BUSINESS LOAN AGREEMENT  Exhibit 10.3

 
Principal
Loan Date
Maturity
Loan No
Call / Coll
Account
Officer
Initials
$5,000,000.00
08-28-2012
07-31-2013
7657418442-34
 
12080305548
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        

 

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THIS BUSINESS LOAN AGREEMENT dated August 28, 2012, 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 August 28, 2012, 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: 7657418442-34     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.
 
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
 
Continuity of Operations. (1) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change its name, dissolve or transfer or sell Collateral out of the
ordinary course of business, or (3) pay any dividends on Borrower's stock (other
than dividends payable in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if Borrower is a
"Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as
amended), Borrower may pay cash dividends on its stock to its shareholders from
time to time in amounts necessary to enable the shareholders to pay income taxes
and make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of Borrower's
stock, or purchase or retire any of Borrower's outstanding shares or alter or
amend Borrower's capital structure.
 
Agreements. Enter into any agreement containing any provisions which would be
violated or breached by the performance of Borrower's obligations under this
Agreement or in connection herewith.
 
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.
 
 
 

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Loan No: 7657418442-34     BUSINESS LOAN AGREEMENT  Page 3

(Continued)
 
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 Borrowers property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of 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 Lenders 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 any
Related Documents or other related agreements, if applicable.
 
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,
any Guarantor or any grantor of collateral fails to comply with any terms or
conditions of any agreement with Lender or any Wells Fargo Affiliate; (ii)
Borrower or any Guarantor revokes or disputes the validity of any of its
liabilities or obligations under any Note, related agreement, or any other
agreement with Lender or any Wells Fargo Affiliate; (iii) any change in
ownership of an aggregate of twenty-five percent (25%) or more of the common
stock, members’ equity or other ownership interest in borrower or any partner of
Borrower or any Guarantor, (iv) the withdrawal, resignation or expulsion of any
one or more of the general partners in Borrower or any Guarantor with an
aggregate ownership interest in Borrower or such Guarantor of twenty-five
percent (25%) or more; or (v) Borrower or any Guarantor or any chairman, CEO,
CFO, president, manager or general partner of Borrower or any Guarantor, nor any
officer, member, or shareholder with an ownership interest of 25% or more of
Borrower or any Guarantor, is adjudicated a felon under any criminal law. For
purposes of this provision Wells Fargo Affiliate shall mean Wells Fargo &
Company and any present or future subsidiary of Wells Fargo & Company.
 
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.
Arbitration may be demanded before the institution of a judicial proceeding, or
during a judicial proceeding, but not more than 60 days after service of a
complaint, third party complaint, cross-claim, or any answer thereto, or any
amendment to any of such pleadings. 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 note, instrument or 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. This provision is a material
inducement for the parties entering into the transactions relating to this
Agreement. DISPUTES SUBMITTED TO ARBITRATION ARE NOT RESOLVED IN COURT BY A
JUDGE OR JURY. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE PARTIES IRREVOCABLY
AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO
ANY DISPUTE ARBITRATED PURSUANT TO THIS ARBITRATION PROGRAM.
 
A.     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 are referred to herein, 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. 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, as amended or replaced from time to
time, or any similar applicable state law.
 
 
 

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Loan No: 7657418442-34     BUSINESS LOAN AGREEMENT  Page 4

(Continued)
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 arbitrators 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 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 hereto shall be entitled
to join or consolidate disputes by or against non-parties 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. As used herein, "non-parties" shall mean
all persons and entities except Lender and the party(ies) executing this
agreement or any related Document.
 
F.     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 and the Dispute is governed by the laws of Califomia, Connecticut,
Idaho, Kansas, Montana, Nevada, South Dakota, Virginia or Utah, unless any
conditions for arbitration that may be set forth in the mortgage or deed of
trust are satisfied; if any such Disputes are not referred to arbitration, then
any provision in such mortgage or deed of trust providing for referral of
Disputes to a referee or master under the laws of Califomia, Connecticut, Idaho,
Kansas, Montana, Nevada, South Dakota, Virginia or Utah shall be applicable to
such Disputes.
 
