Meritage Hospitality Group Inc – ‘8-K’ for 8/1/98 – EX-10

As of:  Wednesday, 9/9/98   ·   For:  8/1/98   ·   Accession #:  892251-98-282   ·   File #:  1-12319

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Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                         2     11K 
 2: EX-10       Mortgage Note                                          5     23K 

EX-10   —   Mortgage Note
Exhibit Table of Contents

EX-10
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 MORTGAGE NOTE

September 1, 1998                                                  $2,000,000.00

     PROMISE TO PAY PRINCIPAL AND INTEREST. For value received, REYNOLDS/EHINGER
ENTERPRISES,  LLC,  a  Michigan  limited  liability  company  (the  "Borrower"),
promises to pay to the order of  MERITAGE  HOSPITALITY  GROUP  INC.,  a Michigan
corporation ("Meritage"),  at its office located at 40 Pearl Street, N.W., Suite
900,  Grand Rapids,  Michigan  49503,  or at such other place as the Holder (the
"Holder"  means  Meritage and any  subsequent  holder of this Mortgage Note) may
from  time  to  time  specify,   the  principal  sum  of  TWO  MILLION   DOLLARS
($2,000,000.00),  together with interest on any part thereof  unpaid at the rate
per annum which,  except during  default,  is equal to the Prime Rate plus eight
hundred  (800)  basis  points  from time to time on all  principal  indebtedness
evidenced by this  Mortgage  Note.  The "Prime Rate" means the variable  rate of
interest announced publicly from time to time by Provident Bank (the "Bank"), of
Cincinnati,  OH, to be its prime commercial lending rate. Reference to the Prime
Rate will not be affected by the fact that the Bank may make loans at  different
rates  from time to time with  respect to the class of loans for which the Prime
Rate is established. The interest rate chargeable under this Mortgage Note shall
be  fully-floating,  and any change in the interest  rate  chargeable  hereunder
resulting  from a change in the Prime Rate will become  effective  on the day on
which each change in the Prime Rate is effective.                               

     DUE DATE FOR PAYMENTS AND MANNER OF MAKING PAYMENTS. Accrued interest under
this  Mortgage  Note  shall be  payable  monthly,  on the last day of each month
beginning  September  30,  1998,  and  continuing  on the last day of each month
thereafter  until the  Maturity  Date set forth in the next  sentence,  when all
indebtedness  evidenced  hereby shall be due and payable in full.  All principal
and accrued and unpaid  interest shall be due and payable in full on: (a) August
31,  1999,  or (b) the  closing  of the  sale or  disposition  by  Grand  Rapids
Innkeepers  Management  Inc.,  a  Michigan  corporation,  of  any  or all of the
restaurant sites it has leased to American Family Restaurants,  Inc. pursuant to
a Master  Lease  Agreement  dated  September  8, 1995,  whichever of (a) and (b)
occurs first (the "Maturity Date"). All payments of principal and interest under
this Mortgage Note shall be paid by wire transfer of funds to: Michigan National
Bank,  Grand  Rapids,  MI, ABA Number  072000805,  for credit to the  account of
Meritage  Hospitality Group Inc., Account Number 5892-89662-1,  reference:  Loan
Payment; or to such other account as the Holder may specify by written notice to
the  Borrower.  If the due date for a payment  required by this Mortgage Note is
not a Business Day (a "Business Day" is any day other than a Saturday, Sunday or
legal holiday in the State of Michigan),  the due date for such payment shall be
the last  Business  Day of the  month,  and the amount of the  payment  shall be
adjusted accordingly.                                                           

     PREPAYMENT.  The  indebtedness  evidenced  by  this  Mortgage  Note  may be
prepaid,  in whole or in part, at any time without notice and without penalty or
premium.                                                                        

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     LATE CHARGES; DEFAULT INTEREST. The Borrower shall pay to the Holder a late
charge  equal to five percent  (5%) of each  payment due  hereunder  that is not
received  by the  Holder  on the due  date  of such  payment.  For  purposes  of
computing the late charge,  the interest component of each late payment shall be
computed  at the  standard  interest  rate  provided  for  herein and not at the
default rate.  If any payment due under this Mortgage Note remains  unpaid after
the  expiration  of ten (10)  calendar  days from the due date,  and  during any
period this Mortgage Note  otherwise is in default,  the  outstanding  principal
amount hereof shall bear interest for the entire period during which interest or
principal is then unpaid at a rate which is equal to three  hundred  (300) basis
points greater than the interest rate otherwise charged hereunder.              

