AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 333-2436
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
G-I HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 6719 13-3483838
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or organization) Code Number) Number)
G-I HOLDINGS INC.
818 WASHINGTON STREET
WILMINGTON, DELAWARE 19801
(302) 429-8641
(Name, address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
RICHARD A. WEINBERG, ESQ.
GAF CORPORATION
1361 ALPS ROAD
WAYNE, NEW JERSEY 07470
(201) 628-3000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
---------------
With a copy to:
STEPHEN E. JACOBS, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
(212) 310-8000
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 in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
---------------
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
---------------
<TABLE>
<CAPTION>
ITEM IN FORM S-4 CAPTION IN PROSPECTUS
---------------- ---------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus ............................................ Facing Page, Outside Front Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages of Prospectus........ Inside Front and Outside Back Cover Pages of Prospectus; Table
of Contents; Available Information.
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information ................................................... Summary; Risk Factors; The Company; Selected Financial Data.
4. Terms of the Transaction ...................................... Summary; The Exchange Offer; The Company; Description of the
New Notes; Certain Federal Income Tax Considerations.
5. Pro Forma Financial Information ............................... Selected Financial Data.
6. Material Contracts with the Company Being Acquired ............ Not applicable.
7. Additional Information Required for Reoffering by Persons
and Parties Deemed to be Underwriters .......................... Not applicable.
8. Interests of Named Experts and Counsel ......................... Not applicable.
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities ..................................... Not applicable.
10. Information with Respect to S-3 Registrants ................... Not applicable.
11. Incorporation of Certain Information by Reference ............. Not applicable.
12. Information with Respect to S-2 or S-3 Registrants ............ Not applicable.
13. Incorporation of Certain Information by Reference ............. Not applicable.
14. Information with Respect to Registrants Other than S-2
or S-3 Registrants ............................................ Summary; The Company; Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Executive
Compensation; Certain Relationships; Financial Statements.
15. Information with Respect to S-3 Companies ..................... Not applicable.
16. Information with Respect to S-2 or S-3 Companies .............. Not applicable.
17. Information with Respect to Companies Other than
S-2 or S-3 Companies .......................................... Not applicable.
18. Information if Proxies, Consents or Authorizations are to
be Solicited .................................................. Not applicable.
19. Information if Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer ....................... Management; Security Ownership of Certain Beneficial Owners and
Management.
</TABLE>
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. 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 MAY 29, 1996
PROSPECTUS
OFFER FOR ALL OUTSTANDING 10% SENIOR NOTES DUE 2006
IN EXCHANGE FOR SERIES B 10% SENIOR NOTES DUE 2006
OF
G-I HOLDINGS INC.
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON _________________, 1996.
G-I Holdings Inc. ("G-I Holdings"), a Delaware corporation and a
wholly-owned subsidiary of GAF Corporation ("GAF"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount of its Series B 10% Senior Notes
due 2006 (the "New Notes") for each $1,000 principal amount of its 10% Senior
Notes due 2006 (the "Old Notes"), of which an aggregate principal amount of
$200,003,000 is outstanding. The form and terms of the New Notes are identical
to the form and terms of the Old Notes except that the New Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will not bear any legends restricting the transfer thereof. The New Notes
will evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the Indenture governing the Old Notes (the
"Indenture"). The Exchange Offer is being made in order to satisfy certain
contractual obligations of G-I Holdings. There will be no cash proceeds to G-I
Holdings from the exchange pursuant to the Exchange Offer. See "The Exchange
Offer" and "Description of the New Notes." As used herein, the term "principal
amount" as used with respect to the Old Notes or the New Notes means the
principal amount at maturity thereof and the term "Notes" means the Old Notes
and the New Notes, treated as a single class.
The New Notes will bear interest from and including their respective dates
of issuance. Holders whose Old Notes are accepted for exchange will receive
accrued interest thereon to, but not including, the date of issuance of New
Notes, such interest to be payable with the first interest payment on the New
Notes, but will not receive any payment in respect of interest on the Old Notes
accrued after the issuance of the New Notes.
G-I Holdings will accept for exchange any and all Old Notes validly
tendered and not withdrawn prior to 5:00 P.M., New York City time, on
__________, 1996 unless extended (as so extended, the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date.
The Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, G-I Holdings believes
that the New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a holder thereof (other than any
such holder that is an "affiliate" of G-I Holdings within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such holder
is not engaging in or does not intend to engage in a distribution of such New
Notes and such holder has no arrangement with any person to participate in the
distribution of such New Notes. Any holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of New Notes cannot rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Notes. The letter of
transmittal accompanying this Prospectus (the "Letter of Transmittal") states
that, by so acknowledging and by delivering a prospectus meeting the
requirements of the Securities Act, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. G-I Holdings has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Notes are redeemable, in whole or in part, at the option of G-I
Holdings at any time on or after February 15, 2001 at the redemption prices
(expressed as percentages of principal amount) set forth herein, plus accrued
and unpaid interest to the redemption date. In the event that prior to February
15, 1999, G-I Holdings consummates a sale of its common stock, or its wholly
owned subsidiary, Building Materials Corporation of America ("Building
Materials"), or its immediate parent consummates a sale of common stock of
Building Materials, G-I Holdings will have the option to redeem the New Notes
using the net cash proceeds therefrom received by G-I Holdings as provided, and
subject to the limitations set forth, in the Indenture. See "Description of the
New Notes--Optional Redemption."
The New Notes will be senior unsecured obligations of G-I Holdings and will
rank pari passu with all other unsecured and unsubordinated obligations of G-I
Holdings. G-I Holdings is a holding company which has no subordinated
obligations; consequently, the New Notes, at the time of issuance, will not be
senior to any obligations of G-I Holdings. Upon consummation of the Exchange
Offer, the only outstanding indebtedness for money borrowed of G-I Holdings will
be the Notes and the Senior Discount Notes (as defined herein). As of March 31,
1996, the outstanding indebtedness for money borrowed of the subsidiaries of G-I
Holdings was $1,615.5 million (including $450 million of non-recourse debt) and
the other outstanding liabilities reflected on G-I Holdings' consolidated
balance sheet, including trade payables and accrued expenses, was $835.7
million. The New Notes will be effectively subordinated to all liabilities of
such subsidiaries. The Indenture limits, among other things, the incurrence of
additional Debt (as defined) and the issuance of Preferred Stock (as defined) by
G-I Holdings and its subsidiaries. See "Risk Factors--Holding Company Structure
and Related Considerations" and "Description of the New Notes--Certain
Covenants."
Prior to the Exchange Offer, there has been no public market for the Notes.
G-I Holdings does not intend to list the New Notes on any securities exchange or
to seek approval for quotation through any automated quotation system and there
can be no assurance that an active public market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
----------------
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.
----------------
The date of this Prospectus is __________, 1996.
<PAGE>
AVAILABLE INFORMATION
G-I Holdings Inc. ("G-I Holdings"), International Specialty Products Inc.
("ISP"), its indirect 82% owned subsidiary, and Building Materials Corporation
of America ("BMCA"), G-I Holdings' wholly owned subsidiary, are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith file reports, proxy statements
(in the case of ISP) and other information with the Commission. The reports,
proxy statements and other information filed by G-I Holdings, ISP and BMCA with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. In addition, ISP's
common stock is listed on the New York Stock Exchange and material filed by ISP
can be inspected at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
G-I Holdings has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) on Form S-4 under the Securities
Act with respect to the New Notes offered hereby. This Prospectus does not
contain all information set forth in the Registration Statement and the exhibits
thereto, to which reference is hereby made. Statements made in this Prospectus
as to the contents of any contract, agreement, or other document are not
necessarily complete. With respect to each such contract, agreement, or other
document filed as an exhibit to the Registration Statement, reference is hereby
made to such exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
G-I Holdings will furnish holders of the New Notes offered hereby with
annual reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year. G-I Holdings will also furnish such other reports as it may
determine or as may be required by law. In addition, under the terms of the
Indenture, if G-I Holdings is not required by Section 13 or 15(d) of the
Exchange Act to file reports with the Commission, then, so long as any
securities issued under the Indenture (the "Securities") remain outstanding, G-I
Holdings will be required to continue to file with the Commission and provide to
the holders of the Securities such annual reports, information, documents and
other reports that G-I Holdings would be required to file under Section 13 or
15(d) of the Exchange Act if it were subject to such filing requirements.
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. AS
USED IN THIS PROSPECTUS, THE COMPANY MEANS G-I HOLDINGS INC. ("G-I HOLDINGS")
AND ITS CONSOLIDATED SUBSIDIARIES AND PREDECESSORS, UNLESS THE CONTEXT OTHERWISE
REQUIRES.
THE COMPANY
G-I HOLDINGS. The business of G-I Holdings consists of indirectly owning
all of the issued and outstanding stock of Building Materials Corporation of
America ("BMCA") and U.S. Intec, Inc. ("USI") and approximately 82% of the
issued and outstanding capital stock of International Specialty Products Inc.
("ISP"). The remaining 18% of the outstanding ISP common stock is publicly held
and traded on the New York Stock Exchange. G-I Holdings also indirectly owns all
of the issued and outstanding capital stock of GAF Chemicals Corporation ("GCC")
and GAF Broadcasting Company, Inc. ("GAF Broadcasting"). G-I Holdings is a
direct wholly-owned subsidiary of GAF Corporation ("GAF"). GAF is controlled by
Samuel J. Heyman, Chairman and Chief Executive Officer of GAF, G-I Holdings, GAF
Broadcasting and ISP, and Chairman of BMCA. See "Security Ownership Of Certain
Beneficial Owners and Management." GAF was organized by Mr. Heyman for the
purpose of effecting the acquisition in March 1989 of the predecessor company to
GAF in a management-led buyout. G-I Holdings' principal executive offices are
located at 818 Washington Street, Wilmington, Delaware 19801 (telephone (302)
429-8641).
ISP. ISP, through its direct and indirect subsidiaries, is a leading
multinational manufacturer of specialty chemicals, mineral products, filter
products and advanced materials. ISP produces and markets more than 325
specialty chemicals. These products are sold in domestic and international
markets, primarily for use in branded consumer products manufactured by
companies engaged in relatively non-cyclical industries such as cosmetics and
personal care, pharmaceuticals and health-related products and beverages. ISP
believes that it is one of the two largest manufacturers of many of the
specialty chemicals, mineral products and advanced materials it produces.
ISP emphasizes sales of higher margin specialty chemicals to niche markets.
These products, while often representing a relatively small portion of its
customers' production costs, generally constitute key ingredients in the end
products in which they are used. ISP believes it has been able to sustain its
market share positions for many of its specialty chemicals by establishing and
maintaining long-term relationships with its customers, working closely with its
customers to develop chemicals tailored to their specific needs and emphasizing
sales for use in branded products that typically are not reformulated during
their life cycles. In addition, because of the specialized nature of ISP's
specialty chemicals and the fact that certain of such chemicals are sold
primarily to relatively non-cyclical industries, ISP believes that demand for
such chemicals is less affected by changes in economic conditions than is the
case with commodity chemical products. See "Business--ISP."
During the years ended December 31, 1995 and December 31, 1994, ISP had net
sales (excluding sales to BMCA) of $643.2 million and $557.5 million,
respectively, and operating income of $127.1 million and $99.2 million,
respectively. ISP's results for 1995 reflected record sales, operating income
and net income.
ISP's strategy for future growth involves (i) the introduction of new
products and the development of new applications for existing products, (ii)
geographic expansion and penetration of new markets and (iii) selected
acquisitions of businesses which complement ISP's existing businesses. See
"Business--ISP--Strategy."
BUILDING MATERIALS. The Company, through BMCA and USI, is a leading
national manufacturer of a broad line of asphalt roofing products and
accessories for residential and commercial roofing markets. The Company's
roofing products are produced at twenty-three strategically located
manufacturing facilities. The Company believes that it holds the number one or
two market positions in each of the product lines in which it competes,
including leadership in sales of premium laminated residential shingles and
modified bitumen commercial roofing. BMCA's Timberline(R) product is the leading
brand in residential roofing, and BMCA's Ruberoid(R) product is the leading
brand in modified bitumen commercial roofing.
2
<PAGE>
Residential roofing represented approximately 73% of BMCA's net sales in
1995. BMCA believes that it is the largest manufacturer of laminated shingles
and the second largest manufacturer of strip shingles in the United States.
Since 1989, BMCA's sales of laminated shingles and longer-life, high performance
premium strip and specialty shingles, which sell at higher prices and profit
margins than standard strip shingles, have increased at an average annual
compound rate of approximately 11%, enabling BMCA to significantly increase its
premium product mix of residential sales.
Commercial roofing represented approximately 27% of BMCA's net sales in
1995, and substantially all of USI's net sales in 1995. Both BMCA and USI
manufacture a broad line of modified bitumen products, asphalt built-up roofing
and roofing accessories. The Company believes that it is the largest
manufacturer of modified bitumen products, and the second largest manufacturer
of asphalt built-up roofing products, in the United States.
During the years ended December 31, 1995 and December 31, 1994, BMCA had
net sales (excluding sales to USI) of $665.4 million and $593.1 million,
respectively, and operating income of $46.0 million and $44.7 million,
respectively. Since 1989, BMCA's net sales and operating income have increased
at average annual compound rates of approximately 9% and 13%, respectively, and
its gross profit and operating income margins have increased from 25.2% to 26.7%
and from 5.5% to 6.9%, respectively.
BMCA believes that its growth is primarily attributable to (i) improvement
in its product mix, driven by a marketing strategy which emphasizes BMCA's
higher-margin products, (ii) its vertically integrated operations,(iii)
substantial capital spending programs for new property, plant and equipment that
have enabled BMCA to expand capacity and reduce manufacturing costs and (iv) the
strength of its national distribution system. See "Business--Building Products."
In October 1995, the Company acquired USI, a leading national manufacturer
of commercial roofing materials, for a purchase price of $27.5 million and
assumed $35.0 million of USI's indebtedness. USI had net sales of $21.8 million
and an operating loss of $0.1 million during the period in 1995 after its
acquisition by the Company.
GAF BROADCASTING. GAF Broadcasting owns and operates WAXQ, 104.3-FM, a
commercial radio station broadcasting current rock music in the New York City
metropolitan area. Q-104.3 is on the air 24 hours a day, 7 days a week. See
"Business--GAF Broadcasting." During the years ended December 31, 1995 and
December 31, 1994, GAF Broadcasting had net sales of $8.1 million and $5.6
million, respectively, and operating income (loss) of $1.9 million and $(0.4)
million, respectively. On March 14, 1996, the Company agreed to sell WAXQ to
Entertainment Communications Inc. ("Entercom") (which has in turn agreed to
transfer the station to Viacom, Inc. ("Viacom")) for a purchase price of $90
million. See "Business--GAF Broadcasting."
GCC. The business of GCC consists solely of owning shares of common stock,
par value $.01 per share ("ISP Common Stock"), of ISP and an investment in
Rhone-Poulenc Surfactants & Specialties L.P., a Delaware partnership which
operates, among other businesses, GCC's former surfactants chemicals business
(the "Surfactants Partnership"). See Note 4 to Consolidated Financial Statements
for further information regarding the Surfactants Partnership. GCC owns
80,500,000 shares of ISP Common Stock, representing approximately 82% of the
shares of ISP Common Stock outstanding.
****
Statements contained herein as to the Company's competitive position are
based on industry information which the Company believes to be reliable.
3
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer is being made with respect to all of G-I Holdings'
outstanding 10% Senior Notes due 2006 (the "Old Notes"). The form and terms of
the New Notes (as defined below) are the same as the form and terms of the Old
Notes, except that the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture pursuant to which the Old Notes were issued. The Old
Notes and the New Notes are sometimes referred to collectively herein as the
"Notes." See "Description of the New Notes."
<TABLE>
<S> <C>
The Exchange Offer ....................... $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of Old Notes. As of the date hereof, $200,003,000
aggregate principal amount of the Old Notes are outstanding.
The terms of the New Notes and the Old Notes are substantially identical.
Based on an interpretation by the staff of the Commission set forth in no-action
letters issued to third parties, G-I Holdings believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by a holder thereof
(other than any such holder that is an "affiliate" of G-I Holdings within
the meaning of Rule 405 promulgated under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that (i) such New Notes are acquired in the
ordinary course of business of such holder, (ii) such holder is not
engaging in or does not intend to engage in a distribution of such New
Notes, and (iii) such holder does not have an arrangement or understanding
with any person to participate in the distribution of such New Notes. Any
holder who tenders in the Exchange Offer for the purpose of participating
in a distribution of the New Notes cannot rely on such interpretation by
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection
with any resales of such New Notes. See "The Exchange Offer--Purpose and
Effect" and "Plan of Distribution."
Registration Agreement ................... The Old Notes were issued by G-I Holdings on February 14, 1996 in a
private placement (the "Private Placement") in exchange for
$251,630,000 aggregate principal amount at maturity of G-I Holdings'
Senior Discount Notes and Series B Senior Discount Notes due 1998 (the
"Senior Discount Notes"). In connection therewith, G-I Holdings agreed
to use its best efforts to cause a registration statement to become
effective with respect to an exchange offer of a new security for the
Old Notes (the "Registration Agreement"). See "The Exchange
Offer--Purpose and Effect."
Expiration Date .......................... The Exchange Offer will expire at 5:00 P.M., New York City time, on ____________,
1996, or at such later date or time to which it is extended (as so extended, the
"Expiration Date"). G-I Holdings does not intend to extend the Exchange Offer,
although it reserves the right to do so.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Withdrawal ............................... The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to 5:00 P.M., New York City time, on the Expiration Date. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
Interest on the
New Notes and Old Notes ................ The Notes will pay interest on the principal thereof at the rate of 10% per
annum, payable on February 15 and August 15 each year, commencing on August 15,
1996 (each an "Interest Payment Date"), accruing from the date of issuance or
from the most recent Interest Payment Date to which interest has been paid.
Conditions to the Exchange Offer ......... The Exchange Offer is subject to certain customary conditions, each of which may
be waived by G-I Holdings. See "The Exchange Offer--Conditions."
Procedures for Tendering Old Notes ....... Each holder of Old Notes wishing to accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such facsimile, together with the Old
Notes and any other required documentation, to The Bank of New York (the
"Exchange Agent") at the address set forth herein. Tendered Old Notes must be
received by the Exchange Agent by 5:00 P.M., New York City time, on the
Expiration Date. By executing the Letter of Transmittal, each holder will
represent to the Company that, among other things, (i) the New Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of such holder, (ii) the holder is not engaging in and does not intend
to engage in a distribution of such New Notes, (iii) the holder does not have an
arrangement or understanding with any person to participate in the distribution
of such New Notes, and (iv) the holder is not an "affiliate", as defined under
Rule 405 promulgated under the Securities Act, of the Company. Pursuant to the
Registration Agreement, the Company is required to file a registration statement
for a continuous offering pursuant to Rule 415 under the Securities Act in
respect of the Old Notes of any holder that would not receive freely tradeable
New Notes in the Exchange Offer or is ineligible to participate in the Exchange
Offer and indicates that it wishes to have its Old Notes registered under the
Securities Act. See "The Exchange Offer--Procedures for Tendering."
Book-Entry Transfer ..................... The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility (as defined herein)
for purposes of the Exchange Offer within two business days after receipt of
this Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes
by causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal (or fac-
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
simile thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at its address set forth herein on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
Special Procedures for
Beneficial Owner ........................ Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee (each, a "Registered
Holder") and who wishes to tender such Old Notes should contact the Registered
Holder promptly and instruct such Registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed bond power from the Registered Holder. The
transfer of registered ownership may take considerable time. See "The Exchange
Offer--Procedures for Surrendering Old Notes for Exchange."
Guaranteed Delivery Procedures ........... If a Registered Holder of the Old Notes desires to tender such Old Notes and the
Old Notes are not immediately available, or time will not permit such holder's
Old Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of Old Notes
and Delivery of New Notes ............... The Company will accept for exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 P.M., New York City time, on the
Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Exchange Agent ........................... The Bank of New York is serving as the Exchange Agent in connection with the
Exchange Offer.
Consequences of
Failure to Exchange ..................... The liquidity of the market for a holder's Old Notes could be adversely affected
upon completion of the Exchange Offer if such holder does not participate in the
Exchange Offer. See "The Exchange Offer--Consequences of Failure to Exchange."
Federal Income Tax Consequences .......... The exchange pursuant to the Exchange Offer should not be a taxable event for
federal income tax purposes. See "Certain Federal Income Tax Considerations."
</TABLE>
6
<PAGE>
TERMS OF THE NEW NOTES
<TABLE>
<S> <C>
Issuer ................................... G-I Holdings Inc., a direct wholly-owned subsidiary of GAF Corporation.
Issue .................................... Up to $200,003,000 aggregate principal amount at maturity of Series B 10% Senior
Notes due 2006 (the "New Notes").
Maturity ................................. February 15, 2006.
Interest and Interest Payment Dates ...... The New Notes will accrue interest at the rate of 10% per annum accruing from
the date of issuance or the most recent Interest Payment Date to which interest
has been paid.
Optional Redemption ...................... The New Notes are redeemable, in whole or in part, at the option of G-I Holdings
at any time on or after February 15, 2001 at the redemption prices (expressed as
percentages of principal amount) set forth herein, plus accrued and unpaid
interest to the redemption date. In addition, prior to February 15, 1999, an
amount of New Notes representing an aggregate of up to 50% and 25% of the then
outstanding New Notes will be redeemable at the option of G-I Holdings from the
net cash proceeds of an issuance of common stock of G-I Holdings or an issuance
or sale of common stock of BMCA, respectively, at 110% of the principal amount
thereof plus accrued interest thereon to the date of redemption, provided that,
after giving effect to any such redemption, not less than a majority of the
principal amount of Notes originally issued would be outstanding.
Change of Control Put and Call ........... Upon the occurrence of a Change of Control (as defined), each holder of the New
Notes will have the right to require the Company to repurchase such holder's New
Notes at a purchase price of 101% of the principal amount of the New Notes, plus
accrued and unpaid interest, if any, to the repurchase date, and the Company
will have the option to redeem the New Notes in whole at a redemption price
equal to the then outstanding principal amount, plus the Applicable Premium (as
defined), plus accrued and unpaid interest, if any, to the redemption date.
Ranking and Holding
Company Structure ....................... The New Notes will be senior unsecured obligations of G-I Holdings and will rank
pari passu with all other unsecured and unsubordinated obligations of G-I
Holdings. Immediately following the issuance of the New Notes, other than $434.9
million of aggregate principal amount at maturity of Senior Discount Notes, G-I
Holdings will not have any indebtedness for money borrowed that ranks pari passu
with, or senior to, the Notes or any subordinated obligations. Upon consummation
of the Exchange Offer, the only outstanding indebtedness for money borrowed of
G-I Holdings will be the Notes and the Senior Discount Notes.
G-I Holdings is a holding company, and therefore the New Notes will be
effectively subordinated to all existing and future liabilities, including
indebtedness, of subsidiaries of G-I Holdings. As of March 31, 1996, such
subsidiaries had outstanding indebtedness for money borrowed of $1,615.5 million
(including $450 million of non-recourse debt) and other outstanding liabilities
reflected on G-I Holdings' consolidated balance sheet, including trade payables
and accrued expenses, of $835.7 million. The Indenture governing the Notes (the
"Indenture") limits, among other things, the incurrence of additional Debt (as
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
defined) and the issuance of Preferred Stock (as defined) by G-I Holdings and
its subsidiaries. See "Risk Factors--Holding Company Structure and Related
Considerations" and "Description of the New Notes--Certain Covenants."
Certain Covenants ........................ The Indenture limits the Company and its subsidiaries from incurring additional
Debt, issuing Preferred Stock and incurring Liens (as defined). The Indenture
also contains covenants that, among other things, limit the ability of the
Company and its subsidiaries to pay certain dividends or make certain other
Restricted Payments (as defined) and Restricted Investments (as defined), engage
in transactions with Affiliates (as defined) and agree to certain additional
limitations on dividends and other payment restrictions affecting subsidiaries.
The Indenture also limits the ability of the Company to consolidate or merge
with, or transfer all or substantially all of its assets to, another person.
However, all such covenants are subject to anumber of important qualifications
and exceptions. See "Description of the New Notes--Certain Covenants."
Registration Rights ...................... G-I Holdings has agreed to use its best efforts to cause to become effective by
June 13, 1996 a registration statement with respect to the Exchange Offer. In
the event that the Exchange Offer is not completed by August 12, 1996, G-I
Holdings will use its best efforts to cause to become effective a shelf
registration statement with respect to the resale of the Old Notes and to keep
such shelf registration statement effective until three years after the date of
original issuance of the Old Notes.
If by August 12, 1996 neither (i) the Exchange Offer is completed nor (ii) a
shelf registration statement with respect to the resale of the Old Notes is
declared effective, additional interest will accrue on the Old Notes from and
including August 12, 1996 until but excluding the earlier of (i) the completion
of the Exchange Offer and (ii) the effective date of such shelf registration
statement. Such additional interest will be payable in cash semiannually in
arrears on August 15 and February 15 at a rate per annum equal to 0.50% of the
aggregate principal amount outstanding of the Old Notes. See "The Exchange
Offer--Purpose and Effect."
Use of Proceeds .......................... There will be no cash proceeds to G-I Holdings from the exchange pursuant to the
Exchange Offer. There were also no cash proceeds to G-I Holdings from the
issuance of the Old Notes in exchange for $251,630,000 aggregate principal
amount at maturity of the Senior Discount Notes in the Private Placement.
Risk Factors ............................. Prospective holders of the New Notes should carefully consider the specific
factors set forth under "Risk Factors," as well as the other information and
data included in this Prospectus.
</TABLE>
8
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below are summary consolidated financial data of the Company. The
results of any interim period are not necessarily indicative of the results to
be expected for the full year.
The Pro Forma Operating Data give effect to the Private Placement and the
Exchange Offer as if such Private Placement and Exchange Offer had been
completed on January 1, 1995, in the case of the pro forma operating data for
the year 1995 and the three months ended April 2, 1995, and on January 1, 1996,
in the case of the three months ended March 31, 1996. The Exchange Offer will
have no effect on the Balance Sheet Data. The pro forma financial information
does not purport to represent what the results of operations of the Company
actually would have been had the Private Placement and the Exchange Offer in
fact been completed at the dates indicated or to project the results of
operations of the Company for any future period. On March 14, 1996, the Company
agreed to sell its commercial radio station, WAXQ. Accordingly, GAF Broadcasting
has been reported as a discontinued operation at March 31, 1996, and the summary
consolidated financial data set forth below have been restated to reflect
continuing operations. See Note 16 to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, ---------------------------
---------------------------------- April 2, 1995 March 31,1996
1993 1994 1995 (Unaudited) (Unaudited)
-------- -------- --------- ------------- --------------
(In millions, except ratio data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales .................................... $1,063.9 $1,150.7 $1,330.4 $306.4 $340.7
Operating income ............................. 106.5 143.4 170.3 36.5 41.3
Interest expense. ............................ 113.1 122.6 145.6 35.1 37.8
Income from continuing operations before
income taxes and extraordinary items ........ 36.5 65.4 64.6 9.4 17.6
Income from continuing operations before
extraordinary items(1) ...................... 15.9 29.4 31.6 2.8 7.4
Net income (loss)(1). ........................ 14.4 28.0 32.8 2.8 (1.1)
Ratio of earnings to fixed charges(2) ........ 1.31 1.51 1.45 1.26 1.49
<CAPTION>
December 31, March 31, 1996
1995 (Unaudited)
------------ --------------
(Millions)
<S> <C> <C>
Balance Sheet Data:
Cash and short-term investments ............................... $ 271.1 $ 223.1
Total working capital ......................................... 290.0 336.4
Total assets .................................................. 2,560.9 2,567.8
Long-term debt:(3)
Recourse ..................................................... 1,100.3 1,139.6
Non-recourse ................................................. 450.0 450.0
-------- --------
Total long-term debt ........................................ 1,550.3 1,589.6
-------- --------
Shareholder's equity (deficit) ................................ (1.7) (.9)
<CAPTION>
Quarter Ended
Year Ended December 31, ---------------------------
---------------------------------- April 2, 1995 March 31,1996
1993 1994 1995 (Unaudited) (Unaudited)
-------- -------- --------- ------------- --------------
(In millions, except ratio data)
<S> <C> <C> <C> <C> <C>
Pro Forma Operating Data:(5)
Interest expense ............................... $143.3 $34.6 $37.4
Income from continuing operations before
extraordinary item(6) ......................... 33.0 3.1 7.7
Ratio of earnings to fixed charges(2)(6) ....... 1.47 1.27 1.50
Ratio of Adjusted EBITDA to adjusted interest
expense(4) .................................... 2.14 1.65 2.15
Other Data:
Depreciation ................................... $ 43.2 $ 49.5 $ 56.2 $13.4 $14.9
Goodwill amortization .......................... 14.1 14.1 14.0 3.5 3.6
Capital expenditures and acquisitions .......... 81.8 85.4 93.0 12.0 14.8
Adjusted EBITDA(4) ............................. 167.0 225.2 245.8 52.8 61.9
Ratio of Adjusted EBITDA to adjusted interest
expense(4) .................................... 2.31 2.36 2.18 1.95 2.12
</TABLE>
9
<PAGE>
(Footnotes from previous page)
- ------------
(1) Net income for the year 1994 includes an extraordinary charge of $1.2
million, net of income tax benefit, related to the refinancing of ISP's
bank credit agreements. Net income for the three months ended March 31,
1996 includes an extraordinary charge of $8.2 million, net of income tax
benefit, related to the consummation of the Private Placement.
(2) For purposes of these computations, earnings consist of income from
continuing operations before income taxes, minority interest and
extraordinary items plus fixed charges. Fixed charges consist of interest
on indebtedness (including amortization of debt issuance costs) plus that
portion of lease rental expense representative of interest (estimated to be
one-third of lease rental expense).
(3) See "Capitalization" and Notes 4 and 10 to Consolidated Financial
Statements.
(4) The Adjusted EBITDA data relates to debt covenants under the Indenture. The
calculation of the ratio of Adjusted EBITDA to Adjusted Interest Expense
has been performed in accordance with the definitions in the Indenture. See
"Description of the New Notes." Accordingly, Adjusted EBITDA is calculated
as income before income taxes, less extraordinary items, increased by
interest expense, depreciation and goodwill amortization, and excluding
income of USI, which has been designated a Non-Recourse Subsidiary (as
defined in the Indenture), Surfactants Partnership income and equity in
earnings of the joint venture except to the extent distributed in cash.
Adjusted Interest Expense is defined as total interest expense excluding
USI's interest expense and interest expense on non-recourse debt related to
the Surfactants Partnership.
The Indenture contains covenants which, subject to certain exceptions,
restrict G-I Holdings and its subsidiaries from issuing Debt or Preferred
Stock or making Restricted Payments or Restricted Investments unless the
ratio of Adjusted EBITDA to Interest Expense is at least 2.00 to 1.00 for
G-I Holdings' most recently completed four consecutive fiscal quarters
ending at least 45 days prior thereto. See "Description of the New Notes."
Currently, certain restrictions exist as to the amounts available for
making loans, paying dividends and otherwise making distributions to G-I
Holdings. See "Risk Factors-Holding Company Structure and Related
Considerations."
The details of the calculations of Adjusted EBITDA and Adjusted Interest
Expense are as follows:
<TABLE>
<CAPTION>
Pro Forma
--------------------------------
Quarter Ended Quarter Quarter
----------------------- Year Ended Ended
Year Ended December 31, April 2, March 31, Ended April 2, March 31,
---------------------------- 1995 1996 Dec. 31, 1995 1996
1993 1994 1995 (Unaudited) (Unaudited) 1995 (Unaudited) (Unaudited)
-------- -------- -------- ----------- ----------- -------- ----------- ----------
(Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes and extraordinary items .. $ 36,517 $ 65,398 $ 64,598 $ 9,357 $17,598 $ 66,899 $ 9,803 $17,970
Add:
Income (loss) from discontinued
operation before income taxes ........ (2,343) (345) 1,862 (47) (484) 1,862 (47) (484)
Less:
Extraordinary items ................... -- (1,237) -- -- (8,186) (8,816) (8,816) (8,186)
Add:
Total interest expense ................ 113,136 122,644 145,551 35,085 37,799 143,250 34,639 37,427
Depreciation .......................... 43,202 49,549 56,212 13,357 14,883 56,212 13,357 14,883
Goodwill amortization ................. 14,098 14,066 13,995 3,477 3,598 13,995 3,477 3,598
Less:
USI (income) loss before income taxes . -- -- 725 -- 1,056 725 -- 1,056
Surfactants Partnership income, gross . (42,920) (51,190) (32,380) (8,084) (8,074) (32,380) (8,084) (8,074)
Equity in earnings of joint venture ... (2,051) (2,034) (5,413) (450) (1,414) (5,413) (450) (1,414)
Add:
Distributions from Surfactants
Partnership .......................... 1,951 24,024 295 63 52 295 63 52
Dividends received from joint venture . 5,377 4,363 310 -- 5,063 310 -- 5,063
-------- -------- -------- ------- ------- -------- ------- -------
Adjusted EBITDA ........................ $166,967 $225,238 $245,755 $52,758 $61,891 $236,939 $43,942 $61,891
======== ======== ======== ======= ======= ======== ======= =======
Total interest expense ................. $113,136 $122,644 $145,551 $35,085 $37,799 $143,250 $34,639 $37,427
Less:
USI interest expense .................. -- -- (597) -- (632) (597) -- (632)
Interest expense on non-recourse debt . (40,969) (27,166) (32,085) (8,021) (8,022) (32,085) (8,021) (8,022)
-------- -------- -------- ------- ------- -------- ------- -------
Adjusted interest expense .............. $ 72,167 $ 95,478 $112,869 $27,064 $29,145 $110,568 $26,618 $28,773
======== ======== ======== ======= ======= ======== ======= =======
</TABLE>
- -----------
As an indicator of the Company's operating performance, the foregoing
supplemental financial information should not be considered as an
alternative to net income or any other measure of performance under
generally accepted accounting principles.
(5) For an explanation of adjustments to arrive at "Pro Forma Operating Data",
see notes to "Selected Financial Data."
(6) On a pro forma basis, income from continuing operations before
extraordinary item and the ratio of earnings to fixed charges for the year
1995 do not give effect to an extraordinary loss of $8.8 million (net of
related income tax benefits) that would have been recorded assuming the
Private Placement had been completed on January 1, 1995. See Note 10 to
Consolidated Financial Statements for further information.
10
<PAGE>
RISK FACTORS
In addition to the other matters described in this Prospectus, the
following risk factors should be carefully considered by each holder of Old
Notes before accepting the Exchange Offer, although the risk factors set forth
below are generally applicable to the Old Notes as well as the New Notes.
CHANGE OF CONTROL; ACCELERATION OF DEBT
ISP and its principal domestic subsidiaries are parties to Credit
Agreements, dated October 5, 1994 (collectively, the "ISP Credit Agreements"),
with The Chase Manhattan Bank (National Association), as Agent, and the banks
named therein, that provide for a $400 million unsecured revolving credit
facility, $75 million of which may be made available for commercial and standby
letters of credit. It is an event of default under the ISP Credit Agreements if
at any time, among other things, (i) any person or group of related persons
(other than Samuel J. Heyman and his affiliates) shall, on any date, control at
least as much of the voting stock of ISP as is owned, directly or indirectly, by
Mr. Heyman and his affiliates on such date, (ii) Mr. Heyman and his affiliates,
directly or indirectly, shall own less than 25% of the voting stock of ISP
outstanding on any date and any other person or group of related persons shall
control an amount of voting stock greater than one half of the amount of voting
stock of ISP owned by Mr. Heyman and his affiliates on such date, (iii) Mr.
Heyman and his affiliates shall, on any date, cease to own, directly or
indirectly, at least 10% of the voting stock of ISP outstanding on such date, or
(iv) ISP and its subsidiaries cease to be members of the same federal
consolidated tax group of which ISP and its subsidiaries currently are members
and ISP or any of its subsidiaries shall have paid any taxes that arise as a
result of and are directly attributable to such cessation. If a change of
control as defined in the ISP Credit Agreements occurs, the revolving credit
facilities could be terminated and the loans thereunder accelerated, an event
which could also cause the $200 million principal amount of 9% Senior Notes due
1999 of ISP to be accelerated. See "Capitalization." Such an event would have a
material adverse impact on ISP and could have a material adverse impact on G-I
Holdings. Samuel J. Heyman, Chairman and Chief Executive Officer of GAF, G-I
Holdings, GAF Broadcasting and ISP, beneficially owns approximately 82% of the
issued and outstanding ISP common stock. Based on publicly available
information, G-I Holdings believes that no unrelated third party beneficially
owns 5% or more of the issued and outstanding ISP common stock.
ASBESTOS CLAIMS FILED AGAINST GAF
BODILY INJURY CLAIMS. As of March 31, 1996, GAF had been named as a
defendant in approximately 48,400 pending lawsuits involving alleged health
claims relating to the inhalation of asbestos fiber ("Asbestos Claims"), having
resolved approximately 205,000 Asbestos Claims. Plaintiffs in approximately
12,900 of the pending lawsuits were preliminarily enjoined from proceeding with
their claims other than in accordance with the Settlement described below. Since
December 31, 1995, GAF has settled approximately 3,900 Asbestos Claims and
received notice of approximately 3,200 new Asbestos Claims (of which
approximately 2,300 are subject to the preliminary injunction).
The reserves of GAF and G-I Holdings for asbestos bodily injury claims, as
of March 31, 1996, were approximately $359.6 million (before estimated present
value of recoveries from products liability insurance policies of approximately
$185.6 million and related deferred tax benefits of approximately $66.8
million). Certain components of the asbestos-related liability and the related
insurance recoveries have been reflected on a discounted basis in G-I Holdings'
financial statements. See Notes 1 and 2 of Notes to Consolidated Financial
Statements.
The estimate of liability for Asbestos Claims is based on the Settlement
described below 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 reserve
is also premised upon the assumption that GAF and the Company had available, to
pay asbestos-related bodily injury claims, aggregate coverage, as of March 31,
1996, under insurance policies totaling $197.4 million before discounting
certain coverage (which amount is reduced as asbestos-related liabilities are
satisfied). See "Business--Legal Proceedings--Asbestos Claims Filed Against
GAF--Insurance Matters."
The actual cost of resolving pending and future Asbestos Claims is
difficult to estimate. However, based upon the experience of the Center for
Claims Resolution (the "CCR"), a non-profit organization of asbestos defendant
companies including GAF, in settling approximately 187,000 cases since its
creation in 1988, GAF's recent average settlement costs, and the anticipated
impact of the Settlement, GAF believes that its average future Asbestos Claim
11
<PAGE>
settlements will be approximately $3,000 per case. G-I Holdings therefore
believes that its reserves, before discounting, 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 described below. There can be no assurance, however, that the
assumptions referred to above are correct.
On January 15, 1993, the members of the CCR entered into a class-action
settlement agreement (the "Settlement") to resolve all future Asbestos Claims
(other than claims of those persons who "opted out" of the class) against GAF
and other members of the CCR. The class action was filed with the United States
District Court in Philadelphia. The Settlement, if effective, would operate to
limit GAF's liability for future Asbestos Claims to persons who did not "opt
out" of the Settlement by placing a dollar limit on awards to such persons and a
limit on the number of claims that will be paid to such persons in any one year
and over the first ten years of the Settlement. Certain members of the class
filed objections to the Settlement. On August 16, 1994, the District Court
approved the Settlement, holding that the terms of the Settlement are fair to
the class as a whole. The District Court also reaffirmed its prior decision that
it has subject matter jurisdiction over the action, certified the class, found
that counsel for the class had acted without conflict of interest, without
collusion and appropriately in negotiating the Settlement, and determined that
adequate notice of the Settlement had been given to class members. The District
Court thereafter entered a preliminary injunction enjoining class members from
pursuing Asbestos Claims against GAF and other members of the CCR except in
accordance with the Settlement. On May 10, 1996, the United States Court of
Appeals for the Third Circuit (the "Third Circuit") issued an opinion,
concluding that the class was not certifiable, thus reversing the decision of
the District Court. The Company intends to pursue a continuation of the
preliminary injunction and a rehearing before the Third Circuit en banc and
ultimately, if necessary, an appeal of the Third Circuit's decision to the
United States Supreme Court. The Company continues to believe the Settlement
will ultimately be upheld on appeal.
It is anticipated that substantially all of the payments in connection with
the liability of GAF and G-I Holdings relating to Asbestos Claims will be made
by the end of the year 2004. While GAF is unable to estimate the amount of
liability with respect to claims to be resolved after such period, it believes
that it will resolve, prior to that time, substantially all the court cases
currently pending against GAF, and that it will further resolve substantially
all the claims filed under the Settlement on a relatively current basis, so that
the number of claims pending against GAF at the end of such period will be
substantially diminished from current levels. As a result of these and other
factors, GAF and G-I Holdings believe that the resolution of any claims after
such period will not, individually or in the aggregate, have a material adverse
effect on their respective financial positions, liquidity or results of
operations.
GAF and G-I Holdings believe that their reserves, which reflect the
discounting of a portion of the liabilities, adequately reflect their actual
asbestos-related liabilities. Although any opinion is necessarily judgmental and
must be based on information currently known, it is the opinion of GAF and G-I
Holdings, 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, liquidity or
results of operations of GAF and G-I Holdings, after giving effect to the
aforementioned reserves, and will not impair the ability of GAF or G-I Holdings
to meet its respective obligations, to reinvest in its respective businesses or
to grow. Although management believes that the Settlement will ultimately be
upheld on appeal, in the event that the Third Circuit's decision is not reversed
and the Settlement is not upheld, or the conditions to the effectiveness of the
Settlement are not satisfied (see "Business--Legal Proceedings--Asbestos Claims
Filed Against GAF--Insurance Matters"), GAF and G-I Holdings could be required
to increase their estimates of asbestos-related liabilities and adjust any
related discounts. It is not currently possible to estimate the range or amount
of such possible additional liability.
For additional information relating to asbestos claims filed against GAF,
see "Business--Legal Proceedings--Asbestos Claims Filed Against GAF" and Notes 1
and 2 of Notes to Consolidated Financial Statements.
REGULATION; ENVIRONMENTAL CONSIDERATIONS
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ("Environmental
Claims") under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") and similar state laws, 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.
The Company estimates that its liability in respect of all Environmental
Claims, and certain other environmental compliance expenses, as of March 31,
1996, will be $30 million, before reduction for insurance recoveries reflected
on the Company's balance sheet (discussed below) of $12.5 million ("estimated
recoveries"). In the opinion of management, the resolution of such matters
should not be material, individually or in the aggregate, to the results of
opera-
12
<PAGE>
tions, 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.
After considering the relevant legal issues and other pertinent factors,
the Company believes that it will receive the estimated recoveries and it may
receive amounts substantially in excess thereof. The Company believes it is
entitled to substantially full defense and indemnity under its insurance
policies for most Environmental Claims, although the Company's insurers have not
affirmed a legal obligation under the policies to provide indemnity for such
claims.
The estimated recoveries are based in part upon interim agreements with
certain insurers. The Company terminated these agreements in 1995 and on March
8, 1995 commenced litigation in the United States District Court for the
District of New Jersey seeking amounts substantially in excess of the estimated
recoveries. While the Company believes that its claims are meritorious, there
can be no assurance that the Company will prevail in its efforts to obtain
amounts equal to, or in excess of, the estimated recoveries.
For additional information relating to environmental litigation involving
the Company, see "Business--Legal Proceedings--Environmental Litigation."
The enactment by federal, state or local governments of new laws or
regulations or a change in the interpretation of existing laws or regulations
relating to environmental matters could increase the cost of producing the
products manufactured by the Company or otherwise adversely affect the demand
for its products and may require additional expenditures. See
"Business--Environmental Compliance."
ACETYLENE SUPPLY
The primary raw material used by ISP in the manufacture of its specialty
chemicals is acetylene. Acetylene is available from a limited number of
suppliers and, because of its instability, can only be transported short
distances. Acetylene is obtained by ISP for domestic use from two unaffiliated
suppliers, using different production technologies, pursuant to long-term supply
contracts. In the event of a substantial interruption in the supply of acetylene
from current sources, no assurances can be made that ISP would be able to obtain
as much acetylene from other sources as would be necessary to meet its supply
requirements. A substantial interruption of ISP's supply of acetylene would have
a material adverse effect on the business and operations of the Company as
approximately 85-90% of the sales of ISP's specialty chemicals are derived from
acetylene which is either purchased in the United States as a raw material or is
purchased in the form of butanediol from GAF-Huls Chemie GmbH, a joint venture
between Huls AG and ISP ("GAF Huls"). ISP has a long-standing agreement with
GAF-Huls to import butanediol into the United States for use as a feedstock for
the production of ISP's solvents and polymers. ISP has not experienced an
interruption of its acetylene supply that has had a material adverse effect on
its sales of specialty chemicals. See "Business--ISP--Specialty Chemicals--Raw
Materials."
FOREIGN CURRENCY FLUCTUATIONS
Approximately 26% of the Company's net sales and 40% of its operating
income in 1995 was attributable to its international operations. Fluctuations in
the value of foreign currencies may cause the Company's U.S. dollar denominated
sales and profits to decrease or increase without relation to the actual sales
or profits of its international operations. For a discussion of the Company's
international operations, see "Business--ISP--Specialty Chemicals--International
Operations," and for a discussion of the Company's policy to manage its foreign
currency exposure, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Financial Condition."
HOLDING COMPANY STRUCTURE AND RELATED CONSIDERATIONS
G-I Holdings is a holding company with no business operations or source of
income of its own. In order to pay cash interest on the New Notes and the
principal amount at maturity of the New Notes, to redeem the New Notes or to
repurchase the New Notes upon the occurrence of a Change of Control (as defined)
or otherwise, G-I Holdings will be required to adopt one or more alternatives,
such as seeking repayments of loans from its subsidiaries, dividends and loans
from its subsidiaries, payments pursuant to Tax Sharing Agreements between GAF
and its subsidiaries, capital contributions or loans from GAF, refinancing its
indebtedness or selling its assets. None of the affiliates of G-I Holdings will
be required to make any capital contributions or other payments to G-I Holdings
with respect to its obligations on the New Notes, and the obligations of G-I
Holdings with respect to the New Notes will not be guaranteed by any affiliate
of G-I Holdings or any other person. There can be no assurance that any of the
foregoing actions could be
13
<PAGE>
effected on satisfactory terms, that they would be sufficient to enable G-I
Holdings to make any payments in respect of the New Notes when required or that
any of such actions would be permitted by the terms of the debt instruments of
GAF or its subsidiaries then in effect. Moreover, the events that will
constitute a Change of Control under the Indenture also constitute a change of
control under the indenture relating to the Senior Discount Notes and may also
constitute events of default or repurchase right events under certain debt
instruments of ISP, BMCA and their subsidiaries. See "--Change of Control;
Acceleration of Debt."
