<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 May 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 July 13, 1998 there were 5,216,109 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
solely 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 May
31, 1998 and November 30, 1997 are reflected on the balance sheet as a net
current asset (see Note E of the Company's Financial Statements). The results of
operations for the three and six month periods ended May 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
MAY 31, 1998 AND NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1998 1997
(UNAUDITED) (RESTATED)
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,631,741 $ 1,061,475
Receivables 157,193 258,282
Inventories 159,779 156,746
Deferred income taxes 22,000 22,000
Prepaid expenses and other current assets 140,150 156,028
Net assets of discontinued operations - Note E 201,758 539,107
----------- -----------
Total current assets 2,312,621 2,193,638
PROPERTY, PLANT AND EQUIPMENT, NET 8,734,145 7,518,007
OTHER ASSETS
Goodwill, net of amortization of $186,022 and
$2,278,454 respectively 5,207,451 3,586,177
Financing costs, net of amortization of $144,756 and
and $108,014 respectively 424,029 449,520
Sundry 722,318 190,398
----------- -----------
Total other assets 6,353,798 4,226,095
----------- -----------
Total assets $17,400,564 $13,937,740
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
3
<PAGE> 4
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
MAY 31, 1998 AND NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1998 1997
(UNAUDITED) (RESTATED)
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 1,337,021 $ 1,077,552
Current portion of obligations under capital leases 279,066 264,372
Trade accounts payable 1,184,266 899,118
Accrued liabilities 1,327,007 837,230
------------ ------------
Total current liabilities 4,127,360 3,078,272
LONG-TERM DEBT 6,344,256 7,348,464
OBLIGATIONS UNDER CAPITAL LEASES 1,546,321 1,689,628
DEFERRED INCOME TAXES 190,000 190,000
DEFERRED REVENUE - NOTE D 2,090,000 --
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 138,387 in 1998 and 1997 (liquidation
value - $1,383,870) 1,384 1,384
Common stock - $0.01 par value; authorized 30,000,000
shares; issued and outstanding 5,214,309 and 3,218,778
respectively 52,144 32,188
Additional paid in capital 17,538,208 12,982,295
Note receivable from the sale of shares (6,007,523) (5,700,645)
Accumulated deficit (8,481,586) (7,285,261)
------------ ------------
Total stockholders' equity 3,102,627 29,961
------------ ------------
Total liabilities and stockholders' equity $ 17,400,564 $ 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 SIX MONTH PERIODS ENDED MAY 31, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
1998 (RESTATED)
------------ ------------
<S> <C> <C>
FOOD AND BEVERAGE REVENUE $ 12,713,910 $ 12,949,739
COSTS AND EXPENSES
Cost of food and beverages 3,668,318 3,733,590
Operating expenses 7,629,492 7,843,174
General and administrative expenses 1,569,966 1,471,447
Depreciation and amortization 619,629 602,634
------------ ------------
Total costs and expenses 13,487,405 13,650,845
OPERATING LOSS (773,495) (701,106)
OTHER INCOME (EXPENSE)
Interest expense (740,757) (704,374)
Interest income 315,444 283,432
Other income 518,312 2,911
Minority interest 25,677 (35,946)
------------ ------------
118,676 (453,977)
------------ ------------
Loss from continuing operations (654,819) (1,155,083)
LOSS FROM DISCONTINUED OPERATIONS - NOTE E (479,232) (684,568)
------------ ------------
Net loss (1,134,051) (1,839,651)
DIVIDENDS ON PREFERRED STOCK 62,274 39,440
------------ ------------
NET LOSS ON COMMON SHARES $ (1,196,325) $ (1,879,091)
============ ============
BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS
PER COMMON SHARE $ (0.16) $ (0.37)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.27) $ (0.59)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 4,414,859 3,212,097
============ ============
</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 MAY 31, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
1998 (RESTATED)
----------- -----------
<S> <C> <C>
FOOD AND BEVERAGE REVENUE $ 6,690,794 $ 7,119,495
COSTS AND EXPENSES
Cost of food and beverages 1,953,142 2,041,480
Operating expenses 3,882,603 4,118,216
General and administrative expenses 621,735 701,347
Depreciation and amortization 309,265 303,288
----------- -----------
Total costs and expenses 6,766,745 7,164,331
LOSS FROM OPERATIONS (75,951) (44,836)
OTHER INCOME (EXPENSE)
Interest expense (371,253) (367,732)
Interest income 158,989 142,330
Other income 518,239 185
Minority interest -- (138,298)
----------- -----------
305,975 (363,515)
----------- -----------
Earnings (loss) from continuing operations 230,024 (408,351)
LOSS FROM DISCONTINUED OPERATIONS - NOTE E (164,270) (106,365)
----------- -----------
Net earnings (loss) 65,754 (514,716)
DIVIDENDS ON PREFERRED STOCK 31,137 26,680
----------- -----------
NET EARNINGS (LOSS) ON COMMON SHARES $ 34,617 $ (541,396)
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) FROM CONTINUING
OPERATIONS PER COMMON SHARE $ 0.04 $ (0.14)
=========== ===========
BASIC AND DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ 0.01 (0.17)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 5,006,008 3,214,447
=========== ===========
</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 SIX MONTH PERIOD ENDED MAY 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 1,995,531 shares of
common stock -- 19,956 4,555,913 -- -- 4,575,869
Dividends paid - preferred stock -- -- -- -- (62,274)
(62,274)
Recognition of interest income
on note receivable from sale
of shares -- -- -- (306,878) -- (306,878)
Net loss -- -- -- -- (1,134,051) (1,134,051)
----------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1998 $1,384 $52,144 $17,538,208 $(6,007,523) $(8,481,586) $ 3,102,627
==============================================================================================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
7
<PAGE> 8
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,134,051) $(1,839,651)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 957,281 1,077,568
Compensation and fees paid by issuance of common stock 2,809 58,834
Minority interest in net earnings of consolidated subsidiaries (25,677) 35,946
Interest income on note receivable from sale of shares (306,878) (276,467)
Interest expense refinanced as long-term debt 5,299 --
Increase in deferred revenue 2,090,000 --
Decrease (increase) in current and other assets 313,952 (137,540)
Increase in current liabilities 330,067 146,056
----------- -----------
Net cash provided by (used in) operating activities 2,232,802 (935,254)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (170,840) (471,925)
Proceeds from sale of hotel assets 3,601,063 --
Payment for acquisition of business (755,200) --
Increase in other assets (48,421) (109,021)
----------- -----------
Net cash provided by (used in) investing activities 2,626,602 (580,946)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 75,000 750,000
Principal payments of long-term debt (4,176,586) (526,895)
Payments on obligations under capital leases (128,613) (110,780)
Proceeds from issuance of stock 3,335 300,000
Preferred dividends paid (62,274) (39,440)
----------- -----------
Net cash (used in) provided by financing activities (4,289,138) 372,885
----------- -----------
Net increase (decrease) in cash 570,266 (1,143,315)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,061,475 2,265,497
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,631,741 $ 1,122,182
=========== ===========
</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 SIX MONTH PERIODS ENDED MAY 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE A - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Cash paid for interest expense $ 1,243,666 $ 1,359,681
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
===========
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 $ 391,141
Long-term debt proceeds 200,000
-----------
Cash used in marina development costs $ 191,141
===========
</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 to common stock. As of May 31, 1998 and 1997, the Company had 138,387
shares of Series A Convertible Preferred Stock outstanding. Each share of
preferred stock is convertible into 1.43 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.
9
<PAGE> 10
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE SIX MONTH PERIODS ENDED MAY 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 - DEFERRED REVENUE
In April 1998, the Company entered into a long-term agreement with its
fountain beverage supplier. The agreement requires the Company to purchase
1,800,000 gallons of fountain beverage syrup from the supplier. In exchange, the
Company received $2,090,000 in marketing and conversion funds which, in
accordance with the terms of the agreement, will be recognized as income as the
gallons of fountain beverage syrup are purchased.
NOTE E - 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 closed on June 16, 1998, and the sale of the Thomas Edison Inn is scheduled
to close 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 from discontinued
operations and the disposal of the lodging group business segment, no losses
from discontinued operations will be recognized from June 1, 1998 through the
date of disposal of the assets. Instead, any losses from discontinued operations
will be deferred until the sale of the properties, at which time the anticipated
net gain will be recognized. 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 ----
---------- -----------
Cash portion of selling price $3,125,000 $12,200,000
========== ===========
</TABLE>
10
<PAGE> 11
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE E - DISCONTINUED OPERATIONS (CONTINUED)
As of May 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>
May 31, November 30,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets $ 466,388 $ 4,199,733
Property, plant and equipment, net 11,128,630 11,461,306
Marina development costs 1,085,036 1,152,772
Other assets 710,822 710,824
Liabilities
Current liabilities (1,303,897) (4,959,561)
Long-term debt (11,885,221) (12,025,967)
------------ ------------
Net assets of discontinued operations $ 201,758 $ 539,107
============ ============
</TABLE>
A summary of the results of operations of the discontinued operations for
the three and six month periods ended May 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
For the six month periods ended
May 31, 1998 and 1997
Revenues $ 4,224,973 $ 5,956,765
Costs and expenses 4,016,185 5,914,461
----------- -----------
Earnings from operations 208,788 42,304
Other income (expense), net (688,020) (726,872)
----------- -----------
Loss from discontinued operations $ (479,232) $ (684,568)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
For the three month periods ended
May 31, 1998 and 1997
Revenues $ 2,184,674 $ 3,071,227
Costs and expenses 2,008,674 2,813,590
----------- -----------
Earnings from operations 176,000 257,637
Other income (expense), net (340,270) (364,002)
----------- -----------
Loss from discontinued operations $ (164,270) $ (106,365)
=========== ===========
</TABLE>
NOTE F - SUBSEQUENT EVENT
On June 16, 1998, the Company closed on the sale of substantially all of
the assets of its wholly- owned subsidiaries, Grand Harbor Resort Inc. and Grand
Harbor Yacht Club Inc. The sale included real and personal property comprising
the hotel, restaurant and 47 condominium marina slips located at the Grand
Harbor Resort & Yacht Club. The assets were sold for $4,500,000 of which
$3,125,000 was paid in cash and $1,375,000 was in the form of a secured
promissory note requiring monthly payments of interest only at 10.8% through
June 15, 1999. On June 16, 1999, the remaining unpaid principal will be due
provided, however, that if the principal balance is $500,000 or less on that
date, the payments of interest only may continue for an additional six months at
which time any remaining unpaid principal will be due.