     DEFAULT;  OPTION TO ACCELERATE  MATURITY DATE.  Immediately upon default in
making any  payment  required  under  this  Mortgage  Note when due,  the entire
principal  balance  of this  Mortgage  Note  remaining  at that time  unmatured,
together with all accrued interest thereon, shall, at the election of the Holder
and without  notice of such  election,  and  without  demand or  presentment  or
opportunity to cure such default,  become immediately due and payable,  anything
herein or in any of the Collateral  Security Documents (as defined below) to the
contrary notwithstanding.  If such indebtedness is not immediately paid in full,
the Holder  shall have the right,  without  notice or  opportunity  to cure,  to
pursue all remedies  available to it, at law or in equity,  under the Collateral
Security  Documents  or  otherwise.  Upon  default  in  the  due  observance  or
performance of any of the other terms, agreements, representations,  warranties,
covenants or conditions  contained in any of the Collateral  Security Documents,
and the continuation of such default for a period of ten (10) consecutive  days,
or more,  after  written  notice of such default has been given to the Borrower,
the  entire  principal  balance of this  Mortgage  Note  remaining  at that time
unmatured, together with all accrued interest thereon, shall, at the election of
the Holder and without notice of such election and without demand or presentment
or further opportunity to cure such default, become immediately due and payable,
anything contained herein or in any of the Collateral  Security Documents to the
contrary  notwithstanding,  and the Holder  shall in any event have the right to
pursue all remedies  available to it, at law or in equity,  under the Collateral
Security Documents or otherwise.                                                

     NO WAIVER.  If any default is made as  hereinabove  set forth,  neither the
failure of the Holder  promptly to exercise its right to declare the outstanding
principal and accrued and unpaid  interest  hereunder to be immediately  due and
payable,  nor failure to exercise  any other right or remedy the Holder may have
for default, nor the acceptance by the Holder of late payments,  nor the failure
of the Holder to demand strict performance of any obligations of the maker or of
any other person who may be liable  hereunder,  shall constitute a waiver of any
such default or remedies.  Further, acceptance by the Holder of partial payments
following  due  acceleration  of the  indebtedness  evidenced  hereby  shall not
constitute a waiver by the Holder of the acceleration of such indebtedness.     

     COSTS OF  COLLECTION,  ETC. The  Borrower,  and any other person who may be
liable  hereunder  in any  capacity,  agrees  to pay all  costs  of  collection,

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including a  reasonable  attorneys'  fee, in case the  principal of the Mortgage
Note or any  payment of  interest  thereon  is not paid when due,  or in case it
becomes  necessary to protect the security for this Mortgage Note,  whether suit
is brought or not.                                                              

     APPLICATION OF CERTAIN PAYMENTS. In no event shall the Borrower be required
to make any payment  hereunder which would violate any applicable law regulating
or limiting the rate of interest  that the Holder may lawfully  collect.  If any
such payment is made by or for the account of the Borrower,  such payment shall,
to the extent it exceeds  the  maximum  payment  that the  Holder  lawfully  may
collect, be applied toward reduction of the principal balance hereof.           

     INDEPENDENT OBLIGATIONS. The Borrower acknowledges and agrees that: (a) the
Seller  is a  wholly-owned  subsidiary  of  Meritage;  (b)  under  the  Purchase
Agreement dated April 16, 1998,  between the Seller and Innkeeper's  Management,
LLC  (the  "Purchase  Agreement"),  neither  the  Seller  nor  Meritage  had  an
obligation  to extend  the  credit  evidenced  hereby;  and (c) the  obligations
evidenced by this Mortgage Note are independent obligations of the Borrower, and
that no claim that the Borrower now or hereafter may have against the Seller, or
the Holder,  or any other person or entity whatever,  shall give rise to a right
of set-off  under this  Mortgage  Note or otherwise  constitute a defense to the
payment of principal or interest  when due under this  Mortgage  Note. No claims
that the Borrower now or hereafter may have against the Seller,  the Holder,  or
any other person, may be asserted, by way of defense or otherwise, in any action
that the Holder may bring to collect the indebtedness evidenced by this Mortgage
Note, or to enforce any of the Collateral Security  Documents,  and the Borrower
acknowledges  that any such  claims  must be pursued by it in a separate  action
initiated by the Borrower,  and that the Borrower shall have no right to seek to
have any such separate action  consolidated  with any action that the Holder may
bring to collect the indebtedness evidenced by this Mortgage Note, or to enforce
any of the Collateral Security Documents.                                       

     ASSIGNMENT  AND  TRANSFER;  SUB-NOTES;  BORROWER  ESTOPPEL.  The Holder may
assign  or  otherwise  transfer  this  Mortgage  Note (or  direct  interests  or
participation  interests in this Mortgage Note) at any time without notice to or
consent from the Borrower. If the Holder elects to sell direct interests in this
Mortgage Note, the Borrower shall,  within three (3) Business Days after written
request  by  the  Holder,   execute  and  deliver  replacement   Mortgage  Notes
(collectively the "Sub-Notes"), identical in form and substance to this Mortgage
Note except as to principal  amount,  in the aggregate amount of the then unpaid
principal  balance of this Mortgage Note. The Borrower  shall,  within three (3)
Business  Days after  written  request by the Holder,  certify in writing to the
Holder,  and to any other  person(s)  named by the Holder:  (a) the then current
outstanding  principal balance of this Mortgage Note (if there is a disagreement
between the Borrower and the Holder concerning the outstanding principal balance
of this Mortgage Note, the Borrower shall furnish to the Holder,  at the time of
making the written statement required by this paragraph, copies of all documents
evidencing the principal  payments  theretofore  made by the Borrower);  (b) the
date  through  which  interest  has  then  been  paid;  (c) the  absence  of any
amendments or agreements  modifying or otherwise  affecting the  obligations set

