AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996
REGISTRATION NO. 333-08421
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
GOSS GRAPHIC SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3555 13-3888069
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
-------------------
700 OAKMONT LANE
WESTMONT, ILLINOIS 60559
TELEPHONE: (708) 850-5600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
-------------------
JACK E. MERRYMAN, ESQ.
700 OAKMONT LANE
WESTMONT, ILLINOIS 60559
TELEPHONE: (708) 850-5600
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
-------------------
WITH COPIES TO:
<TABLE>
<S> <C>
ANDREW R. BROWNSTEIN, ESQ. MORTON A. PIERCE, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ DEWEY BALLANTINE
51 WEST 52ND STREET 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10019
(212) 403-1000 (212) 259-8000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 27, 1996
[GOSS LOGO]
$225,000,000
Goss Graphic Systems, Inc.
% Senior Subordinated Notes due 2006
Interest payable and Due , 2006
--------------
The % Senior Subordinated Notes due 2006 (the "Notes") of Goss Graphic
Systems, Inc. (the "Company") are being offered (the "Offering") in connection
with the acquisition by the Company of the Graphic Systems business unit from
Rockwell International Corporation (the "Acquisition"). Interest on the Notes
will be payable semi-annually on and of each year commencing
, 1997. The Notes are redeemable at the option of the Company, on one
or more occasions, at any time on or after , 2001, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. Prior to , 1999, up to % of the original
principal amount of the Notes will be redeemable at the option of the Company,
on one or more occasions, from the net proceeds of public or private sales of
common stock of, or contributions to the common equity capital of, the Company,
at a redemption price of % of the principal amount of the Notes, together with
accrued and unpaid interest, if any, to the date of redemption; provided that at
least $ million in aggregate principal amount thereof remains outstanding after
each such redemption. Upon a Change of Control (as defined herein), the Company
is obligated to make an offer to purchase the outstanding Notes at a purchase
price in cash equal to 101% of the aggregate principal amount of the Notes,
together with accrued and unpaid interest to the date of repurchase. There can
be no assurance that the Company will have the financial ability or will be
permitted by its other financing instruments to purchase the Notes upon the
occurrence of a Change of Control. See "Description of Notes."
The Notes will be senior subordinated unsecured obligations of the Company, will
be subordinated in right of payment to all Senior Debt (as defined herein) of
the Company, will rank pari passu with all senior subordinated debt of the
Company and will be senior in right of payment to all existing and future
subordinated debt of the Company. The Notes will be effectively subordinated to
all indebtedness and other liabilities of the Company's subsidiaries. As of June
30, 1996, after giving effect to the Transactions (as defined herein), the
aggregate amount of Senior Debt of the Company would have been approximately
$25.3 million (excluding approximately $7.0 million of letters of credit), all
of which would have been secured borrowings by the Company and its subsidiaries
under the New Bank Credit Agreement (as defined herein) and the aggregate amount
of indebtedness and other liabilities of the Company's subsidiaries, to which
the Notes will be effectively subordinated, would have been approximately $222.4
million (excluding approximately $24.4 million of letters of credit). See "Use
of Proceeds" and "Capitalization."
The Company is a newly organized corporation formed on behalf of Stonington
Capital Appreciation 1994 Fund, L.P. to consummate the Acquisition. Consummation
of the Offering will occur simultaneously with and is conditioned upon
consummation of the Acquisition and certain other related transactions, which
are subject to certain conditions. See "The Acquisition."
--------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 13.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE><CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions the Company(2)
------------ ------------- --------------
<S> <C> <C> <C>
Per Note..................................... % % %
Total........................................ $ $ $
</TABLE>
(1) Plus accrued interest, if any, from ____________ , 1996.
(2) Before deducting expenses payable by the Company estimated at $ .
--------------
The Notes are offered by the several Underwriters when, as and if issued by
the Company, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Notes will be made on or about , 1996, against payment in immediately
available funds.
CS First Boston BT Securities Corporation
The date of this Prospectus is , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[PICTURES OF A COMMERCIAL PRESS, INSERT PRESS AND NEWSPAPER PRESS]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OPEN MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE NOTES PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7
AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information set forth elsewhere in this
Prospectus. Unless the context requires otherwise, (i) references in this
Prospectus to "Goss" mean, at all times prior to the date of consummation of the
Offering (the "Closing Date"), the Graphic Systems business unit of Rockwell
International Corporation, a Delaware corporation ("Rockwell") and, at all times
on or after the Closing Date, Goss Graphic Systems, Inc. and its subsidiaries,
and (ii) references in this Prospectus to the "Company" mean Goss Graphic
Systems, Inc. and its subsidiaries. In addition, unless the context requires
otherwise, references in this Prospectus to "Management" mean the management of
Goss Graphic Systems, Inc. after the Closing Date. Consummation of the Offering
is conditioned upon consummation of the Transactions (as defined herein).
GOSS
GENERAL
Goss is the leading manufacturer of web offset newspaper press systems
worldwide and of insert web offset press systems in North America. Goss also
manufactures commercial web offset printing presses in North America and
provides aftermarket parts and service to its newspaper and commercial printing
customers. A web offset press utilizes lithography processes to print on long
ribbons of paper (the "web") which are fed through a series of press cylinders.
Photographically or laser produced printing plates mounted on plate cylinders
are coated with ink and water based solutions and the print images are then
transferred (or "offset") to a blanket cylinder which comes into contact with
the paper web to print the image. See "Business--Products and Services--Web
Offset Technology." Founded in 1885, Goss is the only U.S.-based manufacturer of
large-scale web offset printing presses and has pioneered many major industry
innovations, including the conversion from letter press printing to web offset
lithography, the development of computerized electronic control systems and the
introduction of back-to-back color printing. The Company is the only global
producer of newspaper printing presses with manufacturing and sales capabilities
in North America, Europe and Asia. Goss generated approximately 51% of its
fiscal 1995 net revenue of $709 million outside the U.S. (including exports from
the U.S.). The Company operates through three business categories:
. Newspaper. Goss is a widely recognized trade name in the newspaper
printing press industry. Management estimates that approximately 57% of
daily newspapers worldwide (excluding the People's Republic of China
("PRC")) print on Goss presses (approximately 70% in the U.S. and Canada).
Goss provides sophisticated, computer-controlled press systems for a wide
variety of newspaper publications which vary significantly in circulation,
page count and color content and operate in markets around the world. Goss
presses print such publications as The Wall Street Journal, USA Today, The
New York Times and The Los Angeles Times in the U.S., The Financial Times
in the United Kingdom, Zero Hora in Brazil, The Asahi Shimbun in Japan,
The Straits Times in Singapore and The People's Daily in China. Goss's
newspaper press business generated approximately $512 million in net
revenues in fiscal year 1995, or approximately 72% of Goss's net revenues.
. Insert. Goss pioneered the development of specialized web offset presses
for printing advertising inserts and continues to be the leader in the
insert press business with an estimated market share of approximately 70%
in the U.S. and Canada, the principal markets for such equipment. Goss's
insert presses combine newspaper press designs for high speed with
selected commercial press features for enhanced print quality, low
maintenance and high productivity. The Company's customers include leading
insert printers such as Big Flower Press Holdings, Inc. and Sullivan
Graphics, Inc. Goss's insert press business generated approximately $94
million in net revenues in fiscal year 1995, or approximately 13% of
Goss's net revenues.
3
<PAGE>
. Commercial. Goss also manufactures commercial web offset printing presses
in North America used to print a broad variety of commercial products,
including brochures and promotional materials, catalogs, magazines, books,
financial publications and directories. Goss sells its commercial presses
principally in North America, and its customers include large
multinational, regional and local printers, including R.R. Donnelley &
Sons Company, Quebecor, Inc. and Banta Corporation. The commercial press
business generated approximately $103 million in net revenues in fiscal
year 1995, or approximately 15% of Goss's net revenues.
-----------------
The principal executive offices of Goss are located at 700 Oakmont Lane,
Westmont, Illinois 60559 and its telephone number is (708) 850-5600.
BUSINESS STRATEGY
The Company's business strategy is to (i) capitalize on its substantial
installed base of newspaper presses and market share in its traditional markets,
(ii) continue to lead in the development of innovative products that respond to
customers' needs while increasing their productivity and efficiency, (iii)
expand its strong presence in developing regions such as Asia, (iv) draw on the
manufacturing and marketing strengths of its newspaper and insert businesses to
improve the performance of its commercial business, and (v) pursue business
process improvements and cost-saving opportunities. Key elements underlying this
strategy include:
. Leading Installed Base of Newspaper Presses. Goss is the market leader in
newspaper presses with approximately 57% of daily newspapers worldwide
(excluding PRC) utilizing Goss presses. The Company believes that this
installed base and the Company's established customer relationships
provide it with a competitive advantage in obtaining repeat business,
including color capability upgrades, press line extensions and new press
purchases. In addition, the Company's significant installed base provides
a relatively stable source of aftermarket parts and service business.
. Established Global Newspaper Presence. Goss is one of only seven major
global suppliers of newspaper press systems and is the only supplier with
manufacturing, engineering and sales operations in North America, Europe
and Asia. The Company believes this global presence provides it with a
competitive advantage in light of the significant cost of transporting
newspaper press systems and the degree to which such presses require
custom engineering and manufacturing to address each customer's particular
production requirements and press configurations.
. Technology Leader. Management believes that it enjoys a reputation in the
newspaper industry as a leader in technological innovation, having
engineered several major technological advancements, including the
conversion from letterpress to web offset lithography, the development of
computerized electronic control systems and the introduction of
back-to-back process color printing, each of which has improved its
customers' print quality and productivity. Letterpress printing involves
mechanically complex systems that create each line of type out of metal
slugs that are made into plates mounted on a press. The conversion to web
offset presses improved print quality and productivity. Computerized
electronic controls reduced the need for precise adjustments and fine
tuning by technicians, thereby decreasing waste and enhancing reliability
and quality. Back-to-back process color printing utilizes four
vertically-stacked presses (each printing one color) that allow multiple
colors to be printed on both sides of the paper in the same print run.
With the Company's recent introduction of an advanced inking system, and
its ongoing development of an optical color quality adjustment mechanism
and of an automatic image make-ready ("AIM") press system, Management
believes the Company is well-positioned to maintain its technology
leadership. See "Business -- Research and Development."
. Growth in Developing Markets. The Company believes that increasing incomes
and literacy rates are driving the establishment and growth of newspapers
in developing countries, particularly in
4
<PAGE>
South America and Asia (excluding the more mature Japanese market). The
Company believes it is well-positioned to benefit from such growth since
approximately 52% and 61%, respectively, of daily newspapers in South
America and Asia/Pacific (excluding Japan and PRC) print on Goss presses.
In addition, Goss is the only foreign-owned manufacturer of printing
presses in PRC through the Company's joint venture.
. Business Process Improvements. A key element of the Company's business
strategy is to further improve its operating performance. Management has
identified certain specific cost saving opportunities that are reflected
in the pro forma financial statements included herein. See "--Identified
Cost Savings" and "Unaudited Pro Forma Combined Financial Statements."
Management believes that efficiencies not reflected in the pro forma
financial statements included herein can be realized through improvement
of business processes, including enhanced material procurement practices,
more efficient flow of work-in-process through both machining and assembly
operations, increased outsourcing, and restructuring of factory support
functions. In addition, the Company will seek to generate cost savings by
improving efficiency in the process of configuring presses for specific
customer requirements. The Company also has in place integrated product
development teams which include design and manufacturing engineers and
other disciplines which work to identify and implement product cost
reduction initiatives such as component redesign, lower cost component
suppliers, and design modifications to improve manufacturability. However,
there can be no assurance that such efficiencies or cost savings can be
realized.
IDENTIFIED COST SAVINGS
Although no assurance can be given either that any specific level of cost
savings will be achieved or as to the timing thereof, Management currently plans
to achieve substantial savings in the base of operating costs which are
reflected in the pro forma combined financial statements (the "Identified Cost
Savings"). Once these plans are completed, annual savings are expected to amount
to approximately $19 million per year associated with the closing of redundant
facilities and reduction in staffing, revision of employee benefit plans, and
the elimination of certain corporate services previously provided by Rockwell.
It is expected that, upon consummation of the acquisition by the Company of the
Graphic Systems business unit from Rockwell (the "Acquisition"), a reserve of
$16.3 million, net of a $3.9 million provision reflected in the first nine
months of 1996, will be established associated primarily with severance,
outplacement and relocation payments to be incurred in connection with headcount
reductions and costs in connection with planned facility closings. See
"Unaudited Pro Forma Combined Financial Statements."
GGS HOLDINGS, INC. AND GOSS GRAPHIC SYSTEMS, INC.
GGS Holdings, Inc. ("Holdings") and the Company are newly formed Delaware
corporations organized by Stonington Partners, Inc. ("Stonington") on behalf of
Stonington Capital Appreciation 1994 Fund, L.P. (the "Fund") to effect the
acquisition of Goss from Rockwell. The Acquisition will be effected through the
purchase by the Company and certain foreign subsidiaries to be formed by it of
the outstanding capital stock of certain entities which constitute a part of
Goss and certain of the assets and liabilities of other entities that constitute
the remainder of Goss. Neither Holdings nor the Company is expected to have any
assets or liabilities other than those arising in connection with the
Acquisition, or to engage in any business activities other than those incident
to its formation, the Acquisition and the financing of the Acquisition, until
the Acquisition becomes effective. Holdings will, directly or indirectly, own
all of the capital stock of, and assets of, and will assume all of the
liabilities of, Goss. Pursuant to the terms of the Stockholders Agreement (as
defined herein), the Fund will have the right to nominate and to remove all
directors of Holdings, and each of the Stockholders (as defined herein) will
agree to vote in favor of such nomination or removal.
5
<PAGE>
STONINGTON AND THE FUND
Stonington was formed in 1993 and, through the Fund, has raised $1 billion
in funds available for investments of this nature. The senior principals of
Stonington have been organizing investments of this nature since 1981, having
closed an aggregate of 44 transactions with total consideration of approximately
$21 billion.
The Fund is a Delaware limited partnership which was organized by Stonington
to finance investments in industrial and other companies. Its principal
investors include major pension funds, U.S. and foreign banks, insurance
companies and corporations.
THE ACQUISITION
The Company has entered into a Stock and Asset Purchase Agreement dated as
of April 26, 1996, as amended on July 18, 1996 (the "Purchase Agreement") with
Rockwell to effect the acquisition of Goss from Rockwell. The Acquisition will
be effected through the purchase by the Company of all the outstanding stock of
Rockwell Graphic Systems, Inc., a Delaware corporation ("Goss Delaware") and
Rockwell Systemes Graphiques Nantes, a societe anonyme organized under the laws
of the Republic of France ("Goss France"), and through the purchase by the
Company and certain wholly owned foreign subsidiaries of the assets and the
assumption of liabilities which constitute the remainder of Goss. Immediately
after the Acquisition, the Company will merge with Goss Delaware. The purchase
price for the Acquisition will consist of $552.5 million in cash, subject to
certain adjustments (the "Cash Consideration"), and 47,500 shares of Preferred
Stock (as defined herein), $1,000 liquidation preference per share, issued by
Holdings to Rockwell. Simultaneously with the closing of the Acquisition (the
"Acquisition Closing"), Holdings will raise $116.5 million of equity financing,
comprised of $111.5 million in cash from the sale of common stock, par value
$.01 per share, of Holdings (the "Common Stock") to the Fund (the "Stonington
Investment"), $1.0 million in cash from the sale of Common Stock (the "Equity
Private Placement") to an affiliate of a limited partner of the Fund (the
"Institutional Investor"), and $4.0 million in cash from the sale (the
"Management Placement") of the Management Shares (as defined herein) to certain
members of the Company's Management (the "Management Investors"). Holdings will
finance $2.0 million of the Management Placement. Holdings will simultaneously
therewith contribute all such amounts to the Company in exchange for all of the
capital stock of the Company. Upon consummation of the Transactions, the Fund
will own approximately 95.7% of the outstanding Common Stock of Holdings, the
Institutional Investor will own approximately 0.8% of the outstanding Common
Stock of Holdings and the Management Investors will own the remaining
approximately 3.5% (the "Management Shares"). In addition, upon consummation of
the Transactions, Holdings will also grant to certain members of the Board of
Directors of Holdings who are not Management Investors 7,500 shares of nonvoting
common stock, par value $.01 per share, of Holdings (the "Nonvoting Common
Stock"), representing 100% of the Nonvoting Common Stock that will be
outstanding after the Acquisition, pursuant to restricted stock granted under
the Plan (as defined herein). Rockwell will own all of the outstanding Preferred
Stock of Holdings. The balance of the funds needed to consummate the Acquisition
will come from borrowings under a credit agreement, dated , 1996,
among the Company, Bankers Trust Company as agent, the co-agents named therein
and the lenders named therein (the "New Bank Credit Agreement"), the proceeds of
the Offering and the proceeds from the sale of a portfolio of notes receivable
issued in connection with customer financing provided by Goss to purchasers of
Goss's products (collectively, the "Customer Notes"). The foregoing equity and
debt financings, together with the Acquisition, are collectively referred to as
the "Transactions." The Offering is conditioned upon, among other things,
consummation of the Transactions. See "The Acquisition," "Description of New
Bank Credit Agreement," "Description of Sale of Customer Notes" and "Description
of Preferred Stock."
6
<PAGE>
The following table sets forth the sources and uses of funds related to the
Acquisition:
(IN MILLIONS)
-------------
SOURCES OF FUNDS
New Bank Credit Agreement(a).................................... $ 75.3
Senior Subordinated Notes....................................... 225.0
-------------
Total Debt.................................................. 300.3
Sale of Customer Notes.......................................... 163.7
Issuance of Equity(b)........................................... 164.0
-------------
Total..................................................... $ 628.0
-------------
-------------
USES OF FUNDS
Cash Consideration.............................................. $ 552.5
Issuance of Preferred Stock of Holdings......................... 47.5
Transaction Costs............................................... 26.0
Loans to Management Investors................................... 2.0
-------------
Total..................................................... $ 628.0
-------------
-------------
- ------------
<TABLE>
<C> <S>
(a) The Bank Facilities (as defined herein) provide for a Term Loan Facility (as defined
herein) aggregating $75 million and a Revolving Credit Facility (as defined herein) of
$150 million (approximately $0.3 million of which will be drawn down on the Closing
Date in cash in connection with the Acquisition and approximately $31.4 million of
which will be drawn down on the Closing Date in connection with the issuance,
assumption or replacement of letters of credit, comprised of approximately $6.9 million
relating to the sale of Customer Notes and approximately $24.5 million relating to the
assumption or replacement of certain outstanding letters of credit). See "Description
of New Bank Credit Agreement" and "Description of Sale of Customer Notes." The Purchase
Agreement provides for a post-closing purchase price adjustment, pursuant to which the
Company may receive from Rockwell or be required to make to Rockwell additional
payments. The Company intends to pay down the Revolving Credit Facility or draw down
additional amounts under the Revolving Credit Facility, as the case may be, as a result
of such purchase price adjustments. See "The Acquisition--Purchase Price; Adjustments."
(b) Includes the issuance of 1,165,000 shares of common stock, par value $.01 per share, of
Holdings for an aggregate of $116.5 million in cash (including loans to Management
Investors of $2.0 million) that will be contributed to the Company and 47,500 shares of
Preferred Stock that will be issued by Holdings to Rockwell and that will be pushed
down to the Company for accounting purposes in accordance with generally accepted
accounting principles ("GAAP").
</TABLE>
RISK FACTORS
The Notes offered hereby involve a high degree of risk. See "Risk Factors."
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS)
The following table sets forth summary historical combined financial data
with respect to Goss for the periods ended and as of the dates indicated. The
summary historical combined financial data for the fiscal years ended September
30, 1993, 1994 and 1995 are derived directly from the audited combined financial
statements of Goss included elsewhere in this Prospectus, except for business
line net sales, business line operating income, Customer Notes operating and bad
debt expenses, interest income (expense), net, Customer Notes interest income
(expense), net, ratio of earnings to fixed charges and backlog. The summary
historical combined financial data for the nine months ended June 30, 1995 and
1996 are derived directly from the unaudited combined financial statements of
Goss included elsewhere in this Prospectus, except for business line net sales,
business line operating income, Customer Notes operating and bad debt expenses,
interest income (expense), net, Customer Notes interest income (expense), net,
ratio of earnings to fixed charges and backlog. Such unaudited combined
financial statements, in the opinion of Management, include all adjustments
necessary for the fair presentation of the financial condition and the results
of operations of Goss for such periods and as of such dates. Operating results
for the nine months ended June 30, 1996 are not necessarily indicative of the
results of operations that may be expected for the year ended September 30,
1996. This information should be read in conjunction with the combined financial
statements of Goss and the notes thereto appearing elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." See "Selected Combined Financial Data." The summary historical
statement of operations for the fiscal years ended September 30, 1991 and 1992
are derived from unaudited combined financial statements of Goss that are not
included in this Prospectus.
The following table also sets forth certain unaudited summary pro forma
combined financial data of the Company for the periods ended and as of the dates
indicated. The unaudited summary pro forma combined statements of operations for
the fiscal year ended September 30, 1995 and for the nine months ended June 30,
1996 give effect to the Transactions as if they had occurred as of October 1,
1994 and October 1, 1995, respectively. The unaudited summary pro forma combined
balance sheet data give effect to the Transactions as if they had occurred as of
June 30, 1996. See "Use of Proceeds" and "The Acquisition." The unaudited
summary pro forma combined financial data do not purport to represent what the
Company's results of operations or financial condition would actually have been
had the Transactions in fact occurred as of such dates or to project the
Company's results of operations or financial condition for any future period or
as of any future date. The unaudited summary pro forma combined financial data
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements and the notes thereto. See "Unaudited Pro Forma Combined Financial
Statements" and the separate historical combined financial statements of Goss
and the notes thereto appearing elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
8
<PAGE>
<TABLE><CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------------------------------- ----------------------------
HISTORICAL HISTORICAL
------------------------------------------------- PRO FORMA --------------- PRO FORMA
1991 1992 1993 1994 1995 1995(A) 1995 1996 1996(A)
-------- -------- --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Business line sales:
Newspaper...................... $ 785.5 $ 527.8 $ 390.8 $435.8 $512.2 $ 512.2 $362.3 $381.7 $ 381.7
Insert......................... 81.8 87.5 143.5 110.7 93.7 93.7 70.3 64.7 64.7
Commercial..................... 93.7 72.7 92.7 101.7 103.4 103.4 76.7 35.5 35.5
-------- -------- --------- ------ ------ --------- ------ ------ ---------
Total net sales.............. 961.0 688.0 627.0 648.2 709.3 709.3 509.3 481.9 481.9
Business line operating income
(loss) (b):
Newspaper...................... 139.9 47.8 27.0 40.6 68.4 71.6 56.2 35.9 37.9
Insert......................... 0.3 (7.4) 11.7 9.4 7.8 7.0 3.3 2.9 2.5
Commercial..................... (35.0) (32.9) (34.8) (17.0) (13.7) (11.4) (7.4) (28.9)(c) (27.1)(c)
-------- -------- --------- ------ ------ --------- ------ ------ ---------
Total business line operating
income.......................... 105.2 7.5 3.9 33.0 62.5 67.2 52.1 9.9 13.3
Rockwell common expense
allocation (d).................. (11.5) (8.1) (7.5) (6.8) (8.3) 0.0 (5.8) (5.8) 0.0
Patent litigation (e)........... 0.0 0.0 0.0 0.0 (3.0) 0.0 0.0 (1.0) 0.0
Restructuring charge (f)........ (49.5) (2.2) (5.4) 0.0 0.0 0.0 0.0 (3.9) 0.0
Customer notes operating and bad
debt
expenses (g)................... (6.9) (3.4) (10.0) (19.6) (5.1) 0.0 (2.9) (3.6) 0.0
-------- -------- --------- ------ ------ --------- ------ ------ ---------
Operating (loss) profit...... 37.3 (6.2) (19.0) 6.6 46.1 67.2 43.4 (4.4) 13.3
Other income (expense), net..... (0.5) 1.2 0.8 (2.1) 1.9 1.9 0.8 (1.4) (1.4)
-------- -------- --------- ------ ------ --------- ------ ------ ---------
Income (loss) before
interest, taxes and
cumulative effect........... 36.8 (5.0) (18.2) 4.5 48.0 69.1 44.2 (5.8) 11.9
Interest income (expense),
net............................. (19.1) (15.3) (8.7) (3.4) 0.0 (35.0) 0.0 (1.6) (26.2)
Customer notes interest income
(expense), net................. 13.5 16.6 19.6 13.6 12.4 0.0 8.4 9.7 0.0
-------- -------- --------- ------ ------ --------- ------ ------ ---------
Income (loss) before taxes
and cumulative effect of
accounting change........... 31.2 (3.7) (7.3) 14.7 60.4 34.1 52.6 2.3 (14.3)
Income tax expense (benefit).... 13.2 (0.8) (1.8) 5.3 24.2 13.7 21.1 1.2 (5.4)
Cumulative effect of change in
accounting principle, net...... 0.0 0.0 (4.6) 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- --------- ------ ------ --------- ------ ------ ---------
Net income (loss)............ $ 18.0 $ (2.9) $ (10.1) $ 9.4 $ 36.2 $ 20.4 $ 31.5 $ 1.1 $ (8.9)
-------- -------- --------- ------ ------ --------- ------ ------ ---------
-------- -------- --------- ------ ------ --------- ------ ------ ---------
Other Data:
Backlog (at period end) (h)..... $ 525.1 $ 421.3 $ 549.8 $537.7 $480.7 $ 480.7 $496.9 $442.6 $ 442.6
EBITDA (i)...................... 130.4 34.9 26.8 55.5 83.9 102.9 68.6 24.8 38.6
Depreciation and amortization... 36.7 35.5 30.4 29.3 29.7 35.7 22.3 20.7 25.3
Net cash (used for) provided by
operating activities(j)........ (61.2) 71.3 157.5 95.0 12.4
Net cash used for investing
activities(j)................... (10.4) (25.7) (9.4) (5.8) (1.8)
Net cash provided by (used for)
financing activities(j)........ 66.2 (37.2) (155.5) (99.1) (14.1)
Capital expenditures............ 29.6 21.2 12.5 11.6 11.5 11.5 7.9 3.4 3.4
Ratio of EBITDA to non-affiliate
interest expense (k)........... 3.2 343.0 27.6 1.6
Ratio of earnings to fixed
charges (l)..................... 1.9 0.8 0.6 2.4 10.2 1.8 11.7 1.3 0.5
Balance Sheet Data (at period
end):
Total assets.................... $1,093.0 $1,011.7 $ 1,007.7 $950.9 $947.0 $956.3 $888.6 $ 813.2
Total debt...................... 4.6 3.2 12.5 4.1 2.6 11.6 34.3 300.3
Rockwell's net investment (pro
forma-- shareholders'
equity)......................... 639.1 623.8 627.3 628.7 543.1 586.6 507.5 162.0
</TABLE>
9
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- ------------
(a) The pro forma combined financial data for the year ended September 30, 1995
gives pro forma effect to the Transactions and the Identified Cost Savings,
as if they had occurred as of October 1, 1994, with respect to the
statement of operations data and other data, and on September 30, 1995,
with respect to the balance sheet data. The pro forma summary financial
data for the nine months ended June 30, 1996 gives pro forma effect to the
Transactions and Identified Cost Savings, as if they had occurred as of
October 1, 1995 with respect to the statement of operations data and other
data, and on June 30, 1996, with respect to the balance sheet data. The pro
forma financial data are not necessarily indicative of the results that
actually would have been achieved had such transactions been consummated as
of the dates indicated or that may be achieved in the future. See "The
Acquisition" and "Unaudited Pro Forma Combined Financial Statements"
included elsewhere herein.
(b) Business line operating income represents, for each of the Company's three
business lines, net sales less cost of sales and operating expenses.
Business line operating income is before Rockwell common expense
allocation, patent litigation and restructuring charges, which, due to
their nature, are disclosed separately in the financial statements. In
addition, business line operating income excludes operating expenses, bad
debt expenses and interest income (expense), net related to Customer Notes.
(c) For the nine months ended June 30, 1996 (Historical and Pro Forma),
includes a $12.7 million charge for warranty and post-shipment expenses
incurred in fiscal 1996 in respect of certain commercial presses shipped in
fiscal 1993, 1994 and 1995. For other periods presented, charges for
warranty and post-shipment expenses incurred are reflected in the period in
which the sale was recorded.
(d) Rockwell common expense allocation represents expenses charged by Rockwell
on a percentage of sales basis for administrative and management services
such as corporate oversight, cash management, treasury, legal, patent, tax,
insurance, general management and administration, corporate accounting and
communication services.
(e) Patent litigation represents expenses related to the Heidelberger patent
infringement litigation liability which is being retained by Rockwell.
These expenses have been excluded from the pro forma results. See Note (w)
to the Unaudited Pro Forma Combined Financial Statements. See
"Business--Legal Proceedings" included elsewhere herein.
(f) The restructuring charge recorded in the nine months ended June 30, 1996
was associated primarily with severance payments for terminated employees
and the closure of certain redundant facilities. This charge has been
excluded from the pro forma results. The restructuring charges recorded in
the 1991 through 1993 time frame were associated with the closure of a
major manufacturing facility in the United Kingdom and the associated
relocation of product lines and consolidation of manufacturing operations
at several locations. See Note (x) to the Unaudited Pro Forma Combined
Financial Statements.
(g) Customer notes operating expenses and bad debt expenses represent expenses
associated with the Company's portfolio of Customer Notes. These charges
have been excluded from the pro forma results. See Notes (s) and (t) to the
Unaudited Pro Forma Combined Financial Statements.
(h) Backlog represents the aggregate dollar value of unfilled press orders
under contract with the Company at the end of each period.
(i) EBITDA represents business line operating income less Rockwell common
expense allocation plus depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. EBITDA should not be considered by investors as
an alternative to operating income "as determined in accordance with GAAP,"
as an indicator of the Company's operating performance or as an alternative
to net cash provided by (used for) operating activities "as determined in
accordance with GAAP." See The Combined Financial Statements, including the
Combined Statements of Cash Flows, included elsewhere herein.
(j) The Company was not audited for the fiscal years ended prior to September
30, 1993. As such, the Company does not have adequate information to provide
cash flow data for the years ended September 30, 1991 and September 30, 1992
on a basis consistent with that provided in the audited financial
statements.
(k) Ratio of EBITDA to non-affiliate interest expense represents EBITDA divided
by non-affiliate interest expense. Interest expense on a pro forma basis
represents interest (income) expense, net, excluding amortization of
deferred financing costs. Non-affiliate interest expense totaled $32.6
million, $0.2 million, $0.9 million and $24.4 million, respectively, for pro
forma 1995 and for the nine months ended June 30, 1995, June 30, 1996 and
pro forma June 30, 1996.
(l) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income before taxes and cumulative effect of changes in
accounting plus fixed charges less capitalized interest. "Fixed charges"
consist of cash/intercompany interest expense, capitalized interest,
scheduled debt payments, amortization of deferred financing costs, pre-tax
preferred stock dividends and one-third of rental expense (the portion
deemed representative of the interest factor).
10
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
ISSUER......................... Goss Graphic Systems, Inc.
SECURITIES OFFERED............. $225.0 million aggregate principal amount of the Company's
% Senior Subordinated Notes due , 2006.
MATURITY DATE.................. , 2006.
INTEREST PAYMENT DATES......... Interest accrues from the date of issuance at an annual
rate of % and will be payable semi-annually in arrears on
and of each year, commencing , 1997.
Interest will be paid on the basis of a 360-day year,
comprised of twelve 30-day months.
OPTIONAL REDEMPTION............ Except as described below, the Notes are not redeemable at
the Company's option prior to , 2001.
Thereafter the Notes will be subject to redemption at the
option of the Company, in whole or in part, at the
redemption prices set forth herein, together with accrued
and unpaid interest, if any, to the date of redemption.
Notwithstanding the foregoing, prior to ,
1999, the Company may redeem up to % of the original
principal amount of the Notes, on one or more occasions,
from the proceeds of one or more Public Equity Offerings
(as defined herein) or private sales of common stock of,
or contributions to the common equity capital of, the
Company, at a redemption price of % of the principal
amount of the Notes, together with accrued and unpaid
interest, if any, to the date of redemption; provided that
at least $ million in aggregate principal amount of the
Notes remains outstanding after each such redemption.
CHANGE OF CONTROL.............. Upon a Change of Control each holder of Notes may require
the Company to purchase the Notes held by such holder at a
purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any,
to the date of purchase. See "Risk Factors--Limitation on
a Change of Control."
RANKING........................ The Notes will be senior subordinated unsecured
obligations of the Company, will be subordinated in right
of payment to all Senior Debt (as defined herein) of the
Company, will rank pari passu with all senior subordinated
debt of the Company and will be senior in right of payment
to all existing and future subordinated debt of the
Company. The Notes will be effectively subordinated to all
indebtedness and other liabilities of the Company's
subsidiaries. As of June 30, 1996, on a pro forma basis
after giving effect to the Transactions, the aggregate
amount of Senior Debt of the Company would have been
approximately $25.3 million (consisting of $25 million of
the Term Loan Facility and $0.3 million of the Revolving
Credit Facility and excluding approximately $7.0 million
of letters of credit), all of which would have been
secured borrowings by the Company and its subsidiaries
under the New Bank Credit
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Agreement. The aggregate amount of indebtedness and other
liabilities of the Company's subsidiaries, to which the
Notes will be effectively subordinated, would have been
approximately $222.4 million (including the remaining $50
million of the Term Loan Facility and excluding
approximately $24.4 million of letters of credit). See
"Use of Proceeds," "Capitalization" and "Description of
Notes--Ranking."
CERTAIN COVENANTS.............. The Indenture (as defined herein) will contain certain
covenants that will, among other things, limit the ability
of the Company and its Subsidiaries (as defined herein) to
Incur (as defined herein) additional Debt (as defined
herein), issue Preferred Stock, pay dividends or
distributions or make investments or make certain other
Restricted Payments (as defined herein), enter into
certain transactions with affiliates, dispose of certain
assets, incur liens securing pari passu and subordinated
indebtedness of the Company and engage in mergers and
consolidations. See "Description of Notes--Certain
Covenants."
USE OF PROCEEDS................ The net proceeds of the Notes offered hereby (estimated to
be approximately $ million in the aggregate after
deduction of underwriting discounts and commissions and
expenses of the Offering) will be used to pay a portion of
the consideration for, and the payment of transaction
costs incurred in connection with, the Acquisition. See
"Use of Proceeds."
CONDITIONS..................... The closing of the Offering will be conditioned upon,
among other things, the simultaneous closing of the
Transactions.
</TABLE>
12
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Notes
offered by this Prospectus.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company will incur substantial indebtedness in connection with the
Acquisition and, following the Offering, the Company will be highly leveraged.
As of June 30, 1996, after giving pro forma effect to the Transactions, the
Company would have had total indebtedness of $300.3 million and stockholders'
equity of $162.0 million (net of loans to Management Investors of $2.0 million).
Of the total $628.0 million used to consummate the Acquisition, $300.3 million
(47.8%) will be supplied by debt (excluding $31.4 million of letters of credit),
$163.7 million (26.1%) will be supplied through the sale of Customer Notes,
$162.0 million (25.8%) will be supplied by equity and $2.0 million (0.3%) will
consist of loans to Management Investors. After giving pro forma effect to the
Transactions, the Company's ratio of earnings to fixed charges would have been
1.8x for the fiscal year ended September 30, 1995 and 0.5x for the nine months
ended June 30, 1996. Pro forma interest expense, net for the nine months ended
June 30, 1996 and fiscal year ended September 30, 1995 would have been $26.2
million and $35.0 million, respectively. The Company may incur additional
indebtedness in the future, subject to limitations imposed by the Indenture and
the New Bank Credit Agreement. See "Capitalization" and "Unaudited Pro Forma
Combined Financial Statements."
The Company's ability to make scheduled principal payments of, to pay
interest on or to refinance its indebtedness (including the Notes) depends on
its future performance and financial results, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
working capital borrowings will be available in an amount sufficient to enable
the Company to service its indebtedness, including the Notes, or make necessary
capital expenditures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The degree to which the Company will be
leveraged following the Offering could have important consequences to holders of
the Notes, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations will be required to be
dedicated to debt service and will not be available for other purposes; (ii) the
Company's ability to obtain additional financing in the future could be limited;
(iii) certain of the Company's borrowings are at variable rates of interest,
which could result in higher interest expense in the event of increases in
interest rates; (iv) the Company may be more vulnerable to extended economic
downturns and may be restricted from making acquisitions, introducing new
technologies or exploiting business opportunities; and (v) the Indenture and the
New Bank Credit Agreement will contain financial and restrictive covenants that
limit the ability of the Company to, among other things, borrow additional
funds, dispose of assets or pay cash dividends. Failure by the Company to comply
with such covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company. In addition, the
degree to which the Company is leveraged could prevent it from repurchasing all
Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Notes" and "Description of New Bank Credit Agreement."
SUBORDINATION OF THE NOTES; ASSET ENCUMBRANCES
The Notes will be subordinated in right of payment to all existing and
future Senior Debt. At June 30, 1996, on a pro forma basis after giving effect
to the Transactions, there would have been outstanding approximately $25.3
million of Senior Debt of the Company (including $25 million of the Term Loan
Facility and $0.3 million of the Revolving Credit Facility and excluding
approximately $7.0 million of letters of credit), all of which would have been
secured borrowings by the Company and its
13
<PAGE>
subsidiaries under the New Bank Credit Agreement. In addition, the Notes will be
effectively subordinated to approximately $222.4 million of indebtedness and
other liabilities and commitments (including trade payables and lease
obligations and the remaining $50 million of the Term Loan Facility and
excluding approximately $24.4 million of letters of credit) of the Company's
subsidiaries. The Company and its subsidiaries will also have the ability to
borrow an additional $109.7 million for general corporate purposes pursuant to
the Revolving Credit Facility, subject to certain conditions. Any such amounts
drawn upon by the Company will be senior in right of payment to the Notes and
any such amounts drawn upon by the subsidiaries will be effectively senior in
right of payment to the Notes. Such amounts will also be secured borrowings by
the Company and its subsidiaries under the New Bank Credit Agreement. By reason
of such subordination, in the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company or upon a default
in payment with respect to, or the acceleration of, any Senior Debt, the holders
of such Senior Debt and any other creditors who are holders of Senior Debt and
creditors of subsidiaries must be paid in full before the Holders (as defined
herein) of the Notes may be paid. If the Company incurs any additional pari
passu debt, the holders of such debt would be entitled to share ratably with the
Holders of the Notes in any proceeds distributed in connection with any
insolvency, liquidation, reorganization, dissolution or other winding-up of the
Company. This may have the effect of reducing the amount of proceeds paid to
Holders of the Notes. In addition, no payments may be made with respect to the
principal of (and premium, if any) or interest on the Notes if a payment default
exists with respect to Designated Senior Debt and, under certain circumstances,
no payments may be made with respect to the principal of (and premium, if any)
or interest on the Notes for certain periods of time if a non-payment default
exists with respect to Designated Senior Debt. In addition, certain portions of
the borrowings under the New Bank Credit Agreement will be lent directly to
certain of the Company's foreign subsidiaries, and such borrowings will
therefore have a direct, prior claim against such respective foreign
subsidiaries. See "Description of Notes."
The Company's obligations under the New Bank Credit Agreement will be
secured by security interests in all of the capital stock of the Company and
substantially all of the current and future assets of the Company and its
subsidiaries (including a pledge of all of the issued and outstanding shares of
capital stock of the Company's domestic subsidiaries and 66% of the capital
stock of the Company's foreign subsidiaries). In the event of a default on
secured indebtedness (whether as a result of the failure to comply with a
payment or other covenant, a cross-default, or otherwise), the parties granted
such security interests will have a prior secured claim on the capital stock of
the Company and the assets of the Company. If such parties should attempt to
foreclose on their collateral, the Company's financial condition and the value
of the Notes will be materially adversely affected. See "Description of New Bank
Credit Agreement."
ABSENCE OF PARENT GUARANTEES AND SERVICES
Prior to the Acquisition, the business of Goss had been operated as a
division of Rockwell. In the past, Rockwell has been party to, and guarantor of
Goss's obligations under, certain of the agreements providing for the sale of
Goss's products, including agreements for the sale of large newspaper printing
presses to domestic and foreign publishers. In addition, Goss has also posted
letters of credit in connection with certain sales agreements. In connection
with such sales, Goss normally receives a down payment and progress payments
from the customer in advance of delivery and acceptance of the product
purchased. There can be no assurance that, following the Acquisition, customers
will continue to make such down payments and progress payments or that sales
will not be adversely affected without Rockwell acting as a party to and/or
guarantor under the Company's sales contracts. In addition, customers may
request that the Company post letters of credit as security for such down
payments and progress payments. Although the New Bank Credit Agreement will
include a Revolving Credit Facility in an original amount of $150.0 million
under which, among other things, letters of credit may be issued up to a
sublimit (including limits which may be based upon the country in which the
entity posting the
14
<PAGE>
letter of credit is incorporated) to be agreed upon (see "Description of New
Bank Credit Agreement"), there can be no assurance that, if customers request
such letters of credit, the Company will be able to provide them. Approximately
$31.4 million of the Revolving Credit Facility will be drawn down in connection
with the issuance, assumption or replacement of letters of credit on the Closing
Date. The total amount of letters of credit issued for the account of Goss that
was outstanding as of June 30, 1996 was approximately $24.5 million. The
contracts to which Rockwell is a party or under which Rockwell has acted as
guarantor represented sales of $103.1 million, or 14.5% of total Goss sales, for
the fiscal year ended September 30, 1995.
In addition, Rockwell performs certain engineering and product development
work for Goss at Rockwell's Science Center, the costs of which have been
directly billed to Goss. Goss also has received certain administrative and
management services from Rockwell for which Goss has paid Rockwell at a flat
rate, and certain other services for which Rockwell billed Goss for direct
expense items (and related administration costs). Management believes that the
services provided by Rockwell were billed at rates that are comparable to the
rates that Goss would have received from an independent third party. Rockwell
has agreed to provide certain transitional services to the Company for a limited
period of time following the consummation of the Acquisition. Following the
transitional period, the Company will be required to establish an internal
capability for these functions or obtain such facilities and services from
third-party suppliers on an arm's-length basis, which may be at rates or prices
that differ from those paid by the Company to Rockwell. The Company will also be
required to obtain from third parties on an arm's-length basis certain control
devices and drive systems used with its press systems that are currently
supplied by Allen-Bradley Company, Inc., a wholly-owned subsidiary of Rockwell
("Allen-Bradley"). Such third parties may include Allen-Bradley. Purchases by
Goss from this subsidiary, which have been made on an arm's-length basis,
totaled approximately $31.6 million during the fiscal year ended September 30,
1995.
UNAVAILABILITY OF CUSTOMER FINANCING; GUARANTEE OF CERTAIN CUSTOMER NOTES
Historically, Goss regularly made seller financing available to certain
customers in connection with their purchases of Goss's products. In early 1994,
Goss determined that, in most instances, traditional financing sources were able
to offer financing to its customers on reasonable terms. As a result, Goss has
deemphasized the use of financing in the selling process. After consummation of
the Acquisition, the Company generally does not intend to make financing
available to its customers. Rather, it will continue to assist customers in
securing financing from third-party lending sources. Management believes,
however, that certain competitors of Goss have regularly provided financing to
customers in the past and will continue to make such financing available in the
future. Although the Company believes that limiting the availability of seller
financing has not materially affected the sale of its products, there can be no
assurance that the lack of availability of seller financing in the future will
not have an adverse impact on the Company.
The Acquisition will be financed in part by the sale of Customer Notes. The
Customer Notes are being sold for a purchase price of approximately $163.7
million, subject to certain adjustments, which represents a discount to the face
amount of the Customer Notes, which was approximately $238.2 million as of
February 29, 1996 (the measurement date used to determine the purchase price of
the Customer Note portfolio). In connection with this sale, the Company is
guaranteeing to the purchaser of the Customer Notes the payment of an aggregate
of approximately $20 million in principal and/or interest on Customer Notes from
three customers which had an aggregate principal amount of approximately $84.4
million as of February 29, 1996. Certain of these guarantees will be secured by
letters of credit in an aggregate amount of approximately $6.9 million. In the
event that the obligors on these Customer Notes fail to make regularly scheduled
payments of principal and interest as and when due, the Company may be required
to make such payments to the purchaser of the Customer Notes. See "Description
of Sale of Customer Notes."
15
<PAGE>
FLUCTUATIONS IN SALES
Like most printing press manufacturers, Goss's business is highly cyclical.
The timing of a printing press purchase can be influenced by numerous factors
beyond the Company's control which may temporarily affect the customer's
willingness to commit to a press acquisition. They include the age and
capabilities of the customer's current equipment, general economic conditions,
total advertising revenues, the price of newsprint, paper and other raw
materials, and competition with print and non-print media in the marketplace. As
a result of these factors, sales of the Company's products can vary
significantly from period to period. There can be no assurance that such factors
will not adversely affect the Company's results of operations in the future.
The market for Goss's products depends in part on the demand for printed
material and for print-based advertising. There can be no assurance that
competition from alternative methods of information delivery, including radio,
television, personal computers, on-line information services and other
electronic media, will not erode the demand for print-based advertising.
COMPETITION
The global newspaper printing press, insert printing press and commercial
printing press industries are highly competitive in most product categories and
geographic regions. Competition is based on price, product features, quality,
reliability, customer service and ability to meet the specialized needs of
customers. Present and potential competition in the various markets served by
Goss comes from companies of various sizes, many of which are larger and have
greater financial and other resources than the Company. Companies not currently
in direct competition with Goss may introduce competing products in the future.
In particular, over the past several years certain foreign suppliers of
large newspaper printing presses have sought to increase their U.S. sales by
offering aggressive pricing and terms. On July 16, 1996, the U.S. Department of
Commerce (the "Commerce Department") issued final determinations that large
newspaper printing presses and components thereof imported from Japan and
Germany have been sold at less than fair value. On August 21, 1996, the U.S.
International Trade Commission (the "ITC") determined that large newspaper
printing presses and components thereof imported from Germany and Japan have
been a cause of material injury, or the threat of material injury, to the U.S.
industry. As a result of the ITC's final affirmative determinations, antidumping
duty deposits will be assessed on imports covered by this case. The assessment
of duties could be revised upward or downward in the future, or terminated
through appellate review or future annual administrative proceedings, or both.
Moreover, the extent to which antidumping duties would benefit the Company's
competitive position in the U.S. market, if at all, cannot be projected with
assurance. See "Business--Competition."
In addition, the Company has faced and continues to face increased
competition in terms of price from its competitors in the insert printing press
industry. Although Goss has established a presence in the commercial press
industry in North America, this industry is subject to intense competition,
primarily from one commercial press manufacturer, and the Company has a
significantly lower market share in the commercial business compared to the
Company's other businesses. See "Business-- Competition."
COMMERCIAL PRESS SYSTEMS PERFORMANCE PROBLEMS AND RELATED EXPENDITURES
Goss has experienced certain performance problems with its World 16 and, to
a lesser extent, its G25W, commercial press systems which it introduced in 1993
and 1992, respectively. Certain customers have alleged that such press systems
failed to meet performance expectations and contract specifications, including
certain customers which have requested rescission of the initial purchase
contract and/or damages and have threatened litigation to resolve their claims
against the Company relating to their commercial presses. In addition, Goss has
delayed shipment of a World 16 press, has not yet
16
<PAGE>
received full payment from other customers due to performance issues and has had
two customers initiate litigation seeking rescission and damages. See Note 19 to
the Combined Financial Statements included elsewhere in this Prospectus.
A total of six World 16 and four G25W presses have been installed to date,
and since the introduction of these products, Goss has incurred significant
expenses to identify and correct product performance issues and make necessary
modifications to commercial presses at customers' locations. The Company has
established reserves relating to customer satisfaction issues and continues to
review the adequacy of such reserves on an ongoing basis. Also as a result of
performance issues, Goss modified the World 16 press and reintroduced it to the
marketplace in October 1995 under the designation World 16E. Through June 30,
1996 one World 16E press has been shipped and it is currently being installed.
Two World 16 presses were shipped and installed in the first half of fiscal year
1996. No performance issues were experienced with these presses, and they
received customer acceptance on schedule.
Although the Company believes it has identified and has remedied or is in
the process of remedying all significant performance issues relating to its
commercial presses, there can be no assurance that additional performance issues
will not develop or that significant additional expenditures will not be
required to resolve existing or potential future performance issues. Any such
significant performance issues or expenditures, including with respect to the
resolution of pending or threatened claims, could materially adversely affect
the Company.
LABOR DISPUTES
Certain of the Company's hourly employees located at its Cedar Rapids, Iowa;
Reading, Pennsylvania; and Westmont, Illinois facilities are represented by
national unions and covered by various collective bargaining agreements, which
expire at various times over the next two years. The Company's hourly employees
located at the Preston, United Kingdom and Nantes, France facilities are
represented by local trade groups, those located at the Sayama, Japan facility
are represented by a company union, and all such foreign employees are covered
by collective bargaining agreements, which are renewed annually.
Although the Company considers its relationships with all of its hourly
employees to be satisfactory, a prolonged labor dispute with any union could
significantly impair the Company's business, substantially increase the
Company's costs or otherwise have a material adverse effect on the Company's
business as well as the Company's results of operations and financial condition.
In addition, the Company's ability to readily manufacture and deliver its
products could be impaired by work stoppages by its employees.
DEVELOPMENT OF NEW PRODUCTS; FUNDING FOR RESEARCH AND DEVELOPMENT
Technology in the printing industry continues to evolve. As a result, the
future success of the Company will depend in part upon the ability of the
Company to continue to enhance its existing products and to develop, manufacture
and market new products. Goss has invested over $84 million since 1993 in
engineering, new product development and research. In addition, following a
limited transition period, the Company will no longer conduct research and
development activities at Rockwell's Science Center. The Company has over 400
engineers at four locations around the world and believes that, following the
transition, it will continue to have the necessary engineering, product
development and research capabilities. There can be no assurance, however, that
the Company will be successful in the development, introduction, marketing and
cost-effective manufacture of any new products or enhancements to its existing
products or that there will be sufficient cash flow to fund planned engineering
and research and development expenditures or that financing for such
expenditures will be available on favorable terms. The failure to develop
products and introduce them successfully
17
<PAGE>
and in a timely manner could adversely affect the Company's competitive position
and results of operations.
