EXHIBIT 6(i)
Sirrom Financing Agreements
Loan Agreement
Secured Promissory Note
Stock Purchase Warrant
Security Agreement - Dreams, Inc./DFC/DEI/DPI
Intellectual Property Security Agreement
Pledge and Security Agreement - Dreams, Inc.
Pledge and Security Agreement - DFC
Sirrom Financing Agreements
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the ____ day of
November, 1998, is made and entered into on the terms and conditions
hereinafter set forth, by and between DREAMS, INC., a Utah corporation,
DREAMS FRANCHISE CORPORATION, a California corporation, DREAMS ENTERTAINMENT,
INC., a Utah corporation and DREAMS PRODUCTS, INC., a Utah corporation
(individually a "Borrower" and collectively the "Borrowers"), and SIRROM
INVESTMENTS, INC., a Tennessee corporation ("Lender").
RECITALS:
WHEREAS, Borrowers have requested that Lender make available to
Borrowers a term loan in the original principal amount of Three Million
Dollars ($3,000,000) (the "Loan") on the terms and conditions hereinafter set
forth, and for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrowers,
Borrowers have made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and
inducements of Borrowers, has agreed to make the Loan upon the terms and
conditions hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make
the Loan, the mutual covenants and agreements hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 EVIDENCE OF LOAN INDEBTEDNESS AND REPAYMENT. Subject to the
terms and conditions contained herein, the Lender shall make the Loan to
Borrowers by wire transfer in immediately available funds. The Loan shall be
evidenced by a Secured Promissory Note in the original principal amount of
Three Million Dollars ($3,000,000), dated as of the date hereof, executed by
Borrowers in favor of Lender (the "Note"). The Loan shall be payable in
accordance with the terms of the Note. The Note, this Agreement and any other
instruments and documents executed by Borrowers, or any shareholder, member,
partner, subsidiary or affiliate of Borrowers ("Affiliates"), now or
hereafter evidencing, securing or in any way related to the indebtedness
evidenced by the Note are herein
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individually referred to as a "Loan Document" and collectively referred to as
the "Loan Documents." The term "Obligations" as used herein shall refer to
(a) the Loan to be made concurrently or in connection with this Agreement, as
evidenced by the Note, and any renewals or extensions thereof, (b) the full
and prompt payment and performance of any and all other indebtednesses and
other obligations of Borrowers to Lender, direct or contingent (including but
not limited to obligations incurred as indorser, guarantor or surety),
however evidenced or denominated, and however and whenever incurred,
including but not limited to indebtednesses incurred pursuant to any present
or future commitment of Lender to Borrowers and (c) all future advances made
by Lender for taxes, levies, insurance and preservation of the collateral
securing the Loan and all attorneys' fees, court costs and expenses of
whatever kind incident to the collection of any of said indebtedness or other
obligations and the enforcement and protection of the security interest
created hereby or by the other Loan Documents.
1.2 PROCESSING FEE. Borrowers shall pay Lender a processing fee of
Ninety Thousand Dollars ($90,000), Twenty Thousand Dollars ($20,000) of which
has previously been paid to Lender and Seventy Thousand Dollars ($70,000) of
which shall be paid on the date the Loan is funded.
1.3 PREPAYMENT. Borrowers may prepay the indebtedness evidenced
by the Note in whole or in part at any time and from time to time, without
penalty or premium.
1.4 PURPOSES OF LOAN AND USE OF PROCEEDS. The purpose of the Loan
shall be to (i) provide additional working capital to Borrowers and (ii)
finance the acquisition of Mounted Memories, Inc.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 BORROWER'S REPRESENTATIONS. Each Borrower hereby represents and
warrants to Lender as follows (except as set forth on a disclosure schedule
hereto which shall be labeled to correspond to the appropriate provision
hereof):
(a) CORPORATE STATUS. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Utah or California, as applicable; and has the corporate power
to own and operate its properties, to carry on its business as now
conducted and to enter into and to perform its obligations under this
Agreement and the other Loan Documents to which it is a party. Each
Borrower is duly qualified to do business and in good standing in each
state in which a failure to be so qualified would have a material
adverse effect on Borrower's financial condition or its ability to
conduct its business in the manner now conducted.
(b) SUBSIDIARIES. Schedule 2.1(b) hereto is a complete list of each
corporation, partnership, joint venture or other business organization
(the "Subsidiary" or, with respect to all such organizations, the
"Subsidiaries") in which each Borrower or any Subsidiary
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owns, directly or indirectly, any capital stock or other equity
interest, or with respect to which each Borrower or any Subsidiary,
alone or in combination with others, is in a control position, which
list shows the jurisdiction of incorporation or other organization and
the percentage of stock or other equity interest of each Subsidiary
owned by such Borrower. Each Subsidiary which is a corporation is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to transact
business as a foreign corporation and is in good standing in the
jurisdictions listed in Schedule 2.1(b), which are the only
jurisdictions where the properties owned or leased or the business
transacted by it makes such licensing or qualification to do business
as a foreign corporation necessary, and no other jurisdiction has
demanded, requested or otherwise indicated that (or inquired whether)
it is required so to qualify. Each Subsidiary which is not a
corporation is duly organized and validly existing under the laws of
the jurisdiction of its organization. The outstanding capital stock of
each Subsidiary which is a corporation is validly issued, fully paid
and nonassessable. Each Borrower and its Subsidiaries have good and
valid title to the equity interests in the Subsidiaries shown as owned
by each of them on Schedule 2.1(b), free and clear of all liens,
claims, charges, restrictions, security interests, equities, proxies,
pledges or encumbrances of any kind. Except where otherwise indicated
herein or unless the context otherwise requires, any reference to
Borrowers herein shall include Borrowers and all of their Subsidiaries.
(c) AUTHORIZATION. Each Borrower has full legal right, power and
authority to conduct its business and affairs. Each Borrower has full
legal right, power and authority to enter into and perform its
obligations under the Loan Documents, without the consent or approval
of any other person, firm, governmental agency or other legal entity.
The execution and delivery of this Agreement, the borrowing hereunder,
the execution and delivery of each Loan Document to which each Borrower
is a party, and the performance by each Borrower of its obligations
thereunder are within the corporate powers of each Borrower and have
been duly authorized by all necessary corporate action properly taken
and each Borrower has received all necessary governmental approvals, if
any, that are required. The officer(s) executing this Agreement, the
Note and all of the other Loan Documents to which each Borrower is a
party are duly authorized to act on behalf of such Borrower.
(d) VALIDITY AND BINDING EFFECT. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of each
Borrower, enforceable in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or the
application of general equitable principles.
(e) CAPITALIZATION. As of the date hereof and giving effect to the
Mounted Memories, Inc. acquisition, the authorized capital stock of
Dreams, Inc. consists solely of 50,000,000 shares of common stock, $.05
par value per share ("Common Stock"), of which 40,898,500 shares are
issued and outstanding (the "Shares") and 11,873,758 shares of which
are reserved for issuance upon exercise of the Stock Purchase Warrant
dated as of the date hereof and issued to Lender (the "Warrant");
provided, however, that the number of shares
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reserved for issuance upon exercise of the Warrant may be increased
from time to time in accordance with the term of the Warrant. Attached
hereto as Schedule 2.1(e) as a table showing the capitalization of
Dreams, Inc., as of the date hereof, on a fully diluted basis. As of
the date hereof, Dreams, Inc. does not have outstanding any stock or
securities convertible or exchangeable for any shares of its Common
Stock or containing any profit participation features, and does not
have outstanding any rights or options to subscribe for or to purchase
its Common Stock or any stock appreciation rights or phantom stock
plans, except as set forth on Schedule 2.1(e) and the Warrant. Schedule
2.1(e) accurately sets forth the following with respect to all
outstanding options and rights to acquire the Dreams, Inc.'s Common
Stock: (i) the total number of shares issuable upon exercise of all
outstanding options; (ii) the range of exercise prices for all such
outstanding options; (iii) the number of shares issuable, the exercise
price and the expiration date for each such outstanding option; and
(iv) with respect to all outstanding options, warrants and rights to
acquire Dreams, Inc.'s capital stock other than the Warrant, the
holder, the number of shares covered, the exercise price and the
expiration date. As of the date hereof, Dreams, Inc. is not subject to
any obligation (contingent or otherwise) to repurchase, redeem, retire
or otherwise acquire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except as set
forth in the Warrant or on Schedule 2.1(e). As of the date hereof, all
of the outstanding shares of Dreams, Inc.'s capital stock are validly
issued, fully paid and nonassessable. Except as set forth on Schedule
2.1(e), there are no statutory or contractual preemptive rights, rights
of first refusal, anti-dilution rights or any similar rights, held by
stockholders or option holders of Dreams, Inc., with respect to the
issuance of the Warrant or the issuance of the Common Stock upon
exercise of the Warrant and all such rights have been effectively
waived with regard to the issuance of the Warrant, the exercise of the
Warrant and the issuance of the Common Stock upon exercise of the
Warrant. Dreams, Inc. has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any
of its capital stock, and the offer, sale and issuance of the Warrant
hereunder do not require registration under the Securities Act of 1933,
as amended, or any applicable state securities laws. To the best of
Dreams, Inc.'s knowledge, there are no agreements among Dreams, Inc.'s
shareholders with respect to any other aspect of Dreams, Inc.'s
affairs, except as set forth on Schedule 2.1(e). Dreams, Inc. owns all
of the issued and outstanding shares of capital stock of Dreams
Franchise Corporation and Dreams Entertainment, Inc. and Dreams
Franchise Corporation owns all of the issued and outstanding shares of
capital stock of Dreams Products, Inc.
(f) TRADEMARKS, PATENTS, ETC. Schedule 2.1(f) is an accurate and
complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses,
formulas and applications therefor owned by each Borrower or used or
required by each Borrower in the operation of its business, title to
each of which is, except as set forth in Schedule 2.1(f) hereto, held
by such Borrower free and clear of all adverse claims, liens, security
agreements, restrictions or other encumbrances. Except as set forth in
Schedule 2.1(f), each Borrower owns or possesses adequate (and will use
its best efforts to obtain as expediently as possible any additional)
licenses or other rights to use all patents, trademarks, trade names,
service marks, trade secrets or other intangible property rights and
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know-how necessary to entitle such Borrower to conduct its business as
presently being conducted. There is no infringement action, lawsuit,
claim or complaint which asserts that any Borrower's operations violate
or infringe the rights or the trade names, trademarks, trademark
registrations, service names, service marks or copyrights of others
with respect to any apparatus or method of such Borrower or any
adversely held trademarks, trade names, trademark registrations,
service names, service marks or copyrights, and no Borrower is not in
any way making use of any confidential information or trade secrets of
any person, except with the consent of such person. Except as set forth
in Schedule 2.1(f), each Borrower has taken reasonable steps to protect
its proprietary information (except disclosure of source codes pursuant
to licensing agreements) and is the lawful owner of the proprietary
information free and clear of any claim of any third party. As used
herein, "proprietary information" includes without limitation, (i) any
computer programming language, software, hardware, firmware or related
documentation, inventions, technical and nontechnical data related
thereto, and (ii) other documentation, inventions and data related to
patterns, plans, methods, techniques, drawings, finances, customer
lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used
by any Borrower or marketing studies conducted by any Borrower, all of
which such Borrower considers to be commercially important and
competitively sensitive and which generally has not been disclosed to
third parties.
(g) NO CONFLICTS. Consummation of the transactions contemplated
hereby and the performance of the obligations of each Borrower under
and by virtue of the Loan Documents do not conflict with, and will not
result in any breach of, or constitute a default or trigger a lien
under, any mortgage, security deed or agreement, deed of trust, lease,
bank loan or credit agreement, corporate charter or bylaws, agreement
or certificate of limited partnership, partnership agreement, license,
franchise or any other instrument or agreement to which any Borrower is
a party or by which any Borrower or its respective properties may be
bound or affected or to which any Borrower has not obtained an
effective waiver.
(h) LITIGATION. Except as set forth on Schedule 2.1(h), there are
no actions, suits, arbitrations, administrative hearings or other
proceedings pending, or, to the knowledge of each Borrower threatened,
against or affecting any Borrower or any of Borrower's property or
involving the validity or enforceability of any of the Loan Documents
at law or in equity, or before any governmental or administrative
agency. To each Borrower's knowledge, such Borrower is not subject to
any order, writ, injunction, decree or demand of any court or any
governmental authority.
(i) FINANCIAL STATEMENTS. The financial statements of Borrowers
dated March 31, 1998, which are attached hereto as Schedule 2.1(i)(A),
are true and correct in all material respects, have been prepared on
the basis of generally accepted accounting principles consistently
applied, and fairly present the financial condition of Borrowers as of
the date(s) thereof. No material adverse change has occurred in the
financial condition of any Borrower since the date(s) thereof, and no
additional borrowings have been made by any Borrower since the date(s)
thereof other than as set forth on Schedule 2.1(i)(B).
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(j) OTHER AGREEMENTS; NO DEFAULTS. Schedule 2.1(r) is a list of the
contracts and corporate restrictions that could have a material adverse
effect on the business, properties, assets, operations or conditions,
financial or otherwise, of any Borrower, or the ability of Borrower to
carry out its obligations under the Loan Documents to which it is a
party. No Borrower is in default in any respect in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its
business to which it is a party, including but not limited to this
Agreement and the other Loan Documents, and no other default or event
has occurred and is continuing that with notice or the passage of time
or both would constitute a default or event of default under any of
same.
(k) COMPLIANCE WITH LAW. Each Borrower has obtained all necessary
licenses, permits and approvals and authorizations necessary or
required in order to conduct its business and affairs as heretofore
conducted and as hereafter intended to be conducted except to the
extent that any failure to obtain such licenses, permits, approvals or
authorizations, in the aggregate, cannot be reasonably expected to have
a material adverse effect on its business, operations, property or
financial condition and will not materially adversely affect such
Borrower's ability to perform its obligations under the Loan Documents.
To each Borrower's knowledge, such Borrower is in compliance with all
laws, regulations, decrees and orders applicable to it (including but
not limited to laws, regulations, decrees and orders relating to
environmental, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), except
to the extent that any noncompliance, in the aggregate, cannot
reasonably be expected to have a material adverse effect on its
business, operations, property or financial condition and will not
materially adversely affect such Borrower's ability to perform its
obligations under the Loan Documents.
(l) DEBT. Schedule 2.1(l) is a complete and correct list of all
credit agreements, indentures, purchase agreements, promissory notes
and other evidences of indebtedness, guaranties, capital leases and
other instruments, agreements and arrangements presently in effect
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which each Borrower or any of its
properties is in any manner directly or contingently obligated and the
maximum principal or face amounts of the credit in question that are
outstanding and that can be outstanding are correctly stated, and all
liens of any nature given or agreed to be given as security therefor
are correctly described or indicated in Schedule 2.1(l).
(m) TAXES. Except as set forth on Schedule 2.1(m), each Borrower
has filed or caused to be filed all tax returns that are required to be
filed (except for returns that have been appropriately extended), and
has paid, or will pay when due, all taxes shown to be due and payable
on said returns and all other taxes, impositions, assessments, fees or
other charges imposed on it by any governmental authority, agency or
instrumentality, prior to any delinquency with respect thereto (other
than taxes, impositions, assessments, fees and
SirromAgmts Page 6
charges currently being contested in good faith by appropriate
proceedings, for which appropriate amounts have been reserved). Except
as set forth on Schedule 2.1(m), no tax liens have been filed against
any Borrower or any of its property.
(n) CERTAIN TRANSACTIONS. Except as set forth on Schedule 2.1(n)
hereto, no Borrower is indebted, directly or indirectly, to any of its
shareholders, officers or directors or to their respective spouses or
children, in any amount whatsoever, and none of said shareholders,
officers or directors or any members of their immediate families, are
indebted to any Borrower or have any direct or indirect ownership
interest in any firm or corporation with which any Borrower has a
business relationship, or any firm or corporation which competes with
any Borrower, except that shareholders, officers and/or directors of
each Borrower may own no more than 4.9% of outstanding stock of
publicly traded companies which may compete with any Borrower. No
shareholder, officer or director or any member of their immediate
families, is, directly or indirectly, interested in any material
contract with Borrower. No Borrower is a guarantor or indemnitor of any
indebtedness of any other person, firm, corporation or other legal
entity.
(o) SMALL BUSINESS CONCERN. Dreams, Inc., together with its
"affiliates" (as that term is defined in Title 13, Code of Federal
Regulations, Section 121.103), is a "small business concern" within the
meaning of the Small Business Investment Act of 1958, as amended, and
the regulations promulgated thereunder. The information set forth in
the Small Business Administration Forms 480, 652 and Parts A and B of
Form 1031 regarding Dreams, Inc. upon delivery, pursuant to Section 4.1
hereof, will be accurate and complete. Dreams, Inc. does not presently
engage in, and it will not hereafter engage in, any activities, and
Dreams, Inc. will not use directly or indirectly, the proceeds from the
Loan, for any purpose for which a Small Business Investment Company is
prohibited from providing funds by the Small Business Investment Act
and the regulations thereunder, including Title 13, Code of Federal
Regulations Section 107.720.
