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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
THOMAS EDISON INNS, INC., a Michigan corporation
(Name of Issuer)
Common Stock, $.01 par value
(Title of Class of Securities)
884396 10 2
(CUSIP Number)
Gerard Belisle, Jr.
Meritage Hospitality Group Incorporated 40 Pearl Street, N.W., Suite 430
Grand Rapids, MI 49503
(616) 776-2600
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
September 19, 1995
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
Check the following box if a fee is being paid with the statement /X/.
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent
of the class of securities described in Item 1; and (2) has filed no
amendment subsequent thereto reporting beneficial ownership of five percent
or less of such class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
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SCHEDULE 13D
CUSIP No. 884396 10 2
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Meritage Hospitality Group Incorporated
65 - 0457574
2 Check The Appropriate Box If A Member Of A Group (a)
(b) /x/
3 SEC Use Only
4 Source of Funds
SC
5 Check Box If Disclosure Of Legal Proceedings Is
Required Pursuant To Items 2(d) or 2(E)
6 Citizenship Or Place of Organization
Florida, United States
7 Sole Voting Power
Number Of 1,554,405
Shares 8 Shared Voting Power
Beneficially
Owned By -0-
Each 9 Sole Dispositive Power
Reporting
Person 1,554,405
With 10 Shared Dispositive Power
-0-
11 Aggregate Amount of Beneficially Owned By Each Reporting Person
1,554,405
12 Check Box If The Aggregate Amount In Row (11) Excludes
Certain Shares
13 Percent Of Class Represented By Amount In Row (11)
51.5%
14 Type Of Reporting Person
CO
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SCHEDULE 13D
CUSIP No. 884396 10 2
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Christopher B. Hewett
2 Check The Appropriate Box If A Member Of A Group (a)
(b)/x/
3 SEC Use Only
4 Source of Funds
PF
5 Check Box If Disclosure Of Legal Proceedings Is
Required Pursuant To Items 2(d) or 2(E)
6 Citizenship Or Place of Organization
United States of America
7 Sole Voting Power
Number Of 3,000
Shares 8 Shared Voting Power
Beneficially
Owned By 1,554,405
Each 9 Sole Dispositive Power
Reporting
Person 3,000
With 10 Shared Dispositive Power
1,554,405
11 Aggregate Amount of Beneficially Owned By Each Reporting Person
1,557,405
12 Check Box If The Aggregate Amount In Row (11) Excludes
Certain Shares
13 Percent Of Class Represented By Amount In Row (11)
51.6%
14 Type Of Reporting Person
IN
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SCHEDULE 13D
CUSIP No. 884396 10 2
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Robert E. Schermer, Jr.
2 Check The Appropriate Box If A Member Of A Group (a)
(b)/x/
3 SEC Use Only
4 Source of Funds
PF
5 Check Box If Disclosure Of Legal Proceedings Is
Required Pursuant To Items 2(d) or 2(E)
6 Citizenship Or Place of Organization
United States of America
7 Sole Voting Power
Number Of 100
Shares 8 Shared Voting Power
Beneficially
Owned By 1,554,405
Each 9 Sole Dispositive Power
Reporting
Person 100
With 10 Shared Dispositive Power
1,554,405
11 Aggregate Amount of Beneficially Owned By Each Reporting Person
1,554,505
12 Check Box If The Aggregate Amount In Row (11) Excludes
Certain Shares
13 Percent Of Class Represented By Amount In Row (11)
51.5%
14 Type Of Reporting Person
IN
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Item 1. Security and Issuer.
This Statement relates to the common stock, par value $.01 per share
(the "Common Stock"), of Thomas Edison Inns, Inc., a Michigan corporation
(the "Issuer"). The address of the principal executive office of the Issuer
is 500 North Riverside Street, St. Clair, Michigan 48079.
Item 2. Identity and Background.
This Statement is filed on behalf of the following persons:
(a) Meritage Hospitality Group Incorporated, a Florida corporation
("Meritage"). The address of its principal business and office is 40 Pearl
Street, N.W., Suite 430, Grand Rapids, MI 49503. Meritage's principal
business is the investment in and operation of hotels, restaurants and other
hospitality related businesses. During the last five years, Meritage has
not been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and, as a result of such
proceeding, become subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to
such laws.
(b) Christopher B. Hewett ("Hewett"). Hewett's business address is
40 Pearl Street, N.W., Suite 430, Grand Rapids, MI 49503. Hewett is
currently President and a Director of Meritage. During the last five years,
Hewett has not been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and, as a result
of such proceeding, become subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws. Hewett is a citizen of the United States.
(c) Robert E. Schermer, Jr. ("Schermer"). Schermer's business
address is 40 Pearl Street, N.W., Suite 430, Grand Rapids, MI 49503.
Schermer is currently an Executive Vice President and a Director of
Meritage. During the last five years, Schermer has not been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors)
or a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and, as a result of such proceeding, become subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities
laws or finding any violation with respect to such laws. Schermer is a
citizen of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
Meritage, Donald W. Reynolds ("Reynolds"), Innkeepers Management
Company, a Michigan corporation ("Innkeepers") and the Issuer are parties
to a Stock Purchase and Sale Agreement dated September 19, 1995 (the "Stock
Purchase Agreement" - attached as Exhibit 1 and incorporated herein by
reference) pursuant to which Meritage purchased from the Issuer 1,500,000
shares of the Issuer's previously authorized and unissued Common Stock.
As payment for such 1,500,000 shares of Common Stock, Meritage
executed and delivered to the Issuer Meritage's Secured Promissory Note
dated September 19, 1995, in the principal amount of $10,500,000 (the "Note"
- - attached as Exhibit 2 and incorporated herein by reference). The
indebtedness evidenced by the Note bears interest at the rate of 0% per year
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(3% per year during an Event of Default, as defined in the Note). Annual
payments of $1,312,500 are due on September 19, 1998, and on the same day
of each year thereafter through and including September 19, 2005. The
indebtedness evidenced by the Note may be prepaid, in whole or in part, at
any time, without penalty or premium. The Note includes provisions limiting
the Issuer's recourse against Meritage for payment of the indebtedness
evidenced by the Note to an amount determined by a formula contained in
Section IV of the Note. The Note may be cancelled upon certain conditions
set forth in Section 1.2(c) and Section 1.2(d) of the Stock Purchase
Agreement. Section 13.5 of the Stock Purchase Agreement grants Meritage the
right to escrow payments due under the Note and Section 13.4 grants Meritage
the right to setoff against payments due under the Note under certain
circumstances.
Meritage's obligations under the Note are secured by a Stock Pledge
and Security Agreement dated September 19, 1995 between Meritage and the
Issuer (the "Stock Pledge Agreement" - attached as Exhibit 3 and
incorporated herein by reference). Pursuant to the Stock Pledge Agreement,
the Issuer holds a security interest in the 1,500,000 shares of Common Stock
purchased by Meritage with the Note, and the Issuer is in possession of the
certificate that evidences Meritage's ownership of such 1,500,000 shares of
Common Stock. Meritage is entitled to partial releases of the Issuer's
security interest in the stock held by the Issuer as collateral under the
Stock Pledge Agreement upon satisfaction of the pertinent requirements set
forth in the Stock Pledge Agreement.
Hewett used personal funds in the amount of $5.25 per share to acquire
the 3,000 shares of Common Stock he holds individually. Schermer used
personal funds in the amount of $8.00 per share to acquire the 100 shares
of Common Stock he holds individually.
Item 4. Purpose of Transaction.
The parties entered into the Stock Purchase Agreement to settle the
lawsuit pending in the United States District Court for the Western District
of Michigan, S.D., captioned Meritage Hospitality Group Incorporated v
Donald W. Reynolds, et al (Case No. 1:95 CV 451). Pursuant to the Stock
Purchase Agreement, Meritage purchased 1,500,000 shares of Common Stock from
the Issuer on September 19, 1995. (See Item 3 above.) As a result of such
transaction, Meritage has acquired control of the Issuer. The Stock
Purchase Agreement sets forth certain conditions upon which the Issuer may
redeem such shares from Meritage (see Section 1.2(c) of the Stock Purchase
Agreement), and upon which Meritage may put such shares back to the Issuer
(see Section 1.2(d) of the Stock Purchase Agreement.)
The Stock Purchase Agreement provides for certain other transactions
to occur at the times and upon the terms and conditions set forth in the
Stock Purchase Agreement. (See Section 2, Section 3, Section 8.3 and
Section 8.5 of the Stock Purchase Agreement.) Section 2.1 of the Stock
Purchase Agreement provides that the Issuer may close upon subordinated debt
financing in the amount of not less than $6 million, on terms and conditions
to be approved by the Issuer's Board of Directors. Concurrently with the
consummation of the transactions provided for in Section 2 of the Stock
Purchase Agreement (a) the Issuer, Meritage and Reynolds will enter into the
Put/Call Agreement attached as Exhibit 1(K) and described in Item 6, and (b)
the Issuer will purchase the subordinated participation interest referred
to in Section 2.5 of the Stock Purchase Agreement.
Prior to consummation of the transactions provided for in Section 2
of the Stock Purchase Agreement, Meritage is subject to certain limitations
on its right to exercise voting power with respect to the 1,500,000 shares
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of Common Stock acquired in the transaction described in Item 3. (See
Section 8.1 of the Stock Purchase Agreement.)
At the next annual meeting of the Issuer, the number and the
composition of the Board of Directors of the Issuer will be changed pursuant
to the Bylaws of the Issuer so that Meritage's nominees will constitute a
majority of the Issuer's Board of Directors. Hewett and Schermer will
likely be nominated as directors. Meritage may make recommendations to the
Board of Directors regarding possible future acquisitions by the Issuer.
The new Board of Directors may determine in its discretion to pay cash
dividends on the Common Stock.
On September 22, 1995, the Board of Directors of the Issuer adopted
a resolution which repealed Article X of the Issuer's Bylaws and made
Chapter 7B of the Michigan Business Corporations Act applicable to "control
share acquisitions" of shares of Common Stock occurring from that date
forward.
Meritage, Hewett and Schermer may acquire further shares of Common
Stock from time to time in the market, in private transactions or otherwise
or may dispose of shares of Common Stock.
Item 5. Interest in Securities of the Issuer.
(a) Meritage beneficially owns 1,554,405 shares of Common Stock,
constituting approximately 51.5% of the issued and outstanding shares of
Common Stock.
Hewett beneficially owns 1,557,405 shares of Common Stock,
constituting approximately 51.6% of the issued and outstanding shares of
Common Stock. The number of shares of Common Stock beneficially owned by
Hewett includes 1,554,405 shares beneficially owned by Meritage. Hewett is
a 67% shareholder in Meritage.
Schermer beneficially owns 1,554,505 shares of Common Stock,
constituting approximately 51.5% of the issued and outstanding shares of
Common Stock. The number of shares of Common Stock beneficially owned by
Schermer includes 1,554,405 shares beneficially owned by Meritage. Schermer
is a 33% shareholder in Meritage.
(b) Ownership of the shares disclosed above in paragraph 5(a) and
the power of Meritage, Hewett and Schermer to vote and dispose of such
shares is described below.
Voting Dispositive
# Shares Manner Owned Power Power
1,554,405 Meritage shared(1) shared(1)
3,000 Hewett individually sole sole
100 Schermer individually sole sole
(1) Voting and dispositive power is shared between Meritage, Hewett and
Schermer by virtue of Hewett and Schermer being the sole directors,
executive officers and sole shareholders of Meritage.
(c) The only transaction in the Common Stock by Meritage, Hewett or
Schermer during the past 60 days was pursuant to the Stock Purchase
Agreement. Pursuant to the Stock Purchase Agreement, Meritage acquired 1.5
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million newly issued shares of Common Stock from the Issuer for a total
price of $10.5 million on September 19, 1995.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
Meritage acquired 1,500,000 shares of the Issuer's Common Stock
pursuant to Section 1.2 of the Stock Purchase Agreement on September 19,
1995. With this purchase, Meritage acquired control of the Issuer. See
Items 3 and 4 for a description of certain terms of the Stock Purchase
Agreement.
In addition, the following will occur concurrently with the
consummation of the transactions provided for in Section 2 of the Stock
Purchase Agreement:
(a) The Issuer and Meritage will enter into a Registration Rights
Agreement (attached as Exhibit 1(I) and incorporated herein by reference)
pursuant to Section 2.7 of the Stock Purchase Agreement granting Meritage
demand and piggy-back registration rights.
(b) The Issuer and Reynolds will enter into a Registration Rights
Agreement (attached as Exhibit 1(J) and incorporated herein by reference)
pursuant to Section 2.7 of the Stock Purchase Agreement granting Reynolds
demand and piggy-back registration rights.
(c) Meritage, the Issuer and Reynolds will enter into a Put/Call
Agreement (attached as Exhibit 1(K) and incorporated herein by reference)
pursuant to which Reynolds shall have the right to require that Meritage (or
at Meritage's option, the Company) purchase, and Meritage shall have the
right to require that Reynolds sell to Meritage 400,000 shares of the
Issuer's Common Stock at the rate of 50,000 shares per year over a period
ending on the eighth anniversary of the date upon which the parties enter
into the Put/Call Agreement at prices ranging from $7.50 before the second
anniversary to $10.00 before the eighth anniversary.
Pursuant to Section 6.5 of the Stock Purchase Agreement, the Company
is obligated to pay a $750,000 breakup fee to Meritage under certain
circumstances involving other acquisition proposals or tender offers.
Section 6.8 of the Stock Purchase Agreement sets forth the
circumstances under which the Issuer may engage in discussions with third
parties concerning mergers, tender offers, asset sales, and other similar
extraordinary transactions during the existence of the Stock Purchase
Agreement.
The Stock Purchase Agreement sets forth certain conditions upon which
the Issuer may redeem at the same price the shares of Common Stock purchased
by Meritage pursuant to the Stock Purchase Agreement (see Section 1.2(c) of
the Stock Purchase Agreement), and upon which Meritage may put at the same
price such shares back to the Issuer (see Sectiion 1.2(d) of the Stock
Purchase Agreement.) Prior to consummation of the transactions provided for
in Section 2 of the Stock Purchase Agreement, Meritage is subject to certain
limitations on its right to exercise voting power with respect to the
1,500,000 shares of Common Stock acquired in the transaction described in
Item 3. (See Section 8.1 of the Stock Purchase Agreement).
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For a description of the Note and Stock Pledge Agreement see Item 3.
Item 7. Material to be Filed as Exhibits.
Exhibit 1 Stock Purchase and Sale Agreement
Exhibits to Stock Purchase and Sale Agreement:
A - Chapter 7A Opt Out Resolution (Omitted)
B - Chapter 7B Opt Out Resolution (Omitted)
C - Secured Promissory Note (Omitted)
D - Stock Pledge Agreement (Omitted)
E - Stipulation (Omitted)
F - Chapter 7B Opt In Resolution (Omitted)
G - Interim Financing Commitment (Omitted)
H - Consulting Agreement (Omitted)
I - Meritage Registration Rights Agreement
J - Reynolds Registration Rights Agreement
K - Put/Call Agreement
Exhibit 2 Secured Promissory Note
Exhibit 3 Stock Pledge Agreement
Exhibit 4 Joint Filing Agreement
SIGNATURE
After reasonable inquiry and to the best of their knowledge and
belief, the undersigned certify that the information set forth in this
statement is true, complete and correct.
Dated: September 28, 1995
MERITAGE HOSPITALITY GROUP INCORPORATED
/s/Christopher B. Hewett
- ------------------------
Christopher B. Hewett
President
/s/Christopher B. Hewett
- ------------------------
Christopher B. Hewett
Individually
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/s/Robert E. Schermer, Jr.
- -------------------------
Robert E. Schermer, Jr.
Individually
Exhibit Index
Exhibit 1 Stock Purchase and Sale Agreement
Exhibits to Stock Purchase and Sale Agreement included as exhibits to
this Schedule 13D:
I - Meritage Registration Rights Agreement
J - Reynolds's Registration Rights Agreement
K - Put/Call Agreement
Exhibit 2 Secured Promissory Note
Exhibit 3 Stock Pledge Agreement
Exhibit 4 Joint Filing Agreement
Exhibit 1 to Schedule 13D
STOCK PURCHASE AND SALE AGREEMENT
This Agreement is made on September 19 , 1995, by and among MERITAGE
HOSPITALITY GROUP INCORPORATED, a Florida corporation ("Meritage"), THOMAS
EDISON INNS, INC., a Michigan corporation (the "Company"), DONALD W.
REYNOLDS ("Reynolds"), and INNKEEPERS MANAGEMENT COMPANY, a Michigan
corporation ("Innkeepers").
RECITALS
A. Meritage wishes to purchase from the Company and the Company
wishes to sell to Meritage 1,500,000 shares of the Company's Common Stock
(as used in this Agreement, the "Company's Common Stock", "Company Common
Stock", and the "Common Stock", refer to the Company's common stock as
defined in Section 4.6 below) on the terms and conditions set forth below.
B. Reynolds is an officer and director of the Company and each of
its subsidiaries. Reynolds owns (i) 747,850 shares of the Company's Common
Stock in his own name, (ii) an aggregate of 40,000 shares of the Company's
Common Stock in joint tenancy with his four children, and (iii) 80,168
shares of the Company's Common Stock indirectly through Innkeepers, 100% of
the capital stock of which is owned by Reynolds, and the 868,018 shares of
the Company's Common Stock so owned are referred to in this Agreement as the
"Reynolds's Company Stock". Reynolds, Innkeepers and others are parties to
a Stock Purchase Agreement dated July 6, 1995, calling for the sale of
Reynolds's Company Stock to TEI Acquisition, Inc., a Michigan corporation.
C. The Company, Meritage, and Reynolds wish to enter into an
agreement pursuant to which Reynolds shall have the right to require that
Meritage (or at Meritage's option, the Company) purchase, and Meritage shall
have the right to require that Reynolds sell to Meritage (or its assignee),
free and clear of all liens and encumbrances, up to 400,000 shares of the
Company's Common Stock at the rate of up to 50,000 shares per year.
D. The Company wishes to borrow up to $6 million for general
corporate purposes.
For good and valuable consideration, including but not limited to
settlement of the Pending 7B Suit (as described in Section 1.3 below), the
receipt and sufficiency of which are acknowledged by each of the parties to
this Agreement, the parties agree that:
SECTION 1
PRE-SIGNING ACTION; TRANSACTIONS
TO BE EFFECTED UPON SIGNING
1.1 Pre-Signing Action. The Company, Reynolds and Innkeepers,
jointly and severally, represent and warrant to Meritage that, prior to
entering into this Agreement:
(a) The Company's Board of Directors approved this Agreement and the
transactions described herein, including, without limitation, all
transactions referred to in this Section 1 and the transactions to occur at
and after the Closing (all of the foregoing are referred to in this
Agreement collectively as the "Transactions"). Such approval constitutes
all requisite approvals for purposes of Chapter 7A ("Chapter 7A") of the
Michigan Business Corporation Act ("MBCA"), pursuant to which, among other
things, the Board passed a resolution in the form attached to this
Agreement as Exhibit A resolving that neither Meritage, nor any identified
or unidentified existing or future affiliate of Meritage, shall be an
"interested shareholder", as defined in Chapter 7A, and that Chapter 7A
shall not apply to any "business combination", as defined in Chapter 7A,
with Meritage or any identified or unidentified existing or future affiliate
of Meritage (assuming that, at no time prior to purchasing the Company's
stock pursu- ant to Section 1.2 below, Meritage owned, directly or
indirectly, 10% or more of the voting power of the outstanding shares of the
Company).
(b) Subject to the terms and conditions of this Agreement, the
Company's Board of Directors resolved to recommend that the shareholders of
the Company vote their shares in favor of approval of the Transactions.
(c) The Company's Board of Directors adopted an amendment to the
Company's Bylaws in the form attached to this Agreement as Exhibit B
pursuant to MBCA Section 794 providing that Chapter 7B of the MBCA ("Chapter
7B") shall not apply to any "control share acquisition" (as that term is
defined in Section 791 of the MBCA) of the shares of Common Stock of the
Company occurring after the date that this Bylaw amendment was adopted.
Such Bylaw amendment was adopted on September 10, 1995, and is in full force
and effect as of the time of consummation of the stock sale referred to in
Section 1.2 below.
(d) Assuming that, at no time prior to purchasing the Company's
stock pursuant to Section 1.2 below, Meritage owned, directly or indirectly,
10% or more of the voting power of the outstanding shares of the Company,
the Company has taken all action necessary on its part to render Chapter 7A
inapplicable to Meritage and any identified or unidentified existing or
future affiliate of Meritage, such that any business combination with the
Company that may be pursued by Meritage or any of its identified and
unidentified existing and future affiliates shall be exempt from the
requirements of Chapter 7A.
1.2 Sale by the Company to Meritage of Newly-Issued Common Stock.
(a) Concurrently with the execution and delivery of this Agreement, the
Company shall sell 1,500,000 shares of its newly-issued Common Stock to
Meritage at a total price of $10,500,000. Meritage shall pay for such stock
by delivering to the Company Meritage's duly executed purchase money note,
in the form of Exhibit C to this Agreement, in the aggregate amount of the
purchase price (the "Secured Promissory Note".) The Secured Promissory Note
shall be secured by a Stock Pledge Agreement in the form of Exhibit D to
this Agreement (the "Security Agreement"). The Company, Reynolds and
Innkeepers represent and warrant to Meritage that, upon receipt by the
Company of the Secured Promissory Note, the stock sold by the Company to
Meritage pursuant to this Section 1.2(a) shall be validly issued, fully
paid, non-assessable, and bear full voting rights, and that such stock shall
be delivered by the Company to Meritage free and clear of all liens,
restrictions and limitations (including, without limitation, tax liens,
forfeitures, covenants, conditions, pledges, penalties, charges,
encumbrances, buy-sell agreements, rights of first refusal, equities, or
claims or rights of others whatsoever), other than the lien of the Security
Agreement.
(b) Upon receipt of the Secured Promissory Note, the Company shall
issue a certificate evidencing Meritage's record ownership of the Common
Stock referred to in Section 1.2(a), and shall cause Meritage to be listed
in the Company's stock records as the record owner of such shares, but the
Company shall retain possession of such certificate as secured party
pursuant to the Security Agreement. From time to time upon request by
Meritage, as Meritage becomes entitled to the release from the Security
Agreement of shares of Common Stock, the Company shall cancel the
certificate in its possession and shall issue in lieu thereof a new
certificate for the shares of Common Stock that have been so released (the
"free and clear shares"), and a new certificate for the shares of Common
Stock that remain subject to the Security Agreement (the "pledged shares").
The Company shall deliver the certificate evidencing the free and clear
shares to Meritage. The Company shall retain possession of the certificate
evidencing the pledged shares, as secured party pursuant to the Security
Agreement.
(c) If the transactions provided for in Section 2 of this Agreement
are not closed for any reason other than a default by the Company, Reynolds
or Innkeepers, the Company shall (except as otherwise provided in this
Section 1.2(c) below) have the right to redeem the shares of Common Stock
sold to Meritage pursuant to Section 1.2(a) above from Meritage by
cancelling the Secured Promissory Note and tendering it to Meritage, in
cancellation of the certificate evidencing such shares. Notwithstanding the
foregoing, the Company shall have no right to redeem such stock if the
transactions provided for in Section 2 of this Agreement are not closed due
to (i) the Company's acceptance of an Acquisi- tion Proposal, as defined in
Section 6.8 below, or (ii) approval of an Acquisition Proposal by the
Company's shareholders, or (iii) acceptance of a tender offer by the holders
of a majority of the shares of the Company's Common Stock (other than the
shares owned beneficially or of record by Meritage and the 868,018 shares
owned by Reynolds, as recited in Recital B above, or by their respective
successors or assigns). Further, if the transactions provided for in
Section 2 of this Agreement are not closed due to (i) the Company's
acceptance of an Acquisition Proposal, or (ii) approval of an Acquisition
Proposal by the Company's shareholders, or (iii) acceptance of a tender
offer by the holders of a majority of the shares of the Company's Common
Stock (other than the shares owned beneficially or of record by Meritage and
the 868,018 shares owned by Reynolds, as recited in Recital B above, or by
their respective successors or assigns), then the Company would be obligated
to pay to Meritage the breakup fee referred to in Section 6.5 below.
(d) If the transactions provided for in Section 2 of this Agreement
are not closed for any reason other than a default by Meritage, Meritage
shall have the right to put the shares of Common Stock purchased by Meritage
pursuant to Section 1.2(a) above to the Company by notifying the Company in
writing that Meritage is invoking its right under this Section 1.2(d),
whereupon the Company shall cancel the Secured Promissory Note and return
it to Meritage, in cancellation of the certificate evidencing such shares.
