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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
DELAWARE 22-3276290
(State of Incorporation) (I.R.S. Employer Identification No.)
1361 ALPS ROAD
WAYNE, NEW JERSEY 07470
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(973) 628-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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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
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AS OF MARCH 20, 1998, 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 GAF, G-I Holdings, GFC and BMCA and
Chief Executive Officer of G Industries and GAFBMC. 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
(973) 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 65% of the Company's net sales in 1997. The Company
has improved its sales mix of residential roofing products in recent years by
increasing its emphasis on its 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
theCompany'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(R) Series and the Sovereign(R) Series, as well as certain specialty
shingles for regional markets.
The Timberline(R) Series. The Timberline(R) Series offers a premium
laminated product line that adds dramatic shadow lines and substantially
improves the appearance of a roof. The Series includes the Timberline(R) 25
shingle, a mid-weight laminated shingle which serves as an economic trade-up for
consumers, with a 25-year limited warranty; the Timberline(R) shingle, with a
30-year limited warranty, offering a woodshake appearance, enhanced visual depth
and contrast simulating shadows and superior fire resistance and durability; and
the Timberline Ultra(R) shingle, with a 40-year limited warranty, a super
heavyweight laminated shingle with the same design features as the Timberline(R)
25 shingle, together with added durability.
The Sovereign(R) Series. The Sovereign(R) Series includes the standard
3-tab Sentinel(R) shingle with a 20-year limited warranty; the Royal
Sovereign(R) shingle, a heavier 3-tab shingle with a 25-year limited warranty,
designed to capitalize on the "middle market" for quality shingles; and the
Marquis(R) Weathermax(TM) shingle, a superior performing heavyweight 3-tab
shingle with a 30-year limited warranty.
Specialty Shingles. The Company's specialty asphalt shingles include:
Slateline(R) and Slateline(R) Color Contrast(TM) shingles offering the
appearance of slate, labor savings in installation because of their larger size
and a
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30-year limited warranty; Dubl-Coverage(R) Tite-On(R) shingles offering a design
feature that enables the shingles to lock together to form a double layer roof,
and a 25-year limited warranty; and the Grand Sequoia(R) shingle, a premier
architectural shingle with a 40-year limited warranty.
Weather Stopper(TM) Roofing System. In addition to shingles, the Company
supplies all the components necessary to install a complete roofing system. The
Company's Weather Stopper(TM) Roofing System begins with Weather Watch(R) and
Stormguard(TM) waterproof underlayments for eaves, valleys and flashings to
prevent water seepage between the roof deck and the shingles caused by ice
build-ups and wind-driven rain. The Company's Weather Stopper(TM) Roofing System
also includes Shingle-Mate(R) glass reinforced underlayment, Timbertex(R),
Timber Ridge(TM), and Ridgetex(TM) Hip and Ridge shingles, which are
significantly thicker and larger than standard hip and ridge shingles and
provide dramatic accents to the slopes and planes of a roof, and the Cobra(R)
Ridge Vent which provides attic ventilation.
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, liquid-applied membrane systems and roofing accessories for
use in the application of commercial roofing. Commercial roofing represented
approximately 35% of the Company's net sales in 1997. 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 trademarks GAFGLAS(R)
and Permaglas(R), which are made from asphalt impregnated glass fiber mat for
use as a component in asphalt built-up roofing systems. Most of the Company's
GAFGLAS(R) and Permaglas(R) products are assembled on the roof by applying
successive layers of roofing membrane with asphalt and topped, in some
applications, with gravel. Thermal insulation may be applied beneath the
membrane. The Company also manufactures base sheets, flashings and other roofing
accessories for use in these systems, perlite roofing insulation products, which
consist of low thermal insulation that is installed as part of a commercial
roofing application below the roofing membrane, the TOPCOAT(R) roofing system, a
liquid-applied membrane system designed to protect and waterproof existing metal
roofing, and roof maintenance products. 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(R) trademark by the
Company and under the Brai(R) trademark by USI and are used primarily in
re-roofing applications or in combination with glass membranes in GAF
CompositeRoof(TM) systems. 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.
In July 1997, the Company acquired the assets of Major Group Incorporated,
the manufacturer of the TOPCOAT(R) roofing system.
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, consultants, contractors and building owners. The Company markets
its roofing products through its own sales force of approximately 160
experienced full-time employees and independent sales representatives operating
from five regional sales offices located across the United States. USI markets
its roofing products through approximately 50 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
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most attractive margins of all roofing market distribution channels and
represents the principal distribution channel for professionally installed
asphalt roofing products, and believes that its nationwide coverage has
contributed to its roofing products being among the most recognized and
requested brands in the industry.
In September 1997, the Company launched its Customer Advantage(TM) Program
to established a nationwide network of Master Elite(TM) contractors and
authorized installers. This program offers marketing and support services to
residential roofing contractors and has enrolled over 1,000 contractors.
No single customer accounted for 10% or more of the Company's 1997 sales,
except for American Builders & Contractors Supply Co., Inc., which accounted for
approximately 10% 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,
polyester 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 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, 1998 and is subject to annual renewal unless terminated by
the Company or ISP. In addition, in December 1995, USI commenced purchasing
substantially all 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, Tamko, Elcor and Celotex, and in the commercial roofing market
are Johns Manville, 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 $3.1 million, $4.5 million and $5.4 million in 1995, 1996 and
1997, respectively.
PATENTS AND TRADEMARKS
The Company owns or licenses approximately 79 domestic and 96 foreign
patents or patent applications and owns or licenses approximately 149 domestic
and 46 foreign trademark registrations or applications. While the Company
believes the patent protection covering certain of its products to be material
to those products, the Company does not believe that any single patent, patent
application or trademark is material to the Company's business or operations.
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 $400,000 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 1998 and 1999 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, 1997, the Company employed approximately 3,000 people
worldwide, approximately 1,200 of which were subject to 16 union contracts. The
contracts are effective for three- to four-year periods. During 1997, five labor
contracts expired and were renegotiated. 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 Company occupies its headquarters pursuant to its management
agreement with ISP. See Item 13, "Certain Relationships and Related
Transactions."
The principal real properties either owned by, or leased to, the Company or
its subsidiaries are described below. Unless otherwise indicated, the properties
are owned in fee. In addition to the principal facilities listed below, the
Company maintains sales offices and warehouses, substantially all of which are
in leased premises under relatively short-term leases.
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<TABLE>
<CAPTION>
LOCATION FACILITY
- -------- --------
<S> <C>
Alabama
Mobile ....................... Plant, Warehouses*
California
Fontana ...................... Plant, Sales Office
Hollister .................... Plant, Plant*
Ontario ...................... Plant, Sales Office
Stockton ..................... Plant, Plant, Warehouses*
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
Massachusetts
Millis ....................... Plant, Sales Office, Warehouse*
Walpole ...................... Plant*
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*
Texas
Dallas ....................... Plant, Sales Office, Warehouses*
Fannett ...................... Warehouse
Houston ...................... Plant, Warehouse
Port Arthur .................. Plant, Plant, Warehouse, Sales Office, Research Center
- ---------------
* Leased Property
</TABLE>
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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 1997, the Company made capital expenditures in the amount of $46.8
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") of its parent, GAFBMC. As of March 30, 1997, BMCA had
paid all of its assumed asbestos-related liabilities. 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.
GAF has advised BMCA that, as of December 27, 1997, it had been named as a
defendant in approximately 79,300 pending lawsuits involving alleged Asbestos
Claims, having resolved approximately 234,500 Asbestos Claims. During 1997, GAF
resolved approximately 11,000 Asbestos Claims and received notice of
approximately 30,900 new Asbestos Claims. Of the Asbestos Claims resolved in
1997, approximately 8,900 were resolved (including Asbestos Claims disposed of
at no cost to GAF) for an average cost of approximately $3,700 per claim. GAF's
share of the costs with respect to approximately 2,100 Asbestos Claims resolved
in 1997 has not yet been determined. There can be no assurance, however, that
the actual costs of resolving pending and future Asbestos Claims will
approximate GAF's historic average costs.
GAF has stated that it is committed to effecting a comprehensive resolution
of Asbestos Claims, that it is exploring a number of options, both judicial and
legislative, to accomplish such resolution, but there can be no assurance that
this effort will be successful.
BMCA believes that it will not sustain any additional liability in
connection with asbestos-related claims. While BMCA 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. 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 BMCA, and
such enforcement could result in a change of control with respect to BMCA. See
Note 9 to Consolidated Financial Statements.
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 approximately 16 years ago, GAF has not only
successfully disposed of approximately 144 such cases at an average disposition
cost (including cases disposed of at no cost to GAF) of approximately $18,000
per case (all of which have been paid by insurance under reservation of rights),
but is a co-defendant in only five 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,
1997, to pay asbestos-related bodily injury claims aggregate insurance coverage
of $188.9 million, before discounting certain coverage, (which amount is reduced
as asbestos-related liabilities are satisfied), $13.2 million of which is the
subject of negotiations with various insurers and/or the 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 $188.9 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.
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In January 1993, the members of the Center for Claims Resolution (the
"CCR"), a non-profit organization of asbestos defendant companies, including
GAF, filed an 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 (the "Coverage
Action"). The Coverage Action sought 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. On June 27, 1997, GAF and other members of the CCR
filed a motion for leave to file amended complaints for coverage for Asbestos
Claims and for leave to consolidate their amended complaints. The insurers who
are defendants in GAF's amended complaint are Atlanta International, Employers
Mutual and Northbrook. The insurance carrier defendants have raised various
defenses to the Coverage Action, including that the action creates a procedural
morass and fails to name indispensable parties, and that the separate amended
complaints of the various CCR members should not be consolidated.
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.
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
those environmental liabilities assumed by BMCA and other environmental
liabilities of the Company. 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, 1997, 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 $7.7
million, as compared to BMCA's estimate of its liability as of December 31, 1997
in respect of assumed and other environmental liabilities of $1.1 million,
before insurance recoveries reflected on its balance sheet (discussed below) of
$0.8 million that relate to both past expenses and estimated future liabilities
("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 that
recoveries could be well in excess of the current estimated liability for all
Environmental Claims, although there can be no assurances in this regard. 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.
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On March 8, 1995, GAF commenced litigation on behalf of itself and its
predecessors, successors, subsidiaries and related corporate entities in the
United States District Court for the District of New Jersey seeking amounts
substantially in excess of the estimated recoveries. The action was dismissed by
the Court in December 1997 for lack of federal jurisdiction, and one defendant
insurer has filed a notice of appeal. On June 16, 1997, GAF filed a similar
action against the insurers in the Superior Court of New Jersey, Somerset
County, which action is pending. 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 or that
relate to the operations of its business. 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
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 issued to it. Elk also asserts that
the Company has appropriated the trade dress of Elk's product. Elk seeks
injunctive relief, damages and attorneys' fees. The Company denies infringement
of Elk's patents or appropriation of Elk's trade dress, and 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. On October 10, 1997, the Court issued an
opinion holding that Elk's design patent is unenforceable because it was
obtained through fraud and inequitable conduct. The Company believes that it
will prevail on the balance of Elk's claims as well.
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 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. In August 1997, the
Company filed a motion to deny class certification of the action, which motion
remains pending. On or about September 19, 1997, an action was commenced in the
Superior Court of New Jersey, Passaic County, against GAFBMC and GAF on behalf
of a nationwide class of owners of structures with roof shingles manufactured
and distributed by GAFBMC and which were installed from 1988 to 1993. The action
alleges, among other things, that such shingles were defective and seeks
unspecified damages on behalf of the purported class. On or about December 1,
1997, an action was commenced in the Supreme Court of the State of New York,
County of Nassau, against GAFBMC and GAF on behalf of a nationwide class of
owners of structures with roof shingles manufactured and distributed by GAFBMC
which were installed between 1985 and 1993. 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(R)
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 has appealed the state court's conditional class certification. The
action alleges that the shingles were defective and seeks unspecified damages on
behalf of the purported class.
8
<PAGE>
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.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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.
9
<PAGE>
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.
<TABLE>
<CAPTION>
NAME AND POSITION HELD(1) AGE PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Samuel J. Heyman ................... 59 Mr. Heyman has been a director and Chairman of BMCA since its
Director, Chairman and formation and Chief Executive Officer of BMCA since June 1996.
Chief Executive Officer He has served as a director and Chairman and Chief Executive Officer of
ISP since its formation in May 1991 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.
Sunil Kumar ........................ 48 Mr. Kumar has been the President, Chief Operating Officer and a
Director, President and director of BMCA since July 1996, March 1996 and May 1995,
Chief Operating Officer 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. He was Vice Chairman of USI from October 1995 to March 1996. 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 .................... 47 Mr. Rogers has been a director of BMCA since its formation and
Director and Executive Executive Vice President of BMCA and USI since December 1996.
Vice President Mr. Rogers has been Executive Vice President and Chief Financial Officer
of GAF, G-I Holdings and certain of its subsidiaries, Executive Vice
President and Chief Financial Officer of ISP Holdings and Executive Vice
President-Finance of ISP since December 1996. He was Senior Vice
President of such corporations from November 1993 to December 1996, of
BMCA and ISP Holdings from their formation to December 1996 and of USI
from October 1995 to December 1996. Mr. Rogers has been a director 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.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION HELD(1) AGE PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Richard A. Weinberg ................ 38 Mr. Weinberg has been Senior Vice President and General Counsel
Senior Vice President and of BMCA since May 1996. He has been Senior Vice President and
General Counsel General Counsel of GAF, G-I Holdings, ISP and certain of their
respective 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.
Donald W. LaPalme .................. 60 Dr. LaPalme has been Senior Vice President-Operations of BMCA
Senior Vice and certain of its subsidiaries since April 1996. He was Vice
President-Operations 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.
William C. Lang .................... 54 Mr. Lang has been Senior Vice President and Chief Financial
Senior Vice President and Officer of BMCA since April 1997. He was Senior Vice President
Chief Financial Officer and Chief Financial Officer of Duane Reade, a regional
drug store chain, from 1993 to 1996. From 1990 to 1992, Mr. Lang was
President and Chief Financial Officer of Furr's, Inc., a large
supermarket chain.
Danny J. Adair ..................... 53 Mr. Adair has been President and Chief Executive Officer of USI since 1982.
President and Chief Executive
Officer, U.S. Intec, Inc.