(p) STATEMENTS NOT FALSE OR MISLEADING. No representation or
warranty given as of the date hereof by any Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by any Borrower to Lender pursuant hereto, taken as a whole, contains
or will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading in any material respect.
(q) MARGIN REGULATIONS. No Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying margin
stock. No proceeds received pursuant to this Agreement will be used to
purchase or carry any equity security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
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(r) SIGNIFICANT CONTRACTS. Schedule 2.1(r) is a complete and
correct list of all contracts, agreements and other documents pursuant
to which any Borrower receives revenues in excess of $25,000 per fiscal
year or has committed to make expenditures in excess of $25,000 per
fiscal year. Each such contract, agreement and other document is in
full force and effect as of the date hereof and no Borrower knows of
any reason why such contracts, agreements and other documents would not
remain in full force and effect pursuant to the terms thereof.
(s) ENVIRONMENT. Each Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder. Each Borrower has
been issued and will maintain all required federal, state and local
permits, licenses, certificates and approvals relating to (i) air
emissions; (ii) discharges to surface water or groundwater; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (which shall include any and all such materials
listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder as hazardous or
potentially hazardous); or (vi) other environmental, health or safety
matters. No Borrower has received notice of, or knows of, or suspects
facts which might constitute any violations of any federal, state or
local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder with respect to its
businesses, operations, assets, equipment, property, leaseholds, or
other facilities. Except in accordance with a valid governmental
permit, license, certificate or approval, there has been no emission,
spill, release or discharge into or upon (i) the air; (ii) soils, or
any improvements located thereon; (iii) surface water or groundwater;
or (iv) the sewer, septic system or waste treatment, storage or
disposal system servicing the premises, of any toxic or hazardous
substances or wastes at or from the premises; and accordingly the
premises of each Borrower are free of all such toxic or hazardous
substances or wastes. There has been no complaint, order, directive,
claim, citation or notice by any governmental authority or any person
or entity with respect to (i) air emissions; (ii) spills, releases or
discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or
disposal systems servicing the premises; (iii) noise emissions; (iv)
solid or liquid waste disposal; (v) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or waste;
or (vi) other environmental, health or safety matters affecting each
Borrower or its business, operations, assets, equipment, property,
leaseholds or other facilities. No Borrower has any indebtedness,
obligation or liability (absolute or contingent, matured or not
matured), with respect to the storage, treatment, cleanup or disposal
of any solid wastes, hazardous wastes or other toxic or hazardous
substances (including without limitation any such indebtedness,
obligation, or liability with respect to any current regulation, law or
statute regarding such storage, treatment, cleanup or disposal).
(t) FEES/COMMISSIONS. No Borrower has agreed to pay any finder's
fee, commission, origination fee (except for the processing and
commitment fees due pursuant
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to Section 1.2 hereof and a commission payable to Xxxxx Xxxxxxx in the
amount of $75,000) or other fee or charge to any person or entity with
respect to the Loan and investment transactions contemplated hereunder.
(u) ERISA. Each Borrower is in compliance in all material respects
with all applicable provisions of Title IV of the Employee Retirement
Income Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88
Stat. 829, 29 U.S.C.A. Section 1001 et seq. (1975), as amended from
time to time ("ERISA"). Neither a reportable event nor a prohibited
transaction (as defined in ERISA) has occurred and is continuing with
respect to any pension plan that is subject to the requirements of
ERISA (a "Plan"); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which
constitute grounds entitling the Pension Benefit Guaranty Corporation
(together with any entity succeeding to or all of its functions, the
"PBGC") to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any such proceedings;
no Borrower nor any commonly controlled entity (as defined in ERISA)
has completely or partially withdrawn from a multiemployer plan (as
defined in ERISA); each Borrower and each commonly controlled entity
has met its minimum funding requirements under ERISA with respect to
all of its Plans and the present fair market value of all Plan property
exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA and the regulations thereunder
for calculating the potential liability of any Borrower or any commonly
controlled entity to the PBGC or the Plan under Title IV or ERISA; and
no Borrower nor any commonly controlled entity has incurred any
liability to the PBGC under ERISA.
(v) TITLE TO PROPERTIES. Each Borrower has good, indefeasible and
insurable title to, or valid leasehold interests in, all its real
properties and good title to its other assets, free and clear of all
liens other than Permitted Liens (as defined in Section 3.15 hereof).
(w) LIMITED OFFERING OF NOTE AND WARRANT. No Borrower nor anyone
acting on its behalf has offered the Note, the Warrant or any similar
securities for sale to, or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof, with,
any person other than Lender and not more than 35 other institutional
investors. No Borrower nor anyone acting on its behalf has taken, or
will take, any action which would subject the issuance or sale of the
Note and Warrant to Section 5 of the Securities Act of 1933, as
amended, or the registration or qualification provisions of the blue
sky laws of any state.
(x) REGISTRATION RIGHTS. Except as described in the Warrant and as
set forth on Schedule 2.1(x), Borrower is not under any obligation to
register under the Securities Act of 1933, as amended, or the Trust
Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that may subsequently be issued.
SirromAgmts Page 9
(y) EMPLOYEES. No Borrower has current labor problems or disputes
which have resulted or any Borrower reasonably believes could be
expected to have a material adverse effect on the operations,
properties or financial condition of such Borrower, or such Borrower's
ability to perform its obligations hereunder.
(z) ISSUANCE TAXES. All taxes imposed on any Borrower in connection
with the issuance, sale and delivery of the Note, the Warrant and the
capital stock issuable upon exercise of the Warrant have been or will
be fully paid, and all laws imposing such taxes have been or will be
fully satisfied by Borrowers.
(aa) SOLVENCY. As of the date hereof and giving effect to the
making of the Loan, each Borrower (i) has capital sufficient to carry
on its business and transactions and all business and transactions in
which it is about to engage and is able to pay its debts as they
mature, (ii) owns property having a value, both at fair valuation and
at present fair saleable value, greater than the amount required to pay
its probable liabilities (including contingencies), and (iii) does not
believe that it will incur debts or liabilities beyond its ability to
pay such debts or liabilities as they mature.
(bb) LOCATION OF PROPERTIES, PLACES OF BUSINESS. The only
jurisdictions in which each Borrower maintains any tangible personal
property or carries on business are as listed in Schedule 2.1(ab)
hereto. All xxxxxxxx for the supply of goods and services by each
Borrower are made from, and require payment to be made to, the chief
executive office of the such Borrower. No Borrower has, during the five
(5) years preceding the date of this Agreement, been known as or used
any other corporate, trade or fictitious name, or acquired all or
substantially all of the assets, capital stock or operating units of
any person. No Borrower has, during the five (5) years preceding the
date of this Agreement, had a business location at any address other
than addresses set forth on Schedule 2.1(ab).
(cc) YEAR 2000 COMPATIBILITY. Each Borrower has reviewed its
financial accounting systems and other computer systems for year 2000
compatibility and has not identified any issues that could have a
material adverse effect on such Borrower's business, operations,
property or financial condition.
(dd) INTERRELATEDNESS OF BORROWERS. The business operations of each
Borrower are interrelated and complement one another, and such entities
have a common business purpose, with intercompany bookkeeping and
accounting adjustments used to separate their respective properties,
liabilities and transactions. To permit their uninterrupted and
continuous operations, such entities now require and will from time to
time hereafter require funds and credit accommodations for general
business purposes. The proceeds of the Loan will directly or indirectly
benefit each Borrower hereunder, severally and jointly, regardless of
which Borrower requests or receives part or all of the proceeds of such
advances.
SirromAgmts Page 10
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrowers covenant and agree, jointly and severally, that during the
term of this Agreement:
3.1 PAYMENT OF OBLIGATIONS. Borrowers shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Borrowers to
Lender, direct or contingent, however evidenced or denominated, and however
and whenever incurred, including but not limited to indebtedness incurred
pursuant to any present or future commitment of Lender to Borrowers, together
with interest thereon, and any extensions, modifications, consolidations
and/or renewals thereof and any notes given in payment thereof.
3.2 FINANCIAL STATEMENTS AND REPORTS. Dreams, Inc. shall furnish to
Lender (a) as soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year of Dreams, Inc., an audited
consolidated and consolidating balance sheet of Borrowers as of the close of
such fiscal year, an audited consolidated and consolidating statement of
operations of Borrowers as of the close of such fiscal year and an audited
consolidated and consolidating statement of cash flows for Borrowers for such
fiscal year, prepared in accordance with generally accepted accounting
principles consistently applied and accompanied by an unqualified audit
report prepared by an independent certified public accountant acceptable to
Lender showing the financial condition of Borrowers at the close of such
fiscal year and the results of its operations during such fiscal year and
accompanied by a certificate of the President of Dreams, Inc., stating that
to the best of the knowledge of such officer, Borrowers have kept, observed,
performed and fulfilled each covenant, term and condition of this Agreement
and the other Loan Documents during the preceding fiscal year and that no
Event of Default has occurred and is continuing (or if an Event of Default
has occurred and is continuing, specifying the nature of same, the period of
existence of same and the action Borrower proposes to take in connection
therewith), (b) within thirty (30) days of the end of each calendar month, a
status report indicating the financial performance of each Borrower during
such month and the financial position of each Borrower as of the end of such
month in the format required by Lender (which format will be delivered to
Borrowers on a diskette), (c) within thirty (30) days of the end of each
quarter, a consolidated and consolidating balance sheet of Borrowers as of
the close of such quarter and a consolidated and consolidating statement of
operations of Borrower as of the close of such quarter, all in reasonable
detail, and prepared substantially in accordance with generally accepted
accounting principles consistently applied (except for the absence of
footnotes and subject to year-end adjustments), and (d) with reasonable
promptness, such other financial data, including without limitation, accounts
receivable agings, as Lender may reasonably request. Without Lender's prior
written consent, no Borrower shall modify or change any accounting policies
or procedures, including such Borrower's fiscal year, in effect on the date
hereof.
3.3 MAINTENANCE OF BOOKS AND RECORDS; INSPECTION. Each Borrower
shall maintain its books, accounts and records in accordance with generally
accepted accounting principles consistently applied, and after reasonable
notice from Lender permit Lender, its officers and employees and any
professionals designated by Lender in writing, at such Borrower's expense, to
SirromAgmts Page 11
visit and inspect any of its properties, corporate books and financial
records, and to discuss its accounts, affairs and finances with such Borrower
or the principal officers of such Borrower during reasonable business hours,
all at such times as Lender may reasonably request; provided that no such
inspection shall materially interfere with the conduct of such Borrower's
business.
3.4 INSURANCE. Without limiting any of the requirements of any of
the other Loan Documents, Borrowers shall maintain, in amounts customary for
entities engaged in comparable business activities, (a) to the extent
required by applicable law, worker's compensation insurance (or maintain a
legally sufficient amount of self insurance against worker's compensation
liabilities, with adequate reserves, under a plan approved by Lender, such
approval not to be unreasonably withheld or delayed), and (b) fire and "all
risk" casualty insurance on its properties against such hazards and in at
least such amounts as are customary in Borrowers' business. Borrowers will
make reasonable efforts to obtain and maintain public liability insurance in
an amount, and at a cost, deemed reasonable to the Borrowers' Board of
Directors. At the request of Lender, Borrowers will deliver forthwith a
certificate specifying the details of such insurance in effect.
3.5 TAXES AND ASSESSMENTS. Each Borrower shall (a) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (b) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon such
Borrower upon its income and profits or upon any properties belonging to it,
prior to the date on which penalties attach thereto, and (c) pay all taxes,
assessments and governmental charges or levies that, if unpaid, might become
a lien or charge upon any of its properties; provided, however, that any
Borrower in good faith may contest any such tax, assessment, governmental
charge or levy described in the foregoing clauses (b) and (c) so long as
appropriate reserves in accordance with generally accepted accounting
principles are maintained with respect thereto.
3.6 CORPORATE EXISTENCE. Each Borrower shall maintain its corporate
existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in each jurisdiction
in which such qualification is necessary pursuant to applicable law.
3.7 COMPLIANCE WITH LAW AND OTHER AGREEMENTS. Except where the
failure to do so would not materially adversely affect any Borrower's
operations, properties, financial condition or its ability to fulfill its
obligations under the Loan Documents, each Borrower shall maintain its
business operations and property owned or used in connection therewith in
compliance with (a) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership
of such property, and (b) all agreements, licenses, franchises, indentures
and mortgages to which each Borrower is a party or by which each Borrower or
any of its properties is bound. Without limiting the foregoing, each Borrower
shall pay all of its indebtedness promptly in accordance with the terms
thereof.
3.8 NOTICE OF DEFAULT; PERCEIVED BREACH. Borrowers shall give
written notice to Lender of the occurrence of any default, event of default
or Event of Default under this Agreement or any other Loan Document promptly
upon the occurrence thereof. Borrowers agree to give Lender prompt written
notice of any action or inaction by or on behalf of Lender in connection with
this
SirromAgmts Page 12
Agreement or the Obligations that Borrowers believe may be actionable against
Lender or a defense to payment of any or all Obligations for any reason,
including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law.
3.9 NOTICE OF LITIGATION. Borrowers shall give notice, in writing,
to Lender of (a) any actions, suits or proceedings, instituted by any persons
whomsoever against Borrowers or affecting any of the assets of Borrowers
wherein the amount at issue is in excess of Fifty Thousand and No/100ths
Dollars ($50,000.00) and (b) any dispute, not resolved within ninety (90)
days of the commencement thereof, between any Borrower on the one hand and
any governmental regulatory body on the other hand, which dispute might
materially interfere with the normal operations of any Borrower.
3.10 CONDUCT OF BUSINESS. Each Borrower will continue to engage in
a business of the same general type and manner as conducted by it on the date
of this Agreement. Without ten (10) days' prior written notice to Lender, no
Borrower shall change its name or location of doing business. In the event
any Borrower makes a change of its name or location of doing business, such
Borrower shall promptly execute any and all financing statements and
amendments or continuations thereof and any other documents that Lender may
reasonably request to evidence, continue, and/or perfect any security
interest in or pledge of collateral securing the Loan.
3.11 ERISA PLAN. If any Borrower has in effect, or hereafter
institutes, a Plan that is subject to the requirements of ERISA, then the
following warranty and covenants shall be applicable during such period as
any such Plan shall be in effect: (a) such Borrower hereby warrants that no
fact that might constitute grounds for the involuntary termination of the
Plan, or for the appointment by the appropriate United States District Court
of a trustee to administer the Plan, exists at the time of execution of this
Agreement; (b) such Borrower hereby covenants that throughout the existence
of the Plan, such Borrower's contributions under the Plan will meet the
minimum funding standards required by ERISA and Borrower will not institute a
distress termination of the Plan; and (c) such Borrower covenants that it
will send to Lender a copy of any notice of a reportable event (as defined in
ERISA) required by ERISA to be filed with the Labor Department or the Pension
Benefit Guaranty Corporation, at the time that such notice is so filed.
3.12 DIVIDENDS, DISTRIBUTIONS, STOCK RIGHTS, ETC. Without the
prior written consent of Lender, no Borrower shall declare or pay any
dividend of any kind (other than stock dividends payable to all holders of
any class of capital stock), in cash or in property, on any class of the
capital stock of any Borrower, or purchase, redeem, retire or otherwise
acquire for value any shares of such stock, nor make any distribution of any
kind in cash or property in respect thereof, nor make any return of capital
of shareholders, nor make any payments in cash or property in respect of any
stock options, stock bonus or similar plan nor grant any preemptive rights
with respect to the capital stock of any Borrower; provided however that
Borrower may pay when due the tax liability of the shareholders of Mounted
Memories, Inc. attributable to the operations of Mounted Memories, Inc. for
the time period January 1, 1998 until the date hereof in accordance with the
Escrow Agreement of even date herewith.
SirromAgmts Page 13
3.13 GUARANTIES; LOANS; PAYMENT OF DEBT. Without the prior written
consent of Lender, no Borrower shall guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date
of this Agreement in connection with the obligations or indebtedness of any
person or entity whatsoever other than Borrowers, except for the endorsement
of negotiable instruments payable to any Borrower for deposit or collection
in the ordinary course of business. Without the prior written consent of
Lender, no Borrower shall (a) make any loan, advance or extension of credit
to any person other than in the normal course of its business, or (b) make
any payment on any subordinated debt other than trade payables incurred in
the ordinary course of such Borrower's business.
3.14 DEBT. Without the prior written consent of Lender, no
Borrower shall create, incur, assume or suffer to exist indebtedness of any
description whatsoever, excluding:
(a) the indebtedness evidenced by the Note;
(b) the endorsement of negotiable instruments payable to any
Borrower for deposit or collection in the ordinary course of business;
(c) trade payables incurred in the ordinary course of business of
any Borrower (each of which, individually, does not exceed $50,000);
and
(d) the indebtedness listed on Schedule 2.1(l) hereto.
3.15 NO LIENS. Without the prior written consent of Lender, no
Borrower shall create, incur, assume or suffer to exist any lien, security
interest, security title, mortgage, deed of trust or other encumbrance upon
or with respect to any of its assets, now owned or hereafter acquired, except
the following permitted liens (the "Permitted Liens"):
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental charges or
levies if not yet due and payable;
(c) liens on leased equipment granted in connection with the
leasing of such equipment in favor of the lessor of such equipment;
(d) liens described on Schedule 2.1(l) hereto.
