereby or by any of the other Loan Documents; and (iv) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in clauses (i) through (iii) above. 13.03. Indemnities. (a) Each Borrower agrees to indemnify and hold harmless the Administrative Agent, each Co- Agent, each Lender and each Issuing Bank and their respective Affiliates (but excluding any Lender or Affiliate of a Lender solely in such Lender's or Affiliate's capacity as an underwriter of the Subordinated Notes), and the directors, officers, employees, agents, partners, attorneys, consultants and advisors -148- 150 of or to any of the foregoing (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article III) (each of the foregoing being and "Indemnitee") from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, disbursements and expenses of any kind or nature (including, without limitation, reasonable fees and disbursements of counsel to any such Indemnitee) which may be imposed on, incurred by or asserted against any such Indemnitee in connection with or arising out of any investigation, litigation or proceeding, whether or not any such Indemnitee is a party thereto, whether direct, indirect, or consequential and whether based on any federal, state or local law or other statutory regulation, securities or commercial law or regulation, or under common law or in equity, or on contract, tort or otherwise, in any manner relating to or arising out of this Agreement, the Loan Documents, any Obligation, any Letter of Credit, the issuance of the Subordinated Notes, the Stock Repurchase or any act, event or transaction related or attendant to any thereof, including, without limitation, (i) all Liabilities and Costs arising from or connected with the past, present or future operations of such Borrower or any or its Subsidiaries involving any Property subject to a Loan Document, or damage to real or personal Property or natural resources or harm or injury alleged to have resulted from any Release of Contaminants on, upon or into such Property or any other affected real estate; (ii) any Liabilities or Costs incurred as a result of any Remedial Action concerning such Borrower or any of its Subsidiaries; (iii) any Liabilities or Costs incurred as a result of any Environmental Lien; (iv) any Liabilities or Costs incurred pursuant to Environmental, Health and Safety Requirements of Law, including, without limitation, CERCLA and applicable state property transfer laws, whether, with respect to any of the foregoing, such Indemnitee is a mortgagee pursuant to any leasehold mortgage, a mortgagee in possession, the successor in interest to such Borrower or any of its Subsidiaries, or the owner, lessee or operator of any Property of such Borrower or any of its Subsidiaries by virtue of foreclosure, except, with respect to any of the foregoing referred to in clauses (i), (ii), (iii) and (iv), to the extent incurred following (x) foreclosure by the Administrative Agent, any Co-Agent any Lender or any Issuing Bank, or (y) the Administrative Agent, any Co-Agent any Lender or any Issuing Bank having become the successor in interest to such Borrower or any of its Subsidiaries, attributable with respect to clauses (x) and (y) solely to acts of the Administrative Agent, such Co-Agent, such Lender or such Issuing Bank or any agent on behalf of the Administrative Agent, such Co-Agent, such Lender or such or such Issuing Bank; (v) the use or intended use of the proceeds of the Revolving Loans or Letters of Credit (collectively, "Indemnified Matter"); or (vi) any action taken or omitted by any Indemnitee in reliance on any notice or other written communication in the form of a telecopy -149- 151 or facsimile received hereunder by such Indemnitee; provided that such Borrower shall not have any obligation under this Section 13.03 to an Indemnitee with respect to any Indemnified Matter caused by or resulting from the gross negligence or willful misconduct of that Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order. (b) Each Borrower shall indemnify the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks for, and hold the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks harmless from and against, any and all claims for brokerage commissions, fees and other compensation made against the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks for any broker, finder or consultant with respect to any agreement, arrangement or understanding made by or on behalf of such Borrower or its Subsidiaries in connection with the transactions contemplated by this Agreement. (c) The Administrative Agent, each Co-Agent, each Lender and each Issuing Bank agree that in the event that any such investigation, litigation or proceeding set forth in subparagraph (a) above is asserted or threatened in writing or instituted against it or any other Indemnitee, or any Remedial Action is requested of it or any of its officers, directors, agents and employees, for which any Indemnitee may desire indemnity or defense hereunder, such Indemnitee shall promptly notify the Company in writing. (d) Each Borrower, at the request of any Indemnitee, shall have the obligation to defend against such investigation, litigation or proceeding or requested Remedial Action, and such Borrower, in any event, may participate in the defense thereof with legal counsel of the Company's choice. In the event that such Indemnitee requests such Borrower to defend against such investigation, litigation or proceeding or requested Remedial Action, such Borrower shall promptly do so and such Indemnitee shall have the right to have legal counsel chosen by such Indemnitee participate in such defense. No action taken by legal counsel chosen by such Indemnitee in defending against any such investigation, litigation or proceeding or requested Remedial Action shall vitiate or in any way impair such Borrower's obligation and duty hereunder to indemnify and hold harmless such Indemnitee. (e) Each Borrower agrees that any indemnification or other protection provided to any Indemnitee pursuant to this Agreement (including, without limitation, pursuant to this Section 13.03) or any other Loan Document shall also inure to the benefit of any Person who was at any time an Indemnitee under this Agreement or any other Loan Document. -150- 152 13.04. Change in Accounting Principles. If any change in the accounting principles used in the preparation of the most recent financial statements referred to in Section 7.01 is after the Effective Date required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and are adopted by the Company with the agreement of its independent certified public accountants and such change results in a change in the method of calculation of any of the covenants, standards or terms found in Article IX and Article X, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such change with the desired result that the criteria for evaluating compliance with such covenants, standards and terms by the Company shall be the same after such change as if such change had not been made; provided, however, no change in accounting principles that would affect the method of calculation of any of the covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Requisite Lenders and the Company, to so reflect such change in accounting principles and all references to GAAP in the defined terms used in Article IX and Article X shall refer to GAAP as in effect on the Effective Date or, if such provisions are amended, on the date such provisions are amended. 13.05. Setoff. In addition to any Liens granted under the Loan Documents and any rights now or hereafter granted under applicable law, upon the occurrence and during the continuance of any Event of Default, and with the prior written consent of the Requisite Lenders, each Lender, each Issuing Bank and any Affiliate of any Lender or Issuing Bank is hereby authorized by the Company at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or, to the extent permitted by law, special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held or owing by such Lender, Issuing Bank or any of their Affiliates to or for the credit or the account of any Borrower against and on account of the Obligations of such Borrower to such Lender, Issuing Bank or any of their Affiliates, including, but not limited to, all Loans and Letters of Credit and all claims of any nature or description arising out of or in connection herewith, irrespective of whether or not (i) such Lender or Issuing Bank shall have made any demand hereunder or (ii) the Administrative Agent, at the request or with the consent of the Requisite Lenders, shall have declared the principal of and interest on the Loans and other amounts due hereunder to be due and payable as permitted by Article XI and even though such Obligations may be contingent or unmatured. -151- 153 13.06. Ratable Sharing. The Lenders and the Issuing Banks agree among themselves that, except as otherwise expressly provided in any Loan Document, (i) with respect to all amounts received by them which are applicable to the payment of the Obligations (excluding (x) the fees described in Sections 2.04(g), 3.03, 3.04, 4.01(f) and 4.02 and (y) any amounts to received in respect of Currency Agreements and/or Interest Rate Contracts) equitable adjustment shall be made so that, in effect, all such amounts shall be shared among them ratably in accordance with their Pro Rata Shares, whether received by voluntary payment, by the exercise of the right of setoff or banker's lien, by counterclaim or cross-action or by the enforcement of any or all of such Obligations (excluding the fees described in Sections 2.04(g), 3.03, 3.04, 4.01(f) and 4.02) or the Collateral, (ii) if any of them shall by voluntary payment or by the exercise of any right of counterclaim, setoff, banker's lien or otherwise, receive payment of a proportion of the aggregate amount of such Obligations held by it which is greater than the amount which such Lender is entitled to receive hereunder, the Lender receiving such excess payment shall purchase, without recourse or warranty, an undivided interest and participation (which it shall be deemed to have done simultaneously upon the receipt of such payment) in such Obligations owed to the others so that all such recoveries with respect to such Obligations shall be applied ratably in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases shall be rescinded and the purchase prices paid for such participation shall be returned to such party to the extent necessary to adjust for such recovery, but without interest except to the extent the purchasing party is required to pay interest in connection with such recovery. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 13.06 may, to the fullest extent permitted by law, exercise all its rights of payment (including, subject to Section 13.05, the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. 13.07. Amendments and Waivers. (a) General Provisions. Unless otherwise provided herein, no amendment or modification of any provision hereof shall be effective without the written agreement of the Requisite Lenders and the Borrowers, and no termination or waiver of any provision hereof, or consent to any departure by the Borrowers therefrom, shall be effective without the written concurrence of the Requisite Lenders, which the Requisite Lenders shall have the right to grant or withhold in their sole discretion. (b) Amendment, Consents and Waivers by all Lenders. Notwithstanding the foregoing but subject to Section 11.02(c), any amendment, modification, termination, waiver or consent with -152- 154 respect to any of the following provisions hereof shall be effective only by a written agreement, signed by the Borrowers and each Lender: (i) waiver of any of the conditions with respect to the making or the extension of the maturities of Revolving Loans specified in Section 5.01 or 5.02 (except with respect to a condition based upon another provision hereof, the waiver of which requires only the concurrence of the Requisite Lenders), (ii) increase in the amount of any of the Revolving Credit Commitments of any Lender, (iii) reduction of the principal of, rate or amount of interest on the Revolving Loans or Reimbursement Obligations or any fees or other amounts payable to any Lender (excluding amounts so payable pursuant to Sections 3.01(b) and any waiver of default interest pursuant to Section 4.01(d)), (iv) extension of the Revolving Credit Termination Date, any postponement or waiver of any scheduled reduction of the Revolving Credit Commitments pursuant to Section 3.01(c) or the postponement of any date on which any scheduled payment of principal of, or interest on, the Revolving Loans or Reimbursement Obligations or any fees or other amounts payable to any Lender (excluding amounts so payable pursuant to Sections 3.01(b)) would otherwise be due, (v) release of any Guarantor (except in connection with the sale of all or substantially all of the Capital Stock or Property of any Subsidiary Guarantor or a merger of a Subsidiary Guarantor into another Subsidiary Guarantor or into the Company, in each case approved by the Requisite Lenders) or all or any portion of the Collateral (except as provided in Section 12.09(c)), (vi) change in the aggregate Pro Rata Share of the Lenders which shall be required for the Lenders or any of them to take action hereunder, (vii) change in the definition of Requisite Lenders, or (viii) amendment of Sections 12.09(c) or 13.06 or this Section 13.07. The Administrative Agent may, but shall have no obligation to, with the written concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it -153- 155 was given. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances. Notwithstanding anything to the contrary contained in this Section 13.07, no amendment, modification, waiver or consent shall affect the rights or duties of any of the Agents hereunder or under the other Loan Documents, including this Article XIII, unless made in writing and signed by the Agent so affected in addition to the Lenders required above to take such action. Notwithstanding anything herein to the contrary, in the event that any Borrower shall have requested, in writing, that any Lender agree to an amendment, modification, waiver or consent with respect to any particular provision or provisions hereof, and such Lender shall have failed to state, in writing, that it either agrees or disagrees (in full or in part) with all such requests (it being understood that any such statement of agreement may be subject to satisfactory documentation and other conditions specified in such statement) within thirty (30) days of such request, then such Lender hereby irrevocably authorizes the Administrative Agent to agree or disagree, in full or in part, and in the Administrative Agent's sole discretion, to such requests on behalf of such Lender as such Lender's attorney-in-fact and to execute and deliver any writing approved by the Administrative Agent which evidences such agreement as such Lender's duly authorized agent for such purposes. 13.08. Notices. Unless otherwise specifically provided herein, any notice, consent or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, or sent by courier service and shall be deemed to have been given when delivered in person or by courier service, or upon receipt of a telecopy. Notices to the Administrative Agent pursuant to Articles II or III shall not be effective until received by the Administrative Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 13.08) shall be as set forth below each party's name on the signature pages hereof or the signature page of any applicable Assignment and Acceptance, or, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties hereto. 13.09. Survival of Warranties and Agreements. All representations and warranties made herein and all obligations of the Borrowers in respect of taxes, indemnification and expense reimbursement shall survive the execution and delivery hereof and of the other Loan Documents, the making and repayment of the Loans, the issuance and discharge of Letters of Credit hereunder and the termination hereof and shall not be limited in any way by the passage of time or occurrence of any event and shall expressly cover time periods when the Administrative Agent, either Co-Agent, any of the Issuing Banks or any of the Lenders -154- 156 may have come into possession or control of any of the Borrowers' or their Subsidiaries' Property; provided, however, all representations and warranties made herein or in any other Loan Document by the Borrowers or any of their Subsidiaries shall terminate when all Obligations (other than indemnities not then due) have been paid in full and this Agreement has been terminated. 13.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent, either Co-Agent any Lender or any Issuing Bank in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 13.11. Marshalling; Payments Set Aside. None of the Administrative Agent, either Co-Agent, any Lender or any Issuing Bank shall be under any obligation to marshall any Property in favor of the Borrowers or any other party or against or in payment of any or all of the Obligations. To the extent that any Borrower makes a payment or payments to the Administrative Agent, the Co-Agents, the Lenders or the Issuing Banks or any of such Persons receives payment from the proceeds of the Collateral or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 13.12. Severability. In case any provision in or obligation hereunder or under the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 13.13. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof or be given any substantive effect. -155- 157 13.14. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK. 13.15. Limitation of Liability. No claim may be made by any Borrower, any of the their Subsidiaries, any Lender, any Issuing Bank, any Co-Agent, the Administrative Agent or any other Person against such Borrower, any of the their Subsidiaries, the Administrative Agent, any Co-Agent, any other Issuing Bank or any other Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated hereby, or any act, omission or event occurring in connection therewith; and the Borrowers, each of the Borrowers' Subsidiaries, each Lender, each Issuing Bank, each Co-Agent and the Administrative Agent hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 13.16. Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and permitted assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lenders and the Issuing Banks. The rights hereunder and the interest herein of the Borrowers may not be assigned without the written consent of all Lenders, except as otherwise permitted hereunder. Any attempted assignment without such written consent shall be void. 13.17. Certain Consents and Waivers. (a) Personal Jurisdiction. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (i) EACH OF THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE LENDERS, THE ISSUING BANKS AND THE BORROWERS IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD -156- 158 AND DETERMINED IN SUCH STATE COURT OR IN SUCH FEDERAL COURT. EACH BORROWER IRREVOCABLY DESIGNATES AND APPOINTS PRENTICE HALL CORPORATION AT 15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023, AS ITS RESPECTIVE PROCESS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE LENDERS, THE ISSUING BANKS AND THE BORROWERS AGREES THAT A FINAL NONAPPEALABLE JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH OF THE ADMINISTRATIVE AGENT, THE CO- AGENTS, THE LENDERS, THE ISSUING BANKS AND THE BORROWERS WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE IN ANY SUCH ACTION OR PROCEEDING IN SUCH STATE COURT OR IN SUCH FEDERAL COURT. (ii) EACH BORROWER AGREES THAT THE ADMINISTRATIVE AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST THE SUBSIDIARY GUARANTORS, THE BORROWERS OR THEIR RESPECTIVE PROPERTY IN A COURT HAVING JURISDICTION IN ANY LOCATION TO ENABLE THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE ISSUING BANKS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE ADMINISTRATIVE AGENT, ANY CO-AGENT, ANY ISSUING BANK OR ANY LENDER. EACH BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE ADMINISTRATIVE AGENT, ANY CO-AGENT ANY ISSUING BANK OR ANY LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) SERVICE OF PROCESS. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW: EACH BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR SUCH BORROWER'S NOTICE ADDRESS SPECIFIED PURSUANT TO SECTION 13.08, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. EACH OF THE ADMINISTRATIVE AGENT, CO-AGENTS, LENDERS, ISSUING BANKS AND THE BORROWERS IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER -157- 159 LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT TO BRING PROCEEDINGS AGAINST THE BORROWERS IN THE COURTS OF ANY OTHER JURISDICTION. (c) WAIVER OF JURY TRIAL. EACH OF THE ADMINISTRATIVE AGENT, CO-AGENTS, THE ISSUING BANKS, THE LENDERS AND THE BORROWERS IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 13.18. Counterparts; Effectiveness; Inconsistencies. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions hereof are actually inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. On the Effective Date, the Existing Credit Agreement shall be amended and restated in its entirety by this Agreement and the Existing Credit Agreement shall thereafter be of no further force and effect; provided that if the Effective Date shall not have occurred on or prior to August 31, 1997, this Agreement will terminate and will be of no further force and effect. The terms and conditions of this Agreement and the Administrative Agent's and the Lenders' rights and remedies under this Agreement, shall apply to all of the Obligations incurred under the Existing Credit Agreement. It is expressly understood and agreed by the parties hereto that this Agreement is in no way intended to constitute a novation of the obligations and liabilities existing under the Existing Credit Agreement or evidence payment of all or any of such obligations and liabilities. The Company reaffirms the Liens granted to the Administrative Agent for the benefit of the Lenders pursuant to each of the Loan Documents executed by the Company, which Liens shall continue in full force and effect during the term of this Agreement and any renewals thereof and shall continue to secure the Obligations identified in such Loan Documents. All references to the Existing Credit Agreement in the Loan Documents shall be deemed to refer to this Agreement. This Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. -158- 160 13.19. Limitation on Agreements. All agreements between the Borrowers, the Administrative Agent, each Co-Agent, each Lender and each Issuing Bank in the Loan Documents are hereby expressly limited so that in no event shall any of the Loans or other amounts payable by the Borrowers under any of the Loan Documents be directly or indirectly secured (within the meaning of Regulation U) by Margin Stock. 13.20. Confidentiality. Subject to Section 13.01(e), the Administrative Agent, the Co-Agents, the Lenders and the Issuing Banks shall hold all nonpublic information obtained pursuant to the requirements hereof in accordance with such Person's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree or assignee (or participant) in connection with the contemplated transfer (or participation), or as required or requested by any Governmental Authority or representative thereof, or pursuant to legal process, or to its accountants, lawyers and other advisors, and shall require any such offeree or assignee (or participant) to agree (and require any of its offerees, assignees or participants to agree) to comply with this Section 13.20. In no event shall the Administrative Agent, any Co-Agent, any Lender or any Issuing Bank be obligated or required to return any materials furnished by the Borrowers; provided, however, each offeree shall be required to agree that if it does not become a assignee (or participant) it shall return all materials furnished to it by the Borrowers in connection herewith. 13.21. Entire Agreement. This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes the commitment letter dated June 24, 1997 from Citicorp and Citicorp Securities and accepted and agreed to by the Company on June 25, 1997 and all prior agreements and understandings, written and oral (other than the Letter Agreement which constitutes a Loan Document), relating to the subject matter hereof. -159- 161 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. INSILCO CORPORATION By: /s/ David A. Kauer __________________________________ Name: David A. Kauer Title: Vice President and Treasurer Notice Address: Insilco Corporation 425 Metro Place North Dublin, Ohio 43017 Attention: David A. Kauer Vice President and Treasurer Telecopier No. (614) 791-3195 Confirmation No. (614) 791-4461 with a copy to: Insilco Corporation 425 Metro Place North Dublin, Ohio 43017 Attention: Kenneth H. Koch General Counsel Telecopier No. (614) 791-3195 Confirmation No. (614) 791-3137 Porter, Wright Morris & Arthur 41 South High Street Columbus, Ohio 43215 Attention: Timothy E. Grady, Esq. Telecopier No. (614) 227-2100 Confirmation No. (614) 227-2105 S-1 162 CITICORP USA, INC., as Administrative Agent and Lender By: /s/ Carla Devillers __________________________ Name: Carla Devillers Title: Attorney-in-Fact CITIBANK, N.A., as Issuing Bank By: /s/ Carla Devillers ___________________________ Name: Carla Devillers Title: Attorney-in-Fact Revolving Credit Commitment: $66,666,666.67 Notice Address: Citicorp USA, Inc. 399 Park Avenue 10th Floor New York, New York 10043 Attention: Marva Swaby Telecopier No.: (212) 793-1384 Confirmation No.: (212) 559-0684 with a copy to: Citicorp Securities, Inc. 399 Park Avenue 6th Floor, Zone 4 New York, New York 10043 Attention: Charles S. Foster Telecopier No.: (212) 758-6278 Confirmation No.: (212) 559-5320 Citibank International plc 336 Strand London WC2R 1HB England Attention: Loans Agency Telecopier No.: 011-44171-500-4482 Confirmation No.: 011-44171-500-4247 Sidley & Austin 875 Third Avenue New York, New York 10022 Attention: Daniel S. Dokos, Esq. Telecopier No.: (212) 906-2021 Confirmation No.: (212) 906-2312 S-2 163 GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Agent and Lender By: /s/ Stephen B. King --------------------------------- Name: Stephen B. King Title: Authorized Signatory Revolving Credit Commitment: $66,666,666.67 Notice Address: Goldman Sachs Credit Partners L.P. 85 Broad Street New York, New York 10004 Attention: Stephen B. King Telecopier No.: (212) 902-2417 Confirmation No.: (212) 902-8123 S-3 164 THE FIRST NATIONAL BANK OF CHICAGO, as Co-Agent and Lender By: /s/ Catherine V. Frank ____________________________ Name: Catherine V. Frank Title: Authorized Agent Revolving Credit Commitment: $66,666,666.66 Notice Address: The First National Bank of Chicago Suite 0088 One First National Plaza Chicago, Illinois 60670 Attention: Jerry J. Kane Telecopier No.: (312) 732-1117 Confirmation No.: (312) 732-1614 S-4 165 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms....................................... 1 1.02. Computation of Time Periods................................. 38 1.03. Accounting Terms............................................ 39 1.04. Other Definitional Provisions............................... 39 1.05. Other Terms................................................. 39 ARTICLE II AMOUNTS AND TERMS OF LOANS 2.01. The Term Loans.............................................. 39 2.02. Revolving Credit Facility................................... 41 2.03. Swing Loans................................................. 44 2.04. Letters of Credit........................................... 46 2.05. Promise to Repay; Evidence of Indebtedness.................. 53 2.06. Authorized Officers and Agents.............................. 54 2.07. Designation of Foreign Borrowers............................ 54 ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. Prepayments; Reductions in Revolving Credit Commitments...................................... 55 3.02. Payments ................................................. 58 3.03. Taxes ................................................. 63 3.04. Increased Capital........................................... 66 3.05. Cash Management............................................. 67 3.06. Right to Remove Affected Lender............................. 68 ARTICLE IV INTEREST AND FEES 4.01. Interest on the Loans and Other Obligations................. 69 4.02. Special Provisions Governing Eurocurrency Rate Loans............................................ 73 4.03. Fees ................................................. 76 ARTICLE V CONDITIONS TO LOANS AND LETTERS OF CREDIT 5.01. Conditions Precedent to the Initial Loans and Letters of Credit........................................... 78 5.02. Conditions Precedent to All Subsequent Revolving Loans, Swing Loans and Letters of Credit.................... 80 (i) 166 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.01. Representations and Warranties of the Borrower.............. 82 ARTICLE VII REPORTING COVENANTS 7.01. Financial Statements........................................ 93 7.02. Notice of Events of Default................................. 95 7.03. Lawsuits ................................................. 95 7.04. Insurance ................................................. 96 7.06. Environmental Notices....................................... 98 7.07. Labor Matters............................................... 99 7.08. Public Filings and Reports.................................. 99 7.09. Bank Accounts............................................... 