EXHIBIT 99
STOCK PURCHASE AND SALE AGREEMENT
This Agreement is made on September ___, 1995, by and among MERITAGE
HOSPITALITY GROUP INCORPORATED, a Florida corporation ("Meritage"), XXXXXX
XXXXXX INNS, INC., a Michigan corporation (the "Company"), XXXXXX X.
XXXXXXXX ("Xxxxxxxx"), and INNKEEPERS MANAGEMENT COMPANY, a Michigan
corporation ("Innkeepers").
RECITALS
A. Meritage wishes to purchase from the Company and the Company
wishes to sell to Meritage 1,500,000 shares of the Company's Common Stock
(as used in this Agreement, the "Company's Common Stock", "Company Common
Stock", and the "Common Stock", refer to the Company's common stock as
defined in 4.6 below) on the terms and conditions set forth
below.
X. Xxxxxxxx is an officer and director of the Company and each of its
subsidiaries. Xxxxxxxx owns (i) 747,850 shares of the Company's Common
Stock in his own name, (ii) an aggregate of 40,000 shares of the Company's
Common Stock in joint tenancy with his four children, and (iii) 80,168
shares of the Company's Common Stock indirectly through Innkeepers, 100%
of the capital stock of which is owned by Xxxxxxxx, and the 868,018 shares
of the Company's Common Stock so owned are referred to in this Agreement
as the "Xxxxxxxx'x Company Stock". Xxxxxxxx, Innkeepers and others are
parties to a Stock Purchase Agreement dated July 6, 1995, calling for the
sale of Xxxxxxxx'x Company Stock to TEI Acquisition, Inc., a Michigan
corporation.
C. The Company, Meritage, and Xxxxxxxx wish to enter into an agreement
pursuant to which Xxxxxxxx shall have the right to require that Meritage
(or at Meritage's option, the Company) purchase, and Meritage shall have
the right to require that Xxxxxxxx sell to Meritage (or its assignee),
free and clear of all liens and encumbrances, up to 400,000 shares of the
Company's Common Stock at the rate of up to 50,000 shares per year.
D. The Company wishes to borrow up to $6 million for general corporate
purposes.
For good and valuable consideration, including but not limited to
settlement of the Pending 7B Suit (as described in 1.3 below),
the receipt and sufficiency of which are acknowledged by each of the
parties to this Agreement, the parties agree that:
SECTION 1
PRE-SIGNING ACTION; TRANSACTIONS
TO BE EFFECTED UPON SIGNING
1.1 PRE-SIGNING ACTION. The Company, Xxxxxxxx and Innkeepers,
jointly and severally, represent and warrant to Meritage that, prior to
entering into this Agreement:
(a) The Company's Board of Directors approved this Agreement and the
transactions described herein, including, without limitation, all
transactions referred to in this Section 1 and the transactions to occur
at and after the Closing (all of the foregoing are referred to in this
Agreement collectively as the "Transactions"). Such approval constitutes
all requisite approvals for purposes of Chapter 7A ("Chapter 7A") of the
Michigan Business Corporation Act ("MBCA"), pursuant to which, among other
things, the Board passed a resolution in the form attached to this
Agreement as EXHIBIT A resolving that neither Meritage, nor any identified
or unidentified existing or future affiliate of Meritage, shall be an
"interested shareholder", as defined in Chapter 7A, and that Chapter 7A
shall not apply to any "business combination", as defined in Chapter 7A,
with Meritage or any identified or unidentified existing or future
affiliate of Meritage (assuming that, at no time prior to purchasing the
Company's stock pursu- ant to 1.2 below, Meritage owned, directly
or indirectly, 10% or more of the voting power of the outstanding shares
of the Company).
(b) Subject to the terms and conditions of this Agreement, the
Company's Board of Directors resolved to recommend that the shareholders
of the Company vote their shares in favor of approval of the Transactions.
(c) The Company's Board of Directors adopted an amendment to the
Company's Bylaws in the form attached to this Agreement as EXHIBIT B
pursuant to MBCA 794 providing that Chapter 7B of the MBCA
("Chapter 7B") shall not apply to any "control share acquisition" (as that
term is defined in Section 791 of the MBCA) of the shares of Common Stock
of the Company occurring after the date that this Bylaw amendment was
adopted. Such Bylaw amendment was adopted on September 10, 1995, and is
in full force and effect as of the time of consummation of the stock sale
referred to in 1.2 below.
(d) Assuming that, at no time prior to purchasing the Company's stock
pursuant to 1.2 below, Meritage owned, directly or indirectly,
10% or more of the voting power of the outstanding shares of the Company,
the Company has taken all action necessary on its part to render Chapter
7A inapplicable to Meritage and any identified or unidentified existing or
future affiliate of Meritage, such that any business combination with the
Company that may be pursued by Meritage or any of its identified and
unidentified existing and future affiliates shall be exempt from the
requirements of Chapter 7A.
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1.2 SALE BY THE COMPANY TO MERITAGE OF NEWLY-ISSUED COMMON STOCK.
(a) Concurrently with the execution and delivery of this Agreement, the
Company shall sell 1,500,000 shares of its newly-issued Common Stock to
Meritage at a total price of $10,500,000. Meritage shall pay for such
stock by delivering to the Company Meritage's duly executed purchase money
note, in the form of EXHIBIT C to this Agreement, in the aggregate amount
of the purchase price (the "Secured Promissory Note".) The Secured
Promissory Note shall be secured by a Stock Pledge Agreement in the form
of EXHIBIT D to this Agreement (the "Security Agreement"). The Company,
Xxxxxxxx and Innkeepers represent and warrant to Meritage that, upon
receipt by the Company of the Secured Promissory Note, the stock sold by
the Company to Meritage pursuant to this 1.2(a) shall be validly
issued, fully paid, non-assessable, and bear full voting rights, and that
such stock shall be delivered by the Company to Meritage free and clear of
all liens, restrictions and limitations (including, without limitation,
tax liens, forfeitures, covenants, conditions, pledges, penalties,
charges, encumbrances, buy-sell agreements, rights of first refusal,
equities, or claims or rights of others whatsoever), other than the lien
of the Security Agreement.
(b) Upon receipt of the Secured Promissory Note, the Company shall
issue a certificate evidencing Meritage's record ownership of the Common
Stock referred to in 1.2(a), and shall cause Meritage to be
listed in the Company's stock records as the record owner of such shares,
but the Company shall retain possession of such certificate as secured
party pursuant to the Security Agreement. From time to time upon request
by Meritage, as Meritage becomes entitled to the release from the Security
Agreement of shares of Common Stock, the Company shall cancel the
certificate in its possession and shall issue in lieu thereof a new
certificate for the shares of Common Stock that have been so released (the
"free and clear shares"), and a new certificate for the shares of Common
Stock that remain subject to the Security Agreement (the "pledged
shares"). The Company shall deliver the certificate evidencing the free
and clear shares to Meritage. The Company shall retain possession of the
certificate evidencing the pledged shares, as secured party pursuant to
the Security Agreement.
(c) If the transactions provided for in 2 of this Agreement
are not closed for any reason other than a default by the Company,
Xxxxxxxx or Innkeepers, the Company shall (except as otherwise provided in
this 1.2(c) below) have the right to redeem the shares of Common
Stock sold to Meritage pursuant to 1.2(a) above from Meritage by
cancelling the Secured Promissory Note and tendering it to Meritage, in
cancellation of the certificate evidencing such shares. Notwithstanding
the foregoing, the Company shall have no right to redeem such stock if the
transactions provided for in 2 of this Agreement are not closed
due to (i) the Company's acceptance of an Acquisi- tion Proposal, as
defined in 6.8 below, or (ii) approval of an Acquisition Proposal
by the Company's shareholders, or (iii) acceptance of a tender offer by
the holders of a majority of the shares of the Company's Common Stock
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(other than the shares owned beneficially or of record by Meritage and the
868,018 shares owned by Xxxxxxxx, as recited in Recital B above, or by
their respective successors or assigns). Further, if the transactions
provided for in 2 of this Agreement are not closed due to (i) the
Company's acceptance of an Acquisition Proposal, or (ii) approval of an
Acquisition Proposal by the Company's shareholders, or (iii) acceptance of
a tender offer by the holders of a majority of the shares of the Company's
Common Stock (other than the shares owned beneficially or of record by
Meritage and the 868,018 shares owned by Xxxxxxxx, as recited in Recital B
above, or by their respective successors or assigns), then the Company
would be obligated to pay to Meritage the breakup fee referred to in
6.5 below.
(d) If the transactions provided for in 2 of this Agreement
are not closed for any reason other than a default by Meritage, Meritage
shall have the right to put the shares of Common Stock purchased by
Meritage pursuant to 1.2(a) above to the Company by notifying the
Company in writing that Meritage is invoking its right under this
1.2(d), whereupon the Company shall cancel the Secured Promissory
Note and return it to Meritage, in cancellation of the certificate
evidencing such shares.
1.3 FILING OF STIPULATION. The parties to this Agreement shall
authorize their respective counsel of record in MERITAGE HOSPITALITY GROUP
INCORPORATED V XXXXXX X. XXXXXXXX, et al, (United States District Court
for the Western District of Michigan, S.D., Case No. 1:95 CV 451)(the
"Pending 7B Suit") to enter the Stipulation and Order Retaining
Jurisdiction for Limited Purposes attached to this Agreement as EXHIBIT E
in such litigation. Xxxxxxxx represents and warrants to Meritage that the
parties to the Pending 7B Suit who are not parties to this Agreement have
authorized their counsel of record in the Pending 7B Suit to take the
action referred to in this 1.3.
1.4 RESOLUTION TO OPT INTO CHAPTER 7B. Immediately after consummation
of the stock sale referred to in 1.2(a) above, the Company's
Board of Directors shall adopt a resolution to opt into Chapter 7B with
respect to all control share acquisitions occurring after consummation of
the stock sale referred to in 1.2(a) above. Such resolution
shall be in the form of EXHIBIT F to this Agreement.
1.5 TERMINATION OF CONTRACT WITH BUCKEYE. On or before the execution
and delivery of this Agreement, the Company shall use its best efforts to
terminate all contracts and relationships with Buckeye Resource &
Management, Inc. ("Buckeye") and Xxxx Xxxxxxx. Pursuant to 13,
Xxxxxxxx shall, in any event (regardless of whether the Company's
contracts and relationships with Buckeye and Xxxx Xxxxxxx are or may be so
terminated) defend, indemnify and hold the Company harmless from all
costs, direct and indirect, arising out of or relating to the existence of
such contracts and relationships, or to the termination or attempted
termination thereof.
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SECTION 2
TRANSACTIONS TO BE EFFECTED AT THE CLOSING
2.1 FINANCING. At the Closing, upon the instruction of the Company's
Board of Directors elected at the meeting of shareholders referred to in
6.3 (the "Company's New Board of Directors"), the Company may
close on the interim financing (the "Interim Financing") from American
Financial Corporation ("AFC"), as described in the financing commitment
(the "Interim Financing Commitment") attached as EXHIBIT G to this
Agreement; provided, however, that if Meritage delivers a financing
commitment to the Company (the "Alternative Interim Financing Commitment")
for not less than $6.0 million that Meritage prefers in lieu of that
described in the Interim Financing Commitment, the Company's New Board of
Directors may accept and close upon the Alternative Interim Financing
Commitment rather than the Interim Financing Commitment. Meritage shall
be deemed to have provided the requisite financing commitment referred to
in 3 of the Stipulation and Order Retaining Jurisdiction for Limited
Purposes attached to this Agreement as EXHIBIT E if, on the Closing Date
(as defined in 12.1 below), (a) AFC is willing to fund the
Interim Financing on the terms and conditions set forth in the Interim
Financing Commitment, or (b) the lender under the Alternative Interim
Financing Commitment is committed to fund a loan on the terms and
conditions set forth in any Alternative Interim Financing Commitment that
is accepted by the Company's New Board of Directors (provided that such
terms and conditions are, in the judgment of the Company's New Board of
Directors, at least as favorable to the Company as the terms and
conditions of the Interim Financing Commitment).
2.2 TERMINATION OF RELATIONSHIPS BETWEEN THE COMPANY AND XXXXXXXX AND
REYNOLDS'S AFFILIATES. At the Closing, (a) the Management Agreement among
the Company, its subsidiaries and Innkeepers dated December 12, 1986, as
amended, shall be terminated, without cost or recourse to the Company or
any of its subsidiaries or to Meritage (provided, however, that if the
Closing occurs before November 30, 1995, the Management Agreement shall be
terminated on the Closing Date, but effective as of November 30, 1995, and
payment to Innkeepers of the management fee under such Management
Agreement shall continue through November 30, 1995), and (b) all other
relationships or agreements (including but not limited to employment
contracts, if any) between the Company or any of its subsidiaries and
Xxxxxxxx or any of Xxxxxxxx'x Affiliates, all of which are identified in
Schedule 2.2 of this Agreement, may be terminated at the sole discretion
of the Company's New Board of Directors without cost or recourse to the
Company or any of its subsidiaries or to Meritage. "Xxxxxxxx'x
Affiliates" means Innkeepers, Forest Hills Golf Club, Inc.,
Fables-Innkeepers Management, Inc., all shareholders of any of the
foregoing corporations, Xxxxxxxx'x spouse, and Xxxxxxxx'x children and
their respective spouses, and each and every entity that, directly or
indirectly, controls, is controlled by, or is under common control with
any of the foregoing individuals or corporations.
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2.3 RESIGNATION OF EXISTING DIRECTORS AND OFFICERS. Upon the election
of the Company's New Board of Directors, all of the existing officers of
the Company, and all of the existing directors and officers of the
Company's subsidiaries, other than those officers which the Company's New
Board of Directors elects to retain, shall resign from their positions,
and shall release the Company and its subsidiaries from all claims and
liabilities whatsoever. Xxxxxxxx and Xxxxxxx X. Xxxxxxx shall be
nominated for election as directors of the Company at the meeting of the
Company's shareholders to be held pursuant to 6.3 and, if all of
the releases required by this 2.3 are executed and delivered to
Meritage prior to such meeting, Meritage will vote all of its shares of
Common Stock in favor of their election.
2.4 REPAYMENT OF INDEBTEDNESS. At the Closing, Xxxxxxxx shall pay in
full all indebtedness owed to the Company by Xxxxxxxx or any of Xxxxxxxx'x
Affiliates. Messrs. Xxxxxxx X. Xxxxxx III and Xxxxxx X. Xxxxxxx, acting
as a special committee of the Company's current Board of Directors, shall
determine the amount owed by Xxxxxxxx and Reynolds's Affiliates to the
Company as of the Closing Date. All dividends declared and paid by the
Company on Xxxxxxxx'x Company Stock shall be applied toward satisfaction
of all such indebtedness before any such dividend is paid to any holder of
Xxxxxxxx'x Company Stock. The Company shall have the right to withhold
the dividends otherwise payable by the Company on Xxxxxxxx'x Company Stock
and apply the same toward satisfaction of such indebtedness until it has
been paid in full.
2.5 SUBORDINATED PARTICIPATION INTEREST. At the Closing, the Company
shall pay to Xxxxxx X. Xxxxxxxxxxx ("Skandalaris") the sum of $1,250,000,
in exchange for a subordinated participation interest in the indebtedness
owed by Xxxxxxxx to Skandalaris (the "Skandalaris Note"). All payments
thereafter made by Xxxxxxxx on the indebtedness evidenced by the
Skandalaris Note shall be paid first to Skandalaris, and upon receipt by
Skandalaris of payments in an aggregate amount equal to Skandalaris's
remaining interest in the Skandalaris Note (if any), Skandalaris shall
assign the Skandalaris Note, and all collateral securing the Skandalaris
Note, to the Company. Upon receipt of such assignment from Skandalaris,
the Company shall release and terminate its security interest in all such
collateral. The Company thereafter shall cancel the indebtedness
evidenced by the Skandalaris Note at the fastest rate that will not result
in the occurrence of a "business combination", as that term is defined in
Chapter 7A. The Company covenants that it will: (a) take no action to
collect any of the indebtedness represented by the Skandalaris Note; and
(b) not sell or assign the Skandalaris Note.
2.6 CONSULTING AGREEMENT. At the Closing, the Company and Xxxxxxxx
shall enter into a Consulting Agreement in substantially the form attached
to this Agreement as EXHIBIT H.
2.7 REGISTRATION RIGHTS AGREEMENTS. At the Closing, Meritage and the
Company shall enter into a Registration Rights Agreement in substantially
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the form of EXHIBIT I to this Agreement, and Xxxxxxxx and the Company
shall enter into a Registration Rights Agreement in substantially the form
of EXHIBIT J to this Agreement.
2.8 CONTRACT OF INDEMNIFICATION. At the Closing, the Company shall
enter into a Contract of Indemnification with the members of its current
Board of Directors, and with Xxxxx X. Xxxxxx, the Company's Chief
Financial Officer, indemnifying them, to the extent permitted by law, for
all claims in the shareholder derivative suit pending in Kent County
Circuit Court (ALKSNIS, ET AL V XXXXXX XXXXXX INNS, INC., ET AL, CASE NO.
95-0103-CZ, XXXXXX, J.)(the "Derivative Proceeding") other than, in the
case of Xxxxxxxx only, claims for which Meritage would be entitled to
indemnity under this Agreement and claims arising under any contract
entered into by Xxxxxxxx pursuant to this Agreement. Such Contract of
Indemnification shall be subject to approval, in form and substance, by
Meritage.
2.9 PUT/CALL AGREEMENT. At the Closing, the Company, Meritage and
Xxxxxxxx shall enter into the Put/Call Agreement attached hereto as
EXHIBIT K.
SECTION 3
POST-CLOSING TRANSACTIONS
3.1 AFC STANDBY COMMITMENT. The Interim Financing Commitment
(referred to in 2.1) provides that the Interim Financing must be
repaid within 120 days after the Closing. At the Closing, Meritage shall
deliver to the Company a commitment (the "AFC Standby Financing Commitment")
pursuant to which AFC shall agree to accept, as repayment of the Interim
Financing on the maturity date thereof, cash in the amount of all of the
then unpaid interest, together with the Company's 8-year, $6,000,000,
subordinated debenture. The Company's New Board of Directors shall
determine at the appropriate time whether to accept the AFC Standby
Financing Commitment. In any event the Company shall be free to use other
means (e.g., a public or private placement of the Company's securities) to
repay the Interim Financing or the financing provided pursuant to the
Alternative Interim Financing Commitment.
3.2 CONTRACT OF INDEMNIFICATION. On the Closing Date but after the
Closing, the Company's New Board of Directors may ratify and affirm the
Contract of Indemnification entered into between the Company, the members
of its past Board of Directors, and Xxxxx X. Xxxxxx in accordance with
2.8. Meritage shall have no right of indemnity under this
Agreement unless and until the Company's New Board of Directors ratifies
and affirms such Contract of Indemnification.
3.3 SPECIAL DIVIDEND. After the Closing, the Company's New Board of
Directors may declare a special dividend in the amount of $.50 per share
of the Company's Common Stock outstanding. The record and payment dates
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for any such dividend shall be set by the Company's New Board of Directors
after the Closing.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY, XXXXXXXX AND INNKEEPERS
The Company, Xxxxxxxx and Innkeepers, jointly and severally, represent
and warrant, subject to 4.28, to Meritage that:
4.1 RESOLUTION TO OPT OUT OF CHAPTER 7B. Prior to entering into this
Agreement and after acquiring all necessary information to so act, the
Company's Board of Directors adopted the resolution referred to in
1.1(c) of this Agreement to opt out of Chapter 7B. Such
resolution was adopted by the Company's Board of Directors on September
10, 1995, such resolution was in full force and effect at the time of
execution and delivery of this Agreement and will remain in full force and
effect and will not have been amended, modified, repealed or superseded in
any way, and such resolution is on file with the records of the Board of
Directors of the Company.
4.2 RESOLUTION TO OPT OUT OF CHAPTER 7A. Prior to entering into this
Agreement and after acquiring all necessary information to so act, the
Company's Board of Directors adopted the resolution referred to in
1.1(a) of this Agreement to opt out of Chapter 7A of the Michigan
Business Corporation Act ("Chapter 7A") as to any and all present and
future "business combinations" as that term is defined in 776(5)
and other transactions between the Company and Meritage or any of
Meritage's identified or unidentified existing or future affiliates. Such
resolution was in full force and effect at the time of execution and
delivery of this Agreement and will remain in full force and effect and
will not have been amended, modified, repealed or superseded in any way,
and such resolution is on file with the records of the Board of Directors
of the Company.