INTERNATIONAL OPERATIONS AND SALES; REPATRIATION OF FOREIGN CASH FLOW
The Company operates manufacturing facilities in various countries.
Furthermore, it relies on source materials and components shipped from, and
markets for finished products located in, various countries. During fiscal 1995,
38% of Goss's net revenues were generated by international sales of its foreign
subsidiaries (based on foreign currencies). International operations and
international shipments are subject to a number of special risks, including, but
not limited to, risks with respect to currency exchange rates, economic and
political destabilization, other disruption of markets, restrictive governmental
actions (such as restrictions on transfer of funds, trade duties and quotas,
customs and tariffs and unexpected changes in regulatory environments),
difficulty in obtaining distribution and support, nationalization, laws and
policies affecting trade, foreign investment and loans, and foreign tax laws.
There can be no assurance that these factors will not have a material adverse
impact on the Company's ability to increase or maintain its foreign sales or on
its results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--International Operations."
The Company's ability to service its indebtedness will be dependent, in
part, on its ability to utilize the cash flow generated by its foreign
operations. In general, U.S. federal and international tax laws provide that
income of international subsidiaries is subject to tax only in the local
jurisdiction and is not subject to U.S. federal income tax unless, and only to
the extent, such income is distributed as a dividend to the U.S. parent company.
The Company has not determined whether to cause its international subsidiaries
to pay dividends to the Company or to cause the net income of such subsidiaries
to be retained abroad. The Company may make loans to its foreign subsidiaries,
and, in that event, payments by the Company's foreign subsidiaries to the
Company on such intercompany loans may result in the repatriation of a
substantial portion of the cash flow of such subsidiaries without the payment of
taxes abroad. In addition, certain of the Company's subsidiaries may make
royalty payments to the Company. There can be no assurance, however, that the
interest payments on such intercompany loans or such royalty payments will not
be recharacterized as dividends, which could have adverse tax consequences to
the Company. In addition, certain portions of the borrowings under the New Bank
Credit Agreement will be lent directly to certain of the Company's foreign
subsidiaries, and such borrowings will therefore have a direct, prior claim
against such respective foreign subsidiaries.
DEPENDENCE ON SUBSIDIARY CASH FLOW; STRUCTURAL SUBORDINATION
The Company will conduct a substantial portion of its business through
subsidiaries. The Company will, in part, be dependent on the cash flow of such
subsidiaries and distributions thereof from such subsidiaries to the Company in
order to meet its debt service obligations. It is not expected that Holdings
will have any assets other than the common stock of the Company.
As a result of the structure of the Company, the Holders of the Notes will
be structurally subordinated to all creditors of the subsidiaries of the
Company. In the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the subsidiaries, the Company will not
receive funds available to pay to the Holders of the Notes in respect of the
Notes until after the payment in full of the claims of the creditors of the
subsidiaries. As of June 30, 1996, on a pro forma basis after giving effect to
the Transactions, the aggregate amount of indebtedness and other obligations of
the Company's subsidiaries (including trade payables and lease obligations)
would have been approximately $222.4 million (excluding approximately $24.4
million of letters of credit).
18
<PAGE>
DEPENDENCE ON KEY PERSONNEL
Goss's business is managed by a small number of key executive officers. The
loss of the services of certain of these executives could have an adverse impact
on the Company. There can be no assurance that the services of such personnel
will continue to be made available. The Company has entered into employment
arrangements with certain key executive officers and the Management Investors
will invest $4,030,000 in exchange for approximately 3.5% of the outstanding
capital stock of Holdings. See "The Acquisition" and "Management."
CONTROL OF THE COMPANY BY THE FUND
The Fund will own approximately 95.7% of the outstanding voting equity of
Holdings and pursuant to the terms of the Stockholders Agreement, the Fund will
control the votes of the shares of Common Stock purchased in the Equity Private
Placement (which represent approximately 0.8% of the outstanding voting equity
of Holdings). The Fund will also have the right, subject to the right of the
holders of Preferred Stock to elect two directors in the event certain
provisions of the Preferred Stock are not complied with, to nominate at any time
and from time to time all directors of Holdings (including the right to expand
the board of directors of Holdings and to fill vacancies created thereby) and
will have the right to remove such directors at any time and from time to time
and each of the Management Investors (who will own the remaining approximately
3.5% of the outstanding voting equity of Holdings) will agree to vote in favor
of such nomination or removal of directors. As a result, the Fund will have the
ability to elect all of the directors of Holdings and the Company, appoint new
management and approve any action requiring the approval of Holdings' or the
Company's stockholders, including adopting amendments to the Company's
certificate of incorporation and approving mergers or sales of substantially all
of the Company's assets, in each case, subject to whatever contractual
restrictions that apply to the Company. There can be no assurance that the
interests of the Fund will not conflict with the interests of the Holders of the
Notes. See "Management," "Ownership of Capital Stock," "Certain Transactions"
and "Description of Preferred Stock."
LIMITATION ON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company is obligated to make
an offer to purchase all outstanding Notes at a price equal to 101% of the
principal amount of the Notes, plus accrued interest thereon. The New Bank
Credit Agreement will prohibit the Company from purchasing any Notes, and will
also provide that the occurrence of certain change of control events with
respect to the Company would constitute a default thereunder. In the event of a
Change of Control, the Company must offer to repay all borrowings under the New
Bank Credit Agreement or obtain the consent of its lenders under the New Bank
Credit Agreement to the purchase of Notes. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing Notes. In such case, the Company's failure to purchase tendered Notes
would constitute a default under the Indenture, which, in turn, would constitute
a default under the New Bank Credit Agreement. There can be no assurance that
the Company will have the financial ability to purchase the Notes upon the
occurrence of a Change of Control. There can be no assurance that the Company
will be able to comply with all of its obligations under the New Bank Credit
Agreement, the Indenture and the other indebtedness upon the occurrence of a
Change of Control. The maximum amount of borrowings that may be outstanding
under the New Bank Credit Agreement is $225.0 million. See "Description of
Notes--Change of Control."
ABSENCE OF PUBLIC MARKET FOR NOTES; POSSIBLE VOLATILITY OF NOTES
There is currently no established trading market for the Notes, and there
can be no assurance regarding the future development of a market for the Notes,
the ability of the Holders to sell their Notes or the price at which the Holders
may be able to sell their Notes. The Company does not intend to have
19
<PAGE>
the Notes listed for trading on any national securities exchange or quoted on
any automated dealer quotation system.
The Underwriters have advised the Company that the Underwriters currently
intend to make a market in the Notes, but the Underwriters are not obligated to
do so and any such market-making may be discontinued at any time at their sole
discretion. The liquidity of any market for the Notes will depend upon the
number of holders of the Notes, the interest of securities dealers in making a
market in the Notes and other factors. The absence of an active market for the
Notes could adversely affect the liquidity of the Notes. The liquidity of, and
trading markets for, the Notes may also be adversely affected by general
declines in the market for non-investment grade debt. Such declines may
adversely affect the liquidity of, and trading markets for, the Notes,
independent of the financial performance of, or prospects for, the Company.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market for the Notes
will not be subject to similar disruptions. Any such disruptions may have a
material adverse effect on the value of the Notes.
FRAUDULENT CONVEYANCE
Management believes that the indebtedness represented by the Notes is being
incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, after the
consummation of the Transactions, the Company will be solvent, will have
sufficient capital for carrying on its business and will be able to pay its
debts as they mature. See, however, "--Substantial Leverage; Ability to Service
Indebtedness." Notwithstanding Management's belief, however, under federal or
state fraudulent transfer laws, if a court of competent jurisdiction in a suit
by an unpaid creditor or a representative of creditors (such as a trustee in
bankruptcy or a debtor-in-possession) were to find that, at the time of the
incurrence of such indebtedness, the Company was insolvent, was rendered
insolvent by reason of such incurrence, was engaged in a business or transaction
for which its remaining assets constituted unreasonably small capital, intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, or intended to hinder, delay or defraud its creditors,
and that the indebtedness was incurred for less than reasonably equivalent
value, then such court could, among other things, (a) void all or a portion of
the Company's obligations to the Holders of the Notes, the effect of which would
be that the Holders of the Notes may not be repaid in full and/or (b)
subordinate the Company's obligations to the Holders of the Notes to other
existing and future indebtedness of the Company to a greater extent than would
otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Notes.
20
<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be $ million after
deduction of underwriting discounts and commissions and expenses of the
Offering. The net proceeds of the Offering will be used to pay a portion of the
cash consideration payable to Rockwell in the Acquisition and to meet a portion
of certain other cash requirements arising out of or in connection with the
Transactions, including transaction costs.
The following table sets forth the sources and uses of funds related to the
Transactions:
(IN MILLIONS)
-------------
SOURCES OF FUNDS
New Bank Credit Agreement(a).................................... $ 75.3
Senior Subordinated Notes....................................... 225.0
-------------
Total Debt.................................................. 300.3
Sale of Customer Notes.......................................... 163.7
Issuance of Equity(b)........................................... 164.0
-------------
Total..................................................... $ 628.0
-------------
-------------
USES OF FUNDS
Cash Consideration.............................................. $ 552.5
Issuance of Preferred Stock of Holdings......................... 47.5
Transaction Costs............................................... 26.0
Loans to Management Investors................................... 2.0
-------------
Total..................................................... $ 628.0
-------------
-------------
- ------------
<TABLE>
<C> <S>
(a) The Bank Facilities provide for a Term Loan Facility aggregating $75 million and a
Revolving Credit Facility of $150 million (approximately $0.3 million of which will be
drawn down on the Closing Date in cash in connection with the Acquisition and
approximately $31.4 million of which will be drawn down on the Closing Date in
connection with the issuance, assumption or replacement of letters of credit, comprised
of approximately $6.9 million relating to the sale of Customer Notes and approximately
$24.5 million relating to the assumption or replacement of certain outstanding letters
of credit). See "Description of New Bank Credit Agreement" and "Description of Sale of
Customer Notes." The Purchase Agreement provides for a post-closing purchase price
adjustment, pursuant to which the Company may receive from Rockwell or be required to
make to Rockwell additional payments. The Company intends to pay down the Revolving
Credit Facility or draw down additional amounts under the Revolving Credit Facility, as
the case may be, as a result of such purchase price adjustments. See "The
Acquisition--Purchase Price; Adjustments."
(b) Includes the issuance of 1,165,000 shares of common stock, par value $.01 per share, of
Holdings for an aggregate of $116.5 million in cash (including loans to Management
Investors of $2.0 million) that will be contributed to the Company and 47,500 shares of
Preferred Stock that will be issued by Holdings to Rockwell and that will be pushed
down to the Company for accounting purposes in accordance with GAAP.
</TABLE>
21
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization, as of June 30,
1996, of Goss on a historical basis and of the Company on a pro forma basis to
give effect to the Transactions. See "Unaudited Pro Forma Combined Financial
Statements."
AS OF JUNE 30, 1996
-------------------
ACTUAL PRO FORMA
------ ---------
(IN MILLIONS)
Cash and cash equivalents............................... $ 3.2 $ 0.0
------ ---------
------ ---------
Debt:
Revolving Credit Facility............................. 34.3 0.3
Term Loan Facility.................................... 0.0 75.0
Senior Subordinated Notes............................. 0.0 225.0
------ ---------
Total debt.......................................... 34.3 300.3
Shareholders' equity:
Holdings Preferred Stock.............................. -- 47.5(a)
Common Stock.......................................... -- 114.5(b)
Rockwell's net investment in Rockwell Graphic
Systems................................................. 507.5 --
------ ---------
Rockwell's net investment (pro forma--total
shareholders' equity)................................... 507.5 162.0
------ ---------
Total capitalization.................................... $541.8 $ 462.3
------ ---------
------ ---------
- ------------
<TABLE>
<C> <S>
(a) Includes 47,500 shares of Preferred Stock that will be issued by Holdings to Rockwell
and that will be pushed down to the Company for accounting purposes in accordance with
GAAP.
(b) Net of loans to Management Investors of $2.0 million. See "Management--Management
Investment."
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheet of the Company as of June 30,
1996 (the "Pro Forma Combined Balance Sheet") and the unaudited pro forma
combined statements of operations of the Company for the year ended September
30, 1995 and the nine months ended June 30, 1996 (the "Pro Forma Combined
Statement of Operations," together with the Pro Forma Combined Balance Sheet,
the "Pro Forma Combined Financial Statements") have been prepared to illustrate
the estimated effect of the Transactions and the Identified Cost Savings
described elsewhere in this Prospectus and in the accompanying Notes to the Pro
Forma Combined Financial Statements. See "The Acquisition." The Pro Forma
Combined Financial Statements do not purport to represent what the Company's
results of operations or financial condition would actually have been had the
Transactions and Identified Cost Savings in fact occurred as of such dates or to
project the Company's results of operations or financial condition for any
future period or as of any date. In addition, there can be no assurance that the
Identified Cost Savings can be achieved.
The Pro Forma Combined Statement of Operations for the fiscal year ended
September 30, 1995 has been derived from the audited combined financial
statements of the Company included elsewhere in this Prospectus, adjusted to
give pro forma effect to (i) the Transactions and (ii) the Identified Cost
Savings, as if they had occurred as of October 1, 1994. The Pro Forma Combined
Balance Sheet and the Pro Forma Combined Statement of Operations for the nine
months ended June 30, 1996 have been derived from the unaudited combined
financial statements of the Company included elsewhere in this Prospectus,
adjusted to give pro forma effect to (i) the Transactions and (ii) the
Identified Cost Savings, as if they had occurred as of June 30, 1996 with
respect to the Pro Forma Combined Balance Sheet and as of October 1, 1995 with
respect to the Pro Forma Combined Statement of Operations.
The Acquisition will be accounted for using the purchase method of
accounting. Under purchase accounting, the total purchase cost and fair value of
liabilities assumed will be allocated to the tangible and intangible assets and
liabilities based on their respective fair values as of the closing. The Pro
Forma Combined Balance Sheet reflects preliminary estimates, which are subject
to final determination, of the allocation of the purchase price and the
elimination of certain liabilities that will not be assumed by the Company in
connection with the Acquisition. The pro forma adjustments represent
Management's preliminary determination of purchase accounting adjustments and
are based upon available information and certain assumptions that the Company
considers reasonable under the circumstances. Consequently, the amounts
reflected in the Pro Forma Combined Balance Sheet are subject to change.
Management does not expect that differences between the preliminary and final
purchase price allocation will have a material impact on the Company's financial
position and/or results of operations.
The Pro Forma Combined Statements of Operations give pro forma effect to (i)
estimated annual cost savings of approximately $14.0 million associated
primarily with the termination of certain employees, (ii) estimated annual cost
savings of $1.2 million associated primarily with the elimination of selected
employee benefit plans and (iii) estimated annual stand-alone cost savings of
$3.8 million from not needing to replicate certain services previously provided
by Rockwell, as if such transactions had occurred on the first day of the
periods presented. The Pro Forma Combined Statements of Operations exclude (i)
an estimated reserve of $20.2 million associated primarily with severance
payments for the termination of certain employees as part of the Identified Cost
Savings which will be reflected as a reserve as part of the purchase price
allocation, (ii) an estimated non-cash charge of $23.0 million associated with
the amortization of the inventory write-up to fair market value, (iii) patent
litigation expense associated with the Heidelberger litigation liability which
is being retained by Rockwell and (iv) interest income, interest expense, bad
debt expense, operating expense and franchise tax expense related to the
Customer Notes. In accordance with the purchase method of accounting, the
Company will establish reserves for the estimated severance costs, and write-up
of inventory to fair value on the Pro Forma Combined Balance Sheet.
The Pro Forma Financial Statements should be read in conjunction with the
historical combined financial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
23
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
PRO FORMA
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
- --------------------------------------------------------- --------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents.............................. $ 3.2 $ (3.2)(a) $ 0.0
Accounts receivable, net............................... 125.1 125.1
Customer notes receivable, current portion............. 42.1 (26.8)(b) 15.3
Inventories............................................ 201.9 45.0(c) 246.9
Deferred income taxes.................................. 39.5 (33.0)(d) 6.5
Other current assets................................... 5.3 5.3
--------- ----------- ---------
Total current assets............................... 417.1 (18.0) 399.1
Property and equipment................................... 145.9 50.0(e) 195.9
Customer notes receivable................................ 172.5 (172.5)(b) 0.0
Goodwill................................................. 135.5 50.5(f) 186.0
Financing fees........................................... 0.0 18.0(g) 18.0
Deferred income taxes.................................... 3.4 (3.4)(d) 0.0
Other assets............................................. 14.2 14.2
--------- ----------- ---------
Total assets............................................. $ 888.6 $ (75.4) $ 813.2
--------- ----------- ---------
--------- ----------- ---------
<CAPTION>
LIABILITIES AND ROCKWELL'S NET INVESTMENT AND
SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable....................................... $ 53.6 $ 53.6
Advance payments from customers........................ 120.0 120.0
Accrued compensation................................... 13.0 13.0
Due to related parties................................. 11.7 11.7
Income taxes payable................................... 8.8 $ (8.8)(h) 0.0
Revolving credit facilities............................ 34.3 (34.3)(i) 0.3
0.3(j)
Other current liabilities.............................. 116.6 16.3(k) 132.9
--------- ----------- ---------
Total current liabilities.......................... 358.0 (26.5) 331.5
Other liabilities........................................ 14.0 (3.5)(l) 19.7
9.2(m)
Deferred income taxes.................................... 9.1 (9.1)(d) 0.0
Senior term loan......................................... 0.0 75.0(j) 75.0
% Senior Subordinated Notes due 2006..................... 0.0 225.0(j) 225.0
--------- ----------- ---------
Total liabilities........................................ 381.1 270.1 651.2
--------- ----------- ---------
Rockwell's net investment in Rockwell Graphic Systems.... 507.5 (507.5)(o) 0.0
--------- ----------- ---------
Holdings Preferred Stock, 6.5% dividend.................. 47.5(n) 47.5
Common Stock............................................. 114.5(o) 114.5
--------- ----------- ---------
Total shareholders' equity............................... 0.0 162.0 162.0
--------- ----------- ---------
Total liabilities, Rockwell's net investment in Rockwell
Graphic Systems and shareholders' equity................. $ 888.6 $ (75.4) $ 813.2
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
See Notes to the Pro Forma Combined Financial Statements.
24
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales............................................ $709.3 $ 709.3
Cost of sales........................................ 543.2 $ (6.0)(p) 543.5
6.3(q)
---------- ----------- ---------
Gross profit......................................... 166.1 (0.3) 165.8
---------- ----------- ---------
Operating expenses:
Engineering........................................ 28.6 (3.0)(p) 25.6
Sales and marketing................................ 35.1 (1.1)(p) 34.0
General and administrative......................... 45.0 (3.9)(p) 39.0
(1.2)(r)
(3.5)(s)
(1.6)(t)
(0.3)(u)
4.5(v)
Rockwell common expense allocation................. 8.3 (8.3)(v) 0.0
Patent litigation.................................. 3.0 (3.0)(w) 0.0
---------- ----------- ---------
Total operating expenses............................. 120.0 (21.4) 98.6
---------- ----------- ---------
Operating profit..................................... 46.1 21.1 67.2
Interest income...................................... 15.4 (15.4)(y) 0.0
Interest expense:
Related party...................................... (2.8) 3.0(y) 0.0
(0.2)(z)
Other.............................................. (0.2) (34.8)(aa) (35.0)
Other income (expense), net.......................... 1.9 1.9
---------- ----------- ---------
Income before income taxes........................... 60.4 (26.3) 34.1
Provision for income taxes........................... 24.2 (10.5)(bb) 13.7
---------- ----------- ---------
Net income........................................... $ 36.2 $ (15.8) $ 20.4
---------- ----------- ---------
---------- ----------- ---------
Other Data:
Business line operating income..................... $ 62.5 $ 71.7(cc)
EBITDA............................................. 83.9 102.9(dd)
Depreciation and amortization...................... 29.7 35.7(ee)
Non-affiliate interest expense..................... 0.2 32.6(ff)
Ratio of earnings to fixed charges................. 9.9 1.8
Ratio of EBITDA to non-affiliate interest
expense.............................................. 419.5 3.2
</TABLE>
See Notes to the Pro Forma Combined Financial Statements.
25
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................ $481.9 $ 481.9
Cost of sales............................................ 391.9 $ (4.5)(p) 392.1
4.7(q)
---------- ----------- ---------
Gross profit........................................... 90.0 (0.2) 89.8
---------- ----------- ---------
Operating expenses:
Engineering............................................ 23.8 (2.3)(p) 21.5
Sales and marketing.................................... 26.2 (0.8)(p) 25.4
General and administrative............................. 33.7 (2.9)(p) 29.6
(0.9)(r)
(2.4)(s)
(1.2)(t)
(0.1)(u)
3.4(v)
Rockwell common expense allocation..................... 5.8 (5.8)(v) 0.0
Patent litigation...................................... 1.0 (1.0)(w) 0.0
Restructuring charge................................... 3.9 (3.9)(x) 0.0
---------- ----------- ---------
Total operating expenses................................. 94.4 (17.9) 76.5
---------- ----------- ---------
Operating (loss) profit.................................. (4.4) 17.7 13.3
Interest income.......................................... 12.8 (12.8)(y) 0.0
Interest expense:
Related party.......................................... (3.8) 3.0(y) 0.0
0.8(z)
Other.................................................. (0.9) (25.3)(aa) (26.2)
Other income (expense), net............................ (1.4) (1.4)
---------- ----------- ---------
Income (loss) before income taxes........................ 2.3 (16.6) (14.3)
Provision (credit) for income taxes...................... 1.2 (6.6)(bb) (5.4)
---------- ----------- ---------
Net income (loss)........................................ $ 1.1 $ (10.0) $ (8.9)
---------- ----------- ---------
---------- ----------- ---------
Other Data:
Business line operating income......................... $ 9.9 $ 16.7(cc)
EBITDA................................................. 24.8 38.6(dd)
Depreciation and amortization.......................... 20.7 25.3(ee)
Non-affiliate interest expense......................... 0.9 24.4(ff)
Ratio of earnings to fixed charges..................... 1.3 0.5
Ratio of EBITDA to cash non-affiliate interest
expense.................................................. 27.6 1.6
</TABLE>
See Notes to the Pro Forma Combined Financial Statements
26
<PAGE>
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN MILLIONS)
The aggregate purchase price, including related fees and expenses, for Goss
is approximately $626.0, net of a $2.0 loan to Management Investors (subject to
adjustment as a result of changes in selected accounts of Goss). See "The
Acquisition--Purchase Price; Adjustments." The purchase price has been allocated
on a preliminary basis to the net assets of the Company based on estimated fair
values at the date of acquisition with the excess of cost over fair value
allocated to goodwill. The purchase price allocation to property and equipment
will be amortized over the estimated useful lives ranging from 3 to 50 years.
Goodwill will be amortized on a straight line basis over 40 years. Financing
costs will be amortized over the life of the debt (5 to 10 years).
The preliminary allocation of the total purchase price to the assets and
liabilities acquired is as follows:
PURCHASE PRICE
Purchase Price of Common Stock and Assets......................... $600.0
Commissions, Fees and Expenses.................................... 26.0
------
Total Purchase Price.............................................. $626.0
------
------
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Total Current Assets, Net of Deferred Taxes....................... $392.6
Property and Equipment............................................ 195.9
Customer Notes.................................................... 163.7
Other Long Term Assets............................................ 14.2
Goodwill.......................................................... 186.0
Financing Fees.................................................... 18.0
Reserve for costs associated with Identified Cost Savings, Net of
Deferred Income Taxes and Restructure Reserve..................... (9.8)
Liabilities Assumed............................................... (334.6)
------
Total Purchase Price.............................................. $626.0
------
------
Pro forma adjustments reflect estimates which will be refined as additional
information is obtained, particularly in the areas of fair value of property and
equipment and related depreciation expense, and the liability for severance
payments and any adjustment to be made to the cash purchase price in accordance
with the Purchase Agreement.
Pro forma adjustments have been made to the Pro Forma Combined Balance Sheet
to reflect the following:
<TABLE>
<S> <C>
(a) Elimination of cash which is not being received by the Company pursuant to the
Purchase Agreement.
(b) Elimination of Customer Notes which will be sold as of the Closing Date. Certain
short-term date-certain notes held by Rockwell Graphic Systems--Japan Corporation
will be retained by the Company.
(c) Record write-up of inventory from LIFO cost to estimated fair value in accordance
with the purchase method of accounting.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
(d) Record (i) elimination of current portion of deferred tax assets ($39.5), long term
portion of deferred tax assets ($3.4) and deferred income tax liability ($9.1) in
accordance with the purchase method of accounting and (ii) current deferred tax
asset ($6.5) associated primarily with severance payments for employees to be
terminated and closure of redundant facilities as part of the Indentified Cost
Savings.
(e) Record write-up of property and equipment to estimated fair value in accordance
with the purchase method of accounting.
(f) Elimination of previously recorded goodwill ($135.5) and the recording of goodwill
resulting from the Acquisition ($186.0) in accordance with the purchase method of
accounting.
(g) Record capitalization of financing fees incurred in connection with the
Acquisition. Financing fees include bank commitment fees, Senior Subordinated Note
placement fees, and the portion of the Stonington structuring fee and other
professional fees attributable to the financing of the Acquisition. See "Certain
Transactions."
(h) Elimination of income taxes payable which, pursuant to the Purchase Agreement, will
not be assumed by the Company.
(i) Elimination of debt which, pursuant to the Purchase Agreement, will not be assumed
by the Company.
(j) Record issuance of debt in connection with the Acquisition. The debt consists of
$0.3 initial borrowing under the Revolving Credit Facility, $75 borrowing under the
Term Loan Facility ($25 of which will be held by Goss Graphic Systems, Inc. and $50
of which will be held by Goss's foreign subsidiaries) and $225.0 borrowing under
the Notes to be issued pursuant to the Offering. In addition, approximately $6.9 of
the Revolving Credit Facility will be drawn down on the closing date in connection
with the issuance of letters of credit relating to the sale of Customer Notes and
approximately $24.5 of the Revolving Credit Facility will be drawn down on the
closing date in connection with the assumption or replacement of certain letters of
credit which are currently outstanding.
(k) Record costs associated primarily with severance payments for employees to be
terminated as part of the Identified Cost Savings made by the Company, less related
restructuring reserves previously recorded, as follows:
</TABLE>
JUNE 30,
1996
--------
Reserve for costs associated with Identified Cost Savings......... $ 20.2
Less restructuring reserves previously recorded................... (3.9)
--------
Pro Forma Adjustment.............................................. $ 16.3
--------
--------
<TABLE>
<S> <C>
(l) Elimination of liability for post-employment benefits for those employees on
long-term disability, which pursuant to the Purchase Agreement is being retained by
Rockwell. The expense associated with this benefit was not eliminated, since the
Company will continue to offer this benefit.
(m) Record liability for post-retirement benefit obligations for active employees at
the Reading and Cedar Rapids facilities, which pursuant to the Purchase Agreement
will be retained by the Company. Since these employees participate in the Rockwell
retirement medical plans, accrued post retirement benefit obligations for these
active employees were not included in the Rockwell Graphic Systems' combined
balance sheet. See "Notes to Combined Financial Statements." The combined
statements of operations include charges related to the Company's portion of
service cost for those employees. The Company's portion of interest cost for the
obligation for these employees is included in note (r).
(n) Record issuance of preferred stock with a 6 1/2% dividend by Holdings to Rockwell
which is pushed down to the Company in accordance with GAAP.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
(o) Elimination of Rockwell's net investment in Goss and a contribution by Holdings of
$114.5 from the proceeds of the Stonington Investment, the Equity Private Placement
and Management Placement in exchange for common stock of the Company, net of a $2.0
loan to Management Investors.
</TABLE>
Pro forma adjustments have been made to the Pro Forma Combined Statements of
Operations to reflect the following:
<TABLE>
<S> <C>
(p) Record estimated cost savings as a result of a reduction of headcount and the
closure of certain facilities pursuant to the Identified Cost Savings, as follows:
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 JUNE 30, 1996
------------------ -----------------
<S> <C> <C>
Cost of sales............................ $ 6.0 $ 4.5
Engineering.............................. 3.0 2.3
Sales and marketing...................... 1.1 0.8
General and administrative............... 3.6 2.7
----- -----
Sub-total headcount reduction............ 13.7 10.3
Rent savings (general and
administrative).......................... 0.3 0.2
----- -----
Total.............................. $ 14.0 $10.5
----- -----
----- -----
<CAPTION>
<S> <C>
The Company anticipates that it will be able to reduce its manufacturing costs by
closing redundant facilities and transferring the production to other under
utilized facilities. In addition, the Company plans on reducing its engineering,
sales and marketing and general and administrative expenses by reducing headcount
and outsourcing certain non-strategic activities. The Company has identified
specific employees and/or functional areas where employees will be terminated. The
Company plans to implement its operating improvement plan over a six-month period
following the Acquisition. See "Business--Identified Cost Savings."
(q) Record incremental depreciation expense on property and equipment.
(r) Estimated net cost savings as a result of the elimination or revision of selected
employee benefit plans pursuant to the Identified Cost Savings, as follows:
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 JUNE 30, 1996
------------------ -----------------
<S> <C> <C>
General and administrative............... $1.2 $ 0.9
--- ---
Total.............................. $1.2 $ 0.9
--- ---
--- ---
<CAPTION>
<S> <C>
Certain U.S. employees are covered by the Rockwell Retirement Plan for eligible
employees. Goss will not assume any of the assets or liabilities of this plan and
will not replicate this employee benefit. In addition, certain U.S. employees of
Goss are covered by the Rockwell Retirement Income Plan for Certain Salaried
Employees in General Industries Operations, a subplan of the Rockwell Retirement
Plan for Eligible Employees. The Company will not acquire any of the assets or
assume any of the liabilities associated with this subplan and will not replicate
this employee benefit.
(s) Elimination of bad debt expense incurred in connection with the Customer Notes
which will be sold as of the Closing Date. See "Description of Sale of Customer
Notes."
(t) Elimination of operating expenses and franchise tax expense associated with
Customer Notes. These Customer Notes will be sold as of the Closing Date. See
"Description of Sale of Customer Notes."
(u) Record reduced amortization of goodwill. The estimated useful life for these assets
is 40 years.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
(v) Elimination of Rockwell allocated costs, net of estimated stand-alone costs.
Rockwell currently charges Goss for certain services based on the amount and nature
of services provided. In addition, it allocates common costs based on a percentage
of sales. The common costs allocated by Rockwell cover certain administrative and
management services such as corporate oversight, cash management, treasury, legal,
patent, tax, insurance administration, corporate accounting and communication
services. Rockwell common expense allocation exceeds the estimated stand alone
costs for the Company primarily because the Company will not replicate certain
services, such as corporate oversight and corporate accounting, which are currently
provided by Rockwell. The Rockwell common expense allocation has been eliminated
and the stand-alone costs have been added as follows:
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 JUNE 30, 1996
------------------ -----------------
<S> <C> <C>
Rockwell common expense allocation....... $ (8.3) $(5.8)
----- -----
----- -----
Estimated stand-alone costs.............. $ 4.5 $ 3.4
----- -----
----- -----
<CAPTION>
<S> <C>
(w) Elimination of expense associated with the litigation with Heidelberger
Druckmaschinen AG, which pursuant to the Purchase Agreement will not be assumed by
the Company. This item is reflected in Rockwell's net investment in Goss as of
June 30, 1996.
(x) Elimination of $3.9 of restructuring expense. This expense consisted primarily of
severance costs associated with the reorganization of the commercial sales
organization and reduction of engineering positions at redundant facilities
directly attributable to the Transaction. The cost savings associated with this
restructuring have been included in (p) above.
(y) Elimination of interest income and interest expense related to the Customer Notes.
These Customer Notes will be sold as of the Acquisition Closing.
(z) Elimination of interest income and interest expense related to transactions with
Rockwell.
(aa) Adjustments to interest (income) expense, net as follows:
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 JUNE 30, 1996
------------------ -----------------
<S> <C> <C>
Interest expense on Revolving Credit Facility
(assuming an interest rate of 8.25%)............ $ 0.0 $ 0.0
Interest expense on Term Loan Facility (assuming
an interest rate of 8.25%)...................... 6.2 4.6
Interest expense on Senior Subordinated Notes
(assuming an interest rate of 11.75%)........... 26.4 19.8
Amortization of financing costs................. 2.4 1.8
Elimination of interest expense................. (0.2) (0.9)
----- -----
Total pro forma adjustments............... $ 34.8 $25.3
----- -----
----- -----
<CAPTION>
<S> <C>
Following the Acquisition, the Company intends to utilize excess cash to reduce
debt and, therefore, does not expect to have excess cash to invest to generate
interest income. A one- half of one percent change in assumed interest rates would
impact interest expense on the Revolving Credit Facility by less than $0.1,
interest expense on the Term Loan Facility by $0.4 and interest expense on the
Senior Subordinated Notes by $1.1.
(bb) Record income tax effect of the pro forma adjustments at an assumed effective rate
of 40%.
(cc) Business line operating income represents net sales less cost of sales and
operating expenses identifiable to the Company's business lines. Business line
operating income excludes related party administrative, patent litigation and
restructuring charges, which, due to their nature, are disclosed separately in the
financial statements. In addition, business line operating income excludes
operating expenses and bad debt expenses related to Customer Notes. See "Selected
Combined Financial Data" included elsewhere herein.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
(dd) EBITDA represents business line operating income less related party administrative
expenses plus depreciation and amortization. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to incur and service
debt. EBITDA should not be considered by investors as an alternative to operating
income as determined in accordance with GAAP, as an indicator of the Company's
operating performance or as an alterative to net cash provided by (used for)
operating activities as determined in accordance with GAAP. See "Selected Combined
Financial Data" included elsewhere herein.
(ee) Record incremental depreciation on property and equipment (see note (q)) plus
incremental amortization of goodwill and other intangible assets (see note (u)).
(ff) Non-affiliate interest expense represents interest expense, excluding the
amortization of financing costs of $2.4 and $1.8 for the year ended September 30,
1995 and the nine months ended June 30, 1996, respectively.
</TABLE>
31
<PAGE>
SELECTED COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS)
The following table sets forth selected historical combined financial data
with respect to Goss for the periods ended and as of the dates indicated. The
selected historical combined financial data for the fiscal years ended September
30, 1993, 1994 and 1995 are derived directly from the audited combined financial
statements of Goss included elsewhere in this Prospectus, except for business
line net sales, business line operating income, Customer Notes operating and bad
debt expenses, interest income (expense), net, Customer Notes interest income
(expense), net, ratio of earnings to fixed charges and backlog. The selected
historical combined financial data for the nine months ended June 30, 1995 and
1996 are derived directly from the unaudited combined financial statements of
Goss included elsewhere in this Prospectus, except for business line net sales,
business line operating income, Customer Notes operating and bad debt expenses,
interest income (expense), net, Customer Notes interest income (expense), net,
ratio of earnings to fixed charges and backlog. Such unaudited combined
financial statements, in the opinion of Management, include all adjustments
necessary for the fair presentation of the financial condition and the results
of operations of Goss for such periods and as of such dates. Operating results
for the nine months ended June 30, 1996 are not necessarily indicative of the
results of operations that may be expected for the year ended September 30,
1996. This information should be read in conjunction with the combined financial
statements of Goss and the notes thereto appearing elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected historical statement of operations for the fiscal
years ended September 30, 1991 and 1992 are derived from unaudited combined
financial statements of Goss that are not included in this Prospectus.
32
<PAGE>
SELECTED COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
NINE MONTHS
FISCAL YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------ ---------------
HISTORICAL HISTORICAL
------------------------------------------------ ---------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Business line sales:
Newspaper................................. $ 785.5 $ 527.8 $ 390.8 $435.8 $512.2 $362.3 $381.7
Insert.................................... 81.8 87.5 143.5 110.7 93.7 70.3 64.7
Commercial................................ 93.7 72.7 92.7 101.7 103.4 76.7 35.5
-------- -------- -------- ------ ------ ------ ------
Total net sales......................... 961.0 688.0 627.0 648.2 709.3 509.3 481.9
Business line operating income (loss) (a):
Newspaper................................. 139.9 47.8 27.0 40.6 68.4 56.2 35.9
Insert.................................... 0.3 (7.4) 11.7 9.4 7.8 3.3 2.9
Commercial................................ (35.0) (32.9) (34.8) (17.0) (13.7) (7.4) (28.9)(b)
-------- -------- -------- ------ ------ ------ ------
Total business line operating income.... 105.2 7.5 3.9 33.0 62.5 52.1 9.9
Rockwell common expense allocation (c)..... (11.5) (8.1) (7.5) (6.8) (8.3) (5.8) (5.8)
Patent litigation (d)...................... 0.0 0.0 0.0 0.0 (3.0) 0.0 (1.0)
Restructuring charge (e)................... (49.5) (2.2) (5.4) 0.0 0.0 0.0 (3.9)
Customer notes operating and bad debt
expenses(f)................................ (6.9) (3.4) (10.0) (19.6) (5.1) (2.9) (3.6)
-------- -------- -------- ------ ------ ------ ------
Operating (loss) profit................. 37.3 (6.2) (19.0) 6.6 46.1 43.4 (4.4)
Other income (expense), net................ (0.5) 1.2 0.8 (2.1) 1.9 0.8 (1.4)
-------- -------- -------- ------ ------ ------ ------
Income (loss) before interest, income
taxes and
cumulative effect of accounting
change..................................... 36.8 (5.0) (18.2) 4.5 48.0 44.2 (5.8)
Interest income (expense), net............. (19.1) (15.3) (8.7) (3.4) 0.0 0.0 (1.6)
Customer notes interest income (expense),
net........................................ 13.5 16.6 19.6 13.6 12.4 8.4 9.7
-------- -------- -------- ------ ------ ------ ------
Income (loss) before income taxes and
cumulative effect of accounting
change..................................... 31.2 (3.7) (7.3) 14.7 60.4 52.6 2.3
Income tax expense (benefit)............... 13.2 (0.8) (1.8) 5.3 24.2 21.1 1.2
Cumulative effect of change in accounting
principle, net............................. 0.0 0.0 (4.6) 0.0 0.0 0.0 0.0
-------- -------- -------- ------ ------ ------ ------
Net income.............................. $ 18.0 $ (2.9) $ (10.1) $ 9.4 $ 36.2 $ 31.5 $ 1.1
-------- -------- -------- ------ ------ ------ ------
-------- -------- -------- ------ ------ ------ ------
Other Data:
Backlog (at period end) (g)................ $ 525.1 $ 421.3 $ 549.8 $537.7 $480.7 $496.9 $442.6
EBITDA(h).................................. 130.4 34.9 26.8 55.5 83.9 68.6 24.8
Depreciation and amortization.............. 36.7 35.5 30.4 29.3 29.7 22.3 20.7
Net cash (used for) provided by operating
activities(i).............................. (61.2) 71.3 157.5 95.0 12.4
Net cash used for investing
activities(i).............................. (10.4) (25.7) (9.4) (5.8) (1.8)
Net cash provided by (used for) financing
activities(i).............................. 66.2 (37.2) (155.5) (99.1) (14.1)
Capital expenditures....................... 29.6 21.2 12.5 11.6 11.5 7.9 3.4
Ratio of EBITDA to non-affiliate interest
expense(j)................................. 343.0 27.6
Ratio of earnings to fixed charges(k)...... 1.9 0.8 0.6 2.4 9.9 11.7 1.3
Balance Sheet Data (at period end):
Total assets............................... $1,093.0 $1,011.7 $1,007.7 $950.9 $947.0 $956.3 $888.6
Total debt................................. 4.6 3.2 12.5 4.1 2.6 11.6 34.3
Rockwell's net investment in Rockwell
Graphic Systems............................ 639.1 623.8 627.3 628.7 543.1 586.6 507.5
</TABLE>
33
<PAGE>
- ------------
<TABLE>
<C> <S>
(a) Business line operating income represents, for each of the Company's three business
lines, net sales less cost of sales and operating expenses. Business line operating
income is before Rockwell common expense allocation, patent litigation and
restructuring charges, which, due to their nature, are disclosed separately in the
financial statements. In addition, business line operating income excludes operating
expenses, bad debt expenses and interest income (expense), net related to Customer
Notes.
(b) For the nine months ended June 30, 1996, includes a $12.7 charge for warranty and
post-shipment expenses incurred in fiscal 1996 in respect of certain commercial presses
shipped in fiscal 1993, 1994 and 1995. For other periods presented, charges for
warranty and post-shipment expenses incurred are reflected in the period in which the
sale was recorded.
(c) Rockwell common expense allocation represents expenses charged by Rockwell on a
percentage of sales basis for administrative and management services such as corporate
oversight, cash management, treasury, legal, patent, tax, insurance, general management
and administration, corporate accounting and communication services.
(d) Patent litigation represents expenses related to the Heidelberger patent infringement
litigation liability which is being retained by Rockwell. See "Business--Legal
Proceedings" included elsewhere herein.
(e) The restructuring charge recorded in the second quarter of 1996 represents reserves
associated primarily with severance payments for terminated employees and the closure
of certain redundant facilities. This charge has been excluded from the pro forma
results. The restructuring charges recorded in the 1991 through 1993 timeframe were
associated with the closure of a major manufacturing facility in the United Kingdom and
the associated relocation of product lines and consolidation of manufacturing
operations at several locations. See Note (x) in the Unaudited Pro Forma Combined
Financial Statements.
(f) Customer notes operating expenses and bad debt expenses represent expenses associated
with the Company's portfolio of Customer Notes. These charges have been excluded from
the pro forma results. See Note (s) and (t) to the Unaudited Pro Forma Combined
Financial Statements.
(g) Backlog represents the aggregate dollar value of unfilled press orders under contract
with the Company at end of each period.
(h) EBITDA represents business line operating income less Rockwell common expense
allocation plus depreciation and amortization. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to incur and service debt.
EBITDA should not be considered by investors as an alternative to operating income "as
determined in accordance with GAAP," as an indicator of the Company's operating
performance or as an alternative to net cash provided by (used for) operating
activities "as determined in accordance with GAAP." See the Combined Financial
Statements, including the Combined Statements of Cash Flows, included elsewhere herein.
(i) The Company was not audited for the fiscal years ended prior to September 30, 1993. As
such, the Company does not have adequate information to provide cash flow data for the
years ended September 30, 1991 and September 30, 1992 on a basis consistent with that
provided in the audited financial statements.
(j) Ratio of EBITDA to non-affiliate interest expense represents EBITDA divided by
non-affiliate interest expense. Non-affiliate interest expense totaled $0.2 and $0.9
for the nine months ended June 30, 1995 and June 30, 1996, respectively.
(k) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of
income before income taxes and cumulative effect of changes in accounting plus fixed
charges less capitalized interest. "Fixed charges" consist of cash/intercompany
interest expense, capitalized interest, scheduled debt payments, amortization of
deferred financing costs, pre-tax preferred stock dividends and one-third of rental
expense (the portion deemed representative of the interest factor).
</TABLE>
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Combined
Financial Statements, the Selected Combined Financial Data, the Unaudited Pro
Forma Combined Financial Statements, and the other financial information and
data appearing elsewhere herein.
The following discussion and analysis of the financial condition and the
results of operations covers periods before completion of the Transactions.
Accordingly, the discussion and analysis of such periods do not reflect the
significant impact that the Transactions will have on the Company. In addition,
the financial information included in the following discussion may not
necessarily reflect the results of operations, financial position and cash flows
of the Company in the future or what the results of operations, financial
position and cash flows would have been had the Company been a separate, stand-
alone entity during the periods presented. This is due to the historical
operation of Goss as part of the larger Rockwell enterprise.
GENERAL
Goss operates through three business categories: (i) newspaper, which
produces both double-width and single-width web offset newspaper press systems
for publishers worldwide, (ii) insert, which manufactures specialized web offset
presses for printing advertising inserts, and (iii) commercial, which produces
web offset presses that print a broad variety of commercial products, including
brochures and promotional materials, catalogs, magazines, books, financial
publications and directories. Goss's newspaper, insert and commercial businesses
accounted for 72%, 13% and 15%, respectively, of fiscal 1995 net sales of $709
million.
Goss serves its global markets from its principal production and assembly
facilities located in the U.S. (Cedar Rapids, IA and Reading, PA), Europe
(Preston, England and Nantes, France) and Japan. Goss generally serves the North
and South American markets from the U.S.; sells into Europe, the Middle East,
Africa and India from Europe; and serves Japan, China and Korea from its
Japanese facility. Other markets in the Asia/Pacific region generally are
serviced from the U.S. or Europe depending upon factors such as customer
equipment preferences and manufacturing capacity.
Goss's operating expenses are comprised of engineering, sales and marketing,
and general and administrative expenses. Engineering expenses for a particular
business category can vary significantly from period to period because such
expenses are charged to the three business categories based upon the product
development projects undertaken in such period by such business. In addition,
certain engineering expenses appear in cost of goods sold to the extent they are
associated with engineering and design for a specific customer contract. General
and administrative expenses are generally allocated to each business category
over the course of the fiscal year based on budgeted sales, although bad debt
provisions are applied to the segment giving rise to such provisions. Sales and
marketing expenses generally are direct expenses incurred by each business.
35
<PAGE>
The results of the combined operations of Goss and of the newspaper, insert
and commercial businesses are set forth below.
<TABLE><CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
-------------------------- ----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES FROM:
Newspaper business................................ $390.8 $435.8 $512.2 $362.3 $381.7
Insert business................................... 143.5 110.7 93.7 70.3 64.7
Commercial business............................... 92.7 101.7 103.4 76.7 35.5
------ ------ ------ ------ ------
Total Net Sales............................... 627.0 648.2 709.3 509.3 481.9
COST OF SALES FROM:
Newspaper business................................ 299.2 336.7 379.1 260.0 292.5
Insert business................................... 117.5 87.7 74.6 57.1 52.7
Commercial business............................... 102.6 100.4 89.5 63.6 46.7
------ ------ ------ ------ ------
Total Cost of Sales........................... 519.3 524.8 543.2 380.7 391.9
OPERATING EXPENSES FROM:
Newspaper business................................ 64.6 58.5 64.7 46.1 53.3
Insert business................................... 14.3 13.6 11.3 9.9 9.1
Commercial business............................... 24.9 18.3 27.6 20.5 17.7
------ ------ ------ ------ ------
Total Business Line Operating Expenses........ 103.8 90.4 103.6 76.5 80.1
OPERATING INCOME (LOSS) FROM:
Newspaper business................................ 27.0 40.6 68.4 56.2 35.9
Insert business................................... 11.7 9.4 7.8 3.3 2.9
Commercial business............................... (34.8) (17.0) (13.7) (7.4) (28.9)
------ ------ ------ ------ ------
Total Business Line Operating Income.......... 3.9 33.0 62.5 52.1 9.9
Rockwell common expense allocation................ (7.5) (6.8) (8.3) (5.8) (5.8)
Restructuring Charges............................. (5.4) -- -- -- (3.9)
Patent Litigation................................. -- -- (3.0) -- (1.0)
------ ------ ------ ------ ------
Operating Profit (loss) Before Customer Note
Expenses.......................................... (9.0) 26.2 51.2 46.3 (0.8)
NEWSPAPER BUSINESS (AS A % OF NET SALES)
Net Sales......................................... 100% 100% 100% 100% 100%
Gross Profit...................................... 23% 23% 26% 28% 23%
Business Line Operating Income.................... 7% 9% 13% 16% 9%
INSERT BUSINESS (AS A % OF NET SALES)
Net Sales......................................... 100% 100% 100% 100% 100%
Gross Profit...................................... 18% 21% 20% 19% 19%
Business Line Operating Income.................... 8% 8% 8% 5% 4%
COMMERCIAL BUSINESS (AS A % OF NET SALES)
Net Sales......................................... 100% 100% 100% 100% 100%
Gross Profit (loss)............................... (11%) 1% 13% 17% (32%)
Business Line Operating Income.................... (38%) (17%) (13%) (10%) (81%)
</TABLE>
36
<PAGE>
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1996 Compared to Nine Months Ended June 30, 1995
NET SALES
Net sales decreased $27.4 million or 5.4% to $481.9 million for the nine
months ended June 30, 1996 from $509.3 million for the nine months ended June
30, 1995. This decrease was primarily attributable to a softening of the market
in the commercial and insert businesses, which more than offset increased sales
in the newspaper businesses.
Net sales in the newspaper business increased $19.4 million or 5.4% to
$381.7 million for the nine months ended June 30, 1996 from $362.3 million for
the nine months ended June 30, 1995. Net sales in the large newspaper business
increased $14.7 million or 5.0% to $314.0 million for the nine months ended June
30, 1996 from $299.3 million for the nine months ended June 30, 1995. For the
small newspaper business, sales increased $4.7 million or 7.5% to $67.7 million
from $63.0 million for the comparable periods. The overall increase in newspaper
sales increase was primarily attributable to the shipment of several double
width newspapers press orders to customers in the Asia/Pacific region, partially
offset by lower shipments of small newspapers presses, particularly in Europe.
Two orders for large newspaper press systems together accounted for
approximately 25% of net sales in the newspaper business for the nine months
ended June 30, 1996.
Net sales in the insert business decreased $5.6 million or 8.0% to $64.7
million for the nine months ended June 30, 1996 from $70.3 million for the nine
months ended June 30, 1995.
Net sales in the commercial business decreased $41.2 million or 53.7% to
$35.5 million for the nine months ended June 30, 1996 from $76.7 million for the
nine months ended June 30, 1995. This decrease was primarily attributable to a
soft market in the U.S., and performance issues with the World 16 commercial
press which slowed market acceptance of that press. In addition, significant
press inventory in Europe was sold in the first nine months of 1995 in
connection with Goss's decision to concentrate on the U.S. commercial market.
See "Risk Factors--Commercial Business Performance Issues."
GROSS PROFIT
Gross profit decreased $38.6 million or 30.0% to $90.0 million for the nine
months ended June 30, 1996 from $128.6 million for the nine months ended June
30, 1995. The gross profit margin declined to 18.7% for the nine months ended
June 30, 1996 from 25.3% for the nine months ended June 30, 1995. This decline
in gross profit margin was primarily attributable to $12.7 million in charges
recorded in 1996 related to warranty and product performance issues in the
commercial business. A substantial majority of this charge (79%) was associated
with the World 16 and G25W products with the balance relating to other
commercial presses which have experienced performance problems of a more
isolated nature.