William W. Collins ................. 47 Mr. Collins has been Senior Vice President-Marketing and Sales,
Senior Vice President- Residential Roofing Products of BMCA since November 1997. He was Vice
Marketing and Sales, President-Marketing and Sales, Commercial Roofing Products of BMCA from
Residential Roofing March 1996 to November 1997, Vice President-Sales, Commercial of BMCA
Products from December 1995 to March 1996, Director of Insulation, Accessories
and Cobra(R) 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>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION HELD(1) AGE PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Robert Tafaro ...................... 47 Mr. Tafaro has been Vice President-Marketing and Sales,
Vice President-Marketing and Commercial Roofing Products of BMCA since November 1997. He was
Sales, Commercial Roofing Vice President-Residential Marketing of BMCA from May 1997 to
Products November 1997, Director of Residential Marketing of BMCA from
February 1997 to May 1997, Eastern Regional Sales Manager of BMCA from
July 1993 to February 1997 and Field Sales Manager of BMCA from August
1989 to July 1993.
</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.
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 four other most highly compensated executive officers of BMCA as
of December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING SARS(S)/ ALL OTHER
NAME AND PRINCIPAL POSITION(6) YEAR SALARY BONUS(1) COMPENSATION OPTIONS(O)(1) COMPENSATION
- ------------------------------ ---- ------ -------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman ............. 1997 (6) (6) (6) (6) (6)
Chairman and Chief 1996 (6) (6) (6) (6) (6)
Executive Officer 1995 (6) (6) (6) (6) (6)
Sunil Kumar .................. 1997 $293,550 $256,238 $ 0 7,609(O) $16,693(2)
President and Chief 1996 274,500 165,000 0 2,190(O)/8,609(S)(7) 13,561(2)
Operating Officer 1995 208,336(2) 60,000(2) 28,608(2) 9,201(S) 8,475(2)
Danny J. Adair ............... 1997 $216,686 $ 35,815 $ 0 2,637(O) $11,286(3)
President and Chief 1996 216,686 53,093 0 1,550(O) 3,972(3)
Executive Officer, 1995 216,686(3) 25,000 0 0 3,953(3)
U.S. Intec, Inc.
Donald W. LaPalme Senior ..... 1997 $162,481 $ 55,601 $ 0 3,076(O) $16,102(4)
Vice President- 1996 154,750 59,774 0 1,200(O) 14,519(4)
Operations 1995 148,500 34,000 0 0 14,381(4)
William W. Collins ........... 1997 $148,242 $ 57,497 $ 0 8,218(O) $13,828(5)
Senior Vice President- 1996 128,000 42,588 0 900(O) 12,092(5)
Marketing & Sales, 1995 110,071 20,000 0 0 9,859(5)
Residential Roofing
Products
</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 (O) 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 $11,450, $10,750
and $5,664, representing BMCA's contribution under the GAF Capital
Accumulation Plan in 1997, 1996 and 1995, respectively; $3,280, $1,636 and
$1,636 for premiums paid by BMCA for a life insurance policy in 1997, 1996
and 1995, respectively; and $1,963, $1,175 and $1,175 for the premiums
paid by BMCA for a long-term disability policy in 1997, 1996 and 1995,
respectively. Mr. Kumar commenced employment with the Company in February
1995.
(Footnotes continued on next page)
12
<PAGE>
(Footnotes continued from previous page)
(3) Included in "All Other Compensation" for Mr. Adair are: $3,244, $1,260 and
$1,260 in 1997, 1996 and 1995, respectively, for premiums paid for a life
insurance policy; $1,701, $2,212 and $2,193 for premiums paid on a
long-term disability policy in 1997, 1996 and 1995, respectively; and
$6,341, $500 and $500, representing the Company's contribution under the
GAF Capital Accumulation Plan in 1997, 1996 and 1995, respectively. USI
became a subsidiary of GAF in 1995.
(4) Included in these amounts for Dr. LaPalme are: $11,700, $11,000 and
$11,000, representing BMCA's contribution under the GAF Capital
Accumulation Plan in 1997, 1996 and 1995, respectively; $3,127,$2,754 and
$2,646 for premiums paid by BMCA for a life insurance policy in 1997, 1996
and 1995, respectively; and $1,275, $765, $735 for premiums paid by BMCA
for a long-term disability policy in 1997, 1996 and 1995, respectively.
(5) Included in these amounts for Mr. Collins are: $11,513, $10,633 and
$9,859, representing BMCA's contribution under the GAF Capital
Accumulation Plan in 1997, 1996 and 1995, respectively; $1,244 and $849
for the premiums paid by BMCA for a life insurance policy in 1997 and
1996, respectively; and $1,071 and $610 for the premiums paid by BMCA for
a long-term disability policy in 1997 and 1996, respectively.
(6) 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.
No allocation of compensation for services to BMCA is made
pursuant to such management agreement, except that BMCA reimbursed ISP
$115,351 and $133,989 under the management agreement in respect of bonus
amounts earned by Messrs. Rogers and Weinberg, respectively, for 1997 in
connection with services performed by them for BMCA during such year. See
Item 13, "Certain Relationships and Related Transactions--Management
Agreement."
(7) Excluded are options to purchase redeemable convertible preferred stock
of ISP Holdings. See Note (2) to the second table under "Options/SARs"
below.
OPTIONS/SARS
The following table summarizes options ("BMCA Preferred Options") to
acquire BMCA's redeemable convertible preferred stock granted during 1997 to the
executive officers named in the Summary Compensation Table above and the
potential realizable value of BMCA Preferred Options held by such persons. No
BMCA Preferred Options were exercised by such persons in 1997.
<TABLE>
<CAPTION>
BMCA PREFERRED STOCK OPTION GRANTS IN 1997 (1)
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
OF
BOOK VALUE
NUMBER OF SECURITIES % OF TOTAL OPTIONS APPRECIATION
UNDERLYING OPTIONS GRANTED TO EMPLOYEES ----------------------
GRANTED IN FISCAL 1997 5% 10%
-------------------- -------------------- ------- --------
<S> <C> <C> <C> <C>
Sunil Kumar .................. 7,609 10.9% $90,084 $328,506
Danny J. Adair ............... 2,637 3.8 31,220 113,850
Donald W. LaPalme ............ 3,076 4.4 36,405 132,756
William W. Collins ........... 2,033 2.9 24,066 87,761
6,185 8.8 67,920 247,680
</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 five 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 five-year period from the date of grant.
13
<PAGE>
<TABLE>
BMCA PREFERRED STOCK OPTIONS/GAF STOCK APPRECIATION RIGHTS AND OPTIONS/SAR VALUES
AT DECEMBER 31, 1997
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED BMCA PREFERRED IN-THE-MONEY BMCA PREFERRED
OPTIONS(O)/GAF SARs(S)(1) OPTIONS(O)/GAF SARs(S)
AT 12/31/97 AT 12/31/97
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------------------- ---------------------------
<S> <C> <C>
Sunil Kumar(2) ....................... 3,680/14,130(S) $42,669/$233,282(S)
876/ 8,923(O) 12,342/ 18,523(O)(3)
Danny J. Adair ....................... 620/ 3,567(O) 8,740/ 13,110(O)(3)
Donald W. LaPalme .................... 480/ 3,796(O) 6,767/ 10,150(O)(3)
William W. Collins ................... 360/ 8,758(O) 5,075/ 7,613(O)(3)
</TABLE>
------------------
(1) The stock appreciation rights relating to GAF common stock ("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
toearlier vesting under certain circumstances, including in connection
with a change of control, and have no expiration date.
(2) Excluded are options to purchase 24,095 shares of redeemable convertible
preferred stock of ISP Holdings ("ISP Holdings Options") held by Mr.
Kumar, none of which were exercisable, and all of which were in-the-money
and had a value of $240,727 at December 31, 1997. Also excluded are 9,201
stock appreciation rights relating to ISP Holdings common stock ("ISP
Holdings SARs") held by Mr. Kumar, 3,680 of which were exercisable,
in-the-money and had a value of $345,867 at December 31, 1997 and 5,521 of
which were unexercisable, in-the-money and had a value of $518,801 at
December 31, 1997. The ISP Holdings SARs are on substantially the same
terms as the GAF SARs described in Note (1) above.
(3) Options for 2,190, 1,550, 1,200 and 900 shares of Preferred Stock were
in-the-money for Messrs. Kumar, Adair, LaPalme and Collins, respectively,
at December 31, 1997.
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 20, 1998, by each other person known to BMCA to own
beneficially more than 5% of the Common Stock outstanding on that date, by each
executive officer and director of BMCA and by all executive officers and
directors of BMCA as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF TOTAL VOTING
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS POWER
- -------------- ------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock Samuel J. Heyman 1,000,010 100%(1) 100%(1)
1361 Alps Road
Wayne, New Jersey 07470
All directors and executive
officers of BMCA
as a group (9 persons) 1,000,010 100%(1) 100%(1)
</TABLE>
- ----------------
(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 20,
1998, Mr. Heyman beneficially owned approximately 96% of the capital stock
of GAF.
14
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to a management agreement (the "Management Agreement") which
expires December 31, 1998, ISP (which is controlled by BMCA's Chief Executive
Officer, Samuel J. Heyman) provides certain general management, administrative,
legal, telecommunications, information and facilities services to the Company
(including the use of BMCA's headquarters in Wayne, New Jersey). Charges to BMCA
by ISP for providing such services aggregated $4.8 million in 1997. Such charges
consist of management fees and other reimbursable expenses attributable to, or
incurred by ISP for the benefit of, the Company, which are based on an estimate
of the costs ISP incurs to provide such services. Effective January 1, 1998, the
term of the Management Agreement was extended through the end of 1998, and the
management fees payable thereunder were adjusted, including an adjustment to
reflect the direct payment by BMCA of the costs for certain services rendered by
third parties that were previously included in the management fees payable to
ISP. The Company and ISP further modified the agreement to allocate a portion of
the management fees payable by BMCA under the Management Agreement to separate
lease payments for the use of BMCA's headquarters. Based on the services
provided by ISP in 1997 under the Management Agreement, after taking into
account the modifications to the agreement described above, the aggregate amount
payable by the Company to ISP under the Management Agreement for 1998 is
expected to be approximately $4.7 million. BMCA also expects to pay directly
certain third party costs, which aggregated approximately $0.4 million in 1997,
that were previously included in the management fees. In addition, BMCA
currently anticipates that in 1998 it will require additional space for its
headquarters and will pay additional rent based on the square footage to be
occupied. Certain of BMCA's executive officers receive their compensation from
ISP, with ISP being indirectly reimbursed therefor by virtue of the management
fee and other reimbursable expenses payable under the management agreement.
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 was renewed for
1998 and expires December 31, 1998, 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,
1998, 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 1997, BMCA and USI purchased in the
aggregate approximately $51.1 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. In 1997, the Company purchased approximately $24.5
million of glass fiber from GFC.
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
15
<PAGE>
carried back. Were BMCA to leave 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 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 5.85% and 5.95% per annum
during 1997). The highest amount of loans made by BMCA to G-I Holdings during
1997 was $6.2 million, and no loans were made to BMCA by G-I Holdings and its
subsidiaries during 1997. As of December 31, 1997, $6.2 million in loans were
owed to BMCA by G-I Holdings, at a weighted average interest rate of 5.95%, and
no loans were owed by BMCA to affiliates. In addition, BMCA makes non-interest
bearing advances to affiliates, of which $41.7 million were outstanding at
December 31, 1997.
16
<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:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 --Certificate of Incorporation of BMCA, as amended.
3.2 --By-laws of BMCA (incorporated by reference to Exhibit 3.2 to BMCA's
Registration Statement on Form S-4 (Registration No. 33-81808) (the
"Deferred Coupon Note Registration Statement")).
4.1 --Indenture, dated as of December 9, 1996, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration Statement 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).
4.3 --Indenture, dated as of October 20, 1997, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration Statement on Form S-4 (Registration
No. 333-41531) (the "8% Notes 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 --Amendment No. 7, dated as of December 31, 1997, to the Management
Agreement (incorporated by reference to Exhibit 10.10 to the 8%
Notes Registration Statement).
17
<PAGE>
10.9 --Amendment No. 8, dated as of January 1, 1998, to the Management
Agreement (incorporated by reference to Exhibit 10.11 to the 8%
Notes Registration Statement).
10.10 --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).
10.11 --Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock (incorporated by reference to Exhibit
10.9 to BMCA's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).*
10.12 --Forms of Amendment to Option Agreement relating to Series A
Cumulative Redeemable Convertible Preferred Stock.*
10.13 --Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock.*
10.14 --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).
10.15 --Stock Appreciation Right Agreement, dated January 1, 1997, between
GAF Corporation and Sunil Kumar (incorporated by reference to
Exhibit 10.11 to the 1996 Form 10-K).*
10.16 --Amended and Restated Stock Appreciation Right Agreement, dated
January 1, 1997, between GAF Corporation and Sunil Kumar
(incorporated by reference to Exhibit 10.12 to the 1996 Form 10-K).*
21 --Subsidiaries of BMCA.
27 --Financial Data Schedule for fiscal year 1997, which is submitted
electronically to the Securities and Exchange Commission for
information only.
- -------------
*Management and/or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
18
<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.
BUILDING MATERIALS CORPORATION OF AMERICA
/s/ JAMES P. ROGERS
By ____________________________________
JAMES P. ROGERS
EXECUTIVE VICE PRESIDENT
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SAMUEL J. HEYMAN
- --------------------------------- Chairman, Chief Executive March 30, 1998
SAMUEL J. HEYMAN Officer and Director (Principal
Executive Officer)
/s/ SUNIL KUMAR
- --------------------------------- President, Chief Operating Officer March 30, 1998
SUNIL KUMAR and Director
/s/ JAMES P. ROGERS
- --------------------------------- Executive Vice President and March 30, 1998
JAMES P. ROGERS Director
/s/ WILLIAM C. LANG
- --------------------------------- Senior Vice President and Chief March 30, 1998
WILLIAM C. LANG Financial Officer (Principal
Financial and Accounting
Officer)
</TABLE>
19
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
FORM 10-K
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS,
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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, 1997 ........................... F-8
Consolidated Balance Sheets as of December 31, 1996 and 1997 ............................................ F-9
Consolidated Statements of Cash Flows for the three years ended December 31, 1997 ....................... F-10
Consolidated Statements of Stockholder's Equity (Deficit) for the three years ended December 31, 1997 ... 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
</TABLE>
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. As a result of the Separation Transactions consummated on 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. See Note 1 to Consolidated
Financial Statements. Accordingly, the Company's historical consolidated
financial statements include USI's results of operations from the date of its
acquisition by G-I Holdings (October 20, 1995), including sales of $21.8 and
$99.0 million for the years ended December 31, 1995 and 1996, respectively, and
net income (loss) of $(0.5) and $1.3 million, respectively. The Separation
Transactions also included transferring the Company's glass fiber manufacturing
facility in Nashville, Tennessee (and certain related assets and liabilities) to
GAF Fiberglass Corporation ("GFC") and a contribution by G-I Holdings to the
Company in December 1996 of $82.5 million in cash and short-term investments. 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.
