<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, 1999.
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 No.)
of Incorporation or Organization)
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 12, 1999 there were 5,750,706 outstanding Common Shares, $.01 par
value.
================================================================================
<PAGE> 2
SAFE HARBOR STATEMENT
Certain statements contained in this report that are not historical
facts constitute forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, and are intended to be covered by the
safe harbors created by that Act. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to differ materially from those expressed or implied. Any
forward-looking statement speaks only as of the date made. The Company
undertakes no obligation to update any forward-looking statements to reflect
events or circumstances after the date on which they are made.
Statements concerning expected financial performance, on-going business
strategies and possible future action which the Company intends to pursue to
achieve strategic objectives constitute forward-looking information.
Implementation of these strategies and the achievement of such financial
performance are each subject to numerous conditions, uncertainties and risk
factors. Factors which could cause actual performance to differ materially from
these forward looking statements include, without limitation, competition;
changes in local and national economic conditions; changes in consumer tastes
and views about the nutritional quality of quick-service food; severe weather;
changes in travel patterns; increases in food, labor and energy costs; the
availability and cost of suitable restaurant sites; fluctuating insurance rates;
the availability of an adequate number of employees; the general reputation of
Wendy's restaurants; and the recurring need for renovation and capital
improvements. Also, the Wendy's restaurants are subject to extensive government
regulations relating to, among other things, zoning, minimum wage, public health
certification and food safety, and the operation of its restaurants. Because
Meritage's restaurant operations are concentrated in smaller urban areas of
Michigan, a marked decline in the Michigan economy could adversely affect
Meritage's operations.
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, 1998. The Company has restated its prior year consolidated
statement of cash flows to present the lodging group business segment as a
discontinued operation. The results of operations for the three and six month
periods ended May 31, 1999 are not necessarily indicative of the results to be
expected for the full year.
2
<PAGE> 3
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND NOVEMBER 30, 1998
==============================================================================================================
ASSETS
MAY 31,
1999 NOVEMBER 30,
(UNAUDITED) 1998
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,312,785 $ 2,109,358
Receivables 57,445 70,974
Notes receivable, current portion 3,166,507 2,719,617
Inventories 167,910 165,156
Prepaid expenses and other current assets 149,266 90,796
----------- -----------
Total current assets 4,853,913 5,155,901
PROPERTY, PLANT AND EQUIPMENT, NET 15,595,505 13,182,940
OTHER ASSETS
Note receivable, net of current portion -- 500,000
Goodwill, net of amortization of $244,523 and
$153,758, respectively 5,065,201 5,155,965
Franchise costs, net of amortization of $28,766 and
and $17,806, respectively 646,234 632,194
Financing costs, net of amortization of $10,263 and
and $3,314, respectively 322,972 261,815
Deferred charges and other assets 39,631 75,431
----------- -----------
Total other assets 6,074,038 6,625,405
----------- -----------
Total assets $26,523,456 $24,964,246
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
3
<PAGE> 4
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
MAY 31, 1999 AND NOVEMBER 30, 1998
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31,
1999 NOVEMBER 30,
(UNAUDITED) 1998
------------ ------------
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 1,647,001 $ 1,199,458
Current portion of obligations under capital leases 310,952 294,577
Short-term borrowings 1,100,000 1,100,000
Trade accounts payable 1,056,504 727,199
Amount due related party -- 245,260
Income taxes payable 5,000 50,000
Accrued liabilities 1,286,969 1,308,987
------------ ------------
Total current liabilities 5,406,426 4,925,481
LONG-TERM DEBT 12,138,486 10,623,946
OBLIGATIONS UNDER CAPITAL LEASES 1,235,369 1,395,049
DEFERRED REVENUE 1,886,748 1,992,026
NET LIABILITIES OF DISCONTINUED OPERATIONS 197,065 593,855
COMMITMENTS AND CONTINGENCIES -- --
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
44,520 shares (liquidation value - $445,200) 445 445
Common stock - $0.01 par value; authorized 30,000,000
shares; issued and outstanding 5,748,419 and
5,742,586 shares, respectively 57,484 57,426
Additional paid in capital 13,309,909 13,299,467
Note receivable from the sale of shares, net of
valuation allowance of $5,007,390 and
$4,666,755, respectively (1,660,962) (1,660,962)
Accumulated deficit (6,047,514) (6,262,487)
------------ ------------
Total stockholders' equity 5,659,362 5,433,889
------------ ------------
Total liabilities and stockholders' equity $ 26,523,456 $ 24,964,246
============ ============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
4
<PAGE> 5
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED MAY 31,
(UNAUDITED)
===================================================================================================================
1999 1998
------------ ------------
<S> <C> <C>
FOOD AND BEVERAGE REVENUE $ 14,020,536 $ 12,713,910
COSTS AND EXPENSES
Cost of food and beverages 4,070,017 3,668,318
Operating expenses 8,165,362 7,629,492
General and administrative expenses 875,570 1,569,966
Depreciation and amortization 622,849 619,629
------------ ------------
Total costs and expenses 13,733,798 13,487,405
------------ ------------
OPERATING EARNINGS (LOSS) 286,738 (773,495)
OTHER INCOME (EXPENSE)
Interest expense (669,348) (740,757)
Interest income 249,590 315,444
Other income -- 518,312
Gain on disposal of assets 297,227 --
Minority interest -- 25,677
------------ ------------
Total other income (expense) (122,531) 118,676
------------ ------------
Earnings (loss) from continuing operations 164,207 (654,819)
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS - NOTE C 70,800 (479,232)
------------ ------------
Net earnings (loss) 235,007 (1,134,051)
DIVIDENDS ON PREFERRED STOCK 20,034 62,274
------------ ------------
NET EARNINGS (LOSS) ON COMMON SHARES $ 214,973 $ (1,196,325)
============ ============
EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED
Continuing operations $ 0.03 $ (0.16)
Discontinued operations 0.01 (0.11)
------------ ------------
Net earnings (loss) $ 0.04 $ (0.27)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 5,745,021 4,414,859
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 5,943,546 4,414,859
============ ============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
5
<PAGE> 6
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MAY 31,
(UNAUDITED)
===========================================================================================================
1999 1998
----------- -----------
<S> <C> <C>
FOOD AND BEVERAGE REVENUE $ 7,527,506 $ 6,690,794
COSTS AND EXPENSES
Cost of food and beverages 2,178,904 1,953,142
Operating expenses 4,355,593 3,882,603
General and administrative expenses 365,463 621,735
Depreciation and amortization 324,853 309,265
----------- -----------
Total costs and expenses 7,224,813 6,766,745
----------- -----------
EARNINGS (LOSS) FROM OPERATIONS 302,693 (75,951)
OTHER INCOME (EXPENSE)
Interest expense (339,001) (371,253)
Interest income 119,422 158,989
Other income -- 518,239
Gain on disposal of assets 140,592 --
----------- -----------
Total other income (expense) (78,987) 305,975
----------- -----------
Earnings from continuing operations 223,706 230,024
LOSS FROM DISCONTINUED OPERATIONS - NOTE C -- (164,270)
----------- -----------
Net earnings 223,706 65,754
DIVIDENDS ON PREFERRED STOCK 10,017 31,137
----------- -----------
NET EARNINGS ON COMMON SHARES $ 213,689 $ 34,617
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED
Continuing operations $ 0.04 $ 0.04
Discontinued operations -- (0.03)
----------- -----------
Net earnings $ 0.04 $ 0.01
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 5,747,404 5,006,008
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 5,900,365 5,006,008
=========== ===========
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1998 AND THE SIX MONTH PERIOD ENDED MAY 31, 1999
(UNAUDITED)
================================================================================================================================
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> <C>
BALANCE AT DECEMBER 1, 1997 $ 1,384 $ 32,188 $ 12,982,295 $ (5,700,645) $ (7,285,261) $ 29,961
Issuance of 1,999,935 shares of
common stock -- 19,999 4,561,155 -- -- 4,581,154
Conversion of 73,867 shares of
convertible preferred shares into
523,873 common shares (739) 5,239 (4,500) -- -- --
Cancellation of 20,000 shares of
convertible preferred stock (200) -- (199,800) -- -- (200,000)
Dividends paid - preferred stock -- -- -- -- (107,928) (107,928)
Recognition of interest income
on note receivable from sale
of shares -- -- 627,072 (627,072) -- --
Establishment of valuation
allowance on note receivable
from sale of shares -- -- (4,666,755) 4,666,755 -- --
Net earnings -- -- -- -- 1,130,702 1,130,702
-------------------------------------------------------------------------------------------
BALANCE AT NOVEMBER 30, 1998 445 57,426 13,299,467 (1,660,962) (6,262,487) 5,433,889
Issuance of 5,835 shares of
common stock -- 58 10,442 -- -- 10,500
Dividends paid - preferred stock -- -- -- -- (20,034) (20,034)
Recognition of interest income
on note receivable from sale
of shares -- -- 340,635 (340,635) -- --
Increase in valuation allowance
on note receivable from sale
of shares -- -- (340,635) 340,635 -- --
Net earnings -- -- -- -- 235,007 235,007
-------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1999 $ 445 $ 57,484 $ 13,309,909 $ (1,660,962) $ (6,047,514) $ 5,659,362
===========================================================================================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
7
<PAGE> 8
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MAY 31,
(UNAUDITED)
1998
1999 (RESTATED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 235,007 $(1,134,051)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities
Depreciation and amortization 622,849 619,629
Compensation and fees paid by issuance of common stock 10,500 2,809
Insurance proceeds in excess of net book value of
fire damaged assets 102,733 --
Minority interest in net loss of consolidated subsidiaries -- (25,677)
Interest income on note receivable from sale of shares -- (306,878)
Interest expense refinanced as long-term debt -- 5,299
Decrease (increase) in cash value of life insurance 22,943 (8,884)
(Decrease) increase in deferred revenue (105,278) 2,090,000
(Increase) decrease in current assets (47,695) 113,934
Decrease in net (liabilities) assets of discontinued operations (396,790) 380,860
Increase in current liabilities 17,028 774,925
----------- -----------
Net cash provided by operating activities 461,297 2,511,966
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,016,618) (165,854)
Payment for franchise agreement (25,000) --
Collection on note receivable 53,110 --
Payment for acquisition of business -- (755,200)
Increase in other assets -- (61,570)
----------- -----------
Net cash used in investing activities (2,988,508) (982,624)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 2,185,713 --
Payment of financing costs (68,106) (11,250)
Principal payments of long-term debt (223,630) (760,274)
Payments on obligations under capital leases (143,305) (128,613)
Proceeds from issuance of stock -- 3,335
Preferred dividends paid (20,034) (62,274)
----------- -----------
Net cash provided by (used in) financing activities 1,730,638 (959,076)
----------- -----------
Net (decrease) increase in cash (796,573) 570,266
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,109,358 1,061,475
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,312,785 $ 1,631,741
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION - SEE NOTE A
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
</TABLE>
8
<PAGE> 9
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1999 AND 1998
================================================================================
NOTE A - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998
(Restated)
-------------- -------------
<S> <C> <C>
Cash paid for interest expense $ 670,731 $ 681,355
============== =============
SCHEDULE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS
$550,000 short term note payable retired and replaced
by construction loan $ -
=============
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
=============
</TABLE>
NOTE B - EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing earnings on common
shares 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.
The following table reconciles the numerators and denominators used to
calculate basic and diluted earnings per share for the three and six month
periods ended May 31, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerators
Earnings (loss) from continuing
operations $ 223,706 $ 230,024 $ 164,207 $(654,819)
Less preferred stock dividends 10,017 31,137 20,034 62,274
--------- --------- --------- ---------
Earnings (loss) on common shares - basic 213,689 198,887 144,173 (717,093)
Effect of dilutive securities
Convertible preferred stock 10,017 31,137 20,034 62,274
Stock options -- -- -- --
--------- --------- --------- ---------
Earnings (loss) on common shares - diluted $ 223,706 $ 230,024 $ 164,207 $(654,819)
========= ========= ========= =========
</TABLE>
9
<PAGE> 10
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1999 AND 1998
================================================================================
NOTE B - EARNINGS (LOSS) PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
-------------------------------- ------------------------------
1999 1998 1999 1998
------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Denominators
Weighted average common shares
outstanding - basic 5,747,404 5,006,008 5,745,021 4,414,859
Effect of dilutive securities
Convertible preferred stock 130,557 -- 184,730 --
Stock options 22,404 -- 13,795 --
--------- --------- --------- ---------
Weighted average common shares
outstanding - diluted 5,900,365 5,006,008 5,943,546 4,414,859
========= ========= ========= =========
</TABLE>
For the three and six months ended May 31, 1998, (i) convertible
preferred stock was not included in the computation of diluted earnings per
share because the effect of conversion would be antidilutive, and (ii)
exercisable stock options were not included in the computation of diluted
earnings per share because the option prices were greater than average quarterly
market prices.
NOTE C - DISCONTINUED OPERATIONS
Effective May 31, 1998, the Company began accounting for its lodging
business segment as discontinued operations. As of May 31, 1999 and November 30,
1998, assets and liabilities of the discontinued lodging segment included in the
balance sheet are summarized below:
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1999 1998
-------------- ------------
<S> <C> <C>
Assets
Current assets $ -- $ 13,264
Other assets -- 16,511
Liabilities
Current liabilities (197,065) (623,630)
--------- ---------
Net liabilities of discontinued operations $(197,065) $(593,855)
========= =========
</TABLE>
10
<PAGE> 11
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS - CONTINUED
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1999 AND 1998
================================================================================
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
A summary of the results of operations of the discontinued operations
for the three and six month periods ended May 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
For the six month periods ended
May 31, 1999 and 1998 1999 1998
----------- -----------
<S> <C> <C>
Revenues $ -- $ 4,224,973
Costs and expenses -- 4,016,185
----------- -----------
Earnings from operations -- 208,788
Other expense -- (688,020)
----------- -----------
Loss from operations of discontinued operations -- (479,232)
Gain on disposal of discontinued operations (70,800) --
----------- -----------
Net income (loss) from discontinued operations $ 70,800 $ (479,232)
=========== ===========
For the three month periods ended
May 31, 1999 and 1998 1999 1998
----------- -----------
Revenues $ -- $ 2,184,674
Costs and expenses -- 2,008,674
----------- -----------
Earnings from operations -- 176,000
Other expense -- (340,270)
----------- -----------
Loss from operations of discontinued operations $ -- $ (164,270)
=========== ===========
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
The Company's continuing operations consists of its operation of 27
"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, results of continuing operations for the
three and six month periods ended May 31, 1999 and May 31, 1998 also include
expenses related to the Company's corporate office and are summarized in the
following tables:
<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
-------------------- ---------------------- -------------------- -----------------
1999 1998 1999 1998 1999 1998 1999 1998
-------------------- ---------------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Food and beverage revenue $ 7,528 $ 6,691 100.0% 100.0% $ 14,020 $ 12,714 100.0% 100.0%
Costs and expenses
Cost of food and beverages 2,179 1,953 28.9 29.2 4,069 3,668 29.0 28.9
Operating expenses 4,356 3,883 57.9 58.0 8,173 7,629 58.3 60.0
General and administrative
Restaurant operations 274 297 3.7 4.4 570 644 4.1 5.1
Corporate level expenses 91 325 1.2 4.9 297 926 2.1 7.3
Depreciation and amortization 325 309 4.3 4.6 623 620 4.4 4.9
-------------------- ---------------------- -------------------- -----------------
Total costs and expenses 7,225 6,767 96.0 101.1 13,732 13,487 97.9 106.1
-------------------- ---------------------- -------------------- -----------------
Earnings (loss) from operations 303 (76) 4.0 (1.1) 288 (773) 2.1 (6.1)
Other income (expense)
Interest expense (339) (371) (4.5) (5.6) (670) (741) (4.8) (5.8)
Interest income 119 159 1.6 2.4 249 315 1.8 2.5
Other income -- 518 -- 7.7 -- 518 -- 4.0
Gain on disposal of assets 141 -- 1.9 -- 297 -- 2.1 --
Minority interest -- -- -- -- -- 26 -- 0.2
-------------------- ---------------------- -------------------- -----------------
Total other income (expense) (79) 306 (1.0) 4.5 (124) 118 (.9) 0.9
-------------------- ---------------------- -------------------- -----------------
Earnings (loss) from
continuing operations $ 224 $ 230 3.0% 3.4% $ 164 $ (655) 1.2% (5.2%)
==================== ====================== ==================== =================
</TABLE>
REVENUE
Food and beverage revenue increased $837,000 or 12.5% for the three
months ended May 31, 1999 compared to the same period of 1998. For the six
months ended May 31, 1999 food and beverage revenue increased $1,306,000 or
10.2% compared to the same period of 1998. Revenue for the three and six months
ended May 31, 1999 includes sales from two new restaurants opened on February
18, 1999 and March 18, 1999, respectively. In April 1999, one of the Company's
existing restaurants was damaged by fire and is currently closed for renovation.
Food and beverage revenue on a per restaurant basis for restaurants in operation
during both the first and second quarters of 1999 and 1998 are set forth in the
following table:
12
<PAGE> 13
<TABLE>
<CAPTION>
Average Net Sales Per Restaurant Unit
-------------------------------------
1999 1998 Increase % Increase
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Three months ended May 31 $287,207 $267,199 $ 20,008 7.5%
Three months ended February 28 257,908 240,465 17,443 7.3%
-------- -------- --------
Six months ended May 31 $545,115 $507,664 $ 37,451 7.4%
======== ======== ========
</TABLE>
The 7.5% ($480,000) increase in same store sales for the second quarter
of 1999 was primarily attributable to (i) increased customer traffic during late
night hours (sales between the hours of 10:00 p.m. and midnight) resulting in a
$95,000 increase in late-night sales, and (ii) a $585,000 increase in "combo"
sales and "upsizing" (the addition of a larger beverage and larger french fry to
the standard combo meal for an additional 39 cents). Same store sales for the
six months ended May 31, 1999 increased 7.4% ($899,000). The increase is
primarily attributable to the continued success of the two promotions described
above: late-night business (increased $208,000 over the prior year), and "combo"
sales (increased $1,032,000 over the prior year). There were no increases in the
average price of menu items for the three and six months ended May 31, 1999. The
Company has experienced an increase in both average sales per transaction and in
increased customer traffic.
