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EXHIBIT 4.1
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of August 31, 2001, by and between
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC., a Colorado corporation ("Borrower"), and
XXXXX FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested that Bank extend or continue credit to Borrower
as described below, and Bank has agreed to provide such credit to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Bank has made advances to Borrower from time to
time up to and including August 31, 2001, not to exceed at any time the
aggregate principal amount of Two Million Dollars ($2,000,000.00), on which the
outstanding principal balance as of the date hereof is $2,350,000.00 ("Line of
Credit"). The proceeds of the Line of Credit shall be used to finance accounts
receivables and seasonal inventory build-up. Borrower's obligation to repay
advances under the Line of Credit shall be evidenced by a promissory note.
(b) Limitation on Borrowings. Outstanding borrowings under the Line of
Credit, to a maximum of the principal amount set forth above, shall not at any
time exceed an aggregate of seventy-five percent (75%) of Borrower's eligible
accounts receivable, plus fifty percent (50%) of the value of Borrower's
eligible inventory (exclusive of work in process and inventory which is
obsolete, unsaleable or damaged), with value defined as the lesser of cost or
market value. All of the foregoing shall be determined by Bank upon receipt and
review of all borrowing base reports required hereunder and such other documents
and collateral information as Bank may from time to time require.
As used herein, "eligible accounts receivable" shall consist solely of
receivables and notes receivable created in the ordinary course of Borrower's
business, upon which Borrower's right to receive payment is absolute and not
contingent upon the fulfillment of any condition whatsoever, and in which Bank
has a perfected security interest of first priority, and shall not include:
(i) any account which is more than ninety (90) days past due;
(ii) royalty receivables;
(iii) that portion of any account for which there exists any
right of setoff, defense or discount (except regular discounts allowed
in the ordinary course of business to promote prompt payment) or for
which any defense or counterclaim has been asserted;
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(iv) any account which represents an obligation of any state
or municipal government or of the United States government or any
political subdivision thereof (except accounts which represent
obligations of the United States government and for which the
assignment provisions of the Federal Assignment of Claims Act, as
amended or recodified from time to time, have been complied with to
Bank's satisfaction);
(v) any account which represents an obligation of an account
debtor located in a foreign country, except to the extent any such
account, in Bank's determination, is supported by a letter of credit or
insured under a policy of foreign credit insurance, in each case in
form, substance and issued by a party acceptable to Bank;
(vi) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of, an
employee, affiliate, partner, member, parent or subsidiary of Borrower;
and
(vii) that portion of any account, which represents interim or
progress xxxxxxxx or retention right on the part of the account debtor.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided, however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above. Notwithstanding the foregoing, Borrower shall maintain a zero balance on
advances under the Line of Credit for a period of at least 30 consecutive days
during the term of the Line of Credit.
SECTION 1.2. TERM LOAN A.
(a) Term Loan A. Bank has made a loan to Borrower in the original
principal amount of One Million Dollars ($1,000,000.00) ("Term Loan A"), due 3
years from origination, the proceeds of which shall be used to repurchase
Borrower's common stock. Borrower's obligation to repay Term Loan A shall be
evidenced by a promissory note. All advances under Term Loan A must be made
within one (1) year of origination. Any amounts not advanced prior to such time,
shall not be advanced to Borrower by Bank.
(b) Repayment. The principal amount of the Term Loan A shall be repaid
in accordance with the provisions of the Term Note A.
(c) Prepayment. Borrower may prepay principal on the Term Loan A solely
in accordance with the provisions of the Term Note A.
SECTION 1.3. TERM LOAN B.
(a) Term Loan B. Bank has made a loan to Borrower in the original
principal amount of Two Million Eight Hundred Thousand Dollars ($2,800,000.00)
("Term Loan B"), due 4 years from origination, on which the outstanding
principal balance as of the date hereof is $926,768.84, ("Term Loan B"), the
proceeds of which shall be used to repay existing Bank debt and to replenish
working capital. Borrower's obligation to repay Term Loan B shall be evidenced
by a promissory note.
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(b) Repayment. The principal amount of the Term Loan B shall be repaid
in accordance with the provisions of the Term Note B.
(c) Prepayment. Borrower may prepay principal on the Term Loan B solely
in accordance with the provisions of the Term Note B.
SECTION 1.4. TERM LOAN C.
(a) Term Loan. Bank has made a loan to Borrower in the original
principal amount of Two Million Ninety Two Thousand Five Hundred Dollars
($2,092,500.00) ("Term Loan C"), with a 15 year term, on which the outstanding
principal balance as of the date hereof is $1,776,332.87, the proceeds of which
shall be used to term out a portion of the line of credit and renew existing
debt. Borrower's obligation to repay Term Loan C shall be evidenced by a
promissory note.