99 7.10. Other Information...........................................100 ARTICLE VIII AFFIRMATIVE COVENANTS 8.01. Corporate Existence, Etc....................................100 8.02. Corporate Powers; Conduct of Business, Etc..................100 8.03. Compliance with Laws, Etc...................................101 8.04. Payment of Taxes and Claims; Tax Consolidation..............101 8.05. Insurance .................................................101 8.06. Inspection of Property; Books and Records; Discussions.................................................102 8.07. Insurance and Condemnation Proceeds.........................102 8.08. ERISA Compliance............................................104 8.09. Foreign Employee Benefit Plan Compliance....................104 8.10. Maintenance of Property.....................................104 8.11. Condemnation................................................104 8.12. Future Liens on Real Property...............................105 8.13. Future Liens on Personal Property...........................105 8.14. Landlord Waivers............................................106 8.15. Environmental Compliance....................................106 8.16. Post-Closing Matters........................................107 8.17. Permitted Acquisitions......................................107 ARTICLE IX NEGATIVE COVENANTS 9.01. Indebtedness................................................108 9.02. Sales of Assets.............................................110 9.03. Liens .................................................112 9.04. Investments.................................................113 9.05. Accommodation Obligations...................................114 9.06. Restricted Junior Payments..................................115 9.07. Conduct of Business.........................................115 9.08. Transactions with Affiliates................................116 9.09. Restriction on Fundamental Changes..........................116 (ii) 167 9.10. Sales and Leasebacks........................................117 9.11. Margin Regulations; Securities Laws.........................117 9.12. ERISA .................................................117 9.13. Issuance or Sale of Capital Stock...........................118 9.14. Constituent Documents.......................................118 9.15. Fiscal Year.................................................118 9.16. Cancellation of Debt; Prepayment; Certain Amendments..................................................118 9.17. Environmental Matters.......................................119 9.18. Foreign Subsidiary..........................................119 9.19. No New Restrictions on Subsidiary Dividends.................119 9.20. Accounting Changes..........................................119 ARTICLE X FINANCIAL COVENANTS 10.01. Minimum Consolidated Net Worth.............................120 10.02. Minimum Fixed Charge Coverage Ratio........................122 10.03. Minimum Interest Coverage Ratio............................120 10.04. Maximum Leverage Ratio.....................................120 10.05. Maximum Capital Expenditures...............................122 ARTICLE XI EVENTS OF DEFAULT; RIGHTS AND REMEDIES 11.01. Events of Default..........................................123 11.02. Rights and Remedies........................................126 ARTICLE XII THE AGENT 12.01. Appointment................................................128 12.02. Nature of Duties...........................................128 12.03. Rights, Exculpation, Etc...................................129 12.04. Reliance .................................................130 12.05. Indemnification............................................130 12.06. Citicorp, First Chicago and GSCP Individually..............130 12.07. Successor Administrative Agent; Resignation of Administrative Agent and Co-Agents.........................131 12.08. Relations Among Lenders....................................132 12.09. Concerning the Collateral and the Loan Documents..................................................132 ARTICLE XIII MISCELLANEOUS 13.01. Assignments................................................136 13.02. Expenses .................................................140 13.03. Indemnities................................................142 13.04. Change in Accounting Principles............................144 13.05. Setoff .................................................144 13.06. Ratable Sharing............................................145 (iii) 168 13.07. Amendments and Waivers.....................................145 13.08. Notices .................................................147 13.09. Survival of Warranties and Agreements......................147 13.10. Failure or Indulgence Not Waiver; Remedies Cumulative.................................................148 13.11. Marshalling; Payments Set Aside............................148 13.12. Severability...............................................148 13.13. Headings .................................................149 13.14. Governing Law..............................................149 13.15. Limitation of Liability....................................149 13.16. Successors and Assigns.....................................149 13.17. Certain Consents and Waivers...............................149 13.18. Counterparts; Effectiveness; Inconsistencies...............151 13.19. Limitation on Agreements...................................151 13.20. Confidentiality............................................151 13.21. Entire Agreement...........................................151 (iv) 169 EXHIBITS Exhibit A -- Form of Assignment and Acceptance Exhibit B -- Form of Collection Account Agreement Exhibit C -- Form of Notice of Borrowing Exhibit D -- Form of Notice of Continuation/Conversion Exhibit E -- List of Closing Documents Exhibit F -- Form of Officer's Certificate to Accompany Reports Exhibit G -- Form of Monthly Report Exhibit H -- Form of Revolving Credit Note Exhibit I -- Form of Swing Loan Note Exhibit J -- Form of Intercompany Note Exhibit K -- Form of Foreign Borrower Assumption Agreement SCHEDULES Schedule 1.01.1 -- Permitted Existing Accommodation Obligations Schedule 1.01.2 -- Permitted Existing Indebtedness Schedule 1.01.3 -- Permitted Existing Investments Schedule 1.01.4 -- Permitted Existing Liens Schedule 6.01-C -- Corporate Structure Schedule 6.01-D -- Conflicts with Contractual Obligations Schedule 6.01-E -- Governmental Consents Schedule 6.01-I -- Litigation Schedule 6.01-K -- Taxes Schedule 6.01-O -- Environmental Matters Schedule 6.01-P -- ERISA Matters Schedule 6.01-R -- Collective Bargaining Agreements Schedule 6.01-U -- Intellectual Property Infringement Claims Schedule 6.01-V -- Real Property Schedule 6.01-W -- Insurance Policies and Programs Schedule 6.01-Y -- Transactions with Affiliates Schedule 6.01-Z -- Collection Account Banks; Bank Accounts Schedule 9.02 -- Properties to be Sold Schedule 9.13 -- Management Incentive Plans Schedule 9.16 -- Intercompany Indebtedness Schedule 9.18 -- Permitted Accommodation Obligations and Liens of Foreign Subsidiaries (v) EX-99.C.1 13 STOCK PURCHASE AGREEMENT 1 EXHIBIT (c)(1) STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 10, 1997, by and between Insilco Corporation, a Delaware corporation (the "Company"), and Water Street Corporate Recovery Fund I, L.P., a Delaware limited partnership ("Water Street"). WHEREAS, the Company desires to purchase up to 5,714,284 shares of Common Stock, par value $.001, of the Company (the "Shares"), constituting 59.7% of the outstanding Shares; WHEREAS, Water Street owns 5,802,494 Shares, constituting 60.6 % of the outstanding Shares; WHEREAS, the Company intends, within one business day from the date hereof, to commence a tender offer to purchase up to 2,857,142 Shares at a purchase price of $38.50 per Share in cash in all material respects on the terms of the draft Tender Offer Statement on Schedule 13E-4 delivered to Water Street on the date hereof (the "Offer"); WHEREAS, the Company desires to purchase from Water Street and Water Street desires to sell to the Company 2,805,194 Shares (the "Initial Shares") at a purchase price of $38.50 per Share in cash pursuant to this Agreement; WHEREAS, on March 5, 1997, the Company sold its Rolodex office products business (the "Rolodex Sale") for gross proceeds of $117 million; WHEREAS, the Board of Directors of the Company adopted a plan of partial liquidation with respect to a distribution of the proceeds of the Rolodex Sale and filed a Form 966 with the Internal Revenue Service with respect thereto; and WHEREAS, immediately upon receipt of the proceeds of the Rolodex Sale, the Company deposited $110 million of such proceeds (the "Rolodex Proceeds") into a separate bank account, Link DDA Account, account no. 4072-3545, Citibank, New York (the "Link Account"), from which account the Rolodex Proceeds were then deposited into CUSA FAO Insilco Corp. Cash Collateral Custody Account, account no. 846-881, Citibank, Tampa (the "Rolodex Proceeds Account"). WHEREAS, on the date hereof the Company has entered into an agreement with Robert L. Smialek (the "Smialek Stock Purchase Agreement") pursuant to which the Company is purchasing 51,948 Shares on substantially the same terms and conditions as this Agreement. 2 NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF THE SHARES Section 1.1. The Purchase. On the terms and subject to the conditions of this Agreement, Water Street hereby sells, transfers and conveys the Initial Shares to the Company, and the Company hereby purchases the Initial Shares from Water Street, at a purchase price of $38.50 per Share for an aggregate purchase price of $107,999,969 (the "Purchase Price"). Water Street, concurrently with the execution hereof, is delivering to the Company certificates representing the Initial Shares together with stock powers duly executed in blank (the "Stock Powers"). Section 1.2. Payment. On the terms and subject to the conditions of this Agreement, in consideration for the sale of the Initial Shares, concurrently with the execution hereof the Company is paying the Purchase Price to Water Street solely out of the Rolodex Proceeds by delivery to Water Street of a cashiers check drawn on the Link Account payable to the order of Water Street in the amount of $107,999,969. ARTICLE 2 REPRESENTATIONS Section 2.1. Representations of the Company. The Company hereby represents and warrants to Water Street that: (a) The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (b) The execution and delivery by the Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of the Company. (c) This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (d) At all times prior to the payment of the Purchase Price referred to in Section 1.2, both the Rolodex Proceeds Account and the Link Account contained only the Rolodex Proceeds and interest earned thereon that had not yet been withdrawn by the Company. No distributions have been made out of the Rolodex Proceeds Account other than to the Link Account, and no distributions have been made out of the Link Account other than (i) pursuant to this Agreement or the Smialek Stock Purchase 3 Agreement, or (ii) to withdraw from time to time the interest earned on the Rolodex Proceeds. The Purchase Price is being paid solely out of the Rolodex Proceeds. (e) The Company intends to commence the Offer on the business day immediately following the date hereof. Section 2.2. Representations of Water Street. Water Street hereby represents and warrants to the Company that: (a) Water Street has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (b) The execution and delivery by Water Street of this Agreement, and the consummation by Water Street of the transactions contemplated hereby, have been duly authorized by all necessary partnership action on the part of Water Street. (c) This Agreement has been duly executed and delivered by Water Street and constitutes a valid and binding obligation of Water Street enforceable against Water Street in accordance with its terms. (d) Water Street owns the Initial Shares, and is conveying the Initial Shares to the Company, free and clear of any lien, pledge, security interest or other encumbrance whatsoever (collectively, "Liens"). (e) Water Street does not currently intend to sell, transfer, assign, pledge, distribute or otherwise dispose of any of the Shares beneficially owned by it on the date hereof, other than pursuant to this Agreement or the Offer. ARTICLE 3 COVENANTS Section 3.1. Maintenance of Rolodex Proceeds. No later than the next business day following the receipt thereof, Water Street shall deposit the Purchase Price in a new account at Citibank, New York, account no. 40734201 (the "Water Street Account"), and shall maintain such funds, together with all interest actually earned thereon, in the Water Street Account (and no other money shall be deposited in such account) until the earlier of (x) the first date on which the Company pays for Shares tendered in the Offer (the "Payment Date") or (y) the date on which Water Street returns the Purchase Price to the Company pursuant to Section 3.5(a). Section 3.2. Offer; Agreement Not to Tender. (a) The Offer shall be for not more than 2,857,142 Shares at a purchase price of $38.50 per Share and shall be in all material respects on the terms of the draft Tender Offer Statement on Schedule 13E-4 delivered to Water Street on the date hereof. 4 (b) Water Street shall tender no more than 960,577 Shares in the Offer. (c) The Company shall not (i) accept for purchase or purchase more than 2,857,142 Shares in the Offer (including in connection with odd lot purchases), nor (ii) pay more than $38.50 per Share, nor (iii) extend the Offer past 45 days from the date of its commencement, unless the Company and Water Street shall first have entered into a written agreement amending this Agreement with respect thereto. Section 3.3. Interest Payment. If the Company purchases Shares in the Offer, Water Street shall, on the Payment Date, pay to the Company, by wire transfer of immediately available funds, all interest actually earned on the Purchase Price from and including the date of its deposit in the Water Street Account up to the Payment Date. Section 3.4. Rescission. If the Offer expires or terminates without any Shares having been purchased therein, the purchase and sale of the Initial Shares pursuant to this Agreement shall automatically, and without any further action by any party, be rescinded (the "Rescission"). The Company shall promptly notify Water Street in writing of the Rescission. Section 3.5. Effect of Rescission. If there is a Rescission, then on the business day immediately following receipt by Water Street of written notice of the Rescission: (a) Water Street shall return to the Company the Purchase Price, together with all interest actually earned thereon from and including the date of its deposit in the Water Street Account up to the date of such return, by wire transfer of immediately available funds from the Water Street Account to the Link Account; and (b) the Company shall return to Water Street the certificates representing the Initial Shares, together with the Stock Powers, free and clear of all Liens, other than Liens created by Water Street. Section 3.6. Confirmation of Intent. Water Street will confirm to the Company in writing immediately prior to the Company's acceptance for payment of Shares in the Offer that it does not at that time have a current intention to sell, transfer, assign, pledge, distribute or otherwise dispose of any of the Shares beneficially owned by it on the date hereof (except for the Initial Shares), other than pursuant to the Offer. 5 ARTICLE 4 MISCELLANEOUS Section 4.1. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed wholly within such jurisdiction. Section 4.2. Severability. If any provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any party. Upon such determination that any provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are fulfilled to the greatest extent possible. Section 4.3. Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same agreement. Delivery of a photocopy or transmission by telecopy of a signed signature page of this Agreement shall constitute delivery of such signed signature page. Section 4.4. Notice. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been validly given, made or served on the date of delivery, if delivered personally or by telecopier, or on the day after having been sent by overnight courier, or seven days after having been sent by registered or certified mail, return receipt requested, postage prepaid, to the other party to this Agreement at the following address or to such other address as such party shall specify by notice to the other party: (a) If to the Company, addressed to: Insilco Corporation 425 Metro Place N. Fifth Floor Dublin, Ohio 43017 Attention: Vice President and General Counsel Telephone: (614) 791-3110 Telecopier: (614) 791-3195 6 with a copy to Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Aviva Diamant Telephone: (212) 859-8185 Telecopier: (212) 859-4000 (b) If to Water Street, addressed to: Water Street Corporate Recovery Fund I, L.P. c/o Goldman Sachs & Co. 85 Broad Street New York, New York 10004 Attention: David J. Greenwald Telephone: (212) 902-1000 Telecopier: (212) 902-3000 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Mitchell S. Presser Telephone: (212) 403-1000 Telecopier: (212) 403-2000 Section 4.5. Exclusive Agreement. This Agreement constitutes the sole understanding of the parties with respect to the subject matter hereof and any verbal or written communication between the parties prior to the adoption of this Agreement shall be deemed merged herein and of no further force or effect. 7 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf as of the day and year first written above. INSILCO CORPORATION By: /s/ Kenneth H. Koch ____________________________________ Name: Kenneth H. Koch Title: Vice President WATER STREET RECOVERY FUND I, L.P. By: GOLDMAN, SACHS & CO., its General Partner By: /s/ Terence M. O'Toole ____________________________________ Name: Terence M. O'Toole Title: Managing Director EX-99.C.2 14 STOCK PURCHASE AGREEMENT 1 EXHIBIT (c)(2) STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 10, 1997, by and between Insilco Corporation, a Delaware corporation (the "Company"), and Robert L. Smialek ("Shareholder"). WHEREAS, the Company desires to purchase up to 5,714,284 shares of Common Stock, par value $.001, of the Company (the "Shares"), constituting 59.7% of the outstanding Shares; WHEREAS, Shareholder owns 127,014 Shares, constituting 1.3% of the outstanding Shares; WHEREAS, the Company intends, within one business day from the date hereof, to commence a tender offer to purchase up to 2,857,142 Shares at a purchase price of $38.50 per Share in cash in all material respects on the terms of the draft Tender Offer Statement on Schedule 13E-4 delivered to Shareholder on the date hereof (the "Offer"); WHEREAS, the Company desires to purchase from Shareholder and Shareholder desires to sell to the Company 51,948 Shares (the "RLS Shares") at a purchase price of $38.50 per Share in cash pursuant to this Agreement; WHEREAS, on March 5, 1997, the Company sold its Rolodex office products business (the "Rolodex Sale") for gross proceeds of $117 million; WHEREAS, the Board of Directors of the Company adopted a plan of partial liquidation with respect to a distribution of the proceeds of the Rolodex Sale and filed a Form 966 with the Internal Revenue Service with respect thereto; and WHEREAS, immediately upon receipt of the proceeds of the Rolodex Sale, the Company deposited $110 million of such proceeds (the "Rolodex Proceeds") into a separate bank account, Link DDA Account, account no. 4072-3545, Citibank, New York (the "Link Account"), from which account the Rolodex Proceeds were then deposited into CUSA FAO Insilco Corp. Cash Collateral Custody Account, account no. 846-881, Citibank, Tampa (the "Rolodex Proceeds Account"). WHEREAS, on the date hereof the Company has entered into an agreement with Water Street Corporate Recovery Fund I, L.P. (the "Water Street Stock Purchase Agreement") pursuant to which the Company is purchasing 2,805,194 Shares on substantially the same terms and conditions as this Agreement. 2 NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF THE SHARES Section 1.1. The Purchase. On the terms and subject to the conditions of this Agreement, Shareholder hereby sells, transfers and conveys the RLS Shares to the Company, and the Company hereby purchases the RLS Shares from Shareholder, at a purchase price of $38.50 per Share for an aggregate purchase price of $1,999,998 (the "Purchase Price"). Shareholder, concurrently with the execution hereof, is delivering to the Company certificates representing the RLS Shares together with stock powers duly executed in blank (the "Stock Powers"). Section 1.2. Payment. On the terms and subject to the conditions of this Agreement, in consideration for the sale of the RLS Shares, concurrently with the execution hereof the Company is paying the Purchase Price to Shareholder solely out of the Rolodex Proceeds by delivery to Shareholder of a cashiers check drawn on the Link Account payable to the order of Shareholder in the amount of $1,999,998. ARTICLE 2 REPRESENTATIONS Section 2.1. Representations of the Company. The Company hereby represents and warrants to Shareholder that: (a) The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (b) The execution and delivery by the Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of the Company. (c) This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (d) At all times prior to the payment of the Purchase Price referred to in Section 1.2, both the Rolodex Proceeds Account and the Link Account contained only the Rolodex Proceeds and interest earned thereon that had not yet been withdrawn by the Company. No distributions have been made out of the Rolodex Proceeds Account other than to the Link Account, and no distributions have been made out of the Link Account other than (i) pursuant to this Agreement or the Water Street Stock Purchase 3 Agreement, or (ii) to withdraw from time to time the interest earned on the Rolodex Proceeds. The Purchase Price is being paid solely out of the Rolodex Proceeds. (e) The Company intends to commence the Offer on the business day immediately following the date hereof. Section 2.2. Representations of Shareholder. Shareholder hereby represents and warrants to the Company that Shareholder owns the RLS Shares, and is conveying the RLS Shares to the Company, free and clear of any lien, pledge, security interest or other encumbrance whatsoever (collectively, "Liens"). ARTICLE 3 COVENANTS Section 3.1. Maintenance of Rolodex Proceeds. No later than the next business day following the receipt thereof, Shareholder shall deposit the Purchase Price in a segregated Cash Management Account at Merrill Lynch, account no. 656 82C41 (the "Shareholder Account"), and shall maintain such funds, together with all interest actually earned thereon, in the Shareholder Account (and no other money shall be deposited in such account) until the earlier of (x) the first date on which the Company pays for Shares tendered in the Offer (the "Payment Date") or (y) the date on which Shareholder returns the Purchase Price to the Company pursuant to Section 3.5(a). Section 3.2. Offer; Agreement Not to Tender. (a) The Offer shall be for not more than 2,857,142 Shares at a purchase price of $38.50 per Share and shall be in all material respects on the terms of the draft Tender Offer Statement on Schedule 13E-4 delivered to Shareholder on the date hereof. (b) Shareholder shall not tender any Shares in the Offer. (c) The Company shall not (i) accept for purchase or purchase more than 2,857,142 Shares in the Offer (including in connection with odd lot purchases), nor (ii) pay more than $38.50 per Share, nor (iii) extend the Offer past 45 days from the date of its commencement, unless the Company and Shareholder shall first have entered into a written agreement amending this Agreement with respect thereto. Section 3.3. Interest Payment. If the Company purchases Shares in the Offer, Shareholder shall, on the Payment Date, pay to the Company, by wire transfer of immediately available funds, all interest actually earned on the Purchase Price from and including the date of its deposit in the Shareholder Account up to the Payment Date. Section 3.4. Rescission. If the Offer expires or terminates without any Shares having been purchased therein, the purchase and sale of the RLS Shares pursuant to this Agreement shall automatically, and without any further action by any party, be rescinded (the "Rescission"). The Company shall promptly notify Shareholder in writing of the Rescission. 4 Section 3.5. Effect of Rescission. If there is a Rescission, then on the business day immediately following receipt by Shareholder of written notice of the Rescission: (a) Shareholder shall return to the Company the Purchase Price, together with all interest actually earned thereon from and including the date of its deposit in the Shareholder Account up to the date of such return, by wire transfer of immediately available funds from the Shareholder Account to the Link Account; and (b) the Company shall return to Shareholder the certificates representing the RLS Shares, together with the Stock Powers, free and clear of all Liens, other than Liens created by Shareholder. Section 3.6. Agreement Not To Sell. Shareholder agrees that until the earlier of the acceptance by the Company of Shares tendered in the Offer for payment and the expiration or termination of the Offer without any Shares having been purchased therein, he shall not sell, transfer, assign, pledge, distribute or otherwise dispose of the Shares beneficially owned by him on the date hereof, other than pursuant to this Agreement. ARTICLE 4 MISCELLANEOUS Section 4.1. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed wholly within such jurisdiction. Section 4.2. Severability. If any provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any party. Upon such determination that any provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are fulfilled to the greatest extent possible. Section 4.3. Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same agreement. Delivery of a photocopy or transmission by telecopy of a signed signature page of this Agreement shall constitute delivery of such signed signature page. 5 Section 4.4. Notice. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been validly given, made or served on the date of delivery, if delivered personally or by telecopier, or on the day after having been sent by overnight courier, or seven days after having been sent by registered or certified mail, return receipt requested, postage prepaid, to the other party to this Agreement at the following address or to such other address as such party shall specify by notice to the other party: (a) If to the Company, addressed to: Insilco Corporation 425 Metro Place N. Fifth Floor Dublin, Ohio 43017 Attention: Vice President and General Counsel Telephone: (614) 791-3110 Telecopier: (614) 791-3195 with a copy to Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Aviva Diamant Telephone: (212) 859-8185 Telecopier: (212) 859-4000 (b) If to Shareholder, addressed to: Robert L. Smialek 6124 Grey Friar Way Dublin, Ohio 43017 Telephone: (614) 791-1271 Section 4.5. Exclusive Agreement. This Agreement constitutes the sole understanding of the parties with respect to the subject matter hereof and any verbal or written communication between the parties prior to the adoption of this Agreement shall be deemed merged herein and of no further force or effect. 6 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf as of the day and year first written above. INSILCO CORPORATION By: /s/ Kenneth H. Koch ----------------------------------- Name: Kenneth H. Koch Title: Vice President /s/ Robert L. Smialek ----------------------------------- Robert L. Smialek EX-99.G.1 15 COMPANY'S ANNUAL REPORT ON FORM 10-K 1 Exhibit (g)(1) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 Commission File Number: 0-22098 INSILCO CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE NO. 06-0635844 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 425 METRO PLACE NORTH, FIFTH FLOOR DUBLIN, OHIO 43017 (Address of principal executive offices, including zip code) (614) 792-0468 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant was approximately $85,655,878 on March 15, 1997. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] There were 9,407,594 shares of the Registrant's Common Stock outstanding on March 15, 1997. Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference in Part III. 2 TABLE OF CONTENTS -----------------
Page ---- Part I Item 1. Business 3 Item 2. Properties 11 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 8. Financial Statements and Supplementary Data 28 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 28 Part III Item 10. Directors and Executive Officers of the Registrant 28 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 28 Item 13. Certain Relationships and Related Transactions 28 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 29 Signatures 35 Consolidated Financial Statements F-1
