FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-26703
G-I HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3483838
(State of Incorporation) (I. R. S. Employer
Identification No.)
818 Washington Street, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (302) 429-8525
(Not applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
As of October 28, 1996, the Registrant had 100 shares of common stock, $.01 par
value, outstanding.
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Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
Third Quarter Ended Nine Months Ended
-------------------- ---------------------
Oct. 1, Sept. 29, Oct. 1, Sept. 29,
1995 1996 1995 1996
-------- ---------- ---------- ---------
(Thousands)
Net sales.......................... $347,463 $410,659 $1,002,096 $1,153,567
-------- -------- ---------- ----------
Costs and expenses:
Cost of products sold............ 226,196 266,235 657,059 752,535
Selling, general and
administrative................. 69,650 84,860 199,018 235,517
Goodwill amortization............ 3,471 3,615 10,424 10,830
-------- -------- ---------- ----------
Total costs and expenses....... 299,317 354,710 866,501 998,882
-------- -------- ---------- ----------
Operating income................... 48,146 55,949 135,595 154,685
Interest expense................... (36,337) (37,790) (107,981) (112,935)
Equity in earnings of joint venture 1,000 1,798 2,950 4,948
Other income, net.................. 10,563 2,354 25,397 25,662
-------- -------- ---------- ----------
Income from continuing operations
before income taxes and
extraordinary item............... 23,372 22,311 55,961 72,360
Income taxes....................... (8,858) (8,489) (21,541) (27,493)
Minority interest in income of
subsidiaries..................... (3,159) (3,392) (9,452) (10,802)
-------- -------- ---------- ----------
Income from continuing operations
before extraordinary item........ 11,355 10,430 24,968 34,065
Discontinued operation (Note B): -------- -------- ---------- ----------
Income from discontinued
operation, net of income taxes. 466 14 966 266
Gain on sale of discontinued
operation, net of income taxes
of $30,648................... - 43,637 - 43,637
-------- -------- ---------- ----------
Income from discontinued operation 466 43,651 966 43,903
-------- -------- ---------- ----------
Income before extraordinary item... 11,821 54,081 25,934 77,968
Extraordinary item, net of income
tax benefit of $5,016 (Note C)... - - - (8,186)
-------- -------- ---------- ----------
Net income......................... $ 11,821 $ 54,081 $ 25,934 $ 69,782
======== ======== ========= ===========
See Notes to Consolidated Financial Statements
1
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G-I HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 29,
1995 1996
------------ ------------
ASSETS (Thousands)
Current Assets:
Cash.......................................... $ 67,987 $ 170,162
Investments in trading securities............. 23,331 1,701
Investments in available-for-sale securities.. 164,804 139,053
Investments in held-to-maturity securities.... 15,017 14,495
Accounts receivable, trade, net............... 74,548 88,204
Accounts receivable, other.................... 36,750 78,598
Insurance receivable.......................... 15,226 38,296
Inventories................................... 175,486 177,644
Deferred income tax benefits.................. 42,627 42,627
Other current assets.......................... 11,063 9,982
---------- ------------
Total Current Assets........................ 626,839 760,762
Investment in limited partnership............... 450,000 450,000
Property, plant and equipment, net.............. 708,883 704,384
Goodwill, net................................... 477,923 471,620
Insurance receivable............................ 185,216 185,825
Receivable from parent company.................. 8,662 8,504
Net assets of discontinued operation............ 13,582 -
Other assets.................................... 89,769 88,684
---------- ------------
Total Assets.................................... $2,560,874 $ 2,669,779
========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Short-term debt............................... $ 36,199 $ 22,776
Current maturities of long-term debt.......... 9,387 3,485
Accounts payable.............................. 95,053 107,369
Accrued liabilities........................... 106,271 121,211
Reserve for asbestos claims................... 84,441 86,505
Income taxes.................................. 5,487 6,371
---------- ------------
Total Current Liabilities................... 336,838 347,717
---------- ------------
Long-term debt less current maturities.......... 1,550,347 1,562,538
---------- ------------
Deferred income taxes........................... 89,931 135,239
---------- ------------
Reserve for asbestos claims..................... 297,439 271,246
---------- ------------
Other liabilities............................... 174,429 173,569
---------- ------------
Minority interest in subsidiaries............... 113,597 117,817
---------- ------------
Shareholder's Equity (Deficit):
Common stock, $.01 par value per share;
1,000 shares authorized: 100 shares issued
and outstanding............................. - -
Additional paid-in capital.................... 50,129 50,745
Excess of purchase price over the adjusted
historical cost of the predecessor company
shares owned by GAF's shareholders.......... (72,605) (72,605)
Retained earnings............................. 6,213 69,695
Cumulative translation adjustment and other... 14,556 13,818
---------- ------------
Shareholder's Equity (Deficit).............. (1,707) 61,653
---------- ------------
Total Liabilities and Shareholder's Equity
(Deficit)..................................... $2,560,874 $ 2,669,779
========== ============
See Notes to Consolidated Financial Statements
2
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G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
--------------------
Oct. 1, Sept. 29,
1995 1996
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period......... $147,144 $ 91,318
-------- --------
Cash provided by operating activities:
Net income........................................... 25,934 69,782
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash extraordinary charge.................... - 8,143
Income from discontinued operation............... (966) (43,903)
Depreciation..................................... 41,243 46,255
Goodwill amortization............................ 10,424 10,830
Deferred income taxes............................ 12,754 13,726
Non-cash interest charges........................ 60,730 51,668
(Increase) decrease in working capital items......... (50,243) (41,488)
Payments of asbestos claims, net..................... (43,636) (53,437)
Change in cumulative translation adjustment.......... 6,470 (4,005)
Change in minority interest in subsidiary............ 11,002 10,015
Other, net........................................... (12,239) 12,963
-------- --------
Net cash provided by continuing operations ....... 61,473 80,549
Net cash provided by (used in) discontinued
operation........................................ 2,034 (182)
-------- --------
Net cash provided by operating activities ........ 63,507 80,367
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions................ (45,489) (51,395)
Proceeds from sale of discontinued operation......... - 89,464
Purchases of available-for-sale securities........... (297,569) (311,394)
Purchases of held-to-maturity securities............. (16,776) (32,255)
Designation of trading securities as available-
for-sale........................................... (2,697) (18,325)
Proceeds from sales of available-for-sale securities. 160,068 360,932
Proceeds from held-to-maturity securities............ - 32,766
-------- --------
Net cash provided by (used in) investing activities...(202,463) 69,793
-------- --------
Cash provided by (used in) financing activities:
Proceeds from sales of accounts receivable........... 25,325 16,378
Increase (decrease) in short-term debt............... 59,632 (13,755)
Decrease in long-term debt, net...................... (17,370) (52,493)
Decrease in restricted cash.......................... 24,484 -
Decrease in loan from parent company................. (1,800) -
Financing fees and expenses.......................... (295) (2,918)
Dividends paid to parent company..................... (27,692) (6,438)
Subsidiary's repurchases of common stock............. (13,965) (10,365)
Other, net........................................... (196) (24)
-------- --------
Net cash provided by (used in) financing activities 48,123 (69,615)
-------- --------
Net change in cash and cash equivalents................ (90,833) 80,545
-------- --------
Cash and cash equivalents, end of period............... $ 56,311 $171,863
======== =======
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............... $ 50,039* $ 60,879*
Income taxes....................................... 7,536 5,825
* Includes interest paid on partnership non-recourse debt of $24.1 million for
each of the first nine months of 1995 and 1996.