The ISP Credit Agreements, the indenture governing the 9% Senior Notes due
1999 of ISP and the indenture governing the Senior Deferred Coupon Notes of BMCA
contain restrictions on payments, including loans and advances, from ISP, BMCA
and their subsidiaries to its parent corporations. Such restrictions limit the
availability of dividends from ISP and BMCA which would provide cash to G-I
Holdings to service the New Notes, including cash interest thereon. In addition,
the ISP Credit Agreements limit ISP from making loans to, or providing letters
of credit for the benefit of, affiliates, including G-I Holdings, in excess of
$60 million outstanding at any time. As of March 31, 1996, after giving effect
to the most restrictive of the aforementioned restrictions, it would have been
permissible for ISP to pay dividends in the aggregate amount of $59.5 million,
of which $49 million would have been available to G-I Holdings, and to make
loans to affiliates of $57.7 million, and for BMCA to pay dividends of up to
$37.3 million. In addition, as of March 31, 1996, loans in the aggregate amount
of $97.2 million were owed by ISP to G-I Holdings, and a loan of $21.9 million
was owed by BMCA to G-I Holdings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Financial
Condition" and Note 10 of Notes to Consolidated Financial Statements.
Any right of G-I Holdings and its creditors, including holders of the New
Notes and the Old Notes, to participate in the assets of any of G-I Holdings'
subsidiaries upon any liquidation or reorganization of any such subsidiary will
be subject to the prior claims of that subsidiary's creditors, including trade
creditors (except to the extent G-I Holdings may itself be a creditor of such
subsidiary). Accordingly, the New Notes will be effectively subordinated to all
liabilities, including trade payables, of G-I Holdings' subsidiaries.
SUBSTANTIAL LEVERAGE AND NEGATIVE NET WORTH
Upon consummation of the Exchange Offer, the Company will continue to have
a negative net worth and substantial consolidated debt outstanding. At March 31,
1996, the Company had total outstanding consolidated long-term debt of $1,139.6
million (not including $450 million of non-recourse debt) and a common
shareholder's deficit of $0.9 million. The Exchange Offer will not affect the
amount of the Company's long-term debt or shareholder's deficit. The substantial
continued leverage of the Company has important consequences for holders of the
New Notes, including the risk that the Company may not generate sufficient cash
flow from operations to pay principal and interest on its indebtedness or to
invest in its businesses. While the Company believes, based upon its historical
and anticipated performance, that it should be able to satisfy its obligations
(including interest on and principal of the New Notes) from operations and
appropriate refinancings and otherwise, no assurance to that effect can be
given. While other measures to raise cash to satisfy obligations include
potential sales of assets or equity, the Company's ability to raise funds by
selling either assets or equity is dependent on results of operations and market
conditions. Given, first, the ownership structure of ISP and the fact that the
Company would currently suffer certain adverse tax consequences in the event
that it were to own less than 80 percent of the outstanding shares of ISP common
stock and, second, the present level of ISP's stock price, the Company has no
current intention to sell ISP shares. As earnings continue to be generated at
the Company, thereby reducing or eliminating such adverse tax consequences, and
ISP's stock price appreciates, the Company may at some future time consider
selling additional shares of ISP common stock. In the event that the Company is
unable to refinance indebtedness or raise funds through sales of assets or
equity or otherwise, its ability to pay principal of and interest on the New
Notes would be adversely affected. See Notes 4 and 10 of Notes to Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Financial Condition."
CONTROLLING STOCKHOLDER
G-I Holdings is a direct wholly-owned subsidiary of GAF, which is
controlled by Samuel J. Heyman, Chairman and Chief Executive Officer of GAF, G-I
Holdings, GAF Broadcasting and ISP, and Chairman of BMCA. Accordingly, Mr.
Heyman has the ability to elect the entire Board of Directors of each of such
companies and determine the outcome of any other matter submitted to their
respective stockholders for approval. In particular, subject to the terms of the
Indenture, Mr. Heyman has the ability to effect certain corporate transactions,
including mergers, consolidations and the sale of all or substantially all of
G-I Holdings' or its subsidiaries' assets. See "Security Ownership of Certain
Beneficial Owners and Management" and "--Change of Control; Acceleration of
Debt."
14
<PAGE>
ABSENCE OF A PUBLIC MARKET
Prior to the exchange of the New Notes offered hereby, there has been no
public market for any of the Notes, and there can be no assurance as to (i) the
liquidity of any such market that may develop, (ii) the ability of the holders
of New Notes to sell their New Notes, or (iii) the price at which the holders of
New Notes would be able to sell their New Notes. If such a market were to exist,
the New Notes could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the market for similar notes, and the financial
performance of G-I Holdings and its subsidiaries. G-I Holdings does not intend
to list the New Notes on any securities exchange or to seek approval for
quotations through any automated quotation system and no active market for the
New Notes is currently anticipated. There is no assurance as to the liquidity of
the trading market for the New Notes. Bear, Stearns & Co., Inc. has advised G-I
Holdings that it currently anticipates making a secondary market for the New
Notes, but is not obligated to do so and any such market making, if commenced,
may be discontinued at any time without notice.
EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
certificates for such Old Notes or a timely Book-Entry Confirmation (as defined
herein) of such Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter of Transmittal
and all other required documents. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of Old Notes tendered for
exchange will be determined by G-I Holdings in its sole discretion, which
determination will be final and binding on all parties. Therefore, holders of
Old Notes desiring to tender such Old Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. Old Notes that are not tendered
or are tendered but not accepted will, following the consummation of the
Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and G-I Holdings will have no further obligation to provide for
the registration under the Securities Act of such Old Notes except as described
herein. See "The Exchange Offer--Purpose and Effect." In addition, any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating in
a distribution of the New Notes will be required to comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected. G-I Holdings does not intend to extend the Exchange Offer although it
reserves the right to do so. See "The Exchange Offer."
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of G-I
Holdings as of March 31, 1996. The Exchange Offer will have no effect on the
consolidated capitalization. This table should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
As Of March 31,
1996
---------------
(Thousands)
<S> <C>
Short-term Debt and current maturities of Long-term Debt:
Current maturities of long-term debt ...................................................... $ 3,432
Short-term debt ........................................................................... 22,450
----------
Total ................................................................................... $ 25,882
==========
Long-term Debt (excluding current maturities): (1)
10% Senior Notes due February 15, 2006 .................................................... $ 200,003
Senior Discount Notes due 1998 ............................................................ 331,932
9% ISP Senior Notes Due March 1, 1999 ..................................................... 200,000
11-3/4% BMCA Senior Deferred Coupon Notes due 2004 ........................................ 213,919
Borrowings under revolving credit facilities .............................................. 76,633
Industrial revenue bonds .................................................................. 19,625
Obligations on mortgaged properties ....................................................... 44,775
Obligations under capital leases .......................................................... 52,706
Non-recourse debt ......................................................................... 450,000
----------
Total Long-term Debt .................................................................... $1,589,593
==========
Shareholder's Equity (Deficit):
Capital stock and additional paid-in capital .............................................. $ 50,338
Excess of purchase price over adjusted historical cost of the predecessor
company shares owned by GAF stockholders ................................................. (72,605)
Retained earnings ......................................................................... 4,146
Cumulative translation adjustment and other ............................................... 17,200
----------
Total Shareholder's Equity (Deficit) .................................................... $ (921)
----------
Total Capitalization .................................................................... $1,588,672
==========
</TABLE>
- ----------
(1) For a description of long-term debt, including the terms of the
non-recourse debt, see Notes 4 and 10 to Consolidated Financial Statements.
16
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company. A
predecessor company to GAF was acquired on March 29, 1989 in a management led
buyout (the "GAF Acquisition"). Accordingly, a step up in asset values to fair
value was required by the purchase method of accounting. As a result, financial
data for periods subsequent to the GAF Acquisition reflect non-cash charges
consisting of goodwill amortization and depreciation of increased asset values.
Such non-cash charges amounted to $22, $22, $22.6, $22.6, $22.5, $5.6 and $5.7
million for the years 1991, 1992, 1993, 1994 and 1995 and the first three months
of 1995 and 1996, respectively. The results of any interim period are not
necessarily indicative of the results to be expected for the full year.
The Pro Forma Operating Data give effect to the Private Placement and the
Exchange Offer as if such Private Placement and Exchange Offer had been
completed on January 1, 1995, in the case of the pro forma operating data for
the year 1995 and the three months ended April 2, 1995, and on January 1, 1996,
in the case of the three months ended March 31, 1996. The Exchange Offer will
have no effect on the Balance Sheet Data. The pro forma financial information
does not purport to represent what the results of operations of the Company
actually would have been had the Private Placement and the Exchange Offer in
fact been completed at the dates indicated or to project the results of
operations of the Company for any future period. On March 14, 1996, the Company
agreed to sell its commercial radio station, WAXQ. Accordingly, GAF Broadcasting
has been reported as a discontinued operation at March 31, 1996, and the
selected consolidated financial data set forth below have been restated to
reflect continuing operations. See Note 16 to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Quarter Ended
------------------------
Year Ended December 31, April 2, March 31,
----------------------------------------- 1995 1996
1991 1992 1993 1994 1995 (Unaudited) (Unaudited)
------ ------ ------ ------ ------ ----------- -----------
(In Millions, Except Ratio Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales ............................................... $ 919.9 $1,037.9 $1,063.9 $1,150.7 $1,330.4 $306.4 $340.7
Operating income ........................................ 148.0 141.5 106.5 143.4 170.3 36.5 41.3
Interest expense ........................................ 138.5 111.9 113.1 122.6 145.6 35.1 37.8
Income (loss) from continuing operations before
income taxes and extraordinary items (1) ............... 219.8 (239.1) 36.5 65.4 64.6 9.4 17.6
Income (loss) from continuing operations before
extraordinary items and cumulative effect of
accounting change (1) .................................. 210.0 (147.2) 15.9 29.4 31.6 2.8 7.4
Net income (loss) (1) ................................... 210.7 (167.9) 14.4 28.0 32.8 2.8 (1.1)
Ratio of earnings to fixed charges (2) .................. 2.58 -- (3) 1.31 1.51 1.45 1.26 1.49
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------------------- 1996
1991 1992 1993 1994 1995 (Unaudited)
------- ------ ------ ------ ------ -----------
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term investments ................................ $ 53.0 $ 107.9 $ 107.4 $ 186.6 $ 271.1 $ 223.1
Total working capital .......................................... 178.6 257.1 143.9 228.0 290.0 336.4
Total assets ................................................... 1,955.2 2,071.1 2,050.0 2,412.1 2,560.9 2,567.8
Long-term debt: (4)
Recourse ...................................................... 733.9 849.5 816.0 972.2 1,100.3 1,139.6
Non-recourse .................................................. 450.0 450.0 450.0 450.0 450.0 450.0
-------- -------- -------- --------- --------- --------
Total long-term debt ......................................... 1,183.9 1,299.5 1,266.0 1,422.2 1,550.3 1,589.6
-------- -------- -------- --------- --------- --------
Shareholder's equity (deficit) ................................. 156.2 (42.6) (42.6) (15.8) (1.7) (.9)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-----------------------
Year Ended December 31, April 2, March 31,
----------------------------------------- 1995 1996
1991 1992 1993 1994 1995 Unaudited) (Unaudited)
------ ------ ------ ------ ------ ---------- -----------
(In Millions, Except Ratio Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Operating Data: (6)
Interest expense .......................................... $143.3 $34.6 $37.4
Income from continuing operations before
income taxes and extraordinary items (8) ................. 66.9 9.8 18.0
Income from continuing operations before
extraordinary items (7) .................................. 33.0 3.1 7.7
Ratio of earnings to fixed charges (2)(7) 1.47 1.27 1.50
Ratio of Adjusted EBITDA to adjusted interest
expense (5) .............................................. 2.14 1.65 2.15
Other Data:
Depreciation .............................................. $ 35.1 $ 38.4 $ 43.2 $ 49.5 $ 56.2 $13.4 $14.9
Goodwill amortization ..................................... 13.4 13.4 14.1 14.1 14.0 3.5 3.6
Capital expenditures and acquisitions ..................... 45.7 86.1 81.8 85.4 93.0 12.0 14.8
Adjusted EBITDA (5) ....................................... 206.8 206.7 167.0 225.2 245.8 52.8 61.9
Ratio of Adjusted EBITDA to adjusted interest
expense (5) .............................................. 2.14 2.95 2.31 2.36 2.18 1.95 2.12
</TABLE>
17
<PAGE>
(Footnotes from previous page)
(1) Income (loss) from continuing operations before income taxes for the year
ended December 31, 1992 includes a provision for asbestos litigation claims
of $322.5 million. Income (loss) from continuing operations before
cumulative effect of accounting change and extraordinary items in 1991
includes a gain on the initial public offering of ISP common stock of
$162.6 million and in 1992 includes a provision for asbestos litigation
claims of $200 million, net of related tax benefits. Net income for the
year 1994 includes an extraordinary charge of $1.2 million, net of income
tax benefit, related to the refinancing of ISP's bank credit agreements.
Net income for the three months ended March 31, 1996 includes an
extraordinary charge of $8.2 million, net of income tax benefit, related to
the consummation of the Private Placement.
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The
cumulative effect as of January 1, 1992 of adopting SFAS No. 106 was a one
time non-cash charge against earnings of $20.8 million, after a related
income tax benefit of $11.5 million.
(2) For purposes of these computations, earnings consist of income (loss) from
continuing operations before income taxes, minority interest, extraordinary
items and cumulative effect of accounting change, plus fixed charges. Fixed
charges consist of interest on indebtedness (including amortization of debt
issuance costs) plus that portion of lease rental expense representative of
interest (estimated to be one-third of lease rental expense).
(3) Earnings were inadequate to cover fixed charges by $233.1 million for the
year 1992.
(4) See "Capitalization" and Notes 4 and 10 to Consolidated Financial
Statements.
(5) The Adjusted EBITDA data relates to debt covenants under the Indenture. The
calculation of the ratio of Adjusted EBITDA to Adjusted Interest Expense
has been performed in accordance with the definitions in the Indenture,
except that the provision for asbestos litigation claims has been added
back to Adjusted EBITDA. See "Description of the New Notes." Accordingly,
Adjusted EBITDA is calculated as income (loss) before income taxes and
cumulative effect of accounting change and the gain on the initial public
offering of ISP Common Stock, less extraordinary item , increased by
interest expense, depreciation, goodwill amortization and the provision for
asbestos litigation claims and excluding income of USI, which has been
designated a Non-Recourse Subsidiary (as defined in the Indenture),
Surfactants Partnership income and equity in earnings of the joint venture
except to the extent distributed in cash. Adjusted Interest Expense is
defined as total interest expense excluding USI's interest expense and
interest expense on non-recourse debt related to the Surfactants
Partnership.
The Indenture contains covenants which, subject to certain exceptions,
restrict G-I Holdings and its subsidiaries from issuing Debt or Preferred
Stock or making Restricted Payments or Restricted Investments unless the
ratio of Adjusted EBITDA to Interest Expense is at least 2.00 to 1.00 for
G-I Holdings' most recently completed four consecutive fiscal quarters
ending at least 45 days prior thereto. See "Description of the New Notes."
Currently, certain restrictions exist as to the amounts available for
making loans, paying dividends and otherwise making distributions to G-I
Holdings. See "Risk Factors--Holding Company Structure and Related
Considerations."
See "Summary Financial Data" for the details of the calculations of
Adjusted EBITDA and Adjusted Interest Expense. As an indicator of the
Company's operating performance, such supplemental financial information
should not be considered as an alternative to net income or any other
measure of performance under generally accepted accounting principles.
(6) The Pro Forma Operating Data give effect to the Private Placement and the
Exchange Offer as if they had been completed on January 1, 1995, in the
case of the year 1995 and the three months ended April 2, 1995, and on
January 1, 1996, in the case of the three months ended March 31, 1996.
The net effect of the foregoing was to increase the Company's pro forma
income before income taxes by $2.3, $0.4 and $0.4 million for the year 1995
and the first three months of 1995 and 1996, respectively. As a result, the
Company's pro forma provision for income taxes increased by $0.9, $0.2 and
$0.1 million for the year 1995 and the first three months of 1995 and 1996,
respectively, based on an effective marginal income tax rate of 38% for all
periods.
(7) On a pro forma basis, income from continuing operations before
extraordinary item and the ratio of earnings to fixed charges for the year
1995 do not give effect to an extraordinary loss of $8.8 million (net of
related income tax benefits) that would have been recorded assuming the
Private Placement had been completed on January 1, 1995. See Note 10 to
Consolidated Financial Statements for further information.
(8) Income before income taxes represents income before income taxes,
extraordinary items, minority interest and cumulative effect of accounting
change.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements which appear elsewhere in this Prospectus.
On March 14, 1996, the Company agreed to sell its commercial radio station,
WAXQ. Accordingly, GAF Broadcasting has been reported as a discontinued
operation at March 31, 1996, and the Consolidated Financial Statements of the
Company have been restated to reflect continuing operations. See Note 16 to
Consolidated Financial Statements. As used herein, the term "Company" refers to
G-I Holdings Inc. (the "Registrant" or "G-I Holdings") and its consolidated
subsidiaries.
Set forth below are net sales and operating income for each of G-I
Holdings' business segments for the years 1993, 1994 and 1995 and the first
quarters of 1995 and 1996.
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, ----------------------------
-------------------------------------- April 2, 1995 March 31, 1996
1993 1994 1995 (Unaudited) (Unaudited)
-------- -------- -------- ------------- -------------
(Millions)
<S> <C> <C> <C> <C> <C>
Net Sales:
ISP(1) ................................. $ 504.7 $ 557.5 $ 643.2 $167.8 $174.0
Building Materials ..................... 559.2 593.2 687.2 138.6 166.7
-------- -------- -------- ------ ------
Total .................................. $1,063.9 $1,150.7 $1,330.4 $306.4 $340.7
======== ======== ======== ====== ======
Operating Income:
ISP .................................... $ 65.1 $ 99.2 $ 127.1 $ 31.2 $ 34.2
Building Materials ..................... 41.5 44.7 45.9 7.0 7.7
Other .................................. -- (.5) (2.7) (1.7) (.6)
-------- -------- -------- ------ ------
Total .................................. $ 106.5 $ 143.4 $ 170.3 $ 36.5 $ 41.3
======== ======== ======== ====== ======
- ----------
</TABLE>
(1) Amounts reported exclude sales by ISP to BMCA and USI. See Note 13 to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
The Company recorded a first quarter 1996 net loss of $1.1 million compared
with net income of $2.8 million in the first quarter of 1995. The net loss for
this year's quarter 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 G-I Holdings' senior debt (see Note 10 to Consolidated Financial Statements).
The net results for the first quarter of 1996 also reflected higher operating
income and other income, partially offset by increased interest expense.
The Company's first quarter 1996 operating income was $41.3 million, an
increase of 13% over last year's $36.5 million, resulting primarily from higher
operating income for ISP. Net sales for the first quarter of 1996 increased by
11% to $340.7 million from last year's $306.4 million.
ISP's net sales (excluding sales to BMCA and USI) were $174 million for the
first quarter of 1996 compared with $167.8 million for the same period last
year. The 4% sales growth was attributable to increased sales of specialty
chemicals (up $9 million or 6%), primarily reflecting increased sales volumes
and higher selling prices. This increase resulted from increased sales in the
U.S., Europe and the Western Hemisphere. Sales for the mineral products business
(excluding sales to BMCA and USI) decreased by $2.8 million (28%) due to lower
sales volumes resulting from a lost customer and adverse weather conditions.
ISP's operating income for the first quarter of 1996 increased by 10% to
$34.2 million from last year's $31.2 million. The increase in operating income
was attributable to higher specialty chemicals operating income (up $5.6 million
or 22%), partially offset by lower mineral products results (down $1.5 million
or 37%). The higher specialty chemicals operating income resulted from the
higher sales levels and improved gross margins (up 3.2 percentage points) due
primarily to improved price/cost margins and continued benefits from the
Company's reengineering program.
19
<PAGE>
The Company's Building Materials business is conducted through two
wholly-owned subsidiaries, BMCA and USI. Building Materials' net sales for the
first quarter of 1996 were $166.7 million, a 20% increase over last year's sales
of $138.6 million, primarily reflecting sales of USI, which was acquired in
October 1995, and also reflecting 5% higher BMCA sales due to higher average
selling prices and increased unit volumes of commercial roofing products.
Operating income for Building Materials for the first quarter of 1996 was
$7.7 million compared with $7 million recorded in last year's quarter. The
higher operating income resulted from the higher sales volumes and from improved
BMCA gross margins (up .7 percentage point) resulting primarily from higher
average selling prices, partially offset by an operating loss of $.4 million at
USI.
Interest expense increased to $37.8 million for the first quarter of 1996
compared with $35.1 million for the same period last year. The increase was due
primarily to higher debt levels.
Other income, net, for the first quarter of 1996 was $12.7 million compared
with $7.5 million for the first quarter of 1995, with the increase primarily
attributable to higher investment income and gains associated with ISP's program
to hedge certain of its foreign currency exposures.
1995 COMPARED WITH 1994
In 1995, the Company recorded net income of $32.8 million compared with net
income of $28 million in 1994. Net income in 1994 included an extraordinary
charge of $1.2 million related to the refinancing of ISP's bank debt. The
improved results for 1995 reflected $26.9 million (19%) higher operating income
and $3.4 million higher equity income from the GAF-Huls joint venture
("GAF-Huls"), partially offset by a $23 million increase in interest expense and
$8.2 million lower other income.
Net sales for 1995 increased $179.8 million (16%) to $1.330 billion,
compared with $1.151 billion for 1994.
ISP's sales for 1995, excluding sales to BMCA and USI, were $643.2 million
compared with $557.5 million for 1994. The 15% sales growth was attributable to
increased sales in all product lines, particularly specialty chemicals (up $74.5
million), and reflected double-digit sales increases in all regions of the
world. The sales increase was primarily the result of increased sales volumes in
all product lines and higher selling prices, and, to a lesser extent, the
favorable effect ($14.3 million) of the weaker U.S. dollar relative to other
currencies in certain areas of the world.
ISP's operating income for 1995 increased by 28% to $127.1 million compared
with $99.2 million for 1994. The increase was attributable to higher sales in
all product lines and improved gross margins (up 1.1 percentage points) due
primarily to higher selling prices, partially offset by higher manufacturing
costs. Operating income for the specialty chemicals business increased by $25.6
million (32%), reflecting the above factors. ISP's selling, general and
administrative expenses for 1995 increased $14.4 million (12%) over 1994 due to
operating expenses associated with higher sales levels; however, such expenses
as a percent of ISP's sales have decreased from 23% in 1993 to 19.9% and 19.5%
in 1994 and 1995, respectively, primarily as a result of ISP's cost reduction
and productivity programs announced in 1993. ISP's operating margin improved
from 16.5% in 1994 to 18.4% in 1995.
The Company's Building Materials business is conducted through two
wholly-owned subsidiaries, BMCA and USI. USI was acquired in October 1995 and
its results of operations, including sales of $21.8 million, are included in the
Consolidated Statement of Income from the date of acquisition; the effect was
not material to consolidated operations in 1995. See Note 2 to Consolidated
Financial Statements.
BMCA's sales for 1995, excluding sales to USI, increased $72.2 million
(12%) to $665.4 million, compared with $593.2 million in 1994. The sales growth
primarily reflected higher unit volumes of both residential and commercial
roofing products, including those of the business of International Permalite
Inc. ("IPI") acquired in March 1994, and higher average selling prices.
BMCA's gross profit margin decreased from 28.3% in 1994 to 26.7% in 1995,
resulting principally from higher raw material costs, partially offset by the
higher average selling prices. BMCA's selling, general and administrative
expenses increased 6.8% to $131.7 million, primarily reflecting higher
distribution and selling costs to support the increased level of sales. Selling,
general and administrative expenses decreased as a percentage of BMCA's sales
from 20.8% in 1994 to 19.8% in 1995.
BMCA recorded operating income of $46 million in 1995, up 3% compared with
$44.7 million in 1994, due principally to the higher sales volumes, partially
offset by the lower margins.
20
<PAGE>
Although sales of ISP and BMCA are at approximately the same level, ISP
earns substantially greater operating income because the gross profit margins of
the specialty chemicals manufactured by ISP are higher than the gross profit
margins of the asphalt roofing materials manufactured by BMCA.
Of the $26.9 million increase in operating income in 1995, domestic
operating income increased by $15.6 million, due primarily to higher selling
prices and increased sales volumes, as well as improved gross margins, for ISP's
specialty chemicals business, operating income for the European region increased
by $12.2 million as a result of higher sales levels and improved gross margins,
operating income from the Asia-Pacific region increased by $.8 million with
higher sales volumes partially offset by increased expenses associated with
ISP's geographic expansion program, and operating income from ISP's other
foreign operations declined by $1.7 million as higher sales were offset by
additional expenses attributable to the geographic expansion program and a
nonrecurring 1994 benefit resulting from the Brazilian government's economic
program. See Note 14 to Consolidated Financial Statements. On a consolidated
basis, the Company's domestic operating margins are lower than its foreign
operating margins, because the asphalt roofing materials business is totally
domestic, whereas the higher-margin specialty chemicals business is conducted
both domestically and internationally.
Interest expense for 1995 was $145.6 million, an increase of $23 million
from $122.6 million in 1994. The increase was due to higher debt levels,
primarily from the issuance in June 1994 of BMCA's Senior Deferred Coupon Notes
(the "BMCA Notes") due 2004 (see Note 10 to Consolidated Financial Statements),
higher interest rates, and higher partnership interest expense.
Other income, net, includes income from a partnership between GAF Chemicals
Corporation ("GCC") and an affiliate of Rhone-Poulenc Inc. (the "Surfactants
Partnership") of $32.4 million in 1995 and $51.2 million in 1994. Income from
the Surfactants Partnership in 1994 included $23 million, representing the
pre-tax income from a partnership distribution of a portion of the interest of
GCC in the Surfactants Partnership as a result of a settlement of GCC's
outstanding disputes relating to its interest in the Surfactants Partnership.
See Note 4 to Consolidated Financial Statements. Other income, net, is also
comprised of net investment income, foreign exchange gains/losses resulting from
the revaluation of foreign currency-denominated accounts receivable and payable
as a result of changes in exchange rates, and other nonoperating and
nonrecurring items of income and expense; such items totaled $2.1 million of net
income in 1995 compared with $8.5 million of net expense in 1994. The $10.6
million improvement in 1995 was due principally to higher net investment income
(up $13.1 million). See Notes 1 and 6 to Consolidated Financial Statements.
The Company's effective tax rate for 1995 was 32.1% compared with 41.8% for
1994. The lower rate for 1995 was due primarily to utilization of foreign tax
credit carryovers.
1994 COMPARED WITH 1993
In 1994, the Company recorded net income of $28 million compared with net
income of $14.4 million in 1993. The 1994 results included an extraordinary
charge of $1.2 million related to the refinancing of ISP's bank debt. The 1993
results reflect (i) a pre-tax provision of $13.8, million, primarily related to
the ISP cost reduction program in December 1993 and (ii) a $2.2 million
retroactive income tax provision representing the effect of an increase in the
Federal corporate income tax rate on the Company's net deferred tax liability as
of December 31, 1992. See Notes 3 and 5 to Consolidated Financial Statements.
The improved results in 1994 were primarily attributable to a 19% increase
in operating income (before the $13.8 million of charges in 1993 mentioned above
related to ISP), partially offset by a $9.5 million increase in interest
expense.
Net sales for 1994 increased $86.8 million (8%) to $1.151 billion, compared
with $1.064 billion for 1993.
ISP's sales for 1994, excluding sales to BMCA, were $557.5 million, a 10%
increase compared with $504.7 million for 1993. The sales growth reflected
increased sales in most product lines, primarily specialty chemicals (up 11%)
and filters (up 12%), in all regions of the world, mainly due to higher volumes
and, to a lesser extent, a favorable foreign exchange effect of $4.1 million.
ISP's operating income for 1994 was $99.2 million compared with $65.1
million for 1993. The improvement was attributable to increased sales volumes
and lower selling, general and administrative expenses, and the absence of
21
<PAGE>
the $13.8 million restructuring charge mentioned above, partially offset by
lower gross profit margins due mainly to higher manufacturing costs for
specialty chemicals (up approximately $8 million primarily as a result of raw
material cost increases), and lower operating income from mineral products.
ISP's selling, general and administrative expenses for 1994 were $119.7 million,
down 5% from 1993, primarily as a result of ISP's cost reduction and
productivity programs. The $13.8 million restructuring charge in 1993 was
established to cover costs associated with severance and related benefits,
professional fees, relocations, and discontinuation of products. Management
believes that ISP's cost reduction and productivity programs have resulted in
significantly reduced operating expenses. The remaining liability as of December
31, 1995 was approximately $4.7 million and is anticipated to be expended over
the next several years.
BMCA's sales for 1994 increased 6% to $593.2 million compared with $559.2
million for 1993, reflecting higher unit volumes of both residential and
commercial roofing products and the acquisition of the business of IPI in March
1994. BMCA recorded operating income of $44.7 million in 1994, an 8% increase
compared with $41.5 million for 1993, reflecting the higher sales and improved
margins. Gross profit margins increased as a result of lower manufacturing
costs, including raw material costs, and an improved sales mix of premium
products, partially offset by lower average selling prices.
Of the total $36.9 million increase in 1994 consolidated operating income,
operating income attributable to domestic operations increased by $24.8 million
due primarily to higher ISP export sales to all regions, the absence of the
prior year's restructuring charges and higher BMCA operating income, which is
totally domestic. Operating income derived from European operations increased by
$7.5 million, while operating income from other foreign operations increased by
$4.6 million, mainly in the Asia-Pacific region, in each case after giving
effect to a portion of the $13.8 million restructuring charge in 1993. See Note
14 to Consolidated Financial Statements.
Interest expense for 1994 was $122.6 million, an increase of $9.5 million
from $113.1 million in 1993. The increase was due to higher debt levels (see
Note 10 to Consolidated Financial Statements and the discussion below) and
higher interest rates.
Other income, net, includes income from the Surfactants Partnership of
$51.2 million in 1994 and $42.9 million in 1993. Income from the Surfactants
Partnership in 1994 included $23 million, representing the pre-tax income from a
partnership distribution of a portion of the interest of GCC in the Surfactants
Partnership as a result of a settlement of GCC's outstanding disputes relating
to its interest in the Surfactants Partnership. See Note 4 to Consolidated
Financial Statements. Other income, net, is also comprised of net investment
income, foreign exchange gains/losses resulting from the revaluation of foreign
currency-denominated accounts receivable and payable as a result of changes in
exchange rates, and other nonoperating and nonrecurring items of income and
expense; such items totaled $8.5 million of net expense in 1994 compared with
$1.8 million of net expense in 1993. The higher net expense in 1994 was due
primarily to lower net investment income (down $7.2 million). See Notes 1 and 6
to Consolidated Financial Statements.
LIQUIDITY AND FINANCIAL CONDITION
GAF Corporation ("GAF"), G-I Holdings' parent, G-I Holdings and G
Industries Corp. are essentially holding companies without independent
businesses or operations and, as such, are presently dependent upon the cash
flow of their subsidiaries in order to satisfy their obligations. As of March
31, 1996, such obligations included $331.9 million of 11.125% Senior Discount
Notes due 1998 (the "Senior Discount Notes"), $200 million of the Senior Notes
due 2006, $359.6 million estimated present value of asbestos liability (before
estimated present value of recoveries from products liability insurance policies
of approximately $185.6 million) and approximately $158.6 million of various tax
and other liabilities of GAF and its subsidiaries, including tax liabilities
relating to the Surfactants Partnership. For further information, see Notes 1,
4, 5 and 15 to Consolidated Financial Statements. G-I Holdings and GAF expect to
obtain funds to satisfy such obligations from, among other things, refinancings
of debt, dividends and loans from subsidiaries, as to which there are
restrictions under ISP's Credit Agreements (defined below) and the indentures
relating to ISP's 9% Senior Notes (the "9% Notes") and the BMCA Notes and, in
the case of GAF, the indentures relating to the Notes and the Senior Discount
Notes, and from payments pursuant to Tax Sharing Agreements between GAF and its
subsidiaries. As of March 31, 1996, after giving effect to the most restrictive
of the aforementioned restrictions, it would have been permissible for ISP to
pay dividends in the aggregate amount of $59.5 million, of which $49 million
would have been available to G-I Holdings, and to make loans to affiliates of
$57.7 million, and for
22
<PAGE>
BMCA to pay dividends of up to $37.3 million. In addition, as of March 31, 1996,
loans in the aggregate amount of $97.2 million were owed by ISP to G-I Holdings,
and a loan of $21.9 million was owed by BMCA to G-I Holdings.
Given, first, the ownership structure of ISP and the fact that the Company
would currently suffer certain adverse tax consequences in the event that it
were to own less than 80% of the outstanding shares of ISP common stock and,
second, the present level of ISP's stock price, the Company has no current
intention to sell ISP shares. As earnings continue to be generated by ISP,
thereby reducing or eliminating such adverse tax consequences, and ISP's stock
price appreciates, the Company may at some future time consider selling
additional shares of ISP common stock.
During the first quarter of 1996, the Company used $19.3 million of cash
for operations, invested $14.8 million in capital expenditures and an
acquisition, and generated $34.5 million from net sales of available-for-sale
and held-to-maturity securities, for a net cash inflow of $0.5 million before
financing activities. Such cash inflow was net of $22.2 million in net payments
of asbestos claims.
Cash invested in additional working capital totaled $43.4 million during
the first quarter of 1996. This amount principally reflected a $41.7 million
increase in receivables due mainly to higher sales in March 1996 versus December
1995, and a $14.2 million increase in inventories due primarily to a seasonal
increase for Building Materials. Cash from operations in the first quarter of
1996 included a $5.1 million dividend received from GAF-Huls.
Net cash used in financing activities during the first quarter of 1996 was
$22.6 million, principally comprised of a $14.1 million decrease in short-term
borrowings, $12.1 million of repayments related to the sale of receivables, and
$1 million in dividends paid to GAF, partially offset by a net increase in
long-term debt of $5 million.
As a result of the foregoing factors, cash and cash equivalents decreased
by $22.2 million during the first quarter of 1996 to $69.2 million (excluding
$137.2 million of available-for-sale securities and $16.7 million of
held-to-maturity securities).
In February 1996, G-I Holdings completed the exchange of $189.3 million in
accreted value of its outstanding Senior Discount Notes,representing
approximately 35% of the total issue, for $200 million of the Senior Notes due
2006, which bear interest payable in cash at the rate of 10% per annum. See Note
10 to Consolidated Financial Statements.
On March 14, 1996, the Company agreed to sell WAXQ to Entercom (which has
in turn agreed to transfer the station to Viacom) for a purchase price of $90
million. The transaction is subject to a number of conditions, including
obtaining the consent of the Federal Communications Commission. See
"Business--GAF Broadcasting" and Note 16 to Consolidated Financial Statements.
During 1995, the Company on a consolidated basis generated cash from
operations of $148.4 million, after net payments of asbestos-related bodily
injury claims of $60.4 million, and invested $253.3 million for capital programs
and acquisitions and net purchases of available-for-sale securities and
held-to-maturity securities, for a net cash outflow of $104.9 million before
financing activities. See Note 1 to Consolidated Financial Statements and
"Business--Legal Proceedings" for a discussion of asbestos claims filed against
GAF.
Cash invested in additional working capital totaled $14.3 million during
1995. This principally reflected a $9.2 million increase in receivables due to
the higher sales levels in 1995, and a $4.9 million net reduction in payables
and accrued liabilities.
Net cash provided by financing activities in 1995 was $49.1 million,
primarily reflecting $40 million of proceeds from a sale-leaseback transaction,
$36.2 million of additional short-term borrowings, a $24.5 million reduction in
restricted cash and $11.7 million of proceeds from the sale of receivables,
partially offset by $28.2 million in dividends paid to GAF, primarily to fund
the redemption by GAF on April 1, 1995 of its outstanding preferred stock.
Financing activities also included $16.6 million in repurchases by ISP of its
common stock and $16.8 million in repayments of long-term debt.
As a result of the foregoing factors, cash and cash equivalents decreased
by $55.8 million during 1995 to $91.3 million at December 31, 1995 (excluding
$164.8 million of available-for-sale securities and $15 million of
held-to-maturity securities).
The Company's investment strategy is to seek to earn returns in excess of
money market rates on its available cash while minimizing market risks. There
can be no assurance that the Company will be successful in implementing
23
<PAGE>
such strategy. The Company invests primarily in hedged utility programs,
international and domestic convertible arbitrage, and securities of companies
involved in acquisition or reorganization transactions, including at times,
common stock short positions which are offsets against long positions in
securities which are expected, under certain circumstances, to be exchanged or
converted into the short positions. With respect to its equity positions, the
Company is exposed to the risk of market loss. See Note 1 to Consolidated
Financial Statements.
In October 1995, the Company acquired USI for a purchase price of
approximately $27.5 million and assumed $35 million of USI's indebtedness. Funds
for the acquisition were provided principally from bank borrowings. See Note 2
to Consolidated Financial Statements.
In June 1995, BMCA's bank credit facilities were revised to provide for
increased 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 March 31, 1996, $30.4
million of letters of credit were outstanding and no amounts had been borrowed
thereunder. Under the agreements, BMCA is subject to a minimum consolidated net
worth test. As of March 31, 1996, BMCA was in compliance with such test.
In December 1995, BMCA consummated a $40 million sale-leaseback of certain
equipment located at its Chester, South Carolina roofing facility, in a
transaction accounted for as a capital lease. The proceeds will be used for
general corporate purposes. The lease term extends to December 2005.
In October 1994, ISP refinanced its $400 million revolving credit/letter of
credit facility and entered into a new four-year $250 million revolving
credit/letter of credit facility and a $150 million renewable one-year revolving
credit facility which has been renewed for one year (the "ISP Credit
Agreements"). As of March 31, 1996, loans in the amount of $47 million and
letters of credit aggregating $9.6 million were outstanding under the long-term
ISP Credit Agreement. The ISP Credit Agreements permit 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 $60 million, of which $2.3 million had been
utilized as of March 31, 1996.
Borrowings by G-I Holdings, ISP and BMCA are subject to the application of
certain financial covenants contained in the indenture relating to the Notes,
the ISP Credit Agreements and the indenture relating to the BMCA Notes. As of
March 31, 1996, G-I Holdings, ISP and BMCA were in compliance with such
covenants.
See Note 10 to Consolidated Financial Statements for further information
regarding the debt instruments of G-I Holdings, ISP, BMCA and USI.
ISP intends to acquire or develop a European manufacturing facility to meet
the needs of ISP's European business. While the originally anticipated
commencement date of the European project has been deferred because ISP has been
able to implement cost efficient capacity expansions at its existing
manufacturing facilities, based upon its current analysis of additional
opportunities for expansion of existing capacity, end-use demand, and other
relevant factors, ISP intends to proceed with the project by the end of 1997.
Costs capitalized to date related to this project are included in "Construction
in progress". ISP anticipates utilizing internally generated funds, existing
credit facilities and/or independent financing to fund the cost of the project.
BMCA intends to expand its glass mat manufacturing capacity by installing
an additional glass mat machine at an existing facility, the construction for
which is expected to commence in 1996 and be completed in 1997. The estimated
cost of the project is $30 million, which BMCA anticipates funding utilizing
internally generated cash, existing credit facilities and/or independent
financing.
USI has a revolving credit facility, providing for borrowings of up to
$29.6 million, which expires in January 1999 and is secured by, and subject to
limitations based upon values of, accounts receivable, inventories and certain
manufacturing equipment. As of March 31, 1996, loans in the amount of $29.6
million were outstanding under the facility. The interest rate on that portion
of the loans which is collateralized by accounts receivable and inventories is
at the prime rate; that portion which is collateralized by manufacturing
equipment is at a fixed rate of 7%.
Fluctuations in the value of foreign currencies may cause U.S. dollar
translated amounts to change in comparison with previous periods and,
accordingly, the Company cannot estimate in any meaningful way the possible
effect of such fluctuations upon future income. The Company has a policy to
manage these exposures to minimize the effects of fluctuations in foreign
currencies, including entering into foreign exchange contracts in order to hedge
its
24
<PAGE>
exposure. In respect of its foreign exchange contracts, the Company recognized a
gain of $1.2 million during the first quarter of 1996 and losses of $7.4 million
and $6.6 million during the years ended December 31, 1995 and 1994,
respectively. At March 31, 1996, the equivalent U.S. dollar fair value of
outstanding forward foreign exchange contracts was $180.7 million, and the
amount of deferred gains and losses on such instruments was immaterial. The
equivalent U.S. dollar fair value of foreign exchange contracts outstanding as
of March 31, 1996 as a hedge of non-local currency loans was $26.8 million,
representing 100% of the Company's foreign currency exposure with respect to
such loans. See Note 1 to Consolidated Financial Statements.
The objectives of the Company in utilizing interest rate swap agreements
are to lower funding costs, diversify sources of funding and manage interest
rate exposure. As of March 31, 1996, the total notional amount of interest rate
swaps outstanding was $298 million and the amount of underlying debt relating to
such swaps was $413.9 million. By utilizing interest rate swap agreements, the
Company reduced its interest expense by $1.7 million in the first quarter of
1996, $3.3 million in 1995 and $5.4 million in 1994. See Note 10 to Consolidated
Financial Statements.
The Company does not believe that inflation has had a material effect on
its results of operations during the past three years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
relating to accounting for impairment of long-lived assets, which is required to
be adopted in 1996. The Company does not anticipate that the implementation of
SFAS No. 121 will have a material effect on the Company's results of operations
or financial position.
ISP has received conditional site designation from the New Jersey Hazardous
Waste Facilities Siting Commission for the construction of a hazardous waste
treatment, storage and disposal facility at its Linden, New Jersey property,
which designation has been appealed to the Courts by the City of Linden. ISP
estimates that the cost of constructing the facility will be approximately $100
million and, if approved, the facility is anticipated to be in operation three
years after commencement of construction. ISP anticipates utilizing internally
generated cash and/or seeking project or other independent financing therefor.
Accordingly, ISP would not expect such facility to impact materially its
liquidity or capital resources.
The Company, together with other companies, is a party to a variety of
administrative proceedings and lawsuits involving environmental matters. See
"Business--Legal Proceedings" for further discussion.
The discussion as to legal matters involving the Company, including
asbestos-related matters, contained in "Business--Legal Proceedings" is
incorporated herein by reference.
At December 31, 1995, the Company had foreign tax credit ("FTC")
carryforwards with expiration dates as follows:
FTCs expiring in the year:
(THOUSANDS)
-----------
1996 ................................. $15,057
1997 ................................. 11,918
1998 ................................. 7,354
1999 ................................. 6,166
-------
Total FTC carryforwards available
for tax purposes .................. $40,495
=======
As a result of these FTC carryforwards, the Company does not expect to make
any significant Federal income tax payments for the next several years.
The Company's management has determined, based on the Company's history of
prior earnings (adjusted for significant nonrecurring items such as the 1992
provision for asbestos claims) and its expectations for the future that future
taxable income will more likely than not be sufficient to utilize the FTCs prior
to their ultimate expiration. The realization of these deferred tax assets may
be adversely affected by tax law changes which might restrict the utilization of
these deferred tax assets and by the Company's failure to achieve projected
income levels. In preparing its financial statements, the Company evaluates the
realizability of the deferred tax asset by reviewing projected taxable income.
See Note 5 to Consolidated Financial Statements for further information related
to income taxes.
25
<PAGE>
BUSINESS
G-I HOLDINGS
G-I Holdings, incorporated under the laws of Delaware in 1988, is a
wholly-owned subsidiary of GAF. G-I Holdings owns, directly or indirectly, all
of the issued and outstanding stock of BMCA, USI, GAF Broadcasting, G Industries
Corp. ("G Industries") and GCC. GCC owns approximately 82% of the outstanding
ISP common stock. The remaining 18% of the outstanding ISP common stock is
publicly held and traded on the New York Stock Exchange. GAF is controlled by
Samuel J. Heyman, Chairman and Chief Executive Officer of GAF, G-I Holdings, G
Industries, GCC, GAF Broadcasting and ISP, and Chairman of BMCA. See "Security
Ownership of Certain Beneficial Owners and Management." GAF was organized by Mr.
Heyman for the purpose of effecting the acquisition in March 1989 of the
predecessor company to GAF in a management-led buyout.
ISP
ISP is a leading multinational manufacturer of specialty chemicals, mineral
products, filter products, and advanced materials.
ISP, incorporated in Delaware in 1991, operates its business exclusively
through 18 domestic subsidiaries, including ISP Chemicals Inc., ISP Technologies
Inc., ISP Van Dyk Inc. and ISP Fine Chemicals Inc., 34 international
subsidiaries and GAF Huls, the joint venture with Huls AG, in which ISP has a
50% interest.
SPECIALTY CHEMICALS
o PRODUCTS AND MARKETS. ISP manufactures more than 325 specialty chemicals
having numerous applications in consumer and industrial products. ISP uses
proprietary technology to convert various raw materials, through a chain of one
or more processing steps, into increasingly complex and higher value added
specialty products to meet specific customer requirements. More than 200 of
ISP's specialty chemical products are derived from acetylene, including
intermediates, solvents, vinyl ethers, and polymers, and sales of these products
represent the majority of ISP's specialty chemical sales.
ISP's specialty chemicals consist of nine main groups of products: vinyl
ether polymers, polyvinyl pyrrolidone polymers, solvents, intermediates,
specialty preservatives, sunscreens, emollients, pearlescent pigments and fine
chemicals.
Vinyl ether polymers are used by the cosmetics, personal care,
pharmaceutical and health-related industries, primarily in hair care and dental
care products. Vinyl ether monomers and oligomers are used in coatings and inks
for both consumer and industrial products.
Polyvinyl pyrrolidone polymers are used primarily in cosmetics, personal
care, pharmaceutical and health-related products, food and beverages, and
detergent formulations. Examples are drug and vitamin tablet binders and
disintegrants; clarifiers and chill-hazing elimination agents for beer, wine and
fruit juices; microbiocidal products for human and veterinary applications; hair
care products such as hair sprays, mousses, conditioners, gels and glazes;
ingredients in water-resistant mascaras, sunscreens and lipsticks; specialty
coatings, adhesives, ink jet inks and media for consumer and industrial
applications; and dispersants and binders in agricultural chemical formulations.
Solvents are sold to customers for use in agricultural chemicals,
pharmaceuticals, coatings, wire enamels, adhesives, plastics, electronics
coating and cleaning applications, petroleum extraction and specialty cleaners.
ISP's family of solvents includes, among others, N-methyl-2-pyrrolidone,
gamma-butyrolactone, 2-pyrrolidone and tetrahydrofuran, many of which which are
used by ISP as raw materials in the manufacture of monomers and polymers.
Intermediates are manufactured primarily for use by ISP as raw materials in
manufacturing solvents and polymers. Some intermediates are also sold to
customers for use in the manufacture of engineering plastics and elastomers,
agricultural chemicals, oil production auxiliaries and other products.
