<PAGE>
 
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998.
 
                                                       REGISTRATION NO. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM S-1
                         REGISTRATION STATEMENT UNDER
                          THE SECURITIES ACT OF 1933
 
                               ----------------
 
                      SPECIALTY PRODUCTS & INSULATION CO.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
      PENNSYLVANIA                   5033                  23-1713012
     (STATE OR OTHER     (PRIMARY STANDARD INDUSTRIAL   (I.R.S. EMPLOYER
     JURISDICTION OF      CLASSIFICATION CODE NUMBER)  IDENTIFICATION NO.)
    INCORPORATION OR
      ORGANIZATION)
 
                               ----------------
 
    120 NORTH SHIPPEN STREET, LANCASTER, PENNSYLVANIA 17602 (717) 397-3382
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               ----------------
 
                              MR. RONALD L. KING
                      SPECIALTY PRODUCTS & INSULATION CO.
                           120 NORTH SHIPPEN STREET
                         LANCASTER, PENNSYLVANIA 17602
                                (717) 397-3382
  (ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                              AGENT FOR SERVICE)
 
                               ----------------
 
                                  COPIES TO:
        THOMAS A. RALPH, ESQ.                   JAMES M. PAPADA III, ESQ.
     CHRISTOPHER G. KARRAS, ESQ.                 DEAN M. SCHWARTZ, ESQ.
       DECHERT PRICE & RHOADS               STRADLEY, RONON, STEVENS & YOUNG,
 4000 BELL ATLANTIC TOWER, 1717 ARCH                       LLP
               STREET                           2600 ONE COMMERCE SQUARE
  PHILADELPHIA, PENNSYLVANIA 19103-         PHILADELPHIA, PENNSYLVANIA 19103-
                2793                                      7098
           (215) 994-4000                            (215) 564-8000
 
                               ----------------
 
 
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
 
  If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
 
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
 
  If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
 
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
 
                               ----------------
 
                        CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                            PROPOSED MAXIMUM
          TITLE OF EACH CLASS OF           AGGREGATE OFFERING    AMOUNT OF
       SECURITIES TO BE REGISTERED              PRICE(1)      REGISTRATION FEE
------------------------------------------------------------------------------
<S>                                        <C>                <C>
Common Stock, par value $.01 per share....    $27,600,000          $8,142
</TABLE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o).
 
                               ----------------
 
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                  SUBJECT TO COMPLETION, DATED APRIL 10, 1998
 
PROSPECTUS
 
                                2,000,000 SHARES
 
                               SPECIALTY PRODUCTS
                                & INSULATION CO.
 
      LOGO                        COMMON STOCK
 
  All of the shares of Common Stock offered hereby (the "Offering") are being
sold by Specialty Products & Insulation Co. (the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price per share will
be between $10.00 and $12.00. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
 
  Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "SPIE."
 
  PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING
ON PAGE 8.
 
THESE SECURITIES  HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE  SECURITIES AND
 EXCHANGE  COMMISSION  OR  ANY  STATE   SECURITIES  COMMISSION,  NOR  HAS  THE
 SECURITIES AND EXCHANGE COMMISSION OR  ANY STATE SECURITIES COMMISSION PASSED
  UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
  CONTRARY IS A CRIMINAL OFFENSE.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                  UNDERWRITING
                                  PRICE TO        DISCOUNTS AND      PROCEEDS TO
                                   PUBLIC        COMMISSIONS(1)      COMPANY(2)
--------------------------------------------------------------------------------
<S>                           <C>               <C>               <C>
Per Share....................        $                 $                 $
--------------------------------------------------------------------------------
Total(3).....................       $                 $                 $
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1)  The Company has agreed to indemnify the Underwriters against certain
     liabilities, including liabilities under the Securities Act of 1933, as
     amended. See "Underwriting."
(2)  Before deducting expenses payable by the Company estimated to be $    .
(3)  The Company has granted to the Underwriters an option, exercisable for 30
     days from the date of the Offering, to purchase up to an aggregate of
     300,000 additional shares of Common Stock solely to cover over-allotments,
     if any. If the Underwriters exercise this option in full, the total Price
     to Public, Underwriting Discounts and Commissions and Proceeds to Company
     will be $    , $    and $   , respectively. See "Underwriting."
 
  The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if issued to and accepted by them, subject to their right to
reject any order in whole or in part and to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject offers in whole or in part. It is expected that delivery of certificates
for the shares will be made at the offices of Legg Mason Wood Walker,
Incorporated, Baltimore, Maryland on or about    , 1998.
 
LEGG MASON WOOD WALKER                                              ADVEST, INC.
      INCORPORATED
 
      , 1998
<PAGE>
 
  CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
 
 
                               PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by the detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. For purposes of this Prospectus, the "Company" refers to
Specialty Products & Insulation Co. and its consolidated subsidiary, unless the
context otherwise requires. Unless otherwise indicated, the information
contained in this Prospectus (i) gives effect to the spin-off of the Company
from its parent, Irex Corporation ("Irex"), through the pro rata distribution
of 100% of the capital stock of the Company to the shareholders of Irex (the
"Separation"), (ii) gives effect to the recapitalization of each share of the
Company's previously issued common stock into 291.4 shares of Common Stock and
(iii) assumes no exercise of the Underwriters' over-allotment option in
connection with the Offering.
 
                                  THE COMPANY
 
  Specialty Products & Insulation Co. is a leading national distributor and
fabricator of mechanical insulation, architectural/acoustical products and
specialty products to commercial and industrial markets. The Company also
offers customized fabrication, export and other value-added services related to
its core product lines. The Company operates through a national network of 51
distribution centers, including seven fabrication facilities, at strategically
chosen locations in 21 states. Through this network, the Company offers
approximately 25,000 stock keeping units ("SKUs") to more than 9,000 customers,
including specialty contractors, facility owners, general contractors, original
equipment manufacturers ("OEMs"), exporters and supply houses. The Company's
principal product categories include piping and equipment insulation as well as
acoustical ceilings and specialty wall panels for use in new construction,
maintenance, renovation and repair.These categories include the products of
more than 150 manufacturers including Armstrong World Industries, Owens
Corning, Johns Manville, Dow Chemical and Pittsburgh Corning. Since commencing
operations in the early 1980s, the Company has experienced significant growth
as a result of its ability to capitalize on industry changes including,
principally, the increased reliance on distributors by manufacturers and
customers. Net sales of the Company increased from $118.4 million in 1995 to
$158.5 million in 1997, and operating income grew from $4.1 million in 1995 to
$7.0 million in 1997.
 
  Significant changes in the Company's markets have resulted in the emergence
of an independent distribution channel. Independent distribution has reduced
duplicate functions performed by both manufacturers and customers, allowing
them to devote greater resources to their core competencies. Manufacturers have
been able to reduce logistical costs, lower marketing expenses and better
manage inventories by outsourcing the distribution function to independent
distributors. Customers have also been able to lower operating costs, reduce
their number of supply sources and gain high-quality, value-added services
through the utilization of independent distributors. This evolution has
produced markets which are highly fragmented and populated by many smaller
local and regional distributors. However, the Company believes the industry is
undergoing a significant trend toward consolidation as both manufacturers and
customers seek to enhance efficiencies and reduce costs while maintaining high
levels of product and service quality. The Company believes that large,
national distributors with significant purchasing power, integrated information
systems and relatively low infrastructure costs can offer greater value to
customers and will be well positioned to exceed market growth rates in this
industry.
 
  Two key components of the Company's growth strategy have been acquisitions
and openings of distribution and service centers ("distribution centers").
Historically, the Company grew as it solidified its presence in regional
markets. More recently, the Company has implemented a growth strategy that is
being executed on a national scale. Through targeted acquisitions and
distribution center openings, the Company pursues opportunities to expand its
presence in new geographic areas with strong growth characteristics. This
strategy enables the Company to further penetrate existing markets, broaden its
product and service capabilities and take advantage of current industry
dynamics. For the five-year period ended December 31, 1997, the Company
acquired 11 distribution operations, including three from affiliates, which
together contributed approximately $13.2 million, or 8.3%, of the Company's
1997 net sales. During the same period, the Company opened 10 distribution
centers, which together contributed approximately $12.3 million, or 7.8%, of
the Company's 1997
 
                                       3
<PAGE>
 
net sales. Since January 1, 1998, the Company has completed one acquisition and
opened two distribution centers.
 
  The Company is focused on its traditional strengths as a broadly based
national distributor and fabricator of mechanical insulation,
architectural/acoustical products, specialty products and value-added services.
The Company is committed to capitalizing on the expertise, knowledge and
experience it has developed in these core markets to increase market share and
profitability. In addition, the Company's operating strategy includes the
following key elements:
 
 .  Superior Customer Service. With distribution centers and sales forces in
   each area that it serves, the Company provides its customers with rapid
   delivery and localized service. The Company believes that providing a high
   level of customer service leads to long-term relationships with its
   customers.
 
 .  National Network of Distribution Centers. The Company believes its national
   distribution network enables the Company to attract customers that have
   multiple locations, participate with key vendors in the development of
   national marketing and sales strategies, achieve geographic diversification
   and facilitate best-practice benchmarking as well as innovation and
   knowledge-sharing within the Company.
 
 .  Strong Supplier Relationships. The Company believes its national presence,
   financial strength and partnering philosophy have enabled the Company to
   become the preferred distributor for many of its suppliers. The Company
   works with its suppliers to develop common expansion programs as well as
   customer-oriented product solutions.
 
 .  Low-Cost Provider. The Company believes that its volume of purchases and
   desirability as a vendor enable it to obtain purchase terms that are as
   favorable as those available to other large competitors. The Company is also
   able to realize advantages from the economies of large-scale operation in
   the areas of administrative processing, information systems, financing
   terms, technical expertise, inventory and working capital management.
 
 .  Innovative and Committed Employees. Management believes the Company's
   corporate culture and values allow it to attract, develop and retain
   innovative and committed employees. The Company's senior management has an
   average of approximately 10 years' experience with the Company, and many of
   its sales and service staff have been working in the same markets for 10
   years or more.
 
  The Company believes that its operating strategy provides a foundation for
growth in each of the markets in which it participates. See "Business--Growth
Strategy." The Company's growth strategy includes the following key elements:
 
 .  Increase Sales of Existing and Accessory Products. Management believes the
   Company's strengths and operating strategies will lead to increased sales to
   its existing customer base. The Company believes acquisitions, the opening
   of new distribution centers and other strategic initiatives will generate
   additional sales of existing products to new customers.
 
 .  Open New Distribution Centers. The Company expects to continue to open new
   distribution centers as a result of new market opportunities, customer
   service requirements, supplier initiatives and strategic opportunities. As
   the Company continues to broaden its national distribution network, the
   Company believes that it will be able to capitalize on operating
   efficiencies and the benefits of large-scale operation.
 
 .  Continue Acquisitions. The Company is committed to continuing its strategy
   to acquire distribution businesses with strong market positions, supplier
   support or attractive customer bases. Acquisitions allow the Company to
   accelerate revenue growth, expand its geographical presence, add product
   lines and technical expertise and achieve greater operating efficiencies.
 
 .  Emphasize National Accounts. Management believes that the Company's national
   distribution network gives the Company a competitive advantage in securing
   national and multi-regional customers seeking to reduce vendors, outsource
   non-core operations, integrate supply and gain value-added services such as
   procurement and material management.
 
                                       4
<PAGE>
 
 
 .  Add Product Lines. The Company intends to leverage its core product and
   technical expertise to add product lines which are complementary to those
   currently offered. The Company believes that its existing national
   distribution infrastructure enables it to add new product lines without
   incurring significant additional cost.
 
  The Company's executive offices are located at 120 North Shippen Street,
Lancaster, Pennsylvania 17602, and its telephone number is (717) 397-3382.
 
                               RECENT ACQUISITION
 
  On March 1, 1998, the Company acquired certain assets relating to mechanical
insulation distribution and fabrication operations of Extol of Texas, Inc. in
Houston and Corpus Christi, Texas ("Extol") for approximately $5.6 million in
cash. The acquisition was financed by borrowings from Irex. For the year ended
December 31, 1997, Extol generated sales of approximately $13.2 million. See
"Acquisition and Expansion Background."
 
                             SEPARATION FROM PARENT
 
  Since commencing operations in 1982, the Company has been a wholly owned
subsidiary of Irex. Through its operating subsidiaries other than the Company,
Irex is primarily engaged in the business of specialty contracting throughout
the United States and Canada. In January 1998 Irex announced plans to effect
the Separation through a pro rata distribution of 100% of the capital stock of
the Company to the shareholders of Irex. The Separation will occur immediately
prior to consummation of the Offering, and each is conditioned upon the
consummation of the other. Immediately following the Separation and the
Offering, all of the capital stock of the Company will be owned by the
shareholders of Irex who receive shares of Common Stock in the Separation and
by new shareholders who purchase Common Stock in the Offering. See "Separation
from Irex."
 
  The decision to effect the Separation is based on a number of factors. The
Separation will provide both corporations with greater managerial, operational
and financial flexibility to focus on and respond to changing market conditions
in their respective business environments. The Company also believes that its
ability to pursue and finance acquisitions and other business opportunities
will be enhanced if the Company operates independently. Furthermore, financial
advisors have advised Irex and the Company that equity capital necessary to
meet the business needs of Irex and the Company can be most effectively raised
through an initial public offering of the stock of the Company following its
Separation from Irex, rather than through a stock offering by either Irex or
the Company while Irex continues to hold a substantial equity interest in the
Company. In addition, management believes the Separation will assist the
Company in serving certain customers. Through the specialty contracting
businesses operated by its other subsidiaries, Irex competes with customers
whose business is solicited by the Company, and the Company believes these
customers will be more likely to purchase products from the Company after it is
independent from Irex. The Separation will also enable the Company to provide
its management and employees with incentive compensation in the form of direct
and indirect equity ownership in the Company.
 
  In connection with the Separation, the Company will enter into several
agreements with Irex and its subsidiaries setting forth the terms and
conditions of the Separation and governing certain interim and longer-term
relationships between the companies. See "Separation from Irex--Agreements with
Irex."
 
                                       5
<PAGE>
 
                                  THE OFFERING
 
Common Stock offered by the
 Company........................  2,000,000 shares
 
Common Stock to be outstanding
 after the Offering.............  4,913,547 shares(1)
 
Use of Proceeds.................  For the repayment of certain indebtedness,
                                  including indebtedness incurred to pay a
                                  dividend to Irex in connection with the
                                  Separation, and working capital and general
                                  corporate purposes. See "Use of Proceeds."
 
Nasdaq National Market Symbol...  Application has been made for quotation of
                                  the Common Stock on the Nasdaq National
                                  Market under the symbol "SPIE."
--------
(1) Does not include up to 491,355 shares of Common Stock that may be subject
    to a stock option plan which the Company expects to adopt prior to the
    consummation of the Offering. See "Management--Stock Options" and
    "Description of Capital Stock."
 
                                  RISK FACTORS
 
  See "Risk Factors" beginning on page 8 for a discussion of certain
information that should be considered by prospective purchasers of the Common
Stock offered hereby.
 
                                       6
<PAGE>
 
                   SUMMARY CONSOLIDATED FINANCIAL INFORMATION
 
  The following tables set forth summary historical and pro forma consolidated
financial information of the Company as of and for the periods indicated. The
pro forma balance sheet information assumes the Offering closed on December 31,
1997. The pro forma income statement information assumes the Offering closed as
of January 1, 1997. The summary consolidated financial information should be
read in conjunction with the "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and the
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                        --------------------------------------
                                            1995         1996         1997
                                        ------------ ------------ ------------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>          <C>          <C>
STATEMENT OF INCOME DATA:
Net sales.............................. $    118,395 $    141,800 $    158,510
Gross profit...........................       25,892       31,110       34,252
                                        ------------ ------------ ------------
Operating income.......................        4,051        6,348        7,023
Interest expense, net..................        1,840        1,854        1,939
                                        ------------ ------------ ------------
Income before income taxes.............        2,211        4,494        5,084
Income tax provision...................          918        1,810        2,077
                                        ------------ ------------ ------------
Net income............................. $      1,293 $      2,684 $      3,007
                                        ============ ============ ============
Net income per share--basic............ $       0.44 $       0.92 $       1.03
Net income per share--diluted.......... $       0.44 $       0.92 $       1.03
Weighted average number of common
 shares outstanding--basic.............    2,913,547    2,913,547    2,913,547
Weighted average number of common
 shares outstanding--diluted...........    2,913,547    2,913,547    2,913,547
PRO FORMA INCOME STATEMENT DATA(1):
Operating income.......................                           $      7,023
Interest expense, net..................                                  1,036
                                                                  ------------
Income before income taxes.............                                  5,987
Income tax provision...................                                  2,448
                                                                  ------------
Net income.............................                           $      3,539
                                                                  ============
Net income per share--basic............                           $       0.72
Net income per share--diluted..........                                   0.72
Weighted average number of common
 shares outstanding--basic.............                              4,913,547
Weighted average number of common
 shares outstanding--diluted...........                              4,913,547
</TABLE>
 
<TABLE>
<CAPTION>
                                                       AS OF DECEMBER 31, 1997
                                                     ---------------------------
                                                      ACTUAL     AS ADJUSTED(2)
                                                     ----------- ---------------
                                                          (IN THOUSANDS)
<S>                                                  <C>         <C>
BALANCE SHEET DATA:
Working capital..................................... $    11,266    $    15,519
Total assets........................................      47,651         47,651
Total long-term debt(3).............................      26,493         17,423
Shareholder's investment............................       9,180         18,250
</TABLE>
--------
(1) Gives pro forma effect to the sale of the Common Stock offered hereby and
    the application of the estimated net proceeds as described in "Use of
    Proceeds" as if such transactions had occurred as of the beginning of the
    period presented. See "Use of Proceeds."
(2) Represents historical data as of December 31, 1997 as adjusted to give pro
    forma effect to the sale of Common Stock offered hereby and the application
    of the net proceeds therefrom as described in "Use of Proceeds." See "Use
    of Proceeds."
(3) Total long-term debt includes notes payable to affiliate (both the long-
    term and current portions) and payable to affiliates.
 
                                       7
<PAGE>
 
                                 RISK FACTORS
 
  In evaluating an investment in the Common Stock offered hereby, prospective
investors should carefully consider the following risk factors as well as the
other information set forth elsewhere in this Prospectus.
 
LACK OF INDEPENDENT OPERATING HISTORY
 
  Concurrent with the Offering, the Company will separate from Irex pursuant
to the Separation. Prior to the Separation, the Company operated as a wholly
owned subsidiary of Irex, historically relied on Irex for various financial,
administrative and managerial services necessary for its operations and
maintained a minimal executive, financial and administrative staff. After the
Separation, the Company will maintain its own lines of credit and banking
relationships and perform its own financial, administrative and managerial
functions without the benefit of such services, and Irex will have no
obligation to provide assistance to the Company except pursuant to certain
agreements as described in "Separation from Irex--Agreements with Irex." While
management believes that the Separation will have a positive impact on the
Company, the Company may encounter financial, administrative, managerial or
other difficulties as a result of its lack of independent operating history or
the discontinuance of its reliance on the financial and other services of
Irex. No assurance can be given that the Company, as an independent entity,
will achieve operating results comparable to those prior to the Separation.
See "Separation from Irex."
 
LIMITATIONS ON ABILITY TO RAISE EQUITY CAPITAL AND POTENTIAL DEPENDENCE ON
DEBT FINANCING
 
  In order to preserve the tax-free status of the Separation, the Company's
future ability to issue Common Stock may be limited under federal income tax
laws for a period of two years following consummation of the Separation. The
Company's limited ability to issue capital stock during such period (including
its ability to issue Common Stock in connection with acquisitions) may require
the Company to rely on other financing sources, such as bank credit facilities
or debt offerings. Although the Company believes it can obtain financing
necessary to maintain its acquisition and growth program, reliance on such
alternative financing sources could adversely affect the Company's ability to
continue its acquisition program, create significant debt service obligations
and create other risks for the Company and its shareholders. No assurance can
be given that the Company will be able to obtain the capital it will need to
meet its operating needs and finance its acquisition program. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Growth Strategy."
 
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH
 
  The Company's growth strategy contemplates further acquisitions of
distribution and related businesses. The Company's future success is
dependent, in part, upon its ability to identify, finance and acquire suitable
businesses on favorable terms and then to integrate and manage the acquired
businesses quickly and successfully. Acquisitions involve special risks,
including risks associated with unanticipated liabilities, diversion of
management attention, possible adverse effects on earnings resulting from
increased goodwill amortization, potential increased interest costs,
dependence on retention, hiring and training of key personnel and difficulties
relating to the integration of the acquired businesses. Although the Company
believes that it can successfully implement its acquisition program, there can
be no assurance that the Company will be able to identify or acquire
acceptable acquisition candidates on terms favorable to the Company and in a
timely manner to the extent necessary to fulfill the Company's growth
strategy. The Company's ability to achieve and manage its growth will depend
on a number of factors, including the availability of working capital to
support such growth, existing and emerging competition and the Company's
ability to maintain sufficient profit margins. Continued growth could place
additional demands on the Company's administrative, operational and financial
resources. Furthermore, the Company's ability to pay for acquisitions with
stock may be materially limited in the two-year period following the
Separation and the Company's ability to implement its acquisition program may
be adversely affected as a result. There can be no assurance that the Company
will be able to continue to achieve or manage growth effectively, or that
future acquisitions will not have an adverse effect upon the Company's
 
                                       8
<PAGE>
 
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Growth Strategy."
 
SEASONALITY; INDUSTRY AND ECONOMIC CYCLES
 
  The Company's business is seasonal. The Company has in the past experienced
seasonal fluctuations in sales and operating results from quarter to quarter.
Operating results are weakest in the first calendar quarter because of the
effects of winter weather on commercial and industrial construction and the
consequent reduction in sales of mechanical insulation and
architectural/acoustical products. Fluctuations in the Company's quarterly
sales and operating results could result in significant volatility in, and
otherwise adversely affect, the market price of the Common Stock. See
"Management's Discussion of Financial Condition and Results of Operations--
Seasonality and Quarterly Results of Operations."
 
  Some of the principal markets for the products and services offered by the
Company are subject to cyclical economic fluctuations that generally affect
pricing, availability and demand for mechanical insulation and
architectural/acoustical products. Cyclical fluctuations could also affect
growth rates in the markets served by the Company's customers, the
availability of products from vendors and the availability of suitable
acquisition candidates. As a result, changes in general economic conditions
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Seasonality and Cyclicality."
 
DEPENDENCE ON SUPPLIER RELATIONSHIPS
 
  The Company's distribution operations are materially dependent on its
relationships with its suppliers. Generally, distribution agreements between
the Company and its suppliers may be terminated without cause by the suppliers
at any time. As a result, even the largest of the Company's suppliers could
terminate the flow of its products to the Company at any time and the Company
would have to obtain substitute products to maintain its reserves. Although
management believes that the Company can maintain its relationships with its
suppliers for the foreseeable future, there can be no assurance that it will
be able to do so. The termination or limitation by any key supplier of its
relationship with the Company could have a material adverse effect on the
Company's business, operating results and financial condition.
 
POTENTIAL RISKS DUE TO CHANGES IN INDUSTRY TRENDS
 
  The distribution industry is undergoing significant change. Historically,
distributors of mechanical insulation and architectural/acoustical products
served primarily as suppliers and extensions of manufacturers' sales forces.
In recent years, both manufacturers and customers have been increasingly
relying on distributors such as the Company to reduce purchasing costs and
provide a broad range of value-added services. As customers increasingly seek
low-cost alternatives to traditional methods of purchasing and sources of
supply, they are, among other things, reducing the number of their suppliers.
Although the Company believes it can maintain current customer relationships,
there can be no assurance that the Company will not lose customers, including
key accounts, as existing customers reduce the number of distributors with
which they do business. Also, distributors are consolidating to achieve
economies of scale and increase efficiencies. This consolidation trend could
cause the industry to become more competitive. The failure by the Company to
respond effectively to such consolidation and increased competition or to
other changes in the industry could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Industry Overview."
 
DEPENDENCE ON IREX INFORMATION SYSTEMS; POTENTIAL SYSTEMS CONVERSION; YEAR
2000 ISSUE
 
  The Company utilizes and will continue to utilize information systems
provided by Irex, which play an integral role in product tracking, pricing and
availability; order processing and shipping; distribution center operations;
purchasing; inventory management; financial reporting; and other financial and
operational functions.
 
                                       9
<PAGE>
 
The Company will enter into an agreement with Irex pursuant to which Irex will
provide information system services to the Company for three years following
the Separation. During such period the Company intends to evaluate its
existing and future information system requirements and examine its options
for obtaining such services. These options include, among others, continuing
the existing relationship with Irex or replacing the Company's current
systems. If the Company decides to install new information systems, there can
be no assurance that it will be able to successfully implement, integrate and
operate such systems without experiencing unanticipated delays, complications
and expenses. Significant disruptions in the Company's information systems or
the failure to successfully complete a conversion to new information systems
on a timely basis could result in operational and financial disruptions and
adversely affect the Company's business, operating results and financial
condition. See "Business--Information Systems."
 
  The Company does not expect to have material exposure to Year 2000
conversion risks following the installation of an upgrade to its information
system software scheduled for October 1998. This planned upgrade has been
installed and tested by the software system vendor in other information
systems and, as a result, the Company believes its information systems will be
Year 2000 compliant following the upgrade. The Company is presently unable to
determine the effects of Year 2000 compliance by its suppliers and customers,
and the failure of suppliers or customers to address such issues effectively
could have a material adverse effect on the Company. See "Business--
Information Systems."
 
POTENTIAL LIABILITY FOR TAXES RELATED TO THE SEPARATION
 
  In connection with the Separation, the Company will enter into a tax sharing
and indemnification agreement with Irex (the "Tax Agreement"). Under the Tax
Agreement the Company will be restricted, for a period of two years following
the date of the Separation, from engaging in certain transactions, including
certain issuances of stock, redemptions of stock or ceasing to engage in its
trade or business, without first obtaining either a ruling from the Internal
Revenue Service or an opinion from nationally recognized tax counsel that such
transaction will not affect the tax-free nature of the Separation to Irex or
its shareholders. The Tax Agreement also requires the Company to indemnify
Irex and its shareholders for tax liabilities that may be incurred by Irex or
its shareholders as a result of actions that the Company may undertake
following the Separation and that cause the Separation to be treated as a
taxable transaction to Irex or its shareholders. Under recently enacted
changes to the Internal Revenue Code applicable to spin-off distributions, a
distributing corporation (Irex) will recognize gain on the appreciation in the
stock of the distributed corporation (the Company) if the distribution is part
of a plan or series of related transactions pursuant to which one or more
persons acquire, directly or indirectly, 50% or more of the voting power or
value of the stock of either corporation. There is a rebuttable presumption
that any acquisition of stock (including acquisitions through stock issuances
by the Company) occurring two years before or after the Separation are part of
such a plan (or series if related transactions). Such presumption may be
rebutted by establishing that the Separation and acquisitions of such stock
are not pursuant to a plan or series of related transactions. Although the
Company does not expect these restrictions to materially inhibit its
operations or growth opportunities, if there is a final determination that any
or all of the distributions of Common Stock effected in connection with the
Separation are taxable, the Company could become liable for a portion of any
taxes due in connection with the Separation to the extent that such tax
liability cannot be collected from Irex or the remaining members of the Irex
consolidated group. The Company will also be required to indemnify Irex and
its subsidiaries for any tax liabilities otherwise imposed upon or
attributable to the Company related to the Company for periods prior to the
Separation. See "Separation from Irex--Agreements with Irex--Tax Sharing and
Indemnification Agreement."
 
LACK OF ARM'S-LENGTH BARGAINING ON AGREEMENTS WITH IREX
 
  The Company will enter into certain agreements with Irex and its
subsidiaries (the "Separation Agreements") in connection with the Separation
which will set forth the terms of the Separation, the right to utilize Irex's
information system, tax sharing and indemnification, and benefits sharing.
Although management
 
                                      10
<PAGE>
 
of the Company believes that the terms of the Separation Agreements will be
fair to the Company, the terms of the Separation Agreements will be fixed
between Irex and the Company when they are parent and subsidiary and not
independent parties negotiating on an arm's-length basis. Accordingly, there
is no assurance that the terms of the Separation Agreements will be as
favorable to the Company as those that might be obtained from an unaffiliated
third party.
 
COMPETITION
 
  The Company's markets are fragmented and highly competitive, and feature
numerous distribution channels, including national, regional and local
distributors, and local supply houses as well as direct sales by
manufacturers. Many of the Company's competitors are smaller businesses that
sell to customers in a limited geographic area, but the Company also competes
against several significant regional distributors. Certain of the Company's
competitors sell identical or equivalent products at competitive prices, and
the Company also competes on the basis of responsiveness to the needs of
customers for quality service, product diversity and availability. There can
be no assurance that the Company will be able to compete successfully in the
markets in which it operates.
 
DEPENDENCE ON KEY PERSONNEL
 
  The Company's operations are highly dependent on the skills, experience and
efforts of its Chief Executive Officer and senior management, and the Company
may depend on the senior management of any significant businesses it acquires
in the future. Although prior to the Offering the Company intends to enter
into employment agreements containing confidentiality and non-competition
provisions with its Chief Executive Officer and other members of its senior
management, the business and prospects of the Company could be adversely
affected if any of these persons does not continue in his position, and the
Company is unable to attract and retain a qualified replacement. See
"Management."
 
ANTI-TAKEOVER PROVISIONS
 
  Certain provisions of Pennsylvania law and the Company's restated articles
of incorporation and bylaws could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of the Company. Although the Company has opted out of Subchapters E, G and H
of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), the Company is governed by Subchapter F of Chapter 25 of the
PBCL, which prohibits the Company from engaging in a "business combination"
with an "interested shareholder" for a period of five years after the date of
the transaction as a result of which such shareholder became an "interested
shareholder," unless the business combination is approved in a prescribed
manner. The Company's restated articles of incorporation divide the Board of
Directors into three classes, each serving a staggered three-year term. By
extending the period of time required to re-elect or replace the entire Board
of Directors, such classification may have the effect of discouraging persons
seeking to effect a takeover or assume control of the board. In addition,
shares of the Company's Preferred Stock, par value $.01 per share (the
"Preferred Stock"), may be issued by the Board of Directors without
shareholder approval on such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The
rights of the holders of the Common Stock may be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The Company has no current plans to issue any
shares of Preferred Stock and may be otherwise limited in its ability to issue
Preferred Stock in the two-year period following the Separation. However, the
potential issuance of Preferred Stock could have the effect of delaying,
deterring or preventing a change of control of the Company. See "Description
of Capital Stock--Preferred Stock" and "Description of Capital Stock--Certain
Provisions of the Pennsylvania Business Corporation Law."
 
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK
 
  Prior to the Offering, there has been no public market for the Common Stock.
Although application has been made to list the Common Stock on the Nasdaq
National Market, there can be no assurance that an active or
 
                                      11
<PAGE>
 
liquid trading market in the Common Stock will develop upon completion of the
Offering or, if developed, that it will be sustained. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the Underwriters and may not be indicative of the
market price for the Common Stock after the Offering. The market price for
shares of the Company's Common Stock may be highly volatile and may be
significantly affected by such factors as quarter-to-quarter variations in the
Company's results of operations, changes in general market conditions and
other factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results of Operations and
Seasonality" and "Underwriting."
 
SHARES ELIGIBLE FOR FUTURE SALE
 
  Sales of a substantial number of shares of Common Stock in the public market
following the Offering and Separation could adversely affect the market price
for the Common Stock. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will
have on the market price of the Common Stock prevailing from time to time. The
number of outstanding shares of Common Stock available for sale in the public
market will be limited by (i) contractual agreements between the Company and
certain shareholders of the Company not to sell for two years the shares of
Common Stock received by them in the Separation; (ii) the lock-up agreements
under which the Company, its officers and directors, and certain Company
shareholders have agreed not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this Prospectus without the
prior written consent of Legg Mason Wood Walker, Incorporated, on behalf of
the Underwriters; (iii) limitations relating to the tax-free status of the
Separation (see "--Limitations on Ability Raise Equity Capital and Dependence
on Debt Financing"); and (iv) applicable restrictions under the Securities Act
of 1933, as amended (the "Securities Act"). Upon the consummation of the
Offering, shares subject to the foregoing agreements and restrictions will be
ineligible for sale, and only the shares offered hereby and shares of Common
Stock distributed in the Separation to nonaffiliates of the Company will be
eligible for sale. See "Shares Eligible for Future Sale." Sales of substantial
amounts of Common Stock, including those shares eligible for sale following
the Offering and those eligible for sale following the expiration of the
foregoing agreements and restrictions, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock.
 
                                      12
<PAGE>
 
                                USE OF PROCEEDS
 
  The net proceeds to be received by the Company from the Offering are
estimated to be approximately $19.6 million (approximately $22.6 million in
the event the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company intends to use such
proceeds as follows: (i) to repay approximately $5.1 million of long-term
debt; (ii) to repay approximately $4.0 million of other indebtedness to Irex;
(iii) to repay indebtedness incurred by the declaration of a $10.5 million
dividend to Irex in connection with the Separation; and (iv) for working
capital and general corporate purposes. See "Separation from Irex."
 
                                DIVIDEND POLICY
 
  The Company does not plan to pay dividends on its Common Stock in the
foreseeable future and plans to retain any future earnings to finance its
operations and expand its business. Any future determination as to the payment
of cash dividends will be at the discretion of the Company's Board of
Directors and will depend, among other factors, upon the Company's earnings,
financial condition and capital requirements and the terms of the Company's
financing agreements. In addition, the Company's future financing agreement
may contain limitations on the payment of cash dividends.
 
                                      13
<PAGE>
 
                                   DILUTION
 
  The net tangible book value (tangible assets minus total liabilities) of the
Company as of December 31, 1997 was $8.2 million, or $2.82 per share of
outstanding Common Stock. After giving effect to the sale of the 2,000,000
shares of Common Stock offered by the Company hereby at an assumed initial
offering price of $11.00 per share (and deducting the estimated underwriting
discount and offering expenses), the pro forma net tangible book value of the
Company as of December 31, 1997 would have been approximately $17.3 million,
or $3.52 per share. This change represents an immediate increase in net
tangible book value of $0.70 per share to the existing shareholders of the
Company (the "Existing Shareholders") and an immediate dilution of $7.48 per
share to investors purchasing shares of Common Stock in this Offering. The
following table illustrates this per share dilution:
 
<TABLE>
   <S>                                                           <C>    <C>
   Initial public offering price per share......................        $11.00
     Net tangible book value per share before this Offering..... $ 2.82
     Increase in net tangible book value per share attributable
      to this Offering..........................................   0.70
                                                                 ------
   Net tangible book value per share after this Offering........          3.52
                                                                        ------
   Dilution per share to new investors..........................        $ 7.48
                                                                        ======
</TABLE>
 
  The following table summarizes as of December 31, 1997, the differences
between the Existing Shareholders and investors purchasing shares of Common
Stock in this Offering with respect to the number of shares of Common Stock
purchased from the Company (assuming no exercise of the Underwriters' over-
allotment option), the total consideration paid and the average price per
share paid:
 
<TABLE>
<CAPTION>
                            SHARES PURCHASED  TOTAL CONSIDERATION
                            ----------------- -------------------
                                                                  AVERAGE PRICE
                             NUMBER   PERCENT   AMOUNT    PERCENT   PER SHARE
                            --------- ------- ----------- ------- -------------
   <S>                      <C>       <C>     <C>         <C>     <C>
   Existing shareholders... 2,913,547   59.3% $ 9,180,000   29.4%    $ 3.15
   New investors........... 2,000,000   40.7%  22,000,000   70.6%     11.00
                            ---------  -----  -----------  -----
     Total................. 4,913,547  100.0% $31,180,000  100.0%
                            =========  =====  ===========  =====
</TABLE>
 
 
                                      14
<PAGE>
 
                                CAPITALIZATION
 
  The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997 and as adjusted to give effect to the
Separation and the sale of 2,000,000 shares of Common Stock offered by the
Company in the Offering at an assumed initial public offering price of $11.00
per share, after deducting the estimated underwriting discounts and
commissions and estimated Offering expenses payable by the Company, and the
application of estimated net proceeds therefrom. See "Use of Proceeds." This
table should be read in conjunction with "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related
notes thereto included elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                         AS OF DECEMBER 31, 1997
                                                         -----------------------
                                                         ACTUAL  AS ADJUSTED (1)
                                                         ------- ---------------
                                                             (IN THOUSANDS)
<S>                                                      <C>     <C>
Current portion of long-term debt....................... $ 1,455     $   --
                                                         =======     =======
Payable to affiliates................................... $20,221     $17,423
                                                         =======     =======
Long-term debt:
  Notes payable to affiliate............................ $ 4,742     $   --
  Other.................................................      75         --
                                                         -------     -------
    Total long-term debt................................ $ 4,817         --
                                                         -------     -------
Shareholder's investment:
  Common Stock.......................................... $    29     $    49
  Paid in surplus.......................................     974      18,201
  Retained earnings.....................................   8,177         --
                                                         -------     -------
    Total shareholder's investment...................... $ 9,180     $18,250
                                                         -------     -------
    Total capitalization................................ $13,997     $18,250
                                                         =======     =======
</TABLE>
--------
(1) Adjusted to reflect (i) the Separation, (ii) the sale of 2,000,000 shares
    of Common Stock by the Company at an assumed initial public offering price
    of $11.00 per share and (iii) the application of approximately
    $19.6 million of the net proceeds to the repayment of indebtedness (both
    long-term and payable to affiliates) as well as the repayment of
    indebtedness in connection with the declaration of a dividend in the
    amount of $10.5 million to Irex immediately prior to the Separation.
 
                                      15
<PAGE>
 
                     SELECTED CONSOLIDATED FINANCIAL DATA
 
  The selected financial information presented below as of and for the years
ended December 31, 1996 and December 31, 1997, and for the year ended December
31, 1995 has been derived from the audited consolidated financial statements
of the Company included elsewhere in this Prospectus. This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's consolidated financial
statements and related notes included elsewhere in this Prospectus. The
historical financial information as of and for the years ended December 31,
1993 and December 31, 1994 have been derived from the unaudited consolidated
financial statements of the Company, and, in the opinion of management,
include all adjustments (consisting only of normal, recurring adjustments)
necessary to present fairly the information set forth therein.
 
  The pro forma financial information has been prepared on the basis of
certain assumptions and estimates and may not be indicative of the results
that would have been achieved if the recapitalization and the Offering had
been effected on the dates indicated or that may be achieved in the future.
 
<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                         ----------------------------------------------------------------
                                                                                PRO FORMA
                            1993       1994       1995       1996       1997     1997(1)
                         ---------- ---------- ---------- ---------- ---------- ---------
                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
STATEMENT OF INCOME
 DATA:
  Net sales............. $   89,396 $  101,895 $  118,395 $  141,800 $  158,510 $ 158,510
                         ---------- ---------- ---------- ---------- ---------- ---------
  Gross profit..........     18,937     21,564     25,892     31,110     34,252    34,252
  Selling, general, and
   administrative
   expense..............     17,426     18,957     21,841     24,762     27,229    27,229
                         ---------- ---------- ---------- ---------- ---------- ---------
  Operating income......      1,511      2,607      4,051      6,348      7,023     7,023
  Interest expense,
   net..................        913      1,194      1,840      1,854      1,939     1,036
                         ---------- ---------- ---------- ---------- ---------- ---------
  Income before income
   taxes................        598      1,413      2,211      4,494      5,084     5,987
  Income tax provision..        216        655        918      1,810      2,077     2,448
                         ---------- ---------- ---------- ---------- ---------- ---------
  Net income ........... $      382 $      758 $    1,293 $    2,684 $    3,007 $   3,539
                         ========== ========== ========== ========== ========== =========
  Net income per share-
   basic................ $     0.13 $     0.26 $     0.44 $     0.92 $     1.03 $    0.72
  Net income per share-
   diluted..............       0.13       0.26       0.44       0.92       1.03      0.72
WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING:
  Basic.................  2,913,547  2,913,547  2,913,547  2,913,547  2,913,547 4,913,547
  Diluted...............  2,913,547  2,913,547  2,913,547  2,913,547  2,913,547 4,913,547
BALANCE SHEET DATA:
  Working capital....... $   10,198 $    9,166 $    9,839 $   10,804 $   11,266 $  15,519
  Total assets..........     28,480     31,814     36,026     38,935     47,651    47,651
  Total debt(2).........     19,055     20,819     22,996     22,370     26,493    17,423(3)
  Shareholder's
   investment...........      3,279      3,655      4,200      6,421      9,180    18,250(3)
</TABLE>
--------
(1) Adjusted to reflect the reduction in interest expense and the
    corresponding tax related to the reduction in long-term debt and payable
    to affiliates from the estimated net proceeds of the Offering as if it had
    occurred on January 1, 1997.
(2) Total debt is composed of:
  (a) Long-term debt with an affiliate ($8,550 from 1993 through 1995, $7,364
      in 1996 and $6,272 in 1997) and other long-term debt ($94 in 1997).
 
