<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------
FORM 10-Q
----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-------------
Commission file number 333-57931
TUMBLEWEED, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 61-1327945
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1900 Mellwood Avenue, Louisville, Kentucky 40206
(Address of principal executive offices)
(502) 893-0323
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of common stock, par value of $.01 per share, outstanding
on May 5, 1999 was 5,881,543.
Exhibit Index: Pages 18-19
<PAGE>
TUMBLEWEED, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
a) Statements of Operations for the three months ended
March 31, 1999 and 1998 3
b) Balance Sheets as of March 31, 1999 and
December 31, 1998 4
c) Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 6
d) Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signature 20
<PAGE>
<TABLE>
Tumbleweed, Inc.
Statements of Operaions
(Unaudited)
<CAPTION>
Three Months Ended
March 31
1999 1998
-----------------------------
Revenues:
<S> <C> <C>
Restaurant sales $ 11,332,318 $ 8,409,122
Commissary sales 286,237 250,866
Franchise fees and royalties 251,169 185,187
Other revenues 89,645 62,701
---------- ---------
Total revenues 11,959,369 8,907,876
Operating expenses:
Restaurant cost of sales 3,263,400 2,388,417
Commissary cost of sales 260,254 210,891
Operating expenses 5,832,410 4,487,175
Selling, general and administrative expenses 1,184,728 939,872
Preopening expenses 134,805 96,950
Depreciation and amortization 418,465 300,562
---------- ---------
Total operating expenses 11,094,062 8,423,867
---------- ---------
Income from operations 865,307 484,009
Other income (expense):
Interest income 17,023 12,843
Interest expense (263,365) (154,705)
---------- ---------
Total other expense (246,342) (141,862)
---------- ---------
Income before income taxes and cumulative effect of a change
in accounting principle 618,965 342,147
Provision for income taxes:
Current (216,638) --
Deferred (639,623) --
---------- ---------
Total provision for income taxes (856,261) --
---------- ---------
Income (loss) before cumulative effect of a change
in accounting principle (237,296) 342,147
Cumulative effect of a change in accounting principle, net of tax - see Note 2 (341,035) --
---------- ---------
Net income (loss) $ (578,331) $ 342,147
========== ==========
Pro forma income data:
Income before income taxes and cumulative effect of a change in
in accounting principle $ 618,965 $ 342,147
Pro forma income taxes (216,638) (119,751)
---------- ---------
Pro forma income before cumulative effect of a change
in accounting principle 402,327 222,396
Cumulative effect of a change in accounting principle, net of tax (341,035) --
---------- ---------
Pro forma net income $ 61,292 $ 222,396
========== ==========
Pro forma basic and diluted earnings per share:
Pro forma income before cumulative effect of a change
in accounting principle $ 0.07 $ 0.04
Cumulative effect of a change in accounting principle, net of tax (0.06) --
---------- ---------
Pro forma net income $ 0.01 $ 0.04
========== ==========
Weighted average number of outstanding shares (pro forma shares in 1998) 5,881,543 5,105,000
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
Tumbleweed, Inc.
Balance Sheets
<CAPTION>
Pro forma
March 31 December 31 December 31
1999 1998 1998
-------------------------- ------------
(Unaudited) (Unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 712,030 $ 1,898,973 $ 1,898,973
Accounts receivable 436,601 433,872 433,872
Inventories 1,336,824 1,333,591 1,333,591
Prepaid expenses 390,279 330,439 330,439
Deferred preopening expenses -- 524,669 524,669
-------------------------- ------------
Total current assets 2,875,734 4,521,544 4,521,544
Property and equipment, net 26,057,113 24,920,797 24,920,797
Goodwill, net of accumulated amortization of
$467,972 in 1999 and $440,242 in 1998 2,806,005 2,833,704 2,833,704
Other assets 422,406 1,404,861 1,404,861
-------------------------- ------------
Total assets $32,161,258 $33,680,906 $33,680,906
========================== ============
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Pro forma
March 31 December 31 December 31
1999 1998 1998
----------------------------- -------------
(Unaudited) (Unaudited)
Liabilities, Redeemable Members' Equity, Members' Equity,
Retained Earnings (Deficit) and Stockholders' Equity
Current liabilities:
<S> <C> <C> <C>
Short-term borrowings $ -- $ 6,990,348 $ 6,990,348
Accounts payable 1,107,299 1,781,418 1,781,418
Accrued liabilities 1,871,734 1,873,651 1,873,651
Deferred income taxes 346,309 -- 467,420
Current maturities on long-term
debt and capital leases 967,824 895,310 895,310
----------------------------- -------------
Total current liabilities 4,293,166 11,540,727 12,008,147
Long-term liabilities:
Long-term debt, less current maturities 8,605,510 9,180,358 9,180,358
Capital lease obligations, less current maturities 3,173,624 3,287,296 3,287,296
Deferred income taxes 217,667 -- 172,203
Other liabilities 106,588 94,838 94,838
----------------------------- -------------
Total long-term liabilities 12,103,389 12,562,492 12,734,695
----------------------------- -------------
Total liabilities 16,396,555 24,103,219 24,742,842
Redeemable members' equity -- 18,924,688 --
Members' equity -- 354,459 --
Retained earnings (deficit) -- (9,701,460) --
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; no shares issued
and outstanding -- -- --
Common stock, $.01 par value, 16,500,000
shares authorized; 5,881,543 shares issued
and outstanding in 1999 (5,105,000 shares on a
pro forma basis in 1998) 58,815 -- 51,050
Paid-in capital 16,284,219 -- 8,887,014
Retained earnings (deficit) (578,331) -- --
------------------------------ --------------
Total stockholders' equity 15,764,703 -- 8,938,064
------------------------------ --------------
Total liabilities and stockholders' equity $ 32,161,258 $ 33,680,906 $ 33,680,906
============================== ==============
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
Tumbleweed, Inc.
Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31
1999 1998
----------------------------
Operating activities:
<S> <C> <C>
Net income (loss) $ (578,331) $ 342,147
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 383,498 262,717
Amortization 34,965 37,845
Preopening amortization -- 96,950
Deferred income taxes 563,976 --
Loss on disposition of property and equipment 1,114 839
Changes in operating assets and liabilities:
Accounts receivable (2,729) 77,613
Inventories (3,233) (102,211)
Deferred preopening expenses 524,669 (412,166)
Prepaid expenses (60,812) 1,007
Other assets (23,838) (58,200)
Accounts payable (270,970) (276,420)
Accrued liabilities (1,917) 242,933
Other liabilities 11,750 1,751
------------ ----------- -
Net cash provided by operating activities 578,142 214,805
Investing activities:
Purchases of property and equipment (1,520,927) (2,176,037)
------------ -----------
Net cash used in investing activities (1,520,927) (2,176,037)
Financing activities:
Proceeds from issuance of members' equity -- 842,037
Distribution of members' equity -- (1,093,484)
Proceeds from common stock offering 7,765,347 --
Proceeds from issuance of long-term debt 3,529,914 1,671,069
Payments on long-term debt and capital lease obligations (11,136,269) (227,900)
Payment of public offering costs (403,150) (16,218)
------------ -----------
Net cash provided by (used in) financing activities (244,158) 1,175,504
------------ -----------
Net decrease in cash and cash equivalents (1,186,943) (785,728)
Cash and cash equivalents at beginning of period 1,898,973 1,228,867
------------ -----------
Cash and cash equivalents at end of period $ 712,030 $ 443,139
============ ===========
Supplemental cash flow information:
Cash paid for interest, net of amount capitalized $ 260,502 $ 154,705
============ ===========
Noncash investing and financing activities:
Equipment acquired by capital lease obligations $ -- $ 209,981
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
TUMBLEWEED, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
1. BASIS OF PRESENTATION
Merger of Tumbleweed, LLC and Tumbleweed, Inc.
Tumbleweed, Inc. (the Company) was legally formed in December 1997 and
capitalized on June 23, 1998 with the issuance of 13 shares of Company common
stock at $10 per share. Effective January 1, 1999, and as a result of the sale
of 776,543 shares of common stock in an initial public offering (IPO),
Tumbleweed, LLC (Tumbleweed) was merged into the Company. The interests of
Tumbleweed members at the time of the merger were converted into a total of
5,105,000 shares of Company common stock.
The Company's assets of $1 at December 31, 1998 consisted solely of cash
received in connection with the capitalization of the Company. As of December
31, 1998, the Company had not conducted any operations and all activities
through December 31, 1998 related to the IPO and the merger with Tumbleweed.
During 1998, the Company opened a bank account for the cash received in
connection with the capitalization totaling $130 and, as a result of maintaining
the cash account, the Company incurred expenses totaling $129 during 1998. All
expenditures related to the IPO were funded and recorded by Tumbleweed.
Accordingly, the Company's balance sheet as of December 31, 1998 and the
statements of operations and cash flows for the period from inception through
December 31, 1998 would not provide meaningful information and, accordingly,
have been omitted. Also, the accompanying statements of operations and cash
flows for the three months ended March 31, 1998 and balance sheet and pro forma
balance sheet as of December 31, 1998 are those of Tumbleweed and are included
for comparative purposes since it was the predecessor company.
As of March 31, 1999, the Company owns and operates 26 restaurants in Kentucky,
Indiana and Ohio and franchises an additional 13 restaurants in Indiana,
Illinois, Tennessee and Wisconsin. The Company also licenses five restaurants in
Germany, Saudi Arabia and Jordan.
Interim Financial Reporting
The accompanying financial statements have been prepared by the Company without
audit, with the exception of the December 31, 1998 balance sheet which was
derived from the audited financial statements included in the Company's Form
10-K. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and in accordance with Rule 10-01 of Regulation S-X. These financial
statements, note disclosures and other information should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
In the opinion of management, the unaudited interim financial statements
contained in this report reflect all adjustments, consisting of only normal
recurring accruals, which are necessary for a fair presentation. The results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
Pro forma Financial Information
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the accompanying pro forma balance sheet for Tumbleweed as of December 31, 1998
reflects the change in capitalization attributable to the conversion of
Tumbleweed's members' interests into 5,105,000 shares of Tumbleweed, Inc. common
stock as if the IPO had closed on December 31, 1998 (excluding the effects of
the offering proceeds). The pro forma balance sheet also reflects the deferred
tax effects of Tumbleweed changing from a limited liability company (which is
taxed as a partnership) to a regular corporate taxable status. Such deferred tax
effects are included in income on January 1, 1999, the date the change in tax
status occurred.
