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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
22-3276290
DELAWARE (I.R.S. Employer
(State of Incorporation) Identification No.)
1361 ALPS ROAD
WAYNE, NEW JERSEY 07470
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 628-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of March 21, 1997, 1,000,010 shares of the Registrant's common stock
were outstanding. All of the voting stock of the Registrant is held by GAF
Building Materials Corporation.
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PART I
ITEM 1. BUSINESS
BUILDING MATERIALS CORPORATION OF AMERICA
Building Materials Corporation of America ('BMCA' or 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,
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'), which is a wholly-owned subsidiary of GAF Corporation
('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. The Company does business under the
name 'GAF Materials Corporation.' The principal executive offices of the Company
are located at 1361 Alps Road, Wayne, New Jersey 07470, telephone (201)
628-3000. As used herein, the 'Company' includes BMCA's consolidated
subsidiaries.
On January 1, 1997, GAF effected a series of transactions (collectively,
the 'Separation 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 GFC, and (2) U.S. Intec, Inc. ('USI'), an indirect subsidiary of
GAF, becoming a subsidiary of the Company. In connection with the Separation
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 Item
13, 'Certain Relationships and Related Transactions.' 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.
RESIDENTIAL ROOFING
The Company is a leading manufacturer of a complete line of premium
residential roofing products, with residential roofing product sales
representing approximately 75% of the Company's net sales in 1996 (approximately
66% 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. (Statements contained herein as to the Company's
competitive position are based on industry information which the Company
believes to be reliable).
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(Trademark) 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;
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Stonehenge(Registered) shingles 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.
On March 14, 1997, the Company acquired the assets of the Leatherback
Industries division of Hollinee Corporation, which is engaged in the manufacture
and sale of asphalt-saturated roofing felts and other felt and construction
paper products.
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 25% of the
Company's net sales in 1996 (34% 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 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. The
Company believes that its nationwide coverage has contributed to its roofing
products being among the most recognized and requested brands in the industry.
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No single customer accounted for 10% or more of the Company's 1996 sales,
except for American Builders and Contractors Supplies Co., Inc., which accounted
for approximately 11% of such 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 an affiliate, International Specialty Products
Inc. ('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, 1997 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 Separation 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).
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. 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, accordingly, the Company expects
increased competition in this area.
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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 $2.5 million, $3.1 million and $4.5 million in 1994, 1995 and
1996, respectively.
PATENTS AND TRADEMARKS
The Company owns approximately 73 domestic and 79 foreign patents and owns
or licenses approximately 138 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.
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.
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.
ITEM 2. 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
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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
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<S> <C>
Alabama
Mobile................ Plant, Warehouse*
Arizona
Chandler.............. Warehouse*
California
Fontana............... Plant, Sales Office
Hollister............. Plant, Plant*
Ontario............... Plant, Sales Office
Stockton.............. Plant, Plant, Warehouse*
Florida
Tampa................. Plant, Sales Office*
Georgia
Monroe................ Plant, Warehouse*
Savannah.............. Plant, Sales Office
Indiana
Mount Vernon.......... Plant, Sales Office
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*
New Mexico
Albuquerque........... Plant
Ohio
Wadsworth............. Plant*, Warehouse*
Oregon
Corvallis............. Plant
Pennsylvania
Erie.................. Plant, Sales Office, Warehouse*
Wind Gap.............. Plant
South Carolina
Chester............... Plant
Tennessee
Nashville............. Research Center
</TABLE>
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<TABLE>
<CAPTION>
LOCATION FACILITY
- ------------------------ -------------------------------------------------------
<S> <C>
Texas
Beaumont.............. Plant
Dallas................ Plant, Sales Office, Warehouse*
Fannett............... Warehouse
Houston............... Plant, Warehouse, Warehouse*
Port Arthur........... Plant, Warehouse, Office
</TABLE>
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* 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 1996, the Company made capital expenditures in the amount of $25.6
million relating to plant, property and equipment.
ITEM 3. LEGAL PROCEEDINGS
Bodily Injury Claims. In connection with its formation, BMCA contractually
assumed and agreed to pay the first $204.4 million of liabilities for
asbestos-related bodily injury claims relating to the inhalation of asbestos
fiber ('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 $201.3 million had been paid through December 31,
1996. G-I Holdings and GAFBMC have jointly and severally agreed to indemnify
BMCA against any claims related to asbestos-related liabilities, other than
those contractually assumed by BMCA, in the event that claims in connection with
liabilities not assumed by BMCA are asserted against it.
As of December 31, 1996, GAF had been named as a defendant in approximately
59,400 pending lawsuits involving alleged Asbestos Claims, having resolved
approximately 223,500 Asbestos Claims. Plaintiffs in approximately 32,100 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 December 31, 1996, were approximately $333.8 million (before estimated
present value of recoveries from products liability insurance policies of
approximately $190.5 million as described below and related deferred tax
benefits of approximately $51.7 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 and
'--Insurance Matters'.
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. 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 206,600 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 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
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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. Of the approximately 86,000 'opt-out' requests,
approximately 33,000 have resulted in legal claims, with no claims having been
filed with regard to the remaining 53,000 'opt-outs.' With respect to the 33,000
claims, approximately 23,000 have already been resolved in the tort system, with
approximately 10,000, which are included in the pending lawsuits referred to
above, still pending. 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 was 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 '--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 relating 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.
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 14 years ago, GAF has not only successfully
disposed of approximately 141 such cases at an average disposition cost
(including cases disposed of at no cost to GAF) of approximately $16,000 per
case (all
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of which have been paid by insurance under reservation of rights), but is a
co-defendant in only 7 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 December 31,
1996, to pay asbestos-related bodily injury claims aggregate insurance coverage
of $202.7 million, before discounting certain coverage, (which amount was used
in the reserve calculation referred to in 'Bodily Injury Claims' and is reduced
as asbestos-related liabilities are satisfied), $13.2 million of which is the
subject of negotiations with various insurers and/or the Settlement Coverage
Action described below, and which $13.2 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 $202.7 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 $40.3 million of the $202.7 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 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.
8
<PAGE>
ENVIRONMENTAL LITIGATION
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ('Environmental
Claims') under the Comprehensive Environmental Response Compensation and
Liability Act ('CERCLA') and similar state laws, in which recovery is sought for
the cost of cleanup of contaminated sites, a number of which are in the early
stages or have been dormant for protracted periods.
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 BMCA, relate primarily to closed manufacturing
facilities. G-I Holdings estimates that, as of December 31, 1996, its liability
in respect of the environmental liabilities of GAFBMC not assumed by BMCA was
approximately $14.0 million, before insurance recoveries reflected on its
balance sheet of $5.8 million, as compared to BMCA's estimate of its liability
as of December 31, 1996 in respect of assumed environmental liabilities of $1.3
million (including certain environmental compliance expenses), before insurance
recoveries reflected on its balance sheet (discussed below) of $0.5 million
('estimated recoveries').
At most sites, the Company anticipates that liability will be apportioned
among the companies found to be responsible for the presence of hazardous
substances at the site. Although it is difficult to predict the ultimate
resolution of these claims, based on the Company's evaluation of the financial
responsibility of the parties involved and their insurers, relevant legal issues
and cost sharing arrangements now in place, the Company 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,
the Company believes that it will receive the estimated recoveries and it may
receive amounts substantially in excess thereof. The Company believes it is
entitled to substantially full defense and indemnity under its insurance
policies for most Environmental Claims, although the Company's insurers have not
affirmed a legal obligation under the policies to provide indemnity for such
claims.
The estimated recoveries are based in part upon interim agreements with
certain insurers. The Company terminated these agreements in 1995, and on March
8, 1995 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 the Company believes
that its claims are meritorious, there can be no assurance that the Company will
prevail in its efforts to obtain amounts equal to, or in excess of, the
estimated recoveries.
BMCA 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
the Company 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 last paragraph of
'Bodily Injury Claims.'
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 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.
9
<PAGE>
Following completion of a jury trial in February 1997, 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-P has filed a motion for a
judgment in its favor notwithstanding the verdict or, in the alternative, for a
new trial. 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 the Company'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. 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. Plaintiffs have not moved for class certification
in any 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
its order. The Company intends to appeal the state court's conditional class
certification. The action alleges that the shingles were defective and seeks an
unspecified amount of compensatory and punitive damages on behalf of the
purported class.
The Company does not believe certification of 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
There is no trading market for the Registrant's common stock. All of the
Registrant's Common Stock is held by GAFBMC.
ITEM 6. SELECTED FINANCIAL DATA
See Page F-6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See Page F-2.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index on Page F-1 and Financial Statements and Supplementary Data on
Pages F-7 to F-27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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................ 58 Mr. Heyman has been a director and
Director, Chairman and Chairman of BMCA since its formation
Chief Executive Officer 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 a director, Chairman
and Chief Executive Officer of ISP
Holdings Inc. ('ISP Holdings'), the
parent of ISP, 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.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------- --- -----------------------------------------
<S> <C> <C>
Sunil Kumar..................... 47 Mr. Kumar has been the President, Chief
Director, President and Operating Officer and a director of
Chief Operating Officer BMCA since July 1996, March 1996 and
May 1995, respectively. He was
President, Commercial Roofing Products
Division, and Vice President of BMCA
from February 1995 to March 1996. He
has been Chairman of USI since March
1996 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................. 46 Mr. Rogers has been a director of BMCA
Director and Executive since its formation and Executive Vice
Vice President President of BMCA since December 1996.
Mr. Rogers has been Executive Vice
President and Chief Financial Officer
of GAF, G-I Holdings, ISP Holdings and
certain of their respective
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 1995.
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.
John M. Sergey.................. 54 Mr. Sergey has been a director of BMCA
Director since its formation. He was Chief
Executive Officer and President of BMCA
from its formation until May 1996, a
director of GAFBMC from April 1989
until May 1996 and a director and
Chairman of USI from October 1995 until
May 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 1996. Mr.
Sergey was a Director and Executive
Vice President of GAF from April 1989
until May 1996.
Richard A. Weinberg............. 37 Mr. Weinberg has been Senior Vice
Senior Vice President and President and General Counsel of BMCA
General Counsel 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.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------- --- -----------------------------------------
<S> <C> <C>
Donald W. LaPalme............... 59 Dr. LaPalme has been Senior Vice
Senior Vice President-- President-Operations of BMCA and
Operations 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
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
President and Chief Executive Executive Officer of USI since 1982.
Officer, U.S. Intec, Inc.
Joseph J. Okaly................. 39 Mr. Okaly has been Vice President of
Vice President-Marketing and Marketing and Sales, Residential
Sales, Residential Roofing Roofing Products of BMCA since June
Products 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--
Vice President-Marketing and Marketing & Sales, Commercial Roofing
Sales, Commercial Roofing Products of BMCA since March 1996. He
Products 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
Products, Incorporated.
</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.
13
<PAGE>
ITEM 11. 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 five 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 POSITIONS(8) YEAR SALARY BONUS(1) COMPENSATION (S)/OPTIONS(O)(1) COMPENSATION
- ----------------------------------- ---- -------- -------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman .................. 1996 (8) (8) (8) (8) (8)
Chairman and Chief 1995 (8) (8) (8) (8) (8)
Executive Officer 1994 (8) (8) (8) (8) (8)
Sunil Kumar ....................... 1996 $285,000(2) $165,000 $ 0(2) 2,190(O)/8,609(S)(9) $ 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) $ 53,093 $ 0 1,550(O) $ 3,972(3)
President and Chief Executive 1995 216,686(3) 25,000(3) 0(3) 0 3,953(3)
Officer, U.S. Intec, Inc. 1994 (3) (3) (3) (3) (3)
Donald W. LaPalme ................. 1996 $160,000 $ 59,774 $ 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)
William W. Collins ................ 1996 $130,000 $ 42,588 $ 0 900(O) $ 12,092(5)
Vice President-Marketing & Sales, 1995 122,000 20,000 0 0 14,149(5)
Commercial Roofing Products 1994 107,000 0 0 0 3,655(5)
Joseph J. Okaly ................... 1996 $130,000 $ 35,763 $ 0 900(O) $ 11,212(6)
Vice President-Marketing & Sales, 1995 118,000 22,000 0 0 10,033(6)
Residential Roofing Products 1994 107,500 22,500 0 0 9,744(6)
John M. Sergey .................... 1996 $148,512 $ 0 $ 0 0 $ 16,681(7)
Chief Executive Officer 1995 326,550 80,000 0 0 16,786(7)
and 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. The stock appreciation rights (S) relate to shares of
GAF common stock. The options (0) relate to shares of redeemable convertible
preferred stock of BMCA. See 'Options/SARs.'
(2) 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 are $10,750 and $5,664,
representing BMCA's contribution under 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. Mr.
Kumar commenced employment with the Company in February 1995.
(3) Included in 'All Other Compensation' for Mr. Adair are $1,260 in each of
1996 and 1995 for premiums paid for a life insurance policy; $2,212 and
$2,193 for premiums paid on a long-term disability policy in
(Footnotes continued on next page)
14
<PAGE>
(Footnotes continued from previous page)
1996 and 1995, respectively; and $500 in each of 1996 and 1995, representing
the Company's contribution under the GAF Capital Accumulation Plan. USI
became a subsidiary of GAF 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 premiums
paid by BMCA for a life insurance policy in 1996, 1995 and 1994,
respectively; and $765, $735 and $695 for premiums paid by BMCA for a
long-term disability policy in 1996, 1995 and 1994, respectively.
(5) 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.
(6) 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 premiums paid by
BMCA for a life insurance policy in 1996, 1995 and 1994, respectively, and
$538, $505 and $475 for premiums paid by BMCA for a long-term disability
policy in 1996, 1995 and 1994, respectively.
(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 premiums
paid by BMCA for a life insurance policy in 1996, 1995 and 1994,
respectively; and $1,250, $1,250 and $1,250 for premiums 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 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
Item 13. No allocation of compensation for services to BMCA is made pursuant
to such management agreement.
(9) Excluded are options to purchase redeemable convertible preferred stock of
ISP Holdings. See Note (3) to the first table under 'Options/SARs' below.
15
<PAGE>
OPTIONS/SARS
The following table summarizes options ('BMCA Preferred Options') to
acquire BMCA's Redeemable Convertible Preferred Stock and 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 ----------------------
GRANTED IN FISCAL 1996 5% 10%
----------------------- ----------------------- -------- --------
<S> <C> <C> <C> <C>
Sunil Kumar(3)....... 8,609(S) 16.4%(S) $194,363(S) $242,904(S)
2,190(O) 8.9%(O) 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)
William W. Collins... 900(O) 3.7%(O) 28,000(0) 66,000(0)
Joseph J. Okaly...... 900(O) 3.7%(O) 28,000(0) 66,000(0)
</TABLE>
- ------------------
(1) The BMCA Preferred 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
in the option agreement) as of the date of grant. The BMCA Preferred Options
vest over seven years from the date of grant. 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. 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 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 Separation
Transactions, options to purchase shares of redeemable convertible preferred
stock of USI held by Messrs. Kumar, LaPalme, Collins, Okaly and Adair were
canceled and exchanged for an equal number of BMCA Preferred Options and the
terms of BMCA Preferred Options were adjusted to reflect the impact of the
Separation 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 Separation 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 Separation Transactions, in exchange for options granted
to Mr. Kumar in 1996 to purchase shares of redeemable convertible preferred
stock of GAF. The grant date of the GAF SARs is deemed to be the grant date
of such GAF options for vesting and other purposes.
(3) Excluded are options to purchase 24,095 shares of redeemable convertible
preferred stock of ISP Holdings ('ISP Holdings Options') issued to Mr. Kumar
on January 1, 1997 in connection with the Separation Transactions, which
have potential realizable values of $48,491 and $1,667,715 at assumed annual
rates of Book Value appreciation of 5% and 10%, respectively. Each share of
ISP Holdings preferred stock is convertible, at the holder's option, into
shares of common stock of ISP Holdings at a formula price based on the sum
of the determined initial Book Value (as defined in the option agreement)
plus interest on such Book Value at a specified rate. The ISP Holdings
Options are exercisable at a price of $111.44 per share and vest over seven
years from the date of grant, subject to earlier vesting under certain
circumstances, including
(Footnotes continued on next page)
16
<PAGE>
(Footnotes continued from previous page)
in connection with a change of control. Dividends will accrue on the ISP
Holdings preferred stock from the date of issuance at the rate of 6% per
annum. The ISP Holdings preferred stock is redeemable, at ISP Holdings'
option, for a redemption price equal to the exercise price per share plus
accrued and unpaid dividends. The ISP Holdings common stock issuable upon
conversion of the ISP Holdings preferred stock is subject to repurchase by
ISP Holdings under certain circumstances at a price equal to current Book
Value. The ISP Holdings Options have no expiration date. The potential
realizable values are calculated on the basis of a ten-year period from
the date of grant.
BMCA PREFERRED STOCK OPTIONS/GAF STOCK APPRECIATION RIGHTS
AND OPTION/SAR VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED BMCA PREFERRED IN-THE-MONEY BMCA PREFERRED
OPTIONS(O)/GAF SARS(S) OPTIONS(O)/GAF SARS(S)
AT 12/31/96 AT 12/31/96(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- --------------------------- ---------------------------
<S> <C> <C>
Sunil Kumar(2)....... 0/17,810(S) 0/2,190(O) $0/$9,648(S)(1)
Danny J. Adair....... 0/1,550(O) (1)
Donald W. LaPalme.... 0/1,200(O) (1)
William W. Collins... 0/900(O) (1)
Joseph J. Okaly...... 0/900(O) (1)
</TABLE>
- ------------------
(1) 9,201 GAF SARs held by Mr. Kumar were not in-the-money as of December 31,
1996. No BMCA Preferred Options were in the money as of December 31, 1996.
(2) Excluded are options to purchase 33,296 shares of ISP Holdings preferred
stock held by Mr. Kumar, none of which were exercisable and 9,201 of which
were in-the-money and had a value of $529,127 as of December 31, 1996.
COMPENSATION OF DIRECTORS
The directors of BMCA do not receive any compensation for their services as
such.
ITEM 12. 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 of record by G-I Holdings, which in
turn is 100% owned of record by GAF.
The following table sets forth information with respect to the ownership of
Common Stock, as of March 15, 1997, 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:
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NAME AND ADDRESS OF NATURE OF PERCENT OF TOTAL VOTING
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS POWER
- ------------------ --------------------------- -------------------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock...... Samuel J. Heyman 1,000,010 100%(1) 100%(1)
1361 Alps Road
Wayne, New Jersey 07470
All directors and executive 1,000,010 100%(1) 100%(1)
officers of BMCA as a
group (9 persons)
</TABLE>
(Footnotes on next page)
17
<PAGE>
(Footnotes from previous page)
- ------------------
(1) The number of shares shown as being beneficially owned by Mr. Heyman and by
all directors and executive officers of the Company as a group attributes
ownership of GAFBMC's shares to Mr. Heyman. As of March 15, 1997, Mr. Heyman
beneficially owned approximately 96% of the capital stock of GAF.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENTS
Pursuant to a management agreement which expires December 31, 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
Separation 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. 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 Separation 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 dated
January 31, 1994 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. If BMCA were no longer a member of the consolidated GAF tax
group (the 'GAF Group'), it would be required to pay to G-I Holdings the value
of any tax attributes it would succeed to
18
<PAGE>
under the consolidated return regulations to the extent such attributes reduced
the amounts otherwise payable by BMCA under the Tax Sharing Agreement. Under
certain circumstances, the provisions of the Tax Sharing Agreement could result
in BMCA having a greater liability thereunder than it would have had if it (and
its domestic subsidiaries) had filed its own separate federal income tax return.
Under the Tax Sharing Agreement, BMCA and each of its domestic subsidiaries are
responsible for any taxes that would be payable by reason of any adjustment to
the tax returns of GAF or its subsidiaries for years prior to the adoption of
the Tax Sharing Agreement that relate to the business or assets of BMCA or any
domestic subsidiary of 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 Separation 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 $100,000.
* * *
Reference is made to the description of the Separation Transactions
contained in the second paragraph under Item 1,'Business.'
19
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(a)(1) Financial Statements: See Index on page F-1.
(a)(2) Financial Statement Schedules: See Index on page F-1.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <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).
3.3 -- Certificate of Designations of Series A Cumulative Redeemable
Convertible Preferred Stock.
