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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997
REGISTRATION NO. 333-20859
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BUILDING MATERIALS CORPORATION OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2952 22-3276290
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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BUILDING MATERIALS CORPORATION OF AMERICA
1361 ALPS ROAD
WAYNE, NEW JERSEY 07470
(201) 628-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD A. WEINBERG, ESQ.
BUILDING MATERIALS CORPORATION OF AMERICA
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
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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: / /
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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 FEBRUARY 7, 1997
PROSPECTUS
OFFER FOR
ALL OUTSTANDING 8 5/8% SENIOR NOTES DUE 2006
IN EXCHANGE FOR SERIES B 8 5/8% SENIOR NOTES DUE 2006
OF
BUILDING MATERIALS CORPORATION OF AMERICA
THIS EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MARCH , 1997.
------------------------
Building Materials Corporation of America, a Delaware corporation ('BMCA'),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the 'Exchange Offer'), to
exchange $1,000 principal amount of its Series B 8 5/8% Senior Notes due 2006
(the 'New Notes') for each $1,000 principal amount of its 8 5/8% Senior Notes
due 2006 (the 'Old Notes'), of which an aggregate principal amount of
$100,000,000 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'). See
'Description of the New Notes.'
The Exchange Offer is being made in order to satisfy certain contractual
obligations of BMCA. There will be no cash proceeds to BMCA from the exchange
pursuant to the Exchange Offer. See 'The Exchange Offer' and 'Description of the
New Notes.' As used herein, 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 such New
Notes, such interest to be payable with the first interest payment on such New
Notes, but will not receive any payment in respect of interest on such Old Notes
accrued after the issuance of such New Notes.
BMCA will accept for exchange any and all Old Notes validly tendered and not
withdrawn prior to 12:00 midnight, New York City time, on March , 1997 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.' The Exchange
Offer is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the 'Commission') to third parties, BMCA 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 BMCA 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
and 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. BMCA 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 BMCA at any
time on or after December 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 December 9, 1999, a
sale of common stock of BMCA shall occur, BMCA will have the option to redeem
the Notes using the net cash proceeds received therefrom by BMCA as provided,
and subject to the limitations set forth, in the Indenture.
The New Notes will be general senior unsecured obligations of BMCA, will
rank senior to all subordinated indebtedness of BMCA and pari passu in right of
payment to BMCA's 11 3/4% Senior Deferred Coupon Notes due 2004 (the 'Deferred
Coupon Notes') and to all other unsubordinated indebtedness of BMCA. As of
September 29, 1996, the outstanding indebtedness for money borrowed of BMCA and
its subsidiaries was $326.4 million and the other outstanding liabilities
reflected on BMCA's consolidated balance sheet, including trade payables and
accrued expenses, was $200.6 million. As of September 29, 1996, after giving pro
forma effect to the issuance of the Old Notes and the Spin Off Transactions (as
defined), the outstanding consolidated indebtedness of BMCA and its then
existing subsidiaries would have been $395.2 million. The Indenture limits,
among other things, the incurrence of additional Debt (as defined) and the
issuance of Preferred Stock (as defined) by BMCA and its subsidiaries. See 'Risk
Factors' and 'Description of the New Notes--Certain Covenants.'
Prior to the Exchange Offer, there has been no public market for the Notes.
BMCA 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.
SEE 'RISK FACTORS' BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
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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 FEBRUARY , 1997.
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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, 'Company' means Building Materials Corporation of
America ('BMCA') and its consolidated subsidiaries.
THE COMPANY
BMCA
The Company 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 22 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 (based on
unit sales), including leadership of the fast growing, premium laminated
residential shingle market. The Company's Timberline(Registered) product is the
leading brand in the residential roofing market, and the Company's
Ruberoid(Registered) product is the leading brand in the modified bitumen
market, the latter being the fastest growing segment in the commercial roofing
industry.
On January 1, 1997, GAF Corporation ('GAF'), the indirect parent of the
Company, effected a series of transactions (collectively, the 'Spin Off
Transactions') involving its subsidiaries that resulted in, among other things,
(1) the Company's glass fiber manufacturing facility in Nashville, Tennessee
(and certain related assets and liabilities) being transferred to GAF Fiberglass
Corporation ('GFC'), a subsidiary of GAF, and (2) U.S. Intec, Inc. ('USI'), an
indirect subsidiary of GAF, becoming a subsidiary of the Company. In connection
with the Spin Off Transactions, GFC entered into a long-term supply agreement
with the Company pursuant to which GFC agreed to produce glass fiber for the
Company. See 'Certain Relationships.' The financial and statistical data
regarding the Company presented herein reflect the results of USI from and after
October 20, 1995, the date on which USI was acquired by a subsidiary of GAF,
except as expressly set forth herein.
The Company has registered, through 1995, eight consecutive years of
increases in operating income. Since 1989 and through December 31, 1995, the
Company's net sales and operating income have increased at average annual
compound rates of approximately 9% and 13%, respectively (without giving effect
to the acquisition of USI), and its gross profit and operating income margins
have increased from 25.2% to 26.4% and from 5.5% to 6.7%, respectively. The
Company believes that its growth is primarily attributable to (i) improvement in
its product mix, driven by a marketing strategy which emphasizes the Company's
higher-margin products; (ii) its low cost manufacturing operations; (iii)
substantial capital spending programs for new property, plant and equipment that
have enabled the Company to expand capacity and reduce manufacturing costs; and
(iv) the strength of its national distribution system.
INDUSTRY OVERVIEW
The United States residential roofing industry comprises 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 comprise 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 roofing unit sales grew during the past five years (from
January 1, 1991 through December 31, 1995) 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 the 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 comprises manufacturers of
asphalt built-up roofing, modified bitumen, single-ply polymer and other roofing
products. Approximately 70% of commercial roofing industry membrane unit sales
utilize asphalt built-up roofing and modified bitumen products, both of which
the Company manufactures. Over the past five years, commercial roofing industry
membrane unit sales experienced a slight decline, primarily as a result of the
weak commercial construction market. During this period, unit sales
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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 5%, 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 asphalt 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 homeowners upgrade from
standard strip roofing shingles to premium laminated shingles for enhanced
aesthetics and durability.
RESIDENTIAL ROOFING PRODUCTS
Residential roofing represented approximately 73% of the Company's net
sales in 1995 (approximately 64% after giving effect to the acquisition of USI
by the Company). The Company believes that it is the largest manufacturer of
laminated shingles and the second largest manufacturer of strip shingles in the
United States. The Company believes that it 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 premium laminated roofing shingle,
Timberline(Registered), which created an entirely new product line within the
asphalt roofing industry. The Company produces two lines of shingles, the
Timberline(Registered) series and the Sovereign(Registered) series, as well as
certain specialty shingles principally for regional markets.
The Company's sales of laminated shingles represented approximately 40% of
its residential sales in 1995, with sales of laminated shingles having grown
during the five years ended December 31, 1995 at an average annual compound rate
of approximately 8%, and over the two years ended December 31, 1995 at an
average annual compound rate of approximately 5%. The Timberline(Registered)
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(Registered) 25 Natural Shadow(Trademark) shingle, a mid-weight
laminated shingle which serves as an economic trade-up for consumers; the
Timberline(Registered) Natural Shadow(Trademark) shingle, offering a wood shake
appearance and enhanced visual depth and contrast simulating shadows and
superior fire resistance and durability; and the Timberline Ultra(Registered)
Natural Shadow(Trademark) shingle, a super heavyweight laminated shingle with
the same design features as the Timberline(Registered) Natural Shadow(Trademark)
shingle, together with added durability.
The Company's sales of strip shingles have grown at an average annual
compound rate of approximately 6% during the past five years, representing
approximately 50% of the Company's residential sales in 1995. The
Sovereign(Registered) series includes the standard 3-tab Sentinel(Registered)
shingle, the Company's residential volume leader; the Royal
Sovereign(Registered) shingle, a heavier weight 3-tab shingle; and the
Marquis(Registered) shingle, a super heavyweight 3-tab shingle.
All of the Company'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 colored ceramic-coated mineral granules. The Company's
other residential roofing products include Timbertex(Registered) and
Ridgetex(Registered) Hip & Ridge shingles, Shingle-Mate(Registered)
underlayment, Weather Watch(Registered) ice and water barrier, a waterproof
underlayment, and Cobra(Registered) ridge vent, a ventilation system on a coil,
all of which enable the Company to offer a complete system of residential
roofing components.
COMMERCIAL ROOFING PRODUCTS
Commercial roofing represented approximately 27% of the Company's net sales
in 1995 (approximately 36% after giving effect to the acquisition of USI by the
Company). The Company manufactures a broad line of modified bitumen products,
asphalt built-up roofing and roofing accessories. The Company believes that it
is the second largest manufacturer of asphalt built-up roofing and the largest
manufacturer of modified bitumen products in the United States. The Company also
manufactures perlite roofing insulation products, which consist of low thermal
insulation products installed below the roofing membrane. The Company also
markets isocyanurate foam as roofing insulation, packaged asphalt and
accessories such as vent stacks, roof insulation fasteners, cements and
coatings. The Company has in recent years devoted substantial resources to the
high
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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 the Company'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,
and through December 31, 1995, the Company's unit sales of such premium shingles
have increased at an average annual compound rate of approximately 11%. This
growth has enabled the Company to increase its premium product mix of
residential sales. Management expects to continue this strategy to improve
product mix by increasing sales of premium shingles.
LOW COST MANUFACTURING OPERATIONS
The Company believes that its plants are among the most modern in the
industry, due in part to the fact that since 1985 and through December 31, 1995,
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.
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 acquisition of USI, a leading national manufacturer of
commercial roofing products, and the 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.
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THE EXCHANGE OFFER
The Exchange Offer is being made with respect to all of BMCA's outstanding
8 5/8% Senior Notes due 2006 (the 'Old Notes'). On December 9, 1996, BMCA issued
and sold $100 million in aggregate principal amount of the Old Notes in a
private placement (the 'Offering'). 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, 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.'
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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, $100,000,000
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, BMCA 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
BMCA 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 and 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................. In connection with the issuance of the Old Notes pursuant to the
Offering, BMCA 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 12:00 midnight, New York City time, on
March , 1997, or at such later date or time to which it is extended
(as so extended, the 'Expiration Date'). BMCA does not intend to
extend the Exchange Offer, although it reserves the right to do so.
Withdrawal............................. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn
at any time prior to 12:00 midnight, New York City time,
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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
8 5/8% per annum, payable on June 15 and December 15 each year,
commencing on June 15, 1997 to the persons who are registered holders
on the immediately preceding June 1 and December 1. See 'Description
of the New Notes--Principal, Maturity and Interest.'
Conditions to the Exchange Offer....... The Exchange Offer is subject to certain customary conditions, each of
which may be waived by BMCA. The Exchange Offer is not conditioned
upon any principal amount of Old Notes being tendered for exchange
pursuant to the Exchange Offer. 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 such 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 12:00 midnight, 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
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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 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 (with
respect to the New Notes, 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 Tendering.'
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 12:00 midnight, 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.'
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TERMS OF THE NEW NOTES
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Issuer................................. Building Materials Corporation of America, a direct wholly-owned
subsidiary of GAF Building Materials Corporation ('GAFBMC') and an
indirect wholly-owned subsidiary of GAF Corporation ('GAF').
Issue.................................. $100,000,000 aggregate principal amount at maturity of Series B 8 5/8%
Senior Notes due 2006 (the 'New Notes').
Maturity............................... December 15, 2006.
Interest Payment Dates................. The New Notes will pay interest in cash at a rate of 8 5/8% per annum,
payable on June 15 and December 15, commencing June 15, 1997.
Optional Redemption.................... The New Notes are redeemable at the Company's option, in whole or in
part, on or after December 15, 2001 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the redemption
date.
In addition, prior to December 9, 1999, an amount of the Notes
representing an aggregate of up to 50% of the then outstanding Notes
will be redeemable, at the Company's option, from the proceeds of a
public offering by the Company of its common stock, at 108.625% of the
principal amount thereof, plus accrued interest, if any, 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 Notes will have the right to require the Company to repurchase
such holder's Notes at a purchase price of 101% of the principal
amount of the Notes (or, if lower, the redemption price then in effect
under the provisions described herein under 'Description of the New
Notes-- Optional Redemption'), plus accrued and unpaid interest, if
any, to the repurchase date, and the Company will have the option to
redeem the Notes in whole at a redemption price equal to 100% of the
principal amount of the Notes, plus the Applicable Premium (as
defined), plus accrued and unpaid interest, if any, to the repurchase
date.
Ranking................................ The Notes will be senior unsecured obligations of the Company and will
rank pari passu with all other unsecured and unsubordinated
obligations of the Company, including the Deferred Coupon Notes.
Immediately following the issuance of the Notes, the Company will not
have any subordinated obligations. As of September 29, 1996, the
Company and its subsidiaries had outstanding indebtedness from
borrowings of $326.4 million and other outstanding liabilities of the
Company and its subsidiaries, as reflected on the Company's
consolidated balance sheet, including trade payables and accrued
expenses, were $200.6 million. As of September 29, 1996, after giving
pro forma effect to the issuance of the Old Notes and the Spin Off
Transactions, the outstanding consolidated indebtedness of BMCA and
its then existing subsidiaries would have been $395.2 million. The
Indenture limits the incurrence of additional Debt (as defined) and
the issuance of Preferred Stock (as defined) by the Company and its
subsidiaries. See 'Description of the New Notes--Certain Covenants.'
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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. As of September 29, 1996, the Company would
have been able to make Restricted Payments and Restricted Investments
in the aggregate amount of approximately $23.0 million (and, after
giving effect to the net capital contributions made to the Company as
part of the Spin Off Transactions and the contribution to the Company
in July 1996 of the Houston, Texas facility of USI, approximately
$135.1 million in the aggregate). 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 a number of important qualifications and
exceptions. See 'Description of the New Notes--Certain Covenants.'
Registration Rights.................... The Company has agreed to use its best efforts to cause to become
effective, by April 8, 1997, a registration statement with respect to
the Exchange Offer. In the event that the Exchange Offer is not
completed by June 7, 1997, the Company 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 June 7, 1997 (i) the Exchange Offer is not completed and (ii) no
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 June 7, 1997 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 June 15,
and December 15, at a rate per annum equal to 0.50% of the aggregate
principal amount outstanding of Old Notes. See 'Description of the New
Notes--Principal, Maturity and Interest' and 'The Exchange
Offer--Purpose and Effect.'
Use of Proceeds........................ There will be no cash proceeds to the Company from the exchange pursuant
to the Exchange Offer.
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
Company's financial statements have been prepared on a basis which retroactively
reflects the formation of the Company at the beginning of the years presented
prior to 1995. As of January 1, 1997, USI became a subsidiary of the Company
through a capital contribution to the Company by its indirect parent, G-I
Holdings Inc. ('G-I Holdings'). Accordingly, the Company's historical
consolidated financial statements have been restated for the year ended December
31, 1995 and the nine months ended September 29, 1996 to include USI's results
of operations from the date of its acquisition by G-I Holdings, including sales
of $21.8 million for the year ended December 31, 1995 and $76.3 million for the
nine months ended September 29, 1996 and net income (loss) of $(.5) million and
$.8 million, respectively. See Note 1 to Consolidated Financial Statements. The
results of any interim period are not necessarily indicative of the results to
be expected for the full year. The pro forma financial data have been prepared
to give effect to the issuance of the Notes and the Spin Off Transactions. The
pro forma balance sheet data give effect to the Spin Off Transactions and the
issuance of the Notes as if they had been completed as of September 29, 1996.
The pro forma operating data give effect to the Spin Off Transactions and the
issuance of the Notes as if they had been completed as of January 1, 1995. The
pro forma financial information does not purport to project the financial
position or the results of operations for any future period or to represent what
the financial position or results of operations would have been if the Spin Off
Transactions and the issuance of the Notes had been completed at the dates
indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------------------
-------------------------- OCT. 1, 1995 SEPT. 29, 1996
1993 1994 1995 (UNAUDITED) (UNAUDITED)
------ ------ ------ ------------ --------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................................... $559.2 $593.1 $687.2 $507.7 $648.4
Operating income............................................ 41.5 44.7 45.9 38.4 51.2
Interest expense............................................ 2.0 13.1 24.8 18.2 23.7
Income before income taxes.................................. 33.0 27.8 16.5 16.6 27.0
Net income.................................................. 20.4 16.7 10.1 10.0 16.5
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996
---------------------------
DECEMBER 31, ACTUAL PRO FORMA(4)
1995 (UNAUDITED) (UNAUDITED)
------------ ----------- ------------
(MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments............................................ $ 86.1 $ 42.3 $210.1
Total working capital...................................................... 54.6 89.7 233.9
Total assets............................................................... 559.3 571.2 702.3
Long-term debt less current maturities(2).................................. 310.3 323.0 391.8
Total stockholder's equity................................................. 15.8 44.3 110.0
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------------------
-------------------------- OCT. 1, 1995 SEPT. 29, 1996
1993 1994 1995 (UNAUDITED) (UNAUDITED)
------ ------ ------ ------------ --------------
(IN MILLIONS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation................................................ $ 14.5 $ 16.8 $ 20.3 $ 14.5 $ 18.1
Goodwill amortization....................................... 0.6 1.1 1.2 0.8 1.2
Capital expenditures and acquisitions....................... 19.0 54.3 54.1 18.9 15.7
Ratio of earnings to fixed charges(1)....................... 8.60 2.72 1.58 1.80 2.01
Adjusted EBITDA(3).......................................... 50.1 58.8 62.8 50.2 70.0
Ratio of Adjusted EBITDA to interest expense(3)............. 24.51 4.47 2.3 2.76 2.95
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, ------------------------------
1995 OCT. 1, 1995 SEPT. 29, 1996
------------ ------------ --------------
(IN MILLIONS, EXCEPT RATIO DATA)
(UNAUDITED)
<S> <C> <C> <C>
PRO FORMA OPERATING DATA(4):
Net Sales.................................................................. $783.3 $595.7 $648.4
Operating income........................................................... 34.0 30.1 49.1
Interest expense........................................................... 32.8 24.6 28.3
Income (loss) from continuing operations................................... (5.6) (0.5) 12.3
Ratio of earnings to fixed charges(1)...................................... --(1) --(1) 1.64
Ratio of Adjusted EBITDA to interest expense (3)........................... 1.83 2.01 2.33
</TABLE>
- ------------------
(1) For purposes of these computations, earnings consist of income before income
taxes 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). Pro forma earnings were inadequate to cover fixed
charges by $9.6 million and $1.1 million, respectively, for the year ended
December 31, 1995 and the nine months ended October 1, 1995, as a result of
$14.8 million and $9.6 million, respectively, of reserves established by USI
prior to its acquisition by the Company.
(2) See 'Capitalization' and Note 9 of Notes to the Company's Consolidated
Financial Statements.
(3) The EBITDA data are being presented because such data relate to debt
covenants under the Indenture. Calculations of the ratio of Adjusted EBITDA
to interest expense have been performed in accordance with the definitions
in the Indenture, except that the ratio of Adjusted EBITDA to interest
expense for the nine months ended October 1, 1995 and September 29, 1996 has
been calculated based on operating data for such nine-month periods rather
than for the most recently completed four fiscal quarters ended on such
dates. See 'Description of the New Notes.' Accordingly, Adjusted EBITDA is
calculated as income before income taxes, increased by interest expense,
depreciation, goodwill amortization, and, in the case of pro forma Adjusted
EBITDA, reserves established by USI prior to its acquisition by the Company.
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.
The Indenture contains covenants which, subject to certain exceptions,
restrict the Company from issuing Debt or Preferred Stock, unless, at the
time of such issuance and after giving effect thereto, the ratio of EBITDA
(as defined in the Indenture) to Consolidated Interest Expense (as defined in
the Indenture) is at least 2 to 1 for its most recently completed four
consecutive fiscal quarters ending at least 45 days prior thereto. See
'Description of the New Notes' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
The details of the calculations of Adjusted EBITDA are as set forth in the
table on the following page.
(4) For an explanation of adjustments to arrive at 'Pro Forma' data, see notes
to 'Selected Financial Data.'
10
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------
NINE MONTHS ENDED YEAR NINE MONTHS NINE MONTHS
------------------------- ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, OCT. 1, SEPT. 29, DEC. 31, OCT. 1, SEPT. 29,
--------------------------- 1995 1996 1995 1995 1996
1993 1994 1995 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------- ------- ------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing
operations before
income taxes...... $32,982 $27,819 $16,549 $16,644 $26,956 $(9,143) $ (757) $20,229
Add:
Interest
expense......... 2,045 13,149 24,822 18,203 23,741 32,805 24,633 28,346
Goodwill
amortization.... 641 1,064 1,170 800 1,201 1,170 800 1,201
Depreciation...... 14,465 16,796 20,252 14,545 18,072 20,533 15,302 16,380
Reserves
established by
USI prior to its
acquisition..... -- -- -- -- -- 14,767 9,553 --
------- ------- ------- -------- -------- -------- -------- --------
Adjusted EBITDA..... $50,133 $58,828 $62,793 $50,192 $69,970 $60,132 $49,531 $66,156
------- ------- ------- -------- -------- -------- -------- --------
------- ------- ------- -------- -------- -------- -------- --------
</TABLE>
11
<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 the 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.
SUBSTANTIAL LEVERAGE
The Company has substantial consolidated debt outstanding. At September 29,
1996, the Company had total outstanding consolidated long-term debt of $326.4
million and common stockholder's equity of $44.3 million. On a pro forma basis,
assuming issuance of the Old Notes and application of the net proceeds therefrom
and after giving effect to the Spin Off Transactions, the Company would have had
as of September 29, 1996 total outstanding consolidated long-term debt of $394.9
million and common stockholder's equity of $110.0 million. The substantial
leverage of the Company has important consequences for holders of the 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 the 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, market conditions and other factors. 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 Notes would be adversely affected.
CERTAIN AGREEMENTS
BMCA purchases from International Specialty Products Inc., a Delaware
corporation that prior to the Spin Off Transactions was a subsidiary of GAF
('ISP'), all of its colored mineral granules requirements (except for the
requirements of its California roofing plant which are supplied by a third
party) under a requirements contract which was renewed for one year, effective
as of January 1, 1997, and is subject to annual renewal unless terminated by
BMCA or ISP. 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. In 1996, BMCA and USI purchased in
the aggregate approximately $50.5 million of mineral products from ISP. See
'Certain Relationships--Certain Purchases.'
As part of the Spin Off Transactions, the Company transferred to GFC its
Nashville, Tennessee facility, which manufactures a significant portion of the
Company's glass fiber requirements and entered into a supply contract with GFC
under which GFC produces glass fiber for the Company. See 'Certain
Relationships--Certain Purchases.'
Pursuant to a management agreement which expires at the end of 1997, ISP
provides certain general management, administrative and facilities services to
BMCA and USI (including the use of BMCA's headquarters in Wayne, New Jersey),
for which BMCA and USI paid ISP a management fee of $3.9 million in 1996. As of
January 1, 1997, BMCA and GFC entered into a management agreement under which
BMCA provides certain general management, administrative and financial services
to GFC. Under the management agreement which expires December 31, 1997, GFC is
obligated to pay BMCA an annual management fee of $1,000,000. See 'Certain
Relationships--Management Agreements.'
The Company and its subsidiaries have entered into a Tax Sharing Agreement
(as defined) with GAF and G-I Holdings with respect to the payment of federal
income taxes and certain related matters. See 'Certain Relationships--Tax
Sharing Agreement.'
See 'Description of the New Notes--Certain Covenants--Limitations on
Transactions with Affiliates' for limitations imposed by the Indenture on
transactions with affiliates of the Company.
ASBESTOS CLAIMS FILED AGAINST GAF
In connection with its formation, the Company contractually assumed and
agreed to pay the first $204.4 million of GAFBMC's asbestos-related bodily
injury liabilities (whether for indemnity or defense), relating to then pending
cases and previously settled, but not paid, cases as of January 31, 1994, and no
other
12
<PAGE>
asbestos liabilities of GAFBMC. Substantially all of the $204.4 million is
expected to be paid by the end of the second quarter of 1997; $178.8 million had
been paid through September 29, 1996. G-I Holdings and GAFBMC have jointly and
severally agreed to indemnify the Company against any claims related to
asbestos-related liabilities, other than those contractually assumed by the
Company, in the event that claims in connection with liabilities not assumed by
the Company are asserted against it. GAFBMC is administering all
asbestos-related bodily injury claims, including those assumed by the Company,
and has the right to settle or litigate asbestos-related claims and to settle
and allocate recoveries among GAF, the Company and GAFBMC under insurance
policies relating thereto.
As of September 29, 1996, GAF had been named as a defendant in
approximately 59,300 pending lawsuits involving alleged health claims relating
to the inhalation of asbestos fiber ('Asbestos Claims'), having resolved
approximately 221,000 Asbestos Claims. Plaintiffs in approximately 31,200 of the
pending lawsuits were preliminarily enjoined from proceeding with their claims
other than in accordance with the Settlement described below. Since December 31,
1995, GAF has settled approximately 19,900 Asbestos Claims and received notice
of approximately 29,500 new Asbestos Claims (of which approximately 23,800 are
subject to the preliminary injunction).
The consolidated reserves of GAF and G-I Holdings for asbestos bodily
injury claims, as of September 29, 1996, were approximately $357.8 million
(before estimated present value of recoveries from products liability insurance
policies of approximately $211 million and related deferred tax benefits of
approximately $51.4 million). GAF and G-I Holdings have advised the Company that
certain components of the asbestos-related liability and related insurance
recoveries have been reflected on a discounted basis in their financial
statements. See Note 3 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 G-I Holdings had available, to
pay asbestos-related bodily injury claims, aggregate insurance coverage, as of
September 29, 1996, totaling $224.3 million before discounting certain coverage
(which amount is reduced as asbestos-related liabilities are satisfied). See
'Business--Legal Proceedings--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 impact of the
Settlement if it becomes effective, GAF believes that its average future
Asbestos Claim settlements will be approximately $3,000 per case. GAF 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
13
<PAGE>
opinion, concluding that the class was not certifiable, thus reversing the
decision of the District Court. On November 1, 1996, the United States Supreme
Court granted GAF's petition for a writ of certiorari and agreed to hear GAF's
appeal of the Third Circuit's decision. The appeal is expected to be heard on
February 18, 1997. GAF continues to believe the Settlement should ultimately be
upheld on appeal, although there can be no assurance in this regard.
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.
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'), 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.
The Company believes that it will not sustain any liability for damages in
connection with asbestos-related claims in excess of the $204.4 million that it
has contractually assumed. While the Company cannot predict whether any
asbestos-related claims will be asserted against it or its assets, or the
outcome of any litigation relative to such claims, it believes that it has
meritorious defenses to such claims. Moreover, it has been jointly and severally
indemnified by G-I Holdings and GAFBMC with respect to such claims, and GAF and
G-I Holdings have advised the Company that, based on the assumptions referred to
above, they believe they have and will have sufficient resources, principally
through their ownership of the common stock of BMCA, to enable them to satisfy
their asbestos-related liabilities. Should GAF or GAFBMC be unable to satisfy
judgments against it in asbestos-related lawsuits, its judgment creditors might
seek to enforce their judgments against the assets of GAF or GAFBMC, including
its holdings of common stock of the Company, and such enforcement could result
in a change of control with respect to the Company.
For additional information relating to asbestos claims filed against GAF,
see 'Business--Legal Proceedings' and Note 3 to Consolidated Financial
Statements.
PARENTS' DEPENDENCE UPON COMPANY'S CASH FLOW
The parent corporations of the Company are dependent upon the cash flow of
their subsidiaries in order to satisfy their obligations, including
asbestos-related and certain tax liabilities. The parent corporations of the
Company are GAF, G-I Holdings, G Industries Corp. and GAFBMC, and, except for
the Company, the only significant asset of such parent corporations is GFC. In
the event that such parent corporations should become unable to meet their cash
requirements from sources other than the Company, subject to the terms of the
Indenture, they might take various actions, including, among other things,
seeking to cause (i) the Company to make distributions to stockholders by means
of dividends or otherwise, (ii) the Company to make loans to its parent
corporations, or (iii) GAFBMC to sell common stock of the Company. There can be
no assurance that any of the foregoing could be effected on satisfactory terms
or that they would be sufficient to enable such affiliates to satisfy their
obligations. See '--Asbestos Claims Filed Against GAF' and Notes 3, 5 and 12 to
Consolidated Financial Statements.