1.3 Filing of Stipulation. The parties to this Agreement shall
authorize their respective counsel of record in Meritage Hospitality Group
Incorporated v Donald W. Reynolds, et al, (United States District Court for
the Western District of Michigan, S.D., Case No. 1:95 CV 451)(the "Pending
7B Suit") to enter the Stipulation and Order Retaining Jurisdiction for
Limited Purposes attached to this Agreement as Exhibit E in such litigation.
Reynolds represents and warrants to Meritage that the parties to the Pending
7B Suit who are not parties to this Agreement have authorized their counsel
of record in the Pending 7B Suit to take the action referred to in this
Section 1.3.
1.4 Resolution to Opt into Chapter 7B. Immediately after
consummation of the stock sale referred to in Section 1.2(a) above, the
Company's Board of Directors shall adopt a resolution to opt into Chapter
7B with respect to all control share acquisitions occurring after
consummation of the stock sale referred to in Section 1.2(a) above. Such
resolution shall be in the form of Exhibit F to this Agreement.
1.5 Termination of Contract with Buckeye. On or before the
execution and delivery of this Agreement, the Company shall use its best
efforts to terminate all contracts and relationships with Buckeye Resource
& Management, Inc. ("Buckeye") and Gene Hoffman. Pursuant to Section 13,
Reynolds shall, in any event (regardless of whether the Company's contracts
and relationships with Buckeye and Gene Hoffman are or may be so terminated)
defend, indemnify and hold the Company harmless from all costs, direct and
indirect, arising out of or relating to the existence of such contracts and
relationships, or to the termination or attempted termination thereof.
SECTION 2
TRANSACTIONS TO BE EFFECTED AT THE CLOSING
2.1 Financing. At the Closing, upon the instruction of the
Company's Board of Directors elected at the meeting of shareholders referred
to in Section 6.3 (the "Company's New Board of Directors"), the Company may
close on the interim financing (the "Interim Financing") from American
Financial Corporation ("AFC"), as described in the financing commitment (the
"Interim Financing Commitment") attached as Exhibit G to this Agreement;
provided, however, that if Meritage delivers a financing commitment to the
Company (the "Alternative Interim Financing Commitment") for not less than
$6.0 million that Meritage prefers in lieu of that described in the Interim
Financing Commitment, the Company's New Board of Directors may accept and
close upon the Alternative Interim Financing Commitment rather than the
Interim Financing Commitment. Meritage shall be deemed to have provided the
requisite financing commitment referred to in Paragraph 3 of the Stipulation
and Order Retaining Jurisdiction for Limited Purposes attached to this
Agreement as Exhibit E if, on the Closing Date (as defined in Section 12.1
below), (a) AFC is willing to fund the Interim Financing on the terms and
conditions set forth in the Interim Financing Commitment, or (b) the lender
under the Alternative Interim Financing Commitment is committed to fund a
loan on the terms and conditions set forth in any Alternative Interim
Financing Commitment that is accepted by the Company's New Board of Directors
(provided that such terms and conditions are, in the judgment of the
Company's New Board of Directors, at least as favorable to the Company as
the terms and conditions of the Interim Financing Commitment).
2.2 Termination of Relationships between the Company and Reynolds
and Reynolds's Affiliates. At the Closing, (a) the Management Agreement
among the Company, its subsidiaries and Innkeepers dated December 12, 1986,
as amended, shall be terminated, without cost or recourse to the Company or
any of its subsidiaries or to Meritage (provided, however, that if the
Closing occurs before November 30, 1995, the Management Agreement shall be
terminated on the Closing Date, but effective as of November 30, 1995, and
payment to Innkeepers of the management fee under such Management Agreement
shall continue through November 30, 1995), and (b) all other relationships
or agreements (including but not limited to employment contracts, if any)
between the Company or any of its subsidiaries and Reynolds or any of
Reynolds's Affiliates, all of which are identified in Schedule 2.2 of this
Agreement, may be terminated at the sole discretion of the Company's New
Board of Directors without cost or recourse to the Company or any of its
subsidiaries or to Meritage. "Reynolds's Affiliates" means Innkeepers,
Forest Hills Golf Club, Inc., Fables-Innkeepers Management, Inc., all
shareholders of any of the foregoing corporations, Reynolds's spouse, and
Reynolds's children and their respective spouses, and each and every entity
that, directly or indirectly, controls, is controlled by, or is under common
control with any of the foregoing individuals or corporations.
2.3 Resignation of Existing Directors and Officers. Upon the
election of the Company's New Board of Directors, all of the existing
officers of the Company, and all of the existing directors and officers of
the Company's subsidiaries, other than those officers which the Company's
New Board of Directors elects to retain, shall resign from their positions,
and shall release the Company and its subsidiaries from all claims and
liabilities whatsoever. Reynolds and William F. Ehinger shall be nominated
for election as directors of the Company at the meeting of the Company's
shareholders to be held pursuant to Section 6.3 and, if all of the releases
required by this Section 2.3 are executed and delivered to Meritage prior
to such meeting, Meritage will vote all of its shares of Common Stock in
favor of their election.
2.4 Repayment of Indebtedness. At the Closing, Reynolds shall pay
in full all indebtedness owed to the Company by Reynolds or any of
Reynolds's Affiliates. Messrs. Raymond A. Weigel III and Joseph P. Michael,
acting as a special committee of the Company's current Board of Directors,
shall determine the amount owed by Reynolds and Reynolds's Affiliates to the
Company as of the Closing Date. All dividends declared and paid by the
Company on Reynolds's Company Stock shall be applied toward satisfaction of
all such indebtedness before any such dividend is paid to any holder of
Reynolds's Company Stock. The Company shall have the right to withhold the
dividends otherwise payable by the Company on Reynolds's Company Stock and
apply the same toward satisfaction of such indebtedness until it has been
paid in full.
2.5 Subordinated Participation Interest. At the Closing, the
Company shall pay to Robert J. Skandalaris ("Skandalaris") the sum of
$1,250,000, in exchange for a subordinated participation interest in the
indebtedness owed by Reynolds to Skandalaris (the "Skandalaris Note"). All
payments thereafter made by Reynolds on the indebtedness evidenced by the
Skandalaris Note shall be paid first to Skandalaris, and upon receipt by
Skandalaris of payments in an aggregate amount equal to Skandalaris's
remaining interest in the Skandalaris Note (if any), Skandalaris shall
assign the Skandalaris Note, and all collateral securing the Skandalaris
Note, to the Company. Upon receipt of such assignment from Skandalaris, the
Company shall release and terminate its security interest in all such
collateral. The Company thereafter shall cancel the indebtedness evidenced
by the Skandalaris Note at the fastest rate that will not result in the
occurrence of a "business combination", as that term is defined in Chapter
7A. The Company covenants that it will: (a) take no action to collect any
of the indebtedness represented by the Skandalaris Note; and (b) not sell
or assign the Skandalaris Note.
2.6 Consulting Agreement. At the Closing, the Company and Reynolds
shall enter into a Consulting Agreement in substantially the form attached
to this Agreement as Exhibit H.
2.7 Registration Rights Agreements. At the Closing, Meritage and
the Company shall enter into a Registration Rights Agreement in
substantially the form of Exhibit I to this Agreement, and Reynolds and the
Company shall enter into a Registration Rights Agreement in substantially
the form of Exhibit J to this Agreement.
2.8 Contract of Indemnification. At the Closing, the Company shall
enter into a Contract of Indemnification with the members of its current
Board of Directors, and with David C. Distad, the Company's Chief Financial
Officer, indemnifying them, to the extent permitted by law, for all claims
in the shareholder derivative suit pending in Kent County Circuit Court
(Alksnis, et al v Thomas Edison Inns, Inc., et al, Case No. 95-0103-CZ,
Lieber, J.)(the "Derivative Proceeding") other than, in the case of Reynolds
only, claims for which Meritage would be entitled to indemnity under this
Agreement and claims arising under any contract entered into by Reynolds
pursuant to this Agreement. Such Contract of Indemnification shall be
subject to approval, in form and substance, by Meritage.
2.9 Put/Call Agreement. At the Closing, the Company, Meritage and
Reynolds shall enter into the Put/Call Agreement attached hereto as Exhibit
K.
SECTION 3
POST-CLOSING TRANSACTIONS
3.1 AFC Standby Commitment. The Interim Financing Commitment
(referred to in Section 2.1) provides that the Interim Financing must be
repaid within 120 days after the Closing. At the Closing, Meritage shall
deliver to the Company a commitment (the "AFC Standby Financing Commitment")
pursuant to which AFC shall agree to accept, as repayment of the Interim
Financing on the maturity date thereof, cash in the amount of all of the
then unpaid interest, together with the Company's 8-year, $6,000,000,
subordinated debenture. The Company's New Board of Directors shall
determine at the appropriate time whether to accept the AFC Standby
Financing Commitment. In any event the Company shall be free to use other
means (e.g., a public or private placement of the Company's securities) to
repay the Interim Financing or the financing provided pursuant to the
Alternative Interim Financing Commitment.
3.2 Contract of Indemnification. On the Closing Date but after the
Closing, the Company's New Board of Directors may ratify and affirm the
Contract of Indemnification entered into between the Company, the members
of its past Board of Directors, and David C. Distad in accordance with
Section 2.8. Meritage shall have no right of indemnity under this Agreement
unless and until the Company's New Board of Directors ratifies and affirms
such Contract of Indemnification.
3.3 Special Dividend. After the Closing, the Company's New Board
of Directors may declare a special dividend in the amount of $.50 per share
of the Company's Common Stock outstanding. The record and payment dates for
any such dividend shall be set by the Company's New Board of Directors after
the Closing.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY, REYNOLDS AND INNKEEPERS
The Company, Reynolds and Innkeepers, jointly and severally, represent
and warrant, subject to Section 4.28, to Meritage that:
4.1 Resolution to Opt Out of Chapter 7B. Prior to entering into
this Agreement and after acquiring all necessary information to so act, the
Company's Board of Directors adopted the resolution referred to in Section
1.1(c) of this Agreement to opt out of Chapter 7B. Such resolution was
adopted by the Company's Board of Directors on September 10, 1995, such
resolution was in full force and effect at the time of execution and
delivery of this Agreement and will remain in full force and effect and will
not have been amended, modified, repealed or superseded in any way, and such
resolution is on file with the records of the Board of Directors of the
Company.
4.2 Resolution to Opt Out of Chapter 7A. Prior to entering into
this Agreement and after acquiring all necessary information to so act, the
Company's Board of Directors adopted the resolution referred to in Section
1.1(a) of this Agreement to opt out of Chapter 7A of the Michigan Business
Corporation Act ("Chapter 7A") as to any and all present and future
"business combinations" as that term is defined in Section 776(5) and other
transactions between the Company and Meritage or any of Meritage's
identified or unidentified existing or future affiliates. Such resolution
was in full force and effect at the time of execution and delivery of this
Agreement and will remain in full force and effect and will not have been
amended, modified, repealed or superseded in any way, and such resolution
is on file with the records of the Board of Directors of the Company.
4.3 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Michigan. True, correct and complete copies of the Company's Articles
of Incorporation and Bylaws, including all amendments thereto, as of the
date of this Agreement, are attached hereto as Schedule 4.3.
4.4 Power and Authority. (a) The Company has full corporate power
and authority to execute this Agreement and to consummate the transactions
described in this Agreement. The execution, delivery and performance by the
Company of this Agreement, and consummation of the transactions contemplated
hereby, have been duly authorized by the Company's Board of Directors, and
no other corporate action on the part of the Company is necessary to
authorize the execution and delivery of this Agreement and consummation of
the transactions contemplated hereby. This Agreement has been duly executed
by the Company, and is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting enforcement of creditors' rights, and except as limited by
application of legal principles affecting the availability of equitable
remedies. The Company's Board of Directors has duly and validly taken all
corporate action required to authorize the sale to Meritage of 1,500,000
shares of the Company's Common Stock pursuant to Section 1 above, and
(assuming that, at no time prior to purchasing the Company's stock pursuant
to Section 1.2 above, Meritage owned, directly or indirectly, 10% or more
of the voting power of the outstanding shares of the Company) all action
required to render Chapter 7A inapplicable to Meritage and its identified
and unidentified existing or future affiliates as provided above. Further,
the Company's Board of Directors has duly and validly taken all corporate
action necessary to render Chapter 7B inapplicable to shares of the
Company's Common Stock acquired by Meritage pursuant to this Agreement. The
Company's execution, delivery and performance of this Agreement,
consummation of the transactions described in this Agreement, and compliance
with the terms of this Agreement do not and will not conflict with the terms
of (i) the Articles of Incorporation or Bylaws of the Company, (ii) any
agreement or other instrument to which the Company is a party or by which
it or its property may be bound, or (iii) to the knowledge of the Company,
Reynolds and Innkeepers, any existing applicable law, rule, regulation,
judgment, order or decree of any government, governmental instrumentality
or court, domestic or foreign, having jurisdiction over the Company or any
of its property.
(b) Innkeepers has full corporate power and authority to execute
this Agreement and to consummate the transactions described in this
Agreement. The execution, delivery and performance by Innkeepers of this
Agreement, and consummation of the transactions contemplated hereby, have
been duly authorized by Innkeepers's Board of Directors, and no other
corporate action on the part of Innkeepers is necessary to authorize the
execution and delivery of this Agreement and consummation of the
transactions contemplated hereby. This Agreement has been duly executed by
Innkeepers, and is a legal, valid and binding obligation of Innkeepers,
enforceable against Innkeepers in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting enforcement of creditors' rights, and except as limited by
application of legal principles affecting the availability of equitable
remedies. The execution, delivery and performance of this Agreement by
Innkeepers, consummation of the transactions described in this Agreement,
and compliance with the terms of this Agreement do not and will not conflict
with the terms of (i) the Articles of Incorporation or Bylaws of Innkeepers,
(ii) any agreement or other instrument to which Innkeepers is a party or by
which it or its property may be bound, or (iii) to the knowledge of the
Company, Reynolds and Innkeepers, any existing applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over
Innkeepers or any of its property.
(c) Reynolds has full power and authority to execute this Agreement
and to consummate the transactions described in this Agreement. This
Agreement has been duly executed by Reynolds, and is a legal, valid and
binding obligation of Reynolds, enforceable against Reynolds in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting enforcement of creditors' rights, and
except as limited by application of legal principles affecting the
availability of equitable remedies. The execution, delivery and performance
of this Agreement by Reynolds, consummation of the transactions described
in this Agreement, and compliance with the terms of this Agreement do not
and will not conflict with the terms of (i) any agreement or other
instrument to which Reynolds is a party or by which Reynolds or any of his
property may be bound, or (ii) to the knowledge of the Company, Reynolds and
Innkeepers, any existing applicable law, rule, regulation, judgment, order
or decree of any government, governmental instrumentality or court, domestic
or foreign, having jurisdiction over Reynolds or any of his property.
(d) Each and every of Reynolds's Affiliates has agreed to do, or to
consent to, all things that may be required of them by this Agreement
(including but not necessarily limited to those things specified in Section
2.2 and Section 7.3) to consummate the transactions provided for in this
Agreement, and each and every of Reynolds's Affiliates will do and consent
to all such things as and when required so that the transactions provided
for in this Agreement can be consummated on the Closing Date in accordance
with this Agreement.
4.5 Ownership of Shares to be Sold by Reynolds in Put/Call
Agreement. Reynolds owns of record and beneficially all of the shares of
the Company's Common Stock to be sold by him pursuant to the Put/Call
Agreement, and Reynolds has good and valid title to all of such shares, free
and clear of all liens (including tax liens, forfeitures, covenants,
conditions, pledges, penalties, charges, encumbrances, buy-sell agreements,
rights of first refusal, equities or claims or rights of others whatsoever),
other than as set forth on Schedule 4.5 to this Agreement. With respect to
such shares, Reynolds and Innkeepers confirm to Meritage the warranties set
forth in Mich. Comp. Laws Ann. Section 440.8306(2)(a). The delivery to
Meritage or the Company, as the case may be, of the shares of Company Common
Stock pursuant to the Put/Call Agreement will transfer to Meritage or the
Company, as the case may be, valid title thereto, free and clear of all
liens, encumbrances, restrictions and claims of any kind; provided, however,
that such shares may be subject to restrictions on transfer under state
and/or federal securities laws.
4.6 Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of common stock, $0.01 par value (referred to
in this Agreement as the "Company Common Stock", "Company's Common Stock"
and "Common Stock"), and 5,000,000 shares of preferred stock, $0.01 par
value. At the close of business on the date of this Agreement 1,520,150
shares of the Company's Common Stock were issued and outstanding, and none of
the shares of the Company's Preferred Stock had been issued. The Company is
subject to no agreement, other than this Agreement, that would obligate the
Company to authorize the sale of additional stock, or to issue securities
that could be converted to Common Stock or capital stock of the Company, nor
does any person (other than Meritage pursuant to this Agreement) hold a
right to require the Company to issue additional Common Stock or capital
stock.
4.7 Governmental Consents. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations,
declarations, or filings with any federal or state governmental authority
on the part of Reynolds, Innkeepers, or the Company required in connection
with the consummation of the transactions described in this Agreement have
been obtained and are effective, or will have been obtained on or before the
Closing Date and will be in effect on the Closing Date, except that any
reports or schedules required to be filed with the United States Securities
and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act
of 1934, as amended, (the "Exchange Act"), and any notices of sale required
to be filed with the SEC pursuant to Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), or with any state
securities law authority pursuant to applicable blue sky laws, will be filed
within the applicable periods therefor.
4.8 SEC Documents. The Company, Reynolds and Innkeepers have timely
filed, or have cured the failure to timely file, all filings required to be
made by them on or before the date of this Agreement with the SEC, and all
such filings comply in form and substance with all applicable legal
requirements.
4.9 Company Information. The documents referred to in Schedule 4.9
of this Agreement (the "Company's SEC Documents") constitute all of the
documents (other than preliminary material, pre-effective registration
statements or registration statements relating to employee stock option or
compensation plans) that the Company was required to file with the
Securities and Exchange Commission since December 31, 1991. Each of the
Company's SEC Documents has been duly filed, and when filed complied in all
material respects with the requirements of the applicable form, statutes,
rules and regulations of the SEC. Each of the Company's SEC Documents, as
amended by any amendments duly filed with the Securities and Exchange
Commission and referred to in Schedule 4.9, was complete and correct in all
material respects as of the date filed and did not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein,
in light of the circumstances in which made, not misleading. (Meritage
shall have no right to make any claim for indemnity pursuant to Section 13
of this Agreement: (a) if, during discovery in the Derivative Proceeding or
in the Pending 7B Suit, any of the defendants in either such action produced
documents or made deposition statements specifically showing, in reasonable
detail, that a statement contained in any of the Company's SEC Documents is
false or misleading; or (b) if any Schedule to this Agreement specifically
shows, in reasonable detail, that a statement contained in any of the
Company's SEC Documents is false or misleading. Meritage waives, to the
fullest extent permitted by law, any right Meritage would have to make a
claim against Reynolds or the Company on account of a false or misleading
statement in any of the Company's SEC Documents, other than a claim for
indemnity pursuant to this Agreement.) Except as disclosed in Schedule 4.9
to this Agreement, since May 31, 1995, there has not been any material
adverse change in the condition (financial or otherwise) or results of
operations of the Company and its subsidiaries. The audited financial
statements of the Company included in the Company's SEC Documents have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flow for
the periods then ended. The unaudited financial statements included in any
Company's SEC Documents comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto; and such unaudited financial
statements are fairly presented in conformity with generally accepted
accounting principles (except as permitted by Form 10-QSB of the SEC)
applied on a basis substantially consistent with that of the audited
financial statements included in the Company's SEC Documents, subject to
year-end audit adjustments.
4.10 Subsidiaries. Except for the subsidiaries referenced in
Schedule 4.10 to this Agreement, the Company does not own stock or have any
equity investment or other interest in, does not have the right to acquire
any such interest, and does not control any corporation, association,
partnership, joint venture, cooperative or other entity. The minute books,
books of account and other financial records of each of the Company's
subsidiaries are accurate, correct and complete and have been maintained in
accordance with good business practices. The capitalization, including debt
and equity, of each of the Company's subsidiaries is set forth in Schedule
4.10 to this Agreement. All outstanding shares of capital stock of each
subsidiary are duly authorized, validly issued, fully paid, and
non-assessable, were not issued in violation of any pre-emptive subscription
or other right of any person to acquire securities of such subsidiary, and
constitute one hundred percent (100%) of the issued and outstanding stock
of all classes of such subsidiary. There is no outstanding subscription,
option, convertible or exchangeable security, pre-emptive right, warrant,
call or agreement relating to these shares or other obligation or commitment
of any subsidiary to issue any shares of Stock. There are no voting trusts
or other agreements, arrangements or understandings applicable to the
exercise of voting or any other rights with respect to any shares of any of
the Company's subsidiaries. The Company has good, marketable and
indefeasible title to all of the shares of its subsidiaries and the absolute
right to sell, assign, transfer, and deliver the same, free and clear of all
claims, security interests, liens, pledges, charges, escrows, options,
proxies, rights of first refusal, preemptive rights, hypothecations, prior
assignments, title retention agreements, indentures, security agreements or
any other limitation, encumbrance or restriction of any kind.
4.11 Real Estate. (a) Schedule 4.11 sets forth an accurate, correct
and complete list of each parcel of real property owned by the Company or
any of its subsidiaries (the "Company's Real Estate"), including a street
address, complete legal description and a list of all contracts and
agreements relating to or affecting the Company's Real Estate or any
interest therein. Reynolds has delivered to Meritage accurate, correct and
complete copies of all such contracts and agreements. Except as set forth
on Schedule 4.11, the Company or its subsidiaries have fee simple title to,
and are in possession of all of the Company's Real Estate, in each case free
and clear of all tenancies and other possessory interests, contracts of
sale, contract sale agreements, security interests, conditional sale or
other title retention agreements, liens, mortgages, pledges, assessments,
licenses, options, rights of first refusal, defects in title, encroachments
and other rights burdening or otherwise affecting the Company's Real Estate
in a material respect. All contracts, agreements and undertakings affecting
the Company's Real Estate as set forth in Schedule 4.11 are legally valid
and binding and are in full force and effect; there are no defaults,
offsets, counterclaims or defenses thereunder; and neither the Company nor
any of its subsidiaries has received a notice of default, offset,
counterclaim or defense under any such contract or agreement.
(b) Except as may be indicated on the surveys covering the Company's
Real Estate, none of the Company's Real Estate is located within a flood
hazard or flood zone area, coastal or erosion hazard area. Neither the
whole nor any portion of any of the Company's Real Estate has been
condemned, requisitioned or otherwise taken by any public authority, and no
notice of any such condemnation, requisition or taking has been received.
To the knowledge of the Company, Reynolds and Innkeepers, no such
condemnation, requisition or taking is threatened or contemplated. The
Company, Reynolds and Innkeepers have no knowledge of any public
improvements which may require an expenditure of funds or result in special
assessments against or otherwise affect the Company's Real Estate.
(c) To the knowledge of the Company, Reynolds and Innkeepers: (i)
the Company's Real Estate is in substantial compliance with all applicable
zoning, building, health, fire, water, use or similar statutes, codes,
ordinances, laws, rules or regulations, including but not limited to the
Americans with Disabilities Act; (ii) the zoning of each such parcel of the
Company's Real Estate permits the existing improvements and the continuation
without additional requirements following the consummation of the
transactions described in this Agreement of the Company's business as
presently conducted thereon; (iii) the Company and its subsidiaries have all
material licenses, certificates of occupancy, permits and authorizations
required to operate the Company's business and utilize the Company's Real
Estate; (iv) the Company and its subsidiaries have all material easements
and rights necessary to conduct the Company's business, including easements
for utilities, services, roadway, railway and other means of ingress and
egress; and (v) no fact or condition exists which would result in the
termination or impairment of access to the Company's Real Estate or to
discontinuation of sewer, water, electric, gas, telephone, waste disposal
or other utilities or services.
(d) Reynolds and Innkeepers have delivered to Meritage accurate,
correct and complete copies of all existing title insurance policies, title
reports, surveys, property reports and similar reports, if any, with respect
to each parcel of the Company's Real Estate.
(e) There is no construction work being done at, or construction
materials being supplied to, any parcel of the Company's Real Estate, except
in connection with routine maintenance projects.
