<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended Commission File Number
June 30, 1997 333-08421
------------------------------
GOSS GRAPHIC SYSTEMS, INC.
Incorporated in the IRS Employer Identification No.
State of Delaware 25-1200273
700 Oakmont Lane
Westmont, Illinois 60559-5546
(630) 850-5600
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Registrant had 100 shares of Common Stock, par value $0.01 per share,
outstanding at August 12, 1997.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1997
INDEX
Part I - Financial Information: Page No.
- - ------------------------------- --------
Item 1 - Financial Statements
Balance Sheets - June 30, 1997 and
September 30, 1996 3
Statements of Operations - Three Months ended
June 30, 1997 and 1996 4
Eight and One-Half Months ended
June 30, 1997, Fourteen Days
ended October 14, 1996, and Nine
` Months ended June 30, 1996 5
Statements of Cash Flows - Eight and One-Half Months
ended June 30, 1997, Fourteen Days ended
October 14, 1996, and Nine Months ended
June 30, 1996 6
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - Other Information:
- - ----------------------------
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
-2-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED BALANCE SHEET
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEET ----------------------
JUNE 30, 1997 (A) SEPTEMBER 30, 1996
------------------ ----------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents. . . . . . . . . . $69.1 $2.3
Accounts receivable, net. . . . . . . . . . 90.8 122.5
Customer notes receivable, current portion . 11.8 67.4
Inventories. . . . . . . . . . . . . . . . . 207.3 148.8
Deferred income taxes. . . . . . . . . . . . 0.0 33.3
Other current assets . . . . . . . . . . . . 13.1 4.8
--------- ---------
Total current assets. . . . . . . . . . 392.1 379.1
--------- ---------
Property and equipment, net . . . . . . . . . 174.7 140.4
Customer notes receivable . . . . . . . . . . 0.0 154.9
Goodwill, net . . . . . . . . . . . . . . . . 302.2 135.2
Deferred financing fees and other assets. . . 30.2 14.4
--------- ---------
Total assets. . . . . . . . . . . . . . . . . $899.2 $824.0
--------- ---------
--------- ---------
LIABILITIES, ROCKWELL'S NET
- - ---------------------------
INVESTMENT AND SHAREHOLDER'S EQUITY
-----------------------------------
Current liabilities:
Current portion-term loan. . . . . . . . . . $11.3 $0.0
Revolving credit facilities. . . . . . . . . 60.5 0.0
Notes payable. . . . . . . . . . . . . . . . 0.0 39.2
Accounts payable . . . . . . . . . . . . . . 72.5 63.9
Advance payments from customers. . . . . . . 145.3 88.1
Accrued liabilities. . . . . . . . . . . . . 111.6 91.7
Other current liabilities. . . . . . . . . . 55.7 25.2
--------- ---------
Total current liabilities . . . . . . . 456.9 308.1
Other liabilities . . . . . . . . . . . . . . 34.6 23.4
Deferred income taxes . . . . . . . . . . . . 0.0 9.0
Senior term loan. . . . . . . . . . . . . . . 63.7 0.0
12% Senior subordinated notes due 2006. . . . 225.0 0.0
--------- ---------
Total liabilities . . . . . . . . . . . . . . 780.2 340.5
--------- ---------
Contingencies and commitments . . . . . . . . -- --
Rockwell's net investment . . . . . . . . . . 483.5
---------
Common stock, 100 shares issued and
outstanding, $0.01 par value. . . . . . . 0.0
Paid in capital . . . . . . . . . . . . . . . 162.1
Retained earnings . . . . . . . . . . . . . . (41.9)
Currency translation adjustment . . . . . . . (1.2)
---------
Total shareholder's equity. . . . . . . . . . 119.0
---------
Total liabilities, Rockwell's net investment
and shareholder's equity . . . . . . . . $899.2 $824.0
--------- ---------
--------- ---------
</TABLE>
(A) Due to the Acquisition and the related purchase accounting, financial
statements for the Company (period starting October 15, 1996), are not
comparable to those of the Predecessor Company. See Notes to the Financial
Statements for additional information.
The Notes to the Financial Statements are an integral part of these Financial
Statements
-3-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN MILLIONS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Consolidated Combined Statements of Operations
Statement of Operations (Predecessor Company)
----------------------- ---------------------
Three Months Ended Three Months Ended
June 30, 1997 (A) June 30, 1996
------------------ -----------------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . $124.9 $138.8
Cost of sales. . . . . . . . . . . . . . 96.6 114.1
Amortization of inventory. . . . . . . . 12.6 0.0
------------ ------------
Gross profit . . . . . . . . . . . . . 15.7 24.7
Operating Expenses . . . . . . . . . . . 22.0 32.5
------------ ------------
Operating (loss) profit. . . . . . . . . (6.3) (7.8)
------------ ------------
Interest (expense) . . . . . . . . . . . (9.5) (1.4)
Interest income and other
income (expense) . . . . . . . . . . . 3.1 1.2
Income (loss) before taxes . . . . . . . (12.7) (8.0)
Income tax provision (credit) . . . . . 0.0 (5.2)
------------ ------------
Net income (loss). . . . . . . . . . . . $(12.7) $(2.8)
------------ ------------
------------ ------------
Net loss per common share (B). . . . . . $(127,000)
------------
------------
Weighted average shares of
common stock outstanding (B). . . . . 100
------------
------------
</TABLE>
(A) Due to the Acquisition and the related purchase accounting, the
financial statements for the Company are not comparable to those of the
Predecessor Company. See Notes to the Financial Statements for additional
information.
(B) Weighted average number of shares of common stock outstanding and net loss
per common share for periods prior to October 15, 1996 have not been
presented due to the ownership by Rockwell.
The Notes to the Financial Statements are an integral part of these Financial
Statements
-4-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN MILLIONS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Consolidated Combined Statements of Operations
Statement of Operations (Predecessor Company)
----------------------- --------------------------------------
Eight and One-Half
Months Ended Fourteen Days Ended Nine Months Ended
June 30, 1997 (A) October 14, 1996 June 30, 1996
----------------------- ------------------- -----------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . $365.4 $4.6 $481.9
Cost of sales. . . . . . . . . . . . . 280.4 7.6 391.9
Amortization of inventory. . . . . . . 34.4 0.0 0.0
--------- --------- ---------
Gross profit . . . . . . . . . . . . 50.6 (3.0) 90.0
Operating Expenses . . . . . . . . . . 68.3 4.0 94.4
--------- --------- ---------
Operating (loss) profit. . . . . . . . (17.7) (7.0) (4.4)
--------- --------- ---------
Interest (expense) . . . . . . . . . . (26.6) (0.2) (4.7)
Interest income and other
income (expense) . . . . . . . . . . 3.5 0.7 11.4
Income (loss) before taxes . . . . . . (40.8) (6.5) 2.3
Income tax provision (credit) . . . . 1.1 (2.4) 1.2
--------- --------- ---------
Net income (loss). . . . . . . . . . . $(41.9) $(4.1) $1.1
--------- --------- ---------
--------- --------- ---------
Net loss per common share (B). . . . . $(419,000)
---------
---------
Weighted average shares of
common stock outstanding (B). . . . 100
---------
---------
</TABLE>
(A) Due to the Acquisition and the related purchase accounting, the
financial statements for the Company (period starting October 15, 1996)
are not comparable to those of the Predecessor Company. See Notes to
the Financial Statements for additional information.
(B) Weighted average number of shares of common stock outstanding and net
loss per common share for periods prior to October 15, 1996 have not
been presented due to the ownership by Rockwell.
The Notes to the Financial Statements are an integral part of these Financial
Statements
-5-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Consolidated Combined Statements of Cash Flows
Statement of Cash Flows (Predecessor Company)
----------------------- --------------------------------------
Eight and One-Half
Months Ended Fourteen Days Ended Nine Months Ended
June 30, 1997 (A) October 14, 1996 June 30, 1996
----------------------- ------------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . $(41.9) $(4.1) $1.1
Adjustments to net (loss) income to arrive at net cash (used
for) provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 25.4 0.9 20.7
Amortization of debt costs. . . . . . . . . . . . . . . . . . . . 1.9 -- --
Amortization of inventory step-up . . . . . . . . . . . . . . . . 34.4 -- --
Changes in assets and liabilities:
Accounts receivable, and inventories, net. . . . . . . . . (58.9) 3.5 21.7
Customer notes receivable. . . . . . . . . . . . . . . . . 16.0 16.3 17.1
Accounts payable . . . . . . . . . . . . . . . . . . . . . 2.9 0.4 (27.4)
Advance payments from customers. . . . . . . . . . . . . . 48.1 9.1 (34.4)
Other assets and liabilities . . . . . . . . . . . . . . . (16.6) (9.2) (13.8)
--------- --------- ---------
Net cash (used for) provided by operating activities. . . 11.3 16.9 (15.0)
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (6.2) -- (3.4)
Acquisition of Rockwell Graphic Systems. . . . . . . . . . . . . . (601.1) -- --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.2) (0.6) 1.9
--------- --------- ---------
Net cash used for investing activities . . . . . . . . . . . . . (608.5) (0.6) (1.5)
--------- --------- ---------
FINANCING ACTIVITIES:
Issuance of senior subordinated notes. . . . . . . . . . . . . . . 225.0 -- --
Sale of customer notes receivable. . . . . . . . . . . . . . . . . 137.1 -- --
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . 162.1 -- --
Borrowings under term loan . . . . . . . . . . . . . . . . . . . . 75.0 -- --
Net borrowings under revolving credit facility . . . . . . . . . . 60.5 -- --
Repayment of foreign long-term debt. . . . . . . . . . . . . . . . -- (25.9) (1.5)
Borrowings under foreign debt agreements . . . . . . . . . . . . . -- -- 46.0
Net cash transferred from (to) Rockwell. . . . . . . . . . . . . . -- 11.7 (31.5)
--------- --------- ---------
Net cash provided by (used for) financing activities . . . . . . 659.7 (14.2) 13.0
Net increase (decrease) in cash. . . . . . . . . . . . . . . . . . 62.5 2.1 (3.5)
Cash and cash equivalents at beginning of period . . . . . . . . . 6.6 2.3 6.7
--------- --------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . $69.1 $4.4 $3.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
(A) Due to the Acquisition and the related purchase accounting, the
financial statements of the Company (period starting October 15, 1996)
are not comparable to those of the Predecessor Company. See Notes to
the Financial Statements for additional information.
The Notes to the Financial Statements are an integral part of these Financial
Statements
-6-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Unless the context requires otherwise, references to "Goss" mean, at all
times prior to the date of consummation of the Acquisition (as defined
below), the Graphic Systems business unit of Rockwell International
Corporation ("Rockwell") and, at all times on or after the date of the
Acquisition, Goss Graphic Systems, Inc. and its subsidiaries.
Goss Graphic Systems, Inc. (the "Company") is a Delaware corporation
organized by Stonington Partners, Inc. ("Stonington") on behalf of Stonington
Capital Appreciation 1994 Fund, L.P. (the "Fund") to acquire (the
"Acquisition") the operations of the Graphic Systems business unit (the
"Predecessor Company") of Rockwell. The Company is a manufacturer and
supplier of web offset printing press systems for newspaper, commercial and
insert printing. The Company's world headquarters is located in Westmont,
Illinois, and the Company has U.S. manufacturing operations in Cedar Rapids,
Iowa and Reading, Pennsylvania and international operations in the United
Kingdom, France, Germany and Japan. The Company also has a controlling
interest in a joint venture in Shanghai, China.
On October 14, 1996 the Company acquired Goss from Rockwell. The
Acquisition was effected through the purchase by the Company of all the
outstanding stock of Rockwell Graphic Systems, Inc., a Delaware corporation
("Goss Delaware"), 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 merged
with and into Goss Delaware. The purchase price for the Acquisition was
$601.4 million, which consisted of $525.9 million in cash, subject to certain
adjustments, 47,500 shares of preferred stock, $1,000 liquidation preference
per share, issued by GGS Holdings, Inc. ("Holdings"), which directly owns all
of the capital stock of the Company, and approximately $28.0 million of
transaction and acquisition costs. The Acquisition has been accounted for
under the purchase method of accounting. The purchase price is subject to a
post closing adjustment based upon the computation of certain working capital
amounts. Management anticipates that this adjustment will be finalized by
year end.
Simultaneous with the closing of the Acquisition, Holdings raised $116.5
million of equity financing, comprised of $111.5 million in cash from the
sale of common stock of Holdings to the Fund, $1.0 million in cash from the
sale of common stock to an affiliate of a limited partner of the Fund, and
$4.0 million in cash from the sale (the "Management Placement") of common
stock to certain members of the Company's management. Holdings financed $2.0
million of the Management Placement. The balance of the funds needed to
consummate the Acquisition and pay related fees and expenses came from:
$225.0 million in proceeds from the Company's issuance of 12% Senior
Subordinated Notes due 2006 (see Note 6); $137.1 million in proceeds from the
sale of a portfolio of notes receivable issued in connection with customer
financing provided by Goss to purchasers of its products; and $75.3 million
in borrowings under a new credit agreement between Goss Delaware, Bankers
Trust Company and certain other lenders (see Note 6).
The accompanying consolidated financial statements present the financial
position of the Company at June 30, 1997 and the financial position of the
Predecessor Company at September 30, 1996; the results of operations and cash
flows for the Company from the Acquisition date, October 14, 1996 to the end
of the
-7-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Company's third fiscal quarter, June 30, 1997 ("Eight and One-Half Months
Ended June 30, 1997"), and for the Predecessor Company from October 1, 1996
to October 14, 1996 and the nine months ended June 30, 1996; and the results
of operations for the Company for the quarter ended June 30, 1997 and for the
Predecessor Company for the quarter ended June 30, 1996. The financial
statements of the Predecessor Company have been prepared in accordance with
generally accepted accounting principles utilizing the accounting practices
and procedures of Goss and have been derived from the accounting records of
Rockwell and its subsidiaries. The financial position and results of
operations of the Company for the period ended June 30, 1997 include certain
opening balance sheet adjustments related to the allocation of the purchase
price to the assets acquired and liabilities assumed (see Note 3).
Prior to the Acquisition, the Predecessor Company benefited from certain
direct services which were 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 financial statements. In addition, Rockwell
also provided 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 were allocated by Rockwell using the
proportion of divisional sales to total corporate sales and such allocations
are included in the financial statements of the Predecessor Company.
Management believes the manner in which common expenses have been allocated
for the services provided is reasonable. The Company now either performs
such services or, for an interim period, purchases services from Rockwell as
provided for by the Acquisition agreement.
The unaudited financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission but do not include all information and footnotes required by
generally accepted accounting principles. In the opinion of management, the
financial statements included herein reflect all adjustments, which are of a
normal recurring nature, necessary for a fair presentation. These financial
statements are not necessarily indicative of a full year's results of
operations. The accompanying financial statements should be read in
conjunction with the combined financial statements and the related notes
included in the Company's Registration Statement on Form S-1 filed on October
10, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company and the Predecessor Company recognize 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 June 30, 1997 and September 30, 1996 cumulative revenues were
recorded for $61.4 million and $128.9 million, respectively, on presses
awaiting delivery to customers for which title had transferred. Revenue
recognized during the quarter ended June 30, 1997 for presses awaiting
delivery amounted to $25.3 million. Revenue on installation contracts is
recognized using the completed-contract method except for certain
installation contracts, generally in amounts over $1.0 million, for which the
percentage-of-completion, cost-to-cost method is utilized.