4.1 -- Indenture, dated as of December 9, 1996, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration on Form S-4 (Registration No. 333-20859) (the
'Senior Notes Registration Statement')).
4.2 -- 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).
10.1 -- Management Agreement, dated as of March 3, 1992 ('Management
Agreement'), among GAF, G-I Holdings, G Industries, ISP, GAFBMC and
GAF Broadcasting Company, Inc. (incorporated by reference to Exhibit
10.9 to the Registration Statement on Form S-4 of G-I Holdings
(Registration No. 33-72220)).
10.2 -- Amendment No. 1, dated as of January 1, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.10 to G-I
Holdings' Annual Report on Form 10-K for the year ended December 31,
1993).
10.3 -- Amendment No. 2, dated as of May 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.1 to G-I
Holdings' Quarterly Report on Form 10-Q for the quarter ended July
3, 1994).
10.4 -- Amendment No. 3, dated as of December 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.4 to ISP's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.5 -- Amendment No. 4, dated as of December 31, 1995, to the Management
Agreement (incorporated by reference to Exhibit 10.6 to G-I
Holdings' Registration Statement on Form S-4 (Registration No.
333-2436)).
10.6 -- 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)).
10.7 -- Amendment No. 6, dated as of January 1, 1997, to the Management
Agreement (incorporated by reference to Exhibit 10.8 to the Senior
Notes Registration Statement).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
10.8 -- 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).
10.9 -- Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock.*
10.10 -- 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).
10.11 -- Stock Appreciation Right Agreement dated January 1, 1997 between GAF
Corporation and Sunil Kumar.*
10.12 -- Amended and Restated Stock Appreciation Right Agreement dated
January 1, 1997 between GAF Corporation and Sunil Kumar.*
21 -- Subsidiaries of BMCA.
27 -- Financial Data Schedule for fiscal year 1996, which is submitted
electronically to the Securities and Exchange Commission for
information only.
</TABLE>
- ------------------
* Management and/or compensatory plan or arrangement.
(b) Reports on Form 8-K
None
21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Date: March 26, 1997 BUILDING MATERIALS CORPORATION OF AMERICA
By: /s/ JAMES P. ROGERS
James P. Rogers
Executive Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
- -------------------- ------------------------------------------ --------------
/s/ SAMUEL J. HEYMAN Chairman, Chief Executive Officer and March 26, 1997
Samuel J. Heyman Director (Principal Executive Officer)
/s/ JAMES P. ROGERS Executive Vice President and Director March 26, 1997
James P. Rogers (Principal Financial Officer)
/s/ SUNIL KUMAR President, Chief Operating Officer and March 26, 1997
Sunil Kumar Director
/s/ JOHN M. SERGEY Director March 26, 1997
John M. Sergey
/s/ JOHN F. REBELE Vice President and Controller March 26, 1997
John F. Rebele (Principal Accounting Officer)
22
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
FORM 10-K
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS,
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... F-2
Selected Financial Data.................................................. F-6
Report of Independent Public Accountants................................. F-7
Consolidated Statements of Income for the three years ended December 31,
1996................................................................... F-8
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-9
Consolidated Statements of Cash Flows for the three years ended December
31, 1996............................................................... F-10
Consolidated Statements of Stockholder's Equity (Deficit) for the three
years ended December 31, 1996.......................................... F-12
Notes to Consolidated Financial Statements............................... F-13
Supplementary Data (Unaudited):
Quarterly Financial Data (Unaudited)................................... F-27
SCHEDULES
Consolidated Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts......................... S-1
F-1
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
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
Separation Transactions consummated on January 1, 1997 (see Note 13 to
Consolidated Financial Statements), (1) the Company's glass fiber manufacturing
facility in Nashville, Tennessee (and certain related assets and liabilities)
was transferred to GAF Fiberglass Corporation ('GFC'), formerly known as GAF
Chemicals Corporation, (2) U.S. Intec, Inc. ('USI') became a subsidiary of the
Company and (3) G-I Holdings made a contribution of approximately $82.5 million
in cash and short-term investments 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 Note 11 to Consolidated
Financial Statements). The Company's Consolidated Financial Statements include
the results of USI for the year ended December 31, 1996 and have been restated
for the year ended December 31, 1995 to include USI's results of operations from
the date of its acquisition by G-I Holdings, including sales of $21.8 million
and a net loss of $0.5 million for the year ended December 31, 1995. See Note 1
to Consolidated Financial Statements.
RESULTS OF OPERATIONS
1996 Compared With 1995
The Company recorded net income in 1996 of $17.1 million compared with net
income of $10.1 million in l995. The 69% increase in net income was primarily
attributable to higher operating income and lower other expense, net, partially
offset by higher interest expense.
Net sales for 1996 increased $164.8 million (24%) to $852 million compared
with $687.2 million in 1995. The sales growth reflected a 13% increase in sales
for BMCA (excluding the effect of USI sales) due to increased unit volumes of
both residential and commercial roofing products and higher average residential
selling prices, and also reflected USI sales of $99 million for the full year
1996 compared with $21.8 million for the period in 1995 after the date of
acquisition.
Gross profit margin improved to 27.0% in 1996 from 26.4% in 1995, resulting
primarily from higher average residential selling prices, partially offset by
higher raw material costs. Selling, general and administrative expenses
increased 24% to $166.7 million in 1996 from $134.1 million in 1995, primarily
reflecting higher distribution and selling costs to support the increased level
of sales, and also reflecting $13 million higher expenses as a result of the
inclusion of USI for the full year 1996. Selling, general and administrative
expenses as a percentage of net sales increased slightly from 19.5% in 1995 to
19.6% in 1996.
Operating income in 1996 was $61.4 million, an increase of $15.5 million
(34%) compared with $45.9 million in 1995. The higher operating income was
attributable to the increased sales and improved margins and included $4.3
million operating income from USI.
Interest expense was $32 million in 1996 compared with $24.8 million in
1995, principally reflecting higher debt levels. Other expense, net, decreased
to $1.5 million in 1996 from $4.5 million in 1995. The improvement was primarily
attributable to higher investment income (up $4.8 million) partially offset by
increased expenses related to the sale of the Company's receivables (up $.6
million) and certain litigation costs.
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.
F-2
<PAGE>
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 $134.1 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 20.6% in
1994 to 19.5% in 1995.
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
Company's 11 3/4% Senior Deferred Coupon Notes due 2004 (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).
LIQUIDITY AND FINANCIAL CONDITION
The Company generated $53.1 million of cash from operations during 1996,
invested $25.6 million for capital programs, and invested $38.9 million for net
purchases of available-for-sale securities and other short-term investments, for
a net cash outflow of $11.4 million before financing activities. Cash from
operations included a cash outflow of $3.4 million for net purchases of trading
securities.
Cash invested in additional working capital totaled $14.9 million during
1996. This amount primarily reflected an increase in inventories of $8.1 million
and a $5.1 million increase in receivables, reflecting higher sales levels.
The Company generated $90 million from financing activities in 1996. On
December 9, 1996, the Company issued $100 million principal amount at maturity
of 8 5/8% Senior Notes due 2006 (the 'Notes'). In addition, principally as part
of the Separation Transactions, G-I Holdings made cash contributions to the
Company in 1996 of $86.1 million (not including contributions of $23.1 million
of available-for-sale and held-to-maturity securities, also as part of the
Separation Transactions). The Company utilized the net proceeds from the
issuance of the Notes, together with the cash contributions from G-I Holdings,
to repay indebtedness owed by USI to G-I Holdings of approximately $30 million
and to pay the purchase price for the March 1997 acquisition of the assets of
the Leatherback Industries division of Hollinee Corporation. The remainder will
be utilized for general corporate purposes.
Financing activities in 1996 also included $8.0 million of proceeds from
the sale of the Company's receivables, offset by $34.9 million of repayments of
long-term debt, $66.2 million of asbestos payments and $2.5 million of financing
fees and expenses related to the issuance of the Notes.
As a result of the foregoing factors, cash and cash equivalents increased
by $78.6 million during 1996 to $124.6 million (excluding $106.2 million of
trading, available-for-sale and held-to-maturity securities and other short-term
investments).
The Company's investment strategy is to seek 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 a
strategy. The Company invests primarily in international and domestic 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,
F-3
<PAGE>
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 indentures relating to the Deferred Coupon
Notes and the Notes. As of December 31, 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. In October 1996, a $10 million facility
was increased to $12 million and extended to October 1997. Such facilities
provide for revolving lines of credit up to $32 million and letters of credit of
up to $41 million, provided that total borrowings and outstanding letters of
credit may not exceed $42 million. As of December 31, 1996, $38.9 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 December 31, 1996, the Company was in compliance with such test.
USI has a revolving credit facility, providing for borrowings of up to
$29.6 million and letters of credit of up to $2 million (such total borrowings
and outstanding letters of credit not to exceed $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
December 31, 1996, there were $1.7 million of letters of credit outstanding and
no amounts had been borrowed under such facility.
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 December 31, 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 $0.2, $1.5 and $2.2
million in 1994, 1995 and 1996, respectively. 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, $201.3 million of which
had been paid through December 31, 1996. Accordingly, as of January 31, 1994,
the 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 December 31, 1996, the
Company had total outstanding consolidated indebtedness of $409.1 million and
stockholder's equity of $143.2 million, of which $3.4 million matures prior to
December 31, 1997. As of December 31, 1996, the current portion of the reserve
for asbestos claims was $3.1 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 'Item 3--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. This 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 December 31, 1996, no loans were
owed to the Company by G-I Holdings and no loans were owed by the Company to
affiliates.
F-4
<PAGE>
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, principally 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, dividends and loans from subsidiaries (principally the Company)
and from payments pursuant to the Tax Sharing Agreement between GAF and the
Company. The indentures relating to the Notes and the Deferred Coupon Notes
contain restrictions on the amount of dividends, loans and other restricted
payments (as defined therein) which may be paid by the Company. As of December
31, 1996, after giving effect to the most restrictive of the aforementioned
restrictions, the Company could have paid dividends of up to $167.5 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. 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.
FORWARD-LOOKING STATEMENTS
The discussions in this Report on Form 10-K contain both historical
information and forward-looking statements. Although the Company believes that
any such forward-looking statements are based on reasonable assumptions, these
statements involve uncertainties that affect, among other things, the Company's
operations, markets, products, services and prices. These uncertainties include
economic, competitive, governmental and technological factors.
F-5
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
SELECTED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company.
The historical financial information gives effect to the formation of the
Company as if it had occurred on January 1, 1992 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, U.S. Intec,
Inc. ('USI') became a subsidiary of the Company through a capital contribution
to the Company by G-I Holdings Inc., an indirect parent of the Company.
Accordingly, the Company's Consolidated Financial Statements include the results
of USI for the year ended December 31, 1996 and have been restated for the year
ended December 31, 1995 to include USI's results of operations from the date of
its acquisition by G-I Holdings, including sales of $21.8 million and a net loss
of $0.5 million for the year ended December 31, 1995. See Note 1 to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................... $508.5 $559.2 $593.1 $687.2 $852.0
Operating income............. 34.6 41.5 44.7 45.9 61.4
Interest expense............. 3.6 2.0 13.1 24.8 32.0
Income before income taxes... 23.1 33.0 27.8 16.5 27.9
Income before cumulative
effect of accounting
change.................... 14.1 20.4 16.7 10.1 17.1
Net income................... 6.5 20.4 16.7 10.1 17.1
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital........ $ 33.8 $ 4.8 $ 36.2 $ 54.6 $247.3
Total assets................. 297.3 259.4 452.3 559.3 701.6
Long-term debt............... 34.1 38.7 229.2 310.3 405.7
Stockholder's equity
(deficit)................. 110.0 85.9 (28.9) 15.8 143.2
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation................. $ 12.8 $ 14.5 $ 16.8 $ 20.3 $ 23.9
Goodwill amortization........ 0.6 0.6 1.1 1.2 1.7
Capital expenditures and
acquisitions.............. 15.6 19.0 54.3 54.1 25.6
</TABLE>
F-6
<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, 1995 and 1996, 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, 1996. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, appearing on
Pages F-8 to F-26 of this Form 10-K, present fairly, in all material respects,
the financial position of Building Materials Corporation of America and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule appearing on page S-1 of
this Form 10-K is presented for the purpose 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
March 3, 1997
F-7
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Net sales.................................... $593,147 $687,184 $851,967
-------- -------- --------
Costs and expenses:
Cost of products sold...................... 425,080 506,012 622,234
Selling, general and administrative........ 122,274 134,145 166,706
Goodwill amortization...................... 1,064 1,170 1,664
-------- -------- --------
Total costs and expenses................... 548,418 641,327 790,604
-------- -------- --------
Operating income............................. 44,729 45,857 61,363
Interest expense............................. (13,149) (24,822) (32,044)
Other expense, net........................... (3,761) (4,486) (1,455)
-------- -------- --------
Income before income taxes................... 27,819 16,549 27,864
Income taxes................................. (11,159) (6,450) (10,809)
-------- -------- --------
Net income................................... $ 16,660 $ 10,099 $ 17,055
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-8
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 45,989 $124,560
Investments in trading securities..................... 6,095 1,065
Investments in available-for-sale securities.......... 31,951 82,016
Investments in held-to-maturity securities............ -- 7,169
Other short-term investments.......................... 2,069 15,944
Accounts receivable, trade, less reserve of $1,794 and
$1,180, respectively............................... 12,735 9,870
Accounts receivable, other............................ 23,263 23,235
Inventories........................................... 69,073 77,196
Deferred income tax benefits.......................... 3,845 --
Other current assets.................................. 5,402 3,751
-------- --------
Total Current Assets............................. 200,422 344,806
Property, plant and equipment, net...................... 223,784 220,500
Excess of cost over net assets of businesses acquired,
net of accumulated amortization of $5,225 and $6,889,
respectively.......................................... 57,702 60,469
Deferred income tax benefits............................ 66,059 59,053
Other assets............................................ 11,304 16,755
-------- --------
Total Assets............................................ $559,271 $701,583
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt.................. $ 8,990 $ 3,412
Accounts payable...................................... 51,975 47,879
Payable to related parties, net....................... 2,749 2,287
Accrued liabilities................................... 22,970 27,938
Reserve for asbestos claims........................... 48,176 3,062
Reserve for product warranty claims................... 11,000 12,914
-------- --------
Total Current Liabilities........................ 145,860 97,492
-------- --------
Long-term debt less current maturities.................. 310,260 405,690
-------- --------
Reserve for asbestos claims............................. 21,110 --
-------- --------
Reserve for product warranty claims..................... 39,395 30,755
-------- --------
Other liabilities....................................... 26,864 24,409
-------- --------
Commitments and Contingencies...........................
Stockholder's Equity:
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............................ 81,248 190,574
Excess of purchase price over the adjusted historical
cost of predecessor company shares owned by GAF's
stockholders....................................... (7,874) (7,874)
Accumulated deficit................................... (57,229) (40,174)
Other................................................. (363) 711
-------- --------
Stockholder's Equity.................................. 15,782 143,237
-------- --------
Total Liabilities and Stockholder's Equity.............. $559,271 $701,583
-------- --------
-------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-9
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents, beginning of
year...................................... $ 821 $ 29,015 $ 45,989
-------- -------- --------
Cash provided by operating activities:
Net income................................ 16,660 10,099 17,055
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation........................... 16,796 20,252 23,857
Goodwill amortization.................. 1,064 1,170 1,664
Deferred income taxes.................. 10,959 6,250 10,609
Noncash interest charges............... 10,480 21,432 23,718
Increase in working capital items......... (12,842) (8,050) (14,905)
Purchases of trading securities........... -- -- (33,824)
Proceeds from sales of trading
securities............................. -- -- 30,394
(Increase) decrease in other assets....... 2,720 1,924 (1,711)
Decrease in other liabilities............. (6,384) (4,502) (4,158)
Increase (decrease) in payable to related
parties................................ (11,663) 1,939 (341)
Other, net................................ 757 112 787
-------- -------- --------
Net cash provided by operating activities... 28,547 50,626 53,145
-------- -------- --------
Cash used in investing activities:
Capital expenditures and acquisitions..... (54,279) (54,111) (25,629)
Purchases of available-for-sale
securities............................. -- (45,706) (139,355)
Purchases of other short-term
investments............................ -- (2,069) (660)
Proceeds from sales of available-for-sale
securities............................. -- 8,416 101,095
-------- -------- --------
Net cash used in investing activities....... (54,279) (93,470) (64,549)
-------- -------- --------
Cash provided by financing activities:
Proceeds from sale of accounts
receivable............................. 12,217 7,919 8,015
(Increase) decrease in loans receivable
from/payable to related party.......... (24,502) 23,633 --
Proceeds from issuance of debt............ 195,528 40,002 99,502
Repayments of long-term debt.............. (15,317) (10,440) (34,856)
(Increase) decrease in restricted cash.... (24,484) 24,484 --
Capital contribution from parent
company................................ -- 34,312 86,077
Dividend to parent company................ (7,900) -- --
Payments of asbestos claims............... (75,340) (59,795) (66,224)
Financing fees and expenses............... (6,276) (297) (2,539)
-------- -------- --------
Net cash provided by financing
activities............................. 53,926 59,818 89,975
-------- -------- --------
Net change in cash and cash equivalents..... 28,194 16,974 78,571
-------- -------- --------
Cash and cash equivalents, end of year...... $ 29,015 $ 45,989 $124,560
-------- -------- --------
-------- -------- --------
</TABLE>
F-10
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Supplemental Cash Flow Information
Effect on cash from (increase) decrease in
working capital items:*
Accounts receivable....................... $(14,340) $ 666 $ (5,122)
Inventories............................... (6,534) (4,557) (8,123)
Other current assets...................... 151 1,760 756
Accounts payable.......................... 11,900 (6,093) (4,096)
Accrued liabilities....................... (4,019) 174 1,680
-------- -------- --------
Net effect on cash from increase in
working capital items................ $(12,842) $ (8,050) $(14,905)
-------- -------- --------
-------- -------- --------
Cash paid during the period for:
Interest (net of amount capitalized)...... $ 2,583 $ 2,796 $ 6,442
Income taxes (including taxes paid
pursuant to the Tax Sharing
Agreement)............................. 9,609 213 537
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 and cash equivalents, short-term
investments, short-term debt and net payables to 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 certain of the Company's
receivables (see Note 6); such proceeds are reflected in cash from financing
activities. As discussed in Notes 2 and 13, in connection with the Separation
Transactions, G-I Holdings made a noncash contribution to the Company in
December 1996 of $2.8 million of available-for-sale securities, $7.1 million
of held-to-maturity securities and $13.2 million of other short-term
investments.
F-11
<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, 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........................... -- -- 17,055
Capital contribution from parent
company........................... 109,326 -- --
Unrealized gain on available-for-sale
securities, net of income tax
effect of $333.................... -- 522 --
Adjustment of unfunded pension
liability......................... -- 552 --
---------- ------- -------------
Balance, December 31, 1996............. $ 190,574 $ 711 $ (40,174)
---------- ------- -------------
---------- ------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-12
<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').
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 'Item 3--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 upon the Company's formation as of
January 31, 1994.
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 Consolidated Financial Statements include the results
of USI for the year 1996 and have been restated for the year 1995 to include
USI's results of operations from the date of its acquisition by G-I Holdings,
including sales of $21.8 million and a net loss of $0.5 million. USI's sales in
1996 were $99 million.
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. 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).
F-13
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Short-term Investments
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 were $.3 and $.8 million as of December 31, 1995 and 1996, respectively.
Investments classified as 'held-to-maturity' securities are carried at amortized
cost in the Consolidated Balance Sheet.
'Other expense, net' includes $.4, and $6.4 million of net realized and
unrealized gains on securities in 1995 and 1996, respectively. The determination
of cost in computing realized gains and losses is based on the specific
identification method.
In connection with the Separation Transactions (see Note 13), in December
1996, G-I Holdings made a capital contribution to the Company of $2.8 million of
available-for-sale securities, $7.1 million of held-to-maturity securities and
$13.2 million of other short-term investments.
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 1996, the market value of the Company's equity
securities held long was $38.2 and $82.5 million, respectively, and the Company
had $5.9 and $5.6 million, respectively, of short positions in common stocks,
based on market value. As of December 31, 1996, the market value of the
Company's held-to-maturity securities was $7.6 million. 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.