                                      16
<PAGE>
 
  (b) Payable to affiliates. This balance was $10,505 in 1993, $12,269 in
      1994, $14,446 in 1995, $15,006 in 1996 and $20,221 in 1997.
(3) Adjusted to reflect (i) the Separation, (ii) the sale of 2,000,000 shares
    of Common Stock by the Company at an assumed initial public offering price
    of $11.00 per share and (iii) the application of approximately
    $19.6 million of the net proceeds to the repayment of indebtedness (both
    long-term and payable to affiliates) as well as the repayment of
    indebtedness incurred in connection with the declaration of a $10.5
    million dividend to Irex immediately prior to the Separation.
 
                                      17
<PAGE>
 
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
  The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements appearing elsewhere in this Prospectus.
 
  The Company is a leading distributor and fabricator of mechanical
insulation, architectural/acoustical products and specialty products and
services for the commercial and industrial markets. The Company has developed
a national network of 51 distribution centers, including seven fabrication
facilities, at strategically chosen locations in 21 states. Through this
network, the Company distributes a variety of mechanical insulation,
architectural/acoustical products and numerous specialty products to customers
for use in the new construction, renovation and maintenance sectors of
industrial and commercial markets. The markets in which the Company competes
have generally exhibited steady and relatively non-cyclical growth due to the
Company's geographic diversity and broad customer base. The Company provides
products and services to customers in a range of industries, including the
general commercial construction, utilities, petro-chemical, pulp and paper,
cold storage, chemical, marine and original equipment manufacturing
industries, among others.
 
  Historically, the supply markets in which the Company operates have been
highly fragmented and populated by many smaller local and regional
distributors. The industry has begun a trend toward consolidation due
principally to the economies of scale realized by large distributors, the
increasing demand by customers for fewer sources of supply, the benefits of
volume purchasing by larger vendors and demands by customers for additional
value-added services which require substantial investments in technology,
human resources and infrastructure. The Company believes that those
distributors which develop the capabilities and strengths to take advantage of
these trends will be well-positioned to gain market share.
 
  In order to capitalize on its core competencies and take advantage of market
opportunities, the Company has adopted a growth strategy which focuses
primarily on acquiring and opening new distribution centers. The Company
initially adopted a growth strategy to strengthen its presence in regional
markets and has recently begun to implement its strategy on a national scale.
For the three-year period ended December 31, 1997, the Company acquired seven
distribution operations and opened six new distribution centers. Through
targeted acquisitions and distribution center openings, the Company is able to
expand its geographic presence into new markets, meet supplier initiatives and
customer service requirements, pursue strategic opportunities, broaden its
product and service capabilities and take advantage of current industry
dynamics. Distribution centers opened through start-ups or acquisitions during
the three-year period ended December 31, 1997 accounted for approximately
37.2% of the $40.1 million increase in the Company's net sales during that
period. The Company believes that future results of operations will depend in
large part on the Company's ability to continue to make acquisitions on
attractive terms and open new distribution centers in strategic locations, and
then to successfully integrate and manage these new facilities.
 
  Newly opened distribution centers typically generate an operating loss
during the first one to two years of operations. A greater number of
distribution center openings by the Company in the two-year period ended
December 31, 1997 resulted in a higher percentage of facility and personnel
expenses in 1997 as compared to 1996. However, as the Company generates
incremental volume through acquired or newly opened distribution centers, the
Company believes it will realize improvement in its operating margins by
carrying its fixed costs over a larger revenue base.
 
  On January 19, 1998, Irex announced the Separation. The transaction will
provide the Company with increased flexibility to fund and execute its growth
strategy of internal expansion and acquisitions. The Company's participation
in a consolidating industry, where customers and suppliers desire
relationships with fewer distributors that can provide a range of value-added
products and services, affords additional growth opportunities. The spin off
will create a management team and capital structure devoted solely to
capitalizing on
 
                                      18
<PAGE>
 
these opportunities. The Company has entered into an agreement with Irex which
provides, among other things, for Irex to continue to provide information
services to the Company for a three-year period following the Separation. See
"Separation from Irex."
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income expressed as a percentage
of net sales:
 
<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31,
                                -------------------------
                                 1995     1996     1997
                                -------  -------  -------
      <S>                       <C>      <C>      <C>
      Net sales...............    100.0%   100.0%   100.0%
      Cost of sales...........     78.1%    78.1%    78.4%
                                -------  -------  -------
      Gross profit............     21.9%    21.9%    21.6%
      Selling, general and ad-
       ministrative expenses..     18.4%    17.4%    17.2%
                                -------  -------  -------
      Operating income........      3.5%     4.5%     4.4%
      Interest expense, net...      1.6%     1.3%     1.2%
                                -------  -------  -------
      Income before income
       taxes..................      1.9%     3.2%     3.2%
      Income tax provision....      0.8%     1.3%     1.3%
                                -------  -------  -------
      Net income..............      1.1%     1.9%     1.9%
                                =======  =======  =======
</TABLE>
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
  Net Sales. The Company's net sales increased $16.6 million, or 11.8%, to
$158.5 million in 1997 from $141.8 million in 1996. Of this increase,
approximately 34.4% was attributable to sales volume from six distribution
centers opened in 1996 and 1997. Growth from existing operations accounted for
approximately 39.0% of the increase in net sales as volume remained strong
across each of the Company's primary lines of business. Export sales, included
in the growth from existing operations, comprised 10.0% of the Company's net
sales and contributed $5.0 million of this increase. The remaining increase in
net sales, representing $4.4 million, resulted from six acquisitions completed
during the two-year period ended December 31, 1997.
 
  Gross Profit. Gross profit increased 10.3% to $34.3 million in 1997 from
$31.1 million in 1996. As a percentage of net sales, the gross profit
decreased slightly to 21.6% from 21.9% in 1996. The slight decrease was
primarily the result of greater sales of products shipped directly from
manufacturers to the customers ("direct-ship business"), which generate lower
margins for the Company. Management does not expect direct-ship business to
increase as a percentage of total sales.
 
  Selling, General and Administrative Expenses ("SG&A"). SG&A primarily
consist of personnel-related expenses and facility lease and operating
expenses. SG&A increased 9.7%, to $27.2 million in 1997 from $24.8 million in
1996. As a percentage of net sales, SG&A decreased to 17.2% in 1997 from 17.4%
in 1996. The improvement was generally the result of a decrease in the
provision for losses on accounts receivable as the Company has made
significant efforts toward improving the quality of its credit portfolio. This
decrease in the loss provision was partially offset by increases in personnel
and facility lease expenses due to newly opened distribution centers.
 
  Interest Expense, Net. Interest expense was $1.9 million in both 1997 and
1996. A portion of the interest expense was attributable to the long-term
notes payable to affiliate, which accounted for $0.7 million of interest
expense in both 1997 and 1996. The remaining interest expense was primarily
associated with the payable to affiliates account. Based upon the activity in
this account, Irex charged the Company interest of $1.2 million in 1997 and
$1.1 million in 1996.
 
                                      19
<PAGE>
 
  Income Tax Provision. The effective tax rate was 40.9% in 1997 and 40.3% in
1996. The Company's tax return is included in the consolidated income tax
return filed by Irex. However, the Company's income tax provision is based on
the amount which would have resulted had the Company filed a separate tax
return.
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
  Net Sales. The Company's net sales increased $23.4 million, or 19.8%, to
$141.8 million in 1996 from $118.4 million in 1995. Higher sales volume at
existing centers accounted for approximately 80.9% of the increase. Export
sales, included in the growth from existing centers, increased to $11.0
million in 1996 from $2.0 million in 1995. The increase in export sales was
primarily the result of sales made to two domestic exporters of products
destined for Russia. Three distribution centers opened in 1996 contributed
approximately 7.5% of the increase. The remaining increase in net sales,
representing $2.7 million, resulted from four acquisitions completed during
the two-year period ended December 31, 1996.
 
  Gross Profit. Gross profit increased 20.1% to $31.1 million in 1996 from
$25.9 million in 1995. As a percentage of net sales, the gross profit remained
stable at 21.9% in both 1996 and 1995. An increase in direct-ship business,
which carries lower gross margins, was offset by higher gross margins on the
sales of fabricated products.
 
  Selling, General and Administrative Expenses. SG&A increased 13.8% to $24.8
million in 1996 from $21.8 million in 1995. The increase was primarily
attributable to higher personnel expenses from the opening of new distribution
centers, the pursuit of new industrial customers in the Southwest and the
securing of a new national account as reflected in the increase in sales
volume. However, as a percentage of net sales, SG&A decreased to 17.4% in 1996
from 18.4% in 1995. This decrease was primarily due to the ability of the
Company to increase sales without a corresponding increase in its overhead
structure.
 
  Interest Expense, Net. Interest expense remained relatively unchanged in
1995 and 1996 at $1.9 million. A portion of the interest expense was
attributable to the long-term notes payable to affiliate, which accounted for
interest expense of $0.7 million in 1996 and $0.8 million in 1995. The
remaining interest expense was primarily associated with the payable to
affiliates account. Based upon the activity in this account, Irex charged the
Company interest of $1.1 million in 1996 and $1.0 million in 1995.
 
  Income Tax Provision. The effective tax rate was 40.3% in 1996 and 41.5% in
1995. The Company's tax return is included in the consolidated income tax
return filed by Irex. However, the Company's income tax provision is based on
the amount which would have resulted had the Company filed a separate tax
return.
 
                                      20
<PAGE>
 
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
 
  The following table presents certain unaudited quarterly data from the
Company's consolidated statements of income for each of the last eight fiscal
quarters. In the opinion of the Company's management, this quarterly
information has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this Prospectus and includes all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present the unaudited quarterly results set forth herein. The Company's
quarterly results may be subject to fluctuation; thus, the operating results
for any quarter are not necessarily indicative of results for any future
period.
 
<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED
                         ------------------------------------------------------------------------------
                         MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,  MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,
                           1996      1996      1996      1996      1997      1997      1997      1997
                         --------  --------  --------- --------  --------  --------  --------- --------
                                                      (IN THOUSANDS)
<S>                      <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Net sales............... $32,553   $35,187    $37,689  $36,371   $36,280   $37,553    $41,548  $43,129
Cost of net sales.......  25,494    27,570     29,659   27,967    28,555    29,376     32,450   33,877
                         -------   -------    -------  -------   -------   -------    -------  -------
Gross profit............   7,059     7,617      8,030    8,404     7,725     8,177      9,098    9,252
Selling, general and
 administrative
 expenses...............   5,825     6,087      6,067    6,783     6,588     6,585      6,822    7,234
                         -------   -------    -------  -------   -------   -------    -------  -------
Operating income........ $ 1,234   $ 1,530    $ 1,963  $ 1,621   $ 1,137   $ 1,592    $ 2,276  $ 2,018
                         =======   =======    =======  =======   =======   =======    =======  =======
<CAPTION>
                                              (AS A PERCENTAGE OF NET SALES)
                         ------------------------------------------------------------------------------
                         MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,  MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,
                           1996      1996      1996      1996      1997      1997      1997      1997
                         --------  --------  --------- --------  --------  --------  --------- --------
<S>                      <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Net sales...............   100.0%    100.0%     100.0%   100.0%    100.0%    100.0%     100.0%   100.0%
Cost of net sales.......    78.3      78.4       78.7     76.9      78.7      78.2       78.1     78.5
                         -------   -------    -------  -------   -------   -------    -------  -------
Gross profit............    21.7      21.6       21.3     23.1      21.3      21.8       21.9     21.5
Selling, general and
 administrative
 expenses...............    17.9      17.3       16.1     18.6      18.2      17.5       16.4     16.8
                         -------   -------    -------  -------   -------   -------    -------  -------
Operating income........     3.8%      4.3%       5.2%     4.5%      3.1%      4.3%       5.5%     4.7%
                         =======   =======    =======  =======   =======   =======    =======  =======
</TABLE>
 
  The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. The primary factor that may affect the
Company's quarterly operating results is lower sales volumes in the first
quarter due to winter weather conditions in certain regions of the country,
which reduces the number of new construction, renovation and maintenance
projects and consequently decreases demand for the Company's products and
services.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company has primarily relied on cash flow from operations and borrowings
from the Company's affiliates prior to the Separation to finance its
operations. Net cash provided by operating activities totaled $1.2 million
during 1997 compared to $1.9 million during 1996. The decrease was primarily
attributable to an increase in accounts receivable, partially offset by an
increase in accounts payable, each of which resulted from the Company's higher
sales volume. While the balance for receivables and inventories has increased
as a result of the growth in sales and the number of distribution centers, the
Company's focus on effective asset management has led to an improvement in
both accounts receivable turnover and inventory turnover. Receivables
turnover, calculated using 12-month average balance for accounts receivable,
improved to 5.7x in 1997 from 5.2x in 1995. Inventory turnover, exclusive of
sales shipped directly from manufacturers to customers, increased to 7.2x in
1997 from 6.7x in 1995.
 
  Net cash used for investing activities totaled $4.0 million in 1997 and $0.8
million in 1996. The Company completed three acquisitions in the fourth
quarter of 1997 for aggregate cash consideration of $3.5 million, which
collectively resulted in goodwill of approximately $0.9 million that is being
amortized principally on a straight-line basis over 15 years. Capital
expenditures totaled $0.6 million in each of 1997 and 1996.
 
  Net cash provided by financing activities totaled $3.2 million in 1997
compared to net cash used of $1.1 million in 1996. The $4.3 million change was
attributable to an increase in the Company's payable to affiliates account.
During 1997 and 1996, the Company made debt repayments of $1.2 million to an
affiliate of the Company.
 
                                      21
<PAGE>
 
  The Company expects to enter into a committed credit facility agreement in
connection with and prior to consummation of the Offering. The credit facility
is expected to provide an aggregate of $30 million in senior unsecured debt at
an interest rate subject to quarterly adjustment to reflect the Company's debt
level as a function of its operating results. The Company expects that funds
from operations and availability under the credit facility will be sufficient
to meet its working capital and growth strategy requirements for the
foreseeable future.
 
INFLATION
 
  The Company does not believe that inflation has had a material effect on its
results of operations in recent years. There can be no assurance, however,
that the Company's business will not be affected by inflation in the future.
 
YEAR 2000 ISSUE
 
  The Company utilizes information systems owned and maintained by Irex. The
Company's ability to conduct its day-to-day operations is dependent in part on
an integrated software program and data-based system, which serves as a
critical tool in carrying out functions in several key areas of the business,
including inventory management, pricing, sales, financial reporting and
personnel administration.
 
  The Company has entered into an agreement with Irex pursuant to which Irex
will continue to provide information services to the Company on a fee for
services basis for a three-year period subsequent to the Separation. See
"Separation from Irex--Agreements with Irex."
 
  The Company has reviewed all of its current computer applications with
respect to the Year 2000 issue. The Company believes all of its relevant
applications will be Year 2000 compliant following the installation of an
upgrade to the system software scheduled for October 1998. The Company
believes that any additional costs with respect to Year 2000 compliance will
not be material to the Company. The Company is unable to determine the effects
of Year 2000 compliance by its suppliers and customers.
 
                                      22
<PAGE>
 
                     ACQUISITION AND EXPANSION BACKGROUND
 
  Two key components of the Company's growth strategy have been acquisitions
and the opening of distribution centers. Historically, the Company grew as it
solidified its presence in regional markets by opening new distribution
centers or acquiring business operations with well-developed market positions.
More recently, the Company has begun to implement a growth strategy executed
on a national scale. Through targeted acquisitions and distribution center
openings, the Company pursues opportunities to expand its presence in new
geographic areas with strong growth characteristics. The Company believes that
being a broadly based national distributor provides it with a competitive
advantage over regional and local competitors, especially in servicing
customers with multiple locations that desire a single-supplier relationship.
This strategy has enabled the Company to further penetrate existing markets,
broaden its product and service capabilities and take advantage of current
industry dynamics. The Company believes that these components of its growth
strategy have been significant factors in producing compound annual growth
rates in net sales and operating income of 14.6% and 57.7%, respectively, for
the five-year period ended December 31, 1997.
 
  For the five-year period ended December 31, 1997, the Company acquired 11
distribution operations (including three from affiliates), which together
contributed approximately $13.2 million, or 8.3%, to the Company's 1997 net
sales. During the same period, the Company opened 10 distribution centers,
which together contributed approximately $12.3 million, or 7.8%, to the
Company's 1997 net sales. Since January 1, 1998, the Company has completed one
acquisition and opened two distribution centers.
 
  The Company pursues acquisitions and opens distribution centers as the
result of strategic opportunities. In addition, the Company's approach to
acquisitions and distribution center openings is influenced by the following
factors:
 
    Expand Product Lines and Broaden Technical Expertise. The Company is able
  to expand its product lines and broaden its technical expertise through
  acquisitions. The Company believes that its national infrastructure allows
  it to add new product lines and capabilities for existing customers without
  incurring significant additional cost.
 
    Service Customer Requirements. The Company opens distribution centers and
  pursues acquisitions in regions where it can better serve its existing
  customers' product requirements. Once operational, the Company seeks to
  drive incremental volume through these locations.
 
    Pursue Market Opportunities. The Company opens distribution centers in
  locations where it believes volume levels can support stand-alone
  operations. Such opportunities may result from general economic growth in
  particular regions or product lines, inadequate servicing of markets by
  competitors and other factors identified in the Company's experience.
 
    Respond to Supplier Initiatives. Acquisitions and distribution center
  openings also result from the Company's strong relationships with its
  suppliers. Through these relationships the Company becomes an integral part
  of suppliers' expansion strategies. The Company works together with its
  suppliers to serve their common growth strategies and increase its market
  share.
 
  The Company's management has significant experience integrating acquired and
newly opened operations into its nationwide business. Following acquisitions,
the Company attempts to eliminate redundancies, conform inventory and
administrative practices, streamline administrative functions and systems,
leverage purchasing power and improve asset management. Similarly, new
distribution centers are opened with the goal of increasing operating
efficiencies. Once a site and operating management have been identified for a
new location, the Company expects new distribution centers can be operational
within 30 days after investments of approximately $25,000 in start-up costs
and approximately $50,000 in initial inventory. Historically, the Company has
found that successful new distribution center operations, on average, break
even during the second year and become profitable during the third year after
start-up.
 
                                      23
<PAGE>
 
  The following table sets forth the number of distribution centers opened and
the number of acquisitions completed, as well as associated net sales for the
five-year period ended December 31, 1997.
 
<TABLE>
<CAPTION>
                                                 YEAR OF OPERATION
                                    -------------------------------------------
                                     1993     1994     1995     1996     1997
                                    ------- -------- -------- -------- --------
                                              (DOLLARS IN THOUSANDS)
<S>                                 <C>     <C>      <C>      <C>      <C>
New centers opened.................       4        0        0        3        3
 Cumulative total since January 1,
  1993.............................       4        4        4        7       10
Acquisitions completed (1).........       1        3        1        3        3
 Cumulative total since January 1,
  1993.............................       1        4        5        8       11
REVENUE SOURCES:
 Start-ups since 1993.............. $ 2,475 $  4,775 $  4,399 $  7,074 $ 12,346
 Acquisitions since 1993...........     508    1,300    5,125    7,802   13,173
 Operations existing prior to
  1993.............................  86,413   95,820  108,871  126,924  132,991
                                    ------- -------- -------- -------- --------
  TOTAL REVENUE.................... $89,396 $101,895 $118,395 $141,800 $158,510
                                    ======= ======== ======== ======== ========
</TABLE>
--------
(1) Includes two acquisitions in 1996 and one acquisition in 1993 from
    affiliates.
 
  The following table sets forth brief summaries of acquisitions completed by
the Company since January 1, 1997:
 
<TABLE>
<CAPTION>
                                              NET SALES IN LAST
                                              FULL FISCAL YEAR
                                                  PRIOR TO
    DATE                ACQUISITION              ACQUISITION          PRINCIPAL BUSINESSES
-------------  ------------------------------ ----------------- --------------------------------
                                               (IN THOUSANDS)
<S>            <C>                            <C>               <C>
October 1997   Common Stock of Richlar            $  2,602      Precision die cutting,
               Industries, Inc.,                                lamination and specialty
               East Syracuse, New York                          fabrication
December 1997  Certain Assets of Construction     $  9,305      Distribution of architectural/
               Systems, Inc., Houston, Texas                    acoustical (including specialty
                                                                drywall and metal studs) and
                                                                specialty products from two
                                                                strategic service centers
December 1997  Certain Assets of R.E. Kramig,     $    500 (1)  Distribution of mechanical
               Louisville, Kentucky                             insulation products primarily to
                                                                the industrial market
March 1998     Certain Assets of                  $ 13,196      Mechanical insulation
               Extol of Texas, Inc., Houston                    fabrication and distribution to
               and Corpus Christi, Texas                        the industrial market
</TABLE>
--------
(1) Estimated by management of the Company.
 
                                       24
<PAGE>
 
  The following table sets forth the distribution centers that have been
opened since 1993 as well as 1997 net sales of each.
 
<TABLE>
<CAPTION>
   YEAR OPENED      DISTRIBUTION CENTER     1997 NET SALES (1)
   -----------   -------------------------- ------------------
                                              (IN THOUSANDS)
   <S>           <C>                        <C>
      1993       Ft. Worth, Texas                   $1,624
                 Ft. Myers, Florida (2)                266
                 Ft. Lauderdale, Florida             2,178
      1996       Oklahoma City, Oklahoma               947
                 Austin, Texas                       2,159
                 Charleston, West Virginia           2,529
      1997       Bridgeport, Connecticut               362
                 Newark, Delaware (2)                  135
                 Charleston, South Carolina          1,321
      1998       Augusta, Georgia             Not applicable
                 Pittsburgh, Pennsylvania     Not applicable
</TABLE>
--------
(1) Figures reflect sales for all operations, including operations added as a
    result of expansion since the opening date.
(2) Satellite operation of nearby primary facility.
 
                                      25
<PAGE>
 
                                   BUSINESS
 
INTRODUCTION
 
  Specialty Products & Insulation Co. is a leading national distributor and
fabricator of mechanical insulation, architectural/acoustical products and
specialty products to commercial and industrial markets. The Company also
offers customized fabrication, export and other value-added services related
to its core product lines. The Company operates through a national network of
51 distribution centers, including seven fabrication facilities, at
strategically chosen locations in 21 states. Through this network, the Company
offers approximately 25,000 stock keeping units to more than 9,000 customers,
including specialty contractors, facility owners, general contractors,
original equipment manufacturers ("OEMs"), exporters and supply houses. The
Company's principal product categories include piping and equipment insulation
as well as acoustical ceilings and specialty wall panels, and include the
products of more than 150 manufacturers including Armstrong World Industries,
Owens Corning, Johns Manville, Dow Chemical and Pittsburgh Corning. Since
commencing operations in the early 1980s, the Company has experienced
significant growth as a result of its ability to capitalize on industry
changes including, principally, the increased reliance on distributors by
manufacturers and customers. Net sales of the Company increased from $118.4
million in 1995 to $158.5 million in 1997, and operating income grew from $4.1
million in 1995 to $7.0 million in 1997.
 
INDUSTRY OVERVIEW
 
  The Company competes in the highly fragmented and consolidating commercial
and industrial segment of the building products industry. The Company broadly
defines its two core markets as mechanical insulation, consisting primarily of
pipe, duct and equipment insulation and architectural/acoustical products,
consisting primarily of acoustical ceiling systems, fiberglass-reinforced
panels and other wall and ceiling products. The Company participates in the
commercial and industrial markets by supplying products for use in (i) new
construction, (ii) renovation of existing facilities, (iii) ongoing
maintenance and (iv) OEM applications.
 
  The channels of supply in the Company's markets have experienced significant
change. In the early 1980s, product sales in the Company's markets were
characterized by direct sales from manufacturers to contractors who in turn
sold the products to other contractors and end-users. An expanding and
increasingly diverse customer base made it difficult for the typical
manufacturer to directly serve its entire potential customer universe. Also,
as manufacturers realized opportunities to enhance profitability and improve
returns on capital, the need for independent distributors evolved. Through
this evolution, independent distributors have enabled manufacturers to reduce
logistical expenses, lower marketing expenses and better manage inventories.
In addition, customers began to utilize independent distribution sources in
order to lower costs, reduce supply sources and gain high-quality, value-added
services. Customers are increasingly outsourcing non-core business functions
to distributors able to provide value-added services such as procurement,
delivery and inventory management. The emergence of the distribution channel
has reduced duplicate functions performed by both manufacturers and customers,
thereby affording them more resources for their core competencies.
 
  The evolution toward independent distribution has produced an industry
populated by many smaller local and regional distributors. The Company
believes the industry is now starting to undergo a significant trend toward
consolidation of these smaller distributors as both suppliers and customers
seek to enhance efficiencies, focus on their core competencies and reduce
costs while maintaining high levels of product and service quality. The
Company believes that those distributors that develop the capabilities and
strengths to satisfy these demands will be well positioned to exceed market
growth rates in this industry. Specifically, the Company believes that large,
national distributors with significant volumes, sophisticated information
systems and relatively low infrastructure costs can offer more value to
customers and therefore gain higher market share.
 
  Key customer categories in the markets served by the Company include the
following:
 
    Specialty Contractors, such as insulation and acoustical contractors,
  constitute the primary customer segment for the installation and
  maintenance of mechanical insulation and architectural/acoustical systems.
 
                                      26
<PAGE>
 
  The Company believes specialty contractors are increasingly developing
  long-term relationships with distributors in order to improve labor
  productivity, eliminate inventories and reduce material handling costs.
 
    Facility Owners, such as manufacturing and process plants, large
  retailers, universities and other institutions, represent a growing source
  of business for distributors as these customers increasingly separate
  material and labor purchases and perform their own maintenance and new
  construction. The Company believes that facility owners with locations
  nationwide value distributors that can provide products and services to
  multiple locations.
 
    General Contractors, such as mechanical contractors and engineering
  firms, are increasingly purchasing materials for their projects and
  performing their own insulation work. The Company believes these customers
  seek distributors with strong sourcing capabilities, processes and
  information systems.
 
    Original Equipment Manufacturers, such as manufacturers of appliances,
  modular office equipment and air conditioning systems, benefit from the
  purchasing, fabrication, material handling, inventory management,
  procurement and delivery capabilities of larger distributors.
 
    Exporters, representing purchasers of materials required for projects
  overseas, benefit from the product knowledge, purchasing power,
  consolidation capabilities and delivery flexibility of large distributors.
 
    Supply Houses, such as plumbing wholesalers, are generally distributors
  in specialized fields that re-sell products to other customer groups. These
  customers include specialty and integrated suppliers that may benefit from
  the purchasing, warehousing and service capabilities of larger, more
  sophisticated distributors.
 
  Mechanical Insulation Products. The mechanical insulation product market
includes thermal insulation materials and systems for use in the commercial
and industrial sectors of the construction industry as well as OEM
applications. Mechanical insulation is used in new construction, maintenance,
renovation and upgrades of manufacturing facilities, process plants,
commercial buildings and mechanical equipment. These products enable customers
to improve the performance of their mechanical systems and products, reduce
energy costs, decrease emissions, such as carbon dioxide and sulfur dioxide,
and improve the comfort and safety of the work environment. According to the
American Society of Heating, Refrigerating and Air Conditioning Engineers
("ASHRAE"), current insulation practices in the United States often result in
the under-insulation of equipment, commercial buildings and industrial
facilities. If such equipment, buildings and facilities were insulated at the
ASHRAE standard, the Company believes that significant reductions in energy
consumption, utility costs and carbon dioxide emissions could be achieved.
 
  Architectural/Acoustical Products. The architectural/acoustical product
market includes ceiling panels and grid systems and specialty wall panels for
the new construction, renovation and retail market segments. These products
are used in commercial office buildings, education facilities, health care
institutions, entertainment complexes and correctional facilities. Independent
estimates forecast that the strongest areas of future growth in the
nonresidential construction market include hotels, educational and public
administration facilities. The ceiling systems segment includes acoustical and
decorative ceilings and suspension systems. Ceiling systems provide an array
of design option benefits to the customer such as acoustic performance, fire
resistance, humidity resistance, light reflectance and durability or ease of
maintenance. The specialty wall segment includes decorative, acoustical and
specialized panels designed for specific uses such as trade show dividers,
modular office systems and kitchen, bath and clean room environments. Many
specialty products are included within this market, the largest component
being passive firestop and fire protection products which are used in new
construction and renovation projects for occupancy safety and property
protection.
 
OPERATING STRATEGY
 
  The Company is focused on its traditional strengths as a broadly based
national distributor and fabricator of mechanical insulation,
architectural/acoustical products, specialty products and value-added
services. The Company is committed to capitalizing on the expertise, knowledge
and experience its has developed in these
 
                                      27
<PAGE>
 
core markets to increase market share and profitability. In addition, the
Company's operating strategy includes the following key elements:
 
  Superior Customer Service. Customers choose suppliers based, in significant
part, on the quality of the service provided. With distribution and sales
forces in each area that it serves, the Company provides its customers with
rapid delivery and localized service. The Company believes its well-trained,
technically competent workforce provides a level of customer service that
leads to long-term relationships with its customers. The Company also believes
that the ongoing assessment of customer satisfaction is critical in the
distribution industry. The Company has implemented a customer satisfaction
survey program and is committed to the ongoing measurement of customer
satisfaction.
 
  National Network of Distribution Centers. Management believes the Company's
national distribution network provides a platform for growth and
profitability. The Company's 51 distribution centers combine warehouse and
office facilities at strategically chosen locations in 21 states. This
national network enables the Company to (i) attract customers that have
multiple locations and provide them with services from multiple distribution
centers within a single service agreement; (ii) participate with key vendors
in the development of national marketing and sales strategies; (iii) achieve
geographic diversification to lessen the impact of reduced demand in any given
region; and (iv) facilitate best-practice benchmarking as well as innovation
and knowledge-sharing within the Company. Management believes the Company's
national network provides it with a unique competitive advantage.
 
  Strong Supplier Relationships. The Company believes that it has excellent
and long-term relationships with its major suppliers. The Company believes its
national presence, financial strength and partnering philosophy have enabled
the Company to become the preferred distributor for many of its suppliers. The
Company works with its suppliers to develop common expansion programs as well
as customer-oriented product solutions.
 
  Low-Cost Provider. The Company believes that its volume of purchases and
desirability as a vendor enable it to obtain purchase terms that are as
favorable as those available to other large competitors. The Company is also
able to realize advantages from the economies of large-scale operation in the
areas of administrative processing, information systems, financing terms,
technical expertise, inventory and working capital management.
 
  Innovative and Committed Employees. Management believes the Company's
corporate culture and values provide it with a competitive advantage. The
Company is focused on recruiting, developing and retaining highly innovative
and committed employees. The Company's senior management has an average of
approximately 10 years' experience with the Company, and many of its sales and
service staff have been working in the same markets for 10 years or more.
 
GROWTH STRATEGY
 
  The Company believes that its operating strategy provides a foundation for
growth in each of the markets in which it participates. The Company's growth
strategy includes the following key elements:
 
  Increase Sales of Existing and Accessory Products. Management believes the
Company's strengths and operating strategies will lead to increased sales of
existing products to its existing customer base. In addition, the Company
believes that expansion through acquisitions, new distribution center openings
and other strategic initiatives will generate additional sales of existing
products to new customers. Through improved sales efforts, the Company is also
focused on increasing sales of accessory products, such as adhesives and
tools, which are related to its core product lines and customer requirements.
 
  Open New Distribution Centers. The Company expects to continue to open new
distribution centers as a result of new market opportunities, customer service
requirements, supplier initiatives and strategic opportunities.
 
                                      28
<PAGE>
 
As the Company continues to broaden its national distribution network through
additional openings, the Company believes it will be able to capitalize on
operating efficiencies and the benefits of a large-scale operation.
 
  Continue Acquisitions. The Company is committed to continuing its
acquisition program to acquire distribution businesses with strong market
positions, supplier support or attractive customer bases. Acquisitions allow
the Company to accelerate revenue growth, expand its geographical presence and
add product lines and technical expertise. The distribution industry continues
to consolidate, and management believes the Company will be able to capitalize
on significant growth opportunities through acquisitions of smaller regional
and local distribution operations.
 
  Emphasize National Accounts. The Company has implemented a national accounts
marketing program directed at facility owners and general contractors.
Management believes that the Company's national distribution network gives the
Company a competitive advantage in securing national and multi-regional
customers seeking to reduce vendors, outsource non-core operations, integrate
supply and gain value-added services such as procurement and material
management.
 
  Add Product Lines. The Company intends to leverage its core product and
technical expertise to add product lines which are complementary to those
currently offered. The Company believes that its existing national
distribution infrastructure enables it to add new product lines without
incurring significant additional cost. For example, the Company utilized its
expertise in both of its core product lines to enter the passive fire
protection market.
 
PRODUCTS AND SERVICES
 
  The Company offers complete lines of mechanical insulation,
architectural/acoustical products and specialty products as well as customized
fabrication solutions and other value-added services, enabling it to satisfy a
broad range of customer requirements. In all, the Company offers approximately
25,000 stock keeping units from more than 70 product lines, including those of
the leading manufacturers in the industries it serves. The Company believes it
offers significant depth and breadth in its core product lines throughout its
nationwide operations, enabling customers to satisfy most, if not all, of
their product needs through a single source.
 
  In addition, as the distribution industry continues to evolve and
consolidate, customers are increasingly relying on the Company to perform
various value-added services in connection with product distribution. The
Company's fabrication business represents its most significant value-added
service to customers. Its fabrication capabilities extend across all major
product lines and include custom-fitted pipe covering, decorative wall panels
and precision die-cutting. The Company also offers a range of other value-
added services, including energy audits, technical advice, materials handling
and electronic order processing.
 
                                      29
<PAGE>
 
  The following table sets forth representative samples of the products and
services offered by the Company in its four principal product and service
categories as a percentage of the Company's 1997 net sales from each category:
 
<TABLE>
<CAPTION>
  PRODUCT/SERVICE                                                           % OF AGGREGATE 1997
     CATEGORY             REPRESENTATIVE PRODUCTS  REPRESENTATIVE SERVICES       NET SALES
------------------------  ------------------------ ------------------------ -------------------
<S>                       <C>                      <C>                      <C>
Mechanical Insulation     Calcium Silicate,        Delivery, Electronic            46.7%
 Products                 Cellular Glass,          Processing, Energy
                          Fiberglass, Jacketing,   Audits, Fabrication,
                          Mineral Fiber, Rigid     Innovative Supply
                          Polyurethane Foam,       Agreements, Quantity
                          Polystyrene Rubber       Definition, Product
                                                   Shipment Consolidation,
                                                   Technical Advice
Architectural/Acoustical  Acoustical and           Delivery, Electronic            38.3%
 Products                 Decorative Ceiling       Processing, Fabrication,
                          Systems, Acoustical and  Quantity Definition,
                          Decorative Wall Panels,  Material Management,
                          Building Insulation,     Product Shipment
                          Drywall, Fiberglass      Consolidation, Technical
                          Reinforced Panels,       Advice
                          Interior Doors, Metal
                          Studs
Fabrication Services      Acoustical Decorative    Customized Fabrication          11.0%
                          and Display Panels,      Solutions, Delivery,
                          Lamination, OEM          Electronic Processing,
                          Products, Insulation     Material Management,
                          Pipe Covering, Equipment Private Label
                          Segments and Fittings,   Fabrication, Product
                          Pipe and Tank Wrap,      Shipment Consolidation
                          Precision Die Cutting,
                          Pre-Cut Insulation
                          Jacketing
Specialty Products        Passive Firestop/Fire    Delivery, Quantity               4.0%
                          Proofing Systems, Floor  Definition, Electronic
                          Covering, Exterior       Processing, Material
                          Insulation Finish        Management, Product
                          Systems                  Training, Product
                                                   Shipment Consolidation,
                                                   Technical Advice
</TABLE>
 
CUSTOMERS
 
  The Company currently serves more than 9,000 customers, including specialty
contractors, facility owners, general contractors, OEMs, exporters and supply
houses. The Company's top 10 customers in terms of net sales accounted for
approximately 20% of net sales in 1997, and no single customer accounted for
more than 5% of net sales in 1997.
 
DISTRIBUTION NETWORK
 
  The Company's distribution network is organized into seven regional
territories encompassing 51 distribution centers in 21 states. Regional
managers are members of the Company's senior management team and have
responsibility for overall operations within each region. Each individual
service center has its own customer-focused team that typically consists of a
branch manager, outside and inside sales representatives and customer service
representatives who include distribution center driver teams and support
staff. The Company's branches are organized as autonomous, decentralized units
and are capable of meeting local market needs as well
 
                                      30
<PAGE>
 
as offering competitive prices within the Company's overall policies. Each
branch handles one or more of the Company's product groups and operates as a
separate profit center. Branch managers have the authority and responsibility,
within Company guidelines, to set pricing and tailor the facility's product
offering and mix, as well as the nature of services offered to meet the local
market environment. In addition, each branch manager is responsible for
purchasing, maintenance of adequate inventory levels, cost controls and
customer relations. Common accounting, information systems, insurance, tax and
other administrative functions are provided at the corporate level to
eliminate duplicate administrative expenses.
 
SALES AND MARKETING
 
  The Company has approximately 88 outside sales representatives, including
branch managers, and 87 inside sales/customer service representatives.
Generally, the inside sales/customer service representatives support the
outside sales representatives and have independent sales responsibility,
including specific customer service and order entry duties. Each outside sales
representative works in an assigned sales territory associated with one of the
Company's 51 distribution facilities and is actively supported by the branch
and regional teams. National accounts are supported by two specialists and the
Company's senior management in conjunction with the total distribution
network. All sales representatives are employees of the Company and are
generally compensated on a salary and incentive-based compensation
arrangement. The incentive portion of the salesperson's compensation is based
on a return-on-assets model and averages above 20% of base compensation.
 
  The Company also markets its products through sales brochures, customer
events, occasional sales promotions, and its Internet web site at
http://www.spi-co.com.
 
SUPPLIERS
 
  The Company has a broad base of approximately 150 suppliers that includes
all major manufacturers in the industries the Company serves. The Company's
leading suppliers of mechanical insulation include Owens-Corning Fiberglas,
Johns Manville, Armstrong World Industries, Dow Chemical, CertainTeed, H.B.
Fuller, Pittsburgh Corning, Thermal Ceramics, Calsilite Group, Childers
Products, RPR Industries and RBX Corporation, among others. The Company's
leading suppliers of architectural/acoustical products include Armstrong World
Industries, STO, National Gypsum, Kemlite, Lasco and Sequentia, among others.
 
INFORMATION SYSTEMS
 
  The Company utilizes information systems owned and maintained by Irex. The
systems use software that unites the Company's distribution centers and
integrates product tracking, pricing and availability; order processing and
shipping; distribution center operations; purchasing; inventory management;
receivables management; financial reporting; and other financial and
operational functions. A new release of the system software has been fully
tested by other customers of the system vendor and is scheduled to be
installed in 1998 to address Year 2000 compliance issues and provide other
function upgrades. See "Risk Factors--Dependence On Information Systems;
Systems Conversion; Year 2000 Issue."
 
  The Company has entered into an agreement with Irex pursuant to which Irex
will continue to provide information system services to the Company on a fee-
for-services basis for a three-year period following consummation of the
Offering and Separation. During such period the Company intends to evaluate
its existing and future information system requirements and examine its
options for obtaining such services. These options include, among others,
continuing the existing relationship with Irex or replacing the Company's
current systems. See "Separation from Irex--Agreements with Irex--Corporate
Separation Agreement."
 
COMPETITION
 
  The Company's markets are highly competitive. Historically, the markets in
which the Company participates have been highly fragmented and populated by a
large number of smaller, local and regional distributors operating in single
geographic areas. These smaller, often owner-operated, distributors have
 
                                      31
<PAGE>
 
constituted the principal competition to the Company, but other significant
competitors include regional distributors as well as manufacturers selling
directly to end-users. Certain of the Company's competitors sell identical or
equivalent products at competitive prices, and the Company also competes on
the basis of responsiveness to the needs of customers for product quality,
service, product diversity, and availability.
 
