Exhibit 10.3
BUSINESS LOAN AGREEMENT

                              Principal   Loan Date   Maturity   Loan No   Call
/ Coll   Account   Officer   Initials $5,000,000.00   07-31-2010   07-31-2011  
7657418442-26       10070010842   K0096       References in the shaded area are
for Lender’s use only and do not limit the applicability of this document to any
particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

             
Borrower:
  Rocky Mountain Chocolate Factory, Inc.   Lender:   Wells Fargo Bank, National
Association
 
  265 Turner Drive       Durango Main
 
  Durango.CO 81303       200 West College Drive
 
          Durango, CO 81301

 
THIS BUSINESS LOAN AGREEMENT dated July 31, 2010, is made and executed between
Rocky Mountain Chocolate Factory, Inc. (“Borrower”) and Wells Fargo Bank,
National Association (“Lender”) on the following terms and conditions. Borrower
has received prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans or other financial accommodations, including those
which may be described on any exhibit or schedule attached to this Agreement.
Borrower understands and agrees that: (A) in granting, renewing, or extending
any Loan, Lender is relying upon Borrower’s representations, warranties, and
agreements as set forth in this Agreement; (B) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender’s sole
judgment and discretion; and (C) all such Loans shall be and remain subject to
the terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of July 31, 2010, and shall continue
in full force and effect until such time as all of Borrower’s Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses,
attorneys’ fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender’s satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the
Loan: (1) the Note; (2) Security Agreements granting to Lender security
interests in the Collateral; (3) financing statements and all other documents
perfecting Lender’s Security Interests; (4) evidence of insurance as required
below; (5) together with all such Related Documents as Lender may require for
the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.
Borrower’s Authorization. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related Documents. In
addition, Borrower shall have provided such other resolutions, authorizations,
documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in this
Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth in
this Agreement, in the Related Documents, and in any document or certificate
delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement or
under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times
shall be, duly organized, validly existing, and in good standing under and by
virtue of the laws of the State of Colorado. Borrower is duly authorized to
transact business in all other states in which Borrower is doing business,
having obtained all necessary filings, governmental licenses and approvals for
each state in which Borrower is doing business. Borrower maintains an office at
265 Turner Drive, Durango, CO 81303. Unless Borrower has designated otherwise in
writing, the principal office is the office at which Borrower keeps its books
and records including its records concerning the Collateral. Borrower will
notify Lender prior to any change in the location of Borrower’s state of
organization or any change in Borrower’s name.
Assumed Business Names. Borrower has filed or recorded all documents or filings
required by law relating to all assumed business names used by Borrower.
Excluding the name of Borrower, the following is a complete list of all assumed
business names under which Borrower does business: None.
Authorization. Borrower’s execution, delivery, and performance of this Agreement
and all the Related Documents have been duly authorized by all necessary action
by Borrower and do not conflict with, result in a violation of, or constitute a
default under (1) any provision of (a) Borrower’s articles of incorporation or
organization, or bylaws, or (b) any agreement or other instrument binding upon
Borrower or (2) any law, governmental regulation, court decree, or order
applicable to Borrower or to Borrower’s properties.
Properties. Except as contemplated by this Agreement or as previously disclosed
in Borrower’s financial statements or in writing to Lender and as accepted by
Lender, and except for property tax liens for taxes not presently due and
payable, Borrower owns and has good title to all of Borrower’s properties free
and clear of all liens and security interests, and has not executed any security
documents or financing statements relating to such properties. All of Borrower’s
properties are titled in Borrower’s legal name, and Borrower has not used or
filed a financing statement under any other name for at least the last five
(5) years.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect. Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all
material adverse changes in Borrower’s financial condition, and (2) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial condition
of any Guarantor.