11
<PAGE> 12
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 six month periods ended May 31, 1998, and May 31, 1997 as restated,
also include expenses related to the Meritage Hospitality Group corporate office
and are summarized in the following table:
<TABLE>
<CAPTION>
Statement of Operations
---------------------------------------------------------------------------------
Three month periods ended May 31, Six month periods ended May 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 $ 6,691 $ 7,119 100.0% 100.0% $12,714 $ 12,950 100.0% 100.0%
Costs and expenses
Cost of food and beverages 1,953 2,042 29.2 28.7 3,668 3,734 28.9 28.8
Operating expenses 3,883 4,118 58.0 57.8 7,629 7,843 60.0 60.5
General and administrative
expenses 622 701 9.3 9.8 1,570 1,471 12.3 11.4
Depreciation and amortization 309 303 4.6 4.3 620 603 4.9 4.7
---------------- --------------- ---------------- -------------
Total costs and expenses 6,767 7,164 101.1 100.6 13,487 13,651 106.1 105.4
Loss from operations (76) (45) (1.1) (0.6) (773) (704) (6.1) (5.4)
Other income (expense)
Interest expense (371) (367) (5.6) (5.2) (741) (701) (5.8) (5.4)
Interest income 159 142 2.4 2.0 315 283 2.5 2.2
Other income 518 0 7.7 0.0 518 3 4.0 0.0
Minority interest ---- (138) ---- (1.9) 26 (36) 0.2 (0.3)
---------------- --------------- ---------------- ------------
306 (363) 4.5 (5.1) 118 (454) 0.9 (3.5)
---------------- --------------- ---------------- ------------
Earnings (loss) from
continuing operations $ 230 $ (408) 3.4% (5.7%) $ (655) $(1,155) (5.2%) (8.9%)
================= ================ ================= =============
</TABLE>
REVENUE
Food and beverage revenue decreased $428,000 or 6.0% for the three months
ended May 31, 1998 compared to the same period of 1997. For the six months ended
May 31, 1998, food and beverage revenue decreased $236,000 or 1.9% 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
both the first and second quarters of 1998 and 1997 are set forth in the
following table:
12
<PAGE> 13
<TABLE>
<CAPTION>
Average Net Sales Per Restaurant Unit
-------------------------------------
Increase % Increase
1998 1997 (Decrease) (Decrease)
---- ---- ---------- ----------
<S> <C> <C> <C> <C>
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%
-------- -------- --------
Six months ended May 31 $508,557 $512,121 $ (3,564) (0.7%)
======== ======== ========
</TABLE>
The 4.4% 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. Same store sales
for the three months ended May 31, 1998 decreased 4.9%. Nearly 3% of the sales
decrease 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. Sales
during the first half of 1998 have also been negatively impacted by competitive
intrusion which has effected 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 six
months ended May 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
29.2% for the three months ended May 31, 1998 compared to 28.7% for the three
months ended May 31, 1997. Cost of food and beverages for the six months ended
May 31, 1998 was 28.9% compared to 28.8% for the same period of 1997. The .5
percentage point increase in cost of food and beverages for the second quarter
of 1998 was primarily due to a relatively low food and beverage cost of 28.7% in
the second quarter of 1997 due to high sales of pita sandwiches during their
introductory period in April and May of 1997. The pita sandwiches carry a
relatively lower food cost than most sandwich menu selections. Cost of food and
beverage percentages of 28.9% and 28.8% respectively for the six months ended
May 31, 1998 and 1997 are in line with the Company's and Wendy's International's
guidelines.
OPERATING EXPENSES
Operating expenses increased .2 percentage points for the three months
ended May 31, 1998 compared to the same period of 1997 (from 57.8% of revenue in
1997 to 58.0% in 1998). The increase for the second quarter was primarily a
function of the decrease in sales of 4.9% while certain fixed costs such as
property taxes and insurance were spread over reduced revenue. For the six
months ended May 31, 1998, operating expenses were reduced .5 percentage points
(from 60.5% of revenue in 1997 to 60.0% in 1998). Slight decreases in payroll
and utility costs produced the reduction in operating costs for the six months
ended May 31, 1998 compared to the same period of 1997.
13
<PAGE> 14
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased approximately $79,000 for the
three months ended May 31, 1998 compared to the same period of 1997 (from
$701,000 to $622,000). As a percentage of revenue, general and administrative
expenses decreased from 9.8% of revenue for the three months ended May 31, 1997
to 9.3% of revenue for the same period of 1998. For the six months ended May 31,
1998, general and administrative expenses increased approximately $99,000 (from
$1,471,00 to $1,570,000), from 11.4% of revenue to 12.3% of revenue. Increases
in administrative salaries and recruiting costs accounted for the increase in
general and administrative expenses for the six months ended May 31, 1998
compared to the same period of 1997. The decrease in general and administrative
expenses for the three months ended May 31, 1998 compared to the same period of
1997 was the result of a reduction in legal expenses and a refund of business
insurance premiums from a prior year.
INTEREST EXPENSE
Interest expense for the second quarter of 1998 and 1997 was $371,000 and
$367,000 respectively. Interest expense for the six months ended 1998 and 1997
was $741,000 and $704,000 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 increased $17,000 for the second quarter of 1998 compared
to the same period of 1997, and $32,000 for the six months ended May 31, 1998
compared to the six months ended May 31, 1997. The increase was attributable to
the increase in interest income from the note receivable from the sale of stock.
OTHER INCOME
Other income increased $518,000 for the three months ended May 31, 1998
compared to 1997. Other income increased $515,000 for the six months ended May
31, 1998 compared to the six months ended May 31, 1997. The increase in other
income was primarily due to the forfeiture of an earnest deposit 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 E of the Company's Financial Statements.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash and cash equivalents ("cash") increased $571,000 from $1,061,000 as of
November 30, 1997 to $1,632,000 as of May 31, 1998. The increase in cash was the
result of the following:
<TABLE>
<CAPTION>
<S> <C>
Net cash provided by operating activities $ 2,233,000
Net cash provided by investing activities 2,627,000
Net cash used in financing activities (4,289,000)
-----------
Net increase in cash $ 571,000
==========
</TABLE>
Net cash provided by operating activities of $2,233,000 was due to a net
loss before depreciation and amortization of $177,000 combined with the receipt
of $2,090,000 in marketing and conversion funds (deferred revenue) from the
Company's beverage supplier (see Note D of the Company's Financial Statements).
Other non-cash effects on net income and net cash provided by operating
activities totaled $320,000.
Net cash provided by investing activities of $2,627,000 was the result of
proceeds from the sale of the St. Clair Inn of $3,601,000. Cash provided from
the sale of this hotel asset was offset by the purchase of property and
equipment for $171,000 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 $48,000.
Net cash used in financing activities of $4,289,000 was primarily the
result of payments of long-term debt of $4,177,000 in connection with the sale
of the St. Clair Inn, and a reduction in the long-term debt associated with the
Wendy's operations through the use of a portion of the beverage marketing and
conversion funds described above. In addition to the reduction of long-term
debt, principal payments reduced obligations under capital leases by $129,000.
Dividend payments on preferred stock of $62,000 for the six months ended May 31,
1998 accounted for the remaining cash used in financing activities. In March
1998, the Company received $75,000 in proceeds from long-term debt related to
the marina development at the Grand Harbor Yacht Club.
FINANCIAL CONDITION
As of May 31, 1998, the Company's current liabilities exceeded its current
assets by $1,815,000 compared to November 30, 1997 when current liabilities
exceeded current assets by $885,000. At these dates, the ratios of current
assets to current liabilities were 0.56:1 and 0.71:1 respectively. The
discussion above of cash flows for the six months ended May 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 a $300,000 increase in the current portion of the Company's
second mortgage (Loan II) from November 30, 1997 to May 31, 1998.
15
<PAGE> 16
As of May 31, 1998, the Company's long-term debt consisted primarily of the
following:
1) $11,073,000 Loan I requiring monthly payments of $92,874, including
interest at 11.25%, through December 31, 2003 when the remaining unpaid
principal will be due.
2) $5,220,000 Loan II requiring monthly payments of $100,000, plus interest at
8% over the prime rate through June 2002. (A)
3) $825,000 Loan III (marina) requiring monthly payments of interest only at
11.25%. The $1.375 million note receivable from the sale of the Grand
Harbor Resort & Yacht Club serves as collateral for Loan III. Accordingly,
principal payments of $35,000 are required upon the sale of any condominium
units. Any remaining outstanding balance of principal and accrued interest
is due the earlier of the receipt of full payment of the note receivable or
September 1, 2000.
4) $1,599,000 revolving term loan requiring monthly payments of $43,313,
including interest at 1% over the prime rate, through February 2005 when
any remaining unpaid principal will be due. Under the revolving loan
agreement, the required monthly payments may be offset by additional
borrowings up to the unused available borrowings. The Company had $993,000
of available unused borrowings at May 31, 1998. The loan is secured by
substantially all of the assets used in the Company's Wendy's operation and
guaranteed by the Company.