3 PART I ITEM 1. BUSINESS ---------------- THE COMPANY Insilco Corporation, a Delaware corporation originally incorporated in New Jersey in 1898 (collectively with its subsidiaries, the "Company," unless the context indicates otherwise), directly and through its subsidiaries, is a diversified manufacturer of automotive components and telecommunications/electronics products and a variety of specialty consumer products. The Company with its three reporting segments (Automotive Components Group, Technologies Group, and Office Products/Specialty Publishing Group) conducted business in 8 separate operating units, including both divisions and subsidiaries. The office products business of the Office Products/Specialty Publishing Group segment was divested in two transactions during the last half of 1996 and in one final transaction in the first quarter of 1997. The Company's principal executive offices are located at 425 Metro Place North, Fifth Floor, Dublin, Ohio 43017, telephone (614) 792-0468. REORGANIZATION HISTORY On January 13, 1991 (the "Petition Date"), the Company and a number of its subsidiaries sought protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas (the "Bankruptcy Court") as the Company found itself unable to service the outstanding debt incurred in its 1988 leveraged buyout (the "LBO"). On April 1, 1993 (the "Reorganization Date"), the Company emerged from Chapter 11 bankruptcy proceedings (the "Chapter 11 cases") pursuant to an Amended and Restated Plan of Reorganization dated November 23, 1992 (the "Plan of Reorganization"). The Plan of Reorganization resulted in a reduction in the Company's liabilities totaling $532.3 million, an extraordinary gain realized in 1993 of $448.3 million attributable to the discharge of such liabilities, and a change in control of the Company. The Plan of Reorganization among other matters provided for: (i) the issuance of 9,230,839 shares of the Company's common stock, par value $.001 per share (the "Common Stock"), in exchange for allowed unsecured claims; (ii) deferred payment of certain pre-petition claims, including various state and Federal taxes and trade debt; and (iii) provisions to issue additional stock to other unsecured creditors over time at the pre-determined rate of 18 shares of stock per $1,000 of allowed claim as those claims are determined. As of March 15, 1997, 120,571 shares of Common Stock were still reserved for issuance to holders of general unsecured claims whose allowed amount was not finally determined by the Reorganization Date. The Plan of Reorganization also addressed and resolved certain issues in connection with potential litigation on fraudulent conveyance and similar state law claims, arising out of the LBO and related transactions. -3- 4 BUSINESS For additional business segment information, see Note 18 to the Consolidated Financial Statements. The percentages of the Company's total net sales by segment in each of its last three fiscal years were as follows:
1996 1995 1994 ---- ---- ---- Automotive Components Group: Tubing and heat transfer 25.7 % 21.9 % 21.6 % Transmissions and other 10.9 10.2 10.2 ----- ----- ------ Subtotal 36.6 32.1 31.8 ----- ----- ----- Technologies Group 32.1 30.4 30.3 ----- ----- ----- Office Products/Specialty Publishing Group: Publishing 17.3 17.6 18.5 Office products 14.0 19.9 19.4 ----- ----- ----- Subtotal 31.3 37.5 37.9 ----- ----- ----- Total 100.0 % 100.0 % 100.0 % ===== ===== =====
AUTOMOTIVE COMPONENTS GROUP The Automotive Components Group is made up of three operating units, Thermal Components Group ("Thermal"), Romac Metals ("Romac") and a wholly owned subsidiary, Steel Parts Corporation ("Steel Parts"). The businesses in this segment primarily manufacture automotive heat exchangers and related tubing, automatic transmission components and stainless steel tubing. TUBING AND HEAT TRANSFER. Thermal is comprised of three divisions, Thermal Components ("TCD"), General ThermoDynamics ("GTD"), McKenica ("McKenica"); three wholly owned subsidiaries, Great Lake, Inc. ("Great Lake"), TCD, Inc., ARUP Alu-Rohr und Profil GmbH ("ARUP"); and a 50% owned joint venture, Thermalex, Inc. ("Thermalex"). Thermal is a vertically integrated manufacturer of heat exchangers for the automotive and off-road equipment markets. Its products include thin wall aluminum and brass tubes used principally in heat transfer applications, radiators, air conditioning condensers, oil coolers and heaters and production machinery and equipment used in the manufacture and assembly of automotive heat exchangers. Thermal uses a direct sales force and independent sales representatives to market its products. Thermal sells to both original equipment manufacturers ("OEMs") and aftermarket customers. In 1996, Thermal sales to the automotive OEM market, aftermarket and non-automotive OEM manufacturers were 29%, 33% and 38% of total sales, respectively, compared to 23%, 37% and 40% of total sales, respectively, in 1995. Thermalex, a joint venture owned equally by the Company (through a holding company subsidiary), and Mitsubishi Aluminum Co., Ltd. ("Mitsubishi"), manufactures multiport aluminum extrusions used in -4- 5 smaller, lighter and more efficient air conditioning condensors which are necessary to meet environmental restrictions on refrigerants. 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, 1996, Thermal (excluding Thermalex) had 881 employees. On February 1, 1996, the Company, through its Great Lake subsidiary, acquired two affiliated businesses, Great Lake Inc. and Kar Tool Co., Inc., that serve the automotive, heavy truck and industrial manufacturing radiator replacement market. These acquisitions did not have a material effect on the Company's liquidity, financial position or operating results. On July 10, 1996, the Company and its TCD, Inc. subsidiary acquired the automotive aluminum tube business of Helmut Lingemann GmbH & Co. The transactions included the purchase of stock of Lingemann's German subsidiary, ARUP Alu-Rohr und-Profil GmbH, and the automotive aluminum tube business assets of its Duncan, South Carolina based subsidiary, Helima-Helvetion International, Inc. The cash transaction, financed principally from borrowings under the Company's Bank Credit Agreement (as defined herein), was valued at approximately $32.6 million including transaction fees and expenses. AUTOMOTIVE. 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 1996 and 1995. The market for original equipment automobile parts is highly competitive and has many participants, principally the automobile manufacturers themselves because of their ability to make their own parts. Approximately 70%, 67% and 66% of Steel Parts' sales were to one of the "Big 3" domestic automotive manufacturers in 1996, 1995 and 1994, respectively. At December 31, 1996, Steel Parts had 371 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. -5- 6 At December 31, 1996, Romac had 134 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, precision wiring, main frame computers, automotive and medical equipment markets. SPECIALIZED CONNECTOR SYSTEMS. The Company's specialized connector systems business is made up of two wholly owned subsidiaries, Stewart Connector Systems, Inc. ("SCS"), and Stewart Connector Systems (Japan), Inc. ("Stewart-Japan"), and two subsidiaries of Stewart Connector, Stewart Connector Systems GmbH ("Stewart-Germany"), and Stewart Connector Systems de Mexico, S.A. de C.V. ("Stewart-Mexico") (collectively, "Stewart Connector"). Stewart Connector designs and manufactures specialized high speed data connector systems, including modular plugs, modular jacks, shielded and nonshielded specialized connectors, and cable assemblies for telecommunications, cellular communications and data transmission, including local and wide area networks. Its primary manufacturing facility is located in Pennsylvania, with an assembly operation in Mexico. Stewart Connector sells its products throughout the world, directly and through sales subsidiaries, and through a network of manufacturers' representatives. Foreign sales accounted for approximately 40% of Stewart Connector's sales in 1996, 43% in 1995 and 35% in 1994. It maintains direct sales offices in England, France, Japan, Germany and has numerous domestic and foreign competitors, some of which are substantially larger than Stewart Connector. Competition is based principally on price with respect to older product lines, and on technology and product features for newer products and to a lesser extent, patent protection. At December 31, 1996, Stewart Connector had 1,002 employees, of which 302 were employed in the U.S., 13 in Japan, 5 in Germany, 4 in the United Kingdom, 1 in France and 677 in Mexico. POWER TRANSFORMERS. The Company's power transformer business consists of Signal Transformer Co., Inc. ("Signal Transformer"), Signal Caribe, Inc. ("Signal Caribe") and Signal Dominicana S.A. ("Signal Dominicana") (collectively, "Signal"). Signal 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. -6- 7 Currently, Signal Dominicana manufactures transformer coils at a leased production facility in the Dominican Republic for final assembly at Signal Caribe's leased Puerto Rico plant. The Puerto Rico plant also manufactures transformers from basic materials and accounts for most of Signal's production. Signal Transformer, located in New York, serves as Signal's major distribution center and accounts for the balance of transformer production. At December 31, 1996, Signal had 516 employees, of which 139 were employed in the U.S., 147 in the Dominican Republic and 230 in Puerto Rico. PRECISION STAMPINGS AND WIREFORM AND WIRE ASSEMBLIES. The Company's wholly owned subsidiary, Stewart Stamping Corporation ("Stewart Stamping") is a tool designer and subcontract manufacturer of high-volume precision metal stamped and wire formed parts. Stewart Stamping serves a wide variety of markets including electrical devices such as circuit breakers, electric fuses, lighting and process controls and the electronic industries in 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. Stewart Stamping recently 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, 1996, Stewart Stamping had 299 employees. CABLE AND WIRE ASSEMBLIES. The Company's Escod Industries division ("Escod") produces electronic cable assemblies, specialized wire harnesses and certain telecommunication equipment subassemblies for sale to manufacturers of telecommunications, computer and other electronics equipment. Escod's markets generally are regional in nature, and Escod's production facilities (three in the Carolinas and one in Florida) are operated principally to serve local plants of OEMs. Because substantially all of Escod's customers are OEMs having a number of production facilities, the demand for Escod's products depends not only on the demand for its customers' products, but also on its customers' varying utilization of their production sites. Telecommunications and computer OEMs account for the bulk of Escod's sales. Two telecommunications OEMs together accounted for approximately 66%, 60% and 65% of Escod's total revenues in 1996, 1995 and 1994, respectively. Escod's dependence on these two major customers makes its revenues and operating income sensitive to changes in demand from those customers. In 1994, Escod experienced a substantial drop in orders from these customers. In response, Escod permanently closed one facility and consolidated the business in its remaining facilities. Beginning in 1995, Escod has focused its efforts on developing a broader customer base and a broader product line. Competition in Escod's markets is based primarily on price and, to a lesser extent, on responsiveness to customers' needs. The profitability of Escod's sales generally depend on the relative raw material content, labor productivity, quality of the products sold, proximity to customers and timeliness of delivery. As a result of the low barriers to entry into Escod's business and increased, low-cost foreign competition in recent years, Escod's business has become intensely competitive. -7- 8 At December 1, 1996, Escod had 710 employees. OFFICE PRODUCTS/SPECIALTY PUBLISHING GROUP The Office Products/Specialty Publishing Group includes two operating units: Taylor Publishing Company ("Taylor"), a wholly owned subsidiary engaged in yearbook and other specialty publishing; and Rolodex office products, consisting of Rolodex de Puerto Rico, Inc. ("Rolodex-PR"), and the Company's Rolodex division (collectively, "Rolodex"), which manufacture and market a variety of office products. During 1996 and the first quarter of 1997, the Office Products business was divested. The 1996 divestitures included Curtis Manufacturing Co., Inc. ("Curtis"), which designed and marketed a variety of computer accessories, and the Rolodex electronic organizer business. The remainder of the Rolodex business consisting of card files, manual personal organizers and paper punches was sold in March 1997. YEARBOOKS AND OTHER PUBLICATIONS. Taylor is engaged primarily in the contract design and printing of scholastic yearbooks from which it derived at least 87% of its revenues in each of the last three years. Its principal yearbook customers are secondary (middle and senior high) schools. Other yearbook customers include elementary schools, colleges and academies. Taylor also publishes a variety of specialty books on a contract basis and a limited number of its own publishing titles and provides reunion planning and other services for alumni of schools, colleges and academies. Competition in the yearbook industry is based upon customer service, quality and price. The market for yearbooks is affected more by demographic trends than by business cycles. Taylor offers several yearbook lines with different graphic and typographic options and capabilities. Taylor has expended significant resources in recent years to develop a system of electronic copy preparation designed to enhance the quality and consistency of photographs, reduce production costs and shorten the time required for yearbook production. Taylor has developed proprietary software programs for use by its customers in developing yearbooks. This software facilitates the yearbook design work performed by schools and improves the overall production process. Taylor markets its yearbook services through commissioned independent sales representatives who maintain contact with yearbook faculty advisors, school principals and other key purchasing personnel. It also trains students and their advisors in layout, design and marketing, conducts seminars and workshops and provides supporting materials, including software, to assist student yearbook staffs in the production process. Yearbook production is highly seasonal. Orders are normally obtained in the fall and finished yearbooks are delivered at or near the end of the school year, typically late spring to early summer and to a lesser degree, in the fall of the following school year. Taylor operates four production facilities in Texas (two owned and two leased) and one leased production facility in Pennsylvania. Its work force reflects the seasonality of its business, typically ranging from 1,000 to 1,800 full-time employees. At December 31, 1996, it had 170 salaried and 1,233 hourly employees. ROLODEX(R) OFFICE PRODUCTS. Rolodex has been a manufacturer of products for the office supply market for more than 50 years. Its traditional office products include card files, other filing devices, paper punches and personal organizers. Rolodex uses its own sales force as well as independent manufacturers' representatives to market its products to office superstores, mass merchandisers and the traditional commercial office supply market. Over the past three years, superstores and other mass merchandisers have accounted for a significant -8- 9 portion of total sales. Sales to superstores and other mass merchandisers were approximately 63%, 71% and 67% of total sales in 1996, 1995 and 1994, respectively. Rolodex has three principal competitors in its personal organizer market and numerous competitors in the paper punch business. Product features, price and brand name recognition are the primary factors affecting competition. The traditional Rolodex office supply products and personal organizers are manufactured or assembled in Puerto Rico in facilities leased by Rolodex de Puerto Rico. Rolodex maintains an office and distribution facility in New Jersey. Rolodex does not rely on any single supplier for either its traditional office products or its personal organizer product lines. At December 31, 1996, Rolodex had 394 employees, 111 in New Jersey and the remainder in Puerto Rico. DIVESTED ROLODEX BUSINESSES. On September 3, 1996, the Company sold Curtis, its computer accessories business. On October 4, 1996 the Company sold the Rolodex electronics product line, consisting of electronic personal organizers and telephones. On March 5, 1997, the Company sold the remaining Rolodex business. DIVESTITURES (OTHER THAN OFFICE PRODUCTS) In 1993, the Company sold the defense and other manufacturing operations of its subsidiary, Valentec International Corporation. In 1994, the Company sold its paint products segment comprised of Sinclair Paint Company. See Item 7 "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Discontinued Operations." PATENTS AND TRADEMARKS The Company holds patents or trademarks in most of its businesses which have expiration dates ranging from 1997 to 2016. The Company expects to maintain its material patents and to renew the trademarks important to its business prior to their expiration and does not believe the expiration of any one of its patents will have a material adverse effect on any of its businesses. RAW MATERIALS AND SUPPLIES The principal raw materials and supplies used by the Company include: (i) steel, aluminum, copper, zinc, brass and nickel (Automotive Components); (ii) copper wire, steel, brass, aluminum, plastics, ceramics and precious metals (Technologies Group); and (iii) paper, film and other photographic and printing supplies, electronic components and plastics (Office Products/Specialty Publishing). The Company purchases these materials and supplies on the open market to meet its current requirements and believes its sources of supply are adequate for its needs. Except for certain aluminum alloys and extrusion dies used by Thermalex, the Company is not substantially dependent on any one supplier. -9- 10 BACKLOG The Company's backlog by industry segment, believed to be firm, at December 31, 1996 and 1995 follows (in thousands):
December 31 ---------------------------- 1996 1995 ---- ---- Automotive Components Group $ 52,372 47,974 Technologies Group 50,955 46,506 Office Products/Specialty Publishing Group 102,939 110,417 ------- ------- Total $ 206,266 204,897 ======= =======
Management believes that approximately $180 million of its 1996 backlog will be filled in 1997, and the remainder in 1998. EMPLOYEES AND LABOR RELATIONS At December 31, 1996, the Company employed approximately 5,764 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. Among the union agreements that will expire in 1997 are those covering certain union employees of Taylor Publishing. The Company considers relations with its employees to be good. The Company has defined benefit and defined contribution pension plans covering substantially all employees. For information respecting defined benefit pension plans, see Note 10 to the Consolidated Financial Statements. The Company is currently participating in the Voluntary Closing Agreement Program (established by the Internal Revenue Service) to cure operational defects in one of the defined contribution plans as a result of an omission of certain eligible employees from participation. The Company has paid a $40,000 tax penalty and expects the curative action will entail a one-time incremental contribution by it to the plan in an amount that has not been finally determined, but that the Company does not presently expect will be material to its consolidated financial position, results of operations or liquidity. ENVIRONMENTAL REGULATIONS AND PROCEEDINGS ENVIRONMENTAL MATTERS. The Company's manufacturing operations involve the generation of a variety of waste materials and are subject to extensive federal, state and local environmental laws and regulations. The waste materials generated include metal scrap from stamping operations, cutting and cooling oils, degreasing agents, chemicals from plating and tinning operations, etching acids and photographic and printing chemicals. The Company uses offsite disposal facilities owned by others to dispose of its wastes and does not store wastes it generates to the extent such storage would require a permit. The Company does not treat, store or dispose of waste for others. The Company is required to obtain permits to operate various of its facilities, and these permits generally are subject to revocation or modification. The Company has taken significant measures to address emissions, discharges and waste generation and disposal; improve management practices and operations in response to legal requirements; and internally audit compliance with applicable environmental regulations and approved practices. These measures include raw -10- 11 material and process substitution, recycling and material management programs, periodic review of hazardous waste storage and disposal practices, and reviewing the compliance and financial status and management practices of its offsite third-party waste management firms. As a result of the Company's reorganization, much uncertainty has been removed concerning the Company's potential liability for environmental contamination at sites owned or operated by the Company (and at third party disposal and waste management facilities used by the Company) prior to the filing of its bankruptcy petition. During the reorganization, the Company settled all claims of the United States relating to the Company's pre-petition conduct at previously owned or third party sites arising under the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). This settlement (i) discharged the Company's liability to the United States at a number of hazardous waste sites; (ii) protects the Company from contribution claims of the remaining potentially responsible parties ("PRPs"); (iii) limits the amount the Company may be required to pay the United States in any one year on pre-petition claims; and (iv) provides that any such payment may be made in cash or, at the Company's option, common stock at the rate of 18 shares for each $1,000 of allowed claim. The Company is also currently engaged in clean up programs at sites located in Newtown, Connecticut and Mount Vernon, New York, which were owned by the Company on the Petition Date. FINANCIAL INFORMATION ABOUT EXPORT SALES In 1996, the Company had export sales of $71.6 million which were 12% of total sales. Export sales in 1996 to Europe, Asia, Canada and Mexico were $29.9 million, $17.1 million, $8.4 million and $6.8 million, respectively. All other export sales in 1996 totaled $9.4 million. In 1995, export sales were $59.7 million or 11% of total sales. In 1994, export sales were less than 10%. The Company's transactions are primarily in U.S. dollars. ITEM 2. PROPERTIES ------------------ PROPERTIES The Company manufactures its products in various locations, primarily in the United States and Puerto Rico. Management believes that the Company's facilities generally are well maintained and adequate for the purposes of which they are used. The Company's principal operating plants and offices at December 31, 1996 included the following properties: -11- 12
APPROXIMATE TERMS OF BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY ---------------- -------- ------------- -------------- --------- Automotive Components Group --------------------------- Thermal Components Group Montgomery, AL Office/Manufacturing 137,325 Owned(1) Montgomery, AL Manufacturing 45,000 Leased Buffalo, NY Office/Manufacturing 78,800 Leased Iron Ridge, WI Office/Manufacturing 44,000 Owned Oak Creek, WI Office/Manufacturing 39,250 Owned Oak Creek, WI Office/Manufacturing 33,600 Leased Montgomery, AL Office 10,890 Leased Detroit, MI Office/Manufacturing 28,000 Leased Romulus, MI Office/Manufacturing 16,000 Leased Duncan, SC Office/Manufacturing 100,000 Owned Dortmund, Germany Office/Manufacturing 45,000 Owned Steel Parts Tipton, IN Office/Manufacturing 169,209 Owned Tipton, IN Office/Manufacturing 60,141 Owned Romac Metals Troutman, NC Office/Manufacturing 110,000 Owned Technologies Group ------------------ Escod Durham, NC Office 3,205 Leased N.Myrtle Beach, SC Office/Manufacturing 46,506 Owned Myrtle Beach, SC Office 2,893 Leased Lake Wales, FL Office/Manufacturing 42,000 Owned Taylorsville, NC Office/Manufacturing 44,350 Owned Loris, SC Office/Manufacturing 36,960 Owned Cannon City, CO Office/Manufacturing 21,000 Owned Signal Transformer Inwood, NY Office/Manufacturing 39,361 Owned St. Just, PR Office/Manufacturing 41,214 Leased San Cristobal, Dominican Republic Office/Manufacturing 14,685 Leased Stewart Connector Glen Rock, PA Office/Manufacturing 84,000 Owned Santa Clara, CA Office 210 Leased Essex, UK Office 485 Leased Freidrichsdorf/Ts., Germany Office 1,500 Leased Yokohama, Japan Office/Warehouse 4,750 Leased Cananea, Mexico Warehouse/ 22,646 Leased Manufacturing Stewart Stamping Yonkers, NY Office/Manufacturing 190,000 Owned El Paso, TX Office/Manufacturing 41,400 Leased
-12- 13
APPROXIMATE TERMS OF BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY ---------------- -------- ------------- -------------- --------- Office Products/Specialty ------------------------- Publishing Group ---------------- Rolodex Secaucus, NJ Office/Warehouse 105,211 Leased Moca, PR Office/Warehouse 101,529 Leased Taylor Dallas, TX Office/Manufacturing 320,000 Owned Dallas, TX Office/Manufacturing 25,000 Owned San Angelo, TX Office/Manufacturing 33,200 Leased El Paso, TX Office/Manufacturing 31,000 Leased Malvern, PA Office/Manufacturing 41,000 Leased Dallas, TX Office 4,170 Leased Orange, CA Office 3,373 Leased Galveston, TX Office 1,200 Leased Corporate Dublin, OH Office 18,300 Leased
(1) Property is "leased" from an industrial development authority in connection with an expired industrial revenue bond and is eligible for purchase by the Company for a nominal consideration at the expiration of the lease term. Substantially all of the Company's material domestic assets, including owned properties, are subject to major encumbrances securing the Company's obligations under the Bank Credit Agreement. The Company believes that all of its production facilities have additional production capacity, except for Stewart Connector, Steel Parts and certain Thermal plants that are operating at or near full capacity. -13- 14 ITEM 3. LEGAL PROCEEDINGS ------------------------- THE REORGANIZATION CASE Litigation on disputed pre-petition, administrative and rejected executory contracts is continuing in the reorganization case (styled In re Insilco Corporation, Jointly Administered Case No. 91-70021-RBK, Bankr., W.D. Tex.) and the Bankruptcy Court retains jurisdiction to, among other things, resolve such claims. Holders of disputed claims that are ultimately allowed will be satisfied as provided in the Plan of Reorganization. ENVIRONMENTAL PROCEEDINGS Litigation on certain disputed pre-petition environmental claims is continuing in the reorganization case. This litigation, which seeks to assess certain cleanup costs against the Company, includes claims of the State of Florida and certain private parties with respect to a site in Florida, and claims of a private party associated with a site in California. These environmental claims, when finally determined, will be satisfied, consistent with the Plan of Reorganization, with common stock at the rate of 18 shares for each $1,000 of allowed claim. FEDERAL TRADE COMMISSION MATTER The United States Federal Trade Commission ("FTC") is investigating the Company's acquisition of the automotive tubing business assets of Helima-Helvetion International, Inc. ("HHI") to determine if the acquisition violated federal antitrust laws. The Company has responded to various FTC requests for information concerning the relevant market and competitive conditions in that market. At this time it is not known whether the investigation will result in the issuance of a complaint, or if such complaint is issued, the relief that will be sought or obtained. The 1996 revenues associated with the automotive tubing business acquired from HHI were $2.0 million, and the tangible net assets associated with the business at December 31, 1996 were $7.0 million. From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of its business. The Company maintains insurance coverage against potential general liability and certain other claims in an amount it believes to be adequate. Except as described above, the Company has no material pending legal proceedings, other than ordinary litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------- Not Applicable [This space intentionally left blank.] -14- 15 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED ------------------------------------------------------------- STOCKHOLDER MATTERS ------------------- The Common Stock is the Company's only class of authorized equity securities. Water Street Corporate Recovery Fund I, L.P. ("Water Street"), an investment partnership of which Goldman, Sachs & Co. ("Goldman Sachs") is the general partner, is now the Company's principal stockholder, owning approximately 62% of the 9,407,594 shares outstanding at March 15, 1997. The Company's Common Stock has traded on the Nasdaq National Market under the symbol "INSL" since November 29, 1993. The following table sets forth, for the periods indicated, the high and low sale prices for the Company's Common Stock as reported by the Nasdaq National Market. The number of record holders of the Common Stock of the Company on March 15, 1997 was 770. The closing sales price of the Common Stock of the Company on March 15, 1997 was $38.50.
Low Sale High Sale -------- --------- 1996: - ---- First Quarter $27.125 $36.500 Second Quarter $33.500 $37.000 Third Quarter $31.000 $37.375 Fourth Quarter $35.500 $42.000 1995: - ---- First Quarter $23.250 $28.625 Second Quarter $26.750 $38.125 Third Quarter $34.375 $39.000 Fourth Quarter $30.000 $41.250
The Company did not pay any cash dividends during the past two fiscal years. The Company is considering a possible one time distribution to shareholders or repurchase of shares from the proceeds of the sale of its Rolodex unit. Future dividend policy will depend upon the earnings and financial condition of the Company and the Company's need for funds and other factors. The payment of dividends is also restricted by the terms of the Bank Credit Agreement. Pursuant to a $15.0 million stock buyback program adopted July 26, 1995, 97,500 shares of Insilco's common stock were purchased in 1996 at prices ranging from $30.60 to $36.125 per share. In 1995, 197,500 shares of Insilco's common stock were purchased at prices ranging from $32.375 to $36.875 per share. -15- 16 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information (dollars in thousands) derived from the Company's Consolidated Financial Statements.