4.12 Environmental Matters. To the knowledge of the Company,
Reynolds and Innkeepers, neither the Company nor any of its subsidiaries has
used Hazardous Materials, as defined below (other than Hazardous Materials
that are customarily used in the operation of the Company's business, and
that of its subsidiaries, which Hazardous Materials the Company and its
subsidiaries have used in the customary manner), on any of the Company's
Real Estate in any manner that violates any Governmental Regulation (as
defined below) governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials and, to the knowledge of the Company, Reynolds and Innkeepers, no
prior owner of any of the Company's Real Estate, or any existing or prior
tenant or occupant of any of the Company's Real Estate, has used Hazardous
Materials on, from or affecting the Company's Real Estate or any parcel
thereof in any manner which violates any Governmental Regulation governing
the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of Hazardous Materials. Neither the
Company nor any of its subsidiaries nor Reynolds nor Innkeepers has ever
received any notice of any violations (and neither the Company, nor
Reynolds, nor Innkeepers is aware of any existing violations) of any
Governmental Regulation governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal
of Hazardous Materials at any of the Company's Real Estate and, to the
knowledge of the Company, Reynolds and Innkeepers, there have been no
actions commenced or threatened by any party for noncompliance which affects
any of the Company's Real Estate. To the knowledge of the Company, Reynolds
and Innkeepers, (a) there have been no releases or discharges of Hazardous
Materials on, into, or under any of the Company's Real Estate during the
ownership or use of the Real Estate by the Company or its subsidiaries, and
(b) the Company's Real Estate, including all underlying soils and
groundwater and all surface water, does not contain such quantities of
Hazardous Materials that would permit the undertaking of response activity
or corrective action (including removal or remedial action) by the state or
federal government under any Governmental Regulation. In this Agreement,
"Hazardous Materials" means any materials or substance: (a) which is or
becomes defined as a "hazardous substance", "pollutant" or "contaminant"
pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act (42 USC Section 9601 et seq) and amendments thereto and
regulations promulgated thereunder; (b) containing gasoline, oil, diesel
fuel or other petroleum products; (c) which is or becomes defined as a
"hazardous waste" pursuant to the Federal Resource Conservation and Recovery
Act (42 USC Section 6901 et seq) and amendments thereto and regulations
promulgated thereunder; (d) containing polychlorinated biphenyls (PCBs); (v)
containing asbestos; (e) which is radioactive; (f) the presence of which
requires investigation or remediation under any Governmental Regulation; or
(g) which is or becomes defined as a "hazardous waste", "hazardous
substance", "pollutant", "contaminant" or biologically Hazardous Material
under any Governmental Regulation. In this Agreement, "Governmental
Regulations(s)" means any law, regulation, rule, policy, ordinance or
similar requirement of the United States, any state, and any county, city
or other agency or subdivision of the United States or any state.
4.13 Insurance. Set forth on Schedule 4.13 is a complete and correct
list of all policies of insurance relating to the Company's (and its
subsidiaries') assets and business, indicating for each policy the carrier,
risk insured against, coverage limits, deductible amounts, premium,
expiration date, all outstanding claims thereunder, and whether the terms
of such policies provide for retrospective premium adjustments. Also set
forth on Schedule 4.13 is a complete and correct list of all policies of
insurance on the life of Reynolds with respect to which the Company or any
of its subsidiaries has ever made any premium payment, or with respect to
which the Company or any of its subsidiaries is or ever has been an owner
or beneficiary including with respect to each such policy the name of the
issuer thereof, the policy number, the amount of the policy, the names of
all assignees and holders of security interests or others interests therein,
the names of all beneficiaries, the cash surrender value thereof, and the
amount of all outstanding policy loans, including principal and interest.
All such policies are outstanding and in full force and effect and Reynolds
and Innkeepers will cause such policies to be kept in full force and effect
through the Closing Date. No notice of cancellation or non-renewal with
respect to, or disallowance of any claim under, any such policy has been
received by Reynolds or Innkeepers or the Company.
4.14 Taxes. The Company and its subsidiaries have (a) filed all
federal, state, local and other tax returns and reports which are required
to be filed; and (b) withheld and paid all taxes, interest, penalties,
assessments and deficiencies due or assessed pursuant to such returns.
Neither the Company nor any of its subsidiaries has received any notice of
assessment of additional taxes and has not executed or filed with any taxing
authority any agreement extending the period of assessment of any taxes.
There are no claims, examinations, proceedings or proposed deficiencies for
taxes pending or threatened against the Company or any of its subsidiaries.
The Company is current in the payment of all withholding and other employee
taxes which are due and payable. Neither the Company nor any of its
subsidiaries has (a) been audited by the Internal Revenue Service, (b)
received notice of an audit, or (c) been threatened with an audit.
4.15 Litigation. Except for the Derivative Proceeding, the Pending
7B Suit, and the matters set forth on Schedule 4.15 to this Agreement,
neither the Company nor any of its subsidiaries (a) is subject to any
outstanding injunction, judgment, order, decree, ruling or charge or (b) has
been served with a summons (or its equivalent in a non-judicial proceeding)
in any action, suit, proceeding, hearing or investigation of, in, or before
any court, quasi-judicial or administrative agency of any federal, state,
local or foreign jurisdiction or before any arbitrator, or (c) to the
knowledge of the Company, Reynolds and Innkeepers, is threatened to be made
a party to any action, suit, proceeding, hearing or investigation of, in,
or before any court, quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator.
4.16 Compliance With Laws. To the knowledge of the Company, Reynolds
and Innkeepers: (a) the Company and its subsidiaries have complied in all
material respects with all applicable laws, statutes, rules, regulations and
orders, of federal, state, local or foreign governments (and all agencies
thereof), including, without limitation, all environmental, health and
safety laws; and (b) no action, suit, proceeding, hearing, investigation,
charge, complaint or claim, demand or notice has been filed or commenced
against the Company or any subsidiary alleging any failure so to comply.
4.17 Permits and Authorizations. To the knowledge of the Company,
Reynolds and Innkeepers, the Company and each of its subsidiaries hold all
material licenses and other permits and authorizations necessary for the
operation of the Company's business as presently conducted, and such
licenses, permits and authorizations will be in full force and effect for
the entire duration of their respective unexpired terms, unimpaired by any
acts or omissions of Reynolds, Innkeepers, the Company or its subsidiaries.
There is not now pending or, to the knowledge of the Company, Reynolds and
Innkeepers, threatened, any action by the grantor of any such license,
permit or authorization to revoke, cancel or refuse to renew any such
license, permit or authorization. Except as disclosed on Schedule 4.17 to
this Agreement, no consents, authorizations or approvals are required from
the grantor, franchisor or licensor under any franchises or licenses held
by the Company or any of its subsidiaries in order for the transactions
referred to in this Agreement to be consummated without violating or
breaching the terms of any such franchise or license.
4.18 Fees and Commissions. Neither the Company, nor any of its
subsidiaries, nor Reynolds, nor Innkeepers has agreed to pay any broker's,
finder's or originator's fees or commissions by reason of services alleged
to have been rendered for or at the instance of the Company, or any of its
subsidiaries, Reynolds or Innkeepers in connection with this Agreement and
the transactions described in this Agreement, except as set forth on
Schedule 4.18.
4.19 No Misstatement or Omission. No representation or warranty by
Reynolds, Innkeepers or the Company in this Agreement (including the
Exhibits and Schedules to this Agreement), and no written statement
furnished or to be furnished by Reynolds, Innkeepers or the Company pursuant
hereto or in connection with the transactions described in this Agreement,
contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading.
4.20 Absence of Undisclosed Liabilities. (a) Neither the Company
nor any of its subsidiaries has any liabilities or obligations (including
tax liabilities and liabilities as guarantor or surety), either accrued,
absolute, contingent, joint, several or otherwise, which individually or in
the aggregate with one or more other liabilities or obligations (any of
which other liabilities or obligations is not itself material) is material,
except to the extent:
(i) set forth in the Company's SEC Documents or noted on the
financial statements that were filed with the Company's SEC
Documents, and not heretofore paid or discharged;
(ii) specifically set forth in Schedule 4.20 to this
Agreement; or
(iii) incurred in, or as a result of, the normal and ordinary
course of business consistent with past practices since May 31, 1995,
and which are not, individually or in the aggregate with any one or
more other liabilities or obligations (any of which other liabilities
or obligations is not itself material), material and adverse.
(b) Except as set forth in Schedule 4.20 to this Agreement, there
is no liability of any nature or in any amount which individually or in the
aggregate with any one or more other claims (any of which other claims is
not itself material) is material and adverse, nor is there any basis for any
such claim against the Company or any of its subsidiaries.
4.21 Receivables. The accounts, notes and claims receivable of the
Company and its subsidiaries represent valid claims against the obligors
thereof which arose in the ordinary course of business and are current and
collectible, except to the extent reserved against in the Company's
financial statements for the quarter ended May 31, 1995, and filed as part
of the Company's SEC Documents or shown on Schedule 4.21 to this Agreement.
A true and complete aging schedule dated September 11, 1995, with respect
to such receivables is attached as Schedule 4.21 to this Agreement.
4.22 Bank Accounts. Schedule 4.22 to this Agreement includes a true
and complete list, as of the date of this Agreement, of the names and
locations of all banks at which the Company or any of its subsidiaries has
an account or safe deposit box and the names of persons authorized to sign
checks, drafts or other instruments drawn thereon or to have access thereto.
4.23 No Bankruptcy Proceedings. Neither Reynolds nor Innkeepers, nor
the Company nor any of its subsidiaries has admitted in writing his or its
inability to pay his or its debts generally as they become due, filed or
consented to the filing against him or it of a petition in bankruptcy or a
petition to take advantage of any insolvency act, made an assignment for the
benefit of creditors, consented to the appointment of a receiver for the
whole or any substantial part of his or its property, or had a petition in
bankruptcy filed against him or it, been adjudicated a bankrupt, or filed
a petition or answer seeking reorganization or arrangement under the federal
bankruptcy laws or any other law or statute of the United States of America
or any other jurisdiction.
4.24 Employees. (a) To the knowledge of the Company, Reynolds and
Innkeepers, no employee of the Company or any of its subsidiaries is, or is
expected to be, in violation of any term of any employment contract,
non-competition agreement, or any other contract or agreement or any
restrictive covenant or any other common law obligation to a former employer
relating to the right of any such employee to be employed by the Company or
its subsidiaries for any reason, and, to the knowledge of the Company,
Reynolds and Innkeepers, the employment of the employees of the Company and
its subsidiaries does not subject the Company, its subsidiaries or Meritage
to any liability to any former employer of any such employee or to any third
party. There is neither pending nor, to the knowledge of the Company,
Reynolds and Innkeepers, threatened any actions, suits, proceedings or
claims, or to their knowledge, any basis therefor or threat thereof with
respect to any contract, agreement, covenant or obligation referred to in
the preceding sentence.
(b) Except as disclosed in Schedule 4.24, since November 30, 1994,
(i) no increases in compensation have been given to any employee of the
Company (or to any employee of a subsidiary of the Company) other than in
the ordinary course of business, and (ii) no increases in compensation have
been given to any employee of the Company (or to any employee of any
subsidiary of the Company) who, after the effective date of such increase
in compensation, is paid more than $30,000 on an annual basis. Except as
disclosed in Schedule 4.24 to this Agreement, the Company and its
subsidiaries have not agreed at any time in the future to increase the
compensation of any of their respective employees.
(c) Neither the Company nor any of its subsidiaries (i) is a party
to any collective bargaining agreement covering or relating to any of their
respective employees, (ii) has recognized, (iii) is required to recognize,
and (iv) has received a demand for recognition by any collective bargaining
representative, except as attached to Schedule 4.24 to this Agreement.
(d) Neither the Company nor any of its subsidiaries is a party to
any contract with any of their respective employees, agents, consultants,
officers or customers that is not cancellable by the Company or its
subsidiary, as appropriate, without penalty or premium on not more than
thirty (30) days' notice, except as set forth in Schedule 4.24 to this
Agreement.
(e) Neither the Company nor any of its subsidiaries has promulgated
any policy, or entered into any agreements, relating to the payment of
severance pay to employees whose employment is, or is to be, terminated or
suspended, voluntarily or otherwise, at or prior to Closing.
(f) To the knowledge of the Company, Reynolds and Innkeepers: (i)
the Company and each of its subsidiaries have complied with all applicable
laws, rules and regulations relating to employment, including those relating
to wages, hours, collective bargaining, the withholding and payment of taxes
and contributions and discrimination; (ii) the Company and each of its
subsidiaries have complied in all respects with the Occupational Safety and
Health Act; and (iii) there are no controversies pending or threatened,
between the Company or any of its subsidiaries and any of employees of the
Company or any of its subsidiaries, or any labor unions or other collective
bargaining agents representing or purporting to represent the employees of
the Company or any of its subsidiaries.
4.25 Employee Benefit Plans. Except as disclosed in Schedule 4.25
to this Agreement, neither the Company nor any of its subsidiaries maintains
any "employee benefit plans", as such term is defined under Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether qualified or unqualified under ERISA.
4.26 Due Inquiry. In preparation for making the foregoing
representations and warranties, Reynolds and Innkeepers diligently reviewed
all of the books and records of Innkeepers and of the Company and its
subsidiaries, and such other books and records as they deemed appropriate
to fully inform themselves concerning the accuracy and completeness of the
foregoing representations and warranties, and they informed all management
level employees and representatives (including but not necessarily limited
to accountants, attorneys, and insurance advisors) of Innkeepers, the
Company and its subsidiaries of the details of the foregoing representations
and warranties and made due inquiry of them into the accuracy and
completeness of such representations and warranties. In this Agreement, the
phrase "to the knowledge of the Company, Reynolds and Innkeepers" means to
the knowledge of any of them after having made such review and inquiry, or
to the knowledge of David C. Distad. Further, the knowledge of Reynolds or
Innkeepers or David C. Distad shall be deemed the knowledge of the Company,
its subsidiaries, Reynolds and Innkeepers.
4.27 TAI, Buckeye and Skandalaris. Meritage acknowledges that the
existence of the agreement between Reynolds and TEI Acquisition, Inc., a
Michigan corporation ("TAI"), dated July 6, 1995, the agreement between the
Company and Buckeye dated September 28, 1994, as amended March 31, 1995, the
February 1995 consulting agreement between the Company and Skandalaris, and
the agreement pursuant to which Reynolds pledged certain shares of the
Company's Common Stock to Skandalaris shall not constitute a basis for a
claim (other than to payment of the breakup fee referred to in Section 6.5
below) by Meritage pursuant to Section 13 of this Agreement or any other
section of this Agreement. Reynolds agrees that such acknowledgement by
Meritage shall not relieve Reynolds from his indemnity obligations under
Section 7.4 below with respect to any such agreements.
4.28 Material Contracts. Except as shown on Schedule 4.28 to this
Agreement, neither the Company nor any of its subsidiaries is a party to or
is bound by (and no asset of the Company or a subsidiary of the Company is
bound by) any contract (a) that obligates the Company or any of its
subsidiaries to pay more than $10,000 during the remainder of the term of
the contract, or (b) that is not freely terminable, without cost to the
Company or any of its subsidiaries, upon not more than 30 days' notice.
4.29 Cumulative Voting; "Supermajority" Voting. The Company's
Articles of Incorporation do not permit cumulative voting by any shareholder
of the Company. Neither the Company's Articles of Incorporation nor its
Bylaws require, with respect to any action to be taken by the Company's
shareholders, the vote or concurrence of the holders of a greater proportion
of the Company's shares of Common Stock than is required by the MBCA with
respect to the action.
4.30 No Investments in Reynolds's Affiliates. The Company has made
no investments in or advances to or for the benefit of Reynolds or any of
Reynolds's Affiliates that, as of the date of this Agreement, have not been
fully repaid or reimbursed to the Company, other than (a) the indebtedness
referred to in Section 2.4 above, and (b) as disclosed in Schedule 4.30 to
this Agreement.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF MERITAGE
Meritage represents and warrants to Reynolds, Innkeepers, and the
Company as follows:
5.1 Organization and Standing. Meritage is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Florida. Meritage has furnished Reynolds with true, correct and complete
copies of its Articles of Incorporation and Bylaws, and of all amendments
to each such document through the date of this Agreement.
5.2 Corporate Power and Authority. Meritage has full corporate
power and authority to execute this Agreement and to consummate the
transactions described in this Agreement. The execution, delivery and
performance by Meritage of this Agreement, and consummation of the
transactions contemplated hereby, have been duly authorized by Meritage's
Board of Directors, and no other corporate action on the part of Meritage
is necessary to authorize the execution and delivery of this Agreement and
consummation of the transactions contemplated hereby. This Agreement has
been duly executed by Meritage, and is a legal, valid and binding obligation
of Meritage, enforceable against Meritage in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting enforcement of creditors' rights, and except as
limited by application of legal principles affecting the availability of
equitable remedies. Meritage's execution, delivery and performance of this
Agreement, consummation of the transactions described in this Agreement, and
compliance with the terms of this Agreement do not and will not conflict
with the terms of (i) the Articles of Incorporation or Bylaws of Meritage,
(ii) any agreement or other instrument to which Meritage is a party or by
which it or its property may be bound, or (iii) to the knowledge of Meritage
and its executive officers, any existing applicable law, rule, regulation,
judgment, order or decree of any government, governmental instrumentality
or court, domestic or foreign, having jurisdiction over Meritage or any of
its property.
5.3 Governmental Consents. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations,
declarations or filings with any federal or state governmental authority on
the part of Meritage required in connection with the consummation of the
transactions described in this Agreement have been obtained and are
effective, except that any reports or schedules required to be filed with
the SEC pursuant to the Exchange Act will be filed within the applicable
periods therefor.
5.4 Securities Law Matters.
(a) Purchase Entirely for Own Account. The shares of Company Common
Stock that Meritage will acquire pursuant to Section 1.2 will be acquired
for investment for its own account, not as a nominee or agent, and not with
a view to the sale or distribution of any part thereof, and that Meritage
has no present intention of selling, granting participations in, or
otherwise distributing the same. Meritage represents that it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participations to such person, or to any third person,
with respect to any of the shares that Meritage will acquire pursuant to
Section 1.2. Notwithstanding the foregoing, Reynolds and Innkeepers
acknowledge that Meritage may dispose of the securities that it will
purchase pursuant to Section 1.2 upon registration of such securities, or
in a transaction or transactions exempt from registration, under the
Securities Act and in compliance with applicable state securities laws.
(b) Restricted Securities. Meritage understands that the shares of
the Company's Common Stock that it will acquire pursuant to Section 1.2 may
not be sold, transferred, or otherwise disposed of without compliance with
state securities laws and without registration under the Securities Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering such shares or an available exemption from registration
under the Securities Act, such shares must be held indefinitely and Meritage
must therefore bear the economic risk of such investment indefinitely,
unless a subsequent disposition of such shares is registered under the
Securities Act or is exempt from registration. In particular, Meritage is
aware that such shares may not be sold pursuant to Rule 144 promulgated
under the Securities Act unless all of the conditions of that Rule are
satisfied. Meritage represents that, in the absence of an effective
registration statement covering such shares, it will sell, transfer, or
otherwise dispose of such shares only in a manner consistent with its
representations set forth herein.
(c) Investment Experience. Meritage represents that it is
experienced in investment matters, fully understands the transactions
described in this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of
its investment, and has the financial ability and resources necessary to
bear the economic risks of its investment.
(d) Accredited Investor. Meritage represents that it is an
"accredited investor" as that term is defined in Rule 501 of Regulation D
under the Securities Act, namely (i) it was not formed for the specific
purpose of acquiring the shares of Company Common Stock that it will acquire
pursuant to this Agreement, and has total assets in excess of $5,000,000,
or (ii) all of its equity owners are accredited investors.
(e) No Advertising or Solicitation. Meritage acknowledges that it
has received no general solicitation or general advertising (including
communications published in any newspaper, magazine or similar media or
broadcast) and that Meritage's representatives have attended no seminar or
meeting with respect to the shares of the Company's Common Stock that
Meritage will acquire pursuant to Section 1.2, nor is it aware of any such
solicitation or advertisements that may have been received by others.
(f) Legends; Stop Transfer.
(i) All certificates for the shares acquired by Meritage
pursuant to this Agreement may bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
TRANSFERRED UNLESS THE SAME ARE REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR THE COMPANY RECEIVES AN OPINION OF COUNSEL THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED FOR SALE OR TRANSFER.
(ii) In addition, the Company's transfer agent shall make a
notation regarding the restrictions on transfer of such shares in its stock
transfer records.
5.5 Fees and Commissions. Meritage has not agreed to pay any
broker's, finder's or originator's fees or commissions by reason of services
alleged to have been rendered for or at the instance of Meritage in
connection with this Agreement and the transactions described in this
Agreement.
5.6 No Misstatement or Omission. No representation or warranty by
Meritage in this Agreement, and no written statement furnished or to be
furnished by Meritage pursuant hereto or in connection with the transactions
described in this Agreement, contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact required
to be stated therein or necessary to make the statements contained therein
not misleading.
SECTION 6
COVENANTS OF THE COMPANY
The Company shall keep, observe, perform and fully discharge the
following covenants and agreements:
6.1 Access to Information; Examination. At the date hereof,
Meritage has not had an opportunity to complete its investigation or
analysis of the Company and its subsidiaries and related matters. Meritage
will have thirty (30) days after the date upon which Meritage receives the
last of the Schedules referred to in Section Section 6.9 and 7.8 below (the
period that begins on the date of this Agreement and ends upon the
expiration of 30 days after the date upon which Meritage receives the last
of the Schedules referred to in Section Section 6.9 and 7.8 below is
referred to as the "Due Diligence Period") within which to investigate,
ascertain and verify all of the facts, information and other matters
pertaining to the Company and its subsidiaries, and otherwise to
investigate, in any manner in which it may choose, the business, condition
and affairs of the Company and its subsidiaries. During the Due Diligence
Period, Meritage and its attorneys, accountants and other designees shall
have unrestricted access to the books, records, properties, personnel and
accountants of the Company and its subsidiaries to enable Meritage to carry
out its examination. If during the Due Diligence Period Meritage discovers
material adverse facts concerning the Company, or any of its subsidiaries,
or the business, prospects, affairs (financial or otherwise) or assets of
the Company or any of its subsidiaries, Meritage may terminate its
obligations under this Agreement at any time prior to the expiration of the
Due Diligence Period by written notice to the Company, Reynolds and
Innkeepers.
6.2 Interim Conduct of Business. Except as otherwise provided in
this Agreement, during the period from the date of this Agreement and
continuing to the Closing, the Company and its subsidiaries shall operate
their respective businesses in the ordinary course and consistent with past
practice, and the Company and its subsidiaries shall use their best efforts
to preserve intact the present business organization of the Company and that
of its subsidiaries, keep available the services of employees, and preserve
present relationships with suppliers, customers and others having business
dealings with the Company or its subsidiaries. Without limiting the
foregoing and except as otherwise provided in this Agreement, during the
period from the date of this Agreement and continuing to the Closing, the
Company and its subsidiaries shall not do, permit or engage in any of the
following actions without written consent from Meritage, which shall not be
unreasonably withheld:
(a) amendments to the Articles of Incorporation or Bylaws of the
Company or any of its subsidiaries;
(b) the issuance of any stock, convertible securities, stock
options, warrants, rights, calls or commitments of any character calling for
or permitting the issue, sale or delivery of (i) the Company's stock or
other security of the Company, or (ii) the stock or other security of any
subsidiary of the Company;
(c) payment or declaration of any cash dividend, or other dividend
or distribution with respect to the Company's stock or with respect to the
stock of any subsidiary of the Company;
(d) the incurrence of any indebtedness for borrowed money;
(e) adoption or material modification of any bonus, pension,
profit-sharing or other compensation plan or the execution of any contract
with any officer, director or employee which is not terminable at will
without cost or other liability;
(f) the mortgage, pledge or subjection to lien, charge, security
interest, or other encumbrance of any of the Company's assets or of any of
the assets of any subsidiary of the Company;
(g) transfer or lease of any of the Company's assets or property,
or any of the assets of any subsidiary of the Company, other than inventory
in the ordinary course of business;
(h) cancellation or compromise of any debt or claim other than in
the ordinary course of business in an aggregate amount which is not
materially adverse;
(i) making or granting any general or individual wage or salary
increase, except for general salary and wage adjustments now in progress,
or which are part of the conduct of a normal salary administration program;
or
(j) making or entering into any transaction, or incurring any
commitment therefor, which involves consideration with a value in excess of
$50,000.
6.3 Meeting of the Company's Shareholders. (a) Within seven days
after signing this Agreement, the Company's current Board of Directors shall
call the annual meeting of the shareholders of the Company for this year to
be held within 120 days of the execution and delivery of this Agreement for
the purposes of: (i) to gain approval of this Agreement and the transactions
referred to in this Agreement as provided in Section Section 9.5, 10.5, and
11.5, (ii) to elect a new Board of Directors, (iii) to consider a resolution
pursuant to MBCA Section 798 for the purposes of restoring voting rights to
Reynolds's Company Stock if so requested by Reynolds and if Reynolds
complies with the requirements of Chapter 7B, and (iv) to act upon such
other proposals as may be proposed or approved by Meritage, which approval
will not be unreasonably withheld.