7
<PAGE>
1. BASIS OF PRESENTATION (continued)
Additionally, pro forma net income in the accompanying pro forma income data for
the three months ended March 31, 1999 and 1998 reflects a pro forma adjustment
to income before income taxes and cumulative effect of a change in accounting
principle for federal and state income taxes at an estimated effective rate of
35% as if the Company had been a regular corporate taxpayer throughout the
periods presented. Pro forma basic and diluted earnings per share is computed
based upon the weighted average number of shares of common stock outstanding for
1999. For 1998, the weighted average number of shares outstanding assumes the
conversion of Tumbleweed's members' interests into common stock as of the
beginning of the period.
2. CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities."
The SOP was effective beginning January 1, 1999 and requires that start-up costs
capitalized prior to January 1, 1999 be written-off and any future start-up
costs be expensed as incurred. Prior to 1999, the Company capitalized its
preopening costs incurred in connection with opening new restaurant locations.
The unamortized balance of the Company's deferred preopening costs ($524,669 as
of December 31, 1998) was written-off (net of income taxes of $183,634) as a
cumulative effect of an accounting change on January 1, 1999.
3. ACCRUED LIABILITIES
Accrued liabilities consist of:
March 31 December 31
1999 1998
-----------------------
Accrued payroll and related taxes $ 965,264 $ 792,809
Accrued insurance and fees 118,750 284,270
Accrued taxes, other than income and payroll 463,279 393,593
Gift certificate liability 105,018 275,743
Other 219,423 127,236
---------- ----------
$1,871,734 $1,873,651
========== ==========
4. LONG-TERM DEBT
Long-term debt consists of:
March 31 December 31
1999 1998
-------------------------
Secured $5,000,000 mortgage revolving line of
credit note, bearing interest at prime rate
plus .25% (8.0% at March 31, 1999), due December
31, 2000 $ 2,172,148 $ 4,302,148
Secured mortgage note payable, bearing interest
at commercial paper rate plus 2.65% (7.52% at
March 31, 1999), due February 17, 2006 2,834,683
-
Secured mortgage note payable, bearing interest at
prime rate plus 1% (8.75% at March 31, 1999),
payable in monthly installments through October
1, 2017 1,078,485 1,084,274
(Continued next page)
8
<PAGE>
4. LONG-TERM DEBT (continued)
March 31 December 31
1999 1998
-------------------------
Secured mortgage note payable, bearing interest
at 8.5%, payable in monthly installments through
February 15, 2008 $ 983,514 $ 991,396
Secured mortgage note payable, bearing interest
at 7.75%, payable in monthly installments through
March 1, 2006 673,110 -
Secured mortgage note payable, bearing interest at
prime rate plus 1.25% (9.0% at March 31, 1999),
payable in monthly installments through November
27, 2016 662,500 671,875
Secured mortgage note payable, bearing interest at
Commercial paper rate plus 3% - 1,111,928
Secured mortgage note payable, bearing interest
at commercial rate plus 3.1% - 695,230
Other installment notes payable 700,672 750,595
-------------------------
9,105,112 9,607,446
Less current maturities 499,602 427,088
-------------------------
Long-term debt $ 8,605,510 $ 9,180,358
=========================
Property and equipment with a net book value of approximately $17,200,000 at
March 31, 1999 collateralize the Company's long-term debt.
Subsequent to March 31, 1999, the Company increased its mortgage revolving line
of credit note from $5,000,000 to $6,500,000 and the maturity date of the note
was extended to December 31, 2001.
5. RELATED PARTY TRANSACTIONS
On April 1, 1999, the Company purchased the land and building, including
improvements, of the Springdale, Ohio restaurant from Keller, LLC, the lessor of
the property, for $1,625,000. The purchase was made for an amount substantially
equal to the costs originally expended by Keller, LLC in the purchase of the
land and construction of the improvements which approximated the fair market
value as determined by an independent appraisal. At the time of purchase, the
Company entered into a modification agreement with a local bank to increase a
line of credit and to place a mortgage on the land and building to secure the
increased line of credit. At the time of the purchase, the Company's capital
lease obligation to Keller, LLC was terminated.
6. COMMITMENTS
At March 31, 1999, the Company had commitments of approximately $785,000 for the
completion of the construction of three restaurants, for which landlord
financing has been secured.
9
<PAGE>
7. SEGMENT INFORMATION
The Company has three reportable segments: restaurants, commissary and
corporate. The restaurant segment consists of the operations of all
company-owned restaurants and derives its revenues from the sale of food
products to the general public. The commissary segment derives its revenues from
the sale of food products to corporate-owned and franchised restaurants. The
corporate segment derives revenues from sale of franchise rights, franchise
royalties and related services used in restaurant operations, and contains the
selling, general and administrative activities of the Company.
Generally, the Company evaluates performance and allocates resources based on
net income. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in the Company's
Annual Report on Form 10-K.
Segment information for the three months ended March 31 is as follows:
1999:
Restaurant Commissary Corporate Totals
--------------------------------------------------
Revenues from external
customers $11,332,318 $ 286,237 $ 340,814 $11,959,369
Intersegment revenues -- 667,885 -- 667,885
General and
administrative expenses -- -- 899,766 899,766
Advertising expenses -- -- 284,962 284,962
Depreciation
and amortization 332,639 29,688 56,138 418,465
Net interest expense -- 41,825 204,517 246,342
Income(loss)before income
taxes and cumulative effect
of a change in accounting
principle 1,736,628 15,098 (1,132,761) 618,965
1998:
Restaurant Commissary Corporate Totals
--------------------------------------------------
Revenues from external
customers $ 8,409,122 $ 250,866 $ 247,888 $ 8,907,876
Intersegment revenues -- 585,353 -- 585,353
General and
administrative expenses -- -- 741,679 741,679
Advertising expenses -- -- 198,193 198,193
Depreciation and
amortization 222,560 28,406 49,596 300,562
Net interest
expense -- 40,425 101,437 141,862
Income(loss) before income
taxes and cumulative effect
of a change in accounting
principle 1,144,006 64,416 (866,275) 342,147
10
<PAGE>
8. INCOME TAXES
Concurrent with the merger of the Company as described in Note 1, Tumbleweed
converted from a limited liability company into a C corporation and is now
subject to federal and state income taxes. As of the date of the merger, the
Company recorded a net deferred tax liability and corresponding income tax
expense for cumulative temporary differences between the tax basis and the
reported amounts of the Company's assets and liabilities. At the date of the
merger, the net differences equaled approximately $1,780,000 resulting in a net
deferred tax liability and corresponding income tax expense of $639,623 which is
included in the deferred income tax provision in the accompanying statement of
operations for the three months ended March 31, 1999.
Income taxes on the Company's income for the three months ended March 31, 1999
have been provided for at an estimated effective tax rate of 35%.
Significant components of the Company's deferred tax assets and liabilities as
of March 31, 1999 are as follows:
Deferred tax assets:
Book over tax amortization $ 92,412
Other 79,978
--------------
Total deferred tax assets 172,390
Deferred tax liabilities:
Deferred expenses (274,618)
Tax over book depreciation (329,314)
Other (132,434)
--------------
Total deferred tax liabilities (736,366)
--------------
Net deferred tax liability $ (563,976)
==============
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We make various forward-looking statements about our business in the following
discussion. When making these forward-looking statements, we use words such as
expects, believes, estimates, anticipates, plans and similar expressions to
identify them. We also identify important cautionary factors that could cause
our actual results to differ materially from those projected in forward-looking
statements made by us. Factors that realistically could cause results to differ
materially from those projected in the forward-looking statements include the
availability and cost of financing and other events that affect our restaurant
expansion program, changes in food and other costs, changes in national,
regional or local economic conditions, changes in consumer tastes, competitive
factors such as changes in the number and location of competing restaurants, the
availability of experienced management and hourly employees, and other factors
set forth below.
Of the 44 Tumbleweed restaurants as of March 31, 1999, we owned and operated 26
restaurants in Kentucky, Indiana and Ohio, franchised 13 restaurants in Indiana,
Illinois, Tennessee and Wisconsin, and licensed five restaurants in Germany,
Jordan and Saudi Arabia. One additional Company-owned restaurant opened in Ft.
Wayne, Indiana in May 1999, and one additional franchised restaurant opened in
Glasgow, Kentucky in April 1999.
Effective January 1, 1999, Tumbleweed, LLC (Tumbleweed) converted to a C
corporation from a limited liability company by merging with the Company. As a
limited liability company, Tumbleweed had been treated as a partnership for
income tax purposes and, accordingly, had not been subject to federal or state
income taxes. The discussion of financial condition and results of operations
included in the paragraphs that follow reflect a pro forma adjustment for
federal and state income taxes that would have been recorded during the periods
if Tumbleweed had been subject to corporate income taxes throughout the periods
presented.
The following section should be read in conjunction with our financial
statements and the related notes included elsewhere in this filing.
RESULTS OF OPERATIONS
The table, on the next page, sets forth the percentage relationship to total
revenues of certain income statement data, except where noted, for the periods
indicated.