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
-8-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
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. ACQUISITION
The Acquisition has been accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated on a
preliminary basis to the tangible and intangible assets and liabilities of
the Company based on their respective fair values as of the date of the
Acquisition. The preliminary estimates of fair value may be revised at a
later date.
The preliminary allocation of the total purchase price to the assets and
liabilities acquired is as follows (in millions):
PURCHASE PRICE
Purchase price of common stock and assets $573.4
Commissions, fees and expenses 28.0
------
Total Purchase Price $601.4
------
------
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Total current assets, net of deferred taxes $321.0
Property and equipment 178.1
Customer notes 137.1
Other long-term assets 37.0
Goodwill 300.1
Liabilities assumed (371.9)
------
Total Purchase Price $601.4
------
------
-9-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
The following unaudited pro forma financial information reflects the
Acquisition as if it had occurred at the beginning of each of the periods
presented. The pro forma information is presented for information purposes
only and is not necessarily indicative of what would have occurred had the
Acquisition been consummated as of those dates (in millions, except per share
data):
Pro Forma
-----------------------------------------------
Nine Months Nine Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
Net sales $370.0 $481.9
Net loss (46.4) (36.5)
Net loss per
common share $(464,000) $(365,000)
Earnings before interest, taxes, depreciation, amortization and other
non-cash items ("EBITDA") is presented below to provide additional
information related to the debt servicing ability of the Company and not as
as alternative measure of operating results or cash flow from operations as
determined in accordance with generally accepted accounting principles (in
millions):
Eight and One-Half Nine Months
Months Ended Ended
June 30, 1997 June 30, 1996
------------------ -------------
EBITDA $42.4 $24.8
4. REORGANIZATION COSTS
In connection with the Acquisition, the Company recorded reserves
related to the costs to reorganize the Company's U.S. and international
operations. The costs are primarily for severance payments for terminated
employees and realignment and rearrangement of manufacturing operations. The
following table summarizes the reserves for these costs at June 30, 1997 (in
millions):
Total
--------
Employee termination $6.1
Realign operations 4.8
--------
$10.9
--------
--------
For the Eight and One-Half months period ended June 30, 1997
expenditures for reorganizaion activities were approximately $14.1 million.
-10-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
5. INVENTORIES
Inventories are summarized as follows (in millions):
June 30, September 30,
1997 1996
------ ------
Materials $70.4 $53.4
Work in process 62.6 46.4
Finished goods 34.6 24.8
Long-term contracts 17.5 16.6
Parts 22.2 30.1
Less allowance to reduce
certain inventories to
LIFO - (22.5)
------ ------
Inventories, net $207.3 $148.8
------ ------
------ ------
Long-term contracts consist of inventoried costs of assembled parts
relating to units 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.
6. DEBT
The Company has notes (the "Notes") issued under an Indenture, dated
October 15, 1996 (the "Indenture"), between the Company and The Bank of New
York, as Trustee (the "Trustee"). The Notes are unsecured senior
subordinated obligations of the Company, limited to $225.0 million aggregate
principal amount, and will mature on October 15, 2006. The Notes bear
interest at 12% per annum, payable semi-annually in April and October.
Subject to certain conditions and dates, the Notes are, in part, redeemable
in whole or in part at the option of the Company. The payment of the
principal and interest on the Notes are subordinate in right to the prior
payment in full of all Senior Debt (as defined in the Indenture) under the
Bank Facilities (as defined below). The Indenture contains certain
covenants, including limitations on debt, restricted payments and sales of
certain assets.
In connection with the Acquisition, the Company entered into borrowing
agreements with Bankers Trust Company and certain other lenders
(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 inclusive of
letters of credit to be issued thereunder (the "Revolving Credit Facility"
and together with the Term Loan Facility, the "Bank Facilities"). The funds
from the Bank Facilities were lent directly to the Company, its wholly-owned
corporation in Japan ("Goss Japan") and its wholly owned corporation in the
United Kingdom ("Goss U.K.").
The Term Loan Facility consists of a term loan in an original principal
amount of $25.0 million made to the Company, a term loan in an original
principal amount of $25.0 million made to Goss U.K. and a term loan in an
original principal amount of $25.0 million made to Goss Japan. The Term Loan
Facility has a final maturity date of five years after the date of the initial
funding under the Bank Facilities. The Company is 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
-11-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
asset sales and issuance of debt or equity securities. The Company is also
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 for each
fiscal year, payable within 90 days after the end of the applicable fiscal
year. The Term Loan Facility bears interest, at the Company's option, at the
customary base rate plus 1.0%-1.5% (depending on the Company's leverage ratio
at such time) or at the customary reserve adjusted Euro-Dollar rate plus
2.0-2.5% (depending on the Company's leverage ratio at such time). As of
June 30, 1997, the Company's interest rate on the loans outstanding under the
term loan facility was an average of 8.22%.
The Revolving Credit Facility will mature September 30, 2001 and
consists of a revolving credit facility in an original amount of up to $100.0
million made available to the Company, a revolving credit facility in an
original amount of up to $100.0 million made available to Goss U.K., and a
revolving credit facility in an original amount of up to $25.0 million made
available to Goss Japan; the total of which may not, in the aggregate, exceed
the U.S. dollar equivalent of $150.0 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 $110.0 million at any one time, and under which letters of credit may be
issued. The Revolving Credit Facility bears interest, at the Company's
option, at the customary base rate plus 1.0%-1.5% (depending on the Goss'
leverage ratio at such time) or at the customary reserve adjusted Euro-Dollar
rate plus 2.0-2.5% (depending on the Company's leverage ratio at such time).
As of June 30, 1997, the Company's interest rate on loans outstanding under
the revolving credit agreement was 10.0%, and the available line of credit
remaining was $78.3 million. The Company provides letters of credit to
guarantee the performance under certain long-term contracts under the
Revolving Credit Facility. Such letters of credit outstanding were $51.1
million as of June 30, 1997.
The proceeds of the Term Loan Facility and approximately $0.3 million
under the Revolving Credit Facility were used to pay the cash portion of the
purchase price for the Acquisition and to pay fees and expenses in connection
with the Acquisition and the related financing. The Revolving Credit
Facility is also available to provide for the working capital requirements
and general corporate purposes of the Company and its subsidiaries; 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.
The Bank Facilities are guaranteed by Holdings and by each of the
Company's domestic subsidiaries and, in addition, the Company guarantees the
Bank Facilities provided to Goss U.K. and Goss Japan.
The Bank Facilities contain certain financial covenants, including, but
not limited to, a minimum fixed charge coverage test, a minimum Earnings
Before Interest, Taxes, Depreciation and Amortization (EBITDA) test, a
minimum net worth test and a maximum leverage test. In addition, the Bank
Facilities 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, sale of assets, capital expenditures, leases, transactions with
affiliates and conduct of business, with customary exceptions and baskets.
The Bank Facilities 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 guarantees, impairment of security interests in collateral and certain
changes of control.
-12-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
7. INCOME TAXES
For the Eight and One-Half months ended June 30, 1997, the Company
reported a loss before taxes of $40.8 million. The Company has not recorded
a U.S. tax benefit for these reported losses. This loss will be available to
offset future taxable income. The Company was profitable outside the U.S.
and non-U.S. income taxes have been provided on these profits.
8. CONTINGENCIES AND COMMITMENTS
LEGAL CONTINGENCIES
Goss 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 be material to Goss' financial
position or liquidity beyond provisions already recorded, 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
Goss' Reading, Pennsylvania facility had been operating a groundwater
remediation system under a 1981 Consent Order with the Commonwealth of
Pennsylvania as a result of historical waste disposal practices. Recent data
indicated that certain hazardous constituents in the groundwater had
decreased over time, while data on other constituents was inconclusive. Goss
submitted a proposal to the Pennsylvania Department of Environmental
Resources to proceed with an amended remediation program using metal
precipitation and biodegradation and conduct monitoring only at the site,
pursuant to recent statutory authority to determine cleanup limits consistent
with the results of a site-specific 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 be material to
Goss' financial position, results of operation or liquidity beyond provisons
already recorded.
9. SUBSEQUENT EVENTS
The Company entered into a first mortgage agreement on its Westmont,
Illinois facility with LaSalle National Bank on July 25, 1997. The mortgage
amount is $30.0 million with a final maturity date ten years after funding.
The loan bears interest at 9.0% and is being amortized on a twenty year
schedule with final payment in the tenth year. The proceeds were used to
reduce the $75.0 million term loan facility with Bankers Trust Company and
certain other lenders.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR
The Three Months ended June 30, 1997 compared to the
Three Months ended June 30, 1996
RESULTS OF OPERATIONS
ORDERS AND BACKLOG
New customer orders for the three months ended June 30, 1997 were $290.8
million as compared to $133.8 million for the three months ended June 30,
1996. Newspaper orders increased $160.8 million year over year with all
geographic regions reporting an increase reflecting a stronger market.
Commercial orders increased $3.7 million while insert orders in the Americas
decreased $7.5 million due to market softness. Backlog as of June 30, 1997
was $694.5 million as compared to $388.7 million as of September 30, 1996.
NET SALES
Net sales for the quarter were $124.9 million which is $13.9 million
(or 10.0%) lower than the previous year's net sales of $138.8 million. This
decrease is primarily attributable to lower sales in the European region of
$15.2 million.
GROSS PROFIT
Gross profit of $15.7 million for the quarter was lower than the
previous year's quarter of $24.7 million. The decrease is primarily
attributable to the amortization of the step-up in inventory which resulted
from the purchase method of accounting. Excluding this amortization, gross
profit for the quarter ended June 30, 1997 was $28.3 million or 22.7% of
sales as compared to $24.7 million or 17.8% of sales for the previous
quarter. Lower manufacturing costs are the primary reason for the
improvement.
OPERATING EXPENSES
The operating expenses for the quarter were $22.0 million which is 32.3%
lower than the $32.5 million in expenses for the quarter ended June 30, 1996.
This decrease of $10.5 million primarily reflects lower spending due to cost
reductions partially offset by higher depreciation resulting from the asset
step-ups related to the Acquisition.
OPERATING PROFIT
The operating loss of $6.3 million for the quarter includes $13.7
million in amortization and depreciation charges for asset step-ups related
to the Acquisition. Excluding these charges, operating profit for the
quarter was $7.4 million. When compared to the quarter ended June 30, 1996,
the operating profit improved by $15.2 million. This is primarily due to the
improved gross profit and lower operating expenses.
NET INTEREST AND OTHER INCOME
Interest expense and other income net to $6.4 million of expense for the
quarter which is an increase of $6.2 million from the previous year's
quarter. This is primarily due to Acquisition debt, deferred financing fees,
and the sale of the customer note portfolio, which provided interest income
in 1996.
-14-
<PAGE>
TAXES
For the quarter ended June 30, 1997 the Company reported a net loss
before taxes of $12.7 million. The Company has not recorded a U.S. tax
benefit for this loss. This loss will be available to offset future taxable
income.
During the quarter ended June 30, 1996 the Predecessor Company was
included in Rockwell's U.S. and foreign consolidated groups with other
Rockwell companies. A tax credit of $5.2 million was recorded on the $8.0
million loss for the quarter.
NET INCOME
A net loss of $12.7 million for the quarter compares to a net loss of
$2.8 million for the same period last year. This is primarily attributable
to $23.4 million for the amortization of certain purchase accounting asset
step-ups, deferred financing fees, interest expense associated with the
Acquisition debt and interest income in 1996 due to the customer note
portfolio sold in conjunction with the Acquisition.
EIGHT AND ONE-HALF MONTHS ENDED JUNE 30, 1997
COMPARED TO THE NINE MONTHS
ENDED JUNE 30, 1996
RESULTS OF OPERATIONS
ORDERS AND BACKLOG
New customer orders for the eight and one-half months ended June 30,
1997 were $664.0 million as compared to $455.7 million for the nine months
ended June 30, 1996. Newspaper orders increased $207.3 million reflecting a
stronger market. Commercial orders increased $19.7 million while insert
orders decreased $18.7 million due to market softness. Backlog as of June
30, 1997 was $694.5 million as compared to $388.7 million as of September 30,
1996.
NET SALES
Net sales for the eight and one-half months period were $365.4 million
which is $116.5 million (or 24.2%) lower than the previous year's net sales
of $481.9 million. The lower sales are primarliy attributable to higher 1996
newspaper shipments of approximately $73.0 million to customers primarily in
the Asia-Pacific region, lower insert sales in the Americas and the shortened
period.
GROSS PROFIT
Gross profit of $50.6 million for the current period was $39.4 million
lower than the previous year's period of $90.0 million. The decrease is
attributable to the amortization of the step-up in inventory which resulted
from the purchase method of accounting and lower sales. Excluding this
amortizaton, gross profit for the eight and one-half months ended June 30,
1997 was 23.3% of sales, an improvement of 4.6 percentage points when
compared to the same period of the previous year. Lower manufacturing costs
(including reduced warranty expenses) was the primary reason for this
improvement.
-15-
<PAGE>
OPERATING EXPENSES
Operating expenses for the eight and one-half month period ended June
30, 1997 of $68.3 million were $26.1 million or 27.6% lower than the $94.4
million in expenses for the nine month period of 1996. The decrease
primarily reflects lower spending due to cost reductions, one-time
restructuring charges in 1996 and the shortened period partially offset by
higher goodwill amortization and depreciation expenses resulting from the
Acquistion.
OPERATING PROFIT
The operating loss of $17.7 million for the eight and one-half month
period ended June 30, 1997 includes $37.8 million in amortization and
depreciation charges for asset step-ups related to the Acquisition.
Excluding these charges, operating profit for the eight and one-half month
period ended June 30, 1997 was $20.1 million. When compared to the nine
months ended June 30, 1996, the operating profit improved by $24.5 million.
This is primarily due to improved gross margins (lower manufacturing costs)
and lower operating expenses.
NET INTEREST AND OTHER EXPENSE
Interest and other income net to $23.1 million of expense which is an
increase of $29.8 million from the previous year's nine months results. This
is primarily due to Acquisition debt, deferred financing fees, and the sale
of the customer note portfolio, which provided interest income in 1996.
TAXES
For the eight and one-half month period ended June 30, 1997 the Company
reported a net loss before taxes of $40.8 million. The Company has not
recorded a U.S. tax benefit for this loss. This loss will be available to
offset future taxable income. The Company was profitable outside the U.S.
and non- U.S. income taxes have been provided for on these profits.
During the nine month period ended June 30, 1996 the Predecessor Company
was included in Rockwell's U.S. and foreign consolidated groups with other
Rockwell companies. A tax expense of $1.2 million was recorded on the $2.3
million profit for the nine month period.