Gross profit in the newspaper business decreased $13.1 million or 12.8% to
$89.2 million for the nine months ended June 30, 1996 from $102.3 million for
the nine months ended June 30, 1995. The gross profit margin declined to 23.4%
for the nine months ended June 30, 1996 from 28.2% for the nine months ended
June 30, 1995. This decline in gross profit margin was primarily attributable to
substantially lower margins on a large order for a customer in the Asia/Pacific
region. Excluding this large Asia/Pacific order, the gross margin in the
newspaper business was approximately 26% for the nine months ended June 30,
1996.
Gross profit in the insert business decreased $1.2 million or 9.1% to $12.0
million for the nine months ended June 30, 1996 from $13.2 million for the nine
months ended June 30, 1995. This decrease was primarily attributable to
decreased sales volume. The gross profit margin decreased slightly to
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18.6% for the nine months ended June 30, 1996 from 18.8% for the nine months
ended June 30, 1995. The decline in gross profit margin was due to a less
favorable mix of contracts in 1996.
Gross profit in the commercial business decreased $24.3 million or 185.5% to
a loss of $11.2 million for the nine months ended June 30, 1996 from $13.1
million profit for the nine months ended June 30, 1995. This decrease was
primarily attributable to charges recorded in 1996 relating to the resolution of
customer and product performance issues on sales of newly introduced commercial
presses in 1993 and 1994. New products which were shipped in 1993 and 1994
continued to experience high warranty and post-shipment expenses and as a result
charges of $12.7 million were recorded in the nine months ended June 30, 1996.
These charges were to complete equipment modifications and to resolve certain
customer issues. In addition to these charges, gross profits were negatively
impacted by the significant reduction in sales volume and the impact of fixed
production costs. See "Risk Factors--Commercial Business Performance Issues."
BUSINESS LINE OPERATING EXPENSES
Operating expenses increased $3.6 million or 4.7% to $80.1 million for the
nine months ended June 30, 1996 from $76.5 million for the nine months ended
June 30, 1995. This increase was primarily attributable to higher engineering
expenses being charged to operating expenses as compared to cost of sales. As a
percent of net sales, operating expenses increased to 16.6% for the nine months
ended June 30, 1996 from 15.0% for the nine months ended June 30, 1995.
Operating expenses in the newspaper business increased $7.2 million or 15.6%
to $53.3 million for the nine months ended June 30, 1996 from $46.1 million for
the nine months ended June 30, 1995. This increase was primarily attributable to
a greater allocation of engineering expenditures being charged to operating
expenses associated with general product development in 1996 as compared to 1995
when a greater portion of engineering was charged to cost of sales for work
relating to the first shipment of the Newsliner product in 1995 as discussed
below. Foreign agent commissions were also higher in 1996. As a percent of net
sales, operating expenses increased to 14.0% from 12.7% in 1995.
Operating expenses in the insert business decreased $0.8 million or 8.1% to
$9.1 million for the nine months ended June 30, 1996 from $9.9 million for the
nine months ended June 30, 1995. This decrease was primarily attributable to a
reduction in general and administrative expenses.
Operating expenses in the commercial business decreased $2.8 million or
13.7% to $17.7 million for the nine months ended June 30, 1996 from $20.5
million for the nine months ended June 30, 1995. This decrease was primarily
attributable to lower general and administrative and engineering expenditures.
BUSINESS LINE OPERATING INCOME
Operating income decreased $42.2 million or 81.0% to $9.9 million for the
nine months ended June 30, 1996 from $52.1 million for the nine months ended
June 30, 1995. As a percent of net sales, operating income declined to 2.1% for
the nine months ended June 30, 1996 from 10.2% for the nine months ended June
30, 1995. This decline was primarily attributable to the $12.7 million of
commercial warranty and product performance charges recorded in 1996 and
significantly lower commercial sales.
Operating income for the newspaper business decreased $20.3 million or 36.1%
to $35.9 million for the nine months ended June 30, 1996 from $56.2 million for
the nine months ended June 30, 1995. As a percent of sales, operating income
decreased to 9.4% for the nine months ended June 30, 1996 from 15.5% for the
nine months ended June 30, 1995. This decrease was primarily attributable to the
relatively higher engineering expenditures allocated to operating expenses in
respect of general product development work versus allocation to cost of sales
for work related to specific customer contracts and the decline in the gross
profit margin percentage attributable to the significant contract in the
Asia/Pacific region each as discussed above.
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Operating income for the insert business decreased $0.4 million or 12.1% to
$2.9 million for the nine months ended June 30, 1996 from $3.3 million for the
nine months ended June 30, 1995. As a percent of sales, operating income
decreased to 4.5% for the nine months ended June 30, 1996 from 4.7% for the nine
months ended June 30, 1995. Decreased sales partially offset by a reduction in
operating expenses contributed to this degradation in operating income.
Operating income for the commercial business decreased $21.5 million or
290.5% to a loss of $28.9 million for the nine months ended June 30, 1996 from a
loss of $7.4 million for the nine months ended June 30, 1995. This decrease was
primarily attributable to the $12.7 million of commercial warranty and product
performance charges recorded in 1996 and to the $41.2 million decrease in sales.
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
NET SALES
Net sales increased $61.1 million or 9.4% to $709.3 million in 1995 from
$648.2 million in 1994. This increase was primarily attributable to an increase
in net sales in Goss's newspaper business of $76.4 million or 17.5% partially
offset by a decline in net sales in the insert business of $17.0 million or
15.4%.
Net sales in the newspaper business increased $76.4 million or 17.5% to
$512.2 million in 1995 from $435.8 million in 1994 primarily as a result of a
$58.2 million increase in sales from the U.S. locations as the U.S. and South
American markets continued to improve following a cyclical downturn in 1992 and
1993. In addition, Goss benefitted from (i) increases in press additions as
several newspapers added more color capacity and (ii) its first shipment of the
Newsliner product in 1995, to a large U.S. metropolitan daily newspaper. Goss
also benefitted from an increase in net sales of $24.4 million or 15.1% in
Europe, largely a result of the success of Universal single-width press sales to
the Asia/Pacific region. These increases were partially offset by results in
Japan where the Company experienced a decrease in net sales of $6.2 million or
8.5% due to a weakening of export sales to China attributable to an increase in
the Yen (in which Goss's Japanese costs are denominated) versus the U.S. dollar
(in which export revenues to China are denominated).
Net sales in the insert business decreased $17.0 million or 15.4% to $93.7
million in 1995 from $110.7 million in 1994. This decrease is primarily
attributable to decreased demand for new insert presses due to consolidation
among insert printers and continued decline from a peak purchasing period which
occurred in 1993.
Net sales in the commercial business increased $1.7 million or 1.7% to
$103.4 million in 1995 from $101.7 million in 1994. This increase was primarily
attributable to an increase in European sales of $6.2 million or 44.6%, as Goss
sold off inventory in connection with its decision to concentrate on the U.S.
commercial market. Net sales in the U.S. declined $4.5 million or 5.1% primarily
as a result of soft market conditions relative to 1994 and product performance
issues which impacted market acceptance of the World 16 press. See "Risk
Factors--Commercial Business Performance Issues."
GROSS PROFIT
Gross profit increased $42.7 million or 34.6% to $166.1 million in 1995 from
$123.4 million in 1994. The gross profit margin improved to 23.4% in 1995 from
19.0% in 1994. This improvement was primarily attributable to increased sales
volume in the newspaper business, improved pricing and the impact of cost
reduction initiatives, particularly in the commercial business.
Gross profit in the newspaper business increased $34.0 million or 34.3% to
$133.1 million in 1995 from $99.1 million in 1994. The gross profit margin
improved to 26.0% in fiscal 1995 from 22.7% in fiscal 1994 due to improved
pricing in both large newspapers and small newspapers. In large newspapers, Goss
benefitted in the U.S. from a better mix of both higher margin export business
and higher margin color press additions, which was partially offset by lower
margins from Japan due to a 8.5%
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reduction in sales. In small newspapers, Goss benefitted from increased volume
due to global market acceptance of the Universal single width newspaper press
which is produced in Europe.
Gross profit in the insert business decreased $3.9 million or 17.0% to $19.1
million in 1995 from $23.0 million in 1994. This decrease was primarily
attributable to lower sales volume. The gross profit margin decreased slightly
to 20.4% in 1995 compared to 20.8% in 1994.
Gross profit in the commercial business increased $12.6 million or 969.2% to
$13.9 million in 1995 from $1.3 million in 1994. The gross profit margin
increased to 13.4% in 1995 from 1.3% in 1994. This increase was primarily
attributable to the favorable impact of product cost reduction programs and a
reduction in post-shipment expenses associated with three World 16 and two G25W
presses installed in 1993 and 1994, each of which required incurring additional
expenses in 1994 to address performance issues that arose in the field.
BUSINESS LINE OPERATING EXPENSES
Operating expenses increased $13.2 million or 14.6% to $103.6 million in
1995 from $90.4 million in 1994. This increase was primarily attributable to
higher general and administrative expenses, international sales agent
commissions and engineering expenses. As a percent of net sales, operating
expenses decreased slightly to 14.6% in 1995 from 13.9% in 1994.
Operating expenses in the newspaper business increased $6.2 million or 10.6%
to $64.7 million in 1995 from $58.5 million in 1994. This increase was primarily
attributable to higher agents commissions incurred in connection with the
increase in sales. As a percent of sales, operating expenses declined to 12.6%
in 1995 to 13.4% in 1994. This improvement as a percent of sales is primarily
attributable to operating leverage as overhead costs remained relatively
constant while sales and gross profit increased.
Operating expenses in the insert business decreased $2.3 million or 16.9% to
$11.3 million in 1995 from $13.6 million in 1994. This decrease was primarily
attributable to lower marketing and engineering expenses caused by lower sales
volume.
Operating expenses in the commercial business increased $9.3 million or
50.8% to $27.6 million in 1995 from $18.3 million in 1996. This increase was
primarily attributable to an increase in the allocation of general and
administrative costs to this business line.
BUSINESS LINE OPERATING INCOME
Operating income increased $29.5 million, or 89.4%, to $62.5 million in 1995
from $33.0 million in 1994. As a percent of sales, operating income increased to
8.8% in 1995 from 5.1% in 1994. The increase was primarily attributable to the
higher newspaper sales volume and improved gross profit margins in the
commercial and newspaper businesses, partially offset by increased operating
expenses.
Operating income for the newspaper business increased $27.8 million or 68.5%
to $68.4 million in 1995 from $40.6 million in 1994. As a percent of net sales,
operating income increased to 13.4% in 1995 from 9.3% in 1994. This increase was
primarily attributable to higher sales and improved gross profit margins.
Operating income for the insert business decreased $1.6 million or 17.0% to
$7.8 million in 1995 from $9.4 million in 1994. As a percent of net sales,
operating income was relatively constant at 8.3% and 8.5% in 1995 and 1994,
respectively. A decline in gross profit was partially offset by lower operating
expenses.
Operating income for the commercial business improved $3.3 million or 19.4%
to a loss of $13.7 million in 1995 from a loss of $17.0 million in 1994. This
improvement was primarily attributable to an improvement in gross profit margin
in 1995, partly related to product cost reduction initiatives and a reduction in
warranty and post shipment expenses.
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Year Ended September 30, 1994 Compared to Year Ended September 30, 1993
NET SALES
Net sales increased $21.2 million or 3.4% to $648.2 million in 1994 from
$627.0 million in 1993. This increase was primarily attributable to an increase
in net sales in the newspaper business of $45.0 million or 11.5% and an increase
in the commercial business of $9.0 million or 9.7% partially offset by a decline
in net sales in the insert business of $32.8 million or 22.9%.
Net sales in the newspaper business increased $45.0 million or 11.5% to
$435.8 million in 1994 from $390.8 million in 1993. This increase is primarily
attributable to growth in shipments from Goss's European locations. European net
sales were $160.7 million in 1994, a $35.7 million or 28.6% increase over 1993.
This increase was driven by significant large newspaper product shipments to
Australia and New Zealand from Europe. In addition, sales of small newspaper
presses in Europe increased by 43.6% as the Universal press continued to gain
market acceptance. Sales in the Americas and Japan were relatively constant. Net
sales in Goss's large newspaper business increased $27.3 million or 8.6% to
$343.0 for the year-ended September 30, 1994 from $315.7 million for the year
ended September 30, 1995. During these periods, small newspaper sales increased
$17.7 million or 23.6% to $92.8 million from $75.1 million.
Net sales in the insert business decreased $32.8 million or 22.9% to $110.7
million in 1994 from the peak sales of $143.5 million in 1993. In 1993, sales
were unusually high due to the introduction of three new products. In 1994,
there was a consolidation of insert printers which lead to capacity
rationalization by these customers. This rationalization continued into 1995 but
at a reduced level.
Net sales in the commercial business increased $9.0 million or 9.7% to
$101.7 million in 1994 from $92.7 million in 1993. This increase was primarily
attributable to the introduction of new catalog and directory presses in 1994.
GROSS PROFIT
Gross profit increased $15.7 million or 14.6% to $123.4 million in 1994 from
$107.7 million in 1993. The gross profit margin improved to 19.0% in 1994 from
17.2% in 1993, primarily attributable to increased sales volume and pricing in
Goss's small newspaper business and improved margins in the commercial business.
Gross profit in the newspaper business increased $7.5 million or 8.2% to
$99.1 million in fiscal 1994 from $91.6 million in 1993. The gross profit margin
remained relatively stable at 22.7% in 1994 compared to 23.4% in 1993. The
increase in gross profit was primarily attributable to higher sales volume in
Europe partially offset by less favorable product mix in the U.S. and Japan.
Gross profit in the insert business decreased $3.0 million or 11.5% to $23.0
million in 1994 from $26.0 million in 1993. This decrease was primarily
attributable to lower sales volume. The gross profit margin improved to 20.8% in
1994 from 18.1% in 1993. This improvement was primarily attributable to the
negative impact of production start-up expenses and low introductory pricing for
new products on the gross profit margins in 1993.
Gross profit in the commercial business improved $11.2 million or 113.1% to
$1.3 million in 1994 from a loss $9.9 million in 1993. The gross profit margin
increased to 1.3% in 1994 from negative 10.7% in 1993. This increase was
primarily attributable to a reduction in warranty and post-shipment expenses
which had been experienced in 1993 in conjunction with the introduction of the
World 16 and G25W presses.
BUSINESS LINE OPERATING EXPENSES
Operating expenses decreased $13.4 million or 12.9% to $90.4 million in 1994
from $103.8 million in 1993. This decrease was primarily attributable to reduced
engineering expenditures, lower sales and
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marketing expenses and lower general and administrative costs partially
attributable to restructuring actions which occurred in 1993. As a percent of
insert sales, operational expenses improved to 13.9% in 1994 from 16.6% in 1993.
Operating expenses from the newspaper business decreased $6.1 million or
9.4% to $58.5 million in 1994 from $64.6 million in 1993. As a percent of net
sales, operating expenses declined to 13.4% in 1994 from 16.5% in 1993. This
decrease was primarily attributable to lower sales and marketing expenses and
lower general and administrative expenses associated with the 1993 restructuring
actions.
Operating expenses for the insert business decreased $0.7 million or 4.9% to
$13.6 million in 1994 from $14.3 million in 1993. This decrease is primarily
attributable to lower engineering expenses. As a percent of net sales, operating
expenses increased to 12.3% in 1994 from 10.0% in 1993. This increase was
primarily attributable to significantly lower sales in 1994.
Operating expenses for the commercial business decreased $6.6 million or
26.5% to $18.3 million in 1994 from $24.9 million in 1993. This decrease was
primarily attributable to lower engineering and general and administrative costs
partially due to a lower allocation of expenses to this business line. As a
percent of net sales, operating expenses decreased to 18.0% in 1994 from 26.9%
in 1993.
BUSINESS LINE OPERATING INCOME
Operating income increased $29.1 million or 746.2% to $33.0 million in 1994
from $3.9 million in 1993. As a percent of net sales, operating income increased
to 5.1% in 1994 from 0.6% in 1993. This increase was primarily attributable to
higher newspaper business sales volume, improved sales volume and gross profit
margins in the commercial business.
Operating income for the newspaper business increased $13.6 million or 50.4%
to $40.6 million in 1994 from $27.0 million in 1993. As a percent of net sales,
operating income increased to 9.3% in 1994 from 6.9% in 1993. This improvement
was primarily attributable to the increase in sales volume, as well as the
decrease in operating expenses attributable to cost reduction efforts.
Operating income for the insert business decreased $2.3 million or 19.7% to
$9.4 million in 1994 from $11.7 million in 1993. As a percent of net sales,
operating income increased to 8.5% in 1994 from 8.2% in 1993. This decrease was
primarily attributable to the reduction in sales volume.
Operating income for the commercial business increased $17.8 million to a
loss of $17.0 million in 1994 from a loss of $34.8 million in 1993. This
improvement was primarily attributable to improved gross profit margins in 1994
following significant production start-up expenses, low introductory pricing on
new products and high warranty and post-shipment expenses in 1993 and also a
reduction in overall operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Acquisition, Goss's surplus cash in the U.S. and U.K. was
remitted to, and its funding requirements were provided by, Rockwell. The
funding requirements of Goss were provided from Rockwell's own resources through
the use of intercompany accounts. While intercompany purchases from
Allen-Bradley, a Rockwell company, are principally transacted through non-cash,
intercompany accounts, subsequent to the Acquisition, these transactions will
generate normal trade payables of the Company which will require cash. It is
expected that, upon consummation of the Acquisition, a reserve of $16.3 million,
net of a $3.9 million provision reflected in the first nine months of 1996, will
be established associated primarily with severance, outplacement and relocation
payments to be incurred in connection with headcount reductions and costs in
connection with planned facility closings. See "Unaudited Pro Forma Combined
Financial Statements."
Goss reported net cash provided by operating activities of $12.4 million,
$157.5 million, $71.3 million and negative $61.2 million for the nine months
ended June 30, 1996 and the years ended
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September 30, 1995, 1994 and 1993, respectively. In general, changes in reported
net cash provided by operating activities can be primarily attributed to the
dollar value of inventories, receivables and advance payments from customers
driven by the timing and level of new order activity.
The net cash provided by operating activities of $12.4 million for the nine
months ended June 30, 1996 was primarily attributable to a $14.4 million
decrease in customer notes as repayments reduced the outstanding principal
balance while fewer new notes were added, and a $14.2 million reduction in
inventory levels associated with lower new orders, particularly in the newspaper
business. The net cash provided by operating activities was partially offset by
$32.2 million of lower advance payments from customers which corresponded to the
reduction in new orders.
The net cash provided by operating activities of $157.5 million for 1995 was
primarily attributable to a $59.1 million increase in customer advances
primarily associated with several large newspaper press orders. In addition, a
$37.7 million decrease in accounts receivable attributable to the collection of
date-certain letters of credit for 1994 sales contributed to the net cash
provided by operating activities. The net cash provided was partially offset by
a $50.4 million increase in customer notes primarily related to the financing of
a large newspaper press sale.
Net cash provided by operating activities was $71.3 million for 1994. The
balance of advances from customers declined slightly but was offset by lower
inventory levels. A $12.4 million reduction in the balance of customer notes
increased net cash provided by operating activities due to increased reserves
and payments on outstanding customer notes. A $17.6 million increase in other
assets and liabilities caused primarily by the termination of a lease agreement
in Europe, reduced overall net cash provided by operating activities.
Net cash used by operating activities of $61.2 million for 1993 was
primarily attributable to an $84.9 million increase in customer notes to insert
and commercial press customers. In addition, $68.7 million of customer notes
were sold during the year.
As a result of the Transactions, the Company's total indebtedness will
increase substantially. See "Risk Factors--Substantial Leverage; Ability to
Service Indebtedness." Immediately following the consummation of the
Transactions, the Company and its subsidiaries will have approximately $75.3
million of indebtedness outstanding under the Bank Facilities (excluding
approximately $31.4 million in letters of credit) and $225 million of Notes
outstanding. The Company will also be capitalized with equity of $162.0 million
(net of loans to Management Investors of $2.0 million). The Company will also
have the ability to borrow an additional $109.7 million for general corporate
purposes pursuant to the Revolving Credit Facility, subject to certain
conditions. See "Description of New Bank Credit Agreement." The Company's
ability to incur additional indebtedness will be subject to certain limitations,
including limitations imposed by the Indenture and the New Bank Credit
Agreement. The Company's ability to service its indebtedness will be dependent,
in part, on its ability to utilize the cash flow generated by its foreign
operations. See "Risk Factors--International Operations."
After consummation of the Transactions, the Company intends to fund its cash
needs through cash flow from operations, existing cash balances and the
Revolving Credit Facility under the New Bank Credit Agreement. See "Description
of New Bank Credit Agreement." A substantial portion of the Company's available
cash will be required to be applied to service the indebtedness incurred to
finance the Acquisition. The Company may also utilize the Revolving Credit
Facility to issue letters of credit that it may be required to post in
connection with certain sales agreements. See "Risk Factors-- Operations as an
Independent Company; Absence of Parent Guarantees." The amount of advance
payments received by the Company in any period affects the Company's working
capital position and liquidity during that period. The Company's capital
expenditure requirements for fiscal year 1996 are expected to be approximately
$8 million and for fiscal year 1997 are expected to be approximately $19
million.
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Given the long delivery times and large size of newspaper orders, the
Company typically receives progress payments from newspaper customers in advance
of actual press deliveries. The Company recognizes revenue only after press
delivery and therefore progress payments are recorded as a current liability in
the balance sheet, under customer advances. In addition, certain customers
request that the Company post a letter of credit to guarantee performance under
their respective contracts. As of June 30, 1996 Goss had $120.0 million of
customer advances, and $21.1 million of outstanding letters of credit related
thereto. See "Risk Factor--Operations as an Independent Company; Absence of
Parent Guarantee."
The Indenture and the New Bank Credit Agreement of the Company will contain
financial and operating covenants and significant restrictions on the ability of
the Company to pay dividends, incur indebtedness, make investments and take
certain other corporate actions. See "Description of New Bank Credit Agreement"
and "Description of Notes."
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Notes) depends on
its future performance and financial results, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. Based upon the current level of operations and
anticipated growth, Management of the Company believes that available cash flow,
together with available borrowings under the New Bank Credit Agreement and other
sources of liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments of
principal of, and interest on, its Senior Debt, and interest on the Notes.
However, a portion of the principal payments at maturity on the Notes may
require refinancing. There can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future borrowings will be
available in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or to make necessary capital expenditures, or
that any refinancing would be available on commercially reasonable terms or at
all. See "Risk Factors."
VARIABILITY IN THE COMPANY'S BUSINESS
There are a number of factors that contribute to variability in the
Company's business. This variability can produce wide fluctuations in revenues,
earnings, cash flows and working capital balances. The Company expects this
variability to continue.
Factors contributing to this cyclicality include general economic
conditions, which affect demand for press capacity, and the timing of press
replacement, as well as innovations in printing technology, which have caused
significant periodic increases in press demand over the last thirty years. In
addition, Goss's revenue and profitability are influenced by the profitability
of its customers. Accordingly, when newspaper publishers and commercial printers
experience large decreases in sales (for example, during periods of recession
and the resulting downturn in advertising revenues) or large increases in costs
(for example, significant increases in raw material costs such as paper and
newsprint), their willingness to commit to press acquisitions or upgrades could
be temporarily affected.
INTERNATIONAL OPERATIONS
For the year ended September 30, 1995, 38% of Goss's revenue was generated
by international sales of its foreign subsidiaries. Historically, Goss had
entered into foreign currency forward exchange contracts to protect it from
adverse currency risk fluctuations on foreign currency commitments. As a result,
the financial performance of the Company's foreign operations on a U.S. dollar
denominated basis has historically not been significantly affected by changes in
currency exchange rates. In addition, certain portions of the Company's
borrowings under the New Bank Credit Agreement will be lent directly to certain
of the Company's foreign subsidiaries in local currency, which may have the
effect of hedging against changes in currency exchange rates. However, although
the Company's foreign currency forward exchange arrangements and the
foreign-based borrowings will mitigate the effect of
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fluctuating currency exchange rates, unfavorable changes in certain exchange
rates could have adverse effects on the financial performance of the Company's
foreign operations in the future.
BACKLOG
As of September 30, 1995, the total contract price of the backlog of orders
for presses was approximately $481 million, and approximately 82% of orders or
services represented thereby have been or are currently expected to be filled
during fiscal year 1996. As of September 30, 1994, such backlog was
approximately $538 million. The decrease from September 30, 1994 to September
30, 1995 is primarily attributable to the shipment in 1995 of a large commercial
order for G25W presses. As of June 30, 1996, the total contract price of the
backlog of orders for presses had decreased to approximately $442.6 million. As
of June 30, 1995, such total was approximately $496.9 million. The decrease from
June 30, 1995 to June 30, 1996 is primarily attributable to lower orders in the
Newspaper and Commercial segments in 1996. Of the total backlog as of June 30,
1996, approximately $158.7 million or 36% is scheduled to be delivered in the
fiscal year ending September 30, 1996 and approximately $236.9 million or 54% is
scheduled for delivery in the fiscal year ending September 30, 1997.
IMPACT OF INFLATION
Goss has historically offset the impact of inflation through price increases
and expense reductions. Periods of high inflation could have an adverse effect
on the Company to the extent that increased borrowing costs for floating rate
debt may not be offset by increases in revenue.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a range of environmental
requirements in the various jurisdictions in which it operates. These
environmental requirements relate to, among others, air emissions, wastewater
discharges, and waste management. Over the past five years, Goss has incurred
less than $1.0 million of expenditures in connection with environmental
remediation matters. Based on the underlying facts giving rise to its
environmental regulatory obligations and technical advice received from the
Company's environmental consultants, the Company can be expected to continue to
incur capital and operating expenses to maintain compliance with applicable
environmental requirements, to upgrade existing equipment at its facilities, to
continue existing remedial activities and to meet new regulatory requirements.
The Company does not anticipate that any such capital and operating expenses
will have a material adverse effect on the Company's results of operations.
Rockwell has agreed to indemnify the Company and its subsidiaries and affiliates
against all environmental costs associated with Goss's facility in Peterborough,
United Kingdom (which Rockwell is retaining) and against all environmental costs
associated with Hall Processing Systems. For a period of four years after the
Closing Date, Rockwell will also indemnify the Company against one-half of
certain environmental costs incurred by the Company in excess of $1.0 million,
provided that such costs result from the disposal, discharge or release of any
hazardous wastes, hazardous substances, pollutants or contaminants on or from
the facilities of Goss (or its predecessors) prior to the Closing, and provided
that such costs result from activities which are (i) required by an enforcement
order or decree entered by a governmental authority as a result of an
environmental proceeding; (ii) necessary to comply with an environmental law in
response to an environmental proceeding, the outcome of which environmental
proceeding is reasonably likely to result in material costs or expenses to the
Company; or (iii) necessary to comply with an environmental law in response to a
written, threatened environmental proceeding, which environmental proceeding is
reasonably likely to result in material costs or expenses to the Company,
provided that, in the case of this clause (iii), all such costs and expenses are
consented to in writing by Rockwell prior to being incurred. There can be no
assurance that unanticipated, future regulatory programs or previously
unidentified environmental conditions will not impose material capital and
operating expenses.
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BUSINESS
GENERAL
Goss is the leading manufacturer of web offset newspaper press systems
worldwide and of insert web offset press systems in North America. Goss also
manufactures commercial web offset printing presses in North America and
provides aftermarket parts and service to its newspaper and commercial printing
customers. Founded in 1885, Goss is the only U.S.-based manufacturer of
large-scale web offset printing presses and has pioneered many major industry
innovations, including the conversion from letter press printing to web offset
lithography, the development of computerized electronic control systems and the
introduction of back-to-back color printing. Goss is the only global producer of
newspaper printing presses with manufacturing and sales capabilities in North
America, Europe and Asia. Goss generated approximately 51% of its fiscal 1995
net revenue of $709 million overseas (including exports from the U.S.). Goss
operates through three business categories:
. Newspaper. Goss is a widely recognized trade name in the newspaper
printing press industry. Management estimates that approximately 57% of
daily newspapers worldwide (excluding PRC) print on Goss presses
(approximately 70% in the U.S. and Canada). The Company provides
sophisticated, computer-controlled press systems for a wide variety of
newspaper publications which vary significantly in circulation, page count
and color content and operate in markets around the world. Goss presses
print such publications as The Wall Street Journal, USA Today, The New
York Times and The Los Angeles Times in the U.S., The Financial Times in
the United Kingdom, Zero Hora in Brazil, The Asahi Shimbun in Japan, The
Straits Times in Singapore and The People's Daily in China. Goss's
newspaper press business generated approximately $512 million in revenues
in fiscal year 1995, or approximately 72% of Goss's total revenues.
. Insert. Goss pioneered the development of specialized web offset presses
for printing advertising inserts and continues to be the leader in the
insert press business with an estimated market share of approximately 70%
in the U.S. and Canada, the principal markets for such equipment. Goss's
insert presses combine newspaper press designs for high speed with
selected commercial press features for enhanced print quality, low
maintenance and high productivity. The Company's customers include leading
insert printers such as Big Flower Press Holdings, Inc. and Sullivan
Graphics, Inc. Goss's insert press business generated approximately $94
million in revenues in fiscal year 1995, or approximately 13% of Goss's
total revenues.
. Commercial. Goss also manufactures commercial web offset printing presses
in North America used to print a broad variety of commercial products,
including brochures and promotional materials, catalogs, magazines, books,
financial publications and directories. The Company sells its commercial
presses principally in North America, and its customers include large
multinational, regional and local printers, including R.R. Donnelley &
Sons Company, Quebecor, Inc., and Banta Corporation. The commercial press
business generated approximately $103 million in revenues in fiscal year
1995, or approximately 15% of Goss's total revenues.
BUSINESS STRATEGY
The Company's business strategy is to (i) capitalize on its substantial
installed base of newspaper presses and market share in its traditional markets,
(ii) continue to lead in the development of innovative products that respond to
customers' needs while increasing their productivity and efficiency, (iii)
expand its strong presence in developing regions such as Asia, (iv) draw on the
manufacturing and marketing strengths of its newspaper and insert businesses to
improve the performance of its commercial business, and (v) pursue business
process improvements and cost-saving opportunities. Key elements underlying this
strategy include:
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. Leading Installed Base of Newspaper Presses. Goss is the market leader in,
and only domestic manufacturer of, newspaper presses in the U.S. and
Canada (the world's largest market for such presses). Management estimates
that approximately 70% of daily newspapers in this market print on Goss
presses. In addition, management estimates that approximately 52%, 48% and
61%, respectively, of daily newspapers in South America; Europe, Middle
East and Africa; and Asia/Pacific (excluding Japan and PRC) utilize Goss
presses. Management believes that this installed base and the Company's
established customer relationships provide it with a competitive advantage
in obtaining repeat business, including color capability upgrades, press
line extensions and new press purchases. In addition, the Company's
significant installed base provides a relatively stable source of
aftermarket parts and service business.
. Established Global Newspaper Presence. Goss is one of only seven major
global suppliers of newspaper press systems and is the only supplier with
manufacturing, engineering and sales operations in North America, Europe
and Asia. The Company believes this global presence provides it with a
competitive advantage in light of the significant cost of transporting
newspaper press systems and the degree to which such presses require
custom engineering and manufacturing to address each customer's particular
production requirements and press configurations.
. Technology Leader. Management believes that it enjoys a reputation in the
newspaper industry as a leader in technological innovation, having
engineered several major technological advancements, including the
conversion from letterpress to web offset lithography, the development of
computerized electronic control systems and the introduction of
back-to-back process color printing, each of which has improved its
customers' print quality and productivity. Letterpress printing involves
mechanically complex systems that create each line of type out of metal
slugs that are made into plates mounted on a press. The conversion to web
offset presses improved print quality and productivity. Computerized
electronic controls reduced the need for precise adjustments and fine
tuning by technicians, which decreased waste and enhanced reliability and
quality. Back-to-back process color printing utilizes four
vertically-stacked presses (each printing one color) that allow multiple
colors to be printed on both sides of the paper in the same print run.
With the Company's recent introduction of an advanced inking system, and
its ongoing development of an optical color quality adjustment mechanism
and of an automatic image make-ready press system, Management believes the
Company is well-positioned to maintain its technology leadership. See
"--Research and Development."
. Growth in Developing Markets. The Company believes that increasing incomes
and literacy rates are driving the establishment and growth of newspapers
in developing countries, particularly in South America and Asia (excluding
the more mature Japanese market). The Company believes it is
well-positioned to benefit from such growth since approximately 52% and
61%, respectively, of daily newspapers in South America and Asia/Pacific
(excluding Japan and PRC) print on Goss presses. In addition, Goss is the
only foreign-owned manufacturer of printing presses in China through the
Company's joint venture with Shanghai Printing and Packaging Machinery
Corp., a Chinese state-owned enterprise.
. Business Process Improvements. A key element of the Company's business
strategy is to further improve its operating performance. Management has
identified certain specific cost saving opportunities that are reflected
in the pro forma financial statements included herein. See
"Business--Identified Cost Savings" and "Unaudited Pro Forma Combined
Financial Statements." Management believes that efficiencies not reflected
in the pro forma financial statements included herein can be realized
through improvement of business processes, including enhanced material
procurement practices, more efficient flow of work-in-process through both
machining and assembly operations, increased outsourcing, and
restructuring of factory support functions. In addition, the Company will
seek to generate cost savings by improving efficiency in the process of
configuring presses for specific customer requirements. The Company also
has in place
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integrated product development teams which include design and
manufacturing engineers and other disciplines which work to identify and
implement product cost reduction initiatives such as component redesign,
lower cost component suppliers, and design modifications to improve
manufacturability. However, there can be no assurance that such
efficiencies or cost savings can be realized.
. Low-Cost Operations. Goss has reduced its cost structure significantly
since 1991 through headcount reductions and facility rationalization.
Management believes that these efforts, together with the Company's global
manufacturing capabilities, which enable the Company to deliver its
products at lower transportation costs, provide it with one of the lowest
cost operating structures in the industry. In the large newspaper press
system business, the Company believes that it is the lowest cost operator
in the industry. See "--Identified Cost Savings."
IDENTIFIED COST SAVINGS
Although no assurance can be given either that any specific level of cost
savings will be achieved or as to the timing thereof, Management currently plans
to achieve substantial savings in the base of operating costs which are
reflected in the pro forma combined financial statements. Once these plans are
completed, annual savings are expected to amount to approximately $19 million
per year associated with the closing of redundant facilities and reduction in
staffing, revision of employee benefit plans, and the elimination of certain
corporate services previously provided by Rockwell. It is expected that, upon
consummation of the Acquisition, a reserve of $16.3 million, net of a $3.9
million provision reflected in the first nine months of 1996, will be
established associated primarily with severance, outplacement and relocation
payments to be incurred in connection with headcount reductions and costs in
connection with planned facility closings. See "Unaudited Pro Forma Combined
Financial Statements."
The Company anticipates that it will be able to reduce its manufacturing
costs by closing redundant facilities and transferring the production to other
under-utilized facilities. In addition, the Company plans on reducing its
engineering, sales and marketing and general and administrative expenses by
reducing headcount and outsourcing certain non-strategic activities. The Company
has identified specific employees and/or functional areas where employees will
be terminated. The Company plans to implement its operating improvement plan
over a six month period following the Acquisition. Annual savings from these
actions are expected to amount to approximately $14 million per year.
In addition, the Company intends to modify selected employee benefit plans
at an annual savings of $1.2 million. Finally, Goss has received certain
administrative and management services from Rockwell such as corporate
oversight, cash management, treasury, legal, patent, tax, insurance
administration, corporate accounting and communication services. The Company
expects incremental annual savings of $3.8 million as a result of providing
these services on a stand-alone basis. The Company has also identified certain
other cost saving measures which may be implemented in the future.
HISTORY
The Goss Printing Company was established in 1885 in Chicago and soon
thereafter introduced the first of a number of technological advancements in the
industry, a newspaper press that printed on both sides of the paper
simultaneously. Goss established itself as a global company early, recording its
first international sale in 1898 and building its first international plant in
England in 1910.
In the 1960s, Goss introduced web lithographic offset newspaper presses that
led the industry's conversion from letterpress printing. In 1969, Rockwell
acquired Goss, which had grown to become a Fortune 500 company. Goss continued
to be an industry leader over the ensuing decades, enhancing its
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product portfolio by introducing faster presses, new paper roll pasters,
advanced folder designs, automated press controls, expanded flexible color
printing capabilities and advanced inking systems.
In the early 1980s, Goss recognized that certain of its customers were
requesting modifications on its small newspaper presses to accommodate the
printing of advertising inserts, a business which began to develop rapidly. Goss
responded to this demand by adapting its existing newspaper press systems to
include certain commercial press features, ultimately creating a separate line
of specialized insert presses. Goss continues to be a leader in this business
with a market share of approximately 70% in the U.S. and Canada, the principal
markets for such equipment.
Following on Goss's success in the insert niche of the commercial printing
press industry, management embarked on a strategy to expand into the broader
commercial printing business through acquisitions. In 1987, Goss acquired the
Hantscho Company, a supplier of short- and medium-run commercial presses, and in
1989, Goss acquired the long-run publication product line of APV Baker-Perkins.
As a result of these acquisitions, Goss established a presence in the North
American commercial press market. The Company intends to present customers with
a competitive alternative to the commercial press industry leader, Heidelberg
Harris, a subsidiary of Heidelberger Druckmaschinen A.G. of Germany ("Heidelberg
Harris").
INDUSTRY OVERVIEW
Goss's products fall into three broad categories: (i) newspaper press
systems for publishers of national, regional and local newspapers; (ii) insert
press systems for printers of advertising inserts, including Sunday newspaper
inserts and direct mail/point-of-purchase inserts and (iii) commercial press
systems for printers of brochures and promotional materials, catalogs,
magazines, books, financial publications and directories. Management believes
that annual worldwide sales of press equipment for newspapers and commercial
printers between 1992 and 1995 averaged approximately $5.0 billion, of which
approximately $2.5 billion constituted sales of web offset press equipment.
The following is an overview of the global industry for web offset press
equipment for newspapers, insert printers and general commercial printers.
NEWSPAPER PRINTING PRESS INDUSTRY
The global newspaper printing press industry serves a wide variety of
newspaper publications which vary significantly in circulation, page count and
color content based on regional, demographic and economic fundamentals. These
attributes drive newspaper press equipment requirements.
Newspaper printing presses are typically categorized as either
"double-width" or "single-width" presses. A double-width press is capable of
producing twice as many pages per cylinder rotation as a single-width press.
Newspapers with large circulations (i.e., over 50,000 copies) or high page
counts typically require double-width printing presses, while those with smaller
circulations and page counts tend to use single-width presses. A newspaper
generally purchases press capacity sufficient for its highest use requirement,
which is usually the printing of its Sunday edition. Although the number of
single-width printing presses installed worldwide far exceeds the number of
double-width presses, the majority of capital spending for newspaper printing
presses typically is for more complex, double-width press systems. Double-width
newspaper presses can range in price from $6 million to $22 million, while
single-width newspaper presses typically have a price range of between $2
million and $6 million. Goss supplies double-width and single-width web offset
presses to newspaper publishers worldwide.
The purchase of a newspaper press, which typically has a replacement cycle
of approximately twenty-five years, usually represents the most significant
capital expenditure by a newspaper publisher. As such, the purchasing decision
involves extensive capital planning and budgeting. Lead times for
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deliveries range from nine to eighteen months from the placement of an order for
double-width presses, and two to eight months for single-width presses.
DEMAND CHARACTERISTICS. Given the significant cost of newspaper presses,
both industry and Company sales can vary substantially period-over-period
depending upon the timing of large press purchases. This phenomenon is
exacerbated by the long useful life of newspaper presses and the concomitant
deferability of press replacement. In addition, during periods of economic
growth, higher advertising expenditures and personal incomes lead to an increase
in the profitability of publishers, causing demand for printing presses to
generally increase; similarly during periods of economic recession, demand for
press capacity generally decreases. However, Management believes that, over the
longer term, continued demand for newspaper presses will be driven by a number
of factors, including:
. Economic Growth in Developing Countries. Strong economic growth typically
results in increased advertising expenditures and higher personal incomes.
These factors, together with higher literacy rates, increase newspaper
circulation and page counts which in turn drive demand for additional
press capacity. Management believes these dynamics make developing
countries attractive markets for its newspaper presses.
. Innovation. Press demand has historically increased significantly in
response to press innovations before returning to more normalized levels
of demand. The conversion from letterpress to offset which was started by
Goss in the 1960s, for example, was driven by compelling productivity and
quality improvements offered by offset printing. More recently, Goss's
introduction of "four-high" tower configuration, back-to-back color
presses (which consist of four vertically stacked printing units) in the
late 1980s permitted newspapers to offer color advertising and thus
increase their advertising revenue. This in turn contributed to additional
demand for new presses and add-on units for color printing--demand that
continues as advertisers and consumers insist on increasing amounts of
color in newspapers. A newspaper's ability to enhance quality and increase
productivity while reducing paper waste and staffing are important
considerations as it evaluates whether and when to add a new press or
replace an older press. Accordingly, the aggregate demand for printing
presses as well as the demand for a particular manufacturer's products is
driven in part by the development of new products which achieve market
acceptance.
. Replacement. The useful life of a newspaper press is approximately 25
years, although press life can be extended through refurbishing,
enhancements and proper maintenance. Nevertheless, it has been the
Company's experience that declining productivity and quality, in each case
relative to that offered by a new press, ultimately require that, over
time, older presses be replaced. The timing of press replacement is
influenced by economic factors as well as the productivity and quality
improvements available from new presses. This replacement cycle of older,
first-generation offset presses purchased in the late 1960s to mid-1970s
has begun in the U.S., Canada, Western Europe and Japan, which are mature
markets. In addition, Management believes that there are still over 70
newspapers using letterpresses in the U.S. and Canada alone, and that many
of these presses will be replaced in the forseeable future.
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INSTALLED BASE. Goss is the leading manufacturer of newspaper presses in the
world. Management estimates that approximately 57% of daily newspapers worldwide
(excluding PRC) print on Goss presses. Goss is one of only seven major global
suppliers of web offset newspaper press systems and is the only supplier to have
manufacturing, engineering and sales operations in North America, Europe and
Asia. The table below sets forth the Company's estimate of the approximate
number of newspapers in each of the regional markets Goss serves and the
approximate percentage of daily newspapers in such regions utilizing Goss
presses:
<TABLE><CAPTION>
NUMBER OF % WITH GOSS
REGION NEWSPAPERS PRESSES
- --------------------------------------------------------------- --------- -------------------
<S> <C> <C>
U.S. & Canada.................................................. 1,500 70%
Asia/Pacific(1)................................................ 960 61%
South America.................................................. 550 52%
Europe, Middle East & Africa................................... 2,000 48%
Japan(2)....................................................... 68 15%
---------
Total.................................................... 5,078 57%
---------
---------
</TABLE>
- ------------
(1) Excludes People's Republic of China and Japan.
(2) Double-width presses only.
INSERT PRINTING PRESS INDUSTRY
A segment of the commercial press industry unique to North America is the
specialized printing press for advertising inserts, which are typically found in
newspapers or distributed by direct mail or at point-of-purchase locations.
Advertising insert printing presses combine high-speed, multi-web newspaper
press designs with selected commercial press features for enhanced print
quality, low maintenance and high productivity. The two leading printers of
advertising inserts in North America, Big Flower Press Holdings, Inc. and
Sullivan Graphics, Inc., are each customers of Goss. Goss has an estimated
market share of approximately 70% in the U.S. and Canada, the principal markets
for such equipment.
Major factors considered by purchasers of insert press systems include net
productivity (especially speed, reduced paper waste and print quality), service
and support, new technologies (which enhance or lower product cost), product
value and a press system's flexibility to produce multiple formats.
COMMERCIAL PRINTING PRESS INDUSTRY
The commercial press industry serves a broad variety of commercial printers
who print brochures and promotional materials, catalogs, magazines, books,
financial publications, directories and other printed materials. In contrast to
newspaper publishers who print their own publications, commercial printers are
"contract printers" who generally print for publishers and other customers.
Commercial press systems can be configured with a variety of component
choices and auxiliary equipment. Commercial press suppliers act as systems
integrators who are generally expected to provide complete press systems,
including third-party auxiliary equipment such as dryers and chillers associated
with "heatset" printing. Outsourced auxiliary equipment generally comprises 30%
to 40% of the contract value of a commercial press order.
Commercial presses generally operate 24 hours per day, with downtime only
for necessary maintenance and repair. As a result, the average life of a
commercial printing press ranges up to ten years, resulting in much shorter and
generally more predictable replacement and/or rebuilding cycles than for
newspaper presses. Lead times for deliveries of commercial press systems
typically run two to eight months from the placement of an order.
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Major factors considered by purchasers of commercial press systems include
price, net productivity, reliability, efficiency, quality, and service and
support. Commercial printers also continually seek feature and technological
innovations to improve net production output and job turnaround time. In
addition, Goss has assisted in the past, and the Company intends to continue to
assist in the future, smaller commercial printers in obtaining the financing of
press purchases through third-party financing sources.
Goss supplies commercial press systems in the U.S. and Canada, with limited
sales in certain other countries. Management estimates that there are
approximately 2,000 commercial printers in the U.S. and Canada who utilize web
offset presses. The U.S. and Canadian commercial print industry has been
consolidating, as large printers seeking to increase press utilization have
begun to serve customers traditionally addressed by local printers. Many larger
U.S. and Canadian commercial printers are becoming more international in scope
and have formed joint ventures and other alliances in an increasing number of
developed and developing regions.
PRODUCTS AND SERVICES
WEB OFFSET TECHNOLOGY
Goss introduced offset lithography to newspaper printing in the 1960s as a
replacement for the letterpress printing process. The letterpress system relied
on highly-skilled technicians operating complex machines that used a keyboard
connected to a series of circular matrices to create each line of type in the
form of a metal slug. The slugs that came out of the machine would then be
arranged in forms and made into thick, semi-cylindrical metal plates mounted on
a press. The paper was printed in direct contact with these plates. In contrast
to the old letterpress system, offset lithography is far less mechanically
complex, as the process relies on photographic and chemical processes instead of
mechanical ones.
The initial step in the offset process involves transferring the text and
images of a publication onto the printing plates that will be used in the press.
These plates are wrapped around "plate cylinders" in the press unit. As the
plate cylinder rotates, it is first coated with a water-based solution, and then
with an oil-based ink. As the ink is oil-based it adheres only to the areas of
the plate that are not covered with water (i.e., the text or image). The ink on
the plate is then transferred in a mirror image to a "blanket cylinder" which
rotates to come into contact with the paper, where the ink is transferred again,
reversing from a mirror-image back to a normal image.
In most web offset presses both sides of the paper are printed at the same
time, each with its own set of plate and blanket cylinders. The paper is pressed
between the two blanket cylinders as it passes through the unit. After the paper
passes through each of the press units, it travels to a "former," where it is
joined with the other pages, and finally to a folding component where it is
folded and cut to the proper size (or "cutoff").
In process color printing, each color on a page is imaged separately onto
its own plate. Each page of a color publication must pass through four separate
printing units, each loaded with a different color. Process color printing thus
requires four times the number of printing units to print the same number of
pages as does a black and white publication.
Goss primarily produces web offset presses. The term "web" refers to the
fact that the paper is fed through the press from a large paper roll in a long
ribbon that forms a complex web of paper. The other common form of press is a
sheet-fed press, which prints on individual sheets of paper fed through the
press one-by-one. Sheet-fed presses are generally used only for shorter-run,
high quality posters, some high-end magazines, and similar applications because,
historically, the lower speeds necessary to
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achieve the highest print quality were not economical for larger commercial
print runs. Newspapers are almost exclusively printed on web-fed presses.
NEWSPAPER PRESS SYSTEMS
Goss's core business, in which it has been engaged for 111 years, is the
production of newspaper press systems. Goss produces customized double-width
press systems for large national and metropolitan newspapers and single-width
press systems for smaller regional and local newspapers, all sold under the
"Goss" name. The Company typically configures its press units to meet the
specific printing requirements and physical space limitations of its customers.
Goss is a worldwide supplier of web offset newspaper press systems.
Approximately three out of four U.S. daily newspapers and many prestigious
newspapers in over 100 other countries are printed on Goss's presses. Goss has
sold over 4,500 newspaper press systems around the world to publications such as
The Wall Street Journal, The New York Times, The Los Angeles Times, and USA
Today in the U.S., Zero Hora in Brazil, The Financial Times in the U.K., The
Melbourne Age in Australia, The Asahi Shimbun in Japan, The Straits Times in
Singapore and The People's Daily in China.
Sales of new equipment to, as well as additions and modifications to
existing equipment for, large newspaper customers accounted for approximately
45% of Goss's fiscal year 1995 sales. Sales to and additions and modifications
for small newspaper customers accounted for approximately 14% of Goss's fiscal
year 1995 sales.
Goss's current newspaper press product portfolio, which consists of a range
of double-width and single-width press systems, is set forth in the table below:
<TABLE><CAPTION>
NEWSPAPER PRESS PRODUCT PORTFOLIO
YEAR
PRODUCT INTRODUCED SIZE SPEED(A)
- ---------------------------------------------------------- ---------- ------------ --------
<S> <C> <C> <C>
Colorliner 80............................................. 1995 Double-Width 80,000
Newsliner................................................. 1994 Double-Width 70,000
MetroColor................................................ 1992 Double-Width 70,000
HT........................................................ 1990 Double-Width 70,000
Colorliner................................................ 1987 Double-Width 75,000
Universal................................................. 1991 Single-Width 50,000
Community................................................. 1963 Single-Width 30,000
Urbanite.................................................. 1962 Single-Width 50,000
</TABLE>
- ------------
(a) Straight run copies per hour
In 1995, Goss formalized a standard global product strategy for its new
press offerings. Management believes that the common designs of newspaper
presses will allow Goss to reduce its product costs and provide flexibility to
utilize global manufacturing resources more effectively. Accordingly, Management
has initiated programs to standardize most of the core design components of its
newspaper press systems, while retaining the flexibility to configure and
assemble each press system to specific customer needs.
The Newsliner, introduced in 1994, is Goss's first standard double-width
press system designed for global markets. The Newsliner contains many advanced
features used by newspaper publishers worldwide while providing customers with
flexibility by offering three inking system alternatives: traditional open
fountain, digital injector and Goss's advanced positive-feed keyless, a patented
process which significantly reduces press start-up time, thereby reducing paper
waste. Goss's premier Colorliner press system which Management believes offers
the industry's widest range of features and options, has also been recently
redesigned as a standard global product offering.