(b) Prior to the annual meeting of shareholders referred to in
Section 6.3(a), the Company shall deliver, to each shareholder of record on
the record date for such meeting, a proxy statement which complies with the
rules and regulations of the SEC. The Company shall include in the proxy
statement, among other things, the following:
(i) a description of each transaction to be approved at
the meeting;
(ii) subject to receipt by the Company of the Fairness
Opinion described in Section 6.4 of this Agreement, a recommendation
from the Company's current Board of Directors that the shareholders
approve the transactions outlined in the proxy;
(iii) the nominations of directors to be voted on in the
election of directors at the meeting; and
(iv) such disclosures as Meritage may reasonably request
to describe the transactions referred to in this Agreement and to
describe any other matters that Meritage believes should be disclosed
to the Company's shareholders, and all issues or items that Meritage
reasonably requests of the Company.
The Company shall file such proxy statement with the SEC as soon as
reasonably possible after the date of this Agreement and shall use its best
efforts to respond in a reasonable and prompt manner to any and all comments
of the SEC on the proxy statement. The proxy statement shall be subject to
Meritage's prior approval, which shall not be unreasonably withheld.
6.4 Fairness Opinion. The Company shall use its best efforts to
obtain a satisfactory opinion that the transactions provided for in this
Agreement are fair to the Company from a financial point of view (the
"Fairness Opinion"). Meritage shall have the right to participate with the
Company in retaining a person or firm (the "Expert") to furnish the Fairness
Opinion, and the Company shall cooperate with Meritage in arranging for
Meritage's representatives to meet with the Expert to discuss the Fairness
Opinion at such time as may be satisfactory to the Expert.
6.5 Breakup Fee. The Company shall pay to Meritage a breakup fee
of $750,000 if the transactions provided for in Section 2 of this Agreement
are not closed due to any of the following occurring on or after September
25, 1995: (a) the Company's acceptance of an Acquisition Proposal; (b)
approval of an Acquisition Proposal by the Company's shareholders; or (c)
acceptance of a tender offer by the holders of a majority of the shares of
the Company's Common Stock (other than the shares owned beneficially or of
record by Meritage and the 868,018 shares owned by Reynolds, as recited in
Recital B above, or by their respective successors or assigns).
6.6 Mill Point. The Company shall manage or arrange for the
management of the Mill Point condominium project (adjacent to the Spring
Lake Holiday Inn) pursuant to the terms of a management agreement that: (a)
obligates the Company to (i) accept rental reservations for the Mill Point
condominium units, (ii) disburse the net proceeds of such rentals in
accordance with explicit written instructions, and (iii) furnish routine
housekeeping services for such condominium units by the housekeeping staff
at the Company's Spring Lake Holiday Inn, all reasonable costs of which
shall be reimbursed by the owners of such condominium units; and (b) is
otherwise satisfactory to the Company's New Board of Directors. In no event
shall the Company be obligated to: (a) perform any services for which it is
not duly licensed; (b) incur any cost or expense with respect to such
condominium units for which it will not be reimbursed; or (c) perform any
act or furnish any service other than as explicitly set forth above. In any
event, the Company shall have the unrestricted right to assign all of its
rights and obligations under this Section 6.6 and such management agreement
without liability or recourse to the Company. Reynolds shall be solely
responsible for preparing or presenting a management agreement conforming
to the requirements of this Section 6.6 for review and approval by the
Company's New Board of Directors.
6.7 Good Faith Obligation to Satisfy Conditions. The Company shall
make a good faith effort to satisfy all conditions to Closing that, with
reasonable diligence, could be satisfied by the Company.
6.8 No Solicitation. Neither the Company nor any of its subsidiaries
or affiliates shall (and the Company shall use its best efforts to cause its
officers, directors, employees, representatives and agents, including, but
not limited to, investment bankers, attorneys and accountants, not to),
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group concerning any
merger, tender offer, exchange offer, sale of assets, sale of shares of
capital stock or debt securities or similar transactions involving the
Company or any subsidiary, or operating or principal business unit of the
Company (an "Acquisition Proposal"). The Company shall immediately cease
any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. Notwithstanding
the foregoing, the Company may provide access and furnish information
concerning its business, properties or assets to any corporation,
partnership, person or other entity or group pursuant to appropriate
confidentiality agreements, and may negotiate and participate in discussions
and negotiations with such entity or group concerning an Acquisition
Proposal (a) if such entity or group has submitted a bona fide written
proposal to the Board of Directors of the Company relating to any such
transaction and (b) if, in the opinion of the Board of Directors of the
Company, after consultation with independent legal counsel of the Company,
the failure to provide such information or access or to engage in such
discussions or negotiations would be inconsistent with their fiduciary
duties to the Company's shareholders under applicable law. The Company will
immediately notify Meritage orally and in writing if any such proposals or
inquiries are received by, any such information is requested from, or any
negotiations or discussions are sought to be initiated or continued with the
Company. Such notice will include the terms of any inquiry or proposal
relating to an Acquisition Proposal. Nothing in this Section 6.8 shall
prohibit the Company from making such disclosures to its shareholders as it
deems appropriate or obligatory, or from disclosing to third parties
anything that has been disclosed by the Company in any filing made by the
Company with the Securities and Exchange Commission.
6.9 Delivery of Schedules. The Company, Reynolds and Innkeepers are
obligated, jointly and severally, to furnish all of the Schedules called for
by this Agreement. As of the date of execution of this Agreement, none of
such Schedules has been furnished. The Company, Reynolds and Innkeepers
shall have until 5:00 p.m. (Grand Rapids, Michigan time) on October 9, 1995,
to furnish such Schedules. It shall be conclusively presumed that there is
no information to report on any of the following Schedules that have not
been furnished to Meritage by such date and time: Schedule 4.5(c), Schedule
4.15, Schedule 4.17, Schedule 4.18, Schedule 4.20, Schedule 4.24, Schedule
4.25, Schedule 4.28, and Schedule 4.30, and all of the corresponding
representations and warranties in Section 4 shall be conclusively presumed
to have been made, as of the date of this Agreement and as of the Closing
Date, without exception for information that otherwise would have been
disclosed on any such missing Schedule. Notwithstanding the foregoing, the
Company, Reynolds and Innkeepers shall be under a continuing obligation
through the Closing to furnish Meritage with the information that would have
been disclosed on such Schedules, had they been furnished by the date and
time specified above, and to furnish the remaining Schedules called for by
this Agreement.
SECTION 7
COVENANTS OF REYNOLDS AND
INNKEEPERS
Reynolds and Innkeepers shall keep, observe, perform and fully
discharge the following covenants and agreements:
7.1 Reynolds's Guarantees of Company Indebtedness. From the date
of this Agreement through the Closing, Reynolds shall not by act or omission
cause any of his existing guarantees of the Company's indebtedness to be
terminated or otherwise changed in any way, nor shall Reynolds do or fail
to do anything (other than entering into and consummating the transactions
provided for in this Agreement) that might cause any of the Company's
indebtedness to go into or to continue in default.
7.2 Acquisition Proposals. Neither Reynolds, nor any of Reynolds's
Affiliates, nor Innkeepers, shall (except as necessary to terminate the
agreement between Reynolds and TAI dated July 6, 1995, and as expressly
provided in Section 6.8) have any discussion with or furnish any information
to any person with a view to (a) the acquisition of any assets of the
Company; (b) the acquisition of any stock of the Company; (c) the merger or
consolidation of the Company; or (d) the acquisition by the Company of the
stock or assets of any other person or entity. If Reynolds, or any of
Reynolds's Affiliates, or Innkeepers receives any contact or inquiry
relating to any of the foregoing events, Reynolds shall promptly notify
Meritage of the details of such contact or inquiry.
7.3 Vote at Meeting of Shareholders. At the meeting of shareholders
referred to in Section 6.3, Reynolds, Reynolds's Affiliates and Innkeepers
shall, to the extent their shares of Company Common Stock have voting power,
vote in favor of consummation of the transactions referred to in this
Agreement.
7.4 Indemnification. Neither the Company nor Meritage shall have
any obligation to pay any costs arising out of or relating to any
transaction among or between Reynolds and TAI or TAI's successors or
assigns, or arising out of or relating to the consulting agreement (and
addendum thereto) between the Company and Buckeye, including but not limited
to the $900,000 brokerage fee to Buckeye. Reynolds shall defend, indemnify
and hold the Company and Meritage (and Meritage's shareholders and
attorneys) harmless from all cost, liability and expense, including but not
limited to reasonable attorneys' fees, to TAI, TAI's successors and assigns,
Buckeye, Gene Hoffman, Douglas Ziesemer (Messrs. Hoffman and Ziesemer are
business brokers in Ann Arbor, Michigan, who were involved in introducing
the Company to TAI), Strategic Alliance Corp. (an entity that purportedly
had negotiations with TAI concerning the Company) or any of their respective
successors, assigns or affiliates. If a claim is made against Meritage for
which Meritage is entitled to indemnity under this Section 7.4, Meritage
shall, promptly upon learning of the existence of such claim, tender the
defense thereof to Reynolds. The selection of counsel to defend Meritage
in such matter shall be subject to Meritage's approval, which shall not be
unreasonably withheld.
7.5 Sayfees Loan. The Company's financial statements disclose that
the Company has an outstanding loan of approximately $75,000 to Sayfees, a
Grand Rapids area restaurant. If the Sayfees loan has not been repaid in
full by the first anniversary of the Closing Date, then Reynolds shall
repurchase such loan from the Company. The purchase price shall be equal
to the unpaid principal amount of such loan, plus all accrued and unpaid
interest through the date of repurchase. Upon receipt of such payment, the
Company shall assign all of its right, title and interest in the Sayfees
loan to Reynolds, without representation, warranty or recourse. All
dividends declared and paid by the Company on Reynolds's Company Stock shall
be applied, if the Company so chooses, toward payment of such repurchase
price before any such dividend is paid to any holder of Reynolds's Company
Stock. The Company shall have the right to withhold the dividends otherwise
payable by the Company on Reynolds's Company Stock and apply the same toward
payment of such repurchase price until it has been paid in full.
7.6 Good Faith Obligation to Satisfy Conditions. Reynolds and
Innkeepers shall make a good faith effort to satisfy all conditions to
Closing that, with reasonable diligence, could be satisfied by Reynolds or
Innkeepers.
7.7 Life Insurance. At or before the Closing, Reynolds shall assign
to the Company (or shall cause to be assigned to the Company) ownership of
all of the life insurance policies listed on Schedule 4.13, free and clear
of all claims and interests of third parties (including but not limited to
collateral assignments for security, other than collateral assignments as
security for valid obligations of the Company), with the Company designated
as the sole beneficiary, and with all outstanding policy loans (other than
such loans as Messrs. Weigel and Michael, acting as a special committee of
the Company's current Board of Directors, shall have determined prior to the
Closing were made to the Company) paid in full.
7.8 Delivery of Schedules. The Company, Reynolds and Innkeepers are
obligated, jointly and severally, to furnish all of the Schedules called for
by this Agreement. As of the date of execution of this Agreement, none of
such Schedules has been furnished. The Company, Reynolds and Innkeepers
shall have until 5:00 p.m. (Grand Rapids, Michigan time) on October 9, 1995,
to furnish such Schedules. It shall be conclusively presumed that there is
no information to report on any of the following Schedules that have not
been furnished to Meritage by such date and time: Schedule 4.5(c), Schedule
4.15, Schedule 4.17, Schedule 4.18, Schedule 4.20, Schedule 4.24, Schedule
4.25, Schedule 4.28, and Schedule 4.30, and all of the corresponding
representations and warranties in Section 4 shall be conclusively presumed
to have been made, as of the date of this Agreement and as of the Closing
Date, without exception for information that otherwise would have been
disclosed on any such missing Schedule. Notwithstanding the foregoing, the
Company, Reynolds and Innkeepers shall be under a continuing obligation
through the Closing to furnish Meritage with the information that would have
been disclosed on such Schedules, had they been furnished by the date and
time specified above, and to furnish the remaining Schedules called for by
this Agreement.
7.9 Delivery of Personal Files, etc. At Closing, Reynolds and
Innkeepers shall deliver to the Company (a) all business records and related
materials in the possession or control of either of them pertaining to the
Company, any of its subsidiaries, or the business or assets of the Company
or any of its subsidiaries, and (b) all assets of the Company or any of its
subsidiaries in the possession or control of either of them.
Notwithstanding the foregoing, Reynolds shall have the right to retain
possession of the Company-owned automobile that, as of the date of this
Agreement, has been assigned to him, if at the Closing, he and the Company
enter into an agreement, approved by the Company's New Board of Directors,
pursuant to which the Company agrees to sell and Reynolds agrees to buy such
automobile.
SECTION 8
COVENANTS OF MERITAGE
Meritage shall keep, observe, perform and fully discharge the
following covenants and agreements:
8.1 Shareholder Action. Without prior consent from the Company's
Board of Directors, Meritage shall take no action as a shareholder prior to
the Closing to cause a material change to the Company. Further, Meritage
shall vote the Common Stock that it acquires pursuant to Section 1.2 above
in favor of any Acquisition Proposal that, on or before September 25, 1995,
the Company's Board of Directors recommends that all of the Company's
shareholders approve, provided that such Acquisition Proposal would entitle
all of the Company's shareholders to receive, at the closing of the
transaction provided for in such Acquisition Proposal, cash in the amount
of at least $8.50 per share of Company Common Stock (or its equivalent as
determined by Meritage in its reasonable judgment).
8.2 Confidentiality. Unless and until the Closing has been
consummated, Meritage will hold, and shall cause its counsel, investment
bankers, independent certified public accountants, appraisers and other
representatives to hold, in confidence any confidential data or information
made available to Meritage in connection with this Agreement with respect
to the Company, using the same standard of care to protect such confidential
data or information as Meritage uses to protect its own confidential
information. If the transactions referred to in Section 1 of this Agreement
are not consummated, Meritage shall return or cause to be returned to the
Company all written materials and all copies thereof that were supplied to
Meritage by Reynolds or the Company and that contain any such confidential
data or information. Meritage shall not use any information it obtains
through its due diligence examination of the Company in the Derivative
Proceeding, as defined in Section 2.8, unless such information is obtained
through lawful discovery. Meritage shall, however, have the right to
deliver copies of this Agreement to the plaintiffs in the Derivative
Proceeding and, subject to the confidentiality provisions of this Section
8.2, to apprise them from time to time of developments that occur with
respect to the transactions described herein.
8.3 Post-Closing Matters in re Reynolds's Guarantees of Company
Indebtedness. Immediately after the Closing, Meritage will cause the
Company to agree:
(a) to indemnify Reynolds from liability on all hotel-related debt
that is secured by mortgages on any of the Company's hotel properties;
(b) to use reasonable efforts to refinance all existing
hotel-related mortgage debt on terms satisfactory to the Company's New Board
of Directors;
(c) that Reynolds is entitled to retain the entire $193,500 payment
that the Company made to Reynolds in consideration for his guarantee of the
Company's outstanding indebtedness through the period ending November 30,
1995; and
(d) to pay to Reynolds, on or before the tenth day of each calendar
quarter beginning December 1, 1995, an additional loan guaranty fee in an
amount equal to 0.1875% of the outstanding principal balance of the
Company's mortgage indebtedness that, as of the first day of each such
calendar quarter, is guaranteed by Reynolds. So long as Reynolds has any
obligation as guarantor of the Company's long-term mortgage indebtedness,
the Company shall apply the net proceeds of any insurance policy on
Reynolds's life that are received by the Company toward reduction of the
indebtedness guaranteed by Reynolds (with the selection of such indebtedness
to be in the Company's sole discretion if Reynolds's guarantees are
outstanding with respect to more than one long-term mortgage obligation at
the time such proceed are received by the Company.)
8.4 Vote at Meeting of Shareholders. At the meeting of shareholders
referred to in Section 6.3, Meritage shall vote all of its shares of Company
Common Stock in favor of consummation of the transactions referred to in
Section 2 of this Agreement.
8.5 Restoration of Reynolds's Voting Rights. Meritage shall vote
in favor of a resolution pursuant to MBCA Section 798 with respect to
Reynolds's Company Stock if: (a) Reynolds requests restoration of the voting
rights for such stock in accordance with Chapter 7B; (b) Reynolds complies
with the applicable requirements of Chapter 7B; and (c) at the time of the
vote on such resolution TAI no longer has the power to direct the voting
power of any of Reynolds's Company Stock.
8.6 Good Faith Obligation to Satisfy Conditions. Meritage shall
make a good faith effort to satisfy all conditions to Closing that, with
reasonable diligence, could be satisfied by Meritage.
8.7 Payment in Lieu of Special Dividend. If for any reason the
Company does not pay the special dividend referred to in Section 3.3 above
prior to the expiration of 90 days after the Closing Date, Meritage shall
immediately upon the expiration of such 90-day period pay the sum of
$434,009 in cash to the Company for application first toward satisfaction
of the indebtedness referred to in Section 2.4, with the balance, if any,
to be paid by the Company to Reynolds. Meritage shall have no obligation
whatsoever to Reynolds under this Section 8.7 at any time after (a) the
Company has declared and paid the special dividend referred to in Section
3.3 above, or (b) Meritage has made the payment required by this Section
8.7.
SECTION 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF MERITAGE
Each and all of the obligations of Meritage to consummate the
transactions described in this Agreement are subject to the fulfillment of
the following conditions:
9.1 Accuracy of Warranties and Performance of Covenants. The
representations and warranties of Reynolds, Innkeepers and the Company
contained herein shall be accurate in all material respects as if made on
and as of the Closing Date. Reynolds, Innkeepers and the Company shall have
performed all of the obligations and complied with each and all of the
covenants, agreements and conditions required to be performed or complied
with on or prior to the Closing.
9.2 No Pending Action. No action, suit, proceeding or investigation
before any court, administrative agency or other governmental authority
shall be pending or threatened wherein an unfavorable judgment, decree or
order would prevent the carrying out of this Agreement or any of the
transactions described in this Agreement, declare unlawful the transactions
described in this Agreement or cause such transactions to be rescinded;
provided that Meritage has received an opinion of legal counsel that the
claims made in such action, suit, proceeding or investigation are
meritorious and that it is more likely than not that the claimant will
prevail.
9.3 Consents. All material consents by third parties that are
required for the consummation of the transactions described in this
Agreement, or that are required in order to prevent a breach of or default
under or a termination of any agreement to which Reynolds, Innkeepers or the
Company is a party, shall have been obtained, unless waived by Meritage.
9.4 Dismissal of Derivative Proceeding. The Derivative Proceeding
shall have been dismissed (or an order providing that such suit will be so
dismissed upon consummation of the transactions provided for in this
Agreement), subject to the condition that the court will retain jurisdiction
to consider the application for the award of attorney's fees, costs and
expenses to be paid by the Company and to the reinstatement of the complaint
and all claims if the Closing does not occur. The order of dismissal shall
expressly preserve Meritage's right to make claims against Reynolds for
indemnity under this Agreement and to make claims against Reynolds under any
contract entered into by Reynolds pursuant to this Agreement.
9.5 Approval of this Agreement and the Transactions Described in
this Agreement. This Agreement and the transactions described in this
Agreement shall have been approved by the holders of a majority of the
shares of the Company's Common Stock (other than the shares owned
beneficially or of record by Meritage and the 868,018 shares owned by
Reynolds, as recited in Recital B above, or by their respective successors
or assigns).
9.6 Satisfaction with Due Diligence Investigation. Meritage shall
be reasonably satisfied with its due diligence investigation of the Company,
as described in Section 6.1 hereof. This condition shall be deemed
satisfied upon the expiration of thirty (30) days from the date of this
Agreement unless, on or before the expiration of such thirty (30) day
period, Meritage has terminated its obligations under this Agreement as
provided in Section 6.1.
9.7 Long-Term Bank Debt. (a) The holders of the Company's
long-term bank debt shall have consented to the refinancing of such debt on
terms that are satisfactory to Meritage in its absolute and uncontrolled
discretion, or (b) the long-term debt held by any lender from which such a
consent has not been obtained shall have been replaced by financing approved
by the Company's New Board of Directors.
9.8 Performance by Other Parties. The Company, Reynolds and
Innkeepers shall have observed and performed all of their respective
obligations under this Agreement including but not limited to execution and
delivery of all documents and performance of all acts to be executed and
delivered or performed by the Company and Reynolds at the Closing as set
forth in this Agreement.
9.9 Cash on Hand. The Company shall have at least $1.5 million in
cash on hand on the Closing Date.
9.10 No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any event, development or circumstance related to
the business, condition (financial or otherwise), capitalization or
properties of the Company that has had or could reasonably be expected to
have a material adverse effect on the business, financial condition,
capitalization or properties of the Company, whether or not such event,
development, circumstance, change or effect is reflected in the Schedules
to this Agreement, as amended or supplemented after the date hereof.
9.11 Chapter 7A. Neither Meritage, nor any identified or
unidentified existing or future affiliate of Meritage, shall be an
"interested shareholder", as defined in Chapter 7A, and Chapter 7A shall not
apply to any "business combination", as defined in Chapter 7A, with Meritage
or any identified or unidentified existing or future affiliate of Meritage.
9.12 Waiver. Meritage shall have the right to waive any or all of
the foregoing conditions.
SECTION 10
CONDITIONS PRECEDENT TO OBLIGATIONS OF
REYNOLDS AND INNKEEPERS
Each and all of the obligations of Reynolds and Innkeepers to
consummate the transactions described in this Agreement are subject to
fulfillment of the following conditions:
10.1 Accuracy of Warranties and Performance of Covenants. The
representations and warranties of Meritage contained herein shall be
accurate in all material respects as if made on and as of the Closing Date.
Meritage shall have performed all of the obligations and complied with each
and all of the covenants, agreements and conditions required to be performed
or complied with on or prior to the Closing.
10.2 No Pending Action. No action, suit, proceeding or investigation
before any court, administrative agency or other governmental authority
shall be pending or threatened wherein an unfavorable judgment, to create
or order would prevent the carrying out of this Agreement or any of the
transactions described in this Agreement, declare unlawful the transactions
described in this Agreement or cause such transactions to be rescinded;
provided that Reynolds or Innkeepers, as applicable, has received an opinion
of legal counsel that the claims made in such action, suit, proceeding or
investigation are meritorious and that it is more likely than not that the
claimant will prevail.
10.3 Consents. All material consents by third parties that are
required for the consummation of the transactions described in this
Agreement, or that are required in order to prevent a breach of or default
under or termination of any agreement to which either Meritage or the
Company is a party, shall have been obtained; provided, however, that if a
consent required by this Section 10.3 has not been obtained, Meritage or the
Company may, in lieu of obtaining such consent, agree in writing to defend,
indemnify and hold Reynolds and Innkeepers harmless from any liability, cost
and expense either of them may incur as a result of consummating the
transactions provided for in Section 2 of this Agreement in the absence of
such consent, and such written indemnity shall satisfy the condition of this
Section 10.3.
10.4 Dismissal of Derivative Proceeding. The Derivative Proceeding
shall have been dismissed (or an order providing that such suit will be so
dismissed upon consummation of the transactions provided for in this
Agreement), subject to the condition that the court will retain jurisdiction
to consider the application for the award of attorney's fees, costs and
expenses to be paid by the Company and to the reinstatement of the complaint
and all claims if the Closing does not occur. The order of dismissal shall
expressly preserve Meritage's right to make claims against Reynolds for
indemnity under this Agreement and to make claims against Reynolds under any
contract entered into by Reynolds pursuant to this Agreement.
10.5 Approval of this Agreement and the Transactions Described in
this Agreement. This Agreement and the transactions described in this
Agreement shall have been approved by the holders of a majority of the
shares of the Company's Common Stock (other than the shares owned
beneficially or of record by Meritage and the 868,018 shares owned by
Reynolds, as recited in Recital B above, or by their respective successors
or assigns).
10.6 Performance by Meritage. Meritage shall have observed and
performed all of its obligations under this Agreement including but not
limited to execution and delivery of all documents and performance of all
acts to be executed and delivered or performed by Meritage at the Closing
as set forth in this Agreement.
10.7 Waiver. Reynolds and Innkeepers shall have the right to waive
any or all of the foregoing conditions.
SECTION 11
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
Each and all of the obligations of the Company to consummate the
transactions described in this Agreement are subject to fulfillment of the
following conditions:
11.1 Accuracy of Warranties and Performance of Covenants. The
representations and warranties of Meritage contained herein shall be
accurate in all material respects as if made on and as of the Closing Date.
Meritage shall have performed all of the obligations and complied with each
all of the covenants, agreements and conditions required to performed or
complied with on or prior to the Closing.
11.2 No Pending Action. No action, suit, proceeding or investigation
before any court, administrative agency or other governmental authority
shall be pending or threatened wherein an unfavorable judgment, decree or
order would prevent the carrying out of this agreement or any of the
transactions described in this Agreement, declare unlawful the transactions
described in this Agreement, or cause such transactions to be rescinded;
provided that the Company has received an opinion of legal counsel that the
claims made in such action, suit, proceeding or investigation are
meritorious and that it is more likely than not that the claimant will
prevail.