12
<PAGE>
Three-Months Ended
March 31,
1999 1998
---------- ---------
Revenues:
Restaurant sales 94.8 % 94.4 %
Commissary sales 2.4 2.8
Franchise fees and royalties 2.1 2.1
Other revenues 0.7 0.7
---------- ---------
Total revenues 100.0 100.0
Operating expenses:
Restaurant cost of sales(1) 28.8 28.4
Commissary cost of sales(2) 90.9 84.1
Operating expenses(1) 51.5 53.4
Selling, general and administrative expenses 9.9 10.6
Preopening expenses 1.1 1.1
Depreciation and amortization 3.5 3.4
---------- ---------
Total operating expenses 92.8 94.6
---------- ---------
Income from operations 7.2 5.4
Interest expense, net (2.0) (1.6)
---------- ---------
Income before income taxes and cumulative
effect of a change in accounting
principle 5.2 3.8
Provision for income taxes:
Current (1.8) -
Deferred (5.4) -
---------- ---------
Total provision for income taxes (7.2) -
---------- ---------
Income (loss) before cumulative effect
of a change in accounting principle (2.0) 3.8
Cumulative effect of a change in
accounting principle, net of tax (2.8) -
---------- ---------
Net income (loss) (4.8) % 3.8 %
========== =========
Pro forma income data:
Income before income taxes and
cumulative effect of a change in
accounting principle 5.2 % 3.8 %
Pro forma income taxes (1.8) (1.3)
---------- ---------
Pro forma income before cumulative
effect of a change in accounting
principle 3.4 2.5
Cumulative effect of a change in
accounting principle, net of tax (2.8) -
---------- ---------
Pro forma net income 0.6 % 2.5 %
========== =========
(1) As percentage of restaurant sales.
(2) As percentage of commissary sales.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Total revenues increased by $3,051,493 or 34.3% for the first three months of
1999 compared to the same period in 1998 primarily as a result of the following:
Restaurant sales increased by $2,923,196 or 34.8% for the first three months
of 1999 compared to the same period in 1998. The increase is due primarily
to the addition of five additional Company-owned restaurants and an
13
<PAGE>
increase in same store sales of 2.4%
Commissary sales to franchised restaurants increased by $35,371 or 14.1% for
the first three months of 1999 compared to the same period in 1998. The
increase is due primarily to the addition of five franchised or licensed
restaurants.
Franchise fees and royalties increased by $65,982 or 35.6% for the first
three months of 1999 compared to the same period in 1998. The increase was
due primarily to a $35,000 increase in franchise fees received upon the
opening of two new franchised restaurants during the first three months of
1999 compared to one during the same period in 1998. Additionally, royalty
income increased approximately $30,000 during the first three months of 1999
compared to the same period in 1998.
Other revenues increased by $26,944 or 43.0% for the first three months of
1999 compared to the same period in 1998, primarily due to an increase in
volume related purchasing rebates of approximately $25,000.
Restaurant cost of sales increased by $874,983 or 36.6% for the first three
months of 1999 compared to the same period in 1998. The increase was principally
due to the opening of five additional Company-owned restaurants. Restaurant cost
of sales increased as a percentage of sales by 0.4% to 28.8% for the first three
months of 1999 compared to 28.4% during the same period in 1998. The increase
was primarily due to an increase in sales of American food which contains a
higher cost to sales ratio compared to Mexican food sales. American food sales
increased to 39.2% of total sales in the first three months of 1999 compared to
34.8% during the same period of 1998.
Commissary cost of sales increased $49,363 or 23.4% for the first three months
of 1999 compared to the same period in 1998. The increase in commissary cost of
sales is due primarily to increased overhead costs in the first three months of
1999 compared to the same period in 1998. As a percentage to sales, commissary
cost of sales increased 6.8%.
Restaurant operating expenses increased by $1,345,235 or 30.0% for the first
three months of 1999 compared to the same period in 1998. The increase reflects
the addition of five Company-owned restaurants. Operating expenses decreased as
a percentage of restaurant sales to 51.5% for the first three months of 1999
from 53.4% for the same period in 1998 primarily due to a 0.8% decrease in labor
costs and a 1.2% decrease in restaurant level promotional costs.
Selling, general and administrative expenses increased by $256,856 or 27.3% for
the first three months of 1999 compared to the same period in 1998. The increase
was due in part to the addition of management and staff personnel during 1998
and the first three months of 1999 to support the growing restaurant base.
Because of the Company's restaurant growth plans, management expects selling,
general and administrative expenses to continue to increase during the remainder
of 1999 in absolute dollars. As a percentage to total revenues, selling, general
and administrative expenses were 9.9% of revenues for the first three months of
1999 versus 10.6% for the same period in 1998.
Preopening expenses were $134,805 for the three months ended March 31, 1999
versus preopening amortization of $96,950 for the three months ended March 31,
1998. See Note 2 of the financial statements regarding the adoption of Statement
of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities." As a
result of the adoption of SOP 98-5 on January 1, 1999, the Company recorded a
charge to income, net of tax, of $341,035 representing the write-off of deferred
preopening costs as of December 31, 1998. The charge is reported net of taxes as
a cumulative effect of a change in accounting principle.
Depreciation and amortization expense increased $117,903 or 39.2% for the first
three months of 1999 compared to the same period in 1998 due primarily to the
addition of five Company-owned restaurants.
Net interest expense increased $104,480 or 73.6% for the first three months of
1999 compared to the same period in 1998. The increase resulted from increased
borrowing to fund the growth in Company-owned restaurants.
14
<PAGE>
The combined estimated effective federal and state income tax rate was 35% for
the first three months of 1999. The pro forma adjustments provide for income
taxes as though the Company had been subject to corporate income taxes
throughout the periods presented. Additionally, as a result of a change in tax
status from a limited liability corporation to a C corporation effective January
1, 1999, the Company recorded a net deferred income tax liability and income tax
expense of $639,623 in 1999.
The Company's pro forma income before cumulative effect of a change in
accounting principle increased $179,931 or 80.1% for the first three months of
1999 compared to the same period in 1998. Pro forma income per share before
cumulative effect of a change in accounting principle increased to $0.07 in the
first three months of 1999 compared to $0.04 for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our ability to expand the number of our restaurants will depend on a number of
factors, including the selection and availability of quality restaurant sites,
the negotiation of acceptable lease or purchase terms, the securing of required
governmental permits and approvals, the adequate supervision of construction,
the hiring, training and retaining of skilled management and other personnel,
the availability of adequate financing and other factors, many of which are
beyond our control. The hiring and retention of management and other personnel
may be difficult given the low unemployment rates in the areas in which we
intend to operate. There can be no assurance that we will be successful in
opening the number of restaurants anticipated in a timely manner. Furthermore,
there can be no assurance that our new restaurants will generate sales revenue
or profit margins consistent with those of our existing restaurants, or that
these new restaurants will be operated profitably.
Our principal capital needs arise from the development of new restaurants, and
to a lesser extent, maintenance and improvement of existing facilities. The
principal sources of capital to fund these expenditures were internally
generated cash flow, bank borrowings and lease financing. The following table
provides certain information regarding our sources and uses of capital for the
periods presented:
Three-Months Ended
March 31,
1999 1998
---- ----
Net cash provided by operations $ 578,142 $ 214,805
Purchases of property and equipment 1,520,927 2,176,037
Proceeds from common stock offering 7,765,347 -
Net distributions of members' equity - (251,447)
Net borrowings (payments) on long-term
debt and capital lease obligations (7,606,355) 1,443,169
Since the acquisition of the Tumbleweed business, our single largest use of
funds has been for capital expenditures consisting of land, building and
equipment associated with our restaurant expansion program. The substantial
growth of the Company over the period has not required significant additional
working capital. Sales are predominantly for cash and the business does not
require the maintenance of significant receivables or inventories. In addition,
it is common within the restaurant industry to receive trade credit on the
purchase of food, beverage and supplies, thereby reducing the need for
incremental working capital to support sales increases.
We both own and lease our restaurant facilities. Management determines whether
to acquire or lease a restaurant facility based on its evaluation of the
financing alternatives available for a particular site.
15
<PAGE>
We plan to open two additional Company-owned Tumbleweed restaurants during 1999,
depending on the availability of quality sites, the hiring and training of
sufficiently skilled management and other personnel, and other factors. As of
March 31, 1999, we had two restaurants under construction, which are expected to
open in the second quarter of 1999.
We will utilize mortgage, sale/leaseback and landlord financing, as well as
equipment leasing and financing, for a portion of the development costs of
restaurants opened during 1999. The remaining costs will be funded by available
cash reserves, cash provided from operations and borrowing capacity. Management
believes such sources will be sufficient to fund our expansion plans through
1999. Should our actual results of operations fall short of, or its rate of
expansion significantly exceed its plans, or should its costs or capital
expenditures exceed expectations, we may need to seek additional financing in
the future. In negotiating such financing, there can be no assurance that we
will be able to raise additional capital on terms satisfactory to us.
We had a $5,000,000 mortgage revolving line of credit note with National City
Bank (the "Credit Facility"). At March 31, 1999, we had outstanding borrowings
under the Credit Facility of approximately $2,172,000. The Credit Facility
imposes restrictions on us with respect to the maintenance of certain financial
ratios, the incurrence of indebtedness, the sale of assets, mergers, capital
expenditures and the payment of dividends. Subsequent to March 31, 1999, we
increased the Credit Facility to $6,500,000.
In order to provide any additional funds necessary to pursue the Company's
growth strategy, we may incur, from time to time, additional short and long-term
bank indebtedness and may issue, in public or private transactions, its equity
and debt securities, the availability and terms of which will depend upon market
and other conditions. There can be no assurance that such additional financing
will be available on terms acceptable to the Company.
CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities."
The SOP was effective beginning January 1, 1999 and requires that start-up costs
capitalized prior to January 1, 1999 be written-off and any future start-up
costs be expensed as incurred. Prior to 1999, the Company capitalized its
preopening costs incurred in connection with opening new restaurant locations.
The unamortized balance of the Company's deferred preopening costs ($524,669 as
of December 31, 1998) were written-off (net of income taxes of $183,634) as a
cumulative effect of an accounting change on January 1, 1999.