14
<PAGE>
CONSOLIDATED FEDERAL INCOME TAX LIABILITY
The Company, as a member of the GAF consolidated group for federal income
tax purposes, is jointly and severally liable for all federal income tax
liabilities of the GAF consolidated group (including with respect to the Spin
Off Transactions), but is indemnified under certain circumstances for such tax
liabilities principally by GAF and G-I Holdings. See 'Certain Relationships--Tax
Sharing Agreement' and Notes to Consolidated Financial Statements.
CONTROLLING STOCKHOLDER
The Company is an indirect wholly-owned subsidiary of GAF, which is
controlled by Samuel J. Heyman, Chairman of the Board of Directors and Chief
Executive Officer of GAF, G-I Holdings, GAFBMC and the Company. Accordingly, Mr.
Heyman has the ability to elect the entire Board of Directors of each such
company 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 merger, consolidations and the sale of all, or substantially all, of
the Company's assets. See 'Security Ownership of Certain Beneficial Owners and
Management.'
RESTRICTIONS ON RESALE AND 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 will be able to sell their New Notes. If such 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 the Company. The Company 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., Chase Securities Inc. and Salomon
Brothers Inc have advised the Company that they currently anticipate making a
secondary market for the New Notes, but they are not obligated to do so, and
there is no assurance that an active or liquid public trading market will
develop for the New Notes.
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)
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 the Company 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 the 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 the Company 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. The Company
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 Company's consolidated capitalization as
of September 29, 1996 and as adjusted on a pro forma basis. The pro forma
financial data have been prepared to give effect to the issuance of the Notes
and the Spin Off Transactions. This table should be read in conjunction with the
Company's Consolidated Financial Statements and related notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 29, 1996
(UNAUDITED)
--------------------------------------
ACTUAL PRO FORMA(1)
----------------- -----------------
(THOUSANDS)
<S> <C> <C>
Short-term Debt and current maturities of Long-term Debt:
Current maturities of long-term debt.................................................... $ 3,124 $ 3,124
Short-term debt......................................................................... 256 256
------------- -------------
Total................................................................................ $ 3,380 $ 3,380
------------- -------------
------------- -------------
Long-term Debt (excluding current maturities)(2):
8 5/8% Senior Notes due 2006............................................................ $ -- $ 99,502
11 3/4% Senior Deferred Coupon Notes due 2004........................................... 226,553 226,553
Borrowings under revolving credit facilities............................................ 22,164 --
Industrial revenue bonds................................................................ 19,625 11,125
Obligations on mortgaged properties..................................................... 4,693 4,693
Obligations under capital leases........................................................ 49,950 49,950
------------- -------------
Total Long-term Debt (excluding current maturities).................................. $ 322,985 $ 391,823
------------- -------------
------------- -------------
Stockholder's Equity:
Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par value per
share; 50,000 shares authorized, 0 shares issued..................................... $ -- $ --
Common stock and additional paid-in capital............................................. 92,875 158,657
Excess of purchase price over adjusted historical cost of predecessor company shares
owned by GAF stockholders............................................................ (7,874) (7,874)
Accumulated deficit..................................................................... (40,747) (40,747)
Unfunded pension liability.............................................................. (4) (4)
------------- -------------
Total Stockholder's Equity........................................................... $ 44,250 $ 110,032
------------- -------------
------------- -------------
Total Capitalization................................................................. $ 367,235 $ 501,855
------------- -------------
------------- -------------
</TABLE>
- ------------------
(1) For an explanation of the assumptions used to arrive at such pro forma
information, see 'Notes to Selected Financial Data.'
(2) For a description of long-term debt, see Note 9 to the Company's
Consolidated Financial Statements.
16
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected 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 historical financial information gives
effect to the formation of the Company as if it had occurred on January 1, 1991
and the Company's financial statements have been prepared on a basis which
retroactively reflects the formation of the Company at the beginning of the
periods presented prior to 1995, except that the Company's assumption of the
first $204.4 million of liability relating to pending and previously settled
asbestos-related bodily injury cases and related income tax benefits of $79.7
million have been reflected as a charge of $124.7 million to stockholder's
equity upon the Company's formation as of January 31, 1994. As of January 1,
1997, USI became a subsidiary of the Company through a capital contribution to
the Company by G-I Holdings. Accordingly, the Company's historical consolidated
financial statements have been restated for the year ended December 31, 1995 and
the nine months ended September 29, 1996 to include USI's results of operations
from the date of its acquisition by G-I Holdings, including sales of $21.8
million for the year ended December 31, 1995 and $76.3 million for the nine
months ended September 29, 1996 and net income (loss) of $(.5) million and $.8
million, respectively. See Note 1 to the Company's Consolidated Financial
Statements.
The pro forma financial data have been prepared to give effect to the
issuance of the Notes and the Spin Off Transactions. The pro forma balance sheet
data give effect to the Spin Off Transactions and the issuance of the Notes as
if they had been completed as of September 29, 1996. The pro forma operating
data give effect to the Spin Off Transactions and the issuance of the Notes as
if they had been completed as of January 1, 1995. The pro forma financial
information does not purport to project the financial position or the results of
operations for any future period or to represent what the financial position or
results of operations would have been if the Spin Off Transactions and the
issuance of the Notes had been completed at the dates indicated.
17
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
YEAR ENDED DECEMBER 31, OCT. 1, SEPT. 29,
---------------------------------------------- 1995 1996
1991 1992 1993 1994 1995 (UNAUDITED) (UNAUDITED)
------ ------ ------ ------ ------ ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales........................... $424.8 $508.5 $559.2 $593.1 $687.2 $ 507.7 $ 648.4
Operating income.................... 26.5 34.6 41.5 44.7 45.9 38.4 51.2
Interest expense.................... 4.6 3.6 2.0 13.1 24.8 18.2 23.7
Income before income taxes(1)....... 11.7 23.1 33.0 27.8 16.5 16.6 27.0
Income before cumulative effect of
accounting change(1)............. 7.2 14.1 20.4 16.7 10.1 10.0 16.5
Net income(1)....................... 7.2 6.5 20.4 16.7 10.1 10.0 16.5
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996
DECEMBER 31, ---------------------------
---------------------------------------------- ACTUAL PRO FORMA(5)
1991 1992 1993 1994 1995 (UNAUDITED) (UNAUDITED)
------ ------ ------ ------ ------ ----------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital.............. $ 26.5 $ 33.8 $ 4.8 $ 36.2 $ 54.6 $ 89.7 $233.9
Total assets....................... 285.9 297.3 259.4 452.3 559.3 571.2 702.3
Long-term debt(3).................. 35.8 34.1 38.7 229.2 310.3 323.0 391.8
Stockholder's equity (deficit)..... 103.9 110.0 85.9 (28.9) 15.8 44.3 110.0
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
YEAR ENDED DECEMBER 31, OCT. 1, SEPT. 29,
---------------------------------------------- 1995 1996
1991 1992 1993 1994 1995 (UNAUDITED) (UNAUDITED)
------ ------ ------ ------ ------ ----------- -----------
(IN MILLIONS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation........................ $ 11.7 $ 12.8 $ 14.5 $ 16.8 $ 20.3 $ 14.5 $ 18.1
Goodwill amortization............... 0.6 0.6 0.6 1.1 1.2 0.8 1.2
Capital expenditures and
acquisitions..................... 11.3 15.6 19.0 54.3 54.1 18.9 15.7
Ratio of earnings to fixed
charges(2)....................... 2.82 5.13 8.60 2.72 1.58 1.80 2.01
Adjusted EBITDA(4).................. 28.7 40.2 50.1 58.8 62.8 50.2 70.0
Ratio of Adjusted EBITDA to interest
expense(4)....................... 6.22 11.11 24.51 4.47 2.53 2.76 2.95
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED --------------------
DECEMBER 31, OCT. 1, SEPT. 29,
1995 1995 1996
------------ ------- ---------
(IN MILLIONS, EXCEPT RATIO DATA)
(UNAUDITED)
<S> <C> <C> <C>
PRO FORMA OPERATING DATA(5):
Net sales.................................................................... $783.3 $ 595.7 $ 648.4
Operating income............................................................. 34.0 30.1 49.1
Interest expense............................................................. 32.8 24.6 28.3
Income (loss) from continuing operations..................................... (5.6) (0.5) 12.3
Ratio of earnings to fixed charges(2)........................................ --(2) --(2) 1.6
Ratio of Adjusted EBITDA to interest expense(4).............................. 1.8 2.0 2.3
</TABLE>
18
<PAGE>
- ------------------
(1) Income before income taxes for the year 1992 includes a pre-tax provision of
$6.2 million in connection with the Company's estimated liability related to
warranty claims for a discontinued product. Income before income taxes for
the year 1991 includes a pre-tax provision of $6.7 million for the Company's
estimated obligations related to environmental matters. Income before
cumulative effect of an accounting change in 1992 and 1991 includes the
after-tax effects of the foregoing items. See Note 3 of Notes to the
Company's Consolidated Financial Statements.
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 charge
against earnings of $7.7 million, after a related income tax benefit of $4.2
million.
(2) For purposes of these computations, earnings consist of income before income
taxes and the cumulative effect of accounting change, plus fixed charges.
Fixed charges consist of interest on indebtedness (including amortization of
debt issuance costs), together with that portion of lease rental expense
representative of interest (estimated to be one-third of lease rental
expense). Pro forma earnings were inadequate to cover fixed charges by $9.6
million and $1.1 million, respectively, for the year ended December 31, 1995
and the nine months ended October 1, 1995, as a result of $14.8 million and
$9.6 million, respectively, of reserves established by USI prior to its
acquisition by the Company.
(3) See 'Pro Forma Capitalization' and Note 9 of Notes to the Company's
Consolidated Financial Statements.
(4) The EBITDA data are being presented because such data relate to debt
covenants under the Indenture. Calculations of the ratio of Adjusted EBITDA
to interest expense have been performed in accordance with the definitions
in the Indenture, except that the ratio of Adjusted EBITDA to interest
expense for the nine months ended October 1, 1995 and September 29, 1996 has
been calculated based on operating data for such nine-month periods rather
than for the most recently completed four fiscal quarters ended on such
dates. See 'Description of the New Notes.' Accordingly, Adjusted EBITDA is
calculated as income before income taxes, increased by interest expense,
depreciation, goodwill amortization and, in the case of pro forma Adjusted
EBITDA, reserves established by USI prior to its acquisition by the Company.
See 'Summary Financial Data' for the details of the calculations of Adjusted
EBITDA. 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.
The Indenture contains covenants which, subject to certain exceptions,
restrict the Company from issuing Debt, unless, at the time of such issuance
and after giving effect thereto, the ratio of Adjusted EBITDA (as defined in
the Indenture) to Consolidated Interest Expense (as defined in the
Indenture) is at least 2 to 1 for its most recently completed four
consecutive fiscal quarters ending at least 45 days prior thereto. See
'Description of the New Notes' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
(5) The principal assumptions used in preparing the Pro Forma Operating Data are
as follows: issuance of $100 million principal amount of Notes at an
interest rate of 8 5/8% per annum; the acquisition of USI; the repayment of
approximately $22 million in indebtedness of USI; the distribution by the
Company of its glass fiber manufacturing facility in Nashville, Tennessee
and certain related assets and liabilities and the execution of a long-term
supply agreement between GFC and the Company; and the contribution of cash
and securities by G-I Holdings to the Company (approximately $71 million).
The net effect of such assumptions was to decrease the Company's pro forma
income before income taxes by $25.7, $17.4 and $6.7 million for the year
1995 and the first nine months of 1995 and 1996, respectively. As a result,
the Company's pro forma provision for income taxes decreased by $10.0, $6.9
and $2.6 million for the year ended 1995 and the first nine months of 1995
and 1996, respectively, based on an effective marginal income tax rate of
39%.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Building Materials Corporation of America (the 'Company'), an indirect
subsidiary of GAF Corporation ('GAF') and G-I Holdings Inc. ('G-I Holdings'),
was formed in January 1994 to acquire the operating assets and certain
liabilities of GAF Building Materials Corporation ('GAFBMC'), the Company's
parent. See Note 1 to Consolidated Financial Statements. As a result of the Spin
Off Transactions consummated on January 1, 1997, (1) the Company's glass fiber
manufacturing facility in Nashville, Tennessee (and certain related assets and
liabilities) was transferred to GFC, (2) USI became a subsidiary of the Company
and (3) G-I Holdings made a cash contribution of approximately $57 million to
the Company. In that connection, GFC entered into a long-term supply agreement
with the Company under which GFC has agreed to produce glass fiber for the
Company. See 'Certain Relationships.' As of January 1, 1997, USI became a
subsidiary of the Company through a capital contribution to the Company by G-I
Holdings. Accordingly, the Company's historical consolidated financial
statements have been restated for the year ended December 31, 1995 and the nine
months ended September 29, 1996 to include USI's results of operations from the
date of its acquisition by G-I Holdings, including sales of $21.8 million for
the year ended December 31, 1995 and $76.3 million for the nine months ended
September 29, 1996 and net income (loss) of $(.5) million and $.8 million,
respectively.
RESULTS OF OPERATIONS
First Nine Months of 1996 Compared With First Nine Months of 1995
For the first nine months of 1996, the Company recorded net income of $16.5
million compared with net income of $10 million for the first nine months of
1995. The 65% increase in net income was attributable to improved operating
income and lower other expense, partially offset by higher interest expense.
The Company's net sales for the first nine months of 1996 were $648.4
million compared with $507.7 million for the same period last year. The 28%
sales growth primarily reflected USI sales of $76.3 million and also reflected a
14% sales growth for BMCA due to increased unit volumes of both residential and
commercial roofing products and higher average selling prices.
Gross profit margin improved to 27.4% for the first nine months of 1996
from 27.2% last year, resulting primarily from higher average selling prices.
Selling, general and administrative expenses as a percentage of net sales
decreased slightly from 19.6% to 19.5% for the first nine months of 1996.
Operating income for the first nine months of 1996 was $51.2 million, a 33%
increase over the $38.4 million recorded in the same period of last year. The
higher operating income was attributable to the increased sales and improved
margins and included $3.1 million operating income from USI.
Interest expense increased to $23.7 million in the first nine months of
1996 from $18.2 million last year, reflecting higher debt levels. Other expense,
net decreased to $.5 million from $3.5 million, primarily as a result of higher
investment and interest income (up $4.0 million).
1995 Compared With 1994
The Company recorded net income in 1995 of $10.1 million compared with net
income of $16.7 million in 1994. The lower net income was primarily attributable
to higher interest expense, partially offset by improved operating income.
Net sales for 1995 increased $94.1 million (16%) to $687.2 million,
compared with $593.1 million in 1994. The sales growth primarily reflected
higher unit volumes of both residential and commercial roofing products,
including $21.8 million sales of USI, acquired in October 1995, and those of the
business of International Permalite Inc. ('IPI'), acquired in March 1994, and
higher average selling prices.
Gross profit margin decreased from 28.3% in 1994 to 26.4% in 1995,
resulting principally from higher raw material costs, partially offset by the
higher average selling prices. Selling, general and administrative expenses
increased 9.7% to $135.3 million, primarily reflecting higher distribution and
selling costs to support the increased level of sales, and also reflecting $3.6
million of USI expenses from the date of USI's acquisition. Selling, general and
administrative expenses decreased as a percentage of net sales from 20.8% in
1994 to 19.7% in 1995.
20
<PAGE>
The Company recorded operating income of $45.9 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.
Interest expense was $24.8 million in 1995 compared with $13.1 million in
1994. The increase was attributable to the issuance in June 1994 of the Deferred
Coupon Notes. See Note 9 to Consolidated Financial Statements.
Other expense, net, increased to $4.5 million in 1995 from $3.8 million in
1994. The increase was primarily attributable to increased expenses related to
the sale of the Company's receivables (up $1.2 million) and certain litigation
costs, partially offset by higher interest income from the Company's loan to a
related party (up $0.9 million).
1994 Compared With 1993
In 1994, the Company recorded net income of $16.7 million compared with net
income of $20.4 million in 1993. The lower net income was attributable to higher
interest expense, partially offset by improved operating income and lower other
expense, net.
Net sales for 1994 increased $33.9 million (6%) to $593.1 million, compared
with $559.2 million in 1993, reflecting higher unit volumes of both residential
and commercial roofing products and the acquisition of the business of IPI in
March 1994.
Gross profit margin increased to 28.3% in 1994 from 28.0% in 1993, 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.
Selling, general and administrative expenses increased 7% to $123.3
million, primarily reflecting higher distribution and selling costs to support
the increased level of sales in 1994, partially offset by lower management fees
paid to an affiliate, principally reflecting the affiliate's lower costs of
providing services. See Note 11 to Consolidated Financial Statements. Selling,
general and administrative expenses remained relatively constant from year to
year as a percent of net sales, increasing to 20.8% in 1994 from 20.6% in 1993.
The Company recorded operating income of $44.7 million in 1994, up 8%
compared with $41.5 million in 1993, reflecting the higher sales and improved
margins. Operating income margin increased in 1994 to 7.5% from 7.4% in 1993.
Interest expense was $13.1 million in 1994 compared with $2 million in
1993. The increase was attributable to the issuance of the Deferred Coupon Notes
in June 1994.
Other expense, net, in 1994 declined to $3.8 million from $6.4 million in
1993. The decrease resulted from higher income on investments (up $2.1 million),
and a reduction in certain other expenses, partially offset by increased
expenses related to the sale of the Company's trade accounts receivable (up $1.3
million ).
LIQUIDITY AND FINANCIAL CONDITION
The Company generated $18.2 million of cash from operations during the
first nine months of 1996, of which $15.7 million was utilized for capital
programs, and generated $13.8 million of cash from net sales of
available-for-sale securities, for a net cash inflow of $16.3 million before
financing activities. Cash from operations included a cash outflow of $2.9
million for net purchases of trading securities.
Cash invested in additional working capital totaled $46.2 million during
the first nine months of 1996. This amount primarily reflected a seasonal
increase in inventories of $11.9 million and a $33.4 million increase in the
receivable from the trust which purchases the Company's trade accounts
receivable.
Cash used in financing activities for the first nine months of 1996 totaled
$49.3 million, primarily reflecting $43.7 million in payments of asbestos
claims, $11.9 million in repayments of long-term debt and a $22 million loan to
an affiliate, partially offset by $16.4 million in proceeds from the sale of
receivables and an $11.6 million capital contribution from the Company's parent.
As a result of the foregoing factors, cash and cash equivalents decreased
by $33.0 million during the first nine months of 1996 to $13.0 million
(excluding $29.4 million of trading and available-for-sale securities).
21
<PAGE>
The Company generated $50.6 million of funds from operations in 1995. Cash
utilized for working capital totaled $8.1 million in 1995, primarily reflecting
increased inventories and lower payables.
The Company invested $93.5 million in 1995 in capital programs and
acquisitions, including $27.5 million for the acquisition of USI, and for net
purchases of available-for-sale securities. Net cash outflow in 1995 before
financing activities was $42.8 million.
Net cash provided by financing activities in 1995 was $59.8 million,
principally reflecting $40 million of proceeds from a sale-leaseback transaction
(see below), a $34.3 million capital contribution from the Company's parent
(reflecting the cash that was used to make the acquisition of USI), $23.6
million from the repayment of a loan by a related party, a $24.5 million
reduction in restricted cash, and $7.9 million in proceeds from the sale of the
Company's trade receivables. Such cash flow was partially offset by the payment
of asbestos claims of $59.8 million and $10.4 million in repayments of long-term
debt.
As a result of the foregoing factors, cash and cash equivalents increased
by $17.0 million in 1995 to $46.0 million (excluding $40.1 million of trading
and available-for-sale 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 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 2 to Consolidated
Financial Statements.
Borrowings by the Company are subject to the application of certain
financial covenants contained in the indenture relating to the Deferred Coupon
Notes. As of September 29, 1996, the Company was in compliance with such
covenants.
In June 1996, the Company's bank credit facilities were extended to June
1997 on the same terms and conditions. Such facilities provide for revolving
lines of credit up to $30 million and letters of credit facilities of up to $39
million, provided that total borrowings and outstanding letters of credit may
not exceed $40 million. As of September 29, 1996, $33.1 million of letters of
credit were outstanding and no amounts had been borrowed thereunder. Under the
agreements, the Company is subject to a minimum consolidated net worth test. As
of September 29, 1996, the Company 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 September 29, 1996, loans of $22.2 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, the Company consummated a $40 million sale-leaseback of
certain equipment located at its Chester, South Carolina glass mat manufacturing
facility, in a transaction accounted for as a capital lease. The proceeds were
used for general corporate purposes. The lease term extends to December 2005.
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 September 29, 1996, the total notional amount of interest
rate swaps outstanding was $100.8 million, and the amount of underlying debt
relating to such swaps was $220.1 million. By utilizing interest rate swap
agreements, the Company reduced its interest expense by $1.6 million in the
first nine months of 1996, $1.5 million in 1995 and $0.2 million in 1994. See
Note 9 to Consolidated Financial Statements.
See Note 9 to Consolidated Financial Statements for further information
regarding the debt instruments of the Company.
Upon its formation on January 31, 1994, the Company assumed the first
$204.4 million of GAFBMC's liabilities relating to then pending cases and
previously settled asbestos-related bodily injury cases, $178.8 million of which
had been paid through September 29, 1996. Accordingly, as of January 31, 1994,
the
22
<PAGE>
Company's stockholder's equity (deficit) reflects a charge of $124.7 million,
representing the Company's assumption of the aforementioned asbestos liabilities
net of a corresponding income tax benefit. At September 29, 1996, the Company
had total outstanding consolidated indebtedness of $326.4 million and
stockholder's equity of $44.3 million; $3.1 million of the Company's
indebtedness matures prior to September 30, 1997. As of September 29, 1996, the
current portion of the reserve for asbestos claims was $20.6 million.
Substantially all of the asbestos-related liabilities assumed by the Company are
expected to be paid by the end of the second quarter of 1997. The Company
anticipates funding such obligations from its cash and investments, operations
and/or borrowings (which may include borrowings from affiliates). See
'Business-- Legal Proceedings' for further information regarding
asbestos-related matters.
In March 1993, the Company sold its trade accounts receivable
('receivables') to a trust, without recourse, pursuant to an agreement which
provided for a maximum of $75 million in cash to be made available to the
Company based on eligible receivables outstanding from time to time. In November
1996, the Company repurchased the receivables sold pursuant to the 1993
agreement and sold them to a special purpose subsidiary of the Company, BMCA
Receivables Corporation, without recourse, which in turn sold them to a new
trust, without recourse, pursuant to new agreements. The new agreements provide
for a maximum of $115 million in cash to be made available to the Company based
on eligible receivables outstanding from time to time and the facility expires
in December 2001.
The Company makes loans to, and borrows from, G-I Holdings and its
subsidiaries at prevailing market rates. As of September 29, 1996, $22 million
in loans were owed to the Company by G-I Holdings and no loans were owed by the
Company to affiliates.
The parent corporations of the Company are essentially holding companies
without independent businesses or operations and, as such, are presently
dependent upon the cash flow of their subsidiaries, including the Company, in
order to satisfy their obligations, including the asbestos-related claims
mentioned above and certain potential tax liabilities including tax liabilities
relating to Rhone-Poulenc Surfactants & Specialties L.P., a Delaware limited
partnership which operates, among other businesses, GFC's former surfactants
chemicals business. The parent corporations of the Company are GAF, G-I
Holdings, G Industries Corp. and GAFBMC, and except for the Company, the only
significant asset of such parent corporations is GFC. GAF has advised the
Company that it expects to obtain funds to satisfy such obligations from, among
other things, refinancings of debt, dividends and loans from subsidiaries, and
from payments pursuant to Tax Sharing Agreements between GAF and its
subsidiaries. The indentures relating to the Notes and the Deferred Coupon Notes
contains restrictions on the amount of dividends, loans and other restricted
payments (as defined) which may be paid by the Company. As of September 29,
1996, after giving effect to the most restrictive of the aforementioned
restrictions, the Company could have paid dividends of up to $23.0 million (and,
after giving effect to the net capital contributions made to the Company as part
of the Spin Off Transactions and the contribution to the Company in July 1996 of
the Houston, Texas facility of USI, approximately $135.1 million in the
aggregate). In the event that the Company's parent corporations should become
unable to meet their cash requirements from sources other than the Company, they
might take various actions, including, among other things, seeking to cause the
Company to make distributions to stockholders by means of dividends or
otherwise, to make loans to its parent corporations, or cause GAFBMC to sell
shares of the Company's common stock. The Company does not believe that the
dependence of its parent corporations on the cash flows of their subsidiaries
should have a material adverse effect on the operations, liquidity or capital
resources of the Company. For further information, see Notes 3, 5, 9 and 12 to
Consolidated Financial Statements.
For further information with regard to income taxes, see Note 5 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 was 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.
23
<PAGE>
BUSINESS
The Company, incorporated under the laws of Delaware in 1994, is a
wholly-owned subsidiary of GAF Building Materials Corporation ('GAFBMC'). The
Company acquired the operating assets and certain liabilities of GAFBMC in 1994.
GAFBMC is a wholly-owned subsidiary of G Industries Corp. ('G Industries'),
which is a holding company that also owns all of the capital stock of GAF
Fiberglass Corporation ('GFC'). G Industries is a wholly-owned subsidiary of G-I
Holdings Inc. ('G-I Holdings'), a wholly-owned subsidiary of GAF. GAF is
controlled by Samuel J. Heyman, Chairman of the Board of Directors and Chief
Executive Officer of each of GAF, G-I Holdings, G Industries, GAFBMC, GFC and
the Company. 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.
The Company 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 22 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(Registered) product is the leading brand in residential roofing, and
the Company's Ruberoid(Registered) product is the leading brand in the modified
bitumen commercial roofing, the latter being the fastest growing segment in the
commercial roofing industry. The Company does business under the name 'GAF
Materials Corporation.'
The Company operates 16 roofing manufacturing facilities, two roofing
accessory plants, one glass mat manufacturing plant, two perlite roofing
manufacturing plants and one fiber-cement shingle and siding plant. The Company
has registered, through 1995, eight consecutive years of increases in operating
income. Since 1989 and through December 31, 1995, the Company's net sales and
operating income have increased at average annual compound rates of
approximately 9% and 13%, respectively (without giving effect to the acquisition
of USI), and its gross profit and operating income margins have increased from
25.2% to 26.4% and from 5.5% to 6.7%, respectively. The Company 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 low cost manufacturing operations; (iii) substantial capital spending
programs for new property, plant and equipment that have enabled the Company to
expand capacity and reduce manufacturing costs; and (iv) the strength of its
national distribution system.
Effective as of January 31, 1994, GAFBMC transferred to the Company all of
its business and assets (other than three closed manufacturing facilities,
certain deferred tax assets and receivables from affiliates). The Company
contractually assumed all of GAFBMC's liabilities, except (i) all of GAFBMC's
environmental liabilities, other than environmental liabilities relating to the
Company's plant sites and its business as then conducted, (ii) any potential
liability relating to certain litigation with Georgia-Pacific Corporation (see
'Business--Legal Proceedings--Other Litigation') and (iii) all of GAFBMC's
asbestos-related liabilities, other than the first $204.4 million of such
liabilities (whether for indemnity or defense) relating to then-pending
asbestos-related bodily injury cases and previously settled asbestos-related
bodily injury cases which the Company contractually assumed and agreed to pay.
G-I Holdings and GAFBMC have agreed, jointly and severally, to indemnify the
Company from liabilities not assumed by the Company, including asbestos-related
and environmental liabilities not expressly assumed by the Company. See Note 3
to Consolidated Financial Statements and 'Risk Factors--Parents' Dependence upon
Company's Cash Flow.'