11.3 Consents. All material consents by third parties that are
required for the consummation of the transactions described in this
Agreement, or that are required in order to prevent a breach of or default
under of a termination of any agreement to which Meritage, Reynolds or
Innkeepers is a party, shall have been obtained; provided, however, that if
a consent required by this Section 11.3 has not been obtained, Meritage may,
in lieu of obtaining such consent, agree in writing to defend, indemnify and
hold the Company harmless from any liability, cost and expense it may incur
as a result of consummating the transactions provided for in Section 2 of
this Agreement in the absence of such consent, and such written indemnity
shall satisfy the condition of this Section 11.3.
11.4 Dismissal of Derivative Proceeding. The Derivative Proceeding
shall have been dismissed (or an order providing that such suit will be so
dismissed upon consummation of the transactions provided for in this
Agreement), subject to the condition that the court will retain jurisdiction
to consider the application for the award of attorney's fees, costs and
expenses to be paid by the Company and to the reinstatement of the complaint
and all claims if the Closing does not occur. The order of dismissal shall
expressly preserve Meritage's right to make claims against Reynolds for
indemnity under this Agreement and to make claims against Reynolds under any
contract entered into by Reynolds pursuant to this Agreement.
11.5 Approval of this Agreement and the Transactions Described in
this Agreement. This Agreement and the transactions described in this
Agreement shall have been approved by the holders of a majority of the
shares of the Company's Common Stock (other than the shares owned
beneficially or of record by Meritage and the 868,018 shares owned by
Reynolds, as recited in Recital B above, or by their respective successors
or assigns).
11.6 Performance by Meritage. Meritage shall have observed and
performed all of its obligations under this Agreement including but not
limited to execution and delivery of all documents and performance of all
acts to be executed and delivered or performed by Meritage at the Closing
as set forth in this Agreement.
11.7 Receipt of Fairness Opinion. The Company shall have received
the Fairness Opinion.
11.8 Waiver. The Company shall have the right to waive any or all
of the foregoing conditions.
SECTION 12
THE CLOSING AND CLOSING DELIVERIES
12.1 Closing Date. The closing of the transactions described in this
Agreement (the "Closing") shall take place at the offices of Dykema Gossett
PLLC, Grand Rapids, Michigan, immediately following the adjournment of the
meeting of shareholders referred to in Section 6.3, or at such other
location, time, or date as may be mutually agreed upon among Reynolds,
Innkeepers, Meritage and the Company (such time and date being herein called
the "Closing Date").
12.2 Deliveries by Reynolds at Closing. At the Closing, Reynolds
shall deliver (and, where applicable, shall execute):
(a) to the Company and Meritage, a certificate as to the continued
accuracy of the representations and warranties set forth in this Agreement
(or identifying the specific nature of and reason for each and every
inaccuracy in such representations and warranties), together with a
statement setting forth any changes, between the date of this Agreement and
the Closing Date, of any of the information disclosed in Schedule 4.22 to
this Agreement;
(b) to Meritage and the Company, the legal opinion of McShane &
Bowie, PLC, opining favorably on the matters referred to in Section 4.4(c),
and covering such other matters as may be reasonably requested by Meritage
or the Company, all in such form and manner as may be reasonably requested
by Meritage or the Company;
(c) to the other parties to this Agreement, all contracts referred
to in Section 2 above to be executed and delivered by Reynolds;
(d) to Meritage and the Company, a release agreement covering all
claims that Reynolds has, at law or in equity (including known and unknown
claims arising under statute, by contract, in tort or otherwise), against
Meritage or its officers and directors, and against the Company or its
officers and directors, other than claims that Reynolds may have (i) against
Meritage for indemnity under this Agreement and (ii) against the Company or
Meritage arising out of the breach by the Company or Meritage, as the case
may be, of any contract entered into by the Company or Meritage in
connection with consummation of the transactions provided for in this
Agreement; and
(e) to the Company and Meritage, a release signed by all of the
defendants in the Derivative Proceeding and the Pending 7B Suit who are not
parties to this Agreement covering all claims and counterclaims arising out
of or relating to the subject matter of the Derivative Proceeding and the
Pending 7B Suit.
12.3 Deliveries by Innkeepers at Closing. At Closing, Innkeepers
shall deliver (executed on behalf of Innkeepers by a duly authorized
corporate officer, where applicable):
(a) to Meritage and the Company, a certificate as to the continued
accuracy of the representations and warranties set forth in this Agreement
(or identifying the specific nature of and reason for each and every
inaccuracy in such representations and warranties), together with a
statement setting forth any changes, between the date of this Agreement and
the Closing Date, of any of the information disclosed in Schedule 4.22 to
this Agreement;
(b) to Meritage and the Company, a Release Agreement signed by
Innkeepers with respect to the Management Agreement for the Company's hotel
properties and all other contracts and relationships whatsoever, such
Release Agreement conforming in form and substance to such requirements as
the Company or Meritage may reasonably require;
(c) to Meritage and the Company, the legal opinion of McShane &
Bowie, PLC, opining favorably on the matters referred to in Section 4.4(b),
and covering such other matters as may be reasonably requested by Meritage
or the Company, all in such form and manner as may be reasonably requested
by Meritage or the Company;
(d) to the other parties to this Agreement, all contracts referred
to in Section 2 above to be executed and delivered by Innkeepers; and
(e) to Meritage and the Company, a release agreement covering all
claims that Innkeepers has, at law or in equity (including known and unknown
claims arising under statute, by contract, in tort or otherwise), against
Meritage or its officers and directors, and against the Company or its
officers and directors, other than claims that Innkeepers may have (i)
against Meritage for indemnity under this Agreement and (ii) against the
Company or Meritage arising out of the breach by the Company or Meritage,
as the case may be, of any contract entered into by the Company or Meritage
in connection with consummation of the transactions provided for in this
Agreement.
12.4 Deliveries by the Company at Closing. At Closing, the Company
shall deliver (executed on behalf of the Company by a duly authorized
corporate officer, where applicable):
(a) to Meritage, a certificate as to the continued accuracy of the
representations and warranties set forth in this Agreement (or identifying
the specific nature of and reason for each and every inaccuracy in such
representations and warranties), together with a statement setting forth any
changes, between the date of this Agreement and the Closing Date, of any of
the information disclosed in Schedule 4.22 to this Agreement;
(b) to Meritage, the resignations of the current officers of the
Company and the current officers and directors of all of the Company's
subsidiaries (such resignations to be in such form as Meritage may
reasonably require to ensure that they are irrevocably and unconditionally
effective as of the Closing Date);
(c) to Meritage and the Company, the legal opinion of Howard &
Howard Attorneys, P.C., opining favorably on the matters referred to in
Section 4.4(a), and covering such other matters as may be reasonably
requested by Meritage or the Company, all in such form and manner as may be
reasonably requested by Meritage or the Company;
(d) to AFC and its designees or to such alternative lending source
as the Company's New Board of Directors may select, such documents, fees and
things as may be required to close the Interim Financing or Alternative
Interim Financing in accordance with the terms of Interim Financing
Commitment or Alternative Interim Financing Commitment as accepted by the
Company;
(e) to the other parties to this Agreement, all contracts referred
to in Section 2 above to be executed and delivered by the Company; and
(f) to Meritage, Reynolds and Innkeepers, a release agreement
covering all claims that the Company has, at law or in equity (including
known and unknown claims arising under statute, by contract, in tort or
otherwise), against Meritage or its officers and directors, the Company or
its officers and directors, and Reynolds, other than claims that the Company
may have (i) against Meritage for indemnity under this Agreement and (ii)
against Meritage, Reynolds or Innkeepers arising out of the breach by
Meritage, Innkeepers or Reynolds, as the case may be, of any contract
entered into by Meritage, Innkeepers or Reynolds in connection with
consummation of the transactions provided for in this Agreement.
12.5 Deliveries by Meritage at Closing. At Closing, Meritage shall
deliver (executed on behalf of Meritage by a duly authorized corporate
officer, where applicable):
(a) to the Company, Reynolds and Innkeepers, the legal opinion of
Dykema Gossett PLLC opining favorably on the matters referred to in Section
5.2, and covering such other matters as may be reasonably requested by the
Company and Reynolds, all in such form and manner as may be reasonably
requested by the Company, Reynolds or Innkeepers;
(b) to the other parties to this Agreement, all contracts referred
to in Section 2 above to be executed and delivered by Meritage;
(c) to the Company, Reynolds and Innkeepers, a release agreement
covering all claims that Meritage has, at law or in equity (including known
and unknown claims arising under statute, by contract, in tort or
otherwise), against the Company or its officers and directors, Innkeepers
or its officers and directors, and Reynolds, other than claims that Meritage
may have (i) against the Company, Innkeepers or Reynolds for indemnity under
this Agreement and (ii) against the Company, Reynolds or Innkeepers arising
out of a breach by the Company, Innkeepers or Reynolds, as the case may be,
of any contract entered into by the Company, Innkeepers or Reynolds in
connection with consummation of the transactions provided for in this
Agreement; and
(d) to the Company, Reynolds and Innkeepers, a release signed by all
of the plaintiffs in the Derivative Proceeding who are not parties to this
Agreement covering all claims arising out of or relating to the subject
matter of the Derivative Proceeding.
12.6 Scope of Releases. The parties recognize that Reynolds and
William F. Ehinger remain shareholders of the Company and will be nominated
for election as directors of the Company at the meeting of shareholders
referred to in Section 6.3 above. The parties also recognize that the
releases to be delivered pursuant to Section Section 12.2(d), 12.2(e),
12.3(e), 12.5(c) and 12.5(d) will be signed by shareholders of the Company
who will continue to be shareholders of the Company after the Closing.
Therefore, such releases shall not release any claim that any party, as a
shareholder or director of the Company, may have against the Company for any
act or omission arising after the Closing.
SECTION 13
INDEMNIFICATION
13.1 Indemnification by Reynolds, Innkeepers and the Company.
Subject to Section 13.6, Reynolds, Innkeepers and the Company (collectively,
the "Joint Indemnitors"), jointly and severally, shall indemnify and hold
harmless Meritage, and its successors and assigns, against any and all loss,
injury, liability, claim, damage or expense (including, without limitation,
reasonable attorney's fees, court costs and amounts paid in settlement of
claims), suffered by Meritage or its successors or assigns resulting from
any of the following:
(a) any breach or failure to perform by any of the Joint Indemnitors
of any of their respective obligations under this Agreement;
(b) any inaccuracy in or breach of any of the representations,
warranties, covenants or agreements made by any of the Joint Indemnitors in
this Agreement (but only if the stock purchase referred to in Section 1.2
of this Agreement is consummated); and
(c) any inaccuracy or misrepresentation (whether negligent or
otherwise) in any information furnished by or on behalf of Reynolds or
Innkeepers, in writing, for the Company's use in connection with its proxy
statement for the meeting of shareholders referred to in Section 6.3, or in
any certificate, affidavit or document delivered by any of the Joint
Indemnitors on the Closing Date or in accordance with the provisions of any
section of this Agreement.
The indemnification obligations contained in this Section 13.1 are
joint and several, and are the direct and unconditional obligations of each
of the Joint Indemnitors. With respect to a claim under this Section 13,
Meritage may, in its sole discretion, pursue all or less than all of the
Joint Indemnitors, in any order Meritage determines, without affecting or
impairing any obligation or liability of any of them. Each of the Joint
Indemnitors waives to the fullest extent permitted by law any and all
defenses arising by reason of any failure of Meritage to pursue less than
all of the Joint Indemnitors, regardless of whether any of the Joint
Indemnitors has been or could be prejudiced as a result thereof.
Neither Reynolds, nor Innkeepers, shall have any right of
indemnification, contribution, subrogation or any other claim or means of
recovery against the Company on account of any recovery or attempted
recovery by Meritage against Reynolds or Innkeepers under the
indemnification provisions contained in this Section 13 or any other
provision of this Agreement or of law, all of which rights that may have
otherwise existed in favor of Reynolds or Innkeepers being knowingly, fully
and unconditionally waived by Reynolds and Innkeepers. Notwithstanding the
foregoing, Reynolds and Innkeepers shall indemnify and hold the Company
harmless with respect to all claims, demands, expenses, costs, losses and
damages incurred by the Company, including, without limitation, reasonable
attorneys' fees, arising out of or occurring as a result of any inaccuracy
of any representation or warranty made by Reynolds or Innkeepers or the
failure by Reynolds or Innkeepers to duly and punctually observe and perform
any of their respective agreements in this Agreement, regardless of whether
the Company was also a party to, made or was bound by the representation,
warranty or agreement that is the subject of such indemnity claim.
13.2 Indemnification by Meritage. Meritage shall indemnify and hold
harmless Reynolds, Innkeepers and the Company, and their respective
successors and assigns, against any and all loss, injury, liability, claim,
damage or expense (including, without limitation, reasonable attorney's
fees, court costs and amounts paid in settlement of claims), suffered by
Reynolds, Innkeepers or the Company or their successors or assigns relating
from any of the following:
(a) Any breach or failure to perform by Meritage of its obligations
under this Agreement;
(b) Any inaccuracy in or breach of any of the representations,
warranties, covenants or agreements by Meritage in this Agreement (but only
if the stock purchase referred to in Section 1.2 of this Agreement is
consummated); and
(c) Any inaccuracy or misrepresentation (whether negligent or
otherwise) in any information furnished by or on behalf of Meritage in
writing for the Company's use in connection with its proxy statement for the
meeting of shareholders referred to in Section 6.3, or in any certificate,
affidavit or document delivered by Meritage on the Closing Date in
accordance with the provisions of any section of this Agreement.
13.3 Claims Procedure. If any action, claim or demand shall be
brought or asserted against any party in respect of which indemnity may be
sought pursuant to this section, the party seeking indemnification (the
"Indemnity Claimant") shall promptly notify the party or parties from whom
indemnification is sought (the "Indemnity Obligor(s)"), stating in writing
the amount claimed to be due and payable, the basis of the claim, and the
provision or provisions of this Agreement under which such claim for
indemnity is asserted. The notice shall be accompanied by copies of any
documents relied on by any claimant and furnished to the parties seeking
indemnification. Within 30 days after receipt of such notice, the Indemnity
Obligor(s) shall by written notice either: (i) concede liability in whole
as to the amount claimed in such notice; (ii) deny liability in whole as to
such amount; (iii) concede liability in part and deny liability in part; or
(iv) in the case of claims by third-parties, assume the defense thereof
(with legal counsel approved by the Indemnity Claimant, which approval shall
not be unreasonably withheld.) If the notice required hereunder is properly
given, failure by the Indemnity Obligor(s) to assume the defense of a
third-party claim for which a party is entitled to indemnity under this
Agreement shall cause the indemnity obligations of the Indemnity Obligor(s)
to extend to whatever outcome results from such third-party claim (this
clause otherwise shall not limit the liability of an Indemnity Obligor under
this Agreement.) Any settlement or compromise of a claim shall be agreed
upon by all parties to this Agreement. If the Indemnity Claimant declines
to accept a bona fide offer of settlement which is recommended by the
Indemnity Obligor, the maximum liability of the Indemnity Obligor(s) shall
not exceed that amount which it would have been liable for had such
settlement been accepted. If the Indemnity Obligor(s) declines to accept
a bona fide offer of settlement recommended by the Indemnity Claimant, the
Indemnity Obligor(s) shall be liable for whatever outcome results from such
third-party claim.
13.4 Set-Off. Upon the entry of a judgment of a court of competent
jurisdiction determining that any of the Joint Indemnitors are obligated to
indemnify Meritage pursuant to this section, Meritage shall be entitled (but
without being obligated to do so) to reduce, on a dollar-for-dollar basis,
any amounts then or thereafter due or to become due to the Company under the
Secured Promissory Note or to Reynolds or the Company under the Put/Call
Agreement. Further, upon the entry of a judgment of a court of competent
jurisdiction determining that Reynolds or Innkeepers is obligated to
indemnify the Company pursuant to this Section 13, the Company shall be
entitled to withhold payment of any dividends otherwise payable with respect
to any of Reynolds's Company Stock and apply such dividends toward
satisfaction of any such judgment. Meritage shall have no right of set-off
other than as expressly provided in this Section 13.4. Meritage shall not
exercise its right of set off under this Section 13.4 at any time during
which an order of a court of competent jurisdiction staying enforcement of
a judgment is in effect.
13.5 Payments into Escrow. If Meritage or the Company asserts a
claim for indemnity against Reynolds or Innkeepers, Meritage or the Company,
as the case may be, shall so notify Reynolds (individually and as agent for
Innkeepers) in writing and, after giving such written notice, Meritage (or
the Company, as the case may be) shall be entitled to pay the amount of any
such claim into an escrow account under the control of a mutually acceptable
independent escrow agent and to postpone making any payment required by
Meritage or the Company pursuant to the Put/Call Agreement, but only to the
extent of the amounts so paid into escrow. If Meritage asserts a claim for
indemnity against the Company, Meritage shall be entitled to pay the amount
of any such claim into an escrow account under the control of a mutually
acceptable independent escrow agent and to postpone making any payment
required by Meritage pursuant to the Secured Promissory Note or the Put/Call
Agreement, but only to the extent of the amounts so paid into escrow. In
no event shall Meritage pay into escrow more than the aggregate amount of
its claims for indemnity pursuant to this Agreement. The escrow agent shall
hold all such payments, together with the earnings (if any) on such
payments, in escrow pending the entry of a final judgment of a court of
competent jurisdiction disposing of the claim for indemnity asserted by
Meritage or the Company, as the case may be, and the escrow agent thereupon
shall pay over the sums held in escrow in accordance with the court's final
judgment. As used in the preceding sentence, a "final judgment" shall be
one from which no appeal of right may be taken.
13.6 Threshold for Claims. Neither Meritage, Reynolds, Innkeepers
nor the Company shall make any claim for indemnity under this Agreement
unless and until such claims exceed $75,000 on a pre-tax basis (combining
the claims of Meritage and the Company against Reynolds or Innkeepers for
purposes of determining whether the $75,000 threshold has been reached).
If the $75,000 threshold is reached, Reynolds and Innkeepers, jointly and
severally, shall be liable for all claims by Meritage and the Company,
including the claims that comprised the initial $75,000 threshold claims.
13.7 Application of Withheld Dividends. The Company is entitled
under Section Section 2.4, 7.5 and 13.4 of this Agreement to withhold
dividends otherwise payable with respect to Reynolds's Company Stock and
apply such dividends toward satisfaction of certain of Reynolds's
obligations. The Company shall be entitled to apply all dividends so
withheld toward payment of any such obligations in such amounts and at such
times as the Company may determine in its absolute and uncontrolled
discretion. Promptly upon obtaining possession of the certificate(s)
evidencing the Reynolds's Company Stock, Reynolds shall deliver the same to
the Company in exchange for new certificate(s) containing the following
legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
CONCERNING THE APPLICATION OF DIVIDENDS PAYABLE WITH RESPECT TO SUCH SHARES
CONTAINED IN Paragraphs 2.4, 7.5, 13.4 and 13.7 OF A STOCK PURCHASE AND SALE
AGREEMENT DATED SEPTEMBER 18, 1995 TO WHICH THE COMPANY AND OTHERS ARE
PARTIES. THE HOLDER OF THIS CERTIFICATE MAY UPON WRITTEN REQUEST OBTAIN A
COPY OF SUCH AGREEMENT FROM THE COMPANY'S SECRETARY. REFERENCE IS MADE TO
SUCH STOCK PURCHASE AND SALE AGREEMENT FOR A COMPLETE STATEMENT OF ALL
APPLICABLE TERMS AND CONDITIONS CONCERNING THE APPLICATION OF DIVIDENDS
PAYABLE WITH RESPECT TO THE SHARES EVIDENCED HEREBY.
At such time as the foregoing restrictions cease to apply, the Company
shall, upon written request accompanied by the certificate(s) containing
such legend, issue a new certificate(s) that does not contain the foregoing
legend.
SECTION 14
MISCELLANEOUS
14.1 Survival. All covenants, agreements, representations and
warranties made herein and in any document or certificate delivered pursuant
to or in connection with this Agreement shall survive the Closing Date.
Claims for indemnity under this Agreement arising out of or relating to the
assertion by third parties of claims against a party to this Agreement
(including claims by third parties against the Company, any subsidiary of
the Company, or any asset of the Company or any subsidiary of the Company)
shall survive the Closing and the Closing Date without limitation. The
parties to this Agreement otherwise shall have no right of indemnification
pursuant to this Agreement as to any claim that is not asserted in
accordance with Section 13 above on or prior to the third anniversary of the
Closing Date.
14.2 Exhibits and Schedules. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
14.3 Amendment. This Agreement and the Exhibits and Schedules hereto
may not be amended except by an instrument in writing signed on behalf of
each of the parties hereto. No waiver of any provision of this Agreement
shall be effective unless specifically made in writing and duly signed by
the party to be bound thereby.
14.4 Prior Agreements and Amendments. This Agreement, including the
Exhibits and Schedules attached hereto and the documents referred to herein,
contain the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof. There are no other agreements or
understandings, oral or written, among the parties hereto with respect to
the subject matter hereof, and this Agreement shall supersede all previous
negotiations, commitments and writings with respect to the subject matter
hereof (including, but not limited to, the Settlement Term Sheet dated
September 8, 1995, and submitted on that date to the Court in the Pending
7B Suit). No waiver of any provision of this Agreement shall be effective
unless specifically made in writing and duly signed by the party to be bound
thereby.
14.5 Choice of Law. This Agreement shall be governed by, construed
and interpreted, and the rights of the parties determined, in accordance
with the laws of the State of Michigan without giving effect to any choice
or conflict of law provision or rule that would cause the application of the
laws of any jurisdiction other than the State of Michigan.
14.6 Notices. All notices and other communications hereunder shall
be made in writing and shall be deemed given if delivered personally or
mailed by registered or certified mail, postage prepaid, return receipt
requested, or mailed by a recognized air courier service such as Federal
Express or the like (such notice to be effective on the date of giving such
notice) as follows:
If to Meritage, addressed to:
Meritage Hospitality Group Incorporated
40 Pearl St., N.W.
Suite 430
Grand Rapids, MI 49503
Attention: Christopher B. Hewett, President
with a copy to:
Dykema Gossett PLLC
200 Oldtown Riverfront Building
248 Louis Campau Promenade, N.W.
Grand Rapids, MI 49503-2668
Attention: Robert L. Nelson, Esq.
If to the Company, addressed to:
Thomas Edison Inns, Inc.
500 North Riverside
St. Clair, MI 48079
Attention: Donald W. Reynolds, President
with a copy to:
Howard & Howard Attorneys, P.C.
1400 N. Woodward Avenue
Suite 101
Bloomfield Hills, MI 48304
Attention: Thomas J. Tallerico, Esq.
If to Reynolds or Innkeepers, addressed to:
Mr. Donald W. Reynolds
1459 Michigan St., N.E.
Grand Rapids, MI 49503
with copies to:
McShane & Bowie, PLC
1100 Campau Square Plaza
99 Monroe Avenue, N.W.
Grand Rapids, MI 49503
Attention: John F. Shape, Esq.
and to
Howard & Howard Attorneys, P.C.
1400 N. Woodward Avenue
Suite 101
Bloomfield Hills, MI 48304
Attention: Thomas J. Tallerico, Esq.
or to such other place and with such other copies as a party may designate
as to itself or himself by written notice to the others.
14.7 Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit or describe the
scope or intent of this Agreement or any provisions hereof.
14.8 Expenses. (a) If the transactions referred to in Section
Section 1 and 2 of this Agreement are consummated, the Company shall pay (i)
all reasonable expenses, including but not limited to attorney's fees,
incurred by Meritage in connection with the Derivative Proceeding (unless
otherwise ordered by the court in the Derivative Proceeding), the Pending
7B Suit, and the negotiation of this Agreement and preparation for and
consummation of the transactions referred to in this Agreement, and (ii) all
reasonable expenses, including but not limited to attorney's fees, incurred
by the Company, Reynolds and Innkeepers in connection with the Pending 7B
Suit and the negotiation of this Agreement and preparation for and
consummation of the transactions referred to in this Agreement. The Company
also shall pay all reasonable expenses, including currently unpaid
reasonable attorney's fees, incurred by the defendants in the Derivative
Proceeding (unless otherwise ordered by the court in the Derivative
Proceeding). This agreement by the Company is based upon the understanding
that the total outstanding attorneys' fees for all services rendered in
connection with the Pending 7B Suit, the Derivative Proceeding and this
Agreement was, as to Howard & Howard Attorneys, P.C., approximately $75,000
as of September 1, 1995, as to Gruel, Mills, Nims & Pylman LLP approximately
$65,000 as of September 10, 1995, as to McShane & Bowie, PLC, approximately
$47,000 as of August 31, 1995, and as to Michael Tummino approximately
$2,000 as of September 1, 1995, and that the defendants in the Pending 7B
Suit and the Derivative Proceeding have engaged no other legal counsel in
connection with the Derivative Proceeding, the Pending 7B Suit or this
Agreement whose fees they intend to submit to the Company for payment of
reimbursement. All expenses and fees to paid by the Company on behalf of
Reynolds, Innkeepers and the defendants in the Derivative Proceeding shall
be separately invoiced to the Company with such detail as the Company may
reasonably request.
