SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 1, 1998
MERITAGE HOSPITALITY GROUP INC.
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(Exact Name of Registrant as Specified in Charter)
MICHIGAN
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(State or Other Jurisdiction
of Incorporation)
0-17442 38-2730460
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(Commission File Number) (IRS Employer Identification
Number)
40 PEARL STREET, N.W., SUITE 900
GRAND RAPIDS, MICHIGAN 49503
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (616) 776-2600
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 1, 1998, the Company's wholly-owned subsidiary, Thomas Edison
Inn, Incorporated, sold real and personal property including (i) the hotel and
restaurant facility (known as the Thomas Edison Inn) located at 500 Thomas
Edison Parkway, Port Huron, Michigan (the "Hotel"), (ii) the fixtures,
furniture, furnishings, equipment and supplies used in the operation of the
Hotel, and (iii) certain other real and personal property owned by the
subsidiary and located adjacent to the Hotel (collectively, the "Assets"). The
Assets were sold to Innkeeper's Management, LLC and its affiliate,
Reynolds/Ehinger Enterprises, LLC, both of whom have no relation to the Company.
The Assets were sold for $12,200,000 pursuant to the terms of an agreement dated
April 16, 1998 and amended on September 1, 1998. The purchase price was
comprised of $10,200,000 in cash and a $2,000,000 one-year secured note bearing
interest at 8.0% over the prime lending rate. The Company reduced its long-term
indebtedness by approximately $9,600,000 as a result of the sale.
In addition, on September 1, 1998, the Company, through its Wendy's of
Michigan operations, purchased real property comprising five of the Wendy's
restaurants currently operated by the Company from the Wendy's Real Estate
Limited Partnership I (an unrelated party) for $4,200,000. The acquisition was
financed by Captec Financial Group, Inc., who provided the Company with a
20-year mortgage loan bearing interest at 8.15% and secured by the real estate
acquired.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Exhibit No. Description of Document
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10.1 Promissory Note dated September 1, 1998 among Meritage
Hospitality Group Inc., as lender, and Reynolds/Ehinger
Enterprises, LLC, as borrower (filed herewith).
The Company will file the required financial information no later than
November 16, 1998.
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 hereto duly authorized.
MERITAGE HOSPITALITY GROUP INC.
Dated: September 9, 1998 By: /s/ Christopher B. Hewett
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Christopher B. Hewett
President and
Chief Executive Officer
MORTGAGE NOTE
September 1, 1998 $2,000,000.00
PROMISE TO PAY PRINCIPAL AND INTEREST. For value received, REYNOLDS/EHINGER
ENTERPRISES, LLC, a Michigan limited liability company (the "Borrower"),
promises to pay to the order of MERITAGE HOSPITALITY GROUP INC., a Michigan
corporation ("Meritage"), at its office located at 40 Pearl Street, N.W., Suite
900, Grand Rapids, Michigan 49503, or at such other place as the Holder (the
"Holder" means Meritage and any subsequent holder of this Mortgage Note) may
from time to time specify, the principal sum of TWO MILLION DOLLARS
($2,000,000.00), together with interest on any part thereof unpaid at the rate
per annum which, except during default, is equal to the Prime Rate plus eight
hundred (800) basis points from time to time on all principal indebtedness
evidenced by this Mortgage Note. The "Prime Rate" means the variable rate of
interest announced publicly from time to time by Provident Bank (the "Bank"), of
Cincinnati, OH, to be its prime commercial lending rate. Reference to the Prime
Rate will not be affected by the fact that the Bank may make loans at different
rates from time to time with respect to the class of loans for which the Prime
Rate is established. The interest rate chargeable under this Mortgage Note shall
be fully-floating, and any change in the interest rate chargeable hereunder
resulting from a change in the Prime Rate will become effective on the day on
which each change in the Prime Rate is effective.