4.3 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Michigan. True, correct and complete copies of the Company's
Articles of Incorporation and Bylaws, including all amendments thereto, as
of the date of this Agreement, are attached hereto as Schedule 4.3.
4.4 POWER AND AUTHORITY. (a) The Company has full corporate power
and authority to execute this Agreement and to consummate the transactions
described in this Agreement. The execution, delivery and performance by
the Company of this Agreement, and consummation of the transactions
contemplated hereby, have been duly authorized by the Company's Board of
Directors, and no other corporate action on the part of the Company is
necessary to authorize the execution and delivery of this Agreement and
consummation of the transactions contemplated hereby. This Agreement has
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been duly executed by the Company, and is a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights, and except as limited by application of legal
principles affecting the availability of equitable remedies. The
Company's Board of Directors has duly and validly taken all corporate
action required to authorize the sale to Meritage of 1,500,000 shares of
the Company's Common Stock pursuant to 1 above, and (assuming
that, at no time prior to purchasing the Company's stock pursuant to
1.2 above, Meritage owned, directly or indirectly, 10% or more of
the voting power of the outstanding shares of the Company) all action
required to render Chapter 7A inapplicable to Meritage and its identified
and unidentified existing or future affiliates as provided above.
Further, the Company's Board of Directors has duly and validly taken all
corporate action necessary to render Chapter 7B inapplicable to shares of
the Company's Common Stock acquired by Meritage pursuant to this
Agreement. The Company's execution, delivery and performance of this
Agreement, consummation of the transactions described in this Agreement,
and compliance with the terms of this Agreement do not and will not
conflict with the terms of (i) the Articles of Incorporation or Bylaws of
the Company, (ii) any agreement or other instrument to which the Company
is a party or by which it or its property may be bound, or (iii) to the
knowledge of the Company, Xxxxxxxx and Innkeepers, any existing applicable
law, rule, regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its property.
(b) Innkeepers has full corporate power and authority to execute this
Agreement and to consummate the transactions described in this Agreement.
The execution, delivery and performance by Innkeepers of this Agreement,
and consummation of the transactions contemplated hereby, have been duly
authorized by Innkeepers's Board of Directors, and no other corporate
action on the part of Innkeepers is necessary to authorize the execution
and delivery of this Agreement and consummation of the transactions
contemplated hereby. This Agreement has been duly executed by Innkeepers,
and is a legal, valid and binding obligation of Innkeepers, enforceable
against Innkeepers in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting enforcement of creditors' rights, and except as limited by
application of legal principles affecting the availability of equitable
remedies. The execution, delivery and performance of this Agreement by
Innkeepers, consummation of the transactions described in this Agreement,
and compliance with the terms of this Agreement do not and will not
conflict with the terms of (i) the Articles of Incorporation or Bylaws of
Innkeepers, (ii) any agreement or other instrument to which Innkeepers is
a party or by which it or its property may be bound, or (iii) to the
knowledge of the Company, Xxxxxxxx and Innkeepers, any existing applicable
law, rule, regulation, judgment, order or decree of any government,
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governmental instrumentality or court, domestic or foreign, having
jurisdiction over Innkeepers or any of its property.
(c) Xxxxxxxx has full power and authority to execute this Agreement
and to consummate the transactions described in this Agreement. This
Agreement has been duly executed by Xxxxxxxx, and is a legal, valid and
binding obligation of Xxxxxxxx, enforceable against Xxxxxxxx in accordance
with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights, and except as limited by application of legal
principles affecting the availability of equitable remedies. The
execution, delivery and performance of this Agreement by Xxxxxxxx,
consummation of the transactions described in this Agreement, and
compliance with the terms of this Agreement do not and will not conflict
with the terms of (i) any agreement or other instrument to which Xxxxxxxx
is a party or by which Xxxxxxxx or any of his property may be bound, or
(ii) to the knowledge of the Company, Xxxxxxxx and Innkeepers, any
existing applicable law, rule, regulation, judgment, order or decree of
any government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over Xxxxxxxx or any of his property.
(d) Each and every of Xxxxxxxx'x Affiliates has agreed to do, or to
consent to, all things that may be required of them by this Agreement
(including but not necessarily limited to those things specified in
2.2 and 7.3) to consummate the transactions provided for
in this Agreement, and each and every of Xxxxxxxx'x Affiliates will do and
consent to all such things as and when required so that the transactions
provided for in this Agreement can be consummated on the Closing Date in
accordance with this Agreement.
4.5 OWNERSHIP OF SHARES TO BE SOLD BY XXXXXXXX IN PUT/CALL AGREEMENT.
Xxxxxxxx owns of record and beneficially all of the shares of the
Company's Common Stock to be sold by him pursuant to the Put/Call
Agreement, and Xxxxxxxx has good and valid title to all of such shares,
free and clear of all liens (including tax liens, forfeitures, covenants,
conditions, pledges, penalties, charges, encumbrances, buy-sell
agreements, rights of first refusal, equities or claims or rights of
others whatsoever), other than as set forth on Schedule 4.5 to this
Agreement. With respect to such shares, Xxxxxxxx and Innkeepers confirm
to Meritage the warranties set forth in Mich. Comp. Xxxx Xxx.
440.8306(2)(a). The delivery to Meritage or the Company, as the
case may be, of the shares of Company Common Stock pursuant to the
Put/Call Agreement will transfer to Meritage or the Company, as the case
may be, valid title thereto, free and clear of all liens, encumbrances,
restrictions and claims of any kind; provided, however, that such shares
may be subject to restrictions on transfer under state and/or federal
securities laws.
4.6 CAPITALIZATION. The authorized capital stock of the Company
consists of 30,000,000 shares of common stock, $0.01 par value (referred
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to in this Agreement as the "Company Common Stock", "Company's Common
Stock" and "Common Stock"), and 5,000,000 shares of preferred stock, $0.01
par value. At the close of business on the date of this Agreement
1,520,150 shares of the Company's Common Stock were issued and
outstanding, and none of the shares of the Company's Preferred Stock had
been issued. The Company is subject to no agreement, other than this
Agreement, that would obligate the Company to authorize the sale of
additional stock, or to issue securities that could be converted to Common
Stock or capital stock of the Company, nor does any person (other than
Meritage pursuant to this Agreement) hold a right to require the Company
to issue additional Common Stock or capital stock.
4.7 GOVERNMENTAL CONSENTS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations,
declarations, or filings with any federal or state governmental authority
on the part of Xxxxxxxx, Innkeepers, or the Company required in connection
with the consummation of the transactions described in this Agreement have
been obtained and are effective, or will have been obtained on or before
the Closing Date and will be in effect on the Closing Date, except that
any reports or schedules required to be filed with the United States
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended, (the "Exchange Act"), and any notices of
sale required to be filed with the SEC pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or with any state securities law authority pursuant to applicable
blue sky laws, will be filed within the applicable periods therefor.
4.8 SEC DOCUMENTS. The Company, Xxxxxxxx and Innkeepers have timely
filed, or have cured the failure to timely file, all filings required to
be made by them on or before the date of this Agreement with the SEC, and
all such filings comply in form and substance with all applicable legal
requirements.
4.9 COMPANY INFORMATION. The documents referred to in Schedule 4.9
of this Agreement (the "Company's SEC Documents") constitute all of the
documents (other than preliminary material, pre-effective registration
statements or registration statements relating to employee stock option or
compensation plans) that the Company was required to file with the
Securities and Exchange Commission since December 31, 1991. Each of the
Company's SEC Documents has been duly filed, and when filed complied in
all material respects with the requirements of the applicable form,
statutes, rules and regulations of the SEC. Each of the Company's SEC
Documents, as amended by any amendments duly filed with the Securities and
Exchange Commission and referred to in Schedule 4.9, was complete and
correct in all material respects as of the date filed and did not contain
any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances in which made, not misleading.
(Meritage shall have no right to make any claim for indemnity pursuant to
13 of this Agreement: (a) if, during discovery in the Derivative
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Proceeding or in the Pending 7B Suit, any of the defendants in either such
action produced documents or made deposition statements specifically
showing, in reasonable detail, that a statement contained in any of the
Company's SEC Documents is false or misleading; or (b) if any Schedule to
this Agreement specifically shows, in reasonable detail, that a statement
contained in any of the Company's SEC Documents is false or misleading.
Meritage waives, to the fullest extent permitted by law, any right
Meritage would have to make a claim against Xxxxxxxx or the Company on
account of a false or misleading statement in any of the Company's SEC
Documents, other than a claim for indemnity pursuant to this Agreement.)
Except as disclosed in Schedule 4.9 to this Agreement, since May 31, 1995,
there has not been any material adverse change in the condition (financial
or otherwise) or results of operations of the Company and its
subsidiaries. The audited financial statements of the Company included in
the Company's SEC Documents have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the
Company and its subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flow for the periods then ended. The
unaudited financial statements included in any Company's SEC Documents
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and such unaudited financial statements are fairly
presented in conformity with generally accepted accounting principles
(except as permitted by Form 10-QSB of the SEC) applied on a basis
substantially consistent with that of the audited financial statements
included in the Company's SEC Documents, subject to year-end audit
adjustments.
4.10 SUBSIDIARIES. Except for the subsidiaries referenced in Schedule
4.10 to this Agreement, the Company does not own stock or have any equity
investment or other interest in, does not have the right to acquire any
such interest, and does not control any corporation, association,
partnership, joint venture, cooperative or other entity. The minute
books, books of account and other financial records of each of the
Company's subsidiaries are accurate, correct and complete and have been
maintained in accordance with good business practices. The
capitalization, including debt and equity, of each of the Company's
subsidiaries is set forth in Schedule 4.10 to this Agreement. All
outstanding shares of capital stock of each subsidiary are duly
authorized, validly issued, fully paid, and non-assessable, were not
issued in violation of any pre-emptive subscription or other right of any
person to acquire securities of such subsidiary, and constitute one
hundred percent (100%) of the issued and outstanding stock of all classes
of such subsidiary. There is no outstanding subscription, option,
convertible or exchangeable security, pre-emptive right, warrant, call or
agreement relating to these shares or other obligation or commitment of
any subsidiary to issue any shares of Stock. There are no voting trusts
or other agreements, arrangements or understandings applicable to the
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exercise of voting or any other rights with respect to any shares of any
of the Company's subsidiaries. The Company has good, marketable and
indefeasible title to all of the shares of its subsidiaries and the
absolute right to sell, assign, transfer, and deliver the same, free and
clear of all claims, security interests, liens, pledges, charges, escrows,
options, proxies, rights of first refusal, preemptive rights,
hypothecations, prior assignments, title retention agreements, indentures,
security agreements or any other limitation, encumbrance or restriction of
any kind.
4.11 REAL ESTATE. (a) Schedule 4.11 sets forth an accurate, correct
and complete list of each parcel of real property owned by the Company or
any of its subsidiaries (the "Company's Real Estate"), including a street
address, complete legal description and a list of all contracts and
agreements relating to or affecting the Company's Real Estate or any
interest therein. Xxxxxxxx has delivered to Meritage accurate, correct
and complete copies of all such contracts and agreements. Except as set
forth on Schedule 4.11, the Company or its subsidiaries have fee simple
title to, and are in possession of all of the Company's Real Estate, in
each case free and clear of all tenancies and other possessory interests,
contracts of sale, contract sale agreements, security interests,
conditional sale or other title retention agreements, liens, mortgages,
pledges, assessments, licenses, options, rights of first refusal, defects
in title, encroachments and other rights burdening or otherwise affecting
the Company's Real Estate in a material respect. All contracts,
agreements and undertakings affecting the Company's Real Estate as set
forth in Schedule 4.11 are legally valid and binding and are in full force
and effect; there are no defaults, offsets, counterclaims or defenses
thereunder; and neither the Company nor any of its subsidiaries has
received a notice of default, offset, counterclaim or defense under any
such contract or agreement.
(b) Except as may be indicated on the surveys covering the Company's
Real Estate, none of the Company's Real Estate is located within a flood
hazard or flood zone area, coastal or erosion hazard area. Neither the
whole nor any portion of any of the Company's Real Estate has been
condemned, requisitioned or otherwise taken by any public authority, and
no notice of any such condemnation, requisition or taking has been
received. To the knowledge of the Company, Xxxxxxxx and Innkeepers, no
such condemnation, requisition or taking is threatened or contemplated.
The Company, Xxxxxxxx and Innkeepers have no knowledge of any public
improvements which may require an expenditure of funds or result in
special assessments against or otherwise affect the Company's Real Estate.
(c) To the knowledge of the Company, Xxxxxxxx and Innkeepers: (i) the
Company's Real Estate is in substantial compliance with all applicable
zoning, building, health, fire, water, use or similar statutes, codes,
ordinances, laws, rules or regulations, including but not limited to the
Americans with Disabilities Act; (ii) the zoning of each such parcel of
the Company's Real Estate permits the existing improvements and the
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continuation without additional requirements following the consummation of
the transactions described in this Agreement of the Company's business as
presently conducted thereon; (iii) the Company and its subsidiaries have
all material licenses, certificates of occupancy, permits and
authorizations required to operate the Company's business and utilize the
Company's Real Estate; (iv) the Company and its subsidiaries have all
material easements and rights necessary to conduct the Company's business,
including easements for utilities, services, roadway, railway and other
means of ingress and egress; and (v) no fact or condition exists which
would result in the termination or impairment of access to the Company's
Real Estate or to discontinuation of sewer, water, electric, gas,
telephone, waste disposal or other utilities or services.
(d) Xxxxxxxx and Innkeepers have delivered to Meritage accurate,
correct and complete copies of all existing title insurance policies,
title reports, surveys, property reports and similar reports, if any, with
respect to each parcel of the Company's Real Estate.
(e) There is no construction work being done at, or construction
materials being supplied to, any parcel of the Company's Real Estate,
except in connection with routine maintenance projects.
4.12 ENVIRONMENTAL MATTERS. To the knowledge of the Company, Xxxxxxxx
and Innkeepers, neither the Company nor any of its subsidiaries has used
Hazardous Materials, as defined below (other than Hazardous Materials that
are customarily used in the operation of the Company's business, and that
of its subsidiaries, which Hazardous Materials the Company and its
subsidiaries have used in the customary manner), on any of the Company's
Real Estate in any manner that violates any Governmental Regulation (as
defined below) governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials and, to the knowledge of the Company, Xxxxxxxx and Innkeepers,
no prior owner of any of the Company's Real Estate, or any existing or
prior tenant or occupant of any of the Company's Real Estate, has used
Hazardous Materials on, from or affecting the Company's Real Estate or any
parcel thereof in any manner which violates any Governmental Regulation
governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of Hazardous Materials.
Neither the Company nor any of its subsidiaries nor Xxxxxxxx nor
Innkeepers has ever received any notice of any violations (and neither the
Company, nor Xxxxxxxx, nor Innkeepers is aware of any existing violations)
of any Governmental Regulation governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal
of Hazardous Materials at any of the Company's Real Estate and, to the
knowledge of the Company, Xxxxxxxx and Innkeepers, there have been no
actions commenced or threatened by any party for noncompliance which
affects any of the Company's Real Estate. To the knowledge of the
Company, Xxxxxxxx and Innkeepers, (a) there have been no releases or
discharges of Hazardous Materials on, into, or under any of the Company's
Real Estate during the ownership or use of the Real Estate by the Company
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or its subsidiaries, and (b) the Company's Real Estate, including all
underlying soils and groundwater and all surface water, does not contain
such quantities of Hazardous Materials that would permit the undertaking
of response activity or corrective action (including removal or remedial
action) by the state or federal government under any Governmental
Regulation. In this Agreement, "Hazardous Materials" means any materials
or substance: (a) which is or becomes defined as a "hazardous substance",
"pollutant" or "contaminant" pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act (42 USC Section 9601 et seq) and
amendments thereto and regulations promulgated thereunder; (b) containing
gasoline, oil, diesel fuel or other petroleum products; (c) which is or
becomes defined as a "hazardous waste" pursuant to the Federal Resource
Conservation and Recovery Act (42 USC Section 6901 et seq) and amendments
thereto and regulations promulgated thereunder; (d) containing
polychlorinated biphenyls (PCBs); (v) containing asbestos; (e) which is
radioactive; (f) the presence of which requires investigation or
remediation under any Governmental Regulation; or (g) which is or becomes
defined as a "hazardous waste", "hazardous substance", "pollutant",
"contaminant" or biologically Hazardous Material under any Governmental
Regulation. In this Agreement, "Governmental Regulations(s)" means any
law, regulation, rule, policy, ordinance or similar requirement of the
United States, any state, and any county, city or other agency or
subdivision of the United States or any state.
4.13 INSURANCE. Set forth on Schedule 4.13 is a complete and correct
list of all policies of insurance relating to the Company's (and its
subsidiaries') assets and business, indicating for each policy the
carrier, risk insured against, coverage limits, deductible amounts,
premium, expiration date, all outstanding claims thereunder, and whether
the terms of such policies provide for retrospective premium adjustments.
Also set forth on Schedule 4.13 is a complete and correct list of all
policies of insurance on the life of Xxxxxxxx with respect to which the
Company or any of its subsidiaries has ever made any premium payment, or
with respect to which the Company or any of its subsidiaries is or ever
has been an owner or beneficiary including with respect to each such
policy the name of the issuer thereof, the policy number, the amount of
the policy, the names of all assignees and holders of security interests
or others interests therein, the names of all beneficiaries, the cash
surrender value thereof, and the amount of all outstanding policy loans,
including principal and interest. All such policies are outstanding and
in full force and effect and Xxxxxxxx and Innkeepers will cause such
policies to be kept in full force and effect through the Closing Date. No
notice of cancellation or non-renewal with respect to, or disallowance of
any claim under, any such policy has been received by Xxxxxxxx or
Innkeepers or the Company.
4.14 TAXES. The Company and its subsidiaries have (a) filed all
federal, state, local and other tax returns and reports which are required
to be filed; and (b) withheld and paid all taxes, interest, penalties,
assessments and deficiencies due or assessed pursuant to such returns.
-15-
Neither the Company nor any of its subsidiaries has received any notice of
assessment of additional taxes and has not executed or filed with any
taxing authority any agreement extending the period of assessment of any
taxes. There are no claims, examinations, proceedings or proposed
deficiencies for taxes pending or threatened against the Company or any of
its subsidiaries. The Company is current in the payment of all
withholding and other employee taxes which are due and payable. Neither
the Company nor any of its subsidiaries has (a) been audited by the
Internal Revenue Service, (b) received notice of an audit, or (c) been
threatened with an audit.
4.15 LITIGATION. Except for the Derivative Proceeding, the Pending 7B
Suit, and the matters set forth on Schedule 4.15 to this Agreement,
neither the Company nor any of its subsidiaries (a) is subject to any
outstanding injunction, judgment, order, decree, ruling or charge or (b)
has been served with a summons (or its equivalent in a non-judicial
proceeding) in any action, suit, proceeding, hearing or investigation of,
in, or before any court, quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator, or
(c) to the knowledge of the Company, Xxxxxxxx and Innkeepers, is
threatened to be made a party to any action, suit, proceeding, hearing or
investigation of, in, or before any court, quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction
or before any arbitrator.
4.16 COMPLIANCE WITH LAWS. To the knowledge of the Company, Xxxxxxxx
and Innkeepers: (a) the Company and its subsidiaries have complied in all
material respects with all applicable laws, statutes, rules, regulations
and orders, of federal, state, local or foreign governments (and all
agencies thereof), including, without limitation, all environmental,
health and safety laws; and (b) no action, suit, proceeding, hearing,
investigation, charge, complaint or claim, demand or notice has been filed
or commenced against the Company or any subsidiary alleging any failure so
to comply.
