<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended August 31, 1998.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ___________________
to ____________________
Commission File Number: 0-17442
MERITAGE HOSPITALITY GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-2730460
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) No.)
40 PEARL STREET, N.W., SUITE 900
GRAND RAPIDS, MICHIGAN 49503
(Address of Principal Executive (Zip Code)
Offices)
(616) 776-2600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of October 9, 1998 there were 5,741,153 outstanding Common Shares, $.01 par
value.
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not contain all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation of
the financial position, results of operations, stockholders' equity and cash
flows of the Company have been included. For further information, please refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1997. The Company has restated its prior financial statements to present the
operating results of the lodging group business segment as a discontinued
operation. The assets and liabilities of these operations at August 31, 1998 and
November 30, 1997 are reflected on the balance sheet as a net current asset (see
Note D of the Company's financial statements). The results of operations for the
three and nine month periods ended August 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
2
<PAGE> 3
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
AUGUST 31, NOVEMBER 30,
1998 1997
(UNAUDITED) (RESTATED)
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,436,651 $ 1,061,475
Receivables 80,039 258,282
Inventories 152,425 156,746
Deferred income taxes 22,000 22,000
Prepaid expenses and other current assets 48,085 156,028
Net assets of discontinued operations - Note D 179,181 938,388
----------- -----------
Total current assets 1,918,381 2,592,919
PROPERTY, PLANT AND EQUIPMENT, NET 8,615,276 7,518,007
OTHER ASSETS
Goodwill, net of amortization of $253,422 and
$2,278,454 respectively 5,140,050 3,586,177
Financing costs, net of amortization of $39,410
and $34,208 respectively 139,863 50,239
Franchise fees, net of amortization of $19,782
and $406,552 respectively 630,218 143,448
Sundry 86,525 46,950
----------- -----------
Total other assets 5,996,656 3,826,814
----------- -----------
Total assets $16,530,313 $13,937,740
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
3
<PAGE> 4
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
AUGUST 31, 1998 AND NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, NOVEMBER 30,
1998 1997
(UNAUDITED) (RESTATED)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 474,744 $ 1,077,552
Current portion of obligations under capital leases 284,716 264,372
Trade accounts payable 667,843 899,118
Amount due related party 205,260 85,263
Accrued liabilities 1,176,475 751,967
------------ ------------
Total current liabilities 2,809,038 3,078,272
LONG-TERM DEBT - NOTE E 7,185,957 7,348,464
OBLIGATIONS UNDER CAPITAL LEASES 1,473,709 1,689,628
DEFERRED INCOME TAXES 190,000 190,000
DEFERRED REVENUE 2,047,141 --
MINORITY INTEREST -- 1,601,415
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value; authorized 5,000,000 shares; 200,000
shares designated as Series A convertible cumulative preferred stock;
issued and outstanding 132,287 and 138,387 respectively (liquidation
value - $1,322,870) 1,323 1,384
Common stock - $0.01 par value; authorized 30,000,000
shares; issued and outstanding 5,259,894 and 3,218,778
respectively 52,599 32,188
Additional paid in capital 13,500,840 12,982,295
Note receivable from the sale of shares, net of
valuation allowance of $4,500,000 in 1998 (1,660,961) (5,700,645)
Accumulated deficit (9,069,333) (7,285,261)
------------ ------------
Total stockholders' equity 2,824,468 29,961
------------ ------------
Total liabilities and stockholders' equity $ 16,530,313 $ 13,937,740
============ ============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
4
<PAGE> 5
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
1998 (RESTATED)
------------ ------------
<S> <C> <C>
FOOD AND BEVERAGE REVENUE $ 20,041,338 $ 20,262,600
COSTS AND EXPENSES
Cost of food and beverages 5,753,689 5,837,745
Operating expenses 11,794,667 12,104,801
General and administrative expenses 2,166,414 2,015,367
Depreciation and amortization 892,878 848,333
------------ ------------
Total costs and expenses 20,607,648 20,806,246
OPERATING LOSS (566,310) (543,646)
OTHER INCOME (EXPENSE)
Interest expense (1,096,529) (1,056,057)
Interest income 47,734 438,732
Other income 519,739 --
Loss on sale of assets -- (190,453)
Minority interest 25,677 (101,030)
------------ ------------
(503,379) (908,808)
------------ ------------
Loss from continuing operations (1,069,689) (1,452,454)
LOSS FROM DISCONTINUED OPERATIONS - NOTE D (479,232) (221,390)
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,548,921) (1,673,844)
EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT (141,740) --
------------ ------------
NET LOSS (1,690,661) (1,673,844)
DIVIDENDS ON PREFERRED STOCK 93,411 70,577
------------ ------------
NET LOSS ON COMMON SHARES $ (1,784,072) $ (1,744,421)
============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
Continuing operations $ (0.25) $ (0.47)
Discontinued operations (0.10) (0.07)
Extraordinary item (0.03) --
------------ ------------
Net loss $ (0.38) $ (0.54)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 4,687,097 3,213,736
============ ============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
5
<PAGE> 6
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
1998 (RESTATED)
----------- -----------
<S> <C> <C>
FOOD AND BEVERAGE REVENUE $ 7,327,427 $ 7,312,861
COSTS AND EXPENSES
Cost of food and beverages 2,085,371 2,104,155
Operating expenses 4,163,240 4,264,537
General and administrative expenses 596,448 544,338
Depreciation and amortization 273,757 245,700
----------- -----------
Total costs and expenses 7,118,816 7,158,730
INCOME FROM OPERATIONS 208,611 154,131
OTHER INCOME (EXPENSE)
Interest expense (355,771) (351,682)
Interest income (267,710) 155,718
Loss on sale of assets -- (190,453)
Minority interest -- (65,084)
----------- -----------
(623,481) (451,501)
----------- -----------
Loss from continuing operations (414,870) (297,370)
INCOME FROM DISCONTINUED OPERATIONS - NOTE D -- 463,178
----------- -----------
Earnings (loss) before extraordinary item (414,870) 165,808
EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT (141,740) --
----------- -----------
NET EARNINGS (LOSS) (556,610) 165,808
DIVIDENDS ON PREFERRED STOCK 31,137 31,137
----------- -----------
NET EARNINGS (LOSS) ON COMMON SHARES $ (587,747) $ 134,671
=========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED
Continuing operations $ (0.08) $ (0.10)
Discontinued operations -- 0.14
Extraordinary item (0.03) --
----------- -----------
Net earnings (loss) $ (0.11) $ 0.04
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 5,225,656 3,216,977
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
6
<PAGE> 7
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1997 AND THE NINE MONTH PERIOD ENDED
AUGUST 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SERIES A NOTE
CONVERTIBLE ADDITIONAL RECEIVABLE
PREFERRED COMMON PAID-IN SALE OF ACCUMULATED
STOCK STOCK CAPITAL SHARES DEFICIT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 1, 1996 $ 1,084 $ 32,045 $ 12,616,727 $ (5,135,716) $ (5,492,697) $ 2,021,443
Issuance of 14,295 shares of
common stock -- 143 65,868 -- -- 66,011
Issuance of 30,000 shares of
preferred stock 300 -- 299,700 -- -- 300,000
Dividends paid - preferred stock -- -- -- -- (101,714) (101,714)
Recognition of interest income
on note receivable from sale
of shares -- -- -- (564,929) -- (564,929)
Net loss -- -- -- -- (1,690,850) (1,690,850)
-----------------------------------------------------------------------------------------
BALANCE AT NOVEMBER 30, 1997 1,384 32,188 12,982,295 (5,700,645) (7,285,261) 29,961
Issuance of 1,997,855 shares of
common stock -- 19,979 4,558,600 -- -- 4,578,579
Conversion of 6,100 convertible
preferred shares into 43,261
common shares (61) 432 (371) -- -- --
Dividends paid - preferred stock -- -- -- -- (93,411) (93,411)
Recognition of interest income
on note receivable from sale
of shares -- -- 460,316 (460,316) -- --
Establishment of valuation
allowance on note receivable
from sale of shares -- -- (4,500,000) 4,500,000 -- --
Net loss -- -- -- -- (1,690,661) (1,690,661)
-----------------------------------------------------------------------------------------
BALANCE AT AUGUST 31, 1998 $ 1,323 $ 52,599 $ 13,500,840 $ (1,660,961) $ (9,069,333) $ 2,824,468
=========================================================================================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
7
<PAGE> 8
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
1998 (RESTATED)
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,690,661) $(1,673,844)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 892,878 848,333
Compensation and fees paid by issuance of common stock 3,927 60,800
Loss on disposal of assets -- 190,453
Minority interest in net earnings of consolidated subsidiaries (25,677) 101,030
Interest income on note receivable from sale of shares -- (414,699)
Interest expense refinanced as long-term debt 5,547 --
Increase in deferred revenue 2,047,141 --
Decrease in current assets 290,509 109,240
Decrease (increase) in net assets of discontinued operations 759,207 (533,284)
Increase in current liabilities 313,230 139,011
-------------- ---------------
Net cash provided by (used in) operating activities 2,596,101 (1,172,960)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (276,405) (370,308)
Payment for acquisition of business (755,200) --
Increase in other assets (134,400) (185,765)
-------------- ---------------
Net cash used in investing activities (1,166,005) (556,073)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- 936,346
Principal payments of long-term debt (770,862) (533,325)
Payments on obligations under capital leases (195,575) (170,697)
Proceeds from issuance of stock 4,928 300,000
Preferred dividends paid (93,411) (70,577)
-------------- ---------------
Net cash (used in) provided by financing activities (1,054,920) 461,747
-------------- ---------------
Net increase (decrease) in cash 375,176 (1,267,286)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,061,475 2,265,497
-------------- ---------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,436,651 $ 998,211
============== ==============
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION - SEE NOTE A
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
8
<PAGE> 9
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE A - SUPPLEMENTAL CASH FLOW INFORMATION
1998 1997
------------- --------------
<S> <C> <C>
Cash paid for interest expense $ 2,077,926 $ 1,978,230
Schedule of non-cash investing and financing transactions
Acquisition of remaining 46% of Wendy's of
West Michigan Limited Partnership, including assets
acquired and liabilities assumed
Fair value of tangible and intangible assets acquired $ 3,748,187
Reduction of minority interest 1,575,738
Amount of cash payment (755,200)
-------------
1,992,359 common shares issued $ 4,568,725
=============
Sale of hotel assets
Selling price, net of selling costs $ 4,334,643
Cash proceeds from sale of hotel assets 2,959,643
-------------
Note receivable from sale of hotel assets $ 1,375,000
=============
Acquisition of equipment
Cost of equipment $ 244,637
Equipment loan 244,637
--------------
Cash down payment for equipment $ --
==============
Increase in marina development costs
Increase in marina development costs $ 1,233,366
Long-term debt proceeds 800,000
--------------
Cash used in marina development costs $ 433,366
==============
</TABLE>
NOTE B - EARNINGS PER SHARE
Beginning in fiscal 1998, the Company adopted Financial Accounting
Standards Number 128 - "Earnings Per Share". Prior year earnings per share
amounts reflect this new pronouncement.
Basic earnings per common share are computed by dividing net earnings
available to common shareholders by the weighted average number of common shares
outstanding during each period. Diluted earnings per share reflect per share
amounts that would have resulted if dilutive potential common stock had been
converted into common stock. As of August 31, 1998 and 1997, the Company had
132,287 and 138,387 shares of Series A Convertible Preferred Stock outstanding,
respectively. Each share of preferred stock was convertible into 7.09 shares of
common stock. The convertible preferred stock was not included in the
computation of diluted earnings (loss) per common share because the effect of
conversion would be antidilutive. After August 31, 1998, 67,767 shares of
preferred stock were converted into 480,612 shares of common stock.
9
<PAGE> 10
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE NINE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE C - ACQUISITION
In fiscal 1998, the Company acquired the remaining 46% of the now
dissolved Wendy's of West Michigan Limited Partnership (including assets
acquired and liabilities assumed) for $755,200 in cash and 1,992,359 common
shares, which had a value of $4,568,725. As a result, assets were recorded at
their fair value (a $3,748,187 increase) and minority interest was eliminated (a
$1,575,738 reduction).
NOTE D - DISCONTINUED OPERATIONS
During the second quarter of 1998, the Company entered into agreements
to sell its two hotel properties resulting in the discontinuance of the
Company's lodging group business segment. The sale of the Grand Harbor Resort &
Yacht Club was effective on June 15, 1998, and the sale of the Thomas Edison Inn
was effective on September 1, 1998. As a result, effective May 31, 1998, the
Company's lodging group business segment is accounted for as discontinued
operations. Because the Company expects to realize a net gain of approximately
$3,500,000 from discontinued operations and the disposal of the lodging group
business segment, pursuant to generally accepted accounting principles, no
income or loss from discontinued operations was recognized from June 1, 1998
through the date of disposal of the business segment (September 1, 1998).
Instead, the anticipated net gain will be recognized upon disposal of the
business segment during the fourth quarter of 1998. Below is a schedule of the
payment terms of the hotel sales:
<TABLE>
<CAPTION>
Grand
Harbor Resort Thomas Edison
& Yacht Club Inn
-------------- --------------
<S> <C> <C>
Selling price (before selling costs) $ 4,500,000 $ 12,200,000
Promissory note held by Company 1,375,000 2,000,000
-------------- --------------
Cash portion of selling price $ 3,125,000 $ 10,200,000
============== ==============
</TABLE>
10
<PAGE> 11
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE NINE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE D - DISCONTINUED OPERATIONS (CONTINUED)
As of August 31, 1998 and November 30, 1997, assets and liabilities of
the discontinued lodging group business segment included in the balance sheet
are summarized below:
<TABLE>
<CAPTION>
August 31, November 30,
Assets 1998 1997
------------ ------------
<S> <C> <C>
Current assets $ 1,435,155 $ 4,199,733
Property, plant and equipment, net 8,248,567 11,461,306
Other assets 1,503,532 2,262,877
Liabilities
Current liabilities (1,079,354) (4,959,561)
Deferred gain on disposal of business segment (536,366) --
Long-term debt (9,392,353) (12,025,967)
------------ ------------
Net assets of discontinued operations $ 179,181 $ 938,388
============ ============
</TABLE>
A summary of the results of operations of the discontinued operations
for the three and nine month periods ended August 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
For the nine months ended August 31, 1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 6,350,989 $ 10,884,943
Costs and expenses 5,830,821 9,994,351
------------ ------------
Earnings from operations 520,168 890,592
Other income (expense), net (943,452) (1,111,982)
------------ ------------
Loss from operations of discontinued operations (423,284) (221,390)
Gain on sale of discontinued operations 480,418 --
------------ ------------
Net income (loss) from discontinued operations (1) $ 57,134 $ (221,390)
============ ============
<CAPTION>
For the three months ended August 31, 1998 1997(2)
------------ ------------
<S> <C> <C>
Revenues $ 2,126,018 $ 4,928,178
Costs and expenses 1,814,635 4,079,472
------------ ------------
Earnings from operations 311,383 848,706
Other income (expense), net (255,435) (385,528)
------------ ------------
Income from operations of discontinued operations 55,948 463,178
Gain on sale of discontinued operations 480,418 --
------------ ------------
Net income from discontinued operations(1) $ 536,366 $ 463,178
============ ============
<FN>
(1) The loss from discontinued operations included on the consolidated statement of operations for the nine months
ended August 31, 1998 of $479,232 includes only operations through May 31, 1998, the measurement date for
discontinued operations. As described above, the income from operations from the measurement date through August
31, 1998 of $536,366 is required to be deferred until the disposal of the business segment (September 1, 1998).
(2) The income from discontinued operations for the three months ended August 31, 1997 includes the effect of a change
in accounting estimate related to the treatment of certain general and administrative expenses as expenses of
discontinued operations. General and administrative expenses for the three month period include $171,000 of
expenses that relate to the six months ended May 31, 1997.
</TABLE>
11
<PAGE> 12
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE NINE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE E - SUBSEQUENT EVENTS (INCLUDING RELATED PARTY TRANSACTIONS)
The Company completed several transactions subsequent to August 31,
1998 all of which resulted in either the retirement of outstanding debt or
allowed for a restructure of existing debt. A description of the transactions
follows:
SALE OF HOTEL ASSETS
The Company sold all of its hotel assets associated with the Thomas
Edison Inn on September 1, 1998 for $12,200,000, which consisted of $10,200,000
cash and a $2,000,000 promissory note requiring monthly payments of interest
only at prime plus 8% through August 31, 1999, when the remaining unpaid
principal will be due. The sale resulted in a gain of $3,105,688 before the
extraordinary charge of $548,395 consisting of a prepayment penalty and the
write-off of unamortized finance costs on the related long-term debt. The
Company's equity increased $2,557,293 as a result of this transaction. The net
proceeds were used to (i) pay in full the remaining balance of the hotel and
marina mortgage notes payable (Loans I and III) to the Company's former primary
lender totaling $9,414,000, and (ii) pay down other long-term debt totaling
$186,000.
SALE OF PARTICIPATION INTERESTS IN $2,000,000 PROMISSORY NOTE
The Company sold $1,100,000 of undivided interests in the $2,000,000
promissory note received from the sale of the Thomas Edison Inn discussed above.
The participation agreements represent 59.6% of the outstanding note balance, of
which a 27.1% participation in the note ($500,000) was sold to a member of the
Company's Board of Directors. The net proceeds from these sales were used to pay
down the Company's mortgage note (Loan II) with the Company's former primary
lender. The Company indemnified each of the participants in the event of
nonpayment by the maker.
PURCHASE OF FIVE WENDY'S PROPERTIES
On September 1, 1998 the Company purchased the real estate (land and
buildings) comprising five Wendy's restaurants from Wendy's Real Estate Limited
Partnership I for $4,200,000. These properties are operated by the Company and
were previously leased via long-term lease agreements. The purchase was financed
with a $4,380,000 mortgage note and a $1,120,000 secured promissory note. The
$5,500,000 debt requires monthly payments of $47,715, including interest ranging
from 7.77% to 8.15% through September 1, 2018. The notes are secured by the real
estate, equipment and inventory of these five restaurants. These proceeds were
also used to pay down $700,000 on Loan II, which carried an interest rate of
prime plus 8%.
REFINANCE OF SIX WENDY'S PROPERTIES
On September 22, 1998, the Company completed a $4,300,000 refinancing
of the real estate of six Wendy's restaurants which included the land for five
sites and the buildings on all six sites. The $4,300,000 mortgage note requires
monthly payments of $35,459, including interest at 7.77% through October 1,
2018. The loan proceeds were used to (i) pay in full the remaining $1,974,000
balance of the revolving term note payable which was secured by the restaurant
real estate, and (ii) pay down $2,300,000 on the outstanding balance of Loan II.
12
<PAGE> 13
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE NINE MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE E - SUBSEQUENT EVENTS (CONTINUED)
ASSIGNMENT OF $1,375,000 NOTE AND RESTRUCTURE OF LONG TERM DEBT
Effective October 6, 1998, the Company entered into an agreement with
the Company's Chairman of the Board whereby the company assigned the $1,375,000
(10.8%) one year note receivable from the sale of the Grand Harbor Resort &
Yacht Club to the Chairman in exchange for (i) payment in full of the 16.5%
business loan note payable to the Chairman ($776,000), (ii) cancellation of
$200,000 of the Company's preferred stock owned by the Chairman, and (iii) a
cash payment of $399,000. The Company indemnified the Chairman in the event of
nonpayment by the maker. The cash proceeds were used to make the final payment
on the remaining balance of Loan II. With this payment, the entire outstanding
long-term indebtedness with the Company's former primary lender was paid in
full.
NEW LONG TERM DEBT STRUCTURE
As a result of these transactions, the Company's long term debt consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Equipment notes payable, due in monthly installments aggregating $13,453
including interest ranging from 8.8% to 10% through October 8,2000.(1) $ 106,126
Mortgage notes payable, due in monthly installments of $32,226 including
interest at 8.15% through September 1, 2018.(2) 3,810,000
Notes payable, due in monthly installments of $10,802 including interest at
8.15% through September 1, 2018.(3) 1,120,000
Mortgage notes payable, due in monthly installments of $40,146 including
interest at 7.77% through October 1, 2018.(2) 4,870,000
----------
Total $9,906,126
==========
<FN>
(1) The notes are collateralized by certain equipment.
(2) The notes are collateralized by certain restaurant real estate.
(3) The notes are collateralized by certain restaurant equipment and inventory.
</TABLE>
Minimum principal payments on this long-term debt to maturity as of August 31,
1998 are as follows:
<TABLE>
<S> <C>
1999 $ 274,744
2000 266,552
2001 266,667
2002 284,083
2003 307,575
Thereafter 8,506,505
----------
$9,906,126
==========
</TABLE>
Loan covenants of the various loan agreements include requirements for
maintenance of certain financial ratios which are effective beginning November
30, 1998.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
FOOD SERVICE GROUP
The Company's Food Service Group consists of its operation of 25
"Wendy's Old Fashioned Hamburgers" restaurants (under franchise agreements with
Wendy's International) throughout Western and Southern Michigan. Due to the
discontinued Lodging Group operations, the Food Service Group's results of
operations for the three and nine month periods ended August 31, 1998 and August
31, 1997 (as restated), also include expenses related to the Company's corporate
office and are summarized in the following table:
<TABLE>
<CAPTION>
Statements of Operations
--------------------------------------------------------------------------------------------
Three month periods ended August 31, Nine month periods ended August 31,
-------------------------------------------- ------------------------------------------
$ (000's) % of Revenue $ (000's) % of Revenue
----------------------- ----------------- --------------------- -----------------
1998 1997 1998 1997 1998 1997 1998 1997
----------------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Food and beverage revenue $ 7,327 $ 7,313 100.0% 100.0% $ 20,041 $ 20,263 100.0% 100.0%
Costs and expenses
Cost of food and beverages 2,085 2,104 28.5 28.8 5,754 5,838 28.7 28.8
Operating expenses 4,163 4,265 56.9 58.3 11,794 12,105 58.8 59.8
General and administrative
expenses 597 544 8.1 7.4 2,166 2,015 10.8 9.9
Depreciation and amortization 274 246 3.7 3.4 893 848 4.5 4.2
----------------------- ----------------- --------------------- -----------------
Total costs and expenses 7,119 7,159 97.2 97.9 20,607 20,806 102.8 102.7
Income (loss) from operations 208 154 2.8 2.1 (566) (543) (2.8) (2.7)
Other income (expense)
Interest expense (356) (351) (4.8) (4.8) (1,096) (1,056) (5.5) (5.2)
Interest income (267) 155 (3.7) 2.1 47 438 0.3 2.2
Other income -- -- -- -- 519 -- 2.6 --
Loss on sale of assets -- (190) -- (2.6) -- (190) -- (1.0)
Minority interest -- (65) -- (0.9) 26 (101) 0.1 (0.5)
----------------------- ----------------- --------------------- -----------------
(623) (451) (8.5) (6.2) (504) (909) (2.5) (4.5)
----------------------- ----------------- --------------------- -----------------
Loss from
continuing operations $ (415) $ (297) (5.7%) (4.1%) $ (1,070) $ (1,452) (5.3%) (7.2%)
======================= ================= ===================== ==================
</TABLE>
REVENUE
Food and beverage revenue increased $14,000 or 0.2% for the three
months ended August 31, 1998 compared to the same period of 1997. For the nine
months ended August 31, 1998, food and beverage revenue decreased $222,000 or
1.1% compared to the same period of 1997. Food and beverage revenues in 1997
include revenue from an under-performing restaurant which was closed in August
1997. Food and beverage revenue on a per restaurant basis for restaurants in
operation during the three months ended February 28, 1998, May 31, 1998 and
August 31, 1998 and for the nine months ended August 31, 1998 are set forth in
the following table:
14
<PAGE> 15
<TABLE>
<CAPTION>
Average Net Sales Per Restaurant Unit
-------------------------------------
Increase % Increase
1998 1997 (Decrease) (Decrease)
-------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Three months ended August 31 $293,097 $289,583 $ 3,514 1.2%
Three months ended May 31 267,632 281,324 (13,692) (4.9%)
Three months ended February 28 240,925 230,797 10,128 4.4%
-------- -------- --------
Nine months ended August 31 $801,654 $801,704 $ (50) (0.0%)
======== ======== ========
</TABLE>
The 1.2% increase in same store sales for the three months ended August
31, 1998 compared to the same period of 1997 was primarily due to the success of
two new promotions: (i) late night business - restaurants are now staying open
later on a year around basis which has resulted in sales growth during the late
night hour period, and (ii) increased "combo" sales and "upsizing" (the addition
of a larger beverage or larger french fry to the standard combo meal for an
additional 39 cents). The 1.2% sales increase for the third quarter of 1998
followed a 4.9% decrease in same store sales for the second quarter of 1998
compared to the same period of 1997. Nearly 3% of the sales decrease for the
second quarter was the result of a decrease in pita sandwich sales which were
introduced in April 1997. The introduction of the pita sandwich was extremely
successful and helped contribute to a record sales month in May 1997. Same store
sales for the first quarter of 1998 increased 4.4%. The increase in same store
sales in the first quarter of 1998 was primarily attributable to the relatively
mild winter weather conditions experienced in the first quarter of 1998 compared
to the first quarter of 1997. Sales during the first nine months of 1998 have
been negatively impacted by competitive intrusion which has affected several
restaurants in the Company's market area, combined with intense competition
throughout the quick-service industry including price discounting. The Company
and Wendy's International have continued to resist engaging in deep price
discounting, choosing instead to combat low prices of its competitors with the
Value Menu offerings and high quality, made-to-order products. Weighted average
price increases for the nine months ended August 31, 1998 were less than 1%
compared to the same period of 1997.
COST OF FOOD AND BEVERAGES
Cost of food and beverages as a percentage of food and beverage revenue
was 28.5% for the three months ended August 31, 1998 compared to 28.8% for the
three months ended August 31, 1997. Cost of food and beverages for the nine
months ended August 31, 1998 was 28.7% compared to 28.8% for the same period of
1997. The slight reduction in food and beverage costs was primarily the result
of the elimination of the SuperBars (a hot and cold all-you-can-eat food bar),
which operated with relatively higher food costs and waste. Continued and
consistent emphasis on food cost controls have also contributed to stable food
and beverage costs. Cost of food and beverage percentages of 28.5% and 28.7%
respectively, for the three and nine months ended August 31, 1998 are in line
with guidelines established by the Company and Wendy's International.
OPERATING EXPENSES
Operating expenses decreased 1.4 percentage points for the three months
ended August 31, 1998 compared to the same period of 1997 (from 58.3% of revenue
in 1997 to 56.9% in 1998). The decrease for the third quarter was due primarily
to a .6 percentage point decrease in payroll costs combined with slight
decreases in advertising, repairs and maintenance, and utility costs. For the
nine months ended August 31, 1998, operating expenses decreased 1.0 percentage
points (from 59.8% of revenue in 1997 to 58.8% in 1998). Again, slight decreases
in advertising, repairs and maintenance, and utility costs, along with a
15
<PAGE> 16
reduction in training costs, accounted for the reduction in operating costs for
the nine months ended August 31, 1998 compared to the same period of 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased approximately $53,000 for
the three months ended August 31, 1998 compared to the same period of 1997 (from
$544,000 to $597,000). As a percentage of revenue, general and administrative
expenses increased from 7.4% of revenue for the three months ended August 31,
1997 to 8.1% of revenue for the same period of 1998. For the nine months ended
August 31, 1998, general and administrative expenses increased approximately
$151,000 (from $2,015,000 to $2,166,000), from 9.9% of revenue to 10.8% of
revenue compared to the same period of 1997.
Actual general and administrative expenses incurred in the third
quarter of 1998 decreased by $45,000 resulting primarily from a $20,000 decrease
in public market costs, a $12,000 decrease in administrative salaries, and an
$8,000 decrease in travel and entertainment, compared to the same period of
1997. This decrease in actual expenses incurred was more than offset by a
decrease in the general and administrative expenses reported in the third
quarter of 1997 which was the impact of a change in accounting estimate. The
Company has revised its allocation of certain general and administrative
expenses between continuing and discontinued operations and, as a result,
recorded the cumulative change in that estimate during the third quarter of
1997. Therefore, general and administrative expenses from continuing operations
in the third quarter of 1997 were reduced resulting in an increase in the amount
of general and administrative expenses reported on the consolidated statement of
operations for the three months ended August 31, 1998 compared to the same
period of 1997.
However, the comparative year-to-date general and administrative
expenses are unaffected by this change in accounting estimate. The increase in
general and administrative expenses for the nine months ended August 31, 1998
was primarily due to increased legal fees of approximately $125,000. Significant
legal costs were incurred in the first quarter of 1998 in connection with the
litigation brought by the former general partner of the now dissolved Wendy's of
West Michigan Limited Partnership. The remaining increase was attributable to an
increase in life insurance expense and administrative salaries and wages.
INTEREST EXPENSE
Interest expense for the third quarter of 1998 and 1997 was $356,000
and $351,000, respectively. Interest expense for the nine months ended 1998 and
1997 was $1,096,000 and $1,056,000, respectively. The increases in interest
expense were due to additional borrowings in fiscal 1997 and an increase in
interest rates. See "Liquidity and Capital Resources" for details about the
Company's long-term debt.
INTEREST INCOME
Interest income decreased $422,000 for the third quarter of 1998
compared to the same period of 1997, and $391,000 for the nine months ended
August 31, 1998 compared to the nine months ended August 31, 1997. The decrease
was attributable to the reversal of $460,000 of interest income accrued through
August 31, 1998 on the note receivable from the sale of stock. This adjustment
to interest income was made as a result of the Company's determination that a
valuation allowance was appropriate due to the longer term price trend of the
stock, which serves as collateral for the note receivable. Because of the
decrease in the current trended value of the collateral securing the note
receivable, a valuation allowance of $4,500,000 has been made to adjust the note
receivable to its estimated realizable value if the shares of common stock
16
<PAGE> 17
securing the note were sold and the proceeds were applied to the note
receivable. As detailed in the Company's statement of stockholders' equity, the
valuation allowance has no net effect on the Company's total stockholders'
equity.
OTHER INCOME
Other income increased $519,000 for the nine months ended August 31,
1998 compared to 1997. The increase in other income was primarily due to the
forfeiture of an earnest deposit in the second quarter in the amount of $500,000
on a contract to sell one of the Company's hotel properties.
LODGING GROUP - DISCONTINUED OPERATIONS
During the second quarter of 1998, the Company entered into agreements
to sell its two hotel properties resulting in the discontinuance of the
Company's Lodging Group as of May 31, 1998. For details of the impact on the
Company's operating results see Note D of the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash and cash equivalents ("cash") increased $375,000 from $1,061,000
as of November 30, 1997 to $1,436,000 as of August 31, 1998. The increase in
cash was the result of the following:
<TABLE>
<S> <C>
Net cash provided by operating activities $ 2,596,000
Net cash provided by investing activities (1,166,000)
Net cash used in financing activities (1,055,000)
------------
Net increase in cash $ 375,000
============
</TABLE>
Net cash provided by operating activities of $2,596,000 was due to a
net loss before depreciation and amortization of $798,000 combined with the
receipt of $2,090,000 in marketing and conversion funds (deferred revenue) from
the Company's beverage supplier. Other non-cash effects on net income and net
cash provided by operating activities totaled $1,304,000 which included a
reduction in net assets of discontinued operations of $759,000.
Net cash used in investing activities of $1,166,000 was the result of
the purchase of property and equipment for $277,000 and the acquisition of the
remaining 46% of the now dissolved Wendy's of West Michigan Limited Partnership
for $755,000. The remaining use of cash increased other assets by $134,000.
Net cash used in financing activities of $1,055,000 was primarily the
result of payments of long-term debt of $771,000 and principal payments on
obligations under capital leases by $196,000. Dividend payments on preferred
stock of $93,000 for the nine months ended August 31, 1998 accounted for the
remaining cash used in financing activities. Proceeds from the sale of common
stock to employees through the Company's employee stock purchase plan totaled
$5,000.
17
<PAGE> 18
FINANCIAL CONDITION
As of August 31, 1998, the Company's current liabilities exceeded its
current assets by $891,000, compared to November 30, 1997 when current
liabilities exceeded current assets by $485,000. At these dates, the ratios of
current assets to current liabilities were 0.7:1 and 0.8:1 respectively. The
discussion above of cash flows for the nine months ended August 31, 1998
explains the increase in cash as well as the most significant reasons for the
decrease in working capital. The other significant items effecting working
capital include the receipt of $300,000 in earnest deposits on the sale of the
Company's hotel properties, and the sale of the assets associated with the Grand
Harbor Resort & Yacht Club on June 16, 1998.
As of August 31, 1998, the terms and balances of the Company's
long-term debt consisted primarily of the following (subsequent to August 31,
1998 the Company completed several transactions, all of which resulted in either
the retirement or restructuring of existing debt):
1) $8,635,000 Loan I required monthly payments of $92,874, including
interest at 11.25%, through December 31, 2003 when the remaining
unpaid principal was due.
2) $4,820,000 Loan II required monthly payments of $100,000, plus
interest at 8% over the prime rate through June 2002.
3) $791,000 Loan III (marina) required monthly payments of interest
only at 11.25%. Principal payments of $35,000 were required upon
the sale of any condominium units. Any remaining outstanding
balance of principal and accrued interest was due the earlier of
the receipt of full payment of the note receivable or September 1,
2000.
4) $1,974,000 revolving term loan required monthly payments of
$43,313, including interest at 1% over the prime rate, through
February 2005 when any remaining unpaid principal was due. Under
the revolving loan agreement, the required monthly payments could
be offset by additional borrowings up to the unused available
borrowings. The Company had $548,000 of available unused
borrowings at August 31, 1998. The loan was secured by
substantially all of the assets used in the Company's Wendy's
operation and was guaranteed by the Company.
5) $201,000 equipment note payable required monthly payments of
$8,524, including interest at 8.8%, through October 2000.
6) $776,000 note payable to the Company's Chairman of the Board of
Directors. The loan required the Company to make monthly payments
of interest only at the prime rate plus 8%. Unpaid principal and
accrued interest was due 91 days after Loans I, II and III were
paid off.
Subsequent to August 31, 1998 the Company completed several
transactions, resulting in either the retirement of outstanding debt or allowed
for a restructure of existing debt. The effect of these transactions on
long-term debt was:
- All long-term indebtedness owed to the Company's former primary
lender (Loans I, II, and III) was completely retired. The notes
payable carried interest rates ranging from 11.25% to prime plus
8% and had a weighted average interest rate of 12.7%.
18
<PAGE> 19
- The $776,000 (prime plus 8%) note payable to the Company's
Chairman of the Board was paid in full through the assignment of a
portion of the Company's $1,375,000 (10.8%) note receivable from
the sale of the Grand Harbor Resort & Yacht Club.
- $10 million of new long-term debt was obtained which carries a
weighted average interest rate of 7.97%. The loan proceeds were
used to retire the outstanding balance of the $1,974,000 revolving
term note and to reduce the outstanding balance of Loan II. The
new debt structure significantly reduces the Company's effective
borrowing rate from a 12.4% weighted average interest rate on $24
million of outstanding debt as of November 30, 1997, to a current
weighted average of 7.97% on $10 million of outstanding debt.
The Company has faced significant cash flow and liquidity issues in the
past. As described above, during the past several months the Company completed
several transactions which have significantly improved the Company's current
cash position, and the Company believes these actions will allow for improvement
in its cash flow condition in the future. A further description of these
transactions and their impact on cash flow follows:
- Conversion of 72,867 shares of preferred stock into 523,873 shares
of common stock in August and September 1998. The conversion will
reduce the Company's annual dividend payments by $65,580.
- Sale of the Grand Harbor Resort & Yacht Club effective June 15,
1998 for $4,500,000 ($3,125,000 of cash and a note receivable of
$1,375,000). The cash proceeds from the sale were used to retire
approximately $2.4 million of long-term debt. The $1,375,000
(10.8%) note receivable was assigned to the Company's Chairman of
the Board in exchange for (i) payment in full of the $776,000
(prime plus 8%) note payable to the Chairman, (ii) cancellation of
$200,000 of 9% preferred stock owned by the Chairman, and (iii) a
cash payment of $399,000 from the Chairman. The Company
indemnified the Chairman in the event of nonpayment by the maker.
The cash proceeds were used to retire the remaining balance of
Loan II (prime plus 8% mortgage note payable) to the Company's
former primary lender. This transaction results in an annual
interest and dividend savings (pre-tax) of $85,000.
- Sale of the Thomas Edison Inn effective September 1, 1998 for
$12,200,000 ($10,200,000 of cash and a note receivable of
$2,000,000). The cash proceeds were used to retire approximately
$9.6 million of long term debt (Loans I and III). $1,100,000 of
undivided interests in the $2 million note receivable have been
sold. The Company indemnified each of the participants in the
event of nonpayment by the maker. The cash proceeds from these
sales were used to reduce the balance of Loan II with the
Company's former primary lender.
- Purchase of real estate of five Wendy's restaurants, which were
previously rented via long-term lease arrangements, for $4.2
million on September 1, 1998. The real estate and business value
of these five restaurants was used as collateral to borrow $5.5
million of new long-term debt. The new debt, with a weighted
average interest rate of 8.1%, was used to purchase the properties
and to reduce the balance of Loan II (prime plus 8% mortgage note
payable) with the Company's former primary lender.
19
<PAGE> 20
- Refinance of the mortgage loan on the real estate associated with
the Wendy's operations and owned by the Company. This refinancing,
which was completed in September 1998, resulted in long-term debt
carrying an interest rate of approximately 8% to replace debt
which carried a weighted average interest rate of 13.5%. The
refinancing results in annual interest savings of approximately
$240,000.
Subsequent to these transactions, the Company's long term debt consisted
primarily of $9.8 million of long term debt requiring monthly payments of
$83,174, including interest ranging from 7.77% to 8.15% through October 2018.
The new loan documents contain certain covenants regarding the
maintenance of certain financial ratios which are effective November 30, 1998.
The annual debt service of this current debt structure is approximately
$1.2 million compared to an annual debt service of approximately $3.1 million on
the debt that was retired as a result of the sale of the hotel assets and the
new debt borrowings.