 

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Loan No: 7657418442-29   BUSINESS LOAN AGREEMENT   Page 2     (Continued)      
         

Financial Records. Maintain its books and records in accordance with accounting
principles acceptable to Lender, applied on a consistent basis, and permit
Lender to examine and audit Borrower’s books and records at all reasonable
times.
Financial Statements. Furnish Lender with such financial statements and other
related information at such frequencies and in such detail as Lender may
reasonably request.
Loan Proceeds. Use all Loan proceeds solely for Borrower’s business operations,
unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower’s properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (1) the legality of the same shall be
contested in good faith by appropriate proceedings, and (2) Borrower shall have
established on Borrower’s books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance. Perform and comply, in a timely manner, with all terms, conditions,
and provisions set forth in this Agreement, in the Related Documents, and in all
other instruments and agreements between Borrower and Lender. Borrower shall
notify Lender immediately in writing of any default in connection with any
agreement.
Operations. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and
regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower’s properties, businesses and operations,
and to the use or occupancy of the Collateral, including without limitation, the
Americans With Disabilities Act. Borrower may contest in good faith any such
law, ordinance, or regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Borrower has notified Lender in
writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s
interests in the Collateral are not jeopardized. Lender may require Borrower to
post adequate security or a surety bond, reasonably satisfactory to Lender, to
protect Lender’s interest.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower’s other
properties and to examine or audit Borrower’s books, accounts, and records and
to make copies and memoranda of Borrower’s books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower’s expense.
LENDER’S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender’s interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower’s failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take
any action that Lender deems appropriate on any Collateral and paying all costs
for insuring, maintaining and preserving any Collateral. All such expenditures
incurred or paid by Lender for such purposes will then bear interest at the rate
charged under the Note from the date incurred or paid by Lender to the date of
repayment by Borrower. All such expenses will become a part of the Indebtedness
and, at Lender’s option, will (A) be payable on demand; (B) be added to the
balance of the Note and be apportioned among and be payable with any installment
payments to become due during either (1) the term of any applicable insurance
policy; or (2) the remaining term of the Note; or (C) be treated as a balloon
payment which will be due and payable at the Note’s maturity.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan advances or to disburse Loan proceeds if:
(A) Borrower or any guarantor is in default under the terms of this Agreement or
any other agreement that Borrower or any guarantor has with Lender; (B) Borrower
or any guarantor dies, becomes incompetent or becomes insolvent, files a
petition in bankruptcy or similar proceedings, or is adjudged a bankrupt;
(C) there occurs a material adverse change in Borrower’s financial condition, in
the financial condition of any guarantor, or in the value of any collateral
securing any Loan; or (D) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor’s guaranty of the Loan or any other loan
with Lender; or (E) Lender in good faith deems itself insecure, even though no
Event of Default shall have occurred.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower’s accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender’s option, to
administratively freeze all such accounts to allow Lender to protect Lender’s
charge and setoff rights provided in this paragraph.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Default. Borrower fails to comply with any other term, obligation,
covenant or condition contained in this Agreement or in any of the Related
Documents.
Default in Favor of Third Parties. Borrower defaults under any loan, extension
of credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower’s property or Borrower’s ability to repay the Loans or perform
Borrower’s obligations under this Agreement or any related document.
False Statements. Any representation or statement made by Borrower to Lender is
false in any material respect.
Insolvency. The dissolution or termination of Borrower’s existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower’s property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of

 