3.16 MERGERS, CONSOLIDATIONS, ACQUISITIONS AND SALES. Without the
prior written consent of Lender, no Borrower shall (a) be a party to any
merger, consolidation or corporate reorganization, nor (b) purchase or
otherwise acquire all or substantially all of the assets or stock of, or any
partnership or joint venture interest in, any other person, firm or entity,
nor (c) sell, transfer, convey, or lease all or any substantial part of its
assets, nor (d) create any Subsidiaries nor convey any of its assets to any
Subsidiary. Lender consents to the acquisition by any Borrower of all or
substantially
SirromAgmts Page 14
all of the assets or stock of Mounted Memories, Inc. which acquisition shall
occur contemporaneously with the closing of the Loan.
3.17 TRANSACTIONS WITH AFFILIATES. No Borrower shall enter into
any transaction, including, without limitation, the purchase, sale or
exchange of property or the rendering of any service, with any affiliate
(except another Borrower), except in the ordinary course of and pursuant to
the reasonable requirements of a Borrower's business and upon fair and
reasonable terms no less favorable to such Borrower than such Borrower would
obtain in a comparable arm's length transaction with a person not an
affiliate. For the purposes of this Section 3.17, "affiliate" shall mean a
person, corporation, partnership or other entity controlling, controlled by
or under common control with such Borrower.
3.18 EMPLOYMENT CONTRACTS. Without the prior written consent of
Lender, no Borrower shall (i) enter into any employment agreement or other
written compensation agreement that has a term of greater than one year with
any of such Borrower's executive officers or (ii) increase total compensation
paid to the executive officers of Borrowers by more than ten percent (10%)
per year. Notwithstanding the foregoing, Lender acknowledges and agrees that
Borrower may pay the compensation set forth on Schedule 3.18.
3.19 ENVIRONMENT. Each Borrower shall be and remain in compliance
with the provisions of all federal, state and local environmental, health,
and safety laws, codes and ordinances, and all rules and regulations issued
thereunder; notify Lender immediately of any notice of a hazardous discharge
or environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
its premises; immediately contain and remove the same, in compliance with all
applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon,
and to inspect all books, correspondence, and records pertaining thereto; and
at Lender's request, and at such Borrower's expense, provide a report of a
qualified environmental engineer, satisfactory in scope, form, and content to
Lender, and such other and further assurances reasonably satisfactory to
Lender that the condition has been corrected.
3.20 LANDLORD CONSENTS. Each Borrower shall use its best efforts
to obtain a Landlord Consent and Subordination of Lien, in a form reasonably
satisfactory to Lender, from each landlord from whom such Borrower now or
hereafter may lease space.
3.21 ISSUANCE OF CAPITAL STOCK. Without the prior written consent
of Lender, no Borrower shall issue any shares of capital stock of such
Borrower or securities convertible into or exercisable for shares of capital
stock of such Borrower; provided, however that Dreams, Inc. may issue capital
stock (and, if necessary, file the related Form S-8) in connection with an
employee benefit plan so long as the amount of capital stock issued under
such plan does not in the aggregate exceed 5% of the issued and outstanding
stock of Dreams, Inc.
SirromAgmts Page 15
ARTICLE 4
CONDITIONS TO CLOSING
4.1 CLOSING OF THE LOAN. The obligation of Lender to fund the Loan
on the date hereof (the "Closing Date") is subject to the fulfillment, on or
prior to the Closing Date, of each of the following conditions:
Borrowers shall have performed and complied in all material respects with
all of the covenants, agreements, obligations and conditions required by
this Agreement.
Lender shall have received an opinion of the Borrowers' counsel, Hunter &
Xxxxx, dated the Closing Date, in form and substance satisfactory to
Lender's counsel, Xxxxxxxxx, Xxxxxx & Xxxxxxx, P.C.
Borrowers shall have delivered to Lender a Note executed by Borrowers, in
form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender a Stock Purchase Warrant executed
by Dreams, Inc., in form and substance satisfactory to Lender, and the
related Warrant Valuation Letter executed by Dreams, Inc.
Borrowers shall have delivered to Lender a Security Agreement and related
UCC-1 Financing Statement(s), executed by Borrowers, each of which is in
form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender a Pledge and Security Agreement
and related stock certificates, stock powers and voting proxies,
executed by Dreams, Inc., in form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender a Pledge and Security Agreement
and related stock certificate, stock power and voting proxy, executed by
Dreams Franchise Corporation, in form and substance to Lender.
Borrowers shall have delivered to Lender an Intellectual Property Security
Agreement executed by Borrowers, in form and substance satisfactory to
Lender.
Borrowers shall have delivered to Lender an Authorization Agreement for
Pre-Authorized Payments (Debit) executed by Borrowers, in form and
substance satisfactory to Lender.
Borrowers shall have delivered to Lender Pledge and Security Agreements and
related stock certificates, stock powers and voting proxies executed by
Invest West Sports, Inc., Stonehil Financial, Xxxx Xxxxxxxxxx, Xxxxxxx
Xxxx, Xxxxxx Xxxxxxxxxx, Xxxxx Xxxxxxxxxx, Xxxx Xxxxxxxxxx, Xxxxx
Xxxxxxxxxx, Xxxxx Xxxxxxxxxx, Dreamstar, Xxx X. Xxxxxxxxxx, Xxxxxx
Xxxxx, Xxxx Xxxxxxx, Xxxx Xxxxxxxxxx, and Xxxx Xxxxx, in form and
substance satisfactory to
SirromAgmts Page 16
Lender and related UCC-1 Financing Statement(s) executed by Xxxxxx
Xxxxx and Xxxx Xxxxx, each of which is in form and substance
satisfactory to Lender.
Borrowers shall have delivered to Lender the Small Business Administration
Forms 480, 652 and 1031 (Parts A and B) completed by Dreams, Inc.
Borrowers shall have delivered to Lender the Small Business Administration
Economic Impact Assessment completed by Dreams, Inc., in form and
substance satisfactory to Lender.
Borrowers shall have delivered to Lender copies of the corporate charter
and other publicly filed organizational documents of each Borrower,
certified by the Secretary of State or other appropriate public official
in the jurisdiction in which each Borrower is incorporated.
Borrowers shall have delivered to Lender certified (as of the date of this
Agreement) copies of all corporate action taken by each Borrower,
including resolutions of the Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
Borrowers shall have delivered to Lender a certificate as to the legal
existence and good standing of each Borrower, issued by the Secretary of
State or other appropriate public official in the jurisdiction in which
each Borrower is incorporated.
Borrowers shall have delivered to Lender certificates of the Secretaries of
State or other appropriate public officials as to each Borrower's
qualification to do business and good standing in each jurisdiction in
which a failure to be so qualified would have a material adverse effect
on the financial condition or the ability to conduct the business in the
manner now conducted and as hereafter intended to be conducted.
Borrowers shall have delivered to Lender a copy of the executed Shareholder
Indemnification Agreement between Dreams Products, Inc. and Xxxxx
Xxxxxxxxx, Xxxx Xxxxxxxxxx and Xxxxx Xxxxxxxx (the "Employees"),
respectively, which Shareholder Indemnification Agreement includes
noncompetition covenants relating to the Employees, executed by
Employees and Dreams, Inc. in form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender copies of life insurance policies
on the lives of Xxxx Xxxxxxxxxx and Xxx Xxxxxxxxxx, respectively, naming
Lender as beneficiary each in the amount of $3,000,000 within sixty (60)
days of closing.
Borrowers shall have delivered to Lender copies of the executed Asset
Purchase Agreement relating to Mounted Memories, Inc., in form and
substance satisfactory to Lender.
Borrowers shall have delivered to Lender a Subordination Agreement executed
by Borrowers and Xxxxxx X. Xxxx, in form and substance satisfactory to
Lender.
Borrowers shall have delivered to Lender a payoff letter executed by First
Bank, N.A.
SirromAgmts Page 17
Borrowers shall have delivered to Lender Release of Obligations and Stock
Purchase Agreements executed by Signature, Inc., Xxxxxx Xxxxxx, Xxxxx
Xxxxxxxx, Xxxxxx Xxxxxx, Xxxx Xxxxxxxxxx, Xxxxx Xxxxxxxxxx, and Xxxx
Xxxxxxx, respectively, all in form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender a Letter Agreement executed by NBA
Properties, Inc., NBA Legends Foundation, Dreams Franchise Corporation
and Dreamstar Corporation in form and substance satisfactory to Lender.
Borrowers shall have delivered a consent and letter agreement regarding
Universal Studios Licensing Agreement executed by Universal Studios
Licensing, Inc., in form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender a letter agreement regarding
conversion of the note payable to Dreamstar.
Borrowers shall have delivered to Lender a copy of the executed Agreement
between Borrower and the Tablers, in form and substance satisfactory to
Lender.
Borrowers shall have delivered to Lender a Consent to Pledge of Options
executed by Dreams, Inc., in form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender an opinion regarding contingent
liabilities in form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender copies of Employment Agreements
executed by Xxxx Xxxxxxxxxx, Xxxx Xxxxx, Xxxxxx Xxxxx, Xxxxx Xxxxxxxx
and Xxxxx Xxxxxxxxx, respectively.
Borrowers shall have delivered to Lender an Escrow Agreement executed by
Borrowers, in form and substance satisfactory to Lender.
Borrowers shall have delivered to Lender certified copies of the Articles
of Amendment to the Articles of Incorporation of Dreams, Inc. changing
the par value to $.01 per share and increasing the number of authorized
shares, together with corporate resolutions within forty-five (45) days
of closing.
SirromAgmts Page 18
ARTICLE 5
DEFAULT AND REMEDIES
5.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest on
the indebtedness evidenced by the Note in accordance with the terms
of the Note, which default is not cured within five (5) days;
(b) Any misrepresentation by Borrowers, or any Affiliates as to
any material matter hereunder or under any of the other Loan
Documents, or delivery by Borrowers of any schedule, statement,
resolution, report, certificate, notice or writing to Lender that is
untrue in any material respect on the date as of which the facts set
forth therein are stated or certified;
(c) Failure of Borrowers or any Affiliates to perform any of
their obligations, covenants or agreements under this Agreement, the
Note or any of the other Loan Documents;
(d) Any Borrower (i) shall generally not pay or shall be unable
to pay its debts as such debts become due, or (ii) shall make an
assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for
it or a substantial part of its assets, or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it that is not dismissed within sixty (60) days, or
(v) shall indicate, by any act or intentional and purposeful omission,
its consent to, approval of or acquiescence in any such petition,
application, proceeding or order for relief or the appointment of a
custodian, receiver or trustee for it or a substantial part of its
assets, or (vi) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of sixty (60) days or
more;
(e) Any Borrower shall be liquidated, dissolved, partitioned or
terminated, or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under any of the
other Loan Documents and, if subject to a cure right, such default or
event of default shall not be cured within the applicable cure period;
(g) Any Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrower now or hereafter
owed to Lender;
SirromAgmts Page 19
(h) Any Borrower shall have defaulted and continue to be in
default in the timely payment of or performance of any covenant
relating to any other indebtedness or obligation, which in the
aggregate exceeds Twenty Five Thousand and No/100ths Dollars
($25,000.00) or materially adversely affects such Borrower's
operations, properties or financial condition (except for amounts
subject to bona fide disputes which are resolved within sixty (60)
days or which Borrower is continuing diligently to pursue);
(i) Xxxx Xxxxxxxxxx or Xxx Xxxxxxxxxx shall no longer be
significantly involved in the management of Borrower.
With respect to any Event of Default described above that is capable
of being cured and that does not already provide its own cure procedure (a
"Curable Default"), the occurrence of such Curable Default shall not
constitute an Event of Default hereunder if such Curable Default is fully
cured and/or corrected within thirty (30) days (ten (10) days, if such
Curable Default may be cured by payment of a sum of money) of written notice
thereof to Borrowers given in accordance with the provisions hereof.
5.2 ACCELERATION OF MATURITY; REMEDIES. Upon the occurrence of any
Event of Default described in subsection 5.1(d), the indebtedness evidenced
by the Note as well as any and all other indebtedness of any Borrower to
Lender shall be immediately due and payable in full; and upon the occurrence
of any other Event of Default described above, Lender at any time thereafter
may at its option accelerate the maturity of the indebtedness evidenced by
the Note as well as any and all other indebtedness of any Borrower to Lender;
all without notice of any kind. Upon the occurrence of any such Event of
Default and the acceleration of the maturity of the indebtedness evidenced by
the Note:
(a) Lender shall be immediately entitled to exercise any and all
rights and remedies possessed by Lender pursuant to the terms of the
Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
5.3 REMEDIES CUMULATIVE; NO WAIVER. No right, power or remedy
conferred upon or reserved to Lender by this Agreement or any of the other
Loan Documents is intended to be exclusive of any other right, power or
remedy, but each and every such right, power and remedy shall be cumulative
and concurrent and shall be in addition to any other right, power and remedy
given hereunder, under any of the other Loan Documents or now or hereafter
existing at law, in equity or by statute. No delay or omission by Lender to
exercise any right, power or remedy accruing upon the occurrence of any Event
of Default shall exhaust or impair any such right, power or remedy or shall
be construed to be a waiver of any such Event of Default or an acquiescence
therein, and every right, power and remedy given by this Agreement and the
other Loan Documents to Lender may be exercised from time to time and as
often as may be deemed expedient by Lender.
SirromAgmts Page 20
5.4 PROCEEDS OF REMEDIES. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set
forth in the Loan Document(s) providing the remedy or remedies exercised, if
none is specified, or if the remedy is provided by this Agreement, then as
follows:
First, to the costs and expenses, including without limitation
reasonable attorneys' fees and disbursements, incurred by Lender in
connection with the exercise of its remedies;
Second, to the expenses of curing the default that has occurred,
in the event that Lender elects, in its sole discretion, to cure the
default that has occurred;
Third, to the payment of the Obligations of Borrowers, including
but not limited to the payment of the principal of and interest on the
indebtedness evidenced by the Note, in such order of priority as Lender
shall determine in its sole discretion; and
Fourth, the remainder, if any, to Borrowers or to any other person
lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 TERMINATION OF THIS AGREEMENT. This Agreement shall remain in
full force and effect until the payment in full by Borrowers of the
Obligations, at which time Lender shall cancel the Note and deliver it to
Borrowers; provided, however, that the indemnities provided in Section 7.15
shall survive the termination of this Agreement.
ARTICLE 7
MISCELLANEOUS
7.1 PERFORMANCE BY LENDER. If Borrowers shall default in the
payment, performance or observance of any covenant, term or condition of this
Agreement, which default is not cured within the applicable cure period, then
Lender may, at its option, pay, perform or observe the same, and all payments
made or costs or expenses incurred by Lender in connection therewith
(including but not limited to reasonable attorneys' fees), with interest
thereon at the highest default rate provided in the Note, shall be
immediately repaid to Lender by Borrowers and shall constitute a part of the
Obligations. Lender shall be the sole judge of the necessity for any such
actions and of the amounts to be paid.
7.2 SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this
SirromAgmts Page 21
Agreement by or on behalf of Borrowers or by or on behalf of Lender shall
bind and inure to the benefit of their respective heirs, legal
representatives, successors-in-title and assigns, whether so expressed or not.
7.3 COSTS AND EXPENSES. Borrowers agree to pay all reasonable costs
and expenses incurred by Lender in connection with the making of the Loan,
including but not limited to filing fees, recording taxes and reasonable
attorneys' fees, promptly upon demand of Lender. Borrowers further agree to
pay all premiums for insurance required to be maintained by Borrowers
pursuant to the terms of the Loan Documents and all of the out-of-pocket
costs and expenses incurred by Lender in connection with the collection of
the Loan, amendment to the Loan Documents, or prepayment of the Loan,
including but not limited to reasonable attorneys' fees, promptly upon demand
of Lender.
7.4 ASSIGNMENT. The Note, this Agreement and the other Loan
Documents may be endorsed, assigned and/or transferred in whole or in part by
Lender, and any such holder and/or assignee of the same shall succeed to and
be possessed of the rights and powers of Lender under all of the same to the
extent transferred and assigned. Lender may grant participations in all or
any portion of its interest in the indebtedness evidenced by the Note, and in
such event Borrowers shall continue to make payments due under the Loan
Documents to Lender and Lender shall have the sole responsibility of
allocating and forwarding such payments in the appropriate manner and
amounts. Borrowers shall not assign any of their rights nor delegate any of
their duties hereunder or under any of the other Loan Documents without the
prior written consent of Lender.
7.5 TIME OF THE ESSENCE. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrowers hereunder and under
all of the other Loan Documents.