Based on the new debt structure, the Company plans to meet its current
obligations over the next twelve months by:
- Accessing working capital as needed from cash reserves of
approximately $1,000,0000.
- Reducing corporate overhead through a management restructuring in
connection with the sale of the hotels.
- Exploring financing options for certain of the planned capital
expenditures instead of using operating cash flow.
- Accessing $900,000 of unused business value loans through the
Company's new primary lender.
- Reducing or deferring capital expenditures.
- Managing relationships with vendors to utilize cash discounts or
to obtain extension of credit terms where appropriate.
- Generating additional cash flow by opening additional Wendy's
restaurants.
There can be no assurances, however, that the Company will be able
to complete any or all of the above activities or that completion would yield
the results expected.
The Company's planned capital expenditures for the next twelve
months are approximately $600,000 for building improvements and furniture,
fixture and equipment purchases at existing Wendy's restaurants and the
corporate office. The Company has signed a $6.25 million commitment to finance
both the real estate and the personal property for the development of five new
Wendy's restaurants.
20
<PAGE> 21
COMPUTER SYSTEMS - YEAR 2000 IMPACT
- -----------------------------------
The Company and its vendors have become increasingly reliant on
computer systems to process transactions and to provide relevant business
information. The majority of computer systems designed prior to the mid-1990's
are susceptible to a well publicized problem associated with an inability to
process date related information beginning with the year 2000. Almost all of the
Company's computer hardware was acquired within the past two years. The Company
is in the process of reviewing its computer hardware and software with the
assistance of the software designers to ensure that all significant software
applications are year 2000 compliant, and anticipates completing its review
during fiscal 1998. Based on the results of the review to date, the Company
believes that the point-of-sale system, which monitors all sales, inventory and
labor activity, is year 2000 compliant. However, the critical systems which are
used to (i) produce financial statements, (ii) process payroll, and (iii)
compare actual product usage with planned product usage are not year 2000
compliant. The Company has estimated that replacement or modification of those
systems will be necessary at a cost ranging from $200,000 to $300,000. However,
the Company can make no assurance that all year 2000 risks to the Company and to
its critical vendor systems can be identified and successfully negated through
modification or replacement of existing programs. The Company does not expect to
incur significant additional costs to complete its review of computer systems to
determine what measures are required to be year 2000 compliant. Pending the
final results of this review, the Company cannot determine the actual cost that
may be required to ensure that all the critical computer systems are year 2000
compliant.
21
<PAGE> 22
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
In August and September 1998, the Company issued 523,873 unregistered
common shares to nine individuals as part of the conversion of their 73,867
Series A Convertible Preferred Shares. The preferred shares had been purchased
in 1996 and 1997, and were convertible into common shares at a conversion price
of $1.41 per common share (based on the liquidation value of $10.00 per
preferred share). This issuance was exempt from registration pursuant to Section
3(a)(9) of the Securities Act of 1933.
ITEM 5. OTHER INFORMATION.
On July 16, 1998, the Board of Directors appointed James P. Bishop and
Christopher P. Hendy to fill vacancies on the Board of Directors.
On July 16, 1998, the Board approved an amendment to the Company's
Amended and Restated Articles of Incorporation to modify the conversion formula
on the Company's Series A Convertible Preferred Stock in order to encourage
conversion and thereby reduce the Company's annual dividend expense. The
amendment permitted conversion, until September 14, 1998, at a price
representing the average daily high and low bid prices of the Company's common
shares over a 10-day trading period. A one dollar increase in the conversion
price occurs each subsequent three month period (until the price reaches $7.00
per share). The Restated and Amended Articles of Incorporation were filed with
the Michigan Department of Consumer & Industry Services Corporation on July 31,
1998.
On August 7, 1998, the Company, through Wendy's of Michigan, entered
into an agreement with Wendy's International, Inc. (the franchisor of the 25
Wendy's restaurants operated by the Company) to clarify certain aspects of the
franchise rights granted to Wendy's of Michigan.
On September 2, 1998, the Board of Directors suspended the Company's
Employee Share Purchase Plan to eliminate the Company's annual administration
fee payable to the Company's transfer agent.
On September 2, 1998, to facilitate the conversion of the Series A
Convertible Preferred Stock, the Board amended the Company's Bylaws to opt out
of the Chapter 7B (being Sections 790 through 799) of the Michigan Business
Corporation Act, such that Chapter 7B would not apply to any "control share
acquisition" (as that term is defined by Chapter 7B) involving the Company's
common shares. On September 15, 1998, the Board amended the Company's Bylaws to
opt back into Chapter 7B such that Chapter 7B applies to any control share
acquisition that occurs thereafter.
On October 6, 1998, Christopher B. Hewett resigned as the Company's
President and Chief Executive Officer in order to pursue other business
opportunities. The Board of Directors appointed the Company's Executive Vice
President, Robert E. Schermer, Jr., as the new President and Chief Executive
Officer. Mr. Hewett remains a member of the Company's Board of Directors.
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit List.
Exhibit No. Description of Document
- ----------- ------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of Meritage
Hospitality Group Inc.
3.2 Restated and Amended Bylaws of Meritage Hospitality Group Inc. (1)
10.16 Agreement and Consent dated August 7, 1998 between WM Limited
Partnership - 1998, Meritage Hospitality Group Inc., MHG Food
Service Inc., Meritage Capital Corp., MCC Food Service Inc.,
Robert E. Schermer, Jr., and Christopher B. Hewett.
10.17 Waiver, Third Amendment and Modification Agreement to Loan
Agreement dated November 26, 1996 among Meritage Hospitality Group
Inc., SC Inn Inc., GHR Inc., Thomas Edison Inn, Incorporated, MHG
Food Service Inc., GHYC Inc., as obligors, and Great American Life
Insurance Company, as lender.
10.18 Sample Construction Loan Agreement with Captec Financial Group,
Inc.
10.19 Sample Promissory Note with Captec Financial Group, Inc. regarding
real estate financing.
10.20 Sample Mortgage with Captec Financial Group, Inc. regarding real
estate financing.
10.21 Sample Promissory Note with Captec Financial Group, Inc. regarding
leasehold financing.
10.22 Sample Mortgage with Captec Financial Group, Inc. regarding
leasehold financing.
10.23 Sample Promissory Note with Captec Financial Group, Inc. regarding
business value financing.
10.24 Sample Security Agreement with Captec Financial Group, Inc.
regarding business value financing.
10.25 Agreement dated October 1, 1998 by and between Robert E. Schermer,
Sr. and the Company regarding sale of $1,375,000 promissory note.
27 Financial Data Schedule.
All Exhibits filed herewith except as noted:
(1) Filed in the Quarterly Report on Form 10-Q for the Company's fiscal quarter
ended May 31, 1998.
23
<PAGE> 24
(b) Reports on Form 8-K.
--------------------
On August 10, 1998, the Company filed Amendment No. 1 to the
Form 8-K originally filed on June 18, 1998 which reported that
the Company's wholly-owned subsidiary sold certain real and
personal property, including the Grand Harbor Resort & Yacht
Club located in Spring Lake, Michigan, for $4,500,000. The
Amendment included pro forma consolidated financial statements
regarding the sale.
On September 9, 1998, the Company filed a Form 8-K which
reported that the Company's wholly-owned subsidiary sold
certain real and personal property, including the Thomas
Edison Inn located in Port Huron, Michigan, for $12,200,000 of
which the Company received $10,200,000 in cash and a
$2,000,000 one-year secured promissory note bearing interest
at 8.0% over the prime lending rate. The Company reduced its
long-term indebtedness by approximately $9,600,000 as a result
of this sale.
The Company also reported that, through its Wendy's of
Michigan operations, it purchased the real estate comprising
five of the Wendy's restaurants currently operated by the
Company for $4,200,000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 9, 1998 MERITAGE HOSPITALITY GROUP INC.
By /s/ Robert E. Schermer, Jr.
----------------------------------
Robert E. Schermer, Jr.
President and Chief Executive Officer
By /s/ Pauline M. Krywanski
----------------------------------
Pauline M. Krywanski
Vice President and Treasurer
(Chief Financial Officer)
24
<PAGE> 25
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------- ------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of Meritage
Hospitality Group Inc.
3.2 Restated and Amended Bylaws of Meritage Hospitality Group Inc. (1)
10.16 Agreement and Consent dated August 7, 1998 between WM Limited
Partnership - 1998, Meritage Hospitality Group Inc., MHG Food
Service Inc., Meritage Capital Corp., MCC Food Service Inc.,
Robert E. Schermer, Jr., and Christopher B. Hewett.
10.17 Waiver, Third Amendment and Modification Agreement to Loan
Agreement dated November 26, 1996 among Meritage Hospitality Group
Inc., SC Inn Inc., GHR Inc., Thomas Edison Inn, Incorporated, MHG
Food Service Inc., GHYC Inc., as obligors, and Great American Life
Insurance Company, as lender.
10.18 Sample Construction Loan Agreement with Captec Financial Group,
Inc.
10.19 Sample Promissory Note with Captec Financial Group, Inc. regarding
real estate financing.
10.20 Sample Mortgage with Captec Financial Group, Inc. regarding real
estate financing.
10.21 Sample Promissory Note with Captec Financial Group, Inc. regarding
leasehold financing.
10.22 Sample Mortgage with Captec Financial Group, Inc. regarding
leasehold financing.
10.23 Sample Promissory Note with Captec Financial Group, Inc. regarding
business value financing.
10.24 Sample Security Agreement with Captec Financial Group, Inc.
regarding business value financing.
10.25 Agreement dated October 1, 1998 by and between Robert E. Schermer,
Sr. and the Company regarding sale of $1,375,000 promissory note.
27 Financial Data Schedule.
All Exhibits filed herewith except as noted:
(1) Filed in the Quarterly Report on Form 10-Q for the Company's fiscal quarter
ended May 31, 1998.
25
<PAGE> 1
EXHIBIT 3.1
MERITAGE HOSPITALITY GROUP INC.
RESTATED ARTICLES OF INCORPORATION
ARTICLE I
---------
The name of the corporation is Meritage Hospitality Group Inc.
ARTICLE II
----------
The purpose or purposes for which the corporation is organized is to engage in
any activity within the purposes for which corporations may be organized under
the Business Corporation Act of Michigan.
ARTICLE III
-----------
The total authorized capital stock is:
Common Shares: 30,000,000 Par Value Per Share $0.01
Preferred Shares: 5,000,000 Par Value Per Share $0.01
A statement of all or any of the relative rights, preferences and limitations of
the shares of each class is as follows:
Authority is hereby expressly reserved and granted to the Board of Directors of
this Corporation to determine in the resolution or resolutions providing for the
issuance of Common Stock and/or Preferred Stock the voting powers, designations,
preferences and relative participating, operational or other special rights,
qualifications, limitations or restrictions thereof which shall be incident to
the ownership of shares of such Common Stock and Preferred Stock.
The Corporation has a series of Preferred Stock, designated as Series A
Convertible Preferred Stock, consisting of 200,000 shares, par value $.01, the
qualifications, limitations, restrictions and terms of which are as follows:
(1) Each of such Shares shall have an annual dividend rate of $.90 per
Share and no more. The right to payment of dividends shall be
cumulative. Said annual dividend shall be payable in equal quarterly
installments upon the 1st day of each January, April, July and October
in each year to holders of record as of the 15th day of the preceding
month commencing January 1, 1997, before any sum shall be set apart or
applied to the redemption or purchase of, or any dividends (other than
dividends of Common Shares) shall be declared or paid upon or set apart
for, Common Shares. The first of such quarterly dividend payments shall
be prorated to reflect the number of days in the quarter during which
the particular Shares were outstanding.
<PAGE> 2
(2) Upon any dissolution, liquidation or winding up of the Corporation,
the holders of each of said Shares, shall be entitled to receive,
before any payment to holders of Common Shares, all accrued but unpaid
dividends, plus a liquidation value of $10.00 per share and no more.
The consolidation or merger of the Corporation, at any time, with
another corporation, or a sale of substantially all of the assets of
the Corporation, shall not be construed as a dissolution, liquidation
or winding up of the Corporation within the meaning hereof.
(3) The Series A Convertible Preferred Shares shall be convertible into
Common Shares of the Corporation at a conversion price of $7.00 for
each Common Share, (taking such Preferred Shares at the liquidation
value of $10.00 per share) upon the following terms and conditions:
Until September 14, 1998, the conversion price shall be the
average of the average daily high and low bid prices quoted on the
OTC Bulletin Board for the 10 trading days beginning on the date that
commences two days following the filing of the Company's Form 10-Q for
the Second Fiscal Quarter of 1998. Thereafter, the conversion price
shall be increased by one dollar on the 15th day of each September,
December, March and June provided, however, that if the conversion
price as computed ever equals or exceeds $7.00 per share, then the
conversion price shall be $7.00 for each common share and no further
increases shall occur.
(3.1) In case the Common Shares issuable upon conversion of the
Series A Convertible Preferred Shares at any time outstanding
shall be subdivided into a greater or combined into a lesser
number of Common Shares (whether with or without par value), and
whether by stock split or stock dividend, the conversion price
shall be decreased in the case of a subdivision or increased in
the case of a combination to an amount which shall bear the same
relation to the conversion price in effect immediately prior to
such subdivision or combination, and shall bear the total number
of Common Shares outstanding immediately after such subdivision or
combination.
(3.2) No adjustments shall be made for dividends accrued on any
Shares that shall be issuable upon the conversion of such Shares.
(3.3) In case of a merger or consolidation of the Corporation with
or into another corporation, or the reclassification of its Common
Shares (other than by way of split-up or contraction), the holders
of Series A Convertible Preferred Shares shall thereafter be
entitled to receive upon conversion the kind and amount of shares
of stock and securities and property which they would have
received had they converted such Series A Convertible Preferred
Shares into Common Shares of the Corporation as of the record date
for determination of common shareholders entitled to participate
in such merger, consolidation, or reclassification.
(3.4) The holder of any shares of Series A Convertible Preferred
Shares may convert such Shares by surrendering the certificate or
certificates to any transfer agent of the Corporation or to the
Secretary of the Corporation duly endorsed in blank transfer and
accompanied by written notice of election to convert such Shares,
or portion thereof, executed on the form set forth on such
certificates or on such other form as
<PAGE> 3
may be provided from time to time by the Corporation. No
fractional Common Shares shall be issued upon the conversion of
any Series A Convertible Preferred Shares but, in lieu thereof,
the Corporation shall pay an amount in cash equal to the current
market value of such fractional interest computed on the basis of
the value of the Common Shares at the time the preferred shares
are surrendered for conversion as determined in such reasonable
manner as the Corporation may adopt. In case of the voluntary
dissolution, liquidation or winding up of the Corporation, all
conversion rights of the holders of Series A Convertible
Preferred Shares shall terminate on a date fixed by the Board of
Directors, but not more than Thirty (30) days prior to the record
date for determining the holders of the Common Shares entitled to
receive any distribution upon such dissolution, liquidation and
winding up.
(3.5) The right of the holder to convert the Series A Convertible
Preferred Shares shall commence upon issuance of such Shares.
(3.6) The Corporation may cause the Series A Convertible Preferred
Shares to be converted at its option at any time if the average of
the closing sale prices for the Corporation's Common Shares is at
least 120 percent of the then effective conversion price, as
described above, for at least 20 trading days within the period of
30 consecutive trading days ending no earlier than 5 trading days
prior to the date of the notice of conversion.
(4) Holders of the Series A Convertible Preferred Shares shall have no
voting rights except as provided by law and except that if at any time
the Corporation fails to make six consecutive quarterly dividend
payments thereon, the number of directors constituting its Board of
Directors will be increased by two and the holders of the Shares,
voting as a class with each Share having one vote, will be entitled to
elect two directors to the Board as long as any arrearages in dividend
payments remain outstanding. Upon payment by the Corporation of all
such dividend arrearages, the two directors elected pursuant to this
provision will cease to be directors and the holders of Shares will
have no further right to elect directors on account of such arrearages.
(5) The Corporation shall not, except upon the affirmation vote of the
holders of two-thirds of the Series A Convertible Preferred Shares
outstanding at the time, amend these articles of incorporation in any
manner that would result in the Series A Convertible Preferred Shares
being subordinate in terms of preference as to payments of dividends or
payments on liquidation to any other Preferred Shares of the
Corporation.
ARTICLE IV
----------
1. The address of the registered office is:
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
2. The mailing address of the registered office, if different than above:
(same)
<PAGE> 4
3. The name of the current resident agent is: James R. Saalfeld
ARTICLE V
---------
The name and address of the incorporator is as follows:
Donald W. Reynolds
940 W. Savidge
Spring Lake, MI 49456
ARTICLE VI
----------
When a compromise or arrangement or a plan of reorganization of this corporation
is proposed between this corporation and its creditors or any class of them or
between this corporation and its shareholders or any class of them, a court of
equity jurisdiction within the state, on application of this corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed for
the corporation, may order a meeting of the creditors or class of creditors or
of the shareholders or class of shareholders to be affected by the proposed
compromise or arrangement or reorganization, to be summoned in such manner as
the court directs. If a majority in number representing 3/4 in value of the
creditors or class of creditors, or of the shareholders or class of shareholders
to be affected by the proposed compromise or arrangement or a reorganization,
agree to a compromise or arrangement or a reorganization of this corporation as
a consequence of the compromise or arrangement, the compromise or arrangement
and the reorganization, if sanctioned by the court to which the application has
been made, shall be binding on all the creditors or class of creditors, or on
all the shareholders or class of shareholders and also on this corporation.
ARTICLE VII
-----------
Any action required or permitted by the Act to be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to shareholders who have not
consented in writing.
ARTICLE VIII
------------
The Corporation shall be, and is hereby declared to be, subject to the
provisions of Chapter 7a of the Business Corporation Act of the State of
Michigan, as enacted through the adoption of Act No. 115 of the Public Acts of
the State of Michigan of 1984. The requirements therein provided and made
applicable with respect to the Corporation shall be in addition to all other
requirements of law and other provision of the Articles of Incorporation, or any
thereto.
<PAGE> 1
Exhibit 10.16
AGREEMENT AND CONSENT
---------------------
This AGREEMENT AND CONSENT (hereinafter the "CONSENT") is made in
Dublin, Ohio, as of the date set forth below, by and among WENDY'S
INTERNATIONAL, INC., an Ohio corporation (hereinafter "WENDY'S"); MCC FOOD
SERVICE INC. ("MCCFS"); MHG FOOD SERVICE INC. ("FOOD SERVICE"); MERITAGE
HOSPITALITY GROUP INC. ("MERITAGE"); MERITAGE CAPITAL CORP. ("MCC"); ROBERT E.
SCHERMER, JR., and CHRISTOPHER B. HEWETT (together referred to herein as the
"PRINCIPALS"); WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP (hereinafter
referred to as the "PARTNERSHIP"); and WM LIMITED PARTNERSHIP-1998 (hereinafter
referred to as the "NEW PARTNERSHIP"). The Principals, Food Service, MCC, MCCFS
and Meritage are collectively referred to herein from time to time as the
"GUARANTORS".
WHEREAS, Wendy's, the Partnership and the Guarantors entered into a
Consent Agreement dated May 16, 1997 (the "Original Consent") related to the
operation of the Wendy's Old Fashioned Hamburgers Restaurants referenced on
Exhibit A (the "Restaurants"), which Restaurants are operated pursuant to the
various franchise agreements as listed on Exhibit A (the "Franchise
Agreements"); and
WHEREAS, the Original Consent also referenced the two (2) Wendy's Old
Fashioned Hamburgers Restaurants referenced on Exhibit B (the "Co-Franchised
Restaurants") which are operated pursuant to the various franchise agreements as
listed on Exhibit B (the "Co-Franchised Franchise Agreements"); and
WHEREAS, the Original Consent also referenced a Wendy's Old Fashioned
Hamburgers Restaurant located at 115 Monroe Avenue, Grand Rapids, Michigan (the
"MONROE MALL RESTAURANT") which was operated pursuant to a Restaurant Franchise
Agreement dated June 30, 1994 (the "MONROE MALL FRANCHISE AGREEMENT"), however,
the Monroe Mall Restaurant has closed and the parties desire to terminate the
Monroe Mall Franchise Agreement by mutual agreement; and
WHEREAS, Wendy's West Michigan, Inc., John G. Dodgson, Raymond A.
Weigle, III, and Gregory E. Dodgson (the "Michigan Parties") and the Guarantors
were adversaries in a civil lawsuit in Kent County, Michigan Circuit Court, Case
No. 9705360-CB (the "Lawsuit") which Lawsuit related, in part, to the ownership
of the Partnership; and
WHEREAS, documents were filed with the State of Michigan indicating
that the Partnership had been dissolved and that the successor in interest was
the New Partnership, although those facts were also disputed in the Lawsuit; and
WHEREAS, the Michigan Parties and the Guarantors reached a settlement
in the Lawsuit as set forth in the Settlement Agreement and Mutual Release dated
May 11, 1998 and the Written Acknowledgment dated May 27, 1998, which are
attached hereto as Exhibit C (together referred to as the "Settlement
Agreement") and pursuant to the Settlement Agreement the Michigan Parties have
released Wendy's of any liability, have transferred to the New Partnership any
and all right, title and interest they may have in the Co-Franchised Franchise
Agreements and have acknowledged that they have no further interest in the
Franchise Agreements. The Michigan
<PAGE> 2
Parties and the Guarantors have also resolved the status of the Partnership and
the New Partnership as part of the Settlement Agreement.
WHEREAS, the parties now desire to confirm Wendy's consent to certain
transfers and to clarify the ownership of all of the Franchise Agreements and
the Co-Franchised Franchise Agreements by the New Partnership, subject to the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties, intending to be legally bound, mutually
agree as follows:
1. Pursuant to Paragraph 3 of the Original Consent, all parties hereto
acknowledge and agree that the Partnership has been duly dissolved and
the new franchisee under the Franchise Agreements and under the
Co-Franchised Franchise Agreements is and shall remain the New
Partnership for the duration of those agreements. The New Partnership
and the Guarantors represent and agree as follows:
A. Food Service currently owns 90% or more of the limited
partnership units in the New Partnership.
B. MCCFS is and shall remain the sole general partner of the New
Partnership.
C. All of the Guarantors shall be guarantors of all obligations
under the Franchise Agreements, the Co-Franchised Franchise
Agreements (as modified in Paragraph 2 below), the Original
Consent, and this Consent in accordance with the terms of
Exhibit E and Exhibit F of the Original Consent. The terms of
said Exhibit E and F shall also be applicable to any other
franchise agreement executed by Wendy's and the New
Partnership, although Wendy's may require the execution of
separate guaranties for any additional franchise agreements
for its records. The Guarantors shall individually comply with
the noncompetition and confidentiality provisions of the New
Co-Franchised Franchised Agreements (as defined in Paragraph 2
below) and their failure to do so shall constitute a default
under the New Co-Franchised Franchise Agreements.
D. The New Partnership hereby assumes all rights, restrictions
and obligations of the Partnership under the Franchise
Agreements, the Co-Franchised Franchise Agreements, the
Original Consent and this Consent. All references in the
Original Consent to the Partnership shall henceforth reference
the New Partnership.
2. The Guarantors, the Partnership and the New Partnership acknowledge,
represent and agree that the Michigan Parties have transferred any and
all interest they may have in the Franchise Agreements and in the
Co-Franchised Franchise Agreements to the New Partnership and that the
New Partnership is and shall remain the sole franchisee under the
Franchise Agreements and under the Co-Franchised Franchise Agreements
(as modified in Paragraph 2 below). Wendy's confirms its consent to
such transfers as necessary to effectuate such ownership by the New
Partnership subject to the following:
A. The New Partnership and the Guarantors agree to execute New
Franchise Agreements in the form which is attached to Wendy's
current Offering
- 2 -
<PAGE> 3
Circular and which is incorporated herein by reference (the
"NEW CO-FRANCHISED FRANCHISE AGREEMENTS") to replace the
Co-Franchised Franchise Agreements. The Guarantors and the New
Partnership agree to execute contemporaneously herewith two
(2) copies of the New Co-Franchised Franchise Agreements for
each of the two(2) Co-Franchised Restaurants described herein.
The Guarantors and the New Partnership further agree that
except as otherwise specifically provided herein, the
Co-Franchised Franchise Agreements are hereby superseded and
replaced in their entirety with the New Co-Franchised
Franchise Agreements which are incorporated herein by
reference. The New Co-Franchised Franchise Agreements shall
govern the parties' relationship with respect to the
Co-Franchised Restaurants commencing as of the effective date
of this Consent with a new term of twenty (20) years. Except
as specifically set forth herein, upon Wendy's execution of
this Consent and the New Co-Franchised Franchise Agreements,
the Co-Franchised Franchise Agreements shall be of no further
force or effect. The Guarantors and the New Partnership
warrant, represent and agree that they have reviewed the New
Co-Franchised Franchise Agreements, acknowledge that they
differ from the Co-Franchised Franchise Agreements, and except
as may be set forth herein, warrant and represent that as of
the effective date of this Consent, they are in compliance
with all provisions of the New Co-Franchised Franchise
Agreements (including, without limitation, the provisions
contained in Section 16 therein) and this Consent.
B. The New Partnership and the Guarantors hereby jointly and
severally agree to indemnify, defend and hold Wendy's, its
successors, assigns, subsidiaries, officers, directors,
employees and agents, harmless from any and all claims,
judgments, actions or expenses (including reasonable attorney
fees), arising out of or otherwise connected with any known or
unknown claims hereafter asserted by any of the Michigan
Parties for matters accruing or arising up to the date hereof,
the past operation of the Restaurants or the Co-Franchised
Restaurants, the Franchise Agreements , the Co-Franchised
Franchise Agreements, the New Co-Franchised Franchise
Agreements, the Lawsuit, the Partnership, the New Partnership,
the Settlement Agreement, or the transfers of interest
referenced herein, to which Wendy's consents but assumes no
responsibility for effectuating. This indemnity shall be
binding upon the heirs of the Principals and the successors of
the entities comprising Guarantors as a contingent claim and
shall survive any termination of the Franchise Agreements and
the New Co-Franchised Franchise Agreements.
C. The New Partnership and the Guarantors agree to execute the
Release of All Claims attached hereto as Exhibit D
contemporaneously with the execution of this Consent.
D. The New Partnership and the Guarantors warrant, represent and
agree that except as otherwise provided herein or in the
Original Consent, the
- 3 -
<PAGE> 4
Restaurants and the Co-Franchised Restaurants shall be
operated only by the New Partnership, and that the New
Partnership has the legal right to possession of the premises
associated with the Restaurants and the Co-Franchised
Restaurants.
E. The New Partnership and the Guarantors warrant and represent
that as of the effective date of this Consent, the New
Partnership shall have in full force and effect and will have
delivered to Wendy's a certificate of insurance specifically
covering each of the Co-Franchised Restaurants under the New
Co-Franchised Franchise Agreements (as defined herein) and
which complies with the insurance provisions of the New
Co-Franchised Franchise Agreements, and includes the street
locations on the front or back of the certificate or attached
to it as an exhibit, naming the New Partnership as the insured
and naming Wendy's as additional insured.
F. The New Partnership and the Guarantors acknowledge and agree
that the Partnership has voted in favor of the 1998/'99 WNAP
increase and that they have reviewed the memorandum and ballot
related to such increase. The New Partnership and Guarantors
hereby agree to comply with the terms of the memorandum and
ballot executed by the Partnership for the Franchise
Agreements and the New Co-Franchised Franchise Agreements.
G. The New Partnership and the Guarantors acknowledge and agree
that they have received and reviewed a copy of Wendy's
transaction policy dated April 1, 1994, as amended November 4,
1994, as amended from time to time for the Wendy's System and
agree to comply with the provisions therein.
3. The New Partnership and the Guarantors acknowledge and agree that the
terms and conditions of the Original Consent, except as specifically
set forth herein, are and shall remain binding upon the New
Partnership, including, without limitation, the ownership restrictions
contained in Paragraphs 1 and 2 of the Original Consent and the
development restrictions contained in Paragraph 5 thereof. For further
clarification and without limitation, it is acknowledged that any
subsequent offering by the New Partnership shall be subject to its
compliance with Paragraph 2(E) of the Original Consent and Paragraph
13.6 of the Franchise Agreements and the New Co-Franchised Franchise
Agreements (entitled "OFFERING MATERIALS").
4. Wendy's, the New Partnership, Guarantors and the Partnership agree that
the Monroe Mall Franchise Agreement shall be deemed terminated in its
entirety effective August 3, 1997 (the "TERMINATION DATE") and shall be
of no further force or effect as of said date, subject to the
following:
A. The New Partnership, Guarantors and the Partnership warrant
that the Monroe Mall Restaurant closed on the Termination Date
and as of the date of this Consent has been de-identified so
as to remove all signage and indicia of Wendy's.
- 4 -
<PAGE> 5
B. The New Partnership and Guarantors agree that to the extent
there remain outstanding obligations accruing through the
Termination Date under the Monroe Mall Franchise Agreement,
they shall be promptly paid by the New Partnership.
C. Except as specifically set forth herein, Wendy's agrees that
the aforementioned parties shall no longer be liable under the
Monroe Mall Franchise Agreement for any obligations which
arise after the Termination Date, including any obligations to
pay a minimum royalty of Two Hundred Fifty Dollars ($250.00)
per month throughout the remaining term of the Monroe Mall
Franchise Agreement.
5. The New Partnership and the Guarantors warrant, represent and agree
that the terms and conditions of the Original Consent and this Consent
shall modify and be equally applicable to both the Franchise Agreements
and the New Co-Franchised Franchise Agreements and are hereby
incorporated therein, notwithstanding Paragraph 1(J) of the Original
Consent. Any breach of the terms or conditions of the Original Consent
or this Consent by the New Partnership (as the successor in interest to
the Partnership) or the Guarantors shall constitute a material default
under the Franchise Agreements and the New Co-Franchised Franchise
Agreements, subject to such notice and cure periods as are provided for
therein or by law.
6. Nothing herein shall in any way limit or restrict the obligations of
the Guarantors under the Guaranty, which obligations are acknowledged
by Guarantors to include all of the Franchise Agreements, the New
Co-Franchised Franchise Agreements, the Original Consent and this
Consent.
7. The New Partnership and the Guarantors acknowledge and understand that
to the extent the growth and expansion of the New Partnership, any of
the Guarantors, or any entity controlled by the New Partnership or any
of the Guarantors involves other quick-service restaurant concepts that
sell products that Wendy's views as competitive, even if such interest
may not constitute a default under the Franchise Agreements or the New
Co-Franchised Franchise Agreements, such may affect Wendy's willingness
to grant new franchises to the Partnership or any of the Guarantors
under Paragraph 5 of the Original Consent or otherwise.
8. Wendy's and the New Partnership agree that the official mailing address
of the New Partnership for the Franchise Agreements and the New
Co-Franchised Franchise Agreements shall be as follows:
WM Limited Partnership-1998
c/o MCC Food Service Inc.
40 Pearl Street, N.W., Suite 900
Grand Rapids, MI 49503
Attn: President
All parties agree that notice to the New Partnership shall constitute
notice to each of the Guarantors.
- 5 -
<PAGE> 6
9. All parties understand that Wendy's may in the future approve offerings
and transfers under different terms, conditions and policies existing
at that time. Wendy's consent and waiver here shall not be relied upon
in future transactions as limiting Wendy's position or the conditions
associated with Wendy's consent and/or waiver of its right of first
refusal.
10. The New Partnership and the Guarantors acknowledge and agree that
Wendy's has no knowledge of, and makes no warranties with respect to,
the accuracy of any representations or warranties made by the Michigan
Parties, the New Partnership or the Guarantors to each other in
connection with this transfer, and Wendy's assumes no obligation in
this regard.
11. The parties understand and acknowledge that Wendy's consent and/or
waiver in no way constitutes an acknowledgment, undertaking or
representation by Wendy's as to the financial viability of this
transaction, any approval of any monetary terms or the earnings
potential of the Restaurants or the Co-Franchised Restaurants. The
parties acknowledge that they have separately reviewed and evaluated
this transaction and the Settlement Agreement and obtained independent
professional assistance and have in no way relied upon Wendy's consent
as an appraisal of any kind.
12. The New Partnership and the Guarantors hereby acknowledge the receipt
of Wendy's Uniform Franchise Offering Circular at the earlier of the
first personal meeting with Wendy's regarding this Consent or ten (10)
business days prior to the execution of this Agreement. The New
Partnership and Guarantors further acknowledge the receipt of a final
copy of this Consent at least five (5) business days prior to the
execution hereof.
13. The parties agree that if they fail to execute and return this Consent
to Wendy's within twenty-one (21) days of the receipt hereof, this
Consent may not be executed by Wendy's and the terms and conditions
contained herein shall not otherwise be binding upon Wendy's without
such execution.
14. Nothing contained in the Settlement Agreement or any collateral
documentation between the Michigan Parties, the New Partnership and the
Guarantors and affiliated parties, is intended to conflict with the
terms and conditions of this Consent, the Franchise Agreements or the
New Co-Franchised Franchise Agreements as defined herein as to the
rights of Wendy's and the obligations of the parties to Wendy's, or to
impose additional requirements or restrictions on Wendy's except as may
be specifically set forth herein. Except as otherwise provided for
herein, all terms and conditions of the Original Consent, the Franchise
Agreements and the New Co-Franchised Franchise Agreements shall remain
in full force and effect and the terms and conditions of this Consent
are intended to supplement those provisions contained in the
aforementioned documents. In the event of a conflict between the
Original Consent, the Franchise Agreements, the New Co-Franchised
Franchise Agreements on the one hand and this Consent, the terms and
conditions of this Consent will control.
A. ALL PARTIES ACKNOWLEDGE AND AGREE THAT AS TO WENDY'S AND THE
RIGHTS OF WENDY'S, THE FRANCHISE AGREEMENTS, THE NEW
CO-FRANCHISED FRANCHISE
- 6 -
<PAGE> 7
AGREEMENTS AND THIS CONSENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
15. If any material provision or restriction contained herein is void under
federal, state or local law, or held unenforceable and against public
policy, the parties shall negotiate in good faith to give each party
the benefit of its bargain consistent with the intent and rights of the
parties.
16. This Consent sets forth the entire understanding between the parties
concerning the subject matter of this Consent and incorporates all
prior negotiations and understandings. There are no covenants,
promises, agreements, conditions or understandings, either oral or
written, between the parties relating to the subject matter of this
Consent other than those set forth herein. No representation or
warranty has been made by or on behalf of any party to this Consent (or
any officer, director, employee or agent thereof) to induce the other
party to enter into this Consent or to abide by or consummate any
transactions contemplated by any terms of this Consent, except
representations and warranties, if any, expressly set forth herein. No
alteration, amendment, change or addition to this Consent shall be
binding upon either party unless in writing and signed by the party to
be charged. The submission of any unexecuted copy of this Consent shall
not constitute an offer to be legally bound by any provision of the
document submitted, either currently or in the future; and no party
shall be bound by this Consent until it is fully executed and delivered
by all parties.
IN WITNESS WHEREOF, this Agreement and Consent is effective as of the
date it is executed by Wendy's International, Inc.
WENDY'S INTERNATIONAL, INC.
By: /s/ W. Stephen Wirt
---------------------------------------------
Title: Vice President
------------------------------------
Date: 8/7/98
-------------------------------
MCC FOOD SERVICE INC.
By: /s/ Christopher B. Hewett
---------------------------------------------
Title: Chairman & CEO
------------------------------------
MHG FOOD SERVICE INC.
By: /s/ Christopher B. Hewett
---------------------------------------------
Title: President
------------------------------------
(SIGNATURE LINES CONTINUED ON NEXT PAGE)
- 7 -
<PAGE> 8
MERITAGE HOSPITALITY GROUP INC.
By: /s/ Christopher B. Hewett
---------------------------------------------
Title: President & CEO
------------------------------------
MERITAGE CAPITAL CORP.
By: /s/ Christopher B. Hewett
---------------------------------------------
Title: President
------------------------------------
/s/ Robert E. Schermer, Jr.