Butanediol, an intermediate producedby ISP, is an essential raw material in the
manufacture of polybutylene terephthalate ("PBT") thermoplastic resins and
polyurethane elastomers, which are used in the automotive, electronics and
appliance industries.
26
<PAGE>
Specialty preservatives are proprietary products that are marketed
worldwide to the cosmetics, personal care and household industries. ISP sells a
number of preservative products, including Germall(R) 115, Germall(R) II,
Germaben(R) II, Germaben(R) II-E, Suttocide(R) A and LiquaPar(R) Oil. Uses
include infant care preparations, eye and facial makeup, after-shave and nail,
bath, hair and skin preparations.
ISP Van Dyk Inc. produces three multifunctional specialty chemical product
lines which ISP markets primarily to the cosmetics and personal care
industries--ultraviolet absorber chemicals, the principal active ingredients in
sunscreens; pearlescent pigments, which provide the pearly or lustrous color in
lipsticks, eye shadows and other cosmetics; and emollients and emulsifiers,
which are used as moisturizing and softening agents in a variety of creams and
lotions, hair care products and other cosmetics. ISP Van Dyk's Escalol(R),
Pearl-Glo(R) and Ceraphyl(R) trademarks are widely recognized for their
respective sunscreen, pigment and emollient properties.
ISP Fine Chemicals Inc. produces a broad range of pharmaceutical
intermediates, biological buffers, pheromones and several bulk active
pharmaceuticals which serve the pharmaceutical, biotechnology, agricultural and
chemical process industries. Fine chemicals are extremely specialized products,
made in small quantities, which because of their complexity can be priced at
several hundred to several thousand dollars per kilogram. ISP Fine Chemicals
Inc. also provides a custom manufacturing capability serving the pharmaceutical,
biotechnology, agricultural and chemical process industries.
o MARKETING AND SALES. ISP markets its specialty chemicals through a
worldwide marketing and sales force, typically chemists or chemical engineers,
who work closely with ISP's customers to familiarize themselves with their
customers' products, manufacturing processes and markets. ISP conducts its
marketing and domestic sales from ISP's headquarters in Wayne, New Jersey and
regional offices strategically located throughout the United States.
o INTERNATIONAL OPERATIONS. ISP markets all of its specialty chemicals
worldwide. ISP conducts its international operations through 34 subsidiaries and
42 sales offices located in Western and Eastern Europe, Canada, Latin America
and the Asia-Pacific region. Services of local distributors are also used to
reach markets that might otherwise be unavailable to ISP.
ISP had in excess of 60% of its international sales in 1995 in countries in
Western Europe and Japan which are subject to currency exchange rate fluctuation
risks. For a discussion of the Company's policy regarding the management of
these risks, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Financial Condition." Other countries
in which the Company has sales are subject to additional risks, including high
rates of inflation, exchange controls, government expropriation and general
instability.
International sales in 1995 of ISP's specialty chemicals, excluding sales
by GAF Huls, were approximately 45% of ISP's total 1995 sales. GAF-Huls, a joint
venture in which ISP holds a 50% interest, produces certain intermediates and
solvents. The GAF-Huls plant is located in Marl, Germany.
o RAW MATERIALS. The principal raw materials used in the manufacture of
ISP's specialty chemicals are acetylene, methanol and methylamine. Most of these
raw materials are obtained from outside sources pursuant to long-term supply
agreements. Acetylene, a significant raw material used in the production of most
of ISP's specialty chemicals, is obtained by ISP for domestic use from two
unaffiliated suppliers pursuant to long-term supply contracts. At ISP's Texas
City and Seadrift, Texas plants, acetylene is supplied via pipeline by a
neighboring large multinational company that generates this raw material as a
by-product from ethylene manufacture. At ISP's Calvert City, Kentucky facility,
acetylene is supplied via pipeline by a neighboring company that generates it
from calcium carbide. The acetylene utilized by GAF-Huls is produced by Huls AG,
using a proprietary electric arc process, sourced from various hydrocarbon
feedstocks. ISP believes that this diversity of supply sources, using a number
of production technologies (ethylene by-product, calcium carbide and electric
arc), provides the Company with a reliable supply of acetylene. In the event of
a substantial interruption in the supply of acetylene from current sources, no
assurances can be made that ISP would be able to obtain as much acetylene from
other sources as would be necessary to meet its supply requirements. ISP has a
long-standing agreement with GAF-Huls to import butanediol into the United
States for use as a feedstock for the production of ISP's solvents and polymers.
ISP has not experienced an interruption of its acetylene supply that has had a
material adverse effect on its sales of specialty chemicals.
With regard to raw materials other than acetylene, ISP believes that in the
event of a supply interruption it could obtain adequate supplies from alternate
sources. Raw materials derived from petroleum or natural gas are used in many of
ISP's manufacturing processes and, consequently, the price and availability of
petroleum and natural gas
27
<PAGE>
could be material to ISP's operations. During 1995, crude oil and natural gas
supplies and prices remained constant, with some seasonal and weather related
variations. Methanol, which experienced a substantial increase in price in the
latter half of 1994 and the first half of 1995 due to a shortage of supply,
experienced a significant decline in price in the second half of 1995, to levels
below the lowest prices encountered in 1994, as a result of increases in
capacity by methanol suppliers. Due to the increases in methanol capacity, ISP
believes, although there can be no assurance, that the market conditions which
caused the sudden rise in methanol prices will not reoccur in the near future.
o STRATEGY. ISP's strategy for future growth involves (i) the introduction
of new products and the development of new applications for existing products,
(ii) geographic expansion and penetration of new markets and (iii) the selected
acquisition of businesses which complement ISP's existing businesses.
ISP continued in 1995 its emphasis on the development of new products and
new applications for existing products. ISP continued the development of its
broad product line for the hair care industry, where it believes there are
attractive opportunities for environmentally-friendly chemicals. In this regard,
ISP has been involved over the past several years in an intensive effort to
tailor its family of products for the hair care industry so as to enable its
customers to meet stringent regulatory requirements mandating reduction of
volatile organic compounds ("VOC"s), while at the same time improving the
performance characteristics of these products in order to satisfy consumer
preferences. To this end, ISP has introduced since the beginning of 1994 a
number of new products and applications for the hair care industry, including
the following: Gantrez(R) A-425, an optimized molecular weight hair spray
polymer, which, while satisfying 80% VOC requirements, enhances the performance
characteristics of ISP's current Gantrez(R) products and provides for
formulations covering a wide range of desired properties from natural to stiff
feel, so as to appeal to different consumer styles which tend to vary from one
region of the world to another; Gafquat(R), HSi and PVP/Si-10 encapsulated
silicone products, which combine ISP's Gafquat(R) and PVP products with silicone
to provide a silky feel for use in hair conditioners, shampoos and mousses; and
H(2)OLD(TM) EP-1, a versatile polymer for use in low VOC or alcohol-free
formulations for hair sprays, mousses and gels and designed so as to satisfy a
preference on the part of certain consumers. ISP also introduced in 1995 the
next generation of its successful Gafquat(R) product, a hair fixative and
shampoo conditioner that provides improved holding characteristics and
conditioning properties. In addition, ISP has recently introduced and plans to
begin selling in 1996 a new sunscreen product, ESCALOL(R)HP-610, for hair care
applications.
In addition to new products for the hair care industry, ISP has introduced
since the beginning of 1994 a number of other new products for use in the
cosmetics, skin care, household, industrial and institutional cleaner,
agricultural and oil and gas industries, examples of which include the
following: Stabileze(R) QM, a quick mix viscosity enhancing polymer that
provides desired controlled thickening properties in skin and hair care
formulations; PVP K-30A, a cosmetic grade PVP specifically designed for skin
care use in mascara and eye liners; Cerasynt(R) IP-V and Cerasynt(R) SD-V,
vegetable-based emulsifiers for hair and skin care; a family of PVP anionic
copolymers, with applications for a variety of personal care, specialty
industrial coatings, and household, industrial and institutional cleaner uses;
and a family of agricultural adjuvant products, utilizing ISP's new proprietary
microemulsion technology, providing pesticides and other related agricultural
chemicals with greater adherence, thereby improving performance and reducing
environmental risk.
ISP has also focused its research and development efforts on the
improvement of manufacturing efficiency at its plants. The efforts to increase
productivity, reduce waste and inefficiency and improve the overall quality of
ISP's manufacturing operations have yielded increased manufacturing capacity
with minimal capital investment, while providing for manufacturing cost savings.
ISP's specialty chemicals business has continued its emphasis on increased
geographic penetration, with particular focus on the Asia-Pacific and Latin
American regions. In order to further the geographic expansion of its specialty
chemicals business, ISP has opened since the beginning of 1994 new sales and
marketing operations, and/or added to its existing presence where it could
increase market penetration, in more locations than in any comparable period in
the history of its business, with operations having been opened or substantially
augmented in Beijing, Chengdu, Shanghai and Guangzhou, China; Moscow; Buenos
Aires; Bombay; Warsaw; Bangkok and Jakarta. ISP is increasing its geographic
penetration throughout the world not only with the opening of sales and
marketing operations, but also as a result of the increased specialization of
its sales force along industry lines, the hiring of additional technical staff
to assist ISP's sales force, and a substantial increase in sales staff.
28
<PAGE>
In addition, ISP's strategy is to acquire niche businesses with
characteristics similar to ISP's, involving high value-added products,
significant market shares and barriers to entry, and product lines which
complement ISP's own products. Furthermore, the acquired product lines can be
expanded by use of ISP's technology, marketing expertise and worldwide
distribution network.
MINERAL PRODUCTS
o PRODUCTS AND MARKETS. ISP manufactures mineral products consisting of
ceramic-coated colored roofing granules, which are produced from rock deposits
that are mined and crushed at ISP's quarries and colored using a proprietary
ceramic chemical coating process. ISP's mineral roofing granules are sold
primarily to the North American roofing industry for use in the manufacture of
asphalt roofing shingles, for which they provide weather resistance, decorative
coloring, heat deflection and increased weight. ISP is the second largest of
only two major suppliers of colored roofing granules in North America, the other
being Minnesota Mining & Manufacturing Company. ISP also markets granule
by-products for use in the construction and maintenance of fast dry, clay-like
tennis courts.
ISP estimates that more than 80% of the asphalt shingles currently produced
by the roofing industry are sold for the reroofing/replacement market, in which
demand is driven not by the pace of new home construction but by the needs of
homeowners to replace existing roofs. Homeowners generally replace their roofs
either because they are worn, therefore creating concerns as to
weather-tightness, or because of the homeowners' desire to upgrade the
appearance of their homes. ISP estimates that the balance of the roofing
industry's asphalt shingle production historically has been sold primarily for
use in new housing construction. Sales of ISP's colored mineral granules have
benefitted from a trend toward the increased use of heavyweight,
three-dimensional laminated roofing shingles which results in both functional
and aesthetic improvements, which require, on average, approximately 60% more
granules than traditional three-tab, lightweight roofing shingles.
o MARKETING AND SALES. BMCA purchases 100% of its colored roofing granule
requirements from ISP (except for the requirements of its California roofing
plant which are supplied by a third party). These purchases constituted
approximately one-half of ISP's mineral products net sales in 1995. Sales to
BMCA were made under a requirements contract which was renewed for one year
effective January 1, 1996 and is subject to annual renewal unless terminated by
BMCA or ISP. In addition, in December 1995, USI commenced purchasing
substantially all of its requirements for colored roofing granules from ISP
(except for the requirements of its Stockton, California and Corvallis, Oregon
plants which are supplied by a third party) pursuant to a requirements contract
which expires December 31, 1997.
o RAW MATERIALS. ISP owns rock deposits that have specific performance
characteristics, including weatherability, the ability to reflect UV light,
abrasion-resistance, non-staining characteristics and the ability to absorb
pigments. ISP owns three quarries, each with proven reserves, based on current
production levels, of more than 20 years.
FILTER PRODUCTS AND ADVANCED MATERIALS
ISP manufactures and sells filter products, consisting of pressure filter
vessels, filter bags and filter systems, and sells cartridges and cartridge
housings. These filter products are designed for the treatment of process
liquids, with the paint, automotive, chemical, pharmaceutical, petroleum and
food and beverage industries accounting for more than 90% of ISP's 1995 net
sales of filter products.
ISP manufactures pressure filter vessels at manufacturing facilities in
Brazil, Canada and Germany, which serve both local and international markets.
ISP also manufactures filter bags in Belgium, Canada, Singapore, Brazil and the
United States and supplies filter products worldwide through its subsidiaries,
sales offices and distributors.
ISP manufactures a variety of advanced materials, consisting of high-purity
carbonyl iron powders, sold under ISP's trademark Micropowder(TM), used in a
variety of advanced technology applications for the aerospace and defense,
electronics, powder metallurgy, pharmaceutical and food industries. Using
proprietary technology, ISP manufactures more than 50 different grades of
Micropowder(TM) iron, one of which is sold under the trademark Ferronyl(R), for
use as a vitamin supplement.
The primary markets for ISP's Micropowder(R) are the domestic defense
industry, which employs these products in a variety of coating systems for
stealth purposes in aircraft and naval ships, and the emerging metal injection
molding segment of the powder metallurgy industry. ISP is the sole domestic
manufacturer of carbonyl iron powders.
ISP manufactures a line of processless, electronically imaged film products
including RAD-SURE(R), which is a radiation sensitive film strip affixed to
blood bags to indicate whether or not they have been properly irradiated.
29
<PAGE>
COMPETITION
ISP believes that it is either the first or second largest seller worldwide
of its specialty chemicals derived from acetylene other than butanediol and
tetrahydrofuran. Butanediol, which ISP produces primarily for use as a raw
material, is also manufactured by a limited number of companies in the United
States, Germany, Japan and Korea. Tetrahydrofuran is manufactured by a number of
companies throughout the world. While there are companies, other than ISP and
its principal competitor, that manufacture a limited number of ISP's other
specialty chemicals, the market position of these companies is much smaller than
that of ISP (other than as to solvents and intermediates, with respect to which
there is a significant third competitor). In addition to ISP's competition as
noted above, there are other companies that produce substitutable products for a
number of ISP's specialty chemicals. These companies compete with ISP in the
personal care, pharmaceutical, beverage preservative and industrial markets and
have the effect of limiting ISP's market penetration and pricing flexibility.
Beginning in 1994, ISP experienced a dramatic improvement in the severe
competitive conditions which had adversely affected ISP's intermediates and
solvents business during the three preceding years as a result of an additional
competitor having entered the market in 1991. As a result of improved worldwide
demand for ISP's intermediates and solvents products coming principally, with
respect to intermediates, from PBT engineering plastic producers for an
increasingly widening range of both automotive and electrical component
applications and, with respect to solvents, from increased demand for a number
of existing and new applications, together with a regulatory and customer-driven
trend to replace chlorinated and other volatile solvents with ISP's safer
solvent, N-methyl pyrrolidone ("NMP"), industry-wide capacity utilization rates
for these products substantially increased in 1994 and 1995. As a result, while
butanediol ("B1D") and NMP prices had declined fairly substantially from the
beginning of 1992 to mid-1994, higher capacity utilization rates, together with
substantial price increases of methanol, enabled ISP to implement worldwide
price increases in 1994 and 1995, establishing B1D prices at levels higher than
in the recent past and reversing a significant portion of the previous decline
in NMP prices. While future competitive conditions will depend in large measure
on future worldwide demand for ISP's customers' end-use products, ISP expects
that the current trends could well continue in 1996, although there can be no
assurance.
With regard to its mineral products, ISP has only one major and one smaller
competitor and believes that competition has been limited by: (i) the
substantial capital expenditures associated with the construction of new mineral
processing and coloring plants and the acquisition of suitable rock reserves;
(ii) the limited availability of proven rock sources; (iii) the complexity
associated with the construction of a mineral processing and coloring plant,
together with the technical know-how required to operate such a plant; (iv) the
need to obtain, prior to commencing operations, reliable data over a substantial
period of time regarding the weathering of granules in order to assure the
quality and durability of the product; and (v) the difficulty in obtaining the
necessary permits to mine and operate a quarry.
With respect to filter products, ISP competes with a number of companies
worldwide. With respect to advanced materials, ISP is the sole domestic
manufacturer of carbonyl iron powders and one of only two manufacturers
worldwide.
Competition is largely based upon product and service quality, technology,
distribution capability and price. ISP believes that it is well positioned in
the marketplace as a result of its broad product lines, sophisticated technology
and worldwide distribution network.
RESEARCH AND DEVELOPMENT
ISP's worldwide research and development expenditures were $21.2 million,
$20.3 million and $21.9 million in 1993, 1994 and 1995, respectively.
ISP's research and development department is located primarily at ISP's
worldwide technical center and laboratories in Wayne, New Jersey and additional
research and development is conducted at the Calvert City, Kentucky, Texas City,
Texas, Chatham, New Jersey, Belleville, New Jersey, and Columbus, Ohio plant
sites and technical centers in the United Kingdom, Germany, China and Singapore.
ISP's mineral products research and development facility, together with its
recently opened customer design and color center, is located at Hagerstown,
Maryland.
ENVIRONMENTAL SERVICES
ISP has received conditional site designation for the construction of a
hazardous waste treatment, storage and disposal facility at its Linden, New
Jersey property. If ISP is successful in securing the site designation and the
neces-
30
<PAGE>
sary permits to construct and operate the hazardous waste facility, ISP intends
to develop and operate the facility in a separate subsidiary, either on its own
or in a joint venture with a suitable partner. ISP estimates that the cost of
constructing the facility will be approximately $100 million and, if approved,
the facility is anticipated to be in operation three years after commencement of
construction, ISP anticipates utilizing internally generated cash and/or seeking
project or other independent financing therefor. The Indenture does not restrict
the payment of a dividend of the Linden facility to GAF.
BUILDING MATERIALS
The Company, through BMCA and USI, is a leading national manufacturer of a
broad line of asphalt roofing products and accessories for the residential and
commercial roofing markets. The Company's products are produced at twenty-three
strategically located manufacturing facilities. The Company believes that it
holds the number one or two market position in each of the product lines in
which it competes, including leadership in sales of premium laminated
residential shingles and modified bitumen commercial roofing. Based on brand
awareness studies, the Company's Timberline(R) product is the leading brand in
residential roofing, and the Company's Ruberoid(R) product is the leading brand
in the modified bitumen commercial roofing.
BMCA operates ten roofing manufacturing facilities, one roofing accessory
plant, one glass fiber manufacturing plant, one glass mat manufacturing plant,
two perlite roofing manufacturing plants and one fiber-cement shingle and siding
plant. BMCA has registered, through 1995, eight consecutive years of increases
in operating income. Since 1989, BMCA's net sales and operating income have
increased at average annual compound rates of approximately 9% and 13%,
respectively, and its gross profit and operating income margins have increased
from 25.2% to 26.7% and from 5.5% to 6.9%, respectively. BMCA believes that its
growth is primarily attributable to (i) improvement in its product mix, driven
by a marketing strategy which emphasizes its higher-margin products; (ii) its
vertically integrated operations; (iii) substantial capital spending programs
for new property, plant and equipment that have enabled BMCA to expand capacity
and reduce manufacturing costs; and (iv) the strength of its national
distribution system.
USI is a leading national manufacturer of commercial roofing materials. USI
operates seven manufacturing plants. USI was acquired by the Company in October
1995 and is being operated as an operating unit separate from BMCA.
INDUSTRY OVERVIEW
The United States residential roofing industry is comprised of
manufacturers of asphalt, tile, wood, slate and metal roofing materials, with
asphalt roofing representing approximately 80% of industry residential roofing
unit sales in 1995. Residential asphalt roofing materials are comprised of
higher margin, premium laminated shingles and standard strip shingles, which
represented approximately 25% and 75%, respectively, of industry asphalt roofing
unit sales in 1995. Total asphalt residential unit sales grew during the past
five years at an average annual compound rate of approximately 4%, during which
period unit sales of laminated and strip shingles grew at average annual
compound rates of approximately 15% and 1%, respectively. While the Company
believes that growth of laminated shingle sales will continue to exceed the
growth of the overall residential asphalt roofing market, the Company expects
increased competition in this area.
The United States commercial roofing industry is comprised of manufacturers
of asphalt built-up roofing, modified bitumen, single ply polymer and other
roofing products. Approximately 70% of commercial roofing industry membrane
sales utilize asphalt built-up roofing and modified bitumen products, both of
which the Company manufactures and markets. Over the past five years, commercial
roofing industry membrane unit sales experienced modest growth, primarily as a
result of the weak commercial construction market. During this period, unit
sales of asphalt built-up roofing products declined at an average annual
compound rate of approximately 1%, while unit sales of modified bitumen products
grew at a rate of approximately 6%, the latter due principally to shifts in
customer preferences.
Over the past five years, approximately 80% of industry sales, as well as
those of the Company, of both residential and commercial roofing products were
for re-roofing, as opposed to new construction. As a result, the exposure of
both the Company and the industry to cyclical downturns in the new construction
market is substantially lower than other building material manufacturers
producing, for example, gypsum, wood and cement. Management expects that during
the late 1990s demand for re-roofing will continue to increase as the existing
housing stock ages and as home
31
<PAGE>
owners upgrade from standard strip roofing shingles to premium laminated
shingles for enhanced aesthetics and durability.
RESIDENTIAL ROOFING PRODUCTS
Residential roofing represented approximately 73% of BMCA's net sales in
1995. BMCA believes that it is the largest manufacturer of laminated shingles
and the second largest manufacturer of strip shingles in the United States. BMCA
produces two lines of shingles, the Timberline(R) series and the Sovereign(R)
series, as well as certain specialty shingles principally for regional markets.
BMCA's sales of laminated shingles represented approximately 40% of its
residential sales in 1995, with sales of such shingles having grown during the
past five years at an average annual compound rate of approximately 8%. The
Timberline(R) series offers a premium laminated product line that adds dramatic
shadow lines and substantially improves the appearance of a roof.
BMCA's sales of strip shingles have grown at an average annual compound
rate of approximately 6% during the past five years and represented
approximately 50% of BMCA'a residential sales in 1995. The Sovereign(R) series
includes a line of standard strip shingles and heavierweight 3-tab shingles
designed to capitalize on the demand for quality shingles.
All BMCA's asphalt roofing shingles have a Class A fire rating and are made
from glass fiber mat, coated with waterproofing asphalt on both sides and
surfaced with ceramic coated mineral granules. BMCA's other residential roofing
products include Timbertex(R) and Ridgetex(R) Hip & Ridge shingles,
Shingle-Mate(R) underlayment, Weather Watch(R) ice and water barrier, a
waterproof underlayment, and Cobra(R) ridge vent, a ventilation system on a
coil, all of which enable BMCA to offer a complete system of residential roofing
components. In July 1995, BMCA acquired the assets of Supradur Manufacturing
Corporation, which manufactures and sells a line of premium fiber cement roofing
and siding shingles.
COMMERCIAL ROOFING PRODUCTS
Commercial roofing represented approximately 27% of BMCA's net sales in
1995. The Company manufactures a broad line of modified bitumen products,
asphalt built-up roofing and roofing accessories. The Company believes that it
is the largest manufacturer of modified bitumen products, and the second largest
manufacturer of asphalt built-up roofing products, in the United States. BMCA
also manufactures perlite roofing insulation products, which consist of low
thermal insulation products for commercial roofing installation below the
roofing membrane. BMCA also markets isocyanurate foam as roofing insulation,
packaged asphalt and accessories such as vent stacks, roof insulation fasteners,
cements and coatings. BMCA has in recent years devoted substantial resources to
the high performance end of the commercial roofing market and is now a leading
supplier for major commercial roofing installations.
INCREASING EMPHASIS ON HIGHER MARGIN, PREMIUM PRODUCTS
One of BMCA's strategies to grow sales and profitability has been to
improve its product mix, with an increasing emphasis on laminated shingles and
longer-life, high performance premium strip and specialty shingles, which sell
at higher prices and profit margins than standard strip shingles. Since 1989,
BMCA's sales of premium shingles have increased at an average annual compound
rate of approximately 11%. This growth enabled BMCA to significantly increase
its premium product mix of residential sales. Management expects to continue
this strategy to improveproduct mix by increasing sales of premium shingles.
VERTICAL INTEGRATION
BMCA is a vertically integrated manufacturer, which has enabled it to
become a low cost producer of its asphalt roofing products. BMCA produces a
significant portion of its glass fiber requirements at its Nashville, Tennessee
plant, with glass fiber being converted into glass mat at BMCA's Chester, South
Carolina plant. Glass mat is the base material used in making finished asphalt
roofing products at BMCA's ten roofing plants. Moreover, the asphalt coatings
which are applied to glass mat are derived from the processing of petroleum
products by BMCA at its own manufacturing facilities. BMCA purchases from ISP
substantially all its requirements for colored roofing granules (except for the
requirements of its California roofing plant which are supplied by a third
party).
32
<PAGE>
SUBSTANTIAL CAPITAL PROGRAMS
BMCA believes that its plants are among the most modern in the industry,
due in part to the fact that since 1985 the Company has invested in excess of
$200 million in new property, plant and equipment (of which more than $100
million has been invested since the beginning of 1990), principally in order to
increase capacity and implement process improvements to reduce manufacturing
costs and has included the installation of efficient in-line lamination
equipment in a number of its roofing plants, as well as the modernization of
BMCA's fiberglass and glass mat facilities. BMCA has been able to reduce its
manufacturing costs as a result of this capital program, the vertical
integration discussed above, and the rigorous application of its process and
quality control standards.
NEW PRODUCT DEVELOPMENT
BMCA believes that is has been among the most innovative industry leaders
in terms of the introduction of new products, having been the first to develop
the three-dimensional laminated roofing shingle, Timberline(R), which created an
entire new product line within the asphalt roofing industry. New products
introduced by BMCA in just the last four years include: the Timberline(R) and
Timberline(R) Ultra(R) Natural Shadow(TM) shingles, which offer wood shake
appearance, enhanced visual depth and contrast simulating shadows; the
Marquis(R) shingle, a heavyweight three-tab shingle designed for Northern
markets which offers greater flexibility and added durability in cold
temperatures; Ridgetex(TM), an innovative hip and ridge cap which is folded by
the contractor at the application site, and which offers an economical hip and
ridge cap and a dramatic accent to laminated shingle roofs; and RUBEROID(R)
20/30, a polymer modified bitumen roofing system which utilizes fiberglass
reinforcements coated with modified asphalt to form a durable high performance
two-ply roofing membrane and which requires no additional treatment or coating
to qualify for an Underwriters Laboratory Class A rating. In 1995, BMCA
introduced GAF CompositeRoof(TM), a new commercial roofing product that combines
the tensile strength of built-up roofing with the flexibility and superior
elongation of modified bitumen membranes. See "Legal Proceedings--Other
Litigation."
ACQUISITIONS
The Company's acquisition strategy is focused on niche-type acquisitions,
designed to either complement existing product lines, further the geographic
reach of the Company's business or increase its market shares, and preferably
those which can benefit from the Company's strong national distribution network,
manufacturing technology and marketing expertise. Recent acquisitions by the
Company include the October 1995 acquisition of U.S. Intec Inc., a leading
national manufacturer of commercial roofing materials, the July 1995 acquisition
of the assets of Supradur Manufacturing Corporation, a manufacturer of
fiber-cement roofing and siding shingles, and the March 1994 acquisition of the
International Permalite business, which is one of only two United States
manufacturers of perlite roofing insulation products whose products consist of
low thermal insulation which is installed on commercial roofs below the roofing
membrane.
RESIDENTIAL ROOFING
The Company is a leading manufacturer of a complete line of premium
residential roofing products, with residential roofing product sales
representing approximately 73% of BMCA's net sales in 1995. BMCA has improved
its sales mix of residential roofing products in recent years by increasing its
emphasis on laminated products which generally are sold at higher prices with
more attractive profit margins than its standard strip shingle products. The
Company believes that it is the largest manufacturer of laminated residential
roofing shingles, and the second largest manufacturer of standard shingles, in
the United States.
BMCA produces two principal lines of roofing shingles, the Timberline(R)
series and the Sovereign(R) series, as well as certain specialty shingles for
regional markets.
THE TIMBERLINE(R) SERIES. The Timberline(R) Series offers a premium
laminated product line that adds dramatic shadow lines and substantially
improves the appearance of a roof. The series includes the GAF Timberline(R) 25
Natural Shadow(R) shingle, a mid-weight laminated shingle which serves as an
economic trade-up for consumers, with a 25-year limited warranty; the
Timberline(R) Natural Shadow(R) shingle, with a 30-year limited warranty,
offering a woodshake appearance, enhanced visual depth and contrast simulating
shadows and superior fire resistance and durability; and the Timberline(R)
Ultra(R) Natural Shadow(R) shingle, with a 40-year limited warranty, a super
heavyweight laminated shingle with the same design features as the Timberline(R)
Natural Shadow(R) shingle, together with added durability.
33
<PAGE>
THE SOVEREIGN(R) SERIES. The Sovereign(R) Series includes the standard
3-tab Sentinel(R) shingle with a 20-year limited warranty; the Royal
Sovereign(R) shingle, a heavier 3-tab shingle with a 25-year limited warranty,
designed to capitalize on the "middle market" for quality shingles; and the
Marquis(R) shingle, a superheavyweight 3-tab shingle with a 30-year limited
warranty.
SPECIALTY SHINGLES. BMCA's specialty asphalt shingles include: Slateline(R)
shingles offering the appearance of slate, labor savings in installation because
of their larger size and a 30-year limited warranty; Stonehenge(R) offering a
unique strip shingle appearance and a 25-year limited warranty; and
Dubl-Coverage(R) Tite-On(R) shingles offering a design feature that enables the
shingles to lock together to form a double layer roof, and a 25-year limited
warranty.
SYSTEM ROOF(TM) COMPONENT ROOFING SYSTEM. In addition to shingles, BMCA
supplies all the components necessary to install a complete roofing system.
BMCA's System Roof(TM) begins with WEATHER WATCH(R) ice and water barrier
underlayment for eaves, valleys and flashings to prevent water seepage between
the roof deck and the shingles caused by ice build-ups. BMCA's System Roof(TM)
also includes SHINGLE-MATE(R) glass reinforced underlayment, Timbertex(R),
Ridgetex(TM) and Slateline(R) Hip and Ridge shingles which are significantly
thicker and larger than standard hip and ridge shingles and provide dramatic
accents to the slopes and planes of a roof and the Cobra(R) Ridge Vent which
provides attic ventilation.
COMMERCIAL ROOFING
Both BMCA and USI manufacture a full line of modified bitumen products,
asphalt built-up roofing and roofing accessories for use in the application of
commercial roofing. Commercial roofing represented approximately 27% of BMCA's
net sales in 1995, and substantially all of USI's net sales in 1995.
Approximately 70% of commercial roofing industry membrane sales utilize asphalt
built-up roofing and modified bitumen products, both of which BMCA and USI
manufacture. The Company believes that it is the largest manufacturer of
modified bitumen products, and the second largest manufacturer of asphalt
built-up roofing products, in the United States.
BMCA manufactures glass membranes under the trademark GAFGLAS(R), which are
made from asphalt impregnated glass fiber mat for use as a component in asphalt
built-up roofing systems. Most of the Company's GAFGLAS(R) products are
assembled on the roof by applying successive layers of roofing membrane with
asphalt and topped, in some applications, with gravel. Thermal insulation may be
applied beneath the membrane. The Company also manufactures base sheets,
flashings and other roofing accessories for use in these systems and perlite
roofing insulation products, which consist of low thermal insulation that is
installed as part of a commercial roofing application below the roofing
membrane. In addition, BMCA sells isocyanurate foam as roofing insulation,
packaged asphalt and accessories such as vent stacks, roof insulation fasteners,
cements and coating.
Modified bitumen products are sold under the Ruberoid(R) trademark by BMCA
and under the Brair trademark by USI and are used primarily in re-roofing
applications. These products consist of a roofing membrane utilizing
polymer-modified asphalt, which strengthens and increases flexibility and is
reinforced with a polyester non-woven mat or a glass mat. Modified bitumen
systems provide high strength characteristics, such as weatherability,
water resistance, and labor cost savings due to ease of application.
MARKETING AND SALES
The Company has one of the industry's largest sales forces, which is
supported by a staff of technical professionals who work directly with
architects, general contractors and owner/builders. BMCA markets it roofing
products through its own sales force of approximately 125 experienced full-time
employees operating from five regional sales offices located across the United
States. USI markets its roofing products through approximately 50 experienced
full-time employees and independent sales representatives. A major portion of
the Company's roofing product sales are to wholesale distributors who resell the
Company's products to roofing contractors and retailers. The Company believes
that the wholesale distribution channel offers the most attractive margins of
all roofing market distribution channels and represents the principal
distribution channel for professionally installed asphalt roofing products, and
that its nationwide coverage has contributed to its roofing products being among
the most recognized and requested brands in the industry.
No single customer accounted for as much as 10% of BMCA's 1995 sales.
34
<PAGE>
RAW MATERIALS
The major raw materials required for the manufacture of the Company's
roofing products are asphalt, mineral stabilizer, glass fiber, glass fiber mat
and granules. Asphalt and mineral stabilizer are available from a large number
of suppliers and the Company currently has contracts with several of these
suppliers, with others available as substitutes. Prices of most raw materials
have been relatively stable, rising moderately with general industrial prices,
while the price of asphalt tends to move in step with the price of crude oil.
Five of BMCA's roofing plants have easy access to deep water ports thereby
permitting delivery of asphalt by ship, the most economical means of transport.
BMCA's Nashville, Tennessee facility manufactures chopped glass fiber, and
BMCA's Chester, South Carolina plant manufactures glass fiber mat substrate. The
Company currently purchases supplies of raw materials at reasonable costs,
although there can be no assurance that it will continue to do so. BMCA
purchases from ISP substantially all its requirements for colored roofing
granules (except for the requirements of its California roofing plant which are
supplied by a third party) under a supply contract that was renewed for one year
effective January 1, 1996 and is subject to annual renewal unless terminated by
BMCA or ISP. In addition, in December 1995, USI commenced purchasing
substantially all of its requirements for colored roofing granules from ISP
(except for the requirements of its Stockton, California and Corvallis, Oregon
plants which are supplied by a third party) pursuant to a supply contract.
SEASONAL VARIATIONS AND WORKING CAPITAL
Sales of roofing products in the northern regions of the United States
generally decline during the winter months due to adverse weather conditions.
Generally, the Company's inventory practice includes increasing inventory levels
in the first and the second quarter in order to meet peak season demand (June
through November).
WARRANTY CLAIMS
The Company provides certain limited warranties covering most of its
residential and commercial roofing products for periods ranging from 20 to 40
years. Although terms of warranties vary, the Company believes that its
warranties generally are consistent with those offered by its competitors. The
Company also offers limited warranties and guarantees of varying duration on its
commercial roofing products. The Company currently believes that the reserves
established for estimated probable future warranty claims are adequate.
COMPETITION
The roofing products industry is highly competitive and includes a number
of national competitors, which in the residential roofing market are
Owens-Corning, Elcor and Celotex, and in the commercial roofing market are
Schuller International, Celotex and Firestone. In addition, there are numerous
regional competitors.
Competition is based largely upon products and service quality,
distribution capability, price and credit terms and the Company believes that it
is well positioned in the marketplace as a result of its broad product lines in
both the residential and commercial markets, consistently high product quality,
strong sales force and national distribution capabilities. As a result of the
growth in demand for premium laminated shingles, a number of roofing
manufacturers, including the Company, have increased their laminated shingle
production capacity in recent years and the Company expects increased
competition in this area.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are focused primarily on
the development of new products, process improvements and the testing of
alternative raw materials and supplies. The Company's research and development
activities, dedicated to residential, commercial and fiberglass products, are
located at technical centers at Wayne, New Jersey, Nashville, Tennessee and Port
Arthur, Texas. BMCA's research and development expenditures were approximately
$2.6 million, $2.5 million and $3.1 million in 1993, 1994 and 1995,
respectively.
35
<PAGE>
GAF BROADCASTING
GAF Broadcasting owns and operates WAXQ, 104.3-FM, a commercial radio
station broadcasting current rock music in the New York City metropolitan area.
WAXQ is on the air 24 hours a day, 7 days a week. Q-104.3 is music intensive,
featuring new bands and established rock performers.
On March 14, 1996, the Company agreed to sell WAXQ to Entercom (which has
in turn agreed to transfer the station to Viacom) for a purchase price of $90
million. The transaction is subject to a number of conditions, including (i)
obtaining the consent of the Federal Communications Commission ("FCC"), (ii) the
concurrent closing of the Viacom/Entercom transaction and (iii) the transmission
equipment of the station being, in all material respects, in good operating
condition and in compliance with applicable FCC rules and regulations. On March
21, 1996, the Company filed with the FCC an application for assignment of the
license to operate WAXQ and is awaiting the issuance by the FCC of its approval
to such assignment. Although there can be no assurance that the conditions to
the sale of WAXQ will be satisfied and the closing of the transaction will be
consummated, the Company expects that the closing of the sale of WAXQ will occur
in the third quarter of 1996.
GCC
The business of GCC consists solely of owning shares of ISP common stock
and an investment in the Surfactants Partnership which operates, among other
businesses, GCC's former surfactants chemicals business. See Note 4 of Notes to
Consolidated Financial Statements. GCC owns 80,500,000 shares of ISP common
stock, representing approximately 82% of the outstanding shares of ISP common
stock.
GCC was incorporated in Delaware in 1987. GCC acquired the specialty
chemicals business now conducted by ISP in April 1989 pursuant to a plan of
liquidation of GAF Corporation, the predecessor in name to GAF which was
acquired by GAF and its consolidated subsidiaries in March 1989 in a
management-led buyout.
PROPERTIES
The corporate headquarters and principal research and development
laboratories of ISP and BMCA are located at a 100-acre campus-like office and
research park owned by a subsidiary of ISP at 1361 Alps Road, Wayne, New Jersey
07470. The premises are subject to a first mortgage. G-I Holdings maintains its
principal office at 818 Washington Street, Wilmington, Delaware 19801, telephone
(302) 429-8525.
The WAXQ-FM studio and GAF Broadcasting are located in leased offices at
1180 Avenue of the Americas, New York, New York 10036. The corporate
headquarters of USI is located at offices owned by USI at 1212 Brai Drive, Port
Arthur, Texas 77643.
The principal domestic and foreign real properties either owned by, or
leased to, G-I Holdings' subsidiaries are described below. Unless otherwise
indicated, the properties are owned in fee. In addition to the principal
facilities listed below, ISP, BMCA and USI maintain sales offices and warehouses
in the United States and abroad, substantially all of which are in leased
premises under relatively short-term leases.
G-I Holdings does not directly own or lease any real property.
Location Facility Segment
-------- -------- -------
DOMESTIC
Alabama
Huntsville ......... Plant* ISP
Mobile ............. Plant, Warehouse* BMCA
Arizona
Chandler ........... Warehouse* USI
California
Fontana ............ Plant, Sales Office BMCA
Ontario ............ Plant, Sales Office BMCA
Stockton ........... Plant, Warehouse* USI
Florida
Tampa .............. Plant, Sales Office* BMCA
36
<PAGE>
Location Facility Segment
-------- -------- -------
DOMESTIC--(Continued)
Georgia
Monroe ............. Plant, Warehouse* USI
Savannah ........... Plant, Sales Office BMCA
Indiana
Mount Vernon ....... Plant, Sales Office BMCA
Illinois
Naperville ......... Sales Office* BMCA
Kentucky
Calvert City ....... Plant ISP
Florence ........... Plant BMCA
Maryland
Baltimore .......... Plant, Warehouse* BMCA
Hagerstown ......... Research Center, Design Center, Sales
Office ISP
Massachusetts
Millis ............. Plant, Sales Office BMCA
Minnesota
Minneapolis ........ Plant, Sales Office, Warehouse* BMCA
Missouri
Annapolis .......... Plant, Quarry ISP
New Jersey
Belleville ......... Plant, Sales Office, Research Center,
Warehouse* ISP
Branchburg ......... Warehouse* USI
Bridgewater ........ Sales Office ISP
Chatham ............ Plant, Sales Office, Research Center,
Warehouse* ISP
North Branch ....... Plant USI
North Brunswick .... Sales Office*, Warehouse* BMCA
Wayne .............. Headquarters, Corporate Administrative ISP,BMCA
Offices, Research Center
New York
New York ........... Office*, Studios* GAF Broadcasting
Ohio
Columbus ........... Plant, Sales Office ISP
Wadsworth .......... Plant*, Warehouse* BMCA
Oregon
Corvallis .......... Plant USI
Pennsylvania
Blue Ridge Summit .. Plant, Quarry ISP
Erie ............... Plant, Sales Office, Warehouse* BMCA
Wind Gap ........... Plant BMCA
South Carolina
Chester ............ Plant BMCA
Tennessee
Nashville .......... Plant, Research Center BMCA
Memphis ............ Plant*, Warehouse*, Distribution
Center* ISP
Texas
Beaumont ........... Plant USI
Dallas ............. Plant, Sales Office, Warehouse* BMCA
Fannett ............ Warehouse USI
Houston ............ Plant, Warehouse, Warehouse* USI
Port Arthur ........ Plant, Warehouse, Office USI
Seadrift ........... Plant ISP
Texas City ......... Plant ISP
Wisconsin
Pembine ............ Plant, Quarry ISP
37
<PAGE>
Location Facility Segment
-------- -------- -------
INTERNATIONAL
Belgium
Sint-Niklaas ....... Plant, Sales Office, Distribution
Center ISP
Brazil
Sao Paulo .......... Plant*, Sales Office*, Distribution
Center* ISP
Canada
Mississauga, Ontario Plant*, Sales Office*, Distribution
Center* ISP
Oakville, Ontario .. Plant* ISP
Germany
Hamburg ............ Plant* ISP
Great Britain
Guildford .......... European Headquarters*, Research
Center* ISP
India
Nagpur ............. Plant ISP
Singapore
Southpoint ......... Plant*, Sales Office*, Distribution ISP
Center*, Asia Pacific
Headquarters*, Warehouse*
Affiliate:
GAF-Huls Chemie GmbH
Marl, Germany ...... Plant, Sales Office ISP
- -------------
* Leased Property
The Company believes that its subsidiaries' plants and facilities, which
are of varying ages and are of different construction types, have been
satisfactorily maintained, are in good condition, are suitable for their
respective operations and generally provide sufficient capacity to meet
production requirements. Each plant has adequate transportation facilities for
both raw materials and finished products. In 1995, the Company made capital
expenditures in the amount of $63.3 million relating to plant, property and
equipment, of which $38.3 million, $24.7 million and $0.3 million were incurred
by ISP, BMCA and USI, respectively.
PATENTS AND TRADEMARKS
ISP owns approximately 405 domestic and 115 foreign patents and owns or
licenses approximately 120 domestic and 1,265 foreign trademark registrations
related to the business of ISP. The Company does not believe that any single
patent, patent application or trademark is material to ISP's business or
operations.
BMCA owns approximately 54 domestic and 53 foreign patents and owns or
licenses approximately 116 domestic and 444 foreign trademark registrations, and
USI owns approximately eight domestic patents and one foreign patent and owns or
licenses approximately 16 domestic trademark registrations. While the Company
believes the patent protection covering certain of its products to be material
to those products, such patents are not of material significance to the overall
roofing-related business of the Company.
The Company believes that the duration of the existing patents and patent
licenses is satisfactory.
ENVIRONMENTAL COMPLIANCE
Since 1970, a wide variety of federal, state and local environmental laws
and regulations relating to environmental matters (the "Regulations") have been
adopted and amended. By reason of the nature of the operations of the Company
and its predecessor and certain of the substances that are, or have been used,
produced or discharged at their plants or at other locations, the Company is
affected by the Regulations. The Company has made capital expenditures of less
than $4.1 million in each of the last three years in order to comply with the
Regulations (which expenditures are included in additions to property, plant and
equipment) and anticipates that aggregate capital expenditures relating to
environmental compliance in 1996 and 1997 will be approximately $4.1 million and
$4.0 million, respectively.
The Regulations deal with air and water emissions or discharges into the
environment, as well as the generation, storage, treatment, transportation and
disposal of solid and hazardous waste, and the remediation of any releases of
38
<PAGE>
hazardous substances and materials to the environment. The Company believes that
its manufacturing facilities comply in all material respects with applicable
Regulations, and, while it cannot predict whether more burdensome requirements
will be adopted in the future, it believes that any potential liability for
compliance with the Regulations will not materially affect its business,
liquidity or financial position.
The Company believes that its manufacturing facilities are being operated
in compliance in all material respects with applicable environmental, health and
safety laws and regulations but cannot predict whether more burdensome
requirements will be imposed by governmental authorities in the future.
LEGAL PROCEEDINGS
ASBESTOS CLAIMS FILED AGAINST GAF
BODILY INJURY CLAIMS. As of March 31, 1996, GAF had been named as a
defendant in approximately 48,400 pending lawsuits involving alleged health
claims relating to the inhalation of asbestos fiber ("Asbestos Claims"), having
resolved approximately 205,000 Asbestos Claims. Plaintiffs in approximately
12,900 of the pending lawsuits were preliminarily enjoined from proceeding with
their claims other than in accordance with the Settlement described below. Since
December 31, 1995, GAF has settled approximately 3,900 Asbestos Claims and
received notice of approximately 3,200 new Asbestos Claims (of which
approximately 2,300 are subject to the preliminary injunction).
The reserves of GAF and G-I Holdings for asbestos bodily injury claims, as
of March 31, 1996, were $359.6 million (before estimated present value of
recoveries from products liability insurance policies of $185.6 million as
described below and related deferred tax benefits of $66.8 million). Certain
components of the asbestos-related liability and the related insurance
recoveries have been reflected on a discounted basis in G-I Holdings' financial
statements. See Note 1 of Notes to Consolidated Financial Statements.
The estimate of liability for Asbestos Claims is based on the Settlement
described below 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 reserve
is also premised upon the assumption that GAF and the Company had available, to
pay asbestos-related bodily injury claims, aggregate coverage, as of March 31,
1996, under insurance policies totaling $197.4 million before discounting
certain coverage (which amount is reduced as asbestos-related liabilities are
satisfied). See "--Insurance Matters."
The actual cost of resolving pending and future Asbestos Claims is
difficult to estimate. However, based upon the experience of the Center for
Claims Resolution (the "CCR"), a non-profit organization of asbestos defendant
companies including GAF, in settling approximately 187,000 cases since its
creation in 1988, GAF's recent average settlement costs, and the anticipated
impact of the Settlement, GAF believes that its average future Asbestos Claim
settlements will be approximately $3,000 per case. G-I Holdings therefore
believes that its reserves, before discounting, 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 described below. There can be no assurance, however, that the
assumptions referred to above are correct.