7.6 SEVERABILITY. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law.
7.7 INTEREST AND LOAN CHARGES NOT TO EXCEED MAXIMUM ALLOWED BY LAW.
Anything in this Agreement, the Note or any of the other Loan Documents to
the contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the
unpaid balance of the Loan or otherwise, shall the interest and other charges
agreed to be paid to Lender for the use of the money advanced or to be
advanced hereunder exceed the maximum amounts collectible under applicable
laws in effect from time to time. It is understood and agreed by the parties
that, if for any reason whatsoever the interest or loan charges paid or
contracted to be paid by Borrowers in respect of the indebtedness evidenced
by the Note shall exceed the maximum amounts collectible under applicable
laws in effect from time to time, then IPSO FACTO, the obligation to pay such
interest and/or loan charges shall be reduced to the maximum amounts
collectible under applicable laws in effect from time to time, and any
amounts collected by Lender that exceed such maximum amounts shall be applied
to the reduction of the principal balance of the
SirromAgmts Page 22
indebtedness evidenced by the Note and/or refunded to Borrowers so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
7.8 ARTICLE AND SECTION HEADINGS; DEFINED TERMS. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
7.9 NOTICES. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered
personally, telecopied, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at
the address set forth below, or at such other address as may be supplied in
writing and of which receipt has been acknowledged in writing. The date of
personal delivery or telecopy or two (2) business days after the date of
mailing (or the next business day after delivery to such courier service), as
the case may be, shall be the date of such notice, election or demand. For
the purposes of this Agreement:
The Address of Lender is: Sirrom Investments, Inc.
Xxxxx 000
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxx
Telecopy No.: 615/726-1208
with a copy to: Xxxxxxxxx, Xxxxxx & Xxxxxxx, P.C.
0000 Xxxxxx Xxxxxxxx
Xxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: J. Xxxxxxx Xxxxxx, Esq.
Telecopy No.: 423/265-9574
The Address of Borrower is: Dreams, Inc.
Dreams Franchise Corporation
Dreams Entertainment, Inc.
Dreams Products, Inc.
00-000 Xxxxxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
Attention: Xxx X. Xxxxxxxxxx
Telecopy No.: 760/779-0217
SirromAgmts Page 23
with a copy to: Hunter & Xxxxx
One Utah Center
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, XX 00000-0000
Attention: J. Xxxxx Xxxxxx
Telecopy No.: 801/532-8736
and to: Navon, Kopelman, X'Xxxxxxx & Xxxxx P.A.
0000 Xxxxxxxx Xxxx, Xxxxx X-000
Xx. Xxxxxxxxxx, XX 00000
Attention: Xxx Xxxxx
Telecopy No.: 954/983-7021
7.10 ENTIRE AGREEMENT. This Agreement and the other written
agreements between Borrowers and Lender represent the entire agreement
between the parties concerning the subject matter hereof, and all oral
discussions and prior agreements are merged herein; provided, if there is a
conflict between this Agreement and any other document executed
contemporaneously herewith with respect to the Obligations, the provision of
this Agreement shall control. The execution and delivery of this Agreement
and the other Loan Documents by Borrowers were not based upon any fact or
material provided by Lender, nor were Borrowers induced or influenced to
enter into this Agreement or the other Loan Documents by any representation,
statement, analysis or promise by Lender.
7.11 GOVERNING LAW AND AMENDMENTS. This Agreement shall be
construed and enforced under the laws of the State of Tennessee applicable to
contracts to be wholly performed in such State. No amendment or modification
hereof shall be effective except in a writing executed by each of the parties
hereto.
7.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or in any of the Loan
Documents or made by or furnished on behalf of Borrowers in connection
herewith or in any Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents.
7.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
7.14 CONSTRUCTION AND INTERPRETATION. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it
being agreed that Borrowers, Lender and their respective agents have
participated in the preparation hereof.
SirromAgmts Page 24
7.15 GENERAL INDEMNIFICATION. Borrowers agree, jointly and
severally, to indemnify Lender, its officers, directors, employees and agents
(individually, an "Indemnified Party" and collectively, the "Indemnified
Parties") and each of them and agrees to hold each of them harmless from and
against any and all losses, liabilities, damages, costs, expenses and claims
of any and every kind whatsoever (except those arising solely by reason of
the gross negligence or wilful misconduct of an Indemnified Party) which may
be imposed on, incurred by, or asserted against the Indemnified Parties or
any of them arising by reason of any action or inaction or omission to any
act legally required of Borrowers (including as required pursuant hereto or
pursuant to any other Loan Document).
7.16 STANDARD OF CARE; LIMITATION OF DAMAGES. Lender shall be
liable to Borrowers only for matters arising from this Agreement or otherwise
related to the Obligations resulting from Lender's gross negligence or wilful
misconduct, and liability for all other matters is hereby waived. Lender
shall not in any event be liable to Borrowers for special or consequential
damages arising from this Agreement or otherwise related to the Obligations.
7.17 CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Borrowers hereby
irrevocably consent to the jurisdiction of the United States District Court
for the Middle District of Tennessee and of all Tennessee state courts
sitting in Davidson County, Tennessee, for the purpose of any litigation to
which Lender may be a party and which concerns this Agreement or the
Obligations without waiving any requirement of service of process as required
under the Rules of Civil Procedure. It is further agreed that venue for any
such action shall lie exclusively with courts sitting in Davidson County,
Tennessee, unless Lender agrees to the contrary in writing.
7.18 WAIVER OF TRIAL BY JURY. LENDER AND BORROWERS HEREBY
KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN
ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR
TORT OR OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING
TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
SirromAgmts Page 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be executed by their duly authorized
officers, as of the day and year first above written.
LENDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By:
-------------------------------
Title:
----------------------------
BORROWER:
DREAMS, INC.
a Utah corporation
By:
-------------------------------
Title:
----------------------------
DREAMS FRANCHISE CORPORATION, a
California corporation
By:
-------------------------------
Title:
----------------------------
DREAMS ENTERTAINMENT, INC., a Utah
corporation
By:
-------------------------------
Title:
----------------------------
DREAMS PRODUCTS, INC., a Utah corporation
By:
-------------------------------
Title:
----------------------------
SirromAgmts Page 26
INDEX OF SCHEDULES
Schedule 2.1(b) - Subsidiaries
Schedule 2.1(e) - Capitalization Table
Schedule 2.1(f) - Intellectual Property
Schedule 2.1(h) - Litigation
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(l) - Debt and Liens
Schedule 2.1(m) - Taxes
Schedule 2.1(n) - Shareholder Loans
Schedule 2.1(r) - Significant Contracts
Schedule 2.1(x) - Registration Rights
Schedule 2.1(ab) - Location of Properties and Place of Business
Schedule 3.18 - Employment Contracts
SirromAgmts Page 27
Schedule 3.18
With regard to Xxx X. Xxxxxxxxxx, Borrower may make the following payments:
for the fiscal year ending March 31, 1999, no salary
payments or bonus payments may be made to Xxx X. Xxxxxxxxxx; and
for the fiscal years ending March 31,
2000, March 31, 2001, March 31, 2002 and March 31, 2003,
to Borrower may make: (A) a bonus payment to Xxx X. Xxxxxxxxxx
in the amount of $90,000 if Borrower's audited EBITDA (as
hereinafter defined) exceeds $1,500,000 for such
fiscal year and (B) an additional bonus payment
to Xxx X. Xxxxxxxxxx in the amount of $90,000 if
Borrower's audited EBITDA exceeds $2,000,000 for
such fiscal year.
For purposes of this Agreement, the term "EBITDA" shall mean net income
PLUS income taxes PLUS depreciation expenses PLUS amortization expenses
plus interest expense, all determined in accordance with generally
accepted accounting principles.
With regard to Xxxx Xxxxxxxxxx, Borrower may make the payments as
set forth in the employment agreement dated November __, 1998, which has been
reviewed and approved by Lender and a copy of which is attached hereto.
Without the prior written consent of Lender, Borrower shall not
increase the compensation for any of the following persons except as
permitted under their respective current employment agreement, if any,
(copies of which have been provided to Borrower): Xxxxx Xxxxxxxxx, Xxxxx
Xxxxxxxx, Xxxxxx Xxxxx, Xxxx Xxxxxx, Xxxx Xxxxx, and Xxxx Xxxxxxx.
SirromAgmts Page 28
SECURED PROMISSORY NOTE
$3,000,000.00 November ___, 1998
FOR VALUE RECEIVED, the undersigned, DREAMS, INC., a Utah
corporation, DREAMS FRANCHISE CORPORATION, a California corporation, DREAMS
ENTERTAINMENT, INC., a Utah corporation and DREAMS PRODUCTS, INC., a Utah
corporation (individually and collectively, "Maker"), jointly and severally
promise to pay to the order of SIRROM INVESTMENTS, INC., a Tennessee
corporation ("Payee"; Payee and any subsequent holder[s] hereof are
hereinafter referred to collectively as "Holder"), at the office of Payee at
Sirrom Investments, Inc., X.X. Xxx 00000, Xxxxxxxxx, XX 00000-0000, or at
such other place as Holder may designate to Maker in writing from time to
time, the principal sum of THREE MILLION AND NO/100THS DOLLARS
($3,000,000.00), together with interest on the outstanding principal balance
hereof from the date hereof at the rate of fourteen percent (14.0%) per annum
(computed on the basis of a 360-day year).
Interest only on the outstanding principal balance hereof shall be
due and payable monthly, in arrears, with the first installment being payable
on the first (1st) day of January, 1999, and subsequent installments being
payable on the first (1st) day of each succeeding month thereafter until
November ___, 2003 (the "Maturity Date"), at which time the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in
part, at any time and from time to time, without premium or penalty. Any such
prepayments shall be credited first to any accrued and unpaid interest and
then to the outstanding principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed
that in the event that any Event of Default shall occur under and as defined
in that certain Loan Agreement of even date herewith, between Maker and Payee
(the "Loan Agreement"), which Event of Default is not cured following the
giving of any applicable notice and within any applicable cure period set
forth in the Loan Agreement, then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any
other sums advanced hereunder, under the Loan Agreement and/or under any
other instrument or document now or hereafter evidencing, securing or in any
way relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall, at the option of Holder and without notice
to Maker, at once become due and payable and may be collected forthwith,
regardless of the stipulated date of maturity. Upon the occurrence of any
Event of Default as set forth herein, at the option of Holder and without
notice to Maker, all accrued and unpaid interest, if any, shall be added to
the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid
at an annual rate (the "Default Rate") equal to the lesser of (i) the rate
that is seven percentage points (7.0%) in excess of the above-specified
interest rate, or (ii) the maximum rate of interest allowed to be charged
under applicable law (the "Maximum Rate"), regardless of whether or not there
has been an acceleration of the payment of principal as set forth herein. All
such interest shall be paid at the time of and as a condition precedent to
the curing of any such Event of Default.
SirromAgmts Page 29
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
reasonable attorneys' fees and all court costs.
Presentment for payment, demand, protest and notice of demand,
protest and nonpayment are hereby waived by Maker and all other parties
hereto. No failure to accelerate the indebtedness evidenced hereby by reason
of an Event of Default hereunder, acceptance of a past-due installment or
other indulgences granted from time to time, shall be construed as a novation
of this Note or as a waiver of such right of acceleration or of the right of
Holder thereafter to insist upon strict compliance with the terms of this
Note or to prevent the exercise of such right of acceleration or any other
right granted hereunder or by applicable law. No extension of the time for
payment of the indebtedness evidenced hereby or any installment due
hereunder, made by agreement with any person now or hereafter liable for
payment of the indebtedness evidenced hereby, shall operate to release,
discharge, modify, change or affect the original liability of Maker hereunder
or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder
agrees otherwise in writing. This Note may not be changed orally, but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other
instruments and documents, as may be required to protect and preserve the
rights of Maker and Payee, as more specifically described in the Loan
Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration
of maturity of the unpaid balance hereof or otherwise, shall the amount paid
or agreed to be paid to Holder for the use of the money advanced or to be
advanced hereunder exceed the Maximum Rate. If, from any circumstances
whatsoever, the fulfillment of any provision of this Note or any other
agreement or instrument now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby shall involve the payment of
interest in excess of the Maximum Rate, then, IPSO FACTO, the obligation to
pay interest hereunder shall be reduced to the Maximum Rate; and if from any
circumstance whatsoever, Holder shall ever receive interest, the amount of
which would exceed the amount collectible at the Maximum Rate, such amount as
would be excessive interest shall be applied to the reduction of the
principal balance remaining unpaid hereunder and not to the payment of
interest. This provision shall control every other provision in any and all
other agreements and instruments existing or hereafter arising between Maker
and Holder with respect to the indebtedness evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.
Maker hereby irrevocably consents to the jurisdiction of the United
States District Court for the Middle District of Tennessee and of all
Tennessee state courts sitting in Davidson County,
SirromAgmts Page 30
Tennessee, for the purpose of any litigation to which Lender may be a party
and which concerns this Note or the indebtedness evidenced hereby without
waiving any requirement of service of process as required under the rules of
civil procedure. It is further agreed that venue for any such action shall
lie exclusively with courts sitting in Davidson County, Tennessee, unless
Holder agrees to the contrary in writing.
HOLDER AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT
OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR
COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN
EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN
DOCUMENTS.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law.
MAKER:
DREAMS, INC., a Utah corporation
By:
------------------------------
Title:
---------------------------
DREAMS FRANCHISE CORPORATION, a California
corporation
By:
------------------------------
Title:
---------------------------
DREAMS ENTERTAINMENT, INC., a Utah
corporation
By:
------------------------------
Title:
---------------------------
DREAMS PRODUCTS, INC., a Utah corporation
By:
------------------------------
Title:
---------------------------
SirromAgmts Page 31
STOCK PURCHASE WARRANT
This STOCK PURCHASE WARRANT ("Warrant") is issued this ____ day of
November, 1998, by DREAMS, INC., a Utah corporation (the "Company"), to
SIRROM INVESTMENTS, INC., a Tennessee corporation (SIRROM INVESTMENTS, INC.,
and any subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM.
(a) For and in consideration of SIRROM INVESTMENTS, INC. making a loan
to the Company in an amount of Three Million and no/100ths Dollars
($3,000,000) pursuant to the terms of a secured promissory note of even
date herewith (the "Note") and related loan agreement of even date
herewith (the "Loan Agreement"), and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase
6,657,895 shares ("Base Amount") of the Company's common stock (the
"Common Stock"), which the Company represents to equal 14% of the shares
of capital stock outstanding on the date hereof, calculated on a fully
diluted basis and assuming exercise of this Warrant, provided that in the
event that any portion of the indebtedness evidenced by the Note is
outstanding on the following dates, the Base Amount shall be increased to
the corresponding number set forth below (the "Outstanding Debt
Ratchets"):
DATE BASE AMOUNT
--------------------------------- ------------------------------------------------
November ___, 2001 7,502,092 shares, which the Company
represents to equal 15.5% of the shares of the
Company's capital stock outstanding on the date
hereof calculated on a fully diluted basis after
exercise of this Warrant
November ___, 2002 8,376,801 shares, which the Company
represents to equal 17.0% of the shares of the
Company's capital stock outstanding on the date
hereof calculated on a fully diluted basis after
exercise of this Warrant
November ___, 2003 9,283,709 shares, which the Company
represents to equal 18.5% of the shares of the
Company's capital stock outstanding on the date
hereof calculated on a fully diluted basis after
exercise of this Warrant
(b) further provided that in the event that the Company's EBITDA (as
hereinafter defined) for the fiscal year ending March 31, 1999 is less
than $1,200,000, the initial Base
SirromAgmts Page 32
Amount shall be increased to 8,977,720 shares, which the Company
represents to equal 18% of the Company's capital stock outstanding on
the date hereof calculated on a fully diluted basis after exercise of
this Warrant (the "EBITDA Ratchet"). If the initial Base Amount is
increased to 18% as set forth above because the Company's EBITDA for the
fiscal year ending March 31, 1999 is less than $1,200,000 then the
Outstanding Debt Ratchets shall be adjusted to increase the adjusted Base
Amount by 1.5% per year if any portion of the indebtedness evidenced by
the Note is outstanding beyond November ___, 2001, November ___, 2002 or
November ___, 2003. By way of illustration, if the initial Base Amount is
increased to 18% because the Company's EBITDA for the fiscal year ending
March 31,1999 is less than $1,200,000 than the Outstanding Debt Ratchets
for November ___, 2001, November ___, 2002 and November ___,2003 shall
be 19.5%, 21.0% and 22.5%, respectively.
(c) If the Company repays all or part of the principal portion of the
indebtedness evidenced by the Note prior to the maturity date of the
Note, any subsequent adjustments to the Base Amount then in effect for
Outstanding Debt Ratchets shall be reduced in proportion to the
percentage of the principal portion of the indebtedness that is repaid.
By way of illustration, if Holder is entitled to have the initial Base
Amount increased by 1.5% on November ___, 2001 because all or part of the
principal portion of the indebtedness evidenced by the Note is
outstanding and the Company repays $1,500,000 of principal due under the
Note prior to November ___, 2001, the Base Amount then in effect would
only increase by .75% as the result of an Outstanding Debt Ratchet
adjustments and future Outstanding Debt Ratchets adjustments would be
decreased proportionately.
(d) For purposes of this Agreement, the term "EBITDA" shall mean net
income PLUS income taxes PLUS interest expense PLUS depreciation expenses
PLUS amortization expenses, all determined in accordance with generally
accepted accounting principles, all as set forth in the Company's audited
financial statements.