(b) If the transactions referred to in Section Section 1 and 2 of
this Agreement are not consummated for any reason other than a default by
a party to this Agreement, each party shall pay its own expenses in
connection with the negotiation of this Agreement. Notwithstanding the
previous sentence of this Section 14.8(b), the Company's liability, if any,
for payment of a breakup fee shall be determined in accordance with Section
6.5.
(c) If the transactions referred to in Section Section 1 and 2 of
this Agreement are not consummated due to a default by any party to this
Agreement, the party or parties who did not breach this Agreement shall be
entitled to recover from the party or parties who are determined to have
breached this Agreement, as an element of damages in addition to all other
damages that may be proven by such non-breaching party or parties, such
reasonable expenses (including but not limited to attorney's fees) as may
have been paid or incurred by such non-breaching party or parties in
connection with the negotiation of this Agreement and attempted consummation
of the transactions referred to herein, and in connection with the
proceedings that may be brought on account of such claimed breach.
Notwithstanding the previous sentence of this Section 14.8(c), the Company's
liability, if any, for payment of a breakup fee shall be determined in
accordance with Section 6.5.
14.9 Successors and Assigns. This Agreement, and all rights and
powers granted hereby will bind and inure to the benefit of all the parties
hereto and the respective successors and assigns.
14.10 Assignment. This Agreement shall not be assignable by any of
the parties and any such attempt at assignment shall be void.
14.11 Waiver of Condition. The waiver of a condition precedent to the
obligation of any party does not waive any other rights arising under this
Agreement as a result of the failure on the part of Meritage, Reynolds,
Innkeepers or the Company to fulfill the waived condition.
14.12 Application of Board's Business Judgment. The Board of
Directors of the Company has exercised its independent business judgment
after due investigation and based upon present knowledge, information and
advice in resolving to enter into this Agreement and consummate the
transactions herein contemplated. Except as herein expressly so committed,
there are no agreements or requirements binding upon any present or future
Board of Directors (including but not limited to the Company's New Board of
Directors) to act other than according to its independent informed business
judgment. Nothing in this Section 14.12 shall entitle the Company to
terminate this Agreement other than as provided in Section 15 below, or to
rescind or amend this Agreement in any respect.
SECTION 15
TERMINATION OF AGREEMENT
15.1 Termination by Consent. This Agreement may be terminated at any
time by written agreement of all of the parties to this Agreement.
Otherwise, this Agreement shall be terminable only in accordance with
Section 15.2.
15.2 Termination on Demand. Any party to this Agreement may
terminate this Agreement any time on or after April 1, 1996, if all
conditions precedent to such party's obligations, as set forth in this
Agreement, have not previously been satisfied or waived by such party;
provided, however, that a party shall have no right to terminate this
Agreement pursuant to this Section 15.2 if the conditions precedent to such
party's obligations have not been satisfied due in whole or in any material
part to a breach by such party of any of its covenants set forth in this
Agreement. This Agreement shall be deemed to have terminated on the date
upon which a party entitled to terminate pursuant to this Section 15.2 duly
notifies the other parties in writing that this Agreement has been
terminated in accordance with this Section 15.2.
15.3 Effect of Termination. Upon due termination of this Agreement
pursuant to Section 15.1 or Section 15.2, all parties shall be released from
all of their respective obligations under this Agreement, and no party shall
have any further rights or claims against another party arising out of this
Agreement; provided, however, that the parties' respective rights and
obligations under Section 8.2 of this Agreement shall survive the
termination of this Agreement pursuant to Section 15.1 or Section 15.2.
15.4 Not a Limitation. No provision of this Section 15 is intended
to limit in any way Meritage's right to terminate its obligations under this
Agreement in accordance with 6.1.
* * * * *
THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties have executed this Stock Purchase and
Sale Agreement as of the date first above written.
WITNESSES: MERITAGE HOSPITALITY GROUP
INCORPORATED, a Florida
corporation
By: /s/ Christoppher B. Hewett
---------------------------
Christopher B. Hewett
Its: President
THOMAS EDISON INNS, INC., a
Michigan corporation
By: /s/ Donald W. Reynolds
--------------------------
Its: President
/s/ Donald W. Reynolds
-----------------------------
Donald W. Reynolds,
Individually
INNKEEPERS MANAGEMENT COMPANY,
a Michigan corporation
By: /s/ Donald W. Reynolds
--------------------------
Its: President
Exhibit I - Meritage Registration Rights Agreement (Section 2.7)
REGISTRATION RIGHTS AGREEMENT
MERITAGE HOSPITALITY GROUP INCORPORATED
This Registration Rights Agreement dated , 199 is between
THOMAS EDISON INNS, INC., a Michigan corporation (the "Company"), whose
address is 500 North Riverside, St. Clair, MI 48079, and MERITAGE
HOSPITALITY GROUP INCORPORATED, a Florida corporation ("Meritage") whose
address is 40 Pearl Street, N.W., Suite 430, Grand Rapids, MI 49503.
RECITALS
Prior to the execution of this Agreement, the Company, Meritage,
Donald W. Reynolds and certain other shareholders of the Company have
entered into a Stock Purchase and Sale Agreement dated September 19, 1995
(the "Stock Purchase Agreement") whereby Meritage has acquired 1,500,000
shares of the common stock of the Company and the Company, subject to the
approval of its Board of Directors, has agreed to grant certain registration
rights to Meritage.
The purchase of 1,500,000 shares of the Company's common stock as
contemplated by the Stock Purchase Agreement has been consummated and the
Company's Board of Directors has approved the execution and delivery of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
parties agree as follows:
1. Definitions. As used in this Agreement:
(a) "Agreement" means this Registration Rights Agreement.
(b) "Commission" or "SEC" means the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.
(c) "Holder" or "Holders" means any holder or holders of
Registrable Securities.
(d) "Person" means and includes an individual, a corporation,
a partnership, a trust, an unincorporated organization and a government or
any department, agency or political subdivision thereof.
(e) "Meritage Related Person" means any Person which directly
or indirectly owns or controls at least 50% of the shares of stock of
Meritage having general voting power in the election of directors and any
Person which owns or controls at least 50% of the general voting power in
the election of directors or similar governing body of such Person or is
directly or indirectly owned or controlled by Meritage or by a Meritage
Related Person.
(f) "Purchased Shares" means the Common Stock of the Company,
$.01 par value per share, which Meritage shall have acquired pursuant to the
Stock Purchase Agreement plus any securities issued or issuable with respect
to the Purchased Shares by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act.
(h) "Registrable Securities" means (i) the Purchased Shares
and (ii) any additional shares of common stock of the Company now owned by
Meritage (and any common stock issued or issuable with respect thereto, by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization).
A security shall cease to be a Registrable Security when (i) it has been
transferred to a Person who is not a Meritage Related Person, in a
transaction not involving any public offering and the transferee did not
acquire at least 100,000 Purchased Shares (appropriately adjusted for stock
splits, stock dividends, combinations, recapitalizations or reorganizations
following the date thereof) in such transaction, (ii) it has been
effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it, (iii) it is
distributed to the public pursuant to Rule 144 (or any similar provisions
then in force under the Securities Act) or (iv) it has otherwise been
transferred and a new certificate or other evidence of ownership for it not
bearing the legend set forth in Section 5.4(f) of the Stock Purchase
Agreement (or other legend of similar import) and no other restriction on
transfer exists.
(i) "Registration Expenses" means all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing
expenses, counsel fees, blue sky fees and expenses, and expenses or any
audits incident to or required by any such registration, but shall not
include any Holder's counsel fees and discounts and commissions payable in
connection with the distribution of the Holders' Registrable Securities;
provided that Registration Expenses to be borne by Holders shall, in no
event, include the Company's internal expenses (including, without
limitation, salaries and expenses of its officers and employees performing
legal or accounting duties), performed in the ordinary course of doing
business and the cost of any liability insurance acquired solely for the
benefit of the Company or its directors, officers or employees, all of which
shall in all cases be borne by the Company.
(j) "Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
(k) "Selling Holder" or "Selling Holders" means any Holder or
Holders whose Registrable Securities are included in a registration
hereunder.
(l) "Transfer" means and includes any disposition of any
shares of Registrable Securities or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
2. Required Registration. If the Company shall receive from any
Holder a request to effect the registration under the Securities Act of the
Registrable Securities, the Company shall promptly give notice to all other
Holders (if any then exist) of a proposed registration and, subject to the
provisions of Section 2(a), (b), (c) and Section 3 hereof, the Company shall
as expeditiously as possible use its best efforts to effect registration
under the Securities Act of the Registrable Securities which the Company has
been requested to register by the original requesting Holder and by each
other Holder who has requested registration of Registrable Securities within
20 days following such notice from the Company. Notwithstanding the
foregoing, the Company shall not be obligated to effect any registration
under the Securities Act under the following conditions:
(a) If in the good faith judgment of the Board of Directors
of the Company, such registration would be materially detrimental to the
Company and the Board of Directors of the Company concludes, as a result,
that it is essential to defer the filing of such registration statement at
such time, and the Company shall furnish to the requesting Holder(s) a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company for such registration statement to be
filed, then the Company shall have the right to defer such filing for a
period during which such filing would be materially detrimental, provided
that the Company may not defer the filing for a period of more than ninety
days after receipt of the initial request.
(b) The Company shall not be obligated to effect any
registration pursuant to this Section 2:
(i) more than once each year; or
(ii) for more than 400,000 shares of the Company's
Common Stock (appropriately adjusted for stock splits, stock
dividends, combinations, recapitalizations or reorganizations
following the date hereof); or
(iii) on a date when the inclusion in such registration
statement of financial statements of the Company other than the
historical financial statements of the Company required to be
contained in the most recently required reports of the Company
on SEC Forms 10-K and 10-Q and the required reports on SEC Form
8-K since the end of the fiscal year covered by the most
recently required report on Form 10-K would be required under
the General Rules and Regulations of the Commission; or
(iv) within 90 days of the effective date of a
registration statement covering securities of the same class as
the Registrable Securities other than in connection with an
employee plan; or
(v) for any offering where the expected aggregate price
for Registrable Securities being offered to the public is less
than $1,000,000.
3. Limitation on Demand Registrations; Registration Expenses. The
demand registration rights provided for in Section 2 may be exercised for
no more than ten registration statements on either Form S-1 or Form S-2
which is declared effective and remain effective in accordance with Section
8 hereof, and for an unlimited number of registration statements on Form
S-3. The Company will pay all Registration Expenses for the registration
statements. The Company will use reasonable efforts to qualify for
registration on Form S-3.
4. Indemnification by the Company. The Company will indemnify and
hold harmless each Selling Holder and any underwriter (as defined in the
Securities Act) for any Selling Holder, if any, and any Person who controls
any Selling Holder or underwriter within the meaning of the Securities Act
against any losses, claims, damages or liabilities (or actions in respect
thereof), joint or several, to which any such Selling Holder or underwriter
or such controlling Person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) are caused by any untrue statement or alleged
untrue statement of any material fact contained, on the effect date thereof,
in any registration statement under which the Registrable Securities were
registered under the Securities Act, any prospectus contained therein, or
any amendment or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage, expense or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
written information furnished by such Selling Holder or its underwriter in
writing specifically for use in the preparation of such prospectus; and will
reimburse each Selling Holder, its underwriter and each such controlling
Person for any legal or other expenses reasonably incurred by such Selling
Holder, its underwriter or such controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or
action.
5. Indemnification of the Company. Each Selling Holder will
indemnify and hold the Company, each of its directors, each of its officers
and each Person, if any, who controls the Company, within the meaning of the
Securities Act, and any underwriter (as defined in the Securities Act) for
the Company against any losses, claims, damages or liabilities (or actions
in respect thereof), to which the Company, or any such director, officer,
controlling Person or underwriter may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) are caused by any untrue statement or alleged
untrue statement of any material fact contained in said registration
statement, said prospectus or any amendment or amendments or supplements
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; in each case to the
extent, but only to the extent, that such untrue statement or omission was
so made in reliance upon and in conformity with written information
furnished by such Selling Holder for use in the preparation thereof; and
will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling Person in connection
with investigating or defending any such loss, claim, damage, liability or
action.
6. Procedure for Indemnification Claim. Promptly after receipt by
an indemnified party pursuant hereto notice of any claim to which indemnity
would apply to the commencement of<PAGE>
any action, such indemnified party will, if
a claim is made against the indemnifying party pursuant hereto, notify the
indemnifying party of the commencement thereof; but the omission to notify
the indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise and hereunder. In case such action
is brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party and, after notice from
the indemnifying party to such indemnified party of its election to assume
the defense thereof and so long as the indemnifying party shall not be liable
under this indemnity for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof, provided however,
that the indemnified party shall have the right to employ separate counsel
at its expense in any such action and participate in the defense thereof.
No indemnifying party shall be liable for any settlement entered into
without its consent.
7. Right to Piggyback.
(a) Whenever the Company proposes to register any of its
securities under the Securities Act for sale by the Company solely for cash
(other than pursuant to Section 2 hereof) (a "Piggyback Registration"), the
Company will give written notice to all Holders of its intentions to effect
such a registration not later than the 45 days prior to the anticipated
filing date. The Company will include in such Piggyback Registration all
Registrable Securities with respect to which the Company has received
written request for inclusion therein within twenty business days after the
receipt by the Holders of the Company's notice. Each Selling Holder shall
be permitted to withdraw all of any part of its Registrable Securities from
a Piggyback Registration at any time prior to the effective date of such
Piggyback Registration. If a Piggyback Registration is an underwritten
offering, each Selling Holder shall be obligated to sell its Registrable
Securities on the same terms and conditions as apply to the securities being
issued and sold by the Company; provided, however, that it an underwritten
offering is being conducted in which Selling Holders seek to exercise their
piggyback rights and the managing underwriter advises the Company in writing
that in its opinion the total number or dollar amount of Registrable
Securities requested to be included in such registration exceeds the number
or dollar amount of securities which can be offered and sold on reasonable
terms and price under prevailing market conditions, the Company will include
in such registration first the securities which the Company proposes to
sell, and then the number and dollar amount of Registrable Securities of
Selling Holders on a proportionate basis, which, in the opinion of the
underwriter, can be sold; and, further provided, that if shares of the
Company's common stock held by Persons other than the Company or any Holder
or Holders of the Registrable Securities were proposed to be included in
such registration statement, there shall first be a reduction in the dollar
amount of the shares which such other Persons propose to include in such
registration statement before any reduction of any Holder or Holders of
Registrable Securities.
Notwithstanding the foregoing, if the Company proposes to sell
any of its securities under the Securities Act pursuant to the terms of
warrants, rights or convertible securities which are being registered in
connection with the registration of such warrants, rights or convertible
securities or in connection with dividend reinvestment plans and other than
pursuant to Section 2 hereof, the Company shall have no obligation to
register Registrable Securities for sale as part of the offering of such
warrants, rights or convertible securities unless the Registrable Securities
can be registered and sold in an offering conducted subsequent to such
offering, and provided that if the Company, the managing underwriter or
their representatives, or the selling dealers or their representatives, if
any, determine, reasonably and in good faith that the number of securities
on any such registration exceeds the number of shares which can be offered
and sold on reasonable terms and price under prevailing market conditions,
the Company will include in such registration first the warrants, rights or
convertible securities which the Company proposes to sell and then, in a
subsequent offering, the number and dollar amount of Registrable Securities
which can be sold under prevailing market conditions, reduced, if necessary
on a proportionate basis among such Selling Holders.
(b) The Company shall bear all Registration Expenses in
connection with any Piggyback Registration, except that Selling Holders
shall bear the cost of additional filing fees, printing costs and Blue Sky
fees and expenses resulting from the inclusion of Registrable Securities in
such registration in proportion to the relative amounts of Registrable
Securities included by each Selling Holder.
8. Registration Procedures. Whenever Holders have requested that
any Registrable Securities be registered pursuant to this Agreement, the
Company will use its best efforts to effect the registration and the sale
of such Registrable Securities in accordance with the intended method of
disposition thereof and pursuant thereto the Company will as expeditiously
as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to the counsel
selected by the Holders of a majority of the Registrable Securities covered
by such registration statement copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel
regarding any information that pertains to the Holder or Holders;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than 90 days after the Registrable
Securities may first be publicly sold pursuant thereto and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
set forth in such registration statement;
(c) furnish to each Selling Holder such number of copies of
such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Selling Holder;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Selling Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such Selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Selling Holders
(provided that the Company will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service or process in any such
jurisdiction;
(e) notify each Selling Holder of such Registrable Securities,
at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any fact necessary to make
the statements therein not misleading, and, at the request of any such
seller, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed;
(g) negotiate in good faith such customary agreements
(including an underwriting agreement in customary form) and take such other
reasonable actions as the Holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities; and
(h) make available for inspection by any Selling Holder's
underwriter participating in any disposition pursuant to such registration
statement and any such underwriter's counsel, accountant or other agent
retained by any such Selling Holder or underwriter, all financial and other
pertinent records, corporate documents and properties of the Company, and
cause the Company's officers and employees to supply all information
reasonably requested by any such Selling Holder's underwriter, attorney,
accountant or agent in connection with such registration statement.
9. Holdback Agreements.
(a) Each Holder of Registrable Securities agrees not to effect
any public sale or distribution of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period beginning
on the effective date of any underwritten registration which includes
Registrable Securities (except as part of such underwritten registration).
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into
or exchangeable or exercisable for such securities, during the seven days
prior to and the 90-day period beginning on the effective date of any
underwritten registration which includes Registrable Securities (except with
the agreement of the underwriters or as part of such underwritten
registration or pursuant to registrations for employee benefit plans) and
(ii) to cause each holder of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities,
purchased from the Company at any time after the date of this Agreement
(other than in a registered public offering) to agree not to effect any
public sale or distribution of any such securities during such period
(except with the agreement of the underwriters or as part of such
underwritten registration, if otherwise permitted).
10. Rule 144 Reporting. The Company agrees when required by law to
make and keep public information available, as those terms are understood
and defined in Rule 144 of the Securities Act, at all times after the date
of this Agreement and to use its best efforts to file with the Commission
in a timely manner all reports and other documents required under the
Securities Act and the Securities Exchange Act of 1934. So long as Meritage
or any other Holder owns Registrable Securities, the Company agrees to
furnish Meritage and each other Holder upon its reasonable request a written
statement by the Company as to its compliance with reporting requirements
of said Rule 144 and of the Securities Act and the Securities Exchange Act,
a copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company as the requesting Person
reasonably requests which will allow the sale of any such Registrable
Securities without registration.
11. Termination. All registration rights provided to any Holder
under this Agreement shall terminate (i) if such Holder beneficially owns
less than 100,000 Purchased Shares (appropriately adjusted for stock splits,
stock dividends, combinations, recapitalizations or reorganizations
following the date hereof), and (ii) such Purchased Shares are eligible for
sale pursuant to Rule 144(k) (or any similar provision in force) under the
Securities Act.
12. Notices. All notices and other communications hereunder shall
be made in writing and shall be deemed given if delivered personally or
mailed by registered or certified mail, postage prepaid, return receipt
requested, or mailed by a recognized air courier such as Federal Express or
the like, (such notice to be effective on the date of giving such notice)
as follows:
(a) If to Meritage to:
Meritage Hospitality Group Incorporated
40 Pearl Street, N.W., Suite 430
Grand Rapids, MI 49503
Attention: Christopher B. Hewett, President
with a copy to:
Dykema Gossett PLLC
200 Oldtown Riverfront Building
Grand Rapids, MI 49503
Attention: Robert L. Nelson, Esq.
(b) If to the Company to:
Thomas Edison Inns, Inc.
500 North Riverside
St. Clair, MI 48079
Attention: President
with a copy to:
Warner Norcross & Judd
900 Old Kent building
111 Lyon Street, N.W.
Grand Rapids, MI 49503-2489
Attention: Alex J. DeYonker, Esq.
(c) If to any other Holder, at its address for notice
purposes on the records of the Company.
13. Governing Law. This Agreement shall be deemed a contract under,
and shall be governed and construed in accordance with, the laws of the
State of Michigan, without giving effect to principles of conflicts of laws.
14. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit or describe the
scope or intent of this Agreement or any of the provisions thereof.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
16. Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable in any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above stated.
THOMAS EDISON INNS, INC.
By
Its
MERITAGE HOSPITALITY GROUP
INCORPORATED
By
Christopher B. Hewett
President
Exhibit J - Reynolds's Registration Rights Agreement (Section 2.7)
REGISTRATION RIGHTS AGREEMENT
DONALD W. REYNOLDS
This Registration Rights Agreement dated , 199 is between
THOMAS EDISON INNS, INC., a Michigan corporation (the "Company"), whose
address is 500 North Riverside, St. Clair, MI 48079 and DONALD W. REYNOLDS
("Reynolds") whose address is 1459 Michigan St., N.E., Grand Rapids, MI
49503.
RECITALS
Prior to the execution of this Agreement, the Company, Meritage
Hospitality Group Incorporated, Donald W. Reynolds and certain other
shareholders of the Company have entered into a Stock Purchase and Sale
Agreement dated September 19, 1995 (the "Stock Purchase Agreement") whereby
the Company, subject to the approval of its Board of Directors, has agreed
to grant certain registration rights to Reynolds.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
parties agree as follows:
1. Definitions. As used in this Agreement:
(a) "Agreement" means this Registration Rights Agreement.
(b) "Commission" or "SEC" means the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.
(c) "Holder" or "Holders" means any holder or holders of
Registrable Securities.
(d) "Person" means and includes an individual, a corporation,
a partnership, a trust, an unincorporated organization and a government or
any department, agency or political subdivision thereof.
(e) "Reynolds Shares" means the Common Stock of the Company,
$.01 par value per share, which Reynolds owns in his own name 747,850 as of
the time of this Agreement plus any securities issued or issuable with
respect to the Reynolds Shares by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(f) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act.
(g) "Registrable Securities" means (i) the Reynolds Shares and
(ii) any common stock issued or issuable with respect thereto, by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. A security
shall cease to be a Registrable Security when (i) it has been transferred
by Reynolds to another Person, in a transaction not involving any public
offering and the transferee did not acquire at least 100,000 Reynolds Shares
(appropriately adjusted for stock splits, stock dividends, combinations,
recapitalizations or reorganizations following the date thereof) in such
transaction, (ii) it has been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering
it, (iii) it is distributed to the public pursuant to Rule 144 (or any
similar provisions then in force under the Securities Act) or (iv) it has
otherwise been transferred and a new certificate or other evidence of
ownership for it not bearing the legend set forth in Section 5.4(f) of the
Stock Purchase Agreement (or other legend of similar import) and no other
restriction on transfer exists.
(h) "Registration Expenses" means all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing
expenses, counsel fees, blue sky fees and expenses, and expenses or any
audits incident to or required by any such registration, but shall not
include any Holder's counsel fees and discounts and commissions payable in
connection with the distribution of the Holders' Registrable Securities;
provided that Registration Expenses to be borne by Holders shall, in no
event, include the Company's internal expenses (including, without
limitation, salaries and expenses of its officers and employees performing
legal or accounting duties), performed in the ordinary course of doing
business and the cost of any liability insurance acquired solely for the
benefit of the Company or its directors, officers or employees, all of which
shall in all cases be borne by the Company.
(i) "Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
(j) "Selling Holder" or "Selling Holders" means any Holder or
Holders whose Registrable Securities are included in a registration
hereunder.
(k) "Transfer" means and includes any disposition of any
shares of Registrable Securities or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
2. Required Registration. If the Company shall receive from any
Holder a request to effect the registration under the Securities Act of the
Registrable Securities, the Company shall promptly give notice to all other
Holders (if any then exist) of a proposed registration and, subject to the
provisions of Section 2(a), (b), (c) and Section 3 hereof, the Company shall
as expeditiously as possible use its best efforts to effect registration
under the Securities Act of the Registrable Securities which the Company has
been requested to register by the original requesting Holder and by each
other Holder who has requested registration of Registrable Securities within
20 days following such notice from the Company. Notwithstanding the
foregoing, the Company shall not be obligated to effect any registration
under the Securities Act under the following conditions:
(a) If in the good faith judgment of the Board of Directors
of the Company, such registration would be materially detrimental to the
Company and the Board of Directors of the Company concludes, as a result,
that it is essential to defer the filing of such registration statement at
such time, and the Company shall furnish to the requesting Holder(s) a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company for such registration statement to be
filed, then the Company shall have the right to defer such filing for a
period during which such filing would be materially detrimental, provided
that the Company may not defer the filing for a period of more than ninety
days after receipt of the initial request.