SEASONALITY AND CYCLICALITY
 
  The Company's business is seasonal and in the past has experienced seasonal
fluctuations in sales and operating results from quarter to quarter. Operating
results are weakest in the first calendar quarter because of the effects of
winter weather on commercial and industrial construction and the consequent
reduction in sales of mechanical insulation and architectural/acoustical
products. Fluctuations in the Company's quarterly sales and operating results
could result in significant volatility in, and otherwise adversely affect, the
market price of the Common Stock. See "Management's Discussion of Financial
Condition and Results of Operations--Seasonality and Quarterly Results of
Operations."
 
  Some of the principal markets for the products and services offered by the
Company are subject to cyclical economic fluctuations that generally affect
pricing, availability and demand for mechanical insulation and
architectural/acoustical products. Cyclical fluctuations can also affect
growth rates in the markets served by the Company's customers, the
availability of products from vendors and the availability of suitable
acquisition candidates. As a result, changes in general economic conditions
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Seasonality; Industry and
Economic Cycles."
 
EMPLOYEES
 
  On March 12, 1998, the Company had 523 employees, including 131 sales
representatives, 228 distribution center, delivery, clerical and support
personnel, 113 fabrication personnel and 51 supervisors and managers,
including the Company's executive officers. None of the Company's employees is
covered by a collective bargaining agreement. Management considers the
Company's relations with its employees to be good.
 
PROPERTIES
 
  The Company leases* all of its office and distribution center space. The
typical distribution center lease is for a three- to five-year term and
requires the Company to pay all ongoing expenses such as taxes, utilities,
insurance and maintenance expenses. The following table sets forth certain
information with respect to the Company's significant distribution and
fabrication facilities:
 
<TABLE>
<CAPTION>
       LOCATION                                                  SQUARE FOOTAGE
       --------                                                  --------------
       <S>                                                       <C>
       Atlanta, Georgia.........................................     24,600
       Benicia, California......................................     26,417
       Camden, New Jersey.......................................     30,000
       Charleston, South Carolina...............................     20,000
       Chicago, Illinois........................................     32,093
       Dallas, Texas............................................     19,840
       Indianapolis, Indiana....................................     21,000
       Philadelphia, Pennsylvania...............................     20,000
       Syracuse, New York.......................................     22,000
       Tampa, Florida...........................................     22,338
</TABLE>
--------
  [* The Company's corporate headquarters are currently located in owned
facilities in Lancaster, Pennsylvania. The Company expects to sell these
facilities prior to consummation of the Offering and thereafter the Company's
corporate headquarters will be located in approximately 8,900 square feet of
leased office space in East Petersburg, Pennsylvania.]
 
                                      32
<PAGE>
 
LEGAL PROCEEDINGS
 
  The Company is not currently a party to any material litigation. In the
ordinary course of its business, the Company is from time to time involved in
various contractual, warranty, product liability and other cases and claims.
None of the cases currently pending are expected, individually or in the
aggregate, to have a material adverse effect on the Company's business,
operating results or financial condition.
 
REGULATORY MATTERS
 
  The Company's operations and properties are subject to federal, state, local
and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes, including laws
pertaining to employee health and safety in connection with the foregoing.
 
  Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental and employee health and
safety laws, regulations and ordinances will not have a material adverse
effect on the Company's business, operating results or financial condition.
However, future events, such as changes in existing laws and regulations or
their interpretation, may give rise to additional compliance costs or
liabilities that could have a material adverse effect on the Company's
business, operating results and financial condition. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies
of regulatory agencies or stricter or different interpretations of existing
laws, may require additional expenditures by the Company that may be material.
 
                                      33
<PAGE>
 
                                  MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
  The following table sets forth the name, age and position of each of the
directors and executive officers of the Company.
 
<TABLE>
<CAPTION>
NAME                     AGE                            POSITIONS
----                     ---                            ---------
<S>                      <C> <C>
Ronald L. King..........  53 President, Chief Executive Officer and Director
Michael J. Hughes**.....  41 Vice President, Chief Financial Officer, Secretary and Treasurer
Daniel D. Bofinger......  40 Vice President and Regional Manager
Michael T. Conner.......  45 Vice President and Regional Manager
Michael C. Feehery......  40 Vice President and Regional Manager
Gregory S. Ganster......  32 Vice President and Regional Manager
Raymond J. Horan........  47 Vice President and Regional Manager
Charles F. Schattgen....  46 Vice President and Regional Manager
W. Kirk Liddell*........  48 Chairman of the Board of Directors
William W. Adams*(1)....  63 Director
David C. Kleinman*(1)...  62 Director
Wilson D.                 68 Director
 McElhinny*(2)..........
G. Clay von               56 Director
 Seldeneck*(1)..........
John O. Shirk*(2).......  54 Director
</TABLE>
--------
 * Has agreed to become a member of the Board of Directors and the indicated
   committee prior to consummation of the Offering.
 ** Has agreed to join the Company as Vice President, Chief Financial Officer,
    Secretary and Treasurer.
(1) Member of the Audit and Finance Committee.
(2) Member of the Compensation and Benefits Committee.
 
  Ronald L. King has been President and Chief Executive Officer of the Company
since June 1997. He previously served as Executive Vice President of the
Company since 1993. Prior to joining the Company, Mr. King was President of
Distribution International and held senior management positions with the Anco
Industries group of companies. He is a past president of the National
Insulation Association.
 
  Michael J. Hughes will become Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company in April 1998. Since 1996 he has been
Senior Vice President, Investment Banking, of Berwind Financial, L.P., a
regional investment banking firm based in Philadelphia, Pennsylvania. From
1990 to 1996, Mr. Hughes was Senior Vice President-External Finance for
Meridian Bancorp, Inc.
 
  Daniel D. Bofinger has been Regional Manager, with responsibility for
central Pennsylvania and New England, since 1992 and has been a Vice President
of the Company since 1996. Mr. Bofinger joined the Company in 1982 as a
production superintendent, and became manager of the Lancaster Fabrication
Division in 1986.
 
  Michael T. Conner has been Vice President and Regional Manager of the
Company, with responsibility for the Midwest, since 1996. He joined the
Company in 1986 as a sales representative and served as branch manager of the
Company's Indianapolis operations until his promotion to his current position.
 
                                      34
<PAGE>
 
  Michael C. Feehery has been Vice President and Regional Manager of the
Company, with responsibility for the Southwest, since 1996. He joined the
Company in 1989 and was branch manager from 1990 until his promotion to his
current position.
 
  Gregory S. Ganster has been Vice President of the Company since 1998 and
Regional Manager of the Company, with responsibility for the Chicago region,
since 1996. He joined the Company in 1992 and was branch manager of the
Company's Elk Grove, Illinois facility from 1995 until his promotion to his
current position. He was previously employed by Armstrong World Industries.
 
  Raymond J. Horan has been Vice President and Regional Manager of the
Company, with responsibility for the mid-Atlantic region, since 1996. He
joined the Company in 1987 as branch manager for the Company's Chicago
operations. Mr. Horan previously held various sales position with the ceilings
division of Armstrong World Industries.
 
  Charles F. Schattgen has been Vice President and Regional Manager of the
Company, with responsibility for the Southeast, since 1991. He joined the
Company in 1985 as branch manager and became area manager in 1987. Before
joining the Company, Mr. Schattgen was employed by Owens Corning Fiberglas.
 
  W. Kirk Liddell will become Chairman of the Board of Directors of the
Company prior to consummation of the Offering. Since 1984 he has been
President, Chief Executive Officer and a director of Irex Corporation, the
parent of the Company prior to the Offering and Separation. Mr. Liddell also
serves on the boards of directors of High Industries, Inc., Penn Fuel Gas,
Inc., the Pennsylvania Chamber of Business and Industry and the Lancaster
Alliance and is President of the Economic Development Company of Lancaster
County.
 
  G. Clay von Seldeneck will become a director of the Company prior to
consummation of the Offering. Mr. von Seldeneck is Managing Director of Snyder
& Company, a private investment banking firm based in Philadelphia,
Pennsylvania. Snyder & Company has performed services for Irex and the Company
in connection with the Offering and the Separation. Prior to joining Snyder &
Company in 1987 he was Senior Vice President and Chief Financial Officer for
Fidelity Mutual Life Group.
 
  William W. Adams will become a director of the Company prior to consummation
of the Offering. Mr. Adams is former Chairman and President of Armstrong World
Industries, Inc. Mr. Adams joined Armstrong in 1956 and was elected an
Executive Vice President and member of the Armstrong Board of Directors in
1982. He was named Chairman and President in 1988 and retired on January 1,
1995. Mr. Adams is a Director Emeritus of Bell Atlantic Corporation and a
director of High Industries, Inc., Irex Corporation, the National Association
of Corporate Directors and the Lancaster Alliance. He also serves on the
Senior Executive Committee of SCP Private Equity Partners, and is a member of
the Advisory Board of Boardroom Consultants.
 
  David C. Kleinman will become a director of the Company prior to
consummation of the Offering. Since 1971 Mr. Kleinman has been an Adjunct
Professor of Strategic Management at the University of Chicago Graduate School
of Business. Mr. Kleinman is a director of The Acorn Funds, Plymouth Tube
Company, Wisconsin Paper and Products Company, InterAmericas Communications
Corporation, Organics Management Company, Sonic Foundry, Inc. and Irex
Corporation.
 
  Wilson D. McElhinny will become a director of the Company prior to
consummation of the Offering. Before retiring in 1990, Mr. McElhinny was
Chairman, President and Chief Executive Office of Hamilton Bank, and a member
of the Management Committee of Hamilton's parent company, CoreStates Financial
Corporation. He previously served as President and Vice Chairman of CoreStates
Bank, and remains a member of CoreStates Bank's Advisory Board. Mr. McElhinny
is the Chairman of Irex Corporation and a director of The Hunt Corporation,
Reading Eagle Company, Educators Mutual Life Insurance Company, Wohlsen
Construction Company and Production Finance, Inc.
 
  John O. Shirk will become a director of the Company prior to consummation of
the Offering. He has been a partner in the law firm of Barley, Snyder, Senft &
Cohen, LLP since 1973 and was managing partner from 1983
 
                                      35
<PAGE>
 
to 1994. The Company intends to retain Barley, Snyder, Senft & Cohen, LLP
following the Separation and the Offering. Mr. Shirk is a director of the
Economic Development Company of Lancaster County, EDC Finance Corporation,
Harrisburg Area Community College Foundation, Fulton Financial Corporation,
The Horst Group, Inc., Educators Mutual Life Insurance Company and Irex
Corporation.
 
DIRECTOR COMPENSATION AND ARRANGEMENTS
 
  Directors not affiliated with the Company are paid an annual fee of $10,000
for serving on the Board of Directors, a fee of $1,000 for attending each
Board of Directors meeting and a fee of $1,000 for attending each meeting of a
committee of the Board of Directors not held concurrently with a board
meeting. Committee chairs receive an additional annual fee of $1,000 and the
Chairman of the Board of Directors receives an additional annual fee of
$15,000. Directors are reimbursed for expenses incurred in connection with
meetings of the Board of Directors or committees thereof. All payments of
annual fees are made in Common Stock of the Company, payable following the
annual shareholders' meeting during the year for which such payment is made.
Meeting fees may, at the option of the director, be paid in cash or in Common
Stock of the Company. Common Stock for director payments shall be valued based
on the average of daily closing prices during the three-month period preceding
such valuation. Directors may defer payments of Common Stock pursuant to a
deferred payment plan the Company expects to adopt prior to consummation of
the Offering.
 
EXECUTIVE COMPENSATION
 
  The following table sets forth, for the fiscal year ended December 31, 1997,
certain information regarding the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for such year, to the
executive officers of the Company named below (the "named executive
officers"), in all capacities in which they served:
 
                          SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                     LONG-TERM
                               ANNUAL COMPENSATION  COMPENSATION
                               -------------------- ------------
                                                    STOCK OPTION
                                                     AWARDS (1)     ALL OTHER
 NAME AND PRINCIPAL POSITION     SALARY     BONUS    (# SHARES)  COMPENSATION (2)
 ---------------------------   ---------- --------- ------------ ----------------
 <S>                           <C>        <C>       <C>          <C>
 Ronald L. King..............  $  135,000 $  70,101     200           $8,009
  President and Chief
   Executive Officer
 Charles F. Schattgen........  $   84,540 $  31,855     150           $6,094
  Vice President and Regional
   Manager
 Raymond J. Horan............  $   84,000 $  31,651     150           $6,053
  Vice President and Regional
   Manager
</TABLE>
--------
(1) All options granted were for Irex common stock pursuant to the Irex
    Corporation Non-Qualified Stock Option Plan.
(2) Includes matching payments paid by Irex pursuant to Irex's 401(k) plan and
    Irex's Employee Stock Ownership Plan.
 
                                      36
<PAGE>
 
  The following table provides information pertaining to individual grants of
options to purchase Irex common stock made by Irex to the named executive
officers during 1997:
 
                             OPTION GRANTS IN 1997
 
<TABLE>
<CAPTION>
                            STOCK
                           OPTIONS   % OF ALL OPTIONS  EXERCISE              GRANT DATE
                         GRANTED (1)  GRANTED TO ALL     PRICE    EXPIRATION  PRESENT
                         (# SHARES)     EMPLOYEES     (PER SHARE)    DATE    VALUE (2)
                         ----------- ---------------- ----------- ---------- ----------
<S>                      <C>         <C>              <C>         <C>        <C>
Ronald L. King..........     200           2.3%         $21.875    12/31/07    $1,040
Charles F. Schattgen....     150           1.7%         $21.875    12/31/07    $  780
Raymond J. Horan........     150           1.7%         $21.875    12/31/07    $  780
</TABLE>
--------
(1) All options granted were for Irex common stock pursuant to the Irex
    Corporation Non-Qualified Stock Option Plan. As of March 24, 1998, there
    were 405,484 shares of Irex common stock outstanding.
(2) The grant date present value was calculated using the Black-Scholes option
    pricing model with the following assumptions: (i) expected volatility of
    23.0%, (ii) a risk-free interest rate of 6.1%, (iii) expected life of
    three years and (iv) no dividend yield.
 
  The following table sets forth certain information with respect to
unexercised options to purchase common stock of Irex held by the named
executive officers at the end 1997.
 
<TABLE>
<CAPTION>
                                     NUMBER OF           VALUE OF UNEXERCISED
            NAME              UNEXERCISED OPTIONS(1)   IN-THE-MONEY OPTIONS (1)
            ----             ------------------------- -------------------------
                             EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
                             ----------- ------------- ----------- -------------
<S>                          <C>         <C>           <C>         <C>
Ronald L. King..............    1,000         350        $11,375      $1,931
Charles F. Schattgen........    1,000         300        $ 5,688      $1,650
Raymond J. Horan............      750         300        $ 5,688      $1,650
</TABLE>
--------
(1) All options are for Irex common stock pursuant to the Irex Corporation
    Non-Qualified Stock Option Plan.
 
STOCK OPTION PLAN
 
  Prior to consummation of the Offering, the Company intends to adopt the 1998
Specialty Products & Insulation Co. Stock Option Plan (the "Plan"), which
provides for the granting of non-qualified stock options ("Options") to
certain officers and key employees of the Company. The Plan may also permit
the Company to issue qualified stock options or stock appreciation rights. The
Plan will be administered by the Compensation and Benefits Committee of the
Board of Directors of the Company (the "Compensation and Benefits Committee").
The aggregate maximum number of shares of Common Stock available for awards
under the Plan is 491,355 shares (521,355 shares if the Underwriters exercise
their over-allotment option in full), subject to adjustment to reflect changes
in the Company's capitalization. The Company intends to award approximately
25% of the maximum number of shares available under the Plan during the first
year after the Plan is adopted and may award the remaining shares available
under the Plan during the following nine years. No awards can be made under
the Plan more than 10 years after the date it is adopted.
 
  The exercise price of the Options will be determined by the Compensation and
Benefits Committee in its discretion, provided that the exercise price of any
Option cannot be less than the fair market value of a share of Common Stock on
the date such Option is granted. Options vest and may be exercised three years
after the date of grant. No Option may be exercised more than 10 years after
the date of grant. The Options may not be exercised following termination of
the grantee's employment with the Company, except that in the event a
grantee's employment terminates due to death, disability or retirement,
options held by such grantee or his or her estate shall be exercisable, if
vested at the time of termination of employment, for a period of three months
after termination.
 
  Upon consummation of the Separation, certain options to purchase common
stock of Irex Corporation held by directors and employees of the Company will
be canceled and replaced by grants by the Company of Options under the Plan.
See "Separation from Irex--Agreements with Irex--Benefits Sharing Agreement."
The number
 
                                      37
<PAGE>
 
of shares underlying these Options and their exercise price will be
established so as to preserve, but not increase, the intrinsic value of the
canceled Irex options. The Company expects to grant such Options to
employees of the Company to purchase an aggregate of     shares of Common
Stock under the Plan, including grants of options to purchase    shares,
shares and    shares of Common Stock to Messrs. King, Schattgen and Horan,
respectively. The exercise price of those Options is $    . Following
consummation of the Offering, the Compensation and Benefits Committee is
expected to approve the grant of additional Options to certain officers and
employees of the Company to purchase an aggregate of     shares of Common
Stock under the Plan, including grants of options to purchase    shares,
shares and    shares of Common Stock to Messrs. King, Schattgen and Horan,
respectively.
 
401(K) PLAN
 
  Prior to consummation of the Offering the Company expects to adopt the
Employees' Savings Incentive Plan (the "401(k) Plan"). The 401(k) Plan is a
savings and retirement plan intended to satisfy the tax qualification
requirements of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Subject to certain terms and conditions of the 401(k)
Plan, substantially all of the Company's employees who are employed on the
date of the consummation of the Separation and who are compensated on the
basis of a monthly salary will be immediately eligible to participate in the
401(k) Plan. Thereafter, salaried employees will be eligible to participate in
the 401(k) Plan on the January 1 or July 1 coincident with or next following
the date on which the employee is hired by the Company. Eligible employees may
contribute between 2% and 15% of their compensation to the 401(k) Plan on a
pre-tax or after-tax basis.
 
  The Company will make matching contributions to the 401(k) Plan each year
equal to 100% of the first 3%, and 50% of the second 3%, of each participant's
compensation that is contributed to the 401(k) Plan either on a pre-tax or
after-tax basis. In addition, the Company, in it discretion, may make profit-
sharing contributions each year in cash or Common Stock of the Company. Any
profit-sharing contributions made by the Company will be allocated to each
participant's account under the 401(k) Plan in a proportionate amount based on
the participant's compensation for the year in relation to all participants'
compensation for the year. All Company and employee contributions to the
401(k) Plan are allocated to a participant's individual account.
 
  All Company and employee contributions to the 401(k) Plan plus the earnings
thereon are 100% vested. Employees may direct the investment of their accounts
to various investment funds. The 401(k) Plan provides for hardship withdrawals
and loans to participants. The trustee of the 401(k) Plan is Vanguard
Fiduciary Trust Company.
 
INSURANCE AND INDEMNIFICATION
 
  Prior to the Separation, the Company intends to obtain directors' and
officers' insurance against certain liabilities such persons may incur on
behalf of the Company. For a discussion of the limitations on liability of the
Company's directors and the indemnification by the Company of such directors
set forth in the Company's bylaws , see "Description of Capital Stock--
Limitation on Liability and Indemnification."
 
EMPLOYMENT AGREEMENTS
 
  Prior to consummation of the Offering, the Company expects to enter into
employment agreements with Ronald L. King, Michael J. Hughes and each of the
executive officers of the Company. The agreement with Mr. King provides that
Mr. King will serve as the President and Chief Executive Officer of the
Company for a period of three years after the date of the agreement. Under the
agreement, the Company or Mr. King may terminate Mr. King's employment with or
without cause. If Mr. King's employment is terminated by the Company without
cause, the Company must continue to pay Mr. King's salary at the time of
termination for the remainder of the term of the agreement. Mr. King is
subject to a non-competition covenant during the term of the agreement and for
a one-year period following the earlier of his termination of employment or
expiration of the agreement. The agreements with the executive officers of the
Company are similar to the agreement with Mr. King, except that the term of
each such agreement is one year. Mr. Hughes will have an agreement which
protects him in the event of a change of control for a two-year period from
the beginning of his employment with the Company.
 
                                      38
<PAGE>
 
                            PRINCIPAL SHAREHOLDERS
 
  As of the date of this Prospectus, all of the Company's capital stock is
owned by Irex. Immediately following the Separation and the Offering, all of
the Company's capital stock will be owned by the shareholders of Irex who
receive shares of Common Stock in the Separation and by new shareholders who
purchase Common Stock in the Offering. See "Separation from Irex." The
following table sets forth certain information known to the Company regarding
the beneficial ownership of the Company's Common Stock immediately following
consummation of the Separation and the Offering with respect to (i) each
person who the Company expects will become the beneficial owner of more than
5% of the outstanding Common Stock, (ii) each director and named executive
officer of the Company and (iii) all directors and executive officers of the
Company as a group. Unless otherwise specified, each person set forth below
has sole voting and investment power with respect to the shares reported.
 
<TABLE>
<CAPTION>
                                                     PERCENTAGE OF OUTSTANDING
                                 NUMBER OF SHARES    COMMON STOCK BENEFICIALLY
       BENEFICIAL OWNER        BENEFICIALLY OWNED(1)           OWNED
       ----------------        --------------------- -------------------------
<S>                            <C>                   <C>
James E. Hipolit (2)
 c/o Irex Corporation
 120 North Lime Street
 Lancaster, Pennsylvania
 17608........................        306,254                  6.2%
W. Kirk Liddell (3)
 c/o Irex Corporation
 120 North Lime Street
 Lancaster, Pennsylvania
 17608........................        269,460                  5.5%
Ronald L. King (4)............          3,593                    *
William W. Adams..............         11,554                    *
David C. Kleinman.............          1,437                    *
Wilson D. McElhinny...........          1,675                    *
G. Clay von Seldeneck.........            --                    --
John O. Shirk.................         16,425                    *
Charles F. Schattgen (4)......          2,874                    *
Raymond J. Horan (4)..........            654                    *
All directors and executive
 officers as a group (4)......        613,926                  12.5%
</TABLE>
--------
 *Less than 1%.
(1) Based on beneficial ownership of Irex common stock as of March 24, 1998
    and after giving effect to (i) the recapitalization of the Common Stock of
    the Company prior to the Separation, (ii) the distribution of Common Stock
    to Irex shareholders effected in connection with the Separation and (iii)
    the Offering.
(2) Includes 25,148 shares with respect to which Mr. Hipolit will share voting
    and investment power and a total of 281,106 shares to be held by Mr.
    Hipolit as custodian for the minor children of W. Kirk Liddell under the
    Uniform Gift to Minors Act of Pennsylvania. Mr. Hipolit disclaims
    beneficial ownership of the shares he will hold as custodian.
(3) Includes 167,310 shares with respect to which Mr. Liddell will have sole
    voting and investment power and 102,150 shares held by Mr. Liddell's
    spouse, with respect to which Mr. Liddell disclaims beneficial ownership.
    Does not include shares owned by the minor children of Mr. Liddell held by
    Mr. Hipolit as custodian, as reported above.
(4) In connection with the Separation and the Offering, the Company expects to
    grant options to purchase an aggregate of     shares of Common Stock to
    certain officers and employees of the Company under the Company's stock
    option plan, including grants of options to Messrs. King, Schattgen and
    Horan to purchase     shares,    shares and     shares, respectively. The
    options will be granted upon and
 
                                      39
<PAGE>
 
   following consummation of the Separation and the Offering. See
   "Management--Stock Option Plan" and "Separation from Irex--Agreements with
   Irex--Benefits Sharing Agreement." All of the options have limitations on
   exercise and none are included in the table above.
 
                             SEPARATION FROM IREX
 
BACKGROUND AND REASONS FOR THE SEPARATION
 
  Since commencing operations in 1982, the Company has been a wholly owned
subsidiary of Irex. Through its operating subsidiaries other than the Company,
Irex is primarily engaged in the business of specialty contracting throughout
the United States and Canada. In January 1998 Irex announced plans to effect
the Separation through a pro rata distribution of 100% of the capital stock of
the Company to the shareholders of Irex. The Separation will occur immediately
prior to the consummation of the Offering, and each is conditioned upon the
consummation of the other. Immediately following the Separation and the
Offering, all of the capital stock of the Company will be owned by the
shareholders of Irex who receive shares of Common Stock in the Separation and
by new shareholders who purchase Common Stock in the Offering.
 
  The decision to effect the Separation is based on a number of factors. The
Separation will provide both corporations with greater managerial, operational
and financial flexibility to focus on and respond to changing market
conditions in their respective business environments. The Company also
believes that its ability to pursue and finance acquisitions and other
business opportunities will be enhanced if the Company operates independently.
The Separation will provide the Company with direct access to capital markets,
subject to certain limitations for a two-year period following the Separation.
See "Risk Factors--Limitations on Ability to Raise Equity Capital and
Dependence on Alternative Financing." As a separate entity, the Company will
not be subject to Irex's capital structure restrictions and will be in a
better position to fund its operating and growth strategies. Furthermore,
financial advisors have advised Irex and the Company that equity capital
necessary to meet the business needs of Irex and the Company can be most
effectively raised through an initial public offering of the stock of the
Company following its Separation from Irex, rather than through a stock
offering by either Irex or the Company while Irex continues to hold a
substantial equity interest in the Company. In addition, management believes
the Separation will assist the Company in serving certain customers. Through
the specialty contracting businesses operated by its other subsidiaries, Irex
competes with customers whose business is solicited by the Company, and the
Company believes these customers will be more likely to purchase products from
the Company after it is independent from Irex. The Separation will also enable
the Company to provide its management and employees with incentive
compensation in the form of direct and indirect equity ownership in the
Company.
 
  Immediately prior to consummation of the Separation, the Company will
declare a dividend to Irex in the amount of $10.5 million. This amount
corresponds to $10.5 million of outstanding Preferred Stock of Irex which will
remain Irex's obligation following the Separation. The Company will have no
obligations or liabilities under the Preferred Stock following the Separation.
The Company will borrow funds to pay the dividend and the resulting
indebtedness will be repaid with a portion of the proceeds of the Offering.
See "Use of Proceeds."
 
  Another subsidiary of Irex, ACandS, Inc. ("ACandS"), is engaged in the
thermal insulation contracting business. ACandS has been the subject of
numerous lawsuits seeking damages for injuries allegedly caused by exposure to
asbestos contained in insulation products installed or sold by ACandS before
1974. The Company has never been named as a defendant in any asbestos-related
lawsuit, nor has any asbestos-related claim been made against it. The
Company's involvement with the thermal insulation contracting business has
been minimal, and, in the Company's opinion, it has no material liability in
connection with that involvement. The Company believes that adequate insurance
coverage is available to ACandS and its affiliated companies, including the
Company, for asbestos-related suits.
 
                                      40
<PAGE>
 
AGREEMENTS WITH IREX
 
  In connection with the Separation and the Offering, the Company will enter
into several agreements with Irex and its subsidiaries setting forth certain
interim and longer-term relationships between the companies. The following
summaries of the principal terms of these agreements are qualified in their
entirety by reference to the full text of such agreements. See "Additional
Information."
 
  Corporate Separation Agreement. Prior to the consummation of the Separation
and the Offering, the Company and Irex and its subsidiaries (collectively, the
"Irex Companies") will enter into a separation agreement (the "Separation
Agreement") which sets forth certain agreements with respect to the Separation
and certain agreements between the Company and the Irex Companies governing
the relationship between them following the Separation and the Offering.
Pursuant to the Separation Agreement, Irex will provide the Company with
access to Irex's management information systems for a three-year period
following consummation of the Offering. Under the agreement, access to system
hardware and software and related support services maintained by Irex will be
made available on a quarterly fee basis based on a formula that takes into
account the Company's relative use of the system. The agreement also provides
for the Company to utilize customization capabilities of system programmers
employed by Irex on an hourly fee basis. The Separation Agreement also
provides reciprocal indemnification provisions between the Irex Companies and
the Company, pursuant to which the Irex Companies agree to indemnify the
Company for liabilities relating to their businesses arising at any time, and
the Company agrees to indemnify the Irex Companies for liabilities relating to
its business arising after December 23, 1981. The agreement also includes
provisions governing certain workers' compensation and liability insurance
payments, pursuant to which Irex will maintain responsibility for processing
payment claims occurring as a result of incidents involving the Company's
employees and arising prior to the date of the Separation, and the Company
will indemnify Irex for payments made by Irex as a result of such claims (up
to the amount of the deductible stated in the workers' compensation insurance
policies governing such claims).
 
  Tax Sharing and Indemnification Agreement. Prior to the consummation of the
Separation, the Company and Irex will enter into a tax sharing and
indemnification agreement (the "Tax Agreement"). Pursuant to the Tax
Agreement, (i) the Company will generally be indemnified for tax liabilities
of any consolidated, combined and unitary group of corporations that includes
Irex and/or its subsidiaries (including the Company) for periods prior to the
consummation of the Separation, (ii) the Company will indemnify Irex and its
subsidiaries for any other tax liabilities of the Company related to the
Company for periods prior to the consummation of the Separation, (iii) the
Company will be restricted, for a period of two years following the date of
the consummation of the Separation, from engaging in certain transactions
(certain issuances of stock, redemptions of stock or ceasing to engage in its
trade or business) without first obtaining either a ruling from the Internal
Revenue Service or an opinion from nationally recognized tax counsel that the
transaction will not affect the tax-free nature of the Separation to Irex or
its shareholders and (iv) the Company will be required to indemnify Irex and
its shareholders for tax liabilities that may be incurred by Irex or its
shareholders as a result of actions that the Company may undertake following
the Separation and that cause the Separation to be treated as a taxable
transaction to Irex or its shareholders. The Company does not expect these
restrictions to materially inhibit its operations or growth opportunities.
 
  Irex and the Company will receive an opinion of Dechert Price & Rhoads,
counsel to Irex and the Company, that for U.S. federal income tax purposes the
Separation should qualify as a tax-free spin-off. The opinion of counsel will
be based on certain assumptions and the accuracy of factual representations
made by Irex and the Company. Neither Irex nor the Company is aware of any
present facts or circumstances which should cause such representations and
assumptions to be untrue. However, the opinion of counsel is not binding on
either the Internal Revenue Service ("IRS") or the courts. A ruling has not
been, and will not be, sought from the IRS with respect to the U.S. federal
income tax consequences of the Separation, and it is possible that the IRS may
take the position that the Separation does not qualify as a tax-free spin-off.
See "Risk Factors--Potential Liability for Taxes Related to the Separation."
 
  Benefits Sharing Agreement. Prior to the consummation of the Separation, the
Company and Irex will enter into a benefits sharing agreement (the "Benefits
Agreement") to set forth the manner in which assets and
 
                                      41
<PAGE>
 
liabilities under employee benefit plans and other employment-related
liabilities will be divided between them. In general, the Company will be
responsible for compensation and employee benefits relating to both its active
and former employees. Irex will generally remain responsible for compensation
and employee benefits relating to its active and former employees. The
Company's 401(k) Plan will receive a transfer of plan assets from the Irex
Employees' Savings Incentive Plan equal to the account balances of the
Company's active and former employees. See "Management--401(k) Plan." Prior to
the Separation, Irex will amend its pension plan to cease future benefit
accruals. Prior to the Separation, the Company will make a payment to Irex
equal to the unfunded accrued liability under the Irex pension plan
attributable to the Company's employees and former employees. The Company does
not currently intend to sponsor a pension plan for periods immediately
following the Separation.
 
  The Benefits Agreement will also provide for the treatment of certain
outstanding non-qualified options to purchase the common stock of Irex ("Irex
Options"). At the time of the Separation, all Irex Options held by employees
who will be employed by the Company after the Separation will be canceled and
replaced by grants of options to purchase Common Stock of the Company under
the Company's stock option plan. See "Management--Stock Option Plan." The
number of shares underlying these options and their exercise price will be
established so as to preserve, but not increase, the intrinsic value of the
canceled Irex Options. Irex Options held by employees who will be employed by
Irex after the Separation or any former employees will be unaffected by the
Separation and will be retained by such employees or former employees.
 
                         DESCRIPTION OF CAPITAL STOCK
 
  The following description of the capital stock of the Company is subject to
and qualified in its entirety by reference to the Company's Restated Articles
of Incorporation, which have been filed as an exhibit to the Registration
Statement which includes this Prospectus.
 
  As of the date of this Prospectus, after giving effect to the stock split
effected in connection with the Separation and the Offering, there are
2,913,547 shares of Common Stock issued and outstanding, all of which are held
of record by Irex. No shares of Preferred Stock are issued or outstanding.
 
COMMON STOCK
 
  The Company is authorized to issue up to 15 million shares of Common Stock,
par value $.01 per share ("Common Stock").
 
  The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Shareholders do not have cumulative
voting rights in the election of directors, meaning that the holders of a
majority of the shares entitled to vote in any election of directors may elect
all of the directors standing for election. The bylaws provide that special
meetings of the shareholders of the Company may be called only by the Board of
Directors. Generally, whenever any corporate action is to be taken by vote of
the shareholders of the Company, or by vote of a class of such shareholders of
the Company, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by such shareholders, or by such class of
shareholders, entitled to vote thereon.
 
PREFERRED STOCK
 
  The Company is authorized to issue up to 15 million shares of Preferred
Stock. The Board of Directors is authorized, subject to any limitations
prescribed by law, without further shareholder approval, to issue such shares
of Preferred Stock in one or more series, with such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be established by the Board of Directors at the time of issuance.
 
  The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of Common Stock. The issuance of shares of
Preferred Stock could result in securities outstanding that would have
preference over the Common Stock with respect to dividends and in liquidation
and that could (upon conversion or otherwise) enjoy all of the rights of the
Common Stock.
 
 
                                      42
<PAGE>
 
  The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by third persons to obtain
control of the Company through merger, tender offer, proxy or consent
solicitation or otherwise, by making such attempts more difficult to achieve
or more costly. The Board of Directors may issue Preferred Stock without
shareholder approval and with voting rights that could adversely affect the
voting power of holders of Common Stock. There are no agreements or
understandings for the issuance of Preferred Stock, and the Company has no
plans to issue any shares of Preferred Stock. See "Risk Factors--Anti-Takeover
Provisions."
 
CERTAIN PROVISIONS OF THE PENNSYLVANIA BUSINESS CORPORATION LAW
 
  The Company is governed by Subchapter F of Chapter 25 of the PBCL. The
Company's restated articles of incorporation provide that the Company shall
not be governed by Subchapters E, G and H of Chapter 25 of the PBCL.
Subchapter F may have an anti-takeover effect and may delay, defer or prevent
a tender offer or takeover attempt that a shareholder might consider in his or
her best interest, including those attempts that might result in a premium
over the market price for the shares held by shareholders. In general,
Subchapter F delays for five years and imposes conditions upon "business
combinations" between an "interested shareholder" and the Company, unless
prior approval of the Board of Directors is given. The term "business
combination" is defined broadly to include various merger, consolidation,
division, exchange or sale transactions, including transactions utilizing the
Company's assets for purchase price amortization or refinancing purposes. An
"interested shareholder," in general, would be a beneficial owner of shares
entitling that person to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company. The
Company is also governed by other provisions of the PBCL which are designed to
support the validity of actions taken by the Board of Directors in response to
takeover bids, including specifically the board's authority to "accept, reject
or take no action" with respect to a takeover bid, and permitting the
unfavorable disparate treatment of a takeover bidder. Another provision of the
PBCL gives the directors broad discretion in considering the best interests of
the Company, including a provision which permits the board, in taking any
action, to consider various corporate interests, including employees,
suppliers, clients and communities in which the corporation is located, the
short and long-term interests of the corporation and the resources, intent and
conduct of any person seeking to acquire control of the corporation. These
provisions may have the effect of making more difficult and thereby
discouraging attempts to acquire control of the Company in a transaction that
the board or directors determines not to be in the best interests of the
Company.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
  As permitted by the PBCL, the Company's bylaws provide that a director shall
not be personally liable for monetary damages for any action taken, or any
failure to take any action, unless (i) the director has breached or failed to
perform the duties of his office under Section 8363 of the Pennsylvania
Directors Liability Act (relating to standard of care and justifiable
reliance) and (ii) the breach or failure to perform constitutes improper self-
dealing, willful misconduct or recklessness. Such limitation on liability does
not apply to the responsibility or liability of a director pursuant to any
criminal statute or the liability of a director for the payment of taxes
pursuant to local, state or federal law. In addition, the bylaws provide that
the Company shall indemnify any person who is a party or is threatened to be
made a party to any lawsuit or claim for damages arising by reason of the fact
that he is or was a director, officer or employee of the Company or any
subsidiary.
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Common Stock is expected to be
Chase Mellon Shareholder Services.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
  Prior to this Offering, there has been no public market for the Common
Stock. No predictions can be made with respect to the effect, if any, that
public sales of shares of the Common Stock or the availability of shares for
sale will have on the market price of the Common Stock after this Offering.
Sales of substantial amounts of the Common Stock in the public market
following this Offering, or the perception that sales may occur, could
 
                                      43
<PAGE>
 
adversely affect the market price of the Common Stock or the ability of the
Company to raise capital through a sale of its equity securities.
 
  Upon completion of the Separation and the Offering, 4,913,547 shares of
Common Stock will be outstanding (5,213,547 shares will be outstanding if the
Underwriters' over-allotment option is exercised in full). The 2,000,000
shares of Common Stock sold in the Offering (2,300,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless acquired by an "affiliate" of the Company. An "affiliate" is defined in
Rule 144 promulgated by the Commission under the Securities Act ("Rule 144")
generally as a person who by equity ownership or otherwise controls, is
controlled by or is under common control with the Company. The 2,913,547
shares of Common Stock distributed to shareholders of Irex in the Separation
will be freely tradable following the Separation and Offering, except for such
shares distributed to affiliates of the Company, which shares will be subject
to (i) lock-up agreements entered into in connection with the Separation (see
below) and (ii) Rule 144, except for the holding period requirement of Rule
144(d), absent registration or another appropriate exemption under the
Securities Act.
 
  In general, Rule 144 will permit an affiliate or a person who has held
restricted shares for more than one year to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the then-
outstanding shares of Common Stock or the average weekly trading volume of
such stock during the four calendar weeks preceding such sale, provided that
the Company has either filed certain periodic reports with the Commission or
made publicly available certain information concerning itself and provided
that such sales are made in normal "brokers' transactions" or in transactions
directly with a "market maker" without the solicitation of buy orders by the
brokers or such affiliates. A person who is deemed not to be an affiliate of
the Company at any time during the three months preceding a sale and who has
held restricted shares for more than two years may sell such shares under Rule
144 without regard to the volume limitations described above.
 
  Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "SPIE." Sales of substantial amounts of Common Stock
in the public market, including sales under Rule 144, could have a depressing
effect on the price of the Common Stock.
 
LOCK-UP AGREEMENTS
 
  In connection with the Separation, certain shareholders have agreed, subject
to certain exceptions, not to register for sale or offer, sell or transfer any
shares of Common Stock for a period of two years following consummation of the
Separation. These agreements cover shares of Common Stock received by such
shareholders in the Separation. In addition, in connection with the Offering,
certain shareholders have agreed, subject to certain exceptions, not to
register for sale or offer, sell or transfer any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Legg Mason Wood Walker, Incorporated. These agreement covers all of
the     shares of Common Stock held by such shareholders. See "Separation from
Irex" and "Underwriting."
 
                                      44
<PAGE>
 
                                 UNDERWRITING
 
  The underwriters named below (the "Underwriters"), acting through their
representatives, Legg Mason Wood Walker, Incorporated and Advest, Inc. (the
"Representatives") expect to severally agree, subject to the terms and
conditions of the Underwriting Agreement, to purchase a total of 2,000,000
shares of Common Stock from the Company. The number of shares of Common Stock
that each Underwriter has agreed to purchase is set forth opposite its name
below. The Underwriters are committed to purchase all of such shares if any
are purchased. Under certain circumstances the commitments of non-defaulting
Underwriters may be increased. The names of the several Underwriters and the
respective number of shares to be purchased by each of them are as follows:
 
<TABLE>
<CAPTION>
                                                                       NUMBER OF
      UNDERWRITER                                                       SHARES
      -----------                                                      ---------
<S>                                                                    <C>
Legg Mason Wood Walker, Incorporated..................................
Advest, Inc...........................................................
                                                                       ---------
  Total............................................................... 2,000,000
                                                                       =========
</TABLE>
 
  The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price per share set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $    per share, and the Underwriters may allow, and such dealers may
reallow, a concession not in excess of $    per share on sales to other
dealers. After the commencement of the public offering of the shares of Common
Stock, the offering price and concession may be changed. The Company has
agreed to indemnify the several Underwriters against certain liabilities which
may be incurred in connection with the Offering, including liabilities under
the Securities Act.
 