In connection with its formation, BMCA contractually assumed and agreed to
pay the first $204.4 million of liabilities for Asbestos Claims (whether for
indemnity or defense) of its parent, GAF Building Materials Corporation
("GAFBMC"), relating to pending cases and previously settled, but not paid,
cases as of January 31, 1994, of which $152.1 million had been paid through
March 31, 1996. G-I Holdings and GAFBMC have jointly and severally agreed to
indemnify BMCA against any claims related to asbestos-related liabilities, other
than those contractually assumed by BMCA, in the event that claims in connection
with liabilities not assumed by BMCA are asserted against it.
On January 15, 1993, the members of the CCR entered into the Settlement to
resolve all future Asbestos Claims (other than claims of those persons who
"opted out" of the class) against GAF and other members of the CCR. The class
action was filed with the United States District Court in Philadelphia. The
Settlement, if effective, would operate to limit GAF's liability for future
Asbestos Claims to persons who do not "opt out" of the Settlement by placing a
dollar limit on awards to such persons and a limit on the number of claims that
will be paid to such persons in any one year and over the first ten years of the
Settlement. Certain members of the class filed objections to the Settlement. On
August 16, 1994, the District Court approved the Settlement, holding that the
terms of the Settlement are fair to the
39
<PAGE>
class as a whole. The District Court also reaffirmed its prior decision
that it has subject matter jurisdiction over the action, certified the class,
found that counsel for the class had acted without conflict of interest, without
collusion and appropriately in negotiating the Settlement, and determined that
adequate notice of the Settlement had been given to class members. The District
Court thereafter entered a preliminary injunction enjoining class members from
pursuing asbestos claims against GAF and other members of the CCR except in
accordance with the Settlement. On May 10, 1996, the United States Court of
Appeals for the Third Circuit (the "Third Circuit") issued an opinion,
concluding that the class was not certifiable, thus reversing the decision of
the District Court. The Company intends to pursue a continuation of the
preliminary injunction and a rehearing before the Third Circuit en banc and
ultimately, if necessary, an appeal of the Third Circuit's decision to the
United States Supreme Court. The Company continues to believe the Settlement
will ultimately be upheld on appeal.
The Settlement prescribes that all claims submitted to the CCR must provide
evidence (1) that the exposed person had occupationally-related exposure to
asbestos or an asbestos-containing product manufactured or supplied by the CCR
defendants, and (2) that the exposed person meets certain prescribed medical
criteria. The CCR will then evaluate the information to determine whether the
claimant satisfies the exposure and medical criteria for the Compensable Medical
Categories prescribed in the Settlement. Each claimant whose claim qualifies for
compensation will receive from the CCR a good faith offer to resolve the claim,
generally within several months after the claim is submitted. Disputes between
the claimant and the CCR with respect to whether a claim meets the asbestos
exposure or medical requirements for compensation will be resolved by
independent, neutral arbitrators or medical experts. In the event a claimant's
claim is denied, the claimant may subsequently resubmit the claim for further
consideration. Payments to claimants are to be made according to a prescribed
range of payment values, which set a minimum and maximum compensation value, and
a middle range, according to the disease with which the claimant is diagnosed.
The Settlement also sets a maximum number of claims in each Compensable Medical
Category that may be compensated in each year, which maximum case flow numbers
regulate only the timing of when claims will be paid, and not the total number
of claims that may qualify for payment.
Although approximately 260,000 requests (the "opt-outs") to be excluded
from the Settlement were initially filed, the United States District Court in
Philadelphia granted the CCR's motion to void the opt-outs and require a second
notice and opt-out period. As a result, the number of individuals who have filed
timely opt-out requests has been reduced to approximately 87,000.
It is anticipated that substantially all of the payments in connection with
the liability of GAF and G-I Holdings relating to Asbestos Claims will be made
by the end of the year 2004. While GAF is unable to estimate the amount of
liability with respect to claims to be resolved after such period, it believes
that it will resolve, prior to that time, substantially all the court cases
currently pending against GAF, and that it will further resolve substantially
all the claims filed under the Settlement on a relatively current basis, so that
the number of claims pending against GAF at the end of such period will be
substantially diminished from current levels. As a result of these and other
factors, GAF and G-I Holdings believe that the resolution of any claims after
such period will not, individually or in the aggregate, have a material adverse
effect on their respective financial positions, liquidity or results of
operations.
GAF and G-I Holdings believe that their reserves, which reflect the
discounting of a portion of the liabilities, adequately reflect their actual
asbestos-related liabilities. Although any opinion is necessarily judgmental and
must be based on information currently known, it is the opinion of GAF and G-I
Holdings, 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, liquidity or
results of operations of GAF and G-I Holdings, after giving effect to the
aforementioned reserves, and will not impair the ability of GAF or G-I Holdings
to meet its respective obligations, to reinvest in its respective businesses or
to grow. Although management believes that the Settlement will ultimately be
upheld on appeal, in the event that the Third Circuit's decision is not reversed
and the Settlement is not upheld, or the conditions to the effectiveness of the
Settlement are not satisfied (see--"Insurance Matters"), GAF and G-I Holdings
could be required to increase their estimates of asbestos-related liabilities
and adjust any related discounts. It is not currently possible to estimate the
range or amount of such possible additional liability.
ASBESTOS-IN-BUILDING CLAIMS. 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 ("Building Claims"). Since these
actions were first initiated 13 years ago, GAF has not only successfully
disposed of approximately 138 such cases at an average disposition cost
40
<PAGE>
(including cases disposed of at no cost to GAF) of $13,500 per case (all of
which have been paid by insurance under reservation of rights), but is a
co-defendant in only 10 remaining lawsuits. See "--Insurance Matters."
INSURANCE MATTERS. GAF and the Company had available, as of March 31, 1996,
to pay asbestos-related bodily injury claims aggregate insurance coverage of
$197.4 million (which amount was used in the reserve calculation referred to in
"Bodily Injury Claims" and is reduced as asbestos-related liabilities are
satisfied), of which: (i) certain insurers have agreed to provide coverage of
$168.5 million, the bulk of which was written and issued by companies which are
part of the CIGNA Insurance Group (INA and California Union), the London
Insurance Market and Allianz; and (ii) $28.9 million is the subject of
negotiations with various insurers and/or the Settlement Coverage Action
described below, and which $28.9 million of coverage GAF believes will be
available to it either by agreement with its insurance carriers or, if
necessary, by legal action. In addition to the $197.4 million of insurance
referred to above, GAF and G-I Holdings have $57.2 million of additional
insurance which may be available to pay a portion of the Asbestos Claims, which
has not been included in the reserve calculations.
Concurrently with the filing of the class action complaint relating to the
Settlement, the members of the CCR filed a third-party action with the United
States District Court in Philadelphia against certain product liability insurers
whose policies will or may be called upon to respond to asbestos-related bodily
injury claims, including claims to be resolved under the Settlement (the
"Settlement Coverage Action"). The third-party complaint seeks a declaratory
judgment on behalf of certain CCR members, including GAF, against various
third-party defendant product liability insurers to the effect that those
insurers are obligated to provide coverage for Asbestos Claims, including claims
subject to the Settlement. The insurers who are defendants in GAF's third-party
complaint are: American Centennial, Atlanta International, Employers Mutual,
Lexington (domestic coverage), Northbrook, Lexington (London coverage),
Commercial Union, and various London Market Insurers. The insurance carrier
third-party defendants have raised various defenses to the Settlement Coverage
Action, including the impropriety of the Settlement without prior notice to the
carriers, the potential violation of various conditions and obligations of the
insured under their policies, and the inappropriateness of the shares allocated
to the CCR members.
The CCR members, including GAF, and certain products liability insurers
(other than those referred to above) which have agreed in writing to fulfill
their obligations to provide coverage with respect to Asbestos Claims, have
joined in an alternate dispute resolution proceeding ("ADR"), which seeks a
determination similar to that sought in the Settlement Coverage Action. The ADR
insurers have raised certain defenses, and no hearing date is currently
scheduled. GAF's insurers in the ADR are ITT-Hartford, Royal Insurance and the
London Market Insurers. The ADR involves $43.4 million of the $168.5 million of
coverage (and $2.8 million of the additional coverage) described above. A
favorable resolution of the Settlement Coverage Action and the ADR is a
condition to the effectiveness of the Settlement.
GAF is involved in litigation in California with several of its insurers
concerning, among other things, the trigger of insurance coverage relating to
defense and indemnity obligations to GAF with respect to Asbestos Claims. The
trial and intermediate appellate courts have both upheld GAF's position that
coverage is triggered continuously from the time of first exposure to the
Company's products through the time of the filing of a claim (i.e., all insurers
during that period must respond up to the policy limits) and, although the
insurers have indicated that they intend to appeal, GAF has advised the Company
that it believes that the lower court decisions will be upheld.
In October 1983, GAF filed a lawsuit in Los Angeles, California Superior
Court against its past insurance carriers to obtain a judicial determination
that such carriers were obligated to defend and indemnify it for Building
Claims. GAF is seeking declaratory relief as well as compensatory damages. This
action is presently in the pre-trial pleading stage. The parties have agreed to
hold this action in abeyance until such time as they are better able to evaluate
developments as they may occur in the Building Claims. Because such litigation
is in early stages and evidence and interpretations of important legal questions
are presently unavailable, it is not possible to predict the future of such
litigation.
In all the Building Claims, GAF's defense costs have been paid by one of
its primary carriers. While GAF expects that such primary carrier will continue
to defend and indemnify GAF, such primary carrier has reserved its rights to
later refuse to defend and indemnify GAF and to seek reimbursement for some or
all of the fees paid to defend and resolve the Building Claims. GAF believes
that it will be able to resolve such cases for amounts within the total
indemnity obligations available from such primary carrier. GAF further believes
that it would prevail if the carrier's claims for reimbursement of fees paid to
defend and resolve these cases were determined by a court.
41
<PAGE>
ENVIRONMENTAL LITIGATION
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ("Environmental
Claims") under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") and similar state laws, 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.
The Company estimates that its liability in respect of all Environmental
Claims, and certain other environmental compliance expenses, as of March 31,
1996 will be $30 million, before reduction for insurance recoveries reflected on
its balance sheet (discussed below) of $12.5 million ("estimated recoveries").
In the opinion of management, the resolution of such matters should not be
material to the business, 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.
After considering the relevant legal issues and other pertinent factors,
the Company believes that it will receive the estimated recoveries and it may
receive amounts substantially in excess thereof. The Company believes it is
entitled to substantially full defense and indemnity under its insurance
policies for most Environmental Claims, although the Company's insurers have not
affirmed a legal obligation under the policies to provide indemnity for such
claims.
The estimated recoveries are based in part upon interim agreements with
certain insurers. The Company terminated these agreements in 1995 and on March
8, 1995 commenced litigation in the United States District Court for the
District of New Jersey seeking amounts substantially in excess of the estimated
recoveries. While the Company believes that its claims are meritorious, there
can be no assurance that the Company will prevail in its efforts to obtain
amounts equal to, or in excess of, the estimated recoveries.
In June 1989, ISP entered into a Consent Order with the New Jersey
Department of Environmental Protection ("NJDEP") requiring the development of a
remediation plan for its closed Linden, New Jersey plant and the maintenance of
financial assurances (currently $7.5 million) to guarantee ISP's performance. In
April 1993, NJDEP issued orders which require the prevention of discharge of
contaminated groundwater and stormwater from the site and the elimination of
other potential exposure concerns. ISP believes, although there can be no
assurance, that, taking into account its plans for development of the site, it
can comply with the NJDEP order at a cost of no more than $7.5 million (in
connection with which ISP anticipates insurance recoveries of approximately $5
million). See "--Environmental Services."
Pursuant to an Order dated September 28, 1990 issued by the United States
Environmental Protection Agency (the "EPA"), over 100 potentially responsible
parties, including the Company, have agreed to participate in the remediation of
a contaminated waste disposal site in Carlstadt, New Jersey. The EPA is
evaluating final remedies for the site. Total cleanup costs are unknown but the
Company estimates, based on information currently available to it, that the
insurance described above will cover a substantial portion of the Company's
share of such costs.
OTHER LITIGATION
Two class actions are pending in the United States District Court for the
District of New Jersey against GAF and certain affiliates of the Company on
behalf of stockholders who purchased and held GAF shares during a fifteen-month
period in the 1980s. The complaints, which were filed in 1988, allege certain
violations of the Exchange Act, common-law fraud and negligent misrepresentation
in connection with certain of GAF's public filings in the 1980s and an alleged
attempt by GAF to increase the price of Union Carbide Corporation common stock
inOctober 1986.
On March 19, 1993, G-I Holdings and a newly formed subsidiary of G-I
Holdings entered into an agreement to acquire the roofing manufacturing business
of Georgia-Pacific Corporation ("G-P"), including six roofing manufacturing
facilities, which was later terminated by G-I Holdings and such subsidiary. On
July 23, 1993, G-P commenced an action, in the United States District Court for
the Southern District of New York, alleging that G-I Holdings and such
subsidiary did not have the right to terminate the agreement and seeking
unspecified damages. The Company believes that the complaint is without merit
and has counterclaimed for breach of contract and fraud. A trial of this action
is expected to take place in 1996.
42
<PAGE>
Litigation is pending between the Company and Elk Corporation of Dallas
("Elk") in the United States District Court for the Northern District of Texas
relating to certain aspects of BMCA's laminated shingles, which Elk claims
infringe design and utility patents recently issued to it, as well as certain
proprietary aspects of its shingles. Elk seeks injunctive relief, damages and
attorneys' fees. The Company has sued for a declaration that Elk's patents are
invalid and unenforceable and that the Company's shingles do not infringe any of
Elk's rights, and has sought money damages for Elk's unfair competition and
certain federal statutory violations. The Company believes that Elk's patents
are invalid and unenforceable, that its shingles do not infringe any of Elk's
rights and that it will prevail in obtaining the requested declaratory relief
and money damages.
On October 25, 1994, a complaint was filed in the Superior Court of the
State of Connecticut against GAFBMC on behalf of a purported class of residents
in Connecticut who purchased fiberglass shingles manufactured by GAFBMC more
than six years ago, alleging, among other things, that such shingles were
defective, and seeking unspecified damages on behalf of the purported class.
Plaintiffs have not moved for class certification. The Company does not believe
a class is warranted and intends to vigorously oppose this action.
On or about April 29, 1996, an action was commenced in the Circuit Court of
Mobile County, Alabama against GAFBMC on behalf of a purported nationwide class
of purchasers of, or current owners of buildings with, asphalt shingles
manufactured by GAFBMC since January 1979. The action alleges, among other
things, that such shingles were defective and seeks unspecified damages on
behalf of the purported class. Plaintiffs have not moved for class
certification, and the Company does not believe a class is warranted. The
Company intends to vigorously oppose the action.
* * * * * * *
The Company believes that the ultimate disposition of the cases described
above under "Environmental Litigation", "Asbestos-in-Buildings Claims" and
"Other Litigation" will not, individually or in the aggregate, have a material
adverse effect on the Company's liquidity, financial position or results of
operations.
EMPLOYEES
G-I Holdings has no employees other than its officers.
At December 31, 1995, the Company employed approximately 5,200 people
worldwide. As of December 31, 1995, approximately 1,150 employees in the United
States and Canada were subject to 22 union contracts, which are effective in
most cases for two and four-year periods. During 1995 and the first two months
of 1996, seven labor contracts expired and were renegotiated. In addition, as of
March 1, 1996, three labor contracts were being negotiated, and the Company
expects to renegotiate an additional four labor contracts in 1996. The Company
believes that its relations with its employees and their unions are
satisfactory.
The Company has in effect various benefit plans, which include a
non-qualified retirement plan for a group of executives, a capital accumulation
plan for its salaried and certain hourly employees, a flexible benefit plan for
its salaried employees, a retirement plan for certain of its hourly employees,
and group insurance agreements providing life, accidental death, disability,
hospital, surgical, medical and dental coverage. In addition, the Company has
contracted with various health maintenance organizations to provide medical
benefits. The Company and, in many cases, its employees contribute to the cost
of these plans.
43
<PAGE>
MANAGEMENT
The following table sets forth the name, age, position and other
information with respect to the directors and executive officers of G-I
Holdings. Each person listed below is a citizen of the United States.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Name and Position Held(1) Age and Five-Year Employment History
------------------------- --- -------------------------------------------
<S> <C> <C>
Samuel J. Heyman ........................... 57 Mr. Heyman has been a director and Chairman and Chief Executive
Director, Chairman and Officer of G-I Holdings since August 1988 and of GAF, G
Chief Executive Officer Industries and certain of its subsidiares since April 1989,
prior to which he held the same position with the predecessor to
GAF (the "Predecessor Company") from December 1983 to April
1989. Mr. Heyman has been Chairman and Chief Executive
Officer of ISP, and has been a director and Chairman of
BMCA, since their respective formations. Mr. Heyman has been
a director of USI since October 1995. He is also the Chief
Executive Officer, Manager and General Partner of a number
of closely held real estate development companies and
partnerships whose investments include commercial real
estate and a portfolio of publicly traded securities.
Carl R. Eckardt ............................ 65 Mr. Eckardt has been a director and Executive Vice President
Executive Vice President of GAF since April 1989 and held the same positions with the
Predecessor Company from January 1987 to April 1989. He has
been President and Chief Operating Officer of ISP since
January 1994 and was Executive Vice President of ISP from
its formation to January 1994. Mr. Eckardt has been
Executive Vice President of G-I Holdings since March 1993.
Mr. Eckardt was President of GCC and the Predecessor
Company's chemicals division from 1985 to 1987. Mr. Eckardt
was a Senior Vice President--Worldwide Chemicals and Senior
Vice President--International Chemicals of the Predecessor
Company from 1982 to 1985 and 1981 to 1982, respectively.
Mr. Eckardt joined the Predecessor Company in 1974.
James P. Rogers ............................ 45 Mr. Rogers has been Senior Vice President and Chief
Senior Vice President and Financial Officer of G-I Holdings, GAF and certain of its
Chief Financial Officer subsidiaries and Senior Vice President-Finance of ISP since
November 1993, a director and Senior Vice President of BMCA
since its formation and a director and Senior Vice President
of USI since October 1995. Mr. Rogers has served as
Treasurer of G-I Holdings, GAF and certain of its
subsidiaries since March 1992 and was Vice President-Finance
of such corporations from March 1992 to October 1993. He was
Treasurer of ISP from March 1992 to December 1994 and has
served as such since September 1995. From August 1987 to
March 1992, Mr. Rogers was Treasurer of Amphenol
Corporation, a manufacturer of electronic connectors.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Name and Position Held(1) Age and Five-Year Employment History
------------------------- --- -------------------------------------------
<S> <C> <C>
Richard A. Weinberg ........................ 36 Mr. Weinberg has been Senior Vice President and General
Senior Vice President and General Counsel of GAF, G-I Holdings, ISP, BMCA and certain of their
Counsel subsidiaries since May 1996. He was Vice President and
General Counsel of BMCA from September 1994 to May 1996,
Vice President--Law of BMCA from May 1994 to September 1994
and Vice President--Law of GAFBMC from April 1993 to May
1994. Mr. Weinberg was employed by Reliance Group Holdings
Inc., a diversified insurance holding company, as Staff
Counsel from October 1987 to January 1990 and as Assistant
Vice President and Corporate Counsel from January 1990 to
April 1993.
</TABLE>
- -------------
(1) Under G-I Holdings' By-laws, each director and executive officer continues
in office until G-I Holdings' next annual meeting of stockholders and until
his or her successor is elected and qualified.
GAF
The following table sets forth the name, age, principal occupation or
employment at the present time and during the last five years and the name and
principal business of any corporation or other organization in which such
occupation is or was conducted, of each director of GAF, other than Messrs.
Heyman and Eckardt who are also directors and executive officers of GAF. Each
person listed below is a citizen of the United States. All directors other than
Mr. Heyman have served GAF as directors since April 1989. Mr. Heyman has served
as director since September 1987. Mr. Heyman and Ronnie F. Heyman are husband
and wife.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Name and Position Held(1) Age and Five-Year Employment History
------------------------- --- -------------------------------------------
<S> <C> <C>
Ronnie F. Heyman ........................... 47 Mrs. Heyman is a director of GAF.
Director
</TABLE>
- --------------
(1) Under GAF's By-laws, each director and executive officer continues in
office until GAF's next annual meeting of stockholders and until his or her
successor is elected and qualified.
45
<PAGE>
EXECUTIVE COMPENSATION
No compensation is paid to officers or directors of G-I Holdings for their
services in such capacity.
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of G-I Holdings and the four other most highly compensated executive
officers of G-I Holdings who were employed by G-I Holdings or its subsidiaries
as of December 31, 1995.
<TABLE>
<CAPTION>
Long Term
Compensation
----------------
Other Securities
Annual Underlying All Other
Name and Principal Position Year Salary Bonus (1) Compensation Options/SARs(3) Compensation
- --------------------------- ---- -------- --------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman .............. 1995 $553,666 $200,000 0 150,000 (O) $ 9,848 (2)
Chairman of the Board 1994 394,792 0 0 0 23,665 (2)
of Directors and Chief 1993 464,792 0 0 0 12,750 (2)
Executive Officer
Carl R. Eckardt ............... 1995 325,500 300,000 0 41,600 (O) 10,095 (2)
President and Chief 1994 312,084 300,000 0 45,240 (O) 15,540 (2)
Operating Officer, ISP 1993 269,583 100,000 0 0 8,064 (2)
John M. Sergey (4) ............ 1995 326,550 80,000 0 0 16,786 (4)
President and Chief Executive 1994 310,417 100,000 0 0 21,870 (4)
Officer, BMCA 1993 252,500 175,000 0 0 55,033 (4)
Mark A. Buckstein (5) ......... 1995 321,563 135,000 0 35,700 (O) 17,920 (5)
Executive Vice President, 1994 306,250 185,000 $60,289 (5) 2,993 (S) 24,430 (5)
General Counsel and Secretary 1993 125,000 (5) 65,000 (5) 35,000 (5) 30,000 (O)/6,255(S) 4,685 (5)
James P. Rogers ............... 1995 248,333 225,000 0 38,300 (O) 13,154 (6)
Senior Vice President and 1994 224,167 200,000 0 15,000 (O) 18,025 (6)
Chief Financial Officer 1993 194,167 200,000 0 15,000 (O)/9,319(S) 21,903 (6)
</TABLE>
- ------------
(1) Bonus amounts are payable pursuant to ISP's or BMCA's Executive Incentive
Compensation Programs.
(2) Included in these amounts for Mr. Heyman are: $8,598, $22,415 and $11,000
for the premium paid by the Company for a life insurance policy in 1995,
1994 and 1993, respectively; and $1,250, $1,250 and $1,750 for the premium
paid by the Company for a long-term disability policy in 1995, 1994 and
1993, respectively. Included in these amounts for Mr. Eckardt are: $8,845,
$14,190 and $6,314 for the premium paid by the Company for a life insurance
policy in 1995, 1994 and 1993, respectively; and $1,250, $1,250 and $1,750
for the premiums paid by the Company for a long-term disability policy in
1995, 1994 and 1993, respectively.
(3) The options (O) are for shares of ISP common stock and the stock
appreciation rights (S) relate to shares of GAF common stock. See "Options
and Stock Appreciation Rights".
(4) Included in "All Other Compensation" for Mr. Sergey are $11,000, $11,000
and $16,040, representing the Company's contribution under the GAF Capital
Accumulation Plan in 1995, 1994 and 1993, respectively; $4,536, $9,620 and
$5,904 for the premium paid by the Company for a life insurance policy in
1995, 1994 and 1993, respectively; and $1,250, $1,250 and $1,733 for the
premium paid by the Company for a long-term disability policy in 1995, 1994
and 1993, respectively. Mr. Sergey retired from BMCA on May 31, 1996.
(5) Mr. Buckstein commenced employment as Executive Vice President, General
Counsel and Secretary on August 1, 1993 and retired from the Company on May
15, 1996. Included in "Other Annual Compensation" for Mr. Buckstein are
$31,398 in payment of moving related expenses and a "tax gross-up" of
$21,440 in 1994 and $35,000 in payment of moving related expenses in 1993,
all in connection with Mr. Buckstein's move following his joining the
Company. Included in "All Other Compensation" for Mr. Buckstein are:
$11,000 and $11,000, representing the Company's contribution under the GAF
Capital Accumulation Plan in 1995 and 1994, respectively; $5,670, $12,180
and $2,935 for the premium paid by the Company for a life insurance policy
in 1995, 1994 and 1993, respectively; and $1,250, $1,250 and $1,750 for the
premium paid by the Company for a long-term disability policy in 1995, 1994
and 1993, respectively.
(6) Included in these amounts for Mr. Rogers are $10,963, $10,750 and $16,040,
representing the Company's contribution under the GAF Capital Accumulation
Plan in 1995, 1994 and 1993, respectively; $978, $6,125 and $4,504 for the
premium paid by the Company for a life insurance policy in 1995, 1994 and
1993, respectively; and $1,213, $1,150 and $1,359 for the premium paid by
the Company for a long-term disability policy in 1995, 1994 and 1993,
respectively.
46
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize grants of options to acquire ISP common
stock granted during 1995 to the executive officers named in the Summary
Compensation Table above and the potential realizable value of such options and
stock appreciation rights ("SARs") relating to GAF common stock held by such
persons. No SARs were granted to, and no options or SARs were exercised by, such
persons in 1995.
ISP COMMON STOCK OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Exercise/ Market Annual Rates of
Underlying Granted to Base Price Stock Price
Options Employees Price On Date Expiration Appreciation for
Name Granted(1) in Fiscal 1995 ($/Share) of Grant Date Option Term
- ---- ---------- -------------- --------- -------- ---------- ------------------------
5% 10%
-------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman ....... 150,000(2) 11.07% $7.000 $ 7.000 2/27/04 $578,850 $1,425,900
Carl R. Eckardt ........ 41,600(3) 3.07% 8.625 8.625 7/10/04 197,808 487,219
Mark A. Buckstein ...... 35,700(3) 2.63% 8.625 8.625 7/10/04 169,754 418,118
James P. Rogers ........ 25,800(4) 1.90% 8.625 8.625 7/10/04 122,679 302,170
12,500(4) 0.92% 5.875 10.875 12/31/01 24,975 56,663
</TABLE>
- -----------
(1) Options were granted under the ISP 1991 Incentive Plan for Key Employees
and Directors, as amended (the "1991 Incentive Plan"). Each option becomes
vested as to 20%, 40%, 60%, 80% and 100% of the shares subject thereto on
each of the first through the fifth anniversaries of the date of grant,
respectively, and, to the extent vested, is exercisable for 9 years from
the date of grant, except for options granted to Mr. Rogers for 12,500
shares which will become fully vested 2-1/2 years after the date of grant,
and, to the extent vested, are exercisable for 6 years from the date of
grant.
The Compensation and Pension Committee of the Board of Directors of ISP
may, on a case by case basis, accelerate the vesting of unvested options in
the event of a "Change in Control" (as defined).
(2) Mr. Heyman's ISP options were granted on February 27, 1995 and became or
will become exercisable as to 30,000 shares on each of February 27, 1996,
1997, 1998, 1999 and 2000.
(3) Mr. Eckardt's and Mr. Buckstein's ISP options were granted on July 10,
1995. Mr. Eckardt's options will become exercisable as to 8,320 shares on
each of July 10, 1996, 1997, 1998, 1999 and 2000. Mr. Buckstein's options
terminated upon his retirement from the Company.
(4) Mr. Rogers' options for 25,800 shares were granted on July 10, 1995 and
will become exercisable as to 5,160 shares on each of July 10, 1996, 1997,
1998, 1999 and 2000. Mr. Rogers' options for 12,500 ISP shares will become
exercisable on June 30, 1998.
47
<PAGE>
<TABLE>
<CAPTION>
VALUE OF ISP COMMON STOCK OPTIONS/GAF STOCK APPRECIATION RIGHTS AT DECEMBER 31, 1995
Number of Securities Underlying Value of Unexercised
Unexercised ISP Options (O)/GAF In-The-Money Option(O)/SARs(S)
SARs(S) at 12/31/95 at 12/31/95(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------------- -------------------------------
<S> <C> <C>
Samuel J. Heyman ................ 0/150,000(O) $0/$581,250
Carl R. Eckardt ................. 39,048/97,792(O) 37,323/242,892
Mark A. Buckstein ............... 12,000/53,700(O) 49,500/154,575
0/9,248(S) 0/359,662
James P. Rogers ................. 27,000/71,300(O) 25,875/190,300
0/9,319(S) 0/312,122
</TABLE>
- --------------
(1) Options for 150,000, 86,840, 65,700 and 68,300 shares were in-the-money for
Messrs. Heyman, Eckardt, Buckstein and Rogers, respectively, as of December
31, 1995. All outstanding SARs were in-the-money as of December 31, 1995.
PENSION PLANS
NON-QUALIFIED RETIREMENT PLAN. GAF has a non-qualified retirement plan for
the benefit of key employees of GAF and its subsidiaries (the "Retirement
Plan"). The benefit payable under the Retirement Plan, which vests in accordance
with a 10-year schedule, consists of an annual payment commencing at age 65
equal to 25% of a covered employee's last full year's base salary. The benefit
continues for the longer of 15 years or the joint lifetimes of the employee or
his or her spouse. If a covered employee dies while employed by GAF or a
subsidiary, a death benefit of 36% of the employee's base salary at the date of
death is payable for a term of 15 years to the employee's beneficiary.
No new participants have been admitted to the Retirement Plan since January
1989 and it is not anticipated that any new participants will be admitted
hereafter. Of the executive officers named in the Summary Compensation Table,
only Messrs. Heyman and Eckardt participate in the Retirement Plan.
The following table shows, for the salary levels and years of service
indicated, the annual pension benefit, payable commencing at age 65 to
participants in the Retirement Plan.
NON-QUALIFIED RETIREMENT PLAN
ANNUAL PAYMENTS AT AGE 65
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------------------------------------
Salary 5 10 15 20 25 30 35
- -------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$250,000 $31,250 $ 62,500 $ 62,500 $ 62,500 $ 62,500 $ 62,500 $ 62,500
300,000 37,500 75,000 75,000 75,000 75,000 75,000 75,000
350,000 43,750 87,500 87,500 87,500 87,500 87,500 87,500
400,000 50,000 100,000 100,000 100,000 100,000 100,000 100,000
450,000 56,250 112,500 112,500 112,500 112,500 112,500 112,500
500,000 62,500 125,000 125,000 125,000 125,000 125,000 125,000
550,000 68,750 137,500 137,500 137,500 137,500 137,500 137,500
600,000 75,000 150,000 150,000 150,000 150,000 150,000 150,000
650,000 81,250 162,500 162,500 162,500 162,500 162,500 162,500
700,000 87,500 175,000 175,000 175,000 175,000 175.000 175,000
</TABLE>
The years of service covered by the Retirement Plan are for each of Mr.
Heyman and Mr. Eckardt nine years. Current salaries covered by the Retirement
Plan are the amounts set forth under the "salary" column of the Summary
Compensation Table for the above-named executive officers. The annual pension
benefit is not subject to reduction for Social Security and other benefits and
is computed on a straight-life annuity basis.
48
<PAGE>
ADDITIONAL PENSION ARRANGEMENTS. ISP has agreed to provide Mr. Eckardt, at
age 67, a $200,000 annuity comprising two pieces: (i) the benefits payable under
the Retirement Plan described above, and (ii) a supplemental retirement benefit
representing the difference between $200,000 per year and the benefit payable
under the Retirement Plan. The supplemental retirement benefit will vest at 20%
per year over a five year period beginning March 19, 1994. In the event Mr.
Eckardt should die without a surviving spouse, no supplemental retirement
benefit will be payable. In the event Mr. Eckardt should die prior to the
termination of his employment, and leave a surviving spouse, his spouse will be
entitled to receive for her life an annual payment of the portion of the
supplemental retirement benefit in which he was vested on the date of his death.
If Mr. Eckardt's employment is terminated involuntarily other than for cause (as
defined), or in the event Mr. Eckardt becomes totally and permanently disabled,
he will be entitled to receive payment of the portion of the supplemental
retirement benefit in which he is vested on the date of termination or of the
onset of such disability. If Mr. Eckardt's employment is terminated for cause,
GAF in its sole discretion may declare all or any portion (whether vested or
unvested) of the supplemental retirement benefits forfeited.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
G-I HOLDINGS
All of the outstanding common stock of G-I Holdings ("G-I Holdings Common
Stock") is owned of record by GAF.
The following table sets forth information with respect to the ownership of
G-I Holdings Common Stock, as of May 15, 1996, by each other person known to G-I
Holdings to own beneficially more than 5% of the G-I Holdings Common Stock
outstanding on that date, by each director of G-I Holdings and by all executive
officers and directors of G-I Holdings as a group, based on 100 shares of G-I
Holdings Common Stock outstanding on that date:
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Name and Address of Beneficial Percent of Total Voting
Title of Class Beneficial Owner Ownership Class Power
-------------- ------------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock ........ Samuel J. Heyman 100(1) 100%(1) 100%(1)
1361 Alps Road
Wayne, New Jersey 07470
All directors and
executive officers of
G-I Holdings as a group
(4 persons) 100(1) 100%(1) 100%(1)
</TABLE>
- ----------
(1) By virtue of Mr. Heyman's ownership of capital stock of GAF having
approximately 94% of the combined voting power thereof, Mr. Heyman may be
deemed to be the beneficial owner of all shares of G-I Holdings Common
Stock.
49
<PAGE>
ISP
As of May 15, 1996, shares of ISP common stock were beneficially owned by
G-I Holdings' directors, directors and executive officers as a group and GCC as
follows:
<TABLE>
<CAPTION>
Number of Number of Shares
Shares Beneficially Beneficial
Name Owned % Owned (3) % (3)
- ---- ----- - --------- -------
<S> <C> <C> <C> <C>
Samuel J. Heyman ............... 125,000 0.1% 80,655,000(1) 82.7%(1)
Carl R. Eckardt (2) ............ 1,000 * 57,416 *
James P. Rogers ................ 20,316(4) * 64,476(4) *
GCC ............................ 80,500,000 82.6 80,500,000 82.6
All directors and executive officers
of G-I Holdings (4 persons) ... 146,316(4) 0.2(3)(4) 80,776,892(2)(4) 82.8(2)(4)
</TABLE>
- ------------
* Less than one-tenth of one percent
(1) By virtue of Mr. Heyman's ownership of capital stock of GAF having
approximately 94% of the combined voting power thereof, the number of
shares shown as being beneficially owned by Mr. Heyman includes 80,500,000
shares owned by GCC, the parent of ISP and an indirect wholly-owned
subsidiary of GAF. The business addresses of Mr. Heyman and GCC are 1361
Alps Road, Wayne, New Jersey 07470, and 818 Washington Street, Wilmington,
Delaware 19801, respectively.
(2) The number of shares shown as being beneficially owned by all directors and
officers of ISP as a group attributes ownership of GCC's 80,500,000 shares
to Mr. Heyman. See footnote 1 above. Mr. Eckardt also owns 29,995 shares of
GAF common stock of GAF which shares have, in the aggregate, approximately
1.6% of the combined voting power of GAF's capital stock. Such shares are
held subject to GAF's right to acquire such shares from Mr. Eckardt upon
his termination of employment with GAF and its subsidiaries.
(3) Includes with respect to Messrs. Heyman, Eckardt and Rogers and all
directors and executive officers as a group 30,000, 56,416, 44,160 and
130,576 shares, respectively, subject to options granted under the ISP 1991
Incentive Plan which are currently exercisable or exercisable within 60
days.
(4) Includes with respect to Mr. Rogers 7,316 shares held in his account with
the GAF Capital Accumulation Plan as of December 31, 1995 and 10,000 shares
held jointly with his spouse.
50
<PAGE>
CERTAIN RELATIONSHIPS
G-I HOLDINGS TAX SHARING AGREEMENT. G-I Holdings and its domestic
subsidiaries presently join in the filing of a consolidated federal income tax
return with the GAF Group. As members of the GAF Group, G-I Holdings and its
domestic subsidiaries are severally liable for all federal income tax
liabilities of the GAF Group. G-I Holdings has entered into a Tax Sharing
Agreement with GAF with respect to the payment of federal income taxes and
certain related matters (the "G-I Holdings Tax Sharing Agreement"). During the
term of the G-I Holdings Tax Sharing Agreement, which shall extend as long as
G-I Holdings is included in a consolidated federal income tax return filed by
GAF, G-I Holdings is obligated to pay to GAF an amount equal to those federal
income taxes G-I Holdings would have incurred if G-I Holdings (on behalf of
itself and its domestic subsidiaries) filed its own federal income tax return,
but, in general, not in excess of the amount of federal income tax GAF actually
pays or is required to pay. GAF has agreed to indemnify G-I Holdings and its
subsidiaries for all tax liabilities of the GAF Group other than tax liabilities
arising from the operations of G-I Holdings and its domestic subsidiaries. The
G-I Holdings Tax Sharing Agreement provides for analogous principles to be
applied to any consolidated, combined or unitary state or local income taxes.
Under the G-I Holdings Tax Sharing Agreement, GAF makes all decisions with
respect to all matters relating to taxes of the GAF Group.
ISP TAX SHARING AGREEMENT. ISP and its domestic subsidiaries have entered
into a Tax Sharing Agreement with GAF and G Industries with respect to the
payment of federal income taxes and certain related matters (the "ISP Tax
Sharing Agreement"). During the term of the ISP Tax Sharing Agreement, which
shall extend as long as ISP or any of its domestic subsidiaries, as the case may
be, is included in a consolidated federal income tax return filed by GAF, ISP is
obligated to pay to G Industries an amount equal to those federal income taxes
ISP would have incurred if, subject to certain exceptions, ISP (on behalf of
itself and its domestic subsidiaries) filed its own federal income tax return.
These exceptions include, among others, that ISP may utilize certain favorable
tax attributes--i.e., losses, deductions and credits (except for a certain
amount of foreign tax credits and, in general, net operating losses)--only at
the time such attributes reduce the federal income tax liability of the GAF
Group; and that ISP may carry back or carry forward its favorable tax attributes
only after taking into account current tax attributes of the GAF Group. In
general, subject to the foregoing limitations, unused tax attributes will carry
forward for use in reducing amounts payable by ISP to G Industries in future
years. Subject to certain exceptions, actual payment for such attributes will be
made by G Industries to ISP only when GAF receives an actual refund of taxes
from the Internal Revenue Service (the "Service") or, under certain
circumstances, when GAF no longer owns more than 50% of ISP. Foreign tax credits
not utilized by ISP in computing its tax sharing payments will be refunded by G
Industries to ISP, if such credits expire unutilized, upon the termination of
the statute of limitations for the year of expiration. Under certain
circumstances, the provisions of the ISP Tax Sharing Agreement result in ISP
having a greater current tax liability thereunder than it would have had if it
(and its domestic subsidiaries) had filed its own separate federal income tax
return. Under the ISP Tax Sharing Agreement, ISP and each of its domestic
subsidiaries are responsible for any taxes that would be payable by reason of
any adjustment to the tax returns of GAF or its subsidiaries for years prior to
the adoption of the ISP Tax Sharing Agreement, relating to the business or
assets of ISP or any domestic subsidiary of ISP; in addition, the other
subsidiaries of ISP are responsible for their respective taxes. Conversely, the
GAF Group (other than ISP and its subsidiaries) has agreed to indemnify ISP and
its subsidiaries for all tax liabilities of the GAF Group other than tax
liabilities (i) arising from the operations of ISP and its domestic subsidiaries
and (ii) for tax years pre-dating the ISP Tax Sharing Agreement, relating to the
business or assets of ISP and its domestic subsidiaries. The ISP Tax Sharing
Agreement provides for analogous principles to be applied to any consolidated,
combined or unitary state or local income taxes. Under the ISP Tax Sharing
Agreement, GAF makes all decisions with respect to all matters relating to taxes
of the GAF Group. As indicated above, the provisions of the ISP Tax Sharing
Agreement take into account both the federal income taxes ISP would have
incurred if it filed its own separate federal income tax return and the fact
that ISP is a member of the GAF Group for federal income tax purposes.
G Industries has undertaken to pay to G-I Holdings all amounts received by
it under the ISP Tax Sharing Agreement.
BMCA TAX SHARING AGREEMENT. BMCA and its subsidiaries have entered into a
Tax Sharing Agreement with GAF and G-I Holdings with respect to the payment of
federal income taxes and certain related matters (the "Tax Sharing Agreement").
During the term of the Tax Sharing Agreement, which shall be effective for the
period during which BMCA or any of its domestic subsidiaries is included in a
consolidated federal income tax return filed by GAF, BMCA is obligated to pay
G-I Holdings an amount equal to those federal income taxes BMCA would have
incurred if
51
<PAGE>
BMCA (on behalf of itself and its domestic subsidiaries) filed its own federal
income tax return. Unused tax attributes will carry forward for use in reducing
amounts payable by BMCA to G-I Holdings in future years, but cannot be carried
back. Were BMCA to leave the GAF Group, it would be required to pay to G-I
Holdings the value of any tax attributes it would succeed to under the
consolidated return regulations to the extent such attributes reduced the
amounts otherwise payable by BMCA under the Tax Sharing Agreement. Under certain
circumstances, the provisions of the Tax Sharing Agreement could result in BMCA
having a greater liability thereunder than it would have had if it (and its
domestic subsidiaries) had filed its own separate federal income tax return.
Under the Tax Sharing Agreement, BMCA and each of its domestic subsidiaries are
responsible for any taxes that would be payable by reason of any adjustment to
the tax returns of GAF or its subsidiaries for years prior to the adoption of
the Tax Sharing Agreement that relate to the business or assets of BMCA or any
domestic subsidiary of the BMCA. Although, as a member of the GAF Group, BMCA is
severally liable for all Federal income tax liabilities of every member of the
GAF Group, including tax liabilities not related to the business of the Company,
G-I Holdings and GAF have agreed to indemnify BMCA and its subsidiaries for all
tax liabilities of the GAF Group other than tax liabilities (i) arising from the
operations of BMCA and its domestic subsidiaries and (ii) for tax years
pre-dating the Tax Sharing Agreement that relate to the business or assets of
BMCA and its domestic subsidiaries. The Tax Sharing Agreement provides for
analogous principles to be applied to any consolidated, combined or unitary
state or local income taxes. Under the Tax Sharing Agreement, GAF makes all
decisions with respect to all matters relating to taxes of the GAF Group. The
provisions of the Tax Sharing Agreement take into account both the federal
income taxes BMCA would have incurred if it filed its own separate federal
income tax return and the fact that BMCA is a member of the GAF Group for
federal income tax purposes.
BACKGROUND TRANSACTIONS
THE GAF ACQUISITION. Samuel J. Heyman, the Chairman and Chief Executive
Officer of GAF, G-I Holdings,G Industries, GCC, GAF Broadcasting and ISP and
Chairman of BMCA, organized GAF to effect a management-led buyout of the
predecessor corporation to GAF (the "Predecessor Company") in March 1989. Public
stockholders of the Predecessor Company received in such acquisition a
combination of cash and debentures. The cash portion of such acquisition, plus
refinancing of existing indebtedness (approximately $1.7 billion) was provided
through senior bank financings, the public issuance of senior subordinated notes
and by cash and cash equivalents of the Predecessor Company. Such senior bank
financings, senior subordinated notes and debentures have been repaid in full
through a combination of asset sale proceeds, refinancings and cash flow from
operations.
ISSUANCE OF OLD NOTES. On February 14, 1996, G-I Holdings issued the Old
Notes in the Private Placement pursuant to which $251,630,000 in aggregate
principal amount at maturity of Senior Discount Notes were exchanged for Old
Notes in an aggregate principal amount of $200,003,000.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were issued by G-I Holdings on February 14, 1996 in the
Private Placement. In connection therewith, G-I Holdings entered into the
Indenture, which requires that G-I Holdings file a registration statement under
the Securities Act with respect to the New Notes and, upon the effectiveness of
such registration statement, offer to the holders of the Old Notes the
opportunity to exchange their Old Notes for a like principal amount of New
Notes, which will be issued without a restrictive legend and, except as set
forth below, may be reoffered and resold by the holder without registration
under the Securities Act. Upon the completion of the Exchange Offer, G-I
Holdings' obligations with respect to the registration of the Old Notes and the
New Notes will terminate, except as provided below. A copy of the Indenture,
including the Registration Agreement attached thereto, has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. As a
result of the filing and the effectiveness of the Registration Statement,
certain prospective increases in the interest rate on the Old Notes provided for
in the Registration Agreement will not occur. Following the completion of the
Exchange Offer, holders of Old Notes not tendered will not have any further
registration rights, except as provided below, and the Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes could be adversely affected upon completion of the
Exchange Offer.
52
<PAGE>
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third-parties, G-I Holdings believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than any
such holder that is an "affiliate" of G-I Holdings within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such holder
represents to G-I Holdings that (i) such New Notes are acquired in the ordinary
course of business of such holder, (ii) such holder is not engaging in and does
not intend to engage in a distribution of such New Notes, and (iii) such holder
has no arrangement or understanding with any person to participate in the
distribution of such New Notes. Any holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes cannot rely on
such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales of
such New Notes. See "Plan of Distribution."
In the event that any holder of Old Notes would not receive freely
tradeable New Notes in the Exchange Offer or is not eligible to participate in
the Exchange Offer, such holder can elect, by so indicating on the Letter of
Transmittal and providing certain additional necessary information, to have such
holder's Old Notes registered in a "shelf" registration statement on an
appropriate form pursuant to Rule 415 under the Securities Act. In the event
that G-I Holdings is obligated to file a "shelf" registration statement, it will
be required to keep such "shelf" registration statement effective for a period
of three years or such shorter period that will terminate when all of the Old
Notes covered by such registration statement have been sold pursuant thereto.
Other than as set forth in this paragraph, no holder will have the right to
require G-I Holdings to register such holder's Notes under the Securities Act.
See "Procedures for Tendering."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer, holders of Old Notes not
tendered will not have any further registration rights, except as set forth
above, and the Old Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for a holder's Old Notes
could be adversely affected upon completion of the Exchange Offer if such holder
does not participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, G-I Holdings will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 P.M., New York City time, on
the Expiration Date. G-I Holdings will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that the New Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof.
The New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture pursuant to which
the Old Notes were issued and will be deemed one issue of notes, together with
the Old Notes.
As of the date of this Prospectus, $200,003,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders and to others believed to
have beneficial interests in the Old Notes. Holders of Old Notes do not have any
appraisal or dissenters' rights in connection with the Exchange Offer under the
General Corporation Law of the State of Delaware or the Indenture. G-I Holdings
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder.
53
<PAGE>
G-I Holdings shall be deemed to have accepted validly tendered Old Notes
when, as, and if G-I Holdings has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from G-I Holdings. If any tendered
Old Notes are not accepted for exchange because of an invalid tender, the
occurrence of certain other events set forth herein or otherwise, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, except as set forth below under "Transfer
Taxes," transfer taxes with respect to the exchange of Old Notes pursuant to the
Exchange Offer. G-I Holdings will pay all charges and expenses, other than
certain applicable taxes, in connection with the Exchange Offer. See "Fees and
Expenses" below.