See Notes to Consolidated Financial Statements
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The "Company" refers to G-I Holdings Inc. and its subsidiaries, and the
"Registrant" refers to G-I Holdings Inc. These financial statements reflect,
in the opinion of the Registrant, all adjustments necessary to present fairly
the financial position of the Company at December 31, 1995 and September 29,
1996, and the results of operations and cash flows for the periods ended
October 1, 1995 and September 29, 1996. All adjustments are of a normal
recurring nature. These financial statements should be read in conjunction
with the annual financial statements and notes thereto included in the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K").
NOTE A: In September 1996, GAF Corporation ("GAF") announced a series of
transactions involving the refinancing and reduction of existing
indebtedness. ISP Holdings Inc. ("ISP Holdings"), the parent of the
Registrant and a direct wholly-owned subsidiary of GAF, was formed in
1996 in order to consummate such transactions.
On October 18, 1996, ISP Holdings concluded a cash tender offer
and consent solicitation for the Registrant's outstanding Senior
Discount Notes due 1998 ("Discount Notes"). Pursuant to the tender
offer, $428.5 million aggregate principal amount of Discount Notes
were purchased by ISP Holdings; $133 million aggregate principal
amount of such Discount Notes were repurchased by the Registrant from
ISP Holdings. $301.8 million aggregate principal amount of Discount
Notes remain outstanding, $295.5 million of which are held by ISP
Holdings. ISP Holdings also concluded an offer to exchange its new
Senior Notes due February 15, 2002 for the Registrant's 10% Senior
Notes due 2006 (the "10% Notes"). Pursuant to the exchange offer,
$199.9 million of the 10% Notes were acquired by ISP Holdings and
remain outstanding. An additional $.1 million of 10% Notes are held
by other holders.
Pursuant to the consent solicitations, ISP Holdings obtained
consents to amendments to the Indentures relating to the Discount
Notes and 10% Notes which modified or eliminated the restrictive
covenants contained in the Indentures, including those that prohibit
the transactions described below, restrict the Registrant from making
distributions (including the payment of dividends) to its parent, and
restrict transactions with affiliates. The consents also eliminated
the requirement contained in the Indentures that the Registrant
continue to make filings with the Securities and Exchange Commission
regardless of whether it is subject to reporting obligations under
the securities laws. The Registrant intends to terminate its
reporting obligations as soon as it may do so under applicable
securities laws and regulations.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A: (Continued)
In connection with these transactions, the Company will record
an extraordinary loss of approximately $23 million (net of the
related income tax benefit) in the fourth quarter of 1996.
Furthermore, subject to certain conditions, GAF intends to
effect a series of transactions involving its subsidiaries that will
result in the capital stock of ISP Holdings (whose principal asset
will then be approximately 83% of the issued and outstanding common
stock of International Specialty Products Inc. ("ISP")) being
distributed to the stockholders of GAF. As a result of such
distribution, ISP Holdings and ISP will no longer be direct or
indirect subsidiaries of GAF, and the other assets of GAF,
principally the building materials business, will remain assets of
the Registrant. G-I Holdings Inc. will remain a wholly-owned
subsidiary of ISP Holdings until such transactions are consummated.
Upon consummation of such transactions, all Discount Notes and 10%
Notes then held by ISP Holdings will be contributed to G-I Holdings
Inc. and be canceled.
NOTE B: Discontinued Operation
On August 1, 1996, the Company completed the sale of WAXQ, a
commercial radio station operated by GAF Broadcasting Company, Inc.
("GAF Broadcasting"), a wholly-owned subsidiary of the Company, for a
purchase price of $90 million. The gain on disposal was $43.6
million, after income taxes of $30.6 million.
Accordingly, GAF Broadcasting is reported as a discontinued
operation. Summary operating results for GAF Broadcasting for the
third quarter and first nine months of 1995 and 1996 are as follows:
Third Quarter First Nine Months
-------------- ----------------
1995 1996 1995 1996
------ ------ ------- -----
(Thousands)
Sales $2,383 $ 738 $6,306 $4,233
Income before income taxes 686 22 1,418 428
Income taxes (220) (8) (452) (162)
Net income 466 14 966 266
NOTE C: Extraordinary Item
In February 1996, the Registrant completed the exchange of
$189.3 million in accreted value of its then outstanding Discount
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: (Continued)
Notes, representing approximately 35% of the total issue, for $200
million of its 10% Notes, which were subject to the exchange offer
described in Note A. In connection therewith, the Company recorded
an extraordinary loss of $8.2 million, net of related income tax
benefit of $5 million.
NOTE D: Business Segment Information
Third Quarter First Nine Months
-------------- ------------------
1995 1996 1995 1996
------ ------ --------- ------
(Millions)
Net Sales:
ISP*...................... $155.5 $159.1 $ 494.4 $ 505.1
Building Materials........ 192.0 251.6 507.7 648.5
------ ------ -------- --------
Total................... $347.5 $410.7 $1,002.1 $1,153.6
====== ====== ======== ========
Operating Income:
ISP....................... $ 31.8 $ 33.5 $ 99.2 $ 105.7
Building Materials........ 15.6 22.8 38.4 51.2
Other..................... .7 (.4) (2.0) (2.2)
------ ------ -------- --------
Total................... $ 48.1 $ 55.9 $ 135.6 $ 154.7
====== ====== ======== ========
* Excludes sales by International Specialty Products Inc. and its
subsidiaries ("ISP") to Building Materials Corporation of America
("BMCA") and U.S. Intec, Inc. ("USI").
NOTE E: On July 26, 1996, ISP refinanced its $250 million long-term revolving
credit facility and $150 million one-year revolving credit facility
with a $400 million five-year revolving credit facility (the "ISP
Credit Agreement"). Borrowings under the ISP Credit Agreement bear
interest at a floating rate based on the banks' base rate, federal
funds rate, Eurodollar rate or a competitive bid rate (which may be
based on LIBOR or money market rates), at the option of ISP.
The ISP Credit Agreement permits ISP to make loans to affiliates
and to make available letters of credit for the benefit of affiliates
in an aggregate amount of up to $75 million. As of September 29,
1996, $2.3 million of letters of credit for the benefit of affiliates
were outstanding.
The ISP Credit Agreement permits ISP to pay cash dividends and
make other restricted payments (as defined) of up to the sum of $50
million plus 50% of the sum of its consolidated net income (if
positive) after January 1, 1996 plus the aggregate net cash proceeds
from issuance of ISP's common stock after December 31, 1995.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E: (Continued)
In June 1996, BMCA's bank credit facilities were extended to
June 1997 on the same terms and conditions. Such facilities provide
for revolving lines of credit of up to $30 million and letters of
credit facilities of up to $39 million, provided that total
borrowings and outstanding letters of credit may not exceed $40
million.