Predecessor ----------- 1993 --------------------------------- From To 1996 1995 1994 4/1 3/31 1992 ---- ---- ---- --- ---- ---- OPERATIONS DATA(1) Sales (net)(2) $ 572,474 561,203 543,630 411,040 105,862 481,637 Depreciation and amortization 16,831 14,758 13,570 10,144 3,328 13,898 Amortization of Reorganization Goodwill - 32,172 69,217 54,507 1,125 4,502 Operating income (loss)(3) 59,101 24,617 (9,699) (21,488) 7,256 37,814 Other income (expense)(4) Interest expense(5) (18,386) (19,546) (29,113) (26,905) (9,609) (31,495) Interest income 1,010 1,577 1,842 1,710 351 1,233 Other income (expense), net 10,138 12,126 2,663 167 (40) 399 Income (loss) from continuing operations before reorganization items, extraordinary item and income taxes 51,863 18,774 (34,307) (46,516) (2,042) 7,951 Reorganization items, net - - - - 21,767 (22,407) Income tax expense (12,810) (16,199) (8,585) (1,134) (873) (3,117) Income (loss) from continuing operations before extraordinary items 39,053 2,575 (42,892) (47,650) 18,852 (17,573) Income (loss) from discontinued operations - - 12,914 1,041 (18,241) (13,712) Income (loss) before extraordinary items 39,053 2,575 (29,978) (46,609) 611 (31,285) Extraordinary items - - (2,156) - 448,334 - Net income (loss) 39,053 2,575 (32,134) (46,609) 448,945 (31,285) BALANCE SHEET DATA AT PERIOD END Working capital 47,956 44,920 33,915 97,718 94,589 136,077 Total assets 352,000 340,129 368,669 517,738 562,011 547,748 Long-term debt 161,042 186,489 198,109 307,406 306,682 311,946 Other long-term liabilities 47,337 53,612 59,117 65,016 64,896 631 Liabilities subject to compromise - - - - - 608,987 CASH FLOW DATA Net cash provided by (used in) operating activities 55,423 37,744 34,305 52,524 (16,361) (1,684) Net cash provided by (used in) investing activities (29,783) (14,678) 36,295 (14,146) 2,668 (18,480) Net cash provided by (used in) financing activities (32,053) (21,862) (115,648) (6,774) (9,109) 2,903 PER SHARE DATA Income (loss) per share from continuing operations(6) 3.95 0.25 (4.42) (4.93) N/A N/A
See accompanying notes to the Selected Financial Data. -16- 17 The notes to the selected financial data follow: (1) For financial reporting purposes, March 31, 1993 is the effective date of the Plan of Reorganization. As of that date, in accordance with 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 Company adopted "fresh start" accounting as described in Note 1 to the Consolidated Financial Statements. As a result, financial information for all periods prior to March 31, 1993 (referred to as "Predecessor") is not comparable to information for subsequent periods. (2) Sales include the sales of the Office Products business of the Office Products/Specialty Publishing Group which was divested in two separate transactions in 1996 and one final transaction in the first quarter of 1997 as follows: 1996, $ 80.1 million; 1995, $111.7 million; 1994, $ 105.2 million; 1993, $ 104.8 million; and 1992, $ 111.0 million. In addition, operating income for the Office Products business, before the allocation of Corporate overhead, included in the consolidated results follow: 1996, $ 10.7 million; 1995, $ 1.7 million; 1994, $ 15.2 million; 1993, $ 12.7 million; and 1992, $ 14.9 million. (3) See Notes 15 and 19 to the Consolidated Financial Statements. (4) See Note 14 to the Consolidated Financial Statements. (5) Excluding $19.8 million and $79.3 million contractual interest not accrued on unsecured debt during the Chapter 11 proceedings in the three months ended March 31, 1993 and the year 1992, respectively. (6) Earnings per share information for the Predecessor is not presented because the Predecessor was closely held and the revision of the Company's capital structure pursuant to the Plan of Reorganization makes such information not meaningful. [This space intentionally left blank] -17- 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ------------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- OVERVIEW "FRESH START" ACCOUNTING On March 31, 1993, the Company adopted the "fresh start" accounting principles prescribed by the Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (the "Reorganization SOP"), issued by the American Institute of Certified Public Accountants. The "fresh start" accounting principles required the Company to value its assets and liabilities at fair values and eliminate its accumulated deficit. "Fresh start" accounting was required because on April 1, 1993 the Company and certain of its subsidiaries emerged from Chapter 11 of the United States Bankruptcy Code (the "Chapter 11 cases") pursuant to a plan of reorganization (the "Plan of Reorganization"). For financial reporting purposes, the effective date of the Plan of Reorganization was March 31, 1993 (the "Plan Effective Date"). For periods prior to the Plan Effective Date, the Company sometimes is referred to herein as the "Predecessor". The Chapter 11 cases were commenced on January 13, 1991 (the "Petition Date"). (See Item 1 - "Business Reorganization History and Plan of Reorganization Summary.") One notable impact of "fresh start" accounting on the financial statements was the negative impact on the reported operating income of each business segment and the consolidated net income resulting from the noncash amortization of the Reorganization Goodwill. Such amortization expense totaled $32.2 million in 1995 and $69.2 million in 1994. At December 31, 1995, Reorganization Goodwill was fully amortized. DIVESTED BUSINESS During the last half of 1996 and the first quarter of 1997 the Office Products business of the Office Products/Specialty Publishing Group was divested in three separate transactions. The disposal of this business is not accounted for as a discontinued operation. See "Results of Operations." DISCONTINUED OPERATIONS On August 1, 1994, the Company completed the sale of its paint products segment for $50.8 million and the segment is being accounted for as a discontinued operation. RESULTS OF OPERATIONS Summarized sales and operating income (loss) by business segment and the other significant components of net income (loss) for the years ended December 31, 1996, 1995 and 1994, are set forth in the following table (in thousands) and discussed below: -18- 19
1996 1995 1994 ----- ----- ---- SALES Automotive Components Group $209,722 180,251 173,079 Technologies Group 183,663 170,615 164,909 Office Products/Specialty Publishing Group: Specialty Publishing 99,020 98,640 100,446 Office Products 80,069 111,697 105,196 -------- ------- ------- 179,089 210,337 205,642 -------- ------- ------- 572,474 561,203 543,630 -------- ------- ------- OPERATING INCOME (LOSS)(1) Automotive Components Group 23,915 20,407 14,941 Technologies Group 24,453 20,310 7,386 Office Products/Specialty Publishing Group: Specialty Publishing 1,650 (753) (9,892) Office Products 9,167 (15,287) (20,921) -------- -------- ------- 10,817 (16,040) (30,813) Unallocated corporate (84) (60) (1,213) -------- -------- ------- 59,101 24,617 (9,699) -------- -------- ------- SUPPLEMENTAL INFORMATION: "FRESH START" ACCOUNTING EFFECTS INCLUDED IN OPERATING INCOME (LOSS) Amortization of intangibles: Automotive Components Group - 3,404 7,313 Technologies Group - 7,176 15,419 Office Products/Specialty Publishing Group: Specialty Publishing - 5,625 12,081 Office Products - 15,967 34,404 -------- ------- ------- - 21,592 46,485 -------- ------- ------- - 32,172 69,217 -------- ------- ------- OTHER INCOME (EXPENSE) INTEREST EXPENSE (18,386) (19,546) (29,113) INTEREST INCOME 1,010 1,577 1,842 OTHER INCOME, NET 10,138 12,126 2,663 -------- ------- -------- (7,238) (5,843) (24,608) -------- ------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS 51,863 18,774 (34,307) INCOME TAX EXPENSE (12,810) (16,199) (8,585) -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM 39,053 2,575 (42,892) -------- -------- -------- DISCONTINUED OPERATIONS, NET OF TAX: GAIN ON DISPOSAL - - 10,710 INCOME FROM OPERATIONS - - 2,204 -------- --------- -------- INCOME FROM DISCONTINUED OPERATIONS - - 12,914 EXTRAORDINARY ITEM - - (2,156) -------- --------- -------- NET INCOME (LOSS) $ 39,053 2,575 (32,134) ======== ======== ========
-19- 20 (1) Segment operating income (loss) reflects the allocation of corporate overhead. Unallocated corporate overhead consists of overhead associated with discontinued operations. In 1995 corporate overhead was reduced by a $4,300,000 gain relating to a change in the Company's pension plan (see Note 10 to the Consolidated Financial Statements). The allocation of corporate overhead follows (in thousands):
1996 1995 1994 ---- ---- ---- Automotive Components Group $2,981 1,282 2,194 Technologies Group 3,152 1,412 2,870 Office Products/Specialty Publishing Group: Specialty Publishing 1,986 881 1,867 Office Products 1,501 1,023 1,732 ------ ----- ----- 3,487 1,904 3,599 ------ ----- ----- $9,620 4,598 8,663 ====== ===== =====
[This space intentionally left blank] -20- 21 1996 COMPARED TO 1995 SALES. Net sales in 1996 were $572.5 million, an increase of 2% over 1995 net sales of $561.2 million. The aggregate growth rate was adversely affected by the divestitures of the Rolodex electronics product line and Curtis in the second half of 1996. Sales in the Automotive Components Group segment were $209.7 million, an increase of 16% over 1995 sales of $180.3 million. The increased sales were attributable to $20.5 million of sales from the 1996 acquisitions of the Lingemann automotive aluminum tube business and Great Lake as well as higher content per automobile of clutch plates in transmissions and higher sales of aluminum heat exchangers and related products and equipment manufactured by the segment's Thermal unit. Approximately 29% of Thermal's sales are to the automotive OEM market. Steel Parts achieved sales growth over 1995 due to higher parts content per automobile, as automobile manufacturers have moved from three-speed to four and five-speed automatic transmissions. Steel Parts is primarily an OEM supplier of transmission and other automotive components. The increased sales at Thermal and Steel Parts were partially offset by a decline from the prior year at Romac, the Company's manufacturer of stainless steel tubing sold principally in marine and distribution markets. Sales in the Technologies Group were $183.7 million, an increase of 8% over 1995 sales of $170.6 million. Sales of the wire and cable assembly business, Escod, were up 23% over 1995, reflecting continued expansion of its customer base and a rebound in orders from its largest telecommunications customer. Stewart Connector, the Company's manufacturer of high speed data transmission connectors which serves the computer networking market, had an 8% increase in sales over the prior year with 15% growth in the fourth quarter of the year, primarily as a result of a new contract with a major telecommunications customer for connector/cable assemblies. Foreign sales accounted for approximately 40% and 43% of Stewart Connector's sales in 1996 and 1995, respectively. Sales at the segment's Signal Transformer unit were flat compared to the prior year. Sales of precision stampings at the segment's Stewart Stamping unit increased 5% due to the underlying strength of the markets that it serves, including the housing construction and automotive market. Sales in the Office Products/Specialty Publishing Group were $179.1 million, a decrease of 15% from 1995 sales of $210.3 million, primarily due to the divestitures of the Rolodex electronics product line in October 1996 and Curtis in September 1996. Excluding the impact of the divestitures, sales for the Group declined 2% from the prior year as a result of lower sales of traditional office products. Sales at Taylor Publishing were $99.0 million, relatively flat compared to prior year sales of $98.6 million. OPERATING INCOME. Operating income (loss) comparisons between 1996 and 1995 are more difficult to present than the sales comparisons because of the effects of "fresh start" accounting on the results of operations. Due to the effects of "fresh start" accounting, the Company's 1995 operating results were depressed by a $32.2 million charge for the amortization of Reorganization Goodwill. The consolidated reported operating income in 1996 improved to $59.1 million from $24.6 million in 1995. (See the table on page 19 for the impact of "fresh start" accounting on the reported operating income as well as the comparability between the periods). Excluding the effects of "fresh start" accounting, as described above, the operating performance increased $2.3 million or 4%. The increase is primarily due to higher operating income in the Office Products business. This gain was partially offset by higher Corporate overhead, decreased operating margins in the Technologies Group and a $1.5 million restructuring charge recorded by Taylor Publishing. The higher corporate overhead in 1996 is primarily due to a $4.3 million gain recorded in 1995 related to a change in the Company's pension plan which temporarily reduced Corporate overhead. These items and other operational year-to-year changes are discussed below in the analysis of each segment's operating income. -21- 22 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 performance decreased $3.0 million in 1996 compared to 1995, an 11% decrease, due to decreased operating margins and a $1.7 million increase in allocated Corporate overhead due to the 1995 pension gain noted above. The decreased operating margins were caused principally by competitive price pressure in the connector market and delayed introductions of new connector products. The operating income of the Office Products/Specialty Publishing Group was $10.8 million in 1996 compared to an operating loss of $16.0 million in 1995. The results in 1995 were negatively impacted by a $21.6 million charge for amortization of Reorganization Goodwill. Excluding the amortization of Reorganization Goodwill, the segment's operating performance increased $5.3 million in 1996 compared to 1995. The results in 1995, as compared to 1996, were negatively impacted by $10.1 million of charges recorded for potentially uncollectible accounts receivable, inventory valuation, anticipated customer returns and other charges. The improvement in operating earnings for 1996 was partially offset by decreased operating income at Rolodex and Taylor Publishing and an increase in allocated Corporate overhead of $1.6 million due to the pension gain recorded in 1995. 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 for 1996 included a $3.1 million pre-tax gain on the sale of the Rolodex electronics product line. Other income also included a favorable adjustment of $2.2 million related to the Company's environmental liabilities following completion of a site clean-up for an amount less than previously estimated. Other income for 1995 included favorable adjustments of $3.6 million related to the Company's environmental liabilities following a review of its liabilities from previously divested operations and $1.5 million related to the resolutions of several legal disputes. In addition, other income included a $4.0 million gain on the sale of idle corporate assets. INCOME TAX EXPENSE. The Company's actual income tax obligations during 1996 ($2.4 million) and 1995 ($2.6 million) were substantially less than the total amount of income taxes recognized ($12.4 million and $16.1 million respectively) because previously generated net operating losses and other net deferred tax assets were utilized to reduce the tax obligations. During 1996 and 1995, additional deferred tax assets of $10.7 million and $9.2 million respectively, were recognized and recorded on the balance sheet because it was concluded that it was more likely than not that such amounts would be realized in future years. In accordance with the Reorganization SOP, the tax benefits associated with the recognition of pre-effective date deferred tax assets ($10.2 million and $1.6 million in 1996 and 1995, respectively), were recorded -22- 23 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. The effective tax rate on adjusted income from continuing operations (adjusted to exclude Reorganization Goodwill amortization) was 24.7% in 1996 compared to 31.8% for 1995. The percentage decrease is primarily due to the recognition of the tax benefit of capital loss carryforwards. (See Note 11 to the Consolidated Financial Statements for further information.) 1995 COMPARED TO 1994 SALES. Net sales from continuing operations in 1995 were $561.2 million, an increase of 3% over 1994 net sales of $543.6 million. The aggregate growth rate was adversely affected by the continuation in early 1995 of declining sales at the Company's wire and cable assembly business and to a lesser degree, by a small decrease in school yearbook sales at Taylor Publishing. Sales in the Automotive Components Group segment were $180.3 million, an increase of 4% over 1994 sales of $173.1 million. The higher sales were attributable to higher content per automobile of clutch plates in transmissions and higher unit sales of heat exchanger products manufactured by the segment's Thermal unit. The increase in units sold is due to increased penetration in non-automotive aluminum heat exchanger markets and the accelerating demand for aluminum radiator replacements. Approximately 23% of Thermal's sales are to the automotive OEM market. Steel Parts, the segment's smaller unit, achieved sales growth over 1994 despite a slowdown in North American automotive production. The growth at Steel Parts was due to higher parts content per automobile, as automobile manufacturers have moved from three-speed to four-speed automatic transmissions. Steel Parts is primarily an OEM supplier of transmission and other automotive components. Sales in the Technologies Group were $170.6 million, an increase of 3% over 1994 sales of $164.9 million. This increase was offset by sharply reduced demand in the first half of 1995 from two major customers of the segment's relatively low margin wire and cable assembly business, Escod Industries, which resulted in a 17% or $8.9 million sales decline. Excluding this drop-off, the segment recorded a 13% increase in sales over 1994. This increase was partly a result of the continued growth at the segment's Stewart Connector unit, the Company's manufacturer of high speed data transmission connectors which serves the computer networking market. Despite the year-over-year improvement, Stewart Connector experienced a slowdown in rate of sales growth in the second half due to competitive pricing pressures and pending new product introductions scheduled for introduction in 1996. Foreign sales accounted for approximately 43% and 35% of Stewart Connector's sales in 1995 and 1994, respectively. Sales at the segment's Signal Transformer unit increased primarily due to the continued success of its customer-focused program to deliver transformers within twenty-four hours of the receipt of the customer order. Sales at the segment's Stewart Stamping unit increased due to the underlying strength of the markets that it serves, including the telecommunications and electrical industries, and as a result of more targeted selling efforts through the engagement of additional independent sales representatives. Sales in the Office Products/Specialty Publishing Group were $210.3 million, an increase of 2% over 1994 sales of $205.6 million. Sales of the segment's office products (Rolodex and Curtis) of $111.7 million increased 6% over 1994 sales of $105.2 million due primarily to increases in sales of consumer electronics and traditional card file products at Rolodex. The sales at Taylor Publishing were $98.6 million, a decrease of 2% from 1994 sales of $100.4 million. -23- 24 OPERATING INCOME. Operating income (loss) comparisons between 1995 and 1994 are more difficult to understand than the sales comparisons because of the effects of "fresh start" accounting on the results of operations. Due to the effects of "fresh start" accounting, the Company's 1995 and 1994 operating results were depressed by a $32.2 million and $69.2 million charge, respectively, for the amortization of Reorganization Goodwill. The consolidated reported operating income in 1995 improved to $24.6 million from an operating loss of $9.7 million in 1994. (See the table on page 19 for the impact of "fresh start" accounting on the reported operating income as well as the comparability between the periods). Excluding the effects of "fresh start" accounting, as described above, the operating performance decreased $2.7 million, a 5% decrease. The decrease was primarily due to $10.1 million of charges related to uncollectible accounts receivable, sales returns and obsolete inventory recorded at Rolodex/Curtis of which $6.2 million were classified as nonrecurring charges. These charges were partially offset by a gain of $4.3 million related to a change in the Company's pension plan whereby a lump sum settlement feature was adopted for retirees and certain vested participants which resulted in the settlement of more than $42.0 million in pension obligations. As a result, corporate overhead was reduced by $4.3 million in 1995 compared to 1994. These items and other operational year-to-year changes are discussed below in the analysis for each segment's operating income. The Automotive Components Group's operating income in 1995 compared to 1994 increased from $14.9 million to $20.4 million. The results in each year were negatively impacted by the amortization of Reorganization Goodwill ($3.4 million and $7.3 million in 1995 and 1994, respectively). Excluding amortization of Reorganization Goodwill, the segment's operating performance improved $1.6 million in 1995 compared to 1994, a 7% increase, due to the higher sales and a reduction of $0.9 million in allocated Corporate overhead attributable to the pension gain noted above. The Technologies Group's operating income in 1995 compared to 1994 increased from $7.4 million to $20.3 million. The results in each year are negatively impacted by the amortization of Reorganization Goodwill ($7.2 million and $15.4 million in 1995 and 1994, respectively). Excluding the amortization of Reorganization Goodwill, the segment's operating performance improved $4.7 million in 1995 compared to 1994, a 21% increase, due to higher sales and improved productivity, as well as a reduction of $1.5 million in allocated Corporate overhead attributable to the pension plan noted above. The operating loss of the Office Products/Specialty Publishing Group, the segment to which most of the Reorganization Goodwill was allocated, improved to $16.0 million in 1995 from $30.8 million in 1994. In 1995 and 1994, the amortization of Reorganization Goodwill included in the segment's operating results was $21.6 million and $46.5 million, respectively. Excluding the amortization of Reorganization Goodwill, the segment's operating performance decreased $10.1 million in 1995 compared to 1994. The decrease was due to $6.2 million of nonrecurring charges recorded in the second quarter of 1995 at Rolodex, related primarily to a number of open and unresolved customer chargebacks, that had originated in prior years. The nonrecurring charges also included a charge at Rolodex and Curtis (the Company's computer accessory unit) of $1.6 million to adjust the net realizable value of inventory and related capital assets. In addition, the Company recorded provisions totaling $3.9 million in the fourth quarter of 1995 for potentially uncollectible accounts receivable, inventory valuation, anticipated customer returns and other charges at Rolodex and Curtis. These charges were partially offset by a reduction in allocated Corporate overhead, attributable to the pension gain noted above, of $1.7 million. In 1995, the operating losses of the Specialty Publishing business, Taylor Publishing, improved to $0.8 million from $9.9 million in 1994 due to a $6.5 million decrease in the amortization of Reorganization Goodwill and improved productivity relating to the introduction in 1994 of new photo processing technology. Throughout 1995 the Company continued efforts to upgrade production processes at Taylor -24- 25 Publishing resulting in improved quality of its school yearbooks and reduced turnaround time to schools as well as improved financial performance. OTHER INCOME (EXPENSE). Interest expense decreased approximately 33% or $9.5 million in 1995 compared to 1994 because of the early retirement of long-term debt in 1994 and the refinancing of long-term debt in November 1994 (see "Cash Flows From (Used In) Financing Activities"). Other income for 1995 included favorable adjustments of $3.6 million related to the Company's environmental liabilities following a review of its liabilities from previously divested operations and $1.5 million related to the resolutions of several legal disputes. In addition, other income included a $4.0 million gain on the sale of idle corporate assets. Other income for 1994 included a $1.2 million gain related to the collection of notes receivable in excess of their financial statement carrying amount. INCOME TAX EXPENSE. The Company's actual income tax obligations during 1995 ($2.6 million) and 1994 ($2.3 million) were substantially less than the total amount of income taxes recognized ($16.1 million and $15.5 respectively) because previously generated net operating losses and other net deferred tax assets were utilized to reduce the tax obligations. During 1995 and 1994, additional deferred tax assets of $9.2 million and $40.7 million, respectively, were recognized and recorded on the balance sheet because it was concluded that it was more likely than not that such amounts would be realized in future years. In accordance with the Reorganization SOP, the tax benefits associated with the recognition of pre-effective date deferred tax assets, ($7.2 million and $39.0 million in 1995 and 1994, respectively) were recorded as a reduction to Reorganization Goodwill. The 1995 reduction eliminated the remaining unamortized Goodwill. DISCONTINUED OPERATIONS. On August 1, 1994, the Company sold substantially the entire paint products segment for net proceeds of $50.8 million, resulting in a gain of $10.7 million, net of taxes of $8.2 million. The tax on the gain was offset by utilization of Federal and state net operating loss carryforwards and as a result did not result in significant cash payments. In accordance with the Reorganization SOP the tax benefit associated with utilization of pre-effective date loss carryforwards was recorded as a reduction in the Company's Reorganization Goodwill. The net proceeds were utilized to reduce the Company's long-term debt. EXTRAORDINARY ITEM. An extraordinary charge of $2.2 million, net of $1.3 million tax, was recorded in the fourth quarter of 1994 as a result of prepaying post-reorganization debt prior to its maturity (see "Financial Condition"). FINANCIAL CONDITION Factors that are expected in the future to affect the Company's financial position are discussed below. CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES. Operations provided $55.4 million in cash in 1996 compared to $37.7 million cash in 1995 which represented a $17.7 million or 47% year over year increase. This improvement was primarily due to improved accounts receivable collections in the Office Products business. The Company's cash flow was favorably affected by tax loss carryforwards, which reduce the actual cash tax payments for the year to well below the financial statement income tax expense. The tax loss carryforwards will be substantially utilized in 1997 to offset the gain from the sale of the Rolodex unit, and as a result, the Company's actual cash tax payments in future years are anticipated to increase over 1996. -25- 26 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In 1996, the Company acquired the automotive aluminum tube business of Helmut Lingemann GmbH & Co, ("Lingemann") and two affiliated businesses serving the automotive, heavy truck and industrial manufacturing radiator replacement market, Great Lake, Inc. and Kar Tool Co. Inc., for approximately $37.7 million including transaction fees and expenses. In 1996, the Company received proceeds totaling $21.8 million from the sale of Curtis and the Rolodex electronics product line; $3.6 million from Thermalex for full repayment of loans outstanding; a $3.4 million dividend distribution from Thermalex; and $1.3 million from the disposal of idle assets. In 1995, the Company received $2.5 million from Thermalex relating to the partial repayment of loans, a $0.4 million dividend distribution from Thermalex and $4.7 million from the disposal of idle assets. In 1994, the Company received net proceeds of $50.8 million from the sale of its paint products segment, $4.6 million for final payments on outstanding notes from previously divested subsidiaries, and $1.0 million from Thermalex as a partial loan repayment. The Company's capital expenditures totaled $22.6 million in 1996 and the Company has budgeted expenditures totaling approximately $24.0 million in 1997. The Company expects to finance these expenditures and investments with internally generated funds. The Company does not anticipate that limitations on capital expenditures under the Bank Credit Agreement (as defined below) will adversely affect its ability to meet its operating goals. CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES. 