5) $228,000 equipment note payable requiring 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 requires the Company to make monthly payments of interest only at
the prime rate plus 8% provided the Company is not in default under its
first and second mortgage long-term debt with its primary lender. Unpaid
principal and accrued interest must be paid 91 days after Loans I, II and
III are paid off.
(A) The Company's primary lender has deferred $50,000 of principal
payments due April 1, 1998 and May 1, 1998 until July 1, 1998.
The loan agreement with the Company's primary lender contains numerous
covenants regarding the maintenance of a prescribed amount of net worth, certain
financial ratios, and restrictions on certain common stock purchases, dividends,
additional indebtedness and executive compensation. At May 31, 1998, the Company
failed to meet certain of these covenants. However, a waiver has been obtained
through June 30, 1999.
16
<PAGE> 17
A summary of the financial covenants as well as the Company's compliance with
them is as follows:
<TABLE>
<CAPTION>
COVENANT MAY 31, 1998 COVENANT
COVENANT DESCRIPTION REQUIREMENT ACTUAL CONDITION COMPLIANCE
<S> <C> <C> <C>
Waiver obtained
through
Minimum Net Worth $8,000,000 $3,102,627 June 30,1999
Coverage Ratio -
Earnings before interest, taxes Waiver obtained
depreciation and amortization through
("EBITDA") of hotels : 1.75 : 1 .77 : 1 June 30, 1999
Debt Service
Coverage Ratio - Waiver obtained
EBITDA of hotels less capital through
expenditures : .70 : 1 .63 : 1 June 30, 1999
Debt Service
</TABLE>
The following schedule details the financial covenant requirements
contained in the Company's loan agreement following the expiration of its
waiver:
Financial Covenant - Minimum Net Worth
August 31, 1999 - October 31, 1999 $9,250,000
November 30, 1999 - October 31, 2000 $10,750,000
November 30, 2000 - October 31, 2001 $12,500,000
November 30, 2001 - October 31, 2002 $14,500,000
November 30, 2002 - October 31, 2003 $16,500,000
Financial Covenant - Coverage Ratio - EBITDA of Hotels : Debt Service
August 31, 1999 - August 31, 2000 1.9 : 1
November 30, 2000 2.0 : 1
February 28, 2001 2.1 : 1
May 31, 2001 2.2 : 1
August 31, 2001 2.3 : 1
Financial Covenant - Coverage Ratio - EBITDA of Hotels Less Capital
Expenditures : Debt Service
August 31, 1999 1.4 : 1
November 30, 1999 - February 28, 2001 1.6 : 1
May 31, 2001 - August 31, 2001 1.7 : 1
November 30, 2001 and thereafter 1.8 : 1
The Company has faced significant cash flow and liquidity issues due to
several factors, including (i) the high level of fixed costs required to operate
the hotel operations which cannot be reduced at the same rate that the revenues
decrease during the off-season, (ii) declining revenues at the hotel properties
due to increased competition in the geographic market and lower room rates at
competing limited service hotel properties, and (iii) carrying a high-interest
rate (prime plus 8%) Loan II with its primary lender for a longer
17
<PAGE> 18
period of time than was originally contemplated and, as such, carrying a higher
level of debt service than was planned. The Company anticipates, however, that
it will be able to meet its current obligations over the next twelve months by:
* Closing on the $4.5 million sale of the Grand Harbor Resort & Yacht Club on
June 16, 1998 for cash of $3.125 million and a note receivable of $1.375
million. The proceeds were used to reduce long- term debt by approximately
$2.4 million.
* Exploring the sale of the $1.375 million promissory note received as a
result of the sale of the Grand Harbor Resort & Yacht Club. The proceeds
would be used to reduce high interest rate long-term debt and to provide
working capital.
* Closing on the sale of the Thomas Edison Inn for $12.2 million which is set
for September 1, 1998. The proceeds are projected to be used to reduce
long-term debt by approximately $10 million.
* Borrowing funds from the unused available revolving term loan, of which
approximately $993,000 were available as of May 31, 1998.
* Closing on the refinancing of the mortgage loan on the real estate
associated with the Wendy's operations and owned by the Company. This would
net the Company approximately $2,500,000 after closing costs and the
retirement of the underlying mortgage loans on the Wendy's properties. The
$2,500,000 would be used to pay down a portion of the Company's high
interest rate Loan II which would reduce the Company's annual debt service.
* Deferring the payment of the $160,000 annual general partner administrative
fee.
* Managing relationships with vendors to obtain an extension of the credit
terms.
* Using the $2,090,000 marketing and conversion funds received from the
Company's fountain beverage supplier to enhance marketing efforts and
assist in the reduction of long term debt.
* Exploring the financing options for certain of the planned capital
expenditures as opposed to using operating cash flow.
* Reducing or deferring capital expenditures.
There can be no assurances, however, that the Company will be able to
complete 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, fixtures and
equipment purchases at the Wendy's restaurants. The Company has signed a
commitment with Captec Financial Group, Inc. to finance (through debt or lease)
both the real estate and the furniture, fixtures and equipment for the
development of new Wendy's restaurants.
18
<PAGE> 19
INFLATION AND CHANGING PRICES
The Company has been affected by the increase in the minimum wage and the
availability of management and hourly employees. Increases in labor costs, along
with periodic increases in food and other operating expenses, are normally
passed on to customers in the form of price increases. However, highly
competitive market conditions have minimized the Company's ability to offset
higher costs through price increases to its customers.
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 $100,000 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.
19
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As reported on the Form 8-K filed June 9, 1998 (see Item 6 below), legal
proceedings brought against the Company and its affiliates were dismissed with
prejudice on May 28, 1998.
ITEM 2. CHANGES IN SECURITIES.
On May 26 and 27, 1998, the Company issued 220,000 unregistered common
shares to the former general partner of the Wendy's of West Michigan Limited
Partnership and its seven shareholders in connection with the settlement of
litigation reported on the From 8-K filed June 9, 1998 (see Item 6 below). This
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1998 Annual Meeting of Shareholders was held at the Thomas Edison Inn,
located at 500 Thomas Edison Parkway, Port Huron, Michigan, at 10:00 a.m. on
Tuesday, May 19, 1998, in accordance with the Company's Bylaws. The Company
solicited proxies for the matters brought before the shareholders pursuant to a
definitive proxy statement that was filed with the Securities and Exchange
Commission on April 14, 1998. 3,218,993 Common Shares were present in person or
by proxy at the meeting, representing 64.5% of the total shares outstanding.
The shareholders elected the following seven members to the Company's Board
of Directors to serve until the 1999 Annual Meeting: Gary R. Garrabrant;
Christopher B. Hewett; David S. Lundeen; Joseph L. Maggini; Jerry L. Ruyan;
Robert E. Schermer Sr. and Robert E. Schermer, Jr. Each director received a
minimum of 2,994,957 (or 93%) of the total shares voted.
The shareholders also approved an amendment to the 1996 Management Equity
Incentive Plan increasing the number of Common Shares in the Plan by 175,000.
The following are the results of the shares that voted: In Favor: 2,467,686;
Opposed: 668,961; Abstentions: 79,446; Broker Non-Votes: 2,900.
ITEM 5. OTHER INFORMATION.
On May 19, 1998, the Board of Directors appointed the following officers of
the Company: Christopher B. Hewett - President and Chief Executive Officer;
Robert E. Schermer, Jr. - Executive Vice President; Pauline M. Krywanski - Vice
President, Treasurer and Chief Financial Officer; and James R. Saalfeld - Vice
President, General Counsel and Secretary. Robert E. Schermer, Sr. was
reappointed Chairman of the Board of Directors. In addition, Ray E. Quada was
appointed Senior Vice President and Chief Operating Officer on May 26, 1998. The
Board also reestablished the Executive, Audit, Compensation and Nominating
Committees as standing committees of the Board of Directors.
On May 27, 1998, the Company, through Wendy's of Michigan, entered into a
purchase agreement with Wendy's Real Estate Limited Partnership I (an unrelated
party) to buy, for $4,200,000, the real property comprising five of the Wendy's
restaurants currently operated by the Company. Assuming all conditions to
closing are satisfied, the purchase agreement is currently set to close on
August 25, 1998.
20
<PAGE> 21
On July 7, 1998, the Board of Directors took additional action in
accordance with its discussion at the February 26, 1998 Board Meeting to adopt
measures to protect the Company and its shareholders against potentially
disruptive and destructive actions that could be brought by dissident
shareholders and others. Specifically, the Board of Director amended the
Company's Bylaws to opt into Chapter 7B (being ss.ss. 790 through 799) of the
Michigan Business Corporation Act such that Chapter 7B shall apply to any
"control share acquisition" (as that term is defined by Chapter 7B) involving
the Company's common shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit List.
Exhibit No. Description of Document
--------------------------------------------------------------
3.2 Restated and Amended Bylaws of Meritage Hospitality Group Inc.
MANAGEMENT COMPENSATORY CONTRACTS
10.12 Amended 1996 Management Equity Incentive Plan.
27 Financial Data Schedule.
- -------------------------
(b) Reports on Form 8-K.
On April 20, 1998, the Company filed a Form 8-K which reported
that the Company's wholly-owned subsidiary had entered into a
contract for the sale of real and personal property
comprising, among other things, the Thomas Edison Inn for a
price of $12,200,000, for which the Company received a
$250,000 non-refundable deposit.