NOTE F: Inventories consist of the following:
December 31, Sept. 29,
1995 1996
------------ --------
(Thousands)
Finished goods..................... $106,157 $106,540
Work in process.................... 28,134 32,709
Raw materials and supplies......... 44,336 43,536
-------- --------
Total............................ 178,627 182,785
Less LIFO reserve.................. (3,141) (5,141)
-------- --------
Inventories........................ $175,486 $177,644
======== ========
NOTE G: Contingencies
Asbestos Claims Filed Against GAF
As of September 29, 1996, GAF had been named as a defendant in
approximately 59,300 pending lawsuits involving alleged health claims
relating to the inhalation of asbestos fiber ("Asbestos Claims"),
having resolved approximately 221,000 Asbestos Claims. Plaintiffs in
approximately 31,200 of the pending lawsuits were preliminarily
enjoined from proceeding with their claims other than in accordance
with the pending class-action settlement of future asbestos bodily
injury claims (the "Settlement"). Since December 31, 1995, GAF has
settled approximately 19,900 Asbestos Claims and received notice of
approximately 29,500 new Asbestos Claims (of which approximately
23,800 are subject to the preliminary injunction). On May 10, 1996,
the United States Court of Appeals for the Third Circuit (the "Third
Circuit") issued an opinion, concluding that the class action was not
certifiable as a class action, thus reversing the decision of the
lower court which (i) found the Settlement fair and reasonable and
(ii) issued the preliminary injunction. The Company has filed a
petition for a writ of certiorari with the United States Supreme
Court to pursue an appeal of the Third Circuit's decision. The
Company continues to believe the Settlement should ultimately be
upheld on appeal, although there can be no assurance in this regard.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G: (Continued)
The reserves of GAF and the Company for asbestos bodily injury
claims, as of September 29, 1996, were approximately $357.8 million
(before estimated present value of recoveries from products liability
insurance policies of approximately $211 million and related deferred
tax benefits of approximately $51.4 million). As a result of a
settlement agreement with an insurance guaranty association entered
into by the Company in the third quarter of 1996, estimated
recoveries from products liability insurance policies were increased
by $32.7 million as of September 29, 1996 and, in that connection,
the Company elected to increase its reserve for asbestos bodily
injury claims by $32.7 million as of such date. Certain components
of the asbestos-related liability and the related insurance
recoveries have been reflected on a discounted basis in the Company's
financial statements. The aggregate undiscounted liability, as of
September 29, 1996, before estimated recoveries from products
liability insurance policies, was $398.1 million. The estimate of
liability for Asbestos Claims is based on the Settlement becoming
effective and on assumptions which relate, among other things, to the
number of new cases filed, the cost of resolving (either by
settlement or litigation or through the mechanism established by the
Settlement) pending and future claims, the realization of related tax
benefits, the favorable resolution of pending litigation against
certain insurance companies and the amount of GAF's recoveries from
various insurance companies.
The Company believes that the reserves established on its books
(which reflect the discounting of a portion of the liabilities),
together with anticipated available insurance proceeds, will be
sufficient to satisfy all pending Asbestos Claims and all claims
anticipated to be resolved during the ten-year period of the
Settlement. There can be no assurance, however, that the assumptions
referred to above are correct.
Although any opinion is necessarily judgmental and must be based
on information currently known, it is the opinion of GAF and the
Company, based on the assumptions referred to above and their
analysis of their future business, financial prospects and cash
flows, that asbestos-related bodily injury claims will not,
individually or in the aggregate, have a materially adverse effect on
the respective financial positions, results of operations or
liquidity of GAF and the Company, after giving effect to the
aforementioned reserves. In the event that the Third Circuit's
decision is not reversed and the Settlement is not upheld, or the
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G: (Continued)
conditions to the effectiveness of the Settlement are not satisfied,
GAF and the Company could be required to increase their estimates of
the asbestos-related liabilities and adjust any related discounts,
and it is not currently possible to estimate the range or amount of
such possible additional liability.
GAF has also been named as a co-defendant in asbestos-in-
buildings cases for economic and property damage or other injuries
based upon an alleged present or future need to remove asbestos-
containing materials from public and private buildings. Since these
actions were first initiated 13 years ago, GAF has not only
successfully disposed of approximately 140 such cases at an average
disposition cost (including cases disposed of at no cost to GAF) of
approximately $15,000 per case (all of which have been paid by
insurance under reservation of rights), but is a co-defendant in only
8 remaining lawsuits.
Environmental Litigation
The Company, together with other companies, is a party to a
variety of proceedings and lawsuits involving environmental matters
("Environmental Claims"), in which recovery is sought for the cost of
cleanup of contaminated sites, a number of which are in the early
stages or have been dormant for protracted periods. At most sites,
the Company anticipates that liability will be apportioned among the
companies found to be responsible for the presence of hazardous
substances at the site.
In the opinion of the Company's management, the resolution of
the Environmental Claims should not be, individually or in the
aggregate, material to the results of operations, liquidity or
financial position of the Company. However, adverse decisions or
events, particularly as to the liability and the financial
responsibility of the other parties involved at each site and their
insurers, could cause the Company to increase its estimate of its
liability in respect of such matters. It is not currently possible
to estimate the amount or range of any additional liability.
For further information regarding asbestos-related and
environmental matters and other litigation, reference is made to
SItem 3. Legal Proceedings" in the Company's Form 10-K.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter 1996 Compared With
Third Quarter 1995
The Company recorded third quarter 1996 net income of $54.1 million
compared with net income of $11.8 million in the third quarter of 1995. Net
income in the third quarter of 1996 included a gain of $43.6 million (net of
tax) from the sale of a discontinued operation (see Note B to Consolidated
Financial Statements). Net income for the third quarter of 1996 also reflected
higher operating income, offset by increased interest expense and lower other
income.
The Company's third quarter operating income was $55.9 million, an
increase of 16% over last year's $48.1 million, resulting from higher operating
income in each of its two businesses. Net sales for the third quarter
increased by 18% to $410.7 million from last year's $347.5 million.
ISP's net sales (excluding sales to BMCA and USI) were $159.1 million for
the third quarter of 1996 compared with $155.5 million for the same period last
year. The higher sales reflected higher unit sales in the U.S., Europe and
Western Hemisphere, partially offset by lower sales in the Asia-Pacific region
and the unfavorable effect ($2.2 million) of the stronger U.S. dollar relative
to other currencies in certain areas of the world.
ISP's operating income for the third quarter of 1996 increased by 5% to
$33.5 million from last year's $31.8 million. The increase in operating income
was attributable to higher specialty chemicals operating income (up $1.1
million or 4%) and higher mineral products operating income (up $.9 million or
18%), due to increased sales and improved gross margins, partially offset by
lower filter products results (down $.4 million). The improved specialty
chemicals gross margins (up 2.3 percentage points) were due to the continued
benefits from ISP's re-engineering program.
The Company's building materials business ("Building Materials") is
conducted through two wholly-owned subsidiaries, BMCA and USI. Building
Materials' net sales for the third quarter of 1996 were $251.6 million, a 31%
increase over last year's sales of $192 million, primarily reflecting sales of
USI, which was acquired in October 1995, and also reflecting 18% higher BMCA
sales due to increased unit volumes of both residential and commercial roofing
products and higher average selling prices.
Operating income for Building Materials for the third quarter of 1996 was
$22.8 million, a 46% increase compared with $15.6 million recorded in last
year's quarter. The higher operating income resulted from the higher sales
volumes and from improved BMCA gross margins (up .9 percentage points)
resulting primarily from higher average selling prices, as well as operating
income of $2.5 million at USI.
10
<PAGE>
Interest expense increased to $37.8 million for the third quarter of 1996
compared with $36.3 million for the same period last year. The increase was
due primarily to higher debt levels, partially offset by the effects of lower
interest rates.
Other income, net for the third quarter was $2.4 million compared with
$10.6 million for the third quarter of 1995, with the decrease primarily
attributable to $9.6 million of non-recurring expenses, reflecting a $6.6
million write-down of an inactive plant and a $3.0 million provision for
environmental expenses related to discontinued operations, partially offset by
higher investment income.