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any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the Loan.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Insecurity. Lender in good faith believes itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement immediately will terminate
(including any obligation to make further Loan Advances or disbursements), and,
at Lender’s option, all Indebtedness immediately will become due and payable,
all without notice of any kind to Borrower, except that in the case of an Event
of Default of the type described in the “Insolvency” subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents or available at
law, in equity, or otherwise. Except as may be prohibited by applicable law, all
of Lender’s rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender’s right to declare a default and to exercise its rights and
remedies.
FACSIMILE AND COUNTERPART. This document may be signed in any number of separate
copies, each of which shall be effective as an original, but all of which taken
together shall constitute a single document. An electronic transmission or other
facsimile of this document or any related document shall be deemed an original
and shall be admissible as evidence of the document and the signer’s execution.
SECURITY INTEREST AND RIGHT OF SETOFF. In addition to all liens upon and rights
of setoff arising by law, Borrower pledges and grants to Lender as security for
Borrower’s indebtedness and obligations under the Note (excluding any consumer
obligations subject to the Federal Truth In Lending Act) a security interest and
lien upon all monies, securities, securities accounts, brokerage accounts,
deposit accounts and other property of Borrower now or hereafter in the
possession of or on deposit with Lender or any Wells Fargo Affiliate, whether
held in a general or special account or for safekeeping or otherwise, excluding
however all IRA and Keogh accounts. No security interest, lien or right of
setoff will be deemed to have been waived by any act or conduct on the part of
Lender, or by any neglect to exercise such right, or by any delay in so doing,
and every right of setoff, lien and security interest will continue in full
force and effect until specifically waived or released by Lender in writing.
INSURANCE. Borrower shall assure that insurance is maintained pursuant to any
insurance requirements set forth in the Agreement To Provide Insurance and /or
other Related Documents, if applicable.
A. ARBITRATION AGREEMENT. Arbitration — Binding Arbitration. Lender and each
party to this agreement, hereby agree, upon demand by any party, to submit any
Dispute to binding arbitration in accordance with the terms of this Arbitration
Program. A “Dispute” shall include any dispute, claim or controversy of any
kind, whether in contract or in tort, legal or equitable, now existing or
hereafter arising, relating in any way to any aspect of this agreement, or any
related agreement incorporating this Arbitration Program (the “Documents”), or
any renewal, extension, modification or refinancing of any indebtedness or
obligation relating thereto, including without limitation, their negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination. DISPUTES SUBMITTED TO ARBITRATION ARE NOT RESOLVED IN COURT BY A
JUDGE OR JURY. Governing Rules. Any arbitration proceeding will (i) 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 (ii) be conducted by the American Arbitration
Association (“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.
Arbitration proceedings hereunder shall be conducted at a location mutually
agreeable to the parties, or if they cannot agree, then at a location selected
by the AAA in the state of the applicable substantive law primarily governing
the Note. 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. Arbitration may be
demanded at any time, and may be compelled by summary proceedings in Court. 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. The
arbitrator shall award all costs and expenses of the arbitration proceeding.
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.
B. 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 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.
C. 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. Every arbitrator must be a
neutral practicing attorney or a retired member of the state or federal
judiciary, in either case with a minimum of ten years experience in the
substantive law applicable to the subject matter of the Dispute. 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
applicable substantive law 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

 

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Procedure, the applicable State 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.
D. 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. 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.
E. Class Proceedings and Consolidations. No party shall be entitled to join or
consolidate disputes by or against others who are not parties to this agreement
in any arbitration, or to include in any arbitration any dispute as a
representative or member of a class, or to act in any arbitration in the
interest of the general public or in a private attorney general capacity.
F. 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. The
resolution of any Dispute shall be determined by a separate arbitration
proceeding and such Dispute shall not be consolidated with other disputes or
included in any class proceeding. No arbitrator or other party to an arbitration
proceeding 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 documents between the parties
or the subject matter of the Dispute shall control. This arbitration provision
shall survive the repayment of the Note and the termination, amendment or
expiration of any of the documents or any relationship between the parties.
G. State-Specific Provisions.
     If California law governs the Dispute, the following provision is included.
     Real Property Collateral; Judicial Reference: Notwithstanding anything
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shallbe referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA’s selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
     Small Claims Court: Any party may require that a Dispute be resolved in
Small Claims Court if the Dispute and related claims are fully within that
court’s jurisdiction. If Idaho law governs the Dispute, the following provision
is included.
     Real Property Collateral. Notwithstanding anything herein to the contrary,
no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Idaho, thereby agreeing that
all indebtedness and obligations of the parties, and all mortgages, liens and
security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.
     If Montana law governs the Dispute, the following provision is included.
     Real Property Collateral. Notwithstanding anything herein to the contrary,
no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Montana, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.
     If Nevada law governs the Dispute, the following provision is included.
     Real Property Collateral. Notwithstanding anything herein to the contrary,
no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Nevada, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.
     If South Dakota law governs the Dispute, the following provision is
included:
     Real Property Collateral. Notwithstanding anything herein to the contrary,
no Dispute shall be submitted to arbitration if the Dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of South Dakota,. thereby
agreeing that all indebtedness and obligations of the parties, and all
mortgages, liens and security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable.
     If Utah law governs the Dispute, the following provision is included.
     Real Property Collateral; Judicial Reference. Notwithstanding anything
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of Utah,
thereby agreeing, that all indebtedness and obligations of the parties, and all
mortgages, liens and security interests securing such indebtedness and
obligations, shall main fully valid and enforceable. If any such Dispute is not