------------------------------------------------
ROBERT E. SCHERMER, JR., Individually
/s/ Christopher B. Hewett
------------------------------------------------
CHRISTOPHER B. HEWETT, Individually
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
By: /s/ Christopher B. Hewett
---------------------------------------------
Title: Chairman & CEO of MCC
Food Service Inc. - General Partner
------------------------------------
WM LIMITED PARTNERSHIP-1998
By: /s/ Christopher B. Hewett
---------------------------------------------
Title: Chairman & CEO of MCC
Food Service Inc. - General Partner
------------------------------------
Franchise:__________
- 8 -
<PAGE> 9
EXHIBIT A
DODGSON/WEIGEL
WENDY'S OLD FASHIONED HAMBURGERS RESTAURANTS
- ------------------ -------------------------------------------------------------
STORE NO. RESTAURANT LOCATION
- ------------------ -------------------------------------------------------------
#19-001 305 East Michigan, Kalamazoo, MI
- ------------------ -------------------------------------------------------------
#19-002 2814 Portage, Kalamazoo, MI
- ------------------ -------------------------------------------------------------
#19-003 5830 Westnedge Avenue South, Kalamazoo, MI
- ------------------ -------------------------------------------------------------
#19-004 1280 28th Streeet, S.E., Grand Rapids, MI
- ------------------ -------------------------------------------------------------
#19-005 929 W. Columbia Avenue, Battle Creek, MI
- ------------------ -------------------------------------------------------------
#19-006 1061 Michigan Street, N.E. Grand Rapids, MI
- ------------------ -------------------------------------------------------------
#19-007 2200 28th Street, S.W., Wyoming, MI
- ------------------ -------------------------------------------------------------
#19-008 5455 West Main Street, Kalamazoo, MI
- ------------------ -------------------------------------------------------------
#19-009 3045 Henry Street, Muskegon, MI
- ------------------ -------------------------------------------------------------
#19-010 2315 Alpine Avenue, N.W., Walker, MI
- ------------------ -------------------------------------------------------------
#19-011 3921 28th Street, S.E., Grand Rapids, MI
- ------------------ -------------------------------------------------------------
#19-012 3850 S. Division Avenue, Wyoming, MI
- ------------------ -------------------------------------------------------------
#19-013 2730 W. Michigan, Kalamazoo, MI
- ------------------ -------------------------------------------------------------
#19-014 2071 E. Apple, Muskegon, MI
- ------------------ -------------------------------------------------------------
#19-015 3301 Plainfield, N.E., Grand Rapids, MI
- ------------------ -------------------------------------------------------------
#19-016 4343 Chicago Drive, Grandville, MI
- ------------------ -------------------------------------------------------------
#232-001 320 North Beacon, Grand Haven, MI
- ------------------ -------------------------------------------------------------
#232-002 261 E. 8th Street, Holland, MI
- ------------------ -------------------------------------------------------------
#232-003 12393 James Street, Holland, MI
- ------------------ -------------------------------------------------------------
#746-001 1185 M 89, Plainwell, MI
- ------------------ -------------------------------------------------------------
#747-001 828 S. Kalamazoo, Paw Paw, MI
- ------------------ -------------------------------------------------------------
#983-001 530 68th Street, S.W., Cutlerville, MI
- ------------------ -------------------------------------------------------------
#1011-001 5335 Beckley Road, Battle Creek, MI
- ------------------ -------------------------------------------------------------
<PAGE> 10
EXHIBIT B
CO-FRANCHISED RESTAURANTS
- ------------------ -------------------------------------------------------------
STORE NO. RESTAURANT LOCATION
- ------------------ -------------------------------------------------------------
#1844-001 4694 W. River Road, Grand Rapids, MI
- ------------------ -------------------------------------------------------------
#2020-001 3922 Lake Michigan Drive, N.W., Walker, MI
- ------------------ -------------------------------------------------------------
<PAGE> 1
Exhibit 10.17
WAIVER, THIRD AMENDMENT AND
---------------------------
MODIFICATION AGREEMENT
----------------------
THIS WAIVER, THIRD AMENDMENT AND MODIFICATION AGREEMENT is dated as of
the 2nd day of September, 1998 by and among GREAT AMERICAN LIFE INSURANCE
COMPANY (the "Lender") and MERITAGE HOSPITALITY GROUP INC. ("MHG"), SC INN INC.,
formerly known as St. Clair Inn, Inc. ("SCI"), GHR INC., formerly known as Grand
Harbor Resort Inc. ("GHR"), THOMAS EDISON INN, INCORPORATED ("TEI"), MHG FOOD
SERVICE INC. ("Food Service") and GHYC INC., formerly known as Grand Harbor
Yacht Club Inc. ("GHYC") (MHG, SCI, GHR, TEI, Food Service and GHYC are
collectively referred to as the "Obligors").
WITNESSETH:
WHEREAS, the Lender and the Obligors are parties to a Loan Agreement
dated November 26, 1996, as amended by Amendment No. 1 dated as of May 23, 1997
and Waiver Second Amendment and Modification Agreement dated September 30, 1997
(collectively, the "Loan Agreement"); and
WHEREAS, the Obligors have requested and the Lender has agreed to waive
certain covenants and release liens in certain collateral securing the
obligations under the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereby agree as follows:
1. WAIVER OF COVENANTS. Obligors have informed Lender that Captec
Financial Group, Inc. has agreed to provide up to an Eleven Million Nine Hundred
Fifty Thousand and 00/100 Dollars ($11,950,000) loan to Meritage Hospitality
Group, Inc. (the "Captec Loan") to finance the purchase, construction and
renovation of certain Wendy's restaurants. Lender hereby waives compliance with
the covenant set forth in Sections 4.2(c) of the Loan Agreement solely with
respect to the Captec Loan. In exchange for Lender's consent, Obligors agree
that on or before September 30, 1998, Obligors shall pay to Lender a minimum of
Two Million Two Hundred Thousand and 00/100 Dollars ($2,200,000), which shall be
applied to Loan II. This waiver applies only to Section 4.2(c) of the Loan
Agreement for the purpose referenced above and does not otherwise modify or
waive any other covenant or agreement contained in the Loan Agreement.
2. RELEASE OF COLLATERAL. Obligors have requested the release of liens
encumbering Thomas Edison Inn and parcels adjacent thereto in exchange for less
than the Release Price set forth in the Loan Agreement. Lender hereby agrees to
the release of the liens provided Lender receives Nine Million Six Hundred
Seventy-Five Thousand One Hundred Ninety and 42/100 ($9,675,190.42), which shall
be applied to Loan I and Loan III and an assignment of all collateral documents
executed in connection with the sale of Thomas Edison Inn to Reynolds/Ehinger
Enterprises, LLC, including, but not limited to, an Assignment of a Promissory
Note and Mortgage in the original principal
<PAGE> 2
- 2 -
amount of Two Million and 00/100 Dollars ($2,000,000) executed by
Reynolds/Ehinger Enterprises, LLC (the "REH Note"), an Assignment of Guaranty,
Assignment of Pledge Agreements, and Assignment of a Security Agreement.
3. MANDATORY PREPAYMENT. Obligors agree that upon the payment of any
principal on the REH Note by Reynolds/Ehinger Enterprises, LLC at maturity or
otherwise, all such payments shall be used to prepay Loan II except for
prepayments made on or before September 30, 1998 in connection with the closing
prorations of the sale of Thomas Edison Inn in an amount not to exceed $300,000,
which shall be used to reduce the outstanding principal amount of the Note.
4. RATIFICATION. Except as amended and modified hereby, the terms of
the Loan Agreement referred to above are hereby ratified and confirmed as of
this date.
[Remainder of Page Intentionally Left Blank]
<PAGE> 3
- 3 -
IN WITNESS WHEREOF, the parties hereto have executed this Waiver, Third
Amendment and Modification Agreement as of the day and year first above written.
WITNESSES: GREAT AMERICAN LIFE INSURANCE
COMPANY
/s/ Gail T. King
- -----------------------------
/s/ Roberta J. Hines BY: /s/Mark F. Muething
- ----------------------------- -------------------------------------
Mark F. Muething,
Senior Vice President
MERITAGE HOSPITALITY GROUP INC.
/s/ L. Bracken
- -----------------------------
/s/ James R. Saalfeld BY: /s/ Christopher B. Hewett
- ----------------------------- -------------------------------------
Christopher B. Hewett, President
SC INN INC., formerly known as
St. Clair Inn, Inc.
/s/ L. Bracken
- -----------------------------
/s/ James R. Saalfeld BY: /s/ Christopher B. Hewett
- ----------------------------- -------------------------------------
Christopher B. Hewett, President
GHR INC., formerly
known as Grand
Harbor Resort Inc.
/s/ L. Bracken
- -----------------------------
/s/ James R. Saalfeld BY: /s/ Christopher B. Hewett
- ----------------------------- -------------------------------------
Christopher B. Hewett, President
THOMAS EDISON INN, INCORPORATED
/s/ L. Bracken
- -----------------------------
/s/ James R. Saalfeld BY: /s/ Christopher B. Hewett
- ----------------------------- -------------------------------------
Christopher B. Hewett, President
MHG FOOD SERVICE INC.
/s/ L. Bracken
- -----------------------------
/s/ James R. Saalfeld BY: /s/ Christopher B. Hewett
- ----------------------------- -------------------------------------
Christopher B. Hewett, President
<PAGE> 4
- 4 -
GHYC INC., formerly known as
Grand Harbor Yacht Club Inc.
/s/ L. Bracken
- -----------------------------
/s/ James R. Saalfeld BY: /s/ Christopher B. Hewett
- ----------------------------- -------------------------------------
Christopher B. Hewett, President
<PAGE> 1
Exhibit 10.18
Loan No. ________
________ Michigan
CONSTRUCTION LOAN AGREEMENT
---------------------------
THIS CONSTRUCTION LOAN AGREEMENT ("Agreement") is made this _____ day
of _____________, 1998, between WM LIMITED PARTNERSHIP - 1998 D/B/A WENDY'S OF
MICHIGAN, a Michigan limited partnership, of 40 Pearl Street NW, Suite 900,
Grand Rapids, Michigan 49503 ("Borrower"), and CAPTEC FINANCIAL GROUP, INC., a
Michigan corporation, of 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P. O.
Box 544, Ann Arbor, Michigan 48106-0544 (together with its successors, assigns
and transferees, "Lender"). The Lender agrees to make, and the Borrower agrees
to borrow and repay the construction loan described below ("Loan"), in
accordance with the terms and conditions set forth in this Agreement. This
Agreement shall become effective on ________________, 1998.
1. LOAN AND COLLATERAL.
--------------------
(a) LOAN. The Loan made under this Agreement shall be in the
maximum amount of ______________________________________ Dollars ______________
and shall be evidenced by a promissory note, dated ________________, 1998, in
the amount of the Loan ("Note").
(b) PAYMENTS. The Loan, or so much of it as shall be advanced
to Borrower in accordance with the provisions of this Agreement, shall be repaid
in accordance with the terms and provisions of the Note, and the following
additional terms and provisions:
(i) During the Construction Period (as
hereinafter defined), interest, computed and determined at the rate set
forth in the Note, shall be due and payable to Lender on the first day
of the first month following the first advance under the Loan.
(ii) At the option of Lender, Lender may
collect interest by deducting the amount of such interest from any
advance of the Loan.
(iii) Upon the expiration of the Construction
Period, fixed installments of principal and interest based on the
amounts disbursed under this Agreement shall be due and payable on the
first day of each month until the amount of the Loan has been paid in
full.
(iv) The "Construction Period" shall commence
on the date hereof, and shall continue through the last day of the
month in which Borrower shall complete construction of the improvements
at the Project (as defined below) and receive the final disbursement of
funds for costs related to the Project in accordance with this
Agreement; provided, however, in no event shall the Construction Period
extend beyond one hundred eighty (180) days after the effective date
hereof (the "Completion Date"). Notwithstanding the previous sentence,
if circumstances require a longer Construction Period, Borrower may
extend the Construction Period for up to an additional three (3) months
provided that Borrower has received written consent of Lender, which
consent shall not be unreasonably withheld.
(c) USE OF LOAN PROCEEDS. Borrower shall employ the Loan
proceeds solely for the purpose of financing the costs of acquiring, improving,
developing and constructing the Project (as defined below), and Borrower will
not require any additional financing for such purpose.
(d) COLLATERAL. The payment and performance obligations of
Borrower in connection with the Loan, whether under this Agreement, the Note or
otherwise (collectively, the "Indebtedness") are secured by and in accordance
with the terms of that certain Mortgage, Security Agreement and Assignment of
Leases and Rents,
<PAGE> 2
effective of even date herewith, in favor of Lender, covering the Property (as
defined below) ("Mortgage"), an Assignment of Construction Documents, effective
of even date herewith ("Assignment"), and other instruments of security given to
secure repayment of the Loan (together with this Agreement, the Note, the
Mortgage and Assignment, the "Loan Documents"). All property securing the
Indebtedness is referred to as the "Collateral".
2. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender, as long as the Loan remains outstanding, as follows:
(a) BORROWER'S EXISTENCE AND AUTHORITY. Borrower is a limited
partnership, duly organized and presently existing under the laws of the State
of Michigan. The person or persons executing this Agreement have full power and
complete authority to execute this Agreement and all related documents and, when
executed, this Agreement and all related documents will be legal, valid and
binding obligations of Borrower, enforceable in accordance with their terms.
(b) BUSINESS AND LOCATION. Borrower is in the business of
owning and operating Wendy's restaurants. Its chief executive office is 40 Pearl
Street NW, Suite 900, Grand Rapids, Michigan 49503, and Borrower's business
location is _____________________________________.
(c) NO LITIGATION. There are no pending or to Borrower's
knowledge threatened suits or proceedings before any court, governmental agency,
regulatory body, or administrative tribunal to which Borrower is a party and
which may result in any material change in the financial condition of Borrower
or the Property.
(d) FINANCIAL STATEMENTS. Borrower has furnished to Lender
Meritage Hospitality Group, Inc.'s ("MHG") most recent annual audited financial
statements and Borrower's and MHG's most recent management prepared and
quarterly financial statements, which statements were prepared in accordance
with generally accepted accounting principles and are correct and complete and
accurately present the financial condition of Borrower and MHG on the dates
thereof. Further, there has been no material adverse change in the business,
property or condition of Borrower since the date of the most recent financial
statements.
(e) TITLE. Borrower has good, indefeasible and marketable
title to the real estate described on the attached Exhibit A and all
improvements thereon (collectively, "Property"), free from all liens and
encumbrances, except those described in the title policy issued pursuant to
Title Commitment No. 225847-C by Transnation Title Insurance Company ("Title
Company") and acceptable to Lender ("Permitted Liens"). Except for the Permitted
Liens, there are no instruments, matters or agreements, and Borrower is not a
party to any instrument, matter or agreement, which will in any way encumber,
bind or otherwise affect the Property or Lender. Borrower has neither done nor
failed to do anything, nor has suffered anything to be done, as a result of
which the Property or any part thereof has been or will be encumbered or title
thereto has been or will be affected in any way and no person, firm or entity
has any present, conditional or contingent rights to acquire all or any portion
of the Property.
(f) SURVEY. The survey prepared by Moore & Bruggink, Inc. with
respect to the Property satisfies the requirements set forth in Lender's
commitment letter referred to in Section 3(c) below.
(g) PLANS. The plans and specifications (collectively,
"Plans") prepared by Integrated Architecture, PC for construction and
development of a Wendy's restaurant located on the Property ("Project"), are
satisfactory to Borrower, and, to the extent required by applicable law or any
effective restrictive covenant, by each governmental authority and the
beneficiary of any such covenant, respectively; all construction, if any,
previously performed on the Property has been completed on a lien free basis
within the perimeter of the Property in accordance with the Plans and in
accordance with any applicable restrictive covenants; there are no structural
defects in the Project, no violation of any local governmental requirement
exists, and the anticipated use complies with applicable zoning ordinances,
regulations and restrictive covenants affecting the Property.
2
<PAGE> 3
(h) GOVERNMENTAL REQUIREMENTS. All required building permits,
certificates of environmental impact approval, all zoning, building, housing,
safety, fire and health approvals and all permits and licenses required by any
governmental authority and necessary or advisable to operate, occupy or use the
Property for the purposes permitted under the Loan Documents have been (or will
be) issued. To the extent such permits, certificates, approvals and licenses are
issued, the same are unexpired, permanent and unconditional, and, without cost
or risk to Lender, are hereby assigned, to the extent assignable, to Lender.
(i) FRANCHISE AGREEMENT. Borrower is a franchisee in good
standing with Wendy's International, Inc. ("Franchisor"), and is not in default
under its franchise agreement with Franchisor (the "Franchise Agreement").
(j) UTILITIES. All public utilities including, but not limited
to, electric, gas, sewer, water, telephone and other utilities required for the
operation of the Project either enter the Property through adjoining public
streets, or, if they pass through adjoining private land, do so in accordance
with valid public easements or private easements. All utilities necessary or
convenient to the full use and enjoyment of the Project are available at the
boundaries of the Property, and if not now installed the same shall be
constructed and installed to service the Project prior to the Completion Date,
and all installation and connection charges will be fully paid.
(k) ACCESS; ROADS. Access to the Property is over publicly
dedicated streets or through valid, indefeasible easements of record. All roads
necessary for the full utilization of the Project for its intended purposes have
either been completed or the necessary rights of way have been acquired by the
appropriate governmental authority or have been dedicated to public use and
accepted by the appropriate governmental authority, and all necessary steps have
been taken by Borrower and the appropriate governmental authority to assure the
complete construction and installation thereof.
(l) CONTRACTS. The contracts necessary for the acquisition,
development, construction, management and/or operation of the Project are
identified on the attached Exhibit B and are in full force and effect, there are
no defaults under any of the provisions thereof and all conditions to the
effectiveness or continuing effectiveness of the contracts required to be
satisfied as of the date of this Agreement, or in the future, have been, or will
be, satisfied.
(m) TAXES. Borrower has filed all federal, state and local
income and other tax returns and other reports required to be filed prior to the
date of this Agreement and Borrower has paid all taxes, assessments,
withholdings and other governmental charges that are due and payable prior to
the date of this Agreement. All taxes and all installments of assessments and
all other charges of any kind imposed or levied by any governmental authority
against either Borrower or the Premises which are due and payable or constitute
a lien at or prior to the date of this Certificate, together with all interest
and penalties due thereon, have been paid in full.
(n) COMPLIANCE WITH LAW. Borrower has complied with all
applicable laws, rules, regulations and orders relating to Borrower or any
aspect of Borrower's business or assets, including, without limit, all
environmental laws, rules, regulations and orders. Borrower agrees to indemnify
and hold Lender harmless against and from all claims, losses and costs resulting
from any and all violations by Borrower of any laws, rules, regulations and/or
orders, except due to action or inaction arising from the gross negligence or
wilful misconduct of Lender.
(o) SURVIVAL. All warranties and representations of Borrower
contained in this Agreement shall survive the execution of this Agreement and
any advances made in accordance with this Agreement.
3. CONDITIONS TO ADVANCES.
-----------------------
(a) FREQUENCY AND AMOUNT. Borrower shall be entitled to not
more than six (6) advances of the Loan, as provided in any request for advance
meeting the requirements of this Agreement, which request for
3
<PAGE> 4
advance shall be delivered to Lender not less than ten (10) working days prior
to the date of the requested advance. The amount advanced by Lender shall be the
lesser of the following:
(i) The Loan amount, less the sum of:
(A) Lender's determination of the
estimated cost to complete the Project;
(B) All construction cost retentions
or holdbacks which Lender has not advanced; and
(C) All prior advances of the Loan.
(ii) The unpaid costs of all construction
completed through the last date covered by the request for advance less
all related retentions or holdbacks, each as determined by Lender or,
if required by Lender, an inspecting architect or engineer.
(iii) Notwithstanding anything in this
Agreement to the contrary, Lender shall at all times be entitled to
retain sufficient funds to complete the Project (as determined by
Lender).
(b) LIMITATIONS. Notwithstanding anything in this Agreement to
the contrary:
(i) Borrower acknowledges that: (A) the sum of
the Direct Costs and the Indirect Costs (collectively, "Total Project
Costs") established in the Budget are an estimate; (B) the Budget
includes a contingency and other reserves; and (C) circumstances may
arise during construction of the Project that may require modification
of the Budget, an increase in the contingency and/or other reserves, or
the establishment of additional reserves. Lender is authorized to
modify the Budget, to adjust the contingency and/or other reserves and
to establish additional reserves from the undisbursed portion of the
Loan in such amounts as Lender deems necessary to pay or satisfy, in
whole or in part, any lien or claim prejudicial to the liens or
security interests of Lender and/or any expenditure or allocation of
funds shown on the Budget and/or any cost or expense necessary to
complete the Project. Any amount advanced by Lender pursuant to the
preceding sentence, shall be deemed to be proceeds of the Loan and
advanced under this Agreement (whether or not advanced to Borrower).
(ii) Lender shall have no obligation to make
an advance of the Loan if Lender determines that the remaining Total
Project Costs are in excess of the remaining portion of the Loan which
is available for disbursement, unless a cash deposit (or other evidence
of cash investment) in the amount of such excess is made by Borrower to
Lender.
(c) CONDITIONS TO FIRST ADVANCE. The obligation of Lender to
make the first advance of the Loan is subject to the following:
(i) Lender shall have received and recorded or
filed (as appropriate) executed copies of the Loan Documents.
(ii) Lender shall have determined that all
conditions set forth in Lender's commitment for the Loan, dated June 3,
1998, have been satisfied; including, without limit, the payment of all
required fees and expenses.
(iii) Lender shall have received such other
documents, instruments and certificates as Lender deems necessary.
4
<PAGE> 5
(d) CONDITIONS TO ALL ADVANCES. The obligation of Lender to
make any advance of the Loan, including the first advance, is subject to the
following:
(i) All representations and warranties of
Borrower contained in this Agreement shall be true and correct as of
the date of the advance.
(ii) No Event of Default shall exist under any
of the Loan Documents, and no event shall exist which by notice,
passage of time or otherwise would constitute an Event of Default under
any of the Loan Documents.
(iii) The Project shall not have been
materially damaged by fire or other casualty.
(iv) Lender shall have received satisfactory
evidence that all work and improvements requiring inspection by any
governmental authority have been inspected and approved; that the
appropriate governmental authorities have accepted dedication of roads,
sewers and other facilities where necessary, and all required
certificates and other approvals have been duly issued.
(v) Lender shall have received and approved a
survey showing the location of the foundations and footings, after they
are in place.
(vi) Borrower shall provide Lender,
concurrently with any advance made under this Agreement, sworn
statements, waivers of lien, affidavits and acceptable assurances of
payment by the general contractor, subcontractors, suppliers and/or
laborers, which shall cover all work, labor and materials performed or
furnished for the Project.
(vii) Lender shall have received a fully
executed request for advance and such other supporting documentation as
may be required by Lender.
(viii) Lender shall have received an
endorsement to the title policy, indicating no adverse change in the
state of title, which endorsement shall have the effect of increasing
the coverage of the title policy by an amount equal to the advance then
being made.
(ix) Lender shall have received satisfactory
evidence that all work and improvements have been inspected and
approved by Lender's appraisal staff or, if required by Lender, an
inspecting architect or engineer.
(x) Lender shall have received payment of any
additional fees or expenses due and owing to Lender in connection with
such advance.
(e) CONDITIONS TO FINAL ADVANCE. The obligation of Lender to
make the final advance of the Loan is subject to the following:
(i) Lender shall have received satisfactory
evidence of the issuance of a temporary or final certificate of use and
occupancy for the Project issued by the appropriate governmental
authorities.
(ii) Lender shall have received a final survey
showing the completed Project.
(iii) Lender shall have received satisfactory
evidence that the Project has been completed lien free and in
accordance with the Plans.
5
<PAGE> 6
(iv) Lender shall have received a fully paid
policy of permanent all-risk hazard insurance for the Project providing
limits of liability sufficient to avoid the application of any
coinsurance clause, but in no event to be less than the amount of the
Loan; and otherwise satisfying the requirements set forth in the
mortgage, dated of even date, from Borrower in favor of Lender.
(v) Lender shall have received payment of any
additional fees or expenses due and owing to Lender in connection with
the final advance.
(vi) Lender shall have received an assignment
in form and substance satisfactory to Lender of all warranties and
guaranties with respect to the Project and the services provided in
connection with the construction of the Project.
(f) DISBURSEMENT AGREEMENT. Borrower acknowledges and
understands that all advances shall be made by Title Company pursuant to that
certain Disbursement Agreement, dated even herewith, among Lender, Borrower and
Title Company, subject to the requirements and further conditions to each such
advance set forth therein.
4. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, as long
as the Loan remains outstanding, Borrower shall:
(a) CONSTRUCTION. Obtain all permits and approvals necessary
for the Project, cause the Project to be constructed on the Property in good and
workmanlike manner, in accordance with the Plans, and have construction
completed no later than the Completion Date.
(b) COSTS. Construct, complete and equip the Project for an
aggregate amount not to exceed the Total Project Costs set forth in the Budget
attached hereto as Exhibit C.
(c) APPLICABLE LAW. Construct and operate the Project in
accordance with applicable ordinances, rules and regulations and requirements of
all governmental authorities having jurisdiction over the Project.
(d) MAINTAIN PROPERTY. Maintain, preserve and keep the
Property, and each and every part and parcel thereof, in good repair and working
order, and in safe condition at all times and in accordance with applicable
ordinances, rules and regulations, and requirements of all governmental
authorities having jurisdiction over the Property.
(e) INSPECTION. Permit Lender and its agents free access to
the Property and make available for audit, inspection and/or copying all
property, equipment, books, contracts, records and other papers of Borrower
relating to the Property.
(f) ADDITIONAL CAPITAL. Within ten (10) days of written
notification by Lender to Borrower, contribute to the Project additional funds
which, when added to the undisbursed portion of the Loan, shall be sufficient to
pay in full the remaining Total Project Costs.
(g) TRUST FUNDS. Receive all advances made under this
Agreement as trust funds for the purpose of paying the Total Project Costs.
(h) CONTRACTS. Deliver to Lender executed copies of all
contracts referenced in Exhibit B, whether executed before or after the date of
this Agreement, and enforce the duties and obligations of the parties
thereunder.
(i) NOTICE OF ADVERSE EVENTS. Promptly notify Lender in
writing of any Event of Default or institution of any litigation, administrative
proceeding or lien filed by governmental authorities or any other proceeding
6
<PAGE> 7
or occurrence which may have a material adverse effect on the Project or
Borrower's business, property or financial condition.
(j) EXISTENCE AND IDENTITY. Maintain and keep in full force
and effect Borrower's existence under the laws of the state of its organization,
and continue its business as presently conducted. Borrower shall not change the
legal format under which Borrower was organized nor sell all or substantially
all of its property or merge Borrower's business, in whole or in part, without
the prior written consent of Lender. Borrower shall give Lender prompt written
notice of any change in location of its chief executive office or any other
place of business.
(k) FRANCHISE AGREEMENT. Comply with the terms of the
Franchise Agreement and to take all actions necessary or required to keep the
Franchise Agreement in full force and effect, and to promptly provide Lender
with a copy of any notice of default under the Franchise Agreement, or any
notice to Borrower of the existence of any breach which, with notice or the
passage of time, or both, would entitle Franchisor to terminate the Franchise
Agreement.
(l) INSURANCE.
(i) Provide Lender with evidence of a
builder's risk policy and/or all risk hazard insurance policy for fire
and extended coverage insurance. The policy must be in the amount of
the Loan, or the full replacement cost of the improvements, whichever
is greater, but in no event less than one hundred percent (100%) of the
insurable value. The insured premises must be described by the street
address of the Property. The builder's risk policy and/or hazard
insurance policy must contain replacement cost, inflation-guard,
vandalism and malicious mischief endorsements.
(ii) Provide Lender with evidence of
comprehensive general liability and property damage insurance with
initial limits of at least $1,000,000/$1,000,000 for bodily injury and
$1,000,000 for property damage, and evidence of an umbrella policy of
not less than $5,000,000.
(iii) Provide Lender with evidence of rent
loss or business interruption insurance in an amount to cover at least
a twelve (12) month period.
(iv) Provide Lender with evidence of flood
insurance, if the Property is located in a designated flood plain area.
(v) All insurance policies shall be in such
amounts, upon such terms and in such form as shall be acceptable to
Lender, and shall be carried with insurers acceptable to Lender.
Lender's failure to request copies of such coverage or failure to
approve such shall not be a waiver of Lender's future right to enforce
the terms of this Section 4(l). All insurance policies shall be
furnished to Lender. Where Lender can be insured as a mortgagee or loss
payee (with a lender's loss payable endorsement) because of its
security interest, such endorsement shall be attached to the policies.
All policies shall require at least thirty (30) days prior written
notice to Lender of cancellation or modification.
(m) TAXES. Promptly pay all taxes, withholdings, levies and
assessments due to all local, state and federal agencies, and if requested by
Lender, submit to Lender copies of any and all federal or state or local tax
returns evidencing the computation and the payment of such taxes.
(n) NO DEFAULT CERTIFICATE. Furnish to Lender, within ten (10)
days after request by Lender, a certificate of Borrower stating that no Event of
Default has occurred or, if an Event of Default has occurred, stating its
nature, how long it has existed and what action Borrower proposes to take with
respect to the Event of Default.
(o) OTHER INFORMATION. Promptly furnish to Lender such other
information, documents or certificates regarding the operations, business
affairs and financial condition of Borrower as Lender may reasonably
7
<PAGE> 8
request from time to time. Borrower shall also permit Lender, its employees,
attorneys and agents to inspect, confirm and copy at any reasonable time, all of
the books, records and properties of Borrower.
5. NEGATIVE COVENANTS. Borrower covenants and agrees that, as long as
the Loan remains outstanding, Borrower shall not:
(a) BORROWINGS. Borrow money with respect to the Property or
any of the other Collateral, or act as guarantor on any loan or other
obligation.
(b) CREATE LIENS. Mortgage, assign, hypothecate, encumber, or
in any manner create liens on the Property or any of the other Collateral,
except liens in favor of Lender, and liens disclosed in writing by Borrower to
Lender prior to the date of this Agreement and consented to by Lender.
(c) TRANSFER ASSETS. Except in the ordinary course of
business, sell, lease, transfer or assign all or any portion of the Property or
any of the other Collateral.
(d) OWNERSHIP. Transfer, suffer or permit a change in
ownership or control of Borrower.
(e) EXTENSION OF CREDIT. Except in the ordinary course of
business, make loans, advances or extensions of credit to any person or entity.
(f) MODIFICATION. Cause, suffer or permit any material
modification or amendment of, or deviation from, the terms and provisions of the
Plans or any Contract identified on Exhibit B without the prior written consent
of Lender. For purposes of this Agreement, any modification or amendment to any
contract identified on Exhibit B, which modification or amendment, changes the
compensation payable thereunder, in the aggregate, by more than five percent
(5%) of the original contract amount shall be deemed to be material.
6. EVENTS OF DEFAULT. The occurrence of any one of the following events
shall constitute an "Event of Default" under this Agreement:
(a) Failure by Borrower to pay any amount owing on or with
respect to the Indebtedness when due, whether by maturity, acceleration or
otherwise, which failure continues for three (3) days after the date of written
notice to Borrower from Lender of such default.
(b) Any failure by Borrower to comply with, or breach by
Borrower, of any of the terms, provisions, warranties or covenants of this
Agreement or the non-monetary terms, provisions, warranties and covenants of the
Note, the Mortgage or the other Loan Documents, which failure continues for
fifteen (15) days after the date of written notice to Borrower from Lender of
such default.
(c) Institution of foreclosure proceedings or other exercise
of rights and remedies under any mortgage, deed of trust or other lien against
the Collateral (or any portion thereof).
(d) Insolvency of Borrower or the admission in writing of
Borrower's inability to pay debts as they mature.
(e) Any statement, representation or information made or
furnished by or on behalf of Borrower to Lender in connection with or to induce
Lender to make the Loan shall prove to be false or materially misleading when
made or furnished.
(f) Institution of bankruptcy, reorganization, arrangement,
insolvency or other similar proceedings by or against Borrower, unless, in the
case of a petition filed against Borrower, the same is dismissed within sixty
(60) days of filing.
8
<PAGE> 9
(g) The issuance or filing of any attachment, levy,
garnishment or the commencement of any related proceeding or the commencement of
any other judicial process upon or in respect to Borrower or the Collateral.
(h) Sale or other disposition by Borrower of any substantial
portion of assets or property.
(i) Death, dissolution, merger, consolidation, termination of
existence, insolvency, business failure or assignment for the benefit of
creditors of or by Borrower.
(j) Any failure by Borrower to pay when due any indebtedness
(other than to Lender) or in the observance or performance of any term, covenant
or condition in any document evidencing, securing or relating to such
indebtedness, which failure continues beyond any applicable cure period.
(k) Receipt by Borrower of a notice of termination of the
franchise agreement from Franchisor for the Project.
(l) If the Note, the Mortgage and the other Loan Documents
have not been assigned to the Trust (as defined in the Mortgage), the default by
Borrower which continues beyond any applicable grace or cure period under the
Retained Obligations (as defined in the Mortgage); provided, however, if the
Note, the Mortgage and the other Loan Documents are assigned to the Trust, this
Clause (l) shall be of no force and effect during the term of such assignment.
(m) In the event that the Note, the Mortgage, and the other
Loan Documents are assigned to the Trust, the default by Borrower which
continues beyond any applicable grace or cure period under the Trust Obligations
(as defined in the Mortgage).
7. ACCELERATION. Upon any Event of Default occurring, the Loan may be
declared immediately due and payable, at the option of Lender, without
presentment, demand, protest, notice of dishonor, notice of non-payment or other
notice of any kind, all of which are waived by Borrower.
8. REMEDIES.
(a) GENERAL. Lender shall have the right to apply any or all
of the Collateral held by Lender against the Loan at any time after an Event of
Default. Lender shall have all the rights and remedies provided by law or equity
or by agreement of the parties, including, without limit, all of the rights and
remedies of a secured party under the Michigan Uniform Commercial Code. The
remedies of Lender are cumulative and not exclusive. No delay, waiver or failure
on the part of Lender to demand strict adherence to the terms of this Agreement
or any related document shall be deemed to constitute a course of conduct or
waiver inconsistent with the rights herein.
(b) APPLICATION OF PROCEEDS. Any proceeds received by Lender
from the exercise of its remedies shall be applied as follows:
(i) First, to pay all costs and expenses
incidental to the leasing, foreclosure, sale or other disposition of
the Collateral.
(ii) Second, to all sums expended by Lender in
carrying out any term, covenant or agreement under this Agreement or
any related document.
(iii) Third, to the payment of the Loan. If
the proceeds are insufficient to fully pay the Loan, then application
shall be made first to late charges and interest accrued and unpaid,
then to any applicable prepayment premiums, and then to the outstanding
principal balance.
9
<PAGE> 10
(iv) Fourth, any surplus remaining shall be
paid to Borrower or to any other party lawfully entitled.
(c) LENDER MAY COMPLETE. If an Event of Default occurs, Lender
(at its sole option) may enter upon the Property and complete the Project at
Borrower's expense. Lender may deduct from and charge the costs of completion of
the Project to the amount available under the Loan. If the costs of completion,
plus the outstanding amount of the Loan, exceed the principal amount of the
Loan, the excess shall be added to the principal amount secured by the
Collateral. If Lender exercises its option to complete construction of the
Project, Lender shall have the right to take any actions and enter into
contracts as Lender deems necessary for that purpose. Borrower appoints Lender
to act as agent for Borrower, with full, complete, and irrevocable authorization
given to Lender, as the duly constituted attorney-in-fact, to do any of the
following:
(i) Bind Borrower to any contract, commitment,
and/or undertakings necessary or convenient to complete the
construction of the Project.
(ii) Make changes in the Plans which are
necessary or desirable to complete the improvements in substantially
the manner contemplated by the Plans.
(iii) Retain or employ new contractors,
architects and/or inspectors to complete construction of the Project.
(iv) Pay, settle or compromise bills and
claims as may be necessary or desirable for the completion of the
Project or for the clearance of title to the Property.
(v) Execute applications or certificates in
the name of Borrower.
(vi) Prosecute and defend all actions or
proceedings in connection with the Project or the Property.
(vii) Do any and every act which Borrower
might do in its own behalf.
The power of attorney granted to Lender is a power
coupled with an interest that cannot be revoked and shall survive the disability
or dissolution of Borrower. Notwithstanding the foregoing authorization, Lender
shall have no duty or obligation to take any action permitted under this Section
8(c).
9. OTHER AGREEMENTS. Borrower shall execute and deliver to Lender such
agreements, certificates or instruments as may be reasonably required by Lender
to evidence or secure or to otherwise guaranty or subordinate obligations to the
Loan. All such agreements and those given in connection with any other loan,
present or future, shall also constitute security for the Loan, and all security
given to Lender securing the Loan shall also secure all other obligations of
Borrower to Lender.
10. MISCELLANEOUS. Borrower and Lender further agree as follows:
(a) LENDER NOT LIABLE. This Agreement shall not be construed
to make Lender liable to suppliers, contractors, craftsmen, laborers or others
for labor, materials, supplies and/or services delivered by such parties, or for
debts or claims accruing to such parties against Borrower. It is expressly
agreed that there are no contractual relationships, either express or implied,
between Lender and any supplier, contractor, craftsman, laborer or any other
person or entity supplying labor, materials, supplies and/or services to the
Project.
(b) GOVERNING LAW; VENUE. This Agreement shall be construed
according to the laws of the State of Michigan. Lender and Borrower agree that
any dispute which may arise between them with regard to this Agreement shall be
resolved by litigation in state or federal court. Litigation may be initiated by
Lender or its
10
<PAGE> 11
assignee, at its discretion, in the State of the principal place of business of
Lender or its assignee, the State of the principal place of business of
Borrower, or the State where the Collateral is located. BORROWER HEREBY
KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OF IMPROPER
JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT
EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY MAIL.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the permitted successors and assigns of Borrower, and the rights and
privileges of Lender under this Agreement shall inure to the benefit of its
successors and assigns.
(d) NOTICES. Notice from one party to another relating to this
Agreement shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth in this Agreement by any of the following means: (i)
hand delivery, (ii) registered or certified mail, postage prepaid, (iii) express
mail or other overnight courier service, or (iv) telecopy, telex or other wire
transmission with request for assurance of receipt in a manner typical with
respect to communications of that type. Notice made in accordance with these
provisions shall be deemed delivered on receipt if delivered by hand or wire
transmission, on the third business day after mailing if mailed by registered or
certified mail, or on the next business day after mailing or deposit with the
postal service or an overnight courier service if delivered by express mail or
overnight courier. Borrower's telecopier number is (616) 776-2776 and Lender's
telecopier number is (734) 994-1376.
(e) AMENDMENTS. Any amendment of this Agreement shall be in
writing and shall require the signature of Borrower and Lender.
(f) PARTIAL INVALIDITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of the remaining provisions of this Agreement.
(g) JOINT AND SEVERAL OBLIGATIONS. In the event that more than
one person or entity executes this Agreement, the obligations of each person or
entity shall be joint and several.
(h) FEES AND EXPENSES. Borrower shall pay to Lender all of
Lender's expenses, including reasonable attorneys' fees and expenses, and
disbursements for title searches, appraisals, credit reports and other expenses,
related to the preparation and/or enforcement of this Agreement and any other
document evidencing and/or securing the Loan. Any reference in this Agreement to
attorneys' fees shall mean fees, charges, costs and expenses of both in-house
and outside counsel and paralegals, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise.
(i) WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT
THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR
THE LOAN.
11. ASSIGNMENT. This Agreement is freely assignable, in whole or in
part, by Lender without consent of Borrower. Except as set forth below, Lender
shall provide Borrower with written notice of assignment. Borrower may not, in
whole or in part, directly or indirectly, assign this Agreement or its rights
hereunder or delegate its duties hereunder without, in each instance, the
specific prior written consent of Lender, which consent shall not be
unreasonably withheld. Lender shall be fully discharged from all responsibility
accruing hereunder from and after the effective date of any such assignment.