Results of Operations - Nine Months 1996 Compared With
Nine Months 1995
For the first nine months of 1996, the Company recorded net income of
$69.8 million compared with net income of $25.9 million for the first nine
months of 1995. Net income in the 1996 period included the $43.6 million gain
(net of tax) from the sale of a discontinued operation, and also reflected an
extraordinary charge of $8.2 million (net of a related income tax benefit of $5
million) related to the exchange of a portion of the Registrant's senior debt
(see Note C to Consolidated Financial Statements). Income from continuing
operations before the extraordinary item increased by 36% as a result of higher
operating income and higher equity income from the GAF-Huls Chemie GmbH joint
venture, partially offset by increased interest expense.
Operating income for the first nine months of 1996 was $154.7 million, an
increase of 14% from $135.6 million in the same period last year, resulting
from higher operating income in each of the Company's two businesses. Net
sales for the first nine months increased by 15% to $1.154 billion from last
year's $1.002 billion.
ISP's net sales for the first nine months (excluding sales to BMCA and
USI) were $505.1 million compared with $494.4 million for the same period in
1995. The sales growth was attributable to increased sales of specialty
chemicals (up $12.6 million), primarily reflecting increased sales volumes and
higher sales prices, and also reflected higher filter products sales (up $2.7
million) due to increased sales volumes. The increase in sales resulted from
higher sales in the U.S., Europe and the Western Hemisphere, partially offset
by lower sales in the Asia-Pacific region and the unfavorable effect ($6.7
million) of the stronger U.S. dollar relative to other currencies in certain
areas of the world. Sales for the mineral products business (excluding sales
to BMCA and USI) decreased by $4.9 million (16%) due to lower sales volumes
resulting from a lost customer and adverse winter weather conditions in the
first quarter of 1996.
11
<PAGE>
ISP's operating income for the first nine months of 1996 increased by 7%
to $105.7 million from last year's $99.2 million. The increase in operating
income was due to higher specialty chemicals operating income (up $9.7 million
or 12%), partially offset by lower mineral and filter products results (down
$1.1 and $2.4 million, respectively). The higher specialty chemicals operating
income resulted primarily from the higher sales levels and improved gross
margins (up 2.9 percentage points) due to improved pricing and continued
benefits from the Company's re-engineering program.
Building Materials' net sales for the first nine months of 1996 were
$648.5 million, a 28% increase over sales of $507.7 million for the same period
in 1995. The higher sales primarily reflected the sales of USI, which was
acquired in October 1995, and also reflected a 14% sales growth for BMCA due to
increased unit volumes of both residential and commercial roofing products and
higher average selling prices.
Operating income for Building Materials for the first nine months of 1996
was $51.2 million, a 33% increase compared with $38.4 million for the same
period in 1995. The higher operating income resulted from higher sales and
improved BMCA gross margins resulting primarily from higher average selling
prices, as well as operating income of $3.1 million at USI.
Interest expense increased to $112.9 million for the first nine months of
1996 compared with $108 million for the same period last year, with the
increase due primarily to higher debt levels, partially offset by lower
interest rates.
Other income, net for the first nine months of 1996 was $25.7 million
compared with $25.4 million last year, with the increase attributable to higher
investment income and gains associated with ISP's program to hedge certain of
its foreign currency exposures, mostly offset by $10.4 million of non-recurring
expenses, reflecting a $6.6 million write-down of an inactive plant and $3.8
million in provisions for environmental expenses related to discontinued
operations.
Liquidity and Financial Condition
During the first nine months of 1996, the Company generated $80.4 million
of cash from operations, invested $51.4 million in capital expenditures and
acquisitions, received $89.5 million of net proceeds from the sale of a
discontinued operation, and generated $31.7 million from net sales of available-
for-sale and held-to-maturity securities, for a net cash inflow of $150.2
million before financing activities. Such cash flow was net of $53.4 million
in net payments of asbestos claims.
Cash invested in additional working capital totaled $41.5 million during
the first nine months of 1996. This amount principally reflected a $71.7
million increase in receivables (including a $33.4 million increase in the
12
<PAGE>
receivable from the trust which purchases BMCA's trade accounts receivable) due
mainly to higher sales in September 1996 versus December 1995, partially offset
by a $33.1 million increase in payables. Cash from operations in the first
nine months of 1996 included $5.7 million in dividends received from the GAF-
Huls Chemie GmbH joint venture.
Net cash used in financing activities during the first nine months of 1996
was $69.6 million, primarily comprised of a $40.8 million reduction in
borrowings under ISP's bank credit agreements, $11.7 million of net repayments
of other long-term debt, a $13.8 million decrease in short-term borrowings,
$10.4 million for ISP's repurchases of its common stock, and $6.4 million in
dividends paid to the Registrant's parent, GAF, partially offset by $16.4
million in proceeds from the sale of BMCA's trade receivables.
As a result of the foregoing factors, cash and cash equivalents increased
by $80.5 million during the first nine months of 1996 to $171.9 million
(excluding $139.1 million of available-for-sale securities and $14.5 million of
held-to-maturity securities).
On August 1, 1996, the Company completed the sale of WAXQ, a commercial
radio station operated by GAF Broadcasting Company, Inc., a wholly-owned
subsidiary of the Company for a purchase price of $90 million.
In June 1996, BMCA's bank credit facilities were extended to June 1997 on
the same terms and conditions. Such facilities provide for revolving lines of
credit of up to $30 million and letters of credit facilities of up to $39
million, provided that total borrowings and outstanding letters of credit may
not exceed $40 million. As of September 29, 1996, $33.1 million of letters of
credit were outstanding and no amounts had been borrowed thereunder.
On July 26, 1996, ISP entered into a new five-year revolving credit
facility (the "ISP Credit Agreement") with a group of banks, which provides for
loans of up to $400 million and letters of credit of up to $75 million (see
Note E to Consolidated Financial Statements).
The ISP Credit Agreement and the indentures relating to ISP's 9% Senior
Notes and BMCA's Senior Deferred Coupon Notes contain restrictions which limit
the amount of dividends and loans that may be made to affiliates, including the
Registrant. As of September 29, 1996, ISP could have paid dividends in the
aggregate amount of $79.9 million, of which $66.4 million would have been
available to the Registrant, and could have made loans to affiliates of $72.7
$72.7 million, and BMCA could have paid dividends of up to $23 million. In
addition, as of September 29, 1996, loans in the aggregate amount of $98.8
million were owed by ISP to the Registrant.
13
<PAGE>
In September 1996, GAF Corporation ("GAF") announced a series of
transactions involving the refinancing and reduction of existing indebtedness.
ISP Holdings Inc. ("ISP Holdings"), the parent of the Registrant and a direct
wholly-owned subsidiary of GAF, was formed in 1996 in order to consummate such
transactions.
In February 1996, the Registrant completed the exchange of $189.3 million
in accreted value of its outstanding Senior Discount Notes due 1998 ("Discount
Notes"), representing approximately 35% of the total issue, for $200 million of
its new 10% Senior Notes due February 15, 2006 (the "10% Notes"). On October
18, 1996, ISP Holdings concluded a cash tender offer and consent solicitation
for the Registrant's outstanding Discount Notes. Pursuant to the tender offer,
$428.5 million aggregate principal amount of Discount Notes were purchased by
ISP Holdings; $133 million aggregate principal amount of such Discount Notes
were repurchased by the Registrant from ISP Holdings. $301.8 million aggregate
principal amount of Discount Notes remain outstanding, $295.5 million of which
are held by ISP Holdings. ISP Holdings also concluded an offer to exchange its
new Senior Notes due February 15, 2002 for the Registrant's 10% Notes.