COST OF FOOD AND BEVERAGES
Cost of food and beverages as a percentage of food and beverage revenue
was 28.9% for the three months ended May 31, 1999 compared to 29.2% for the
three months ended May 31, 1998. The .3 percentage point decrease in cost of
food and beverages for the second quarter of 1999 is due to both product mix and
cost changes. Cost of food and beverages for the six months ended May 31, 1999
was 29.0% compared to 28.9% for the same period of 1998. Cost of food and
beverage percentages of 28.9% and 29.0%, respectively, for the three and six
months ended May 31, 1999 are in line with the Company's and Wendy's
International's guidelines.
OPERATING EXPENSES
Operating expenses as a percentage of revenue remained fairly constant
for the three months ended May 31, 1999 compared to the same period of 1998
(58.0% of revenue in 1998 and 57.9% in 1999). For the six months ended May 31,
1999, operating expenses were reduced 1.7 percentage points (from 60.0% of
revenue in 1998 to 58.3% in 1999). The net decrease in operating expenses as a
percentage of revenue was primarily the result of reductions in rent expense and
advertising expense in excess of increased payroll costs. A detail discussion
follows:
- Rent Expense
Rent expense decreased $100,000 and $187,000 for the three and six
months ended May 31, 1999, respectively, compared to the same periods of 1998.
As a percentage of sales, rent expense decreased from 4.6% of sales for both the
three and six months ended May 31, 1998 to 2.8% of sales for the same periods in
1999. The reduction in rent expense resulted from the September 1998 purchase of
five restaurants which were previously leased. The Company has realized a
corresponding increase in interest and depreciation expense due to this
purchase.
13
<PAGE> 14
- Advertising Expense
As a percentage of revenue, advertising expense decreased .8 percentage
points ($11,000) and 1.3 percentage points ($101,000) for the three and six
month periods ended May 31, 1999, respectively, compared to the same periods in
1998. The reduced expense for the second quarter was the result of an increase
in advertising rebates from PepsiCo compared to rebates received during 1998
from Coca-Cola. Advertising expense for the second quarter of 1999 included
$32,000 of advertising costs incurred by the two new restaurants opened during
1999. The decrease for the six month period also reflected a savings from a
program sponsored by Wendy's International which reduced the national
advertising contribution paid by the franchisees for the six month period ended
February 28, 1999.
- Increased Payroll Costs
Payroll costs for the three months ended May 31, 1999 increased from
31.0% of revenue in 1998 to 33.2% of revenue in 1999. The Company has continued
to be affected by a tight labor market and its effect on the availability and
cost of labor. Average restaurant crew labor cost on a same store basis
increased 14.4% for the three months ended May 31, 1999, compared to the same
period of 1998, due to the following factors:
(i) an increase in the average hourly rate of 5.8% (from
$6.02 to $6.37);
(ii) an increase of 95% in overtime premium paid
(from $31,000 to $61,000); and
(iii) increased average same store sales of 7.5%.
Compounding these cost increases, employee health insurance costs
increased for the second quarter of 1999 from 1.8% of revenue to 2.5% of
revenue, due to an increase in premiums. Beginning April 1, 1999, a portion of
the total premium increase was shared by employees. Additionally, the Company
expensed $19,000 (.3% of revenue) of pre-opening labor costs during the second
quarter of 1999 related to new store openings.
The same factors described above impacted payroll costs for the six
months ended May 31, 1999 compared to the same period of 1998. Payroll costs
increased from 31.9% of revenue in 1998 to 33.3% of revenue in 1999. Average
restaurant crew labor cost on a same store basis increased 12.3% for the six
months ended May 31, 1999 compared to the same period of 1998 due to the
following factors:
(i) an increase in the average hourly rate of 7.4%
(from $5.93 to $6.37);
(ii) an increase of 54% in overtime premium paid
(from $92,000 to $143,000); and
(iii) increased average same store sales of 7.4%.
Compounding these cost increases, employee health insurance costs
increased from 1.9% of revenue to 2.2% of revenue, due to an increase in
premiums. Beginning April 1, 1999 a portion of the total premium increase was
shared by the employees. And finally, the expensing of the pre-opening labor
costs incurred by new stores resulted in a .3 percentage point increase in the
overall payroll cost.
14
<PAGE> 15
GENERAL AND ADMINISTRATIVE
Restaurant Operations
General and administrative expenses for the restaurant operations
decreased $23,000 for the three months ended May 31, 1999 compared to the same
period of 1998 (from $297,000 to $274,000), from 4.4% of revenue to 3.7% of
revenue. For the six months ended May 31, 1999 general and administrative
expenses decreased $74,000 (from $644,000 to $570,000), from 5.1% of revenue to
4.1% of revenue. The decrease for the second quarter was primarily due to the
elimination of the general partner fee ($40,000) associated with the former
general partner of the Wendy's limited partnership. The decrease for the six
months ended May 31, 1999 was primarily due to (i) a $72,000 reduction in the
general partner fee, (ii) a $14,000 decrease in outside recruiting costs, and
(iii) a $15,000 decrease in accounting and legal fees. These decreases were
partially offset by an increase in transportation costs due to (i) additional
costs related to two new supervisor positions, and (ii) increased leased vehicle
costs as the various lease agreements were renewed.
Corporate Level Expenses
General and administrative expenses for corporate level expenses
decreased $234,000 (from $325,000 to $91,000), from 4.9% of revenue to 1.2% of
revenue for the three months ended May 31, 1999 compared to the same period of
1998. The decrease was primarily due to (i) a $93,000 reduction in salaries,
bonuses, and related costs resulting from the elimination of several positions,
(ii) a $208,000 reduction in legal expenses resulting primarily from the receipt
of insurance proceeds offsetting costs incurred from previous litigation, and
(iii) a $34,000 decrease in life insurance premiums resulting from the sale of
policies earlier this year. These decreases were offset by non-recurring
reductions in expenses during the second quarter of 1998 which totaled $53,000,
primarily resulting from a workers' compensation insurance adjustment.
For the six months ended May 31, 1999 general and administrative
expenses decreased approximately $629,000 (from $926,000 to $297,000), from 7.3%
of revenue to 2.1% of revenue. The decrease was primarily due to reductions in
the same expense categories as described above including (i) a $211,000 decrease
in salaries, bonuses and related costs, (ii) a $396,000 reduction in legal
expenses resulting from $192,000 in insurance proceeds in 1999 and unusually
high costs in 1998 due to litigation brought by the former general partner of
the now dissolved Wendy's of West Michigan Limited Partnership, and (iii) an
$81,000 reduction in life insurance premiums.
INTEREST EXPENSE
Interest expense for the second quarter of 1999 and 1998 was $339,000
and $371,000, respectively. Interest expense for the six months ended May 31,
1999 and 1998 was $670,000 and $741,000, respectively. Long-term debt was
restructured during the fourth quarter of 1998 which resulted in a weighted
average interest rate of approximately 9.1% for the three and six months ended
May 31, 1999 compared to approximately 13.75% for the same periods of 1998. All
of the Company's long-term debt is now at fixed interest rates compared to
long-term debt prior to the debt restructuring when the Company had both fixed
and variable rate long-term debt. This significant reduction in interest rates
more than offsets the increase in long-term debt. See "Liquidity and Capital
Resources" for details about the Company's long-term debt.
15
<PAGE> 16
INTEREST INCOME
Interest income decreased $40,000 for the second quarter (from $159,000
in 1998 to $119,000 in 1999), and $66,000 for the six months ended May 31, 1999
(from $315,000 in 1998 to $249,000 in 1999). During the three and six month
periods ended May 31, 1998 the Company recognized $153,000 and $307,000,
respectively, of non-cash interest on the Company's note receivable from the
sale of stock. In June 1998, the Company discontinued its recognition of this
interest income and reversed the year-to-date interest income previously
recognized. The cash interest income recorded in fiscal year 1999 was primarily
the result of interest earned on the notes receivable obtained in the sale of
the Thomas Edison Inn and the Grand Harbor Resort & Yacht Club.
OTHER INCOME
Other income of $518,000 for the three and six months ended May 31,
1998 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.
GAIN ON DISPOSAL OF ASSETS
A gain of $141,000 and $297,000 was recognized for the three and six
months ended May 31, 1999, respectively. These gains were due to the sale of
life insurance policies during the first two quarters ($200,000), and from the
excess of insurance proceeds over the net book value of fire damaged equipment
($97,000). The Company expects that insurance will cover substantially all of
the costs to restore and equip the fire damaged restaurant.
DISCONTINUED OPERATIONS - LODGING GROUP
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 C of the Company's Financial Statements.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
CASH FLOWS
Cash and cash equivalents ("cash") decreased $796,573, from $2,109,358
as of November 30, 1998, to $1,312,785 as of May 31, 1999. The decrease in cash
was the result of the following:
<TABLE>
<S> <C>
Net cash provided by operating activities $ 461,297
Net cash used in investing activities (2,988,508)
Net cash provided by financing activities 1,730,638
------------------
Net decrease in cash $ (796,573)
==================
</TABLE>
Net cash provided by operating activities decreased $2,051,000 for the
six months ended May 31, 1999 compared to the same period of 1998 despite an
increase in net earnings of $1,369,000. The decrease was due in large part to
the receipt of $2,090,000 in marketing and conversion funds (deferred revenue)
from the Company's beverage supplier in May 1998. The decrease was also the
result of a significant increase in net current liabilities (excluding the
current portions of long-term debt and capital lease obligations) in 1998
compared to a reduction in net liabilities of discontinued operations from
November 30, 1998 to May 31, 1999.
Net cash used in investing activities increased $2,006,000 for the six
months ended May 31, 1999 compared to the same period of 1998. The increase was
primarily the result of a $2,933,000 investment in two new restaurants and the
land for a third new restaurant in 1999. This investment in new restaurants
compares to an investment of $755,000 in 1998 for the acquisition of the
remaining interest in the former Wendy's of West Michigan Limited Partnership.
Net cash provided by financing activities increased $2,690,000 for the
six months ended May 31, 1999 compared to the same period of 1998. The increase
is primarily the result of the acquisition of $2,186,000 of long-term debt used
to finance the investment in two new restaurants and the land for a third new
restaurant in 1999. Also, due to the restructuring of the Company's long-term
debt in the fourth quarter of 1998, principal payments on long-term debt were
$537,000 less for the six months ended May 31, 1999 compared to the same period
of 1998.
FINANCIAL CONDITION
As of May 31, 1999 the Company's current liabilities exceeded its
current assets by $553,000, compared to November 30, 1998 when current assets
exceeded current liabilities by $230,000. At these dates, the ratios of current
assets to current liabilities were 0.90:1 and 1.05:1, respectively. The
discussion above of cash flows for the six months ended May 31, 1999 explains
the decrease in cash as well as the most significant reasons for the decrease in
working capital.
As of May 31, 1999, the Company's long-term debt consisted primarily of
the following:
1) $9,517,000 mortgage notes payable requiring monthly payments of
$80,568, including interest at rates ranging from 7.77% to 8.42%
with maturity 20 years from date of loan ranging from September
2018 through June 2019.
17
<PAGE> 18
2) $1,094,000 notes payable requiring monthly payments of $10,802,
including interest at 8.15% through September 2018.
3) $1,546,000 construction notes payable requiring monthly payments
of interest only at rates ranging from 7.44% to 7.50% through the
completion of the building construction, at which time a
permanent mortgage note will be secured.
4) $307,000 equipment notes payable requiring monthly payments of
$8,126, including interest at rates ranging from 7.5% to 8.8%.
5) $1,322,000 obligation arising from the assignment of the note
receivable from the sale of the Grand Harbor Resort & Yacht Club,
which assignment was with recourse. Due to the recourse nature of
the obligation, it is included in the current portion of
long-term debt in the Financial Statements. The related note
receivable is accounted for as a current asset. Because the
obligation was assigned with recourse, to the extent the note
receivable is not paid by the maker, the company would be
required to make payment to the assignee upon completion of its
collection efforts. On July 1, 1999 the Company received a
scheduled payment on the note receivable from the sale of the
Grand Harbor Resort & Yacht Club reducing the outstanding balance
of both the obligation and note receivable to $475,000.
The various loan agreements contain loan covenants requiring the
maintenance of certain financial ratios including:
- Fixed Charge Coverage Ratio ("FCCR") of 1.2 : 1 for the Wendy's
operation as a whole;
- FCCR of 1.2 : 1 for the Wendy's restaurants that are subject to a
real estate mortgage;
- FCCR of 1.4 : 1 for the Wendy's restaurants that are subject to
both a real estate mortgage and a business value loan; and
- a restriction against using operating cash flow from the Wendy's
business to fund corporate level expenses if such funding would
cause the FCCR to be less than 1.2 : 1.
At May 31, 1999, the Company was in compliance with these covenants.
The cash management issues currently facing the Company can be
described in three areas: (i) on-going operations and capital improvements at
the existing Wendy's restaurants, (ii) investment in new Wendy's restaurants,
and (iii) continued control of corporate level expenses.
The single most significant issue facing management at existing
restaurants is the combination of decreased availability of employees and the
continued increasing cost of labor. Wendy's International has established a
"Service Excellence" program which incorporates the use of new tools (e.g.
timing mechanisms to improve drive-through service times) to allow for lower
labor costs per customer. The required capital expenditures for the Service
Excellence program are estimated at an average cost of approximately $10,000 per
restaurant over the next twelve months. In addition to those capital expenditure
requirements, the Company estimates that the existing restaurants will require
approximately $250,000 of capital improvements over the next twelve months.
18
<PAGE> 19
The Company has invested approximately $3,000,000 into new restaurants
during the six months ended May 31, 1999. This investment consists of land,
building and equipment for two new restaurants and land for a third new
restaurant which opened on June 24, 1999. The third restaurant requires an
additional investment of $1,000,000 in the third quarter. The financing for this
third new restaurant is being provided by Fleet Business Credit Corporation
under a program approved by Wendy's International. It is also estimated that the
Company will open two more restaurants during the remainder of the fiscal year
(for a total of five new restaurants in 1999). The Company has received a
forward commitment to finance $3,750,000 in new store investments for three
additional restaurants over the next twelve months. The Company plans to provide
financing for the new restaurants through a combination of (i) proceeds from
borrowings under the forward fixed rate financing commitment, (ii) leasing of
real estate and equipment, and (iii) equipment financing. It is anticipated that
these financing options will provide for approximately 90% of the cost for newly
opened units over the next twelve months. The Company has begun discussions with
a number of lenders to provide the equipment financing at rates from 5.6%
(floating) to 8.5% (fixed).
For the three new restaurants already opened this fiscal year, the
Company has secured financing totaling $3,201,000, of which $2,965,000 has been
borrowed. Permanent 20 year mortgages have been obtained for $1,940,000 at fixed
rates ranging from 8.42% to 8.53%. A permanent mortgage of $1,261,000 will be
obtained for the restaurant which opened June 24, 1999 at such time as all the
final costs are known. This mortgage is for the first of four restaurants which
are committed to be financed at a fixed rate equal to 2.2% over the then-current
20 year treasuries (approximately 8.0% at current rates).
The Company's loan agreements restrict the amount of currently
generated operating cash flow from the Wendy's operation that may be utilized to
fund corporate level expenses. The Company anticipates that this requirement
will be met in the current year given the reductions in corporate level expenses
and the receipt of non-operating cash during this fiscal year. Approximately
$392,000 of such non-operating proceeds were received during the first six
months of the year, and it is expected that $744,000 of net proceeds from notes
receivable will be received during the remainder of this fiscal year.
In light of these operational and investment cash management issues,
the Company plans to meet its current obligations over the next twelve months
by:
- Utilizing cash reserves in excess of $1,000,000.
- Using $900,000 of annual projected operating cash generated from
existing Wendy's restaurants.
- Generating additional operating cash flow from newly opened
restaurants.
- Exploring the acquisition of a working capital and an equipment
line of credit.
- Collecting on the notes receivable, which are expected to
generate net proceeds of approximately $744,000.
- Exploring the financing of certain capital expenditures at
existing Wendy's restaurants.
- Participating in vendor financing programs for capital
expenditures required under the Service Excellence program.
19
<PAGE> 20
- Exploring the use of equipment financing for certain of the new
restaurants.
- Reducing or deferring capital expenditures described above.
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. Also, $1,575,000 of the notes receivable have been assigned with
recourse. To the extent those notes are not paid by their makers, the Company
would be obligated to make the payments to the assignees upon completion of its
collection efforts. Although the Company believes that the collateral is
sufficient to cover the remaining obligations on those notes, there is no
assurance that the Company would be able to effect such a realization when
payments on the notes would ultimately be due to the assignees, and no
assurances that the amounts recovered would be sufficient to cover amounts due
those assignees. In such circumstances, the Company would be required to secure
necessary funds through borrowings or other means.
INFLATION AND CHANGING PRICES
The Company has been affected by increased payroll costs due to a tight
labor market and its effect on the availability and cost 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 three years. The
Company is completing its review of its computer hardware and software with the
assistance of the software designers to ensure that all significant software
applications are year 2000 compliant. 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. The critical
systems which are used to (i) produce financial statements, (ii) process
payroll, and (iii) process purchases and cash disbursements have also been
tested and are year 2000 compliant. However, the Company's software used to
compare actual product usage with planned product usage is not year 2000
compliant. The Company plans to replace its product usage software with year
2000 compliant software.
The Company has estimated that replacement and enhancement of systems
will be necessary at a cost ranging from $75,000 to $150,000. 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.
20
<PAGE> 21
Despite assurances from its various software vendors, the Company could
find that its critical computer systems are not year 2000 compliant or that it
experiences computer equipment failures. In such event, the Company's
contingency plan includes the following:
1) Point-of-Sale System - The Company would immediately begin to
manually process its sales, monitor its inventory, and record its
labor expense. This manual system would remain in effect until
such time as the year 2000 issues are corrected or a substitute
computerized system is installed. It is possible, however, that
if the year 2000 issues cannot be corrected, or a substitute
system cannot be installed within a short period of time, there
could be adverse financial and operational effects on the
Company.