 

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submitted to arbitration, the Dispute shall be referred to a master in
accordance With Utah Rule of Civil Procedure 53, and this general reference
agreement is intended to be specifically enforceable. A master with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA’s selection procedures. Judgment upon the decision rendered by a master
shall be entered in the court in which such proceeding was commenced in
accordance with Utah Rule of Civil Procedure 53(e).LOAN AGREEMENT PROVISION. The
following covenants apply to the loan evidenced by the Note and to all other
loans or other credit accommodations from Lender to Borrower now existing or
subsequently arising under any future confirmation letter, agreement or
promissory note, excluding any loans or financial accommodations which are not
serviced by the Wells Fargo Business Banking Group, or its successors (“Excluded
Loans”). These covenants supersede and replace any prior financial reporting and
condition covenants and shall survive the payoff of the Note, but shall not
affect any Excluded Loans or covenants which by their nature relate only to a
specific credit transaction.
COVENANTS FOR. Rocky Mountain Chocolate Factory, Inc..
FINANCIAL CONDITION. Borrower shall maintain its financial condition as follows
using generally accepted accounting principles consistently applied and used
consistently with prior practices (except to the extent modified by the
definitions herein):
Definitions:
“Cash Flow” means the sum of net income after taxes plus depreciation expense,
amortization expense, and interest expense less the sum of dividends and
distributions.
“Current Maturities of Long Term Debt” means that portion of the Borrower’s long
term debt and capital leases maturing or scheduled to be paid in the prior
period.
“Current Liabilities” means the aggregate amount of Borrower’s items properly
shown as current liabilities on its balance sheet less any portion of such
current liabilities that constitute Subordinated Debt.
“EBITDA” means net income before tax plus interest expense (net of capitalized
interest expense), depreciation expense and amortization expense.
“Net Worth” means total owners equity.
“Subordinated Debt” means debt that is expressly subordinated to Lender in a
writing acceptable to Lender.
“Tangible Net Worth” means Net Worth less any intangible assets.
“Total Liabilities” means the aggregate amount of Borrower’s items properly
shown as liabilities on its balance sheet.
Current Ratio as of the end of each month not less than 1.5000 to 1.0, with
“Current Ratio” defined as current assets divided by Current Liabilities.
Working Capital as of the end of each month not less than $3,750,000.00, with
“Working Capital” defined as current assets minus Current Liabilities.
Tangible Net Worth as of the end of each month not less than $9,000,000.00.
Total Liabilities divided by Tangible Net Worth as of the end of each quarter
not greater than 1.6000 to 1.0.
Debt Coverage Ratio on a rolling four-quarter basis not less than 1.2500 to 1.0,
with “Debt Coverage Ratio” defined as the ratio of Cash Flow to the sum of
Current Maturities of Long Term Debt plus interest expense.
INTERIM FINANCIAL STATEMENTS. Borrower shall provide to Lender interim financial
statements not later than 45 days after and as of the end of each month,
prepared by Borrower to include a balance sheet as of the end of each such
period, and an income statement and a statement of changes to owner’s equity,
from the beginning of the then fiscal year to the end of such period. If
Borrower has subsidiaries, interim financial statements shall be provided on a
consolidated and consolidating basis. Such financial statements shall be sighed
and dated by Borrower, and by any other party preparing such financial
statements or otherwise authenticated to Lenders satisfaction.
LINE REST REQUIREMENT. Borrower shall maintain a zero balance on the line of
credit governed by this Agreement for a minimum of 30 consecutive days during
the first twelve months of the line of credit, and during each successive
twelve-month period.
ACCOUNTS RECEIVABLES ADVANCE RATES. Limitation on Advances. Amounts outstanding
under any line of credit governed by this Agreement, to a maximum of the
principal remaining available, shall not exceed 75% of Borrowers Eligible
Accounts Receivable as determined by Lender (“Borrowing Base”). All of the
foregoing shall be determined by Lender upon receipt and review of all
collateral reports and borrowing base certificates required hereunder and such
other documents and collateral information as Lender may from time to time
require. In the event for any reason Lender permits the amount of any line of
credit to exceed the applicable percentage of the Borrowing Base, it shall not
constitute a modification or waiver of the terms of this Agreement or Lenders
rights and remedies. If at any time the amount outstanding exceeds the
applicable percentage of the Borrowing Base, Lender in its sole discretion may
require Borrower to immediately make a principal reduction to the balance of the
line of credit sufficient to restore compliance with the Borrowing Base
limitation stated herein.
As used herein, “eligible accounts receivable” shall consist solely of trade
accounts 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 Lender has a perfected
security interest of first priority, and shall not include:
any account which represents an obligation of an account debtor located in a
foreign country, except to the extent any such account, in Lender’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 Lender;
any account which represents an obligation of any account debtor when ten
percent (10%) or more of Borrower’s accounts from such account debtor have not
been fully paid within 90 days of invoice date or within three times the length
of borrower’s normal selling terms, whichever is less, excluding accounts with
extended payment terms acceptable to Lender which are not more than 30 days past
due;
any account deemed ineligible by Lender when Lender, in its sole discretion,
deems the creditworthiness or financial condition of the account debtor, or the
industry in which the account debtor is engaged, to be unsatisfactory.