IMPACT OF YEAR 2000
We have scheduled the replacement of certain of our older computer systems with
hardware and software that has been certified to be Year 2000 compliant. We have
also completed an assessment of our other computer systems and will modify or
replace portions of our software so that our computer systems will function
properly with respect to dates in or after the Year 2000. The total Year 2000
project cost is estimated at approximately $406,000, which includes $370,000 for
the purchase of new hardware and software that will be capitalized and $36,000
that will be expensed as incurred. As of March 31, 1999, we had not incurred any
expenses relating to the Year 2000 Project.
The project is estimated to be completed during August 1999, which is prior to
any anticipated impact on our operating systems. We believe that as a result of
the installation of new hardware, the modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for our computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the inability of our
computer systems to function accurately could have a material impact on the
operations of the Company.
We are in the process of querying our significant vendors with respect to Year
2000 issues. Based on the responses received from vendors, we are not aware of
any vendors with a Year 2000 issue that would materially impact results of
operations, liquidity, or capital resources. However, the inability of vendors
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company, although the actual impact of non-compliance by
vendors is not determinable.
16
<PAGE>
We are in the process of developing a contingency plan in the event that we do
not complete all phases of our Year 2000 program.
The costs of the project and the date on which we believe we will complete the
Year 2000 modifications are based on management's best estimates, which were
based on numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could harm our operations. We pay a majority of our employees
hourly rates related to federal and state minimum wage laws. As a result of
increased competition and the low unemployment rates in the markets in which our
restaurants are located, we have continued to increase wages and benefits in
order to attract and retain management personnel and hourly coworkers. In
addition, most of our leases require us to pay taxes, insurance, maintenance,
repairs and utility costs, and these costs are subject to inflationary
pressures. Most of the leases provide for increases in rent based on increases
in the consumer price index when the leases are renewed. We may attempt to
offset the effect of inflation through periodic menu price increases, economies
of scale in purchasing and cost controls and efficiencies at existing
restaurants.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not enter into derivative transactions or speculate on the future
direction of interest rates. We are exposed to interest rate changes primarily
as a result of our variable rate debt instruments. As of March 31, 1999,
approximately $7,000,000 of our debt bore interest at variable rates. We believe
that the effect, if any, of reasonably possible near-term changes in interest
rates on our consolidated financial position, results of operations or cash
flows would not be significant.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*2.1 Agreement and Plan of Merger, dated as of June 23, 1998, between
Tumbleweed, LLC and Registrant
*3.1 Certificate of Incorporation of Registrant
*3.2 Bylaws of Registrant
*10.1 Revolving Credit Loan Agreement, dated January 24, 1995, between
Bank One, Kentucky, N.A. (f/k/a Liberty National Bank & Trust
Company of Kentucky) and Registrant
*10.2 Revolving Line of Credit Note, dated August 8, 1996, between
Tumbleweed, LLC and National City Bank of Kentucky and related
Loan Agreement
*10.3 Master International License Agreement, dated August 29, 1997,
between Tumbleweed International LLC and Tumbleweed, LLC
*10.4 Employment Agreement between John A. Butorac, Jr. and Tumbleweed,
Inc.
*10.5 Employment Agreement between James M. Mulrooney and Tumbleweed,
Inc.
*10.6 Lease Agreement, dated August 28, 1997 between West Broad
Development, LLC and Tumbleweed, LLC
*10.7 Lease Agreement between Keller LLC and Tumbleweed LLC
*10.8 Agreement and Assignment, dated April 20, 1995, between Keller LLC
and Tumbleweed, LLC
*10.9 Lease Agreement, dated April 1, 1995, between Douglas Ventures,
Abfam, Inc. and Blue Door Bowling Green Joint Venture
*10.10 Sublease Agreement, dated June 30, 1995, among Douglas Ventures,
Abfam, Inc., Blue Door Bowling Green Joint Venture and Tumbleweed
LLC
*10.11 Sublease Agreement, dated February 5, 1997, between TW Dixie Bash,
LLC and Tumbleweed, LLC (for Bardstown Road restaurant)
*10.12 Sublease Agreement, dated February 5, 1997, between TW Dixie Bash,
LLC and Tumbleweed, LLC (for Valley Station restaurant)
*10.13 Asset Purchase Agreement, dated October 1, 1996, between Tex Mex
To You, LLC and Tumbleweed, LLC
*10.14 Commitment Letter, dated June 12, 1997, between CNL Fund Advisors,
Inc. and TW Tennessee, LLC
*10.15 Tumbleweed, Inc. 1998 Stock Option and Incentive Compensation Plan
18
<PAGE>
*10.16 Form of Standard Franchise Agreement for Tumbleweed, LLC
*10.17 Articles of Incorporation of Tumbleweed Marketing Fund, Inc
*10.18 By laws of Tumbleweed Marketing Funds, Inc.
*10.19 Bonus Compensation Plan for Senior Executives
10.20 Revolving Line of Credit Note, dated April 21, 1999, between
Tumbleweed, Inc. and National City Bank of Kentucky and related
Loan Agreement
27.1 Financial Data Schedule
*99.1 Registration Rights Agreement between Tumbleweed, Inc. and
Tumbleweed, LLC
* Incorporated by reference to exhibits of the same number filed with
the Commission on June 29, 1998 in Form S-1 Registration No.
333-57931
(b) Reports on Form 8-K
Tumbleweed, Inc. filed Form 8-K on January 29, 1999 to report in Item 5
the completion of its initial public offering of common stock.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
19
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Dated: May 11, 1999
Tumbleweed, Inc.
By: /s/ James M. Mulrooney
-------------------------------
James M. Mulrooney
Executive Vice President
Chief Financial Officer
20
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
By and between
TUMBLEWEED, INC.
(Borrower)
and
NATIONAL CITY BANK OF KENTUCKY
(Lender)
dated as of April 21, 1999
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement"), made and
entered into as of April 21, 1999, by and between TUMBLEWEED, INC. (successor by
merger to Tumbleweed, LLC, a Kentucky limited liability company), a Delaware
corporation with its principal office and place of business at 1900 Mellwood
Avenue, Louisville, Kentucky 40206 (the "Borrower"), and NATIONAL CITY BANK OF
KENTUCKY, a national banking association with its principal office and place of
business at 101 South Fifth Street, Louisville, Kentucky 40202 (the "Lender").
W I T N E S S E T H:
Borrower and Lender recite and agree as follows, which recitations and
agreements constitute a part of this Agreement:
A. Borrower engages in the business of owning, operating, developing
and franchising full service restaurants and food court restaurants, same
currently being located in Kentucky, Indiana, Ohio, Illinois and Wisconsin.
B. Lender has previously made available to Borrower a $5,000,000
revolving line of credit to provide real estate financing for five (5) of
Borrower's full service restaurants and its commissary (the "Commissary") and to
provide funds to be used by Borrower for the acquisition and development of
additional restaurant facilities, in accordance with a loan agreement between
the parties dated as of August 8, 1996 (the "Prior Loan Agreement").
C. Borrower has requested that said revolving line of credit facility
be increased from $5,000,000 to $6,500,000 and Lender has consented to said
increase, as described in Lender's letter to Borrower dated February 16, 1999.
D. The parties are entering into this Agreement in order to amend and
restate the Prior Loan Agreement in its entirety and to describe with
particularity the terms and provisions upon which the revolving credit facility
in said increased principal amount will be made available by Lender to Borrower.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower and Lender agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings, unless the context otherwise requires.
<PAGE>
"Advance" shall mean a disbursement by Lender of any sum to
Borrower hereunder pursuant to a Funding Application.
"Assignments" shall mean the first assignments of leases and
rents between Borrower and Lender relative to real estate and the improvements
thereon owned by Borrower located in Jefferson County, Kentucky, in Boone
County, Kentucky, in Warren County, Kentucky and in Hamilton County, Ohio.
"Borrower" shall have the meaning ascribed to such term in the
preamble of this Agreement.
"Business Day" shall mean a day on which Lender is open for
business.
"Cash Flow Available for Debt Service" shall mean earnings
before payment of interest and taxes plus depreciation and amortization.
"Collateral" shall mean the property and rights of the
Borrower more particularly described in Section 3.1 of this Agreement.
"Commitment Letter" shall mean the commitment letter dated
June 13, 1996 from Lender to Borrower outlining the basic terms of the Credit
Facility, as amended by Lender's letter to Borrower, dated February 16, 1999.
"Compliance Certificate" shall mean the form attached to this
Agreement as Exhibit A and incorporated herein by reference.
"Credit Facility" shall mean the aggregate principal amount
available from Lender to Borrower from time to time under this Agreement.
"Events of Default" shall mean any of the events specified in
Section 7.1 of this Agreement.
"Funding Application" shall mean Borrower's request for an
Advance.
"GAAP" shall mean generally accepted accounting principles
consistently applied as in effect at the time of application of the provisions
hereof so as to properly reflect the financial condition, and the results of
operations and changes in financial position, of Borrower; provided, that if in
this Agreement principles of accounting different from those required by
generally accepted accounting principles are specified, the principles of
accounting specified in this Agreement shall govern.
"Lender" shall have the meaning ascribed to such term in the
preamble of this Agreement.
"Loan" shall mean at any time the aggregate outstanding
principal amount of all Advances made hereunder evidenced by the Note and unpaid
interest accrued thereon.
<PAGE>
"Loan Documents" shall mean this Agreement, the Note, the
Assignments, the Mortgages and any and all other instruments now or hereafter
executed and delivered by Borrower in connection with the Credit Facility, as
any of such may be amended or supplemented from time to time.
"Loan Year" shall mean the following: the first Loan Year
shall expire on December 31, 1999; the second Loan Year shall expire on December
31, 2000; the third Loan Year shall expire on December 31, 2001; and in the
event the Termination Date (hereinafter defined) is extended beyond December 31,
2001, each subsequent Loan Year shall expire on December 31 thereafter.
"Material Adverse Effect" shall mean any material adverse
influence on or change relative to (i) the validity or enforceability of this
Agreement, the Note or any other Loan Document (ii) the business, operations and
assets of Borrower, (iii) the Collateral, or (iv) the Borrower's ability to
fulfill its obligations under this Agreement, the Note or the other Loan
Documents.