2) Financial Statements, Cash Disbursements and Payroll Systems -
The Company would initiate one or more of the following
contingency plans until the year 2000 issue can be corrected: (i)
manual processing, (ii) utilization of an alternative software
program on a "stop-gap" basis until the system can be corrected,
or (iii) contract with a third party vendor to process payments,
payroll and financial statements. If the year 2000 issues cannot
be corrected on a timely basis, there could be adverse financial
and operational effects on the Company.
Although the Company has not been informed of material year 2000 issues
by third parties with which it has a material relationship, there is no
assurance that these entities will be year 2000 compliant on a timely basis.
Unanticipated failures or significant delays in furnishing products or services
by third parties or general public infrastructure service providers could have
adverse financial and operational effects on the Company.
21
<PAGE> 22
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 Annual Meeting of Shareholders was held at the Peninsular Club,
120 Ottawa N.W., Grand Rapids, Michigan, at 9:00 a.m. on Tuesday, May 18, 1999,
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 March 26, 1999.
4,812,619 Common Shares were present in person or by proxy at the meeting,
representing 83.7% of the total shares outstanding.
The shareholders elected the following six members to the Company's Board
of Directors to serve until the 2000 Annual Meeting: James P. Bishop (4,751,103
shares), Christopher P. Hendy (4,750,853 shares), Joseph L. Maggini (4,751,103
shares), Jerry L. Ruyan (4,750,853 shares), Robert E. Schermer, Sr. (4,750,693
shares) and Robert E. Schermer, Jr. (4,751,103 shares). Each director received
at least 98.7% of the total shares voted.
The shareholders also ratified the appointment of Grant Thornton LLP as the
Company's independent public accountants for the fiscal year ending November 30,
1999 pursuant to the following vote: In Favor: 4,771,803; Opposed: 26,578;
Abstentions: 14,238.
ITEM 5. OTHER INFORMATION.
On May 18, 1999, the Board of Directors appointed the following officers of
the Company: Robert E. Schermer, Jr. - President and Chief Executive Officer;
Ray E. Quada - Senior Vice President and Chief Operating Officer, 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. The Board also
reestablished the Executive, Audit, and Compensation Committees as standing
committees of the Board of Directors.
On April 16, 1999, the Company announced plans to join with Meijer, Inc. to
develop and operate an experimental prototype combination store, which combines
a 3,400 square foot full service Wendy's restaurant and drive-through operated
by the Company, with a 3,500 square foot convenience store and gas station
facility operated by Meijer. Meijer is a major retail operator that currently
operates over 100 convenience store and gas station facilities located adjacent
to Meijer's retail properties in Michigan, Ohio, Indiana, Illinois and Kentucky.
One or two combination stores are being planned during the next 6-12 months.
Depending on their performance, additional stores may be rolled out in the
future.
On May 12, 1999, the Company announced that it had obtained a $5.0 million
construction and permanent financing commitment from Fleet Business Credit
Corporation to develop up to four new free-standing Wendy's restaurants. The
financing terms include a 20-year amortization with a fixed interest rate of
220 basis points over 20-year treasuries.
On March 18, 1999 the Company opened its 27th Wendy's restaurant located
near 16th Street and Waverly Road in Holland, Michigan. On June 24, 1999, the
Company opened its 28th Wendy's restaurant located in the Knapp's Corner
development along East Beltline in Grand Rapids, Michigan. Both new restaurants
employ approximately 40 people.
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit List.
-------------
Exhibit No. Description of Document
- ----------- ----------------------------------------------------------------
10.1 Amended Indemnification Agreement dated May
21, 1999 among Meritage Hospitality Group
Inc., MHG Food Service Inc., WM Limited
Partnership - 1998, S & Q Management, LLC,
Robert E. Schermer, Jr. and Ray E. Quada.
10.2 Sample Loan Agreement with Fleet Business
Credit Corporation.
10.3 Sample Promissory Note with Fleet Business
Credit Corporation.
10.4 Sample Mortgage with Fleet Business Credit
Corporation.
10.5 Sample Guaranty with Fleet Business Credit
Corporation.
27 Financial Data Schedule.
- -------------------------
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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 12, 1999 MERITAGE HOSPITALITY GROUP INC.
By /s/ Robert E. Schermer, Jr.
-------------------------------------
Robert E. Schermer, Jr.
President and Chief Executive Officer
By /s/ Pauline M. Krywanski
--------------------------------------
Pauline M. Krywanski
Vice President and Treasurer
(Chief Financial Officer)
23
<PAGE> 24
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------- ----------------------------------------------------------
10.1 Amended Indemnification Agreement dated May 21, 1999 among
Meritage Hospitality Group Inc., MHG Food Service Inc.,
WM Limited Partnership - 1998, S & Q Management, LLC,
Robert E. Schermer, Jr. and Ray E. Quada.
10.2 Sample Loan Agreement with Fleet Business
Credit Corporation.
10.3 Sample Promissory Note with Fleet Business
Credit Corporation.
10.4 Sample Mortgage with Fleet Business Credit
Corporation.
10.5 Sample Guaranty with Fleet Business Credit
Corporation.
27 Financial Data Schedule.
24
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement is made on the 21st day of May, 1999, by and between
Meritage Hospitality Group Inc., a Michigan corporation ("MERITAGE"), MHG Food
Service Inc., a Michigan corporation ("MHGFS"), WM Limited Partnership-1998, a
Michigan limited partnership ("WENDY'S OF MICHIGAN"), S & Q Management, LLC, a
Michigan limited liability company ("S & Q"), Robert E.
Schermer, Jr. ("SCHERMER"), and Ray E. Quada ("QUADA").
RECITALS
--------
A. Wendy's of Michigan is the owner and/or operator of 27 Wendy's "Old
Fashioned Hamburgers" restaurants in Southern and Western Michigan.
B. MHGFS is a wholly-owned subsidiary of Meritage and the 99.9% owner
of Wendy's of Michigan.
C. S & Q was appointed the sole general partner of Wendy's of Michigan
effective December 16, 1998. S & Q, Schermer and Quada have jointly and
severally guaranteed the obligations of Wendy's of Michigan under the consent
and franchise agreements with the franchisor, Wendy's International, Inc. Quada
and Schemer also personally guaranteed certain indebtedness incurred by Wendy's
of Michigan in connection with its efforts to obtain financing to construct new
restaurants.
D. In return for agreeing to act as general partner and for agreeing to
guarantee certain obligations of the franchisee, Meritage, MHGFS and Wendy's of
Michigan agree to indemnify S & Q, Schermer and Quada on the terms and
conditions set forth below.
E. Meritage, MHGFS and Wendy's of Michigan have each determined that
the Agreement is fair and beneficial to them.
Therefore, Meritage, MHGFS, Wendy's of Michigan, S & Q, Schermer and
Quada agree as follows:
1. DEFINITIONS. The following terms as used in this Agreement shall
have the following respective meanings:
"EXPENSES" means all expenses, liabilities and losses, including
attorneys' fees, judgments, and amounts paid or to be paid in settlement of a
Proceeding.
"PROCEEDING" means any threatened, pending or completed action, suit or
proceeding (or part thereof) arising out of or relating in whole or in part to
the guarantees referenced above.
2. INDEMNIFICATION BY MERITAGE, MHGFS AND WENDY'S OF MICHIGAN. Subject
to the terms and conditions of this Agreement, Meritage, MHGFS and Wendy's of
Michigan shall indemnify and hold harmless S & Q, Schermer and Quada from and
against all Expenses reasonably incurred or suffered in connection with any
Proceeding in which S & Q, Schermer and Quada is or was a party, or is
threatened to be made a party, to the extent such Expenses arise out of or
relate, in whole or in part, to (i) S & Q actions or inaction as the general
partner of Wendy's of Michigan (unless such action or inaction constitutes gross
negligence, reckless conduct or a default under this Agreement by S & Q), or
(ii) the guarantees referenced above.
<PAGE> 2
3. INDEMNIFICATION ONLY TO EXTENT PERMITTED BY LAW. In no event shall
this Agreement be construed to obligate Meritage, MHGFS and Wendy's of Michigan
to do any act or thing not permitted by applicable law.
4. EXPENSES. The right to indemnification conferred under Paragraph 2
above includes the right to be paid by Meritage, MHGFS or Wendy's of Michigan
the Expenses incurred by S & Q, Schermer and Quada in defending any Proceeding
in advance of its final disposition.
5. NON-EXCLUSIVITY OF RIGHTS. The indemnification rights provided for
herein are in addition to all such other indemnification rights which S & Q,
Schermer and Quada now or hereafter holds from Meritage, MHGFS or Wendy's of
Michigan (as a director, officer or otherwise).
6. SETTLEMENT. Meritage, MHGFS and Wendy's of Michigan shall have no
obligation under this Agreement with respect to any settlement or compromise of
a Proceeding entered into by S & Q, Schermer and Quada, without Meritage's,
MHGFS's and Wendy's of Michigan's prior written approval, which shall not be
unreasonably withheld.
7. SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be in violation of applicable law, such
provision shall be limited or modified in its application to the minimum extent
necessary to avoid a violation of law and, as so limited or modified, such
provision and the balance of this Agreement shall be enforceable in accordance
with their terms.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be (a) binding upon all
successors and assigns of Meritage, MHGFS and Wendy's of Michigan, including any
transferee of all or substantially all of its assets and any successor by merger
or otherwise by operation of law, and (b) binding upon and inure to the benefit
of the respective officers, directors, shareholders, subsidiaries, successors,
assigns, agents, insurers, affiliated entities, employees, heirs, personal
representatives, executors, and administrators of S & Q, Schermer and Quada.
9. CHOICE OF LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Michigan.
10. AMENDMENT. No amendment, modification, termination or cancellation
of this Agreement shall be effective unless made in writing and signed by each
of the parties hereto.
11. EFFECTIVE DATE. This Agreement shall be effective as of December
16, 1998 (the date S & Q became the general partner and the guarantees were
accepted by Wendy's International).
IN WITNESS WHEREOF, Meritage, MHGFS, Wendy's of Michigan, S & Q,
Schermer and Quada have executed this Agreement as of the date first written
above.
MERITAGE HOSPITALITY GROUP INC.
/s/ Jenica L. Vander Mark By: /s/ James R. Saalfeld
- ------------------------- ---------------------
James R. Saalfeld
Vice President
/s/ Pauline M. Krywanski
- -------------------------
2
<PAGE> 3
MHG FOOD SERVICE INC.
/s/ Jenica L. Vander Mark By: /s/ JAMES R. SAALFELD
- ----------------------------- --------------------------
James R. Saalfeld
Vice President
/s/ Pauline M. Krywanski
- -----------------------------
WM LIMITED PARTNERSHIP-1998
/s/ Jenica L. Vander Mark By: /s/ JAMES R. SAALFELD
- ----------------------------- --------------------------
James R. Saalfeld
General Counsel
/s/ Pauline M. Krywanski
- -----------------------------
S & Q MANAGEMENT, LLC
/s/ Jenica L. Vander Mark By: /s/ ROBERT E. SCHERMER, JR.
- ----------------------------- --------------------------
Robert E. Schermer, Jr.
Member
/s/ Pauline M. Krywanski
- -----------------------------
/s/ Jenica L. Vander Mark /s/ ROBERT E. SCHERMER, JR.
- ----------------------------- --------------------------
Robert E. Schermer, Jr.
/s/ Pauline M. Krywanski
- -----------------------------
/s/ Jenica L. Vander Mark /s/ RAY E. QUADA
- ----------------------------- --------------------------
Ray E. Quada
/s/ Pauline M. Krywanski
- -----------------------------
3
<PAGE> 1
Exhibit 10.2
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
FLEET BUSINESS CREDIT CORPORATION,
AS LENDER,
AND
WM LIMITED PARTNERSHIP-1998,
AS BORROWER
<PAGE> 2
I N T R O D U C T I O N
-----------------------
To help better understand this Agreement,
the following is a summary of its contents and format:
Section Page
------- ----
1. SCHEDULES OF PARTIES, TERMS AND DEFINITIONS...................... 2
2. AGREEMENT TO LEND AND BORROW..................................... 8
3. FEES............................................................. 11
4. DISBURSEMENTS, PAYMENTS AND COSTS................................ 11
5. SECURITY......................................................... 12
6. REPRESENTATIONS AND WARRANTIES................................... 12
7. COVENANTS........................................................ 14
8. REMEDIES......................................................... 17
9. MISCELLANEOUS.................................................... 18
LIST OF EXHIBITS
- ----------------
Exhibit A-1 Initial Draw Documents
Exhibit A-2 Subsequent Draw Documents
Exhibit A-3 Final Draw Documents
Exhibit B Insurance
1
<PAGE> 3
LOAN AND SECURITY AGREEMENT
---------------------------
The following Agreement sets forth the terms on which Fleet
Business Credit Corporation will make a loan for the financing of the
site acquisition, construction and equipment acquisition for a Wendy's
Old Fashioned Hamburger Restaurant in Grand Rapids, Michigan. The
Agreement covers both construction and permanent financing.
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of the
Effective Date by and between Lender and Borrower.
1. SCHEDULES OF PARTIES, TERMS AND DEFINITIONS. The following terms
shall have the following meanings:
1.1. SCHEDULE OF PARTIES.
"EFFECTIVE DATE": May 24, 1999
"LENDER": Fleet Business Credit Corporation, a Delaware corporation
"LENDER'S ADDRESS": One South Wacker Drive
Chicago, Illinois 60606
Attn: Franchise Finance Division
Credit Manager
"BORROWER": WM Limited Partnership-1998, a Michigan limited partnership
"GUARANTOR(S)": Robert Schermer, Jr. and Ray E. Quada, each an individual
"BORROWER'S EQUITY": $120,950.00
"BORROWER'S ADDRESS": WM Limited Partnership-1998, dba
Wendy's of Michigan
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
Attn: Pauline Krywanski
Vice President, Treasurer and
Chief Financial Officer
"PROJECT LOCATION": 1753 East Beltline Avenue, NE, Grand Rapids, Michigan
1.2. SCHEDULE OF TERMS.
(a) LOAN AMOUNTS.
2
<PAGE> 4
"REAL ESTATE LOAN AMOUNT": $1,149,936.00
"EQUIPMENT LOAN AMOUNT": $111,322.00
(b) INTEREST RATES.
"CONSTRUCTION PERIOD INTEREST RATE": LIBOR plus 2.5% per annum.
"CONVERSION DATE": The later of (a) that date on which Lender shall have
disbursed the final draw; and (b) that date on which Lender shall have received
all items set forth on Exhibit A-3.
"LOAN INTEREST RATE": The per annum fixed rate, equal to the "twenty (20) year
Treasury Bond, Constant Maturity Yield" quoted for the week ending just prior to
the release date of the applicable edition of Statistical Release H.15.(519)
most recently published prior to the Conversion Date by the Board of Governors
of the Federal Reserve System, plus 2.20%.
"EQUIPMENT LOAN AMOUNT": The per annum fixed rate, equal to the "seven (7) year
Treasury Bond, Constant Maturity Yield" quoted for the week ending just prior to
the release date of the applicable edition of Statistical Release H.15.(519)
most recently published prior to the Conversion Date by the Board of Governors
of the Federal Reserve System, plus 2.20%.
(c) REPAYMENT.
"REAL ESTATE LOAN MATURITY DATE": That date which is the 15th anniversary of the
Conversion Date.
"REAL ESTATE LOAN MONTHLY PAYMENT: The sum of:
(i) Then accrued and unpaid interest on the Real Estate Loan;
plus
(ii) The then applicable monthly installment of principal
determined by Lender, in its sole and absolute discretion, to fully
amortize (on a so-called mortgage style basis) the amount of the Real
Estate Loan as of the Conversion Date over a 240 month period,
commencing on the Conversion Date; Lender shall provide to Borrower a
schedule of such monthly installments upon Borrower's request.
"EQUIPMENT LOAN MATURITY DATE": That date which is the 7th anniversary of the
Conversion Date.
"EQUIPMENT LOAN MONTHLY PAYMENT": The sum of:
(i) Then accrued and unpaid interest on the Equipment Loan;
plus
(ii) The then applicable monthly installment of principal
determined by Lender, in its sole and absolute discretion, to fully
amortize (on a so-called mortgage style basis) the amount of the
Equipment Loan as of the Conversion Date over an 84
3
<PAGE> 5
month period, commencing on the Conversion Date; Lender shall provide
to Borrower a schedule of such monthly installments upon Borrower's
request.
"REPAYMENT OPTIONS": None.
(d) MISCELLANEOUS TERMS.
"COMMENCEMENT DATE": May 24, 1999, that date by which the Project must commence.
"INITIAL LOAN FEE": N/A
"CONVERSION FEE": 1% of the Real Estate Loan Amount and Equipment Loan Amount
outstanding on the Conversion Date.
"FRANCHISE AGREEMENT": That certain franchise agreement by and between Borrower
and Wendy's International, Inc. ("Franchisor") for the Project Location.
"FINANCIAL STATEMENTS":
<TABLE>
<CAPTION>
Person Quarterly Annually
------ --------- --------
<S> <C> <C>
Borrower No, unless requested by Lender Yes; compiled, certified by
chief financial officer;
delivered to Lender within 90
days following each fiscal
year end and copies of signed
federal tax returns within 15
days following the filing
thereof.
Guarantor - Individual No, unless requested by Lender Yes; signed schedule of Assets and
Liabilities delivered to Lender
within 120 days following each
calendar year end and signed copy
of federal tax return within 15
days following the filing thereof
</TABLE>
"FINANCIAL COVENANTS": None.
1.3. SCHEDULE OF DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
"ADJUSTED EBITDA": For any period, (a) the sum of (i) net income before
taxes for such period, (ii) amortization and depreciation expense for such
period, (iii) total interest expense (whether paid or accrued and including the
interest component of payments under capital leases) for such period, (iv)
non-cash losses for such period, and (v) extraordinary losses
4
<PAGE> 6
for such period, minus (b) the sum of (i) non-cash gains for such period, and
(ii) extraordinary gains for such period.