Pursuant to the exchange offer, $199.9 million of the 10% Notes were acquired
by ISP Holdings and remain outstanding. An additional $.1 million of 10% Notes
are held by other holders.
See Note G to Consolidated Financial Statements for information regarding
contingencies.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The discussion relating to legal proceedings contained in Note G to
Consolidated Financial Statements in Part I is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Supplement, dated October 18, 1996, to Indenture, dated as of October
5, 1993, between G-I Holdings Inc. and The Bank of New York, as
Trustee.
4.2 Supplement, dated October 18, 1996, to Indenture, dated as of
February 14, 1996, between G-I Holdings Inc. and The Bank of New
York, as Trustee.
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended
September 29, 1996.
15
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
G-I Holdings Inc.
DATE: October 29, 1996 BY: /s/James P. Rogers
---------------- ---------------------------
James P. Rogers
Senior Vice President and
Chief Financial Officer
DATE: October 29, 1996 BY: /s/Jonathan H. Stern
---------------- ---------------------------
Jonathan H. Stern
Vice President and Controller
16
G-I HOLDINGS INC.
AND
THE BANK OF NEW YORK,
Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 18, 1996
TO
INDENTURE
Dated as of October 5, 1993
Senior Discount Notes
Due October 1, 1998
and
Series B Senior Discount Notes
Due October 1, 1998
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of October 18, 1996, between G-
I HOLDINGS INC., a Delaware corporation (the "Company"), and THE BANK OF NEW
YORK, a New York banking corporation (the "Trustee"), having its Corporate
Trust Office at 101 Barclay Street, New York, New York 10286.
RECITALS
WHEREAS, the Company and the Trustee have executed and delivered the
Indenture, dated as of October 5, 1993 (the "Original Indenture" and
capitalized terms used herein without definition have the respective meanings
specified therein), governing the terms of the Company's Senior Discount Notes
due 1998 and Series B Senior Discount Notes due 1998 (collectively, the
"Notes"); and
WHEREAS, ISP Holdings Inc. ("ISP Holdings") has solicited the consent
of the holders of the Notes to certain amendments (the "Amendments") to the
Original Indenture pursuant to that certain Offer to Purchase and Consent
Solicitation Statement of ISP Holdings, dated September 13, 1996, as amended
(the "Offer to Purchase"); and
WHEREAS, Holders representing a majority in aggregate principal
amount of the Notes have delivered their consent to the Amendments; and
WHEREAS, Section 9.02 of the Original Indenture permits the Company,
when authorized by resolution of its Board of Directors, and the Trustee, to
amend the Original Indenture with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding; and
WHEREAS, the Board of Directors of the Company has adopted such a
resolution in order to reflect the Amendments pursuant to this First
Supplemental Indenture; and
WHEREAS, the Company desires to enter into this First Supplemental
Indenture in order to amend the Original Indenture as of the Effective Time (as
defined herein);
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, it is mutually covenanted and agreed for the equal
and ratable benefit of all Holders of the Notes as follows:
ARTICLE ONE
AMENDMENTS TO ORIGINAL INDENTURE
At the Effective Time, each of the following sections of the Original
Indenture shall be modified as follows:
A. Definitions.
-----------
<PAGE>
(i) Section 1.01 shall be amended by adding the following
definitions in their appropriate alphabetical location:
"ISP Holdings Transactions" means the consummation of a tender offer,
-------------------------
exchange offer and senior note offering of ISP Holdings Inc., on
substantially the terms described in that certain Offer to Purchase
and Consent Solicitation Statement, dated September 13, 1996, as
amended, of ISP Holdings Inc.
"Spin Off Transactions" means the consummation of a series of
---------------------
transactions involving GAF's subsidiaries on substantially the terms
described in that certain Offer to Purchase and Consent Solicitation
Statement, dated September 13, 1996, as amended, of ISP Holdings Inc.
that will, among other things, result in the capital stock of ISP
Holdings Inc. being distributed to the stockholders of GAF.
(ii) Section 1.01 shall be amended further by deleting each of the
following definitions in its entirety:
"Linden Dividend"
---------------
"Linden Property"
---------------
"Permitted Lien"
--------------
"Restricted Investment"
---------------------
"Restricted Payment"
------------------
"Tax Sharing Agreements
----------------------
"Unrestricted Affiliate"
----------------------
B. Covenants.
---------
(i) The text of each of the following Sections shall be deleted in
its entirety and replaced, in each case, by the words "Intentionally Omitted":
<PAGE>
Section 4.12. Limitation on Restricted Payments and Restricted
------------------------------------------------
Investments.
- -----------
Section 4.13. Limitation on Liens.
-------------------
Section 4.14. Limitation on Transactions with Affiliates.
------------------------------------------
Section 4.15. Limitation on Investments in Non-Recourse Subsidiaries
------------------------------------------------------
by ISP Subsidiaries and BMC Subsidiaries.
- ----------------------------------------
Section 4.16. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Subsidiaries.
- ----------------------
Section 4.20. Consents, etc.
--------------
(ii) Each of the following Sections shall be amended to read in its
entirety as follows:
Section 4.04. Payments of Taxes and Other Claims. G-I Holdings
----------------------------------
shall, and shall cause each of its Subsidiaries (other than Non-Recourse
Subsidiaries) to, pay or discharge or cause to be paid or discharged, before
any penalty accrues from the failure to so pay or discharge, all material
taxes, assessments and governmental charges levied or imposed upon it or any of
such Subsidiaries or upon the income, profits or property of it or any of such
Subsidiaries, provided that there shall not be required to be paid or
--------
discharged any such tax, assessment or charge if the amount, applicability or
validity thereof is being contested in good faith by appropriate proceedings
and adequate provision therefor has been made.
Section 5.01. When G-I Holdings May Merge, etc. G-I Holdings shall
--------------------------------
not consolidate with or merge with or into or sell, assign, transfer or lease
all or substantially all of its properties and assets (either in one
transaction or series of related transactions) to any Person, unless G-I
Holdings shall be the continuing Person, or the resulting, surviving or
transferee Person (if other than G-I Holdings) shall be a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form reasonably satisfactory
<PAGE>
to the Trustee, all the obligations of G-I Holdings under the Securities and
this Indenture, and this Indenture shall remain in full force and effect.
In connection with any consolidation, merger, sale, assignment,
transfer or lease contemplated by this Section 5.01, G-I Holdings shall
deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, sale, assignment,
transfer or lease and the supplemental indenture in respect thereto comply with
this Article V and that all conditions precedent herein provided for relating
to such transaction have been complied with.