On June 9, 1998, the Company filed a Form 8-K which reported
that all litigation brought by the former general partner of
the now dissolved Wendy's of West Michigan Limited Partnership
and its affiliates was dismissed with prejudice on May 28,
1998, following a settlement pursuant to which the former
general partner and its affiliates received $658,000 and
200,000 shares of the Company's common stock. The Company also
reported that it had entered into a contract on April 27, 1998
with Pepsi-Cola to convert the fountain beverages at its 25
Wendy's Old Fashioned Hamburgers restaurants from Coca-Cola to
Pepsi-Cola, and to buy 1,800,000 gallons of fountain beverage
syrup from Pepsi, in exchange for Pepsi paying $2,090,000 in
conversion and marketing fees and providing new fountain
beverage dispensing equipment at all of the 25 Wendy's
restaurants operated by the Company.
On June 18, 1998, the Company filed a Form 8-K to report that
the Company's wholly-owned subsidiaries sold certain real and
personal property, including the Grand Harbor Resort located
in Spring Lake, Michigan and 47 condominium slips of the Grand
Harbor Yacht Club, for $4,500,000 of which the Company
received $3,125,000 in cash and a $1,375,000 one-year secured
promissory note bearing 10.8% interest.
21
<PAGE> 22
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: July 13, 1998 MERITAGE HOSPITALITY GROUP INC.
By /s/ CHRISTOPHER B. HEWETT
-------------------------------------
Christopher B. Hewett
President and Chief Executive Officer
By /s/ PAULINE M. KRYWANSKI
-------------------------------------
Pauline M. Krywanski
Vice President and Treasurer
(Chief Financial Officer)
22
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description of Document
--------------------------------------------------------------
3.2 Restated and Amended Bylaws of Meritage Hospitality Group Inc.
MANAGEMENT COMPENSATORY CONTRACTS
10.12 Amended 1996 Management Equity Incentive Plan.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3.2
RESTATED AND AMENDED
BYLAWS
OF
MERITAGE HOSPITALITY GROUP INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be in the
City of Grand Rapids, County of Kent, State of Michigan.
SECTION 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Michigan as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders of this
corporation shall be held at the registered office or such other place, either
within or without the State of Michigan, as may be determined from time to time
by the board of directors.
SECTION 2. ANNUAL MEETING OF SHAREHOLDERS. The annual meeting of
shareholders for election of directors and for such other business as may
properly come before the meeting, commencing with the year 1987, shall be held
on the third Tuesday of May, if not a legal holiday, and if a legal holiday,
then on the next business day following, at 10:00 am., local time, or at such
other date and time as shall be determined from time to time by the board of
directors. If the annual meeting is not held on the date designated therefor,
the board shall cause the meeting to be held as soon thereafter as convenient.
-1- As Amended 7/07/98
<PAGE> 2
SECTION 3. ORDER OF BUSINESS AT ANNUAL MEETING. The order of business
at the annual meeting of the shareholders shall be as follows:
(a) Reading of notice and proof of mailing,
(b) Reports of Officers,
(c) Election of Directors,
(d) Transaction of other business mentioned in the
notice,
(e) Adjournment,
provided that, in the absence of any objection, the presiding officer may vary
the order of business at his discretion.
SECTION 4. NOTICE OF MEETING OF SHAREHOLDERS. Except as otherwise
provided in the Michigan Business Corporation Act (herein called the "Act"),
written notice of the time, place, and purpose of a meeting of shareholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, to each shareholder of record
entitled to vote at the meeting. When a meeting is adjourned to another time or
place, it is not necessary to give notice of the adjourned meeting if the time
and place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken and at the adjourned meeting only such business
is transacted as might have been transacted at the original meeting. However, if
after the adjournment the board of directors fix a new record date for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record on the new record date entitled to vote at the meeting.
SECTION 5. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer or agent
having charge of the stock transfer books for shares of the corporation shall
make and certify a complete list of the shareholders entitled to vote at a
shareholders' meeting or any adjournment thereof. The list shall:
(a) Be arranged alphabetically within each class and series,
with the address of, and the number of shares held by, each
shareholder.
(b) Be produced at the time and place of the meeting.
(c) Be subject to inspection by any shareholder during the
whole time of the meeting.
(d) Be prima facie evidence as to who are the shareholders
entitled to examine the list or to vote at the meeting.
-2- As Amended 7/07/98
<PAGE> 3
SECTION 6. SPECIAL MEETING OF SHAREHOLDERS. A special meeting of
shareholders may be called at any time by the chief executive officer of the
corporation (See Article V, Section 4) or by a majority of the members of the
board of directors then in office, or by shareholders owning, in the aggregate,
not less than forty-five percent (45%) of all the shares entitled to vote at
such special meeting. The method by which such meeting may be called is as
follows: Upon receipt of a specification in writing setting forth the date and
objects of such proposed special meeting, signed by the chief executive officer,
or by a majority of the members of the board of directors then in office, or by
shareholders as above provided, the secretary of this corporation shall prepare,
sign, and mail the notices requisite to such meeting.
SECTION 7. QUORUM OF SHAREHOLDERS. Unless a greater or lesser quorum is
provided in the articles of incorporation, in a bylaw adopted by the
shareholders, or in the Act, shares entitled to cast a majority of the votes at
a meeting constitute a quorum at the meeting. The shareholders present in person
or by proxy at such meeting may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. Whether or not a quorum is present, the meeting may be adjourned by a
vote of the shares present.
SECTION 8. VOTE OF SHAREHOLDERS. Each outstanding share is entitled to
one (1) vote on each matter submitted to a vote, unless otherwise provided in
the articles of incorporation. A vote may be cast either orally or in writing.
When an action, other than the election of directors, is to be taken by vote of
the shareholders, it shall be authorized by a majority of the votes cast by the
holders of shares entitled to vote thereon, unless a greater plurality is
required by the articles of incorporation or the Act. Directors shall be elected
by a plurality of the votes cast at an election.
SECTION 9. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS. For the
purpose of determining shareholders entitled to notice of and to vote at a
meeting of shareholders or an adjournment thereof, or to express consent or to
dissent from a proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of a dividend or allotment of a right,
or for the purpose of any other action, the board may fix, in advance, a date as
the record date for any such determination of shareholders. The date shall not
be more than sixty (60) nor less than ten (10) days before the date of the
meeting, nor more than sixty (60) days before any other action. If a record date
is not fixed (a) the record date for determination of shareholders entitled to
notice of or to vote at a meeting of shareholders shall be the close of business
on the day next preceding the day on which notice is given, or, if no notice is
given, the day next preceding the day on which the meeting is held, and (b) the
record date for determining shareholders for any purpose other than that
specified in subdivision (a) shall be the close of business on the day on which
the resolution of the board relating thereto is adopted. When a determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders has been made as provided in this Section, the determination
applies to any adjournment of the meeting, unless the board fixes a new record
date under this Section for the adjourned meeting.
SECTION 10. PROXIES. A shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
one or more other persons to act for him by proxy.
-3- As Amended 7/07/98
<PAGE> 4
A proxy shall be signed by the shareholder or his authorized agent or
representative. A proxy is not valid after the expiration of three (3) years
from its date unless otherwise provided in the proxy.
SECTION 11. INSPECTORS OF ELECTION. The board of directors, in advance
of a shareholders' meeting, may appoint one (1) or more inspectors of election
to act at the meeting or any adjournment thereof. If inspectors are not so
appointed, the person presiding at a shareholders' meeting may, and on request
of a shareholder entitled to vote thereat shall, appoint one (1) or more
inspectors. In case a person appointed fails to appear or act, the vacancy may
be filled by appointment made by the board of directors in advance of the
meeting or at the meeting by the person presiding thereat. The inspectors shall
determine the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine challenges and questions arising in connection with the right to vote,
count and tabulate votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness to all
shareholders. On request of the person presiding at the meeting or a shareholder
entitled to vote thereat, the inspectors shall make and execute a written report
to the person presiding at the meeting of any of the facts found by them and
matters determined by them. The report is prima facie evidence of the facts
stated and of the vote as certified by the inspectors.
SECTION 12. Repealed.
SECTION 13. Repealed.
SECTION 14. NOMINATIONS AND OTHER BUSINESS.
(a) ANNUAL MEETING OF SHAREHOLDERS. (1) Nominations of persons for
election to the Board of Directors of the corporation and proposals of business
to be considered by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the corporation's notice of meeting, (ii) by or at
the direction of the Board of Directors or (iii) by a shareholder of the
corporation who was a shareholder of record at the time of giving of notice
provided for in this bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of paragraph
(a) (1) of this bylaw, the shareholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive offices of
the corporation not less than 60 days prior to the annual meeting. Such
shareholder's notice shall set forth (i) as to each person whom the shareholder
proposes to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the
-4- As Amended 7/07/98
<PAGE> 5
meeting, and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; (iii) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (A) the name and address of such shareholder,
as it appears on the corporation's books, and of such beneficial owner, and (B)
the class and number of shares of the corporation owned beneficially and of
record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a) (2) of this bylaw to the contrary, if the number of directors to
be elected to the Board of Directors of the corporation is increased and there
is no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation at least 70
days prior to the annual meeting, a shareholder's notice required by this bylaw
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected pursuant to the
corporation's notice of meeting (i) by or at the direction of the Board of
Directors or (ii) by any shareholder of the corporation who is a shareholder of
record at the time of giving of notice provided for in this bylaw, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this bylaw. Nominations by shareholders of persons for election to the
Board of Directors may be made at such a special meeting of shareholders if the
shareholder's notice required by paragraph (a) (2) of this bylaw shall be
delivered to the Secretary at the principal executive offices of the corporation
not later than the close of business on the later of the 60th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(c) GENERAL. (1) Only such persons who are nominated in accordance with
the procedures set forth in this bylaw shall be eligible to serve as directors
and only such shareholder proposals shall be considered at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this bylaw. The chairman of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this bylaw and, if any proposed nomination or business is not in
compliance with this bylaw, to declare that such defective proposal shall be
disregarded.