"BALANCING PAYMENT": That amount, in Lender's good faith judgment,
necessary from time to time to place the Loan in balance.
"BANKING DAY": A day (other than a Saturday or a Sunday) on which
Lender and national banks are open for business in Chicago, Illinois.
"BORROWER": Collectively, Real Estate Borrower and Equipment Borrower.
"BUDGET": That certain budget for constructing and equipping the
Project in accordance with the Plans and Specifications, as approved by Lender.
"BUSINESS": The operation by Borrower of a Wendy's Old Fashioned
Hamburger Store at the Project Location.
"COLLATERAL": All of Borrower's right, title and interest in and to the
following, whether now owned by Borrower or, hereafter acquired or arising, and
wherever located:
(a) accounts receivable, chattel paper, contract rights (including,
without limitation, any construction, architect or engineer agreements executed
in connection with the Project) and general intangibles of Borrower, in each
case relating to the Business (including, without limitation, all licenses) but
excluding the Franchise Agreement;
(b) all plans, specifications, models, tests, drawings, reports,
studies and other work product arising or prepared in connection with the
Project;
(c) all inventory of foods, beverages and other merchandise held for
sale by Borrower for use in connection with the Business;
(d) all trade, store and other fixtures and all leasehold improvements
and all equipment and other personal property of Borrower used or useful in the
operation of the Business; and any leasehold of the premises located at the
Project Location;
(e) all right, title and interest of Borrower as lessee under all
equipment and fixture leases, including, without limitation, the right to use
and purchase the equipment and fixtures leased thereby and to extend the term of
such leases, for equipment or fixtures located at the Project Location;
(f) all of Borrower's right, title and interest in and to the fee and
leasehold estates comprising the Project Location, subject only to real estate
taxes not currently due and payable, and the following, but only to the extent
that the following do not interfere with the construction, use and occupancy of
the Project Location and the Business: covenants, conditions and restrictions of
record; zoning; and utility easements;
5
<PAGE> 7
(g) all sums deposited by Borrower with Lender including, without
limitation, all Balancing Payments;
(h) all books and records relating to the Business (including, without
limitation, Borrower's customer lists, credit files, computer programs and other
computer materials and records); and
(i) all accessions to, substitutions for and all replacements, products
and proceeds of the items listed above, including, without limitation, proceeds
of condemnation and insurance policies insuring any of the items listed above.
"COMPLIANCE CERTIFICATE": A certificate signed by Borrower's chief
financial officer (i) setting forth the calculation of each of the Financial
Covenants, if any; (ii) stating that, to the best of his or her knowledge after
diligent inquiry, no Event of Default exists, or if any Event of Default exists,
stating the nature and status thereof; and (iii) certifying that the Financial
Statements were prepared in accordance with GAAP consistently applied and fairly
and accurately present the financial condition of the Borrower and the other
Persons and operations to which they relate.
"DEBT SERVICE": With respect to any period, the sum of (a) the
aggregate amount of all actual principal and interest debt payments due, whether
or not payment was made during the measurement period, and (b) the aggregate
amount of all actual payments due, whether or not payment was made during the
measurement period, under capital lease obligations (including the interest
component thereof).
"DISTRIBUTIONS": Any payments or other distributions of cash or other
assets in the form of management, development or other fees; net increase in
loans or advances (but in no event less than zero); dividends; distributions for
the payment of federal and state income taxes; stock repurchases or redemptions;
bonuses; principal payments on shareholder, Guarantor or other affiliate
indebtedness; or any other payment to any shareholder, Guarantor or other
affiliate to the extent such payments or other distributions are not already a
reduction of net income before taxes in calculating Adjusted EBITDA.
"ENVIRONMENTAL LAWS": The Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act,
or any other federal state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
"EVENT OF DEFAULT": As defined in Section 8.1.
"FUNDED DEBT": The sum of (i) the aggregate amount of revolving
indebtedness, (ii) the aggregate amount of all current and non-current
indebtedness for borrowed money including third party subordinated indebtedness,
and (iii) the aggregate amount of capital leases (including the current portion
thereof).
6
<PAGE> 8
"HAZARDOUS SUBSTANCE": Any substance which is or becomes designated a
hazardous substance, hazardous waste or hazardous material under any
Environmental Law and shall include, but not be limited to, petroleum, any
radioactive material, and asbestos in any form or condition.
"LIBOR": The London Interbank Offered Rate (rounded upwards to the
nearest whole multiple of 1/16th of 1%) ("LIBOR") as quoted on page No. 3750 of
the Telerate Data Information Service, on the second Banking Day prior to the
LIBOR Reset Date, for obligations of U.S. dollars with maturities of 1 month. If
the Telerate System page is unavailable on the date which is two Banking Days
prior to the next LIBOR Reset Date due to technical malfunction or
discontinuation of such service, the LIBOR rate used shall be determined by
Lender to be the arithmetic mean (rounded upwards to the nearest whole multiple
of 1/16th of 1%) of the offered rates quoted in London, England through other
verifiable sources, for deposits in U.S. dollars in amounts substantially equal
to the maximum principal amount of the Loan having a 30 day maturity by prime
banks in the London inter-bank market at 11:00 a.m. London Time, two Banking
Days prior to the beginning of such month. As used herein, the "LIBOR Reset
Date" shall mean, from time to time, either the Effective Date, or the date on
which the then current LIBOR rate expires.
"LOAN": As defined in Section 2.
"LOAN AVAILABILITY PERIOD": The period commencing on the Effective Date
and ending on the first to occur of (a) the Conversion Date, (b) that date 6
months following the Commencement Date, and (c) the date on which an Event of
Default shall occur.
"LOAN DOCUMENTS": This Agreement and all other agreements, documents,
instruments, notes, mortgages, assignments and certificates which evidence,
govern, secure (or perfect such securing) or guaranty any of the Obligations,
whether executed prior to, concurrent with, or after, the Effective Date.
"MATURITY DATE": The last to occur of the Equipment Loan Maturity Date
and the Real Estate Loan Maturity Date.
"OBLIGATIONS": All presently existing or hereafter incurred, absolute
or contingent, direct or indirect liabilities, obligations, covenants,
agreements, representations and warranties owed by Borrower to Lender,
including, without limitation, all liabilities, obligations, covenants,
agreements, representations and warranties of Borrower arising under the Loan,
this Agreement or any of the Loan Documents.
"OBLIGORS": Collectively, jointly and severally, Real Estate Borrower,
Equipment Borrower and all co-makers, endorsers, indorsers, sureties and
guarantors of the Obligations from time to time. Without limiting the generality
of the foregoing, the term "Obligor" shall include any Person that ever acts as
Borrower, co-maker, endorser, indorser, surety or guarantor even if such Person
is subsequently released from liability.
7
<PAGE> 9
"PERSON": Any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, entity or
government, including, without limitation, any instrumentality, division,
agency, body or department thereof.
"PLANS AND SPECIFICATIONS": Those certain plans and specifications
respecting the Project, as approved by all applicable governmental entities.
"PREPAYMENT PREMIUM": The greater of the two amounts computed in
accordance with Alternative 1 and Alternative 2 below:
ALTERNATIVE 1: The Prepayment Premium will be equal to the
principal amount prepaid multiplied by the applicable percentage
determined below.
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF
PERIOD OF PREPAYMENT, BASED ON AMOUNT OF
ANNIVERSARIES OF THE CONVERSION DATE PRINCIPAL PREPAID
------------------------------------ -----------------
<S> <C>
On or prior to the first anniversary 3%
After the first anniversary but on or prior to the second 2%
anniversary
After the second anniversary 1%
</TABLE>
ALTERNATIVE 2: The Prepayment Premium will be equal to (a)
1.0% of the principal amount prepaid, plus (b) the difference between
(i) the present value of the remaining unpaid principal and interest
payments discounted at the yield for U.S. Treasury Notes having a
maturity most similar to but not longer than the remaining term of the
Loan quoted in Statistical Release H.15(519) published by the Board of
Governors of the Federal Reserve System on the Friday preceding by at
least 8, but not more than 14, days the date on which the prepayment is
made, minus (ii) the present value of the remaining unpaid principal
and interest payments discounted at the yield of U.S. Treasury Notes
having a term most similar to but not longer than the original term of
the Loan quoted in Statistical Release H.15(519) for the Friday
preceding the Conversion Date.
"PROJECT": The constructing and equipping of the facility located or to
be located at Project Location.
"TANGIBLE COLLATERAL": That portion of the Collateral constituting
furniture, fixtures, equipment and/or inventory.
2. AGREEMENT TO LEND AND BORROW. Lender agrees to make available, and Borrower
agrees to borrow, monies under the following loan facility or facilities
(collectively, the "Loan"), all in accordance with the terms and conditions of
this Agreement.
2.1. REAL ESTATE LOAN.
(a) AMOUNT AND AVAILABILITY. During the Loan Availability
Period Lender shall provide a non-revolving line of credit loan to
Borrower in the maximum amount of the Real Estate Loan Amount (the
"Real Estate Loan").
8
<PAGE> 10
(b) PURPOSE. The proceeds of the Real Estate Loan shall only
be used by Borrower for: (x) the acquisition or refinancing of the
Project Location; and (y) the construction of the Project in accordance
with this Agreement.
(c) INTEREST RATE. The amount of the Real Estate Loan
outstanding from time to time shall bear interest as follows: (i) prior
to the Conversion Date, at the Construction Period Interest Rate; and
(ii) from and after the Conversion Date, at the Real Estate Loan
Interest Rate.
(d) REPAYMENT. Real Estate Borrower shall pay to Lender on
account of the Real Estate Loan installments of principal and interest,
as follows:
(i) prior to the Conversion Date, commencing on the
first day of the second calendar month following the Effective
Date, and on the first day of each calendar month thereafter
prior to the Conversion Date, accrued and unpaid interest;
(ii) subject to the Repayment Options, if any,
commencing on the first day of the first calendar month
occurring after the Conversion Date, and on the first day of
each calendar month thereafter until the Real Estate Loan
Maturity Date, the Real Estate Loan Monthly Payment; and
(iii) in any event, on the Real Estate Loan Maturity
Date, all Obligations relating to the Real Estate Loan.
2.2. EQUIPMENT LOAN.
(a) AMOUNT AND AVAILABILITY. During the Loan Availability
Period Lender shall provide a non-revolving line of credit loan to
Borrower in the maximum amount of the Equipment Loan Amount (the
"Equipment Loan").
(b) PURPOSE. The proceeds of the Equipment Loan shall only be
used by Borrower for Borrower's equipping of the Project Location in
accordance with this Agreement.
(c) INTEREST RATE. The amount of the Equipment Loan
outstanding from time to time shall bear interest as follows: (i) prior
to the Conversion Date, at the Construction Period Interest Rate; and
(ii) from and after the Conversion Date, at the Equipment Loan Interest
Rate.
9
<PAGE> 11
(d) REPAYMENT. Equipment Borrower shall pay to Lender on
account of the Equipment Loan installments of principal and interest,
as follows:
(i) prior to the Conversion Date, commencing on the
first day of the second calendar month following the Effective
Date, and on the first day of each calendar month thereafter
prior to the Conversion Date, accrued and unpaid interest;
(ii) subject to the Repayment Options, if any,
commencing on the first day of the first calendar month
occurring after the Conversion Date, and on the first day of
each calendar month thereafter until the Equipment Loan
Maturity Date, the Equipment Loan Monthly Payment; and
(iii) in any event, on the Equipment Loan Maturity
Date, all Obligations relating to the Equipment Loan.
2.3. PLACE OF PAYMENT. All payments shall be made in lawful money of
the United States of America at Lender's Address, or at such other place as
Lender or the legal owner of the Loan may designate from time to time in
writing. No credit against the Loan shall be given to Borrower until Lender has
received collected funds.
2.4. INTEREST CALCULATION. Interest shall be calculated daily on the
basis of a 360-day year for each day all or any part of the Loan remains
outstanding.
2.5. PREPAYMENTS.
(a) NO PARTIAL PAYMENTS. Except for the Real Estate Loan
Monthly Payments, the Equipment Loan Monthly Payments and payments of
casualty or condemnation proceeds, no partial payments or prepayments
of the Loan shall be permitted.
(b) NO PREPAYMENT PRIOR TO CONVERSION DATE. Except for
payments of casualty or condemnation proceeds, no prepayments of the
Loan shall be permitted prior to the Conversion Date.
(c) FULL PREPAYMENT FROM AND AFTER CONVERSION DATE. From and
after the Conversion Date, the Loan may be prepaid in full, but not in
part; provided, however, that any such prepayment shall be accompanied
by the Prepayment Premium, except to the extent that such prepayment is
made with condemnation or casualty proceeds.
2.6. BANKING DAYS. All payments which would be due on a day which is
not a Banking Day will be due on the next Banking Day. All payments received on
a day which is not a Banking Day will be applied on the next Banking Day.
2.7. INTEREST ON LATE PAYMENTS. If any payment under this Agreement is
not made when due, whether at its stated maturity, by acceleration or otherwise,
Lender shall have the right to collect, on demand, a late charge equal to the
lesser of (i) 5% of the amount of such delinquent payment, or (ii) the maximum
amount of late charge permitted by applicable law.
10
<PAGE> 12
2.8. DEFAULT RATE. During the pendency of any Event of Default,
interest on the principal amount of the Loan shall accrue at a rate equal to the
then otherwise applicable rate plus 4% per annum.
3. FEES. Borrower agrees to pay to Lender the Conversion Fee on the Conversion
Date.
4. DISBURSEMENTS, PAYMENTS AND COSTS.
4.1. REQUESTS FOR CREDIT. Each request by Borrower for an extension of
credit shall be made in a manner acceptable to Lender. Such requests shall be
accompanied by such contracts, lien waivers, title insurance policies and
endorsements, title searches, certificates, invoices and other documents as
Lender may require from time to time in Lender's sole and absolute discretion.
Without limiting the generality of the foregoing:
(a) INITIAL DRAW. Before Lender is required to advance the
initial draw of the Loan Lender shall have received those items set
forth on Exhibit A-1;
(b) SUBSEQUENT DRAWS. Before Lender is required to advance
each subsequent draw of the Loan (other than the final draw) Lender
shall have received those items set forth on Exhibit A-2 with respect
to each such draw; and
(c) FINAL DRAW. Before Lender is required to advance the final
draw of the Loan Lender shall have received those items set forth on
Exhibit A-3.
4.2. AMOUNT OF DRAWS. Following Borrower's payment of Borrower's Equity
in accordance with the Budget, Lender shall advance the following additional
amounts; provided, however, that Lender shall not pay any amounts to reimburse
Borrower for amounts paid with Borrower's Equity:
(a) (i) 100% of the net cost to acquire or refinance the
Project Location; plus (ii) 100% of the net cost of construction of the
Project previously incurred, less 10% retainage, (iii) less any
reserves as Lender may require in its sole and absolute discretion;
provided, however, that in no event shall the aggregate amounts
advanced under this Section exceed the Real Estate Loan Amount;
(b) 100% of the cost to acquire the equipment for the Project,
less any reserves as Lender may require in its sole and absolute
discretion; provided, however, that in no event shall the aggregate
amounts advanced under this Section exceed the Equipment Loan Amount.
4.3. NUMBER OF DRAW REQUESTS AND PAYMENT OF DRAWS. In no event shall
Borrower make more than 6 draw requests. No later than 5 Banking Days following
Borrower's submission to Lender of all materials, documents and instruments
which Lender reasonably requires, Lender shall fund the applicable draw.
11
<PAGE> 13
4.4. BALANCING. Disbursements of the Loan shall only be made at such
times as Lender determines that the Loan is "in balance." If, in the good faith
judgment of the Lender, it appears at any time or from time to time that the
undisbursed portion of the Loan will be insufficient to pay all then remaining
unpaid costs of the Project, the Loan shall be deemed not to be "in balance",
and Borrower shall, upon notice from Lender and within 5 days of such notice,
pay to Lender a Balancing Payment. In determining whether the Loan is in
balance, Lender shall determine, among other things, whether the amounts
allocated for each category of costs in the Budget are sufficient. The Balancing
Payment may be retained by Lender in a non-interest bearing account and need not
be segregated from any of Lender's other funds. Lender shall disburse up to an
amount equal to the Balancing Payment received by it from Borrower prior to
making any further disbursements of Loan proceeds and in the same manner and
subject to the same terms and conditions as Loan proceeds are disbursed.
5. SECURITY.
5.1. SECURITY INTEREST. In order to secure the prompt payment of the
principal of and interest on the Loan, and to secure the prompt payment and
performance of all other Obligations, Borrower does hereby grant, mortgage,
convey, transfer, assign, warrant and pledge to Lender all of the Collateral.
5.2. OTHER COLLATERAL DOCUMENTS. Upon Lender's request, Borrower agrees
to deliver to Lender such financing statements and other documents and take such
actions, as Lender may consider necessary in order to establish and maintain
Lender's rights under this Agreement and valid and perfected security interests
in the Collateral, free of all other liens, claims and rights of other parties.
Borrower hereby appoints Lender as Borrower's attorney-in-fact to execute and
deliver in Borrower's stead any such financing statements and other documents,
which appointment is coupled with an interest and is accordingly irrevocable.
5.3. INSURANCE AND CONDEMNATION PROCEEDS. Borrower hereby directs all
insurers under policies of property damage, boiler and machinery and business
interruption insurance to pay all proceeds payable directly to Lender. In the
event of any taking of any interest in the Project Location or any part thereof,
in or by condemnation or other eminent domain proceedings (each, a "Taking"),
Borrower shall promptly notify Lender thereof or commencement of proceedings
therefor. All proceeds and any award or payment in respect of any Taking are
hereby assigned and shall be paid to Lender; Borrower shall take all steps
necessary to notify the condemning authority of such assignment. Such award or
payment, less the amount of any expenses incurred in litigating, arbitrating,
compromising or settling any claim arising out of such Taking, shall be paid
directly to the Lender. Lender may elect to make such net proceeds available to
Borrower to restore, replace or rebuild the property damaged or destroyed or
subject to a Taking in a manner which results in substantially the same
operating capacity at the Project Location as existed prior to such damage,
destruction or Taking, subject to such terms and conditions as Lender may in its
discretion impose or require. In the event Lender elects to apply any such
casualty or condemnation proceeds to repayment of the Loan, no Prepayment
Premium shall be assessed in connection with such payment.