G.     State Specific Provisions,
If Delaware. Pennsylvania or Virginia law governs the Dispute, the following
provision is applicable if there is a Confession of Judgment in the Note, any
Guaranty, or Related Documents:
Confession of Judgment. Notwithstanding anything herein to the contrary, the
arbitration requirement does not limit or preclude the right of Lender to
confess judgment pursuant to a warrant of attorney provision set forth in the
Note, any Guaranty, or Related Documents. No party shall have the right to
demand binding arbitration of any claim, dispute or controversy seeking to (i)
strike-off or open a judgment obtained by confession pursuant to a warrant of
attorney contained in the Note, any Guaranty, or Related Documents, or (ii)
challenge the waiver of a right to prior notice and a hearing before judgment is
entered, or after judgment is entered, but before execution upon the judgment.
Any claims, disputes or controversies challenging the confession of judgment
shall be commenced and prosecuted in accordance with the procedures set forth,
and in the forum specified by the applicable state rules of civil procedure or
other applicable law.
 
If Maryland law governs the Dispute, the following provision is applicable if
there is a Confession of Judgment in the Note, any Guaranty, or Related
Documents:
Confession of Judgment. Notwithstanding anything herein to the contrary, the
arbitration requirement does not limit or preclude the right of Lender to
confess judgment, and no party shall have the right to demand binding
arbitration of any claim, dispute or controversy seeking to open a judgment
obtained by confession. Nothing herein, including the arbitration requirement,
shall limit the right of any party to foreclose judicially or non-judicially
against any real or personal property collateral, or exercise judicial or
non-judicial power of sale rights. No provision regarding submission to a
jurisdiction and/or venue in any court or the waiver of any right to trial by
jury is intended or shall be construed to be in derogation of the provisions for
arbitration of any dispute. Any claim or counterclaim or defense raised in
connection with Lender's exercise of any rights set forth in the Note, any
Guaranty, or Related Documents shall be subject to the arbitration requirement.
 
If South Carolina law governs the Dispute, the following provision is included:
WAIVER OF JURY TRIAL. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, WITHOUT
INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO ARBITRATE ANY DISPUTE AS
SET FORTH IN THIS MORTGAGE, TO THE EXTENT ANY DISPUTE IS NOT SUBMITTED TO
ARBITRATION OR IS DEEMED BY THE ARBITRATOR OR BY ANY COURT WITH JURISDICTION TO
BE NOT ARBITRABLE OR NOT REQUIRED TO BE ARBITRATED, MORTGAGOR AND MORTGAGEE
WAIVE TRIAL BY JURY IN RESPECT OF ANY SUCH DISPUTE AND ANY ACTION ON SUCH
DISPUTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY MORTGAGOR
AND MORTGAGEE, AND MORTGAGOR AND MORTGAGEE HEREBY REPRESENT THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS
EFFECT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO
THE LOAN DOCUMENTS. MORTGAGOR AND MORTGAGEE ARE EACH HEREBY AUTHORIZED TO FILE A
COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF
JURY TRIAL. MORTGAGOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN
REPRESENTED IN THE SIGNING OF THIS MORTGAGE AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY
INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
 
 
 

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Loan No: 7657418442-34     BUSINESS LOAN AGREEMENT  Page 5

(Continued)
 
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 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.
 
LOAN AGREEMENT PROVISION (MASTER LOAN AGREEMENT). 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.
Further, with respect to any prior agreements between Lender and Borrower which
were not executed in connection with any Excluded Loans, if any term or
provision of any such prior agreement conflicts with any term or provision of
this Agreement, then to the extent of such conflict, the terms and provisions of
this Agreement will control.
 
FINANCIAL CONDITION / GAAP COVENANT . 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 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 owner's 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 1.500 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 1.60 to 1.0.
 
Debt Coverage Ratio on a rolling four-quarter basis not less than 1.250 to 1.0,
with "Debt Coverage Ratio" defined as the ratio of Cash Flow to the sum of the
prior period current maturities of long term debt plus interest expense.
 
INTERIM FINANCIAL STATEMENTS (BORROWER) . Borrower shall provide to Lender
interim financial statements not later than 50 days after and as of the end of
each month, prepared by Borrower, to include (but not limited to), 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, all financial statements shall
be provided on a consolidated and consolidating basis. Such financial statements
shall be in form and detail satisfactory to Lender, and signed and dated by
Borrower, and by any other party preparing such financial statements or
otherwise authenticated to Lenders satisfaction.
 
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
Lenders prior written consent:
 
CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any
fiscal year in excess of an aggregate of $5,000,000.00.
 
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, or 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-ADDITIONAL PROVISIONS. Quarterly 10Q Report, within 90 days of quarter
end.
 