4.17 PERMITS AND AUTHORIZATIONS. To the knowledge of the Company,
Xxxxxxxx and Innkeepers, the Company and each of its subsidiaries hold all
material licenses and other permits and authorizations necessary for the
operation of the Company's business as presently conducted, and such
licenses, permits and authorizations will be in full force and effect for
the entire duration of their respective unexpired terms, unimpaired by any
acts or omissions of Xxxxxxxx, Innkeepers, the Company or its
subsidiaries. There is not now pending or, to the knowledge of the
Company, Xxxxxxxx and Innkeepers, threatened, any action by the grantor of
any such license, permit or authorization to revoke, cancel or refuse to
renew any such license, permit or authorization. Except as disclosed on
Schedule 4.17 to this Agreement, no consents, authorizations or approvals
are required from the grantor, franchisor or licensor under any franchises
or licenses held by the Company or any of its subsidiaries in order for
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the transactions referred to in this Agreement to be consummated without
violating or breaching the terms of any such franchise or license.
4.18 FEES AND COMMISSIONS. Neither the Company, nor any of its
subsidiaries, nor Xxxxxxxx, nor Innkeepers has agreed to pay any broker's,
finder's or originator's fees or commissions by reason of services alleged
to have been rendered for or at the instance of the Company, or any of its
subsidiaries, Xxxxxxxx or Innkeepers in connection with this Agreement and
the transactions described in this Agreement, except as set forth on
Schedule 4.18.
4.19 NO MISSTATEMENT OR OMISSION. No representation or warranty by
Xxxxxxxx, Innkeepers or the Company in this Agreement (including the
Exhibits and Schedules to this Agreement), and no written statement
furnished or to be furnished by Xxxxxxxx, Innkeepers or the Company
pursuant hereto or in connection with the transactions described in this
Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not
misleading.
4.20 ABSENCE OF UNDISCLOSED LIABILITIES. (a) Neither the Company nor
any of its subsidiaries has any liabilities or obligations (including tax
liabilities and liabilities as guarantor or surety), either accrued,
absolute, contingent, joint, several or otherwise, which individually or
in the aggregate with one or more other liabilities or obligations (any of
which other liabilities or obligations is not itself material) is
material, except to the extent:
(i) set forth in the Company's SEC Documents or noted on the
financial statements that were filed with the Company's SEC Documents,
and not heretofore paid or discharged;
(ii) specifically set forth in Schedule 4.20 to this Agreement; or
(iii) incurred in, or as a result of, the normal and ordinary course
of business consistent with past practices since May 31, 1995, and which
are not, individually or in the aggregate with any one or more other
liabilities or obligations (any of which other liabilities or
obligations is not itself material), material and adverse.
(b) Except as set forth in Schedule 4.20 to this Agreement, there is no
liability of any nature or in any amount which individually or in the
aggregate with any one or more other claims (any of which other claims is
not itself material) is material and adverse, nor is there any basis for
any such claim against the Company or any of its subsidiaries.
4.21 RECEIVABLES. The accounts, notes and claims receivable of the
Company and its subsidiaries represent valid claims against the obligors
thereof which arose in the ordinary course of business and are current and
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collectible, except to the extent reserved against in the Company's
financial statements for the quarter ended May 31, 1995, and filed as part
of the Company's SEC Documents or shown on Schedule 4.21 to this
Agreement. A true and complete aging schedule dated September 11, 1995,
with respect to such receivables is attached as Schedule 4.21 to this
Agreement.
4.22 BANK ACCOUNTS. Schedule 4.22 to this Agreement includes a true
and complete list, as of the date of this Agreement, of the names and
locations of all banks at which the Company or any of its subsidiaries has
an account or safe deposit box and the names of persons authorized to sign
checks, drafts or other instruments drawn thereon or to have access
thereto.
4.23 NO BANKRUPTCY PROCEEDINGS. Neither Xxxxxxxx nor Innkeepers, nor
the Company nor any of its subsidiaries has admitted in writing his or its
inability to pay his or its debts generally as they become due, filed or
consented to the filing against him or it of a petition in bankruptcy or a
petition to take advantage of any insolvency act, made an assignment for
the benefit of creditors, consented to the appointment of a receiver for
the whole or any substantial part of his or its property, or had a
petition in bankruptcy filed against him or it, been adjudicated a
bankrupt, or filed a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other law or statute
of the United States of America or any other jurisdiction.
4.24 EMPLOYEES. (a) To the knowledge of the Company, Xxxxxxxx and
Innkeepers, no employee of the Company or any of its subsidiaries is, or
is expected to be, in violation of any term of any employment contract,
non-competition agreement, or any other contract or agreement or any
restrictive covenant or any other common law obligation to a former
employer relating to the right of any such employee to be employed by the
Company or its subsidiaries for any reason, and, to the knowledge of the
Company, Xxxxxxxx and Innkeepers, the employment of the employees of the
Company and its subsidiaries does not subject the Company, its
subsidiaries or Meritage to any liability to any former employer of any
such employee or to any third party. There is neither pending nor, to the
knowledge of the Company, Xxxxxxxx and Innkeepers, threatened any actions,
suits, proceedings or claims, or to their knowledge, any basis therefor or
threat thereof with respect to any contract, agreement, covenant or
obligation referred to in the preceding sentence.
(b) Except as disclosed in Schedule 4.24, since November 30, 1994, (i)
no increases in compensation have been given to any employee of the
Company (or to any employee of a subsidiary of the Company) other than in
the ordinary course of business, and (ii) no increases in compensation
have been given to any employee of the Company (or to any employee of any
subsidiary of the Company) who, after the effective date of such increase
in compensation, is paid more than $30,000 on an annual basis. Except as
disclosed in Schedule 4.24 to this Agreement, the Company and its
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subsidiaries have not agreed at any time in the future to increase the
compensation of any of their respective employees.
(c) Neither the Company nor any of its subsidiaries (i) is a party to
any collective bargaining agreement covering or relating to any of their
respective employees, (ii) has recognized, (iii) is required to
recognize, and (iv) has received a demand for recognition by any
collective bargaining representative, except as attached to Schedule 4.24
to this Agreement.
(d) Neither the Company nor any of its subsidiaries is a party to any
contract with any of their respective employees, agents, consultants,
officers or customers that is not cancellable by the Company or its
subsidiary, as appropriate, without penalty or premium on not more than
thirty (30) days' notice, except as set forth in Schedule 4.24 to this
Agreement.
(e) Neither the Company nor any of its subsidiaries has promulgated
any policy, or entered into any agreements, relating to the payment of
severance pay to employees whose employment is, or is to be, terminated or
suspended, voluntarily or otherwise, at or prior to Closing.
(f) To the knowledge of the Company, Xxxxxxxx and Innkeepers: (i) the
Company and each of its subsidiaries have complied with all applicable
laws, rules and regulations relating to employment, including those
relating to wages, hours, collective bargaining, the withholding and
payment of taxes and contributions and discrimination; (ii) the Company
and each of its subsidiaries have complied in all respects with the
Occupational Safety and Health Act; and (iii) there are no controversies
pending or threatened, between the Company or any of its subsidiaries and
any of employees of the Company or any of its subsidiaries, or any labor
unions or other collective bargaining agents representing or purporting to
represent the employees of the Company or any of its subsidiaries.
4.25 EMPLOYEE BENEFIT PLANS. Except as disclosed in Schedule 4.25 to
this Agreement, neither the Company nor any of its subsidiaries maintains
any "employee benefit plans", as such term is defined under Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether qualified or unqualified under ERISA.
4.26 DUE INQUIRY. In preparation for making the foregoing
representations and warranties, Xxxxxxxx and Innkeepers diligently
reviewed all of the books and records of Innkeepers and of the Company and
its subsidiaries, and such other books and records as they deemed
appropriate to fully inform themselves concerning the accuracy and
completeness of the foregoing representations and warranties, and they
informed all management level employees and representatives (including but
not necessarily limited to accountants, attorneys, and insurance advisors)
of Innkeepers, the Company and its subsidiaries of the details of the
-19-
foregoing representations and warranties and made due inquiry of them into
the accuracy and completeness of such representations and warranties. In
this Agreement, the phrase "to the knowledge of the Company, Xxxxxxxx and
Innkeepers" means to the knowledge of any of them after having made such
review and inquiry, or to the knowledge of Xxxxx X. Xxxxxx. Further, the
knowledge of Xxxxxxxx or Innkeepers or Xxxxx X. Xxxxxx shall be deemed the
knowledge of the Company, its subsidiaries, Xxxxxxxx and Innkeepers.
4.27 TAI, BUCKEYE AND SKANDALARIS. Meritage acknowledges that the
existence of the agreement between Xxxxxxxx and TEI Acquisition, Inc., a
Michigan corporation ("TAI"), dated July 6, 1995, the agreement between
the Company and Buckeye dated September 28, 1994, as amended March 31,
1995, the February 1995 consulting agreement between the Company and
Skandalaris, and the agreement pursuant to which Xxxxxxxx pledged certain
shares of the Company's Common Stock to Skandalaris shall not constitute a
basis for a claim (other than to payment of the breakup fee referred to in
6.5 below) by Meritage pursuant to 13 of this Agreement
or any other section of this Agreement. Xxxxxxxx agrees that such
acknowledgement by Meritage shall not relieve Xxxxxxxx from his indemnity
obligations under 7.4 below with respect to any such agreements.
4.28 MATERIAL CONTRACTS. Except as shown on Schedule 4.28 to this
Agreement, neither the Company nor any of its subsidiaries is a party to
or is bound by (and no asset of the Company or a subsidiary of the Company
is bound by) any contract (a) that obligates the Company or any of its
subsidiaries to pay more than $10,000 during the remainder of the term of
the contract, or (b) that is not freely terminable, without cost to the
Company or any of its subsidiaries, upon not more than 30 days' notice.
4.29 CUMULATIVE VOTING; "SUPERMAJORITY" VOTING. The Company's Articles
of Incorporation do not permit cumulative voting by any shareholder of the
Company. Neither the Company's Articles of Incorporation nor its Bylaws
require, with respect to any action to be taken by the Company's
shareholders, the vote or concurrence of the holders of a greater
proportion of the Company's shares of Common Stock than is required by the
MBCA with respect to the action.
4.30 NO INVESTMENTS IN XXXXXXXX'X AFFILIATES. The Company has made no
investments in or advances to or for the benefit of Xxxxxxxx or any of
Xxxxxxxx'x Affiliates that, as of the date of this Agreement, have not
been fully repaid or reimbursed to the Company, other than (a) the
indebtedness referred to in 2.4 above, and (b) as disclosed in
Schedule 4.30 to this Agreement.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF MERITAGE
Meritage represents and warrants to Xxxxxxxx, Innkeepers, and the
Company as follows:
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5.1 ORGANIZATION AND STANDING. Meritage is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Florida. Meritage has furnished Xxxxxxxx with true, correct and
complete copies of its Articles of Incorporation and Bylaws, and of all
amendments to each such document through the date of this Agreement.
5.2 CORPORATE POWER AND AUTHORITY. Meritage has full corporate power
and authority to execute this Agreement and to consummate the transactions
described in this Agreement. The execution, delivery and performance by
Meritage of this Agreement, and consummation of the transactions
contemplated hereby, have been duly authorized by Meritage's Board of
Directors, and no other corporate action on the part of Meritage is
necessary to authorize the execution and delivery of this Agreement and
consummation of the transactions contemplated hereby. This Agreement has
been duly executed by Meritage, and is a legal, valid and binding
obligation of Meritage, enforceable against Meritage in accordance with
its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting enforcement of creditors' rights, and
except as limited by application of legal principles affecting the
availability of equitable remedies. Meritage's execution, delivery and
performance of this Agreement, consummation of the transactions described
in this Agreement, and compliance with the terms of this Agreement do not
and will not conflict with the terms of (i) the Articles of Incorporation
or Bylaws of Meritage, (ii) any agreement or other instrument to which
Meritage is a party or by which it or its property may be bound, or (iii)
to the knowledge of Meritage and its executive officers, any existing
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over Meritage or any of its property.
5.3 GOVERNMENTAL CONSENTS. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations,
declarations or filings with any federal or state governmental authority
on the part of Meritage required in connection with the consummation of
the transactions described in this Agreement have been obtained and are
effective, except that any reports or schedules required to be filed with
the SEC pursuant to the Exchange Act will be filed within the applicable
periods therefor.
5.4 SECURITIES LAW MATTERS.
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The shares of Company Common
Stock that Meritage will acquire pursuant to 1.2 will be acquired
for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that
Meritage has no present intention of selling, granting participations in,
or otherwise distributing the same. Meritage represents that it does not
have any contract, undertaking, agreement or arrangement with any person
to sell, transfer, or grant participations to such person, or to any third
person, with respect to any of the shares that Meritage will acquire
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pursuant to 1.2. Notwithstanding the foregoing, Xxxxxxxx and
Innkeepers acknowledge that Meritage may dispose of the securities that it
will purchase pursuant to 1.2 upon registration of such
securities, or in a transaction or transactions exempt from registration,
under the Securities Act and in compliance with applicable state
securities laws.
(b) RESTRICTED SECURITIES. Meritage understands that the shares of the
Company's Common Stock that it will acquire pursuant to 1.2 may
not be sold, transferred, or otherwise disposed of without compliance with
state securities laws and without registration under the Securities Act or
an exemption therefrom, and that in the absence of an effective
registration statement covering such shares or an available exemption from
registration under the Securities Act, such shares must be held
indefinitely and Meritage must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition of such shares is
registered under the Securities Act or is exempt from registration. In
particular, Meritage is aware that such shares may not be sold pursuant to
Rule 144 promulgated under the Securities Act unless all of the conditions
of that Rule are satisfied. Meritage represents that, in the absence of
an effective registration statement covering such shares, it will sell,
transfer, or otherwise dispose of such shares only in a manner consistent
with its representations set forth herein.
(c) INVESTMENT EXPERIENCE. Meritage represents that it is experienced
in investment matters, fully understands the transactions described in
this Agreement, has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
its investment, and has the financial ability and resources necessary to
bear the economic risks of its investment.
(d) ACCREDITED INVESTOR. Meritage represents that it is an "accredited
investor" as that term is defined in Rule 501 of Regulation D under the
Securities Act, namely (i) it was not formed for the specific purpose of
acquiring the shares of Company Common Stock that it will acquire pursuant
to this Agreement, and has total assets in excess of $5,000,000, or (ii)
all of its equity owners are accredited investors.
(e) NO ADVERTISING OR SOLICITATION. Meritage acknowledges that it has
received no general solicitation or general advertising (including
communications published in any newspaper, magazine or similar media or
broadcast) and that Meritage's representatives have attended no seminar or
meeting with respect to the shares of the Company's Common Stock that
Meritage will acquire pursuant to 1.2, nor is it aware of any
such solicitation or advertisements that may have been received by others.
(f) LEGENDS; STOP TRANSFER.
(i) All certificates for the shares acquired by Meritage pursuant
to this Agreement may bear the following legend:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD OR TRANSFERRED UNLESS THE SAME ARE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED FOR
SALE OR TRANSFER.
(ii) In addition, the Company's transfer agent shall
make a notation regarding the restrictions on transfer of such
shares in its stock transfer records.
5.5 FEES AND COMMISSIONS. Meritage has not agreed to pay
any broker's, finder's or originator's fees or commissions by
reason of services alleged to have been rendered for or at the
instance of Meritage in connection with this Agreement and the
transactions described in this Agreement.
5.6 NO MISSTATEMENT OR OMISSION. No representation or
warranty by Meritage in this Agreement, and no written statement
furnished or to be furnished by Meritage pursuant hereto or in
connection with the transactions described in this Agreement,
contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact required to be
stated therein or necessary to make the statements contained
therein not misleading.
SECTION 6
COVENANTS OF THE COMPANY
The Company shall keep, observe, perform and fully
discharge the following covenants and agreements:
6.1 ACCESS TO INFORMATION; EXAMINATION. At the date
hereof, Meritage has not had an opportunity to complete its
investigation or analysis of the Company and its subsidiaries and
related matters. Meritage will have thirty (30) days after the
date upon which Meritage receives the last of the Schedules
referred to in 6.9 and 7.8 below (the period that
begins on the date of this Agreement and ends upon the expiration
of 30 days after the date upon which Meritage receives the last of
the Schedules referred to in 6.9 and 7.8 below is
referred to as the "Due Diligence Period") within which to
investigate, ascertain and verify all of the facts, information and
other matters pertaining to the Company and its subsidiaries, and
otherwise to investigate, in any manner in which it may choose, the
business, condition and affairs of the Company and its
subsidiaries. During the Due Diligence Period, Meritage and its
attorneys, accountants and other designees shall have unrestricted
access to the books, records, properties, personnel and accountants
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of the Company and its subsidiaries to enable Meritage to carry out
its examination. If during the Due Diligence Period Meritage
discovers material adverse facts concerning the Company, or any of
its subsidiaries, or the business, prospects, affairs (financial or
otherwise) or assets of the Company or any of its subsidiaries,
Meritage may terminate its obligations under this Agreement at any
time prior to the expiration of the Due Diligence Period by written
notice to the Company, Xxxxxxxx and Innkeepers.
6.2 INTERIM CONDUCT OF BUSINESS. Except as otherwise
provided in this Agreement, during the period from the date of this
Agreement and continuing to the Closing, the Company and its
subsidiaries shall operate their respective businesses in the
ordinary course and consistent with past practice, and the Company
and its subsidiaries shall use their best efforts to preserve
intact the present business organization of the Company and that of
its subsidiaries, keep available the services of employees, and
preserve present relationships with suppliers, customers and others
having business dealings with the Company or its subsidiaries.
Without limiting the foregoing and except as otherwise provided in
this Agreement, during the period from the date of this Agreement
and continuing to the Closing, the Company and its subsidiaries
shall not do, permit or engage in any of the following actions
without written consent from Meritage, which shall not be
unreasonably withheld:
(a) amendments to the Articles of Incorporation or Bylaws
of the Company or any of its subsidiaries;
(b) the issuance of any stock, convertible securities,
stock options, warrants, rights, calls or commitments of any
character calling for or permitting the issue, sale or delivery of
(i) the Company's stock or other
security of the Company, or (ii) the stock or other security of any
subsidiary of the Company;
(c) payment or declaration of any cash dividend, or other
dividend or distribution with respect to the Company's stock or
with respect to the stock of any subsidiary of the Company;
(d) the incurrence of any indebtedness for borrowed money;
(e) adoption or material modification of any bonus,
pension, profit-sharing or other compensation plan or the execution
of any contract with any officer, director or employee which is not
terminable at will without cost or other liability;
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(f) the mortgage, pledge or subjection to lien, charge,
security interest, or other encumbrance of any of the Company's
assets or of any of the assets of any subsidiary of the Company;
(g) transfer or lease of any of the Company's assets or
property, or any of the assets of any subsidiary of the Company,
other than inventory in the ordinary course of business;
(h) cancellation or compromise of any debt or claim other
than in the ordinary course of business in an aggregate amount
which is not materially adverse;
(i) making or granting any general or individual wage or
salary increase, except for general salary and wage adjustments now
in progress, or which are part of the conduct of a normal salary
administration program; or
(j) making or entering into any transaction, or incurring
any commitment therefor, which involves consideration with a value
in excess of $50,000.
6.3 MEETING OF THE COMPANY'S SHAREHOLDERS. (a) Within
seven days after signing this Agreement, the Company's current
Board of Directors shall call the annual meeting of the
shareholders of the Company for this year to be held within 120
days of the execution and delivery of this Agreement for the
purposes of: (i) to gain approval of this Agreement and the
transactions referred to in this Agreement as provided in
9.5, 10.5, and 11.5, (ii) to elect a new Board of
Directors, (iii) to consider a resolution pursuant to MBCA
798 for the purposes of restoring voting rights to
Xxxxxxxx'x Company Stock if so requested by Xxxxxxxx and if
Xxxxxxxx complies with the requirements of Chapter 7B, and (iv) to
act upon such other proposals as may be proposed or approved by Meritage,
which approval will not be unreasonably withheld.
(b) Prior to the annual meeting of shareholders referred
to in 6.3(a), the Company shall deliver, to each
shareholder of record on the record date for such meeting, a proxy
statement which complies with the rules and regulations of the SEC.