USI was acquired by G-I Holdings in October 1995 and became a subsidiary of
the Company on January 1, 1997 as part of the Spin Off Transactions. The
financial and statistical data regarding the Company contained herein reflect
the results of USI from and after October 20, 1995, the date on which USI was
acquired by G-I Holdings, except as expressly set forth herein. For pro forma
information, see 'Selected Financial Data.'
INDUSTRY OVERVIEW
The United States residential roofing industry comprises 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 comprise higher margin, premium
laminated shingles and standard strip shingles, which represented approximately
25% and 75%, respectively, of industry asphalt roofing
24
<PAGE>
unit sales in 1995. Total asphalt residential unit sales grew during the past
five years (from January 1, 1991 through December 31, 1995) 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 comprises manufacturers of
asphalt built-up roofing, modified bitumen, single-ply polymer and other roofing
products. Approximately 70% of commercial roofing industry membrane unit 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 5%, 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 homeowners upgrade from standard strip roofing
shingles to premium laminated shingles for enhanced aesthetics and durability.
RESIDENTIAL ROOFING PRODUCTS
Residential roofing represented approximately 73% of the Company's net
sales in 1995 (approximately 64% after giving effect to the acquisition of USI
by the Company). The Company believes that it is the largest manufacturer of
laminated shingles and the second largest manufacturer of strip shingles in the
United States. The Company produces two lines of shingles, the
Timberline(Registered) series and the Sovereign(Registered) series, as well as
certain specialty shingles principally for regional markets.
The Company's sales of laminated shingles represented approximately 40% of
its residential sales in 1995, with sales of such shingles having grown during
the five years ended December 31, 1995 at an average annual compound rate of
approximately 8%. The Timberline(Registered) series offers a premium laminated
product line that adds dramatic shadow lines and substantially improves the
appearance of a roof.
The Company'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 the Company's residential sales in 1995. The
Sovereign(Registered) series includes a line of standard strip shingles and
heavier weight 3-tab shingles designed to capitalize on the demand for quality
shingles.
All of the Company'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 colored ceramic-coated mineral granules. The Company's
other residential roofing products include Timbertex(Registered) and
Ridgetex(Registered) Hip & Ridge shingles, Shingle-Mate(Registered)
underlayment, Weather Watch(Registered) ice and water barrier, a waterproof
underlayment, and Cobra(Registered) ridge vent, a ventilation system on a coil,
all of which enable the Company to offer a complete system of residential
roofing components.
COMMERCIAL ROOFING PRODUCTS
Commercial roofing represented approximately 27% of the Company's net sales
in 1995 (approximately 36% after giving effect to the acquisition of USI by the
Company). The Company manufactures a broad line of modified bitumen products,
asphalt built-up roofing and roofing accessories. The Company believes that it
is the second largest manufacturer of asphalt built-up roofing products and the
largest manufacturer of modified bitumen products in the United States. The
Company also manufactures perlite roofing insulation products, which consist of
low thermal insulation products for commercial roofing installation below the
roofing membrane. The Company also markets isocyanurate foam as roofing
insulation, packaged asphalt and
25
<PAGE>
accessories such as vent stacks, roof insulation fasteners, cements and
coatings. The Company 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 the Company's strategies to grow sales and profitability has been to
improve its product mix, with an increased 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 and
through December 31, 1995, the Company's unit sales of premium shingles have
increased at an average annual compound rate of approximately 11%. This growth
enabled the Company to significantly increase its premium product mix of
residential sales. Management expects to continue this strategy to improve
product mix by increasing sales of premium shingles.
SUBSTANTIAL CAPITAL PROGRAMS
The Company believes that its plants are among the most modern in the
industry, due in part to the fact that since 1985 and through December 31, 1995,
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 the Company's fiberglass and glass mat facilities.
The Company 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
The Company believes that it 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(Registered),
which created an entire new product line within the asphalt roofing industry.
New products introduced by the Company in just the last four years include: the
Timberline(Registered) and Timberline Ultra(Registered) Natural
Shadow(Trademark) shingles, which offer wood shake appearance, enhanced visual
depth and contrast simulating shadows; the Marquis(Registered) shingle, a
heavyweight three-tab shingle designed for Northern markets which offers greater
flexibility and added durability in cold temperatures; the
Stonehenge(Registered) shingle, a specialty shingle offering a unique strip
shingle appearance; the Grand Sequoia(Registered) shingle, a premier
architectural shingle; the Floridian(Registered) shingle, a unique 6-tab shingle
that offers a dimensional look; and Ruberoid(Registered) 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, the Company introduced GAF
CompositeRoof(Trademark), 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 acquisition of USI, a leading national manufacturer of
commercial roofing products, and the 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.
26
<PAGE>
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 the Company's net sales in 1995 (approximately
64% after giving effect to the acquisition of USI by the Company). The Company
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.
The Company produces two principal lines of roofing shingles, the
Timberline(Registered) series and the Sovereign(Registered) series, as well as
certain specialty shingles for regional markets.
The Timberline(Registered) Series. The Timberline(Registered) 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(Registered) 25 Natural Shadow(Registered) shingle, a mid-weight
laminated shingle which serves as an economic trade-up for consumers, with a
25-year limited warranty; the Timberline(Registered) Natural Shadow(Trademark)
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 Ultra(Registered) Natural
Shadow(Trademark) shingle, with a 40-year limited warranty, a super heavyweight
laminated shingle with the same design features as the Timberline(Registered)
Natural Shadow(Trademark) shingle, together with added durability.
The Sovereign(Registered) Series. The Sovereign(Registered) Series
includes the standard 3-tab Sentinel(Registered) shingle with a 20-year limited
warranty; the Royal Sovereign(Registered) 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(Registered) shingle, a super heavyweight 3-tab
shingle with a 30-year limited warranty.
Specialty Shingles. The Company's specialty asphalt shingles include:
Slateline(Registered) shingles offering the appearance of slate, labor savings
in installation because of their larger size and a 30-year limited warranty;
Stonehenge(Registered) offering a unique strip shingle appearance and a 25-year
limited warranty; Dubl-Coverage(Registered) Tite-On(Registered) shingles
offering a design feature that enables the shingles to lock together to form a
double layer roof, and a 25-year limited warranty; the Grand Sequoia(Registered)
shingle, a premier architectural shingle with a 40-year warranty; and the
Floridian(Registered) shingle, a unique 6-tab shingle that offers a dimensional
look with a 25-year limited warranty.
SystemRoof(Registered) Component Roofing System. In addition to shingles,
the Company supplies all the components necessary to install a complete roofing
system. The Company's SystemRoof(Registered) begins with Weather
Watch(Registered) 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. The Company's SystemRoof(Registered) also includes
Shingle-Mate(Registered) glass reinforced underlayment, Timbertex(Registered),
Ridgetex(Trademark) and Slateline(Registered) 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(Registered) Ridge Vent which provides attic ventilation.
COMMERCIAL ROOFING
The Company manufactures 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 the
Company's net sales in 1995 (36% after giving effect to the acquisition of USI).
Approximately 70% of commercial roofing industry membrane unit sales utilize
asphalt built-up roofing and modified bitumen products, both of which the
Company manufactures. The Company believes that it is the second largest
manufacturer of asphalt built-up roofing products and the largest manufacturer
of modified bitumen products in the United States.
The Company manufactures glass membranes under the trademark
GAFGLAS(Registered), 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(Registered) 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, the Company sells
isocyanurate foam
27
<PAGE>
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(Registered) trademark
by the Company and under the Brai(Registered) 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. The Company markets its
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 the Company's 1995
sales.
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 the Company's roofing plants have easy access to deep water ports
thereby permitting delivery of asphalt by ship, the most economical means of
transport. The Company'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. The Company 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 the Company 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. As part of the Spin Off Transactions, the Company transferred
to GFC its Nashville, Tennessee facility, which manufactures a significant
portion of the Company's glass fiber requirements, and entered into a supply
contract with GFC under which GFC produces glass fiber for the Company.
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).
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<PAGE>
WARRANTY CLAIMS
The Company provides certain limited warranties covering most of its
residential 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, Firestone and Carlisle. 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. The Company's research and development expenditures were
approximately $2.6 million, $2.5 million and $3.1 million in 1993, 1994 and
1995, respectively.
PROPERTIES
The corporate headquarters and principal research and development
laboratories of the Company 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.
The principal real properties either owned by, or leased to, the Company or
its subsidiaries are described below. Unless otherwise indicated, the properties
are owned in fee. In addition to the principal facilities listed below, the
Company maintains sales offices and warehouses, substantially all of which are
in leased premises under relatively short-term leases.
<TABLE>
<CAPTION>
LOCATION FACILITY
-------- --------
<S> <C>
Alabama
Mobile................................................ Plant, Warehouse*
Arizona
Chandler.............................................. Warehouse*
California
Fontana............................................... Plant, Sales Office
Ontario............................................... Plant, Sales Office
Stockton.............................................. Plant, Warehouse*
Florida
Tampa................................................. Plant, Sales Office*
Georgia
Monroe................................................ Plant, Warehouse*
Savannah.............................................. Plant, Sales Office
Indiana
Mount Vernon.......................................... Plant, Sales Office
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
LOCATION FACILITY
-------- --------
<S> <C>
Illinois
Naperville............................................ Sales Office*
Kentucky
Florence.............................................. Plant
Maryland
Baltimore............................................. Plant, Warehouse*
Massachusetts
Millis................................................ Plant, Sales Office
Minnesota
Minneapolis........................................... Plant, Sales Office, Warehouse*
New Jersey
Branchburg............................................ Warehouse*
North Branch.......................................... Plant
North Brunswick....................................... Sales Office*, Warehouse*
Wayne................................................. Headquarters, Corporate
Administrative Offices,
Research Center*
Ohio
Wadsworth............................................. Plant*, Warehouse*
Oregon
Corvallis............................................. Plant
Pennsylvania
Erie.................................................. Plant, Sales Office, Warehouse*
Wind Gap.............................................. Plant
South Carolina
Chester............................................... Plant
Tennessee
Nashville............................................. Research Center
Texas
Beaumont.............................................. Plant
Dallas................................................ Plant, Sales Office, Warehouse*
Fannett............................................... Warehouse
Houston............................................... Plant, Warehouse, Warehouse*
Port Arthur........................................... Plant, Warehouse, Office
</TABLE>
- ------------------
*Leased Property
The Company believes that its 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 $25.0
million relating to plant, property and equipment.
PATENTS AND TRADEMARKS
The Company owns approximately 73 domestic and 79 foreign patents and owns
or licenses approximately 133 domestic and 44 foreign 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.
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<PAGE>
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 averaging
approximately $500,000 during 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 each of 1997 and 1998 will be
approximately $600,000.
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
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
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, GAFBMC, relating to pending cases and
previously settled, but not paid, cases as of January 31, 1994, of which $178.8
million had been paid through September 29, 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.
Bodily Injury Claims. As of September 29, 1996, GAF had been named as a
defendant in approximately 59,300 pending lawsuits involving alleged health
claims relating to the inhalation of asbestos fiber ('Asbestos Claims'), having
resolved approximately 221,000 Asbestos Claims. Plaintiffs in approximately
31,200 of the pending lawsuits were preliminarily enjoined from proceeding with
their claims other than in accordance with the Settlement described below.
The reserves of GAF and G-I Holdings for asbestos bodily injury claims, as
of September 29, 1996, were approximately $357.8 million (before estimated
present value of recoveries from products liability insurance policies of
approximately $211 million as described below and related deferred tax benefits
of approximately $51.4 million). GAF and G-I Holdings have advised the Company
that certain components of the asbestos-related liability and the related
insurance recoveries have been reflected on a discounted basis in their
financial statements. See Note 3 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 G-I Holdings had available, to
pay asbestos-related bodily injury claims, aggregate insurance coverage, as of
September 29, 1996, totaling $224.3 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 impact of the
Settlement if it becomes effective, GAF believes that its
31
<PAGE>
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 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 class as a whole, certified the class
and 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. On
November 1, 1996, the United States Supreme Court granted GAF's petition for a
writ of certiorari and agreed to hear GAF's appeal of the Third Circuit's
decision. The appeal is expected to be heard on February 18, 1997. GAF continues
to believe the Settlement should ultimately be upheld on appeal, although there
can be no assurance in this regard.
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.
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.
The Company believes that it will not sustain any liability for damages in
connection with asbestos-related claims in excess of the $204.4 million that it
has contractually assumed. While the Company cannot predict whether any
asbestos-related claims will be asserted against it or its assets, or the
outcome of any litigation relative to such claims, it believes that it has
meritorious defenses to such claims. Moreover, it has been jointly and severally
indemnified by G-I Holdings and GAFBMC with respect to such claims, and GAF and
G-I Holdings have advised the Company that, based on the assumptions referred to
above, they believe they have and will have sufficient resources, principally
through their ownership of the common stock of BMCA, to enable them to satisfy
their asbestos-related liabilities. Should GAF or GAFBMC be unable to satisfy
judgments against
32
<PAGE>
it in asbestos-related lawsuits, its judgment creditors might seek to enforce
their judgments against the assets of GAF or GAFBMC, including its holdings of
common stock of the Company, and such enforcement could result in a change of
control with respect to the Company.
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 140 such cases at an average disposition cost
(including cases disposed of at no cost to GAF) of approximately $15,000 per
case (all of which have been paid by insurance under reservation of rights), but
is a co-defendant in only 8 remaining lawsuits. See '--Insurance Matters.' BMCA
has not assumed any liabilities with respect to Building Claims, and G-I
Holdings and GAFBMC have jointly and severally agreed to indemnify BMCA in the
event any such claims are asserted against it.
Insurance Matters. GAF and G-I Holdings had available, as of September 29,
1996, to pay asbestos-related bodily injury claims aggregate insurance coverage
of $224.3 million (which amount was used in the reserve calculation referred to
in 'Bodily Injury Claims' and is reduced as asbestos-related liabilities are
satisfied), $19.0 million of which is the subject of negotiations with various
insurers and/or the Settlement Coverage Action described below, and which $19.0
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 $224.3 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: 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 $41.8 million of the $224.3 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.
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
33
<PAGE>
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.
ENVIRONMENTAL LITIGATION
BMCA, 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.
In connection with its formation, BMCA contractually assumed all
environmental liabilities of GAFBMC relating to existing plant sites and the
business of BMCA as then conducted, and the estimates referred to below reflect
only those environmental liabilities assumed by BMCA. The environmental
liabilities of GAFBMC which were not assumed by BMCA, for which G-I Holdings and
GAFBMC have agreed to indemnify the Company, relate primarily to closed
manufacturing facilities. G-I Holdings estimates that, as of September 29, 1996,
its liability in respect of the environmental liabilities of GAFBMC not assumed
by BMCA was approximately $12.9 million, before insurance recoveries reflected
on its balance sheet of $5.7 million, as compared to BMCA's estimate of its
liability as of September 29, 1996 in respect of assumed environmental
liabilities of $1.4 million, before insurance recoveries reflected on its
balance sheet (discussed below) of $0.5 million ('estimated recoveries').
At most sites, BMCA anticipates that liability will be apportioned among
the companies found to be responsible for the presence of hazardous substances
at the site. Although it is difficult to predict the ultimate resolution of
these claims, based on BMCA's evaluation of the financial responsibility of the
parties involved and their insurers, relevant legal issues and cost sharing
arrangements now in place, BMCA estimates that its liability in respect of all
Environmental Claims, including certain environmental compliance expenses, will
be as discussed above.
After considering the relevant legal issues and other pertinent factors,
BMCA believes that it will receive the estimated recoveries and it may receive
amounts substantially in excess thereof. BMCA believes it is entitled to
substantially full defense and indemnity under its insurance policies for most
Environmental Claims, although BMCA'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. BMCA terminated these agreements in 1995, and on March 8, 1995
GAF commenced litigation on behalf of it and its subsidiaries in the United
States District Court for the District of New Jersey seeking amounts
substantially in excess of the estimated recoveries. While BMCA believes that
its claims are meritorious, there can be no assurance that BMCA will prevail in
its efforts to obtain amounts equal to, or in excess of, the estimated
recoveries.
The Company believes that it will not sustain any liability for
environmental liabilities of GAFBMC other than those that it has contractually
assumed. While the Company cannot predict whether any claims for non-assumed
environmental liabilities will be asserted against it or its assets, or the
outcome of any litigation relative to such claims, it believes that it has
meritorious defenses to such claims. Moreover, it has been jointly and severally
indemnified by G-I Holdings and GAFBMC with respect to such claims, and G-I
Holdings has advised BMCA that it believes it has and will have sufficient
resources to enable it to satisfy its environmental liabilities. The possible
consequences to the Company of the failure of G-I Holdings and GAFBMC to satisfy
judgments against them in environmental-related lawsuits are described in the
second to last paragraph of 'Risk Factors-- Asbestos Claims Filed Against GAF.'
OTHER LITIGATION
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
34
<PAGE>
Holdings and such subsidiary did not have the right to terminate the agreement
and seeking unspecified damages. The Company believed that the complaint was
without merit and counterclaimed for breach of contract. Following
completion of a jury trial, the jury determined that neither G-I Holdings, its
subsidiary nor G-P would have any liability as a result of the termination of
the agreement. G-I Holdings and GAFBMC have agreed to indemnify the Company with
respect to any liabilities not assumed by the Company, including any liability
in connection with this action.
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 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
in either of these actions. On August 14, 1996, an action was commenced in
Pointe Coupee Parish, Louisiana, against GAF and GAFBMC on behalf of a purported
nationwide class of those who own or did own single family residences on which
GAF Timberline(Registered) shingles were installed. The Company was not served
or otherwise notified of the action until November 1996. Without any notice to
the Company, in August 1996, the court in Pointe Coupee conditionally certified
the nationwide class, reserving the right to decertify the class or otherwise
modify this order. The Company recently removed the action to the United States
District Court for the Middle District of Louisiana. The action alleges that the
shingles were defective and seeks an unspecified amount of compensatory and
punitive damages on behalf of the purported class. On August 30, 1996, an action
was commenced in Johnson County, Texas, against GAF, GAFBMC and the Company on
behalf of a purported statewide class of purchasers of laminated organic
shingles, which GAF ceased manufacturing in 1981. The Company has removed this
action to the United States District Court for the Northern District of Texas,
and the plaintiffs have sought to dismiss this action or, in the alternative, to
remand the case to state court. The action alleges, among other things, that the
shingles were defective and seeks unspecified damages on behalf of the purported
class. On or about January 7, 1997, an action was commenced in the Superior
Court of New Jersey, Middlesex County against GAFBMC on behalf of a purported
nationwide class of owners of buildings with shingles manufactured by GAFBMC who
allegedly have suffered damages since January 1991. The action alleges, among
other things, that such shingles were defective and seeks unspecified damages on
behalf of the purported class. The Company does not believe a class is warranted
in any of these actions, and intends to vigorously oppose them.
* * *
The Company believes that the ultimate disposition of the cases described
above under 'Environmental Litigation,' 'Asbestos-in-Building 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
At December 31, 1996, the Company employed approximately 2,800 people
worldwide, approximately 1,000 of which were subject to 15 union contracts. The
contracts are effective for four-year periods. During 1996, five labor contracts
expired and were renegotiated. The Company expects to renegotiate five labor
contracts during 1997. 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.
35
<PAGE>
MANAGEMENT
The following table sets forth the name, age, position and other
information with respect to the directors and executive officers of the Company.
Each person listed below is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
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 of BMCA
Director, Chairman and Chief Executive Officer since its formation and Chief Executive Officer of
BMCA since June 1996. He has served as a director
and Chairman and Chief Executive Officer of ISP
since its formation in May 1991 and Chairman and
Chief Executive Officer of GAFBMC since May 1994.
Mr. Heyman has held the same offices with GAF, G-I
Holdings and certain of its subsidiaries since
April 1989, prior to which he held the same
position with GAF's predecessor from December 1983
to April 1989. Mr. Heyman has been a director of
USI since October 1995, and of ISP Holdings Inc.
since its formation. 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.
Sunil Kumar ......................................... 47 Mr. Kumar has been the President, Chief Operating
Director, President and Chief Operating Officer Officer and a director of BMCA since July 24, 1996,
March 18, 1996 and May 1995, respectively. He was
President, Commercial Roofing Products Division,
and Vice President of BMCA from February 1995 to
March 18, 1996. He has been Vice Chairman and a
director of USI since October 1995. From 1992 to
February 1995, he was Executive Vice President of
Bridgestone/Firestone Inc., a retail distributor
and manufacturer of tires and provider of
automobile services. From 1982 to 1990, Mr. Kumar
was President of Firestone Building Products
Company, and from 1990 to 1992 he was Vice
President of Bridgestone/Firestone.
James P. Rogers ..................................... 45 Mr. Rogers has been a director of BMCA since its
Director and Executive Vice President formation and Executive Vice President of BMCA
since December 1996. Mr. Rogers has been Executive
Vice President and Chief Financial Officer of GAF,
G-I Holdings and certain of its subsidiaries and
Executive Vice President-Finance of ISP since
December 1996. He was Senior Vice President of such
corporations from November 1993 to December 1996
and of BMCA from its formation to December 1996.
Mr. Rogers has been a director and Senior Vice
President of USI since October
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
1995 and ISP Holdings Inc. since its formation. Mr.
Rogers was Treasurer of BMCA from its formation
until December 1994. 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. From August 1987 to March
1992, Mr. Rogers was Treasurer of Amphenol
Corporation, a manufacturer of electronic
connectors.
Richard A. Weinberg ................................. 37 Mr. Weinberg has been Senior Vice President and
Senior Vice President and General Counsel General Counsel of BMCA since May 1996. He has been
Senior Vice President and General Counsel of GAF,
G-I Holdings, ISP and certain of their subsidiaries
since May 1996 and of ISP Holdings since its
formation. 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.
John M. Sergey ...................................... 54 Mr. Sergey has been a director of BMCA since its
Director formation. He was Chief Executive Officer and
President of BMCA from its formation until May 31,
1996, a director of GAFBMC from April 1989 until
May 31, 1996 and a director and Chairman of USI
from October 1995 until May 31, 1996. Mr. Sergey
was President of GAFBMC from April 1989 to May 1994
and was Executive Vice President of GAFBMC from May
1994 until May 31, 1996. Mr. Sergey was a Director
and Executive Vice President of GAF from April 1989
until May 31, 1996. From 1978 to 1989 he served in
various management positions with Avery
International Corporation, a company engaged in the
manufacture and conversion of pressure sensitive
adhesive products, including Group Vice President
of the Materials Group from 1987 to 1989 and Group
Vice President of the Soabar Group from 1984 to
1987.
Donald W. LaPalme ................................... 59 Dr. LaPalme has been Senior Vice President-Operations
Senior Vice President-Operations of BMCA and certain of its subsidiaries since April
1996. He was Vice President-Operations of BMCA and
certain of its subsidiaries from January 1994 to
April 1996 and
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
held the same position with GAFBMC from 1987 to May
1994. From 1985 to 1987 he was plant manager and
Director of Manufacturing Polymers of GFC's Calvert
City, Kentucky manufacturing facility. From 1981 to
1984 he was Vice President of Manufacturing of
GAF's Building Materials Division.
Danny J. Adair ...................................... 52 Mr. Adair has been President and Chief Executive
President and Chief Executive Officer, U.S. Intec, Officer of USI since 1982.
Inc.
Joseph J. Okaly ..................................... 39 Mr. Okaly has been Vice President of Marketing and
Vice President-Marketing and Sales, Residential Sales, Residential Roofing Products of BMCA since
Roofing Products June 1996. He was Vice President-Logistics of BMCA
from December 1992 to June 1996 and Director,
Distribution/Customer Service of BMCA from January
1992 to December 1992.
William W. Collins .................................. 46 Mr. Collins has been Vice President-Marketing &
Vice President-Marketing and Sales Commercial Sales, Commercial Roofing Products of BMCA since
Roofing Products March 1996. He was Vice President-Sales, Commercial
of BMCA from December 1995 to March 1996, Director
of Insulation, Accessories and Cobra Products of
BMCA from February 1995 to December 1995 and
Director of Special Projects of BMCA from July 1992
to February 1995. From February 1991 to July 1992,
he was Vice President-Sales & Marketing of Berger
Building Materials.
</TABLE>
- ------------------
(1) Under BMCA's By-laws, each director and executive officer continues in
office until BMCA's next annual meeting of stockholders and until his
successor is elected and qualified.
38
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer and the four other most highly compensated executive officers of BMCA as
of December 31, 1996, together with any person who served as BMCA's Chief
Executive Officer in 1996.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
--------------------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL SARS ALL OTHER
NAME AND PRINCIPAL POSITION(8) YEAR SALARY BONUS(1) COMPENSATION (S)/OPTIONS(O) COMPENSATION
- ------------------------------------ ---- -------- -------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sunil Kumar ........................ 1996 $285,000(2) $ -- $ 0(2) 2,190(O)/8,886(S) $ 13,561(2)
President and Chief 1995 208,336(2) 60,000(2) 31,382(2) 9,201(S) 8,475(2)
Operating Officer 1994 (2) (2) (2) (2) (2)
Danny J. Adair ..................... 1996 $216,686(3) $ -- $ 0 1,550(O) $ 3,972(3)
President and Chief Executive 1995 216,686(3) 25,000 0(3) 0 3,953(3)
Officer, U.S. Intec, Inc. 1994 (3) (3) (3) (3)
Donald W. LaPalme .................. 1996 $160,000 $ -- $ 0 1,200(O) $ 14,519(4)
Senior Vice President-Operations 1995 148,500 34,000 0 0 14,381(4)
1994 141,000 40,000 0 0 17,338(4)
Joseph J. Okaly .................... 1996 $130,000 $ -- $ 0 900(O) $ 11,212(5)
Vice President-Marketing & Sales, 1995 118,000 22,000 0 0 10,033(5)
Residential Roofing Products 1994 107,500 22,500 0 0 9,744(5)
William W. Collins ................. 1996 $130,000 $ -- $ 0 900(O) $ 12,092(6)
Vice President-Marketing & Sales, 1995 122,000 22,000 0 0 14,149(6)
Commercial Roofing Products 1994 107,000 0 0 0 3,655(6)
John M. Sergey ..................... 1996 $148,512 $ 0 $ 0 0 $ 16,681(7)
Chief Executive Officer and 1995 326,550 80,000 0 0 16,786(7)
President 1994 310,417 100,000 0 0 21,870(7)
</TABLE>
- ------------------
(1) Bonus amounts are payable pursuant to BMCA's Executive Incentive
Compensation Program. Bonus amounts for 1996 have not yet been determined.
(2) The stock appreciation rights relate to shares of GAF common stock. See
'Options/SARs'. Included in 'Other Annual Compensation' for Mr. Kumar are
$19,897 in payment of moving related expenses and a 'tax gross-up' of $8,711
in 1995. Included in 'All Other Compensation' for Mr. Kumar is $10,750 and
$5,664 representing BMCA's contribution to the GAF Capital Accumulation Plan
in 1996 and 1995, respectively; $1,636 for premiums paid by BMCA in each of
1995 and 1996 for a life insurance policy; and $1,175 for the premium paid
by BMCA for a long-term disability policy in each of 1995 and 1996.
(3) Included in 'All Other Compensation' for Mr. Adair are $1,260 in each of
1996 and 1995 for a life insurance policy; $2,212 and $2,193 for the premium
paid on a long-term disability policy in 1996 and 1995, respectively; and
$500 in each of 1996 and 1995 representing the Company's contribution to the
GAF Capital Accumulation Plan. USI become a subsidiary of the Company in
1995.
(4) Included in these amounts for Dr. LaPalme are: $11,000, $11,000 and $11,000,
representing BMCA's contribution under the GAF Capital Accumulation Plan in
1996, 1995 and 1994, respectively; $2,754, $2,646 and $5,643 for the premium
paid by BMCA for a life insurance policy in 1996, 1995 and 1994,
respectively; and $765, $735 and $695 for the premium paid by BMCA for a
long-term disability policy in 1996, 1995 and 1994, respectively.
(5) Included in these amounts for Mr. Okaly are: $10,390, $9,261 and $9,018,
representing BMCA's contributions under the GAF Capital Accumulation Plan in
1996, 1995 and 1994, respectively; $284, $267 and $251 for the premium paid
by BMCA for a life insurance policy in 1996, 1995 and 1994, respectively;
(Footnotes continued on next page)
39
<PAGE>
(Footnotes continued from previous page)
and $538, $505 and $475 for the premium paid by BMCA for a long-term
disability policy in 1996, 1995 and 1994, respectively.