'Other short-term investments' are investments in limited partnerships
which are accounted for by the equity method. Gains and losses are reflected in
'other expense, net'. Liquidation of partnership interests generally require a
30 to 45 day notice period.
Cash and cash equivalents 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
Deferred Coupon 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.
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.
F-14
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Excess of Purchase Price Over the Adjusted Historical Cost of Predecessor
Company Shares
Stockholder's equity 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.
Revenues in 1996 included sales to American Builders and Contractors Supplies
Co., Inc., which accounted for approximately 11% of the Company's net sales.
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
were $2.5, $3.1 and $4.5 million for 1994, 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. 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 December 31, 1996, is $1.3 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 Item
3, 'Legal Proceedings--Environmental Litigation,' which is incorporated by
reference, for further discussion with respect to environmental liabilities and
estimated insurance recoveries.
Reclassifications
Certain amounts in the 1994 and 1995 Consolidated Financial Statements and
Notes to Consolidated Financial Statements have been reclassified to conform to
the 1996 presentation.
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
F-15
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. RESERVE FOR ASBESTOS-RELATED BODILY INJURY CLAIMS--(CONTINUED)
GAFBMC. Of that amount, $201.3 million had been paid through December 31, 1996,
and the Company's remaining asbestos liability amounted to $3.1 million as of
December 31, 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 December 31, 1996, G-I Holdings' and GAFBMC's consolidated reserves
for asbestos bodily injury claims were $333.8 million (before estimated present
value of recoveries from products liability insurance policies of $190.5 million
and related deferred tax benefits of $51.7 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, and that the aggregate
undiscounted consolidated liability, as of December 31, 1996, before estimated
recoveries from products liability insurance policies, was $370.6 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 December 31,
1996, G-I Holdings' consolidated expected net payments (receipts) for the years
1997, 1998, 1999, 2000 and 2001 are $58.2, $(9.8), $25.9, $35.8 and $34.3
million, respectively, and the aggregate expected payments to be made after 2001
are $23.8 million.
For a further discussion with respect to the foregoing, see Item 3, '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.
NOTE 5. INCOME TAXES
Income tax provision, which has been computed on a separate return basis,
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Federal--Deferred............ $ (9,438) $ (5,424) $ (9,241)
-------- -------- --------
State and local:
Current.................... (200) (200) (200)
Deferred................... (1,521) (826) (1,368)
-------- -------- --------
Total state and local... (1,721) (1,026) (1,568)
-------- -------- --------
Income tax provision......... $(11,159) $ (6,450) $(10,809)
-------- -------- --------
-------- -------- --------
</TABLE>
F-16
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES--(CONTINUED)
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>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Statutory provision......................... $ (9,737) $ (5,792) $ (9,752)
Impact of:
State and local taxes, net of Federal
benefits............................. (1,119) (667) (1,019)
Nondeductible goodwill amortization.... (372) (260) (484)
Other, net............................. 69 269 446
-------- -------- --------
Income tax provision........................ $(11,159) $ (6,450) $(10,809)
-------- -------- --------
-------- -------- --------
</TABLE>
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
Deferred tax liabilities related to property, plant and
equipment............................................ $(10,173) $(11,782)
-------- --------
Deferred tax assets related to:
Expenses not yet deducted for tax purposes:
Reserve for asbestos claims....................... 27,022 1,195
Other............................................. 35,437 38,774
Net operating losses not yet utilized under the Tax
Sharing Agreement................................. 17,618 30,866
-------- --------
Total deferred tax assets............................ 80,077 70,835
-------- --------
Net deferred tax assets.............................. 69,904 59,053
Less current portion................................. 3,845 --
-------- --------
Noncurrent deferred tax assets....................... $ 66,059 $ 59,053
-------- --------
-------- --------
</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 entered into a tax sharing agreement dated
January 31, 1994 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. If the Company were no longer a member
of the GAF consolidated tax group (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
F-17
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES--(CONTINUED)
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.
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. This facility 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.'
In 1996, the Financial Accounting Standards Board issued SFAS No. 125,
relating to accounting for transfers and servicing of financial assets and
extinguishments of liabilities, which will be adopted in 1997. The Company does
not anticipate that the implementation of SFAS No. 125 will have a material
effect on the Company's results of operations or financial position.
NOTE 7. INVENTORIES
At December 31, 1995 and 1996, $6.2 and $7.6 million, respectively, of
inventories were valued using the LIFO method. Inventories consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Finished goods................ $36,363 $41,201
Work in process............... 7,594 10,844
Raw materials and supplies.... 25,621 26,206
------- -------
Total....................... 69,578 78,251
Less LIFO reserve............. (505) (1,055)
------- -------
Inventories................... $69,073 $77,196
------- -------
------- -------
</TABLE>
F-18
<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,
--------------------
1995 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
Land and land improvements............................. $ 25,255 $ 25,722
Buildings and fixtures................................. 40,608 46,001
Machinery and equipment (including equipment under
capitalized leases of $20,450 and $17,660--see
Note 9).............................................. 172,993 178,190
Construction in progress............................... 20,879 19,039
-------- --------
Total............................................. 259,735 268,952
Less accumulated depreciation and amortization......... (35,951) (48,452)
-------- --------
Property, plant and equipment, net..................... $223,784 $220,500
-------- --------
-------- --------
</TABLE>
NOTE 9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
11 3/4% Senior Deferred Coupon Notes due 2004.......... $207,814 $233,018
8 5/8% Senior Notes due 2006........................... -- 99,504
Borrowings under revolving credit facilities........... 24,412 --
Industrial revenue bonds with various interest rates
and maturity dates to 2012........................... 19,625 19,625
Obligations on mortgaged properties.................... 7,639 5,155
Obligations under capital leases (Note 12)............. 59,760 51,800
-------- --------
Total................................................ 319,250 409,102
Less current maturities................................ (8,990) (3,412)
-------- --------
Long-term debt less current maturities................. $310,260 $405,690
-------- --------
-------- --------
</TABLE>
On December 9, 1996, the Company issued $100 million in aggregate principal
amount at maturity of 8 5/8% Senior Notes due 2006 (the 'Notes'). 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 and the Notes have the right under
the indentures 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 Notes at a price of 101% of the principal amount thereof, and the
Company has the right to redeem the Deferred Coupon Notes at Accreted Value and
the Notes at a price of 101% of the principal amount thereof, plus, in each
case, 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 indentures relating to the Notes and the Deferred Coupon Notes contain
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 December 31, 1996, the Company could
have paid dividends of up to $167.5 million. Under the indentures relating to
the Notes and the Deferred Coupon Notes, 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,
F-19
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LONG-TERM DEBT--(CONTINUED)
depreciation and amortization expense to its consolidated interest expense for
its most recently completed four fiscal quarters is at least 2 to 1. For the
four quarters ended December 31, 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, 1995 and
1996, the Company would have incurred gains of $9.3 and $8.0 million,
respectively, representing the estimated amount that would be 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. In October 1996, a $10 million facility
was increased to $12 million and extended to October 1997. Such facilities
provide for revolving lines of credit of up to $32 million and letters of credit
of up to $41 million, provided that total borrowings and outstanding letters of
credit may not exceed $42 million. As of December 31, 1996, $38.9 million of
letters of credit were outstanding and no amounts had been borrowed under the
facilities. Under the agreements, the Company is subject to a minimum
consolidated net worth test. As of December 31, 1996, the Company was in
compliance with such test.
USI has a revolving credit facility, providing for borrowings of up to
$29.6 million, and letters of credit of up to $2 million (such total borrowings
and outstanding letters of credit not to exceed $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
December 31, 1996, there were $1.7 million of letters of credit outstanding and
no amounts had been borrowed 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 December 31, 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 estimates of
the fair values from an independent source believed to be reliable. The
estimated fair value of the Deferred Coupon Notes as of December 31, 1995 and
1996 was $210.8 and $268.9 million, respectively. The estimated fair value of
the Notes as of December 31, 1996 was $100 million.
F-20
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LONG-TERM DEBT--(CONTINUED)
The aggregate maturities of long-term debt as of December 31, 1996 for the
next five years are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
1997.... $ 3,412
1998.... 3,703
1999.... 4,009
2000.... 5,865
2001.... 4,827
</TABLE>
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 $2.6, $2.7 and $3.0 million for 1994, 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 $157,000 for 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.
The Company's net periodic pension cost for the Hourly Retirement Plan
included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
(THOUSANDS)
<S> <C> <C> <C>
Service cost........................................ $ 501 $ 463 $ 631
Interest cost....................................... 551 598 686
Actual income on plan assets........................ (380) (432) (829)
Net deferral and amortization of unrecognized prior
service cost and actuarial losses................. 175 97 35
----- ----- -----
Net periodic pension cost........................... $ 847 $ 726 $ 523
----- ----- -----
----- ----- -----
</TABLE>
F-21
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS--(CONTINUED)
The following table sets forth the funded status of the Hourly Retirement
Plan:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation:
Vested............................................... $ 7,623 $ 8,407
Nonvested............................................ 1,266 1,621
------- -------
Total accumulated benefit obligation................... $ 8,889 $10,028
------- -------
------- -------
Projected benefit obligation........................... $ 8,889 $10,028
Fair value of plan assets, primarily publicly traded
stocks and U.S. Government securities................ (7,092) (9,530)
------- -------
Projected benefit obligation in excess of plan
assets............................................... 1,797 498
Unrecognized prior service cost........................ (368) (338)
Unrecognized net loss.................................. (635) (83)
------- -------
Unfunded accrued pension cost.......................... $ 794 $ 77
------- -------
------- -------
</TABLE>
At December 31, 1996, the difference between the 'Projected benefit
obligation in excess of plan assets' and the 'Unfunded accrued pension cost,' in
the amount of $421,000, was recorded by the Company as a liability, offset by an
intangible asset in the amount of $338,000 and a reduction of stockholder's
equity in the amount of $83,000. 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 7.5% and 7.75% for 1995 and 1996, respectively. The
expected long-term rate of return on assets, used in determining net periodic
pension cost, was 9% for 1995 and 11% for 1996.
The Company also provides a nonqualified defined benefit retirement plan
for certain key employees. Expense accrued for this plan was immaterial for
1994, 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 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 under the option agreements). The
exercise price of the options to purchase Preferred Stock was equal to the
estimated fair value per share of the Preferred Stock at the date of grant. No
expense is accrued in connection with the preferred stock options.
Income Appreciation Unit Plan and Book Value 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, $.2 and $.4 million for 1994, 1995 and 1996,
respectively.
The Income Appreciation Unit Plan was terminated as of December 31, 1996,
and the values were frozen as of that date. Participants who hold vested units
will be entitled to receive cash payment equal to the value of their
F-22
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS--(CONTINUED)
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 in the plan). Expense accrued under this plan
for 1996 was $.1 million.
Postretirement Medical and Life Insurance
The Company generally does not provide postretirement medical and life
insurance benefits, although it subsidizes such benefits for certain employees
and certain retirees. Such subsidies were reduced or ended as of January 1,
1997.
The following table shows the components of the accrued postretirement
health care cost obligation as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees, dependents and beneficiaries eligible for
benefits.......................................... $ 5,866 $ 5,108
Active employees fully eligible for benefits......... 1,193 1,131
Active employees not fully eligible for benefits..... 1,154 1,182
------- -------
Total accumulated postretirement benefit obligation.... 8,213 7,421
Fair value of plan assets.............................. -- --
Unrecognized net gain.................................. 3,284 4,039
------- -------
Accrued postretirement benefit obligation.............. $11,497 $11,460
------- -------
------- -------
</TABLE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995 1996
---- ----- -----
(THOUSANDS)
<S> <C> <C> <C>
Service cost........................................ $ 86 $ 79 $ 95
Interest cost....................................... 599 645 597
Amortization of net gain from earlier periods....... (200) (415) (232)
---- ----- -----
Net periodic postretirement benefit cost............ $485 $ 309 $ 460
---- ----- -----
---- ----- -----
</TABLE>
For purposes of calculating the accumulated postretirement benefit
obligation, the following assumptions were made. Retirees as of December 31,
1996 who were formerly salaried employees (with certain exceptions) were assumed
to receive a Company subsidy of $700 to $1,000 per year. For retirees over age
65, this subsidy may be replaced by participation in a managed care program.
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 13% and 7% annual rate of increase in the Company's per
capita cost of providing postretirement medical benefits was assumed for 1997
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 7.5% and 7.75%
for 1995 and 1996, respectively.
F-23
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS--(CONTINUED)
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, 1996 by $345,000 and the aggregate of the
service and interest cost components of the net periodic postretirement benefit
cost for the year 1996 by $77,000.
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,
------------------
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Receivable from (payable to):
GAF/G-I Holdings/G Industries........... $ 208 $ 274
GAFBMC.................................. (55) 115
International Specialty Products Inc.... (2,902) (2,676)
------- -------
Payable to related parties, net......... $(2,749) $(2,287)
------- -------
------- -------
</TABLE>
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 6.03% during 1996). The highest amount of loans made by the
Company to G-I Holdings during 1995 and 1996 was $45.4 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 1996 was $24.3 million. As of December 31, 1995 and 1996, no loans were
owed to the Company by G-I Holdings, and no loans were owed by the Company to
affiliates.
Mineral Products: The Company purchases all of its colored roofing
granules requirements (except for the requirements of the California roofing
plant) from International Specialty Products, Inc. ('ISP'), an affiliate that
was an 83.5% indirect subsidiary of GAF prior to consummation of the Separation
Transactions (see Note 13), 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 $42.5, $45.7 and $48.1 million for 1994, 1995 and 1996,
respectively. The amount payable to ISP at December 31, 1995 and 1996 for such
purchases was $2.7 and $3.5 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
$2.4 million for 1996. The amount payable by USI to ISP for such purchases was
$.1 million at each of December 31, 1995 and 1996.
Glass Fiber Supply Agreement: As a result of the Separation Transactions
(see Note 13), the Company's glass fiber manufacturing facility in Nashville,
Tennessee, which manufactures a significant portion of the Company's glass fiber
requirements, was transferred to GFC as of January 1, 1997. In connection with
that transaction, the Company entered into a seven-year supply agreement with
GFC under which GFC produces glass fiber for the Company.
Management Agreements: The Company is a party to a Management Agreement
with ISP (the 'Management Agreement'), which expires December 31, 1997, 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 $3.5,
$3.6 and $3.9 million for 1994, 1995 and 1996, respectively. In addition to the
management fee, the Company paid to ISP approximately $.7 million in each of
1994 and 1995, and $.8 million in 1996, primarily for telecommunications
F-24
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS--(CONTINUED)
and information services, and the Company paid approximately $.2, $.1 and $.3
million to ISP in 1994, 1995 and 1996, respectively, for certain legal services,
which in each case were not encompassed within the Management Agreement. In
connection with the Separation Transactions (see Note 13), the Management
Agreement was modified to incorporate such services, and, in that connection,
the total charges for management fees were increased to an annual rate of $4.7
million, effective January 1, 1997.
As of January 1, 1997, the Company and GFC entered into a management
agreement under which the Company provides certain general management,
administrative and financial services to GFC. Under the management agreement,
which expires December 31, 1997, GFC is obligated to pay the Company an annual
management fee of $1.0 million.
Tax Sharing Agreement: See Note 5.
Stock Appreciation Rights: An executive officer of the Company was granted
stock appreciation rights in 1995 and 1996 relating to GAF's common stock.
Compensation expense in connection with such stock appreciation rights is
reflected in G-I Holdings' operating expenses, and was immaterial for 1995 and
was $.3 million for 1996.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The discussion as to legal matters involving the Company contained in Item
3, '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, principally the Company, in order
to satisfy their obligations, including as of December 31, 1996, $330.7 million
estimated present value of asbestos liability (before estimated present value of
recoveries from products liability insurance policies of approximately $190.5
million and net of the asbestos liability assumed by the Company), $5.3 million
of G-I Holdings' 11.125% Senior Discount Notes due 1998, $.1 million of G-I
Holdings' Series B 10% Senior Notes due 2006, and approximately $163.8 million
of various tax and other liabilities, including tax liabilities relating to the
Surfactants Partnership (discussed in Note 5). Of such obligations, $75.6
million (net of estimated insurance recoveries of $17.7 million) is estimated to
be payable during the twelve months ended December 31, 1997. GAF has advised the
Company that it expects to obtain funds to satisfy such obligations from, among
other things, dividends and loans from subsidiaries (principally the Company),
as to which there are restrictions under the indentures relating to the Deferred
Coupon Notes and the Notes, and from payments pursuant to the Tax Sharing
Agreement between GAF and the Company. 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 $7.1, $7.0 and $8.3 million for 1994, 1995 and
1996, respectively. Future minimum lease
F-25
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
payments for properties which were held under long-term noncancelable leases as
of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(THOUSANDS)
<S> <C> <C>
1997.......................................... $ 6,862 $ 4,396
1998.......................................... 6,862 3,126
1999.......................................... 6,862 1,748
2000.......................................... 7,302 1,158
2001.......................................... 8,108 467
Later years................................... 38,964 148
-------- ---------
Total minimum payments........................ 74,960 $11,043
---------
Less interest included above.................. (23,160) ---------
--------
Present value of net minimum lease payment.... $ 51,800
--------
--------
</TABLE>
NOTE 13. SUBSEQUENT EVENT
On January 1, 1997, GAF effected a series of transactions involving its
subsidiaries (the 'Separation Transactions') that resulted in, among other
things, (1) the approximately 83.5% 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 $82.5 million in cash and short-term investments
to the Company. As a result of the Separation Transactions, ISP Holdings and ISP
are no longer direct or indirect subsidiaries of GAF, while the Company and GFC
remain subsidiaries of GAF.
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 Separation 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-26
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 BY QUARTER 1996 BY QUARTER
------------------------------------ ------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $138.6 $177.1 $191.9 $179.6 $166.7 $230.2 $251.6 $203.5
Cost of products sold............... 102.9 127.0 139.7 136.4 124.3 165.6 180.9 151.5
------ ------ ------ ------ ------ ------ ------ ------
Gross profit........................ $ 35.7 $ 50.1 $ 52.2 $ 43.2 $ 42.4 $ 64.6 $ 70.7 $ 52.0
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Operating income.................... $ 7.0 $ 15.8 $ 15.6 $ 7.5 $ 7.7 $ 20.7 $ 22.8 $ 10.2
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Interest expense.................... $ 6.0 $ 6.0 $ 6.2 $ 6.6 $ 7.8 $ 8.0 $ 7.9 $ 8.3
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes... $ .6 $ 8.0 $ 8.0 $ (.1) $ (.3) $ 12.4 $ 14.9 $ .9
Income tax (provision) benefit...... (.2) (3.2) (3.2) .2 .1 (4.8) (5.8) (.3)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)................... $ .4 $ 4.8 $ 4.8 $ .1 $ (.2) $ 7.6 $ 9.1 $ .6
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
F-27
<PAGE>
SCHEDULE II
BUILDING MATERIALS CORPORATION OF AMERICA
VALUATION AND QUALIFYING ACCOUNTS
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>
YEAR ENDED DECEMBER 31, 1996
(THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1996 EXPENSES DEDUCTIONS 1996
- ----------------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Valuation and Qualifying Accounts
Deducted from Assets to Which
They Apply:
Allowance for doubtful accounts........... $ 3,217 $ 716 $ 1,959(a) $ 1,974(b)
Allowance for discounts................... 18,797 73,936 70,265 22,468
Reserve for inventory market valuation.... 574 2,025 90 2,509
</TABLE>
- ------------------
Notes:
(a) Represents write-offs of uncollectible accounts net of recoveries.
(b) The balance at December 31, 1994 principally represents a reserve for
receivables sold to a trust (see Note 6 to Consolidated Financial
Statements) and is reflected in the Consolidated Balance Sheets as a
reduction of 'Accounts receivable, other.' The balances at December 31, 1995
and 1996, in addition to representing such reserve for receivables sold to a
trust, include a reserve of $1,261,000 and $647,000, respectively, related
to USI trade receivables.
(c) Represents balance acquired in an acquisition.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <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).
3.3 -- Certificate of Designations of Series A Cumulative Redeemable
Convertible Preferred Stock.
4.1 -- Indenture, dated as of December 9, 1996, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration on Form S-4 (Registration No. 333-20859) (the
'Senior Notes Registration Statement')).
4.2 -- 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).