The Company shall include in the proxy statement, among other
things, the following:
(i) a description of each transaction to be
approved at the meeting;
(ii) subject to receipt by the Company of the
Fairness Opinion described in 6.4 of this
Agreement, a recommendation from the Company's current
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Board of Directors that the shareholders approve the
transactions outlined in the proxy;
(iii) the nominations of directors to be voted on in
the election of directors at the meeting; and
(iv) such disclosures as Meritage may reasonably
request to describe the transactions referred to in this
Agreement and to describe any other matters that Meritage
believes should be disclosed to the Company's shareholders,
and all issues or items that Meritage reasonably requests
of the Company.
The Company shall file such proxy statement with the SEC as soon as
reasonably possible after the date of this Agreement and shall use
its best efforts to respond in a reasonable and prompt manner to
any and all comments of the SEC on the proxy statement. The proxy
statement shall be subject to Meritage's prior approval, which
shall not be unreasonably withheld.
6.4 FAIRNESS OPINION. The Company shall use its best
efforts to obtain a satisfactory opinion that the transactions
provided for in this Agreement are fair to the Company from a
financial point of view (the "Fairness Opinion"). Meritage shall
have the right to participate with the Company in retaining a
person or firm (the "Expert") to furnish the Fairness Opinion, and
the Company shall cooperate with Meritage in arranging for
Meritage's representatives to meet with the Expert to discuss the
Fairness Opinion at such time as may be satisfactory to the Expert.
6.5 BREAKUP FEE. The Company shall pay to Meritage a
breakup fee of $750,000 if the transactions provided for in
2 of this Agreement are not closed due to any of the
following occurring on or after September 25, 1995: (a) the
Company's acceptance of an Acquisition Proposal; (b) approval of an
Acquisition Proposal by the Company's shareholders; or (c)
acceptance of a tender offer by the holders of a majority of the
shares of the Company's Common Stock (other than the shares owned
beneficially or of record by Meritage and the 868,018 shares owned
by Xxxxxxxx, as recited in Recital B above, or by their respective
successors or assigns).
6.6 MILL POINT. The Company shall manage or arrange for
the management of the Mill Point condominium project (adjacent to
the Spring Lake Holiday Inn) pursuant to the terms of a management
agreement that: (a) obligates the Company to (i) accept rental
reservations for the Mill Point condominium units, (ii) disburse
the net proceeds of such rentals in accordance with explicit
written instructions, and (iii) furnish routine housekeeping
services for such condominium units by the housekeeping staff at
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the Company's Spring Lake Holiday Inn, all reasonable costs of
which shall be reimbursed by the owners of such condominium units;
and (b) is otherwise satisfactory to the Company's New Board of
Directors. In no event shall the Company be obligated to: (a)
perform any services for which it is not duly licensed; (b) incur
any cost or expense with respect to such condominium units for
which it will not be reimbursed; or (c) perform any act or furnish
any service other than as explicitly set forth above. In any
event, the Company shall have the unrestricted right to assign all
of its rights and obligations under this 6.6 and such
management agreement without liability or recourse to the Company.
Xxxxxxxx shall be solely responsible for preparing or presenting a
management agreement conforming to the requirements of this
6.6 for review and approval by the Company's New Board of
Directors.
6.7 GOOD FAITH OBLIGATION TO SATISFY CONDITIONS. The
Company shall make a good faith effort to satisfy all conditions to
Closing that, with reasonable diligence, could be satisfied by the
Company.
6.8 NO SOLICITATION. Neither the Company nor any of its
subsidiaries or affiliates shall (and the Company shall use its
best efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited to,
investment bankers, attorneys and accountants, not to), directly or
indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to,
any corporation, partnership, person or other entity or group
concerning any merger, tender offer, exchange offer, sale of
assets, sale of shares of capital stock or debt securities or
similar transactions involving the Company or any subsidiary, or
operating or principal business unit of the Company (an
"Acquisition Proposal"). The Company shall immediately cease any
existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing.
Notwithstanding the foregoing, the Company may provide access and
furnish information concerning its business, properties or assets
to any corporation, partnership, person or other entity or group
pursuant to appropriate confidentiality agreements, and may
negotiate and participate in discussions and negotiations with such
entity or group concerning an Acquisition Proposal (a) if such
entity or group has submitted a bona fide written proposal to the
Board of Directors of the Company relating to any such transaction
and (b) if, in the opinion of the Board of Directors of the
Company, after consultation with independent legal counsel of the
Company, the failure to provide such information or access or to
engage in such discussions or negotiations would be inconsistent
with their fiduciary duties to the Company's shareholders under
applicable law. The Company will immediately notify Meritage
-27-
orally and in writing if any such proposals or inquiries are
received by, any such information is requested from, or any
negotiations or discussions are sought to be initiated or continued
with the Company. Such notice will include the terms of any
inquiry or proposal relating to an Acquisition Proposal. Nothing
in this 6.8 shall prohibit the Company from making such
disclosures to its shareholders as it deems appropriate or
obligatory, or from disclosing to third parties anything that has
been disclosed by the Company in any filing made by the Company
with the Securities and Exchange Commission.
6.9 DELIVERY OF SCHEDULES. The Company, Xxxxxxxx and
Innkeepers are obligated, jointly and severally, to furnish all of
the Schedules called for by this Agreement. As of the date of
execution of this Agreement, none of such Schedules has been
furnished. The Company, Xxxxxxxx and Innkeepers shall have until
5:00 p.m. (Grand Rapids, Michigan time) on October 9, 1995, to
furnish such Schedules. It shall be conclusively presumed that
there is no information to report on any of the following Schedules
that have not been furnished to Meritage by such date and time:
Schedule 4.5(c), Schedule 4.15, Schedule 4.17, Schedule 4.18,
Schedule 4.20, Schedule 4.24, Schedule 4.25, Schedule 4.28, and
Schedule 4.30, and all of the corresponding representations and
warranties in 4 shall be conclusively presumed to have
been made, as of the date of this Agreement and as of the Closing
Date, without exception for information that otherwise would have
been disclosed on any such missing Schedule. Notwithstanding the
foregoing, the Company, Xxxxxxxx and Innkeepers shall be under a
continuing obligation through the Closing to furnish Meritage with
the information that would have been disclosed on such Schedules,
had they been furnished by the date and time specified above, and
to furnish the remaining Schedules called for by this Agreement.
SECTION 7
COVENANTS OF XXXXXXXX AND
INNKEEPERS
Xxxxxxxx and Innkeepers shall keep, observe, perform and
fully discharge the following covenants and agreements:
7.1 XXXXXXXX'X GUARANTEES OF COMPANY INDEBTEDNESS. From
the date of this Agreement through the Closing, Xxxxxxxx shall not
by act or omission cause any of his existing guarantees of the
Company's indebtedness to be terminated or otherwise changed in any
way, nor shall Xxxxxxxx do or fail to do anything (other than
entering into and consummating the transactions provided for in
this Agreement) that might cause any of the Company's indebtedness
to go into or to continue in default.
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7.2 ACQUISITION PROPOSALS. Neither Xxxxxxxx, nor any of
Xxxxxxxx'x Affiliates, nor Innkeepers, shall (except as necessary
to terminate the agreement between Xxxxxxxx and TAI dated July 6,
1995, and as expressly provided in 6.8) have any
discussion with or furnish any information to any person with a
view to (a) the acquisition of any assets of the Company; (b) the
acquisition of any stock of the Company; (c) the merger or
consolidation of the Company; or (d) the acquisition by the Company
of the stock or assets of any other person or entity. If Xxxxxxxx,
or any of Xxxxxxxx'x Affiliates, or Innkeepers receives any contact
or inquiry relating to any of the foregoing events, Xxxxxxxx shall
promptly notify Meritage of the details of such contact or inquiry.
7.3 VOTE AT MEETING OF SHAREHOLDERS. At the meeting of
shareholders referred to in 6.3, Xxxxxxxx, Reynolds's
Affiliates and Innkeepers shall, to the extent their shares of
Company Common Stock have voting power, vote in favor of
consummation of the transactions referred to in this Agreement.
7.4 INDEMNIFICATION. Neither the Company nor Meritage
shall have any obligation to pay any costs arising out of or
relating to any transaction among or between Xxxxxxxx and TAI or
TAI's successors or assigns, or arising out of or relating to the
consulting agreement (and addendum thereto) between the Company and
Buckeye, including but not limited to the $900,000 brokerage fee to
Buckeye. Xxxxxxxx shall defend, indemnify and hold the Company and
Meritage (and Meritage's shareholders and attorneys) harmless from
all cost, liability and expense, including but not limited to
reasonable attorneys' fees, to TAI, TAI's successors and assigns,
Buckeye, Xxxx Xxxxxxx, Xxxxxxx Xxxxxxxx (Messrs. Xxxxxxx and
Xxxxxxxx are business brokers in Ann Arbor, Michigan, who were
involved in introducing the Company to TAI), Strategic Alliance
Corp. (an entity that purportedly had negotiations with TAI
concerning the Company) or any of their respective successors,
assigns or affiliates. If a claim is made against Meritage for
which Meritage is entitled to indemnity under this 7.4,
Meritage shall, promptly upon learning of the existence of such
claim, tender the defense thereof to Xxxxxxxx. The selection of
counsel to defend Meritage in such matter shall be subject to
Meritage's approval, which shall not be unreasonably withheld.
7.5 SAYFEES LOAN. The Company's financial statements
disclose that the Company has an outstanding loan of approximately
$75,000 to Sayfees, a Grand Rapids area restaurant. If the Sayfees
loan has not been repaid in full by the first anniversary of the
Closing Date, then Xxxxxxxx shall repurchase such loan from the
Company. The purchase price shall be equal to the unpaid principal
amount of such loan, plus all accrued and unpaid interest through
the date of repurchase. Upon receipt of such payment, the Company
shall assign all of its right, title and interest in the Sayfees
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loan to Xxxxxxxx, without representation, warranty or recourse.
All dividends declared and paid by the Company on Xxxxxxxx'x
Company Stock shall be applied, if the Company so chooses, toward
payment of such repurchase price before any such dividend is paid
to any holder of Xxxxxxxx'x Company Stock. The Company shall have
the right to withhold the dividends otherwise payable by the
Company on Xxxxxxxx'x Company Stock and apply the same toward
payment of such repurchase price until it has been paid in full.
7.6 GOOD FAITH OBLIGATION TO SATISFY CONDITIONS. Xxxxxxxx
and Innkeepers shall make a good faith effort to satisfy all
conditions to Closing that, with reasonable diligence, could be
satisfied by Xxxxxxxx or Innkeepers.
7.7 LIFE INSURANCE. At or before the Closing, Xxxxxxxx
shall assign to the Company (or shall cause to be assigned to the
Company) ownership of all of the life insurance policies listed on
Schedule 4.13, free and clear of all claims and interests of third
parties (including but not limited to collateral assignments for
security, other than collateral assignments as security for valid
obligations of the Company), with the Company designated as the
sole beneficiary, and with all outstanding policy loans (other than
such loans as Messrs. Xxxxxx and Xxxxxxx, acting as a special
committee of the Company's current Board of Directors, shall have
determined prior to the Closing were made to the Company) paid in
full.
7.8 DELIVERY OF SCHEDULES. The Company, Xxxxxxxx and
Innkeepers are obligated, jointly and severally, to furnish all of
the Schedules called for by this Agreement. As of the date of
execution of this Agreement, none of such Schedules has been
furnished. The Company, Xxxxxxxx and Innkeepers shall have until
5:00 p.m. (Grand Rapids, Michigan time) on October 9, 1995, to
furnish such Schedules. It shall be conclusively presumed that
there is no information to report on any of the following Schedules
that have not been furnished to Meritage by such date and time:
Schedule 4.5(c), Schedule 4.15, Schedule 4.17, Schedule 4.18,
Schedule 4.20, Schedule 4.24, Schedule 4.25, Schedule 4.28, and
Schedule 4.30, and all of the corresponding representations and
warranties in 4 shall be conclusively presumed to have
been made, as of the date of this Agreement and as of the Closing
Date, without exception for information that otherwise would have
been disclosed on any such missing Schedule. Notwithstanding the
foregoing, the Company, Xxxxxxxx and Innkeepers shall be under a
continuing obligation through the Closing to furnish Meritage with
the information that would have been disclosed on such Schedules,
had they been furnished by the date and time specified above, and
to furnish the remaining Schedules called for by this Agreement.
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7.9 DELIVERY OF PERSONAL FILES, ETC. At Closing, Xxxxxxxx
and Innkeepers shall deliver to the Company (a) all business
records and related materials in the possession or control of
either of them pertaining to the Company, any of its subsidiaries,
or the business or assets of the Company or any of its
subsidiaries, and (b) all assets of the Company or any of its
subsidiaries in the possession or control of either of them.
Notwithstanding the foregoing, Xxxxxxxx shall have the right to
retain possession of the Company-owned automobile that, as of the
date of this Agreement, has been assigned to him, if at the
Closing, he and the Company enter into an agreement, approved by
the Company's New Board of Directors, pursuant to which the Company
agrees to sell and Xxxxxxxx agrees to buy such automobile.
SECTION 8
COVENANTS OF MERITAGE
Meritage shall keep, observe, perform and fully discharge
the following covenants and agreements:
8.1 SHAREHOLDER ACTION. Without prior consent from the
Company's Board of Directors, Meritage shall take no action as a
shareholder prior to the Closing to cause a material change to the
Company. Further, Meritage shall vote the Common Stock that it
acquires pursuant to 1.2 above in favor of any Acquisition
Proposal that, on or before September 25, 1995, the Company's Board
of Directors recommends that all of the Company's shareholders
approve, provided that such Acquisition Proposal would entitle all
of the Company's shareholders to receive, at the closing of the
transaction provided for in such Acquisition Proposal, cash in the
amount of at least $8.50 per share of Company Common Stock (or its
equivalent as determined by Meritage in its reasonable judgment).
8.2 CONFIDENTIALITY. Unless and until the Closing has
been consummated, Meritage will hold, and shall cause its counsel,
investment bankers, independent certified public accountants,
appraisers and other representatives to hold, in confidence any
confidential data or information made available to Meritage in
connection with this Agreement with respect to the Company, using
the same standard of care to protect such confidential data or
information as Meritage uses to protect its own confidential
information. If the transactions referred to in 1 of this
Agreement are not consummated, Meritage shall return or cause to be
returned to the Company all written materials and all copies
thereof that were supplied to Meritage by Xxxxxxxx or the Company
and that contain any such confidential data or information.
Meritage shall not use any information it obtains through its due
diligence examination of the Company in the Derivative Proceeding,
as defined in 2.8, unless such information is obtained
-31-
through lawful discovery. Meritage shall, however, have the right
to deliver copies of this Agreement to the plaintiffs in the
Derivative Proceeding and, subject to the confidentiality
provisions of this 8.2, to apprise them from time to time
of developments that occur with respect to the transactions
described herein.
8.3 POST-CLOSING MATTERS IN RE XXXXXXXX'X GUARANTEES OF
COMPANY INDEBTEDNESS. Immediately after the Closing, Meritage will
cause the Company to agree:
(a) to indemnify Xxxxxxxx from liability on all
hotel-related debt that is secured by mortgages on any of the
Company's hotel properties;
(b) to use reasonable efforts to refinance all existing
hotel-related mortgage debt on terms satisfactory to the Company's
New Board of Directors;
(c) that Xxxxxxxx is entitled to retain the entire
$193,500 payment that the Company made to Xxxxxxxx in consideration
for his guarantee of the Company's outstanding indebtedness through
the period ending November 30, 1995; and
(d) to pay to Xxxxxxxx, on or before the tenth day of each
calendar quarter beginning December 1, 1995, an additional loan
guaranty fee in an amount equal to 0.1875% of the outstanding
principal balance of the Company's mortgage indebtedness that, as
of the first day of each such calendar quarter, is guaranteed by
Xxxxxxxx. So long as Xxxxxxxx has any obligation as guarantor of
the Company's long-term mortgage indebtedness, the Company shall
apply the net proceeds of any insurance policy on Xxxxxxxx'x life
that are received by the Company toward reduction of the
indebtedness guaranteed by Xxxxxxxx (with the selection of such
indebtedness to be in the Company's sole discretion if Xxxxxxxx'x
guarantees are outstanding with respect to more than one long-term
mortgage obligation at the time such proceed are received by the
Company.)
8.4 VOTE AT MEETING OF SHAREHOLDERS. At the meeting of
shareholders referred to in 6.3, Meritage shall vote all
of its shares of Company Common Stock in favor of consummation of
the transactions referred to in 2 of this Agreement.
8.5 RESTORATION OF XXXXXXXX'X VOTING RIGHTS. Meritage
shall vote in favor of a resolution pursuant to MBCA 798
with respect to Xxxxxxxx'x Company Stock if: (a) Xxxxxxxx requests
restoration of the voting rights for such stock in accordance with
Chapter 7B; (b) Xxxxxxxx complies with the applicable requirements
of Chapter 7B; and (c) at the time of the vote on such resolution
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TAI no longer has the power to direct the voting power of any of
Xxxxxxxx'x Company Stock.
8.6 GOOD FAITH OBLIGATION TO SATISFY CONDITIONS. Meritage
shall make a good faith effort to satisfy all conditions to Closing
that, with reasonable diligence, could be satisfied by Meritage.
8.7 PAYMENT IN LIEU OF SPECIAL DIVIDEND. If for any
reason the Company does not pay the special dividend referred to in
3.3 above prior to the expiration of 90 days after the
Closing Date, Meritage shall immediately upon the expiration of
such 90-day period pay the sum of $434,009 in cash to the Company
for application first toward satisfaction of the indebtedness
referred to in 2.4, with the balance, if any, to be paid
by the Company to Xxxxxxxx. Meritage shall have no obligation
whatsoever to Xxxxxxxx under this 8.7 at any time after
(a) the Company has declared and paid the special dividend referred
to in 3.3 above, or (b) Meritage has made the payment
required by this 8.7.
SECTION 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF MERITAGE
Each and all of the obligations of Meritage to consummate
the transactions described in this Agreement are subject to the
fulfillment of the following conditions:
9.1 ACCURACY OF WARRANTIES AND PERFORMANCE OF COVENANTS.
The representations and warranties of Xxxxxxxx, Innkeepers and the
Company contained herein shall be accurate in all material respects
as if made on and as of the Closing Date. Xxxxxxxx, Innkeepers and
the Company shall have performed all of the obligations and complied with
each and all of the covenants, agreements and conditions required to be
performed or complied with on or prior to the Closing.
9.2 NO PENDING ACTION. No action, suit, proceeding or
investigation before any court, administrative agency or other
governmental authority shall be pending or threatened wherein an
unfavorable judgment, decree or order would prevent the carrying
out of this Agreement or any of the transactions described in this
Agreement, declare unlawful the transactions described in this
Agreement or cause such transactions to be rescinded; provided that
Meritage has received an opinion of legal counsel that the claims
made in such action, suit, proceeding or investigation are
meritorious and that it is more likely than not that the claimant
will prevail.
9.3 CONSENTS. All material consents by third parties that
are required for the consummation of the transactions described in
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this Agreement, or that are required in order to prevent a breach
of or default under or a termination of any agreement to which
Xxxxxxxx, Innkeepers or the Company is a party, shall have been
obtained, unless waived by Meritage.
9.4 DISMISSAL OF DERIVATIVE PROCEEDING. The Derivative
Proceeding shall have been dismissed (or an order providing that
such suit will be so dismissed upon consummation of the
transactions provided for in this Agreement), subject to the
condition that the court will retain jurisdiction to consider the
application for the award of attorney's fees, costs and expenses to
be paid by the Company and to the reinstatement of the complaint
and all claims if the Closing does not occur. The order of
dismissal shall expressly preserve Meritage's right to make claims
against Xxxxxxxx for indemnity under this Agreement and to make
claims against Xxxxxxxx under any contract entered into by Xxxxxxxx
pursuant to this Agreement.
9.5 APPROVAL OF THIS AGREEMENT AND THE TRANSACTIONS
DESCRIBED IN THIS AGREEMENT. This Agreement and the transactions
described in this Agreement shall have been approved by the holders
of a majority of the shares of the Company's Common Stock (other
than the shares owned beneficially or of record by Meritage and the
868,018 shares owned by Xxxxxxxx, as recited in Recital B above, or
by their respective successors or assigns).
9.6 SATISFACTION WITH DUE DILIGENCE INVESTIGATION.
Meritage shall be reasonably satisfied with its due diligence
investigation of the Company, as described in 6.1 hereof.