(6) Included in these amounts for Mr. Collins are: $10,633, $14,149 and $3,655,
representing BMCA's contribution under the GAF Capital Accumulation Plan in
1996, 1995 and 1994, respectively; $849 for the premium paid by BMCA for a
life insurance policy in 1996; and $610 for the premium paid by BMCA for a
long-term disability policy in 1996.
(7) Included in these amounts for Mr. Sergey are: $10,708; $11,000 and $11,000,
representing BMCA's contribution under the GAF Capital Accumulation Plan in
1996, 1995 and 1994, respectively; $4,723, $4,536 and $9,620 for the premium
paid by BMCA for a life insurance policy in 1996, 1995 and 1994
respectively; and $1,250, $1,250 and $1,250 for the premium paid by BMCA for
a long-term disability policy in 1996, 1995 and 1994, respectively. Mr.
Sergey retired from BMCA on May 31, 1996. For a six-month period following
his retirement, Mr. Sergey served as a consultant for BMCA in exchange for a
fee of $28,932 per month.
(8) The salaries and other compensation of Messrs. Heyman, Weinberg and Rogers
are paid by ISP, an affiliate of BMCA. Mr. Heyman, Mr. Rogers and Mr.
Weinberg render services to BMCA pursuant to a management agreement. See
'Certain Relationships--Management.' No allocation of compensation for
services is made pursuant to such management agreement.
OPTIONS/SARS
The following table summarizes options ('BMCA Preferred Options') to
acquire BMCA's Redeemable Convertible Preferred Stock and grant Stock
Appreciation Rights relating to GAF Common Stock ('GAF SARs') granted during
1996 to the executive officers named in the Summary Compensation Table above and
the potential realizable value of BMCA Preferred Options and GAF SARs held by
such persons. No BMCA Preferred Options or GAF SARs were exercised by such
persons in 1996.
<TABLE>
<CAPTION>
BMCA PREFERRED STOCK OPTION (O)/
GAF SAR(S) GRANTS IN 1996 (1)(2)
------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF BOOK
NUMBER OF SECURITIES % OF TOTAL OPTIONS/SARS VALUE APPRECIATION
UNDERLYING OPTIONS/SARS GRANTED TO EMPLOYEES IN FISCAL -----------------------------
GRANTED 1996 5% 10%
----------------------- ------------------------------ ------------ --------------
<S> <C> <C> <C> <C>
Sunil Kumar.............. 2,190(O)/8,886(S) 8.9%(O)/15.4%(S) $ 50,607(S) $ 1,740,471(S)
68,000(0) 160,000(0)
Danny J. Adair........... 1,550(O) 6.3%(O) 48,000(0) 113,000(0)
Donald W. LaPalme........ 1,200(O) 4.9%(O) 37,000(0) 88,000(0)
Joseph J. Okaly.......... 900(O) 3.7%(O) 28,000(0) 66,000(0)
William W. Collins....... 900(O) 3.7%(O) 28,000(0) 66,000(0)
</TABLE>
- ------------------
(1) The BMCA Preferred Stock Options represent options to purchase shares of
Redeemable Convertible Preferred Stock of BMCA (the 'Preferred Stock'). Each
share of Preferred Stock is convertible, at the holder's option, into shares
of common stock of BMCA at a formula price based on Book Value (as defined)
as of the date of grant. The BMCA Preferred Stock Options vest over seven
years. Dividends will accrue on the Preferred Stock from the date of
issuance at the rate of 8% per annum. The Preferred Stock is redeemable, at
the Company's option, for a redemption price equal to the exercise price per
share plus accrued and unpaid dividends. The common stock of BMCA issuable
upon conversion of the Preferred Stock is subject to repurchase by the
Company under certain circumstances, at a price equal to current Book Value
(as defined). The exercise price of the options is equal to the fair value
per share of the Preferred Stock at the date of grant. The BMCA Preferred
Stock Options have no expiration date. The potential realizable values are
calculated on the basis of a seven-year period from the date of grant. In
connection with the Spin Off Transactions, options to purchase shares of
Redeemable Convertible Preferred Stock of USI held by Messrs. Kumar,
LaPalme, Okaly, Collins and Adair were canceled and exchanged for an equal
number of BMCA
(Footnotes continued on next page)
40
<PAGE>
(Footnotes continued from previous page)
Preferred Stock Options and the terms of BMCA Preferred Stock Options were
adjusted to reflect the impact of the Spin Off Transactions. The information
set forth above reflects such adjustment and exchange.
(2) The GAF SARs represent the right to receive a cash payment based upon the
appreciation in value of the specified number of shares of common stock of
GAF over the determined initial book value per share of common stock of GAF
(adjusted for the Spin Off Transactions) and interest on such book value at
a specified rate. The GAF SARs vest over a five-year period, subject to
earlier vesting under certain circumstances including in connection with a
change of control, and have no expiration date. The potential realizable
values are calculated on the basis of a ten-year period from the date of
grant. The GAF SARs were issued to Mr. Kumar on January 1, 1997 in
connection with the Spin Off Transactions, in exchange for options granted
to Mr. Kumar in 1996 to purchase shares of Redeemable Convertible Preferred
Stock of GAF.
BMCA PREFERRED STOCK OPTIONS/GAF STOCK APPRECIATION RIGHTS AS OF DECEMBER 31,
1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-THE-
BMCA PREFERRED MONEY BMCA PREFERRED
OPTIONS(O)/GAF SARS(S) OPTIONS(O)/GAF SARS(S) AT
AT 12/31/96 12/31/96(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Sunil Kumar.............................................. 0/18,087(S) 0/2,190(O) $0/$500,271(S)(1)
Danny J. Adair........................................... 0/1,550(O) (1)
Donald W. LaPalme........................................ 0/1,200(O) (1)
Joseph J. Okaly.......................................... 0/900(O) (1)
William W. Collins....................................... 0/900(O) (1)
</TABLE>
- ------------------
(1) 9,201 GAF SARs held by Mr. Kumar were in-the-money as of December 31, 1996.
No BMCA Preferred Options were in the money as of December 31, 1996. Value
is based on estimated book value as of December 31, 1996.
COMPENSATION OF DIRECTORS
The directors of BMCA do not receive any compensation for their services as
such.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of BMCA (the 'Common Stock') is owned
of record by GAFBMC. All of the outstanding common stock of GAFBMC is owned of
record by G Industries which is 100% owned by G-I Holdings, which in turn is
100% owned by GAF.
The following table sets forth information with respect to the ownership of
Common Stock, as of December 31, 1996, by each other person known to BMCA to own
beneficially more than 5% of the Common Stock outstanding on that date, by each
director of BMCA and by all executive officers and directors of BMCA as a group,
based on 1,000,000 shares of 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 1,000,000 100%(1) 100%(1)
1361 Alps Road
Wayne, New Jersey 07470
All directors and executive 1,000,000 100%(1) 100%(1)
officers of BMCA as a
group (9 persons)
</TABLE>
- ------------------
41
<PAGE>
(1) By virtue of Mr. Heyman's ownership of capital stock of GAF having
approximately 96% of the combined voting power thereof, Mr. Heyman may be
deemed to be the beneficial owner of all shares of Common Stock.
CERTAIN RELATIONSHIPS
MANAGEMENT AGREEMENTS
Pursuant to a management agreement which expires at the end of 1997, ISP
(which is controlled by BMCA's Chief Executive Officer, Samuel J. Heyman)
provides certain general management, administrative and facilities services to
BMCA and USI (including the use of BMCA's headquarters in Wayne, New Jersey),
for which BMCA and USI paid ISP a management fee of $3.9 million in 1996. In
addition to the management fee, BMCA paid approximately $.8 million to ISP in
1996 primarily for telecommunications and information services and approximately
$.3 million to ISP in 1996 for certain legal services, which in each case were
not then contemplated by the management agreement. In connection with the Spin
Off Transactions, BMCA and ISP modified the management agreement to incorporate
such services into the management agreement, and, in that connection, increased
the management fee payable by the Company to ISP to $4.7 million and extended
the term through the end of 1997. Certain of BMCA's executive officers receive
their compensation from ISP, with ISP being indirectly reimbursed therefor by
virtue of the management fee.
As of January 1, 1997, BMCA and GFC entered into a management agreement
under which BMCA provides certain general management, administrative and
financial services to GFC. Under the management agreement which expires December
31, 1997, GFC is obligated to pay BMCA an annual management fee of $1,000,000.
Due to the unique nature of the services provided under the management
agreements, comparisons with third party arrangements are difficult. However,
BMCA believes that the terms of each of the management agreements taken as a
whole are no less favorable to BMCA than could be obtained from an unaffiliated
third party.
CERTAIN PURCHASES
BMCA purchases from ISP all of its colored mineral granules requirements,
except for the requirements of its California roofing plant, under a
requirements contract which was renewed for one year, effective as of January 1,
1997, and is subject to annual renewal unless terminated by BMCA or ISP. 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. In 1996, BMCA and USI purchased in the
aggregate approximately $50.5 million of mineral products from ISP.
As part of the Spin Off Transactions, the Company transferred to GFC its
Nashville, Tennessee facility, which manufactures a significant portion of the
Company's glass fiber requirements, and entered into a supply contract with GFC
under which GFC produces glass fiber for the Company on terms which the Company
believes are at least as favorable to the Company as could be obtained from an
unaffiliated third party.
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 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
42
<PAGE>
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 BMCA. Although, as a member of the GAF Group, BMCA is severally
liable for all federal income tax liabilities of the GAF Group, including tax
liabilities not related to the business of BMCA, 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.
INTERCOMPANY BORROWINGS
BMCA makes loans to, and borrows from, G-I Holdings and its subsidiaries
from time to time at prevailing market rates (between 5.68% and 6.03% per annum
during 1996). The highest amount of loans made by BMCA to G-I Holdings during
1996 was $45.4 million and the highest amount of loans made to BMCA by G-I
Holdings and its subsidiaries during 1996 was $24.3 million. As of December 31,
1996, no loans were owed to BMCA by G-I Holdings or owed by BMCA to affiliates.
Prior to the consummation of the Spin Off Transactions, letters of credit
for the benefit of BMCA were provided under ISP's revolving credit agreement.
The highest amount of such letters of credit during 1996 was $.1 million.
43
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were issued by BMCA on December 9, 1996. In connection
therewith, BMCA entered into the Indenture and the Registration Agreement, which
agreements require that BMCA 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 holders without registration under the Securities
Act. Upon the completion of the Exchange Offer, BMCA's 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 and the Registration Agreement have been
filed as exhibits 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.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company 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 the Company 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 the Company 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 the Company 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 the Company 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, The Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 12:00 midnight, New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount of New
Notes in
44
<PAGE>
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 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, $100,000,000 aggregate principal amount
of the Old Notes were 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. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), and the rules and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company 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 the Company. 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. The Company 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 12:00 midnight New York City time, on
March , 1997, unless the Company, 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). The Company 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. The Company
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. The
Company acknowledges and undertakes to comply with the provisions of Rule
14e-1(c) promulgated under the Exchange Act, which requires the Company 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 delivery 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
45
<PAGE>
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 the Company
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 THE COMPANY. 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 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 the Company
evidence satisfactory to the Company 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
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities, or conditions of tender
as to particular Old Notes. The Company's 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, defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
holders of defects or irregularities with respect to tenders of Old Notes,
neither the Company, 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
46
<PAGE>
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, the Company 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 the Company 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 the
Company.
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 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 such 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 12:00 midnight, 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 the Company (by facsimile transmission (if
available to such holder), 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
47
<PAGE>
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 12:00 midnight,
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 12:00
midnight, 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
the Company, 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 prior to 12:00 midnight, New York City time, on the Expiration Date.
CONDITIONS
Notwithstanding any other provisions of the Exchange Offer and, subject to
its obligations pursuant to the Registration Agreement, the Company 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:
A. 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 the Company to proceed with the Exchange
Offer; or
B. 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 the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and such right shall be deemed an ongoing right which may be asserted at
any time and time to time.
In addition, the Company 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.
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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
The Company 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 the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company 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.
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
the Company 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
The Company 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 the Company over the terms of the New Notes under generally
accepted accounting principles.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued under an Indenture dated as of December 9, 1996
(the 'Indenture') between the Company 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 also
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 the Indenture. The
definitions of certain capitalized terms used in the following summary are set
forth under 'Certain Definitions.' As used herein, 'Company' means BMCA and does
not include its Subsidiaries.
The New Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may
be presented for registration or transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the Notes (the 'Holders'). The Company will pay principal (and premium, if any)
on the Notes at the Trustee's principal corporate trust office in New York, New
York. At the Company's option, interest may be paid at the Trustee's principal
corporate trust office or by check mailed to the registered address of Holders.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the New Notes issued in connection with the Exchange Offer,
will be treated as a single class of securities under the Indenture.
The Notes will be general unsecured obligations of the Company and will
rank senior to all subordinated indebtedness of the Company and pari passu in
right of payment to the Deferred Coupon Notes and to all other unsubordinated
indebtedness of the Company. The Notes will be effectively subordinated to all
secured indebtedness of the Company to the extent of the assets securing such
indebtedness and to all indebtedness and other obligations of the Company's
subsidiaries. See Note 9 to Consolidated Financial Statements.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on December 15, 2006 and will be limited to
$100,000,000 in aggregate principal amount.
Interest on the Notes will accrue at the rate of 8 5/8% per annum, payable
semi-annually on June 15 and December 15 of each year commencing June 15, 1997
to the holders of record at the close of business on the June 1 or December 1
immediately preceding the interest payment date.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest, plus, to the extent permitted by law, any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date. Such special record date shall be the fifteenth
day next preceding the date fixed by the Company for the payment of defaulted
interest, whether or not such day is a business day. At least 15 days before the
special record date, the Company shall mail or cause to be mailed to each Holder
and the Trustee a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
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OPTIONAL REDEMPTION
The Company may redeem the Notes, in whole or in part, at any time on or
after December 15, 2001, on not less than 30 nor more than 60 days' prior notice
in principal amounts of $1,000 or any integral multiple of $1,000 at the
following redemption prices (expressed in percentages of principal amount) plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing:
<TABLE>
<CAPTION>
OPTIONAL REDEMPTION PERIOD PERCENTAGE
- -------------------------------------------------------------- ----------
<S> <C>
December 15, 2001............................................. 104.3125%
December 15, 2002............................................. 102.8750%
December 15, 2003............................................. 101.4375%
</TABLE>
and thereafter, beginning December 15, 2004, at 100%.
In the event that, on or prior to the date which is three years after the
Issue Date, the Company consummates a public offering of the Common Stock of the
Company, the Company may, at its option, on not less than 30 nor more than 60
days' notice, redeem, but only to the extent of such net cash proceeds actually
received by it, up to 50% of the principal amount of the Notes then outstanding
at a redemption price equal to 108.625% of the principal amount thereof at 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 principal
amount of Notes originally issued would be outstanding. Any such redemption
shall be made within 75 days of the consummation of any such sale.
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.
The Company 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 are not 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 the Company 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 (or, if lower, the redemption price then in effect under the provisions
described in the first paragraph under '--Optional Redemption'), plus accrued
interest to the Change of Control Payment Date.
The Company or, at the request of the Company, the Trustee shall send, by
first-class mail, postage prepaid, to all Holders, within ten business days
after the occurrence of each Change of Control, a notice of the occurrence of
such Change of Control (the 'Change of Control Notice'), specifying a date by
which a Holder must notify the Company of such Holder's intention to exercise
the repurchase right and describing the procedure that such Holder must follow
to exercise such right. The Company is required to deliver a copy of such notice
to the Trustee.
Each Change of Control Notice shall state: (1) that the change of control
offer is being made pursuant to this covenant and that all Notes tendered will
be accepted for payment; (2) the purchase price and the Change of Control
Payment Date; (3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any Note
accepted for payment pursuant to the change of control offer shall cease to
accrue interest after the Change of Control Payment Date; (5) that Holders
electing to have a Note purchased pursuant to a change of control offer will be
required to surrender the Note in accordance with the instructions set forth
therein; (6) that the Company has the right, pursuant to provisions described in
the next paragraph, to redeem any Notes not tendered at the Call Price; and (7)
the circumstances and relevant facts regarding such Change of Control.
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In the event a Change of Control occurs, the Company may redeem all, but
not less than all, of the Notes then outstanding, at a redemption price equal to
100% of the principal amount thereof plus accrued interest to the redemption
date, plus the Applicable Premium (the 'Call Price'). Notice of any redemption
to be made pursuant to this paragraph as a result of the occurrence of a Change
of Control must be given no later than 10 days after the Change of Control
Payment Date applicable to the Change of Control giving rise to such redemption,
and redemption must be made within 30 days of the date of the notice.
The Company shall comply with all applicable Federal and state securities
laws in connection with each Change of Control Notice.
The Company's ability to pay cash to Noteholders upon a repurchase may be
limited by its then existing financial resources. See 'Risk Factors--Substantial
Leverage.'
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 (including any
then unutilized commitment under any revolving working capital facility) of an
entity, which entity is acquired by such Person or any of its Subsidiaries after
the Issue Date; provided that such Debt (including any such facility) 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 clause (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. For
the avoidance of doubt, ISP Holdings and its Affiliates (so long as they are
under common control with the Company) shall be deemed to be Affiliates of the
Company.
'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 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 which is not the
Company or a Subsidiary of the Company. 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.' or (B) any sale, lease, assignment or other disposition by a
Person that has outstanding senior debt securities all of which (I) are rated or
B- or higher by S&P and have not been placed on credit watch by S&P for a
possible downgrade or (II) are rated Baa3 or higher by Moody's and have not been
placed on credit watch by Moody's for a possible downgrade.
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<PAGE>
'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.
'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.
'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 S&P's or Moody's, (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 S&P's or at least P-1 from Moody's, (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 $500,000,000, (v) Eurodollar
time deposits maturing within one year from the date of acquisition thereof and
issued or accepted by any commercial bank having at the date of acquisition
thereof combined capital and surplus of not less than $500,000,000, (vi)
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 (vii) 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 (vi) above.
'Change of Control' means the occurrence of any of the following events:
(i) prior to the time that at least 15% of the then outstanding Voting
Stock of Parent, the Company, or any Subsidiary of Parent of which the
Company is also a Subsidiary is publicly traded on a national securities
exchange or in the NASDAQ (national market system), 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 the Company, whether as a result of issuance of
securities of the Company or any of its Affiliates, any merger,
consolidation, liquidation or dissolution of the Company or any of its
Affiliates, 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 clause (ii) 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
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<PAGE>
indirectly, of more than 35% of the Voting Stock of Parent or the Company;
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 the Company 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
the Company; or
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or
whose nomination for election by the shareholders of the Company including
predecessors, was approved by a vote of a majority of the directors of the
Company 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 the Company, then in office.
'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 Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, 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.
'Company' means Building Materials Corporation of America, a Delaware
corporation, and its successors.
'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 sales 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.
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'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 (x) interest expense related to Non-Recourse Debt and
(y) interest expense resulting from any discount of the asbestos reserve
reflected on the Company's financial statements as of September 29, 1996) for
such period as determined in accordance with GAAP consistently applied, plus the
amount of all dividends paid or accrued on any series of Preferred Stock (other
than non-Redeemable Stock) of such Person and its Subsidiaries (other than
Non-Recourse Subsidiaries).
'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 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; (vii) any reserve established at the time the Company's
Affiliates first acquired USI; and (viii) the cumulative effect of a change in
accounting principles. In determining Consolidated Net Income (Loss), gains or
losses resulting from the early retirement, extinguishment or refinancing of
indebtedness for money borrowed, including any fees and expenses associated
therewith, shall be deducted or added back, respectively.
'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' mean (i) the credit agreement, dated as of December 9,
1994, between the Company and The Chase Manhattan Bank, as amended by amendments
dated as of July 1, 1995, June 28, 1996 and November 21, 1996, (ii) the credit
agreement, dated as of September 24, 1993, between the Company and NationsBank
of North Carolina, N.A., as amended by amendments dated as of June 30, 1994,
December 31, 1994, June 22, 1995 and June 26, 1996 and (iii) the credit
agreement, dated as of June 29, 1995, as amended by amendments dated as of June
28, 1996 and November 15, 1996, between the Company and The Bank of New York,
each as amended and supplemented from time to time.
'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) all obligations of the type referred to in
clauses
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(i) through (iv) 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 (vi) all obligations of the type referred to in
clauses (i) through (v) 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 the Company or any of its Subsidiaries
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 the Company.
'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Deferred Coupon Notes' means the Company's 11 3/4% Senior Deferred Coupon
Notes due 2004.
'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 for such period, (iii)
depreciation expense of such Person for such period, (iv) amortization expense
of such Person for such period, 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.
'GAF' means GAF Corporation, a Delaware corporation, and its successors.
'GCC' means GAF Chemicals Corporation (which changed its name to GAF
Fiberglass Corporation on January 1, 1997), 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 Indenture.
'G-I Holdings' means G-I Holdings Inc., a Delaware corporation, and its
successors.
'Glass Fiber Contract' means the supply agreement effective as of the Spin
Off Date between GFC and the Company.
'Granules Contracts' means (i) the supply agreement, dated as of January 1,
1995 between ISP Technologies, Inc. and the Company, as amended by amendment
dated as of December 31, 1995 and (ii) the letter dated November 9, 1995 from
ISP Mineral Products Inc. to USI.
'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.
'Interest Payment Date' means the Stated Maturity of an installment of
interest on the Notes.
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'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 Holdings' means ISP Holdings Inc., a Delaware corporation, and its
successors.
'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 December 9, 1996.
'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).
'Management Agreement' means the amended and restated management agreement,
dated as of March 3, 1992, between the Company and ISP as amended through the
Issue Date.
'Margin Stock' shall have the meaning provided in Regulation U.
'Material Assets' means assets, singly or in the aggregate, the book or
fair market value of which equals 5% or more of the consolidated tangible assets
of the Company, as set forth on its most recently publicly available balance
sheet.
'Moody's' means Moody's Investors Service, Inc. or its successors.
'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 the Company 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 purchaser undertaken by the Company 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 the
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
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the Board of Directors of the Company 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.
'Notes' means the Old Notes and the New Notes, treated as a single class of
securities.
'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 the Company.
'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 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 the Company 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 the Company 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 the Company or any of 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 the
Company or any of its Subsidiaries of its obligations under any such lease
which is material;
(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 Indenture and
under which the Company or any of its Subsidiaries 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;
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(14) Liens on cash collateralizing reimbursement obligations in
respect of letters of credit issued for the account of the Company 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 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.
'Receivables' means accounts receivables, and related documentation,
contract rights, related proceeds and general intangibles.
'Receivables Financing Agreement' means the Pooling and Servicing
Agreement, dated as of November 1, 1996, among the Company, BMCA Receivables
Corporation and The Bank of New York, as Trustee, and related agreements, as
amended or supplemented.
'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
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 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 the Company or any of its
Subsidiaries, an Investment by such Person in an Affiliate of the Company;
provided that the following shall not be Restricted Investments: (i) Investments
in the Company or any of its Recourse Subsidiaries; (ii) Investments in
Unrestricted Affiliates; and (iii) Investments in Affiliates that become, as a
result of such Investment, Recourse Subsidiaries.
'Restricted Payment' means (i) the declaration or making of any dividend or
of any other payment or distribution (other than dividends, payments or
distributions payable solely in shares of the Company's Capital Stock other than
Redeemable Stock) on or with respect to the Company's Capital Stock (other than
Redeemable Stock) and (ii) any payment on account of the purchase, redemption,
retirement or other acquisition for value of the Company's Capital Stock (other
than Redeemable Stock).
'Restricted Security' has the meaning set forth in Rule 144(a)(3) under the
Securities Act.
'S&P' means Standard & Poor's Rating Services or its successors.
'Significant Subsidiary' means (i) any Subsidiary (other than a
Non-Recourse Subsidiary) of the Company which at the time of determination
either (A) had assets which, as of the date of the Company's most recent
quarterly consolidated balance sheet, constituted at least 5% of the Company's
total assets on a consolidated basis as of such date, in each case determined in
accordance with GAAP, or (B) had revenues for the 12-month period ending on the
date of the Company's most recent quarterly consolidated statement of income
which constituted at least 5% of the Company's total revenues on a consolidated
basis for such period, or (ii) any Subsidiary of the Company (other than a
Non-Recourse Subsidiary) which, if merged with all Defaulting Subsidiaries (as
defined
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below) of the Company, would at the time of determination either (A) have had
assets which, as of the date of the Company's most recent quarterly consolidated
balance sheet, would have constituted at least 10% of the Company's 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 the Company's most recent quarterly
consolidated statement of income which would have constituted at least 10% of
the Company's total revenues on a consolidated basis for such period (each such
determination being made in accordance with GAAP). 'Defaulting Subsidiary' means
any Subsidiary of the Company (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.
'Spin Off' means the consummation of the Spin Off Transactions.
'Spin Off Date' means January 1, 1997.
'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 Agreement' means the tax sharing agreement, dated as of
January 31, 1994, among the Company, G-I Holdings and GAF.
'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 the
Company except a Non-Recourse Subsidiary) controlled by, or under common control
with, the Company in which no Affiliate of the Company (other than (i) the
Company or a Wholly-Owned Recourse Subsidiary, (ii) any director or officer of
the Company or any of its Subsidiaries, whose primary employment is by the
Company or any of its Subsidiaries other than a Non-Recourse Subsidiary, except
for Permitted Holders or members of their immediate family and (iii) 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.
'USI' means U.S. Intec, Inc., a Texas corporation, and its successors.
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'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.
'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 the Company and its
Subsidiaries. (a) The Indenture provides that the Company shall not, and shall
not permit any of its Subsidiaries 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 the Company 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, there may be issued the following Debt:
(1) The Old Notes and the New Notes;
(2) (i) Debt of the Company Issued to and held by a Wholly-Owned
Recourse Subsidiary of the Company and (ii) Debt of a Recourse Subsidiary
of the Company Issued to and held by the Company or a Wholly-Owned Recourse
Subsidiary of the Company; provided that any subsequent transfer of such
Debt (other than to the Company or to a Wholly-Owned Recourse Subsidiary of
the Company) shall be deemed, in each case, to constitute the Issuance of
such Debt by the Company or such Subsidiary;
(3) Debt the proceeds of which are used to acquire assets of the
Company and its 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) (x) Debt outstanding on the Issue Date (including the Deferred
Coupon Notes) and (y) Debt Issued to Refinance any Debt permitted by clause
(a), this clause (5) or by clauses (1) or (3) above; 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 the Company and
Guarantees of Non-Recourse Debt of Non-Recourse Subsidiaries which
Guarantees are recourse only to the stock of the Non-Recourse Subsidiaries;
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(7) Debt under the Credit Agreements or any Refinancing thereof;
provided that the aggregate outstanding amount thereunder does not at any
time exceed $75,000,000;
(8) Debt secured by Receivables, including to Refinance the
Receivables Financing Agreement, provided that such Debt does not exceed
85% of the face amount of the Receivables; and
(9) Debt (other than Debt identified in clauses (1) through (8) above)
in an aggregate principal amount outstanding at any one time not to exceed
$50,000,000.
(c) The Company shall not, and shall not permit any of its Subsidiaries to,
Issue any Preferred Stock; provided that there may be issued the following
Preferred Stock:
(1) Preferred Stock of the Company or any Subsidiary of the Company
issued to and held by the Company or a Wholly-Owned Recourse Subsidiary of
the Company; provided that any subsequent transfer of such Preferred Stock
(other than to the Company or to a Wholly-Owned Recourse Subsidiary of the
Company) or such Wholly-Owned Recourse Subsidiary of the Company ceasing to
be a Wholly-Owned Recourse Subsidiary of the Company shall be deemed, in
each case, to constitute the Issuance of such Preferred Stock by the
Company or such Subsidiary;
(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); provided that the liquidation value of any Preferred Stock
issued pursuant to this clause (2) shall constitute Debt for purposes of
this covenant and dividends on such Preferred Stock shall be included in
determining Consolidated Interest Expense of the Company for purposes of
calculating the Consolidated EBITDA Coverage Ratio of the Company under
paragraph (a) of this covenant; and
(3) Preferred Stock (other than Redeemable Stock) of the Company.