(e) The shares of Common Stock issuable upon exercise of this Warrant
are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time from the date hereof until
January ___, 2004 (the "Expiration Date").
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased
pursuant to the terms of this Warrant shall be One Cent ($.01).
3. EXERCISE. This Warrant may be exercised by the Holder hereof
(but only on the conditions hereinafter set forth) in whole or
in part, upon delivery of written notice of intent to exercise
to the Company in the manner at the address of the Company set
forth in Section 14 hereof, together with this Warrant and
payment to the Company of the aggregate Exercise Price of the
Shares so purchased. The Exercise Price shall be payable, at the
option of the Holder, (i) by certified or bank check, (ii) by
the surrender of the Note or portion thereof having an
outstanding principal balance equal to the aggregate Exercise
Price or (iii) by the surrender of a portion of this Warrant
where the Shares subject to the portion of this Warrant that is
surrendered have a fair market value equal to the aggregate
Exercise Price. In the absence of an established public market
for the Common Stock, fair market value shall be established
SirromAgmts Page 33
by the Company's board of directors in a commercially reasonable
manner. Upon exercise of this Warrant as aforesaid, the Company
shall as promptly as practicable, and in any event within
fifteen (15) days thereafter, execute and deliver to the Holder
of this Warrant a certificate or certificates for the total
number of whole Shares for which this Warrant is being exercised
in such names and denominations as are requested by such Holder.
If this Warrant shall be exercised with respect to less than all
of the Shares, the Holder shall be entitled to receive a new
Warrant covering the number of Shares in respect of which this
Warrant shall not have been exercised, which new Warrant shall
in all other respects be identical to this Warrant. The Company
covenants and agrees that it will pay when due any and all state
and federal issue taxes which may be payable in respect of the
issuance of this Warrant or the issuance of any Shares upon
exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to
the following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended
("Securities Act"), or any state securities laws ("Blue
Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution
or resale and may not be sold or otherwise transferred
without (i) an effective registration statement for such
Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to
the Company and its counsel, that registration is not
required under the Securities Act or under any
applicable Blue Sky Laws (the Company hereby
acknowledges that Xxxxxxxxx, Xxxxxx & Xxxxxxx, P.C. is
acceptable counsel). Transfer of the Shares shall be
restricted in the same manner and to the same extent as
the Warrant and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN
THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute
such other documents and instruments as counsel for the
Company reasonably deems necessary to effect the compliance
of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal
and state securities laws.
The Company covenants and agrees that all Shares which may be issued upon
exercise of this Warrant will, upon issuance and payment therefor, be legally
and validly issued and outstanding, fully paid and nonassessable, free from all
taxes, liens, charges and preemptive rights, if any, with
SirromAgmts Page 34
respect thereto or to the issuance thereof. The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant
such number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of this Warrant.
(b) The Company covenants and agrees that it shall not sell
any shares of the Company's capital stock at a price per
share below the fair market value of such shares,
without the prior written consent of the Holder hereof.
In the event that the Company sells shares of Common
Stock at a price per share below the fair market value
of such shares (a "Below Market Transaction"), without
the prior written consent of the Holder hereof, the
Company covenants and agrees that the number of shares
issuable upon exercise of this Warrant shall be equal to
the product obtained by multiplying the number of shares
issuable pursuant to this Warrant prior to the Below
Market Transaction by a fraction, the numerator of which
shall be the number of shares of Common Stock
outstanding immediately prior to consummation of the
Below Market Transaction plus the number of shares of
Common Stock issued in the Below Market Transaction, and
the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to the
Below Market Transaction plus the number of shares of
Common Stock that the aggregate consideration received
by the Company in the Below Market Transaction would
purchase at fair market value. For purposes of this
subsection, Common Stock shall be deemed to include that
number of shares of Common Stock that would be obtained
assuming (i) the conversion of any securities of the
Company which, by their terms, are convertible into or
exchangeable for Common Stock, and (ii) the exercise of
all options to purchase or rights to subscribe for
Common Stock or securities which, by their terms, are
convertible into or exchangeable for Common Stock. In
the absence of an established public market for the
securities sold by the Company in a Below Market
Transaction, fair market value shall be established by
the Company's board of directors in a commercially
reasonable manner.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in part, to
any person or business entity, by presentation of the Warrant to
the Company with written instructions for such transfer. Upon
such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof
in the name of the assignee or assignees and in the
denominations specified in such instructions. The Company shall
pay all expenses incurred by it in connection with the
preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE
RIGHTS. Except as otherwise provided herein, this Warrant does
not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company. Notwithstanding the foregoing, if
the Company should offer to all of the Company's shareholders
the right to purchase any securities of the Company, then all
shares of Common Stock that are subject to this Warrant shall be
deemed to be outstanding and owned by the Holder and the Holder
shall be entitled to participate in such rights offering. The
Company shall not grant any preemptive rights with respect to
any of its capital stock without the prior written consent of
the Holder.
SirromAgmts Page 35
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive
notice of and be entitled to attend or may send a representative
to attend all meetings of the Company's Board of Directors in a
non-voting observation capacity and shall receive a copy of all
correspondence and information delivered to the Company's Board
of Directors, from the date hereof until such time as the
indebtedness evidenced by the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend,
recapitalization, combination of shares of the Company,
or other similar event, occurring after the date hereof,
then the Holder exercising this Warrant shall receive,
for the aggregate Exercise Price, the aggregate number
and class of shares which such Holder would have
received if this Warrant had been exercised immediately
prior to such stock split, stock dividend,
recapitalization, combination of shares, or other
similar event. If any adjustment under this Section
8(a), would create a fractional share of Common Stock or
a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the
number of shares subject to this Warrant shall be the
next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant
to this Section 8(a), the Company shall forthwith notify
the Holder or Holders of this Warrant of such
adjustment, setting forth in reasonable detail the event
requiring the adjustment and the method by which such
adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of
shares, separation, reorganization or liquidation of the
Company, or other similar event, occurring after the
date hereof, as a result of which shares of Common Stock
shall be changed into the same or a different number of
shares of the same or another class or classes of
securities of the Company or another entity, or the
holders of Common Stock are entitled to receive cash or
other property, then the Holder exercising this Warrant
shall receive, for the aggregate Exercise Price, the
aggregate number and class of shares, cash or other
property which such Holder would have received if this
Warrant had been exercised immediately prior to such
merger, consolidation, exchange of shares, separation,
reorganization or liquidation, or other similar event.
If any adjustment under this Section 8(b) would create a
fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares subject to
this Warrant shall be the next higher number of shares,
rounding all fractions upward. Whenever there shall be
an adjustment pursuant to this Section 8(b), the Company
shall forthwith notify the Holder or Holders of this
Warrant of such adjustment, setting forth in reasonable
detail the event requiring the adjustment and the method
by which such adjustment was calculated.
SirromAgmts Page 36
9. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to
Holder the right and option to sell to the Company (the
"Put") this Warrant not any shares acquired pursuant to
the exercise of this Warrant for a period of thirty (30)
days immediately prior to the Expiration Date, at a
purchase price (the "Put Price") equal to the Fair
Market Value (as hereinafter defined) of the shares of
Common Stock issuable to Holder upon exercise of this
Warrant less the Exercise Price.
(b) Holder may exercise the Put by delivery of written
notice (the "Put Notice") of such exercise to the
Company in the manner and at the address of the Company
set forth in Section 14 hereof. Except as provided in
Section 21 hereof, the Company shall pay to Holder, in
cash or by wire transfer of immediately available funds,
the Put Price within thirty (30) days of the receipt of
the Put Notice.
(c) For purposes of this Section 9, the Fair Market Value of
the shares of Common Stock of the Company issuable
pursuant to this Warrant shall be determined as follows:
(i) The Company and the Holder shall each appoint
an independent, experienced appraiser who is a
member of a recognized professional association
of business appraisers. The two appraisers shall
determine the value of the shares of Common Stock
which would be issued upon the exercise of the
Warrant, assuming that the sale would be between
a willing buyer and a willing seller, both of
whom have full knowledge of the financial and
other affairs of the Company, and neither of whom
is under any compulsion to sell or to buy.
(ii) If the higher of the two appraisals is not
ten percent (10%) greater than the lower of the
appraisals, the Fair Market Value shall be the
average of the two appraisals. If the higher of
the two appraisals is equal to or greater than
ten percent (10%) more than the lower of the two
appraisals, then a third appraiser shall be
appointed by the two appraisers, and if they
cannot agree on a third appraiser, the American
Arbitration Association shall appoint the third
appraiser. The third appraiser, regardless of who
appoints him or her, shall have the same
qualifications as the first two appraisers.
(iii) The Fair Market Value after the appointment
of the third appraiser shall be the mean of the
three appraisals.
(iv) The fees and expenses of the appraisers
shall be paid one-half by the Company and
one-half by the Holder.
SirromAgmts Page 37
(d) At the Company's request, Holder shall provide the
Company with an affidavit in the form attached hereto as
Exhibit A stating that Holder is the holder of the
Warrant on the date the Put is exercised. Simultaneously
with the payment of the Put Price, Holder will deliver
the original of the Warrant to the Company at the time
the payment of the Put Price is made.
10. REGISTRATION.
(a) The Company and the Holder of the Warrant and the Shares
agree that if at any time after the date hereof the
Company shall propose to file a registration statement
with respect to any of its Common Stock on a form
suitable for a secondary offering (including its initial
public offering), it will give notice in writing to such
effect to the Holder(s) at least thirty (30) days prior
to such filing, and, at the written request of any such
registered holder, made within ten (10) days after the
receipt of such notice, will include therein at the
Company's cost and expense (including the fees and
expenses of counsel to such Holder(s), but excluding
underwriting discounts, commissions and filing fees
attributable to the Shares included therein) such of the
Shares as such Holder(s) shall request; provided,
however, that if the offering being registered by the
Company is underwritten and if the representative of the
underwriters certifies in writing that the inclusion
therein of the Shares would materially and adversely
affect the sale of the securities to be sold by the
Company thereunder, then the Company shall be required
to include in the offering only that number of
securities, including the Shares, which the underwriters
determine in their sole discretion will not jeopardize
the success of the offering (the securities so included
to be apportioned pro rata among all selling
shareholders according to the total amount of securities
entitled to be included therein owned by each selling
shareholder, but in no event shall the total amount of
Shares included in the offering be less than the number
of securities included in the offering by any other
single selling shareholder unless all of the Shares are
included in the offering). Holder agrees to take action
reasonably requested by the underwriter if such action
is customarily required in connection with a public
offering.
(b) Whenever the Company undertakes to effect the
registration of any of the Shares, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the Securities and
Exchange Commission (the "Commission") a
registration statement covering such Shares and
use its best efforts to cause such registration
statement to be declared effective by the
Commission as expeditiously as possible and to
keep such registration effective until the
earlier of (A) the date when all Shares covered
by the registration statement have been sold or
(B) one hundred eighty (180) days from the
effective date of the registration statement;
provided, that before filing a registration
statement or prospectus or any amendment or
supplements thereto, the Company will furnish to
each Holder of Shares covered by such
registration statement and the underwriters, if
any, copies of all such documents proposed to be
filed (excluding exhibits, unless any such
person shall specifically request exhibits),
which documents will be subject to the review of
SirromAgmts Page 38
such Holders and underwriters, and the Company
will not file such registration statement or any
amendment thereto or any prospectus or any
supplement thereto (including any documents
incorporated by reference therein) with the
Commission if (A) the underwriters, if any,
shall reasonably object to such filing or (B) if
information in such registration statement or
prospectus concerning a particular selling
Holder has changed and such Holder or the
underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to such
registration statement as may be necessary to
keep such registration statement effective
during the period referred to in Section
10(b)(i) and to comply with the provisions of
the Securities Act with respect to the
disposition of all securities covered by such
registration statement, and cause the prospectus
to be supplemented by any required prospectus
supplement, and as so supplemented to be filed
with the Commission pursuant to Rule 424 under
the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of
copies of such registration statement, each
amendment thereto, the prospectus included in
such registration statement (including each
preliminary prospectus), each supplement thereto
and such other documents as they may reasonably
request in order to facilitate the disposition
of the Shares owned by them.
(iv) Use its best efforts to register and qualify
under such other securities laws of such
jurisdictions as shall be reasonably requested
by any selling Holder and do any and all other
acts and things which may be reasonably
necessary or advisable to enable such selling
Holder to consummate the disposition of the
Shares owned by such Holder, in such
jurisdictions; provided, however, that the
Company shall not be required in connection
therewith or as a condition thereto to qualify
to transact business or to file a general
consent to service of process in any such states
or jurisdictions.
(v) Promptly notify each selling Holder of the
happening of any event as a result of which the
prospectus included in such registration
statement contains an untrue statement of a
material fact or omits any fact necessary to
make the statements therein not misleading and,
at the request of any such Holder, the Company
will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to
the purchasers of such Shares, such prospectus
will not contain an untrue statement of a
material fact or omit to state any fact
necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all
such Shares not later than the effective date of
such registration statement.
SirromAgmts Page 39
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a
primary offering) and take all such other
actions as the underwriters, if any, reasonably
request in order to expedite or facilitate the
disposition of such Shares (including, without
limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling
Holder or any underwriter participating in any
disposition pursuant to such registration
statement and any attorney, accountant or other
agent retained by any such selling Holder or
underwriter, all financial and other records,
pertinent corporate documents and properties of
the Company, and cause the officers, directors,
employees and independent accountants of the
Company to supply all information reasonably
requested by any such seller, underwriter,
attorney, accountant or agent in connection with
such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events
and (if requested by any such person) confirm
such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and
the registration statement and any amendment or
post-effective amendment thereto and, with
respect to the registration statement or any
post-effective amendment thereto, the
declaration of the effectiveness of such
documents, (B) any requests by the Commission
for amendments or supplements to the
registration statement or the prospectus or for
additional information, (C) the issuance or
threat of issuance by the Commission of any stop
order suspending the effectiveness of the
registration statement or the initiation of any
proceedings for that purpose and (D) the receipt
by the Company of any notification with respect
to the suspension of the qualification of the
Shares for sale in any jurisdiction or the
initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the
entry of any order suspending the effectiveness
of the registration statement and obtain at the
earliest possible moment the withdrawal of any
such order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely
preparation and delivery of certificates
representing the Shares to be sold and not
bearing any restrictive legends, and enable such
Shares to be in such lots and registered in such
names as the underwriters may request at least
two (2) business days prior to any delivery of
the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the
registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment
thereto and at each closing of an underwritten
offering, (A) make such representations and
warranties to the selling Holder(s) and the
underwriters, if any,
SirromAgmts Page 40
with respect to the Shares and the registration
statement as are customarily made by issuers in
primary underwritten offerings; (B) use its best
efforts to obtain "cold comfort" letters and
updates thereof from the Company's independent
certified public accountants addressed to the
selling Holders and the underwriters, if any,
such letters to be in customary form and
covering matters of the type customarily covered
in "cold comfort" letters by underwriters in
connection with primary underwritten offerings;
(C) deliver such documents and certificates as
may be reasonably requested (1) by the holders
of a majority of the Shares being sold, and (2)
by the underwriters, if any, to evidence
compliance with clause (A) above and with any
customary conditions contained in the
underwriting agreement or other agreement
entered into by the Company; and (D) obtain
opinions of counsel to the Company and updates
thereof (which counsel and which opinions shall
be reasonably satisfactory to the underwriters,
if any), covering the matters customarily
covered in opinions requested in underwritten
offerings and such other matters as may be
reasonably requested by the selling Holders and
underwriters or their counsel. Such counsel
shall also state that no facts have come to the
attention of such counsel which cause them to
believe that such registration statement, the
prospectus contained therein, or any amendment
or supplement thereto, as of their respective
effective or issue dates, contains any untrue
statement of any material fact or omits to state
any material fact necessary to make the
statements therein not misleading (except that
no statement need be made with respect to any
financial statements, notes thereto or other
financial data or other expertized material
contained therein). If for any reason the
Company's counsel is unable to give such
opinion, the Company shall so notify the Holders
of the Shares and shall use its best efforts to
remove expeditiously all impediments to the
rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with
all applicable rules and regulations of the
Commission, and make generally available to its
security holders earnings statements satisfying
the provisions of Section 11(a) of the
Securities Act, no later than forty-five (45)
days after the end of any twelve-month period
(or ninety (90) days, if such period is a fiscal
year) (A) commencing at the end of any fiscal
quarter in which the Shares are sold to
underwriters in a firm or best efforts
underwritten offering, or (B) if not sold to
underwriters in such an offering, beginning with
the first month of the first fiscal quarter of
the Company commencing after the effective date
of the registration statement, which statements
shall cover such twelve-month periods.