RESULTS OF OPERATIONS
1997 Compared With 1996
The Company recorded net income in 1997 of $26.1 million compared with net
income of $17.1 million in 1996. The 53% increase in net income was attributable
to higher operating and other income, net, partially offset by higher interest
expense.
Net sales for 1997 increased $92.7 million (11%) to $944.6 million compared
with $852.0 million in 1996. The sales growth reflected increased unit volumes
of both residential and commercial roofing products, as well as the sales of the
Leatherback Industries business ($30.2 million), which was acquired in March
1997.
Gross profit margin increased to 27.3% in 1997 compared with 27.0% in 1996,
resulting primarily from lower manufacturing costs and improved product mix.
Selling, general and administrative expenses increased 11% to $185.7 million in
1997 from $166.7 million in 1996, primarily reflecting increased costs of
distribution. Selling, general and administrative expenses as a percentage of
net sales increased slightly from 19.6% in 1996 to 19.7% in 1997.
Operating income in 1997 was $70.1 million, an increase of $8.7 million
(14%) compared with $61.4 million in 1996. The increase in operating income was
attributable to the higher sales levels and improved margins.
Interest expense was $42.8 million in 1997 compared with $32.0 million in
1996 due to higher debt levels, primarily resulting from the issuance in
December 1996 of $100 million in aggregate principal amount at maturity of
8 5/8% Senior Notes due 2006 (the "8 5/8% Notes") and the issuance in October
1997 of $100 million in aggregate principal amount at maturity of 8% Senior
Notes due 2007 (the "8% Notes").
Other income, net, was $15.5 million in 1997 compared with other expense,
net, of $1.5 million in 1996. The improvement was due principally to higher
investment income (up $20.0 million), partially offset by a $3.0 million
provision for estimated obligations related to product warranty claims for a
discontinued product.
1996 Compared With 1995
The Company recorded net income in 1996 of $17.1 million compared with net
income of $10.1 million in 1995. The 69% increase in net income was 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 $852.0 million
compared with $687.2 million in 1995. The sales growth reflected a 13% increase
in sales for the Company (excluding the effect of USI sales) due to increased
F-2
<PAGE>
unit volumes of both residential and commercial roofing products and higher
average residential selling prices, and also reflected USI sales of $99.0
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 materials 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 $13.0 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 gross profit margins and
included $4.3 million operating income from USI.
Interest expense was $32.0 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 $0.6
million) and certain litigation costs.
LIQUIDITY AND FINANCIAL CONDITION
The Company used $10.3 million of cash for operations during 1997,
reinvested $77.7 million for capital programs and acquisitions, and invested
$43.5 million for net purchases of available-for-sale and held-to-maturity
securities, for a net cash outflow of $131.5 million before financing
activities. Cash used in operations included a cash outflow of $68.1 million for
net purchases of trading securities and a $39.1 million outflow for related
party transactions (see Note 11 to Consolidated Financial Statements).
Cash generated from a decrease in working capital totaled $17.9 million
during 1997. This amount primarily reflected a decrease in receivables of $7.8
million, a decrease in inventories of $8.0 million and a $5.1 million increase
in payables and accrued liabilities.
The Company generated $19.9 million from financing activities in 1997. On
October 20, 1997, the Company issued $100 million principal amount at maturity
of the 8% Notes. Financing activities also included $34.0 million of borrowings
under the Company's bank revolving credit facility and $26.9 million of
short-term borrowings. The above cash flows were mostly offset by $91.0 million
of distributions to the Company's parent, $35.3 million of repayments related to
the Company's receivables financing program, a $6.2 million loan to the
Company's parent, and $3.5 million in repayments of long-term debt.
As a result of the foregoing factors, cash and cash equivalents decreased
by $111.6 million during 1997 to $12.9 million (excluding $243.3 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, 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.
The Company's bank credit facilities were replaced on August 29, 1997 with
a new three-year, $75 million facility (the "Credit Agreement"). The terms of
the Credit Agreement provide for a $75 million unsecured revolving credit
facility, the full amount of which is available for letters of credit, provided
that total borrowings and outstanding letters of credit may not exceed $75
million in the aggregate. As of December 31, 1997, $30.9 million of letters of
credit were outstanding and $34.0 million had been borrowed under the Credit
Agreement. Under the terms of the
F-3
<PAGE>
Credit Agreement, the Company is subject to certain financial covenants,
including interest coverage and leverage ratios, and dividends and other
restricted payments are limited. The Company was in compliance with such
covenants as of December 31, 1997.
Additional borrowings by the Company are subject to certain covenants
contained in the indentures relating to the Company's 11 3/4% Deferred Coupon
Notes due 2004 (the "Deferred Coupon Notes"), the 8 5/8% Notes, the 8% Notes
and the Credit Agreement.
The objectives of the Company in utilizing interest rate swap agreements
("swaps") are to lower funding costs, diversify sources of funding and manage
interest rate exposure. As of December 31, 1997, the Company had swaps
outstanding which have a remaining aggregate ending notional principal amount of
$60.0 million and a final maturity of July 1, 1999. By utilizing swaps, the
Company reduced its interest expense by $1.5, $2.2 and $2.0 million in 1995,
1996 and 1997, 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, all of which were paid
as of March 30, 1997. Accordingly, as of January 31, 1994, the Company's
stockholder's equity reflected 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, 1997, the Company had total
outstanding consolidated indebtedness of $586.2 million, of which $3.8 million
matures prior to December 31, 1998, and stockholder's equity of $83.0 million.
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, 1997, loans in the
amount of $6.2 million were owed to the Company by G-I Holdings and no loans
were owed by the Company to affiliates. In addition, the Company makes
non-interest bearing advances to affiliates, of which $41.7 million were
outstanding at December 31, 1997.
The parent corporations of the Company are essentially holding companies
without independent businesses or operations and, as such, are presently
dependent upon the cash flows of their subsidiaries, principally the Company, in
order to satisfy their obligations, including asbestos-related claims 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 8 5/8% Notes, the 8% Notes, the Deferred Coupon
Notes and the Credit Agreement 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, 1997, after giving effect to the most
restrictive of the aforementioned restrictions, the Company could have paid
dividends and other restricted payments of up to $17.0 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, 11 and 12 to Consolidated Financial Statements.
F-4
<PAGE>
The Company believes that it will have access to working capital or other
assets sufficient to meet its capital and operating needs for the foreseeable
future. The Company intends to use a substantial amount of the net proceeds from
the issuance of the 8% Notes to fund the cost of its capital expenditure
programs.
The Company does not believe that inflation has had an 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.
The Company has significantly upgraded its information systems capabilities
and is in the process of finalizing the roll-out of an interactive network
connecting all of its locations. The Company is addressing its "Year 2000"
compliance issues in conjunction with this initiative. The Company does not
believe that the costs of addressing or the impact of the Company's Year 2000
compliance issues will have a material adverse effect on the operations,
liquidity or capital resources of the Company. At this time, the Company has no
information concerning the impact of Year 2000 issues on its suppliers and
customers.
* * *
FORWARD-LOOKING STATEMENTS
The discussions in this Annual 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. Forward-looking
statements contained herein are not historical facts, but only predictions. No
assurances can be given that projected results or events will be achieved.
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, 1993 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, except that
the Company's assumption of the first $204.4 million of liability relating to
pending and previously settled asbestos-related bodily injury cases and related
income tax benefits of $79.7 million have been reflected as a charge of $124.7
million to stockholder's equity upon the Company's formation as of January 31,
1994. As of January 1, 1997, USI became a subsidiary of the Company through a
capital contribution to the Company by G-I Holdings. Accordingly, the Company's
historical consolidated financial statements include USI's results of operations
from the date of its acquisition by G-I Holdings (October 20, 1995), including
sales of $21.8 and $99.0 million for the years ended December 31, 1995 and 1996,
respectively, and net income (loss) of $(0.5) and $1.3 million, respectively.
See Note 1 to Consolidated Financial Statements. The results for the year 1997
include the results of the Leatherback Industries business from its date of
acquisition (March 14, 1997), including sales of $30.2 million.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales ........................................ $559.2 $593.1 $687.2 $852.0 $944.6
Operating income ................................. 41.5 44.7 45.9 61.4 70.1
Interest expense ................................. 2.0 13.1 24.8 32.0 42.8
Income before income taxes ....................... 33.0 27.8 16.5 27.9 42.8
Net income ....................................... 20.4 16.7 10.1 17.1 26.1
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total working capital ............................ $ 4.8 $ 36.2 $ 54.6 $247.3 $284.8
Total assets ..................................... 259.4 452.3 559.3 701.6 807.3
Long-term debt less current maturities ........... 38.7 229.2 310.3 405.7 555.4
Stockholder's equity (deficit) ................... 85.9 (28.9) 15.8 143.2 83.0
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Other Data:
Depreciation ..................................... $ 14.5 $ 16.8 $ 20.3 $ 23.9 $ 22.9
Goodwill amortization ............................ 0.6 1.1 1.2 1.7 1.9
Capital expenditures and acquisitions ............ 19.0 54.3 54.1 25.6 77.7
</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, 1996 and 1997, and the related consolidated statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, 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, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule 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
February 20, 1998
F-7
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- --------
(THOUSANDS)
Net sales .................................. $687,184 $851,967 $944,629
-------- -------- --------
Costs and expenses:
Cost of products sold .................... 506,012 622,234 686,992
Selling, general and administrative ...... 134,145 166,706 185,653
Goodwill amortization .................... 1,170 1,664 1,891
-------- -------- --------
Total costs and expenses ............... 641,327 790,604 874,536
-------- -------- --------
Operating income ........................... 45,857 61,363 70,093
Interest expense ........................... (24,822) (32,044) (42,784)
Other income (expense), net ................ (4,486) (1,455) 15,462
-------- -------- --------
Income before income taxes ................. 16,549 27,864 42,771
Income taxes ............................... (6,450) (10,809) (16,680)
-------- -------- --------
Net income ................................. $ 10,099 $ 17,055 $ 26,091
======== ======== ========
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,
-----------------------
1996 1997
-------- -------
(THOUSANDS)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................................................ $124,560 $ 12,921
Investments in trading securities ................................................ 1,065 62,059
Investments in available-for-sale securities ..................................... 82,016 161,290
Investments in held-to-maturity securities ....................................... 7,169 499
Other short-term investments ..................................................... 15,944 19,488
Accounts receivable, trade, less reserve of $1,974 and $2,752, respectively ...... 9,870 13,643
Accounts receivable, other ....................................................... 23,235 50,839
Receivable from related parties, net ............................................. -- 5,151
Loan receivable from related party ............................................... -- 6,152
Inventories ...................................................................... 77,196 72,254
Other current assets ............................................................. 3,751 6,243
-------- --------
Total Current Assets ........................................................... 344,806 410,539
Property, plant and equipment, net ................................................. 220,500 241,946
Excess of cost over net assets of businesses acquired, net of
accumulated amortization of $6,889 and $8,780, respectively ...................... 60,469 70,046
Deferred income tax benefits ....................................................... 59,053 35,981
Receivable from related parties .................................................... -- 31,661
Other assets ....................................................................... 16,755 17,113
-------- --------
Total Assets ....................................................................... $701,583 $807,286
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Short-term debt .................................................................. $ -- $ 26,944
Current maturities of long-term debt ............................................. 3,412 3,801
Accounts payable ................................................................. 47,879 55,642
Payable to related parties, net .................................................. 2,287 --
Accrued liabilities .............................................................. 27,938 26,298
Reserve for asbestos claims ...................................................... 3,062 --
Reserve for product warranty claims .............................................. 12,914 13,100
-------- --------
Total Current Liabilities ...................................................... 97,492 125,785
-------- --------
Long-term debt less current maturities ............................................. 405,690 555,446
-------- --------
Reserve for product warranty claims ................................................ 30,755 23,881
-------- --------
Other liabilities .................................................................. 24,409 19,175
-------- --------
Commitments and Contingencies
Stockholder's Equity:
Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par value
per share; 100,000 shares authorized; no shares issued ......................... -- --
Common Stock, $.001 par value per share; 1,050,000 shares authorized;
1,000,010 shares issued and outstanding 1 1
Additional paid-in capital ....................................................... 182,699 86,910
Accumulated deficit .............................................................. (40,174) (14,083)
Unrealized gains on available-for-sale securities, net of tax effect, and other .. 711 10,171
-------- --------
Stockholder's Equity ............................................................... 143,237 82,999
-------- --------
Total Liabilities and Stockholder's Equity ......................................... $701,583 $807,286
======== ========
</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,
-------------------------------------
1995 1996 1997
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents, beginning of year ........................ $ 29,015 $ 45,989 $124,560
-------- -------- --------
Cash provided by (used in) operating activities:
Net income ......................................................... 10,099 17,055 26,091
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ..................................................... 20,252 23,857 22,936
Goodwill amortization ............................................ 1,170 1,664 1,891
Deferred income taxes ............................................ 6,250 10,609 16,481
Noncash interest charges ......................................... 21,432 23,718 27,222
(Increase) decrease in working capital items ....................... (8,050) (14,905) 17,859
Purchases of trading securities .................................... -- (33,824) (123,483)
Proceeds from sales of trading securities .......................... -- 30,394 55,378
(Increase) decrease in other assets ................................ 1,924 (1,711) 1,773
Decrease in other liabilities ...................................... (4,502) (4,158) (9,356)
Change in net receivable from/payable to related parties ........... 1,939 (341) (39,099)
Other, net ......................................................... 112 787 (8,001)
-------- -------- --------
Net cash provided by (used in) operating activities ................. 50,626 53,145 (10,308)
-------- -------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions .............................. (54,111) (25,629) (77,705)
Purchases of available-for-sale securities ......................... (45,706) (139,355) (223,804)
Purchases of held-to-maturity securities ........................... -- -- (4,591)
Purchases of other short-term investments .......................... (2,069) (660) --
Proceeds from sales of available-for-sale securities ............... 8,416 101,095 173,547
Proceeds from held-to-maturity securities .......................... -- -- 11,361
-------- --------- --------
Net cash used in investing activities ............................... (93,470) (64,549) (121,192)
-------- --------- --------
Cash provided by (used in) financing activities:
Proceeds (repayments) from sale of accounts receivable ............. 7,919 8,015 (35,332)
Increase in short-term debt -- -- 26,944
(Increase) decrease in loans receivable from related party ......... 23,633 -- (6,152)
Proceeds from issuance of debt ..................................... 40,002 99,502 99,916
Increase in borrowings under revolving credit facility ............. -- -- 34,000
Repayments of long-term debt ....................................... (10,440) (34,856) (3,521)
Decrease in restricted cash ........................................ 24,484 -- --
Capital contribution from (distribution to) parent company ......... 34,312 86,077 (91,000)
Payments of asbestos claims ........................................ (59,795) (66,224) (3,062)
Financing fees and expenses ........................................ (297) (2,539) (1,932)
-------- -------- --------
Net cash provided by financing activities ........................... 59,818 89,975 19,861
-------- -------- --------
Net change in cash and cash equivalents ............................. 16,974 78,571 (111,639)
-------- -------- --------
Cash and cash equivalents, end of year .............................. $ 45,989 $124,560 $ 12,921
======== ======== ========
</TABLE>
F-10
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Effect on cash from (increase) decrease in working capital items*:
Accounts receivable ................................................ $ 666 $ (5,122) $ 7,773
Inventories ........................................................ (4,557) (8,123) 8,001
Other current assets ............................................... 1,760 756 (3,029)
Accounts payable ................................................... (6,093) (4,096) 10,210
Accrued liabilities ................................................ 174 1,680 (5,096)
-------- -------- --------
Net effect on cash from (increase) decrease in
working capital items ............................................. $ (8,050) $(14,905) $ 17,859
======== ======== ========
Cash paid during the period for:
Interest (net of amount capitalized) ............................... $ 2,796 $ 6,442 $ 14,001
Income taxes (including taxes paid pursuant to the Tax
Sharing Agreement) ................................................ 213 537 346
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
========
Acquisition of Leatherback Industries business, net of $8
cash acquired:
Fair market value of assets acquired ............................... $ 27,167
Purchase price of acquisition ...................................... 25,531
--------
Liabilities assumed ................................................ $ 1,636
========
</TABLE>
- -------------
* Working capital items exclude cash and cash equivalents, short-term
investments, short-term debt and net receivables from/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 1 and 2,
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.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-11
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CAPITAL UNREALIZED
STOCK AND GAINS ON
ADDITIONAL AVAILABLE-FOR-
PAID-IN SALE SECURITIES ACCUMULATED
CAPITAL AND OTHER DEFICIT
-------- ------- --------
(THOUSANDS)
<S> <C> <C> <C>
Balance, December 31, 1994 .......................................... $ 46,936 $ (588) $(67,328)
Net income ......................................................... -- -- 10,099
Capital contribution from parent company ........................... 34,312 -- --
Reclassification to additional paid-in capital of the
excess of purchase price over the adjusted historical
cost of predecessor company shares ................................ (7,874) -- --
Unrealized gains on available-for-sale securities, net of
income tax effect of $174 ......................................... -- 272 --
Adjustment of additional minimum pension liability ................. -- (47) --
-------- ------- --------
Balance, December 31, 1995 .......................................... $ 73,374 $ (363) $(57,229)
Net income ......................................................... -- -- 17,055
Capital contribution from parent company ........................... 109,326 -- --
Unrealized gains on available-for-sale securities, net of
income tax effect of $333 ......................................... -- 522 --
Adjustment of additional minimum pension liability ................. -- 552 --
-------- ------- --------
Balance, December 31, 1996 .......................................... $182,700 $ 711 $(40,174)
Net income ......................................................... -- -- 26,091
Distribution to parent company ..................................... (91,000) -- --
Transfer of Nashville, Tennessee plant to GAF Fiberglass
Corporation ....................................................... (4,789) -- --
Unrealized gains on available-for-sale securities, net of
income tax effect of $6,591 ....................................... -- 10,308 --
Adjustment of additional minimum pension liability ................. -- (848) --
-------- ------- --------
Balance, December 31, 1997 .......................................... $ 86,911 $10,171 $(14,083)
======== ======= ========
</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 ("BMCA" or 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 is a leading national manufacturer of a broad line of asphalt
roofing products and accessories for the residential and commercial roofing
markets.