  The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 300,000 shares of Common Stock from the Company at the same price
per share as the public offering price. The Underwriters may exercise such
option only to cover over-allotments in the sale of the shares of Common Stock
that the Underwriters have agreed to purchase. To the extent the Underwriters
exercise this option, each of the Underwriters has a firm commitment, subject
to certain conditions, to purchase the same percentage of the option shares as
the number of shares to be purchased and offered by that Underwriter as shown
in the above table bears to the 2,000,000 shares of Common Stock initially
offered hereby.
 
  All of the directors and executive officers of the Company expect to agree
with the Representatives not to sell or dispose of any shares owned by them
without the consent of the Representatives for a period of 180 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."
 
  In connection with this Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended, during the two business
day period before the commencement of offers of sales of the Common Stock.
Passive market makers must comply with applicable volume and price limitations
and must be identified as such. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.
 
  Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters to bid for and purchase
the Common Stock. As an exception to these rules, the Representatives
 
                                      45
<PAGE>
 
are permitted to engage in certain transactions that stabilize the price of
the Common Stock. Such transactions may consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Common Stock.
 
  If Underwriters create a short position in the Common Stock in connection
with the offering thereof (i.e., if they sell more shares of Common Stock than
are set forth on the cover page of the Prospectus), the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives also may elect to reduce any short position by exercising all
or part of the over-allotment option described in the Prospectus.
 
  The Representatives also may impose a penalty bid on certain Underwriters.
This means that if the Representatives purchase Common Stock in the open
market to reduce the Underwriters' short position or to stabilize the price of
the Common Stock, they may reclaim the amount of the selling concession from
the Underwriters who sold those shares as part of this Offering.
 
  In general, purchases of Common Stock for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the Common Stock to
be higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of the Common
Stock to the extent that it were to discourage resales of the Common Stock by
purchasers in this Offering.
 
  Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor the Underwriters make any representation
that the Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
 
                                 LEGAL MATTERS
 
  The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Dechert Price & Rhoads, Philadelphia,
Pennsylvania. Certain matters in connection with this Offering will be passed
upon for the Underwriters by Stradley, Ronon, Stevens & Young, LLP,
Philadelphia, Pennsylvania.
 
                                    EXPERTS
 
  The consolidated financial statements of the Company as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
 
                            ADDITIONAL INFORMATION
 
  The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") under
the Securities Act with respect to the securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain items of which are omitted as permitted by the rules and regulations
of the Commission. Statements made in this Prospectus as to the contents of
any agreement or other document referred to herein are not necessarily
complete, and reference is made to the copy of such agreement or other
document filed as an exhibit or schedule to the Registration Statement and
each such statement shall be deemed qualified in its entirety by such
reference. For further information, reference is made to the Registration
 
                                      46
<PAGE>
 
Statement and to the exhibits and schedules filed therewith, which are
available for inspection without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W, Washington,
D.C. 20549. Copies of the material containing this information may be obtained
from the Commission upon payment of the prescribed fees.
 
  After consummation of the Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will be
required to file proxy statements, reports and other information with the
Commission. The Registration Statement, as well as any such report, proxy
statement and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
 
  The Company intends to furnish to its shareholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm accompanied by an opinion expressed by such independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information in each case prepared
in accordance with generally accepted accounting principles.
 
           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
  Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. Actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed under "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These forward-looking
statements involve risks and uncertainties including, but not limited to,
those set forth under "Risk Factors."
 
                                      47
<PAGE>
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                                        <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-3
Consolidated Statements of Income for the years ended December 31, 1995,
 1996 and 1997............................................................ F-4
Consolidated Statements of Shareholder's Investment for the years ended
 December 31, 1995,
 1996 and 1997............................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
 1995, 1996 and 1997...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
 
                                      F-1
<PAGE>
 
  After the stock split-up effected in the form of a dividend discussed in
Note 11 to the Company's consolidated financial statements is effected, we
expect to be in a position to render the following audit report.
 
                                          Arthur Andersen LLP
 
Lancaster, Pennsylvania
  March 16, 1998, except with respect to certain information
  in Note 11, as to which the date is April 9, 1998
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Specialty Products & Insulation Co.:
 
  We have audited the accompanying consolidated balance sheets of Specialty
Products & Insulation Co. (a Pennsylvania corporation and a wholly owned
subsidiary of Irex Corporation) and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholder's
investment and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as, evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Specialty Products &
Insulation Co. and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
 
  Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and
qualifying accounts is presented for purposes of complying with the Securities
and Exchange Commission rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
 
Lancaster, Pennsylvania
 
                                      F-2
<PAGE>
 
               SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                   DECEMBER 31,                 DECEMBER 31, 1997
                              ------------------------------  -----------------------
                                                                    PRO FORMA
                                 1996            1997             (SEE NOTE 12)
                              --------------  --------------  -----------------------
                                                                   (UNAUDITED)
                              (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                           <C>             <C>             <C>                   <C>
ASSETS
Current Assets:
  Cash and cash
   equivalents..............  $           78  $          345       $          345
  Receivables, less reserves
   of $466 in 1997 and $994
   in 1996..................          22,769          27,635               27,635
  Inventories of materials
   and supplies.............          13,117          15,667               15,667
  Prepaid expenses..........             408             173                  173
  Deferred income taxes.....             930           1,100                1,100
                              --------------  --------------       --------------
    Total current assets....          37,302          44,920               44,920
Property and Equipment, at
 cost:
  Buildings and
   improvements.............           1,153           1,315                1,315
  Machinery and equipment...           2,655           2,996                2,996
                              --------------  --------------       --------------
                                       3,808           4,311                4,311
  Less accumulated
   depreciation.............          (2,242)         (2,543)              (2,543)
                              --------------  --------------       --------------
                                       1,566           1,768                1,768
Other Assets................              67             963                  963
                              --------------  --------------       --------------
                              $       38,935  $       47,651       $       47,651
                              ==============  ==============       ==============
LIABILITIES AND
 SHAREHOLDER'S INVESTMENT
Current Liabilities:
  Current portion of long-
   term debt................  $        1,436  $        1,455       $        1,455
  Accounts payable..........           6,261           7,360                7,360
  Payable to affiliates.....          15,006          20,221               20,221
  Accrued liabilities.......           2,746           4,108                4,108
  Accrued income taxes......           1,049             510                  510
                              --------------  --------------       --------------
    Total current
     liabilities............          26,498          33,654               33,654
Deferred Income Taxes.......              88             --                   --
Long-term Debt, less current
 portion....................           5,928           4,817               15,307
Shareholder's Investment:
  Preferred stock, $0.01 par
   value per share;
   15,000,000 shares
   authorized; none issued..             --              --                   --
  Common stock, $0.01 par
   value per share;
   15,000,000 shares
   authorized; 2,913,547
   issued and outstanding...              29              29                   29
  Paid-in surplus...........             974             974                  --
  Retained earnings.........           5,418           8,177               (1,339)
                              --------------  --------------       --------------
    Total shareholder's
     investment.............           6,421           9,180               (1,310)
                              --------------  --------------       --------------
                              $       38,935  $       47,651       $       47,651
                              ==============  ==============       ==============
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-3
<PAGE>
 
               SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                        --------------------------------------
                                            1995         1996         1997
                                        ------------ ------------ ------------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>          <C>          <C>
Net sales.............................. $    118,395 $    141,800 $    158,510
Cost of sales..........................       92,503      110,690      124,258
                                        ------------ ------------ ------------
  Gross profit.........................       25,892       31,110       34,252
Selling, general and administrative
 expenses..............................       21,841       24,762       27,229
                                        ------------ ------------ ------------
  Operating income.....................        4,051        6,348        7,023
Interest expense, net..................        1,840        1,854        1,939
                                        ------------ ------------ ------------
  Income before income taxes...........        2,211        4,494        5,084
Income tax provision...................          918        1,810        2,077
                                        ------------ ------------ ------------
  Net income........................... $      1,293 $      2,684 $      3,007
                                        ============ ============ ============
Net income per share--basic............ $       0.44 $       0.92 $       1.03
                                        ============ ============ ============
Net income per share--diluted.......... $       0.44 $       0.92 $       1.03
                                        ============ ============ ============
Weighted average shares outstanding-
 basic.................................    2,913,547    2,913,547    2,913,547
                                        ============ ============ ============
Weighted average shares outstanding-
 diluted...............................    2,913,547    2,913,547    2,913,547
                                        ============ ============ ============
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-4
<PAGE>
 
               SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
              CONSOLIDATED STATEMENTS OF SHAREHOLDER'S INVESTMENT
 
<TABLE>
<CAPTION>
                                                       PAID-IN
                                          COMMON STOCK SURPLUS RETAINED EARNINGS
                                          ------------ ------- -----------------
                                                      (IN THOUSANDS)
<S>                                       <C>          <C>     <C>
Balance, January 1, 1995.................     $29       $974        $2,652
  Net income.............................     --         --          1,293
  Distribution to parent.................     --         --           (748)
                                              ---       ----        ------
Balance, December 31, 1995...............      29        974         3,197
  Net income.............................     --         --          2,684
  Distribution to parent.................     --         --           (463)
                                              ---       ----        ------
Balance, December 31, 1996...............      29        974         5,418
  Net income.............................     --         --          3,007
  Distribution to parent.................     --         --           (248)
                                              ---       ----        ------
Balance, December 31, 1997...............     $29       $974        $8,177
                                              ===       ====        ======
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-5
<PAGE>
 
               SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                  ----------------------------
                                                    1995      1996      1997
                                                  --------  --------  --------
                                                        (IN THOUSANDS)
<S>                                               <C>       <C>       <C>
Cash Flows From Operating Activities:
  Net income..................................... $  1,293  $  2,684  $  3,007
  Reconciliation of net income to net cash
   provided by (used for) operating activities--
    Depreciation and amortization................      514       558       640
    Deferred income tax (benefit) provision......       (6)     (191)      364
    Provision for losses on accounts receivable..      830     1,120        71
    (Gain) loss on sale of assets................       (2)       75        15
  (Increase) decrease in assets--
    Receivables..................................   (3,387)   (1,590)   (3,672)
    Inventories..................................     (755)   (1,934)   (1,204)
    Other prepaid expenses.......................       31      (182)      248
    Other assets.................................      (23)      --        --
  Increase (decrease) in liabilities--
    Accounts payable.............................      640        39     1,042
    Accrued liabilities and other................      501       499     1,134
    Accrued income taxes.........................      261       776      (495)
                                                  --------  --------  --------
      Net cash (used for) provided by operating
       activities................................     (103)    1,854     1,150
                                                  --------  --------  --------
Cash Flows From Investing Activities:
  Additions to property and equipment............     (413)     (559)     (559)
  Proceeds from sales of property and equipment..       79        24         4
  Acquisitions of certain businesses, net of cash
     acquired
     Assets, net of liabilities assumed..........     (961)     (120)   (2,523)
    Intangibles..................................      --        (60)     (930)
  Other investing................................      --        (62)      (33)
                                                  --------  --------  --------
      Net cash used for investing activities.....   (1,295)     (777)   (4,041)
                                                  --------  --------  --------
Cash Flows From Financing Activities:
  Payments on long-term debt.....................      --     (1,186)   (1,186)
  Increase in payable to affiliates..............    1,429        97     4,344
                                                  --------  --------  --------
      Net cash provided by (used for) financing
       activities................................    1,429    (1,089)    3,158
                                                  --------  --------  --------
Net Increase (Decrease) in Cash and Cash
 Equivalents.....................................       31       (12)      267
Cash and Cash Equivalents, Beginning of Year.....       59        90        78
                                                  --------  --------  --------
Cash and Cash Equivalents, End of Year........... $     90  $     78  $    345
                                                  ========  ========  ========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-6
<PAGE>
 
              SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
 
1. DESCRIPTION OF BUSINESS:
 
  Specialty Products & Insulation Co. and subsidiary (the Company), a wholly-
owned subsidiary of Irex Corporation (Irex) (See Note 11), is a distribution
and fabrication business that competes in the large and highly fragmented
building products industry. The Company broadly defines its two core markets
as mechanical insulation, consisting of pipe, duct, and equipment insulation
for commercial and industrial customers, and architectural/acoustical
products, consisting primarily of acoustical ceilings, fiberglass reinforced
panel, and other wall and ceiling products.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
Principles of Consolidation
 
  The consolidated financial statements include the accounts of Specialty
Products & Insulation Co. and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
 
Estimates and Assumptions
 
  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 sales and expenses during the reporting
period. Actual results could differ from those estimates.
 
Cash and Cash Equivalents
 
  The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
 
Inventories
 
  Inventories are stated at the lower of cost or market. Cost is determined
principally on a first-in, first-out (FIFO) basis. Included in inventory cost
are material costs and costs directly associated with the fabrication of the
Company's products.
 
Reserves for Certain Self-Insured Business Risks
 
  The Company is self-insured against a portion of its workers' compensation
and other insurance risks. The process of determining reserve requirements for
losses within its self-insured retention limits utilizes historical trends,
involves an evaluation of claim frequency, severity and other factors and also
includes the effect of future inflation.
 
Income Taxes
 
  The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are recognized using enacted tax rates,
for the estimated future tax effects of temporary differences between the
financial reporting and tax bases of assets and liabilities.
 
                                      F-7
<PAGE>
 
Property and Equipment
 
  Property and equipment are depreciated using principally the straight-line
method over the following estimated useful lives of the assets. Expenditures
for maintenance and repairs are expensed as incurred.
 
<TABLE>
<CAPTION>
       CLASSIFICATION                                     ESTIMATED USEFUL LIVES
       --------------                                     ----------------------
       <S>                                                <C>
       Buildings.........................................     15 to 30 years
       Leasehold improvements............................      3 to 10 years
       Machinery and equipment...........................       3 to 7 years
</TABLE>
 
Other Assets
 
  Other assets consist of goodwill and other intangibles. Goodwill, which
represents the excess of cost over fair value of the net assets of acquired
businesses, is being amortized on a straight-line basis principally over 15
years. The Company develops operating income projections and evaluates the
recoverability and amortization period of goodwill using these projections.
Based upon management's current assessment, the estimated remaining
amortization period of goodwill is appropriate and the remaining balance is
fully recoverable. There was no unamortized goodwill at December 31, 1996. At
December 31, 1997, unamortized goodwill was $842,000.
 
Revenue Recognition
 
  Sales are recorded as orders are shipped or picked up by the customer and
are reported net of discounts and returns.
 
Supplemental Cash Flow Information
 
  The Company's state income tax payments, net of refunds, were $28,000,
$131,000 and $280,000 in 1995, 1996 and 1997, respectively. Interest on the
notes payable to affiliate and the payable to affiliates account are charged
to the payable to affiliates account.
 
Concentration of Credit Risk and Business
 
  The Company is primarily engaged in the distribution of mechanical
insulational and architectural/acoustical products throughout the United
States.
 
  The Company grants credit to customers after a thorough review of their
financial condition. The concentration of credit risk with respect to accounts
receivable is limited due to the Company's large customer base located
throughout the United States. For the years ended December 31, 1995, 1996, and
1997, no one customer accounted for more than 10% of sales.
 
  The Company purchases materials for resale from a limited number of major
suppliers. Such concentration is normal for the industry and does not
represent an unreasonable risk or vulnerability to the Company.
 
3. ACQUISITIONS:
 
  On October 17, 1997, the Company acquired all of the issued and outstanding
stock of Richlar Industries, Inc. (Richlar), located in East Syracuse, New
York, for cash consideration of approximately $866,000. Richlar is primarily
engaged in the business of precision die cutting, lamination, and specialty
fabrication.
 
  On December 8, 1997, the Company acquired certain assets of Construction
Systems, Inc. (CSI), located in Houston, Texas, for cash consideration of
approximately $2,374,000. CSI was primarily engaged in the distribution of
architectural/acoustical products and specialty products from two distribution
centers in Houston, Texas.
 
  On December 24, 1997, the Company acquired certain assets of the Louisville,
Kentucky distribution center of R. E. Kramig and Company, Inc. (Kramig) for
cash consideration of approximately $213,000. Kramig was primarily engaged in
the distribution of mechanical insulation.
 
                                      F-8
<PAGE>
 
  The acquisitions were accounted for using the purchase method of accounting,
and the financial statements reflect the results of operations and cash flows
of the operation from the dates of the acquisitions. Had the acquisitions
occurred at the beginning of the periods presented, sales and net income would
not have been materially different from reported results.
 
  In January 1995, the Company acquired from Distribution International (DI),
the assets of four distribution centers in North Carolina and Tennessee for
cash consideration of approximately $961,000. DI was primarily engaged in the
distribution of mechanical insulation from these four distribution centers.
 
4. INCOME TAXES:
 
  The Company's tax return is included in the consolidated federal income tax
returns of Irex. The current and deferred tax expense recorded by the Company
is based on what such amounts would have been had it filed a separate tax
return. All federal income tax payments are made by Irex.
 
  The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Deferred income taxes are computed based on the differences between
financial reporting and income tax reporting bases of assets and liabilities
using enacted tax rates. The impact of changes in tax rates is reflected in
income in the period in which the change is enacted. In conformity with SFAS
109, deferred tax assets are classified based on the financial reporting
classification of the related liabilities and assets which give rise to
temporary book/tax differences. Deferred taxes relate to the following
temporary differences:
 
<TABLE>
<CAPTION>
                                                                1996     1997
                                                               ------- --------
                                                               (IN THOUSANDS)
   <S>                                                         <C>     <C>
   Insurance reserves......................................... $   77  $    574
   Bad debt reserves..........................................    387       181
   Uniform cost capitalization on inventories.................    404       435
   Other......................................................    (26)      (89)
                                                               ------  --------
                                                               $  842  $  1,101
                                                               ======  ========
</TABLE>
 
  The Company has determined that no valuation allowance for the deferred tax
asset is required as of December 31, 1996 and 1997 as it is considered more
likely than not that such benefits will be realized in the future through the
combination of carryback availability, certain tax planning strategies that
would allow for acceleration of deductible temporary differences to utilize
remaining carryback availability and through expected future taxable income.
 
  Income tax provision (benefit) consists of :
 
<TABLE>
<CAPTION>
                                                        1995    1996     1997
                                                        -----  -------  -------
                                                           (IN THOUSANDS)
   <S>                                                  <C>    <C>      <C>
   Currently payable:
     Federal........................................... $ 782  $ 1,608  $ 1,396
     State.............................................   142      393      317
                                                        -----  -------  -------
       Total currently payable.........................   924    2,001    1,713
                                                        -----  -------  -------
   Deferred:
     Federal...........................................   (35)    (135)     297
     State.............................................    29      (56)      67
                                                        -----  -------  -------
       Total deferred..................................    (6)    (191)     364
                                                        -----  -------  -------
   Total............................................... $ 918  $ 1,810  $ 2,077
                                                        =====  =======  =======
</TABLE>
 
                                      F-9
<PAGE>
 
  The effective income tax rate is different from the statutory Federal income
tax rate as indicated below:
 
<TABLE>
<CAPTION>
                                                              1995  1996  1997
                                                              ----  ----  ----
   <S>                                                        <C>   <C>   <C>
   Statutory federal income tax rate........................  34.0% 34.0% 34.0%
   State income taxes ($171,000, $337,000 and $384,000), net
    of federal benefit......................................   5.1   5.0   5.0
   Meals and entertainment..................................   2.4   1.3   1.9
                                                              ----  ----  ----
     Effective income tax rate..............................  41.5% 40.3% 40.9%
                                                              ====  ====  ====
</TABLE>
 
5. EMPLOYEE BENEFIT PLANS:
 
 Pension Plans
 
  The Company's salaried employees participate in Irex's noncontributory
defined benefit pension plan. The benefits under the plan are based on years
of service and salary levels. Irex's policy is to fund pension costs in
accordance with the requirements of the Employee Retirement Income Security
Act of 1974. The Company receives an allocation of the plan's expenses from
Irex. In 1995, 1996, and 1997, the Company's share of the plan's total expense
was $230,000, $245,000, and $165,000, respectively. The Company will not
participate in the plan following its separation from Irex. All liabilities
associated with the plan will remain with Irex. The following table sets forth
the Plan's funded status and related amounts recognized in the consolidated
balance sheet of Irex and subsidiaries at December 31, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                               1996     1997
                                                              -------  -------
                                                              (IN THOUSANDS)
   <S>                                                        <C>      <C>
   Actuarial present value of benefit obligations:
     Accumulated benefit obligation, including vested
      benefits of $5,568 and $6,629, respectively............ $ 6,039  $ 6,986
                                                              =======  =======
     Projected benefit obligation for service rendered to
      date................................................... $ 7,698  $ 8,760
     Plan assets at fair value...............................  (7,528)  (8,759)
                                                              -------  -------
     Projected benefit obligation in excess of plan assets...     170        1
     Unrecognized net loss from past experience different
      from that assumed and effects of changes in
      assumptions............................................     275      840
                                                              -------  -------
     Accrued pension cost.................................... $   445  $   841
                                                              =======  =======
 
  Assumptions used were as follows:
 
<CAPTION>
                                                               1996     1997
                                                              -------  -------
   <S>                                                        <C>      <C>
   Weighted average discount rates...........................   7.75%    7.25%
   Rates of increase in future compensation levels...........   5.00%    5.00%
   Expected long-term rate of return on assets...............   8.50%    8.50%
</TABLE>
 
  The Company also maintains a defined contribution plan for its hourly-paid
employees. Company contributions to the plan are based on a percentage of
eligible employees' compensation. The expense for this plan was $69,000 in
1995, $108,000 in 1996, and $105,000 in 1997.
 
 Postretirement Benefits Other Than Pensions
 
  In addition to the pension plans, the Company's retired employees
participate in an Irex-sponsored plan that provides certain health care
benefits. Active salaried employees who were at least age 55 and had 10 years
of consecutive service at January 1, 1990, are eligible for these benefits
upon retirement. Also, active salaried
 
                                     F-10
<PAGE>
 
employees of the Company whose age plus years of service equaled at least 55
at January 1, 1990, are eligible for these benefits upon retirement when they
attain age 62 as long as such employees have either 20 years of service or
their age plus years of service equals 90 upon retirement. Cash payments of up
to $60 per month are given to retirees over age 65 to purchase supplemental
Medicare coverage. Eligible retirees under age 65 are fully covered by Irex's
insurance plan. The number of retirees under age 65 currently participating in
the plan is not significant. Also the number of active employees of the
Company who may become eligible is not significant; further, the Company will
not participate in the plan following its separation from Irex. All
liabilities associated with the plan will remain with Irex.
 
  The expected cost of these benefits is charged to expense during the years
that the employees render service. The transition obligation is being
amortized over 20 years. In 1995, 1996, and 1997 the Company's share of the
Plan's total expense was $22,000, $29,000, and $15,000, respectively.
 
  The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheet of Irex and subsidiaries at
December 31, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                               1996     1997
                                                              -------  -------
                                                              (IN THOUSANDS)
     <S>                                                      <C>      <C>
     Accumulated postretirement benefit obligation:
      Vested benefit obligation.............................  $   798  $   798
      Non-vested benefit obligation.........................      158      129
                                                              -------  -------
                                                                  956      927
     Plan assets at fair value..............................      (51)     --
                                                              -------  -------
     Accumulated postretirement benefit obligation in excess
      of plan assets........................................      905      927
     Unrecognized transition obligation.....................     (769)    (721)
     Unrecognized net gain..................................      340      289
                                                              -------  -------
     Accrued postretirement benefit liability...............  $   476  $   495
                                                              =======  =======
</TABLE>
 
  For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care benefits was assumed for calendar 1997; the rate
was assumed to decrease to 10% in 1998 and 7% for 2001 and remain level
thereafter. Due to the provisions of the plan, increasing the assumed health
care cost trend rates by one percentage point in each year would not have a
significant impact on the accumulated postretirement benefit obligation or the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1997.
 
  The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.25% at December 31, 1996 and
1997, respectively. The expected long-term rate of return on assets was 8.50%
at December 31, 1996.
 
 Other
 
  The Company has an incentive compensation plan covering substantially all of
its officers and key employees. The amount of incentive compensation is
dependent upon the rate of return on assets of the Company and the particular
regional or branch office. Total incentive compensation expense was $1,012,000
for 1995, $1,335,000 for 1996, and $1,428,000 for 1997.
 
  Substantially all of the Company's salaried employees are covered by defined
contribution savings incentive and employee stock ownership plans (ESOP)
maintained by Irex. Contributions to the savings incentive plan are based on a
percentage of employee contributions to the plan, while ESOP contributions are
discretionary. The Company's share of these plans' total expense was $256,000
in 1995, $299,000 in 1996, and $259,000 in 1997.
 
 
                                     F-11
<PAGE>
 
6. INCOME PER COMMON SHARE:
 
  In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share." SFAS No. 128 requires dual presentation
of basic and diluted earnings per share on the face of the income statement
for all entities with complex capital structures. The Company's basic income
per share is calculated as income available to shareholders divided by the
weighted average number of shares outstanding. Earnings per share have been
retroactively restated to reflect the 291.4 to 1 stock split-up effected in
the form of a dividend discussed in Note 11. For diluted income per share,
there are no common stock equivalents.
 
7. BORROWINGS:
 
  Long-term debt consists of the following at December 31, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                                 1996    1997
                                                                ------- -------
                                                                (IN THOUSANDS)
   <S>                                                          <C>     <C>
   9.25% unsecured notes payable to affiliate due in equal
    annual installments
    from May 1, 1996 to 2002................................... $ 7,114 $ 5,928
   Unsecured note payable at prime commercial rate due to
    affiliate on
    December 1, 1998...........................................     250     250
   Other long-term debt........................................     --       94
                                                                ------- -------
     Total.....................................................   7,364   6,272
     Less current portion......................................   1,436   1,455
                                                                ------- -------
                                                                $ 5,928 $ 4,817
                                                                ======= =======
</TABLE>
 
  Prime commercial rate is determined by the rate in effect on the previous
December 1 and June 1.
 
  Other long-term debt is comprised of three unsecured notes, with interest
rates ranging from 6.63% to 8.16%, payable in monthly and annual installments
through July 10, 2009.
 
  Interest expense for the notes payable to affiliate was $790,000 in 1995,
$725,000 in 1996, and $679,000 in 1997.
 
  Any unpaid principal balance on each of the notes payable to affiliate may
be prepaid in whole or in part without premium or penalty provided that at the
time of any such prepayment all interest accrued to the date of prepayment on
the portion of the principal balance be simultaneously paid and all
prepayments be made on December 31 unless otherwise agreed by the holder.
 
  Long-term borrowings maturing during the next five years are as follows (in
thousands):
 
<TABLE>
       <S>                                                               <C>
       1998............................................................. $ 1,455
       1999.............................................................   1,200
       2000.............................................................   1,192
       2001.............................................................   1,192
       2002.............................................................   1,192
</TABLE>
 
                                     F-12
<PAGE>
 
8. COMMITMENTS AND CONTINGENCIES:
 
  The Company leases distribution centers and sales offices under
noncancelable operating lease agreements. Rental expense for all operating
leases was $2,866,000 in 1995, $2,983,000 in 1996 and $3,624,000 in 1997. As
of December 31, 1997, the future minimum rental commitments under
noncancelable operating leases that have terms in excess of one year are as
follows (in thousands):
 
<TABLE>
       <S>                                                              <C>
       1998............................................................ $ 2,615
       1999............................................................   1,936
       2000............................................................   1,525
       2001............................................................   1,020
       2002............................................................     583
       Subsequent years................................................     299
                                                                        -------
         Total minimum rental obligations.............................. $ 7,978
                                                                        =======
</TABLE>
 
  The Company is involved from time to time in various claims and litigation
arising in the ordinary course of its business. Management believes the
outcome of such claims and litigation will not materially affect the Company's
long-term business, financial position or results of operations.
 
  The Company, together with other subsidiaries of Irex, has guaranteed
certain obligations of Irex, which at December 31, 1997 totaled $27,604,000.
Such guarantees with respect to the Company will terminate upon completion of
the separation transaction discussed in Note 11.
 
9. ACCRUED LIABILITIES:
 
  The components of accrued liabilities as of December 31, 1996 and 1997 are
as follows:
 
<TABLE>
<CAPTION>
                                                                1996    1997
                                                               ------- -------
                                                               (IN THOUSANDS)
   <S>                                                         <C>     <C>
   Salaries and wages......................................... $ 1,295 $ 1,404
   Workers' compensation, general and auto liability insur-
    ance......................................................     --    1,263
   Other......................................................   1,451   1,441
                                                               ------- -------
                                                               $ 2,746 $ 4,108
                                                               ======= =======
</TABLE>
 
10. RELATED PARTIES:
 
  The Company sells its products to the specialty contracting subsidiaries of
Irex. Sales to those affiliates are included in the Company's net sales as
reflected in the consolidated statements of income. Net sales to the Company's
affiliates were $10,682,000, $12,383,000 and $9,301,000 in 1995, 1996 and
1997, respectively.
 
  Irex provides various administrative services to its affiliates, including
the Company. These services include, among others, management and maintenance
of the information systems, legal, credit and risk management, cash
management, tax, accounting and personnel administration. Irex allocates these
costs to its affiliates primarily based on the estimated utilization of the
services. Irex also charges a management fee to each of its affiliates,
including the Company, to distribute costs that are not allocated based on
utilization. The management fee is calculated as a percentage of net sales and
charged to each affiliate accordingly. Collectively, the allocation of
administrative expenses and management fee are reflected as selling, general
and administrative expenses in the Company's consolidated statements of
income. Management believes the methodology used to allocate these expenses is
reasonable. The Company was charged $1,616,000, $1,815,000 and $2,542,000 in
1995, 1996 and 1997, respectively. Amounts allocated to the Company by Irex in
excess of the estimated costs of these services are shown in the statements of
shareholder's investment as a distribution to parent.
 
  Irex administers the Company's insurance program. Prior to 1997, the
reserves for workers' compensation and other insurance risks were not
reflected on the consolidated balance sheet of the Company. An affiliate of
the Company maintained these reserves and made payments on behalf of the
Company. The appropriate charges to the Company were recognized in the payable
to affiliates account. The Company's expense related to workers' compensation
and other insurance programs was $484,000 in 1995, $501,000 in 1996 and
$606,000 in 1997.
 
                                     F-13
<PAGE>
 
  The Company's cash transactions flow through a consolidated banking
arrangement that is maintained by Irex. The Company, in the normal course of
business, receives credit for cash deposited or charges for working capital
needed. The payable to affiliates account, at December 31, 1997, includes the
Company's cumulative cash borrowings from Irex and affiliates. Based upon the
activity within the payable to affiliates account, the Company is charged
interest expense from Irex. Interest expense was $1,048,000 in 1995,
$1,132,000 in 1996 and $1,249,000 in 1997. The weighted average interest rate
for the years ended December 31, 1995, 1996 and 1997 was 8%.
 
11. SUBSEQUENT EVENTS:
 
 Separation
 
  On January 19, 1998, Irex announced its intention to spin off Specialty
Products & Insulation Co. to its shareholders. Irex's Board of Directors, at
its February 26, 1998 meeting, approved the proposed transaction in which
shareholders of Irex Common stock will receive a dividend of the Company's
Common stock. This dividend is expected to be a tax-free distribution to
current shareholders of Irex Common stock. The transaction is expected to be
completed in the second or third quarter of 1998.
 
  Concurrent with the spin off transaction described above, the Company
intends to file a registration statement on Form S-1 with the Securities and
Exchange Commission for purposes of registering shares of common stock.
 
  On April 9, 1998, the Company filed Restated Articles of Incorporation which
increased the authorized number of shares of common stock to 15,000,000,
changed the common stock par value to $0.01 and authorized 15,000,000 shares
of Preferred stock at $0.01 par value. These changes have been retroactively
reflected in the accompanying financial statements.
 
  In conjunction with the above transactions, the Company expects to enter
into several agreements with Irex.
 
  .Corporate Separation Agreement--Pursuant to this agreement, Irex will
  provide management information system services to the Company. These
  services will be provided subject to a quarterly or hourly fee. In
  addition, certain indemnifications, excluding tax related items, between
  the Company and Irex are defined in this agreement.
 
  .Tax Sharing and Indemnification Agreement--Tax related indemnifications
  between the Company and Irex are defined within this agreement. These
  indemnifications relate to the periods before and after the transactions
  described above.
 
  .Benefits Sharing Agreement--This agreement addresses the division of
  employee benefit plans and other employment-related liabilities between the
  Company and Irex.
 
  Prior to the spin-off described above, the Company will declare a 291.4 to 1
stock split up effected in the form of a dividend. The stock split-up has been
retroactively reflected in the accompanying financial statements.
 
 Acquisition
 
  On March 1, 1998, the Company acquired the assets of Extol of Texas, Inc.
(Extol), located in Houston, Texas, for cash consideration of approximately
$5,558,000. Extol is primarily engaged in the distribution and fabrication of
commercial and industrial insulation systems, and other specialty products.
 
12. PRO FORMA BALANCE SHEET (UNAUDITED):
 
  The unaudited pro forma consolidated balance sheet of the Company as of
December 31, 1997 reflects the planned dividend (estimated at $10,490,000) to
be made to Irex which is expected to be funded by bank borrowings and
subsequently repaid from the net proceeds of the Offering. See "Use of
Proceeds." Pursuant to the requirements of the Securities and Exchange
Commission, the dividend has been reflected in the pro forma balance sheet
without giving effect to any receipt of the net proceeds from the Offering.
 
                                     F-14
<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
UNTIL     , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
 
                                 ------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<S>                                                                         <C>
Prospectus Summary........................................................    3
Risk Factors..............................................................    8
Use Of Proceeds...........................................................   13
Dividend Policy...........................................................   13
Dilution..................................................................   14
Capitalization............................................................   15
Selected Consolidated Financial Data......................................   16
Management's Discussion And Analysis Of Financial Condition And Results Of
 Operations...............................................................   18
Acquisition And Expansion Background......................................   23
Business..................................................................   26
Management................................................................   34
Principal Shareholders....................................................   39
Separation From Irex......................................................   40
Description Of Capital Stock..............................................   42
Shares Eligible For Future Sale...........................................   43
Underwriting..............................................................   45
Legal Matters.............................................................   46
Experts...................................................................   46
Additional Information....................................................   46
Index To Financial Statements.............................................  F-1
</TABLE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                               2,000,000 SHARES
 
                                     LOGO
 
                             SPECIALTY PRODUCTS &
                                INSULATION CO.
 
                                 COMMON STOCK
 
 
                                  PROSPECTUS
 
 
                            LEGG MASON WOOD WALKER
            INCORPORATED
 
                                 ADVEST, INC.
 
                                       , 1998
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
<TABLE>
     <S>                                                                 <C>
     SEC Registration Fee............................................... $8,142
     NASD Filing Fee.................................................... $3,260
     Nasdaq Filing Fee..................................................      *
     Blue Sky Fees and Expenses.........................................      *
     Legal Fees and Expenses............................................      *
     Accounting Fees and Expenses.......................................      *
     Registrar and Transfer Agent Fees..................................      *
     Printing and Engraving Expenses....................................      *
     Miscellaneous......................................................      *
                                                                         ------
       Total............................................................      *
</TABLE>
    --------
    * To be completed by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
  The Bylaws of the Company provide that the Company shall indemnify any
person who is a party or is threatened to be made a party to any lawsuit or
claim for damages arising by reason of the fact that he is or was a director,
officer or employee of the Company or any subsidiary. The Company intends to
obtain directors' and officers' insurance against certain liabilities such
persons may incur on behalf of the Company.
 
  Pennsylvania law permits the Registrant to provide similar indemnification
to employees and agents who are not directors or officers. The determination
of whether an individual meets the applicable standard of conduct may be made
by the disinterested directors, independent legal counsel or the stockholders.
Pennsylvania law also permits indemnification in connection with a proceeding
brought by or in the right of the Registrant to procure a judgment in its
favor. To the extent that an indemnification for liabilities arising under the
Securities Act is permitted to directors, officers, or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in that Act and is therefore unenforceable.
 
  The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant and its directors, officers and controlling persons for
certain liabilities, including liabilities arising under the Securities Act.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
  The Company has not issued any unregistered securities within the past three
years.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
  (a) Exhibits
 
  The following exhibits are filed herewith unless otherwise indicated:
 
<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER  DESCRIPTION
   ------- -----------
   <C>     <S>
    1.1*   Underwriting Agreement
    3.1    Restated Articles of Incorporation of the Company
    3.2    Bylaws of the Company
    4.1*   Specimen Common Stock Certificate
    5.1*   Opinion of Dechert Price & Rhoads
   10.1*   Corporate Separation Agreement
   10.2*   Tax Sharing and Indemnification Agreement
</TABLE>
 
 
                                     II-1
<PAGE>
 
<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER                          DESCRIPTION
   -------                         -----------
   <C>     <S>
   10.3*   Benefits Sharing Agreement
   10.4*   1998 Specialty Products & Insulation Co. Stock Option Plan
   10.5*   Form of Employment Agreement
   21.1    Subsidiary of the Registrant
   23.1    Consent of Arthur Andersen LLP (included on page II-4)
   23.2*   Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
   24.1    Power of Attorney (included on Signature Page)
   27.1    Financial Data Schedule
   99.1    Consent of W. Kirk Liddell
   99.2    Consent of William W. Adams
   99.3    Consent of David C. Kleinman
   99.4    Consent of Wilson D. McElhinny
   99.5    Consent of G. Clay von Seldeneck
   99.6    Consent of John O. Shirk
   99.7    Consent of Michael J. Hughes
</TABLE>
  --------
  * To be filed by amendment.
 
  (b) Financial Statement Schedules:
 
<TABLE>
<CAPTION>
   SCHEDULE DESCRIPTION
   -------- -----------
   <C>      <S>
      II    Valuation and Qualifying Accounts
</TABLE>
 
  All other schedules are omitted because they are not required or applicable,
or because the information is included in the consolidated financial
statements or the notes thereto.
 
ITEM 17. UNDERTAKINGS.
 
  (a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
 
  (b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
 
  (c) The undersigned registrant hereby undertakes that:
 
    (1) For purposes of determining any liability under the Securities Act of
  1933, the information omitted from the form of prospectus filed as part of
  this registration statement in reliance upon Rule 430A and contained in a
  form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
  (4) or 497(h) under the Securities Act shall be deemed to be part of this
  registration statement as of the time it was declared effective.
 
    (2) For the purpose of determining any liability under the Securities Act
  of 1933, each post-effective amendment that contains a form of prospectus
  shall be deemed to be a new registration statement relating to the
  securities offered therein, and the offering of such securities at that
  time shall be deemed to be the initial bona fide offering thereof.
 
                                     II-2
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lancaster and
Commonwealth of Pennsylvania on April 10, 1998.
 
                                                      Ronald L. King
                                          By: _________________________________
                                                      RONALD L. KING
                                               PRESIDENT AND CHIEF EXECUTIVE
                                                          OFFICER
 
                               POWER OF ATTORNEY
 
  KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ronald L. King and W. Kirk Liddell,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same with exhibits thereto and other
documents in connection therewith or in connection with the registration of
Common Stock under the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission, granting unto each of such attorneys-in-
fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary in connection with such matters and hereby
ratifying and confirming all that each such attorney-in-fact, or his agent or
substitutes, may do or cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
 
              SIGNATURE                        TITLE                 DATE
 
           Ronald L. King              President, Chief         April 10, 1998
-------------------------------------   Executive Officer
           RONALD L. KING               and Director
                                        (principal
                                        executive officer)
 
          Jane E. Pinkerton            Acting Chief             April 10, 1998
-------------------------------------   Financial Officer
          JANE E. PINKERTON             (principal
                                        financial and
                                        principal
                                        accounting officer)
 
                                     II-3
<PAGE>
 
                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Specialty Products & Insulation Co.
 