(d) To the extent the Company or any of its Subsidiaries Guarantees any
Debt of the Company or any other 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 the Company or any of its Subsidiaries Guarantees any Debt of
a Person that, subsequent to the Issuance of such Guarantee, becomes a
Subsidiary of the Company, 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 Restricted Payments and Restricted Investments. (a) So long
as no Default or an Event of Default shall have occurred and be continuing, the
Company may make, and may permit any of its Subsidiaries to make, directly or
indirectly, any Restricted Payment or Restricted Investment so long as, at the
time of such Restricted Payment or Restricted Investment and immediately after
giving effect thereto, 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 the Company in good faith as of the date of payment or
investment) shall not exceed the sum of:
(i) 50% of the cumulative Consolidated Net Income (or minus 100% of
the cumulative Consolidated Net Loss) of the Company accrued during the
period beginning April 3, 1994 (the 'Commencement Date') and ending on the
last day of the fiscal quarter for which financial information has been
made publicly available by the Company 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 the
Company in good faith, as evidenced by a Board Resolution, received by the
Company from any Person (other than a Subsidiary of the Company) from the
Issuance and sale subsequent to the Commencement Date of Capital Stock of
the Company (other than Redeemable Stock) or as a capital contribution;
provided that, if the value of the non-cash contribution is in excess of
$10,000,000, the Company shall have received the written opinion of a
nationally recognized investment
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banking firm that the terms thereof, from a financial point of view, are
fair to the shareholders of the Company or such Subsidiary, in their
capacity as such (the determination as to the value of any non-cash
consideration referred to in this clause (ii) to be made by such investment
banking firm), and such opinion shall have been delivered to the Trustee;
(iii) 100% of the net cash proceeds received by the Company from the
exercise of options or warrants on Capital Stock of the Company (other than
Redeemable Stock) since the Commencement Date;
(iv) 100% of the net cash proceeds received by the Company 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 the Company) since the Commencement Date; and
(v) $30,000,000.
The designation by the Company 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 the Company in an amount equal to the outstanding Investments made
by the Company 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 paragraph (a) of this covenant;
(2) any Restricted Payment or Restricted Investment made out of the
net cash proceeds received by the Company from the substantially concurrent
sale of its Common Stock (other than to a Subsidiary of the Company);
provided that such net cash proceeds so utilized shall not be included in
paragraph (a) in determining the amount of Restricted Payments or
Restricted Investments the Company could make under paragraph (a) of this
covenant;
(3) cumulative Investments in Non-Recourse Subsidiaries not in excess
of $50,000,000 in the aggregate determined as of the date of the Investment
(the amount so expended, if other than cash, to be determined by the
Company's Board of Directors, as evidenced by a Board Resolution); and
(4) repurchases of Capital Stock of the Company, in each case from
employees of the Company or any of its Subsidiaries (other than any
Permitted Holder); provided, however, that the aggregate amount of
Restricted Payments made under this clause shall not exceed $1,500,000 in
any fiscal year.
Restricted Payments or Restricted Investments made pursuant to clause (2), (3)
or (4) shall not be deducted in determining the amount of Restricted Payments or
Restricted Investments made or then outstanding under paragraph (a) of this
covenant.
Limitation on Liens. The Indenture provides that the Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly, incur
or suffer to exist any Liens upon their respective property or 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 existing on the Issue Date;
(2) Permitted Liens;
(3) Purchase money Liens on assets of the Company 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 Indenture, (ii) the principal amount
of Debt (including Debt in respect of
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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 (3)
shall not at any time exceed $30,000,000;
(4) Liens to secure Refinancing of any Debt secured by Liens described
in clauses (1)-(3) above and (5) 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;
(5) 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 the Company or by one of its Subsidiaries and such Lien and
Acquired Debt were not incurred by the Company 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 the Company or by one of its Subsidiaries and (ii) any such Lien
does not extend to or cover any property or assets of the Company 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 the
Company or of one of its Subsidiaries;
(6) Liens on Receivables securing Debt permitted by clause (b)(8)
under 'Limitation on Debt and Preferred Stock of the Company and its
Subsidiaries';
(7) Liens securing intercompany Debt permitted by paragraph (b)(2)
under the 'Limitation on Debt and Preferred Stock of the Company and its
Subsidiaries' covenant; and
(8) Liens on assets of the Company and its Subsidiaries in addition to
those referred to in clauses
(1)-(7), provided that such Liens only secure Debt of the Company and its
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 the Company 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 the Company (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) thereunder, (y) transactions between or
among Non-Recourse Subsidiaries of the Company or (z) transactions between or
among the Company 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, but including entering into any
long-term arrangement involving the purchase of granules or glass fiber from, or
the provision of management services of the type currently provided under the
Management Agreement by, an Affiliate of the Company, including ISP or a
Subsidiary thereof) involves aggregate payments or other consideration in excess
of $5,000,000, 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 the Company 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 or other than purchases of granules or glass
fiber from an Affiliate of the Company, including ISP or a Subsidiary thereof)
involves aggregate payments or other consideration in excess of $20,000,000
(with the value of any noncash consideration being determined by a majority of
those members of the Board of Directors of the Company or such Subsidiary, as
the case may be, having no personal stake in such business, transaction or
transactions), the Company 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 is fair to the
shareholders, in their capacity as such, of the Company or such Subsidiary from
a financial point of view and such opinion has been delivered to the Trustee;
provided, further, in the event that
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the Board of Directors of the Company or the Subsidiary, as the case may be,
proposing to engage in a transaction or series of related transactions described
in the preceding proviso does not have any members having no personal stake in
such business, transaction or transactions, the Company or such Subsidiary may
enter into such transaction or series of transactions if the Company or such
Subsidiary, as the case may be, shall have received the written opinion of a
nationally recognized investment banking firm that the terms thereof, from a
financial point of view, are fair to the shareholders of the Company or such
Subsidiary, in their capacity as such (the determination as to the value of any
non-cash consideration referred to in the preceding proviso to be made by such
investment banking firm), and such opinion shall have been delivered to the
Trustee.
(b) Paragraph (a) shall not prevent the following:
(1) the purchase of granules from an Affiliate of the Company,
including ISP or a Subsidiary of ISP; provided that (a) subject to
paragraph (c) of this covenant, the price and other terms shall not be less
favorable to the Company than those set forth in the Granules Contracts or
(b) a nationally recognized investment banking firm or accounting firm has
delivered a written opinion to the Company to the effect that either the
terms thereof are fair to the Company from a financial point of view or are
on terms at least as favorable to the Company as those available in
comparable transactions in arms-length dealings from an unrelated third
party;
(2) the continuance of the Management Agreement (including with an
Affiliate of the Company other than ISP) (a) in accordance with its terms
or on terms no less favorable to the Company than those contained in the
Management Agreement or (b) on other terms provided that the Company shall
have received the written opinion of a nationally recognized investment
banking firm or accounting firm that either the terms thereof, from a
financial point of view, are fair to the Company or are on terms at least
as favorable to the Company as those available in comparable transactions
in arms-length dealings from an unrelated Person;
(3) any transaction between the Company or a Subsidiary thereof and
its own employee stock ownership or benefit plan;
(4) any transaction with an officer or director of the Company or any
Subsidiary of the Company entered into in the ordinary course of business
(including compensation or employee benefit arrangements with any such
officer or director);
(5) any business or transaction with an Unrestricted Affiliate;
(6) borrowings by the Company or its Subsidiaries from Affiliates of
the Company; provided that such loans are unsecured, are prepayable at any
time without penalty, contain no restrictive covenants and the effective
cost of borrowings thereunder do not exceed the interest rate then in
effect from time to time under the Credit Agreements or any Refinancings
thereof (or, if none of such agreements is outstanding, under unsecured
bank Debt of the Company);
(7) payments made pursuant to the Tax Sharing Agreement; or
(8) purchases made pursuant to the Glass Fiber Contract; provided that
the terms of such contract are set forth in writing and are at least as
favorable to the Company as those available at the Spin Off Date in a
comparable transaction in arms-length dealings with an unrelated Person.
(c) The Company shall not, and shall not permit any of its Subsidiaries to,
amend, modify or waive any provision of the Tax Sharing Agreement, the Granules
Contracts or the Glass Fiber Contract in any manner which is significantly
adverse to the Company or the holders of the Notes (it being understood that an
extension or modification of any of the Granules Contracts (or any similar
granules purchase contract) or the Glass Fiber Contract on terms at least as
favorable to the Company as those available at the time of the extension or
modification (or any such new agreement) in a comparable transaction in
arms-length dealings with an unrelated Person shall not be deemed significantly
adverse to the Company or the Holders).
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Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company 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 the Company or any of its Subsidiaries, (b) make loans or advances to
the Company or any of its Subsidiaries, (c) transfer any of its properties or
assets to the Company or (d) incur or suffer to exist Liens in favor of the
Holders, except for such encumbrances or restrictions existing under or by
reason of any of the following:
(1) applicable law;
(2) the Indenture and the indenture governing the Deferred Coupon
Notes;
(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 the Company or its
Subsidiaries from granting other Liens, except as to the assets subject to
such Liens;
(6) the Credit Agreements, the Receivables Financing Agreement or
other Debt existing on the Issue Date; and
(7) any Refinancing of the Credit Agreements, the Receivables
Financing Agreement or any such other Debt existing on the Issue Date;
provided that the terms and conditions of any such Refinancing agreements
relating to the terms described in paragraphs (a)-(d) above are no less
favorable to the Company than those contained in the agreements governing
the Debt being Refinanced.
Limitation on Asset Sales. The Indenture provides that the Company shall
not, and shall not permit any of its Subsidiaries, directly or indirectly, to
consummate an Asset Sale unless:
(1) the Company 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 the Company
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 its Board of
Directors, as evidenced by a Board Resolution);
(2) at least 75% of the consideration received by the Company 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 the
Company 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; and
(3) in the case of an Asset Sale by the Company or any of its
Subsidiaries, the Company 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 the Company and its Recourse Subsidiaries
are engaged in at the time of such Asset Sale or any like or related
business, (ii) to pay or satisfy any Debt of the Company or any of its
Subsidiaries (other than Debt which is subordinated by its terms to the
Notes) or Preferred Stock of a Subsidiary, including the Debt referred to
in the last sentence of the definition thereof or make provision for the
payment thereof, through an escrow or other fund, and/or (iii) to offer to
purchase the Notes in a tender offer (a 'Net Proceeds Offer') at a
redemption price equal to 100% of the principal amount thereof plus accrued
interest thereon to the date of purchase; provided, however, that the
Company shall, to the extent required under the indenture governing the
Deferred Coupon Notes, first offer to purchase any outstanding Deferred
Coupon Notes in a
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tender offer at a redemption price equal to 100% of the accreted value
thereof, to the date of redemption; provided, further, however that the
Company may defer making a Net Proceeds Offer until the aggregate Net Cash
Proceeds from Asset Sales to be applied pursuant to this clause (3)(iii)
equal or exceed $20,000,000;
provided that (i) the Company 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 clause (3)), 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 above under 'Change of Control Put and Call'.
The Company 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.
Restriction on Transfer of Certain Assets to Subsidiaries. The Indenture
provides that if the Company transfers or causes to be transferred, in one or a
series of related transactions, Material Assets to any one or more Non-Recourse
Subsidiaries of the Company, the Company shall cause such transferee Subsidiary
to (i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such transferee
Subsidiary shall unconditionally Guarantee, on a senior basis, all the Company's
obligations under the Notes and (ii) deliver to the Trustee an Opinion of
Counsel that such supplemental indenture has been duly executed and delivered by
such transferee Subsidiary.
Investment Company Act. The Indenture provides that the Company 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 and Holders. The Company
shall file with the Trustee and provide Holders of record, within 15 days after
it files them with the Commission, copies of its annual report and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Company is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act, without exhibits in the case of Holders, unless the
Company is requested in writing by the Holders. Notwithstanding that the Company
may not be required to remain subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the Company will continue to file with the
Commission and provide the Trustee and Holders with such annual reports and
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
are specified in Sections 13 and 15(d) of the Exchange Act, without exhibits in
the case of Holders, unless the Company is requested in writing by the Holders.
The Company also will comply with the other provisions of TIA Section 314(a).
So long as any of the Notes remain outstanding, the Company shall cause
each annual, quarterly and other financial report mailed or otherwise furnished
by it generally to public stockholders to be filed with the Trustee and mailed
to the Holders of record at their addresses appearing in the register of Notes
maintained by the Registrar, in each case at the time of such mailing or
furnishing to such stockholders.
The Company shall provide to any Holder or any beneficial owner of Notes
any information reasonably requested by such holder or such beneficial owner
concerning the Company and its Subsidiaries (including financial statements)
necessary in order to permit such holder or such beneficial owner to sell or
transfer Notes in compliance with Rule 144A under the Securities Act or any
similar rule or regulation adopted by the Commission.
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MERGER, ETC.
The Indenture provides that the Company 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) the Company shall be the continuing Person, or the resulting,
surviving or transferee Person (if other than the Company) shall be a
corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia and shall expressly assume,
by an indenture supplemental hereto, executed and delivered to the Trustee,
in form reasonably satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture, and the 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 the Company and its 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 the
Company immediately prior to such transaction.
In connection with any consolidation, merger, sale, assignment, transfer or
lease contemplated by this covenant, the Company 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 the Company in accordance with the
preceding two paragraphs, the successor corporation formed by such consolidation
or into which the Company 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, the Company under the Indenture, with the same effect
as if such successor corporation had been named as the Company herein, and,
except in the case of a lease, the Company 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) the Company 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) the Company defaults in the payment of the principal of any
Note when the same becomes due and payable at maturity or otherwise or (ii)
the Company fails to redeem or repurchase Notes when required pursuant to
the Indenture or the Notes;
(3) the Company fails to comply with provisions of 'Merger, etc.';
(4) the Company 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) the Company 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);
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(6) principal of or interest on Debt of the Company or any of its
Significant Subsidiaries is not paid within any applicable grace period or
is accelerated by the holders thereof because of a default and the total
amount 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 the
Company or any of its Significant Subsidiaries occurs pursuant to or within
the meaning of any Bankruptcy Law; or
(8) any judgment or order for the payment of money in excess of
$15,000,000 in the aggregate is rendered against the Company or any of its
Significant Subsidiaries 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 notify the Company in writing of the Default, and the
Company 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 the
Company specified in clause (7) above) occurs and is continuing, the Trustee, by
written notice to the Company, or the Holders of at least 25% in aggregate
principal amount of the outstanding Notes, by written notice to the Company and
the Trustee, may declare all unpaid principal of and accrued interest on the
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 the Company 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 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 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
Noteholder 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 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
Noteholder 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 Noteholder 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 Noteholders. In addition, the
Issuer is required to deliver to the Trustee, within 120 days after the end of
each
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fiscal year, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year. The Company 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 the Company is taking or proposes to take in respect thereof.
DISCHARGE
The Company 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. The Company 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').
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes 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 the Company to comply with clause (3) or (4) described under 'Merger,
Etc.' above.
In order to exercise either defeasance option, the Company 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 to redemption or maturity, as the case may be, and must comply with
certain other conditions, including (unless the 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 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 the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the outstanding Notes; provided that no such modification or
amendment 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
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 Noteholder affected thereby; or (iv) except as
otherwise permitted by the covenants described under '--Merger, Etc.,' consent
to the assignment or transfer by the Company of any of its rights and
obligations under the Indenture.
It shall not be necessary for the consent of the Holders to approve the
particular form of any proposed amendment, supplement or waiver, but it shall be
sufficient if such consent approves the substance thereof. Any
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amendment, waiver or consent shall be deemed effective upon receipt by the
Trustee of the necessary consents and shall not require execution of any
supplemental indenture to be effective.
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.
Neither the Company 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 Noteholder 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 Noteholders
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 will be governed by, and construed in
accordance with, the laws of the State of New York.
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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. 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 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 terms of the
debt instrument, with debt instruments with initial terms of more than five
years 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.
FEDERAL INCOME TAX CONSEQUENCES OF OWNING NEW NOTES
STATED INTEREST
Interest on a New Note should be taxable to a U.S. holder as ordinary
interest income at the time it accrues or is received in accordance with such
holder's method of accounting for U.S. federal income tax purposes.
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 period at the time of such sale
or other disposition.
72
<PAGE>
MARKET DISCOUNT
Except as discussed below, gain recognized on the disposition of New Notes
having accrued market discount 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 original issue
discount 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 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
the general 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.
73
<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 all persons subject to the prospectus delivery requirements
of the Securities Act, including broker-dealers 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. The Company
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.
The Company 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, the Company 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. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the reasonable fees and expenses of
Cahill Gordon & Reindel, counsel to the initial purchasers of the Old Notes)
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 the Company 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., one of the initial purchasers
of the Old Notes, 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, ISP, ISP Holdings and
BMCA) in connection with certain legal matters.
EXPERTS
The consolidated financial statements and schedules of Building Materials
Corporation of America as of December 31, 1994 and 1995 and the consolidated
statements of income, stockholder'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.
74
<PAGE>
AVAILABLE INFORMATION
BMCA is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports and other information with the Commission.
The reports and other information filed by 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. Finally, the Commission maintains an Internet web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company 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.
75
<PAGE>
INDEX TO CONSOLIDATED 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 nine months ended October 1, 1995 and September 29, 1996 (Unaudited)................................. F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995 and as of September 29, 1996 (Unaudited)...... F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1995 and
the nine months ended October 1, 1995 and September 29, 1996 (Unaudited)................................. F-5
Consolidated Statements of Stockholder's Equity (Deficit) for the three years ended December 31, 1995 and
the nine months ended September 29, 1996 (Unaudited)..................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
Supplementary Data (Unaudited):
Quarterly Financial Data (Unaudited)..................................................................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Building Materials Corporation of America:
We have audited the accompanying consolidated balance sheets of Building
Materials Corporation of America (a Delaware corporation and a wholly-owned
subsidiary of GAF Building Materials Corporation) and subsidiaries as of
December 31, 1994 and 1995, and the related consolidated statements of income,
stockholder'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-22 of this Prospectus present fairly, in all material respects,
the financial position of Building Materials Corporation of America 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
(except with respect to the matter
regarding restatement of financial
statements discussed in Note 1 as to
which the date is January 1, 1997)
F-2
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
YEAR ENDED DECEMBER 31, OCTOBER 1, SEPTEMBER 29,
-------------------------------- 1995 1996
1993 1994 1995 (UNAUDITED) (UNAUDITED)
-------- -------- -------- ----------- -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales....................................... $559,152 $593,147 $687,184 $ 507,661 $ 648,426
-------- -------- -------- ----------- -------------
Costs and expenses:
Cost of products sold......................... 402,482 425,080 506,012 369,672 470,678
Selling, general and administrative........... 115,196 123,338 135,315 99,605 126,561
-------- -------- -------- ----------- -------------
Total costs and expenses...................... 517,678 548,418 641,327 469,277 597,239
-------- -------- -------- ----------- -------------
Operating income................................ 41,474 44,729 45,857 38,384 51,187
Interest expense................................ (2,045) (13,149) (24,822) (18,203) (23,741)
Other expense, net.............................. (6,447) (3,761) (4,486) (3,537) (490)
-------- -------- -------- ----------- -------------
Income before income taxes...................... 32,982 27,819 16,549 16,644 26,956
Income taxes:
Current year provision........................ (12,756) (11,159) (6,450) (6,646) (10,474)
Adjustment of deferred tax assets for change
in tax rate................................ 125 -- -- -- --
-------- -------- -------- ----------- -------------
Net income...................................... $ 20,351 $ 16,660 $ 10,099 $ 9,998 $ 16,482
-------- -------- -------- ----------- -------------
-------- -------- -------- ----------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-3
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
-------------------- 1996
1994 1995 (UNAUDITED)
-------- -------- -------------
(THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................... $ 29,015 $ 45,989 $ 12,952
Investments in trading securities....................................... -- 6,095 436
Investments in available-for-sale securities............................ -- 34,020 28,961
Restricted cash......................................................... 24,484 -- --
Accounts receivable, trade, less reserve of $533, $1,794 and $1,319,
respectively......................................................... 796 12,735 15,803
Accounts receivable, other.............................................. 24,192 23,263 56,675
Loan receivable from related party...................................... 23,633 -- 21,953
Inventories............................................................. 49,454 69,073 80,928
Deferred income tax benefits............................................ 1,101 3,845 3,845
Other current assets.................................................... 2,088 5,402 3,174
-------- -------- -------------
Total Current Assets............................................... 154,763 200,422 224,727
Property, plant and equipment, net........................................ 171,498 223,784 216,274
Excess of cost over net assets of businesses acquired, net of accumulated
amortization of $4,055, $5,225 and $6,426,
respectively............................................................ 39,906 57,702 60,932
Deferred income tax benefits.............................................. 71,747 66,059 56,129
Other assets.............................................................. 14,431 11,304 13,123
-------- -------- -------------
Total Assets.............................................................. $452,345 $559,271 $ 571,185
-------- -------- -------------
-------- -------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Short-term debt......................................................... $ -- $ -- $ 256
Current maturities of long-term debt.................................... 2,845 8,990 3,124
Accounts payable........................................................ 38,606 51,975 57,656
Payable to related parties, net......................................... -- 2,749 6,732
Accrued liabilities..................................................... 27,575 33,970 46,643
Reserve for asbestos claims............................................. 49,506 48,176 20,581
-------- -------- -------------
Total Current Liabilities.......................................... 118,532 145,860 134,992
-------- -------- -------------
Long-term debt less current maturities.................................... 229,228 310,260 322,985
-------- -------- -------------
Reserve for asbestos claims............................................... 79,575 21,110 4,989
-------- -------- -------------
Reserve for product warranty claims....................................... 29,934 39,395 37,464
-------- -------- -------------
Other liabilities......................................................... 23,930 26,864 26,505
-------- -------- -------------
Commitments and Contingencies.............................................
Stockholder's Equity (Deficit):
Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par
value per share; 50,000 shares authorized; 0 shares issued........... -- -- --
Common stock, $.001 par value per share; 1,050,000 shares authorized;
1,000,010 shares issued and outstanding.............................. -- -- --
Additional paid-in-capital.............................................. 46,936 81,248 92,875
Excess of purchase price over the adjusted historical cost of the
predecessor company shares owned by GAF's stockholders............... (7,874) (7,874) (7,874)
Accumulated deficit..................................................... (67,328) (57,229) (40,747)
Other................................................................... (588) (363) (4)
-------- -------- -------------
Stockholder's Equity (Deficit).......................................... (28,854) 15,782 44,250
-------- -------- -------------
Total Liabilities and Stockholder's Equity (Deficit)...................... $452,345 $559,271 $ 571,185
-------- -------- -------------
-------- -------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
YEAR ENDED DECEMBER 31, OCTOBER 1, SEPTEMBER 29,
----------------------------------- 1995 1996
1993 1994 1995 (UNAUDITED) (UNAUDITED)
-------- -------- ------------ ----------- -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents, beginning
of period..................................... $ 4,612 $ 821 $ 29,015 $ 29,015 $ 45,989
-------- -------- ----------- ----------- -------------
Cash provided by operating activities:
Net income.................................... 20,351 16,660 10,099 9,998 16,482
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................... 14,465 16,796 20,252 14,545 18,072
Goodwill amortization...................... 641 1,064 1,170 800 1,201
Deferred income taxes...................... 3,118 10,959 6,250 6,494 10,260
Non-cash interest charges.................. 160 10,480 21,432 16,118 17,661
Increase in working capital items............. (4,246) (12,842) (8,050) (36,124) (46,182)
Purchases of trading securities............... -- -- -- -- (28,726)
Proceeds from sales of trading securities..... -- -- -- -- 25,868
(Increase) decrease in other assets........... 60 2,720 1,924 441 (940)
Decrease in other liabilities................. (12,558) (6,384) (4,502) (4,213) (1,390)
Increase (decrease) in payable to related
parties.................................... 1,350 (11,663) 1,939 6,059 4,831
Other, net.................................... 2,046 757 112 351 1,043
-------- -------- ----------- ----------- -------------
Net cash provided by operating activities....... 25,387 28,547 50,626 14,469 18,180
-------- -------- ----------- ----------- -------------
Cash used in investing activities:
Capital expenditures and acquisitions......... (18,963) (54,279) (54,111) (18,930) (15,726)
Purchases of available-for-sale securities.... -- -- (47,775) -- (106,452)
Proceeds from sales of available-for-sale
securities................................. -- -- 8,416 -- 120,305
-------- -------- ----------- ----------- -------------
Net cash used in investing activities......... (18,963) (54,279) (93,470) (18,930) (1,873)
-------- -------- ----------- ----------- -------------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable..... 38,485 12,217 7,919 23,511 16,378
(Increase) decrease in loans receivable
from/payable to related party.............. (9,993) (24,502) 23,633 (4,697) (21,953)
Increase in short-term debt................... -- -- -- -- 256
Proceeds from issuance of debt................ 7,285 195,528 40,002 -- --
Repayments of long-term debt.................. (1,825) (15,317) (10,440) (1,029) (11,880)
(Increase) decrease in restricted cash........ -- (24,484) 24,484 24,484 --
Capital contribution from parent company...... -- -- 34,312 -- 11,627
Distributions and dividend to parent
company.................................... (43,157) (7,900) -- -- --
Payments of asbestos claims................... -- (75,340) (59,795) (43,524) (43,716)
Financing fees and expenses................... (1,010) (6,276) (297) (295) (56)
-------- -------- ----------- ----------- -------------
Net cash provided by (used in) financing
activities................................. (10,215) 53,926 59,818 (1,550) (49,344)
-------- -------- ----------- ----------- -------------
Net change in cash and cash equivalents......... (3,791) 28,194 16,974 (6,011) (33,037)
-------- -------- ----------- ----------- -------------
Cash and cash equivalents, end of period........ $ 821 $ 29,015 $ 45,989 $ 23,004 $ 12,952
-------- -------- ----------- ----------- -------------
-------- -------- ----------- ----------- -------------
</TABLE>
F-5
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
YEAR ENDED DECEMBER 31, OCTOBER 1, SEPTEMBER 29,
------------------------------- 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:*
Accounts receivable.............................. $(3,202) $(14,340) $ 666 $ (32,662) $ (52,858)
Inventories...................................... 2,535 (6,534) (4,557) (12,261) (11,855)
Other current assets............................. (596) 151 1,760 (262) 1,329
Accounts payable................................. (2,324) 11,900 (6,093) 2,919 4,833
Accrued liabilities.............................. (659) (4,019) 174 6,142 12,369
------- -------- -------- ----------- -------------
Net effect on cash from increase in working
capital items............................... $(4,246) $(12,842) $ (8,050) $ (36,124) $ (46,182)
------- -------- -------- ----------- -------------
------- -------- -------- ----------- -------------
Cash paid during the period for:
Interest (net of amount capitalized)............. $ 2,117 $ 2,583 $ 2,796 $ 1,739 $ 4,632
Income taxes (including taxes paid pursuant to
the Tax Sharing Agreement).................... 484 9,609 213 189 143
Acquisition of U.S. Intec, Inc., net of $180 cash
acquired:
Fair market value of assets acquired............. $105,285
Purchase price of acquisition.................... 27,358
--------
Liabilities assumed.............................. $ 77,927
--------
--------
</TABLE>
- ------------------
* Working capital items exclude cash, restricted cash and short-term
investments, short-term debt and net payables or receivables to/from related
parties. Working capital acquired in connection with acquisitions is reflected
in '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 in receivables shown above does
not reflect the cash proceeds from the sale of the Company's receivables (see
Note 6); such proceeds are reflected in cash from financing activities.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CAPITAL
STOCK AND RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED
CAPITAL OTHER DEFICIT)
---------- ------- -------------
(THOUSANDS)
<S> <C> <C> <C>
Balance, December 31, 1992.................................................. $ 90,093 $ (460) $ 28,257
Net income................................................................ -- -- 20,351
Distributions to parent company........................................... (43,157) -- --
Adjustment of unfunded pension liability.................................. -- (1,342) --
---------- ------- -------------
Balance, December 31, 1993.................................................. $ 46,936 $(1,802) $ 48,608
Net income................................................................ -- -- 16,660
Assumption of a portion of parent company's asbestos liability, net of
related income tax benefits............................................ -- -- (124,696)
Dividend to parent company................................................ -- -- (7,900)
Adjustment of unfunded pension liability.................................. -- 1,214 --
---------- ------- -------------
Balance, December 31, 1994.................................................. $ 46,936 $ (588) $ (67,328)
Net income................................................................ -- -- 10,099
Capital contribution from parent company.................................. 34,312 -- --
Unrealized gain on available-for-sale securities, net of income tax effect
of $174................................................................ -- 272 --
Adjustment of unfunded pension liability.................................. -- (47) --
---------- ------- -------------
Balance, December 31, 1995.................................................. $ 81,248 $ (363) $ (57,229)
Net income (Unaudited).................................................... -- -- 16,482
Capital contribution from parent company (Unaudited)...................... 11,627 -- --
Unrealized gain on available-for-sale securities, net of income tax effect
of $229 (Unaudited).................................................... -- 359 --
---------- ------- -------------
Balance, September 29, 1996 (Unaudited)..................................... $ 92,875 $ (4) $ (40,747)
---------- ------- -------------
---------- ------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-7
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Corporation of America (the 'Company') was formed on
January 31, 1994 and is a wholly owned subsidiary of GAF Building Materials
Corporation ('GAFBMC'), which is a wholly owned subsidiary of G Industries Corp.
