Exhibit 3 to Schedule 13D
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (this "Agreement") is made on September
19, 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, reclassification, 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 transactions
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
executing 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 certificates 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
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
constitute 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,
encumbrances 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 requirements of this Agreement.
(c) Pay all reasonable costs and expenses of whatever kind and
nature that the Creditor may incur, including reasonable attorneys' fees,
in protecting, maintaining, preserving, enforcing or foreclosing the
Collateral 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 purposes 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
connection 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).
8. Remedies. Upon and at any time after a default under this
Agreement, 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 collection 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
transferred pursuant section 8 of this Agreement, notwithstanding any other
provision 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.
(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
security 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
acknowledgment 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::
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:
M = MHG's Required Net Worth on the Closing Date, which for
purposes 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 Section 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
Maximum Recovery. Other than as described in the immediately preceding
paragraph, 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 unenforceable 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 exercise 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 beneficiaries to this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed this Stock Pledge
Agreement as of the date first above stated.
MERITAGE HOSPITALITY GROUP
INCORPORATED
By: /s/ Xxxxxxxxxxx X. Xxxxxx
-------------------------
Xxxxxxxxxxx X. Xxxxxx
President
XXXXXX XXXXXX INNS, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
Its President