(2) For purposes of this bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national new service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14, or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this bylaw, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this bylaw. Nothing in this bylaw shall be deemed to affect any rights
of a shareholder to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 of the Exchange Act.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The business and affairs of the corporation
shall be managed by a Board of Directors comprised of not less than 5 nor more
than 15 directors, as shall be fixed from time to time by the Board of
Directors. The directors shall be elected at each annual meeting of
shareholders. A director shall hold office until the director's successor is
elected and qualified, or until the director's resignation or removal.
SECTION 2. VACANCIES. Vacancies in the Board of Directors occurring by
reason of death, resignation, removal, increase in the number of directors or
otherwise, shall be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors, unless
otherwise filled by proper action of the shareholders of the corporation. Each
person so elected shall be a director for a term of office continuing only until
the next election of directors by the shareholders.
SECTION 3. REMOVAL. A director may be removed, with or without cause,
by vote of the holders of a majority of the shares entitled to vote an election
of directors.
SECTION 4. RESIGNATION. A director may resign by written notice to the
corporation. The resignation is effective upon its receipt by the corporation or
a subsequent time as set forth in the notice of resignation.
SECTION 5. POWERS. The business and affairs of the corporation shall be
managed by its board of directors except as otherwise provided in the Act or in
the articles of incorporation.
SECTION 6. LOCATION OF MEETINGS. Regular or special meetings of the
board of directors may be held either within or without the State of Michigan.
SECTION 7. ORGANIZATION MEETING OF BOARD. The first meeting of each
newly elected board of directors shall be held at the place of holding the
annual meeting of shareholders, and immediately following the same, for the
purpose of electing officers and transacting any other business properly brought
before it, provided that the organization meeting in any year may be held at a
different time and place than that herein provided by a consent of a majority of
the directors of such new board. No notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting, provided
a quorum shall be present, unless said meeting is not held at the place of
holding and
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immediately following the annual meeting of shareholders.
SECTION 8. REGULAR MEETING OF BOARD. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board.
SECTION 9. SPECIAL MEETING OF BOARD. Special meetings of the board of
directors may be called by the chief executive officer, or by a majority of the
persons then comprising the board of directors, at any time by means of notice
of the time and place thereof to each director, given not less than twenty-four
(24) hours before the time such special meeting is to be held.
SECTION 10. COMMITTEES OF DIRECTORS. The board of directors may
designate one (1) or more committees, each committee to consist of one or more
of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace an absent or
disqualified member at a meeting of the committee. In the absence or
disqualification of a member of a committee, the members thereof present at a
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors
creating such committee, may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the corporation.
However, such a committee does not have the power or authority to amend the
articles of incorporation, adopt an agreement of merger or consolidation,
recommend to the shareholders the sale, lease, or exchange of all or
substantially all of the corporation's property and assets, recommend to the
shareholders a dissolution of the corporation or a revocation of a dissolution,
amend the bylaws of the corporation, fill vacancies in the board of directors,
or fix compensation of the directors serving on the board or on a committee;
and, unless the resolution of the board of directors creating such committee or
the articles of incorporation expressly so provides, such a committee does not
have the power or authority to declare a dividend or to authorize the issuance
of stock. Any such committee, and each member thereof, shall serve at the
pleasure of the board of directors.
SECTION 11. QUORUM AND REQUIRED VOTE OF BOARD AND COMMITTEES. At all
meetings of the board of directors, or of a committee thereof, a majority of the
members of the board then in office, or of the members of a committee thereof,
constitutes a quorum for transaction of business. The vote of the majority of
members present at a meeting at which a quorum is present constitutes the action
of the board or of the committee unless the vote of a larger number is required
by the Act. Amendment of these bylaws by the board requires the vote of not less
than a majority of the members of the board then in office. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 12. ACTION BY WRITTEN CONSENT. Action required or permitted to
be taken pursuant to authorization voted at a meeting of the board of directors
or a committee thereof, may be taken without a meeting if, before or after the
action, all members of the board or of the committee consent thereto in writing.
The written consents shall be filed with the minutes of the proceedings of the
board or committee. The consent has the same effect as a vote of the board or
committee for all purposes.
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<PAGE> 8
SECTION 13. COMPENSATION OF DIRECTORS. The board of directors, by
affirmative vote of a majority of directors in office and irrespective of any
personal interest of any of them, may establish reasonable compensation of
directors for services to the corporation as directors or officers, but approval
of the shareholders is required if the articles of incorporation, these bylaws
or any provisions of the Act so provide.
SECTION 14. PARTICIPATION IN MEETING BY TELEPHONE. By oral or written
permission of a majority of the board of directors, a member of the board of
directors or of a committee designated by the board may participate in a meeting
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section constitutes presence in
person at the meeting.
ARTICLE IV
NOTICES
SECTION 1. NOTICE. Whenever any notice or communication is required to
be given by mail to any director or shareholder under any provision of the Act,
or of the articles of incorporation or of these bylaws, it shall be given in
writing, except as otherwise provided in the Act, to such director or
shareholder at the address designated by him for that purpose or, if none is
designated, at his last known address. The notice or communication is given when
deposited, with postage thereon prepaid, in a post office or official depository
under the exclusive care and custody of the United States postal service. The
mailing shall be registered, certified, or other first class mail except where
otherwise provided in the Act. Written notice may also be given in person or by
telegram, telex, radiogram, cablegram, or mailgram, and such notice shall be
deemed to be given when the recipient receives the notice personally, or when
the notice, addressed as provided above, has been delivered to the company, or
to the equipment transmitting such notice. Neither the business to be transacted
at, nor the purpose of, a regular or special meeting of the board of directors
need be specified in the notice of the meeting.
SECTION 2. WAIVER OF NOTICE. When, under the Act or the articles of
incorporation or these bylaws, or by the terms of an agreement or instrument, a
corporation or the board or any committee thereof may take action after notice
to any person or after lapse of a prescribed period of time, the action may be
taken without notice and without lapse of the period of time, if at any time
before or after the action is completed the person entitled to notice or to
participate in the action to be taken or, in case of a shareholder, by his
attorney-in-fact, submits a signed waiver of such requirements. Neither the
business to be transacted at, nor the purpose of, a regular or special meeting
of the board of directors need be specified in the waiver of notice of the
meeting. Attendance of a person at a meeting of shareholders, in person or by
proxy, or of a director at a meeting constitutes a waiver of notice of such
meeting, except when the person or director attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
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<PAGE> 9
ARTICLE V
OFFICERS
SECTION 1. SELECTION. The board of directors, at its first meeting and
at each meeting following the annual meeting of shareholders, shall elect or
appoint a president, a secretary, and a treasurer. The board of directors may
also elect or appoint a chairman of the board, one (1) or more vice presidents
and such other officers, employees, and agents as it shall deem necessary who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the board. Two
(2) or more offices may be held by the same person but an officer shall not
execute, acknowledge, or verify an instrument in more than one (1) capacity.
SECTION 2. COMPENSATION. The salaries of all officers, employees, and
agents of the corporation shall be fixed by the board of directors; provided,
however, that the board may delegate to the officers the fixing of compensation
of assistant officers, employees, and agents.
SECTION 3. TERM, REMOVAL, AND VACANCIES. Each officer of the
corporation shall hold office for the term for which he is elected or appointed
and until his successor is elected or appointed and qualified, or until his
resignation or removal. An officer elected or appointed by the board of
directors may be removed by the board with or without cause at any time. An
officer may resign by written notice to the corporation. The resignation is
effective upon its receipt by the corporation or at a subsequent time specified
in the notice of resignation. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
SECTION 4. CHIEF EXECUTIVE OFFICER. At the first meeting of each
newly-elected board of directors, the board shall designate the chairman of the
board or president as the chief executive officer of the corporation; provided,
however, that if a motion is not made and carried to change the designation, the
designation shall be the same as the designation for the preceding year;
provided, further, that the designation of the chief executive officer may be
changed at any special meeting of the board of directors. The president shall be
the chief executive officer whenever the office of chairman of the board is
vacant. The chief executive officer shall be responsible to the board of
directors for the general supervision and management of the business and affairs
of the corporation and shall see that all orders and resolutions of the board
are carried into effect. The chairman of the board or president who is not the
chief executive officer shall be subject to the authority of the chief executive
officer, but shall exercise all of the powers and discharge all of the duties of
the chief executive officer, during the absence or disability of the chief
executive officer.
SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS. If the board of
directors elects or appoints a chairman of the board, he shall be elected or
appointed by, and from among, the membership of, the board of directors. He
shall preside at all meetings of the shareholders, of the board of directors and
of any executive committee. He shall perform such other duties and functions as
shall be assigned to him from time to time by the board of directors. He shall
be, ex officio, a member of all standing
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<PAGE> 10
committees. Except where by law the signature of the president of the
corporation is required, the chairman of the board of directors shall possess
the same power and authority to sign all certificates, contracts, instruments,
papers, and documents of every conceivable kind and character whatsoever in the
name of and on behalf of the corporation which may be authorized by the board of
directors. During the absence or disability of the president, or while that
office is vacant, the chairman of the board of directors shall exercise all of
the powers and discharge all of the duties of the president.
SECTION 6. PRESIDENT. The president shall be elected or appointed by,
and from among the membership of, the board of directors. During the absence or
disability of the chairman of the board, or while that office is vacant, the
president shall preside over all meetings of the board of directors, of the
shareholders and of any executive committee, and shall perform all of the duties
and functions, and when so acting shall have all powers and authority, of the
chairman of the board. He shall be, ex officio, a member of all standing
committees. The president shall, in general, perform all duties incident to the
office of president and such other duties as may be prescribed by the board of
directors.