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Goss introduced the Universal press system in 1991 for medium circulation
newspapers and certain commercial printers as Goss's single-width standard
global product offering. The Universal also provides flexibility in that it can
be configured in a variety of arrangements, including both "tower" and satellite
configurations.
The MetroColor is a press upgrade package that is designed to allow
customers with the Metroliner press system to enhance their press systems to add
tower color printing capabilities. The HT is a premier double-width newspaper
press system based on the Colorliner design and targeted exclusively to European
and Asian customers. The HT system incorporates buyer-specific control packages,
folder designs, paging configurations and inking systems geared toward the
requirements of customers located in Europe and Asia.
The Community and the Urbanite press systems represent Goss's first
generation of single-width web offset printing presses, and are still a popular
choice for smaller to medium circulation newspapers due to their simplicity of
operation, quality print reproduction, configuration flexibility and relatively
low price. The Urbanite, which has a single-width press with two plates around
the cylinder and which therefore permits relatively more paging capacity (in
contrast to the single-plate design on the Universal and Community), is marketed
to medium circulation newspapers which require such greater capacity. The
Community is marketed to smaller to medium circulation regional newspapers and
to printers of advertising inserts.
INSERT PRESS SYSTEMS
Goss is a leading supplier of insert presses in the United States and
Canada, which are the source of almost all demand for this specialty product,
with an estimated market share of approximately 70% in the U.S. and Canada.
Management attributes its position as a leading supplier of both new insert
presses and service and parts for existing insert presses to its full range of
product offerings, its strong technical expertise and its ability to respond to
customer needs.
Sales from Goss's insert press business represented approximately 13% of
Goss's sales for the fiscal year ended September 30, 1995.
Goss's current insert printing press product portfolio is set forth in the
table below:
<TABLE><CAPTION>
INSERT PRESS PRODUCT PORTFOLIO
YEAR
PRODUCT INTRODUCED SPEED(A)
- -------------------------------------------------------- ---------- --------
<S> <C> <C>
Magnum.................................................. 1993 35,000
C450.................................................... 1992 50,000
C700.................................................... 1985 85,000
Community............................................... 1963 30,000
</TABLE>
- ------------
(a) Copies per hour
Goss's insert presses combine newspaper press designs with selected
commercial press features for enhanced print quality, low maintenance and high
productivity. The Magnum is an adaptation of the proven Community newspaper
press with a modest amount of commercial features, and serves the most
price-sensitive insert printers. The C450 is Goss's mid-range advertising insert
press. The C700 serves national printers, offering the speed of a large
newspaper press with the color capability and turnaround flexibility of a
commercial press.
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COMMERCIAL PRESS SYSTEMS
Goss produces web offset press systems for commercial printers of brochures
and promotional materials, catalogs, magazines, books, financial publications
and directories. Goss sells commercial press systems under the "Goss
Commercial", "Baker-Perkins" and "Hantscho" tradenames. Goss's commercial press
customers include large multinational, regional and local printers, such as R.R.
Donnelley & Sons Company, Quebecor Inc. and Banta Corporation. Goss's commercial
presses have been used to print leading publications such as Time, Newsweek,
Fortune, Business Week, Sports Illustrated and Elle and major catalogs such as
those for Victoria's Secret, Saks Fifth Avenue and Williams-Sonoma.
Sales from Goss's commercial press business represented approximately 14.6%
of its total sales for the fiscal year ended September 30, 1995.
Goss provides complete commercial printing press systems, including
third-party auxiliary equipment. Outsourced auxiliary equipment typically
comprises between 30% and 40% of the contract value of Goss's commercial press
orders. Goss has a broad folder portfolio, which provides customers with
flexibility in the customization of their press configurations.
Goss's commercial press product portfolio is set forth in the table below:
<TABLE><CAPTION>
COMMERCIAL/PUBLICATION PRESS PRODUCT PORTFOLIO
YEAR
PRODUCT CUSTOMER TYPE INTRODUCED SPEED(A)
- ------------------------------------------- ----------------------------- ---------- --------
<S> <C> <C> <C>
World 16E.................................. General commercial, book 1995 1,600
G25........................................ Magazine, general commercial 1995 2,750
C700LGD.................................... Speciality printers 1995 2,500
C700D...................................... Directory 1993 2,500
G25W....................................... Catalog, magazine 1992 2,750
</TABLE>
- ------------
(a) Feet per minute
Goss's commercial/publication press product portfolio serves a wide variety
of commercial printers who require reliable and cost-effective printing systems
with the flexibility to provide fast turnaround time and high print quality. To
enhance the profitability of this business, Goss rationalized its
commercial/publication press product portfolio during the 1990's and introduced
new presses to replace existing models and focus on a selected number of core
press systems.
The World 16E is a 16-page commercial press designed for the short to medium
run production of magazines, catalogs, books and general printing. The G25 is a
32-page press which provides enhanced productivity for the long run production
of magazines, catalogs, magazine insert products and general commercial
printing. The G25W is a 48 page press which prints products similar to the G25,
but has a wide format for higher volume printing requirements. The C700D is a
high speed telephone directory press; and, the C700LGD is a high sped, high page
output press used for the production of digest sized publications for national
and regional printers.
The World 16 and, to a lesser extent, the G25W, commercial press systems,
which were introduced in 1993 and 1992, respectively, experienced certain
performance problems during their initial installations. The problems
experienced with the World 16 presses were primarily related to print quality
issues associated with distortion and positioning of the ink dots and color
variation. The G25W problems were primarily related to ink dot distortion which
caused print quality issues and also with difficulties with the folder at higher
speeds. As a result, Goss has incurred significant expenses to identify and
implement the corrective actions necessary to insure the press meets customer
expectations. In addition, the Company modified the press to improve its
performance and introduced the World 16E to the
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marketplace in October 1995. As of June 30, 1996 a total of six World 16 and
four G25W presses were in operation. See "Risk Factors--Commercial Business
Performance Issues" and Note 19 to the Combined Financial Statements contained
elsewhere in this Prospectus.
AFTERMARKET PARTS AND CUSTOMER SERVICE
Goss's large global installed base provides it with a relatively stable
source of aftermarket parts and service business. Goss capitalizes on these
opportunities through its field support network, which provides worldwide
coverage. In fiscal 1995, Goss generated $79 million, or 11%, of net sales from
the sale of aftermarket parts and the provision of maintenance services. The
newspaper segment is the primary contributor to the aftermarket, due to its
large installed base of presses and working relationships with newspaper
customers.
The Company believes that a high level of customer service, technical
support and training are important factors in establishing and maintaining
long-term relationships with customers and in encouraging repeat business.
Service and technical support relates to site preparation and inspection,
equipment installation, preventive and corrective maintenance, press line
extensions and color capability upgrades. The Company employs a staff of 321
field service engineers who are located throughout the world in proximity to the
Company's customers. These engineers not only provide support to customers, but
also provide the Company with feedback from the customers' sites, thus enabling
the Company to monitor and respond to customer needs.
SALES AND MARKETING
Goss maintains an extensive sales and service network consisting of a direct
sales force, service representatives and local agents covering over 100
countries. Goss utilizes "relationship" selling, which stresses value-added
customer services, including field service, spare parts, support and training.
Due to the significance of each press investment, Goss's sales effort also
includes a multi-tier team marketing effort targeted at both the customer's
corporate management and plant managers at individual sites. Goss's technical
personnel play a major role in sales activity. Goss's senior Management also
supports marketing efforts to cultivate prospects and complete sales.
A sale to a prospective newspaper customer generally takes several years
from the initial planning phase to the actual sale. Goss's direct sales
personnel typically assist in customers' design, engineering and capital
budgeting processes and maintain the close and consistent long-term customer
contact required to sell complex, customized printing press systems. Management
believes that this installed base and the Company's established customer
relationships provide it with a competitive advantage in obtaining repeat
business.
The commercial press sales process is generally significantly shorter, as
commercial press purchases involve shorter production times and are typically
driven by shorter replacement cycles or specific print contract commitments.
Goss's direct sales force typically works closely with commercial customers in
designing a complete printing press system solution which includes outsourced
auxiliary equipment.
Goss's worldwide sales network allows responsiveness to local customers'
unique requirements. Compensation for Goss's newspaper direct sales force is
salary-based with a relatively small percentage of compensation derived from
commissions. Compensation for Goss's commercial press direct sales force is
largely commission-based with a base salary component.
Goss enters into detailed contracts with all agents in its sales network.
Most agents are exclusive suppliers of Goss's web offset presses. Typically,
agent compensation is based on specific revenue targets. Most agents in the Goss
sales network have extensive experience in the graphic arts industry as well as
personal industry contacts.
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COMPETITION
The global newspaper printing press, insert printing press and commercial
printing press industries are highly competitive in most product categories and
geographic regions. Competition is based on price, product features,
technological capabilities, quality, reliability and ability to meet the
specialized needs of customers.
Major suppliers of double-width newspaper presses are MAN Roland A.G. ("MAN
Roland") and Koenig & Bauer-Albert A.G. ("KBA") of Germany; Wifag A.G. of
Switzerland ("Wifag"); and Mitsubishi Heavy Industries Ltd. ("Mitsubishi") and
Tokyo Kikai Seisakusho, Ltd. of Japan ("TKS"). Competing major suppliers of
single-width newspaper presses are MAN Roland, KBA and Heidelberg Harris. The
major supplier of commercial presses in the U.S. is Heidelberg Harris. Other
competitors include KBA, MAN Roland and Mitsubishi. The only other major
supplier of insert printing press systems is Heidelberg Harris.
Over the past several years, certain foreign suppliers of large newspaper
printing presses have sought to increase their U.S. sales by offering aggressive
pricing and terms. As a result of pricing actions by Goss's foreign competitors,
on June 30, 1995, Rockwell and Goss filed an antidumping duty petition with the
Commerce Department and the ITC alleging that competitors from Japan and Germany
were selling large newspaper printing presses and components thereof in the U.S.
at less than fair value and were materially injuring a U.S. industry. As a
result of such petition, the Commerce Department and the ITC initiated
antidumping investigations and, in its preliminary injury determination issued
in August 1995, the ITC determined that there is a reasonable indication that
the U.S. large newspaper printing press industry was materially injured by
reason of imports from Japan and Germany.
On July 16, 1996, the Commerce Department issued final determinations that
the imports covered by this case, from Japan and Germany, respectively, have
been sold at less than fair value. On August 21, 1996, the ITC determined that
imports covered by this case from Japan and Germany, respectively, have caused
material injury or the threat of material injury, to the domestic industry.
Based on these determinations, the U.S. Customs Service has been directed to
require cash deposits of antidumping duties with respect to such imports at
rates that range from 30% to 62% ad valorem. The assessment of duties could be
increased, reduced, or terminated through subsequent appellate review, or annual
administrative reviews, or both. Moreover, the extent to which antidumping
duties would benefit the Company's competitive position in the U.S. market, if
at all, cannot be projected with assurance. See "Risk Factors--Competition."
RESEARCH AND DEVELOPMENT
Management believes that its position as a technological industry leader is
due in large part to its engineering, product development and research
capabilities as well as to its commitment to continual investment in press
innovation. Goss led the newspaper industry's conversion from letterpress
printing to the offset process, which began in the 1960's, and in the late
1980's introduced the "four-high" tower configuration to provide process color
printing advances for newspapers. Other Goss innovations, such as computerized
press controls, have provided for increased net production output through
greater automation, decreased waste and enhanced reliability and quality.
During the past three years, Goss has invested over $84 million in
engineering, product development and research (including $17.4 million, $17.6
million and $15.8 million spent on research and development in fiscal 1993, 1994
and 1995, respectively) and the Company expects to continue to invest at similar
levels throughout fiscal year 1996. Major recent product development projects
have included the launch of two advanced newspaper presses (Newsliner and
Universal), six new commercial press systems or product enhancements (World 16E,
G25W/G25, C450, C700D and C700LGD) and a series of new commercial folders.
Research projects during the past three years included the development of a
positive feed keyless inking system and its evolution to single-fluid
lithography, as well as the completion
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<PAGE>
of prototypes for color correction, auto imposition and magnetic cutoff control.
In addition, the technology concepts for a future digital press with
direct-to-press imaging was also developed.
Goss currently is developing the AIM press system. The design concept of AIM
is to allow customers to print directly from a computer file without any
intermediary steps. Today's lithographic printing process requires text and
images to be made-up on paper and then imaged on a printing plate which in turn
is affixed to a rotating cylinder for the printing process. The ability to
transfer text and images in digital form directly to a printing cylinder without
the make-ready process and printing plates would provide customers with greater
productivity and flexibility. In contrast to other direct-to-press technology
currently available for short-run commercial printing, AIM, if developed
successfully, would maintain the speed and print quality of the lithographic
printing process while significantly reducing pre-press time and expense.
Although the Company believes that it can incorporate its AIM technology into
its presses in the future, there can be no assurance that the Company will be
successful in developing and commercializing AIM.
Management believes that Goss possesses the core skills (including
mechanical, electronic and software expertise) developed over many years of
printing press industry experience necessary to engineer, design and enhance
printing press systems and to introduce new technologies. The Company believes
that its research staff has knowledge and expertise to direct, integrate and
manage research programs in a wide range of disciplines, including materials
science, physical and organic chemistry, ink rheology, magnetics, microwave
technology, vision systems and artificial intelligence.
Goss maintains a staff of over 400 engineers at four locations around the
world (Westmont, Illinois; Preston, United Kingdom; Nantes, France and Sayama,
Japan). The Westmont engineering group has engineering, research and development
responsibilities for newspaper and commercial press designs, software
development, development and testing of new print technologies and the
customization of orders for U.S.-sourced newspaper and commercial press systems.
Goss's Westmont, Illinois facility includes a 12,600 square foot press hall, an
ink chemistry lab and software and electronics labs used for research, product
development and testing. Engineering at Goss's other locations is based on the
core skills of its resident engineers and includes such functions as new press
design and the customization of newspaper and commercial press systems.
Goss has also directed and funded certain research and development projects
conducted at the Rockwell Science Center. The financial data contained in this
Prospectus include expenses charged to Goss for the work performed on its behalf
at the Science Center. During fiscal years 1993, 1994 and 1995, such direct
charges were $594,000, $670,000 and $830,000, respectively. Rockwell has agreed
to provide continuing support to the Company following consummation of the
Acquisition at its Science Center for a period to be agreed upon by the Company
and Rockwell for certain ongoing projects at a fee to be determined. Management
believes that following this transition period it will continue to have the
engineering, product development and research capabilities which have made it a
technological industry leader.
As a result of Goss's research and development efforts, it has obtained more
than 100 U.S. patents and more than 100 foreign patents in countries and
territories including Australia, Canada, Japan, Mexico, Great Britain, Germany
and the European Patent Community. Although the Company believes that these
patents are enforceable against its competitors, there can be no assurance that
they are enforceable, or that they can be used to prevent competitors from
making, using or selling products the same as or substantially the same as
Goss's products. Similarly, there is no assurance that Goss's existing product
line, or the Company's future products, are or will be free of infringement of
third-party patents, in the U.S. or any other country.
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<PAGE>
EMPLOYEES
As of June 30, 1996, Goss had 2,657 employees, consisting of 1,252 hourly
employees and 1,405 salaried employees. Employees are divided along functional
lines as shown in the table below:
SALARIED
Executive Management................................................ 16
Operations.......................................................... 336
Sales, Marketing and Customer Service............................... 365
Engineering
Design and Production Engineering................................. 323
Research and Development.......................................... 32
Support........................................................... 80
Finance and Information Systems..................................... 213
Human Resources and Other........................................... 40
-----
Total Salaried.................................................. 1,405
HOURLY.............................................................. 1,252
-----
TOTAL............................................................... 2,657
-----
-----
Average industry experience across the salaried workforce is approximately
15 years.
UNIONS AND TRADE GROUPS. Goss's approximately 700 hourly employees located
at its Cedar Rapids, Iowa; Reading, Pennsylvania; and Westmont, Illinois
facilities are represented by national unions and the Company is subject to
three collective bargaining agreements in the U.S. The approximately 500 hourly
employees located at the Preston, England and Nantes, France facilities are
represented by three local trade groups that have entered into a series of
cumulative collective bargaining agreements with the Company. The approximately
120 employees at Goss's Sayama, Japan facility are represented by a Company
union and the Company is subject to one collective bargaining agreement in
Japan. See "Risk Factors--Labor Relations."
PROPERTIES
As of June 30, 1996 Goss owned the facilities set forth below:
<TABLE><CAPTION>
MAJOR FACILITIES
FACILITY FUNCTION SQUARE FEET
- ----------------------------------------------- --------------------------------- -----------
<S> <C> <C>
Cedar Rapids, Iowa............................. Machining, assembly, engineering 585,500
Reading, Pennsylvania.......................... Machining, assembly, engineering 458,628
Preston, England............................... Machining, assembly, engineering 300,000
Nantes, France................................. Assembly, engineering 263,300
Sayama, Japan.................................. Assembly, engineering 75,280
Westmont, Illinois............................. Headquarters, sales, engineering 280,674
</TABLE>
MANUFACTURING FACILITIES. Goss owns and operates five manufacturing
facilities in North America, Europe and Asia. The manufacturing plants in Cedar
Rapids, Iowa; Reading, Pennsylvania; and Preston, United Kingdom utilize
flexible machining systems and cell technology to produce high-quality press
components. The Cedar Rapids, Iowa and Preston, United Kingdom facilities
primarily produce large newspaper and commercial presses. The Reading,
Pennsylvania facility is primarily involved in the production of smaller
newspaper and commercial presses.
The facilities in Nantes, France and Sayama, Japan are assembly-only
operations. Goss's joint venture in China, in which Goss had 38% interest as of
December 31, 1995 owns a fully-integrated manufacturing and support facility in
Shanghai, comprised of approximately 500,000 square feet.
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<PAGE>
The Company maintains high-quality manufacturing capability for critical,
close-tolerance parts and components and possesses a workforce skilled in both
machining and assembly. Most of Goss's machine tools have numerical control
capabilities and many have internal inspection capabilities. In addition,
statistical process control is used at all Goss machining facilities. The
Company also seeks to maximize the cost effectiveness of its manufacturing
processes and capacity utilization. In that regard, it may from time to time opt
to outsource the manufacture of certain components and subsystems for certain
printing presses.
ENGINEERING FACILITIES. Goss's primary design engineering capabilities are
maintained at its Westmont, Illinois headquarters. Goss has additional
engineering capabilities at all of its facilities.
OTHER FACILITIES. Various sales offices are leased to provide a base for
Goss's sales personnel around the world. Additional warehouse space is leased
primarily for the storage of customer-owned presses awaiting installation.
LEGAL PROCEEDINGS
Goss is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business, including those relating to
product liability, safety and health and employment matters. In certain such
actions, plaintiffs request punitive or other damages that may not be covered by
insurance. It is the opinion of Management that the various asserted claims and
litigation in which Goss is currently involved will not have a material adverse
effect on the Company's financial position. However, no assurance can be given
as to the ultimate outcome with respect to such claims and litigation. The
resolution of such claims and litigation could be material to the Company's
operating results for any particular period, depending upon the level of income
for such period.
Goss is a defendant in a lawsuit (Heidelberger Druckmaschinen AG v. Hantscho
Commercial Products, Inc. and Rockwell Graphic Systems, Inc.) involving patent
infringement issues. This lawsuit was filed on June 26, 1987 in the U.S.
District Court for the Southern District of New York. In November 1995, the
Court issued an order in favor of the plaintiff setting damages of 6% of the
sales prices of presses which incorporated the disputed technology plus
interest. The final accounting of the amount of damages owing is being
undertaken and will depend on further proceedings to be held in the district
court. Rockwell has agreed to indemnify the Company for any damages that may be
determined to be payable in such action and to treat such as a retained
liability. Goss no longer incorporates the disputed technology into its presses.
See "The Acquisition-- Representations and Warranties; Indemnity."
Goss has experienced certain performance problems with its World 16 and, to
a lesser extent, its G25W, commercial press systems which it introduced in 1993
and 1992, respectively. Certain customers have alleged that such press systems
failed to meet performance expectations and contract specifications, including
certain customers which have requested rescission of the initial purchase
contract and/or damages and have threatened litigation to resolve their claims
against the Company relating to their commercial presses. In addition, Goss has
had one customer delay shipment of a World 16 press, has not yet received full
payment from other customers due to performance issues and has had two customers
initiate litigation seeking rescission and damages. See Note 19 to the Combined
Financial Statements included elsewhere in this Prospectus.
ENVIRONMENTAL
The Company's operations are subject to federal, state, local, and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the handling, generation, emission, release,
discharge, treatment, storage, and disposal and clean up of, certain materials,
substances and wastes. To the best of the Company's knowledge, its operations
are in material compliance with all applicable environmental laws and
regulations as currently interpreted.
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The Company's belief is based upon its understanding of the underlying facts
giving rise to its obligations and the technical advice received from the
Company's environmental consultants. Rockwell has agreed to indemnify the
Company and its subsidiaries and affiliates against all environmental costs
associated with Goss's facility in Peterborough, United Kingdom (which Rockwell
is retaining) and against all environmental costs associated with Hall
Processing Systems ("Hall Processing"). For a period of four years after the
Closing Date, Rockwell will also indemnify the Company against one-half of
certain environmental costs incurred by the Company in excess of $1.0 million,
provided that such costs result from the disposal, discharge or release of any
hazardous wastes, hazardous substances, pollutants or contaminants on or from
the facilities of Goss (or its predecessors) prior to the Closing, and provided
that such costs result from activities which are (i) required by an enforcement
order or decree entered by a governmental authority as a result of an
environmental proceeding; (ii) necessary to comply with an environmental law in
response to an environmental proceeding, the outcome of which environmental
proceeding is reasonably likely to result in material costs or expenses to the
Company; or (iii) necessary to comply with an environmental law in response to a
written, threatened environmental proceeding, which environmental proceeding is
reasonably likely to result in material costs or expenses to the Company,
provided that, in the case of this clause (iii), all such costs and expenses are
consented to in writing by Rockwell prior to being incurred. See "The
Acquisition--Representations and Warranties; Indemnity."
The Company's Reading, Pennsylvania facility has been operating a
groundwater remediation system (at an immaterial cost) under a 1981 Consent
Order with the Commonwealth of Pennsylvania as a result of its, and its
predecessor company's, historical waste disposal practices. Recent data indicate
that certain hazardous constituents in the groundwater have decreased over time,
while the data on other constituents is inconclusive. The Company plans to
submit a proposal to the Pennsylvania Department of Environmental Resources
(PADER) to terminate remediation at the site pursuant to recent statutory
authority to determine cleanup limits consistent with the results of a
site-specific risk assessment. Management has been advised that, given the site
location and aquifer use, the proposal is technically appropriate and may result
in the termination of groundwater remediation at this site. The Company believes
that any liability with respect to either continuing groundwater remediation or
conducting a site-specific risk assessment in order to complete such remediation
will not have a material adverse effect on the Company's business or financial
condition or its financial statements taken as a whole.
Goss has received either notices of potential liability, or third-party
contribution claims, under the federal Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") at six off-site disposal facilities.
Goss has entered into de minimis settlement agreements with the Environmental
Protection Agency (the "EPA") at two of these sites, and a de minimis settlement
proposal is pending review by the EPA at a third site. With respect to the
fourth site, the Interstate Pollution Control site in Rockford, Illinois, at
which Goss has been named a potentially responsible party ("PRP"), Goss's share
of the costs for cleanup of the site has been determined by the EPA to be 1.89%
of the total costs. Goss has been advised by the EPA that the potential
estimated cost for the final remedy at the site may be $10.0 million, with
Goss's share equaling approximately $200,000. At the fifth site, Berks County
Landfill, Spring Township, Berks County, Pennsylvania, Goss has been implicated
as potentially responsible through a third-party lawsuit and by a PRP notice
from the EPA. Management believes that it has been implicated through the
third-party lawsuit and as a PRP at this site based upon allegations that Goss
contributed certain waste to this site. Although Management is unable to
estimate its potential liability at this site because no cost allocations have
been made, Management believes its involvement, if any, is de minimis, based
upon the information available to Management regarding the nature and quantity
of the materials that Goss contributed to this site in comparison to the nature
and quantity of materials contributed to the site by other PRPs. In May 1996,
Goss received a PRP notice from the EPA for the sixth site, the Southeast
Rockford Groundwater site. Management believes it has been implicated as a PRP
at this site because of its involvement at the Interstate Pollution Control site
discussed above, which is located within the boundaries, and is a part,
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of the larger Southeast Rockford Groundwater site and because the EPA has
identified the PRPs at the Interstate Pollution Control site as potential
contributors to the groundwater contamination at the larger site. In addition,
the Company may have been implicated as a PRP at this site because it formerly
operated an industrial facility, which it sold in 1989 in the greater Southeast
Rockford area. Based upon the information available to it, however, Management
believes that there is no independent link to the Southeast Rockford Groundwater
site other than its involvement at the Interstate Pollution Control site.
Because no cost allocations have been made at the Southeast Rockford Groundwater
site, Management has no basis upon which it can estimate Goss's potential
liability at this site. Management understands that the City of Rockford is
attempting to fund a large portion of the past response costs through issuance
of bonds that will be paid by a tax on all industry operating in the area. Based
on this belief and understanding and taking into account Goss's cost allocation
at the Interstate Pollution Control site, Management believes that its
involvement, if any, is de minimis. Based upon Management's understanding of the
underlying facts giving rise to its obligations, the technical advice received
from Goss's environmental consultants, discussions with the involved parties and
its understanding of the planned remedies, Management believes that its
potential liability with respect to all of these sites will not have a material
adverse effect on the Company's results of operations, cash flows, or financial
condition.
Management cannot predict with any certainty whether future events, such as
changes in existing laws and regulations or the discovery of conditions not
currently known to the Company, may give rise to additional environmental costs.
Furthermore, actions by federal, state, local and foreign governments concerning
environmental matters could result in laws or regulations that could increase
the cost of producing the Company's products, or providing its services, or
otherwise adversely affect the demand for its products or services. During
fiscal 1995, Goss incurred less than $100,000 of expenses relating to
environmental matters. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Environmental Matters."
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THE ACQUISITION
The following summary of the material provisions of the Purchase Agreement
is subject to and is modified in its entirety by reference to all the provisions
of the Purchase Agreement, including the definitions therein of certain terms.
The Purchase Agreement provides for the acquisition of Goss through the purchase
by the Company and certain foreign subsidiaries to be formed by it of all the
outstanding stock of Goss Delaware and Goss France, and, as to the remainder of
Goss, through the purchase of assets and the assumption of liabilities from
Rockwell and certain subsidiaries of Rockwell. The Company will effect the
Acquisition by purchasing all of the outstanding capital stock of Goss Delaware
and Goss France. In addition, a Japanese corporation that is newly-formed and
wholly owned by the Company ("Goss Japan") will purchase for cash all of the
outstanding stock of Rockwell Graphic Systems-Japan Corporation, currently a
wholly owned subsidiary of Goss Delaware and the Company, together with a
newly-formed, wholly owned English company ("Goss U.K.") (which will purchase
substantially all the assets of Rockwell Graphic Systems Ltd.), will purchase
the assets and assume the liabilities of the remainder of Goss. Immediately
after the Acquisition, the Company will merge with Goss Delaware, and Goss Japan
will merge with Rockwell Graphic Systems-Japan Corporation. The assets that the
Company will purchase include a portfolio of notes receivable issued in
connection with customer financing provided by Rockwell to purchasers of Goss's
products. Simultaneously with the closing of the Acquisition and of the
Offering, the Company will sell the Customer Notes to BT Commercial Corporation
for an estimated purchase price of approximately $163.7 million. The proceeds of
this sale of the Customer Notes will be used in part to finance the Acquisition
and the payment of expenses incurred in connection therewith. See "Use of
Proceeds."
PURCHASE PRICE; ADJUSTMENTS
The Company will acquire Goss for a purchase price which will consist of
$552.5 million in cash and 47,500 shares of Preferred Stock issued by Holdings
to Rockwell, plus (i) the aggregate amount of interest on each Customer Note
which is not more than 60 days past due with respect to the interest thereon
accrued (but not yet received) from the date of the last interest payment
thereon through and including the day preceding the date of the closing of the
Acquisition and (ii) an amount equal to 50% of the excess of the amount received
by the Company for the sale of the Customer Notes over $170.0 million (adjusted
for payments with respect to principal (up to an aggregate of $170.0 million)
actually received by Rockwell in respect of the Customer Notes between March 1,
1996 and the day preceding the Closing Date); and minus (i) the amount of all
payments with respect to principal (up to an aggregate of $170.0 million)
actually received by Rockwell in respect of the Customer Notes between March 1,
1996 and the day preceding the Closing Date and (ii) the aggregate amount of
prepaid interest on each Customer Note actually received by Rockwell between
April 26, 1996 and the day preceding the Closing Date to the extent it was not
earned for periods through and including the day preceding the Closing Date.
In addition, the purchase price is subject to certain post-closing
adjustments as follows: (i) the purchase price will be increased
dollar-for-dollar by the amount, if any, by which certain selected assets set
forth below of Goss on the day preceding the Closing Date (the "Selected Closing
Assets") minus the amount of certain selected liabilities set forth below of
Goss on the day preceding the Closing Date (the "Selected Closing Liabilities")
is greater than $200.0 million; and (ii) the purchase price will be decreased
dollar-for-dollar by the amount, if any, by which the Selected Closing Assets
minus the Selected Closing Liabilities is less than $200.0 million. The Selected
Closing Assets will consist of accounts receivable (before any reserves
including unbilled receivables), inventories (before any reserves), cash and
cash equivalents held by Goss France and by Rockwell Graphic Systems-Japan
Corporation, a corporation organized under the laws of Japan, and the
outstanding principal amount of any new Customer Notes entered into between
March 1, 1996 and the day preceding the Closing Date, with the consent of the
Company. The Selected Closing Liabilities will consist of accounts payable
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(including outstanding checks), liabilities for payables to Allen-Bradley during
the 30-day period preceding the Closing Date, and customer advances.
REPRESENTATIONS AND WARRANTIES; INDEMNITY
The Purchase Agreement contains customary representations and warranties,
including those concerning corporate organization and authorization, outstanding
capital stock, compliance with laws, taxes, litigation, intellectual property
and employee benefit plans. Each representation and warranty of Rockwell will
survive for a period of one year after the Closing Date, except for the
representations and warranties of Rockwell (which will survive until all
applicable statutes of limitation have expired) relating to (i) the incurrence
of broker's or finder's fees in connection with the Acquisition; (ii) the filing
of tax returns, the payment of taxes and certain other tax-related matters;
(iii) the capitalization and ownership by Rockwell of the authorized capital
stock of certain of the entities that constitute Goss; (iv) due authorization of
the Purchase Agreement and the Acquisition; and (v) ownership of real property.
Rockwell has agreed to indemnify the Company and its subsidiaries and
affiliates against any liabilities incurred in connection with (i) the breach of
any covenant or agreement of Rockwell contained in the Purchase Agreement (with
certain exceptions); (ii) the breach of any of Rockwell's representations and
warranties contained in the Purchase Agreement (subject to de minimis
exceptions); (iii) any settlement of or judgment in respect of certain patent
litigation; (iv) the liquidation of Hall Processing, a partnership in which a
subsidiary of Goss is the general partner; (v) liabilities retained by Rockwell;
and (vi) taxes for any taxable period that ends on or before the Closing Date
and certain other tax-related matters. Rockwell's indemnity obligations with
respect to covenants, agreements and tax-related matters terminate upon the
expiration of all applicable statutes of limitations; with respect to
representations and warranties, terminate upon the expiration of the applicable
representation or warranty; and otherwise do not terminate. Claims based upon
Rockwell's indemnity with respect to breaches of representations and warranties
are not payable until the aggregate amount of damages incurred by the Company
exceeds one percent of the purchase price, in which event Rockwell is only
responsible for damages that are in excess of one-half percent of the purchase
price and that are, in the aggregate, no greater than the purchase price.
In addition, Rockwell has also agreed to indemnify the Company and its
subsidiaries and affiliates against all environmental costs associated with
Goss's facility in Peterborough, United Kingdom (which Rockwell is retaining)
and against all environmental costs associated with Hall Processing. For a
period of four years after the Closing Date, Rockwell will also indemnify the
Company against one-half of certain environmental costs incurred by the Company
in excess of $1.0 million, provided that such costs result from the disposal,
discharge or release of any hazardous wastes, hazardous substances, pollutants
or contaminants on or from the facilities of Goss (or its predecessors) prior to
the Closing, and provided that such costs result from activities which are (i)
required by an enforcement order or decree entered by a governmental authority
as a result of an environmental proceeding; (ii) necessary to comply with an
environmental law in response to an environmental proceeding, the outcome of
which environmental proceeding is reasonably likely to result in material costs
or expenses to the Company; or (iii) necessary to comply with an environmental
law in response to a written, threatened environmental proceeding, which
environmental proceeding is reasonably likely to result in material costs or
expenses to the Company, provided that, in the case of this clause (iii), all
such costs and expenses are consented to in writing by Rockwell prior to being
incurred.
For purposes of the Company's indemnity to Rockwell in connection with the
Acquisition, each representation and warranty of the Company will survive for a
period of one year after the Closing Date, except for the Company's
representation that it has not authorized any broker's or finder's fees in
connection with the Acquisition, which representation will survive until all
applicable statutes of limitation have expired.
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<PAGE>
The Company has agreed to indemnify Rockwell and its subsidiaries and
affiliates against any liabilities incurred in connection with (i) the breach of
any covenant or agreement of the Company contained in the Purchase Agreement;
(ii) the breach of any of the Company's representations and warranties contained
in the Purchase Agreement; (iii) any obligations or liabilities of Goss Delaware
and its subsidiaries and Goss France, whether incurred before, on or after the
Closing Date, except for those obligations and liabilities for which Rockwell
has indemnified the Company; (iv) liabilities assumed by the Company; (v) any
guarantees or obligations to assure performance or to perform given or made by,
or other liabilities or obligations of, Rockwell or any of its subsidiaries or
affiliates with respect to Goss or certain agreements and contracts relating to
Goss; and (vi) any obligations or liabilities arising out of the operation of
Goss on or after the Closing Date. The Company's indemnity obligations with
respect to covenants and agreements terminate upon the expiration of all
applicable statutes of limitation; with respect to representations and
warranties, terminate upon the expiration of the applicable representation or
warranty; and otherwise do not terminate.
CERTAIN COVENANTS
The Purchase Agreement contains certain customary covenants, including
covenants (i) by Rockwell to conduct the business of Goss in the ordinary
course; to cancel certain intercompany indebtedness; to grant to the Company a
license to use certain intellectual property being retained by Rockwell; and
(ii) by the Company to phase out use of Rockwell's trademarks, tradenames,
logos, etc.; to assume Rockwell's obligations under certain contracts and
agreements relating to the business of Goss; and to grant to Rockwell a license
to use certain intellectual property being acquired by the Company.
In addition, with respect to employee benefits, the Company and Rockwell
have, among other things, agreed that Goss employees will cease participation in
Rockwell retirement plans as of the Closing Date and that Rockwell will retain
all liability under such plans. The Company has agreed to provide welfare
benefits no less favorable in the aggregate than currently provided (with
certain exceptions). The Company may, however, amend or terminate such plans
after the Closing Date. In addition, the Company will assume all stand-alone
retirement plans (including those for employees in the United Kingdom, Germany
and Japan).
CONDITIONS TO CLOSING
The obligation of the Company to consummate the transactions contemplated by
the Purchase Agreement is subject to the satisfaction or waiver by the Company,
on or prior to the Closing Date, of certain conditions, including the following:
(i) no judgment, decree or order may be in effect on the Closing Date which
restrains or prohibits consummation by the Company of the Acquisition and no
litigation shall be pending which would be reasonably likely to enjoin the
Acquisition or which would be reasonably likely to result in material damages to
the Company or Goss as a result of the Acquisition; (ii) the applicable waiting
period under the Hart-Scott-Rodino Act of 1976, as amended, shall have expired
or been terminated; (iii) the Company must have obtained the financing set forth
in certain exhibits to the Purchase Agreement; (iv) there must not have been any
material adverse effect with respect to Goss since September 30, 1995; (v)
Rockwell must have obtained all consents required in connection with
consummation of the Acquisition other than any such consents which if not
obtained would not reasonably be likely to have a material adverse effect; (vi)
the Company must have no reasonable basis to believe that Goss is not in
compliance in all material respects with all environmental laws except where the
failure to so comply would not reasonably be likely to have a material adverse
effect; and (vii) there must be no short-term or long-term borrowings by Goss
outstanding as of the Closing Date, other than overdraft borrowings of Goss
Japan and of Goss France. The obligation of Rockwell to consummate the
transactions contemplated by the Purchase Agreement is subject to the
satisfaction or waiver by Rockwell, on or prior to the Closing Date, of certain
conditions, including each
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<PAGE>
of the following: (i) no judgment, decree or order may be in effect on the
Closing Date which restrains or prohibits consummation by Rockwell of the
Acquisition and no litigation shall be pending which would be reasonably likely
to enjoin the Acquisition or which would be reasonably likely to result in
material damages to Rockwell or any of its subsidiaries as a result of the
Acquisition; and (ii) the applicable waiting period under the Hart-Scott-Rodino
Act of 1976, as amended, shall have expired or been terminated.
AGREEMENT NOT TO COMPETE
Rockwell has agreed that, for a period of three years after the Closing
Date, neither Rockwell nor any company controlled by Rockwell will, directly or
indirectly, without the written consent of the Company, enter into, or acquire
control of more than a five percent interest in, any business more than ten
percent of whose revenues are derived from operations engaged in the
development, manufacture, sale or provision of web offset printing press
systems; provided that Rockwell may acquire control of any business deriving
less than 50% of its revenues from such operations so long as it shall use
reasonable best efforts to divest such operations as promptly as practicable and
in any event not later than two years following such acquisition. Rockwell or
any company controlled by Rockwell shall not be prohibited or restricted from
entering into any business engaged in, acquiring control of or any interest in
any business engaged in, engaging in or continuing to engage in any activity
which comprises or is an extension or expansion of those business operations
conducted by Rockwell through any of its divisions or subsidiaries other than
Goss as of April 26, 1996. In addition, Rockwell has agreed that its Science
Center will not, for a period of three years after the Closing Date, provide to
competitors of Goss support services which cover substantially similar matters
as the support services which Rockwell's Science Center is performing with
respect to certain projects.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the individuals who
are expected to be the executive officers and directors of the Company upon
consummation of the Acquisition:
<TABLE><CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Robert M. Kuhn............................ 54 Chairman and Chief Executive Officer
J. Joe Adorjan............................ 58 Director
Gerald S. Armstrong....................... 53 Director
Alfred C. Daugherty....................... 73 Director
Robert F. End............................. 41 Director
James J. Kerley........................... 73 Director
Alexis P. Michas.......................... 38 Director
Robert J. Mylod, Jr....................... 29 Director
James P. Sheehan.......................... 54 Director
William A. Boston......................... 48 Vice President, Commercial Products
Barbara L. Gora........................... 44 Director of Marketing and Communications
Frank D. Jurenka.......................... 59 Vice President, U.S. Operations
P. Michael Kienzle........................ 61 Vice President, Newspaper Products
Jack E. Merryman.......................... 49 Vice President and General Counsel
M. Eric Schroeder......................... 49 Vice President, Finance and Administration
Alan P. Sheng............................. 52 Vice President, Engineering and Technology
Brian J. Smith............................ 42 Vice President, Human Resources
Richard J. Sutis.......................... 53 Vice President, Asia Pacific
Michael C. Szymaszek...................... 51 Vice President, Quality Assurance & Plant
Manager, Cedar Rapids
Randall Thomas............................ 47 Vice President & General Manager, Europe
</TABLE>
ROBERT M. KUHN joined Goss as President in October 1995 and will serve as
the Company's Chairman and Chief Executive Officer after the Acquisition. Prior
to joining Goss, he had served as Senior Vice President, Business Development of
United Technologies Corporation and President, Hamilton Standard, the aerospace
subsidiary of United Technologies since 1991. Mr. Kuhn has also held senior
management positions at United Technologies, Hamilton Standard, Pratt & Whitney
and Armtek Corporation, where he served as a Corporate Director.
J. JOE ADORJAN is the Chairman of the Board, Chief Executive Officer and
President of Borg Warner Security Corporation, a supplier of guard, alarm,
armored transport, courier and other protective services. Mr. Adorjan has held
these positions since January 1996, October 1995 and April 1995, respectively.
Mr. Adorjan was President of Emerson Electric Co., a manufacturer of electronic,
electrical and other products, from 1992 to 1995 and Chairman and Chief
Executive Officer of ESCO Electronics Corporation from 1990 to 1992. Mr. Adorjan
is also a Director of California Microwave, Inc. and ESCO Electronics
Corporation.
GERALD S. ARMSTRONG is a Partner and a Director of Stonington, a position he
has held since 1993. Mr. Armstrong is also a Partner and a Director of
Stonington Partners, Inc. II, a Delaware corporation ("Stonington II"), a
position he has held since 1994. Mr. Armstrong has also been a Director of
Merrill Lynch Capital Partners, Inc. ("MLCP"), a private investment firm
associated with Merrill Lynch & Co., since 1988, a Partner of MLCP from 1993 to
1994, an Executive Vice President of MLCP from 1988 to 1993, and a Managing
Director of Merrill Lynch & Co. since 1988. From January to November 1988, he
was President and Chief Executive Officer of Printing Finance Company, Inc., a
printing company. From March 1985 to January 1988, Mr. Armstrong was Executive
Vice President and Chief Operating Officer of PACE Industries, Inc., a
manufacturing and printing company. Mr.
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<PAGE>
Armstrong is also a director of Ann Taylor Stores Corporation, Blue Bird
Corporation, First USA, Inc., World Color Press, Inc., Beatrice Foods, Inc., and
several privately-held corporations.
ALFRED C. DAUGHERTY has been a Senior Advisor to Smith Barney, an investment
banking firm, since 1985. Mr. Daugherty was Chairman of Duracell International
Inc., a manufacturer of premium batteries, and Executive Vice President of Dart
Industries Inc., a maker of consumer products and chemical specialties, as well
as a Director of both, until his retirement on January 1, 1985. Mr. Daugherty is
also a Director of American Precision Industries Inc., Blue Bird Corporation,
Cincinnati Milacron Inc., Grow Group, Inc. and A. Duda and Sons, Inc.
ROBERT F. END is a Partner and a Director of Stonington, a position that he
has held since 1993. He has also been a Director of MLCP since 1993. He was a
Partner of MLCP from 1993 to 1994 and Vice President of MLCP from 1989 to 1993.
Mr. End was also a Managing Director of the Investment Banking Division of
Merrill Lynch & Co. from 1993 to July 1994 and a Director of the Investment
Banking Division of Merrill Lynch & Co. from 1990 to 1993. Mr. End is also a
Director of Beatrice Foods, Inc., United Artists Theatre Circuit, Inc. and
several privately held corporations.
JAMES J. KERLEY served as the Vice Chairman and Chief Financial Officer of
Emerson Electric Co., a manufacturer of electrical products and systems for
consumer, commercial, industrial and defense markets, from 1981 until his
retirement in 1985. Mr. Kerley interrupted his retirement and, at the request of
the Board of Directors of Rohr, Inc., a manufacturer of jet engine components
and other components for aircraft, served as non-executive Chairman of Rohr,
Inc. from 1993 to 1994. Mr. Kerley was the Chief Financial Officer of Monsanto
Company, a manufacturer of chemical and agricultural products, pharmaceuticals,
low-calorie sweeteners, plastics and man-made fibers, from 1970 to 1981. Mr.
Kerley is also a Director of Sterling Chemicals, Inc., Borg-Warner Automotive,
Inc., and DT Industries, Inc.
ALEXIS P. MICHAS is a Managing Partner and a Director of Stonington, a
position that he has held since 1993. Mr. Michas is also a Managing Partner and
a Director of Stonington II, a position he has held since 1994. Mr. Michas has
also been a Director of MLCP since 1989. He was a Partner of MLCP from 1993 to
1994 and Senior Vice President of MLCP from 1989 to 1993. Mr. Michas was also a
Managing Director of the Investment Banking Division of Merrill Lynch & Co. from
1991 to July 1994 and a Director in the Investment Banking Division of Merrill
Lynch from 1990 to 1991. Mr. Michas is also a Director of Blue Bird Corporation,
Borg-Warner Automotive, Inc., Borg-Warner Security Corporation, Dictaphone
Corporation, Pathmark Stores, Inc., Supermarkets General Holdings Corp. and
several privately-held corporations.
ROBERT J. MYLOD, JR. is a Principal of Stonington, a position he has held
since January 1996. Mr. Mylod was an Associate of Stonington from 1993 to 1995.
Mr. Mylod was also an Associate of MLCP from 1993 to 1994 and an Analyst of MLCP
from 1989 to 1992. Mr. Mylod is also a Director of a privately-held corporation.
JAMES P. SHEENAN served as the President and Chief Operating Officer of A.H.
Belo Corp., a media company that publishes newspapers and televises programs
through stations owned by it, from 1987 to 1993. Since January 1994, Mr. Sheehan
has been self-employed as a private investor. Mr. Sheehan is not a member of the
Board of Directors of any company with publicly registered debt or equity
securities.
WILLIAM A. BOSTON joined Goss in 1970 and has served as Regional Manager of
Goss's Asia Pacific Operations and Director of International Marketing. Since
1981, Mr. Boston has been responsible for Goss's commercial printing press
business as Vice President, Commercial Products.
BARBARA L. GORA joined Goss in 1978 as Manager of Public Relations, and
subsequently served in a series of business line positions involving contract
administration and sales support. In 1985, she was
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<PAGE>
named Marketing Manager for the newly formed insert/small newspaper business and
later named Marketing Manager for the Americas commercial business. In 1992, she
was promoted to Americas Marketing Director for both Newspaper and Commercial
products. In December 1995, she was promoted to company-wide Director of
Marketing and Communications, reporting to the President.
FRANK D. JURENKA began his career at Goss in 1977 as Plant Manager of the
Reading, Pennsylvania facility. His 18 years of experience with Goss have
included various senior management positions, including Vice President and
General Manager, Asia Pacific; Vice President, Manufacturing; and Vice
President, Engineering. Mr. Jurenka assumed his current role of Vice President,
U.S. Operations in late 1995 after serving as Vice President and General
Manager, Asia Pacific from 1990-1995.
P. MICHAEL KIENZLE began his career at Goss in 1961 as a Field Erector.
Since that time he has held a number of positions within Goss, including key
management positions such as Director of Customer Service, Director of Sales and
Service, Director of Marketing and Sales, General Manager of Newspaper Products
and Vice President, Goss Newspaper Products. In 1992, he was promoted to his
current position of Vice President, Newspaper Products, with expanded
responsibilities within the Americas newspaper business, after serving as Vice
President, Goss Newspaper Products from 1991 to 1992.
JACK E. MERRYMAN joined Goss in June 1996 as Vice President and General
Counsel. Prior to joining Goss, Mr. Merryman served as General Counsel and
Secretary for Reliance Electric Company, a subsidiary of Rockwell which makes
industrial motors and drive systems, since 1995. Mr. Merryman had served as
Assistant General Counsel & Assistant Secretary of Reliance Electric Company
from 1993 to 1995, and as Senior Counsel from 1987 to 1993. Prior to joining
Reliance Electric Company in 1985, Mr. Merryman served in various legal
capacities for The Sherwin-Williams Company, Roadway Express, Inc., and the City
of Cleveland, Ohio. He is certified to practice before the U.S. Supreme Court
and the U.S. Tax Court.
M. ERIC SCHROEDER joined Goss in June 1995 as Vice President, Finance and
Administration. Prior to joining Goss, Mr. Schroeder served as the Director of
Finance and Controller for Rockwell Switching Systems, a business unit of
Rockwell which designs and manufactures phone call distribution systems, since
April 1988. He has been with Rockwell's organization for 22 years, serving in
financial management positions at both division and corporate staff levels for
Rockwell's government and commercial businesses.
ALAN P. SHENG began his career with Goss in 1985 as Director, Advanced
Technology and Software. After serving in several positions with increasing
engineering, research and development responsibilities, including Executive
Director, Advanced Technology from 1991 to 1992, he was promoted to his present
position of Vice President, Engineering and Technology in 1992. His prior
experience includes six years as a research physicist at Rutgers University and
Caltech and nine years with Bell Laboratories.
BRIAN J. SMITH joined Goss in February 1996 as Vice President, Human
Resources. Prior to joining Goss, Mr. Smith was Director of Global Human
Resources Strategy for the Colgate-Palmolive Company, a consumer products
company, since 1991. Prior to joining Colgate-Palmolive in 1983, Mr. Smith held
a number of human resources management positions at Bankers Trust Company,
Freeport-McMoran, Inc., and American Standard, Inc. Mr. Smith has also served as
Vice Chairman for "Jobs For Youth," a not-for-profit organization based in New
York City, and on the Board of Trustees of Adelphi University.
RICHARD J. SUTIS rejoined Goss in January 1996 as Vice President, Asia
Pacific. From August 1994 to January 1996, Mr. Sutis served as Vice President,
Business Development and Strategy for Stevens International, Inc., a
manufacturer and marketer of complete web fed printing and
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<PAGE>
packaging systems. Prior to August 1994, and since 1965, Mr. Sutis worked for
Goss (or its predecessors), serving in numerous engineering, marketing and
senior management positions, including Director, Program Management from 1991 to
August 1994.
MICHAEL C. SZYMASZEK joined Goss as Vice President, Quality Assurance in
June 1995, after serving as Director of Quality at Square D Corporation, a maker
of electrical distribution, automation and industrial control products, systems
and services, since 1991. Mr. Szymaszek also assumed the position of Plant
Manager, Cedar Rapids, in May 1996. He worked for Square D Corporation for 27
years, where he served in various management positions in engineering, customer
service and quality.
RANDALL THOMAS joined Goss in 1989 after a decade of serving as Managing
Director of two other divisions of Rockwell in the United Kingdom. In 1989, Mr.
Thomas became Managing Director of Goss's operations at its Preston, England
facility before being promoted in 1992 to his current position of Vice President
& General Manager, Europe.
Messrs. Armstrong, Michas and Mylod will serve as members of the Audit and
Compensation Committees. They are employees of Stonington and serve on the Board
of Directors as representatives of Stonington.