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. In November 1994, the Company entered into a loan agreement that provides it up to $285 million in borrowing capacity pursuant to two credit facilities (the "Bank Credit Agreement"). The Bank Credit Agreement consists of a $130 million revolving credit facility, with a $50 million sublimit for issuance of letters of credit, and a $155 million term loan. The term loan is payable in quarterly installments through March 31, 2001. Under the terms of the Bank Credit Agreement, proceeds from asset sales must be applied to reduce the term loan under certain circumstances. The revolving credit facility will terminate and all amounts outstanding, if any, will be due on March 31, 2001. (See Note 7 to the Consolidated Financial Statements). The Company's required debt service payments for each of the next five years are as follows (in millions): 1997: $23.3; 1998: $26.6; 1999: $30.1; 2000: $32.4 and 2001: $4.3. In addition, any Excess Cash Flow (none in 1996), as defined in the Bank Credit Agreement, will be applied to the term facility. The interest requirements during the next five years will fluctuate based on the outstanding debt balances as well as changes in interest rates. The interest rate on bank borrowings bear interest at various fluctuating rates, at the Company's option, which approximate the one to six month LIBOR rates plus 1.25% (such LIBOR rates approximated 5.5% to 5.8% at December 31, 1996) subject to step downs on the achievement of certain financial ratios. The Company reduces its exposure to potential increases in interest rates by entering into forward rate, interest rate cap and interest rate swap agreements with major financial institutions. A summary of the terms of those agreements is contained in Note 8 to the Consolidated Financial Statements. NET INCOME (LOSS) AND ACCUMULATED EQUITY (DEFICIT). At December 31, 1996, the Company had stockholders' equity totaling $33.4 million compared to stockholders' deficit totaling $15.8 million at December 31, 1995. The deficit was attributable to the effect of the Reorganization Goodwill amortization -26- 27 which amounted to $32.2, $69.2 and $54.5 million in 1995, 1994 and 1993, respectively. At December 31, 1995, the Reorganization Goodwill was fully amortized. SEASONALITY. The Company's yearbook publishing business, Taylor Publishing, is highly seasonal, with a majority of sales occurring in the second and third quarters of the year. Taylor receives significant customer advance deposits in the second half of the year. The Company's other businesses are not highly seasonal. IMPACT OF INFLATION AND CHANGING PRICES. Inflation and changing prices have not significantly affected the Company's operating results or markets. The Company is generally able to pass through to its customers price changes in its major steel, copper and aluminum based product lines. LIQUIDITY. At December 31, 1996, the Company's cash and cash equivalents and net working capital amounted to $3.5 million and $48.0 million, respectively. The borrowing ability under the Company's revolving credit facility at December 31, 1996 was $78.3 million, including $39.6 million available for additional letters of credit. The Company believes it has adequate sources of liquidity to meet its working capital, capital expenditures and debt service requirements. SUBSEQUENT EVENT. On March 5, 1997, the Company sold its Rolodex office products business unit for $117,000,000 less transaction costs. -27- 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA --------------------------------------------------- The Consolidated Financial Statements of the Company, together with the reports thereon of KPMG Peat Marwick LLP (dated January 31, 1997), are set forth on pages F-1 through F-33 hereof (see Item 14 of this Annual Report for the Index). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ------------------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------ Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ----------------------------------------------------------- The information required by this Item is included under the captions "Election of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement (the "Proxy Statement") relating to the Company's 1997 Annual Meeting of Stockholders to be held on May 22, 1997 and is incorporated herein by reference. The Company anticipates filing the Proxy Statement with the Securities and Exchange Commission in April 1997. ITEM 11. EXECUTIVE COMPENSATION ------------------------------- The information required by this Item is included under the captions "Director Compensation" and "Executive Compensation" in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND ------------------------------------------------------------ MANAGEMENT ---------- The information required by this Item is included under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Directors and Executive Officers" in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ------------------------------------------------------- The information required by this Item is included under the captions "Compensation Committee Interlocks and Insider Participation," "Election of Directors," "Security Ownership of Certain Beneficial Owners," and "Security Ownership of Directors and Executive Officers" in the Proxy Statement and is incorporated herein by reference. -28- 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON ---------------------------------------------------------------- FORM 8-K -------- (a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT: (1) Financial Statements - Independent Auditors' Report - Consolidated Balance Sheets - December 31, 1996 - December 31, 1995 - Consolidated Statements of Operations - Year ended December 31, 1996 - Year ended December 31, 1995 - Year ended December 31, 1994 - Consolidated Statements of Stockholders' Equity (Deficit) - For the years ended December 31, 1996, 1995 and 1994 - Consolidated Statements of Cash Flows - Year ended December 31, 1996 - Year ended December 31, 1995 - Year ended December 31, 1994 - Notes to Consolidated Financial Statements (2) Financial Statement Schedules See Exhibit 99(a) - Schedule II - Valuation and Qualifying Accounts. All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in financial statements or the notes thereto. -29- 30 (3) Exhibits: *2(a) - Amended and Restated Plan of Reorganization Jointly Proposed by the Debtors and the Official Joint Committee of Unsecured Creditors dated November 23, 1992 (Form T-3, Exhibit T3E-3, File No. 22-23356). *2(b) - Order Confirming Plan of Reorganization and Approving Settlements Pursuant to Bankruptcy Rule 9019 dated November 24, 1992 (Form T-3, Exhibit T3E-4, File No. 22-23356). *2(c) - Order on Motion for Order in Aid of Implementation of Plan dated March 23, 1993 (Form T-3, Exhibit T3E-5, File No. 22-23356). *2(d) - Order on Debtors' Supplemental Motion for Order in Aid of Implementation of Plan dated March 23, 1993 (Form T-3, Exhibit T3E-6, File No. 22-23356). *2(e) - Notice of (1) Order Confirming Plan of Reorganization, (2) Effective Date and (3) Administrative Claims Bar Date dated April 1, 1993 (Form 10, Exhibit 2(e), File No. 0-22098). *2(f) - Order on Motion for Order in Aid of Implementation of Plan dated September 14, 1993 (Form 10/A, Amendment No. 2 to Form 10, Exhibit 2(f), File No. 0-22098). *2(g) - Share Purchase Agreement, dated as of June 28, 1996, between the Company's subsidiary, GUVAB Gesellschaft fur Unternehmensbeteililgungen und Vermogensverwaltung im aluminiumverarbeitenden Bereich mbH ("GUVAB"), and Lingemann (Form 8-K dated July 10, 1996, File No. 0-22098).** *2(h) - Asset Purchase Agreement, dated as of July 1, 1996, among the Company's subsidiary, HHI Acquisition Corp., Lingemann, and Helima-Helvetion International, Inc (Form 8-K dated July 10, 1996, File No. 0-22098).** *2(i) - Stock Purchase Agreement, dated as of September 3, 1996, between the Company's subsidiary and Esselte Corporation (Form 8-K dated September 6, 1996, File No. 0-22098).** *2(j) - Asset Purchase Agreement, dated as of October 4, 1996, between the Company and Franklin Electronic Publishers, Inc. and List of Omitted Schedules (Form 8-K dated October 4, 1996, File No. 0-22098).** *2(k) - Asset Purchase Agreement, dated as of February 12, 1997, between the Company and Newell Co. (Form 8-K dated March 5, 1997, File No. 0-22098).** *3(a) - Amended and Restated Certificate of Incorporation of the Company (Form 10, Exhibit 3(a), File No. 0-22098). *3(b) - Amended and Restated Bylaws of the Company (Form 10, Exhibit 3(b), File No. 0-22098). -30- 31 *4(a) - Settlement Agreement and Stipulated Order by and between the Company, certain subsidiaries of the Registrant, The Valspar Corporation and the United States of America by order of the United States District Court for the Western District of Texas, San Antonio Division, dated January 19, 1993 (Form 10, Exhibit 4(h), File No. 0-22098). *4(b) - Stipulation regarding Settlement Agreement and Stipulated Order amending Exhibit 4(h) (Form 10, Exhibit 4(i), File No. 0-22098). *4(c) - Credit Agreement, dated as of October 21, 1994, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form S-8 Registrations Statement, as amended, Exhibit 4(o), File No. 33- 86938).** *4(d) - First Amendment to Credit Agreement, dated as of November 21, 1994, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form S-8 Registration Statement, as amended, Exhibit 4(p), File No. 33-86938).** *4(e) - Second Amendment to Credit Agreement, dated as of March 8, 1995, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent; (Form 10-K for the year ended December 31, 1994, Exhibit 4(f), File No. 0-22098).** *4(f) - Third Amendment to Credit Agreement, dated as of July 18, 1995, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form 10-Q for the quarter ended June 30, 1995, Exhibit 4(g), File No. 0-22098).** *4(g) - Fourth Amendment to Credit Agreement, dated as of June 21, 1996, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form 8-K dated July 10, 1996, File No. 0-22098). 4(h) - Fifth Amendment to Credit Agreement, dated as of March 3, 1997, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent. The following are management contracts and compensatory plans or arrangements in which directors or executive officers participate: *10(a)- 1993 the Company Long-Term Incentive Plan (Form 10, Exhibit 10(j), File No. 0-22098). -31- 32 *10(b) - Supplemental Terms and Conditions Applicable to December 1993 Option Awards Under the Company 1993 Long-Term Incentive Plan (Form S-8 Registrations Statement, as amended, Exhibit 4(b), File No. 33-86938). *10(c) - Employment Agreement dated as of May 1, 1993 between the Company and Robert L. Smialek, as amended and restated (Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(k), File No. 0-22098). *10(d) - Restricted Stock Agreement dated as of June 26, 1994 between the Company and James D. Miller. (Form 10-K for the year ended December 31, 1994, Exhibit 10(e), File No. 0-22098). *10(e) - Form of Indemnification Agreement adopted by the Company as of July 30, 1990, entered into between the Registrant and certain of its officers and directors individually, together with a schedule identifying the other documents omitted and the material details in which such documents differ (Form 10, Exhibit 10(n), File No. 0-22098). *10(f) - 1993 the Company Nonemployee Director Stock Incentive Plan (Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File No. 0-22098). 10(g) - Value Appreciation Agreement as of December, 1996, entered into between the Registrant and the following officers: David M. Aronowitz, Robert F. Heffron, Les G. Jacobs, David A. Kauer, Kenneth H. Koch and Philip K. Woodlief. 10(h) - Form of Income Protection Agreement adopted by the Company as of December, 1996, entered into between the Registrant and the officers identified in Exhibit 10 (g) and James D. Miller. *21 - Subsidiaries of the Registrant (Form 10-Q for the quarter ended September 30, 1996, File No. 0-22098). 23(a) - Consent of KPMG Peat Marwick LLP. 24 - Power of Attorney of officers and directors of the Registrant appearing on the signature page hereof. 27 - Financial Data Schedule. 99(a) - Schedule II - Valuation and Qualifying Accounts. * Incorporated by reference, as indicated. **The Registrant agrees to furnish to the Securities and Exchange Commission upon request copies of any omitted schedule or exhibit to Exhibits 2(g), (h),\ (i), (j) and (k) and 4(c), 4(d), 4(e), and 4(f). (b) REPORTS ON FORM 8-K A report, dated July 10, 1996, on Form 8-K was filed pursuant to Item 2 of that form. No financial statements were filed as part of that report. -32- 33 An amended report, dated July 10, 1996, on Form 8-K/A was pursuant to Item 2 of that form. The following financial statements were filed as part of that report: (1) Financial Statements of Business Acquired. Unaudited Statement of Combined Revenues and Direct Operating Expenses for the Ten Months Ended June 30, 1996 Unaudited Statement of Assets Acquired and Liabilities Assumed as of July 10, 1996 (2) Pro Forma Financial Information. Unaudited Pro Forma Condensed Balance Sheet as of June 30, 1996 Unaudited Pro Forma Condensed Consolidated Statements of Operations Six Months Ended June 30, 1996 Four Months Ended December 31, 1995 A report, dated September 6, 1996, on Form 8-K was filed pursuant to Item 2 of that form. The following financial statements were filed as part of that report: (1) Pro Forma Financial Information. Pro Forma Condensed Balance Sheet as of June 30, 1996 Pro Forma Condensed Consolidated Statements of Operations Six Months Ended June 30, 1996 Year Ended December 31, 1995 A report, dated October 4, 1996, on Form 8-K was filed pursuant to Item 2 of that form. The following financial statements were filed as part of that report: (1) Pro Forma Financial Information. Pro Forma Condensed Balance Sheet as of June 30, 1996 Pro Forma Condensed Consolidated Statements of Operations Six Months Ended June 30, 1996 Year Ended December 31, 1995 A report, dated March 5, 1997, on Form 8-K was filed pursuant to Item 2 of that form. The following financial statements were filed as part of that report: (1) Pro Forma Financial Information. Pro Forma Condensed Balance Sheet as of December 31, 1996 Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31, 1996 -33- 34 (c) EXHIBITS The Exhibits to this report begin on page 69. (d) FINANCIAL STATEMENT SCHEDULES: See Exhibit 99(a) - Schedule II - Valuation and Qualifying Accounts. Note: All other schedules called for under Regulation S-X not included herein have been omitted because they are not applicable, the required information is not material or the required information is included in the financial statements or notes thereto. [This space intentionally left blank.] -34- 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INSILCO CORPORATION By: /s/ James D. Miller -------------------------------- James D. Miller Executive Vice President and Chief Financial Officer Date: March 27, 1997 By: /s/ Philip K. Woodlief -------------------------------- Philip K. Woodlief Corporate Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the date indicated.
Signature Title Robert L. Smialek* President, Chief Executive ) ---------------------- Officer and Director ) Robert L. Smialek (Principal Executive Officer) ) ) /s/ James D. Miller Executive Vice ) ---------------------- President and Chief ) James D. Miller Financial Officer ) (Principal Financial Officer) ) ) Philip K. Woodlief* Corporate Controller ) ---------------------- (Principal Accounting Officer) ) Philip K. Woodlief ) ) James J. Gaffney* ) ---------------------- ) James J. Gaffney Director ) ) Terence M. O'Toole* ) March 27, 1997 --------------------- ) Terence M. O'Toole Director ) ) Thomas E. Petry* ) --------------------- ) Thomas E. Petry Director ) ) Barry S. Volpert* ) --------------------- ) Barry S. Volpert Director ) ) ) ) /s/ James D. Miller ) --------------------- ) By: * James D. Miller ) Attorney-in-Fact )
-35- 36 INSILCO CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report F-2 Consolidated Balance Sheets F-3 - December 31, 1996 - December 31, 1995 Consolidated Statements of Operations F-5 - Year ended December 31, 1996 - Year ended December 31, 1995 - Year ended December 31, 1994 Consolidated Statement of Stockholders' Equity (Deficit) F-6 - For the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows F-7 - Year ended December 31, 1996 - Year ended December 31, 1995 - Year ended December 31, 1994 Notes to Consolidated Financial Statements F-8
F-1 37 Independent Auditors' Report The Board of Directors and Stockholders Insilco Corporation: We have audited the accompanying consolidated financial statements of Insilco Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule of valuation and qualifying accounts. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We did not audit the 1996 and 1995 financial statements of Thermalex, Inc., a 50 percent owned investee company. The Company's investment in Thermalex, Inc. at December 31, 1996 and 1995, was $8.5 million and $9.0 million, respectively, and its equity in earnings of Thermalex, Inc. was $2.9 million and $2.3 million, for the years 1996 and 1995, respectively. The financial statements of Thermalex, Inc. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Thermalex, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Columbus, Ohio January 31, 1997, except as to the second paragraph in Note 3, which is as of March 5, 1997 F-2 38 INSILCO CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1996 and 1995 (In thousands)
Assets 1996 1995 ------ ---- ---- Current assets: Cash and cash equivalents $ 3,481 9,894 Trade receivables, net 73,874 86,086 Other receivables 8,499 8,452 Inventories: Raw materials and supplies 27,677 27,176 Work in process 25,570 20,390 Finished goods 13,138 21,723 -------- -------- Total inventories 66,385 69,289 -------- -------- Deferred tax asset 29,859 7,228 Prepaid expenses and other current assets 7,010 6,395 -------- -------- Total current assets 189,108 187,344 ------- ------- Property, plant and equipment: Land 6,310 5,047 Buildings 32,772 21,012 Machinery and equipment 125,211 102,883 ------- ------- 164,293 128,942 Less accumulated depreciation (49,914) (37,707) -------- -------- Net property, plant and equipment 114,379 91,235 ------- -------- Deferred tax asset 7,542 29,653 Other assets and deferred charges 18,762 21,869 Goodwill, net 13,659 - Investment in Thermalex 8,550 10,028 -------- ------- Total assets $352,000 340,129 ======== =======
See accompanying notes to consolidated financial statements. F-3 39 INSILCO CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (continued) December 31, 1996 and 1995 (In thousands, except share data)
Liabilities and Stockholders' Equity (Deficit) 1996 1995 ---------------------------------------------- ---- ---- Current liabilities: Current portion of long-term debt $ 24,272 18,642 Current portion of other long-term obligations 6,661 7,975 Accrued interest payable 3,113 4,089 Accounts payable 37,984 45,336 Customer deposits 23,490 19,722 Salaries and wages payable 9,838 8,102 Accrued income taxes 3,596 3,126 Accrued expenses 32,198 35,432 -------- -------- Total current liabilities 141,152 142,424 Long-term debt, excluding current portion 136,770 167,847 Other long-term obligations, excluding current portion 40,676 45,637 -------- -------- Total liabilities 318,598 355,908 -------- -------- Stockholders' equity (deficit): Common stock, $.001 par value; 15,000,000 shares authorized; 9,810,794 shares issued (9,852,751 in 1995) and 9,487,740 shares outstanding (9,650,497 in 1995) 10 10 Treasury stock, at cost (10,745) (6,813) Additional paid-in capital 81,496 67,192 Accumulated deficit (37,115) (76,168) Foreign currency translation adjustments (244) - -------- -------- Total stockholders' equity (deficit) 33,402 (15,779) -------- -------- Commitments and contingencies (See Notes 9, 11, 12 and 17) Total liabilities and stockholders' equity (deficit) $352,000 340,129 ======== =======
See accompanying notes to consolidated financial statements. F-4 40 INSILCO CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years Ended December 31, 1996,1995 and 1994 (In thousands, except share and per share data)
1996 1995 1994 ---------- -------- -------- Sales $ 572,474 561,203 543,630 Cost of products sold 389,893 385,720 372,842 Depreciation 16,593 14,758 13,570 Selling, general and administrative expenses 106,649 97,736 97,700 Nonrecurring charges - 6,200 - Amortization of goodwill 238 - - Amortization of Reorganization Goodwill - 32,172 69,217 ---------- -------- -------- Operating income (loss) 59,101 24,617 (9,699) ---------- -------- -------- Other income (expense): Interest expense (18,386) (19,546) (29,113) Interest income 1,010 1,577 1,842 Equity in net income of Thermalex 2,922 2,335 1,334 Other income, net 7,216 9,791 1,329 ---------- -------- -------- (7,238) (5,843) (24,608) ---------- -------- -------- Income (loss) from continuing operations before income taxes and extraordinary item 51,863 18,774 (34,307) Income tax expense (12,810) (16,199) (8,585) ---------- -------- -------- Income (loss) from continuing operations before extraordinary item 39,053 2,575 (42,892) ---------- -------- -------- Discontinued operations, net of tax: Income from operations - - 2,204 Gain on disposal - - 10,710 ---------- ----------- ------- Income from discontinued operations - - 12,914 ---------- ----------- ------- Income (loss) before extraordinary item 39,053 2,575 (29,978) Extraordinary item, net of tax - - (2,156) ---------- ----------- --------- Net income (loss) $ 39,053 2,575 (32,134) ========= ========== ========= Earnings (loss) per common share and common share equivalent: Continuing operations $ 3.95 0.25 (4.42) Discontinued operations - - 1.33 Extraordinary item - - (0.23) ---------- ----------- --------- Net income (loss) per common share and common share equivalent $ 3.95 0.25 (3.32) ========= ========== ========= Weighted average number of common shares outstanding and common share equivalents 9,891,631 10,132,174 9,710,048 ========= ========== =========
See accompanying notes to consolidated financial statements. F-5 41 INSILCO CORPORATION AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity (Deficit) For the Years Ended December 31, 1996, 1995 and 1994 (In thousands)
Total Additional Cumulative Stockholders' Common Stock Treasury Paid-in Accumulated Translation Equity Par Value $.001 Stock Capital Deficit Adjustment (Deficit) --------------- --------- --------- -------------- ---------- ---------- Balance at December 31, 1993 $ 10 - 65,104 (46,609) - 18,505 Net loss - - - (32,134) - (32,134) Shares issued - - 178 - - 178 --- ------- ------ ------- ---- ------ Balance at December 31, 1994 10 - 65,282 (78,743) - (13,451) Net income - - - 2,575 - 2,575 Shares issued upon exercise of stock options - - 226 - - 226 Purchase of treasury stock - (6,813) - - - (6,813) Tax benefit from reduction of valuation allowance for deferred tax assets - - 1,612 - - 1,612 Tax benefit from exercise of stock options - - 72 - - 72 --- ------- ------ ------- ---- ------ Balance at December 31, 1995 10 (6,813) 67,192 (76,168) - (15,779) Net income - - - 39,053 - 39,053 Tax benefit from reduction of valuation allowance for deferred tax assets - - 10,237 - - 10,237 Purchase of treasury stock - (3,932) - - - (3,932) Restricted stock - - 3,300 - - 3,300 Shares issued upon exercise of stock options - - 1,071 - - 1,071 Reserved shares - - (706) - - (706) Tax benefit from exercise of stock options - - 402 - - 402 Foreign translation adjustment - - - - (244) (244) --- ------- ------ ------- ---- ------ Balance at December 31, 1996 $10 (10,745) 81,496 (37,115) (244) 33,402 === ======= ====== ======= ==== ======
See accompanying notes to consolidated financial statements. F-6 42 INSILCO CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994 (In thousands)
1996 1995 1994 ---------- ---------- ----------- Cash flows from operating activities: Net income (loss) $ 39,053 2,575 (32,134) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 16,831 46,930 82,787 Deferred tax expense 10,016 12,661 (1,626) Divestiture gain, net (2,493) - - Noncash charges in lieu of taxes - 842 7,957 Other noncash charges and credits (4,904) (6,985) (1,738) Changes in operating assets and liabilities: Receivables 11,749 (8,836) (4,017) Inventories (2,899) (461) (4,800) Payables and other (9,601) (5,519) 2,901 Other long-term liabilities (2,329) (3,463) (3,116) Discontinued operations - - (11,909) -------- -------- ------- Net cash provided by operating activities 55,423 37,744 34,305 -------- -------- ------- Cash flows from investing activities: Acquisitions of businesses, net of cash acquired (37,726) - - Proceeds from divestitures 21,818 - 50,788 Capital expenditures (22,579) (22,159) (19,163) Other investing activities 8,704 7,481 4,670 -------- -------- ------- Net cash provided by (used in) investing activities (29,783) (14,678) 36,295 -------- -------- ------- Cash flows from financing activities: Retirement of long-term debt (26,330) (12,926) (335,309) Proceeds from debt borrowings - 600 226,500 Purchase of treasury stock (3,932) (6,813) - Payment of prepetition liabilities (2,862) (2,949) (2,963) Proceeds from sale of stock 1,071 226 178 Debt financing costs - - (4,054) -------- -------- ------- Net cash used in financing activities (32,053) (21,862) (115,648) -------- -------- ------- Net increase (decrease) in cash and cash equivalents (6,413) 1,204 (45,048) Cash and cash equivalents at beginning of period 9,894 8,690 53,738 -------- -------- ------- Cash and cash equivalents at end of period $ 3,481 9,894 8,690 ======== ======== ======== Supplemental information - cash paid for: Interest, net of capitalized amount $ 17,820 18,199 42,494 ======== ======= ======= Income taxes $ 2,081 2,407 1,899 ======== ======= =======