NET INCOME
A net loss of $41.9 million for the eight and one-half month period
ended June 30, 1997 compares to a net profit of $1.1 million for the nine
month period ended June 30, 1996. This is primarily attributable to $64.6
million for amortization of certain purchase accounting asset step-ups,
deferred financing fees, and the interest expense associated with the
Acquisition debt and $6.7 million of net interest income in 1996 from the
customer note portfolio sold in conjunction with the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $11.3 million for the eight and
one-half month period ended June 30, 1997. The net cash used by operations
for the nine months ended June 30, 1996 was $15.0 million. This positive cash
flow and resulting cash and cash equivalents of $69.1 million in
-16-
<PAGE>
1997 were primarily due to higher advance payments from customers on improved
orders and improved accounts payable. This improved cash flow was partially
offset by higher accounts receivable and inventories balances.
The working capital for the eight and one-half months ended June 30,
1997 was a negative $64.8 million, as compared to a positive $71.0 million on
September 30, 1996. This change is attributable to lower accounts receivable
of $87.3 million, lower tax assets and certain liabilities recorded in
conjunction with the Acquisition.
Net property and equipment of $174.7 million increased $34.3 million
over the September 30, 1996 position. The change was primarily due to the
$38.0 million asset valuation write-ups in conjunction with the Acquisition.
The long-term portion of customer notes receivable was zero at June 30,
1997 as compared to a September 30, 1996 balance of $154.9 million.
Long-term notes receivable were sold at the time of the Acquisition to
provide funding for the purchase.
Accrued liabilities increased $19.9 million from September 30, 1996 to
$111.6 million at June 30, 1997, and other current liabilities increased
$30.5 million from September 30, 1996 to $55.7 million for the period ended
June 30, 1997. These liabilities included certain transaction costs,
reorganization costs, and certain liabilites that had been previously
recorded at Rockwell which are now reflected on the Company's Balance Sheet.
To finance the purchase from Rockwell, the Company secured $75.0 million
in senior term loans (short-term portion is $11.3 million) and issued $225.0
million of 12% unsecured senior subordinated notes maturing on October 15,
2006. This debt did not exist on September 30, 1996.
Rockwell's net investment of approximately $483.5 million was eliminated
as a result of the Acquisition.
Paid in capital of $162.1 million is a new item compared to the
September 30, 1996 balance sheet. $114.6 million was contributed to the
Company by Holdings to effect the Acquisition of Goss from Rockwell.
Holdings represents the newly formed Delaware corporation organized by
Stonington Partners, Inc., on behalf of Stonington Capital Appreciation 1994
Fund, L.P. and represents 1,165,000 shares of common stock. Pay-in-kind
perpetual preferred stock of Holdings valued at $47.5 million (47,500 shares)
was issued to Rockwell at a $1,000.00 liquidation preference per share and
has been recorded on the Company's financial statements as additional paid-in
capital.
As of June 30, 1997 the Company had $78.3 million of available credit
under its $150.0 million revolving credit facility. In addition to
short-term borrowings of $60.5 million, the Company had Letters of Credit
outstanding of $51.1 million ($49.3 million related to long-term contracts)
and negative working capital of $64.8 million. The negative working capital
reflects certain liabilities associated with the Acquisition as well as lower
accounts receivable and tax assets. The Company believes these credit
facilities, along with cash generated from operations, will be sufficient to
meet its needs for working capital and capital expenditures.
-17-
<PAGE>
Adjusted earnings before interest, taxes, depreciation and amortization
("adjusted EBITDA") as defined in the Bank Facilities for the eight and
one-half months months ended June 30, 1997 was $42.4 million. Adjusted
EBITDA is presented to provide additional information related to the debt
servicing ability of the Company, not as an alternative measure of operating
results or cash flow from operations as determined in accordance with
generally accepted accounting principles.
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 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 Bank Facilities, will be adequate to meet the Company's anticipated
future requirements for working capital, capital expenditures, and scheduled
payments of principal, and interest on, its senior debt, and interest on the
Notes.
-18-
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 Certificate on Incorporation (filed as Exhibit 3.1 to
Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Commission File No. 333-08421))
Exhibit 3.2 Bylaws (filed as Exhibit 3.2 to Amendment No. 1 to the
Company's Registration Statement on Form S-1
(Commission File No. 333-08421))
Exhibit 10.1 $30 Million Mortgage and Related Note
Exhibits 27.1 Financial Data Schedule for the eight and one-half
months ended June 30, 1997 filed herewith
(b) No reports were filed on Form 8-K for the quarter ended June 30, 1997
-19-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOSS GRAPHIC SYSTEMS, INC.
Date: August 12, 1997 By: /s/ WILLIAM G. FERKO
-------------------------------
William G. Ferko
Vice President &
Chief Financial Officer
-20-
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
FORM 10-Q
Exhibit Index
For the Quarter Ended June 30, 1997
Exhibit
Number Exhibit
- - ------ -------
3.1 Certificate of Incorporation (filed as Exhibit 3.1 to Amendment No. 1
to the Company's Registration Statement on Form S-1 (Commission File
No. 333-08421))
3.2 Bylaws (filed as Exhibit 3.2 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Commission File No. 333-08421))
10.1 $30 Million Mortgage and Related Note
27.1 Financial Data Schedule for the eight and one-half months ended June
30, 1997, filed herewith
-21-
<PAGE>
M O R T G A G E
BY
GOSS REALTY, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
TO AND FOR THE BENEFIT OF
LASALLE NATIONAL BANK,
A NATIONAL BANKING ASSOCIATION
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Maintenance, Repair and Restoration of Improvements, Payment of Prior
Liens, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Payment of Taxes and Assessments. . . . . . . . . . . . . . . . . . . . 3
4. Tax Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Mortgagee's Interest In and Use of Deposits . . . . . . . . . . . . . . 4
6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
8. Stamp Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. Lease Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10. Effect of Extensions of Time. . . . . . . . . . . . . . . . . . . . . . 7
11. Effect of Changes in Laws Regarding Taxation. . . . . . . . . . . . . . 7
12. Mortgagee's Performance of Defaulted Acts and Expenses Incurred by
Mortgagee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
13. Mortgagee's Reliance on Tax Bills and Claims for Liens. . . . . . . . . 8
14. Event of Default; Acceleration. . . . . . . . . . . . . . . . . . . . . 8
15. Foreclosure; Expense of Litigation. . . . . . . . . . . . . . . . . . . 10
16. Application of Proceeds of Foreclosure Sale . . . . . . . . . . . . . . 11
17. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
PAGE
----
18. Mortgagee's Right of Possession in Case of Default. . . . . . . . . . . 12
19. Application of Income Received by Mortgagee . . . . . . . . . . . . . . 13
20. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
21. Mortgagee's Right of Inspection . . . . . . . . . . . . . . . . . . . . 14
22. Disbursement of Insurance Proceeds. . . . . . . . . . . . . . . . . . . 14
23. Release Upon Payment and Discharge of Mortgagor's Obligations . . . . . 15
24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
25. Waiver of Defenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
26. Waiver of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
27. Transfer of Premises; Further Encumbrance . . . . . . . . . . . . . . . 17
28. Expenses Relating to Note and Mortgage. . . . . . . . . . . . . . . . . 17
29. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 19
30. Statement of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 19
31. Further Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . 19
32. Additional Indebtedness Secured . . . . . . . . . . . . . . . . . . . . 19
33. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
34. Waiver of Rights of Redemption and Reinstatement. . . . . . . . . . . . 20
35. Subordination of Property Manager's Lien. . . . . . . . . . . . . . . . 20
36. Fixture Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
37. Compliance with Environmental Laws. . . . . . . . . . . . . . . . . . . 21
ii
<PAGE>
PAGE
----
38. Compliance with Illinois Mortgage Foreclosure Law . . . . . . . . . . . 21
39. Single Purpose Entity . . . . . . . . . . . . . . . . . . . . . . . . . 22
40. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBIT A - LEGAL DESCRIPTION OF PREMISES
EXHIBIT B - PERMITTED EXCEPTIONS
SCHEDULE 1 - SCHEDULE OF EXCLUDED COLLATERAL
iii
<PAGE>
MORTGAGE
THIS MORTGAGE is made as of the ____ day of July, 1997, by GOSS REALTY,
INC., a Delaware corporation ("MORTGAGOR"), to and for the benefit of LASALLE
NATIONAL BANK, a national banking association ("MORTGAGEE"):
RECITALS:
A. Mortgagee has agreed to loan to Mortgagor the principal amount of
Thirty Million and No/100 Dollars ($30,000,000.00) (the "LOAN"). The Loan shall
be evidenced by a certain Mortgage Note of even date herewith (the "NOTE") made
by Mortgagor payable to Mortgagee in the principal amount of the Loan and due on
July __, 2007.
B. A condition precedent to Mortgagee's extension of the Loan to
Mortgagor is the execution and delivery by Mortgagor of this Mortgage.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor agrees as follows:
Mortgagor hereby mortgages, grants, assigns, remises, releases, warrants
and conveys to Mortgagee, its successors and assigns, the real estate legally
described on Exhibit A attached hereto (the "REAL ESTATE"), together with the
other property described in the following paragraph (the Real Estate and
property being hereinafter referred to as the "PREMISES") to secure: (i) the
payment of the Loan and all interest, late charges and other indebtedness
evidenced by or owing under the Note or any of the other Loan Documents (as
defined in the Note) and by any extensions, modifications, renewals or
refinancings thereof; (ii) the performance and observance of the covenants,
conditions, agreements, representations, warranties and other liabilities and
obligations of Mortgagor or any other obligor to or benefiting Mortgagee which
are evidenced or secured by or otherwise provided in the Note, this Mortgage or
any of the other Loan Documents; and (iii) the reimbursement of Mortgagee for
any and all sums expended or advanced by Mortgagee pursuant to any term or
provision of or constituting additional indebtedness under or secured by this
Mortgage or any of the other Loan Documents, with interest thereon as provided
herein or therein.
In addition to the Real Estate, the Premises hereby mortgaged includes all
buildings, structures and improvements now or hereafter constructed or erected
upon or located on the Real Estate, all tenements, easements, rights-of-way and
rights used as a means of access thereto, all fixtures and appurtenances thereto
now or hereafter belonging or pertaining to the Real Estate exclusive of all
personal property and fixtures described on Schedule 1 attached hereto (the
"EXCLUDED COLLATERAL"), and all rents, issues, royalties, income, revenue,
proceeds, profits,
1
<PAGE>
security deposits and all accounts relating to the Premises
and all other benefits thereof, and any after-acquired title, franchise, or
license and the reversions or remainders thereof, for so long and during all
such times as Mortgagor may be entitled thereto (which are pledged primarily and
on a parity with said Real Estate and not secondarily), and all machinery,
apparatus, equipment, appliances, floor covering, furniture, furnishings,
supplies, materials, fittings, fixtures and other personal property of every
kind and nature whatsoever, and all proceeds thereof, now or hereafter located
thereon or therein and which is owned by Mortgagor except the Excluded
Collateral. All of the land, estate and property hereinabove described, real,
personal and mixed, whether or not affixed or annexed, and all rights hereby
conveyed and mortgaged are intended so to be as a unit and are hereby
understood, agreed and declared, to the maximum extent permitted by law, to form
a part and parcel of the Real Estate and to be appropriated to the use of the
Real Estate, and shall be for the purposes of this Mortgage deemed to be
conveyed and mortgaged hereby exclusive of the Excluded Collateral; provided,
however, as to any of the property aforesaid which does not so form a part and
parcel of the Real Estate, this Mortgage is hereby deemed also to be a Security
Agreement under the Uniform Commercial Code of the State of Illinois (the
"CODE") for purposes of granting a security interest in such property, which
Mortgagor hereby grants to Mortgagee, as secured party (as defined in the Code).
TO HAVE AND TO HOLD the Premises unto Mortgagee, its successors and
assigns, forever, for the purposes and uses herein set forth, together with all
right to retain possession of the Premises after any Event of Default (as
hereinafter defined).
IT IS FURTHER UNDERSTOOD AND AGREED THAT:
1. TITLE.
Mortgagor represents, warrants and covenants that (a) Mortgagor is the
holder of the fee simple title to the Premises, free and clear of all liens and
encumbrances, except as to the Excluded Collateral and those liens and
encumbrances described on Exhibit B attached hereto (the "PERMITTED
EXCEPTIONS"); and (b) Mortgagor has legal power and authority to mortgage and
convey the Premises.
2. MAINTENANCE, REPAIR AND RESTORATION OF IMPROVEMENTS, PAYMENT OF PRIOR
LIENS, ETC.
Mortgagor shall: (a) promptly repair, restore or rebuild any buildings or
improvements now or hereafter on the Premises which may become damaged or be
destroyed; (b) keep the Premises in good condition and repair, without waste,
and free from mechanics' liens or other liens or claims for lien, except that
Mortgagor shall have the right to contest by appropriate proceedings the
validity or amount of any such lien if and only if Mortgagor shall, within
fifteen days after the filing thereof, (i) place a bond with Mortgagee in an
amount, form, content and issued by a surety reasonably acceptable to Mortgagee
for the payment of any such lien or (ii)
2
<PAGE>
cause the title company which has issued the loan policy of title insurance
to Mortgagee insuring the lien of this Mortgage to issue an endorsement
thereto insuring against loss or damage on account of any such lien; (c)
immediately pay when due any indebtedness which may be secured by a lien or
charge on the Premises superior or inferior to or at parity with the lien
hereof (no such superior, inferior or parity lien to be permitted hereunder),
and upon request exhibit satisfactory evidence of the discharge of any such
lien to Mortgagee; (d) complete within a reasonable time any buildings or any
other improvements now or at any time in process of construction upon the
Premises; (e) comply with all requirements of law, municipal ordinances and
restrictions of record with respect to the Premises and the use thereof,
including without limitation, those relating to building, zoning,
environmental protection, health, fire and safety; (f) make no material
alterations to the Premises or any buildings or other improvements now or
hereafter constructed thereon, without the prior written consent of
Mortgagee; (g) not suffer or permit any change in the general nature of the
occupancy of the Premises without the prior written consent of Mortgagee; (h)
not initiate or acquiesce in any zoning reclassification without the prior
written consent of Mortgagee; (i) pay each item of indebtedness secured by
this Mortgage when due according to the terms of the Note and the other Loan
Documents; and (j) duly perform and observe all of the covenants, terms,
provisions and agreements herein, in the Note and in the other Loan Documents
on the part of Mortgagor to be performed and observed. As used in this
Paragraph and elsewhere in this Mortgage, the term "indebtedness" shall mean
and include the principal sum evidenced by the Note, together with all
interest thereon and all other amounts payable to Mortgagee thereunder, and
all other sums at any time secured by this Mortgage.
3. PAYMENT OF TAXES AND ASSESSMENTS.
Mortgagor shall pay all general taxes, special taxes, special assessments,
water charges, sewer service charges, and all other liens or charges levied or
assessed against the Premises, or any interest therein, of any nature whatsoever
when due and before any penalty or interest is assessed, and, at the request of
Mortgagee, shall furnish to Mortgagee duplicate receipts of payment therefor.