SECTION 7. VICE PRESIDENTS. The board of directors may elect or appoint
one or more vice presidents. The board of directors may designate one or more
vice presidents as executive or senior vice presidents. Unless the board of
directors shall otherwise provide by resolution duly adopted by it, such of the
vice presidents as shall have been designated executive or senior vice
presidents and are members of the board of directors in the order specified by
the board of directors (or if no vice president who is a member of the board of
directors shall have been designated as executive or senior vice president, then
such vice presidents as are members of the board of directors in the order
specified by the board of directors) shall perform the duties and exercise the
powers of the president during the absence or disability of the president. The
vice presidents shall perform such other duties as may be delegated to them by
the board of directors, any executive committee, or the president.
SECTION 8. SECRETARY. The secretary shall attend all meetings of the
stockholders, and of the board of directors and of any executive committee, and
shall preserve in the books of the corporation true minutes of the proceedings
of all such meetings. He shall safely keep in his custody the seal of the
corporation and shall have authority to affix the same to all instruments where
its use is required or permitted. He shall give all notice required by the Act,
these bylaws or resolution. He shall perform such other duties as may be
delegated to him by the board of directors, any executive committee, or the
president.
SECTION 9. TREASURER. The treasurer shall have custody of all corporate
funds and securities and shall keep in books belonging to the corporation full
and accurate accounts of all receipts and disbursements; he shall deposit all
moneys, securities, and other valuable effects in the name of the corporation in
such depositories as may be designated for that purpose by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors whenever requested an account
of all his transactions as treasurer and of the financial condition of the
corporation. If required by the board of directors he shall keep in force a bond
in form, amount, and with a surety or sureties satisfactory to the board of
directors, conditioned for faithful performance of the duties of his office, and
for restoration to the corporation in case of his death, resignation,
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<PAGE> 11
retirement, or removal from office, of all books, papers, vouchers, money, and
property of whatever kind in his possession or under his control belonging to
the corporation. He shall perform such other duties as may be delegated to him
by the board of directors, any executive committee, or the president.
SECTION 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretary or assistant secretaries, in the absence or disability of
the secretary, shall perform the duties and exercise the powers of the
secretary. The assistant treasurer or assistant treasurers, in the absence or
disability of the treasurer, shall perform the duties and exercise the powers of
the treasurer. Any assistant treasurer, if required by the board of directors,
shall keep in force a bond as provided in Section 9, Article V. The assistant
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or by the treasurer, respectively, or
by the board of directors, any executive committee, or the president.
SECTION 11. DELEGATION OF AUTHORITY AND DUTIES BY BOARD OF DIRECTORS.
All officers, employees, and agents shall, in addition to the authority
conferred, or duties imposed, on them by these bylaws, have such authority and
perform such duties in the management of the corporation as may be determined by
resolution of the board of directors not inconsistent with these bylaws.
ARTICLE VI
INDEMNIFICATION
SECTION 1. THIRD PARTY ACTIONS. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. ACTIONS IN THE RIGHT OF THE CORPORATION. The corporation
shall indemnify any person who was or is a party to or is threatened to be made
a party to any threatened, pending, or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or
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<PAGE> 12
was serving at the request of the corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation or its shareholders and
except that no indemnification shall be made in respect of any claim, issue, or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
SECTION 3. MANDATORY AND PERMISSIVE PAYMENTS.
(a) To the extent that a director, officer, employee, or agent
of a corporation has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to in Sections 1 or
2 of this Article VI, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
(b) Any indemnification under Sections 1 or 2 of this Article
VI (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 and 2 of this Article VI. Such
determination shall be made in either of the following ways:
(1) By the board of a majority vote of a quorum
consisting of directors who were not parties to such action,
suit, or proceeding.
(2) If such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors, so directs,
by independent legal counsel who may be the regular counsel of
the corporation in a written opinion.
(3) By the shareholders.
SECTION 4. EXPENSE ADVANCES. Expenses incurred in defending a civil or
criminal action, suit, or proceeding described in Sections 1 or 2 of this
Article VI may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding as authorized in the manner provided in
subsection (b) of Section 3 of this Article VI upon receipt of an undertaking by
or on behalf of the director, officer, employee, or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the corporation.
SECTION 5. VALIDITY OF PROVISIONS. A provision made to indemnify
directors or officers of any action, suit, or proceeding referred to in Sections
1 or 2 of this Article VI whether contained in the
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<PAGE> 13
articles of incorporation, these bylaws, a resolution of shareholders or
directors, an agreement or otherwise, shall be invalid only insofar as it is in
conflict with Sections 1 to 5 of this Article VI. Nothing contained in Sections
1 to 5 of this Article VI shall affect any rights to indemnification to which
persons other than directors and officers may be entitled by contract or
otherwise by law. The indemnification provided in Sections 1 to 5 of this
Article VI continues as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
SECTION 6. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have power to indemnify
him against such liability under Sections 1 to 5 of this Article VI.
SECTION 7. CONSTITUENT CORPORATION. For the purposes of this Article
VI, references to the corporation include all constituent corporations absorbed
in a consolidation or merger and the resulting or surviving corporation, so that
a person who is or was a director, officer, employee, or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise shall stand in the same
position under the provisions of this Article VI with respect to the resulting
or surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
ARTICLE VII
STOCK AND TRANSFERS
SECTION 1. SHARE CERTIFICATES: REQUIRED SIGNATURES. The shares of the
corporation shall be represented by certificates signed by the chairman of the
board of directors, vice chairman of the board of directors, president or a vice
president and which also may be signed by another officer of the corporation.
The certificates may be sealed with the seal of the corporation or a facsimile
of the seal. The signatures of the officers may be facsimiles if the certificate
is countersigned by a transfer agent or registered by a registrar other than the
corporation itself or its employee. If an officer who has signed or whose
facsimile signature has been placed upon a certificate ceases to be an officer
before the certificate is issued, it may be issued by the corporation with the
same effect as if he were the officer at the date of issue.
SECTION 2. SHARE CERTIFICATES: REQUIRED PROVISIONS. A certificate
representing shares of the corporation shall state upon its face:
(a) That the corporation is formed under the laws of this
state.
(b) The name of the person to whom issued.
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<PAGE> 14
(c) The number and class of shares, and the designation of the
series, if any, which the certificate represents.
(d) The par value of each share represented by the
certificate, or a statement that the shares are without par value.
A certificate representing shares issued by a corporation which is authorized to
issue shares of more than one class shall set forth on its face or back or state
that the corporation will furnish to a shareholder upon request and without
charge a full statement of the designation, relative rights, preferences, and
limitations of the shares of each class authorized to be issued, and if the
corporation is authorized to issue any class of shares in series, the
designation, relative rights, preferences, and limitations of each series so far
as the same have been prescribed and the authority of the board to designate and
prescribe the relative rights, preferences, and limitations of other series.
SECTION 3. REPLACEMENT OF LOST OR DESTROYED SHARE CERTIFICATES. The
corporation may issue a new certificate for shares or fractional shares in place
of a certificate theretofore issued by it, alleged to have been lost or
destroyed, and the board of directors may require the owner of the lost or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged lost or destroyed certificate or the
issuance of such new certificate.
SECTION 4. REGISTERED SHAREHOLDERS. The corporation shall have the
right to treat the registered holder of any share as the absolute owner thereof,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the corporation
shall have express or other notice thereof, save as may be otherwise provided by
the statutes of Michigan.
SECTION 5. TRANSFER AGENT AND REGISTRAR. The board of directors may
appoint a transfer agent and a registrar in the registration of transfers of its
securities.
SECTION 6. REGULATIONS. The board of directors shall have power and
authority to make all such rules and regulations as the board shall deem
expedient regulating the issue, transfer, and registration of certificates for
shares in this corporation.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS OR OTHER DISTRIBUTIONS IN CASH OR PROPERTY. By
action of the board of directors, the corporation may declare and pay dividends
or make other distributions in cash, bonds, or property, including the shares or
bonds of other corporations, on its outstanding shares, except when currently
the corporation is insolvent or would thereby be made insolvent, or when the
declaration,
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<PAGE> 15
payment, or distribution would be contrary to any restriction contained in the
articles of incorporation. Dividends may be declared or paid and other
distributions may be made out of surplus only. A dividend paid or any other
distribution made, in any part, from sources other than earned surplus, shall be
accompanied by a written notice (a) disclosing the amounts by which the dividend
or distribution affects stated capital, capital surplus, and earned surplus, or
(b) if such amounts are not determinable at the time of the notice, disclosing
the approximate effect of the dividend or distribution upon stated capital,
capital surplus and earned surplus and stating that the amounts are not yet
determinable.
SECTION 2. RESERVES. The board of directors shall have power and
authority to set apart, out of any funds available for dividends, such reserve
or reserves, for any proper purpose, as the board in its discretion shall
approve, and the board shall have the power and authority to abolish any reserve
created by the board.
SECTION 3. VOTING SECURITIES. Unless otherwise directed by the board,
the chairman of the board or president, or in the case of their absence or
inability to act, the vice presidents, in order of their seniority, shall have
full power and authority on behalf of the corporation to attend and to act and
to vote, or to execute in the name or on behalf of the corporation a consent in
writing in lieu of a meeting of shareholders or a proxy authorizing an agent or
attorney-in-fact for the corporation to attend and vote at any meetings of
security holders of corporations in which the corporation may hold securities,
and at such meetings he or his duly authorized agent or attorney-in-fact shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities and which, as the owner thereof, the corporation might have
possessed and exercised if present. The board by resolution from time to time
may confer like power upon any other person or persons.