EXPIRATION DATE; AMENDMENTS
The term "Expiration Date" shall mean 5:00 P.M., New York City time, on
______________ 1996, unless G-I Holdings, in its sole discretion, extends the
Exchange Offer (in which case the term "Expiration Date" shall mean the later
date and time to which the Exchange Offer is extended). G-I Holdings does not
intend to extend the Exchange Offer although it reserves the right to do so by
giving oral or written notice of such extension to the Exchange Agent and by
giving each registered holder notice by means of a press release or other public
announcement of any extension, in each case, prior to 9:00 A.M., New York City
time, on the next business day after the scheduled Expiration Date. G-I Holdings
also reserves the right, in its sole discretion, (i) to delay accepting any Old
Notes or, if any of the conditions set forth below under "Conditions" shall not
have been satisfied or waived, to terminate the Exchange Offer or (ii) to amend
the terms of the Exchange Offer in any manner, by giving oral or written notice
of such delay, or termination to the Exchange Agent, and by complying with Rule
14e-1(d) promulgated under the Exchange Act to the extent such Rule applies. G-I
Holdings acknowledges and undertakes to comply with the provisions of Rule
14e-1(c) promulgated under the Exchange Act, which requires G-I Holdings to pay
the consideration offered, or return the Old Notes surrendered for exchange,
promptly after the termination or withdrawal of the Exchange Offer. Any such
extension, termination or amendment will be followed as promptly as practicable
by a notice to holders of Old Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a registered holder must
complete, sign, and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the registered holder must comply with the guaranteed
delivery procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "Exchange Agent" prior to the Expiration
Date.
The tender by a registered holder which is not withdrawn prior to the
Expiration Date will constitute an agreement between such holder and G-I
Holdings in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO G-I HOLDINGS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
54
<PAGE>
owner's own behalf, such owner must, prior to completing and executing the
Letter of Transmittal and delivering such owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless (A) Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution and (B) the box entitled
"Special Registration Instructions" on the Letter of Transmittal has not been
completed. In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a financial institution (including most banks, savings and loan
associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program
or the Stock Exchanges Medallion Program (each an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power and signed by such
registered holder as such registered holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by G-I Holdings,
evidence satisfactory to G-I Holdings of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
G-I Holdings in its sole discretion, which determination will be final and
binding. G-I Holdings reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes G-I Holdings' acceptance of which
would, in the opinion of counsel for G-I Holdings, be unlawful. G-I Holdings
also reserves the right to waive any defects, irregularities, or conditions of
tender as to particular Old Notes. G-I Holdings' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as G-I Holdings shall determine. Although G-I Holdings intends
to notify holders of defects or irregularities with respect to tenders of Old
Notes, neither G-I Holdings, the Exchange Agent, nor any other person shall
incur any liability for failure to give such notification. Tenders of Old Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, G-I Holdings reserves the right in its sole discretion to
purchase or make offers for, or to offer New Notes for, any Old Notes that
remain outstanding subsequent to the Expiration Date or, as set forth below
under "Conditions," to terminate the Exchange Offer and, to the extent permitted
by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to G-I Holdings that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of such holder, (ii) the holder is
not engaging in and does not intend to engage in a distribution of such New
Notes, (iii) the holder does not have an arrangement or understanding with any
person to participate in the distribution of such New Notes, and (iv) the holder
is not an "affiliate," as defined under Rule 405 of the Securities Act, of G-I
Holdings.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old
55
<PAGE>
Notes (or Old Notes in substitution therefor) will be returned without expense
to the tendering holder thereof (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to such tendering holder's account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after receipt of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the address
set forth below under "Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to the 5:00 P.M., New York
City time, on the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by G-I Holdings (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth below under "Exchange Agent" prior to 5:00 P.M.,
New York City time, on the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Old
Notes), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee register the transfer of such Old Notes
into the name of the person withdrawing the tender, and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form, and eligibility (including
time of receipt) of such notices will be determined by G-I Holdings, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender, or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for Tendering" above at any time on or prior to 5:00
P.M., New York City time, on the Expiration Date.
56
<PAGE>
CONDITIONS
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Agreement, G-I Holdings shall not
be required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes and may terminate or amend the Exchange Offer, if at any time before
the acceptance of such New Notes for exchange, any of the following events shall
occur:
(i) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of G-I Holdings to proceed with the Exchange
Offer; or
(ii) the Exchange Offer shall violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of G-I Holdings and may
be asserted by G-I Holdings regardless of the circumstances giving rise to any
such condition or may be waived by G-I Holdings in whole or in part at any time
and from time to time in its sole discretion. The failure by G-I Holdings at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, G-I Holdings will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened by the Commission or be in
effect with respect to the registration statement of which this Prospectus is a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended.
The Exchange Offer is not conditioned on any minimum principal amount of
Old Notes being tendered for exchange.
ASSISTANCE
All executed Letters of Transmittal should be directed to the Exchange
Agent. Questions and requests for assistance may be directed to the Exchange
Agent as provided below under "Exchange Agent."
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions, requests for assistance and requests for additional copies of
the Prospectus, the Letter of Transmittal and other related documents should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail, By Hand
or By Overnight Courier:
The Bank of New York
101 Barclay Street--7E
New York, New York 10286
Attn: Reorganization Section
By Facsimile: By Telephone:
(212) 571-3080 (212) 815-6333
The Exchange Agent also acts as trustee under the Indenture.
FEES AND EXPENSES
G-I Holdings will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of G-I Holdings.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by G-I Holdings and are estimated in the aggregate to be
approximately $250,000 which includes fees and expenses of the Exchange Agent,
accounting, legal, printing, and related fees and expenses.
57
<PAGE>
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
G-I Holdings to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
ACCOUNTING TREATMENT
G-I Holdings will not recognize any gain or loss for accounting purposes
upon the consummation of the Exchange Offer. The expense of the Exchange Offer
will be amortized by G-I Holdings over the term of the New Notes under generally
accepted accounting principles.
DESCRIPTION OF THE NEW NOTES
The Old Notes were issued under an Indenture dated as of February 14, 1996
(the "Indenture") between G-I Holdings and The Bank of New York, as trustee (the
"Trustee"). A copy of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The New Notes will be
issued under the Indenture, which will be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), upon the effectiveness of the Registration
Statement of which this Prospectus is a part. The form and terms of the New
Notes and the Old Notes are the same except that the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the TIA, and to all of the provisions
of the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of such Indenture. The definitions of certain capitalized terms used in the
following summary are set forth under "Certain Definitions." The term "Notes"
means the New Notes and the Old Notes treated as a single class.
GENERAL
The Notes will mature on February 15, 2006, will be limited to $200,003,000
in aggregate principal amount at maturity and will be unsecured senior
obligations of G-I Holdings ranking pari passu with all other unsecured and
unsubordinated indebtedness of G-I Holdings, including the Senior Discount
Notes.
Interest on the New Notes will accrue at the rate of 10% per annum and will
be payable semi-annually on each February 15 and August 15, commencing on August
15, 1996 (each, an "Interest Payment Date"), to the Registered Holders of the
New Notes on the immediately preceding February 1 and August 1, whether or not a
business day. Interest on the New Notes will accrue from the date of issuance or
from the most recent Interest Payment Date to which interest has been paid.
Interest will be computed on the basis of a 360-day year, comprised of twelve
30-day months. The New Notes will be payable both as to principal and interest
at the office or agency of G-I Holdings, maintained for such purpose within the
City of New York, Borough of Manhattan or, at the option of G-I Holdings,
payment of interest may be made by check mailed to the holders of the New Notes
at their respective addresses set forth in the register of holders of New Notes.
Unless otherwise designated by G-I Holdings, G-I Holdings' office or agency
maintained for such purpose in the City of New York, Borough of Manhattan will
be the office of the Trustee. The New Notes will be issued in denominations of
$1,000 and integral multiples thereof. In lieu of issuing a New Note in a
denomination of less than $1,000 to a holder of Old Notes whose Old Notes are
accepted for exchange, such holders will be paid in cash for such amount.
OPTIONAL REDEMPTION
In the event that on or prior to February 15, 1999, (i) G-I Holdings
consummates a sale of its Common Stock or(ii) Building Materials or its
immediate parent consummates a sale of the Common Stock of Building Materials,
G-I Holdings may, at its option, redeem, but only to the extent of such net cash
proceeds actually received by G-I Holdings, up to 50% and 25%, respectively, of
the principal amount of the Notes then outstanding at a redemption price equal
to 110% of the principal amount thereof plus accrued interest thereon to the
date of redemption, provided that, no such redemption may be made if and to the
extent that, after giving effect thereto, less than a majority of the
58
<PAGE>
principal amount of Notes originally issued would be outstanding. Any such
redemption shall be made within 75 days of the first consummation of any such
sale.
In addition, G-I Holdings may redeem the Notes in whole or in part, at any
time on or after February 15, 2001, from time to time, in amounts of $1,000 or
integral multiples of $1,000 at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest to the
redemption date, if redeemed during the twelve-month period beginning February
15 of the years indicated below:
Redemption
Year Price
---- -----------
2001 ................................... 103.75%
2002 ................................... 102.50%
2003 ................................... 101.25%
2004 (and thereafter) .................. 100.00%
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by a method
that complies with applicable legal and securities exchange requirements.
G-I Holdings shall also have the right to redeem all, but not less than
all, of the Notes upon a Change of Control. See "Change of Control Put and
Call."
The Notes will not be subject to redemption through the operation of a
sinking fund.
CHANGE OF CONTROL PUT AND CALL
In the event of any Change of Control, each holder shall have the right, at
such holder's option, to require G-I Holdings to purchase all or any portion (in
integral multiples of $1,000) of such holder's Notes on the date (the "Change of
Control Payment Date") which is 25 Business Days after the date the Change of
Control Notice (as defined below) is mailed or is required to be mailed (or such
later date as is required by applicable law) at 101% of the principal amount
thereof, plus accrued interest to the Change of Control Payment Date (the "Put
Amount").
Within ten business days after the occurrence of each Change of Control,
G-I Holdings shall send to each Registered Holder a notice of the occurrence of
such Change of Control (the "Change of Control Notice"). Each Change of Control
Notice shall state (i) that a Change of Control has occurred and that such
holder has the right to require G-I Holdings to repurchase all or any part of
such holder's Notes at a purchase price in cash equal to their Put Amount; (ii)
the circumstances and relevant facts regarding such Change of Control; (iii) the
Change of Control Payment Date; and (iv) the instructions, determined by G-I
Holdings consistent with the related Indenture, that a holder must follow in
order to have its Notes repurchased.
In addition, in the event of any Change of Control, G-I Holdings shall have
the option to redeem all, but not less than all, of the Notes (other than those
repurchased pursuant to provisions described in the preceding two paragraphs),
at a redemption price equal to the sum of (x) 100% of the principal amount
thereof plus accrued and unpaid interest thereon to the redemption date, and (y)
the Applicable Premium with respect to each $1,000 principal amount of Notes so
redeemed. Notice of any redemption to be made pursuant to this paragraph must be
given no later than 10 days after the Change of Control Payment Date, and
redemption must be made within 30 days of the date of such notice.
G-I Holdings' ability to pay cash to holders of Notes upon a repurchase may
be limited by its then existing financial resources. See "Risk Factors--Change
of Control; Acceleration of Debt" and "Holding Company Structure and Related
Considerations."
G-I Holdings will comply, to the extent applicable, with the requirements
of Rule 14e-1 under the Exchange Act and other securities laws or regulations in
connection with the repurchase of the Notes as described above.
59
<PAGE>
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms.
"ACQUIRED DEBT", with respect to any Person, means (i) Debt of an entity,
which entity is acquired by such Person or any of its Subsidiaries after the
Issue Date; provided that such Debt is outstanding at the time of the
acquisition of such entity, is not created in contemplation of such acquisition
and is not, directly or indirectly, recourse (including by way of set-off) to
such Person or its Subsidiaries or any of their respective assets other than to
the entity and its Subsidiaries so acquired and the assets of the entity and its
Subsidiaries so acquired, (ii) Debt of such Person that is not, directly or
indirectly, recourse (including by way of set-off) to such Person and its
Subsidiaries or any of their respective assets other than to specified assets
acquired by such Person or its Subsidiaries after the Issue Date, which Debt is
outstanding at the time of the acquisition of such assets and is not created in
contemplation of such acquisition, or (iii) Refinancings of Debt described in
clauses (i) or (ii), provided that the recourse with respect to such Refinancing
Debt is limited to the same extent as the Debt so Refinanced.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" having meanings correlative to the foregoing.
"APPLICABLE PREMIUM" means, with respect to any Note, the greater of (x)
1.0% of the principal amount of such Note and (y) the excess, if any, of (a) the
present value of the required remaining interest payments, principal and future
optional redemption premium (if applicable) of such Note discounted on a
semi-annual bond equivalent basis from either the maturity date of the Note or
the optional redemption date to the applicable redemption date at a per annum
interest rate equal to the Treasury Yield for such redemption date plus 100
basis points, over (b) the sum of the principal amount of such Note plus accrued
and unpaid interest to the redemption date.
"ASSET SALE" means, with respect to any Person, the sale, lease, assignment
or other disposition (including, without limitation, dispositions pursuant to
any consolidation, merger or sale and leaseback transaction) by such Person or
any of its Subsidiaries in any single transaction or series of related
transactions which consists of the disposition of (i) any Capital Stock of any
Subsidiary or (ii) all or substantially all of the properties and assets of any
division or line of business of such Person or any Subsidiary of such Person
(other than of a Non-Recourse Subsidiary) to any other Person who is not G-I
Holdings or a Subsidiary of G-I Holdings. For the purposes of this definition,
the term "Asset Sale" shall not include (A) any sale, lease, assignment or other
disposition of properties or assets that is governed by the provisions under
"Merger, Etc.", (B) any sale, lease, assignment or other disposition by a Person
that has outstanding senior debt securities all of which (I) are rated BBB- or
higher by Standard & Poor's Corporation and have not been placed on credit watch
by Standard & Poor's Corporation for a possible downgrade or (II) are rated Baa3
or higher by Moody's Investors Service, Inc. and have not been placed on credit
watch by Moody's Investors Service, Inc. for a possible downgrade, (C) any sale
of common stock of Building Materials the proceeds of which are used pursuant to
provisions described under "Optional Redemption" or (D) the retirement,
liquidation, redemption or extinguishment of G-I Holdings' and its Subsidiaries'
indirect interest in Rhone-Poulenc Surfactants and Specialties L.P.
"AVERAGE LIFE" means, with respect to any Debt, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date of
the transaction or event giving rise to the need to calculate the Average Life
of such Debt to the date, or dates, of each successive scheduled principal
payment of such Debt multiplied by (b) the amount of each such principal payment
by (ii) the sum of all such principal payments.
"BMC SUBSIDIARIES" means Building Materials and its Subsidiaries.
"BOARD RESOLUTION" means, with respect to the Board of Directors of any
Person, a copy of a resolution certified by the Secretary or Assistant Secretary
of such Person to have been duly adopted by such Board of Directors and to be in
full force and effect on the date of such certification and delivered to the
Trustee.
"BUILDING MATERIALS" means Building Materials Corporation of America, a
Delaware corporation, and its successors.
60
<PAGE>
"CAPITALIZED LEASE OBLIGATION" means any rental obligation that, in
accordance with GAAP, is required to be classified and accounted for as a
capitalized lease and the amount of Debt represented by such obligation shall be
the capitalized amount of such obligation determined in accordance with GAAP;
and the stated maturity thereof shall be the date of the last payment of rent or
any other amount due in respect of such obligation.
"CAPITAL STOCK" of any Person means any and all shares, interests
(including partnership interests), warrants, rights, options or other interests,
participations or other equivalents of or interests in (however designated)
equity of such Person, including common or preferred stock, whether now
outstanding or issued after the Issue Date, but excluding any debt securities
convertible into or exchangeable for such equity.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally Guaranteed by, the United States Government or Issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (ii)
marketable direct obligations Issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc., (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof Issued by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital surplus of not less
than $250,000,000, (v) repurchase obligations with a term of not more than
thirty days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above and (vi) investments in money market funds having assets in excess of
$500,000,000 and which invest substantially all their assets in securities of
the types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(i) prior to the earlier to occur of the first public offering of
Voting Stock of Parent or G-I Holdings or any Subsidiary of Parent of which
G-I Holdings is also a Subsidiary, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of majority voting power of the Voting Stock
of G-I Holdings, whether as a result of issuance of securities of G-I
Holdings, any merger, consolidation, liquidation or dissolution of G-I
Holdings, any direct or indirect transfer of securities by any Permitted
Holder or by Parent or any of its Subsidiaries or otherwise (for purposes
of this clause (i) and clauses (ii) and (iv) below, the Permitted Holders
shall be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, a majority of the Voting Stock of the
parent corporation);
(ii) any "Person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the Voting Stock of Parent or G-I Holdings; provided that
the Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the Voting
Stock of Parent or G-I Holdings than such other Person and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of Parent or
G-I Holdings;
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of G-I
Holdings or of Parent or its predecessors (together with any new directors
whose election by such Board or whose nomination for election by the
shareholders of G-I Holdings or Parent, as the case may be, including
predecessors, was approved by a vote of a majority of the directors of G-I
Holdings or Parent, as the case may be, then still in office who were
either directors at the beginning of such period, or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of G-I Holdings or Parent,
as the case may be, then in office; or
(iv) the Permitted Holders cease, for any reason, to be the beneficial
owner (as defined in clause (i) above), directly or indirectly, of majority
voting power of the Voting Stock of ISP, whether as a result of issuance of
61
<PAGE>
securities, any merger, consolidation, liquidation or dissolution, any
direct or indirect transfer of securities by any Permitted Holder or by
Parent or any of its Subsidiaries or otherwise.
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the related Indenture such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body performing
such duties at such time.
"COMMON STOCK" of any Person means any and all shares, interests,
participations, or other equivalents (however designated) of such Person's
common stock whether now outstanding or issued after the Issue Date.
"CONSOLIDATED EBITDA COVERAGE RATIO" with respect to any Person for any
period means the ratio of (i) the aggregate amount of EBITDA of such Person for
such period to (ii) Consolidated Interest Expense of such Person for such
period; provided that (A) if such Person or any Subsidiary of such Person has
Issued any Debt or Capital Stock since the beginning of such period that remains
outstanding on the date such calculation is made or if the transaction giving
rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an
Issuance of Debt or Capital Stock, or both, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect, on a pro forma
basis, to the issuance of such Debt or Capital Stock as if such Debt or Capital
Stock had been Issued on the first day of such period and the discharge of any
other Debt or Capital Stock Refinanced or otherwise discharged with the proceeds
of such new Debt or Capital Stock as if such discharge had occurred on the first
day of such period, (B) if since the beginning of such period such Person or any
Subsidiary of such Person shall have made any asset sales out of the ordinary
course of business, EBITDA for such period shall be reduced by an amount equal
to the EBITDA (if positive) directly attributable to the assets which are the
subject of such asset sale for such period, or increased by an amount equal to
the EBITDA (if negative), directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any Debt or
Capital Stock of such Person or any Subsidiary of such Person Refinanced or
otherwise discharged with respect to such Person and its continuing Subsidiaries
(including as a result of the assumption of such Debt or Capital Stock by the
purchaser of such assets, provided that such Person or any of its Subsidiaries
is no longer liable therefor) in connection with such Asset Sale for such period
(or if the Capital Stock of any Subsidiary of such Person is sold, the
Consolidated Interest Expense for such period directly attributable to the Debt
of such Subsidiary to the extent such Person and its continuing Subsidiaries are
no longer liable for such Debt after such sale) and (C) if since the beginning
of the period such Person or any Subsidiary of such Person (by merger or
otherwise) shall have made an Investment in any Subsidiary of such Person (or
any Person which becomes a Subsidiary of such Person) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto, as if
such Investment or acquisition occurred on the first day of such period. For
purposes of this definition, pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Person with
respect to which the calculation is being made. If any Debt or Capital Stock
bears a floating rate of interest and is being given pro forma effect, the
interest on such Debt and the dividends on such Capital Stock shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"CONSOLIDATED INTEREST EXPENSE" means with respect to any Person, for any
period, the sum of (a) the interest expense of such Person and its consolidated
Subsidiaries (other than interest expense related to Non-Recourse Debt) for such
period as determined in accordance with GAAP consistently applied, plus (b) the
product of (x) the amount of all dividends paid or accrued on any series of
preferred stock of such Person and its Subsidiaries (other than Non-Recourse
Subsidiaries) times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the effective combined consolidated federal,
state and local tax rate of such Person, expressed as a decimal.
"CONSOLIDATED NET INCOME (LOSS)" means with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
consolidated Subsidiaries for such period as determined in accordance with GAAP,
adjusted to the extent included in calculating such net income (or loss), by
excluding (i) all extraordinary gains in such period net of all extraordinary
losses in such period; (ii) net income (or loss) of any other Person
attributable to any period prior to the date of combination of such other Person
with such Person or any of its Subsidiaries on a "pooling of interests" basis;
(iii) net gains or losses in respect of dispositions of assets by such Person or
any of its Subsidiaries (including pursuant to a sale-and-leaseback arrangement)
other than in the ordinary course of business; (iv) the net income (loss) of any
Subsidiary of such Person (other than, in calculating the consolidated net
income
62
<PAGE>
(loss) of G-I Holdings, the consolidated net income (loss) of ISP or Building
Materials) to the extent that the declaration of dividends or distributions by
that Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Subsidiary or its shareholders; (v) the net income (or net
loss) of any other Person that is not a Subsidiary of the first Person with
respect to which Consolidated Net Income is being calculated (the "first
Person") and in which any other Person (other than such first Person and or any
of its Subsidiaries) has an equity interest or of a Non-Recourse Subsidiary of
such first Person, except to the extent of the amount of dividends or other
distributions actually paid or made to such first Person or any of its
Subsidiaries by such other Person during such period (subject in the case of a
dividend or distribution received by a Subsidiary of such first Person, to the
limitations contained in clause (iv) above); (vi) any interest income resulting
from loans or investments in Affiliates, other than cash interest income
actually received and (vii) the cumulative effect of a change in accounting
principles.
"CONSOLIDATED NET WORTH" of any Person means, at any date, all amounts that
would, in conformity with GAAP, be included under shareholders' equity on a
consolidated balance sheet of such Person as at such date less (to the extent
otherwise included therein) any amounts attributable to Redeemable Stock.
"CREDIT AGREEMENTS" means the credit agreements, dated as of October 5,
1994, among ISP, certain of its Subsidiaries, the financial institutions named
therein and Chase Manhattan Bank, N.A., as agent thereunder, as amended or
supplemented.
"DEBT" of any Person means, without duplication, (i) the principal in
respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable (other than those
payable to government agencies to defer the payment of workers' compensation
liabilities, taxes, assessments or other obligations, and provided in the
ordinary course of business of such Person); (ii) all Capital Lease Obligations
of such Person; (iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable and other accrued current liabilities
arising in the ordinary course of business); (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, bankers'
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement following
payment on the letter of credit); (v) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Preferred Stock (but excluding any accrued dividends); (vi) all obligations of
the type referred to in clauses (i) through (v) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including guarantees of such obligations and dividends; and (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured. For purposes of the "Limitation on Asset Sales", Debt
of G-I Holdings and any BMC Subsidiary shall include the provision for existing
or future asbestos-related bodily injury claims, as set forth in the then most
recent consolidated financial statement of G-I Holdings.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"EBITDA" with respect to any Person for any period means the Consolidated
Net Income of such Person for such period, adjusted to the extent deducted in
calculating such Consolidated Net Income by adding back (without duplication):
(i) income tax expense of such Person and its Subsidiaries accrued in accordance
with GAAP for such period (other than income taxes attributable to extraordinary
items or other items excluded from the definition of Consolidated Net Income),
(ii) Consolidated Interest Expense of such Person, (iii) depreciation expense,
(iv) amortization expense and (v) minority interest in any Non Wholly-Owned
Recourse Subsidiary that is otherwise consolidated in the financial statements
of such Person, but only so long as such Subsidiary is consolidated with such
Person for such period for U.S. federal income tax purposes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
63
<PAGE>
"G-I HOLDINGS" means G-I Holdings Inc., a Delaware corporation, and its
successors.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means generally
acceptable accounting principles set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, as of the date of the related Indenture.
"GAF" means GAF Corporation, a Delaware corporation, and its successors.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation,
contingent or otherwise, of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or other obligation of such other Person
(whether arising by virtue of participation arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring the obligee of such Debt or other obligation in any
other manner of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"INVESTMENT" means any direct or indirect advance, loan (other than
advances or loans to customers in the ordinary course of business, which are
recorded, in accordance with GAAP, at the time made as accounts receivable on
the balance sheet of the Person making such advance or loan) or other extension
of credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities Issued by, any other Person.
"ISP" means International Specialty Products Inc., a Delaware corporation,
and its successors.
"ISP SUBSIDIARIES" means ISP and its Subsidiaries.
"ISSUE" means issue, assume, Guarantee, incur or otherwise become liable
for; provided that any Debt or Capital Stock of a Person existing at the time
such Person becomes a Subsidiary of another Person (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary of such other Person.
"ISSUE DATE" means the date of original issuance of the Old Notes.
"LIEN" means any lien, mortgage, charge, pledge, security interest, or
other encumbrance of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof).
"LINDEN DIVIDEND" means the payment of a dividend or distribution in
respect of G-I Holdings' Common Stock of the assets comprising the Linden
Property or of the shares of Capital Stock of a Subsidiary of G-I Holdings all
or substantially all of the assets of which consist of the Linden Property.
"LINDEN PROPERTY" means that property consisting of approximately 140 acres
(40 acres developed) located in Union County, New Jersey at the foot of South
Wood Avenue, Linden and owned by ISP Environmental Services Inc. which is the
site of a former chemicals manufacturing facility of ISP.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by G-I Holdings or any of its Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable ((1) including, without
limitation, income taxes reasonably estimated to be actually payable as a result
of any disposition of property within two years of the date of disposition,
including under any tax sharing arrangements, and (2) after taking into account
any reduction in tax liability due to available tax credits or deductions
applicable to the transaction), (c) a reasonable reserve for the after-tax cost
of any indemnification obligations (fixed and/or contingent) attributable to
seller's indemnities to the
64
<PAGE>
purchaser undertaken by G-I Holdings or any of its Subsidiaries in connection
with such Asset Sale and (d) repayment of Debt that is required to be repaid in
connection with such Asset Sale, under agreements governing such Debt or Asset
Sale.
"NON-RECOURSE DEBT" of any Person means Debt or the portion of Debt (i) as
to which neither Parent nor any of its Subsidiaries (other than a Non-Recourse
Subsidiary) (A) provides credit support (including any undertaking, agreement or
instrument which would constitute Debt), (B) is directly or indirectly liable or
(C) constitutes the lender and (ii) no default with respect to which (including
any rights which the holders thereof may have to take enforcement action against
the assets of a Non-Recourse Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Debt of such Person or its Subsidiaries
(other than Non-Recourse Subsidiaries) to declare a default on such other Debt
or cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"NON-RECOURSE SUBSIDIARY" of any Person means a Subsidiary (A) which has
been designated as such by such Person, (B) which has not acquired any assets
directly or indirectly from Parent or any of its Subsidiaries other than at fair
market value, including by the receipt of Capital Stock of such Non-Recourse
Subsidiary, provided that if any such acquisition or series of related
acquisitions involves assets having a value in excess of $2,000,000, such
acquisition or series of related acquisitions shall be approved by a majority of
the members of the Board of Directors of G-I Holdings in a Board Resolution
which shall set forth that such acquisitions are being, or have been, made at
fair market value, and (C) which has no Debt other than Non-Recourse Debt.
"PARENT" means GAF so long as it owns, and any other Person which acquires
or owns, directly or indirectly, 80% or more of the Voting Stock of G-I
Holdings.
"PERMITTED HOLDERS" means (i) Samuel J. Heyman, his heirs, administrators,
executors and entities of which a majority of the Voting Stock is owned by
Samuel J. Heyman, his heirs, administrators or executors and (ii) any Person
controlled, directly or indirectly, by Samuel J. Heyman or his heirs,
administrators or executors.
"PERMITTED LIEN" means:
(1) Liens for taxes, assessments and governmental charges to the
extent not required to be paid under the applicable Indenture;
(2) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by an appropriate process of
law, and for which a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made;
(3) pledges or deposits in the ordinary course of business to secure
lease obligations or non-delinquent obligations under workers'
compensation, unemployment insurance or similar legislation;
(4) Liens to secure the performance of public statutory obligations
that are not delinquent, appeal bonds, performance bonds or other
obligations of a like nature (other than for borrowed money);
(5) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of G-I Holdings and
its Subsidiaries, taken as a whole;
(6) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of nondelinquent customs duties in
connection with the importation of goods;
(7) judgment and attachment Liens not giving rise to a Default or
Event of Default;
(8) leases or subleases granted to others not interfering in any
material respect with the business of G-I Holdings and its Subsidiaries,
taken as a whole;
(9) Liens encumbering deposits made in the ordinary course of business
to secure nondelinquent obligations arising from statutory, regulatory,
contractual or warranty requirements of G-I Holdings or its Subsidiaries
for which a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made;
(10) any interest or title of a lessor in the property subject to any
lease, whether characterized as capitalized or operating other than any
such interest or title resulting from or arising out of default by G-I
Holdings or any Subsidiary of its obligations under any such lease which is
material;
65
<PAGE>
(11) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases or conditional sales
of personal property that are otherwise permitted under the applicable
Indenture and under which G-I Holdings or any Subsidiary is lessee;
(12) broker's Liens securing the payment of commissions and management
fees in the ordinary course of business;
(13) Liens on cash and cash equivalents posted as margin pursuant to
the requirements of any bona fide hedge agreement relating to interest
rates, foreign exchange or commodities listed on public exchanges, but only
to the extent such Liens are required from customers generally (regardless
of creditworthiness) in accordance with customary market practice;
(14) Liens on cash collateralizing reimbursement obligations in
respect of letters of credit issued for the account of G-I Holdings or any
of its Subsidiaries in the ordinary course of business (other than letters
of credit issued as credit support for any Debt);
(15) Liens arising in respect of domestic accounts receivable arising
as a result of non-recourse sales thereof; and
(16) Liens on stock or assets of any Non-Recourse Subsidiary securing
Debt owing by such Non-Recourse Subsidiary.
"PERSON" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation. Preferred Stock of any Person shall include Redeemable Stock of
such Person.
"RECOURSE SUBSIDIARIES", of any Person, means all Subsidiaries of such
Person other than Non-Recourse Subsidiaries of such Person.
"REDEEMABLE STOCK" means, with respect to any Person, Capital Stock of such
Person that by its terms or otherwise (x) is required, directly or indirectly,
to be redeemed on or prior to the ninetieth day after the Stated Maturity of the
applicable Notes, (y) is redeemable or puttable, directly or indirectly, at the
option of the holder thereof at any time on or prior to the ninetieth day after
the Stated Maturity of the applicable Notes, or (z) is exchangeable or
convertible into another security (other than a security that is not itself
Redeemable Stock).
"REFINANCE" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue Debt in exchange
or replacement for, such Debt. "Refinanced" and "Refinancing" shall have
correlative meanings.
"RESTRICTED INVESTMENT" means, with respect to G-I Holdings or any of its
Subsidiaries, an Investment by such Person in an Affiliate of G-I Holdings;
provided that the following shall not be Restricted Investments: (i) Investments
in G-I Holdings or any of its Subsidiaries; (ii) Investments in Unrestricted
Affiliates and (iii) Investments in Affiliates that become, as a result of such
Investment, Subsidiaries (other than Non-Recourse Subsidiaries).
"RESTRICTED PAYMENT" means (i) the declaration or making of any dividend or
of any other payment or distribution on or with respect to G-I Holdings' Capital
Stock (other than dividends, payments or distributions payable solely in shares
of G-I Holdings' Capital Stock other than Redeemable Stock) and (ii) any payment
on account of the purchase, redemption, retirement or other acquisition for
value of G-I Holdings' Capital Stock; provided that the Linden Dividend shall
not be deemed to be a Restricted Payment.
"RESTRICTED SECURITY" has the meaning set forth in Rule 144(a)(3) under the
Securities Act.
"SIGNIFICANT SUBSIDIARY" means (i) any Subsidiary (other than a
Non-Recourse Subsidiary) of G-I Holdings which at the time of determination
either (A) had assets which, as of the date of G-I Holdings' most recent
quarterly consolidated balance sheet, constituted at least 5% of G-I Holdings'
total assets on a consolidated basis as of such
66
<PAGE>
date, in each case determined in accordance with GAAP, or (B) had revenues for
the 12-month period ending on the date of G-I Holdings' most recent quarterly
consolidated statement of income which constituted at least 5% of G-I Holdings'
total revenues on a consolidated basis for such period, or (ii) any Subsidiary
of G-I Holdings (other than a Non-Recourse Subsidiary) which, if merged with all
Defaulting Subsidiaries (as defined below) of G-I Holdings, would at the time of
determination either (A) have had assets which, as of the date of G-I Holdings'
most recent quarterly consolidated balance sheet, would have constituted at
least 10% of G-I Holdings' total assets on a consolidated basis as of such date
or (B) have had revenues for the 12-month period ending on the date of G-I
Holdings' most recent quarterly consolidated statement of income which would
have constituted at least 10% of G-I Holdings' total revenues on a consolidated
basis for such period (each such determination being made in accordance with
GAAP). "Defaulting Subsidiary" means any Subsidiary of G-I Holdings (other than
a Non-Recourse Subsidiary) with respect to which an event described under clause
(6), (7), or (8) of "Events of Default" below has occurred and is continuing.
"SPECIFIED SUBSIDIARIES" means Subsidiaries of G-I Holdings other than (i)
ISP Subsidiaries and (ii) BMC Subsidiaries.
"STATED MATURITY" when used with respect to any Note or any installment of
interest thereon, means the dates specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable, and when used with respect to any other Debt, means the date specified
in the instrument governing such Debt as the fixed date on which the principal
of such Debt or any installment of interest is due and payable.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) any other Person (other than a corporation) in
which such Person, one or more Subsidiaries thereof or such Person and one or
more Subsidiaries thereof, directly or indirectly, at the date of determination
thereof has at least majority ownership interest and the power to direct the
policies, management and affairs thereof. For purposes of this definition, any
director's qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
"TAX SHARING AGREEMENTS" means, collectively, the tax sharing agreements
between G-I Holdings and GAF, between G-I Holdings and G Industries and among
ISP, its domestic subsidiaries, G Industries and GAF, as in effect on the date
of the related Indenture.
"TREASURY YIELD" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
applicable redemption date (or, if such Statistical Release is no longer
published, any publicly available source of similar data)) most nearly equal to
the then remaining Average Life of the Notes; provided that if the Average Life
of the Notes is not equal to the constant maturity of a United States Treasury
security for which a weekly average yield is given, the Treasury Yield shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the average life of the Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED AFFILIATE" means a Person (other than a Subsidiary of G-I
Holdings) controlled (as defined in the definition of "Affiliate") by G-I
Holdings in which no Affiliate of G-I Holdings (other than (i) ISP or Building
Materials, as long as it is a Recourse Subsidiary of G-I Holdings, (ii) a
Wholly-Owned Recourse Subsidiary of ISP or Building Materials, as long as it is
a Recourse Subsidiary of G-I Holdings, (iii) a Wholly-Owned Recourse Subsidiary
of G-I Holdings, (iv) any director or officer of G-I Holdings or any of its
Subsidiaries, provided that such Person is not also a director or officer of GAF
or any of its Subsidiaries or Affiliates (other than G-I Holdings and its
Subsidiaries, except for Non-Recourse Subsidiaries in which GAF has an interest
other than through G-I Holdings) and (v) another Unrestricted Affiliate) has an
Investment.
"U.S. GOVERNMENT OBLIGATIONS" means money or direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"VOTING STOCK" means, with respect to any Person, Capital Stock of any
class or kind normally entitled to vote in the election of the board of
directors or other governing body of such Person.
67
<PAGE>
"WHOLLY-OWNED RECOURSE SUBSIDIARY" means a Subsidiary of a Person (other
than a Non-Recourse Subsidiary) all the Capital Stock of which (other than
directors' qualifying shares) is owned by such Person or another Wholly-Owned
Recourse Subsidiary of such Person.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by the applicable corporation
or another Wholly-Owned Subsidiary of the applicable corporation.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON DEBT AND PREFERRED STOCK OF G-I HOLDINGS AND SPECIFIED
SUBSIDIARIES. (a) The Indenture provides that G-I Holdings shall not, and shall
not permit any Specified Subsidiary to Issue, directly or indirectly, any Debt
unless, at the time of such Issuance and after giving effect thereto, (i) no
Default or Event of Default shall have occurred and be continuing and (ii) the
Consolidated EBITDA Coverage Ratio of G-I Holdings for the period of its most
recently completed four consecutive fiscal quarters ending at least 45 days
prior to the date such Debt is Issued is at least 2.00 to 1.00.
(b) Notwithstanding the foregoing, G-I Holdings and Specified Subsidiaries
may Issue the following Debt:
(1) the Old Notes and the New Notes;
(2) (i) Debt of G-I Holdings or any Specified Subsidiary Issued to and
held by G-I Holdings or a Wholly-Owned Recourse Subsidiary of G-I Holdings,
or by ISP or Building Materials or a Wholly-Owned Recourse Subsidiary of
ISP or Building Materials, provided that ISP or Building Materials, as the
case may be, is and remains a Recourse Subsidiary of G-I Holdings, and (ii)
Debt of a Recourse Subsidiary of G-I Holdings (other than ISP, Building
Materials or a Subsidiary of ISP or Building Materials) Issued to and held
by G-I Holdings or a Wholly-Owned Recourse Subsidiary of G-I Holdings, or
by ISP or Building Materials or a Wholly-Owned Recourse Subsidiary of ISP
or Building Materials, as long as ISP or Building Materials, as the case
may be, is or remains a Recourse Subsidiary of G-I Holdings; and provided,
further, that any subsequent transfer of such Debt shall be deemed, in each
case, to constitute the Issuance of such Debt by G-I Holdings or such
Specified Subsidiary;
(3) Debt the proceeds of which are used to acquire assets of G-I
Holdings and Specified Subsidiaries and such Debt is secured by purchase
money Liens on such assets or improvements or additions thereto, or
replacements thereof; provided, that, after giving effect to the Issuance
of any such Debt that otherwise complies with this clause (3), the
aggregate amount of all Debt then outstanding at any time under this clause
(3), including all Refinancings thereof then outstanding, shall not at any
time exceed $50,000,000;
(4) Acquired Debt;
(5) Debt outstanding on the Issue Date and Debt Issued to Refinance
any Debt permitted by this clause (5) or this paragraph (b) of "Limitation
on Debt and Preferred Stock of G-I Holdings and Specified Subsidiaries";
provided that, in the case of a Refinancing, (i) the amount of the Debt so
Issued shall not exceed the principal amount or the accreted value (in the
case of Debt Issued at a discount) of the Debt so Refinanced plus, in each
case, the reasonable costs incurred by the issuer in connection with such
Refinancing, (ii) the Average Life and Stated Maturity of the Debt so
Issued shall equal or exceed that of the Debt so Refinanced, (iii) the Debt
so Issued shall not rank senior in right of payment to the Debt being
Refinanced, (iv) if the Debt being Refinanced does not bear interest in
cash prior to a specified date, the Refinancing Debt shall not bear
interest in cash prior to such specified date; (v) if the Debt being
Refinanced is Debt permitted by clause (3), such Refinancing Debt is not
secured by any assets not securing the Debt so Refinanced or improvements
or additions thereto, or replacements thereof, and (vi) the obligors with
respect to the Refinancing Debt shall not include any persons who were not
obligors (including predecessors thereof) with respect to the Debt being
Refinanced.
(6) Non-Recourse Debt of a Non-Recourse Subsidiary of G-I Holdings and
Guarantees of Non-Recourse Debt of Non-Recourse Subsidiaries which
Guarantees are recourse only to the stock of the Non-Recourse Subsidiaries;
and
(7) Debt (other than Debt described in clauses (1)-(6) above) in an
aggregate principal amount outstanding at any time not to exceed
$50,000,000.
68
<PAGE>
(c) The Indenture provides that G-I Holdings shall not Issue, and shall
not permit any Specified Subsidiary to Issue, directly or indirectly, any
Preferred Stock; provided that G-I Holdings or any Specified Subsidiary may
Issue the following Preferred Stock:
(1) Preferred Stock of G-I Holdings or any Specified Subsidiary Issued
to and held by G-I Holdings or any Wholly-Owned Recourse Subsidiary of G-I
Holdings; provided that any subsequent transfer of such Preferred Stock
(other than to G-I Holdings or a Wholly-Owned Recourse Subsidiary of G-I
Holdings) or such Wholly-Owned Recourse Subsidiary of G-I Holdings ceasing
to be a Wholly-Owned Recourse Subsidiary of G-I Holdings shall be deemed,
in each case, to constitute the Issuance of such Preferred Stock by G-I
Holdings or such Specified Subsidiary; and
(2) Preferred Stock (other than Preferred Stock described in clause
(1) but including the Preferred Stock referred to in the proviso to clause
(1) above) Issued by G-I Holdings or any Specified Subsidiary; provided
that the liquidation value of any Preferred Stock issued pursuant to this
clause (2) shall constitute Debt for purposes of this covenant.
(d) The Indenture also provides that, to the extent G-I Holdings or any
Specified Subsidiary Guarantees any Debt of G-I Holdings or of any Specified
Subsidiary, such Guarantee and such Debt will be deemed to be the same Debt and
only the amount of the Debt will be deemed to be outstanding. If G-I Holdings or
a Specified Subsidiary Guarantees any Debt of a Person that, subsequent to the
Issuance of such Guarantee, becomes a Specified Subsidiary, such Guarantee and
the Debt so Guaranteed shall be deemed to be the same Debt which shall be deemed
to have been Issued when the Guarantee was Issued and shall be deemed to be
permitted to the extent the Guarantee was permitted when Issued.
PROHIBITION ON DEBT AND CAPITAL STOCK OF INTERMEDIATE PARENTS OF ISP AND
BUILDING MATERIALS. The Indenture provides that, notwithstanding the foregoing
clauses (a), (b) and (c), G-I Holdings will not permit any Subsidiary (other
than, subject to "Limitation on Debt and Preferred Stock of ISP Subsidiaries"
and "Limitation on Debt and Preferred Stock of BMC Subsidiaries," ISP
Subsidiaries or BMC Subsidiaries) that, directly or indirectly, owns any Capital
Stock or Debt of ISP or Building Materials, or their respective Subsidiaries, to
issue any Debt or Capital Stock other than Debt or Capital Stock so long as it
is held by G-I Holdings or a Wholly-Owned Recourse Subsidiary of G-I Holdings or
by ISP or Building Materials or of any Wholly-Owned Recourse Subsidiaries of ISP
or Building Materials (so long as ISP and Building Materials, as the case may
be, are Recourse Subsidiaries of G-I Holdings).
LIMITATION ON DEBT AND PREFERRED STOCK OF ISP SUBSIDIARIES. (a) The
Indenture provides that G-I Holdings shall not permit any ISP Subsidiary (so
long as such ISP Subsidiary is a Subsidiary of G-I Holdings) to Issue, directly
or indirectly, any Debt unless, at the time of such Issuance and after giving
effect thereto, (i) no Default or Event of Default shall have occurred and be
continuing and (ii) the Consolidated EBITDA Coverage Ratio of ISP for the period
of its most recently completed four consecutive fiscal quarters ending at least
45 days prior to the date such Debt is Issued is at least 2.00 to 1.00.
(b) Notwithstanding the foregoing, ISP Subsidiaries may Issue the following
Debt:
(1) Debt Issued pursuant to the Credit Agreements or any Refinancing
thereof in an aggregate principal amount outstanding at any one time not to
exceed $500,000,000;
(2) (i) Debt of ISP Issued to and held by G-I Holdings or a
Wholly-Owned Recourse Subsidiary of G-I Holdings or by ISP or Building
Materials or a Wholly-Owned Recourse Subsidiary of ISP or Building
Materials and (ii) Debt of a Recourse Subsidiary of ISP Issued to and held
by ISP, G-I Holdings or Building Materials or a Wholly-Owned Recourse
Subsidiary of G-I Holdings, ISP or Building Materials, provided that such
Wholly-Owned Recourse Subsidiary of G-I Holdings, ISP or Building Materials
remains such and, in the case of any Wholly-Owned Recourse Subsidiary of
ISP or Building Materials, ISP or Building Materials, as the case may be,
is and remains a Recourse Subsidiary of G-I Holdings, and provided,
further, that any subsequent transfer of such Debt shall be deemed, in each
case, to constitute the Issuance of such Debt by ISP or such Subsidiary;
(3) Debt of which the proceeds are used to acquire assets of ISP
Subsidiaries and such Debt is secured by purchase money Liens on such
assets or improvements or additions thereto, or replacements thereof, and
any Refinancings of such Debt; provided that, after giving effect to the
Issuance of any such Debt that otherwise
69
<PAGE>
complies with this clause (3), the aggregate amount of all Debt then
outstanding at any time under this clause (3), including all Refinancings
thereof then outstanding, shall not at any time exceed 10% of the
Consolidated Net Worth of ISP after giving effect to such Issuance;
(4) Acquired Debt;
(5) Debt outstanding on the Issue Date and Debt Issued to Refinance
any Debt permitted by this clause (5) or by clauses (1)-(4) of this
paragraph (b) under "Limitation on Debt and Preferred Stock of ISP
Subsidiaries"; provided that, in the case of a Refinancing, (i) the amount
of the Debt so Issued shall not exceed the principal amount or then
accreted value (in the case of Debt issued at a discount) of the Debt so
Refinanced plus, in each case, the reasonable costs incurred by the issuer
in connection with such Refinancing, (ii) the Average Life and Stated
Maturity of the Debt so issued shall equal or exceed that of the Debt so
Refinanced, (iii) the Debt so Issued shall not rank senior in right of
payment to the Debt being Refinanced, (iv) if the Debt being Refinanced
does not bear interest in cash prior to a specified date, the Refinancing
Debt shall not bear interest in cash prior to such specified date, (v) if
the Debt being Refinanced is Debt permitted by clause (3), such Refinancing
Debt is not secured by any assets not securing the Debt so Refinanced or
improvements or additions thereto, or replacements thereof, and (vi) the
obligors with respect to the Refinancing Debt shall not include any persons
who were not obligors (including predecessors thereof) with respect to the
Debt being Refinanced;
(6) Non-Recourse Debt of a Non-Recourse Subsidiary of ISP and
Guarantees of Non-Recourse Debt of Non-Recourse Subsidiaries which
Guarantees are recourse only to the stock of the Non-Recourse Subsidiaries;
and
(7) Debt (other than Debt described in clauses (1) through (6) above)
in an aggregate principal amount outstanding at any time not to exceed
$50,000,000.