10.1 -- Management Agreement, dated as of March 3, 1992 ('Management
Agreement'), among GAF, G-I Holdings, G Industries, ISP, GAFBMC and
GAF Broadcasting Company, Inc. (incorporated by reference to Exhibit
*10.9 to the Registration Statement on Form S-4 of G-I Holdings
(Registration No. 33-72220)).
10.2 -- Amendment No. 1, dated as of January 1, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.10 to G-I
Holdings' Annual Report on Form 10-K for the year ended December 31,
1993).
10.3 -- Amendment No. 2, dated as of May 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.1 to G-I
Holdings' Quarterly Report on Form 10-Q for the quarter ended July
3, 1994).
10.4 -- Amendment No. 3, dated as of December 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.4 to ISP's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.5 -- Amendment No. 4, dated as of December 31, 1995, to the Management
Agreement (incorporated by reference to Exhibit 10.6 to G-I
Holdings' Registration Statement on Form S-4 (Registration No.
333-2436)).
10.6 -- 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)).
10.7 -- Amendment No. 6, dated as of January 1, 1997, to the Management
Agreement (incorporated by reference to Exhibit 10.8 to the Senior
Notes Registration Statement).
10.8 -- 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).
10.9 -- Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock.*
10.10 -- 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).
10.11 -- Stock Appreciation Right Agreement dated January 1, 1997 between GAF
Corporation and Sunil Kumar.*
10.12 -- Amended and Restated Stock Appreciation Right Agreement dated
January 1, 1997 between GAF Corporation and Sunil Kumar.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
21 -- Subsidiaries of BMCA.
27 -- Financial Data Schedule for fiscal year 1996, which is submitted
electronically to the Securities and Exchange Commission for
information only.
</TABLE>
- ------------------
* Management and/or compensatory plan or arrangement.
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF BUILDING MATERIALS CORPORATION OF AMERICA
-----------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-----------------
We, the undersigned, Senior Vice President and Secretary, respectively,
of Building Materials Corporation of America (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"), in accordance with the provisions of
Section 151 thereof, do hereby certify that the Board of Directors of the
Corporation duly adopted the following resolutions by unanimous consent dated as
of August 15, 1996:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of the
Certificate of Incorporation of the Corporation, this Board of Directors hereby
creates and authorizes the issuance of a series of Series A Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share, and hereby
fixes the designation, dividend rate, redemption provisions, voting powers,
rights on liquidation, dissolution or winding up, and other preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations, or restrictions thereof, as follows:
1. Designation. The Preferred Stock created and authorized hereby shall
be designated as the "Series A Cumulative Redeemable Convertible Preferred
Stock" (the "Series A Preferred Stock"). The number of shares of Series A
Preferred Stock shall be 50,000. The liquidation preference of the Series A
Preferred Stock shall be $100 per share (the "Liquidation Preference").
2. Dividends.
(a) Each holder of a share of Series A Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors, out
of the funds of the Corporation legally available therefor pursuant to the
General Corporation Law (the "Legally Available Funds"), cumulative cash
dividend payments of $2.00 per share for each full Quarterly Dividend Period (as
defined in Section 2(f) hereof) that such share of Series A Preferred Stock is
outstanding; provided, if a share of Series A Preferred Stock is not outstanding
for a full Quarterly Dividend Period, the dividend payment per share in respect
of such partial Quarterly Dividend Period shall be equal to $2.00 multiplied by
a fraction, the numerator of which is the number of days such share was
outstanding (but not more than 30 days for any calendar month fully occurring in
such portion), and
1
<PAGE>
the denominator of which is 90. Such dividends, if and to the extend declared,
shall be payable quarterly in arrears on January 1, April 1, July 1 and October
1 of each year (each, a "Dividend Payment Date"); provided that if any such date
is not a Business Day (as defined in Section 2(f) hereof), then the applicable
dividend shall be payable, if and to the extent declared, on the next succeeding
Business Day. Such dividends shall be fully cumulative.
(b) Dividends shall accrue (whether or not declared or paid)
on each share of Series A Preferred Stock from the date on which such share is
issued.
(c) Quarterly dividends, if and to the extent declared, shall
be paid to the holders of record of shares of Series A Preferred Stock as they
appear on the stock register of the Corporation on the record date therefor,
which record date shall be the December 15, March 15, June 15 and September 15
immediately preceding the Dividend Payment Date relating thereto.
(d) If dividends are not paid in full, or not declared in full
and sums set apart for the payment thereof, on the Series A Preferred Stock and
any Capital Stock (as defined in Section 2(f) hereof) of the Corporation ranking
on a parity with the Series A Preferred Stock as to the payment of dividends,
all dividends declared upon shares of Series A Preferred Stock and shares of
such other stock shall be declared pro rata so that in all cases the amount of
dividends declared per share on the Series A Preferred Stock and such other
stock shall bear to each other the same ratio that accumulated, unpaid dividends
per share on the Series A Preferred Stock and such other stock shall bear to
each other. Except as provided in the preceding sentence, unless full cumulative
dividends on the Series A Preferred Stock have been paid or declared in full and
sums set aside for the payment thereof, no dividends shall be declared or paid
or set aside for payment, or other distribution made, on any Capital Stock of
the Corporation ranking on a parity with or junior to the Series A Preferred
Stock as to the payment of dividends, nor shall any such stock be purchased,
redeemed or otherwise acquired, except as provided in Section 2(e) hereof, for
any consideration (or any payment made to or available for a sinking fund for
the redemption of any such stock).
(e) Except as provided in Section 2(d) hereof, the Corporation
may not pay cash dividends or make cash distributions on, or repurchase, redeem
or otherwise acquire (except in exchange for shares of Capital Stock ranking
junior to the Series A Preferred Stock as to the payment of dividends and as to
the distribution of assets upon liquidation, dissolution or winding up of the
Corporation or options, rights or warrants to acquire such shares) any of its
Capital Stock other than Capital Stock ranking senior to the Series A Preferred
Stock as to the payment of dividends, if, at such date, there are accumulated,
unpaid dividends on the Series A Preferred Stock; provided that the Corporation
may purchase outstanding shares of Common Stock and Series A Preferred Stock
from the holders thereof in accordance with the terms and conditions of the
Option Agreements (as defined in Section 2(f)).
(f) The following terms shall have the meanings set forth
below:
2
<PAGE>
"Book Value" shall mean, as of any date of determination, (x)
shareholder's equity of the Corporation as of that date determined in accordance
with generally accepted accounting principles, but adding back (A) the charge to
shareholder's equity relating to the assumption by the Corporation of certain
asbestos-related liabilities of GAF Building Materials Corporation in connection
with the Corporation's formation, (B) the reduction in shareholder's equity
resulting from purchases of the capital stock of GAF Corporation ("GAF") by
persons who participated in promoting the management buy-out of GAF in March
1989 (the "Acquisition") (predecessor cost basis adjustment) and (C) any amounts
reflecting the liquidation preferences of any outstanding preferred stock of the
Corporation and excluding, to the extent occurring after December 31, 1995, (1)
nonrecurring non-operating losses and charges to stockholder's equity and
nonrecurring non-operating gains and increases in stockholder's equity,
including any further charge relating to asbestos-related liabilities and any
increase in stockholder's equity attributable to a public offering of capital
stock of the Corporation, (2) net gains or losses in respect of dispositions of
assets by the Corporation other than in the ordinary course of business, and (3)
any charges relating to amortization of goodwill and other intangibles arising
from the Acquisition divided by (y) 1,000,000. Any adjustments to Book Value
shall include the tax effects, if any, associated therewith. If the Series A
Preferred Stock or Common Stock are converted or exchanged for other securities
or property pursuant to a recapitalization, stock split, combination,
reorganization, merger, exchange or similar transaction, or if a sale of all or
substantially all of the Common Stock of the Corporation shall occur or be
pending, Book Value shall be modified by the Board of Directors in such manner
as is reasonable under the circumstances. All determinations by the Board of
Directors hereunder shall be made in good faith and shall be binding and
conclusive.
"Business Day" means any day other than a Saturday, a Sunday
or any other day on which commercial banking institutions in the City of New
York are authorized by law to be closed.
"Capital Stock" of any person means any and all shares,
interests, participations or other equivalents (however designated) of equity
interests in such person.
"Common Stock" means the Corporation's common stock, par value
$.001 per share, and any securities or property into which the Corporation's
Common Stock may be converted or exchanged pursuant to a recapitalization, stock
split, combination, reorganization, merger, exchange or similar transaction.
"Corporation" means the party named as such in the preamble to
this Certificate.
"Option Agreements" means option agreements between the
Corporation and employees of the Corporation or U.S. Intec, Inc. relating to the
Series A Preferred Stock.
3
<PAGE>
"person" means any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or agency, department or instrumentality thereof.
"Quarterly Dividend Period" means the applicable period from
January 1 through the next March 31, from April 1 through the next June 30, from
July 1 through the next September 30 or from October 1 through the next December
31.
3. Redemption.
(a) The Series A Preferred Stock shall be redeemable, at any
time in whole or from time to time in part, out of Legally Available Funds, at
the option of the Corporation, upon giving notice as provided in Section 3(b)
hereof, at the Liquidation Preference thereof plus accumulated but unpaid
dividends to the date of redemption.
(b) At least 30 days but not more than 60 days prior to the
date fixed for the redemption of shares of the Series A Preferred Stock pursuant
to Section 3(a) hereof (each a "Redemption Date"), written notice of such
redemption shall be mailed to each holder of record of shares of Series A
Preferred Stock to be redeemed in a postage prepaid envelope addressed to such
holder at his mailing address as shown on the records of the Corporation;
provided, however, that no failure of any holder of Series A Preferred Stock to
receive such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of the shares of Series A Preferred Stock to be
redeemed. Each such notice shall state (i) the Redemption Date; (ii) the number
of shares of Series A Preferred Stock to be redeemed and, if fewer than all of
the shares held by such holder are to be redeemed from such holder, the number
of shares to be redeemed from such holder; (iii) the cash redemption price being
paid; (iv) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed shall cease to accrue on the Redemption Date. On or after
the Redemption Date, each holder of shares of Series A Preferred Stock to be
redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation at the place designated in such notice and thereupon
the redemption price of such shares shall be paid to the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In case fewer than all of the shares
represented by such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Redemption Date (unless
default shall be made by the Corporation in payment of the redemption price) all
dividends on the shares of Series A Preferred Stock designated for redemption in
such notice shall cease to accrue and all rights of the holders thereof as
stockholders of the Corporation, except the right to receive the redemption
price thereof, without interest, upon the surrender of certificates representing
the same, shall cease and terminate and such shares shall not thereafter be
transferred (except with the written consent of the Corporation) on the books of
the Corporation and such shares shall not be deemed to be outstanding for any
purpose whatsoever.
4
<PAGE>
(c) If fewer than all of the shares of Series A Preferred
Stock are to be redeemed, the Board of Directors of the Corporation shall select
the shares to be redeemed on such basis as the Board of Directors shall
determine in its sole discretion. The Board of Directors shall not be required
to redeem shares of Series A Preferred Stock on a pro rata basis. The Board of
Directors may elect to redeem shares of Series A Preferred Stock held by one
holder or group of holders and elect not to redeem shares of Series A Preferred
Stock held by other holders. Regardless of the method used, the calculation of
the number of shares to be redeemed shall be based upon whole shares, such that
the Corporation shall in no event be required to issue fractional shares of
Series A Preferred Stock or cash in lieu thereof. In the event a method
requiring proration is used, the number of shares to be redeemed from a holder
shall be rounded downward to the nearest whole number of shares. The holders of
Series A Preferred Stock shall have no right to request the Corporation to
redeem such shares at any time, and the Corporation shall have no obligation to
honor any such request if made.
4. Voting Rights. The holders of Series A Preferred Stock shall be
entitled to one vote for each share held on all matters to be voted on by the
stockholders of the Corporation and shall vote together with the holders of
Common Stock and the holders of any other class of stock entitled to vote in
such manner. The holders of Series A Preferred Stock shall not, except as
required by law, be entitled to vote as a separate class. Without limiting the
generality of the preceding sentence, a class vote or the consent of the holders
of the outstanding shares of Series A Preferred Stock as a separate class shall
not be required in connection with: (i) the creation of any class or series of
Capital Stock of the Corporation; (ii) any merger, consolidation or transfer of
all or substantially all the assets of the Corporation or other transaction
involving the Corporation and a third party in which the Corporation is the
survivor or in which the Corporation is not the survivor and in which the Series
A Preferred Stock shall (a) remain outstanding as an equivalent security of the
survivor with no adverse change to the powers, preferences or special rights
provided for in this Certificate or (B) be redeemed for an amount per share
equal to the Liquidation Preference plus accrued and unpaid dividends; or (iii)
any increase in the total number of authorized or issued shares of Capital Stock
of any class, including without limitation Series A Preferred Stock.
5. Priority of Series A Preferred Stock in Event of Liquidation,
Dissolution or Winding Up. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, after
payment or provision for payment of the debts and other liabilities of the
Corporation, the holders of the Series A Preferred Stock shall be entitled to
receive, out of the remaining net assets of the Corporation, an amount per share
in cash equal to the Liquidation Preference plus all dividends accrued and
unpaid on each such share up to the date fixed for distribution before any
distribution shall be made to the holders of any Capital Stock of the
Corporation ranking junior to the Series A Preferred Stock as to the
distribution of assets upon the liquidation, dissolution or winding up of the
Corporation. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of Series A Preferred
Stock and any Capital Stock of the Corporation ranking on a parity with the
Series A Preferred Stock as to the distribution of assets upon the liquidation,
dissolution or winding up of the
5
<PAGE>
Corporation shall be insufficient to permit the payment in full to the holders
of the Series A Preferred Stock and such other stock of all preferential amounts
payable to all such holders, then the assets thus distributable shall be
distributed ratably among the holders of the Series A Preferred Stock and any
Capital Stock of the Corporation ranking on a parity with the Series A Preferred
Stock as to the distribution of assets upon liquidation, dissolution or winding
up of the Corporation in proportion to the respective amounts that would be
payable per share if such assets were sufficient to permit payment in full.
Except as otherwise provided in this Section 5, holders of Series A Preferred
Stock shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation. For the purposes of
this Section 5, neither the voluntary sale, lease, conveyance, exchange or
transfer (for cash, securities or other consideration) of all or substantially
all the property or assets of the Corporation, nor the consolidation or merger
of the Corporation with one or more other corporations, shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
6. Conversion.
(a) The holders of shares of Series A Preferred Stock shall
have the right, at any time or from time to time, at their option, to convert
all or any portion of such shares into shares of Common Stock on the following
basis: Each share of Series A Preferred Stock shall be convertible into the
number of shares of Common Stock equal to 100 divided by 115% of Book Value as
of December 31, 1995. The Corporation may, at its option, pay to any holder cash
in lieu of any fractional share of Common Stock issuable upon conversion of
shares of Series A Preferred Stock.
(b) In the case of a redemption pursuant to Section 3 hereof
of any shares of Series A Preferred Stock, the right of conversion under this
Section 6 shall cease and terminate, as to the shares to be redeemed, at the
close of business on the second day preceding the date fixed for such
redemption, unless default shall be made in the payment of the Redemption Price
for the shares to be so redeemed.
(c) In order to convert shares of Series A Preferred Stock
into shares of Common Stock pursuant to the right of conversion set forth in
Section 6(a), the holder thereof shall surrender the certificate or certificates
representing Series A Preferred Stock, duly endorsed to the Corporation or in
blank, at the principal office of the Corporation and shall give written notice
to the Corporation that such holder elects to convert the same. Within five
business days, the Corporation shall deliver at said office to such holder of
Series A Preferred Stock a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Shares of
Series A Preferred Stock shall be deemed to have been converted as of the date
of the surrender of such shares for conversion as provided above, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series A Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to the
holder of the certificate so
6
<PAGE>
surrendered for conversion, at the expense of the Corporation, a new certificate
covering the number of shares of Series A Preferred Stock representing the
unconverted portion of the certificate so surrendered, which new certificate
shall entitle the holder thereof to the rights of the shares of Series A
Preferred Stock represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been surrendered for
conversion.
(d) The issuance of certificates for shares of Common Stock
upon the conversion of shares of Series A Preferred Stock shall be made without
charge to the converting stockholder for any original issue or transfer tax in
respect of the issuance of such certificates and any such tax shall be paid by
the Corporation.
(e) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
Series A Preferred Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Series A Preferred Stock at the
time outstanding. The Corporation shall take at all times such corporate action
as shall be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the conversion of
Series A Preferred Stock in accordance with the provisions hereof, free from all
taxes, liens, charges and security interests with respect to the issue thereof.
The Corporation will, at its expense, use its best efforts to cause such shares
to be listed (subject to issuance or notice of issuance) on all stock exchanges,
if any, on which the Corporation's Common Stock may become listed.
7. Cancellation of Reacquired Series A Preferred Stock. Shares of
Series A Preferred Stock which have been issued and reacquired in any manner,
including shares purchased or redeemed, shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the status of
authorized and unissued shares of preferred stock undesignated as to series and
may be redesignated and reissued as part of any series of preferred stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf, this day of , 1996.
Building Materials Corporation of
America
ATTEST: By: _____________________________
Senior Vice President
- -----------------------------
Secretary
(Corporate Seal)
7
<PAGE>
8
<PAGE>
FORM OF
CERTIFICATE OF AMENDMENT
OF
BUILDING MATERIALS CORPORATION OF AMERICA
CERTIFICATE OF DESIGNATIONS OF
SERIES A CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------------
Adopted in accordance with the provisions of
Section 242 of the General Corporation Law
of the State of Delaware
--------------------------------------------
It is hereby certified that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Building Materials Corporation of America.
SECOND: The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on January 31, 1994.
THIRD: The Certificate of Designations of Series A Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share (the
"Certificate of Designations") of the Corporation was filed with the Secretary
of State of the State of Delaware on August 27, 1996
FOURTH: The defined term "Book Value" contained in Section 2(f) of the
Certification of Designations has been amended by:
(i) deleting the first sentence thereof and replacing it with the
following new sentence:
"`Book Value' shall mean, as of any date of determination, (x) the sum
of (i) shareholder's equity of the Corporation (or, in the case of Book Value as
of December 31, 1995, the combined shareholder's equity of the Corporation and
U.S. Intec, Inc.) as of that date determined in accordance with generally
accepted accounting principles and treating U.S. Intec Holdings Inc. as a
wholly-owned subsidiary of the Corporation after December 31, 1995 and (ii) the
cumulative operating profit (or loss) of the Nashville, Tennessee fiberglass
manufacturing facility (the "Nashville
<PAGE>
Facility") of GAF Fiberglass Corporation ("GAF Fiberglass") during the period
commencing January 1, 1997 through the date of determination, and adding back
(A) the charge to shareholder's equity relating to the assumption by the
Corporation of certain asbestos-related liabilities of GAF Building Materials
Corporation in connection with the Corporation's formation, (B) the reduction in
shareholder's equity resulting from purchases of the capital stock of GAF
Corporation ("GAF") by persons who participated in promoting the management
buy-out of GAF in March 1989 (the "Acquisition") (predecessor cost basis
adjustment) and (C) any amounts reflecting the liquidation preferences of any
outstanding preferred stock of the Corporation and excluding, to the extent
occurring after December 31, 1995, (1) nonrecurring non-operating losses and
nonrecurring non-operating gains, including any further charge relating to
asbestos-related liabilities, (2) net gains or losses in respect of dispositions
of assets by the Corporation other than in the ordinary course of business, and
(3) any charges relating to amortization of goodwill and other intangibles
arising from the Acquisition divided by (y) in the case of Book Value as of
December 31, 1995, 1,000,000 and, in the case of all other calculations of Book
Value, the number of shares of Common Stock of the Corporation outstanding on
the date of determination."; and
(ii) by adding the following phrase after the phrase "exchange or
similar transaction," in the penultimate sentence thereof: "if GAF Fiberglass
becomes a direct or indirect subsidiary of the Corporation, if the Corporation
directly or indirectly acquires the Nashville Facility".
FIFTH: Written consent to the adoption of this amendment to the
Certificate of Designations has been given in accordance with Section 228 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by a duly authorized officer thereof on this ____ day of March 1997.