MANAGEMENT INVESTMENT
Simultaneously with the Acquisition Closing, Holdings will issue 40,300
shares of Common Stock to the Management Investors, who are comprised of Messrs.
Kuhn, Boston, Jurenka, Kienzle, Thomas and other key members of management, in
the Management Placement for $4,030,000. The Management Investors will purchase
such shares of Common Stock at the same price per share that the Fund and the
Institutional Investor will pay in the Stonington Investment and the Equity
Private Placement, respectively. Holdings will finance $2,025,000 of this amount
by non-recourse loans (the "Management Notes"); the remaining $2,005,000 will be
paid in cash by the Management Investors. Shares of Common Stock and Management
Notes have been offered to Mr. Kuhn and the executive officers named in the
Summary Compensation Table below (other than Mr. Swift) in the following
amounts: Mr. Kuhn--17,000 shares and $850,000; Mr. Boston--2,000 shares and
$100,000; Mr. Jurenka-- 1,000 shares and $50,000; Mr. Kienzle--1,000 shares and
$50,000; and Mr. Thomas--4,000 shares and $200,000. The Management Notes will
bear interest at a rate equal to 8 1/4%, and will be secured by the pledge of
all the Common Stock held by the Management Investors. As a condition to the
closing of the Management Placement, the Management Investors will be required
to enter into the Stockholders Agreement. See "Certain
Transactions--Stockholders Agreement."
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by Goss to its
President and to each of its four most highly compensated executive officers
(other than the President) whose total cash compensation exceeded $100,000, for
the year ended September 30, 1995:
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
------------------ ----------------------------
AWARDS PAYOUTS
------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS LTIP PAYOUTS
- ------------------------------------- ---- ------- ------- ------------ ------------
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Robert L. Swift (a).................. 1995 256,000 275,000 20,000(b) 199,300(c)
President
William A. Boston.................... 1995 191,400 214,800 -- --
Vice President,
Commercial Products
Frank D. Jurenka..................... 1995 168,600 100,000 -- --
Vice President,
U.S. Operations
P. Michael Kienzle................... 1995 138,200 93,000 -- --
Vice President,
Newspaper Products
Randall Thomas....................... 1995 177,361 151,500 -- --
Vice President & General
Manager, Europe
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Robert M. Kuhn is currently the President of Goss and will serve as Chairman and Chief
Executive Officer of the Company immediately following the Acquisition. Mr. Swift
joined Goss and served as its President from April 1994 until October 1995.
(b) Options to purchase Rockwell stock were granted in fiscal year 1995 to Mr. Swift
pursuant to the Rockwell 1988 Long-Term Incentives Plan. There were no options for
securities of the Company granted during the year ended September 30, 1995. Options to
purchase Rockwell stock will not be converted into options to purchase securities of
Goss.
(c) None of the other officers, besides Mr. Swift, received long-term incentive plan
payouts. Mr. Swift received his long-term incentive plan payout as a participant in the
Allen-Bradley Supplemental Performance Unit Plan. The value for his payout is the
aggregate of the value of the payout of performance units, which is based on
Allen-Bradley's sales growth and return-on-sales performance.
</TABLE>
71
<PAGE>
OPTION GRANTS TO PURCHASE ROCKWELL STOCK IN LAST FISCAL YEAR (A)
<TABLE><CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------- ANNUAL RATES OF
% OF ROCKWELL
TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED OPTION TERM
UNDERLYING TO EXERCISE EXPIRATION AS OF
OPTIONS EMPLOYEES OR BASE DATE SEPT. 30, 1995 (C)
GRANTED IN FISCAL PRICE AS OF ---------------------
NAME (#) YEAR ($/SH) SEPT. 30, 1995 (B) 5%($) 10%($)
- --------------------------- ---------- --------- -------- ------------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Swift............ 20,000 1.0% $ 35.625 December 7, 2004 $448,087 $1,135,542
William A. Boston.......... 0 N/A N/A N/A N/A N/A
Frank D. Jurenka........... 0 N/A N/A N/A N/A N/A
P. Michael Kienzle......... 0 N/A N/A N/A N/A N/A
Randall Thomas............. 0 N/A N/A N/A N/A N/A
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Options to purchase Rockwell stock were granted in fiscal year 1995 to Mr. Swift
pursuant to the Rockwell 1988 Long-Term Incentives Plan. There were no options for
securities of Goss granted in fiscal year 1995. Options to purchase stock will not be
converted into options to purchase securities of the Company.
(b) Except for Mr. Swift, all other named executive officers' employment with Rockwell will
terminate as of the Closing Date. As a result, it is expected that all options to
purchase Rockwell stock held by such officers to the extent they are not exercisable
will terminate and be forfeited on the Closing Date and to the extent they are
exercisable, will remain exercisable for a period of three months. Mr. Swift, who
retired from Rockwell effective December 31, 1995, will be entitled to exercise his
options for three years from the date of retirement.
(c) Options to purchase Rockwell stock held by all named executive officers will terminate
or remain exercisable as discussed in footnote (b) above. As a result, the named
executive officers may not benefit from any appreciation of the common stock of
Rockwell as indicated in these two columns.
</TABLE>
AGGREGATED EXERCISES OF OPTIONS TO PURCHASE ROCKWELL STOCK
IN LAST FISCAL YEAR AND 1995 FISCAL YEAR END OPTION VALUES(A)
<TABLE><CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT 1995 FISCAL YEAR END 1995 FISCAL YEAR END($)
ON --------------------------- ---------------------------
NAME EXERCISE(#) VALUE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Swift............ 0 N/A 10,000 20,000 $ 96,250 $ 232,500
William A. Boston.......... 0 N/A 33,500 0 684,250 0
Frank D. Jurenka........... 0 N/A 22,500 0 519,813 0
P. Michael Kienzle......... 3,100 65,681 16,300 0 367,100 0
Randall Thomas............. 0 N/A 2,400 0 54,600 0
</TABLE>
- ------------
(a) This table reflects options to purchase Rockwell stock granted to the named
executive officers pursuant to the Rockwell 1988 Long-Term Incentives Plan
as described in footnote (b) to the Summary Compensation Table above.
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<PAGE>
PENSION PLANS
Certain employees of Goss currently participate in either the Rockwell
Retirement Income Plan for Certain Salaried Employees or the Rockwell Retirement
Income Plan for Certain Salaried Employees in General Industries Operations,
each a subplan of the Rockwell Retirement Plan for Eligible Employees
(collectively, the "Rockwell Retirement Plans"). The Rockwell Retirement Plans
have virtually the same "Normal Retirement Benefit" formula which is calculated
as follows: (i) 2 2/3 of final 5-year average compensation multiplied by years
of service (up to 15 years of service) plus 1/2% of final 5-year average
compensation multiplied by years of service in excess of 15 years (up to 20
years of service); minus (ii) an offset percentage equal to .455%, .425% or
.400% (depending on an individual's Social Security Retirement Age (which is
based on year of birth)) applied to the first 15 years of service, plus .250%
applied to years of service between 15 years and 20 years of service, multiplied
by Social Security Covered Compensation.
For accrued benefit determinations prior to age 62, benefit service is
determined as if the employee remained in service until age 62 (or 85 points
(where "points" are equal to the sum of age plus years of service) for certain
grandfathered participants, if earlier under the Rockwell Retirement Income Plan
for Certain Salaried Employees), and the resulting benefit is then multiplied by
the ratio of actual service to service projected to age 62. Compensation is
determined based on total wages, up to the Internal Revenue Service limits. The
Normal Retirement Age is age 65, but the Rockwell Retirement Plans provide for
substantial early retirement subsidies.
Pursuant to the Purchase Agreement, employees of the Company who participate
in the Rockwell Retirement Plans immediately prior to the Closing will cease to
accrue benefits under the Rockwell Retirement Plans and will have a fully
nonforfeitable right to such employee's benefits payable at Normal Retirement
Age under the Rockwell Retirement Plans accrued as of the last business day of
the month in which the Closing occurs. Rockwell will retain full power and
authority with respect to the amendment and termination of the Rockwell
Retirement Plans. Rockwell will remain solely responsible for, and the Company
will have no liability under, relating to or arising out of the Rockwell
Retirement Plans. If the Closing had occurred on July 31, 1996, the estimated
annual benefits at age 62 payable to the named executive officers under the
Rockwell Retirement Plans are as follows: Mr. Boston-- $74,556; Mr.
Jurenka--$93,924; Mr. Kienzle--$68,916; Mr. Thomas--$38,940 (Mr. Thomas
participates in the Rockwell U.K. Executive Plan and his estimated annual
benefits assume an exchange rate of 1.5601 U.S. dollars per pound sterling; and
Mr. Swift--not applicable, since Mr. Swift retired from Rockwell effective
December 31, 1995.
After the consummation of the Acquisition, the Company intends to offer
participation in a defined contribution plan to be established by the Company.
EMPLOYMENT AGREEMENTS
On October 9, 1995, Rockwell entered into a letter employment agreement with
Robert Kuhn providing for Mr. Kuhn's employment as President of Goss. The
agreement provides for an annual base salary of $400,000, and, in the event Mr.
Kuhn is removed as President of Goss during the first 12 months following any
sale by Rockwell of Goss, Mr. Kuhn will receive $400,000 annually for two years,
provided that he is unemployed during such period. The agreement also provides
that Mr. Kuhn will receive a lifetime retirement benefit of $32,000 annually
beginning on his 62nd birthday, provided that Mr. Kuhn does not voluntarily
terminate his employment with Goss (or any successor entity) within five years
of the date of the agreement. In the event that Mr. Kuhn becomes entitled to the
$800,000 payment following his removal as President of Goss during the first
twelve months following a sale of Goss, he will not be entitled to the
retirement benefit. In addition, Mr. Kuhn is entitled to receive incentive
compensation from Rockwell, based on a sale of Goss, determined by reference to
the
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<PAGE>
purchase price paid for Goss. Based on the terms of the Acquisition, Mr. Kuhn is
expected to receive incentive compensation of between $350,000 and $1,000,000.
The Company and Mr. Kuhn intend to enter into an employment agreement that
will supersede and modify the letter employment agreement between Mr. Kuhn and
Rockwell to the extent that the Company has assumed any obligations thereunder.
Mr. Kuhn will serve as Chairman and Chief Executive Officer of the Company with
an initial employment term of two years (which will be automatically extended
for additional two-year terms unless affirmatively terminated by either the
Company or Mr. Kuhn). The agreed-upon annual base salary will be $550,000
subject to annual increases as determined by the Board of Directors. Mr. Kuhn
will also be eligible to receive an annual cash bonus which will be determined
in accordance with the terms of a bonus plan applicable to other senior
executives of the Company to be adopted by the Board of Directors.
Upon a Termination of Employment Without Cause (as defined in the employment
agreement) or a termination of employment by Mr. Kuhn for Good Reason (as
defined in such agreement), Mr. Kuhn will receive an amount in a lump sum equal
to two times his base salary plus an amount equal to the sum of the accrued
annual base salary as of the date of termination and the accrued annual bonus
for the fiscal year prior to the date of termination, if not yet paid, and a pro
rata portion of the annual bonus accrued to the date of such termination. In
addition, until the earlier of two years after the date of termination or Mr.
Kuhn's commencement of employment with another employer, the Company will
continue to provide Mr. Kuhn with the welfare benefits to which he was entitled
while employed by the Company. Mr. Kuhn will not receive severance in connection
with a termination for Cause or termination by Mr. Kuhn other than for Good
Reason or retirement. Upon a termination of employment due to death, disability
or retirement, the Company will pay to Mr. Kuhn or his estate, as the case may
be, an amount equal to the sum of the accrued annual base salary as of the date
of death, disability or retirement and the accrued annual bonus for the fiscal
year prior to the date of death, disability or retirement, if not yet paid, and
a pro-rata portion of the annual bonus accrued to the date of such death,
disability or retirement.
MANAGEMENT STOCK INCENTIVE PLAN
At the Acquisition Closing, Holdings intends to adopt the Management Stock
Incentive Plan (the "Plan") pursuant to which officers and key employees of
Holdings and its subsidiaries (the "Participants") will be granted shares of
Nonvoting Common Stock as restricted stock (the "Restricted Stock") and stock
options exercisable into shares of Common Stock (the "Options"). The Plan is not
related to the Rockwell 1988 Long-Term Incentives Plan discussed above and will
be a separate plan established by Holdings at the Acquisition Closing. The Plan
will be administered by either the Compensation Committee of the Board of
Directors (the "Committee") or the Board of Directors (the "Board"). The
Committee or the Board will have the discretion to select those to whom certain
Options will be granted (from among those eligible) and to determine the
exercise price, the duration and other terms and conditions of such Options (the
"Discretionary Options"). Under the Plan, 12,800 shares of Common Stock will
initially be available for purchase pursuant to Discretionary Options. It is
presently anticipated that certain other Options and the Restricted Stock will
be granted at the Acquisition Closing, as described below. The Board or the
Committee will have the authority to interpret and construe the Plan and any
interpretation or construction of the provisions of the Plan or of any Options
or Restricted Stock granted under the Plan by the Board or the Committee will be
final and conclusive.
It is expected that, at the Acquisition Closing, Options to purchase up to
31,450 shares of Common Stock at an exercise price equal to $100 per share will
be granted (the "Incentive Options"). Twenty percent of the Incentive Options
granted will vest and become exercisable per year on each of the first through
fifth anniversaries of the date of grant, provided that the Participant
continues to be employed by Holdings or a subsidiary of Holdings. It is also
expected that, at the Acquisition Closing, Options to purchase up to 31,450
shares at an exercise price equal to $100 per share will be granted (the
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<PAGE>
"Performance Options"). Up to 20% of the Performance Options will be eligible to
vest and become exercisable each year on each of the first through fifth
anniversaries of the date of grant. Whether such Performance Options vest and,
if so, what fraction of those eligible actually vest will be determined based
upon Holdings' achievement of certain predetermined financial performance goals.
In any case, the Performance Options will vest no later than on the tenth
anniversary of the Acquisition Closing, provided that the applicable Participant
continues to be employed by Holdings or a subsidiary of Holdings. It is also
expected that, at the Acquisition Closing, approximately 7,500 shares of
Nonvoting Common Stock will be issued as Restricted Stock to certain
non-employee members of the Board who are not Management Investors. Twenty
percent of the Restricted Stock will vest at the Acquisition Closing, and 20%
will vest per year on each of the first through fourth anniversaries of the date
of grant, provided that the Participant continues to serve as a member of the
Board of Directors of Holdings or a subsidiary of Holdings. In the event of an
Extraordinary Transaction (as defined in the Option and Restricted Stock
agreements) of Holdings prior to the fifth anniversary of the Acquisition
Closing (or the fourth anniversary in the case of the Restricted Stock), all
outstanding Incentive Options, a portion of the outstanding Performance Options
(determined in accordance with the Plan), and all outstanding Restricted Stock
will become fully vested upon consummation of the Extraordinary Transaction.
The terms and conditions of an Option grant will be set forth in a related
Option agreement (the "Option Agreement"). Options granted under the Plan will
terminate upon the earliest to occur of (a) the tenth anniversary of the date of
the Option Agreement; (b) the date on which Holdings acquires any shares of
Common Stock or Options held by the Participant in connection with the exercise
of a Put Right (as defined in the Stockholders Agreement); (c) the
one-hundred-eighty-day anniversary of the date of death, Retirement (as defined
in the Stockholders Agreement) or Disability (as defined in the Stockholders
Agreement) of the Participant; (d) the thirty-day anniversary of the date that
the Participant ceases to be a full-time employee of Holdings or its
subsidiaries for any reason other than as set forth in (c) above or in (e)
below; and (e) immediately upon a Participant's voluntary termination of
employment other than due to death, Retirement or Disability, or termination for
Cause (as defined in the Stockholders Agreement). Payment of the Option exercise
price must be made in cash.
The terms and conditions of a grant of Restricted Stock will be set forth in
a related Restricted Stock agreement. Restricted Stock granted under the Plan,
to the extent that it has not previously vested, will be forfeited immediately
upon the Participant's ceasing to be a member of the Board of Directors of
Holdings or its subsidiaries for any reason. A Participant who has been granted
Restricted Stock will have, with the respect to the shares of Nonvoting Common
Stock underlying the grant, all of the rights of a holder of the Nonvoting
Common Stock. The shares of Nonvoting Common Stock issued as Restricted Stock
will have all the rights of shares of Common Stock, including the right to
receive any cash dividends, except that shares of Nonvoting Common Stock will
not have any voting rights.
It is presently anticipated that grants of Options and Restricted Stock will
be made to the named executive officers, employees and non-employee directors of
Holdings or its subsidiaries at the Acquisition Closing as set forth in the
Management Stock Incentive Plan Table below.
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<PAGE>
MANAGEMENT STOCK INCENTIVE PLAN TABLE
<TABLE><CAPTION>
INCENTIVE PERFORMANCE RESTRICTED
OPTIONS OPTIONS STOCK(A)
---------------- ---------------- ---------
DOLLAR DOLLAR NUMBER OF
NAME AND POSITION NUMBER AMOUNT NUMBER AMOUNT SHARES
- ------------------------------------------------- ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Robert M. Kuhn................................... 13,000 0 13,000 0 0
Chairman and Chief Executive Officer
William A. Boston................................ 1,000 0 1,000 0 0
Vice President, Commercial Products
Frank D. Jurenka................................. 750 0 750 0 0
Vice President, U.S. Operations
P. Michael Kienzle............................... 750 0 750 0 0
Vice President, Newspaper Products
Randall Thomas................................... 3,250 0 3,250 0 0
Vice President & General Manager, Europe
All Executive Officers as a Group (including
those listed above)............................ 27,000 0 27,000 0 0
J. Joe Adorjan................................... 0 0 0 0 1,875
Alfred C. Daugherty.............................. 0 0 0 0 1,875
James J. Kerley.................................. 0 0 0 0 1,875
James P. Sheehan................................. 0 0 0 0 1,875
All Other Employees as a Group................... 4,450 0 4,450 0 0
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Twenty percent of the Nonvoting Common Stock granted to the non-employee directors will
vest immediately upon issuance at the Acquisition Closing and twenty percent will vest
per year upon each of the first through fourth anniversaries of the grant date. The
Nonvoting Common Stock will have all the rights of the Common Stock except the
Nonvoting Common Stock will have no voting rights. In addition the holders of the
Nonvoting Common Stock will enter into the Stockholders Agreement. See "Certain
Transactions--Stockholders Agreement."
</TABLE>
The number of shares of Common Stock that will be available for Options
under the Plan is 75,700 shares and the number of shares of Nonvoting Common
Stock that will be available for Restricted Stock under the Plan is 7,500
shares. If Options granted under the Plan are repurchased by Holdings pursuant
to the "Put Rights" and "Call Rights" contained in the Stockholders Agreement,
the shares covered by such Options will again be available for grant under the
Plan. In the event of the declaration of a stock dividend, or a reorganization,
merger, consolidation, acquisition, disposition, separation, recapitalization,
stock split, split-up, spin-off, combination or exchange of any shares of Common
Stock or Nonvoting Common Stock or like event, the number or character of the
shares subject to the Option or the exercise price of any Option, or the number
or character of the shares granted as Restricted Stock, as applicable, may be
appropriately adjusted as deemed appropriate by the Committee or the Board.
The Plan will terminate upon, and no Options or Restricted Stock will be
granted after, the tenth anniversary of the Acquisition Closing, unless the Plan
has sooner terminated due to (i) grant and full exercise of Options covering all
the shares of Common Stock available for grant under the Plan and (ii) grant and
either vesting or forfeiture of all the shares of Nonvoting Common Stock
available for grant under the Plan. The Board may at any time amend, suspend or
discontinue the Plan; provided, however, that the Board may not alter, amend,
discontinue or revoke or otherwise impair any outstanding Options or Restricted
Stock granted under the Plan and which remain unexercised (in the case of
Options) or which have not been vested or forfeited (in the case of Restricted
Stock) in a manner adverse to the holders thereof, except if the written consent
of such holder is obtained.
OWNERSHIP OF CAPITAL STOCK
The following tables set forth certain information regarding beneficial
ownership of the common stock of Holdings, the nonvoting common stock of
Holdings and the preferred stock of Holdings after the consummation of the
Transactions by (i) each stockholder who is known by the Company to own
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<PAGE>
beneficially more than 5% of the outstanding common stock of Holdings, the
outstanding nonvoting common stock of Holdings or the outstanding preferred
stock of Holdings, and (ii) each director, each executive officer and all
directors and officers as a group. Except as set forth in the footnotes to the
table, each stockholder listed below has informed the Company that such
stockholder has (i) sole voting and investment power with respect to such
stockholder's shares of capital stock of Holdings and (ii) record and beneficial
ownership with respect to such stockholder's shares of capital stock of
Holdings. Holdings will own all of the capital stock of the Company.
HOLDINGS COMMON STOCK
<TABLE><CAPTION>
SHARES OF HOLDINGS
NAME OF COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED
- ------------------------------------------------------------------------- --------------------
<S> <C> <C>
NUMBER PERCENT
--------- -------
Stonington Capital Appreciation
1994 Fund, L.P. (a).................................................... 1,124,700 96.5%
Robert M. Kuhn........................................................... 17,000 1.5%
William A. Boston........................................................ 2,000 *
Frank D. Jurenka......................................................... 1,000 *
P. Michael Kienzle....................................................... 1,000 *
Randall Thomas........................................................... 4,000 *
Directors and executive officers as a group
(including those listed above) (b)..................................... 37,700 3.2%
</TABLE>
- ------------
<TABLE>
<C> <S>
* Signifies less than 1%.
(a) After consummation of the Acquisition, the Fund will be the record holder of 1,114,700
shares of Common Stock. The Fund also controls, but disclaims beneficial ownership of,
an additional 10,000 shares purchased by an institutional investor pursuant to the
Stockholders Agreement. The Fund is a Delaware limited partnership whose limited
partners consist of certain institutional investors, formed to invest in corporate
acquisitions organized by Stonington. Stonington Partners, L.P. ("SPLP"), a Delaware
limited partnership, is the general partner of Stonington with a 1% economic interest
in Stonington. Except for such economic interest, SPLP disclaims beneficial ownership
of the shares set forth above. Stonington II is the general partner of SPLP with a 1%
economic interest in SPLP. Except for such economic interests, Stonington II disclaims
beneficial ownership of the shares set forth above. The limited partners of SPLP are
certain employees of Stonington and partnerships controlled by certain employees of
Stonington.
Pursuant to a management agreement with the Fund, Stonington has full discretionary
authority with respect to the investments of the Fund, including the authority to make
and dispose of such investments. Stonington disclaims beneficial ownership of the
shares set forth above. The address for each of the entities and individuals listed in
this footnote is c/o Stonington Partners, Inc., 767 Fifth Avenue, New York, NY 10153.
(b) Excludes shares held by the Fund of which Mr. Armstrong, Mr. End and Mr. Michas may be
deemed to be beneficial owners as a result of their ownership of stock in, and
membership on the Boards of Directors of, Stonington and Stonington II, but they
disclaim such beneficial ownership.
</TABLE>
77
<PAGE>
HOLDINGS NONVOTING COMMON STOCK
<TABLE><CAPTION>
SHARES OF
HOLDINGS
NONVOTING COMMON
STOCK
NAME OF BENEFICIALLY
BENEFICIAL OWNER OWNED
- ---------------------------------------------------------------------------- -----------------
<S> <C> <C>
NUMBER PERCENT
------ -------
J. Joe Adorjan.............................................................. 1,875 25%
Alfred C. Daugherty......................................................... 1,875 25%
James J. Kerley............................................................. 1,875 25%
James P. Sheehan............................................................ 1,875 25%
</TABLE>
HOLDINGS PREFERRED STOCK
<TABLE>
<CAPTION>
SHARES OF
HOLDINGS
PREFERRED
STOCK
NAME AND ADDRESS OF BENEFICIALLY
BENEFICIAL OWNER OWNED
- --------------------------------------------------------------------------- -----------------
<S> <C> <C>
NUMBER PERCENT
------ -------
Rockwell International Corporation......................................... 47,500 100%
2201 Seal Beach Boulevard
Seal Beach, California 90740
</TABLE>
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<PAGE>
CERTAIN TRANSACTIONS
Stonington is receiving a structuring fee of $6.0 million that will be paid
by the Company with respect to its activities in structuring the Acquisition and
related transactions. In addition, Stonington is having reimbursed out-of-pocket
fees and expenses (including filing fees, travel and other fees and expenses)
incurred by Stonington in connection with the Acquisition. Management estimates
that these fees and expenses will total approximately $350,000.
STOCKHOLDERS AGREEMENT
Holdings, the Fund, the Institutional Investor, the Management Investors and
directors of Holdings who are granted Nonvoting Common Stock at the Acquisition
Closing ("Restricted Stockholders") (each, a "Stockholder") will enter into a
stockholders agreement (the "Stockholders Agreement"), which will contain, among
other terms and conditions, provisions relating to corporate governance, certain
restrictions with respect to the transfer of Common Stock or Nonvoting Common
Stock by certain parties thereunder, certain rights related to puts and calls
and certain registration rights granted by Holdings with respect to shares of
Common Stock and Nonvoting Common Stock.
Pursuant to the terms of the Stockholders Agreement the Fund will control
the votes of the Common Stock purchased in the Equity Private Placement. The
Fund will also have the right to nominate at any time and from time to time all
directors of Holdings (including the right to expand the Board of Directors and
to fill vacancies created thereby) and will have the right to remove such
directors at any time and from time to time and each of the Stockholders will
agree to vote in favor of such nomination or removal of directors. Holdings
currently has nine Board members.
Pursuant to the terms of the Stockholders Agreement, in the event that,
prior to an Initial Public Offering (as defined in the Stockholders Agreement),
the Fund proposes to sell securities which, in the aggregate, represent 50% or
more of the common equity on a fully diluted basis to a third party which is
not, and following such sale will not be, an affiliate of the Fund, the
Management Investors and the Restricted Stockholders will have the right to
elect to participate in such sale with respect to a certain number of shares of
Common Stock and Nonvoting Common Stock. In the event that, prior to an Initial
Public Offering, the Fund proposes to sell securities which, in the aggregate,
represent 40% or more of the common equity on a fully diluted basis to a third
party which is not, and following such sale will not be, an affiliate of the
Fund, the Fund has the right to require each Management Investor each Restricted
Stockholder and such other stockholders who have agreed to be bound by the
Stockholders Agreement to participate in such sale with respect to a certain
number of shares of Common Stock and Nonvoting Common Stock.
Management Investors and Restricted Stockholders will not be permitted to
sell or transfer Common Stock or Nonvoting Common Stock, as the case may be,
other than to permitted transferees (i.e., family members and, upon the death of
a Management Investor or a Restricted Stockholder, to his or her estate or
executors), prior to the occurrence of the earlier of the fifth anniversary of
the Acquisition Closing and an Initial Public Offering. Following an Initial
Public Offering, Management Investors and Restricted Stockholders may transfer
shares subject to applicable restrictions under the Securities Act of 1933, as
amended (the "Securities Act"), and other federal and state securities laws. On
or after the fifth anniversary and prior to the tenth anniversary of the
Acquisition Closing, if an Initial Public Offering has not occurred, Management
Investors and Restricted Stockholders will be permitted to sell Common Stock or
Nonvoting Common Stock, as the case may be, to third parties after first giving
Holdings and the other Management Investors and Restricted Stockholders a right
of first refusal for the same number of shares of Common Stock or Nonvoting
Common Stock, as the case may be, at the same price.
Prior to the earlier of an Initial Public Offering or the tenth anniversary
of the Acquisition Closing, Holdings will have the right to require a Management
Investor or a Restricted Stockholder to sell his or
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<PAGE>
her shares of Common Stock or Nonvoting Common Stock, as the case may be, and
Options upon a termination of employment or directorship for any reason. Such
right will be exercisable within a period of one year after the date of
termination of employment or directorship, (or for a period of 190 days, in the
case of termination due to death), subject to certain extensions, at a price per
share, depending on the reason for termination of employment or directorship and
whether such shares are Protected Shares (as defined in the Stockholders
Agreement), equal to the Fair Value Price (as defined in the Stockholders
Agreement) or the original per share purchase price of a share of Common Stock
or Nonvoting Common Stock, as the case may be, (and including, in certain
circumstances, a reduction in the unpaid principal amount of the note issued to
Holdings by such Management Investor in connection with the Management
Placement) and at a price per Option equal to the difference between the Fair
Value Price or the original per share purchase price of the shares of Common
Stock covered by such Option and the exercise price of the shares of Common
Stock covered by such Option, multiplied by the number of shares of Common Stock
covered by the Option. Prior to the earlier of an Initial Public Offering or the
tenth anniversary of the Acquisition Closing, the Management Investor and the
Restricted Stockholder will have the right to require Holdings to purchase his
or her shares of Common Stock or Nonvoting Common Stock, as the case may be, or
Options upon termination of employment or directorship due to death, Disability,
Retirement or Involuntary Termination (as defined in the Stockholders
Agreement). Such a right will be exercisable within a period of 180 days after
the date of termination of employment or directorship due to death, Disability,
Retirement or Involuntary Termination, subject to certain extensions, (a) at a
price per share of Common Stock or Nonvoting Common Stock, as the case may be,
equal to the Fair Value Price thereof; and (b) at a price per Option equal to
the difference between the Fair Value Price of the shares of Common Stock
covered by such Option and the exercise price of the shares of Common Stock
covered by such Option, multiplied by the number of shares of Common Stock
covered by the Option.
The Institutional Investor may not, without the prior written consent of the
Fund, sell or otherwise dispose of its shares of Common Stock prior to the sale
or other disposition by the Fund of a like proportion of its shares of Common
Stock and then only on the same terms and conditions as the Fund's sale or other
disposition.
Stockholders are, subject to certain limitations, entitled to register
shares of Common Stock or Nonvoting Common Stock in connection with a
registration statement prepared by Holdings to register common equity
beneficially owned by the Fund. The Fund will have the right to require Holdings
to take such steps as necessary to register all or part of the Common Stock held
by the Fund under the Securities Act pursuant to the provisions of the
Stockholders Agreement. The Stockholders Agreement contains customary terms and
provisions with respect to, among other things, registration procedures and
certain rights to indemnification granted by parties thereunder in connection
with the registration of Common Stock or Nonvoting Common Stock subject to such
agreement.
DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued under an Indenture, to be dated as of
, 1996 (the "Indenture"), between the Company and
, as Trustee (the "Trustee").
A copy of the form of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following is a
summary of the material provisions of the Indenture. This summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part thereof by the Trust Indenture
Act of 1939, as amended. Certain terms used herein are defined below under
"--Certain Definitions."
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<PAGE>
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at , New
York, New York ), except that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Holders as such
address appears in the Note register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration of transfer or exchange of Notes, but the
company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Company,
limited to $225 million aggregate principal amount, and will mature on ,
2006. The Notes will bear interest at the rate per annum shown on the cover page
hereof from , or from the most recent date to which interest has been paid
or provided for, payable semiannually to Holders of record at the close of
business on the or immediately preceding the interest payment date
on and of each year, commencing , 1997. The Company
will pay interest on overdue principal at such rate, and it will pay interest on
overdue installments of interest at such rate to the extent lawful. Interest on
the Notes will be computed on the basis of a 360-day year of twelve 30-day
months.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to , 2001. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on of the years set forth below:
REDEMPTION
PERIOD PRICE
- ---------------------------------------------------------------- ----------
2001............................................................ %
2002............................................................ %
2003............................................................ %
2004 and thereafter............................................. 100.00%
Notwithstanding the foregoing, at any time and from time to time prior to
, 1999, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Notes with the net proceeds of one or more Public Equity
Offerings following which there is a Public Market or private sales of common
stock of, or contributions to the common equity capital of, the Company or
Holdings, at a redemption price (expressed as a percentage of principal amount)
of % plus accrued and unpaid interest to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that at least
$ million aggregate principal amount of the Notes must remain
outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such
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<PAGE>
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original Note.
RANKING
The Debt evidenced by the Notes will be senior subordinated unsecured
obligations of the Company. The payment of the principal of, premium (if any)
and interest on the Notes will be subordinate in right of payment, as set forth
in the Indenture, to the prior payment in full in cash or Cash Equivalents of
all Senior Debt, whether outstanding on the Issue Date or thereafter incurred,
including the Company's obligations under the Credit Agreement.
At June 30, 1996, after giving pro forma effect to the Transactions, the
Company's Senior Debt would have been approximately $25.3 million (including $25
million under the Term Loan Facility and excluding approximately $7.0 million of
letters of credit and excluding guarantees by the Company of subsidiary
borrowings under the Term Loan Facility), all of which would have been secured,
and the aggregate principal amount of subordinated liabilities of the Company
would have been approximately $178.5 million. Although the Indenture contains
limitations on the amount of additional Debt that the Company may incur, under
certain circumstances the amount of such Debt could be substantial and, in any
case, such Debt may be Senior Debt. See "--Certain Covenants--Limitation on
Debt."
A portion of the operations of the Company are conducted through
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding debt and guarantees issued by
such subsidiaries, and claims of preferred stockholders (if any) of such
subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the company,
including holders of the Notes, even though such obligations will not constitute
Senior Debt. The Notes, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of subsidiaries
of the Company. At June 30, 1996, after giving pro forma effect to the
Transactions, the aggregate liabilities of the Company's subsidiaries would have
been approximately $222.4 million, including $50 million under the Term Loan
Facility and trade payables and excluding approximately $24.4 million of letters
of credit. Although the Indenture limits the incurrence of Debt and the issuance
of preferred stock of certain of the Company's subsidiaries, such limitation is
subject to a number of significant qualifications. Moreover, the Indenture does
not impose any limitation on the incurrence by such subsidiaries of liabilities
that are not considered Debt under the Indenture. See "--Certain Covenants
- --Limitation on Debt and Preferred Stock of Subsidiaries" and "--Limitation on
Restrictions on Distributions from Subsidiaries."
Only Debt of the Company that is Senior Debt will rank senior to the Notes
in accordance with the provisions of the Indenture. The Notes will in all
respects rank pari passu with all other Senior Subordinated Debt of the Company.
The Company has agreed in the Indenture that it will not Incur, directly or
indirectly, any Debt that is subordinate or junior in ranking in right of
payment to its Senior Debt unless such Debt is Senior Subordinated Debt or is
expressly subordinated in right of payment to Senior Subordinated Debt.
Unsecured Debt is not deemed to be subordinated or junior to Secured Debt merely
because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Designated Senior Debt is not paid
when due or (ii) any other default on Designated Senior Debt occurs and the
maturity of such Designated Senior Debt is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived or has ceased
to exist and any such acceleration has been rescinded or such Designated Senior
Debt has been discharged or paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Debt with respect to which either of the
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events set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) (a
"non-payment default") with respect to any Designated Senior Debt pursuant to
which the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such accelerations) or the
expiration of any applicable grace periods, the Company may not pay the Notes
for a period (a "Payment Blockage Period") commencing upon the receipt by the
Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of
such default from the Representative of the holders of such Designated Senior
Debt specifying an election to effect a Payment Blockage Period and ending 179
days thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing or (iii) because Designated Senior Debt has been
discharged or repaid in full). Notwithstanding the provisions described in the
immediately preceding sentence, unless an event described in clause (i) or (ii)
of the first sentence of this paragraph has occurred, the Company may resume
payments on the Notes after the end of such Payment Blockage Period. The Notes
shall not be subject to more than one Payment Blockage Period in any consecutive
360-day period. No non-payment default with respect to Designated Senior Debt
that existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Debt initiating such
Payment Blockage Period will be, or can be, made the basis for the commencement
of a second Payment Blockage Period, unless such default has been cured or
waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
(including in bankruptcy, insolvency or receivership proceedings or upon any
assignment for the benefit of creditors or any other marshalling of the
Company's assets and liabilities) relating to the Company or its property, the
holders of Senior Debt will be entitled to receive payment of such Senior Debt
in full in cash or Cash Equivalents before the Noteholders are entitled to
receive any payment or distribution of cash, securities or other property with
respect to the principal of, premium, if any, or interest on the Notes, and
until the Senior Debt is paid in full in cash or Cash Equivalents, any payment
or distribution to which Noteholders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior Debt as their
interests may appear. If a distribution is made to Noteholders that, due to the
subordination provisions, should not have been made to them, such Noteholders
are required to hold it in trust for the holders of Senior Debt and pay it over
to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Debt or the Representative or such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company who are holders of Senior Debt may
recover more, ratably, than the Noteholders, and creditors of the Company who
are not holders of Senior Debt may recover less, ratably, than holders of Senior
Debt and may recover more, ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
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of purchase (subject to the right of holders of record on the relevant record
date to receive interest due
on the relevant interest payment date):
(i) Prior to the earlier to occur of the first public offering of common
stock of the Company or the first public offering of common stock of
Holdings, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company or Holdings, whether as a result of issuance of
securities of the Company or Holdings, any merger, consolidation,
liquidation or dissolution of the Company or Holdings, any direct or
indirect transfer of securities or otherwise (for purposes of this clause
(i) and clause (ii) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as the Permitted Holders beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent corporation);
(ii) on or after the earlier to occur of the first public offering of
common stock of the Company or of Holdings referred to in clause (i) above,
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes
of this clause (ii) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 40% of the total voting power of
the Voting Stock of the Company or Holdings; provided, however, that the
Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Company or Holdings than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors (for the purposes of this clause (ii), such other person shall be
deemed to beneficially own any voting stock of a specified corporation held
by a parent corporation, if such other person is the beneficial owner (as
defined in this clause (ii)), directly or indirectly, of more than 40% of
the voting power of the Voting Stock of such parent corporation and the
Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
or Holdings (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company or Holdings, as the case may be, was approved by a vote of not less
than 66 2/3% of the directors of the Company or Holdings, as the case may
be, then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or
(iv) the merger or consolidation of the Company or Holdings with or into
another Person or the merger of another Person with or into the Company or
Holdings or the sale or transfer in one or a series of transactions of all
or substantially all the assets of the Company or Holdings to another
Person, and, in the case only of any such merger or consolidation, the
securities of the Company or Holdings, as the case may be, that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or Holdings
are changed into or exchanged for cash, securities or property unless
pursuant to such transaction such securities are changed into or exchanged
for, in addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at least a
majority, of
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the aggregate voting power of the Voting Stock of the surviving corporation.
The definition of "all or substantially all" assets is generally determined
under New York law based upon the facts and circumstances of a particular
transaction and the condition of the selling entity upon consummation of the
transaction. Consequently, a holder of Notes may be required to establish
that a conveyance, transfer or lease of all or substantially all of the
Company's assets has occurred before being entitled to compel the repurchase
of its Notes in connection with a Change of Control.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date); (2) the
circumstances and, to the extent available, relevant facts regarding such Change
of Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control); (3)
the repurchase date (which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed); and (4) the instructions, determined
by the Company consistent with the covenant described hereunder, that a Holder
must follow in order to have its Notes purchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws and
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof. The Board of Directors of the Company may
not waive compliance by the Company of its obligation to repurchase Notes upon a
Change of Control.
The Change of Control purchase feature is a result of negotiations between
the Company and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that the
Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancing or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of debt outstanding at such time or otherwise affect
the Company's capital structure or credit ratings.
The Credit Agreement generally will prohibit the Company from purchasing any
Notes, and will also provide that the occurrence of certain change of control
events with respect to the Company would constitute a default thereunder. In the
event that at the time of such Change of Control the terms of the Credit
Agreement restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for above
but in any event within 30 days following any Change of Control, the Company
shall (i) repay in full all Indebtedness under the Credit Agreement or offer to
repay in full all such Indebtedness and repay the Indebtedness of each Bank that
has accepted such offer or (ii) obtain the requisite consent under the Credit
Agreement to permit the repurchase of the Notes as provided for in this
covenant.
Future debt of the Company may contain prohibitions on the occurrence of
certain events that would constitute a Change of Control or require such debt to
be repurchased upon a Change of Control. Moreover, the exercise by the holders
of their right to require the Company to repurchase the Notes could cause a
default under such debt, even if the Change of Control itself does not, due to
the financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the holders of Notes following the occurrence of a Change
of Control may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, removal of incumbent management.
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Debt. (a) The Company shall not Incur, directly or indirectly,
any Debt unless, on the date of such Incurrence, the Consolidated Coverage Ratio
exceeds 2.0 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur any
or all of the following Debt: (1) Debt Incurred pursuant to the Revolving Credit
Facility; provided, however, that, after giving effect to any such Incurrence,
the aggregate principal amount of such Debt then outstanding does not exceed the
greater of (x) $150 million less the amount of any Debt then outstanding
Incurred by Foreign Subsidiaries under clause (e) of the covenant described
under "--Limitation on Debt and Preferred Stock of Subsidiaries" and (y) the sum
of (A) 65% of the gross book value of the inventory of the Company and its
Subsidiaries (other than any Foreign Subsidiary that has Debt then outstanding
Incurred pursuant to clause (e) of the covenant described under "--Limitation on
Debt and Preferred Stock of Subsidiaries") and (B) 85% of the gross book value
of the accounts receivable of the Company and its Subsidiaries (other than any
Foreign Subsidiary that has Debt then outstanding Incurred pursuant to clause
(e) of the covenant described under "--Limitation on Debt and Preferred Stock of
Subsidiaries;" (2) Debt Incurred pursuant to the Term Loan Facility in an
aggregate outstanding principal amount not to exceed $75 million less the
aggregate amount of all principal repayments of any such Debt actually made
after the Issue Date (other than any such principal repayments made as a result
of the Refinancing of any such Debt) and less the amount of any Debt then
outstanding Incurred by Foreign Subsidiaries under clause (f) of the covenant
described under "--Limitation on Debt and Preferred Stock of Subsidiaries"; (3)
Guarantees by the Company of Debt of a Foreign Subsidiary described in clauses
(e) and (f) of the covenant described under "--Limitation on Debt and Preferred
Stock of Subsidiaries;" (4) Customer Notes Guarantees Incurred following the
Issue Date in an aggregate amount at any one time outstanding not to exceed $30
million less the amount of Customer Notes Guarantees Incurred following the
Issue Date then outstanding pursuant to clause (i) of the covenant described
under "--Limitation on Debt and Preferred Stock of Subsidiaries" and less the
amount of Investments in Customer Notes made following the Issue Date then
outstanding pursuant to clause (C) of the definition of "Permitted Investment";
(5) the BTCC Note Guarantees; (6) Debt owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Debt (other than to
another Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Debt by the Company; (7) the Notes; (8) Debt (including
without limitation Customer Notes Guarantees) outstanding on the Issue Date
(other than Debt described in clause (1), (2), (3), (4), (5), (6) or (7) of this
covenant); (9) Refinancing Debt in respect of Debt Incurred pursuant to
paragraph (a) or pursuant to clause (7) or (8) or this clause (9); (10) Hedging
Obligations with respect to (x) Debt permitted to be Incurred by the Company or
its Subsidiaries pursuant to the Indenture or (y) transactions denominated in
foreign currencies; and (11) Debt (which Debt may, but need not, be Incurred in
whole or in part under the Credit Agreement) in an aggregate principal amount
which, together with all other Debt of the Company outstanding on the date of
such Incurrence (other than Debt permitted by clauses (1) through (10) of this
paragraph (b) or paragraph (a) above), and giving effect to any concurrent
Refinancing of Debt permitted by the Indenture, does not exceed $10 million.
(c) Notwithstanding paragraphs (a) and (b), the Company shall not Incur any
Debt if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Debt shall be subordinated to the Notes to
at least the same extent as such Subordinated Obligations.
(d) Notwithstanding paragraphs (a) and (b) above, (i) the Company shall not
Incur any Debt if such Debt is subordinated or junior in ranking to any Senior
Debt, unless such Debt is Senior Subordinated Debt or is expressly subordinated
in right of payment to Senior Subordinated Debt and (ii) the Company shall not
issue any Secured Debt which is not Senior Debt unless contemporaneously
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therewith effective provision is made to secure the Notes equally and ratably
with such Secured Debt for so long as such Secured Debt is secured by a Lien.
(e) For purposes of determining compliance with clause (b) of this covenant,
(i) in the event that an item of Debt meets the criteria of more than one of the
types of Debt described in clause (b), the Company, in its sole discretion, will
classify such item of Debt and only be required to include the amount and type
of such Debt in one of the subclauses of clause (b) and (ii) an item of Debt may
be split between more than one of the types of Debt described in clause (b).
Limitation on Debt and Preferred Stock of Subsidiaries. The Company shall
not permit any Subsidiary to Incur, directly or indirectly, any Debt or
Preferred Stock except: (a) Guarantees by the Subsidiaries of Debt of the
Company described in clause (b)(1), (2) and (4) of the covenant described under
"--Limitation on Debt," other Debt of the Company Incurred under the Credit
Agreement which is permitted to be Incurred pursuant to the terms of the
Indenture, and Debt of Foreign Subsidiaries described in clauses (e) and (f) of
this covenant; (b) Debt or Preferred Stock issued to and held by the Company or
a Wholly Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Debt
or Preferred Stock (other than to the Company or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the issuance of such Debt or
Preferred Stock by the issuer thereof; (c) Debt or Preferred Stock of a
Subsidiary Incurred and outstanding on or prior to the date on which such
Subsidiary was acquired by the Company (other than Debt or Preferred Stock
Incurred in connection with, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company); provided, however, that on the date of such
acquisition and after giving effect thereto, the Company would have been able to
Incur at least $1.00 of additional Debt pursuant to clause (a) of the covenant
described under "--Limitation on Debt"; (d) Debt or Preferred Stock outstanding
on the Issue Date (other than Debt described in clause (a), (b) or (c)); (e)
Debt of a Foreign Subsidiary Incurred pursuant to the Revolving Credit Facility;
provided, however, that, after giving effect to any such Incurrence, the
aggregate principal amount of Debt outstanding of such Foreign Subsidiary
pursuant to this clause (e) does not exceed the greater of (x) $125 million and
(y) the sum of 85% of the gross book value of the accounts receivable of such
Foreign Subsidiary and 65% of the gross book value of the inventories of such
Foreign Subsidiary; (f) Debt of a Foreign Subsidiary Incurred pursuant to the
Term Loan Facility; provided that, after giving effect to any such Incurrence,
the aggregate principal amount of Debt Incurred by all Foreign Subsidiaries
pursuant to this clause (f) may not exceed $50 million less the aggregate amount
of all principal repayments of any such Debt actually made after the Issue Date
(other than any such principal repayments made as a result of the Refinancing of
any such Debt); (g) Refinancing Debt Incurred in respect of Debt or Preferred
Stock referred to in clause (a), (c) or (d) or this clause (g); provided,
however, that to the extent such Refinancing Debt directly or indirectly
Refinances Debt or Preferred Stock of a Subsidiary described in clause (c), such
Refinancing Debt shall be Incurred only by such Subsidiary; (h) Hedging
Obligations by a Subsidiary with respect to (x) Debt permitted to be Incurred by
such Subsidiary pursuant to the Indenture and (y) transactions by such
Subsidiary denominated in foreign currencies; and (i) Customer Notes Guarantees
Incurred following the Issue Date in an aggregate amount at any one time
outstanding not to exceed $30 million less the amount of Customer Notes
Guarantees Incurred following the Issue Date then outstanding pursuant to clause
(4) of paragraph (b) of the covenant described under "-- Limitation on Debt" and
less the amount of Investments in Customer Notes made following the Issue Date
then outstanding pursuant to clause (C) of the definition of "Permitted
Investment."
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Subsidiary, directly or indirectly, to make a Restricted Payment if
at the time the Company or such Subsidiary makes such Restricted Payment: (1) a
Default shall have occurred and be continuing (or would result therefrom); (2)
the Company is not able to Incur an additional $1.00 of Debt pursuant to
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paragraph (a) of the covenant described under "--Limitation on Debt"; or (3) the
aggregate amount of such Restricted Payment and all other Restricted Payments
since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net
Income accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Notes are originally issued to
the end of the most recent fiscal quarter ending at least 45 days prior to the
date of such Restricted Payment (or, in case such Consolidated Net Income shall
be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds
and aggregate Deemed Asset Value received by the Company from the issuance or
sale of its Capital Stock (other than Disqualified Stock) or capital
contributions with respect thereto subsequent to the Issue Date (other than an
issuance or sale to a Subsidiary of the Company and except as set forth in
clause (C) other than an issuance or sale to an employee stock ownership plan or
to a trust established by the Company or any of its Subsidiaries for the benefit
of their employees); (C) the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of its Capital Stock (other than Disqualified Stock)
to an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries for the benefit of their employees subsequent to the date on
which the Notes were originally issued, other than any such issuance or sale to
the extent the purchase by such plan or trust is financed by Debt of such plan
or trust and for which the Company is liable as guarantor or otherwise; and (D)
the amount by which Debt of the Company is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date, of any Debt of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or exchange, except to the
extent that such distribution results in a reduction in Consolidated Net Income
reflected pursuant to clause (A) above).