(b) The Company shall not be obligated to effect any
registration pursuant to this Section 2:
(i) made prior to the second anniversary of the
execution and delivery of this Agreement; or
(ii) more than once each year; or
(iii) for more than 174,000 shares of the Company's
Common Stock (appropriately adjusted for stock splits, stock
dividends, combinations, recapitalizations or reorganizations
following the date hereof); or
(iv) on a date when the inclusion in such registration
statement of financial statements of the Company other than the
historical financial statements of the Company required to be
contained in the most recently required reports of the Company
on SEC Forms 10-K and 10-Q and the required reports on SEC Form
8-K since the end of the fiscal year covered by the most
recently required report on Form 10-K would be required under
the General Rules and Regulations of the Commission; or
(v) within 90 days of the effective date of a
registration statement covering securities of the same class as
the Registrable Securities other than in connection with an
employee plan; or
(vi) for any offering where the expected aggregate
price for Registrable Securities being offered to the public is
less than $1,000,000.
3. Limitation on Demand Registrations; Registration Expenses. The
demand registration rights provided for in Section 2 may be exercised for
no more than four registration statements on either Form S-1 or Form S-2
which is declared effective and remain effective in accordance with Section
8 hereof, and for an unlimited number of registration statements on Form
S-3. The Company will pay all Registration Expenses for the registration
statements. The Company will use reasonable efforts to qualify for
registration on Form S-3.
4. Indemnification by the Company. The Company will indemnify and
hold harmless each Selling Holder and any underwriter (as defined in the
Securities Act) for any Selling Holder, if any, and any Person who controls
any Selling Holder or underwriter within the meaning of the Securities Act
against any losses, claims, damages or liabilities (or actions in respect
thereof), joint or several, to which any such Selling Holder or underwriter
or such controlling Person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) are caused by any untrue statement or alleged
untrue statement of any material fact contained, on the effect date thereof,
in any registration statement under which the Registrable Securities were
registered under the Securities Act, any prospectus contained therein, or
any amendment or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage, expense or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
written information furnished by such Selling Holder or its underwriter in
writing specifically for use in the preparation of such prospectus; and will
reimburse each Selling Holder, its underwriter and each such controlling
Person for any legal or other expenses reasonably incurred by such Selling
Holder, its underwriter or such controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or
action.
5. Indemnification of the Company. Each Selling Holder will
indemnify and hold the Company, each of its directors, each of its officers
and each Person, if any, who controls the Company, within the meaning of the
Securities Act, and any underwriter (as defined in the Securities Act) for
the Company against any losses, claims, damages or liabilities (or actions
in respect thereof), to which the Company, or any such director, officer,
controlling Person or underwriter may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) are caused by any untrue statement or alleged
untrue statement of any material fact contained in said registration
statement, said prospectus or any amendment or amendments or supplements
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; in each case to the
extent, but only to the extent, that such untrue statement or omission was
so made in reliance upon and in conformity with written information
furnished by such Selling Holder for use in the preparation thereof; and
will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling Person in connection
with investigating or defending any such loss, claim, damage, liability or
action.
6. Procedure for Indemnification Claim. Promptly after receipt by
an indemnified party pursuant hereto notice of any claim to which indemnity
would apply to the commencement of any action, such indemnified party will,
if a claim is made against the indemnifying party pursuant hereto, notify
the indemnifying party of the commencement thereof; but the omission to
notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise and hereunder. In case such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and, after
notice from the indemnifying party to such indemnified party of its election
to assume the defense thereof and so long as the indemnifying party shall
not be liable under this indemnity for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof,
provided however, that the indemnified party shall have the right to employ
separate counsel at its expense in any such action and participate in the
defense thereof. No indemnifying party shall be liable for any settlement
entered into without its consent.
7. Right to Piggyback.
(a) Whenever the Company proposes to register any of its
securities under the Securities Act for sale by the Company solely for cash
(other than pursuant to Section 2 hereof) (a "Piggyback Registration"), the
Company will give written notice to all Holders of its intentions to effect
such a registration not later than the 45 days prior to the anticipated
filing date. The Company will include in such Piggyback Registration all
Registrable Securities with respect to which the Company has received
written request for inclusion therein within twenty business days after the
receipt by the Holders of the Company's notice. Each Selling Holder shall
be permitted to withdraw all of any part of its Registrable Securities from
a Piggyback Registration at any time prior to the effective date of such
Piggyback Registration. If a Piggyback Registration is an underwritten
offering, each Selling Holder shall be obligated to sell its Registrable
Securities on the same terms and conditions as apply to the securities being
issued and sold by the Company; provided, however, that it an underwritten
offering is being conducted in which Selling Holders seek to exercise their
piggyback rights and the managing underwriter advises the Company in writing
that in its opinion the total number or dollar amount of Registrable
Securities requested to be included in such registration exceeds the number
or dollar amount of securities which can be offered and sold on reasonable
terms and price under prevailing market conditions, the Company will include
in such registration first the securities which the Company proposes to
sell, and then the number and dollar amount of Registrable Securities of
Selling Holders on a proportionate basis, which, in the opinion of the
underwriter, can be sold; and, further provided, that if shares of the
Company's common stock held by Persons other than the Company or any Holder
or Holders of the Registrable Securities were proposed to be included in
such registration statement, there shall first be a reduction in the dollar
amount of the shares which such other Persons propose to include in such
registration statement before any reduction of any Holder or Holders of
Registrable Securities.
Notwithstanding the foregoing, if the Company proposes to sell
any of its securities under the Securities Act pursuant to the terms of
warrants, rights or convertible securities which are being registered in
connection with the registration of such warrants, rights or convertible
securities or in connection with dividend reinvestment plans and other than
pursuant to Section 2 hereof, the Company shall have no obligation to
register Registrable Securities for sale as part of the offering of such
warrants, rights or convertible securities unless the Registrable Securities
can be registered and sold in an offering conducted subsequent to such
offering, and provided that if the Company, the managing underwriter or
their representatives, or the selling dealers or their representatives, if
any, determine, reasonably and in good faith that the number of securities
on any such registration exceeds the number of shares which can be offered
and sold on reasonable terms and price under prevailing market conditions,
the Company will include in such registration first the warrants, rights or
convertible securities which the Company proposes to sell and then, in a
subsequent offering, the number and dollar amount of Registrable Securities
which can be sold under prevailing market conditions, reduced, if necessary
on a proportionate basis among such Selling Holders.
(b) The Company shall bear all Registration Expenses in
connection with any Piggyback Registration, except that Selling Holders
shall bear the cost of additional filing fees, printing costs and Blue Sky
fees and expenses resulting from the inclusion of Registrable Securities in
such registration in proportion to the relative amounts of Registrable
Securities included by each Selling Holder.
8. Registration Procedures. Whenever Holders have requested that
any Registrable Securities be registered pursuant to this Agreement, the
Company will use its best efforts to effect the registration and the sale
of such Registrable Securities in accordance with the intended method of
disposition thereof and pursuant thereto the Company will as expeditiously
as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to the counsel
selected by the Holders of a majority of the Registrable Securities covered
by such registration statement copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel
regarding any information that pertains to the Holder or Holders;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than 90 days after the Registrable
Securities may first be publicly sold pursuant thereto and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
set forth in such registration statement;
(c) furnish to each Selling Holder such number of copies of
such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Selling Holder;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Selling Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such Selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Selling Holders
(provided that the Company will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service or process in any such
jurisdiction;
(e) notify each Selling Holder of such Registrable Securities,
at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any fact necessary to make
the statements therein not misleading, and, at the request of any such
seller, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed;
(g) negotiate in good faith such customary agreements
(including an underwriting agreement in customary form) and take such other
reasonable actions as the Holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities; and
(h) make available for inspection by any Selling Holder's
underwriter participating in any disposition pursuant to such registration
statement and any such underwriter's counsel, accountant or other agent
retained by any such Selling Holder or underwriter, all financial and other
pertinent records, corporate documents and properties of the Company, and
cause the Company's officers and employees to supply all information
reasonably requested by any such Selling Holder's underwriter, attorney,
accountant or agent in connection with such registration statement.
9. Holdback Agreements.
(a) Each Holder of Registrable Securities agrees not to effect
any public sale or distribution of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period beginning
on the effective date of any underwritten registration which includes
Registrable Securities (except as part of such underwritten registration).
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into
or exchangeable or exercisable for such securities, during the seven days
prior to and the 90-day period beginning on the effective date of any
underwritten registration which includes Registrable Securities (except with
the agreement of the underwriters or as part of such underwritten
registration or pursuant to registrations for employee benefit plans) and
(ii) to cause each holder of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities,
purchased from the Company at any time after the date of this Agreement
(other than in a registered public offering) to agree not to effect any
public sale or distribution of any such securities during such period
(except with the agreement of the underwriters or as part of such
underwritten registration, if otherwise permitted).
10. Rule 144 Reporting. The Company agrees when required by law to
make and keep public information available, as those terms are understood
and defined in Rule 144 of the Securities Act, at all times after the date
of this Agreement and to use its best efforts to file with the Commission
in a timely manner all reports and other documents required under the
Securities Act and the Securities Exchange Act of 1934. So long as Reynolds
or any other Holder owns Registrable Securities, the Company agrees to
furnish Reynolds and each other Holder upon its reasonable request a written
statement by the Company as to its compliance with reporting requirements
of said Rule 144 and of the Securities Act and the Securities Exchange Act,
a copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company as the requesting Person
reasonably requests which will allow the sale of any such Registrable
Securities without registration.
11. Termination. All registration rights provided to any Holder
under this Agreement shall terminate (i) if such Holder beneficially owns
less than 100,000 Reynolds Shares (appropriately adjusted for stock splits,
stock dividends, combinations, recapitalizations or reorganizations
following the date hereof) and (ii) such Reynolds Shares are eligible for
sale pursuant to Rule 144(k) (or any similar provision in force) under the
Securities Act.
12. Notices. All notices and other communications hereunder shall
be made in writing and shall be deemed given if delivered personally or
mailed by registered or certified mail, postage prepaid, return receipt
requested, or mailed by a recognized air courier such as Federal Express or
the like, (such notice to be effective on the date of giving such notice)
as follows:
(a) If to Reynolds to:
Donald W. Reynolds
1459 Michigan St., N.E.
Grand Rapids, MI 49503
with a copy to:
McShane & Bowie, PLC
1100 Campau Square Plaza
99 Monroe Avenue, N.W.
Grand Rapids, MI 49503
Attention: John F. Shape, Esq.
(b) If to the Company to:
Thomas Edison Inns, Inc.
500 North Riverside
St. Clair, MI 48079
Attention: President
with a copy to:
Dykema Gossett PLLC
200 Oldtown Riverfront Building
Grand Rapids, MI 49503
Attention: Robert L. Nelson, Esq.
(c) If to any other Holder, at its address for notice
purposes on the records of the Company.
13. Governing Law. This Agreement shall be deemed a contract under,
and shall be governed and construed in accordance with, the laws of the
State of Michigan, without giving effect to principles of conflicts of laws.
14. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit or describe the
scope or intent of this Agreement or any of the provisions thereof.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
16. Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable in any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above stated.
THOMAS EDISON INNS, INC.
By
Its
DONALD W. REYNOLDS
Individually
Exhibit K - Put/Call Agreement (Section 2.9)
PUT/CALL AGREEMENT
THIS Put/Call Agreement (this "Agreement") is made on ,
199 by and among MERITAGE HOSPITALITY GROUP INCORPORATED, a Florida
corporation ("MHG"), THOMAS EDISON INNS, INC., a Michigan corporation (the
"Company"), and DONALD W. REYNOLDS ("Reynolds").
RECITALS
A. The parties have entered into a Stock Purchase and Sale
Agreement dated September 19, 1995 (the "Stock Purchase Agreement").
B. Reynolds owns in his own name at least 400,000 shares of the
Company's Common Stock (the "Reynolds Stock").
C. The Company, Meritage, and Reynolds wish to enter into this
Agreement pursuant to which Reynolds shall have the right to require that
Meritage (or at Meritage's option, the Company) purchase, and Meritage shall
have the right to require that Reynolds sell to Meritage (or its assignee),
free and clear of all liens and encumbrances, 400,000 shares of the
Company's common stock at the rate of 50,000 shares per year over a period
ending on the eighth anniversary of the closing of the Stock Purchase
Agreement.
The parties agree that:
1. Reynolds's Put. Reynolds may elect by sending notice to MHG (i)
anytime within the period starting on the date of the receipt by Meritage
of the Special Dividend referred to in Section 3.3 of the Stock Purchase
Agreement and ending on the tenth day after the first anniversary of the
closing of the Stock Purchase Agreement, and (ii) anytime within the ten
business day period following each of the second through eighth
anniversaries of the closing of the Stock Purchase Agreement (each of which
periods shall be referred to as an "Election Period") to require MHG to
purchase (a "Reynolds Put") up to 50,000 shares of the Reynolds Stock (the
"Put Stock").
2. MHG's Options upon a Reynolds Put. If under this Agreement MHG
is required to purchase any of Reynolds Stock, MHG may in its sole
discretion either (i) purchase the Reynolds Stock, or (ii) assign its
obligation to purchase the Reynolds Stock to the Company. If MHG elects to
assign one, some or all of its obligations to purchase the Reynolds Stock
under this Agreement to the Company (the "Assigned Obligations"), MHG is
expressly relieved of the Assigned Obligations and Reynolds shall have no
recourse against MHG as to the Assigned Obligations.
3. MHG's Call. If during an Election Period Reynolds does not
elect to make a Reynolds Put or elects to make a Reynolds Put for an amount
less than 50,000 shares, then, within the ten business days period following
the end of the Election Period, MHG may elect by sending notice to Reynolds
to require Reynolds to sell to MHG or its assignee (an "MHG Call") up to
50,000 (less the amount, if any, of the Put Stock for that year) shares of
the Reynolds Stock (the "Called Stock").
4. Put/Call Payment. Upon each Reynolds Put or MHG Call, the
amount to be paid for the Put Stock, if any, and the Called Stock, if any,
(the "Put/Call Payment") shall be the number of shares of Put Stock plus
Called Stock times the per share purchase price for that anniversary date
listed in (and incorporated herein by reference) Exhibit A to this Agreement
less the Set-Off Amount as defined in Section 5.
5. The Set-Off Amount. The "Set-Off Amount" shall be the amount
MHG has a right to indemnification or set-off under Section 13 of the Stock
Purchase Agreement.
6. Closing of Put/Call Transaction. The closing of each Reynolds
Put or MHG Call shall take place within 30 days of the election by Reynolds
under Section 1 of this Agreement or by MHG under Section 3 of this
Agreement (a "Put/Call Closing") at the main offices of the Company or at
such other location as may be mutually agreed upon among the parties.
7. Deliveries by Reynolds at Put/Call Closing. At each Put/Call
Closing, Reynolds shall deliver to MHG or its assignee the Put Stock, if
any, and the Called Stock, if any, free and clear of all liens, including,
without limitation, tax liens, forfeitures, covenants, conditions, pledges,
penalties, charges, encumbrances, buy-sell agreements, rights of first
refusal, equities or claims or rights of others whatsoever.
8. Deliveries by MHG at Put/Call Closing. At each Put/Call
Closing, MHG or its assignee shall deliver to Reynolds a payment in the form
of a certified check and in the amount of the Put/Call Payment.
9. Representations and Warranties of Reynolds. Reynolds shall
warrant at the time of each purchase or sale under this Agreement that he
then owns of record and beneficially and has good and valid title to all of
the Put Stock, if any, and Called Stock, if any, to be bought and sold at
that time free and clear of all liens, including tax liens, forfeitures,
covenants, conditions, pledges, penalties, charges, encumbrances, buy-sell
agreements, rights of first refusal, equities or claims or rights of others
whatsoever.
10. Representations and Warranties of MHG.
(a) Purchase Entirely for Own Account. This Agreement is made by
Reynolds in reliance upon MHG's representations to Reynolds, which MHG
hereby confirms, that the shares of the Company's Common Stock that MHG may
acquire pursuant to this Agreement will be acquired for investment for its
own account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that it has no present intention of
selling, granting participations in, or otherwise distributing the same.
MHG represents that it does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer, or grant participations
to such person, or to any third person, with respect to any of the shares
that MHG may acquire pursuant to this Agreement. Notwithstanding the
foregoing, Reynolds acknowledges that MHG may dispose of the securities that
it may purchase pursuant to this Agreement upon registration of such
securities, or exemption of such disposition, under the Securities Exchange
Act of 1934, as amended, and the Securities Act of 1933, as amended,
(collectively the "Securities Act") and in compliance with applicable state
securities laws.
(b) Restricted Securities. MHG understands that the shares of the
Company's Common Stock that it may acquire pursuant to this Agreement may
not be sold, transferred, or otherwise disposed of without compliance with
state securities laws and without registration under the Securities Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering such shares or an available exemption from registration
under the Securities Act, such shares must be held indefinitely and MHG must
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition of such shares is registered under the Securities Act
or is exempt from registration. In particular, MHG is aware that such
shares may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of that Rule are satisfied. Among the
conditions for use of Rule 144 (unless Rule 144(k) is then available) is the
availability of current information to the public about the Company. MHG
covenants that, in the absence of an effective registration statement
covering such shares, it will sell, transfer, or otherwise dispose of such
shares only in a manner consistent with its representations set forth
herein.
(c) Investment Experience. MHG represents that it is experienced
in investment matters, fully understands the transactions described in this
Agreement, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its
investment, and has the financial ability and resources necessary to bear
the economic risks of investment.
(d) Accredited Investor. MHG represents that it is an "accredited
investor" as that term is defined in Rule 501 of Regulation D under the
Securities Act, namely (i) it was not formed for the specific purpose of
acquiring the shares that it may acquire pursuant to this Agreement and has
total assets in excess of $5,000,000, or (ii) all of its equity owners are
accredited investors.
(e) Legends; Stop Transfer.
(i) All certificates for the shares that may be acquired from
Reynolds by MHG pursuant to this Agreement may bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED
UNLESS THE SAME ARE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED FOR
SALE OR TRANSFER.
(ii) In addition, the Company's transfer agent shall make a
notation regarding the restrictions on transfer of such shares in its stock
transfer records.
11. Representations at each Put/Call Closing. MHG shall make at the
time of each Put/Call Closing all the representations and warranties
contained in Section 10 of this Agreement.
12. Default by Reynolds. If Reynolds should default under this
Agreement in any way, MHG may in its sole discretion (i) accelerate all of
Reynolds's obligations under this Agreement and sue for specific performance
and damages, or (ii) terminate this Agreement.
13. Default by MHG. If MHG or the Company should default under this
Agreement in any way, Reynolds may in his sole discretion (i) accelerate all
outstanding obligations of MHG, if any, and the Company under this Agreement
and sue for damages, or (ii) terminate this Agreement.
14. Expenses upon Default. If any party should default under this
Agreement, the aggrieved party shall be entitled to and the defaulting party
shall pay all reasonable expenses, including but not limited to, attorneys
fees and costs of bringing an action for breach of this Agreement.
15. Guarantee. All of MHG's obligations under this Agreement,
regardless of whether they have been assigned by MHG under this Agreement,
shall be guaranteed by the Company.
16. Assignment. MHG may in its sole discretion assign all of its
rights and obligations under this Agreement to an assignee having, at the
time of such assignment, a net worth at least equivalent to MHG's Required
Net Worth on the Closing Date (as that term is defined in the Secured
Promissory Note dated September 15, 1995 between MHG and the Company) as
adjusted as of the time of such assignment. Any such assignment shall
relieve MHG of all of its obligations under this Agreement.
17. Right of First Refusal. (a) If during the term of this
Agreement Reynolds enters into an agreement to sell some or all of the
Reynolds Stock and as a result of that sale Reynolds would not have a
sufficient number of shares (the "Call Gap") of the Company's Common Stock
to satisfy the then remaining MHG Call rights under Section 3 of this
Agreement, then MHG shall have the right to require Reynolds to sell to MHG
at that time an amount of Reynolds Stock equal to the Call Gap at the per
share price equal to the price specified in Exhibit A of this Agreement.
(b) Upon entering into a sale agreement that would result in a Call
Gap, Reynolds shall immediately notify MHG of such intended sale. MHG shall
have ten business days after the date MHG receives notice of such intended
sale to exercise, by sending notice to Reynolds, its rights under Section
17(a) of this Agreement.
(c) The failure by MHG to exercise its rights under Section 17(a) of
this Agreement or the release by the Company of the legend required by
Section 17(e) of this Agreement on the Reynolds Stock does not waive, alter
or cancel any of MHG's other rights under this Agreement, including, without
limitation, the MHG Call rights under Section 3 of this Agreement.
(d) All of the terms of this Agreement shall apply to a required sale
of the Reynolds Stock by Reynolds to MHG under Section 17.
(e) All certificates for the Reynolds Stock shall bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A PUT/CALL AGREEMENT ENTERED INTO BY DONALD W. REYNOLDS,
MERITAGE HOSPITALITY GROUP INCORPORATED AND THE COMPANY, DATED
SEPTEMBER 18, 1995, A COPY OF WHICH IS ON FILE WITH THE
COMPANY.
In addition, the Company's transfer agent shall make a notation regarding
the restrictions on transfer of such shares in its stock transfer records.
(f) Promptly upon obtaining possession of each certificate evidencing
the Reynolds Stock, Reynolds will deliver or cause to have delivered to the
Company each such certificate in exchange for a new certificate(s)
containing the legend described in Section 17(e) of this Agreement. Prior
to the issuance of a new certificate(s) containing the legend described in
Section 17(e), Reynolds shall not sell, assign, pledge or hypothecate the
Reynolds Stock.
(g) At such time as the foregoing restrictions cease to apply, upon
written request accompanied by the certificate(s), the Company will issue
a new certificate(s) for the Reynolds Stock that does not contain the
foregoing legend.
18. Notices. All notices and other communications hereunder shall
be made in writing and shall be deemed given if delivered personally or
mailed by registered or certified mail, postage prepaid, return receipt
requested, or mailed by a recognized air courier such as Federal Express or
the like, (such notice to be effective on the date of giving such notice)
as follows:
If to MHG, addressed to:
Meritage Hospitality Group Incorporated
40 Pearl Street, N.W., Suite 430
Grand Rapids, MI 49503
Attention: Christopher B. Hewett, President
with a copy to:
Dykema Gossett PLLC
200 Oldtown Riverfront Building
248 Louis Campau Promenade, N.W.
Grand Rapids, MI 49503-2668
Attention: Robert L. Nelson, Esq.
If to the Company, addressed to:
Thomas Edison Inns, Inc.
500 North Riverside
St. Clair, MI 48079
Attention: President
with a copy to:
Howard & Howard, P.C.
1400 N. Woodward Avenue
Suite 101
Bloomfield Hills, MI 48304
Attention: Thomas J. Tallerico, Esq.
If to Reynolds, addressed to:
Donald W. Reynolds
1459 Michigan St., N.E.
Grand Rapids, MI 49503
with a copy to:
McShane & Bowie, PLC
1100 Campau Square Plaza
99 Monroe Avenue, N.W.
Grand Rapids, MI 49503
Attention: John F. Shape, Esq.
or to such other place and with such other copies as either party may
designate as to itself by written notice to the others.
19. Choice of Law. This Agreement shall be governed by, construed
and interpreted, and the rights of the parties determined, in accordance
with the laws of the State of Michigan without giving effect to any choice
or conflict of law provision or rule that would cause the application of the
laws of any jurisdiction other than the State of Michigan.
20. Amendment. This Agreement and the Exhibit hereto may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
21. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit or describe the
scope or intent of this Agreement or any provisions hereof.
22. Successors and Assigns. This Agreement, and all the rights and
powers granted hereby, will bind and inure to the benefit of all the parties
hereto and their respective successors and assigns.
[SIGNATURES ON NEXT PAGE]
IN WITNESS WHEREOF, the parties have executed this Put/Call Agreement
as of the date first above stated.
/s/ Donald W. Reynolds
------------------------------
Donald W. Reynolds
MERITAGE HOSPITALITY GROUP INCORPORATED
By:/s/ Christopher B. Hewett
---------------------------
Christopher B. Hewett
President
THOMAS EDISON INNS, INC.
By:
Its:
Exhibit A to Put/Call Agreement
The per share purchase price for the Put Stock and Called Stock shall be:
(a) $7.50 per share for all shares purchased on or before the
second anniversary of the closing;
(b) $8.50 per share for all shares purchased on or before the
fourth anniversary of the closing;
(c) $9.00 per share for all shares purchased on or before the sixth
anniversary of the closing; and
(d) $10.00 per share for all shares purchased on or before the
eighth anniversary of the closing.