(c) The Indenture also provides that G-I Holdings shall not permit any ISP
Subsidiary (so long as such ISP Subsidiary is a Subsidiary of G-I Holdings) to
Issue any Preferred Stock; provided that any ISP Subsidiary may Issue the
following Preferred Stock:
(1) Preferred Stock of any ISP Subsidiary issued to and held by G-I
Holdings or by ISP or a Wholly-Owned Recourse Subsidiary of ISP or G-I
Holdings; provided that any subsequent transfer of such Preferred Stock
(other than to G-I Holdings or ISP or to a Wholly-Owned Recourse Subsidiary
of ISP or G-I Holdings) or such Wholly-Owned Recourse Subsidiary of ISP or
G-I Holdings ceasing to be a Wholly-Owned Recourse Subsidiary of ISP or G-I
Holdings shall be deemed, in each case, to constitute the Issuance of such
Preferred Stock by such ISP Subsidiary; and
(2) Preferred Stock (other than Preferred Stock described in clause
(1) but including the Preferred Stock referred to in the proviso to clause
(1) above) Issued by any ISP Subsidiary; provided that the liquidation
value of any Preferred Stock issued pursuant to this clause (2) shall
constitute Debt for purposes of this covenant.
(d) The Indenture also provides that to the extent any ISP Subsidiary
Guarantees any Debt of any other ISP Subsidiary, such Guarantee and such Debt
will be deemed to be the same Debt and only the amount of the Debt will be
deemed to be outstanding. If an ISP Subsidiary Guarantees any Debt of a Person
that, subsequent to the Issuance of such Guarantee, becomes an ISP Subsidiary,
such Guarantee and the Debt so Guaranteed shall be deemed to be the same Debt
which shall be deemed to have been Issued when the Guarantee was Issued and
shall be deemed to be permitted to the extent the Guarantee was permitted when
Issued.
LIMITATION ON DEBT AND PREFERRED STOCK OF BMC SUBSIDIARIES. (a) The
Indenture provides that G-I Holdings shall not permit any BMC Subsidiary (so
long as such BMC Subsidiary is a Subsidiary of G-I Holdings) to Issue, directly
or indirectly, any Debt unless, at the time of such Issuance and after giving
effect thereto, (i) no Default or Event of Default shall have occurred and be
continuing and (ii) the Consolidated EBITDA Coverage Ratio of Building Materials
for the period of its most recently completed four consecutive fiscal quarters
ending at least 45 days prior to the date such Debt is Issued is at least 2.00
to 1.00.
(b) Notwithstanding the foregoing, BMC Subsidiaries may Issue the following
Debt:
(1) (i) Debt of Building Materials Issued to and held by G-I Holdings
or a Wholly-Owned Recourse Subsidiary of G-I Holdings or by Building
Materials or ISP or a Wholly-Owned Recourse Subsidiary of
70
<PAGE>
Building Materials or ISP and (ii) Debt of a Recourse Subsidiary of
Building Materials Issued to and held by Building Materials, or G-I
Holdings or ISP or a Wholly-Owned Recourse Subsidiary of G-I Holdings,
Building Materials or ISP; provided that such Wholly-Owned Recourse
Subsidiary of G-I Holdings, ISP or Building Materials remains such and, in
the case of any Wholly-Owned Recourse Subsidiary of ISP or Building
Materials, ISP or Building Materials, as the case may be, is and remains a
Recourse Subsidiary of G-I Holdings; provided, further, that any subsequent
transfer of such Debt shall be deemed, in each case, to constitute the
Issuance of such Debt by Building Materials or such Subsidiary;
(2) Debt of which the proceeds are used to acquire assets of BMC
Subsidiaries and such Debt is secured by purchase money Liens on such
assets or improvements or additions thereto, or replacements thereof, and
any Refinancings of such Debt; provided that after giving effect to the
Issuance of any such Debt (other than a Refinancing thereof) that otherwise
complies with this clause (2), the aggregate amount of all Debt then
outstanding at any time under this clause (2), including all Refinancings
thereof then outstanding, shall not at any time exceed $25,000,000;
(3) Acquired Debt;
(4) Debt outstanding on the Issue Date and Debt Issued to Refinance
any Debt permitted by this clause (4) or by clauses (1)-(3) of this
paragraph (b) under "Limitation on Debt and Preferred Stock of BMC
Subsidiaries"; provided that, in the case of a Refinancing, (i) the amount
of the Debt so Issued shall not exceed the principal amount or then
accreted value (in the case of Debt issued at a discount) of the Debt so
Refinanced plus, in each case, the reasonable costs incurred by the issuer
in connection with such Refinancing, (ii) the Average Life and Stated
Maturity of the Debt so issued shall equal or exceed that of the Debt so
Refinanced, (iii) the Debt so Issued shall not rank senior in right of
payment to the Debt being Refinanced, (iv) if the Debt being Refinanced
does not bear interest in cash prior to a specified date, the Refinancing
Debt shall not bear interest in cash prior to such specified date, (v) if
the Debt being Refinanced is Debt permitted by clause (2), such Refinancing
Debt is not secured by any assets not securing the Debt so Refinanced or
improvements or additions thereto, or replacements thereof, and (vi) the
obligors with respect to the Refinancing Debt shall not include any persons
who were not obligors (including predecessors thereof) with respect to the
Debt being Refinanced;
(5) Non-Recourse Debt of a Non-Recourse Subsidiary of Building
Materials and Guarantees of Non-Recourse Debt of Non-Recourse Subsidiaries
which Guarantees are recourse only to the stock of the Non-Recourse
Subsidiaries; and
(6) Debt (other than Debt described in clauses (1) through (5) above)
in an aggregate principal amount outstanding at any time not to exceed
$25,000,000.
(c) The Indenture also provides that G-I Holdings shall not permit any BMC
Subsidiary (so long as such BMC Subsidiary is a Subsidiary of G-I Holdings) to
Issue any Preferred Stock; provided that any BMC Subsidiary may Issue the
following Preferred Stock:
(1) Preferred Stock of any BMC Subsidiary issued to and held by G-I
Holdings or by Building Materials or a Wholly-Owned Recourse Subsidiary of
Building Materials or G-I Holdings; provided that any subsequent transfer
of such Preferred Stock (other than to G-I Holdings or Building Materials
or to a Wholly-Owned Recourse Subsidiary of Building Materials or G-I
Holdings) or such Wholly-Owned Recourse Subsidiary of Building Materials or
G-I Holdings ceasing to be a Wholly-Owned Recourse Subsidiary of Building
Materials or G-I Holdings shall be deemed, in each case, to constitute the
Issuance of such Preferred Stock by such BMC Subsidiary; and
(2) Preferred Stock (other than Preferred Stock described in clause
(1) but including the Preferred Stock referred to in the proviso to clause
(1) above) Issued by any BMC Subsidiary; provided that the liquidation
value of any Preferred Stock issued pursuant to this clause (2) shall
constitute Debt for purposes of this covenant.
(d) The Indenture also provides that, to the extent any BMC Subsidiary
Guarantees any Debt of any other BMC Subsidiary, such Guarantee and such Debt
will be deemed to be the same Debt and only the amount of the Debt will be
deemed to be outstanding. If a BMC Subsidiary Guarantees any Debt of a Person
that, subsequent to the Issuance of such Guarantee, becomes a BMC Subsidiary,
such Guarantee and the Debt so Guaranteed shall be deemed to be the same Debt
which shall be deemed to have been Issued when the Guarantee was Issued and
shall be deemed to be permitted to the extent the Guarantee was permitted when
Issued.
71
<PAGE>
LIMITATION ON RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. (a) The
Indenture provides that G-I Holdings shall not make, and shall not permit any of
its Subsidiaries to make, directly or indirectly, any Restricted Payment or
Restricted Investment if, at the time of such Restricted Payment or Restricted
Investment or immediately after giving effect thereto:
(1) a Default or an Event of Default shall have occurred and be
continuing;
(2) G-I Holdings is not able to incur at least $1.00 of additional
Debt under paragraph (a) of "Limitation on Debt and Preferred Stock of G-I
Holdings and Specified Subsidiaries"; or
(3) the aggregate amount of Restricted Payments made since the Issue
Date and the aggregate amount of Restricted Investments made since the
Issue Date and then outstanding (the amount expended for such purposes, if
other than in cash, shall be the fair market value of such property as
determined by the Board of Directors of G-I Holdings in good faith as of
the date of payment or investment) shall exceed the sum of:
(i) 50% of the cumulative Consolidated Net Income (or minus 100%
of the cumulative Consolidated Net Loss) of G-I Holdings accrued
during the period beginning on the first day of the fiscal quarter
during which the Issue Date falls and ending on the last day of the
fiscal quarter for which financial information has been made publicly
available by G-I Holdings but ending no more than 135 days prior to
the date of such Restricted Payment or Restricted Investment (treating
such period as a single accounting period);
(ii) 100% of the net cash proceeds, including the fair market
value of property other than cash as determined by the Board of
Directors of G-I Holdings in good faith, as evidenced by a Board
Resolution, received by G-I Holdings from any Person (other than a
Subsidiary of G-I Holdings) from the Issuance and sale subsequent to
the Issue Date of Capital Stock of G-I Holdings (other than Redeemable
Stock) or as a capital contribution;
(iii) 100% of the net cash proceeds received by G-I Holdings from
the exercise of options or warrants on Capital Stock of G-I Holdings
(other than Redeemable Stock) since the Issue Date, other than from a
Subsidiary of G-I Holdings;
(iv) 100% of the net cash proceeds received by G-I Holdings from
the conversion into Capital Stock (other than Redeemable Stock) of
convertible Debt or convertible Preferred Stock issued and sold (other
than to a Subsidiary of G-I Holdings) since the Issue Date; and
(v) $30,000,000.
The designation by G-I Holdings or any of its Subsidiaries of a Subsidiary
as a Non-Recourse Subsidiary shall be deemed to be the making of a Restricted
Investment by G-I Holdings in an amount equal to the outstanding Investments
made by G-I Holdings and its Subsidiaries in such person being designated a
Non-Recourse Subsidiary at the time of such designation.
(b) Paragraph (a) shall not prevent the following, as long as no Default or
Event of Default shall have occurred and be continuing (or would result
therefrom other than pursuant to paragraph (a) of this covenant):
(1) the making of any Restricted Payment or Restricted Investment
within 60 days after (x) the date of declaration thereof or (y) the making
of a binding commitment in respect thereof; provided that at such date of
declaration or commitment such Restricted Payment or Restricted Investment
complied with the foregoing provisions;
(2) any Restricted Payment or Restricted Investment made out of the
net cash proceeds received by G-I Holdings from the substantially
concurrent sale of its Common Stock (other than to a Subsidiary of G-I
Holdings); provided that such net cash proceeds so utilized shall not be
included in clause (3) of paragraph (a) in determining the amount of
Restricted Payments or Restricted Investments G-I Holdings could make under
paragraph (a) of this covenant.
Restricted Payments or Restricted Investments made pursuant to clause (2)
shall not be deducted in determining the amount of Restricted Payments or
Restricted Investments made or then outstanding under clause (3) of paragraph
(a) of this covenant.
LIMITATION ON LIENS. The Indenture provides that G-I Holdings shall not,
and shall not permit any of its Specified Subsidiaries to, directly or
indirectly, incur or suffer to exist any Liens upon their respective property or
72
<PAGE>
assets whether owned on the Issue Date or acquired after such date, or on any
income or profits therefrom, other than the following:
(1) Liens securing intercompany Debt described in clause (2) of
paragraph (b) under "Limitation on Debt and Preferred Stock of G-I Holdings
and Specified Subsidiaries";
(2) Liens existing on the Issue Date;
(3) Permitted Liens;
(4) Purchase money Liens on assets of G-I Holdings and its
Subsidiaries or improvements or additions thereto existing or created
within 180 days after the time of acquisition of or improvement or addition
to such assets, or replacements thereof; provided that (i) such
acquisition, improvement or addition is otherwise permitted by the
Indentures, (ii) the principal amount of Debt (including Debt in respect of
Capitalized Lease Obligations) secured by each such Lien in each asset
shall not exceed the cost (including all such Debt secured thereby, whether
or not assumed) of the item subject thereto, and such Liens shall attach
solely to the particular item of property so acquired, improved or added,
and any additions or accessions thereto, or replacements thereof, and (iii)
the aggregate amount of Debt secured by Liens permitted by this clause (4)
shall not at any one time exceed $50,000,000;
(5) Liens to secure Refinancing of any Debt secured by Liens described
in clauses (1)-(4) above and (6) below; provided that (i) Refinancing does
not increase the principal amount of Debt being so Refinanced and (ii) the
Lien of the Refinancing Debt does not extend to any asset not securing the
Debt being Refinanced or improvements or additions thereto, or replacements
thereof;
(6) Liens securing Acquired Debt; provided that (i) any such Lien
secured the Acquired Debt at the time of the incurrence of such Acquired
Debt by G-I Holdings or by one of its Subsidiaries and such Lien and
Acquired Debt were not incurred by G-I Holdings or any of its Subsidiaries
or by the Person being acquired or from whom the assets were acquired in
connection with, or in anticipation of, the incurrence of such Acquired
Debt by G-I Holdings or by one of its Subsidiaries and (ii) any such Lien
does not extend to or cover any property or assets of G-I Holdings or of
any of its Subsidiaries other than the property or assets that secured the
Acquired Debt prior to the time such Debt became Acquired Debt of G-I
Holdings or of one of its Subsidiaries; and
(7) Liens on assets of G-I Holdings and its Specified Subsidiaries,
provided that such Liens only secure Debt of G-I Holdings and its Specified
Subsidiaries in an aggregate amount not to exceed at any one time
outstanding $50,000,000.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Indenture provides that
G-I Holdings shall not enter, and shall not permit any of its Subsidiaries to
enter, directly or indirectly, into any transaction or series of related
transactions with any Affiliate of G-I Holdings (other than (x) the making of a
Restricted Payment or Restricted Investment otherwise permitted by "Limitation
on Restricted Payments and Restricted Investments" or those transactions
specifically permitted by paragraph (b) under "Limitation on Restricted Payments
and Restricted Investments", (y) transactions between or among Non-Recourse
Subsidiaries of G-I Holdings or (z) transactions between or among G-I Holdings
and its Subsidiaries (other than Non-Recourse Subsidiaries)) including, without
limitation, any loan, advance or investment or any purchase, sale, lease or
exchange of property or the rendering of any service, unless the terms of such
transaction or series of transactions are set forth in writing and at least as
favorable as those available in a comparable transaction in arms-length dealings
from an unrelated Person; provided that (i) if any such transaction or series of
related transactions (other than any purchase or sale of inventory in the
ordinary course of business) involves aggregate payments or other consideration
in excess of $2,000,000, such transaction or series of related transactions
shall be approved (and the value of any non-cash consideration shall be
determined) by a majority of those members of the Board of Directors of G-I
Holdings or such Subsidiary, as the case may be, having no personal stake in
such business, transaction or transactions; and (ii) in the event that such
transaction or series of related transactions (other than any purchase or sale
of inventory in the ordinary course of business) involves aggregate payments or
other consideration in excess of $20,000,000 (with the value of any non-cash
consideration being determined by a majority of those members of the Board of
Directors of G-I Holdings or such Subsidiary, as the case may be, having no
personal stake in such business, transaction or transactions), G-I Holdings or
such Subsidiary, as the case may be, shall have also received a written opinion
from a nationally recognized investment banking firm that such transaction or
series of related transactions are fair to the shareholders,
73
<PAGE>
in their capacity as such, of G-I Holdings or such Subsidiary from a financial
point of view and such opinion has been delivered to the Trustee.
(b) Paragraph (a) shall not prevent the following:
(1) any transaction between a Subsidiary and its own employee stock
ownership or benefit plan;
(2) any transaction with an officer or director of any Subsidiary of
G-I Holdings entered into in the ordinary course of business (including
compensation or employee benefit arrangements with any such officer or
director);
(3) any business or transaction with an Unrestricted Affiliate;
(4) transactions permitted by "Limitation on Investments in
Non-Recourse Subsidiaries by ISP Subsidiaries and BMC Subsidiaries;" or
(5) payments made pursuant to the Tax Sharing Agreements.
(c) G-I Holdings will not, and will not permit any of its Subsidiaries to
amend, modify or waive any provision of the Tax Sharing Agreements in any manner
which is significantly adverse to G-I Holdings or the holders of the Notes.
LIMITATION ON INVESTMENTS IN NON-RECOURSE SUBSIDIARIES BY ISP SUBSIDIARIES
AND BMC SUBSIDIARIES. (a) G-I Holdings shall not permit ISP Subsidiaries to make
Investments in Non-Recourse Subsidiaries of ISP, if, after giving effect
thereto, the cumulative aggregate amount (the amount so expended, if other than
in cash, to be determined by the Board of Directors of ISP, as evidenced by a
Board Resolution) of such Investments, as of the date of the Investment, made by
ISP Subsidiaries would exceed 20% of the Consolidated Net Worth of ISP.
(b) G-I Holdings shall not permit BMC Subsidiaries to make investments in
Non-Recourse Subsidiaries if, after giving effect thereto, the cumulative
aggregate amount (the amount so expended, if other than cash, to be determined
by the Board of Directors of Building Materials, as evidenced by a Board
Resolution) of such Investments, as of the date of investment, would exceed
$50,000,000.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Indenture provides that G-I Holdings shall not, and shall not
permit any of its Subsidiaries (other than Non-Recourse Subsidiaries) to,
directly or indirectly, create or otherwise cause to exist or become effective
any encumbrance or restriction on the ability of any Subsidiary to (a) pay
dividends or make any other distributions on its Capital Stock or pay any Debt
owed to G-I Holdings or any of such Subsidiaries, (b) make loans or advances to
G-I Holdings or any of such Subsidiaries, (c) transfer any of its properties or
assets to G-I Holdings or (d) incur or suffer to exist Liens in favor of the
holders of Notes, except for such encumbrances or restrictions existing under or
by reason of the following:
(1) applicable law;
(2) the applicable Indenture;
(3) customary provisions restricting subletting or assignment of any
lease or license or other commercial agreement;
(4) any instrument governing Acquired Debt of any Person, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than such Person and its
Subsidiaries, or the property or assets of such Person and its
Subsidiaries, so acquired;
(5) the Liens specifically permitted by the provisions under
"Limitation on Liens"; provided that such Liens and the terms governing
such Liens do not, directly or indirectly, restrict G-I Holdings or its
Subsidiaries from granting other Liens, except as to the assets subject to
such Liens;
(6) the Credit Agreements or other Debt existing on the Issue Date and
any Refinancing of the Credit Agreements or any such other Debt; provided
that the terms and conditions of any such Refinancing agreements relating
to the terms described under clauses (a)-(d) above are no less favorable to
G-I Holdings than those contained in the agreements governing the Debt
being Refinanced; and
(7) covenants contained in agreements governing Debt of BMC
Subsidiaries; provided that such covenants shall not prohibit any BMC
Subsidiary from, directly or indirectly, paying dividends or making loans
74
<PAGE>
or advances to G-I Holdings in an aggregate amount up to the positive
difference, if any, between (i) the sum of (A) $25,000,000 and (B) 50% of
the cumulative Consolidated Net Income (or minus 100% of the Consolidated
Net Loss) of Building Materials for the period beginning on the first date
of the fiscal quarter during which such Debt of BMC Subsidiaries was
issued, and (ii) the aggregate amount of Restricted Payments and Restricted
Investments made by BMC Subsidiaries since such date.
LIMITATION ON ASSET SALES. The Indenture provides that G-I Holdings shall
not, and shall not permit any of its Subsidiaries, directly or indirectly, to
consummate an Asset Sale unless:
1. G-I Holdings or such Subsidiary, as the case may be, receives
consideration (including non-cash consideration, whose fair market value
shall be determined in good faith by the Board of Directors of G-I Holdings
or such Subsidiary, as evidenced by a Board Resolution) at the time of such
Asset Sale at least equal to the fair market value of the assets sold or
otherwise disposed of (as determined in good faith by the Board of
Directors, as evidenced by a Board Resolution);
2. at least 85% of the consideration received by G-I Holdings or such
Subsidiary, as the case may be, shall be cash or Cash Equivalents; provided
that this clause (2) shall not prohibit any Asset Sale for which G-I
Holdings or such Subsidiary, as the case may be, receives 100% of the
consideration, directly or through the acquisition of Capital Stock of a
Person, in operating assets;
3. 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 Senior Discount Notes in a tender offer to
the extent required by the indenture governing the Senior Discount Notes
and/or (iv) to offer to purchase the Notes in a tender offer (a "Net
Proceeds Offer") at a redemption price equal to 100% of the principal
amount of the Notes, plus accrued interest thereon, 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 (3) (iv)
equal or exceed $20,000,000; and
4. 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, or (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 Senior Discount Notes in a tender offer to the extent
required by the indenture governing the Senior Discount Notes and/or (v) to
a Net Proceeds Offer at a redemption price equal to 100% of the principal
amount of the Notes, plus accrued interest thereon; 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 (4) (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 (3) or
(4)), and (ii) any Asset Sale that would result in a Change of Control
shall not be governed by this covenant but shall be governed by the
provisions described under "Change of Control Put and Call."
G-I Holdings will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer.
INVESTMENT COMPANY ACT. The Indenture provides that G-I Holdings will not
take any action that would require it or any of its Subsidiaries to register as
an investment company under the Investment Company Act of 1940.
REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION. The Indenture provides
that, so long as the Notes are outstanding and whether or not G-I Holdings is
subject to Section 13 or 15(d) of the Securities Exchange Act, G-I Holdings
shall timely file with the Commission the annual reports and the information,
documents and other reports
75
<PAGE>
required to be filed, or which would be required to be filed, with the
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act and
file such documents and reports with the Trustee within fifteen days after
filing with the Commission. Such reports, information and other documents shall
be provided to the holders pursuant to the terms of the Indenture. G-I Holdings
shall also comply with the provisions of TIA ss.314(a).
MERGER, ETC.
The Indenture provides that 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:
(1) 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 thereto, executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all the
obligations of G-I Holdings under the Notes and the Indentures, and the
applicable Indenture shall remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction (and treating any Debt which becomes an obligation of the
resulting, surviving or transferee Person or any of its Subsidiaries as a
result of such transaction as having been issued by such Person or such
Subsidiary at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing;
(3) immediately before and after giving effect to such transaction,
the resulting, surviving or transferee Person could incur at least $1.00 of
additional Debt under paragraph (a) of "Limitation on Debt and Preferred
Stock of G-I Holdings and Specified Subsidiaries"; and
(4) immediately after giving effect to such transaction, the
resulting, surviving or transferee Person shall have a Consolidated Net
Worth in an amount which is not less than the Consolidated Net Worth of G-I
Holdings immediately prior to such transaction.
In connection with any consolidation, merger, sale, assignment, transfer or
lease contemplated by this covenant, 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 covenant and the TIA
and that all conditions precedent herein provided for relating to such
transaction have been complied with.
Upon any consolidation or merger or any sale, assignment, transfer or lease
of all or substantially all of the assets of G-I Holdings in accordance with the
preceding two paragraphs, the successor corporation formed by such consolidation
or into which G-I Holdings is merged or to which such sale, assignment, transfer
or lease is made, shall succeed to, and be substituted for, and may exercise
every right and power of, G-I Holdings under the Indenture, with the same effect
as if such successor corporation had been named as G-I Holdings herein, and,
except in the case of a lease, G-I Holdings will be discharged from all
obligations and covenants under the Indenture and the Notes.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(1) G-I Holdings defaults in the payment of interest on any Note 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
Note when the same becomes due and payable at maturity or otherwise or (ii)
G-I Holdings fails to redeem or repurchase Notes when required pursuant to
such Indenture or the Notes;
(3) G-I Holdings fails to comply with provisions of "Merger, Etc.";
(4) G-I Holdings fails to comply for 30 days after notice with any of
its obligations described under "Change of Control Put and Call" and
"Certain Covenants";
(5) G-I Holdings fails to comply for 60 days after notice with its
other agreements contained in the Indenture or the Notes (other than those
referred to in clauses (1)-(4) above);
76
<PAGE>
(6) Debt of G-I Holdings or any Significant Subsidiary is not paid
within any applicable grace period or is accelerated by the holders thereof
because of a default and the total principal amount of the portion of such
Debt that is unpaid or accelerated exceeds $15,000,000 or its foreign
currency equivalent and such default continues for 5 days after notice;
(7) certain events of bankruptcy, insolvency or reorganization of G-I
Holdings or any of its Significant Subsidiaries occurs pursuant to or
within the meaning of any Bankruptcy Law;
(8) any judgment or order for the payment of money in excess of
$15,000,000 in the aggregate is rendered against G-I Holdings or any
Significant Subsidiary of G-I Holdings and (i) there is a period of 60 days
following the entry of such judgment or order during which such judgment or
order is not discharged, waived or the execution thereof stayed and such
default continues for 10 days after the notice specified below or(ii)
foreclosure proceedings therefor have begun and have not been stayed within
five days of the commencement of such foreclosure proceeding.
A Default under clauses (4), (5), (6) or (8) is not an Event of Default
until the Trustee or the holders of at least 25% in aggregate principal amount
of the outstanding Notes issued under the Indenture notify G-I Holdings in
writing of the Default, and G-I Holdings does not cure the Default within 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 Notes. When a Default under
clause (4), (5), (6) or (8) is cured or remedied within the specified period, it
ceases to exist.
If an Event of Default (other than an Event of Default with respect to G-I
Holdings specified in clause (7) above) occurs and is continuing, the Trustee,
by written notice to G-I Holdings, or the holders of at least 25% in aggregate
principal amount of the outstanding Notes, by written notice to G-I Holdings and
the Trustee, may declare the principal amount plus accrued interest thereon of
all Notes then outstanding to be due and payable (the "Default Amount"). Upon a
declaration of acceleration, such amount shall be due and payable immediately.
If an Event of Default with respect to G-I Holdings specified in clause (7)
above occurs, the Default Amount shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Noteholder.
Under certain circumstances, the holders of a majority in aggregate
principal amount at maturity of the Notes then outstanding, may rescind an
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes issued
thereunder unless such holders have offered to the Trustee reasonable indemnity
or security against any loss, liability or expense. Except to enforce the right
to receive payment of principal, premium (if any) or interest (if any) when due,
no holder may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount at
maturity of the outstanding Notes have requested the Trustee to pursue the
remedy, (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the holders of a majority in principal
amount at maturity of the outstanding Notes issued under the Indenture have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount at maturity of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of Notes or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of Notes notice of
the Default within 90 days after it occurs. Except in the case of a Default in
the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding notice is in the interests of the holders of Notes.
In addition, G-I Holdings is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate
77
<PAGE>
indicating whether the signers thereof know of any Default that occurred
during the previous year. G-I Holdings also is required to deliver to the
Trustee, within 10 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status, and what action G-I
Holdings is taking or proposes to take in respect thereof.
DISCHARGE
G-I Holdings at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. G-I Holdings at any time may terminate its obligations under the
covenants described under "Certain Covenants" and "Change of Control Put and
Call," above and the operation of clauses (3), (4), (5), (6), (7) (with respect
only to Significant Subsidiaries) or (8) under "Defaults" above and the
limitations contained in clause (3) or (4) described under "Merger, Etc." above
("covenant defeasance").
G-I Holdings may exercise its legal defeasance option under the Indenture
notwithstanding its prior exercise of its covenant defeasance option. If G-I
Holdings exercises its legal defeasance option, payment of the Notes issued
under the Indenture may not be accelerated because of an Event of Default with
respect thereto. If G-I Holdings exercises its covenant defeasance option,
payment of the Notes issued under the related Indenture may not be accelerated
because of an Event of Default specified in clause (3), (4), (5), (6), (7) (with
respect only to Significant Subsidiaries) or (8) under "Defaults" above, or
because of the failure of G-I Holdings to comply with clause (3) or (4)
described under "Merger, Etc." above.
In order to exercise either defeasance option, G-I Holdings must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal and interest (if any)
on the Notes issued pursuant to the related Indenture to redemption or maturity,
as the case may be, and must comply with certain other conditions, including
(unless the applicable Notes will mature or be redeemed within 30 days)
delivering to the Trustee an Opinion of Counsel to the effect that holders of
the Notes issued under the Indenture will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been in the case if such deposit and defeasance
had not occurred, and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law.
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by G-I Holdings
and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the outstanding Notes issued pursuant thereto; provided that
no such modification, amendment or instruction may, without the consent of the
holder of each outstanding Note affected thereby: (i) change the stated maturity
of the principal of, or any installment of interest on, any Note or reduce the
principal amount thereof, the rate of interest thereon or any premium payable
upon the redemption thereof, or change the coin or currency in which any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the stated maturity thereof
(or, in the case of redemption, on or after the redemption date); (ii) reduce
the percentage in principal amount of the outstanding Notes, the consent of the
holders of which is required for any such supplemental indenture or the consent
of such holders is required for any waiver of compliance with certain provisions
of the related Indenture or certain Defaults thereunder and their consequences
provided for in the Indenture; (iii) modify any of the provisions relating to
supplemental indentures requiring the consent of holders or relating to the
waiver of past defaults or relating to the waiver of certain covenants, except
to increase any such percentage of outstanding Notes required for such actions
or to provide that certain other provisions of the Indenture cannot be modified
or waived without the consent of each holder of Notes affected thereby; or (iv)
except as otherwise permitted by the covenants described under "Description of
the Notes--Merger, Etc.," consent to the assignment or transfer by G-I Holdings
of any of its rights and obligations under the Indenture.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
78
<PAGE>
Neither G-I Holdings nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of Notes for or as an inducement to
any consent, waiver or amendment of any terms or provisions of the Notes unless
such consideration is offered to be paid or agreed to be paid to all holder of
Notes which so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or amendment.
GOVERNING LAW
The Indenture and the Notes are governed by and will be construed in
accordance with, the laws of the State of New York.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax consequences
to tendering holders of Old Notes of (i) the exchange of Old Notes for New Notes
and (ii) the ownership and disposition of New Notes.
This summary is based upon provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Regulations promulgated thereunder (including
temporary regulations), administrative rulings and judicial decisions now in
effect, all of which are subject to change, possibly with retroactive effect.
This summary does not discuss all aspects of federal income taxation that may be
relevant to a particular holder in light of such holder's individual investment
circumstances or to certain types of holders subject to special treatment under
the federal income tax laws (for example, dealers in securities, banks, life
insurance companies, tax-exempt organizations and foreign taxpayers and persons
who hold (or will hold) the Old Notes or New Notes as part of a "straddle,"
"hedge" or "conversion transaction"), nor does it discuss any aspect of state,
local or foreign taxation. The following discussion assumes that the Old Notes
and New Notes are (and will be) held by the holders thereof as "capital assets"
within the meaning of section 1221 of the Code.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATIONAL PURPOSES
ONLY. ACCORDINGLY, EACH HOLDER OF OLD NOTES SHOULD CONSULT WITH SUCH HOLDER'S
OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF
PARTICIPATION IN THE EXCHANGE OFFER, AND THE OWNERSHIP AND DISPOSITION OF NEW
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX
LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF TENDERING OLD NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not constitute an exchange for federal income tax purposes. Accordingly,
the Exchange Offer should have no federal income tax consequences to holders of
Old Notes and original issue discount ("OID"), if any, on the New Notes should
continue to accrue in the same manner as it accrued on the Old Notes, as
summarized below. Except for the immediately succeeding paragraph, the balance
of this discussion assumes that the exchange of Old Notes for New Notes will not
constitute an exchange for federal income tax purposes.
If, contrary to the above conclusion, the exchange of Old Notes for New
Notes constitutes an exchange for federal income tax purposes, both the Old
Notes and the New Notes should constitute "securities" for federal income tax
purposes (which determination generally is made by reference to the initial term
of the debt instrument, with debt instruments with initial terms of ten years or
more generally being treated as securities) and, thus, a holder of Old Notes
should recognize no gain or loss on the consummation of the Exchange Offer.
However, in such case, the accrual of OID, if any, on the New Notes could differ
from the accrual of OID, if any, on the Old Notes.
FEDERAL INCOME TAX CONSEQUENCES OF OWNING NEW NOTES
INTEREST AND ORIGINAL ISSUE DISCOUNT
A holder of New Notes will be required to include in gross income for
federal income tax purposes the stated interest on such New Notes in accordance
with the holder's method of tax accounting. In addition, if the Old Notes were
issued with OID, the New Notes (which, assuming the Exchange Offer does not
constitute an exchange for federal income tax purposes, would be treated as a
continuation of the Old Notes) also would be deemed to have been
79
<PAGE>
issued with OID and, thus, a holder of New Notes would be required to include in
gross income the amount of OID accrued on the New Notes, determined by using the
constant yield method and the New Notes' yield to maturity (which would be the
same as that of the Old Notes). Thus, a holder of New Notes must include any
accrued OID thereon in gross income in advance of the receipt of cash in respect
of such income.
The Old Notes will be treated as having been issued with OID if their
stated principal amount exceeded their "issue price" (subject to a de minimis
exception). If the Old Notes were deemed to have been "traded on a securities
market" or issued in a "potentially abusive situation," the "issue price" of an
Old Note (and, thus, a New Note) would equal the initial fair market value of
such Old Note. Otherwise, the "issue price" of an Old Note (and, thus, a New
Note) would equal its "stated redemption price at maturity" (i.e., its face
amount). Based on the foregoing, the Company has taken the position that the
issue price of an Old Note (and, thus, a New Note) is its face amount and, thus,
the Old Notes were not issued with OID and the New Notes will not have OID.
However, there can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary position, in which case a holder may be
required to include OID in income.
CERTAIN ADDITIONAL CONSEQUENCES TO HOLDERS OF NEW NOTES ISSUED WITH
ORIGINAL ISSUE DISCOUNT
ACQUISITION PREMIUM. The amount of OID required to be included in gross
income by a holder that acquired New Notes by "purchase" i.e., in a transaction
in which the holder's basis in the New Notes is not determined, in whole as in
part, by reference to the basis of the person from whom the holder acquired the
New Notes (or from whom the holder acquired the instruments that ultimately were
exchanged by the holder for New Notes (i.e., the Senior Discount Notes or Old
Notes)), is reduced if such holder's adjusted tax basis in such New Notes,
immediately after such purchase exceeds their "adjusted issue price" (i.e., the
issue price of such New Notes, increased by any OID previously includable in the
income of any holder, without taking into account any reduction for "acquisition
premium," and decreased by any payment made on such New Notes prior to the
purchase date other than a stated interest payment). If a holder's adjusted tax
basis in such New Notes immediately after the acquisition of such New Notes were
to exceed their stated principal amount, then such holder would not be required
to include any OID in income (and any excess premium over their stated principal
amount would be governed by the "bond premium" provisions of the Code, as
discussed below).
TAX BASIS. Generally, a holder's tax basis in any New Notes received will
be increased by the amount of OID, if any, that is included in the holder's
income pursuant to the foregoing rules through the day preceding the date of
disposition and will be decreased by the amount of any cash payments received,
other than payments of stated interest.
SALE OR REDEMPTION
The sale, exchange, redemption (including pursuant to an offer by the
Company) or other disposition of New Notes generally will be a taxable event for
federal income tax purposes. A holder generally will recognize gain or loss
equal to the difference between (i) the amount of cash plus the fair market
value of any property received upon such sale, exchange, redemption or other
taxable disposition of a New Note (other than in respect of accrued interest
thereon) and (ii) the holder's adjusted tax basis in such debt instrument (other
than in respect of accrued interest thereon). Subject to the possible
application of the market discount rules discussed below, such gain or loss will
be capital gain or loss and would be long-term capital gain or loss if the New
Notes were held by the holder for the applicable holding period at the time of
such sale or other disposition.
MARKET DISCOUNT
Except as discussed below, gain recognized on the disposition of New Notes
having accrued market discount (including any accrued market discount that would
be carried over thereto from the Senior Discount Notes, if the Old Notes
exchanged therefor were acquired in the Private Placement and the Private
Placement constituted a recapitalization) will be treated as ordinary income,
and not capital gain, to the extent of the accrued market discount, provided the
amount of market discount thereon exceeds a de minimis amount. In general, upon
the disposition of a "market discount" bond, any gain recognized by a holder is
treated as ordinary income to the extent of accrued market discount thereon.
Market discount is defined generally as the excess of (i) the "stated redemption
price at maturity" of a debt obligation less any unamortized OID over (ii) the
tax basis of the debt obligation in the hands of the holder immediately after
its acquisition.
If a holder of New Notes having accrued market discount disposes of such
New Notes in any transaction other than a sale, exchange or redemption (e.g., a
gift), such holder will be deemed to have realized an amount equal to the
80
<PAGE>
fair market value of such New Notes and will be required to recognize as
ordinary income any accrued market discount thereon. See "Sale or Redemption"
above for consequences of a sale, exchange or redemption. Partial principal
payments (if any) on such New Notes also would be includable as ordinary income
to the extent of any accrued market discount on such New Notes. A holder of New
Notes having accrued market discount also may be required to defer the deduction
of all or a portion of the interest on any indebtedness incurred or maintained
to purchase or carry such New Notes until they are disposed of in a taxable
transaction.
A holder of New Notes having accrued market discount may elect to include
the market discount in income as it accrues. This election would apply to all
market discount obligations acquired by the electing holder on or after the
first day of the first taxable year to which the election applies and may be
revoked only with the consent of the Service. If a holder of New Notes elects to
include market discount in income, the above-discussed rules with respect to
ordinary income recognition resulting from sale and certain other disposition
transactions and to deferral of interest deductions would not apply.
BOND PREMIUM
If the initial tax basis of a holder in any New Notes exceeds the "amount
payable on maturity" (such excess being the "bond premium"), the holder may
elect to amortize the bond premium over the period from the acquisition date of
such New Notes to their maturity date (or an earlier call date, if using such
earlier date would result in a smaller amortization deduction) and, except as
Treasury Regulations may otherwise provide, reduce the amount of interest
included in income in respect of such New Notes by such amount.
A holder who elects to amortize bond premium must reduce his adjusted basis
in such New Notes by the amount of such allowable amortization. An election to
amortize bond premium would apply to amortizable bond premium on all taxable
bonds held at or acquired after the beginning of the holder's taxable year as to
which the election is made, and may be revoked subsequently only with the
consent of the Service.
BACKUP WITHHOLDING
Under the Code, a holder of Old Notes or New Notes may be subject, under
certain circumstances, to "backup withholding" at a 31% rate with respect to
payments of interest or the gross proceeds from the sale, exchange or redemption
of such notes. This withholding generally applies only if the holder (i) fails
to furnish his social security or other taxpayer identification number ("TIN")
within a reasonable time after the request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report properly interest or dividends, or (iv) fails, under
certain circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is his correct number and that he is not subject
to backup withholding. Any amount withheld from a payment to a holder under the
backup withholding rules is allowable as a credit against such holder's federal
income tax liability, provided that the required information is furnished to the
Service. Holders of Old Notes and New Notes should consult their tax advisors as
to their qualification for exemption from withholding and the procedure for
obtaining such an exemption.
81
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales of such
New Notes. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. G-I Holdings has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale.
G-I Holdings will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, G-I Holdings will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. G-I Holdings has agreed to pay all expenses
incident to the Exchange Offer (including the reasonable fees and expenses of
Cahill Gordon and Reindel, counsel to Bear, Stearns & Co. Inc., the Dealer
Manager of the Private Placement) other than commissions or concessions of any
brokers or dealers and will indemnify holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
New Notes will be passed upon for G-I Holdings by Weil, Gotshal & Manges LLP (a
limited liability partnership including professional corporations), New York,
New York. Weil, Gotshal & Manges LLP has from time to time represented, and
continues to represent, Bear, Stearns & Co. Inc., the Dealer Manager of the
Private Placement, in connection with various legal matters. Weil, Gotshal &
Manges LLP has from time to time represented, and may continue to represent, GAF
and certain of its affiliates (including G-I Holdings, BMCA and ISP) in
connection with certain legal matters.
EXPERTS
The consolidated financial statements and schedules of G-I Holdings as of
December 31, 1994 and 1995 and the consolidated statements of income,
shareholder's equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995 included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
. Page
----
<S> <C>
Report of Independent Public Accountants .......................................... F-2
Consolidated Statements of Income for the three years ended December 31, 1995
and the quarters ended April 2, 1995 and March 31, 1996 (unaudited) ............. F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995 and as of March
31, 1996 (unaudited) ............................................................ F-4
Consolidated Statements of Cash Flows for the three
years ended December 31, 1995 and the quarters ended April 2, 1995 and
March 31, 1996 (unaudited) ...................................................... F-5
Consolidated Statements of Shareholder's Equity (Deficit) for the three years
ended December 31, 1995 and the quarters ended April 2, 1995 and
March 31, 1996 (unaudited) ...................................................... F-7
Notes to Consolidated Financial Statements ........................................ F-8
Supplementary Data (unaudited):
Quarterly Financial Data (unaudited) ............................................. F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To G-I Holdings Inc.:
We have audited the accompanying consolidated balance sheets of G-I
Holdings Inc. (a Delaware corporation and a wholly-owned subsidiary of GAF
Corporation) and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, shareholder's equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, appearing on
pages F-3 to F-25 of this Prospectus, present fairly, in all material respects,
the financial position of G-I Holdings Inc. and subsidiaries as of December 31,
1994 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 6, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended
------------------------
Year Ended December 31, April 2, March 31,
------------------------------------------ 1995 1996
1993 1994 1995 (Unaudited) (Unaudited)
---------- ---------- ---------- -------- --------
(Thousands)
<S> <C> <C> <C> <C> <C>
Net sales .................................... $1,063,869 $1,150,653 $1,330,423 $306,433 $340,695
---------- ---------- ---------- -------- --------
Costs and expenses:
Cost of products sold ....................... 688,179 749,882 876,188 205,445 225,876
Selling, general and administrative ......... 241,264 243,347 269,977 61,030 69,918
Provision for restructuring ................. 13,827 -- -- -- --
Goodwill amortization ....................... 14,098 14,066 13,995 3,477 3,598
---------- ---------- ---------- -------- --------
Total costs and expenses ................... 957,368 1,007,295 1,160,160 269,952 299,392
---------- ---------- ---------- -------- --------
Operating income ............................. 106,501 143,358 170,263 36,481 41,303
Interest expense ............................. (113,136) (122,644) (145,551) (35,085) (37,799)
Equity in earnings of joint venture .......... 2,051 2,034 5,413 450 1,414
Other income, net ............................ 41,101 42,650 34,473 7,511 12,680
---------- ---------- ---------- -------- --------
Income from continuing operations
before income taxes and
extraordinary items ......................... 36,517 65,398 64,598 9,357 17,598
Income taxes:
Current year provision ...................... (12,626) (27,310) (20,729) (3,636) (6,683)
Adjustment of deferred tax liability for
change in tax rate ......................... (2,215) -- -- -- --
Minority interest in income of subsidiary .... (5,737) (8,640) (12,306) (2,894) (3,496)
---------- ---------- ---------- -------- --------
Income from continuing operations before
extraordinary items ........................ 15,939 29,448 31,563 2,827 7,419
Discontinued operation:
Income (loss) from discontinued operation,
net of income taxes ........................ (1,533) (201) 1,265 (29) (300)
---------- ---------- ---------- -------- --------
Income before extraordinary items ............ 14,406 29,247 32,828 2,798 7,119
Extraordinary items, net of income tax
benefits of $733 and $5,016, respectively ... -- (1,237) -- -- (8,186)
---------- ---------- ---------- -------- --------
Net income (loss) ............................ $ 14,406 $ 28,010 $ 32,828 $ 2,798 $ (1,067)
========== ========== ========== ======== =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-3
<PAGE>
G-I HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------- March 31, 1996
1994 1995 (Unaudited)
---------- ---------- --------------
(Thousands)
<S> <C> <C> <C>
Current Assets:
Cash ........................................................................ $ 87,942 $ 67,987 $ 48,575
Investments in trading securities ........................................... 59,202 23,331 20,589
Investments in available-for-sale securities ................................ 14,972 164,804 137,239
Investments in held-to-maturity securities .................................. -- 15,017 16,693
Restricted cash ............................................................. 24,484 -- --
Accounts receivable, trade, less reserve of $4,334, $6,283 and $6,371 ....... 58,030 74,548 90,275
Accounts receivable, other .................................................. 36,145 36,750 74,889
Insurance receivable ........................................................ 65,983 15,226 20,711
Inventories ................................................................. 157,274 175,486 189,955
Deferred income tax benefits ................................................ 43,220 42,627 42,627
Other current assets ........................................................ 8,633 11,063 11,012
---------- ---------- ----------
Total Current Assets ...................................................... 555,885 626,839 652,565
Investment in limited partnership ............................................ 450,000 450,000 450,000
Property, plant and equipment, net ........................................... 658,240 708,883 708,960
Excess of cost over net assets of businesses acquired, net of
accumulated amortization of $82,376, $96,371 and $99,969 .................... 469,832 477,923 472,929
Insurance receivable ......................................................... 158,571 185,216 177,624
Receivable from parent company ............................................... 8,709 8,662 8,646
Net assets of discontinued operation ......................................... 14,783 13,582 13,504
Other assets ................................................................. 96,081 89,769 83,586
---------- ---------- ----------
Total Assets ................................................................. $2,412,101 $2,560,874 $2,567,814
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Short-term debt ............................................................. $ -- $ 36,199 $ 22,450
Current maturities of long-term debt ........................................ 3,735 9,387 3,432
Loan payable to parent company .............................................. 1,800 -- --
Accounts payable ............................................................ 87,465 95,053 95,453
Accrued liabilities ......................................................... 92,203 106,080 111,769
Reserve for asbestos claims ................................................. 137,714 84,441 76,262
Dividends payable to parent company ......................................... 1,000 191 145
Income taxes ................................................................ 3,928 5,487 6,696
---------- ---------- ----------
Total Current Liabilities ................................................. 327,845 336,838 316,207
---------- ---------- ----------
Long-term debt less current maturities ....................................... 1,422,207 1,550,347 1,589,593
---------- ---------- ----------
Deferred taxes ............................................................... 81,929 89,931 91,281
---------- ---------- ----------
Reserve for asbestos claims .................................................. 320,586 297,439 283,313
---------- ---------- ----------
Other liabilities ............................................................ 162,521 174,429 170,738
---------- ---------- ----------
Minority interest in subsidiary .............................................. 112,804 113,597 117,603
---------- ---------- ----------
Commitments and Contingencies
Shareholder's Equity (Deficit):
Common stock, $.01 par value per share; 1,000 shares authorized:
100 shares issued and outstanding .......................................... -- -- --
Additional paid-in capital .................................................. 49,969 50,129 50,338
Excess of purchase price over the adjusted historical cost of the
predecessor company shares owned by GAF's stockholders ..................... (72,605) (72,605) (72,605)
Retained earnings ........................................................... 735 6,213 4,146
Cumulative translation adjustment and other ................................. 6,110 14,556 17,200
---------- ---------- ----------
Shareholder's Equity (Deficit) ............................................. (15,791) (1,707) (921)
---------- ---------- ----------
Total Liabilities and Shareholder's Equity (Deficit) ......................... $2,412,101 $2,560,874 $2,567,814
========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
-----------------------
Year Ended December 31, April 2, March 31,
----------------------------------- 1995 1996
1993 1994 1995 (Unaudited) (Unaudited)
--------- --------- --------- -------- --------
(Thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents, beginning of period ............... $ 107,927 $ 107,433 $ 147,144 $147,144 $ 91,318
--------- --------- --------- -------- --------
Cash provided by (used in) operating activities:
Net income (loss) ........................................... 14,406 28,010 32,828 2,798 (1,067)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Non-cash extraordinary charge ............................. -- 1,237 -- -- 8,143
(Income) loss from discontinued operation ................. 1,533 201 (1,265) 29 300
Depreciation .............................................. 43,202 49,549 56,212 13,357 14,883
Goodwill amortization ..................................... 14,098 14,066 13,995 3,477 3,598
Deferred income taxes ..................................... 7,582 18,698 10,626 518 (1,740)
Non-cash interest charges ................................. 45,773 65,912 81,797 19,891 18,801
Provision for restructuring ............................... 13,827 -- -- -- --
Payments of asbestos claims, net ............................ (49,234) (74,895) (60,395) (16,441) (22,212)
(Increase) decrease in working capital items ................ (4,692) (27,351) (14,341) (59,143) (43,409)
(Increase) decrease in other assets ......................... 5,543 178 1,560 (5,574) 3,929
Increase (decrease) in other liabilities .................... (13,513) (9,739) 928 (4,203) (2,401)
Change in cumulative translation adjustment ................. (5,070) 6,694 5,561 7,979 (2,307)
Change in minority interest in subsidiary ................... 4,517 10,252 13,663 4,786 3,046
Other, net .................................................. 4,885 2,056 4,735 (921) 1,364
--------- --------- --------- -------- --------
Net cash provided by (used in) continuing
operations ................................................. 82,857 84,868 145,904 (33,447) (19,072)
Net cash provided by (used in) discontinued
operation .................................................. 1,266 (3) 2,466 110 (222)
--------- --------- --------- -------- --------
Net cash provided by (used in) operating activities ......... 84,123 84,865 148,370 (33,337) (19,294)
--------- --------- --------- -------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions ....................... (81,821) (85,377) (93,045) (12,048) (14,756)
Purchases of available-for-sale securities .................. -- -- (484,323) (97,515) (49,261)
Purchases of held-to-maturity securities .................... -- -- (23,437) (3,285) (17,116)
Designation of trading securities (to)/from
available-for-sale securities .............................. -- (16,701) 19,139 (2,697) --
Proceeds from sales of available-for-sale securities ........ -- -- 319,990 42,031 85,445
Proceeds from held-to-maturity securities ................... -- -- 8,420 -- 15,439
--------- --------- --------- -------- --------
Net cash provided by (used in) investing activities ......... (81,821) (102,078) (253,256) (73,514) 19,751
--------- --------- --------- -------- --------
Cash provided by (used in) financing activities:
Proceeds (repayments) from sales of accounts
receivable ................................................. 62,769 11,165 11,687 2,949 (12,055)
Proceeds from termination of interest rate swap
agreements ................................................. 25,069 -- -- -- --
Increase (decrease) in short-term debt ...................... 10,637 (12,848) 36,199 23,695 (14,081)
Proceeds from issuance of long-term debt .................... 407,285 196,460 40,744 -- --
Other increase (repayments) of long-term debt, net .......... (484,792) (97,252) (16,817) 6,712 5,001
Increase (decrease) in loan from parent company ............. -- 1,800 (1,800) (1,800) --
(Increase) decrease in restricted cash ...................... -- (24,484) 24,484 16,503 --
Financing fees and expenses ................................. (13,474) (7,210) (392) (100) (276)
Subsidiary's repurchases of common stock .................... -- (327) (16,614) (2,445) (464)
Dividends to minority shareholders of subsidiary ............ (969) (969) -- -- --
Dividends paid to parent company ............................ (5,176) (8,130) (28,159) (24,010) (1,046)
Other, net .................................................. (4,145) (1,281) (272) (84) 310
--------- --------- --------- -------- --------
Net cash provided by (used in) financing activities ......... (2,796) 56,924 49,060 21,420 (22,611)
--------- --------- --------- -------- --------
Net change in cash and cash equivalents ...................... (494) 39,711 (55,826) (85,431) (22,154)
--------- --------- --------- -------- --------
Cash and cash equivalents, end of period ..................... $ 107,433 $ 147,144 $ 91,318 $ 61,713 $ 69,164
========= ========= ========= ======== ========
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Quarter Ended
-----------------------
Year Ended December 31, April 2, March 31,
----------------------------------- 1995 1996
1993 1994 1995 (Unaudited) (Unaudited)
--------- --------- --------- -------- --------
(Thousands)
<S> <C> <C> <C> <C> <C>
Supplemental Cash Flow Information
Effect on cash from (increase) decrease in working
capital items(1):
Accounts receivable ....................................... $ 1,015 $(27,762) $ (9,217) $(44,250) $(41,668)
Inventories ............................................... 6,096 (11,610) (2,939) (14,048) (14,239)
Other current assets ...................................... 1,438 1,983 2,713 (7,978) 93
Accounts payable .......................................... 2,836 20,221 (12,360) 566 374
Accrued liabilities ....................................... (3,296) (11,884) 7,469 5,777 5,945
Income taxes .............................................. (12,781) 1,701 (7) 790 6,086
-------- -------- -------- -------- --------
Net effect on cash from (increase) decrease in
working capital items ................................... $ (4,692) $(27,351) $(14,341) $(59,143) $(43,409)
======== ======== ======== ======== ========
Cash paid during the period for:
Interest (net of amount capitalized)(2) .................... $ 57,571 $ 56,399 $ 63,182 $ 17,560 $ 18,632
Income taxes paid (refunded) ............................... 18,272 5,943 (842) 2,823 1,953
</TABLE>
- ----------
(1) Working capital items exclude cash, restricted cash, short-term
investments, short-term debt and payables to parent company. Working
capital acquired in connection with acquisitions is reflected within
"Capital expenditures and acquisitions." The effects of reclassifications
between noncurrent and current assets and liabilities are excluded from the
amounts shown above. In addition, the (increase) decrease in accounts
receivable shown above does not reflect the cash proceeds from the sales of
certain of the Company's accounts receivable (see Note 7); such proceeds
are reflected in cash from financing activities.