Lender's assignee shall, to the extent of the assignment, be vested with
11
<PAGE> 12
all the powers and rights of Lender hereunder, and to the extent of such
assignment the assignee may fully enforce such rights and powers, and all
references to Lender shall mean and refer to such assignee. Lender shall retain
all rights and powers hereby given not so assigned, transferred and/or
delivered. Borrower hereby waives all defenses which Borrower may be entitled to
assert against Lender's assignee with respect to liability accruing hereunder
prior to the effective date of any assignment of Lender's interest herein.
12. SECURITIZATION. Borrower understands and agrees that Lender may,
from time to time, assign its rights and powers under the Note, the Mortgage and
any other Loan Documents, in whole or in part, in connection with a
securitization program. Borrower agrees to enter into an amendment to the Note,
Mortgage and any other Loan Documents if such amendments are required by a
nationally recognized rating agency in connection with a securitization program
sponsored by Lender and in which the Note, Mortgage and the other Loan Documents
are to be included; provided that Borrower shall not be obligated to enter into
any agreement which adversely affects Borrower or adversely alters any of the
financial terms of the Loan Documents. Lender shall pay Borrower's reasonable
costs associated with such assignment.
12
<PAGE> 13
This Agreement is executed and delivered on the day and year first set
forth above.
BORROWER:
WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN
By MCC Food Service Inc.
Its General Partner
By:
-----------------------------------
Its:
-------------------------------
LENDER:
CAPTEC FINANCIAL GROUP, INC.
By:
-----------------------------------
Its:
-------------------------------
13
<PAGE> 1
Exhibit 10.19
Loan No.____
____, Michigan
PROMISSORY NOTE
---------------
Date: , 1998
-----------
PROMISE TO PAY. For value received, WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN, a Michigan limited partnership ("Borrower") promises to pay
to CAPTEC FINANCIAL GROUP, INC., a Michigan corporation (together with its
successors, assigns and transferees "Lender"), or order, ______________________
__________________ Dollars ____________ , or so much of such sum as has been
advanced pursuant to the Construction Loan Agreement dated of even date herewith
between Borrower and Lender ("Loan Agreement"), as follows:
During the Construction Period (as defined in the Loan Agreement),
interest only shall be payable monthly commencing on the first day of the month
following the date on which funds are disbursed by Lender hereunder ("Effective
Date"), and continuing on the first day of each month thereafter. Commencing
upon the expiration of the Construction Period, two hundred forty (240) equal
installments of principal and interest (based on the amounts disbursed under the
Loan Agreement) shall be due and payable on the first day of each month (each a
"Payment Date"), until twenty (20) years from the day following the expiration
of the Construction Period ("Due Date"), when the outstanding principal balance,
plus accrued interest, is due and payable (unless the indebtedness evidenced by
this Note is accelerated, in which case, the Due Date is the date of
acceleration). The amortization period for this Note, for purposes of
calculating the monthly installments of principal and interest, is two hundred
forty (240) months commencing on the day following expiration of the
Construction Period.
All payments under this Note shall be made at Lender's principal office
at 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor,
Michigan 48106-0544, at such other address as Lender may designate in writing,
or by electronic funds withdrawal made by Lender upon written authorization
therefor from Borrower, which authorization shall not be revocable by Borrower
without the consent of Lender. Payments due and payable on a day on which Lender
is not open for business are due on the next succeeding business day.
Payments will be applied first to accrued interest and then to principal.
INTEREST RATE. During the Construction Period, any amount advanced to
Borrower under the Loan Agreement, and thereby constituting the outstanding
principal balance of this Note shall bear interest at a fixed rate equal to two
hundred seventy-five (275) basis points over the then existing rate on ten (10)
year United States Treasuries, as determined not more than seven (7) days prior
to the commencement of the Construction Period. Commencing upon the day
following expiration of the Construction Period, the outstanding principal
balance of this Note shall bear interest at a fixed rate equal to two hundred
seventy-five (275) basis points over the then existing rate on ten (10) year
United States Treasuries, as determined not more than seven (7) days prior to
the expiration of the Construction Period. After maturity of this Note, whether
by acceleration or otherwise, the interest rate will be three percent (3%) above
the rate otherwise in effect (the "Default Rate").
Interest will be computed on the basis of a year consisting of twelve
(12) months of thirty (30) days each. In no event, however, shall the interest
rate exceed the maximum rate allowed by law. Notwithstanding anything to the
contrary contained herein, at no time shall the interest payable under this Note
be greater than the maximum rate permitted by applicable law ("Legal Rate"). If
any obligation under this Note shall result in Lender receiving an amount deemed
to be interest under applicable law in excess of the Legal Rate, then the amount
which would be excessive interest shall be applied to the reduction of the
principal balance of this Note and not to payment of interest. If such excessive
interest exceeds the unpaid principal balance of this Note, the excess shall be
refunded to Borrower.
<PAGE> 2
PREPAYMENT. Borrower shall not have any right, except as
otherwise specifically provided herein, to prepay the principal balance of this
Note until seven (7) loan years have elapsed. The first "loan year" shall
commence on the date of the closing of the loan evidenced by this Note, and
subsequent loan years shall commence on the anniversaries of such date.
Commencing with the eighth (8th) loan year and if no Event of Default (as
hereinafter defined) then exists, Borrower shall have the right to prepay all,
but not merely a portion of, the principal balance of this Note together with
accrued interest thereon on any Payment Date; provided, however, that Borrower
shall provide no less than thirty (30) days prior written notice to Lender of
Borrower's intention to prepay (the "Prepayment Notice"); and provided further,
that Borrower shall concurrently pay to Lender a prepayment premium determined
as follows:
(a) If the prepayment is made during the eighth loan year, the
prepayment premium shall equal five percent (5%) of the prepaid
principal.
(b) If the prepayment is made during the ninth loan year, the
prepayment premium shall equal four percent (4%) of the prepaid
principal.
(c) If the prepayment is made during the tenth loan year, the
prepayment premium shall equal three percent (3%) of the prepaid
principal.
(d) If the prepayment is made during the eleventh loan year,
the prepayment premium shall equal two percent (2%) of the prepaid
principal.
(e) If the prepayment is made during the twelfth through last
loan years, the prepayment premium shall equal one percent (1%) of the
prepaid principal.
Once given, the Prepayment Notice may not be withdrawn, and the failure to
prepay in accordance with the Prepayment Notice shall constitute an Event of
Default. The "first loan year" shall commence on the date of the closing of the
loan evidenced by this Note, and subsequent loan years shall commence on the
anniversaries of the date of the closing of such loan.
Prepayments will be applied to installments of principal in their
inverse order of maturity. Until this Note is paid in full, no prepayment shall
reduce the dollar amount of monthly installments required to be paid under this
Note.
If the outstanding principal balance of this Note is accelerated by
reason of an Event of Default, such acceleration shall be deemed to be a
prepayment and Borrower shall pay to Lender, in addition to all sums due as a
result of the acceleration, any applicable Prepayment Premium.
LATE PAYMENT CHARGE. In the event that any payment under this Note is
not received by Lender within fifteen (15) days of the date when due, a late
charge of five percent (5%) of the amount of such payment will be due. Borrower
agrees that the late charge is a reasonable estimate of the administrative costs
which Lender will incur in processing the delinquency. Lender's acceptance of a
late payment and/or of the late payment charge will not waive any default under
this Note or affect the acceleration of this Note (if this Note has been
accelerated).
COLLATERAL. This Note and the other obligations of Borrower to Lender
contained in the documents securing this Note are secured by and in accordance
with the terms of that certain Mortgage, effective ________________, 1998,
executed by Borrower for the benefit of Lender (the "Mortgage"; together with
any other documents securing payment under this Note, the "Loan Documents"). All
property securing the Indebtedness (as defined in the Mortgage) is referred to
as the "Collateral".
DEFAULT. Any of the following events shall, for purposes of this Note,
constitute an "Event of Default":
-2-
<PAGE> 3
(a) Failure by Borrower to pay any amount owing on or with
respect to the Indebtedness when due, whether by maturity, acceleration
or otherwise, which failure continues for three (3) days after the date
of written notice to Borrower from Lender of such default.
(b) Any failure by Borrower to comply with any of the
non-monetary terms, provisions, warranties or covenants of this Note,
the Mortgage or the other Loan Documents, which failure continues for
fifteen (15) days after the date of written notice to Borrower from
Lender of such default.
(c) Institution of foreclosure proceedings or other exercise
of rights and remedies by the holder of any mortgage, deed of trust,
security interest or other lien against the Collateral (or any portion
thereof).
(d) Insolvency of Borrower or the admission in writing of
Borrower's inability to pay debts as they mature.
(e) Any statement, representation or information made or
furnished by or on behalf of Borrower to Lender in connection with or
to induce Lender to provide or advance any of the Indebtedness shall
prove to be false or materially misleading when made or furnished.
(f) Institution of bankruptcy, reorganization, insolvency or
other similar proceedings by or against Borrower, unless, in the case
of a petition filed against Borrower, the same is dismissed within
sixty (60) days of the date of filing.
(g) The issuance or filing of any judgment, attachment, levy,
garnishment or the commencement of any related proceeding or the
commencement of any other judicial process upon or in respect to
Borrower or the Collateral.
(h) Sale or other disposition by Borrower of any substantial
portion of its assets or property.
(i) Death, dissolution, merger, consolidation, termination of
existence, insolvency, business failure or assignment for the benefit
of creditors of or by Borrower.
(j) Any failure by Borrower to pay any indebtedness (other
than to Lender) when due, or any failure in the observance or
performance of any term, covenant or condition in any document
evidencing, securing or relating to such indebtedness, which failure
continues beyond any applicable cure period.
(k) Receipt by Borrower ("Franchisee") of a notice of
termination of the franchise agreement from Wendy's International, Inc.
("Franchisor"), for the Wendy's franchised restaurant operation located
at _____________________________ Michigan ("Franchised Operation").
(l) If this Note, the Mortgage and the other Loan Documents
have not been assigned to the Trust (as defined in the Mortgage, the
default by Borrower which continues beyond any applicable grace or cure
period under the Retained Obligations (as defined in the Mortgage);
provided, however, if this Note, the Mortgage and the other Loan
Documents are assigned to the Trust, this Clause (l) shall be of no
force and effect during the term of such assignment.
(m) In the event that this Note, the Mortgage and the other
Loan Documents are assigned to the Trust, the default by Borrower which
continues beyond any applicable grace or cure period under the Trust
Obligations (as defined in the Mortgage).
Upon an occurrence of an Event of Default, Lender shall have the option
to declare all or part of the Indebtedness (including this Note) immediately due
and payable. If this Note is not paid at maturity (whether by acceleration or
otherwise), Lender shall have all of the rights and remedies provided at law or
equity or by agreement,
-3-
<PAGE> 4
including, without limit, the right to sell or liquidate all or any part of the
Collateral. The remedies of Lender are cumulative and not exclusive.
EXAMINATION OF RECORDS. Borrower shall at all times keep full and
accurate records of its business and of the Collateral, which records shall be
open to inspection and copying by Lender at all reasonable times.
LIABILITY OF SIGNATORIES. Borrower, and all guarantors and endorsers,
and any other party liable for the Indebtedness evidenced by this Note: (i)
severally waive presentment, demand, protest, notice of dishonor, notice of
non-payment and notice of acceleration of this Note, and (ii) agree that no
extension or postponement of the time for payment, or waiver, or indulgence or
forbearance granted to Borrower (without limit as to number or period) or any
modification of this Note, or any substitution, or exchange or release of all or
part of the Collateral, or addition of any party to this Note, or release or
discharge of, or suspension of any rights and remedies against any party liable
on this Note, shall reduce or affect the obligation of any other party liable
for the payment of this Note.
NON-WAIVER. No delay by Lender in the exercise of any right or remedy
shall operate as a waiver. No single or partial exercise by Lender of any right
or remedy shall preclude any future exercise of such right or remedy or the
exercise of any other right or remedy. No waiver or indulgence by Lender of any
default or Event of Default shall be effective unless in writing and signed by
Lender, nor shall a waiver on one occasion be construed as a bar to any right or
remedy, or waiver of any default or Event of Default on any future occasion.
REIMBURSEMENT OF EXPENSES. Borrower shall reimburse Lender for all
costs and expenses, including attorneys' fees, incurred by Lender in enforcing
the rights of Lender under this Note. Such costs and expenses shall include,
without limitation, costs or expenses incurred by Lender in any bankruptcy,
reorganization, insolvency or other similar proceeding. Any reference in this
Note to attorneys' fees shall mean fees, charges, costs and expenses of in-house
and/or outside counsel and paralegals, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise.
WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY,
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
ASSIGNMENT. This Note is freely assignable, in whole or in part, by
Lender without the consent of Borrower. Except as set forth below, Lender sahll
provide Borrower with notice of such assignment. Lender shall be fully
discharged from all responsibility accruing hereunder from and after the
effective date of any such assignment. Lender's assignee shall, to the extent of
the assignment, be vested with all the powers and rights of Lender hereunder,
and to the extent of such assignment the assignee may fully enforce such rights
and powers, and all references to Lender shall mean and refer to such assignee.
Lender shall retain all rights and powers hereby given not so assigned,
transferred and/or delivered. Borrower hereby waives all defenses which Borrower
may be entitled to assert against Lender's assignee with respect to liability
accruing hereunder prior to the effective date of any assignment of Lender's
interest herein. Borrower may not, in whole or in part, directly or indirectly,
assign this Note or its rights hereunder or delegate its duties hereunder
without, in each instance, the specific prior written consent of Lender, which
consent shall not be unreasonably withheld.
SECURITIZATION. Borrower understands and agrees that Lender may, from
time to time, assign its rights and powers under this Note, the Mortgage, and
any other Loan Documents, in whole or in part, in connection with a
securitization program. Borrower agrees to enter into an amendment to this Note,
the Mortgage and any other Loan Documents if such amendments are required by a
nationally recognized rating agency in connection with a securitization program
sponsored by Lender and in which this Note, the Mortgage and the other Loan
Documents are
-4-
<PAGE> 5
to be included; provided that Borrower shall not be obligated to enter into any
agreement which adversely affects Borrower or adversely alters any of the
financial terms of the Loan Documents. Lender shall pay Borrower's reasonable
costs associated with such assignment.
MISCELLANEOUS. The terms and provisions of this Note shall be governed
by and construed in accordance with the laws of the State of Michigan. Lender
and Borrower agree that any dispute which may arise between them with regard to
this Note shall be resolved by litigation in state or federal court. Litigation
may be initiated by Lender or its assignee, at its discretion, in the State of
the principal place of business of Lender or its assignee, the State of the
principal place of business of Borrower, or the State where the Collateral is
located. BORROWER HEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE
GROUNDS OF IMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH
ABOVE AND AGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY
MAIL. The terms and provisions of this Note may only be changed in writing,
executed by Borrower and Lender.
WM LIMITED PARTNERSHIP - 1998
D/B/A WENDY'S OF MICHIGAN
By MCC Food Service Inc.
Its: General Partner
By:
-----------------------------
Its
------------------------
Address:
40 Pearl Street NW, Suite 900
Grand Rapids, MI 49503
Tax I.D. No. 38-3389989
-5-
<PAGE> 1
Exhibit 10.20
MORTGAGE
--------
Loan Number ____
______, Michigan
THIS MORTGAGE ("Mortgage") is made this _____ day of ____________,
1998, by WM LIMITED PARTNERSHIP - 1998 D/B/A WENDY'S OF MICHIGAN, a Michigan
limited partnership, whose address is 40 Pearl Street NW, Suite 900, Grand
Rapids, Michigan 49503 ("Borrower"), in favor of CAPTEC FINANCIAL GROUP, INC., a
Michigan corporation, whose address is 24 Frank Lloyd Wright Drive, Lobby L, 4th
Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544 (together with its
successors, assigns and transferees, "Lender"). This instrument shall become
effective on ______________, 1998.
PRELIMINARY STATEMENT
This Mortgage is made to secure all of the following (individually and
collectively the "Indebtedness"):
1. Payment in the sum of ______________________________________ Dollars
_____________, together with interest, costs and all other sums to be paid
according to that certain Promissory Note ("Note"), by Borrower to Lender made
as of the date of this Mortgage by Borrower; together with any and all
extensions, renewals, modifications, substitutions or replacements thereof; and
the performance of the covenants and obligations of Borrower due or to become
due to Lender under this Mortgage or under any other documents securing payment
of all amounts due under the Note (collectively, the "Loan Documents"), and the
repayment of all sums expended by Lender in connection with performance of those
covenants and obligations.
2. If the Note, this Mortgage and the Loan Documents are assigned to a
trust sponsored by Lender or any of its affiliates to securitize its loan
receivables (the "Trust"), "Indebtedness" shall also include the payment of all
other sums (together with interest and costs thereon) concurrently or
subsequently loaned to Borrower by Captec Financial Group, Inc., a Michigan
corporation, Captec Financial Group Funding Corporation, a Michigan corporation,
or Captec Leasing Company, a California corporation (each an "Originator"), as
evidenced and/or secured by certain notes and other documents of Borrower with
respect to such amounts and which notes and other documents are assigned to the
Trust, together with any and all extensions, renewals, modifications,
substitutions or replacements thereof; and the performance of the covenants and
obligations of Borrower due or to become due under such notes and other
documents assigned to the Trust, and the repayment of all sums expended in
connection with performance of those covenants and obligations (collectively,
the "Trust Obligations").
3. If the Note, this Mortgage and the Loan Documents are not assigned
to the Trust, "Indebtedness" shall also include the payment of all other sums
(together with interest thereon) concurrently or subsequently loaned to Borrower
by an Originator, as evidenced and/or secured by certain notes and other
documents of Borrower which are not assigned to the Trust, together with any and
all extensions, renewals, modifications, substitutions or
<PAGE> 2
replacements thereof; and the performance of the covenants and obligations of
Borrower due or to become due under such notes and other documents, and the
repayment of all sums expended in connection with performance of those covenants
and obligations (collectively, the "Retained Obligations").
4. This Mortgage is given to secure an obligation incurred by Borrower
for the purpose of financing certain improvements on the Real Estate, which
obligation may include the acquisition cost of the Real Estate.
5. THIS MORTGAGE SECURES FUTURE ADVANCES AND IS A FUTURE ADVANCE
MORTGAGE UNDER ACT NO. 348 OF THE PUBLIC ACT OF 1990, AS AMENDED (MCLA 565.901
ET SEQ.).
GRANTING CLAUSE
---------------
To secure the Indebtedness and as security for the purposes stated
elsewhere in this Mortgage, Borrower hereby mortgages and warrants to the
Lender, its successors and assigns, the following described properties, rights,
interests and privileges (collectively, "Mortgaged Property"):
1. The parcel(s) of real estate commonly known as __________________,
_______, Kent County, Michigan and particularly described on Schedule A attached
to this Mortgage and identified as Tax Parcel Number ___________________ ("Real
Estate");
2. All buildings, structures and improvements now located, or
subsequently constructed or placed upon the Real Estate, including, without
limit, all building materials and building equipment located on the Real Estate;
3. All machinery, apparatus, equipment, goods, fittings, fixtures and
articles of personal property of every kind and nature located or subsequently
located on the Real Estate (individually and collectively, "Equipment"), and all
of the right, title and interest of Borrower in and to any Equipment which may
be subjected to any title retention or security agreement superior in lien to
the lien of this Mortgage. It is agreed that all Equipment is part and parcel of
the Mortgaged Property and appropriated to the use of the Real Estate and,
whether affixed or not, unless Lender shall otherwise elect, be deemed to be
real estate and granted under this Mortgage;
4. All easements, rights-of-way, licenses, privileges and appurtenances
relating to the Real Estate;
5. All rents, issues, profits, revenues, proceeds, accounts and general
intangibles arising from the Real Estate or relating to any business conducted
by Borrower on the Real Estate, under present or future leases, reservation
and/or purchase agreements, licenses or otherwise, which are specifically
assigned and transferred to Lender, including, without limit, all rights
conferred by Act 210 of the Michigan Public Acts of 1953, as amended;
6. All right, title and interest of Borrower in and to the land lying
in the bed of any street, road, avenue, alley or walkway, opened or proposed or
vacated, adjoining the Real Estate;
7. Any and all awards or payments, including, without limit, interest
on any awards or payments, and the right to receive them, which may be made with
respect to the Mortgaged Property as a result of: (a) the exercise of the right
of eminent domain, (b) the alteration of the grade of any street, (c) any loss
of or damage to any building or other improvement on the Real Estate, (d) any
other injury to or decrease in the value of the Mortgaged Property, (e) any
refund due on account of the payment of real estate taxes, assessments or other
charges levied against or imposed upon the Mortgaged Property, or (f) any refund
of utility deposits or right to any tenant deposit; and
2
<PAGE> 3
8. All substitutions, replacements, extensions, renewals, additions and
accessories for or to any of the foregoing.
1. COVENANTS AND WARRANTIES. Borrower covenants and warrants to Lender as
follows:
(a) AUTHORITY; NO CONFLICT. Borrower has the power and
authority to execute, deliver and perform its obligations under this Mortgage.
The execution, delivery and performance of this Mortgage by Borrower does not,
and will not violate or conflict with any provision of its organizational or
charter documents or any agreement, court order or consent decree to which
Borrower is a party or by which Borrower may be bound.
(b) TITLE TO MORTGAGED PROPERTY. Borrower is the owner and is
lawfully seized and possessed of the Mortgaged Property. Borrower has good
right, full power and authority to mortgage the Mortgaged Property in accordance
with the terms of this Mortgage. The Mortgaged Property is and shall remain free
and clear of any liens and encumbrances excepting only Permitted Liens. For
purposes of this Mortgage, "Permitted Liens" shall mean those liens or
encumbrances shown on a loan policy of title insurance accepted in writing by
Lender.
(c) PAYMENT OF INDEBTEDNESS. Borrower will pay and perform the
Indebtedness when due, whether by maturity, acceleration or otherwise.
(d) MAINTENANCE OF MORTGAGED PROPERTY; WASTE. Borrower shall
preserve and maintain the Mortgaged Property in good repair, working order and
condition, excepting ordinary wear and tear, and shall not commit or permit the
commission of waste against the Mortgaged Property. Failure, refusal or neglect
of Borrower to pay any taxes or assessment or any utility rates levied, assessed
or imposed upon the Mortgaged Property, and/or nonpayment of any premiums for
insurance, shall constitute waste, and shall entitle Lender to exercise the
remedies provided in this Mortgage, as well as those afforded by law.
(e) PAYMENT OF TAXES; DISCHARGE OF LIENS.
(i) Borrower shall pay when due, and before
any interest, collection fees or penalties accrue, all taxes,
assessments, encumbrances, liens, mortgages, deeds of trust, water or
sewer charges and other charges and impositions (individually and
collectively, "Imposition(s)") levied, assessed or existing with
respect to the Mortgaged Property, or any part of it, and Borrower will
deliver to Lender receipts showing payment of the Imposition(s). If
Borrower fails to pay any of the Imposition(s), Lender, at its option,
may pay such Imposition(s) and the monies paid shall be a lien upon the
Mortgaged Property, added to the amount secured by this Mortgage, and
payable immediately by Borrower to Lender with interest at the higher
of (i) the interest rate, if any, charged by the particular entity
levying or assessing the Imposition(s), or (ii) the highest rate
charged by Lender on any of the Indebtedness (but in either case not to
exceed the maximum interest rate permitted by law).
(ii) Upon the occurrence of an Event of
Default (as hereinafter defined) hereunder, at the option of Lender,
Borrower shall pay to Lender, in advance on the first day of each
month, a pro rata portion (as determined by Lender) of all
Imposition(s) levied, assessed or existing on the Mortgaged Property.
In the event that sufficient funds have been deposited with Lender to
cover the amount of these Imposition(s) when they become due and
payable, Lender shall pay them. In the event that sufficient funds have
not been deposited to cover the amount of these Imposition(s) at least
thirty (30) days prior to the time when they become due and payable,
Borrower shall immediately pay the amount of the deficiency to Lender.
Lender shall not be required to keep a separate account or to pay
Borrower any interest on the funds held by Lender for the payment of
the Imposition(s) pursuant to this Section 1(e) or for the payment of
insurance premiums under Section 1(g) below, or on any other funds
deposited with Lender in connection with this Mortgage. The funds on
deposit with Lender are further security for the Indebtedness and if an
3
<PAGE> 4
Event of Default occurs under this Mortgage, any funds remaining on
deposit with Lender may be applied against the Indebtedness at any time
after the Event of Default occurs, and without notice to Borrower.
(f) SALE OR TRANSFER. Borrower will not sell or transfer all or any
interest in the Mortgaged Property or in Borrower without the prior written
consent of Lender. For purposes of this Section 1(f), a "transfer" of Borrower
shall include, without limitation, any sale (involving either all or any portion
of the equity interest in Borrower or all or substantially all of Borrower's
assets), merger, consolidation, change in control or termination of existence of
Borrower. Notwithstanding the foregoing, Lender's consent shall not be required
for transfers of limited partner interests of Borrower for estate planning
purposes, provided that such transfers, in the aggregate, shall not result in a
change in control of Borrower. In the event ownership of the Mortgaged Property,
or any part, becomes vested in any person(s) other than Borrower, Lender may
deal with and may enter into any contract or agreement with the successor(s) in
interest with reference to this Mortgage in the same manner as with Borrower,
without discharging or otherwise affecting the lien of this Mortgage or
Borrower's obligations under this Mortgage.
(g) INSURANCE.
(i) Borrower shall keep the buildings and all
other improvements on the Mortgaged Property insured for the benefit of
Lender against fire and other hazards and risks. Borrower covenants and
agrees that Borrower will carry and maintain, at its sole cost and
expense, the following types of insurance, in the amounts specified:
(A) comprehensive general liability insurance with initial limits of
not less than One Million Dollars ($1,000,000) for death or injuries to
one person and not less than One Million Dollars ($1,000,000) for death
or injuries to two or more persons in one occurrence, not less than One
Million Dollars ($1,000,000) for damage to property; (B) fire and
extended coverage insurance on a replacement form with inflation-guard
vandalism and malicious mischief endorsements; (C) rent loss or
business interruption insurance covering a period of not less than
twelve (12) months; (D) flood insurance (if the Mortgaged Property is
situated in an area which is considered a flood risk area by the United
States Department of Housing and Urban Development, and for which flood
insurance is available under the National Flood Insurance Act of 1968,
as amended); (E) builder's risk insurance (if Borrower is constructing
buildings or improvements on the Mortgaged Property) in an amount not
less than 100% of their full insurable replacement cost; (F) an
umbrella policy of not less than $5,000,000; and (G) such other
insurance and in such amounts as may be reasonably required from time
to time by Lender. All insurance shall be in amounts and in forms and
with companies satisfactory to Lender. Borrower shall deliver to Lender
the policies (or, alternatively, originally executed certificates of
insurance therefor) evidencing the required insurance with premiums
fully paid, and with standard mortgagee clauses (making all losses
payable to Lender). Renewals of the required insurance (together with
evidence of premium prepayment for one (1) year in advance) shall be
delivered to Lender at least thirty (30) days before the expiration of
any existing policies. All policies and renewals shall provide that
they may not be canceled or amended without giving Lender thirty (30)
days prior written notice of cancellation or amendment.
(ii) Should Borrower fail to insure or fail to
pay the premiums on any required insurance or fail to deliver the
policies or renewals as provided above, Lender may have the insurance
issued or renewed (and pay the premiums on it for the account of
Borrower) in amounts and with companies and at premiums as Lender deems
appropriate. If Lender elects to have insurance issued or renewed to
insure Lender's interest, Lender shall have no duty or obligation of
any kind to also insure Borrower's interest or to notify Borrower of
Lender's actions. Any sums paid by Lender for insurance, as provided
above, shall be a lien upon the Mortgaged Property, added to the amount
secured by this Mortgage, and payable immediately by Borrower to
Lender, as the case may be, with interest on those sums at the highest
rate charged by Lender on any of the Indebtedness (but not to exceed
the maximum interest rate permitted by law).
(iii) In the event of loss or damage to the
Mortgaged Property, the proceeds of all required insurance shall be
paid to Lender. No loss or damage shall itself reduce the Indebtedness.
4
<PAGE> 5
Lender or any of its employees is each irrevocably appointed
attorney-in-fact for Borrower and is authorized to adjust and
compromise each loss without the consent of Borrower, to collect,
receive and receipt for the insurance proceeds in the name of Lender
and Borrower and to endorse Borrower's name upon any check in payment
of the loss.
(iv) Lender shall apply such proceeds to the
repair and restoration of the Mortgaged Property subject to the
following conditions:
(1) there shall be no Event of Default
existing hereunder;
(2) plans for repair and restoration
shall be reviewed and approved by
Lender, which approval shall not be
unreasonably withheld or delayed;
(3) repair and restoration of the
Mortgaged Property to a viable,
economic unit (as determined by
Lender) can practicably be completed
prior to the Due Date set forth in
the Note;
(4) Borrower shall have deposited with
Lender funds equal to the positive
difference, if any, between the cost
of repair, restoration and
completion, and the amount of the
insurance proceeds; and
(5) disbursements will be made by Lender
or, at Lender's option, a title
insurance company acceptable to
Lender, pursuant to procedures
necessary or appropriate to keep the
Mortgaged Property free of
mechanics' liens and to ensure that
funds are properly applied.
Provided that no Event of Default exists, if there are insurance
proceeds in the amount of Twenty-Five Thousand Dollars ($25,000) or
less remaining after the repair and restoration of the Mortgaged
Property as required hereunder, such proceeds shall be paid to
Borrower. Provided that no Event of Default exists, if there are
insurance proceeds in excess of Twenty-Five Thousand Dollars ($25,000)
remaining after the repair and restoration of the Mortgaged Property as
required hereunder, such proceeds shall be applied toward payment of
the Indebtedness (or any portion thereof) without premium, whether or
not then due or payable, in whatever order of maturity as Lender may
elect. Application of proceeds by Lender toward later maturing
installments of the Indebtedness shall not excuse Borrower from making
the regularly scheduled installment payments nor shall such application
extend or reduce the amount of any of these payments.
(v) Notwithstanding Section 1(g)(iv) above, if
a substantial portion (fifty percent [50%] or more) of the Mortgaged
Property is damaged or destroyed during the last twenty-four (24)
months of the term of the Note, and provided that no Event of Default
then exists hereunder, either Borrower or Lender may elect not to
rebuild and to apply the insurance proceeds toward payment of the
Indebtedness (or any portion thereof) without premium, whether or not
then due and payable, in whatever order of maturity as Lender may
elect. Application of proceeds by Lender toward later maturing
installments of the Indebtedness shall not excuse Borrower from making
the regularly scheduled installment payments nor shall such application
extend or reduce the amount of any of these payments.
(vi) In the event of a foreclosure of this
Mortgage, or the giving of a deed in lieu of foreclosure, the purchaser
or grantee of the Mortgaged Property shall succeed to all of the rights
of Borrower under the insurance policies including, without limit, any
right to unearned premiums and to receive the proceeds.
(vii) Upon the occurrence of an Event of
Default hereunder, at the option of Lender, Borrower shall pay to
Lender, in advance on the first day of each month, a pro rata portion
of the
5
<PAGE> 6
annual premiums due (as estimated by Lender) on the required insurance.
In the event that sufficient funds have been deposited with Lender to
cover the amount of the insurance premiums when the premiums become due
and payable, Lender shall pay the premiums. In the event that
sufficient funds have not been deposited with Lender to pay the
insurance premiums at least thirty (30) days prior to the time when
they become due and payable, Borrower shall immediately pay the amount
of the deficiency to Lender.
(h) COMPLIANCE WITH LAW AND OTHER MATTERS. Borrower will
comply with all federal, state and local laws, ordinances, rules, regulations
and restrictions relating to the ownership, use, occupancy and operation of the
Mortgaged Property. Borrower shall be solely responsible to apply for and secure
any building permit or permission of any duly constituted authority for the
purpose of doing any of the things which Borrower is required or permitted to do
under the provisions of this Mortgage. Further, Borrower will comply with,
perform Borrower's obligations under, and enforce the obligations of all other
parties to all building and use restrictions, ground leases, leases, reservation
and/or purchase agreements, condominium documents and/or other instruments
affecting or relating to the use and/or occupancy of the Mortgaged Property.
(i) ALTERATION OF IMPROVEMENTS.
(i) Without the prior written consent of
Lender, Borrower will not remove any building, structure or other
improvement forming part of the Mortgaged Property.
(ii) Borrower may from time to time make
alterations, replacements, additions, changes, and improvements
(collectively, "Alterations") in and to the Mortgaged Property as
Borrower may find necessary or convenient for its purposes; provided,
however, that no such Alterations shall decrease the value of the
Mortgaged Property. All work with respect to any Alteration shall be
done in a good and workmanlike manner by properly qualified and
licensed personnel, and such work shall be diligently prosecuted to
completion.
(iii) Borrower shall pay the costs of any
Alterations done on the Mortgaged Property, and shall keep the
Mortgaged Property free and clear of liens of any kind. Borrower shall
indemnify and defend Lender from and against any liability, loss,
damage, costs, attorneys' fees, and any other expense incurred as a
result of claims of lien by any person performing work or furnishing
materials or supplies for Borrower or any person claiming under
Borrower.
(iv) No Alteration shall be undertaken until
Borrower shall have procured and paid for all required permits and
authorizations of all municipal departments and governmental
subdivisions having jurisdiction. Any Alteration involving an estimated
cost of more than Twenty-Five Thousand and 00/100 Dollars ($25,000.00)
shall be conducted under the supervision of a licensed architect or
engineer selected by Borrower and satisfactory to Lender and shall be
made in accordance with detailed plans and specifications ("Plans and
Specifications") and cost estimates prepared by such architect or
engineer and approved in writing in advance by Lender. Any Alteration
shall be made promptly and in a good workmanlike manner and in
compliance with all applicable permits and authorizations and building
and zoning laws and all laws and in accordance with the orders, rules
and regulations of the Board of Fire Insurance Underwriters and any
other body hereafter exercising similar functions having or asserting
jurisdiction over the Mortgaged Property.
(v) In connection with any Alteration
involving an estimated cost in excess of Twenty-Five Thousand and
00/100 Dollars ($25,000.00), Lender shall have the right to require
Borrower to post a bond or other security reasonably satisfactory to
Lender to insure the completion of such Alteration.
(j) OBLIGATION TO REBUILD.
6
<PAGE> 7
(i) If any portion of the Mortgaged Property
is damaged or destroyed by fire or other casualty, subject to Section
1(g)(iv) above, Borrower shall, at its sole cost and expense, forthwith
repair, restore, rebuild or replace the damaged or destroyed
improvements, fixtures or equipment, and complete the same as soon as
reasonably possible, to the condition they were in prior to such damage
or destruction, except for such changes in design or materials as may
then be required by law or are approved by Lender in Lender's
reasonable discretion. Lender, in such event, shall, to the extent the
proceeds of the insurance are made available to Lender, reimburse
Borrower for the costs of making such repairs, restoration, rebuilding
and replacements on such terms as Lender may reasonably require. To the
extent, if any, that the proceeds of insurance made available as
aforesaid are insufficient to pay the entire cost of making such
repairs, restoration, rebuilding and replacements, Borrower shall pay
the amount by which such costs exceed the insurance proceeds made
available as aforesaid.
(ii) Notwithstanding the foregoing, in the
event that Borrower fails to commence the repair or restoration of the
Mortgaged Property pursuant to this Section 1(j) within sixty (60) days
after the casualty, or if Borrower abandons or fails to diligently
pursue completion of such repair or restoration (as determined in
Lender's reasonable judgment), then Lender shall be entitled to apply
the insurance proceeds first towards reimbursement of all costs and
expenses of Lender in collecting the proceeds (including, without
limit, court costs and reasonable attorneys' fees), and then toward any
payment of the Indebtedness or any portion of it, whether or not then
due or payable and in whatever order of maturity as Lender may elect.
Application of proceeds by Lender toward later maturing installments of
the Indebtedness shall not excuse Borrower from making the regularly
scheduled installment payments nor shall such application extend or
reduce the amount of any of these payments.
(k) RECORDING. Borrower will cause this Mortgage, any
supplemental or restated mortgage and any financing and continuation statements
required by the applicable Uniform Commercial Code to be recorded and filed at
Borrower's expense in such manner and in such place as may, in Lender's opinion,
be necessary or proper.
(l) ADDITIONAL ASSURANCES. Borrower will execute and deliver
additional instruments and take additional actions as Lender may reasonably
request to carry out the terms and conditions of this Mortgage.
(m) BOOKS AND RECORDS; INSPECTION RIGHTS. Borrower will at all
times maintain accurate and complete books and records and copies of all
building and use restrictions, ground leases, leases, reservation and/or
purchase agreements, condominium documents, contracts and/or other instruments
with respect to the Mortgaged Property. Lender may inspect and make copies of
those books and records and any other data relating to the Mortgaged Property.
Lender may inspect the Mortgaged Property at such reasonable times as Lender
shall determine. Borrower will promptly provide to Lender reports concerning the
income, expenses and financial and other conditions of the Mortgaged Property as
may be required from time to time by Lender.
(n) ENVIRONMENTAL REPRESENTATION, WARRANTY AND
INDEMNIFICATION. Notwithstanding anything in this Mortgage to the contrary,
Borrower represents, covenants and warrants to Lender as follows:
(i) At all times since Borrower has acquired
any interest or rights in the Mortgaged Property, whether through
lease, land contract, deed or otherwise and, to Borrower's knowledge,
after due inquiry (including, without limitation, the Phase I
Environmental Assessment dated _______________, 199__, prepared by
Driesenga & Associates, Inc., and identified as Job No. __________
["Assessment"]), at all times prior to Borrower's acquisition of such
interest or rights in the Mortgaged Property: there are no and have
been no violations of the Relevant Environmental Laws (as hereinafter
defined) at the Mortgaged Property and no consent orders have been
entered with respect to the Mortgaged Property; there are no and have
been no Hazardous Materials (as hereinafter defined) or Asbestos (as
hereinafter defined) either at, upon, under or within, or discharged or
emitted at or from, the Mortgaged Property; no Hazardous Materials or
Asbestos have flown, blown or otherwise become present at the
7
<PAGE> 8
Mortgaged Property from neighboring land; and no Hazardous Materials or
Asbestos have been removed from the Mortgaged Property.