"Mortgage" shall mean the first mortgages from Borrower to
Lender relative to real estate and the improvements thereon owned by Borrower
located in Jefferson County, Kentucky, in Boone County, Kentucky, in Warren
County, Kentucky and in Hamilton County, Ohio.
"Note" shall mean the substitution and renewal revolving line
of credit note of even date herewith delivered by Borrower to Lender pursuant to
this Agreement, and all renewals, modifications and extensions of same.
"Restaurants" shall include, collectively, when and as
applicable, full service restaurants, Borrower's Commissary and its food court
restaurants.
"Termination Date" shall mean December 31, 2001, as such date
may be extended from time to time by mutual agreement of Borrower and Lender.
1.2 Other Definitional Provisions. Defined terms used herein in the
singular shall import the plural and vice versa and the gender used shall
include the other genders where appropriate.
ARTICLE II
TERMS OF THE CREDIT
2.1 Commitment. Lender agrees to make Advances to Borrower on
a revolving credit basis from time to time on any Business Day from the date of
this Agreement through the Termination Date in an outstanding amount not to
exceed at any one time the Credit Facility. The Credit Facility shall be SIX
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($6,500,000). Provided, that
upon the expiration of the first Loan Year the Credit Facility will be reduced
by $380,000, and the Credit Facility will be reduced by an additional
<PAGE>
$540,000 upon the expiration of each Loan Year thereafter. Within the foregoing
limits, Borrower may borrow, repay and reborrow. And provided further, that
Lender shall not be obligated to make an Advance if an Event of Default shall
have occurred and is then existing hereunder or under any other Loan Document,
nor shall Lender be obligated to make an Advance which, when added to the
principal amount advanced and outstanding on the Note, would exceed the
principal amount available under the Credit Facility.
2.2 Purpose of the Credit Facility. Proceeds of the Credit Facility and
Advances made to Borrower by Lender under the Note shall be used by Borrower to
provide financing for seven (7) of Borrower's Restaurants and its Commissary and
to provide capital for acquisition and development of additional Restaurants.
2.3 Note. To evidence the Loan and the Credit Facility Borrower shall
execute and deliver the Note to Lender in the principal amount of the Credit
Facility and dated as of the date hereof. The Note shall be payable and bear
interest as set forth therein.
2.4 Legal Fees. Borrower agrees to pay all reasonable legal fees and
expenses of Lender incurred in connection with the closing of the Loan and any
modification, extension or renewal of same. Said fees and expenses shall be due
and payable upon Borrower's receipt of a statement from Lender's counsel.
2.5 Set-Off. Borrower hereby authorizes Lender to set off the
liability of Borrower on the Note and the Loan, without notice, against all
deposits and credits of Borrower with Lender (other than balances in trust
accounts, escrow accounts, and other accounts not beneficially owned by
Borrower).
ARTICLE III
COLLATERAL
3.1 Collateral. To secure payment of the Note and all obligations of
Borrower to Lender under this Agreement and the other Loan Documents, Borrower
shall execute and deliver the Mortgages and the Assignments to Lender relative
to Borrower's Commissary located at 283 Thompson Avenue in Jefferson County,
Kentucky and Borrower's Restaurants located at 4225 Outer Loop, 1900-1910
Mellwood Avenue, 10000 Linn Station Road and 3985 Dutchman's Lane in Jefferson
County, Kentucky, relative to Borrower's Restaurant at 7484 Turfway Road in
Boone County, Kentucky, relative to Borrower's Restaurant at 1780 Scottsville
Road in Warren County, Kentucky and relative to Borrower's Restaurant at 4305
Princeton Pike in Hamilton County, Ohio.
3.2 Surveys. Borrower has provided and will provide Lender with
current engineers' surveys for the Collateral, certified to the Lender and
Lender's title insurer, showing all boundaries, easements, improvements and any
special details associated with the Collateral. The surveys should be sufficient
to eliminate any survey exceptions from the Lender's mortgagee title insurance
policy.
3.3 Title and Title Insurance. Fee simple title to the Collateral
shall be vested in the
<PAGE>
Borrower. The Lender will be provided with mortgagee title insurance in the
principal amount of the Loan. The terms and conditions of the policy and the
title insurer must be acceptable to Lender and its counsel.
3.4 Appraisals. Lender must be provided with appraisals of the
Collateral by an appraiser acceptable to Lender. The amount, form and content of
the appraisals shall be acceptable to Lender, shall be addressed to Lender and
shall meet all of FIRREA's requirements.
3.5 Environmental Assessments. Lender must be provided with
environmental site assessments of the Collateral. The conclusions, content and
form of the site assessments, as well as the engineering firm or firms
performing the assessments, must be satisfactory to the Lender in its sole
discretion.
3.6 Insurance. Lender shall be provided with evidence that Borrower
has adequate insurance for all of the Restaurants, as required by subsection (f)
of Section 5.1 of this Agreement.
3.7 Other Compliance. Borrower shall provide such other information,
documents and data and perform all other acts reasonably deemed necessary by
Lender to close the Loan.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions Precedent to Additional Advance. Lender shall not be
obligated to make the additional Advance hereunder, unless Lender has received,
in addition to those items described in Article III, the following documents and
writings in form and substance acceptable to Lender and its counsel:
(a) Resolutions. Certified resolutions of Borrower's Board of
Directors evidencing authorization and approval of the execution and delivery of
this Agreement and the other Loan Documents.
(b) Organizational Documents. Certified copies of the articles of
incorporation and bylaws of Borrower, with all amendments thereto, and a
certificate of existence issued by the Delaware Secretary of State, and a
certificate of authority and certified copies of articles of merger provided by
the Kentucky Secretary of State
(c) Legal Opinion. An opinion from counsel for Borrower acceptable in
form and content to Lender and its counsel.
(d) Report of Tax Lien Searches. A report of federal and state tax
lien searches made in the appropriate public offices in the name of Borrower.
(e) Certifications as to Representation and Warranties. Borrower
certifies that the representations and warranties of Borrower contained herein
are true and correct as of the date of
<PAGE>
this Agreement and the date of the initial Advance to be made hereunder.
Borrower agrees that a request by Borrower for each additional Advance shall
constitute reaffirmation by Borrower that (i) such representations and
warranties are true and correct as of the date each such Advance is to be made,
(ii) that no default exists relative to the Loan Documents or relative to any
other credit facility of Borrower, and (iii) that no material actions, suits,
legal, equitable, arbitration or administrative proceedings are pending or, to
the best of Borrowers knowledge after due inquiry, threatened against Borrower,
the adverse determination of which could have a Material Adverse Effect on the
Loan Documents, the business operation or financial condition of Borrower or the
ability of Borrower to fulfill its obligations under the Loan Documents.
(f) Loan Documents And Other Conditions. All Loan Documents shall be
duly executed and delivered to Lender; and such other documents as Lender and
its counsel may reasonably require shall be duly executed and delivered to
Lender; evidence shall be produced as is satisfactory to Lender and its counsel
as to the occurrence of any further conditions precedent to the closing of the
Loan.
(g) Release and Satisfaction of Existing Liens and Debts. All debts
secured by liens upon and security interests in the Collateral shall be paid and
provision made for the release of all such liens and security interests, all of
which shall be at Borrower's sole expense.
4.4 Conditions Precedent to Subsequent Advances. Lender shall not be
obligated to make any Advance hereunder if, at the time such Advance is
requested, an Event of Default shall have occurred or if such Advance would
exceed the amount of the Credit Facility than available.
ARTICLE V
COVENANTS
5.1 Affirmative Covenants. Until payment in full of the entire
principal balance of and all accrued interest on the Loan and the Note and all
other obligations relative thereto, Borrower agrees that Borrower will observe
and comply with all of the following covenants and agreements:
(a) Payments of Indebtedness. Borrower shall make full and timely
payment of the principal of and accrued interest on the Loan and the Note and on
all other indebtedness of Borrower to Lender in accordance with their respective
terms.
(b) Examination of Lender. Borrower shall, at all reasonable times,
permit Lender to examine any or all of the Borrower's books and financial
records. to make excerpts therefrom and transcripts thereof, to discuss the
affairs, finances and accounts of Borrower, with its officers and to conduct any
audit or similar examination (.including, without limitation, a collateral
audit) deemed reasonably necessary or appropriate by Lender at Borrower's cost
and expense.
(c) Financial Statements and Reports of Borrower. Borrower shall
furnish or shall cause the following to be furnished to Lender.
(i) Quarterly Financial Statements. Within forty-five (45 days
after the end of each
<PAGE>
fiscal quarter, an internally generated income statement for Borrower
for the period from the beginning of Borrower's applicable fiscal
year to the end of such fiscal quarter and a balance sheet as of the
end of each such fiscal quarter, all prepared in accordance with GAAP
and certified by the chief financial officer of Borrower as being
true and accurate.
(ii) Annual Audited Financial Statements. Within one hundred twenty
(120) days after the end of each fiscal year of Borrower, an audited
income statement of Borrower for such fiscal year and an audited
balance sheet as of the end of such fiscal year, all in reasonable
detail and accompanied by a report and opinion of independent
certified public accountants reasonably satisfactory to Lender, which
report and opinion shall be prepared in accordance with GAAP relative
to reporting.
(d) Books and Records. Borrower shall at all times maintain its books
and records at its principal office at 1900 Mellwood Avenue, Louisville,
Kentucky 40206.
(e) Closing of Restaurants. Borrower shall notify Lender of the
closing of any Restaurants on which Lender holds a mortgage within ten (10) days
of same.
(f) Insurance. Borrower shall obtain and maintain in full force and
effect insurance and liability insurance for all its Restaurants, including
without limitation those Restaurants as comprise part of the Collateral, in such
amounts and with such companies as are reasonably satisfactory to Lender. Lender
shall be scheduled mortgagee and certificate holder as regards all fire and
extended coverage insurance relative to the Collateral, and shall be scheduled
as additional insured and certificate holder as to liability insurance relative
to the Collateral. If and only as applicable, Borrower shall maintain flood
insurance, as more particularly described in the Mortgages.