This condition shall be deemed satisfied upon the expiration of
thirty (30) days from the date of this Agreement unless, on or
before the expiration of such thirty (30) day period, Meritagehas
terminated its obligations under this Agreement as provided in
6.1.
9.7 LONG-TERM BANK DEBT. (a) The holders of the
Company's long-term bank debt shall have consented to the
refinancing of such debt on terms that are satisfactory to Meritage
in its absolute and uncontrolled discretion, or (b) the long-term
debt held by any lender from which such a consent has not been
obtained shall have been replaced by financing approved by the
Company's New Board of Directors.
9.8 PERFORMANCE BY OTHER PARTIES. The Company, Xxxxxxxx
and Innkeepers shall have observed and performed all of their
respective obligations under this Agreement including but not
limited to execution and delivery of all documents and performance
of all acts to be executed and delivered or performed by the
Company and Xxxxxxxx at the Closing as set forth in this Agreement.
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9.9 CASH ON HAND. The Company shall have at least $1.5
million in cash on hand on the Closing Date.
9.10 NO MATERIAL ADVERSE CHANGE. Prior to the Closing
Date, there shall not have occurred any event, development or
circumstance related to the business, condition (financial or
otherwise), capitalization or properties of the Company that has
had or could reasonably be expected to have a material adverse
effect on the business, financial condition, capitalization or
properties of the Company, whether or not such event, development,
circumstance, change or effect is reflected in the Schedules to
this Agreement, as amended or supplemented after the date hereof.
9.11 CHAPTER 7A. Neither Meritage, nor any identified or
unidentified existing or future affiliate of Meritage, shall be an
"interested shareholder", as defined in Chapter 7A, and Chapter 7A
shall not apply to any "business combination", as defined in
Chapter 7A, with Meritage or any identified or unidentified
existing or future affiliate of Meritage.
9.12 WAIVER. Meritage shall have the right to waive any
or all of the foregoing conditions.
SECTION 10
CONDITIONS PRECEDENT TO OBLIGATIONS OF
XXXXXXXX AND INNKEEPERS
Each and all of the obligations of Xxxxxxxx and Innkeepers
to consummate the transactions described in this Agreement are
subject to fulfillment of the following conditions:
10.1 ACCURACY OF WARRANTIES AND PERFORMANCE OF COVENANTS.
The representations and warranties of Meritage contained herein
shall be accurate in all material respects as if made on and as of
the Closing Date. Meritage shall have performed all of the
obligations and complied with each and all of the covenants,
agreements and conditions required to be performed or complied with
on or prior to the Closing.
10.2 NO PENDING ACTION. No action, suit, proceeding or
investigation before any court, administrative agency or other
governmental authority shall be pending or threatened wherein an
unfavorable judgment, to create or order would prevent the carrying
out of this Agreement or any of the transactions described in this
Agreement, declare unlawful the transactions described in this
Agreement or cause such transactions to be rescinded; provided that
Xxxxxxxx or Innkeepers, as applicable, has received an opinion of
legal counsel that the claims made in such action, suit, proceeding
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or investigation are meritorious and that it is more likely than
not that the claimant will prevail.
10.3 CONSENTS. All material consents by third parties
that are required for the consummation of the transactions
described in this Agreement, or that are required in order to
prevent a breach of or default under or termination of any
agreement to which either Meritage or the Company is a party, shall
have been obtained; provided, however, that if a consent required
by this 10.3 has not been obtained, Meritage or the
Company may, in lieu of obtaining such consent, agree in writing to
defend, indemnify and hold Xxxxxxxx and Innkeepers harmless from
any liability, cost and expense either of them may incur as a
result of consummating the transactions provided for in 2
of this Agreement in the absence of such consent, and such written
indemnity shall satisfy the condition of this 10.3.
10.4 DISMISSAL OF DERIVATIVE PROCEEDING. The Derivative
Proceeding shall have been dismissed (or an order providing that
such suit will be so dismissed upon consummation of the
transactions provided for in this Agreement), subject to the
condition that the court will retain jurisdiction to consider the
application for the award of attorney's fees, costs and expenses to
be paid by the Company and to the reinstatement of the complaint
and all claims if the Closing does not occur. The order of
dismissal shall expressly preserve Meritage's right to make claims
against Xxxxxxxx for indemnity under this Agreement and to make
claims against Xxxxxxxx under any contract entered into by Xxxxxxxx
pursuant to this Agreement.
10.5 APPROVAL OF THIS AGREEMENT AND THE TRANSACTIONS
DESCRIBED IN THIS AGREEMENT. This Agreement and the transactions
described in this Agreement shall have been approved by the holders
of a majority of the shares of the Company's Common Stock (other
than the shares owned beneficially or of record by Meritage and the
868,018 shares owned by Xxxxxxxx, as recited in Recital B above, or
by their respective successors or assigns).
10.6 PERFORMANCE BY MERITAGE. Meritage shall have
observed and performed all of its obligations under this Agreement
including but not limited to execution and delivery of all
documents and performance of all acts to be executed and delivered
or performed by Meritage at the Closing as set forth in this
Agreement.
10.7 WAIVER. Xxxxxxxx and Innkeepers shall have the right
to waive any or all of the foregoing conditions.
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SECTION 11
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
Each and all of the obligations of the Company to
consummate the transactions described in this Agreement are subject
to fulfillment of the following conditions:
11.1 ACCURACY OF WARRANTIES AND PERFORMANCE OF COVENANTS.
The representations and warranties of Meritage contained herein
shall be accurate in all material respects as if made on and as of
the Closing Date. Meritage shall have performed all of the
obligations and complied with each all of the covenants, agreements
and conditions required to performed or complied with on or prior
to the Closing.
11.2 NO PENDING ACTION. No action, suit, proceeding or
investigation before any court, administrative agency or other
governmental authority shall be pending or threatened wherein an
unfavorable judgment, decree or order would prevent the carrying
out of this agreement or any of the transactions described in this
Agreement, declare unlawful the transactions described in this
Agreement, or cause such transactions to be rescinded; provided
that the Company has received an opinion of legal counsel that the
claims made in such action, suit, proceeding or investigation are
meritorious and that it is more likely than not that the claimant
will prevail.
11.3 CONSENTS. All material consents by third parties
that are required for the consummation of the transactions
described in this Agreement, or that are required in order to
prevent a breach of or default under of a termination of any
agreement to which Meritage, Xxxxxxxx or Innkeepers is a party,
shall have been obtained; provided, however, that if a consent
required by this 11.3 has not been obtained, Meritage may,
in lieu of obtaining such consent, agree in writing to defend,
indemnify and hold the Company harmless from any liability, cost
and expense it may incur as a result of consummating the
transactions provided for in 2 of this Agreement in the
absence of such consent, and such written indemnity shall satisfy
the condition of this 11.3.
11.4 DISMISSAL OF DERIVATIVE PROCEEDING. The Derivative
Proceeding shall have been dismissed (or an order providing that
such suit will be so dismissed upon consummation of the
transactions provided for in this Agreement), subject to the
condition that the court will retain jurisdiction to consider the
application for the award of attorney's fees, costs and expenses to
be paid by the Company and to the reinstatement of the complaint
and all claims if the Closing does not occur. The order of
dismissal shall expressly preserve Meritage's right to make claims
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against Xxxxxxxx for indemnity under this Agreement and to make
claims against Xxxxxxxx under any contract entered into by Xxxxxxxx
pursuant to this Agreement.
11.5 APPROVAL OF THIS AGREEMENT AND THE TRANSACTIONS
DESCRIBED IN THIS AGREEMENT. This Agreement and the transactions
described in this Agreement shall have been approved by the holders
of a majority of the shares of the Company's Common Stock (other
than the shares owned beneficially or of record by Meritage and the
868,018 shares owned by Xxxxxxxx, as recited in Recital B above, or
by their respective successors or assigns).
11.6 PERFORMANCE BY MERITAGE. Meritage shall have
observed and performed all of its obligations under this Agreement
including but not limited to execution and delivery of all
documents and performance of all acts to be executed and delivered
or performed by Meritage at the Closing as set forth in this
Agreement.
11.7 RECEIPT OF FAIRNESS OPINION. The Company shall have
received the Fairness Opinion.
11.8 WAIVER. The Company shall have the right to waive
any or all of the foregoing conditions.
SECTION 12
THE CLOSING AND CLOSING DELIVERIES
12.1 CLOSING DATE. The closing of the transactions
described in this Agreement (the "Closing") shall take place at the
offices of Xxxxxx Xxxxxxx PLLC, Grand Rapids, Michigan, immediately
following the adjournment of the meeting of shareholders referred
to in 6.3, or at such other location, time, or date as may
be mutually agreed upon among Xxxxxxxx, Innkeepers, Meritage and
the Company (such time and date being herein called the "Closing
Date").
12.2 DELIVERIES BY XXXXXXXX AT CLOSING. At the Closing,
Xxxxxxxx shall deliver (and, where applicable, shall execute):
(a) to the Company and Meritage, a certificate as to the
continued accuracy of the representations and warranties set forth
in this Agreement (or identifying the specific nature of and reason
for each and every inaccuracy in such representations and
warranties), together with a statement setting forth any changes,
between the date of this Agreement and the Closing Date, of any of
the information disclosed in Schedule 4.22 to this Agreement;
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(b) to Meritage and the Company, the legal opinion of
XxXxxxx & Xxxxx, PLC, opining favorably on the matters referred to
in 4.4(c), and covering such other matters as may be
reasonably requested by Meritage or the Company, all in such form
and manner as may be reasonably requested by Meritage or the
Company;
(c) to the other parties to this Agreement, all contracts
referred to in 2 above to be executed and delivered by
Xxxxxxxx;
(d) to Meritage and the Company, a release agreement
covering all claims that Xxxxxxxx has, at law or in equity
(including known and unknown claims arising under statute, by
contract, in tort or otherwise), against Meritage or its officers
and directors, and against the Company or its officers and
directors, other than claims that Xxxxxxxx may have (i) against
Meritage for indemnity under this Agreement and (ii) against the
Company or Meritage arising out of the breach by the Company or
Meritage, as the case may be, of any contract entered into by the
Company or Meritage in connection with consummation of the
transactions provided for in this Agreement; and
(e) to the Company and Meritage, a release signed by all
of the defendants in the Derivative Proceeding and the Pending 7B
Suit who are not parties to this Agreement covering all claims and
counterclaims arising out of or relating to the subject matter of
the Derivative Proceeding and the Pending 7B Suit.
12.3 DELIVERIES BY INNKEEPERS AT CLOSING. At Closing,
Innkeepers shall deliver (executed on behalf of Innkeepers by a
duly authorized corporate officer, where applicable):
(a) to Meritage and the Company, a certificate as to the
continued accuracy of the representations and warranties set forth
in this Agreement (or identifying the specific nature of and reason
for each and every inaccuracy in such representations and
warranties), together with a statement setting forth any changes,
between the date of this Agreement and the Closing Date, of any of
the information disclosed in Schedule 4.22 to this Agreement;
(b) to Meritage and the Company, a Release Agreement
signed by Innkeepers with respect to the Management Agreement for
the Company's hotel properties and all other contracts and
relationships whatsoever, such Release Agreement conforming in form
and substance to such requirements as the Company or Meritage may
reasonably require;
(c) to Meritage and the Company, the legal opinion of
XxXxxxx & Xxxxx, PLC, opining favorably on the matters referred to
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in 4.4(b), and covering such other matters as may be
reasonably requested by Meritage or the Company, all in such form
and manner as may be reasonably requested by Meritage or the
Company;
(d) to the other parties to this Agreement, all contracts
referred to in 2 above to be executed and delivered by
Innkeepers; and
(e) to Meritage and the Company, a release agreement
covering all claims that Innkeepers has, at law or in equity
(including known and unknown claims arising under statute, by
contract, in tort or otherwise), against Meritage or its officers
and directors, and against the Company or its officers and
directors, other than claims that Innkeepers may have (i) against
Meritage for indemnity under this Agreement and (ii) against the
Company or Meritage arising out of the breach by the Company or
Meritage, as the case may be, of any contract entered into by the
Company or Meritage in connection with consummation of the
transactions provided for in this Agreement.
12.4 DELIVERIES BY THE COMPANY AT CLOSING. At Closing,
the Company shall deliver (executed on behalf of the Company by a
duly authorized corporate officer, where applicable):
(a) to Meritage, a certificate as to the continued
accuracy of the representations and warranties set forth in this
Agreement (or identifying the specific nature of and reason for
each and every inaccuracy in such representations and warranties),
together with a statement setting forth any changes, between the
date of this Agreement and the Closing Date, of any of the
information disclosed in Schedule 4.22 to this Agreement;
(b) to Meritage, the resignations of the current officers
of the Company and the current officers and directors of all of the
Company's subsidiaries (such resignations to be in such form as
Meritage may reasonably require to ensure that they are irrevocably
and unconditionally effective as of the Closing Date);
(c) to Meritage and the Company, the legal opinion of
Xxxxxx & Xxxxxx Attorneys, P.C., opining favorably on the matters
referred to in 4.4(a), and covering such other matters as
may be reasonably requested by Meritage or the Company, all in such
form and manner as may be reasonably requested by Meritage or the
Company;
(d) to AFC and its designees or to such alternative
lending source as the Company's New Board of Directors may select,
such documents, fees and things as may be required to close the
Interim Financing or Alternative Interim Financing in accordance
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with the terms of Interim Financing Commitment or Alternative
Interim Financing Commitment as accepted by the Company;
(e) to the other parties to this Agreement, all contracts
referred to in 2 above to be executed and delivered by the
Company; and
(f) to Meritage, Xxxxxxxx and Innkeepers, a release
agreement covering all claims that the Company has, at law or in
equity (including known and unknown claims arising under statute,
by contract, in tort or otherwise), against Meritage or its
officers and directors, the Company or its officers and directors,
and Xxxxxxxx, other than claims that the Company may have (i)
against Meritage for indemnity under this Agreement and (ii)
against Meritage, Xxxxxxxx or Innkeepers arising out of the breach
by Meritage, Innkeepers or Xxxxxxxx, as the case may be, of any
contract entered into by Meritage, Innkeepers or Xxxxxxxx in
connection with consummation of the transactions provided for in
this Agreement.
12.5 DELIVERIES BY MERITAGE AT CLOSING. At Closing,
Meritage shall deliver (executed on behalf of Meritage by a duly
authorized corporate officer, where applicable):
(a) to the Company, Xxxxxxxx and Innkeepers, the legal
opinion of Xxxxxx Xxxxxxx PLLC opining favorably on the matters
referred to in 5.2, and covering such other matters as may
be reasonably requested by the Company and Xxxxxxxx, all in such
form and manner as may be reasonably requested by the Company,
Xxxxxxxx or Innkeepers;
(b) to the other parties to this Agreement, all contracts
referred to in 2 above to be executed and delivered by
Meritage;
(c) to the Company, Xxxxxxxx and Innkeepers, a release
agreement covering all claims that Meritage has, at law or in
equity (including known and unknown claims arising under statute,
by contract, in tort or otherwise), against the Company or its
officers and directors, Innkeepers or its officers and directors,
and Xxxxxxxx, other than claims that Meritage may have (i) against
the Company, Innkeepers or Xxxxxxxx for indemnity under this
Agreement and (ii) against the Company, Xxxxxxxx or Innkeepers
arising out of a breach by the Company, Innkeepers or Xxxxxxxx, as
the case may be, of any contract entered into by the Company,
Innkeepers or Xxxxxxxx in connection with consummation of the
transactions provided for in this Agreement; and
(d) to the Company, Xxxxxxxx and Innkeepers, a release
signed by all of the plaintiffs in the Derivative Proceeding who
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are not parties to this Agreement covering all claims arising out
of or relating to the subject matter of the Derivative Proceeding.
12.6 SCOPE OF RELEASES. The parties recognize that
Xxxxxxxx and Xxxxxxx X. Xxxxxxx remain shareholders of the Company
and will be nominated for election as directors of the Company at
the meeting of shareholders referred to in 6.3 above. The
parties also recognize that the releases to be delivered pursuant
to 12.2(d), 12.2(e), 12.3(e), 12.5(c) and 12.5(d)
will be signed by shareholders of the Company who will continue to
be shareholders of the Company after the Closing. Therefore, such
releases shall not release any claim that any party, as a
shareholder or director of the Company, may have against the
Company for any act or omission arising after the Closing.
SECTION 13
INDEMNIFICATION
13.1 INDEMNIFICATION BY XXXXXXXX, INNKEEPERS AND THE
COMPANY. Subject to 13.6, Xxxxxxxx, Innkeepers and the
Company (collectively, the "Joint Indemnitors"), jointly and
severally, shall indemnify and hold harmless Meritage, and its
successors and assigns, against any and all loss, injury,
liability, claim, damage or expense (including, without limitation,
reasonable attorney's fees, court costs and amounts paid in
settlement of claims), suffered by Meritage or its successors or
assigns resulting from any of the following:
(a) any breach or failure to perform by any of the Joint
Indemnitors of any of their respective obligations under this
Agreement;
(b) any inaccuracy in or breach of any of the
representations, warranties, covenants or agreements made by any of
the Joint Indemnitors in this Agreement (but only if the stock
purchase referred to in 1.2 of this Agreement is
consummated); and
(c) any inaccuracy or misrepresentation (whether negligent
or otherwise) in any information furnished by or on behalf of
Xxxxxxxx or Innkeepers, in writing, for the Company's use in
connection with its proxy statement for the meeting of shareholders
referred to in 6.3, or in any certificate, affidavit or
document delivered by any of the Joint Indemnitors on the Closing
Date or in accordance with the provisions of any section of this
Agreement.
The indemnification obligations contained in this
13.1 are joint and several, and are the direct and
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unconditional obligations of each of the Joint Indemnitors. With
respect to a claim under this 13, Meritage may, in its
sole discretion, pursue all or less than all of the Joint
Indemnitors, in any order Meritage determines, without affecting or
impairing any obligation or liability of any of them. Each of the
Joint Indemnitors waives to the fullest extent permitted by law any
and all defenses arising by reason of any failure of Meritage to
pursue less than all of the Joint Indemnitors, regardless of
whether any of the Joint Indemnitors has been or could be
prejudiced as a result thereof.
Neither Xxxxxxxx, nor Innkeepers, shall have any right of
indemnification, contribution, subrogation or any other claim or
means of recovery against the Company on account of any recovery or
attempted recovery by Meritage against Xxxxxxxx or Innkeepers under
the indemnification provisions contained in this 13 or any
other provision of this Agreement or of law, all of which rights
that may have otherwise existed in favor of Xxxxxxxx or Innkeepers
being knowingly, fully and unconditionally waived by Xxxxxxxx and
Innkeepers. Notwithstanding the foregoing, Xxxxxxxx and Innkeepers
shall indemnify and hold the Company harmless with respect to all
claims, demands, expenses, costs, losses and damages incurred by
the Company, including, without limitation, reasonable attorneys'
fees, arising out of or occurring as a result of any inaccuracy of
any representation or warranty made by Xxxxxxxx or Innkeepers or
the failure by Xxxxxxxx or Innkeepers to duly and punctually
observe and perform any of their respective agreements in this
Agreement, regardless of whether the Company was also a party to,
made or was bound by the representation, warranty or agreement that
is the subject of such indemnity claim.
13.2 INDEMNIFICATION BY MERITAGE. Meritage shall
indemnify and hold harmless Xxxxxxxx, Innkeepers and the Company,
and their respective successors and assigns, against any and all
loss, injury, liability, claim, damage or expense (including,
without limitation, reasonable attorney's fees, court costs and
amounts paid in settlement of claims), suffered by Xxxxxxxx,
Innkeepers or the Company or their successors or assigns relating
from any of the following:
(a) Any breach or failure to perform by Meritage of its
obligations under this Agreement;
(b) Any inaccuracy in or breach of any of the
representations, warranties, covenants or agreements by Meritage in
this Agreement (but only if the stock purchase referred to in
1.2 of this Agreement is consummated); and
(c) Any inaccuracy or misrepresentation (whether negligent
or otherwise) in any information furnished by or on behalf of
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Meritage in writing for the Company's use in connection with its
proxy statement for the meeting of shareholders referred to in
6.3, or in any certificate, affidavit or document
delivered by Meritage on the Closing Date in accordance with the
provisions of any section of this Agreement.