NOTE 1. 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) all of GAFBMC's tax liabilities, other than tax liabilities
arising from the operations or business of the Company 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.
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 $35.0 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. Accordingly, the
Company's historical consolidated financial statements include USI's results of
operations from the date of its acquisition by G-I Holdings (October 20, 1995),
including sales of $21.8 and $99.0 million for the years ended December 31, 1995
and 1996, respectively, and net income (loss) of $(0.5) million and $1.3
million, respectively.
On January 1, 1997, GAF effected a series of transactions involving its
subsidiaries (the "Separation Transactions") that resulted in, among other
things, (i) the approximately 83.5% of the issued and outstanding common stock
of International Specialty Products Inc. ("ISP"), an affiliate, owned by a
subsidiary of GAF being distributed to ISP Holdings Inc. ("ISP Holdings"), a
subsidiary of GAF, and the capital stock of ISP Holdings being distributed to
the stockholders of GAF, (ii) the Company's glass fiber manufacturing facility
in Nashville, Tennessee (and certain related assets and liabilities) being
transferred to GAF Fiberglass Corporation ("GFC"), (iii) USI becoming a
subsidiary of the Company and (iv) G-I Holdings making a contribution to the
Company in December 1996 of $82.5 million in cash and short-term investments. 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-13
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All subsidiaries are consolidated and intercompany transactions have been
eliminated.
Financial Statement Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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).
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, "Unrealized gains
on available-for-sale securities, net of tax effect, and other", and were $0.8
and $11.1 million as of December 31, 1996 and 1997, respectively. Investments
classified as "held-to-maturity" securities are carried at amortized cost in the
Consolidated Balance Sheets.
"Other income (expense), net" includes $0.4, $6.4 and $26.4 million of net
realized and unrealized gains on securities in 1995, 1996 and 1997,
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 1), 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 were 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 $0.5 million as "Other income".
As of December 31, 1996 and 1997, the market value of the Company's equity
securities held long was $82.5 and $223.0 million, respectively, and the Company
had $5.6 and $18.6 million, respectively, of short positions in common stocks,
based on market value. As of December 31, 1996 and 1997, the market value of the
Company's held-to-maturity securities was $7.6 and $0.5 million, respectively.
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 income (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.
Inventories
Inventories are stated at the lower of cost or market. The LIFO (last-in,
first-out) method is utilized to determine cost for a portion of the Company's
inventories. All other inventories are determined principally based on the FIFO
(first-in, first-out) method.
F-14
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed principally on the straight-line method
based on the estimated economic lives of the assets. The Company uses an
economic life of 5-25 years for land improvements, 10-40 years for buildings and
building equipment, and 3-20 years for machinery and equipment, which includes
furniture and fixtures. Certain interest charges are capitalized during the
period of construction as part of the cost of property, plant and equipment.
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. Such amount has been reclassified
to be reflected as a reduction of additional paid-in capital.
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 and 1997 included sales to American Builders & Contractors
Supply Co., Inc., which accounted for approximately 11% and 10%, respectively,
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 shorter of the
remaining life of the swaps or the remaining period to maturity 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 $3.1, $4.5 and $5.4 million for 1995, 1996 and 1997, 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 guarantees of varying duration 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.
The Company's 1997 Consolidated Statement of Income includes a provision of
$3.0 million in connection with the Company's estimated obligations related to
product warranty claims for a discontinued product.
F-15
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1997, is $1.1 million,
before reduction for insurance recoveries reflected on its balance sheet of $0.8
million. The Company's liability is reflected on an undiscounted basis. See Item
3, "Legal Proceedings--Environmental Litigation", which is incorporated herein
by reference, for further discussion with respect to environmental liabilities
and estimated insurance recoveries.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting comprehensive
income and its components in annual and interim financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods is required. The
adoption of SFAS No. 130 will have no impact on the Company's consolidated
results of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes standards for
companies to report information about operating segments in annual financial
statements, based on the approach that management utilizes to organize the
segments within the Company for management reporting and decision making. In
addition, SFAS No. 131 requires that companies report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, and major customers. SFAS
No. 131 is effective for financial statements for fiscal years beginning after
December 15, 1997. Financial statement disclosures for prior periods are
required to be restated. The adoption of SFAS No. 131 will have no impact on the
Company's consolidated results of operations, financial position or cash flows.
NOTE 3. RESERVE FOR ASBESTOS-RELATED BODILY INJURY CLAIMS
In connection with its formation, the Company 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") of its parent, GAFBMC. As of March 30, 1997, the Company had paid all
of its assumed asbestos-related liabilities. See also Note 1. G-I Holdings and
GAFBMC have jointly and severally agreed to indemnify the Company against any
claims related to asbestos-related liabilities, other than those contractually
assumed by the Company, in the event that claims in connection with liabilities
not assumed by the Company are asserted against it.
GAF has advised the Company that, as of December 27, 1997, it had been
named as a defendant in approximately 79,300 pending lawsuits involving alleged
Asbestos Claims, having resolved approximately 234,500 Asbestos Claims. During
1997, GAF resolved approximately 11,000 Asbestos Claims and received notice of
approximately 30,900 new Asbestos Claims. Of the Asbestos Claims resolved in
1997, approximately 8,900 were resolved (including Asbestos Claims disposed of
at no cost to GAF) for an average cost of approximately $3,700 per claim. GAF's
share of the costs with respect to approximately 2,100 Asbestos Claims resolved
in 1997 has not yet been determined. There can be no assurance, however, that
the actual costs of resolving pending and future Asbestos Claims will
approximate GAF's historic average costs.
GAF has stated that it is committed to effecting a comprehensive resolution
of Asbestos Claims, that it is exploring a number of options, both judicial and
legislative, to accomplish such resolution, but there can be no assurance that
this effort will be successful.
The Company believes that it will not sustain any additional liability in
connection with asbestos-related claims. 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.
Should GAF
F-16
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. RESERVE FOR ASBESTOS-RELATED BODILY INJURY CLAIMS (CONTINUED)
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. See Note 9 for information regarding the Company's debt
instruments and facilities.
For a further discussion with respect to the foregoing, see Item 3, "Legal
Proceedings", which is incorporated herein by reference.
NOTE 4. ACQUISITION
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 felts and other felt and construction paper
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 the Leatherback business, including sales of $30.2
million for 1997, are included from the date of acquisition; the effects were
not material to 1997 operations.
NOTE 5. INCOME TAXES
Income tax provision, which has been computed on a separate return basis,
consists of the following:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
(THOUSANDS)
Federal--deferred .................. $ (5,424) $ (9,241) $(14,081)
-------- -------- --------
State and local:
Current .......................... (200) (200) (200)
Deferred ......................... (826) (1,368) (2,399)
-------- -------- --------
Total state and local .......... (1,026) (1,568) (2,599)
-------- -------- --------
Income tax provision ............... $ (6,450) $(10,809) $(16,680)
======== ======== ========
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:
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- ------- ---------
(THOUSANDS)
Statutory provision ................ $ (5,792) $ (9,752) $(14,970)
Impact of:
State and local taxes, net of
Federal benefits ................. (667) (1,019) (1,689)
Nondeductible goodwill
amortization ..................... (260) (484) (564)
Other, net ........................ 269 446 543
-------- -------- --------
Income tax provision ............... $ (6,450) $(10,809) $(16,680)
======== ======== ========
F-17
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES (CONTINUED)
The components of the net deferred tax assets are as follows:
DECEMBER 31,
-------------------
1996 1997
------- -------
(THOUSANDS)
Deferred tax liabilities related to property,
plant and equipment ............................... $(11,782) $(14,742)
-------- --------
Deferred tax assets related to:
Expenses not yet deducted for tax purposes:
Reserve for asbestos claims ..................... 1,195 --
Other ........................................... 38,774 29,294
Net operating losses not yet utilized under
the Tax Sharing Agreement ....................... 30,866 21,429
-------- --------
Total deferred tax assets .......................... 70,835 50,723
-------- --------
Net deferred tax assets ............................ $ 59,053 $ 35,981
======== ========
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 (the
"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 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.
On September 15, 1997, GAF received a notice from the Internal Revenue
Service (the "Service") of a deficiency in the amount of $84.4 million (after
taking into account the use of net operating losses and foreign tax credits
otherwise available for use in later years) in connection with the formation in
1990 of Rhone-Poulenc Surfactants and Specialties, L.P. (the "surfactants
partnership"), a partnership in which GFC holds an interest. The claim of the
Service for interest and penalties, after taking into account the effect on the
use of net operating losses and foreign tax credits, could result in GFC
incurring liabilities significantly in excess of the deferred tax liability of
F-18
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES (CONTINUED)
$131.4 million that GAF recorded in 1990 in connection with this matter. GAF has
advised the Company that it believes that GFC will prevail in this matter,
although there can be no assurance in this regard. The Company believes that the
ultimate disposition of this matter will not have a material adverse effect on
its financial position or results of operations. GAF, G-I Holdings and certain
subsidiaries of GAF have agreed to jointly and severally indemnify the Company
against any tax liability associated with the surfactants partnership, which the
Company would be severally liable for, together with GAF and several current and
former subsidiaries of GAF, should GFC be unable to satisfy such liability.
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 income (expense), net" and amounted to $4.6, $5.2 and $5.1
million in 1995, 1996 and 1997, respectively.
NOTE 7. INVENTORIES
At December 31, 1996 and 1997, $7.6 and $7.8 million, respectively, of
inventories were valued using the LIFO method. Inventories consist of the
following:
DECEMBER 31,
------------------
1996 1997
------ --------
(THOUSANDS)
Finished goods ............................. $41,201 $38,459
Work in process ............................ 10,844 10,180
Raw materials and supplies ................. 26,206 24,670
------- -------
Total .................................... 78,251 73,309
Less LIFO reserve .......................... (1,055) (1,055)
------- -------
Inventories ................................ $77,196 $72,254
======= =======
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31,
--------------------
1996 1997
------- -------
(THOUSANDS)
Land and land improvements ............................ $ 25,722 $ 26,052
Buildings and building equipment ...................... 46,001 48,525
Machinery and equipment (including equipment under
capitalized leases of $17,660 and $15,466--see Note 9) 178,190 183,108
Construction in progress .............................. 19,039 40,775
-------- --------
Total ............................................... 268,952 298,460
Less accumulated depreciation and amortization ........ (48,452) (56,514)
-------- --------
Property, plant and equipment, net .................... $220,500 $241,946
======== ========
F-19
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1996 1997
------- -------
(THOUSANDS)
11 3/4% Senior Deferred Coupon Notes due 2004 $233,018 $261,203
8 5/8% Senior Notes due 2006 ................. 99,504 99,554
8% Senior Notes due 2007 ..................... -- 99,268
Borrowings under revolving credit facility ... -- 34,000
Industrial revenue bonds with various interest
rates and maturity dates to 2012 ........... 19,625 11,125
Obligations on mortgaged properties .......... 5,155 4,503
Obligations under capital leases (Note 12) ... 51,800 49,594
-------- --------
Total ....................................... 409,102 559,247
Less current maturities ...................... (3,412) (3,801)
-------- --------
Long-term debt less current maturities ....... $405,690 $555,446
======== ========
On October 20, 1997, the Company issued $100 million in aggregate principal
amount at maturity of 8% Senior Notes due 2007 (the "8% Notes"). In December
1996, the Company issued $100 million in aggregate principal amount at maturity
of 8 5/8% Senior Notes due 2006 (the "8 5/8% Notes"). In June 1994, the
Company issued $310 million in principal amount of 11 3/4% Deferred Coupon Notes
due 2004 (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, the 8% Notes and the 8 5/8% 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 8% Notes
and 8 5/8% Notes (collectively, 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, the Deferred Coupon Notes and the
Credit Agreement (see below) 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, 1997, after giving effect to the most restrictive of the
aforementioned restrictions, the Company could have paid dividends of up to
$17.0 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, 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, 1997, the Company was in compliance with such covenants.