(ii) Borrower, after due inquiry (including,
without limitation, the Assessment), is not aware of any claims of
litigation, and has not received any communication, concerning the
presence or possible presence of Hazardous Materials or Asbestos at the
Mortgaged Property or concerning any violation or alleged violation of
the Relevant Environmental Laws respecting the Mortgaged Property.
Borrower shall promptly notify Lender of any such claims and shall
furnish Lender with a copy of any such communications received after
the date of this Mortgage.
(iii) Borrower shall ensure that the Mortgaged
Property complies in all respects with the Relevant Environmental Laws
and shall notify Lender promptly and in reasonable detail in the event
that Borrower becomes aware of the presence of Hazardous Materials or
Asbestos or a violation of the Relevant Environmental Laws at the
Mortgaged Property.
(iv) Should Borrower use or permit the
Mortgaged Property to be used or maintained so as to subject Borrower,
Lender or the use of the Mortgaged Property to a claim of violation of
the Relevant Environmental Laws (unless contested in good faith by
appropriate proceedings satisfactory to Lender), Borrower shall
immediately remedy and fully cure, at its own cost and expense, any
conditions arising therefrom.
(v) Borrower shall pay immediately when due
the cost of compliance with the Relevant Environmental Laws. Further,
Borrower shall keep the Mortgaged Property free of any lien imposed
pursuant to the Relevant Environmental Laws.
(vi) In the event that Borrower fails to
comply with the requirements of clauses (i) through (v) in this Section
1(n), after notice to Borrower and the earlier of the expiration of any
applicable cure period under this Mortgage or the expiration of the
cure period permitted under the Relevant Environmental Laws, if any,
Lender may, but in no event shall be obligated to, exercise its right
to do one or more of the following: (A) elect that such failure
constitutes an Event of Default under this Mortgage; and/or (B) take
any and all actions, at Borrower's expense, that Lender deems necessary
or desirable to cure such failure of compliance. Any costs incurred
pursuant to this clause (vi) or clause (vii) in this Section 1(n),
shall become immediately due and payable without notice and with
interest thereon at a rate equal to the highest interest rate charged
on the Indebtedness (but not to exceed the maximum interest rate
permitted by law), and such amount, including interest, shall, if
incurred prior to the foreclosure of this Mortgage or the delivery of a
deed in lieu of foreclosure, be added to the Indebtedness and shall be
secured by this Mortgage.
(vii) Lender shall not be liable for and
Borrower shall immediately pay to and indemnify, defend and hold Lender
harmless from and against, all loss, cost, liability, damage and
expense (including, without limit, attorneys' fees and costs incurred
in the investigation, defense and settlement of claims) that Lender may
suffer or incur (as holder of this Mortgage, as mortgagee in possession
or as successor in interest to Borrower as owner of the Mortgaged
Property by virtue of foreclosure or acceptance of a deed in lieu of
foreclosure) as a result of or in connection in any way with Borrower's
failure to comply with the terms and provisions of this Section 1(n).
(viii) The provisions of clauses (i) through
(vii) of this Section 1(n) shall survive the repayment of the
Indebtedness and the performance of all duties and obligations related
thereto, the foreclosure of this Mortgage, the delivery of a deed in
lieu of foreclosure and/or the discharge of this Mortgage.
"Relevant Environmental Laws" shall mean all applicable
federal, state and local laws, rules, regulations, orders, judicial
determinations and decisions or determinations by any judicial,
legislative or
8
<PAGE> 9
executive body of any governmental or quasi-governmental entity,
whether in the past, the present or the future, with respect to: (i)
the installation, existence or removal of, or exposure to, Asbestos on
the Mortgaged Property; (ii) the existence on, discharge from, or
removal from the Mortgaged Property of Hazardous Materials; and/or
(iii) the effects on the environment of the Mortgaged Property or of
any activity now, previously, or hereafter conducted on the Mortgaged
Property.
"Asbestos" shall have the meanings provided under the Relevant
Environmental Laws, and shall include, without limitation, asbestos
fibers and friable asbestos, as such terms are defined under the
Relevant Environmental Laws.
"Hazardous Materials" shall mean any of the following (as
defined by the Relevant Environmental Laws): solid wastes; toxic or
hazardous substances, wastes, or contaminants (including, without
limit, polychlorinated biphenyls, paint containing lead, and/or urea
formaldehyde foam insulation; and discharges of sewage or effluent.
(o) REPORTING REQUIREMENTS. Borrower hereby covenants and
agrees to deliver to Lender or cause Meritage Hospitality Group Inc., a Michigan
corporation ("MHG"), to deliver the following:
(i) Management prepared and certified
quarterly financial statements for Borrower within forty-five (45) days
after the end of the first three (3) quarters of each fiscal year of
Borrower.
(ii) Annual financial statements for MHG
audited by an independent certified public accountant, which annual
financial statements will include a consolidating statement on
Borrower, within one hundred twenty (120) days after the end of each
fiscal year of Borrower.
(iii) Management prepared and certified unit
level profit and loss statements relating to the operation of the
Wendy's franchised restaurant operation located on the Mortgaged
Property ("Franchised Operation") within forty-five (45) days after the
end of each fiscal year of Borrower.
Such financial statements shall be true and correct in all respects,
shall be prepared in accordance with generally accepted accounting principles,
and shall fairly represent the respective financial conditions of the subjects
thereof as of the respective dates thereof. If Borrower's financial statements
are prepared on a consolidated basis, Borrower hereby covenants and agrees to
prepare financial statements specifically relating to the operation of the
Franchised Operation. At the request of Lender, Borrower shall obtain the
consent of Borrower's accountant(s) to the inclusion of Borrower's most recent
financial statement in any regulatory filing or report to be filed by Lender.
(p) INDEMNIFICATION. Borrower shall appear in and defend any
suit, action or proceeding that might in any way and in the sole judgment of
Lender affect the value of the Mortgaged Property, the validity, enforceability
and priority of this Mortgage or the rights and powers of Lender. Borrower
shall, at all times, indemnify, defend, hold harmless and on demand, reimburse
Lender for any and all loss, damage, expense or cost, including cost of evidence
of title and attorneys' fees, arising out of or incurred in connection with any
such suit, action or proceeding, and the sum of such expenditures shall be
secured by this Mortgage and shall bear interest at the highest rate accruing on
the Indebtedness, not to exceed the maximum rate permitted by law, and shall be
due and payable on demand. Borrower shall pay cost of suit, cost of evidence of
title and reasonable attorneys' fees in any proceeding or suit, including
appellate proceedings, brought by Lender to foreclose or otherwise enforce this
Mortgage. Notwithstanding the foregoing, Borrower shall not be required to
indemnify Lender against actions or inactions caused by Lender's gross
negligence or gross misconduct.
9
<PAGE> 10
(q) ESTOPPEL CERTIFICATES. Borrower shall, within ten (10)
days after written request therefor from Lender, furnish to Lender, or such
other persons or entities as Lender shall designate, a duly acknowledged written
statement setting forth the amount of the debt secured by this Mortgage, and
stating either that no setoffs or defenses exist against such debt, or, if such
setoffs or defenses are alleged to exist, the nature thereof, that no Event of
Default then exists, and no event has occurred, which with notice or the passage
of time, or both would constitute an Event of Default.
(r) FRANCHISE AGREEMENT. Borrower is a franchisee in good
standing with Wendy's International, Inc., an Ohio corporation ("Franchisor"),
and is not in default under its franchise agreement with Franchisor relating to
the Franchised Operation ("Franchise Agreement"). Borrower agrees to comply with
the terms of the Franchise Agreement and to take all actions necessary or
required to keep the Franchise Agreement in full force and effect. Borrower will
not encumber its rights under the Franchise Agreement except to Lender. Borrower
agrees to promptly provide Lender with a copy of any notice to Borrower of a
default under the Franchise Agreement. Further, Borrower agrees to promptly
provide Lender with a copy of any notice to Borrower of the existence of any
breach which, with notice or passage of time, or both, would entitle Franchisor
to terminate the Franchise Agreement.
(s) FIXED CHARGE COVERAGE RATIO. Borrower shall maintain a
Fixed Charge Coverage Ratio (as hereinafter defined) of not less than 1.2 to 1.0
for Borrower's business operations generally and not less than 1.2 to 1.0 for
the Franchised Operation. "Fixed Charge Coverage Ratio" shall mean Borrower's
Operating Cash Flow divided by its Fixed Charges (each as defined below). The
Fixed Charge Coverage Ratios shall be calculated by Borrower from time to time
and dates as determined by Lender, and Borrower shall submit such information as
Lender may require to confirm and approve Borrower's calculation of the Fixed
Charge Coverage Ratios.
(i) "Fixed Charges" shall mean the sum of the following items
set forth on a pro forma basis separately stated for both Borrower's
business operations generally and for the Franchised Operation, in each
case, for the applicable twelve (12) month operating period:
(A) current portion of long-term debt (defined as the
current portion of long-term debt due to mature during the next twelve
(12) month operating period, as stated in Borrower's applicable
financial statement, plus, if not already included therein, the current
portion of principal payments imputed on all capital leases), plus
(B) interest expense (defined as the interest expense
as stated on Borrower's applicable financial statement, plus, if not
already included therein, the interest expense imputed on all capital
leases), plus
(C) the current portion of operating leases (defined
as the amount of rent due under operating leases for the next twelve
(12) month operating period).
(ii) "Operating Cash Flow" shall mean the sum or subtraction
of the following items separately stated for both Borrower's business
operations generally and for the Franchised Operation, in each case,
for the applicable prior twelve (12) month operating period:
(A) net income (defined as the net income stated on
Borrower's applicable financial statement), plus
(B) depreciation and amortization (defined as the
depreciation and amortization expense as stated on Borrower's
applicable financial statement), plus
(C) interest expense (as defined above), plus
10
<PAGE> 11
(D) operating lease expense (defined as the amount of
rental expense paid under operating leases, as stated on Borrower's
applicable financial statements), plus or minus
(E) non-recurring items (defined as items which, when
computing cash flow, should in Lender's reasonable business judgment,
be added back to or subtracted from net income to normalize results).
(t) PARTNERSHIP DISTRIBUTIONS. Borrower covenants and agrees
that Borrower shall not make any distribution(s) as defined under Section 8 of
that certain Agreement of Limited Partnership of WM Limited Partnership - 1998,
dated as of January 30, 1998, between MCC Food Service, Inc., a Michigan
corporation and MHG, if such distribution(s) at the time of the distribution
would cause the Fixed Charge Coverage Ratio for Borrower's business operations
generally to be less than 1.2 to 1.0.
2. APPLICATION OF CONDEMNATION AWARDS.
-----------------------------------
(a) CONDEMNATION AWARD. Any eminent domain or condemnation
proceeds shall be paid directly to Lender and applied toward reimbursement of
all Lender's costs and expenses incurred in connection with collecting the award
(including, without limit, court costs and reasonable attorneys' fees), and the
balance applied upon the Indebtedness whether or not then due or payable in
whatever manner Lender deems advisable. Application by Lender of any
condemnation award or portion of it toward the last maturing installments of the
Indebtedness shall not excuse Borrower from making the regularly scheduled
payments nor extend or reduce the amount of these payments.
(b) APPOINTMENT OF LENDER. Lender and each of its officers is
irrevocably appointed (which appointment is coupled with an interest)
attorney-in-fact for Borrower (with power of substitution) and is authorized to
receive, receipt for, discharge and satisfy any condemnation award or judgment,
whether joint or several, on behalf of Borrower, Borrower's legal
representatives, successors and assigns; provided, however, that Lender shall
not be liable for failure to collect any condemnation award.
3. ADDITIONAL SECURITY.
--------------------
(a) SECURITY INTEREST.
------------------
(i) This Mortgage, as to any Equipment,
fixtures, accounts, general intangibles and other personal property
included within the definition of Mortgaged Property (collectively,
"Personal Property"), shall constitute a security agreement within the
meaning of the Uniform Commercial Code and Borrower grants to Lender a
security interest in the Personal Property of Borrower. Borrower
agrees, upon request of Lender, to promptly furnish a list of Personal
Property owned by Borrower and subject to this Mortgage and, upon
request by Lender, to immediately execute, deliver and/or file any
amendments to this Mortgage, any separate security agreement and any
financing statements to evidence and perfect the security interest in
such Personal Property contemplated by this Section. Lender and each of
its officers is irrevocably appointed (which appointment is coupled
with an interest) attorney-in-fact for Borrower (with power of
substitution) and each is authorized to execute, deliver and/or file
any of such amendments to this Mortgage, any separate security
agreement and any financing statements.
(ii) Upon the occurrence of any Event of
Default under this Mortgage, Lender shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code or
otherwise provided by law or by this Mortgage including, without limit,
the right to require Borrower to assemble the Personal Property and
make it available to Lender at a place to be designated by Lender which
is reasonably convenient to such parties, the right to collect all
accounts receivable, the right to take possession of the Personal
Property with or without demand and with or without process of law and
the right to sell and dispose of it and distribute the proceeds
according to law. Borrower agrees that any requirement of
11
<PAGE> 12
reasonable notice, if any, shall be met if Lender sends notice to
Borrower at least five (5) days prior to the date of sale, disposition
or other event giving rise to the required notice. Borrower agrees that
the proceeds of any disposition of the Personal Property may be applied
by Lender first to Lender's reasonable expenses in connection with the
disposition including, without limit, reasonable attorneys' fees and
legal expenses, and then to payment of the Indebtedness.
(b) LICENSES AND PERMITS. As additional security for the
Indebtedness and to the extent permitted by their terms, Borrower assigns to
Lender all of Borrower's rights and interest in all licenses or permits
affecting the Mortgaged Property. This assignment shall not impose upon Lender
any obligations with respect to any license or permit. Borrower shall not cancel
or amend any of the licenses or permits assigned (nor permit any of them to
terminate if they are necessary or desirable for the operation of the Mortgaged
Property) without first obtaining the written approval of Lender.
4. EVENTS OF DEFAULT AND REMEDIES.
-------------------------------
(a) EVENTS OF DEFAULT. Any of the following events shall, for
purposes of this Mortgage, constitute an "Event of Default":
(i) Failure by Borrower to pay any amount
owing on or with respect to the Indebtedness when due, whether by
maturity, acceleration or otherwise, which failure continues for three
(3) days after the date of written notice to Borrower from Lender of
such default.
(ii) Any failure by Borrower to comply with
any of the non-monetary terms, provisions, warranties or covenants of
the Note, this Mortgage or the other Loan Documents, which failure
continues for fifteen (15) days after the date of written notice to
Borrower from Lender of such default.
(iii) Institution of foreclosure proceedings
or other exercise of rights and remedies under any mortgage, deed of
trust or other lien against the Mortgaged Property (or any portion
thereof).
(iv) Insolvency of Borrower or the admission
in writing of Borrower's inability to pay debts as they mature.
(v) Any statement, representation or
information made or furnished by or on behalf of Borrower to Lender in
connection with or to induce Lender to provide or advance any of the
Indebtedness shall prove to be false or materially misleading when made
or furnished.
(vi) Institution of bankruptcy,
reorganization, insolvency or other similar proceedings by or against
Borrower, unless, in the case of a petition filed against Borrower the
same is dismissed within sixty (60) days) of the date of filing.
(vii) The issuance or filing of any
attachment, levy, garnishment or the commencement of any related
proceeding or the commencement of any other judicial process upon or in
respect to Borrower or the Mortgaged Property.
(viii) Sale or other disposition by Borrower
of any substantial portion of its assets or property.
(ix) Death, dissolution, merger,
consolidation, termination of existence, insolvency, business failure
or assignment for the benefit of creditors of or by Borrower.
12
<PAGE> 13
(x) Any failure by Borrower to pay when due
any indebtedness (other than to Lender) or any failure in the
observance or performance of any term, covenant or condition contained
in any document evidencing, securing or relating to such indebtedness,
which failure continues beyond any applicable cure period.
(xi) Receipt by Borrower of a notice of
termination of the Franchise Agreement.
(xii) If the Note, this Mortgage and the other
Loan Documents have not been assigned to the Trust, the default by
Borrower which continues beyond any applicable grace or cure period
under the Retained Obligations; provided, however, if the Note, this
Mortgage and the other Loan Documents are assigned to the Trust, this
clause (xii) shall be of no force or effect during the term of such
assignment.
(xiii) In the event that the Note, this
Mortgage and the other Loan Documents are assigned to the Trust, the
default by Borrower which continues beyond any applicable grace or cure
period under the Trust Obligations.
(b) REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of any
Event of Default, Lender shall have the following rights and remedies:
(i) Declare all or part of the Indebtedness
immediately due and payable.
(ii) Demand that Borrower immediately
surrender the possession of the Mortgaged Property to Lender, and
Borrower consents to Lender taking possession of the Mortgaged Property
and the books and records relating to the Mortgaged Property.
(iii) Lease the Mortgaged Property and collect
rents for the account of Borrower.
(iv) Foreclose the interest of Borrower in the
Mortgaged Property by action pursuant to applicable law. Commencement
of such an action shall be deemed a declaration of acceleration
pursuant to clause (i) above.
(v) Sell or cause to be sold the Mortgaged
Property and convey the same to the purchaser thereof pursuant to the
authority and power hereby granted and the provisions of M.C.L.A.
Section 600.3201 ET SEQ., as amended, pertaining to foreclosure by
advertisement, which statute does not require that Borrower be
personally notified of such sale or that a judicial hearing be held
before the sale can be conducted. Lender may direct the sale of the
Mortgaged Property to be in one or several parcels and in any order as
Lender may elect in its sole discretion, at such time and place, upon
such terms and after such notice as may be required or permitted by
applicable law.
(vi) Collect and receive all rents, profits
and other amounts that are due or shall subsequently become due under
the terms of any leases, land contract, or other agreements by which
Borrower is leasing or selling the Mortgaged Property or any interest
in the Mortgaged Property. Lender may also exercise any other rights or
remedy of Borrower under any such lease, land contract or other
agreement. However, Lender shall have no obligation to make any demand
or inquiry as to the nature or sufficiency of any payment received or
to present or file any claim or take any other action to collect or
enforce the payment of any amounts to which Lender may become entitled
under this Mortgage. Similarly, Lender shall not be liable for any of
Borrower's obligations under any such lease, land contract or other
agreement.
13
<PAGE> 14
(vii) Exercise all rights, remedies and
privileges afforded a "secured party" under Article 9 of the Michigan
Uniform Commercial Code with respect to any of the Mortgaged Property
which is personal property.
(viii) Enter upon the Mortgaged Property and
take other actions as Lender deems appropriate to perform Borrower's
obligations under this Mortgage to inspect, repair, protect or preserve
the Mortgaged Property, to investigate or test for the presence of any
Hazardous Materials and/or to appraise the Mortgaged Property.
(ix) Pursue any other available remedy at law
or equity to enforce the payment of the Indebtedness.
(c) REMEDIES GENERALLY.
-------------------
(i) WARNING: THIS MORTGAGE CONTAINS A POWER OF
SALE AND UPON DEFAULT MAY BE FORECLOSED BY ADVERTISEMENT. IN
FORECLOSURE BY ADVERTISEMENT AND THE SALE OF THE MORTGAGED PROPERTY IN
CONNECTION THEREWITH, NO HEARING IS REQUIRED AND THE ONLY NOTICE
REQUIRED IS TO PUBLISH NOTICE IN A LOCAL NEWSPAPER AND TO POST A COPY
OF THE NOTICE ON THE MORTGAGED PROPERTY.
(ii) WAIVER: THE BORROWER WAIVES ALL RIGHTS
UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND UNDER THE
CONSTITUTION AND LAWS OF THE STATE OF MICHIGAN TO A HEARING PRIOR TO
SALE IN CONNECTION WITH ANY FORECLOSURE BY ADVERTISEMENT AND ALL NOTICE
REQUIREMENTS EXCEPT AS SET FORTH IN THE STATUTE PROVIDING FOR
FORECLOSURE BY ADVERTISEMENT.
(iii) All remedies provided for in Section
4(b) shall be available to the extent not prohibited by law, and Lender
shall have the unrestricted right to exercise any summary proceeding
available at law or in equity in connection therewith. Each remedy
shall be cumulative and additional to any other remedy of Lender at
law, in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default or Event of Default shall
impair any such right or power or shall be construed to be a waiver of,
or acquiescence in, any such default or Event of Default.
(iv) Lender may waive any Event of Default and
may rescind any declaration of maturity of payments on the
Indebtedness. In case of such waiver or recision, Borrower and Lender
shall be restored to their respective former positions and rights under
this Mortgage. Any waiver by Lender of any default or Event of Default
shall be in writing and shall be limited to the particular default
waived and shall not be deemed to waive any other default.
(d) RECEIVERS. Upon an Event of Default and commencement of
foreclosure proceedings to enforce the rights of Lender under this Mortgage, or
upon the commission of waste against the Mortgaged Property, Lender shall be
entitled to the appointment of a receiver or receivers of the Mortgaged Property
and of the rents, issues and profits of the Mortgaged Property, pending such
proceedings and without notice to Borrower.
(e) APPLICATION OF PROCEEDS. Any proceeds received by Lender
from the exercise of remedies pursuant to Section 4(b) of this Mortgage shall be
applied as follows:
(i) First, to pay all costs and expenses
incidental to the leasing, foreclosure, sale or other disposition of
the Mortgaged Property. These costs and expenses shall include, without
limit,
14
<PAGE> 15
any costs and expenses incurred by Lender (including, without limit,
attorneys' fees and disbursements), and any taxes and assessments or
other liens and encumbrances prior to the lien of this Mortgage.
(ii) Second, to all sums expended or incurred
by Lender directly or indirectly in carrying out any term, covenant or
agreement under this Mortgage or any related document, together with
interest as provided in this Mortgage.
(iii) Third, to the payment of the
Indebtedness. If the proceeds are insufficient to fully pay the
Indebtedness, then application shall be made first to late charges and
interest accrued and unpaid, then to any applicable prepayment
premiums, then to unpaid fees and other charges and then to the
outstanding principal balance.
(iv) Fourth, any surplus remaining shall be
paid to Borrower or to whomsoever may be lawfully entitled.
(f) MARSHALLING. In the event of foreclosure of this Mortgage
or the enforcement by Lender of any other rights and remedies under this
Mortgage, Borrower waives any right in respect to marshalling of assets which
secure the Indebtedness or to require Lender to pursue its remedies against any
other assets or any other party which may be liable for any of the Indebtedness.
(g) FURTHER ACTIONS. Promptly upon the request of Lender,
Borrower shall execute, acknowledge and deliver any and all further conveyances,
documents, mortgages, deeds of trust, security agreements, financing statements
and assurances, and do or cause to be done all further acts as Lender may
require to confirm and protect the lien of this Mortgage or otherwise to
accomplish the purposes of this Mortgage.
(h) ATTORNEYS FEES. Any reference in this Mortgage to
attorneys' fees shall refer to fees, charges, costs and expenses of in-house and
outside attorneys and paralegals, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise. All costs, expenses and fees of any nature for which Borrower is
obligated to reimburse or indemnify Lender are part of the Indebtedness secured
by this Mortgage and are payable upon demand, unless expressly provided
otherwise, with interest until repaid at the highest rate charged on any of the
Indebtedness (but not to exceed the maximum rate permitted by law).
5. MISCELLANEOUS.
--------------
(a) GOVERNING LAW. This Mortgage shall be construed in
accordance with the laws of the State of Michigan.
(b) SUCCESSORS AND ASSIGNS. This Mortgage shall be binding
upon the successors and assigns of Borrower including, without limit, any debtor
in possession or trustee in bankruptcy for Borrower, and the rights and
privileges of Lender under this Mortgage shall inure to the benefit of its
successors and assigns. This shall not be deemed a consent by Lender to a
conveyance by Borrower of all or any part of the Mortgaged Property or of any
ownership interest in Borrower.
(c) NOTICES. Notice from one party to another relating to this
Mortgage shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth in this Mortgage by any of the following means: (i)
hand delivery, (ii) registered or certified mail, postage prepaid, (iii) express
mail or other overnight courier service, or (iv) telecopy, telex or other wire
transmission with request for assurance of receipt in a manner typical with
respect to communications of that type. Notice made in accordance with these
provisions shall be deemed delivered on receipt if delivered by hand or wire
transmission, on the third business day after mailing if mailed by registered or
certified mail, or on the next business day after mailing or deposit with the
postal service or an overnight courier service if delivered by express
15
<PAGE> 16
mail or overnight courier. Borrower's telecopier number is (616) 776-2776, and
Lender's telecopier number is (734) 994-1376.
(d) ENTIRE AGREEMENT; AMENDMENTS. This Mortgage and any
agreement to which it refers state all rights and obligations of the parties and
supersede all other agreements (oral or written) with respect to the lien
granted by this Mortgage. Any amendment of this Mortgage shall be in writing and
shall require the signature of Borrower and Lender.
(e) PARTIAL INVALIDITY. The invalidity or unenforceability of
any provision of this Mortgage shall not affect the validity or enforceability
of the remaining provisions of this Mortgage.
(f) INSPECTIONS. Any inspection, audit, appraisal or
examination by Lender or Lender's agents of the Mortgaged Property or of
information or documents pertaining to the Mortgaged Property is for the sole
purpose of protecting Lender's interests under this Mortgage and is not for the
benefit or protection of Borrower or any third party.
(g) JOINT AND SEVERAL LIABILITY. In the event that more than
one person or entity executes this Mortgage, the obligations of each person or
entity shall be joint and several.
(h) AUTOMATIC REINSTATEMENT. Notwithstanding any prior
revocation, termination, surrender or discharge of this Mortgage, the
effectiveness of this Mortgage shall automatically continue or be reinstated, as
the case may be, in the event that:
(i) Any payment received or credit given by
Lender in respect of the Indebtedness is determined to be a preference,
impermissible setoff, fraudulent conveyance, diversion of trust funds,
or otherwise required to be returned to Borrower for the benefit of
Borrower or any third party under any applicable state or federal law,
including, without limit, laws pertaining to bankruptcy or insolvency,
in which case this Mortgage shall be enforceable as if any such payment
or credit had not been received or given, whether or not Lender relied
upon this payment or credit or changed its position as a consequence of
it.
(ii) Any liability is imposed, or sought to be
imposed, against Lender relating to the environmental condition of, or
the presence of Hazardous Materials on, in or about the Real Estate,
whether this condition is known or unknown, now exists or subsequently
arises (excluding only conditions which arise after any acquisition by
Lender of any such property, by foreclosure, in lieu of foreclosure or
otherwise, to the extent due to the wrongful acts or omissions of
Lender), in which case this Mortgage shall be enforceable to the extent
of all liability, costs and expenses (including without limit
reasonable attorneys fees) incurred by Lender as the direct or indirect
result of any environmental condition or Hazardous Materials.
(iii) In the event of continuation or
reinstatement of this Mortgage, Borrower agrees upon demand by Lender
to execute and deliver to Lender those documents which Lender
determines are appropriate to further evidence (in the public records
or otherwise) this continuation or reinstatement, although the failure
of Borrower to do so shall not affect in any way the reinstatement or
continuation. If Borrower does not execute and deliver to Lender upon
demand such documents, Lender and each officer of Lender is irrevocably
appointed (which appointment is coupled with an interest) the true and
lawful attorney of Borrower (with full power of substitution) to
execute and deliver such documents in the name and on behalf of
Borrower.
(i) WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT
THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
16
<PAGE> 17
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS MORTGAGE OR
THE INDEBTEDNESS.
(j) CONSUMER CREDIT. Notwithstanding anything in this Mortgage
to the contrary, this Mortgage shall not secure any portion of the Indebtedness
which is deemed to be consumer credit under the Truth in Lending Act.
(k) ASSIGNMENT. This Mortgage is freely assignable, in whole
or in part, by Lender without the consent of Borrower. Except as set forth
below, Lender shall provide Borrower with written notice of such assignment.
Lender shall be fully discharged from all responsibility accruing hereunder from
and after the effective date of any such assignment. Lender's assignee shall, to
the extent of the assignment, be vested with all the powers and rights of Lender
hereunder (including those granted under Section 4 hereof or otherwise with
respect to the Mortgaged Property), and to the extent of such assignment the
assignee may fully enforce such rights and powers, and all references to Lender
shall mean and refer to such assignee. Lender shall retain all rights and powers
hereby given not so assigned, transferred and/or delivered. Borrower hereby
waives all defenses which Borrower may be entitled to assert against Lender's
assignee with respect to liability accruing hereunder prior to the effective
date of any assignment of Lender's interest herein. Borrower may not, in whole
or in part, directly or indirectly, assign this Mortgage or its rights hereunder
or delegate its duties hereunder without, in each instance, the specific prior
written consent of Lender, which consent shall not be unreasonably withheld.
(l) SECURITIZATION. Borrower understands and agrees that
Lender may, from time to time, assign its rights and powers under the Note, this
Mortgage and any other Loan Documents, in whole or in part, in connection with a
securitization program. Borrower agrees to enter into an amendment to the Note,
this Mortgage and any other Loan Documents if such amendments are required by a
nationally recognized rating agency in connection with a securitization program
sponsored by Lender and in which the Note, this Mortgage and any other Loan
Documents are to be included; provided that Borrower shall not be obligated to
enter into any amendment which adversely affects Borrower or adversely alters
any of the financial terms of the Loan Documents. Lender shall pay Borrower's
reasonable costs associated with such assignment.
17
<PAGE> 18
IN WITNESS WHEREOF, Borrower has executed this Mortgage as of the day
and year noted above.
WITNESSES: BORROWER:
WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN
By MCC Food Service Inc.
Its: General Partner
By
- -------------------------- -----------------------------------
Print Name:
Its
- -------------------------- -----------------------------
Print Name:
STATE OF MICHIGAN )
) ss.
COUNTY OF______ )
The foregoing Mortgage was acknowledged before me the ____ day of
_______, 1998, by ______________________________, on behalf of MCC Food Service
Inc., a Michigan corporation and the general partner of WM Limited Partnership -
1998, a Michigan limited partnership, on behalf of the limited partnership.
-------------------------------------
Notary Public
_______________ County, Michigan
My Commission Expires:_______________
[Notary Public's Seal]
Prepared By:
Kristin A. Hermann, Esq.
Miller, Canfield, Paddock & Stone, P.L.C.
101 North Main Street, Seventh Floor
Ann Arbor, Michigan 48104-1400
When Recorded Return To:
Captec Financial Group, Inc.
24 Frank Lloyd Wright Drive
Lobby L, Fourth Floor
P.O. Box 544
Ann Arbor, Michigan 48106-0544
Attention: Robert V. Schrader
18
<PAGE> 1
Exhibit 10.21
Loan No. ______
______, Michigan
PROMISSORY NOTE
---------------
____________ Date: , 1998
-----------
PROMISE TO PAY. For value received, WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN, a Michigan limited partnership ("Borrower") promises to pay
to CAPTEC FINANCIAL GROUP INC., a Michigan corporation (together with its
successors, assigns and transferees, "Lender"), or order, ____________________
________________________ Dollars (___________), or so much of such sum as has
been advanced under this Note, as follows:
Interest only from and after the date on which funds are disbursed by
Lender hereunder ("Effective Date") through the last day of the month in which
the Effective Date occurs shall be due and payable on the first day of the next
month following the Effective Date; provided that if the Effective Date occurs
after the fifteenth (15th) day of a month, the interest which would accrue,
based on the actual number of days, through the end of such month shall be due
and payable in advance on the Effective Date. Installments of principal and
interest in the amount of _________________________________________________
Dollars (_________) are due and payable on the first day of each month (each a
"Payment Date"), commencing _________________ until ________________("Due
Date"), when the outstanding principal balance, plus accrued interest, is due
and payable (unless the indebtedness evidenced by this Note is accelerated, in
which case, the Due Date is the date of acceleration). The amortization period
for this Note, for purposes of calculating the monthly installments of principal
and interest, is two hundred twenty eight (228) months.
All payments under this Note shall be made at Lender's principal office
at 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor,
Michigan 48106-0544, at such other address as Lender may designate in writing,
or by electronic funds withdrawal made by Lender upon written authorization
therefor from Borrower, which authorization shall not be revocable by Borrower
without the consent of Lender. Payments due and payable on a day on which Lender
is not open for business are due on the next succeeding business day.
Payments will be applied first to accrued interest and then to principal.
INTEREST RATE. The outstanding principal balance of this Note will bear
interest at a fixed rate equal to seven and seventy-eight hundredths percent
(7.77%) per annum (the "Stated Rate"), until the Due Date (whether by
acceleration or otherwise), and thereafter at a rate which is three percent (3%)
above the Stated Rate ("Default Rate").
Interest will be computed on the basis of a year consisting of twelve
(12) months of thirty (30) days each. In no event, however, shall the interest
rate exceed the maximum rate allowed by law. Notwithstanding anything to the
contrary contained herein, at no time shall the interest payable under this Note
be greater than the maximum rate permitted by applicable law ("Legal Rate"). If
any obligation under this Note shall result in Lender receiving an amount deemed
to be interest under applicable law in excess of the Legal Rate, then the amount
which would be excessive interest shall be applied to the reduction of the
principal balance of this Note and not to payment of interest. If such excessive
interest exceeds the unpaid principal balance of this Note, the excess shall be
refunded to Borrower.
<PAGE> 2
PREPAYMENT. Borrower shall not have any right, except as otherwise
specifically provided herein, to prepay the principal balance of this Note until
seven (7) loan years have elapsed. The first "loan year" shall commence on the
date of the closing of the loan evidenced by this Note, and subsequent loan
years shall commence on the anniversaries of such date. Commencing with the
eighth (8th) loan year and if no Event of Default (as hereinafter defined) then
exists, Borrower shall have the right to prepay all, but not merely a portion
of, the principal balance of this Note together with accrued interest thereon on
any Payment Date; provided, however, that Borrower shall provide no less than
thirty (30) days prior written notice to Lender of Borrower's intention to
prepay (the "Prepayment Notice"); and provided further, that Borrower shall
concurrently pay to Lender a prepayment premium determined as follows:
(a) If the prepayment is made during the eighth loan year, the
prepayment premium shall equal five percent (5%) of the prepaid
principal.
(b) If the prepayment is made during the ninth loan year, the
prepayment premium shall equal four percent (4%) of the prepaid
principal.
(c) If the prepayment is made during the tenth loan year, the
prepayment premium shall equal three percent (3%) of the prepaid
principal.
(d) If the prepayment is made during the eleventh loan year,
the prepayment premium shall equal two percent (2%) of the prepaid
principal.
(e) If the prepayment is made during the twelfth through last
loan years, the prepayment premium shall equal one percent (1%) of the
prepaid principal.
Once given, the Prepayment Notice may not be withdrawn, and the failure to
prepay in accordance with the Prepayment Notice shall constitute an Event of
Default. The "first loan year" shall commence on the date of the closing of the
loan evidenced by this Note, and subsequent loan years shall commence on the
anniversaries of the date of the closing of such loan.
Prepayments will be applied to installments of principal in their
inverse order of maturity. Until this Note is paid in full, no prepayment shall
reduce the dollar amount of monthly installments required to be paid under this
Note.
If the outstanding principal balance of this Note is accelerated by
reason of an Event of Default, such acceleration shall be deemed to be a
prepayment and Borrower shall pay to Lender, in addition to all sums due as a
result of the acceleration, any applicable Prepayment Premium.
LATE PAYMENT CHARGE. In the event that any payment under this Note is
not received by Lender within fifteen (15) days of the date when due, a late
charge of five percent (5%) of the amount of such payment will be due. Borrower
agrees that the late charge is a reasonable estimate of the administrative costs
which Lender will incur in processing the delinquency. Lender's acceptance of a
late payment and/or of the late payment charge will not waive any default under
this Note or affect the acceleration of this Note (if this Note has been
accelerated).
COLLATERAL. This Note and the other obligations of Borrower to Lender
contained in the documents securing this Note are secured by and in accordance
with the terms of that certain Leasehold Mortgage, effective ____________, 1998,
executed by Borrower for the benefit of Lender (the "Mortgage"; together with
any other documents securing payment under this Note, the "Loan Documents"). All
property securing the Indebtedness (as defined in the Mortgage) is referred to
as the "Collateral".
DEFAULT. Any of the following events shall, for purposes of this Note,
constitute an "Event of Default":
-2-
<PAGE> 3
(a) Failure by Borrower to pay any amount owing on or with
respect to the Indebtedness when due, whether by maturity, acceleration
or otherwise, which failure continues for three (3) days after written
notice to Borrower from Lender of such default.
(b) Any failure by Borrower to comply with any of the
non-monetary terms, provisions, warranties or covenants of this Note,
the Mortgage or the other Loan Documents, which failure continues for
fifteen (15) days after the date of written notice to Borrower from
Lender of such default.
(c) Institution of foreclosure proceedings or other exercise
of rights and remedies by the holder of any mortgage, deed of trust,
security interest or other lien against the Collateral (or any portion
thereof).
(d) Insolvency of Borrower or the admission in writing of
Borrower's inability to pay debts as they mature.
(e) Any statement, representation or information made or
furnished by or on behalf of Borrower to Lender in connection with or
to induce Lender to provide or advance any of the Indebtedness shall
prove to be false or materially misleading when made or furnished.
(f) Institution of bankruptcy, reorganization, insolvency or
other similar proceedings by or against Borrower, unless, in the case
of a petition filed against Borrower, the same is dismissed within
sixty (60) days of the date of filing.
(g) The issuance or filing of any judgment, attachment, levy,
garnishment or the commencement of any related proceeding or the
commencement of any other judicial process upon or in respect to
Borrower or the Collateral.
(h) Sale or other disposition by Borrower of any substantial
portion of its assets or property.
(i) Death, dissolution, merger, consolidation, termination of
existence, insolvency, business failure or assignment for the benefit
of creditors of or by Borrower.
(j) Any failure by Borrower to pay any indebtedness (other
than to Lender) when due, or any failure in the observance or
performance of any term, covenant or condition in any document
evidencing, securing or relating to such indebtedness, which failure
continues beyond any applicable cure period.
(k) Receipt by Borrower ("Franchisee") of a notice of
termination of the franchise agreement from Wendy's International, Inc.
("Franchisor"), for the Wendy's franchised restaurant operation located
at __________________________________, Michigan ("Franchised
Operation").