SECTION 4. CHECKS. All checks, drafts, and orders for the payment of
money shall be signed in the name of the corporation in such manner and by such
officer or officers or such other person or persons as the board of directors
shall from time to time designate for that purpose.
SECTION 5. CONTRACTS, CONVEYANCES, ETC. When the execution of any
contract, conveyance, or other instrument has been authorized without
specification of the executing officers, the chairman of the board, president or
any vice president, and the secretary or assistant secretary, may execute the
same in the name and on behalf of this corporation and may affix the corporate
seal thereto. The board of directors shall have power to designate the officers
and agents who shall have authority to execute any instrument in behalf of this
corporation.
SECTION 6. CORPORATE BOOKS AND RECORDS. The corporation shall keep
books and records of account and minutes of the proceedings of its shareholders,
board of directors and executive committees, if any. The books, records, and
minutes may be kept outside this state. The corporation shall keep at its
registered office, or at the office of its transfer agent within or without this
state, records containing the names and addresses of all shareholders, the
number, class, and series of shares held by each and the dates when they
respectively became holders of record thereof. Any of such books, records, or
minutes may be in written form or in any other form capable of being converted
into written form within a reasonable time. The corporation shall convert into
written form without charge any such record not in such form, upon written
request of a person entitled to inspect them.
-15- As Amended 7/07/98
<PAGE> 16
SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
SECTION 8. SEAL. If the corporation has a corporate seal, it shall have
inscribed thereon the name of the corporation and the words "Corporate Seal" and
"Michigan." The seal may be used by causing it or a facsimile to be affixed,
impressed, or reproduced in any other manner.
ARTICLE IX
AMENDMENTS
SECTION 1. A majority of shareholders or the board of directors may
amend or repeal the bylaws or adopt new bylaws unless the power to do so is
reserved exclusively to the shareholders by the articles of incorporation. If
such action is being taken by the shareholders, it must be taken only at a duly
called meeting of shareholders; provided that if notice of any such meeting is
required by these bylaws, the notice of the meeting shall contain notice of the
proposed amendment, repeal, or new bylaws. Any bylaw hereafter made by the
shareholders shall not be altered or repealed by the board.
-16- As Amended 7/07/98
<PAGE> 1
Exhibit 10.12
MERITAGE HOSPITALITY GROUP INC.
1996
MANAGEMENT EQUITY INCENTIVE PLAN
ARTICLE 1
OBJECTIVES
Meritage Hospitality Group Inc. has established this Management Equity
Incentive Plan effective April 16, 1996 as an incentive to the attraction and
retention of dedicated and loyal employees of outstanding ability, to stimulate
the efforts of such persons in meeting Meritage Hospitality Group Inc.'s
objectives and to encourage ownership of its Common Shares by employees.
ARTICLE 2
DEFINITIONS
2.1 For purposes of the Plan the following terms shall have the
definition which is attributed to them, unless another definition is clearly
indicated by a particular usage and context.
A. "Code" means the Internal Revenue Code of 1986, as amended.
B. The "Company" means Meritage Hospitality Group Inc. and any
subsidiary of Meritage Hospitality Group Inc., as the term
"subsidiary" is defined in Section 424(f) of the Code.
C. "Date of Exercise" means the date on which the Company has
received a written notice of exercise of an Option, in such form as is
acceptable to the Committee, and full payment of the purchase price.
D. "Date of Grant" means the date on which the Committee makes an
award of an Option.
E. "Eligible Employee" means any individual who performs services
for the Company and is treated as an employee for federal income tax
purposes.
F. "Fair Market Value" means the last sale price reported on any
stock exchange or over-the-counter trading system on which Shares are
trading on the last trading day prior to a specified date or, if no
last sales price is reported, the average of the closing bid and
<PAGE> 2
- 2 -
asked prices for a Share on a specified date. If no sale has been made
on the specified date, then prices on the last preceding day on which
any such sale shall have been made shall be used in determining Fair
Market Value under either method prescribed in the previous sentence.
G. "Incentive Share Option" shall have the same meaning as given
to that term by Section 422 of the Code.
H. "Nonqualified Share Option" means any Option granted under the
Plan which is not considered an Incentive Share Option.
I. "Option" means the right to purchase a stated number of Shares
at a specified price. The Option may be granted to an Eligible
Employee subject to the terms of this Plan, and such other conditions
and restrictions as the Committee deems appropriate. Each Option shall
be designated by the Committee to be either an Incentive Share Option
or a Nonqualified Share Option.
J. "Option Price" means the purchase price per Share subject to
an Option and shall be fixed by the Committee, but shall not be less
than 100% of the Fair Market Value of a Share on the Date of Grant in
the case of an Incentive Share Option.
K. "Permanent and Total Disability" shall mean any medically
determinable physical or mental impairment rendering an individual
unable to engage in any substantial gainful activity, which disability
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months.
L. "Plan" means this 1996 Management Equity Incentive Plan as it
may be amended from time to time.
M. "Share" means one Common Share, $.01 par value, of the
Company.
ARTICLE 3
ADMINISTRATION
3.1 The Plan shall be administered by a committee (the "Committee")
designated by the Board of Directors of the Company. The Committee shall be
comprised solely of three or more directors each of whom shall be (i) a
"disinterested person" as defined under Rule 16b-3 of the Securities and
Exchange Act of 1934 (the "Act") and (ii) an "outside director" to the extent
required by Section 162(m) of the Internal Revenue Code ("Section 162(m)").
Notwithstanding the foregoing, to the extent relevant state law now or hereafter
permits, the Committee may be comprised solely of two or more such directors.
<PAGE> 3
- 3 -
Actions shall be taken by a majority of the Committee.
3.2 Except as specifically limited by the provisions of the Plan, the
Committee in its discretion shall have the authority to:
A. Determine which Eligible Employees shall be granted Options;
B. Determine the number of Shares which may be subject to each
Option;
C. Determine the Option Price;
D. Determine the term of each Option;
E. Determine whether each Option is an Incentive Share Option or
Nonqualified Share Option;
F. Interpret the provisions of the Plan and decide all questions
of fact arising in its application; and
G. Prescribe such rules and procedures for Plan administration as
from time to time it may deem advisable.
3.3 Any action, decision, interpretation or determination by the
Committee with respect to the application or administration of this Plan shall
be final and binding upon all persons, and need not be uniform with respect to
its determination of recipients, amount, timing, form, terms or provisions of
Options.
3.4 No member of the Committee shall be liable for any action or
determination taken or made in good faith with respect to the Plan or any Option
granted hereunder, and to the extent permitted by law, all members shall be
indemnified by the Company for any liability and expenses which may occur
through any claim or cause of action.
ARTICLE 4
SHARES SUBJECT TO PLAN
4.1 The Shares that may be made subject to Options granted under the
Plan shall not exceed 725,000 Shares in the aggregate. Except as provided in
Section 4.2, upon lapse or termination of any Option for any reason without
being completely exercised, the Shares which were subject to such Option may
again be subject to other Options.
<PAGE> 4
- 4 -
4.2 The maximum number of Shares with respect to which Options may be
granted to any employee during each fiscal year of the Company is 50,000 Shares.
If an Option is canceled, it continues to be counted against the maximum number
of Shares for which Options may be granted to an employee. If an Option is
repriced, the transaction is treated as a cancellation of the Option and a grant
of a new Option.
ARTICLE 5
GRANTING OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee may,
from time to time prior to April 16, 2006, grant Options to Eligible Employees
on such terms and conditions as the Committee may determine. More than one
Option may be granted to the same Eligible Employee.
ARTICLE 6
TERMS OF OPTIONS
6.1 Subject to specific provisions relating to Incentive Share
Options set forth in Article 9, each Option shall be for a term of from one to
ten years from the Date of Grant and may not be exercised during the first
twelve months of the term of said Option. Commencing on the first anniversary of
the Date of Grant of an Option, the Option may be exercised for 20% of the total
Shares covered by the Option with an additional 20% of the total Shares covered
by the Option becoming exercisable on each succeeding anniversary until the
Option is exercisable to its full extent. This right of exercise shall be
cumulative and shall be exercisable in whole or in part. The Committee in its
sole discretion may permit particular holders of Options to exercise an Option
to a greater extent than provided herein. The Committee may establish a
different exercise schedule and impose other conditions upon exercise for any
particular Option or groups of Options.
6.2 The holder of an Option must remain continuously in the service
of the Company as an employee for a period of at least twelve months. Nothing
contained in this Plan or in any Option granted pursuant to it shall confer upon
any employee any right to continue in the employ of the Company or to interfere
in any way with the right of the Company to terminate employment at any time. So
long as a holder of an Option shall continue to be an employee of the Company,
the Option shall not be affected by any change of the employee's duties or
position.
ARTICLE 7
EXERCISE OF OPTIONS
Any person entitled to exercise an Option in whole or in part may do so
by delivering a written notice of exercise to the Company, attention Corporate
Secretary, at its principal office. The
<PAGE> 5
- 5 -
written notice shall specify the number of Shares for which an Option is being
exercised and the grant date of the option being exercised and shall be
accompanied by full payment of the Option Price for the Shares being purchased.
ARTICLE 8
PAYMENT OF OPTION PRICE
8.1 Payment of the Option Price may be made in cash, by the tender of
Shares, or both. Shares tendered shall be valued at their Fair Market Value on
the Date of Exercise.
8.2 Payment through tender of Shares may be made by instruction from
the Optionee to the Company to withhold from the Shares issuable upon exercise
that number which have a Fair Market Value on the Date of Exercise equal to the
exercise price for the Option or portion thereof being exercised.