In connection with the Deferred Coupon Notes, the Company entered into
interest rate swap agreements ("swaps") with banks which have a remaining
aggregate ending notional principal amount of $60.0 million and 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, 1996 and 1997, the Company would have incurred gains of $8.0 and $3.1
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. In 1997, the Company
terminated swaps with an aggregate ending notional principal amount of $82.0
million, resulting in gains totaling $2.1 million.
F-20
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LONG-TERM DEBT (CONTINUED)
The gains have been deferred and will be amortized as a reduction of interest
expense over the remaining life of the swaps. 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 August 1997, the Company entered into a new three-year bank credit
facility (the "Credit Agreement"). The terms of the Credit Agreement provide for
a $75 million revolving credit facility, the full amount of which is available
for letters of credit, provided that total borrowings and outstanding letters of
credit may not exceed $75 million in the aggregate. As of December 31, 1997,
$30.9 million of letters of credit were outstanding and $34.0 million had been
borrowed under the Credit Agreement. Under the terms of the Credit Agreement,
the Company is subject to certain financial covenants, including interest
coverage and leverage ratios, and dividends and other restricted payments are
limited. Additionally, if a change of control (as defined in the Credit
Agreement) occurs, the credit facility could be terminated and the loans
thereunder accelerated by the lenders party thereto, an event which could also
cause the Deferred Coupon Notes and the Notes to be accelerated. As of December
31, 1997, the Company was in compliance with such covenants. The Credit
Agreement replaced previous bank credit facilities which provided up to $42
million in total borrowings and outstanding letters of credit.
In connection with the Credit Agreement, USI's revolving credit facility,
which provided for borrowings of up to $29.6 million and letters of credit of up
to $2.0 million (such total borrowings and outstanding letters of credit not to
exceed $29.6 million), was terminated.
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 equipment at the Baltimore
facility. 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 two industrial revenue bond
issues outstanding, which bear interest at short-term floating rates. Interest
rates on the foregoing obligations ranged between 3.85% and 8.87% as of December
31, 1997. The weighted average interest rate on the Company's $26.9 million of
short-term borrowings as of December 31, 1997 was 6.3%.
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, 1996 and
1997 was $268.9 and $293.0 million, respectively. The estimated fair value of
the 8 5/8% Notes as of December 31, 1996 and 1997 was $100.0 and $103.6
million, respectively. The estimated fair value of the 8% Notes as of December
31, 1997 was $99.6 million.
The aggregate maturities of long-term debt as of December 31, 1997 for the
next five years are as follows:
(THOUSANDS)
----------
1998 ........................... $ 3,801
1999 ........................... 4,127
2000 ........................... 40,060
2001 ........................... 4,873
2002 ........................... 14,988
In the above table, maturities in 2000 include the $34.0 million of
borrowings outstanding under the Credit Agreement as of December 31, 1997, based
on the expiration of the Credit Agreement in August 2000.
F-21
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $2.7, $3.0 and $3.5 million for 1995, 1996 and 1997, 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 of
1995 after the acquisition of USI and were $157,000 and $130,000 for 1996 and
1997, respectively.
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:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
(THOUSANDS)
Service cost ................... $463 $631 $ 658
Interest cost .................. 598 686 754
Actual income on plan assets ... (432) (829) (1,034)
Net deferral and amortization of
unrecognized prior service
cost and actuarial losses ..... 97 35 30
---- ---- ------
Net periodic pension cost ...... $726 $523 $ 408
==== ==== ======
The following table sets forth the funded status of the Hourly Retirement
Plan:
DECEMBER 31,
-------------------
1996 1997
------ -------
(THOUSANDS)
Accumulated benefit obligation:
Vested ............................................. $ 8,407 $ 9,907
Nonvested .......................................... 1,621 1,910
------- -------
Total accumulated benefit obligation ................ $10,028 $11,817
======= =======
Projected benefit obligation ........................ $10,028 $11,817
Fair value of plan assets, primarily listed
stocks and U.S. Government securities .............. (9,530) (11,472)
------- -------
Projected benefit obligation in excess of plan assets 498 345
Unrecognized prior service cost ..................... (338) (307)
Unrecognized net loss ............................... (83) (931)
------- -------
Unfunded accrued (prepaid) pension cost ............. $ 77 $ (893)
======= =======
At December 31, 1997, the difference between the "Projected benefit
obligation in excess of plan assets" and the "Unfunded accrued (prepaid) pension
cost," in the amount of $1,238,000 has been recorded by the Company as an
F-22
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS (CONTINUED)
intangible asset in the amount of $307,000 and a reduction of stockholder's
equity in the amount of $931,000. 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 7.75% and 7.25% for 1996 and 1997, respectively. The
expected long-term rate of return on assets, used in determining net periodic
pension cost, was 11% for 1996 and 1997.
The Company also provides a nonqualified defined benefit retirement plan
for certain key employees. Expense accrued for this plan was immaterial for
1995, 1996 and 1997.
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. Options to
purchase 71,578 shares of Preferred Stock were issued in 1997, exercisable at a
price of $100 per share. Each share of Preferred Stock is convertible, at the
holder's option, into shares of common stock of the Company at a formula price
based on Book Value (as defined in the option agreement) as of the date of
grant. 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 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.
Book Value Appreciation Unit Plan
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
was $0.1 million for 1996 and $0.4 million for 1997.
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, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
(THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees, dependents and beneficiaries eligible for benefits ... $ 5,108 $ 5,485
Active employees fully eligible for benefits ................... 1,131 1,139
Active employees not fully eligible for benefits ............... 1,182 1,302
------- -------
Total accumulated postretirement benefit obligation ............. 7,421 7,926
Fair value of plan assets ....................................... -- --
Unrecognized prior service cost and net gain from earlier periods 4,039 3,556
------- -------
Accrued postretirement benefit obligation ....................... $11,460 $11,482
======= =======
</TABLE>
F-23
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. BENEFIT PLANS (CONTINUED)
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
(THOUSANDS)
<S> <C> <C> <C>
Service cost ............................................... $ 79 $ 95 $ 98
Interest cost .............................................. 645 597 554
Amortization of unrecognized prior service cost and net gain
from earlier periods ...................................... (415) (232) (274)
---- ---- ----
Net periodic postretirement benefit cost ................... $309 $460 $378
==== ==== ====
</TABLE>
For purposes of calculating the accumulated postretirement benefit
obligation, the following assumptions were made. Retirees as of December 31,
1997 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 12% and 6% annual rate of increase in the Company's per
capita cost of providing postretirement medical benefits was assumed for 1998
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 assumed discount rate used
in determining the accumulated postretirement benefit obligation was 7.75% and
7.25% for 1996 and 1997, respectively.
The health care cost trend rate assumption has an effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1997 by $410,000 and the aggregate of the
service and interest cost components of the net periodic postretirement benefit
cost for the year 1997 by $41,000.
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:
DECEMBER 31,
------------------
1996 1997
-------- -------
(THOUSANDS)
Receivable from (payable to):
GAF/G-I Holdings/G Industries ................... $274 $9,684
GAFBMC .......................................... 115 713
GFC ............................................. -- (1,559)
ISP ............................................. (2,676) (3,687)
------- ------
Receivable from (payable to) related parties, net $(2,287) $5,151
======= ======
The Company makes loans to, and borrows from, G-I Holdings and its
subsidiaries at prevailing market rates (between 5.68% and 6.03% during 1996
and between 5.85% and 5.95% during 1997). The highest amount of loans made by
the Company to G-I Holdings during 1996 and 1997 was $45.4 million. No loans
were made to the Company by G-I Holdings and its subsidiaries during 1997, 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, 1996, no loans
were owed to the Company by G-I Holdings, and no loans were owed by the Company
to affiliates. As of December 31, 1997, $6.2 million in loans were owed to the
Company by G-I Holdings, at a weighted average interest rate of 5.95%, and no
F-24
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
loans were owed by the Company to affiliates. In addition, the Company advances
funds on a non-interest bearing basis to GAF, G-I Holdings and their
subsidiaries. The balance of such advances as of December 31, 1997 was $41.7
million, of which $10.0 million was classified as a short-term receivable from
related parties, net, in the table above, and $31.7 million was classified as a
long-term receivable from related parties in the Consolidated Balance Sheet.
Also, during 1997, the Company made distributions of $91.0 million to its parent
company.
Mineral Products: The Company purchases all of its colored roofing granules
requirements (except for the requirements of its California roofing plant) from
ISP under a requirements contract. 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. Each such requirements
contract was renewed for 1998 and is subject to annual renewal unless terminated
by either party to the respective agreement. Such purchases by BMCA and USI
totaled $45.8, $50.5 and $51.1 million for 1995, 1996 and 1997, respectively.
The amount payable to ISP at December 31, 1996 and 1997 for such purchases was
$3.2 and $2.7 million, respectively.
Glass Fiber Supply Agreement: As a result of the Separation Transactions
(see Note 1), 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. Purchases under this
agreement totaled $24.5 million for the year 1997.
Management Agreements: The Company is a party to a Management Agreement
with ISP (the "Management Agreement"), which expires December 31, 1998, pursuant
to which ISP provides certain general management, administrative, legal,
telecommunications, information and facilities services to the Company
(including the use of the Company's headquarters in Wayne, New Jersey). Charges
to the Company by ISP for providing such services aggregated $4.4, $5.0 and $4.8
million for 1995, 1996 and 1997, respectively. Such charges consist of
management fees and other reimbursable expenses attributable to, or incurred by
ISP for the benefit of, the Company. Effective January 1, 1998, the term of the
Management Agreement was extended through the end of 1998, and the management
fees payable thereunder were adjusted, including an adjustment to reflect the
direct payment by the Company of the costs for certain services rendered by
third parties that were previously included in the management fees payable to
ISP. The Company and ISP further modified the agreement to allocate a portion of
the management fees payable by the Company under the Management Agreement to
separate lease payments for the use of BMCA's headquarters. Based on the
services provided by ISP to the Company in 1997 under the Management Agreement,
after taking into account the modifications to the agreement described above,
the aggregate amount payable by the Company to ISP under the Management
Agreement for 1998 is expected to be approximately $4.7 million. The Company
also expects to pay directly certain third party costs, which aggregated
approximately $0.4 million in 1997, that were previously included in the
management fee. In addition, BMCA currently anticipates that in 1998 it will
require additional space for its headquarters and will pay additional rent based
on the square footage to be occupied. Certain of the Company's executive
officers receive their compensation from ISP, with ISP being indirectly
reimbursed therefor by virtue of the management fee and other reimbursable
expenses payable under the Management Agreement.
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, 1998, 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, 1996
and 1997.
F-25
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES
The discussions as to legal matters involving the Company contained in Item
3, "Legal Proceedings--Environmental Litigation" and --"Other Litigation" are
incorporated herein by reference.
GAF, G-I Holdings, G Industries and GAFBMC are presently dependent upon the
earnings and cash flows of their subsidiaries, principally the Company, in order
to satisfy their net obligations of approximately $177.4 million, including as
of December 31, 1997, the asbestos-related liability discussed in Note 3, the
G-I Holdings 11.125% Senior Discount Notes due 1998, and various tax and other
liabilities (net of certain tax and insurance receivables), including tax
liabilities relating to the surfactants partnership (discussed in Note 5).
During the twelve months ended December 31, 1998, such parent companies expect
net receipts of $48.9 million, principally from insurance recoveries and a tax
refund. 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, the Notes and the Credit
Agreement, 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 certain of the
Company's roofing facilities are accounted for as capital leases (see Note 9).
The Company is also a lessee under operating leases principally for warehouses
and production, transportation and computer equipment. Rental expense on
operating leases was $7.0, $8.3 and $9.2 million for 1995, 1996 and 1997,
respectively. Future minimum lease payments for properties which were held under
long-term noncancellable leases as of December 31, 1997 were as follows:
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(THOUSANDS)
1998 ............................................ $ 6,953 $2,499
1999 ............................................ 6,953 2,161
2000 ............................................ 7,463 1,503
2001 ............................................ 8,108 852
2002 ............................................ 17,558 304
Later years ..................................... 21,407 412
-------- ------
Total minimum payments .......................... 68,442 $7,731
======
Less interest included above .................... (18,848)
--------
Present value of net minimum lease payments ..... $ 49,594
========
F-26
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 BY QUARTER 1997 BY QUARTER
------------------------------------ ------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ----- ------ ------ ------- ----- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................ $166.7 $230.2 $251.6 $203.5 $193.3 $255.9 $274.4 $221.0
Cost of products sold .... 124.3 165.6 180.9 151.5 143.2 180.2 197.9 165.7
------ ------ ------ ------ ------ ------ ------ -----
Gross profit ............. $ 42.4 $ 64.6 $ 70.7 $ 52.0 $ 50.1 $ 75.7 $ 76.5 $ 55.3
====== ====== ====== ====== ====== ====== ====== ======
Operating income ......... $ 7.7 $ 20.7 $ 22.8 $ 10.2 $ 9.3 $ 24.9 $ 25.6 $ 10.3
====== ====== ====== ====== ====== ====== ====== ======
Interest expense ......... $ 7.8 $ 8.0 $ 7.9 $ 8.3 $ 9.8 $ 10.3 $ 10.4 $ 12.3
====== ====== ====== ====== ====== ====== ====== ======
Income (loss) before
income taxes ............ $ (0.3) $ 12.4 $ 14.9 $ 0.9 $ 2.9 $ 16.6 $ 18.7 $ 4.6
Income tax (provision)
benefit ................. 0.1 (4.8) (5.8) (0.3) (1.1) (6.5) (7.3) (1.8)
------ ------ ------ ------ ------ ------ ------ -----
Net income (loss) ........ $ (0.2) $ 7.6 $ 9.1 $ 0.6 $ 1.8 $ 10.1 $ 11.4 $ 2.8
====== ====== ====== ====== ====== ====== ====== =====
</TABLE>
F-27
<PAGE>
SCHEDULE II
BUILDING MATERIALS CORPORATION OF AMERICA
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1995
(THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE 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>
CHARGED
BALANCE 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>
YEAR ENDED DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1997 EXPENSES DEDUCTIONS OTHER 1997
- ----------- ---------- -------- ---------- ----- ------------
<S> <C> <C> <C> <C> <C>
Valuation and Qualifying Accounts
Deducted from Assets To Which
They Apply:
Allowance for doubtful accounts .......... $ 1,974 $ 2,224 $ 1,530(a) $ 84(c) $ 2,752(b)
Allowance for discounts .................. 22,468 80,989 88,443 4,389(c) 19,403
Reserve for inventory market valuation ... 2,509 821 1,824 -- 1,506
</TABLE>
- -----------------
Notes:
(a) Represents write-offs of uncollectible accounts net of recoveries.