DUE DATE FOR PAYMENTS AND MANNER OF MAKING PAYMENTS. Accrued interest under
this Mortgage Note shall be payable monthly, on the last day of each month
beginning September 30, 1998, and continuing on the last day of each month
thereafter until the Maturity Date set forth in the next sentence, when all
indebtedness evidenced hereby shall be due and payable in full. All principal
and accrued and unpaid interest shall be due and payable in full on: (a) August
31, 1999, or (b) the closing of the sale or disposition by Grand Rapids
Innkeepers Management Inc., a Michigan corporation, of any or all of the
restaurant sites it has leased to American Family Restaurants, Inc. pursuant to
a Master Lease Agreement dated September 8, 1995, whichever of (a) and (b)
occurs first (the "Maturity Date"). All payments of principal and interest under
this Mortgage Note shall be paid by wire transfer of funds to: Michigan National
Bank, Grand Rapids, MI, ABA Number 072000805, for credit to the account of
Meritage Hospitality Group Inc., Account Number 5892-89662-1, reference: Loan
Payment; or to such other account as the Holder may specify by written notice to
the Borrower. If the due date for a payment required by this Mortgage Note is
not a Business Day (a "Business Day" is any day other than a Saturday, Sunday or
legal holiday in the State of Michigan), the due date for such payment shall be
the last Business Day of the month, and the amount of the payment shall be
adjusted accordingly.
PREPAYMENT. The indebtedness evidenced by this Mortgage Note may be
prepaid, in whole or in part, at any time without notice and without penalty or
premium.
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LATE CHARGES; DEFAULT INTEREST. The Borrower shall pay to the Holder a late
charge equal to five percent (5%) of each payment due hereunder that is not
received by the Holder on the due date of such payment. For purposes of
computing the late charge, the interest component of each late payment shall be
computed at the standard interest rate provided for herein and not at the
default rate. If any payment due under this Mortgage Note remains unpaid after
the expiration of ten (10) calendar days from the due date, and during any
period this Mortgage Note otherwise is in default, the outstanding principal
amount hereof shall bear interest for the entire period during which interest or
principal is then unpaid at a rate which is equal to three hundred (300) basis
points greater than the interest rate otherwise charged hereunder.
DEFAULT; OPTION TO ACCELERATE MATURITY DATE. Immediately upon default in
making any payment required under this Mortgage Note when due, the entire
principal balance of this Mortgage Note remaining at that time unmatured,
together with all accrued interest thereon, shall, at the election of the Holder
and without notice of such election, and without demand or presentment or
opportunity to cure such default, become immediately due and payable, anything
herein or in any of the Collateral Security Documents (as defined below) to the
contrary notwithstanding. If such indebtedness is not immediately paid in full,
the Holder shall have the right, without notice or opportunity to cure, to
pursue all remedies available to it, at law or in equity, under the Collateral
Security Documents or otherwise. Upon default in the due observance or
performance of any of the other terms, agreements, representations, warranties,
covenants or conditions contained in any of the Collateral Security Documents,
and the continuation of such default for a period of ten (10) consecutive days,
or more, after written notice of such default has been given to the Borrower,
the entire principal balance of this Mortgage Note remaining at that time
unmatured, together with all accrued interest thereon, shall, at the election of
the Holder and without notice of such election and without demand or presentment
or further opportunity to cure such default, become immediately due and payable,
anything contained herein or in any of the Collateral Security Documents to the
contrary notwithstanding, and the Holder shall in any event have the right to
pursue all remedies available to it, at law or in equity, under the Collateral
Security Documents or otherwise.
NO WAIVER. If any default is made as hereinabove set forth, neither the
failure of the Holder promptly to exercise its right to declare the outstanding
principal and accrued and unpaid interest hereunder to be immediately due and
payable, nor failure to exercise any other right or remedy the Holder may have
for default, nor the acceptance by the Holder of late payments, nor the failure
of the Holder to demand strict performance of any obligations of the maker or of
any other person who may be liable hereunder, shall constitute a waiver of any
such default or remedies. Further, acceptance by the Holder of partial payments
following due acceleration of the indebtedness evidenced hereby shall not
constitute a waiver by the Holder of the acceleration of such indebtedness.