6. REPRESENTATIONS AND WARRANTIES. Having undertaken all appropriate research,
investigation and due diligence, Borrower hereby makes the following
representations and warranties to Lender (and each request for a draw of the
Loan shall constitute a renewal of each such representation and warranty):
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<PAGE> 14
6.1. AUTHORIZATION; ENFORCEABLE AGREEMENT. This Agreement and the other
Loan Documents are within each Obligor's respective powers, have been duly
authorized, and do not conflict with any of each Obligor's organizational
papers. This Agreement is a legal, valid and binding agreement of Borrower,
enforceable against Borrower in accordance with its terms; and the other Loan
Documents, when executed and delivered, shall be similarly legal, valid, binding
and enforceable against each Obligor that is a party thereto.
6.2. GOOD STANDING; NO CONFLICTS. In each state in which each Obligor
does business, it is duly formed, validly existing, properly licensed, in good
standing, and, where required, in compliance with fictitious name statutes. This
Agreement and the other Loan Documents do not conflict with any law, agreement
or obligation by which any Obligor is bound.
6.3. INFORMATION. All financial and other information that has been or
will be supplied to Lender is: (a) sufficiently complete to give Lender accurate
knowledge of each Obligor's financial condition; and (b) in compliance with all
government regulations that apply thereto. Since the date of the financial
statements most recently delivered to Lender there has been no material adverse
change in the assets or the financial condition of any Obligor.
6.4. LAWSUITS. There is no lawsuit, tax claim or other dispute pending
or threatened against any Obligor, which, if lost, would impair such Obligor's
financial condition or ability to satisfy its payment and performance
obligations under any of the Loan Documents.
6.5. COLLATERAL. All of the Collateral is owned by the grantor thereof
free of any title defects or any liens or interests of others. All of the
Tangible Collateral is located at the Project Location.
6.6. OTHER OBLIGATIONS. Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
6.7. LOCATION OF BORROWER. Borrower's chief executive office is located
at Borrower's Address.
6.8. BUSINESS PURPOSE. The proceeds of the Loan shall be used for
business purposes only.
6.9. HAZARDOUS SUBSTANCES. Borrower represents and warrants that (a) to
the best of its knowledge, no Hazardous Substance has been disposed of or
released or otherwise exists in, on, under or onto the Project Location, except
as Borrower has disclosed to Lender in writing, (b) the operations of Borrower,
any other Obligor and each of Borrower's subsidiaries comply in all material
respects with all applicable Environmental Laws; (c) none of the operations of
Borrower, any other Obligor or any such subsidiary are subject to any judicial
or administrative proceeding alleging the violation of any Environmental Laws;
(d) none of the operations of
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<PAGE> 15
Borrower, any other Obligor or any such subsidiary is the subject of any federal
or state investigation evaluating whether any remedial action is needed to
respond to a release of any Hazardous Substance into the environment; and (e)
none of Borrower, any other Obligor or any such subsidiary has any known
contingent liability in connection with any release of any Hazardous Substance
into the environment.
6.10. COMPLIANCE WITH LAW. Borrower has complied with all laws,
regulations and ordinances governing or applicable to Borrower or the Project
Location. Borrower has filed all required federal, state and local tax returns
and paid all taxes due pursuant to said returns or any assessments against
Borrower or the Project Location.
6.11. FRANCHISE AGREEMENTS. The Franchise Agreement is in full force
and effect without amendment or modification; no default by any party exists
under the Franchise Agreement nor has any event occurred which, with the passage
of time or the giving of notice, or both, would constitute such a default.
6.12. LICENSES, PERMITS AND INTELLECTUAL PROPERTY. Borrower owns or
possesses all licenses, franchise rights, permits and other private and
governmental approvals and authorizations, patents, trademarks, service marks,
tradenames, copyrights, franchises, authorizations and other rights that are
necessary for the operation of the Project Location and Borrower's business,
without conflict with the rights of any other Person with respect thereto.
7. COVENANTS. Borrower agrees, so long as any Obligations remain outstanding:
7.1. INFORMATION. To provide the Financial Statements and such
additional information (including non-financial information) as requested by
Lender from time to time (including, without limitation, federal income tax
returns and store-level information). Lender will not be obligated to return to
Borrower any information delivered to Lender pursuant to this Agreement.
7.2. FINANCIAL COVENANTS. From and after the Conversion Date, to keep
at all times (a) the Financial Covenants, and (b) all financial covenants
arising under any other Loan Documents, whether or not the particular loan
facilities outstanding pursuant thereto have been repaid.
7.3. COMMENCEMENT AND COMPLETION OF THE PROJECT. To commence the
Project on or before the Commencement Date, and to complete the Project within
six (6) months following the Commencement Date, in a lien-free manner. The
constructing and equipping of the Project shall be done in (a) accordance with
the Plans and Specifications, and the Budget; and (b) a good and workmanlike
manner, free from defects, using only new, first-class materials.
7.4. OTHER LIENS. Not to create, assume, or allow any security interest
or lien (including judicial liens) on the Collateral, except: (a) liens in favor
of Lender; (b) liens for taxes not yet due; and (c) liens outstanding on the
date of this Agreement approved in writing by Lender.
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<PAGE> 16
7.5. CHANGE OF OWNERSHIP AND PROHIBITED TRANSFERS. Not to cause,
permit, or suffer any change, direct or indirect, in Borrower's ownership or
control, from time to time without the prior written consent of Lender, which
consent shall not be unreasonably withheld; and not to (a) engage in any
business activities substantially different from Borrower's present business;
(b) liquidate or dissolve Borrower's business; (c) enter into any consolidation,
merger, pool, joint venture, syndicate or other combination; (d) lease or
dispose of all or a substantial part of Borrower's business or Borrower's
assets; and (e) permit the creation of any subsidiaries.
7.6. REPRESENTATIONS AND WARRANTIES. To cause all of Borrower's
representations and warranties under the Loan Documents to remain true, complete
and correct in all material respects.
7.7. FRANCHISE AGREEMENTS. At all times to comply with, and cause its
affiliates to comply with, the terms and provisions of the Franchise Agreement,
and to cause the Franchise Agreement to be kept in full force and effect without
termination, amendment or modification, except as approved by Lender in writing.
7.8. NOTICES TO LENDER. To promptly notify Lender in writing of:
(a) any lawsuit or other claim over $10,000 in excess of
applicable insurance coverage against any Borrower.
(b) any substantial dispute between any Borrower and any
government authority.
(c) any casualty loss over $10,000 in excess of applicable
insurance coverage.
(d) any failure to comply with this Agreement.
(e) any default, or any event which with the passage of time
or the giving of notice or both would be a default, under the Franchise
Agreement.
(f) any material adverse change in any Borrower's financial
condition or operations.
(g) any change in any Borrower's name, legal structure, place
of business or chief executive office.
(h) Borrower's receipt of any notice that (i) the operations
of Borrower, any other Obligor or any subsidiary of Borrower are not in
full compliance with requirements of applicable Environmental Laws;
(ii) Borrower, any other Obligor or any such subsidiary is subject to
any federal or state investigation evaluating whether any remedial
action is needed to respond to the release of any Hazardous Substance
into the environment; or (iii) any properties or assets of Borrower,
any other Obligor or any such subsidiary are subject to a lien in favor
of any governmental entity for (A) any liability under any
Environmental Laws, or (B) damages arising from or costs incurred by
such governmental entity in response to a release of a Hazardous
Substance into the environment.
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<PAGE> 17
7.9. BOOKS AND RECORDS. To maintain adequate books and records.
7.10. AUDITS, INSPECTIONS SITE VISITS, OBSERVATIONS AND TESTING. To
allow Lender or Lender's agents to inspect Borrower's properties and examine,
audit and make copies of books and records at any reasonable time for any
reason, and to allow Lender and Lender's agents the right at any reasonable time
to enter and visit the Project Location to take and remove soil or groundwater
samples, and to conduct tests on any part of the Project Location. If any of
Borrower's properties, books or records are in the possession of a third party,
Borrower authorizes that third party to permit Lender or Lender's agents to have
access to perform inspections or audits and to respond to Lender's requests for
information concerning such properties, books and records.
7.11. COMPLIANCE WITH LAWS. To comply (or to cause compliance) with the
laws (including any fictitious name statute), regulations, and orders of any
government body with authority over Borrower. Without limiting the generality of
the foregoing, the operations of Borrower, any other Obligor and each of
Borrower's Subsidiaries shall at all times comply in all respects with all
applicable Environmental Laws and the Americans With Disabilities Act.
7.12. PRESERVATION OF RIGHTS. (a) To maintain and preserve all rights,
privileges, and franchises Borrower now has, including, without limitation,
Borrower's rights under the Franchise Agreement. (b) Not to suffer or permit any
surrender, termination, amendment or modification of any lease which constitutes
a part of the Collateral (each, a "Lease"). Borrower further agrees that
Borrower shall timely elect and exercise all options to extend the term of or
renew each Lease, unless Lender otherwise agrees in writing, and upon failure of
Borrower to so timely elect to extend or renew such Lease as aforesaid, Borrower
hereby appoints Lender as Borrower's true and lawful attorney-in-fact to
exercise such extension or renewal options in the name, place and stead of
Borrower for the purpose of effecting such extension or renewal.
7.13. MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep Borrower's properties in good working condition.
7.14. COOPERATION. To take any action requested by Lender to carry out
the intent of this Agreement, including, without limitation, to help Lender
perfect and protect its security interests and liens, and to reimburse Lender
for related costs Lender incurs to protect Lender's security interests and
liens.
7.15. INSURANCE AND TAXES. To maintain the insurance policies and
coverages set forth on Exhibit B. Such insurance shall be issued by an insurance
company acceptable to Lender and must include a lender's loss payable
endorsement in favor of Lender in a form acceptable to Lender and/or list Lender
as an additional insured, as applicable; to pay, on or before all applicable due
dates, all taxes, assessments and charges due with respect to Borrower and all
of Borrower's property.
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<PAGE> 18
7.16. DISPOSITION OF COLLATERAL. Not to directly or indirectly, sell,
assign, transfer, mortgage, pledge, hypothecate or otherwise dispose of any of
the Collateral, or any interest therein, or create, assume or permit any lien or
encumbrance of any kind whatsoever to exist with respect thereto, except that
Borrower may sell its inventory in the ordinary course of the Business.
8. REMEDIES.
8.1. EVENT OF DEFAULT. The occurrence of any one or more of the
following shall constitute an "Event of Default": (a) Borrower fails to make a
payment under this Agreement when due; (b) Lender fails to have an enforceable
first lien (except for any prior liens to which Lender has consented in writing)
on or security interest in the Collateral; (c) any Obligors have given Lender
false or materially misleading information or representations; (d) any Obligor
dies, becomes incapacitated, dissolved or liquidated; (e) any Obligor or any
general partner of any Obligor files a bankruptcy petition, a bankruptcy
petition is filed against any Obligor or any general partner of any Obligor, or
any Obligor or any general partner of any Obligor makes a general assignment for
the benefit of creditors; (f) a receiver or similar official is appointed for
any Borrower's business, or such business is terminated; (g) any of the other
Loan Documents is violated or no longer in effect; (h) any Borrower fails to
meet the conditions of, or fails to perform any obligation under, any term of
this Agreement; (i) prior to the Conversion Date there shall be a material
adverse change in Borrower's financial condition, operations or prospects, as
reasonably determined by Lender; (j) the Project is abandoned, or construction
or other operations at the Project halted, for more than 30 days; (k) there
shall occur any default under the Franchise Agreement, or there shall occur or
fail to occur any event which, with the passage of time or the giving of notice
or both, would give rise to a default under the Franchise Agreement; or (l)
there shall be any revocation, attempted revocation, repudiation or anticipatory
repudiation of any of the guaranties of the Obligations, or any of the
guaranties of the Obligations shall have been rendered invalid or unenforceable
in any material respect, or there shall occur the death or incapacity of any
individual Obligor; provided, however, that the death or incapacity of an
individual Obligor shall not constitute an Event of Default if within ninety
(90) days after such Obligor's death or incapacity Borrower has demonstrated to
Lender's satisfaction that the death or incapacity of such Obligor has not had
an adverse affect upon Borrower's ability to pay and perform the Obligations.
8.2. GENERAL REMEDIES. If an Event of Default occurs under Sections
8.1(e) or (f) the Obligations shall automatically be due immediately. If any
Event of Default occurs, Lender may do one or more of the following: (a) declare
all Obligations immediately due and payable; (b) decline to make any additional
advances to Borrower; (c) exercise all of the rights and remedies (x) of a
secured party under the Uniform Commercial Code, or (y) available under any of
the other Loan Documents; and (d) immediately take possession, with or without
legal process, of any or all of the Collateral wherever found and for that
purpose Lender may enter upon any premises where the Collateral is located and
remove the Collateral from such location, or Lender may require Borrower to
assemble the Collateral and deliver it to Lender at a location designated by
Lender.
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8.3. RIGHT TO PERFORM BORROWER'S OBLIGATIONS. Borrower hereby
constitutes and appoints Lender as its true and lawful attorney-in-fact with
full power of substitution for the purpose, upon the occurrence of any Event of
Default, of (a) performing any of Borrower's obligations under the Loan
Documents, and (b) completing the Project substantially in accordance with the
Plans and Specifications. The foregoing appointment is coupled with an interest
and is accordingly irrevocable. Lender, as such attorney-in-fact, may, but shall
not be obligated, to take any and all steps reasonably necessary or appropriate,
in Lender's sole judgment to perform Borrower's obligations under the Loan
Documents and/or prosecute the completion of the Project. All sums expended by
Lender pursuant to this Section shall be included as Obligations. In no event
shall (i) Lender have any liability to Borrower on account of Lender's exercise
of its rights under this Section, absent gross negligence or willful and wanton
misconduct; and (ii) any other person be a third-party beneficiary hereof.
8.4. REMEDIES CUMULATIVE; WAIVERS. Lender may enforce any one of its
remedies under this Agreement successively or concurrently, at its option. All
of the remedies set forth above are in addition to all other remedies available
to Lender at law and in equity. No delay or failure on the part of Lender to
exercise any right or remedy which it may become entitled to exercise on account
of an Event of Default will be held to be an abandonment of such right or
remedy, and Lender will be entitled to exercise such right or remedy at any time
during the continuance of an Event of Default. No waiver of a breach or default
will be regarded as a waiver of a later breach or default. All waivers under
this Agreement must be in writing.
9. MISCELLANEOUS.
9.1. GAAP. Except as otherwise stated in this Agreement, all financial
information provided to Lender and all financial covenants will be prepared or
determined in accordance with generally accepted accounting principles,
consistently applied.
9.2. ILLINOIS LAW; TIME OF ESSENCE. THIS AGREEMENT IS GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS. Time is of the essence of this
Agreement.
9.3. SUCCESSORS AND ASSIGNS. This Agreement is binding on Borrower's
and Lender's successors and assignees. Borrower agrees that it may not assign
this Agreement without Lender's prior consent. Lender may sell participations in
or assign the Loan, and may disclose any and all materials and information in
Lender's possession concerning the Borrower and its affiliates to any
prospective purchaser, participant, assignee or credit insurer, and also to
Franchisor and its affiliates, and their respective successors and assigns.
9.4. INDEMNITY. Borrower agrees to indemnify, defend and hold Lender
harmless from and against all liabilities, claims, actions, foreseeable and
unforeseeable consequential damages, costs and expenses (including sums paid in
settlement of claims and all consultant, expert and legal fees and expenses of
Lender's counsel) or loss directly or indirectly arising out of or resulting
from (i) Lender making the Loan; (ii) Lender entering into this Agreement or the
other Loan Documents; (iii) Lender taking an interest in or realizing upon any
of the Collateral; (iv) Lender exercising its remedies from time to time; or (v)
any Obligor breaching any agreement, covenant, representation, warranty or
undertaking under this Agreement or any other
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Loan Document (including, without limitation, any relating to Hazardous
Substances). Without limiting the generality of the foregoing, Borrower hereby
indemnifies Lender, its successors and assignees, and agrees to hold Lender
harmless from and against any and all losses, liabilities, damages, injuries,
costs, expenses and claims of any and every kind whatsoever (including, without
limitation, court costs and attorneys' fees) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, Lender for, with
respect to, or as a direct or indirect result of the violation by Borrower, any
other Obligor or any of Borrower's Subsidiaries, of any laws, including but not
limited to, the Environmental Laws.
9.5. LEGALITY. If any provision in this Agreement is found by a court
of competent jurisdiction to be unlawful, void or unenforceable as written, then
it is the intent of all parties that the remainder of this Agreement shall be
construed as if such unlawful, void or unenforceable provision were not
contained herein, and that the rights, obligations and interests of the parties
hereto under the remainder of this Agreement shall continue in full force and
effect. It being the intention of the parties hereto to comply with the laws of
the State of Illinois with regard to the rate of interest charged,
notwithstanding any provision to the contrary in this Agreement, or in any of
the other Loan Documents, no such provision shall require the payment or permit
the collection of any amount in excess of the maximum amount of interest
permitted by law to be charged for the use or detention, or the forbearance in
the collection, of all or any portion of the Loan.
9.6. APPLICATION OF PAYMENTS. All payments on account of the Loan
received by Lender (including, without limitation, casualty and condemnation
proceeds) may be applied in such order as Lender may determine in Lender's sole
and absolute discretion. Borrower acknowledges that Lender has the right to set
off against any monies or deposits owing by Lender to Borrower.