('G Industries'). G Industries is a wholly owned subsidiary of G-I Holdings Inc.
('G-I Holdings'), which is a wholly owned subsidiary of GAF Corporation ('GAF').
Financial information with regard to the nine months ended October 1, 1995 and
September 29, 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 manufactures a broad line of asphalt roofing products and
accessories for the residential and commercial roofing markets in the United
States.
NOTE 1. FORMATION OF THE COMPANY AND RESTATEMENT OF FINANCIAL STATEMENTS
Formation of the Company
Effective as of January 31, 1994, GAFBMC transferred to the Company all of
its business and assets (other than three closed manufacturing facilities,
certain deferred tax assets and receivables from affiliates). The Company
recorded the assets and liabilities related to such transfer at GAFBMC's
historical costs. The Company contractually assumed all of GAFBMC's liabilities,
except (i) all of GAFBMC's environmental liabilities, other than environmental
liabilities relating to the Company's plant sites and its business as then
conducted, (ii) any potential liability relating to certain litigation with
Georgia-Pacific Corporation (see 'Business--Legal Proceedings--Other
Litigation') and (iii) all of GAFBMC's asbestos-related liabilities, other than
the first $204.4 million of such liabilities (whether for indemnity or defense)
relating to then-pending asbestos-related bodily injury cases and previously
settled asbestos-related bodily injury cases which the Company contractually
assumed and agreed to pay. G-I Holdings and GAFBMC have agreed, jointly and
severally, to indemnify the Company from liabilities not assumed by the Company,
including asbestos-related and environmental liabilities not expressly assumed
by the Company. See Note 3.
The Company's consolidated financial statements have been prepared on a
basis which retroactively reflects the formation of the Company, as discussed
above, for all periods presented prior to 1995, except that the Company's
assumption of $204.4 million of asbestos-related liabilities described above and
related income tax benefits of $79.7 million have been reflected as a charge of
$124.7 million to stockholder's equity (deficit) upon the Company's formation as
of January 31, 1994. Excess cash generated has been reflected as a distribution
to GAFBMC in 1993.
Restatement of Financial Statements
In October 1995, G-I Holdings acquired all of the outstanding shares of
U.S. Intec, Inc. ('USI'), which manufactures commercial roofing products, for a
purchase price of $27.5 million and assumed $35 million of USI's indebtedness.
As of January 1, 1997, USI became a wholly owned subsidiary of the Company
through a capital contribution to the Company by G-I Holdings (see Note 13).
Accordingly, the Company's historical consolidated financial statements have
been restated for the year 1995 and the nine months ended September 29, 1996 to
include USI's results of operations from the date of its acquisition by G-I
Holdings, including sales of $21.8 million for the year 1995 and $76.3 million
for the nine months ended September 29, 1996 and net income (loss) of $(.5) and
$.8 million, respectively.
F-8
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. 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 12 (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 and losses, net of income tax effect, are
included in a separate component of stockholder's equity (deficit), 'Other', and
amounted to $.3 and $.6 million as of December 31, 1995 and September 29, 1996,
respectively.
'Other expense, net' includes $.4, $0 and $5.4 million of net realized and
unrealized gains on securities in 1995 and the first nine months of 1995 and
1996, respectively. 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 $6.3 million, as 'trading' and recorded
unrealized gains on such securities, through the date of redesignation, in the
amount of $.5 million as 'Other income'.
As of December 31, 1995, and September 29, 1996, the market value of the
Company's equity securities held long was $40.3 and $29.6 million, respectively,
and the Company had $5.9 and $1.7 million, respectively, of short positions in
common stocks, based on market value. The market values referred to above are
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.
Cash and cash equivalents for the purpose of reporting cash flows include
cash on deposit and debt securities purchased with original maturities of three
months or less.
In accordance with the terms of the indenture for the Company's 11 3/4%
Senior Deferred Coupon Notes due 2004 (the 'Deferred Coupon Notes') (see Note
9), the Company deposited $100 million of the proceeds from the issuance of the
Notes into a segregated account maintained by the trustee under the 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 the Company'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 portion of the Company's
inventories. All other inventories are determined principally based on the FIFO
(first-in, first-out) method.
F-9
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
Excess of Purchase Price Over The Adjusted Historical Cost of Predecessor
Company Shares
Stockholder's equity (deficit) reflects a reduction of $7.9 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 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.
Revenue Recognition
Revenue is recognized at the time products are shipped to the customer.
Interest Rate Swaps
Gains (losses) on interest rate swap agreements ('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 expenses are charged to operations as incurred and
amounted to $2.6, $2.5, $3.1, $2.2 and $3.0 million for 1993, 1994 and 1995 and
the first nine months of 1995 and 1996, respectively.
Warranty Claims
The Company provides certain limited warranties covering most of its
residential roofing products for periods ranging from 20 to 40 years. The
Company also offers limited warranties and guaranties of varying durations on
its commercial roofing products; income from warranty contracts related to
commercial roofing products is recognized over the life of the agreements.
Included in 'Accrued liabilities' as of December 31, 1994 and 1995 and as of
September 29, 1996 is $11.7, $11.0 and $9.4 million, respectively, for estimated
product
F-10
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
warranty claims. The Company believes that the reserves established for
estimated probable future warranty claims are adequate.
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 September 29, 1996 is $1.4 million,
before reduction for insurance recoveries reflected on its balance sheet of $.5
million. The Company's liability is reflected on an undiscounted basis. See
'Business--Environmental Litigation' for further discussion with respect to
environmental liabilities and estimated insurance recoveries.
NOTE 3. RESERVE FOR ASBESTOS-RELATED BODILY INJURY CLAIMS
Upon its formation, the Company contractually assumed and agreed to pay the
first $204.4 million of GAFBMC's asbestos-related bodily injury liabilities
(whether for indemnity or defense), relating to pending cases and previously
settled, but not paid, cases as of January 31, 1994, and no other asbestos
liabilities of GAFBMC. Of that amount, $178.8 million had been paid through
September 29, 1996, and the Company's remaining asbestos liability amounted to
$25.6 million as of September 29, 1996. Substantially all of the Company's
asbestos liabilities are expected to be paid by the end of the second quarter of
1997. Also see Note 1. G-I Holdings and GAFBMC have agreed, jointly and
severally, to indemnify the Company against any claims related to
asbestos-related liabilities, other than those assumed by the Company, in the
event that claims in connection with liabilities not assumed by the Company are
asserted against it. GAFBMC is administering all asbestos-related bodily injury
claims, including those assumed by the Company, and will have the right to
settle or litigate asbestos-related claims and to settle and allocate recoveries
among GAF, the Company and GAFBMC under insurance policies relating thereto.
As of September 29, 1996, G-I Holdings' and GAFBMC's consolidated reserves
for asbestos bodily injury claims were approximately $357.8 million (before
estimated present value of recoveries from products liability insurance policies
of approximately $211 million and related deferred tax benefits of approximately
$51.4 million). G-I Holdings and GAFBMC have advised the Company that certain
components of the asbestos-related liability and the related insurance
recoveries have been reflected on a discounted basis in their financial
statements. The aggregate undiscounted consolidated liability, as of September
29, 1996, before estimated recoveries from products liability insurance
policies, was $398.1 million. The 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 September 29, 1996, G-I Holdings' consolidated expected net
payments (receipts) for the remainder of 1996 and the years 1997, 1998, 1999 and
2000 are $19, $34, $(9.8), $26.8, and $31.7 million, respectively, and the
aggregate expected payments to be made after 2000 are $72.1 million.
For a further discussion with respect to the foregoing, see
'Business--Legal Proceedings', which is incorporated herein by reference.
NOTE 4. ACQUISITION
In March 1994, a subsidiary of the Company acquired the assets and certain
liabilities of International Permalite Inc. ('IPI'), a manufacturer of perlite
roofing insulation 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. The results of IPI, including sales of $19.3
million for the year 1994, are included from the date of acquisition; the
effects were not material to 1994 operations.
F-11
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES
Income tax provision, which has been computed on a separate return basis,
consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
YEAR ENDED DECEMBER 31, OCTOBER 1, SEPTEMBER 29,
------------------------------- 1995 1996
1993 1994 1995 (UNAUDITED) (UNAUDITED)
-------- -------- ------- ----------- -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal:
Current......................................... $ (8,081) $ -- $ -- $ -- $ --
Deferred........................................ (2,739) (9,438) (5,424) (5,645) (9,094)
-------- -------- ------- ----------- -------------
Total Federal................................ (10,820) (9,438) (5,424) (5,645) (9,094)
-------- -------- ------- ----------- -------------
State and local:
Current......................................... (1,432) (200) (200) (152) (213)
Deferred........................................ (504) (1,521) (826) (849) (1,167)
-------- -------- ------- ----------- -------------
Total state and local........................ (1,936) (1,721) (1,026) (1,001) (1,380)
-------- -------- ------- ----------- -------------
Income tax provision.............................. $(12,756) $(11,159) $(6,450) $(6,646) $ (10,474)
-------- -------- ------- ----------- -------------
-------- -------- ------- ----------- -------------
</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>
NINE MONTHS ENDED
----------------------------
YEAR ENDED DECEMBER 31, OCTOBER 1, SEPTEMBER 29,
------------------------------- 1995 1996
1993 1994 1995 (UNAUDITED) (UNAUDITED)
-------- -------- ------- ----------- -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Statutory provision............................... $(11,544) $ (9,737) $(5,792) $(5,825) $ (9,435)
Impact of:
State and local taxes, net of Federal
benefits................................... (1,279) (1,119) (667) (651) (897)
Nondeductible goodwill amortization.......... (224) (372) (260) (168) (291)
Other, net................................... 291 69 269 (2) 149
-------- -------- ------- ----------- -------------
Income tax provision.............................. $(12,756) $(11,159) $(6,450) $(6,646) $ (10,474)
-------- -------- ------- ----------- -------------
-------- -------- ------- ----------- -------------
</TABLE>
F-12
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES--(CONTINUED)
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
-------------------- 1996
1994 1995 (UNAUDITED)
-------- -------- -------------
(THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities related to property, plant and
equipment..................................................... $(21,467) $(10,173) $ (9,753)
-------- -------- -------------
Deferred tax assets related to:
Expenses not yet deducted for tax purposes:
Reserve for asbestos claims................................ 50,342 27,022 9,973
Other...................................................... 27,472 35,437 33,224
Net operating losses not yet utilized under the Tax Sharing
Agreement.................................................. 16,501 17,618 26,530
-------- -------- -------------
Total deferred tax assets..................................... 94,315 80,077 69,727
-------- -------- -------------
Net deferred tax assets....................................... 72,848 69,904 59,974
Less current portion.......................................... 1,101 3,845 3,845
-------- -------- -------------
Noncurrent deferred tax assets................................ $ 71,747 $ 66,059 $ 56,129
-------- -------- -------------
-------- -------- -------------
</TABLE>
Management has determined, based on the Company's history of prior earnings
and its expectations for the future, that future taxable income will more likely
than not be sufficient to utilize fully the deferred tax assets recorded.
The Company and its subsidiaries have entered into a Tax Sharing Agreement
with GAF and G-I Holdings under which the Company is obligated to pay G-I
Holdings an amount equal to those Federal income taxes the Company would have
incurred if the Company (on behalf of itself and its subsidiaries) filed its own
Federal income tax return. Unused tax attributes will carry forward for use in
reducing amounts payable by the Company to G-I Holdings in future years, but
cannot be carried back. Were the Company 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 the Company under the Tax Sharing
Agreement. Under certain circumstances, the provisions of the Tax Sharing
Agreement could result in the Company having a greater liability thereunder than
it would have had if it (and its subsidiaries) had filed its own separate
Federal income tax return. Under the Tax Sharing Agreement, the Company and each
of its 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 the Company or any subsidiary of the Company. Although, as a member
of the GAF Group, the Company 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 the Company and its subsidiaries for all tax liabilities of the GAF
Group other than tax liabilities (i) arising from the operations of the Company
and its subsidiaries and (ii) for tax years pre-dating the Tax Sharing Agreement
that relate to the business or assets of the Company and its 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 the Company would have incurred if it
filed its own separate Federal income tax return and the fact that the Company
is a member of the GAF Group for Federal income tax purposes. In accordance with
the Tax Sharing Agreement, effective January 31, 1994, tax benefits generated by
net operating losses and credits will reduce future tax sharing payments to G-I
Holdings.
F-13
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES--(CONTINUED)
In connection with Rhone-Poulenc Surfactants and Specialties, L.P. (the
'Surfactants Partnership'), GAF Fiberglass Corporation ('GFC'), an indirect
subsidiary of GAF formerly known as GAF Chemicals Corporation, has recorded a
deferred tax liability in the amount of $131.4 million, which is reflected as a
liability on the consolidated balance sheet of G-I Holdings. 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, GFC could be required to satisfy this
liability earlier than 1999. GAF, G-I Holdings and certain subsidiaries of GAF
have agreed to jointly and severally indemnify the Company against such tax
liability. The Company is a member of the same consolidated group as GFC and,
subject to such indemnification, would be severally liable for any tax liability
imposed in connection with the Surfactants Partnership should GAF, G-I Holdings
and such subsidiaries be unable to satisfy such liability. GAF has advised the
Company that, in the event the tax liability becomes payable, GAF believes that
it will have access to sufficient funds to satisfy this liability if so
required.
NOTE 6. SALE OF ACCOUNTS RECEIVABLE
In March 1993, the Company sold its trade accounts receivable
('receivables') to a trust, without recourse, pursuant to an agreement which
provided for a maximum of $75 million in cash to be made available to the
Company based on eligible receivables outstanding from time to time. In November
1996, the Company entered into new agreements, pursuant to which it sold the
receivables to a special purpose subsidiary of the Company, BMCA Receivables
Corporation, without recourse, which in turn sold them to a new trust, without
recourse. The new agreements provide for a maximum of $115 million in cash to be
made available to the Company based on eligible receivables outstanding from
time to time and expires in December 2001. 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 and is included in 'Other
expense, net.'
NOTE 7. INVENTORIES
At December 31, 1994 and 1995 and September 29, 1996, $6.9, $6.2 and $7.5
million, respectively, of inventories were valued using the LIFO method.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
------------------ 1996
1994 1995 (UNAUDITED)
------- ------- -------------
(THOUSANDS)
<S> <C> <C> <C>
Finished goods..................................................... $25,042 $36,363 $47,003
Work in process.................................................... 9,228 7,594 8,858
Raw materials and supplies......................................... 15,689 25,621 25,972
------- ------- -------------
Total............................................................ 49,959 69,578 81,833
Less LIFO reserve.................................................. (505) (505) (905)
------- ------- -------------
Inventories........................................................ $49,454 $69,073 $80,928
------- ------- -------------
------- ------- -------------
</TABLE>
F-14
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
-------------------- 1996
1994 1995 (UNAUDITED)
-------- -------- -------------
(THOUSANDS)
<S> <C> <C> <C>
Land and land improvements...................................... $ 19,927 $ 25,255 $ 25,750
Buildings and fixtures.......................................... 28,547 40,608 46,110
Machinery and equipment (including equipment under capitalized
leases of $14,421, $20,450 and $18,431--see Note 9)........... 138,339 172,993 182,003
Construction in progress........................................ 23,824 20,879 15,282
-------- -------- -------------
Total...................................................... 210,637 259,735 269,145
Less accumulated depreciation and amortization.................. (39,139) (35,951) (52,871)
-------- -------- -------------
Property, plant and equipment, net.............................. $171,498 $223,784 $ 216,274
-------- -------- -------------
-------- -------- -------------
</TABLE>
NOTE 9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
-------------------- 1996
1994 1995 (UNAUDITED)
-------- -------- -------------
(THOUSANDS)
<S> <C> <C> <C>
11 3/4% Senior Deferred Coupon Notes due 2004............................. $185,445 $207,814 $ 226,553
Borrowings under revolving credit facilities.............................. -- 24,412 22,164
Industrial revenue bonds with various interest rates and maturity dates to
2012.................................................................... 19,625 19,625 19,625
Obligations on mortgaged properties....................................... 6,575 7,639 5,376
Obligations under capital leases (Note 12)................................ 20,428 59,760 52,391
-------- -------- -------------
Total................................................................... 232,073 319,250 326,109
Less current maturities................................................... (2,845) (8,990) (3,124)
-------- -------- -------------
Long-term debt less current maturities.................................... $229,228 $310,260 $ 322,985
-------- -------- -------------
-------- -------- -------------
</TABLE>
In June 1994, the Company issued $310 million in principal amount of the
Deferred Coupon Notes for net proceeds of $169.3 million. The Deferred Coupon
Notes will accrete to face value on July 1, 1999 and cash interest will accrue
from and after that date. Holders of the Deferred Coupon Notes have the right
under the indenture governing such notes to require the Company to purchase the
Deferred Coupon Notes at a price of 101% of Accreted Value (as defined therein),
and the Company has the right to redeem the Deferred Coupon Notes at Accreted
Value plus the Applicable Premium (as defined therein), together with any
accrued and unpaid interest, in the event of a Change of Control (as defined
therein). The indenture relating to the Deferred Coupon Notes 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 and
restricted investments, incur liens, engage in transactions with affiliates, and
agree to certain additional limitations on dividends and other payment
restrictions affecting subsidiaries. As of September 29, 1996, the Company could
have paid dividends of up to $23.0 million. Under the indenture relating to the
Deferred Coupon Notes and the indenture relating to G-I Holdings' Senior
Discount Notes due 1998, the incurrence of additional debt by the Company and
the issuance by the Company of preferred stock would be restricted unless, at
the time of such issuance and after giving effect thereto, the ratio of the
Company's consolidated net income before income taxes, interest, depreciation
and amortization expense to
F-15
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LONG-TERM DEBT--(CONTINUED)
its consolidated interest expense for its most recently completed four fiscal
quarters is at least 2 to 1. For the four quarters ended September 29, 1996, the
Company was in compliance with such tests.
In connection with the Deferred Coupon Notes, the Company 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 the Company of
the portion of the Deferred Coupon 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 September 29, 1996, the Company would have incurred gains (losses) of
($3.6), $9.3 and $6.8 million, respectively, representing the estimated amount
that would be (payable)/receivable by the Company if the swaps were terminated
at such dates. No cash interest will be paid on the swaps until maturity. 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.
In June 1996, the Company's bank credit facilities were extended to June
1997 on the same terms and conditions. Such facilities provide for revolving
lines of credit of up to $30 million and letters of credit facilities of up to
$39 million, provided that total borrowings and outstanding letters of credit
may not exceed $40 million. As of September 29, 1996, $33.1 million of letters
of credit were outstanding and no amounts had been borrowed thereunder. Under
the agreements, the Company is subject to a minimum consolidated net worth test.
As of September 29, 1996, the Company 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 September 29, 1996, loans of $22.2 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, the Company 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, the Company
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, the Company 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 period and has a fixed
interest rate. The Company 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 September 29, 1996.
The Company believes that the fair value of its non-public indebtedness
approximates the book value of such indebtedness, because the interest rates on
such indebtedness are at floating short-term rates. With respect to the
Company's publicly traded debt securities, the Company has obtained an estimate
of the fair value of the Deferred Coupon Notes from an independent source
believed to be reliable. The estimated fair value of the Deferred Coupon Notes
as of December 31, 1994 and 1995 and September 29, 1996 was $156.6, $210.8 and
$249.6 million, respectively.
International Specialty Products Inc. ('ISP'), a Delaware corporation that
was an 83.5% indirect subsidiary of GAF prior to consummation of the Spin Off
Transactions (see Note 13), is permitted under the terms of its revolving credit
facilities to make loans or make available letters of credit to affiliates
(including the Company)
F-16
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LONG-TERM DEBT--(CONTINUED)
up to an aggregate of $75 million outstanding at any one time. As of September
29, 1996, no loans to the Company and $2.3 million in letters of credit for the
benefit of affiliates were outstanding.
The Company makes loans to, and borrows from, G-I Holdings and its
subsidiaries at prevailing market rates (between 6.14% and 6.55% during 1995 and
between 5.68% and 6.0% during the first nine months of 1996). The highest amount
of loans made by the Company to G-I Holdings during 1995 and the first nine
months of 1996 was $34.4 million. No loans were made to the Company by G-I
Holdings and its subsidiaries during 1995, and the highest amount of loans made
to the Company by G-I Holdings and its subsidiaries during the first nine months
of 1996 was $24.3 million. As of December 31, 1994 and 1995 and September 29,
1996, $23.6 million, $0 and $22.0 million, respectively, was owed to the Company
by G-I Holdings, and no loans were owed by the Company to affiliates.
The aggregate maturities of long-term debt as of September 29, 1996 for the
next five years are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED SEPTEMBER 30, (THOUSANDS)
- ----------------------------------------------------------------------- -----------
<S> <C>
1997................................................................... $ 3,124
1998................................................................... 3,627
1999................................................................... 26,095
2000................................................................... 4,536
2001................................................................... 5,879
</TABLE>
In the above table, maturities for the twelve months ended September 30,
1999 include the $22.2 million of borrowings outstanding under the USI revolving
credit facility, which expires in January 1999.
NOTE 10. 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 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 $2.3, $2.6, $2.7, $2.0 and $2.3 million for 1993, 1994 and 1995 and the
first nine months of 1995 and 1996, respectively.
USI provides a defined contribution plan for eligible employees. USI may
contribute a discretionary matching contribution equal to 100% of each
participant's eligible contributions each plan year up to a maximum of $500 for
each participant. Such contributions by USI were immaterial for the period in
1995 after the acquisition of USI and were $148,000 for the first nine months of
1996.
Defined Benefit Plans
The Company provides a noncontributory defined benefit retirement plan for
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.
F-17
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS--(CONTINUED)
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............................................................................ $ 408 $ 501 $ 463
Interest cost........................................................................... 484 551 598
Actual income on plan assets............................................................ (380) (380) (432)
Net deferral and amortization of unrecognized prior service cost and actuarial losses... 305 175 97
----- ----- -----
Net periodic pension cost............................................................... $ 817 $ 847 $ 726
----- ----- -----
----- ----- -----
</TABLE>
Net periodic pension cost for the Hourly Retirement Plan was $.5 and $.3
million, respectively, for the first nine 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........................................................................... $ 6,080 $ 7,623
Nonvested........................................................................ 840 1,266
------- -------
Total accumulated benefit obligation............................................... $ 6,920 $ 8,889
------- -------
------- -------
Projected benefit obligation....................................................... $ 6,920 $ 8,889
Fair value of plan assets, primarily publicly traded stocks and U.S. Government
securities....................................................................... (4,563) (7,092)
------- -------
Projected benefit obligation in excess of plan assets.............................. 2,357 1,797
Unrecognized prior service cost.................................................... (465) (368)
Unrecognized net loss.............................................................. (588) (635)
------- -------
Unfunded accrued pension cost...................................................... $ 1,304 $ 794
------- -------
------- -------
</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 $1,003,000, was recorded by the Company as a liability, offset by
an intangible asset in the amount of $368,000 and a reduction of stockholder's
equity (deficit) in the amount of $635,000. 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 immaterial for
1993, 1994 and 1995 and the first nine months of 1995 and 1996.
Preferred Stock Option Plan
On January 1, 1996, the Company issued options to certain employees to
purchase 24,509 shares of Redeemable Convertible Preferred Stock ('Preferred
Stock') of the Company, exercisable at a price of $100 per share. Each share of
Preferred Stock is convertible, at the holder's option, into 0.76 shares of
common stock. The
F-18
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS--(CONTINUED)
options vest over seven years. Dividends will accrue on the Preferred Stock from
the date of issuance at the rate of 8% per annum. The Preferred Stock is
redeemable, at the Company's option, for a redemption price equal to $100 per
share plus accrued and unpaid dividends. The Preferred Stock, and common stock
issuable upon conversion of Preferred Stock into common stock, is subject to
repurchase by the Company under certain circumstances, at a price equal to
current Book Value (as defined). The exercise price of the options to purchase
Preferred Stock was equal to the fair value per share of the Preferred Stock at
the date of grant. No expense is accrued in connection with the preferred stock
option plan.
Income Appreciation Unit Plan
The Company provides an Income Appreciation Unit Plan, an employee
incentive program based on the operating performance of the Company. Expense
accrued for the plan was $1.1 million for each of 1993 and 1994, $.2 million for
1995, and was $.9 and $.8 million for the first nine months of 1995 and 1996,
respectively.
The Income Appreciation Unit Plan will be terminated as of December 31,
1996, and the values will be frozen as of that date. Participants who hold
vested units will be entitled to receive cash payment equal to the value of
their vested units as of December 31, 1996, and as the remaining units become
vested, holders will be entitled to receive additional cash payment for such
value.
A Book Value Appreciation Unit Plan was implemented effective January 1,
1996. Under the plan, employees were granted units which vest over seven years.
Upon exercise, employees are entitled to receive a cash payment based on the
increase in Book Value (as defined). Expense accrued under this plan for the
first nine months of 1996 was $.1 million.
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. Current 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.
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.................... $ 5,430 $ 5,866
Active employees fully eligible for benefits.................................... 1,112 1,193
Active employees not fully eligible for benefits................................ 926 1,154
------- -------
Total accumulated postretirement benefit obligation............................... 7,468 8,213
Fair value of plan assets......................................................... -- --
Unrecognized net gain............................................................. 4,280 3,284
------- -------
Accrued postretirement benefit obligation......................................... $11,748 $11,497
------- -------
------- -------
</TABLE>
F-19
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS--(CONTINUED)
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........................................................................... $ 81 $ 86 $ 79
Interest cost.......................................................................... 736 599 645
Amortization of net gain from earlier periods.......................................... (1) (200) (415)
---- ----- -----
Net periodic postretirement benefit cost............................................... $816 $ 485 $ 309
---- ----- -----
---- ----- -----
</TABLE>
Net periodic postretirement benefit cost was $.2 and $.4 million,
respectively, for the first nine 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% in 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 $327,000 and the aggregate of the
service and interest cost components of the net periodic postretirement benefit
cost for the year 1995 by $74,000.