Section 6.01. Events of Default. An "Event of Default" occurs if:
-----------------
(1) G-I Holdings defaults in the payment of interest on
any Security when the same becomes due and payable and the
default continues for a period of 30 days;
(2)(i) G-I Holdings defaults in the payment of the
principal of any Security when the same becomes due and payable
at maturity or otherwise or (ii) G-I Holdings fails to redeem or
repurchase Securities when required pursuant to this Indenture
or the Securities;
(3) G-I Holdings fails to comply with Section 5.01;
(4) G-I Holdings fails to comply for 30 days after
notice with any of its obligations under Sections 4.03, 4.06,
4.09, 4.10, 4.11 and 4.17;
(5) G-I Holdings fails to comply for 60 days after
notice with its other agreements contained in this Indenture or
the Securities (other than those referred to in clauses (1)-(4)
above); or
(6) G-I Holdings or any of its Significant Subsidiaries
(A) admits in writing its inability to pay its debts generally
as they become due, (B) commences a voluntary case or proceeding
under any Bankruptcy Law with respect to itself, (C) consents to
the entry of a judgment, decree or order for relief against it
in an involuntary case or proceeding under any Bankruptcy Law,
(D) consents to the appointment of a Custodian of it or for
substantially all of its property, (E) consents to or acquiesces
in the institution of a bankruptcy or an insolvency proceeding
against it, (F) makes a general assignment for the benefit of
its creditors, or (G) takes any corporate action to authorize or
effect any of the foregoing.
<PAGE>
A Default under clauses (4) or (5) is not an Event of Default until
the Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify G-I Holdings in writing of the Default, and G-I
Holdings does not cure the Default with the time specified in such clause after
receipt of such notice. Such notice shall be given by the Trustee if so
requested in writing by the Holders of at least 25% in aggregate principal
amount of the outstanding Securities. When a Default under clause (4) or (5)
is cured or remedied within the specified period, it ceases to exist.
(iii) Each of Sections 4.09, 4.10 and 4.11 shall be amended by
modifying the ratio set forth in subparagraph (a) of each such Section to read
"at least 1.00 to 1.00." Section 4.09 shall further be amended by deleting
subparagraph (e) therein in its entirety. Each of Sections 6.02 and 7.07 shall
be amended by changing each reference therein to clause (7) of Section 6.01 to
be a reference to clause (6) of Section 6.01.
(iv) Subparagraph (a) of Section 4.06 shall be amended to read in
its entirety as follows:
(a) G-I Holdings will file with the Trustee and provide
Securityholders, within 15 days after it files them with the Commission (and
only to the extent that it files them with the Commission), copies of its
annual report and the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company is required to file with the
Commission pursuant to Section 13 of 15(d) of the Exchange Act, without
exhibits in the case of Securityholders, unless G-I Holdings is requested in
writing by the Securityholders. G-I Holdings also will comply with the TIA
314(a).
(v) Subparagraph (a) of Section 4.18 shall be amended to read in its
entirety as follows:
(a) G-I Holdings shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to consummate an Asset Sale unless:
(1) in the case of an Asset Sale by G-I Holdings or any Specified
Subsidiary, G-I Holdings shall commit to apply the Net Cash Proceeds of
such Asset Sale within 300 days of the consummation of such Asset Sale,
and shall apply such Net Cash Proceeds within 360 days of receipt thereof,
(i) to invest in the businesses that G-I Holdings and its Subsidiaries
(other than businesses engaged in through Non-Recourse Subsidiaries) are
engaged in at the time of such Asset Sale or any like or related business,
(ii) to pay the Debt referred to in the last sentence of the definition
thereof or make provision for the payment thereof, through an escrow or
other fund, and/or (iii) to offer to purchase the Securities in a tender
offer (a "Net Proceeds Offer") at a redemption price equal to 100% of the
Accreted Value thereof; provided that G-I Holdings may defer making a Net
--------
Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales to
<PAGE>
be applied pursuant to this clause (1)(iii) equal or exceed $20,000,000;
and
(2) in the case of an Asset Sale by any ISP Subsidiary or any BMC
Subsidiary, such ISP Subsidiary or BMC Subsidiary, as the case may be,
shall apply the Net Cash Proceeds of such Asset Sale within one year of
receipt thereof, (i) to invest in the businesses that G-I Holdings and its
Subsidiaries (other than businesses engaged in through Non-Recourse
Subsidiaries) are engaged in at the time of such Asset Sale or any like or
related business, (ii) to pay the Debt referred to in the last sentence of
the definition thereof or make provision for the payment thereof, through
an escrow or other fund, (iii) to pay or satisfy Debt or Preferred Stock
of any ISP Subsidiary or any BMC Subsidiary, as the case may be, and/or
(iv) to make a Net Proceeds Offer at a redemption price equal to 100% of
the Accreted Value thereof; provided that G-I Holdings may defer making a
--------
Net Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales
to be applied pursuant to clause (2)(iv) equal or exceed $20,000,000;
provided that (i) G-I Holdings and its Subsidiaries may retain up to $5,000,000
- --------
of Net Cash Proceeds from Asset Sales in any twelve-month period (without
complying with clauses (1) or (2)), and (ii) any Asset Sale that would result
in a Change of Control shall not be governed by this Section 4.18 but shall be
governed by the provisions described under Section 4.17 and paragraph 5(a) of
the Securities.
(vi) Subparagraph (b) of Section 8.01 shall be amended to read in
its entirety as follows:
(b) Subject to Sections 8.01(c), 8.02 and 8.06, G-I Holdings may at
any time terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance"), or (ii) its obligations under Sections 4.03,
4.04, 4.06, 4.08 through 4.11 and 4.17 through 4.19 and the operation of
Section 6.01(3), 6.01(4), 6.01(5) and 6.01(6) (with respect only to Significant
Subsidiaries) ("covenant defeasance").
(vii) The penultimate paragraph of Section 8.02 shall be amended to
read in its entirety as follows:
Notwithstanding the foregoing provisions of this Section, the
conditions set forth in the foregoing paragraphs (2), (3), (4), (5), (6), and
(7) need not be satisfied so long as, at the time G-I Holdings makes the
deposit described in paragraph (1), (i) no Default under Section 6.01(1),
6.01(2) or 6.01(6) has occurred and is continuing on the date of such deposit
and after giving effect thereto and (ii) either (x) a notice of redemption has
been mailed pursuant to Section 3.03 providing for redemption of all the
Securities 30 days after such mailing and the provisions of Section 3.01 with
respect to such redemption shall have been complied with or (y) the Stated
Maturity of all of the Securities will occur within 30 days. If the conditions
<PAGE>
of the preceding sentence are satisfied G-I Holdings shall be deemed to have
exercised its covenant defeasance option.
(viii) The following new Section shall be added:
Section 5.03. Spin Off Transactions. Notwithstanding any provision
---------------------
in this Indenture to the contrary, the Spin Off Transactions and the ISP
Holdings Transactions may be consummated under all circumstances and without
satisfying any conditions.
ARTICLE TWO
MISCELLANEOUS
A. Governing Law.
-------------
The laws of the State of New York shall govern this First
Supplemental Indenture without regard to the principles of conflict of laws.
B. Counterparts.
------------
This First Supplemental Indenture may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
C. Survival.
--------
This First Supplemental Indenture and the Original Indenture shall
henceforth be read together. Except as expressly set forth herein, the
Original Indenture shall remain unchanged and in full force and effect in
accordance with its terms.
D. Effective Time.
--------------
For purposes of this First Supplemental Indenture, the "Effective
Time" shall mean such time as is immediately prior to ISP Holdings purchasing,
by accepting for payment, all Notes validly tendered (and not withdrawn)
pursuant to the terms of the Offer to Purchase.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be executed and delivered as of the date first above
written.
<PAGE>
G-I HOLDINGS INC.
By: /s/: James P. Rogers
--------------------
Name: James P. Rogers
Title: Senior Vice President
THE BANK OF NEW YORK
By: /s/: Walter N. Gitlin
---------------------
Name: Walter N. Gitlin
Title: Vice President
G-I HOLDINGS INC.