(b) The balances at December 31, 1995, 1996 and 1997 primarily reflect a
reserve for receivables sold to a trust (see Note 6 to Consolidated
Financial Statements).
(c) Represents balance acquired in acquisitions.
S-1
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 --Certificate of Incorporation of BMCA, as amended.
3.2 --By-laws of BMCA (incorporated by reference to Exhibit 3.2 to BMCA's
Registration Statement on Form S-4 (Registration No. 33-81808) (the
"Deferred Coupon Note Registration Statement")).
4.1 --Indenture, dated as of December 9, 1996, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration Statement 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).
4.3 --Indenture, dated as of October 20, 1997, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration Statement on Form S-4 (Registration
No. 333-41531) (the "8% Notes 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 --Amendment No. 7, dated as of December 31, 1997, to the Management
Agreement (incorporated by reference to Exhibit 10.10 to the 8%
Notes Registration Statement).
<PAGE>
10.9 --Amendment No. 8, dated as of January 1, 1998, to the Management
Agreement (incorporated by reference to Exhibit 10.11 to the 8%
Notes Registration Statement).
10.10 --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).
10.11 --Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock (incorporated by reference to Exhibit
10.9 to BMCA's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).*
10.12 --Forms of Amendment to Option Agreement relating to Series A
Cumulative Redeemable Convertible Preferred Stock.*
10.13 --Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock.*
10.14 --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).
10.15 --Stock Appreciation Right Agreement, dated January 1, 1997, between
GAF Corporation and Sunil Kumar (incorporated by reference to
Exhibit 10.11 to the 1996 Form 10-K).*
10.16 --Amended and Restated Stock Appreciation Right Agreement, dated
January 1, 1997, between GAF Corporation and Sunil Kumar
(incorporated by reference to Exhibit 10.12 to the 1996 Form 10-K).*
21 --Subsidiaries of BMCA.
27 --Financial Data Schedule for fiscal year 1997, which is submitted
electronically to the Securities and Exchange Commission for
information only.
- -------------
*Management and/or compensatory plan or arrangement.
CERTIFICATE OF INCORPORATION
OF
GAF NEWCO INC.
THE UNDERSIGNED, being a natural person for the purposes of
organizing a corporation under the General Corporation Law of the State of
Delaware, hereby certifies that:
FIRST: The name of the Corporation is GAF Newco Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover,
County of Kent, State of Delaware. The name of the registered agent of the
Corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as from time to time amended.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,000, all of which shares shall be
Common Stock having a par value of $.001.
FIFTH: The name and mailing address of the incorporator is Shelley
A. Sorkin, c/o ISP Management Company, Inc., 1361 Alps Road, Wayne, New Jersey
07470.
SIXTH: In furtherance and not in limitation of the powers conferred
by law, subject to any limitations contained elsewhere in these articles of
incorporation, By-laws of the Corporation may be adopted, amended or repealed by
a majority of the board of directors of the Corporation, but any By-laws adopted
by the board of directors may be amended or repealed by the stockholders
entitled to vote thereon. Election of directors need not be by written ballot.
SEVENTH: (a) A director of the Corporation shall not be personally
liable either to the Corporation or to any stockholder for monetary damages for
breach of fiduciary
<PAGE>
duty as a director, except (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, or (ii) for acts or omissions which are
not in good faith or which involve intentional misconduct or knowing violation
of the law, or (iii) for any matter in respect of which such director shall be
liable under Section 174 of Title 8 of the General Corporation Law of the State
of Delaware or any amendment thereto or successor provision thereto, or (iv) for
any transaction from which the director shall have derived an improper personal
benefit. Neither amendment nor repeal of this paragraph (a) nor the adoption of
any provision of the Certificate of Incorporation inconsistent with this
paragraph (a) shall eliminate or reduce the effect of this paragraph (a) in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this paragraph (a) of this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to, or testifies in, any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative in nature, by reason of the fact that such person is or was a
director, office, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding to the full extent permitted
by law, and the Corporation may adopt By-laws or enter into agreements with any
such person for the purpose of providing for such indemnification.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Incorporation on this 31st day of January 1994.
/s/ Shelley A. Sorkin
-----------------------------
Shelley A. Sorkin
Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GAF NEWCO INC.
ADOPTED IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
It is hereby certified that:
1. The present name of the corporation (the "Corporation") is GAF
Newco Inc.
2. The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on January 31, 1994.
3. Article FIRST of the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
"The name of the Corporation is Building Materials Corporation of
America."
4. The foregoing amendment was declared advisable by a resolution
duly adopted by unanimous written consent of the directors of the Corporation
dated February 18, 1994 and was duly adopted in accordance with the provisions
of Section 242 of the Delaware General Corporation Law by the affirmative vote
of the sole stockholder of the Corporation.
IN WITNESS WHEREOF, the undersigned have executed this certificate
as of February 22, 1994.
GAF Newco Inc.
By: /s/ Mark A. Buckstein
-------------------------
Mark A. Buckstein
Executive Vice President
Attest:
/s/ Elisa D. Garcia C.
- ------------------------------
Elisa D. Garcia C.
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
BUILDING MATERIALS CORPORATION OF AMERICA
(Pursuant to Section 242 of the
General Corporation Law of Delaware)
------------------------------------
Building Materials Corporation of America, a corporation organized
and existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. The Certificate of Incorporation of the Corporation (the
"Certificate") was filed with the Secretary of State of Delaware on January 31,
1994. The Corporation was formerly known as GAF Newco Inc.
2. Article FOURTH of the Certificate is hereby amended to read in
its entirety as follows:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is One Million
One Hundred Thousand (1,100,000) shares, consisting of:
(a) One Million Fifty Thousand (1,050,000) shares of
Common Stock, par value $.001 (hereinafter referred to as
"Common Stock"); and
(b) Fifty Thousand (50,000) shares of Preferred Stock,
par value $.01 (hereinafter referred to as "Preferred Stock").
A. PREFERRED STOCK: Shares of Preferred Stock may be issued
from time to time in one or more series, as may from time to time be
<PAGE>
determined by the Board of Directors, each of said series to be
distinctly designated. All shares of any one series of Preferred
Stock shall be alike in every particular, except that there may be
different dates from which dividends, if any, thereon shall be
cumulative, if made cumulative. The voting powers and the
preferences and relative, participating, optional and other special
rights of each series, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any and all
other series at any time outstanding; and, subject to the provisions
of subparagraph 1 of Paragraph C of this Article FOURTH, the Board
of Directors of the Corporation is hereby expressly granted
authority to fix by resolution or resolutions adopted prior to the
issuance of any shares of a particular series of preferred Stock,
the voting powers and the designations, preferences and relative,
optional and other special rights, and the qualifications,
limitations and restrictions of such series, including, but without
limiting the generality of the foregoing, the following:
(a) The distinctive designation of, and the number of
shares of Preferred Stock which shall constitute such series,
which number may be increased (except where otherwise provided
by the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(b) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock of
such series shall be paid, the extent of the preference or
relation, if any, of such dividends to the dividends payable
on any other class or classes or series of the same or other
classes of stock and whether such dividends shall be
cumulative or non-cumulative;
(c) The right, if any, of the holders of Preferred Stock
of such series to convert the same into, or exchange the same
for, shares of any other class or classes or of
2
<PAGE>
any series of the same or any other class or classes of stock
of the Corporation and the terms and conditions of such
conversion or exchange;
(d) Whether or not Preferred Stock of such series shall
be subject to redemption, and the redemption price or prices,
including, without limitation, cash, property, or rights
(including securities of the Corporation or any other
corporation), and the time or times at which, and the terms
and conditions on which, Preferred Stock of such series may be
redeemed;
(e) The rights, if any, of the holders of Preferred
Stock of such series upon the voluntary or involuntary
liquidation, merger, consolidation, distribution or sale of
assets, dissolution or winding-up of the Corporation;
(f) The terms of the sinking fund or redemption or
purchase account, to be provided for the Preferred Stock of
such series; and
(g) The voting powers, if any, of the holders of such
series of Preferred Stock which may, without limiting the
generality of the foregoing, include the right, voting as a
series by itself or together with other series of preferred
Stock or all series of Preferred Stock as a class, to elect
one or more directors of the Corporation if there shall have
been a default in the payment of dividends on any one or more
series of Preferred Stock or under such other circumstances
and on such conditions as the Board of Directors may
determine.
B. COMMON STOCK
1. After the requirements with respect to
preferential dividends on the Preferred Stock (fixed in accordance
with the provisions of Paragraph A of this Article FOURTH), if any,
shall have been met and after the Corporation shall have
3
<PAGE>
complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase
accounts (fixed in accordance with the provisions of Paragraph A of
this Article FOURTH), and subject further to any other conditions
which may be fixed in accordance with the provisions of Paragraph A
of this Article FOURTH, then and not otherwise the holders of Common
Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors.
2. After distribution in full of the preferential
amount, if any (fixed in accordance with the provisions of Paragraph
A of this Article FOURTH), to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the
holders of the Common Stock, subject to the rights, if any, of the
holders of Preferred Stock to participate therein (fixed in
accordance with Paragraph A of this Article FOURTH), shall be
entitled to receive all the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for distribution
to stockholders ratably in proportion to the number of shares of
Common Stock held by them, respectively.
3. Except as may otherwise be required by law or
by the provisions of such resolutions as may be adopted by the Board
of Directors pursuant to Paragraph A of this Article FOURTH, each
holder of Common Stock shall have one vote in respect of each share
of Common Stock held by him on all matters voted upon by the
stockholders.
C. OTHER PROVISIONS:
1. No holder of any of the shares of any class or
series of stock or of options, warrants or other rights to purchase
shares of any class or series of stock or of other securities of the
Corporation shall have any preemptive right to purchase or subscribe
for any unissued stock of any class or series or any additional
shares of any class or series to be issued by reason of any
4
<PAGE>
increase of the authorized capital stock of the Corporation of any
class or series, or bonds, certificates of indebtedness, debentures
or other securities convertible into or exchangeable for stock of
the Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to a resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms, as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
2. The relative powers, preferences and rights of
each series of preferred Stock in relation to the powers,
preferences and rights of each other series of Preferred Stock
shall, in each case, be as fixed from time to time by the Board of
Directors in the resolution or resolutions adopted pursuant to
authority granted in Paragraph A of this Article FOURTH, and the
consent, by class or series vote or otherwise, of the holders of
such of the series of Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the
powers, preferences and rights of such other series shall be fixed
by the Board of directors as senior to, or on a parity with, the
powers, preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in
the resolution or resolutions as to any series of Preferred Stock
adopted pursuant to Paragraph A of this Article FOURTH that the
consent of the holders of a majority (of such greater proportion as
shall be therein fixed) of the outstanding shares of such series
voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
5
<PAGE>
3. Subject to the provisions of sub-paragraph 2 of
this Paragraph C, shares of any series of Preferred Stock may be
issued from time to time as the Board of Directors of the
Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
4. Shares of Common Stock may be issued from time
to time as the Board of Directors of the Corporation shall determine
and on such terms and for such consideration as shall be fixed by
the Board of Directors.
5. The authorized amount of shares of Common Stock
and of Preferred Stock may, without a class or series vote, be
increased or decreased from time to time by the affirmative vote of
the holders of a majority of the stock of the Corporation entitled
to vote thereon.
3. The foregoing Amendment to the Certificate was duly adopted in
accordance with Section 242 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by its duly authorized officers this 26th day of
August, 1996.
By: /s/ James P. Rogers
--------------------------------
James P. Rogers
Senior Vice President
Attest: /s/ Richard A. Weinberg
--------------------------------
Richard A. Weinberg
Secretary
6
<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
1
<PAGE>
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
number 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 the
denominator of which is 90. Such dividends, if and to the extent 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 extend 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
2
<PAGE>
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:
"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
3
<PAGE>
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 exchange 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.
"person" means any individual, partnership, joint venture, firm,
corporation, association, trust or other
4
<PAGE>
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
5
<PAGE>
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.
(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
6
<PAGE>
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 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
7
<PAGE>
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
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
8
<PAGE>
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 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)
9
<PAGE>
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 26th day of August, 1996.
Building Materials Corporation of America
By: /s/ James P. Rogers
----------------------------------
Senior Vice President
James P. Rogers
ATTEST:
/s/ Richard A. Weinberg
- --------------------------------------
Secretary, Richard A. Weinberg
(Corporate Seal)
10
<PAGE>
AMENDED CERTIFICATE OF DESIGNATION
OF
BUILDING MATERIALS CORPORATION OF AMERICA
CERTIFICATE OF DESIGNATION OF
SERIES A CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK, PAR VALUE $.01 PER SHARE
------------------------
Pursuant to Section 151 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.
The Corporation was formerly known as GAF Newco Inc.
THIRD: The Certificate of Designations (the "Certificate of
Designations") of Series A Cumulative Redeemable Convertible Preferred Stock,
par value $.01 per share (the "Preferred Stock"), of the Corporation was filed
with the Secretary of State of the State of Delaware on August 27, 1996.
FOURTH: No shares of Preferred Stock have been issued.