(b) Repayment. The principal amount of the Term Loan C shall be repaid
in accordance with the provisions of the Term Note C.
(c) Prepayment. Borrower may prepay principal on the Term Loan C solely
in accordance with the provisions of the Term Note C.
SECTION 1.5. TERM LOAN D.
(a) Term Loan. Bank has made a loan to Borrower in the original
principal amount of Two Hundred Fifty Two Thousand Five Hundred and Seventy
Three Dollars ($252,573.00) ("Term Loan D"), on which the outstanding principal
balance as of the date hereof is $134,929.17 ("Term Loan D"), due on February
28, 2003, the proceeds of which were used to purchase equipment. Borrower's
obligation to repay Term Loan D shall be evidenced by a promissory note
(b) Repayment. The principal amount of the Term Loan D shall be repaid
in accordance with the provisions of the Term Note D.
(c) Prepayment. Borrower may prepay principal on the Term Loan D solely
in accordance with the provisions of the Term Note D.
SECTION 1.6. LOAN COMMITMENT.
(a) Loan Commitment. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time not
to exceed the aggregate principal amount of Seven Hundred Thousand Dollars
($700,000.00) ("Loan Commitment"), the proceeds of which shall be used replenish
working capital and finance the purchase of equipment. Individual loans booked
under this commitment will mature in five years when secured by primarily
manufacturing equipment and three years when secured primarily by computer
equipment. The amount of each loan will not exceed 80% of the purchase price of
the primary collateral securing the loan. The Borrowers obligation to repay
advances under the Loan Commitment shall be evidenced by a promissory note.
(b) Limitation on Borrowings. Individual loans will be booked under
this commitment with a minimum individual loan amount of One Hundred Thousand
Dollars ($100,000.00). Each
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request for an advance under the Loan Commitment shall be accompanied by a
breakdown of the use of all funds requested on such form as Bank may from time
to time provide to Borrower.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Loan Commitment borrow and partially or wholly repay its outstanding
borrowings, provided that amounts repaid may not be reborrowed, subject to all
the limitations, terms and conditions contained herein; provided however, that
the total outstanding borrowings under the Loan Commitment shall not exceed the
maximum principal amount available thereunder, as set forth above.
(d) Prepayment. Borrower may prepay principal on the Loan Commitment
solely in accordance with the provisions of the Loan Commitment Note.
SECTION 1.7. INTEREST/FEES.
(a) Interest. The outstanding principal balance of each credit subject
hereto shall bear interest from the date such draft is paid to the date such
amount is fully repaid by Borrower, at the rate of interest set forth in each
promissory note or other instrument executed in connection therewith.
SECTION 1.8. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's equipment, machinery, fixtures, accounts receivables, notes
receivables, inventory, general intangibles and a lien of not less than first
priority on that certain real property located at 000 Xxxxxx Xxxxx, Xxxx
Xxxxxxxxxx Xxxx and a 2 acre parcel adjacent thereto (collectively, the "Real
Estate").
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the state of Colorado, and
is qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each
promissory note, contract, instrument and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have
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been duly authorized, and upon their execution and delivery in accordance with
the provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated May 31, 2001, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles for interim financial statements
consistently applied. Since the date of such financial statement there has been
no material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
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SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
SECTION 2.12. REAL PROPERTY COLLATERAL. Except as disclosed by Borrower
to Bank in writing prior to the date hereof, with respect to any real property
collateral required hereby:
(a) All taxes, governmental assessments, insurance premiums, and water,
sewer and municipal charges, and rents (if any) which previously became due and
owing in respect thereof have been paid as of the date hereof.
(b) There are no mechanics' or similar liens or claims which have been
filed for work, labor or material (and no rights are outstanding that under law
could give rise to any such lien) which affect all or any interest in any such
real property and which are or may be prior to or equal to the lien thereon in
favor of Bank.
(c) None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of the
boundaries and/or building restriction lines thereof, and no improvements on
adjoining properties materially encroach upon any such real property.
(d) There is no pending, or to the best of Borrower's knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good repair
and free and clear of any damage that would materially and adversely affect the
value thereof as security and/or the intended use thereof.
ARTICLE III
CONDITIONS
SECTION 3.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
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(b) Documentation. Bank shall have received each of the Loan Documents,
duly executed and in form and substance satisfactory to Bank.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank, including, without
limitation, policies of fire and extended coverage insurance covering all real
property collateral required hereby, with replacement cost and mortgagee loss
payable endorsements, and such policies of insurance against specific hazards
affecting any such real property as may be required by governmental regulation
or Bank.
(e) Appraisals. Bank shall have obtained, at Borrower's cost, an
appraisal of all real property collateral required hereby, and all improvements
thereon, issued by an appraiser acceptable to Bank and in form, substance and
reflecting values satisfactory to Bank, in its discretion.