If any special assessment is permitted by applicable law to be paid in
installments, Mortgagor shall have the right to pay such assessment in
installments, so long as all such installments are paid prior to the due date
thereof. Notwithstanding anything contained herein to the contrary, Mortgagor
shall have the right to protest any taxes assessed against the Premises, so long
as such protest is conducted in good faith by appropriate legal proceedings
diligently prosecuted and Mortgagor shall furnish to the title insurer such
security or indemnity as said insurer requires to induce it to issue an
endorsement, in form and substance acceptable to Mortgagee, insuring over any
exception created by such protest.
4. TAX DEPOSITS.
Mortgagor covenants to deposit with Mortgagee on the first day of each
month until the indebtedness secured by this Mortgage is fully paid, a sum equal
to one-twelfth (1/12th) of 105% of the most recent ascertainable annual taxes
and assessments (general and special) on the
3
<PAGE>
Premises. If requested by Mortgagee, Mortgagor shall also deposit with
Mortgagee an amount of money which, together with the aggregate of the
monthly deposits to be made pursuant to the preceding sentence as of one
month prior to the date on which the next installment of annual taxes and
assessments for the current calendar year become due, shall be sufficient to
pay in full such installment of annual taxes and assessments, as reasonably
estimated by Mortgagee. Such deposits are to be held in a commercial money
market account with interest accruing for the benefit of Mortgagor and are to
be used for the payment of taxes and assessments on the Premises next due and
payable when they become due. Mortgagee may, at its option, pay such taxes
and assessments when the same become due and payable (upon submission of
appropriate bills therefor from Mortgagor) or shall release sufficient funds
to Mortgagor for the timely payment thereof. If the funds so deposited are
insufficient to pay any such taxes or assessments for any year (or
installments thereof, as applicable) when the same shall become due and
payable, Mortgagor shall, within ten days after receipt of demand therefor,
deposit additional funds as may be necessary to pay such taxes and
assessments in full. If the funds so deposited exceed the amount required to
pay such taxes and assessments for any year, the excess shall be applied
toward subsequent deposits. Said deposits need not be kept separate and
apart from any other funds of Mortgagee.
5. MORTGAGEE'S INTEREST IN AND USE OF DEPOSITS.
Mortgagee may not apply any monies deposited pursuant to Paragraph 4 hereof
toward any of the indebtedness secured hereby prior to the occurrence of an
Event of Default. However, upon and after the occurrence of an Event of
Default, Mortgagee may, at its option, apply any monies at the time on deposit
pursuant to Paragraph 4 hereof toward any of the indebtedness secured hereby in
such order and manner as Mortgagee may elect. When such indebtedness has been
fully paid, any remaining deposits shall be returned to Mortgagor. Such
deposits are hereby pledged as additional security for the indebtedness
hereunder and shall not be subject to the direction or control of Mortgagor.
Mortgagee shall not be liable for any failure to apply to the payment of taxes,
assessments and insurance premiums any amount so deposited unless Mortgagor,
prior to the occurrence of an Event of Default, shall have requested Mortgagee
in writing to make application of such funds to the payment of such amounts,
accompanied by the bills for such taxes, assessments and insurance premiums.
Mortgagee shall not be liable for any act or omission taken in good faith or
pursuant to the instruction of any party.
6. INSURANCE.
(a) Mortgagor shall at all times keep all buildings, improvements,
fixtures and articles of personal property now or hereafter situated on the
Premises insured against loss or damage by fire and such other hazards as
may reasonably be required by Mortgagee, including without limitation: (i)
all-risk fire and extended coverage insurance, with vandalism and malicious
mischief endorsements, for the full replacement value of the Premises, with
agreed upon amount and inflation protection endorsements; (ii) if there are
tenants under leases at the Premises, rent and rental value or business
loss insurance for
4
<PAGE>
the same perils described in clause (i) above payable at
the rate per month and for a period of not less than twelve (12) months as
specified from time to time by Mortgagee; (iii) broad form boiler and
sprinkler damage insurance in an amount reasonably satisfactory to
Mortgagee, if and so long as the Premises shall contain a boiler and/or
sprinkler system, respectively; (iv) if the Premises are located in a flood
hazard area, flood insurance in the maximum amount obtainable up to the
amount of the indebtedness hereby secured; and (v) such other insurance as
Mortgagee may from time to time require. Mortgagor also shall at all times
maintain comprehensive public liability, property damage and workmen's
compensation insurance covering the Premises and any employees thereof,
with such limits for personal injury, death and property damage as
Mortgagee may require. Mortgagor shall be the named insured under such
policies and Mortgagee shall be identified as an additional insured party.
All policies of insurance to be furnished hereunder shall be in forms, with
companies, in amounts and with deductibles reasonably satisfactory to
Mortgagee, with mortgagee clauses attached to all policies in favor of and
in form satisfactory to Mortgagee, including a provision requiring that the
coverage evidenced thereby shall not be terminated or modified without
thirty days prior written notice to Mortgagee and shall contain
endorsements that no act or negligence of the insured or any occupant and
no occupancy or use of the Premises for purposes more hazardous than
permitted by the terms of the policies will affect the validity or
enforceability of such policies as against Mortgagee. Mortgagor shall
deliver all policies, including additional and renewal policies, to
Mortgagee, and, in the case of insurance about to expire, shall deliver
renewal policies not less than thirty days prior to their respective dates
of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be
maintained hereunder unless Mortgagee is included thereon as the loss payee
or an additional insured as applicable, under a standard mortgage clause
acceptable to Mortgagee and such separate insurance is otherwise acceptable
to Mortgagee.
(c) In the event of loss, Mortgagor shall give immediate notice
thereof to Mortgagee, who shall have the sole and absolute right to make
proof of loss, and each insurance company concerned is hereby authorized
and directed to make payment for such loss directly to Mortgagee (rather
than to Mortgagor and Mortgagee jointly). Mortgagee shall have the right,
at its option and in its sole discretion, to apply any insurance proceeds
so received after the payment of all of Mortgagee's expenses, either (i) on
account of the unpaid principal balance of the Note, irrespective of
whether such principal balance is then due and payable, whereupon Mortgagee
may declare the whole of the balance of indebtedness hereby secured plus
any Prepayment Premium (as defined in the Note) to be due and payable, or
(ii) to the restoration or repair of the property damaged as provided in
Paragraph 22 hereof. If insurance proceeds are delivered to Mortgagor by
Mortgagee as herein provided, Mortgagor shall repair, restore or rebuild
the damaged or destroyed
5
<PAGE>
portion of the Premises so that the condition and value of the Premises
are substantially the same as the condition and value of the Premises
prior to being damaged or destroyed. In the event Mortgagee permits the
application of such insurance proceeds to the cost of restoration and
repair of the Premises, any surplus which may remain out of said
insurance proceeds after payment of such costs shall be applied on
account of the unpaid principal balance of the Note, irrespective of
whether such principal balance is then due and payable. In the event of
foreclosure of this Mortgage, all right, title and interest of Mortgagor
in and to any insurance policies then in force shall pass to the
purchaser at the foreclosure sale. At the request of Mortgagee, from
time to time, Mortgagor shall furnish Mortgagee, without cost to
Mortgagee, evidence of the replacement value of the Premises.
7. CONDEMNATION.
If all or any part of the Premises are damaged, taken or acquired, either
temporarily or permanently, in any condemnation proceeding, or by exercise of
the right of eminent domain, the amount of any award or other payment for such
taking or damages made in consideration thereof, to the extent of the full
amount of the remaining unpaid indebtedness secured by this Mortgage, is hereby
assigned to Mortgagee, who is empowered to collect and receive the same and to
give proper receipts therefor in the name of Mortgagor and the same shall be
paid forthwith to Mortgagee. Such award or monies shall be applied on account
of the unpaid principal balance of the Note, irrespective of whether such
principal balance is then due and payable and, at any time from and after the
taking Mortgagee may declare the whole of the balance of the indebtedness hereby
secured plus any Prepayment Premium to be due and payable.
8. STAMP TAX.
If, by the laws of the United States of America, or of any state or
political subdivision having jurisdiction over Mortgagor, any tax is due or
becomes due in respect of the execution and delivery of this Mortgage, the Note
or any of the other Loan Documents, Mortgagor covenants and agrees to pay such
tax in the manner required by any such law. Mortgagor further covenants to
reimburse Mortgagee for any sums which Mortgagee may expend by reason of the
imposition of any such tax. Notwithstanding the foregoing, Mortgagor shall not
be required to pay any income or franchise taxes of Mortgagee.
9. LEASE ASSIGNMENT.
Mortgagor acknowledges that, concurrently herewith, Mortgagor is delivering
to Mortgagee, as additional security for the repayment of the Loan, an
Assignment of Rents and Leases (the "ASSIGNMENT") pursuant to which Mortgagor
has assigned to Mortgagee interests in the leases of the Premises and the rents
and income from the Premises. All of the provisions of the Assignment are
hereby incorporated herein as if fully set forth at length in the text of this
Mortgage. Mortgagor agrees to abide by all of the provisions of the Assignment.
6
<PAGE>
10. EFFECT OF EXTENSIONS OF TIME.
If the payment of the indebtedness secured hereby or any part thereof is
extended or varied or if any part of any security for the payment of the
indebtedness is released, all persons now or at any time hereafter liable
therefor, or interested in the Premises or having an interest in Mortgagor,
shall be held to assent to such extension, variation or release, and their
liability and the lien and all of the provisions hereof shall continue in full
force, any right of recourse against all such persons being expressly reserved
by Mortgagee, notwithstanding such extension, variation or release.
11. EFFECT OF CHANGES IN LAWS REGARDING TAXATION.
If any law is enacted after the date hereof requiring (i) the deduction of
any lien on the Premises from the value thereof for the purpose of taxation or
(ii) the imposition upon Mortgagee of the payment of the whole or any part of
the taxes or assessments, charges or liens herein required to be paid by
Mortgagor, or (iii) a change in the method of taxation of mortgages or debts
secured by mortgages or Mortgagee's interest in the Premises, or the manner of
collection of taxes, so as to affect this Mortgage or the indebtedness secured
hereby or the holders thereof, then Mortgagor, upon demand by Mortgagee, shall
pay such taxes or assessments, or reimburse Mortgagee therefor; provided,
however, that Mortgagor shall not be deemed to be required to pay any income or
franchise taxes of Mortgagee. Notwithstanding the foregoing, if in the opinion
of counsel for Mortgagee it may be unlawful to require Mortgagor to make such
payment or the making of such payment might result in the imposition of interest
beyond the maximum amount permitted by law, then Mortgagee may declare all of
the indebtedness secured hereby to be immediately due and payable.
12. MORTGAGEE'S PERFORMANCE OF DEFAULTED ACTS AND EXPENSES INCURRED BY
MORTGAGEE.
If an Event of Default has occurred, Mortgagee may, but need not, make any
payment or perform any act herein required of Mortgagor in any form and manner
deemed expedient by Mortgagee, and may, but need not, make full or partial
payments of principal or interest on prior encumbrances, if any, and purchase,
discharge, compromise or settle any tax lien or other prior lien or title or
claim thereof, or redeem from any tax sale or forfeiture affecting the Premises
or consent to any tax or assessment or cure any default of Mortgagor in any
lease of the Premises. All monies paid for any of the purposes herein
authorized and all expenses paid or incurred in connection therewith, including
reasonable attorneys' fees, and any other monies advanced by Mortgagee in regard
to any tax referred to in Paragraph 8 above or to protect the Premises or the
lien hereof, shall be so much additional indebtedness secured hereby, and shall
become immediately due and payable by Mortgagor to Mortgagee, upon demand, and
with interest thereon at the Default Rate (as defined in the Note) then in
effect. In addition to the foregoing, any costs, expenses and fees, including
reasonable attorneys' fees, incurred by Mortgagee in connection with
7
<PAGE>
(a) sustaining the lien of this Mortgage or its priority, (b) protecting or
enforcing any of Mortgagee's rights hereunder, (c) recovering any
indebtedness secured hereby, (d) any litigation or proceedings affecting the
Note, this Mortgage, any of the other Loan Documents or the Premises,
including without limitation, bankruptcy and probate proceedings, or (e)
preparing for the commencement, defense or participation in any threatened
litigation or proceedings affecting the Note, this Mortgage, any of the other
Loan Documents or the Premises, shall be so much additional indebtedness
secured hereby, and shall become immediately due and payable by Mortgagor to
Mortgagee, upon demand, and with interest thereon at the Default Rate. The
interest accruing under this Paragraph 12 shall be immediately due and
payable by Mortgagor to Mortgagee, and shall be additional indebtedness
evidenced by the Note and secured by this Mortgage. Mortgagee's failure to
act shall never be considered as a waiver of any right accruing to Mortgagee
on account of any Event of Default. Should any amount paid out or advanced
by Mortgagee hereunder, or pursuant to any agreement executed by Mortgagor in
connection with the Loan, be used directly or indirectly to pay off,
discharge or satisfy, in whole or in part, any lien or encumbrance upon the
Premises or any part thereof, then Mortgagee shall be subrogated to any and
all rights, equal or superior titles, liens and equities, owned or claimed by
any owner or holder of said outstanding liens, charges and indebtedness,
regardless of whether said liens, charges and indebtedness are acquired by
assignment or have been released of record by the holder thereof upon payment.
13. MORTGAGEE'S RELIANCE ON TAX BILLS AND CLAIMS FOR LIENS.
Mortgagee, in making any payment hereby authorized: (a) relating to taxes
and assessments, may do so according to any bill, statement or estimate procured
from the appropriate public office without inquiry into the accuracy of such
bill, statement or estimate or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof; or (b) for the purchase,
discharge, compromise or settlement of any other prior lien, may do so without
inquiry as to the validity or amount of any claim for lien which may be
asserted.
