Document 85X5dxZOnqNEZpR3mYn0RXVDd

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20S49 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR I ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 33-26703 G-I HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware (State of Incorporation) 13-3483B38 (I.R.S. Employer Identification No.) 81B WASHINGTON STREET WILMINGTON, DELAWARE (Address of Principal Executive Offices) 19801 (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 429-B525 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ As of March 21, 1997, 100 shares of the Registrant's conaon stock were outstanding. All of the voting stock of the Registrant is held by GAF Corporation. PART I ITEM 1. BUSINESS C-I HOLDINGS G--I Bolding* Inc- (the 'Registrant* or *G-I Bolding**), incorporated under the levs of Delaware in 19B6, i* a wholly-owned subeidiary of GAP Corporation (*GAP*) G-I Bolding* own* all of the issued and outstanding stock of G Industries Corp. (*C Industries'), which in turn owns all of the^issued and outstanding stock of GAP Building Materials Corporation f4GAPBMC*) and CAT^ Fiberglass corporation (formerly known as GAP Chemicals Corporation) ( GFC I GAPBWC owns all of the ieened and outstanding stock of atiding Materials Corporation of Ammriea (*BMCA'), which indirectly cwne all of the issued and outstanding stock of O.S. Intec, Inc. (*USI`). G-I Bolding* has its priscipal offices at BIB Washington Street, Wilmington, Oeleware 19*01, telephone (302) 429--BS2S. Incept an the context otherwise requires, the 'Co^any* refers to G-I Holdings and Its subsidiaries aad their predecessors. On January 1, 1997, GAP effected a series of transactions (collectively, the `Separation Transactions') involving its subsidiaries that resulted in, *--other things. (1) the capital stock of ISP holdings loc. (' 15? holdings *) (whose principal asset is approximately B3.31 of the issued and outstanding capital stock of International Specialty Products Ine. ('ISP*)) being distributed to the stockholders of GAP, (2) BMCA's glass fiber manufacturing facility in Nashvilla, Tennessee (and certain related assets and liabilities! being transferred to Grc, and (3) USI becoming a subsidiary of BMCA. In connection with the Separation Transactions, GFC entered into a long-term supply agreeaent with BMCA pursuant to which GFC agreed to produce glass fiber for BMCA. As a result of the Separation Transactions, ISP Moldings and ISF are no longer direct or indirect subsidiaries of GAP or G-I Holdings, while BMCA and USI and certain other assets; and liabilities, including liabilities for asbestos-ralated claims, rsmsis part of G-I Boldiogs and GAP, but are not asset* or liabilities of ISP Holdings. The statistical data regarding the Conpany presented herein gives retroactive effect to the Separation Transactions. The Registrant intends to suspend its obligation to make filings with the Securities no Exchange Cosmission pursuant to the Securities Exchange Act of 1934, as amended, promptly after the filing of this Annual Report on Fora 10-X. RESIDENTIAL ROOFING BMCA is a leading manufacturer of a complete line of premium residential roofing products, with residential roofing product sales representing approximately 661 of the Company's net sales in 1996. BMCA has improved its sales mix of residential roofing products in reeent years by increasing its emphasis on laminated products which generally are mold at higher prices with more attractive profit margins than its standard strip shingle products. BMCA 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 costained herein as to BMCA's competitive position are based on industry information which the Company believes to be reliable). BMCA produces two principal lines of roofing shingles, the Timberline (Registered) series and the Sovereign (Registered) series, as well ss certain specialty shingles for regional markets. The Timberline(Registered) Series. The Timberline(Registered) Series offers a premium laminated product line that adds drastatic shadow lines and substantially improves the appearance of a roof. The series includes the GAP Ti^erline(Regiatered) 23 Natural Shadow(Trademark) shingle, a mid-weight laminated shingle which serves as an economic trade-up Cor consumers, with a 2S-ymar limited warranty; the Timberline (Registered) Natural Shadow( Trademark) shingle, with a 30-year limited warranty, offering a voodshake appearance, enhanced visual depth and contrast simulating shadows and superior fire resistance and durability; and the Tinberline ultre(Registered) Natural Shadow(Trademark) shingle, with s 40-year limited warranty, a super heavyweight laminated shingle with the Same design features as the Timberline(Registered) Natural Shadow(Trademark) shingle, together with added durability. The Sovercign(kegistereb) Series. The Sovereign(Registcred) Series includes the standard 3-tab jBentinel(Registered) shingle with a 20-year limited warranty; the Royal Sovereign (Registered) shingle, a heavier 3-tab shingle with a 25-year limited warranty, designed to capitalise on the middle market for quality shingles; and the Hsrquls(Registered) shingle, a super heavyweight 3-tab shingle with a 30-year limited warranty. i 4 f. 1 Specialty Shingles. MU'i specialty asphalt shingles include: Slatelinm|h*gistmrmd) shingles offaxing tha appearance of slate, labor aarings la installation because of their larger sisa and a SO-year liaitad warranty1 Stocehengef Registered) shinglas offering a unique strip shingle appearance ana a U-yeer Halted warranty; Oubl'-CDverage(Begiabermd) Tite-Oo[Registered) shingles offering a design feature that eaahles the shingles to lock together to to double layer roof, and a 2S-year Halted warranty; the Grand Sequoia (Registered) shingle, a premier architectural shingle with e 40-year warranty; and the Floridian{Registered) ahingle, a unique (-tab shingle that offers a dieenaieeel look with a 25-year liaitad warranty. HimRnnf(Registered) oo^naeat hoofing Systmn. Ill addition to shingles, MCA supplies all the r rayi masts aeeessary to install a nrmplaia roofing system, rack's Syataohoof (heglstoxed) bagins with Weather natch(angletaxed) ice and water barrier uederleyaent tor saves) walleye and flashings to prevent water seepage between tha roof dock esd thishingles caused by ice halld-ops. BMCA's -yTT iswii nif (Registered) nlno includes.' Shingla-aate(haginternd) glass reinforced uederleyaent, Tlnbftes)Registered)RiSgatawfTl siiaesrk) and Slatalina(Rnglstered) sip and hldga ahlaglas which are significantly thicker and larger than standard hip and ridge shingles end provide draaatic accents to tbo slopes and planes of a roof and the Cobra(Registered) hldge Vent which provides attic ventilation. On Hareh 14, 1457, BMCA Required tha assets of the Leatherback Industries division of Boll inn* Corporation, which is engaged in the naaufacture sad sale of aaphalt-aaturatsd roof lag felts and other fait sad construction paper products. commercial hoorae BMCA ennufncturss a full line df codified bituaen products, asphalt built-up roofing and roofing accessories for use in tha application of coomarcial roofing. Caemercial roofing represented approximately Ml of the Caraany's net sales in 14fi. Approximately 70% of i ivaaarcial roofing industry ncebrsns unit sales utilise asphalt hpiiit-up roofleg end aodifiad bituaen products, both of which hMCA earn:lectures. The Coapesy believes that it is tha second largedc manufacturer of aaphqlt built-up roofing products and the largest manufacturer of nodifiad hitoewn products in the United states. BMCA manufactures glass aaaferanas under the trsdsmark GAFGLAS(nsgistsrad) which are made free asphalt impregnated glass fiber mat for ana ss a rrmponent in asphalt built-up ruoflag systems.1 Moat of BMCA's CATCLAS(hsgistsrvd) products re assembled oo the roof by applying successive layers of roofing mmbnm with asphalt and topped, in some applications, with gravel, Thermal insulation may be applied beneath the eenhraee. hMCA also manufactures base sheets, flashings and other roofing accessaries for use in those ayitma and perlite roofing insulation products, which consist of low thermal Insulation that le installed as part of a ccanmrcial roofing application below the roofing mnehrare. la addition, bmca aelln isoeyanurata foam ae roofing insulation, packaged asphalt and accessories, such as vent stacks, roof insulation fasteners, cements end coating. Modified bitumen products are sold under the tuboroid(hagisterod) trademark by BMCA and under the Brail Registered) trademark by USI end are used primarily is re-roofing applications. These products consist of s roofing maabraae utilizing polymer-modified asphalt, which strengthens sad increases flexibility and is reinforced with e polyester nan-woven eat or e glees ant. Modified bitumen systems provide high strength characteristics, such as weatherabillty, water resistance, and labor coat savings due to esse of application. MARKETING AMD SALBS .4; BMCA has ana of the industry's, largest sales forces, which is supported by a staff of technical professionals Wo work directly with architects, general contractors and owner/builders. RHCAfearksts Its roofing products through its own aalea fores of approximately 12^ experienced full-time employees operating from five regional sales offices located across tha United States. USI amrkats its roofing products through approximately SO experienced full-time m^loyeea and independent sales representatives. A major portion of BMCA's roofing product sales are to wholesale distributors who resell BMCA's products to roofing contractors and ratailers. The Coopdny believes that the wholesale distribution channel offers the wost attractive Margins of all roofing market distribution channels and represents the principal distribution channel for professionally installed asphalt roofing products..(BMCA believes that its nationwide coverage has contributed to its roofing products being among the most recognized and raquastod brands in the industry. 2 JS u ii \i Ah. Mo single cuitcMr accounted for 10% or more of the Company's 1991 fits, except for American Builders end Contractors Supplies Co,f Inc., which Accounted for Approximately 11% of such seles. RAW MATERIALS The major rmv materials required for the manufacture of BKCA roofing produets are asphalt, mineral stabiliser, glass fiber, glass fiber eat and granules. Asphalt and mineral stabilizer are available from e large nunber of suppliers and BMCA currently has contracts with several of these suppliers, with others available ae substitutes. Prices of most rev materials have been relatively stable, rising ooderately with general industrial prices, while the price of esphalt tends to move is step with the price of erode oil, rive of BKCA's roofing plants have easy access to dedp water ports thereby permitting delivery of asphalt by ship, the moat economical means of transport, NCR's Chester, South Carolina plant manufactures glens fiber mat substrate. BHCA currently purchases supplies of raw materials at reasonable costs, although there can be no assurance that it will continue to do so. BMCA purchases from an affiliate, ISP, substantially all its requirements for colored roofing granules (except for the requirements of its California roofing plant which are supplied by a third party) under a supply contract that was renewed for one year effective January 1, 1997 and is subject to annual renewal unless terminated by BMCA or ISP. In sddition, in Deeeeber 199S, OBI commenced purchasing substantially all of its requirements for colored roofing granules froa 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, BNCA transferred to GFC its Nashville, Tennessee facility, which manufactures a significant portion of BHCA's glass fiber requirements, and entered into a supply contract with GFC under which GFC produces glass fiber for BHCA. 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, BHCA`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 BHCA provides certain limited warranties covering mast of its residential roofing products for periods ranging from 20 to 40 years. Although terms of warranties vary, BNCA believes that its warranties generally are consistent with those offered by its co^ctitors. BNCA also orfers limited warranfcies 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 I The roofing products industry is highly competitive and includes a number of national coqietitors, which in the residential roofing market are Owens-Coming, Elcor and Celotex, and in the coMercial roofing market are Schuller International, Celotex, Firestone and Carlisle. In addition, there are numerous regional competitors. Competition is based largely upon products and service quality, distribution capability, price and credit*terns. BMCA believes that it is well positioned in the marketplace as a result of its broad product lines in both the residential and comercial 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 inumber of roofing manufacturers, including BMCA, have increased their laminated shingle production capacity in recent years and, accordingly, BMCA expects increased competition ia this area. RESEARCH ANO DEVELOPMENT BNCA'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. BHCA'a 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, Texaa. BMCA's research and development expenditures were approximately $2.5 million, $1.1 million and $4.S million inf 1994, 199S and *1996, respectively. 3,* * >1 t PATENTS AND TRADEMARKS BKCA owns approximately 73 domestic and 79 foreign patents and owns or licenses approximately 13B dn--Stic and 44 foreign trademark registrations, while BHCA believes the patent protection covering certain of its products to be material to those products, such patents are not of material significance to the overall roofing-related business of BHCA. BMCA believes that the duration of the existing patents and patent licenses is satisfactory. CPC The business of GFC consists of |1) operating a glass fiber manufacturing facility in Nashville, Tennessee, which was transferred to GPC as part of the Separation Transactions, and (2) owning an interest in a partnership (the 'Surfactants Partnership') which operates, among other businesses, CPC's former surfactants chemicals business. See Note 3 to Consolidated Financial statements. ENVIRONMENTAL COMPLIANCE Since 1970, a wide variety of federal, state and local environmental lavs 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 bean uamd, produced or discharged at their plants or at other locations, the Company is affected by the Regulations. The Company has mads capital expenditures averaging approximately $500,000 during each of the last three years in order to comply with the Regulations (which expenditures are included in additions to property, plant and equipment) and anticipates that aggregate capital expenditures relating to environmental compliance in each of 1997 and 199B 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 conpliance in all material respects with applicable environmental, health and safety laws and regulations, but cannot predict whether more burdensome requirements will be inposed by governmental authorities in the future. EMPLOYEES C-I Holdings has no employees other than its officers. At December 31, 1996, the Company employed approximately 2,(00 people worldwide, approximately 1,000 of which were subject to 15 union contracts. The contracts are effective for four-year^ periods. During 1996, five labor contracts expired and were renegotiated. The company expects to renegotiate five labor contracts during 1997. The Company believes that its relations with its employees and their unions are satisfactory. ITEM 2. PROPERTIES The corporate headquarters and principal research and development laboratories of BMCA are located at a 100-acre campus-like office and research park owned by a subsidiary of ISP at 1361 Alps Road, Nayne, New Jersey 07470. The premises are subject to a first mortgage. The principal real properties either owned by, or leased to, the Company or its subsidiaries are described below. Unless otherwise indicated, the properties are owned in fee. In addition to the {nrincipal facilities listed below, the Company maintains sales offices and warehouses, substantially all of which are in leased premises under relatively short-term leases - G-I Holdings does not directly oVn or lease any real property. 4 )V LOCATION FACILITY Alabama Mobile......................................... Plant, Warehouse* Arizona Chandler....................................Warehouse* California Fontana..................................... Plant, Sales Office Hollister................................ Plant, Plant* Ontario...................................... Plant, Sales Office Stockton................................. Plant, Plant*, Warehouse* Florida Tampa............................................ Plant, Sales Office* Georgia Monroe....................................... Plant, Warehouse* Savannah................................... Plant, Sales Office Indiana Mount Vernon......................... Plant, Sales Office Illinois Naperville..............................Sales Office* Kentucky Florence.................................... Plant Maryland ,-X Baltimore.................................Plant, Warehouse* Massachusetts Millis......................................... Plant, Sales Office Minnesota Minneapolis............................Plant, Sales Office, 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* Warehouse* Oregon Corvallis................................. Plant Pennsylvania Erie............................................... Plant, Sales office, Warehouse* Wind Gap.................................... Plant South Carolina Chester...................................... Plant Tennessee Nashville................................. Plant, Research Center Texas Beaumont.................................... Plant Dallas......................................... Plant, Sales Office, Warehouse* Fannett...................................... Warehouse Houston....................................... Plant, Warehouse, Warehouse* Port Arthur............................ Plant, Warehouse, Office KV- * Leased Property 5 Tfa* Cdu belieeos that its plants ud facilities, whleh are of varying ages and ar* of" different construction types, hsvn baas satisfactorily . oalntalnad. ara in good condition, ara auitafala for their respective ogaratiens and ganarally provide sufficient capacity to Boat protection aaqoizanaata Bach plant has adaqoata transportation facilities for both rev aateriaie and fiaiabod products. In 199, tbn Oonpsny nate capital erpaoditnres in the sneont of *I*-1 Billion ralatlag to plant, property and equipment. i The raaarvea of OP and 6-1 Hidings for nstiantos bodily injury plains, as of miiMdiai 31, 1911, were approximately $333.* Billion (before estimtad prannnt yalna of rneovarloa troa prodoets liability Inaaranae pel idea of (irnrlHo'lr 3130.5 v*"1"1 aa tearrribid below and related detailed tax benefits of appmadastaly 331.7 allltoel. Cartais eeapenasts of tba aabastoa-ralated liability and tba sainted insurance recoveries have bean reflected oa a diaeooatad basis is tba Oospsny'a financial atatwaaata. Sea Seta 1 to Consolidated rinaacial Stataaants and `Xnmrancn Matters.* Tbn aetieate of liability Cor datieefnn Clalaa in based on the tetllmant daecrlbed below liaiiBlnij effective and ! aaeagpl luaa wbiob reletn, anang otbar things, to tba ntes of naw eanen tiled, tbn ooat of rooolving (either by settleaaat or litigatics or through tbs aachsnlm establiebod by tbn Battlaeeet) randinj and fataro claien, the reel tret loo of related tax benefits, the favorable reeolatioo of ponding litigation against enrtain insurance ooapanies and tba anil of SHF's recoverlea fron varioox iaxuranoa aonpanias. See '--laaoranca Matters. * eg Tba actdel coat of raaolvlag pending and fatnn anbettos Claias la difficolt to estimate. Bownvnr, baaed npoa tba experience of tba Cantor for Clalna Mnaolntian (tbn 'OCX*), a eng profit organisation of asbestos dafandant --mrur'-v iaelnding On, in settling approximately 2C,*0S cease eiaoa its creation in 1911, cur's recant average sattlanaat costs, and tbs lepoPL of tba Sattlaonot if it baoonaa affective, * GST believes that its rsssxiss, bafors discounting, together with anticipated aveilable inserxace proBeads, Bill be eafficiaat to satisfy all pud lag babsatoa clalna and all clsins anticipated to be resolved daring tba ton year period of tba Sattlmaet described below. Thera caa be no aaaaranos, bowwvwr, that tba aannapHnwa referred to aboBe ere On January IS, 1993, tba naabars of tbn CCS entered into tbo ottlwefit to resolve all future asbestos Claim (otbar tbaa aisles of tinea persona wbo 'Opted out' of tba class) against oar and other amen of tba OCX. the class action wan filed with the United States District Court la Philadelphia. The Settlment, if affective, would operate to limit Gar's liability for future Asbestos Claiee to porseoa wbo do not 'apt out' of tbo tettloasat by placing a dollar limit oe awards to such persona and a limit on the steer of clalas that will be paid to auefa parsons in any one year and over tba first tan yearn of the settlement. Certain eaafcara of the plana filad objections to tba Sattlanaat. of tba approximately St,000 'opt-out* requests, approslnataly 33,000 have resalted in legal claim, with no claim having bom filad with regard to tba rmaiaiag 31,000 'opt-outs.' with respect to;the 31,000 claim, approximately 33,000 have already bean resolved in the tort spatea, with approximately 10,000, which arc included in the pending lawsulta'*feefarrsd to above, still ponding. On Angust it, 1194, the District Court appro.ad $e sattlamnt, holding that tbo tans of tha Settlement ara fair to the class as a whole, certified tba clans and named a preliminary injunction enjoining elfcss neabers from pursuing asbestos claim against GAP and otbar members of tha CCS exoept ia accordance with the Sattlamnt. on Hay 10, 199C, the United States coart of Appeals for tba Third Circuit (tba 'Third Circuit') issued an opinion, concluding that tha class was not certifiable, thus reversing the-decia ion of tba District Court. On Movuaber 1, 1194, tha United States Supram Court granted oar's patitioa fur a writ of certiorari and agreed to hear GAP'ajappeal of tha Third Circuit's decision. The appeal waa beard on February 19, 1117. cap continues to believe the Sattlamnt ahould ultimately be upheld on appeal, although there can be no assurance in this regard. Tha Settlement prescribes that: all claim submitted to tbo CCM Bust provide aviteace (l) that tha exposed persd|n had occupationally--related exposure to abaa toe or an beetoa-containing-product mannfacturad or supplied by tha CCS 1 .defendants, and |2| that tha expaosmA paerson meats cartain prescribed aediuil erltaria. The CCS will the* mlutti tbe information to deterauae whether the claimant satisfies the exposore end msrttnl criteria of the Coveosiblt nediral Ctttforiei prescribed is the Settlement. Saeh cltisut whose dill qualifies for compensation will receive free the CCS good faith offer to resolve the elaim, generally withia several months after tha claim is submitted. Dlafntea between the claimant and the CCS with respect to whether a claim seats the asbestos exposure or medical requirements for compensation will be resolved by independent, neutral arbitrators or medical experts. In the event s claimant's claim is denied, the claimant may subsequently resubmit the cleim for further consideration. Payments to claimants are to be made according to a prescribed range of payment values, which set a minium and mawimmi compensation veins, and a middle range, according to tbe *f1 ttist with which the claimant is diagnosed. Tbe Settlement also sets a of claims is each Ce^essable medical Category that nay be compensated in each year, which msslmnm case flew numbers regulate only the timing of when claims will be paid, sad not the total ousber of claims that nay qualify for payment. Zt is anticipated that substantially all of the payments is connection with the liability of GAP and G-I holdings relating to babeston Claims will he made by* tbe end of the year 2004. vfalle Gbp is unable to estimate tbe amount of liability with respect to claims to be resolved after such period, it believes that it will resolve, prior to that time, substantially all tha court cases currently pending against GAP, and that it will further resolve substantially all tbe claims filed under the Settlement on a relatively current basis, so that the number of claims pending against 6AF at tbe end of such period will be substantially diminished from current levels. As a result of these and other factors. Gar and &*Z Boldinga believe that the resolution of any claims after such period will not, individually or in .the aggregate, have a material adverse effect on their respective financial positions, liquidity or results of operations. SAP end C-I holdings believe that, thnix reserves, which reflect tbe^ discounting of s portion of the liabilities, adsqustely reflect their actual asbestos related liabilities. Although any opinion is necessarily judgmental and must be based on information currently known, it is the opinion of GAT end G-I holdings, baspd on the assumptions referred to above and their analysis of their future business, financial prospects aad eash flows, that asbestos-related bodily injury claims will not, individually or is the aggregate, have a materially adverse effect on the respective financial positions, liquidity or results of operations of GAP end G-I holdings, after giving effect to the aforementioned reserves, and will not impair tha ability of GAT or G-l holdings to meet its respective obligations, to reinvest in its respective businesses or to grow. In.the event that tbe Third Circuit's decision in not reversed and the Settlement is not upheld, or the conditions to the effectiveness tbe Settlement are not satisfied (see '--Insurance Hatters'), GJkr and G-I holdings could be required to increase their estimates of asbestos-related liabilities and adjust any related discounts. It is not currently possible to estimate the range or mnnnt of such possible additional liability. Asbestos-in-huilding Claims. GAP has also been named es a co-defendant in asbestos-in-buildings esses for economic and property damage or other injuries based upon an alleged present or future need to remove asbestos containing eaterlaIs from public and private buildings ('Building Claims'). Since these actions were first initiated 14 years ago, GAP has not only successfully disposed of approximately 141 such cases at an average disposition cost (including cases disposed of at no cost to GAP) of approximately $14,000 per case (all of which have been paid by insurance under reservation of rights), but is a co-defendant in only 7 remaining lawsuits. Sea Insurance Hatters.