  As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
 
                                          Arthur Andersen LLP
 
Lancaster, Pennsylvania
April 9, 1998
 
                                     II-4
<PAGE>
 
                                                                     SCHEDULE II
 
               SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                       BALANCE AT PROVISION              BALANCE
                                       BEGINNING   CHARGED    ACCOUNTS   AT END
                                        OF YEAR   TO EXPENSE WRITTEN OFF OF YEAR
                                       ---------- ---------- ----------- -------
<S>                                    <C>        <C>        <C>         <C>
YEAR ENDED DECEMBER 31, 1995
  Allowance for Doubtful Accounts.....    $700      $  830      $(936)    $594
YEAR ENDED DECEMBER 31, 1996
  Allowance for Doubtful Accounts.....    $594      $1,120      $(720)    $994
YEAR ENDED DECEMBER 31, 1997
  Allowance for Doubtful Accounts.....    $994      $   71      $(599)    $466
</TABLE>
 
                                      S-1
<PAGE>
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
                                                                            SEQUENTIALLY
   EXHIBIT                                                                    NUMBERED
   NUMBER  DESCRIPTION                                                        PAGE NO.
   ------- -----------                                                      ------------
   <C>     <S>                                                              <C>
    1.1*   Underwriting Agreement..........................................
    3.1    Restated Articles of Incorporation of the Company...............
    3.2    Bylaws of the Company...........................................
    4.1*   Specimen Common Stock Certificate...............................
    5.1*   Opinion of Dechert Price & Rhoads...............................
   10.1*   Corporate Separation Agreement..................................
   10.2*   Tax Sharing and Indemnification Agreement.......................
   10.3*   Benefits Sharing Agreement......................................
   10.4*   1998 Specialty Products & Insulation Co. Stock Option Plan......
   10.5*   Form of Employment Agreement....................................
   21.1    Subsidiary of the Registrant....................................
   23.1    Consent of Arthur Andersen LLP (included on page II-4)..........
   23.2*   Consent of Dechert Price & Rhoads (included in Exhibit 5.1).....
   24.1    Power of Attorney (included on Signature Page)..................
   27.1    Financial Data Schedule.........................................
   99.1    Consent of W. Kirk Liddell......................................
   99.2    Consent of William W. Adams.....................................
   99.3    Consent of David C. Kleinman....................................
   99.4    Consent of Wilson D. McElhinny..................................
   99.5    Consent of G. Clay von Seldeneck................................
   99.6    Consent of John O. Shirk........................................
   99.7    Consent of Michael J. Hughes....................................
</TABLE>
  --------
  * To be filed by amendment.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1 REGISTRATION STATEMENT", "secsgml_size_bytes": 245998}]
{"company-data": {"conformed-name": "SPECIALTY PRODUCTS & INSULATION CO", "cik": "0001058194", "assigned-sic": "", "irs-number": "231713012", "state-of-incorporation": "PA"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-49947", "film-number": "98591833"}, "business-address": {"street1": "120 N. SHIPPEN STREET", "city": "LANCASTER", "state": "PA", "zip": "17602", "phone": "7173973382"}}
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998.
 
                                                       REGISTRATION NO. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM S-1
                         REGISTRATION STATEMENT UNDER
                          THE SECURITIES ACT OF 1933
 
                               ----------------
 
                      SPECIALTY PRODUCTS & INSULATION CO.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
      PENNSYLVANIA                   5033                  23-1713012
     (STATE OR OTHER     (PRIMARY STANDARD INDUSTRIAL   (I.R.S. EMPLOYER
     JURISDICTION OF      CLASSIFICATION CODE NUMBER)  IDENTIFICATION NO.)
    INCORPORATION OR
      ORGANIZATION)
 
                               ----------------
 
    120 NORTH SHIPPEN STREET, LANCASTER, PENNSYLVANIA 17602 (717) 397-3382
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               ----------------
 
                              MR. RONALD L. KING
                      SPECIALTY PRODUCTS & INSULATION CO.
                           120 NORTH SHIPPEN STREET
                         LANCASTER, PENNSYLVANIA 17602
                                (717) 397-3382
  (ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                              AGENT FOR SERVICE)
 
                               ----------------
 
                                  COPIES TO:
        THOMAS A. RALPH, ESQ.                   JAMES M. PAPADA III, ESQ.
     CHRISTOPHER G. KARRAS, ESQ.                 DEAN M. SCHWARTZ, ESQ.
       DECHERT PRICE & RHOADS               STRADLEY, RONON, STEVENS & YOUNG,
 4000 BELL ATLANTIC TOWER, 1717 ARCH                       LLP
               STREET                           2600 ONE COMMERCE SQUARE
  PHILADELPHIA, PENNSYLVANIA 19103-         PHILADELPHIA, PENNSYLVANIA 19103-
                2793                                      7098
           (215) 994-4000                            (215) 564-8000
 
                               ----------------
 
 
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
 
  If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
 
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
 
  If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
 
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
 
                               ----------------
 
                        CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PROPOSED MAXIMUM
          TITLE OF EACH CLASS OF           AGGREGATE OFFERING    AMOUNT OF
       SECURITIES TO BE REGISTERED              PRICE(1)      REGISTRATION FEE
------------------------------------------------------------------------------
Common Stock, par value $.01 per share....    $27,600,000          $8,142
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o).
 
                               ----------------
 
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                  SUBJECT TO COMPLETION, DATED APRIL 10, 1998
 
PROSPECTUS
 
                                2,000,000 SHARES
 
                               SPECIALTY PRODUCTS
                                & INSULATION CO.
 
      LOGO                        COMMON STOCK
 
  All of the shares of Common Stock offered hereby (the "Offering") are being
sold by Specialty Products & Insulation Co. (the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price per share will
be between $10.00 and $12.00. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
 
  Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "SPIE."
 
  PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING
ON PAGE 8.
 
THESE SECURITIES  HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE  SECURITIES AND
 EXCHANGE  COMMISSION  OR  ANY  STATE   SECURITIES  COMMISSION,  NOR  HAS  THE
 SECURITIES AND EXCHANGE COMMISSION OR  ANY STATE SECURITIES COMMISSION PASSED
  UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
  CONTRARY IS A CRIMINAL OFFENSE.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNDERWRITING
                                  PRICE TO        DISCOUNTS AND      PROCEEDS TO
                                   PUBLIC        COMMISSIONS(1)      COMPANY(2)
--------------------------------------------------------------------------------
Per Share....................        $                 $                 $
--------------------------------------------------------------------------------
Total(3).....................       $                 $                 $
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1)  The Company has agreed to indemnify the Underwriters against certain
     liabilities, including liabilities under the Securities Act of 1933, as
     amended. See "Underwriting."
(2)  Before deducting expenses payable by the Company estimated to be $    .
(3)  The Company has granted to the Underwriters an option, exercisable for 30
     days from the date of the Offering, to purchase up to an aggregate of
     300,000 additional shares of Common Stock solely to cover over-allotments,
     if any. If the Underwriters exercise this option in full, the total Price
     to Public, Underwriting Discounts and Commissions and Proceeds to Company
     will be $    , $    and $   , respectively. See "Underwriting."
 
  The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if issued to and accepted by them, subject to their right to
reject any order in whole or in part and to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject offers in whole or in part. It is expected that delivery of certificates
for the shares will be made at the offices of Legg Mason Wood Walker,
Incorporated, Baltimore, Maryland on or about    , 1998.
 
LEGG MASON WOOD WALKER                                              ADVEST, INC.
      INCORPORATED
 
      , 1998
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by the detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. For purposes of this Prospectus, the "Company" refers to
Specialty Products & Insulation Co. and its consolidated subsidiary, unless the
context otherwise requires. Unless otherwise indicated, the information
contained in this Prospectus (i) gives effect to the spin-off of the Company
from its parent, Irex Corporation ("Irex"), through the pro rata distribution
of 100% of the capital stock of the Company to the shareholders of Irex (the
"Separation"), (ii) gives effect to the recapitalization of each share of the
Company's previously issued common stock into 291.4 shares of Common Stock and
(iii) assumes no exercise of the Underwriters' over-allotment option in
connection with the Offering.
 
                                  THE COMPANY
 
  Specialty Products & Insulation Co. is a leading national distributor and
fabricator of mechanical insulation, architectural/acoustical products and
specialty products to commercial and industrial markets. The Company also
offers customized fabrication, export and other value-added services related to
its core product lines. The Company operates through a national network of 51
distribution centers, including seven fabrication facilities, at strategically
chosen locations in 21 states. Through this network, the Company offers
approximately 25,000 stock keeping units ("SKUs") to more than 9,000 customers,
including specialty contractors, facility owners, general contractors, original
equipment manufacturers ("OEMs"), exporters and supply houses. The Company's
principal product categories include piping and equipment insulation as well as
acoustical ceilings and specialty wall panels for use in new construction,
maintenance, renovation and repair.These categories include the products of
more than 150 manufacturers including Armstrong World Industries, Owens
Corning, Johns Manville, Dow Chemical and Pittsburgh Corning. Since commencing
operations in the early 1980s, the Company has experienced significant growth
as a result of its ability to capitalize on industry changes including,
principally, the increased reliance on distributors by manufacturers and
customers. Net sales of the Company increased from $118.4 million in 1995 to
$158.5 million in 1997, and operating income grew from $4.1 million in 1995 to
$7.0 million in 1997.
 
  Significant changes in the Company's markets have resulted in the emergence
of an independent distribution channel. Independent distribution has reduced
duplicate functions performed by both manufacturers and customers, allowing
them to devote greater resources to their core competencies. Manufacturers have
been able to reduce logistical costs, lower marketing expenses and better
manage inventories by outsourcing the distribution function to independent
distributors. Customers have also been able to lower operating costs, reduce
their number of supply sources and gain high-quality, value-added services
through the utilization of independent distributors. This evolution has
produced markets which are highly fragmented and populated by many smaller
local and regional distributors. However, the Company believes the industry is
undergoing a significant trend toward consolidation as both manufacturers and
customers seek to enhance efficiencies and reduce costs while maintaining high
levels of product and service quality. The Company believes that large,
national distributors with significant purchasing power, integrated information
systems and relatively low infrastructure costs can offer greater value to
customers and will be well positioned to exceed market growth rates in this
industry.
 
  Two key components of the Company's growth strategy have been acquisitions
and openings of distribution and service centers ("distribution centers").
Historically, the Company grew as it solidified its presence in regional
markets. More recently, the Company has implemented a growth strategy that is
being executed on a national scale. Through targeted acquisitions and
distribution center openings, the Company pursues opportunities to expand its
presence in new geographic areas with strong growth characteristics. This
strategy enables the Company to further penetrate existing markets, broaden its
product and service capabilities and take advantage of current industry
dynamics. For the five-year period ended December 31, 1997, the Company
acquired 11 distribution operations, including three from affiliates, which
together contributed approximately $13.2 million, or 8.3%, of the Company's
1997 net sales. During the same period, the Company opened 10 distribution
centers, which together contributed approximately $12.3 million, or 7.8%, of
the Company's 1997
 
                                       3
net sales. Since January 1, 1998, the Company has completed one acquisition and
opened two distribution centers.
 
  The Company is focused on its traditional strengths as a broadly based
national distributor and fabricator of mechanical insulation,
architectural/acoustical products, specialty products and value-added services.
The Company is committed to capitalizing on the expertise, knowledge and
experience it has developed in these core markets to increase market share and
profitability. In addition, the Company's operating strategy includes the
following key elements:
 
 .  Superior Customer Service. With distribution centers and sales forces in
   each area that it serves, the Company provides its customers with rapid
   delivery and localized service. The Company believes that providing a high
   level of customer service leads to long-term relationships with its
   customers.
 
 .  National Network of Distribution Centers. The Company believes its national
   distribution network enables the Company to attract customers that have
   multiple locations, participate with key vendors in the development of
   national marketing and sales strategies, achieve geographic diversification
   and facilitate best-practice benchmarking as well as innovation and
   knowledge-sharing within the Company.
 
 .  Strong Supplier Relationships. The Company believes its national presence,
   financial strength and partnering philosophy have enabled the Company to
   become the preferred distributor for many of its suppliers. The Company
   works with its suppliers to develop common expansion programs as well as
   customer-oriented product solutions.
 
 .  Low-Cost Provider. The Company believes that its volume of purchases and
   desirability as a vendor enable it to obtain purchase terms that are as
   favorable as those available to other large competitors. The Company is also
   able to realize advantages from the economies of large-scale operation in
   the areas of administrative processing, information systems, financing
   terms, technical expertise, inventory and working capital management.
 
 .  Innovative and Committed Employees. Management believes the Company's
   corporate culture and values allow it to attract, develop and retain
   innovative and committed employees. The Company's senior management has an
   average of approximately 10 years' experience with the Company, and many of
   its sales and service staff have been working in the same markets for 10
   years or more.
 
  The Company believes that its operating strategy provides a foundation for
growth in each of the markets in which it participates. See "Business--Growth
Strategy." The Company's growth strategy includes the following key elements:
 
 .  Increase Sales of Existing and Accessory Products. Management believes the
   Company's strengths and operating strategies will lead to increased sales to
   its existing customer base. The Company believes acquisitions, the opening
   of new distribution centers and other strategic initiatives will generate
   additional sales of existing products to new customers.
 
 .  Open New Distribution Centers. The Company expects to continue to open new
   distribution centers as a result of new market opportunities, customer
   service requirements, supplier initiatives and strategic opportunities. As
   the Company continues to broaden its national distribution network, the
   Company believes that it will be able to capitalize on operating
   efficiencies and the benefits of large-scale operation.
 
 .  Continue Acquisitions. The Company is committed to continuing its strategy
   to acquire distribution businesses with strong market positions, supplier
   support or attractive customer bases. Acquisitions allow the Company to
   accelerate revenue growth, expand its geographical presence, add product
   lines and technical expertise and achieve greater operating efficiencies.
 
 .  Emphasize National Accounts. Management believes that the Company's national
   distribution network gives the Company a competitive advantage in securing
   national and multi-regional customers seeking to reduce vendors, outsource
   non-core operations, integrate supply and gain value-added services such as
   procurement and material management.
 
                                       4
.  Add Product Lines. The Company intends to leverage its core product and
   technical expertise to add product lines which are complementary to those
   currently offered. The Company believes that its existing national
   distribution infrastructure enables it to add new product lines without
   incurring significant additional cost.
 
  The Company's executive offices are located at 120 North Shippen Street,
Lancaster, Pennsylvania 17602, and its telephone number is (717) 397-3382.
 
                               RECENT ACQUISITION
 
  On March 1, 1998, the Company acquired certain assets relating to mechanical
insulation distribution and fabrication operations of Extol of Texas, Inc. in
Houston and Corpus Christi, Texas ("Extol") for approximately $5.6 million in
cash. The acquisition was financed by borrowings from Irex. For the year ended
December 31, 1997, Extol generated sales of approximately $13.2 million. See
"Acquisition and Expansion Background."
 
                             SEPARATION FROM PARENT
 
  Since commencing operations in 1982, the Company has been a wholly owned
subsidiary of Irex. Through its operating subsidiaries other than the Company,
Irex is primarily engaged in the business of specialty contracting throughout
the United States and Canada. In January 1998 Irex announced plans to effect
the Separation through a pro rata distribution of 100% of the capital stock of
the Company to the shareholders of Irex. The Separation will occur immediately
prior to consummation of the Offering, and each is conditioned upon the
consummation of the other. Immediately following the Separation and the
Offering, all of the capital stock of the Company will be owned by the
shareholders of Irex who receive shares of Common Stock in the Separation and
by new shareholders who purchase Common Stock in the Offering. See "Separation
from Irex."
 
  The decision to effect the Separation is based on a number of factors. The
Separation will provide both corporations with greater managerial, operational
and financial flexibility to focus on and respond to changing market conditions
in their respective business environments. The Company also believes that its
ability to pursue and finance acquisitions and other business opportunities
will be enhanced if the Company operates independently. Furthermore, financial
advisors have advised Irex and the Company that equity capital necessary to
meet the business needs of Irex and the Company can be most effectively raised
through an initial public offering of the stock of the Company following its
Separation from Irex, rather than through a stock offering by either Irex or
the Company while Irex continues to hold a substantial equity interest in the
Company. In addition, management believes the Separation will assist the
Company in serving certain customers. Through the specialty contracting
businesses operated by its other subsidiaries, Irex competes with customers
whose business is solicited by the Company, and the Company believes these
customers will be more likely to purchase products from the Company after it is
independent from Irex. The Separation will also enable the Company to provide
its management and employees with incentive compensation in the form of direct
and indirect equity ownership in the Company.
 
  In connection with the Separation, the Company will enter into several
agreements with Irex and its subsidiaries setting forth the terms and
conditions of the Separation and governing certain interim and longer-term
relationships between the companies. See "Separation from Irex--Agreements with
Irex."
 
                                       5
THE OFFERING
 
Common Stock offered by the
 Company........................  2,000,000 shares
 
Common Stock to be outstanding
 after the Offering.............  4,913,547 shares(1)
 
Use of Proceeds.................  For the repayment of certain indebtedness,
                                  including indebtedness incurred to pay a
                                  dividend to Irex in connection with the
                                  Separation, and working capital and general
                                  corporate purposes. See "Use of Proceeds."
 
Nasdaq National Market Symbol...  Application has been made for quotation of
                                  the Common Stock on the Nasdaq National
                                  Market under the symbol "SPIE."
--------
(1) Does not include up to 491,355 shares of Common Stock that may be subject
    to a stock option plan which the Company expects to adopt prior to the
    consummation of the Offering. See "Management--Stock Options" and
    "Description of Capital Stock."
 
                                  RISK FACTORS
 
  See "Risk Factors" beginning on page 8 for a discussion of certain
information that should be considered by prospective purchasers of the Common
Stock offered hereby.
 
                                       6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
 
  The following tables set forth summary historical and pro forma consolidated
financial information of the Company as of and for the periods indicated. The
pro forma balance sheet information assumes the Offering closed on December 31,
1997. The pro forma income statement information assumes the Offering closed as
of January 1, 1997. The summary consolidated financial information should be
read in conjunction with the "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and the
related notes included elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31,
                                        --------------------------------------
                                            1995         1996         1997
                                        ------------ ------------ ------------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net sales.............................. $    118,395 $    141,800 $    158,510
Gross profit...........................       25,892       31,110       34,252
                                        ------------ ------------ ------------
Operating income.......................        4,051        6,348        7,023
Interest expense, net..................        1,840        1,854        1,939
                                        ------------ ------------ ------------
Income before income taxes.............        2,211        4,494        5,084
Income tax provision...................          918        1,810        2,077
                                        ------------ ------------ ------------
Net income............................. $      1,293 $      2,684 $      3,007
                                        ============ ============ ============
Net income per share--basic............ $       0.44 $       0.92 $       1.03
Net income per share--diluted.......... $       0.44 $       0.92 $       1.03
Weighted average number of common
 shares outstanding--basic.............    2,913,547    2,913,547    2,913,547
Weighted average number of common
 shares outstanding--diluted...........    2,913,547    2,913,547    2,913,547
PRO FORMA INCOME STATEMENT DATA(1):
Operating income.......................                           $      7,023
Interest expense, net..................                                  1,036
                                                                  ------------
Income before income taxes.............                                  5,987
Income tax provision...................                                  2,448
                                                                  ------------
Net income.............................                           $      3,539
                                                                  ============
Net income per share--basic............                           $       0.72
Net income per share--diluted..........                                   0.72
Weighted average number of common
 shares outstanding--basic.............                              4,913,547
Weighted average number of common
 shares outstanding--diluted...........                              4,913,547
AS OF DECEMBER 31, 1997
                                                     ---------------------------
                                                      ACTUAL     AS ADJUSTED(2)
                                                     ----------- ---------------
                                                          (IN THOUSANDS)
BALANCE SHEET DATA:
Working capital..................................... $    11,266    $    15,519
Total assets........................................      47,651         47,651
Total long-term debt(3).............................      26,493         17,423
Shareholder's investment............................       9,180         18,250
--------
(1) Gives pro forma effect to the sale of the Common Stock offered hereby and
    the application of the estimated net proceeds as described in "Use of
    Proceeds" as if such transactions had occurred as of the beginning of the
    period presented. See "Use of Proceeds."
(2) Represents historical data as of December 31, 1997 as adjusted to give pro
    forma effect to the sale of Common Stock offered hereby and the application
    of the net proceeds therefrom as described in "Use of Proceeds." See "Use
    of Proceeds."
(3) Total long-term debt includes notes payable to affiliate (both the long-
    term and current portions) and payable to affiliates.
 
                                       7
RISK FACTORS
 
  In evaluating an investment in the Common Stock offered hereby, prospective
investors should carefully consider the following risk factors as well as the
other information set forth elsewhere in this Prospectus.
 
LACK OF INDEPENDENT OPERATING HISTORY
 
  Concurrent with the Offering, the Company will separate from Irex pursuant
to the Separation. Prior to the Separation, the Company operated as a wholly
owned subsidiary of Irex, historically relied on Irex for various financial,
administrative and managerial services necessary for its operations and
maintained a minimal executive, financial and administrative staff. After the
Separation, the Company will maintain its own lines of credit and banking
relationships and perform its own financial, administrative and managerial
functions without the benefit of such services, and Irex will have no
obligation to provide assistance to the Company except pursuant to certain
agreements as described in "Separation from Irex--Agreements with Irex." While
management believes that the Separation will have a positive impact on the
Company, the Company may encounter financial, administrative, managerial or
other difficulties as a result of its lack of independent operating history or
the discontinuance of its reliance on the financial and other services of
Irex. No assurance can be given that the Company, as an independent entity,
will achieve operating results comparable to those prior to the Separation.
See "Separation from Irex."
 
LIMITATIONS ON ABILITY TO RAISE EQUITY CAPITAL AND POTENTIAL DEPENDENCE ON
DEBT FINANCING
 
  In order to preserve the tax-free status of the Separation, the Company's
future ability to issue Common Stock may be limited under federal income tax
laws for a period of two years following consummation of the Separation. The
Company's limited ability to issue capital stock during such period (including
its ability to issue Common Stock in connection with acquisitions) may require
the Company to rely on other financing sources, such as bank credit facilities
or debt offerings. Although the Company believes it can obtain financing
necessary to maintain its acquisition and growth program, reliance on such
alternative financing sources could adversely affect the Company's ability to
continue its acquisition program, create significant debt service obligations
and create other risks for the Company and its shareholders. No assurance can
be given that the Company will be able to obtain the capital it will need to
meet its operating needs and finance its acquisition program. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Growth Strategy."
 
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH
 
  The Company's growth strategy contemplates further acquisitions of
distribution and related businesses. The Company's future success is
dependent, in part, upon its ability to identify, finance and acquire suitable
businesses on favorable terms and then to integrate and manage the acquired
businesses quickly and successfully. Acquisitions involve special risks,
including risks associated with unanticipated liabilities, diversion of
management attention, possible adverse effects on earnings resulting from
increased goodwill amortization, potential increased interest costs,
dependence on retention, hiring and training of key personnel and difficulties
relating to the integration of the acquired businesses. Although the Company
believes that it can successfully implement its acquisition program, there can
be no assurance that the Company will be able to identify or acquire
acceptable acquisition candidates on terms favorable to the Company and in a
timely manner to the extent necessary to fulfill the Company's growth
strategy. The Company's ability to achieve and manage its growth will depend
on a number of factors, including the availability of working capital to
support such growth, existing and emerging competition and the Company's
ability to maintain sufficient profit margins. Continued growth could place
additional demands on the Company's administrative, operational and financial
resources. Furthermore, the Company's ability to pay for acquisitions with
stock may be materially limited in the two-year period following the
Separation and the Company's ability to implement its acquisition program may
be adversely affected as a result. There can be no assurance that the Company
will be able to continue to achieve or manage growth effectively, or that
future acquisitions will not have an adverse effect upon the Company's
 
                                       8
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Growth Strategy."
 
SEASONALITY; INDUSTRY AND ECONOMIC CYCLES
 
  The Company's business is seasonal. The Company has in the past experienced
seasonal fluctuations in sales and operating results from quarter to quarter.
Operating results are weakest in the first calendar quarter because of the
effects of winter weather on commercial and industrial construction and the
consequent reduction in sales of mechanical insulation and
architectural/acoustical products. Fluctuations in the Company's quarterly
sales and operating results could result in significant volatility in, and
otherwise adversely affect, the market price of the Common Stock. See
"Management's Discussion of Financial Condition and Results of Operations--
Seasonality and Quarterly Results of Operations."
 
  Some of the principal markets for the products and services offered by the
Company are subject to cyclical economic fluctuations that generally affect
pricing, availability and demand for mechanical insulation and
architectural/acoustical products. Cyclical fluctuations could also affect
growth rates in the markets served by the Company's customers, the
availability of products from vendors and the availability of suitable
acquisition candidates. As a result, changes in general economic conditions
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Seasonality and Cyclicality."
 
DEPENDENCE ON SUPPLIER RELATIONSHIPS
 
  The Company's distribution operations are materially dependent on its
relationships with its suppliers. Generally, distribution agreements between
the Company and its suppliers may be terminated without cause by the suppliers
at any time. As a result, even the largest of the Company's suppliers could
terminate the flow of its products to the Company at any time and the Company
would have to obtain substitute products to maintain its reserves. Although
management believes that the Company can maintain its relationships with its
suppliers for the foreseeable future, there can be no assurance that it will
be able to do so. The termination or limitation by any key supplier of its
relationship with the Company could have a material adverse effect on the
Company's business, operating results and financial condition.
 
POTENTIAL RISKS DUE TO CHANGES IN INDUSTRY TRENDS
 
  The distribution industry is undergoing significant change. Historically,
distributors of mechanical insulation and architectural/acoustical products
served primarily as suppliers and extensions of manufacturers' sales forces.
In recent years, both manufacturers and customers have been increasingly
relying on distributors such as the Company to reduce purchasing costs and
provide a broad range of value-added services. As customers increasingly seek
low-cost alternatives to traditional methods of purchasing and sources of
supply, they are, among other things, reducing the number of their suppliers.
Although the Company believes it can maintain current customer relationships,
there can be no assurance that the Company will not lose customers, including
key accounts, as existing customers reduce the number of distributors with
which they do business. Also, distributors are consolidating to achieve
economies of scale and increase efficiencies. This consolidation trend could
cause the industry to become more competitive. The failure by the Company to
respond effectively to such consolidation and increased competition or to
other changes in the industry could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Industry Overview."
 
DEPENDENCE ON IREX INFORMATION SYSTEMS; POTENTIAL SYSTEMS CONVERSION; YEAR
2000 ISSUE
 
  The Company utilizes and will continue to utilize information systems
provided by Irex, which play an integral role in product tracking, pricing and
availability; order processing and shipping; distribution center operations;
purchasing; inventory management; financial reporting; and other financial and
operational functions.
 
                                       9
The Company will enter into an agreement with Irex pursuant to which Irex will
provide information system services to the Company for three years following
the Separation. During such period the Company intends to evaluate its
existing and future information system requirements and examine its options
for obtaining such services. These options include, among others, continuing
the existing relationship with Irex or replacing the Company's current
systems. If the Company decides to install new information systems, there can
be no assurance that it will be able to successfully implement, integrate and
operate such systems without experiencing unanticipated delays, complications
and expenses. Significant disruptions in the Company's information systems or
the failure to successfully complete a conversion to new information systems
on a timely basis could result in operational and financial disruptions and
adversely affect the Company's business, operating results and financial
condition. See "Business--Information Systems."
 
  The Company does not expect to have material exposure to Year 2000
conversion risks following the installation of an upgrade to its information
system software scheduled for October 1998. This planned upgrade has been
installed and tested by the software system vendor in other information
systems and, as a result, the Company believes its information systems will be
Year 2000 compliant following the upgrade. The Company is presently unable to
determine the effects of Year 2000 compliance by its suppliers and customers,
and the failure of suppliers or customers to address such issues effectively
could have a material adverse effect on the Company. See "Business--
Information Systems."
 
POTENTIAL LIABILITY FOR TAXES RELATED TO THE SEPARATION
 
  In connection with the Separation, the Company will enter into a tax sharing
and indemnification agreement with Irex (the "Tax Agreement"). Under the Tax
Agreement the Company will be restricted, for a period of two years following
the date of the Separation, from engaging in certain transactions, including
certain issuances of stock, redemptions of stock or ceasing to engage in its
trade or business, without first obtaining either a ruling from the Internal
Revenue Service or an opinion from nationally recognized tax counsel that such
transaction will not affect the tax-free nature of the Separation to Irex or
its shareholders. The Tax Agreement also requires the Company to indemnify
Irex and its shareholders for tax liabilities that may be incurred by Irex or
its shareholders as a result of actions that the Company may undertake
following the Separation and that cause the Separation to be treated as a
taxable transaction to Irex or its shareholders. Under recently enacted
changes to the Internal Revenue Code applicable to spin-off distributions, a
distributing corporation (Irex) will recognize gain on the appreciation in the
stock of the distributed corporation (the Company) if the distribution is part
of a plan or series of related transactions pursuant to which one or more
persons acquire, directly or indirectly, 50% or more of the voting power or
value of the stock of either corporation. There is a rebuttable presumption
that any acquisition of stock (including acquisitions through stock issuances
by the Company) occurring two years before or after the Separation are part of
such a plan (or series if related transactions). Such presumption may be
rebutted by establishing that the Separation and acquisitions of such stock
are not pursuant to a plan or series of related transactions. Although the
Company does not expect these restrictions to materially inhibit its
operations or growth opportunities, if there is a final determination that any
or all of the distributions of Common Stock effected in connection with the
Separation are taxable, the Company could become liable for a portion of any
taxes due in connection with the Separation to the extent that such tax
liability cannot be collected from Irex or the remaining members of the Irex
consolidated group. The Company will also be required to indemnify Irex and
its subsidiaries for any tax liabilities otherwise imposed upon or
attributable to the Company related to the Company for periods prior to the
Separation. See "Separation from Irex--Agreements with Irex--Tax Sharing and
Indemnification Agreement."
 
LACK OF ARM'S-LENGTH BARGAINING ON AGREEMENTS WITH IREX
 
  The Company will enter into certain agreements with Irex and its
subsidiaries (the "Separation Agreements") in connection with the Separation
which will set forth the terms of the Separation, the right to utilize Irex's
information system, tax sharing and indemnification, and benefits sharing.
Although management
 
                                      10
of the Company believes that the terms of the Separation Agreements will be
fair to the Company, the terms of the Separation Agreements will be fixed
between Irex and the Company when they are parent and subsidiary and not
independent parties negotiating on an arm's-length basis. Accordingly, there
is no assurance that the terms of the Separation Agreements will be as
favorable to the Company as those that might be obtained from an unaffiliated
third party.
 
COMPETITION
 
  The Company's markets are fragmented and highly competitive, and feature
numerous distribution channels, including national, regional and local
distributors, and local supply houses as well as direct sales by
manufacturers. Many of the Company's competitors are smaller businesses that
sell to customers in a limited geographic area, but the Company also competes
against several significant regional distributors. Certain of the Company's
competitors sell identical or equivalent products at competitive prices, and
the Company also competes on the basis of responsiveness to the needs of
customers for quality service, product diversity and availability. There can
be no assurance that the Company will be able to compete successfully in the
markets in which it operates.
 
DEPENDENCE ON KEY PERSONNEL
 
  The Company's operations are highly dependent on the skills, experience and
efforts of its Chief Executive Officer and senior management, and the Company
may depend on the senior management of any significant businesses it acquires
in the future. Although prior to the Offering the Company intends to enter
into employment agreements containing confidentiality and non-competition
provisions with its Chief Executive Officer and other members of its senior
management, the business and prospects of the Company could be adversely
affected if any of these persons does not continue in his position, and the
Company is unable to attract and retain a qualified replacement. See
"Management."
 
ANTI-TAKEOVER PROVISIONS
 
  Certain provisions of Pennsylvania law and the Company's restated articles
of incorporation and bylaws could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of the Company. Although the Company has opted out of Subchapters E, G and H
of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), the Company is governed by Subchapter F of Chapter 25 of the
PBCL, which prohibits the Company from engaging in a "business combination"
with an "interested shareholder" for a period of five years after the date of
the transaction as a result of which such shareholder became an "interested
shareholder," unless the business combination is approved in a prescribed
manner. The Company's restated articles of incorporation divide the Board of
Directors into three classes, each serving a staggered three-year term. By
extending the period of time required to re-elect or replace the entire Board
of Directors, such classification may have the effect of discouraging persons
seeking to effect a takeover or assume control of the board. In addition,
shares of the Company's Preferred Stock, par value $.01 per share (the
"Preferred Stock"), may be issued by the Board of Directors without
shareholder approval on such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The
rights of the holders of the Common Stock may be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The Company has no current plans to issue any
shares of Preferred Stock and may be otherwise limited in its ability to issue
Preferred Stock in the two-year period following the Separation. However, the
potential issuance of Preferred Stock could have the effect of delaying,
deterring or preventing a change of control of the Company. See "Description
of Capital Stock--Preferred Stock" and "Description of Capital Stock--Certain
Provisions of the Pennsylvania Business Corporation Law."
 
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK
 
  Prior to the Offering, there has been no public market for the Common Stock.
Although application has been made to list the Common Stock on the Nasdaq
National Market, there can be no assurance that an active or
 
                                      11
liquid trading market in the Common Stock will develop upon completion of the
Offering or, if developed, that it will be sustained. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the Underwriters and may not be indicative of the
market price for the Common Stock after the Offering. The market price for
shares of the Company's Common Stock may be highly volatile and may be
significantly affected by such factors as quarter-to-quarter variations in the
Company's results of operations, changes in general market conditions and
other factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results of Operations and
Seasonality" and "Underwriting."
 
SHARES ELIGIBLE FOR FUTURE SALE
 
  Sales of a substantial number of shares of Common Stock in the public market
following the Offering and Separation could adversely affect the market price
for the Common Stock. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will
have on the market price of the Common Stock prevailing from time to time. The
number of outstanding shares of Common Stock available for sale in the public
market will be limited by (i) contractual agreements between the Company and
certain shareholders of the Company not to sell for two years the shares of
Common Stock received by them in the Separation; (ii) the lock-up agreements
under which the Company, its officers and directors, and certain Company
shareholders have agreed not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this Prospectus without the
prior written consent of Legg Mason Wood Walker, Incorporated, on behalf of
the Underwriters; (iii) limitations relating to the tax-free status of the
Separation (see "--Limitations on Ability Raise Equity Capital and Dependence
on Debt Financing"); and (iv) applicable restrictions under the Securities Act
of 1933, as amended (the "Securities Act"). Upon the consummation of the
Offering, shares subject to the foregoing agreements and restrictions will be
ineligible for sale, and only the shares offered hereby and shares of Common
Stock distributed in the Separation to nonaffiliates of the Company will be
eligible for sale. See "Shares Eligible for Future Sale." Sales of substantial
amounts of Common Stock, including those shares eligible for sale following
the Offering and those eligible for sale following the expiration of the
foregoing agreements and restrictions, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock.
 
                                      12
USE OF PROCEEDS
 
  The net proceeds to be received by the Company from the Offering are
estimated to be approximately $19.6 million (approximately $22.6 million in
the event the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company intends to use such
proceeds as follows: (i) to repay approximately $5.1 million of long-term
debt; (ii) to repay approximately $4.0 million of other indebtedness to Irex;
(iii) to repay indebtedness incurred by the declaration of a $10.5 million
dividend to Irex in connection with the Separation; and (iv) for working
capital and general corporate purposes. See "Separation from Irex."
 
                                DIVIDEND POLICY
 
  The Company does not plan to pay dividends on its Common Stock in the
foreseeable future and plans to retain any future earnings to finance its
operations and expand its business. Any future determination as to the payment
of cash dividends will be at the discretion of the Company's Board of
Directors and will depend, among other factors, upon the Company's earnings,
financial condition and capital requirements and the terms of the Company's
financing agreements. In addition, the Company's future financing agreement
may contain limitations on the payment of cash dividends.
 
                                      13
DILUTION
 
  The net tangible book value (tangible assets minus total liabilities) of the
Company as of December 31, 1997 was $8.2 million, or $2.82 per share of
outstanding Common Stock. After giving effect to the sale of the 2,000,000
shares of Common Stock offered by the Company hereby at an assumed initial
offering price of $11.00 per share (and deducting the estimated underwriting
discount and offering expenses), the pro forma net tangible book value of the
Company as of December 31, 1997 would have been approximately $17.3 million,
or $3.52 per share. This change represents an immediate increase in net
tangible book value of $0.70 per share to the existing shareholders of the
Company (the "Existing Shareholders") and an immediate dilution of $7.48 per
share to investors purchasing shares of Common Stock in this Offering. The
following table illustrates this per share dilution:
Initial public offering price per share......................        $11.00
     Net tangible book value per share before this Offering..... $ 2.82
     Increase in net tangible book value per share attributable
      to this Offering..........................................   0.70
                                                                 ------
   Net tangible book value per share after this Offering........          3.52
                                                                        ------
   Dilution per share to new investors..........................        $ 7.48
                                                                        ======
The following table summarizes as of December 31, 1997, the differences
between the Existing Shareholders and investors purchasing shares of Common
Stock in this Offering with respect to the number of shares of Common Stock
purchased from the Company (assuming no exercise of the Underwriters' over-
allotment option), the total consideration paid and the average price per
share paid:
SHARES PURCHASED  TOTAL CONSIDERATION
                            ----------------- -------------------
                                                                  AVERAGE PRICE
                             NUMBER   PERCENT   AMOUNT    PERCENT   PER SHARE
                            --------- ------- ----------- ------- -------------
Existing shareholders... 2,913,547   59.3% $ 9,180,000   29.4%    $ 3.15
   New investors........... 2,000,000   40.7%  22,000,000   70.6%     11.00
                            ---------  -----  -----------  -----
     Total................. 4,913,547  100.0% $31,180,000  100.0%
                            =========  =====  ===========  =====
14
CAPITALIZATION
 
  The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997 and as adjusted to give effect to the
Separation and the sale of 2,000,000 shares of Common Stock offered by the
Company in the Offering at an assumed initial public offering price of $11.00
per share, after deducting the estimated underwriting discounts and
commissions and estimated Offering expenses payable by the Company, and the
application of estimated net proceeds therefrom. See "Use of Proceeds." This
table should be read in conjunction with "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related
notes thereto included elsewhere in this Prospectus.
AS OF DECEMBER 31, 1997
                                                         -----------------------
                                                         ACTUAL  AS ADJUSTED (1)
                                                         ------- ---------------
                                                             (IN THOUSANDS)
Current portion of long-term debt....................... $ 1,455     $   --
                                                         =======     =======
Payable to affiliates................................... $20,221     $17,423
                                                         =======     =======
Long-term debt:
  Notes payable to affiliate............................ $ 4,742     $   --
  Other.................................................      75         --
                                                         -------     -------
    Total long-term debt................................ $ 4,817         --
                                                         -------     -------
Shareholder's investment:
  Common Stock.......................................... $    29     $    49
  Paid in surplus.......................................     974      18,201
  Retained earnings.....................................   8,177         --
                                                         -------     -------
    Total shareholder's investment...................... $ 9,180     $18,250
                                                         -------     -------
    Total capitalization................................ $13,997     $18,250
                                                         =======     =======
--------
(1) Adjusted to reflect (i) the Separation, (ii) the sale of 2,000,000 shares
    of Common Stock by the Company at an assumed initial public offering price
    of $11.00 per share and (iii) the application of approximately
    $19.6 million of the net proceeds to the repayment of indebtedness (both
    long-term and payable to affiliates) as well as the repayment of
    indebtedness in connection with the declaration of a dividend in the
    amount of $10.5 million to Irex immediately prior to the Separation.
 
                                      15
SELECTED CONSOLIDATED FINANCIAL DATA
 
  The selected financial information presented below as of and for the years
ended December 31, 1996 and December 31, 1997, and for the year ended December
31, 1995 has been derived from the audited consolidated financial statements
of the Company included elsewhere in this Prospectus. This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's consolidated financial
statements and related notes included elsewhere in this Prospectus. The
historical financial information as of and for the years ended December 31,
1993 and December 31, 1994 have been derived from the unaudited consolidated
financial statements of the Company, and, in the opinion of management,
include all adjustments (consisting only of normal, recurring adjustments)
necessary to present fairly the information set forth therein.
 