(f) Title Insurance. Bank shall have received an ALTA Policy of Title
Insurance, with such endorsements as Bank may require issued by a company and in
form and substance satisfactory to Bank insuring Bank's lien on the real
property collateral required hereby to be of the priority set forth in Section
1.9 hereof, subject only to such exceptions as Bank shall approve in its
discretion, with all costs thereof to be paid by Borrower.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
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SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any credit subject
hereto at any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
account acceptable to Bank, to include balance sheet, income statement and a
properly completed United States Securities and Exchange Commission ("SEC") Form
10K, and within 90 days after filing, but in no event later than each December
1, copies of Borrower's filed federal income tax returns for such year;
(b) not later than 30 days after and as of the end of each month, a
financial statement of Borrower, prepared by Borrower, to include balance sheet
and income statement;
(c) not later than 45 days after and as of the end of each quarter, a
properly completed SEC Form 10Q, prepared by Borrower;
(d) not later than 30 days after and as of the end of each month, a
borrowing base certificate;
(e) not later than 90 days after and as of the end of each year, a list
of monthly projections of Borrower's business for the coming year and a list of
annual projections for the coming three (3) years; and
(f) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals
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and replacements thereto so that such properties shall be fully and efficiently
preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income taxes and state
and local property taxes and assessments, except such (a) as Borrower may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision in accordance with GAAP, for eventual payment
thereof in the event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$500,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as of each quarter using generally accepted accounting principles for
interim financial statements consistently applied:
(a) Current Ratio not at any time less than 1.2 to 1.0, with "Current
Ratio" defined as total current assets divided by total current liabilities.
(b) Working Capital not at any time less than $1,200,000.00, with
"Working Capital" defined as total current assets minus total current
liabilities.
(c) Tangible Net Worth not at any time less than $6,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets; provided, however, if Term Loan A
shall become fully funded, Tangible Net Worth shall not be less than
$5,000,000.00 for the two (2) quarters following such funding.
(d) Total Liabilities divided by Tangible Net Worth shall not at any
time be greater than 1.6 to 1.0, with "Total Liabilities" defined as the
aggregate of current liabilities and non-current liabilities less subordinated
debt, and with "Tangible Net Worth" as defined above; provided, however, if Term
Loan A shall become fully funded, Total Liabilities divided by Tangible Net
Worth shall not be greater than 2.0 to 1.0 for the two (2) quarters following
such funding.
(e) Cash Flow Coverage Ratio at any time less than 1.25x, with "Cash
Flow Coverage Ratio" defined as the ratio of net income plus depreciation, plus
interest, plus amortization, plus bad debt and all other non-cash deductions to
current Bank principal payments, plus current Bank interest payments, plus all
other current principal and interest payments owed to other creditors, if any.
(f) A Loan To Value Ratio ("LTV") with respect to the Real Estate of no
less than 75%, with LTV defined as the ratio between the amount of the loan and
the appraised value of the security for the loan, expressed as a percentage of
the appraised value. If (i) the market value of the Real Estate has declined,
(ii) the Debt Service Coverage Ratio has fallen below 1.25:1.0, or (iii) the
Bank's regulatory requirements have changed, the Bank may require that the Real
Estate be reappraised at Borrower's expense, and in the event of a decline in
the value of the Real Estate, that the Borrower reduce the amounts outstanding
under Term Loan C or take such measures as the Bank may require at that time.
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SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; (d) any termination or cancellation
of any insurance policy which Borrower is required to maintain, or any uninsured
or partially uninsured loss through liability or property damage, or through
fire, theft or any other cause affecting Borrower's property; (e) litigation
against Borrower that could reasonably impair Bank's collateral hereunder; (f)
Borrower's intent to acquire additional factory facilities and/or other business
operations; provided, however, nothing set forth herein shall in any way
abrogate Borrower's obligation to comply with Section 5.2 of this Agreement.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets for fiscal year ended February 28, 2002 in excess of an aggregate
of $700,000.00. This amount shall be adjusted annually by Bank in its sole
discretion.
SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several in excess of $100,000 without banks prior written
consent, except (a) the liabilities of Borrower to Bank, and (b) any other
liabilities of Borrower existing as of, and disclosed to Bank prior to, the date
hereof.
SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business; nor change its management,
management's ownership, or corporate headquarters without providing Bank with at
least ten days (10) prior written notice.
SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank; provided, however, nothing
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contained herein shall prohibit Borrower from issuing a Guarantee for the
leasehold interest of Borrower's franchisees.
SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity in excess of $200,000.00 without
Bank's prior written consent.
SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof.
SECTION 5.9. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash or any other property on Borrower's stock now or
hereafter outstanding without Bank's prior written consent.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents.