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forth in this  Mortgage  Note (or,  if any such  amendments  or  agreements  are
alleged  to  exist,   attaching  copies  of  any  such  written  agreements  and
describing,  by sworn statement of Donald W. Reynolds or William F. Ehinger, all
material  terms and  conditions  of any such oral  agreements  as are alleged to
exist);  (d) the absence of any known defenses to the  obligations  set forth in
this Mortgage Note and the absence of any known claims that could be asserted by
the  Borrower or any other  person  against the Holder (or, if such  defenses or
claims are alleged to exist,  stating,  by sworn statement of Donald W. Reynolds
or William F. Ehinger,  the factual  basis for such claims or defenses  together
with copies of all documents  supporting  or otherwise  relating to such alleged
claims and defenses;  (f) confirming the Borrower's  agreement that (i) any such
claims as may be alleged to exist are independent of the Borrower's  obligations
under this Mortgage  Note, and shall in no event give rise to a right of set-off
under this  Mortgage  Note or  otherwise  constitute a defense to the payment of
principal or interest when due under this Mortgage  Note,  and (ii) any proposed
assignee or transferee of this  Mortgage  Note (or a  participation  interest in
this Mortgage Note or a Sub-Note)  shall be entitled to rely upon the Borrower's
written statement in connection with its acquisition of this Mortgage Note (or a
participation interest in this Mortgage Note or a Sub-Note).                    

     COLLATERAL  SECURITY  DOCUMENTS.  This  Mortgage  Note is secured by: (a) a
First  Mortgage of even date herewith  which is a lien upon real property in the
City  of  Port  Huron,  St.  Clair  County,  Michigan  (the  "Mortgage");  (b) a
Continuing  Guaranty  of even date made,  jointly  and  severally,  by Donald W.
Reynolds,  Betty J. Reynolds,  and William F. Ehinger (the "Guaranty");  and (c)
separate  Pledge  Agreements of even date  herewith  pursuant to which Donald W.
Reynolds,  Betty J. Reynolds,  and William F. Ehinger  pledged  certain  capital
stock of GRAND RAPIDS INNKEEPERS  MANAGEMENT,  INC., a Michigan corporation (the
"Pledge Agreements"). The Mortgage, the Guaranty, and the Pledge Agreements, and
all  amendments  thereto  and  replacements  thereof,  are  referred  to in this
Mortgage Note collectively as the "Collateral Security Documents".              

     MISCELLANEOUS.  This Mortgage Note is binding on the Borrower's  successors
and assigns,  and will  operate to the benefit of the Holder and its  successors
and assigns. The use of headings shall not limit the provisions of this Mortgage
Note.  All  discussions  between  the Holder  and the  Borrower  concerning  the
indebtedness  evidenced  hereby  are  merged  into  this  Mortgage  Note and the
Collateral Security Documents. This Mortgage Note may be amended only by written
agreement signed on behalf of the Holder and the Borrower.  The Mortgage Note is
executed  and  delivered  in Kent  County,  Michigan,  and is to be construed in
accordance with the laws of the State of Michigan.                              

     NOTICES TO THE  BORROWER.  Notices to the Borrower  shall be in writing and
shall be deemed to have been given on the date personally delivered or mailed to
the Borrower at its address at 1459  Michigan  Avenue,  Grand  Rapids,  Michigan
49503, or when faxed to the Borrower at (616) 459-7776;  provided, however, that
if such date of delivery is not a Business  Day,  the date of delivery  shall be
the first Business Day after the date of delivery provided above.               

 [SIGNATURE APPEARS ON FOLLOWING PAGE]

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 [SIGNATURE PAGE TO $2 MILLION MORTGAGE NOTE
 FROM REYNOLDS/EHINGER ENTERPRISES, LLC TO
MERITAGE HOSPITALITY GROUP INC.]

WITNESSES:                                 REYNOLDS/EHINGER                     
ENTERPRISES, LLC,                                                               

/s/Ronald E. David                                                              
---------------------------------          By: /s/Donald W. Reynolds            
Ronald E. David                               -----------------------------     
                                       Donald W. Reynolds, Manager

/s/James R. Saalfeld                                                            
----------------------------------                                              
James R. Saalfeld                                                               

STATE OF MICHIGAN     )                                                         
) ss.                               
COUNTY OF KENT        )                                                         

     The  foregoing  instrument  was  acknowledged  before  me  this  1st day of
September,  1998, by Donald W. Reynolds,  who is the Manager of REYNOLDS/EHINGER
ENTERPRISES,  LLC,  a  Michigan  limited  liability  company,  on behalf of such
limited liability company.                                                      

                  /s/Ronald E. David
                                     ---------------------------------------
                                  Notary Public, Kent County, Michigan
                             My commission expires: 8-7-2001

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘8-K’ Filing		Date		First		Last			Other Filings
		8/31/99		1					10-Q
		9/30/98		1
Filed on:		9/9/98
		9/1/98		1
For Period End:		8/1/98
		4/16/98		3
		9/8/95		1
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