14. EVENT OF DEFAULT; ACCELERATION.
Each of the following shall constitute an "EVENT OF DEFAULT" for purposes
of this Mortgage:
(a) Mortgagor fails to pay within five (5) days of the date when due
(i) any installment of principal or interest payable pursuant to the Note,
or (ii) any other amount payable pursuant to the Note, this Mortgage or any
of the other Loan Documents;
(b) Mortgagor fails to promptly perform or cause to be performed any
other obligation or observe any other condition, covenant, term, agreement
or provision required to be performed or observed by Mortgagor under the
Note, this Mortgage or any of the other Loan Documents; provided, however,
that if such failure by its nature can be cured, then so long as the
continued operation and safety of the Premises, and the priority,
8
<PAGE>
validity and enforceability of the lien created by the Mortgage or
any of the other Loan Documents and the value of the Premises are not
impaired, threatened or jeopardized, then Mortgagor shall have a period
(the "Cure Period") of thirty days after written notice from Mortgagee
of such failure to cure the same and an Event of Default shall not be
deemed to exist during the Cure Period, provided further that if
Mortgagor commences to cure such failure during the Cure Period and is
diligently and in good faith attempting to effect such cure, the Cure
Period shall be extended for thirty additional days, but in no event
shall the Cure Period be longer than sixty days in the aggregate;
(c) The existence of any inaccuracy or untruth in any material
respect in any representation or warranty contained in this Mortgage or any
of the other Loan Documents or of any statement or certification as to
material facts delivered to Mortgagee by Mortgagor or any guarantor of the
Note;
(d) Mortgagor or any guarantor of the Note files a voluntary petition
in bankruptcy or is adjudicated a bankrupt or insolvent or files any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the present
or any future federal, state, or other statute or law, or seeks or consents
to or acquiesces in the appointment of any trustee, receiver or similar
officer of Mortgagor or of all or any substantial part of the property of
Mortgagor or any guarantor of the Note or any of the Premises;
(e) The commencement of any involuntary petition in bankruptcy
against Mortgagor or any guarantor of the Note or the institution against
Mortgagor or any guarantor of the Note of any reorganization, arrangement,
composition, readjustment, dissolution, liquidation or similar proceedings
under any present or future federal, state or other statute or law, or the
appointment of a receiver, trustee or similar officer for all or any
substantial part of the property of Mortgagor or any guarantor of the Note
which shall remain undismissed or undischarged for a period of ninety days;
(f) Any sale, transfer, lease, assignment, conveyance, financing,
lien or encumbrance made in violation of Paragraphs 27 or 39 of this
Mortgage;
(g) The occurrence of a default under that certain lease (the "Goss
Lease") of even date herewith between Borrower and Tenant;
(h) The occurrence of an "Event of Default" under the Note or any of
the other Loan Documents; or
(i) The occurrence of any default or "Event of Default" (as such term
is used in the Bankers Trust Credit Agreement (as hereinafter defined)),
after the expiration of any applicable grace and/or cure periods, under
Section 8 of that certain Credit Agreement
9
<PAGE>
(the "Bankers Trust Credit Agreement") dated as of October 15, 1996, as
amended, among Gross Graphic Systems, Inc., a Delaware corporation
("Tenant"), and Bankers Trust Company ("Bankers Trust"), except that the
Event of Default described in this clause (i) shall cease to be an Event
of Default if such default or "Event of Default" (as such term is used
in the Bankers Trust Credit Agreement) or any acceleration of the
principal outstanding under, or other obligations due pursuant to, the
Bankers Trust Credit Agreement is rescinded and annulled pursuant to the
terms of the Bankers Trust Credit Agreement and there is not at the time
of such rescission and annulment any other Event of Default under this
Mortgage.
If an Event of Default occurs, Mortgagee may, at its option, declare the
whole of the indebtedness hereby secured to be immediately due and payable
without further notice to Mortgagor, with interest thereon from the date of such
Event of Default at the Default Rate.
15. FORECLOSURE; EXPENSE OF LITIGATION.
(a) When all or any part of the indebtedness hereby secured shall
become due, whether by acceleration or otherwise, Mortgagee shall have the
right to foreclose the lien hereof for such indebtedness or part thereof
and/or exercise any right, power or remedy provided in this Mortgage or any
of the other Loan Documents. It is further agreed that if default be made
in the payment of any part of the secured indebtedness, as an alternative
to the right of foreclosure for the full secured indebtedness after
acceleration thereof, Mortgagee shall have the right to institute partial
foreclosure proceedings with respect to the portion of said indebtedness so
in default, as if under a full foreclosure, and without declaring the
entire secured indebtedness due (such proceeding being hereinafter referred
to as a "partial foreclosure"), and provided that if foreclosure sale is
made because of default of a part of the secured indebtedness, such sale
may be made subject to the continuing lien of this Mortgage for the
unmatured part of the secured indebtedness. It is further agreed that such
sale pursuant to a partial foreclosure shall not in any manner affect the
unmatured part of the secured indebtedness, but as to such unmatured part,
the lien hereof shall remain in full force and effect just as though no
foreclosure sale had been made under the provisions of this Paragraph.
Notwithstanding the filing of any partial foreclosure or entry of a decree
of sale in connection therewith, Mortgagee may elect at any time prior to a
foreclosure sale pursuant to such decree to discontinue such partial
foreclosure and to accelerate the entire secured indebtedness by reason of
any uncured Event of Default upon which such partial foreclosure was
predicated or by reason of any other Event of Default and proceed with full
foreclosure proceedings. It is further agreed that several foreclosure
sales may be made pursuant to partial foreclosures without exhausting the
right of full or partial foreclosure sale for any unmatured part of the
secured indebtedness. In the event of a foreclosure sale, Mortgagee is
hereby authorized, without the consent of Mortgagor, to assign any and all
insurance policies to the purchaser
10
<PAGE>
at such sale or to take such other steps as Mortgagee may deem advisable
to cause the interest of such purchaser to be protected by any of such
insurance policies.
(b) In any suit to foreclose or partially foreclose the lien hereof,
there shall be allowed and included as additional indebtedness in the
decree for sale all expenditures and expenses which may be paid or incurred
by or on behalf of Mortgagee for reasonable attorneys' fees, reasonable
appraisers' fees, outlays for documentary and expert evidence,
stenographers' charges, publication costs, and reasonable costs (which may
be estimated as to items to be expended after entry of the decree) of
procuring all such abstracts of title, title searches and examinations,
title insurance policies, and similar data and assurances with respect to
the title as Mortgagee may deem reasonably necessary either to prosecute
such suit or to evidence to bidders at any sale which may be had pursuant
to such decree the true condition of the title to or the value of the
Premises. All expenditures and expenses of the nature mentioned in this
paragraph and such other expenses and fees as may be incurred in the
enforcement of Mortgagor's obligations hereunder, the protection of said
Premises and the maintenance of the lien of this Mortgage, including the
fees of any attorney employed by Mortgagee in any litigation or proceeding
affecting this Mortgage, the Note, or the Premises, including probate and
bankruptcy proceedings, or in preparations for the commencement or defense
of any proceeding or threatened suit or proceeding shall be immediately due
and payable by Mortgagor, with interest thereon at the Default Rate and
shall be secured by this Mortgage.
16. APPLICATION OF PROCEEDS OF FORECLOSURE SALE.
The proceeds of any foreclosure (or partial foreclosure) sale of the
Premises shall be distributed and applied in the following order of priority:
first, to all costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in Paragraph 15 above; second, to all
other items which may under the terms hereof constitute secured indebtedness
additional to that evidenced by the Note, with interest thereon as provided
herein or in the other Loan Documents; third, to all principal and interest
remaining unpaid on the Note; and fourth, any surplus to Mortgagor, its
successors or assigns, as their rights may appear or to any other party legally
entitled thereto.
17. APPOINTMENT OF RECEIVER.
Upon or at any time after the filing of a complaint to foreclose (or
partially foreclose) this Mortgage, the court in which such complaint is filed
shall, upon petition by Mortgagee, appoint a receiver for the Premises. Such
appointment may be made either before or after sale, without notice, without
regard to the solvency or insolvency of Mortgagor at the time of application for
such receiver and without regard to the value of the Premises or whether the
same shall be then occupied as a homestead or not and Mortgagee hereunder or any
other holder of the Note may be appointed as such receiver. Such receiver shall
have power to collect the rents, issues and profits
11
<PAGE>
of the Premises (i) during the pendency of such foreclosure suit, (ii) in
case of a sale and a deficiency, during the full statutory period of
redemption, whether there be redemption or not, and (iii) during any further
times when Mortgagor, but for the intervention of such receiver, would be
entitled to collect such rents, issues and profits. Such receiver also shall
have all other powers and rights that may be necessary or are usual in such
cases for the protection, possession, control, management and operation of
the Premises during said period, including, to the extent permitted by law,
the right to lease all or any portion of the Premises for a term that extends
beyond the time of such receiver's possession without obtaining prior court
approval of such lease. The court from time to time may authorize the
application of the net income received by the receiver in payment of (a) the
indebtedness secured hereby, or by any decree foreclosing this Mortgage, or
any tax, special assessment or other lien which may be or become superior to
the lien hereof or of such decree, provided such application is made prior to
foreclosure sale, and (b) any deficiency upon a sale and deficiency.
18. MORTGAGEE'S RIGHT OF POSSESSION IN CASE OF DEFAULT.
At any time after an Event of Default has occurred, Mortgagor shall, upon
demand of Mortgagee, surrender to Mortgagee possession of the Premises.
Mortgagee, in its discretion, may, with process of law, enter upon and take and
maintain possession of all or any part of the Premises, together with all
documents, books, records, papers and accounts relating thereto, and may exclude
Mortgagor and its employees, agents or servants therefrom, and Mortgagee may
then hold, operate, manage and control the Premises, either personally or by its
agents. Mortgagee shall have full power to use such measures, legal or
equitable, as in its discretion may be deemed proper or necessary to enforce the
payment or security of the avails, rents, issues, and profits of the Premises,
including actions for the recovery of rent, actions in forcible detainer and
actions in distress for rent. Without limiting the generality of the foregoing,
Mortgagee shall have full power to:
(a) cancel or terminate any lease or sublease for any cause or on any
ground which would entitle Mortgagor to cancel the same;
(b) elect to disaffirm any lease or sublease which is then
subordinate to the lien hereof;
(c) extend or modify any then existing leases and to enter into new
leases, which extensions, modifications and leases may provide for terms to
expire, or for options to lessees to extend or renew terms to expire,
beyond the maturity date of the indebtedness secured hereby and beyond the
date of the issuance of a deed or deeds to a purchaser or purchasers at a
foreclosure sale, it being understood and agreed that any such leases, and
the options or other such provisions to be contained therein, shall be
binding upon Mortgagor and all persons whose interests in the Premises are
subject to the lien hereof and upon the purchaser or purchasers at any
foreclosure sale, notwithstanding any
12
<PAGE>
redemption from sale, discharge of the mortgage indebtedness,
satisfaction of any foreclosure judgment, or issuance of any certificate
of sale or deed to any purchaser;
(d) make any repairs, renewals, replacements, alterations, additions,
betterments and improvements to the Premises as Mortgagee deems are
necessary;
(e) insure and reinsure the Premises and all risks incidental to
Mortgagee's possession, operation and management thereof; and
(f) receive all of such avails, rents, issues and profits.
19. APPLICATION OF INCOME RECEIVED BY MORTGAGEE.
Mortgagee, in the exercise of the rights and powers hereinabove conferred
upon it, shall have full power to use and apply the avails, rents, issues and
profits of the Premises to the payment of or on account of the following, in
such order as Mortgagee may determine:
(a) to the payment of the operating expenses of the Premises,
including cost of management and leasing thereof (which shall include
compensation to Mortgagee and its agent or agents, if management be
delegated to an agent or agents, and shall also include lease commissions
and other compensation and expenses of seeking and procuring tenants and
entering into leases), established claims for damages, if any, and premiums
on insurance hereinabove authorized;
(b) to the payment of taxes and special assessments now due or which
may hereafter become due on the Premises; and
(c) to the payment of any indebtedness secured hereby, including any
deficiency which may result from any foreclosure sale.
20. RIGHTS CUMULATIVE.
Each right, power and remedy herein conferred upon Mortgagee is cumulative
and in addition to every other right, power or remedy, express or implied, given
now or hereafter existing under any of the Loan Documents or at law or in
equity, and each and every right, power and remedy herein set forth or otherwise
so existing may be exercised from time to time as often and in such order as may
be deemed expedient by Mortgagee, and the exercise or the beginning of the
exercise of one right, power or remedy shall not be a waiver of the right to
exercise at the same time or thereafter any other right, power or remedy, and no
delay or omission of Mortgagee in the exercise of any right, power or remedy
accruing hereunder or arising otherwise shall impair any such right, power or
remedy, or be construed to be a waiver of any Event of Default or acquiescence
therein.
13
<PAGE>
21. MORTGAGEE'S RIGHT OF INSPECTION.
Mortgagee and its representatives shall have the right to inspect the
Premises and the books and records with respect thereto at all reasonable times,
and access thereto shall be permitted for that purpose.
22. DISBURSEMENT OF INSURANCE PROCEEDS.
(a) Before commencing to repair, restore or rebuild following damage
to, or destruction of, all or a portion of the Premises, whether by fire or
other casualty, Mortgagor shall obtain from Mortgagee its approval of all
site and building plans and specifications pertaining to such repair,
restoration or rebuilding.
(b) Prior to each payment or application of any insurance proceeds to
the repair or restoration of the improvements upon the Premises to the
extent permitted in Paragraph 6 above (which payment or application may be
made, at Mortgagee's option, through an escrow, the terms and conditions of
which are satisfactory to Mortgagee and the cost of which is to be borne by
Mortgagor), Mortgagee shall be entitled to be satisfied as to the
following:
(i) An Event of Default or any event which, with the passage of
time or giving of notice would constitute an Event of Default, has not
occurred;
(ii) Either (A) such improvements have been fully restored, or
(B) the expenditure of money as may be received from such insurance
proceeds will be sufficient to repair, restore or rebuild the
Premises, free and clear of all liens, claims and encumbrances,
except the lien of this Mortgage and the Permitted Exceptions, or, in
the event such insurance proceeds shall be insufficient to repair,
restore and rebuild the Premises, Mortgagor has deposited with
Mortgagee such amount of money which, together with the insurance
proceeds shall be sufficient to restore, repair and rebuild the
Premises; and
(iii) Prior to each disbursement of any such proceeds held by
Mortgagee in accordance with the terms of this Paragraph 22 for the
cost of any repair, restoration or rebuilding, Mortgagee shall be
furnished with a statement of Mortgagee's architect (the cost of which
shall be borne by Mortgagor), certifying the extent of the repair and
restoration completed to the date thereof, and that such repairs,
restoration, and rebuilding have been performed to date in conformity
with the plans and specifications approved by Mortgagee and with all
statutes, regulations or ordinances (including building and zoning
ordinances) affecting the Premises; and Mortgagee shall be furnished
with appropriate evidence of payment for labor
14
<PAGE>
or materials furnished to the Premises, and total or partial lien
waivers substantiating such payments.
(c) Prior to the payment or application of insurance proceeds to the
repair, restoration or rebuilding of the improvements upon the Premises to
the extent permitted in Paragraph 6 above, there shall have been delivered
to Mortgagee the following:
(i) A waiver of subrogation from any insurer with respect
to Mortgagor or the then owner or other insured under the policy
of insurance in question;
(ii) Such plans and specifications, such payment and
performance bonds and such insurance, in such amounts, issued by
such company or companies and in such forms and substance, as are
required by Mortgagee.
(d) In the event Mortgagor shall fail to restore, repair or rebuild
the improvements upon the Premises within a time deemed satisfactory by
Mortgagee, then Mortgagee, at its option, may commence and perform all
necessary acts to restore, repair or rebuild the said improvements for or
on behalf of Mortgagor. In the event insurance proceeds shall exceed the
amount necessary to complete the repair, restoration or rebuilding of the
improvements upon the Premises, such excess shall be applied on account of
the unpaid principal balance of the Loan irrespective of whether such
balance is then due and payable.
(e) In the event Mortgagor commences the repair or rebuilding of the
improvements located on the Premises, but fails to comply with the
conditions precedent to the payment or application of insurance proceeds
set forth in this Paragraph 22, or Mortgagor shall fail to restore, repair
or rebuild the improvements upon the Premises within a time deemed
satisfactory by Mortgagee, and if Mortgagee does not restore, repair or
rebuild the said improvements as provided in subparagraph (d) above, then
such failure shall constitute an Event of Default.