<PAGE>
FIFTH: The Board of Directors of the Corporation has duly adopted
the following resolution amending the Certificate of Designation, by unanimous
consent dated as of December 19, 1996:
RESOLVED, that pursuant to authority expressly granted to the Board
of Directors by the Certificate of Incorporation, the definition of
"Book Value" contained in Section 2(f) as the Certificate of
Designation shall be amended to read as follows:
"Book Value" shall mean, as of December 31, 1995, (x) 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 as a
wholly-owned subsidiary of the Corporation after December 31, 1996,
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) non-recurring non-operating losses and
charges to stockholder's equity and non-recurring 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
disposition 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
<PAGE>
by (y) 1,000,000. Any adjustments to Book Value shall include the
tax effects, if any, associated therewith.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be executed this 24th day of December 1996.
BUILDING MATERIALS CORPORATION OF AMERICA
By: /s/Richard A. Weinberg
-------------------------------------
Richard A. Weinberg
Secretary
<PAGE>
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 this 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 (of, 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
<PAGE>
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 phrases 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 13th day of May 1997.
/s/ Richard A. Weinberg
-------------------------------------
Name: Richard A. Weinberg
Title: Senior Vice President
and Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BUILDING MATERIALS CORPORATION OF AMERICA
(Pursuant to Section 242 of the
General Corporation Law of Delaware)
------------------------------------
Building Materials Corporation of America, a corporation organized
and existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. The Certificate of Incorporation of the Corporation (the
"Certificate") was filed with the Secretary of State of Delaware on January 31,
1994. The Corporation was formerly known as GAF Newco Inc.
2. The first paragraph of Article FOURTH of the Certificate is
hereby amended to read in its entirety as follows:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One Million One Hundred
Fifty Thousand (1,150,000) shares, consisting of:
(a) One Million Fifty Thousand (1,050,000) shares of
Common Stock, par value $.001 (hereinafter referred to as
"Common Stock"); and
(b) One Hundred Thousand (100,000) shares of Preferred
Stock, par value $.01
<PAGE>
(hereinafter referred to as "Preferred Stock")."
3. The foregoing Amendment to the Certificate was duly adopted in
accordance with Section 242 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by its duly authorized officers this 6th day of August,
1997.
By: /s/ Richard A. Weinberg
----------------------------------
Senior Vice President
& Secretary
Attest: /s/ Barry Kerschner
----------------------------------
Assistant Secretary
2
<PAGE>
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: Section 1 of the Certificate of Designations is hereby
amended to read in its entirety 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 100,000. The
liquidation preference of the Series A Preferred Stock shall be $100
per share (the "Liquidation Preference")."
<PAGE>
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 6th day of August, 1997.
/s/ Richard A. Weinberg
---------------------------------
Name: Richard A. Weinberg
Title: Senior Vice President
and Secretary
<PAGE>
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: Section 2(a) of the Certificate of Designations has been amended to
delete the phrase "$2.00 per share" from the fourth and eighth lines thereof and
to replace it with the phrase "$1.50 per share".
FIFTH: The defined term "Book Value" contained in Section 2(f) of the
Certification of Designations has been amended by:
(i) deleting the first two sentences thereof and replacing them with the
following:
"'Book Value' shall mean, as of any date of determination, (x) the sum
of (i) the combined shareholder's equity of the Corporation and U.S. Intec, Inc.
as of December 31, 1995 determined in accordance with generally accepted
accounting principles, (ii) the cumulative consolidated net income or loss of
the Corporation (treating U.S. Intec Holdings Inc. as a wholly-owned subsidiary
of the Corporation for all periods) for the period January 1, 1996 through the
date of determination and (iii) the cumulative operating income (or loss), net
of an amount equal to imputed income taxes on such operating income calculated
at the same tax rate as is accrued as an expense by the Corporation in its
income statement for the applicable period, of GAF Fiberglass Corporation ("GAF
Fiberglass") for the period 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
<PAGE>
connection with the Corporation's formation and (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 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, (3) any dividends or distributions paid
to the holders of the Corporation's capital stock, (4) any capital contributions
made to the Corporation by its stockholders, (5) any amounts received by the
Corporation for shares of its capital stock (including from the exercise of
options or warrants to purchase capital stock or from the conversion into
capital stock of convertible debt or convertible preferred stock) and (6) any
charges relating to amortization of goodwill and other intangibles arising from
the Acquisition divided by (y) 1,000,010. There shall be deducted from Book
Value an amount equal to a 15% per annum charge on the aggregate capital
contributions made to the Corporation by its stockholders during the period
commencing October 1, 1997 and ending with the date of determination (the
"Period"), amounts received by the Corporation during the Period for shares of
its capital stock and, to the extent not actually charged to the Corporation, on
the outstanding principal amount of loans and other advances made to the
Corporation by affiliates (excluding subsidiaries of the Corporation) during the
Period. There shall be added to Book Value a 15% per annum credit on the
aggregate dividends or distributions made by the Corporation to its stockholders
during the Period and, to the extent not actually charged to the borrower, on
the outstanding principal amount of loans and other advances made by the
Corporation to affiliates (excluding subsidiaries of the Corporation) during the
Period. Any adjustments to Book Value (including the 15% charge and credit
referred to in the preceding two sentences) shall include the tax effects, if
any, associated therewith."; and
(ii) by adding the following at the end thereof:
"The 'Nashville Facility' shall mean the Nashville, Tennessee manufacturing
facility of GAF Fiberglass."
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 9th day of March 1998.
BUILDING MATERIALS
CORPORATION OF AMERICA
By: /s/ RICHARD A. WEINBERG
---------------------------------
Name: Richard A. Weinberg
Title: Senior Vice President
and Secretary
2
[Date]
TO EACH HOLDER OF OPTIONS
TO PURCHASE SHARES OF SERIES
A PREFERRED STOCK OF BUILDING
MATERIALS CORPORATION OF AMERICA
Dear Optionee:
Reference is made to the Option Agreement dated September 13, 1996, as
previously amended by amendment dated June 27, 1997 (the "Agreement"), pursuant
to which you were granted an option to purchase shares of Series A Cumulative
Redeemable Convertible Preferred Stock of Building Materials Corporation of
America.
The Agreement is hereby amended as follows:
1. The first sentence of Section 1(b) of the Agreement is hereby amended to
read in its entirety as follows:
"The Option shall vest and become exercisable as to 20% of the
Preferred Shares on December 31 in each of the years 1996 through
2000, in each case to the extent you are employed by the Company or
its subsidiaries on such date; provided that (i) 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 (ii) if, after a Change of Control of the
Company, your employment with the Company and its subsidiaries (x)
should be terminated by the Company other than for cause, (y) is
terminated as a result of your death or permanent disability, or (z)
is terminated by you for "good reason", the unvested portion of the
Option shall become vested on the date of your termination. You shall
be deemed to terminate your employment for "good reason" if you do so
as a result of a change or changes in the terms of your employment
that are materially adverse to you, including with respect to your
salary and bonus, level of responsibility or geographic location of
employment."
<PAGE>
2. The first sentence of Section 1(c) of the Agreement is hereby amended to
read in its entirety as follows:
"The Option will terminate on the earliest of (i) December 31, 2004,
(ii) 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 (iii) one year after the termination of your employment
with the Company and its subsidiaries as a result of your death or
permanent disability."
3. Section 1(d) of the Agreement is hereby amended to read in its entirety
as follows:
"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 (an "IPO"), (i) you will be entitled
to receive from the Company, on each vesting date set forth in Section
1(b) (or, within five days after consummation of the IPO, in the case
of the unexercised portion, if any, of the Option which is vested as
of the date of consummation of the IPO), an amount in cash equal to
the amount by which Book Value (as defined in Section 3(c)) of the
Common Shares issuable upon conversion of the Preferred Shares subject
to the portion of the Option which vests (or, in the case described in
the immediately preceding parenthetical, is vested) on such date,
determined as of the end of the calendar quarter immediately preceding
the consummation of the IPO, exceeds the aggregate exercise price of
such portion of the Option, and (ii) the Company will endeavor to
grant you options to purchase shares of the Company's Common Stock
which, together with the rights to receive cash described in clause
(i) above, provide equivalent economic value to the Options granted to
you pursuant to this Agreement that are unexercised as of the date of
consummation of the IPO. Such new stock options will vest on the
vesting schedule provided in Section 1(b) of this Agreement and will
be granted under a stock option plan which is appropriate, in the
judgment of the Board of Directors of the Company, for a public
company. Your right to receive cash, and to exercise such new stock
options, will be subject to the conditions to vesting set forth in
Section 1(b), including the proviso to the first sentence thereof.
Following consummation of the IPO, this Agreement (other than Section
3(d) and this Section 1(d)) shall have no further force and effect."
4. The first two sentences of Section 3(c) of the Agreement are hereby
amended to read in its entirety as follows, and a comparable change shall be
made to the first sentence of the definition of Book Value contained in Section
2(f) of the Certificate of Designation:
"For purposes of this Agreement, 'Book Value' shall mean, as of
any date of determination, (x) the sum of (i) the combined
shareholder's equity
2
<PAGE>
of the Company and U.S. Intec, Inc. as of December 31, 1995 determined
in accordance with generally accepted accounting principles, (ii) the
cumulative consolidated net income or loss of the Company (treating
U.S. Intec Holdings Inc. as a wholly-owned subsidiary of the Company
for all periods) for the period January 1, 1996 through the date of
determination and (iii) the cumulative operating income (or loss), net
of an amount equal to imputed income taxes on such operating income
calculated at the same tax rate as is accrued as an expense by the
Company in its income statement for the applicable period, of GAF
Fiberglass Corporation ("GAF Fiberglass") for the period 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 of GAF Building Materials
Corporation in connection with the Company's formation and (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 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, (3) any dividends or
distributions paid to the holders of the Company's capital stock, (4)
any capital contributions made to the Company by its stockholders, (5)
any amounts received by the Company for shares of its capital stock
(including from the exercise of options or warrants to purchase
capital stock or from the conversion into capital stock of convertible
debt or convertible preferred stock) and (6) any charges relating to
amortization of goodwill and other intangibles arising from the
Acquisition divided by (y) 1,000,010. There shall be deducted from
Book Value an amount equal to a 15% per annum charge on the aggregate
capital contributions made to the Company by its stockholders during
the period commencing October 1, 1997 and ending with the date of
determination (the "Period"), amounts received by the Company during
the Period for shares of its capital stock and, to the extent not
actually charged to the Company, on the outstanding principal amount
of loans and other advances made to the Company by affiliates
(excluding subsidiaries of the Company) during the Period. There shall
be added to Book Value a 15% per annum credit on the aggregate
dividends or distributions made by the Company to its stockholders
during the Period and, to the extent not actually charged to the
borrower, on the outstanding principal amount of loans and other
advances made by the Company to affiliates (excluding subsidiaries of
the Company) during the Period. Any adjustments to Book Value
(including the 15% charge and credit referred to in the preceding two
sentences) shall include the tax effects, if any, associated
therewith."
3
<PAGE>
5. Section 3(c) of the Agreement is hereby amended to add the following at
the end thereof, and a comparable change shall be made to the definition of Book
Value contained in Section 2(f) of the Certificate of Designations:
"The 'Nashville Facility' shall mean the Nashville, Tennessee
manufacturing facility of GAF Fiberglass."
6. Section 4(b) of the Agreement is hereby amended to read in its entirety
as follows:
"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 the Preferred Shares which were converted into
such Common Shares on or before June 30 of the preceding calendar
year."
7. Section 4(d) of the Agreement is hereby amended to read in its entirety
as follows:
"If you exercise the Option in whole or in part, convert Preferred
Shares received upon exercise into Common Shares and exercise your
right to sell such Common Shares to the Company as provided in Section
4(a) or 4(b), the Company will reimburse you for all interest accrued,
during the period commencing with the date of exercise of your right
under Section 4(a) or 4(b) and ending with the date of purchase by the
Company of your Common Shares, on any loan that financed the purchase
of your Preferred Shares, provided that the terms of the loan and the
lender are reasonably satisfactory to the Company. Such interest will
be paid by the Company when the interest is payable to the lender. The
Company will introduce you to lenders who the Company believes will be
willing to provide financing for exercise of the Options."
8. Section 4(e) of the Agreement is hereby amended to read in its entirety
as follows:
"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 you exercised the Option to purchase the Preferred
Shares which were converted into the applicable Common Shares or (ii)
the Termination Date."
4
<PAGE>
9. Section 2(a) of the Certificate of Designation shall be amended to
replace "$2.00" with "$1.50" in the fourth and eight lines thereof.
In all other respects, the Agreement shall remain in full force and
effect.
Capitalized terms used herein which are not defined shall have the meanings
ascribed to them in the Agreement.
Please sign the enclosed copy of this letter to indicate your agreement to
the foregoing.
Sincerely,
BUILDING MATERIALS
CORPORATION OF AMERICA
By: _________________________
AGREED:
- ----------------------------
5
<PAGE>
[Date]
TO EACH HOLDER OF OPTIONS
TO PURCHASE SHARES OF SERIES
A PREFERRED STOCK OF BUILDING
MATERIALS CORPORATION OF AMERICA
Dear Optionee:
Reference is made to the Option Agreement dated July 1, 1997 (the
"Agreement") pursuant to which you were granted an option to purchase shares of
Series A Cumulative Redeemable Convertible Preferred Stock of Building Materials
Corporation of America.
The Agreement is hereby amended as follows:
1. The first sentence of Section 1(b) of the Agreement is hereby amended to
read in its entirety as follows:
"The Option shall vest and become exercisable as to 20% of the
Preferred Shares on June 30 in each of the years 1998 through 2002, in
each case to the extent you are employed by the Company or its
subsidiaries on such date; provided that (i) 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 (ii) if, after a Change of Control of the
Company, your employment with the Company and its subsidiaries (x)
should be terminated by the Company other than for cause, (y) is
terminated as a result of your death or permanent disability, or (z)
is terminated by you for "good reason", the unvested portion of the
Option shall become vested on the date of your termination. You shall
be deemed to terminate your employment for "good reason" if you do so
as a result of a change or changes in the terms of your employment
that are materially adverse to you, including with respect to your
salary and bonus, level of responsibility or geographic location of
employment."
<PAGE>
2. The first sentence of Section 1(c) of the Agreement is hereby amended to
read in its entirety as follows:
"The Option will terminate on the earliest of (i) June 30, 2006, (ii)
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 (iii) one year after the termination of your employment
with the Company and its subsidiaries as a result of your death or
permanent disability."