All such policies shall provide that Lender be given not less than
ten (10) days prior written notice before cancellation of any such insurance
becomes effective. Certified copies of all such policies or current certificates
of insurance shall be delivered to Lender when and as required by Lender.
(g) Compliance with Laws. Borrower shall comply with all applicable
governmental statutes, regulations and rules governing the conduct of Borrower's
business and ownership of property.
(h) Taxes and Assessments. Borrower shall pay all taxes, assessments
and governmental charges and levies imposed upon Borrower, Borrower's income or
any property before same become delinquent; provided, however, that no such tax,
assessment, charge or levy need be paid so long as the validity thereof shall be
contested in good faith by appropriate proceedings for which a bond or other
security reasonably satisfactory to Lender shall have been posted, and provided
that Borrower shall have set aside on Borrower's books adequate reserves
therefor.
(i) Existence. Borrower shall preserve and maintain Borrower's
existence as a Delaware
<PAGE>
corporation and its qualification to do business in good standing in every
jurisdiction in which the nature of the business conducted by Borrower or the
properties owned by Borrower require such qualification.
(j) Events of Default and Notice. Borrower shall, promptly upon
obtaining knowledge of the occurrence or existence of any Event of Default, or
of the occurrence or existence of a condition or event which, with notice or the
lapse of time, or both, would constitute an Event of Default, deliver to Lender
a certificate specifying the nature thereof, the period of existence thereof,
and what action Borrower has taken or proposes to take with respect thereto.
(k) Payment of Indebtedness; Compliance with Agreements. Borrower
shall pay and discharge all of Borrower's debts and obligations in a timely
manner in accordance with their respective terms, and shall at all times comply
with each and every term and provision of the documents evidencing and securing
such debts and obligations, and with each and every lease, contract, agreement
or obligation Borrower may have or be a party to with any person or as to which
any of its properties may be subject.
(1) Management. Borrower shall notify Lender of any substantial
changes in the management of Borrower.
(m) ERISA. With respect to any Plan ("Plan" shall mean an employee
pension benefit plan or pension covered by ERISA, hereafter defined, which is
guaranteed by the Pension Benefit Guaranty Corporation or any successor thereto)
maintained or adopted by Borrower, Borrower shall (i) at all times make prompt
payments of contributions required to be made to meet the minimum funding
standards of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); (ii) promptly, after the filing thereof, furnish to Lender copies of
all reports of prohibited transactions and accumulated funding deficiencies
required to be made pursuant to the provisions of ERISA; and (iii) notify the
Lender promptly of the occurrence of any reportable event within the meaning of
EISA.
(n) Other Acts. Borrower agrees, upon the request of Lender, to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments, and do or cause to be done such further acts, as may be necessary
or proper in the reasonable opinion of Lender to carry out more effectively the
provisions of this Agreement and the other Loan Documents.
(o) Additional Notification. Borrower will notify Lender of
significant events as to Borrower, its assets and its business, including
without limitation any event causing material loss or depreciation in value of
Borrower's properties or assets by reason of casualty or any other cause.
Further, Borrower will notify Lender of any change in its structure, the name
under which Borrower conducts its business or any material portion thereof, or
any change in the ownership of any material portion of Borrower's business,
properties or assets.
5.2 Financial Covenants. Until payment in full of the entire
principal balance of and all accrued interest on the Loan and the Note and all
other obligations relative thereto, Borrower agrees that Borrower will observe
and comply with all of the following financial covenants and agreements.
<PAGE>
(a) Tangible Net Worth. Borrower agrees to maintain a minimum
tangible net worth (defined in accordance with GAAP) of $10,500,000 during the
first Loan Year and thereafter.
(b) Debt Coverage Ratio. Borrower has maintained and will maintain a
ratio of (i) Cash Flow Available for Debt Service to (ii) the current portion of
long-term debt and interest of at least 2.00 to 1.00 for the first Loan Year and
for each Loan Year thereafter. Same shall be evaluated by Lender as of June 30,
September 30, December 31 and March 31, in respect of the four (4) immediately
preceding fiscal quarters ending as of the last day of the most recently ended
fiscal quarter.
(c) Leverage. Borrower agrees to maintain a ratio of its total
liabilities to tangible net worth of not more than 1.50 to 1.00.
(d) Compliance Certificate. Borrower will complete and deliver to
Lender, not later than forty-five (45) days after each fiscal quarter, a
Compliance Certificate in the form of that attached hereto as Exhibit A or in
- -such other form as Lender may prescribe from time to time.
5.3 Negative Covenants Borrower .shall at all times comply with the
covenants contained in this Section 5.3, from the date here of and for so long
as the Credit Facility shall remain available to Borrower.
(a) No Merger. Without Lender's prior written consent, which will not
be unreasonably withheld, Borrower shall not merge or consolidate with or into
any partnership, corporation, or other entity.
(b) Fiscal Year, Method of Accounting. Borrower shall not change its
fiscal year or method of accounting without thirty (30) days prior written
notice to Lender.
(c) Liquidations and Dispositions of Substantial Assets. Without
Lender's prior written consent, which, will not be reasonably withheld, Borrower
shall not dissolve or liquidate or sell, transfer, lease or otherwise dispose of
any material portion of its property or assets or business.
(d) Contracts. Borrower will not enter into any contract or agreement
which would materially and adversely affect its business, property, ability to
perform its obligations under the Note and this Agreement, or the Collateral.
(e) Transactions with Respect to Collateral. Borrower will not enter
into any transaction which materially and adversely affects the Collateral or
Borrower's ability to repay the Loan.
(f) Dividends. Borrower will not declare or pay dividends or bonuses
or make any distributions of Borrower's property or assets to any of its
shareholders.
(g) Change in Ownership. Borrower will not make a material change in
the ownership of Borrower or the management of Borrower's business.
<PAGE>
ARTICLE VI
REPRESENTATION AND WARRANTIES
6.1 Existence. Borrower is a corporation duly organized and validly
existing under the laws of Delaware, and is qualified to transact business as a
nonresident in every jurisdiction in which such qualification is required.
6.2 No Restrictions on Performance. Neither the execution or delivery
of this Agreement or any other Loan Document, the consummation of the
transactions contemplated hereby, nor the compliance with the terms and
conditions of this Agreement and the other Loan Documents:
(a) requires the consent or approval of, or registration with, any
federal, state, municipal or other governmental commission, board, agency,
bureau, authority, official or regulatory body;
(b) violates any provision of law, any order of any court or any
order, rule or regulation of any agency of government;
(c) conflicts with or results in a breach of any of the terms,
conditions or provisions of any restrictions or of any agreement or instrument
to which the Borrower is a party or by which Borrower or any of Borrower's
properties may be bound or affected; or
(d) results in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the Collateral.1 except liens
and security interests in favor of Lender.
6.3 Proper Execution. The officer executing and delivering this
Agreement and the other Loan Documents on behalf of Borrower has been duly
authorized to do so, and this Agreement and the other Loan Documents are legally
binding upon Borrower in every respect in accordance with their respective
terms.
6.4 Legal Proceedings; Taxes. There are no actions, proceedings or
investigations pending, or to the knowledge of Borrower, threatened, before any
federal, state, municipal or other governmental department, commission, board,
agency, bureau, authority or official involving the likelihood of any material
judgment or liability against Borrower, or questioning or threatening Borrower's
right to carry on the business which Borrower presently conducts or proposes to
conduct, or which, if adversely determined, would cause a Material Adverse
Effect. All tax returns and reports of Borrower required by law to be filed have
been duly filed or will be filed in a timely manner, and all taxes, assessments,
withholdings, fees and other governmental charges upon Borrower, Borrower's
employees or upon any of Borrower's assets, income or franchises, which are due
and payable, have been paid or will be paid in a timely manner.
6.5 EISA. To the best of Borrower's knowledge, no fact or
circumstance, including but not limited to any reportable event within the
meaning of EISA, exists in connection with any Plan of the Borrower which might
constitute grounds for the termination of any such Plan by the
<PAGE>
Pension Benefit Guaranty Corporation or for the appointment of a trustee to
administer any such Plan.
6.6 No Misrepresentations. This Agreement, the other Loan Documents,
the financial covenants referred to herein and the financial information
relative to Borrower heretofore submitted to Lender prior to the issuance of the
Commitment Letter do not contain any untrue statement of a material fact nor
omit to state a material fact necessary in order to make any statement made not
misleading.
6.7 Inducement to Lender. The foregoing representations and
warranties are an inducement to Lender's entering into this Agreement, and each
and every request for an Advance by Borrower shall constitute a reaffirmation
and reiteration of each and every representation and warranty of Borrower
contained in this Article VI.
ARTICLE VII
DEFAULTS AND REMEDIES
7.1 Events of Default. Each of the following shall constitute an
Event of Default hereunder:
(a) Payments. If Borrower fails to make any payment of principal
and/or interest on the Note, or payment of any fee, expense or other amount due
hereunder, under the Note or under any other Loan Document, and shall any such
payment of principal, interest, fee, expense or other sum remain unpaid for a
period of ten (10) days after any such payment is due.
(b) Covenants and Agreements. If Borrower shall fail or omit to
perform or observe any covenant, agreement, condition or other provision
contained or referred to in this Agreement or in any other Loan Document (other
than monetary default), and such failure or omission shall not have been fully
corrected to the reasonable satisfaction of Lender within thirty (30) days after
occurrence thereof.
(c) Accuracy of Statements. If any representation or warranty or
other statement of fact contained in this Agreement, in any other Loan Document
or in any writing, certification, report or statement at any time furnished to
Lender pursuant to or in connection with this Agreement or in connection with
obtaining the Credit Facility or otherwise, shall have been false or misleading
in any material respect or omitted to state a material fact as of the date such
representation, warranty or statement of fact was made.