AND
THE BANK OF NEW YORK,
Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 18, 1996
TO
INDENTURE
Dated as of February 14, 1996
10% Senior Notes due 2006
and
Series B 10% Senior Notes due 2006
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of October 18, 1996, between G-
I HOLDINGS INC., a Delaware corporation (the "Company"), and THE BANK OF NEW
YORK, a New York banking corporation (the "Trustee"), having its Corporate
Trust Office at 101 Barclay Street, New York, New York 10286.
RECITALS
WHEREAS, the Company and the Trustee have executed and delivered the
Indenture, dated as of February 14, 1996 (the "Original Indenture" and
capitalized terms used herein without definition have the respective meanings
specified therein), governing the terms of the Company's Series B 10% Senior
Notes due 2006 (the "Notes"); and
WHEREAS, ISP Holdings Inc. ("ISP Holdings") has solicited the consent
of the holders of the Notes to certain amendments (the "Amendments") to the
Original Indenture pursuant to that certain Exchange Offer Circular and Consent
Solicitation Statement of ISP Holdings, dated September 13, 1996, as amended
(the "Exchange Offer Circular"); and
WHEREAS, Holders representing a majority in aggregate principal
amount of the Notes have delivered their consent to the Amendments; and
WHEREAS, Section 9.02 of the Original Indenture permits the Company,
when authorized by resolution of its Board of Directors, and the Trustee, to
amend the Original Indenture with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding; and
WHEREAS, the Board of Directors of the Company has adopted such a
resolution in order to reflect the Amendments pursuant to this First
Supplemental Indenture; and
WHEREAS, the Company desires to enter into this First Supplemental
Indenture in order to amend the Original Indenture as of the Effective Time (as
defined herein);
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, it is mutually covenanted and agreed for the equal
and ratable benefit of all Holders of the Notes as follows:
ARTICLE ONE
AMENDMENTS TO ORIGINAL INDENTURE
At the Effective Time, each of the following sections of the Original
Indenture shall be modified as follows:
A. Definitions.
-----------
<PAGE>
(i) Section 1.01 shall be amended by adding the following
definitions in their appropriate alphabetical location:
"ISP Holdings Transactions" means the consummation of a tender offer,
-------------------------
exchange offer and senior note offering of ISP Holdings Inc., on
substantially the terms described in that certain Exchange Offer
Circular and Consent Solicitation Statement, dated September 13,
1996, as amended, of ISP Holdings Inc.
"Spin Off Transactions" means the consummation of a series of
---------------------
transactions involving GAF's subsidiaries on substantially the terms
described in that certain Exchange Offer Circular and Consent
Solicitation Statement, dated September 13, 1996, as amended, of ISP
Holdings Inc. that will, among other things, result in the capital
stock of ISP Holdings Inc. being distributed to the stockholders of
GAF.
(ii) Section 1.01 shall be amended further by deleting each of the
following definitions in its entirety:
"Linden Dividend"
---------------
"Linden Property"
---------------
"Permitted Lien"
--------------
"Restricted Investment"
---------------------
"Restricted Payment"
------------------
"Tax Sharing Agreements"
----------------------
"Unrestricted Affiliate"
----------------------
B. Covenants.
---------
(i) The text of each of the following Sections shall be deleted in
its entirety and replaced, in each case, by the words "Intentionally Omitted":
<PAGE>
Section 4.12. Limitation on Restricted Payments and Restricted
------------------------------------------------
Investments.
- -----------
Section 4.13. Limitation on Liens.
-------------------
Section 4.14. Limitation on Transactions with Affiliates.
------------------------------------------
Section 4.15. Limitation on Investments in Non-Recourse Subsidiaries
------------------------------------------------------
by ISP Subsidiaries and BMC Subsidiaries.
- ----------------------------------------
Section 4.16. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Subsidiaries.
- ----------------------
Section 4.20. Consents, etc.
-------------
(ii) Each of the following Sections shall be amended to read in its
entirety as follows:
Section 4.04. Payments of Taxes and Other Claims. G-I Holdings
----------------------------------
shall, and shall cause each of its Subsidiaries (other than Non-Recourse
Subsidiaries) to, pay or discharge or cause to be paid or discharged, before
any penalty accrues from the failure to so pay or discharge, all material
taxes, assessments and governmental charges levied or imposed upon it or any of
such Subsidiaries or upon the income, profits or property of it or any of such
Subsidiaries, provided that there shall not be required to be paid or
--------
discharged any such tax, assessment or charge if the amount, applicability or
validity thereof is being contested in good faith by appropriate proceedings
and adequate provision therefor has been made.
Section 5.01. When G-I Holdings May Merge, etc. G-I Holdings shall
--------------------------------
not consolidate with or merge with or into or sell, assign, transfer or lease
all or substantially all of its properties and assets (either in one
transaction or series of related transactions) to any Person, unless G-I
Holdings shall be the continuing Person, or the resulting, surviving or
transferee Person (if other than G-I Holdings) shall be a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form reasonably satisfactory
<PAGE>
to the Trustee, all the obligations of G-I Holdings under the Securities and
this Indenture, and this Indenture shall remain in full force and effect.
In connection with any consolidation, merger, sale, assignment,
transfer or lease contemplated by this Section 5.01, G-I Holdings shall
deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, sale, assignment,
transfer or lease and the supplemental indenture in respect thereto comply with
this Article V and that all conditions precedent herein provided for relating
to such transaction have been complied with.
Section 6.01. Events of Default. An "Event of Default" occurs if:
-----------------
(1) G-I Holdings defaults in the payment of interest on
any Security when the same becomes due and payable and the
default continues for a period of 30 days;
(2)(i) G-I Holdings defaults in the payment of the
principal of any Security when the same becomes due and payable
at maturity or otherwise or (ii) G-I Holdings fails to redeem or
repurchase Securities when required pursuant to this Indenture
or the Securities;
(3) G-I Holdings fails to comply with Section 5.01;
(4) G-I Holdings fails to comply for 30 days after
notice with any of its obligations under Sections 4.03, 4.06,
4.09, 4.10, 4.11 and 4.17;
(5) G-I Holdings fails to comply for 60 days after
notice with its other agreements contained in this Indenture or
the Securities (other than those referred to in clauses (1)-(4)
above); or
(6) G-I Holdings or any of its Significant Subsidiaries
(A) admits in writing its inability to pay its debts generally
as they become due, (B) commences a voluntary case or proceeding
under any Bankruptcy Law with respect to itself, (C) consents to
the entry of a judgment, decree or order for relief against it
in an involuntary case or proceeding under any Bankruptcy Law,
(D) consents to the appointment of a Custodian of it or for
substantially all of its property, (E) consents to or acquiesces
in the institution of a bankruptcy or an insolvency proceeding
against it, (F) makes a general assignment for the benefit of
its creditors, or (G) takes any corporate action to authorize or
effect any of the foregoing.
<PAGE>
A Default under clauses (4) or (5) is not an Event of Default until
the Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify G-I Holdings in writing of the Default, and G-I
Holdings does not cure the Default with the time specified in such clause after
receipt of such notice. Such notice shall be given by the Trustee if so
requested in writing by the Holders of at least 25% in aggregate principal
amount of the outstanding Securities. When a Default under clause (4) or (5)
is cured or remedied within the specified period, it ceases to exist.