 

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Loan No: 7657418442-29   BUSINESS LOAN AGREEMENT   Page 6     (Continued)      
                   

ACCOUNTS RECEIVABLE AND OTHER REPORTS. Borrower shall provide the following
reports to Lender, all in a form satisfactory to Lender: not later than 45 days
following, and as of the end of each month, a Borrowing Base certificate.
NEGATIVE COVENANTS. Borrower further covenants that so long as Lender remains
committed to extend credit to Borrower pursuant hereto, or any liabilities
(whether direct or contingent, liquidated or un-liquidated) of Borrower to
Lender under any of the Loan Documents remain outstanding, and until payment in
full of all obligations of Borrower subject hereto, Borrower will not without
Lender’s prior written consent:
CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any
fiscal year in excess of an aggregate of $1,750,000.00.
DIVIDENDS, DISTRIBUTIONS (CORPORATION). Declare or pay any dividends or
distributions, or redeem, retire, repurchase or otherwise acquire any shares of
any class of Borrower’s stock now hereafter outstanding, except that borrower
may do the following: (1) Borrower may declare and pay dividends and
distributions to its shareholders in a total amount not to exceed $4,000,000.00
in the aggregate in any fiscal year, either in cash, stock or any other
property, and in addition, (2) if Borrower is an S corporation, Borrower may
declare and pay cash dividends or distributions to its shareholders in any
fiscal year in a total amount not to exceed the minimum amount required for each
such shareholder to cover the federal and state income tax liability of such
shareholder for the immediately preceding fiscal year arising as a direct result
of Borrower’s reported income for said fiscal year, and shall provide to Lender,
upon request, any documentation required by Lender to substantiate the
appropriateness of amounts paid or to be paid.
OTHER. Fiscal Business Plan
Quarterly 10Q Report.
Annual 10 K Report.
No outside management fee.
No change in corporate headquarters, management or management ownership without
10 day notice.
Notification to bank of franchisee uncured defaults, litigation against company
or intent to acquire additional factory facilities and or other business
operations.
Borrower to give bank opportunity to consider all new borrowed funds requests.
ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default described
herein, the following shall be an Event of Default if applicable: (i) Borrower
or Guarantor fails to comply with any terms or conditions of any agreement with
Lender or any Wells Fargo Affiliate; or (ii) Borrower or Guarantor revoke or
dispute the validity of any of its liabilities or obligations under the
Agreement, or any Related Documents or any other agreement with Lender or any
Wells Fargo Affiliate. For purposes of this provision Wells Fargo Affiliate
shall mean Wells Fargo & any other agreement with Lender or any Wells Fargo
Affiliate. For purposes of this provision Wells Fargo Affiliate shall mean Wells
Fargo & Company and any present or future subsidiary of Wells Fargo & Company.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined inthis Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:
Advance. The word “Advance” means a disbursement of Loan funds made, or to be
made, to Borrower or on Borrower’s behalf on a line of credit or multiple
advance basis under the terms and conditions of this Agreement.
Agreement. The word “Agreement” means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Business Loan Agreement from
time to time.
Borrower. The word “Borrower” means Rocky Mountain Chocolate Factory, Inc. and
includes all co-signers and co-makers signing the Note and all their successors
and assigns.
Collateral. The word “Collateral” means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor’s lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention contract,
lease or consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or otherwise.
Event of Default. The words “Event of Default” mean any of the events of default
set forth in this Agreement in the default section of this Agreement.
GAAP. The word “GAAP” means generally accepted accounting principles.
Grantor. The word “Grantor” means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including without
limitation all Borrowers granting such a Security Interest.
Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation
party of any or all of the Loan.
Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the
Note or Related Documents, including all principal and interest together with
all other indebtedness and costs and expenses for which Borrower is responsible
under this Agreement or under any of the Related Documents.
Lender. The word “Lender” means Wells Fargo Bank, National Association, its
successors and assigns.