23. RELEASE UPON PAYMENT AND DISCHARGE OF MORTGAGOR'S OBLIGATIONS.
Mortgagee shall release this Mortgage and the lien hereof by proper
instrument upon payment and discharge of all indebtedness secured hereby,
including payment of all reasonable expenses incurred by Mortgagee in connection
with the execution of such release.
15
<PAGE>
24. NOTICES.
Any notices, communications and waivers under this Mortgage shall be in
writing and shall be (i) delivered in person, (ii) mailed, postage prepaid,
either by registered or certified mail, return receipt requested, or (iii) by
overnight express carrier, addressed in each case as follows:
To Mortgagee: LaSalle National Bank
Suite 1225
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Jeffrey Lawrence
With copy to: Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Attn: David Glickstein, Esq.
To Mortgagor: Goss Realty, L.L.C.
700 Oakmont Lane
Westmont, Illinois 60559
Attn: Treasurer
With copy to: Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
Attn: W. Brinkley Dickerson, Jr.
or to any other address as to any of the parties hereto, as such party shall
designate in a written notice to the other party hereto. All notices sent
pursuant to the terms of this Paragraph shall be deemed received (i) if
personally delivered, then on the date of delivery, (ii) if sent by overnight,
express carrier, then on the next federal banking day immediately following the
day sent, or (iii) if sent by registered or certified mail, then on the earlier
of the third federal banking day following the day sent or when actually
received.
25. WAIVER OF DEFENSES.
No action for the enforcement of the lien or of any provision hereof shall
be subject to any defense which would not be good and available to the party
interposing the same in an action at law upon the Note.
16
<PAGE>
26. WAIVER OF RIGHTS.
Mortgagor hereby covenants and agrees that Mortgagor shall not apply for or
avail itself of any appraisement, valuation, stay, extension or exemption laws,
or any so-called "Moratorium Laws," now existing or hereafter enacted, in order
to prevent or hinder the enforcement or foreclosure of this Mortgage, but hereby
waives the benefit of such laws. To the fullest extent permitted by law,
Mortgagor, for itself and all who may claim through or under it, waives any
claims based on allegations that Mortgagee has failed to act in a commercially
reasonable manner (except as otherwise expressly provided in this Mortgage or
the other Loan Documents) and any and all rights to have the property and
estates comprising the Premises marshalled upon any foreclosure of the lien
hereof and further agrees that any court having jurisdiction to foreclose such
lien may order the Premises sold as an entirety.
27. TRANSFER OF PREMISES; FURTHER ENCUMBRANCE.
(a) Neither all nor any portion of (i) the Premises or (ii) any
interest in Mortgagor or (iii) any interest of Mortgagor in the Premises
shall be sold, conveyed, assigned, encumbered or otherwise transferred (nor
shall any agreement be entered into to sell, convey, assign, encumber or
otherwise transfer same) without, in each instance, the prior written
consent of Mortgagee, which consent may be given or withheld in Mortgagee's
sole and absolute discretion, and may be conditioned in any manner that
Mortgagee desires, including, without limitation, increases in the rate of
interest charged on the Loan and payment of assumption fees. Any violation
or attempted violation of the provisions of this Paragraph 27 shall be an
Event of Default for purposes of all of the Loan Documents. Any assignment
or pledge and any subsequent transfer arising therefrom of the membership
interests in Mortgagor by Tenant to Bankers Trust as security for
indebtedness under the Bankers Trust Credit Agreement shall not constitute
a violation of attempted violation of this Paragraph 27 and shall be
specifically permitted under Paragraph 39 below, provided that Mortgagor
has approved, which approval shall not be unreasonably withheld or delayed,
the documents or instruments evidencing such assignment or pledge.
(b) Any consent by Mortgagee, or any waiver by Mortgagee of an Event
of Default under this Paragraph 27 shall not constitute a consent to or
waiver of any right, remedy or power of Mortgagee upon a continuing or
subsequent Event of Default under this Paragraph 27. Mortgagor
acknowledges that any agreements, liens, charges or encumbrances created in
violation of the provisions of this Paragraph 27 shall be void and of no
force or effect. Mortgagor agrees that if any provision of this Paragraph
27 is deemed a restraint on alienation, that such restraint is a reasonable
one.
17
<PAGE>
28. EXPENSES RELATING TO NOTE AND MORTGAGE.
(a) Mortgagor will pay all expenses, charges, costs and fees relating
to the Loan or necessitated by the terms of the Note, this Mortgage or any
of the other Loan Documents, including without limitation, Mortgagee's
reasonable attorneys' fees in connection with the negotiation,
documentation, administration, servicing and enforcement of the Note, this
Mortgage and the other Loan Documents, all filing, registration and
recording fees, all other expenses incident to the execution and
acknowledgment of this Mortgage and all federal, state, county and
municipal taxes, and other taxes (provided Mortgagor shall not be required
to pay any income or franchise taxes of Mortgagee), duties, imposts,
assessments and charges arising out of or in connection with the execution
and delivery of the Note and this Mortgage. Mortgagor recognizes that,
during the term of this Mortgage, Mortgagee:
(i) May be involved in court or administrative proceedings,
including, without restricting the foregoing, foreclosure,
probate, bankruptcy, creditors' arrangements, insolvency, housing
authority and pollution control proceedings of any kind, to which
Mortgagee shall be a party by reason of the Loan Documents or in
which the Loan Documents or the Premises are involved directly or
indirectly;
(ii) May make preparations following the occurrence of an
Event of Default hereunder for the commencement of any suit for
the foreclosure hereof, which may or may not be actually
commenced;
(iii) May make preparations following the occurrence of an
Event of Default hereunder for, and do work in connection with,
Mortgagee's taking possession of and managing the Premises, which
event may or may not actually occur;
(iv) May make preparations for and commence other private or
public actions to remedy an Event of Default hereunder, which
other actions may or may not be actually commenced;
(v) May enter into negotiations with Mortgagor or any of
its agents, employees or attorneys in connection with the
existence or curing of any Event of Default hereunder, the sale
of the Premises, the assumption of liability for any of the
indebtedness represented by the Note or the transfer of the
Premises in lieu of foreclosure; or
(vi) May enter into negotiations with Mortgagor or any of
its agents, employees or attorneys pertaining to Mortgagee's
approval of
18
<PAGE>
actions taken or proposed to be taken by Mortgagor which
approval is required by the terms of this Mortgage.
(b) All expenses, charges, costs and fees described in this Paragraph
28 shall be so much additional indebtedness secured hereby, shall bear
interest from the date so incurred until paid at the Default Rate and shall
be paid, together with said interest, by Mortgagor forthwith upon demand.
29. FINANCIAL STATEMENTS.
Mortgagor hereby represents and warrants that the financial statements for
Tenant previously submitted to Mortgagee are true, complete and correct in all
material respects, disclose all actual and contingent liabilities of Tenant and
do not contain any untrue statement of a material fact or omit to state a fact
material to such financial statements. No material adverse change has occurred
in the financial condition of Tenant from the dates of said financial statements
until the date hereof. Mortgagor hereby covenants that Mortgagee shall be
furnished (i) quarterly financial statements for Tenant and operating statements
for the Premises no later than thirty days after the end of each of the four
quarters of each year, all in form, scope and detail satisfactory to Mortgagee
and certified by Tenant, and (ii) annual audited financial statements for Tenant
and operating statements for the Premises no later than 90 days after the end of
each year, together with an unqualified accountant's opinion in a form
satisfactory to Mortgagee.
30. STATEMENT OF INDEBTEDNESS.
Mortgagor, within seven days after being so requested by Mortgagee, shall
furnish a duly acknowledged written statement setting forth the amount of the
debt secured by this Mortgage, the date to which interest has been paid and
stating either that no offsets or defenses exist against such debt or, if such
offsets or defenses are alleged to exist, the nature thereof.
31. FURTHER INSTRUMENTS.
Upon request of Mortgagee, Mortgagor shall execute, acknowledge and deliver
all such additional instruments and further assurances of title and shall do or
cause to be done all such further acts and things as may reasonably be necessary
fully to effectuate the intent of this Mortgage and of the other Loan Documents.
32. ADDITIONAL INDEBTEDNESS SECURED.
All persons and entities with any interest in the Premises or about to
acquire any such interest should be aware that this Mortgage secures more than
the stated principal amount of the Note and interest thereon; this Mortgage
secures any and all other amounts which may become due under the Note or any
other document or instrument evidencing, securing or otherwise
19
<PAGE>
affecting the indebtedness secured hereby, including, without limitation, any
and all amounts expended by Mortgagee to operate, manage or maintain the
Premises or to otherwise protect the Premises or the lien of this Mortgage.
33. INDEMNITY.
Mortgagor hereby covenants and agrees that no liability shall be asserted
or enforced against Mortgagee in the exercise of the rights and powers granted
to Mortgagee in this Mortgage, and Mortgagor hereby expressly waives and
releases any such liability. Mortgagor shall indemnify and save Mortgagee
harmless from and against any and all liabilities, obligations, losses, damages,
claims, costs and expenses (including reasonable attorneys' fees and court
costs) (collectively, the "CLAIMS") of whatever kind or nature which may be
imposed on, incurred by or asserted against Mortgagee at any time by any third
party which relate to or arise from: (a) any suit or proceeding (including
probate and bankruptcy proceedings), or the threat thereof, in or to which
Mortgagee may or does become a party, either as plaintiff or as a defendant, by
reason of this Mortgage or for the purpose of protecting the lien of this
Mortgage; (b) the offer for sale or sale of all or any portion of the Premises;
and (c) the ownership, leasing, use, operation or maintenance of the Premises,
if such Claims relate to or arise from actions taken prior to the surrender of
possession of the Premises to Mortgagee in accordance with the terms of this
Mortgage; provided, however, that Mortgagor shall not be obligated to indemnify
or hold Mortgagee harmless from and against any Claims directly arising from the
gross negligence or willful misconduct of Mortgagee. All costs provided for
herein and paid for by Mortgagee shall be so much additional indebtedness
secured hereby and shall become immediately due and payable without notice and
with interest at the Default Rate.
34. WAIVER OF RIGHTS OF REDEMPTION AND REINSTATEMENT.
Mortgagor hereby releases and waives, to the fullest extent permitted by
law, any and all rights of reinstatement and redemption provided in the Illinois
Mortgage Foreclosure Act.
35. SUBORDINATION OF PROPERTY MANAGER'S LIEN.
Any property management agreement for the Premises entered into hereafter
with a property manager shall contain a "no lien" provision whereby the property
manager waives and releases any and all mechanics' lien rights that the property
manager or anyone claiming by, through or under the property manager may have
and shall provide that Mortgagee may terminate such agreement at any time after
the occurrence of an Event of Default hereunder. Such property management
agreement or a short form thereof, at Mortgagee's request, shall be recorded
with the Recorder of Deeds of the county where the Premises are located. In
addition, if the property management agreement in existence as of the date
hereof does not contain a "no lien" provision, Mortgagor shall cause the
property manager under such agreement to enter into a subordination of the
management agreement with Mortgagee, in recordable form, whereby such property
20
<PAGE>
manager subordinates present and future lien rights and those of any party
claiming by, through or under such property manager to the lien of this
Mortgage.
36. FIXTURE FILING.
Mortgagor and Mortgagee agree that this Mortgage shall constitute a
financing statement and fixture filing under the Code with respect to all
"FIXTURES" (as defined in the Code) attached to or otherwise forming a part of
the Premises and that a security interest in and to such fixtures is hereby
granted to Mortgagee. For purposes of the foregoing, Mortgagee is the secured
party and Mortgagor is the debtor and the collateral covered by this financing
statement shall be all items of property contained within the definition of the
"PREMISES" which is or becomes a fixture on the Real Estate or any other real
estate contained within the definition of the Premises.
37. COMPLIANCE WITH ENVIRONMENTAL LAWS.
In addition to all other provisions of this Mortgage, Mortgagor, at its
cost and expense, shall comply with all laws, and all rules and regulations of
any governmental authority ("AGENCY") having jurisdiction, concerning
environmental matters, including, but not limited to, any discharge (whether
before or after the date of this Mortgage) into the air, waterways, sewers, soil
or ground water or any substance or "pollutant". Mortgagee and its agents and
representatives shall have access to the Premises and to the books and records
of Mortgagor and any occupant of the Premises claiming by, through or under
Mortgagor for the purpose of ascertaining the nature of the activities being
conducted thereon and to determine the type, kind and quantity of all products,
materials and substances brought onto the Premises or made or produced thereon.
Mortgagor and all occupants of the Premises claiming under Mortgagor shall
provide to Mortgagee copies of all manifests, schedules, correspondence and
other documents of all types and kinds when filed or provided to any Agency or
as such are received from any Agency. Upon Mortgagee's reasonable determination
that Mortgagor may be in breach of its obligations under this Paragraph,
Mortgagee and its agents and representatives shall have the right to take
samples in quantity sufficient for scientific analysis of all products,
materials and substances present on the Premises including, but not limited to,
samples of products, materials or substances brought onto or made or produced on
the Premises by Mortgagor or an occupant claiming by, through or under Mortgagor
or otherwise present on the Premises.
38. COMPLIANCE WITH ILLINOIS MORTGAGE FORECLOSURE LAW.
(a) In the event that any provision in this Mortgage shall be
inconsistent with any provision of the Illinois Mortgage Foreclosure Act
(Chapter 735, Sections 5/15-1101 ET SEQ., Illinois Compiled Statutes)
(herein called the "Act") the provisions of the Act shall take precedence
over the provisions of this Mortgage, but shall not invalidate or render
unenforceable any other provision of this Mortgage that can be construed in
a manner consistent with the Act.
21
<PAGE>
(b) If any provision of this Mortgage shall grant to Mortgagee
(including Mortgagee acting as a mortgagee-in-possession) or a receiver
appointed pursuant to the provisions of Paragraph 17 of this Mortgage any
powers, rights or remedies prior to, upon or following the occurrence of an
Event of Default which are more limited than the powers, rights or remedies
that would otherwise be vested in Mortgagee or in such receiver under the
Act in the absence of said provision, Mortgagee and such receiver shall be
vested with the powers, rights and remedies granted in the Act to the full
extent permitted by law.
(c) Without limiting the generality of the foregoing, all expenses
incurred by Mortgagee which are of the type referred to in Section
5/15-1510 or 5/15-1512 of the Act, whether incurred before or after any
decree or judgment of foreclosure, and whether or not enumerated in
Paragraph 12, 15 or 28 of this Mortgage, shall be added to the indebtedness
secured by this Mortgage and/or by the judgment of foreclosure.