ARTICLE 9
INCENTIVE SHARE OPTIONS AND NONQUALIFIED SHARE OPTIONS
9.1 The Committee in its discretion may designate whether an Option
is to be considered an Incentive Share Option or a Nonqualified Share Option.
The Committee may grant both an Incentive Share Option and a Nonqualified Share
Option to the same individual. However, where both an Incentive Share Option and
a Nonqualified Share Option are awarded at one time, such Options shall be
deemed to have been awarded in separate grants, shall be clearly identified, and
in no event will the exercise of one such Option affect the right to exercise
the other such Option.
9.2 Any option designated by the Committee as an Incentive Share
Option will be subject to the general provisions applicable to all Options
granted under the Plan. In addition, the Incentive Share Option shall be subject
to the following specific provisions:
A. At the time the Incentive Share Option is granted, if the
Eligible Employee owns, directly or indirectly, shares representing
more than 10% of (i) the total combined voting power of the Common
Shares of the Company, or (ii) a corporation that owns 50% or more of
the total combined voting power of the Common Shares of the Company,
then:
(i) The Option Price must equal at least 110% of the Fair
Market Value on the Date of Grant; and
(ii) The term of the Option shall not be greater than five
years from the Date of Grant.
<PAGE> 6
- 6 -
B. The aggregate Fair Market Value of Shares (determined at the
Date of Grant) with respect to which Incentive Share Options are
exercisable by an Eligible Employee for the first time during any
calendar year under this Plan or any other plan maintained by the
Company shall not exceed $100,000.
9.3 If any Option is not granted, exercised, or held pursuant to the
provisions noted immediately above, it will be considered to be a Nonqualified
Share Option to the extent that the grant is in conflict with these
restrictions.
ARTICLE 10
TRANSFERABILITY OF OPTION
An Option in not transferable by the Eligible Employee to whom granted
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title 1 of the
Employee Retirement Income Security Act, as amended.
ARTICLE 11
TERMINATION OF OPTIONS
11.1 An Option will terminate as follows:
A. Upon exercise or expiration by its terms.
B. Except as provided in Subsection 11.1.C, upon termination of
employment for reasons other than cause, the then-exercisable portion of any
Option will terminate on the 60th day after the date of termination. The portion
not then exercisable will terminate on the date of termination of employment.
For purposes of the Plan, a leave of absence approved by the Company shall not
be deemed to be termination of employment.
C. If an Eligible Employee holding an Option dies or becomes
subject to a Permanent and Total Disability while employed by the Company, or
within 60 days after termination of employment, for reasons other than cause,
such Option may be exercised, to the extent exercisable on the date of such
death, Permanent and Total Disability or termination of employment, at any time
within one year after the date the employment of such Eligible Employee
terminated, by the estate or guardian of such person or by those persons to whom
the Option may have been transferred by will or by the laws of descent and
distribution.
D. Options shall terminate immediately if employment is
terminated for cause. Cause is defined as including, but not limited to, theft
of or intentional damage to Company property, intentional harm to the Company's
reputation, material breach of the Optionee's duty of
<PAGE> 7
- 7 -
fidelity to the Company, excessive use of alcohol, the use of illegal drugs, the
commission of a criminal act, willful violation of Company policy, or trading in
securities of the Company for personal gain based on knowledge of the Company's
activities or results when such information is not available to the general
public.
E. If an Eligible Employee holding an Option violates any terms
of any written employment or noncompetition agreement between the Company and
the Eligible Employee, all existing Options held by such Employee will
terminate. In addition, if at the time of such violation the Employee has
exercised Options but has not received certificates for the shares to be issued,
the Company may void the Option and its exercise. Any such actions by the
Company shall be in addition to any other rights or remedies available to the
Company in such circumstances.
11.2 Except as provided in Article 12 hereof, in no event will the
continuation of the term of an Option beyond the date of termination of
employment allow the Eligible Employee, or his beneficiaries or heirs, to accrue
additional rights under the Plan, or to purchase more Shares through the
exercise of an Option than could have been purchased on the day that employment
was terminated. In addition, notwithstanding anything contained herein, no
Option may be exercised in any event after the expiration of ten years from the
date of grant of such Option.
ARTICLE 12
ADJUSTMENTS TO SHARES AND OPTION PRICE
12.1 In the event of changes in the outstanding Common Shares of the
Company as a result of share dividends, splitups, recapitalizations,
combinations of Shares or exchanges of Shares, the number and class of Shares
for all purposes covered by the Plan and number and class of Shares and price
per Share for each Option and each outstanding Option covered by the Plan shall
be correspondingly adjusted by the Committee.
12.2 The Committee shall make appropriate adjustments in the Option
Price to reflect any spin-off of assets, extraordinary dividends or other
distributions to shareholders.
12.3 In the event of the dissolution or liquidation of the Company or
any merger, consolidation, exchange or other transaction in which the Company is
not the surviving corporation or in which the outstanding Shares of the Company
are converted into cash, other securities or other property, each outstanding
Option shall terminate as of a date fixed by the Committee provided that not
less than 20 days' written notice of the date of expiration shall be given to
each holder of an Option and each such holder shall have the right during such
period following notice to exercise the Option as to all or any part of the
Shares for which it is exercisable at the time of such notice. The Committee, in
its sole discretion, may provide that Options in such circumstances may be
exercised to an extent greater than the number of Shares for which they were
exercisable at the time of such a notice.
<PAGE> 8
- 8 -
12.4 All outstanding Options shall become immediately exercisable in
full if a change in control of the Company occurs. For purposes of this
Agreement, a "change in control of the Company" shall be deemed to have occurred
if (a) any "person," as such term is used in Sections 13(d) and 14(d) of the
Act, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company becomes the "beneficial owner," as defined
in Rule 13d-3 under the Act, directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power of the Company's
then outstanding securities; or (b) during any period of one year (not including
any period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board of Directors and any new director
whose election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
Directors then still in office who either were Directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof.
ARTICLE 13
OPTION AGREEMENTS
13.1 All Options granted under the Plan shall be evidenced by a
written agreement in such form or forms as the Committee in its sole discretion
may determine.
13.2 Each optionee, by acceptance of an Option under this Plan, shall
be deemed to have consented to be bound, on the optionee's own behalf and on
behalf of the optionee's heirs, assigns and legal representatives, by all terms
and conditions of this Plan.
ARTICLE 14
AMENDMENT OR DISCONTINUANCE OF PLAN
14.1 The Board of Directors of the Company may at any time amend,
suspend, or discontinue the Plan; provided, however, that no amendments by the
Board of Directors of the Company shall, without further approval of the
shareholders of the Company:
A. Change the definition of Eligible Employees;
B. Except as provided in Articles 4 and 12 hereof, increase the
number of Shares which may be subject to Options granted under the
Plan; or
C. Cause the Plan or any Option granted under the Plan to fail to
be excluded from the $1 million deduction limitation imposed by
Section 162(m) of the Code, or qualify as an "Incentive Share Option"
as defined by Section 422 of the Code.
<PAGE> 9
- 9 -
14.2 No amendment or discontinuance of the Plan shall alter or impair
any Option granted under the Plan without the consent of the holder thereof.
ARTICLE 15
EFFECTIVE DATE
This Plan shall become effective as of April 16, 1996, having been
adopted by the Board of Directors of the Company on such date subject to
approval by the affirmative vote of the holders of a majority of the Common
Shares of the Company voting on the issue, and all Options granted prior to such
approval are expressly conditioned upon such approval being received. If
shareholder approval is not received within 12 months of the Effective Date,
Options granted pursuant to this Plan shall be null and void.
ARTICLE 16
MISCELLANEOUS
16.1 Nothing contained in this Plan or in any action taken by the
Board of Directors or shareholders of the Company shall constitute the granting
of an Option. An Option shall be granted only at such time as a written Option
shall have been executed and delivered to the respective employee and the
employee shall have executed an agreement respecting the Option in conformance
with the provisions of the Plan.
16.2 Certificates for Shares purchased through exercise of Options
will be issued in regular course after exercise of the Option and payment
therefor as called for by the terms of the Option but in no event shall the
Company be obligated to issue certificates more often than once each quarter of
each fiscal year. No persons holding an Option or entitled to exercise an Option
granted under this Plan shall have any rights or privileges of a shareholder of
the Company with respect to any Shares issuable upon exercise of such Option
until certificates representing such Shares shall have been issued and
delivered. No Shares shall be issued and delivered upon exercise of an Option
unless and until the Company, in the opinion of its counsel, has complied with
all applicable registration requirements of the Securities Act of 1933 and any
applicable state securities laws and with any applicable listing requirements of
any national securities exchange on which the Company securities may then be
listed as well as any other requirements of law.
16.3 This Plan shall continue in effect until the expiration of all
Options granted under the Plan unless terminated earlier in accordance with
Article 14; provided, however, that it shall otherwise terminate ten years after
the Effective Date.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<CASH> 1,631,741
<SECURITIES> 0
<RECEIVABLES> 157,193
<ALLOWANCES> 0
<INVENTORY> 159,779
<CURRENT-ASSETS> 2,312,621
<PP&E> 9,128,815
<DEPRECIATION> 394,670
<TOTAL-ASSETS> 17,400,564
<CURRENT-LIABILITIES> 4,127,360
<BONDS> 6,344,256
0
1,384
<COMMON> 52,144
<OTHER-SE> 3,049,099
<TOTAL-LIABILITY-AND-EQUITY> 17,400,564
<SALES> 12,713,910
<TOTAL-REVENUES> 12,713,910
<CGS> 3,668,318
<TOTAL-COSTS> 13,487,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740,757
<INCOME-PRETAX> (654,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (654,819)
<DISCONTINUED> (479,232)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,134,051)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
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