 

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Loan No: 7657418442-29   BUSINESS LOAN AGREEMENT   Page 7     (Continued)      
         

Loan. The word “Loan” means any and all loans and financial accommodations from
Lender to Borrower whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations described
herein or described on any exhibit or schedule attached to this Agreement from
time to time.
Note. The word “Note” means the Note executed by Rocky Mountain Chocolate
Factory, Inc. in the principal amount of $5,000,000.00 dated July 31, 2010,
together with all renewals of, extensions of, modifications of, refinancing of,
consolidations of, and substitutions for the note or credit agreement.
Related Documents. The words “Related Documents” mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Loan.
Security Agreement. The words “Security Agreement” mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
Security Interest. The words “Security Interest” mean, without limitation, any
and all types of collateral security, present and future, whether in the form of
a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever whether created by law, contract,
or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED JULY 31, 2010.
BORROWER:

          ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
      By:   /s/ Bryan Merryman         Bryan Merryman, CFO/COO of Rocky
Mountain        Chocolate Factory, Inc.        LENDER:

WELLS FARGO BANK, NATIONAL ASSOCIATION
      By:   /s/ Mike Field         Authorized Signer             

 

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ADDENDUM TO BUSINESS LOAN AGREEMENT
     THIS ADDENDUM is attached to and made a part of that certain Business Loan
Agreement (the “Agreement”) dated 7/31/10 , executed by Rocky Mountain Chocolate
Factory, Inc. (“Borrower”) in favor of Wells Fargo Bank, National Association
(“Bank”), executed in connection with that certain Note in the principal amount
of $5,000,000.00 . This Addendum may be attached to and shall be considered a
part of the Loan Agreement, and shall supplement the Loan Agreement. Capitalized
terms not defined herein shall have the meanings defined for them in the
Agreements.
     The following provisions are hereby amended in the Agreement:
     1. Loan Proceeds on Page 2 of the Agreement is amended to now read:
     “Loan Proceeds. Use all Loan proceeds solely for Borrower’s business
operations to include stock repurchase, unless specifically consented to the
contrary by Lender in writing.”
     2. The third sentence under RIGHT OF SETOFF on Page 2 of the Agreement is
amended to now read:
     “However, this does not include any IRA or Keogh accounts, 401(k)’s, or any
trust accounts for which setoff would be prohibited by law.”
     3. ADDITIONAL SECURITY on Page 3 of the Agreement should also exclude
401(k)’s.
IN WITNESS WHEREOF, this Addendum has been executed this the 31day of July,
2010, to be effective as of the same date as the Agreement.

          Wells Fargo Bank, National Association
      By:   /s/ Mike Field         Mike Field        Sr. Business Relationship
Manager        Rocky Mountain Chocolate Factory, Inc.
      By:   /s/ Bryan Merryman         Bryan Merryman        CFO/COO