13.3 CLAIMS PROCEDURE. If any action, claim or demand
shall be brought or asserted against any party in respect of which
indemnity may be sought pursuant to this section, the party seeking
indemnification (the "Indemnity Claimant") shall promptly notify
the party or parties from whom indemnification is sought (the
"Indemnity Obligor(s)"), stating in writing the amount claimed to
be due and payable, the basis of the claim, and the provision or
provisions of this Agreement under which such claim for indemnity
is asserted. The notice shall be accompanied by copies of any
documents relied on by any claimant and furnished to the parties
seeking indemnification. Within 30 days after receipt of such
notice, the Indemnity Obligor(s) shall by written notice either:
(i) concede liability in whole as to the amount claimed in such
notice; (ii) deny liability in whole as to such amount; (iii)
concede liability in part and deny liability in part; or (iv) in
the case of claims by third-parties, assume the defense thereof
(with legal counsel approved by the Indemnity Claimant, which
approval shall not be unreasonably withheld.) If the notice
required hereunder is properly given, failure by the Indemnity
Obligor(s) to assume the defense of a third-party claim for which a
party is entitled to indemnity under this Agreement shall cause the
indemnity obligations of the Indemnity Obligor(s) to extend to
whatever outcome results from such third-party claim (this clause
otherwise shall not limit the liability of an Indemnity Obligor
under this Agreement.) Any settlement or compromise of a claim
shall be agreed upon by all parties to this Agreement. If the
Indemnity Claimant declines to accept a bona fide offer of
settlement which is recommended by the Indemnity Obligor, the
maximum liability of the Indemnity Obligor(s) shall not exceed that
amount which it would have been liable for had such settlement been
accepted. If the Indemnity Obligor(s) declines to accept a bona
fide offer of settlement recommended by the Indemnity Claimant, the
Indemnity Obligor(s) shall be liable for whatever outcome results
from such third-party claim.
13.4 SET-OFF. Upon the entry of a judgment of a court of
competent jurisdiction determining that any of the Joint
Indemnitors are obligated to indemnify Meritage pursuant to this
section, Meritage shall be entitled (but without being obligated to
do so) to reduce, on a dollar-for-dollar basis, any amounts then or
thereafter due or to become due to the Company under the Secured
Promissory Note or to Xxxxxxxx or the Company under the Put/Call
Agreement. Further, upon the entry of a judgment of a court of
competent jurisdiction determining that Xxxxxxxx or Innkeepers is
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obligated to indemnify the Company pursuant to this 13,
the Company shall be entitled to withhold payment of any dividends
otherwise payable with respect to any of Xxxxxxxx'x Company Stock
and apply such dividends toward satisfaction of any such judgment.
Meritage shall have no right of set-off other than as expressly
provided in this 13.4. Meritage shall not exercise its
right of set off under this 13.4 at any time during which
an order of a court of competent jurisdiction staying enforcement
of a judgment is in effect.
13.5 PAYMENTS INTO ESCROW. If Meritage or the Company
asserts a claim for indemnity against Xxxxxxxx or Innkeepers,
Meritage or the Company, as the case may be, shall so notify
Xxxxxxxx (individually and as agent for Innkeepers) in writing and,
after giving such written notice, Meritage (or the Company, as the
case may be) shall be entitled to pay the amount of any such claim
into an escrow account under the control of a mutually acceptable
independent escrow agent and to postpone making any payment
required by Meritage or the Company pursuant to the Put/Call
Agreement, but only to the extent of the amounts so paid into
escrow. If Meritage asserts a claim for indemnity against the
Company, Meritage shall be entitled to pay the amount of any such
claim into an escrow account under the control of a mutually
acceptable independent escrow agent and to postpone making any
payment required by Meritage pursuant to the Secured Promissory
Note or the Put/Call Agreement, but only to the extent of the
amounts so paid into escrow. In no event shall Meritage pay into
escrow more than the aggregate amount of its claims for indemnity
pursuant to this Agreement. The escrow agent shall hold all such
payments, together with the earnings (if any) on such payments, in
escrow pending the entry of a final judgment of a court of
competent jurisdiction disposing of the claim for indemnity
asserted by Meritage or the Company, as the case may be, and the
escrow agent thereupon shall pay over the sums held in escrow in
accordance with the court's final judgment. As used in the
preceding sentence, a "final judgment" shall be one from which no
appeal of right may be taken.
13.6 THRESHOLD FOR CLAIMS. Neither Meritage, Xxxxxxxx,
Innkeepers nor the Company shall make any claim for indemnity under
this Agreement unless and until such claims exceed $75,000 on a
pre-tax basis (combining the claims of Meritage and the Company
against Xxxxxxxx or Innkeepers for purposes of determining whether
the $75,000 threshold has been reached). If the $75,000 threshold
is reached, Xxxxxxxx and Innkeepers, jointly and severally, shall
be liable for all claims by Meritage and the Company, including the
claims that comprised the initial $75,000 threshold claims.
13.7 APPLICATION OF WITHHELD DIVIDENDS. The Company is
entitled under 2.4, 7.5 and 13.4 of this
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Agreement to withhold dividends otherwise payable with respect to
Xxxxxxxx'x Company Stock and apply such dividends toward
satisfaction of certain of Xxxxxxxx'x obligations. The Company
shall be entitled to apply all dividends so withheld toward payment
of any such obligations in such amounts and at such times as the
Company may determine in its absolute and uncontrolled discretion.
Promptly upon obtaining possession of the certificate(s) evidencing
the Xxxxxxxx'x Company Stock, Xxxxxxxx shall deliver the same to
the Company in exchange for new certificate(s) containing the
following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS CONCERNING THE APPLICATION OF
DIVIDENDS PAYABLE WITH RESPECT TO SUCH SHARES
CONTAINED IN 2.4, 7.5, 13.4 and 13.7 OF A
STOCK PURCHASE AND SALE AGREEMENT DATED SEPTEMBER 18,
1995 TO WHICH THE COMPANY AND OTHERS ARE PARTIES. THE
HOLDER OF THIS CERTIFICATE MAY UPON WRITTEN REQUEST
OBTAIN A COPY OF SUCH AGREEMENT FROM THE COMPANY'S
SECRETARY. REFERENCE IS MADE TO SUCH STOCK PURCHASE
AND SALE AGREEMENT FOR A COMPLETE STATEMENT OF ALL
APPLICABLE TERMS AND CONDITIONS CONCERNING THE
APPLICATION OF DIVIDENDS PAYABLE WITH RESPECT TO THE
SHARES EVIDENCED HEREBY.
At such time as the foregoing restrictions cease to apply,
the Company shall, upon written request accompanied by the
certificate(s) containing such legend, issue a new certificate(s)
that does not contain the foregoing legend.
SECTION 14
MISCELLANEOUS
14.1 SURVIVAL. All covenants, agreements, representations
and warranties made herein and in any document or certificate
delivered pursuant to or in connection with this Agreement shall
survive the Closing Date. Claims for indemnity under this
Agreement arising out of or relating to the assertion by third
parties of claims against a party to this Agreement (including
claims by third parties against the Company, any subsidiary of the
Company, or any asset of the Company or any subsidiary of the
Company) shall survive the Closing and the Closing Date without
limitation. The parties to this Agreement otherwise shall have no
right of indemnification pursuant to this Agreement as to any claim
that is not asserted in accordance with 13 above on or
prior to the third anniversary of the Closing Date.
14.2 EXHIBITS AND SCHEDULES. All Exhibits and Schedules
referred to herein are intended to be and hereby are specifically
made a part of this Agreement.
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14.3 AMENDMENT. This Agreement and the Exhibits and
Schedules hereto may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. No waiver
of any provision of this Agreement shall be effective unless
specifically made in writing and duly signed by the party to be
bound thereby.
14.4 PRIOR AGREEMENTS AND AMENDMENTS. This Agreement,
including the Exhibits and Schedules attached hereto and the
documents referred to herein, contain the entire agreement and
understanding among the parties hereto with respect to the subject
matter hereof. There are no other agreements or understandings,
oral or written, among the parties hereto with respect to the
subject matter hereof, and this Agreement shall supersede all
previous negotiations, commitments and writings with respect to the
subject matter hereof (including, but not limited to, the
Settlement Term Sheet dated September 8, 1995, and submitted on
that date to the Court in the Pending 7B Suit). No waiver of any
provision of this Agreement shall be effective unless specifically
made in writing and duly signed by the party to be bound thereby.
14.5 CHOICE OF LAW. This Agreement shall be governed by,
construed and interpreted, and the rights of the parties
determined, in accordance with the laws of the State of Michigan
without giving effect to any choice or conflict of law provision or
rule that would cause the application of the laws of any
jurisdiction other than the State of Michigan.
14.6 NOTICES. All notices and other communications
hereunder shall be made in writing and shall be deemed given if
delivered personally or mailed by registered or certified mail,
postage prepaid, return receipt requested, or mailed by a
recognized air courier service such as Federal Express or the like
(such notice to be effective on the date of giving such notice) as
follows:
If to Meritage, addressed to:
Meritage Hospitality Group Incorporated
00 Xxxxx Xx., X.X.
Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxx, President
with a copy to:
Xxxxxx Xxxxxxx PLLC
000 Xxxxxxx Xxxxxxxxxx Xxxxxxxx
000 Xxxxx Xxxxxx Xxxxxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
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If to the Company, addressed to:
Xxxxxx Xxxxxx Inns, Inc.
000 Xxxxx Xxxxxxxxx
Xx. Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, President
with a copy to:
Xxxxxx & Xxxxxx Attorneys, P.C.
0000 X. Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
If to Xxxxxxxx or Innkeepers, addressed to:
Xx. Xxxxxx X. Xxxxxxxx
0000 Xxxxxxxx Xx., X.X.
Xxxxx Xxxxxx, XX 00000
with copies to:
XxXxxxx & Bowie, PLC
0000 Xxxxxx Xxxxxx Xxxxx
00 Xxxxxx Xxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000
Attention: Xxxx X. Shape, Esq.
and to
Xxxxxx & Xxxxxx Attorneys, P.C.
0000 X. Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
or to such other place and with such other copies as a party may
designate as to itself or himself by written notice to the others.
14.7 CAPTIONS. The captions appearing in this Agreement
are inserted only as a matter of convenience and in no way define,
limit or describe the scope or intent of this Agreement or any
provisions hereof.
14.8 EXPENSES. (a) If the transactions referred to in
1 and 2 of this Agreement are consummated, the
Company shall pay (i) all reasonable expenses, including but not
limited to attorney's fees, incurred by Meritage in connection with
the Derivative Proceeding (unless otherwise ordered by the court in
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the Derivative Proceeding), the Pending 7B Suit, and the
negotiation of this Agreement and preparation for and consummation
of the transactions referred to in this Agreement, and (ii) all
reasonable expenses, including but not limited to attorney's fees,
incurred by the Company, Xxxxxxxx and Innkeepers in connection with
the Pending 7B Suit and the negotiation of this Agreement and
preparation for and consummation of the transactions referred to in
this Agreement. The Company also shall pay all reasonable
expenses, including currently unpaid reasonable attorney's fees,
incurred by the defendants in the Derivative Proceeding (unless
otherwise ordered by the court in the Derivative Proceeding). This
agreement by the Company is based upon the understanding that the
total outstanding attorneys' fees for all services rendered in
connection with the Pending 7B Suit, the Derivative Proceeding and
this Agreement was, as to Xxxxxx & Xxxxxx Attorneys, P.C.,
approximately $75,000 as of September 1, 1995, as to Gruel, Mills,
Nims & Xxxxxx LLP approximately $65,000 as of September 10, 1995,
as to XxXxxxx & Bowie, PLC, approximately $47,000 as of August 31,
1995, and as to Xxxxxxx Xxxxxxx approximately $2,000 as of
September 1, 1995, and that the defendants in the Pending 7B Suit
and the Derivative Proceeding have engaged no other legal counsel
in connection with the Derivative Proceeding, the Pending 7B Suit
or this Agreement whose fees they intend to submit to the Company
for payment of reimbursement. All expenses and fees to paid by the
Company on behalf of Xxxxxxxx, Innkeepers and the defendants in the
Derivative Proceeding shall be separately invoiced to the Company
with such detail as the Company may reasonably request.
(b) If the transactions referred to in 1
and 2 of this Agreement are not consummated for any reason other
than a default by a party to this Agreement, each party shall pay
its own expenses in connection with the negotiation of this
Agreement. Notwithstanding the previous sentence of this
14.8(b), the Company's liability, if any, for payment of a
breakup fee shall be determined in accordance with 6.5.
(c) If the transactions referred to in 1
and 2 of this Agreement are not consummated due to a default by any
party to this Agreement, the party or parties who did not breach
this Agreement shall be entitled to recover from the party or
parties who are determined to have breached this Agreement, as an
element of damages in addition to all other damages that may be
proven by such non-breaching party or parties, such reasonable
expenses (including but not limited to attorney's fees) as may have
been paid or incurred by such non-breaching party or parties in
connection with the negotiation of this Agreement and attempted
consummation of the transactions referred to herein, and in
connection with the proceedings that may be brought on account of
such claimed breach. Notwithstanding the previous sentence of this
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14.8(c), the Company's liability, if any, for payment of a
breakup fee shall be determined in accordance with 6.5.
14.9 SUCCESSORS AND ASSIGNS. This Agreement, and all
rights and powers granted hereby will bind and inure to the benefit
of all the parties hereto and the respective successors and
assigns.
14.10 ASSIGNMENT. This Agreement shall not be assignable
by any of the parties and any such attempt at assignment shall be
void.
14.11 WAIVER OF CONDITION. The waiver of a condition
precedent to the obligation of any party does not waive any other
rights arising under this Agreement as a result of the failure on
the part of Meritage, Xxxxxxxx, Innkeepers or the Company to
fulfill the waived condition.
14.12 APPLICATION OF BOARD'S BUSINESS JUDGMENT. The Board
of Directors of the Company has exercised its independent business
judgment after due investigation and based upon present knowledge,
information and advice in resolving to enter into this Agreement
and consummate the transactions herein contemplated. Except as
herein expressly so committed, there are no agreements or
requirements binding upon any present or future Board of Directors
(including but not limited to the Company's New Board of Directors)
to act other than according to its independent informed business
judgment. Nothing in this 14.12 shall entitle the Company
to terminate this Agreement other than as provided in 15
below, or to rescind or amend this Agreement in any respect.
SECTION 15
TERMINATION OF AGREEMENT
15.1 TERMINATION BY CONSENT. This Agreement may be
terminated at any time by written agreement of all of the parties
to this Agreement. Otherwise, this Agreement shall be terminable
only in accordance with 15.2.
15.2 TERMINATION ON DEMAND. Any party to this Agreement
may terminate this Agreement any time on or after April 1, 1996, if
all conditions precedent to such party's obligations, as set forth
in this Agreement, have not previously been satisfied or waived by
such party; provided, however, that a party shall have no right to
terminate this Agreement pursuant to this 15.2 if the
conditions precedent to such party's obligations have not been
satisfied due in whole or in any material part to a breach by such
party of any of its covenants set forth in this Agreement. This
Agreement shall be deemed to have terminated on the date upon which
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a party entitled to terminate pursuant to this 15.2 duly
notifies the other parties in writing that this Agreement has been
terminated in accordance with this 15.2.
15.3 EFFECT OF TERMINATION. Upon due termination of this
Agreement pursuant to 15.1 or 15.2, all parties
shall be released from all of their respective obligations under
this Agreement, and no party shall have any further rights or
claims against another party arising out of this Agreement;
provided, however, that the parties' respective rights and
obligations under 8.2 of this Agreement shall survive the
termination of this Agreement pursuant to 15.1 or
15.2.
15.4 NOT A LIMITATION. No provision of this 15
is intended to limit in any way Meritage's right to terminate its
obligations under this Agreement in accordance with 6.1.
* * * * *
THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties have executed this Stock
Purchase and Sale Agreement as of the date first above written.
WITNESSES: MERITAGE HOSPITALITY GROUP
INCORPORATED, a Florida
corporation
By:_______________________________
Xxxxxxxxxxx X. Xxxxxx
Its: President
XXXXXX XXXXXX INNS, INC., a
Michigan corporation
By: ______________________________
Its: _________________________
__________________________________
Xxxxxx X. Xxxxxxxx,
Individually
INNKEEPERS MANAGEMENT COMPANY,
a Michigan corporation
By: ______________________________
Its: _________________________
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LIST OF EXHIBITS TO STOCK PURCHASE
AND SALE AGREEMENT DATED SEPTEMBER 13, 1995
1. Exhibit A - Chapter 7A Opt Out Resolution (1.1(a))
2. Exhibit B - Chapter 7B Opt Out Resolution (1.1(c))
3. Exhibit C - Secured Promissory Note (1.2(a))
4. Exhibit D - Stock Pledge Agreement (1.2(a))
5. Exhibit E - Stipulation (1.3)
6. Exhibit F - Chapter 7B Opt In Resolution (1.4)
7. Exhibit G - Interim Financing Commitment (2.1)
8. Exhibit H - Consulting Agreement (2.6)
9. Exhibit I - Meritage Registration Rights Agreement (2.7)
10. Exhibit J - Xxxxxxxx'x Registration Rights Agreement (2.7)
11. Exhibit K - Put/Call Agreement (2.9)
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LIST OF SCHEDULES TO STOCK PURCHASE
AND SALE AGREEMENT DATED SEPTEMBER 13, 1995
1. Schedule 2.2 - List of Xxxxxxxx and Reynolds's Affiliates
Relationships with the Company
2. Schedule 4.3 - Company's Articles of Incorporation and Bylaws,
as amended
3. Schedule 4.5 - Liens, etc. on Xxxxxxxx'x Stock
4. Schedule 4.9 - Company's SEC Information
5. Schedule 4.10 - List of Company's Subsidiaries
6. Schedule 4.11 - Company's Real Estate
7. Schedule 4.13 - Company's Insurance Policies
8. Schedule 4.15 - Litigation
9. Schedule 4.17 - Permits and Authorizations
10. Schedule 4.18 - Fees and Commissions
11. Schedule 4.20 - Liabilities
12. Schedule 4.21 - Accounts Receivable
13. Schedule 4.22 - Bank Accounts
14. Schedule 4.24 - Employee Matters
15. Schedule 4.25 - Employee Benefit Plans
16. Schedule 4.28 - Material Contracts
17. Schedule 4.30 - Outstanding Loans to or Investments in Xxxxxxxx
and Reynolds's Affiliates
-54-
Exhibit C
SECURED PROMISSORY NOTE
$10,500,000 September ___, 1995
For value received, MERITAGE HOSPITALITY GROUP INCORPORATED, a Florida
corporation (the "Maker"), promises to pay to XXXXXX XXXXXX INNS, INC., a
Michigan corporation (the "Holder"), or its assignee if Maker has actual
knowledge of such assignee, at the Holder's address at 000 Xxxxx Xxxxxxxxx,
Xx. Xxxxx, Xxxxxxxx 00000, or at such other place as the Holder may from time
to time specify by written notice to the Maker, the principal sum of Ten
Million Five Hundred Thousand and 00/100 Dollars ($10,500,000.00). The
outstanding principal balance under this Note shall not bear interest;
provided, however, that if an Event of Default has occurred (as provided in
Section V),then during such time the Event of Default is continuing the
outstanding principal balance under this Note shall bear interest at 3% per
annum.
I. Stated Payment Schedule
Principal under this Note shall be paid as follows:
A. The Maker shall have no obligation to make any payments under this
Note during the first three years of the term hereof.
B. Beginning on the third anniversary of this Note, and continuing on
the same day of each successive year thereafter through and including the
ninth anniversary of this Note, the Maker shall pay to the Holder principal
in an amount equal to One Million Three Hundred Twelve Thousand Five Hundred
and 00/100 Dollars ($1,312,500.00).
C. The entire outstanding principal balance shall be due and payable in
full on the tenth anniversary of this Note.
II. Stock Purchase Agreement;
Rights of Setoff, Escrow and Cancellation
This Note is made and delivered in conjunction with, and as an integral
part of, the transactions described in a certain Stock Purchase and Sale
Agreement dated September ____, 1995, to which the Maker, the Holder, and
others are parties (the "Stock Purchase Agreement"), pursuant to which the
Maker has acquired from the Holder certain common stock of the Holder.