  The pro forma financial information has been prepared on the basis of
certain assumptions and estimates and may not be indicative of the results
that would have been achieved if the recapitalization and the Offering had
been effected on the dates indicated or that may be achieved in the future.
YEARS ENDED DECEMBER 31,
                         ----------------------------------------------------------------
                                                                                PRO FORMA
                            1993       1994       1995       1996       1997     1997(1)
                         ---------- ---------- ---------- ---------- ---------- ---------
                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME
 DATA:
  Net sales............. $   89,396 $  101,895 $  118,395 $  141,800 $  158,510 $ 158,510
                         ---------- ---------- ---------- ---------- ---------- ---------
  Gross profit..........     18,937     21,564     25,892     31,110     34,252    34,252
  Selling, general, and
   administrative
   expense..............     17,426     18,957     21,841     24,762     27,229    27,229
                         ---------- ---------- ---------- ---------- ---------- ---------
  Operating income......      1,511      2,607      4,051      6,348      7,023     7,023
  Interest expense,
   net..................        913      1,194      1,840      1,854      1,939     1,036
                         ---------- ---------- ---------- ---------- ---------- ---------
  Income before income
   taxes................        598      1,413      2,211      4,494      5,084     5,987
  Income tax provision..        216        655        918      1,810      2,077     2,448
                         ---------- ---------- ---------- ---------- ---------- ---------
  Net income ........... $      382 $      758 $    1,293 $    2,684 $    3,007 $   3,539
                         ========== ========== ========== ========== ========== =========
  Net income per share-
   basic................ $     0.13 $     0.26 $     0.44 $     0.92 $     1.03 $    0.72
  Net income per share-
   diluted..............       0.13       0.26       0.44       0.92       1.03      0.72
WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING:
  Basic.................  2,913,547  2,913,547  2,913,547  2,913,547  2,913,547 4,913,547
  Diluted...............  2,913,547  2,913,547  2,913,547  2,913,547  2,913,547 4,913,547
BALANCE SHEET DATA:
  Working capital....... $   10,198 $    9,166 $    9,839 $   10,804 $   11,266 $  15,519
  Total assets..........     28,480     31,814     36,026     38,935     47,651    47,651
  Total debt(2).........     19,055     20,819     22,996     22,370     26,493    17,423(3)
  Shareholder's
   investment...........      3,279      3,655      4,200      6,421      9,180    18,250(3)
--------
(1) Adjusted to reflect the reduction in interest expense and the
    corresponding tax related to the reduction in long-term debt and payable
    to affiliates from the estimated net proceeds of the Offering as if it had
    occurred on January 1, 1997.
(2) Total debt is composed of:
  (a) Long-term debt with an affiliate ($8,550 from 1993 through 1995, $7,364
      in 1996 and $6,272 in 1997) and other long-term debt ($94 in 1997).
 
                                      16
(b) Payable to affiliates. This balance was $10,505 in 1993, $12,269 in
      1994, $14,446 in 1995, $15,006 in 1996 and $20,221 in 1997.
(3) Adjusted to reflect (i) the Separation, (ii) the sale of 2,000,000 shares
    of Common Stock by the Company at an assumed initial public offering price
    of $11.00 per share and (iii) the application of approximately
    $19.6 million of the net proceeds to the repayment of indebtedness (both
    long-term and payable to affiliates) as well as the repayment of
    indebtedness incurred in connection with the declaration of a $10.5
    million dividend to Irex immediately prior to the Separation.
 
                                      17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
  The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements appearing elsewhere in this Prospectus.
 
  The Company is a leading distributor and fabricator of mechanical
insulation, architectural/acoustical products and specialty products and
services for the commercial and industrial markets. The Company has developed
a national network of 51 distribution centers, including seven fabrication
facilities, at strategically chosen locations in 21 states. Through this
network, the Company distributes a variety of mechanical insulation,
architectural/acoustical products and numerous specialty products to customers
for use in the new construction, renovation and maintenance sectors of
industrial and commercial markets. The markets in which the Company competes
have generally exhibited steady and relatively non-cyclical growth due to the
Company's geographic diversity and broad customer base. The Company provides
products and services to customers in a range of industries, including the
general commercial construction, utilities, petro-chemical, pulp and paper,
cold storage, chemical, marine and original equipment manufacturing
industries, among others.
 
  Historically, the supply markets in which the Company operates have been
highly fragmented and populated by many smaller local and regional
distributors. The industry has begun a trend toward consolidation due
principally to the economies of scale realized by large distributors, the
increasing demand by customers for fewer sources of supply, the benefits of
volume purchasing by larger vendors and demands by customers for additional
value-added services which require substantial investments in technology,
human resources and infrastructure. The Company believes that those
distributors which develop the capabilities and strengths to take advantage of
these trends will be well-positioned to gain market share.
 
  In order to capitalize on its core competencies and take advantage of market
opportunities, the Company has adopted a growth strategy which focuses
primarily on acquiring and opening new distribution centers. The Company
initially adopted a growth strategy to strengthen its presence in regional
markets and has recently begun to implement its strategy on a national scale.
For the three-year period ended December 31, 1997, the Company acquired seven
distribution operations and opened six new distribution centers. Through
targeted acquisitions and distribution center openings, the Company is able to
expand its geographic presence into new markets, meet supplier initiatives and
customer service requirements, pursue strategic opportunities, broaden its
product and service capabilities and take advantage of current industry
dynamics. Distribution centers opened through start-ups or acquisitions during
the three-year period ended December 31, 1997 accounted for approximately
37.2% of the $40.1 million increase in the Company's net sales during that
period. The Company believes that future results of operations will depend in
large part on the Company's ability to continue to make acquisitions on
attractive terms and open new distribution centers in strategic locations, and
then to successfully integrate and manage these new facilities.
 
  Newly opened distribution centers typically generate an operating loss
during the first one to two years of operations. A greater number of
distribution center openings by the Company in the two-year period ended
December 31, 1997 resulted in a higher percentage of facility and personnel
expenses in 1997 as compared to 1996. However, as the Company generates
incremental volume through acquired or newly opened distribution centers, the
Company believes it will realize improvement in its operating margins by
carrying its fixed costs over a larger revenue base.
 
  On January 19, 1998, Irex announced the Separation. The transaction will
provide the Company with increased flexibility to fund and execute its growth
strategy of internal expansion and acquisitions. The Company's participation
in a consolidating industry, where customers and suppliers desire
relationships with fewer distributors that can provide a range of value-added
products and services, affords additional growth opportunities. The spin off
will create a management team and capital structure devoted solely to
capitalizing on
 
                                      18
these opportunities. The Company has entered into an agreement with Irex which
provides, among other things, for Irex to continue to provide information
services to the Company for a three-year period following the Separation. See
"Separation from Irex."
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income expressed as a percentage
of net sales:
YEAR ENDED DECEMBER 31,
                                -------------------------
                                 1995     1996     1997
                                -------  -------  -------
Net sales...............    100.0%   100.0%   100.0%
      Cost of sales...........     78.1%    78.1%    78.4%
                                -------  -------  -------
      Gross profit............     21.9%    21.9%    21.6%
      Selling, general and ad-
       ministrative expenses..     18.4%    17.4%    17.2%
                                -------  -------  -------
      Operating income........      3.5%     4.5%     4.4%
      Interest expense, net...      1.6%     1.3%     1.2%
                                -------  -------  -------
      Income before income
       taxes..................      1.9%     3.2%     3.2%
      Income tax provision....      0.8%     1.3%     1.3%
                                -------  -------  -------
      Net income..............      1.1%     1.9%     1.9%
                                =======  =======  =======
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
  Net Sales. The Company's net sales increased $16.6 million, or 11.8%, to
$158.5 million in 1997 from $141.8 million in 1996. Of this increase,
approximately 34.4% was attributable to sales volume from six distribution
centers opened in 1996 and 1997. Growth from existing operations accounted for
approximately 39.0% of the increase in net sales as volume remained strong
across each of the Company's primary lines of business. Export sales, included
in the growth from existing operations, comprised 10.0% of the Company's net
sales and contributed $5.0 million of this increase. The remaining increase in
net sales, representing $4.4 million, resulted from six acquisitions completed
during the two-year period ended December 31, 1997.
 
  Gross Profit. Gross profit increased 10.3% to $34.3 million in 1997 from
$31.1 million in 1996. As a percentage of net sales, the gross profit
decreased slightly to 21.6% from 21.9% in 1996. The slight decrease was
primarily the result of greater sales of products shipped directly from
manufacturers to the customers ("direct-ship business"), which generate lower
margins for the Company. Management does not expect direct-ship business to
increase as a percentage of total sales.
 
  Selling, General and Administrative Expenses ("SG&A"). SG&A primarily
consist of personnel-related expenses and facility lease and operating
expenses. SG&A increased 9.7%, to $27.2 million in 1997 from $24.8 million in
1996. As a percentage of net sales, SG&A decreased to 17.2% in 1997 from 17.4%
in 1996. The improvement was generally the result of a decrease in the
provision for losses on accounts receivable as the Company has made
significant efforts toward improving the quality of its credit portfolio. This
decrease in the loss provision was partially offset by increases in personnel
and facility lease expenses due to newly opened distribution centers.
 
  Interest Expense, Net. Interest expense was $1.9 million in both 1997 and
1996. A portion of the interest expense was attributable to the long-term
notes payable to affiliate, which accounted for $0.7 million of interest
expense in both 1997 and 1996. The remaining interest expense was primarily
associated with the payable to affiliates account. Based upon the activity in
this account, Irex charged the Company interest of $1.2 million in 1997 and
$1.1 million in 1996.
 
                                      19
Income Tax Provision. The effective tax rate was 40.9% in 1997 and 40.3% in
1996. The Company's tax return is included in the consolidated income tax
return filed by Irex. However, the Company's income tax provision is based on
the amount which would have resulted had the Company filed a separate tax
return.
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
  Net Sales. The Company's net sales increased $23.4 million, or 19.8%, to
$141.8 million in 1996 from $118.4 million in 1995. Higher sales volume at
existing centers accounted for approximately 80.9% of the increase. Export
sales, included in the growth from existing centers, increased to $11.0
million in 1996 from $2.0 million in 1995. The increase in export sales was
primarily the result of sales made to two domestic exporters of products
destined for Russia. Three distribution centers opened in 1996 contributed
approximately 7.5% of the increase. The remaining increase in net sales,
representing $2.7 million, resulted from four acquisitions completed during
the two-year period ended December 31, 1996.
 
  Gross Profit. Gross profit increased 20.1% to $31.1 million in 1996 from
$25.9 million in 1995. As a percentage of net sales, the gross profit remained
stable at 21.9% in both 1996 and 1995. An increase in direct-ship business,
which carries lower gross margins, was offset by higher gross margins on the
sales of fabricated products.
 
  Selling, General and Administrative Expenses. SG&A increased 13.8% to $24.8
million in 1996 from $21.8 million in 1995. The increase was primarily
attributable to higher personnel expenses from the opening of new distribution
centers, the pursuit of new industrial customers in the Southwest and the
securing of a new national account as reflected in the increase in sales
volume. However, as a percentage of net sales, SG&A decreased to 17.4% in 1996
from 18.4% in 1995. This decrease was primarily due to the ability of the
Company to increase sales without a corresponding increase in its overhead
structure.
 
  Interest Expense, Net. Interest expense remained relatively unchanged in
1995 and 1996 at $1.9 million. A portion of the interest expense was
attributable to the long-term notes payable to affiliate, which accounted for
interest expense of $0.7 million in 1996 and $0.8 million in 1995. The
remaining interest expense was primarily associated with the payable to
affiliates account. Based upon the activity in this account, Irex charged the
Company interest of $1.1 million in 1996 and $1.0 million in 1995.
 
  Income Tax Provision. The effective tax rate was 40.3% in 1996 and 41.5% in
1995. The Company's tax return is included in the consolidated income tax
return filed by Irex. However, the Company's income tax provision is based on
the amount which would have resulted had the Company filed a separate tax
return.
 
                                      20
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
 
  The following table presents certain unaudited quarterly data from the
Company's consolidated statements of income for each of the last eight fiscal
quarters. In the opinion of the Company's management, this quarterly
information has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this Prospectus and includes all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present the unaudited quarterly results set forth herein. The Company's
quarterly results may be subject to fluctuation; thus, the operating results
for any quarter are not necessarily indicative of results for any future
period.
THREE MONTHS ENDED
                         ------------------------------------------------------------------------------
                         MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,  MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,
                           1996      1996      1996      1996      1997      1997      1997      1997
                         --------  --------  --------- --------  --------  --------  --------- --------
                                                      (IN THOUSANDS)
Net sales............... $32,553   $35,187    $37,689  $36,371   $36,280   $37,553    $41,548  $43,129
Cost of net sales.......  25,494    27,570     29,659   27,967    28,555    29,376     32,450   33,877
                         -------   -------    -------  -------   -------   -------    -------  -------
Gross profit............   7,059     7,617      8,030    8,404     7,725     8,177      9,098    9,252
Selling, general and
 administrative
 expenses...............   5,825     6,087      6,067    6,783     6,588     6,585      6,822    7,234
                         -------   -------    -------  -------   -------   -------    -------  -------
Operating income........ $ 1,234   $ 1,530    $ 1,963  $ 1,621   $ 1,137   $ 1,592    $ 2,276  $ 2,018
                         =======   =======    =======  =======   =======   =======    =======  =======
(AS A PERCENTAGE OF NET SALES)
                         ------------------------------------------------------------------------------
                         MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,  MAR. 31,  JUNE 30,  SEPT. 30, DEC. 31,
                           1996      1996      1996      1996      1997      1997      1997      1997
                         --------  --------  --------- --------  --------  --------  --------- --------
Net sales...............   100.0%    100.0%     100.0%   100.0%    100.0%    100.0%     100.0%   100.0%
Cost of net sales.......    78.3      78.4       78.7     76.9      78.7      78.2       78.1     78.5
                         -------   -------    -------  -------   -------   -------    -------  -------
Gross profit............    21.7      21.6       21.3     23.1      21.3      21.8       21.9     21.5
Selling, general and
 administrative
 expenses...............    17.9      17.3       16.1     18.6      18.2      17.5       16.4     16.8
                         -------   -------    -------  -------   -------   -------    -------  -------
Operating income........     3.8%      4.3%       5.2%     4.5%      3.1%      4.3%       5.5%     4.7%
                         =======   =======    =======  =======   =======   =======    =======  =======
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. The primary factor that may affect the
Company's quarterly operating results is lower sales volumes in the first
quarter due to winter weather conditions in certain regions of the country,
which reduces the number of new construction, renovation and maintenance
projects and consequently decreases demand for the Company's products and
services.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company has primarily relied on cash flow from operations and borrowings
from the Company's affiliates prior to the Separation to finance its
operations. Net cash provided by operating activities totaled $1.2 million
during 1997 compared to $1.9 million during 1996. The decrease was primarily
attributable to an increase in accounts receivable, partially offset by an
increase in accounts payable, each of which resulted from the Company's higher
sales volume. While the balance for receivables and inventories has increased
as a result of the growth in sales and the number of distribution centers, the
Company's focus on effective asset management has led to an improvement in
both accounts receivable turnover and inventory turnover. Receivables
turnover, calculated using 12-month average balance for accounts receivable,
improved to 5.7x in 1997 from 5.2x in 1995. Inventory turnover, exclusive of
sales shipped directly from manufacturers to customers, increased to 7.2x in
1997 from 6.7x in 1995.
 
  Net cash used for investing activities totaled $4.0 million in 1997 and $0.8
million in 1996. The Company completed three acquisitions in the fourth
quarter of 1997 for aggregate cash consideration of $3.5 million, which
collectively resulted in goodwill of approximately $0.9 million that is being
amortized principally on a straight-line basis over 15 years. Capital
expenditures totaled $0.6 million in each of 1997 and 1996.
 
  Net cash provided by financing activities totaled $3.2 million in 1997
compared to net cash used of $1.1 million in 1996. The $4.3 million change was
attributable to an increase in the Company's payable to affiliates account.
During 1997 and 1996, the Company made debt repayments of $1.2 million to an
affiliate of the Company.
 
                                      21
The Company expects to enter into a committed credit facility agreement in
connection with and prior to consummation of the Offering. The credit facility
is expected to provide an aggregate of $30 million in senior unsecured debt at
an interest rate subject to quarterly adjustment to reflect the Company's debt
level as a function of its operating results. The Company expects that funds
from operations and availability under the credit facility will be sufficient
to meet its working capital and growth strategy requirements for the
foreseeable future.
 
INFLATION
 
  The Company does not believe that inflation has had a material effect on its
results of operations in recent years. There can be no assurance, however,
that the Company's business will not be affected by inflation in the future.
 
YEAR 2000 ISSUE
 
  The Company utilizes information systems owned and maintained by Irex. The
Company's ability to conduct its day-to-day operations is dependent in part on
an integrated software program and data-based system, which serves as a
critical tool in carrying out functions in several key areas of the business,
including inventory management, pricing, sales, financial reporting and
personnel administration.
 
  The Company has entered into an agreement with Irex pursuant to which Irex
will continue to provide information services to the Company on a fee for
services basis for a three-year period subsequent to the Separation. See
"Separation from Irex--Agreements with Irex."
 
  The Company has reviewed all of its current computer applications with
respect to the Year 2000 issue. The Company believes all of its relevant
applications will be Year 2000 compliant following the installation of an
upgrade to the system software scheduled for October 1998. The Company
believes that any additional costs with respect to Year 2000 compliance will
not be material to the Company. The Company is unable to determine the effects
of Year 2000 compliance by its suppliers and customers.
 
                                      22
ACQUISITION AND EXPANSION BACKGROUND
 
  Two key components of the Company's growth strategy have been acquisitions
and the opening of distribution centers. Historically, the Company grew as it
solidified its presence in regional markets by opening new distribution
centers or acquiring business operations with well-developed market positions.
More recently, the Company has begun to implement a growth strategy executed
on a national scale. Through targeted acquisitions and distribution center
openings, the Company pursues opportunities to expand its presence in new
geographic areas with strong growth characteristics. The Company believes that
being a broadly based national distributor provides it with a competitive
advantage over regional and local competitors, especially in servicing
customers with multiple locations that desire a single-supplier relationship.
This strategy has enabled the Company to further penetrate existing markets,
broaden its product and service capabilities and take advantage of current
industry dynamics. The Company believes that these components of its growth
strategy have been significant factors in producing compound annual growth
rates in net sales and operating income of 14.6% and 57.7%, respectively, for
the five-year period ended December 31, 1997.
 
  For the five-year period ended December 31, 1997, the Company acquired 11
distribution operations (including three from affiliates), which together
contributed approximately $13.2 million, or 8.3%, to the Company's 1997 net
sales. During the same period, the Company opened 10 distribution centers,
which together contributed approximately $12.3 million, or 7.8%, to the
Company's 1997 net sales. Since January 1, 1998, the Company has completed one
acquisition and opened two distribution centers.
 
  The Company pursues acquisitions and opens distribution centers as the
result of strategic opportunities. In addition, the Company's approach to
acquisitions and distribution center openings is influenced by the following
factors:
 
    Expand Product Lines and Broaden Technical Expertise. The Company is able
  to expand its product lines and broaden its technical expertise through
  acquisitions. The Company believes that its national infrastructure allows
  it to add new product lines and capabilities for existing customers without
  incurring significant additional cost.
 
    Service Customer Requirements. The Company opens distribution centers and
  pursues acquisitions in regions where it can better serve its existing
  customers' product requirements. Once operational, the Company seeks to
  drive incremental volume through these locations.
 
    Pursue Market Opportunities. The Company opens distribution centers in
  locations where it believes volume levels can support stand-alone
  operations. Such opportunities may result from general economic growth in
  particular regions or product lines, inadequate servicing of markets by
  competitors and other factors identified in the Company's experience.
 
    Respond to Supplier Initiatives. Acquisitions and distribution center
  openings also result from the Company's strong relationships with its
  suppliers. Through these relationships the Company becomes an integral part
  of suppliers' expansion strategies. The Company works together with its
  suppliers to serve their common growth strategies and increase its market
  share.
 
  The Company's management has significant experience integrating acquired and
newly opened operations into its nationwide business. Following acquisitions,
the Company attempts to eliminate redundancies, conform inventory and
administrative practices, streamline administrative functions and systems,
leverage purchasing power and improve asset management. Similarly, new
distribution centers are opened with the goal of increasing operating
efficiencies. Once a site and operating management have been identified for a
new location, the Company expects new distribution centers can be operational
within 30 days after investments of approximately $25,000 in start-up costs
and approximately $50,000 in initial inventory. Historically, the Company has
found that successful new distribution center operations, on average, break
even during the second year and become profitable during the third year after
start-up.
 
                                      23
The following table sets forth the number of distribution centers opened and
the number of acquisitions completed, as well as associated net sales for the
five-year period ended December 31, 1997.
YEAR OF OPERATION
                                    -------------------------------------------
                                     1993     1994     1995     1996     1997
                                    ------- -------- -------- -------- --------
                                              (DOLLARS IN THOUSANDS)
New centers opened.................       4        0        0        3        3
 Cumulative total since January 1,
  1993.............................       4        4        4        7       10
Acquisitions completed (1).........       1        3        1        3        3
 Cumulative total since January 1,
  1993.............................       1        4        5        8       11
REVENUE SOURCES:
 Start-ups since 1993.............. $ 2,475 $  4,775 $  4,399 $  7,074 $ 12,346
 Acquisitions since 1993...........     508    1,300    5,125    7,802   13,173
 Operations existing prior to
  1993.............................  86,413   95,820  108,871  126,924  132,991
                                    ------- -------- -------- -------- --------
  TOTAL REVENUE.................... $89,396 $101,895 $118,395 $141,800 $158,510
                                    ======= ======== ======== ======== ========
--------
(1) Includes two acquisitions in 1996 and one acquisition in 1993 from
    affiliates.
 
  The following table sets forth brief summaries of acquisitions completed by
the Company since January 1, 1997:
NET SALES IN LAST
                                              FULL FISCAL YEAR
                                                  PRIOR TO
    DATE                ACQUISITION              ACQUISITION          PRINCIPAL BUSINESSES
-------------  ------------------------------ ----------------- --------------------------------
                                               (IN THOUSANDS)
October 1997   Common Stock of Richlar            $  2,602      Precision die cutting,
               Industries, Inc.,                                lamination and specialty
               East Syracuse, New York                          fabrication
December 1997  Certain Assets of Construction     $  9,305      Distribution of architectural/
               Systems, Inc., Houston, Texas                    acoustical (including specialty
                                                                drywall and metal studs) and
                                                                specialty products from two
                                                                strategic service centers
December 1997  Certain Assets of R.E. Kramig,     $    500 (1)  Distribution of mechanical
               Louisville, Kentucky                             insulation products primarily to
                                                                the industrial market
March 1998     Certain Assets of                  $ 13,196      Mechanical insulation
               Extol of Texas, Inc., Houston                    fabrication and distribution to
               and Corpus Christi, Texas                        the industrial market
--------
(1) Estimated by management of the Company.
 
                                       24
The following table sets forth the distribution centers that have been
opened since 1993 as well as 1997 net sales of each.
YEAR OPENED      DISTRIBUTION CENTER     1997 NET SALES (1)
   -----------   -------------------------- ------------------
                                              (IN THOUSANDS)
1993       Ft. Worth, Texas                   $1,624
                 Ft. Myers, Florida (2)                266
                 Ft. Lauderdale, Florida             2,178
      1996       Oklahoma City, Oklahoma               947
                 Austin, Texas                       2,159
                 Charleston, West Virginia           2,529
      1997       Bridgeport, Connecticut               362
                 Newark, Delaware (2)                  135
                 Charleston, South Carolina          1,321
      1998       Augusta, Georgia             Not applicable
                 Pittsburgh, Pennsylvania     Not applicable
--------
(1) Figures reflect sales for all operations, including operations added as a
    result of expansion since the opening date.
(2) Satellite operation of nearby primary facility.
 
                                      25
BUSINESS
 
INTRODUCTION
 
  Specialty Products & Insulation Co. is a leading national distributor and
fabricator of mechanical insulation, architectural/acoustical products and
specialty products to commercial and industrial markets. The Company also
offers customized fabrication, export and other value-added services related
to its core product lines. The Company operates through a national network of
51 distribution centers, including seven fabrication facilities, at
strategically chosen locations in 21 states. Through this network, the Company
offers approximately 25,000 stock keeping units to more than 9,000 customers,
including specialty contractors, facility owners, general contractors,
original equipment manufacturers ("OEMs"), exporters and supply houses. The
Company's principal product categories include piping and equipment insulation
as well as acoustical ceilings and specialty wall panels, and include the
products of more than 150 manufacturers including Armstrong World Industries,
Owens Corning, Johns Manville, Dow Chemical and Pittsburgh Corning. Since
commencing operations in the early 1980s, the Company has experienced
significant growth as a result of its ability to capitalize on industry
changes including, principally, the increased reliance on distributors by
manufacturers and customers. Net sales of the Company increased from $118.4
million in 1995 to $158.5 million in 1997, and operating income grew from $4.1
million in 1995 to $7.0 million in 1997.
 
INDUSTRY OVERVIEW
 
  The Company competes in the highly fragmented and consolidating commercial
and industrial segment of the building products industry. The Company broadly
defines its two core markets as mechanical insulation, consisting primarily of
pipe, duct and equipment insulation and architectural/acoustical products,
consisting primarily of acoustical ceiling systems, fiberglass-reinforced
panels and other wall and ceiling products. The Company participates in the
commercial and industrial markets by supplying products for use in (i) new
construction, (ii) renovation of existing facilities, (iii) ongoing
maintenance and (iv) OEM applications.
 
  The channels of supply in the Company's markets have experienced significant
change. In the early 1980s, product sales in the Company's markets were
characterized by direct sales from manufacturers to contractors who in turn
sold the products to other contractors and end-users. An expanding and
increasingly diverse customer base made it difficult for the typical
manufacturer to directly serve its entire potential customer universe. Also,
as manufacturers realized opportunities to enhance profitability and improve
returns on capital, the need for independent distributors evolved. Through
this evolution, independent distributors have enabled manufacturers to reduce
logistical expenses, lower marketing expenses and better manage inventories.
In addition, customers began to utilize independent distribution sources in
order to lower costs, reduce supply sources and gain high-quality, value-added
services. Customers are increasingly outsourcing non-core business functions
to distributors able to provide value-added services such as procurement,
delivery and inventory management. The emergence of the distribution channel
has reduced duplicate functions performed by both manufacturers and customers,
thereby affording them more resources for their core competencies.
 
  The evolution toward independent distribution has produced an industry
populated by many smaller local and regional distributors. The Company
believes the industry is now starting to undergo a significant trend toward
consolidation of these smaller distributors as both suppliers and customers
seek to enhance efficiencies, focus on their core competencies and reduce
costs while maintaining high levels of product and service quality. The
Company believes that those distributors that develop the capabilities and
strengths to satisfy these demands will be well positioned to exceed market
growth rates in this industry. Specifically, the Company believes that large,
national distributors with significant volumes, sophisticated information
systems and relatively low infrastructure costs can offer more value to
customers and therefore gain higher market share.
 
  Key customer categories in the markets served by the Company include the
following:
 
    Specialty Contractors, such as insulation and acoustical contractors,
  constitute the primary customer segment for the installation and
  maintenance of mechanical insulation and architectural/acoustical systems.
 
                                      26
The Company believes specialty contractors are increasingly developing
  long-term relationships with distributors in order to improve labor
  productivity, eliminate inventories and reduce material handling costs.
 
    Facility Owners, such as manufacturing and process plants, large
  retailers, universities and other institutions, represent a growing source
  of business for distributors as these customers increasingly separate
  material and labor purchases and perform their own maintenance and new
  construction. The Company believes that facility owners with locations
  nationwide value distributors that can provide products and services to
  multiple locations.
 
    General Contractors, such as mechanical contractors and engineering
  firms, are increasingly purchasing materials for their projects and
  performing their own insulation work. The Company believes these customers
  seek distributors with strong sourcing capabilities, processes and
  information systems.
 
    Original Equipment Manufacturers, such as manufacturers of appliances,
  modular office equipment and air conditioning systems, benefit from the
  purchasing, fabrication, material handling, inventory management,
  procurement and delivery capabilities of larger distributors.
 
    Exporters, representing purchasers of materials required for projects
  overseas, benefit from the product knowledge, purchasing power,
  consolidation capabilities and delivery flexibility of large distributors.
 
    Supply Houses, such as plumbing wholesalers, are generally distributors
  in specialized fields that re-sell products to other customer groups. These
  customers include specialty and integrated suppliers that may benefit from
  the purchasing, warehousing and service capabilities of larger, more
  sophisticated distributors.
 
  Mechanical Insulation Products. The mechanical insulation product market
includes thermal insulation materials and systems for use in the commercial
and industrial sectors of the construction industry as well as OEM
applications. Mechanical insulation is used in new construction, maintenance,
renovation and upgrades of manufacturing facilities, process plants,
commercial buildings and mechanical equipment. These products enable customers
to improve the performance of their mechanical systems and products, reduce
energy costs, decrease emissions, such as carbon dioxide and sulfur dioxide,
and improve the comfort and safety of the work environment. According to the
American Society of Heating, Refrigerating and Air Conditioning Engineers
("ASHRAE"), current insulation practices in the United States often result in
the under-insulation of equipment, commercial buildings and industrial
facilities. If such equipment, buildings and facilities were insulated at the
ASHRAE standard, the Company believes that significant reductions in energy
consumption, utility costs and carbon dioxide emissions could be achieved.
 
  Architectural/Acoustical Products. The architectural/acoustical product
market includes ceiling panels and grid systems and specialty wall panels for
the new construction, renovation and retail market segments. These products
are used in commercial office buildings, education facilities, health care
institutions, entertainment complexes and correctional facilities. Independent
estimates forecast that the strongest areas of future growth in the
nonresidential construction market include hotels, educational and public
administration facilities. The ceiling systems segment includes acoustical and
decorative ceilings and suspension systems. Ceiling systems provide an array
of design option benefits to the customer such as acoustic performance, fire
resistance, humidity resistance, light reflectance and durability or ease of
maintenance. The specialty wall segment includes decorative, acoustical and
specialized panels designed for specific uses such as trade show dividers,
modular office systems and kitchen, bath and clean room environments. Many
specialty products are included within this market, the largest component
being passive firestop and fire protection products which are used in new
construction and renovation projects for occupancy safety and property
protection.
 
OPERATING STRATEGY
 
  The Company is focused on its traditional strengths as a broadly based
national distributor and fabricator of mechanical insulation,
architectural/acoustical products, specialty products and value-added
services. The Company is committed to capitalizing on the expertise, knowledge
and experience its has developed in these
 
                                      27
core markets to increase market share and profitability. In addition, the
Company's operating strategy includes the following key elements:
 
  Superior Customer Service. Customers choose suppliers based, in significant
part, on the quality of the service provided. With distribution and sales
forces in each area that it serves, the Company provides its customers with
rapid delivery and localized service. The Company believes its well-trained,
technically competent workforce provides a level of customer service that
leads to long-term relationships with its customers. The Company also believes
that the ongoing assessment of customer satisfaction is critical in the
distribution industry. The Company has implemented a customer satisfaction
survey program and is committed to the ongoing measurement of customer
satisfaction.
 
  National Network of Distribution Centers. Management believes the Company's
national distribution network provides a platform for growth and
profitability. The Company's 51 distribution centers combine warehouse and
office facilities at strategically chosen locations in 21 states. This
national network enables the Company to (i) attract customers that have
multiple locations and provide them with services from multiple distribution
centers within a single service agreement; (ii) participate with key vendors
in the development of national marketing and sales strategies; (iii) achieve
geographic diversification to lessen the impact of reduced demand in any given
region; and (iv) facilitate best-practice benchmarking as well as innovation
and knowledge-sharing within the Company. Management believes the Company's
national network provides it with a unique competitive advantage.
 
  Strong Supplier Relationships. The Company believes that it has excellent
and long-term relationships with its major suppliers. The Company believes its
national presence, financial strength and partnering philosophy have enabled
the Company to become the preferred distributor for many of its suppliers. The
Company works with its suppliers to develop common expansion programs as well
as customer-oriented product solutions.
 
  Low-Cost Provider. The Company believes that its volume of purchases and
desirability as a vendor enable it to obtain purchase terms that are as
favorable as those available to other large competitors. The Company is also
able to realize advantages from the economies of large-scale operation in the
areas of administrative processing, information systems, financing terms,
technical expertise, inventory and working capital management.
 
  Innovative and Committed Employees. Management believes the Company's
corporate culture and values provide it with a competitive advantage. The
Company is focused on recruiting, developing and retaining highly innovative
and committed employees. The Company's senior management has an average of
approximately 10 years' experience with the Company, and many of its sales and
service staff have been working in the same markets for 10 years or more.
 
GROWTH STRATEGY
 
  The Company believes that its operating strategy provides a foundation for
growth in each of the markets in which it participates. The Company's growth
strategy includes the following key elements:
 
  Increase Sales of Existing and Accessory Products. Management believes the
Company's strengths and operating strategies will lead to increased sales of
existing products to its existing customer base. In addition, the Company
believes that expansion through acquisitions, new distribution center openings
and other strategic initiatives will generate additional sales of existing
products to new customers. Through improved sales efforts, the Company is also
focused on increasing sales of accessory products, such as adhesives and
tools, which are related to its core product lines and customer requirements.
 
  Open New Distribution Centers. The Company expects to continue to open new
distribution centers as a result of new market opportunities, customer service
requirements, supplier initiatives and strategic opportunities.
 
                                      28
As the Company continues to broaden its national distribution network through
additional openings, the Company believes it will be able to capitalize on
operating efficiencies and the benefits of a large-scale operation.
 
  Continue Acquisitions. The Company is committed to continuing its
acquisition program to acquire distribution businesses with strong market
positions, supplier support or attractive customer bases. Acquisitions allow
the Company to accelerate revenue growth, expand its geographical presence and
add product lines and technical expertise. The distribution industry continues
to consolidate, and management believes the Company will be able to capitalize
on significant growth opportunities through acquisitions of smaller regional
and local distribution operations.
 
  Emphasize National Accounts. The Company has implemented a national accounts
marketing program directed at facility owners and general contractors.
Management believes that the Company's national distribution network gives the
Company a competitive advantage in securing national and multi-regional
customers seeking to reduce vendors, outsource non-core operations, integrate
supply and gain value-added services such as procurement and material
management.
 
  Add Product Lines. The Company intends to leverage its core product and
technical expertise to add product lines which are complementary to those
currently offered. The Company believes that its existing national
distribution infrastructure enables it to add new product lines without
incurring significant additional cost. For example, the Company utilized its
expertise in both of its core product lines to enter the passive fire
protection market.
 
PRODUCTS AND SERVICES
 
  The Company offers complete lines of mechanical insulation,
architectural/acoustical products and specialty products as well as customized
fabrication solutions and other value-added services, enabling it to satisfy a
broad range of customer requirements. In all, the Company offers approximately
25,000 stock keeping units from more than 70 product lines, including those of
the leading manufacturers in the industries it serves. The Company believes it
offers significant depth and breadth in its core product lines throughout its
nationwide operations, enabling customers to satisfy most, if not all, of
their product needs through a single source.
 
  In addition, as the distribution industry continues to evolve and
consolidate, customers are increasingly relying on the Company to perform
various value-added services in connection with product distribution. The
Company's fabrication business represents its most significant value-added
service to customers. Its fabrication capabilities extend across all major
product lines and include custom-fitted pipe covering, decorative wall panels
and precision die-cutting. The Company also offers a range of other value-
added services, including energy audits, technical advice, materials handling
and electronic order processing.
 
                                      29
The following table sets forth representative samples of the products and
services offered by the Company in its four principal product and service
categories as a percentage of the Company's 1997 net sales from each category:
PRODUCT/SERVICE                                                           % OF AGGREGATE 1997
     CATEGORY             REPRESENTATIVE PRODUCTS  REPRESENTATIVE SERVICES       NET SALES
------------------------  ------------------------ ------------------------ -------------------
Mechanical Insulation     Calcium Silicate,        Delivery, Electronic            46.7%
 Products                 Cellular Glass,          Processing, Energy
                          Fiberglass, Jacketing,   Audits, Fabrication,
                          Mineral Fiber, Rigid     Innovative Supply
                          Polyurethane Foam,       Agreements, Quantity
                          Polystyrene Rubber       Definition, Product
                                                   Shipment Consolidation,
                                                   Technical Advice
Architectural/Acoustical  Acoustical and           Delivery, Electronic            38.3%
 Products                 Decorative Ceiling       Processing, Fabrication,
                          Systems, Acoustical and  Quantity Definition,
                          Decorative Wall Panels,  Material Management,
                          Building Insulation,     Product Shipment
                          Drywall, Fiberglass      Consolidation, Technical
                          Reinforced Panels,       Advice
                          Interior Doors, Metal
                          Studs
Fabrication Services      Acoustical Decorative    Customized Fabrication          11.0%
                          and Display Panels,      Solutions, Delivery,
                          Lamination, OEM          Electronic Processing,
                          Products, Insulation     Material Management,
                          Pipe Covering, Equipment Private Label
                          Segments and Fittings,   Fabrication, Product
                          Pipe and Tank Wrap,      Shipment Consolidation
                          Precision Die Cutting,
                          Pre-Cut Insulation
                          Jacketing
Specialty Products        Passive Firestop/Fire    Delivery, Quantity               4.0%
                          Proofing Systems, Floor  Definition, Electronic
                          Covering, Exterior       Processing, Material
                          Insulation Finish        Management, Product
                          Systems                  Training, Product
                                                   Shipment Consolidation,
                                                   Technical Advice
CUSTOMERS
 
  The Company currently serves more than 9,000 customers, including specialty
contractors, facility owners, general contractors, OEMs, exporters and supply
houses. The Company's top 10 customers in terms of net sales accounted for
approximately 20% of net sales in 1997, and no single customer accounted for
more than 5% of net sales in 1997.
 
DISTRIBUTION NETWORK
 
  The Company's distribution network is organized into seven regional
territories encompassing 51 distribution centers in 21 states. Regional
managers are members of the Company's senior management team and have
responsibility for overall operations within each region. Each individual
service center has its own customer-focused team that typically consists of a
branch manager, outside and inside sales representatives and customer service
representatives who include distribution center driver teams and support
staff. The Company's branches are organized as autonomous, decentralized units
and are capable of meeting local market needs as well
 
                                      30
as offering competitive prices within the Company's overall policies. Each
branch handles one or more of the Company's product groups and operates as a
separate profit center. Branch managers have the authority and responsibility,
within Company guidelines, to set pricing and tailor the facility's product
offering and mix, as well as the nature of services offered to meet the local
market environment. In addition, each branch manager is responsible for
purchasing, maintenance of adequate inventory levels, cost controls and
customer relations. Common accounting, information systems, insurance, tax and
other administrative functions are provided at the corporate level to
eliminate duplicate administrative expenses.
 
SALES AND MARKETING
 
  The Company has approximately 88 outside sales representatives, including
branch managers, and 87 inside sales/customer service representatives.
Generally, the inside sales/customer service representatives support the
outside sales representatives and have independent sales responsibility,
including specific customer service and order entry duties. Each outside sales
representative works in an assigned sales territory associated with one of the
Company's 51 distribution facilities and is actively supported by the branch
and regional teams. National accounts are supported by two specialists and the
Company's senior management in conjunction with the total distribution
network. All sales representatives are employees of the Company and are
generally compensated on a salary and incentive-based compensation
arrangement. The incentive portion of the salesperson's compensation is based
on a return-on-assets model and averages above 20% of base compensation.
 
  The Company also markets its products through sales brochures, customer
events, occasional sales promotions, and its Internet web site at
http://www.spi-co.com.
 
SUPPLIERS
 
  The Company has a broad base of approximately 150 suppliers that includes
all major manufacturers in the industries the Company serves. The Company's
leading suppliers of mechanical insulation include Owens-Corning Fiberglas,
Johns Manville, Armstrong World Industries, Dow Chemical, CertainTeed, H.B.
Fuller, Pittsburgh Corning, Thermal Ceramics, Calsilite Group, Childers
Products, RPR Industries and RBX Corporation, among others. The Company's
leading suppliers of architectural/acoustical products include Armstrong World
Industries, STO, National Gypsum, Kemlite, Lasco and Sequentia, among others.
 
INFORMATION SYSTEMS
 
  The Company utilizes information systems owned and maintained by Irex. The
systems use software that unites the Company's distribution centers and
integrates product tracking, pricing and availability; order processing and
shipping; distribution center operations; purchasing; inventory management;
receivables management; financial reporting; and other financial and
operational functions. A new release of the system software has been fully
tested by other customers of the system vendor and is scheduled to be
installed in 1998 to address Year 2000 compliance issues and provide other
function upgrades. See "Risk Factors--Dependence On Information Systems;
Systems Conversion; Year 2000 Issue."
 