(c) After the date hereof, the Company shall not grant to
any holder of securities of the Company any registration
rights which have a priority greater than or equal to
those granted to Holders pursuant to this Warrant
without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 10(a) above with
respect to each Holder of Shares are expressly
conditioned upon such Holder's furnishing to the Company
in writing such information concerning such holder and
the terms of such holder's proposed
SirromAgmts Page 41
offering as the Company shall reasonably request for
inclusion in the registration statement. If any
registration statement including any of the Shares is
filed, then the Company shall indemnify each Holder
thereof (and each underwriter for such holder and each
person, if any, who controls such underwriter within the
meaning of the Securities Act) from any loss, claim,
damage or liability arising out of, based upon or in any
way relating to any untrue statement of a material fact
contained in such registration statement or any omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, except for any such statement or omission
based on information furnished in writing by such Holder
of the Shares expressly for use in connection with such
registration statement; and such holder shall indemnify
the Company (and each of its officers and directors who
has signed such registration statement, each director,
each person, if any, who controls the Company within the
meaning of the Securities Act, each underwriter for the
Company and each person, if any, who controls such
underwriter within the meaning of the Securities Act)
and each other such Holder against any loss, claim,
damage or liability arising from any such statement or
omission which was made in reliance upon information
furnished in writing to the Company by such holder of
the Shares expressly for use in connection with such
registration statement.
(e) For purposes of this Section 10, all of the Shares shall
be deemed to be issued and outstanding.
(f) The sale of any securities to employees registered on
Form S-8 or its replacement shall be exempt from this
Section 10.
(g) The registration rights granted pursuant to this Section
10 shall terminate on the Expiration Date.
11. CERTAIN NOTICES. In case at any time the Company shall propose
to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution
to the holders of its Common Stock;
(c) offer for subscription to the holders of any of its
Common Stock any additional shares of stock in any class
or other rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine
with, or sell of all or substantially all of its assets
to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
SirromAgmts Page 42
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the Holder
of the Warrant, by certified or registered mail, (i) at least twenty (20)
days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, and (ii) in the case of such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place. Any notice required by clause (i) shall also
specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled
thereto, and any notice required by clause (ii) shall specify the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
12. RIGHTS OF CO-SALE.
(a) The shareholders listed on the signature page hereof
(the "Management Shareholders") shall not enter into any
transaction that would result in the sale by him or it
of any capital common stock of the Company now or
hereafter owned by him or it, unless prior to such sale
such Management Shareholder shall give written notice
(the "Co-Sale Notice") to Holder addressed and delivered
as set forth in Section 14 hereof, of his or its
intention to effect such sale in order that Holder may
exercise its rights under this Section 12 as hereinafter
described. Such notice shall set forth (i) the number of
shares to be sold by such Management Shareholder, (ii)
the principal terms of the sale, including the price at
which the shares are intended to be sold, and (iii) an
offer by such Management Shareholder to use his or its
best efforts to cause to be included with the shares to
be sold by him or it in the sale, on a share-by-share
basis and on the same terms and conditions, the Shares
issuable or issued to Holder pursuant this Warrant.
(b) If Holder has not accepted such offer in writing within
a period of ten (10) days from the date of receipt of
the Co-Sale Notice, then such Management Shareholder
shall thereafter be free for a period of ninety (90)
days to sell the number of shares specified in the
Co-Sale Notice, at a price no greater than the price set
forth in the Co-Sale Notice and on otherwise no more
favorable terms to such Management Shareholder than as
set forth in the Co-Sale Notice, without any further
obligation to Holder in connection with such sale. In
the event that such Management Shareholder fails to
consummate such sale within such ninety-day period, the
shares specified in Co-Sale Notice shall continue to be
subject to this Section 12.
(c) If Holder accepts such offer in writing within ten-day
period, then such acceptance shall be irrevocable unless
such Management Shareholder shall be unable to cause to
be included in the sale the number of Shares of stock
held by Holder and set forth in the
SirromAgmts Page 43
written acceptance. In that event, such Management
Shareholder and Holder shall participate in the sale
equally, with such Management Shareholder and Holder
each selling half the total number of such shares to be
sold in the sale.
(d) The co-sale rights granted pursuant to this Section 12
shall expire on the Expiration Date.
(e) Notwithstanding anything contained in this Warrant or
any other Loan Document (as defined in the Loan
Agreement) to the contrary, in the event Holder accepts
such offer in accordance with the terms and provisions
of Paragraph 12(c) above, then Xxxx Xxxxxxxxxx shall
participate in the sale with such Management Shareholder
and Holder to the extent of twenty-five percent (25%) of
the total number of such shares to be sold in the sale
(i.e., in the event the Management Shareholder other
than Xxxx Xxxxxxxxxx receives an offer to sell
$1,000,000 shares, and Holder accepts such offer, then
the Holder shall have the right to sell 500,000 shares,
Xxxx Xxxxxxxxxx shall have the right to sell 250,000
shares, and the Management Shareholder in question shall
have the right to sell 250,000 shares). In the event
Xxxx Xxxxxxxxxx is the Management Shareholder who
receives the offer to sell shares, then if Holder elects
to accept such offer, then Holder and Xxxx Xxxxxxxxxx
shall have equally in the sale, each selling half of the
total number of shares to be sold in the sale.)
13. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
section headings are for convenience only and shall not be
construed as amplifying or limiting any of the provisions of
this Warrant.
14. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing,
signed by the party giving such notice, election or demand and
shall be delivered personally, telecopied, or sent by certified
mail or overnight via nationally recognized courier service
(such as Federal Express), to the other party at the address set
forth below, or at such other address as may be supplied in
writing and of which receipt has been acknowledged in writing.
The date of personal delivery or telecopy or two (2) business
days after the date of mailing (or the next business day after
delivery to such courier service), as the case may be, shall be
the date of such notice, election or demand. For the purposes of
this Warrant:
The Address of Holder is: Sirrom Investments, Inc.
Xxxxx 000
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxx
Telecopy No. 615/726-1208
SirromAgmts Page 44
with a copy to: Xxxxxxxxx, Xxxxxx & Xxxxxxx, P.C.
0000 Xxxxxx Xxxxxxxx
Xxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: J. Xxxxxxx Xxxxxx, Esq.
Telecopy No. 423/265-9574
The Address of Company is: Dreams, Inc.
00-000 Xxxxxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
Attention: Xxx X. Xxxxxxxxxx
Telecopy No. 760/779-0217
with a copy to: Hunter & Xxxxx
One Utah Center
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, XX 00000-0000
Attention: J. Xxxxx Xxxxxx
Telecopy No. 801/532-8736
and to: Navon, Kopelman, X'Xxxxxxx & Xxxxx P.A.
0000 Xxxxxxxx Xxxx, Xxxxx X-000
Xx. Xxxxxxxxxx, XX 00000
Attention: Xxx Xxxxx
Telecopy No.: 954/983-7021
15. SEVERABILITY. If any provisions(s) of this Warrant or the
application thereof to any person or circumstances shall be
invalid or unenforceable to any extent, the remainder of this
Warrant and the application of such provisions to other persons
or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
16. ENTIRE AGREEMENT. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning
the subject matter hereof, and all oral discussions and prior
agreement are merged herein.
17. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed
and enforced under the laws of the State of Tennessee applicable
to contracts to be wholly performed in such State. No amendment
or modification hereof shall be effective except in a writing
executed by each of the parties hereto.
18. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in
separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same Warrant.
SirromAgmts Page 45
19. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. The Company hereby
irrevocably consents to the jurisdiction of the United States
District Court for the Middle District of Tennessee and of all
Tennessee state courts sitting in Davidson County, Tennessee,
for the purpose of any litigation to which Holder may be a party
and which concerns this Warrant. It is further agreed that venue
for any such action shall lie exclusively with courts sitting in
Davidson County, Tennessee, unless Holder agrees to the contrary
in writing.
20. WAIVER OF TRIAL BY JURY. HOLDER AND THE COMPANY HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY
IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER
IN CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY, ARISING
OUT OF OR IN ANY WAY RELATING TO THIS WARRANT.
21. PAYMENT OF PUT PRICE. Notwithstanding any other provision
contained herein to the contrary, the Holder will accept in
payment of the Put Price a promissory note with interest at 10%
per annum and monthly payments of principal and interest
amortizing principal and interest over twenty four (24) months
in which all interest and principal is due not less than twenty
four (24) months after the Put is exercised with the right to
prepay; in whole or in part, without penalty.
22. STOCK OPTION PLAN. Notwithstanding any provision contained
herein to the contrary, the Company may establish a stock
incentive plan for (i) the following existing employees: Xxx
Xxxxxx, Xxxxxx Xxxxx, Xxxx Xxxxx, Xxxx Xxxxxxx, Xxxx Xxxxx,
Xxxxxxxx Xxxxxxx, Xxxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxx Xxxxx,
Xxxxxx Xxxx and Xxxxxxx Xxxx and (ii) employees whose employment
begins after the date of the closing of the Loan pursuant to
which stock options to purchase a number of shares of capital
stock of the Company not exceeding in the aggregate 5% of the
fully diluted capital stock of the Company on the date hereof
may be granted; provided that if Xxxxxx Xxxxx, Xxxx Xxxxxxx or
Xxxx Xxxxx ("Pledgors") receive any additional shares of stock
pursuant to the plan, then Pledgors shall be required to take
any action requested by Holder to reflect the pledge of such
shares to Holder. Any stock issued pursuant to the stock
incentive plan described in this Section 22 shall not trigger
the anti-dilution provisions of Section 4(c) hereof (provided
that such issuance complies with the terms of Section 22).
IN WITNESS WHEREOF, the parties hereto have set their hands as of
the date first above written.
COMPANY:
DREAMS, INC.
a Utah corporation
By:
-----------------------------
Title:
--------------------------
SirromAgmts Page 46
HOLDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By:
-----------------------------
Title:
--------------------------
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Warrant to be executed as of the date first above written for the purpose of
agreeing to the terms and conditions of Section 12 hereof.
MANAGEMENT SHAREHOLDERS:
-----------------------------------
Xxx X. Xxxxxxxxxx
-----------------------------------
Xxxxxx Xxxxx
-----------------------------------
Xxxx Xxxxxxx
-----------------------------------
Xxxx Xxxxxxxxxx
-----------------------------------
Xxxx Xxxxx
SirromAgmts Page 47
EXHIBIT A
FORM OF AFFIDAVIT
STATE OF ___________________ :
:
COUNTY OF ___________________ :
The undersigned, being first duly sworn, states that he or
she is an officer of ___________________ and in his or her capacity states
that:
1. Affiant is the _________________ of __________________________, a
_____________________ corporation ("Holder"), and as such officer, has full
knowledge of the business and affairs of Holder and all matters hereinafter
set forth.
2. Affiant covenants and agrees, represents and warrants that Holder
is the owner and holder of that certain stock purchase warrant ("Warrant")
dated November ___, 1998, executed by Dreams, Inc., a Utah corporation, in
favor of Sirrom Investments, Inc.
3. Affiant covenants and agrees, represents and warrants that Holder
has good right, power and authority to exercise the right to the "Put" under
Section 9 of the Warrant.
HOLDER:
By:
--------------------------------
Title:
-----------------------------
STATE OF ____________________ :
:
COUNTY OF ___________________ :
Before me, a Notary Public of the state and county
aforesaid, personally appeared (name) _____________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory
evidence), and who, upon oath, acknowledged ____self to be (title)
______________________ of ______________________________ the within named
bargainor, a corporation, and that ___he as such (title) __________________,
executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by _______self as (title)
_____________________.
WITNESS my hand and seal, at office in (county, state)
__________________ __________________, this _____ day of
_________________________, 19____.
--------------------------------
Notary Public
My Commission Expires:
----------
SirromAgmts Page 48
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the _______ day
of ____________, 1998, by and between DREAMS, INC., a Utah corporation,
DREAMS FRANCHISE CORPORATION, a California corporation, DREAMS ENTERTAINMENT,
INC., a Utah corporation, and DREAMS PRODUCTS, INC., a Utah corporation
(collectively "Borrower"), and SIRROM INVESTMENTS, INC., a Tennessee
corporation ("Lender").
RECITALS:
WHEREAS, Lender is making a loan (the "Loan") in the amount of
$3,000,000 to Borrower, pursuant to that certain Loan Agreement of even date
herewith by and between Borrower and Lender, as it may be amended, modified
or extended from time to time (the "Loan Agreement"); and
WHEREAS, in connection with the making of the Loan, Lender desires
to obtain from Borrower and Borrower desires to grant to Lender a security
interest in certain collateral more particularly described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF SECURITY INTEREST. Borrower hereby grants to Lender a
security interest in the following described property excluding any rights in
the Agreement between Universal Studios Licensing, Inc. and Dreams Franchise
Corporation pursuant to which Dreams Franchise Corporation licenses certain
rights to use the property "Field of Dreams" (collectively, the "Collateral"):
(a) presently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services
by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's
Books relating to any of the foregoing (collectively, "Accounts");
(b) present and future general intangibles and other personal
property (including choses or things in action, goodwill, patents, trade
names, trademarks, servicemarks, copyrights, blueprints, drawings,
purchase orders, customer lists, monies due or recoverable from pension
funds, route lists, monies due under any royalty or licensing agreements,
SirromAgmts Page 49
infringement claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims) other than goods and
Accounts, and Borrower's Books relating to any of the foregoing
(collectively, "General Intangibles");
(c) present and future letters of credit, notes, drafts,
instruments, certificated and uncertificated securities, documents,
leases, and chattel paper, and Borrower's Books relating to any of the
foregoing (collectively, "Negotiable Collateral");
(d) present and future inventory in which Borrower has any
interest, including goods held for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any
of the above, and Borrower's Books relating to any of the foregoing
(collectively, "Inventory");
(e) present and hereafter acquired machinery, machine tools,
motors, equipment, furniture, furnishings, fixtures, vehicles (including
motor vehicles and trailers), tools, parts, dies, jigs, goods (other than
consumer goods or farm products), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing,
wherever located (collectively, "Equipment");
(f) present and hereafter acquired books and records
including: ledgers; records indicating, summarizing, or evidencing
Borrower's assets or liabilities, or the collateral; all information
relating to Borrower's business operations or financial condition; and
all computer programs, disc or tape files, printouts, funds or other
computer prepared information, and the equipment containing such
information (collectively, "Borrower's Books");
(g) substitutions, replacements, additions, accessions,
proceeds, products to or of any of the foregoing, including, but not
limited to, proceeds of insurance covering any of the foregoing, or any
portion thereof, and any and all Accounts, General Intangibles,
Negotiables, Collateral, Inventory, Equipment, money, deposits,
accounts, or other tangible or intangible property resulting from the
sale or other disposition of the accounts, general Intangibles,
Negotiable Collateral, Inventory, Equipment, or any portion thereof or
interest therein and the proceeds thereof.
SirromAgmts Page 50
2. SECURED INDEBTEDNESS. The security interest granted hereby shall
secure the prompt payment of the Obligations (as defined in the Loan
Agreement) and the prompt performance of each of the covenants and duties
under the Loan Documents (as defined in the Loan Agreement).
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents,
warrants and agrees as follows:
(a) Except as set forth on Schedule 3(a) hereto (the
"Permitted Encumbrances"), Borrower is the owner of the Collateral free
and clear of any liens and security interests. Borrower will defend the
Collateral against the claims and demands of all persons other than the
holders of the Permitted Encumbrances.
(b) The address set forth on Schedule 3(b) hereto is
Borrower's principal place(s) of business and the location of all
tangible Collateral and the place where the records concerning all
intangible Collateral are kept and/or maintained.
(c) Borrower will pay all costs of filing of financing,
continuation and termination statements with respect to the security
interests created hereby, and Lender is authorized to do all things
that it deems necessary to perfect and continue perfection of the
security interests created hereby and to protect the Collateral.
4. AGREEMENTS WITH RESPECT TO THE COLLATERAL. Borrower covenants
and agrees with Lender as follows:
(a) Borrower will not permit any of the Collateral to be
removed from the location specified herein, except for temporary
periods in the normal and customary use thereof and in the ordinary
course of business, without the prior written consent of Lender.
(b) Borrower shall notify Lender in writing of any change in
the location of Borrower's principal place of business (or residence)
or the location of any tangible Collateral or the place(s) where the
records concerning all intangible Collateral are kept or maintained.
SirromAgmts Page 51
(c) Borrower will keep the Collateral in good condition and
repair and will pay and discharge all taxes, levies and other
impositions levied thereon as well as the cost of repairs to or
maintenance of same, and will not permit anything to be done that may
impair the value of any of the Collateral. If Borrower fails to pay
such sums, Lender may do so for Borrower's account and add the amount
thereof to the Obligations.
(d) Until the occurrence of an Event of Default (as defined in
the Loan Agreement), Borrower shall be entitled to possession of the
Collateral and to use the same in any lawful manner, provided that such
use does not cause excessive wear and tear to the Collateral, cause it
to decline in value at an excessive rate, or violate the terms of any
policy of insurance thereon.
(e) Borrower will not sell, exchange, lease or otherwise
dispose of any of the Collateral or any interest therein without the
prior written consent of Lender. Notwithstanding the foregoing, so long
as an Event of Default has not occurred, Borrower shall have the right
to process and sell Borrower's inventory in the regular course of
business. Lender's security interest hereunder shall attach to all
proceeds of all sales or other dispositions of the Collateral. If at
any time any such proceeds shall be represented by any instruments,
chattel paper or documents of title, then such instruments, chattel
paper or documents of title shall be promptly delivered to Lender and
subject to the security interest granted hereby. If at any time any of
Borrower's inventory is represented by any document of title, such
document of title will be delivered promptly to Lender and subject to
the security interest granted hereby.