COSTS OF COLLECTION, ETC. The Borrower, and any other person who may be
liable hereunder in any capacity, agrees to pay all costs of collection,
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including a reasonable attorneys' fee, in case the principal of the Mortgage
Note or any payment of interest thereon is not paid when due, or in case it
becomes necessary to protect the security for this Mortgage Note, whether suit
is brought or not.
APPLICATION OF CERTAIN PAYMENTS. In no event shall the Borrower be required
to make any payment hereunder which would violate any applicable law regulating
or limiting the rate of interest that the Holder may lawfully collect. If any
such payment is made by or for the account of the Borrower, such payment shall,
to the extent it exceeds the maximum payment that the Holder lawfully may
collect, be applied toward reduction of the principal balance hereof.
INDEPENDENT OBLIGATIONS. The Borrower acknowledges and agrees that: (a) the
Seller is a wholly-owned subsidiary of Meritage; (b) under the Purchase
Agreement dated April 16, 1998, between the Seller and Innkeeper's Management,
LLC (the "Purchase Agreement"), neither the Seller nor Meritage had an
obligation to extend the credit evidenced hereby; and (c) the obligations
evidenced by this Mortgage Note are independent obligations of the Borrower, and
that no claim that the Borrower now or hereafter may have against the Seller, or
the Holder, or any other person or entity whatever, shall give rise to a right
of set-off under this Mortgage Note or otherwise constitute a defense to the
payment of principal or interest when due under this Mortgage Note. No claims
that the Borrower now or hereafter may have against the Seller, the Holder, or
any other person, may be asserted, by way of defense or otherwise, in any action
that the Holder may bring to collect the indebtedness evidenced by this Mortgage
Note, or to enforce any of the Collateral Security Documents, and the Borrower
acknowledges that any such claims must be pursued by it in a separate action
initiated by the Borrower, and that the Borrower shall have no right to seek to
have any such separate action consolidated with any action that the Holder may
bring to collect the indebtedness evidenced by this Mortgage Note, or to enforce
any of the Collateral Security Documents.
ASSIGNMENT AND TRANSFER; SUB-NOTES; BORROWER ESTOPPEL. The Holder may
assign or otherwise transfer this Mortgage Note (or direct interests or
participation interests in this Mortgage Note) at any time without notice to or
consent from the Borrower. If the Holder elects to sell direct interests in this
Mortgage Note, the Borrower shall, within three (3) Business Days after written
request by the Holder, execute and deliver replacement Mortgage Notes
(collectively the "Sub-Notes"), identical in form and substance to this Mortgage
Note except as to principal amount, in the aggregate amount of the then unpaid
principal balance of this Mortgage Note. The Borrower shall, within three (3)
Business Days after written request by the Holder, certify in writing to the
Holder, and to any other person(s) named by the Holder: (a) the then current
outstanding principal balance of this Mortgage Note (if there is a disagreement
between the Borrower and the Holder concerning the outstanding principal balance
of this Mortgage Note, the Borrower shall furnish to the Holder, at the time of
making the written statement required by this paragraph, copies of all documents
evidencing the principal payments theretofore made by the Borrower); (b) the
date through which interest has then been paid; (c) the absence of any
amendments or agreements modifying or otherwise affecting the obligations set
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forth in this Mortgage Note (or, if any such amendments or agreements are
alleged to exist, attaching copies of any such written agreements and
describing, by sworn statement of Donald W. Reynolds or William F. Ehinger, all
material terms and conditions of any such oral agreements as are alleged to
exist); (d) the absence of any known defenses to the obligations set forth in
this Mortgage Note and the absence of any known claims that could be asserted by
the Borrower or any other person against the Holder (or, if such defenses or
claims are alleged to exist, stating, by sworn statement of Donald W. Reynolds
or William F. Ehinger, the factual basis for such claims or defenses together
with copies of all documents supporting or otherwise relating to such alleged
claims and defenses; (f) confirming the Borrower's agreement that (i) any such
claims as may be alleged to exist are independent of the Borrower's obligations
under this Mortgage Note, and shall in no event give rise to a right of set-off
under this Mortgage Note or otherwise constitute a defense to the payment of
principal or interest when due under this Mortgage Note, and (ii) any proposed
assignee or transferee of this Mortgage Note (or a participation interest in
this Mortgage Note or a Sub-Note) shall be entitled to rely upon the Borrower's
written statement in connection with its acquisition of this Mortgage Note (or a
participation interest in this Mortgage Note or a Sub-Note).