_________________________
Name:____________________
Title:___________________
2
<PAGE>
Building Materials Corporation of America
1361 Alps Road
Wayne, New Jersey 07470
August 15, 1996
[Name
Address]
Dear
Building Materials Corporation of America (the "Company") hereby agrees
with you as follows:
1. Option to Purchase.
(a) Subject to the terms and conditions of this Agreement, the Company
hereby grants you the option (the "Option") to purchase _____ shares of the
Company's Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par
value (the "Preferred Shares"), for the purchase price of $100 per Preferred
Share. The Preferred Shares have the rights and preferences set forth in the
Certificate of Designation attached as Exhibit A hereto. Concurrently with the
grant of the Option, you are being granted an option (the "USI Option") to
acquire shares of Redeemable Convertible Preferred Stock of U.S. Intec, Inc.
("USI") pursuant to an Option Agreement ("USI Option Agreement") dated the date
hereof between you and USI.
(b) The Option shall vest and become exercisable commencing on the
following dates: as to 25% of the Preferred Shares on June 30, 1998, as to an
additional 15% of the Preferred Shares on June 30 in each of the years 1999
through 2002, and as to the remainder of the Preferred Shares on December 31,
2002, in each case to the extent you are employed by the Company or its
subsidiaries on such date; provided that, if your employment with the Company
and its subsidiaries should terminate as a direct result of a divestiture
(whether because you are employed by the business which is sold, your position
is eliminated as a result of the divestiture or otherwise), or your employment
with the Company and its subsidiaries should be terminated by the Company other
than for cause within six months after a Change of Control of the Company, the
unvested portion of the Option shall become vested on the date of your
termination. "Change of Control"
1
<PAGE>
shall mean the occurrence of either of the following events: (i) prior to the
time that at least 15% of the then outstanding voting stock of the Company or
any parent of the Company is publicly traded, the Heyman Group ceases to be the
"beneficial owner", directly or indirectly, of majority voting power of the
voting stock of the Company; or (ii) at any other time, any person or entity,
other than the Heyman Group , is or becomes the beneficial owner, directly or
indirectly, of more than 35% of the voting stock of the Company or any parent of
the Company and the Heyman Group beneficially owns, directly or indirectly, in
the aggregate a lesser percentage of the voting stock of the Company or such
parent, as the case may be, than such other person or entity. The "Heyman Group"
shall mean (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 entity controlled, directly
or indirectly, by Samuel J. Heyman or his heirs, administrators or executors.
"Beneficial ownership" shall be determined in accordance with Rule 13d under the
Securities Exchange Act of 1934, as amended.
(c) The Option will terminate on the earlier of (i) 30 days after the
termination of your employment with the Company and its subsidiaries for any
reason other than your death or permanent disability or (ii) one year after the
termination of your employment with the Company and its subsidiaries as a result
of your death or permanent disability. You will be deemed to be permanently
disabled if you become physically or mentally incapacitated or disabled to the
extent that you are unable to perform for the Company or its subsidiaries
substantially the same services as you performed prior to incurring such
incapacity or disability (the Company, at its option and expense, being entitled
to retain a physician reasonably acceptable to you to confirm the existence of
the incapacity or disability, and the determination of that physician being
binding upon the Company and you), and your incapacity or disability continues
for a period of six consecutive months; provided, however, that, if at the time
of your permanent disability you are a party to an employment agreement with the
Company or any of its subsidiaries which contains a definition of disability
which is inconsistent with the provisions hereof, the definition contained in
that employment agreement shall govern for purposes of this Section. In the
event of your death or disability, the Option may be exercised by your executors
or personal representatives; provided that such persons shall be bound by the
provisions of this Agreement, including, without limitation, Sections 3 and 4,
as if they were parties to this Agreement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, in the event the Company or its parent engages in a public offering
of the Common Stock of the Company, the portion of the Option which is vested on
the date such public offering is consummated shall terminate 30 days after the
consummation of such public offering and the unvested portion of the Option
shall be replaced by options granted under a stock option plan of the Company,
which is appropriate, in the judgment of the Board of Directors of the Company,
for a public company.
(e) The Option shall not be exercisable after its expiration. Prior
thereto, the vested portion of the Option may be exercised in whole or in part
at any time or from time to time. The Option and the USI Option must be
exercised at the same time and in the same proportions.
2
<PAGE>
(f) Unless otherwise agreed to by the Company and you, the purchase
price for the Preferred Shares shall be paid by you to the Company in full upon
exercise of the Option, in cash or by certified or official bank check or wire
transfer.
(g) The Company hereby represents and warrants to you that, upon the
issuance and purchase of (and payment for) the Preferred Shares, the Preferred
Shares shall be duly authorized, validly issued, fully paid and nonassessable.
(h) So long as USI is an affiliate of the Company and you are employed
by USI or its subsidiaries, you shall be deemed employed by the Company for
purposes of this Agreement.
2. Legend on Certificates. Each stock certificate of the Company issued
to represent any Preferred Shares, or shares of the Company's Common Stock
issued upon conversion of the Preferred Shares (the shares of Common Stock
issued upon conversion of the Preferred Shares being referred to herein as the
"Common Shares"), shall bear the following (or a substantially equivalent)
legend on its face or reverse side:
"These securities have not been registered under the
Securities Act of 1933, as amended, or under the applicable securities
laws of any other jurisdiction. These securities may not be sold unless
registered under the Securities Act of 1933, as amended, and any other
applicable securities laws, unless an exemption from such registration
is available. In addition, the transfer of these securities is subject
to restrictions set forth in an Option Agreement, dated as of August
15, 1996, and any amendments thereto, a copy of which is available for
inspection at the office of the Company."
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legend shall also bear the same legend, unless and to
the extent, in the opinion of counsel acceptable to the Company (which counsel
may be an employee of the Company or its affiliates), the Preferred Shares or
Common Shares, as the case may be, represented thereby are no longer subject to
the restrictions referred to in such legend. No Preferred Shares shall be
issued, sold or delivered pursuant to the exercise of the Option, and no Common
Shares shall be issued upon conversion of Preferred Shares, prior to (a) any
registration or other qualification of such shares under any state or federal
law or regulation which the Company shall, in its absolute discretion upon the
advice of counsel, deem necessary or advisable, and (b) the admission of such
shares to listing on any stock exchange on which the shares may then be listed
free of any conditions not acceptable to the Company. For purposes of this
Agreement, the term "Preferred Shares" and "Common Shares" shall mean any
securities or property into which the Preferred Shares or Common Shares, as the
case may be, may be converted or exchanged pursuant to a recapitalization, stock
split, combination, reorganization, merger, exchange or similar transaction
occurring after the date hereof.
3. Transfer of Preferred Shares.
3
<PAGE>
(a) You agree that you will not, prior to December 31, 2003, directly
or indirectly, sell, pledge, give, bequeath, transfer, assign or in any other
way whatsoever encumber or dispose of (hereinafter collectively called
"transfer") any Preferred Shares or Common Shares or any interest therein, or
any stock certificate representing, or any voting trust certificate issued with
respect to, any Preferred Shares or Common Shares (voluntarily, involuntarily,
by operation of law or otherwise), except as otherwise permitted by this
Agreement or as may be specifically authorized by the Board of Directors of the
Company.
(b) If, after December 31, 2003, you desire to sell any of your
Preferred Shares or Common Shares, you must first offer to sell to the Company
such Preferred Shares for a purchase price equal to $100 per Preferred Share,
plus accrued and unpaid dividends to the purchase date, and such Common Shares
for a purchase price equal to their Book Value determined as of the end of the
calendar quarter in which the offer is made. You must notify the Company in
writing of the number of Preferred Shares and/or Common Shares you wish to sell
(the "Sale Notice"). Upon receipt of your Sale Notice, the Company shall have
the option, exercisable for 30 days after the Company receives the Sale Notice
(the "Option Period"), to purchase all (but not less than all) of the Preferred
Shares and Common Shares specified in the Sale Notice. The option may be
exercised by giving notice to you within the Option Period. If the Company
elects to purchase the Preferred Shares and Common Shares you have offered, it
shall be obligated to purchase, and you will be obligated to sell, those
Preferred Shares and Common Shares at the price and on the terms described
above. If the Company does not elect to purchase the Preferred Shares and Common
Shares you have offered, and if otherwise permitted under this Section 3, you
may, at any time thereafter within a period of 120 days after the expiration of
the Option Period, transfer those Preferred Shares and Common Shares to any
party, provided, however, that, in the event you have not transferred the
Preferred Shares and Common Shares within 120 days after expiration of the
Option Period, then any transfer of those Preferred Shares and Common Shares
shall thereafter again be subject to all of the restrictions contained in this
Section 3.
(c) For purposes of this Agreement, "Book Value" shall mean, as of any
date of determination, (x) shareholder's equity of the Company as of that date
determined in accordance with generally accepted accounting principles, but
adding back (A) the charge to shareholder's equity relating to the assumption by
the Company of certain asbestos-related liabilities of GAF Building Materials
Corporation in connection with the Company's formation, (B) the reduction in
shareholder's equity resulting from purchases of the capital stock of GAF
Corporation ("GAF") by persons who participated in promoting the management
buy-out of GAF in March 1989 (the "Acquisition") (predecessor cost basis
adjustment) and (C) any amounts reflecting the liquidation preferences of any
outstanding preferred stock of the Company and excluding, to the extent
occurring after December 31, 1995, (1) nonrecurring non-operating losses and
charges to stockholder's equity and nonrecurring non-operating gains and
increases in stockholder's equity, including any further charge relating to
asbestos-related liabilities and any increase in stockholder's equity
attributable to a public offering of capital stock of the Company, (2) net gains
or losses in respect of dispositions of assets by the Company other than in the
ordinary course of business, and (3) any charges relating to amortization of
goodwill and other
4
<PAGE>
intangibles arising from the Acquisition divided by (y) the number of shares of
Common Stock of the Company outstanding on the date of determination. Any
adjustments to Book Value shall include the tax effects, if any, associated
therewith. If the Preferred Shares or Common Shares are converted into or
exchanged for other securities or property pursuant to a recapitalization, stock
split, combination, reorganization, merger, exchange or similar transaction, or
if a sale of all or substantially all of, the Common Stock of the Company shall
occur or be pending, Book Value, the Option and the terms hereof shall be
modified by the Board of Directors of the Company in such manner as is
reasonable under the circumstances. All determinations by the Board of Directors
hereunder shall be made in good faith and shall be binding and conclusive.
(d) You agree that your Preferred Shares and Common Shares may not be
sold, offered for sale, transferred, pledged, hypothecated or otherwise disposed
of except in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws and the restrictions of
this Agreement on the transfer thereof. You have been advised that the Company
has no obligation to register the Preferred Shares or Common Shares under the
Securities Act or to comply with any exemption under the Securities Act,
including but not limited to that set forth in Rule 144 promulgated under the
Securities Act, which would permit them to be sold by you. You understand that
it is not anticipated that there will be any market for resale of the Preferred
Shares or Common Shares and that it may not be possible for you to liquidate an
investment in the Preferred Shares or Common Shares. You understand the legal
consequences of the foregoing to mean that you must bear the economic risk of
your investment therein except as otherwise provided in this Agreement. You
agree that you will not transfer any Preferred Shares or Common Shares except in
compliance with the Securities Act. The Company will not transfer on its books
any certificate representing Preferred Shares or Common Shares in violation of
the provisions of this Agreement.
4. Purchase and Sale of Common Stock.
(a) In the event you leave the employ of the Company and its
subsidiaries for any reason on or after the date hereof (any such date of
leaving is called the "Termination Date"), you may, at your option, exercisable
by a notice delivered to the Company during the Put/Call Period, elect to sell
and, upon the giving of the notice, you shall be obligated to sell, and the
Company shall be obligated to purchase all, but not less than all, the Common
Shares owned by you at the time such notice is given, at their Book Value
determined as of the last day of the calendar quarter during which such notice
is given to the Company.
(b) In each calendar year you may, at your option, exercisable by
notice delivered to the Company on or before March 31 of that year, elect to
sell and, upon the giving of the notice, the Company shall be obligated to
purchase and you shall be obligated to sell as many Common Shares owned by you
as you may elect to sell, at their Book Value determined as of the last day of
the preceding calendar year, provided that you owned such Common Shares on June
30 of the preceding calendar year.
5
<PAGE>
(c) In the event you leave the employ of the Company and its
subsidiaries for any reason on or after the date hereof, the Company may, at its
option, exercisable by notice delivered to you during the Put/Call Period, elect
to purchase and, upon the giving of the notice, you shall be obligated to sell
and the Company shall be obligated to purchase all, but not less than all, the
Common Shares owned by you at the time such notice is given, at their Book Value
determined as of the last day of the calendar quarter during which such notice
is given to you.
(d) In the event the Company (or its parent) proposes to engage, or
engages, in a public offering of the Common Stock of the Company, the Company
may at its option, exercisable by notice delivered to you at any time during the
IPO Period, elect to purchase from you all, but not less than all, the Common
Shares owned by you at their Book Value determined as of the last day of the
calendar quarter during which the election to purchase occurs.
(e) As used herein, the "Put/Call Period" shall mean the 30-day period
commencing with the later of (i) the date which is six months after the date on
which the Common Shares are issued to you upon conversion of Preferred Shares
owned by you or (ii) the Termination Date, and the "IPO Period" shall mean the
period commencing 30 days before the anticipated date of commencement of, and
ending seven months after the consummation of, the first public offering of
shares of Common Stock of the Company.
(f) In the event that a purchase of Common Shares or Preferred Shares
by the Company pursuant to this Section 4 shall be prohibited or would cause a
default under the terms of any institutional credit agreement, indenture or
other like instrument with respect to the borrowing of money to which the
Company or an affiliate of the Company is a party (in each case as the same may
be amended from time to time), or in the opinion of the Board of Directors of
the Company would not be feasible due to the impairment of the financial ability
of the Company that would result from the satisfaction of all notices then and
theretofore given under similar provisions of agreements with other holders of
Common Shares or Preferred Shares, then your obligation to deliver Common Shares
or Preferred Shares and the Company's obligation to pay the purchase price shall
be suspended until such prohibition, default or impairment lapses or is waived
or cured. In such event the price to be paid by the Company for your Common
Shares shall be the greater of (i) the price that would have been paid had the
purchase been completed without deferral, or (ii) the Book Value as of the last
day of the calendar quarter preceding the quarter during which such prohibition,
default or impairment lapses or is cured.
5. Terms of Payment, Etc.
(a) Any sales and purchases pursuant to Section 3 or 4 shall take place
at the principal executive offices of the Company within thirty (30) days after
the later of (i) if applicable, the date on which the Book Value upon which the
purchase price is based is determined by the Company or (ii) the date on which
the notice of sale or purchase is given.
6
<PAGE>
(b) The purchase price payable by the Company under Section 3 or 4
shall be paid by the Company to you in full, in cash or by certified or official
bank check or wire transfer, at the closing pursuant to such Section.
(c) Any Preferred Shares or Common Shares sold pursuant to Section 3 or
Section 4 shall be delivered by you to the Company at the closing, free and
clear of all liens, charges and encumbrances of any kind. In addition, you shall
take such actions as the Company shall request as may be necessary to vest in
the Company at the closing good and marketable title to the Preferred Shares
and/or Common Shares being sold, free and clear of all liens, charges and
encumbrances.
(d) At the same time as you transfer Common Shares or Preferred Shares
to the Company pursuant to Section 3(b), 4(a), 4(b), 4(c) or 4(d), you shall
transfer to USI, in accordance with the corresponding provisions of the USI
Option Agreement, the same proportion of the shares of Common Stock or Preferred
Stock of USI owned by you (or issuable upon exercise of conversion rights
relating to the USI Preferred Stock).
6. Notices. All notices or other communications under this Agreement
shall be given in writing and shall be deemed duly given and received on the
third full business day following the date of its mailing by registered or
certified mail, return receipt requested, or when delivered personally, as
follows:
(a) if to the Company:
Building Materials Corporation of America
1361 Alps Road
Wayne, New Jersey 07470
Attention: General Counsel
or at such other place as the Company shall have designated by notice
as herein provided to you; and
(b) if to you, at your address as it appears below your name on the
first page of this Agreement, or at such other address as you shall
have designated by notice as herein provided to the Company.
7. Specific Performance. It is acknowledged that the Company will be
irreparably damaged in the event that this Agreement is not specifically
enforced. In the event of a breach or threatened breach of the terms, covenants
and/or conditions of this Agreement by you, the Company shall, in addition to
all other remedies, be entitled (without any bond or other security being
required) to a temporary and/or permanent injunction, without showing any actual
damage or that monetary damages would not provide an adequate remedy, and/or a
decree for specific performance, enjoining such breach or ordering compliance
with the provisions of this Agreement.
7
<PAGE>
8. Miscellaneous. (a) This Agreement, together with the instruments
referred to herein, constitutes the entire agreement of the parties to this
Agreement with respect to purchase, retention and transfer of equity securities
of the Company, including without limitation Preferred Shares, Common Shares or
any interest therein, and may not be modified or amended except by a written
agreement signed by the Company (following the specific approval of such
modification or amendment by the Company's Board of Directors) and you.
(b) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(c) Except as otherwise expressly provided in this Agreement, this
Agreement, as amended (including any waivers or consents pursuant to Section
8(b) hereof), shall be binding upon and inure to the benefit of the Company, its
successors and assigns, and you and your heirs, personal representatives and
assigns; provided that you shall not have the right to assign the Option or any
of your rights under this Agreement except as expressly provided herein; and
provided further that nothing contained in this Agreement shall be construed as
granting you the right to transfer any of your Preferred Shares or Common Shares
except in accordance with this Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
in this Agreement.
(e) The section headings contained herein are for convenience only and
are not intended to define or limit the contents of any section.
(f) Nothing in this Agreement shall confer on you any right to continue
in the employ of the Company or any parent, subsidiary or affiliate of the
Company or any successor to any of them, affect the right of the Company or any
such parent, subsidiary, affiliate or successor to terminate your employment at
any time, or be deemed a waiver or modification of any provision contained in
any agreement between you and the Company or any such parent, subsidiary,
affiliate or successor.
(g) Each party to this Agreement shall cooperate and shall take such
further action and shall execute and deliver such further documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement.
(h) Whenever the pronouns "he" or "his" are used in this Agreement,
they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever
applicable. Words in the singular shall be read and construed as though in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
8
<PAGE>
(i) This Agreement may be executed in counterparts, all of which taken
together shall be deemed one original.
(j) THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF
THE STATE OF NEW JERSEY AND FOR ALL PURPOSES SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THAT STATE WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
If you are in agreement with the foregoing, please sign and return the
extra copy of this Agreement, whereupon this Agreement shall become a binding
agreement between you and the Company.
Very truly yours,
BUILDING MATERIALS CORPORATION
OF AMERICA
By:____________________________
AGREED AND ACCEPTED:
- -------------------------------
9
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
OF BUILDING MATERIALS CORPORATION OF AMERICA
-----------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-----------------
We, the undersigned, Senior Vice President and Secretary, respectively,
of Building Materials Corporation of America (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"), in accordance with the provisions of
Section 151 thereof, do hereby certify that the Board of Directors of the
Corporation duly adopted the following resolutions by unanimous consent dated as
of August 15, 1996:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of the
Certificate of Incorporation of the Corporation, this Board of Directors hereby
creates and authorizes the issuance of a series of Series A Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share, and hereby
fixes the designation, dividend rate, redemption provisions, voting powers,
rights on liquidation, dissolution or winding up, and other preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations, or restrictions thereof, as follows:
1. Designation. The Preferred Stock created and authorized hereby shall
be designated as the "Series A Cumulative Redeemable Convertible Preferred
Stock" (the "Series A Preferred Stock"). The number of shares of Series A
Preferred Stock shall be 50,000. The liquidation preference of the Series A
Preferred Stock shall be $100 per share (the "Liquidation Preference").
2. Dividends.
(a) Each holder of a share of Series A Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors, out
of the funds of the Corporation legally available therefor pursuant to the
General Corporation Law (the "Legally Available Funds"), cumulative cash
dividend payments of $2.00 per share for each full Quarterly Dividend Period (as
defined in Section 2(f) hereof) that such share of Series A Preferred Stock is
outstanding; provided, if a share of Series A Preferred Stock is not outstanding
for a full Quarterly Dividend Period, the dividend payment per share in respect
of such partial Quarterly Dividend Period shall be equal to $2.00 multiplied by
a fraction, the numerator of which is the number of days such share was
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outstanding (but not more than 30 days for any calendar month fully occurring in
such portion), and the denominator of which is 90. Such dividends, if and to the
extend declared, shall be payable quarterly in arrears on January 1, April 1,
July 1 and October 1 of each year (each, a "Dividend Payment Date"); provided
that if any such date is not a Business Day (as defined in Section 2(f) hereof),
then the applicable dividend shall be payable, if and to the extent declared, on
the next succeeding Business Day. Such dividends shall be fully cumulative.