39. SINGLE PURPOSE ENTITY. Mortgagor covenants and agrees that it has not
and shall not:
(a) engage in any business or activity other than the ownership,
operation and maintenance of the Premises and activities incidental
thereto;
(b) acquire or own any material assets other than (i) the Premises,
and (ii) such incidental personal property as may be necessary for the
operation of the Premises;
(c) merge into or consolidate with any person or entity or dissolve,
terminate or liquidate, in whole or in part, transfer or otherwise dispose
of all or substantially all of its assets or change its legal structure,
without, in each case, Mortgagee's consent other than as specifically
allowed under Paragraph 27 above;
(d) fail to preserve its existence as an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization or formation, or without the prior written consent of
Mortgagee, amend, modify, terminate or fail to comply with the provisions
of Mortgagor's Operating Agreement, Articles of Organization or similar
organizational documents, as the case may be, as same may be further
amended or supplemented, if such amendment, modification, termination or
failure to comply would adversely affect the ability of Mortgagor to
perform its obligations hereunder, under the Note or under the other Loan
Documents;
(e) own any subsidiary or make any investment in any person or entity
without the consent of Mortgagee;
(f) commingle its assets with the assets of any of its members,
affiliates, principals or of any other person or entity;
22
<PAGE>
(g) incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Loan, except in the
ordinary course of its business of owning and operating the Premises and
except for that certain (i) Subsidiary Guaranty to Bankers Trust relating
to the Bankers Trust Credit Agreement in form and substance reasonably
acceptable to Mortgagee, and (ii) Subordinated Guaranty to The Bank of New
York, not personally, but solely as trustee ("Trustee") pursuant to the
Goss Graphic Systems, Inc. Indenture dated as of October 15, 1996 (the
"Indenture"), relating to the Indenture in form and substance reasonably
acceptable to Mortgagee;
(h) become insolvent and fail to pay its debts and liabilities from
its asset as the same shall become due;
(i) fail to maintain its records, books of account and bank accounts
separate and apart from those of the members, principals and affiliates of
Mortgagor, the affiliates of any member of Mortgagor, and any other person
or entity;
(j) enter into any contract or agreement with any member, principal
or affiliate of Mortgagor or Tenant, or any shareholder, principal or
affiliate thereof, except the Goss Lease and except upon terms and
conditions that are intrinsically fair and substantially similar to those
that would be available on an arms-length basis with third parties other
than any member, shareholder, principal or affiliate of Mortgagor or
Tenant, or any shareholder, principal or affiliate thereof;
(k) seek the dissolution or winding up, in whole or in part, of
Mortgagor;
(l) maintain its assets in such a manner that it will be costly or
difficult to segregate, ascertain or identify its individual assets from
those of any member, principal or affiliate of Mortgagor, or any
shareholder, principal or affiliate thereof or any other person;
(m) hold itself out to be responsible for the debts of another person
except for that certain (i) Subsidiary Guaranty to Bankers Trust relating
to the Bankers Trust Credit Agreement in form and substance reasonably
acceptable to Mortgagee and (ii) Subordinated Guaranty to Trustee related
to the Indenture in form and substance reasonably acceptable to Mortgagee.
(n) make any loans or advances to any third party, including any
member, principal or affiliate of Mortgagor, or any shareholder, principal
or affiliate thereof;
(o) fail to file its own tax returns;
(p) fail either to hold itself out to the public as a legal entity
separate and distinct from any other entity or person or to conduct its
business solely in its own name in order not (i) to mislead others as to
the identity with which such other party is transacting business, or (ii)
to suggest that Mortgagor is responsible for the debts of any third party
(including any member, principal or affiliate of Mortgagor, or any
shareholder,
23
<PAGE>
principal or affiliate thereof) except for that certain (x)
Subsidiary Guaranty to Bankers Trust relating to the Bankers Trust Credit
Agreement in form and substance reasonably acceptable to Mortgagee and (y)
Subordinated Guaranty to Trustee related to the Indenture in form and
substance reasonably acceptable to Mortgagee; or
(q) file or consent to the filing of any petition, either voluntary
or involuntary, to take advantage of any applicable insolvency, bankruptcy,
liquidation or reorganization statute, or made an assignment for the
benefit of creditors.
40. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS.
This Mortgage and all provisions hereof shall be binding upon and
enforceable against Mortgagor and its assigns and other successors. This
Mortgage and all provisions hereof shall inure to the benefit of Mortgagee,
its successors and assigns and any holder or holders, from time to time, of
the Note.
(b) INVALIDITY OF PROVISIONS; GOVERNING LAW.
In the event that any provision of this Mortgage is deemed to be
invalid by reason of the operation of law, or by reason of the
interpretation placed thereon by any administrative agency or any court,
Mortgagor and Mortgagee shall negotiate an equitable adjustment in the
provisions of the same in order to effect, to the maximum extent permitted
by law, the purpose of this Mortgage and the validity and enforceability of
the remaining provisions, or portions or applications thereof, shall not be
affected thereby and shall remain in full force and effect. This Mortgage
is to be construed in accordance with and governed by the laws of the State
of Illinois.
(c) MUNICIPAL AND ZONING REQUIREMENTS.
Mortgagor shall not by act or omission permit any building or other
improvement on premises not subject to the lien of this Mortgage to rely on
the Premises or any part thereof or any interest therein to fulfill any
municipal or governmental requirement, and Mortgagor hereby assigns to
Mortgagee any and all rights to give consent for all or any portion of the
Premises or any interest therein to be so used. Similarly, no building or
other improvement on the Premises shall rely on any premises not subject to
the lien of this Mortgage or any interest therein to fulfill any
governmental or municipal requirement. Mortgagor shall not by act or
omission alter (or permit the alteration of) the zoning classification of
the Premises in effect as of the date hereof, nor shall Mortgagor impair
the integrity of the Premises as a single zoning lot separate and apart
from all other premises. Any act or omission by Mortgagor which would
result in a violation of any of the provisions of this subparagraph shall
be void.
24
<PAGE>
(d) RIGHTS OF TENANTS.
Mortgagee shall have the right and option to commence a civil action
to foreclose this Mortgage and to obtain a Decree of Foreclosure and Sale
subject to the rights of any tenant or tenants of the Premises having an
interest in the Premises prior to that of Mortgagee. The failure to join
any such tenant or tenants of the Premises as party defendant or defendants
in any such civil action or the failure of any Decree of Foreclosure and
Sale to foreclose their rights shall not be asserted by Mortgagor as a
defense in any civil action instituted to collect the indebtedness secured
hereby, or any part thereof or any deficiency remaining unpaid after
foreclosure and sale of the Premises, any statute or rule of law at any
time existing to the contrary notwithstanding.
(e) OPTION OF MORTGAGEE TO SUBORDINATE.
At the option of Mortgagee, this Mortgage shall become subject and
subordinate, in whole or in part (but not with respect to priority of
entitlement to insurance proceeds or any condemnation or eminent domain
award) to any and all leases of all or any part of the Premises upon the
execution by Mortgagee of a unilateral declaration to that effect and the
recording thereof in the Office of the Recorder of Deeds in and for the
county wherein the Premises are situated.
(f) MORTGAGEE IN POSSESSION.
Nothing herein contained shall be construed as constituting Mortgagee
a mortgagee in possession in the absence of the actual taking of possession
of the Premises by Mortgagee pursuant to this Mortgage.
(g) RELATIONSHIP OF MORTGAGEE AND MORTGAGOR.
Mortgagee shall in no event be construed for any purpose to be a
partner, joint venturer, agent or associate of Mortgagor or of any lessee,
operator, concessionaire or licensee of Mortgagor in the conduct of their
respective businesses, and, without limiting the foregoing, Mortgagee shall
not be deemed to be such partner, joint venturer, agent or associate on
account of Mortgagee becoming a mortgagee in possession or exercising any
rights pursuant to this Mortgage, any of the other Loan Documents, or
otherwise.
(h) TIME OF THE ESSENCE.
Time is of the essence of the payment by Mortgagor of all amounts due
and owing to Mortgagee under the Note and the other Loan Documents and the
performance and observance by Mortgagor of all terms, conditions,
obligations and agreements contained in this Mortgage and the other Loan
Documents.
25
<PAGE>
(i) NO MERGER.
It being the desire and intention of the parties hereto that the
Mortgage and the lien hereof do not merge in fee simple title to the
Premises, it is hereby understood and agreed that should Mortgagee acquire
any additional or other interest in or to the Premises or the ownership
thereof, then, unless a contrary intent is manifested by Mortgagee as
evidenced by an express statement to that effect in an appropriate document
duly recorded, this Mortgage and the lien hereof shall not merge in the fee
simple title and this Mortgage may be foreclosed as if owned by a stranger
to the fee simple title.
(j) MAXIMUM INDEBTEDNESS.
Notwithstanding anything contained herein to the contrary, in no event
shall the indebtedness secured by this Mortgage exceed an amount equal to
Sixty Million and No/100 Dollars ($60,000,000.00).
(k) JURISDICTION AND VENUE.
MORTGAGOR HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY
MORTGAGOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS MORTGAGE SHALL BE
LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR, IF
MORTGAGEE INITIATES SUCH ACTION, ANY COURT IN WHICH MORTGAGEE SHALL
INITIATE SUCH ACTION AND WHICH HAS JURISDICTION. MORTGAGOR HEREBY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR PROCEEDING COMMENCED BY MORTGAGEE IN ANY OF SUCH COURTS, AND
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO MORTGAGOR AT THE ADDRESS TO WHICH NOTICES ARE
TO BE SENT PURSUANT TO THIS MORTGAGE. MORTGAGOR WAIVES ANY CLAIM THAT
CHICAGO, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT
FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD MORTGAGOR, AFTER
BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT,
PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW
AFTER THE MAILING THEREOF, MORTGAGOR SHALL BE DEEMED IN DEFAULT AND AN
ORDER AND/OR JUDGMENT MAY BE ENTERED BY MORTGAGEE AGAINST MORTGAGOR AS
DEMANDED OR PRAYED FOR IN
26
<PAGE>
SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF
FORUM FOR MORTGAGOR SET FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT, BY MORTGAGEE, OF ANY JUDGMENT OBTAINED IN ANY
OTHER FORUM OR THE TAKING, BY MORTGAGEE, OF ANY ACTION TO ENFORCE THE
SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND MORTGAGOR HEREBY WAIVES
THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
(l) WAIVER OF RIGHT TO JURY TRIAL.
MORTGAGEE AND MORTGAGOR ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON DIFFICULT
AND COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY COURT
PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, Mortgagor has executed this instrument the day and year
first above written.
GOSS REALTY, L.L.C., a
Delaware limited liability company
By: GOSS GRAPHIC SYSTEMS, INC.,
a Delaware corporation,
its sole member
By:__________________________
Name:___________________
Title:__________________
27
<PAGE>
STATE OF __________________)
) SS.
COUNTY OF __________________)
I, ____________________________, a Notary Public in and for said County,
in the State aforesaid, do hereby certify that ___________________________,
the ______________________ of Goss Graphic Systems, Inc., a Delaware
corporation, the sole member of Goss Realty, L.L.C., a Delaware limited
liability company, who is personally known to me to be the same person whose
name is subscribed to the foregoing instrument as such ______________,
appeared before me this day in person and acknowledged that he signed and
delivered the said instrument as his own free and voluntary act and as the
free and voluntary act of said corporation, as the sole member of said
limited liability company, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal, this ____ day of __________, 1997.
________________________
Notary Public
(SEAL)
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF PREMISES
LOTS 1 AND 2 IN ROCKWELL SUBDIVISION, BEING A SUBDIVISION OF LOT 2 IN OAKMONT
CENTRE UNIT V IN THE SOUTHWEST 1/4 OF SECTION 35 AND A SUBDIVISION IN THE
SOUTHEAST 1/4 OF SECTION 34, TOWNSHIP 39 NORTH, RANGE 11 EAST OF THE THIRD
PRINCIPAL MERIDIAN, IN DUPAGE COUNTY, ILLINOIS RECORDED AS DOCUMENT NO.
R88-110501.
A-1
<PAGE>
EXHIBIT B
PERMITTED EXCEPTIONS
1. General real estate taxes for the years 1996 (second installment) and
1997 and each year thereafter not yet due and payable.
2. Exception Nos. 13-24, inclusive, contained on Schedule B of First
American Title Insurance Company Commitment No. CC109604 dated July 9, 1997.
B-1
<PAGE>
SCHEDULE 1
SCHEDULE OF EXCLUDED COLLATERAL
(a) All printing presses and accessories located or to be located at the
building and all substitutions and replacements thereof located at the Premises
held for demonstration, sales, promotions or other purposes at the building, and
all inventory in all of its forms (including (i) all goods held by Goss Graphic
Systems, Inc., a Delaware corporation ("Tenant"), for sale or lease, or to be
furnished under contracts of service or so leased or furnished, (ii) raw
materials, work in process, finished goods, spare parts and materials used or
consumed in the manufacture, packing, shipping, advertising, selling, leasing,
furnishing or production of such inventory or otherwise used or consumed in
Tenant's business, the ownership of which is expressly reserved to Tenant); and
(b) All office furniture, furnishings, equipment and machinery, including,
but not limited to, phones and telephone systems, copiers, computers, desks,
chairs, typewriters, shelving and partitions.
Sch-1-1
<PAGE>
MORTGAGE NOTE
$30,000,000.00 July ___, 1997
Chicago, Illinois
1. FOR VALUE RECEIVED, GOSS REALTY, L.L.C., a Delaware limited liability
company ("BORROWER"), hereby promises to pay to the order of LASALLE NATIONAL
BANK, a national banking association ("LENDER"), the principal sum of Thirty
Million and No/100 Dollars ($30,000,000.00), at the place and in the manner
hereinafter provided, together with interest thereon at the rate or rates
described below.
2. LOAN RATE. Interest shall accrue on the balance of principal
remaining from time to time unpaid under this Note during each calendar month
(whether full or partial) prior to the Maturity Date (as hereinafter defined) at
an annual rate (the "LOAN RATE") equal to eight and sixty-six one hundredths
percent (8.66%). Interest shall be computed on the basis of a year consisting
of 360 days and having twelve thirty-day months.
3. PAYMENTS. Payments of principal and interest due under this Note, if
not sooner declared to be due in accordance with the provisions hereof, shall be
made as follows:
(a) On the date the proceeds of the loan evidenced by this Note (the
"LOAN") are disbursed (the "CLOSING DATE"), interest on the principal
balance of this Note accruing during the period commencing on the Closing
Date and ending on the last day of the month in which the Closing Date
occurs shall be due and payable.
(b) Commencing on September 1, 1997, and on the first day of each
month thereafter through and including the month in which the Maturity Date
occurs, installments of principal and accrued and unpaid interest thereon
in the amount of $263,392.92 each shall be due and payable.
(c) The unpaid principal balance of this Note, if not sooner declared
to be due in accordance with the terms hereof, together with all accrued
and unpaid interest, shall be due and payable in full on July ____, 2007
(the "MATURITY DATE").
4. APPLICATION OF PAYMENTS. All payments and prepayments on account of
the indebtedness evidenced by this Note shall be first applied to accrued and
unpaid interest on the unpaid principal balance of this Note, second, to all
other sums (other than principal) then due Lender hereunder or under any of the
Loan Documents (as hereinafter defined), third, to the installment of principal
due in the month in which the payment or prepayment is made, and the remainder,
if any, to the unpaid principal balance of this Note in the inverse order of
maturity.
<PAGE>
Any prepayment on account of the indebtedness evidenced by this Note
shall not extend or postpone the due date or reduce the amount of any subsequent
monthly installment of principal and interest due hereunder.