COLLATERAL SECURITY DOCUMENTS. This Mortgage Note is secured by: (a) a
First Mortgage of even date herewith which is a lien upon real property in the
City of Port Huron, St. Clair County, Michigan (the "Mortgage"); (b) a
Continuing Guaranty of even date made, jointly and severally, by Donald W.
Reynolds, Betty J. Reynolds, and William F. Ehinger (the "Guaranty"); and (c)
separate Pledge Agreements of even date herewith pursuant to which Donald W.
Reynolds, Betty J. Reynolds, and William F. Ehinger pledged certain capital
stock of GRAND RAPIDS INNKEEPERS MANAGEMENT, INC., a Michigan corporation (the
"Pledge Agreements"). The Mortgage, the Guaranty, and the Pledge Agreements, and
all amendments thereto and replacements thereof, are referred to in this
Mortgage Note collectively as the "Collateral Security Documents".
MISCELLANEOUS. This Mortgage Note is binding on the Borrower's successors
and assigns, and will operate to the benefit of the Holder and its successors
and assigns. The use of headings shall not limit the provisions of this Mortgage
Note. All discussions between the Holder and the Borrower concerning the
indebtedness evidenced hereby are merged into this Mortgage Note and the
Collateral Security Documents. This Mortgage Note may be amended only by written
agreement signed on behalf of the Holder and the Borrower. The Mortgage Note is
executed and delivered in Kent County, Michigan, and is to be construed in
accordance with the laws of the State of Michigan.
NOTICES TO THE BORROWER. Notices to the Borrower shall be in writing and
shall be deemed to have been given on the date personally delivered or mailed to
the Borrower at its address at 1459 Michigan Avenue, Grand Rapids, Michigan
49503, or when faxed to the Borrower at (616) 459-7776; provided, however, that
if such date of delivery is not a Business Day, the date of delivery shall be
the first Business Day after the date of delivery provided above.
[SIGNATURE APPEARS ON FOLLOWING PAGE]
<PAGE>
[SIGNATURE PAGE TO $2 MILLION MORTGAGE NOTE
FROM REYNOLDS/EHINGER ENTERPRISES, LLC TO
MERITAGE HOSPITALITY GROUP INC.]
WITNESSES: REYNOLDS/EHINGER
ENTERPRISES, LLC,
/s/Ronald E. David
- --------------------------------- By: /s/Donald W. Reynolds
Ronald E. David -----------------------------
Donald W. Reynolds, Manager
/s/James R. Saalfeld
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James R. Saalfeld
STATE OF MICHIGAN )
) ss.
COUNTY OF KENT )
The foregoing instrument was acknowledged before me this 1st day of
September, 1998, by Donald W. Reynolds, who is the Manager of REYNOLDS/EHINGER
ENTERPRISES, LLC, a Michigan limited liability company, on behalf of such
limited liability company.
/s/Ronald E. David
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Notary Public, Kent County, Michigan
My commission expires: 8-7-2001