NOTE 11. RELATED PARTY TRANSACTIONS
Included in the Consolidated Balance Sheets are the following receivable
(payable) balances with related parties, which arise from operating transactions
between the Company and its affiliates:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
---------------- 1996
1994 1995 (UNAUDITED)
----- ------- -------------
(THOUSANDS)
<S> <C> <C> <C>
Receivable from (payable to):
GAF/G-I Holdings/G Industries................................................. $ 276 $ 208 $ (143)
GAFBMC........................................................................ (927) (55) 35
ISP........................................................................... 689 (2,902) (6,624)
----- ------- -------------
Receivable from (payable to) related parties, net............................. $ 38 $(2,749) $(6,732)
----- ------- -------------
----- ------- -------------
</TABLE>
The Company also borrows from or makes loans to related parties. Interest
on the loans is charged at prevailing rates available to ISP under its bank
credit agreement. The weighted average interest rate on the
F-20
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS--(CONTINUED)
Company's short-term loan to G-I Holdings as of December 31, 1994 and September
29, 1996 was 6.1% and 5.7%, respectively. The balances of such outstanding loans
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
----------------- 1996
1994 1995 (UNAUDITED)
------- ------ -------------
(THOUSANDS)
<S> <C> <C> <C>
Loan receivable from G-I Holdings............................................. $23,633 $ -- $21,953
------- ------ -------------
------- ------ -------------
</TABLE>
Mineral Products: The Company purchases all of its colored roofing
granules requirements from ISP (except for the requirements of the California
roofing plant) under a requirements contract which was renewed in 1996 and is
subject to annual renewal unless terminated by the Company or ISP. Such
purchases totaled $43.5, $42.5, $45.7, $35.9 and $35.7 million for 1993, 1994
and 1995 and the first nine months of 1995 and 1996, respectively. The amount
payable to ISP at December 31, 1994 and 1995 and September 29, 1996 for such
purchases was $2.6, $2.7 and $7.5 million, respectively. 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) pursuant to a requirements
contract which expires December 31, 1997. Such purchases totaled $.1 million for
1995 and $3.3 million for the first nine months of 1996. The amount payable by
USI to ISP for such purchases was $.1 and $.6 million at December 31, 1995 and
September 29, 1996, respectively.
Management Agreement: The Company is a party to a Management Agreement
with ISP (the 'Management Agreement'), which expires at the end of 1996,
pursuant to which ISP provides certain general management, administrative and
facilities services to the Company (including the use of the Company's
headquarters in Wayne, New Jersey), for which the Company paid ISP a management
fee of $4.6, $3.5, $3.6, $2.7 and $2.9 million for 1993, 1994 and 1995 and the
first nine months of 1995 and 1996, respectively. Such fee was increased to an
annual rate of $3.9 million effective January 1, 1996. In addition to the
management fee, the Company paid to ISP approximately $.7 million in each of
1993, 1994 and 1995, and $.5 million in each of the first nine months of 1995
and 1996, primarily for telecommunications and information services, and the
Company paid approximately $.2 and $.1 million to ISP in 1994 and 1995,
respectively, for certain legal services, which in each case were not
encompassed within the management agreement.
Tax Sharing Agreement: See Note 5.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The discussion as to legal matters involving the Company contained in
'Business--Legal Proceedings, Environmental Litigation and Other Litigation' is
incorporated herein by reference.
GAF, G-I Holdings, G Industries and GAFBMC are presently dependent upon the
earnings and cash flow of their subsidiaries, including the Company, in order to
satisfy their obligations, including as of September 29, 1996, $332.2 million
estimated present value of asbestos liability (before estimated present value of
recoveries from products liability insurance policies of approximately $211
million and net of the asbestos liability assumed by the Company), and
approximately $163.7 million of various tax and other liabilities, including tax
liabilities relating to the Surfactants Partnership (discussed in Note 5). Of
such obligations, $50.4 million (net of estimated insurance recoveries of $35.1
million) is estimated to be payable during the twelve months ended September 30,
1997. GAF has advised the Company that it expects 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 indentures
relating to the Deferred Coupon Notes and from payments pursuant to Tax Sharing
Agreements between GAF and its subsidiaries. In the event that such parent
corporations should become unable to meet their cash requirements from sources
other than the Company, they might take various actions, including, among other
things, seeking to cause the Company to make distributions to stockholders by
means of dividends or otherwise,
F-21
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
to make loans to its parent corporations, or cause GAFBMC to sell shares of the
Company's common stock. As of September 29, 1996, G-I Holdings' stockholder's
equity was $61.7 million. The Company does not believe that the dependence of
its parent corporations on the cash flows of their subsidiaries should have a
material adverse effect on the operations, liquidity or capital resources of the
Company. See Notes 3 and 5.
The leases for certain property, plant and equipment at the Company's
Baltimore, Maryland and Chester, South Carolina roofing facilities are accounted
for as capital leases. See Note 9. The Company is also a lessee under operating
leases principally for production, transportation and computer equipment. Rental
expense on operating leases was $6.3, $7.1 and $7.0 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:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(THOUSANDS)
<S> <C> <C>
1996....................................................................................... $ 11,846 $ 3,582
1997....................................................................................... 6,862 3,088
1998....................................................................................... 6,862 1,744
1999....................................................................................... 6,862 439
2000....................................................................................... 7,302 99
Later years................................................................................ 47,072 77
-------- ---------
Total minimum payments..................................................................... 86,806 $ 9,029
---------
---------
Less interest included above............................................................... (27,046)
--------
Present value of net minimum lease payment................................................. $ 59,760
--------
--------
</TABLE>
NOTE 13. SUBSEQUENT EVENTS (UNAUDITED)
On December 9, 1996, the Company issued $100 million in aggregate principal
amount of 8 5/8% Senior Notes due 2006.
On January 1, 1997, GAF effected a series of transactions involving its
subsidiaries (the 'Spin Off Transactions') that resulted in, among other things,
(1) the approximately 83% of the issued and outstanding common stock of ISP
owned by a subsidiary of GAF being distributed to the stockholders of GAF, (2)
the Company's glass fiber manufacturing facility in Nashville, Tennessee (and
certain related assets and liabilities) being transferred to GFC, (3) USI
becoming a subsidiary of the Company and (4) G-I Holdings making a contribution
of approximately $57 million in cash and securities to the Company. As a result
of the Spin Off Transactions, ISP Holdings and ISP are no longer direct or
indirect subsidiaries of GAF, while the Company and GFC remain subsidiaries of
GAF. In connection with these transactions, GFC entered into a long-term supply
agreement with the Company under which GFC produces glass fiber for the Company.
As a result of USI becoming a subsidiary of the Company as of January 1, 1997,
the financial and statistical data regarding the Company presented herein
reflect the results of USI from and after October 20, 1995, the date on which
USI was acquired by a subsidiary of GAF, except as expressly set forth herein.
See Note 1.
The parent corporations of the Company are GAF, G-I Holdings, G Industries
and GAFBMC, and, except for the Company, the only other significant asset of
such parent corporations is GFC. As a result of the Spin Off Transactions,
dividends from ISP are not available to GAF and G-I Holdings, and loans from ISP
to GAF, G-I Holdings and the Company are prohibited by ISP Holdings' debt
instruments.
F-22
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<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.......................... $119.1 $169.0 $169.2 $135.8 $138.6 $177.1 $191.9 $179.6
Cost of products sold.............. 86.3 117.7 119.6 101.4 102.9 127.0 139.7 136.4
------ ------ ------ ------ ------ ------ ------ ------
Gross profit....................... $ 32.8 $ 51.3 $ 49.6 $ 34.4 $ 35.7 $ 50.1 $ 52.2 $ 43.2
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Operating income................... $ 6.5 $ 17.2 $ 15.5 $ 5.5 $ 7.0 $ 15.8 $ 15.6 $ 7.5
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Interest expense................... $ 1.0 $ 1.3 $ 5.2 $ 5.6 $ 6.0 $ 6.0 $ 6.2 $ 6.6
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes............................ $ 4.8 $ 15.0 $ 9.0 $ (1.0) $ .6 $ 8.0 $ 8.0 $ (.1)
Income tax (provision) benefit..... (1.9) (5.8) (3.6) .2 (.2) (3.2) (3.2) .2
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).................. $ 2.9 $ 9.2 $ 5.4 $ (.8) $ .4 $ 4.8 $ 4.8 $ .1
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
F-23
<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 BMCA. 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 AN 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary........................................ 1
Risk Factors................................... 12
Capitalization................................. 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 24
Management..................................... 36
Executive Compensation......................... 39
Security Ownership of Certain Beneficial Owners
and Management............................... 41
Certain Relationships.......................... 42
The Exchange Offer............................. 44
Description of the New Notes................... 50
Certain Federal Income Tax
Considerations............................... 72
Plan of Distribution........................... 74
Legal Matters.................................. 74
Experts........................................ 74
Available Information.......................... 75
Index to Consolidated Financial Statements..... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$100,000,000
SERIES B 8 5/8%
SENIOR NOTES DUE 2006
BUILDING
MATERIALS
CORPORATION
OF AMERICA
------------------------
PROSPECTUS
------------------------
FEBRUARY , 1997
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Building Materials Corporation of America ('BMCA') 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 Seventh of BMCA's
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 has 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
II-1
<PAGE>
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 acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the corporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of BMCA (incorporated by reference to Exhibit 3.1 to BMCA's
Registration Statement on Form S-4 (Registration No. 33-81808) (the 'Deferred Coupon Note
Registration Statement')).
3.2 -- By-laws of BMCA (incorporated by reference to Exhibit 3.2 to the Deferred Coupon Note Registration
Statement).
*4.1 -- Indenture, dated as of December 9, 1996, between BMCA and The Bank of New York, as trustee.
*4.2 -- Form of Notes (included in Exhibit 4.1).
*4.3 -- Registration Rights Agreement, dated December 9, 1996, between BMCA, Bear, Stearns & Co. Inc.,
Chase Securities Inc. and Salomon Brothers Inc.
**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 June 30, 1994 between BMCA and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 to the Deferred Coupon Note 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 Registration Statement on Form S-4 of G-I Holdings (Registration
No. 33-72220)).
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 (incorporated by
reference to Exhibit 10.6 to the Registration Statement on Form S-4 of G-I Holdings (Registration
No. 333-2436)).
10.7 -- Amendment No. 5, dated as of October 18, 1996 to the Management Agreement (incorporated by
reference to Exhibit 10.6 to ISP Holdings' Registration Statement on Form S-4 (Registration No.
333-17827)).
*10.8 -- Amendment No. 6, dated as of January 1, 1997, to the Management Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
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 the Deferred Coupon Note Registration Statement).
10.10 -- Income Appreciation Unit Plan (incorporated by reference to Exhibit 10.7 to the Deferred Coupon
Note Registration Statement).
10.11 -- Reorganization Agreement, dated as of January 31, 1994, among GAFBMC, G-I Holdings and BMCA
(incorporated by reference to Exhibit 10.9 to the Deferred Coupon Note Registration Statement).
10.12 -- Stock Appreciation Right dated March 7, 1995 between GAF Corporation and Sunil Kumar (incorporated
by reference to Exhibit 10.2 to BMCA's Form 10-Q for the quarter ended July 2, 1995 (the 'July
1995 10-Q')).
10.13 -- Agreement dated January 24, 1995 between BMCA and Sunil Kumar (incorporated by reference to
Exhibit 10.1 to the July 1995 10-Q).
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- Subsidiaries of BMCA.
**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.
*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.
*27 -- Restated Financial Data Schedule for the first nine months of fiscal year 1996, which is submitted
electronically to the Securities and Exchange Commission for information only.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
**99.3 -- Form of Exchange Agent Agreement between The Bank of New York and BMCA.
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
(B) SCHEDULES
<TABLE>
<S> <C>
Consolidated Financial Statement Schedules:
Report of Independent Public Accountants......................................................... S-1
Schedule II--Valuation and Qualifying Accounts................................................... S-2
</TABLE>
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
II-3
<PAGE>
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the 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 7th day of February 1997.
BUILDING MATERIALS CORPORATION OF
AMERICA
By: /s/ JAMES P. ROGERS
--------------------------------
Name: James P. Rogers
Title: Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
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 Officer and February 7, 1997
- ------------------------------------------ Director (Principal Executive Officer)
Samuel J. Heyman
/s/ JAMES P. ROGERS Executive Vice President and Director February 7, 1997
- ------------------------------------------ (Principal Financial Officer)
James P. Rogers
* President, Chief Operating Officer and February 7, 1997
- ------------------------------------------ Director
Sunil Kumar
* Director February 7, 1997
- ------------------------------------------
John M. Sergey
* Vice President and Controller (Principal February 7, 1997
- ------------------------------------------ Accounting Officer)
John F. Rebele
/s/ JAMES P. ROGERS
- ------------------------------------------
*By James P. Rogers, Attorney-in-Fact
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Building Materials Corporation of America:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Building Materials Corporation of America
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
schedule listed in item 21(b) is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 1, 1997
S-1
<PAGE>
SCHEDULE II
BUILDING MATERIALS CORPORATION OF AMERICA
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1993
(THOUSANDS)
<TABLE>
<CAPTION>
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.......................... $ 1,599 $ 780 $ 1,128(a) $ 1,251(b)
Allowance for discounts.................................. 16,488 59,140 58,587 17,041
Reserve for inventory market valuation................... 841 175 442 574
</TABLE>
YEAR ENDED DECEMBER 31, 1994
(THOUSANDS)
<TABLE>
<CAPTION>
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.......................... $ 1,251 $ 666 $ 9(a) $ 1,908(b)
Allowance for discounts.................................. 17,041 56,988 58,594 15,435
Reserve for inventory market valuation................... 574 222 192 604
</TABLE>
YEAR ENDED DECEMBER 31, 1995
(THOUSANDS)
<TABLE>
<CAPTION>
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................ $ 1,908 $ 478 $ 920(a) $1,751(c) $ 3,217(b)
Allowance for discounts........................ 15,435 65,057 61,695 -- 18,797
Reserve for inventory market valuation......... 604 -- 30 -- 574
</TABLE>
- ------------------
Notes:
(a) Represents write-offs of uncollectible accounts net of recoveries.
(b) The balances at December 31, 1993 and 1994 principally represent a reserve
for receivables sold to a trust (see Note 6 to Consolidated Financial
Statements) and are reflected in the Consolidated Balance Sheets as a
reduction of 'Accounts receivable, other'. The balance at December 31, 1995,
in addition to representing such reserve for receivables sold to a trust,
includes a reserve of $1,261,000 related to USI trade receivables.
(c) Represents balance acquired in acquisitions.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C> <C>
1.3 -- Certificate of Incorporation of BMCA (incorporated by reference to Exhibit 3.1 to
BMCA's Registration Statement on Form S-4 (Registration No. 33-81808) (the 'Deferred
Coupon Note Registration Statement')).
3.2 -- By-laws of BMCA (incorporated by reference to Exhibit 3.2 to the Deferred Coupon Note
Registration Statement).
*4.1 -- Indenture, dated as of December 9, 1996, between BMCA and The Bank of New York, as
trustee.
*4.2 -- Form of Notes (included in Exhibit 4.1).
*4.3 -- Registration Rights Agreement, dated December 9, 1996, between BMCA, Bear, Stearns &
Co. Inc., Chase Securities Inc. and Salomon Brothers Inc.
**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 June 30, 1994 between BMCA and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 to the Deferred Coupon Note 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 Registration Statement
on Form S-4 of G-I Holdings (Registration No. 33-72220)).
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
(incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-4 of
G-I Holdings (Registration No. 333-2436)).
10.7 -- Amendment No. 5, dated as of October 18, 1996 to the Management Agreement (incorporated
by reference to Exhibit 10.6 to ISP Holdings' Registration Statement on Form S-4
(Registration No. 333-17827)).
*10.8 -- Amendment No. 6, dated as of January 1, 1997, to the Management Agreement.
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 the Deferred Coupon Note Registration
Statement).
10.10 -- Income Appreciation Unit Plan (incorporated by reference to Exhibit 10.7 to the
Deferred Coupon Note Registration Statement).
10.11 -- Reorganization Agreement, dated as of January 31, 1994, among GAFBMC, G-I Holdings and
BMCA (incorporated by reference to Exhibit 10.9 to the Deferred Coupon Note
Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C> <C>
10.12 -- Stock Appreciation Right dated March 7, 1995 between GAF Corporation and Sunil Kumar
(incorporated by reference to Exhibit 10.2 to BMCA's Form 10-Q for the quarter ended
July 2, 1995 (the 'July 1995 10-Q')).
10.13 -- Agreement dated January 24, 1995 between BMCA and Sunil Kumar (incorporated by
reference to Exhibit 10.1 to the July 1995 10-Q).
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- Subsidiaries of BMCA.
**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.
*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.
*27 -- Restated Financial Data Schedule for the first nine months of fiscal year 1996, which
is submitted electronically to the Securities and Exchange Commission for information
only.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
**99.3 -- Form of Exchange Agent Agreement between The Bank of New York and BMCA.
</TABLE>
- ------------------
* Filed previously.
** Filed herewith.
<PAGE>
WEIL, GOTSHAL & MANGES LLP
A LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
767 FIFTH AVENUE
NEW YORK, NY 10153-0119
(212) 310-8000
FAX: (212) 310-8007
February 7, 1997
Building Materials Corporation
of America
1361 Alps Road
Wayne, New Jersey 07470
Gentlemen:
We have acted as counsel to Building Materials
Corporation of America, a Delaware corporation (the "Company"),
in connection with the preparation and filing with the Securities
and Exchange Commission of the Company's Registration Statement
on Form S-4, File No. 333-20859 (as amended, the "Registration
Statement"), under the Securities Act of 1933, as amended,
relating to $100,000,000 principal amount of the Company's Series
B 8-5/8% Senior Notes due 2006 (the "Notes").
In so acting, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the
Registration Statement, the Indenture dated as of December 9,
1996, between the Company and The Bank of New York, as trustee
(the "Trustee"), pursuant to which the Notes will be issued (the
"Indenture"), the form of the Notes included as Exhibit 4.2 to
the Registration Statement and such corporate records, agree-
ments, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and
representatives of the Company, and have made such inquiries of
such officers and representatives, as we have deemed relevant and
necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of
all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us
as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. As to
all questions of fact material to this opinion that have not been
independently established, we have relied upon certificates or
<PAGE>
Building Materials Corporation
of America
February 7, 1997
Page 2
comparable documents of officers and representatives of the
Company.
Based on the foregoing, and subject to the qualifi-
cations stated herein, we are of the opinion that the Notes are
duly authorized, and, when duly executed on behalf of the
Company, authenticated by the Trustee and delivered in accordance
with the terms of the Indenture and as contemplated by the
Registration Statement, will constitute legal, valid and binding
obligations of the Company, enforceable against it in accordance
with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity,
including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
The opinion expressed herein is limited to the laws of
the State of New York, the corporate laws of the State of
Delaware and the federal laws of the United States, and we
express no opinion as to the effect on the matters covered by
this letter of the laws of any other jurisdiction.
The opinion expressed herein is rendered solely for
your benefit in connection with the transactions described
herein. This opinion may not be used or relied upon by any other
person, nor may this letter or any copies thereof be furnished to
a third party, filed with a governmental agency, quoted, cited or
otherwise referred to without our prior written consent, except
that we hereby consent to the use of this letter as an exhibit to
the Registration Statement. We further consent to the reference
to our name under the caption "Legal Matters" in the prospectus
which is a part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
WEIL, GOTSHAL & MANGES LLP
A LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
767 FIFTH AVENUE
NEW YORK, NY 10153-0119
(212) 310-8000
FAX: (212) 310-8007
February 6, 1997
Building Materials Corporation of America
1361 Alps Road
Wayne, New Jersey 07470
Ladies & Gentlemen:
You have requested our opinion regarding certain
federal income tax consequences of (i) the exchange pursuant to
the offer (the "Exchange Offer") by Building Materials
Corporation of America (the "Company") of its 8 5/8% Senior Notes
due 2006 (the "Old Notes") for its Series B 8 5/8% Senior Notes
due 2006 (the "New Notes") and (ii) the ownership, sale and
redemption of the New Notes.
In formulating our opinion as to the matters certified,
we have examined such documents as we have deemed appropriate,
including the Registration Statement of the Company on Form S-4
(Registration No. 333-20859) dated January 31, 1997, filed with
the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended to the date hereof (such Registration
Statement as so amended being referred to hereinafter as the
"Registration Statement"). Also, we have obtained such
additional information as we have deemed relevant and necessary
through consultation with various officers and representatives of
the Company.
The terms of the Exchange Offer, of the Old Notes and
of the New Notes, in each case as set forth in the Registration
Statement, are incorporated herein by reference.
<PAGE>
Based upon the terms of the Exchange Offer of the Old
Notes and of the New Notes, as set forth in the Registration
Statement, it is our opinion that the legal discussion of the
material federal income tax consequences of consummating the
Exchange Offer and holding and disposing of the New Notes, as set
forth under the heading "Federal Income Tax Considerations" in
the Registration Statement, is accurate in all material respects.
The foregoing opinion is based on current provisions of
the Internal Revenue Code of 1986, as amended, the Treasury
Regulations promulgated and proposed thereunder, published
pronouncements of the Internal Revenue Service, and case law, any
of which may be changed at any time with retroactive effect. No
opinion is expressed on any matters other than those specifically
referred to herein.
We hereby consent to your filing this opinion as an
exhibit to the Registration Statement and to the reference to our
firm therein.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
2
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Building Materials Corporation of America:
As independent public accountants, we hereby consent to the use of our reports
and all references to our firm in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 7, 1997
<PAGE>
LETTER OF TRANSMITTAL
BUILDING MATERIALS CORPORATION OF AMERICA
OFFER FOR ALL OUTSTANDING
8 5/8% SENIOR NOTES DUE 2006
IN EXCHANGE FOR
SERIES B 8 5/8% SENIOR NOTES DUE 2006,
PURSUANT TO THE PROSPECTUS, DATED FEBRUARY , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY TIME, ON
MARCH , 1997, (THE 'EXPIRATION DATE'). TENDERS MAY BE WITHDRAWN PRIOR TO
12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission Number: By Hand/Overnight Delivery:
(Eligible Institutions and
Withdrawal Notices Only)
(212) 571-3080
Confirm by Telephone:
(212) 815-2742
The Bank of New York The Bank of New York
101 Barclay Street--7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attn: Reorganization Section Ground Level
New York, New York 10286
Attn: Reorganization Section
For Information Call:
(212) 815-6333
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS BY ELIGIBLE INSTITUTIONS VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received the Prospectus,
dated February , 1997 (the 'Prospectus'), of Building Materials Corporation of
America, a Delaware corporation (the 'Company'), and this Letter of Transmittal
(the 'Letter'), which together constitute the Company's offer (the 'Exchange
Offer') to exchange an aggregate principal amount at maturity of up to
$100,000,000 of Series B 8 5/8% Senior Notes due 2006 (the 'New Notes') of the
Company for a like principal amount at maturity of the issued and outstanding
8 5/8% Senior Notes due 2006 (the 'Old Notes') of the Company from the holders
thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Holders whose Old Notes are accepted for exchange
will receive accrued interest thereon to, but not including, the date of
issuance of such New Notes, such interest to be payable with the first interest
payment on the New Notes. Interest on the New Notes will accrue from their
respective dates of issuance. Holders of Old Notes accepted for exchange will be
deemed to have waived the right to receive any other payments or interest on the
Old Notes. The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term 'Expiration
Date' shall mean the latest time and date to which the Exchange Offer is
extended. The Company shall notify the holders of the Old Notes of any extension
by means of a press release or other public announcement prior to 9:00 A.M., New
York City time, on the next business day after the previously scheduled
Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by The Bank of New York (the 'Exchange Agent') at The Depository
Trust Company (the 'Book-Entry Transfer Facility') pursuant to the procedures
set forth in 'The Exchange Offer--Book-Entry Transfer' section of the
Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a 'Book-Entry Confirmation') and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures set forth in 'The Exchange Offer--Guaranteed Delivery
Procedures' section of the Prospectus. See Instruction 1. Delivery of documents
to the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
<PAGE>
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount at
maturity of Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES 1 2 3
AGGREGATE
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AT MATURITY AT MATURITY
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OF OLD NOTE(S) TENDERED**
<S> <C> <C> <C>
TOTAL
</TABLE>
*NEED NOT BE COMPLETED IF OLD NOTES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER.
**UNLESS OTHERWISE INDICATED IN THIS COLUMN, A HOLDER WILL BE DEEMED TO HAVE
TENDERED ALL OF THE OLD NOTES REPRESENTED BY THE OLD NOTES INDICATED IN
COLUMN 2. SEE INSTRUCTION 2. OLD NOTES TENDERED HEREBY MUST BE IN
DENOMINATIONS OF PRINCIPAL AMOUNT OF $1,000 AND ANY INTEGRAL MULTIPLE THEREOF.
SEE INSTRUCTION 1.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number ___________ Transaction Code Number ___________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Widow Ticket Number (if any) _______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Date of Institution which guaranteed delivery ______________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number ___________ Transaction Code Number ___________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ____________________________________________________________________
____________________________________________________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
1. Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Old Notes as are being tendered hereby.
2. The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person is engaging in or intends to engage in a distribution of such New Notes,
that neither the holder of such Old Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the holder of such Old Notes nor any such
other person is an 'affiliate,' as defined in Rule 405 under the Securities Act
of 1933, as amended (the 'Securities Act'), of the Company.
3. The undersigned also acknowledges that the Exchange Offer is being made
in reliance on an interpretation, made to third parties, by the staff of the
Securities and Exchange Commission (the 'SEC') that the New Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than any such
holder that is an 'affiliate' of the Company 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 holders' business, such
holders are not engaging in and do not intend to engage in the distribution of
such New Notes and such holders have no arrangements with any person to
participate in the distribution of such New Notes. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of New Notes. If the undersigned is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales of such
New Notes. However, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act.
4. The undersigned may, if, and only if, it would not receive freely
tradeable New Notes in the Exchange Offer or is not eligible to participate in
the Exchange Offer, elect to have its Old Notes registered in the shelf
registration described in the Registration Rights Agreement, dated as of
December 9, 1996, among the Company, Bear, Stearns & Co. Inc., Chase Securities
Inc. and Salomon Brothers Inc (the 'Registration Agreement') in the form filed
as Exhibit 4.3 to the Registration Statement of the Company, Registration No.
333-20859. Capitalized terms used in this paragraph 4 and not otherwise defined
herein shall have the meanings given them in the Registration Agreement. Such
election may be made by checking the box under 'Special Registration
Instructions' below. By making such election, the undersigned agrees, as a
holder of Old Notes participating in a Shelf Registration, to comply with the
Registration Agreement and to indemnify and hold harmless each Initial Purchaser
and each person, if any, who controls any Initial Purchaser within the meaning
of either Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and the Company, each
director and officer of the Company and each person, if any, who controls the
Company within the meaning of either such Section, from and against any losses,
claims, damages and liabilities or any actions in respect thereof, to which such
Initial Purchaser or any controlling person of such Initial Purchaser, and the
Company or any of its directors, officers or controlling persons may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or prospectus or in any amendment or supplement
thereto or in any preliminary prospectus relating to a Shelf Registration, or
arise out of or are based upon any omission or alleged omission to state therein
a material fact necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the undersigned specifically for inclusion therein; and, shall reimburse, as
incurred, the Company for any legal or other expenses reasonably incurred by the
Company or any director, officer or controlling person thereof in connection
with the investigation or defending or preparing to defend against or appearing
as a third-party witness in connection with any loss, claim, damage, liability
or action in respect thereof. Any such indemnification shall be governed by the
terms and subject to the conditions set forth in the Registration Agreement,
including, without limitation, the provisions regarding notice, retention of
counsel, contribution and payment of expenses set forth therein. The above
summary of the indemnification provisions of the Registration Agreement is not
intended to be exhaustive and is qualified in its entirety by the Registration
Agreement.
5. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in 'The Exchange Offer--Withdrawal Rights' section
of the Prospectus. See Instruction 9.
6. Unless otherwise indicated in the box entitled 'Special Issuance
Instructions' below, please issue the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not exchanged) in the name
of the undersigned or, in the case of a book-entry delivery of Old Notes, please
credit the account indicated above maintained at the Book-Entry Transfer
Facility. Similarly, unless otherwise indicated under the box entitled 'Special
Delivery Instructions' below, please send the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
to the undersigned at the address shown above in the box entitled 'Description
of Old Notes.'
THE UNDERSIGNED ACKNOWLEDGES THAT THE EXCHANGE OFFER IS SUBJECT TO THE MORE
DETAILED TERMS SET FORTH IN THE PROSPECTUS AND, IN CASE OF ANY CONFLICT BETWEEN
THE TERMS OF THE PROSPECTUS AND THIS LETTER, THE PROSPECTUS SHALL PREVAIL.