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of their employees to the extent the purchase
by such plan or trust is financed by Debt of such plan or trust and for which
the Company or any Subsidiary is liable as guarantor or otherwise); provided,
however, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from the calculation of amounts under clauses
(3)(B) and (3)(C) of paragraph (a) above; (ii) any purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Obligations together with any premium payable in connection
therewith made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Debt of the Company which is permitted to be Incurred
pursuant to the covenant described under "--Limitation on Debt"; provided,
however, that such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value shall be excluded in the calculation of the
amount of Restricted Payments; (iii) dividends paid within 60 days after the
date of declaration thereof if at such date of declaration such dividend would
have complied with this covenant; provided, however, that at the time of
declaration of such dividend, no other Default shall have occurred and be
continuing (or would result therefrom); and provided, further, however, that
such dividend shall be included in the calculation of the amount of Restricted
Payments; (iv) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock; provided,
however, that the aggregate amount of such repurchases in any calendar year
shall not exceed the sum of (x) $2 million and (y) the aggregate Net Cash
Proceeds from any reissuance during such calendar year of Capital Stock to
employees, officers or directors of the Company or its Subsidiaries; provided
further, however,
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that to the extent that the aggregate amount of such repurchases is less than $2
million in any calendar year, the unused portion of such $2 million may be
carried forward to the succeeding calendar year (provided that the aggregate
amount of the repurchases in any calendar year shall, in no event, exceed $4
million plus the amount of aggregate Net Cash Proceeds from any reissuance of
Capital Stock described above) in any calendar year; and provided, further,
however, that such repurchases shall be excluded in the calculation of the
amount of Restricted Payments; (v) Investments in any Person primarily engaged
in a Related Business in an aggregate amount not to exceed $10 million;
provided, however, that the amount of such Investments shall be excluded in the
calculation of the amount of Restricted Payments; (vi) the payment of any cash
dividend on the Common Stock of the Company following a Public Equity Offering
by the Company or, following a Public Equity Offering by Holdings, a payment to
Holdings used solely to pay dividends on the Common Stock of Holdings, in each
case as long as no Default or Event of Default has occurred and is continuing or
would thereby result; provided that the aggregate amount of all such dividends
and payments under this clause (vi) shall not exceed 6% of the Net Cash Proceeds
received by the Company and Holdings in any such Public Equity Offering in any
calendar year; provided further, however, that such dividends and payments shall
be included in the calculation of Restricted Payments; (vii) Investments in
customer notes to the extent such Investments are in existence on the Issue
Date; provided, however, that the amount of such Investments shall be excluded
in the calculation of the amount of Restricted Payments; or (viii) Restricted
Payments in an aggregate amount not to exceed $10 million; provided, however,
that the amount of such Restricted Payments shall be excluded in the calculation
of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
shall not, and shall not permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary (a) to pay dividends or make any other
distributions on its Capital Stock to the Company or a Subsidiary or pay any
Debt owed to the Company, (b) to make any loans or advances to the Company or
(c) transfer any of its property or assets to the Company, except: (i) any
encumbrance or restriction pursuant to an agreement in effect or entered into on
the Issue Date or pursuant to the issuance of the Notes; (ii) any encumbrance or
restriction with respect to a Subsidiary pursuant to an agreement relating to
any Debt Incurred by such Subsidiary on or prior to the date on which such
Subsidiary was acquired by the Company (other than Debt Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company) and outstanding on such date; (iii) any encumbrance or
restriction pursuant to an agreement effecting a Refinancing of Debt Incurred
pursuant to an agreement referred to in clause (i) or (ii) of this covenant or
contained in any amendment to an agreement referred to in clause (i) or (ii) of
this covenant; provided, however, that the encumbrances and restrictions
contained in any such refinancing agreement or amendment are no less favorable
to the Noteholders than encumbrances and restrictions contained in such
agreements; (iv) any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset
the subject of such encumbrance or restriction, (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or Lien on,
any property or assets of the Company or any Subsidiary not otherwise prohibited
by the Indenture or (C) arising or agreed to in the ordinary course of business,
not relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of the Company or any
Subsidiary in any manner material to the Company or any Subsidiary; provided
that, in each case, such encumbrance or restriction relates to, and restricts
dealings with, only the property or asset the subject of such encumbrance or
restriction; provided further, that such encumbrance or restriction does not
prohibit, limit or otherwise restrict the making or payment of any dividend or
other distribution to the Company or any Subsidiary; (v) in the case of clause
(c) above, restrictions contained in security agreements or mortgages securing
Debt of a Subsidiary to the extent such restrictions restrict the transfer of
the property subject to such security agreements or mortgages; (vi) any
encumbrance or restriction imposed solely upon a Foreign Subsidiary
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pursuant to an agreement relating to Indebtedness Incurred by such Foreign
Subsidiary which is permitted under the covenant described under "--Limitation
on Debt and Preferred Stock of Subsidiaries"; and (vii) any restriction with
respect to a Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all the Capital Stock or assets of
such Subsidiary pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, consummate
any Asset Disposition unless (i) the Company or such Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% of the consideration thereof
received by the Company or such Subsidiary is in the form of cash or Cash
Equivalents and (ii) the Company (x) within 180 days (in the case of (A) below)
or 360 days (in the case of (B) below) after receipt of such Net Available Cash,
(A) to the extent the Company so elects (or is so required by the terms of any
Senior Debt), applies an amount equal to 100% of the Net Available Cash to
repay, prepay, redeem or purchase Senior Debt of the Company or Debt (other than
any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than
Debt owed to the Company or an Affiliate of the Company) or (B) invests or
commits to invest the balance of such Net Available Cash not applied pursuant to
clause (A), in Additional Assets; provided, however, that in the case of any
commitment to invest, such investment must be made within one month thereafter,
and any amount not so invested shall be treated as Excess Proceeds (as defined
below); and (y) applies the balance of such Net Available Cash not applied
pursuant to clause (x), as provided in the following paragraphs of this
covenant. Notwithstanding the foregoing provisions of this paragraph, the
Company and its Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this paragraph except to the extent that the aggregate
Net Available Cash from all Asset Dispositions which are not applied in
accordance with this paragraph exceeds $10 million. The amount of Net Available
Cash required to be applied and not applied as so required shall constitute
"Excess Proceeds". Pending application of Net Available Cash pursuant to this
covenant, such Net Available Cash shall be invested in Temporary Cash
Investments or applied to repay Debt Incurred under the Revolving Credit
Facility without commitment reduction thereunder.
For the purposes of this covenant, the following are deemed to be cash
equivalents: (x) the assumption of Debt of the Company or any Subsidiary and the
release of the Company or such Subsidiary from all liability on such Debt in
connection with such Asset Disposition, (y) Temporary Cash Investments, and (z)
securities received by the Company or any Subsidiary from the transferee that
are promptly converted by the Company or such Subsidiary into cash.
(b) If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders (and to purchase Debt from the holders of any other
Senior Subordinated Debt) on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds (rounded down to the nearest multiple of
$1,000) on such date, at a purchase price equal to 100% of the principal amount
of such Notes, plus, in each case, accrued interest (if any) to the date of
purchase (or, in respect of such other Senior Subordinated Debt, such lesser
price, if any, as may be provided for by the terms of such Senior Subordinated
Debt) (the "Excess Proceeds Payment").
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
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Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Subsidiary to, enter into or permit to exist any transaction or
series of similar transactions (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof (1) are no less favorable to the Company or such Subsidiary
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction involves an amount in excess of $3 million, (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(3) if such Affiliate Transaction involves an amount in excess of $15 million,
have been determined by a nationally recognized investment banking firm to be
fair, from a financial standpoint to the Company and its Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments", (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of the Company pursuant to plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business in accordance with the past practices of the Company or its
Subsidiaries and their predecessors including loans or advances to Management
Investors in connection with the Management Placement, but in any event not to
exceed $4 million in the aggregate outstanding at any one time, (v) the payment
of reasonable and customary fees to directors of the Company and its
Subsidiaries who are not employees of the Company or its Subsidiaries, (vi) any
Affiliate Transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries and (vii) the payment of a one-time fee to
Stonington in connection with the Acquisition in an aggregate amount not to
exceed $6 million plus reasonable expenses.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the U.S. of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental thereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Debt which becomes an
obligation of the Successor Company or any Subsidiary of the Successor Company
as a result of such transaction as having been Incurred by such Successor
Company or such Subsidiary at the time of such transaction), no Default shall
have occurred and be continuing; (iii) immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional $1.00 of
Debt pursuant to paragraph (a) of the covenant described under "--Limitation on
Debt"; (iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than the
Consolidated Net Worth of the Company prior to such transaction; and (v) the
Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
SEC Reports. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and Noteholders
with such annual reports and such information,
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documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--Certain
Covenants--Merger and Consolidation" above, (iv) the failure by the Company to
comply for 30 days after notice with any of its obligations in the covenants
described above under "--Change of Control" (other than a failure to purchase
Notes) or under "--Certain Covenants" under "--Limitation on Debt", "--
Limitation on Debt and Preferred Stock of Subsidiaries", "--Limitation on
Restricted Payments", "--Limitation on Restrictions on Distributions from
Subsidiaries", "--Limitation on Sales of Assets and Subsidiary Stock" (other
than a failure to purchase Notes) "--Limitation on Affiliate Transactions" or
"--SEC Reports", (v) the failure by the Company to comply for 60 days after
notice with its other agreements contained in the Indenture, (vi) a default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Debt for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Subsidiaries) whether such Debt or Guarantee now exists,
or is created after the date of the Indenture, which default (A) is caused by
failure to pay principal of or premium, if any, on such Debt, within any
applicable grace period after final maturity ("Final Payment Default") or (B)
results in the acceleration of such Debt prior to its final stated maturity and,
in each case, the principal amount of any such Debt, together with the principal
amount of any other such Debt under which there has been a Final Payment Default
or the maturity of which has been so accelerated, aggregates $10 million or more
and such default or acceleration continues for 30 days after notice, (vii)
certain events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), or (viii) any judgment or
decree for the payment of money in excess of $10 million is rendered against the
Company or a Significant Subsidiary, remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed within 10 days
after notice (the "judgment default provision"), provided that the amount of
such money judgment or decree shall be calculated net of any insurance coverage
that the Company has determined in good faith is available in whole or in part
with respect to such money judgment or decree. However, a default under clauses
(iv), (v), (vi) or (viii) will not constitute an Event of Default until the
Trustee or the holders of 25% in principal amount of the outstanding Notes
notify the Company of the default and the Company does not cure such default
within the time specified after receipt of such notice.
If an Event of Default (other than certain events of bankruptcy, insolvency
or reorganization of the Company or a Significant Subsidiary) occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the outstanding Notes may declare the principal of and accrued but unpaid
interest on all the Notes to be due and payable by notice in writing to the
Company, the administrative agent under the Credit Agreement (if any Debt is
then outstanding under the Credit Agreement) and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration"; provided,
however, that the failure to so notify the administrative agent under the Credit
Agreement shall not affect the validity of such acceleration. Upon such a
declaration, such principal and interest shall be due and payable immediately,
subject to the subordination provisions of the Indenture. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary occurs and is continuing, the principal of
and interest on all the Notes will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holders of the Notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration with
respect to the Notes and its consequences.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days (or such shorter period as may be required by
applicable law) after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its trust officers determines
that withholding notice is not opposed to the interest of the holders of the
Notes. In addition, the Company is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year. The
Company also is required to deliver to the Trustee, within 30 days after the
occurrence thereof, written notice of any event which would constitute certain
Defaults, their status and what action the Company is taking or proposes to take
in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange for the Notes) and any past default or compliance with any
provisions may also be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding. However, without the consent of
each holder of an outstanding Note affected thereby, no amendment may, among
other things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption", (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes or (vii) make any change in the amendment
provisions which requires each holder's consent or in the waiver provisions or
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders.
Without the consent of any holder of the Notes, the Company and the Trustee
may amend or supplement the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to
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provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company and its Subsidiaries for the benefit of the holders of
the Notes or to surrender any right or power conferred upon the Company, to make
any change that does not adversely affect the rights of any holder of the Notes
or to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA. However, no amendment may be made
to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Debt then outstanding unless the holders of such
Senior Debt (or their Representative) consents to such change.
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clauses (iii) and (iv) under
"--Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with "--Change of Control" above or because of
the failure of the Company to comply with clause (iii) or (iv) under "--Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions including, without limitation, (i) such
defeasance not resulting in a breach or violation of, or constituting a default
under, the Indenture, the Credit
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Agreement or any other material agreement or instrument to which the Company is
a party or by which it is bound and (ii) delivery to the Trustee of an Opinion
of Counsel to the effect that holders of the Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
CONCERNING THE TRUSTEE
is to be the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than Debt and
Capital Stock) used or useful in a Related Business; (ii) the Capital Stock of a
Person that becomes a Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Subsidiary or (iii) Capital Stock constituting a
minority interest in any Person that at such time is a Subsidiary; provided,
however, that any such Subsidiary described in clause (ii) or (iii) above is
primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants-- Limitation on
Restricted Payments", "--Certain Covenants --Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitations on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof. Notwithstanding the foregoing, none of Bankers Trust
Company, Credit Suisse or The Bank of Nova Scotia shall be deemed to be an
Affiliate of the Company and its Subsidiaries solely as a result of the security
interests held by any such entity in the Capital Stock of the Company's
Subsidiaries pursuant to the Credit Agreement.
"Asset Disposition" means any sale, transfer or other disposition (or series
of related sales, transfers or dispositions) by the Company or any Subsidiary,
including any disposition by means of a merger, consolidation or similar
transaction (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Subsidiary (other than
directors' qualifying shares
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or shares required by applicable law to be held by a Person other than the
Company or a Subsidiary), (ii) all or substantially all the assets of any
division or line of business of the Company or any Subsidiary or (iii) any other
assets of the Company or any Subsidiary outside of the ordinary course of
business of the Company or such Subsidiary (other than, in the case of (i), (ii)
and (iii) above, (v) any disposition, or related series of dispositions, of
assets with an aggregate fair market value of $1 million or less for each such
disposition or related series of dispositions, (w) dispositions permitted under
" Certain Covenants Merger and Consolidation," (x) a disposition by a Subsidiary
to the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary,
(y) sales of Customer Notes to third parties (including the sale of certain
customer notes to BTCC contemporaneously with the Acquisition) and (z) for
purposes of the covenant described under " Certain Covenants Limitation on Sales
of Assets and Subsidiary Stock" only, a disposition that constitutes a
Restricted Payment permitted by the covenant described under " Certain Covenants
Limitation on Restricted Payments").
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Debt or redemption or similar
payment with respect to such Preferred Stock multiplied by the amount of such
payment by (ii) the sum of all such payments.
"Banks" means the "Lenders" as defined in the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"BTCC" means Bankers Trust Commercial Corporation.
"BTCC Note Guarantees" means the Guarantees by the Company of principal
and/or interest under certain customer notes being sold to BTCC
contemporaneously with the Acquisition, which Guarantees are a condition to
BTCC's obligation to purchase such customer notes, and the related repurchase
obligations not in excess of $4 million in the aggregate and indemnity
obligations to BTCC, as set forth in the definitive agreement executed in
connection therewith.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" of any Person means an obligation that is
required to be classified and accounted for as a capital lease on the face of
the balance sheet of such Person prepared in accordance with GAAP, and the
amount of Debt represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP; and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible or exchangeable into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Subsidiary has
Incurred any Debt since the beginning of such period that remains outstanding
(other than Debt Incurred under the Revolving Credit Facility with respect to
which the related commitment remains outstanding) or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Debt, or both, EBITDA and Consolidated Interest Expense for such period shall
be calculated after
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giving effect on a pro forma basis to such Debt as if such Debt had been
Incurred on the first day of such period and the discharge of any other Debt
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Debt as if such discharge had occurred on the first day of such period, (2)
if since the beginning of such period any Debt of the Company or any Subsidiary
has been repaid repurchased, defeased or otherwise discharged or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
will include any such repayment, repurchase, defeasement or discharge not
otherwise covered in clause (1) above, or both (in either case other than Debt
Incurred pursuant to the Revolving Credit Facility or any similar arrangement
unless such revolving credit Debt has been permanently repaid and has not been
replaced), Consolidated Interest Expense for such period shall be calculated,
after giving effect thereto on a pro forma basis, as if such Debt had been
repaid, repurchased, defeased or otherwise discharged on the first day of such
period, (3) if since the beginning of such period the Company or any Subsidiary
shall have made any Asset Disposition, the EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive) directly attributable to
the assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the EBITDA (if negative), directly attributable
thereto for such period and Consolidated Interest Expense for such period shall
be reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Debt of the Company or any Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Debt of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer liable for such
Debt after such sale), (4) if since the beginning of such period the Company or
any Subsidiary (by merger or otherwise) shall have made an Investment in any
Subsidiary (or any person which becomes a Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction requiring a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period and (5) if since the
beginning of such period any Person (that Subsequently became a Subsidiary or
was merged with or into the Company or any Subsidiary since the beginning of
such period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(3) or (4) above if made by the Company or a Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition, Investment
or acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Debt Incurred in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting Officer of the Company. If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest of
such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries, plus, to the extent
not included in such total interest expense, and to the extent incurred by the
Company or its Subsidiaries, (i) interest expense attributable to Capital Lease
Obligations, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) non-cash interest expenses, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Interest Rate Agreements (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock (except dividends payable solely in shares of Capital Stock of
the Company (other than Disqualified Stock of the Company)) held by Persons
other than the Company or a Wholly Owned Subsidiary, (viii) interest
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incurred in connection with Investments in discontinued operations, (ix)
interest accruing on any Debt of any other Person to the extent such Debt is
Guaranteed by the Company or any Subsidiary and (x) the cash contributions to
any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Debt Incurred by such plan or
trust provided, however, that there shall not be included in such Consolidated
Interest Expense any amount of interest expense of any Subsidiary if the net
income of such Subsidiary is excluded in the calculation of Consolidated Net
Income (but only in the same proportion as such net income is excluded) because
the declaration or payment of dividends or similar distributions by such
Subsidiary of such net income is not at the time permitted by the operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated subsidiaries; provided, however, that there shall
not be included in such Consolidated Net income: (i) any net income of any
Person if such Person is not a Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to a
Subsidiary, to the limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income to the extent of any cash
actually contributed by the Company or a Subsidiary to such Person during such
Period; (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income of any Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the exclusion contained
in clause (iv) below, the Company's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Subsidiary during
such period to the Company or another Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to
another Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Subsidiary for such period shall be
included in determining such Consolidated Net Income to the extent of any cash
actually contributed by the Company or a Subsidiary to such Person during such
Period; (iv) any gain or loss net of tax realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
net of tax realized upon the sale or other disposition of any Capital Stock of
any Person; (v) extraordinary gains or losses net of tax; (vi) the cumulative
effect of a change in accounting principles, net of tax; and (vii) in the case
of the Company, any depreciation or amortization resulting from any write-up in
the book value of any assets due to the Acquisition. Notwithstanding the
foregoing, for the purposes of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from a Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii) paid
in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (iv)
any amounts attributable to Disqualified Stock.
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"Credit Agreement" means that certain Credit Agreement, dated as of
, 1996, among the Company, certain Subsidiaries of the Company,
Bankers Trust Company as agent, the co-agents named therein and the lenders
named therein, including (i) any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time, in whole or in part, and (ii) any credit agreements, notes,
guarantees, collateral documents, instruments and agreements executed in respect
of any such amendment, modification, renewal, refunding, replacement or
refinancing.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Customer Notes" means notes receivable, on terms consistent with the past
practices of the Company and its Subsidiaries and with prevailing industry
practices, issued in connection with customer financing provided to purchasers
of the Company's and its Subsidiaries' products and secured by a valid and
enforceable first priority Lien on the products being purchased.
"Customer Notes Guarantees" means Guarantees by the Company and its
Subsidiaries, on terms consistent with the past practices of the Company and its
Subsidiaries and with prevailing industry practices, of all or a portion of
Customer Notes issued by the Company or its Subsidiaries and sold to third
parties, or of all or a portion of customer notes or other financing provided by
third parties to purchasers of the Company's and its Subsidiaries' products;
provided, however, that "Customer Notes Guarantees" shall not include (i) the
provision of letters of credit in respect of financing provided by a third party
to purchasers of the Company's and its Subsidiaries' products to the extent such
letters of credit are Incurred under the Revolving Credit Facility and (ii) the
BTCC Note Guarantees.
"Debt" of any Person means, without duplication, (i) the principal of and
premium (if any) in respect of (A) debt of such Person for money borrowed and
(B) debt evidenced by notes, debentures, bonds or other similar instruments for
the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding (x) trade accounts payable and other current
trade liabilities arising in the ordinary course of business and payable in
accordance with customary practices and (y) deferred purchase price obligations
where payment is due within six months of delivery); (iv) all obligations of
such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance, or other similar credit transaction (other than obligations
with respect to letters of credit and related Hedging Obligations securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends); (vi) all Hedging Obligations of
such Person (other than Hedging Obligations excluded pursuant to clause (iv)
above); (vii) all obligations of the type referred to in clauses (i) through (v)
of other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee; and (viii)
all obligations of the type referred to in clauses (i) through (vi) of other
Persons secured by any Lien on any property or asset of such Person (whether or
not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured. The amount of Debt of any Person at any
date shall be the outstanding balance of all obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at
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such date; provided, however, that the amount outstanding at any time of any
Debt Incurred with original issue discount is the face amount of such Debt less
the remaining unamortized portion of the original issue discount of such Debt at
such time as determined in conformity with GAAP.
"Deemed Asset Value" means 75% of the fair market value of assets (other
than cash) received by the Company from the issuance or sale of its Capital
Stock or as a capital contribution, in either case as determined in good faith
by the Board of Directors; provided, however, that such determination shall be
confirmed by a nationally recognized investment banking firm or appraisal firm
in the event that the value determined by the Board of Directors exceeds $10
million.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means (i) Debt under the Credit Agreement and (ii)
any other Senior Debt of the Company, the principal amount of which is
$ or more individually at the date of determination and is specifically
designated by the Company in the instrument evidencing or governing such Senior
Debt and in a written instrument delivered to the Trustee as "Designated Senior
Debt" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Debt or Disqualified Stock or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the first anniversary of the Stated Maturity of the Notes;
provided, however, that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to require
such Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the first anniversary of
the Stated Maturity of the Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than the provisions
described under "-- Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" and "--Certain Covenants" and "-- Change of Control."
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense and (d) all other
non-cash items reducing Consolidated Net Income (other than any non-cash item to
the extent it represents an accrual of, or a reserve for, cash disbursements for
any subsequent period prior to the Stated Maturity of the Notes) and less, to
the extent added in calculating Consolidated Net Income, non-cash items (other
than any non-cash item to the extent it represents an accrual for cash receipts
reasonably expected to be received with any 12 months after the date of such
accrual), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Subsidiary was included in calculating Consolidated Net
Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval other than for the board of directors of such Subsidiary (that has not
been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Foreign Subsidiary" means a subsidiary that is organized under the laws of
any country other than the U.S. and substantially all the assets of which are
located outside of the U.S.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment hereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of Debt.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Subsidiary against fluctuations in interest rates.
"Investment" in any Person means any loan or advance (other than advances to
customers in the ordinary course of business on commercially reasonable terms
that are recorded as accounts receivable on the balance sheet of such Person)
to, any acquisition of Capital Stock, equity interest, obligation or other
security of, or capital contribution or other investment in, or any other credit
extension to (including by way of Guarantee of any Debt of), such Person.
"Issue Date" means the date on which the Notes are originally issued.
"Joint Venture Contract" means that certain Joint Venture Contract, dated
October 29, 1993, between Rockwell Graphic Systems, Inc. and Shanghai Printing &
Packaging Machinery Corp., as in effect on the Issue Date.
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"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note of installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to such
properties or assets that are the subject of such Asset Disposition or received
in any other noncash form) in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Debt which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law be, repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other patents required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed in such Asset Disposition and retained by the
Company or any Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds (including cash equivalents) of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Permitted Holders" means Stonington, the Fund, the Management Investors and
their respective Affiliates, including Holdings.
"Permitted Investment" means (A) an Investment by the Company or any
Subsidiary in (i) the Company or a Wholly Owned Subsidiary or a Person that
will, upon the making of such Investment, become a Wholly Owned Subsidiary; (ii)
another Person if as a result of, and contemporaneously with, such Investment
such other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all its assets to, the Company or a Wholly Owned
Subsidiary; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(v) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses for accounting
purposes, that are made in the ordinary course of business; (vi) loans or
advances to employees, officers or directors made in the ordinary course of
business consistent with past practices of the Company or a Subsidiary or made
in connection with the Management Placement and that do not in the aggregate
exceed $4 million at any time; (vii) stock, obligations or securities received
in settlement of debts created in the ordinary course of business and owing to
the Company or any Subsidiary or in satisfaction of judgments; and (viii) any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "-- Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock", (B) any Investment by the Company in the Permitted Joint
Venture at the times and in the amounts and manner required by the Joint Venture
Contract and (C) Customer Notes issued following the Issue Date by the Company
and its Subsidiaries; provided that the amount of Investments made pursuant to
Customer Notes following the Issue Date, in the aggregate, at any one time
outstanding may not exceed $30 million less the amount of Customer Notes
Guarantees Incurred following the Issue Date then outstanding pursuant to clause
(4) of paragraph (b) of the covenant described under "-- Limitation on Debt" and
clause (i) of the covenant described under "-- Limitation on Debt and Preferred
Stock of Subsidiaries."
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"Permitted Joint Venture" means Shanghai Rockwell Graphic Systems Co., Ltd.,
a joint venture formed by the Company and Shanghai Printing & Packaging
Machinery Corp. pursuant to the Joint Venture Contract.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation. "principal" of a
Note means the principal of the Note plus the premium, if any, payable on the
Note which is due or overdue or is to become due at the relevant time.
"Public Equity Offering" means a primary public offering of common stock of
the Company or Holdings pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company or Holdings, as the case may be, has been distributed by
means of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt in
exchange or replacement for, such debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of the Company or any
Subsidiary existing on the Issue Date or Incurred in compliance with the
Indenture including Debt that Refinances Refinancing Debt; provided, however,
that (i) such Refinancing Debt has a Stated Maturity no earlier than the Stated
Maturity of the Debt being Refinanced, (ii) such Refinancing Debt has an Average
Life at the time such Refinancing Debt is Incurred that is equal to or greater
than the Average Life of the Debt being Refinanced, (iii) such Refinancing Debt
has an aggregate principal amount (or if Incurred with original issue discount
an aggregate issue price) that is equal to or less than the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding or committed (plus fees and expenses, including any
premium and defeasance costs) under the Debt being Refinanced and (iv) with
respect to any Refinancing Debt of Debt other than Senior Debt, such Refinancing
Debt shall rank no more senior, and shall be at least as subordinated, in right
of payment to the Notes as the Debt being so extended, renewed, refunded or
refinanced; provided, further, however, that Refinancing Debt shall not include
Debt of a Subsidiary that Refinances Debt of the Company.
"Related Business" means the business of the Company and its Subsidiaries on
the Issue Date and any business related, ancillary or complementary to the
businesses of the Company and its Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Debt of the Company.
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) or rights to
acquire its Capital Stock (other than Disqualified Stock)) and dividends or
distributions payable solely to the Company or a Subsidiary, and other than pro
rata dividends or other distributions made by a Subsidiary that is not a Wholly
Owned Subsidiary
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to minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation, (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Company held by any Person or of any Capital Stock of a Subsidiary held by
any Affiliate of the Company (other than a Subsidiary), including the exercise
of any option to exchange any Capital Stock (other than into Capital Stock of
the Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Revolving Credit Facility" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make available to the
Company and its Subsidiaries a revolving credit facility.
"SEC" means the Securities and Exchange Commission.
"Secured Debt" means Debt of the Company or a Subsidiary secured by a Lien.
"Senior Debt" means (i) Debt of the Company, whether outstanding on the
Issue Date or thereafter incurred (including, without limitation, Debt (and
other obligations including for fees, expenses, reimbursements, indemnities or
otherwise) Incurred pursuant to the Credit Agreement, any Interest Rate
Agreement or Currency Agreement and any Guarantee by the Company of any Debt or
monetary obligation of any of its Subsidiaries under the Credit Agreement, any
Interest Rate Agreement or Currency Agreement) and (ii) accrued and unpaid
interest thereon (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company or a
Subsidiary at the rate otherwise applicable thereto whether or not post-filing
interest is allowed in such proceeding) unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
provided, however, that Senior Debt shall not include (1) any obligation of the
Company to any Subsidiary, (2) any liability for Federal, state, local or other
taxes owed or owing by the Company, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any Debt of
the Company (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Debt or other obligation of
the Company, (5) that portion of any Debt which at the time of Incurrence is
Incurred in violation of the Indenture, (6) Debt owed, due, or guaranteed on
behalf of, any director, officer or employee of the Company or any Subsidiary
(including without limitation amounts owed for compensation), and (7) Debt which
when Incurred and without respect to any election under Section 1111(b) of Title
11 U.S. Code, is without recourse to the Company (other than Capital Lease
Obligations or secured purchase money obligations).
"Senior Subordinated Debt" means the Notes and any other Debt of the Company
that specifically provides that such Debt is to rank pari passu with the Notes
in right of payment and is not subordinated by its terms in right of payment to
any Debt or other obligation of the Company which is not Senior Debt.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
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"Subordinated Obligation" means any Debt of the Company (whether outstanding
on the Issue Date or thereafter Incurred) which by its written terms is
subordinate or junior in right of payment to the Notes.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the U.S. of America or any agency thereof or
obligations guaranteed by the U.S. of America or any agency thereof, (ii)
investments in time deposit accounts, certificates of deposit and money market
deposits maturing within 270 days of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the U.S. of America,
any state thereof or any foreign country recognized by the U.S., and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50,000,000 (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the U.S. of America, any jurisdiction thereof or any
foreign country recognized by the U.S. of America with a rating at the time as
of which any investment therein is made of "P-1" (or higher) according to
Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Group, and (v) investments in securities with maturities of nine
months or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the U.S. of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Term Loan Facility" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make term loans available to the
Company and its Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sec. 77aaa-77bbbb) as
in effect on the date of this Indenture.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the U.S. of America
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of the U.S. of America is pledged and which are not
callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors, qualifying shares and shares held by other Persons to the
extent such shares are required by applicable law to be held by a Person other
than the Company or a Subsidiary) is owned by the Company or one or more Wholly
Owned Subsidiaries.
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DESCRIPTION OF NEW BANK CREDIT AGREEMENT
In arranging for financing for the Acquisition on behalf of the Company,
Stonington has entered into a commitment letter with Bankers Trust Company
("Bankers Trust"), The Bank of Nova Scotia and Credit Suisse (collectively, the
"Lenders") providing for (i) five-year term loan facilities aggregating $75.0
million (the "Term Loan Facility"), and (ii) five-year revolving credit
facilities aggregating $150.0 million with a sublimit for letters of credit to
be agreed upon (the "Revolving Credit Facility" and, together with the Term Loan
Facility, the "Bank Facilities"). The Lenders intend to arrange for other banks,
financial institutions and other "accredited investors" (as defined in
regulations promulgated by the Commission) to provide a portion of the Bank
Facilities. Bankers Trust will act as administrative agent for the Lenders, The
Bank of Nova Scotia will act as documentation agent for the Lenders and Credit
Suisse will act as syndication agent for the Lenders. The funds from the Bank
Facilities will be lent directly to the Company, and, other than the commitment
letter, Stonington is not a party to any agreements or arrangements with respect
to the Bank Facilities. The Company will enter into the New Bank Credit
Agreement, which will supersede the commitment letter, and Stonington will have
no continuing obligations with respect to the Bank Facilities.
The execution of the Bank Facilities, and the delivery of required
documentation thereunder, will occur simultaneously with the closing of this
Offering and the closing of the Acquisition. The Lenders' obligation to provide
the Bank Facilities is conditioned upon, among other things, the preparation,
execution and delivery of mutually acceptable loan documentation, including a
credit agreement incorporating substantially the terms and conditions outlined
in the commitment letter; the Lenders' satisfaction with the final terms,
conditions and structure of the Acquisition; the consummation of the Acquisition
(including the sale of the Customer Notes) pursuant to the terms of the Purchase
Agreement and other definitive documentation, no provision of which shall have
been amended, supplemented, waived or otherwise modified in any material respect
without the prior written consent of the Lenders; and the absence of any
material adverse change in the business, operations, properties, assets,
liabilities, condition (financial or otherwise) or prospects of Goss since
September 30, 1995.
The Term Loan Facility will consist of a term loan in an original principal
amount of $25 million made to the Company, a term loan in an original principal
amount of the Sterling equivalent of $25 million made to Goss U.K. and a term
loan in an original principal amount of the Yen equivalent of $25 million made
to Goss Japan. The Term Loan Facility will have a final maturity date of five
years after the date of the initial funding under the Bank Facilities (the
"Initial Funding Date"). Quarterly amortization will be required, commencing
December 31, 1997, in annual amounts of $15 million for each of the second,
third and fourth fiscal years following the Closing Date, and $30 million for
the fifth fiscal year following the Closing Date.
In addition, the Company will be required to make prepayments on the Term
Loan Facility and/or reduce the commitments under the Revolving Credit Facility
under certain circumstances, including upon certain asset sales and issuance of
debt or equity securities. The Company will also be required to make such
prepayments and/or reductions in an amount equal to 75% of the Company's and its
subsidiaries' Consolidated Excess Cash Flow (as defined) for each fiscal year,
payable within 90 days after the end of the applicable fiscal year. Mandatory
prepayments or commitment reductions required as a result of equity or debt
issuances by Holdings or the Company will be apportioned among the Bank
Facilities provided to the Company, Goss U.K. and Goss Japan in a manner to be
determined. Mandatory prepayments arising as a result of Consolidated Excess
Cash Flow will be applied to the Term Loan Facility in proportion to the amount
of debt outstanding under each term loan. All other mandatory
prepayments/reductions will be applied first to prepay the applicable term loan
facility, and, thereafter, to prepay the applicable revolving credit facility
and to reduce the commitments thereunder and thereafter to the remaining term
loans and revolving credit facilities in a manner to be determined. All
mandatory prepayments of the Term Loan Facility arising as a result of
Consolidated Excess Cash
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Flow will be applied pro rata to the scheduled installments thereof and all
other mandatory prepayments of the Term Loan Facility will be applied in inverse
order of maturity. The Term Loan Facility will bear interest, at the Company's
option, at the customary base rate plus 1.5% or at the customary reserve
adjusted Euro-Dollar rate plus 2.5%. As shown in Note (aa) to the Pro Forma
Consolidated Statements of Income, interest expense for the year ended September
30, 1995, on a pro forma basis, on the $75.0 million of Term Loan Facility would
have been $6.2 million.
The Revolving Credit Facility will mature five years after the Initial
Funding Date and will consist of a revolving credit facility in an original
amount of up to $100 million made available to the Company, a revolving credit
facility in an original amount of up to the Sterling equivalent of $100 million
made available to Goss U.K., and a revolving credit facility in an original
amount of up to the Yen equivalent of $25 million made available to Goss Japan,
and which may not, in the aggregate, exceed the U.S. dollar equivalent of $150
million, in each case under which revolving loans may be made, provided that in
no event will the aggregate outstanding amount of such revolving loans used for
working capital requirements and general corporate purposes exceed the U.S.
dollar equivalent of $110 million at any one time, and under which letters of
credit may be issued up to a sublimit to be agreed upon. A portion of the
Revolving Credit Facility, in an amount to be agreed upon, shall be made
available as a swingline facility. The Revolving Credit Facility will bear
interest, at the Company's option, at the customary base rate plus 1.5% or at
the customary reserve adjusted Euro-Dollar rate plus 2.5%. Loans outstanding
under the swingline facility shall bear interest at the customary base rate plus
1.25% and such outstanding loans shall not constitute usage of the Revolving
Credit Facility for purposes of calculating the commitment fee.
The interest rates with respect to the Bank Facilities may be increased or
decreased based upon leverage ratios to be determined.
The proceeds of the Term Loan Facility and approximately $0.3 million under
the Revolving Credit Facility will be used to pay the cash portion of the
purchase price for the Acquisition of Goss under the Purchase Agreement in an
aggregate maximum amount of approximately $552.5 million (subject to certain
adjustments) and to pay fees and expenses in connection with the Acquisition and
the related financings in an aggregate maximum amount of approximately $26.0
million. The Revolving Credit Facility will also be available to provide for the
working capital requirements and general corporate purposes of the Company and
its subsidiaries and, subject to a sublimit to be agreed upon, to issue
commercial letters of credit and standby letters of credit to support workers'
compensation contingencies and for other corporate purposes to be agreed upon.
To the extent that advances under the Revolving Credit Facility are made
available to other subsidiaries of the Company or to the Company, such
intercompany borrowings will be evidenced by promissory notes subordinated in
right of repayment to the Bank Facilities.
The Bank Facilities will be guaranteed by Holdings and by each of the
Company's domestic subsidiaries and, in addition, the Company shall guarantee
the Bank Facilities provided to Goss U.K. and Goss Japan. In the event that U.S.
tax laws are amended to permit foreign subsidiaries to guarantee the Bank
Facilities provided to the Company or to other foreign subsidiaries without the
incurrence of an investment in U.S. property or other deemed dividend for U.S.
tax purposes or otherwise result in U.S. taxable income for the Company and its
subsidiaries, such foreign subsidiaries will agree to then guarantee the Bank
Facilities. All extensions of credit to each borrower will be secured by all
existing and after-acquired personal property of such borrower and all
guaranties will be secured by all existing and after-acquired personal property
of such guarantors, including a pledge of the stock of all such guarantor's
subsidiaries and a pledge of the Intercompany Notes held by such guarantor;
provided that neither the Company nor any guarantor will be required to pledge
more than 66% of the stock of its foreign subsidiaries unless U.S. tax laws are
amended to permit a pledge of more than 66% of such foreign subsidiaries' stock
without giving rise to U.S. tax liabilities for the Company and its
subsidiaries. All extensions of credit under the Intercompany Notes will be
secured on a subordinated basis by
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existing and after-acquired personal property of such intercompany borrower. All
extensions of credit to each borrower will also be secured by first priority
liens on all existing and after-acquired real property fee and leasehold
interests of the borrower and the guarantors, subject to certain exceptions to
be agreed upon.
The Bank Facilities will contain certain financial covenants, including, but
not limited to, a minimum fixed charge coverage test, a minimum interest
coverage test, a minimum EBITDA test, a minimum net worth test and a maximum
leverage test. In addition, the Bank Facilities will contain other customary
affirmative and negative covenants relating to (among other things) limitations
on other indebtedness, liens, investments, guarantees, restricted junior
payments, mergers and acquisitions, sales of assets, capital expenditures,
leases, transactions with affiliates and conduct of business, with customary
exceptions and baskets to be mutually agreed upon. The Bank Facilities will
contain customary events of default, including failure to make payments when
due, defaults under other agreements or instruments of indebtedness,
noncompliance with covenants, breaches of representations and warranties,
bankruptcy, judgments in excess of specified amounts, invalidity of guaranties,
impairment of security interests in collateral and certain changes of control.
Within 90 days of the Initial Funding Date, the Company is required to
obtain interest rate protection, pursuant to interest rate swaps, caps or other
similar arrangements reasonably satisfactory to the Lenders.
DESCRIPTION OF SALE OF CUSTOMER NOTES
In arranging for financing for the Acquisition on behalf of the Company,
Stonington has entered into a commitment letter with BT Commercial Corporation
("BTCC") providing for the purchase by BTCC from the Company of a portfolio of
the Customer Notes and related sales contracts, instruments, agreements,
documents and collateral outstanding on February 29, 1996, arising from the sale
of printing and like equipment (the "Equipment"), for a purchase price of
approximately $163.7 million, subject to certain adjustments for new Customer
Notes entered into between February 29, 1996 and the day preceding the Closing
Date and for Customer Notes that are restructured between March 1, 1996 and the
Closing Date (except for one Customer Note, the restructuring of which has been
disclosed to BTCC), both of which require the prior consent of BTCC. The
purchase price will be reduced by all reductions in the aggregate unpaid
principal balance of the Customer Notes between March 1, 1996 and the Closing
Date, whether resulting from the receipt of regularly scheduled installments of
principal on the Customer Notes, partial installments of principal on the
Customer Notes, or partial or full prepayment (whether the prepayment is the
result of the liquidation of the collateral securing the Customer Notes or
otherwise). The events described above that will reduce the purchase price for
the Customer Notes will also cause equal reductions in the purchase price to be
paid by the Company to Rockwell for the Acquisition of Goss. See "The
Acquisition--Purchase Price; Adjustments." The purchase price represents a
discount to the face amount of the Customer Notes, which was approximately
$238.2 million as of February 29, 1996 (the measurement date used to determine
the Customer Note portfolio purchase price).
The obligations of the Company will be non-recourse, except with respect to
representations and warranties by the Company relating to the bona fide nature,
legal enforceability, accuracy and completeness of the documentation, including
the description and location of the Equipment, respecting the Customer Notes and
except with respect to the guarantees described below. BTCC's obligation to
purchase the Customer Notes is conditioned upon, among other things (i) the
execution of a service and remarketing agreement between the Company and BTCC
acceptable to both parties, providing for warranty, maintenance and repair
services and remarketing assistance with respect to the Equipment and for
certain indemnities of BTCC; (ii) Rockwell making a representation in favor of
BTCC that, other than items withheld because of the terms of confidentiality
agreements by which Rockwell is
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bound, Rockwell has made available to BTCC true and correct copies of all
Customer Notes; (iii) the Company making a representation in favor of BTCC that,
other than items withheld by Rockwell because of the terms of confidentiality
agreements by which Rockwell is bound, the Company has made or has caused to be
made available to BTCC all Customer Notes, and that all such documentation is
and was complete and correct in all material respects and does not contain any
untrue statement of material fact or omit to state a material fact.
BTCC's obligations are further conditioned upon (i) the Company guaranteeing
in favor of BTCC (a) approximately $7.0 million of the principal balance and
interest accrued after the Closing Date on the Customer Notes (the "Sunny
Notes") payable by Sunny Industries, Inc. ("Sunny") (secured by a $5.0 million
letter of credit as to the guarantee of principal), (b) one-half of the interest
accrued after the Closing Date on a Customer Note (the "Newspaper Customer
Note"), secured by a letter of credit in an amount of approximately $1.9 million
and (c) $10.5 million of the principal balance on the Customer Note payable by
Socpresse, S.A., Serpo, Presse Ocean and any of their affiliates (including
Robert Hersant, the estate of Robert Hersant and any other successors, assigns
or heirs of Robert Hersant) (the "Hersant Group"); (ii) the execution of an
agreement between Rockwell and BTCC, pursuant to which Rockwell agrees that BTCC
may, between June 1, 1997 and June 30, 1997, sell to Rockwell the Newspaper
Customer Note on certain specified terms, and pursuant to which Rockwell
provides certain guarantees to BTCC; and (iii) Rockwell indemnifying BTCC
against certain claims in connection with the sale of the Newspaper Customer
Note. In addition, the Company will agree that BTCC may, at any time after the
Closing Date and upon 10 days written notice to the Company, sell to the Company
for a price of $4.0 million the printing press equipment securing the Customer
Note from Mirandela Artes Grafias S.A. after the foreclosure upon such equipment
by BTCC. The Company may sell or otherwise remarket such equipment and must pay
to BTCC the $4.0 million purchase price on the earlier of such sale or other
remarketing and one year after the sale by BTCC to the Company of such
equipment. The letters of credit to be issued in connection with the sale of the
Sunny Notes and the Newspaper Customer Note will be obtained pursuant to draw
downs under the Revolving Credit Facility. The Sunny Notes, the Newspaper
Customer Note and the Customer Note payable by the Hersant Group have an
aggregate principal amount of approximately $84.4 million. See "Description of
New Bank Credit Agreement."
In addition, BTCC's obligation to purchase the Customer Notes is subject to
the execution and delivery of a purchase agreement reasonably satisfactory to
BTCC, consummation of the Acquisition on terms reasonably satisfactory to BTCC
and the absence of any material adverse change in the performance of the
Customer Notes since March 1, 1996. The funds from the sale of Customer Notes
will be paid directly to the Company, and other than the commitment letter,
Stonington is not a party to any agreements or arrangements with respect to the
sale of Customer Notes. The Company will enter into the purchase agreement with
BTCC, which will supersede the commitment letter, and Stonington will have no
continuing obligations with respect to the sale of Customer Notes.
DESCRIPTION OF PREFERRED STOCK
In connection with the Acquisition, Holdings will issue to Rockwell 47,500
shares of 6 1/2% Redeemable Pay-in-Kind Preferred Stock, par value $.01 per
share (the "Preferred Stock"), having a liquidation preference of $1,000 per
share, or $47.5 million in the aggregate.
The ability of Holdings to pay cash dividends on the Preferred Stock and to
redeem or repurchase the Preferred Stock is subject to limitations imposed by
the Company's debt agreements. The following description of the Preferred Stock
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all of the provisions of the Certificate of Designation
governing the Preferred Stock, a copy of which is attached as an exhibit to the
Registration Statement. See "Available Information."
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RANK
The Preferred Stock, with respect to dividend rights, rights upon
liquidation, winding up or dissolution, and redemption rights, ranks (i) junior
to any other series of preferred stock duly established and hereafter created by
the board of directors of Holdings, the terms of which specifically provide that
such series shall rank senior to the Preferred Stock, (ii) on a parity with any
other series of preferred stock duly established by the board of directors of
Holdings, the terms of which shall specifically provide that such series shall
rank on a parity with the Preferred Stock, whether now existing or hereafter
created, and (iii) prior to any other class or series of capital stock of
Holdings, including, without limitation, all classes of the Common Stock and
Nonvoting Common Stock whether now existing or hereafter created (all of such
classes or series of capital stock of Holdings to which the Preferred Stock
ranks prior, including without limitation the Common Stock and the Nonvoting
Common Stock, and including, without limitation, Junior Securities convertible
into or exchangeable for other Junior Securities, are collectively referred to
herein as the "Junior Securities").
DIVIDENDS
The holders of the shares of Preferred Stock are entitled to receive when
and as declared by the Board of Directors of Holdings, out of funds legally
available therefor, cumulative dividends on the shares of the Preferred Stock,
at a rate per annum of 6 1/2% multiplied by the liquidation preference thereof.
Dividends on shares of Preferred Stock are payable on December 31 of each year,
commencing on December 31, 1996, which date shall be the first day of the next
succeeding dividend period (each such period, an "Annual Dividend Period"), or
if any such date is not a business day, on the next succeeding business day
(each of such dates being a "Dividend Payment Date"), in preference to and in
priority over dividends on the Junior Securities. Dividends on the Preferred
Stock are fully cumulative and accrue (whether or not earned or declared and, to
the extent permitted by law, whether or not there are unrestricted funds of
Holdings legally available for the payment of dividends), without interest, from
the first day of the Annual Dividend Period, except that with respect to the
Annual Dividend Period ending on December 30, 1996, such dividend shall accrue
from the Acquisition Closing and except that with respect to the first Annual
Dividend Period relating to any Additional Shares of Preferred Stock (as defined
below), dividends shall accrue from the respective initial date of issuance
thereof.
On each Dividend Payment Date that occurs prior to the payment (a "Junior
Stock Dividend") of dividends on any class or series of Common Stock or Junior
Securities payable in cash or other property (except for dividends payable in
shares of Common Stock or Junior Securities), Holdings may pay dividends on the
Preferred Stock, at its option, in cash or by issuing a number of additional
shares (or partial shares) of the Preferred Stock (the "Additional Shares of
Preferred Stock") for each such share (or partial share) of Preferred Stock then
outstanding equal to the dividend then payable on each such share (or partial
share) of Preferred Stock for the Annual Dividend Period then ended (or such
shorter period for which dividends are so being paid) (expressed as a dollar
amount) divided by the liquidation value of one share of Preferred Stock
(expressed as a dollar amount).
On each Dividend Payment Date which occurs after a Junior Stock Dividend,
Holdings will pay such dividend amount in cash; provided, however, that Holdings
will not be required to pay cash dividends on shares of Preferred Stock to the
extent that the payment of each dividend on shares of Preferred Stock is
prohibited by the then applicable corporation law of the State of Delaware.
RESTRICTED PAYMENTS
For so long as any shares of Preferred Stock are outstanding, no dividend
will be declared or paid or set aside for payment or other distribution declared
or made (in each case, other than dividends or distributions paid in shares of
Junior Securities, or options, warrants or rights to subscribe for or
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purchase shares of Junior Securities) upon any Junior Securities, nor will any
Junior Securities (or any options, warrants or rights to subscribe for or
purchase Junior Securities) be redeemed, purchased or otherwise acquired by
Holdings or any of its subsidiaries for any consideration (except for shares of
Junior Securities, or options, warrants or rights to subscribe for or purchase
shares of Junior Securities), unless, in either case, dividends on the shares of
Preferred Stock are paid in full for all prior periods and are paid or set apart
for payment in full for the current period.
Notwithstanding the foregoing, the Certificate of Designation will not
prevent the redemption, purchase or other acquisition by Holdings or any of its
subsidiaries of shares of Junior Securities pursuant to certain management
investment agreements entered into in connection with, or subsequent to, the
Transactions.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of Holdings, the
holders of the Preferred Stock will be entitled to receive their full
liquidation preference per share, together with accrued and unpaid dividends,
before the distribution of any assets of Holdings to the holders of any Junior
Securities.
REDEMPTION
Shares of Preferred Stock may, at the option of Holdings, be redeemed at any
time in whole or in part from time to time, out of funds legally available
therefor, at a redemption price, payable in cash, equal to the per share
liquidation preference thereof, plus, in each case, an amount equal to accrued
and unpaid dividends thereon (whether or not earned or declared), if any, to the
date fixed for redemption.
In addition, prior to the occurrence of (i) any event in which Stonington or
its affiliates cease to own in excess of 50% of the voting securities of
Holdings or the Company (or any company into which the Company is merged) (a
"Control Event"); (ii) the payment of an Extraordinary Dividend (as defined
below); or (iii) a Qualifying Sale (as defined below), Holdings will be required
to offer to purchase (the "Extraordinary Event Offer") on the date of the
Control Event, Extraordinary Dividend or Qualifying Sale, as the case may be,
all shares of Preferred Stock outstanding at such date at a purchase price,
payable in cash, equal to the per share liquidation preference thereof, plus
accrued and unpaid dividends, if any, to the date of the Control Event,
Extraordinary Dividend or Qualifying Sale, as the case may be. Any Extraordinary
Event Offer may be expressly conditioned on the occurrence of a Control Event, a
Qualifying Sale or the payment of the Extraordinary Dividend and if the Control
Event, the Qualifying Sale or the payment of the Extraordinary Dividend does not
occur, Holdings will have no further obligation in respect of such Extraordinary
Event Offer; provided, however, that the termination of an Extraordinary Event
Offer resulting from the failure of such Control Event, such Qualifying Sale or
payment of such Extraordinary Dividend to occur shall not affect the obligation
of Holdings with respect to any subsequent Extraordinary Event Offers.
An Extraordinary Dividend is defined as (i) any dividend or dividends paid
on the Common Stock or any other class of capital stock of Holdings (other than
the Preferred Stock) which other class of capital stock is issued for less than
the then fair market value, (ii) any redemptions or purchases by Holdings (in
one or more transactions) of shares of capital stock of Holdings (other than
certain redemptions or purchases of equity securities including pursuant to
management investment agreements entered into in connection with, or subsequent
to, the Closing), (iii) any dividends (in one or more transactions) by any
subsidiary of Holdings on its capital stock to any person or entity other than
Holdings or one of its subsidiaries or (iv) any redemptions or purchases (in one
or more transactions) by any subsidiary of Holdings of shares of its capital
stock from any person or entity other than Holdings or one of its subsidiaries;
pursuant to which (A) the aggregate value of such dividends set forth in clause
(i) in any twelve month period, plus (B) the aggregate fair market value of such
dividends, purchases or
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redemptions set forth in clauses (ii) to (iv), is equal to or greater than the
aggregate fair market value of 10% of the then outstanding shares of Common
Stock.