(l) If this Note, the Mortgage and the other Loan Documents
have not been assigned to the Trust (as defined in the Mortgage), the
default by Borrower which continues beyond any applicable grace or cure
period under the Retained Obligations (as defined in the Mortgage);
provided, however, if this Note, the Mortgage and the other Loan
Documents are assigned to the Trust, this Clause (l) shall be of no
force and effect during the term of such assignment.
(m) In the event that this Note, the Mortgage and the other
Loan Documents are assigned to the Trust, the default by Borrower which
continues beyond any applicable grace or cure period under the Trust
Obligations (as defined in the Mortgage).
(n) Any default by Borrower under the Ground Lease between
Northland Plaza, a partnership, as landlord, and Borrower, as tenant,
dated ______________ ("Ground Lease"), which default is not cured
within any applicable cure period set forth in such Ground Lease.
-3-
<PAGE> 4
Upon an occurrence of an Event of Default, Lender shall have the option
to declare all or part of the Indebtedness (including this Note) immediately due
and payable. If this Note is not paid at maturity (whether by acceleration or
otherwise), Lender shall have all of the rights and remedies provided at law or
equity or by agreement, including, without limit, the right to sell or liquidate
all or any part of the Collateral. The remedies of Lender are cumulative and not
exclusive.
EXAMINATION OF RECORDS. Borrower shall at all times keep full and
accurate records of its business and of the Collateral, which records shall be
open to inspection and copying by Lender at all reasonable times.
LIABILITY OF SIGNATORIES. Borrower, and all guarantors and endorsers,
and any other party liable for the Indebtedness evidenced by this Note: (i)
severally waive presentment, demand, protest, notice of dishonor, notice of
non-payment and notice of acceleration of this Note; and (ii) agree that no
extension or postponement of the time for payment, or waiver, or indulgence or
forbearance granted to Borrower (without limit as to number or period) or any
modification of this Note, or any substitution, or exchange or release of all or
part of the Collateral, or addition of any party to this Note, or release or
discharge of, or suspension of any rights and remedies against any party liable
on this Note, shall reduce or affect the obligation of any other party liable
for the payment of this Note.
NON-WAIVER. No delay by Lender in the exercise of any right or remedy
shall operate as a waiver. No single or partial exercise by Lender of any right
or remedy shall preclude any future exercise of such right or remedy or the
exercise of any other right or remedy. No waiver or indulgence by Lender of any
default or Event of Default shall be effective unless in writing and signed by
Lender, nor shall a waiver on one occasion be construed as a bar to any right or
remedy, or waiver of any default or Event of Default on any future occasion.
REIMBURSEMENT OF EXPENSES. Borrower shall reimburse Lender for all
costs and expenses, including attorneys' fees, incurred by Lender in enforcing
the rights of Lender under this Note. Such costs and expenses shall include,
without limitation, costs or expenses incurred by Lender in any bankruptcy,
reorganization, insolvency or other similar proceeding. Any reference in this
Note to attorneys' fees shall mean fees, charges, costs and expenses of in-house
and/or outside counsel and paralegals, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise.
WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY,
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
ASSIGNMENT. This Note is freely assignable, in whole or in part, by
Lender without the consent of Borrower. Except as set forth below, Lender shall
provide Borrower with written notice of assignment. Lender shall be fully
discharged from all responsibility accruing hereunder from and after the
effective date of any such assignment. Lender's assignee shall, to the extent of
the assignment, be vested with all the powers and rights of Lender hereunder,
and to the extent of such assignment the assignee may fully enforce such rights
and powers, and all references to Lender shall mean and refer to such assignee.
Lender shall retain all rights and powers hereby given not so assigned,
transferred and/or delivered. Borrower hereby waives all defenses which Borrower
may be entitled to assert against Lender's assignee with respect to liability
accruing hereunder prior to the effective date of any assignment of Lender's
interest herein, but reserves all such defenses that may exist against Lender.
Borrower may not, in whole or in part, directly or indirectly, assign this Note
or its rights hereunder or delegate its duties hereunder without, in each
instance, the specific prior written consent of Lender, which consent will not
be unreasonably withheld.
-4-
<PAGE> 5
SECURITIZATION. Borrower understands and agrees that Lender may, from
time to time without notice to Borrower, assign its rights and powers under this
Note, and any other Loan Documents, in whole or in part, in connection with a
securitization program. Borrower agrees to enter into an amendment to this Note
and any other Loan Documents if such amendments are required by a nationally
recognized rating agency in connection with a securitization program sponsored
by Lender and in which this Note and the other Loan Documents are to be
included; provided that Borrower shall not be obligated to enter into any
amendment which adversely affects Borrower or adversely alters any of the
financial terms of this Note or the other Loan Documents. Lender shall pay
Borrower's reasonable costs associated with such assignment.
MISCELLANEOUS. The terms and provisions of this Note shall be governed
by and construed in accordance with the laws of the State of Michigan. Lender
and Borrower agree that any dispute which may arise between them with regard to
this Note shall be resolved by litigation in state or federal court. Litigation
may be initiated by Lender or its assignee, at its discretion, in the State of
the principal place of business of Lender or its assignee, the State of the
principal place of business of Borrower, or the State where the Collateral is
located. BORROWER HEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE
GROUNDS OF IMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH
ABOVE AND AGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY
MAIL. The terms and provisions of this Note may only be changed in writing,
executed by Borrower and Lender.
WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN
By MCC Food Service Inc.
Its: General Partner
By:
---------------------------------
Its
------------------------------
Address:
40 Pearl Street NW, Suite 900
Grand Rapids, MI 49503
Tax I.D. No. 38-3389989
-5-
<PAGE> 1
Exhibit 10.22
LEASEHOLD MORTGAGE
------------------
Loan Number ______
________, Michigan
THIS LEASEHOLD MORTGAGE ("Mortgage") is made this _____ day of
____________, 1998, by WM LIMITED PARTNERSHIP - 1998 D/B/A WENDY'S OF MICHIGAN,
a Michigan limited partnership, whose address is 40 Pearl Street NW, Suite 900,
Grand Rapids, Michigan 49503 ("Borrower"), in favor of CAPTEC FINANCIAL GROUP,
INC., a Michigan corporation, whose address is 24 Frank Lloyd Wright Drive,
Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544 (together with
its successors, assigns and transferees, "Lender"). This instrument shall become
effective on ______________, 1998.
PRELIMINARY STATEMENT
This Mortgage is made to secure all of the following (individually and
collectively the "Indebtedness"):
1. Payment in the sum of _____________________________________________
Dollars (____________), together with interest, costs and all other sums to be
paid according to that certain Promissory Note ("Note"), by Borrower to Lender
made as of the date of this Mortgage by Borrower; together with any and all
extensions, renewals, modifications, substitutions or replacements thereof; and
the performance of the covenants and obligations of Borrower due or to become
due to Lender under this Mortgage or under any other documents securing payment
of all amounts due under the Note (collectively, the "Loan Documents"), and the
repayment of all sums expended by Lender in connection with performance of those
covenants and obligations.
2. If the Note, this Mortgage and the Loan Documents are assigned to a
trust sponsored by Lender or any of its affiliates to securitize its loan
receivables (the "Trust"), "Indebtedness" shall also include the payment of all
other sums (together with interest and costs thereon) concurrently or
subsequently loaned to Borrower by Captec Financial Group, Inc., a Michigan
corporation, Captec Financial Group Funding Corporation, a Michigan corporation,
or Captec Leasing Company, a California corporation (each an "Originator"), as
evidenced and/or secured by certain notes and other documents of Borrower with
respect to such amounts and which notes and other documents are assigned to the
Trust, together with any and all extensions, renewals, modifications,
substitutions or replacements thereof; and the performance of the covenants and
obligations of Borrower due or to become due under such notes and other
documents assigned to the Trust, and the repayment of all sums expended in
connection with performance of those covenants and obligations (collectively,
the "Trust Obligations").
3. If the Note, this Mortgage and the Loan Documents are not assigned
to the Trust, "Indebtedness" shall also include the payment of all other sums
(together with interest thereon) concurrently or subsequently loaned to Borrower
by an Originator, as evidenced and/or secured by certain notes and other
documents of Borrower which are not assigned to the Trust, together with any and
all extensions, renewals, modifications, substitutions or replacements thereof;
and the performance of the covenants and obligations of Borrower due or to
become due under
<PAGE> 2
such notes and other documents, and the repayment of all sums expended in
connection with performance of those covenants and obligations (collectively,
the "Retained Obligations").
4. This Mortgage is given to secure an obligation incurred by Borrower
for the purpose of financing certain improvements on the Real Estate, which
obligation may include the acquisition cost of the Real Estate.
5. THIS MORTGAGE SECURES FUTURE ADVANCES AND IS A FUTURE ADVANCE
MORTGAGE UNDER ACT NO. 348 OF THE PUBLIC ACT OF 1990, AS AMENDED (MCLA 565.901
ET SEQ.).
GRANTING CLAUSE
---------------
To secure the Indebtedness and as security for the purposes stated
elsewhere in this Mortgage, Borrower hereby mortgages and warrants to the
Lender, its successors and assigns, the following described properties, rights,
interests and privileges (collectively, "Mortgaged Property"):
1. All estate, title, interest and rights of Borrower in and to the
parcel(s) of real estate commonly known as ___________________. located in the
City of _________________________, Michigan and particularly described on
Schedule A attached to this Mortgage and identified as Tax Parcel Number
________________ ("Real Estate"), pursuant to that certain Ground Lease dated
______________, between ______________________________ ("Ground Lessor") and
Borrower, a memorandum of which was recorded on _______, in Liber _________,
Page________, Kent County Records (including, but not limited to, the right, if
any, to extend or renew the Ground Lease for succeeding term or terms);
provided, however, that in the event that Borrower acquires the fee title or any
other estate, title, or interest in the Mortgaged Property covered by the Ground
Lease, then this Mortgage shall attach to and cover and be a lien upon the fee
title for such other estates so acquired, and such fee title or other estate
shall, without further assignment or conveyance, become and be subject to the
lien of and covered by this Mortgage;
2. All buildings, structures and improvements now located, or
subsequently constructed or placed upon the Real Estate, including, without
limit, all building materials and building equipment located on the Real Estate;
3. All machinery, apparatus, equipment, goods, fittings, fixtures and
articles of personal property of every kind and nature located or subsequently
located on the Real Estate (individually and collectively, "Equipment"), and all
of the right, title and interest of Borrower in and to any Equipment which may
be subjected to any title retention or security agreement superior in lien to
the lien of this Mortgage. It is agreed that all Equipment is part and parcel of
the Mortgaged Property and appropriated to the use of the Real Estate and,
whether affixed or not, unless Lender shall otherwise elect, be deemed to be
real estate and granted under this Mortgage;
4. All easements, rights-of-way, licenses, privileges and appurtenances
relating to the Real Estate;
5. All rents, issues, profits, revenues, proceeds, accounts and general
intangibles arising from the Real Estate or relating to any business conducted
by Borrower on the Real Estate, under present or future leases, reservation
and/or purchase agreements, licenses or otherwise, which are specifically
assigned and transferred to Lender, including, without limit, all rights
conferred by Act 210 of the Michigan Public Acts of 1953, as amended;
6. All right, title and interest of Borrower in and to the land lying
in the bed of any street, road, avenue, alley or walkway, opened or proposed or
vacated, adjoining the Real Estate;
7. Any and all awards or payments, including, without limit, interest
on any awards or payments, and the right to receive them, which may be made with
respect to the Mortgaged Property as a result of: (a) the exercise of the right
of eminent domain, (b) the alteration of the grade of any street, (c) any loss
of or damage to any building or other improvement on the Real Estate, (d) any
other injury to or decrease in the value of the Mortgaged Property,
-2-
<PAGE> 3
(e) any refund due on account of the payment of real estate taxes, assessments
or other charges levied against or imposed upon the Mortgaged Property, or (f)
any refund of utility deposits or right to any tenant deposit; and
8. All substitutions, replacements, extensions, renewals, additions and
accessories for or to any of the foregoing.
1. COVENANTS AND WARRANTIES. Borrower covenants and warrants to Lender as
follows:
(a) AUTHORITY; NO CONFLICT. Borrower has the power and
authority to execute, deliver and perform its obligations under this Mortgage.
This Mortgage is executed and delivered in conformity with the Ground Lease. The
execution, delivery and performance of this Mortgage by Borrower does not, and
will not violate or conflict with any provision of its organizational or charter
documents or any agreement, court order or consent decree to which Borrower is a
party or by which Borrower may be bound.
(b) TITLE TO MORTGAGED PROPERTY. Borrower has a valid interest
as the tenant under the Ground Lease. The Ground Lease is subject to no liens or
encumbrances of any kind, and is prior to all liens and encumbrances whatsoever
other than the fee interest of the Ground Lessor and the Permitted Liens (as
hereinafter defined). This Mortgage is and will remain a valid and enforceable
first lien on the Mortgaged Property subject only to the Permitted Liens. For
purposes of this Mortgage, "Permitted Liens" shall mean those liens or
encumbrances shown on a loan policy of title insurance accepted in writing by
Lender.
(c) PAYMENT OF INDEBTEDNESS. Borrower will pay and perform the
Indebtedness when due, whether by maturity, acceleration or otherwise.
(d) MAINTENANCE OF MORTGAGED PROPERTY; WASTE. Borrower shall
preserve and maintain the Mortgaged Property in good repair, working order and
condition, excepting ordinary wear and tear, and shall not commit or permit the
commission of waste against the Mortgaged Property. Failure, refusal or neglect
of Borrower to pay any taxes or assessment or any utility rates levied, assessed
or imposed upon the Mortgaged Property, and/or nonpayment of any premiums for
insurance, shall constitute waste, and shall entitle Lender to exercise the
remedies provided in this Mortgage, as well as those afforded by law.
(e) PAYMENT OF TAXES; DISCHARGE OF LIENS.
-------------------------------------
(i) Borrower shall pay when due, and before
any interest, collection fees or penalties accrue, all taxes,
assessments, encumbrances, liens, mortgages, deeds of trust, water or
sewer charges and other charges and impositions (individually and
collectively, "Imposition(s)") levied, assessed or existing with
respect to the Mortgaged Property, or any part of it, and Borrower will
deliver to Lender receipts showing payment of the Imposition(s). If
Borrower fails to pay any of the Imposition(s), Lender, at its option,
may pay such Imposition(s) and the monies paid shall be a lien upon the
Mortgaged Property, added to the amount secured by this Mortgage, and
payable immediately by Borrower to Lender with interest at the higher
of (i) the interest rate, if any, charged by the particular entity
levying or assessing the Imposition(s), or (ii) the highest rate
charged by Lender on any of the Indebtedness (but in either case not to
exceed the maximum interest rate permitted by law).
(ii) Upon the occurrence of an Event of
Default (as hereinafter defined) hereunder, at the option of Lender,
Borrower shall pay to Lender, in advance on the first day of each
month, a pro rata portion (as determined by Lender) of all
Imposition(s) levied, assessed or existing on the Mortgaged Property.
In the event that sufficient funds have been deposited with Lender to
cover the amount of these Imposition(s) when they become due and
payable, Lender shall pay them. In the event that sufficient funds have
not been deposited to cover the amount of these Imposition(s) at least
thirty (30) days prior to the time when they become due and payable,
Borrower shall immediately pay the amount of the deficiency to
3
<PAGE> 4
Lender. Lender shall not be required to keep a separate account or to
pay Borrower any interest on the funds held by Lender for the payment
of the Imposition(s) pursuant to this Section 1(e) or for the payment
of insurance premiums under Section 1(g) below, or on any other funds
deposited with Lender in connection with this Mortgage. The funds on
deposit with Lender are further security for the Indebtedness and if an
Event of Default occurs under this Mortgage, any funds remaining on
deposit with Lender may be applied against the Indebtedness at any time
after the Event of Default occurs, and without notice to Borrower.
(f) SALE OR TRANSFER. Borrower will not sell or transfer all or any
interest in the Mortgaged Property or in Borrower without the prior written
consent of Lender. For purposes of this Section 1(f), a "transfer" of Borrower
shall include, without limitation, any sale (involving either all or any portion
of the equity interest in Borrower or all or substantially all of Borrower's
assets), merger, consolidation, change in control or termination of existence of
Borrower. Notwithstanding the foregoing, Lender's consent shall not be required
for transfers of limited partner interests of Borrower for estate planning
purposes, provided that such transfers, in the aggregate, shall not result in a
change in control of Borrower. In the event ownership of the Mortgaged Property,
or any part, becomes vested in any person(s) other than Borrower, Lender may
deal with and may enter into any contract or agreement with the successor(s) in
interest with reference to this Mortgage in the same manner as with Borrower,
without discharging or otherwise affecting the lien of this Mortgage or
Borrower's obligations under this Mortgage.
(g) INSURANCE.
---------
(i) Borrower shall keep the buildings and all
other improvements on the Mortgaged Property insured for the benefit of
Lender against fire and other hazards and risks. Borrower covenants and
agrees that Borrower will carry and maintain, at its sole cost and
expense, the following types of insurance, in the amounts specified:
(A) comprehensive general liability insurance with initial limits of
not less than One Million Dollars ($1,000,000) for death or injuries to
one person and not less than One Million Dollars ($1,000,000) for death
or injuries to two or more persons in one occurrence, and not less than
One Million Dollars ($1,000,000) for damage to property; (B) fire and
extended coverage insurance on a replacement form with inflation-guard
vandalism and malicious mischief endorsements; (C) rent loss or
business interruption insurance covering a period of not less than
twelve (12) months; (D) flood insurance (if the Mortgaged Property is
situated in an area which is considered a flood risk area by the United
States Department of Housing and Urban Development, and for which flood
insurance is available under the National Flood Insurance Act of 1968,
as amended); (E) builder's risk insurance (if Borrower is constructing
buildings or improvements on the Mortgaged Property) in an amount not
less than 100% of their full insurable replacement cost; (F) an
umbrella policy of not less than $5,000,000; and (G) such other
insurance and in such amounts as may be reasonably required from time
to time by Lender. All insurance shall be in amounts and in forms and
with companies satisfactory to Lender. Borrower shall deliver to Lender
the policies (or, alternatively, originally executed certificates of
insurance therefor) evidencing the required insurance with premiums
fully paid, and with standard mortgagee clauses (making all losses
payable to Lender). Renewals of the required insurance (together with
evidence of premium prepayment for one (1) year in advance) shall be
delivered to Lender at least thirty (30) days before the expiration of
any existing policies. All policies and renewals shall provide that
they may not be canceled or amended without giving Lender thirty (30)
days prior written notice of cancellation or amendment.
(ii) Should Borrower fail to insure or fail to
pay the premiums on any required insurance or fail to deliver the
policies or renewals as provided above, Lender may have the insurance
issued or renewed (and pay the premiums on it for the account of
Borrower) in amounts and with companies and at premiums as Lender deems
appropriate. If Lender elects to have insurance issued or renewed to
insure Lender's interest, Lender shall have no duty or obligation of
any kind to also insure Borrower's interest or to notify Borrower of
Lender's actions. Any sums paid by Lender for insurance, as provided
above, shall be a lien upon the Mortgaged Property, added to the amount
secured by this Mortgage, and payable immediately by Borrower to
Lender, as the case may be, with interest on those sums at the
4
<PAGE> 5
highest rate charged by Lender on any of the Indebtedness (but not to
exceed the maximum interest rate permitted by law).
(iii) In the event of loss or damage to the
Mortgaged Property, the proceeds of all required insurance shall be
paid to Lender. No loss or damage shall itself reduce the Indebtedness.
Lender or any of its employees is each irrevocably appointed
attorney-in-fact for Borrower and is authorized to adjust and
compromise each loss without the consent of Borrower, to collect,
receive and receipt for the insurance proceeds in the name of Lender
and Borrower and to endorse Borrower's name upon any check in payment
of the loss.
(iv) Lender shall apply such proceeds to the
repair and restoration of the Mortgaged Property subject to the
following conditions:
(1) there shall be no Event of Default
existing hereunder;
(2) plans for repair and restoration
shall be reviewed and approved by
Lender, which approval shall not be
unreasonably withheld or delayed;
(3) repair and restoration of the
Mortgaged Property to a viable,
economic unit (as determined by
Lender) can practicably be completed
prior to the Due Date set forth in
the Note;
(4) Borrower shall have deposited with
Lender funds equal to the positive
difference, if any, between the cost
of repair, restoration and
completion, and the amount of the
insurance proceeds; and
(5) disbursements will be made by Lender
or, at Lender's option, a title
insurance company acceptable to
Lender, pursuant to procedures
necessary or appropriate to keep the
Mortgaged Property free of
mechanics' liens and to ensure that
funds are properly applied.
Provided that no Event of Default exists, if there are insurance
proceeds in the amount of Twenty-Five Thousand Dollars ($25,000) or
less remaining after the repair and restoration of the Mortgaged
Property as required hereunder, such proceeds shall be paid to
Borrower. Provided that no Event of Default exists, if there are
insurance proceeds in excess of Twenty-Five Thousand Dollars ($25,000)
remaining after the repair and restoration of the Mortgaged Property as
required hereunder, such proceeds shall be applied toward payment of
the Indebtedness (or any portion thereof) without premium, whether or
not then due or payable, in whatever order of maturity as Lender may
elect. Application of proceeds by Lender toward later maturing
installments of the Indebtedness shall not excuse Borrower from making
the regularly scheduled installment payments nor shall such application
extend or reduce the amount of any of these payments.
(v) Notwithstanding Section 1(g)(iv) above, if
a substantial portion (fifty percent [50%] or more) of the Mortgaged
Property is damaged or destroyed during the last twenty-four (24)
months of the term of the Note, and provided that no Event of Default
then exists hereunder, either Borrower or Lender may elect not to
rebuild and to apply the insurance proceeds toward payment of the
Indebtedness (or any portion thereof) without premium, whether or not
then due and payable, in whatever order of maturity as Lender may
elect. Application of proceeds by Lender toward later maturing
installments of the Indebtedness shall not excuse Borrower from making
the regularly scheduled installment payments nor shall such application
extend or reduce the amount of any of these payments.
(vi) In the event of a foreclosure of this
Mortgage, or the giving of a deed in lieu of foreclosure, the purchaser
or grantee of the Mortgaged Property shall succeed to all of the rights
of
5
<PAGE> 6
Borrower under the insurance policies including, without limit, any
right to unearned premiums and to receive the proceeds.
(vii) Upon the occurrence of an Event of
Default hereunder, at the option of Lender, Borrower shall pay to
Lender, in advance on the first day of each month, a pro rata portion
of the annual premiums due (as estimated by Lender) on the required
insurance. In the event that sufficient funds have been deposited with
Lender to cover the amount of the insurance premiums when the premiums
become due and payable, Lender shall pay the premiums. In the event
that sufficient funds have not been deposited with Lender to pay the
insurance premiums at least thirty (30) days prior to the time when
they become due and payable, Borrower shall immediately pay the amount
of the deficiency to Lender.
(h) COMPLIANCE WITH LAW AND OTHER MATTERS. Borrower will
comply with all federal, state and local laws, ordinances, rules, regulations
and restrictions relating to the ownership, use, occupancy and operation of the
Mortgaged Property. Borrower shall be solely responsible to apply for and secure
any building permit or permission of any duly constituted authority for the
purpose of doing any of the things which Borrower is required or permitted to do
under the provisions of this Mortgage. Further, Borrower will comply with,
perform Borrower's obligations under, and enforce the obligations of all other
parties to all building and use restrictions, ground leases, leases, reservation
and/or purchase agreements, condominium documents and/or other instruments
affecting or relating to the use and/or occupancy of the Mortgaged Property.
(i) ALTERATION OF IMPROVEMENTS.
---------------------------
(i) Without the prior written consent of
Lender, Borrower will not remove any building, structure or other
improvement forming part of the Mortgaged Property.
(ii) Borrower may from time to time make
alterations, replacements, additions, changes, and improvements
(collectively, "Alterations") in and to the Mortgaged Property as
Borrower may find necessary or convenient for its purposes; provided,
however, that no such Alterations shall decrease the value of the
Mortgaged Property. All work with respect to any Alteration shall be
done in a good and workmanlike manner by properly qualified and
licensed personnel, and such work shall be diligently prosecuted to
completion.
(iii) Borrower shall pay the costs of any
Alterations done on the Mortgaged Property, and shall keep the
Mortgaged Property free and clear of liens of any kind. Borrower shall
indemnify and defend Lender from and against any liability, loss,
damage, costs, attorneys' fees, and any other expense incurred as a
result of claims of lien by any person performing work or furnishing
materials or supplies for Borrower or any person claiming under
Borrower.
(iv) No Alteration shall be undertaken until
Borrower shall have procured and paid for all required permits and
authorizations of all municipal departments and governmental
subdivisions having jurisdiction. Any Alteration involving an estimated
cost of more than Twenty-Five Thousand and 00/100 Dollars ($25,000.00)
shall be conducted under the supervision of a licensed architect or
engineer selected by Borrower and satisfactory to Lender and shall be
made in accordance with detailed plans and specifications ("Plans and
Specifications") and cost estimates prepared by such architect or
engineer and approved in writing in advance by Lender. Any Alteration
shall be made promptly and in a good workmanlike manner and in
compliance with all applicable permits and authorizations and building
and zoning laws and all laws and in accordance with the orders, rules
and regulations of the Board of Fire Insurance Underwriters and any
other body hereafter exercising similar functions having or asserting
jurisdiction over the Mortgaged Property.
6
<PAGE> 7
(v) In connection with any Alteration
involving an estimated cost in excess of Twenty-Five Thousand and
00/100 Dollars ($25,000.00), Lender shall have the right to require
Borrower to post a bond or other security reasonably satisfactory to
Lender to insure the completion of such Alteration.
(j) OBLIGATION TO REBUILD.
----------------------
(i) If any portion of the Mortgaged Property
is damaged or destroyed by fire or other casualty, subject to Section
1(g)(iv) above, Borrower shall, at its sole cost and expense, forthwith
repair, restore, rebuild or replace the damaged or destroyed
improvements, fixtures or equipment, and complete the same as soon as
reasonably possible, to the condition they were in prior to such damage
or destruction, except for such changes in design or materials as may
then be required by law or are approved by Lender in Lender's
reasonable discretion. Lender, in such event, shall, to the extent the
proceeds of the insurance are made available to Lender, reimburse
Borrower for the costs of making such repairs, restoration, rebuilding
and replacements on such terms as Lender may reasonably require. To the
extent, if any, that the proceeds of insurance made available as
aforesaid are insufficient to pay the entire cost of making such
repairs, restoration, rebuilding and replacements, Borrower shall pay
the amount by which such costs exceed the insurance proceeds made
available as aforesaid.
(ii) Notwithstanding the foregoing, in the
event that Borrower fails to commence the repair or restoration of the
Mortgaged Property pursuant to this Section 1(j) within sixty (60) days
after the casualty, or if Borrower abandons or fails to diligently
pursue completion of such repair or restoration (as determined in
Lender's reasonable judgment), then Lender shall be entitled to apply
the insurance proceeds first towards reimbursement of all costs and
expenses of Lender in collecting the proceeds (including, without
limit, court costs and reasonable attorneys' fees), and then toward any
payment of the Indebtedness or any portion of it, whether or not then
due or payable and in whatever order of maturity as Lender may elect.
Application of proceeds by Lender toward later maturing installments of
the Indebtedness shall not excuse Borrower from making the regularly
scheduled installment payments nor shall such application extend or
reduce the amount of any of these payments.
(k) RECORDING. Borrower will cause this Mortgage, any
supplemental or restated mortgage and any financing and continuation statements
required by the applicable Uniform Commercial Code to be recorded and filed at
Borrower's expense in such manner and in such place as may, in Lender's opinion,
be necessary or proper.
(l) ADDITIONAL ASSURANCES. Borrower will execute and deliver
additional instruments and take additional actions as Lender may reasonably
request to carry out the terms and conditions of this Mortgage.
(m) BOOKS AND RECORDS; INSPECTION RIGHTS. Borrower will at all
times maintain accurate and complete books and records and copies of all
building and use restrictions, ground leases, leases, reservation and/or
purchase agreements, condominium documents, contracts and/or other instruments
with respect to the Mortgaged Property. Lender may inspect and make copies of
those books and records and any other data relating to the Mortgaged Property.
Lender may inspect the Mortgaged Property at such reasonable times as Lender
shall determine. Borrower will promptly provide to Lender reports concerning the
income, expenses and financial and other conditions of the Mortgaged Property as
may be required from time to time by Lender.
(n) ENVIRONMENTAL REPRESENTATION, WARRANTY AND
INDEMNIFICATION. Notwithstanding anything in this Mortgage to the contrary,
Borrower represents, covenants and warrants to Lender as follows:
(i) At all times since Borrower has acquired
any interest or rights in the Mortgaged Property, whether through
lease, land contract, deed or otherwise and, to Borrower's knowledge,
after due inquiry (including, without limitation, the Phase I
Environmental Assessment dated _______________, 199__, prepared by
Innovative Environmental Solutions, Inc., and identified as Job No.
7
<PAGE> 8
__________ ["Assessment"]), at all times prior to Borrower's
acquisition of such interest or rights in the Mortgaged Property: there
are no and have been no violations of the Relevant Environmental Laws
(as hereinafter defined) at the Mortgaged Property and no consent
orders have been entered with respect to the Mortgaged Property; there
are no and have been no Hazardous Materials (as hereinafter defined) or
Asbestos (as hereinafter defined) either at, upon, under or within, or
discharged or emitted at or from, the Mortgaged Property; no Hazardous
Materials or Asbestos have flown, blown or otherwise become present at
the Mortgaged Property from neighboring land; and no Hazardous
Materials or Asbestos have been removed from the Mortgaged Property.
(ii) Borrower, after due inquiry (including,
without limitation, the Assessment), is not aware of any claims of
litigation, and has not received any communication, concerning the
presence or possible presence of Hazardous Materials or Asbestos at the
Mortgaged Property or concerning any violation or alleged violation of
the Relevant Environmental Laws respecting the Mortgaged Property.
Borrower shall promptly notify Lender of any such claims and shall
furnish Lender with a copy of any such communications received after
the date of this Mortgage.
(iii) Borrower shall ensure that the Mortgaged
Property complies in all respects with the Relevant Environmental Laws
and shall notify Lender promptly and in reasonable detail in the event
that Borrower becomes aware of the presence of Hazardous Materials or
Asbestos or a violation of the Relevant Environmental Laws at the
Mortgaged Property.
(iv) Should Borrower use or permit the
Mortgaged Property to be used or maintained so as to subject Borrower,
Lender or the use of the Mortgaged Property to a claim of violation of
the Relevant Environmental Laws (unless contested in good faith by
appropriate proceedings satisfactory to Lender), Borrower shall
immediately remedy and fully cure, at its own cost and expense, any
conditions arising therefrom.
(v) Borrower shall pay immediately when due
the cost of compliance with the Relevant Environmental Laws. Further,
Borrower shall keep the Mortgaged Property free of any lien imposed
pursuant to the Relevant Environmental Laws.
(vi) In the event that Borrower fails to
comply with the requirements of clauses (i) through (v) in this Section
1(n), after notice to Borrower and the earlier of the expiration of any
applicable cure period under this Mortgage or the expiration of the
cure period permitted under the Relevant Environmental Laws, if any,
Lender may, but in no event shall be obligated to, exercise its right
to do one or more of the following: (A) elect that such failure
constitutes an Event of Default under this Mortgage; and/or (B) take
any and all actions, at Borrower's expense, that Lender deems necessary
or desirable to cure such failure of compliance. Any costs incurred
pursuant to this clause (vi) or clause (vii) in this Section 1(n),
shall become immediately due and payable without notice and with
interest thereon at a rate equal to the highest interest rate charged
on the Indebtedness (but not to exceed the maximum interest rate
permitted by law), and such amount, including interest, shall, if
incurred prior to the foreclosure of this Mortgage or the delivery of a
deed in lieu of foreclosure, be added to the Indebtedness and shall be
secured by this Mortgage.
(vii) Lender shall not be liable for and
Borrower shall immediately pay to and indemnify, defend and hold Lender
harmless from and against, all loss, cost, liability, damage and
expense (including, without limit, attorneys' fees and costs incurred
in the investigation, defense and settlement of claims) that Lender may
suffer or incur (as holder of this Mortgage, as mortgagee in possession
or as successor in interest to Borrower as owner of the Mortgaged
Property by virtue of foreclosure or acceptance of a deed in lieu of
foreclosure) as a result of or in connection in any way with Borrower's
failure to comply with the terms and provisions of this Section 1(n).
8
<PAGE> 9
(viii) The provisions of clauses (i) through
(vii) of this Section 1(n) shall survive the repayment of the
Indebtedness and the performance of all duties and obligations related
thereto, the foreclosure of this Mortgage, the delivery of a deed in
lieu of foreclosure and/or the discharge of this Mortgage.
"Relevant Environmental Laws" shall mean all applicable
federal, state and local laws, rules, regulations, orders, judicial
determinations and decisions or determinations by any judicial,
legislative or executive body of any governmental or quasi-governmental
entity, whether in the past, the present or the future, with respect
to: (i) the installation, existence or removal of, or exposure to,
Asbestos on the Mortgaged Property; (ii) the existence on, discharge
from, or removal from the Mortgaged Property of Hazardous Materials;
and/or (iii) the effects on the environment of the Mortgaged Property
or of any activity now, previously, or hereafter conducted on the
Mortgaged Property.
"Asbestos" shall have the meanings provided under the Relevant
Environmental Laws, and shall include, without limitation, asbestos
fibers and friable asbestos, as such terms are defined under the
Relevant Environmental Laws.
"Hazardous Materials" shall mean any of the following (as
defined by the Relevant Environmental Laws): solid wastes; toxic or
hazardous substances, wastes, or contaminants (including, without
limit, polychlorinated biphenyls, paint containing lead, and/or urea
formaldehyde foam insulation; and discharges of sewage or effluent.
(o) REPORTING REQUIREMENTS. Borrower hereby covenants and
agrees to deliver to Lender or cause Meritage Hospitality Group Inc., a Michigan
corporation ("MHG"), to deliver the following:
(i) Management prepared and certified
quarterly financial statements for Borrower within forty-five (45) days
after the end of the first three (3) quarters of each fiscal year of
Borrower.
(ii) Annual financial statements for MHG
audited by an independent certified public accountant, which annual
financial statements will include a consolidating statement on
Borrower, within one hundred twenty (120) days after the end of each
fiscal year of Borrower.
(iii) Management prepared and certified unit
level profit and loss statements relating to the operation of the
Wendy's franchised restaurant operation located on the Mortgaged
Property ("Franchised Operation") within forty-five (45) days after the
end of each fiscal year of Borrower.
Such financial statements shall be true and correct in all respects,
shall be prepared in accordance with generally accepted accounting principles,
and shall fairly represent the respective financial conditions of the subjects
thereof as of the respective dates thereof. If Borrower's financial statements
are prepared on a consolidated basis, Borrower hereby covenants and agrees to
prepare financial statements specifically relating to the operation of the
Franchised Operation. At the request of Lender, Borrower shall obtain the
consent of Borrower's accountant(s) to the inclusion of Borrower's most recent
financial statement in any regulatory filing or report to be filed by Lender.
(p) INDEMNIFICATION. Borrower shall appear in and defend any
suit, action or proceeding that might in any way and in the sole judgment of
Lender affect the value of the Mortgaged Property, the validity, enforceability
and priority of this Mortgage or the rights and powers of Lender. Borrower
shall, at all times, indemnify, defend, hold harmless and on demand, reimburse
Lender for any and all loss, damage, expense or cost, including cost of evidence
of title and attorneys' fees, arising out of or incurred in connection with any
such suit, action or proceeding, and the sum of such expenditures shall be
secured by this Mortgage and shall bear interest at the highest rate accruing on
the Indebtedness, not to exceed the maximum rate permitted by law, and shall be
due and
9
<PAGE> 10
payable on demand. Borrower shall pay cost of suit, cost of evidence of title
and reasonable attorneys' fees in any proceeding or suit, including appellate
proceedings, brought by Lender to foreclose or otherwise enforce this Mortgage.
Notwithstanding the foregoing, Borrower shall not be required to indemnify
Lender against actions or inactions caused by Lender's negligence or misconduct.
(q) ESTOPPEL CERTIFICATES. Borrower shall, within ten (10)
days after written request therefor from Lender, furnish to Lender, or such
other persons or entities as Lender shall designate, a duly acknowledged written
statement setting forth the amount of the debt secured by this Mortgage, and
stating either that no setoffs or defenses exist against such debt, or, if such
setoffs or defenses are alleged to exist, the nature thereof, that no Event of
Default then exists, and no event has occurred, which with notice or the passage
of time, or both would constitute an Event of Default.
(r) FRANCHISE AGREEMENT. Borrower is a franchisee in good
standing with Wendy's International, Inc., an Ohio corporation ("Franchisor"),
and is not in default under its franchise agreement with Franchisor relating to
the Franchised Operation ("Franchise Agreement"). Borrower agrees to comply with
the terms of the Franchise Agreement and to take all actions necessary or
required to keep the Franchise Agreement in full force and effect. Borrower will
not encumber its rights under the Franchise Agreement except to Lender. Borrower
agrees to promptly provide Lender with a copy of any notice to Borrower of a
default under the Franchise Agreement. Further, Borrower agrees to promptly
provide Lender with a copy of any notice to Borrower of the existence of any
breach which, with notice or passage of time, or both, would entitle Franchisor
to terminate the Franchise Agreement.
(s) FIXED CHARGE COVERAGE RATIO. Borrower shall maintain a
Fixed Charge Coverage Ratio (as hereinafter defined) of not less than 1.2 to 1.0
for Borrower's business operations generally and not less than 1.2 to 1.0 for
the Franchised Operation. "Fixed Charge Coverage Ratio" shall mean Borrower's
Operating Cash Flow divided by its Fixed Charges (each as defined below). The
Fixed Charge Coverage Ratios shall be calculated by Borrower from time to time
and dates as determined by Lender, and Borrower shall submit such information as
Lender may require to confirm and approve Borrower's calculation of the Fixed
Charge Coverage Ratios.