* Insurance Hatters. GAP and G-I holdings had available, aa of December 31, 1494, to pay aabnstos-ralatad bodily Injury claims aggregate insurance coverage of $202.7 Bullion, before discounting certain coverage, (which amount was used in the reserve calculation referred to in 'Bodily Injury Claims' and is reduced as asbestos-related liabilities are satiafied), $13.2 of which is the subject of negotiations with various insurers aod/or the Battlement Coverage Action described below, and which $13.2 million of coverage GAP believes will be available to it either by agreement with its insurance carriers or, if necessary, by legal action. In addition to the $202.7 million of insurance referred to above, GAP and C-I Boldinga have $57.2 million of additional insurance which may be available to pay a portion of the Asbestos Claims, which has not been included in the reserve calculations. Concurrently with the filing of the class action complaint relating to the Settlement, the members of the CCA filed a third-party action with the United States District Court in Philadelphia against certain product liability insurers whose policies will or may be called upon to respond to asbestos-related bodily injury claims. 7 including to bo rmolttd uadtr the fvttlwat (tte 'StttloMt Aetiet'). Tbn tkii^puty complaint iMka a declaratory jud^amt oa babalf of certain ca inr1--r. including GAP, against viriou third-party defendant protect liability Inutn to tha effect that tboaa insurers aro obligated to provide uuwip for >tettn Claim*, 1--lading dal-- nbjact to the Sattla--iat. The insurers who aza dafaodaata la OkT'i third party c--plaiat are* Atlanta International* bqtlqyers tetaal* Laxingtoa (do--Stic coverags)* orthbrook, Lexington (London coverage), n--an. I si Onion* and variona 1--ten Harkat Insurers. Tbt laanraaca carrier third-party tefandanta have raisad various dafnnias to the fettle--at Coverage Actios, including tba impropriety of the Settle--nt without prior notice to the earriere, tba potential violation of various cooditioas and obligations of; tba inaurad eater their policies, mad the inappropriate-- of the shares allocated to the CCS asnbers. The CCS a--bars, including GAT* and certain products liability Inaurere (other than th--a referred to above) which have agreed in writing to fulfill their obligations to provide coverage with respect to Asbestos Claina, have joined la an alternate dispate resolution pmresilM ('ADS*)# which Banks a determination similar to that sooght in the Settle--at Coverage Action* Tba ADS insurers have raised certain defenses, and no hearing date in currently scheduled. GAP's insurers in the AOS are ZTT-Sartford, Eoyal Insurance and the uweiw Market Insurers* The AOS involves $40*1 nil 1 Ion of the $202*7 million of coverage (sad $2.0 Billion ef the additional coverage) rtesrrlhert above* A favorable resolution of the Settlement Coverage Action end the ADS ie e condition to the effectiveness of the' Settlement* In October 1913, GAT filed a lawsuit in Los Angel--# California Superior Court against Its p-- t insura--a cart&ars to obtain a judicial detaxmlnatloo that such carriers were obligated to defend and lad--nlfy It for Building Clai-- GAP is seeking declaratory relief as --11 as cn--snsstory rlseages. This action is presently in the pre-trial pleading stags. The parti-- have agreed to told thin actl-- in abeyance until sdcfc ti-- -- they are better able to evaluate develop--ate -- they nay occur in the Building Clai--. Because such litigation is in early stages and eviteact sad JLfeterpratations of inportaat legal qu--tions are presently --available, it is not-possible to predict the future of such litigation. In all Building Clai--, GAP's defense costs have be-- paid by one of its primary carriers, while GAT aspects that such primary carrier will continue to defend and indemnify GAP, such primary carrier has reserved its rights to later ref--a to defend and lode--if? GAP and to a--k reimburse--nt for sc-- or all of the fees paid to defend and resolve the Building Clai--. GAP believes that it will be able to resolve such eases for amounts within the total indemnity obligati--s available from such primary carrier* GAP further believes that it would prevail If the carrier's clai-- for reimburse--nt of^fees paid to defend end resolve these cases were determined by a court. * ENVIRONMSVTAL LETXGATXOV The Company, together with other eoepani--, is a party to a variety of proceedings and levsuits involving environmental matters ( Environ--ntnl Clai--') under the Comprehe-- ive environmental response Compensation nod Liability Act ('CBWCLA') and similar state laws, in which recovery is sought for the cost of cleanup of contaminated sit--# n number of which are in the early stages or have be-- dormant for protracted periods. The Coop--y estimates that its liability in r--poet of all Kmrirnn--ntal Clai-- and certain environ--ntal caepllance expects--, -- of nerembsr 31, 199$, will be approximately $11.3 million, before Insurance recover!-- reflected on .its balance sheet (disc--sed below) off $$3 stiliion (ti--ted recoveries *). in the opinion of management, the r--ottrtion of such matters should not be --terial to the business, liquidity, results of operations, cash flows or fin--elel position of the Company. Severer, edyerse decisions or events, particularly as to the liability and the financial responsibility of tba Compaay's insurers and of other parties involved at each site and their insurers, could cause the Company to Increase its estimate of its liability ia respect of such natters, is not currently possible to esti--tei the amount or range of any additional liability. it After considering the relevant legal issue* and other pertinent factors, the Company believes that it will receive the esti--ted recoveries and it --y receive amounts substantially in excess thereof. The Company believes it is entitled to substantially full defense and indamnity under its insurance policies for --st Environ--ntsl Claims, although the Company's insurers have not affirmed a legal obligation under the policies to provide indemnity for such clai--. S The estimated recoveries are baaed in part upon interla ayrrrarnta with certain insurera. The Omani terminated theae agreements In 1M5, and on March B, 1995 GAF commenced litigation on behalf of it and its subsidiaries in the United States District Court for the District of Me Jersey seeking secants substantially in excess of the estimated recoveries. While the Colony believes that its dales are meritorious, there can be no assurance that the Cespasy will prevail in its efforts to obtain aeounts equal to, or in excess of, the estimated recoveries. OTHER LITIGATION Oo March 19, 1993, G-l Holdings and a newly formed subsidiary of G-I Holdings entered into an agreement to acquire the roofing manufacturing business of Georgia-Pacific Corporation (' G-P'), including six roofing manufacturing facilities, which was later terminated by G-I Holdings end such subsidiary. On July 23, 1993, G-P ccmencsd.an notion, in the United States District Court for the southern District of Hew fork, alleging that G-I Holdings and such subsidiary did not have the right to terminate the agreement and seeking unspecified damages. The Company believed that the complaint was without merit and counterclaimed for breach of contract. Following completion of a jury trial in rebruary 1997, tha jury determined that neither G-I Holdings, its subsidiary nor G-P would have any liability as a result of the termination of the agreenent. G-P has filed for a judgment in its favor notwithstanding the verdict or, in the alternative, for e new trial.. Litigation is pending between BHCA and Elk corporation of Dallas ('Elk') in the united States District Court for tbs northern District of Texas relating to certain aspects of BMCA's laminated shingles, which Elk claims infringe design and utility patents recently issued to it, as well as certain proprietary aspects of its shingles. Elk seeks injunctive relief, damages and attorneys' fees. BKCA has etfed for a declaration that Elk's patents are invalid and unenforceable ud that BNCX't shingles do not infringe any of Elk's rights, and has sought money damages for Elk's unfair conpietition end certain federal statutory violations. BMCA believes that Elk's patents are invalid and unenforceable, that its shingles do not infringe any of Elk's rights and that it will prevail in obtaining the requested declaratory relief and money damages. On or about April 29, 1996, an action was coemencad in the Circuit Court of Mobile County, Alabama against GAFBMC on bohalf of a purported nationwide class of purchasers of, or current owners of, buildings with aspholt'*shingles manufactured by GAFBMC since January 1979. The action alleges, among other things, that such shingles ware defective and seeks unspecified damages on behalf of the purported class. On August 30, 1996, an action was commenced in Johnson County, Texas, against GAF, GAFBMC and BMCA on behalf of a purported statewide class of purchasers of laminated organic shingles, which GAF ceased manufacturing in 1981. The Company has removed this action to the United States District Court for the Northern District of Texes, and the plaintiffs have sought to dismiss this action or, in the alternative, to remand the case to state court. The action alleges, among other things, that the shingles were defective and seeks unspecified damages on behalf of the purported class. On or about January 7, 1997, an action was commenced in the Superior Court of Mew Jersey, Middlesex County against GAFBMC on behalf of a purported nationwide class of owners of buildings with shingles manufactured by GAFBMC who allegedly have suffered damages since January 1991. The action alleges, among other things, that such shingles were defective and seeks unspecified damages on behalf of the purported class. Plaintiffs have not moved for class certification in any of these actions. On August 14, 1996, an action was cosgnenced in Pointe Coupee Parish, Louisiana, against GAT and GAFBHC on behalf of a purported nationwide class of those who own or did own single family residences on which GAF Timberline(Registered) shingles were installed. The Company was not served or otherwise notified of the action until November 1996. Without any notice to the Company, in August 1996, the court in Pointe Coupee conditionally certified the nationwide class, reserving the right to decertify the class or otherwise modify its order. The company intends to appeal the state court's conditional class certification. The action alleges that the shingles were defective and seeks an unspecified amount of compensatory and punitive damages on behalf of the purported class. The Company does not believe certification of a class is warranted in any of these actions, and intends to vigorously oppose them. 9 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. FART II I ITEM 5. MARKET FOR REGISTRANT'S COHHfcp 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 GAF Corporation. 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. .j .1 ' ITEM B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA \. See Index on Page F-l and Financial Statements and Supplementary Data on Pages F-7 to F-28. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 10 I: (I V i; 1 i ) part m item 10. onarrow and axectfirvc opfuijls or ns rccispnamt nit foUoviag ttblt mi forth tte bm>> ift, position end otter UfomtiM with mpKt to tte dineton wd ssecutive otfloors of 6-1 Holdings, lack person llstod below is cititss of tte teltod State*. SUKE AMD POSITION VELO(t) ntSBT PRINCIPAL OCCCTATIOM and rm*n wploihmt histost terns! J. .................. Director, Ctoimn sod chief teescivt Officer St Nr. Heroes tes tea s director ad ntiirrii sad Chief Kucutlw Officer of G-Z BoidiAfs siocs August 1MI, a dlnetor sod Chslisu of OCA aiaea its focmetioo sod Chief temtlw Officer of MCA sioce Jute IMS. He tes oervod as o director as* Odlnn sod Chief Executive Officer of lit sinee its feztetioe is Nay 1991 sod Cbairann snd Chief because Officer of CAIWC rises Hoy 1994. Nr. Isynin tes Held tte sees offices with OAT end oart&ia of its ssbsidisries since April 1NI prior to white he hold tte ssee position with GAP's ptadeemsant (the 'Predecessor Congsoy') from Oeeosdwr 1913 to April IJil. Nr. Wyman hss bees director of USX else* October 1195, snd oltmetar, Chsirmss sed Chief taeutiis Offlcor of Iff Holdiegs sites Its forestios. os is sloe tte Chief beostive officer, Nseseer sed oseersl futstr of s eateor of cloMly held real estst* development coNpssiet sad partnerships whoso iusestoasts include coteercisl real eststs sod s portfolio of publicly traded securities. Sunil Burner........................... President/and Chief Operating Office*, RMCA 47 Mr. Baser hss boss tte Presides!, Chief Operating Officer sad s director of MCA since July I99t, Norte 1999 snd Kay 1999, respectively. Oe wst President, Ctesttisl Roofing Products Division, and Vice President of MCA free February 199S to March 1999. So has boos Chairoao of OS1 since March 1999 snd a director of OCX sieeo October 1995. Free 1992 to February 199S, Ha use Eaocoti.se Vice Ptesiteot of bridgcstonofPlrestoee Inc., a retail distributor and manufacturer ef tires snd provider of autotells services. Proa 1992 to 1999, Nr. Buasr vss President of firestone Building Products Csepsny* snd free 1999 to 1992 bo was Vice Preoidant of lridgestons/ rireotons. carl R. Cckardt........................................ 99 Executive Vico president Nr. Cckardt hss been Executive Vico President of C-I holdings since March 1991 and of ISP Holdings sines its formation. So tes boon vice choireon of GAP sines Hoveoter 1199, s director of GAP sines April 1997 and s director of ISP sines its forestios. Ms vss Esecetivt Vies Presidsot ef CAP free April 1999 to tevseter 1999 snd held tte sacs position with the Predecessor Company fron January 1991 to April 1909. He was President end Chief Operating Officer of ISP fron January 1994 to Movcater 1999 and Executive Vies President of ZSF fron its formation to January 1994 and has served as such siocs Noveteer 1994. Mr. Bckardt was Hrosidsnt of CPC and tte Predecessor ecstasy's chemicals division fron 19IS to 1917. Nr. Eckardt was Senior Vice President Worldwide Chemicals snd Senior Vice President International Chemical a of the Predecessor Company Croat 1992 to 1999 snd 1911 to 1992. respectively. Hr. Eckardt Joined the Predecessor Coepany in 1974. I) S'" MB MID POSITXOB nuin mst fuscnt ruaciPM. occtwtiom MID riVB-TZh* HUMK HSTOKX Jans f. Rogers.................................. tnentln Vies wUmt sad Chief financial officer Richard a. Weinberg............... Senior Vice President and General Counsel * Louis S. Goldbcrq.......................... Senior Vice President, Corporate Human Resources At Mr. Rogers bee ben Executive Vie* FnsUnt isd Chief fisaacial officer of GMT, G-r Bolding*, 1ST Moldiags and certain of their respective subsidiaries and tieuiii* vies Preeidest-Fieeece of 1ST since psrseher mi, a director of MCi aiace its format ioc and Exacmtive vies President of BD since nereelier IMS. Me ees Senior Vies President of sack corporations fm anahtr IMS to ITr--Sixr 1911 end of BNCh fm its formation to Psr--bar 199*. nr. sogers has beae a director and tenlnr vice President of USX since October 199S. Nr. Sogers was Trmaaorer of SCI fm its formation until DecMter 199*. Mr. Bogors ban ear sad aa Treasurer of C-I Boldines, GSP and certain of its subsidiaries aince March 1992 and was Vies President-Pinance of such corporations fm March 1992 to October 1993. Pm hagust 19ST to March 1992, Nr. Sogers was Treasurer of Saphccol Corporation, a manufacturer of electronic connectors. 37 Hr. Weinberg bee been Senior Vice president end General counsel of GAP# C-I Holdings* ISP and oertalm of their respective eobeidierlee eisce Nay 1996 and of ISP Holdings aluce its formation. Mr. ftelnherg has beam Senior Vice President end General Counsel of men since May lllfi. He wu vice President end General Counsel of MCA from September 1994 to Nay 1996, Vice President-lev of MCI from May 1994 to September 1994 end Vice President-lev of GATBMC from April 1993 to Hay 1994. Nr. Steinberg was e^loyed'by Aelianee Group Holdings Inc.* a diversified insurance holding coapeay, as Staff Counsel from Ortnher 1917 to January 1990 and aa Assistant Vies President and Corporate Counsel Crum January 1990 to April 1993. 10 Nr. Goldberg has bsen Senior Vice President* Corporate Bunas Resources of GAT and C-I Moldings and certain of their subsidiaries since July 1996 and of ISP Holdings since its formation* He ham served as Senior Vice President* Headquarters Administrative Services of ISP since July 199S. Pram January 1996 to July 1996* Nr. Goldberg served es a senior consultant to GAP. Pros January 199S to January 1996* he vat Commissioner of the Department of Administrative Services for the State of Connecticut* and from January 1991 to Decanber 1993 he served as Connecticut's Commissioner of the Department of Motor Vehicles. Prom September 1989 to December 1990* he was Seaior Vice President of Stsub, Varmbold 6 Associates. Prom. August 1984 to April 1989 he ms Vice President-Rumen Resources of Playtex, loc. and from February 1977 to January 1914 he vas Vice President Administretion/Human Resources of lha Seagram Co^sany Ltd. 12 NAME AND POSITION BELD{1) PRESENT PRINCIPAL OCCUPATION AND flVE-TRAH EMPLOYMENT RISTORY Donald N. UPtlK......................................... Senior Vice Pmidtot' Operations, BMCA 59 Danny J. Mtir................................................ President and Chief Executive Officer, U.S. Intec, Inc. S2 Joseph j. Okaly............................................... vice President Marketing and Sales, Residential Roofing Products, BMCA 39 William w. Collins...................................... Vice President Marketing and Sales, Cnamprclal Roofing Products, ikR 44 Dr. LaPalne has been Senior Vice President-Operations of MCA and certain of its subsidiaries since April 1998. Be was vice President-Operations of FT* end certain of its subsidiaries trap January 1994 to April 1994 and held the uat position with GRFRMC free 1917 to Nay 1994. rxrm 1999 to 1997 be was plant Manager and Director of Manufacturing Polyasr of CPC's Calvert City, Kentucky aaaufacturisg facility. Hub 1911 to 1994 be was Vice Presidant of Manufacturing of GAP's Building Materials Division. Hr. Adair has been President and Chief Executive Officer of USI sines 1942. Nr. Okaly has been Vice President of Marketing and Salas, Residential Roofing Products of INCA siaee June 1994. Be was vice President-Logistics of BMCA free Deceaber 1992 to Juno 1994 and Director r Distributioa/Csstoeer Service of BMCA frae January 1992 to Deceaber 1992. Hr. Collins has been Vice PresidentMarketing i Sales, Ci:--nrcisl Roofing Products of BMCA sinoo Nareh 1994. Be was Vice Frosident-Salas, Ccmarcial of BMCA free Deceaber 1995 to March 1994, Director of Insulation, Accessories and Cobra Products of BMCA free February 1995 to Deceaber 1995 and Director of Special Projects of BMCA froe July 1992 to February 1995. Frae February 1991 to July 1992, he was Vice President-Sales k Marketing of Berger Building Produets, Incorporated. Cl) Under the Company's By-laws, each director and executive officer continues in office until the Company's next annual Meeting of stockholders and until his successor is elected and qualified. CAT The following table sets forth the nise, age, position ond other information with respect to each director of GAF, other than Messrs. Reynas sad Eekardt who are also directors and executive officers of GAP. Bach person listed belcn# is a citizen of the united states. All directors other than Mr. Reyman have served GAP as directors sines April 1989. Mr. Heynan has served as director since September 1997. Mr. Reyman and Ronnie F. Heyman are husband and wife. NAME AND POSITION HELD(1) Ronnie F.. Heyman................................. Director AGE PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY Mrs. Heyman is a director of GAF. (1) Under CAT'S By-Laws, each director continues in office until GAF'a next annual meeting of stockholders and until his successor is elected and qualified. 13 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table seta forth -the cash and non--cash compensation for each of the last three fiscal years awarded to or earned by the Chief Executive Officer nd the five other most highly compensated executive officers of the Company as of December 31, 1996. MAKE AMO PAINCIPAL POSlTIOUtl) TEAR JUOKttL CSK^EXSATIO* OTOE* SALARY S0*9S(1J uewATIOM DDBOLmC /OPTIORSfOXU coKrasATicai Simtl J, |8|MB ................................ riiaiiM aod chief Baeutiv* Officer Sunil hau............................................... Pmidaat wd Chief nptur Ins Officer, MCA Oanay J. Adair ........................................ Preiidnt ud Chief tueutive Officer. I Donald M. LaPalee ................................. Senior Vie* President-Operation*. MCA UilliMi 9. Collins .............................. Vice mtldeat-Marketiog a Salsa, Cc--rrial Koedsf Product!, MCA Joseph J. Okaly.................................... Vice President-Marketing Seise, Residential Roofing Products )99S 1195 1914 19H 1995 1994 1999 1995 1994 1999 1995 1994 199t 1995 1994 I1N 1995 1994 m (7) m (7) (7) (7) $295,009(2} 991,339(2) l>l flJS.OOO '14,090(2) 5219,911(3) 5 53,093 219,999(2) V 55,900(3) IX . IX 5)90,40# 141,50# 141,#0# i \t.nt * 94,049 <-49,000 5130,99# 123,#0# 107,90# 9 42,599 29,040 0 9139.eoe 119,000 197,509 5 35,753 ;.32,000 32,594 (7) (1) (7) I 4(2) 31,392(2) (2) 51 <(3) (3) 54 4 0 54 4 4 5 0 (7) (7) (7) 2,I90(O)/f,9(5)(f) 1,201(5) 13) 1*554(0) 9 IX 1,249(0) 9 0 900(0) 9 i 700(0} 0 0 (7) (7) (7) 5 13,541(2) 9,475(2) (21 9 3.971(3) J.MXJI IX 5 14,519(4) 14,391(4) 17,339(4) 5 13,992(5) 14,149(5) 9 11,212(4) 19,033(4) 9.744(4) (1) Bonus amounts are payable pursuant to BMCA' s Executive' Incentive Compensation Program. The stock appreciation rights (S) relate to shares of GAF coamon stock. The options (0) relate to shares of redeemable convertible preferred stock of BMCA. See 'Options/SARs.* (2) Included in 'Other Annual Compensation' for Mr. Kumar are $19,897 in payment of moving related expenses and a 'tax gross-up' of $8,711 in 1995. Included in Ali Other Compensation for Mr. Kumar are $10,750 and $5,664, representing BMCA's contribution under the GAF Capital Accumulation Plan in 1996 and 1995, respectively; $1,636 for premiums paid by BMCA in each of 1995 and 1996 for a life insurance policy; and $1,175 for the premium paid by BMCA for a long-term disability policy in each of 1995 and 1996. Mr. Kumar commenced employment with the dqmpany in February 1995. * (3) Included in 'All Other Compensation' for Mr. Adair are $1,260 in each of 1996 and 1995 for a life insurance policy; $2,212 and $2,193 for premiums paid on a long-term disability policy in 1996 and 1995, respectively; and $500 in each of 1996 and 1995, representing the Company's contribution under the GAF Capital Accumulation Plan. USI became a subsidiary of the Company in 1995. ' ' i. (4) Included m these amounts for Dt. LaPalme are: $11,000, $11,000 and $11,000, representing BMCA's contribution'.under the GAF Capital Accumulation Plan in 1996, 1995 and 1994, respectively; $2,754, $2,646 4? A * % l 14 ) (Footnotes continued on next pagfe) ;i f; >; (Footnotes continued from previous page) and $5,643 for the premium paid by BMCA for a life insurance policy in 1996, 1995 and 1994, respectively; and $765, $735 and $695 for premiums paid by BMCA for a long-term disability policy in 1996, 1995 and 1994, respectively. (5) Included in these amounts for Mr. Collins are: $10,633, $14,149 and $3,655, representing BMCA's contribution under the GAP Capital Accumulation Flan in 1996, 1995 and 1994, respectively; $849 for the premium paid by BMCA for a life insurance policy in 1996; and $610 for the premium paid by BMCA for a long-term disability policy in 1996. (6) Included in these amounts for Mr. Okaly are: $10,390, $9,261 and $9,018, representing BMCA`s contributions under the GAF Capital Accumulation Plan in 1996, 1995 and 1994, respectively; $284, $267 and $251 for premiums paid by BMCA for a life insurance policy in 1996, 1995 and 1994, respectively; and $538, $505 and $475 for premiums paid by BMCA for a long-term disability policy in 1996, 1995 and 1994, respectively. (7) The salaries and other compensation of Messrs. Beyman, Weinberg, Rogers, Bckardt and Goldberg are paid by ISP, an affiliate of the Company. Mr. Heyman, Mr. Rogers and Mr. Weinberg render services to the Company pursuant to a management agreement. See Item 13. No allocation of compensation for services to the Company is made pursuant to such management agreement. (6) Excluded are options to purchase redeemable convertible preferred stock of ISP Holdings, See Note (3) to the first table under 'Options/SARs' below. 15 U OPTIONS/SARS The following table imuiMi option* ('BMCA Prfmd Options') to acquire BMCA' tedaamsble convertible Preferred Stock and stock appreciation rights relating to GAP Cannon Stock (`or SUts') granted daring UW to the executive officers naned in the Scamary Cmpensatian Table abora and the potential realisable value of BMCA Preferred Options sad GST SUi held by such persons. No BMCA Preferred Options or GAT SAKs were exercised by such persons in 1996. so nnniri ma omen (oi/ar imio eusn is im mm OKB or sacuBiTM UB01JU.TISC OTTIOSS/IMS CBMRTO Sull berlll................ DUB* 3. Mail................ Soul* . UTllH____ (llUe(. CDlllM... Joaapk 3. Okalr............. (.499(1) 2.1*9(01 l.JJO(O) 1.299(0) 909(0) 90010) op toms cmces/sus OUSTED TO 1MBIOILU IS ntCM. )01 11.99(9) l.ttlOl 1.19(0) .t(0) 1.29(0) 1.29(0) )(.](]() *1,990(91 *.910(9) 12,999(9) is.999(91 2(,t((((| 1242.9(9(0 191.999(9) 112.990(0) (9,919(9) 1(,N((() (1.919(9) (1) The BMCA Preferred Options represent options to purchase shares of Redeemable Convertible Preferred Stock of BMCA (the `Preferred Stock'). Bach share of Preferred Stock is convertible, at the holder's option, into shares of comon stock of BMCA st s formula price based oa Book value (aa defined ia the option agreements) aa of the date of grant. The BMCA Preferred Options vest over seven years from tha date of grant. Dividomds will accrue oa tha Prafarrad Stock from tha data of issuance at the rate of St per annue. The Referred Stock is redeemable, at the Cas^eay's option, for a redaction price equal to the exercise price per share pins accrued and unpaid dividends. Tha coasron stock of BMCA issuable upon conversion of the Prafarrad Stock is subject to repurchase by the Coapany under certain circumstances at a price equal to currant 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 aspiration date. The potential realisable values are calculated on the basis of_a seven-year period from the date of grant, in connection with the Separation Transactions, options to purchase shares of redeemable convertible preferred stock of USI held by Messrs. Kumar, LaPalme, Collins, Okaly and Adair were canceled and exchanged for an equal mater of BMCA Preferred Options and the terms of BMCA Preferred Options 'were adjusted to reflect the inpact of the separation Transactions. The information set forth above reflects such adjustment and exchange. (2) The GAP SARs represent the right to receive a cash payment based upon the appreciation in value of the specified number of ahares of common stock of GAP over the determined initial 'book value per share of cornua stock of GKF .(adjusted for the Separation Transactions) and interest oa such book value at a specified rate. The GAP SARs vest over a five-year period, subject to earlier vesting under certain circumstances including in connection with a change of control, and have no:expiration date. The potential realisable values are calculated on the basis of a ten-year period from the date of grant. The GAP SARs were issued to Mr. Kumar on January 1, 1997 in connection with the Separation Transactions, in exchange for options granted to Mr. Kumar in 1996 to purchase shares of redeemable convertible preferred stock of GAF. The grant date of the GAP SARs is deemed to be the date of such GAP options for vesting and other purposes. (3) Excluded are options to purchase 24,095 shares of redeemable convertible preferred stock of ISP Holdings.(1 ISP Holdings Options`) issued to Mr. Xuaar on January 1, 1997 in connection with the Separation Transactions, which have potential realizable valuea of $48,491 and $1,667,715 at assumed annual rates of Book Value appreciation of 5% and 10k, respectively. Each share of preferred stock is convertible,.,at the holder's option. Into shares of ISP Holdings comson stock at a formula price based on the sum of the determined Initial Book Value (aa defined);plus interest on such Book Value at a specified rate. The ISP Holdings Options are exercisable at a price of $111.44 per share and vest over seven years froa tha date of i (Footnotes continued on next page) J" (Footnotes continued iron previous page) grant, subject to earlier vesting under certain circumstances, including in connection with a change of control. Dividends will accrue on the ISP Holdings preferred stock free the date of issuance at the rate of 6* per annrn. The XSP Holdings preferred stock is redessable, st ISP Holdings' option, for a redaction price equal to the exercise price per share pins accrued and unpaid dividends. The ISP Holdings coenon stock issuable upon conversion of the XSP Holdings preferred stock is subject to repurchase by ISP Boldinga under certain circosstances at a price equal to current Book value. The ISP Holdings Options have no expiration date. The potential realizable values are calculated on the basis of a ten-year period free the date of grant. BMC* PIUSPERKED STOCK OFTXOHS/GHP STOCK APPRECIATION RIGHTS AND OPTION/3AR VALUES AS or DECEMBER 31, 1996 NAME HUMBER OF SECURITIES UNDERLYING UHBXKRCISED BMCA PREFERRED OPTIONS(0)/GAF SARS(S) AT 12/31/96 EXERCXSABLE/UNEXBRC1SABLK VALUE OP UNEXERCXSED IN-THE-MOHEY BMCA PREFERRED OPTX0BS(O)/GAP SARS(S) AT 12/31/96(1) EXERCXSABLE/ONEXERCISABLE Sunil Kuaar(2)................. Danny J. Adair................. Donald H. LaPalne------Killian W. Collins... Joseph J. Okaly..------- 0/17,B10(S) 0/2,190(0) 0/1,550(0) 0/1,200(0) 0/900(0) 0/900(0) $0/$9,64B(S)(1) (1) (1) (1) (1) (1) 9,201 GAF SARs held by Mr. Kunar were not in-the-money as of December 31, 1996. No BMCA Preferred Options were in the money as of December 31, 1996. (2) Excluded are options to purchase 33,296 shares of ISP Holdings preferred stock held by Mr. Kuaar, none of which were exercisable and 9,201 of which were in-the-money end had a value of $529,127 as of December 31, 1996. COMPENSATION OF DIRECTORS The directors of C-I Holdings 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 G-I Holdings (the 'Cosoon Stock') is owned of record by GAF. The following table sets forth information with respect to the ownership of Common stock, as of March 15, 1997, by each other person known to G-I Holdings to own beneficially more than 59 of the Common stock outstanding on that date, by each director of G-I Holdings and by all executive officers and directors of G-I Boldings as a group: TITLE OF CLASS NANS AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE Or BENEFICIAL OWNERSHIP PERCENT OF CLASS PERCENT Or TOTAL VOTING POWER Common Stock............... Samuel J. Heynan 1361 Alps Road Wayna, New Jersey 07470 All directors and executive officers of C-I Holdings as a group (10 persons) 17 100 100 100%(1) 100%(1) 1001(1) 1001(1) (Footnote on next page) (Footnote from previous page) (1) The noeber of sham shown as beneficially mined by Nr. Bejnui and by all dlractora and executive officer* as a group attributes ownership of Gar s aharas to Hr. Heyman.'** dTfpr* 15, H97r Hr. aqim beneficially oaoad approximately 96t of tea'capital stock of Gar. ITEM 13. CERTAIN HELATIOMSBIPS AID RELATED TRANSACTIONS HANAGBMOfT AGREEMENTS Pursuant to a management agroaaant which expires Dacuabor 31, 1997, ISP (which la coatrollsd by G-I Bolding*' Chiaf Executive Offlcar, fnil J- Dayman) provides certain general msnsjmmnt' artai ni stratlva and facilities services to G-I Holdings, BMCA, OSt and CPC (including tea use of EMCA'a headquarters in warns. New Jersey), for which NMCA,|USI, G-I Holdings and CPC paid 1ST a management fee of Si.7 million in 1996. In addition to the eanagaaeot fee, BMCA paid approximately S.t million to 1ST in 1996 primarily for 1 sisrinlcations and information services, and G-I Holdings and BMCA paid approximately $0.5 mint, to zbp in 1996 for certain legal services, which in each case ware not than contemplated by tea asm^--lit agreement. ur'dMBactloe eith tea Separation Transactions, tea asinjun agreement- wea modi find to innunisis such services into this mnagamaMt egtMmat, and, in that ocanaction, the mnnngsmant faa payable-by- tea Goapaay to ISP waa incrmaaad to 65-4 million. Certain of tea Company's executive officers raoaivfc thaiy cospanaetioa from IBP, with IBP being indirectly reimbursed therefor by virtue of tee management fee. Due to the unique nature of ttfc services provided under the management agreement, eoapariaona with third party arrangements are difficult. However, the Coepany believes that the teres of jthe aanageeant agrssmnnt taken as a whole are no less favorable to the cospany than could be obtained from an uaaffiliated third party. \ V CERTAIN PURCHASES BMCA purchases from ISP all of its colored mineral granules raquiramants, except for the requirements of its ^California roofing plant, under a requirements contract which was renewed for one year, affective as of January 1, 1997, and is subject to annual renewal unless terminated by BMCA or ISP. In December 1995, OSI commenced purchasing substantially all of its requirements for colored roofing granules trca ISP (eecept for the requirements of its Stockton, California and Corvallis, Oregon plants which are applied by a third party) pursuant to a supply contract. In 1996, BMCA and DEI purchased in the aggregate approximately $50.5 million of mineral products from ISP. TAX SHARING AGREEMENTS , BMCA and its subsidiaries have entered into a tax sharing agreement dated January 31, 1994 with GAP and G-I Holdings with respect to the payment of federal income taxes and certain related matters (tee 'Tax Sharing Agreement `). During the term of the Tax Sharing 'Agreement, which shall be affective for the period during which bmca or any of its domestic subsidiaries is included in a consolidated federal Income tax return filed by GAP, bmca is obligated to pay G-I Holdings an amount equal to thdse federal income taxes BMCA would have incurred if BMCA (on behalf of itsdlf and its domestic subsidiaries) filed its own federal income tax return. Unu'ied tax attributaa will carry forward for use in reducing amounts payable by BMCA to G-I Holdings in future years, but cannot be carried back. If BMCA were no Idnger a member of the consolidated GAP tax group (the 'GAT Group'), it would be required to pay to G-I Holdings the value of any tax attributes it would sucoeed 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 Agrednent could result in BMCA having a greater liability thereunder than it would ihave had if it (and its domestic subsidiaries) had filed its own separate federal incase tax return. Under the Tax Sharing Agreement, BMCA and e<Tdh of its domestic subsidiaries are responsible for any taxes that would be payable by reason of any adjustment to the tax returns of GAP 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 mnmtinr of the GAP Group, BMCA is severally liable for all federal income tax liabilities of the GAP Group, including tax liabilities not relaxed to the business of BMCA, G-I Holdings and GAT have agreed to indemnify ) 18 .1 i i i Ms>. BMCA ii it* subsidiaries for all tax liabilities of the GAT Croup other than tax liabilities (i) arising from the operations of BMCA and its de--stie 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 niji seam! provides for analogous principles to he applied to any consolidated, contained or unitary state or local incaas taxes. Under the Tax Sharing Bgrrnenn). GAT Bakes all decisions with respect to all natters relating to taxes of the GAT Group. The provisions of the Tax Sharing Agreement take into account both the federal incase taxes BMCA would have Incurred if it filed it own separate federal ineoee tax return and the fact that BMCA is a Member of the GAP Croup for federal ineoee tax purposes. G-I Holdings has entered into e Tax Sharing Agreeeent with GAT with ^respect to the paynent of Federal ineoee taxes and certain related setters (the 'G-I Holdings Tax Sharing Agreeeent1). During the term of the C-X Holdings Tax Sharing Agreeeent, which shall extend as long as G-I Holdings is included in e consolidated Federal ineoee tax return filed by GAF, G-I Holdings is obligated to pay to GAF an anount equal to those Federal ineoee tnxee G-I Moldings would have incurred if G-I Holdings (on bahalf of itself and its doeestic subsidiaries) filed its own Federal ineoee tax return, but, in general, not in excess of the meoust of Federal iucaee tax GAF actually pays or is required to pay. GAF has agreed to indaenify G-I Holdings and its doeestic subsidiaries for all tax liabilities of the GAF consolidated group other than tax liabilities arising free the operations of G-I Holdings and its doeestic subsidiaries. Tha G-I Holdings Tax Sharing Agreeeent provides for analogous principles te be applied to any consolidated, combined or unitary state or local income taxes, under the G-I Holdings Tax Sharing Agreeeent, GAF makes all decisions with respect to all setters relating to taxes of the GAF consolidated group. IHTBXCOMFAMy BORROWINGS Prior to consummation of the Separation Transactions, letters of credit for the benefit of the Company were provided under ISP's revolving credit agreement. The highest anount of such letters of credit during 1996 was $2.3 aillioa. TEHDKR OFFER On October 18, 1996, ISP Holdings i iiiiiiiiieinl nil s oasb tender offer and consent solicitation (tha 'Tender offer') for all of the senior Discount Motes and Series B Senior Discount Motes due 1998 (the 'Discount Motes') of G-I Holdings. Approxiaetely 99* of the outstanding Discount Notes were tendered pursuant to the Tender Offer and approximately $6.3 Billion in aggregate principal amount at maturity renin outstanding. In connection with such offer to purchase, ISP Holdings also obtained the consent of the tendering holders of the Discount Notes to certain aeendsents (the `Discount Mote Aaendeents') to the Indenture dated aa of October S, 1993 (the 'Discount Mote Indenture') between G-I Holdings and the Bank of Hew York, as trustee, governing the Discount Notes. The Discount Rote Aaendeents codified or eliminated certain restrictive covenants contained In the Discount Mote lodestars, including those covenants that would have prohibited the Separation Transactions. Concurrently with the consuanation of the Tender Offer, G-I Holdings purchased for cash fron ISP Holdings Discount Hotas tendered pursuant to the Tender Offer (the `Repurchase') in an anount equal to $133 million, which was sufficient, together with the net proceeds of a note offering by ISP Holdings to allow ISP Holdings to consuamata tha Tander Offer and to pay certain expenses in connection with tha Tender offer, the Exchange offer (as defined below) and such note offering. All remaining Discount Rotes validly tendered and purchased in the Tender Offer by ISP Holdings (approxiaetely $277.0 Billion principal amount at maturity) were held by ISP Holdings and rosined outstanding as obligations of G-I Holdings until immediately prior to consuanation of the Separation Transactions, at which time they were contributed to G-I Holdings as a capital contribution and canceled by G-I Holdings. In addition, inoediately prior to such capital contribution, G-I Holdings purchased from ISP Holdings Discount Motes for an aggregate amount equal to $45.8 million representing the stsii of $45 million and the amount of feea and axpanses of ISP Holdings related to the Separation Transactions (not including those fees and expenses already accounted for in the purchase of Discount Notes by G-I Holdings from ISP Holdings). All Discount Notes so purchased were canceled by G-I Holdings. 19 EXCHANGE OFFER On October 18, 1996, ISP Holdings consummated an offer to exchange (the 'Exchange Offer') $1,000 principal amount of its 9 3/4% Senior Notes due 2002 ('9 3/4% Notes') for each $1,000 principal amount of G-I Holdings' Senior Notes due 2006 (the '10% Notes'). Pursuant to the Exchange Offer, on October 18, 1996, 9 3/4% Notes in the aggregate principal amount of $159,871,000 were issued to the former holders of the 10% Notes. Approximately 99% of the outstanding 10% Notes were tendered pursuant to the Exchange Offer and approximately $0.1 million in aggregate principal amount ^remain outstanding. All 10% Notes validly tendered and accepted in the Exchange offer were held by ISP Holdings and remained outstanding as obligations of* G-I Holdings until immediately prior to consummation of the Separation Transactions, at which time such 10% Notes were contributed to G-I Holdings by ISP Holdings as a capital contribution and canceled by G-I Holdings. In connection with such exchange offer, ISP Holdings also obtained the consent of the tendering holders of the 10% Notes to certain amendments (the '10% Note Amendments')., to the Indenture dated as of February 14, 1996 (the `10% Note Indenture') between G-I Holdings and the Bank of New York, as trustee, governing the 10% Notes. The 10% Note Amendments modified or eliminated certain restrictive covenairta .contained in the 10% Note Indenture, including those covenants that would have prohibited the Separation Transactions. , SEPARATION TRANSACTIONS Reference is matte to the description of the Separation Transactions contained in the secdnd paragraph under Item 1. 'Business.' Pursuant to the terms of an indemnification agreement dated as of October 18, 1996 (the 'Indemnification Agreement') asking GAF, G-I Holdings, ISP Holdings, G Industries and GFC, (i) GAP and G-I Holdings have agreed to indemnify ISP Holdings and its subsidiaries for all liabilities of the GAF Group as it is currently comprised (the 'Current GAF Group'), including all liabilities for asbestos-related claims (whether for indemnity or defense) and such group's liabilities relating to environmental matters, litigation and employee benefits and excluding all liabilities of ISP and its subsidiaries, all liabilities relating to the 9 3/4% Notes and ISP Holdings' 9% Senior Notes due 2003 (together the `Notes') and all other liabilities reflected in the pro forma consolidated balance sheet of ISP Holdings and its subsidiaries or the notes thereto prepared in connection with the Tender Offer and the Exchange Offer, (ii) ISP Holdings has agreed to indemnify GAF and other members of the Current GAF Group for all liabilities of ISP and its subsidiaries, all liabilities relating to the Notes, and all other .liabilities reflected in the pro forma consolidated balance sheet of ISP Holdings and its subsidiaries or the notes thereto prepared in connection with the Tender Offer and the Exchange Offer (excluding those liabilities as to which ISP Holdings is being indemnified in accordance with clause (i)), (iii) ISP Holdings has agreed to indemnify GAF and other members of the Current GAF Group for its accrued tax liability prior to the Separation Transactions and (iv) GAF, G-I Holdings, G Industries and GFC have agreed to indemnify ISP Holdings; ISP and its subsidiaries from, and against, any and all taxes (net of any tax benefits realized by the indemnities) that may be payable by the Current GAF Group with respect to the Separation Transactions. ... 20 t i PART IV ITEM 14. EXHIBITS AMD FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this report: (a)(1) Financial Statements: See Index on page F-l. (a)(2) Financial Statement Schedules: See Index on page F-l. (a)(3) Exhibits: EXBIBIT NUMBER DESCRIPTION 3.1 -- Certificate of Incorporation of G-I Holdings (incorporated by reference to Exhibit 3.1 to G-l Holdings' Annual Report on Form 10-K for the year ended December 31, 1989 (the `1989 10-K')). 3.2 -- By-laws of G-I Holdings (incorporated by reference to Exhibit 3.2 to the 1989 10-K). 4.1 -- Indenture, dated as of October S, 1993 (the 'Discount Notes Indenture'), between G-I Holdings and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of G-I Holdings (Registration No. 33-72220) (the 'Discount Notes Registration Statement')). 4.2 -- First Supplemental Indenture dated as of October 18, 1996 to the Dispfrant Notes Indenture. 4.3 -- Indenture, dated as of February 14, 1996 (' lot Note Indenture'), between G-I Boldings and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of G-I Holdings (Registration No. 333-2436) (the 'G-I Holdings Registration Statement')). 4.4 -- First Supplemental Indenture dated as of October 18, 1996 to the 10* Note Indenture. 10.1 -- Indenture, dated as of December 9, 1996, between BMCA and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 to BMCA's Registration on Form S-4 (Registration No. 333-20859) (the 'Senior Notes Registration Statement')). 10.2 -- Indenture dated as of June 30, 1994 between BMCA and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 to the Deferred Coupon Note Registration Statement). 10.3 -- 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)). 10.4 -- 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). 10.5 -- 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). 10.6 -- 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). 10.7 -- 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)). 21 EXHIBIT NUMBER DESCRIPTION 10.8 10.9 10.10 10.11 10.12 10.13 10.14 21 27 28 -- 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)). -- Amendment Mo. 6, dated as of January 1, 1997, to the Management Agreement (incorporated by reference to Exhibit 10.8 to the Senior Notes Registration Statement). -- Tax .Sharing Agreement, dated as of January 31, 1994, among GAP, G-I Holdings and BMCA (incorporated by reference to Exhibit 10.6 to BMCA's Registration statement on Form S-4 (Registration Mo. 33-81808) (the 'Deferred Coupon Note Registration Statement'). -- Tax Sharing Agreements between GAF and G-I Holdings, and between G-I Holdings and G Industries (incorporated by reference to Exhibit 10.11 to the Discount Notes Registration Agreement). -- Form of Option Agreement relating to Series A Cumulative Redeemable Convertible Preferred Stock of BMCA (incorporated by reference to Exhibit 10.9 to BMCA's Anhual Report on Form 10-K for the year ended December 31, 1996 ('BMCA's 1996 Form 10-K')* -- Stock Appreciation Right Agreement dated January 1, 1997 between GAF Corporation and Sunil Kumar (incorporated by reference to Exhibit 10.11 to BMCA's 1996 Form 10-K)* -- 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 BMCA's 1996 Form 10-K)* -- Subsidiaries of G-I Holdings. -- Financial Data Schedule f$>r fiscal year 1996, which is submitted electronically to the Securities and Exchange Commission for information only. -- Stipulation of Settlement' between the Class of Claimants and Defendants represented-by the Center for Claims Resolution dated January 15, 1993 (incorporated by reference to Exhibit 28.1 to G-I Holdings' Form 8-K reporting an event on January 5, 1993). * Management and/or compensatory plan or arrangement, (b) Reports on Form 8-K None SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. Date: March 26, 1997 G-I HOLDINGS INC. By: /s/ JAMES P. ROGERS JAMES P. ROGERS Executive Vice President and Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ SAMUEL J. HEYMAN Samuel J. Beyman Chairman, Chief Executive Officer and Director (Principal Executive Officer) March 26, 1997 * VO IN /s/ JAMES P. ROGERS James P. Rogers Executive Vice President and Chief Financial Officer March 1997 /S/ JONATHAN H. STERN Jonathan H. Stern Vice President and Controller (Principal Accounting Officer) March 26, 1997 23 G-X HOLDINGS INC. FORM 10--K INDEX TO MANAGEMENT'S DISCUSSION AMD ANALYSIS, CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................................................................................................ Selected Financial Data................................................................................................................................... Report of Independent Public Accountants...................................................................................... Consolidated Statements of Income for the three years ended December 31, 1996.............................................................................................................................................................................. Consolidated Balance Sheets as of December 31, 1995 and 1996................................ Consolidated Statements of Cash Flows for the three yearB ended December 31, 1996.................................................................................................................................................................... Consolidated Statements of Shareholder's Equity (Deficit) for the three years ended December 31, 1996............................................................................................................ Notes to Consolidated Financial Statements................................................................................. Supplementary Data (Unaudited): Quarterly Financial Data (Unaudited)........................................................................................... PAGE F-2 P-6 F-7 P-8 P-9 F-10 F-12 F-13 F-28 SCHEDULES Consolidated Financial Statement Schedules: Schedule I--Condensed Financial Information of Registrant................................... Schedule II--Valuation and Qualifying Accounts................................................................ F--1 S-l S-4 A*. C-l HOLDINGS DCC. NUUCCNDIT'S DISCUSSION AND RKRLTSXS OP FINANCIAL CONDITION AMD RESULTS DP OPERATIONS Prior to Genua** 1, If97, C-I Holdings IDC. (the Registrant' or *C-l KoUiafi') mi vfolly ewiof ntaiNJjuy of UP oldtm* lac. I 'ISP Roldlmgo'), which u wholly m/rmd subsidiary of GAP Corporstioa ('CAT'). UP Roldiege was foraed OB August 4 , llff asd If shares of its Sana stock worm issued to GAT in txcliuNi for *11 of the capital stock of G-I Holdings, which rsnltsi ia C-I Holdings becoming a direct wtaolly-ewoed subsidiary of ISP Holdings. On January 1, 1917, CAP effected a serins of trailsactions (the 'Separation Transactioas *) that resulted is, eaomg other things i (l| all ihacss Of the coobbo stock: of Imterestlaeal ^isrlslty Products lac. [`ISP*) owned by GAP and its subsidiaries* representing appcexlaetely I3.SI of the iesoed and outstanding capital stock of XSP* being distributed to 10 Soldione; (2) all of tbs outstanding capital stock of 0~X Noldiegs being distributed to GATs (J| the capital stock of ISP Boldings being distributed to the stockholders of GAP) (4) U.S. Xatec, lac. (*osi*| bsmiisg a. subsidiary of toilding Raterials coi-porstio* of Anerica {' DtCA') , a wholly owned Indirect aide Hi ary ef C-I Holdings, through s capital coatribution to HHCA by G-I Holdings* and (SI C-I Holdings naklwg a contribution of approximately HI .5 Billion is cash and short-term investment* to HHCA. As a result of tbs Separation Traaaactloea, 10 Holdings and X0 arm so longer direct or indirect subsidiaries of CAP or G-I Holdings while the assets and liabilities of 6-1 Holdings and its wholly-owned subsidiaries, including BKCA* U5I and CAP Fiberglass Corporation (*GPC') (formerly known as CAP Chemicals Corporatic*), are no longer assets and liabilities of 10 Holdings. As used herein, the term `Ceepany* refers to Holdings end its subsidjarins. Accordingly, the results of operations and assets end liabilities ef 10, as well sa CAP broadcasting Company, Inc. .