5. DEFAULT RATE. After maturity or the earlier acceleration of the
indebtedness evidenced by this Note, or if said indebtedness has not been
accelerated, during any period in which an Event of Default (as hereinafter
defined) exists under this Note or any of the Loan Documents, Borrower shall pay
interest on the balance of principal remaining unpaid during any such period at
an annual rate (the "DEFAULT RATE") equal to four percent (4%) plus the Loan
Rate then in effect under this Note. The interest accruing under this paragraph
shall be immediately due and payable by Borrower to the holder of this Note and
shall be additional indebtedness evidenced by this Note.
6. LATE CHARGE. In the event any payment of interest or principal due
hereunder is not made within five days after such payment is due in accordance
with the terms hereof, then, in addition to the payment of the amount so due,
Borrower shall pay to Lender a "late charge" of five cents for each whole dollar
so overdue to defray part of the cost of collection and handling such late
payment. Borrower agrees that the damages to be sustained by the holder hereof
for the detriment caused by any late payment is extremely difficult and
impractical to ascertain, and that the amount of five cents for each one dollar
due is a reasonable estimate of such damages, does not constitute interest, and
is not a penalty.
7. PREPAYMENT.
(a) Provided that no Event of Default then exists under this Note,
Borrower may voluntarily prepay the principal balance of this Note in whole
but not in part at any time, subject to the following conditions:
(i) Not less than 14 days prior to the date upon which Borrower
desires to make such prepayment, Borrower shall deliver to Lender
written notice of its intention to prepay, which notice shall be
irrevocable and state the prepayment amount and the prepayment date;
(ii) Borrower shall pay to Lender, concurrently with such
prepayment, a prepayment premium (the "PREPAYMENT PREMIUM") equal to
the greater of (A) the Yield Amount (as hereinafter defined) or (B) 1%
of the principal amount being prepaid;
(iii) Borrower shall pay to Lender all accrued and unpaid interest
through the date of such prepayment on the principal balance being
prepaid; and
2
<PAGE>
(iv) Borrower shall pay to Lender any other obligations of
Borrower to Lender then due which remain unpaid.
(b) Borrower shall be required to make a mandatory prepayment of the
Loan in whole prior to a Change in Control (as hereinafter defined) of Goss
Graphic Systems, Inc., a Delaware corporation ("Tenant"), if Lender is
advised by Tenant's rating agency that following such proposed Change in
Control Tenant will suffer a rating downgrade of two (2) levels or more
(e.g., from BBB+ to BBB- or lower), subject to the following conditions:
(i) Borrower shall pay to Lender, concurrently with such
prepayment, the Prepayment Premium;
(ii) Borrower shall pay to Lender all accrued and unpaid interest
through the date of such prepayment on the principal balance being
prepaid; and
(iii) Borrower shall pay to Lender any other obligations of
Borrower to Lender then due which remain unpaid.
Notwithstanding the foregoing provisions of clauses (a) and (b) above, no
Prepayment Premium shall be owing if such prepayment is made on or after
the date which is six (6) months prior to the stated maturity date of this
Note.
(c) Borrower acknowledges that the Loan was made on the basis and
assumption that Lender would receive the payments of principal and interest
set forth herein for the full term hereof. Therefore, whenever the
maturity hereof has been accelerated by Lender by reason of the occurrence
of an Event of Default under this Note or any other of the Loan Documents,
including an acceleration by reason of sale, conveyance, further
encumbrance or other Event of Default (which acceleration shall be at
Lender's sole option), there shall be due, in addition to the outstanding
principal balance, accrued interest and other sums due hereunder, a premium
equal to the Prepayment Premium that would be payable pursuant to clause
(a) above if such principal balance had been voluntarily prepaid by
Borrower.
(d) For purposes of this Note, the "YIELD AMOUNT" shall be the amount
calculated as follows:
(i) There shall first be determined, as of the date fixed for
prepayment (the "PREPAYMENT DATE"), the yield to maturity percentage
(the "CURRENT YIELD") for the United States Treasury Note closest in
maturity to the Maturity Date (the "TREASURY NOTE") as published in
THE WALL STREET JOURNAL on the fifth business day preceding the
Prepayment Date. If (A) publication of THE WALL STREET JOURNAL is
3
<PAGE>
discontinued, or (B) publication of the Current Yield of the Treasury
Note in THE WALL STREET JOURNAL is discontinued, Lender, in its sole
discretion, shall designate another daily financial or governmental
publication of national circulation to be used to determine the
Current Yield;
(ii) If the Current Yield exceeds the Loan Rate, then the Yield
Amount shall equal zero;
(iii) If the Loan Rate exceeds the Current Yield, the Yield Amount
shall be calculated by (A) adding the present values of all scheduled
principal and interest payments on the Loan remaining to the Maturity
Date, including, without limitation, the principal payment due and
payable on the Maturity Date, which present values shall be calculated
by discounting all such payments at the Current Yield, and (B)
subtracting the principal amount being prepaid from the amount
calculated pursuant to clause (A);
provided that Borrower shall not be entitled in any event to a credit
against, or a reduction of, the indebtedness being prepaid if the Current
Yield exceeds the Loan Rate or for any other reason.
(e) For purposes of this Note, "Change of Control" shall mean the
transfer, in a single transaction or a series of related transactions, of
more than 51% of the outstanding voting shares of Tenant, other than to an
Affiliate (as hereinafter defined) of Stonington Partners, Inc.
(f) For purposes of this Note, "Affiliate" shall mean any entity
directly or indirectly controlling, controlled by, or under common control
with, Borrower. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "controlled by" and
"under common control with"), as applied to any entity, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of Borrower, whether through the
ownership of voting securities or by contract or otherwise.
(g) Borrower covenants and agrees that (i) Tenant shall at all times
maintain a rating with a NRSRO (as defined by the Securities and Exchange
Commission) or, if at any time Tenant shall not receive a public rating,
Tenant shall maintain a surveillance rating or a private rating with a
NRSRO and (ii) prior to a Change in Control, Tenant shall obtain a
determination from a rating agency, which shall be an NRSRO, regarding
whether such proposed Change in Control will result in a change in Tenant's
rating, and Borrower shall promptly inform or cause said rating agency to
promptly inform Lender prior to any Change in Control of any anticipated
change in Tenant's rating.
4
<PAGE>
8. METHOD OF PAYMENTS. All payments of principal and interest hereunder
shall be paid by check or in coin or currency which, at the time or times of
payment, is the legal tender for public and private debts in the United States
of America and shall be made at such place as Lender or the legal holder or
holders of this Note may from time to time appoint, and in the absence of such
appointment, then at the offices of Lender, 135 South LaSalle Street, 12th
Floor, Chicago, Illinois 60603. Payment made by check shall be deemed paid on
the date Lender receives such check; provided, however, that if such check is
subsequently returned to Lender unpaid due to insufficient funds or otherwise,
the payment shall not be deemed to have been made and shall continue to bear
interest until collected. If payment hereunder becomes due and payable on a
Saturday, Sunday or legal holiday under the laws of the State of Illinois, the
due date thereof shall be extended to the next succeeding business day, and
interest shall be payable thereon at the then applicable Loan Rate during such
extension.
9. SECURITY. This Note and any and all other liabilities and obligations
and indebtedness of Borrower to Lender, whether such liabilities, obligation or
indebtedness are now existing or hereafter created, direct or indirect, absolute
or contingent, joint or several, due or to become due, howsoever created,
arising or evidenced, and howsoever acquired by Lender, are secured by, among
other things, a Mortgage (the "MORTGAGE") of even date herewith made by Borrower
to Lender creating a first mortgage lien on certain real property (the
"PREMISES") legally described in Exhibit A attached to the Mortgage, or
instrument securing this Note, an Assignment of Rents and Leases (the
"ASSIGNMENT") of even date herewith from Borrower to Lender, a Security
Agreement (the "SECURITY AGREEMENT") of even date herewith from Borrower to
Lender, an Environmental Indemnity Agreement (the "ENVIRONMENTAL INDEMNITY
AGREEMENT") of even date herewith from Borrower to Lender and an Indemnity
Agreement (the "INDEMNITY AGREEMENT") of even date herewith from Tenant to
Lender (the Mortgage, the Assignment, the Security Agreement, the Environmental
Indemnity Agreement, the Indemnity Agreement and any other document now or
hereafter given to evidence or secure payment of this Note or delivered to
induce Lender to disburse the proceeds of the Loan, are hereinafter collectively
referred to as the "LOAN DOCUMENTS"). Reference is hereby made to the Loan
Documents (which are incorporated herein by reference as fully and with the same
effect as if set forth herein at length) for a legal description of the
Premises, a statement of the covenants and agreements contained therein, a
statement of the rights, remedies, and security afforded thereby, and all
matters therein contained.
10. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "EVENT OF DEFAULT" under this Note:
(a) the failure by Borrower to make payment of any installment of
principal and interest or any other amount due to Lender under this Note or
any of the other Loan Documents within five (5) days of the date when any
such payment is due in accordance with the terms hereof or thereof; or
5
<PAGE>
(b) the occurrence of any one or more of the "Events of Default"
under the Mortgage or any of the other Loan Documents.
11. REMEDIES. At the election of the holder hereof, and without notice,
the principal balance remaining unpaid under this Note, and all unpaid interest
accrued thereon, shall be and become immediately due and payable in full upon
the occurrence of any Event of Default. Failure to exercise this option shall
not constitute a waiver of the right to exercise same in the event of any
subsequent Event of Default. No holder hereof shall, by any act of omission or
commission, be deemed to waive any of its rights, remedies or powers hereunder
or otherwise unless such waiver is in writing and signed by the holder hereof,
and then only to the extent specifically set forth therein. The rights,
remedies and powers of the holder hereof, as provided in this Note, the Mortgage
and in all of the other Loan Documents are cumulative and concurrent, and may be
pursued singly, successively or together against Borrower, the guarantors
hereof, the Premises and any other security given at any time to secure the
repayment hereof, all at the sole discretion of the holder hereof. If any suit
or action is instituted or attorneys are employed to collect this Note or any
part thereof, Borrower promises and agrees to pay all reasonable costs of
collection, including reasonable attorneys' fees and court costs.
12. COVENANTS AND WAIVERS. Borrower and all others who now or may at any
time become liable for all or any part of the obligations evidenced hereby,
expressly agree hereby to be jointly and severally bound, and jointly and
severally: (i) waive and renounce any and all homestead, redemption and
exemption rights and the benefit of all valuation and appraisement privileges
against the indebtedness evidenced by this Note or by any extension or renewal
hereof; (ii) waive presentment and demand for payment, notices of nonpayment and
of dishonor, protest of dishonor, and notice of protest; (iii) waive any and all
notices in connection with the delivery and acceptance hereof and all other
notices in connection with the performance, default, or enforcement of the
payment hereof or hereunder; (iv) waive any and all lack of diligence and delays
in the enforcement of the payment hereof; (v) agree that the liability of each
Borrower, guarantor, endorser or obligor shall be unconditional and without
regard to the liability of any other person or entity for the payment hereof,
and shall not in any manner be affected by any indulgence or forbearance granted
or consented to by Lender to any of them with respect hereto; (vi) consent to
any and all extensions of time, renewals, waivers, or modifications that may be
granted by Lender with respect to the payment or other provisions hereof, and to
the release of any security at any time given for the payment hereof, or any
part thereof, with or without substitution, and to the release of any person or
entity liable for the payment hereof; and (vii) consent to the addition of any
and all other makers, endorsers, guarantors, and other obligors for the payment
hereof, and to the acceptance of any and all other security for the payment
hereof, and agree that the addition of any such makers, endorsers, guarantors or
other obligors, or security shall not affect the liability of Borrower, any
guarantor and all others now liable for all or any part of the obligations
evidenced hereby.
13. OTHER GENERAL AGREEMENTS.
6
<PAGE>
(a) The Loan is a business loan which comes within the purview of
Section 205/4, paragraph (1)(c) of Chapter 815 of the Illinois Compiled
Statutes, as amended. Borrower agrees that the obligation evidenced by
this Note is an exempted transaction under the Truth In Lending Act, 15
U.S.C., Section 1601, ET SEQ.
(b) Time is of the essence hereof.
(c) This Note is governed and controlled as to validity, enforcement,
interpretation, construction, effect and in all other respects by the
statutes, laws and decisions of the State of Illinois. This Note may not
be changed or amended orally but only by an instrument in writing signed by
the party against whom enforcement of the change or amendment is sought.
(d) Lender shall in no event be construed for any purpose to be a
partner, joint venturer, agent or associate of Borrower or of any lessee,
operator, concessionaire or licensee of Borrower in the conduct of its
business, and by the execution of this Note, Borrower agrees to indemnify,
defend, and hold Lender harmless from and against any and all damages,
costs, expenses and liability that may be incurred by Lender as a result of
a claim that Lender is such partner, joint venturer, agent or associate.
(e) This Note has been made and delivered at Chicago, Illinois and
all funds disbursed to or for the benefit of Borrower will be disbursed in
Chicago, Illinois.
(f) In the event this Note is executed by more than one party, the
obligations and liabilities of each Borrower under this Note shall be joint
and several and shall be binding upon and enforceable against each Borrower
and their respective successors and assigns. This Note shall inure to the
benefit of and may be enforced by Lender and its successors and assigns.
(g) In the event that any provision of this Note is deemed to be
invalid by reason of the operation of law, or by reason of the
interpretation placed thereon by any administrative agency or any court,
Borrower and Lender shall negotiate an equitable adjustment in the
provisions of the same in order to effect, to the maximum extent permitted
by law, the purpose of this and the validity and enforceability of the
remaining provisions, or portions or applications thereof, shall not be
affected thereby and shall remain in full force and effect.
14. CONSENT TO JURISDICTION. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
NOTE OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT
OF COOK COUNTY, ILLINOIS, OR
7
<PAGE>
THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR, IF
LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH
ACTION AND WHICH HAS JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE
OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND
AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THE MORTGAGE. BORROWER
WAIVES ANY CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS
IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD
BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED
BY LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN
ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS DEMANDED
OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE
CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER
FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT, IF ANY,
TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS NOTE OR THE OTHER LOAN DOCUMENTS OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON DIFFICULT AND
COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY COURT PROCEEDING
ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
8
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note as of the day and year
first written above.
BORROWER:
GOSS REALTY, L.L.C., a Delaware
limited liability company
By: GOSS GRAPHIC SYSTEMS, INC.,
a Delaware corporation, its sole
member
By: ___________________________
Name: ____________________
Title:____________________
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOSS GRAPHIC
SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 103
<ALLOWANCES> 17
<INVENTORY> 207
<CURRENT-ASSETS> 392
<PP&E> 175
<DEPRECIATION> 235
<TOTAL-ASSETS> 899
<CURRENT-LIABILITIES> 457
<BONDS> 289
0
0
<COMMON> 0
<OTHER-SE> 119
<TOTAL-LIABILITY-AND-EQUITY> 899
<SALES> 125
<TOTAL-REVENUES> 125
<CGS> 97
<TOTAL-COSTS> 109
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (13)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13)
<EPS-PRIMARY> (127,000)
<EPS-DILUTED> (127,000)
</TABLE>