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED 'DESCRIPTION OF OLD NOTES'
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of someone other than the person or persons
whose signature(s) appear(s) on this Letter below, or if Old Notes delivered by
book-entry transfer which are not accepted for exchange are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility other than
the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s) .............................................
(PLEASE TYPE OR PRINT)
.....................................................
(PLEASE TYPE OR PRINT)
Address .............................................
.....................................................
.....................................................
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
..................................................
(Book-Entry Transfer Facility
Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter below or to such person or persons at an
address other than shown in the box entitled 'Description of Old Notes' on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s) ..........................................
(PLEASE TYPE OR PRINT)
..................................................
(PLEASE TYPE OR PRINT)
Address ..........................................
..................................................
..................................................
(ZIP CODE)
SPECIAL REGISTRATION INSTRUCTIONS
(SEE PARAGRAPH 4 ABOVE)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in paragraph 4 above, (ii) the undersigned elects to register its Old
Notes in the shelf registration described in the Registration Agreement, and
(iii) the undersigned agrees to comply with the Registration Agreement and to
indemnify certain entities and individuals as set forth in paragraph 4 above.
[ ] By checking this box the undersigned hereby (i) represents that it is
entitled to have its Old Notes registered in a shelf registration in accordance
with the Registration Agreement, (ii) elects to have its Old Notes registered
pursuant to the shelf registration described in the Registration Agreement, and
(iii) agrees to comply with the Registration Agreement and to indemnify certain
entities and individuals identified in, and to the extent provided in, paragraph
4 above.
<PAGE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 12:00 MIDNIGHT NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<TABLE>
<CAPTION>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
<S> <C>
x ............................................................. ................................... 1997
x ............................................................. ................................... 1997
x ............................................................. ................................... 1997
Signature(s) of Owner Date
</TABLE>
Area Code and Telephone Number .........................
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s): .....................................................................
..............................................................................
(Please Type or Print)
Capacity: ....................................................................
Address: .....................................................................
..............................................................................
(Including Zip Code)
Employer Identification or
Social Security Number .......................................................
(Please complete Substitute Form W-9, if applicable.
See 'Important Tax Information' below)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution: .....................................................
(Authorized Signature)
..............................................................................
(Title)
..............................................................................
(Name and Firm)
<PAGE>
INSTRUCTIONS
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures. This
Letter is to be completed by holders of Old Notes either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in 'The Exchange Offer--Book-Entry
Transfer' section of the Prospectus. Certificates for all physically tendered
Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed Letter (or manually signed facsimile thereof), with
any required signature guarantees, and any other documents required by this
Letter, must be received by the Exchange Agent at the address set forth herein
on or prior to the Expiration Date, or the tendering holder must comply with the
guaranteed delivery procedures set forth below. Old Notes tendered hereby must
be in denominations of principal amount at maturity of $1,000 or any integral
multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in 'The Exchange
Offer--Guaranteed Delivery Procedures' section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution
(as defined below), (ii) on or prior to 12:00 midnight, New York City time, on
the Expiration Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly executed Letter (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (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 this
Letter 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 Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, must be received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
THE METHOD OF DELIVERY OF THIS LETTER, THE OLD NOTES AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE DELIVERY
WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE
AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIMES SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY.
See 'The Exchange Offer' section in the Prospectus.
2. Partial Tenders. If less than all of the Old Notes evidenced by a
submitted certificate are to be tendered, the tendering holder(s) should fill in
the aggregate principal amount at maturity of Old Notes to be tendered in the
box above entitled 'Description of Old Notes--Principal Amount at Maturity
Tendered.' A reissued certificate representing the balance of nontendered Old
Notes of a tendering holder who physically delivered Old Notes will be sent to
such tendering holder, unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. All of the Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) or bond
powers must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificates must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) or bond powers must be
guaranteed by an Eligible Institution.
If this Letter or any certificates 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 the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed 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 (each an
'Eligible Institution' and collectively, 'Eligible Institutions').
Signatures on the Letter need not be guaranteed by an Eligible Institution
if (A) the Old Notes are tendered (i) by a registered holder of Old Notes (which
term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the holder of such Old Notes) who has not completed the box entitled
'Special Issuance Instructions' or 'Special Delivery Instructions' on this
Letter, or (ii) for the account of an Eligible Institution and (B) the box
entitled 'Special Registration Instructions' on this Letter has not been
completed.
4. Special Issuance and Delivery Instructions. Tendering holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this Letter. In
<PAGE>
the case of issuance in a different name, the employer identification or social
security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
6. Waiver of Conditions. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
7. No Conditional Tenders. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Although the Company intends to notify holders of defects or irregularities
with respect to tenders of Old Notes, neither the Company, the Exchange Agent
nor any other person shall incur any liability for failure to give any such
notice.
8. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
9. Withdrawal of Tenders. Tenders of Old Notes may be withdrawn at any
time prior to 12:00 midnight, 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 above prior to 12:00 midnight, 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 this Letter
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
trustee under the Indenture pursuant to which the Old Notes were issued 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. Any Old Notes so properly
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 the procedures described
above at any time on or prior to 12:00 midnight, New York City time, on the
Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities, or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions of this Letter)
will be final and binding on all parties.
10. Requests for Assistance or Additional Copies. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus, this Letter and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of New Notes is required to
provide the Company (as payor) with such holder's correct taxpayer
identification number ('TIN') on Substitute Form W-9 or otherwise establish a
basis for exemption from backup withholding to prevent backup withholding on any
New Notes delivered pursuant to the Exchange Offer and any payments received in
respect of the New Notes. If a holder of New Notes is an individual, the TIN is
such holder's social security number. If the Company is not provided with the
correct taxpayer identification number, a holder of New Notes may be subject to
a $50 penalty imposed by the Internal Revenue Service. Accordingly, each
prospective holder of New Notes to be issued pursuant to Special Issuance
Instructions should complete the attached Substitute Form W-9. The Substitute
Form W-9 need not be completed if the box entitled Special Issuance Instructions
has not been completed.
Certain holders of New Notes (including, among others, all corporation and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt prospective holders of New Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify as
an exempt recipient by submitting to the Company, through the Exchange Agent, a
properly completed Internal Revenue Service Form W-8 (which the Exchange Agent
will provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of New Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
<PAGE>
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on any New Notes delivered pursuant to the
Exchange Offer and any payments received in respect of the New Notes, each
prospective holder of New Notes to be issued pursuant to Special Issuance
Instructions should provide the Company, through the Exchange Agent, with
either: (i) such prospective holder's correct TIN by completing the form below,
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
prospective holder is awaiting a TIN) and that (A) such prospective holder has
not been notified by the Internal Revenue Service that he or she is subject to
backup withholding as a result of a failure to report all interest or dividends
or (B) the Internal Revenue Service has notified such prospective holder that he
or she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The prospective holder of New Notes to be issued pursuant to Special
Issuance Instructions is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the prospective
record owner of the New Notes. If the New Notes will be held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance regarding which number to report.
<PAGE>
PAYOR'S NAME: BUILDING MATERIALS CORPORATION OF AMERICA
<TABLE>
<S> <C>
PART 1--PLEASE PROVIDE YOUR TIN IN Social Security Number(s) or
THE BOX AT RIGHT AND CERTIFY BY Employer Identification Number(s)
SIGNING AND DATING BELOW ---------------------------------
SUBSTITUTE
FORM W-9 PART 2--CERTIFICATION--Under Penalties of Perjury, I certify that:
DEPARTMENT OF THE (1) The number shown on this form is my current taxpayer identification number (or
TREASURY I am waiting for a number to be issued to me) and
INTERNAL REVENUE SERVICE (2) I am not subject to backup withholding either because I have not been notified by
the Internal Revenue Service (the 'IRS') that I am subject to backup withholding
as a result of a failure to report all interest or dividends, or the IRS
PAYOR'S REQUEST FOR TAXPAYER has notified me that I am no longer subject to backup withholding.
IDENTIFICATION NUMBER (TIN)
CERTIFICATE INSTRUCTIONS--You must cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you are subject to backup withholding you receive another
notification from the IRS stating that you are no longer subject to backup
withholding, do not cross out item (2).
Signature __________________________________________ Date _______________________
PART 3--Awaiting TIN / /
</TABLE>
NOTE: FAILURE BY A PROSPECTIVE HOLDER OF NEW NOTES TO BE ISSUED PURSUANT TO THE
SPECIAL ISSUANCE INSTRUCTIONS ABOVE TO COMPLETE AND RETURN THIS FORM MAY
RESULT IN BACKUP WITHHOLDING OF 31% OF THE NEW NOTES DELIVERED TO YOU
PURSUANT TO THE EXCHANGE OFFER AND ANY PAYMENTS RECEIVED BY YOU IN
RESPECT OF THE NEW NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED THE BOX IN PART 3
OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (b) I intend to mail
or deliver such an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide such
a number.
Signature _______________________________________________ Date _______________
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
8 5/8% SENIOR NOTES DUE 2006
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
BUILDING MATERIALS CORPORATION OF AMERICA
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer relating to the tender of 8 5/8% Senior Notes due 2006 (the 'Old
Notes') of Building Materials Corporation of America (the 'Company') made
pursuant to the Prospectus, dated February , 1997 (the 'Prospectus'), if
certificates for Old Notes of the Company are not immediately available or if
the procedure for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Exchange Agent prior to
12:00 midnight, New York City time, on March , 1997 (the 'Expiration Date').
Such form may be delivered or transmitted by facsimile transmission, mail or
hand delivery to The Bank of New York (the 'Exchange Agent') as set forth below.
In addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, the Exchange Agent must receive from an
Eligible Institution prior to 12:00 midnight, New York City time, on the
Expiration Date, a completed, signed and dated Letter of Transmittal relating to
the Old Notes (or facsimile thereof). Capitalized terms used herein and not
defined herein are used as so defined in the Prospectus.
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission Number: By Hand/Overnight Delivery:
(For Eligible Institutions Only)
(212) 571-3080
Confirm by Telephone:
(212) 815-2742
The Bank of New York The Bank of New York
101 Barclay Street-7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attn: Reorganization Section Ground Level
New York, New York 10286
Attn: Reorganization Section
For Information Call:
(212) 815-6333
</TABLE>
DELIVERY OF THIS NOTICE TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF THIS NOTICE VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Building Materials Corporation of
America, a Delaware corporation (the 'Company'), in accordance with the
Company's offer, upon the terms and subject to the conditions set forth in the
Prospectus dated February , 1997 (the 'Prospectus'), and in the accompanying
Letter of Transmittal, receipt of which is hereby acknowledged,
$ in aggregate principal amount of Old Notes pursuant to the
guaranteed delivery procedures described in the Prospectus.
Name(s) of Record Holder(s) ____________________________________________________
(Please Type or Print)
Address ________________________________________________________________________
________________________________________________________________________
Area Code & Telephone No. ____________________________
Certificate Number(s) for Old Notes (if available) _____________________________
Total Principal Amount Represented by Certificate(s): $ ________________________
________________________________________________________________________________
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
________________________________________________________________________________
PLEASE SIGN HERE
X _____________________________________________ _________________
X _____________________________________________ _________________
Signature(s) of Holder(s) Date
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Capacity: _________________________________________________________________
Address(es): _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
/ / The Depository Trust Company
(Check if Old Notes will be tendered by book-entry transfer)
Account Number ___________________________
THE GUARANTEE ON THE FOLLOWING PAGE MUST BE COMPLETED
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, 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
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the undersigned will deliver to the Exchange Agent the certificates
representing the Old Notes being tendered hereby or confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company, in proper form for transfer, together with any other documents
required by the Letter of Transmittal within three New York Stock Exchange
trading days after the Expiration Date.
___________________________________________ ___________________________________
Name of Firm Authorized Signature
___________________________________________ ___________________________________
Address Title
___________________________________________ Name: _____________________________
Zip Code (Please Type or Print)
Area Code and Tel. No. ____________________ Dated: ____________________________
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF OLD
NOTES SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
<PAGE>
February ___, 1997
EXCHANGE AGENT AGREEMENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Ladies and Gentlemen:
Building Materials Corporation of America, a
Delaware corporation (the "Company"), proposes to make an
offer (the "Exchange Offer") to exchange its 8-5/8% Senior
Notes due 2006 (the "Old Securities") for its Series B 8-5/8%
Senior Notes due 2006 (the "New Securities"). The terms and
conditions of the Exchange Offer as currently contemplated are
set forth in a Prospectus, dated February ___, 1997 (the
"Prospectus"), proposed to be distributed to all of the record
holders of the Old Securities. The Old Securities and the New
Securities are collectively referred to herein as the
"Securities".
The Company hereby appoints The Bank of New York to
act as exchange agent (the "Exchange Agent") in connection
with the Exchange Offer. References hereinafter to "you"
shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by
the Company on or about February ___, 1997. The Letter of
Transmittal accompanying the Prospectus is to be used by hold-
ers of the Old Securities to accept the Exchange Offer, and
contains instructions with respect to the delivery of certifi-
cates for Old Securities tendered.
The Exchange Offer shall expire at 12 Midnight, New
York City time, on ________ ___, 1997 or on such later date or
time to which the Company may extend the Exchange Offer (the
"Expiration Date"). Subject to the terms and conditions set
forth in the Prospectus, the Company expressly reserves the
right to extend the Exchange Offer from time to time and may
extend the Exchange Offer by giving oral (confirmed in writ-
ing) or written notice to you before 9:00 A.M., New York City
time, on the business day following the previously scheduled
Expiration Date.
The Company expressly reserves the right to amend or
terminate the Exchange Offer, and not to accept for exchange
any Old Securities not theretofore accepted for exchange, as
specified in the Prospectus under the caption "The Exchange
Offer -- Expiration Date; Amendments." The Company will give
oral (confirmed in writing) or written notice of any
<PAGE>
amendment, termination or nonacceptance to you as promptly as
practicable.
In carrying out your duties as Exchange Agent, you
are to act in accordance with the following instructions:
1. You will perform such duties and only such du-
ties as are specifically set forth in the section of the
Prospectus captioned "The Exchange Offer" or as specifically
set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the forego-
ing.
2. You will establish an account with respect to
the Old Securities at The Depository Trust Company (the
"Book-Entry Transfer Facility") for purposes of the Exchange
Offer within two business days after the date of the
Prospectus, and any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may
make book-entry delivery of the Old Securities by causing the
Book-Entry Transfer Facility to transfer such Old Securities
into your account in accordance with the Book-Entry Transfer
Facility's procedure for such transfer.
3. You are to examine each of the Letters of
Transmittal and certificates for Old Securities (or confirma-
tion of book-entry transfer into your account at the
Book-Entry Transfer Facility) and any other documents deliv-
ered or mailed to you by or for holders of the Old Securities
to ascertain whether: (i) the Letters of Transmittal and any
such other documents are duly executed and properly completed
in accordance with instructions set forth therein; and (ii)
the Old Securities have otherwise been properly tendered. You
shall have no such duty, however, with respect to any such
document which you do not receive, other than as a result of
your own gross negligence or willful misconduct. In each case
where the Letter of Transmittal or any other document has been
improperly completed or executed or any of the certificates
for Old Securities are not in proper form for transfer or some
other irregularity in connection with the acceptance of the
Exchange Offer exists, you will endeavor to inform the
presenters of the need for fulfillment of all requirements and
to take any other action as may be necessary or advisable to
cause such irregularity to be corrected.
4. With the approval of the Chief Executive Of-
ficer, any Senior Vice President, any Executive Vice Presi-
dent, or any Vice President of the Company (such approval, if
given orally, to be confirmed in writing) or any other party
designated by such an officer in writing, you are authorized
to waive any irregularities in connection with any tender of
Old Securities pursuant to the Exchange Offer.
- 2 -
<PAGE>
5. Tenders of Old Securities may be made only as
set forth in the Letter of Transmittal and in the section of
Prospectus captioned "The Exchange Offer -- Procedures for
Tendering" and Old Securities shall be considered properly
tendered to you only when tendered in accordance with the pro-
cedures set forth therein.
Notwithstanding the provisions of this paragraph 5,
Old Securities which the Chief Executive Officer, any Senior
Vice President, any Executive Vice President, or any Vice
President of the Company shall approve as having been properly
tendered shall be considered to be properly tendered (such
approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to
any Old Securities received subsequent to the Expiration Date
and accept its instructions with respect to disposition of
such Old Securities.
7. You shall accept tenders:
(a) in cases where the Old Securities are regis-
tered in two or more names only if signed by all named hold-
ers;
(b) in cases where the signing person (as indicated
on the Letter of Transmittal) is acting in a fiduciary or a
representative capacity only when proper evidence of his or
her authority so to act is submitted; and
(c) from persons other than the registered holder
of Old Securities provided that customary transfer require-
ments, including any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Old Securities
where so indicated and as permitted in the Letter of Transmit-
tal and deliver certificates for Old Securities to the trans-
fer agent for split-up and return any untendered Old Securi-
ties to the holder (or such other person as may be designated
in the Letter of Transmittal) as promptly as practicable after
expiration or termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the con-
ditions to the Exchange Offer, the Company will notify you
(such notice if given orally, to be confirmed in writing) of
its acceptance, promptly after the Expiration Date, of all Old
Securities properly tendered and you, on behalf of the Com-
pany, will exchange such Old Securities for New Securities and
cause such Old Securities to be cancelled. Delivery of New
Securities will be made on behalf of the Company by you at the
rate of $1,000 principal amount of New Securities for each
$1,000 principal amount of the corresponding series of Old
Securities tendered promptly after notice (such notice if
given orally, to be confirmed in writing) of acceptance of
- 3 -
<PAGE>
said Old Securities by the Company; provided, however, that in
all cases, Old Securities tendered pursuant to the Exchange
Offer will be exchanged only after timely receipt by you of
certificates for such Old Securities (or confirmation of
book-entry transfer into your account at the Book-Entry Trans-
fer Facility), a properly completed and duly executed Letter
of Transmittal (or a facsimile thereof) with any required
signature guarantees and any other required documents. You
shall issue New Securities only in denominations of $1,000 or
any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are ir-
revocable, except that, subject to the terms and upon the con-
ditions set forth in the Prospectus and the Letter of Trans-
mittal, Old Securities tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange
any Old Securities tendered if any of the conditions set forth
in the Exchange Offer are not met. Notice of any decision by
the Company not to exchange any Old Securities tendered shall
be given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company
does not accept for exchange all or part of the Old Securities
tendered because of an invalid tender, the occurrence of cer-
tain other events set forth in the Prospectus under the cap-
tion "The Exchange Offer -- Conditions" or otherwise, you
shall as soon as practicable after the expiration or termina-
tion of the Exchange Offer return those certificates for unac-
cepted Old Securities (or effect appropriate book-entry trans-
fer), together with any related required documents and the
Letters of Transmittal relating thereto that are in your pos-
session, to the persons who deposited them.
12. All certificates for reissued Old Securities,
unaccepted Old Securities or for New Securities shall be for-
warded by (a) first-class certified mail, return receipt re-
quested under a blanket surety bond protecting you and the
Company from loss or liability arising out of the non-receipt
or non-delivery of such certificates or (b) by registered mail
insured separately for the replacement value of each of such
certificates.
13. You are not authorized to pay or offer to pay
any concessions, commissions or solicitation fees to any bro-
ker, dealer, bank or other persons or to engage or utilize any
person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other
than those specifically set forth herein or in the section of
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<PAGE>
Prospectus captioned "The Exchange Offer" or as may be subse-
quently agreed to in writing by you and the Company;
(b) will be regarded as making no representa-
tions and having no responsibilities as to the validity, suf-
ficiency, value or genuineness of any of the certificates or
the Old Securities represented thereby deposited with you pur-
suant to the Exchange Offer, and will not be required to and
will make no representation as to the validity, value or genu-
ineness of the Exchange Offer; provided, however, that in no
way will your general duty to act in good faith be discharged
by the foregoing;
(c) shall not be obligated to take any legal
action hereunder which might in your reasonable judgment in-
volve any expense or liability, unless you shall have been
furnished with reasonable indemnity;
(d) may reasonably rely on and shall be pro-
tected in acting in reliance upon any certificate, instrument,
opinion, notice, letter, telegram or other document or secu-
rity delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or par-
ties;
(e) may reasonably act upon any tender, state-
ment, request, comment, agreement or other instrument whatso-
ever not only as to its due execution and validity and ef-
fectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall
in good faith believe to be genuine or to have been signed or
represented by a proper person or persons;
(f) may rely on and shall be protected in act-
ing upon written or oral instructions from any officer of the
Company;
(g) may consult with your counsel with respect
to any questions relating to your duties and responsibilities
and the advice or opinion of such counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted to be taken by you hereunder in
good faith and in accordance with the advice or opinion of
such counsel; and
(h) shall not advise any person tendering Old
Securities pursuant to the Exchange Offer as to the wisdom of
making such tender or as to the market value or decline or ap-
preciation in market value of any Old Securities or New
Securities.
15. You shall take such action as may from time to
time be requested by the Company or its counsel (and such
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<PAGE>
other action as you may reasonably deem appropriate) to fur-
nish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus)
or such other forms as may be approved from time to time by
the Company, to all persons requesting such documents and to
accept and comply with telephone requests for information re-
lating to the Exchange Offer, provided that such information
shall relate only to the procedures for accepting (or with-
drawing from) the Exchange Offer. The Company will furnish
you with copies of such documents at your request. All other
requests for information relating to the Exchange Offer shall
be directed to the Company, Attention: Investor Relations.
16. You shall advise by facsimile transmission or
telephone, and promptly thereafter confirm in writing to As-
sistant Treasurer of the Company and such other person or per-
sons as it may request, daily (and more frequently during the
week immediately preceding the Expiration Date and if other-
wise requested) up to and including the Expiration Date, as to
the number of Old Securities which have been tendered pursuant
to the Exchange Offer and the items received by you pursuant
to this Agreement, separately reporting and giving cumulative
totals as to items properly received and items improperly re-
ceived. In addition, you will also inform, and cooperate in
making available to, the Company or any such other person or
persons upon oral request made from time to time prior to the
Expiration Date of such other information as it or he or she
reasonably requests. Such cooperation shall include, without
limitation, the granting by you to the Company and such person
as the Company may request of access to those persons on your
staff who are responsible for receiving tenders, in order to
ensure that immediately prior to the Expiration Date the Com-
pany shall have received information in sufficient detail to
enable it to decide whether to extend the Exchange Offer. You
shall prepare a final list of all persons whose tenders were
accepted, the aggregate principal amount of Old Securities
tendered and the aggregate principal amount of Old Securities
accepted, and deliver said list to the Company. Upon receipt
of said list, the Company will promptly provide you with a
calculation of the principal amount of New Securities to be
issued to each holder.
17. Letters of Transmittal and Notices of Guaran-
teed Delivery shall be stamped by you as to the date and the
time of receipt thereof and shall be preserved by you for a
period of time at least equal to the period of time you pre-
serve other records pertaining to the transfer of securities.
You shall dispose of unused Letters of Transmittal and other
surplus materials by returning them to the Company.
18. You hereby expressly waive any lien, encum-
brance or right of set-off whatsoever that you may have with
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<PAGE>
respect to funds deposited with you for the payment of trans-
fer taxes by reasons of amounts, if any, borrowed by the Com-
pany, or any of its subsidiaries or affiliates pursuant to any
loan or credit agreement with you or for compensation owed to
you hereunder.
19. For services rendered as Exchange Agent hereun-
der, you shall be entitled to such compensation as set forth
on Schedule I attached hereto.
20. You hereby acknowledge receipt of the
Prospectus and the Letter of Transmittal attached hereto and
further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the
Prospectus and the Letter of Transmittal (as they may be
amended from time to time), on the other hand, shall be
resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you
as Exchange Agent, which shall be controlled by this
Agreement.
21. The Company covenants and agrees to indemnify
and hold you harmless in your capacity as Exchange Agent here-
under against any loss, liability, cost or expense, including
reasonable attorneys' fees and expenses, arising out of or in
connection with any act, omission, delay or refusal made by
you in reliance upon any signature, endorsement, assignment,
certificate, order, request, notice, instruction or other in-
strument or document reasonably believed by you to be valid,
genuine and sufficient and in accepting any tender or effect-
ing any transfer of Old Securities reasonably believed by you
in good faith to be authorized, and in delaying or refusing in
good faith to accept any tenders or effect any transfer of Old
Securities; provided, however, that the Company shall not be
liable for indemnification or otherwise for any loss, li-
ability, cost or expense to the extent arising out of your
gross negligence or willful misconduct. In no case shall the
Company be liable under this indemnity with respect to any
claim against you unless the Company shall be notified by you,
by letter or cable or by facsimile confirmed by letter, of the
written assertion of a claim against you or of any other ac-
tion commenced against you, promptly after you shall have re-
ceived any such written assertion or commencement of action.
The Company shall be entitled to participate at its own ex-
pense in the defense of any such claim or other action, and,
if the Company so elects, the Company shall assume the defense
of any suit brought to enforce any such claim. In the event
that the Company shall assume the defense of any such suit,
the Company shall not be liable for the fees and expenses of
any counsel thereafter incurred by you so long as the Company
shall retain counsel reasonably satisfactory to you to defend
such suit.
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<PAGE>
22. You shall arrange to comply with all require-
ments under the tax laws of the United States, including those
relating to missing Taxpayer Identification Numbers, and shall
file any appropriate reports with the Internal Revenue
Service. The Company understands that you are required to
deduct 31% on payments to holders who have not supplied their
correct Taxpayer Identification Number or required
certification. Such funds will be turned over to the Internal
Revenue Service in accordance with applicable regulations.
23. You shall deliver or cause to be delivered, in
a timely manner to each governmental authority to which any
transfer taxes are payable in respect of the exchange of Old
Securities, your check in the amount of all transfer taxes so
payable, and the Company shall reimburse you for the amount of
any and all transfer taxes payable in respect of the exchange
of Old Securities; provided, however, that you shall reimburse
the Company for amounts refunded to you in respect of your
payment of any such transfer taxes, at such time as such re-
fund is received by you and, provided further, that if New
Securities and/or substitute Old Securities not exchanged are
to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the
Old Securities tendered in the Exchange Offer, or if tendered
Old Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the transfer of Old
Securities to the Company or its order pursuant to the Ex-
change Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be
payable by the tendering holder and will not be reimbursed to
you by the Company. In no event, however, will the Exchange
Agent be responsible for the payment of any applicable trans-
fer tax imposed for any reason other than the exchange of Old
Securities.
24. This Agreement and your appointment as Exchange
Agent hereunder shall be construed and enforced in accordance
with the laws of the State of New York applicable to agree-
ments made and to be performed entirely within such state, and
without regard to conflicts of law principles, and shall inure
to the benefit of, and the obligations created hereby shall be
binding upon, the successors and assigns of each of the par-
ties hereto.
25. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original
and all of which taken together shall constitute one and the
same agreement.
26. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
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<PAGE>
27. This Agreement shall not be deemed or construed
to be modified, amended, rescinded, cancelled or waived, in
whole or in part, except by a written instrument signed by a
duly authorized representative of the party to be charged.
This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices,
requests and other communications to any party hereunder shall
be in writing (including facsimile or similar writing) and
shall be given to such party, addressed to it, at its address
or telecopy number set forth below:
If to the Company:
Building Materials Corporation of America
1361 Alps Road
Wayne, New Jersey 07470
Facsimile: (201) 628-3326
Attention: Senior Vice President - Finance
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
29. Unless terminated earlier by the parties
hereto, this Agreement shall terminate after all obligations
of the parties hereunder shall have been fulfilled. Notwith-
standing the foregoing, Paragraphs 19, 21 and 23 shall survive
the termination of this Agreement. Upon any termination of
this Agreement, you shall promptly deliver to the Company any
certificates for Securities, funds or property then held by
you as Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective
as of the date hereof.
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<PAGE>
Please acknowledge receipt of this Agreement and
confirm the arrangements herein provided by signing and re-
turning the enclosed copy.
BUILDING MATERIALS CORPORATION
OF AMERICA
By:______________________
Name:
Title:
Accepted as the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:_______________________________
Name:
Title:
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<PAGE>
Schedule I
- 11 -