(iii) Each of Sections 4.09, 4.10 and 4.11 shall be amended by
modifying the ratio set forth in subparagraph (a) of each such Section to read
"at least 1.00 to 1.00." Section 4.09 shall further be amended by deleting
subparagraph (e) therein in its entirety. Each of Sections 6.02 and 7.07 shall
be amended by changing each reference therein to clause (7) of Section 6.01 to
be a reference to clause (6) of Section 6.01.
(iv) Subparagraph (a) of Section 4.06 shall be amended to read in
its entirety as follows:
(a) G-I Holdings will file with the Trustee and provide
Securityholders, within 15 days after it files them with the Commission (and
only to the extent that it files them with the Commission), copies of its
annual report and the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company is required to file with the
Commission pursuant to Section 13 of 15(d) of the Exchange Act, without
exhibits in the case of Securityholders, unless G-I Holdings is requested in
writing by the Securityholders. G-I Holdings also will comply with the TIA
314(a).
(v) Subparagraph (a) of Section 4.18 shall be amended to read in its
entirety as follows:
(a) G-I Holdings shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to consummate an Asset Sale unless:
(1) in the case of an Asset Sale by G-I Holdings or any Specified
Subsidiary, G-I Holdings shall commit to apply the Net Cash Proceeds of
such Asset Sale within 300 days of the consummation of such Asset Sale,
and shall apply such Net Cash Proceeds within 360 days of receipt thereof,
(i) to invest in the businesses that G-I Holdings and its Subsidiaries
(other than businesses engaged in through Non-Recourse Subsidiaries) are
engaged in at the time of such Asset Sale or any like or related business,
(ii) to pay the Debt referred to in the last sentence of the definition
thereof or make provision for the payment thereof, through an escrow or
other fund, (iii) to offer to purchase the Old Notes in a tender offer
pursuant to the Old Indenture to the extent required by the Old Indenture,
and/or (iv) to offer to purchase the Securities in a tender offer (a "Net
Proceeds Offer") at a redemption price equal to 100% of the principal
<PAGE>
thereof plus accrued interest thereon to the date of redemption; provided
--------
that G-I Holdings may defer making a Net Proceeds Offer until the
aggregate Net Cash Proceeds from Asset Sales to be applied pursuant to
this clause (1)(iv) equal or exceed $20,000,000; and
(2) in the case of an Asset Sale by any ISP Subsidiary or any BMC
Subsidiary, such ISP Subsidiary or BMC Subsidiary, as the case may be,
shall apply the Net Cash Proceeds of such Asset Sale within one year of
receipt thereof, (i) to invest in the businesses that G-I Holdings and its
Subsidiaries (other than businesses engaged in through Non-Recourse
Subsidiaries) are engaged in at the time of such Asset Sale or any like or
related business, (ii) to pay the Debt referred to in the last sentence of
the definition thereof or make provision for the payment thereof, through
an escrow or other fund, (iii) to pay or satisfy Debt or Preferred Stock
of any ISP Subsidiary or any BMC Subsidiary, as the case may be, (iv) to
offer to purchase the Old Notes in a tender offer pursuant to the Old
Indenture to the extent required by the Old Indenture, and/or (v) to make
a Net Proceeds Offer at a redemption price equal to 100% of the principal
thereof plus accrued interest thereon to the date of redemption; provided
--------
that G-I Holdings may defer making a Net Proceeds Offer until the
aggregate Net Cash Proceeds from Asset Sales to be applied pursuant to
clause (2)(v) equal or exceed $20,000,000;
provided that (i) G-I Holdings and its Subsidiaries may retain up to $5,000,000
- --------
of Net Cash Proceeds from Asset Sales in any twelve-month period (without
complying with clauses (1) or (2)), and (ii) any Asset Sale that would result
in a Change of Control shall not be governed by this Section 4.18 but shall be
governed by the provisions described under Section 4.17 and paragraph 5(a) of
the Securities.
(vi) Subparagraph (b) of Section 8.01 shall be amended to read in
its entirety as follows:
(b) Subject to Sections 8.01(c), 8.02 and 8.06, G-I Holdings may
at any time terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance"), or (ii) its obligations under Sections 4.03,
4.04, 4.06, 4.08 through 4.11, 4.17 through 4.19 and 4.21 and the operation of
Section 6.01(3), 6.01(4), 6.01(5) and 6.01(6) (with respect only to Significant
Subsidiaries) ("covenant defeasance").
(vii) The penultimate paragraph of Section 8.02 shall be amended to
read in its entirety as follows:
Notwithstanding the foregoing provisions of this Section, the
conditions set forth in the foregoing paragraphs (2), (3), (4), (5), (6), and
(7) need not be satisfied so long as, at the time G-I Holdings makes the
deposit described in paragraph (1), (i) no Default under Section 6.01(1),
<PAGE>
6.01(2) or 6.01(6) has occurred and is continuing on the date of such deposit
and after giving effect thereto and (ii) either (x) a notice of redemption has
been mailed pursuant to Section 3.03 providing for redemption of all the
Securities 30 days after such mailing and the provisions of Section 3.01 with
respect to such redemption shall have been complied with or (y) the Stated
Maturity of all of the Securities will occur within 30 days. If the conditions
of the preceding sentence are satisfied G-I Holdings shall be deemed to have
exercised its covenant defeasance option.
(viii) The following new Section shall be added:
Section 5.03. Spin Off Transactions. Notwithstanding any provision
---------------------
in this Indenture to the contrary, the Spin Off Transactions and the ISP
Holdings Transactions may be consummated under all circumstances and without
satisfying any conditions.
ARTICLE TWO
MISCELLANEOUS
A. Governing Law.
-------------
The laws of the State of New York shall govern this First
Supplemental Indenture without regard to the principles of conflict of laws.
B. Counterparts.
------------
This First Supplemental Indenture may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
C. Survival.
--------
This First Supplemental Indenture and the Original Indenture shall
henceforth be read together. Except as expressly set forth herein, the
Original Indenture shall remain unchanged and in full force and effect in
accordance with its terms.
D. Effective Time.
--------------
For purposes of this First Supplemental Indenture, the "Effective
Time" shall mean such time as is immediately prior to ISP Holdings accepting
for exchange all Notes validly tendered (and not withdrawn) pursuant to the
terms of the Exchange Offer Circular.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be executed and delivered as of the date first above
written.
G-I HOLDINGS INC.
By: /s/: James P. Rogers
---------------------
Name: James P. Rogers
Title: Senior Vice President
THE BANK OF NEW YORK
By: /s/: Walter N. Gitlin
---------------------
Name: Walter N. Gitlin
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 1996 10-Q OF G-I HOLDINGS INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 170162
<SECURITIES> 155249
<RECEIVABLES> 88204
<ALLOWANCES> 0
<INVENTORY> 177644
<CURRENT-ASSETS> 760762
<PP&E> 704384
<DEPRECIATION> 0
<TOTAL-ASSETS> 2669779
<CURRENT-LIABILITIES> 347717
<BONDS> 1562538
0
0
<COMMON> 0
<OTHER-SE> 61653
<TOTAL-LIABILITY-AND-EQUITY> 2669779
<SALES> 1153567
<TOTAL-REVENUES> 1153567
<CGS> 752535
<TOTAL-COSTS> 752535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112935
<INCOME-PRETAX> 72360
<INCOME-TAX> 27493
<INCOME-CONTINUING> 34065
<DISCONTINUED> 43903
<EXTRAORDINARY> (8186)
<CHANGES> 0
<NET-INCOME> 69782
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