(b) Dividends shall accrue (whether or not declared or paid)
on each share of Series A Preferred Stock from the date on which such share is
issued.
(c) Quarterly dividends, if and to the extent declared, shall
be paid to the holders of record of shares of Series A Preferred Stock as they
appear on the stock register of the Corporation on the record date therefor,
which record date shall be the December 15, March 15, June 15 and September 15
immediately preceding the Dividend Payment Date relating thereto.
(d) If dividends are not paid in full, or not declared in full
and sums set apart for the payment thereof, on the Series A Preferred Stock and
any Capital Stock (as defined in Section 2(f) hereof) of the Corporation ranking
on a parity with the Series A Preferred Stock as to the payment of dividends,
all dividends declared upon shares of Series A Preferred Stock and shares of
such other stock shall be declared pro rata so that in all cases the amount of
dividends declared per share on the Series A Preferred Stock and such other
stock shall bear to each other the same ratio that accumulated, unpaid dividends
per share on the Series A Preferred Stock and such other stock shall bear to
each other. Except as provided in the preceding sentence, unless full cumulative
dividends on the Series A Preferred Stock have been paid or declared in full and
sums set aside for the payment thereof, no dividends shall be declared or paid
or set aside for payment, or other distribution made, on any Capital Stock of
the Corporation ranking on a parity with or junior to the Series A Preferred
Stock as to the payment of dividends, nor shall any such stock be purchased,
redeemed or otherwise acquired, except as provided in Section 2(e) hereof, for
any consideration (or any payment made to or available for a sinking fund for
the redemption of any such stock).
(e) Except as provided in Section 2(d) hereof, the Corporation
may not pay cash dividends or make cash distributions on, or repurchase, redeem
or otherwise acquire (except in exchange for shares of Capital Stock ranking
junior to the Series A Preferred Stock as to the payment of dividends and as to
the distribution of assets upon liquidation, dissolution or winding up of the
Corporation or options, rights or warrants to acquire such shares) any of its
Capital Stock other than Capital Stock ranking senior to the Series A Preferred
Stock as to the payment of dividends, if, at such date, there are accumulated,
unpaid dividends on the Series A Preferred Stock; provided that the Corporation
may purchase outstanding shares of Common Stock and Series A Preferred Stock
from the holders thereof in accordance with the terms and conditions of the
Option Agreements (as defined in Section 2(f)).
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(f) The following terms shall have the meanings set forth below:
"Book Value" shall mean, as of any date of determination, (x)
shareholder's equity of the Corporation as of that date determined in accordance
with generally accepted accounting principles, but adding back (A) the charge to
shareholder's equity relating to the assumption by the Corporation of certain
asbestos-related liabilities of GAF Building Materials Corporation in connection
with the Corporation's formation, (B) the reduction in shareholder's equity
resulting from purchases of the capital stock of GAF Corporation ("GAF") by
persons who participated in promoting the management buy-out of GAF in March
1989 (the "Acquisition") (predecessor cost basis adjustment) and (C) any amounts
reflecting the liquidation preferences of any outstanding preferred stock of the
Corporation and excluding, to the extent occurring after December 31, 1995, (1)
nonrecurring non-operating losses and charges to stockholder's equity and
nonrecurring non-operating gains and increases in stockholder's equity,
including any further charge relating to asbestos-related liabilities and any
increase in stockholder's equity attributable to a public offering of capital
stock of the Corporation, (2) net gains or losses in respect of dispositions of
assets by the Corporation other than in the ordinary course of business, and (3)
any charges relating to amortization of goodwill and other intangibles arising
from the Acquisition divided by (y) 1,000,000. Any adjustments to Book Value
shall include the tax effects, if any, associated therewith. If the Series A
Preferred Stock or Common Stock are converted or exchanged for other securities
or property pursuant to a recapitalization, stock split, combination,
reorganization, merger, exchange or similar transaction, or if a sale of all or
substantially all of the Common Stock of the Corporation shall occur or be
pending, Book Value shall be modified by the Board of Directors in such manner
as is reasonable under the circumstances. All determinations by the Board of
Directors hereunder shall be made in good faith and shall be binding and
conclusive.
"Business Day" means any day other than a Saturday, a Sunday
or any other day on which commercial banking institutions in the City of New
York are authorized by law to be closed.
"Capital Stock" of any person means any and all shares,
interests, participations or other equivalents (however designated) of equity
interests in such person.
"Common Stock" means the Corporation's common stock, par value
$.001 per share, and any securities or property into which the Corporation's
Common Stock may be converted or exchanged pursuant to a recapitalization, stock
split, combination, reorganization, merger, exchange or similar transaction.
"Corporation" means the party named as such in the preamble to
this Certificate.
"Option Agreements" means option agreements between the
Corporation and employees of the Corporation or U.S. Intec, Inc. relating to the
Series A Preferred Stock.
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"person" means any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or agency, department or instrumentality thereof.
"Quarterly Dividend Period" means the applicable period from
January 1 through the next March 31, from April 1 through the next June 30, from
July 1 through the next September 30 or from October 1 through the next December
31.
3. Redemption.
(a) The Series A Preferred Stock shall be redeemable, at any
time in whole or from time to time in part, out of Legally Available Funds, at
the option of the Corporation, upon giving notice as provided in Section 3(b)
hereof, at the Liquidation Preference thereof plus accumulated but unpaid
dividends to the date of redemption.
(b) At least 30 days but not more than 60 days prior to the
date fixed for the redemption of shares of the Series A Preferred Stock pursuant
to Section 3(a) hereof (each a "Redemption Date"), written notice of such
redemption shall be mailed to each holder of record of shares of Series A
Preferred Stock to be redeemed in a postage prepaid envelope addressed to such
holder at his mailing address as shown on the records of the Corporation;
provided, however, that no failure of any holder of Series A Preferred Stock to
receive such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of the shares of Series A Preferred Stock to be
redeemed. Each such notice shall state (i) the Redemption Date; (ii) the number
of shares of Series A Preferred Stock to be redeemed and, if fewer than all of
the shares held by such holder are to be redeemed from such holder, the number
of shares to be redeemed from such holder; (iii) the cash redemption price being
paid; (iv) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed shall cease to accrue on the Redemption Date. On or after
the Redemption Date, each holder of shares of Series A Preferred Stock to be
redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation at the place designated in such notice and thereupon
the redemption price of such shares shall be paid to the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In case fewer than all of the shares
represented by such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Redemption Date (unless
default shall be made by the Corporation in payment of the redemption price) all
dividends on the shares of Series A Preferred Stock designated for redemption in
such notice shall cease to accrue and all rights of the holders thereof as
stockholders of the Corporation, except the right to receive the redemption
price thereof, without interest, upon the surrender of certificates representing
the same, shall cease and terminate and such shares shall not thereafter be
transferred (except with the written consent of the Corporation) on the books of
the Corporation and such shares shall not be deemed to be outstanding for any
purpose whatsoever.
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(c) If fewer than all of the shares of Series A Preferred
Stock are to be redeemed, the Board of Directors of the Corporation shall select
the shares to be redeemed on such basis as the Board of Directors shall
determine in its sole discretion. The Board of Directors shall not be required
to redeem shares of Series A Preferred Stock on a pro rata basis. The Board of
Directors may elect to redeem shares of Series A Preferred Stock held by one
holder or group of holders and elect not to redeem shares of Series A Preferred
Stock held by other holders. Regardless of the method used, the calculation of
the number of shares to be redeemed shall be based upon whole shares, such that
the Corporation shall in no event be required to issue fractional shares of
Series A Preferred Stock or cash in lieu thereof. In the event a method
requiring proration is used, the number of shares to be redeemed from a holder
shall be rounded downward to the nearest whole number of shares. The holders of
Series A Preferred Stock shall have no right to request the Corporation to
redeem such shares at any time, and the Corporation shall have no obligation to
honor any such request if made.
4. Voting Rights. The holders of Series A Preferred Stock shall be
entitled to one vote for each share held on all matters to be voted on by the
stockholders of the Corporation and shall vote together with the holders of
Common Stock and the holders of any other class of stock entitled to vote in
such manner. The holders of Series A Preferred Stock shall not, except as
required by law, be entitled to vote as a separate class. Without limiting the
generality of the preceding sentence, a class vote or the consent of the holders
of the outstanding shares of Series A Preferred Stock as a separate class shall
not be required in connection with: (i) the creation of any class or series of
Capital Stock of the Corporation; (ii) any merger, consolidation or transfer of
all or substantially all the assets of the Corporation or other transaction
involving the Corporation and a third party in which the Corporation is the
survivor or in which the Corporation is not the survivor and in which the Series
A Preferred Stock shall (a) remain outstanding as an equivalent security of the
survivor with no adverse change to the powers, preferences or special rights
provided for in this Certificate or (B) be redeemed for an amount per share
equal to the Liquidation Preference plus accrued and unpaid dividends; or (iii)
any increase in the total number of authorized or issued shares of Capital Stock
of any class, including without limitation Series A Preferred Stock.
5. Priority of Series A Preferred Stock in Event of Liquidation,
Dissolution or Winding Up. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, after
payment or provision for payment of the debts and other liabilities of the
Corporation, the holders of the Series A Preferred Stock shall be entitled to
receive, out of the remaining net assets of the Corporation, an amount per share
in cash equal to the Liquidation Preference plus all dividends accrued and
unpaid on each such share up to the date fixed for distribution before any
distribution shall be made to the holders of any Capital Stock of the
Corporation ranking junior to the Series A Preferred Stock as to the
distribution of assets upon the liquidation, dissolution or winding up of the
Corporation. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of Series A Preferred
Stock and any Capital Stock of the Corporation ranking on a parity with the
Series A Preferred Stock as to the distribution of assets upon the liquidation,
dissolution or winding up of the
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<PAGE>
Corporation shall be insufficient to permit the payment in full to the holders
of the Series A Preferred Stock and such other stock of all preferential amounts
payable to all such holders, then the assets thus distributable shall be
distributed ratably among the holders of the Series A Preferred Stock and any
Capital Stock of the Corporation ranking on a parity with the Series A Preferred
Stock as to the distribution of assets upon liquidation, dissolution or winding
up of the Corporation in proportion to the respective amounts that would be
payable per share if such assets were sufficient to permit payment in full.
Except as otherwise provided in this Section 5, holders of Series A Preferred
Stock shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation. For the purposes of
this Section 5, neither the voluntary sale, lease, conveyance, exchange or
transfer (for cash, securities or other consideration) of all or substantially
all the property or assets of the Corporation, nor the consolidation or merger
of the Corporation with one or more other corporations, shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
6. Conversion.
(a) The holders of shares of Series A Preferred Stock shall
have the right, at any time or from time to time, at their option, to convert
all or any portion of such shares into shares of Common Stock on the following
basis: Each share of Series A Preferred Stock shall be convertible into the
number of shares of Common Stock equal to 100 divided by 115% of Book Value as
of December 31, 1995. The Corporation may, at its option, pay to any holder cash
in lieu of any fractional share of Common Stock issuable upon conversion of
shares of Series A Preferred Stock.
(b) In the case of a redemption pursuant to Section 3 hereof
of any shares of Series A Preferred Stock, the right of conversion under this
Section 6 shall cease and terminate, as to the shares to be redeemed, at the
close of business on the second day preceding the date fixed for such
redemption, unless default shall be made in the payment of the Redemption Price
for the shares to be so redeemed.
(c) In order to convert shares of Series A Preferred Stock
into shares of Common Stock pursuant to the right of conversion set forth in
Section 6(a), the holder thereof shall surrender the certificate or certificates
representing Series A Preferred Stock, duly endorsed to the Corporation or in
blank, at the principal office of the Corporation and shall give written notice
to the Corporation that such holder elects to convert the same. Within five
business days, the Corporation shall deliver at said office to such holder of
Series A Preferred Stock a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Shares of
Series A Preferred Stock shall be deemed to have been converted as of the date
of the surrender of such shares for conversion as provided above, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series A Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to the
holder of the certificate so
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<PAGE>
surrendered for conversion, at the expense of the Corporation, a new certificate
covering the number of shares of Series A Preferred Stock representing the
unconverted portion of the certificate so surrendered, which new certificate
shall entitle the holder thereof to the rights of the shares of Series A
Preferred Stock represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been surrendered for
conversion.
(d) The issuance of certificates for shares of Common Stock
upon the conversion of shares of Series A Preferred Stock shall be made without
charge to the converting stockholder for any original issue or transfer tax in
respect of the issuance of such certificates and any such tax shall be paid by
the Corporation.
(e) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
Series A Preferred Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Series A Preferred Stock at the
time outstanding. The Corporation shall take at all times such corporate action
as shall be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the conversion of
Series A Preferred Stock in accordance with the provisions hereof, free from all
taxes, liens, charges and security interests with respect to the issue thereof.
The Corporation will, at its expense, use its best efforts to cause such shares
to be listed (subject to issuance or notice of issuance) on all stock exchanges,
if any, on which the Corporation's Common Stock may become listed.
7. Cancellation of Reacquired Series A Preferred Stock. Shares of
Series A Preferred Stock which have been issued and reacquired in any manner,
including shares purchased or redeemed, shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the status of
authorized and unissued shares of preferred stock undesignated as to series and
may be redesignated and reissued as part of any series of preferred stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf, this ___ day of ____________, 1996.
Building Materials Corporation of
America
ATTEST: By: _____________________________
Senior Vice President
- ----------------------------
Secretary
(Corporate Seal)
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March ___, 1997
TO THE HOLDERS OF OPTIONS
TO PURCHASE SHARE OF SERIES A
PREFERRED STOCK OF BUILDING
MATERIALS CORPORATION OF
AMERICA AND U.S. INTEC, INC.
Dear Optionee:
Reference is made to each of (i) the Option Agreement (the "BMCA Option
Agreement") pursuant to which you were granted an option (the "BMCA Option") to
purchase shares of Series A Cumulative Redeemable Convertible Preferred Stock
(the "BMCA Preferred Stock"), par value $.01 per share, of Building Materials
Corporation of America ("BMCA") and (ii) the Option Agreement (the "Intec Option
Agreement") pursuant to which you were granted an option (the "Intec Option") to
purchase shares of Series A Cumulative Redeemable Convertible Preferred Stock
(the "Intec Preferred Stock"), par value $.01 per share, of U.S. Intec, Inc.
("Intec"). Effective as of January 1, 1997, Intec became an indirect subsidiary
of BMCA. Section 3(c) of the Intec Option Agreement provides that, upon the
occurrence of such an event, Book Value (as defined in the Intec Option
Agreement), the Intec Option and the terms of the Intec Option Agreement shall
be modified by the Board of Directors of Intec in such manner as is reasonable
under the circumstances. Accordingly, the Boards of Directors of Intec and BMCA
have taken the following actions, each of which are effective as of January 1,
1997:
1. Termination of Intec Option Agreement. The Intec Option Agreement has
been terminated and is no longer of any force or effect.
2. Increase in Number of Shares Issuable upon Exercise of BMCA Option. The
number of shares of BMCA Preferred Stock issuable to each holder of an
option to purchase shares of BMCA Preferred Stock upon exercise of such
option has been increased by a number of shares of BMCA Preferred Stock
equal to the number of shares of Intec Preferred Stock that were
issuable upon exercise of the option to purchase Intec Preferred Stock
held by such
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holder immediately prior to the termination of the Option Agreement
with respect thereto. Accordingly, the number of shares of BMCA
Preferred Stock issuable upon exercise of the BMCA Option has been
increased by a number of shares of BMCA Preferred Stock equal to the
number of shares of Intec Preferred Stock that were issuable upon
exercise of the Intec Option immediately prior to the termination of
the Intec Option Agreement.
3. Amendment of BMCA Option Agreement.
(a) Amendment of Section 1(a). Section 1(a) of the BMCA Option
Agreement has been amended by deleting the final sentence
thereof.
(b) Amendment of Section 1(e). Section 1(e) of the BMCA Option
Agreement has been amended by deleting the final sentence
thereof.
(c) Amendment of Section 1(h). Section 1(h) of the BMCA Option
Agreement has been amended by deleting such section in its
entirety.
(d) Amendment of Section 3(c). Section 3(c) of the BMCA Option
Agreement has been amended by:
(i) deleting the first sentence thereof and replacing it
with the following new sentence:
"(c) For purposes of this Agreement, `Book Value'
shall mean, as of any date of determination, (x) the
sum of (i) shareholder's equity of the Company (or,
in the case of Book Value as of December 31, 1995,
the combined shareholder's equity of the Company and
USI) as of that date determined in accordance with
generally accepted accounting principles and treating
U.S. Intec Holdings Inc. as a wholly-owned subsidiary
of the Company after December 31, 1995 and (ii) the
cumulative operating profit (or loss) of the
Nashville, Tennessee fiberglass manufacturing
facility (the "Nashville Facility") of GAF Fiberglass
Corporation ("GAF Fiberglass") during the period
commencing January 1, 1997 through the date of
determination, and adding back (A) the charge to
shareholder's equity relating to the assumption by
the Company of certain asbestos-related liabilities
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<PAGE>
of GAF Building Materials Corporation in connection
with the Company's formation, (B) the reduction in
shareholder's equity resulting from purchases of the
capital stock of GAF Corporation ("GAF") by persons
who participated in promoting the management buy-out
of GAF in March 1989 (the "Acquisition") (predecessor
cost basis adjustment) and (C) any amounts reflecting
the liquidation preferences of any outstanding
preferred stock of the Company and excluding, to the
extent occurring after December 31, 1995, (1)
nonrecurring non-operating losses and nonrecurring
non-operating gains, including any further charge
relating to asbestos-related liabilities, (2) net
gains or losses in respect of dispositions of assets
by the Company other than in the ordinary course of
business, and (3) any charges relating to
amortization of goodwill and other intangibles
arising from the Acquisition divided by (y) in the
case of Book Value as of December 31, 1995, 1,000,000
and, in the case of all other calculations of Book
Value, the number of shares of Common Stock of the
Company outstanding on the date of determination.";
and
(ii) adding the following phrase after the phrase
"exchange or similar transaction," in the penultimate
sentence thereof:
"if GAF Fiberglass becomes a direct or indirect
subsidiary of the Company, if the Company directly or
indirectly acquires the Nashville Facility".
(e) Amendment of Section 5(d). Section 5(d) of the BMCA Option
Agreement has been amended by deleting such section in its
entirety.
4. Amendment of Certificate of Designations. The defined term "Book Value"
contained in Section 2(f) of the Certification of Designations of the
BMCA Preferred Stock (the "Certificate of Designations") has been
amended by:
(i) deleting the first sentence thereof and replacing it
with the following new sentence:
"`Book Value' shall mean, as of any date of
determination, (x) the sum of (i) shareholder's
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<PAGE>
equity of the Corporation (or, in the case of Book
Value as of December 31, 1995, the combined
shareholder's equity of the Corporation and U.S.
Intec, Inc.) as of that date determined in accordance
with generally accepted accounting principles and
treating U.S. Intec Holdings Inc. as a wholly-owned
subsidiary of the Corporation after December 31, 1995
and (ii) the cumulative operating profit (or loss) of
the Nashville, Tennessee fiberglass manufacturing
facility (the "Nashville Facility") of GAF Fiberglass
Corporation ("GAF Fiberglass") during the period
commencing January 1, 1997 through the date of
determination, and adding back (A) the charge to
shareholder's equity relating to the assumption by
the Corporation of certain asbestos-related
liabilities of GAF Building Materials Corporation in
connection with the Corporation's formation, (B) the
reduction in shareholder's equity resulting from
purchases of the capital stock of GAF Corporation
("GAF") by persons who participated in promoting the
management buy-out of GAF in March 1989 (the
"Acquisition") (predecessor cost basis adjustment)
and (C) any amounts reflecting the liquidation
preferences of any outstanding preferred stock of the
Corporation and excluding, to the extent occurring
after December 31, 1995, (1) nonrecurring
non-operating losses and nonrecurring non-operating
gains, including any further charge relating to
asbestos-related liabilities, (2) net gains or losses
in respect of dispositions of assets by the
Corporation other than in the ordinary course of
business, and (3) any charges relating to
amortization of goodwill and other intangibles
arising from the Acquisition divided by (y) in the
case of Book Value as of December 31, 1995, 1,000,000
and, in the case of all other calculations of Book
Value, the number of shares of Common Stock of the
Corporation outstanding on the date of
determination."; and
(ii) by adding the following phrase after the phrase
"exchange or similar transaction," in the penultimate
sentence thereof: "if GAF Fiberglass becomes a direct
or indirect subsidiary of the Corporation, if the
Corporation directly or indirectly acquires the
Nashville Facility".