(2) Includes interest paid on non-recourse Partnership debt of $33, $27.2 and
$32.1 million for 1993, 1994 and 1995, respectively, and $8 million for
each of the first quarters of 1995 and 1996 (see Note 4).
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
<TABLE>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
<CAPTION>
Capital
Stock And Cumulative Retained
Additional Translation Earnings
Paid-in Adjustment (Accumulated
Capital And Other Deficit)
------------ ------------ -----------
(Thousands)
<S> <C> <C> <C>
December 31, 1992 ................................................... $50,000 $ 7,426 $(27,375)
Net income ......................................................... -- -- 14,406
Translation adjustment ............................................. -- (5,070) --
Dividends to parent company ........................................ -- -- (5,176)
Change in unrealized gain on investments
held by insurance subsidiary ...................................... -- (1,863) --
Adjustment of unfunded pension liability ........................... -- (2,357) --
------- ------- --------
December 31, 1993 ................................................... $50,000 $(1,864) $(18,145)
Net income ......................................................... -- -- 28,010
Translation adjustment ............................................. -- 6,694 --
Dividends to parent company ........................................ -- -- (9,130)
Unrealized loss on available-for-sale
securities, net of $517 income tax benefit ........................ -- (886) --
Change in unrealized gain on investments
held by insurance subsidiary ...................................... -- (594) --
Adjustment of unfunded pension liability ........................... -- 2,760 --
Effect of subsidiary's purchases of treasury stock ................. (31) -- --
------- ------- --------
December 31, 1994 ................................................... $49,969 $ 6,110 $ 735
Net income ......................................................... -- -- 32,828
Translation adjustment ............................................. -- 5,561 --
Dividends to parent company ........................................ -- -- (27,350)
Change in unrealized gains on available-for-sale
securities, net of $1,503 income tax effect ....................... -- 2,636 --
Adjustment of unfunded pension liability ........................... -- 249 --
Effect of exercises of subsidiary's stock options .................. 160 -- --
------- ------- --------
December 31, 1995 ................................................... $50,129 $14,556 $ 6,213
Net loss (unaudited) ............................................... -- -- (1,067)
Translation adjustment (unaudited) ................................. -- (2,307) --
Dividends to parent company (unaudited) ............................ -- -- (1,000)
Change in unrealized gains on available-for-sale
securities, net of $2,927 income tax effect (unaudited) ........... -- 4,951 --
Effect of exercises of subsidiary's stock options (unaudited) ...... 123 -- --
Effect of subsidiary's issuance of stock and options
as incentives (unaudited) ......................................... 86 -- --
------- ------- --------
March 31, 1996 (unaudited) .......................................... $50,338 $17,200 $ 4,146
======= ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-7
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G-I Holdings Inc. (the "Registrant" or "G-I Holdings") is a wholly owned
subsidiary of GAF Corporation ("GAF"). As used herein, the term "Company" refers
to the Registrant and its subsidiaries. Financial information with regard to the
three months ended April 2, 1995 and March 31, 1996 is unaudited and, in the
opinion of management, contains all adjustments necessary to present fairly the
financial position and the results of operations and cash flows of the Company
for the periods presented. All adjustments are of a normal recurring nature. The
results of operations for these periods are not necessarily indicative of the
results to be expected for the full year.
The Company, through its subsidiaries, International Specialty Products
Inc. ("ISP"), Building Materials Corporation of America ("BMCA") and U.S. Intec,
Inc. ("USI"), is engaged principally in the manufacture and sale of specialty
chemicals and building materials. See Notes 13 and 14 for a description of and
financial information concerning the Company's industry segments and foreign and
domestic operations.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All subsidiaries are consolidated and intercompany transactions have been
eliminated.
Financial Statement Estimates
The preparation of financial statements requires management to make certain
estimates. Actual results could differ from those estimates. In the opinion of
management, the financial statements herein contain all adjustments necessary to
present fairly the financial position and the results of operations and cash
flows of the Company for the periods presented. All adjustments are of a normal
recurring nature. The Company has a policy to review the recoverability of
long-lived assets and identify and measure any potential impairments. The
Company does not anticipate any changes in management estimates that would have
a material impact on operations, liquidity or capital resources, subject to the
matters discussed in Note 15 (Commitments and Contingencies).
Short-term Investments
The Company carries its short-term investments at market value. For
securities classified as "trading" (including short positions), unrealized gains
and losses are reflected in income. For securities classified as
"available-for-sale", unrealized gains (losses), net of income tax effect, are
included in a separate component of shareholder's equity (deficit), "Cumulative
translation adjustment and other," and amounted to ($.9), $1.8 and $6.7 million
as of December 31, 1994 and 1995 and March 31, 1996, respectively. Investments
classified as held-to-maturity securities are carried at amortized cost in the
Consolidated Balance Sheet.
"Other income, net" includes $6.5, $17.6, $3.2 and $7.2 million of net
realized and unrealized gains and losses on securities in 1994 and 1995 and the
first three months of 1995 and 1996, respectively, and $12.5 million of net
realized gains in 1993. The determination of cost in computing realized gains
and losses is based on the specific identification method.
During the fourth quarter of 1995, the Company redesignated certain equity
securities held long (which are offsets against short positions in certain other
securities), with a fair market value of $24.4 million, as "trading" and
recorded unrealized gains on such securities, through the date of redesignation,
in the amount of $2.6 million as "Other income."
As of December 31, 1994 and 1995 and March 31, 1996, the market value of
the Company's equity securities held long was $74.2, $189.2 and $158.4 million,
respectively, and the Company had $13.1, $27.9 and $22.2 million, respectively,
of short positions in common stocks. As of December 31, 1994 and 1995 and March
31, 1996, the market value of the Company's held-to-maturity securities was $0,
$15 and $16.7 million, respectively. The market values referred to above were
based on quotations as reported by various stock exchanges and major
broker-dealers. With respect to its investments in securities, the Company is
exposed to the risk of market loss.
The Company considers its short-term investments in equity and debt
securities classified as "trading" to be cash equivalents.
F-8
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
BMCA, an indirect subsidiary of the Registrant, deposited $100 million of
proceeds from the issuance in June 1994 of 11 3/4% Senior Deferred Coupon Notes
due 2004 (the "BMCA Notes") (see Note 10) into a segregated account maintained
by the trustee under the related indenture (the "Account"). Funds in the Account
could be invested only in certain permitted investments and could be used,
subject to certain exceptions, only to fund BMCA's assumed asbestos liabilities.
As of December 31, 1994, $24.5 million remained in the Account and was invested
in Eurodollar deposits purchased with a maturity of less than three months. The
Account was reduced to a zero balance in 1995.
Inventories
Inventories are stated at the lower of cost or market. The LIFO (last-in,
first-out) method is utilized to determine cost for a substantial portion of the
Company's domestic inventories. All other inventories are determined principally
based on the FIFO (first-in, first-out) method.
Property, Plant and Equipment
Depreciation is computed principally on the straight-line method based on
the estimated economic lives of the assets. Certain interest charges are
capitalized during the period of construction as part of the cost of property,
plant and equipment.
New Accounting Standards
In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
relating to accounting for impairment of long-lived assets, which is required to
be adopted in 1996. The Company does not anticipate that the implementation of
SFAS No. 121 will have a material effect on the Company's results of operations
or financial position.
Foreign Exchange Contracts
The Company enters into forward foreign exchange instruments with
off-balance-sheet risk in order to hedge a portion of both its borrowings
denominated in foreign currency and its firm or anticipated purchase commitments
related to the operations of foreign affiliates. Gains and losses on instruments
used to hedge firm purchase commitments are deferred, and amortization is
included in the measurement of the foreign currency transactions hedged. Gains
and losses on instruments used to hedge anticipated purchases are recognized
within "Other income, net."
Forward contract agreements require the Company and the counterparty to
exchange fixed amounts of U.S. dollars for fixed amounts of foreign currency on
specified dates. The market value of such contracts varies with changes in the
market exchange rates. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the forward contract agreements.
However, the Company does not anticipate nonperformance by the counterparties.
The Company does not generally require collateral or other security to support
these financial instruments.
As of December 31, 1994 and 1995 and March 31, 1996, the equivalent dollar
fair value of outstanding forward foreign exchange contracts was $110, $183.1
and $180.7 million, respectively, and the amount of deferred gains and losses on
such instruments was immaterial at each of such dates. All forward contracts are
in major currencies with highly liquid markets and mature within one year. The
Company uses quoted market prices obtained from major financial institutions to
determine the market value of its outstanding forward exchange contracts. The
U.S. dollar equivalent fair value of foreign exchange contracts outstanding as
of March 31, 1996 as a hedge of non-local currency loans was $26.8 million,
representing 100% of the Company's foreign currency exposure with respect to
such loans.
The Company continually monitors its risk from the effect of foreign
currency fluctuations on its operations and on the derivative products used to
hedge its risk. The Company utilizes real-time, on-line foreign exchange data
and news as well as evaluation of economic information provided by financial
institutions. Mark-to-market valuations are made on a regular basis. Hedging
strategies are approved by senior management before being implemented.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries, other than those located in
highly inflationary countries, are translated at year-end exchange rates. The
effects of these translation adjustments are reported in a separate
F-9
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
component of shareholder's equity (deficit), "Cumulative translation adjustment
and other," and amounted to $8.5, $14.1 and $11.8 million as of December 31,
1994 and 1995 and March 31, 1996, respectively. Income and expenses are
translated at average exchange rates prevailing during the year. Exchange gains
and losses arising from transactions denominated in a currency other than the
functional currency of the entity involved, and translation adjustments of
subsidiaries in countries with highly inflationary economies, are included in
"Other income, net."
Excess of Purchase Price Over the Adjusted Historical Cost of Predecessor
Company Shares
Shareholder's equity (deficit) reflects a reduction of $72.6 million which
arose from a management-led buyout in March 1989 of the predecessor company to
GAF (the "Acquisition"), because certain members of the management group owned
shares of the predecessor company's common stock before the Acquisition and own
shares of GAF after the Acquisition. Accordingly, a step-up in asset values to
fair value as required by the purchase method of accounting (which was applied
to the Acquisition) does not apply to their shares.
Excess of Cost Over Net Assets of Businesses Acquired ("Goodwill")
Goodwill, which arose principally from the Acquisition, is amortized on the
straight-line method over a period of approximately 40 years. The Company
believes that the goodwill is recoverable. The primary financial indicator to
assess recoverability of goodwill is operating income before amortization of
goodwill. The assessment is based on an undiscounted analysis.
Debt Issuance Costs
Debt issuance costs are amortized to expense over the life of the related
debt.
Interest Rate Swaps
Gain (losses) on interest rate swaps are deferred and amortized as a
reduction (increase) of interest expense over the remaining life of the debt
issue with respect to which the swaps were entered.
Research and Development
Research and development costs are charged to operations as incurred and
amounted to $23.7, $22.9, $25, $5.7 and $6.9 million for 1993, 1994 and 1995 and
the first three months of 1995 and 1996, respectively.
Investment in Joint Venture
ISP has a 50% ownership in GAF-Huls Chemie GmbH ("GAF-Huls"), a joint
venture which operates a chemical manufacturing plant in Germany, which is
accounted for by the equity method. ISP's equity in the net assets of GAF-Huls
was $33.5, $41.2 and $36.3 million as of December 31, 1994 and 1995 and March
31, 1996, respectively, and is included in "Other assets." Dividends received by
ISP from GAF-Huls totaled $5.4, $4.4, $.3, $0 and $5.1 million for 1993, 1994
and 1995 and the first three months of 1995 and 1996, respectively.
Warranty Claims
BMCA provides certain limited warranties covering most of its residential
roofing products for periods ranging from 20 to 40 years. BMCA and USI also
offer limited warranties and guaranties of varying durations on their commercial
roofing products; income from warranty contracts related to commercial roofing
products is recognized over the life of the agreements. Included in "Accrued
liabilities" and "Other liabilities" in the aggregate as of December 31, 1994
and 1995 and March 31, 1996 are $41.6, $49.5 and $49.1 million, respectively,
for estimated product warranty claims. The Company believes that the reserves
established for estimated probable future warranty claims are adequate.
Asbestos Liability
In 1992, the Company recorded a provision of $669.9 million (before related
deferred income tax benefits of $122.5 million and estimated recoveries of
$347.4 million from products liability insurance policies and other liabilities
previously recorded) representing the Company's then estimate of its total
liabilility on an undiscounted basis in connection with all pending
asbestos-related bodily injury claims, and all future asbestos-related bodily
F-10
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
injury claims anticipated to be resolved over the 10-year period of the
Settlement described in "Business--Legal Proceedings," which is incorporated
herein by reference. Beginning in the fourth quarter of 1993, because of
developments which enabled the Company to conclude that the timing and amounts
of future cash outflows related to certain components of the asbestos-related
liability were reliably determinable, the Company began to reflect certain
components of the asbestos-related liability on a discounted basis. The
aggregate undiscounted liability as of March 31, 1996, before estimated
recoveries from products liability insurance policies, was $401.9 million and,
after reflecting a discount of $42.3 million with respect to certain components
of the asbestos-related liability, was $359.6 million (before estimated present
value of recoveries from products liability insurance policies of $185.6 million
and related deferred tax benefits of $66.8 million). See "Business--Legal
Proceedings" for further discussion with respect to such liabilities.
The discount rate (6.25%) used to discount the affected components of the
asbestos-related liability was equivalent to the interest rate in October 1993
for securities with a 10-year maturity backed by U.S. Government agencies. As of
March 31, 1996, the expected net payments (receipts) for the remainder of 1996
and the years 1997, 1998, 1999 and 2000 are $50.2, $34, $(9.8), $26.8 and $31.7
million, respectively, and the aggregate expected payments to be made after 2000
are $72.1 million.
Environmental Liability
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters. The Company estimates
that its liability in respect of such environmental matters, and certain other
environmental compliance expenses, as of March 31, 1996 is $30 million, before
reduction for insurance recoveries reflected on its balance sheet of $12.5
million. The Company's liability is reflected on an undiscounted basis. See
"Business--Legal Proceedings--Environmental Litigation" for further discussion
with respect to environmental liabilities and estimated insurance recoveries.
NOTE 2. ACQUISITIONS
In October 1995, the Company acquired all the outstanding shares of USI for
a purchase price of approximately $27.5 million and assumed $35 million of USI's
indebtedness. USI manufactures commercial roofing products. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the purchase
price was allocated to the estimated fair values of the identifiable net assets
acquired, and the excess was recorded as goodwill. USI's results of operations,
including sales of $21.8 million for the year 1995, are included in the
Consolidated Statement of Income from the date of acquisition; the effect was
not material to consolidated operations in 1995.
In February 1993, ISP acquired the MTM fine chemicals business, and in
March 1994, BMCA acquired the assets and certain liabilities of International
Permalite Inc. ("IPI"), a manufacturer of perlite roofing insulation products.
Such acquisitions were accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the estimated fair values of
the identifiable net assets acquired, and the excess was recorded as goodwill.
The results of such acquisitions, including IPI sales of $19.3 million for the
year 1994, are included from the dates of acquisition; the effects were not
material to consolidated operations.
NOTE 3. PROVISION FOR RESTRUCTURING
In the fourth quarter of 1993, ISP recorded a pre-tax provision of $13.8
million, primarily related to its cost reduction program announced in October
1993.
NOTE 4. INVESTMENT IN LIMITED PARTNERSHIP
In February 1990, GAF Chemicals Corporation ("GCC"), a subsidiary of the
Company, and one of its subsidiaries organized Rhone-Poulenc Surfactants and
Specialties, L.P. (the "Partnership") with an affiliate of Rhone-Poulenc Inc.
("RP") to which they contributed their respective surfactants businesses. After
the formation of the Partnership, GCC and its subsidiary borrowed $450 million
pursuant to a non-recourse loan which is secured by their interest in the
Partnership. Effective April 26, 1994, the borrowing bears a fixed interest rate
of 7.13% (see Note 10).
F-11
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's net investment in the Partnership has a net book value of $0,
represented by an asset with a carrying value of $450 million offset by the
related non-recourse Partnership debt of $450 million. Although non-recourse to
the Company, repayment of the debt is secured by a pledge of the Company's
interest in the Partnership. Income from the Partnership is included in "Other
income, net." Interest expense related to the non-recourse Partnership debt is
included in "Interest expense." Interest expense related to such debt for 1993,
1994 and 1995 and the first three months of 1995 and 1996 was $41, $27.2, $32.1,
$8.0 and $8.0 million, respectively. Income from the Partnership was $42.9,
$28.2, $32.4, $8.1 and $8.1 million for 1993, 1994 and 1995 and the first three
months of 1995 and 1996, respectively (excluding, in the case of 1994, the
effect of the settlement referred to below).
On April 26, 1994, GCC settled its outstanding disputes with RP relating to
GCC's interest in the Partnership. Under the settlement, GCC agreed to terminate
its pending litigation against RP and its interest in the Partnership and
received a partnership distribution of a portion of its interest in the
Partnership of approximately $25.5 million in April 1994. The settlement
resulted in pre-tax income of $23 million, which amount is included in "Other
income, net." The settlement also provided that GCC would receive fixed monthly
distributions until 1999 as well as a fixed final distribution in 1999.
NOTE 5. INCOME TAXES
Income tax (provision) benefit consists of the following:
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, ------------------------------
------------------------------------- April 2, 1995 March 31, 1996
1993 1994 1995 (Unaudited) (Unaudited)
-------- -------- -------- ------------- --------------
(Thousands)
<S> <C> <C> <C> <C> <C>
Federal:
Current .......................... $ (1,957) $ (1,066) $ (1,899) $ (391) $(5,534)
Deferred ......................... (6,299) (18,696) (10,304) (951) 1,640
-------- -------- -------- ------- -------
Total Federal ....................... (8,256) (19,762) (12,203) (1,342) (3,894)
-------- -------- -------- ------- -------
Foreign--current .................... (2,984) (6,019) (6,432) (2,289) (2,366)
-------- -------- -------- ------- -------
State and local:
Current .......................... (1,508) (1,384) (2,369) (418) (518)
Deferred ......................... 122 (145) 275 413 95
-------- -------- -------- ------- -------
Total state and local ............ (1,386) (1,529) (2,094) (5) (423)
-------- -------- -------- ------- -------
Income tax provision ................ $(12,626) $(27,310) $(20,729) $(3,636) $(6,683)
======== ======== ======== ======= =======
</TABLE>
The differences between the income tax provision computed by applying the
statutory Federal income tax rate to pre-tax income, and the income tax
provision reflected in the Consolidated Statements of Income, are as follows:
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, ------------------------------
------------------------------------- April 2, 1995 March 31, 1996
1993 1994 1995 (Unaudited) (Unaudited)
-------- -------- -------- ------------- --------------
(Thousands)
<S> <C> <C> <C> <C> <C>
Statutory provision ................. $(12,781) $(22,889) $(22,609) $(3,275) $(6,159)
Impact of:
Foreign operations ............... 3,566 1,788 3,538 109 225
Foreign tax credit ("FTC")
carryover ....................... -- 546 4,416 -- --
State and local taxes, net of
Federal benefit ................. (900) (994) (1,362) (3) (274)
Nondeductible goodwill
amortization .................... (4,934) (4,923) (4,712) (1,217) (1,198)
Percentage depletion ............. 1,857 1,684 1,824 489 301
Other, net. ...................... 566 (2,522) (1,824) 261 422
-------- -------- -------- ------- -------
Income tax provision ................ $(12,626) $(27,310) $(20,729) $(3,636) $(6,683)
======== ======== ======== ======= =======
</TABLE>
F-12
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------ March 31, 1996
1994 1995 (Unaudited)
--------- --------- ---------
(Thousands)
<S> <C> <C> <C>
Deferred tax liabilities related to:
Property, plant and equipment ................................. $ 133,391 $ 109,658 $ 107,846
Investment in limited partnership ............................. 131,425 131,425 131,425
-------- -------- ---------
Total deferred tax liabilities ................................... 264,816 241,083 239,271
-------- -------- ---------
Deferred tax assets related to:
Net operating loss ("NOL") carryforwards ...................... (4,990) -- --
FTC carryforwards ............................................. (55,214) (40,495) (40,495)
Deferred income ............................................... (6,694) (19,912) (21,829)
Expenses not yet deducted for tax purposes:
Reserve for asbestos claims, net of estimated
insurance recoveries ........................................ (92,219) (71,990) (66,794)
All other .................................................... (66,990) (61,382) (61,499)
-------- -------- ---------
Total deferred tax assets ..................................... (226,107) (193,779) (190,617)
-------- -------- ---------
Net deferred tax liability ....................................... 38,709 47,304 48,654
Deferred tax assets reclassified as current ...................... 43,220 42,627 42,627
-------- -------- ---------
Noncurrent portion of deferred tax liability ..................... $ 81,929 $ 89,931 $ 91,281
======== ======== =========
</TABLE>
At December 31, 1995, the amounts of carryforwards available for Federal
income tax purposes were:
FTCs expiring in the year:
Thousands)
----------
1996 .................................... $15,057
1997 .................................... 11,918
1998 .................................... 7,354
1999 .................................... 6,166
-------
Deferred tax asset related to FTCs ...... $40,495
=======
Management has determined, based on the Company's history of prior earnings
(adjusted for significant nonrecurring items such as the 1992 provision for
asbestos claims) and its expectations for the future that future taxable income
will more likely than not be sufficient to utilize fully the FTCs prior to their
ultimate expiration.
G-I Holdings has entered into a Tax Sharing Agreement with GAF with respect
to the payment of Federal income taxes and certain related matters (the "G-I
Holdings Tax Sharing Agreement"). During the term of the G-I Holdings Tax
Sharing Agreement, which shall extend as long as G-I Holdings is included in a
consolidated Federal income tax return filed by GAF, G-I Holdings is obligated
to pay to GAF an amount equal to those Federal income taxes G-I Holdings would
have incurred if G-I Holdings (on behalf of itself and its domestic
subsidiaries) filed its own Federal income tax return, but, in general, not in
excess of the amount of Federal income tax GAF actually pays or is required to
pay. GAF has agreed to indemnify G-I Holdings and its domestic subsidiaries for
all tax liabilities of the GAF consolidated group other than tax liabilities
arising from the operations of G-I Holdings and its domestic subsidiaries. The
G-I Holdings Tax Sharing Agreement provides for analogous principles to be
applied to any consolidated, combined or unitary state or local income taxes.
Under the G-I Holdings Tax Sharing Agreement, GAF makes all decisions with
respect to all matters relating to taxes of the GAF consolidated group.
In connection with the Partnership, the Company has recorded a deferred tax
liability in the amount of $131.4 million. Payment of this liability (subject to
reduction to reflect utilization of the tax attributes of GAF and its
subsidiaries) is not expected earlier than 1999 under present circumstances. In
certain circumstances, including if the Company were to dispose of property
received by it in connection with its retirement from the Partnership, the
F-13
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company could be required to satisfy this liability earlier than 1999. The
Company's management believes it will have access to sufficient funds to satisfy
this liability if so required.
NOTE 6. OTHER INCOME, NET
Other income, net, consists of the following:
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, ------------------------------
------------------------------------ April 2, 1995 March 31, 1996
1993 1994 1995 (Unaudited) (Unaudited)
------- ------- ------- ------------- --------------
(Thousands)
<S> <C> <C> <C> <C> <C>
Income from the Partnership
(see Note 4) ............................ $42,920 $51,190 $32,380 $ 8,084 $ 8,074
Net realized and unrealized gains
and losses on short-term
investments ............................. 12,467 6,456 17,604 3,208 7,210
Interest and dividend income ............. 4,688 3,521 5,487 1,492 1,047
Foreign exchange gains (losses) .......... (2,368) (1,769) (96) (1,946) 1,281
Financing costs related to the sales
of accounts receivable .................. (2,629) (4,701) (6,282) (1,273) (1,598)
Workmens' compensation claims and
disability benefits related to
discontinued businesses ................. (2,355) (1,201) (293) (104) 138
Expenses of acquisition not
consummated ............................. (1,103) (317) (2,024) (50) (386)
Expenses related to the Partnership ...... (3,530) -- -- -- --
Provision for environmental remediation
of discontinued sites ................... -- (2,000) (1,500) -- --
Write-off of non-operating
fixed assets ............................ -- -- (1,623) -- --
All other, net ........................... (6,989) (8,529) (9,180) (1,900) (3,086)
------- ------- ------- ------- -------
Other income, net ........................ $41,101 $42,650 $34,473 $ 7,511 $12,680
======= ======= ======= ======= =======
</TABLE>
NOTE 7. SALES OF ACCOUNTS RECEIVABLE
In March 1993, BMCA sold its trade accounts receivable ("receivables") to a
trust, without recourse, pursuant to an agreement which provides for a maximum
of $75 million in cash to be made available to BMCA based on eligible
receivables outstanding from time to time. The agreement expires in February
1998. In June 1993, ISP sold its domestic trade accounts receivable, without
recourse, for a maximum of $25 million in cash to be made available to ISP based
on eligible domestic receivables outstanding from time to time. As of June 30,
1995, the agreement under which ISP sells its domestic trade accounts receivable
was extended for one year on substantially the same terms and conditions, and
the maximum purchase amount was increased to $27 million.
The excess of accounts receivable sold over the net proceeds received is
included in "Accounts receivable, other". The effective cost to the Company
varies with LIBOR or commercial paper rates and is included in "Other income,
net".
F-14
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. INVENTORIES
At December 31, 1994 and 1995 and March 31, 1996, $56.3, $62.4 and $56.9
million, respectively, of domestic inventories were valued using the LIFO
method. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------- March 31, 1996
1994 1995 (Unaudited)
-------- -------- --------
(Thousands)
<S> <C> <C> <C>
Finished goods .................................................... $ 93,702 $106,157 $118,253
Work in process ................................................... 30,310 28,134 30,707
Raw materials and supplies ........................................ 35,710 44,336 44,339
-------- -------- --------
Total ............................................................. 159,722 178,627 193,299
Less LIFO reserve ................................................. (2,448) (3,141) (3,344)
-------- -------- --------
Inventories ....................................................... $157,274 $175,486 $189,955
======== ======== ========
</TABLE>
NOTE 9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------- March 31, 1996
1994 1995 (Unaudited)
-------- -------- --------
(Thousands)
<S> <C> <C> <C>
Land and land improvements .......................................... $ 90,629 $ 96,352 $ 96,806
Buildings and fixtures .............................................. 108,999 123,132 129,922
Machinery and equipment (including equipment under capitalized
leases of $15,765, $22,536 and $22,235--see Note 10) ............. 572,813 622,948 644,537
Construction in progress ............................................ 62,665 69,326 53,674
--------- --------- ---------
Total ............................................................... 835,106 911,758 924,939
Less accumulated depreciation and amortization ...................... (176,866) (202,875) (215,979)
--------- --------- ---------
Property, plant and equipment, net .................................. $ 658,240 $ 708,883 $ 708,960
========= ========= =========
</TABLE>
NOTE 10. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------- March 31, 1996
1994 1995 (Unaudited)
---------- ---------- ----------
(Thousands)
<S> <C> <C> <C>
Senior Discount Notes due 1998 ..................................... $ 457,583 $ 509,833 $331,932
10% Senior Notes due February 15, 2006 ............................. -- -- 200,003
9% ISP Senior Notes due 1999 ....................................... 200,000 200,000 200,000
113 @ 4% BMCA Senior Deferred Coupon Notes due 2004 ................ 185,445 207,814 213,919
Borrowings under revolving credit facilities ....................... 45,000 65,212 76,633
Industrial revenue bonds with various interest
rates and maturity dates to 2012 ................................ 21,455 19,625 19,625
Obligations on mortgaged properties ................................ 44,700 45,764 45,818
Obligations under capital leases (Note 15) ......................... 21,759 61,486 55,095
Non-recourse debt (Note 4) ......................................... 450,000 450,000 450,000
---------- ---------- ----------
Total .............................................................. 1,425,942 1,559,734 1,593,025
Less current maturities ............................................ (3,735) (9,387) (3,432)
---------- ---------- ----------
Long-term debt less current maturities ............................. $1,422,207 $1,550,347 $1,589,593
========== ========== ==========
</TABLE>
In October 1993, G-I Holdings issued Senior Discount Notes due 1998 (the
"Senior Discount Notes") for gross proceeds of $400 million. The Senior Discount
Notes have a zero-coupon, accruing interest until paid in full at
F-15
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
maturity, and were sold at a discounted issue price representing a yield to
maturity of 11.125%. The net proceeds were $386.5 million. In February 1996, G-I
Holdings completed the exchange of $189.3 million in accreted value of its
outstanding Senior Discount Notes, representing approximately 35% of the total
issue, for $200 million of its new Senior Notes due February 15, 2006 (the
"Senior Notes"), which bear interest payable in cash at the rate of 10% per
annum. In connection therewith, the Company recorded an extraordinary loss of
$8.2 million, net of related income tax benefit of $5 million. In the event of a
Change of Control (as defined), holders of the Senior Discount Notes have the
right to require G-I Holdings to purchase the Senior Discount Notes at a price
of 101% of Accreted Value, and G-I Holdings has the right to redeem the Senior
Discount Notes at Accreted Value plus the Applicable Premium (as defined). In
addition, in such event, the holders of the Senior Notes have the right to
require G-I Holdings to purchase the Senior Notes at a price of 101% of the
principal amount plus accrued and unpaid interest, and G-I Holdings has the
right to redeem the Senior Notes at the principal amount thereof plus the
Applicable Premium (as defined) and accrued and unpaid interest. Under the
indentures related to the Senior Discount Notes and the Senior Notes, the
incurrence of additional debt and the issuance of preferred stock by G-I
Holdings, ISP or BMCA would be restricted unless, subject to certain exceptions,
their respective ratios of consolidated income before income taxes, interest,
depreciation and amortization expense to their consolidated interest expense (as
defined) for the most recently completed four fiscal quarters is at least 2 to
1. For the four quarters ended March 31, 1996, ISP and BMCA were in compliance
with such test, and such ratio was 2.14 to 1 for G-I Holdings.
In June 1994, BMCA issued $310 million in principal amount of the BMCA
Notes for net proceeds of approximately $169.3 million. The BMCA Notes will
accrete to face value on July 1, 1999 and cash interest will accrue from and
after that date. Holders of the BMCA Notes have the right to require BMCA to
purchase the BMCA Notes at a price of 101% of Accreted Value, and BMCA has the
right to redeem the BMCA Notes at Accreted Value plus the Applicable Premium (as
defined), together with any accrued and unpaid interest, in the event of a
Change of Control (as defined). The BMCA Notes were issued under an indenture
which places limits on the ability of BMCA and its subsidiaries to incur
additional debt, issue preferred stock, incur liens, pay certain dividends or
make certain other restricted payments and restricted investments, engage in
transactions with affiliates, and agree to certain additional limitations on
dividends and other payment restrictions affecting subsidiaries. For the four
quarters ended March 31, 1996, BMCA was in compliance with such covenants. As of
March 31, 1996, BMCA could have paid dividends of up to $37.3 million.
In connection with the BMCA Notes, BMCA entered into interest rate swap
agreements ("swaps") with banks in an aggregate ending notional principal amount
of $142 million, with a final maturity of July 1, 1999. As a result of the
swaps, the effective interest cost to BMCA for the portion of the BMCA Notes
covered by the swaps varies at a fixed spread over LIBOR. Based on the fair
value of the swaps at December 31, 1994 and 1995 and March 31, 1996, BMCA would
have incurred gains (losses) of ($3.6), $9.3 and $6.5 million, respectively,
representing the estimated amount that would be (payable)/receivable by BMCA if
the swaps were terminated at such dates. No cash interest will be paid on the
swaps until maturity.
In connection with the issuance by ISP of $200 million of 9% Senior Notes
(the "9% Notes") due 1999, ISP entered into swaps with banks in an aggregate
notional principal amount of $200 million. In 1993, ISP terminated the swaps,
resulting in gains of $25.1 million, and entered into new swaps. The gains were
deferred and are being amortized as a reduction of interest expense over the
remaining life of the 9% Notes. As a result of the new swaps, the effective
interest cost to ISP of the 9% Notes varies at a fixed spread over LIBOR. Based
on the fair value of the swaps at December 31, 1994 and 1995 and March 31, 1996,
ISP would have incurred losses of $22.1, $2.8 and $6.5 million, respectively,
representing the estimated amount that would be payable by ISP if the swaps were
terminated at such dates. The estimated fair value of the 9% Notes as of
December 31, 1994 and 1995 and March 31, 1996, was $192.6, $214.6 and $209
million, respectively.
The Company may be considered to be at risk, to the extent of the costs of
replacing such swaps at current market rates, in the event of nonperformance by
counterparties. However, since the counterparties are major financial
institutions, the credit ratings of which are continually monitored by the
Company, the risk of such nonperformance is considered by the Company to be
remote.
F-16
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In October 1994, ISP refinanced its $400 million revolving credit/letter of
credit facility and entered into a new four-year $250 million revolving
credit/letter of credit facility and a $150 million renewable one-year revolving
credit facility which has been renewed for one year (the "ISP Credit
Agreements"). Borrowings under the ISP Credit Agreements bear interest at a
floating rate (5.70% on March 31, 1996). In connection with the refinancing of
the ISP bank facility, the Company recorded an extraordinary charge of $1.2
million (after an income tax benefit of $.7 million), representing the write-off
of deferred financing fees related to the previous ISP bank credit agreement.
As of March 31, 1996, letters of credit aggregating $9.6 million were
outstanding under the ISP Credit Agreements. The ISP Credit Agreements permit
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 $60 million, of which
$2.3 million had been utilized as of March 31, 1996.
Borrowings by ISP, including those under the ISP Credit Agreements, are
subject to the application of certain financial covenants contained in such
agreements and in the indenture relating to the Notes. As of March 31, 1996, ISP
was in compliance with such covenants, and the application of such covenants
would not have restricted the amounts available for borrowing under the ISP
Credit Agreements. The ISP Credit Agreements and the indenture relating to the
9% Notes also limit the amount of cash dividends, purchases of treasury stock
and other restricted payments (as defined) by ISP. As of March 31, 1996, under
the most restrictive of such limitations, ISP could have paid dividends in the
aggregate amount of $59.5 million, of which $49 million would have been
available to G-I Holdings.
The ISP Credit Agreements and the indenture relating to the 9% Notes
contain additional affirmative and negative covenants, including restrictions on
liens, investments, transactions with affiliates, sale-leaseback transactions,
and mergers and transfers of all or substantially all of the assets of ISP or
its subsidiaries. The ISP Credit Agreements also provide for a default if there
is a change in control (as defined) of ISP.
Neither the ISP Credit Agreements nor the 9% Notes are secured by any
assets of ISP or its subsidiaries. The indenture governing the 9% Notes
provides, subject to certain exceptions, that if ISP issues any debt secured by
a lien on the stock of certain of its subsidiaries or upon any principal
property, then such notes must be equally and ratably secured.
In June 1995, BMCA's bank credit facilities were revised to provide for
increased 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 March 31, 1996, $30.4
million of letters of credit were outstanding and no amounts had been borrowed
thereunder. Under the agreements, BMCA is subject to a minimum consolidated net
worth test. As of March 31, 1996, BMCA was in compliance with such test.
USI has a revolving credit facility, providing for borrowings of up to
$29.6 million, which expires in January 1999 and is secured by, and subject to
limitations based upon values of, accounts receivable, inventories and certain
manufacturing equipment. As of March 31, 1996, loans in the amount of $29.6
million were outstanding under the facility. The interest rate on that portion
of the loans which is collateralized by accounts receivable and inventories is
at the prime rate; that portion which is collateralized by manufacturing
equipment is at a fixed rate of 7%.
In December 1995, BMCA consummated a $40 million sale-leaseback of certain
equipment located at its Chester, South Carolina roofing facility, in a
transaction accounted for as a capital lease, and the gain has been deferred.
The lessor was granted a security interest in certain equipment at the Chester
facility. The lease term extends to December 2005. In December 1994, BMCA
consummated a $20.4 million sale-leaseback of certain equipment located at its
Baltimore, Maryland roofing facility, in a transaction accounted for as a
capital lease, and the gain has been deferred. The lessor was granted a security
interest in the land, buildings, and certain other equipment at the Baltimore
facility. The proceeds were used in part to repay $12 million outstanding under
a loan obtained in 1990 which was secured by the same equipment. The lease term
extends to December 2004. In December 1993, BMCA obtained a loan of $7.3
million, which is secured by manufacturing equipment located at its Dallas
plant. The loan is being repaid over a seven-year term and has a fixed interest
rate. BMCA has three industrial revenue bond issues outstanding, which bear
interest at short-term floating rates. Interest rates on the foregoing
obligations ranged between 3.65% and 8.87% as of March 31, 1996.
F-17
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company believes that the fair value of its non-public variable rate
indebtedness approximates the book value of such indebtedness because the
interest rates on such indebtedness are at floating short-term rates. The ISP
Credit Agreements also provide for adjustments to the interest rate if there is
a change in the credit rating of ISP. With respect to the Company's publicly
traded debt securities, the Company has obtained estimates of fair values from
an independent source believed to be reliable. The estimated fair value of the
Senior Discount Notes as of December 31, 1994 and 1995 and March 31, 1996 was
$422.2, $529.5 and $345.7 million, respectively. The estimated fair value of the
Senior Notes as of March 31, 1996 was $201 million. The estimated fair value of
the BMCA Notes as of December 31, 1994 and 1995 and March 31, 1996 was $156.6,
$210.8 and $230.2 million, respectively.
The aggregate maturities of long-term debt as of March 31, 1996 for the
next five years are as follows:
Twelve Months
Ended March 31, (Thousands)
- --------------- -----------
1997 ........................................................... $ 3,432
1998 ........................................................... 4,139
1999 ........................................................... 1,062,972
2000 ........................................................... 42,617
2001 ........................................................... 6,209
In the above table, for the twelve months ended March 31, 1999, maturities
include the Senior Discount Notes at the accreted value of $331.9 million as of
March 31, 1996, the $47 million of borrowings outstanding as of March 31, 1996
under the four-year ISP Credit Agreement, based on the expiration of such ISP
Credit Agreement in October 1998, the $200 million of 9% Notes, the $450 million
of non-recourse Partnership debt (see Note 4), and the $29.6 million of
borrowings outstanding under the USI revolving credit facility, based on the
expiration of such facility in January 1999. Maturities for the twelve months
ended March 31, 2000 include $38.1 million of obligations on mortgaged
properties.
At March 31, 1996, the Company's foreign subsidiaries had total available
short-term lines of credit aggregating $39.3 million, of which $16.9 million
were unused. The weighted average interest rate on the Company's short-term
borrowings as of December 31, 1994 and 1995 and March 31, 1996 was 6.1%, 5.3%
and 4.9%, respectively.
NOTE 11. BENEFIT PLANS
Eligible, full-time employees of the Company are covered by various benefit
plans, as described below.
Defined Contribution Plan
The Company provides a defined contribution plan for eligible employees.
The Company contributes up to 7% of participants' compensation (of which, for
ISP employees, up to 4% of participants' compensation is contributed in the form
of ISP's common stock at a $.50 per share discount) and also contributes fixed
amounts, ranging from $50 to $750 per year depending on age, to the accounts of
participants who are not covered by a Company-provided postretirement medical
benefit plan. The aggregate contributions by the Company were $7.6, $8.8, $9.1,
$2.5 and $2.6 million for 1993, 1994 and 1995 and the first three months of 1995
and 1996, respectively.
Defined Benefit Plans
The Company provides a noncontributory defined benefit retirement plan for
certain hourly employees (the "Hourly Retirement Plan"). Benefits under this
plan are based on stated amounts for each year of service. The Company's funding
policy is consistent with the minimum funding requirements of ERISA.
The Company's net periodic pension cost for the Hourly Retirement Plan
included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1993 1994 1995
------- ------- -------
(Thousands)
<S> <C> <C> <C>
Service cost .......................................................... $ 803 $ 865 $ 750
Interest cost ......................................................... 1,619 1,804 1,948
Actual income on plan assets .......................................... (1,365) (1,304) (1,408)
Net deferral and amortization of unrecognized prior service
cost and actuarial losses. ......................................... 771 518 372
------- ------- -------
Net periodic pension cost ............................................. $ 1,828 $ 1,883 $ 1,662
======= ======= =======
</TABLE>
F-18
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net periodic pension cost for the Hourly Retirement Plan was $.4 and $.5
million, respectively, for the first three months of 1995 and 1996.