(f) Borrower will not allow the Collateral to be attached to
real estate in such manner as to become a fixture or a part of any real
estate.
(g) Borrower will at all times keep the Collateral insured
against all insurable hazards in amounts equal to the full cash value
of the Collateral. Such insurance shall be in such companies as may be
acceptable to Lender, with provisions satisfactory to Lender for
payment of all losses thereunder to Lender as its interests may appear.
If required by Lender, Borrower shall deposit the policies with Lender.
Any money received by Lender under said policies may be applied to the
payment of the Obligations, whether or not due and payable, or at
Lender's option may be delivered by Lender to Borrower for the purpose
of repairing or restoring the Collateral. Borrower assigns to Lender
all right to receive proceeds of insurance not exceeding the amounts
secured hereby, directs any insurer to pay all proceeds directly to
Lender, and appoints Lender Borrower's attorney-in-fact to endorse any
draft or
SirromAgmts Page 52
check made payable to Borrower in order to collect the benefits of such
insurance. If Borrower fails to keep the Collateral insured as required
by Lender, Lender shall have the right to obtain such insurance at
Borrower's expense and add the cost thereof to the Obligations.
(h) Borrower will not permit any liens or security interests
other than those created by this Agreement and the Permitted
Encumbrances to attach to any of the Collateral, nor permit any of the
Collateral to be levied upon under any legal process, nor permit
anything to be done that may impair the security intended to be
afforded by this Agreement, nor permit any tangible Collateral to
become attached to or commingled with other goods without the prior
written consent of Lender.
5. REMEDIES UPON DEFAULT. Upon an Event of Default under and as
defined in the Loan Agreement, Lender may pursue any or all of the following
remedies, without any notice to Borrower except as required below:
(a) Lender may take possession of any or all of the
Collateral. Borrower hereby consents to Lender's entry into any of
Borrower's premises to repossess Collateral, and specifically consents
to Lender's forcible entry thereto as long as Lender causes no
significant damage to the premises in the process of entry (drilling of
locks, cutting of chains and the like do not in themselves cause
"significant" damage for the purposes hereof) and provided that Lender
accomplishes such entry without a breach of the peace.
(b) Lender may dispose of the Collateral at private or public
sale. Any required notice of sale shall be deemed commercially
reasonable if given at least five (5) days prior to sale. Lender may
adjourn any public or private sale to a different time or place without
notice or publication of such adjournment, and may adjourn any sale
either before or after offers are received. The Collateral may be sold
in such lots as Lender may elect, in its sole discretion. Lender may
take such action as it may deem necessary to repair, protect, or
maintain the Collateral pending its disposition.
(c) Lender may recover any or all proceeds of accounts from
any bank or other custodian who may have possession thereof. Borrower
hereby authorizes and directs all custodians of Borrower's assets to
comply with any demand for payment made by Lender pursuant to this
Agreement, without the need of confirmation from Borrower and without
making any inquiry as to the existence of an Event of Default or any
other matter. Lender may engage a collection agent to collect accounts
for a reasonable percentage commission or for any other reasonable
compensation arrangement.
SirromAgmts Page 53
(d) Lender may notify any or all account debtors that
subsequent payments must be made directly to Lender or its designated
agent. Such notice may be made over Lender's signature or over
Borrower's name with no signature or both, in Lender's discretion.
Borrower hereby authorizes and directs all existing or future account
debtors to comply with any such notice given by Lender, without the
need of confirmation from Borrower and without making any inquiry as to
the existence of an Event of Default or as to any other matter.
(e) Lender may, but shall not be obligated to, take such
measures as Lender may deem necessary in order to collect any or all of
the accounts. Without limiting the foregoing, Lender may institute any
administrative or judicial action that it may deem necessary in the
course of collecting and enforcing any or all of the accounts. Any
administrative or judicial action or other action taken by Lender in
the course of collecting the accounts may be taken by Lender in its own
name or in Borrower's name. Lender may compromise any disputed claims
and may otherwise enter into settlements with account debtors or
obligors under the accounts, which compromises or settlements shall be
binding upon Borrower. Lender shall have no duty to pursue collection
of any account, and may abandon efforts to collect any account after
such efforts are initiated.
(f) Lender may, with respect to any account involving
uncompleted performance by Borrower, and with respect to any general
intangible or other Collateral whose value may be preserved by
additional performance on Borrower's part, take such action as Lender
may deem appropriate including, but not limited, to performing or
causing the performance of any obligation of Borrower thereunder, the
making of payments to prevent defaults thereunder, and the granting of
adequate assurances to other parties thereto with respect to future
performance. Lender's action with respect to any such accounts or
general intangibles shall not render Lender liable for further
performance thereunder unless Lender so agrees in writing.
(g) Lender may exercise its lien upon and right of setoff
against any monies, items, credits, deposits or instruments that Lender
may have in its possession and that belong to Borrower or to any other
person or entity liable for the payment of any or all of the
Obligations.
(h) Lender may exercise any right that it may have under any
other document evidencing or securing the Obligations or otherwise
available to Lender at law or equity.
SirromAgmts Page 54
6. AUDITS AND EXAMINATIONS. Lender shall have the right, at any
time, by its own auditors, accountants or other agents, to examine or audit
any of the books and records of Borrower, or the Collateral, all of which
will be made available upon request. Such accountants or other
representatives of Lender will be permitted to make any verification of the
existence of the Collateral or accuracy of the records that Lender deems
necessary or proper. Any reasonable expenses incurred by Lender in making
such examination, inspection, verification or audit shall be paid by Borrower
promptly on demand and shall constitute part of the Obligations; provided,
however that prior to an Event of Default, Borrower shall only be required to
pay for one (1) such examination, inspection, verification or audit which
shall not exceed $15,000 per examination, inspection, verification or audit.
7. TERMINATION STATEMENT. Upon receipt of proper written demand
following the payment in full of the Obligations and termination of any
commitment of Lender to make any future advances to Borrower, Lender at its
option, shall send a termination statement with respect to any financing
statement filed to perfect Lender's security interests in any of the
Collateral to Borrower or cause such termination statement to be filed with
the appropriate filing officer(s).
8. POWER OF ATTORNEY. Borrower hereby constitutes Lender or its
designee, as Borrower's attorney-in-fact with power, upon the occurrence and
during the continuance of an Event of Default, to endorse Borrower's name
upon any notes, acceptances, checks, drafts, money orders, or other evidences
of payment or Collateral that may come into either its or Lender's
possession; to sign the name of Borrower on any invoice or xxxx of lading
relating to any of the accounts receivable, drafts against customers,
assignments and verifications of accounts receivable and notices to
customers; to send verifications of accounts receivable; to notify the Post
Office authorities to change the address for delivery of mail addressed to
Borrower to such address as Lender may designate; to execute any of the
documents referred to in Section 3(c) hereof in order to perfect and/or
maintain the security interests and liens granted herein by Borrower to
Lender; to do all other acts and things necessary to carry out the purposes
of and remedies provided under this Agreement. All acts of said attorney or
designee are hereby ratified and approved, and said attorney or designee
shall not be liable for any acts of commission or omission (other than acts
of gross negligence or willful misconduct), nor for any error of judgment or
mistake of fact or law. This power being coupled with an interest is
irrevocable until all of the Obligations are paid in full and any and all
promissory notes executed in connection therewith are terminated and
satisfied.
9. BINDING EFFECT. This Agreement shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower's heirs,
representatives, successors and assigns.
10. SEVERABILITY. If any provision of this Agreement is held
invalid, such invalidity shall not affect the validity or enforceability of
the remaining provisions of this Agreement.
SirromAgmts Page 55
11. GOVERNING LAW AND AMENDMENTS. This Agreement shall be construed
and enforced under the laws of the State of Tennessee applicable to contracts
to be wholly performed in such State. No amendment or modification hereof
shall be effective except in a writing executed by each of the parties hereto.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or made by or furnished on behalf of Borrower
in connection herewith shall survive the execution and delivery of this
Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
14. CONSTRUCTION AND INTERPRETATION. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it
being agreed that Borrower, Lender and their respective agents have
participated in the preparation hereof.
15. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Borrower hereby
irrevocably consents to the Jurisdiction of the United States District Court
for the Middle District of Tennessee and of all Tennessee state courts
sitting in Davidson County, Tennessee, for the purpose of any litigation to
which Lender may be a party and which concerns this Agreement or the
Obligations. It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee, unless Lender
agrees to the contrary in writing.
16. WAIVER OF TRIAL BY JURY. LENDER AND BORROWER HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY
ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT
OR OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
SirromAgmts Page 56
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement,
or have caused this Agreement to be executed as of the date first above written.
BORROWER:
DREAMS, INC., a Utah corporation
By:
------------------------------
Title:
---------------------------
DREAMS FRANCHISE CORPORATION, a
California corporation
By:
------------------------------
Title:
---------------------------
DREAMS ENTERTAINMENT, INC., a Utah
corporation
By:
------------------------------
Title:
---------------------------
DREAMS PRODUCTS, INC., a Utah corporation
By:
------------------------------
Title:
---------------------------
SirromAgmts Page 57
LENDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By:
------------------------------
Title:
---------------------------
SirromAgmts Page 58
SCHEDULE 3(a)
PERMITTED ENCUMBRANCES
Tax lien filed by the State of California in connection with franchise taxes
which Borrower is in the process of settling.
SirromAgmts Page 59
SCHEDULE 3(b)
PRINCIPAL PLACE(S) OF BUSINESS
AND LOCATION(S) OF COLLATERAL
Principal place of business:
00-000 Xxxxxxxx Xxxxx
Xxxx Xxxxxx XX 00000
Other Locations of Tangible Collateral/Records Concerning Intangible Collateral:
0000 X. Xxxxx Xxxxxx, Xxxxx 000
Xxxx, XX 00000
00000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
0000 Xxxxxx Xxxx
Xxxxxxx, XX 00000
(Mounted Memories, Inc.)
0000 Xxxx Xxxxxxx Xxxxx
Xxxx 000
Xxxxxx, XX 00000
(Mounted Memories, Inc.)
SirromAgmts Page 60
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT ("Security
Agreement"), is made as of November 17, 1998, by DREAMS, INC., a Utah
corporation, DREAMS FRANCHISE CORPORATION, a California corporation, DREAMS
ENTERTAINMENT, INC., a Utah corporation, and DREAMS PRODUCTS, INC., a Utah
corporation (collectively the "Grantor"), in favor of SIRROM INVESTMENTS,
INC., a Tennessee corporation (the "Lender").
RECITALS:
WHEREAS, pursuant to that certain Loan Agreement of even date
herewith, (as amended, extended, modified, restructured or renewed from time
to time, the "Loan Agreement") by and among Grantor and Lender, Lender has
agreed to make a loan in the aggregate principal amount of $3,000,000 (the
"Loan") to Grantor evidenced by a Secured Promissory Note of even date
herewith in the original principal amount of the Loan and executed by Grantor
payable to the order of Lender (together with any amendments, extensions,
modifications and/or renewals thereof and/or any promissory notes given in
payment thereof, the "Note");
WHEREAS, Grantor owns certain Intellectual Property listed on
SCHEDULE A hereto;
WHEREAS, Grantor desires to mortgage, pledge and grant to Lender,
for the benefit of Lender, a security interest in all of its right, title and
interest in, to and under the Collateral, including without limitation, the
property listed on the attached SCHEDULE A, together with any renewal or
extension thereof, and all Proceeds (as hereinafter defined) thereof, to
secure the payment of the Obligations (as hereinafter defined); and
WHEREAS, it is a condition precedent to the obligation of the Lender
to make the Loan to Grantor under the Loan Agreement, that Grantor execute
this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and to induce
Lender to enter into the Loan Agreement and to induce Lender to make the Loan
to Grantor under the Loan Agreement, Grantor hereby agrees with Lender, as
follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms which are
defined in the Loan Agreement and used herein are so used as so
defined, and the following terms shall have the following
meanings:
"COLLATERAL" has the meaning assigned to it in Section 2 of this
Security Agreement.
SirromAgmts Page 61
"COPYRIGHTS" means all types of protective rights granted (or
applications therefor) for any work that constitutes copyrightable subject
matter, including without limitation, literary works, musical works, dramatic
works, pictorial, graphic and sculptural works, motion pictures and other
audiovisual works, sound recordings, architectural works, in any country of
the world and including, without limitation, any works referred to in
SCHEDULE A hereto.
"COPYRIGHT LICENSE" means any agreement material to the operation of
Grantor's businesses, whether written or oral, providing for the grant by or
to Grantor of any right to reproduce a copyrighted work, to prepare
derivative works based on a copyrighted work, to distribute copies of a
copyrighted work, to perform a copyrighted work or to display a copyrighted
work, or to engage in any other legally protected activity with respect to a
copyrighted work including, without limitation, any thereof referred to in
SCHEDULE A hereto.
"INTELLECTUAL PROPERTY" means all Patent Applications, Patents,
Patent Licenses, Trademark Applications, Trademarks, Trademark Licenses,
Copyrights, Copyright Licenses, Trade Secrets, Inventions, Know-how and other
proprietary property or technology, and agreements relating thereto,
including, without limitation, any and all improvements and future
developments material to the operation of Grantor's businesses, as defined
herein and/or referred to in SCHEDULE A hereto.
"INVENTION" means any new and useful process, machine, manufacture,
or composition of matter, or any new and useful improvement thereof that is
material to the operation of Grantor's businesses and developed by Grantor,
its employees or agents, whether or not the subject of Patent(s) or Patent
Application(s).
"KNOW-HOW" means any knowledge or information that is material to
Grantor's business and that enables Grantor to operate its business with the
accuracy, efficiency or precision necessary for commercial success,
including, without limitation, any such knowledge or information referred to
in SCHEDULE B hereto.
"OBLIGATIONS" means (a) loans to be made concurrently or in
connection with this Agreement or the Loan Agreement as evidenced by one or
more promissory notes payable to the order of Lender that shall be due and
payable as set forth in such promissory notes, and any renewals or extensions
thereof, (b) the full and prompt payment and performance of any and all other
indebtedness and other obligations of Grantor to Lender, direct or contingent
(including but not limited to obligations incurred as endorser, guarantor or
surety), however evidenced or denominated, and however and whenever incurred,
including but not limited to indebtedness incurred pursuant to any present or
future commitment of Lender to Grantor and (c) all future advances made by
Lender for taxes, levies, insurance and preservation of the Collateral and
all attorney's fees, court costs and expenses of whatever kind incident to
the collection of any of said indebtedness or other obligations and the
enforcement and protection of the security interest created under this
Security Agreement.
SirromAgmts Page 62
"OTHER PROPRIETARY PROPERTY" means all types of protectable
intangible property rights other than Patents, Trademarks and Copyrights,
including without limitation, Trade Secrets, Know-how, computer software and
the like, including, without limitation, all such rights referred to in
SCHEDULE B hereto.
"PATENTS" means all types of exclusionary or protective rights
granted (or applications therefor) for inventions in any country of the world
(including, without limitation, letters patent, plant patents, utility
models, breeders' right certificates, inventor's certificates and the like),
and all reissues and extensions thereof and all provisionals, divisions,
continuations and continuations-in-part thereof, including, without
limitation, all such rights referred to in SCHEDULE A hereto.
"PATENT LICENSE" means any agreement material to the operation of
Grantor's business, whether written or oral, providing for the grant by or to
Grantor of any right to manufacture, use or sell any Invention covered by a
Patent, including, without limitation, any thereof referred to in SCHEDULE A
hereto.
"PROCEEDS" means "proceeds," as such term is defined in Section
9-306(1) of the UCC and, to the extent not included in such definition, shall
include, without limitation, (a) any and all proceeds of any insurance,
indemnity, warranty, guaranty or letter of credit payable to Grantor, from
time to time with respect to any of the Collateral, (b) all payments (in any
form whatsoever) paid or payable to Grantor from time to time in connection
with any taking of all or any part of the Collateral by any governmental
authority or any Person acting under color of governmental authority), (c)
all judgments in favor of Grantor in respect of the Collateral and (d) all
other amounts from time to time paid or payable or received or receivable
under or in connection with any of the Collateral.
"SECURITY AGREEMENT" means this Intellectual Property Security
Agreement, as amended, supplemented or otherwise modified from time to time.
"TRADE SECRET" means any scientific or technical information,
design, process, pattern, procedure, formula or improvement which is secret
and of value including, without limitation, any such information referred to
in SCHEDULE B hereto.
"TRADEMARKS" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other sources of business identifiers used in any
country in the world, whether registered or unregistered, and the goodwill
associated therewith, now existing and material to the businesses of Grantor
or hereafter
SirromAgmts Page 63
acquired, and (b) all registrations, recordings and renewals thereof, and all
applications in connection therewith, issued by or filed in a national, state
or local governmental authority of any country, including, without
limitation, all such rights referred to in SCHEDULE A hereto.