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<PAGE>
5. Effect on BMCA Option Agreement and Certificate of Designations. Except
as specified herein, the BMCA Option Agreement and the Certificate of
Designations shall remain unmodified and in full force and effect.
Very truly yours,
BUILDING MATERIALS CORPORATION
OF AMERICA
By:_______________________
Name:_____________________
Title:____________________
U.S. INTEC, INC.
By:_______________________
Name:_____________________
Title:____________________
ACCEPTED AND AGREED TO:
- -----------------------
(Signature)
Name:__________________
Date:__________________
5
<PAGE>
Stock Appreciation Right
GAF Corporation, a Delaware corporation ("GAF"), hereby grants Sunil
Kumar ("the "Grantee") the right to receive ("SAR") an amount in cash based upon
the appreciation in value of 8,609 shares (the "Shares") of common stock
("Common Stock"), par value $.001 per share, of GAF. The SAR shall be on the
following terms:
1. Capitalized terms used herein that are not defined elsewhere herein
shall have the following meanings:
a) "Appreciation Value" means an amount equal to the Base Book
Value, multiplied by the number of Shares, plus the Interest
Amount. "Interest Amount" means interest on such Base Book
Value at the rate of eight and four-tenths percent (8.4%) per
annum from December 12, 1996 to the date of determination;
provided, however, that for the period commencing with
December 12, 2001 and ending with December 11, 2003 the
interest rate shall be zero and from and after December 12,
2003 the interest rate shall be six percent (6%) per annum.
b) "Base Book Value" means (1) $197.10 minus (2) the ISPHI Book
Value.
c) "Book Value" means, as of any date of determination, the book
value per share of Common Stock, as determined in accordance
with generally accepted accounting principles, but without
giving effect to the reversal, if any, of any or all of the
reserve for income taxes payable established by GAF in
connection with and as a result of the transfer of the
surfactants business of GAF Chemicals Corporation, an indirect
subsidiary of GAF, to Rhone-Poulenc Specialty Chemicals, L.P.
and appearing on GAF's consolidated balance sheet for the
quarter ended March 31, 1990, and after other charges, such as
declaration of dividends on any capital stock of GAF or
payments with respect to repurchases by GAF of any capital
stock from holders thereof but excluding (1) any amounts
reflecting the liquidation preferences of any outstanding
preferred stock of GAF, (2) any
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<PAGE>
reductions resulting from purchases of GAF's capital stock by
persons who participated in promoting the "Acquisition"
referred to in the Prospectus dated March 24, 1989 relative to
the Common Stock and certain other securities of GAF
(predecessor cost basis adjustment), (3) any charges relating
to amortization of goodwill and other intangibles arising from
the Acquisition and related transactions, (4) that portion of
depreciation charges attributable to the write-up of assets as
a result of the application of purchase accounting in
connection with the Acquisition and (5) any charges relating
to amortization of deferred financing costs and expenses
incurred in connection with the Acquisition; provided,
however, that (i) any adjustments to the Book Value shall
include the tax effects, if any, associated therewith, (ii)
any charges specified in subclauses (3), (4) or (5) above,
relating to a business or assets of GAF or any of its
subsidiaries, which charges shall have been incurred on or
after the date of the Acquisition but which, because of the
operation of said subclauses (3), (4) and/or (5), shall not
theretofore have been included in the calculation of the Book
Value, shall be so included following a transaction involving
such business or assets that, in accordance with the next
sentence, is deemed a sale or disposition thereof, and (iii)
for purposes of clause (ii), an asset, liability or charge not
exclusively attributable to the specific business or assets
deemed to have been sold or otherwise disposed of shall, if
attributable to such business or assets and to other
businesses or assets, be deemed to relate to the business or
assets sold or otherwise disposed of and to such other
businesses or assets pro rata based on relative business and
assets values immediately following consummation of the
Acquisition; and provided further, that, in calculating the
Book Value, the Shares and, if any other stock appreciation
rights issued by GAF based upon appreciation in value of
shares of Common Stock are outstanding at the time of
calculation, the shares of Common Stock upon which such
appreciation in value is based ("SAR Shares") shall be deemed
outstanding. The Board of Directors of GAF shall determine (i)
whether a transaction involving a business or assets of GAF or
any of its subsidiaries is a sale or disposition for purposes
of the definition
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<PAGE>
and calculation of the Book Value and (ii) if such transaction
is a sale or disposition, the amount of the gain or loss
thereon. The gain or loss on any sale or disposition shall be
the actual economic benefit to GAF from such transaction, as
determined by the Board of Directors of GAF.
d) "Current Value" means an amount equal to the Book Value as of
the date of determination multiplied by the number of Shares
increased by an amount equal to any cash dividends or
distributions that would have been paid on the Shares from
December 12, 1996 through the date of determination if they
had been outstanding; provided, however, that, if securities
of the same class as the Shares are then registered under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Market Price shall be substituted for Book Value in
calculating Current Value.
e) "Exercise Value" means (i) zero if the Grantee's employment
with GAF and its affiliates is terminated prior to June 11,
1999; (ii) 40% of the Spread, if the Grantee's employment is
terminated on or after June 11, 1999 but prior to December 11,
1999; (iii) 60% of the Spread if the Grantee's employment is
terminated on or after December 11, 1999 but prior to December
11, 2000; (iv) 80% of the Spread if the Grantee's employment
is terminated on or after December 11, 2000 but prior to
December 11, 2001 and (v) 100% of the Spread if the Grantee's
employment is terminated on or after December 11, 2001.
f) "ISPHI" means ISP Holdings Inc., a Delaware corporation.
g) "ISPHI Book Value" means the product of (i) $197.10 multiplied
by (ii) a fraction (1) the numerator of which is the Book
Value (as defined in that certain Option Agreement (the "ISPHI
Option Agreement"), dated the date hereof, pursuant to which
ISPHI granted to you the option to purchase 24,095 shares of
Series A Cumulative Redeemable Convertible Preferred Stock,
par value $.01 per share, of ISPHI) immediately after giving
effect to the Spin-Off Transactions and (2) the
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denominator of which is the Book Value immediately prior to
the Spin-Off Transactions.
h) "ISPHI Common Stock" means common stock, par value $.001 per
share, of ISPHI.
i) "Market Price" as of any date means the average of the daily
market prices per Share for the fifteen (15) consecutive
business days immediately preceding such date. The daily
market price for each such business day shall be (i) the last
sale price on such day on the principal stock exchange on
which the Shares are then listed or admitted to trading, (ii)
if no sale takes place on such day on any such exchange, the
average of the last reported closing bid and asked prices on
such day as officially quoted on any such exchange, (iii) if
the Shares are not then listed or admitted to trading on any
stock exchange, the average of the last reported closing bid
and asked prices furnished by the National Association of
Securities Dealers Automated Quotation System or the National
Quotation Bureau, Inc., (iv) if neither such corporation at
the time is engaged in the business of reporting such prices,
as furnished by any similar firm then engaged in such business
or (v) if there is no such firm, as furnished by any member of
the National Association of Securities Dealers, Inc. selected
by GAF.
j) The "Restricted Period" means the period commencing on
December 12, 1996 and ending December 11, 2004.
k) "Spin-Off Transactions" means the series of transactions that
shall result in, among other things, each holder of a share of
Common Stock receiving one share of ISPHI Common Stock for
each share of Common Stock held by such holder.
l) The "Spread" as of any date of determination means the excess,
if any, of the Current Value over the Appreciation Value.
2. GAF and the Grantee are parties to that certain Option Agreement (the
"GAF Option Agreement"), dated December 24, 1996, pursuant to which GAF
granted to the Grantee options to purchase shares of Series C
Cumulative Redeemable
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Convertible Preferred Stock, par value $.01 per share, of GAF. GAF and
the Grantee hereby agree that, in consideration of the grant by GAF to
the Grantee of the SAR, the GAF Option Agreement is hereby terminated
and that neither GAF nor the Grantee shall continue to have any rights
or obligations thereunder.
3. In the event that the Grantee is not employed by GAF and its affiliates for
any reason on or after the date hereof, GAF shall have the right, but not the
obligation, exercisable by notice to the Grantee within thirty (30) days after
termination of employment, to repurchase the SAR for an amount in cash equal to
the Exercise Value, with the Current Value determined as of the last day of the
calendar quarter next preceding the calendar quarter in which termination of
employment occurs.
4. In the event that the Grantee is not employed by GAF and its affiliates for
any reason on or after the date hereof, the Grantee shall have the right,
exercisable by notice to GAF within thirty (30) days after termination of
employment, to require GAF to repurchase the SAR for an amount in cash equal to
the Exercise Value, with the Current Value based upon the lowest amount thereof
determined as of the last day of the following calendar quarters: the calendar
quarter (the "Quarter") immediately preceding the calendar quarter in which the
termination of employment occurred and the first, second and third calendar
quarters immediately succeeding the Quarter.
5. In each calendar year the Grantee may, at the Grantee's option, exercisable
by notice delivered to GAF on or before March 31 of that year, elect to cause
GAF to repurchase the SAR (or any portion thereof) for an amount in cash equal
to the Exercise Value determined as of the last day of the preceding year.
6. (a) Notwithstanding the foregoing, GAF shall not be entitled to repurchase
the SAR under paragraph 3, and the Grantee shall not be entitled to cause GAF to
repurchase the SAR or any portion thereof under paragraph 4 or 5, unless ISPHI
exercises the comparable right to repurchase, or the Grantee exercises the
comparable right to cause ISPHI to repurchase a like portion of, as applicable,
the Common Shares (as such term is defined in the ISPHI Option Agreement). Any
negative value of either the SAR or Common Shares shall be offset against the
purchase price of the other security; provided, however, that (i) any negative
value of the Common Shares shall not be offset against the value of the
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SAR if a Sale Transaction (as hereinafter defined) with respect to GAF shall
have occurred and (ii) if such offset is effected and the aggregate net value of
such securities is less than zero, then the value of both securities shall be
deemed to be zero.
(b) The closing of any repurchase by GAF of the SAR or a portion
thereof shall be held within thirty (30) days after the later of (i) if
applicable, the date on which the Book Value on which the Current Value is based
is determined or (ii) the date on which the right to sell or repurchase is
exercised. The purchase price shall be paid by delivery to the Grantee of a
certified or official bank check or wire transfer.
(c) In the event a repurchase of the SAR or a portion thereof pursuant
to paragraph 3, 4 or 5 hereof shall be prohibited, or would cause a default,
under the terms of any institutional credit agreement, indenture or other like
instrument with respect to borrowed money to which GAF or any of its affiliates
may be a party or be bound, in each case as the same may be amended from time to
time, or shall be prohibited by law, the rights and obligations of the Grantee
and GAF pursuant to paragraph 3, 4 or 5 hereof, as the case may be, shall be
suspended until the prohibition lapses or is waived and no default would be
caused. If the Board of Directors of GAF shall determine in good faith that, in
light of the financial condition or financial resources of GAF, it would be
imprudent for GAF to repurchase the SAR or a portion thereof pursuant to
paragraph 4 or 5, the rights and obligations of the Grantee and GAF pursuant to
paragraph 4 or 5 shall be suspended until the Board of Directors determines that
such repurchase would be prudent in such light. Upon the lapse or waiver of the
restrictions or upon such determination that the purchase would be prudent, as
the case may be, the purchase price to be paid by GAF for the SAR or such
portion thereof shall be determined as of the last day of the calendar quarter
in which such restrictions are waived or lapse or such determination occurs, and
the purchase price shall be paid with interest thereon at the rate specified in
Section 1(a) from the first anniversary of the event giving rise to the
repurchase obligation to the date of payment.
7. At least ten (10) days prior to the consummation during the Restricted Period
of any sale or transfer by any member of the Heyman Group (as hereinafter
defined) to any unrelated third party of securities of the same class as Shares,
GAF shall cause those members of the Heyman Group (the "Selling Members") to
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deliver to the Grantee a written notice (a "Sale Notice"), which shall fully
disclose the identity of the prospective transferee and the terms and conditions
of the proposed sale. The Grantee may elect to participate in the contemplated
sale by delivering written notice to the Selling Members within seven (7) days
of receipt of such Sale Notice. If the Grantee elects to participate in the
contemplated sale, he will be entitled to sell in the contemplated sale or, if
GAF elects, to GAF or to GAF's designee, for an amount per Share equal to the
sales price per Share received by the Selling Members minus the Appreciation
Value per Share and, to the extent applicable, on the same terms applicable to
the Selling Members, that portion of the SAR bearing the same relationship to
the number of Shares represented hereby of the class being transferred as the
amounts to be so transferred by the Selling Members bear to the Heyman Group's
aggregate holdings of securities of such class. This paragraph 7 shall apply to
any sales or transfers of Shares, whether or not made pursuant to an effective
registration statement in accordance with the Securities Act of 1933, as
amended, and shall not apply to any sale of securities of the same class as
Shares in brokerage transactions on a national securities exchange or in the
over-the-counter market. The term "Heyman Group" shall mean Samuel J. Heyman,
Heyman Holdings Associates Limited Partnership or any other person or entity
controlled by or under common control with Mr. Heyman.
8. If a Sale Transaction occurs with respect to International Specialty Products
Inc. or its direct or indirect parent or Building Materials Corporation of
America ("BMCA") or its direct or indirect parent and the Grantee is employed by
the entity with respect to which such Sale Transaction shall have occurred or
any subsidiary thereof and the Grantee is not offered employment by an entity
controlled by Samuel J. Heyman, a member of Mr. Heyman's immediate family, a
partnership, limited liability company, trust or other entity established for
the benefit of a member or members of Mr. Heyman's immediate family or their
respective affiliates (a "Heyman Entity") on terms substantially similar to
those pursuant to which he was employed prior to such Sale Transaction then,
irrespective of any other provision of this Agreement, the Exercise Value shall
be deemed to be 100% of the Spread following such Sale Transaction. If the
Grantee is offered employment with a Heyman Entity following such Sale
Transaction on the terms specified in the immediately preceding sentence, the
Grantee accepts such employment, such employment is terminated by the Heyman
Entity (other than for Cause (as
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hereinafter defined)) and such termination occurs (i) within twelve (12) months
following the consummation of such Sale Transaction, then, irrespective of any
other provision of this Agreement, the Exercise Value shall be deemed to be 100%
of the Spread or (ii) more than twelve (12) months following the consummation of
such Sale Transaction, but prior to June 11, 1999, then, irrespective of any
other provision of this Agreement, the Exercise Value shall be deemed to 40% of
the Spread. Any of the events specified in the two immediately preceding
sentences shall be referred to herein as an "Acceleration Event". If an
Acceleration Event shall have occurred and GAF shall repurchase the SAR on a
date on which, absent the occurrence of such Acceleration Event, the Exercise
Value of the SAR would have been less than 100% of the Spread (or, in the case
of clause (ii) of the immediately preceding sentence, 40% of the Spread), the
date of such repurchase shall be deemed to be, for purposes of determining the
interest accrual in calculation of the Appreciation Value as of such date, the
date on which the Exercise Value of the SAR would have been 100% of the Spread
(or, in the case of clause (ii) of the immediately preceding sentence, 40% of
the Spread) absent the occurrence of such Acceleration Event. "Sale Transaction"
shall mean, with respect to any entity, the sale by such entity (by stock sale,
asset sale (including, without limitation, by sale of stock or assets of a
subsidiary of such entity), merger or consolidation or otherwise) of all or
substantially all of such entity's assets. "Cause" shall mean (i) the commission
of a felony, the commission of a misdemeanor involving moral turpitude or the
commission of any other act involving dishonesty, disloyalty or fraud with
respect to the Grantee's employer or any affiliate thereof, (ii) substantial and
repeated failure by the Grantee to perform his duties, (iii) gross negligence or
willful misconduct with respect to the Grantee's employer or any affiliate
thereof or (iv) a material breach of any of the terms or provisions of any
employment agreement to which the Grantee may be party; provided, however, that
if at the time of termination of the Grantee's employment the Grantee is a party
to an employment agreement with the Heyman Entity that contains a definition of
Cause that is inconsistent with the provisions hereof, the definition contained
in that employment agreement shall govern for purposes of this Agreement.
9. If a Sale Transaction shall have occurred with respect to BMCA or its direct
or indirect parent and the Exercise Value of the SAR is not 100% of the Spread
at the time of the consummation
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of such Sale Transaction, then GAF shall place in trust, for the benefit of the
Grantee, an amount (the "Trust Amount") equal to 100% less the percentage of the
Spread on which the Exercise Value would have been based if the Exercise Value
were calculated on the date on which such Sale Transaction is consummated,
multiplied by the Sale Value (as hereinafter defined). "Sale Value" shall mean
(i) if GAF is the entity with respect to which the Sale Transaction shall have
occurred and such Sale Transaction is the sale of the stock of, or a merger or
consolidation with respect to, GAF, the product of (x) the aggregate
consideration received by the holders of Common Stock divided by the number of
shares of Common Stock outstanding (treating as outstanding any SAR Shares) on
the date of the consummation of such Sale Transaction multiplied by (y) the
number of Shares or (ii) in the case of any other Sale Transaction, the Current
Value, with the Book Value calculated immediately after giving effect to the
consummation of such Sale Transaction or, if securities of the same class as the
Shares are then registered under the Exchange Act, Market Value calculated for
the period ending with the date of the consummation of such Sale Transaction.
Upon the repurchase of the SAR, the Grantee shall be entitled to receive from
such trust the Trust Amount as the sole consideration for the repurchase
thereof. The terms of the trust shall provide that if the SAR or any portion
thereof or any other stock appreciation rights relating to the Common Stock
shall expire unexercised, the Trust Amount and any other amounts deposited for
the benefit of persons who as of such date hold any such stock appreciation
rights shall be allocated pro rata among such persons and holders of Common
Stock as of the date the Sale Transaction was consummated, subject to the
vesting of such stock appreciation rights.
10. The Shares shall include any securities that would have been received by the
Grantee, if the Shares had been outstanding, in any split-up, recapitalization,
combination, dividend, distribution, merger or exchange of or relating to the
Common Stock, including any securities of a subsidiary of GAF distributed to
stockholders of GAF, and if any such event shall occur the Board of Directors of
GAF shall make such adjustments in Book Value, Appreciation Value and Current
Value as they determine in good faith are appropriate.
11. The Grantee may not sell, pledge, give, transfer, assign, encumber or
dispose of the SAR (or any interest herein or therein) except by will or
intestacy.
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12. All determinations by the Board of Directors of GAF hereunder shall be made
in good faith and shall be binding and conclusive.
13. (a) All notices or other communications hereunder shall
be given in writing and shall be deemed duly given
and received on the third full business day following
the date of mailing by registered or certified mail,
return receipt requested, or when delivered
personally, as follows:
(i) if to GAF:
GAF Corporation
1361 Alps Road
Wayne, New Jersey 07470
Attention: Chief Executive Officer
or at such other place as GAF shall have designated
by notice as herein provided to the Grantee;
(ii) if to the Grantee, at his last address appearing in
GAF's records or at such other place as the Grantee
shall have designated by notice as herein provided to
GAF.
(b) On or prior to March 31, 1997, GAF shall deliver to the
Grantee a written notice setting forth the Base Book Value.
(c) This writing constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof, supersedes
all agreements between the parties with respect to the subject
matter hereof and may not be modified or amended except by a
written agreement signed by GAF (following the specific
approval of such modification or amendment by GAF's Board of
Directors) and the Grantee. This Agreement shall be binding
upon and inure to the benefit of GAF its successors and
assigns and the Grantee and his heirs and personal
representatives.