(which was sold ia August 1IM), have been classified i `Discontinued Operations' within tbs finaeslal statveats for all periods presented. The following discussion is on a continuing operations basis. The Caopany, throogh its principal operating subsidiary, HHCA, is engaged principally ir. the manufacture and salt of a broad line of aephalt roofing products and accessories for the residential and commercial roofing oarketa in the United States. RESULTS OPERATIONS 1994 Cohered With 1995 The Coepany recorded a loss from continuing operations in 1994 of 939. i million coepsred with a loss free continuing operations of $33.5 million in 1995. The results in 199$ reflected $4.5 million higher interest expense and $4.4 million lower other income, partially offset by $15.3 million higher operating income. Net sales for 1994 Increased $144.B million (141) to $152 million%o^ared with $417.2 million in 1995. The Bales growth reflected a lit increase in sales for IMCA (excluding the effect of USI ssles) due to increased unit volumes of both residential and eosemrcial roofing products and higher average residential selling prices, sod also reflected USX sales of $19 million for the full year 1994 coagtarod with $21.1 ailLion Cor the period in 1995 after the date of acquisition. Gross profit margin improved to 24.94 in 1994 froa 25.21 in 1995, resulting primarily from higher average residential selling prices, partially offset by higher raw material costs. Selling, general and administrative expenses increased 24t to $149 million in 1994 from $134 million in 1995, primarily reflecting higher distribution and selling costs to support the increased level of sales, and also reflecting $13 million higher expenses at a result of ths inclusion of USX for ths full year 1994. Selling, general and administrative expenses a* a percentage ef nat calcs remained constant at lf.BI in both 1994 and 1915. Operating income in 1995 was $54.4 million, an increase of $15.2 million (35t| compared with $43.3 million in 1995. The higher operating income wan attributable to the increased sales and improved margins and included $4.3 million operating income from USX. Interest expense was $127.4 million in 1994 compared with $121 million in 1995 due to higher average debt levels during 1994. However, es described under 'Liquidity and Financial Condition' and in Note I to Consolidated Financial Statements, the Company's debt was substantially reduced in the fourth quarter of 1191 through a series of transactions. Other income, net, primarily reflects income Iron a partnership between GFC and an affiliate of Rhone.Poulenc Inc. (the `Fsrtnorship') of $32.3 million in 1994 and $32.4 million in 1919. Other income, net, also costpriees net Investment income, expenses related to the sale of BNCA's trade accounts receivable, and other nonoperating and nonrecurring items of income and expense; such items totaled $.5 million of net expense in r-j `Vi 1911 r--pared with $4.0 milll-- o( income ia 199$. The higher not ngiflN in 1IM itflicu* a M.T million writeoff of --n--oratlog (Ind MMta( $1.0 nilli-- prariiiot for min--afl --mediation At --il tea laeatio--, iDcmMi wfiiiirr nlitd to tha Hit of HlCt'a nctlvablH (op $. iUUm), tit wltt oK of oooto of acguialtim-- oot cwuraolH ($1.4 tllllstt ctntb lit Igo* loo coots, partially offsot by high-- lavan mas* Isr-- (-- $10.4 million) (boo tott 1 to Cononl Irtstad rlaaaclal SUtac--ta). Tbo CoBpujr'a effaotiv* tu benefit rots u pn-tu loosos woo 11.3$ im 1911 ee^utf with 43.41 la 199$. The ftmihlt rsto is 199$ warn dm primarily to utilisation of foreign tax eradit carryover*. ha 41--iiM la mots to Coo--lldmtmd rlaaacial St--met*, ia Mnaty 1994* e-l mol41 ago rroplarad the snrhswgo of $199.3 aliUom 1ft --noted ral-- of its thoo --taattaf too I nr Dlmnat Patna te 1991 (tho ........ml --t--`I for $211 million of its lit 1--1 nr Mm dm XMC (tho 'lit Mot--*|. Xa Ortnhar 1994, ZIP Pi 111 on 11 i nl a cnah tamper offor for tho --lolng DloaowAt Motor. w holdings Also bokIsW ab offor to asrhaaga its mm 9 3/4% Saoior Notos for $199.9 mLllioo HgrogiM fPioelpol aooaot of W PUiap1 19% Potos. Is --sari ins with thaoo temeaaofci--e, tho Oaopaoy rornnhwl --troniPInary looaoo of $31.1 milUoo, oat of zUbd im-- too hawsfits of $17.3 oUlloa. raiiroaant 1 ng write-offs of deforced fiaoaclag fa-- and tho pnoi-- to oosxeted value ef $29.4 oillioa paid pursuant to tho toodor offor. 199$ rragiTBit Pith 1994 ttw C--paey rooordod a 1--a fna eaotiauiag oporttiooa in 199S of $23.$ milll-- ciVuri with a 1--4 fr-- continuing optmim of $7.7 milll-- ia 1994. Tbo rooulta ia 199S rafloetad $.9 oillioa lowor aporatlog 1--a, $22.4 aillioo higher iotarost expanse aad $11.9 lowor othor inoaan. Pt aalos for 1999 Inc----4 $|4.1 Mill loo (14%) to $197.2 ml 111--, Mptiift with 9S13.1 millina In 1994. IP jpsloo growth prlnarily rofloetoP higher --It volom-- of both --aid--tlsl aaP memoir ial roofing pooPacta, ineludioy $21.1 mlilloa --l-- of OK, acquired in Oetobor 1999, aaP tho-- of tha basin--a of lotor--tloma1 Parmalito. Inc. (*IFI41, acquiroP by MCI ia Parch 1994, an4 highar --crags --lllnf pri--a. Crow profit --egin PacrmaaaP froa 21.4% in 1994 to 24.2% In 1995, resulting principally fr-- highar raw material coats, partially off--t by the hlghor --logo sailing prices. falling, goooral aad idalalstrativo say--a iwero--aft 9.9% to $134 milll--, prlnarily rofloot lap hiphsi Piotrihoti-- and --UiagyCpota to oofport tha increased loaoi of aalna, and mi-- --Clootiny $$.< oillioa dr at aptiMi fr-- tbt 4ato of DSZ `a acquisition, tolling, g--oral and adninI strati-- aigaa--a dar-- --4 aft a por--atoga of not aaloa fr-- 29.9% in 1994 ta 19.5% in 1995. tho Co--*ay racorPad operating ime--a of $43.2 oillino in 199$ ccopi--P with $44.1 oillioa in 1994. While MCA`a operating ini-- increi--rf $1.2 aillioo (3%) to $45.9 alUioa in 191$ nogisfad with $44.7 nllli-- in 1994, due principally to tha hlghor aaloa voloeea, partially offsot by tho la--r margin** such iaeraa-- --a mora thaa off--t by looor aporotiag Inrona fr-- tha Ca^any s insurance subsidiary. which was liquidated duriog 19IS, and by cartaie operating exponeon at the par--t c--pray la--1. later--t eeponsA war $12* milll-- ia 199$ no----it. with $9$.4 milll-- Ia 1994. Tha iacrea-- of $22.ft million was attributable to highar debt lovoU, primarily fr-- tho issuance in <ltt-- 1994 of BMCA's gaalor Deferred coup-- Oates duo 2404 (the `Deferred Coup-- Motes*} (o-- mate I to 0--ao1 IPs tod Financial ftatom--ta), hlghor interest rat--, aad higher Partoorshig inter--t. Other ioeeme, --t, includes Iso--o fr-- tho Fart--rahip of $32.4 mi111-- Ia 1995 and IS1.2 ailLi-- in 1994. Inc--o fr-- t-- Part--rohip ia 1994 included $23 Billion, representing the pre-tea 1st--a ft-- a port--rahIp Pietrihuti-- of a portion of tha iotarest of CPC in tha Part--rohip as a resalt of a aattl--act ef ore's outatasdiog disputes relating to its intorest in tho Partoarship. S-- Meta 3 to Consolidated Pina--ial ftataaaata. othor lace--, oat, also ----rises oot laeoetaeat las--, expenses related to tho gale of MCh'a trade ooo--eta receivable, sod other --paratloy ud nonrecurring its-- of loco-- nod aptsati such its-- totaled $4.0 million of hot 1--a in 199$ c--pared with $4.0 Billion of not ugsAM in 1994. Tha $1.4 oi)lion ioprovooent ia 199$ was doe prlnarily to higher not investment income (up $2.5 million) (a-- Mote l to Ca--olidsted financial State--arts] and the she-- of $4.0 milll-- io provisions for environasntsl remediation and etrtaia litigation costa. The Coapany recorded a tas benefit of $19 million in 199$ (an effective be--fit rate of 43.4%) coop seed with a tas provision of $.4 oillioa in 1994. The favorable rate io 1999 was due pri--rily to utilisation of foreign tax erodit carryover*. LIQUIDITY AND FINANCIAL COMOITIM CAF. C-I Holdings and G Industries Corp. art essentially holding eoapanies with--t independent businesses er operations and, aa aocb, are presently dependant upon tha cash flow of their subsidiaries, principally MCA, in order to satisfy their obligations. As of Tlrrrohfir 31, 199$, such obligations included F-3 5S.J million of the Diacount Motes, $.1 million of the lot Motes, 1133.1 million estimated present value of asbestos liability {before estimated present value of recoveries from products liability insurance policies of approximately *190.1 million) and approximately *1*3.1 million of various tax and other liabilities of CAT and its subsidiaries, including tax liabilities relating to the Partnership. For further information, see Notes 1, 3, 4 and 12 to Consolidated Financial Statements. C-X holdings and GAF expect to obtain funds to satisfy such obligations from, aaeng other things, dividends and loans from subsidiaries (principally BMCA), as to vhich there are restrictions under the indentures relating to the Deferred Coupon notes sad Ha's 5/M senior Notes doe 200C (the 'I 5/M Notes'), and from payments pursuant to the Tex Sharing agreement bnteesn car and SO. as of Dmcenber 31, 1996, BKCa, under the east restrictive of Its debt covenants, cwld have paid dividends of up to 61(7.5 alllion. During 1955, the Company on a mosoildated basis generated cash from operations of 639.7 million, invested $25.6 ell Hoe in capital expenditures, invested 635.1 million for net pnrrtiaaen of svailahle-for-ssls and held-to-maturlty securities sod other short-tars investments, generated 669.5 million in cash from the sale of fOUCQ-FN (a discontinued operation), and gonerated 64.6 million from other discontinued operations, for a net cash inflow of 673 million before financing transactions. Cash invested is additional working capital totaled 69.1 million during 1995, mainly reflecting a 63.6 Billion increase in receivablas and a $7.5 million iacreasm in inventories due to higher sales levels. The cash inflow from operating activities was net of a *3.9 million cash outflow for net purchases of trading securities and 659 million in oat payments of asbestos claims. See Mote 1 to Consolidated Financial Star-amenta and Xtam 3, `Legal Proceedings' for s discussion of asbestos claims filed against GAP. Met cash used in financing transactions was 62.3 million. An discussed in Mote 8 to Consolidated pinaacial Statements, in October 1996, XSF Holdings consumested a tender offer for the Discount Motes and an exchange offer for the 10% Motes. Subsequent to the tender offer, G-I Moldings repurchased a total of 617B.9 million of tho Discount Notes from ISP Moldings (utilizing cash on hand and thp^rnpayment of loans owed to G-I Moldings by XSF). Tbs remaining Discount Motes purchased by XSF Moldings in the tender offer which ware not repurchased by G-I Moldings and the 10% Motes accepted by XSP Moldings pursuant to the exchange offer were contributed to G-I Moldings by ISP Holdings in Decenbor 1996 as a noncash capital contribution and cancelled by G-I Holdings. On "-camhar , 1996, BMCA issued $100 million principal aaount at maturity of the B 5/8% Motes. BMCA utilised the net proceeds from the issuance of the 8 5/8% Motes to repay indebtedness owed by usi to G-i Moldings of approximately 630 million and to pay the purchase price for the March 1997 acquisition of the assets of the Lestherbeck Industries division of Bollinee Corporation. The remainder will be utilized for general corporate purposes. Financing transactions in 1996 also included a cash inflow of 6117.8 million in repayments of loans awed to G-I Holdings by ISP snd 68.0 million in proceedn from the sale of BMCA`a accounts receivable, partially offset by 634.9 million of repayments of long-term dabt, 65.8 million of financing fees and 56.5 million in dividends paid to GAF. As a result of the foregoing factors, oaah and cash equivalents increased by *70.7 million during 1996 to 6124.6 million (excluding 6106.2 million of trading# available-for-sale snd hcld-to-eaturlty securities sad other short-term investments). As of December 31, 3996, the Company's scheduled repayments of long-term debt for the twelve months ending December 31, 1997 aggregated 63.4 million. 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 reorganisation transactions, including at times, common stock short positions which are offsets against long positions in securities which are expected, under certain circumstances, to be exchanged or converted into the short positions, with respect to its equity positions, the Company is exposed to the risk of market loss. See Note 1 to Consolidated rinancial statements. In June 1996, BHCA's bank credit facilities ware extended to Juna 1997 on the same terms and conditions. In October 1996, a 610 million facility was increased to *12 million and extended to October 1997. Such facilities provide for revolving lines of credit up to 632 million and letters of credit of up to 641 nillion, provided that total borrowings and outstanding letters of credit may not exceed 642 million. As of December 31, 1996, J38.9 million of letters of credit were outstanding and no amounta had been borrowed thereunder. Under the F-4 ' agreements, MCA is subject to a sis lew consolidated not worth teal. Ae of DirirtiT 31, 1914, HCA wao i compliance with ouch toot. USX hoo A revolving erodlt facility, providing for borrowings of up to |Z9.t million ud lottorn of ecodit of op to $2 oilliao (such total borrowing* and outetaadiog letter* of erodlt not to onaf aUliM). in January 1999 and In aoeurod by, and cabinet to limitation based opoa valoes of, aecounta receivable, invoatoria* ood certain oanufac taring egulpcmst. As of niridr 31, 1999, thorn worn 21.3 aillion of lottarn of credit outstanding aid no Mounts had boon borrowed uadar ouch facility. orrowinga by G-X Boldinga ioi MCA or* subject to tba application of certain financial rovonowto eomtaiaad in the Indenttires relating to the Discount lout, tho lOt Ooteo, tba S/tt Mm ood the Deferred Ccupna Mm. Ae af Dermhar 31, UK, G-X bolding* and. MCA were in rq-pUamne with oech covenant*. 1t objectives of the Cc^any In utilising intacnot ratn owap agreoeent* are to lower feeding coot*, diversify eouroao of fending and nonago Interest rate exposure. An of DoceMer 31, 199C, the total notional mount of interest rota owopa outataniisg was $199.1 oilliao, astf the SBOOBt of underlying dabt relating to ouch owopa waa $229.1 exilian, by utilising intoreot rstn onp ji otooiita. tbo Cmuy redwood its'intoreot expanse by $9*2, $1 .S and $2.2 millioa in 1994, 199$ and 199C, respectively. See Soto 9 to Consolidated Financial Statassota. See Kate to Consolidated Financial Stateeoata fer further infernation regarding the debt instrumoto of the Coapcay. la March 1993, MCA sold ita tVade accounts receivable | `receivables' | to s trust, without recourse, pursuant to an igra--nt which providod for a bwIbw of $75 sillioa is cash to bo oaM available to MCA baaed on eligible receivables outstanding free tins to tine. In Moveuber 1999, MCA repurchased the rucoiveblee sold purnueat to tbs 1993 agremaet end sold then to a ageelal purpose subsidiary of MCA, MCA beeoivableo Corporatise, without seoaoree, which in turn sold than to a eow trust, without recourea, porauant to new egreeeeeta. Tba mw egreoneots provide for a *iiwe of <119 sillioa Is o**h to be 'node available to MCA baaed on eligible receivable* outstanding tren tine to tine. This facility expire* in Osceaber 2901. For further information with regard to incoee taxes, see Hots 4 to Consolidatad Financial Stntmont*. The Coepony does not believe that Inflation ba* had a notarial affect oo it* resume of operations during the pest three year*, lowever, there can be no assurance that the coepony* business will not be affected by inflation in the future. The Company, together with other companies, ii a party to a variety of administrative proceedings aad lawsuits involving environmental matters. See Item 3, 'legal Piucoadinga--Bnvlrowoantal Litigation* for further discussion. Tbs discussion as to Legal natters involving the Coepony, including asbestos-related Betters, contained in Item 3, `legal Proceedings * Is Incorporated herein by reference. At Oeceofeer 31, 1999, the Coopany had foreign tax credit I`FTC'I carryforwards with expiration dates as follows: FTC's expiring in the years (THOUSAXOS) 1999.................................................................................................................................. 1999................................................................................................................................. Total PTC carryforwards available for tax purposea... . < 5,917 9, 1(4 $12,913 FTC carryforwards represent amounts available to tSP and dua to C-X Holdings under the Tax Sharing Agreement. C-X Holdings intends to transfer the remaining amount which is not utilised in ita 199$ consolidated tax return, estimated to be $12.1 million, to ISP Holdings. romfAJtD-LOOKIMC STATEMENTS The discussions in this report contain both historical information and forward-looking statewents. Although the Company balievea that any such forward-looking stateeenta are baaed on reasonable aasueptions, these stateamnts involve uncertainties that affect, among other things, the conpany's operations, markets, products, aarvicas and prices. These uncertainties include econaelc, competitive, governmental and technological factors. r-5 ".i i * t 6-1 HOLDINGS INC. SELECTED FINANCIAL DATA 1992 OPERATING DATA: Net sales............................................ Operating income............................ Interest expense............................ Loss from continuing operations before income taxes............................................... Loss from continuing operations before extraordinary items and cumulative effect of accounting change.................. Income from discontinued operations, net of income taxes............................................... Net income (loss)...^,.............. $ 508.5 33. B 82.9 (324.9) (194.6) 47.5 (167.9) YEAR ENDED DECEMBER 31, 1993 1994 1995 (MILLIONS) $ 559.2 41.4 90.1 $ 593.1 44.1 98.4 $ 687.2 43.2 121.0 (13.3) (7.1) (41.5) (7.9) 22.3 14.4 (7.7) 36.9 28.0 (23.5) 56.3 32.8 1996 $ 852.0 58.4 127.6 (37.4) (25.6) 110.7 54.2 1992 BALANCE SHEET DATA: Total working capital............... Total assets..................................... Long-term debt................................ Shareholder's equity (deficit)..................................... $ 257.1 1,246.0 806.4 (42.6) 1993 DECEMBER 31, 1994 (MILLIONS) 1995 $ 143.9 1.307.4 898.3 (42.6) $ 228.0 1,766.7 1,136.8 (15.B) $ 290.0 1,904.8 1,270.1 (1.7) 1996 $ 426.4 1,929.2 861.1 445.8 F-6 REPORT OP INDEPENDENT PUBLIC ACCOUNTANTS To G-I Holdings Inc.: We have audited the accompanying consolidated balance sheets of G-I Holdings Inc. (a Delaware corporation and a wholly-owned subsidiary of GAP Corporation) and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of income, shareholder's equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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-27 of this Form 10-K, present fairly, in all material respects, the financial position of G-I Holdings Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years fk the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules appearing on pages S-l to S-4 of this Form 10-K are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Roseland, New Jersey March 3, 1997 ARTHUR ANDERSEN LLP F-7 G-I HOLDINGS INC. CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1994 1995 1996 Net sales......................................................................... (THOUSANDS) $593,147 $687,184 $851,967 Costs and expenses: Cost of products sold.................................... Selling, general and administrative Goodwill amortization................................... Total costs and expenses........................... Operating income....................................................... Interest expense....................................................... Other income, net.................................................... 424,677 123,691 666 549,034 44,113 (9B,416) 47,218 507,279 135,966 772 644,017 43,167 (121,019) 36,348 623,135 169,049 1,335 793,519 58,448 (127,550) 31,752 Loss from continuing operations before income taxes and extraordinary items................................... Income tax (provision) benefit.................................... (7,085) (579) (41,504) 17,998 (37,350) 11,706 Loss from continuing operations before extraordinary items............................................ (7,664) (23,506) (25,644) Discontinued operations: Income from discontinued operations, net of income taxes.......................................................................... Gain on sale of discontinued operation, net of income taxes of $30,648.................................... ' 36,911 -- 56,334 67,109 43,637 Income from discontinued operations 36,911 56,334 110,746 Income before extraordinary items........... Extraordinary items, net of income tax benefits of $733 and $17,275, respectively............................................................... 29,247 (1,237) 32,828 -- 85,102 (30,950) Net income $ 28,010 $ 32,828 $ 54,152 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-8 S-I HOLDINGS INC CODSOLIDATED BALANCE SHEETS 19H 1774 (TBOUSAHOS) assets Currant Awtii Cub ud cub tfainlwiB.................. XnaitMBtf It tndiag ueucitiu........... ................... imatMbU it emilable-for-sale aacurltiea.... Inailum ia teald-tomaturity ueuritUi.......... Otbtr short-tar* iumtauta............................. ............. accnoots fcatublt, tnda, lu num of $3,404 and n.lU........................................................... Jocaat* receivable, octet,.......................... ............ Ucalv&bli fra afflUaU, oat........................... lau receivable fra affiliate................. ................. Moueo saetlvabla,......................................................... Xavesfcorles................................................................ Deferred ineaao tax brafUt......................................... at curroot aaacta of diacuotisuad eperatioas... other currant aaaata..................... .................................. Total Currant Aaaata........................................... lnaaataaot la limited partnership............................. raopnrty, plaat ud aquipaaut, aat.................... Cacaaa of coat ovw aat aaaata of buaiaaoaaa aofolnd* oat of mrai'latod aaortiaatioa of ILISC and $0,391................................................................ toeaiTibla (ra parest caopaay.................................... Ira-ten lose receivable fra affiliata............. Vat concurrent aaaata of discontinued oparatlane........................................................................ other aaaata.......................................................................... Total Aaaata yr 9 53,907 4,140 si,m it.iff 17,tt( i,m 24,174 9,437 so.sn 13*413 47.717 14,431 143,770 4.753 45,t(l 459.007 133,333 47,447 179.Nl 9,442 47,217 400,479 31,424 *1.704,444 $ 124,423 1,009 02,014 7,147 15.144 10,021 24.329 It,111 77,415 34,704 219.742 3,074 411,041 470*040 223,091 47,434 177,747 7,494 373,344 29,703 41,729,134 LIABILITIES AMD SIAABHOLDEB`S EQUITY (DEFICIT) Currant Liabilitiaat Currant raturitian of long-tarn debt........................... $ 1.917 Accounts payable.......................................................................... 73,324 Arcrood liabilitlaa.................................................................... 47,104 Veyeble to affiliate, tint..................................................... toeeree for aibutoa elajma........................................... 4,441 Total Currant Liabilitlaa......................................... 177,042 Long-tar* debt laaa currant oaturitiea........................... 1,270,073 Dafarrad Incoaa tasaa................................................................... 34,100 Aaaarva for aabaotoa claims................................................. 297,439 Othar liabilitlaa........................................................................ Coamitaunts and Contingencies................................................ Shareholder's Equity {Deficit): Caaram stock, $.91 par value par share; 1,000 akaraa autborlmadj 100 aharm iaauad and outstanding................................................................................ Additional paid-in capital...........................v*.................. beau of purchase price over tha adjusted historical coat of prodocaaaor eo^anr aharaa Quad by GkF'a stockholders......................................... Metaload earninga.................................................. .................. emulative tranalation adjuetnent and othar.......... 119,711 70,127 (72,407) 4,213 14,574 Shoraboldar'a Equity (Deficit)..................................... (1.707) Total Liabilitiea and Shareholder'a Equity: (Deficit)............................................................................................ $1,904,944 7 3,412 40,511 74,743 7,214 77,772 191,474 041,071 70.742 237.034 191,074 437,743 (73.407) 34,045 9.392 445,795 41,927,174 The accompanying Dotes to Consolidated Financial Statements are an integral part of theaa statements. 0-1 ioldxvgs me. CONSOLIDATED STA9KHT3 OP CASH I'M** Cash and cash equivalants, beginning of year................................................................................... Cash provided by opantiag wtintiaat Not ineoae.................................................................. Adjuetmsmta to reconcile oot iscoca to sot cash provided by operating activitiooi locon fros discontinued oporstious........................................................ Extraordinary items......................................... Depreciation.......................................................... Goodwill kautizAtioa................ Otfcmd income tans................ Noncash iotorost charges............... (increase) decreaao la Marking capital purchases of trading securities..................... Proceeds Crop sales of trading securities......................................................... (Increase) decrease is other sasets........... leersasa (dmereaea) La other Utilities............................................................ payMiti of asbestos claiAa, net.............. Change in net receivable fcee/payabls to affiliate................*................................................ Other* oat........................................................................ Net cash provided by operating activities........................................................................ TERR ENDED DECEMBER 31, 1914 1995 1994 (THOUSANDS) S 4,429 4 47,415 9 53*907 11,410 32,121 54*152 (34,911) 1*237 14*794 444 35.192 <9*193 (14*074) (44.240) 42,724 4,494 (7,451) (74,495) 247 1.044 19.442 (54,334) 24.252 772 29,435 45*439 (9.231) (94) 373 1,544 2*271 (40.395) (5,493) 1,791 (114,744) 34,954 24,444 1,335 24,495 44.957 (9.136) (34,234) 30,452 (M67) (1*544) (51.5741 17,291 7,402 42.513 39,724 Cash pprided by (usad is) investing activities! Capital expenditures and acquisitions... Proceeds free sale of discontinued operation................................................................. Other--discontinued operations....................... purchases of eveilable-for-sele securities............................................................. Purchases of held-to maturity eeciK'ities............................................................... Purebasee of other short-ters investments.......................................................... rreceede (roe sales of available-for-sele eeiurities.................. prooeods free heid-to-caturity securities................................................................. Proceeds fro* other short-cere (S4,279| 4*021 -- - (14.592) -- -- - (54,111) 2,444 (111,449) 111,MSI (4.434) 74.063 7.444 3,320 (25*629) 49,444 4,572 (150,395) (29.575) ' (440) 110,914 32,405 2,422 Net eash provided by (used in I investing activities........................................................................ (44,950) (102.744) 33.300 Cash provided by (used in) financing activitiest Piuceeds froai sale of accounts receivable............................................................... Proceeds froo issuance of long-term debt................................................................................ Repurchase of Discount Notes free ISP Holdings........................................................... Repayments of long-term debt............................ (Increase) decrease in loans to affiliate................................................................. Increase (decrease) in loan from parent company........................................................................ Financing fees and expanses.............................. Dividends paid to parent company............. (Increase) decrease in restricted cash................................................................................ Other, net........................................................................ 12,217 195,524 (14,204) (44*243) 1,400 (4,749) (4,130) (24,444) (1.201) 7,919 44,002 (19,444) 15,214 (1,400) (392) (24,159) 24,494 (447) 4,015 99,502 (174,441) (34.454) 111,134 (5,021) (6*411) (2,412) wot cash provided by (used in) financing activities........................................................................ 14,394 44,363 (2,310) Net change in cash and cash equivalents... 43.394 (13,I0) 70,716 Cash and cash equivalents, end of year*... % *7,115 5 53,907 $ 124*423 j r-io l \ G-I HOLDINGS IRC. CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) Supplemental Cash Flow Information: , Effect on cash from (increase) decrease in working capital items(l): Accounts receivable...................................................... Inventories............................................................................ Other current assets.................................................... Accounts payable.............................................................. Accrued liabilities...................................................... Net effect on cash from (increase) decrease in working capital .: items...............................................................-............ YEAR ENDED DECEMBER 31, 1994 1995 1996 (THOUSANDS) $(13,601) (6,523) 295 12,034 (8,279) $ 1,675 (3,968) 608 (6,465) (1,086) $ (3,750) (7,539) 1,070 (4,815) 5,898 $(16,074) $ (9,236) $ (9,136) Cash paid during the period for: Interest (net of amount capitalized).... Income taxes paid (refunded)............................. $ 25,259 763 $ 26,406 (8,586) $ 41,592 1,840 (1) Working capital items exclude cash and cash equivalents, short-term investments and short-term debt. 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 accounts receivable shown above does not reflect the cash proceeds from the sale of certain of the Company's accounts receivable (see Note 5); such proceeds are reflected in cash from financing activities. As discussed in Notes 8, in February 1996, G-I Holdings completed a noncash exchange of $189.3 million in accreted value of its then outstanding Senior Discount Notes due 1998 ('Discount Notes') for $200 million of its 10* Senior Rotes due 2006 (the '10% Notes'). In October 1996, ISP Holdings Inc. issued $199.9 million of its 9 3/4% senior Notes due 2002 in a noncash exchange offer for the 10% Notes,.; and also consumnated a cash tender offer for the Discount Notes. Subsequent to such fender offer, G-I Holdings repurchased $178.9 million of the-Discount Notes from ISP Holdings. In December 1996, ISP Holdings Inc. xpade a noncash oapital contribution to G-I Holdings of $404.8 million, representing the 10% Notes acquired in the exchange offer and the Discount Notes acquired in the tender offer that were not repurchased by G-I Holdings. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. v'-F-ll j i < ) I i S 6-1 HOLDINGS INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT) CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL December 31, 1993................................................... $ 50,000 Translation adjustment.................................. Dividends to parent company...................... unrealized loss on available-for-sale securities, net of $517 income tax benefit.................................................................. Change in unrealized gain on investments held by insurance subsidiary........................................................... Adjustment of unfunded pension liability.............................................................. Effect of subsidiary's purchases of treasury stock................................................. " -- r -- (31) December 31, 1994..y............................................ Net income............................................................... Translation adjustment.................................. Dividends to parent company...................... Change in unrealized gains on available-for-sale securities, net of $1,503 income tax effect................. Adjustment of unfunded pension liability............................................................ Effect of exercises of subsidiary's stock options.................................................. $ 49,969 -- -- -- 160 December 31, 1995................................................... $ 50,129 Net income................................................................ Translation adjustment.................................. Dividends to parent company...................... Capital contribution from parent company'................................................................. Change in unrealized gains on available-for-sale securities, net of $266 tax effect....................................... Adjustment of unfunded pension liability............................................................. Effect of exercises of subsidiary's stock options................................................. Effect of subsidiary's issuances of stock and options as incentives.... -- 404,808 -- 717 289 December 31, 1996................................................... $ 455,943 CUMULATIVE TRANSLATION ADJUSTMENT AMD OTHER (THOUSANDS) $ (1,864) 6,694 (886) (594) 2,760 -- $ 6,110 -- 5,561 2,636 249 -- $ 14,556 (6,943) -- (428) 1.207 -- -- $ 8,392 RETAINED EARNINGS (ACCUMULATED DEFICIT) $(18,145) 28,010 (9,130) ... -- $ 735 32,828 -- (27,350) __ -- -- $ 6.213 54,152 -- (6,300) -- -- -- -- $ 54,065 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-12 G-I HOLDINGS INC. NOTES TO CONSOLIDATED flNANCIAL STATEMENTS Prior to January 1, 1997, C-I Holdings tic. (tbs' 'Bagintraat' or `G-I Boldinas') vu i wholly-owned subsidiary of ISP Holdings Inc. ('ISP Holdings'). which was wholly--owned subsidiary of GAP Corporation ('GAP'). ISP loldings was formed on August , lfK and 10 aims of its cosDt stock wars issoad to CAT in axehange for all of tbs capital stock of C-I Holdings, which rwsultad in C-I holdings beaming a direct wholly-owned subsidiary of ISP Holdings. On January 1, 11)7, GAP effected a series of transactions (the `Separation Transactions') that resulted in, snoeg other thingsi (1) nil shares of tbs MSI I stock of International Specialty Products Inc. ('IBP') owned by GBP and its subsidiaries, representing sigirnrlnstnly U.S* of tbs issued and outstanding capital stock of ISP, being distributed to ISP Holdings; (2) all of tbs outstanding capital stock of C-I Holdings being distributed to 01P| (3) the capital stock of ISP Soldings being distributed to tbs stockholders of GAP; (4) U.S. Intec, iso. (`car*) harming a subsidiary of Building Materials Corporation of America ('HNCA'l, a wholly-owned indirect subsidiary of G-I Holdings, through a capital contribution to BHCA by G-I Holdings; sad (S) G-I Holdings making a contribution of approximately (12.5 million in cash and abort-tars investments to BMCA. As a result of the Separation Transactions, ISP Holdings and XSP an eo longer direct or indirect subsidiaries of GAP or G-I Holdings, while tbs assets and liabilities of G-I Soldings and its wholly-owned subsidiaries, including SKCh. OSI and GAP Fiberglass Corporation ('CPC') (formerly known as GAP Chemicals corporation), are do laager assets and liabilities of ISP geldings, as usad herein, tbs tarn 'O^wny* refers to G-I Soldings and its subsidiaries. Accordingly, tbs results of operations and assets and liabilities of ISP, as wall as GAP Broadcasting Company, Inc. (which was sold in August 1996), have boon classified as 'Discontinued Operations' within the financial statements for all periods presented. The Colony, through its principal operating subsidiary, BHCA, in engaged principally ^ tbs manufacture and sale of A bread line of asphalt roofiag products and accessories for tbs residential end ooMereiel roofing Barters in the united States. See Bote 11 for information related to discontinued operations. NOTE 1. SUM4AHT OP SIGNIFICANT ACCOUHTIHG POLICIES principles of Consolidation All subsidiaries are consolidated and intereoapany transactions have been elisinated. Financial Statement Estimates The preparation of financial ttatements 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 oparatioos and cash flows of the Company for the periods presented. The Company has a policy to review the recoverability of long-lived aasata and identify and mesura any potential impairments. The Company does not anticipate any changes in naaagement estimates that would have n aatarlal impact on operstloos, liquidity or capital resources, subject to the natters discussed in Note 12 (Counitsaents and Contingencies (. Short-tern Investments For securities classified as 'trading' (including short positions), unrealised gains and losses are reflected In income. For securities classified at 'available-for-sale', unrealised geios (losses), npt of income tax effect, are included in a separate component of shareholder's equity (deficit), 'Cumulative translation adjustment and other,' and amounted to )).l and tl.J million am of December 31, 13)3 and 19)6, respectively. Investments classified at 'held-to-nsturlty' securities are carried st amortized cost in the Consolidated Balance Sheets. `Other income, net1 includes $.3, Sl.l and $11.1 million of net realized and unrealised gains end loanee on securitise in 1994, 1993 end 1996, respectively. The determination of coot in coeputing realised gains and loses* is based on the specific identification method. F-13 G-X HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED) NOTE l. StnBUJtY or SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Daring the fourth quarter of 1595, the Company redeaiguted certain equity securities held long (which are offsets against short positions in certain other securities), vith a fair market value of 96.9 aiilion, as 1 trading* and recorded unrealised gains on such securities, through the date of redesigaetion, in the Mount of $.5 Million as `Other incase. * As of nerwhsr 31, 1995 end 1996, the earket value or ttu cosjmy*e quity securities held long ves $39.1 end 992.5 ailliae, respectively, and the Company had $22 and $10.2 elllion, respectively, of short positions la ooamao stocks. As of Oecenber 31, 1995 and 1996, the eerket value of the rnmpany'a held-tonaturity securities vaa $10.4 and $7.6 million, respectively. The earket values referred to above are based on quotations as reported toy various stock exchanges and major broker dealers. With respect to its investments in securities, the Company Is exposed to the risk of earket lose. Other short-term investments are investments in limited partnerships which are accounted for by the equity method. Gains and losses are reflected is 'Other income, net. * Liquidation of partnership interests generally require a 30 to 45 day notice period. Cash end cash equivalents include cash on deposit and dabt securities purchased with original maturities of three sooths or less. In accordance vith the terms of the indenture for BMCA's 11 3/4% senior Deferred Coupon Notes due 2004 (the 'Deferred Coupon Botes') (see Bote t) BKCA deposited $100 million of the proceeds from the isenenne of the Deferred Coupon Motes into e segregated account maintained by the trustee under the indenture (the 'Account'). Funds in the Account could be invested only in certain permitted investments and could be used, subject to certain exceptions, only to fund BMCA's assumed asbestos liabilities. As of Per--hsr 31, 1994, $24.5 million remained in>the Account and was invested in Eurodollar deposits purchased with a maturity of less than three months. The Account ves reduced to s saro balance in 1995. Inventories Inventories are stated et the lover of cost or market. Tbe LIFO (last-io, first-out) method is utilised to determine cost for a portion of the Company's inventories. All other inventories are determined principally based on the FIFO (first-in, first-out) method. Property, Plant and Equipment Depreciation is coaputed principally on the straight-line ewthod based on the estimated economic lives of tbe assets. Certain interest charges sre capitalised during the period of construction as part of the cost of property, plant and equipment. Excess of Purchase Price Over the Adjusted Bistorical Cost of Predecessor Company shares Shareholder's equity (deficit) reflects a reduction of $72.6 million which arose from a management-led buyout in March 1919 of the predecessor company to GAP (the 'Acquisition'), because certain members of the management group owned hares of the predecessor company's common stock before the Acquisltioa and own shares of GAP after the Acquisition. Accordingly, a step-up in asset values to fair value as required by the purchase method of accounting (which was applied to the Acquisition) does not apply to their shares. Excess of Cost Over Net Assets of Businesses Acquired ('Goodwill*) Goodwill is amortised on the straight-line method over a period of approximately 40 years. Ths Coepany believes that the goodwill is recoverable. The primary financial indicator to assess recoverability of goodwill is operating income before amortisation of goodwill. The assessment is based on an undiscounted analysis. Debt issuance Costs Debt issuance costa are anortized to expense over the life of the related debt. F-14 G-I HOLDINGS IHC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1. SUNHART Or SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Revenue Recognition Revenue is recognised at the tine products are shipped to the customer. Revenues in 199S included sales to Henrirnn Builders and Contractors Supplies Co., Inc., which accounted for lit of the Coopany's net sales. interest Rate Swaps Gains (losses) on interest rate swap agreements (`swaps*) are deferred and amortised as a reduction (increase) of interest expense over the remaining life of the debt issue with respect to which the swaps were entered. Research and Development Research and development costs are charged to continuing operations as incurred and amounted to $2.5, $3.1 and $4.5 million for 1994, 1995 end 199$, respectively. Environmental Liability The Company, together with other companies, is a party to a variety of proceedings and lawsuits involving environmental natters. The Company estimates that its liability in respect of such environmental matters for its continuing operations, and certain other environmental compliance expenses, as of Heramber 31, 199$, in $15.3 million, before reduction for insurance recoveries reflected on its balance shpet of $$.3 million. 'The Company's liability is reflected on an ' undiscounted basis. See Item 3, `Legal Proceedings--Environmental Litigation, ' which is incorporated by reference, for further discussion with respect to environmental liabilities and estimated insurance recoveries. Warranty Claims BMCA provides certain limited warranties covering most of its residential roofing products for periods ranging from 20 to 40 years. BMCA also offurs limited warranties end guaranties of varying durations on its cbmsercial roofing products; income from warranty contracts related to cameercial roofing products is recognised over the life of the agreements. Included in `Accrued liabilities' and 'Other liabilities' in the aggregate as of IwiWsr 31, 1995 and 199$ are $50.4 and $43.7 Billion,, respectively, for estimated product warranty claims. The Ccmpany believes that the reserves established for estimated probable future warranty claims are adequate. Asbestos Liability In 1992, the Colony recorded a provision of $322.5 million (before related defected'inccam tax benefits of $122.5 Billion), representing the Company's then-estimate of its total liability .pa an undiscounted basis (net of estimated recoveries of $347.4 million from products liability insurance policies and other liabilities previously recorded) in connection with ell pending asbestos-related bodily injury claims', and all future aabentos-related bodily injury claims anticipated to be resolved over the 10-year period of the Settlement described in Item 3, 'Legal Proceedings,' which is incorporated herein by reference. Beginning in the fourth quarter of 1993, the Canpany began to reflect certain components of the asbestos-related liability on a discounted basis. The aggregate undiscounted liability as of December 31, 199$, before estreated recoveries from products liability insurance policies, was $370.$ Billion and, after reflecting a discount of $3S.B million with respect to certain components of the asbestos-related liability, was $333.$ million (before estimated present value of recoveries from products liability insurance policies of $190.5 million and related deferred tax benefits of $51.7 million). See Item 3, 'Legal Proceedings,* which is incorporated by reference, for further discussion with respect to such liabilities. The discount rate (S.2St) used t4 discount the affected comments of the asbestos-related liability was equivalent to the interest rate in October 1993 for securities with a 10-year maturity backed by U.S. Government agencies. As of Deceaber 31, 199$, the expected net payments (receipts) for 1997, 1998, 1999, 2000 and 2001 4 . F-15 I 'Ar G-I HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) . are $58.2, $(9.8), $25.9, $35.8 and $34.3 million, respectively, and the aggregate expected payments to be made after 2001 are $23.8 million. Reclassifications Certain amounts in the 1994 and 1995 Consolidated Financial Statements and Notes to Consolidated Financial Statements have been reclassified to conform to the 1996 presentation. NOTE 2. ACQUISITION In October 1995, G-I Holdings acquired all the outstanding shares of USI for a purchase price of approximately $27.5 million and assumed $35 million of USI' s indebtedness. USI manufactures comnercial roofing products. The acquisition was accounted for under the purchase method of accounting. Accordingly, the purchase price was allocated to the estimated fair values of the identifiable net assets acquired, and the excess was recorded as goodwill. USI's results of operations, including sales of $21.8 million for 1995, are included in the Consolidated Statement of Income from the date of acquisition; the effect was not material to consolidated operations in 1995. In connection with the Separation Transactions, effective January 1, 1997, USI became-a wholly-owned subsidiary of BMCA through a capital contribution to BMCA by G-I Holdings. y NOTE 3. INVESTMENT IN LIMITED PARTNERSHIP In February 1990, GFC and one of its subsidiaries organised Rhone-Poulenc Surfactants and Specialties, L.P. (the 'Partnership') with an affiliate of Rhone-Poulenc Inc. ('RP') to which they contributed their respective surfactants businesses. After the formation of the Partnership, GFC and Its subsidiary borrowed $450 niillion pursuant to a non-recourse loan which is secured by their interest in the Partnership. Effective April 26, 1994, the borrowing bears a fixed interest rate of 7.13%. The Company's net investment in the Partnership has a net book value of $0, represented by an asset with a carrying value of $450 million offset by the related non-recourse Partnership debt of $450 million. Although non-recourse to the Company, repayment of the debt is secured by a pledge of the Company's interest in the Partnership. Income from the Partnership is included in 'Other income, net.' Interest expense related to the non-recourse Partnership debt is included in 'Interest expense.' Interest expense related to such debt for 1994, 1995 and 1996 was $27.2, $32.1 and $32.1 million, respectively. Income from the Partnership hob $28.2, $32.4 and $32.3 million for 1994, 1995 and 1996, respectively (excluding, in the case of 1994, the effect of the settlement referred to below). On April 26, 1994, GFC settled its outstanding disputes with RP relating to GFC's interest in the Partnership. Under the settlement, GFC agreed to terminate its pending litigation against RP and its interest in the Partnership and received a partnership distribution of a portion of its interest in the Partnership of approximately $25.5 million in April 1994. The settlement resulted in pre-tax income of $23 million, which amount is included in 'Other income, net.' The settlement also provided that GFC would receive fixed monthly distributions until 1999 as well as a fixed final distribution in 1999. F-16 6-1 HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4. INCOME TAXES Income tax (provision) benefit for continuing operations consists of the following: Federal: Current............................................ Deferred......................................... Total Federal.................................. State and local: Current............................................ Deferred......................................... Total state and loca^..... Income tax (provision) benefit............................................ YEAR, ENDED DECEMBER 31, 1994 1995 1996 (THOUSANDS) $ 34,845 (34,604) 241 i. (23%) (58)i (820^ i $ (579.) $ 47,653 (28,694) ' 18,959 (220) (741) (961) $ 17,998 $ 36,423 (23,269) 13,154 (221) (1,227) (1,448) $ 11,706 The differences between the income tax benefit computed by applying the statutory Federal income tax rate to pre-tax loss from continuing operations, and the income tax (provision) benefit reflected in the Consolidated Statements of Income, are as follows: 1 'V Statutory benefit...................................................t. Impact of: State and local taxes, net of Federal' benefits......................................................................... Foreign tax credit (*FTC') carryover............. Nondeductible goodwill amortization....... Income tax (provision) benefit.................... YEAR ENDED DECEMBER 31, 1994 1995 1996 (THOUSANDS) $ 2,480 $ 14,526 $ 13,073 (533) (233) (2,293) $ (579) (625) 4,416 (120) (199) $ 17,998 (940) (424) (3) $ 11,706 5* F--17 IJ * :i G-I HOLDINGS INC BOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BOTE 4. INCOME TAXES--(CONTINUED) The cooponents of the net deferred tix liability ere es follows: Deferred tax liabilities related to: *. Property, pleat and equipment...................4....... Investment in limited partnership......................................... Total deferred tax liabilities.................................... Deferred tax assets related to: FTC carryforwards.............................................................M.................. Expenses not yet deducted for tax purposes: Reserve for asbestos claims, net of estimated insurance recoveries..................................... All other..............................................................................4.*................. Total deferred tax assets............................................................. Net deferred tax (asset) liability......................