Fiscal Business Plan, within 150 days of fiscal year end.
 
Annual 10K Report, within 120 days of year end.
 
 
 
 

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Loan No: 7657418442-34     BUSINESS LOAN AGREEMENT  Page 6

(Continued)
 
No outside management fee.
 
No change in corporate hedquarters, management or management ownership without
30 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.
 
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 RECEIVABLE [AND INVENTORY] 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 an amount (the
"Borrowing Base") equal to 75% of Borrowers Eligible Accounts Receivable as
determined by Lender ("Borrowing Base"). The Borrowing Base shall be determined
by Lender upon receipt and review of all collateral reports and borrowing base
certificates required hereunder and such other documents, collateral information
and inspections 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 Borrowers business, upon which
Borrowers 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:
 
a.      any account which has not been fully paid within 90 days of its invoice
date, or within three times the length of Borrower's normal selling terms,
whichever is less, except with respect to any account for which Borrower has
provided extended payment terms acceptable to the Lender, not to exceed 120 days
from invoice date, any such account which is more than 30 days past due;
 
b.      that portion of any account which constitutes a pre-billing or a "bill
and hold", or a credit memo balance, service charge or finance charge, or for
which there exists any right of setoff, defense, discount allowance (except
regular discounts allowed in the ordinary course of business to promote prompt
payment) or for which any defense or counterclaim has been asserted;
 
c.      any account which represents an obligation of any state or municipal
government or of the United States government, any political subdivision
thereof, or a Native American Sovereign Nation 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 re-codified from time to time, have been complied with
to Bank's satisfaction);
 
d.      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;
 
e.      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;
 
f.      that portion of any account, which represents interim or progress
billings on the part of the account debtor, and any accounts subject to rights
under third-party payment or performance bonds;
 
g.      that portion of any account, which represents retention rights on the
part of the account debtor, and any account subject to rights under third-party
payment or performance bonds;
 
h.      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;
 
j.    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.
 
Inventory Component of the Borrowing Base. In addition to the foregoing Accounts
Receivable component of the Borrowing Base, the Borrowing Base shall include 50%
of the value of Borrower's Eligible Inventory as determined by Lender
 
"Eligible Inventory" shall mean goods that in Lender's determination have broad,
well-defined markets and for which grading and valuation are standardized,
excluding:
 
a.      goods with limited liquidation value, including but not limited to, work
in process, and goods that are obsolete, unsaleable, damaged, slow moving,
custom, private labeled, proprietary or perishable, packaging materials,
supplies, samples, demos, prototypes or cost capitalized to inventory for tax
purposes;
 
b.      goods over which Borrower has limited control, including but not limited
to, goods consigned to others, goods not on Borrower's premises and goods in
transit; and goods at public warehouses for which proper protective
documentation has not been executed; or
 
c.      goods for which Lender does not hold a first priority perfected security
interest, goods subject to legal restrictions, including but not limited to,
goods consigned to Borrower by others, goods located in foreign nations, U.S.
territories or possessions, bill and hold inventory, goods subject to a vendor's
purchase money security interest or other lien, goods in which there are
questions of title or for which an assignment of license has not been perfected,
and in the case of agricultural commodities, goods associated with
unsubordinated grower payables.
 
Eligible Inventory shall be valued at the lower of cost or market value, as
determined by Lender upon receipt and review of collateral reports and documents
as Lender may require. ].
 
ACCOUNTS RECEIVABLE AND OTHER REPORTS . Borrower shall provide the following
reports to Lender, all in a form satisfactory to Lender:
 
 a. not later than 50 days following, and as of the end of each month, a
Borrowing Base certificate.
 
 
 

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Loan No: 7657418442-34     BUSINESS LOAN AGREEMENT  Page 7

(Continued)
 
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 in this 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.
 
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 dated August 28, 2012 and executed by Rocky
Mountain Chocolate Factory, Inc. in the principal amount of $5,000,000.00,
together with all renewals of, extensions of, modifications of, refinancings 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 AUGUST 28, 2012.
 
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   8/28/12  , 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.     SECURITY INTEREST AND RIGHT OF SETOFF on Page 3 of the Agreement should
also exclude 401(k)'s.
 
4.     CONTINUITY OF OPERATIONS on page 2 of the Agreement, the following is
added: 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.
 
IN WITNESS WHEREOF, this Addendum has been executed this 28th day of August,
2011, 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