In accordance with paragraph 13.4 of the Stock Purchase Agreement, the
Maker will be entitled to reduce, on a dollar-for-dollar basis, any amounts
payable to the Holder pursuant to this Note by the amount of any judgment for
indemnity obtained by the Maker against the Holder, subject to satisfaction
of the applicable conditions for such reduction set forth in the Stock Pur-
chase Agreement. Paragraph 13.5 of the Stock Purchase Agreement sets forth
the terms and conditions upon which the Maker shall be entitled to make pay-
ments otherwise due under this Note into escrow pending resolution of a claim
for indemnity asserted by the Maker pursuant to the Stock Purchase Agreement.
This Note shall not be deemed to be in default on account of failure to make a
payment when due to the extent that such failure is attributable to the
existence of a claim for indemnity asserted by the Maker against the Holder,
provided that the Maker has complied in all material respects with the
requirements of Section 13 of the Stock Purchase Agreement.
Paragraphs 1.2(c) and (d) of the Stock Purchase Agreement contain certain
rights in favor of the Maker to cancel, and receive a return of, this Note.
III. Optional Prepayment
The Maker may, at its option, prepay the indebtedness evidenced by this
Note at any time, in whole or in part, without penalty or premium.
IV. Stock Pledge; Limitation of Liability
This Note is secured by a certain Stock Pledge Agreement between Maker
and Holder dated even date herewith (the "Stock Pledge Agreement"). The
Maker's liability under this Note and the Stock Pledge Agreement shall be
limited at all times to the Maker's interest in the collateral that is
encumbered, from time to time, by the Stock Pledge Agreement, plus the posi-
tive amount, if any, determined from time to time by the following formula
(the "Liability Formula"):
M, minus P, where:
M = MHG's Required Net Worth on the Closing Date, which for purposes
of this Note means the value, as of the Closing Date, of the 54,405 shares of
common stock of the Holder owned by the Maker before the date of this Note,
plus that portion of the special dividend declared by the Holder that is paid
to the Maker pursuant to Section 3.3 of the Stock Purchase Agreement; and
P = the sum of Permitted Payments, as that phrase is defined in the Stock
Pledge Agreement, made by the Debtor during the term of this Note.
The Debtor's interest in the collateral that is encumbered, from time to time,
by the Stock Pledge agreement, together with the amount determined by the
Liability Formula, is referred to herein as the "Maximum Recovery".
The Holder shall neither seek, nor be entitled to, any recovery or remedy
against the Maker under this Note and the Stock Pledge Agreement other than
the Maximum Recovery. Other than as described in the immediately preceding
paragraph, in no event shall the Maker be liable for a deficiency judgment or
other money judgment under this Note or the Stock Pledge Agreement.
-2-
V. Events of Default; Remedies
The failure by the Maker to duly and punctually observe or perform any
material obligation of the Maker set forth in this Note or in the Stock
Pledge Agreement shall constitute an "Event of Default" under this Note. If
an Event of Default has not been cured within ten (10) days after receipt by
the Maker of written notice from the Holder of the existence of an Event of
Default (such notice from the Holder to specify in reasonable detail the act
or omission that has given rise to the Event of Default), the indebtedness
evidenced by this Note shall be in default (the date upon which the indebted-
ness evidenced by this Note first is in default is referred to below as the
"Default Date") and the Holder thereafter shall have the right, at any time
during the continuation of the Event of Default, to accelerate the indebted-
ness evidenced by this Note and to take such action as may be permitted at
law or in equity (including but not limited to the remedies provided for in
the Stock Pledge Agreement referred to above) to collect the indebtedness
evidenced by this Note, subject in all events to the limitation on the
Maker's liability under this Note set forth above.
The Maker shall pay all costs of collection, including reasonable
attorneys' fees, in case the indebtedness evidenced by this Note or any part
thereof is not paid when due, or in case it becomes necessary to protect the
security for this Note, whether suit is brought or not.
VI. Notices
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, sent by reputable overnight
courier, acknowledgment of receipt requested, or mailed by registered, over-
night or certified mail, postage prepaid, return receipt requested (such
notice to be effective on the date such receipt is acknowledged) as follows:
If to the Maker, addressed to:
Meritage Hospitality Group Incorporated
00 Xxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxx, President
with a copy to:
Xxxxxx Xxxxxxx PLLC
000 Xxxxxxx Xxxxxxxxxx Xxxxxxxx
000 Xxxxx Xxxxxx Xxxxxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
-3-
If to the Holder, addressed to:
Xxxxxx Xxxxxx Inns, Inc.
000 Xxxxx Xxxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
with a copy to:
XxXxxxx & Xxxxx, PLC
0000 Xxxxxx Xxxxxx Xxxxx
00 Xxxxxx Xxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000
Attention: Xxxx X. Shape, Esq.
and to
Xxxxxx & Xxxxxx Attorneys, P.C.
0000 X. Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
or to such place and with such other copies as the Maker or the Holder may
designate for itself by written notice to the other.
VII. General
Neither the failure of the Holder promptly to notify the Maker of the
existence of an Event of Default, nor its failure to exercise any right or
remedy it may have upon the occurrence of an Event of Default, nor the failure
of the Holder to demand strict performance of any obligations of the Maker
under this Note, shall constitute a waiver of any such rights during the
continuation of an Event of Default, nor shall any of the foregoing constitute
a waiver of any such rights during the continuation of any future Event of
Default. Further, acceptance by the Holder of partial payments following due
acceleration of the indebtedness evidenced hereby shall be deemed acceptance
of payment on account and shall not constitute a waiver by the Holder of the
Event of Default or a waiver of the acceleration of such indebtedness.
The Maker waives presentment, protest and demand, notice of protest,
demand, dishonor and nonpayment of this Note. The Holder may extend the time
of payment or otherwise modify the terms of payment of the indebtedness
evidenced by this Note, and such extension or modification shall not alter or
diminish the Maker's liability under this Note.
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VIII. Governing Law
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan.
MERITAGE HOSPITALITY GROUP
INCORPORATED
By:_________________________
Xxxxxxxxxxx X. Xxxxxx,
President
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Exhibit D
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (this "Agreement") is made on September ____,
1995, between MERITAGE HOSPITALITY GROUP INCORPORATED, a Florida corporation
(the "Debtor"), and XXXXXX XXXXXX INNS, INC., a Michigan corporation (the
"Creditor").
STATEMENT OF FACTS
A. The Debtor and the Creditor are parties to a Stock Purchase and Sale
Agreement dated even date herewith (the "Stock Purchase Agreement"), pursuant
to Section 1.2 of which the Debtor acquired 1,500,000 shares of common stock
(the "Pledged Stock") of the Creditor.
B. As payment for the Pledged Stock, the Debtor executed and delivered
to the Creditor the Debtor's Secured Promissory Note dated even date herewith
in the original principal amount of $10,500,000 (the "Note").
C. The Stock Purchase Agreement provides that due performance and
observance of the Debtor's obligations under the Note will be secured by a
lien on the Pledged Stock granted pursuant to this Agreement.
The parties therefore agree as follows:
1. Incorporation of Statement of Facts. The Statement of Facts set
forth above is true and accurate and is incorporated into and forms a part of
this Agreement.
2. Grant of Security Interest. (a) The Debtor grants and conveys to
the Creditor a security interest in (i) the Pledged Stock; (ii) all dividends,
distributions and other sums paid or payable to or for the benefit of the
Debtor on account of or in respect of the Debtor's status as owner of the
Pledged Stock, including without limitation, the Debtor's right to receive
cash and noncash dividends and distributions from the Creditor in respect of
the Pledged Stock and the Debtor's right, if any, to the redemption of the
Pledged Stock by the Creditor; (iii) all new, substituted or additional shares
of Pledged Stock or other securities of the Creditor at any time issued to or
for the benefit of Debtor on account of or in respect of the Debtor's status
as owner of the Pledged Stock, including without limitation, any such stock or
securities issued by reason of or in connection with any dividend, reclassifi-
cation, readjustment or other change with respect to the Pledged Stock made or
declared in the capital structure of the Creditor; and (iv) all proceeds
(whether cash or noncash) and products of each of the foregoing. The items of
collateral described in clauses (i)-(iv) of this paragraph are collectively
referred to in this Agreement as the "Collateral".
(b) Notwithstanding the provisions of subparagraph 2(a) above,
Debtor shall be entitled to receive and use, free and clear of any security
interest and lien of the Creditor, any cash dividends paid or payable to or
for the benefit of the Debtor on account of or in respect of the Debtor's
status as owner of the Pledged Stock and related Collateral (collectively, the
"Cash Dividends") subject, however, to the following exceptions:
(i) Upon the occurrence and during the existence of an
Event of Default (as that term is defined in the Note) that has not been
timely cured as provided in the Note, Debtor shall not be entitled to use Cash
Dividends for any purpose other than to cure an Event of Default, in whole or
in part.
(ii) Debtor shall not be entitled to use Cash Dividends
paid in partial or complete liquidation of the Creditor.
(iii) Debtor shall not be entitled to use Cash Dividends to
pay dividends to the holders of the Debtor's common stock outstanding as of
the date of this Agreement.
(iv) Debtor shall not be entitled to use Cash Dividends to
pay dividends on preferred stock issued by Debtor and outstanding on the date
hereof, or indebtedness arising from the conversion of such stock to debt, in
excess of the Permitted Payments, as that phrase is defined below; provided,
however, that nothing contained in this Agreement shall prevent Debtor from
converting all or any of its preferred stock to debt.
The foregoing provisions apply to all Cash Dividends paid or payable to
or for the benefit of the Debtor on account of or in respect of the Debtor's
status as owner of the Pledged Stock and related Collateral. Notwithstanding
any of the restrictions and limitations described in subparagraphs (i)-(iv)
herein, Debtor shall be permitted to use Cash Dividends to pay dividends with
respect to any securities that may be issued by Debtor after the date of this
Agreement.
(c) The Debtor shall take such action as may be reasonably
requested by the Creditor in writing to effect this Agreement and the trans-
actions contemplated herein and to perfect the pledge of, and the Creditor's
lien against, the Collateral. Simultaneously with the execution of this
Agreement, the Debtor shall deliver to the Creditor all certificates and other
instruments and writings evidencing the Pledged Stock and all of the Debtor's
rights and interests with respect thereto, duly executed, endorsed and
assigned in blank by the Debtor (by either a separate Assignment or by execut-
ing the transfer portion of the share certificates evidencing the Pledged
Stock, as chosen by the Creditor). The Debtor further agrees, promptly upon
written request by the Creditor, to execute and deliver such additional cer-
tificates and other instruments and writings evidencing any other Collateral,
in the same manner and form as provided above for the Pledged Stock.
3. Secured Obligations. The security interest described in Paragraph
2(a) of this Agreement is granted for the purpose of securing the prompt and
full payment when due (and not merely the ultimate collectibility) of all
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principal, interest, and other sums payable by the Debtor to the Creditor
pursuant to the Note (the "Secured Obligations").
4. Representations, Warranties, etc. The Debtor represents, warrants
and covenants to the Creditor that:
(a) The security interest granted hereby to the Creditor does now
and shall at all times during the term of this Agreement continue to consti-
tute a first and prior lien on the Collateral, subject only to such matters as
may be specifically agreed to in writing by the Creditor.
(b) The Debtor is the lawful and absolute owner of the Collateral,
subject to no other lien, encumbrance, right, claim or interest of any kind or
nature (other than such interests in favor of the Creditor). In addition, the
Debtor has the full and unrestricted right to pledge, assign and create a
security interest in the Collateral as described in and contemplated by this
Agreement.
(c) The Debtor has the legal capacity to enter into and perform all
of its obligations and agreements under this Agreement.
(d) No consent or approval for the entry into and performance
by the Debtor of its obligations and agreements under this Agreement is
necessary.
(e) The certificates, instruments and other writings delivered by
the Debtor to the Creditor pursuant to Paragraph 2(b) of this Agreement are
all of the certificates, etc., representing the Pledged Stock and all rights
and interests with respect thereto.
(f) The execution, delivery and performance of this Agreement by
the Debtor will not affect or in any way impair the Collateral or the Debtor's
or the Creditor's rights or interests therein.
5. Agreements. So long as this Agreement is in effect, the Debtor shall:
(a) Maintain the Collateral free from all pledges, liens, encum-
brances and security interests or other claims in favor of others, other than
the security interest in favor of the Creditor, and the Debtor will defend the
Collateral against all claims and demands of all persons.
(b) Comply with the requirements of all applicable state, local and
federal laws necessary to grant to the Creditor a valid lien upon, and a duly
perfected security interest in, the Collateral in compliance with the require-
ments of this Agreement.
(c) Pay all reasonable costs and expenses of whatever kind and na-
ture that the Creditor may incur, including reasonable attorneys' fees, in
protecting, maintaining, preserving, enforcing or foreclosing the Collateral
-3-
or the security interest granted to the Creditor hereunder, whether through
judicial proceedings or otherwise, or in defending or prosecuting any actions
or proceedings arising out of or relating to any of the Secured Obligations.
(d) Appear in and defend any action or proceeding arising out of or
connected with this Agreement, and pay all reasonable costs and expenses of
the Creditor (including, without limitation, reasonable attorneys' fees) in
any such action or proceeding in which the Creditor appears or determines to
become involved.
(e) Not, without the prior written consent of the Creditor, sell,
assign, encumber, pledge, hypothecate, transfer or otherwise dispose of the
Collateral or any part thereof or any interest therein.
(f) Provide the Creditor, and the Creditor's agents and attorneys,
reasonable access to the books and records of the Debtor for inspection pur-
poses and permit the Creditor and the Creditor's agents and attorneys to make
copies hereof.
(g) Not pay, during the periods set forth below (i) dividends on
preferred shares issued by Debtor outstanding on the date hereof (the "Current
Preferred Stock"), plus (ii) debt service on indebtedness arising from the
conversion of Current Preferred Stock, in excess of the following amounts (the
"Permitted Payments"):
(A) On the Closing Date, as that term is defined in the Stock
Purchase Agreement, $50,000.00, and
(B) during each of the one year periods following the date of
this Agreement, $25,000.00.
6. Performance by the Creditor. If the Debtor fails to duly and
punctually perform, observe or comply with any condition, term or covenant
contained in this Agreement, the Creditor, without notice to or demand upon
the Debtor and without waiving or releasing any of the Secured Obligations,
may at any time thereafter perform such condition, term or covenant for the
account and at the expense of the Debtor. All sums paid or advanced in con-
nection with the foregoing and all costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred in connection therewith shall
be paid by the Debtor to the Creditor on demand, and shall constitute and
become a part of the Secured Obligations.
7. Default. The Debtor shall be in default under this Agreement only
if an Event of Default (as defined in the Note) has not been cured within ten
(10) days after receipt by the Debtor of written notice from the Creditor of
the existence of an Event of Default (such notice from the Creditor to specify
in reasonable detail the act or omission that has given rise to the Event of
Default).
-4-
8. Remedies. Upon and at any time after a default under this Agree-
ment, the Creditor shall, at its option and without further notice to the
Debtor (except for such further notices, if any, that may be required by law)
be entitled to exercise any or all rights and remedies provided hereunder or
by law, including without limitation the rights and remedies of a secured
party under the Michigan Uniform Commercial Code. Any requirement under the
Michigan Uniform Commercial Code or otherwise of reasonable notice shall be
met if the Creditor sends the Debtor notice of sale and other notices required
by law at least ten (10) days prior to the date of sale, disposition or other
event giving rise to the required notice. Any sale held pursuant to the
exercise of the Creditor's rights hereunder may be public or private, and at
such sale the Creditor shall have the right, at any time and from time to
time, to the extent permitted by law, to sell, assign and deliver all or any
part of the Collateral, at the Creditor's office or elsewhere, without demand
of performance, advertisement of notice of intention to sell or of the time or
place of sale or adjournment thereof or any other notice (all of which are
hereby waived by the Debtor to the extent permitted by law), except such
notice as is required by applicable law and cannot be waived, for cash, on
credit or for other property, for immediate or future delivery, without any
assumption or credit risk, and, provided that such is not in violation of
applicable law, for such terms as the Creditor in its absolute and
uncontrolled discretion may determine. In furtherance of the Creditor's
rights hereunder, the Creditor shall have the right, for and in the name,
place and stead of the Debtor, to execute endorsements, assignments or other
instruments of conveyance or transfer with respect to all or any of the
Collateral. All amounts collected by the Creditor as the result of any
action taken pursuant to this Paragraph 8, and the liquidation value of any
other property received as a result of such action, shall be applied by the
Creditor as follows:
(a) First, to the payment of all fees and costs including, without
limitation, reasonable attorneys' fees, incurred in connection with the col-
lection of the Secured Obligations or in connection with the exercise or
enforcement of the Creditor's rights, powers or remedies under this Agreement.
(b) Second, to the payment and satisfaction of all of the Secured
Obligations.
The remedies provided in this Agreement in favor of the Creditor shall
not be deemed exclusive, but shall be cumulative, and shall be in addition to
all other remedies in favor of the Creditor existing at law or in equity.
9. Voting Rights. Unless and until title to the Pledge Stock is trans-
ferred pursuant section 8 of this Agreement, notwithstanding any other provi-
sion of this Agreement to the contrary, the Debtor shall retain all voting and
other rights associated with the Pledged Stock.
10. Release of Lien and Interests in the Collateral.
-5-
(a) For the purposes of this Section, the following definitions
apply:
(i) "Release Date" means each day that Debtor either is
obligated to and does make a payment under the Note or makes a pre-payment of
at least $500,000 on the Note;
(ii) "PSRD" means the number of shares of Pledged Stock then
pledged under this Agreement as of the business day immediately preceding a
release of Pledged Stock under this Section 10;
(iii) "Balance Owed" means the outstanding principal balance
under the Note immediately following a payment of principal on the Release
Date;
(iv) "Market Price Per Share" means the per share price of
the Pledged Stock as of the close of trading on the business day immediately
preceding the Release Date, reported as the NASDAQ "closing price", or if such
price is not available, the average of the last reported "bid and ask" prices;
(v) "Payment Amount" means the sum paid by Debtor on the
Release Date; and
(vi) "Released Shares" means a number of shares of Pledged
Stock equal to:
Released Shares = PSRD - 120% x Balance Owed
Market Price Per Share
(b) Upon each Release Date, Creditor shall release its liens and
security interests in the Released Shares and in any other Collateral
attributable to or derivative of each share of the Released Shares. Upon
each release of shares under this section, Creditor shall deliver to Debtor
(i) all documents and/or instruments evidencing each share of the Released
Shares; and (ii)any other Collateral attributable to or derivative of each
such share.
(c) Notwithstanding anything to the contrary contained within this
Agreement, if the Released Shares is a negative number, Debtor shall have
no obligation to grant, and Creditor shall have no right to receive, a secur-
ity interest in any additional shares of the Pledged Stock or any other
collateral.
11. Notices. All notices, demands or requests required or permitted to
be given to either party hereto shall be in writing and shall be deemed given
if delivered personally, sent by reputable overnight courier, with acknowledg-
ment of receipt requested, or mailed by registered, overnight or certified
mail, with full postage paid thereon, return receipt requested (such notice
to be effective on the date such receipt is acknowledged), as follows:
-6-
The Debtor:
Meritage Hospitality Group Incorporated
00 Xxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxx, President
with a copy to:
Xxxxxx Xxxxxxx PLLC
000 Xxxxxxx Xxxxxxxxxx Xxxxxxxx
000 Xxxxx Xxxxxx Xxxxxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
The Creditor:
Xxxxxx Xxxxxx Inns, Inc.
000 Xxxxx Xxxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Attention: President
with a copy to:
XxXxxxx & Xxxxx, PLC
0000 Xxxxxx Xxxxxx Xxxxx
00 Xxxxxx Xxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000
Attention: Xxxx X. Shape, Esq.
and to
Xxxxxx & Xxxxxx Attorneys, P.C.
0000 X. Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
or to such place and with such other copies as the Debtor or the Creditor may
designate for itself by written notice to the other.