-...................... Deferred tax assets reclassified as currer^..................... Noncurrent portion of deferred tax liability.................. DECEMBER 31. 1995 1996 (THOUSANDS) $,18,804 131*425 150,229 5 20,787 131,425 152,212 (37,169) (12.083) (71,990) 442,913) (152,072) (i.43) 36,031 5 34,1*1 , __ (51,472) (52,303) (UC.OSt) 36,154 34,708 $ 70,942 _____ _ At December 31, 1996, the amount of carryforwards available for Federal income tax purposes were: FTCs expiring in the year: (THOUSANDS) 1998 ............................................................................................. 1999 ............................................................................................. Deferred tax asset related to FTCs.... $ 5*917 6*166 512,083 FTC carryforwards represent amounts available to ISP and due to C-I Holdings under the Tax Sharing Agreement. C-I Holdings intends to transfer the .remaining amount which ia not utilized in its 1996 consolidated tax return, estimated to be $12.1 million, to ISP Holdings. G-I Holdings has entered into a Tax Sharing Agreement with GAF with respect to the payment of Federal income taxes and certain related matters (the 'G-I Holdings Tax Sharing Agreement1). During the term of the G-I Holdings Tax Sharing Agreement, which shall extend as lpng as G-I Holdings is included in a consolidated Federal income tax return filpd by GAF, G-I Hqldings is obligated to pay to GAF an amount equal to those Federal income taxes G-I Holdings would have incurred if C-I Holdings (on behalf of itself and its domestic subsidiaries) filed its own Federal income tax return* but, in general* not in excess of the amount of Federal income tax;GAF actually pays or is required to pay. GAF has agreed to indeawify G-I Holdings and its domestic subsidiaries for ail tax liabilities of the GAF consolidated group other than tax liabilities arising from the operations of G-I Holdings and its domestic subsidiaries. The G-I Holdings Tax Sharing Agreement provides for analogous principles to be applied to any consolidated, combined or uhitary state or local income taxes. Under the G-I Holdings Tax Sharing Agreement, GAF makes all decisions with respect to all matters relating to taxes of the GAF consolidated group. In connection with the Partnership* he Company has recorded a deferred tax liability in the asmunt of $131.4 million.1 Payment of this .Liability (subject to reduction to reflect utilisation of the tap attributes of GAF and its subsidiaries) is not expected earlier than 1999 under present circumstances. In certain circumstances, the Company could bm required to satisfy this liability earlier than 1999. The Company's management believes*it will have access to^ sufficient funds to satisfy this liability1 if so required. ` I J i G-I HOLDINGS INC. BOTES TO CONSOLIDATED FINANCIAL STATEMENTS--| CONTINUED) NOTE 5. SALE OF ACCOONTS RECEIVABLE In lurch mi, BMCA Bold its trad* accounts receivable ('receivables') to a trust, without recourse, pursuant to an agreement which provided for a nsvieusi ot $75 Billion is cash to be Bade available to BMCA based oo eligible receiviblu outstanding Iron tine to tins. In Bovaoter 1, BMCA entered into new apr a. pamut to uIB it >U the receivables to A special pUipOie subsidiary of BMCA, MCA Receivables Corporation, without recourse, unjLcn is turn sold then to a new trust, without recourse. The new apre-ants provide for a -< of (US aillion la cash to be aade available to (MCA based -- eligible receivables outstanding fra tine to time. This facility expires in Decanter 2001. The excess of accounts receivable sold over tbs net pmceada received is included la `Accounts receivable, other'. The effective eoet to MCA varies with LIBOR and ia included in 'Other inccae, net'. In 1996, the Financial Accounting Standards Board issued SFAS Bo. 125, relating to accounting for transfers and servicing of financial assets aad extinguish--nts of liabilities, which will te adopted ia 1197. The coapaay does not enticipsts that the i^leuentation of SFAS No. 125 will hnve a material affect on the Company's results of operations or financial position. NOTE 6. INVENTORIES At December 31, 1995 and 1996, $6.2 and $7.6 million, respectively, ef domestic inventories wars valued using the Liro --tbod. inventor!-- comprise the following: DECEMBER 31, 1995 1996 * (THOUSANDS) Finished good*........................................... Work in process...................... Raw materials and suppliaa.... $34,727 7,594 25,701 $39,420 10,044 24,20$ Total....................................................... Lass LIFO reserve............................ 68,022 (505) 76,470 (1,055) Inventories.................................................... $67,517 $75,415 NOTE 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipaent comprises tha folloving: Land and land improvements.................................................................. Buildings and fixtures........................................................................... Machinery and equipment | Including equipment under capitalized leaaea of $20,450 and $17,660--see Note 6).................................................................................................................... Construction in progress........................................................ Total................................................................................................................. Less accumulated depreciation and amortization............ Property, plant and equipaent, net.............................................. UEUNBK Jl, 1995 1996 (TCOOSJUtDS) $ 26,648 42,252 $ 26,837 46,001 184,369 22,779 276,248 (42,915) $233,333 179,626 19,019 271,S03 (48,452) $223,051 F-19 G-l HOLDINGS INC. MOTES TO CONSOLIDATED FINANCIAL STATEHENTS--(CONTINUED) HOTS 8. LONG-TEJUI DEBT LoBg*ttn debt comprises of the followings Senior Discount Motes doe 1999............................................................. 109 Senior Motes due 2009.................................................................... II 3/4% BMCA Senior Deferred Coupon Notes due '. 2004.................................................................................................................................. 5/89 BMCA Senior Botes doe 2004.................................................... lemviB9i under revolving credit fecilitiea.............. Induetrie! revenue bonds with serious interest rstet end maturity dates to 2012................................................................. Obligations on mortgaged properties............................................... Obligations under eepitel leases (Note 12).......................... Mon-recourse debt (Mote 3)....................................................................... Total.................................................................................................... Less current eaturities................................................................................. Long-term debt leas current Maturities..................................... ms 1( (THOUSANDS) * 505,133 5,250 132 207,814 -- 24,412 233.01B 99,504 -- 19,(25 7,438 $*.70 450,000 10,(25 5,154 51.100 450,000 1,270,0(2 IS.Mil (4,4(3 (3,4121 31.270,093 3941,071 Zn OctdSer 1993, G-I Holdings issued Senior Discount Motes due 1991 (the 'Discount Motes') for gross proceeds of $400 Million. The Discount Motes have e zero-coupon, accruing interest until paid in full at Maturity, and sere sold st a discounted issue price representing e yield to Maturity of 11.1251. la February 1994, G-I Moldings coupletad the axebangs of $119.3 million in accreted value of its then outstanding Discount Motes for $200 million of its 10% Senior Dotes due 2004 (the *10% Motes'), which were subsequently subject to the exchange offer discussed below. On October IS, 1994, XSP Holdings cooewmated s cash tender offer for C-I Bolding*' Discount Motes. Pursuant to the tender offer, $344.9 million in accreted value of G-I Moldings* Discount*bots ears purchased by ISP Moldings. $171.1 Billina in aecrated value of such Discount Notes were subsequently repurchased by G-I Holdings (utilising cash oa hand and the repayment of Monies owed to G-I Boldinga by ISP) from Z8P Moldings. ISP Holdings also concluded an offer to exchange its new 9 3/4% Senior Notes due 2002 for tha 10% Botes. Pursuant to the exchange offer, $199.9 million of the 10% Motes vara acquired by ISP Holdings. All Discount Motes purchased in the tender offer (other than those Discount Notes sold to G-I Holdings, as discussed above) and all 10% Notes accepted in the exchange offer by ISP Boldings were contributed to G-I Holdings by ISP Holdings as a capital contribution in December 1994, prior to tha Separation Transactions, and canceled by G-I Holdings. Zn connection with the above transactions, the Company recorded extraordinary losses of $31.0 Million, net of related income tax benefits of 517.3 million, representing write-offs of deferred financing fees and the premium to accreted value of $29.4 Million paid pursuant to the tender offer. On December 9, 1996, BMCA iaaued $100 million in aggregate principal amount at maturity of I S/It Senior Notes due 2004 (the ' 5/0% Motes'). In Juns 1994, BMCA issued $310 Million in principal amount of the Deferred Coupon Botes for net proceeds of $169.3 Million. The Deferred Coupon Motes will accrete to face value on July 1, 1999 and cash interest will accrue froM and after that date. Holders of the Deferred Coupon Notes and the I S/81 Notes have the right under the indentures governing such notes to require BMCA to purchase the Deferred Coupon Notes at a price of 101% of Accreted value (as defined therein) and the 8 S/8% Notes at a price of 101% of the principal amount thereof, and BKCA has the right to redeem the Deferred Coupon Notes at Accreted Value and the I 5/8% 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 (aa defined therein). The indentures relating to the 8 5/1% Notes and the Deferred Coupon Motes contain covenants that, among other things, limit the ability of DMCA and its subsidiaries to pay certain dividends or stake certain other F-20 G-I BOLDICS WC. notbs to comsoLiaxm rnuaciAL mniuit' (lwmwm) ROTE I. LOMC-TBUI DEBT--(COrUlTOEB) restricted ptjmti and restricted inotanti, Incur liana, ugatt in truuetiou with altiliataa, and agree to certain nhUtlnnal Ualtitlcai no dividends and other payment restrictions affecting auhaldlarlea. As of DaeMBor II, UK, MCA coaid hove paid dividends of ap to |l*7.s all Hon. Under the indaatnraa relating to the S/ft notas and tta Dafarrad Ooopon Botaa, the incurrence of additional debt by MCA and tbe issuance Ay MCA of preferred tack would be reetrietad nalana, at tba tine of each inauanon and after gluing effect thereto, tba ratio of MCA* a coaaolidatod not ianana before incMa taxon, intarant, dnproclatioa and aaortisatioa axpaaaa to ita rrwianl Idated iatarant expeaaa for ita aoat recently completed four fiacal quartan la at loaat z to l. for the four quarters ended Poenabar 11, iff*, MCA vaa in coaplinnce with auch taata. -i In eonnactioa with the Deferred coupon Rotes, MCA entered into laterest rate swap agraaasata (' swaps *) with banks in an aggregate ending notional principal anount of $142 Billion, with a final maturity of July 1, IMf, AS a result of the swaps, the affaetiva latpraat cost to MCA of tba portion of tha Dafarrad Coupon uotaa covered by tba swaps variaa at a fixed spread over LIMA. Based on thn fair value of tbe awape at neoaabar II, IMS and 1M, MCA mid have incurred galas of 41-I and $1.0 nilllon, respectively, representing the eetinetad anount that would be zacaiepble by ACE if tba awape <an terminated at such dates. Ao cub Interest will be paid ea tbe awape until astarlty. Tba Coguy aay be considered to be at risk, to tha exteat of tba costs of replacing such swaps at current aarkat rates, in tba event of nunperfomnnoe by counterparties. however, since tbe counterparties are aajor financial institutions, tha credit ratings of which ara continually araltnxwd by tha Co^any, the risk of such nonperformance la considered by the Company to be remote. In Juno lift, MCA* a bank credit*, facilities earn artended to June iff7 an tha sane tanMaad cooditioes. In October 1996, a $10 aillioe facility won increased to $12 aillioe and extended to October 1117. such facilities provide for revolving lines of credit of up tp $12 Billion and letters of credit of up to $41 Billion, provided that total borrowings and outstanding letters of credit nay not aaoeed $42 Billion. As of narsafiar 31, IIM. I1A-I Billion of 1sttars of credit were outstanding and ao aaomta had been tiuiioeed thereunder. Under tha agreements, MCA is subject to a alnlimu consolidated net earth tut. An of Daceabor 31, UK, ANCA wu ia cnoplianca with auch tut. USI baa a revolving credit fscility, providing tor borrowinga of up to $21.$ Billion and lattarn of credit of up to $2 Billion (auch total borrowings and outstanding lattara of credit not to nxenad $21.$ Billion), which aspires in January 1111 and ia aacurad by, aad subjaet to linitxtioaa huod upon values of, accounts reoeivabla. Inventorlea and certain nannfamirlng oguipBut. Aa of December 31, 1114, chare ware $1.7 Billion of letters of credit outstanding and no anounta had bean borrowed under thn facility. The interest rata on that portion of the loans which is collateralized by accounts receivabls and inventories ia at the pries rate; that portion which ia collateralixad by manufacturing equipment is at e fixed rate of 7%_ In Oacanbar Ills, MCA ronwatjad a $40 ailliaa aala-lsaaaback of certain equipment located at its Cheater, Snath Carolina roofing facility, in a transaction neecoatad for as a capital laaaa. end tha gala has been dafarrad. Tha laaaor waa granted a security interest in certain mij i l|mnat at the Chaster fscility. The lease tare extends ta seeober 2005. In Oacanbar 1114, AMCA consuanated a $20.4 Billion ssla-leaseback of certain aijn If ill located at its Oaltiaore, Maryland roofing facility! in a transaction accooatad for as a capital laaaa, and tha gain has beeh .deferred. Tha laaaor waa granted a security interest in tha land, buildings, nd ^certain other equipment at the Oaltiaore facility. Tha proceeds were used in part to repay $12 million outstanding under a loan obtained in 1110 which waa secured by tha earn equipment. Tha laaaa tare extends to Oacanbar 2004. In nacaatoai; *1113, MCA obtained a loan of $7.3 Billion, which is aacurad by nanufaceuring equipment located at ita Dallas plant. The loan is being repaid over a seven-year period and has a fixed interest rate. BHCA hee three industrial revenue bond issues outstanding, which bear interest at ahort-tam floating urates. Interest retea oa the foregoing obligations ranged between 1.4St end'd. 17* aa of Pacaebar 31, 1114. The Ceapany believes that the tjir value of Its non-public indebtedness spproxixutes the book value of auch indebtedness, because tha interest rates on such indebtedness srs at floating shqrt-tera rates. With respect to the Company'a publicly traded debt securities, tha Company has obtained estimates of the fair values from an C-I HOLDINGS KMC. MOTES TO COUOUMffD FZHAMCIAL STATEIIEMTS-- (COMTIIUED) BOn 8. LOBC-TEKM DEBT--(CONTINUED) lBdpodnt source talimd to bo reliable. Tho estimated fair value of tbo Deferred Coupon lotos u of Decamber 31, 1995 and 1998 was $210*8 sad $288.9 Billion, respectively. Tbo ostiaotod fair rain* of the 8 S/88 lotos as of Decaber 31, 1998 m $100 million, rho Registrant*s remaining Discount lotos sod 108 lotos are so longer publicly traded* Tbo aggregate maturities of long-term debt as of Oeraeher 31, 1998 for the next fire years are as follows* (THOUSANDS) 199?.... 1998.. .. 1999.. .. 2000.. .. 2001.. .. $ 2,412 8,953 4,009 5,865 4,82? In the above table, 1998 maturities include the Discount lotos at the secreted value of $5.3 million as of Decqpbnr 31, 1996* NOTE 9. BENEFIT FLAMS Eligible, full-time employees of the Cocpany are covered by various benefit plans, as described below. Defined Contribution Plan The Ooqdiy provides s defined contribution plan for eligible employees* The Company contributes up to 78 of participants * compensation and also contributes fixed amounts, ranging from 850 to 8750 per year depending no age, to tho accounts of participants oho are not covered by a Company-provided poatrotiromont medical benefit plan* The aggregate contributions by tho Company related to continuing operations were $2.8, $2*7 and $3*0 million for 1994, 1995 and 1996, respectively. 051 provides a defined contribution plan for eligible employees. USI may contribute a discretionary matching contribution equal to 1008 of .each participant's eligible contributions each plan year up to a aavlmue of $500 for each participant. Such contribetionn by USI were inmslei til for the period in 1995 after the acquisition of USI and were $157,000 for 1996. Defined Benefit Flans The Company provides a noocontributory defined benefit retirement plan for hourly employees (the 'Hourly Retirement Flan'). 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 related to continuing operations for the Hourly Retirement Plan Included the following components* Service cost.......................................................................................................... Interest cost........................................................................................................... Actual income on plan assets........................................................ Net deferral and asortization of unrecognised prior service cost and actuarial losses............................................. Net periodic pension cost........................................................................... YEAR ENDED DECEMBER 31, 1994 1995 1998 (THOUSANDS) $ 501 5S1 (380) 175 $ 163 598 (432) 97 $ 831 686 (629) 35 $ 847 $ 726 $ 523 F-22 *is- 0-1 BOLDIWGS INC Mores to comsolimtco riMNCuu. statwmts--(cdhtirued) aore s. unm hw-imbibbi ttw following >' nt> forth the funded status of the Sourly Retirement Piss for cwtlwlDf opermjLioani Accumulated benefit obligation! Vested.............................................................................. Monveated................................................................ Total accumulated benefit obligation- projected benefit obligation*....................... Fair value of plan assets, primarily publicly traded stocks and u.S, Coeernment securities................................... Projected benefit obligation in excess of.piss assets ........................................................................................................................... Unrecognised prior service cost.......................................................... Unrecognised net loss.....................................................................................- Unfunded accrued pension cost..............................................................- IMS list (TSOOSMDS) ( 7,(23 1,2(4 ( , ( (,407 1,421 410,021 * S,MS (7,0*2) (10,02* (*,S10) 1,7*7 (340) (43SI ( 7*4 ( 4*0 (111) (13) 77 At Oecaaber 31, 1**4, the difference between the 'Projected benefit obligation in excess of plan assets' and the 'Unfunded accrued pension costin the eaount of (421,000, was recorded by the Cn^aay as a liability, offset by an intangible asset la the aaouat of (331,000 and a reduction of shareholder'a equity in the aaouat of ((3,000. Tbs foregoing amounts will be sanitised to expense over a period of approximately is years, as the Colony continues to fund the benefits under the Oourly Met-1 rseent Plan. in determining the projected benefit obligation, the weighted"average assumed discount rats was 7.SI and 7.75% for 1**3 and 1S*(, respectively. The expected long-term rate of return on assets, used in determining net periodic pension cost, was *% for 1**5 and 11% for 1**4. The Oaquoy also provides a nonqualified defined benefit retixvant plan for certain key eaployeea. Bxpenae accrued for this plan and charged to continuing operations waa inaatarial for 1994, 19*5 and 1*94. Preferred Stock Option Plan On January 1, 1**4, (MCA issued:options to certain ^iloyaes to purchase 24,50* eharea of redeemable Convertible Preferred Stock | `Preferred Stock'| of BHCA, exercisable at a price of (100-per share, each share of Preferred Stock is convertible, at the holder's option, into 0.74 shares of caamon stock. Ths options vast over seven years. Dividends will accrue on the Preferred Stock iron the date of issuance at the rats of ,tt per annua, the Preferred Stock is redeesmble, at BUCK'S option, for a redemption price equal to (100 per share plus accrued and unpaid dividends. The Preferred Stock, and coaaon stock issuable upon conversion of Prsfsrrud stock into egaos stock, is subject to repurchase by BNCA under certain circumstances, at s price equal to current hook value (as defined). The exercise price of the options to purchase preferred Stock was equal to tbs estimated fair value per share of the Preferred Stock at the date of qrant. Mo expense la accrued in connection with the preferred stock option plan. Stock Appreciation Rights GAP has issued stock appreciation rights ('SARs') to certain officers of the Company and its subsidiaries related to 04,741 shares of GAP's Cum in Stock. The SARs represent the right to receive a cash payment baaed upon the appreciation in value of the opacified nuaber of shares of coumon stock of GAT over the sum of the determined initial Book Value (as defined) per share of common stock of GAT plus interest oslsuch Book Value at a specified rete. The SARs vest over e five-year period, subject to earlier vesting under certain circumstances including in connection with a change of control. Ccopenestion expense related to SARs was 4.), 4.5>and (.* nillion for 1994, 1**5 snd 1994, rexpectively. | ; r-2j * { C-t M0LD1B6S XHC. atom TO COWSOLIOMEO rSOMtetAL STATOatfTS--(CQVrXMOCO) MOTE I. BEMEPIT SLAMS--(COVTXVUEO) XneoH Appraciatiee Unit flea and Meek Val-- JkppneiitiN Vult riu MCA pcofldn u Inrnrw Ippneiitin Voit Piss, -- Ucnfcin prograa biaad on tk eperxtimg parforaane* of MCA. feo*** ac--d ter Ut pla> wos fM, 9.2 and 5.4 million ior 1924. 191) and 1991, ziapactinly. IM tnco-- Appmiatiw Unit Plan mao torminatort no of Deeesbmr 31, 1991, nod din nlonr worn fr-- no of that dotn. Participants vho hold nnf --its mill fan --titled to receive cook pafont ogwal to the onion of thalr mtai ooito an of Dacmkar 31, 1999 and, an the ramalalog oaitn become v--tad, holders mill bo oatitlod to main additional coab peym--t for ooeb valoo. A MCA Book valoo hppreriitinn Unit Plaa mna l^ilarontod offoctivo January l, 1999. Under tin plan. --ploy--e mnro granted oaita which moot amor oooon faro. Ufa axareioa, --play-- aro --tltlod to roenian a caak pay--st baood oa tbo inermann in Book Valuo (U defined). Eapon-- accrued oodor tbio pi-- for 1999 mas 9.1 million. Postreti--at Nadieal and Life Insurance Tim Cropany --rally d--n not provide poet--tir--ont oedieal and lifo ianuran-- bonafits, although it subnidi--o suck ba--fits for certain eeployae* and certain retireea. Suck subsidies mere reduced or ended an of January 1, 1997. The toHominy table shows the components of the accrued peatretirooeat health care cost obligation related to continuing operations as of Dee--her 31, 1995 and 1999i Accumulated postretire--nt benefit obligation* Retirees, dependents and be--ticieries eligible lor be--fite..................................................................................................... Active employees fully eligible for be--fits.................... Active ecjiloj-- --t folly eligible tor be--fits.......... Total oc--lated poet--tir--t benefit obligations... Pair val-- of plan aaaets........................................................................ Un--cogni--d prior aarvice coat and net gate....................... Ace--ad poatretira--nt benefit obligation...................... DRBOCX 31, 1995 1999 (TBOUSAMOS) 919,43$ 1,193 1,154 21,702 5.