9.7. EXPENSES AND ADMINISTRATION COSTS. Borrower agrees to reimburse
Lender upon demand, whether or not any loan is made under this Agreement, for
all expenses and reasonable attorneys' fees incurred by Lender in (a) the
preparation and execution of this Agreement and all other documents delivered in
connection with this Agreement; (b) performing Lender's due diligence,
including, without limitation, title searches, commitments and policies;
surveys; UCC, judgment, tax and litigation searches; recording fees; and
appraisals; (c) administering this Agreement and the other Loan Documents; (d)
enforcing Borrower's obligations and collecting Borrower's amounts due under
this Agreement or any other document delivered in connection with this
Agreement; and (e) participating in any proceeding (whether instituted by
Lender, Borrower or any other person and whether in bankruptcy or otherwise) or
responding to any claim in any way relating to this Agreement or any document
delivered in connection with this Agreement. Borrower further agrees to pay, and
save Lender harmless from all liability for, any stamp or other taxes which may
be payable with respect to the execution or delivery of this Agreement, which
obligations will survive any termination of this Agreement.
9.8. ONE AGREEMENT. This Agreement and the other Loan Documents
collectively represent the sum of the understandings and agreements among Lender
and Borrowers concerning this credit, including, without limitations any
commitment letters. In the event of any conflict between this Agreement and the
other Loan Documents, this Agreement will prevail.
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9.9. NOTICES. All notices required under this Agreement will be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the Schedule of Parties, or to such other addresses as Lender and
Borrower may specify from time to time in writing. Such notices shall be deemed
received upon the first to occur of: (a) actual receipt by the addressee
thereof; (b) 3 days following deposit with the U.S. Mail if sent certified mail,
return receipt requested; or (c) 1 day following deposit with a recognized local
or national carrier for delivery no later than the next day.
9.10. HEADINGS. Headings are for reference only and will not affect the
interpretation or meaning of any provisions of this Agreement.
9.11. JOINT AND SEVERAL LIABILITY; COUNTERPARTS. If this Agreement is
executed by more than one party as Borrower, then all of the Obligations shall
be the joint and several obligations and liabilities of all such parties so
executing as Borrower. This Agreement may be executed in counterparts.
9.12. EXCLUSIVE JURISDICTION. EACH OF THE PARTIES HERETO AGREES THAT
ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT,
EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS
LOCATED IN COOK COUNTY, ILLINOIS, EXCEPT THAT BORROWER AGREES THAT LENDER SHALL
HAVE THE RIGHT TO PROCEED AGAINST BORROWER OR ITS PROPERTY IN A COURT IN ANY
LOCATION.
9.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE.
9.14. SURVIVAL. Borrower covenants, warrants and represents to Lender
that Borrower's representations and warranties contained in this Agreement shall
be true at the time of Borrower's execution of this Agreement, and, along with
Borrower's other agreements, covenants and indemnities, shall survive the
execution, delivery and acceptance thereof by the parties hereto and the making
of the Loans.
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9.15. WAIVER OF CERTAIN CLAIMS. BORROWER AGREES THAT BORROWER WILL NOT
ASSERT ANY CLAIM AGAINST LENDER OR ANY OTHER PERSON INDEMNIFIED UNDER THIS
AGREEMENT ON ANY THEORY OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL,
INCIDENTAL OR PUNITIVE DAMAGES.
This Agreement is executed as of the Effective Date.
LENDER: BORROWER:
FLEET BUSINESS CREDIT CORPORATION, WM LIMITED PARTNERSHIP-1998, a
a Delaware corporation Michigan limited partnership
By: ______________________________ By: S & Q Management, LLC, its
Name: ____________________________ General Partner
Title: ___________________________
By:
------------------------------
Name:
Title:
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<PAGE> 23
EXHIBIT A-1
-----------
INITIAL DRAW DOCUMENTS
----------------------
If not already provided to Lender:
* Most recent Financial Statements
* Executed Loan Documents:
1) Loan and Security Agreement
2) Note
3) Mortgage/Deed of Trust
4) Guaranty
5) UCC financing statements: State/County
6) Draw Request
7) General Partner's Certificate
* Title Insurance Policy - ALTA Standard Loan Policy issued by a title
insurance company satisfactory to Lender and issued in accordance
with Lender's requirements
* ALTA survey prepared in accordance with Lender's requirements
* Evidence satisfactory to Lender that the Project is in compliance
with all applicable zoning and other laws, ordinances, rules,
regulations and that upon completion of construction, the Project
may be lawfully used as a Wendy's restaurant
* Evidence of hazard and liability insurance in accordance with
Lender's requirements.
* Flood Insurance if the property is located in a flood hazard area
and the community in which the Project is located participates in
the National Flood Insurance Program
* Land Purchase Contract and Closing Statement
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EXHIBIT A-2
-----------
SUBSEQUENT DRAW DOCUMENTS
-------------------------
* Draw Request
23
<PAGE> 25
EXHIBIT A-3
-----------
FINAL DRAW DOCUMENTS
--------------------
* Most recent Financial Statements, if requested by Lender
* Draw Request
* Copy of permanent Certificate of Occupancy
* Certified "as-built" survey satisfactory to Lender
* Final Endorsements to title insurance policy extending coverage
through Conversion Date and increasing the amount of coverage to the
full aggregate amount of the Loans without exceptions for mechanics'
liens or claims of liens and including all endorsements required by
Lender.
* Evidence of property and liability insurance in accordance with
Lender's requirements
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EXHIBIT B
---------
INSURANCE REQUIREMENTS
----------------------
A. PROPERTY INSURANCE
1. BUILDER'S RISK INSURANCE: While any buildings are being constructed,
Builder's Risk Insurance coverage in an amount equal to 100% of the hard costs
and not less than 25% of the soft costs for the work being undertaken, subject
to Lender's approval.
2. PROPERTY COVERAGE: An all-risk/special form (fire and extended
coverage) property insurance policy must be in force based on a 100% replacement
cost basis. Coinsurance clauses are not acceptable.
3. PERSONAL PROPERTY CONTENTS: This coverage will be required, based on
a 100% replacement cost basis.
4. FLOOD INSURANCE: If it is determined that the subject real estate is
located in a special flood hazard area (Zone A or Zone V), flood hazard
insurance is required in the amount of the loan or the maximum amount of
insurance under the National Flood Insurance Program, whichever is less.
B. COMPREHENSIVE OR COMMERCIAL GENERAL LIABILITY
1. Limits should read at the minimum:
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$1,000,000 Personal and Advertising Injury
$ 100,000 Fire Damage Legal Liability
$ 5,000 Medical Payments
2. "FLEET BUSINESS CREDIT CORPORATION, its successors, assigns
and/or affiliates" must be added as an "Additional Insured".
3. Borrower shall ensure that all general contractors,
sub-contractors and similar firms providing construction,
renovation, repairs or maintenance are insured for Commercial
General Liability Insurance.
C. WORKERS COMPENSATION
Borrower shall ensure that all general contractors, sub-contractors,
and similar firms providing construction, renovation, repairs or
maintenance are insured for Workers Compensation.
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D. MORTGAGEE'S LOSS PAYABLE AND LOSS PAYEE CLAUSES
1. All property and builder's risk policies must be evidenced by:
(a) Evidence of Property Insurance - Accord Form 27
(b) Loss Payable Endorsement - Form CP 12 18
2. Loss Payable and Loss Payee Clauses shall be in favor of:
"FLEET BUSINESS CREDIT CORPORATION, its successors,
assigns, and/or affiliates, as their interests may
appear" One South Wacker Drive
Chicago, Illinois 60606
Attention: Franchise Finance Division
Credit Manager
E. OTHER
1. Only those insurance companies rated "A-" or better by A.M.
Best Company shall be considered acceptable to Lender.
2. None of the insurance policies shall be cancelable or subject
to modification without at least thirty (30) days notice to
Lender.
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Exhibit 10.3
PROMISSORY NOTE
---------------
$1,261,258.00 Chicago, Illinois; May 24, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrower") hereby promises to
pay to the order of FLEET BUSINESS CREDIT CORPORATION, a Delaware corporation
("Lender"), the principal sum of ONE MILLION TWO HUNDRED SIXTY-ONE THOUSAND TWO
HUNDRED FIFTY-EIGHT AND NO/100 DOLLARS ($1,261,258.00) or, if less, the
aggregate unpaid principal amount as may be outstanding pursuant to the Loan
Agreement (as hereinafter defined), together with interest on the unpaid
principal amount of this Note outstanding from time to time. Capitalized terms
used herein and not otherwise defined herein shall have the meanings given such
terms in the Loan Agreement.
This Note evidences the Loan made pursuant to that certain Loan and
Security Agreement, dated as of the date hereof, among Borrower and Lender (the
"Loan Agreement"), and is entitled to the benefit and security of the
Collateral, to which reference is hereby made for a statement of all of the
terms and conditions under which the Loan is made. The principal amount of the
indebtedness evidenced hereby shall be payable in installments in the amounts
and on the dates specified in the Loan Agreement and, if not sooner paid in
full, on the Maturity Date. Interest thereon shall be paid until such principal
amount is paid in full at such interest rates and at such times as are specified
in the Loan Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
the Lender's office at One South Wacker Drive, Chicago, Illinois 60606, or at
such other place as may be designated by Lender to Borrower in writing. All
parties hereto, whether as makers, endorsers or otherwise, severally waive
presentment, demand, protest and notice of dishonor in connection with this
Note. This Note is governed by the internal laws of the State of Illinois.
WITNESSES: WM LIMITED PARTNERSHIP-1998, a
Michigan limited partnership
By: S & Q Management, LLC, its
- ---------------------------------- General Partner
(Print Name)
By:
- ---------------------------------- ---------------------------
Name:
(Print Name) Title:
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<PAGE> 1
Exhibit 10.4
MORTGAGE
THIS INDENTURE ("Mortgage") is entered into this 24th day of May, 1999
by WM LIMITED PARTNERSHIP-1998, a Michigan limited partnership (whether one or
more, collectively, jointly and severally, "Mortgagor"), having its principal
place of business at 40 Pearl Street, N.W., Suite 900, Grand Rapids, Michigan,
to FLEET BUSINESS CREDIT CORPORATION, a Delaware corporation ("FBCC")
("Mortgagee") with an office located at One South Wacker Drive, Chicago,
Illinois 60606. Except as otherwise provided herein, all capitalized terms used
but not defined herein shall have the respective meanings given to them in the
Loan Agreement (as hereinafter defined).
R E C I T A L S
A. Mortgagor is a party to that certain Loan and Security Agreement
dated as of the date hereof by and among FBCC and one or more certain other
parties (said Loan and Security Agreement and any and all renewals, extensions
for any period, increases or rearrangements thereof is referred to as the "Loan
Agreement". All capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Loan Agreement). The terms, conditions,
covenants, representations and warranties of Mortgagor under the Loan Agreement
are hereby incorporated as if fully set forth herein.
B. Borrower has executed and delivered to Mortgagee a note dated of
even date herewith, in the aggregate principal amount of One Million Two Hundred
Sixty-One Thousand Two Hundred Fifty-Eight and 00/100 Dollars ($1,261,258.00)
(said one or more notes and any and all renewals, extensions for any period,
increases or rearrangements thereof are collectively referred to as the "Note"),
which Note shall be finally due and payable no later than December 1, 2014.
C. As a condition to Mortgagee's extension of certain financial
accommodations to Borrower including, without limitation, the extension of
credit evidenced by the Note and pursuant to the Loan Agreement, Mortgagee has
required that Mortgagor enter into this Mortgage and grant to Mortgagee the
liens and security interests referred to herein to secure: (1) the payment of
the principal amount evidenced by the Note together with interest thereon; (2)
payment and performance of the other
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Obligations; (3) payment of the principal amount, together with interest
thereon, of all present and future advances of money made by Mortgagee under the
Loan Documents, as well as all other liabilities and obligations in favor of
Mortgagee arising under the Loan Documents; and (4) other payment and
performance obligations related to this Mortgage (the aforesaid liabilities and
obligations to Mortgagee being hereinafter referred to collectively as the
"Obligations").
D. The Obligations secured hereby shall not exceed an aggregate
principal amount, at any one time outstanding of two hundred percent (200%) of
the maximum principal amount of the Note, provided, that the foregoing
limitation shall apply only to the lien upon the real property created by this
Mortgage, and it shall not in any manner limit, affect or impair any grant of a
security interest or other right in favor of Mortgagee under the provisions of
the Loan Agreement or under any of the other Loan Documents;
NOW, THEREFORE, in consideration of the premises contained herein and
to secure payment of the Obligations and in consideration of Ten Dollars
($10.00) in hand paid, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor does hereby grant, remise, release, alien, convey,
mortgage and warrant to Mortgagee, its successors and assigns, the following
described real estate (the "Land"), and does further grant a security interest
to Mortgagee in all Personal Property (as defined below) as well as all
Mortgaged Property (as defined below) as may be secured under the Uniform
Commercial Code (the "Code") in effect in the State where the Land is located
(the "State"):
The Land legally described on EXHIBIT A, attached
hereto and made a part hereof
which Land, together with all right, title and interest, if any, which Mortgagor
may now have or hereafter acquire in and to all improvements, buildings and
structures now or hereafter located thereon of every nature whatsoever, is
herein called the "Premises".
TOGETHER WITH all right, title and interest, if any, including any
after-acquired right, title and interest, and including any right of use or
occupancy, which Mortgagor may now have or hereafter acquire in and to (a) all
easements, rights of way, gores of land or any lands occupied by streets, ways,
alleys, passages, sewer rights, water courses, water rights and powers, and
public places adjoining said Land, and any other interests in property
constituting appurtenances to the Premises, or which hereafter shall in any way
belong, relate or be appurtenant thereto, and (b) all hereditaments, gas, oil,
minerals (with the right to extract, sever and remove such gas, oil and
minerals), and easements, of every nature whatsoever, located in or on the
Premises and all other rights and privileges thereunto belonging or appertaining
and all extensions, additions, improvements, betterments, renewals,
substitutions and replacements to or of any of the rights and interests
described in subparagraphs (a) and (b) above (hereinafter the "Property
Rights").
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TOGETHER WITH all right, title and interest, if any, including any
after-acquired right, title and interest, and including any right of use or
occupancy, which Mortgagor may now or hereafter acquire in and to all fixtures
and appurtenances of every nature whatsoever now or hereafter located in, on or
attached to, and used or intended to be used in connection with, or with the
operation of, the Premises, including, but not limited to (a) all apparatus,
machinery and equipment of Mortgagor and (b) all extensions, additions,
improvements, betterments, renewals, substitutions and replacements to or of any
of the foregoing (the items described in the foregoing clauses (a) and (b) being
the "Fixtures"); as well as all personal property and equipment of every nature
whatsoever now or hereafter located in or on the Premises, including but not
limited to (c) accounts, contract rights, general intangibles, tax refunds,
chattel paper, instruments, notes, letters of credit, documents, documents of
title; (d) inventory; (e) equipment; (f) all of Mortgagor's now owned or
hereafter acquired monies, and any and all other property and interests in
property of Mortgagor now or hereafter coming into the actual possession,
custody or control of Mortgagee or any agent or affiliate of Mortgagee in any
way or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise); (g) all insurance proceeds of or
relating to any of the foregoing; (h) all of Mortgagor's books and records
relating to any of the foregoing; and (i) all accessions and additions to,
substitutions for, and replacements, products and proceeds of any of the
foregoing clauses (c) through (h) (the items described in the foregoing clauses
(c) through (h) and any other personal property referred to in this paragraph
being the "Personal Property"). It is mutually agreed, intended and declared
that the Premises and all of the Property Rights and Fixtures owned by Mortgagor
(referred to collectively herein as the "Real Property") shall, so far as
permitted by law, be deemed to form a part and parcel of the Land and for the
purpose of this Mortgage to be real estate and covered by this Mortgage. It is
also agreed that if any of the property herein mortgaged is of a nature so that
a security interest therein can be perfected under the Code in effect in the
State, this instrument shall constitute a security agreement, fixture filing and
financing statement, and Mortgagor agrees to execute, deliver and file or refile
any financing statement, continuation statement, or other instruments Mortgagee
may reasonably require from time to time to perfect or renew such security
interest under the Code. To the extent permitted by law, (i) all of the Fixtures
are or are to become fixtures on the Land and (ii) this instrument, upon
recording or registration in the real estate records, of the proper office,
shall constitute a "fixture-filing" within the meaning of Sections 9-313 and
9-402 of the Code. Subject to the terms and conditions of the Loan Agreement,
the remedies for any violation of the covenants, terms and conditions of the
agreements herein contained shall be as prescribed herein or by general law, or,
as to that part of the security in which a security interest may be perfected
under the Code, by the specific statutory consequences now or hereafter enacted
and specified in the Code, all at Mortgagee's sole election.
TOGETHER WITH all the estate, right, title and interest of Mortgagor in
and to (1) all judgments, insurance proceeds, awards of damages and settlements
resulting from condemnation proceedings or the taking of the Real property, or
any part thereof, under the power of eminent domain or for any damage (whether
caused by such taking or otherwise) to the Real Property, or any part thereof,
or to any rights appurtenant thereto,
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and all proceeds of any sales or other dispositions of the Real Property or any
part thereof; and (except as otherwise provided herein or in the Loan Agreement)
Mortgagee is hereby authorized to collect and receive said awards and proceeds
and to give proper receipts and acquittances therefor, and to apply the same as
provided in the Loan Agreement; and (2) all contract rights, general
intangibles, actions and rights in action relating to the Real Property or the
Personal Property including, without limitation, all rights to insurance
proceeds and unearned premiums arising from or relating to damage to the Real
Property or the Personal Property; and (3) all proceeds, products, replacements,
additions, substitutions, renewals and accessions of and to the Real Property
and the Personal Property. (The rights and interests described in this paragraph
shall hereinafter be called the "Intangibles".)