(d) Nothing in this Agreement shall confer on you any right to
continue in the employ of GAF or any subsidiary or
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affiliate of GAF or any successor to any of them, affect the
right of GAF or any such subsidiary, affiliate or successor to
terminate your employment at any time, or be deemed a waiver
or modification of any provision contained in any agreement
between you and GAF or any such subsidiary, affiliate or
successor.
(e) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall
attach only to such provision and shall not in any manner
affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision
were not contained in this Agreement.
(f) This Agreement shall be deemed to be a contract under the laws
of the State of New York and for all purposes shall be
construed and enforced in accordance with the internal laws of
that state without regard to principles of conflicts of law.
IT WITNESS WHEREOF, the undersigned has executed this instrument as of
the 1st day of January, 1997.
GAF CORPORATION
By:______________________
Name:____________________
Title:___________________
AGREED AND ACCEPTED:
- ------------------------
Sunil Kumar
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Amended and Restated Stock Appreciation Right
GAF Corporation, a Delaware corporation ("GAF"), hereby grants Sunil
Kumar (the "Grantee") the right to receive ("SAR") an amount in cash based upon
the appreciation in value of 9,201 shares (the "Shares") of common stock
("Common Stock"), par value $.001 per share, of GAF. The SAR shall be on the
following terms:
1. Capitalized terms used herein that are not defined elsewhere herein shall
have the following meanings:
a) "Appreciation Value" means an amount equal to the Base Book
Value, multiplied by the number of Shares, plus interest on
such product from February 13, 1995 at the rate of 6%.
b) "Base Book Value" means (1) $122.77 minus (2) the ISPHI Book
Value.
c) "Book Value" means, as of any date of determination, the book
value per share of Common Stock, as determined in accordance
with generally accepted accounting principles, but without
giving effect to the reversal, if any, of any or all of the
reserve for income taxes payable established by GAF in
connection with and as a result of the transfer of the
surfactants business of GAF Chemicals Corporation, an indirect
subsidiary of GAF, to Rhone-Poulenc Specialty Chemicals, L.P.
and appearing on GAF's consolidated balance sheet for the
quarter ended March 31, 1990, and after other charges, such as
declaration of dividends on any capital stock of GAF or
payments with respect to repurchases by GAF of any capital
stock from holders thereof but excluding (1) any amounts
reflecting the liquidation preferences of any outstanding
preferred stock of GAF, (2) any reductions resulting from
purchases of GAF's capital stock by persons who participated
in promoting the "Acquisition" referred to in the Prospectus
dated March 24, 1989 relative to the Common Stock and certain
other securities of GAF (predecessor cost basis adjustment),
(3) any charges relating to amortization of goodwill and other
intangibles arising from the Acquisition and related
transactions, (4) that portion of depreciation
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charges attributable to the write-up of assets as a result of
the application of purchase accounting in connection with the
Acquisition and (5) any charges relating to amortization of
deferred financing costs and expenses incurred in connection
with the Acquisition; provided, however, that (i) any
adjustments to the Book Value shall include the tax effects,
if any, associated therewith, (ii) any charges specified in
subclauses (3), (4) or (5) above, relating to a business or
assets of GAF or any of its subsidiaries, which charges shall
have been incurred on or after the date of the Acquisition but
which, because of the operation of said subclauses (3), (4)
and/or (5), shall not theretofore have been included in the
calculation of the Book Value, shall be so included following
a transaction involving such business or assets that, in
accordance with the next sentence, is deemed a sale or
disposition thereof, and (iii) for purposes of clause (ii), an
asset, liability or charge not exclusively attributable to the
specific business or assets deemed to have been sold or
otherwise disposed of shall, if attributable to such business
or assets and to other businesses or assets, be deemed to
relate to the business or assets sold or otherwise disposed of
and to such other businesses or assets pro rata based on
relative business and assets values immediately following
consummation of the Acquisition; and provided further, that,
in calculating the Book Value, the Shares and, if any other
stock appreciation rights issued by GAF based upon
appreciation in value of shares of Common Stock are
outstanding at the time of calculation, the shares of Common
Stock upon which such appreciation in value is based ("SAR
Shares") shall be deemed outstanding. The Board of Directors
of GAF shall determine (i) whether a transaction involving a
business or assets of GAF or any of its subsidiaries is a sale
or disposition for purposes of the definition and calculation
of the Book Value and (ii) if such transaction is a sale or
disposition, the amount of the gain or loss thereon. The gain
or loss on any sale or disposition shall be the actual
economic benefit to GAF from such transaction, as determined
by the Board of Directors of GAF.
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d) "Current Value" means an amount equal to the Book Value as of
the date of determination multiplied by the number of Shares
increased by an amount equal to any cash dividends or
distributions that would have been paid on the Shares from
February 13, 1995 through the date of determination if they
had been outstanding; provided, however, that, if securities
of the same class as the Shares are then registered under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Market Price shall be substituted for Book Value in
calculating Current Value.
e) "Exercise Value" means (i) zero if the Grantee's employment
with GAF and its affiliates is terminated prior to August 13,
1997; (ii) 40% of the Spread if the Grantee's employment is
terminated on or after August 13, 1997 but prior to February
13, 1998; (iii) 60% of the Spread if the Grantee's employment
is terminated on or after February 13, 1998 but prior to
February 13, 1999; (iv) 80% of the Spread if the Grantee's
employment is terminated on or after February 13, 1999 but
prior to February 13, 2000; and (v) 100% of the Spread if the
Grantee's employment is terminated on or after February 13,
2000.
f) "ISPHI" means ISP Holdings Inc., a Delaware corporation.
g) "ISPHI Book Value" means the Base Book Value as defined in
that certain agreement, dated as of the date hereof, pursuant
to which ISPHI granted to the Grantee a stock appreciation
right (the "ISPHI SAR") based upon the appreciation in value
of 9,201 shares of ISPHI Common Stock.
h) "ISPHI Common Stock" means common stock, par value $.001 per
share, of ISPHI.
i) "Market Price" as of any date means the average of the daily
market prices per Share for the fifteen (15) consecutive
business days immediately preceding such date. The daily
market price for each such business day shall be (i) the last
sale price on such day on the principal stock exchange on
which the Shares are then listed or admitted to trading, (ii)
if no sale takes
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place on such day on any such exchange, the average of the
last reported closing bid and asked prices on such day as
officially quoted on any such exchange, (iii) if the Shares
are not then listed or admitted to trading on any stock
exchange, the average of the last reported closing bid and
asked prices furnished by the National Association of
Securities Dealers Automated Quotation System or the National
Quotation Bureau, Inc., (iv) if neither such corporation at
the time is engaged in the business of reporting such prices,
as furnished by any similar firm then engaged in such business
or (v) if there is no such firm, as furnished by any member of
the National Association of Securities Dealers, Inc. selected
by GAF.
j) The "Restricted Period" means the period commencing on
February 13, 1995 and ending February 12, 2002.
k) The "Spread" as of any date of determination means the excess,
if any, of the Current Value over the Appreciation Value.
2. GAF and the Grantee are parties to that certain agreement (the "Old GAF SAR
Agreement"), dated as of March 7, 1995, pursuant to which GAF granted to the
Grantee the right to receive an amount in cash based upon the appreciation in
value of 9,201 shares of Common Stock. GAF and the Grantee hereby agree that for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Old GAF SAR Agreement is hereby amended and restated in its
entirety upon the terms and conditions set forth herein.
3. In the event that the Grantee is not employed by GAF and its affiliates for
any reason on or after the date hereof, GAF shall have the right, but not the
obligation, exercisable by notice to the Grantee within thirty (30) days after
termination of employment, to repurchase the SAR for an amount in cash equal to
the Exercise Value, with the Current Value determined as of the last day of the
calendar quarter next preceding the calendar quarter in which termination of
employment occurs.
4. In the event that the Grantee is not employed by GAF and its affiliates for
any reason on or after the date hereof, the
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Grantee shall have the right, exercisable by notice to GAF within thirty (30)
days after termination of employment, to require GAF to repurchase the SAR for
an amount in cash equal to the Exercise Value, with the Current Value based upon
the lowest amount thereof determined as of the last day of the following
calendar quarters: the calendar quarter (the "Quarter") immediately preceding
the calendar quarter in which the termination of employment occurred and the
first, second and third calendar quarters immediately succeeding the Quarter.
5. In each calendar year the Grantee may, at the Grantee's option, exercisable
by notice delivered to GAF on or before March 31 of that year, elect to cause
GAF to repurchase the SAR (or any portion thereof) for an amount in cash equal
to the Exercise Value determined as of the last day of the preceding year.
6. (a) Notwithstanding the foregoing, GAF shall not be entitled to repurchase
the SAR under paragraph 3, and the Grantee shall not be entitled to cause GAF to
repurchase the SAR or any portion thereof under paragraph 4 or 5, unless ISPHI
exercises the comparable right to repurchase, or the Grantee exercises the
comparable right to cause ISPHI to repurchase a like portion of, as applicable,
the ISPHI SAR. Any negative value of either the SAR or ISPHI SAR shall be offset
against the purchase price of the other security; provided, however, that (i)
any negative value of the ISPHI SAR shall not be offset against the value of the
SAR if a Sale Transaction (as hereinafter defined) with respect to GAF shall
have occurred and (ii) if such offset is effected and the aggregate net value of
such securities is less than zero, then the value of both securities shall be
deemed to be zero.
(b) The closing of any repurchase by GAF of the SAR or a portion
thereof shall be held within thirty (30) days after the later of (i) if
applicable, the date on which the Book Value on which the Current Value is based
is determined or (ii) the date on which the right to sell or repurchase is
exercised. The purchase price shall be paid by delivery to the Grantee of a
certified or official bank check or wire transfer.
(c) In the event a repurchase of the SAR or a portion thereof pursuant
to paragraph 3, 4 or 5 hereof shall be prohibited, or would cause a default,
under the terms of any institutional credit agreement, indenture or other like
instrument with respect to borrowed money to which GAF or any of
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its affiliates may be a party or be bound, in each case as the same may be
amended from time to time, or shall be prohibited by law, the rights and
obligations of the Grantee and GAF pursuant to paragraph 3, 4 or 5 hereof, as
the case may be, shall be suspended until the prohibition lapses or is waived
and no default would be caused. If the Board of Directors of GAF shall determine
in good faith that, in light of the financial condition or financial resources
of GAF, it would be imprudent for GAF to repurchase the SAR or a portion thereof
pursuant to paragraph 4 or 5, the rights and obligations of the Grantee and GAF
pursuant to paragraph 4 or 5 shall be suspended until the Board of Directors
determines that such repurchase would be prudent in such light. Upon the lapse
or waiver of the restrictions or upon such determination that the purchase would
be prudent, as the case may be, the purchase price to be paid by GAF for the SAR
or such portion thereof shall be determined as of the last day of the calendar
quarter in which such restrictions are waived or lapse or such determination
occurs, and the purchase price shall be paid with interest thereon at the rate
of 5.75% per annum from the first anniversary of the event giving rise to the
repurchase obligation to the date of payment.
7. At least ten (10) days prior to the consummation during the Restricted Period
of any sale or transfer by any member of the Heyman Group (as hereinafter
defined) to any unrelated third party of securities of the same class as Shares,
GAF shall cause those members of the Heyman Group (the "Selling Members") to
deliver to the Grantee a written notice (a "Sale Notice"), which shall fully
disclose the identity of the prospective transferee and the terms and conditions
of the proposed sale. The Grantee may elect to participate in the contemplated
sale by delivering written notice to the Selling Members within seven (7) days
of receipt of such Sale Notice. If the Grantee elects to participate in the
contemplated sale, he will be entitled to sell in the contemplated sale or, if
GAF elects, to GAF or to GAF's designee, for an amount per Share equal to the
sales price per Share received by the Selling Members minus the Appreciation
Value per Share and, to the extent applicable, on the same terms applicable to
the Selling Members, that portion of the SAR bearing the same relationship to
the number of Shares represented hereby of the class being transferred as the
amounts to be so transferred by the Selling Members bear to the Heyman Group's
aggregate holdings of securities of such class. This paragraph 7 shall apply to
any sales or transfers of Shares, whether or not made pursuant to an effective
registration statement in
6
<PAGE>
accordance with the Securities Act of 1933, as amended, and shall not apply to
any sale of securities of the same class as Shares in brokerage transactions on
a national securities exchange or in the over-the-counter market. The term
"Heyman Group" shall mean Samuel J. Heyman, Heyman Holdings Associates Limited
Partnership or any other person or entity controlled by or under common control
with Mr. Heyman.
8. If a Sale Transaction occurs with respect to International Specialty Products
Inc. or its direct or indirect parent or Building Materials Corporation of
America ("BMCA") or its direct or indirect parent and the Grantee is employed by
the entity with respect to which such Sale Transaction shall have occurred or
any subsidiary thereof and the Grantee is not offered employment by an entity
controlled by Samuel J. Heyman, a member of Mr. Heyman's immediate family, a
partnership, limited liability company, trust or other entity established for
the benefit of a member or members of Mr. Heyman's immediate family or their
respective affiliates (a "Heyman Entity") on terms substantially similar to
those pursuant to which he was employed prior to such Sale Transaction then,
irrespective of any other provision of this Agreement, the Exercise Value shall
be deemed to be 100% of the Spread following such Sale Transaction. If the
Grantee is offered employment with a Heyman Entity following such Sale
Transaction on the terms specified in the immediately preceding sentence, the
Grantee accepts such employment and such employment is terminated by the Heyman
Entity (other than for Cause (as hereinafter defined)) within twelve (12) months
following the consummation of such Sale Transaction, then, irrespective of any
other provision of this Agreement, the Exercise Value shall be deemed to be 100%
of the Spread. Either of the events specified in the two immediately preceding
sentences shall be referred to herein as an "Acceleration Event". If an
Acceleration Event shall have occurred and GAF shall repurchase the SAR on a
date on which, absent the occurrence of such Acceleration Event, the Exercise
Value of the SAR would have been less than 100% of the Spread, the date of such
repurchase shall be deemed to be, for purposes of determining the interest
accrual in calculation of the Appreciation Value as of such date, the date on
which the Exercise Value of the SAR would have been 100% of the Spread absent
the occurrence of such Acceleration Event. "Sale Transaction" shall mean, with
respect to any entity, the sale by such entity (by stock sale, asset sale
(including, without limitation, by sale of stock or assets of a subsidiary of
such entity), merger or consolidation or otherwise) of all or
7
<PAGE>
substantially all of such entity's assets. "Cause" shall mean (i) the commission
of a felony, the commission of a misdemeanor involving moral turpitude or the
commission of any other act involving dishonesty, disloyalty or fraud with
respect to the Grantee's employer or any affiliate thereof, (ii) substantial and
repeated failure by the Grantee to perform his duties, (iii) gross negligence or
willful misconduct with respect to the Grantee's employer or any affiliate
thereof or (iv) a material breach of any of the terms or provisions of any
employment agreement to which the Grantee may be party; provided, however, that
if at the time of termination of the Grantee's employment the Grantee is a party
to an employment agreement with the Heyman Entity that contains a definition of
Cause that is inconsistent with the provisions hereof, the definition contained
in that employment agreement shall govern for purposes of this Agreement.
9. If a Sale Transaction shall have occurred with respect to BMCA or its direct
or indirect parent and the Exercise Value of the SAR is not 100% of the Spread
at the time of the consummation of such Sale Transaction, then GAF shall place
in trust, for the benefit of the Grantee, an amount (the "Trust Amount") equal
to 100% less the percentage of the Spread on which the Exercise Value would have
been based if the Exercise Value were calculated on the date on which such Sale
Transaction is consummated, multiplied by the Sale Value (as hereinafter
defined). "Sale Value" shall mean (i) if GAF is the entity with respect to which
the Sale Transaction shall have occurred and such Sale Transaction is the sale
of the stock of, or a merger or consolidation with respect to, GAF, the product
of (x) the aggregate consideration received by the holders of Common Stock
divided by the number of shares of Common Stock outstanding (treating as
outstanding any SAR Shares) on the date of the consummation of such Sale
Transaction multiplied by (y) the number of Shares or (ii) in the case of any
other Sale Transaction, the Current Value, with the Book Value calculated
immediately after giving effect to the consummation of such Sale Transaction or,
if securities of the same class as the Shares are then registered under the
Exchange Act, Market Value calculated for the period ending with the date of the
consummation of such Sale Transaction. Upon the repurchase of the SAR, the
Grantee shall be entitled to receive from such trust the Trust Amount as the
sole consideration for the repurchase thereof. The terms of the trust shall
provide that if the SAR or any portion thereof or any other stock appreciation
rights relating to the Common Stock shall expire unexercised, the Trust Amount
and any other amounts
8
<PAGE>
deposited for the benefit of persons who as of such date hold any such stock
appreciation rights shall be allocated pro rata among such persons and holders
of Common Stock as of the date the Sale Transaction was consummated, subject to
the vesting of such stock appreciation rights.
10. The Shares shall include any securities that would have been received by the
Grantee, if the Shares had been outstanding, in any split-up, recapitalization,
combination, dividend, distribution, merger or exchange of or relating to the
Common Stock, including any securities of a subsidiary of GAF distributed to
stockholders of GAF, and if any such event shall occur the Board of Directors of
GAF shall make such adjustments in Book Value, Appreciation Value and Current
Value as they determine in good faith are appropriate.
11. The Grantee may not sell, pledge, give, transfer, assign, encumber or
dispose of the SAR (or any interest herein or therein) except by will or
intestacy.
12. All determinations by the Board of Directors of GAF hereunder shall be made
in good faith and shall be binding and conclusive.
13. (a) All notices or other communications hereunder shall
be given in writing and shall be deemed duly given
and received on the third full business day following
the date of mailing by registered or certified mail,
return receipt requested, or when delivered
personally, as follows:
(i) if to GAF:
GAF Corporation
1361 Alps Road
Wayne, New Jersey 07470
Attention: Chief Executive Officer
or at such other place as GAF shall have designated by notice
as herein provided to the Grantee;
(ii) if to the Grantee, at his last address appearing in
GAF's records or at such other place as the Grantee
shall have designated by notice as herein provided to
GAF.
9
<PAGE>
(b) On or prior to March 31, 1997, GAF shall deliver to the
Grantee a written notice setting forth the Base Book Value.
(c) This writing constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof, supersedes
all agreements between the parties with respect to the subject
matter hereof and may not be modified or amended except by a
written agreement signed by GAF (following the specific
approval of such modification or amendment by GAF's Board of
Directors) and the Grantee. This Agreement shall be binding
upon and inure to the benefit of GAF its successors and
assigns and the Grantee and his heirs and personal
representatives.
(d) Nothing in this Agreement shall confer on you any right to
continue in the employ of GAF or any subsidiary or affiliate
of GAF or any successor to any of them, affect the right of
GAF or any such subsidiary, affiliate or successor to
terminate your employment at any time, or be deemed a waiver
or modification of any provision contained in any agreement
between you and GAF or any such subsidiary, affiliate or
successor.
(e) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall
attach only to such provision and shall not in any manner
affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision
were not contained in this Agreement.
(f) This Agreement shall be deemed to be a contract under the laws
of the State of New York and for all purposes shall be
construed and enforced in accordance with the internal laws of
that state without regard to principles of conflicts of law.
10
<PAGE>
IT WITNESS WHEREOF, the undersigned has executed this instrument as of
the 1st day of January, 1997.
GAF CORPORATION
By:______________________
Name:____________________
Title:___________________
AGREED AND ACCEPTED:
- ------------------------
Sunil Kumar
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K OF BUILDING MATERIALS CORPORATION OF AMERICA AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 124,560
<SECURITIES> 90,250
<RECEIVABLES> 9,870
<ALLOWANCES> 1,180
<INVENTORY> 77,196
<CURRENT-ASSETS> 344,806
<PP&E> 220,500
<DEPRECIATION> 48,452
<TOTAL-ASSETS> 701,583
<CURRENT-LIABILITIES> 97,492
<BONDS> 405,690
0
0
<COMMON> 0
<OTHER-SE> 143,237
<TOTAL-LIABILITY-AND-EQUITY> 701,583
<SALES> 851,967
<TOTAL-REVENUES> 851,967
<CGS> 622,234
<TOTAL-COSTS> 622,234
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,044
<INCOME-PRETAX> 27,864
<INCOME-TAX> 10,809
<INCOME-CONTINUING> 17,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,055
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