*99 927,251 911,943 1,121 1,112 14,259 0,793 9*3.949 Mat periodic poatretira--nt benefit coat --lated to continuing operations included the fell--ing eonponentai Service cost....................................................................................... Interest cost.............................................................................. A--rtlvatien of --t gain (tea earlier periods... Met periodic postreti--nt benefit cost.................. YEAB ENDEO DECEMBER 31, 1994 1195 1999 (THOUSANDS) I < 1,409 (2lt| 9 79 1,4ffl <5901 9 95 I,3S3 (270| 11,205 9 977 11,130 for purposes of calculating the accumulated post--ti--nt be--fit obligation, the following essueption# -- --de. Jtetl--es ss of Pec--her 3), 1999 who me-- for--rly salaried --ploy--a (with certain exceptions) ware assumed to receive a Company aubeidy of 1700 to 91.000 per year. Por --tir--s over age 95. this subsidy lasy be replaced by participation Jn a aenaged care program. With respect to --tirees who war* formerly hourly ei^loy--s, --st such --tir--s are subjeet to a 95,000 per person lifeti-- nasiuun benefit, subject to sueh lifeti-- eaxieum, a 13% and 7% annual rate of ine--a-- in the Company's per capita e--t of providing post--ti----nt medical be--fits mss assumed for 1997 for sucS --ti--es under sod over age 95, respectively, fe the externt that the lifeti-- maxisaim to--fits have not been --ached, the foregoing ratos mere assumed to r-24 6-1 HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9. BENEFIT FLANS--(CONTINUED) decrease gradually to 7t and 6%, respectively, by the year 2003 and remain at that level thereafter. The weighted average discount rate used in determining the accumulated poatretirement benefit obligation was 7.5% and 7.75% for 1995 and 1996, 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 vopld increase the accumulated postretirement benefit obligation for continuing operations as of December 31, 1996 by $646,000 and the aggregate of the service and interest cost components of the net periodic poatretirement benefit cost for continuing operations for the year 1996 by $170,000. NOTE 10. RELATED PARTY TRANSACTIONS Mineral Products: BMCA purchases all of its colored roofing granules requirements (exeept for the requirements of the California roofing plant) from ISP, an affiliate of the Company, under a requirements contract which was renewed in 1996 and is subject to annual renewal unless terminated by BMCA or ISP. Such purchases totaled $42.5, $545.7 and $4B.l million for 1994, 1995 and 1996, respectively. The amount payable to ISP at December 31, 1995 and 1996 for such purchases was $2.7 and $3.5 million, respectively. In addition, in Deces&er 1995, USI commence^. purchasing substantially all of its requirements for colored roofing granules from ISP (except for the requirements of its Stockton, California and Corvallis, Oregon plants) pursuant to a requirements contract which expires December 31, 1997. Such purchases totaled $.1 million for 1995 and $2.4 million for 1996. The amount payable by USI to ISP for such purchases was $.1 million at each of December 31, 1995 and 1996. Management Agreement: The Company is a party to a Management Agreement with ISP (the `Management Agreement'), which expires December 31, 1997, pursuant to which ISP provides certain general management, administrative and facilities services to G-I Holdings and its subsidiaries, including BMCA, USI and GFC (including the use of the Company's headquarters in Hayne, New Jersey), for which the Cnpany paid ISP a management fee of $4.4, $4.5 and $4.9 million for 1994, 1995 and 1996, respectively. In addition to the management fee, BMCA paid to ISP approximately $.7 million in each of 1994 and 1995 and $.8 million in 1996, primarily for telecommunications and information services, and the company paid approximately $.3, $.2 and $.5 million to ISP in 1994, 1995 and 1996, respectively, for certain legal services, which in each case were not encompassed within the Management Agreement. In connection with the Separation Transactions, the Management Agreement was modified to incorporate such services, and, in that connection, he total charges for management fees were increased to an annual rate of $5.4 .million, effective January 1, 1997. Tax Sharing Agreement: See Note 4.' NOTE 11. DISCONTINUED OPERATIONS On August 1, 1996, the Company "completed the sale of WAXQ, a commercial radio station operated by GAP Broadcasting Company, Inc. (`GAP Broadcasting'), a wholly-owned subsidiary of the Compqpy, for a purchase price of $90 million. The gain on disposal of $43.6 million, after income taxes of $30.6 million, was recorded in the third quarter of 19%6. Accordingly, GAF Broadcasting is reported as a discontinued operation. 'j ^ F-25 V>. f 1 G-I BOWINGS INC HORS TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11. DISCONTINUED OPERATIONS--(CONTINUED) As a result of the Separation Transactions, ISP. as mil as GAT Broadcasting, an reflected as discontinued operations in the Consolidated Financial Ststenents. Suaeary operating results of such discontinued operations an as folloust Sales Inceee befon incone taxes..................... Incone taxes............................................................. Minority interest in incoae of ISP Incooe before extraordinary itces. IZU ENDED DETETOUm 31, 14 1**5 IMS (TNOOSANOS) $603,*67 $697,076 $720,714 $ 72,13P (26,586) (6,640) $ 36,911 $107,964 (39,324) (12,306) $ 56,334 $126,299 (45,477) (13.713) $ 67,109 ** Assets Current assets.................................................. Other noncurrent assets.............................. Total eaeet...................................................... Liabilities current liabilities.......................................... Long-term debt....................................................... Other nomeurrmet liabilities................. Minority interest in ISP............................. Total liabilities....................................... OeCEMBBN 31, 1995 1996 (THOUSANDS) 343,552 982,969 ,326,520 $ 360,520 975,719 $1,,324,317 201,002 2(0,254 188,438 113,597 703,291 $ 120,926 310,294 175,999 116,230 $ 731,369 More 12. amimnrs and coxtinctwcies GAP, G-I Moldings and G industries Corp. are presently dependent upon the earnings and cash flow of their subsidiaries, principally BMCA, is order to satisfy their obligations. As of Deceaber 31, 1996, such obligations, included $5.3 Billion of the Discount Motes, $.1 Billion of the 10% Motes, 0333.9 Billion estimated present value of asbestos liability diseusaed in Note 1 (before estimated present value of recoveries from products liability insurance policies of approximately $190.5 million), and approximately $163.8 million of various tax and other liabilities, including tax liabilities relating to the Partnership discussed in Mote 3. Of such obligations, $78.6 million (net of related insurance recoveries of $17.7 million) is estimated to be payable during 1997. GAP, G-I Holdings and G Industries Corp. expect to obtain funds to satisfy such obligations fron, among other things, dividends and loans froe subsidiaries (principally BMCA), as to which thera are restrictions under the indentures relating to tha Deferred Coupon Notes and the 8 S/1% Motes (see Mote 9), and from payments pursuant to the Tax Sharing Agreement between GAP and BMCA. The dleeussloo as to legal matters involving the Company contained in Item 3$ 'Legal Proceedings' is incorporated herein by reference. lenses for certain property, plant and equipment at BMCA's Baltimore, Maryland and Chester, South Carolina roofing facilities are accounted for as capital leases (see Note 8). The Company also has oparating leaaas principally for transportation, production and data processing equipment. Rental expense on operating leases for continuing operations was $7.1, $7.0 and $8.3 million for 1994, 199S and 199$, respectively. Future minimum F-26 G-I HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12. COMMITMENTS AND CONTINGENCIES--(CONTINUED) lease payments for properties which were held under long-term noncancelable leases as of December 31, 1996 were as follows: 1997......................................................................................... 1998.......................................................................................... 1999.......................................................................................... 2000........................................................................................... 2001........................................................................................ Later years........................................................................ Total minimum payments........................................... Less interest included above........................... Present value of net minimum payments.. CAPITAL LEASES OPERATING LEASES (THOUSANDS) $ 6,862 6, B62 6)862 7)302 8) 108 38)964 $ 4,396 3,126 l)748 1,158 467 148 74,960 $11,043 (23,160) $51,800 F-27 G-I HOLDINGS INC CONDENSED FINANCIAL INFORMATION OF REGISTRANT G-I HOLDINGS INC. PARENT COMPANY UNCONSOLIDATED STATEMENTS OF INCOME SCHEDULE I i Equity in incoae of subsidiaries........................................................................ Interest expense............................................................................................................... Interest income on loans and note receivable froa related parties................................................................................................................-.................. Other income (expense), net......................................................................... Income before inccoa taxes and extraordinary items...................... incoae tax (provision) benefit: , current....................................................................................A.................................. Deferred......................................................................................................................... Total incoae tax benefit............................................................................. Extraordinary items, net gf incooe tax benefits of $17,275.. Net incoae................................................................................................................................. TSAR UDBD DECEMBER 31. 1994 1995 1996 (TBODSARD5) $ 33,006 (54,139) $ 40,430 (66,152) $ 97,478 (69,147) 47,864 (1,609) 52,135 2,220 46,452 3,614 25,122 21,$33 71,397 IS,218 (13,330) 2,888 -- $ 28,010 (20) 4,215 4,195 -- $ 32,828 (21) 6,726' 6,705 (30,950) $ 54,152 S-l I I G-I HOLDINGS INC. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED) G-I HOLDINGS INC. PARENT COMPANY UNCONSOLIDATED BALANCE SHEETS ASSETS Currant Assets: Cash and cash equivalents................................................. Investments in trading securities........................... investments in available-for-sale securities Investments in held-to-maturity securities.. Other short-term investments............................. Other current assets.............................................................. Total Current Assets..................................................... Note receivable from C Industries Corp... Investment in subsidiaries...................................... Deferred income tar benefits................................ Deferred financing costs and other assets Total Assets................. DECEMBER 31, 1995 1996 (THOUSANDS) $ 7,583 52 849 10,398 15,837 1,301 36,020 448,507 100,971 9,239 11,172 $605,909 83 1,209 1,291 477,812 47,063 4,776 $530,942 LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) Current Liabilities: Loans payable to related parties, net................................................................. Accounts payable and accrued liabilities......................................................... Payable to related parties, net................................................................................. $ 42,424 7,085 24,474 Total Current Liabilities....................................................................................................... 75,983 Long-term debt.................................................................................................................................... 509,833 Deferred taxes payable to related party................................................................. 17,632 Other liabilities....................................................................................................................................................... 4,168 shareholder's Equity (Deficit): Common stock, $.01 par value per share; 1,000 shares authorized; 100 shares issued andoutstanding...................................... Additional paid-in capital............................................................................................... Excess of purchase price over the adjusted historical cost of predecessor company shares owned by GAP's stockholders........... Retained earnings....................................................................................................................... Cumulative translation adjustment andother.................................................. -- 50,129 (72,605) 6,213 14,556 Shareholder's Equity (Deficit).................................................................................. (1,707) Total Liabilities and Shareholder's Equity (Deficit)............................ $605,909 $ 12,693 9,923 17,965 40,581 5,382 31,340 7,844 455,943 (72,605) 54,065 8,392 445,795 $530,942 S--2 G-I KJLDXMCS INC. scbedole i CONDENSED FINANCIAL INFORMATION OF AECISTRAXT--(CONTINUED) G-I BOLDINGS INC* PANDIT COUPANT UNCONSOLIDATED STMEKEIfTS OF CASS 2X0*5 cub And eub equivalents, beginning of r........................................................................................................ Cash provided by operating sctivitieet Net income...................................................................................... Extraordinary items........................................................... Moa-casb interest upcnsc........................................ Non-cash interest incaee.............................................. Deferred incaee taxes*.....*............... (Increase) decrease in sorting capital itees............................................................................................ Purchases of trading securities........................... Proceeds tree sales of trading securities. .................................................................... Increase (decrease) in payable to related parties....................................................................... Change in investment in and advances to affiliates.............................................................................. other, net................................................................ . Met nib provided by operating activities.................................................. TEJUT ENDED DECEMBER 31, 1IH 199S 1994 (TBOOSANDS) *1 28,010 49,499 (41,38!) 13,330 2,399 (44,2*0| 42,911 2,031 (55,2*8) 5,OBJ $ 15,841 32,828 -- 54,923 (41,78*) (4,215) 1,349 (i 373 12,1(8 (47,204) <1.1181 8 7,583 54,152 30.850 39,012 (37.848) (*.72) 3,041 (410) 257 (5,0I3| (73,872) 2.8CC 2,738 7,835 4,531 Cash provided by (used in) investing activities i Acquisition of subsidiary........................................... Purchases of available-for-sale securities.............................................................................. purchases of hald-to-smturity securitise ............................................................................. purchases of other short-ten investments.......................................................................... proceeds free sales of avsilable-for-ssle securities.................................................................. Proceeds free held-to-aaturLty securities............................................................................. Proceeds froei othsr short-term investments.............................................................................. -- -- -<14,592) -- -- -- Net cash provided by (used in) investing activities............. (14,592) Cash provided by (used in) financing activities: Repurchase of Discount Notes froa ISP holdings................................................................................... Increase (decrease) in loan froe parent coapany.................................................................. Change in loans to/from related parties, net.................................................................................................... Financing fees end expenses................................... Dividends paid to parent coapany......................... Capital contributions to affiliates.................. Other........................................................................................................ 1,000 70,807 (514) (0,130) (35,575) (594) Net cash provided by (used in) financing activities..................... 27,794 Net change in cash and cash equivalents 15,940 Cash and cash equivalents, end of year. $ 15,941 (27.538) (*5,783) (17,643) (4,5*5) 65,443 7,447 3,320 (39,119) L (1,8001 53,1*0 (85) (28,159) 23,124 |B,35I| S 7,513 -- (11.030) (29,375) -- 0,925 32,874 2,622 3,919 (178,8*1) -- 258,017 (2,482) (*,491) (86,077) (43) 115,837) (7,501) $2 G--I HOLDINGS INC. VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II DESCRIPTION Vtlufttion nd Qualifying Accounts Deducted fns Assets to Which They Apply' AllowAnee for doubtful accounts. Allowsncs for discounts................ Reserve for inventory suket valuation................................................. BALANCE JANUARY 1, 1994 TEAR ENDED DECEMBER 31, 1994 CBAJG6SD TO SALES OR EXPENSES DEDUCTIONS (TBOOSAHD5) BALANCE 1994 $ 1.251 17,041 574 9 666 54,988 222 8 9(a) 58,594 192 $ l,901(b) 15,435 604 DESCRIPTION valuAtioa nd QuAlifyin? Accounts tetafcMl fns Assets to Midi Thty Apply: / Allowssee for doubtful accounts Allowsscs for diseosata......... Rsssnrs for inventory esrket vs lustion............................................. RALAIICE JANUARY 1, 1995 tsar cnbcd man si. l*s -ARCtn TO fMW QH ucmas DEDUCTIONS OTRER (THOUSANDS) 31. 8 1.908 15,435 f 04 I 478 85.057 8 92D(s) 0,(95 Ift 5 1,751(c) -- 8 3.217(b) 18,797 574 DESCRIPTION valuation and Qualifying Accounts Deducted fron Assets to Which They Apply: Allowance for doubtful accounts.................... Allowance for discounts........................................... Reserve for inventory market valuation.......................................................................... BALANCE JANUARY 1, 1996 YEAR ENDED 0ECRHBER 31, 1994 CHARGED TO SALES OR DEDUCTIONS r iwv DECEMBER 31, 1996 (THOUSANDS) $ 3,217 18,797 574 5 716 73,936 2,025 % 1.959(A) 70,265 8 1,974(b) 22,468 2,509 Notes: (a) Represents write-offs of uncollectible accounts net of recoveries. (b) The balance at December 31, 1994 principally represents a reserve for receivables sold to a trust (see Note 5 to Consolidated Financial Statements) and is reflected in the Consolidated Balance Sheets as a reduction of 'Accounts receivable, other.* The balances at December 31, 1995 and 1996, in addition to representing such reserve for receivables sold to a trust include a reserve of $1,261,000 and $647,000, respectively, related to USI trade receivables. (c) Represents balance acquired in an acquisition. S-4 *> EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 3.1 3.2 -- Certificate of Incorporation of G-I Holdings (incorporated by reference to Exhibit 3.1 to G-I Holdings* bnmil Haport on Fora 10-K for tha yau andad Dacaabar 31, 1989 (tha *1989 10-K')). -- By-laws of G-I Boldings (incorporated by rafaranca to Exhibit 3.2 to tha 1989 10--E). 4.1 --- Indenture, dated as of Obtobar 5, 1993 (tha `Discount Hotaa Indenturs' J, between G-I Holdings and The Bank of Baa York, as trnstaa (incorporated by reference to Exhibit 4.1 to tha Registration stataaant on Fora S-4 of G-I Holdings (Ragiatration Ho. 33-72220) (the `Discount Notes Registration Stataaant')). 4.2 -- First Supplemental Indenture dated as of October 18, 199S to the Discount Notes Indenture. 4.3 -- Indenture, dated as of February 14, 1994 (`10% Bote Indenture'), between G-I Holdings and The Bank of New York, as trustee (incorporated by reference to*Exhibit 4.1 to tba Ragiatration Stataaent on Fora S-4 of G-I Holdings (Registration Bo. 333-2436) (tha 'G-I Holdings Ragiatration Stataaant')). 4.4 -- First suppleaantal Indenture dated as of October 18, 1996 to the 10% Bote Indenture. 10.1 -- IndaStture, dated as of December 9, 1996, between HMCA and The Bank of Hew York, as trustee (incorporated by reference to Exhibit 4.1 to BMCA's Registration on Fora S-4 (Registration No. 333-20859) (the 'Senior Rotes Registration Stataaant')). 10.2 -- Indenture dated as of Jana 30, 1994 between BMCA and The Bank of New York, as trustee (Incorporated by reference to Exhibit 4.1 to the Deferred Conpon Note Registration Stntaaent). 10.3 -- Mena jeep lit Agreement, dated aa of March 3, 1992 (`Nanageaant Agreement'), among GAF, G-I Holdings, C Industries, ISP, GAFBHC and GAF Broadcasting Co^iany, Inc. (incorporated by reference to Exhibit 10.9 to the Registration Stataaant on Fora S-4 of G-I Holdings (Registration No. 33-73220)). 10.4 -- Aaendeent No. 1, dated as of January Agreaaent (incorporated by reference Boldings' Annual Report on Fora 10-K 1993). 1, 1994, to the Managaaent to Exhibit 10.10 to G-I for the year andad Decesdier 31, 10.5 10.6 -- Aaendeent No. 2, dated as of Hay 31, 1994, to the Hanageaent Agreement (incorporated by reference to Exhibit 10.1 to G-I Holdings' Quarterly Report on Fora 10-Q for the quarter ended July 3, 1994). f t. -- Amendment No. 3, dated as of December 31, 1994, to the Hanageaent Agreement (incorporated by reference to Exhibit 10.4 to ISP's Annual Report on Fora 10-K for the year ended Deceaber 31, 1994). 10.7 -- Aaendeent No. 4, dated aa of Deceaber 31, 1995, to the Management Agreement (Incorporated by reference to Exhibit 10.6 to G-I Holdings' Registration'Statement on Fora S-4 (Registration No. 333-2436)). 10.8 -- Aoendaent No. 5, dated"a of October 18, 1996, to the Management Agreement (incorporated by reference to Exhibit 10.6 to ISP Holdings' RegistrationiStateaant on Fora S-4 (Registration No. 333-17827)). If / I\ < ;i i G-I HOLDINGS INC. VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II DESCRIPTION valuatio* and Qualifying Accounts Deducted free Assets to Which They Apply: Allowance for doubtful accounts Allowance for discounts........ Reserve for Inventory market valuation............................................ BALANCE JANUARY 1, 1M4 TEM ENDED DECEMBER 31, 1994 CHARGED TO SALES OE EXPENSES oedoctcons (THOUSANDS) 31, 1994 $ 1.231 17,041 574 6 666 56,969 222 t 9(a) 56,594 192 6 1,906(b) 15,435 604 oescnxrrxoM JANUARY 1, im Valuation and Qualifying Account* Ouductud (roe Assets to Wbiefc Tfcey Apply: / Allowance for doubtful accounts ....... Allowsece for discounts...................................... Xeservs for invsntory earket valuation.................................................................... S 1,906 IS,4IS f04 11, 1S ok EXPOSES DEDUCTIONS (TR0USANB6) OMEN 6 474 IS,057 S 920(a) S l,7Si|c| 41,SIS 10 f 3.217(b) 16.797 574 DESCRIPTION valuation and Qualifying Accounts Deducted from Assets to Which They Apply: Allowance for doubtful accounts Allowance for discounts..................... Reserve for inventory market valuation..................................................... BALANCE JANUARY 1. 1996 TEAR ENDED DECEMBER 31, 1996 CHARGED 10 SALES OR EXPENSES DEDUCTIONS BALANCE DECEMBER 31, 1996 (THOUSANDS) $ 3,217 16,797 574 $ 716 73,936 2,025 5 1,959(4) 70,265 50 >.974(b) 22,441 2,509 Notes: (a) Represents write-offs of uncollectible accounts net of recoveries. (b) The balance at December 31, 1994 principally represents a reserve for receivables sold to a trust (see Note 5 to Consolidated Financial Statements) and is reflected in the Consolidated Balance Sheets as a reduction of 'Accounts receivable, other.' The balances at December 31, 1995 and 1996, in addition to representing such reserve for receivables sold to a trust include a reserve of $1,261,000 and $647,000, respectively, related to US1 trade receivables. (c) Represents balance acquired in an acquisition. S-4 A'- M EXHIBIT INDEX EXHIBIT BOMBER DESCRIPTION 3.1 -- Certificate of Incorporation of G-X Holding* (incorporated by reference to Exhibit 3.1 to G-I Holdings' Annual Report on Fora 10-K for the year ended Decamber 31, 1919 (the '19(9 10-*')). 3.2 -- By-laws of G-I Holdings (incorporated by reference to Exhibit 3.2 to the 1989 10-K). 4.1 -- Indenture, dated as of October 5, 1993 (the 'Discount Rotes Indenture'), between G-I Holdings and The Bank of Hew Xork, as trustee (incorporated by reference to Exhibit 4.1 to the Registration statsnant on Fore S- of G-I Holdings (Registration No. 33-72220) (the `Discount Notes Registration Statement*)) 4.2 -- First Supplemental Indenture dated as of October 18, 1996 to the Discount Rotes Indenture. 4.3 -- Indenture, dated as of February 14, 1994 (`10 Note Indenture'), between G-X Holdings and lbs Bank of New tori, as trustee (incorporated by reference to*Exhibit 4.1 to the Registration Statement on Form S-4 of G-X Holdings (Registration No. 333-2436) (the 'G-I Holdings Registration Statement')). 4.4 -- First Supplemental Indenture dated as of October 18, 1996 to the 101 Note Indenture. 10.1 -- Indenture, dated as of December 9, 1996, between BNCR and The Bank of Hew Fork, aa trustee (incorporated by reference to Exhibit 4.1 to BMCA's Registration on Form S-4 (Registration No. 333-20859) (the 'Senior Notes Registration Statement')). 10.2 -- Indenture dated as of June 30, 1994 between BMCA and The Bank of New Tork, as trustee (incorporated by reference to Exhibit 4.1 to the Deferred Coupon Mote Registration statament). 10.3 -- Management kgrseent, dated as of March 3, 1992 ('Management Agraomnt'), among GAF, G-I Boldings, C Industries, ISP, GAFBMC end GAT Broadcasting Ca^ahy, Inc. (incorporated by reference to exhibit 10.9 to the Registration Statement on Form S-4 of G-I Holdings (Registration No. 33-7^220)). 10.4 -- Amendaent No. 1, dated as of January 1, 1994, to the Management Agreaavnt (incorporated by reference to Exhibit 10.10 to G-I Boldings' Annual Report on Form 10-K for the year anded December 31, 1993) 10.5 10.6 -- Amendment Mo. 2, dated ah of Nay 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). t t -- 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). 10.7 -- 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)). ID.8 -- Amendment No. 5, dated'as of October 18, 1996, to the Management Agreement (incorporated by reference to Exhibit 10.6 to ISP Holdings' RegistrationcStatement on Form S-4 (Registration No. 333-17827)). y*J i EXHIBIT NUMBER DESCRIPTION 10.9 10.10 -- 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). -- Tax Sharing Agreement, dated as of January 31, 1994, among GAF, G-I Holdings and BMCA (incorporated by reference to Exhibit 10.6 to BMCA's Registration Statement on Form S-4 (Registration No. 33-B180B) (the 'Deferred Coupon Note Registration Statement'). 10.11 -- Tax Sharing Agreements between GAF and G-I Holdings, and between G-I Holdings and G Industries (incorporated by reference to Exhibit 10.11 to the Discount Notes Registration Agreement). 10.12 -- Form of Option Agreement relating to Series A Cumulative Redeemable Convertible Preferred Stock of BMCA (incorporated by reference to Exhibit 10.9 to BMCA's Annual Report on Form 10-K for the year ended December 31, 1996 (`BMCA's 1996 Form 10-K')* 10.13 -- Stock Appreciation Right Agreement dated January 1, 1997 between GAF Corpora^-on and Sunil Kumar (incorporated by reference to Exhibit 10.11 to BMCA's 1996 Form 10-K)* 10.14 -- 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 BMCA's 1996 Form 10-K)* 21 -- Subsidiaries of G-I Boldings. 