As additional security for the Obligations secured hereby, Mortgagor
(1) does hereby pledge and assign to Mortgagee from and after the date hereof
(including any period of redemption), primarily and on a parity with the Real
Property, and not secondarily, all the rents, issues and profits of the Real
Property and all rents, issues, profits, revenues, royalties, bonuses, rights
and benefits due, payable or accruing (including all deposits of money as
advance rent, for security or as earnest money or as down payment for the
purchase of all or any part of the Real Property) (the "Rents") under any and
all present and future leases, contracts or other agreements relative to the
ownership or occupancy of all or any portion of the Real Property, and (2)
except to the extent such a transfer or assignment is not permitted by the terms
thereof, does hereby transfer and assign to Mortgagee all such leases and
agreements (including all Mortgagor's rights under any contracts for the sale of
any portion of the Mortgaged Property and all revenues and royalties under any
oil, gas and mineral leases relating to the Real Property) (the "Leases").
Mortgagee hereby grants to Mortgagor the right to collect and use the Rents as
they become due and payable under the Leases, but not more than one (1) month in
advance thereof, unless an Event of Default shall have occurred provided that
the existence of such right shall not operate to subordinate this assignment to
any subsequent assignment, in whole or in part, by Mortgagor, and any such
subsequent assignment shall be subject to the rights of Mortgagee under this
Mortgage. Mortgagor further agrees to execute and deliver such assignments of
leases or assignments of land sale contracts as Mortgagee may from time to time
request. In the event of an Event of Default (1) Mortgagor agrees, upon demand,
to deliver to the Mortgagee all of the Leases with such additional assignments
thereof as Mortgagee may request and agrees that the Mortgagee may assume the
management of the Real Property and collect the Rents, applying the same upon
the Obligations in the manner provided in the Loan Agreement, and (2) Mortgagor
hereby authorizes and directs all tenants, purchasers or other persons occupying
or otherwise acquiring any interest in any part of the Real Property to pay the
Rents due under the Leases to Mortgagee upon request of Mortgagee. Mortgagor
hereby appoints Mortgagee as its true and lawful attorney-in-fact to manage said
property and collect the Rents, with full power to bring suit for collection of
the Rents and possession of the Real Property, giving and granting unto
Mortgagee and unto its agent or attorney full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in the protection of the security hereby conveyed; provided, however, that
(a) this power of attorney and assignment of
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<PAGE> 5
rents shall not be construed as an obligation upon Mortgagee to make or cause to
be made any repairs that may be needful or necessary and (b) Mortgagee agrees
that until such Event of Default as aforesaid, Mortgagee shall permit Mortgagor
to perform the aforementioned management responsibilities. Upon Mortgagee's
receipt of the Rents, at Mortgagee's option, it may use the proceeds of the
Rents to pay: (1) reasonable charges for collection thereof, costs of necessary
repairs and other costs requisite and necessary during the continuance of this
power of attorney and assignment of rents, (2) general and special taxes,
insurance premiums, and (3) any or all of the Obligations pursuant to the
provisions of the Loan Agreement. This power of attorney and assignment of rents
shall be irrevocable until this Mortgage shall have been satisfied and released
of record and the releasing of this Mortgage shall act as a revocation of this
power of attorney and assignment of rents. Mortgagee shall have and hereby
expressly reserves the right and privilege (but assumes no obligation) to
demand, collect, sue for, receive and recover the Rents, or any part thereof,
now existing or hereafter made, and apply the same in accordance with the
provisions of the Loan Agreement.
The Mortgagee shall be entitled to all of the rights and benefits
conferred by Act No. 210 of the Michigan Public Acts of 1953 as amended by Act
No. 151 of the Michigan Public Acts of 1966 (MCLA 554.231, et seq.), and Act No.
228 of the Michigan Public Acts of 1925 as amended by Act No. 55 of the Michigan
Public Acts of 1933 (MCLA 554.211 et seq.). The collection of rents by the
Mortgagee shall in no way waive the right of the Mortgagee to foreclose this
Mortgage in the event of any said default.
All of the property described above, and each item of property therein
described, not limited to but including the Land, the Premises, the Property
Rights, the Fixtures, the Personal Property, the Real Property, the Intangibles,
the Rents and the Leases, is herein referred to as the "Mortgaged Property."
Nothing herein contained shall be construed as constituting Mortgagee a
mortgagee-in-possession in the absence of the taking of actual possession of the
Mortgaged Property by Mortgagee. Nothing contained in this Mortgage shall be
construed as imposing on Mortgagee any of the obligations of the lessor under
any Lease of the Mortgaged Property in the absence of an explicit assumption
thereof by Mortgagee. In the exercise of the powers herein granted Mortgagee,
except as provided in the Loan Agreement, no liability shall be asserted or
enforced against Mortgagee, all such liability being expressly waived and
released by Mortgagor.
TO HAVE AND TO HOLD the Mortgaged Property, properties, rights and
privileges hereby conveyed or assigned, or intended so to be, unto Mortgagee,
its beneficiaries, successors and assigns, forever for the uses and purposes
herein set forth. Mortgagor hereby releases and waives all rights under and by
virtue of the homestead exemption laws, if any, of the State and Mortgagor
hereby covenants, represents and warrants that, at the time of the sealing and
delivery of these presents, Mortgagor is well seized of the Mortgaged Property
in fee simple and with lawful authority to sell, assign, convey and mortgage the
Mortgaged Property, and that the title to the Mortgaged
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Property is free and clear of all encumbrances, except as described on EXHIBIT B
hereto, and that, except for the encumbrances set forth on EXHIBIT B, Mortgagor
will forever defend the same against all lawful claims.
The following provisions shall also constitute an integral part of this
Mortgage:
1. PAYMENT OF TAXES ON THE MORTGAGE. Without limiting any of the
provisions of the Loan Agreement, Mortgagor agrees that, if the United States or
any department, agency or bureau thereof or if the State or any of its
subdivisions having jurisdiction shall at any time require documentary stamps to
be affixed to this Mortgage or shall levy, assess, or charge any tax, assessment
or imposition upon this Mortgage or the credit or indebtedness secured hereby or
the interest of Mortgagee in the Premises or upon Mortgagee by reason of or as
holder of any of the foregoing then, Mortgagor shall pay for such documentary
stamps in the required amount and deliver them to Mortgagee or pay (or reimburse
Mortgagee for) such taxes, assessments or impositions. Mortgagor agrees to
exhibit to Mortgagee, at any time upon request, official receipts showing
payment of all taxes, assessments and charges which Mortgagor is required or
elects to pay under this paragraph. Mortgagor agrees to indemnify Mortgagee
against liability on account of such documentary stamps, taxes, assessments or
impositions, whether such liability arises before or after payment of the
Obligations and regardless of whether this Mortgage shall have been released.
2. LEASES AFFECTING THE REAL PROPERTY. Mortgagor agrees faithfully to
perform all of its obligations under all present and future Leases at any time
assigned to Mortgagee as additional security, and to refrain from any action or
inaction which would result in termination of all such Leases or in the
diminution of the value thereof or of the Rents due thereunder. All future
lessees under any Lease made after the date of recording of this Mortgage shall,
at Mortgagee's option and without any further documentation, attorn to Mortgagee
as lessor if for any reason Mortgagee becomes lessor thereunder, and, upon
demand, pay rent to Mortgagee, and Mortgagee shall not be responsible under such
Lease for matters arising prior to Mortgagee becoming lessor thereunder.
3. NO EASEMENTS; STREETS AND UTILITIES. Mortgagor agrees that it shall
not permit the public to use the Real Property in any manner that might tend, in
Mortgagee's reasonable judgment, to impair Mortgagor's title to such property or
any portion thereof, or to make possible any claim or claims of easement by
prescription or of implied dedication to public use. Mortgagor hereby represents
and warrants that the Mortgaged Property is benefitted by such easements or
other rights as may be necessary for vehicular and pedestrian ingress and
egress, the installation and maintenance of utilities, parking and other site
improvements, for the Mortgaged Property and the operation of Mortgagor's
business.
4. INDEMNIFICATION. Mortgagor shall not use or permit the use of any
part of the Real Property for an illegal purpose, including, without limitation,
the violation of any environmental laws, statutes, codes, regulations or
practices. Without limiting any
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indemnification Mortgagor has granted in the Loan Agreement, Mortgagor agrees to
indemnify and hold harmless Mortgagee from and against any and all losses,
suits, liabilities, fines, damages, judgments, penalties, claims, charges, costs
and expenses (including reasonable attorneys' and paralegals' fees, court costs
and disbursements) which may be imposed on, incurred or paid by or asserted
against the Real Property by reason or on account of or in connection with (a)
the construction, reconstruction or alteration of the Real Property, (b) any
negligence or misconduct of Mortgagor, any lessee of the Real Property, or any
of their respective agents, contractors, subcontractors, servants, employees,
licensees or invitees, (c) any accident, injury, death or damage to any person
or property occurring in, on or about the Real Property or any street, drive,
sidewalk, curb or passageway adjacent thereto, or (d) any other transaction
arising out of or in any way connected with the Mortgaged Property.
5. INSURANCE. Mortgagor shall, at its sole expense, obtain for, deliver
to, assign and maintain for the benefit of Mortgagee, until the Obligations are
paid in full, insurance policies as specified in the Loan Agreement. In the
event of a casualty loss, the net insurance proceeds from such insurance
policies shall be paid and applied as specified in the Loan Agreement.
6. CONDEMNATION AWARDS. Mortgagor hereby assigns to Mortgagee, as
additional security, all awards of damage resulting from condemnation
proceedings or the taking of or injury to the Real Property for public use, and
Mortgagor agrees that the proceeds of all such awards shall be paid to Mortgagee
and applied as specified in the Loan Agreement.
7. REMEDIES. Subject to the provisions of the Loan Agreement, upon the
occurrence of an Event of Default under the terms of the Loan Agreement, in
addition to any rights and remedies provided for in the Loan Agreement, and to
the extent permitted by applicable law, the following provisions shall apply:
(a) MORTGAGEE'S POWER OF ENFORCEMENT. It shall be lawful for
Mortgagee to immediately foreclose this Mortgage by judicial action.
The court in which any proceeding is pending for the purpose of
foreclosure of this Mortgage may, at once or at any time thereafter,
either before or after sale, without notice and without requiring bond,
and without regard to the solvency or insolvency of any person liable
for payment of the Obligations secured hereby, and without regard to
the then value of the Mortgaged Property or the occupancy thereof as a
homestead, appoint a receiver (the provisions for the appointment of a
receiver and assignment of rents being an express condition upon which
the Loan hereby secured is made) for the benefit of Mortgagee, with
power to collect the Rents, due and to become due, during such
foreclosure suit and the full statutory period of redemption
notwithstanding any redemption. The receiver, out of the Rents when
collected, may pay costs incurred in the management and operation of
the Real Property, prior and subordinate liens, if any, and taxes,
assessments, water and other utilities and insurance, then due or
thereafter accruing, and may make and pay for any necessary repairs to
the Real Property, and may pay all or
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any part of the Obligations or other sums secured hereby or any
deficiency decree entered in such foreclosure proceedings. Upon or at
any time after the filing of a suit to foreclose this Mortgage, the
court in which such suit is filed shall have full power to enter an
order placing Mortgagee in possession of the Real Property with the
same power granted to a receiver pursuant to this subparagraph and with
all other rights and privileges of a mortgagee-in-possession under
applicable law.
In addition to the other rights and remedies
available to Mortgagee, Mortgagee is hereby authorized and empowered to
sell or cause the Premises to be sold and to cause the same to be
conveyed to the purchaser thereof pursuant to the provisions of Act
236, Public Acts of Michigan, 1961 (MCL 600.3201 et seq.), pertaining
to "Foreclosure of Mortgage by Advertisement." This Act does not
required that Mortgagor be personally notified of the foreclosure sale
or that a judicial hearing be held before the foreclosure sale is held.
Mortgagor further agrees that Mortgagee is authorized and empowered to
retain out of any proceeds of the sale any money that is due to
Mortgagee under the terms of this Mortgage or under the Note or under
any of the Loan Documents, together with the costs and charges of sale
and the attorneys' fees incurred in connection with the sale. Any
surplus shall be paid to Mortgagor. In the event of public foreclosure
sale, the Premises may at the option of Mortgagee be sold in one or
more parcels. Mortgagee may purchase the Premises at any foreclosure
sale.
(b) MORTGAGEE'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND
APPLY INCOME. Mortgagee shall, at its option, have the right, acting
through its agents or attorneys, either with or without process of law,
forcibly or otherwise, to enter upon and take possession of the Real
Property, expel and remove any persons, goods, or chattels occupying or
upon the same, to collect or receive all the Rents, and to manage and
control the same, and to lease the same or any part thereof, from time
to time, and, after deducting all reasonable attorneys' fees and
expenses, and all reasonable expenses incurred in the protection, care,
maintenance, management and operation of the Real Property, distribute
and apply the remaining net income in accordance with the terms of the
Loan Agreement or upon any deficiency decree entered in any foreclosure
proceedings.
8. APPLICATION OF PROCEEDS FROM FORECLOSURE OR SALE. The proceeds of
any sale (whether through a foreclosure proceeding or Mortgagee's exercise of
the power of sale) shall be distributed and applied in accordance with the terms
of the Loan Agreement.
9. CUMULATIVE REMEDIES; DELAY OR OMISSION NOT A WAIVER. Each remedy or
right of Mortgagee shall not be exclusive of but shall be in addition to every
other remedy or right now or hereafter existing at law or in equity. No delay in
the exercise or omission to exercise any remedy or right accruing on the
occurrence or existence of any Event of Default shall impair any such remedy or
right or be construed to be a waiver of any such Event of Default or
acquiescence therein, nor shall it affect any subsequent Event of Default of the
same or different nature. Every such remedy or right may be exercised
concurrently or independently and when and as often as may be deemed expedient
by Mortgagee.
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10. MORTGAGEE'S REMEDIES AGAINST MULTIPLE PARCELS. If more than one
property, lot or parcel is covered by this Mortgage, and if this Mortgage is
foreclosed upon, or judgment is entered upon any Obligations secured hereby, or
if Mortgagee exercises its power of sale, execution may be made upon or
Mortgagee may exercise its power of sale against any one or more of the
properties, lots or parcels and not upon the others, or upon all of such
properties or parcels, either together or separately, and at different times or
at the same time, and execution sales or sales by advertisement may likewise be
conducted separately or concurrently, in each case at Mortgagee's election.
11. NO MERGER. In the event of a foreclosure of this Mortgage or any
other mortgage or deed of trust securing the Obligations, the Obligations then
due Mortgagee shall not be merged into any decree of foreclosure entered by the
court, and Mortgagee may concurrently or subsequently seek to foreclose one or
more mortgages or deeds of trust which also secure said Obligations.
12. NOTICES. Except as otherwise provided herein, any notices, demands,
consents, requests, approvals, undertakings or other instruments required or
permitted to be given in connection with this Mortgage (and all copies of such
notices or other instruments) shall be given in accordance with the terms of the
Loan Agreement.
13. EXTENSION OF PAYMENTS. Mortgagor agrees that, without affecting the
liability of any person for payment of the Obligations secured hereby or
affecting the lien of this Mortgage upon the Mortgaged Property or any part
thereof (other than persons or property explicitly released as a result of the
exercise by Mortgagee of its rights and privileges hereunder), Mortgagee may at
any time and from time to time, on request of Mortgagor, without notice to any
person liable for payment of any Obligations secured hereby, but otherwise
subject to the provisions of the Loan Agreement, extend the time, or agree to
alter or amend the terms of payment of such Obligations. Mortgagor further
agrees that any part of the security herein described may be released with or
without consideration without affecting the remainder of the Obligations or the
remainder of the security.
14. GOVERNING LAW. Mortgagor agrees that this Mortgage is to be
construed, governed and enforced in accordance with the laws of the State.
Wherever possible, each provision of this Mortgage shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Mortgage shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Mortgage.
15. SATISFACTION OF MORTGAGE. Upon full payment of all the Obligations,
at the time and in the manner provided in the Loan Agreement, or upon
satisfaction of the conditions set forth in the Loan Agreement for release of
the Mortgaged Property from
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this Mortgage, this conveyance or lien shall be null and void and, upon demand
therefor following such payment or satisfaction of the conditions set forth in
the Loan Agreement for release of the Mortgaged Property, as the case may be, a
satisfaction of mortgage or reconveyance of the Mortgaged Property shall
promptly be provided by Mortgagee to Mortgagor.
16. SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES. This Mortgage shall be
binding upon Mortgagor and upon the successors, assigns and vendees of Mortgagor
and shall inure to the benefit of Mortgagee's successors and assigns; all
references herein to Mortgagor and to Mortgagee shall be deemed to include their
respective successors and assigns. Mortgagor's successors and assigns shall
include, without limitation, a receiver, trustee or debtor in possession of or
for Mortgagor. Wherever used, the singular number shall include the plural, the
plural shall include the singular, and the use of any gender shall be applicable
to all genders.
17. WAIVER OF APPRAISEMENT, VALUATION, STAY, EXTENSION AND REDEMPTION
LAWS. Mortgagor agrees, to the full extent permitted by law, that at all times
following an Event of Default, neither Mortgagor nor anyone claiming through or
under it shall or will set up, claim or seek to take advantage of any
appraisement, valuation, stay, or extension laws now or hereafter in force, in
order to prevent or hinder the enforcement or foreclosure of this Mortgage or
the absolute sale of the Mortgaged Property or the final and absolute putting
into possession thereof, immediately after such sale, of the purchaser thereat;
and Mortgagor, for itself and all who may at any time claim through or under it,
hereby waives, to the full extent that it may lawfully so do, the benefit of all
such laws and any and all right to have the assets comprising the Mortgaged
Property marshalled upon any foreclosure of the lien hereof and agrees that
Mortgagee or any court having jurisdiction to foreclose such lien may sell the
Mortgaged Property in part or as an entirety. To the full extent permitted by
law, Mortgagor hereby waives any and all statutory or other rights of redemption
from sale under any order or decree of foreclosure of this Mortgage, on its own
behalf and on behalf of each and every person acquiring any interest in or title
to the Mortgaged Property subsequent to the date hereof.
18. INTERPRETATION WITH OTHER DOCUMENTS. Notwithstanding anything in
this Mortgage to the contrary, in the event of a conflict or inconsistency
between this Mortgage and the Loan Agreement, the provisions of the Loan
Agreement shall govern.