12. Limitation on Liability. The Debtor's liability under the Note and
under this Agreement shall be limited at all times to the Debtor's interest in
the collateral that is encumbered, from time to time, by this Agreement, plus
the positive amount, if any, determined from time to time by the following
formula (the "Liability Formula"):
M, minus P, where:
-7-
M = MHG's Required Net Worth on the Closing Date, which for pur-
poses of this Agreement means the value, as of the Closing Date, of the 54,405
shares of common stock of the Creditor owned by Debtor before the date of this
Agreement, plus that portion of the special dividend declared by Creditor that
is paid to Debtor pursuant to 3.3 of the Stock Purchase Agreement; and
P = the sum of Permitted Payments made by the Debtor during the
term of the Note.
The Debtor's interest in the collateral that is encumbered, from time to time,
by this Agreement, together with the amount determined by the Liability
Formula is referred to herein as the "Maximum Recovery".
The Creditor shall neither seek, nor be entitled to, any recovery or
remedy against the Maker under this Agreement or the Note other than the Max-
imum Recovery. Other than as described in the immediately preceding para-
graph, in no event shall the Debtor be liable for a deficiency judgment or
other money judgment under the Note or this Agreement.
13. Controlling Law; Severability. This Agreement shall be construed in
each and every respect in accordance with the laws of the State of Michigan.
If any provision hereof is in conflict with any laws or is otherwise unen-
forceable for any reason whatever, such provision shall be deemed null and
void to the extent of such conflict or unenforceability, and shall be severed
from and shall not invalidate any other provision of this Agreement.
14. Miscellaneous. This Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective successors and assigns. No
failure or delay on the part of the Creditor in exercising any power or right
hereunder shall operate as a waiver thereof or as a waiver of any other term,
provision or condition hereof, nor shall any single or partial exercise of any
such right or power prelude any other or further exercise thereof or the exer-
cise of any other right or power hereunder. This Agreement may be amended
only by an instrument in writing signed by the parties hereto. The headings
in this Agreement are for convenience of reference only and shall not limit or
otherwise affect any of the terms hereof. Time shall be deemed to be of the
essence in each and every respect hereunder. There are no third-party bene-
ficiaries to this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
-8-
IN WITNESS WHEREOF, the parties have executed this Stock Pledge Agreement
as of the date first above stated.
MERITAGE HOSPITALITY GROUP
INCORPORATED
By:________________________
Xxxxxxxxxxx X. Xxxxxx
President
XXXXXX XXXXXX INNS, INC.
By:________________________
Its_____________________
-0-
Xxxxxxx X
XXXXXX XXXXXX DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
___________________________________________________________________________
MERITAGE HOSPITALITY GROUP
INCORPORATED, a Florida
corporation;
Plaintiff, Case No. 1:95 CV 451
vs. XXX. XXXXXX X. XXXXX
XXXXXX X. XXXXXXXX,
XXXXXXX X. XXXXXX,
XXXXXXX XXXXXX,
XXXXXX XXXXXXXX,
XXXXXXX XXXXXXXX, and
INNKEEPERS MANAGEMENT
COMPANY, a Michigan
corporation;
Defendants.
___________________________________________________________________________
Xxxxxx X. Xxxxx (P22636) Xxxx X. Shape (P29688)
J. Xxxxxxxx Xxxxxx (P23404) XXXXXXX & XXXXX, PLC
XXXXXX XXXXXXX PLLC Attorneys for Defendant
Attorneys for Plaintiff Innkeepers Management Company
000 Xxxxxxx Xxxxxxxxxx Xxxx. 00 Xxxxxx Xxxxxx, X.X. #0000
Xxxxx Xxxxxx, XX 00000-0000 Xxxxx Xxxxxx, XX 00000
(000) 000-0000 (000) 000-0000
Xxxxx X. Xxxxx (P14443) Xxxxxx X. Xxxxxxxxx (P23662)
Xxxxx X. Xxxxxx (P34435) Xxxxxxx X. Xxxxxxxxx (P38036)
GRUEL, MILLS, NIMS & XXXXXX XXXXXX AND XXXXXX
Attorneys for Defendants Attorney for Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx and Xxxxxx 0000 Xxxxx Xxxxxxxx Xxx.
00 Xxxxxx Xxxxx #000X Xxxxx 000
Xxxxx Xxxxxx, XX 00000-0000 Xxxxxxxxxx Xxxxx, XX 00000
(000) 000-0000 (000) 000-0000
___________________________________________________________________________
STIPULATION
The parties, by their respective counsel, hereby agree and
stipulate to the entry of the attached Order Retaining Jurisdiction for
Limited Purposes.
DATED: September __, 1995 XXXXXX XXXXXXX PLLC
Attorneys for Plaintiffs
By__________________________________
Xxxxxx X. Xxxxx (P22636)
J. Xxxxxxxx Xxxxxx (P23404)
Business Address:
000 Xxxxxxx Xxxxxxxxxx Xxxx.
Xxxxx Xxxxxx, XX 00000-0000
(000) 000-0000
DATED: September __, 1995 XXXXXXX & BOWIE, PLC
Attorneys for Defendant
Innkeepers Management Company
By__________________________________
Xxxx X. Shape (P29688)
Business Address:
00 Xxxxxx Xxxxxx, X.X. #0000
Xxxxx Xxxxxx, XX 00000
(000) 000-0000
DATED: September __, 1995 GRUEL, MILLS, NIMS & XXXXXX
Attorneys for Defendants
Xxxxxxxx, Xxxxxx and Xxxxxx
By__________________________________
Xxxxx Xxxxxx (P34435)
Business Address:
00 Xxxxxx Xxxxx #000X
Xxxxx Xxxxxx, XX 00000-0000
(000) 000-0000
DATED: September __, 0000 XXXXXX XXX XXXXXX
Xxxxxxxxx for Xxxxxx Xxxxxx
By___________________________________
Xxxxxxx X. Xxxxxxxxx (P38036)
Business Address:
0000 X Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
(000) 000-0000
-2-
ORDER RETAINING JURISDICTION FOR LIMITED PURPOSES
At a session of said Court, held in the Xxxxxxx
Xxxxxxxx, Xxxx xx Xxxxx Xxxxxx, Xxxxxx of Kent,
State of Michigan, on this ____ day of
September, 1995.
PRESENT: XXXXXXXXX XXXXXX X. XXXXX
United States District Judge
for the Western District of
Michigan
IT IS HEREBY ORDERED that this Court shall retain
jurisdiction solely to determine the following:
1. whether the closing pursuant to the "Stock Purchase and
Sale Agreement" dated September 19, 1995, signed by
Meritage Hospitality Group Incorporated ("MHG"), Xxxxxx X.
Xxxxxxxx ("DWR"), Innkeepers Management Company
("Innkeepers"), and Xxxxxx Xxxxxx Inns, Inc. ("TEI") (the
"Definitive Agreement" -- a copy of which is attached
hereto as Exhibit A) has occurred on or before April 1,
1996, in which case an Order shall be entered by this
Court declaring that the lawsuit be dismissed with
prejudice;
2. whether TEI, DWR, or Innkeepers has failed to perform
or discharge his or their obligations under the
Definitive Agreement such that a default has occurred
and as a result of such default the Definitive
Agreement is not closed by April 1, 1996, in which
case an Order shall be entered by this Court declaring
that the 868,018 shares of TEI stock that DWR, his
children, and Innkeepers own have no voting power
(unless voting power is restored by shareholder vote
pursuant to Michigan Business Corporation Act 3.3 of the Stock Purchase
Agreement and ending on the tenth day after the first anniversary of the
closing of the Stock Purchase Agreement, and (ii) anytime within the ten
business day period following each of the second through eighth anniversaries
of the closing of the Stock Purchase Agreement (each of which periods shall be
referred to as an "Election Period") to require MHG to purchase (a "Xxxxxxxx
Put") up to 50,000 shares of the Xxxxxxxx Stock (the "Put Stock").
2. MHG'S OPTIONS UPON A XXXXXXXX PUT. If under this Agreement MHG is
required to purchase any of Xxxxxxxx Stock, MHG may in its sole discretion
either (i) purchase the Xxxxxxxx Stock, or (ii) assign its obligation to
purchase the Xxxxxxxx Stock to the Company. If MHG elects to assign one, some
or all of its obligations to purchase the Xxxxxxxx Stock under this Agreement
to the Company (the "Assigned Obligations"), MHG is expressly relieved of the
Assigned Obligations and Xxxxxxxx shall have no recourse against MHG as to the
Assigned Obligations.
3. MHG'S CALL. If during an Election Period Xxxxxxxx does not elect
to make a Xxxxxxxx Put or elects to make a Xxxxxxxx Put for an amount less than
50,000 shares, then, within the ten business days period following the end of
the Election Period, MHG may elect by sending notice to Xxxxxxxx to require
Xxxxxxxx to sell to MHG or its assignee (an "MHG Call") up to 50,000 (less the
amount, if any, of the Put Stock for that year) shares of the Xxxxxxxx Stock
(the "Called Stock").
4. PUT/CALL PAYMENT. Upon each Xxxxxxxx Put or MHG Call, the amount
to be paid for the Put Stock, if any, and the Called Stock, if any, (the
"Put/Call Payment") shall be the number of shares of Put Stock plus Called
Stock times the per share purchase price for that anniversary date listed in
(and incorporated herein by reference) Exhibit A to this Agreement less the
Set-Off Amount as defined in 5.
5. THE SET-OFF AMOUNT. The "Set-Off Amount" shall be the amount MHG
has a right to indemnification or set-off under 13 of the Stock
Purchase Agreement.
6. CLOSING OF PUT/CALL TRANSACTION. The closing of each Xxxxxxxx Put
or MHG Call shall take place within 30 days of the election by Xxxxxxxx under
1 of this Agreement or by MHG under 3 of this Agreement (a
"Put/Call Closing") at the main offices of the Company or at such other
location as may be mutually agreed upon among the parties.
7. DELIVERIES BY XXXXXXXX AT PUT/CALL CLOSING. At each Put/Call
Closing, Xxxxxxxx shall deliver to MHG or its assignee the Put Stock, if any,
and the Called Stock, if any, free and clear of all liens, including, without
limitation, tax liens, forfeitures, covenants, conditions, pledges, penalties,
charges, encumbrances, buy-sell agreements, rights of first refusal, equities
or claims or rights of others whatsoever.
8. DELIVERIES BY MHG AT PUT/CALL CLOSING. At each Put/Call Closing,
MHG or its assignee shall deliver to Xxxxxxxx a payment in the form of a
certified check and in the amount of the Put/Call Payment.
9. REPRESENTATIONS AND WARRANTIES OF XXXXXXXX. Xxxxxxxx shall
warrant at the time of each purchase or sale under this Agreement that he then
owns of record and beneficially and has good and valid title to all of the
Put Stock, if any, and Called Stock, if any, to be bought and sold at that
time free and clear of all liens, including tax liens, forfeitures,
covenants, conditions, pledges, penalties, charges, encumbrances,
buy-sell agreements, rights of first refusal, equities or claims or rights
of others whatsoever.
10. REPRESENTATIONS AND WARRANTIES OF MHG.
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made by
Xxxxxxxx in reliance upon MHG's representations to Xxxxxxxx, which MHG hereby
confirms, that the shares of the Company's Common Stock that MHG may acquire
pursuant to this Agreement will be acquired for investment for its own
account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that it has no present intention of
selling, granting participations in, or otherwise distributing the same. MHG
represents that it does not have any contract, undertaking, agreement or
-2-
arrangement with any person to sell, transfer, or grant participations to such
person, or to any third person, with respect to any of the shares that MHG may
acquire pursuant to this Agreement. Notwithstanding the foregoing, Xxxxxxxx
acknowledges that MHG may dispose of the securities that it may purchase
pursuant to this Agreement upon registration of such securities, or exemption
of such disposition, under the Securities Exchange Act of 1934, as amended,
and the Securities Act of 1933, as amended, (collectively the "Securities
Act") and in compliance with applicable state securities laws.
(b) RESTRICTED SECURITIES. MHG understands that the shares of the
Company's Common Stock that it may acquire pursuant to this Agreement may not
be sold, transferred, or otherwise disposed of without compliance with state
securities laws and without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering such shares or an available exemption from registration
under the Securities Act, such shares must be held indefinitely and MHG must
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition of such shares is registered under the Securities Act
or is exempt from registration. In particular, MHG is aware that such shares
may not be sold pursuant to Rule 144 promulgated under the Securities Act
unless all of the conditions of that Rule are satisfied. Among the conditions
for use of Rule 144 (unless Rule 144(k) is then available) is the availability
of current information to the public about the Company. MHG covenants that,
in the absence of an effective registration statement covering such shares, it
will sell, transfer, or otherwise dispose of such shares only in a manner
consistent with its representations set forth herein.
(c) INVESTMENT EXPERIENCE. MHG represents that it is experienced in
investment matters, fully understands the transactions described in this
Agreement, has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of its investment, and has
the financial ability and resources necessary to bear the economic risks of
investment.
(d) ACCREDITED INVESTOR. MHG represents that it is an "accredited
investor" as that term is defined in Rule 501 of Regulation D under the
Securities Act, namely (i) it was not formed for the specific purpose of
acquiring the shares that it may acquire pursuant to this Agreement and has
total assets in excess of $5,000,000, or (ii) all of its equity owners are
accredited investors.
(e) LEGENDS; STOP TRANSFER.
(i) All certificates for the shares that may be acquired from
Xxxxxxxx by MHG pursuant to this Agreement may bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THE SAME
ARE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
-3-
"ACT") OR THE COMPANY RECEIVES AN OPINION OF COUNSEL THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED FOR SALE OR TRANSFER.
(ii) In addition, the Company's transfer agent shall make a
notation regarding the restrictions on transfer of such shares in its stock
transfer records.
11. REPRESENTATIONS AT EACH PUT/CALL CLOSING. MHG shall make at the
time of each Put/Call Closing all the representations and warranties contained
in 10 of this Agreement.
12. DEFAULT BY XXXXXXXX. If Xxxxxxxx should default under this
Agreement in any way, MHG may in its sole discretion (i) accelerate all of
Xxxxxxxx'x obligations under this Agreement and xxx for specific performance
and damages, or (ii) terminate this Agreement.
13. DEFAULT BY MHG. If MHG or the Company should default under this
Agreement in any way, Xxxxxxxx may in his sole discretion (i) accelerate all
outstanding obligations of MHG, if any, and the Company under this Agreement
and xxx for damages, or (ii) terminate this Agreement.
14. EXPENSES UPON DEFAULT. If any party should default under this
Agreement, the aggrieved party shall be entitled to and the defaulting party
shall pay all reasonable expenses, including but not limited to, attorneys
fees and costs of bringing an action for breach of this Agreement.
15. GUARANTEE. All of MHG's obligations under this Agreement,
regardless of whether they have been assigned by MHG under this Agreement,
shall be guaranteed by the Company.
16. ASSIGNMENT. MHG may in its sole discretion assign all of its
rights and obligations under this Agreement to an assignee having, at the time
of such assignment, a net worth at least equivalent to MHG's Required Net
Worth on the Closing Date (as that term is defined in the Secured Promissory
Note dated September 15, 1995 between MHG and the Company) as adjusted as of
the time of such assignment. Any such assignment shall relieve MHG of all of
its obligations under this Agreement.
17. RIGHT OF FIRST REFUSAL. (a) If during the term of this Agreement
Xxxxxxxx enters into an agreement to sell some or all of the Xxxxxxxx Stock
and as a result of that sale Xxxxxxxx would not have a sufficient number of
shares (the "Call Gap") of the Company's Common Stock to satisfy the then
remaining MHG Call rights under 3 of this Agreement, then MHG shall
have the right to require Xxxxxxxx to sell to MHG at that time an amount of
Xxxxxxxx Stock equal to the Call Gap at the per share price equal to the price
specified in Exhibit A of this Agreement.
(b) Upon entering into a sale agreement that would result in a Call Gap,
Xxxxxxxx shall immediately notify MHG of such intended sale. MHG shall have
ten business days after the date MHG receives notice of such intended sale to
-4-
exercise, by sending notice to Xxxxxxxx, its rights under 17(a) of
this Agreement.
(c) The failure by MHG to exercise its rights under 17(a) of
this Agreement or the release by the Company of the legend required by
17(e) of this Agreement on the Xxxxxxxx Stock does not waive, alter
or cancel any of MHG's other rights under this Agreement, including, without
limitation, the MHG Call rights under 3 of this Agreement.
(d) All of the terms of this Agreement shall apply to a required sale
of the Xxxxxxxx Stock by Xxxxxxxx to MHG under 17.
(e) All certificates for the Xxxxxxxx Stock shall bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
PUT/CALL AGREEMENT ENTERED INTO BY XXXXXX X. XXXXXXXX, MERITAGE
HOSPITALITY GROUP INCORPORATED AND THE COMPANY, DATED SEPTEMBER 18,
1995, A COPY OF WHICH IS ON FILE WITH THE COMPANY.
In addition, the Company's transfer agent shall make a notation regarding the
restrictions on transfer of such shares in its stock transfer records.
(f) Promptly upon obtaining possession of each certificate evidencing
the Xxxxxxxx Stock, Xxxxxxxx will deliver or cause to have delivered to the
Company each such certificate in exchange for a new certificate(s) containing
the legend described in 17(e) of this Agreement. Prior to the
issuance of a new certificate(s) containing the legend described in
17(e), Xxxxxxxx shall not sell, assign, pledge or hypothecate the
Xxxxxxxx Stock.
(g) At such time as the foregoing restrictions cease to apply, upon
written request accompanied by the certificate(s), the Company will issue a
new certificate(s) for the Xxxxxxxx Stock that does not contain the foregoing
legend.
18. NOTICES. All notices and other communications hereunder shall be
made in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail, postage prepaid, return receipt requested, or
mailed by a recognized air courier such as Federal Express or the like, (such
notice to be effective on the date of giving such notice) as follows:
If to MHG, addressed to:
Meritage Hospitality Group Incorporated
00 Xxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxx, President
-5-
with a copy to:
Xxxxxx Xxxxxxx PLLC
000 Xxxxxxx Xxxxxxxxxx Xxxxxxxx
000 Xxxxx Xxxxxx Xxxxxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
If to the Company, addressed to:
Xxxxxx Xxxxxx Inns, Inc.
000 Xxxxx Xxxxxxxxx
Xx. Xxxxx, XX 00000
Attention: President
with a copy to:
Xxxxxx & Xxxxxx, P.C.
0000 X. Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
If to Xxxxxxxx, addressed to:
Xxxxxx X. Xxxxxxxx
0000 Xxxxxxxx Xx., X.X.
Xxxxx Xxxxxx, XX 00000
with a copy to:
XxXxxxx & Bowie, PLC
0000 Xxxxxx Xxxxxx Xxxxx
00 Xxxxxx Xxxxxx, X.X.
Xxxxx Xxxxxx, XX 00000
Attention: Xxxx X. Shape, Esq.
or to such other place and with such other copies as either party may
designate as to itself by written notice to the others.
19. CHOICE OF LAW. This Agreement shall be governed by, construed and
interpreted, and the rights of the parties determined, in accordance with the
laws of the State of Michigan without giving effect to any choice or conflict
of law provision or rule that would cause the application of the laws of any
jurisdiction other than the State of Michigan.
20. AMENDMENT. This Agreement and the Exhibit hereto may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
-6-
21. CAPTIONS. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit or describe the
scope or intent of this Agreement or any provisions hereof.
22. SUCCESSORS AND ASSIGNS. This Agreement, and all the rights and
powers granted hereby, will bind and inure to the benefit of all the parties
hereto and their respective successors and assigns.
[SIGNATURES ON NEXT PAGE]
-7-
IN WITNESS WHEREOF, the parties have executed this Put/Call Agreement as of
the date first above stated.
______________________________________
Xxxxxx X. Xxxxxxxx
MERITAGE HOSPITALITY GROUP INCORPORATED
By:___________________________________
Xxxxxxxxxxx X. Xxxxxx
President
XXXXXX XXXXXX INNS, INC.
By:__________________________________
Its:_______________________________
-8-
Exhibit A
The per share purchase price for the Put Stock and Called Stock shall be:
(a) $7.50 per share for all shares purchased on or before the second
anniversary of the closing;
(b) $8.50 per share for all shares purchased on or before the fourth
anniversary of the closing;
(c) $9.00 per share for all shares purchased on or before the sixth
anniversary of the closing; and
(d) $10.00 per share for all shares purchased on or before the eighth
anniversary of the closing.
-9-