(i) "Fixed Charges" shall mean the sum of the following items
set forth on a pro forma basis separately stated for both Borrower's
business operations generally and for the Franchised Operation, in each
case, for the applicable twelve (12) month operating period:
(A) current portion of long-term debt (defined as the
current portion of long-term debt due to mature during the next twelve
(12) month operating period, as stated in Borrower's applicable
financial statement, plus, if not already included therein, the current
portion of principal payments imputed on all capital leases), plus
(B) interest expense (defined as the interest expense
as stated on Borrower's applicable financial statement, plus, if not
already included therein, the interest expense imputed on all capital
leases), plus
(C) the current portion of operating leases (defined
as the amount of rent due under operating leases for the next twelve
(12) month operating period).
(ii) "Operating Cash Flow" shall mean the sum or subtraction
of the following items separately stated for both Borrower's business
operations generally and for the Franchised Operation, in each case,
for the applicable prior twelve (12) month operating period:
(A) net income (defined as the net income stated on
Borrower's applicable financial statement), plus
10
<PAGE> 11
(B) depreciation and amortization (defined as the
depreciation and amortization expense as stated on Borrower's
applicable financial statement), plus
(C) interest expense (as defined above), plus
(D) operating lease expense (defined as the amount of
rental expense paid under operating leases, as stated on Borrower's
applicable financial statements), plus or minus
(E) non-recurring items (defined as items which, when
computing cash flow, should in Lender's reasonable business judgment,
be added back to or subtracted from net income to normalize results).
(t) PARTNERSHIP DISTRIBUTIONS. Borrower covenants and agrees
that Borrower shall not make any distribution(s) as defined under Section 8 of
that certain Agreement of Limited Partnership of WM Limited Partnership - 1998,
dated as of January 30, 1998, between MCC Food Service, Inc., a Michigan
corporation and MHG, if such distribution(s) at the time of the distribution
would cause the Fixed Charge Coverage Ratio for Borrower's business operations
generally to be less than 1.2 to 1.0.
(u) GROUND LEASE. Notwithstanding anything in this Mortgage to
the contrary, Borrower represents, covenants and warrants to Lender as follows:
(i) Borrower has delivered to Lender a true,
accurate and complete copy of the Ground Lease. The Ground Lease is in
full force and effect, unmodified by any writing or otherwise. Borrower
is in possession of the leasehold estate, and Borrower's right to
possession is not being disputed. All rent, additional rent and other
charges reserved under the Ground Lease have been paid to the extent
payable to the date hereof. Borrower has not delivered or received any
notices of default and is not in default under the terms of the Ground
Lease, and there are no circumstances which, with the passage of time
or the giving of notice or both, would constitute an event of default
thereunder. To the best of Borrower's knowledge, the Ground Lessor is
not in default under any of the terms or provisions of the Ground Lease
on the part of the Ground Lessor to be observed or performed.
(ii) Borrower shall promptly pay, when due and
payable, the rent, additional rent and other charges payable under the
Ground Lease. Borrower shall promptly and faithfully observe, perform
and comply with all the terms, covenants and provisions of the Ground
Lease on its part to be observed, performed and complied with at the
time set forth therein (including applicable cure periods). Borrower
shall not permit, suffer or refrain from doing anything the result of
which could be a default or breach of any of the terms of the Ground
Lease. Borrower shall not terminate, surrender, modify, amend or in any
way alter or permit the alteration of the terms of the Ground Lease or
waive, excuse or discharge any of the obligations of the Ground Lessor
without the prior written consent of Lender, which consent shall not be
unreasonably withheld; and shall enforce the obligations of the Ground
Lessor under the Ground Lease to the end that Borrower may enjoy all of
the rights granted to it under the Ground Lease.
(iii) Borrower shall promptly notify Lender in
writing of any default by Borrower under the Ground Lease and shall
promptly deliver to Lender copies of each notice of default and all
other notices and communications received by Borrower in connection
therewith. Borrower shall furnish to Lender copies of such information
and evidence as Lender may reasonably require concerning Borrower's due
observance, performance and compliance with the terms, covenants and
provisions of the Ground Lease.
(iv) In the event of any default by Borrower
in the performance of any of its obligations under the Ground Lease,
including, but not limited to, any default in the payment of rent and
other charges payable by Borrower under the Ground Lease, then, in each
and every case, Lender, at its option and without notice, and without
curing the resulting default between Borrower and Lender and without
11
<PAGE> 12
waiving Lender's right of foreclosure or any other right or remedy of
Lender hereunder or otherwise, cure or cause to be cured the default
and otherwise exercise any and all rights of Borrower thereunder in the
name and on behalf of Borrower within thirty (30) days after receipt of
notice of written notice of such default from Ground Lessor. Borrower
shall after written demand reimburse Lender for all advances made and
expenses incurred by Lender in curing any such default (including
reasonable attorney's fees and costs), together with interest thereon
at the applicable default rate.
(v) If the Ground Lease is canceled or
terminated, and if Lender or its nominees shall acquire an interest in
any new lease of the Mortgaged Property, Borrower shall have no right,
title or interest in and to the new lease or the leasehold estate
created by such new lease.
(vi) So long as the Indebtedness secured by
this Mortgage remains unpaid and unless Lender otherwise consents in
writing, there shall be no merger of the Ground Lease or the leasehold
estate created thereby with the fee estate in the Mortgaged Property by
virtue of any of those interests coming into common ownership.
(vii) Borrower will not sell, transfer or
assign the Ground Lease or enter into any sublease of the Mortgaged
Property, or any rents, issues or profits issuing from the Mortgaged
Property without the prior written consent of Lender.
(viii) Borrower shall not consent to the
subordination of the Ground Lease other than pursuant to the
circumstances set forth under Section 12 of the Ground Lease.
(ix) Borrower will, within ten (10) days after
written demand from Lender, use its best efforts to obtain from the
Ground Lessor and deliver to Lender a certificate stating that the
Ground Lease is in full force and effect, is unmodified, that no notice
of termination thereon has been served on Borrower as tenant thereof,
stating the date to which the net rent has been paid and stating
whether or not there are any defaults thereunder and specifying the
nature of such defaults, if any.
(x) Borrower will furnish to Lender, upon
Lender's reasonable demand, proof of payment of all items which are
required to be paid by Borrower pursuant to the Ground Lease and proof
of payment of which is required to be given to the Ground Lessor under
the Ground Lease.
(xi) The generality of the provisions of this
Section shall not be limited by other provisions of this Mortgage
setting forth particular obligations of Borrower which are also
required of Borrower as tenant under the Ground Lease.
(xii) Throughout the term of the Ground Lease,
Borrower shall exercise all options to extend or renew the term of the
Ground Lease not less than thirty (30) days prior to the last day upon
which any such option may be exercised, unless Lender otherwise agrees
in writing. Borrower shall send Lender a copy of the notice of exercise
concurrently with Borrower's exercise of the option. Upon the failure
of Borrower to so elect or renew the Ground Lease as aforesaid (and the
failure of Lender to otherwise agree in writing), Lender shall have the
right, but not the obligation, to exercise such extension or renewal
options on behalf of Borrower, and Borrower hereby appoints Lender (or
any of its employees) as its attorney-in-fact for the purpose of
exercising such extension or renewal option.
2. APPLICATION OF CONDEMNATION AWARDS.
-----------------------------------
(a) CONDEMNATION AWARD. Any eminent domain or condemnation
proceeds shall be paid directly to Lender and applied toward reimbursement of
all Lender's costs and expenses incurred in connection with
12
<PAGE> 13
collecting the award (including, without limit, court costs and reasonable
attorneys' fees), and the balance applied upon the Indebtedness whether or not
then due or payable in whatever manner Lender deems advisable. Application by
Lender of any condemnation award or portion of it toward the last maturing
installments of the Indebtedness shall not excuse Borrower from making the
regularly scheduled payments nor extend or reduce the amount of these payments.
(b) APPOINTMENT OF LENDER. Lender and each of its officers is
irrevocably appointed (which appointment is coupled with an interest)
attorney-in-fact for Borrower (with power of substitution) and is authorized to
receive, receipt for, discharge and satisfy any condemnation award or judgment,
whether joint or several, on behalf of Borrower, Borrower's legal
representatives, successors and assigns; provided, however, that Lender shall
not be liable for failure to collect any condemnation award.
3. ADDITIONAL SECURITY.
--------------------
(a) SECURITY INTEREST.
------------------
(i) This Mortgage, as to any Equipment,
fixtures, accounts, general intangibles and other personal property
included within the definition of Mortgaged Property (collectively,
"Personal Property"), shall constitute a security agreement within the
meaning of the Uniform Commercial Code and Borrower grants to Lender a
security interest in the Personal Property of Borrower. Borrower
agrees, upon request of Lender, to promptly furnish a list of Personal
Property owned by Borrower and subject to this Mortgage and, upon
request by Lender, to immediately execute, deliver and/or file any
amendments to this Mortgage, any separate security agreement and any
financing statements to evidence and perfect the security interest in
such Personal Property contemplated by this Section. Lender and each of
its officers is irrevocably appointed (which appointment is coupled
with an interest) attorney-in-fact for Borrower (with power of
substitution) and each is authorized to execute, deliver and/or file
any of such amendments to this Mortgage, any separate security
agreement and any financing statements.
(ii) Upon the occurrence of any Event of
Default under this Mortgage, Lender shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code or
otherwise provided by law or by this Mortgage including, without limit,
the right to require Borrower to assemble the Personal Property and
make it available to Lender at a place to be designated by Lender which
is reasonably convenient to such parties, the right to collect all
accounts receivable, the right to take possession of the Personal
Property with or without demand and with or without process of law and
the right to sell and dispose of it and distribute the proceeds
according to law. Borrower agrees that any requirement of reasonable
notice, if any, shall be met if Lender sends notice to Borrower at
least five (5) days prior to the date of sale, disposition or other
event giving rise to the required notice. Borrower agrees that the
proceeds of any disposition of the Personal Property may be applied by
Lender first to Lender's reasonable expenses in connection with the
disposition including, without limit, reasonable attorneys' fees and
legal expenses, and then to payment of the Indebtedness.
(b) LICENSES AND PERMITS. As additional security for the
Indebtedness and to the extent permitted by their terms, Borrower assigns to
Lender all of Borrower's rights and interest in all licenses or permits
affecting the Mortgaged Property. This assignment shall not impose upon Lender
any obligations with respect to any license or permit. Borrower shall not cancel
or amend any of the licenses or permits assigned (nor permit any of them to
terminate if they are necessary or desirable for the operation of the Mortgaged
Property) without first obtaining the written approval of Lender.
4. EVENTS OF DEFAULT AND REMEDIES.
-------------------------------
(a) EVENTS OF DEFAULT. Any of the following events shall, for
purposes of this Mortgage, constitute an "Event of Default":
13
<PAGE> 14
(i) Failure by Borrower to pay any amount
owing on or with respect to the Indebtedness when due, whether by
maturity, acceleration or otherwise, which failure continues for three
(3) days after the date of written notice to Borrower from Lender of
such default.
(ii) Any failure by Borrower to comply with
any of the non-monetary terms, provisions, warranties or covenants of
the Note, this Mortgage or the other Loan Documents, which failure
continues for fifteen (15) days after the date of written notice to
Borrower from Lender of such default.
(iii) Institution of foreclosure proceedings
or other exercise of rights and remedies under any mortgage, deed of
trust or other lien against the Mortgaged Property (or any portion
thereof).
(iv) Insolvency of Borrower or the admission
in writing of Borrower's inability to pay debts as they mature.
(v) Any statement, representation or
information made or furnished by or on behalf of Borrower to Lender in
connection with or to induce Lender to provide or advance any of the
Indebtedness shall prove to be false or materially misleading when made
or furnished.
(vi) Institution of bankruptcy,
reorganization, insolvency or other similar proceedings by or against
Borrower, unless, in the case of a petition filed against Borrower the
same is dismissed within sixty (60) days) of the date of filing.
(vii) The issuance or filing of any
attachment, levy, garnishment or the commencement of any related
proceeding or the commencement of any other judicial process upon or in
respect to Borrower or the Mortgaged Property.
(viii) Sale or other disposition by Borrower
of any substantial portion of its assets or property.
(ix) Death, dissolution, merger,
consolidation, termination of existence, insolvency, business failure
or assignment for the benefit of creditors of or by Borrower.
(x) Any failure by Borrower to pay when due
any indebtedness (other than to Lender) or any failure in the
observance or performance of any term, covenant or condition contained
in any document evidencing, securing or relating to such indebtedness,
which failure continues beyond any applicable cure period.
(xi) Receipt by Borrower of a notice of
termination of the Franchise Agreement.
(xii) If the Note, this Mortgage and the other
Loan Documents have not been assigned to the Trust, the default by
Borrower which continues beyond any applicable grace or cure period
under the Retained Obligations; provided, however, if the Note, this
Mortgage and the other Loan Documents are assigned to the Trust, this
clause (xii) shall be of no force or effect during the term of such
assignment.
(xiii) In the event that the Note, this
Mortgage and the other Loan Documents are assigned to the Trust, the
default by Borrower which continues beyond any applicable grace or cure
period under the Trust Obligations.
14
<PAGE> 15
(xiv) Any default by Borrower under the Ground
Lease which is not cured within any applicable cure period set forth in
such Ground Lease.
(b) REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of any
Event of Default, Lender shall have the following rights and remedies:
(i) Declare all or part of the Indebtedness
immediately due and payable.
(ii) Demand that Borrower immediately
surrender the possession of the Mortgaged Property to Lender, and
Borrower consents to Lender taking possession of the Mortgaged Property
and the books and records relating to the Mortgaged Property.
(iii) Lease the Mortgaged Property and collect
rents for the account of Borrower.
(iv) Foreclose the interest of Borrower in the
Mortgaged Property by action pursuant to applicable law. Commencement
of such an action shall be deemed a declaration of acceleration
pursuant to clause (i) above.
(v) Sell or cause to be sold the Mortgaged
Property and convey the same to the purchaser thereof pursuant to the
authority and power hereby granted and the provisions of M.C.L.A.
Section 600.3201 ET SEQ., as amended, pertaining to foreclosure by
advertisement, which statute does not require that Borrower be
personally notified of such sale or that a judicial hearing be held
before the sale can be conducted. Lender may direct the sale of the
Mortgaged Property to be in one or several parcels and in any order as
Lender may elect in its sole discretion, at such time and place, upon
such terms and after such notice as may be required or permitted by
applicable law.
(vi) Collect and receive all rents, profits
and other amounts that are due or shall subsequently become due under
the terms of any leases, land contract, or other agreements by which
Borrower is leasing or selling the Mortgaged Property or any interest
in the Mortgaged Property. Lender may also exercise any other rights or
remedy of Borrower under any such lease, land contract or other
agreement. However, Lender shall have no obligation to make any demand
or inquiry as to the nature or sufficiency of any payment received or
to present or file any claim or take any other action to collect or
enforce the payment of any amounts to which Lender may become entitled
under this Mortgage. Similarly, Lender shall not be liable for any of
Borrower's obligations under any such lease, land contract or other
agreement.
(vii) Exercise all rights, remedies and
privileges afforded a "secured party" under Article 9 of the Michigan
Uniform Commercial Code with respect to any of the Mortgaged Property
which is personal property.
(viii) Enter upon the Mortgaged Property and
take other actions as Lender deems appropriate to perform Borrower's
obligations under this Mortgage to inspect, repair, protect or preserve
the Mortgaged Property, to investigate or test for the presence of any
Hazardous Materials and/or to appraise the Mortgaged Property.
(ix) Pursue any other available remedy at law
or equity to enforce the payment of the Indebtedness.
15
<PAGE> 16
(c) REMEDIES GENERALLY.
-------------------
(i) WARNING: THIS MORTGAGE CONTAINS A POWER OF
SALE AND UPON DEFAULT MAY BE FORECLOSED BY ADVERTISEMENT. IN
FORECLOSURE BY ADVERTISEMENT AND THE SALE OF THE MORTGAGED PROPERTY IN
CONNECTION THEREWITH, NO HEARING IS REQUIRED AND THE ONLY NOTICE
REQUIRED IS TO PUBLISH NOTICE IN A LOCAL NEWSPAPER AND TO POST A COPY
OF THE NOTICE ON THE MORTGAGED PROPERTY.
(ii) WAIVER: THE BORROWER WAIVES ALL RIGHTS
UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND UNDER THE
CONSTITUTION AND LAWS OF THE STATE OF MICHIGAN TO A HEARING PRIOR TO
SALE IN CONNECTION WITH ANY FORECLOSURE BY ADVERTISEMENT AND ALL NOTICE
REQUIREMENTS EXCEPT AS SET FORTH IN THE STATUTE PROVIDING FOR
FORECLOSURE BY ADVERTISEMENT.
(iii) All remedies provided for in Section
4(b) shall be available to the extent not prohibited by law, and Lender
shall have the unrestricted right to exercise any summary proceeding
available at law or in equity in connection therewith. Each remedy
shall be cumulative and additional to any other remedy of Lender at
law, in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default or Event of Default shall
impair any such right or power or shall be construed to be a waiver of,
or acquiescence in, any such default or Event of Default.
(iv) Lender may waive any Event of Default and
may rescind any declaration of maturity of payments on the
Indebtedness. In case of such waiver or recision, Borrower and Lender
shall be restored to their respective former positions and rights under
this Mortgage. Any waiver by Lender of any default or Event of Default
shall be in writing and shall be limited to the particular default
waived and shall not be deemed to waive any other default.
(d) RECEIVERS. Upon an Event of Default and commencement of
foreclosure proceedings to enforce the rights of Lender under this Mortgage, or
upon the commission of waste against the Mortgaged Property, Lender shall be
entitled to the appointment of a receiver or receivers of the Mortgaged Property
and of the rents, issues and profits of the Mortgaged Property, pending such
proceedings and without notice to Borrower.
(e) APPLICATION OF PROCEEDS. Any proceeds received by Lender
from the exercise of remedies pursuant to Section 4(b) of this Mortgage
shall be applied as follows:
(i) First, to pay all costs and expenses
incidental to the leasing, foreclosure, sale or other disposition of
the Mortgaged Property. These costs and expenses shall include, without
limit, any costs and expenses incurred by Lender (including, without
limit, attorneys' fees and disbursements), and any taxes and
assessments or other liens and encumbrances prior to the lien of this
Mortgage.
(ii) Second, to all sums expended or incurred
by Lender directly or indirectly in carrying out any term, covenant or
agreement under this Mortgage or any related document, together with
interest as provided in this Mortgage.
(iii) Third, to the payment of the
Indebtedness. If the proceeds are insufficient to fully pay the
Indebtedness, then application shall be made first to late charges and
interest accrued and unpaid, then to any applicable prepayment
premiums, then to unpaid fees and other charges and then to the
outstanding principal balance.
16
<PAGE> 17
(iv) Fourth, any surplus remaining shall be
paid to Borrower or to whomsoever may be lawfully entitled.
(f) MARSHALLING. In the event of foreclosure of this Mortgage
or the enforcement by Lender of any other rights and remedies under this
Mortgage, Borrower waives any right in respect to marshalling of assets which
secure the Indebtedness or to require Lender to pursue its remedies against any
other assets or any other party which may be liable for any of the Indebtedness.
(g) FURTHER ACTIONS. Promptly upon the request of Lender,
Borrower shall execute, acknowledge and deliver any and all further conveyances,
documents, mortgages, deeds of trust, security agreements, financing statements
and assurances, and do or cause to be done all further acts as Lender may
require to confirm and protect the lien of this Mortgage or otherwise to
accomplish the purposes of this Mortgage.
(h) ATTORNEYS FEES. Any reference in this Mortgage to
attorneys' fees shall refer to fees, charges, costs and expenses of in-house and
outside attorneys and paralegals, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise. All costs, expenses and fees of any nature for which Borrower is
obligated to reimburse or indemnify Lender are part of the Indebtedness secured
by this Mortgage and are payable upon demand, unless expressly provided
otherwise, with interest until repaid at the highest rate charged on any of the
Indebtedness (but not to exceed the maximum rate permitted by law).
5. MISCELLANEOUS.
--------------
(a) GOVERNING LAW. This Mortgage shall be construed in
accordance with the laws of the State of Michigan.
(b) SUCCESSORS AND ASSIGNS. This Mortgage shall be binding
upon the successors and assigns of Borrower including, without limit, any debtor
in possession or trustee in bankruptcy for Borrower, and the rights and
privileges of Lender under this Mortgage shall inure to the benefit of its
successors and assigns. This shall not be deemed a consent by Lender to a
conveyance by Borrower of all or any part of the Mortgaged Property or of any
ownership interest in Borrower.
(c) NOTICES. Notice from one party to another relating to this
Mortgage shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth in this Mortgage by any of the following means: (i)
hand delivery, (ii) registered or certified mail, postage prepaid, (iii) express
mail or other overnight courier service, or (iv) telecopy, telex or other wire
transmission with request for assurance of receipt in a manner typical with
respect to communications of that type. Notice made in accordance with these
provisions shall be deemed delivered on receipt if delivered by hand or wire
transmission, on the third business day after mailing if mailed by registered or
certified mail, or on the next business day after mailing or deposit with the
postal service or an overnight courier service if delivered by express mail or
overnight courier. Borrower's telecopier number is (616) 776-2776, and Lender's
telecopier number is (734) 994-1376.
(d) ENTIRE AGREEMENT; AMENDMENTS. This Mortgage and any
agreement to which it refers state all rights and obligations of the parties and
supersede all other agreements (oral or written) with respect to the lien
granted by this Mortgage. Any amendment of this Mortgage shall be in writing and
shall require the signature of Borrower and Lender.
(e) PARTIAL INVALIDITY. The invalidity or unenforceability of
any provision of this Mortgage shall not affect the validity or enforceability
of the remaining provisions of this Mortgage.
17
<PAGE> 18
(f) INSPECTIONS. Any inspection, audit, appraisal or
examination by Lender or Lender's agents of the Mortgaged Property or of
information or documents pertaining to the Mortgaged Property is for the sole
purpose of protecting Lender's interests under this Mortgage and is not for the
benefit or protection of Borrower or any third party.
(g) JOINT AND SEVERAL LIABILITY. In the event that more than
one person or entity executes this Mortgage, the obligations of each person or
entity shall be joint and several.
(h) AUTOMATIC REINSTATEMENT. Notwithstanding any prior
revocation, termination, surrender or discharge of this Mortgage, the
effectiveness of this Mortgage shall automatically continue or be reinstated, as
the case may be, in the event that:
(i) Any payment received or credit given by
Lender in respect of the Indebtedness is determined to be a preference,
impermissible setoff, fraudulent conveyance, diversion of trust funds,
or otherwise required to be returned to Borrower for the benefit of
Borrower or any third party under any applicable state or federal law,
including, without limit, laws pertaining to bankruptcy or insolvency,
in which case this Mortgage shall be enforceable as if any such payment
or credit had not been received or given, whether or not Lender relied
upon this payment or credit or changed its position as a consequence of
it.
(ii) Any liability is imposed, or sought to be
imposed, against Lender relating to the environmental condition of, or
the presence of Hazardous Materials on, in or about the Real Estate,
whether this condition is known or unknown, now exists or subsequently
arises (excluding only conditions which arise after any acquisition by
Lender of any such property, by foreclosure, in lieu of foreclosure or
otherwise, to the extent due to the wrongful acts or omissions of
Lender), in which case this Mortgage shall be enforceable to the extent
of all liability, costs and expenses (including without limit
reasonable attorneys fees) incurred by Lender as the direct or indirect
result of any environmental condition or Hazardous Materials.
(iii) In the event of continuation or
reinstatement of this Mortgage, Borrower agrees upon demand by Lender
to execute and deliver to Lender those documents which Lender
determines are appropriate to further evidence (in the public records
or otherwise) this continuation or reinstatement, although the failure
of Borrower to do so shall not affect in any way the reinstatement or
continuation. If Borrower does not execute and deliver to Lender upon
demand such documents, Lender and each officer of Lender is irrevocably
appointed (which appointment is coupled with an interest) the true and
lawful attorney of Borrower (with full power of substitution) to
execute and deliver such documents in the name and on behalf of
Borrower.
(i) WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT
THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS MORTGAGE OR
THE INDEBTEDNESS.
(j) CONSUMER CREDIT. Notwithstanding anything in this Mortgage
to the contrary, this Mortgage shall not secure any portion of the Indebtedness
which is deemed to be consumer credit under the Truth in Lending Act.
(k) ASSIGNMENT. This Mortgage is freely assignable, in whole
or in part, by Lender without consent of Borrower. Except as set forth below,
Lender shall provide Borrower with written notice of such
18
<PAGE> 19
assignment. Lender shall be fully discharged from all responsibility accruing
hereunder from and after the effective date of any such assignment. Lender's
assignee shall, to the extent of the assignment, be vested with all the powers
and rights of Lender hereunder (including those granted under Section 4 hereof
or otherwise with respect to the Mortgaged Property), and to the extent of such
assignment the assignee may fully enforce such rights and powers, and all
references to Lender shall mean and refer to such assignee. Lender shall retain
all rights and powers hereby given not so assigned, transferred and/or
delivered. Borrower hereby waives all defenses which Borrower may be entitled to
assert against Lender's assignee with respect to liability accruing hereunder
prior to the effective date of any assignment of Lender's interest herein.
Borrower may not, in whole or in part, directly or indirectly, assign this
Mortgage or its rights hereunder or delegate its duties hereunder without, in
each instance, the specific prior written consent of Lender, which consent shall
not be unreasonably withheld.
(l) SECURITIZATION. Borrower understands and agrees that
Lender may, from time to time, assign its rights and powers under the Note, this
Mortgage and any other Loan Documents, in whole or in part, in connection with a
securitization program. Borrower agrees to enter into an amendment to the Note,
this Mortgage and any other Loan Documents if such amendments are required by a
nationally recognized rating agency in connection with a securitization program
sponsored by Lender and in which the Note, this Mortgage and any other Loan
Documents are to be included; provided that Borrower shall not be obligated to
enter into any amendment which adversely affects Borrower or adversely alters
any of the financial terms of the Loan Documents. Lender shall pay Borrower's
reasonable costs associated with such assignment.
19
<PAGE> 20
IN WITNESS WHEREOF, Borrower has executed this Mortgage as of the day
and year noted above.
WITNESSES: BORROWER:
WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN
By
- -------------------------- ---------------------------------
Print Name:
Its
- -------------------------- ------------------------
Print Name:
By
- -------------------------- ---------------------------------
Print Name:
Its
- -------------------------- ------------------------
Print Name:
STATE OF MICHIGAN )
) ss.
COUNTY OF _____ )
The foregoing Mortgage was acknowledged before me the ____ day of
_______, 1998, by ______________________________, on behalf of MCC Food Service,
Inc., a Michigan corporation and the general partner of WM Limited Partnership -
1998, a Michigan limited partnership, on behalf of the limited partnership.
-----------------------------------
Notary Public
_______________ County, Michigan
My Commission Expires:________________
[Notary Public's Seal]
Prepared By:
Martha R. Young, Esq.
Miller, Canfield, Paddock & Stone, P.L.C.
101 North Main Street, Seventh Floor
Ann Arbor, Michigan 48104-1400
When Recorded Return To:
Captec Financial Group, Inc.
24 Frank Lloyd Wright Drive
Lobby L, Fourth Floor
P.O. Box 544
Ann Arbor, Michigan 48106-0544
Attention: Robert V. Schrader
20
<PAGE> 1
Exhibit 10.23
Loan No.__________
________, Michigan
PROMISSORY NOTE
---------------
_____________ Date: , 1998
-----------
PROMISE TO PAY. For value received, WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN, a Michigan limited partnership ("Borrower") promises to pay
to CAPTEC FINANCIAL GROUP, INC., a Michigan corporation (together with its
successors, assigns and transferees, "Lender"), or order,
___________________ Dollars _____________, or so much of such sum as has been
advanced under this Note, as follows:
Interest only from and after the date on which funds are disbursed by
Lender hereunder ("Effective Date") through the last day of the month in which
the Effective Date occurs shall be due and payable on the first day of the next
month following the Effective Date; provided that if the Effective Date occurs
after the fifteenth (15th) day of a month, the interest which would accrue,
based on the actual number of days, through the end of such month shall be due
and payable in advance on the Effective Date. Installments of principal and
interest in the amount of ____________________________________________________
Dollars ___________ are due and payable on the first day of each month (each a
"Payment Date"), commencing _______________; until _________________ ("Due
Date"), when the outstanding principal balance, plus accrued interest, is due
and payable (unless the indebtedness evidenced by this Note is accelerated, in
which case, the Due Date is the date of acceleration). The amortization period
for this Note, for purposes of calculating the monthly installments of principal
and interest, is one hundred eighty (180) months.
All payments under this Note shall be made at Lender's principal office
at 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor,
Michigan 48106-0544, at such other address as Lender may designate in writing,
or by electronic funds withdrawal made by Lender upon written authorization
therefor from Borrower, which authorization shall not be revocable by Borrower
without the consent of Lender Payments due and payable on a day on which Lender
is not open for business are due on the next succeeding business day.
Payments will be applied first to accrued interest and then to principal.
INTEREST RATE. The outstanding principal balance of this Note will bear
interest at a fixed rate equal to eight and fifteen hundredths percent (8.15%)
per annum (the "Stated Rate"), until the Due Date (whether by acceleration or
otherwise), and thereafter at a rate which is three percent (3%) above the
Stated Rate ("Default Rate").
Interest will be computed on the basis of a year consisting of twelve
(12) months of thirty (30) days each. In no event, however, shall the interest
rate exceed the maximum rate allowed by law. Notwithstanding anything to the
contrary contained herein, at no time shall the interest payable under this Note
be greater than the maximum rate permitted by applicable law ("Legal Rate"). If
any obligation under this Note shall result in Lender receiving an amount deemed
to be interest under applicable law in excess of the Legal Rate, then the amount
which would be excessive interest shall be applied to the reduction of the
principal balance of this Note and not to payment of interest. If such excessive
interest exceeds the unpaid principal balance of this Note, the excess shall be
refunded to Borrower.
<PAGE> 2
PREPAYMENT. Borrower shall not have any right, except as otherwise
specifically provided herein, to prepay the principal balance of this Note until
seven (7) loan years have elapsed. The first "loan year" shall commence on the
date of the closing of the loan evidenced by this Note, and subsequent loan
years shall commence on the anniversaries of such date. Commencing with the
eighth (8th) loan year and if no Event of Default (as hereinafter defined) then
exists, Borrower shall have the right to prepay all, but not merely a portion
of, the principal balance of this Note together with accrued interest thereon on
any Payment Date; provided, however, that Borrower shall provide no less than
thirty (30) days prior written notice to Lender of Borrower's intention to
prepay (the "Prepayment Notice"); and provided further, that Borrower shall
concurrently pay to Lender a prepayment premium determined as follows:
(a) If the prepayment is made during the eighth loan year, the
prepayment premium shall equal five percent (5%) of the prepaid
principal.
(b) If the prepayment is made during the ninth loan year, the
prepayment premium shall equal four percent (4%) of the prepaid
principal.
(c) If the prepayment is made during the tenth loan year, the
prepayment premium shall equal three percent (3%) of the prepaid
principal.
(d) If the prepayment is made during the eleventh loan year,
the prepayment premium shall equal two percent (2%) of the prepaid
principal.
(e) If the prepayment is made during the twelfth through last
loan years, the prepayment premium shall equal one percent (1%) of the
prepaid principal.
Once given, the Prepayment Notice may not be withdrawn, and the failure to
prepay in accordance with the Prepayment Notice shall constitute an Event of
Default. The "first loan year" shall commence on the date of the closing of the
loan evidenced by this Note, and subsequent loan years shall commence on the
anniversaries of the date of the closing of such loan.
Prepayments will be applied to installments of principal in their
inverse order of maturity. Until this Note is paid in full, no prepayment shall
reduce the dollar amount of monthly installments required to be paid under this
Note.
If the outstanding principal balance of this Note is accelerated by
reason of an Event of Default, such acceleration shall be deemed to be a
prepayment and Borrower shall pay to Lender, in addition to all sums due as a
result of the acceleration, any applicable Prepayment Premium.
LATE PAYMENT CHARGE. In the event that any payment under this Note is
not received by Lender within fifteen (15) days of the date when due, a late
charge of five percent (5%) of the amount of such payment will be due. Borrower
agrees that the late charge is a reasonable estimate of the administrative costs
which Lender will incur in processing the delinquency. Lender's acceptance of a
late payment and/or of the late payment charge will not waive any default under
this Note or affect the acceleration of this Note (if this Note has been
accelerated).
COLLATERAL. This Note and the other obligations of Borrower to Lender
contained in the documents securing this Note are secured by and in accordance
with the terms of that certain Security Agreement, effective ____________, 1998,
executed by Borrower for the benefit of Lender (the "Security Agreement";
together with any other documents securing payment under this Note, the "Loan
Documents"). All property securing the Indebtedness (as defined in the Security
Agreement) is referred to as the "Collateral".
DEFAULT. Any of the following events shall, for purposes of this Note,
constitute an "Event of Default":
-2-
<PAGE> 3
(a) Failure by Borrower to pay any amount owing on or with
respect to the Indebtedness when due, whether by maturity, acceleration
or otherwise, which failure continues for three (3) days after the date
of written notice to Borrower.
(b) Any failure by Borrower to comply with any of the
non-monetary terms, provisions, warranties or covenants of this Note,
the Security Agreement or the other Loan Documents, which failure
continues for fifteen (15) days after the date of written notice to
Borrower from Lender of such default.
(c) Institution of foreclosure proceedings or other exercise
of rights and remedies by the holder of any mortgage, deed of trust,
security interest or other lien against the Collateral (or any portion
thereof).
(d) Insolvency of Borrower or the admission in writing of
Borrower's inability to pay debts as they mature.
(e) Any statement, representation or information made or
furnished by or on behalf of Borrower to Lender in connection with or
to induce Lender to provide or advance any of the Indebtedness shall
prove to be false or materially misleading when made or furnished.
(f) Institution of bankruptcy, reorganization, insolvency or
other similar proceedings by or against Borrower, unless, in the case
of a petition filed against Borrower, the same is dismissed within
sixty (60) days of the date of filing.
(g) The issuance or filing of any judgment, attachment, levy,
garnishment or the commencement of any related proceeding or the
commencement of any other judicial process upon or in respect to
Borrower or the Collateral.
(h) Sale or other disposition by Borrower of any substantial
portion of its assets or property.
(i) Death, dissolution, merger, consolidation, termination of
existence, insolvency, business failure or assignment for the benefit
of creditors of or by Borrower.
(j) Any failure by Borrower to pay any indebtedness (other
than to Lender) when due, or any failure in the observance or
performance of any term, covenant or condition in any document
evidencing, securing or relating to such indebtedness, which failure
continues beyond any applicable cure period.
(k) Receipt by Borrower ("Franchisee") of a notice of
termination of the franchise agreement from Wendy's International, Inc.
("Franchisor"), for the Wendy's franchised restaurant operation located
at ________________________________ Michigan ("Franchised Operation").
(l) If this Note, the Security Agreement and the other Loan
Documents have not been assigned to the Trust (as defined in the
Security Agreement), the default by Borrower which continues beyond any
applicable grace or cure period under the Retained Obligations (as
defined in the Security Agreement); provided, however, if this Note,
the Security Agreement and the other Loan Documents are assigned to the
Trust, this Clause (l) shall be of no force and effect during the term
of such assignment.
(m) In the event that this Note, the Security Agreement and
the other Loan Documents are assigned to the Trust, the default by
Borrower which continues beyond any applicable grace or cure period
under the Trust Obligations (as defined in the Security Agreement).
Upon an occurrence of an Event of Default, Lender shall have the option
to declare all or part of the Indebtedness (including this Note) immediately due
and payable. If this Note is not paid at maturity (whether by
-3-
<PAGE> 4
acceleration or otherwise), Lender shall have all of the rights and remedies
provided at law or equity or by agreement, including, without limit, the right
to sell or liquidate all or any part of the Collateral. The remedies of Lender
are cumulative and not exclusive.
EXAMINATION OF RECORDS. Borrower shall at all times keep full and
accurate records of its business and of the Collateral, which records shall be
open to inspection and copying by Lender at all reasonable times.
LIABILITY OF SIGNATORIES. Borrower, and all guarantors and endorsers,
and any other party liable for the Indebtedness evidenced by this Note: (i)
severally waive presentment, demand, protest, notice of dishonor, notice of
non-payment and notice of acceleration of this Note; and (ii) agree that no
extension or postponement of the time for payment, or waiver, or indulgence or
forbearance granted to Borrower (without limit as to number or period) or any
modification of this Note, or any substitution, or exchange or release of all or
part of the Collateral, or addition of any party to this Note, or release or
discharge of, or suspension of any rights and remedies against any party liable
on this Note, shall reduce or affect the obligation of any other party liable
for the payment of this Note.
NON-WAIVER. No delay by Lender in the exercise of any right or remedy
shall operate as a waiver. No single or partial exercise by Lender of any right
or remedy shall preclude any future exercise of such right or remedy or the
exercise of any other right or remedy. No waiver or indulgence by Lender of any
default or Event of Default shall be effective unless in writing and signed by
Lender, nor shall a waiver on one occasion be construed as a bar to any right or
remedy, or waiver of any default or Event of Default on any future occasion.
REIMBURSEMENT OF EXPENSES. Borrower shall reimburse Lender for all
costs and expenses, including attorneys' fees, incurred by Lender in enforcing
the rights of Lender under this Note. Such costs and expenses shall include,
without limitation, costs or expenses incurred by Lender in any bankruptcy,
reorganization, insolvency or other similar proceeding. Any reference in this
Note to attorneys' fees shall mean fees, charges, costs and expenses of in-house
and/or outside counsel and paralegals, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise.
WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY,
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
ASSIGNMENT. This Note is freely assignable, in whole or in part, by
Lender without the consent of Borrower. Except as set forth below, Lender shall
provide Borrower with written notice of assignment. Lender shall be fully
discharged from all responsibility accruing hereunder from and after the
effective date of any such assignment. Lender's assignee shall, to the extent of
the assignment, be vested with all the powers and rights of Lender hereunder,
and to the extent of such assignment the assignee may fully enforce such rights
and powers, and all references to Lender shall mean and refer to such assignee.
