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EXHIBIT (g)(3)
[▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇ letterhead]
July 10, 1997
To: The Board of Directors
Insilco Corporation
Citicorp USA, Inc., as
Administrative Agent, The First
National Bank of Chicago and
▇▇▇▇▇▇▇ ▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ ▇▇▇▇▇ 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
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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 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. 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 ▇▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇▇ Lokey's Opinion
hereunder.
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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;
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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. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 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:
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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
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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 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ in the Transaction are solely corporate
obligations, and no officer, director, employee, agent, shareholder or
controlling person of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 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.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇, INC.