The following table sets forth the funded status of the Hourly Retirement
Plan:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1995
-------- --------
(Thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested .................................................................... $ 19,540 $ 24,542
Nonvested ................................................................. 3,200 3,539
-------- --------
Total accumulated benefit obligation ......................................... $ 22,740 $ 28,081
======== ========
Projected benefit obligation ................................................. $ 22,740 $ 28,081
Fair value of plan assets, primarily listed stocks and U.S. Government
securities ................................................................ (15,328) (22,406)
-------- --------
Projected benefit obligation in excess of plan assets ........................ 7,412 5,675
Unrecognized prior service cost .............................................. (2,540) (2,324)
Unrecognized net loss ........................................................ (1,768) (1,431)
-------- --------
Unfunded accrued pension cost ................................................ $ 3,104 $ 1,920
======== ========
</TABLE>
At December 31, 1995, the difference between the "Projected benefit
obligation in excess of plan assets" and the "Unfunded accrued pension cost", in
the amount of $3,755,000, was recorded by the Company as a liability, offset by
an intangible asset in the amount of $2,324,000, a reduction of shareholder's
equity in the amount of $1,290,000 and a reduction of minority interest in
subsidiary in the amount of $141,000. The foregoing amounts will be amortized to
expense over a period of approximately 15 years, as the Company continues to
fund the benefits under the Hourly Retirement Plan.
In determining the projected benefit obligation, the weighted average
assumed discount rate was 9% and 7.5% for 1994 and 1995, respectively. The
expected long-term rate of return on assets, used in determining net periodic
pension cost, was 9% for 1994 and 1995.
The Company also provides a nonqualified defined benefit retirement plan
for certain key employees. Expense accrued for this plan was $.9, $1.3, $1.5,
$.3 and $.3 million for 1993, 1994 and 1995 and the first three months of 1995
and 1996, respectively.
Income Appreciation Unit Plan
BMCA provides an Income Appreciation Unit Plan, an employee incentive
program based on the operating performance of BMCA. Expense accrued for the plan
was $1.1 million for each of 1993 and 1994 and $.2 million for 1995, and was
immaterial for each of the first three months of 1995 and 1996.
Postretirement Medical and Life Insurance
The Company provides certain medical and life insurance benefits for all
retirees who were formerly hourly employees and for certain retirees who were
formerly salaried employees. Certain hourly employees may become eligible for
benefits if they reach retirement age while working for the Company. The Company
accrues the estimated cost of such retiree benefits during covered employees'
active service periods.
During 1992, the postretirement medical and life insurance plans for
salaried employees were terminated, with certain exceptions for salaried
employees then over age 55 with 10 years of service. Retirees as of December 31,
1992 who were formerly salaried employees maintain life insurance coverage and
receive a Company subsidy of up to $800 per year towards medical coverage, with
certain exceptions. Subsequently, the Company negotiated the termination of
postretirement medical and life insurance plans for certain hourly employees,
with exceptions for hourly employees then over age 50 with 15 or more years of
service.
F-19
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table shows the components of the accrued postretirement
health care cost obligation as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1995
------- -------
(Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees, dependents and beneficiaries eligible for benefits ..... $27,055 $28,488
Active employees fully eligible for benefits ..................... 3,078 3,235
Active employees not fully eligible for benefits ................. 1,033 1,275
------- -------
Total accumulated postretirement benefit obligation ................. 31,166 32,998
Fair value of plan assets ........................................... -- --
Unrecognized prior service cost and unrecognized net gain ........... 8,275 5,228
------- -------
Accrued postretirement benefit obligation ........................... $39,441 $38,226
======= =======
</TABLE>
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1993 1994 1995
------ ------ ------
(Thousands)
<S> <C> <C> <C>
Service cost ........................................................... $ 156 $ 125 $ 82
Interest cost .......................................................... 2,732 2,254 2,372
Amortization of unrecognized prior service cost and net gain from
earlier periods ..................................................... (2) (315) (735)
------ ------ ------
Net periodic postretirement benefit cost. .............................. $2,886 $2,064 $1,719
====== ====== ======
</TABLE>
Net periodic postretirement benefit cost was $.5 and $.4 million,
respectively, for the first three months of 1995 and 1996.
For purposes of calculating the accumulated postretirement benefit
obligation, the following assumptions were made. Retirees as of December 31,
1992 who were formerly salaried employees (with certain exceptions) were assumed
to receive a Company subsidy of $800 per year. With respect to retirees who were
formerly hourly employees, most such retirees are subject to a $5,000 per person
lifetime maximum benefit. Subject to such lifetime maximum, a 14% and 8% annual
rate of increase in the Company's per capita cost of providing postretirement
medical benefits was assumed for 1996 for such retirees under and over age 65,
respectively. To the extent that the lifetime maximum benefits have not been
reached, the foregoing rates were assumed to decrease gradually to 7% and 6%,
respectively, by the year 2003 and remain at that level thereafter. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 9% and 7.5% for 1994 and 1995, respectively.
The health care cost trend rate assumption has an effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by $1,442,000 and the aggregate of
the service and interest cost components of the net periodic postretirement
benefit cost for the year 1995 by $274,000.
NOTE 12. STOCK OPTION PLAN AND STOCK APPRECIATION RIGHTS
ISP's 1991 Incentive Plan for Key Employees and Directors , as amended (the
"Plan"), authorizes the grant of options to purchase a maximum of 5,000,000
shares of ISP's common stock. In December 1995, ISP's Board of Directors
approved an amendment to the Plan, subject to approval by ISP's stockholders, to
permit the Compensation Committee of the Board of Directors to determine the
exercise price and vesting schedule of options granted under the Plan. In
December 1995, ISP granted options to certain employees to purchase 215,500
shares of ISP's common stock at an exercise price of $5.875 per share. The
difference of $5 per share between the exercise price and the fair market value
of such shares on the date of grant will be recognized as compensation expense
over the vesting period of 2-1/2 years. All other ISP employee options under
the Plan have an exercise price equal to the fair market value of such
F-20
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shares on the date of grant and become exercisable at a rate of 20% per year on
each of the first five anniversaries of the date of grant. Special vesting rules
apply to options granted to non-employee directors.
In 1993, ISP extended an offer to holders of outstanding stock options with
exercise prices ranging from $7.25 to $14.00 to exchange their existing options
for a lesser number of new options with an exercise price of $6.75.
The following is a summary of transactions pertaining to the Plan:
1993 1994 1995
---------- --------- ---------
(Number of Shares)
Outstanding January 1 ............... 1,883,649 1,228,964 2,199,716
Granted ............................. 825,509 1,321,020 1,355,510
Exercised ........................... -- -- (28,805)
Exchanged ........................... (1,177,518) -- --
Terminated .......................... (302,676) (350,268) (248,982)
---------- --------- ---------
Outstanding December 31 ............. 1,228,964 2,199,716 3,277,439
========== ========= =========
At December 31:
Exercisable ...................... 151,118 332,763 710,750
Available for grant. ............. 1,771,036 800,284 1,722,561
Option Price Range Per Share:
Outstanding ...................... $ 6.75- $6.125- $5.875-
$14.00 $14.00 $14.00
Exercised ........................ -- -- $ 6.75-
-- -- $ 7.25
Certain executive officers of the Company were granted stock appreciation
rights in 1993 and 1994 relating to GAF's common stock. Compensation expense in
connection with such stock appreciation rights is reflected in operating expense
and was immaterial for 1993, 1994 and 1995.
F-21
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 13. BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1993 1994 1995
-------- -------- --------
(Millions)
<S> <C> <C> <C>
Net sales:
ISP(1) ....................................... $ 548.3 $ 600.0 $ 689.0
Less: Intersegment sales ..................... (43.6) (42.5) (45.8)
-------- -------- --------
Net ISP sales ................................ 504.7 557.5 643.2
Building Materials ........................... 559.2 593.2 687.2
-------- -------- --------
Net sales .................................... $1,063.9 $1,150.7 $1,330.4
======== ======== ========
Operating income:
ISP .......................................... $ 65.1 $ 99.2 $ 127.1
Building Materials ........................... 41.5 44.7 45.9
Other ........................................ (.1) (.5) (2.7)
-------- -------- --------
Operating income ............................. $ 106.5 $ 143.4 $ 170.3
======== ======== ========
Identifiable assets:
ISP(2) ....................................... $1,243.3 $1,251.3 $1,312.9
Building Materials ........................... 333.6 452.3 555.5
Investment in limited partnership ............ 450.0 450.0 450.0
Net assets of discontinued operation ......... 15.0 14.8 13.6
Other(3) ..................................... 8.1 243.7 228.9
-------- -------- --------
Identifiable assets .......................... $2,050.0 $2,412.1 $2,560.9
======== ======== ========
Capital expenditures and acquisitions:
ISP .......................................... $ 62.8 $ 31.1 $ 38.9
Building Materials ........................... 19.0 54.3 26.6
Acquisition of USI ........................... -- -- 27.5
-------- -------- --------
Total capital expenditures and acquisitions .. $ 81.8 $ 85.4 $ 93.0
======== ======== ========
Depreciation:
ISP .......................................... $ 28.7 $ 32.7 $ 36.0
Building Materials ........................... 14.5 16.8 20.2
-------- -------- --------
Total depreciation ........................... $ 43.2 $ 49.5 $ 56.2
======== ======== ========
</TABLE>
- ----------
(1) ISP's sales exclude sales of GAF-Huls.
(2) ISP's identifiable assets include ISP's 50% ownership of GAF-Huls.
(3) Reflects reclassification of deferred income tax assets of BMCA, which are
reclassified as an offset to liabilities on the G-I Holdings Consolidated
Balance Sheet. Also includes intercompany receivables of ISP and BMCA
which are eliminated in consolidation. December 31, 1994 and 1995 include
$212.9 and $187.7 million, respectively, of insurance receivables of GAF
Building Materials Corporation.
F-22
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP manufactures more than 325 specialty chemicals having numerous
applications in consumer and industrial products encompassing such worldwide
markets as pharmaceuticals, hair and skin care, plastics, agricultural, coatings
and adhesives. ISP's mineral products business manufactures ceramic-coated
colored roofing granules which are sold primarily to the North American roofing
industry for use in the manufacture of asphalt roofing shingles. Over 50% of
ISP's sales of mineral products are to BMCA. ISP also manufactures filter
products and advanced materials. BMCA and USI manufacture a broad line of
asphalt roofing products and accessories for the residential and commercial
roofing markets in the United States.
NOTE 14. GEOGRAPHIC INFORMATION
Results set forth below for foreign operations represent sales and
operating income of foreign-based subsidiaries.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1993 1994 1995
-------- -------- --------
(Millions)
<S> <C> <C> <C>
Net sales:
Domestic operations(1) ................................ $ 802.4 $ 857.1 $ 986.6
Europe(2) ............................................. 167.7 187.7 218.2
Asia-Pacific .......................................... 69.3 76.6 92.1
Other foreign operations .............................. 24.5 29.3 33.5
-------- -------- --------
Net sales ............................................. $1,063.9 $1,150.7 $1,330.4
======== ======== ========
Operating income:
Domestic operations ................................... $ 68.3 $ 85.5 $ 101.1
Europe ................................................ 35.7 37.5 49.7
Asia-Pacific .......................................... 13.2 16.2 17.0
Other foreign operations .............................. 3.1 4.2 2.5
Provision for restructuring(3) ........................ (13.8) -- --
-------- -------- --------
Operating income ...................................... 106.5 143.4 170.3
Equity in earnings of joint venture ...................... 2.1 2.0 5.4
Interest expense and other, net .......................... (72.1) (80.0) (111.1)
-------- -------- --------
Income from continuing operations before income taxes
and extraordinary item ................................ $ 36.5 $ 65.4 $ 64.6
======== ======== ========
Identifiable assets:
Domestic operations ................................... $1,897.9 $2,245.4 $2,381.9
Europe(4) ............................................. 118.5 128.9 133.1
Asia-Pacific .......................................... 24.9 28.5 32.2
Other foreign operations .............................. 8.7 9.3 13.7
-------- -------- --------
Identifiable assets ................................... $2,050.0 $2,412.1 $2,560.9
======== ======== ========
</TABLE>
(1) Net sales--domestic operations excludes sales by the Company's domestic
subsidiaries to foreign-based subsidiaries of $113.6, $135.1 and $140.9
million for 1993, 1994 and 1995, respectively.
(2) Net sales--Europe excludes sales by the Company's European subsidiaries to
domestic and other foreign-based subsidiaries of $7.2, $12.8 and $19.9
million for 1993, 1994 and 1995, respectively.
(3) On a geographic basis, the consolidated provision for restructuring (see
Note 3) relates to domestic operations ($7.6 million), Europe ($5.7
million), Asia-Pacific ($.4 million), and other foreign operations ($.1
million).
(4) Identifiable assets--Europe includes ISP's 50% ownership of GAF-Huls.
F-23
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
More than 60% of the Company's international sales in 1995 were in
countries in Western Europe and Japan which are subject to currency exchange
rate fluctuation risks. See Note 1 for a discussion of the Company's policy to
manage these risks. Other countries in which the Company has sales are subject
to additional risks, including high rates of inflation, exchange controls,
government expropriation and general instability.
NOTE 15. COMMITMENTS AND CONTINGENCIES
GAF, G-I Holdings and G Industries Corp. are presently dependent upon the
earnings and cash flow of their subsidiaries in order to satisfy their
obligations. As of March 31, 1996, such obligations included $331.9 million of
the Senior Discount Notes, $200 million of the Senior Notes, $359.6 million
estimated present value of asbestos liability discussed in Note 1 (before
estimated present value of recoveries from products liability insurance policies
of approximately $185.6 million), and approximately $158.6 million of various
tax and other liabilities, including tax liabilities relating to the Partnership
discussed in Note 5. Of such obligations, $79.2 million (net of related
insurance recoveries of $17.5 million) is estimated to be payable during 1996.
GAF, G-I Holdings and G Industries Corp. expect to obtain funds to satisfy such
obligations from, among other things, refinancings of debt, dividends and loans
from subsidiaries, as to which there are restrictions under the ISP Credit
Agreements and the indentures relating to the Senior Discount Notes, Senior
Notes, ISP's 9% Notes and the BMCA Notes (see Note 10), and from payments
pursuant to Tax Sharing Agreements between GAF and its subsidiaries.
The discussion as to legal matters involving the Company contained in
"Business--Legal Proceedings" is incorporated herein by reference.
Leases for certain property, plant and equipment at BMCA's Baltimore,
Maryland and Chester, South Carolina roofing facilities and at two of ISP's
mineral products plants are accounted for as capital leases. The Company also
has operating leases for transportation, production and data processing
equipment and for various buildings. Rental expense on operating leases was
$13.7, $15 and $15.1 million for 1993, 1994 and 1995, respectively. Future
minimum lease payments for properties which were held under long-term
noncancelable leases as of December 31, 1995 were as follows:
Capital Operating
Leases Leases
-------- ---------
(Thousands)
1996 ................................................. $ 12,381 $ 6,340
1997 ................................................. 7,397 4,927
1998 ................................................. 7,356 2,799
1999 ................................................. 7,062 1,012
2000 ................................................. 7,448 375
Later years .......................................... 47,265 324
-------- -------
Total minimum payments ............................... 88,909 $15,777
=======
Less interest included above ......................... (27,423)
--------
Present value of net minimum lease payments .......... $ 61,486
========
ISP intends to acquire or develop a European manufacturing facility to meet
the needs of ISP's European business. While the originally anticipated
commencement date of the European project has been deferred because ISP has been
able to implement cost efficient capacity expansions at its existing
manufacturing facilities, based upon its current analysis of additional
opportunities for expansion of existing capacity, end-use demand, and other
relevant factors, ISP intends to proceed with the project by the end of 1997.
Costs capitalized to date related to this project are included in "Construction
in progress." ISP anticipates utilizing internally generated funds, existing
credit facilities and/or independent financing to fund the cost of the project.
ISP has received conditional site designation from the New Jersey Hazardous
Waste Facilities Siting Commission for the construction of a hazardous waste
treatment, storage and disposal facility at its Linden, New Jersey property,
which designation has been appealed to the Courts by the City of Linden. ISP
estimates that the cost
F-24
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of constructing the facility will be approximately $100 million and, if
approved, the facility is anticipated to be in operation three years after
commencement of construction. ISP anticipates utilizing internally generated
cash and/or seeking project or other independent financing therefor.
Accordingly, ISP would not expect such facility to impact materially its
liquidity or capital resources.
BMCA intends to expand its glass mat manufacturing capacity by installing
an additional glass mat machine at an existing facility, the construction for
which is expected to commence in 1996 and be completed in 1997. The estimated
cost of the project is $30 million, which BMCA anticipates funding utilizing
internally generated cash, existing credit facilities and/or independent
financing.
NOTE 16. DISCONTINUED OPERATION
On March 14, 1996, the Company agreed to sell WAXQ, a commercial radio
station operated by GAF Broadcasting Company, Inc. ("GAF Broadcasting"), a
wholly-owned subsidiary of the Company, to Entertainment Communications, Inc.
(which has in turn agreed to transfer the station to Viacom, Inc.) for a
purchase price of $90 million. The transaction is subject to a number of
conditions, including obtaining the consent of the Federal Communications
Commission. Accordingly, GAF Broadcasting is reported as a discontinued
operation at March 31, 1996, and the consolidated financial statements have been
reclassified to report separately the net assets and operating results of GAF
Broadcasting. The Company's financial statements for the years ended December
31, 1993, 1994 and 1995 and the quarter ended April 2, 1995 have been restated
to reflect continuing operations.
Net assets of GAF Broadcasting at March 31, 1996 consist primarily of fixed
assets and intangibles. The gain on disposal will be recorded when the sale is
completed.
Summary operating results for GAF Broadcasting are as follows:
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, ------------------------------
------------------------------------ April 2, 1995 March 31, 1996
1993 1994 1995 (Unaudited) (Unaudited)
------- ------- ------- ------------- --------------
(Thousands)
<S> <C> <C> <C> <C> <C>
Sales ................................. $ 5,082 $ 5,520 $ 8,075 $ 1,475 $ 1,214
Income (loss) before taxes ............ (2,343) (345) 1,862 (47) (484)
Income tax (provision) benefit ........ 810 144 (597) 18 184
Net income (loss) ..................... (1,533) (201) 1,265 (29) (300)
</TABLE>
F-25
<PAGE>
<TABLE>
G-I HOLDINGS INC.
SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
1994 By Quarter 1995 By Quarter
-------------------------------- --------------------------------
First Second Third Fourth First Second Third Fourth
------ ------ ------ ------ ------ ------ ------ ------
(Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ..................................... $256.2 $312.7 $306.9 $274.9 $306.4 $348.2 $347.5 $328.3
Cost of products sold ......................... 166.5 199.1 201.0 183.3 205.4 225.4 226.3 219.1
------ ------ ------ ------ ------ ------ ------ ------
Gross profit .................................. $ 89.7 $113.6 $105.9 $ 91.6 $101.0 $122.8 $121.2 $109.2
====== ====== ====== ====== ====== ====== ====== ======
Operating income .............................. $ 30.7 $ 46.4 $ 37.6 $ 28.7 $ 36.5 $ 51.0 $ 48.1 $ 34.7
====== ====== ====== ====== ====== ====== ====== ======
Income (loss) from continuing operations
before income taxes and
extraordinary item ........................... $ 6.8 $ 42.2 $ 18.7 $ (2.3) $ 9.3 $ 23.2 $ 23.4 $ 8.7
Income tax (provision) benefit ................ (2.7) (16.0) (7.1) (1.5) (3.6) (9.0) (8.9) .8
Minority interest in income of subsidiary ..... (2.0) (2.9) (2.6) (1.2) (2.9) (3.4) (3.2) (2.9)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing operations
before extraordinary item .................... 2.1 23.3 9.0 (5.0) 2.8 10.8 11.3 6.6
Income (loss) from discontinued operation,
net of income taxes .......................... (.4) (.1) .2 .1 -- .5 .5 .3
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before extraordinary item ....... 1.7 23.2 9.2 (4.9) 2.8 11.3 11.8 6.9
Extraordinary item, net of related income tax
benefit ...................................... -- -- (1.2) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) ........................... $ 1.7 $ 23.2 $ 8.0 $ (4.9) $ 2.8 $ 11.3 $ 11.8 $ 6.9
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-26
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY G-I HOLDINGS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
--------------
TABLE OF CONTENTS
Page
----
Summary .................................................................. 2
Risk Factors ............................................................. 11
Capitalization ........................................................... 16
Selected Financial Data .................................................. 17
Management's Discussion and Analysis
of Financial Condition and Results of
Operations .............................................................. 19
Business ................................................................. 26
Management ............................................................... 44
Executive Compensation ................................................... 46
Security Ownership of Certain Beneficial
Owners and Management ................................................... 49
Certain Relationships .................................................... 51
Background Transactions .................................................. 52
The Exchange Offer ....................................................... 52
Description of the New Notes ............................................. 58
Certain Federal Income Tax Considerations ................................ 79
Plan of Distribution ..................................................... 82
Legal Matters ............................................................ 82
Experts .................................................................. 82
Index to Financial Statements ............................................ F-1
================================================================================
================================================================================
$200,003,000
G-I HOLDINGS INC.
SERIES B SENIOR NOTES
DUE 2006
------------
PROSPECTUS
------------
______________, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
G-I Holdings Inc. is a Delaware corporation. Subsection (b)(7) of Section
102 of the Delaware General Corporation Law (the "DGCL"), enables a corporation
in its original certificate of incorporation or an amendment thereto to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit. Article Ninth of G-I Holdings' Certificate of Incorporation has
eliminated the personal liability of directors to the fullest extent permitted
by Subsection (b)(7) of Section 102 of the DGCL.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding provided that such
director or officer acted in good faith in a manner reasonably believed to be
in, or not opposed to, the best interests of the corporation, and, with respect
to any criminal action or proceeding, provided further that such director or
officer had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit
provided that such director or officer acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such director or officer shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
of the circumstances of the case, such director or officer is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided for, by, or granted
pursuant to, Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and empowers the corporation to
purchase and maintain insurance on behalf of any person who is or was a director
or officer of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Article VIII of the Company's By-Laws states that the corporation shall
indemnify, any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by reason of the fact
that he is or was a director, officer or employee of the corporation, or is or
was serving at the request of the corporation as a director, officer or employee
of another corporation, partnership, joint venture, trust or other enterprise
against judgments, fines and amounts paid in settlement actually incurred by him
in connection with such action or suit if he
II-1
<PAGE>
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
3.1 -- Certificate of Incorporation of G-I Holdings (incorporated by
reference to Exhibit 3.1 to G-I Holdings' Form 10-K for the year
ended December 31, 1989 (the "1989 10-K")).
3.2 -- By-laws of G-I Holdings (incorporated by reference to Exhibit
3.2 to the 1989 10-K).
*4.1 -- Indenture, dated as of February 14, 1996, between G-I Holdings
and The Bank of New York, as trustee.
*4.2 -- Form of Notes (included in Exhibit 4.1).
*5 -- Opinion of Weil, Gotshal & Manges LLP re: legality.
*8 -- Opinion of Weil, Gotshal & Manges LLP re: tax matters.
10.1 -- Indenture, dated as of October 5, 1993, between G-I Holdings
and The Bank of New York, as trustee (incorporated by reference
to Exhibit 4.1 of the Registration Statement on Form S-4 of G-I
Holdings (Registration No. 33-72220) (the "Discount Notes
Registration Statement")).
10.2 -- Management Agreement, dated as of March 3, 1992 ("Management
Agreement"), among GAF, G-I Holdings, G Industries, ISP, GAF
Building Materials Corporation and GAF Broadcasting
(incorporated by reference to Exhibit 10.9 to the Discount Notes
Registration Statement).
10.3 -- Amendment No. 1, dated as of January 1, 1994, to the
Management Agreement (incorporated by reference to Exhibit 10.10
to G-I Holdings' Form 10-K for the year ended December 31,
1993).
10.4 -- Amendment No. 2, dated as of May 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.1 to G-I
Holdings' Form 10-Q for the quarter ended July 3, 1994).
10.5 -- Amendment No. 3, dated as of December 31, 1994, to the
Management Agreement (incorporated by reference to Exhibit 10.4
to ISP's Form 10-K for the year ended December 31, 1994).
*10.6 -- Amendment No. 4, dated as of December 31, 1995, to the
Management Agreement.
10.7 -- Amended and Restated Tax Sharing Agreement, dated as of March
3, 1992, among GAF Corporation, G Industries Corp., ISP and
certain subsidiaries of ISP, and Amendment Agreement No. 1 to
the Tax Sharing Agreement dated as of July 23, 1992
(incorporated by reference to Exhibit 10.3 to ISP's Form 10-Q
for the quarter ended October 2, 1994).
10.8 -- Tax Sharing Agreements between GAF and G-I Holdings, and
between G-I Holdings and G-I Industries (incorporated by
reference to Exhibit 10.11 to the Discount Notes Registration
Statement).
10.9 -- Tax Sharing Agreement, dated as of January 31, 1994, among
GAF, G-I Holdings and BMCA (incorporated by reference to Exhibit
10.6 to BMCA's Registration Statement on Form S-4 (Registration
No. 33-81808) (the "BMCA Registration Statement")).
10.10 -- Non-Qualified Retirement Plan Letter Agreement (incorporated
by reference to Exhibit 10.11 to ISP's Registration Statement on
Form S-1, Registration No. 33-40337).
10.11 -- ISP Amended and Restated 1991 Incentive Plan for Key
Employees (incorporated by reference to Exhibit 99 to ISP's
Registration Statement on Form S-8, No. 33-92518).
10.12 -- Agreement, dated July 30, 1993, between ISP and Carl R.
Eckardt (incorporated by reference to Exhibit 10.16 to the
Discount Notes Registration Statement).
10.13 -- Agreement, dated July 30, 1993, between GAF and John M.
Sergey (incorporated by reference to Exhibit 10.17 to the
Discount Notes Registration Statement).
10.14 -- Stock Appreciation Right Agreement, dated December 31, 1993,
between GAF and Mark A. Buckstein (incorporated by reference to
Exhibit 10.18 to the Discount Notes Registration Statement).
10.15 -- Stock Appreciation Right Agreement, dated April 30, 1994,
between GAF and Mark A. Buckstein (incorporated by reference to
Exhibit 10.1 to G-I Holdings' Form 10-Q for the quarter ended
April 3, 1994.)
II-2
<PAGE>
10.16 -- Stock Appreciation Right Agreement, dated January 20, 1994
between GAF and James P. Rogers (incorporated by reference to
Exhibit 10.20 to G-I Holdings' Form 10-K for the year ended
December 31, 1993.)
10.17 -- Indenture, dated as of June 30, 1994, between BMCA and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 4.1 to BMCA's Registration Statement).
10.18 -- Indenture, dated as of March 1, 1992, relating to ISP's 9%
Senior Notes due March 1, 1999 (incorporated by reference to
Exhibit 4 to ISP's Registration Statement on Form S-I,
Registration No. 33-44862).
**12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of G-I Holdings (incorporated by reference to
Exhibit 21 of G-I Holdings' Annual Report on Form 10-K for the
year ended December 31, 1995).
**23.1 -- Consent of Arthur Andersen LLP & Co.
*23.2 -- Consent of Weil, Gotshal & Manges LLP (included in Exhibits
5 and 8).
*24 -- Power of Attorney (included on signature pages to
Registration Statement).
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of The Bank of New York, as Trustee
under the Indenture (bound separately).
**27 -- Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only.
28 -- Stipulation of Settlement between the Class of Claimants and
Defendants represented by the Center for Claims Resolution dated
January 15, 1993 (incorporated by reference to Exhibit 28.1 to
G-I Holdings' Form 8-K reporting an event on January 15, 1993).
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Exchange Agent Agreement, dated _____________, 1996,
between The Bank of New York and G-I Holdings.
- -------------
* Previously filed.
** Filed herewith.
(b) Schedules
Consolidated Financial Statement Schedules:
Report of Independent Public Accountants ...................... S-1
Schedule I--Condensed Financial Information of Registrant ..... S-2
Schedule II--Valuation and Qualifying Accounts ................ S-5
ITEM 22. UNDERTAKINGS.
(a) 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.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Wayne, State
of New Jersey, on the 28th day of May 1996.
G-I HOLDINGS INC.
By: /s/ JAMES P. ROGERS
--------------------------------------
NAME: JAMES P. ROGERS
TITLE: SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman, Chief Executive May 28, 1996
- ------------------------------------ Officer and Director
SAMUEL J. HEYMAN (Principal Executive Officer)
/s/ JAMES P. ROGERS Senior Vice President and May 28, 1996
- ------------------------------------ Chief Financial Officer
JAMES P. ROGERS (Principal Financial Officer)
* Vice President and Controller May 28, 1996
- ------------------------------------ (Principal Accounting Officer)
JONATHAN H. STERN
- ---------------
* By James P. Rogers, Attorney-in-Fact.
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To G-I Holdings Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of G-I Holdings Inc. and subsidiaries
included in this registration statement and have issued our report thereon dated
March 6, 1996. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in item 21(b)
are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 6, 1996
S-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
G-I HOLDINGS INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
G-I HOLDINGS INC. PARENT COMPANY
UNCONSOLIDATED STATEMENTS OF INCOME
Quarter Ended
------------------------
Year Ended December 31, April 2, March 31,
-------------------------------------- 1995 1996
1993 1994 1995 (Unaudited) (Unaudited)
-------- -------- -------- -------- --------
(Thousands)
<S> <C> <C> <C> <C> <C>
Equity in income of subsidiaries .............. $ 15,718 $ 33,006 $ 40,430 $ 6,497 $ 8,663
Interest expense .............................. (45,269) (54,139) (66,152) (15,789) (17,586)
Interest income on loans and note
receivable from related parties .............. 43,410 47,864 52,135 13,416 13,237
Other income (expense), net ................... (191) (1,609) 2,220 (579) 1,856
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary item ........................... 13,668 25,122 28,633 3,545 6,170
-------- -------- -------- -------- --------
Income tax (provision) benefit:
Current ..................................... (115) 16,218 (20) (4) (4)
Deferred .................................... 853 (13,330) 4,215 (743) 953
Total income tax (provision) benefit ........ 738 2,888 4,195 (747) 949
-------- -------- -------- -------- --------
Income before extraordinary item .............. 14,406 28,010 32,828 2,798 7,119
Extraordinary item, net of income tax
benefit of $5,016 ............................ -- -- -- -- (8,186)
-------- -------- -------- -------- --------
Net income (loss) ............................. $ 14,406 $ 28,010 $ 32,828 $ 2,798 $ (1,067)
======== ======== ======== ======== =========
S-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
G-I HOLDINGS INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
G-I HOLDINGS INC. PARENT COMPANY
UNCONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
----------------------- 1996
1994 1995 (Unaudited)
-------- -------- --------
(Thousands)
<S> <C> <C> <C>
Current Assets:
Cash ............................................................... $ 15,941 $ 7,583 $ 4,277
Investments in trading securities .................................. 16,464 52 2,025
Investments in available-for-sale securities ....................... 389 16,686 16,524
Investments in held-to-maturity securities ......................... -- 10,398 11,888
Loans receivable from related parties, net ......................... 10,756 -- --
Other current assets ............................................... 1,289 1,301 1,289
-------- -------- --------
Total Current Assets ................................................ 44,839 36,020 36,003
Note receivable from G Industries Corp. ............................. 406,711 448,507 458,956
Investment in subsidiaries .......................................... 17,867 100,971 118,443
Deferred financing costs and other assets ........................... 16,533 20,411 19,278
-------- -------- --------
Total Assets ........................................................ $485,950 $605,909 $632,680
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Loan payable to parent company ..................................... $ 1,800 $ -- $ --
Loans payable to related parties, net .............................. -- 42,424 54,221
Accounts payable and accrued liabilities ........................... 5,513 6,894 8,700
Dividends payable to parent company ................................ 1,000 191 145
Payable to related parties, net .................................... 13,605 26,474 16,936
-------- -------- --------
Total Current Liabilities ........................................... 21,918 75,983 80,002
-------- -------- --------
Long-term debt ...................................................... 457,583 509,833 531,935
-------- -------- --------
Deferred taxes payable to related party ............................. 16,501 17,632 17,915
-------- -------- --------
Other liabilities ................................................... 5,739 4,168 3,749
-------- -------- --------
Shareholder's Equity (Deficit):
Common stock, $.01 par value per share; 1,000 shares authorized:
100 shares issued and outstanding ................................. -- -- --
Additional paid-in capital ......................................... 49,969 50,129 50,338
Excess of purchase price over the adjusted historical cost of the
predecessor company shares owned by GAF's stockholders ............ (72,605) (72,605) (72,605)
Retained earnings .................................................. 735 6,213 4,146
Cumulative translation adjustment and other ........................ 6,110 14,556 17,200
-------- -------- --------
Shareholder's Equity (Deficit) ...................................... (15,791) (1,707) (921)
-------- -------- --------
Total Liabilities and Shareholder's Equity (Deficit) ................ $485,950 $605,909 $632,680
======== ======== ========
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
G-I HOLDINGS INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
G-I HOLDINGS INC. PARENT COMPANY
UNCONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
------------------------
Year Ended December 31, April 2, March 31,
----------------------------------- 1995 1996
1993 1994 1995 (Unaudited) (Unaudited)
--------- --------- --------- --------- ---------
(Thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents, beginning of period $ -- $ 1 $ 32,405 $ 32,405 $ 7,635
--------- --------- --------- --------- ---------
Cash provided by (used in) operating activities:
Net income (loss) ................................ 14,406 28,010 32,828 2,798 (1,067)
Non-cash extraordinary charge .................... -- -- -- -- 8,143
Non-cash interest expense ........................ 45,071 49,499 54,823 13,170 11,947
Non-cash interest income ......................... (42,000) (41,397) (41,796) (10,449) (10,449)
Deferred income taxes ............................ (853) 13,330 (4,215) 743 (953)
(Increase) decrease in working capital items ..... (75) 2,399 1,369 (239) 1,818
Increase (decrease) in payable to related
parties ......................................... 10,533 2,831 12,869 1,828 (4,522)
Change in investment in and advances
to affiliates ................................... 31,512 (55,268) (47,204) (6,496) (14,669)
Other, net ....................................... (557) 5,640 (2,712) (174) (861)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities .......................... 58,037 5,044 5,962 1,181 (10,613)
--------- --------- --------- --------- ---------
Cash used in investing activities:
Acquisition of subsidiary ........................ -- -- (27,538) -- --
Purchases of available-for-sale securities ....... -- -- (70,348) (29,279) --
Purchases of held-to-maturity securities ......... -- -- (17,845) (3,285) (13,810)
Designation of trading securities (to)/from
available-for-sale securities ................... -- (434) 51 -- --
Proceeds from sales of available-for-
sale securities ................................. -- -- 54,375 1,085 239
Proceeds from held-to-maturity securities ........ -- -- 7,447 -- 12,320
--------- --------- --------- --------- ---------
Net cash used in investing activities .......... -- (434) (53,858) (31,479) (1,251)
--------- --------- --------- --------- ---------
Cash provided by (used in) financing activities:
Increase in short-term debt -- -- -- 3,148 --
Proceeds from issuance of long-term debt ......... 400,000 -- -- -- --
Repayments of long-term debt ..................... (357,147) -- -- -- --
Increase (decrease) in loan from
parent company .................................. -- 1,800 (1,800) (1,800) --
Change in loans to/from related parties, net ..... (81,563) 70,807 53,180 20,558 11,797
Financing fees and expenses ...................... (12,287) (514) (95) -- (220)
Dividends paid to parent company ................. (5,176) (8,130) (28,159) (24,010) (1,046)
Capital contributions to affiliate ............... -- (35,575) -- -- --
Other ............................................ (1,863) (594) -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities .......................... (58,036) 27,794 23,126 (2,104) 10,531
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents ........... 1 32,404 (24,770) (32,402) (1,333)
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period .......... $ 1 $ 32,405 $ 7,635 $ 3 $ 6,302
========= ========= ========= ========= =========
S-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
G-I HOLDINGS INC.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1993
(THOUSANDS)
Balance Charged to Balance
January 1, Sales or December 31,
Description 1993 Expenses Deductions 1993
- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Valuation and Qualifying Accounts Deducted from
Assets to Which They Apply:
Allowance for doubtful accounts ..................... $ 3,779 $ 1,273 $ 1,435(a) $ 3,617
Allowance for discounts ............................. 16,488 59,140 58,587 17,041
Reserve for inventory market valuation .............. 6,713 5,317 2,465 9,565
YEAR ENDED DECEMBER 31, 1994
(THOUSANDS)
Balance Charged to Balance
January 1, Sales or December 31,
Description 1994 Expenses Deductions 1994
- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Valuation and Qualifying Accounts Deducted from
Assets to Which They Apply:
Allowance for doubtful accounts ..................... $ 3,617 $ 1,079 $ 362(a) $ 4,334
Allowance for discounts ............................. 17,041 56,988 58,594 15,435
Reserve for inventory market valuation .............. 9,565 7,274 6,605 10,234
YEAR ENDED DECEMBER 31, 1995
(THOUSANDS)
Balance Charged to Balance
January 1, Sales or December 31,
Description 1995 Expenses Deductions Other 1995
- ----------- -------- ---------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Valuation and Qualifying Accounts Deducted from
Assets to Which They Apply:
Allowance for doubtful accounts ..................... $ 4,334 $ 1,245 $ 1,047(a) $1,751(b) $ 6,283
Allowance for discounts ............................. 15,435 65,057 61,695 -- 18,797
Reserve for inventory market valuation .............. 10,234 8,861 4,543 -- 14,552
</TABLE>
- ----------
Notes:
(a) Represents write-offs of uncollectible accounts net of recoveries.
(b) Represents balances acquired in acquisitions.
S-5
<PAGE>
EXHIBIT INDEX
Exhibits Description Page
- -------- ----------- ----
3.1 -- Certificate of Incorporation of G-I Holdings (incorporated
by reference to Exhibit 3.1 to G-I Holdings' Form 10-K for the
year ended December 31, 1989 (the "1989 10-K")).
3.2 -- By-laws of G-I Holdings (incorporated by reference to
Exhibit 3.2 to the 1989 10-K).
*4.1 -- Indenture, dated as of February 14, 1996, between G-I
Holdings and The Bank of New York, as trustee.
*4.2 -- Form of Notes (included in Exhibit 4.1).
*5 -- Opinion of Weil, Gotshal & Manges LLP re: legality.
*8 -- Opinion of Weil, Gotshal & Manges LLP re: tax matters.
10.1 -- Indenture, dated as of October 5, 1993, between G-I
Holdings and The Bank of New York, as trustee (incorporated by
reference to Exhibit 4.1 of the Registration Statement on Form
S-4 of G-I Holdings (Registration No. 33-72220) (the "Discount
Notes Registration Statement")).
10.2 -- Management Agreement, dated as of March 3, 1992
("Management Agreement"), among GAF, G-I Holdings, G Industries,
ISP, GAF Building Materials Corporation and GAF Broadcasting
(incorporated by reference to Exhibit 10.9 to the Discount Notes
Registration Statement).
10.3 -- Amendment No. 1, dated as of January 1, 1994, to the
Management Agreement (incorporated by reference to Exhibit 10.10
to G-I Holdings' Form 10-K for the year ended December 31,
1993).
10.4 -- Amendment No. 2, dated as of May 31, 1994, to the
Management Agreement (incorporated by reference to Exhibit 10.1
to G-I Holdings' Form 10-Q for the quarter ended July 3, 1994).
10.5 -- Amendment No. 3, dated as of December 31, 1994, to the
Management Agreement (incorporated by reference to Exhibit 10.4
to ISP's Form 10-K for the year ended December 31, 1994).
*10.6 -- Amendment No. 4, dated as of December 31, 1995, to the
Management Agreement.
10.7 -- Amended and Restated Tax Sharing Agreement, dated as of
March 3, 1992, among GAF Corporation, G Industries Corp., ISP
and certain subsidiaries of ISP, and Amendment Agreement No. 1
to the Tax Sharing Agreement dated as of July 23, 1992
(incorporated by reference to Exhibit 10.3 to ISP's Form 10-Q
for the quarter ended October 2, 1994).
10.8 -- Tax Sharing Agreements between GAF and G-I Holdings, and
between G-I Holdings and G-I Industries (incorporated by
reference to Exhibit 10.11 to the Discount Notes Registration
Statement).
10.9 -- Tax Sharing Agreement, dated as of January 31, 1994, among
GAF, G-I Holdings and BMCA (incorporated by reference to Exhibit
10.6 to BMCA's Registration Statement on Form S-4 (Registration
No. 33-81808) (the "BMCA Registration Statement")).
10.10 -- Non-Qualified Retirement Plan Letter Agreement
(incorporated by reference to Exhibit 10.11 to ISP's
Registration Statement on Form S-1, Registration No. 33-40337).
10.11 -- ISP Amended and Restated 1991 Incentive Plan for Key
Employees (incorporated by reference to Exhibit 99 to ISP's
Registration Statement on Form S-8, No. 33-92518).
10.12 -- Agreement, dated July 30, 1993, between ISP and Carl R.
Eckardt (incorporated by reference to Exhibit 10.16 to the
Discount Notes Registration Statement).
10.13 -- Agreement, dated July 30, 1993, between GAF and John M.
Sergey (incorporated by reference to Exhibit 10.17 to the
Discount Notes Registration Statement).
10.14 -- Stock Appreciation Right Agreement, dated December 31,
1993, between GAF and Mark A. Buckstein (incorporated by
reference to Exhibit 10.18 to the Discount Notes Registration
Statement).
10.15 -- Stock Appreciation Right Agreement, dated April 30, 1994,
between GAF and Mark A. Buckstein (incorporated by reference to
Exhibit 10.1 to G-I Holdings' Form 10-Q for the quarter ended
April 3, 1994.)
10.16 -- Stock Appreciation Right Agreement, dated January 20, 1994
between GAF and James P. Rogers (incorporated by reference to
Exhibit 10.20 to G-I Holdings' Form 10-K for the year ended
December 31, 1993.)
<PAGE>
Exhibits Description Page
- -------- ----------- ----
10.17 -- Indenture, dated as of June 30, 1994, between BMCA and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 4.1 to BMCA's Registration Statement).
10.18 -- Indenture, dated as of March 1, 1992, relating to ISP's 9%
Senior Notes due March 1, 1999 (incorporated by reference to
Exhibit 4 to ISP's Registration Statement on Form S-I,
Registration No. 33-44862).
**12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of G-I Holdings (incorporated by reference to
Exhibit 21 of G-I Holdings' Annual Report on Form 10-K for the
year ended December 31, 1995).
**23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Weil, Gotshal & Manges LLP (included in
Exhibits 5 and 8).
*24 -- Power of Attorney (included on signature pages to
Registration Statement).
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of The Bank of New York, as Trustee
under the Indenture (bound separately).
**27 -- Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information only.
28 -- Stipulation of Settlement between the Class of Claimants and
Defendants represented by the Center for Claims Resolution dated
January 15, 1993 (incorporated by reference to Exhibit 28.1 to
G-I Holdings' Form 8-K reporting an event on January 15, 1993).
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Exchange Agent Agreement, dated ____________, 1996, between
The Bank of New York and G-I Holdings.
- --------
* Previously filed.
** Filed herewith.
<TABLE>
<CAPTION>
EXHIBIT 12
G-I HOLDINGS INC.
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(THOUSANDS, EXCEPT RATIO DATA)
Pro Forma
Quarter Ended ----------------------------
Year Ended December 31, ------------------- First First
------------------------------------------------------ April 2, March 31, Year Quarter Quarter
1991 1992 1993 1994 1995 1995 1996 1995 1995 1996
-------- --------- -------- -------- -------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before income
taxes and extraordinary
items ...................$219,789 $(239,133) $ 36,517 $ 64,398 $ 64,598 $ 9,357 $17,598 $ 66,899 $ 9,803 $17,970
Add:
Interest expense ........ 138,482 111,903 113,136 122,644 145,551 35,085 37,799 143,250 34,639 37,427
Company's 50% share of
Joint Venture Taxes .... 5,603 6,434 1,878 1,191 4,722 453 1,673 4,722 453 1,673
Company's 50% share of
Joint Venture Interest
Expense ................ 35 16 50 6 8 1 3 8 1 3
Rental expense factor ... 3,685 4,063 4,524 5,014 5,045 1,261 1,324 5,045 1,261 1,324
-------- --------- -------- -------- -------- ------- ------- -------- ------- -------
Earnings available for
fixed charges ...........$367,594 $(116,717) $156,105 $194,253 $219,924 $46,157 $58,397 $219,924 $46,157 $58,397
======== ======== ======== ======== ======== ======= ======= ======== ======= =======
Fixed charges:
Interest expense ........$138,482 $ 111,903 $113,136 $122,644 $145,551 $35,085 $37,799 $143,250 $34,639 $37,427
Add:
Capitalized interest .... 205 414 1,080 841 902 401 160 902 401 160
Company's 50% share of
Joint Venture Interest
Expense ................ 35 16 50 6 8 1 3 8 1 3
Rental expense factor ... 3,685 4,063 4,524 5,014 5,045 1,261 1,324 5,045 1,261 1,324
-------- --------- -------- -------- -------- ------- ------- -------- ------- -------
Total fixed charges ......$142,407 $116,396 $118,790 $128,505 $151,506 $36,748 $39,286 $149,205 $36,302 $38,914
======== ======== ======== ======== ======== ======= ======= ======== ======= =======
Ratio of Earnings to
fixed charges ........... 2.58 -- 1.31 1.51 1.45 1.26 1.49 1.47 1.27 1.50
======== ======== ======== ======== ======== ======= ======= ======== ======= =======
Amount inadequate to
cover fixed charges ..... $233,113
========
</TABLE>
ARTHUR ANDERSEN LLP Letterhead
CONSENT OF INDEPENDENT ACCOUNTANTS
G-I Holdings, Inc.:
As independent public accountants, we hereby consent to the use of our report
and all references to our firm included in or made a part of this registration
statement.
/S/ ARTHUR ANDERSEN LLP
-------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
May 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMENDMENT NO. 2 TO FORM S-4 OF G-I HOLDINGS INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 67,987
<SECURITIES> 203,152
<RECEIVABLES> 74,548
<ALLOWANCES> 6,283
<INVENTORY> 175,486
<CURRENT-ASSETS> 626,839
<PP&E> 708,883
<DEPRECIATION> 202,875
<TOTAL-ASSETS> 2,560,874
<CURRENT-LIABILITIES> 336,838
<BONDS> 1,550,347
0
0
<COMMON> 0
<OTHER-SE> (1,707)
<TOTAL-LIABILITY-AND-EQUITY> 2,560,874
<SALES> 1,330,423
<TOTAL-REVENUES> 1,330,423
<CGS> 876,188
<TOTAL-COSTS> 876,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,551
<INCOME-PRETAX> 64,598
<INCOME-TAX> 20,729
<INCOME-CONTINUING> 31,563
<DISCONTINUED> 1,265
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,828
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