Exhibit 2 to Schedule 13D
SECURED PROMISSORY NOTE
$10,500,000 September 19, 1995
For value received, MERITAGE HOSPITALITY GROUP INCORPORATED, a Florida
corporation (the "Maker"), promises to pay to THOMAS EDISON INNS, INC., a
Michigan corporation (the "Holder"), or its assignee if Maker has actual
knowledge of such assignee, at the Holder's address at 500 North Riverside,
St. Clair, Michigan 48079, or at such other place as the Holder may from
time to time specify by written notice to the Maker, the principal sum of
Ten Million Five Hundred Thousand and 00/100 Dollars ($10,500,000.00). The
outstanding principal balance under this Note shall not bear interest;
provided, however, that if an Event of Default has occurred (as provided in
Section V), then during such time the Event of Default is continuing the
outstanding principal balance under this Note shall bear interest at 3% per
annum.
I. Stated Payment Schedule
Principal under this Note shall be paid as follows:
A. The Maker shall have no obligation to make any payments under
this Note during the first three years of the term hereof.
B. Beginning on the third anniversary of this Note, and continuing
on the same day of each successive year thereafter through and including the
ninth anniversary of this Note, the Maker shall pay to the Holder principal
in an amount equal to One Million Three Hundred Twelve Thousand Five Hundred
and 00/100 Dollars ($1,312,500.00).
C. The entire outstanding principal balance shall be due and
payable in full on the tenth anniversary of this Note.
II. Stock Purchase Agreement;
Rights of Setoff, Escrow and Cancellation
This Note is made and delivered in conjunction with, and as an
integral part of, the transactions described in a certain Stock Purchase and
Sale Agreement dated September , 1995, to which the Maker, the Holder, and
others are parties (the "Stock Purchase Agreement"), pursuant to which the
Maker has acquired from the Holder certain common stock of the Holder.
In accordance with paragraph 13.4 of the Stock Purchase Agreement, the
Maker will be entitled to reduce, on a dollar-for-dollar basis, any amounts
payable to the Holder pursuant to this Note by the amount of any judgment
for indemnity obtained by the Maker against the Holder, subject to
satisfaction of the applicable conditions for such reduction set forth in
the Stock Purchase Agreement. Paragraph 13.5 of the Stock Purchase
Agreement sets forth the terms and conditions upon which the Maker shall be
entitled to make payments otherwise due under this Note into escrow pending
resolution of a claim for indemnity asserted by the Maker pursuant to the
Stock Purchase Agreement. This Note shall not be deemed to be in default
on account of failure to make a payment when due to the extent that such
failure is attributable to the existence of a claim for indemnity asserted
by the Maker against the Holder, provided that the Maker has complied in all
material respects with the requirements of Section 13 of the Stock Purchase
Agreement.
Paragraphs 1.2(c) and (d) of the Stock Purchase Agreement contain
certain rights in favor of the Maker to cancel, and receive a return of,
this Note.
III. Optional Prepayment
The Maker may, at its option, prepay the indebtedness evidenced by
this Note at any time, in whole or in part, without penalty or premium.
IV. Stock Pledge; Limitation of Liability
This Note is secured by a certain Stock Pledge Agreement between Maker
and Holder dated even date herewith (the "Stock Pledge Agreement"). The
Maker's liability under this Note and the Stock Pledge Agreement shall be
limited at all times to the Maker's interest in the collateral that is
encumbered, from time to time, by the Stock Pledge Agreement, plus the
positive amount, if any, determined from time to time by the following
formula (the "Liability Formula"):
M, minus P, where:
M = MHG's Required Net Worth on the Closing Date, which for
purposes of this Note means the value, as of the Closing Date,
of the 54,405 shares of common stock of the Holder owned by the
Maker before the date of this Note, plus that portion of the
special dividend declared by the Holder that is paid to the
Maker pursuant to Section 3.3 of the Stock Purchase Agreement;
and
P = the sum of Permitted Payments, as that phrase is defined in the
Stock Pledge Agreement, made by the Debtor during the term of
this Note.
The Debtor's interest in the collateral that is encumbered, from time to
time, by the Stock Pledge Agreement, together with the amount determined by
the Liability Formula, is referred to herein as the "Maximum Recovery".
The Holder shall neither seek, nor be entitled to, any recovery or
remedy against the Maker under this Note and the Stock Pledge Agreement
other than the Maximum Recovery. Other than as described in the immediately
preceding paragraph, in no event shall the Maker be liable for a deficiency
judgment or other money judgment under this Note or the Stock Pledge
Agreement.
V. Events of Default; Remedies
The failure by the Maker to duly and punctually observe or perform any
material obligation of the Maker set forth in this Note or in the Stock
Pledge Agreement shall constitute an "Event of Default" under this Note.
If an Event of Default has not been cured within ten (10) days after receipt
by the Maker of written notice from the Holder of the existence of an Event
of Default (such notice from the Holder to specify in reasonable detail the
act or omission that has given rise to the Event of Default), the
indebtedness evidenced by this Note shall be in default (the date upon which
the indebtedness evidenced by this Note first is in default is referred to
below as the "Default Date") and the Holder thereafter shall have the right,
at any time during the continuation of the Event of Default, to accelerate
the indebtedness evidenced by this Note and to take such action as may be
permitted at law or in equity (including but not limited to the remedies
provided for in the Stock Pledge Agreement referred to above) to collect the
indebtedness evidenced by this Note, subject in all events to the limitation
on the Maker's liability under this Note set forth above.
The Maker shall pay all costs of collection, including reasonable
attorneys' fees, in case the indebtedness evidenced by this Note or any part
thereof is not paid when due, or in case it becomes necessary to protect the
security for this Note, whether suit is brought or not.
VI. Notices
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, sent by reputable overnight
courier, acknowledgment
of receipt requested, or mailed by registered, overnight or certified mail,
postage prepaid, return receipt requested (such notice to be effective on
the date such receipt is acknowledged) as follows:
If to the Maker, addressed to:
Meritage Hospitality Group Incorporated
40 Pearl Street, N.W., Suite 430
Grand Rapids, MI 49503
Attention: Christopher B. Hewett, President
with a copy to:
Dykema Gossett PLLC
200 Oldtown Riverfront Building
248 Louis Campau Promenade, N.W.
Grand Rapids, MI 49503-2668
Attention: Robert L. Nelson, Esq.
If to the Holder, addressed to:
Thomas Edison Inns, Inc.
500 North Riverside
St. Clair, Michigan 48079
with a copy to:
McShane & Bowie, PLC
1100 Campau Square Plaza
99 Monroe Avenue, N.W.
Grand Rapids, MI 49503
Attention: John F. Shape, Esq.
and to
Howard & Howard Attorneys, P.C.
1400 N. Woodward Avenue
Suite 101
Bloomfield Hills, MI 48304
Attention: Thomas J. Tallerico, Esq.
or to such place and with such other copies as the Maker or the Holder may
designate for itself by written notice to the other.
VII. General
Neither the failure of the Holder promptly to notify the Maker of the
existence of an Event of Default, nor its failure to exercise any right or
remedy it may have upon the occurrence of an Event of Default, nor the
failure of the Holder to demand strict performance of any obligations of the
Maker under this Note, shall constitute a waiver of any such rights during
the continuation of an Event of Default, nor shall any of the foregoing
constitute a waiver of any such rights during the continuation of any future
Event of Default. Further, acceptance by the Holder of partial payments
following due acceleration of the indebtedness evidenced hereby shall be
deemed acceptance of payment on account and shall not constitute a waiver
by the Holder of the Event of Default or a waiver of the acceleration of
such indebtedness.
The Maker waives presentment, protest and demand, notice of protest,
demand, dishonor and nonpayment of this Note. The Holder may extend the
time of payment or otherwise modify the terms of payment of the indebtedness
evidenced by this Note, and such extension or modification shall not alter
or diminish the Maker's liability under this Note.
VIII. Governing Law
This Note shall be governed by and construed in accordance with the
laws of the State of Michigan.
MERITAGE HOSPITALITY GROUP
INCORPORATED
By: /s/ Christopher B. Hewett
--------------------------
Christopher B. Hewett,
President
Exhibit 3 to Schedule 13D
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (this "Agreement") is made on September
19, 1995, between MERITAGE HOSPITALITY GROUP INCORPORATED, a Florida
corporation (the "Debtor"), and THOMAS EDISON INNS, INC., a Michigan
corporation (the "Creditor").
STATEMENT OF FACTS
A. The Debtor and the Creditor are parties to a Stock Purchase and
Sale Agreement dated even date herewith (the "Stock Purchase Agreement"),
pursuant to Section 1.2 of which the Debtor acquired 1,500,000 shares of
common stock (the "Pledged Stock") of the Creditor.
B. As payment for the Pledged Stock, the Debtor executed and
delivered to the Creditor the Debtor's Secured Promissory Note dated even
date herewith in the original principal amount of $10,500,000 (the "Note").
C. The Stock Purchase Agreement provides that due performance and
observance of the Debtor's obligations under the Note will be secured by a
lien on the Pledged Stock granted pursuant to this Agreement.
The parties therefore agree as follows:
1. Incorporation of Statement of Facts. The Statement of Facts set
forth above is true and accurate and is incorporated into and forms a part
of this Agreement.
2. Grant of Security Interest. (a) The Debtor grants and conveys
to the Creditor a security interest in (i) the Pledged Stock; (ii) all
dividends, distributions and other sums paid or payable to or for the
benefit of the Debtor on account of or in respect of the Debtor's status as
owner of the Pledged Stock, including without limitation, the Debtor's right
to receive cash and noncash dividends and distributions from the Creditor
in respect of the Pledged Stock and the Debtor's right, if any, to the
redemption of the Pledged Stock by the Creditor; (iii) all new, substituted
or additional shares of Pledged Stock or other securities of the Creditor
at any time issued to or for the benefit of Debtor on account of or in
respect of the Debtor's status as owner of the Pledged Stock, including
without limitation, any such stock or securities issued by reason of or in
connection with any dividend, reclassification, readjustment or other change
with respect to the Pledged Stock made or declared in the capital structure
of the Creditor; and (iv) all proceeds (whether cash or noncash) and
products of each of the foregoing. The items of collateral described in
clauses (i)-(iv) of this paragraph are collectively referred to in this
Agreement as the "Collateral".
(b) Notwithstanding the provisions of subparagraph 2(a) above,
Debtor shall be entitled to receive and use, free and clear of any security
interest and lien of the Creditor, any cash dividends paid or payable to or
for the benefit of the Debtor on account of or in respect of the Debtor's
status as owner of the Pledged Stock and related Collateral (collectively,
the "Cash Dividends") subject, however, to the following exceptions:
(i) Upon the occurrence and during the existence of an Event
of Default (as that term is defined in the Note) that has
not been timely cured as provided in the Note, Debtor
shall not be entitled to use Cash Dividends for any
purpose other than to cure an Event of Default, in whole
or in part.
(ii) Debtor shall not be entitled to use Cash Dividends paid
in partial or complete liquidation of the Creditor.
(iii) Debtor shall not be entitled to use Cash Dividends to pay
dividends to the holders of the Debtor's common stock
outstanding as of the date of this Agreement.
(iv) Debtor shall not be entitled to use Cash Dividends to pay
dividends on preferred stock issued by Debtor and
outstanding on the date hereof, or indebtedness arising
from the conversion of such stock to debt, in excess of
the Permitted Payments, as that phrase is defined below;
provided, however, that nothing contained in this
Agreement shall prevent Debtor from converting all or any
of its preferred stock to debt.
The foregoing provisions apply to all Cash Dividends paid or payable
to or for the benefit of the Debtor on account of or in respect of the
Debtor's status as owner of the Pledged Stock and related Collateral.
Notwithstanding any of the restrictions and limitations described in
subparagraphs (i)-(iv) herein, Debtor shall be permitted to use Cash
Dividends to pay dividends with respect to any securities that may be issued
by Debtor after the date of this Agreement.
(c) The Debtor shall take such action as may be reasonably requested
by the Creditor in writing to effect this Agreement and the transactions
contemplated herein and to perfect the pledge of, and the Creditor's lien
against, the Collateral. Simultaneously with the execution of this
Agreement, the Debtor shall deliver to the Creditor all certificates and
other instruments and writings evidencing the Pledged Stock and all of the
Debtor's rights and interests with respect thereto, duly executed, endorsed
and assigned in blank by the Debtor (by either a separate Assignment or by
executing the transfer portion of the share certificates evidencing the
Pledged Stock, as chosen by the Creditor). The Debtor further agrees,
promptly upon written request by the Creditor, to execute and deliver such
additional certificates and other instruments and writings evidencing any
other Collateral, in the same manner and form as provided above for the
Pledged Stock.
3. Secured Obligations. The security interest described in Paragraph
2(a) of this Agreement is granted for the purpose of securing the prompt and
full payment when due (and not merely the ultimate collectibility) of all
principal, interest, and other sums payable by the Debtor to the Creditor
pursuant to the Note (the "Secured Obligations").
4. Representations, Warranties, etc. The Debtor represents,
warrants and covenants to the Creditor that:
(a) The security interest granted hereby to the Creditor does
now and shall at all times during the term of this Agreement continue to
constitute a first and prior lien on the Collateral, subject only to such
matters as may be specifically agreed to in writing by the Creditor.
(b) The Debtor is the lawful and absolute owner of the
Collateral, subject to no other lien, encumbrance, right,
claim or interest of any kind or nature (other than such interests in favor
of the Creditor). In addition, the Debtor has the full and unrestricted
right to pledge, assign and create a security interest in the Collateral as
described in and contemplated by this Agreement.
(c) The Debtor has the legal capacity to enter into and
perform all of its obligations and agreements under this Agreement.
(d) No consent or approval for the entry into and performance
by the Debtor of its obligations and agreements under this Agreement is
necessary.
(e) The certificates, instruments and other writings delivered
by the Debtor to the Creditor pursuant to Paragraph 2(b) of this Agreement
are all of the certificates, etc., representing the Pledged Stock and all
rights and interests with respect thereto.
(f) The execution, delivery and performance of this Agreement
by the Debtor will not affect or in any way impair the Collateral or the
Debtor's or the Creditor's rights or interests therein.
5. Agreements. So long as this Agreement is in effect, the Debtor
shall:
(a) Maintain the Collateral free from all pledges, liens,
encumbrances and security interests or other claims in favor of others,
other than the security interest in favor of the Creditor, and the Debtor
will defend the Collateral
against all claims and demands of all persons.
(b) Comply with the requirements of all applicable state,
local and federal laws necessary to grant to the Creditor a valid lien upon,
and a duly perfected security interest in, the Collateral in compliance with
the requirements of this Agreement.
(c) Pay all reasonable costs and expenses of whatever kind and
nature that the Creditor may incur, including reasonable attorneys' fees,
in protecting, maintaining, preserving, enforcing or foreclosing the
Collateral or the security interest granted to the Creditor hereunder,
whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions or proceedings arising out of or relating to any of
the Secured Obligations.
(d) Appear in and defend any action or proceeding arising out
of or connected with this Agreement, and pay all reasonable costs and
expenses of the Creditor (including, without limitation, reasonable
attorneys' fees) in any such action or proceeding in which the Creditor
appears or determines to become involved.
(e) Not, without the prior written consent of the Creditor,
sell, assign, encumber, pledge, hypothecate, transfer or otherwise dispose
of the Collateral or any part thereof or any interest therein.
(f) Provide the Creditor, and the Creditor's agents and
attorneys, reasonable access to the books and records of the Debtor for
inspection purposes and permit the Creditor and the Creditor's agents and
attorneys to make copies hereof.
(g) Not pay, during the periods set forth below (i) dividends
on preferred shares issued by Debtor outstanding on the date hereof (the
"Current Preferred Stock"), plus (ii) debt service on indebtedness arising
from the conversion of Current Preferred Stock, in excess of the following
amounts (the "Permitted Payments"):
(A) On the Closing Date, as that term is defined in the
Stock Purchase Agreement, $50,000.00, and
(B) during each of the one year periods following the
date of this Agreement, $25,000.00.
6. Performance by the Creditor. If the Debtor fails to duly and
punctually perform, observe or comply with any condition, term or covenant
contained in this Agreement, the Creditor, without notice to or demand upon
the Debtor and without waiving or releasing any of the Secured Obligations,
may at any time thereafter perform such condition, term or covenant for the
account and at the expense of the Debtor. All sums paid or advanced in
connection with the foregoing and all costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred in connection therewith
shall be paid by the Debtor to the Creditor on demand, and shall constitute
and become a part of the Secured Obligations.
7. Default. The Debtor shall be in default under this Agreement
only if an Event of Default (as defined in the Note) has not been cured
within ten (10) days after receipt by the Debtor of written notice from the
Creditor of the existence of an Event of Default (such notice from the
Creditor to specify in reasonable detail the act or omission that has given
rise to the Event of Default).
8. Remedies. Upon and at any time after a default under this
Agreement, the Creditor shall, at its option and without further notice to
the Debtor (except for such further notices, if any, that may be required
by law) be entitled to exercise any or all rights and remedies provided
hereunder or by law, including without limitation the rights and remedies
of a secured party under the Michigan Uniform Commercial Code. Any
requirement under the Michigan Uniform Commercial Code or otherwise of
reasonable notice shall be met if the Creditor sends the Debtor notice of
sale and other notices required by law at least ten (10) days prior to the
date of sale, disposition or other event giving rise to the required notice.
Any sale held pursuant to the exercise of the Creditor's rights hereunder
may be public or private, and at such sale the Creditor shall have the
right, at any time and from time to time, to the extent permitted by law,
to sell, assign and deliver all or any part of the Collateral, at the
Creditor's office or elsewhere, without demand of performance, advertisement
of notice of intention to sell or of the time or place of sale or
adjournment thereof or any other notice (all of which are hereby waived by
the Debtor to the extent permitted
by law), except such notice as is required by applicable law and cannot be
waived, for cash, on credit or for other property,
for immediate or future delivery, without any assumption or credit risk,
and, provided that such is not in violation of applicable law, for such
terms as the Creditor in its absolute and uncontrolled discretion may
determine. In furtherance of the Creditor's rights hereunder, the Creditor
shall have the right, for and in the name, place and stead of the Debtor,
to execute endorsements, assignments or other instruments of conveyance or
transfer with respect to all or any of the Collateral. All amounts
collected by the Creditor as the result of any action taken pursuant to this
Paragraph 8, and the liquidation value of any other property received as a
result of such action, shall be applied by the Creditor as follows:
(a) First, to the payment of all fees and costs including,
without limitation, reasonable attorneys' fees, incurred in connection with
the collection of the Secured Obligations or in connection with the exercise
or enforcement of the Creditor's rights, powers or remedies under this
Agreement.
(b) Second, to the payment and satisfaction of all of the
Secured Obligations.
The remedies provided in this Agreement in favor of the Creditor shall
not be deemed exclusive, but shall be cumulative, and shall be in addition
to all other remedies in favor of the Creditor existing at law or in equity.
9. Voting Rights. Unless and until title to the Pledge Stock is
transferred pursuant section 8 of this Agreement, notwithstanding any other
provision of this Agreement to the contrary, the Debtor shall retain all
voting and other rights associated with the Pledged Stock.
10. Release of Lien and Interests in the Collateral.
(a) For the purposes of this Section, the following definitions
apply:
(i) "Release Date" means each day that Debtor either is
obligated to and does make a payment under the Note or makes a pre-payment
of at least $500,000 on the Note;
(ii) "PSRD" means the number of shares of Pledged Stock
then pledged under this Agreement as of the business day immediately
preceding a release of Pledged Stock under this Section 10;
(iii) "Balance Owed" means the outstanding principal balance
under the Note immediately following a payment of principal on the Release
Date;
(iv) "Market Price Per Share" means the per share price
of the Pledged Stock as of the close of trading on the business day
immediately preceding the Release Date, reported as the NASDAQ "closing
price", or if such price is not available, the average of the last reported
"bid and ask" prices;
(v) "Payment Amount" means the sum paid by Debtor on the
Release Date; and
(vi) "Released Shares" means a number of shares of
Pledged Stock equal to:
Released Shares = PSRD - 120% x Balance Owed
Market Price Per Share
(b) Upon each Release Date, Creditor shall release its liens and
security interests in the Released Shares and in any other Collateral
attributable to or derivative of each share of the Released Shares. Upon
each release of shares under this section, Creditor shall deliver to Debtor
(i) all documents and/or instruments evidencing each share of the Released
Shares; and (ii) any other Collateral attributable to or derivative of each
such share.
(c) Notwithstanding anything to the contrary contained within this
Agreement, if the Released Shares is a negative number, Debtor shall have
no obligation to grant, and Creditor shall have no right to receive, a
security interest in any additional shares of the Pledged Stock or any other
collateral.
11. Notices. All notices, demands or requests required or permitted
to be given to either party hereto shall be in writing and shall be deemed
given if delivered personally, sent by reputable overnight courier, with
acknowledgment of receipt requested, or mailed by registered, overnight or
certified mail , with full postage paid thereon, return receipt requested
(such notice to be effective on the date such receipt is acknowledged), as
follows::
The Debtor:
Meritage Hospitality Group Incorporated
40 Pearl Street, N.W., Suite 430
Grand Rapids, MI 49503
Attention: Christopher B. Hewett, President
with a copy to:
Dykema Gossett PLLC
200 Oldtown Riverfront Building
248 Louis Campau Promenade, N.W.
Grand Rapids, MI 49503-2668
Attention: Robert L. Nelson, Esq.
The Creditor:
Thomas Edison Inns, Inc.
500 North Riverside
St. Clair, Michigan 48079
Attention: President
with a copy to:
McShane & Bowie, PLC
1100 Campau Square Plaza
99 Monroe Avenue, N.W.
Grand Rapids, MI 49503
Attention: John F. Shape, Esq.
and to
Howard & Howard Attorneys, P.C.
1400 N. Woodward Avenue
Suite 101
Bloomfield Hills, MI 48304
Attention: Thomas J. Tallerico, Esq.
or to such place and with such other copies as the Debtor or the Creditor
may designate for itself by written notice to the other.
12. Limitation on Liability. The Debtor's liability under the Note
and under this Agreement shall be limited at all times to the Debtor's
interest in the collateral that is encumbered, from time to time, by this
Agreement, plus the positive amount, if any, determined from time to time
by the following formula (the "Liability Formula"):
M, minus P, where:
M = MHG's Required Net Worth on the Closing Date, which for
purposes of this Agreement means the value, as of the Closing
Date, of the 54,405 shares of common stock of the Creditor
owned by Debtor before the date of this Agreement, plus that
portion of the special dividend declared by Creditor that is
paid to Debtor pursuant to Section 3.3 of the Stock Purchase
Agreement; and
P = the sum of Permitted Payments made by the Debtor during the
term of the Note.
The Debtor's interest in the collateral that is encumbered, from time to
time, by this Agreement, together with the amount determined by the
Liability Formula is referred to herein as the "Maximum Recovery".
The Creditor shall neither seek, nor be entitled to, any recovery or
remedy against the Maker under this Agreement or the Note other than the
Maximum Recovery. Other than as described in the immediately preceding
paragraph, in no event shall the Debtor be liable for a deficiency judgment
or other money judgment under the Note or this Agreement.
13. Controlling Law; Severability. This Agreement shall be
construed in each and every respect in accordance with the laws of the State
of Michigan. If any provision hereof is in conflict with any laws or is
otherwise unenforceable for any reason whatever, such provision shall be
deemed null and void to the extent of such conflict or unenforceability, and
shall be severed from and shall not invalidate any other provision of this
Agreement.
14. Miscellaneous. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective successors and
assigns. No failure or delay on the part of the Creditor in exercising any
power or right hereunder shall operate as a waiver thereof or as a waiver
of any other term, provision or condition hereof, nor shall any single or
partial exercise of any such right or power prelude any other or further
exercise thereof or the exercise of any other right or power hereunder.
This Agreement may be amended only by an instrument in writing signed by the
parties hereto. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms
hereof. Time shall be deemed to be of the essence in each and every respect
hereunder. There are no third-party beneficiaries to this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed this Stock Pledge
Agreement as of the date first above stated.
MERITAGE HOSPITALITY GROUP
INCORPORATED
By: /s/ Christopher B. Hewett
-------------------------
Christopher B. Hewett
President
THOMAS EDISON INNS, INC.
By: /s/ Donald W. Reynolds
Its President
Exhibit 4 - Joint Filing Agreement
Joint Filing Agreement
The undersigned hereby agree that the Schedule 13D and any amendments
thereto filed by the undersigned under the Securities and Exchange Act of
1934, as amended (the "Act"), reporting the beneficial ownership of shares
of common stock of Thomas Edison Inns, Inc. may be filed with the Securities
and Exchange Commission pursuant to Rule 13D - 1(f)(1) under the Act on
behalf of each of the undersigned.
Dated: September , 1995
MERITAGE HOSPITALITY GROUP INCORPORATED
/s/Christopher B. Hewett
- ---------------------------
Christopher B. Hewett
President
/s/Christopher B. Hewett
- ---------------------------
Christopher B. Hewett
Individually
/s/Robert E. Schermer, Jr.
- ----------------------------
Robert E. Schermer, Jr.
Individually