19. FUTURE ADVANCES. This Mortgage is given for the purpose of securing
extensions of credit which Mortgagee may make to or for Mortgagor pursuant and
subject to the terms and provisions of the Loan Agreement. The parties hereto
intend that, in addition to any other debt or obligation secured hereby, this
Mortgage shall secure unpaid balances of loan advances made after this Mortgage
is delivered to the proper authorities for filing or recordation, whether made
pursuant to an obligation of Mortgagee or otherwise, provided that such advances
are within twenty (20) years from the date hereof and in such event, such
advances shall be secured to the same extent as if such future advances were
made on the date hereof, although there may be no advance made at the time of
execution hereof and although there may be no indebtedness outstanding at the
time any advance is made. Such loan advances may or may not be evidenced by
notes executed pursuant to the Loan Agreement.
10
<PAGE> 11
20. INVALID PROVISIONS TO AFFECT NO OTHERS. In the event that any of
the covenants, agreements, terms or provisions contained in this Mortgage shall
be invalid, illegal or unenforceable in any respect, the validity of the
remaining covenants, agreements, terms or provisions contained herein or in the
Loan Agreement shall not be in any way affected, prejudiced or disturbed
thereby. In the event that the application of any of the covenants, agreements,
terms or provisions of this Mortgage is held to be invalid, illegal or
unenforceable, those covenants, agreements, terms and provisions shall not be in
any way affected, prejudiced or disturbed when otherwise applied.
21. CHANGES. Neither this Mortgage nor any term hereof may be changed,
waived, discharged or terminated orally, or by any action or inaction, but only
by an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. To the extent permitted by
law, any agreement hereafter made by Mortgagor and Mortgagee relating to this
Mortgage shall be superior to the rights of the holder of any intervening lien
or encumbrance.
22. TIME OF ESSENCE. Time is of the essence with respect to the
provisions of this Mortgage.
23. INTENTIONALLY OMITTED.
24. STATE SPECIFIC MATTERS. EXHIBIT C is hereby incorporated herein. To
the extent of any conflict between the terms hereof and the terms of EXHIBIT C,
the terms of EXHIBIT C shall control.
25. WAIVER OF TRIAL BY JURY. MORTGAGOR HEREBY WAIVES MORTGAGOR'S RIGHT
TO TRIAL BY JURY IN ANY LITIGATION RELATING TO OR IN ANY WAY CONNECTED WITH THIS
MORTGAGE OR THE TRANSACTION CONTEMPLATED HEREBY.
11
<PAGE> 12
IN WITNESS WHEREOF, this instrument is executed as of the day and year
first above written by the person or persons identified below on behalf of
Mortgagor (and said person or persons hereby represent that they possess full
power and authority to execute this instrument).
MORTGAGOR:
WITNESSES: WM LIMITED PARTNERSHIP-1998, a
Michigan limited partnership
Corporation
- ---------------------------------- By: S & Q Management, LLC, its
General Partner
(Print Name)
By:
- ---------------------------------- ---------------------------
(Print Name) Name:
Title:
This document was prepared by and
after recording should be returned to:
Cathy A. Jane
Fleet Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
12
<PAGE> 13
STATE OF MICHIGAN )
) SS.
COUNTY OF KENT )
The undersigned, a Notary Public in and for said County, in said State,
hereby certifies that Robert E. Schermer, Jr., a Member of S & Q Management,
LLC, a Michigan limited liability company, the General Partner of WM Limited
Partnership-1998, a Michigan limited partnership, is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day that,
being informed of the contents of the instrument, as such Member and with full
authority, he executed the same voluntarily for and as the act of said
partnership, with full release and waiver of any and all rights of redemption.
Given under my hand and official seal this 14th day of May, 1999
[SEAL]
----------------------------------------------
Notary Public
My Commission Expires:
Notary Public in and for the State of Michigan
13
<PAGE> 14
EXHIBIT A
---------
LEGAL DESCRIPTION OF THE LAND
-----------------------------
Located in the Southeast 1/4 of the Northeast 1/4 of Section 15, Town 7 North,
Range 11 West, City of Grand Rapids, Kent County, Michigan and being a tract of
land more particularly described as follows:
Commencing at the Northeast corner of said Section; thence along the East line
of said Section South 01 degrees 41 minutes 38 seconds West for 1,317.97 feet to
the North line of said Southeast 1/4 of the Northeast 1/4; thence along said
North line, North 88 degrees 53 minutes 40 seconds West, for 68.00 feet to the
West right-of-way line of East Beltline Avenue; thence continuing along said
North line, North 88 degrees 53 minutes, 40 seconds West for 292.92 feet to the
point of beginning of the tract of land described herein; thence South 27
degrees 32 minutes 58 seconds East, for 14.73 feet; thence South 01 degrees 47
minutes 36 seconds West, for 129.38 feet; thence on a curve to the right for an
arc length of 78.81 feet, said curve having a radius of 369.50 feet, a central
angle of 12 degrees, 13 minutes 13 seconds and a long chord bearing South 07
degrees 56 minutes 32 seconds West, for 78.66 feet; thence North 88 degrees 12
minutes 29 seconds West, for 147.21 feet; thence North 01 degrees 47 minutes 36
seconds East, for 218.65 feet; thence South 88 degrees 53 minutes 40 seconds
East, for 148.43 feet to the point of beginning.
COMMONLY KNOWN AS:
1753 East Beltline Avenue, NE, Grand Rapids, Michigan
PIN:
14
<PAGE> 15
EXHIBIT B
---------
PERMITTED EXCEPTIONS TO TITLE
-----------------------------
1. Real estate taxes not currently due and payable.
2. Covenants, conditions and restrictions of record which do not interfere
with, and which are not violated by, the current and intended uses of the
Premises.
3. Public utility easements which do not underlie any of the existing or
planned improvements located on the Premises.
15
<PAGE> 16
EXHIBIT C
---------
STATE SPECIFIC MATTERS
----------------------
NO WASTE. Mortgagor will not commit, suffer, or permit any waste of the
Premises or any violation of any law, regulation or ordinance affecting the
Premises and will not commit, suffer, or permit any demolition, removal or
material alteration of any of the buildings or improvements (including fixtures)
on the Land and will not violate, suffer, or permit the violation of any of the
Permitted Encumbrances, if any. If Borrower fails to pay any taxes or
assessments assessed against the Premises or to pay any premiums payable with
respect to any insurance policy covering the Premises (or to pay to Mortgagee
the amounts owing under Section 6.6 of the Loan Agreement), that failure shall
constitute waste under Act No. 236 of the Michigan Public Acts of 1961, as
amended (MCL Section 600.2927). If Mortgagee elects to seek a receiver under the
foregoing Act, Mortgagor consents to the appointment of that receiver.
16
<PAGE> 1
Exhibit 10.5
GUARANTY
--------
To: FLEET BUSINESS CREDIT CORPORATION
One South Wacker Drive
Chicago, Illinois 60606
Attn: Franchise Finance Division, Credit Manager
1. GUARANTY OF PAYMENT. For value received and in consideration of any
loan or other financial accommodation heretofore, now or hereafter at any time
made or granted to WM LIMITED PARTNERSHIP-1998, a Michigan limited partnership
("BORROWER") by FLEET BUSINESS CREDIT CORPORATION (together with its successors
and assigns, "LENDER"), One South Wacker Drive, Chicago, Illinois 60606, the
undersigned ("GUARANTOR") hereby unconditionally guarantees the full and prompt
payment when due, whether by acceleration or otherwise, and at all times
thereafter, of all obligations of Borrower to Lender, including, without
limitation, all amounts, agreements and matters arising under that certain Loan
and Security Agreement of even date herewith, by and between Lender and Borrower
(the "LOAN AGREEMENT"; all capitalized terms not defined herein shall have the
respective meanings set forth in the Loan Agreement), howsoever created, arising
or evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing, or due or to become due, including, without limitation, all
covenants and indemnities relating to environmental matters, (all such
obligations of Borrower being hereinafter collectively called the
"Obligations"), and Guarantor further agrees to (i) pay all expenses and
attorneys' fees, including the allocated cost of in-house counsel, paid or
incurred by Lender in endeavoring to collect the Obligations, or any part
thereof, and in enforcing this Guaranty; and (ii) cooperate with Borrower in
Borrower's performance of Borrower's covenants and agreements.
2. LIMITATION. Notwithstanding anything contained herein to the
contrary, from and after the Conversion Date the right of recovery against
Guarantor under this Guaranty is limited to the sum of: (i) the principal amount
of $378,377.40; plus (ii) interest on such amount in accordance with the Loan
Agreement; plus (iii) all other amounts which constitute Obligations other than
principal and interest, including, without limitation, all amounts due on
account of environmental and other indemnities. The creation or existence from
time to time of Obligations in excess of the amount to which the right of
recovery under this Guaranty is limited is hereby authorized, without notice to
Guarantor, and will in no way affect or impair the rights of Lender and the
Obligations of Guarantor under this Guaranty. Notwithstanding anything contained
herein to the contrary, except as set forth in the proviso at the end of this
sentence, this Guaranty shall terminate and be of no further force and effect
if, and only if, as of the third (3rd) anniversary of the Conversion Date or any
date thereafter: (a) No Event of Default shall have previously occurred (whether
or not since cured); and (b) the Debt Service Coverage Before Distributions
Ratio for the store located at the Project Location shall be greater than
1.25:1, measured for the twelve month period immediately preceding the
measurement date; provided, however, that this Guaranty shall remain in full
force and effect, and Guarantor shall continue and remain liable, with respect
to all Obligations relating to indemnities relating to
<PAGE> 2
environmental matters. Debt Service Coverage Before Distributions Ratio is
defined as the ratio of (i) Adjusted EBITDA minus cash income taxes paid, to
(ii) Debt Service.
3. CONTINUING GUARANTY. This Guaranty is a continuing, absolute and
unconditional Guaranty, and will remain in full force and effect
(notwithstanding, without limitation, the death, incompetency or dissolution of
Guarantor or that at any time or from time to time all Obligations may have been
paid in full).
4. RESCISSION OR RETURN OF PAYMENT ON OBLIGATIONS. Guarantor further
agrees that, if at any time all or any part of any payment theretofore applied
by Lender to any of the Obligations is or must be rescinded or returned by
Lender for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of Borrower), such Obligations are, for the
purposes of this Guaranty, to the extent that such payment is or must be
rescinded or returned, deemed to have continued in existence, notwithstanding
such application by Lender, and this Guaranty will continue to be effective or
be reinstated, as the case may be, as to such Obligations, all as though such
application by Lender had not been made.
5. LENDER PERMITTED TO TAKE CERTAIN ACTIONS. Lender may, from time to
time (but is not obligated to), at its sole discretion and without notice to
Guarantor, take any or all of the following actions: (a) receive a security
interest in any property to secure any of the Obligations or any obligation
hereunder; (b) retain or obtain the primary or secondary obligation of any
obligor or obligors, in addition to Guarantor, with respect to any of the
Obligations; (c) extend or renew for one or more periods (whether or not longer
than the original period), alter or exchange any of the Obligations, or release
or compromise any obligation of Guarantor hereunder or any obligation of any
nature of any other obligor with respect to any of the Obligations; (d) release
its security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Obligations or
any obligation hereunder, or extend or renew for one or more periods (whether or
not longer than the original period) or release, compromise, alter or exchange
any obligations of any nature of any obligor with respect to any such property;
and (e) resort to Guarantor for payment of any of the Obligations, whether or
not Lender (i) has resorted to any property securing any of the Obligations or
any obligation hereunder or (ii) has proceeded against any other obligor
primarily or secondarily obligated with respect to any of the Obligations (all
of the actions referred to in preceding clauses (i) and (ii) being hereby
expressly waived by Guarantor).
6. APPLICATION OF PAYMENTS. Any amounts received by Lender from
whatsoever source on account of the Obligations may be applied by it toward the
payment of such of the Obligations, and in such order of application, as Lender
may from time to time elect.
7. SUBROGATION. Until such time as this Guaranty has been discontinued
and Lender has received payment of the full amount of all Obligations and of all
obligations of Guarantor hereunder, no payment made by or for the account of
Guarantor pursuant to this Guaranty entitles Guarantor by subrogation or
otherwise to any payment by Borrower or from or out of any property of Borrower,
and Guarantor will not exercise any right or remedy against Borrower or any
property of Borrower by reason of any performance by Guarantor of this Guaranty.
2
<PAGE> 3
8. WAIVER OF NOTICE AND OTHER MATTERS. Guarantor hereby expressly
waives: (a) notice of the acceptance by Lender of this Guaranty; (b) notice of
the existence or creation or non-payment of all or any of the Obligations; (c)
presentment, demand, notice of dishonor, protest, and all other notices
whatsoever; and (d) all diligence in collection or protection of or realization
upon the Obligations or any thereof, any obligation hereunder, or any security
for or guaranty of any of the foregoing.
9. ASSIGNMENT OF OBLIGATIONS. Lender may, from time to time, whether
before or after any discontinuance of this Guaranty, without notice to
Guarantor, assign or transfer any or all of the Obligations or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer thereof, such Obligations will remain Obligations for the
purposes of this Guaranty, and each and every immediate and successive assignee
or transferee of any of the Obligations or of any interest therein will, to the
extent of the interest of such assignee or transferee in the Obligations, be
entitled to the benefits of this Guaranty to the same extent as if such assignee
or transferee were Lender; provided, however, that, unless Lender otherwise
consents in writing, Lender has an unimpaired right, prior and superior to that
of any such assignee or transferee, to enforce this Guaranty, for the benefit of
Lender, as to those of the Obligations which Lender has not assigned or
transferred.
10. WAIVER AND MODIFICATIONS. No delay on the part of Lender in the
exercise of any right or remedy will operate as a waiver thereof, and no single
or partial exercise by Lender of any right or remedy will preclude other or
further exercise thereof or the exercise of any other right or remedy; nor will
any modification or waiver of any of the provisions of this Guaranty be binding
upon Lender except as expressly set forth in a writing duly signed and delivered
on behalf of Lender.
11. OBLIGATIONS UNDER GUARANTY. No action of Lender permitted hereunder
will in any way affect or impair the rights of Lender and the obligations of
Guarantor under this Guaranty. For the purposes of this Guaranty, Obligations
include all obligations of Borrower to Lender, notwithstanding any right or
power of Borrower or anyone else to assert any claim or defense as to the
invalidity or unenforceability of any such obligation, and no such claim or
defense will affect or impair the obligations of Guarantor hereunder. The
obligations of Guarantor under this Guaranty are absolute and unconditional
irrespective of any circumstance whatsoever which might constitute a legal or
equitable discharge or defense of Guarantor. Guarantor hereby acknowledges that
there are no conditions to the effectiveness of this Guaranty.
12. JOINT AND SEVERAL LIABILITY. If more than one Guarantor is signing
this Guaranty, the obligations of Guarantors under this Guaranty are joint and
several. As to any Guarantor that is a partnership, the obligations of such
Guarantor under this Guaranty are the joint and several obligations of each
general partner of such partnership. Any married person signing this Guaranty as
a Guarantor agrees that recourse may be had against the community property
assets and against his or her separate property for the satisfaction of all
obligations of such Guarantor under this Agreement.
3
<PAGE> 4
13. SUCCESSORS. This Guaranty is binding upon Guarantor, and upon the
heirs, legal representatives, successors and assigns of Guarantor; and to the
extent that Borrower or Guarantor is either a partnership or a corporation, all
references herein to Borrower and to Guarantor, respectively, are deemed to
include any successor or successors, whether immediate or remote, to such
partnership or corporation.
14. LAW. This Guaranty has been delivered in Chicago, Illinois, and
will be construed in accordance with and governed by the internal laws of the
State of Illinois.
15. SEVERABILITY. Wherever possible, each provision of this Guaranty
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Guaranty is prohibited by or invalid under
such law, such provision will be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty.
16. CAPTIONS. Section captions used in this Guaranty are for
convenience only, and do not affect the construction of this Guaranty.
17. CONSENT TO JURISDICTION. To induce Lender to accept this Guaranty,
Guarantor irrevocably agrees that, subject to Lender's sole and absolute
election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF, FROM OR RELATED
TO THIS GUARANTY WILL BE LITIGATED IN COURTS HAVING SITUS WITHIN CHICAGO,
ILLINOIS. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT
LOCATED WITHIN COOK COUNTY, ILLINOIS, WAIVES PERSONAL SERVICE OF PROCESS UPON
GUARANTOR, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO GUARANTOR AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF
AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.
18. WAIVERS. GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THIS GUARANTY. GUARANTOR
AGREES THAT GUARANTOR WILL NOT ASSERT ANY CLAIM AGAINST LENDER ON ANY THEORY OF
LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES.
4
<PAGE> 5
The undersigned has SIGNED AND DELIVERED this Guaranty as of the 24th
day of May, 1999.
GUARANTOR
-----------------------------------------
Address: 40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
Telephone: (616) 776-2600
Fax No.: (616) 776-2776
-----------------------------------------
Address: 40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
Telephone: (616) 776-2600
Fax No.: (616) 776-2776
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 1,312,785
<SECURITIES> 0
<RECEIVABLES> 57,445
<ALLOWANCES> 0
<INVENTORY> 167,910
<CURRENT-ASSETS> 4,853,913
<PP&E> 16,886,580
<DEPRECIATION> 1,291,075
<TOTAL-ASSETS> 26,523,456
<CURRENT-LIABILITIES> 5,406,426
<BONDS> 13,373,855
0
445
<COMMON> 57,484
<OTHER-SE> 5,601,433
<TOTAL-LIABILITY-AND-EQUITY> 26,523,456
<SALES> 14,020,536
<TOTAL-REVENUES> 14,020,536
<CGS> 4,070,017
<TOTAL-COSTS> 9,663,781
<OTHER-EXPENSES> 13,733,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 669,348
<INCOME-PRETAX> 164,207
<INCOME-TAX> 0
<INCOME-CONTINUING> 164,207
<DISCONTINUED> 70,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,007
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