(d) Judgments. If a final judgment for the payment of money in excess
of the sum of $500,000 in the aggregate shall be entered against Borrower, and
such judgment shall remain unsatisfied and in effect for a period of thirty (30)
consecutive days after the entry thereof, and shall not have been discharged or
execution thereof stayed pending appeal, or if so stayed within ten (I 0) days
after the expiration of any such stay if such judgment shall not have been
discharged.
(e) Borrower's Solvency. If Borrower shall: (i) make a general
assignment for the
<PAGE>
benefit of creditors; (ii) apply for or consent to the appointment of, or if for
any other reason, a receiver, trustee or liquidator of all or a substantial part
of the assets of Borrower is appointed; (iii) be adjudicated a bankrupt or
insolvent; (iv) file a voluntary petition in bankruptcy or file a petition or
any answer seeking reorganization or an arrangement with creditors or seeking to
take advantage of any other law relating to relief of debtors, or admit (by
answer, default or otherwise) the material allegations of a petition filed
against Borrower in any bankruptcy, reorganization, insolvency or other
proceedings relating to relief for debtors; ( v) suffer or permit to continue
unstayed and in effect for thirty (30) consecutive days any judgment, decree or
order entered by a court or governmental agency of competent jurisdiction, which
assumes control of Borrower, approves a petition seeking reorganization of
Borrower or any other judicial modification of the rights of Borrower's
creditors, or appoints a receiver, trustee, custodian or liquidator for Borrower
of all or a substantial part of Borrower's assets; or (vi) fail to pay
Borrower's debts as and when the same mature.
(f) Termination or Suspension of Business. If Borrower shall
terminate or suspend the transaction of business.
(g) Material Adverse Change. If any material adverse change shall occur
in the condition of Borrower, financial or otherwise.
(h) Change in Ownership or Management. If any change in the control or
management of Borrower shall occur, the result of which could, in the reasonable
judgment of Lender, have a Material Adverse Effect.
(i) Loan Documents. If any provision of this Agreement, the Note or any
other Loan Document shall for any reason cease to be in full force and effect;
or be declared null and void or unenforceable in whole or in part; or the
validity or enforceability of any such document shall be challenged or denied.
(j) Default on Other Indebtedness. If Borrower shall default beyond any
applicable grace or curative period on any other credit facility available to
Borrower which exceeds $1 00,000, then same shall constitute a default by
Borrower under this Agreement.
7.2 Remedies Upon Default. Upon the occurrence of an Event of Default,
Lender may exercise any one or more of the following remedies:
(a) Acceleration. Demand payment in full of all principal of and
accrued interest on the Note and/or any and all of Borrower's other indebtedness
to Lender, whereupon all indebtedness of Borrower to Lender shall become
immediately due and payable in full without any presentment, demand or notice of
any kind, all of which are hereby expressly waived by the Borrower.
(b) Advances; Termination of Agreement. Refuse to make any further
Advances, and at Lender's sole discretion terminate this Agreement.
(c) Judgment. Reduce any claim to judgment.
<PAGE>
(d) Offsets. If any state of facts or with the lapse of time or the
giving of notice, or both, would constitute an Event of Default, shall occur or
begin to exist, Lender shall have the right then, or at any time thereafter,
unless remedied to the reasonable satisfaction of Lender, to set off against,
and to appropriate and apply toward the payment of, first the Note and then any
other indebtedness then owed by Borrower to Lender, whether or not such
indebtedness shall have been matured or be due and payable and whether or not
Lender has declared the note evidencing such other indebtedness in default, any
and all deposit balances and other sums and indebtedness then held or owed by
Lender to or for the credit or account, of Borrower (other than balances in
trust accounts, escrow accounts, and other accounts not beneficially owned by
Borrower), all without notice to or demand upon Borrower or any other person,
all. such notices and demands being hereby expressly waived.
(e) Rights Under Note and This Agreement. Exercise all rights and
remedies granted Lender under any and all of the instruments now or hereafter
evidencing and securing the Credit Facility, including but not limited to the
Note and this Agreement.
(f) Foreclosure. Exercise all those rights and remedies allowed to
secured parties by all applicable laws, including without limitation foreclosure
of the liens of the Mortgages.
(g) Possession. Enter upon the premises of Borrower and take immediate
possession of the Collateral, with or without legal process either personally or
by means of a receiver appointed by a court of competent jurisdiction.
(h) Collection of Accounts. Collect and receive all accounts, rents,
income, revenue, earnings, issues and profits from the Collateral.
(i) Exercise of Rights. Exercise, as Lender shall deem appropriate, any
and all other rights afforded by any applicable laws or by this Agreement and
the other Loan Documents, at law, in equity, or otherwise, including, but not
limited to, the rights to bring suits or other proceedings before any tribunal
or competent jurisdiction, either for specific performance of any covenant or
condition contained in the Loan Documents or in aid of the exercise of any right
granted to Lender under this Agreement.
(j) Performance by Lender. Should Borrower fail to observe or perform
any covenant, duty or promise by it to be observed or performed under the terms
of this Agreement or the other Loan Documents, Lender may, but shall not be
obligated to, perform or attempt to perform, such covenant, duty or promise on
behalf of Borrower, and, in the event Lender shall do so, Borrower shall
immediately upon demand reimburse Lender for all expenses, disbursements, fees
and costs reasonably incurred by Lender in connection therewith, with interest
thereon at the rate specified in the Note. Lender does not assume and shall
never have, except by its express written consent, any liability or
responsibility for the performance of any covenant, duty or promise of Borrower
under this Agreement, the Mortgages or the Assignments.
7.3 Rights Cumulative. The rights and remedies of Lender hereunder, in
the Note, and in the other Loan Documents are cumulative, may be exercised in
such sequence or combination as Lender may elect, and are not exclusive of any
rights or remedies otherwise provided by law.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.1 Interpretation. No course of dealing in respect of, nor any
omission or delay in the exercise of, any right, power, or privilege by Lender
shall operate as a waiver thereof. Each right, power or privilege may be
exercised by Lender as often and in such order as Lender may deem expedient. No
waiver or consent granted by Lender in respect to this Agreement or any related
writing shall be binding upon Lender unless specifically granted in writing,
which right shall be strictly construed. Time shall be of the essence in the
performance of all Borrower's obligations under this Agreement and the other
Loan Documents. Borrower may not assign any of Borrower's rights under this
Agreement, and any such attempted assignment shall be wholly null and void.
8.2 Notices. All notices and other communications hereunder or under
the other Loan Documents shall be in writing and shall be mailed by first class
mail or express mail, postage prepaid, or sent by telex, telegram or other
similar form of rapid transmission confirmed by mailing (by first class or
express mail, postage prepaid) written confirmation at substantially the same
time as such rapid transmission, or personally delivered to an officer of the
receiving party. All such communications shall be mailed. sent or delivered to
the parties hereto at their respective addresses as follows:
If to Borrower:
TUMBLEWEED, INC.
1900 Mellwood Avenue
Louisville, Kentucky 40206
Attention: James M. Mulrooney
With a copy to:
Legal Department
Tumbleweed, Inc.
1900 Mellwood Avenue
Louisville, Kentucky 40206
Attention: Gregory A. Compton, Esquire
If to Lender:
NATIONAL CITY BANK OF KENTUCKY
8th Floor, National City Tower
101 South Fifth Street
Louisville, Kentucky 40202 Attention: Rob King
Any communication so addressed and mailed shall be deemed to be given
when so mailed, except that notices and requests related to Advances shall not
be effective until actually
<PAGE>
received by Lender or Borrower, as the case may be; and any notice so sent by
rapid transmission shall be deemed to be given when receipt of such transmission
is acknowledged, and any communication so delivered in person shall be deemed to
be given when receipted for by, or actually received by, an authorized officer
of Borrower or Lender, as the case may be.
8.3 Governing Law. The laws of the Commonwealth of Kentucky shall
govern the construction of this Agreement and the rights, remedies and duties of
the parties hereto.
8.4 Section Titles. The section titles of this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
8.5 Severability. The invalidity or unenforceability of any one (1) or
more phrases, sentences, clauses or paragraphs of this Agreement shall -not
affect the validity or enforceability of the remaining portions of this
Agreement or of any part hereof.
8.6 Integration. The Loan Documents contain the entire agreement
between the parties relating to the Credit Facility. The Loan Documents
supersede any and all prior agreements and any and all contemporaneous oral
agreements between Lender and Borrower relative to the Credit Facility.
8.7 Successors and Assigns. This Agreement shall bind each of Borrower
and Lender and their respective successors and assigns, and sha11 inure to the
benefit of Lender and Borrower and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day, month and year first above written.
BORROWER:
TUMBLEWEED, INC.
(a Delaware corporation)
By:_____________________________________
Its Executive Vice President
LENDER:
NATIONAL CITY BANK OF KENTUCKY
(a national banking association)
By:______________________________________
Its Senior Vice President
<PAGE>
EXHIBIT A
COMPLIANCE CERTIFICATE
This Compliance Certificate is delivered to National City Bank of
Kentucky (the "Lender") pursuant to Section 5.2(d) of the amended and restated
loan agreement dated as of April 21, 1999 between Tumbleweed Restaurants, Inc.
(the "Borrower") and the Lender (the "Loan Agreement"). All capitalized terms
used herein not defined herein shall have the meanings ascribed thereto in the
Loan Agreement.
The Borrower hereby represents, warrants and certifies to the Lender
the following, as of the last day of the most recently ended fiscal quarter for
the Borrower:
A. Borrower's minimum tangible net worth as of the last day of the
most recently ended fiscal quarter was $
B. The ratio of Borrower's Cash Flow Available for Debt Service to the
current portion of long-term debt and interest in respect of the four (4)
immediately preceding fiscal quarters ending as of the last day of the most
recently ended fiscal quarter was
C. The ratio of Borrower's total liabilities to its tangible net worth
as of the last day of the most recently ended fiscal quarter was Borrower's
officer executing and delivering this Compliance Certificate on behalf of
Borrower further certifies to the Lender that the officer has reviewed the Loan
Agreement and the Note and has no knowledge of any event or condition which
constitutes an Event of Default under the Loan Agreement other than --- (if any
Event of Default has occurred, describe same, the period of existence of such
default and what action the Borrower has taken or proposes to take with respect
thereto).