A Qualifying Sale is defined as the transfer by Stonington or its affiliates
(other than transfers to an affiliate) of such number of shares of capital stock
of Holdings in one or more transactions (including transfers of shares of
capital stock of Holdings held on the Closing Date or thereafter acquired, but
excluding such shares acquired from Holdings after the Closing Date (other than
in exchange for other capital stock of Holdings) at the fair market value
thereof) as is equal to or greater than 5% of its shares of Common Stock held on
the Closing Date.
TRANSFER RESTRICTIONS
Prior to a Qualified Primary Public Offering (as defined below), Rockwell
will not be permitted to sell, offer, assign, pledge, hypothecate, encumber or
otherwise transfer ("Transfer") its shares of Preferred Stock, other than to
affiliates of Rockwell who agree in writing to be bound by the transfer
restrictions described herein, without the prior written consent of Holdings,
except that no such consent (other than with respect to a transfer to a
competitor of Holdings or any of its affiliates) shall be required upon the
failure by Holdings to declare and pay any annual dividend on the shares of
Preferred Stock or to satisfy its obligations specified under the second
paragraph of "--Redemption." After a Qualified Primary Public Offering, the
holders of shares of Preferred Stock will have the right to Transfer such
shares, except for transfers to a competitor of Holdings or any of its
affiliates.
A Qualified Primary Public Offering is defined as the completion of a sale
of shares pursuant to an effective registration statement under the Securities
Act (other than a registration statement relating to Common Stock issuable upon
the exercise of employee stock options or in connection with any employee
benefit plan and other than a registration statement on Form S-4) of Common
Stock representing more than 15% of the then outstanding shares of Common Stock.
VOTING RIGHTS
The holders of record of shares of Preferred Stock will not be entitled to
any voting rights, except upon the occurrence of (i) the failure by Holdings to
declare and pay a dividend on the Preferred Stock on any Dividend Payment Date
or (ii) the failure of Holdings to satisfy the obligations with respect to the
Preferred Stock described under the second paragraph of "--Redemption." Upon the
occurrence of any of the events set forth in the preceding sentence, the size of
the Board of Directors of Holdings will be increased by two directors, and the
holders of a majority of the outstanding shares of Preferred Stock, voting as a
separate class, will be entitled to elect two additional members of the Board of
Directors of Holdings, provided that such right to elect two additional members
of the Board of Directors of Holdings will terminate when the event giving rise
to such right is cured. Such holders are not entitled to any other voting rights
except as specified herein and except as otherwise required by law.
In addition, the affirmative vote of the holders of at least a majority of
the outstanding shares of Preferred Stock, voting separately as a single class
on a one vote per share (pro rated for fractional shares) basis, in person or by
proxy, at a special or annual meeting of stockholders called for the purpose, or
by consent, shall be required to amend, repeal or change any provisions of the
Certificate of Incorporation of Holdings governing the Preferred Stock in any
manner which would adversely affect, alter or change the powers, preferences or
special rights of any share of Preferred Stock.
FINANCIAL STATEMENTS
Holdings will provide to the holders of the shares of Preferred Stock annual
and quarterly financial statements of the Company within times to be agreed
upon.
112
<PAGE>
RELATED AGREEMENT
In connection with the issuance of the Preferred Stock, the Fund will enter
into a letter agreement with Rockwell providing that, in the event that a
Qualifying Sale occurs and Holdings fails to satisfy its obligations set forth
under the second paragraph of "--Redemption," the Fund will promptly purchase
such number of shares of Preferred Stock from Rockwell (or transferees who
obtain shares of Preferred Stock in compliance with the restrictions set forth
in "--Transfer Restrictions") for its full liquidation preference, together with
accrued and unpaid dividends to the date of purchase, as is equal to the net
proceeds from such Qualifying Sale.
113
<PAGE>
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal U.S. federal income
tax consequences of the acquisition, ownership and disposition of the Notes to
initial beneficial owners of the Notes who are U.S. Holders (as defined below)
and the principal U.S. federal income and estate tax consequences of the
acquisition, ownership and disposition of the Notes to initial beneficial owners
of the Notes who are Non-U.S. Holders (as defined below). This discussion is
based on currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, all as in
effect or proposed on the date hereof and all of which are subject to change,
possibly with retroactive effect, or different interpretations. It does not
include any description of the tax laws of any state, local or foreign
government that may be applicable to the Notes or beneficial owners thereof.
This discussion does not address the tax consequences to subsequent beneficial
owners of the Notes, and is limited to beneficial owners who hold the Notes as
capital assets within the meaning of section 1221 of the Code. This discussion
also does not address the tax consequences to Non-U.S. Holders that are subject
to U.S. federal income tax on a net basis on income realized with respect to a
Note because such income is effectively connected with the conduct of a U.S.
trade or business. Moreover, this discussion does not address all of the U.S.
federal income tax consequences that may be relevant to particular initial
beneficial owners in light of their personal circumstances, or to certain types
of initial beneficial owners (such as certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities or persons who have hedged
the risk of owning a Note).
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN
APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payments of Interest
In general, interest on a Note will be taxable to a beneficial owner who or
which is (i) a citizen or resident of the U.S. for U.S. federal income tax
purposes, (ii) a corporation created or organized under the laws of the U.S. or
any State thereof, (iii) a person or entity that is otherwise subject to U.S.
federal income tax on a net income basis in respect of income derived from
Notes, or (iv) a partnership to the extent the interest therein is owned by a
person who is described in clause (i), (ii) or (iii) of this paragraph (a "U.S.
Holder") as ordinary income at the time it is (actually or constructively)
received or accrued, depending on the beneficial owner's method of accounting
for U.S. federal income tax purposes.
SALE, EXCHANGE, DISPOSITION AND RETIREMENT OF NOTES
A U.S. Holder's tax basis in a Note will generally be its cost. A U.S.
Holder will generally recognize gain or loss on the sale, exchange, retirement
or other disposition of a Note equal to the difference between the amount
realized on such sale, exchange, retirement or other disposition and the tax
basis of the Note. Gain or loss recognized on such sale, exchange, retirement or
other disposition of a Note (other than gain attributable to accrued but unpaid
interest) will be capital gain or loss and will be long-term capital gain or
loss if the Note was held for more than one year.
114
<PAGE>
U.S. TAXATION OF NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:
(i) payments of principal and interest on the Notes by the Company or
any agent of the Company to any beneficial owner of a Note that is not a
U.S. Holder (a "Non -U.S. Holder") will not be subject to U.S. federal
withholding tax, provided that in the case of interest (a)(1) the Non-U.S.
Holder does not actually or constructively own 10 percent or more of the
total combined voting power of all classes of stock of the Company entitled
to vote, (2) the Non-U.S. Holder is not a controlled foreign corporation
that is related to the Company through stock ownership, (3) the Non-U.S.
Holder is not a bank described in Section 881(c)(3)(A) of the Code, and (4)
either (A) the beneficial owner of the Notes certifies to the Company or its
agent on Internal Revenue Service ("IRS") Form W-8 (or a suitable substitute
form), under penalties of perjury, that it is not a "U.S. person" (as
defined in the Code) and provides its name and address, or (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Notes on behalf of the beneficial
owner certifies to the Company or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof or (b) the Non-U.S. Holder is entitled to the
benefits of an income tax treaty under which interest on the Notes is exempt
from U.S. withholding tax and provides a properly executed IRS Form 1001
claiming the exemption;
(ii) a Non-U.S. Holder will not be subject to U.S. federal withholding
tax on gain realized on the sale, exchange or redemption of a Note, unless
the Non-U.S. Holder is an individual who is present in the U.S. for a period
or periods aggregating 183 or more days in the taxable year of the
disposition and certain other conditions are met; and
(iii) Notes held at the time of death (or theretofore transferred
subject to certain retained rights or powers) by an individual who at the
time of death is a Non-U.S. Holder will not be included in such holder's
gross estate for U.S. federal estate tax purposes provided that the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote or hold the Notes in connection with a U.S. trade or business.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes are outstanding, the Company is
required to provide the IRS with certain information, including the beneficial
owner's name, address and taxpayer identification number, the aggregate amount
of interest paid to that beneficial owner during the calendar year and the
amount of tax withheld, if any. This obligation, however, does not apply with
respect to payments to certain U.S. Holders, including corporations, tax-exempt
organizations, qualified pension and profit sharing trusts and individual
retirement accounts, provided that they establish entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the Notes. This backup withholding is not an additional tax
and may be credited against the U.S. Holder's U.S. federal income tax liability,
provided that the required information is furnished to the IRS.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder
115
<PAGE>
of a Note if such holder has provided the required certification that it is not
a U.S. person as set forth in clause (4) in the first paragraph under "U.S.
Taxation of Non-U.S. Holders," or has otherwise established an exemption
(provided that neither the Company nor its agent has actual knowledge that the
holder is a U.S. person or that the conditions of any exemption are not in fact
satisfied).
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that if the broker is a U.S. person, a controlled foreign
corporation for U.S. federal income tax purposes or a foreign person 50 percent
or more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment was effectively
connected with a U.S. trade or business, information reporting may apply to such
payments. Payment of the proceeds from a sale of a Note to or through the U.S.
office of a broker is subject to information reporting and backup withholding
unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
PROPOSED REGULATIONS
The IRS recently issued proposed regulations relating to withholding, backup
withholding and information reporting that, if adopted in their current form,
would, among other things, unify current certification procedures and forms and
clarify certain reliance standards. The regulations are proposed to be effective
for payments made after December 31, 1997 but provide that certificates issued
on or before the date that is 60 days after the proposed regulations are made
final will continue to be valid until they expire. The proposed regulations,
however, may be subject to change prior to their adoption in final form.
116
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement (the "Underwriting Agreement") dated , 1996, between the Company
and the underwriters set forth below (the "Underwriters"), the Underwriters have
severally but not jointly agreed to purchase from the Company the respective
principal amount of Notes set forth opposite their names below:
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
- ------------------------------------------------------------------ ---------
CS First Boston Corporation....................................... $
BT Securities Corporation
---------
Total......................................................... $
---------
---------
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Notes, if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an Underwriter, in certain
circumstances the purchase commitments of the non-defaulting Underwriter may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised that the Underwriters propose to offer the
Notes to the public at the public offering price set forth on the cover page of
this Prospectus and to certain securities dealers at such price less a
concession not in excess of % per $1,000 principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of % per $1,000 principal amount of the Notes to certain other dealers. After
the initial public offering, the public offering price, concession and discount
to dealers may be changed by the Underwriters.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
act as market makers for the Notes. However, neither Underwriter is obligated to
make a market in the Notes, and any such market making may be discontinued at
any time at the sole discretion of such Underwriter. There can be no assurance
that an active public market for the Notes will develop.
The Underwriters have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the principal amount of
Notes being offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
CS First Boston Corporation and its affiliates, and BT Securities
Corporation and its affiliates, have certain interests in the Acquisition in
addition to being underwriters of the Notes. In connection with the New Bank
Credit Agreement, Bankers Trust Company, an affiliate of BT Securities
Corporation, will act as administrative agent and will receive customary fees
and have expenses reimbursed in connection with such services. BT Commercial
Corporation, an affiliate of BT Securities Corporation, will purchase the
Customer Notes from the company in connection with the Acquisition, and will
have expenses reimbursed in connection therewith. Credit Suisse, the parent of
CS First Boston Corporation, will act as syndication agent in connection with
the New Bank Credit Agreement. Credit Suisse will receive customary fees and
will have expenses reimbursed in connection with such services.
An affiliate of BT Securities Corporation and an affiliate of CS First
Boston Corporation each own a limited partnership interest in the Fund. In
addition, each of BT Securities Corporation and CS First Boston Corporation has
from time to time provided investment banking and financial advisory services to
Stonington and its
117
<PAGE>
affiliates, for which each has received customary fees, and each of them may
continue to do so in the future.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Securities in Canada is being made only on a private
placement basis exempt from the requirement that the Issuers prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Securities are effected. Accordingly, any resale of the Securities in
Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Securities in Canada who receives a purchase confirmation
will be deemed to represent to the Issuers and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Securities without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, such purchaser is purchasing as principal and not as agent, and
(iii) purchaser has reviewed the text above under "--Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The Securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuers' directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuers or such persons. All or a substantial portion of the assets of the
issuers and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuers or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuers
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Securities to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Securities acquired by such purchaser pursuant to the Offerings. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Issuers. Only one
such report must be filed in respect of Securities acquired on the same date and
under the same prospectus exemption.
118
<PAGE>
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Wachtell,
Lipton, Rosen & Katz, New York, New York, counsel to the Company, and for the
Underwriters by Dewey Ballantine, New York, New York.
EXPERTS
The balance sheet of Goss Graphic Systems, Inc. as of July 16, 1996 included
in this Prospectus has been audited by Arthur Andersen LLP, independent
auditors, as stated in their report appearing herein. The balance sheet has been
included in this Prospectus in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The combined financial statements of Rockwell Graphic Systems, a business
unit of Rockwell International Corporation, as of September 30, 1994 and 1995
and for each of the three years in the period ended September 30, 1995 included
in this Prospectus and the related financial statement schedule included
elsewhere in the Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement (which reports express an unqualified
opinion and include an explanatory paragraph relating to the preparation of the
financial statements of a business unit of Rockwell International Corporation),
and have been so included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-1 (together with
all amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act with respect to the Notes offered hereby. This Prospectus,
which forms a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Notes offered hereby,
reference is made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete, and, in each instance, reference is made to the copy
of the document filed as an exhibit to the Registration Statement. The
Registration Statement can be inspected and copied at the offices of the
Commission at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 or at the Commission's regional offices at Seven World Trade Center
(13th Floor), New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934 (the "1934 Act). As a result of the
Offering, the Company will become subject to the informational requirements of
the 1934 Act. The Company will fulfill its obligations with respect to such
requirements by filing periodic reports and other information with the
Commission.
119
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE><CAPTION>
PAGE
----
<S> <C>
COMBINED FINANCIAL STATEMENTS OF THE ROCKWELL GRAPHIC SYSTEMS, A BUSINESS UNIT OF
ROCKWELL INTERNATIONAL CORPORATION
Independent Auditors' Report....................................................... F-2
Combined Balance Sheets as of September 30, 1994 and 1995 and (Unaudited) June 30,
1996................................................................................. F-3
Combined Statements of Operations for the Years Ended September 30, 1993, 1994 and
1995 and (Unaudited) the Nine Months Ended June 30, 1995 and 1996.................... F-4
Combined Statements of Cash Flows for the Years Ended September 30, 1993, 1994 and
1995 and (Unaudited) the Nine Months Ended June 30, 1995 and 1996.................... F-5
Notes to Combined Financial Statements............................................. F-6
BALANCE SHEET OF GOSS GRAPHIC SYSTEMS, INC.
Report of Independent Public Accountants........................................... F-23
Balance Sheet as of July 16, 1996.................................................. F-24
Notes to Consolidated Balance Sheet................................................ F-25
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Rockwell Graphic Systems:
We have audited the accompanying combined balance sheets of Rockwell Graphic
Systems, a business unit of Rockwell International Corporation (Rockwell Graphic
Systems--see Note 1), as of September 30, 1995 and 1994, and the related
combined statements of operations and cash flows for each of the three years in
the period ended September 30, 1995. These financial statements are the
responsibility of the management of Rockwell Graphic Systems. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of Rockwell Graphic Systems as of
September 30, 1995 and 1994, and the combined results of its operations and its
cash flows for each of the three years in the period ended September 30, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 1, the accompanying financial statements have been
prepared from the separate records maintained by Rockwell Graphic Systems and
are not necessarily indicative of the conditions that would have existed or the
results of operations if Rockwell Graphic Systems had been operated as an
unaffiliated company. Portions of certain expenses represent allocations of
corporate expenses applicable to Rockwell International Corporation as a whole.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
November 3, 1995 as to the 1995 and 1994 financial statements and
April 26, 1996 as to the 1993 financial statements, except for the fourth
paragraph of Note 22 as to which the date is July 18, 1996
F-2
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE><CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1994 1995 1996
------ ------ -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 14.1 $ 6.7 $ 3.2
Accounts receivable, net...................................... 163.3 125.3 125.1
Customer notes receivable, current portion.................... 44.7 41.5 42.1
Inventories................................................... 207.5 223.4 201.9
Deferred income taxes......................................... 37.4 32.9 39.5
Other current assets.......................................... 6.0 5.7 5.3
------ ------ -----------
Total current assets...................................... 473.0 435.5 417.1
Property and equipment, net..................................... 177.9 163.5 145.9
Customer notes receivable, net.................................. 138.9 190.2 172.5
Goodwill, net................................................... 144.8 141.2 135.5
Deferred income taxes........................................... 7.4 4.6 3.4
Other assets.................................................... 8.9 12.0 14.2
------ ------ -----------
Total assets.................................................... $950.9 $947.0 $ 888.6
------ ------ -----------
------ ------ -----------
LIABILITIES AND ROCKWELL'S NET INVESTMENT
Current liabilities:
Accounts payable.............................................. $ 73.7 $ 79.0 $ 53.6
Advance payments from customers............................... 94.9 154.4 120.0
Accrued compensation.......................................... 14.4 16.1 13.0
Due to related parties........................................ 8.1 10.8 11.7
Income taxes payable.......................................... 3.6 5.1 8.8
Revolving credit facilities................................... -- -- 34.3
Long-term debt, current portion............................... 1.5 1.5 --
Other current liabilities..................................... 105.8 112.1 116.6
------ ------ -----------
Total current liabilities................................. 302.0 379.0 358.0
Other liabilities............................................... 7.5 13.8 14.0
Deferred income taxes........................................... 10.1 10.0 9.1
Long-term debt, less current portion............................ 2.6 1.1 --
Contingencies and commitments--Note 19.......................... -- -- --
Rockwell's net investment in Rockwell Graphic Systems........... 628.7 543.1 507.5
------ ------ -----------
Total liabilities and Rockwell's net investment................. $950.9 $947.0 $ 888.6
------ ------ -----------
------ ------ -----------
</TABLE>
See Notes to Combined Financial Statements.
F-3
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
COMBINED STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE><CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------- --------------------------
1993 1994 1995 1995 1996
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $627.0 $648.2 $709.3 $ 509.3 $ 481.9
Cost of sales................................ 519.3 524.8 543.2 380.7 391.9
------ ------ ------ ----------- -----------
Gross profit................................. 107.7 123.4 166.1 128.6 90.0
------ ------ ------ ----------- -----------
Operating expenses:
Engineering................................ 29.2 26.2 28.6 20.5 23.8
Sales and marketing........................ 36.3 31.6 35.1 25.0 26.2
General and administrative................. 48.3 52.2 45.0 33.9 33.7
Rockwell common expense allocation......... 7.5 6.8 8.3 5.8 5.8
Patent litigation.......................... -- -- 3.0 -- 1.0
Restructuring charge....................... 5.4 -- -- -- 3.9
------ ------ ------ ----------- -----------
Total operating expenses................... 126.7 116.8 120.0 85.2 94.4
------ ------ ------ ----------- -----------
Operating (loss) profit...................... (19.0) 6.6 46.1 43.4 (4.4)
Interest income.............................. 22.8 16.2 15.4 10.5 12.8
Interest expense:
Related parties............................ (10.2) (4.3) (2.8) (1.9) (3.8)
Other...................................... (1.7) (1.7) (.2) (0.2) (0.9)
Other income (expense), net.................. .8 (2.1) 1.9 0.8 (1.4)
------ ------ ------ ----------- -----------
Income (loss) before income taxes and
cumulative effect of accounting change....... (7.3) 14.7 60.4 52.6 2.3
Provision (credit) for income taxes.......... (1.8) 5.3 24.2 21.1 1.2
------ ------ ------ ----------- -----------
Income (loss) before cumulative effect of
accounting change............................ (5.5) 9.4 36.2 31.5 1.1
Cumulative effect of accounting change for
postemployment benefits, net of income
taxes of $2.5.............................. (4.6) -- -- -- --
------ ------ ------ ----------- -----------
Net (loss) income............................ $(10.1) $ 9.4 $ 36.2 $ 31.5 $ 1.1
------ ------ ------ ----------- -----------
------ ------ ------ ----------- -----------
</TABLE>
See Notes to Combined Financial Statements.
F-4
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE><CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
--------------------------- --------------------------
1993 1994 1995 1995 1996
------ ------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income............................ $(10.1) $ 9.4 $ 36.2 $ 31.5 $ 1.1
Adjustments to net (loss) income to arrive at
net cash (used for) provided by operating
activities:
Depreciation............................... 26.8 25.7 24.7 18.8 17.1
Gain on sale of customer notes............. (0.6) -- -- -- --
Intercompany purchases from Allen Bradley.. 16.1 14.8 20.3 13.7 15.0
Allocation of common expenses from
Rockwell..................................... 7.5 6.8 8.3 5.8 5.8
Cumulative effect of accounting change..... 7.1 -- -- -- --
Amortization of intangible assets.......... 3.6 3.6 5.0 3.5 3.6
Provision for doubtful accounts
receivable................................... 0.5 1.6 1.9 0.6 0.5
Provision for doubtful customer notes
receivable................................... 7.7 17.7 3.5 1.8 2.4
Deferred income taxes...................... (12.3) (4.8) 6.4 2.1 (5.4)
Changes in assets and liabilities:
Accounts receivable, net................. 3.6 (0.9) 37.7 46.8 (4.0)
Inventories.............................. (31.7) 17.5 (13.7) (30.6) 14.2
Customer notes receivable................ (84.9) 12.4 (50.4) (25.5) 14.4
Accounts payable......................... 4.9 (7.8) 4.4 (3.5) (22.3)
Advance payments from customers.......... (9.5) (11.6) 59.1 27.9 (32.2)
Due to related parties................... (2.8) 1.9 2.7 3.5 0.9
Accrued compensation..................... (2.9) 2.6 1.6 (0.3) (2.7)
Other assets and liabilities............. 15.8 (17.6) 9.8 (1.1) 4.0
------ ------ ------- ----------- -----------
Net cash (used for) provided by operating
activities................................... (61.2) 71.3 157.5 95.0 12.4
------ ------ ------- ----------- -----------
INVESTING ACTIVITIES:
Property and equipment additions............. (12.5) (11.6) (11.5) (7.9) (3.4)
Investment in joint venture.................. -- (.7) -- -- (0.3)
Other........................................ 2.1 (13.4) 2.1 2.1 1.9
------ ------ ------- ----------- -----------
Net cash used for investing activities... (10.4) (25.7) (9.4) (5.8) (1.8)
------ ------ ------- ----------- -----------
FINANCING ACTIVITIES:
Repayment of long-term debt.................. (5.2) (8.6) (1.5) (1.1) (2.8)
Borrowings................................... -- -- -- 7.8 36.6
Sale of customer notes....................... 68.7 7.8 -- -- --
Net cash transferred from (to) Rockwell...... 2.7 (36.4) (154.0) (105.8) (47.9)
------ ------ ------- ----------- -----------
Net cash provided by (used for) financing
activities................................... 66.2 (37.2) (155.5) (99.1) (14.1)
------ ------ ------- ----------- -----------
Net (decrease) increase in cash.............. (5.4) 8.4 (7.4) (9.9) (3.5)
Cash and cash equivalents at beginning of
period....................................... 11.1 5.7 14.1 14.1 6.7
------ ------ ------- ----------- -----------
Cash and cash equivalents at end of period... $ 5.7 $ 14.1 $ 6.7 $ 4.2 $ 3.2
------ ------ ------- ----------- -----------
------ ------ ------- ----------- -----------
</TABLE>
See Notes to Combined Financial Statements.
F-5
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND (UNAUDITED)
THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996
1. BASIS OF PRESENTATION
The accompanying combined financial statements (the Statements) present the
financial position, results of operations and cash flows of Rockwell Graphic
Systems, a business unit of Rockwell International Corporation (Rockwell Graphic
Systems). The Statements have been prepared in accordance with generally
accepted accounting principles utilizing the accounting practices and procedures
of Rockwell Graphic Systems and have been derived from the accounting records of
Rockwell International Corporation and its subsidiaries (Rockwell). The
Statements are not necessarily indicative of the financial position, results of
operations or cash flows had Rockwell Graphic Systems operated as a stand-alone
company.
Rockwell Graphic Systems is a leading manufacturer and supplier of web
offset printing press systems for newspaper, commercial and insert printing.
Rockwell Graphic Systems includes the world headquarters located in Westmont,
Illinois, as well as U.S. manufacturing operations in Cedar Rapids, Iowa and
Reading, Pennsylvania. Substantially all U.S. operations are included within
Rockwell Graphic Systems, Inc., a wholly-owned subsidiary of Rockwell, except
for the Reading facility, which is directly owned by Rockwell. Rockwell Graphic
Systems also includes international operations of indirect wholly-owned
subsidiaries of Rockwell in the United Kingdom, France and Germany and
operations in Japan performed by a wholly-owned subsidiary of Rockwell Graphic
Systems, Inc. Rockwell Graphic Systems also has an investment in a joint venture
in China.
Rockwell's cash resources in the U.S., the United Kingdom and Germany are
managed under a centralized system wherein receipts are deposited to Rockwell
corporate accounts and disbursements are centrally funded. Accordingly, the
Statements do not include cash, marketable securities or borrowings, or related
interest income, expense (except for a 1993 charge to the U.K.), receivables or
payables arising from these cash management activities in the U.S., the United
Kingdom and Germany.
The majority of customer notes receivable relating to Rockwell Graphic
Systems are held and administered by Rockwell International Credit Corporation.
Rockwell subsidiaries in the United Kingdom, France, Australia and Canada also
hold notes receivable from Rockwell Graphic Systems customers. These notes and
related interest income are included in the Statements.
Rockwell Graphic Systems benefits from certain direct services which are
provided by Rockwell, including centralized billing for benefit claim payments
for active U.S. employees, data processing, telecommunications, research and
certain insurance. These direct expenses are included in the Statements. In
addition, Rockwell also provides certain common services, such as cash
management and other treasury services, legal, patent, tax, insurance
administration, corporate accounting, audit, communications, benefit
administration services and general management. These common expenses are
allocated by Rockwell using the proportion of divisional sales to total
corporate sales and such allocations are included in the Statements. Management
believes the manner in which common expenses have been allocated for the
services provided is reasonable. It is not practical for management to estimate
the level of expenses that might have been incurred for the services provided
had Rockwell Graphic Systems operated as a separate stand-along entity, however,
it is possible that services utilized and the costs of such services may differ
from those that would result from transactions among unrelated parties.
Rockwell Graphic Systems' investment in and operating results of Hall
Processing Systems and the assets at the Peterborough, England site have been
excluded from the Statements because they do not
F-6
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION--(CONTINUED)
represent ongoing operations of the business. Hall Processing Systems is a joint
venture which is 50% owned by Rockwell Graphic Systems, and is being liquidated
by Rockwell. The Peterborough, England site is a former Rockwell Graphic Systems
facility which is being held for sale by Rockwell and at which there are no
ongoing operations.
Intercompany accounts have been excluded from the assets and liabilities of
Rockwell Graphic Systems except for the payables by Rockwell Graphic Systems to
Allen-Bradley Company, Inc. (Allen-Bradley), a subsidiary of Rockwell, resulting
from inventory purchases by Rockwell Graphic Systems during the 30 days
preceding the date of the Statements. There are no significant operating
activities with other Rockwell subsidiaries.
INTERIM FINANCIAL INFORMATION
The Statements include information as of June 30, 1996 and for the nine
months ended June 30, 1995 and 1996 which is unaudited. This information
includes all adjustments which management considers necessary for a fair
presentation of the data for such periods, all of which were of a normal and
recurring nature. This information does not include all footnotes which would be
required for complete annual financial statements prepared in accordance with
generally accepted accounting principles. The results of operations for the nine
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the year ending September 30, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rockwell Graphic Systems recognizes revenue on a percentage-of-completion
basis, utilizing the units-of-delivery method. Units are considered delivered
when title passes to the customer in accordance with the contract terms, which
may precede actual delivery to the customer. At September 30, 1993, 1994 and
1995, Rockwell Graphic Systems had recorded cumulative revenues of $110.4
million, $198.1 million and $219.8 million, respectively, on presses awaiting
delivery to customers for which title had transferred. At June 30, 1995 and
1996, Rockwell Graphic Systems had recorded cumulative revenues of $175.8
million and $108.2 million, respectively, on presses awaiting delivery to
customers for which title had transferred. Revenues recognized during the years
ended September 30, 1993, 1994 and 1995 for presses awaiting delivery amounted
to $16.1 million, $132.3 million and $146.4 million, respectively. Revenues
recognized for the nine months ended June 30, 1995 and 1996 for presses awaiting
delivery amounted to $41.1 million and $14.4 million, respectively. Revenues on
installation contracts is recognized using the completed-contract method except
for certain installation contracts, generally in amounts over $1 million, for
which the percentage-of-completion, cost-to-cost method is utilized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of cash and short-term investments
having maturities of three months or less at the time of purchase. The carrying
amount of cash and cash equivalents approximates fair value.
F-7
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Inventory cost is
generally determined on a last-in, first-out (LIFO) method for U.S. locations
and on a first-in, first-out (FIFO) method for non-U.S. locations.
Reserves are provided for excess inventory on a location-by-location basis
based on an analysis of historical usage and management's estimate of future
inventory requirements. Such reserves are based on the carrying cost (LIFO or
FIFO) of the related inventory.
Inventories are classified as a current asset and include certain amounts
not expected to be realized within one year.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of the asset (generally 3 to 13 years for machinery and equipment
and up to 50 years for buildings). Leasehold improvements are amortized over the
shorter of the useful life of the asset or the remaining lease term. Where
applicable, interest has been capitalized and included in property and
equipment. Presses which are maintained as test development units on a long-term
basis are included in property and equipment and depreciated over their
estimated useful life (generally 5 to 12 years). Significant renewals and
betterments are capitalized and replaced units are written off. Maintenance and
repairs, as well as renewals of minor amounts, are charged to expense.
SOFTWARE DEVELOPMENT
Rockwell Graphic Systems expenses all costs associated with the programming
and development of new operating systems for its presses. Costs associated with
specific sales contracts generally are capitalized in inventory and charged to
cost of sales as revenues are recognized.
PRODUCT WARRANTY
Product warranty costs include all costs associated with repairs through the
end of the expressed warranty period. These costs are accrued considering
historical warranty cost experience and a periodic assessment of expected
warranty costs associated with each sale.
Unreimbursed costs to repair equipment after the warranty period are
incurred solely at the discretion of management and are expensed as incurred.
WORKERS' COMPENSATION AND PRODUCT AND GENERAL LIABILITY COSTS
The Statements include Rockwell Graphic Systems' estimated costs, including
costs not reimbursable under insurance contracts, of settling workers'
compensation and product and general liability claims. These estimates are
determined from Rockwell Graphic Systems' historical claims incurred experience,
using actuarial computations of the estimated ultimate settlement cost of such
claims, including claims incurred but not yet reported.
F-8
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
GOODWILL
Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at dates of acquisition. Goodwill is being
amortized generally over 40 years, except for goodwill of $28.6 million arising
from Rockwell's acquisition of Miehle Goss Dexter which occurred prior to 1971,
which is not being amortized. Accumulated amortization of goodwill totaled $18
million and $22 million at September 30, 1994 and 1995, respectively.
Management has reviewed the realizability of goodwill based on an overall
evaluation of remaining useful lives and projected cash flows and profitability
of Rockwell Graphic Systems and has determined that there is no impairment at
September 30, 1995. Management has not evaluated the impact of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which is
effective for Rockwell Graphic Systems in fiscal 1997.
INCOME TAXES
Income taxes are accounted for using the liability method, whereby deferred
income taxes reflect the net effect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Based on the weight of both negative
and positive evidence, if it is more likely than not that some portion or all of
a deferred tax asset will not be realized, a valuation reserve is established.
INCURRED BUT UNPAID MEDICAL CLAIMS
Rockwell Graphic Systems provides benefits to active U.S. employees for
medical care, dental care and prescription drugs. The liability for benefit
claims which have been incurred but not paid is estimated to be $1.3 million and
$.7 million at September 30, 1994 and 1995, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
3. FINANCIAL INSTRUMENTS AND CREDIT CONCENTRATIONS
The Statements include customer notes receivable, long-term debt and foreign
currency forward exchange contracts.
Rockwell Graphic Systems provides financing for sales to certain customers
in the form of promissory notes. The notes are collateralized by the equipment,
accrue interest at varying rates (6.25% to 13.25%) based on the contractual
terms of each agreement and generally have terms of up to ten years. The accrual
of interest is discontinued when a note becomes 90 days past due or when
Rockwell Graphic Systems is notified by the customer of a significant equipment
problem.
F-9
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. FINANCIAL INSTRUMENTS AND CREDIT CONCENTRATIONS--(CONTINUED)
Rockwell Graphic Systems customers are not concentrated by geographic area,
but are concentrated in the publishing and printing businesses. Rockwell Graphic
Systems reviews a customer's credit history before extending credit and
establishes an allowance for uncollectible amounts based on management's
evaluation of the collectibility of outstanding balances considering such
factors as the payment status of the notes and management's estimate of the fair
market value of the collateral. To reduce credit risk, Rockwell Graphic Systems
performs a review of the customer's credit history and retains a security
interest on the equipment financed.
The estimated fair value of customer notes receivable was $177 million and
$223 million, respectively, at September 30, 1994 and 1995 based on prevailing
interest rates for performing notes and on the collateral value of the related
presses for past due notes.
During the years ended September 30, 1992 and 1993, Rockwell Graphic Systems
sold certain of its notes receivable with recourse. At September 30, 1995, the
recourse obligation related to these notes was $10.5 million. Goss Graphic
Systems, Inc. will assume the recourse obligation related to these notes upon
consummation of the acquisition by it of Rockwell Graphic Systems. (See Note 22)
Long-term debt consists of bank loans to Rockwell Graphic Systems Japan
which bear interest at 2.875% per annum and mature in 1996 and 1997.
Rockwell enters into foreign currency forward exchange contracts on behalf
of Rockwell Graphic Systems to protect against adverse currency rate
fluctuations. The notional amounts of these contracts totaled $84 million and
$86 million at September 30, 1994 and 1995, respectively, and the contracts
mature at various dates through March 1997. Rockwell Graphic Systems has
deferred $5.3 million and $2.2 million of losses on these contracts at September
30, 1994 and 1995, respectively.
4. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows (in millions):
<TABLE><CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Trade accounts receivables........................................ $141.0 $118.0 $128.6
Unbilled receivables.............................................. 27.4 12.3 1.1
Less allowance for doubtful accounts.............................. (5.1) (5.0) (4.6)
------ ------ --------
Accounts receivable, net.......................................... $163.3 $125.3 $125.1
------ ------ --------
------ ------ --------
</TABLE>
As of September 30, 1994 and 1995 and June 30, 1996, accounts receivable
include $40.0 million, $37.2 million and $34.0 million of retainage held by
customers pending final acceptance of equipment.
Unbilled receivables consists principally of revenues recognized on
contracts under the units-of-delivery method of accounting. Unbilled receivables
are billed in accordance with the terms of contract provisions and do not
include any amounts subject to uncertainty as to their realization.
Substantially all amounts are expected to be billed and collected within one
year.
F-10
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. CUSTOMER NOTES RECEIVABLE
Customer notes receivable are summarized as follows (in millions):
<TABLE><CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Customer notes receivable......................................... $212.6 $256.5 $236.1
Less allowance for doubtful notes................................. (29.0) (24.8) (21.5)
------ ------ --------
Notes receivable, net............................................. 183.6 231.7 214.6
Less current portion.............................................. (44.7) (41.5) (42.1)
------ ------ --------
Long-term notes receivable, net................................... $138.9 $190.2 $172.5
------ ------ --------
------ ------ --------
</TABLE>
On October 1, 1995, Rockwell Graphic Systems adopted SFAS No. 114,
"Accounting By Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures," which requires the evaluation of the collectibility of principal
and contractual interest of certain impaired customer notes in assessing the
need for an allowance for customer notes. Customer notes are considered impaired
when, based on current information and events, it is probable that Rockwell
Graphic Systems will be unable to collect all amounts due according to the
contractual terms of the note agreement. Impairment is measured based on the
present value of expected future cash flows discounted at the note's effective
interest rate and/or the fair value of collateral. As of June 30, 1996, $34.4
million of customer notes are considered to be impaired, for which $7.2 million
has been reserved for within the allowance for doubtful notes. The adoption of
SFAS Nos. 114 and 118 did not have a material effect on the results of
operations for the nine months ended June 30, 1996.
6. INVENTORIES
Inventories are summarized as follows (in millions):
<TABLE><CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Materials......................................................... $ 76.8 $ 57.4 $ 66.1
Work in process................................................... 66.3 82.9 68.0
Finished goods.................................................... 35.9 45.3 37.3
Long-term contracts............................................... 28.1 30.4 21.8
Parts............................................................. 24.3 28.0 30.7
Less allowance to reduce certain inventories ($136.7 in 1994 and
$125.9 in 1995) to LIFO........................................... (23.9) (20.6) (22.0)
------ ------ --------
Inventories, net.................................................. $207.5 $223.4 $201.9
------ ------ --------
------ ------ --------
</TABLE>
Inventory valuation reserves were $43.6 million, $45.0 million and $46.2
million at September 30, 1994 and 1995 and June 30, 1996, respectively.
Long-term contracts consist of inventoried costs of assembled parts relating
to unit of delivery contracts. Such inventoried costs include direct costs of
manufacturing and allocable overhead costs which are not expected to be realized
within one year. Inventoried costs under long-term contracts do not include any
amounts subject to uncertainty as to their determination or realization.
F-11
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in millions):
<TABLE><CAPTION>
SEPTEMBER 30,
------------------ JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Land and land improvements...................................... $ 35.3 $ 35.4 $ 33.2
Buildings and building improvements............................. 77.8 79.0 78.3
Machinery, equipment and tooling................................ 256.8 255.9 254.2
Construction in progress........................................ 7.6 5.7 2.2
------- ------- --------
Total....................................................... 377.5 376.0 367.9
Less accumulated depreciation................................... (199.6) (212.5) (222.0)
------- ------- --------
Property and equipment, net..................................... $ 177.9 $ 163.5 $ 145.9
------- ------- --------
------- ------- --------
</TABLE>
8. INVESTMENT IN JOINT VENTURE
Shanghai Rockwell Graphic Systems Co. Ltd. (SRGSL), a joint venture with
Shanghai Printing & Packaging Machinery Corporation, is accounted for using the
equity method. SRGSL was formed in Shanghai, People's Republic of China, on
December 8, 1993 and the joint venture agreement has an operating term of 40
years. SRGSL is engaged in the manufacture and sale of printing presses.
Rockwell Graphic Systems has a commitment to contribute a total of $9
million, which includes equipment and technical support, and $1.0 million of
cash, to SRGSL for a 60% interest in the joint venture after all such
contributions have been made. As of September 30, 1995, Rockwell Graphic Systems
has contributed $4.8 million to the joint venture, which includes $.7 million of
cash and $3.0 million of machinery and equipment currently being refurbished or
awaiting shipment to China.
9. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
<TABLE><CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Product warranty costs............................................ $ 45.3 $ 42.7 $ 38.3
Accrued contract costs............................................ 27.8 38.1 33.4
Accrued product liability and workers' compensation costs......... 13.4 15.0 15.3
Other............................................................. 19.3 16.3 29.6
------ ------ --------
Other current liabilities......................................... $105.8 $112.1 $116.6
------ ------ --------
------ ------ --------
</TABLE>
10. PENSION PLANS
Rockwell has a pension plan which covers certain Rockwell Graphic Systems
employees and provides for monthly pension payments to eligible U.S. employees
upon retirement. Pension benefits for U.S. salaried employees are based on years
of credited service and compensation. Pension benefits for certain U.S. hourly
employees are based on years of service and specified benefit amounts. U.S.
pension
F-12
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. PENSION PLANS--(CONTINUED)
assets are primarily equity securities, U.S. Government obligations and fixed
income investments whose values are subject to fluctuations of the securities
market.
At September 30, 1994 and 1995, the assets for the entire Rockwell
International Pension Plan for U.S. employees of $7,588 million and $8,398
million, respectively, exceeded the accumulated benefit obligation of the plan
of $6,552 million and $7,266 million, respectively. The accumulated benefit
obligations related to Rockwell Graphic Systems participants in this plan are as
follows (in millions):
1994 1995
------ ------
Accumulated benefit obligation, principally vested:
Active employees........................................ $ 52.6 $ 58.9
Retired and other....................................... 90.0 100.1
------ ------
Total............................................... $142.6 $159.0
------ ------
------ ------
Certain Rockwell Graphic Systems employees in the United Kingdom participate
in a pension plan sponsored by Rockwell. At September 30, 1994 and 1995, assets
of $10.9 million and $10.3 million, respectively, exceeded the accumulated
benefit obligations of this plan of $9.3 million and $10.2 million,
respectively. The accumulated benefit obligation related to Rockwell Graphic
Systems participants in this plan were $7.8 million and $8.4 million at
September 30, 1994 and 1995, respectively.
The combined statements of operations include $2.7 million, $3.1 million and
$2.9 million in 1993, 1994 and 1995, respectively, related to Rockwell Graphic
Systems' portion of the service cost of active participants of these pension
plans in the U.S. and U.K. Amounts related to accrued pension obligations for
participants and related assets of these plans are not included in Rockwell
Graphic Systems' combined balance sheets.
Prior to 1994, Rockwell Graphic Systems had certain stand-alone pension
plans covering certain of its U.S. employees. The combined statement of
operations for 1993 includes net periodic pension cost for these plans of $2.2
million.
F-13
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. PENSION PLANS--(CONTINUED)
In addition, Rockwell Graphic Systems has stand-alone pension plans covering
certain of its employees in the United Kingdom, Germany and Japan. Amounts
included in the accompanying combined balance sheets for these stand-alone plans
are as follows (in millions):
<TABLE><CAPTION>
1994 1995
-------------------------- --------------------------
ACCUMULATED ASSETS ACCUMULATED ASSETS
BENEFITS EXCEEDING BENEFITS EXCEEDING
EXCEEDING ACCUMULATED EXCEEDING ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulated benefit obligation, principally
vested....................................... $ 4.5 $43.1 $29.5 $21.8
Effect of salary increases................... 1.7 4.5 1.8 5.0
----- ----- ----- -----
Projected benefit obligation................. 6.2 47.6 31.3 26.8
Fair value of plan assets.................... 2.0 49.4 24.2 24.1
----- ----- ----- -----
Plan assets greater than (less than)
projected benefit obligation............... (4.2) 1.8 (7.1) (2.7)
Unamortized amounts:
Transition................................. -- (4.5) (1.3) (2.6)
Net actuarial losses....................... -- 2.9 3.2 6.0
Prior service cost......................... .3 4.2 2.8 2.0
Minimum liability adjustment................. (.2) -- (4.4) --
----- ----- ----- -----
Prepaid (accrued) pension costs.............. $(4.1) $ 4.4 $(6.8) $ 2.7
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Net pension cost for stand-alone Rockwell Graphic Systems plans for non-U.S.
employees included in the accompanying combined statements of operations
consisted of the following (in millions):
<TABLE><CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Service cost-benefits earned during the year........................... $ 1.3 $ 1.5 $ 1.5
Interest accrued on accumulated benefit obligation..................... 4.0 3.9 4.2
Expected return on plan assets......................................... (3.7) (3.5) (3.9)
Prior service cost amortization........................................ .1 .4 .4
Amortization of net actuarial gains.................................... .4 .5 .3
Transition asset amortization.......................................... (.5) (.5) (.6)
----- ----- -----
Net pension cost....................................................... $ 1.6 $ 2.3 $ 1.9
----- ----- -----
----- ----- -----
</TABLE>
The above pension amounts were determined using a June 30 measurement date
and the following assumptions:
1993 1994 1995
---------- ----------- ----------
Discount rate...................... 5.5%-9.0% 5.5%-8.25% 5.5%-7.5%
Salary increase.................... 4.5-5.0 4.5 4.5
Asset return....................... 5.5-9.0 5.5-9.0 5.5-9.0
Rockwell sponsors defined contribution plans covering all U.S. Rockwell
Graphic Systems salaried employees and certain hourly employees. Employer
contributions to these plans, which were charged to costs and expenses, totaled
$4.6 million, $3.7 million and $3.7 million in 1993, 1994 and 1995,
respectively.
F-14
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. RETIREMENT MEDICAL PLANS AND POST EMPLOYMENT BENEFITS
Rockwell has retirement medical plans which cover Rockwell Graphic Systems
U.S. employees and provide for the payment of medical costs of eligible
employees and dependents upon retirement. Since Rockwell Graphic Systems
employees participate in these Rockwell retirement medical plans, accrued
postretirement benefit obligations for participants in these plans are not
included in Rockwell Graphic Systems' combined balance sheets. The retirement
medical obligation related to Rockwell Graphic Systems participants in these
plans is as follows (in millions):
SEPTEMBER 30,
--------------
1994 1995
----- -----
Retirees.................................................... $33.1 $37.5
Active employees:
Eligible to retire........................................ 6.6 8.4
Not eligible.............................................. 10.9 12.8
----- -----
Retirement medical obligation............................... $50.6 $58.7
----- -----
----- -----
The combined statements of operations include $.7 million, $.8 million and
$.7 million in charges related to Rockwell Graphic Systems' portion of service
cost of active participants of these plans for 1993, 1994 and 1995,
respectively.
The above retirement medical amounts were computed using a June 30
measurement date and the following assumptions:
1994 1995
---- ----
Discount rate.................................................. 8.25% 7.5%
Health care cost trend rate.................................... 8.5 8.5
The health care cost trend rate is assumed to decline to 5.5% after 2015.
Rockwell Graphic Systems provides disability benefits to substantially all
of its U.S. employees and salary continuation benefits to certain employees. The
combined balance sheets include accruals for these benefits of $6.0 million and
$6.6 million at September 30, 1994 and 1995, respectively, which amounts have
been determined using actuarial methods.
12. INCOME TAXES
The operations of Rockwell Graphic Systems in the U.S., U.K., France and
Germany are included in the consolidated income tax returns of Rockwell in each
of these countries. Accordingly, the combined balance sheets do not include
current income taxes receivable, payable or tax contingencies related to these
operations. The income tax provisions included in the combined statements of
operations have been determined as if Rockwell Graphic Systems were a separate
taxpayer.
F-15
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED)
The components of the provision (credit) for income taxes are as follows (in
millions):
YEAR ENDED SEPTEMBER 30,
-------------------------
1993 1994 1995
----- ----- -----
Current:
U.S............................................ $ 6.4 $ 4.7 $ 8.8
Non-U.S........................................ .4 4.6 7.4
State and local................................ 1.2 .8 1.6
----- ----- -----
Total current.................................... 8.0 10.1 17.8
----- ----- -----
Deferred:
U.S............................................ (5.4) (4.7) 4.9
Non-U.S........................................ (3.3) .7 .6
State and local................................ (1.1) (.8) .9
----- ----- -----
Total deferred................................... (9.8) (4.8) 6.4
----- ----- -----
Provision (credit) for income taxes.............. $(1.8) $ 5.3 $24.2
----- ----- -----
----- ----- -----
A reconciliation of the statutory U.S. Federal income tax rate to the
effective income tax rate is as follows:
YEAR ENDED SEPTEMBER
30,
-----------------------
1993 1994 1995
----- ---- ----
Federal statutory rate............................. 34.8% 35.0% 35.0%
Effect of:
State and local taxes............................ (.9) -- 2.7
Goodwill amortization............................ (7.9) 5.7 3.1
Foreign sales corporation benefit................ 15.1 (4.1) (1.0)
Foreign tax expense.............................. (22.0) (1.1) --
Rate change effect............................... 6.9 -- --
Other............................................ (1.3) .6 .3
----- ---- ----
24.7% 36.1% 40.1%
----- ---- ----
----- ---- ----
The domestic and foreign components of income (loss) before income taxes and
cumulative effect of accounting change are as follows (in millions):
YEAR ENDED SEPTEMBER 30,
------------------------
1993 1994 1995
------ ----- -----
Domestic......................................... $ 7.0 $ .6 $41.2
Foreign.......................................... (14.3) 14.1 19.2
------ ----- -----
Total............................................ $ (7.3) $14.7 $60.4
------ ----- -----
------ ----- -----
F-16
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED)
Current and noncurrent deferred income tax assets arise principally from the
following (in millions):
SEPTEMBER 30,
--------------
1994 1995
----- -----
Current:
Inventory reserves...................................... $12.8 $11.0
Product warranty reserves............................... 11.6 9.9
Self-insurance reserves................................. 6.8 5.7
Other................................................... 6.2 6.3
----- -----
Total current asset................................. $37.4 $32.9
----- -----
----- -----
Noncurrent:
Notes receivable........................................ $12.0 $10.1
Property and equipment.................................. (4.9) (7.2)
Retirement benefits..................................... .9 1.7
Other................................................... (0.6) --
----- -----
Total noncurrent asset.............................. $ 7.4 $ 4.6
----- -----
----- -----
The noncurrent deferred tax liability of $10.1 million and $10.0 million at
September 30, 1994 and 1995, respectively, related principally to deferred
income taxes provided on property and equipment in Japan.
Rockwell Graphic Systems has not provided for U.S. income and foreign
withholding taxes on undistributed earnings of its Japanese subsidiary because
management intends to permanently reinvest these earnings. Undistributed
earnings of this subsidiary were $15.7 million and $16.8 million at September
30, 1994 and 1995, respectively and the associated taxes would be $1.6 million
and $1.7 million, respectively. Taxes on undistributed earnings of Rockwell
Graphic Systems operations in the U.K. and France have not been provided, as
distributions to their respective parent companies are non-taxable transactions.
13. REVOLVING CREDIT FACILITIES
Rockwell Graphic Systems Japan has revolving credit agreements with various
banks which permit borrowings aggregating approximately $32.0 million and $36.8
million at September 30, 1995 and June 30, 1996. Borrowings under the credit
facilities bear interest at rates ranging from the Japan prime rate (1.625% at
September 30, 1995) to 3.375%. The credit facilities generally do not contain
expiration dates. Borrowings under two of the credit facilities totaling
approximately $20.0 million are guaranteed by Rockwell. There were no borrowings
outstanding at September 30, 1995. As of June 30, 1996, borrowings under all
credit facilities totaled $8.7 million.