Lender shall retain all rights and powers hereby given not so assigned,
transferred and/or delivered. Borrower hereby waives all defenses which Borrower
may be entitled to assert against Lender's assignee with respect to liability
accruing hereunder prior to the effective date of any assignment of Lender's
interest herein, but reserves all such defenses that may exist against Lender.
Borrower may not, in whole or in part, directly or indirectly, assign this Note
or its rights hereunder or delegate its duties hereunder without, in each
instance, the specific prior written consent of Lender, which consent shall not
be unreasonably withheld.
SECURITIZATION. Borrower understands and agrees that Lender may, from
time to time, assign its rights and powers under this Note, and any other Loan
Documents, in whole or in part, in connection with a securitization program.
Borrower agrees to enter into an amendment to this Note and any other Loan
Documents if such
-4-
<PAGE> 5
amendments are required by a nationally recognized rating agency in connection
with a securitization program sponsored by Lender and in which this Note and the
other Loan Documents are to be included; provided that Borrower shall not be
obligated to enter into any amendment which adversely affects Borrower or
adversely alters any of the financial terms of this Note or the other Loan
Documents. Lender shall pay Borrower's reasonable costs associated with such
assignment.
MISCELLANEOUS. The terms and provisions of this Note shall be governed
by and construed in accordance with the laws of the State of Michigan. Lender
and Borrower agree that any dispute which may arise between them with regard to
this Note shall be resolved by litigation in state or federal court. Litigation
may be initiated by Lender or its assignee, at its discretion, in the State of
the principal place of business of Lender or its assignee, the State of the
principal place of business of Borrower, or the State where the Collateral is
located. BORROWER HEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE
GROUNDS OF IMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH
ABOVE AND AGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY
MAIL. The terms and provisions of this Note may only be changed in writing,
executed by Borrower and Lender.
WM LIMITED PARTNERSHIP - 1998 D/B/A
WENDY'S OF MICHIGAN
By MCC Food Service Inc.
Its: General Partner
By:
--------------------------------
Its
-----------------------------
Address:
40 Pearl Street NW, Suite 900
Grand Rapids, MI 49503
Tax I.D. No. 38-3389989
-5-
<PAGE> 1
Exhibit 10.24
Loan Nos. _____________
All located in Michigan
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT ("Agreement") is made as of the _____ day of
________________________, 1998, by WM LIMITED PARTNERSHIP - 1998 D/B/A WENDY'S
OF MICHIGAN, a Michigan limited partnership, of 40 Pearl Street NW, Suite 900,
Grand Rapids, Michigan 49503 ("Borrower") in favor of CAPTEC FINANCIAL GROUP,
INC., a Michigan corporation, of 24 Frank Lloyd Wright Drive, Lobby L, 4th
Floor, P.O. Box 544, Ann Arbor, Michigan, 48106 (together with its successors,
assigns and transferees, "Lender"). This instrument shall become effective on
_____________, 1998.
PRELIMINARY STATEMENT
This Agreement is made to secure all of the following (individually and
collectively the "Indebtedness"):
1. Payment in the sum of ______________________________________________
______ Dollars _______________, together with interest, costs and all other
sums, to be paid according to those certain Promissory Notes (the "Notes"), by
Borrower to Lender, made as of the date of this Agreement by Borrower, together
with any and all extensions, renewals, modifications, substitutions or
replacements thereof; and the performance of the covenants and obligations of
Borrower due or to become due to Lender under this Agreement or under any other
documents securing payment of all amounts due under the Notes (collectively, the
"Loan Documents"), and the repayment of all sums expended by Lender in
connection with performance of those covenants and obligations.
2. If the Notes, this Agreement and the Loan Documents are assigned to
a trust sponsored by Lender or any of its affiliates to securitize its loan
receivables (the "Trust"), "Indebtedness" shall also include the payment of all
other sums (together with interest and costs thereon) concurrently or
subsequently loaned to Borrower by Captec Financial Group, Inc., a Michigan
corporation, Captec Financial Group Funding Corporation, a Michigan corporation,
or Captec Leasing Company, a California corporation (each an "Originator"), as
evidenced and/or secured by certain notes and other documents of Borrower with
respect to such amounts and which notes and other documents are assigned to the
Trust, together with any and all extensions, renewals, modifications,
substitutions or replacements thereof; and the performance of the covenants and
obligations of Borrower due or to become due under such notes and other
documents assigned to the Trust, and the repayment of all sums expended in
connection with performance of those covenants and obligations (collectively,
the "Trust Obligations").
3. If the Notes, this Agreement and the Loan Documents are not assigned
to the Trust, "Indebtedness" shall also include the payment of all other sums
(together with interest thereon) concurrently or subsequently loaned to Borrower
by an Originator, as evidenced and/or secured by certain notes and other
documents of Borrower which are not assigned to the Trust, together with any and
all extensions, renewals, modifications, substitutions or replacements thereof;
and the performance of the covenants and obligations of Borrower due or to
become due under such notes and other documents, and the repayment of all sums
expended in connection with performance of those covenants and obligations
(collectively, the "Retained Obligations").
In consideration of the above facts and the mutual promises of the
parties, and as security for the purposes stated above and elsewhere in this
Agreement, the parties agree as follows:
1. COLLATERAL.
(a) GRANT OF SECURITY INTEREST. Borrower grants Lender a
security interest in all of Borrower's Inventory Equipment, Instruments,
Accounts and General Intangibles, each as defined in Section 1(b) below, whether
now owned or hereafter acquired, together with all replacements, substitutions,
and additions thereto (the "Collateral") which are (i) located on the premises
of, or are related to the operations of, the Wendy's restaurants
<PAGE> 2
operated by Borrower and located at ___________________________________________
______________________________________________ (each a "Franchised Operation"
and collectively the "Franchised Operations"), or (ii) related to the Franchised
Operations and located at the principal business office of Borrower located at
40 Pearl Street NW, Suite 900, Grand Rapids, Michigan 49503. Also included as
part of the Collateral are all proceeds and products thereof, including, without
limit, insurance proceeds, stock rights, subscription rights, dividends, stock
dividends, stock splits or liquidating dividends, and all cash, accounts,
chattel paper and general intangibles arising from the sale, rent, lease,
casualty loss or other disposition of the Collateral, and including any records
or documents of title relating to the Collateral.
(b) DEFINITIONS. For purposes of this Agreement, the following
terms shall be defined as follows:
(i) "Inventory" shall consist of all property
held at any location by or for Borrower for sale, rent, or
lease, or furnished or to be furnished by Borrower under any
contract of service, or raw materials or work in process and
their products, or materials used or consumed in Borrower's
business.
(ii) "Equipment" shall consist of any goods at
any time acquired, owned or held by Borrower at any location
primarily for use in Borrower's business, including, without
limit, machinery, fixtures, furniture, furnishings and
vehicles, and any accessions, parts, attachments, accessories,
tools, dies, additions, substitutions, replacements and
appurtenances and their related rights.
(iii) "Instruments" shall consist of Borrower's
interest of any kind in any negotiable instrument or security
as those terms are defined in the Michigan Uniform Commercial
Code ("UCC"), or any other writing which evidences a right to
payment of money and is of a type which is, in the ordinary
course of business, transferred by delivery alone or by
delivery with any necessary endorsement or assignment.
(iv) "General Intangibles" shall consist of any
personal property (including things in action) other than
goods, accounts, chattel paper, documents, instruments and
money.
(v) "Accounts" shall consist of any right to
payment for goods sold or leased or for services rendered
which is not evidenced by an instrument or chattel paper
whether or not it has been earned by performance.
2. WARRANTIES AND REPRESENTATIONS. Borrower warrants and covenants to
Lender as follows:
(a) PAYMENT OF INDEBTEDNESS. Borrower will pay the
Indebtedness and perform all obligations related to the Indebtedness when due,
whether by maturity, acceleration or otherwise.
(b) AUTHORITY. This Agreement is the valid and binding
obligation of Borrower, enforceable in accordance with its terms. If Borrower is
a corporation, partnership, limited liability company or other organization,
Borrower is organized and validly existing and in good standing under the laws
of its state of establishment, and the execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of Borrower's
board of directors, partners, members or governing body, and will not violate
Borrower's governing instruments or other agreements.
(c) NAME; ADDRESS; LOCATION OF COLLATERAL. Borrower's name and
address and the location of the Collateral are accurately set forth on the
signature page of this Agreement.
-2-
<PAGE> 3
(d) TITLE TO COLLATERAL. Borrower has good and marketable
title to the Collateral, free and clear of any liens, encumbrances or security
interests whatsoever, other than the security interest granted by this Agreement
and existing liens, encumbrances or security interests disclosed to and accepted
by Lender in writing. Borrower will keep the Collateral free of all other liens,
encumbrances and security interests. Borrower will defend the Collateral against
all claims and demands of all persons at any time claiming any interest in the
Collateral.
(e) PRIORITY OF SECURITY INTEREST. The execution and delivery
of this Agreement creates a valid security interest in the Collateral, and upon
the filing of a UCC-1 financing statement with the Michigan Secretary of State,
Lender will have a first priority perfected security interest in the Collateral,
subject to no other security interest, except as otherwise approved by Lender in
writing.
(f) FINANCING STATEMENTS. Except as disclosed to and accepted
by Lender in writing, no financing statement covering all or any part of the
Collateral is on file in any public office. Borrower will execute financing
statements in form acceptable to Lender and will pay the cost of filing
financing statements in all public offices wherever filing is deemed desirable
by Lender. A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement under the UCC and may be filed by Lender
in any filing office. This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable provisions of the UCC.
(g) PAYMENT OF TAXES. Borrower shall pay when due and before
any interest, collection fees or penalties accrue, all taxes, expenses,
assessments, liens or other charges which may now or hereafter be levied or
assessed against the Collateral. Borrower shall furnish proof of payment upon
request of Lender.
(h) INSURANCE.
----------
(i) Borrower shall keep the tangible
Collateral (including, without limit, the Equipment and Inventory) insured for
the benefit of Lender. Borrower covenants and agrees that Borrower will carry
and maintain, at its sole cost and expense, the following types of insurance, in
the amounts specified: (A) comprehensive general liability insurance with
initial limits of not less than Two Million Dollars ($2,000,000) for death or
injuries to one person and not less than One Million Dollars ($1,000,000) for
death or injuries to two or more persons in one occurrence, and not less than
One Million Dollars ($1,000,000) for damage to property; (B) fire and extended
coverage insurance on a replacement form with inflation-guard, vandalism and
malicious mischief endorsements; (C) rent loss or business interruption
insurance covering a period of not less than twelve (12) months; (D) an umbrella
policy of not less than $5,000,000; and (E) such other insurance and in such
amounts as may be reasonably required from time to time by Lender. All insurance
shall be in forms and with companies satisfactory to Lender. Borrower shall
deliver to Lender the policies evidencing the required insurance with premiums
fully paid, and with loss payee clauses (making all losses payable to Lender).
Renewals of the required insurance (together with evidence of premium prepayment
for one (1) year in advance) shall be delivered to Lender at least thirty (30)
days before the expiration of any existing policies. All policies and renewals
shall provide that they may not be canceled or amended without giving Lender
thirty (30) days prior written notice of cancellation or amendment.
(ii) Should Borrower fail to insure or fail to
pay the premiums on any required insurance or fail to deliver the policies or
renewals as provided above, Lender may have the insurance issued or renewed (and
pay the premiums on it for the account of Borrower) in amounts and with
companies and at premiums as Lender deems appropriate. If Lender elects to have
insurance issued or renewed to insure Lender's interest, Lender shall have no
duty or obligation of any kind to also insure Borrower's interest or to notify
Borrower of Lender's actions. Any sums paid by Lender for insurance, as provided
above, shall be a lien upon the Collateral, added to the amount secured by this
Agreement, and payable immediately by Borrower to Lender, with interest on those
sums at the highest rate charged by Lender on any of the Indebtedness (but not
to exceed the maximum interest rate permitted by law).
-3-
<PAGE> 4
(iii) In the event of loss or damage, the
proceeds of all required insurance shall be paid to Lender. No loss or damage
shall itself reduce the Indebtedness. Lender or any of its employees is each
irrevocably appointed attorney-in-fact for Borrower and is authorized to adjust
and compromise each loss without the consent of Borrower, to collect, receive
and receipt for the insurance proceeds in the name of Lender and Borrower and to
endorse Borrower's name upon any check in payment of the loss. The proceeds
shall be applied first toward reimbursement of all costs and expenses of Lender
in collecting the proceeds (including, without limit, court costs and reasonable
attorneys' fees), and then toward payment of the Indebtedness or any portion of
it, whether or not then due or payable and in whatever order of maturity as
Lender may elect, or Lender, at its option, may apply the insurance proceeds, or
any part of them, to the repair or rebuilding of the Collateral. If Lender
elects to restore or repair the Collateral, Borrower and Lender shall enter into
a written agreement satisfactory to Lender providing for the terms under which
the insurance proceeds shall be released. Application of proceeds by Lender
toward later maturing installments of the Indebtedness shall not excuse Borrower
from making the regularly scheduled installment payments nor shall such
application extend or reduce the amount of any of these payments.
(i) MAINTENANCE OF COLLATERAL. Borrower will maintain the
Collateral in good condition and repair. Borrower will promptly inform Lender of
any loss or diminution in value of the Collateral. Borrower shall make or permit
no modification, compromise or substitution for the Collateral without the prior
written consent of Lender.
(j) LEASED FACILITIES. If the Collateral is located at a
facility leased by Borrower, Borrower will obtain from the lessor a consent to
the granting of a security interest in the Collateral and a subordination of the
lessor's interest in the Collateral. The consent and subordination shall be in
form acceptable to Lender.
(k) REPORTING OBLIGATIONS. Borrower hereby covenants and
agrees to deliver to Lender or cause Meritage Hospitality Group Inc., a Michigan
corporation ("MHG"), to deliver to Lender the following:
(A) Management prepared and certified quarterly
financial statements for Borrower within forty-five (45) days after the
end of the first three (3) quarters of each fiscal year of Borrower.
(B) Annual financial statements for MHG audited by an
independent certified public accountant, which annual financial
statements will include a consolidating statement on Borrower, within
one hundred twenty (120) days after the end of each fiscal year of
Borrower.
(C) Management prepared and certified unit level
profit and loss statements relating to the operation of the Franchised
Operations within forty-five (45) days after the end of each fiscal
year of Borrower;
Such financial statements shall be true and correct in all respects, shall be
prepared in accordance with generally accepted accounting principles, and shall
fairly represent the respective financial conditions of the subjects thereof as
of the respective dates thereof. If Borrower's financial statements are prepared
on a consolidated basis, Borrower hereby covenants and agrees to prepare
financial statements specifically relating to the operation of the Franchised
Operations. At the request of Lender, Borrower shall obtain the consent of
Borrower's accountant(s) to the inclusion of Borrower's most recent financial
statement in any regulatory filing or report to be filed by Lender.
(l) FRANCHISE AGREEMENT. Borrower is a franchisee in good
standing with Wendy's International, Inc., a/n Ohio corporation ("Franchisor"),
and is not in default under its franchise agreements with Franchisor relating to
the Franchised Operations ("Franchise Agreements"). Borrower agrees to comply
with the terms of the Franchise Agreements and to take all actions necessary or
required to keep the Franchise Agreements in full force and effect. Borrower
will not encumber its rights under each of the Franchise Agreements, except to
Lender, provided Franchisor has consented to such encumberance. Borrower agrees
to promptly provide Lender with a copy of any notice of default under each of
the Franchise Agreements. Further, Borrower agrees to promptly
-4-
<PAGE> 5
provide Lender with a copy of any notice to Borrower of the existence of any
breach which, with notice or the passage of time, or both, would entitle
Franchisor to terminate each of the Franchise Agreements.
(m) FIXED CHARGE COVERAGE RATIO. Borrower shall maintain a
Fixed Charge Coverage Ratio (as hereinafter defined) of not less than 1.2 to 1.0
for Borrower's business operations generally and not less than 1.4 to 1.0 for
the Franchised Operations. "Fixed Charge Coverage Ratio" shall mean Borrower's
Operating Cash Flow divided by its Fixed Charges (each as defined below). The
Fixed Charge Coverage Ratios shall be calculated by Borrower from time to time
and dates as determined by Lender, and Borrower shall submit such information as
Lender may require to confirm and approve Borrower's calculation of the Fixed
Charge Coverage Ratios.
(i) "Fixed Charges" shall mean the sum of the following items
set forth on a pro forma basis separately stated for both Borrower's
business operations generally and for each of the Franchised
Operations, in each case, for the applicable twelve (12) month
operating period:
(A) current portion of long-term debt (defined as the
current portion of long-term debt due to mature during the next twelve
(12) month operating period, as stated in Borrower's applicable
financial statement, plus, if not already included therein, the current
portion of principal payments imputed on all capital leases), plus
(B) interest expense (defined as the interest expense
as stated on Borrower's applicable financial statement, plus, if not
already included therein, the interest expense imputed on all capital
leases), plus
(C) the current portion of operating leases (defined
as the amount of rent due under operating leases for the next twelve
(12) month operating period).
(ii) "Operating Cash Flow" shall mean the sum or subtraction
of the following items separately stated for both Borrower's business
operations generally and for each of the Franchised Operations, in each
case, for the applicable prior twelve (12) month operating period:
(A) net income (defined as the net income stated on
Borrower's applicable financial statement), plus
(B) depreciation and amortization (defined as the
depreciation and amortization expense as stated on Borrower's
applicable financial statement), plus
(C) interest expense (as defined above), plus
(D) operating lease expense (defined as the amount of
rental expense paid under operating leases, as stated on Borrower's
applicable financial statements), plus or minus
(E) non-recurring items (defined as items which, when
computing cash flow, should in Lender's reasonable business judgment,
be added back to or subtracted from net income to normalize results).
3. PROHIBITION ON TRANSFER OR MODIFICATION. Borrower shall not
transfer, sell, assign, lease or modify the Collateral or any interest therein,
any part thereof, or any substantial portion of Borrower's other assets or
property without the prior written consent of Lender. Notwithstanding the
foregoing, Borrower may use Collateral if the same is in the ordinary course of
Borrower's business and on customary terms and at usual prices.
-5-
<PAGE> 6
4. PROHIBITION ON CHANGE OF NAME, ORGANIZATION OR LOCATION. Borrower
shall not assume a different name, conduct its business at any location other
than as appears in this Agreement, merge, consolidate, change or reorganize its
organizational structure nor change the location of any of the Collateral
without, in each instance, obtaining the prior written consent of Lender thirty
(30) days prior to any such event.
5. RIGHT OF SETOFF. Borrower hereby grants Lender the right,
exercisable at any time, whether or not Borrower is then in default, to set off
or apply against the Indebtedness any account or deposit with Lender in which
Borrower has an interest or against any other amounts which may be in the
possession of Lender and to the credit of Borrower.
6. EXAMINATION OF RECORDS AND COLLATERAL. Borrower shall keep full and
accurate records of Borrower's business, including, without limit, records
related to the Collateral, and such records shall be open to inspection and
duplication by Lender at all reasonable times. Lender may enter upon any
property owned by or in the possession of Borrower to examine and inspect the
Collateral. Borrower shall promptly provide Lender with any information
concerning the Collateral as Lender may request at any time.
7. REIMBURSEMENT OF EXPENSES. Borrower shall reimburse Lender for all
reasonable costs and expenses, including attorneys' fees, incurred by Lender in
enforcing the rights of Lender under this Agreement. All costs and expenses
shall be included in the Indebtedness and shall be immediately due and payable
together with interest at the maximum legal rate. Such costs and expenses shall
include, without limitation, costs or expenses incurred by Lender in any
bankruptcy, reorganization, insolvency or other similar proceeding.
8. RIGHTS AND OBLIGATIONS OF LENDER. In the event that Borrower fails
to pay taxes, maintain insurance or perform any other obligation arising under
this Agreement, Lender may pay or perform such obligation(s) for the account of
Borrower and the same shall be added to the Indebtedness and shall be
immediately due and payable together with interest at the highest rate charged
by Lender on any of the Indebtedness (but not to exceed the maximum rate
permitted by law). Lender shall not be liable for any loss to the Collateral nor
shall such loss reduce the balance due.
9. INDEMNIFICATION. Borrower shall indemnify and save Lender harmless
from all claims, obligations, costs, expenses, including attorneys' fees, and
causes of action or other rights asserted against Lender and relating to this
Agreement and/or the Collateral, except those arising from the gross negligence
or wilful misconduct of Lender.
10. EVENTS OF DEFAULT AND REMEDIES.
(a) EVENTS OF DEFAULT. Any of the following events shall, for
purposes of this Agreement, constitute an "Event of Default":
(i) Failure by Borrower to pay any amount owing on or
with respect to the Indebtedness when due, whether by maturity, acceleration or
otherwise, which failure continues for three (3) days after the date of written
notice to Borrower from Lender of such default.
(ii) Any failure by Borrower to comply with, or
breach by Borrower of, any of the non-monetary terms, provisions, warranties or
covenants of the Notes, this Agreement or the other Loan Documents, which
failure continues for fifteen (15) days after the date of written notice to
Borrower from Lender of such default.
(iii) Institution of remedial proceedings or other
exercise of rights and remedies by the holder of any security interest or other
lien against the Collateral or any portion thereof.
(iv) The insolvency of Borrower or the admission in
writing of Borrower's inability to pay debts as they mature.
-6-
<PAGE> 7
(v) Any statement, representation or information made
or furnished by or on behalf of Borrower to Lender in connection with or to
induce Lender to provide any of the Indebtedness shall prove to be false or
materially misleading when made or furnished.
(vi) Institution of bankruptcy, reorganization,
insolvency or other similar proceedings by or against Borrower, unless, in the
case of a petition filed against Borrower, the same is dismissed within sixty
(60) days of filing.
(vii) The issuance or filing of any judgment,
attachment, levy, garnishment or the commencement of any related proceeding or
the commencement of any other judicial process upon or in respect to Borrower or
the Collateral.
(viii) Sale or other disposition by Borrower of any
substantial portion of assets or property.
(ix) Death, dissolution, merger, consolidation,
termination of existence, insolvency, business failure or assignment for the
benefit of creditors of or by Borrower.
(x) If there is any failure by Borrower to pay when
due any indebtedness (other than to Lender) or in the observance or performance
of any term, covenant or condition in any document evidencing, securing or
relating to such indebtedness, which failure continues beyond any applicable
cure period.
(xi) Receipt by Borrower of a notice of termination
of any of the Franchise Agreement.
(xii) If the Notes, this Agreement and the other Loan
Documents have not been assigned to the Trust, the default by Borrower which
continues beyond any applicable grace or cure period under the Retained
Obligations; provided, however, if the Notes, this Agreement and the other Loan
Documents are assigned to the Trust, this clause (xii) shall be of no force or
effect during the term of such assignment.
(xiii) In the event that the Notes, this Agreement
and the other Loan Documents are assigned to the Trust, the default by Borrower
which continues beyond any applicable grace or cure period under the Trust
Obligations.
(b) REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of any
Event of Default, Lender shall have the following rights:
(i) Declare all or part of the Indebtedness
immediately due and payable.
(ii) Borrower agrees, upon request of Lender, to
assemble the Collateral and make it available to Lender at any place which is
reasonably convenient for Borrower and Lender. Borrower grants Lender permission
to enter upon any premises owned or occupied by Borrower for the purpose of
taking possession of the Collateral.
(iii) Lender shall have the right to take possession
of the Collateral, with or without demand, and with or without process of law.
Lender shall have the right to sell and dispose of the Collateral and to
distribute the proceeds according to law. In connection with the right of Lender
to take possession of the Collateral, Lender may take possession of any other
items of property in or on the Collateral at the time of taking possession, and
hold them for Borrower without liability on the part of Lender. If there is any
statutory requirement for notice, that requirement shall be met if Lender shall
send notice to Borrower at least five (5) days prior to the date of sale,
disposition or other event giving rise to the required notice. Borrower shall be
liable for any deficiency remaining after disposition of the Collateral.
-7-
<PAGE> 8
(iv) Lender shall also have any one or more of the
rights and remedies under the UCC or at law or equity to enforce the payment of
the Indebtedness.
(c) REMEDIES GENERALLY.
-------------------
(i) All remedies provided for in Section 10(b) shall
be available to the extent not prohibited by law. Each remedy shall be
cumulative and additional to any other remedy of Lender at law, in equity or by
statute. No delay or omission to exercise any right or power accruing upon any
default or Event of Default shall impair any such right or power or shall be
construed to be a waiver of, or acquiescence in, any such default or Event of
Default.
(ii) Lender may waive any Event of Default and may
rescind any declaration of maturity of payments on the Indebtedness. In case of
such waiver or recision Borrower and Lender shall be restored to their
respective former positions and rights under this Agreement. Any waiver by
Lender of any default or Event of Default shall be in writing and shall be
limited to the particular default waived and shall not be deemed to waive any
other default.
(d) APPLICATION OF PROCEEDS. Any proceeds received by Lender from the
exercise of remedies pursuant to Section 10(b) of this Agreement shall be
applied as follows:
(i) First, to pay all costs and expenses incidental
to the leasing, foreclosure, sale or other disposition of the Collateral. These
costs and expenses shall include, without limit, any costs and expenses incurred
by Lender (including, without limit, attorneys' fees and disbursements), and any
taxes and assessments or other liens and encumbrances prior to the lien of this
Agreement.
(ii) Second, to all sums expended or incurred by
Lender, directly or indirectly in carrying out any term, covenant or agreement
under this Agreement or any related document, together with interest as provided
in this Agreement.
(iii) Third, to the payment of the Indebtedness. If
the proceeds are insufficient to fully pay the Indebtedness, then application
shall be made first to late charges and interest accrued and unpaid, then to any
applicable prepayment premiums, and then to unpaid fees and other charges, then
to the outstanding principal balance.
(iv) Fourth, any surplus remaining shall be paid to
Borrower or to whomsoever may be lawfully entitled.
(e) FURTHER ACTIONS. Promptly upon the request of Lender,
Borrower shall execute, acknowledge and deliver any and all further documents,
security agreements, financing statements and assurances, and do or cause to be
done all further acts as Lender may require to confirm and protect the lien of
this Agreement or otherwise to accomplish the purposes of this Agreement.
(f) ATTORNEYS FEES. Any reference in this Agreement to
attorneys' fees shall refer to fees, charges, costs and expenses of in-house and
outside attorneys and paralegals, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise. All costs, expenses and fees of any nature for which Borrower is
obligated to reimburse or indemnify Lender are part of the Indebtedness secured
by this Agreement and are payable upon demand, unless expressly provided
otherwise, with interest until repaid at the highest rate charged on any of the
Indebtedness (but not to exceed the maximum rate permitted by law).
-8-
<PAGE> 9
11. PARTIAL RELEASES. Lender shall from time to time execute and
deliver to Borrower, within ten (10) business days after the written request of
Borrower, UCC termination statements with respect to a portion of the Collateral
secured hereunder, provided that (a) Borrower shall not be in default under any
of the terms, covenants or conditions of any document or instrument evidencing
or securing the Indebtedness; (b) the outstanding principal balance of the
applicable promissory note, together with interest, premiums, costs and all
other sums on that amount, shall be paid in full; and (c) all termination
statements shall be prepared by Lender at Borrower's expense. The portion of the
Collateral released under this Section 11 shall be determined by matching the
Collateral located at or related to a specified Franchised Operation with the
promissory note referencing that Franchised Operation on its face.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be construed according
to the laws of the State of Michigan.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the successors and assigns of Borrower including, without limit, any debtor
in possession or trustee in bankruptcy for Borrower, and the rights and
privileges of Lender under this Agreement shall inure to the benefit of its
successors and assigns. This shall not be deemed a consent by Lender to a
conveyance by Borrower of all or any part of the Collateral or of any ownership
interest in Borrower.
(c) NOTICES. Notice from one party to another relating to this
Agreement, if required, shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth by any of the following means: (i) hand delivery,
(ii) registered or certified mail, postage prepaid, (iii) express mail or other
overnight courier service or (iv) telecopy, telex or other wire transmission
with request for assurance of receipt in a manner typical with respect to
communications of that type. Notice made in accordance with these provisions
shall be deemed delivered on receipt if delivered by hand or wire transmission,
on the third business day after mailing if mailed by registered or certified
mail, or on the next business day after mailing or deposit with the postal
service or an overnight courier service if delivered by express mail or
overnight courier. Borrower's telecopier number is (616) 776-2776, and Lender's
telecopier number is (734) 994-1376.
(d) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and any
agreement to which it refers state all rights and obligations of the parties and
supersede all other agreements (oral or written) with respect to the security
interests granted by this Agreement. Any amendment of this Agreement shall be in
writing and shall require the signature of Borrower and Lender.
(e) PARTIAL INVALIDITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of the remaining provisions of this Agreement.
(f) INSPECTIONS. Any inspection, audit, appraisal or
examination by Lender or its agents of the Collateral or of information or
documents pertaining to the Collateral is for the sole purpose of protecting
Lender's interests under this Agreement and is not for the benefit or protection
of Borrower or any third party.
(g) JOINT AND SEVERAL LIABILITY. In the event that more than
one person or entity executes this Agreement, the obligations of each person or
entity shall be joint and several.
(h) AUTOMATIC REINSTATEMENT. Notwithstanding any prior
revocation, termination, surrender or discharge of this Agreement, the
effectiveness of this Agreement shall automatically continue or be reinstated,
as the case may be, in the event that:
-9-
<PAGE> 10
(i) Any payment received or credit given by
Lender in respect of the Indebtedness is determined to be a preference,
impermissible setoff, fraudulent conveyance, diversion of trust funds, or
otherwise required to be returned to Borrower or any third party under any
applicable state or federal law, including, without limit, laws pertaining to
bankruptcy or insolvency, in which case this Agreement shall be enforceable as
if any such payment or credit had not been received or given, whether or not
Lender relied upon this payment or credit or changed its position as a
consequence of it.
(ii) In the event of continuation or
reinstatement of this Agreement, Borrower agrees upon demand by Lender to
execute and deliver to Lender those documents which Lender determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of Borrower to do so shall
not affect in any way the reinstatement or continuation. If Borrower does not
execute and deliver to Lender such documents upon demand, Lender and each
officer of Lender is irrevocably appointed (which appointment is coupled with an
interest) the true and lawful attorney of Borrower (with full power of
substitution) to execute and deliver such documents in the name and on behalf of
Borrower.
(i) WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT
THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR
THE INDEBTEDNESS.
(j) ASSIGNMENT. This Agreement is freely assignable, in whole
or in part, by Lender without the consent of Borrower. Except as set forth
below, Lender shall provide Borrower with written notice of assignment. Lender
shall be fully discharged from all responsibility accruing hereunder from and
after the effective date of any such assignment. Lender's assignee shall, to the
extent of the assignment, be vested with all the powers and rights of Lender
hereunder (including those granted under Section 10 hereof or otherwise with
respect to the Collateral), and to the extent of such assignment the assignee
may fully enforce such rights and powers, and all references to Lender shall
mean and refer to such assignee. Lender shall retain all rights and powers
hereby given not so assigned, transferred and/or delivered. Borrower hereby
waives all defenses which Borrower may be entitled to assert against Lender's
assignee with respect to liability accruing hereunder prior to the effective
date of any assignment of Lender's interest herein. Borrower may not, in whole
or in part, directly or indirectly, assign this Agreement or its rights
hereunder or delegate its duties hereunder without, in each instance, the
specific prior written consent of Lender, which consent shall not be
unreasonably withheld.
(k) SECURITIZATION. Borrower understands and agrees that
Lender may, from time to time, assign its rights and powers under the Notes,
this Agreement and any other Loan Documents, in whole or in part, in connection
with a securitization program. Borrower agrees to enter into an amendment to the
Notes, this Agreement and any other Loan Documents if such amendments are
required by a nationally recognized rating agency in connection with a
securitization program sponsored by Lender and in which the Notes, this
Agreement and any other Loan Documents are to be included; provided that
Borrower shall not be obligated to enter into any agreement which adversely
affects Borrower or adversely alters any of the financial terms of the Loan
Documents. Lender shall pay Borrower's reasonable costs associated with such
assignment.
-10-
<PAGE> 11
Borrower has executed this Agreement on the day and year first above
written.
Borrower's principal place of business is located in the County of
Kent, State of Michigan.
Locations of the Collateral:
480 68th St.SW, Culterville, Michigan
5335 Beckley Rd., Battle Creek, Michigan
12393 James St., Holland, Michigan
3922 Lake Michigan Dr., Walker, Michigan
BORROWER:
WM LIMITED PARTNERSHIP - 1998 D/B/A WENDY'S
OF MICHIGAN
By MCC Food Service Inc.
Its: General Partner
By
---------------------------------
Its
------------------------------
Borrower's Address:
40 Pearl Street NW, Suite 900, Grand Rapids, Michigan 49503
Borrower's Tax Identification Number: 38-3389989
-11-
<PAGE> 1
Exhibit 10.25
AGREEMENT
---------
This Agreement made as of the 1st day of October, 1998, is by and among
MERITAGE HOSPITALITY GROUP INC., a Michigan corporation ("MERITAGE"), and ROBERT
E. SCHERMER, SR. ("SCHERMER").
RECITALS
--------
A. Whereas, Meritage and Schermer are parties to a promissory note
dated March 24, 1997 in the original principal amount of $750,000, a copy of
which is attached hereto as Exhibit A (the "MERITAGE NOTE").
B. Whereas, Schermer is the owner of 20,000 shares of Meritage Series A
Convertible Preferred Stock as represented by a copy of the preferred share
certificate attached hereto as Exhibit B (the "PREFERRED SHARES").
C. Whereas, Meritage is the holder of a promissory note from S.C. Land
Acquisitions, L.L.C., a Michigan limited liability company, dated June 16, 1998
in the original principal amount of $1,375,000, a copy of which is attached
hereto as Exhibit C (the "S.C. LAND ACQUISITIONS NOTE").
D. Whereas, the parties desire that Meritage assign the S.C. Land
Acquisitions Note to Schermer in exchange for Schermer (i) canceling the
Meritage Note, (ii) transferring the Preferred Shares to Meritage, and (iii)
paying Meritage "CASH" as derived from the following formula:
principal amount of S.C. Land Acquisitions Note
+ accrued interest on S.C. Land Acquisitions Note
- principal amount of Meritage Note
- accrued interest on Meritage Note
- $200,000 (value of Preferred Shares)
= Cash
E. Meritage has determined that this Agreement is fair and beneficial
to Meritage.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. ASSIGNMENT OF S.C. LAND ACQUISITIONS NOTE. Meritage shall assign and
transfer to Schermer, free and clear of any liens and encumbrances, the S.C.
Land Acquisitions Note and all of Meritage's rights, title and interest under
the S.C. Land Acquisitions Note.
2. CANCELLATION OF MERITAGE NOTE, TRANSFER OF PREFERRED SHARES AND
PAYMENT OF CASH. Upon assignment and transfer of the S.C. Land Acquisitions
Note, Schermer shall (i) cancel and forever discharge all of Meritage's
obligations under the Meritage Note, (ii) transfer to Meritage, free and clear
of any liens and encumbrances, the Preferred Shares (which Meritage shall
thereafter cancel), and (iii) pay Meritage the Cash (as defined in Recital D
above).
<PAGE> 2
3. CONDITIONS. This Agreement and all obligations hereunder shall be
conditioned on (i) the consent and approval of the disinterested directors of
Meritage, and (ii) the complete repayment by Meritage of all its indebtedness to
its lender, Great American Life Insurance Company ("GALIC"), or, in the
alternative, consent from GALIC to engage in the transactions described herein.
This Agreement shall not close until these conditions are completely satisfied.
4. INDEMNIFICATION. Subject to the terms and conditions of this
Agreement, Meritage shall indemnify and hold Schermer harmless from and against
all expenses, liabilities and losses, including attorneys' fees, reasonably
incurred or suffered by Schermer in connection with any action or proceeding
which Schermer is required to commence to collect the indebtedness under the
S.C. Land Acquisitions Note.
5. INDEMNIFICATION ONLY TO EXTENT PERMITTED BY LAW. In no event shall
this Agreement be construed to obligate Meritage to do any act or thing not
permitted by applicable law.
6. SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be in violation of applicable law, such
provision shall be limited or modified in its application to the minimum extent
necessary to avoid a violation of law, and the balance of this Agreement shall
be enforceable in accordance with its terms.
7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the respective heirs, personal representatives,
executors, administrators and successors and assigns of the parties hereto.
8. CHOICE OF LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Michigan.
9. AMENDMENT. This is the entire agreement between the parties hereto.
No amendment, modification, termination or cancellation of this Agreement shall
be effective unless made in writing and signed by each of the parties hereto.
IN WITNESS WHEREOF, the undersigned executed this Agreement as of the
date first written above.
MERITAGE HOSPITALITY GROUP INC.
/s/ James R. Saalfeld By: /s/ Christopher B. Hewett
- ------------------------------ --------------------------------
Christopher B. Hewett
President
- ------------------------------
/s/ Robert E. Schermer, Jr. /s/ Robert E. Schermer, Sr.
- ------------------------------ --------------------------------
Robert E. Schermer, Sr.
Individually
- ------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> AUG-31-1998
<CASH> 1,436,651
<SECURITIES> 0
<RECEIVABLES> 80,039
<ALLOWANCES> 0
<INVENTORY> 152,425
<CURRENT-ASSETS> 1,918,381
<PP&E> 9,239,371
<DEPRECIATION> 624,095
<TOTAL-ASSETS> 16,530,313
<CURRENT-LIABILITIES> 2,809,038
<BONDS> 7,185,957
0
1,323
<COMMON> 52,599
<OTHER-SE> 2,770,546
<TOTAL-LIABILITY-AND-EQUITY> 16,530,313
<SALES> 20,041,338
<TOTAL-REVENUES> 20,041,338
<CGS> 5,753,689
<TOTAL-COSTS> 20,607,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,096,529
<INCOME-PRETAX> (1,069,689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,069,689)
<DISCONTINUED> (479,232)
<EXTRAORDINARY> (141,740)
<CHANGES> 0
<NET-INCOME> (1,690,661)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