IN WITNESS WHEREOF, the Borrower has executed this Compliance
Certificate this _____ day of_______________, _______.
TUMBLEWEED, INC.
By:________________________________
Its Executive Vice President
<PAGE>
SUBSTITUTION AND RENEWAL
REVOLVING LINE OF
CREDIT NOTE
$6,500,000 Louisville, Kentucky
April 21, 1999
FOR VALUE RECEIVED, the undersigned, TUMBLEWEED, INC. a Delaware
corporation (the "Borrower"), hereby promises to pay, on December 3 1, 200 1,
upon the terms and provisions hereafter provided, to the order of NATIONAL CITY
BANK OF KENTUCKY, a national banking association with offices at 1 0 1 South
Fifth Street, Louisville, Kentucky 40202, its successors and assigns (the
"Bank"), the principal sum of SIX MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($6,500,000) (the "Loan"), or the aggregate principal amount of all
advances made on this note (the "Note"), which shall be outstanding at the date
of payment, whichever shall be less, together with interest on the principal
sums disbursed and outstanding hereon from time to time in the manner and at the
rates hereafter set forth.
THIS NOTE has in part been executed and delivered by the Borrower to
the Bank in substitution for and in renewal of the Borrower's revolving line of
credit note payable to the order of Bank dated August 8, 1996 in a principal sum
not to exceed $5,000,000 outstanding at any time (the "Prior Note"). This Note
evidences the Borrower's obligation to pay principal sums heretofore advanced by
Bank and not repaid by the Borrower on the Prior Note and to be advanced
hereafter, which principal and interest thereon shall be paid to Bank in
accordance with the terms and provisions of this Note. Bank and Borrower
understand and mutually acknowledge that the Loan evidenced by this Note is, to
the extent of the amount presently advanced and outstanding on the Prior Note,
the same Loan evidenced by the Prior Note and mutually acknowledge and agree
that payment of this Note is secured in part by the same collateral documents
that secured payment of the Prior Note (which collateral documents are
hereinafter described). This Note additionally evidences the Borrower's promise
and obligation to repay the additional loan made this date by Bank to the
Borrower in a principal amount not to exceed $1,500,000 outstanding at any time,
together with interest thereon at the rates hereinafter described.
IT IS UNDERSTOOD that the Borrower will request principal advances on
this Note from time to time. Bank will honor such requests for advance in its
discretion, provided that: no default exists hereon or otherwise with regard to
the Loan; there is no default on any other loan now or hereafter owing bank by
the Borrower; and, the amount of the request will not cause the aggregate
principal amount owed on this Note to exceed the maximum principal amount then
available hereunder. The Borrower's indebtedness to the Bank on this Note at any
time shall be the total of all such advances plus accrued interest, less
payments received by Bank. The Bank may act on all matters, including without
limitation the making of advances, on the telephonic instructions of any
authorized officer designated by the Borrower, and may rely thereon in doing and
performing all actions which such officer shall direct the Bank to perform. All
telephonic instructions shall be confirmed immediately in writing, should the
Bank so require, but the failure of the Bank to so require shall not affect the
Borrower's liability to Bank hereon or
<PAGE>
otherwise nor the right of Bank to rely on any such telephonic instruction. The
Bank may prescribe and may revise from time to time the form that requests for
advance hereon shall take.
PAYMENT OF THIS NOTE is secured by first mortgages and by assignments
of leases and rents encumbering real estate owned by the Borrower located in
Jefferson County, Kentucky, in Boone County, Kentucky, in Warren County,
Kentucky and in Hamilton County, Ohio, more particularly described in an amended
and restated loan agreement of even date between Borrower and Bank (the "Loan
Agreement"). This Loan is made by Bank and is accepted by Borrower pursuant to
the terms and provisions of the Loan Agreement.
INTEREST shall be payable by Borrower on the principal sums actually
disbursed and outstanding hereon from time to time at an annual rate equal to
one-fourth of one per cent (1/40/0) above the Bank's prime rate of interest,
calculated on the basis of a 360 day year and the actual number of days or
portion thereof elapsed. Any change in said prime rate subsequent to the date
hereof shall become effective as to this Note immediately following a change in
the prime rate as quoted by Bank. "Prime rate" shall mean the rate of interest
generally charged by Bank from time to time to its most substantial and
creditworthy commercial borrowers for 90- day unsecured loans, it being
understood and agreed, however, that such prime rate is the rate designated by
Bank as its "prime rate" and does not necessarily mean or imply that such prime
rate is the lowest rate then available from Bank on floating rate loans to
specific borrowers of the class described above. The first such payment of
interest only shall be due on or before May 1, 1999 and on or before the first
day of each month thereafter during the term hereof Simultaneously with each
such monthly interest payment, the Borrower will make a payment on principal to
Bank in the amount of $45,000 per payment.
BORROWER AND BANK mutually consent, acknowledge and agree that on or
before December 31, 1999, the maximum principal amount available to Borrower
under this revolving credit facility will be reduced by $380,000, and further
agree that such maximum principal amount available will be further reduced by
$540,000 on or before each December 31 thereafter during the term of the Loan.
Borrower will make, on or before each of said dates, payments on principal in
addition to regular monthly principal payments as may be necessary to reduce the
principal amount outstanding under this Note as aforesaid on or before each of
said dates.
BORROWER shall repay Bank for advances made by Bank on this Note at the
times and in the amounts herein above set forth. Borrower may borrow, repay in
whole or in part at any time without premium or penalty, and reborrow hereunder,
subject to the terms hereof and subject to the terms of the Loan Agreement.
THE COLLATERAL granted Bank to secure this Note and advances hereon
shall also secure payment of all renewals, extensions or modifications hereof.
Each request for advance hereon shall be a reaffirmation of all collateral
interests previously granted to the Bank and a reaffirmation of all
representations and warranties heretofore made to the Bank in the Loan Agreement
and made in all other documents securing or otherwise pertaining to the Loan.
BORROWER shall pay to the holder hereof a late charge of five per cent
(5%) of any monthly installment of principal and/or interest not paid within ten
(10) days of the date same is
<PAGE>
due and payable.
NOTWITHSTANDING anything to the contrary contained herein all default
interest and late charges shall be due and payable by Borrower to Bank on demand
and the same shall be paid separately from and in addition to the scheduled
payments of principal and interest provided for herein.
IF DEFAULT is made in the payment of principal or interest hereof as
and when the same is or becomes due, or in the performance of any term, covenant
or condition required to be kept, observed or performed under this Note or any
other instrument executed in connection with this Loan (including, without
limitation, the Loan Agreement, and (absent a specific contrary grace or
curative period) if same shall not be cured to the complete satisfaction of the
holder hereof within ten (10) days after any monetary default or within thirty
(30) days after the occurrence of any nonmonetary default on the Loan; or should
Borrower default on any other indebtedness now or hereafter owing Bank during
the term hereof beyond any applicable grace or curative period contained in any
documents relative to such other indebtedness; then the owner and holder of this
Note may, without notice or demand, declare all sums owing hereunder and under
any of said other instruments at once due and payable. If default is made in the
payment of this Note at maturity (regardless of how same may be brought about)
Borrower agrees, upon expiration of the aforesaid curative periods, to pay to
the owner and holder hereof interest at a default rate equal to the annual rate
for the principal hereof plus three percent (3%) until paid, together with all
reasonable attorneys' fees and other costs of collection occasioned by any of
the foregoing.
BORROWER expressly waives demand and presentment for payment, notice of
nonpayment, protest, notice of protest, bringing of suit, and diligence in
taking any action to collect amounts called for hereunder and in the handling of
security at any time existing in connection therewith; and is and shall be
directly and primarily liable for the payment of all sums owing and to be owing,
regardless of and without any notice, diligence, act or omission or with respect
to the collection of any amount called for hereunder or in connection with any
right, lien, interest, or property at any and all times had or existing as
security for any amount called for hereunder or under any other instrument
executed in connection with the Loan.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT BORROWER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LOAN OR ANY AGREEMENT
CONTEMPLATED TO BE MADE OR EXECUTED IN CONNECTION THEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANKS MAKING THE LOAN
EVIDENCED HEREBY.
IN THE EVENT of any inconsistency in the terms and provisions of this
Note or any other document relative to the Loan as to the rights and remedies of
the holder hereof, or in the event of any such inconsistency as between or among
any two (2) or more documents, then in any such event the holder shall have the
right at its sole option to elect which of such provisions
<PAGE>
shall govern.
THIS NOTE and the respective rights and liabilities of Borrower and the
holder of this Note shall be governed by and shall be construed in accordance
with the laws of the Commonwealth of Kentucky. The invalidity or
unenforceability of any portion of this Note shall not affect the validity or
enforceability of the remaining portions of this Note.
BORROWER:
TUMBLEWEED, INC.
(a Delaware corporation)
By: ________________________________
Its Executive Vice President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF TUMBLEWEED, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 712,030
<SECURITIES> 0
<RECEIVABLES> 436,601
<ALLOWANCES> 0
<INVENTORY> 1,336,824
<CURRENT-ASSETS> 2,875,734
<PP&E> 29,494,443
<DEPRECIATION> 3,437,330
<TOTAL-ASSETS> 32,161,258
<CURRENT-LIABILITIES> 4,293,166
<BONDS> 8,605,510
0
0
<COMMON> 58,815
<OTHER-SE> 15,705,888
<TOTAL-LIABILITY-AND-EQUITY> 32,161,258
<SALES> 11,332,318
<TOTAL-REVENUES> 11,959,369
<CGS> 3,263,400
<TOTAL-COSTS> 11,094,062
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246,342
<INCOME-PRETAX> 618,965
<INCOME-TAX> 856,261
<INCOME-CONTINUING> (237,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (341,035)
<NET-INCOME> (578,331)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