See accompanying notes to consolidated financial statements. F-7 43 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 (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 50% owned subsidiary is accounted for under the equity method. All significant intercompany balances and transactions have been eliminated. (b) "Fresh Start" Accounting On March 31, 1993, the Company adopted the "fresh start" accounting principles prescribed by the Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (the "Reorganization SOP"), issued by the American Institute of Certified Public Accountants. The "fresh start" accounting principles required the Company to value its assets and liabilities at fair values and eliminate its accumulated deficit. "Fresh start" accounting was required because on April 1, 1993 the Company and certain of its subsidiaries emerged from Chapter 11 of the United States Bankruptcy Code (the "Chapter 11 cases") pursuant to a plan of reorganization (the "Plan of Reorganization"). For financial reporting purposes, the effective date of the Plan of Reorganization was March 31, 1993 (the "Plan Effective Date"). For periods prior to the Plan Effective Date, the Company sometimes is referred to herein as the "Predecessor". The Chapter 11 cases were commenced on January 13, 1991 (the "Petition Date"). (c) Cash Equivalents All highly liquid debt instruments with original maturities of three months or less are considered to be cash equivalents. (d) Trade receivables Trade receivables are presented net of allowances for doubtful accounts and sales returns of $4,978,000 and $11,303,000 at December 31, 1996 and 1995, respectively. (e) Inventories Inventories are stated at the lower of cost or market. Cost is 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 range from three to 25 years. F-8 44 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (g) Reorganization Goodwill Reorganization Goodwill, consisted of the excess of the Company's reorganization value over the aggregate fair value of its tangible and identified intangible assets at the Plan Effective Date and was amortized over a three year period. Reorganization Goodwill was fully amortized at December 31, 1995. (h) Other Assets Included in other assets are debt issuance costs, net of accumulated amortization, of $1,666,000 and $3,042,000 at December 31, 1996 and 1995, respectively. The costs are being amortized using the effective interest method over the life of the related debt. (i) Goodwill Goodwill represents the excess of the purchase price of acquisitions over the fair values of net assets acquired and is generally being amortized on a straight-line basis over periods from 30 to 40 years. The recovery of the carrying value of Goodwill is periodically evaluated in relation to the operating performance and future undiscounted net cash flows of the related businesses acquired. (j) Interest Rate Hedges The Company uses interest rate hedges to limit its exposure to the interest rate risk associated with its floating rate long-term bank debt. Unamortized premiums related to purchased interest rate caps are included in other assets in the balance sheet and are 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) Post-retirement Benefit Costs The estimated cost of providing post-retirement benefit costs, principally health care, to participating employees (less than 6% of total employees) is accrued during the years the employee renders the necessary service. (l) 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. In 1996, the Company adopted Statement of Position ("SOP") 96-1 Environmental Remediation Liabilities, which had no material impact on the Company's results of operations or financial position. SOP 96-1 provides guidance on the accounting for environmental remediation liabilities that relate to contamination from the past. F-9 45 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (m) Fair Value of Financial Instruments Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the financial statements at fair value because of the short-term maturity of those instruments. The fair values of the Company's debt and other financial instruments are disclosed in Note 8. (n) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for all temporary differences between the financial reporting and tax basis of assets and liabilities based upon enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. (o) Advertising and Research and Development Costs The Company expenses advertising and research and development costs as they are incurred. (p) Earnings Per Share Earnings per share for the years ended December 31, 1996, 1995 and 1994, were determined using the weighted average of the shares issued and reserved for issuance (see Note 12). When dilutive, stock options were included as share equivalents using the treasury stock method. The weighted average number of common shares and common share equivalents used for calculation of the primary earnings per share as of December 31, 1996, 1995 and 1994 were 9,891,631, 10,132,174 and 9,710,048, respectively. In 1996, fully diluted net income per share based upon 9,955,079 common shares and common share equivalents was $3.92 per share. In 1995, fully diluted net income per share based upon 10,150,692 common shares and common share equivalents was $0.25 per share. In 1994, stock options were anti-dilutive. In March 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards ("SFAS") SFAS No. 128, Earnings Per Share, which simplifies the method for calculating earnings per share. As defined in SFAS No. 128 "basic earnings per share" is determined using only the weighted average of the shares issued and reserved for issuance, while "diluted earnings per share" includes stock options (when dilutive) as share equivalents using the treasury stock method. If SFAS No. 128 had been adopted as of December 31, 1996, basic earnings per share for 1996 would have been $4.10 per share and diluted earnings per share would have been $3.95 per share. (q) Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results are likely to differ from those estimates and assumptions, but management does not believe such differences will materially affect the Company's financial position, results of operations or cash flows. F-10 46 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (r) Impairment of Long-Lived Assets On December 31, 1995, the Company adopted the Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of which had no material impact on the Company's results of operations or financial position in 1995 or 1996. SFAS No. 121 provides guidance for the recognition of impairment losses related to long-lived assets and certain intangibles and related goodwill for assets to be held and used and assets to be disposed of. (s) Accounting for Stock-Based Compensation Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (t) Reclassifications Certain 1995 and 1994 amounts have been reclassified to conform with 1996 presentation. (3) Divestitures and Subsequent Event The Office Products business of the Company's Office Products/Specialty Publishing Group was divested in three separate transactions during 1996 and the first quarter of 1997. The 1996 transactions included the divestitures of the Company's computer accessories business and electronic file organizer business for proceeds aggregating $21,818,000 which were used to reduce the outstanding amounts on the Company's bank loans. On March 5, 1997 the remainder of the Office Products business was sold for $117,000,000 in cash. The Company expects to largely offset the cash taxes resulting from the sale by utilizing its usable tax loss carryforwards. The Company is considering various alternatives for the use of the proceeds including a possible one time distribution of the proceeds to shareholders or a repurchase of shares. (4) 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. ("Lingemann") for approximately $37,726,000 including transaction fees and expenses. The Lingemann transactions include the purchase of stock of Lingemann's German subsidiary, ARUP Alu-Rohr und-Profil GmbH, and the automotive aluminum tube business assets of its Duncan, South Carolina based Helima-Helvetion International, F-11 47 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Inc. This cash transaction was financed principally from borrowings under the Company's Bank Credit Agreement (See Note 7). 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. (5) Discontinued Operations On August 1, 1994, the Company sold substantially the entire paint products segment for net proceeds of $50,788,000, resulting in a gain of $10,710,000, net of taxes totaling $8,224,000. The tax on the gain was offset by utilization of Federal and state net operating loss and capital loss carryforwards and did not result in significant cash payments. The net proceeds were utilized to reduce the Company's long-term debt. As a result of the sale, the paint products segment is accounted for as a discontinued operation. Revenues associated with the discontinued paint products segment for 1994 were $61,920,000. (6) Investment in Thermalex 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's equity investment in Thermalex represents a 50% ownership interest. Under the equity method of accounting, the Company's share of the net income of Thermalex is reflected as earned in "other income" in the accompanying statements of operations and any cash distributions are credited against the investment as received. The Company received $3,400,000 and $400,000 of dividend distributions from Thermalex in 1996 and 1995, respectively. Sales for Thermalex for the years ended December 31, 1996, 1995 and 1994 were $48,057,000, $44,839,000 and $34,510,000, respectively. Net income for the years ended December 31, 1996, 1995 and 1994 was $5,844,000, $4,670,000 and $2,723,000, respectively. Total assets were $28,629,000 and $32,631,000 at December 31, 1996 and 1995, respectively. Stockholders' equity was $17,102,000 and $18,058,000 at December 31, 1996 and 1995, respectively. During 1993, the Company loaned $4,200,000 to Thermalex at 7.95% with a maturity date of December 15, 1999 which was fully paid as of December 31, 1996. The unpaid balance as of December 31, 1995 of $1,000,000 was included in the Company's equity investment in Thermalex. F-12 48 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) Long-term Debt A summary of long-term debt at December 31, 1996 and 1995 follows (in thousands):
1996 1995 ---- ---- Bank term loan $116,677 139,500 Bank revolving credit facility 41,300 44,600 Miscellaneous 3,065 2,389 -------- -------- 161,042 186,489 Less current portion (24,272) (18,642) -------- ------- $136,770 167,847 ======= =======
In November 1994, the Company entered into a bank credit agreement that provided up to $285,000,000 in bank loans pursuant to two credit facilities (the "Bank Credit Agreement"). The Bank Credit Agreement consists of a $130,000,000 revolving credit facility, with a $50,000,000 sublimit for issuance of letters of credit and an initial $155,000,000 term loan ($116,677,000 at December 31, 1996). The bank loans bear interest at various floating rates, at the Company's option, which approximate the one to six month LIBOR rates plus 1.25% (such LIBOR rates approximated 5.5% to 5.8% at December 31, 1996). The Company has limited its exposure to fluctuations of interest rates on a portion of debt as explained in Note 8. Annual commitment fees consist of 3/8% of the average daily unused commitment and 1 1/4% of the average daily outstanding letters of credit. Letters of credit aggregating $10,430,000 were outstanding at December 31, 1996. The term loan is payable in quarterly installments through March 31, 2001. Partial proceeds from asset sales must be applied to the term loan under certain circumstances. The revolving credit facility will terminate and all amounts outstanding, if any, will be due on March 31, 2001. Aggregate principal payments of the Company's bank term loan for the five years subsequent to December 31, 1996 are as follows: in 1997 - $23,250,000; in 1998 - $26,625,000, in 1999 - $30,125,000, in 2000 - $32,375,000, and in 2001 - $4,302,000. 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 various restrictions and conditions regarding capital expenditures, payment of dividends, asset sales, investments, sale of stock, incurrence of additional indebtedness, financial covenants and other matters. The Company was in compliance with these covenants as of December 31, 1996. In 1994, proceeds from the Bank Credit Agreement were utilized to prepay amounts outstanding under the Company's 10 3/8% Notes and 9 1/2% Senior Notes, both of which were due on July 1, 1997 (collectively the "Old Notes") and to replace the Company's post-reorganization secured revolving credit facility (the "Revolving Credit Facility"). As a result of the prepayment, the Company recorded an extraordinary charge of $2,156,000, net of $1,345,000 tax benefit, due to the call premium required by the Old Notes and expensing the related unamortized debt financing costs. F-13 49 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (8) Fair Value of Financial Instruments The Company has determined the fair value of its debt and other financial instruments as follows: Term Loan and Revolver Loan The fair value of the bank term loan and revolving credit facility was determined to approximate the carrying value at December 31, 1996 and 1995 based upon the present value of expected cash flows considering expected maturities and using interest rates currently available to the Company for long-term borrowings with similar terms. Miscellaneous Debt The fair value of miscellaneous long-term debt is estimated to approximate the carrying amount because there have not been any significant changes in market conditions or specific circumstances since the instruments were recorded at fair value in connection with "fresh start" accounting on the Plan Effective Date. Interest Rate Hedges The fair values of the forward rate, interest rate cap and interest rate swap obligations at December 31, 1996 were less than the carrying values by $1,281,000. Quotes from counterparties were used to determine the fair values of these agreements. At December 31, 1996, the Company's forward rate agreements fixed the interest rate on $55,000,000 of its floating rate bank debt (from 11/29/96 to 5/30/97) to a weighted average rate of 6.97% and its swap agreement fixed the interest rate on $45,000,000 (from 5/30/95 to 5/30/98) at 8.99%. At December 31, 1996 the Company's cap agreements limit the maximum interest rate at $40,000,000 of its floating rate debt (from 5/28/95 to 5/27/97) to 8.25%. 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. F-14 50 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (9) Other Long-Term Liabilities A summary of other long-term liabilities at December 31 follows (in thousands):
1996 1995 ---- ---- Prepetition and other tax liabilities $13,242 17,271 Post-retirement benefits, other than pensions 21,641 21,622 Environmental liabilities 9,208 12,294 Deferred compensation and other 3,246 2,425 ------ ------ 47,337 53,612 Less current portion (6,661) (7,975) ------ ------ $40,676 45,637 ====== ======
Prepetition and other tax liabilities The Company entered into an agreement with the Internal Revenue Service 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. 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. During 1996 the Company amended its retiree health care plans 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 postretirement benefit obligation (APBO) for these retiree health care plans was reduced by approximately $3.4 million. 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. Periodic post-retirement benefits costs under the plans consist of service costs representing the cost of benefits earned by participating employees in one of the Open Plans and interest costs attributable to the Company's accrued obligations. F-15 51 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of net periodic post-retirement benefit cost follow (in thousands):
1996 1995 1994 ---- ---- ---- Service Cost $ 492 503 657 Interest Cost 1,154 1,401 1,485 Amortization of prior service costs (365) (145) - ------ ----- ------- $1,281 1,759 2,142 ===== ===== =====
The plans' status reconciled with amounts recognized in the consolidated balance sheet at December 31 follows (in thousands):
1996 1995 ---- ---- Accumulated post-retirement benefit obligations for retirees $ 7,828 11,263 Other fully eligible plan participants 2,302 2,719 Other active plan participants 4,440 5,224 ------- ------- Total APBO 14,570 19,206 Prior service cost 4,777 2,396 Unrecognized net gain 2,765 20 ------- -------- Accrued post-retirement benefit costs $22,112 21,622 ======= ======
At December 31, 1996 and 1995, the weighted-average discount rates used in determining the accumulated post-retirement benefit obligation were 7.75% and 7.25%, respectively. The recorded health care cost trend rate assumed in measuring the accumulated post-retirement benefit obligation was 8% in 1997, declining to an ultimate rate of 5% in 2010 and thereafter. If these trend rate assumptions were increased by 1%, the accumulated post-retirement benefit obligation would increase by approximately 14% ($2,045,000). The effect of this change on the sum of service cost and interest cost components of the net periodic post-retirement benefit cost for the year ending December 31, 1996 would be an increase of approximately 14% ($236,000). 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. As a result of the Chapter 11 cases, a significant amount of uncertainty has been removed concerning the Company's liability for remediation activities relating to acts or omissions of the Company prior to the Petition Date at previously owned sites and independent waste management facilities. Claims filed in the Chapter 11 cases and other known environmental obligations that relate to locations owned by the Company subsequent to the Petition Date or upon which the Company currently conducts operations will be paid in cash as the environmental remediation activities are incurred. The environmental liabilities included in other long-term obligations represent the estimate F-16 52 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements of cash obligations that will be required in future years for these environmental remediation activities. The Company has estimated the potential exposure and accrued liability to be approximately $9,208,000 relating to these environmental matters at December 31, 1996. 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. In addition, as a result of the Chapter 11 cases, a significant portion of the claims filed in the Bankruptcy Court were allowed as general unsecured claims to be discharged consistent with the Plan of Reorganization. Remaining claims related to environmental remediation obligations that are expected to be settled for stock are included in the Company's issued shares (see Note 12 for description of the reserved shares) and as such are not included in other long-term liabilities. 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 financial statements in the near term. (10) Pension 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. 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. F-17 53 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of the plans' funded status reconciled with amounts recognized in the consolidated balance sheet at December 31 follows (in thousands):
1996 1995 ------------------------- ------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets ----------- ----------- ----------- ----------- Plan assets at fair value $ 81,025 11,467 83,113 10,042 -------- ------- ------- ------- Actuarial present value of benefit obligations: Vested benefits 62,230 14,078 76,224 13,150 Nonvested benefits 906 606 1,022 330 -------- ------- -------- ------- Accumulated obligation 63,136 14,684 77,246 13,480 Benefits attributable to future compensation increases 2,504 549 4,536 283 -------- ------- ------- ------- Projected benefit obligations 65,640 15,233 81,782 13,763 -------- ------- ------- ------- Plan assets less projected benefit obligation 15,385 (3,766) 1,331 (3,721) Unrecognized gains (17,227) (550) (4,772) (1,446) Unrecognized prior service costs (1,260) 1,736 203 1,893 -------- ------- ------- ------- Pension liability $ (3,102) (2,580) (3,238) (3,274) ======== ======= ======= =======
The components of pension cost follow (in thousands):
1996 1995 1994 ---- ---- ---- Service cost $ 2,381 1,848 2,729 Interest cost 6,066 10,297 9,844 Actual return on assets (9,099) (27,531) (1,228) Net amortization and deferral 2,183 17,375 (9,088) ------ ------ ------ Net pension cost $ 1,531 1,989 2,257 ======= ====== ======
In addition, the Company recognized pension costs of $880,000 in 1996, $580,000 in 1995 and $565,000 in 1994, related to contributions to multi-employer plans. The assumptions used in accounting for the pension plans as of December 31 follow:
1996 1995 ---- ---- Discount rates 7.75% 7.25% Rates of increase in compensation levels 4.5% 4.5% Expected long-term rate of return on assets 9.0% 9.0%
In addition to the defined benefit plans described above, the Company sponsors a qualified defined contribution 401(k) plan covering substantially all non-union employees of the Company and its F-18 54 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements subsidiaries. The Company matches 50% of a participant's voluntary contributions up to a maximum of 3% of a participant's compensation. The Company's contribution expense was approximately $738,000 in 1996, $666,000 in 1995 and $717,000 in 1994. (11) Income Tax Expense The Company's actual income tax obligations during 1996, 1995 and 1994 were substantially less than the total amount of income taxes recognized because previously generated net operating losses and other net deferred tax assets were utilized to reduce the tax obligations ("noncash components" of income tax expense). The components of total income taxes and a reconciliation of total income taxes to the actual income tax obligations follow:
1996 1995 1994 ---- ---- ---- Total income taxes: Continuing operations $ 12,810 16,199 8,585 Discontinued operations - - 8,224 Extraordinary items - - (1,345) Stockholders' equity (402) (72) - ---------- --------- ------- Total income taxes 12,408 16,127 15,464 Noncash allocations: Deferred income taxes (10,016) (12,661) 1,626 Charges in lieu of taxes: Continuing operations - (842) (7,957) Discontinued operations - - (8,224) Extraordinary item - - 1,345 ---------- --------- ------- Actual income tax obligations $ 2,392 2,624 2,254 ========= ======== =======
Deferred tax assets previously recognized on the balance sheet are presented as a component of deferred income tax expense from continuing operations when realized. 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 (loss) from continuing operations by domestic and foreign source follows (in thousands):
1996 1995 1994 ---- ---- ---- Domestic $39,865 4,818 (44,832) Foreign 11,998 13,956 10,525 ------- ------ ------- $51,863 18,774 (34,307) ======= ====== =======
F-19 55 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Income tax expense attributable to income from continuing operations differs from the amount computed by applying the Federal statutory rate to pretax income (loss) from continuing operations due to the following (in thousands):
1996 1995 1994 ---- ---- ---- Computed "expected" tax expense (benefit) $18,152 6,571 (12,007) Goodwill amortization 22 11,260 24,226 State and local taxes, net of federal tax benefit 1,467 1,845 1,418 Foreign tax rate differential (2,076) (1,445) (2,976) Change in deferred tax asset valuation allowance (426) (367) (1,626) Equity in earnings of affiliates not subject to taxation because of dividends-received deduction for tax purposes (818) (654) (374) Benefit of capital loss carryforward (2,781) - - Other, net (730) (1,011) (76) ------- ------ ----- Income tax expense $12,810 16,199 8,585 ======= ====== =====
The components of income tax expense from continuing operations follow (in thousands):
1996 1995 1994 ---- ---- ---- Current: Federal $ 542 758 342 State, local and foreign 2,252 1,938 1,912 ------- ------- ------ 2,794 2,696 2,254 ------- ------- ------ Deferred: Federal 8,336 12,370 5,787 State, local and foreign 1,680 1,133 544 ------- ------- ------ 10,016 13,503 6,331 ------- ------ ----- Total $12,810 16,199 8,585 ======= ====== ======
F-20 56 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of deferred income tax expense (benefit) attributable to income from continuing operations follow (in thousands):
1996 1995 1994 ---- ---- ---- Deferred tax expense (benefit) exclusive of other components $10,442 13,028 - Charges in lieu of taxes - 842 7,957 Changes in the valuation allowance for deferred tax assets allocated to income tax expense (426) (367) (1,626) -------- -------- ------- $10,016 13,503 6,331 ======= ======= =======
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):
1996 1995 ---- ---- Deferred tax assets: Net operating loss carryforwards $ 38,783 37,491 Accrued liabilities, primarily due to accrual for financial reporting purposes 20,346 25,682 Pension and other post retirement benefits, primarily due to accrual for financial reporting purposes 11,105 10,697 Capital loss carryforwards 8,812 7,234 Other 2,537 8,808 -------- -------- Total gross deferred tax assets 81,583 89,912 Less valuation allowance (34,116) (44,952) ------- ------- 47,467 44,960 ------- ------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (9,199) (7,412) Other (867) (667) -------- -------- Total gross deferred tax liabilities (10,066) (8,079) ------- ------- Net deferred tax asset $ 37,401 36,881 ======= =======
F-21 57 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The net reduction in the valuation allowance for deferred tax assets for the years ended December 31, 1996 and 1995 was $10,836,000 and $7,623,000, respectively, which primarily resulted from the recognition of additional deferred tax assets and the expiration of capital loss carryforwards. 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. 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 additional paid-in capital and $426,000 and $367,000 was recorded as a component of deferred income tax benefit from continuing operations in 1996 and 1995, respectively. Recognition, if any, of tax benefits subsequent to December 31, 1996 relating to unrecognized deferred tax assets are expected to be allocated as follows (in thousands): Income tax benefit that would be reported in the consolidated statements of operations $ 11,314 Additional paid-in capital 22,802 ------ $ 34,116 ======
The reduction in the 1995 deferred tax asset valuation allowance described above followed evaluation of actual 1994 and 1995 taxable income and projections of future taxable income. The reduction of the 1996 deferred tax asset valuation allowance described above followed the decision to pursue the sale of the Rolodex business unit (completed in March 1997) as well as projections of future taxable income. In order to fully realize the net deferred tax assets recognized, the Company will need to generate future taxable income of approximately $193 million prior to the year 2000. Combined cumulative taxable income, before utilization of net operating loss carryforwards, for the past three years approximated $28 million. Based upon an evaluation of historical and projected future taxable income, the Company believes it is more likely than not that it will generate sufficient future taxable income to realize its net deferred tax asset of $37,401,000 at December 31, 1996. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income through the year 1999 are reduced. At December 31, 1996, the Company had Federal net operating loss carryforwards of approximately $88,222,000 which can be used to offset taxable income, which begin to expire in 2005. The Company's ability to utilize its pre-reorganization operating loss carryforwards is generally subject to the annual limitation of approximately $9,200,000. In addition to the annual limitation, operating loss carry forwards may be utilized for built in gains. Net operating losses not subject to the annual limitation (before consideration of built in gains) approximated $35,888,000 at December 31, 1996. The Company also has capital loss carryforwards of approximately $25,177,000 at December 31, 1996 which will begin to expire in 1998. The Company and its domestic subsidiaries file a consolidated U.S. Federal income tax return. The consolidated Federal income tax returns for 1991, 1992 and 1993 are presently being examined by the Internal Revenue Service. 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. F-22 58 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (12) 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, the shares of common stock consisted of the following:
1996 1995 ---- ---- Issued shares 9,647,237 9,574,646 Issuable shares 42,986 55,910 Reserved shares 120,571 222,195 ---------- ---------- 9,810,794 9,852,751 ========= =========
The issuable shares are those available for settled claims pending the return of required information by the claim holders to the Company. The reserved shares are those available to satisfy certain disputed Prepetition claims to be resolved in the Bankruptcy Court. During 1996, 101,624 reserved shares were eliminated because it was determined that prepetition claims would be settled for amounts less than previously estimated. To the extent that the remaining disputed claims are resolved for more or less than the reserved amount, the impact may be more or less dilutive to the Company's stockholders. Water Street Corporate Recovery Fund I, L.P., an investment partnership of which Goldman, Sachs & Co. ("Goldman Sachs") is the general partner, is the Company's principal stockholder, owning approximately 62% Company's outstanding shares of common stock. Under the Company's 1993 Long-Term Incentive Plan and 1993 Nonemployee Director Stock Incentive Plan, which became effective as of April 1, 1993, 1,860,000 shares of common stock have been reserved for issuance to eligible employees and nonemployee directors. As of December 31, 1996, the reserve has been reduced by awards for 183,336 shares and 1,179,549 granted options. Of the shares awarded, 10,000 were purchased in 1994 for $17.75 per share and 33,333 in 1993 for $15 per share, and the restrictions on the transferability of these shares will lapse in all events no later than three years after the award. Restrictions on the other 140,003 shares awarded, for which a nominal amount was paid, generally lapsed during 1995 and 1994 as the market value of the Company's stock attained targeted levels. 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. (13) Stock Option Plan Under the Company's 1993 Long-term Incentive Plan, 560,000 share grants in 1993 become exercisable in 20% annual increments and such options expire 5 years after the grant date. All other options become exercisable in 33 1/3% annual increments and expire 10 years after the grant date. Options not exercised by their expiration date expire on that date. The options were considered F-23 59 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements common stock equivalents for earnings per share purposes for 1996 and 1995, but the stock options were not included in the earnings per share calculation in 1994 because they were anti-dilutive. The per share weighted-average fair value of stock options granted during 1996 and 1995 was $19.20 and $18.58 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1996 - expected dividend yield 0.0%, risk-free interest rate of 6.27%, and an expected life of 7 years; 1995 - expected dividend yield 0.0%, risk-free interest rate of 6.31%, and an expected life of 7 years. The Company applies APB Opinion No. 25 in accounting for its stock option plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income, and earnings per share would have been reduced to the pro forma amounts indicated below:
1996 1995 ---- ---- Net income As reported $39,053 2,575 Pro forma 38,748 2,562 Earnings per share As reported 3.95 0.25 Pro forma 3.92 0.25
Pro forma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 3 years and compensation cost for options granted prior to January 1, 1995 is not considered. F-24 60 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of the options granted follows:
Number of Shares ---------- Options outstanding December 31, 1993 844,500 Granted at $16.50 - $26.50 per share 109,800 Granted at $30.00 per share 156,300 Forfeited at $15.00 - $30.00 per share (16,333) Exercised at $23.63 - $23.75 per share (2,099) ----------- Options outstanding December 31, 1994 1,092,168 Granted at $30.00 - $38.50 per share 12,850 Forfeited at $15.00 - $30.00 per share (28,369) Exercised at $15.00 - $17.25 per share (12,646) ---------- Options outstanding December 31, 1995 1,064,003 Granted at $31.13 - $35.56 per share 102,900 Forfeited at $15.00 - $35.00 per share (36,670) Exercised at $15.00 - $30.00 per share (59,668) ---------- Options outstanding December 31, 1996 1,070,565 ========== Options exercisable at December 31: 1994 at $15.00 - $30.00 per share 202,650 1995 at $15.00 - $30.00 per share 471,614 1996 at $15.00 - $38.50 per share 682,681
At December 31, 1996, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $15.00 - $38.50 and 4.38 years, respectively. At December 31, 1996 and 1995, the weighted-average exercise price of exercisable options was $21.45 and $20.87, respectively. (14) Other Income Other income for 1996 included a $3,125,000 pretax gain on the sale of the Rolodex electronics product line. Other income also 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 and $1,494,000 related to the resolutions of several legal disputes. In addition, other income included a $3,973,000 gain on the sale of idle corporate assets. Other income for 1994 included a $1,167,000 gain related to the collection of notes receivable in excess of their financial statement carrying amount. (15) Nonrecurring Charges During the three months ended June 30, 1995, the Company recorded $6,200,000 in charges relating primarily to an additional valuation allowance for customer returns and uncollectible accounts receivable at Rolodex, the Company's office supply unit, to recognize a number of open and F-25 61 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements unresolved customer chargebacks, primarily originating in prior years. (16) Related Party Transactions During 1996, the Company paid Goldman Sachs $1,000,000 in transaction fees in connection with the purchase of Lingemann (see Note 4). During 1994, the Company paid Goldman Sachs a fee of $750,000 for its advisory services in connection with the sale of the paint products segment. In addition, the Company paid $6,000 and $86,000 in 1995 and 1994, respectively, as reimbursement of expenses relating to this and other advisory services. In connection with such services, the Company provides for the indemnification of Goldman Sachs against various liabilities, including liabilities under the Federal securities laws. As discussed in Note 7, the Company entered into a new bank credit agreement in 1994. Pearl Street L.P., an affiliate of Goldman Sachs, had an initial participating interest of $27,500,000 in the credit facilities provided to the Company. Pearl Street L.P. received $931,000 and $44,000 from the agent bank for its portion of the arrangement fee and interest, respectively, paid by the Company during 1994. (17) Commitments and Contingencies Rental expense for operating leases totaled $3,954,000, $3,436,000 and $3,184,000 for the years ended December 31, 1996, 1995 and 1994, respectively. These leases primarily relate to production facilities. Rentals received for subleases for operating leases totaled $206,000 in 1996, $136,000 in 1995 and $0 in 1994. Future minimum lease payments under contractually noncancellable operating leases (with initial lease terms in excess of one year) for years subsequent to December 31, 1996 are as follows: 1997, $3,479,000; 1998, $2,861,000; 1999, $2,027,000; 2000, $1,196,000; 2001, $706,000; and thereafter, $313,000. Future minimum rentals to be received under noncancelable subleases for years subsequent to December 31, 1996 are as follows: 1997: $248,000, 1998: $260,000, 1999: $260,000, 2000: $260,000, 2001: $22,000 and thereafter, $0. The Company is implicated in various claims and legal actions arising in the ordinary course of business. In addition, certain claims filed in the Bankruptcy Court are in dispute. The Company has recorded these disputed claims at the estimated settlement amounts ultimately expected to be allowed following the Bankruptcy Court litigation. It is reasonably possible that the estimated settlement amounts could change in the near term but it is not expected that such a change would have a material effect on the financial statements in the near term. 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. The United States Federal Trade Commission ("FTC") is investigating the Company's acquisition of the automotive tubing business assets of Helima-Helvetion International, Inc. ("HHI") to determine if the acquisition violated federal antitrust laws. The Company has responded to various FTC requests for information concerning the relevant market and competitive conditions in that market. At this time it is not known whether the investigation will result in the issuance of a complaint, or if such complaint is issued, the relief that will be sought or obtained. The 1996 F-26 62 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements revenues associated with the automotive tubing business acquired from HHI were $2,019,000 million, and the tangible net assets at December 31, 1996 were $6,988,000. 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. At December 31, 1996, all unresolved bankruptcy settlements are included in the shares reserved to satisfy claims. (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 tubing and other heat transfer components and assemblies and automotive parts. Thermal's businesses are involved in the manufacture of welded aluminum and copper/brass tubing and heat exchangers. Thermal's heat-transfer products have a broad range of applications in motor vehicles, railroad locomotives, construction and other industrial equipment. Thermal uses a direct sales force and independent sales representatives to market its products to both original equipment manufacturers ("OEMs") and aftermarket customers primarily in the United States, China and Europe. In 1996, 1995 and 1994, aftermarket sales were approximately 27%, 28% and 30%, respectively, of revenues. On February 1, 1996, the Company acquired Great Lake, Inc. and Kar Tool Co., Inc., which serve the automotive, heavy truck and industrial manufacturing radiator replacement market. These acquisitions did not have a material effect on the Company's financial position or its liquidity. On July 10, 1996, the Company acquired the automotive aluminum tube business of Helmut Lingemann GmbH & Co. The transactions include the purchase of stock of Lingemann's German subsidiary, ARUP Alu-Rohr und-Profil GmbH, and the automotive aluminum tube business assets of its Duncan, South Carolina based subsidiary Helmina-Helvetion International, Inc. Steel Parts is a manufacturer of close tolerance, value added stampings for the automotive industry. Its products include clutch plates for automatic transmissions, suspension parts for vibration-reducing assemblies and engine mounts. Substantially all of Steel Parts' sales are made to the domestic automobile industry, either directly or indirectly through other independent automotive parts suppliers. Approximately 70%, 67% and 66% of Steel Parts' sales were to one of the "Big 3" domestic automobile manufacturers in 1996, 1995 and 1994, respectively. The strong domestic automotive market resulted in Steel Parts operating at or near capacity for most of 1996, 1995 and 1994. F-27 63 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Romac manufactures stainless steel tubing used principally in marine and architectural applications. (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"), which manufacture telecommunication and electrical component products, including: specialized connector systems, power transformers, precision stampings, wireform and wire assemblies, and cable and wire assemblies. Stewart Connector designs and manufactures high speed data connectors primarily for the computer networking and cellular telephone markets. 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 40% of Stewart Connector's sales in 1996, 43% in 1995 and 35% in 1994. It maintains a direct sales office in Japan. Signal manufactures custom and off-the-shelf small power transformers used in telecommunications products, medical instrumentation, electronic security systems, entertainment equipment and industrial process controls. Signal markets its products directly, utilizing catalogs and print advertising, and indirectly through independent sales representatives. It has a customer base of over nine thousand accounts, consisting of both OEMs and aftermarket resellers. Stewart Stamping is a tool designer and subcontract manufacturer of high volume precision metal stamped and wire formed parts. Stewart Stamping serves a wide variety of markets, including electrical devices such as circuit breakers, electrical fuses, lighting and process controls and the electronic industries in passive components such as capacitor cans and connector contacts. Stewart Stamping sells its products, directly and indirectly through manufacturing representatives, primarily in the U.S. Escod is a subcontract manufacturer in a highly fragmented market for wire and cable assemblies, primarily for the digital telecommunications switch market. Telecommunications and computer OEMs account for the bulk of Escod's sales. Despite successful recent customer diversification, two telecommunications OEMs together accounted for approximately 66%, 60% and 65% of total sales revenues in 1996, 1995 and 1994, respectively. Escod's dependence on these two major customers makes its revenues and operating income sensitive to changes in demand from those customers. (c) Office Products/Specialty Publishing Group The Office Products/Specialty Publishing Group includes two operating units: the Rolodex/Curtis operation, which manufactures and markets a variety of office products and computer accessories and is comprised of the Rolodex division, Rolodex de Puerto Rico, Inc. ("Rolodex-PR"), and Curtis Manufacturing, Inc. ("Curtis"); and Taylor Publishing Company ("Taylor"), a wholly owned subsidiary engaged in yearbook and other specialty printing and publishing. In late 1996 and early 1997, the Company sold the office products businesses. On September 3, 1996, the Company sold Curtis. On October 4, 1996, the Company sold its F-28 64 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Rolodex electronics product line. On March 5, 1997, the Company sold the remainder of its Rolodex business. Taylor is engaged primarily in the contract printing of scholastic yearbooks for high schools, middle and elementary schools, colleges and universities. Its principal yearbook customers are secondary (middle and senior high) schools throughout the United States. Taylor also publishes a variety of specialty publications on a contract basis and a limited number of its own publishing titles. Through its reunion services division, Taylor also provides reunion planning and other services for alumni of schools, colleges and academies. Rolodex(R) products include desktop filing devices, business card files, electronic data bank organizers, manual personal organizers, telephone finding lists and paper punches. Rolodex uses its own sales force as well as independent manufacturers' representatives to market its products to office superstores, mass merchandisers and the traditional commercial office supply market on a nationwide basis. Sales of the electronic products line divested in October 1996 totaled $9,330,000 in 1996 for the period until the date of sale. Sales of Curtis(R) brand and Curtis by RolodexTM computer accessories totaled $12,109,000 in 1996 for the period until the date of sale. Sales for Rolodex Offices Products (exclusive of Curtis sales and sales of electronic products) were $58,600,000 in 1996. (d) Allocation of Intangibles In accordance with the Reorganization SOP, the Company has allocated Reorganization Goodwill and resulting amortization to its identifiable segments. (e) Unallocated Corporate Overhead Segment operating income (loss) reflects the allocation of corporate overhead. Unallocated corporate overhead in 1994 consists of overhead associated with discontinued operations. F-29 65 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Operating information of each business segment, excluding divested subsidiaries, follows (in thousands):
1996 1995 1994 ---- ---- ---- Automotive Components Group - --------------------------- Sales $209,722 180,251 173,079 Cost of sales 156,481 134,673 130,183 Selling, general and administrative expenses 19,627 15,811 14,424 Allocated corporate overhead 2,981 1,282 2,194 Depreciation 6,718 4,674 4,024 Amortization of Reorganization Goodwill - 3,404 7,313 -------- ------- -------- Segment operating income $ 23,915 20,407 14,941 ======== ======= ======== Technologies Group - ------------------ Sales $183,663 170,615 164,909 Cost of sales 127,337 116,253 116,061 Selling, general and administrative expenses 23,190 19,750 17,736 Allocated corporate overhead 3,152 1,412 2,870 Depreciation 5,531 5,714 5,437 Amortization of Reorganization Goodwill - 7,176 15,419 -------- -------- -------- Segment operating income $ 24,453 20,310 7,386 ======== ======== ========= Office Products/Specialty Publishing - ------------------------------------ Group ----- Sales $179,089 210,337 205,642 Cost of sales 106,075 134,794 126,598 Selling, general and administrative expenses 54,450 57,577 55,700 Nonrecurring charges - 6,200 - Allocated corporate overhead 3,487 1,904 3,599 Depreciation 4,260 4,310 4,073 Amortization of Reorganization Goodwill - 21,592 46,485 --------- -------- -------- Segment operating income (loss) $ 10,817 (16,040) (30,813) ======== ======== =========
F-30 66 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements A reconciliation of segment operating income (loss) to consolidated operating income (loss) follows (in thousands):
1996 1995 1994 ---- ---- ---- Total segment operating income (loss) $59,185 24,677 (8,486) Unallocated corporate overhead - - (1,177) Corporate depreciation (84) (60) (36) ------- ------- ------- Consolidated operating income (loss) $59,101 24,617 (9,699) ======= ====== ======
A summary of identifiable assets of each business segment at December 31 follows (in thousands):
1996 1995 ---- ---- Automotive Components Group $144,573 97,269 Technologies Group 83,397 98,352 Office Products/Specialty Publishing Group 67,822 78,399 Corporate 56,208 66,109 -------- ------- $352,000 340,129 ======== =======
Corporate assets include cash, deferred taxes and other assets. A summary of capital expenditures of each business segment follows (in thousands):
1996 1995 1994 ---- ---- ---- Automotive Components Group $ 7,447 10,244 8,099 Technologies Group 9,597 7,044 4,770 Office Products/Specialty Publishing Group 5,446 4,745 6,105 Corporate 89 126 189 Discontinued operations - - 450 ------- ------ ------ $22,579 22,159 19,613 ======= ====== ======
In 1996, export sales were $71,571,000 or 12% of total sales. Export sales in 1996 to Europe, Asia, Canada and Mexico were $29,858,000, $17,133,000, $8,340,000 and $6,813,000, respectively. All other export sales totaled $9,427,000. In 1995, export sales were $59,669,000 or 11% of total sales. Export sales in 1995 to Europe, Asia, Canada and Mexico were $19,777,000, $18,493,000, $8,892,000 and $5,280,000, respectively. All other export sales in 1995 totaled $7,227,000. In 1994, export sales were less than 10% of total sales. The Company's transactions are primarily in U.S. dollars. F-31 67 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (19) Quarterly Financial Information (unaudited) A summary of the quarterly financial information follows (in thousands):
1996 ---- Dec 31(1) Sept 30(2) June 30 March 31 ------ ------- ------- -------- Sales $129,084 142,893 178,048 122,449 Gross Profit 36,230 41,038 55,621 34,882 Net income 12,620 8,482 11,805 6,146 Per Share: Net income $ 1.27 0.86 1.20 0.61
1995 ---- Dec 31(3) Sept 30 June 30(4) March 31 ------ ------- ------- -------- Sales $134,987 137,620 167,221 121,375 Gross Profit 39,243 41,621 55,756 37,913 Net income 748 (1,564) 3,321 70 Per Share: Net income $ 0.07 (0.15) 0.33 0.01
(1) Includes the following: a) Pretax gain of $3,125,000 on the sale of Rolodex electronics product line (See Note 3), b) recognition of a tax benefit of $3,207,000 primarily related to a capital loss carryforward. (2) Includes a $2,200,000 favorable adjustment to the Company's environmental liabilities. (3) Includes the following: a) Pretax gain of $4,300,000 related to a change in the Company's pension plan (See Note 10), b) gain of $2,300,000 from the sale of idle corporate assets, c) charges totaling $3,900,000 for Rolodex/Curtis primarily for customer chargebacks and sales returns. (4) Includes the following: a) nonrecurring charges of $6,200,000 (See Note 15), b) $3,600,000 favorable adjustment to the Company's environmental liabilities, c) $1,494,000 of favorable adjustments related to the resolution of several legal disputes (see Note 14). F-32 68 INSILCO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (20) Pro Forma Results of Operations The following pro forma financial information presents consolidated sales and results of operations as if the divestitures of Curtis, Rolodex electronics product line and the Rolodex business unit (see Note 3) had occurred as of the beginning of the periods presented. The pro forma effect of the acquisition of the automotive aluminum tube business of Lingemann (see Note 4) is included as if the acquisition occurred at the beginning of the year ended December 31, 1996. The effect of the acquisition for year ended December 31, 1995, is not included because operating information is not available for that period. The pro forma results of operations are as follows (in thousands, except per share data):
1996 1995 ---- ---- Sales $507,140 455,379 Net income 32,456 4,685 Net income per common share and share equivalent 3.28 0.46
F-33 69 INSILCO CORPORATION FORM 10-K EXHIBITS 70
Exhibit Index Page *2(a) - Amended and Restated Plan of Reorganization Jointly Proposed by the Debtors and the Official Joint Committee of Unsecured Creditors dated November 23, 1992 (Form T-3, Exhibit T3E-3, File No. 22-23356). *2(b) - Order Confirming Plan of Reorganization and Approving Settlements Pursuant to Bankruptcy Rule 9019 dated November 24, 1992 (Form T-3, Exhibit T3E-4, File No. 22-23356). *2(c) - Order on Motion for Order in Aid of Implementation of Plan dated March 23, 1993 (Form T-3, Exhibit T3E-5, File No. 22-23356). *2(d) - Order on Debtors' Supplemental Motion for Order in Aid of Implementation of Plan dated March 23, 1993 (Form T-3, Exhibit T3E-6, File No. 22-23356). *2(e) - Notice of (1) Order Confirming Plan of Reorganization, (2) Effective Date and (3) Administrative Claims Bar Date dated April 1, 1993 (Form 10, Exhibit 2(e), File No. 0-22098). *2(f) - Order on Motion for Order in Aid of Implementation of Plan dated September 14, 1993 (Form 10/A, Amendment No. 2 to Form 10, Exhibit 2(f), File No. 0-22098). *2(g) - Share Purchase Agreement, dated as of June 28, 1996, between the Company's subsidiary, GUVAB Gesellschaft fur Unternehmensbeteililgungen und Vermogensverwaltung im aluminiumverarbeitenden Bereich mbH ("GUVAB"), and Lingemann (Form 8-K dated July 10, 1996, File No. 0-22098).** *2(h) - Asset Purchase Agreement, dated as of July 1, 1996, among the Company's subsidiary, HHI Acquisition Corp., Lingemann, and Helima-Helvetion International, Inc (Form 8-K dated July 10, 1996, File No. 0-22098).** *2(i) - Stock Purchase Agreement, dated as of September 3, 1996, between the Company's subsidiary and Esselte Corporation (Form 8-K dated September 6, 1996, File No. 0-22098).** *2(j) - Asset Purchase Agreement, dated as of October 4, 1996, between the Company and Franklin Electronic Publishers, Inc. and List of Omitted Schedules (Form 8-K dated October 4, 1996, File No. 0-22098).** *2(k) - Asset Purchase Agreement, dated as of February 12, 1997, between the Company and Newell Co. (Form 8-K dated March 5, 1997, File No. 0-22098).** *3(a) - Amended and Restated Certificate of Incorporation of the Company (Form 10, Exhibit 3(a), File No. 0-22098). *3(b) - Amended and Restated Bylaws of the Company (Form 10, Exhibit 3(b), File No. 0-22098).
71
Exhibit Index Page *4(a) - Settlement Agreement and Stipulated Order by and between the Company, certain subsidiaries of the Registrant, The Valspar Corporation and the United States of America by order of the United States District Court for the Western District of Texas, San Antonio Division, dated January 19, 1993 (Form 10, Exhibit 4(h), File No. 0-22098). *4(b) - Stipulation regarding Settlement Agreement and Stipulated Order amending Exhibit 4(h) (Form 10, Exhibit 4(i), File No. 0-22098). *4(c) - Credit Agreement, dated as of October 21, 1994, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form S-8 Registrations Statement, as amended, Exhibit 4(o), File No. 33-86938).** *4(d) - First Amendment to Credit Agreement, dated as of November 21, 1994, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form S-8 Registration Statement, as amended, Exhibit 4(p), File No. 33- 86938).** *4(e) - Second Amendment to Credit Agreement, dated as of March 8, 1995, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent; (Form 10-K for the year ended December 31, 1994, Exhibit 4(f), File No. 0-22098).** *4(f) - Third Amendment to Credit Agreement, dated as of July 18, 1995, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time arites thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form 10-Q for the quarter ended June 30, 1995, Exhibit 4(g), File No. 0- 22098).** *4(g) - Fourth Amendment to Credit Agreement, dated as of June 21, 1996, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form 8-K dated July 10, 1996, File No. 0-22098).** 4(h) - Fifth Amendment Credit Agreement, dated as of March 3, 1997, among the Company, the institutions from time to time parties thereto as Lenders, the institutions from time to time parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative Agent. The following are management contracts and compensatory plans or arrangements in which directors or executive officers participate: *10(a) - 1993 the Company Long-Term Incentive Plan (Form 10, Exhibit 10(j), File No. 0- 22098).
72
Exhibit Index Page *10(b) - Supplemental Terms and Conditions Applicable to December 1993 Option Awards Under the Company 1993 Long-Term Incentive Plan (Form S-8 Registrations Statement, as amended, Exhibit 4(b), File No. 33-86938). *10(c) - Employment Agreement dated as of May 1, 1993 between the Company and Robert L. Smialek, as amended and restated (Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(k), File No. 0-22098). *10(d) - Restricted Stock Agreement dated as of June 26, 1994 between the Company and James D. Miller. (Form 10-K for the year ended December 31, 1994, Exhibit 10(e), File No. 0-22098). *10(e) - Form of Indemnification Agreement adopted by the Company as of July 30, 1990, entered into between the Registrant and certain of its officers and directors individually, together with a schedule identifying the other documents omitted and the material details in which such documents differ (Form 10, Exhibit 10(n), File No. 0-22098). *10(f) - 1993 the Company Nonemployee Director Stock Incentive Plan (Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File No. 0-22098). 10(g) - Value Appreciation Agreement as of December, 1996 entered into between the Registrant and the following officers: David M. Aronowitz, Robert F. Heffron, Les G. Jacobs, David A. Kauer, Kenneth H. Koch and Philip K. Woodlief. 10(h) - Form of Income Protection Agreement adopted by the Company as of December, 1996, entered into between the Registrant and the officers identified in Exhibit 10 (g) and James D. Miller. *21 - Subsidiaries of the Registrant (Form 10-Q for the quarter ended September 30, 1996, File No. 0-22098). 23(a) - Consent of KPMG Peat Marwick LLP. 24 - Power of Attorney of officers and directors of the Registrant appearing on the signature page hereof. 99(a) - Schedule II - Valuation and Qualifying Accounts.