  The Company has entered into an agreement with Irex pursuant to which Irex
will continue to provide information system services to the Company on a fee-
for-services basis for a three-year period following consummation of the
Offering and Separation. During such period the Company intends to evaluate
its existing and future information system requirements and examine its
options for obtaining such services. These options include, among others,
continuing the existing relationship with Irex or replacing the Company's
current systems. See "Separation from Irex--Agreements with Irex--Corporate
Separation Agreement."
 
COMPETITION
 
  The Company's markets are highly competitive. Historically, the markets in
which the Company participates have been highly fragmented and populated by a
large number of smaller, local and regional distributors operating in single
geographic areas. These smaller, often owner-operated, distributors have
 
                                      31
constituted the principal competition to the Company, but other significant
competitors include regional distributors as well as manufacturers selling
directly to end-users. Certain of the Company's competitors sell identical or
equivalent products at competitive prices, and the Company also competes on
the basis of responsiveness to the needs of customers for product quality,
service, product diversity, and availability.
 
SEASONALITY AND CYCLICALITY
 
  The Company's business is seasonal and in the past has experienced seasonal
fluctuations in sales and operating results from quarter to quarter. Operating
results are weakest in the first calendar quarter because of the effects of
winter weather on commercial and industrial construction and the consequent
reduction in sales of mechanical insulation and architectural/acoustical
products. Fluctuations in the Company's quarterly sales and operating results
could result in significant volatility in, and otherwise adversely affect, the
market price of the Common Stock. See "Management's Discussion of Financial
Condition and Results of Operations--Seasonality and Quarterly Results of
Operations."
 
  Some of the principal markets for the products and services offered by the
Company are subject to cyclical economic fluctuations that generally affect
pricing, availability and demand for mechanical insulation and
architectural/acoustical products. Cyclical fluctuations can also affect
growth rates in the markets served by the Company's customers, the
availability of products from vendors and the availability of suitable
acquisition candidates. As a result, changes in general economic conditions
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Seasonality; Industry and
Economic Cycles."
 
EMPLOYEES
 
  On March 12, 1998, the Company had 523 employees, including 131 sales
representatives, 228 distribution center, delivery, clerical and support
personnel, 113 fabrication personnel and 51 supervisors and managers,
including the Company's executive officers. None of the Company's employees is
covered by a collective bargaining agreement. Management considers the
Company's relations with its employees to be good.
 
PROPERTIES
 
  The Company leases* all of its office and distribution center space. The
typical distribution center lease is for a three- to five-year term and
requires the Company to pay all ongoing expenses such as taxes, utilities,
insurance and maintenance expenses. The following table sets forth certain
information with respect to the Company's significant distribution and
fabrication facilities:
LOCATION                                                  SQUARE FOOTAGE
       --------                                                  --------------
Atlanta, Georgia.........................................     24,600
       Benicia, California......................................     26,417
       Camden, New Jersey.......................................     30,000
       Charleston, South Carolina...............................     20,000
       Chicago, Illinois........................................     32,093
       Dallas, Texas............................................     19,840
       Indianapolis, Indiana....................................     21,000
       Philadelphia, Pennsylvania...............................     20,000
       Syracuse, New York.......................................     22,000
       Tampa, Florida...........................................     22,338
--------
  [* The Company's corporate headquarters are currently located in owned
facilities in Lancaster, Pennsylvania. The Company expects to sell these
facilities prior to consummation of the Offering and thereafter the Company's
corporate headquarters will be located in approximately 8,900 square feet of
leased office space in East Petersburg, Pennsylvania.]
 
                                      32
LEGAL PROCEEDINGS
 
  The Company is not currently a party to any material litigation. In the
ordinary course of its business, the Company is from time to time involved in
various contractual, warranty, product liability and other cases and claims.
None of the cases currently pending are expected, individually or in the
aggregate, to have a material adverse effect on the Company's business,
operating results or financial condition.
 
REGULATORY MATTERS
 
  The Company's operations and properties are subject to federal, state, local
and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes, including laws
pertaining to employee health and safety in connection with the foregoing.
 
  Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental and employee health and
safety laws, regulations and ordinances will not have a material adverse
effect on the Company's business, operating results or financial condition.
However, future events, such as changes in existing laws and regulations or
their interpretation, may give rise to additional compliance costs or
liabilities that could have a material adverse effect on the Company's
business, operating results and financial condition. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies
of regulatory agencies or stricter or different interpretations of existing
laws, may require additional expenditures by the Company that may be material.
 
                                      33
MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
  The following table sets forth the name, age and position of each of the
directors and executive officers of the Company.
NAME                     AGE                            POSITIONS
----                     ---                            ---------
Ronald L. King..........  53 President, Chief Executive Officer and Director
Michael J. Hughes**.....  41 Vice President, Chief Financial Officer, Secretary and Treasurer
Daniel D. Bofinger......  40 Vice President and Regional Manager
Michael T. Conner.......  45 Vice President and Regional Manager
Michael C. Feehery......  40 Vice President and Regional Manager
Gregory S. Ganster......  32 Vice President and Regional Manager
Raymond J. Horan........  47 Vice President and Regional Manager
Charles F. Schattgen....  46 Vice President and Regional Manager
W. Kirk Liddell*........  48 Chairman of the Board of Directors
William W. Adams*(1)....  63 Director
David C. Kleinman*(1)...  62 Director
Wilson D.                 68 Director
 McElhinny*(2)..........
G. Clay von               56 Director
 Seldeneck*(1)..........
John O. Shirk*(2).......  54 Director
--------
 * Has agreed to become a member of the Board of Directors and the indicated
   committee prior to consummation of the Offering.
 ** Has agreed to join the Company as Vice President, Chief Financial Officer,
    Secretary and Treasurer.
(1) Member of the Audit and Finance Committee.
(2) Member of the Compensation and Benefits Committee.
 
  Ronald L. King has been President and Chief Executive Officer of the Company
since June 1997. He previously served as Executive Vice President of the
Company since 1993. Prior to joining the Company, Mr. King was President of
Distribution International and held senior management positions with the Anco
Industries group of companies. He is a past president of the National
Insulation Association.
 
  Michael J. Hughes will become Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company in April 1998. Since 1996 he has been
Senior Vice President, Investment Banking, of Berwind Financial, L.P., a
regional investment banking firm based in Philadelphia, Pennsylvania. From
1990 to 1996, Mr. Hughes was Senior Vice President-External Finance for
Meridian Bancorp, Inc.
 
  Daniel D. Bofinger has been Regional Manager, with responsibility for
central Pennsylvania and New England, since 1992 and has been a Vice President
of the Company since 1996. Mr. Bofinger joined the Company in 1982 as a
production superintendent, and became manager of the Lancaster Fabrication
Division in 1986.
 
  Michael T. Conner has been Vice President and Regional Manager of the
Company, with responsibility for the Midwest, since 1996. He joined the
Company in 1986 as a sales representative and served as branch manager of the
Company's Indianapolis operations until his promotion to his current position.
 
                                      34
Michael C. Feehery has been Vice President and Regional Manager of the
Company, with responsibility for the Southwest, since 1996. He joined the
Company in 1989 and was branch manager from 1990 until his promotion to his
current position.
 
  Gregory S. Ganster has been Vice President of the Company since 1998 and
Regional Manager of the Company, with responsibility for the Chicago region,
since 1996. He joined the Company in 1992 and was branch manager of the
Company's Elk Grove, Illinois facility from 1995 until his promotion to his
current position. He was previously employed by Armstrong World Industries.
 
  Raymond J. Horan has been Vice President and Regional Manager of the
Company, with responsibility for the mid-Atlantic region, since 1996. He
joined the Company in 1987 as branch manager for the Company's Chicago
operations. Mr. Horan previously held various sales position with the ceilings
division of Armstrong World Industries.
 
  Charles F. Schattgen has been Vice President and Regional Manager of the
Company, with responsibility for the Southeast, since 1991. He joined the
Company in 1985 as branch manager and became area manager in 1987. Before
joining the Company, Mr. Schattgen was employed by Owens Corning Fiberglas.
 
  W. Kirk Liddell will become Chairman of the Board of Directors of the
Company prior to consummation of the Offering. Since 1984 he has been
President, Chief Executive Officer and a director of Irex Corporation, the
parent of the Company prior to the Offering and Separation. Mr. Liddell also
serves on the boards of directors of High Industries, Inc., Penn Fuel Gas,
Inc., the Pennsylvania Chamber of Business and Industry and the Lancaster
Alliance and is President of the Economic Development Company of Lancaster
County.
 
  G. Clay von Seldeneck will become a director of the Company prior to
consummation of the Offering. Mr. von Seldeneck is Managing Director of Snyder
& Company, a private investment banking firm based in Philadelphia,
Pennsylvania. Snyder & Company has performed services for Irex and the Company
in connection with the Offering and the Separation. Prior to joining Snyder &
Company in 1987 he was Senior Vice President and Chief Financial Officer for
Fidelity Mutual Life Group.
 
  William W. Adams will become a director of the Company prior to consummation
of the Offering. Mr. Adams is former Chairman and President of Armstrong World
Industries, Inc. Mr. Adams joined Armstrong in 1956 and was elected an
Executive Vice President and member of the Armstrong Board of Directors in
1982. He was named Chairman and President in 1988 and retired on January 1,
1995. Mr. Adams is a Director Emeritus of Bell Atlantic Corporation and a
director of High Industries, Inc., Irex Corporation, the National Association
of Corporate Directors and the Lancaster Alliance. He also serves on the
Senior Executive Committee of SCP Private Equity Partners, and is a member of
the Advisory Board of Boardroom Consultants.
 
  David C. Kleinman will become a director of the Company prior to
consummation of the Offering. Since 1971 Mr. Kleinman has been an Adjunct
Professor of Strategic Management at the University of Chicago Graduate School
of Business. Mr. Kleinman is a director of The Acorn Funds, Plymouth Tube
Company, Wisconsin Paper and Products Company, InterAmericas Communications
Corporation, Organics Management Company, Sonic Foundry, Inc. and Irex
Corporation.
 
  Wilson D. McElhinny will become a director of the Company prior to
consummation of the Offering. Before retiring in 1990, Mr. McElhinny was
Chairman, President and Chief Executive Office of Hamilton Bank, and a member
of the Management Committee of Hamilton's parent company, CoreStates Financial
Corporation. He previously served as President and Vice Chairman of CoreStates
Bank, and remains a member of CoreStates Bank's Advisory Board. Mr. McElhinny
is the Chairman of Irex Corporation and a director of The Hunt Corporation,
Reading Eagle Company, Educators Mutual Life Insurance Company, Wohlsen
Construction Company and Production Finance, Inc.
 
  John O. Shirk will become a director of the Company prior to consummation of
the Offering. He has been a partner in the law firm of Barley, Snyder, Senft &
Cohen, LLP since 1973 and was managing partner from 1983
 
                                      35
to 1994. The Company intends to retain Barley, Snyder, Senft & Cohen, LLP
following the Separation and the Offering. Mr. Shirk is a director of the
Economic Development Company of Lancaster County, EDC Finance Corporation,
Harrisburg Area Community College Foundation, Fulton Financial Corporation,
The Horst Group, Inc., Educators Mutual Life Insurance Company and Irex
Corporation.
 
DIRECTOR COMPENSATION AND ARRANGEMENTS
 
  Directors not affiliated with the Company are paid an annual fee of $10,000
for serving on the Board of Directors, a fee of $1,000 for attending each
Board of Directors meeting and a fee of $1,000 for attending each meeting of a
committee of the Board of Directors not held concurrently with a board
meeting. Committee chairs receive an additional annual fee of $1,000 and the
Chairman of the Board of Directors receives an additional annual fee of
$15,000. Directors are reimbursed for expenses incurred in connection with
meetings of the Board of Directors or committees thereof. All payments of
annual fees are made in Common Stock of the Company, payable following the
annual shareholders' meeting during the year for which such payment is made.
Meeting fees may, at the option of the director, be paid in cash or in Common
Stock of the Company. Common Stock for director payments shall be valued based
on the average of daily closing prices during the three-month period preceding
such valuation. Directors may defer payments of Common Stock pursuant to a
deferred payment plan the Company expects to adopt prior to consummation of
the Offering.
 
EXECUTIVE COMPENSATION
 
  The following table sets forth, for the fiscal year ended December 31, 1997,
certain information regarding the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for such year, to the
executive officers of the Company named below (the "named executive
officers"), in all capacities in which they served:
 
                          SUMMARY COMPENSATION TABLE
LONG-TERM
                               ANNUAL COMPENSATION  COMPENSATION
                               -------------------- ------------
                                                    STOCK OPTION
                                                     AWARDS (1)     ALL OTHER
 NAME AND PRINCIPAL POSITION     SALARY     BONUS    (# SHARES)  COMPENSATION (2)
 ---------------------------   ---------- --------- ------------ ----------------
Ronald L. King..............  $  135,000 $  70,101     200           $8,009
  President and Chief
   Executive Officer
 Charles F. Schattgen........  $   84,540 $  31,855     150           $6,094
  Vice President and Regional
   Manager
 Raymond J. Horan............  $   84,000 $  31,651     150           $6,053
  Vice President and Regional
   Manager
--------
(1) All options granted were for Irex common stock pursuant to the Irex
    Corporation Non-Qualified Stock Option Plan.
(2) Includes matching payments paid by Irex pursuant to Irex's 401(k) plan and
    Irex's Employee Stock Ownership Plan.
 
                                      36
The following table provides information pertaining to individual grants of
options to purchase Irex common stock made by Irex to the named executive
officers during 1997:
 
                             OPTION GRANTS IN 1997
STOCK
                           OPTIONS   % OF ALL OPTIONS  EXERCISE              GRANT DATE
                         GRANTED (1)  GRANTED TO ALL     PRICE    EXPIRATION  PRESENT
                         (# SHARES)     EMPLOYEES     (PER SHARE)    DATE    VALUE (2)
                         ----------- ---------------- ----------- ---------- ----------
Ronald L. King..........     200           2.3%         $21.875    12/31/07    $1,040
Charles F. Schattgen....     150           1.7%         $21.875    12/31/07    $  780
Raymond J. Horan........     150           1.7%         $21.875    12/31/07    $  780
--------
(1) All options granted were for Irex common stock pursuant to the Irex
    Corporation Non-Qualified Stock Option Plan. As of March 24, 1998, there
    were 405,484 shares of Irex common stock outstanding.
(2) The grant date present value was calculated using the Black-Scholes option
    pricing model with the following assumptions: (i) expected volatility of
    23.0%, (ii) a risk-free interest rate of 6.1%, (iii) expected life of
    three years and (iv) no dividend yield.
 
  The following table sets forth certain information with respect to
unexercised options to purchase common stock of Irex held by the named
executive officers at the end 1997.
NUMBER OF           VALUE OF UNEXERCISED
            NAME              UNEXERCISED OPTIONS(1)   IN-THE-MONEY OPTIONS (1)
            ----             ------------------------- -------------------------
                             EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
                             ----------- ------------- ----------- -------------
Ronald L. King..............    1,000         350        $11,375      $1,931
Charles F. Schattgen........    1,000         300        $ 5,688      $1,650
Raymond J. Horan............      750         300        $ 5,688      $1,650
--------
(1) All options are for Irex common stock pursuant to the Irex Corporation
    Non-Qualified Stock Option Plan.
 
STOCK OPTION PLAN
 
  Prior to consummation of the Offering, the Company intends to adopt the 1998
Specialty Products & Insulation Co. Stock Option Plan (the "Plan"), which
provides for the granting of non-qualified stock options ("Options") to
certain officers and key employees of the Company. The Plan may also permit
the Company to issue qualified stock options or stock appreciation rights. The
Plan will be administered by the Compensation and Benefits Committee of the
Board of Directors of the Company (the "Compensation and Benefits Committee").
The aggregate maximum number of shares of Common Stock available for awards
under the Plan is 491,355 shares (521,355 shares if the Underwriters exercise
their over-allotment option in full), subject to adjustment to reflect changes
in the Company's capitalization. The Company intends to award approximately
25% of the maximum number of shares available under the Plan during the first
year after the Plan is adopted and may award the remaining shares available
under the Plan during the following nine years. No awards can be made under
the Plan more than 10 years after the date it is adopted.
 
  The exercise price of the Options will be determined by the Compensation and
Benefits Committee in its discretion, provided that the exercise price of any
Option cannot be less than the fair market value of a share of Common Stock on
the date such Option is granted. Options vest and may be exercised three years
after the date of grant. No Option may be exercised more than 10 years after
the date of grant. The Options may not be exercised following termination of
the grantee's employment with the Company, except that in the event a
grantee's employment terminates due to death, disability or retirement,
options held by such grantee or his or her estate shall be exercisable, if
vested at the time of termination of employment, for a period of three months
after termination.
 
  Upon consummation of the Separation, certain options to purchase common
stock of Irex Corporation held by directors and employees of the Company will
be canceled and replaced by grants by the Company of Options under the Plan.
See "Separation from Irex--Agreements with Irex--Benefits Sharing Agreement."
The number
 
                                      37
of shares underlying these Options and their exercise price will be
established so as to preserve, but not increase, the intrinsic value of the
canceled Irex options. The Company expects to grant such Options to
employees of the Company to purchase an aggregate of     shares of Common
Stock under the Plan, including grants of options to purchase    shares,
shares and    shares of Common Stock to Messrs. King, Schattgen and Horan,
respectively. The exercise price of those Options is $    . Following
consummation of the Offering, the Compensation and Benefits Committee is
expected to approve the grant of additional Options to certain officers and
employees of the Company to purchase an aggregate of     shares of Common
Stock under the Plan, including grants of options to purchase    shares,
shares and    shares of Common Stock to Messrs. King, Schattgen and Horan,
respectively.
 
401(K) PLAN
 
  Prior to consummation of the Offering the Company expects to adopt the
Employees' Savings Incentive Plan (the "401(k) Plan"). The 401(k) Plan is a
savings and retirement plan intended to satisfy the tax qualification
requirements of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Subject to certain terms and conditions of the 401(k)
Plan, substantially all of the Company's employees who are employed on the
date of the consummation of the Separation and who are compensated on the
basis of a monthly salary will be immediately eligible to participate in the
401(k) Plan. Thereafter, salaried employees will be eligible to participate in
the 401(k) Plan on the January 1 or July 1 coincident with or next following
the date on which the employee is hired by the Company. Eligible employees may
contribute between 2% and 15% of their compensation to the 401(k) Plan on a
pre-tax or after-tax basis.
 
  The Company will make matching contributions to the 401(k) Plan each year
equal to 100% of the first 3%, and 50% of the second 3%, of each participant's
compensation that is contributed to the 401(k) Plan either on a pre-tax or
after-tax basis. In addition, the Company, in it discretion, may make profit-
sharing contributions each year in cash or Common Stock of the Company. Any
profit-sharing contributions made by the Company will be allocated to each
participant's account under the 401(k) Plan in a proportionate amount based on
the participant's compensation for the year in relation to all participants'
compensation for the year. All Company and employee contributions to the
401(k) Plan are allocated to a participant's individual account.
 
  All Company and employee contributions to the 401(k) Plan plus the earnings
thereon are 100% vested. Employees may direct the investment of their accounts
to various investment funds. The 401(k) Plan provides for hardship withdrawals
and loans to participants. The trustee of the 401(k) Plan is Vanguard
Fiduciary Trust Company.
 
INSURANCE AND INDEMNIFICATION
 
  Prior to the Separation, the Company intends to obtain directors' and
officers' insurance against certain liabilities such persons may incur on
behalf of the Company. For a discussion of the limitations on liability of the
Company's directors and the indemnification by the Company of such directors
set forth in the Company's bylaws , see "Description of Capital Stock--
Limitation on Liability and Indemnification."
 
EMPLOYMENT AGREEMENTS
 
  Prior to consummation of the Offering, the Company expects to enter into
employment agreements with Ronald L. King, Michael J. Hughes and each of the
executive officers of the Company. The agreement with Mr. King provides that
Mr. King will serve as the President and Chief Executive Officer of the
Company for a period of three years after the date of the agreement. Under the
agreement, the Company or Mr. King may terminate Mr. King's employment with or
without cause. If Mr. King's employment is terminated by the Company without
cause, the Company must continue to pay Mr. King's salary at the time of
termination for the remainder of the term of the agreement. Mr. King is
subject to a non-competition covenant during the term of the agreement and for
a one-year period following the earlier of his termination of employment or
expiration of the agreement. The agreements with the executive officers of the
Company are similar to the agreement with Mr. King, except that the term of
each such agreement is one year. Mr. Hughes will have an agreement which
protects him in the event of a change of control for a two-year period from
the beginning of his employment with the Company.
 
                                      38
PRINCIPAL SHAREHOLDERS
 
  As of the date of this Prospectus, all of the Company's capital stock is
owned by Irex. Immediately following the Separation and the Offering, all of
the Company's capital stock will be owned by the shareholders of Irex who
receive shares of Common Stock in the Separation and by new shareholders who
purchase Common Stock in the Offering. See "Separation from Irex." The
following table sets forth certain information known to the Company regarding
the beneficial ownership of the Company's Common Stock immediately following
consummation of the Separation and the Offering with respect to (i) each
person who the Company expects will become the beneficial owner of more than
5% of the outstanding Common Stock, (ii) each director and named executive
officer of the Company and (iii) all directors and executive officers of the
Company as a group. Unless otherwise specified, each person set forth below
has sole voting and investment power with respect to the shares reported.
PERCENTAGE OF OUTSTANDING
                                 NUMBER OF SHARES    COMMON STOCK BENEFICIALLY
       BENEFICIAL OWNER        BENEFICIALLY OWNED(1)           OWNED
       ----------------        --------------------- -------------------------
James E. Hipolit (2)
 c/o Irex Corporation
 120 North Lime Street
 Lancaster, Pennsylvania
 17608........................        306,254                  6.2%
W. Kirk Liddell (3)
 c/o Irex Corporation
 120 North Lime Street
 Lancaster, Pennsylvania
 17608........................        269,460                  5.5%
Ronald L. King (4)............          3,593                    *
William W. Adams..............         11,554                    *
David C. Kleinman.............          1,437                    *
Wilson D. McElhinny...........          1,675                    *
G. Clay von Seldeneck.........            --                    --
John O. Shirk.................         16,425                    *
Charles F. Schattgen (4)......          2,874                    *
Raymond J. Horan (4)..........            654                    *
All directors and executive
 officers as a group (4)......        613,926                  12.5%
--------
 *Less than 1%.
(1) Based on beneficial ownership of Irex common stock as of March 24, 1998
    and after giving effect to (i) the recapitalization of the Common Stock of
    the Company prior to the Separation, (ii) the distribution of Common Stock
    to Irex shareholders effected in connection with the Separation and (iii)
    the Offering.
(2) Includes 25,148 shares with respect to which Mr. Hipolit will share voting
    and investment power and a total of 281,106 shares to be held by Mr.
    Hipolit as custodian for the minor children of W. Kirk Liddell under the
    Uniform Gift to Minors Act of Pennsylvania. Mr. Hipolit disclaims
    beneficial ownership of the shares he will hold as custodian.
(3) Includes 167,310 shares with respect to which Mr. Liddell will have sole
    voting and investment power and 102,150 shares held by Mr. Liddell's
    spouse, with respect to which Mr. Liddell disclaims beneficial ownership.
    Does not include shares owned by the minor children of Mr. Liddell held by
    Mr. Hipolit as custodian, as reported above.
(4) In connection with the Separation and the Offering, the Company expects to
    grant options to purchase an aggregate of     shares of Common Stock to
    certain officers and employees of the Company under the Company's stock
    option plan, including grants of options to Messrs. King, Schattgen and
    Horan to purchase     shares,    shares and     shares, respectively. The
    options will be granted upon and
 
                                      39
following consummation of the Separation and the Offering. See
   "Management--Stock Option Plan" and "Separation from Irex--Agreements with
   Irex--Benefits Sharing Agreement." All of the options have limitations on
   exercise and none are included in the table above.
 
                             SEPARATION FROM IREX
 
BACKGROUND AND REASONS FOR THE SEPARATION
 
  Since commencing operations in 1982, the Company has been a wholly owned
subsidiary of Irex. Through its operating subsidiaries other than the Company,
Irex is primarily engaged in the business of specialty contracting throughout
the United States and Canada. In January 1998 Irex announced plans to effect
the Separation through a pro rata distribution of 100% of the capital stock of
the Company to the shareholders of Irex. The Separation will occur immediately
prior to the consummation of the Offering, and each is conditioned upon the
consummation of the other. Immediately following the Separation and the
Offering, all of the capital stock of the Company will be owned by the
shareholders of Irex who receive shares of Common Stock in the Separation and
by new shareholders who purchase Common Stock in the Offering.
 
  The decision to effect the Separation is based on a number of factors. The
Separation will provide both corporations with greater managerial, operational
and financial flexibility to focus on and respond to changing market
conditions in their respective business environments. The Company also
believes that its ability to pursue and finance acquisitions and other
business opportunities will be enhanced if the Company operates independently.
The Separation will provide the Company with direct access to capital markets,
subject to certain limitations for a two-year period following the Separation.
See "Risk Factors--Limitations on Ability to Raise Equity Capital and
Dependence on Alternative Financing." As a separate entity, the Company will
not be subject to Irex's capital structure restrictions and will be in a
better position to fund its operating and growth strategies. Furthermore,
financial advisors have advised Irex and the Company that equity capital
necessary to meet the business needs of Irex and the Company can be most
effectively raised through an initial public offering of the stock of the
Company following its Separation from Irex, rather than through a stock
offering by either Irex or the Company while Irex continues to hold a
substantial equity interest in the Company. In addition, management believes
the Separation will assist the Company in serving certain customers. Through
the specialty contracting businesses operated by its other subsidiaries, Irex
competes with customers whose business is solicited by the Company, and the
Company believes these customers will be more likely to purchase products from
the Company after it is independent from Irex. The Separation will also enable
the Company to provide its management and employees with incentive
compensation in the form of direct and indirect equity ownership in the
Company.
 
  Immediately prior to consummation of the Separation, the Company will
declare a dividend to Irex in the amount of $10.5 million. This amount
corresponds to $10.5 million of outstanding Preferred Stock of Irex which will
remain Irex's obligation following the Separation. The Company will have no
obligations or liabilities under the Preferred Stock following the Separation.
The Company will borrow funds to pay the dividend and the resulting
indebtedness will be repaid with a portion of the proceeds of the Offering.
See "Use of Proceeds."
 
  Another subsidiary of Irex, ACandS, Inc. ("ACandS"), is engaged in the
thermal insulation contracting business. ACandS has been the subject of
numerous lawsuits seeking damages for injuries allegedly caused by exposure to
asbestos contained in insulation products installed or sold by ACandS before
1974. The Company has never been named as a defendant in any asbestos-related
lawsuit, nor has any asbestos-related claim been made against it. The
Company's involvement with the thermal insulation contracting business has
been minimal, and, in the Company's opinion, it has no material liability in
connection with that involvement. The Company believes that adequate insurance
coverage is available to ACandS and its affiliated companies, including the
Company, for asbestos-related suits.
 
                                      40
AGREEMENTS WITH IREX
 
  In connection with the Separation and the Offering, the Company will enter
into several agreements with Irex and its subsidiaries setting forth certain
interim and longer-term relationships between the companies. The following
summaries of the principal terms of these agreements are qualified in their
entirety by reference to the full text of such agreements. See "Additional
Information."
 
  Corporate Separation Agreement. Prior to the consummation of the Separation
and the Offering, the Company and Irex and its subsidiaries (collectively, the
"Irex Companies") will enter into a separation agreement (the "Separation
Agreement") which sets forth certain agreements with respect to the Separation
and certain agreements between the Company and the Irex Companies governing
the relationship between them following the Separation and the Offering.
Pursuant to the Separation Agreement, Irex will provide the Company with
access to Irex's management information systems for a three-year period
following consummation of the Offering. Under the agreement, access to system
hardware and software and related support services maintained by Irex will be
made available on a quarterly fee basis based on a formula that takes into
account the Company's relative use of the system. The agreement also provides
for the Company to utilize customization capabilities of system programmers
employed by Irex on an hourly fee basis. The Separation Agreement also
provides reciprocal indemnification provisions between the Irex Companies and
the Company, pursuant to which the Irex Companies agree to indemnify the
Company for liabilities relating to their businesses arising at any time, and
the Company agrees to indemnify the Irex Companies for liabilities relating to
its business arising after December 23, 1981. The agreement also includes
provisions governing certain workers' compensation and liability insurance
payments, pursuant to which Irex will maintain responsibility for processing
payment claims occurring as a result of incidents involving the Company's
employees and arising prior to the date of the Separation, and the Company
will indemnify Irex for payments made by Irex as a result of such claims (up
to the amount of the deductible stated in the workers' compensation insurance
policies governing such claims).
 
  Tax Sharing and Indemnification Agreement. Prior to the consummation of the
Separation, the Company and Irex will enter into a tax sharing and
indemnification agreement (the "Tax Agreement"). Pursuant to the Tax
Agreement, (i) the Company will generally be indemnified for tax liabilities
of any consolidated, combined and unitary group of corporations that includes
Irex and/or its subsidiaries (including the Company) for periods prior to the
consummation of the Separation, (ii) the Company will indemnify Irex and its
subsidiaries for any other tax liabilities of the Company related to the
Company for periods prior to the consummation of the Separation, (iii) the
Company will be restricted, for a period of two years following the date of
the consummation of the Separation, from engaging in certain transactions
(certain issuances of stock, redemptions of stock or ceasing to engage in its
trade or business) without first obtaining either a ruling from the Internal
Revenue Service or an opinion from nationally recognized tax counsel that the
transaction will not affect the tax-free nature of the Separation to Irex or
its shareholders and (iv) the Company will be required to indemnify Irex and
its shareholders for tax liabilities that may be incurred by Irex or its
shareholders as a result of actions that the Company may undertake following
the Separation and that cause the Separation to be treated as a taxable
transaction to Irex or its shareholders. The Company does not expect these
restrictions to materially inhibit its operations or growth opportunities.
 
  Irex and the Company will receive an opinion of Dechert Price & Rhoads,
counsel to Irex and the Company, that for U.S. federal income tax purposes the
Separation should qualify as a tax-free spin-off. The opinion of counsel will
be based on certain assumptions and the accuracy of factual representations
made by Irex and the Company. Neither Irex nor the Company is aware of any
present facts or circumstances which should cause such representations and
assumptions to be untrue. However, the opinion of counsel is not binding on
either the Internal Revenue Service ("IRS") or the courts. A ruling has not
been, and will not be, sought from the IRS with respect to the U.S. federal
income tax consequences of the Separation, and it is possible that the IRS may
take the position that the Separation does not qualify as a tax-free spin-off.
See "Risk Factors--Potential Liability for Taxes Related to the Separation."
 
  Benefits Sharing Agreement. Prior to the consummation of the Separation, the
Company and Irex will enter into a benefits sharing agreement (the "Benefits
Agreement") to set forth the manner in which assets and
 
                                      41
liabilities under employee benefit plans and other employment-related
liabilities will be divided between them. In general, the Company will be
responsible for compensation and employee benefits relating to both its active
and former employees. Irex will generally remain responsible for compensation
and employee benefits relating to its active and former employees. The
Company's 401(k) Plan will receive a transfer of plan assets from the Irex
Employees' Savings Incentive Plan equal to the account balances of the
Company's active and former employees. See "Management--401(k) Plan." Prior to
the Separation, Irex will amend its pension plan to cease future benefit
accruals. Prior to the Separation, the Company will make a payment to Irex
equal to the unfunded accrued liability under the Irex pension plan
attributable to the Company's employees and former employees. The Company does
not currently intend to sponsor a pension plan for periods immediately
following the Separation.
 
  The Benefits Agreement will also provide for the treatment of certain
outstanding non-qualified options to purchase the common stock of Irex ("Irex
Options"). At the time of the Separation, all Irex Options held by employees
who will be employed by the Company after the Separation will be canceled and
replaced by grants of options to purchase Common Stock of the Company under
the Company's stock option plan. See "Management--Stock Option Plan." The
number of shares underlying these options and their exercise price will be
established so as to preserve, but not increase, the intrinsic value of the
canceled Irex Options. Irex Options held by employees who will be employed by
Irex after the Separation or any former employees will be unaffected by the
Separation and will be retained by such employees or former employees.
 
                         DESCRIPTION OF CAPITAL STOCK
 
  The following description of the capital stock of the Company is subject to
and qualified in its entirety by reference to the Company's Restated Articles
of Incorporation, which have been filed as an exhibit to the Registration
Statement which includes this Prospectus.
 
  As of the date of this Prospectus, after giving effect to the stock split
effected in connection with the Separation and the Offering, there are
2,913,547 shares of Common Stock issued and outstanding, all of which are held
of record by Irex. No shares of Preferred Stock are issued or outstanding.
 
COMMON STOCK
 
  The Company is authorized to issue up to 15 million shares of Common Stock,
par value $.01 per share ("Common Stock").
 
  The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Shareholders do not have cumulative
voting rights in the election of directors, meaning that the holders of a
majority of the shares entitled to vote in any election of directors may elect
all of the directors standing for election. The bylaws provide that special
meetings of the shareholders of the Company may be called only by the Board of
Directors. Generally, whenever any corporate action is to be taken by vote of
the shareholders of the Company, or by vote of a class of such shareholders of
the Company, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by such shareholders, or by such class of
shareholders, entitled to vote thereon.
 
PREFERRED STOCK
 
  The Company is authorized to issue up to 15 million shares of Preferred
Stock. The Board of Directors is authorized, subject to any limitations
prescribed by law, without further shareholder approval, to issue such shares
of Preferred Stock in one or more series, with such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be established by the Board of Directors at the time of issuance.
 
  The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of Common Stock. The issuance of shares of
Preferred Stock could result in securities outstanding that would have
preference over the Common Stock with respect to dividends and in liquidation
and that could (upon conversion or otherwise) enjoy all of the rights of the
Common Stock.
 
 
                                      42
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by third persons to obtain
control of the Company through merger, tender offer, proxy or consent
solicitation or otherwise, by making such attempts more difficult to achieve
or more costly. The Board of Directors may issue Preferred Stock without
shareholder approval and with voting rights that could adversely affect the
voting power of holders of Common Stock. There are no agreements or
understandings for the issuance of Preferred Stock, and the Company has no
plans to issue any shares of Preferred Stock. See "Risk Factors--Anti-Takeover
Provisions."
 
CERTAIN PROVISIONS OF THE PENNSYLVANIA BUSINESS CORPORATION LAW
 
  The Company is governed by Subchapter F of Chapter 25 of the PBCL. The
Company's restated articles of incorporation provide that the Company shall
not be governed by Subchapters E, G and H of Chapter 25 of the PBCL.
Subchapter F may have an anti-takeover effect and may delay, defer or prevent
a tender offer or takeover attempt that a shareholder might consider in his or
her best interest, including those attempts that might result in a premium
over the market price for the shares held by shareholders. In general,
Subchapter F delays for five years and imposes conditions upon "business
combinations" between an "interested shareholder" and the Company, unless
prior approval of the Board of Directors is given. The term "business
combination" is defined broadly to include various merger, consolidation,
division, exchange or sale transactions, including transactions utilizing the
Company's assets for purchase price amortization or refinancing purposes. An
"interested shareholder," in general, would be a beneficial owner of shares
entitling that person to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company. The
Company is also governed by other provisions of the PBCL which are designed to
support the validity of actions taken by the Board of Directors in response to
takeover bids, including specifically the board's authority to "accept, reject
or take no action" with respect to a takeover bid, and permitting the
unfavorable disparate treatment of a takeover bidder. Another provision of the
PBCL gives the directors broad discretion in considering the best interests of
the Company, including a provision which permits the board, in taking any
action, to consider various corporate interests, including employees,
suppliers, clients and communities in which the corporation is located, the
short and long-term interests of the corporation and the resources, intent and
conduct of any person seeking to acquire control of the corporation. These
provisions may have the effect of making more difficult and thereby
discouraging attempts to acquire control of the Company in a transaction that
the board or directors determines not to be in the best interests of the
Company.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
  As permitted by the PBCL, the Company's bylaws provide that a director shall
not be personally liable for monetary damages for any action taken, or any
failure to take any action, unless (i) the director has breached or failed to
perform the duties of his office under Section 8363 of the Pennsylvania
Directors Liability Act (relating to standard of care and justifiable
reliance) and (ii) the breach or failure to perform constitutes improper self-
dealing, willful misconduct or recklessness. Such limitation on liability does
not apply to the responsibility or liability of a director pursuant to any
criminal statute or the liability of a director for the payment of taxes
pursuant to local, state or federal law. In addition, the bylaws provide that
the Company shall indemnify any person who is a party or is threatened to be
made a party to any lawsuit or claim for damages arising by reason of the fact
that he is or was a director, officer or employee of the Company or any
subsidiary.
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Common Stock is expected to be
Chase Mellon Shareholder Services.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
  Prior to this Offering, there has been no public market for the Common
Stock. No predictions can be made with respect to the effect, if any, that
public sales of shares of the Common Stock or the availability of shares for
sale will have on the market price of the Common Stock after this Offering.
Sales of substantial amounts of the Common Stock in the public market
following this Offering, or the perception that sales may occur, could
 
                                      43
adversely affect the market price of the Common Stock or the ability of the
Company to raise capital through a sale of its equity securities.
 
  Upon completion of the Separation and the Offering, 4,913,547 shares of
Common Stock will be outstanding (5,213,547 shares will be outstanding if the
Underwriters' over-allotment option is exercised in full). The 2,000,000
shares of Common Stock sold in the Offering (2,300,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless acquired by an "affiliate" of the Company. An "affiliate" is defined in
Rule 144 promulgated by the Commission under the Securities Act ("Rule 144")
generally as a person who by equity ownership or otherwise controls, is
controlled by or is under common control with the Company. The 2,913,547
shares of Common Stock distributed to shareholders of Irex in the Separation
will be freely tradable following the Separation and Offering, except for such
shares distributed to affiliates of the Company, which shares will be subject
to (i) lock-up agreements entered into in connection with the Separation (see
below) and (ii) Rule 144, except for the holding period requirement of Rule
144(d), absent registration or another appropriate exemption under the
Securities Act.
 
  In general, Rule 144 will permit an affiliate or a person who has held
restricted shares for more than one year to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the then-
outstanding shares of Common Stock or the average weekly trading volume of
such stock during the four calendar weeks preceding such sale, provided that
the Company has either filed certain periodic reports with the Commission or
made publicly available certain information concerning itself and provided
that such sales are made in normal "brokers' transactions" or in transactions
directly with a "market maker" without the solicitation of buy orders by the
brokers or such affiliates. A person who is deemed not to be an affiliate of
the Company at any time during the three months preceding a sale and who has
held restricted shares for more than two years may sell such shares under Rule
144 without regard to the volume limitations described above.
 
  Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "SPIE." Sales of substantial amounts of Common Stock
in the public market, including sales under Rule 144, could have a depressing
effect on the price of the Common Stock.
 
LOCK-UP AGREEMENTS
 
  In connection with the Separation, certain shareholders have agreed, subject
to certain exceptions, not to register for sale or offer, sell or transfer any
shares of Common Stock for a period of two years following consummation of the
Separation. These agreements cover shares of Common Stock received by such
shareholders in the Separation. In addition, in connection with the Offering,
certain shareholders have agreed, subject to certain exceptions, not to
register for sale or offer, sell or transfer any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Legg Mason Wood Walker, Incorporated. These agreement covers all of
the     shares of Common Stock held by such shareholders. See "Separation from
Irex" and "Underwriting."
 
                                      44
UNDERWRITING
 
  The underwriters named below (the "Underwriters"), acting through their
representatives, Legg Mason Wood Walker, Incorporated and Advest, Inc. (the
"Representatives") expect to severally agree, subject to the terms and
conditions of the Underwriting Agreement, to purchase a total of 2,000,000
shares of Common Stock from the Company. The number of shares of Common Stock
that each Underwriter has agreed to purchase is set forth opposite its name
below. The Underwriters are committed to purchase all of such shares if any
are purchased. Under certain circumstances the commitments of non-defaulting
Underwriters may be increased. The names of the several Underwriters and the
respective number of shares to be purchased by each of them are as follows:
NUMBER OF
      UNDERWRITER                                                       SHARES
      -----------                                                      ---------
Legg Mason Wood Walker, Incorporated..................................
Advest, Inc...........................................................
                                                                       ---------
  Total............................................................... 2,000,000
                                                                       =========
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price per share set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $    per share, and the Underwriters may allow, and such dealers may
reallow, a concession not in excess of $    per share on sales to other
dealers. After the commencement of the public offering of the shares of Common
Stock, the offering price and concession may be changed. The Company has
agreed to indemnify the several Underwriters against certain liabilities which
may be incurred in connection with the Offering, including liabilities under
the Securities Act.
 