3. Section 1(d) of the Agreement is hereby amended to read in its entirety
as follows:
"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 (an "IPO"), (i) you will be entitled
to receive from the Company, on each vesting date set forth in Section
1(b) (or, within five days after consummation of the IPO, in the case
of the unexercised portion, if any, of the Option which is vested as
of the date of consummation of the IPO), an amount in cash equal to
the amount by which Book Value (as defined in Section 3(c)) of the
Common Shares issuable upon conversion of the Preferred Shares subject
to the portion of the Option which vests (or, in the case described in
the immediately preceding parenthetical, is vested) on such date,
determined as of the end of the calendar quarter immediately preceding
the consummation of the IPO, exceeds the aggregate exercise price of
such portion of the Option, and (ii) the Company will endeavor to
grant you options to purchase shares of the Company's Common Stock
which, together with the rights to receive cash described in clause
(i) above, provide equivalent economic value to the Options granted to
you pursuant to this Agreement that are unexercised as of the date of
consummation of the IPO. Such new stock options will vest on the
vesting schedule provided in Section 1(b) of this Agreement and will
be granted under a stock option plan which is appropriate, in the
judgment of the Board of Directors of the Company, for a public
company. Your right to receive cash, and to exercise such new stock
options, will be subject to the conditions to vesting set forth in
Section 1(b), including the proviso to the first sentence thereof.
Following consummation of the IPO, this Agreement (other than Section
3(d) and this Section 1(d)) shall have no further force and effect."
4. The first two sentences of Section 3(c) of the Agreement are hereby
amended to read in its entirety as follows, and a comparable change shall be
made to the first sentence of the definition of Book Value contained in Section
2(f) of the Certificate of Designation:
"For purposes of this Agreement, 'Book Value' shall mean, as of any
date of determination, (x) the sum of (i) the combined shareholder's
equity
2
<PAGE>
of the Company and U.S. Intec, Inc. as of December 31, 1995
determined in accordance with generally accepted accounting
principles, (ii) the cumulative consolidated net income or loss
of the Company (treating U.S. Intec Holdings Inc. as a
wholly-owned subsidiary of the Company for all periods) for the
period January 1, 1996 through the date of determination and
(iii) the cumulative operating income (or loss), net of an amount
equal to imputed income taxes on such operating income calculated
at the same tax rate as is accrued as an expense by the Company
in its income statement for the applicable period, of GAF
Fiberglass Corporation ("GAF Fiberglass") for the period 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 of GAF
Building Materials Corporation in connection with the Company's
formation and (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 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, (3) any dividends or
distributions paid to the holders of the Company's capital stock,
(4) any capital contributions made to the Company by its
stockholders, (5) any amounts received by the Company for shares
of its capital stock (including from the exercise of options or
warrants to purchase capital stock or from the conversion into
capital stock of convertible debt or convertible preferred stock)
and (6) any charges relating to amortization of goodwill and
other intangibles arising from the Acquisition divided by (y)
1,000,010. There shall be deducted from Book Value an amount
equal to a 15% per annum charge on the aggregate capital
contributions made to the Company by its stockholders during the
period commencing October 1, 1997 and ending with the date of
determination (the "Period"), amounts received by the Company
during the Period for shares of its capital stock and, to the
extent not actually charged to the Company, on the outstanding
principal amount of loans and other advances made to the Company
by affiliates (excluding subsidiaries of the Company) during the
Period. There shall be added to Book Value a 15% per annum credit
on the aggregate dividends or distributions made by the Company
to its stockholders during the Period and, to the extent not
actually charged to the borrower, on the outstanding principal
amount of loans and other advances made by the Company to
affiliates (excluding subsidiaries of the Company) during the
Period. Any adjustments to Book Value (including the 15% charge
and credit referred to in the preceding two sentences) shall
include the tax effects, if any, associated therewith."
3
<PAGE>
5. Section 3(c) of the Agreement is hereby amended to add the following at
the end thereof, and a comparable change shall be made to the definition of Book
Value contained in Section 2(f) of the Certificate of Designations:
"The 'Nashville Facility' shall mean the Nashville, Tennessee
manufacturing facility of GAF Fiberglass."
6. Section 4(b) of the Agreement is hereby amended to read in its entirety
as follows:
"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 the Preferred
Shares which were converted into such Common Shares on or before
June 30 of the preceding calendar year."
7. Section 4(d) of the Agreement is hereby amended to read in its entirety
as follows:
"If you exercise the Option in whole or in part, convert
Preferred Shares received upon exercise into Common Shares and
exercise your right to sell such Common Shares to the Company as
provided in Section 4(a) or 4(b), the Company will reimburse you
for all interest accrued, during the period commencing with the
date of exercise of your right under Section 4(a) or 4(b) and
ending with the date of purchase by the Company of your Common
Shares, on any loan that financed the purchase of your Preferred
Shares, provided that the terms of the loan and the lender are
reasonably satisfactory to the Company. Such interest will be
paid by the Company when the interest is payable to the lender.
The Company will introduce you to lenders who the Company
believes will be willing to provide financing for exercise of the
Options."
8. Section 4(e) of the Agreement is hereby amended to read in its entirety
as follows:
"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 you exercised the Option to
purchase the Preferred Shares which were converted into the
applicable Common Shares or (ii) the Termination Date."
4
<PAGE>
9. Section 2(a) of the Certificate of Designation shall be amended to
replace "$2.00" with "$1.50" in the fourth and eight lines thereof.
In all other respects, the Agreement shall remain in full force
and effect.
Capitalized terms used herein which are not defined shall have the meanings
ascribed to them in the Agreement.
Please sign the enclosed copy of this letter to indicate your agreement to
the foregoing.
Sincerely,
BUILDING MATERIALS
CORPORATION OF AMERICA
By: _________________________
AGREED:
- ----------------------------
5
Building Materials Corporation of America
1361 Alps Road
Wayne, New Jersey 07470
[Date]
[Name
Address]
Dear
In consideration of your agreement to the terms and conditions of [the
Non-Competition Agreement], a copy of which is attached hereto, among other good
and valuable consideration, 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 shall have the rights and preferences set forth in
the Certificate of Designation attached as Exhibit A hereto, provided that
"_____________" shall be substituted for "December 31, 1995" for purposes of
Section 6(a) of the Certificate of Designation and your Preferred Shares,
notwithstanding the terms of the Certificate of Designation.
(b) The Option shall vest and become exercisable as to 20% of the Preferred
Shares on ______ in each of the years ____ through _____, in each case to the
extent you are employed by the Company or its subsidiaries on such date;
provided that (i) 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 (ii) if, after a Change of Control of the
Company, your employment with the Company and its subsidiaries (x) should be
terminated by the Company other than for cause, (y) is terminated as a result of
your death or permanent disability, or (z) is terminated by you for "good
reason", the unvested portion of the Option shall become vested on the date of
your termination. You shall be deemed to terminate your employment for "good
reason" if you do so as a result of a change or changes in the terms of your
employment that are materially adverse to you, including with respect to your
salary and bonus, level of responsibility or geographic location of employment.
<PAGE>
"Change of Control" 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 earliest of (i) ___________, (ii) 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
(iii) 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 (an "IPO"), (i) you will be entitled to receive from
the Company, on each vesting date set forth in Section 1(b) (or, within five
days after consummation of the IPO, in the case of the unexercised portion, if
any, of the Option which is vested as of the date of consummation of the IPO),
an amount in cash equal to the amount by which Book Value (as defined in Section
3(c)) of the Common Shares issuable upon conversion of the Preferred Shares
subject to the portion of the Option which vests (or, in the case described in
the immediately preceding parenthetical, is vested) on such date, determined as
of the end of the calendar quarter immediately preceding the consummation of the
IPO, exceeds the aggregate exercise price of such portion of the Option, and
-2-
<PAGE>
(ii) the Company will endeavor to grant you options to purchase shares of the
Company's Common Stock which, together with the rights to receive cash described
in clause (i) above, provide equivalent economic value to the Options granted to
you pursuant to this Agreement that are unexercised as of the date of
consummation of the IPO. Such new stock options will vest on the vesting
schedule provided in Section 1(b) of this Agreement and will be granted under a
stock option plan which is appropriate, in the judgment of the Board of
Directors of the Company, for a public company. Your right to receive cash, and
to exercise such new stock options, will be subject to the conditions to vesting
set forth in Section 1(b), including the proviso to the first sentence thereof.
Following consummation of the IPO, this Agreement (other than Section 3(d) and
this Section 1(d)) shall have no further force and effect.
(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.
(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.
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
___________, 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,
-3-
<PAGE>
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 or Common Shares.
(a) You agree that you will not, prior to __________, 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, on or after ____________, 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/or 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/or 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/or Common Shares you have offered,
it shall be obligated to purchase, and you will be obligated to sell, those
Preferred Shares and/or Common Shares at the price and on the terms described
above. If the Company does not elect to purchase the Preferred Shares and/or
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/or Common Shares to
any party, provided, however, that, in the event you have not transferred the
Preferred Shares and/or Common Shares within 120 days after expiration of the
Option Period, then any transfer of those Preferred Shares and/or 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) the sum of (i) the combined shareholder's equity of the
Company and U.S. Intec, Inc. as of December 31, 1995 determined in accordance
with generally accepted accounting principles, (ii) the cumulative consolidated
net income or loss of the Company (treating U.S. Intec Holdings Inc. as a
-4-
<PAGE>
wholly-owned subsidiary of the Company for all periods) for the period January
1, 1996 through the date of determination and (iii) the cumulative operating
income (or loss), net of an amount equal to imputed income taxes on such
operating income calculated at the same tax rate as is accrued as an expense by
the Company in its income statement for the applicable period, of GAF Fiberglass
Corporation ("GAF Fiberglass") for the period 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 of GAF Building Materials Corporation in connection with the
Company's formation and (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 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, (3) any
dividends or distributions paid to the holders of the Company's capital stock,
(4) any capital contributions made to the Company by its stockholders, (5) any
amounts received by the Company for shares of its capital stock (including from
the exercise of options or warrants to purchase capital stock or from the
conversion into capital stock of convertible debt or convertible preferred
stock) and (6) any charges relating to amortization of goodwill and other
intangibles arising from the Acquisition divided by (y) 1,000,010. There shall
be deducted from Book Value an amount equal to a 15% per annum charge on the
aggregate capital contributions made to the Company by its stockholders during
the period commencing October 1, 1997 and ending with the date of determination
(the "Period"), amounts received by the Company during the Period for shares of
its capital stock and, to the extent not actually charged to the Company, on the
outstanding principal amount of loans and other advances made to the Company by
affiliates (excluding subsidiaries of the Company) during the Period. There
shall be added to Book Value a 15% per annum credit on the aggregate dividends
or distributions made by the Company to its stockholders during the Period and,
to the extent not actually charged to the borrower, on the outstanding principal
amount of loans and other advances made by the Company to affiliates (excluding
subsidiaries of the Company) during the Period. Any adjustments to Book Value
(including the 15% charge and credit referred to in the preceding two sentences)
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, if GAF Fiberglass
becomes a direct or indirect subsidiary of the Company, if the Company directly
or indirectly acquires the Nashville Facility, 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. The Nashville Facility
shall mean the Nashville, Tennessee manufacturing facility of GAF Fiberglass.
(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
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<PAGE>
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 the Preferred Shares which were
converted into such Common Shares on or before June 30 of the preceding calendar
year.
(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) If you exercise the Option in whole or in part, convert Preferred
Shares received upon exercise into Common Shares and exercise your right to sell
such Common Shares to the Company as provided in Section 4(a) or 4(b), the
Company will reimburse you for all interest accrued, during the period
commencing with the date of exercise of your right under Section 4(a) or 4(b)
and ending with the date of purchase by the Company of your Common Shares, on
any loan that financed the purchase of your Preferred Shares, provided that the
terms of the loan and the lender are reasonably satisfactory to
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<PAGE>
the Company. Such interest will be paid by the Company when the interest is
payable to the lender. The Company will introduce you to lenders who the Company
believes will be willing to provide financing for exercise of the Options.
(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 you exercised the Option to purchase the Preferred Shares which were
converted into the applicable Common Shares or (ii) the Termination Date.
(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.
(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.
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
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<PAGE>
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.
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 its subject matter, 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.
-8-
<PAGE>
(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.
(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.
THIS AGREEMENT IS NOT, AND SHALL NOT, BE CONSTRUED TO CREATE A CONTRACT OF
EMPLOYMENT, EXPRESS OR IMPLIED. I REMAIN AN AT-WILL EMPLOYEE. THIS MEANS THAT I
HAVE THE RIGHT TO TERMINATE THAT EMPLOYMENT RELATIONSHIP WITH OR WITHOUT CAUSE
OR REASON AND WITHOUT PRIOR NOTICE OR COMPLIANCE WITH ANY PROCEDURES. LIKEWISE,
THE COMPANY CAN TERMINATE MY EMPLOYMENT WITH OR WITHOUT CAUSE OR REASON, AND
WITHOUT PRIOR NOTICE OR COMPLIANCE WITH ANY PROCEDURES.
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<PAGE>
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:
- -------------------------------
-10-
<TABLE>
<CAPTION>
EXHIBIT 21
BUILDING MATERIALS CORPORATION OF AMERICA
LIST OF SUBSIDIARIES
COMPANY STATE OF INCORPORATION D/B/A
------- ---------------------- -----
<S> <C> <C>
Building Materials Corporation of America Delaware GAF Materials Corporation and Old
American Products
U.S. Intec Holdings Inc. Delaware
U.S. Intec, Inc. Texas Tri-Ply Corporation
Exterior Technologies Corporation Texas
Intec Marine Inc. Texas
USI Materials Inc. Delaware
GAF Leatherback Corp. Delaware
BMCA Insulation Products Inc. Delaware
BMC Warehousing Inc. Delaware
GAFTECH Corporation Delaware
South Ponca Realty Corp. Delaware
GAF Real Properties Inc. Delaware
BMCA Receivables Corp. Delaware
TOPCOAT, Inc. Delaware
GAF Kalamazoo Acquisition Corp. Delaware
GAF Materials Corporation (Canada) Delaware
Pequannock Valley Claim Service Company, Inc. Delaware
GAF Premium Products Inc. Delaware
Wind Gap Real Property Acquisition Corp. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K OF BUILDING MATERIALS CORPORATION OF AMERICA AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,921
<SECURITIES> 223,848
<RECEIVABLES> 13,643
<ALLOWANCES> 2,752
<INVENTORY> 72,254
<CURRENT-ASSETS> 410,539
<PP&E> 241,946
<DEPRECIATION> 56,514
<TOTAL-ASSETS> 807,286
<CURRENT-LIABILITIES> 125,785
<BONDS> 555,446
0
0
<COMMON> 1
<OTHER-SE> 82,998
<TOTAL-LIABILITY-AND-EQUITY> 807,286
<SALES> 944,629
<TOTAL-REVENUES> 944,629
<CGS> 686,992
<TOTAL-COSTS> 686,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,784
<INCOME-PRETAX> 42,771
<INCOME-TAX> 16,680
<INCOME-CONTINUING> 26,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,091
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