(b) Any financial statement made in accordance with GAAP or certificate
furnished to Bank in connection with, or any representation or warranty made by
Borrower or any other party under this Agreement or any other Loan Document
shall prove to be incorrect, false or misleading in any material respect when
furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief
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under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended
or recodified from time to time ("Bankruptcy Code"), or under any state or
federal law granting relief to debtors, whether now or hereafter in effect; or
any involuntary petition or proceeding pursuant to the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors is filed or commenced against Borrower, or Borrower
shall file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against Borrower by any court
of competent jurisdiction under the Bankruptcy Code or any other applicable
state or federal law relating to bankruptcy, reorganization or other relief for
debtors.
(g) There shall exist or occur any event or condition which Bank in
good faith believes impairs, or is substantially likely to impair, the prospect
of payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower; or Borrower or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
(i) Not withstanding anything to the contrary set forth in any
promissory note executed in connection with each credit subject hereto, any
change in ownership during the term of this Agreement of an aggregate of fifty
percent (50%) or more of the common stock of Borrower.
(j) The sale, transfer, hypothecation, assignment or encumbrance,
whether voluntary, involuntary or by operation of law, without Bank's prior
written consent, of all or any part of or interest in any real property
collateral required hereby.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and after five (5) days
notice, become immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are hereby expressly waived by Borrower; (b)
the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents shall immediately cease and terminate; and (c) Bank shall have
all rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any credit subject hereto and to exercise any or all of the rights
of a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of
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any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such
writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
000 Xxxxxx Xxxxx
Xxxxxxx, XX 00000
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
000 Xxxx. Xxxxxxx Xxxxx
Xxxxxxx, XX 00000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail return receipt required and postage prepaid; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however that,
except as otherwise set forth in any of the other Loan Documents, Borrower may
not assign or transfer its interest hereunder without Bank's prior written
consent. Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to each credit subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only in writing signed by each
party hereto.
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SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
SECTION 7.11. ARBITRATION.
(a) Arbitration. The parties hereto agree, upon demand by any party, to
submit to binding arbitration all claims, disputes and controversies between or
among them (and their respective employees, officers, directors, attorneys, and
other agents), whether in tort, contract or otherwise arising out of or relating
to in any way (i) the loan and related Loan Documents which are the subject of
this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.
(b) Governing Rules. Any arbitration proceeding will (i) proceed in a
location in Colorado selected by the American Arbitration Association ("AAA");
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA's commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA's optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the "Rules"). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or
any similar applicable state law.
(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property
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collateral; (ii) exercise self-help remedies relating to collateral or proceeds
of collateral such as setoff or repossession; or (iii) obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment or the
appointment of a receiver, before during or after the pendency of any
arbitration proceeding. This exclusion does not constitute a waiver of the right
or obligation of any party to submit any dispute to arbitration or reference
hereunder, including those arising from the exercise of the actions detailed in
sections (i), (ii) and (iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in
which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator selected according to the Rules, and who shall not render an
award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of Colorado or a neutral retired judge of the
state or federal judiciary of Colorado, in either case with a minimum of ten
years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The arbitrator will determine whether or not an issue
is arbitratable and will give effect to the statutes of limitation in
determining any claim. In any arbitration proceeding the arbitrator will decide
(by documents only or with a hearing at the arbitrator's discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state
a claim or motions for summary adjudication. The arbitrator shall resolve all
disputes in accordance with the substantive law of Colorado and may grant any
remedy or relief that a court of such state could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award. The arbitrator shall also have the power to award recovery of all costs
and fees, to impose sanctions and to take such other action as the arbitrator
deems necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Colorado Rules of Civil Procedure or other applicable
law. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(e) Discovery. In any arbitration proceeding discovery will be
permitted in accordance with the Rules. All discovery shall be expressly limited
to matters directly relevant to the dispute being arbitrated and must be
completed no later than 20 days before the hearing date and within 180 days of
the filing of the dispute with the AAA. Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
(f) Class Proceedings and Consolidations. The resolution of any dispute
arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.
(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award
all costs and expenses of the arbitration proceeding.
(h) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA. No arbitrator or other party to an arbitration proceeding
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may disclose the existence, content or results thereof, except for disclosures
of information by a party required in the ordinary course of its business or by
applicable law or regulation. If more than one agreement for arbitration by or
between the parties potentially applies to a dispute, the arbitration provision
most directly related to the Loan Documents or the subject matter of the dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
BORROWER:
ROCKY MOUNTAIN CHOCOLATE
FACTORY, INC.,
a Colorado corporation
By: /s/ Xxxxx Xxxxxxxx
------------------------------
Name: Xxxxx Xxxxxxxx
----------------------------
Title: COO
---------------------------
BANK:
XXXXX FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Xxxx Xxxxx
------------------------------
Name: Xxxx Xxxxx
----------------------------
Title: VP
---------------------------
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