  The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 300,000 shares of Common Stock from the Company at the same price
per share as the public offering price. The Underwriters may exercise such
option only to cover over-allotments in the sale of the shares of Common Stock
that the Underwriters have agreed to purchase. To the extent the Underwriters
exercise this option, each of the Underwriters has a firm commitment, subject
to certain conditions, to purchase the same percentage of the option shares as
the number of shares to be purchased and offered by that Underwriter as shown
in the above table bears to the 2,000,000 shares of Common Stock initially
offered hereby.
 
  All of the directors and executive officers of the Company expect to agree
with the Representatives not to sell or dispose of any shares owned by them
without the consent of the Representatives for a period of 180 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."
 
  In connection with this Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended, during the two business
day period before the commencement of offers of sales of the Common Stock.
Passive market makers must comply with applicable volume and price limitations
and must be identified as such. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.
 
  Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters to bid for and purchase
the Common Stock. As an exception to these rules, the Representatives
 
                                      45
are permitted to engage in certain transactions that stabilize the price of
the Common Stock. Such transactions may consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Common Stock.
 
  If Underwriters create a short position in the Common Stock in connection
with the offering thereof (i.e., if they sell more shares of Common Stock than
are set forth on the cover page of the Prospectus), the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives also may elect to reduce any short position by exercising all
or part of the over-allotment option described in the Prospectus.
 
  The Representatives also may impose a penalty bid on certain Underwriters.
This means that if the Representatives purchase Common Stock in the open
market to reduce the Underwriters' short position or to stabilize the price of
the Common Stock, they may reclaim the amount of the selling concession from
the Underwriters who sold those shares as part of this Offering.
 
  In general, purchases of Common Stock for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the Common Stock to
be higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of the Common
Stock to the extent that it were to discourage resales of the Common Stock by
purchasers in this Offering.
 
  Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor the Underwriters make any representation
that the Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
 
                                 LEGAL MATTERS
 
  The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Dechert Price & Rhoads, Philadelphia,
Pennsylvania. Certain matters in connection with this Offering will be passed
upon for the Underwriters by Stradley, Ronon, Stevens & Young, LLP,
Philadelphia, Pennsylvania.
 
                                    EXPERTS
 
  The consolidated financial statements of the Company as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
 
                            ADDITIONAL INFORMATION
 
  The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") under
the Securities Act with respect to the securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain items of which are omitted as permitted by the rules and regulations
of the Commission. Statements made in this Prospectus as to the contents of
any agreement or other document referred to herein are not necessarily
complete, and reference is made to the copy of such agreement or other
document filed as an exhibit or schedule to the Registration Statement and
each such statement shall be deemed qualified in its entirety by such
reference. For further information, reference is made to the Registration
 
                                      46
Statement and to the exhibits and schedules filed therewith, which are
available for inspection without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W, Washington,
D.C. 20549. Copies of the material containing this information may be obtained
from the Commission upon payment of the prescribed fees.
 
  After consummation of the Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will be
required to file proxy statements, reports and other information with the
Commission. The Registration Statement, as well as any such report, proxy
statement and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
 
  The Company intends to furnish to its shareholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm accompanied by an opinion expressed by such independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information in each case prepared
in accordance with generally accepted accounting principles.
 
           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
  Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. Actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed under "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These forward-looking
statements involve risks and uncertainties including, but not limited to,
those set forth under "Risk Factors."
 
                                      47
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-3
Consolidated Statements of Income for the years ended December 31, 1995,
 1996 and 1997............................................................ F-4
Consolidated Statements of Shareholder's Investment for the years ended
 December 31, 1995,
 1996 and 1997............................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
 1995, 1996 and 1997...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
F-1
After the stock split-up effected in the form of a dividend discussed in
Note 11 to the Company's consolidated financial statements is effected, we
expect to be in a position to render the following audit report.
 
                                          Arthur Andersen LLP
 
Lancaster, Pennsylvania
  March 16, 1998, except with respect to certain information
  in Note 11, as to which the date is April 9, 1998
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Specialty Products & Insulation Co.:
 
  We have audited the accompanying consolidated balance sheets of Specialty
Products & Insulation Co. (a Pennsylvania corporation and a wholly owned
subsidiary of Irex Corporation) and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholder's
investment and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as, evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Specialty Products &
Insulation Co. and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
 
  Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and
qualifying accounts is presented for purposes of complying with the Securities
and Exchange Commission rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
 
Lancaster, Pennsylvania
 
                                      F-2
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
DECEMBER 31,                 DECEMBER 31, 1997
                              ------------------------------  -----------------------
                                                                    PRO FORMA
                                 1996            1997             (SEE NOTE 12)
                              --------------  --------------  -----------------------
                                                                   (UNAUDITED)
                              (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
Current Assets:
  Cash and cash
   equivalents..............  $           78  $          345       $          345
  Receivables, less reserves
   of $466 in 1997 and $994
   in 1996..................          22,769          27,635               27,635
  Inventories of materials
   and supplies.............          13,117          15,667               15,667
  Prepaid expenses..........             408             173                  173
  Deferred income taxes.....             930           1,100                1,100
                              --------------  --------------       --------------
    Total current assets....          37,302          44,920               44,920
Property and Equipment, at
 cost:
  Buildings and
   improvements.............           1,153           1,315                1,315
  Machinery and equipment...           2,655           2,996                2,996
                              --------------  --------------       --------------
                                       3,808           4,311                4,311
  Less accumulated
   depreciation.............          (2,242)         (2,543)              (2,543)
                              --------------  --------------       --------------
                                       1,566           1,768                1,768
Other Assets................              67             963                  963
                              --------------  --------------       --------------
                              $       38,935  $       47,651       $       47,651
                              ==============  ==============       ==============
LIABILITIES AND
 SHAREHOLDER'S INVESTMENT
Current Liabilities:
  Current portion of long-
   term debt................  $        1,436  $        1,455       $        1,455
  Accounts payable..........           6,261           7,360                7,360
  Payable to affiliates.....          15,006          20,221               20,221
  Accrued liabilities.......           2,746           4,108                4,108
  Accrued income taxes......           1,049             510                  510
                              --------------  --------------       --------------
    Total current
     liabilities............          26,498          33,654               33,654
Deferred Income Taxes.......              88             --                   --
Long-term Debt, less current
 portion....................           5,928           4,817               15,307
Shareholder's Investment:
  Preferred stock, $0.01 par
   value per share;
   15,000,000 shares
   authorized; none issued..             --              --                   --
  Common stock, $0.01 par
   value per share;
   15,000,000 shares
   authorized; 2,913,547
   issued and outstanding...              29              29                   29
  Paid-in surplus...........             974             974                  --
  Retained earnings.........           5,418           8,177               (1,339)
                              --------------  --------------       --------------
    Total shareholder's
     investment.............           6,421           9,180               (1,310)
                              --------------  --------------       --------------
                              $       38,935  $       47,651       $       47,651
                              ==============  ==============       ==============
The accompanying notes are an integral part of these statements.
 
                                      F-3
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                       CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
                                        --------------------------------------
                                            1995         1996         1997
                                        ------------ ------------ ------------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.............................. $    118,395 $    141,800 $    158,510
Cost of sales..........................       92,503      110,690      124,258
                                        ------------ ------------ ------------
  Gross profit.........................       25,892       31,110       34,252
Selling, general and administrative
 expenses..............................       21,841       24,762       27,229
                                        ------------ ------------ ------------
  Operating income.....................        4,051        6,348        7,023
Interest expense, net..................        1,840        1,854        1,939
                                        ------------ ------------ ------------
  Income before income taxes...........        2,211        4,494        5,084
Income tax provision...................          918        1,810        2,077
                                        ------------ ------------ ------------
  Net income........................... $      1,293 $      2,684 $      3,007
                                        ============ ============ ============
Net income per share--basic............ $       0.44 $       0.92 $       1.03
                                        ============ ============ ============
Net income per share--diluted.......... $       0.44 $       0.92 $       1.03
                                        ============ ============ ============
Weighted average shares outstanding-
 basic.................................    2,913,547    2,913,547    2,913,547
                                        ============ ============ ============
Weighted average shares outstanding-
 diluted...............................    2,913,547    2,913,547    2,913,547
                                        ============ ============ ============
The accompanying notes are an integral part of these statements.
 
                                      F-4
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
              CONSOLIDATED STATEMENTS OF SHAREHOLDER'S INVESTMENT
PAID-IN
                                          COMMON STOCK SURPLUS RETAINED EARNINGS
                                          ------------ ------- -----------------
                                                      (IN THOUSANDS)
Balance, January 1, 1995.................     $29       $974        $2,652
  Net income.............................     --         --          1,293
  Distribution to parent.................     --         --           (748)
                                              ---       ----        ------
Balance, December 31, 1995...............      29        974         3,197
  Net income.............................     --         --          2,684
  Distribution to parent.................     --         --           (463)
                                              ---       ----        ------
Balance, December 31, 1996...............      29        974         5,418
  Net income.............................     --         --          3,007
  Distribution to parent.................     --         --           (248)
                                              ---       ----        ------
Balance, December 31, 1997...............     $29       $974        $8,177
                                              ===       ====        ======
The accompanying notes are an integral part of these statements.
 
                                      F-5
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
                                                  ----------------------------
                                                    1995      1996      1997
                                                  --------  --------  --------
                                                        (IN THOUSANDS)
Cash Flows From Operating Activities:
  Net income..................................... $  1,293  $  2,684  $  3,007
  Reconciliation of net income to net cash
   provided by (used for) operating activities--
    Depreciation and amortization................      514       558       640
    Deferred income tax (benefit) provision......       (6)     (191)      364
    Provision for losses on accounts receivable..      830     1,120        71
    (Gain) loss on sale of assets................       (2)       75        15
  (Increase) decrease in assets--
    Receivables..................................   (3,387)   (1,590)   (3,672)
    Inventories..................................     (755)   (1,934)   (1,204)
    Other prepaid expenses.......................       31      (182)      248
    Other assets.................................      (23)      --        --
  Increase (decrease) in liabilities--
    Accounts payable.............................      640        39     1,042
    Accrued liabilities and other................      501       499     1,134
    Accrued income taxes.........................      261       776      (495)
                                                  --------  --------  --------
      Net cash (used for) provided by operating
       activities................................     (103)    1,854     1,150
                                                  --------  --------  --------
Cash Flows From Investing Activities:
  Additions to property and equipment............     (413)     (559)     (559)
  Proceeds from sales of property and equipment..       79        24         4
  Acquisitions of certain businesses, net of cash
     acquired
     Assets, net of liabilities assumed..........     (961)     (120)   (2,523)
    Intangibles..................................      --        (60)     (930)
  Other investing................................      --        (62)      (33)
                                                  --------  --------  --------
      Net cash used for investing activities.....   (1,295)     (777)   (4,041)
                                                  --------  --------  --------
Cash Flows From Financing Activities:
  Payments on long-term debt.....................      --     (1,186)   (1,186)
  Increase in payable to affiliates..............    1,429        97     4,344
                                                  --------  --------  --------
      Net cash provided by (used for) financing
       activities................................    1,429    (1,089)    3,158
                                                  --------  --------  --------
Net Increase (Decrease) in Cash and Cash
 Equivalents.....................................       31       (12)      267
Cash and Cash Equivalents, Beginning of Year.....       59        90        78
                                                  --------  --------  --------
Cash and Cash Equivalents, End of Year........... $     90  $     78  $    345
                                                  ========  ========  ========
The accompanying notes are an integral part of these statements.
 
                                      F-6
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
 
1. DESCRIPTION OF BUSINESS:
 
  Specialty Products & Insulation Co. and subsidiary (the Company), a wholly-
owned subsidiary of Irex Corporation (Irex) (See Note 11), is a distribution
and fabrication business that competes in the large and highly fragmented
building products industry. The Company broadly defines its two core markets
as mechanical insulation, consisting of pipe, duct, and equipment insulation
for commercial and industrial customers, and architectural/acoustical
products, consisting primarily of acoustical ceilings, fiberglass reinforced
panel, and other wall and ceiling products.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
Principles of Consolidation
 
  The consolidated financial statements include the accounts of Specialty
Products & Insulation Co. and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
 
Estimates and Assumptions
 
  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 sales and expenses during the reporting
period. Actual results could differ from those estimates.
 
Cash and Cash Equivalents
 
  The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
 
Inventories
 
  Inventories are stated at the lower of cost or market. Cost is determined
principally on a first-in, first-out (FIFO) basis. Included in inventory cost
are material costs and costs directly associated with the fabrication of the
Company's products.
 
Reserves for Certain Self-Insured Business Risks
 
  The Company is self-insured against a portion of its workers' compensation
and other insurance risks. The process of determining reserve requirements for
losses within its self-insured retention limits utilizes historical trends,
involves an evaluation of claim frequency, severity and other factors and also
includes the effect of future inflation.
 
Income Taxes
 
  The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are recognized using enacted tax rates,
for the estimated future tax effects of temporary differences between the
financial reporting and tax bases of assets and liabilities.
 
                                      F-7
Property and Equipment
 
  Property and equipment are depreciated using principally the straight-line
method over the following estimated useful lives of the assets. Expenditures
for maintenance and repairs are expensed as incurred.
CLASSIFICATION                                     ESTIMATED USEFUL LIVES
       --------------                                     ----------------------
Buildings.........................................     15 to 30 years
       Leasehold improvements............................      3 to 10 years
       Machinery and equipment...........................       3 to 7 years
Other Assets
 
  Other assets consist of goodwill and other intangibles. Goodwill, which
represents the excess of cost over fair value of the net assets of acquired
businesses, is being amortized on a straight-line basis principally over 15
years. The Company develops operating income projections and evaluates the
recoverability and amortization period of goodwill using these projections.
Based upon management's current assessment, the estimated remaining
amortization period of goodwill is appropriate and the remaining balance is
fully recoverable. There was no unamortized goodwill at December 31, 1996. At
December 31, 1997, unamortized goodwill was $842,000.
 
Revenue Recognition
 
  Sales are recorded as orders are shipped or picked up by the customer and
are reported net of discounts and returns.
 
Supplemental Cash Flow Information
 
  The Company's state income tax payments, net of refunds, were $28,000,
$131,000 and $280,000 in 1995, 1996 and 1997, respectively. Interest on the
notes payable to affiliate and the payable to affiliates account are charged
to the payable to affiliates account.
 
Concentration of Credit Risk and Business
 
  The Company is primarily engaged in the distribution of mechanical
insulational and architectural/acoustical products throughout the United
States.
 
  The Company grants credit to customers after a thorough review of their
financial condition. The concentration of credit risk with respect to accounts
receivable is limited due to the Company's large customer base located
throughout the United States. For the years ended December 31, 1995, 1996, and
1997, no one customer accounted for more than 10% of sales.
 
  The Company purchases materials for resale from a limited number of major
suppliers. Such concentration is normal for the industry and does not
represent an unreasonable risk or vulnerability to the Company.
 
3. ACQUISITIONS:
 
  On October 17, 1997, the Company acquired all of the issued and outstanding
stock of Richlar Industries, Inc. (Richlar), located in East Syracuse, New
York, for cash consideration of approximately $866,000. Richlar is primarily
engaged in the business of precision die cutting, lamination, and specialty
fabrication.
 
  On December 8, 1997, the Company acquired certain assets of Construction
Systems, Inc. (CSI), located in Houston, Texas, for cash consideration of
approximately $2,374,000. CSI was primarily engaged in the distribution of
architectural/acoustical products and specialty products from two distribution
centers in Houston, Texas.
 
  On December 24, 1997, the Company acquired certain assets of the Louisville,
Kentucky distribution center of R. E. Kramig and Company, Inc. (Kramig) for
cash consideration of approximately $213,000. Kramig was primarily engaged in
the distribution of mechanical insulation.
 
                                      F-8
The acquisitions were accounted for using the purchase method of accounting,
and the financial statements reflect the results of operations and cash flows
of the operation from the dates of the acquisitions. Had the acquisitions
occurred at the beginning of the periods presented, sales and net income would
not have been materially different from reported results.
 
  In January 1995, the Company acquired from Distribution International (DI),
the assets of four distribution centers in North Carolina and Tennessee for
cash consideration of approximately $961,000. DI was primarily engaged in the
distribution of mechanical insulation from these four distribution centers.
 
4. INCOME TAXES:
 
  The Company's tax return is included in the consolidated federal income tax
returns of Irex. The current and deferred tax expense recorded by the Company
is based on what such amounts would have been had it filed a separate tax
return. All federal income tax payments are made by Irex.
 
  The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Deferred income taxes are computed based on the differences between
financial reporting and income tax reporting bases of assets and liabilities
using enacted tax rates. The impact of changes in tax rates is reflected in
income in the period in which the change is enacted. In conformity with SFAS
109, deferred tax assets are classified based on the financial reporting
classification of the related liabilities and assets which give rise to
temporary book/tax differences. Deferred taxes relate to the following
temporary differences:
1996     1997
                                                               ------- --------
                                                               (IN THOUSANDS)
Insurance reserves......................................... $   77  $    574
   Bad debt reserves..........................................    387       181
   Uniform cost capitalization on inventories.................    404       435
   Other......................................................    (26)      (89)
                                                               ------  --------
                                                               $  842  $  1,101
                                                               ======  ========
The Company has determined that no valuation allowance for the deferred tax
asset is required as of December 31, 1996 and 1997 as it is considered more
likely than not that such benefits will be realized in the future through the
combination of carryback availability, certain tax planning strategies that
would allow for acceleration of deductible temporary differences to utilize
remaining carryback availability and through expected future taxable income.
 
  Income tax provision (benefit) consists of :
1995    1996     1997
                                                        -----  -------  -------
                                                           (IN THOUSANDS)
Currently payable:
     Federal........................................... $ 782  $ 1,608  $ 1,396
     State.............................................   142      393      317
                                                        -----  -------  -------
       Total currently payable.........................   924    2,001    1,713
                                                        -----  -------  -------
   Deferred:
     Federal...........................................   (35)    (135)     297
     State.............................................    29      (56)      67
                                                        -----  -------  -------
       Total deferred..................................    (6)    (191)     364
                                                        -----  -------  -------
   Total............................................... $ 918  $ 1,810  $ 2,077
                                                        =====  =======  =======
F-9
The effective income tax rate is different from the statutory Federal income
tax rate as indicated below:
1995  1996  1997
                                                              ----  ----  ----
Statutory federal income tax rate........................  34.0% 34.0% 34.0%
   State income taxes ($171,000, $337,000 and $384,000), net
    of federal benefit......................................   5.1   5.0   5.0
   Meals and entertainment..................................   2.4   1.3   1.9
                                                              ----  ----  ----
     Effective income tax rate..............................  41.5% 40.3% 40.9%
                                                              ====  ====  ====
5. EMPLOYEE BENEFIT PLANS:
 
 Pension Plans
 
  The Company's salaried employees participate in Irex's noncontributory
defined benefit pension plan. The benefits under the plan are based on years
of service and salary levels. Irex's policy is to fund pension costs in
accordance with the requirements of the Employee Retirement Income Security
Act of 1974. The Company receives an allocation of the plan's expenses from
Irex. In 1995, 1996, and 1997, the Company's share of the plan's total expense
was $230,000, $245,000, and $165,000, respectively. The Company will not
participate in the plan following its separation from Irex. All liabilities
associated with the plan will remain with Irex. The following table sets forth
the Plan's funded status and related amounts recognized in the consolidated
balance sheet of Irex and subsidiaries at December 31, 1996 and 1997:
1996     1997
                                                              -------  -------
                                                              (IN THOUSANDS)
Actuarial present value of benefit obligations:
     Accumulated benefit obligation, including vested
      benefits of $5,568 and $6,629, respectively............ $ 6,039  $ 6,986
                                                              =======  =======
     Projected benefit obligation for service rendered to
      date................................................... $ 7,698  $ 8,760
     Plan assets at fair value...............................  (7,528)  (8,759)
                                                              -------  -------
     Projected benefit obligation in excess of plan assets...     170        1
     Unrecognized net loss from past experience different
      from that assumed and effects of changes in
      assumptions............................................     275      840
                                                              -------  -------
     Accrued pension cost.................................... $   445  $   841
                                                              =======  =======
 
  Assumptions used were as follows:
1996     1997
                                                              -------  -------
Weighted average discount rates...........................   7.75%    7.25%
   Rates of increase in future compensation levels...........   5.00%    5.00%
   Expected long-term rate of return on assets...............   8.50%    8.50%
The Company also maintains a defined contribution plan for its hourly-paid
employees. Company contributions to the plan are based on a percentage of
eligible employees' compensation. The expense for this plan was $69,000 in
1995, $108,000 in 1996, and $105,000 in 1997.
 
 Postretirement Benefits Other Than Pensions
 
  In addition to the pension plans, the Company's retired employees
participate in an Irex-sponsored plan that provides certain health care
benefits. Active salaried employees who were at least age 55 and had 10 years
of consecutive service at January 1, 1990, are eligible for these benefits
upon retirement. Also, active salaried
 
                                     F-10
employees of the Company whose age plus years of service equaled at least 55
at January 1, 1990, are eligible for these benefits upon retirement when they
attain age 62 as long as such employees have either 20 years of service or
their age plus years of service equals 90 upon retirement. Cash payments of up
to $60 per month are given to retirees over age 65 to purchase supplemental
Medicare coverage. Eligible retirees under age 65 are fully covered by Irex's
insurance plan. The number of retirees under age 65 currently participating in
the plan is not significant. Also the number of active employees of the
Company who may become eligible is not significant; further, the Company will
not participate in the plan following its separation from Irex. All
liabilities associated with the plan will remain with Irex.
 
  The expected cost of these benefits is charged to expense during the years
that the employees render service. The transition obligation is being
amortized over 20 years. In 1995, 1996, and 1997 the Company's share of the
Plan's total expense was $22,000, $29,000, and $15,000, respectively.
 
  The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheet of Irex and subsidiaries at
December 31, 1996 and 1997:
1996     1997
                                                              -------  -------
                                                              (IN THOUSANDS)
Accumulated postretirement benefit obligation:
      Vested benefit obligation.............................  $   798  $   798
      Non-vested benefit obligation.........................      158      129
                                                              -------  -------
                                                                  956      927
     Plan assets at fair value..............................      (51)     --
                                                              -------  -------
     Accumulated postretirement benefit obligation in excess
      of plan assets........................................      905      927
     Unrecognized transition obligation.....................     (769)    (721)
     Unrecognized net gain..................................      340      289
                                                              -------  -------
     Accrued postretirement benefit liability...............  $   476  $   495
                                                              =======  =======
For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care benefits was assumed for calendar 1997; the rate
was assumed to decrease to 10% in 1998 and 7% for 2001 and remain level
thereafter. Due to the provisions of the plan, increasing the assumed health
care cost trend rates by one percentage point in each year would not have a
significant impact on the accumulated postretirement benefit obligation or the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1997.
 
  The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.25% at December 31, 1996 and
1997, respectively. The expected long-term rate of return on assets was 8.50%
at December 31, 1996.
 
 Other
 
  The Company has an incentive compensation plan covering substantially all of
its officers and key employees. The amount of incentive compensation is
dependent upon the rate of return on assets of the Company and the particular
regional or branch office. Total incentive compensation expense was $1,012,000
for 1995, $1,335,000 for 1996, and $1,428,000 for 1997.
 
  Substantially all of the Company's salaried employees are covered by defined
contribution savings incentive and employee stock ownership plans (ESOP)
maintained by Irex. Contributions to the savings incentive plan are based on a
percentage of employee contributions to the plan, while ESOP contributions are
discretionary. The Company's share of these plans' total expense was $256,000
in 1995, $299,000 in 1996, and $259,000 in 1997.
 
 
                                     F-11
6. INCOME PER COMMON SHARE:
 
  In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share." SFAS No. 128 requires dual presentation
of basic and diluted earnings per share on the face of the income statement
for all entities with complex capital structures. The Company's basic income
per share is calculated as income available to shareholders divided by the
weighted average number of shares outstanding. Earnings per share have been
retroactively restated to reflect the 291.4 to 1 stock split-up effected in
the form of a dividend discussed in Note 11. For diluted income per share,
there are no common stock equivalents.
 
7. BORROWINGS:
 
  Long-term debt consists of the following at December 31, 1996 and 1997:
1996    1997
                                                                ------- -------
                                                                (IN THOUSANDS)
9.25% unsecured notes payable to affiliate due in equal
    annual installments
    from May 1, 1996 to 2002................................... $ 7,114 $ 5,928
   Unsecured note payable at prime commercial rate due to
    affiliate on
    December 1, 1998...........................................     250     250
   Other long-term debt........................................     --       94
                                                                ------- -------
     Total.....................................................   7,364   6,272
     Less current portion......................................   1,436   1,455
                                                                ------- -------
                                                                $ 5,928 $ 4,817
                                                                ======= =======
Prime commercial rate is determined by the rate in effect on the previous
December 1 and June 1.
 
  Other long-term debt is comprised of three unsecured notes, with interest
rates ranging from 6.63% to 8.16%, payable in monthly and annual installments
through July 10, 2009.
 
  Interest expense for the notes payable to affiliate was $790,000 in 1995,
$725,000 in 1996, and $679,000 in 1997.
 
  Any unpaid principal balance on each of the notes payable to affiliate may
be prepaid in whole or in part without premium or penalty provided that at the
time of any such prepayment all interest accrued to the date of prepayment on
the portion of the principal balance be simultaneously paid and all
prepayments be made on December 31 unless otherwise agreed by the holder.
 
  Long-term borrowings maturing during the next five years are as follows (in
thousands):
1998............................................................. $ 1,455
       1999.............................................................   1,200
       2000.............................................................   1,192
       2001.............................................................   1,192
       2002.............................................................   1,192
F-12
8. COMMITMENTS AND CONTINGENCIES:
 
  The Company leases distribution centers and sales offices under
noncancelable operating lease agreements. Rental expense for all operating
leases was $2,866,000 in 1995, $2,983,000 in 1996 and $3,624,000 in 1997. As
of December 31, 1997, the future minimum rental commitments under
noncancelable operating leases that have terms in excess of one year are as
follows (in thousands):
1998............................................................ $ 2,615
       1999............................................................   1,936
       2000............................................................   1,525
       2001............................................................   1,020
       2002............................................................     583
       Subsequent years................................................     299
                                                                        -------
         Total minimum rental obligations.............................. $ 7,978
                                                                        =======
The Company is involved from time to time in various claims and litigation
arising in the ordinary course of its business. Management believes the
outcome of such claims and litigation will not materially affect the Company's
long-term business, financial position or results of operations.
 
  The Company, together with other subsidiaries of Irex, has guaranteed
certain obligations of Irex, which at December 31, 1997 totaled $27,604,000.
Such guarantees with respect to the Company will terminate upon completion of
the separation transaction discussed in Note 11.
 
9. ACCRUED LIABILITIES:
 
  The components of accrued liabilities as of December 31, 1996 and 1997 are
as follows:
1996    1997
                                                               ------- -------
                                                               (IN THOUSANDS)
Salaries and wages......................................... $ 1,295 $ 1,404
   Workers' compensation, general and auto liability insur-
    ance......................................................     --    1,263
   Other......................................................   1,451   1,441
                                                               ------- -------
                                                               $ 2,746 $ 4,108
                                                               ======= =======
10. RELATED PARTIES:
 
  The Company sells its products to the specialty contracting subsidiaries of
Irex. Sales to those affiliates are included in the Company's net sales as
reflected in the consolidated statements of income. Net sales to the Company's
affiliates were $10,682,000, $12,383,000 and $9,301,000 in 1995, 1996 and
1997, respectively.
 
  Irex provides various administrative services to its affiliates, including
the Company. These services include, among others, management and maintenance
of the information systems, legal, credit and risk management, cash
management, tax, accounting and personnel administration. Irex allocates these
costs to its affiliates primarily based on the estimated utilization of the
services. Irex also charges a management fee to each of its affiliates,
including the Company, to distribute costs that are not allocated based on
utilization. The management fee is calculated as a percentage of net sales and
charged to each affiliate accordingly. Collectively, the allocation of
administrative expenses and management fee are reflected as selling, general
and administrative expenses in the Company's consolidated statements of
income. Management believes the methodology used to allocate these expenses is
reasonable. The Company was charged $1,616,000, $1,815,000 and $2,542,000 in
1995, 1996 and 1997, respectively. Amounts allocated to the Company by Irex in
excess of the estimated costs of these services are shown in the statements of
shareholder's investment as a distribution to parent.
 
  Irex administers the Company's insurance program. Prior to 1997, the
reserves for workers' compensation and other insurance risks were not
reflected on the consolidated balance sheet of the Company. An affiliate of
the Company maintained these reserves and made payments on behalf of the
Company. The appropriate charges to the Company were recognized in the payable
to affiliates account. The Company's expense related to workers' compensation
and other insurance programs was $484,000 in 1995, $501,000 in 1996 and
$606,000 in 1997.
 
                                     F-13
The Company's cash transactions flow through a consolidated banking
arrangement that is maintained by Irex. The Company, in the normal course of
business, receives credit for cash deposited or charges for working capital
needed. The payable to affiliates account, at December 31, 1997, includes the
Company's cumulative cash borrowings from Irex and affiliates. Based upon the
activity within the payable to affiliates account, the Company is charged
interest expense from Irex. Interest expense was $1,048,000 in 1995,
$1,132,000 in 1996 and $1,249,000 in 1997. The weighted average interest rate
for the years ended December 31, 1995, 1996 and 1997 was 8%.
 
11. SUBSEQUENT EVENTS:
 
 Separation
 
  On January 19, 1998, Irex announced its intention to spin off Specialty
Products & Insulation Co. to its shareholders. Irex's Board of Directors, at
its February 26, 1998 meeting, approved the proposed transaction in which
shareholders of Irex Common stock will receive a dividend of the Company's
Common stock. This dividend is expected to be a tax-free distribution to
current shareholders of Irex Common stock. The transaction is expected to be
completed in the second or third quarter of 1998.
 
  Concurrent with the spin off transaction described above, the Company
intends to file a registration statement on Form S-1 with the Securities and
Exchange Commission for purposes of registering shares of common stock.
 
  On April 9, 1998, the Company filed Restated Articles of Incorporation which
increased the authorized number of shares of common stock to 15,000,000,
changed the common stock par value to $0.01 and authorized 15,000,000 shares
of Preferred stock at $0.01 par value. These changes have been retroactively
reflected in the accompanying financial statements.
 
  In conjunction with the above transactions, the Company expects to enter
into several agreements with Irex.
 
  .Corporate Separation Agreement--Pursuant to this agreement, Irex will
  provide management information system services to the Company. These
  services will be provided subject to a quarterly or hourly fee. In
  addition, certain indemnifications, excluding tax related items, between
  the Company and Irex are defined in this agreement.
 
  .Tax Sharing and Indemnification Agreement--Tax related indemnifications
  between the Company and Irex are defined within this agreement. These
  indemnifications relate to the periods before and after the transactions
  described above.
 
  .Benefits Sharing Agreement--This agreement addresses the division of
  employee benefit plans and other employment-related liabilities between the
  Company and Irex.
 
  Prior to the spin-off described above, the Company will declare a 291.4 to 1
stock split up effected in the form of a dividend. The stock split-up has been
retroactively reflected in the accompanying financial statements.
 
 Acquisition
 
  On March 1, 1998, the Company acquired the assets of Extol of Texas, Inc.
(Extol), located in Houston, Texas, for cash consideration of approximately
$5,558,000. Extol is primarily engaged in the distribution and fabrication of
commercial and industrial insulation systems, and other specialty products.
 
12. PRO FORMA BALANCE SHEET (UNAUDITED):
 
  The unaudited pro forma consolidated balance sheet of the Company as of
December 31, 1997 reflects the planned dividend (estimated at $10,490,000) to
be made to Irex which is expected to be funded by bank borrowings and
subsequently repaid from the net proceeds of the Offering. See "Use of
Proceeds." Pursuant to the requirements of the Securities and Exchange
Commission, the dividend has been reflected in the pro forma balance sheet
without giving effect to any receipt of the net proceeds from the Offering.
 
                                     F-14
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UNTIL     , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
 
                                 ------------
 
                               TABLE OF CONTENTS
Prospectus Summary........................................................    3
Risk Factors..............................................................    8
Use Of Proceeds...........................................................   13
Dividend Policy...........................................................   13
Dilution..................................................................   14
Capitalization............................................................   15
Selected Consolidated Financial Data......................................   16
Management's Discussion And Analysis Of Financial Condition And Results Of
 Operations...............................................................   18
Acquisition And Expansion Background......................................   23
Business..................................................................   26
Management................................................................   34
Principal Shareholders....................................................   39
Separation From Irex......................................................   40
Description Of Capital Stock..............................................   42
Shares Eligible For Future Sale...........................................   43
Underwriting..............................................................   45
Legal Matters.............................................................   46
Experts...................................................................   46
Additional Information....................................................   46
Index To Financial Statements.............................................  F-1
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                               2,000,000 SHARES
 
                                     LOGO
 
                             SPECIALTY PRODUCTS &
                                INSULATION CO.
 
                                 COMMON STOCK
 
 
                                  PROSPECTUS
 
 
                            LEGG MASON WOOD WALKER
            INCORPORATED
 
                                 ADVEST, INC.
 
                                       , 1998
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Registration Fee............................................... $8,142
     NASD Filing Fee.................................................... $3,260
     Nasdaq Filing Fee..................................................      *
     Blue Sky Fees and Expenses.........................................      *
     Legal Fees and Expenses............................................      *
     Accounting Fees and Expenses.......................................      *
     Registrar and Transfer Agent Fees..................................      *
     Printing and Engraving Expenses....................................      *
     Miscellaneous......................................................      *
                                                                         ------
       Total............................................................      *
--------
    * To be completed by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
  The Bylaws of the Company provide that the Company shall indemnify any
person who is a party or is threatened to be made a party to any lawsuit or
claim for damages arising by reason of the fact that he is or was a director,
officer or employee of the Company or any subsidiary. The Company intends to
obtain directors' and officers' insurance against certain liabilities such
persons may incur on behalf of the Company.
 
  Pennsylvania law permits the Registrant to provide similar indemnification
to employees and agents who are not directors or officers. The determination
of whether an individual meets the applicable standard of conduct may be made
by the disinterested directors, independent legal counsel or the stockholders.
Pennsylvania law also permits indemnification in connection with a proceeding
brought by or in the right of the Registrant to procure a judgment in its
favor. To the extent that an indemnification for liabilities arising under the
Securities Act is permitted to directors, officers, or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in that Act and is therefore unenforceable.
 
  The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant and its directors, officers and controlling persons for
certain liabilities, including liabilities arising under the Securities Act.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
  The Company has not issued any unregistered securities within the past three
years.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
  (a) Exhibits
 
  The following exhibits are filed herewith unless otherwise indicated:
EXHIBIT
   NUMBER  DESCRIPTION
   ------- -----------
1.1*   Underwriting Agreement
    3.1    Restated Articles of Incorporation of the Company
    3.2    Bylaws of the Company
    4.1*   Specimen Common Stock Certificate
    5.1*   Opinion of Dechert Price & Rhoads
   10.1*   Corporate Separation Agreement
   10.2*   Tax Sharing and Indemnification Agreement
II-1
EXHIBIT
   NUMBER                          DESCRIPTION
   -------                         -----------
10.3*   Benefits Sharing Agreement
   10.4*   1998 Specialty Products & Insulation Co. Stock Option Plan
   10.5*   Form of Employment Agreement
   21.1    Subsidiary of the Registrant
   23.1    Consent of Arthur Andersen LLP (included on page II-4)
   23.2*   Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
   24.1    Power of Attorney (included on Signature Page)
   27.1    Financial Data Schedule
   99.1    Consent of W. Kirk Liddell
   99.2    Consent of William W. Adams
   99.3    Consent of David C. Kleinman
   99.4    Consent of Wilson D. McElhinny
   99.5    Consent of G. Clay von Seldeneck
   99.6    Consent of John O. Shirk
   99.7    Consent of Michael J. Hughes
--------
  * To be filed by amendment.
 
  (b) Financial Statement Schedules:
SCHEDULE DESCRIPTION
   -------- -----------
II    Valuation and Qualifying Accounts
All other schedules are omitted because they are not required or applicable,
or because the information is included in the consolidated financial
statements or the notes thereto.
 
ITEM 17. UNDERTAKINGS.
 
  (a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
 
  (b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
 
  (c) The undersigned registrant hereby undertakes that:
 
    (1) For purposes of determining any liability under the Securities Act of
  1933, the information omitted from the form of prospectus filed as part of
  this registration statement in reliance upon Rule 430A and contained in a
  form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
  (4) or 497(h) under the Securities Act shall be deemed to be part of this
  registration statement as of the time it was declared effective.
 
    (2) For the purpose of determining any liability under the Securities Act
  of 1933, each post-effective amendment that contains a form of prospectus
  shall be deemed to be a new registration statement relating to the
  securities offered therein, and the offering of such securities at that
  time shall be deemed to be the initial bona fide offering thereof.
 
                                     II-2
SIGNATURES
 
  Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lancaster and
Commonwealth of Pennsylvania on April 10, 1998.
 
                                                      Ronald L. King
                                          By: _________________________________
                                                      RONALD L. KING
                                               PRESIDENT AND CHIEF EXECUTIVE
                                                          OFFICER
 
                               POWER OF ATTORNEY
 
  KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ronald L. King and W. Kirk Liddell,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same with exhibits thereto and other
documents in connection therewith or in connection with the registration of
Common Stock under the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission, granting unto each of such attorneys-in-
fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary in connection with such matters and hereby
ratifying and confirming all that each such attorney-in-fact, or his agent or
substitutes, may do or cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
 
              SIGNATURE                        TITLE                 DATE
 
           Ronald L. King              President, Chief         April 10, 1998
-------------------------------------   Executive Officer
           RONALD L. KING               and Director
                                        (principal
                                        executive officer)
 
          Jane E. Pinkerton            Acting Chief             April 10, 1998
-------------------------------------   Financial Officer
          JANE E. PINKERTON             (principal
                                        financial and
                                        principal
                                        accounting officer)
 
                                     II-3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Specialty Products & Insulation Co.
 
  As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
 
                                          Arthur Andersen LLP
 
Lancaster, Pennsylvania
April 9, 1998
 
                                     II-4
SCHEDULE II
 
               SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
BALANCE AT PROVISION              BALANCE
                                       BEGINNING   CHARGED    ACCOUNTS   AT END
                                        OF YEAR   TO EXPENSE WRITTEN OFF OF YEAR
                                       ---------- ---------- ----------- -------
YEAR ENDED DECEMBER 31, 1995
  Allowance for Doubtful Accounts.....    $700      $  830      $(936)    $594
YEAR ENDED DECEMBER 31, 1996
  Allowance for Doubtful Accounts.....    $594      $1,120      $(720)    $994
YEAR ENDED DECEMBER 31, 1997
  Allowance for Doubtful Accounts.....    $994      $   71      $(599)    $466
S-1
INDEX TO EXHIBITS
SEQUENTIALLY
   EXHIBIT                                                                    NUMBERED
   NUMBER  DESCRIPTION                                                        PAGE NO.
   ------- -----------                                                      ------------
1.1*   Underwriting Agreement..........................................
    3.1    Restated Articles of Incorporation of the Company...............
    3.2    Bylaws of the Company...........................................
    4.1*   Specimen Common Stock Certificate...............................
    5.1*   Opinion of Dechert Price & Rhoads...............................
   10.1*   Corporate Separation Agreement..................................
   10.2*   Tax Sharing and Indemnification Agreement.......................
   10.3*   Benefits Sharing Agreement......................................
   10.4*   1998 Specialty Products & Insulation Co. Stock Option Plan......
   10.5*   Form of Employment Agreement....................................
   21.1    Subsidiary of the Registrant....................................
   23.1    Consent of Arthur Andersen LLP (included on page II-4)..........
   23.2*   Consent of Dechert Price & Rhoads (included in Exhibit 5.1).....
   24.1    Power of Attorney (included on Signature Page)..................
   27.1    Financial Data Schedule.........................................
   99.1    Consent of W. Kirk Liddell......................................
   99.2    Consent of William W. Adams.....................................
   99.3    Consent of David C. Kleinman....................................
   99.4    Consent of Wilson D. McElhinny..................................
   99.5    Consent of G. Clay von Seldeneck................................
   99.6    Consent of John O. Shirk........................................
   99.7    Consent of Michael J. Hughes....................................
--------
  * To be filed by amendment.