27 -- Financial Data Schedule for fiscal year 1996, which is submitted electronically to the Securities and Exchange Commission for information only. 28 -- Stipulation of Settlement between the Class of Claimants and Defendants represented by the Center for Claims Resolution dated January 15, 1993 (incorporated by reference to Exhibit 28.1 to G-I Holdings' Form B-K reporting an event on January 5, 1993). Management and/or compensatory plan or arrangement. G-I HOLDINGS INC. AND THE BANK OF NEW YORK, Trustee FIRST SUPPLEMENTAL INDENTURE Dated as of October 18, 1996 TO INDENTURE Dated as of October S, 1993 Senior Discount Notes Due October 1, 1998 and Series B Senior Discount Notes Due October 1, 1998 Exhibit 4.2 '<K J l FIRST stippt.wmf.htal INDENTURE, dated as of October 18, 1996, between G-I HOLDINGS INC., a Delaware corporation (the "Company"), and THE bank OF NEW YORK, a New York banking corporation (the "Trustee"), having its Corporate Trust Office at 101 Barclay Street, New York, New York 10286. RECITALS WHEREAS, the Company and the Trustee have executed and delivered the Indenture, dated as of October 5, 1993 (the "Original Indenture" and capitalized terms used herein without definition have the respective meanings specified therein), governing the terms of the Company's Senior Discount Notes due 1998 and Series B Senior Discount Notes due 1998 (collectively, the "Notes"); and WHEREAS, ISP Holdings Inc. ("ISP Holdings") has solicited the consent of the holders of the Notes to certain amendments (the "Amendments") to the Original Indenture pursuant to that certain Offer to Purchase and Consent Solicitation Statement of ISP Holdings, dated September 13, 1996, as amended (the "Offer to Purchase"); and WHEREAS, Holders representing a majority in aggregate principal amouirtr of the Notes have delivered their consent to the Amendments; ana WHEREAS, Section 9.02 of the Original Indenture permits the Company, when authorized by resolution of its Board of Directors, and the Trustee, to amend the Original Indenture with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding; and WHEREAS, the Board of Directors of the Company has adopted such a resolution in order to reflect the Amendments pursuant to this First Supplemental Indenture; and WHEREAS, the Company desires to enter into this First Supplemental Indenture in order to amend the Original Indenture as of the Effective Time (as defined herein); NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, it is mutually covenanted and agreed for the equal and ratable benefit of all Holders of the Notes as follows: ARTICLE OHB AMENDMENTS TO ORIGINAL INDENTURE At the Effactive Time, each of the following sections of the Original Indenture shall be modified as follows: A. Definitions. (i) Section 1.01 shall be amended by adding the following definitions in their appropriate alphabetical location: "ISP Holdings Transactions* means the consumation of a tender offer, exchange offer and senior note offering of ISP Holdings Inc., on substantially the terns described in that certain Offer to Purchase and Consent Solicitation Statement, dated September 13, 1996, as amended, of ISP Holdings Inc. > "Spin^Off Transactions* means the consummation of a series of transactions involving GAP's subsidiaries on substantially the terms described in that certain Offer to Purchase and Consent.Solicitation Statement, dated September 13, 1996, as amended, of ISP Holdings Inc. that will, among other things, result in the capital stock of ISP Holdings Inc. being distributed to the stockholders' of GAP. (ii) Section 1.01 shall be amended further by deleting each of the following definitions in its entirety: "Linden Dividend" "Linden Property" "Permitted Lien" "Restricted Investment" "Restricted Payment". "Tax Sharing Agreements "Unrestricted Affiliate" B. Covenants. (i) The text of each of the following Sections shall be deleted in its entirety and replaced, in each case, by the words "Intentionally Omitted": Section 4.12. Limitation on Restricted Payments and Restricted Investments. Section 4.13. Limitation.on Liens. Section 4.14. Limitation on Transactions with Affiliates. Section 4.15. Limitation on Investments in Non-Recourse Subsidiaries bjylSP Subsidiaries and BMC Subsidiaries. Section 4.16. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Section 4.20. Consents, etc. (ii) Each of the following Sections shall be amended to read in its entirety as follows: Section 4.04. Payments of Taxes and Other Claims. G-I Holdings shall, and shall cause each of its Subsidiaries (other than Non-Recourse Subsidiaries) to, pay or discharge or cause to be paid or discharged, before any penalty accrues from the failure to so pay or discharge, all material taxes, assessments and governmental charges levied or imposed upon it or any of such Subsidiaries or upon the income, profits or property of it or any of such Subsidiaries, provided that there shall not be required to be paid or discharged any such tax, assessment or charge if the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and adequate provision therefor has been made. Section 5.01. when G-I Holdings May Merge, etc. G-I Holdings shall not consolidate with or merge with or into or sell, assign, transfer or lease all or substantially all of its properties and assets (either in one transaction or series of related transactions) to any Person, unless G-I Holdings shall be the continuing Person, or the resulting, surviving or transferee Person (if other than G-x Holdings) Bhall be a corporation organized and existing under the lavs of the United States or any state thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of 6-1 Holdings under the Securities and this Indenture, and this Indenture shall remain in full force and effect. In connection with any consolidation, merger, sale, assignment, transfer or lease contemplated by this Section 5.01, G-X Holdings shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer or lease and the supplemental indenture in respect thereto comply with this Article V and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 6.01. Bvents of Default. An "Event of Default" occurs if: yj, (1) G-X Holdings defaults in the payment of interest on any Security when the same becomes due and payable and the default continues for a period of 30 days; (2)(i) G-X Holdings defaults in' the payment of the principal of any Security when the same becomes due and payable at maturity or otherwise or (ii) G-I Holdings fails to redeem or repurchase Securities when required pursuant to this Indenture or the Securities; (3) G-I Holdings fails to cooqly with Section 5.01; (4) G-I Holdings fails to comply for 30 days after notice with; any of its obligations under Sections 4.03, 4.06, 4.09, 4.10, 4.11 and 4.17; (5) G-I Holdings fails to comply for 60 days after notice with its other agreements contained in this Indenture or the Securities (other than those referred to in clauses (1)--(4) above); or (6) G--I Holdings or any of its Significant Subsidiaries (A) admits in writing its inability to pay its debts generally as they become due, (B) commences a voluntary case or proceeding under any Bankruptcy haw with respect to itself, (C) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (D) consents to the appointment of a Custodian of it or for substantially all of its property, (E) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (F) makes a general assignment for the benefit of its creditors, or (G) takes any corporate action to authorize or effect any of the foregoing. A Default under clauses (4) or (5) is not an Event of Default until the Trustee or the Holders of at least 251 in aggregate principal amount of the outstanding Securities notify G-I Holdings in writing of the Default, and G-I Holdings does not cure the Default with the time specified in such clause after receipt of such notice. Such notice shall be given by the Trustee if so requested in writing by the Holders of at least 25% in aggregate principal amount of the outstanding Securities, when a Default under clause (4) or (5) is cured or remedied within the specified period, it ceases to exist. (iii) Each of Sections 4.09, 4.10 and 4.11 shall be amended by modifying the ratio set forth in subparagraph (a) of each such Section to read "at least 1.00 to 1.00.* Section 4.09 shall further be amended by deleting subparagraph (e) therein in its entirety. Each of Sections 6.02 and 7.07 shall be amended by changing each reference therein to clause (7) of Section 6.01 to be a reference to clause (6) of Section 6.01. (iv) Subparagraph (a) of Section 4.06 shall be amended to read in its entirety as follows: (a) G-I Holdings will file with the Trustee and provide Securityholders, within 15 days after it files them with the Cosmtission (and only to the extent that it files them with the Commission), copies of its annual report and the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 of 15(d) of the Exchange Act, without exhibits in the case of Securityholders, unless G-I Holdings is requested in writing by the Securityholders. G-I Holdings also will comply with the TIA Section 314(a). (v) Subparagraph (a) of Section 4.18 shall be amended to read in its entirety as follows: (a) G-I Holdings shall not, and shall not permit any of its Subsidiaries, directly or indirectly, to consummate an Asset Sale unless: (1) in the case of an Asset Sale by G-I Holdings or any Specified Subsidiary, G-I Holdings shall commit to apply the Net Cash Proceeds of such Asset Sale within 300 days of the consunanation of such Asset Sale, and shall apply such Het Cash Proceeds within 360 days of receipt thereof, (i) to invest in the businesses that G-I Holdings and its Subsidiaries (other than businesses engaged in through Non-Recourse subsidiaries) are engaged in at the time of such Asset Sale or any like or related business, (ii) to pay the-Debt referred to in the last sentence of the definition thereof:-or make provision for the payment thereof, through an escrow or other fund, and/or (iii) to offer to purchase the Securities in a tender offer (a 'Net Proceeds Offer*) a, a redemption price equal to 1001 of the Accreted value thereof; provided that G-& Holdings may defer making a Net proceeds Offer until the aggregate Net Cash Proceeds from Asset SaleB to be applied pursuant to this clause (l)(iii) equal or exceed $20,000,000; and (2) in the case of an Asset Sale by any ISP Subsidiary or any BMC Subsidiary, such ISP Subsidiary or BMC Subsidiary, as the case may be, shall apply the Net Cash Proceeds of such Asset Sale within one year of receipt thereof, (i) to invest in the businesses that G-I Holdings and its Subsidiaries (other than businesses engaged in through Non-Recourse Subsidiaries) are engaged in at the time of such Asset Sale or any like or related business, (ii) to pay the Debt referred to in the last sentence of the definition thereof or make provision for the payment .thereof, through an escrow1 or other fund, (iii) to pay or satisfy Debt or Preferred Stock of any ISP Subsidiary or any BMC Subsidiary, as the case ipjy be, and/or (iv) to make a Net Proceeds Offer at a redemption price equal to 100% of the Accreted Value thereof; provided that G-I Holdings may defer making a Net Proceeds Offe,r until the aggregate Net Cash Proceeds from Asset Sales to be applied pursuant to clause (2)(iv) equal or exceed $20,000,000; <> Vi; i i that (i) G--I Holdings and its Subsidiaries may retain up to ,00 of Net Cash Proceeds from Asset Sales in any twelve-month without complying with clauses (1) or (2)), and (ii) any Asset t would result in a Change of Control shall not be governed by tion 4.18 but shall be governed by the provisions described ction 4.17 and paragraph 5(a) of the Securities. (vi) Subparagraph (b) of Section 8.01 shall be amended to its entirety as follows: (b) Subject to Sections B.01(c), 8.02 and 8.06, G-I may at any time terminate (i) all its obligations under the :s and this Indenture ("legal defeasance"), or (ii) its ins under Sections 4.03, 4.04, 4.06, 4.08 through 4.11 and >ugh 4.19 and the operation of Section 6.01(3), 6.01(4), md 6.01(6) (with respect only to significant Subsidiaries) it defeasance"). (vii) The penultimate paragraph of Section 8.02 shall be :o read in its entirety as follows: Notwithstanding the foregoing provisions of this Section, tions set forth in the foregoing paragraphs (2), (3), (4), and (7) need not be satisfied so long as, at the time G-I makes the deposit described in paragraph (1), (i) no Default tion 6.01(1), 6.01(2) or 6.01(6) has occurred and is g on the date of such deposit and after giving effect thereto either (x) a notice of redemption has been mailed pursuant to .03 providing for redemption of all the Securities 30 days h mailing and the provisions of Section 3.01 with respect to option shall have been complied with or (y) the Stated of all of the Securities vill occur within 30 days. If the 3 of the preceding sentence are satisfied G-I Holdings shall to have exercised its covenant defeasance option. (viii) The following new Section shall be added: Section 5.03. Spin Off Transactions. Notwithstanding any in this Indenture to the contrary, the Spin Off Transactions ;p Holdings Transactions may be consummated under all ces and without satisfying any conditions. Page 1 of 1 Online th financialB, ay! Click here. REGISTER go directly into filing.) 2000. 3 fields, hrough both d and holds an 1 was discovered to the South by I closure, which ie field has :h from 9,000 to napShot I le%20oil%26fr<8/7/2000 ARTICLE TWO MISCELLANEOUS A. Governing Law. The laws of the State of New York shall govern this First Supplemental Indenture without regard to the principles of conflict of laws. B. Counterparts. This First Supplemental Indenture may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. C. Survival. This First Supplemental Indenture and the Original Indenture shall henceforth be read together. Except as expressly set forth herein, the Original Indenture shall remain unchanged and in full force and effect in accordance with its terms. 0. Effective Time. For purposes of this First Supplemental Indenture, the `Effective Time* shall mean such time as is ismediately prior to ISP Holdings purchasing, by.accepting for payment, all Notes validly tendered (and not withdrawn) pursuant to the terms of the Offer to Purchase. IN witness WHEREOF, the parties hereto have caused this First Supplemental Indenture to be executed and delivered as of the date first above written. G--I HOLDINGS INC. By: Is/: James F. Rogers Name:- James P. Rogers Title: Senior Vice President THE BANK OF NEW YORK By: /s/: Walter N. Gitlin Name: Walter N. Gitlin Title: Vice president 6-1 HOLDINGS INC. AND THE BANK OF NEW YORK, ITrustee FIRST SUPPLEMENTAL INDENTURE Dated as of October 18, 1996 TO INDENTURE Dated as of' February 14, 1996 10% Senior Notes due 2006 and Series B 10% Senior Notes due 2006 Exhibit 4.4 i' V * i- 4 1' ?; i* 1 i j. FIRST SUPPLEMENTAL INDENTURE, dated as of October 18, 1996, between G-I HOLDINGS INC., a Delaware corporation (the -Company"), and THE BANK OF NEW YORK, a New York banking corporation (the -Trustee"), having its Corporate Trust Office at 101 Barclay Street, New York, New York 10286. RECITALS WHEREAS, the Company and the Trustee have executed and delivered the Indenture, dated as of February 14, 1996 (the "Original Indenture' and capitalized terms used herein without definition have the respective meanings specified therein), governing the terms of the Company's Series B 10% Senior Notes due 2006 (the 'Notes'); and WHEREAS, ISP Holdings Inc. ("ISP Holdings') has solicited the consent of the holders of the Notes to certain amendments (the "Amendments") to the Original Indenture pursuant to that certain Exchange Offer Circular and Consent Solicitation Statement of ISP Holdings, dated September 13, 1996, as amended (the 'Exchange Offer Circular*); and /, WHEREAS, Holders representing a majority in aggregate principal amount of the Notes have delivered their consent to the Amendments; and WHEREAS, Section 9.02 of the Original Indenture permits the Company, when authorized by resolution of its Board of Directors, and the Trustee, to amend the Original Indenture with tb written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding; and WHEREAS, the Board of Directors of the Company has adopted such a resolution in order to reflect the Amendments pursuant to this First Supplemental Indenture; and WHEREAS, the Company desires to enter into this First Supplemental Indenture in order to amend the Original Indenture as of the Effective Time (as defined herein); NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, it is mutually covenanted and agreed for the equal and ratable benefit of all Holders of the Notes as follows: ARTICLE ONE AMENDMENTS TO ORIGINAL INDENTURE At the Effective Time, each of the following sections of the Original Indenture shall be modified as follows: A. Definitions. (i) Section 1.01 shall be amended by adding the following definitions in their appropriate alphabetical location: "ISP Holdings Transactions" means the consunmation of a tender offer, exchange offer and senior note offering of ISP Holdings Inc., on substantially the terms described in that certain Exchange Offer Circular and Consent Solicitation Statement, dated September 13, 1996, as amended, of ISP Holdings Inc. "Spinoff Transactions" means the consunmation of a series of transactions involving GAF's subsidiaries on substantially the terms described in that certain Exchange Offer Circular and Consent Solicitation Statement, dated September 13, 1996, as amended, of ISP Holdings Inc. that will, among other things, result in the capital stock of ISP Holdings Inc. being distributed to the stockholders of GAF. (ii) Section 1.01 shall be amended further by deleting each of the following definitions in its entirety: "Linden Dividend" "Linden Property" "Permitted Lien" "Restricted Investment" "Restricted Payment" "Tax Sharing Agreements" "Unrestricted Affiliate" B. covenants. (i) The text of each of the following Sections shall be deleted in its entirety and replaced, in each case, by the words "Intentionally Omitted": Section 4.12. Limitation on Restricted Payments and Restricted Investments. Section 4.13. Limitation on Liens. Section 4.14. Limitation on Transactions with Affiliates. Section 4.15. Limitation on Investments in Mon-Recourse Subsidiaries by^SP Subsidiaries and BMC Subsidiaries. Section 4.16. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Section 4.20. Consents, etc. (ii) Each of the following Sections shall be amended to read in its entirety as follows: Section 4.04. Payments of Taxes and Other Claims. G-I Holdings shall, and shall cause each of its Subsidiaries (other than Non-Recourse Subsidiaries) to, pay or discharge or cause to be paid or discharged, before any penalty accrues from the failure to so pay or discharge, all material taxes, assessments and governmental charges levied' or imposed upon it or any of such Subsidiaries or upon the income, profits or property of it or any of such Subsidiaries, provided that there shall not be required to be paid or discharged any such tax, assessment or charge if the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and adequate provision therefor has been made. Section 5.01. When G-I Holdings May Merge, etc. G-I Holdings shall not consolidate with or merge with or into or sell, assign, transfer or lease all or substantially all of its properties and assets (either in one transaction or series of related transactions) to any Person, unless G-I Holdings shall be the continuing Person, or the resulting, surviving or transferee Person (if other than G-X Holdings) shall be a corporation organized and existing under the laws of the united States or any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of G-I Holdings under the Securities and this Indenture, and this Indenture shall remain in full force and effect. 0 In connection with any consolidation, merger, sale, assignment, transfer or lease contemplated by this Section 5.01, G-I Holdings shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer or lease and the supplemental indenture in respect thereto comply with this Article V and that all conditions precedent herein provided for relating to such transaction have been complied with. Section .01. Events of Default. An "Event of Default* occurs if: , (1) G-I Holdings defaults in the payment of interest on any Security when the same becomes due and payable and the default continues for a period of 30 days; (2)(i) G-I Holdings defaults in the payment of the principal of any Security when the same becomes due and payable at maturity or otherwise or (ii) G-X Holdings fails to redean or repurchase Securities when required pursuant to this Indenture or the Securities; (3) G-I Holdings fails to comply with Section 5.01; (4) G-I Holdings fails to comply for 30 days after notice with any of its obligations under Sections 4.03, 4.06, 4.09, 4.10, 4.11 and 4.17; l 7 (5) G-I Holdings fails to comply for 60 days after notice with its other agreements contained in this Indenture ot the Securities (other than those referred to in clauses (l)-(4) above); or l i S (6) G--I Holdings cr any of its Significant Subsidiaries (A.) admits in writing its inability to pay its debts generally as they became due, (B) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (C) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding any Bankruptcy Law, (D) consents to the appointment of a Custodian of it or for substantially all of its property, (E) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (F) makes a general assignment for the benefit of its creditors, or (G) takeB any corporate action to authorize or effect any of the foregoing. A Default under clauses (4) or (5) is not an Event of Default until the Trustee or the Holders of at least 25t in aggregate principal amount of the outstanding Securities notify G-I Holdings in writing of the Default, and G-I Holdings does nbt cure the Default with the time specified in such clause after receipt of such notice. Such notice shall be given by the Trustee if so requested in writing by the Holders of at least 25% in aggregate principal amount of the outstanding Securities. When a Default under clause (4) or (5) is cured or remedied within the specified period, it ceases to exist. (iii) Each of Sections 4.09, 4.10 and 4.11 shall be amended by modifying the ratio set forth in subparagraph (a) of each such Section to read "at least 1.00 to 1.00.* Section 4.09 shall further be amended by deleting subparagraph (e) therein in its entirety. Each of Sections 6.02 and 7.07 shall be amended by changing each reference therein to clause (7) of Section 6.01 to be a reference to clause (6) of Section 6.01. (iv) Subparagraph (a) of Section 4.06 shall be amended to read in its entirety as follows: (a) G-I Holdings will file with the Trustee and provide Securityholders, within 15 days after it files them with the Commission (and only to the extent that it files them with the Commission), copies of its annual report and the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 of 15(d) of the Exchange Act, without exhibits in the case of Securityholders, unless G-I price equal to 100% of the principal thereof plus accrued interest thereon to the date of redemption; provided that G-I Holdings may defer making a Met Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales to be applied pursuant to clause (2)(v) equal or exceed $20,000,000; provided that ;i) G-I Moldings and its Subsidiaries may retain up to $5,000,000 of Net Cash Proceeds from Asset Sales in any twelve-month period (without complying with clauses (1) or (2)), and (ii) any Asset Sale that would result in a Change of Control shall not be governed by this Section 4.18 but shall be governed by the provisions described under Section 4.17 and paragraph 5(a) of the Securities. (vi) Subparagraph (b) of Section 8.01 shall be amended to read in its entirety as follows: (b) Subject to Sections 8.01(c), 8.02 and 8.06, G-I Holdings may at any time terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance"), or (ii) its obligations under Sections 4.03, 4.04, 4.06, 4.08 through 4.11, 4.17 through 4.19 and 4.21 and the operation of Section 6.01(3), 6.01(4), 6.01(5) and 6.94(6) (with respect only to Significant Subsidiaries) ("covenant defeasance"). (vii) The penultimate paragraph of Section B.02 shall be amended to read in its entirety as follows: Notwithstanding the foregoing provisions of this Section, the conditions set forth in the foregoing paragraphs (2), (3), (4), (5), (6), and (7) need not be satisfied so long as, at the time G-I Holdings makes the deposit described in paragraph (1), (i) no Default under Section 6.01(1), 6.01(2) or 6.01(6) has occurred and is continuing on the date of such deposit and after giving effect thereto and (ii) either (x) a notice of redemption has been mailed pursuant to Section 3.03 providing for redemption of all the Securities 30 days after such mailing and the provisions of Section 3.01 with respect to such redemption shall have been complied with or (y) the Stated Maturity of all of the Securities will occur within 30 days. If the conditions of the preceding sentence are satisfied G-I Holdings shall be deemed to have exercised its covenant defeasance option. (viii) The following new Section shall be added: Section 5.03. Spin Off Transactions. Notwithstanding any provision in this Indenture to the contrary, the Spin Off Transactions and the ISP Holdings Transactions may be consummated under all circumstances and without satisfying any conditions. ARTICLE TWO MISCELLANEOUS A. Governing Law. , The laws of the State of New York shall govern this First Supplemental Indenture without regard to the principles of conflict of laws. B. Counterparts. This First Supplemental Indenture may-be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. C. Survival. This First Supplemental Indenture and the Original Indenture shall henceforth be read together. Except as expressly set forth herein, the Original Indenture shall remain unchanged and in full force and effect in accordance with its terms. D. Effective Time. For purposes of this First Supplemental Indenture, the `Effective Time* shall mean such time as is immediately prior to ISP Holdings accepting for exchange all Notes validly tendered (and not withdrawn) pursuant to the terms of the Exchange Offer Circular.