During the nine months ended June 30, 1996, Rockwell Systems Graphiques
Nantes S.A. (Rockwell Graphic Systems' business in France) entered into credit
facilities with two banks which permit borrowings up to $30.5 million bearing
interest with rates ranging from the Paris Interbank Rate plus .25% to 5.625%.
Borrowings under the credit facilities are guaranteed by Rockwell. As of June
30, 1996, borrowings under the credit facilities totaled $25.6 million.
F-17
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. NET INVESTMENT IN ROCKWELL GRAPHIC SYSTEMS
A summary of changes in Rockwell's net investment in Rockwell Graphic
Systems is as follows (in millions):
<TABLE><CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of year...................................... $623.8 $627.3 $628.7
Net (loss) income................................................. (10.1) 9.4 36.2
Currency translation and other.................................... (12.5) 5.6 5.2
Additional minimum pension liability.............................. (.2) 1.2 (1.6)
Allocation of common expenses from Rockwell....................... 7.5 6.8 8.3
Non-cash intercompany purchases................................... 16.1 14.8 20.3
Declaration of dividend........................................... -- -- 50.0
Dividend payable--Rockwell........................................ -- -- (50.0)
Net transfers from (to) Rockwell.................................. 2.7 (36.4) (154.0)
------ ------ ------
Balance at end of year............................................ $627.3 $628.7 $543.1
------ ------ ------
------ ------ ------
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------
1995 1996
------- ------
<S> <C> <C>
Balance at beginning of period............................................ $ 628.7 $543.1
Net income................................................................ 31.5 1.1
Currency translation and other............................................ 11.5 (8.0)
Additional minimum pension liability...................................... 1.2 (1.6)
Allocation of common expenses from Rockwell............................... 5.8 5.8
Non-cash intercompany purchases........................................... 13.7 15.0
Payment of dividend due Rockwell.......................................... -- (50.0)
Net transfers (to) from Rockwell.......................................... (105.8) 2.1
------- ------
Balance at end of period.................................................. $ 586.6 $507.5
------- ------
------- ------
</TABLE>
15. LEASES
Rockwell Graphic Systems leases certain facilities and equipment under
operating leases, many of which contain renewal options and escalation clauses.
Total rental expense was approximately $6.1 million, $5.5 million and $5.6
million in 1993, 1994 and 1995, respectively. Minimum future rental commitments
under operating leases having noncancelable lease terms in excess of one year
aggregated $3.9 million as of September 30, 1995 and are payable as follows (in
millions): 1996, $1.1; 1997, $0.9; 1998, $0.7; 1999, $0.6; 2000, $0.3; and
thereafter, $0.3.
16. RELATED PARTY TRANSACTIONS
Rockwell Graphic Systems purchases drive systems, press controls and related
products from Allen-Bradley. Such purchases totaled $21.7 million, $24.2 million
and $31.6 million in 1993, 1994 and 1995, respectively.
F-18
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
16. RELATED PARTY TRANSACTIONS--(CONTINUED)
Direct expenses incurred by Rockwell on behalf of Rockwell Graphic Systems
were $11.3 million, $11.7 million and $12.3 million for the years ended
September 30, 1993, 1994 and 1995, respectively. Common expenses allocated by
Rockwell to Rockwell Graphic Systems were $7.5 million, $6.8 million and $8.3
million for the years ended September 30, 1993, 1994 and 1995, respectively.
During the years ended September 30, 1993, 1994 and 1995, Rockwell Graphic
Systems recorded net interest expense of $10.2, $4.3 and $2.8 million related to
intercompany borrowings by Rockwell Graphic Systems from Rockwell International
Limited and borrowings by Rockwell International Credit Corporation from
Rockwell. Such borrowings are included in Rockwell's net investment in Rockwell
Graphic Systems.
At September 30, 1994 and 1995, outstanding checks of $5.4 million and $5.2
million, respectively, under the Rockwell centralized cash management system
have been classified as due to related parties.
17. RESEARCH AND DEVELOPMENT
Research and development expenses were $17.4 million, $17.6 million and
$15.8 million in 1993, 1994 and 1995, respectively, and have been included in
engineering expenses.
18. GEOGRAPHIC AND EXPORT SALES INFORMATION
The following table presents information about Rockwell Graphic Systems by
geographic area (in millions).
<TABLE><CAPTION>
ASIA
U.S. EUROPE PACIFIC ELIMINATION TOTAL
------ ------ ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales to customers..................... 1995 $437.9 $204.8 $66.6 $-- $709.3
1994 400.7 174.7 72.8 -- 648.2
1993 410.6 141.0 75.4 -- 627.0
Transfers between geographic areas......... 1995 11.6 6.5 -- (18.1) --
1994 13.8 7.2 -- (21.0) --
1993 12.8 2.6 -- (15.4) --
Operating profit (loss).................... 1995 36.3 15.0 (5.2) -- 46.1
1994 (2.1) 12.4 (3.7) -- 6.6
1993 (7.4) (13.9) 2.3 -- (19.0)
Identifiable assets........................ 1995 560.8 281.1 105.1 -- 947.0
1994 582.9 274.1 93.9 -- 950.9
</TABLE>
Transfers between geographic areas are recorded at amounts generally in
excess of cost. The resultant income is assigned to the geographic area of
manufacture. In computing operating profit, interest income and expense, other
income and expense and income taxes have not been added or deducted.
Export sales from the U.S. were 20%, 11% and 13% of Rockwell Graphic
Systems' net sales for the years ended December 31, 1993, 1994 and 1995,
respectively. These sales were principally to customers in South America.
F-19
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
19. CONTINGENCIES AND COMMITMENTS
LEGAL CONTINGENCIES
In November 1995, the U.S. District Court for the Southern District of New
York issued a judgment relating to a patent infringement matter that Rockwell
Graphic Systems is liable for damages and interest which management estimates
totals approximately $17 million. Management intends to appeal this judgment. At
November 3, 1995, the date as of which it issued its 1995 Statements, it was
management's estimate that the minimum probable liability was $3 million.
Rockwell Graphic Systems has recorded the minimum probable expense of $3 million
in the 1995 combined statement of operations while the related liability has
been excluded from the Statements as any liability will be paid directly by
Rockwell. Subsequent to November 3, 1995, management revised its estimate of the
minimum probable liability to $4 million and, accordingly, recorded an
additional $1 million of expense during the nine months ended June 30, 1996.
In the normal course of business, various lawsuits and claims are initiated
against Rockwell Graphic Systems related to sales contracts. Among such claims
that have advanced to litigation are a lawsuit filed by a commercial press
customer in February 1996 seeking unspecified damages and an arbitration
proceeding initiated by another commercial press customer in June 1996 seeking
refunds and damages totaling $3.8 million. While it is not presently possible to
determine whether the ultimate resolution of these matters will exceed the $1.7
million accrued, management believes that such resolution will not have a
material adverse effect on Rockwell Graphic Systems' financial position or
liquidity although it is possible that an adverse outcome could materially
affect the results of operations in a given period.
As part of an asset purchase agreement with an acquirer of certain assets of
the Rockwell Graphic Systems business in 1988, the acquirer agreed to defend and
indemnify Rockwell Graphic Systems for certain product liability claims. The
acquirer has initiated informal mediation proceedings against Rockwell Graphic
Systems and Rockwell alleging that certain information was recently received
from Rockwell Graphic Systems that materially increased the acquirer's risk of
defending and indemnifying against the product liability claims. The acquirer is
seeking to prospectively discharge its obligations for such defense and
indemnity. As part of these proceedings, the acquirer also refused to indemnify
Rockwell Graphic Systems in three pending product liability claims which
collectively are estimated to represent an exposure to Rockwell Graphic Systems
of approximately $1 million. While the ultimate resolution of these proceedings
cannot presently be determined, management intends to vigorously defend against
these matters and believes that their ultimate resolution will not have a
material adverse effect on Rockwell Graphic Systems' financial position, results
of operations or liquidity.
Rockwell Graphic Systems has pending against it or may be subject to various
lawsuits, claims and proceedings related primarily to employment, commercial
(including press performance issues) and safety and health matters. Although it
is not presently possible to determine the outcome of these matters, management
believes their ultimate disposition will not have a material adverse effect on
Rockwell Graphic Systems' financial position or liquidity, although it is
possible that the resolution of such lawsuits, claims and proceedings could be
material to the results of operations in a given period.
ENVIRONMENTAL CONTINGENCIES
Rockwell Graphic Systems has received either notices of potential liability
or third-party claims under the federal Comprehensive Environmental Response,
Compensation and Liability Act at six off-
F-20
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
19. CONTINGENCIES AND COMMITMENTS--(CONTINUED)
site disposal facilities (Superfund Sites). Rockwell Graphic Systems has entered
into settlement agreements with the Environmental Protection Agency (EPA) at two
of these sites and a settlement proposal is pending at a third site, none of
which is material to the Statements either individually or collectively. With
respect to the fourth site, at which Rockwell Graphic Systems has been named a
potentially responsible party (PRP), its share of the clean up costs are
estimated to approximate $200,000 of the potential estimated cost for final site
remediation of $10 million. At the fifth and sixth sites, Rockwell Graphic
Systems has been implicated as a PRP. However, Rockwell Graphic Systems believes
its involvement, if any, is not significant. Although current law imposes joint
and several liability on any party determined to be responsible at a Superfund
Site, management believes, based upon all available information, that the
ultimate resolution of these matters will not have a material adverse effect on
Rockwell Graphic Systems' financial position, results of operations or
liquidity.
Rockwell Graphic Systems' Reading, Pennsylvania facility has been operating
a groundwater remediation system under a 1981 Consent Order with the
Commonwealth of Pennsylvania as a result of its, and its predecessor company's,
historical waste disposal practices. Recent data indicate that certain hazardous
constituents in the groundwater have decreased over time, while the data on
other constituents is inconclusive. The Company plans to submit a proposal to
the Pennsylvania Department of Environmental Resources to terminate remediation
at the site pursuant to recent statutory authority to determine cleanup limits
consistent with the results of a site-specific risk assessment. Management has
been advised that, given the site location and aquifer use, the proposal is
technically appropriate and may result in the termination of groundwater
remediation at this site. Management believes that any liability with respect to
either continuing groundwater remediation or conducting a site-specific risk
assessment in order to complete such remediation will not have a material
adverse effect on Rockwell Graphic Systems' financial position, results of
operation or liquidity.
COMMITMENTS
Rockwell provides letters of credit to guarantee the performance of Rockwell
Graphic Systems under certain long-term contracts. Such letters of credit
outstanding were $2.8 million and $24.4 million as of September 30, 1995 and
June 30, 1996. The fair value of these letters of credit is estimated to
approximate their contractual amounts.
20. CHANGE IN METHOD OF ACCOUNTING
Effective October 1, 1992, Rockwell Graphic Systems adopted the provisions
of SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
standard requires an accrual method of recognizing the cost of postemployment
benefits, such as disability, severance and workers' compensation benefits. The
effect of the accounting change on 1993 net loss, exclusive of such cumulative
effect, was not material.
F-21
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
21. SUPPLEMENTARY CASH FLOW INFORMATION (IN MILLIONS)
YEAR ENDED SEPTEMBER
30,
--------------------
1993 1994 1995
---- ---- ----
Income tax payments (Japan)........................... $2.9 $2.9 $ .1
Interest payments (non-U.S.):
Related parties..................................... 7.5 1.8 --
Others.............................................. 1.6 1.4 .4
Non-cash investment in joint venture.................. -- 1.3 2.8
NINE MONTHS
ENDED JUNE 30,
---------------
1995 1996
----- ----
Income tax payments (Japan)................................ $-- $2.4
Interest payments (non-U.S.):
Related parties.......................................... -- --
Others................................................... 0.5 1.1
Non-cash investment in joint venture....................... 1.4 0.8
22. SUBSEQUENT EVENTS
On November 30, 1995, Rockwell Systemes Graphiques Nantes S.A. (Rockwell
Graphic Systems' business in France) paid a dividend of approximately $50
million to Rockwell. The dividend was paid with proceeds from collection of
intercompany accounts of $21 million and bank borrowings incurred by Rockwell
Systemes Graphiques Nantes S.A. of $29 million (see Note 13). The dividend has
been given retroactive effect in the combined financial statements as of
September 30, 1995.
Subsequent to November 3, 1995, the date as of which it issued its 1995
Statements, Rockwell Graphic Systems changed its estimates with respect to
certain product warranty accruals related to sales recorded prior to October 1,
1995. The most significant change in estimates relates to product warranty
accruals provided for the commercial business line. During the first six months
of 1996, Rockwell Graphic Systems recorded additional product warranty accruals
for the commercial business line of $12.7 million related to sales recorded
prior to October 1, 1995.
In March 1996, Rockwell Graphic Systems recorded a $3.9 million
restructuring charge related principally to the closure of certain facilities
and severance payments.
Rockwell International Corporation entered into a Stock and Asset Purchase
Agreement with Goss Graphic Systems, Inc. dated April 26, 1996, as amended on
July 18, 1996, to sell the stock and the assets, subject to certain liabilities,
of Rockwell Graphic Systems for $552.5 million in cash and 47,500 shares of
preferred stock, $1,000 per share liquidation preference.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Goss Graphic Systems, Inc.:
We have audited the accompanying balance sheet of GOSS GRAPHIC SYSTEMS, INC.
as of July 16, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Company as of July 16, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 16, 1996
F-23
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
BALANCE SHEET
AS OF JULY 16, 1996
ASSETS
CURRENT ASSETS:
Cash............................................................. $1,000
------
Total Assets............................................... $1,000
------
------
LIABILITIES & STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY:
Common Stock ($.01 par value per share, 100 shares
authorized, issued and outstanding)............................ $ 1
Additional paid-in capital....................................... 999
------
Total Stockholder's equity................................. $1,000
------
------
The accompanying notes are an integral part of this balance sheet.
F-24
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO BALANCE SHEET
JULY 16, 1996
1. ORGANIZATION
Goss Graphic Systems, Inc. (the "Company") is a newly formed Delaware
corporation formed on behalf of Stonington Capital Appreciation 1994 Fund, L.P.
("Stonington") to acquire (the "Proposed Acquisition") the operations of the
Graphic Systems business unit ("Goss") of Rockwell International Corporation.
2. THE PROPOSED ACQUISITION
Goss Graphic Systems, Inc. entered into an agreement to acquire the
operations of Goss from Rockwell International Corporation for $600 million
(subject to adjustment) pursuant to the Stock and Asset Purchase Agreement dated
as of April 26, 1996, as amended (the "Acquisition Agreement"). The Proposed
Acquisition will be effected through the purchase by the Company of all the
outstanding stock of Rockwell Graphic Systems, Inc. and Rockwell Systemes
Graphiques Nantes, and through the purchase by the Company and certain wholly
owned foreign subsidiaries of the assets and the assumption of liabilities which
constitute the remainder of Goss. Immediately after the Proposed Acquisition,
the Company will merge with and into Rockwell Graphic Systems, Inc.
3. FINANCING ARRANGEMENTS
Approximately $628 million will be required by the Company to consummate the
Proposed Acquisition as contemplated by the Acquisition Agreement and to pay
related fees and expenses. The Company expects to obtain the financing for the
Proposed Acquisition from the following sources: (i) the receipt of $162 million
in equity from GGS Holdings, Inc. to be obtained by GGS Holdings, Inc. through
the sale of common stock to Stonington, an institutional investor and management
of Goss for approximately $114.5 million in cash (net of loans to certain
Management Investors of $2.0 million) and the issuance of $47.5 million of
pay-in-kind perpetual preferred stock to Rockwell International; (ii) the sale
of senior subordinated notes with an aggregate principal amount of $225 million;
(iii) the borrowing of approximately $77.3 million under a bank credit agreement
which will consist of a term loan and revolving credit facility; and (iv) the
sale of customer notes to BT Securities Corporation for approximately $163.7
million.
To complete the financing arrangements described above, the Company intends
to authorize the issuance of additional common stock.
F-25
<PAGE>
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR [GOSS LOGO]
ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH
DATE. Goss Graphic Systems,
Inc.
-------------------
TABLE OF CONTENTS
PAGE $225,000,000
----
Prospectus Summary..................... 3
Risk Factors........................... 13
Use of Proceeds........................ 21
Capitalization......................... 22 % Senior Subordinated
Unaudited Pro Forma Combined Financial Notes due 2006
Statements............................. 23
Selected Combined Financial Data....... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 35
Business............................... 46
The Acquisition........................ 63
Management............................. 67
Ownership of Capital Stock............. 76
Certain Transactions................... 79
Description of Notes................... 80
Description of New Bank Credit
Agreement.............................. 106
Description of Sale of Customer
Notes.................................. 108
Description of Preferred Stock......... 109
Description of Certain Federal Income
Tax Consequences..................... 114
Underwriting........................... 117
Notice to Canadian Residents........... 118 PROSPECTUS
Legal Matters.......................... 119
Experts................................ 119
Available Information.................. 119
Index to Financial Statements.......... F-1
------------------- CS First Boston
UNTIL , 1996 (90 DAYS AFTER BT Securities Corporation
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation. All of the amounts shown are estimated except the Securities and
Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee.............. $77,586
NASD Fee......................................................... 23,000
Blue Sky Fees and Expenses (including attorney's fees and
expenses)........................................................ *
Trustee Fees and Expenses........................................ *
Printing and Engraving Expenses.................................. *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Miscellaneous Expenses........................................... *
-------
Total...................................................... $ *
-------
-------
- ------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such person was an officer,
director, employee or agent of another corporation or enterprise. The indemnity
may include expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, provided such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests except that no indemnification is permitted
without judicial approval if the officer or director is adjudged to be liable to
the corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
Section 145.
In that regard, the Company' Certificate of Incorporation provides that the
Company shall indemnify and hold harmless each person who was or is made a party
or is threatened to be made a
II-1
<PAGE>
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a director
or officer of the Company or is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such action, suit or
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, against all expense, liability and loss (including attorneys'
fees, judgments, fines, amounts paid or to be paid in settlement, and excise
taxes or penalties arising under the Employment Retirement Income Security Act
of 1974) reasonably incurred or suffered by such person in connection with such
proceeding, to the fullest extent authorized by the General Corporation Law of
the State of Delaware. Expenses incurred by any person in defending any such
action, suit or proceeding in advance of its final disposition shall be paid by
the Company; provided that if the General Corporation Law of the State of
Delaware requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the closing of the Offering and of the Acquisition, the
Company will issue approximately 900 shares of common stock (par value $.01) to
Holdings for $114.5 million.
Holdings will issue approximately 47,500 shares of 6 1/2% Redeemable
Pay-in-Kind Preferred Stock (par value $.01) to Rockwell in connection with the
closing of the Acquisition. Holdings will also issue 1,114,700 shares, 10,000
shares and 40,300 shares of common stock (par value $.01) respectively to the
Fund, the Institutional Investor and the Management Investors for a price per
share of $100 and an aggregate price of $116.5 million in connection with the
closing of the Acquisition.
Such sales will be made in reliance upon the exemption from registration
under the Securities Act set forth in Section 4(2) thereof for transactions not
involving a public offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1* --Form of Underwriting Agreement.
2.1** --Stock and Asset Purchase Agreement dated as of April 26, 1996 by and between
Rockwell International Corporation and Goss Graphic Systems, Inc.
2.2** --Amendment to Stock and Asset Purchase Agreement dated as of July 18, 1996 by
and between Rockwell International Corporation and Goss Graphic Systems, Inc.
3.1 --Certificate of Incorporation of the Company.
3.2 --By-Laws of the Company.
4.1* --Form of Indenture between the Company and , Trustee, relating to the %
Senior Subordinated Notes due 2006 of the Company.
4.2* --Form of Bank Credit Agreement dated as of , 1996 among the Company
and the Lenders party thereto.
4.3* --Form of Certificate of Designation of the 6 1/2% Redeemable Pay-in-Kind
Preferred Stock of Holdings.
5.1* --Opinion of Wachtell, Lipton, Rosen & Katz as to the validity of the % Senior
Subordinated Notes due 2006.
10.1* --Form of Subscription Agreement for the Management Placement.
10.2* --Form of Subscription Agreement for Stonington Investment.
10.3* --Form of Subscription Agreement for Equity Private Placement.
10.4* --Form of Stockholders Agreement.
10.5* --Employment contracts.
10.6* --Form of Management Stock Incentive Plan and related agreements.
10.7* --Form of Loan Portfolio Purchase Agreement dated as of , 1996 by and
among BT Commercial Corporation, Goss Graphic Systems, Inc. and Rockwell
International Corporation.
12.1 --Statement regarding computation of ratio of earnings to fixed charges of the
Company.
21 --List of subsidiaries of the Company.
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Deloitte & Touche LLP.
23.3* --Consent of Wachtell, Lipton, Rosen & Katz (contained in their opinion filed as
Exhibit 5.1).
24.1 --Powers of Attorney.
24.2 --Powers of Attorney.
25* --Statement of Eligibility on Form T-1 of , Trustee, under the Indenture
relating to % Senior Subordinated Notes due 2006 of the Company.
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Other financial statement schedules are omitted because they are not
applicable or because the required information is presented in the combined
financial statements or the notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, subject to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York, State of New
York, on August 27, 1996.
GOSS GRAPHIC SYSTEMS, INC.
By: /s/ M. ERIC SCHROEDER
..................................
M. Eric Schroeder
Vice President--Finance and
Admnistration
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed on August 27, 1996, by the following persons in the
capacities indicated:
<TABLE><CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman and Chief Executive Officer
............................................. (Principal Executive Officer)
Robert M. Kuhn
/s/ M. ERIC SCHROEDER Vice President-Finance and Administration
............................................. (Principal Financial Officer and Principal
M. Eric Schroeder Accounting Officer)
* Director
.............................................
J. Joe Adorjan
* Director
.............................................
Gerald S. Armstrong
* Director
.............................................
Alfred C. Daugherty
* Director
.............................................
Robert F. End
* Director
.............................................
James J. Kerley
* Director
.............................................
Alexis P. Michas
/s/ ROBERT J. MYLOD, JR. Director
.............................................
Robert J. Mylod, Jr.
* Director
.............................................
James P. Sheehan
*By /s/ M. ERIC SCHROEDER
.........................................
M. Eric Schroeder
Attorney-in-fact
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
Rockwell Graphic Systems:
We have audited the Combined Financial Statements of Rockwell Graphic
Systems, a business unit of Rockwell International Corporation (Rockwell Graphic
Systems--see Note 1 to the Combined Financial Statements) as of September 30,
1995 and 1994 and for each of the three years in the period ended September 30,
1995 and have issued our report thereon dated November 3, 1995 as to the
September 30, 1995 and 1994 financial statements and April 26, 1996 as to the
September 30, 1993 financial statements, except for the fourth paragraph of Note
22, as to which the date is July 18, 1996, included elsewhere in this
Registration Statement. Our report expresses an unqualified opinion and includes
an explanatory paragraph relating to the preparation of the financial statements
of a business unit of Rockwell International Corporation. Our audits also
included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This financial statement schedule is the responsibility
of management of Rockwell Graphic Systems. Our responsibility is to express an
opinion based on our audits. In our opinion, such combined financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
November 3, 1995 as to the 1995 and 1994 financial information and
April 26, 1996 as to the 1993 financial information
S-1
<PAGE>
ROCKWELL GRAPHIC SYSTEMS
A BUSINESS UNIT OF
ROCKWELL INTERNATIONAL CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE><CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS END OF
OF PERIOD EXPENSES (A) PERIOD
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Year Ended September 30, 1993:
Allowance for doubtful accounts and notes........ $ 12.1 $8.2 $(3.1) $ 17.2
Inventory valuation reserve...................... 34.4 6.3 (0.5) 40.2
Year Ended September 30, 1994:
Allowance for doubtful accounts and notes........ 17.2 19.3 (2.4) 34.1
Inventory valuation reserve...................... 40.2 7.0 (3.6) 43.6
Year Ended September 30, 1995:
Allowance for doubtful accounts and notes........ 34.1 5.4 (9.7) 29.8
Inventory valuation reserve...................... 43.6 7.3 (5.9) 45.0
</TABLE>
- ------------
(A) Amounts represent write offs and the effects of foreign currency
fluctuations.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
PAGE NUMBER IN
SEQUENTIALLY
NUMBERED
REGISTRATION
STATEMENT
---------------
<C> <S> <C>
1.1 Form of Underwriting Agreement. To be filed by
Amendment
2.1 Stock and Asset Purchase Agreement dated as of April 26, 1996 by and Previously
between Rockwell International Corporation and Goss Graphic Systems, filed
Inc.
2.2 Amendment to Stock and Asset Purchase Agreement dated as of July 18, Previously
1996 by and between Rockwell International Corporation and Goss filed
Graphic Systems, Inc.
3.1 Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Form of Indenture between the Company and , Trustee, relating to To be filed by
the % Senior Subordinated Notes due 2006 of the Company. Amendment
4.2 Form of Bank Credit Agreement dated as of , 1996 among the To be filed by
Company and the Lenders party thereto. Amendment
4.3 Certificate of Designation of the 6 1/2% Redeemable Pay-in-Kind To be filed by
Preferred Stock of Holdings. Amendment
5.1 Opinion of Wachtell, Lipton, Rosen & Katz as to the validity of the % To be filed by
Senior Subordinated Notes due 2006. Amendment
10.1 Form of Subscription Agreement for the Management Placement. To be filed by
Amendment
10.2 Form of Subscription Agreement for Stonington Investment. To be filed by
Amendment
10.3 Form of Subscription Agreement for Equity Private Placement. To be filed by
Amendment
10.4 Form of Stockholders Agreement. To be filed by
Amendment
10.5 Employment contracts. To be filed by
Amendment
10.6 Form of Management Stock Incentive Plan. To be filed by
Amendment
10.7 Form of Loan Portfolio Purchase Agreement dated as of , 1996 To be filed by
by and among BT Commercial Corporation, Goss Graphic Systems, Inc. and Amendment
Rockwell International Corporation.
12.1 Statement regarding computation of ratio of earnings to fixed charges of
the Company.
21 List of subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz (contained in their opinion To be filed by
filed as Exhibit 5.1). Amendment
24.1 Powers of Attorney.
24.2 Powers of Attorney.
25 Statement of Eligibility on Form T-1 of , Trustee, under the To be filed by
Indenture relating to % Senior Subordinated Notes due 2006 of the Amendment
Company.
</TABLE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
Goss Graphic Systems, Inc.
I, the undersigned, for the purpose of incorporating
and organizing a corporation under the General Corporation
Law of the State of Delaware, do hereby execute this Certifi-
cate of Incorporation and do hereby certify as follows:
ARTICLE I
---------
The name of the corporation (which is hereinafter
referred to as the "Corporation") is:
Goss Graphic Systems, Inc.
ARTICLE II
----------
The address of the Corporation's registered office
in the State of Delaware is The Corporation Trust Center,
1209 Orange Street in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
ARTICLE III
-----------
The purpose of the Corporation shall be to engage in
any lawful act or activity for which corporations may be or-
ganized and incorporated under the General Corporation Law of
the State of Delaware.
<PAGE>
ARTICLE IV
----------
Section 1. The Corporation shall be authorized to
issue 10,000 shares of capital stock, of which all shares
shall be shares of Common Stock, $.01 par value ("Common
Stock").
Section 2. Except as otherwise provided by law, the
Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes. Each share
of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
ARTICLE V
---------
Unless and except to the extent that the By-Laws of
the Corporation shall so require, the election of directors
of the Corporation need not be by written ballot.
ARTICLE VI
----------
In furtherance and not in limitation of the powers
conferred by law, the Board of Directors of the Corporation
(the "Board") is expressly authorized and empowered to make,
alter and repeal the By-Laws of the Corporation by a majority
vote at any regular or special meeting of the Board or by
written consent, subject to the power of the stockholders of
the Corporation to alter or repeal any By-Laws made by the
Board.
-2-
<PAGE>
ARTICLE VII
-----------
The Corporation reserves the right at any time from
time to time to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, and any other
provisions authorized by the laws of the State of Delaware at
the time in force may be added or inserted, in the manner now
or hereafter prescribed by law; and all rights, preferences
and privileges of whatsoever nature conferred upon stockhold-
ers, directors or any other persons whomsoever by and pursu-
ant to this Certificate of Incorporation in its present form
or as hereafter amended are granted subject to the right re-
served in this Article.
ARTICLE VIII
------------
Section 1. Elimination of Certain Liability of Di-
---------------------------------------
rectors. A director of the Corporation shall not be person-
-------
ally liable to the Corporation or its stockholders for mon-
etary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve in-
tentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the di-
rector derived an improper personal benefit.
-3-
<PAGE>
Section 2. Indemnification and Insurance.
------------------------------
(a) Right to Indemnification. Each person who was
------------------------
or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or
was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, of-
ficer, employee or agent of another corporation or of a part-
nership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the
basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Cor-
poration to the fullest extent authorized by the General Cor-
poration Law of the State of Delaware, as the same exists or
may hereafter be amended (but, in the case of any such amend-
ment, only to the extent that such amendment permits the Cor-
poration to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amend-
ment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, amounts paid or to be paid
in settlement, and excise taxes or penalties arising under
-4-
<PAGE>
the Employee Retirement Income Security Act of 1974) reason-
ably incurred or suffered by such person in connection there-
with and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of his or her heirs, executors
and administrators; provided, however, that, except as pro-
-------- -------
vided in paragraph (b) hereof, the Corporation shall indem-
nify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person
only if such proceeding (or part thereof) was authorized by
the Board. The right to indemnification conferred in this
Section shall be a contract right and shall include the right
to be paid by the Corporation the expenses incurred in de-
fending any such proceeding in advance of its final disposi-
tion; provided, however, that, if the General Corporation Law
-------- -------
of the State of Delaware requires, the payment of such ex-
penses incurred by a director or officer in his or her capac-
ity as a director or officer (and not in any other capacity
in which service was or is rendered by such person while a
director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposi-
tion of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such direc-
tor or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not
entitled to be indemnified under this Section or otherwise.
-5-
<PAGE>
The Corporation may, by action of the Board, provide indemni-
fication to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of
directors and officers.
(b) Right of Claimant to Bring Suit. If a claim
-------------------------------
under paragraph (a) of this Section is not paid in full by
the Corporation within thirty days after a written claim has
been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or
in part, the claimant shall be entitled to be paid also the
expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertak-
ing, if any is required, has been tendered to the Corpora-
tion) that the claimant has not met the standards of conduct
which make it permissible under the General Corporation Law
of the State of Delaware for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving
such defense shall be on the Corporation. Neither the fail-
ure of the Corporation (including its Board, independent le-
gal counsel, or its stockholders) to have made a determina-
tion prior to the commencement of such action that indemnifi-
cation of the claimant is proper in the circumstances because
he or she has met the applicable standard of conduct set
-6-
<PAGE>
forth in the General Corporation Law of the State of Dela-
ware, nor an actual determination by the Corporation (includ-
ing its Board, independent legal counsel, or its stockhold-
ers) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a pre-
sumption that the claimant has not met the applicable stan-
dard of conduct.
(c) Non-Exclusivity of Rights. The right to indem-
-------------------------
nification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in
this Section shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-law, agree-
ment, vote of stockholders or disinterested directors or oth-
erwise.
(d) Insurance. The Corporation may maintain insur-
---------
ance, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another cor-
poration, partnership, joint venture, trust or other enter-
prise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Gen-
eral Corporation Law of the State of Delaware.
-7-
<PAGE>
ARTICLE IX
----------
The name and mailing address of the incorporator is
Alicia L. Mioli c/o Wachtell, Lipton, Rosen & Katz, 51 West
52nd Street, New York, New York 10019.
IN WITNESS WHEREOF, I, the undersigned, being the
incorporator hereinbefore named, do hereby further certify
that the facts hereinabove stated are truly set forth and,
accordingly, I have hereunto set my hand this 9th day of
April, 1996.
/s/ Alicia L. Mioli
-------------------------------
Alicia L. Mioli
Incorporator
-8-
EXHIBIT 3.2
BY-LAWS
of
GOSS GRAPHIC SYSTEMS, INC.
(as of April 9, 1996)
---------------------------------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered of-
fice of Goss Graphic Systems, Inc. (the "Corporation") shall be
established and maintained at the office of The Corporation
Trust Company at The Corporation Trust Center, 1209 Orange
Street in the City of Wilmington, County of New Castle, State
of Delaware, and said Corporation Trust Company shall be the
registered agent of the Corporation in charge thereof.
SECTION 2. OTHER OFFICES -- The Corporation may have
other offices, either within or without the State of Delaware,
at such place or places as the Board of Directors may from time
to time select or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of
stockholders for the election of directors, and for such other
business as may be stated in the notice of the meeting, shall
be held at such place, either within or without the State of
Delaware, and at such time and date as the Board of Directors,
by resolution, shall determine and as set forth in the notice
of the meeting. If the Board of Directors fails so to deter-
mine the time, date and place of meeting, the annual meeting of
stockholders shall be held at the registered office of the Cor-
poration on the first Tuesday in April. If the date of the
annual meeting shall fall upon a legal holiday, the meeting
shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect a
<PAGE>
Board of Directors and they may transact such other corporate
business as shall be stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS -- Special meetings of
the stockholders for any purpose or purposes may be called by
the Chairman of the Board, the President or the Secretary, or
by resolution of the Board of Directors.
SECTION 3. VOTING -- Each stockholder entitled to
vote in accordance with the terms of the Certificate of In-
corporation of the Corporation and these By-Laws may vote in
person or by proxy, but no proxy shall be voted after three
years from its date unless such proxy provides for a longer
period. All elections for directors shall be decided by plu-
rality vote; all other questions shall be decided by majority
vote except as otherwise provided by the Certificate of In-
corporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, with the ad-
dress of each, and the number of shares held by each, shall be
open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be in-
spected by any stockholder who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by
law, by the Certificate of Incorporation of the Corporation or
by these By-Laws, the presence, in person or by proxy, of
stockholders holding shares constituting a majority of the vot-
ing power of the Corporation shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be
present at any meeting, a majority in interest of the stock-
holders entitled to vote thereat, present in person or by
proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting,
until the requisite amount of stock entitled to vote shall be
present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any
business may be transacted that might have been transacted at
the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be
entitled to vote at any adjournment or adjournments thereof.
-2-
<PAGE>
SECTION 5. NOTICE OF MEETINGS -- Written notice,
stating the place, date and time of the meeting, and the gen-
eral nature of the business to be considered, shall be given to
each stockholder entitled to vote thereat, at his or her ad-
dress as it appears on the records of the Corporation, not less
than ten nor more than sixty days before the date of the meet-
ing. No business other than that stated in the notice shall be
transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.
SECTION 6. ACTION WITHOUT MEETING -- Unless other-
wise provided by the Certificate of Incorporation of the Cor-
poration, any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken without
a meeting, without prior notice and without a vote, if a con-
sent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to autho-
rize or take such action at a meeting at which all shares en-
titled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stock-
holders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM -- The business and af-
fairs of the Corporation shall be managed under the direction
of a Board of Directors which shall consist of not less than
three persons. The exact number of directors shall initially
be three and may thereafter be fixed from time to time by the
Board of Directors. Directors shall be elected at the annual
meeting of stockholders and each director shall be elected to
serve until his or her successor shall be elected and shall
qualify. A director need not be a stockholder.
SECTION 2. RESIGNATIONS -- Any director may resign
at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time
be specified, at the time of its receipt by the Chairman of the
Board, the President or the Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES -- If the office of any direc-
tor becomes vacant, the remaining directors in the office,
though less than a quorum, by a majority vote, may appoint any
qualified person to fill such vacancy, who shall hold office
-3-
<PAGE>
for the unexpired term and until his or her successor shall be
duly chosen. If the office of any director becomes vacant and
there are no remaining directors, the stockholders, by the af-
firmative vote of the holders of shares constituting a majority
of the voting power of the Corporation, at a special meeting
called for such purpose, may appoint any qualified person to
fill such vacancy.
SECTION 4. REMOVAL -- Except as hereinafter pro-
vided, any director or directors may be removed either for or
without cause at any time by the affirmative vote of the hold-
ers of a majority of the voting power entitled to vote for the
election of directors, at an annual meeting or a special meet-
ing called for the purpose, and the vacancy thus created may be
filled, at such meeting, by the affirmative vote of holders of
shares constituting a majority of the voting power of the Cor-
poration.
SECTION 5. COMMITTEES -- The Board of Directors may,
by resolution or resolutions passed by a majority of the whole
Board of Directors, designate one or more committees, each com-
mittee to consist of one or more directors of the Corporation.
Any such committee, to the extent provided in the
resolution of the Board of Directors, or in these By-Laws,
shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and af-
fairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
SECTION 6. MEETINGS -- The newly elected directors
may hold their first meeting for the purpose of organization
and the transaction of business, if a quorum be present, im-
mediately after the annual meeting of the stockholders; or the
time and place of such meeting may be fixed by consent of all
the Directors.
Regular meetings of the Board of Directors may be
held without notice at such places and times as shall be deter-
mined from time to time by resolution of the Board of Direc-
tors.
Special meetings of the Board of Directors may be
called by the Chairman of the Board or the President, or by the
Secretary on the written request of any director, on at least
one day's notice to each director (except that notice to any
director may be waived in writing by such director) and shall
be held at such place or places as may be determined by the
Board of Directors, or as shall be stated in the call of the
meeting.
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<PAGE>
Unless otherwise restricted by the Certificate of
Incorporation of the Corporation or these By-Laws, members of
the Board of Directors, or any committee designated by the
Board of Directors, may participate in any meeting of the Board
of Directors or any committee thereof by means of a conference
telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence
in person at the meeting.
SECTION 7. QUORUM -- A majority of the Directors
shall constitute a quorum for the transaction of business. If
at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn
the meeting from time to time until a quorum is obtained, and
no further notice thereof need be given other than by announce-
ment at the meeting which shall be so adjourned. The vote of
the majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors
unless the Certificate of Incorporation of the Corporation or
these By-Laws shall require the vote of a greater number.
SECTION 8. COMPENSATION -- Directors shall not re-
ceive any stated salary for their services as directors or as
members of committees, but by resolution of the Board of Direc-
tors a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation
in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 9. ACTION WITHOUT MEETING -- Any action re-
quired or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a
meeting if a written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may
be, and such written consent is filed with the minutes of pro-
ceedings of the Board of Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS -- The officers of the Corpora-
tion shall be a President, one or more Vice Presidents, a Trea-
surer and a Secretary, all of whom shall be elected by the
Board of Directors and shall hold office until their successors
are duly elected and qualified. In addition, the Board of Di-
rectors may elect such Assistant Secretaries and Assistant
-5-
<PAGE>
Treasurers as they may deem proper. The Board of Directors may
appoint such other officers and agents as it may deem advis-
able, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be deter-
mined from time to time by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD -- The Chairman of
the Board may be an officer of the Corporation. He or she
shall preside at all meetings of the Board of Directors and
shall have and perform such other duties as may be assigned to
him or her by the Board of Directors.
SECTION 3. PRESIDENT -- The President shall be the
Chief Executive Officer of the Corporation. He or she shall
have the general powers and duties of supervision and manage-
ment usually vested in the office of President of a corpora-
tion. The President shall have the power to execute bonds,
mortgages and other contracts on behalf of the Corporation, and
to cause the seal to be affixed to any instrument requiring it,
and when so affixed the seal shall be attested to by the signa-
ture of the Secretary or the Treasurer or an Assistant Secre-
tary or an Assistant Treasurer.
SECTION 4. VICE PRESIDENTS -- Each Vice President
shall have such powers and shall perform such duties as shall
be assigned to him or her by the Board of Directors.
SECTION 5. TREASURER -- The Treasurer shall be the
Chief Financial Officer of the Corporation. He or she shall
have the custody of the Corporate funds and securities and
shall keep full and accurate account of receipts and disburse-
ments in books belonging to the Corporation. He or she shall
deposit all moneys and other valuables in the name and to the
credit of the Corporation in such depositaries as may be desig-
nated by the Board of Directors. He or she shall disburse the
funds of the Corporation as may be ordered by the Board of Di-
rectors, the Chairman of the Board, or the President, taking
proper vouchers for such disbursements. He or she shall render
to the Chairman of the Board, the President and Board of Direc-
tors at the regular meetings of the Board of Directors, or
whenever they may request it, an account of all his or her
transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he or she
shall give the Corporation a bond for the faithful discharge of
his or her duties in such amount and with such surety as the
Board of Directors shall prescribe.
SECTION 6. SECRETARY -- The Secretary shall give, or
cause to be given, notice of all meetings of stockholders and
of the Board of Directors and all other notices required by law
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<PAGE>
or by these By-Laws, and in case of his or her absence or re-
fusal or neglect so to do, any such notice may be given by any
person thereunto directed by the Chairman of the Board or the
President, or by the Board of Directors, upon whose request the
meeting is called as provided in these By-Laws. He or she
shall record all the proceedings of the meetings of the Board
of Directors, any committees thereof and the stockholders of
the Corporation in a book to be kept for that purpose, and
shall perform such other duties as may be assigned to him or
her by the Board of Directors, the Chairman of the Board or the
President. He or she shall have the custody of the seal of the
Corporation and shall affix the same to all instruments requir-
ing it, when authorized by the Board of Directors, the Chairman
of the Board or the President, and attest to the same.
SECTION 7. ASSISTANT TREASURERS AND ASSISTANT SEC-
RETARIES -- Assistant Treasurers and Assistant Secretaries, if
any, shall be elected and shall have such powers and shall per-
form such duties as shall be assigned to them, respectively, by
the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of
stock shall be issued to each stockholder certifying the number
of shares owned by such stockholder in the Corporation. Cer-
tificates of stock of the Corporation shall be of such form and
device as the Board of Directors may from time to time deter-
mine.
SECTION 2. LOST CERTIFICATES -- A new certificate of
stock may be issued in the place of any certificate theretofore
issued by the Corporation, alleged to have been lost or de-
stroyed, and the Board of Directors may, in its discretion,
require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond,
in such sum as they may direct, not exceeding double the value
of the stock, to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certifi-
cate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock
of the Corporation shall be transferable only upon its books by
the holders thereof in person or by their duly authorized at-
torneys or legal representatives, and upon such transfer the
old certificates shall be surrendered to the Corporation by the
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<PAGE>
delivery thereof to the person in charge of the stock and
transfer books and ledgers, or to such other person as the
Board of Directors may designate, by whom they shall be can-
celled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer
shall be made for collateral security, and not absolutely, it
shall be so expressed in the entry of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that
the Corporation may determine the stockholders entitled to no-
tice of or to vote at any meeting of stockholders or any ad-
journment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determina-
tion of stockholders entitled to vote at any meeting of stock-
holders or adjournment thereof, shall, unless otherwise re-
quired by law, not be more than sixty nor less than ten days
before the date of such meeting; (2) in the case of determina-
tion of stockholders entitled to express consent to corporate
action in writing without a meeting, shall not be more than ten
days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case
of any other action, shall not be more than sixty days prior to
such other action. If no record date is fixed: (1) the record
date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held; (2)
the record date for determining stockholders entitled to ex-
press consent to corporate action in writing without a meeting
when no prior action of the Board of Directors is required by
law, shall be the first day on which a signed written consent
setting forth the action taken or proposed to be taken is de-
livered to the Corporation in accordance with applicable law,
or, if prior action by the Board of Directors is required by
law, shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior ac-
tion; and (3) the record date for determining stockholders for
any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the
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<PAGE>
Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of
the Certificate of Incorporation of the Corporation, the Board
of Directors may, out of funds legally available therefor at
any regular or special meeting, declare dividends upon stock of
the Corporation as and when they deem appropriate. Before de-
claring any dividend there may be set apart out of any funds of
the Corporation available for dividends, such sum or sums as
the Board of Directors from time to time in their discretion
deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other
purposes as the Board of Directors shall deem conducive to the
interests of the Corporation.
SECTION 6. SEAL -- The corporate seal of the Corpo-
ration shall be in such form as shall be determined by reso-
lution of the Board of Directors. Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise imprinted upon the subject document or
paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the
Corporation shall be determined by resolution of the Board of
Directors.
SECTION 8. CHECKS -- All checks, drafts or other
orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, or agent or agents, of the
Corporation, and in such manner as shall be determined from
time to time by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever
any notice is required to be given under these By-Laws, per-
sonal notice is not required unless expressly so stated, and
any notice so required shall be deemed to be sufficient if
given by depositing the same in the United States mail, postage
prepaid, addressed to the person entitled thereto at his or her
address as it appears on the records of the Corporation, and
such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise
provided by law. Whenever any notice is required to be given
under the provisions of any law, or under the provisions of the
Certificate of Incorporation of the Corporation or of these By-
Laws, a waiver thereof, in writing and signed by the person or
persons entitled to said notice, whether before or after the
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<PAGE>
time stated therein, shall be deemed equivalent to such re-
quired notice.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed at
any annual meeting of the stockholders (or at any special meet-
ing thereof if notice of such proposed alteration, amendment or
repeal to be considered is contained in the notice of such spe-
cial meeting) by the affirmative vote of the holders of shares
constituting a majority of the voting power of the Corporation.
Except as otherwise provided in the Certificate of Incorpora-
tion of the Corporation, the Board of Directors may by majority
vote of those present at any meeting at which a quorum is
present alter, amend or repeal these By-Laws, or enact such
other By-Laws as in their judgment may be advisable for the
regulation and conduct of the affairs of the Corporation.
-10-
EXHIBIT 12.1
GOSS GRAPHIC SYSTEMS, INC.
RATIO OF EARNINGS FROM OPERATIONS TO FIXED CHARGES
(UNAUDITED)
DOLLARS IN MILLIONS
<TABLE><CAPTION>
NINE MONTHS PRO FORMA
1996 ADJUSTMENT PRO FORMA
----------- ---------- ---------
<S> <C> <C> <C>
Earnings from operations:
Income (loss) before taxes and cumulative effect......... $ 2.3 $(16.6) $ (14.3)
Plus: Fixed charges...................................... 7.0 24.5 31.5
--- ---------- ---------
Earnings from operations (as defined)...................... 9.3 7.9 17.2
--- ---------- ---------
Fixed Charges:
1/3 of rent expense...................................... 1.4 0.0 1.4
Preferred stock dividends................................ 0 3.9 3.9
Cash/intercompany interest expense....................... 4.6 19.8 24.4
Amortization of financing costs.......................... 0 1.8 1.8
Scheduled debt payments.................................. 1.0 (1.0) 0.0
--- ---------- ---------
Fixed charges (as defined)................................. 7.0 24.5 31.5
--- ---------- ---------
Ratio of earnings from operations to fixed charges......... 1.3 -- 0.5
--- ---------- ---------
Earnings from operations (as defined)...................... 9.3 -- 17.2
--- ---------- ---------
Less: Fixed charges (as defined)........................... 7.0 -- 31.5
--- ---------- ---------
Difference................................................. 2.3 -- (14.3)
--- ---------- ---------
</TABLE>
Exhibit 21
The subsidiaries of Goss Graphic Systems, Inc. (the "Company")
immediately prior to the Acquisition Closing will be Goss Graphic Systems
Limited, a United Kingdom corporation, and Goss Graphic Systems-Japan
Corporation, a Japanese corporation ("Goss-Japan").
Upon the Acquisition Closing, (i) the Company will acquire Rockwell
Graphic Systems, Inc. ("RGS") and (ii) Goss-Japan will acquire Rockwell Graphic
Systems-Japan Corporation ("RGS-Japan"). RGS will then merge with the Company
and change its name to Goss Graphic Systems, Inc., and RGS-Japan will then merge
with Goss-Japan. Following the Acquisition Closing, the subsidiaries of the
Company will be as follows:
Rockwell PMC Inc., an Illinois corporation (to be renamed after the
Acquisition Closing)
Goss Graphic Systems Limited, a United Kingdom corporation
Goss Graphic Systems-Japan Corporation, a Japanese corporation
Rockwell Systemes Graphiques Nantes, a societe anonyme organized under
the laws of the Republic of France (to be renamed after the
Acquisiton Closing)
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Goss Graphic Systems, Inc.:
As independent public accountants, we hereby consent to the use of our
report, dated July 16, 1996, and all references to our firm included in or made
a part of the attached registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 27, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-08421 of Goss Graphic Systems, Inc. on Form S-1 of our report on the
Combined Financial Statements of Rockwell Graphic Systems, a business unit of
Rockwell International Corporation, dated November 3, 1995 as to the 1995 and
1994 financial statements and April 26, 1996 as to the 1993 financial
statements, except for the fourth paragraph of Note 22, as to which the date is
July 18, 1996 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the preparation of the financial statements of
a business unit of Rockwell International Corporation) appearing in the
Prospectus, which is part of such Registration Statement, and of our report on
the financial statement schedule of Rockwell Graphic Systems dated November 3,
1995 as to the 1995 and 1994 financial information and April 26, 1996 as to the
1993 financial information appearing elsewhere in such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
August 26, 1996
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints M. Eric Schroeder and Robert J. Mylod, Jr. and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for and in his or her name, place and
stead, in any and all capacities, to sign the Registration Statement on Form S-1
of Goss Graphic Systems, Inc. relating to the registration of its Senior
Subordinated Notes due 2006, and any or all amendments thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney has been signed as of the 19th day of July, 1996, by
the following persons:
/s/ ROBERT M. KUHN
.............................................
Robert M. Kuhn
Chairman and Chief Executive
Officer
/s/ GERALD S. ARMSTRONG
.............................................
Gerald S. Armstrong
Director
/s/ ALEXIS P. MICHAS
.............................................
Alexis P. Michas
Director
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints M. Eric Schroeder and Robert J. Mylod, Jr. and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for and in his or her name, place and
stead, in any and all capacities, to sign the Registration Statement on Form S-1
of Goss Graphic Systems, Inc. relating to the registration of its Senior
Subordinated Notes due 2006, and any or all amendments thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney has been signed as of the 26th day of August, 1996,
by the following persons:
/s/ J. JOE ADORJAN
.............................................
J. Joe Adorjan
Director
/s/ ALFRED C. DAUGHERTY
.............................................
Alfred C. Daugherty
Director
/s/ ROBERT F. END
.............................................
Robert F. End
Director
/s/ JAMES J. KERLEY
.............................................
James J. Kerley
Director
/s/ JAMES P. SHEEHAN
.............................................
James P. Sheehan
Director