* Incorporated by reference, as indicated. ** The Registrant agrees to furnish to the Securities and Exchange Commission upon request copies of any omitted schedule or exhibit to Exhibits 2(g), (h), (i), (j) and (k) and 4(c), 4(d), 4(e), 4(f) and 4(g) EX-99.G.2 16 COMPANY'S QUARTERLY REPORT ON FORM 10-Q 1 Exhibit (g)(2) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number: 0-22098 INSILCO CORPORATION (Exact name of registrant as specified in its charter) Delaware 06-0635844 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 425 Metro Place North Fifth Floor Dublin, Ohio 43017 (Address of principal executive offices) (Zip Code) 614-792-0468 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. (X) Yes ( ) No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 9, 1997, 9,503,874 shares of common stock, $.001 par value, were outstanding. 2 INSILCO CORPORATION AND SUBSIDIARIES INDEX TO FORM 10-Q
Page ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 - March 31, 1997 (unaudited) - December 31, 1996 Condensed Consolidated Income Statements 4 - Three months ended March 31, 1997 (unaudited) - Three months ended March 31, 1996 (unaudited) Condensed Consolidated Statement of Stockholders' Equity 5 - Three months ended March 31, 1997 (unaudited) Condensed Consolidated Statements of Cash Flows 6 - Three months ended March 31, 1997 (unaudited) - Three months ended March 31, 1996 (unaudited) Notes to Unaudited Condensed Consolidated Financial Statements 7 Independent Auditors' Review Report 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
(unaudited) March 31, December 31, 1997 1996 -------------- ------------ ASSETS Current assets: Cash and cash equivalents $115,523 3,481 Trade receivables, net 71,375 73,874 Other receivables 10,493 8,499 Inventories, net 70,500 66,385 Deferred tax asset 2,710 29,859 Prepaid expenses and other current assets 11,853 7,010 -------------- ------------ Total current assets 282,454 189,108 Property, plant and equipment, net 109,282 114,379 Deferred tax asset 7,263 7,542 Investment in Thermalex 9,266 8,550 Goodwill, net 13,133 13,659 Other assets and deferred charges 11,122 18,762 -------------- ------------ Total assets $432,520 352,000 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $24,057 24,272 Current portion of other long-term obligations 6,602 6,661 Accounts payable 34,923 37,984 Income taxes payable 15,248 3,596 Accrued expenses and other 70,710 68,639 -------------- ------------ Total current liabilities 151,540 141,152 Long-term debt, excluding current portion 144,643 136,770 Other long-term obligations, excluding current portion 38,877 40,676 Stockholders' equity 97,460 33,402 -------------- ------------ Total liabilities and stockholders' equity $432,520 352,000 ============== ============
Note: The condensed consolidated balance sheet at December 31, 1996 has been derived from the audited balance sheet as of that date. See accompanying notes to unaudited condensed consolidated financial statements. 3 4 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Income Statements (Unaudited) (In thousands, except share and per share data)
Three Months Three Months Ended Ended March 31, March 31, 1997 1996 ------------ ------------ Sales $ 117,341 122,449 Cost of products sold 82,789 84,840 Depreciation and amortization 4,065 3,116 Selling, general and administrative expenses 18,932 21,193 ------------ ------------ Operating income 11,555 13,300 ------------ ------------ Other income (expense): Interest expense (3,643) (4,512) Interest income 489 297 Gain on sale of Rolodex 95,001 - Other income, net 510 305 ------------ ------------ 92,357 (3,910) ------------ ------------ Income before income taxes 103,912 9,390 Income tax expense (40,593) (3,244) ------------ ------------ Net income $ 63,319 6,146 ============ ============ Net income per common share and common share equivalent $ 6.39 0.62 ============ ============ Weighted average number of common shares and common share equivalents 9,912,314 9,954,245 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 4 5 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders' Equity For the Three Months Ended March 31, 1997 (unaudited) (In thousands)
Common Stock Additional Retained Cumulative Total Par Value Paid-in Earnings Treasury Translation Stockholders' $0.001 Capital (Deficit) Stock Adjustment Equity ------------ ---------- --------- -------- ----------- ------------- Balance at December 31, 1996 $10 81,496 (37,115) (10,745) (244) 33,402 Net income - - 63,319 - - 63,319 Purchase of treasury stock - - - (1,204) - (1,204) Shares issued upon exercise of stock options - 2,406 - - - 2,406 Tax benefit from exercise of stock options - 1,312 - - - 1,312 Foreign currency translation - - - - (1,775) (1,775) ------------ ---------- --------- -------- ----------- ------------- Balance at March 31, 1997 $10 85,214 26,204 (11,949) (2,019) 97,460 ============ ========== ========= ======== =========== =============
See accompanying notes to unaudited condensed consolidated financial statements. 5 6 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Three Months Three Months Ended Ended March 31, March 31, 1997 1996 ------------- ----------- Cash flows from operating activities: Net income $ 63,319 6,146 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 4,065 3,116 Deferred tax expense 27,956 2,303 Gain on sale of Rolodex (95,001) - Other noncash charges and credits (388) 136 Change in operating assets and liabilities: Receivables (10,552) 8,982 Inventories (12,162) (17,578) Payables and other 18,928 (5,463) Other long-term liabilities (377) (880) ----------- ---------- Net cash used in operating activities (4,212) (3,238) ------------ ---------- Cash flows from investing activities: Proceeds from sale of Rolodex 112,610 - Acquisitions of businesses, net of cash acquired - (5,129) Capital expenditures (4,505) (4,099) Other investing activities 579 109 ------------ ---------- Net cash provided by (used in) investing activities 108,684 (9,119) ------------ ---------- Cash flows from financing activities: Proceeds from debt borrowings 8,440 15,200 Proceeds from sale of stock 1,777 276 Payment of prepetition liabilities (1,708) (1,651) Purchase of treasury stock (576) (2,359) Retirement of long-term debt (161) (4,107) ------------ ---------- Net cash provided by financing activities 7,772 7,359 ------------ ---------- Effect of exchange rate changes on cash (202) - ------------ ---------- Net increase (decrease) in cash and cash equivalents 112,042 (4,998) Cash and cash equivalents at beginning of period 3,481 9,894 ------------ ---------- Cash and cash equivalents at end of period $115,523 4,896 ============ ========== Interest paid $ 3,821 4,807 ============ ========== Income taxes paid $ 183 119 ============ ==========
See accompanying notes to unaudited condensed consolidated financial statements. 6 7 INSILCO CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 1997 (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) DIVESTITURE On March 5, 1997, the Company sold its Rolodex office products business for $112,610,000 which is net of transaction costs including $1,755,000 of fees payable to Goldman Sachs & Co., an affiliate of the Company's principal stockholders. The Company expects to substantially offset the cash taxes resulting from the sale by utilizing its usable tax loss carryforwards. The Company is considering various alternatives for the use of the proceeds including a possible one time distribution of the proceeds to shareholders or a repurchase of shares. (3) CASH & CASH EQUIVALENTS The Company has placed into a restricted account $110,000,000 of the proceeds from the sale of the Rolodex office products business which has been pledged as security against the Company's bank loans. Approximately $10,454,000 was invested in a money market fund with Goldman Sachs & Co. at the end of the first quarter of 1997. Cash equivalents of $99,546,000 were invested in various commercial paper at the end of the first quarter. Under an amendment to the Company's bank credit agreement, application has been deferred until a date not later than December 30, 1997. (4) INVENTORIES Inventories consisted of the following at March 31, 1997 (in thousands): Raw materials and supplies $25,660 Work-in-process 35,390 Finished goods 9,450 ------- Total inventories $70,500 =======
(5) EARNINGS PER SHARE When dilutive, stock options are included as share equivalents using the treasury stock method. The weighted average number of common shares and common share equivalents used for calculation of the primary earnings per share as of March 31, 1997 and 1996, were 9,912,314 and 9,954,245, respectively. 7 8 INSILCO CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 1997 In March 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards ("SFAS") SFAS No. 128, Earnings Per Share, which simplifies the method for calculating earnings per share. As defined in SFAS No. 128 "basic earnings per share" is determined using only the weighted average of the shares issued and reserved for issuance, while "diluted earnings per share" includes stock options (when dilutive) as share equivalents using the treasury stock method. If SFAS No. 128 had been adopted as of March 31, 1997, basic earnings per share for the first quarter of 1997 would have been $6.65 per share and diluted earnings per share would have been $6.39 per share. (6) CONTINGENCIES The Company is implicated in various claims and legal actions arising in the ordinary course of business. In addition, certain claims filed in the Bankruptcy Court are in dispute. The Company has recorded these disputed claims at the estimated settlement amounts ultimately expected to be allowed following the Bankruptcy Court litigation. It is reasonably possible that the estimated settlement amounts could change in the near term but it is not expected that such a change would have a material effect on the financial statements in the near term. 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. The United States Federal Trade Commission ("FTC") is investigating the Company's acquisition of the automotive tubing business assets of Helima-Helvetion International, Inc. ("HHI") to determine if the acquisition violated federal antitrust laws. The Company has responded to various FTC requests for information concerning the relevant market and competitive conditions in that market. At this time it is not known whether the investigation will result in the issuance of a complaint, or if such complaint is issued, the relief that will be sought or obtained. Revenues for the first quarter of 1997 associated with the automotive tubing business acquired from HHI were $1,207,000 and the tangible net assets at March 31, 1997 were $7,693,000. 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. At March 31, 1997, all unresolved bankruptcy settlements are included in the shares reserved to satisfy claims. (7) ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results are likely to differ from those estimates and assumptions, but management does not believe such differences will materially affect the Company's financial position, results of operations or cash flows. 8 9 INSILCO CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 1997 (8) PRO FORMA RESULT OF OPERATIONS The following pro forma financial information presents consolidated net sales and results of operations as if the sale of the Rolodex office products business (see Note 2) had occurred at the beginning of the periods presented exclusive of nonrecurring items directly attributable to the transaction. The pro forma results of operations are as follows (in thousands, except per share data):
Three Months Ended March 31, --------------------------- 1997 1996 -------- ------- Net sales $106,544 106,266 Net income 4,786 4,273 Net income per common share and share equivalent 0.48 0.43
9 10 INDEPENDENT AUDITORS' REVIEW REPORT THE BOARD OF DIRECTORS INSILCO CORPORATION We have reviewed the condensed consolidated balance sheet of Insilco Corporation and subsidiaries as of March 31, 1997, the related condensed consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1997 and 1996 and the condensed consolidated statement of stockholders' equity for the three-month period ended March 31, 1997. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Insilco Corporation and subsidiaries as of December 31, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1997, except as to the second paragraph in Note 3, which is as of March 5, 1997, we expressed an unqualified opinion on those consolidated financial statements. We did not audit the 1996 financial statements of Thermalex, Inc., a 50 percent owned investee company which is accounted for under the equity method. The 1996 financial statements of Thermalex, Inc. were audited by other auditors whose report has been furnished to us, and in our opinion, insofar as it relates to the amounts included for Thermalex, Inc., was based solely on the report of the other auditors. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Columbus, Ohio April 18, 1997 KPMG Peat Marwick, LLP 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is a diversified manufacturer of automotive component products, telecommunications and electronics and is a supplier of specialty publications. The Company's Automotive Components Group serves primarily the automotive markets through Thermal Components and Steel Parts operating units and manufactures stainless steel tubing used in non-automotive applications through its Romac Metals operating unit. The Technologies Group serves primarily the telecommunications and components markets through its Stewart Connector Systems, Stewart Stamping, Signal Transformer and Escod Industries operating units. The Specialty Publishing Group consists of Taylor Publishing (a publisher of yearbooks and other specialty publications). The Company completed the divestiture of its Office Products business with the sale of the Rolodex office products business on March 5, 1997 for a net sales price of $112,610,000. The Company recognized a pretax gain on the sale totaling $95,001,000 in the first quarter of 1997. In the fourth quarter of 1996, the Company had previously divested its computer accessories business and the Rolodex electronics product line. Summarized sales and operating income (loss) by business segment for the three months ended March 31, 1997 compared to the corresponding period in 1996 are set forth in the following table (in thousands) and discussed below:
Three Months Ended March 31, ------------------ 1997 1996 -------- ------- SALES Automotive Components Group $56,183 49,301 Technologies Group 47,094 44,183 Office Products/Specialty Publishing Group: Specialty Publishing 3,267 4,669 Office Products 10,797 24,296 -------- ------- 14,064 28,965 -------- ------- $117,341 122,449 ======== ======= OPERATING INCOME (LOSS) Automotive Components Group $5,676 5,620 Technologies Group 4,974 6,158 Office Products/Specialty Publishing Group Specialty Publishing (999) (1,071) Office Products 1,926 2,614 -------- ------- 927 1,543 -------- ------- Unallocated Corporate (22) (21) -------- ------- $11,555 13,300 ======== =======
11 12 SALES AND OPERATING INCOME. Total net sales decreased by approximately 4% ($5,108,000) in the first quarter of 1997 compared to the corresponding period in 1996 due to the divestiture of the Office Products business in three separate transactions completed in late 1996 and the first quarter of 1997. Sales of the Office Products business totaled $10,797,000 in the first quarter of 1997 compared to $24,296,000 in the first quarter of 1996. Excluding the Office Products business, the Company's sales increased 9% ($8,391,000) in the first quarter of 1997 compared to the first quarter of 1996 due to 14% ($6,882,000) and 7% ($2,911,000) increases in the Automotive Components Group and Technologies Group, respectively. Partially offsetting these increases was a 30% ($1,402,000) decline in the Specialty Publishing Group's sales in its traditionally seasonally slow first quarter. The 14% increase in the Automotive Component's Group's sales was due to an increase in the sales of automotive heat exchangers and related components and equipment, including sales of $7,807,000 from the Company's two aluminum tubing subsidiaries which were acquired in July 1996. Partially offsetting this growth was continued weakness in the domestic automotive radiator aftermarket. Steel Parts reported an 8% gain in sales of transmissions and other stamped steel parts due to higher content per car of Steel Parts' transmission components and diversification of its product line. The Technologies Group's sales increase of 7% is due to growth in sales of precision stampings by Stewart Stamping, resulting from increased customer demand, and wire and cable assemblies by Escod Industries, reflecting continued expansion of its customer base. In addition, Stewart Connector's modular data interconnect product sales increased 5%. Partially offsetting these improvements was a decline in the sales of power transformers by Signal Transformer. In a seasonally slow quarter, Taylor Publishing sales decreased 30% ($1,402,000) in the first quarter of 1997 from the corresponding period of the prior year primarily due to timing differences in the delivery of yearbooks. (See Seasonality.) Operating income decreased to $11,555,000 in the first quarter of 1997 from $13,300,000 in the first quarter of 1996 due to the divestiture of the Office Products business and lower operating margins in the Technologies Group. Operating income in the first quarter of 1997 included $1,926,000 from the divested Office Products business compared to $2,614,000 in the first quarter of 1996. The Automotive Components Group=s operating income in the first quarter of 1997 compared to the corresponding period of 1996 increased from $5,620,000 to $5,676,000. Increased operating income at the Company's stamped steel parts business and stainless steel tubing business units was largely offset by lower operating margins at the Company's 1996 acquisitions and the weak domestic automotive radiator aftermarket. The Technologies Group's operating income in the first quarter of 1997 compared to the corresponding period of 1996 decreased from $6,158,000 to $4,974,000. Operating income was impacted by lower margins on power transformers, a higher sales mix of lower margin wire and cable assemblies, and competitive pricing pressures in the connector market. In addition, Stewart Connector incurred a one-time $592,000 research and development expense related to a new type of fiber-optic connector. In the Specialty Publishing Group, Taylor Publishing's operating loss of $999,000 in the first quarter of 1997 was relatively flat with the prior year as improved operating margins offset the decline in sales. OTHER INCOME (EXPENSE). Other income for the first quarter of 1997 included a pretax gain on the sale of the Rolodex office products business totaling $95,001,000. Other income for the first quarters of 1997 and 1996 included $717,000 and $613,000, respectively, of equity income from the Company's unconsolidated joint venture, Thermalex, which manufactures extruded aluminum tubing primarily for automotive air conditioning condensers. Interest expense decreased 19% ($869,000) in the first quarter of 1997 compared to the first quarter of 1996 due to a lower effective interest rate and lower debt balances. 12 13 INCOME TAX EXPENSE. The Company's effective income tax rate increased from 34.5% at March 31, 1996 to 39.1% at March 31, 1997 primarily because of the greater proportion of domestic source income resulting from the sale of the Rolodex business. The Company expects to substantially offset the cash taxes resulting from the sale of Rolodex by utilizing its usable tax loss carryforwards. CASH FLOWS USED IN OPERATING ACTIVITIES. Operations used $4,212,000 cash in the first quarter of 1997 as compared to a cash usage of $3,238,000 in the first quarter of 1996. Cash flows from operations decreased from the prior year due to lower cash flow from operating earnings partially offset by improved working capital management. CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In 1997, the Company sold its Rolodex office products business for a net sales price of $112,610,000. In 1996, the Company acquired businesses serving the automotive, heavy truck and industrial manufacturing radiator replacement market for a net purchase price of $5,129,000. The Company's other current investments consist principally of capital expenditures which totaled $4,505,000 and $4,099,000 during the quarters ended March 31, 1997 and March 31, 1996, respectively. CASH FLOWS FROM FINANCING ACTIVITIES. In the first quarter of 1997, the Company borrowed a net amount of $8,440,000 on its revolving credit facility. In addition, the Company paid $1,708,000 of prepetition liabilities in the first quarter of 1997. In the first quarter of 1996, the Company made payments totaling $4,000,000 on its term loan and borrowed a net amount of $15,200,000 on its revolving credit facility. The Company also repurchased an additional 74,500 shares of its common stock for $2,359,000. In addition, the Company paid $1,651,000 of prepetition liabilities in the first quarter of 1996. SEASONALITY. The Company's yearbook publishing business, Taylor Publishing, is highly seasonal, with a majority of sales occurring in the second and third quarters of the year. Taylor receives significant customer advance deposits in the second half of the year. The Company's other businesses are not highly seasonal. IMPACT OF INFLATION AND CHANGING PRICES. Inflation and changing prices have not significantly affected the Company's operating results or markets. LIQUIDITY. At March 31, 1997, the Company's cash and cash equivalents and net working capital amounted to $115,523,000 and $130,914,000, respectively, compared to $3,481,000 and $47,956,000, respectively, at March 31, 1996. The significant increases over December 31, 1996 levels are due to the receipt of the net proceeds from the sale of the Rolodex office products business totaling $112,610,000. The Company has placed into a restricted account $110,000,000 of these proceeds which have been pledged as security against the Company's bank loans. Under an amendment to the Company's bank credit agreement, the application of these funds has been deferred until a date not later than December 30, 1997. The Company is considering various alternatives for the use of the proceeds including a possible one-time distribution of the proceeds to shareholders or a repurchase of shares. The borrowing ability under the Company's revolving credit facility as of the end of the first quarter of 1997 was $70,663,000, including $40,403,000 available for letters of credit. 13 14 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10(i) First Amendment to the Insilco Corporation 1993 Long-term Incentive Plan Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K A report, dated March 5, 1997, on Form 8-K was filed during the quarter ending March 31, 1997, pursuant to Item 2 of that form. The following financial statements were filed as part of that report: (1) Pro Forma Financial Information. Pro Forma Condensed Balance Sheet as of December 31, 1997 Pro Forma condensed Consolidated Statements of Operations for the Year Ended December 31, 1996 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INSILCO CORPORATION ----------------------- Registrant Date: May 14, 1997 By: /s/ Philip K. Woodlief ----------------------- Philip K. Woodlief * Corporate Controller; Principal Accounting Officer * In his capacity as Corporate Controller, Mr. Woodlief is duly authorized to sign this report on behalf of the registrant. 15 16 INSILCO CORPORATION FORM 10-Q EXHIBIT INDEX
Exhibit No. Exhibit Page No. - ----------- ------- -------- 10(i) First Amendment to the Insilco Corporation 1993 Long-term Incentive Plan 27 Financial Data Schedule
EX-99.G.3 17 OPINION OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC. 1 EXHIBIT (g)(3) [Houlihan Lokey Howard & Zukin letterhead] July 10, 1997 To: The Board of Directors Insilco Corporation Citicorp USA, Inc., as Administrative Agent, The First National Bank of Chicago and Goldman Sachs Credit Partners L.P., as Co-Agents, and the Lenders party to the Credit Agreement referred to below Dear Directors and Lenders: We understand that Insilco Corporation (the "Company") is considering entering into a transaction pursuant to which the Company will utilize $110 million from the proceeds of the sale of its Rolodex division to purchase shares of its common stock, par value $.001 ("Shares") from two of its shareholders (the "Stock Purchase") in a transaction intended to qualify for capital gains treatment under the partial liquidation rules of the Internal Revenue Code of 1986, and commence a self tender offer (the "Self Tender") to repurchase shares of common stock at the same per share purchase price as paid in the Stock Purchase, for an aggregate amount of $110 million. We further understand that the Company has amended and restated its existing credit facilities pursuant to an Amended and Restated Credit Agreement dated as of July 3, 1997 (the "Credit Agreement") among the Company, the financial institutions party thereto as lenders and issuing banks (collectively, the "Lenders"), The First National Bank of Chicago and Goldman Sachs Credit Partners L.P., as co-syndication agents (the "Co-Agents"), and Citicorp USA, Inc., as collateral and administrative agent for the Lenders (the "Administrative Agent"), to provide for a $200 million revolving credit facility (the "Revolving Credit") and further intends to sell up to $150 million of senior subordinated notes (the "Senior Subordinated Notes"). Finally, we understand that the Company is (i) initially borrowing approximately $170 million under the Revolving Credit to refinance existing indebtedness (the "Refinancing") and to pay fees and expenses, (ii) using the proceeds of the sale of its Rolodex business to fund the Stock Purchase and (iii) using $110 million of the $150 million of estimated proceeds of the Senior Subordinated Notes to fund the Self Tender and $40 million of the remaining proceeds to repay loans under the Revolving Credit 2 To: The Board of Directors Insilco Corporation The Lenders party to the Credit Agreement referred to herein July 10, 1997 Page 2 and pay fees and expenses of the Senior Subordinated Notes. The Stock Purchase, the Self Tender, the Refinancing and related transactions are referred to hereinafter as the "Transaction." You have requested our written opinion (the "Opinion") as to the matters set forth below. This Opinion values the Company as a going-concern (including goodwill), on a pro forma basis, immediately after and giving effect to the Transaction and the associated indebtedness. For purposes of this Opinion, "fair value" shall be defined as the amount at which the Company would change hands between a willing buyer and a willing seller, each having reasonable knowledge of the relevant facts, neither being under any compulsion to act, with equity to both; and "present fair saleable value" shall be defined as the amount that may be realized if the Company's aggregate assets (including goodwill) are sold as an entirety with reasonable promptness in an arm's length transaction under present conditions for the sale of comparable business enterprises, as such conditions can be reasonably evaluated by Houlihan Lokey. We have used the same valuation methodologies in determining fair value and present fair saleable value for purposes of rendering this Opinion. The term "identified contingent liabilities" shall mean the stated amount of contingent liabilities identified to us and valued by responsible officers of the Company, upon whom we have relied upon without independent verification; no other contingent liabilities will be considered. Being "able to pay its debts as they become absolute and mature" shall mean that, assuming the Transaction has been consummated as proposed, the Company's financial forecasts for the period 1997 to 2003 indicate positive cash flow for such period, including (and after giving effect to) the payment of installments due (or, in the case of the Senior Subordinated Notes, estimated to be due) under loans made pursuant to the indebtedness incurred in the Transaction and scheduled commitment reductions under the Credit Agreement. It is Houlihan Lokey's understanding, upon which it is relying, that the Company's Board of Directors and any other recipient of the Opinion will consult with and rely solely upon their own legal counsel with respect to said definitions. No representation is made herein, or directly or indirectly by the Opinion, as to any legal matter or as to the sufficiency of said definitions for any purpose other than setting forth the scope of Houlihan Lokey's Opinion hereunder. 3 To: The Board of Directors Insilco Corporation The Lenders party to the Credit Agreement referred to herein July 10, 1997 Page 3 Notwithstanding the use of the defined terms "fair value" and "present fair saleable value," we have not been engaged to identify prospective purchasers or to ascertain the actual prices at which and terms on which the Company can currently be sold. Because the sale of any business enterprise involves numerous assumptions and uncertainties, not all of which can be quantified or ascertained prior to engaging in an actual selling effort, we express no opinion as to whether the Company would actually be sold for the amount we believe to be its fair value and present fair saleable value. In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have: 1. reviewed the Company's annual reports to shareholders and on Form 10-K for the fiscal years ended December 31, 1994, December 31, 1995 and December 31, 1996 and quarterly report on Form 10-Q for the quarter ended March 31, 1997, which the Company's management has identified as the most current information available; 2. reviewed copies of the following documents: (i) a copy of the executed Credit Agreement and Letter Agreement (as defined therein) (ii) a term sheet for $150 million Senior Subordinated Notes; 3. met with certain members of the senior management of the Company to discuss the operations, financial condition, future prospects and projected operations and performance of the Company; 4. reviewed forecasts and projections prepared by the Company's management with respect to the Company for the years ended December 31, 1997 through 2003; 5. reviewed the historical market prices and trading volume for the Company's publicly traded securities; 4 To: The Board of Directors Insilco Corporation The Lenders party to the Credit Agreement referred to herein July 10, 1997 Page 4 6. reviewed other publicly available financial data for the Company and certain companies that we deem comparable to the Company; and 7. conducted such other studies, analyses and investigations as we have deemed appropriate. We have relied upon and assumed, without independent verification, that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of the Company, and that there has been no material adverse change in the assets, financial condition, business or prospects of the Company since the date of the most recent financial statements made available to us. Houlihan Lokey believes that the methodologies it has used to determine the fair value and present fair saleable value of the Company are, from a financial point of view, reasonable and appropriate. In the course of our review, nothing has come to our attention that has caused us to believe that the financial forecasts and projections were not reasonably prepared. We have not independently verified the accuracy and completeness of the information supplied to us with respect to the Company and do not assume any responsibility with respect to it. We have not made any physical inspection or independent appraisal of any of the properties or assets of the Company. Our opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us at the date of this letter. Although we have not independently verified the accuracy and completeness of the information supplied to us with respect to the Company and the Transaction (the "Information") and do not assume any responsibility with respect to it, we advise the recipients of this Opinion that nothing has come to the attention of our personnel working on this engagement in the course thereof that has caused us to believe that it was unreasonable for us to utilize and rely upon the Information taken as a whole as part of our analysis relating to this Opinion. Based upon the forgoing, and in reliance thereon, it is our opinion as of the date of this letter that, assuming the Transaction had been consummated as proposed: (i) immediately after and giving effect to the Transaction: 5 To: The Board of Directors Insilco Corporation The Lenders party to the Credit Agreement referred to herein July 10, 1997 Page 5 (a) the fair value and present fair saleable value of the Company's assets would exceed the Company's stated liabilities and identified contingent liabilities; (b) the Company should be able to pay its debts as they become absolute and mature; (c) the capital remaining in the Company after the Transaction would not be unreasonably small for the business in which the Company is engaged, as management has indicated it is now conducted and is proposed to be concluded following the consummation of the Transaction; and (d) the fair value and present fair saleable value of the Company's assets would exceed the amount that will be required to pay the Company's stated liabilities and identified contingent liabilities as they become absolute and mature; and (ii) immediately prior to the consummation of the Transaction, the fair value and the present fair saleable value of the Company's assets would exceed the Company's stated liabilities and identified contingent liabilities by an amount greater than the amount to be paid pursuant to the Stock Purchase and the Self Tender, plus an amount equal to the aggregate par value of the issued capital stock of the Company, and, immediately following the consummation of the Transaction, the fair value and present fair saleable value of the Company's assets will exceed the Company's stated liabilities and identified contingent liabilities by an amount at least equal to the aggregate par value of the outstanding capital stock of the Company. This Opinion is furnished solely for your benefit and may not be relied upon by any other person without our express, prior written consent, except that copies of this Opinion may be delivered to and may be relied upon by financial institutions that purchase assignments or participations in the Revolving Credit, subject to the understanding that this Opinion speaks only as of the date hereof and that we assume no responsibility for the effect of any event occurring after the date hereof. This Opinion is delivered to each recipient subject to the conditions, scope of engagement, limitations and understandings set forth in this Opinion and our 6 To: The Board of Directors Insilco Corporation The Lenders party to the Credit Agreement referred to herein July 10, 1997 Page 6 engagement letter dated June 25, 1997, and subject to the understanding that the obligations of Houlihan Lokey in the Transaction are solely corporate obligations, and no officer, director, employee, agent, shareholder or controlling person of Houlihan Lokey shall be subjected to any personal liability whatsoever to any person, nor will any such claim be asserted by or on behalf of you or your affiliates. HOULIHAN, LOKEY, HOWARD & ZUKIN, INC. -----END PRIVACY-ENHANCED MESSAGE-----