"TRADEMARK LICENSE" means any agreement, material to the businesses
of Grantor, written or oral, providing for the grant by or to Grantor of any
right to use any Trademark, including, without limitation, any thereof
referred to in SCHEDULE A hereto.
"UCC" means the Uniform Commercial Code as from time to time in
effect in the State of Tennessee.
2. GRANT OF SECURITY INTEREST. As collateral security for the
prompt and complete payment and performance when due (whether at
the stated maturity, by acceleration or otherwise) of the
Obligations, Grantor hereby assigns and grants to Lender for the
benefit of Lender a security interest in all of Grantor's right,
title and interest in and to the Intellectual Property now owned
or at any time hereafter acquired by Grantor or in which Grantor
now has or at any time in the future may acquire any right,
title or interest (collectively, the "Collateral"), that are
material to the business of Grantor, including all Proceeds and
products of any and all of the Intellectual Property, whether or
not included in SCHEDULE A or SCHEDULE B and excluding any
rights in the Agreement between Universal Studios Licensing,
Inc. and Dreams Franchise Corporation pursuant to which Dreams
Franchise Corporation licenses certain rights to use the
property "Field of Dreams".
3. Representations and Warranties Concerning the Intellectual
Property. Grantor represents and warrants that:
(a) SCHEDULE A and SCHEDULE B hereto include all
Intellectual Property and Other Proprietary Property
owned by Grantor in its own name or as to which Grantor
has any colorable claim of ownership that are material
to the business of Grantor as of the date hereof.
(b) Grantor is the sole legal and beneficial owner of the
entire right, title and interest in and to the
Intellectual Property and the Other Proprietary
Property, and/or has the unrestricted right to use all
such Intellectual Property and Other Proprietary
Property pursuant to a valid license or other agreement.
(c) Grantor's rights in and to the Intellectual Property are
valid, subsisting, unexpired, enforceable and have not
been abandoned.
SirromAgmts Page 64
(d) All licenses, franchise agreements and other agreements
conveying rights in and to the Intellectual Property and
Other Proprietary Property are identified on SCHEDULE A
and SCHEDULE B hereto and are in full force and effect.
To the best knowledge of Grantor, Grantor is not in
default under any such agreement, and no event has
occurred which might constitute a default by Grantor
under any such agreement.
(e) Except as set forth in SCHEDULE A and except for
sublicenses granted by Grantor to franchisees in the
ordinary course of business, all of the Intellectual
Property is free and clear of any and all liens,
security interests, options, licenses, pledges,
assignments, encumbrances and/or agreements of any kind,
and Grantor has not granted any release, covenant not to
xxx, or non-assertion assurance to any third party with
respect to any of the Intellectual Property.
(f) All prior transfers and assignments of the interests of
any and all predecessors in the Intellectual Property of
Grantor were duly and validly authorized, executed,
delivered, recorded and filed as required to vest
Grantor with complete, unrestricted ownership rights
therein.
(g) Except for sublicenses granted by Grantor to franchisees
in the ordinary course of business, Grantor has not,
within the three (3) months prior to the date of
execution of this Agreement, executed and/or delivered
any assignment, transfer or conveyance of any of the
Intellectual Property, recorded or unrecorded.
(h) No proceedings have been instituted or are pending or,
to Grantor's knowledge, threatened that challenge
Grantor's rights to use the Intellectual Property or
Other Proprietary Property, or to register or maintain
the registration of the Intellectual Property. No
holding, decision or judgment has been rendered by any
governmental authority which would limit, cancel or
question the validity of any of the Intellectual
Property. No action or proceeding is pending (i) seeking
to limit, cancel or question the validity of any of the
Intellectual Property or Grantor's ownership thereof or
(ii) which, if adversely determined, would reasonably be
likely to have a material adverse effect on the value of
any of the Intellectual Property.
(i) To the best of Grantor's knowledge, the current conduct
of Grantor's business and Grantor's rights in and to all
of the Intellectual Property and Other Proprietary
Property do not conflict with or infringe any
proprietary right of any third party in any way which
adversely affects the business, financial condition or
business prospects of Grantor. Further, except as set
forth in SCHEDULE A and SCHEDULE B, Grantor is not aware
of any claim by any third party that such conduct or
such rights conflict with or infringe any
SirromAgmts Page 65
valid proprietary right of any third party in any way
which affects the business, financial condition or
business prospects of Grantor. Grantor is not making and
has not made use of any confidential information of any
third party except pursuant to express agreement of such
third party.
(j) Except for infringing for uses of "Field of Dreams",
Grantor is unaware of any infringement by any other
party upon its Intellectual Property rights. Grantor has
heretofore exerted, continues and affirmatively
covenants that it will hereafter continue to exert
commercially reasonable efforts to prevent any
infringement by third parties of Grantor's Intellectual
Property rights or any theft of Grantor's Other
Proprietary Property at Grantor's sole cost.
(k) All past and present employees of Grantor and/or parties
with whom Grantor (including any predecessor-in-interest
of Grantor) had any contractual relationship
("contractors"), whose employment (or contractual)
functions included or affected research and development
or other material aspects of Intellectual Property have
executed agreements requiring them to disclose to
Grantor any and all inventions created or developed
during and within the scope of their employment by or
contractual relationship with Grantor and obligating
them to assign all of their respective right, title and
interest in and to all such inventions to Grantor.
4. COVENANTS. Grantor covenants and agrees with Lender that, from
and after the date of this Security Agreement until the
Obligations are paid in full:
(a) From time to time, upon the written request of Lender,
and at the sole expense of Grantor, Grantor will
promptly and duly execute and deliver such further
instruments and documents and take such further action
as Lender may reasonably request for the purpose of
obtaining or preserving the full benefits of this
Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of
any financing or continuation statements under the UCC
in effect in any jurisdiction with respect to the liens
created hereby. Grantor also hereby authorizes Lender to
file any such financing or continuation statement
without the signature of Grantor to the extent permitted
by applicable law. A carbon, photographic or other
reproduction of this Security Agreement shall be
sufficient as a financing statement for filing in any
jurisdiction.
(b) Grantor will not create, incur or permit to exist, will
take all commercially reasonable actions to defend the
Collateral against, and will take such other
commercially reasonable action as is necessary to
remove, any lien or claim on or to the Collateral, other
than the liens created hereby, and other than as
permitted pursuant to the Loan Agreement, and will take
all commercially
SirromAgmts Page 66
reasonable actions to defend the right, title and
interest of Lender in and to any of the Collateral
against the claims and demands of all persons
whomsoever.
(c) Grantor will not sell, transfer, license or sub-license
or otherwise dispose of any of the Collateral, or
attempt, offer or contract to so do.
(d) Grantor will advise Lender promptly, in reasonable
detail, at its address set forth in the Loan Agreement,
(i) of any lien (other than liens created hereby or
permitted under the Loan Agreement) on, or claim
asserted against, Collateral and (ii) of the occurrence
of any other event which could reasonably be expected to
have a material adverse effect on the aggregate value of
the Collateral or on the liens created hereunder.
(e) (i) Grantor (either itself or through licensees) will,
except with respect to any Trademark that Grantor shall
reasonably determine is of immaterial economic value to
it or otherwise reasonably determines not to so do, (A)
continue to use each Trademark on each and every
trademark class of goods applicable to its current line
as reflected in its current catalogs, brochures and
price lists in order to maintain such Trademark in full
force free from any claim of abandonment for non-use,
(B) maintain as in the past the quality of products and
services offered under such Trademark, (C) use
reasonable efforts to employ such Trademark with the
appropriate notice of registration, (D) not adopt or use
any xxxx which is confusingly similar or a colorable
imitation of such Trademark unless within thirty (30)
days after such use or adoption Lender, for its benefit,
shall obtain a perfected security interest in such xxxx
pursuant to this Security Agreement, and (E) not (and
not permit any licensee or sublicensee thereof to) do
any act or knowingly omit to do any act whereby any
Trademark may become invalidated.
(ii) Grantor will not, except with respect to any Patent
that Grantor shall reasonably determine is of immaterial
economic value to it or otherwise reasonably determine
so to do, do any act, or omit to do any act, whereby any
Patent may become abandoned or dedicated. Without the
prior written consent of Lender, Grantor shall not
abandon any right to file a patent application, or
abandon any pending patent application or patent if such
abandonment would have a material adverse effect on the
business of Grantor.
(iii) Grantor will promptly notify Lender if it knows,
or has reason to know, that any application relating to
any Patent, Trademark or Copyright may become abandoned
or dedicated, or of any adverse determination or
material development (including, without limitation, the
institution of, or any
SirromAgmts Page 67
such determination or development in, any proceeding
in the United States Patent and Trademark office or any
court or tribunal in any country) regarding Grantor's
ownership of any Patent, Trademark or Copyright, or its
right to register the same or to keep and maintain
the same.
(iv) Whenever Grantor, either by itself or through any
agent, employee, licensee or designee, shall file an
application for any Patent or for the registration of
any Trademark or Copyright with the United States Patent
and Trademark Office, the United States Copyright
Office, or any similar office or agency in any other
country or any political subdivision thereof, Grantor
shall report such filing to Lender within five (5)
business days after the last day of the fiscal quarter
in which such filing occurs. Upon request of Lender,
Grantor shall execute and deliver any and all reasonably
necessary agreements, instruments, documents, and papers
as Lender may request to evidence Lender's security
interest in any newly filed Patent, Copyright or
Trademark and the goodwill and general intangibles of
Grantor relating thereto or represented thereby, and
Grantor hereby constitutes Lender its attorney-in-fact
to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby
ratified and confirmed; such power being coupled with an
interest is irrevocable until the Obligations are paid
in full.
(v) Grantor, except with respect to any Patent,
Trademark or Copyright Grantor shall reasonably
determine is of immaterial economic value to it or it
otherwise reasonably determines not to so do, will take
all reasonable and necessary steps, including, without
limitation, in any proceedings before any tribunal,
office or agency in any other country or any political
subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration or
Patent) and to maintain each Patent and each
registration of Trademarks and Copyrights, including,
without limitation, filing of applications, applications
for reissue, renewal or extensions, the payment of
maintenance fees, participation in reexamination,
opposition and infringement proceedings, and the filing
of renewal applications, affidavits of use and
affidavits of incontestability, when appropriate. Any
expenses incurred in connection with such activities
shall be paid by Grantor.
(vi) In the event Grantor knows or has reason to know
that any Patent, Trademark or Copyright included in the
Collateral is infringed, misappropriated or diluted by a
third party, Grantor shall promptly notify Lender after
it learns thereof and shall, unless Grantor shall
reasonably determine that such Patent, Trademark or
Copyright is of immaterial economic value to Grantor
which determination Grantor shall promptly report to
Lender, promptly xxx for infringement, misappropriation
or dilution, or take such other actions as Grantor shall
reasonably deem appropriate under the circumstances to
protect such Patent, Trademark or Copyright.
SirromAgmts Page 68
(vii) Grantor will furnish to Lender each year upon
request, on the anniversary date of the execution of
this Agreement, statements, schedules and an inventory
identifying and describing the Collateral, including
without limitation, all Intellectual Property acquired
subsequent to the date of this agreement and not
identified on SCHEDULE A and SCHEDULE B, all transfers,
assignments, licenses or sub-licenses of the Collateral
by Grantor, and such other information in connection
with the Collateral as Lender may reasonably request,
all in reasonable detail. Any such Intellectual Property
shall automatically become part of the Collateral.
5. Lender's Appointment as Attorney-in-Fact.
(a) Grantor hereby irrevocably constitutes and appoints
Lender and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact
with full irrevocable power and authority in the place
and stead of Grantor and in the name of Grantor or in
its own name, from time to time after the occurrence,
and during the continuation of, an Event of Default (as
defined in the Loan Agreement) in Lender's discretion,
for the purpose of carrying out the terms of this
Security Agreement, to take any and all appropriate
action and to execute any and all documents and
instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement, and,
without limiting the generality of the foregoing,
Grantor hereby grants Lender the power and right, on
behalf of Grantor without notice to or assent by
Grantor, to do the following:
(i) at any time when any Event of Default shall have
occurred and is continuing in the name of Grantor or its
own name, or otherwise, to take possession of and
endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of
moneys due under, or with respect to, any Collateral and
to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise
deemed appropriate by Lender for the purpose of
collecting any and all such moneys due with respect to
such Collateral whenever payable;
(ii) to pay or discharge taxes and liens levied or
placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the
terms of this Security Agreement and to pay all or part
of the premiums therefor and the costs thereof; and
(iii) (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and
all moneys due or to become due thereunder directly to
Lender or as Lender shall direct, (B) to ask or demand
for, collect, receive payment of and receipt for, any
and all moneys, claims and other amounts due or to
become due at any time in respect of or arising
SirromAgmts Page 69
out of any Collateral, (C) to sign and endorse any
invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents
in connection with any of the Collateral, (D) to
commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent
jurisdiction to collect the Collateral or any portion
thereof and to enforce any other right in respect of any
Collateral, (E) to defend any suit, action or proceeding
brought against Grantor with respect to any Collateral,
(F) to settle, compromise or adjust any suit, action or
proceeding described in the preceding clause and, in
connection therewith, to give such discharges or
releases as Lender may deem appropriate, (G) to assign
any Trademark or Copyright (along with goodwill of the
business to which such Trademark or Copyright pertains),
throughout the world for such term or terms, on such
conditions, and in such manner, as Lender shall in its
sole discretion determine, and (H) generally, to sell,
transfer, pledge and make any agreement with respect to
or otherwise deal with any of the Collateral as fully
and completely as though Lender were the absolute owner
thereof for all purposes, and to do, at Lender's option
and Grantor's expense, at any time, or from time to
time, all acts and things which Lender deems necessary
to protect, preserve or realize upon the Collateral and
the liens of Lender thereon and to effect the intent of
this Security Agreement, all as fully and effectively as
Grantor might do. Grantor hereby ratifies all that said
attorneys shall lawfully do or cause to be done by
virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
(b) Grantor also authorizes Lender, at any time and from
time to time, to execute, in connection with the sale
provided for in Section 8 hereof, any endorsements,
assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) The powers conferred on Lender hereunder are solely to
protect the interests of Lender in the Collateral and
shall not impose any duty upon Lender to exercise any
such powers. Lender shall be accountable only for
amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its
partners, officers, directors, employees or agents shall
be responsible to Grantor for any act or failure to act
hereunder, except for their own gross negligence or
willful misconduct or failure to comply with mandatory
provisions of applicable law.
6. PERFORMANCE BY LENDER OF GRANTOR'S OBLIGATIONS. If Grantor fails
to perform or comply with any of its agreements contained herein
and Lender, as provided for by the terms of this Security
Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, then the
expenses of Lender incurred in connection with such performance
or compliance, together with interest
SirromAgmts Page 70
thereon at the highest default rate provided in the Note, shall
be payable by Grantor to Lender on demand and shall constitute
Obligations secured hereby.
7. PROCEEDS. It is agreed that if an Event of Default shall occur
and be continuing, then (a) all Proceeds received by Grantor
consisting of cash, checks and other cash equivalents shall be
held by Grantor in trust for Lender, segregated from other funds
of Grantor, and shall, forthwith upon receipt by Grantor, be
turned over to Lender in the exact form received by Grantor
(duly endorsed by Grantor to Lender, if required), and (b) any
and all such Proceeds received by Lender (whether from Grantor
or otherwise) shall promptly be applied by Lender against, the
Obligations (whether matured or unmatured), such application to
be in such order as set forth in the Loan Agreement.
8. REMEDIES UPON DEFAULT. Upon an Event of Default under and as
defined in the Loan Agreement, Lender may pursue any or all of
the following remedies, without any notice to Grantor except as
required below:
Lender may give written notice of default to Grantor, following
which Grantor shall not dispose of, conceal, transfer, sell or
encumber any of the Collateral (including, but not limited to,
cash proceeds) without Lender's prior written consent, even if
such disposition is otherwise permitted hereunder in the
ordinary course of business. Any such disposition, concealment,
transfer or sale after the giving of such notice shall
constitute a wrongful conversion of the Collateral. Lender may
obtain a temporary restraining order or other equitable relief
to enforce Grantor's obligation to refrain from so impairing
Lender's Collateral.
Lender may take possession of any or all of the Collateral.
Grantor hereby consents to Lender's entry into any of Grantor's
premises to repossess Collateral, and specifically consents to
Lender's forcible entry thereto as long as Lender causes no
significant damage to the premises in the process of entry
(drilling of locks, cutting of chains and the like do not in
themselves cause "significant" damage for the purposes hereof)
and provided that Lender accomplishes such entry without a
breach of the peace.
Lender may dispose of the Collateral at private or public sale.
Any required notice of sale shall be deemed commercially
reasonable if given at least five (5) days prior to sale. Lender
may adjourn any public or private sale to a different time or
place without notice or publication of such adjournment, and may
adjourn any sale either before or after offers are received. The
Collateral may be sold in such lots as Lender may elect, in its
sole discretion. Lender may take such action as it may deem
necessary to repair, protect, or maintain the Collateral pending
its disposition.
SirromAgmts Page 71
Lender may exercise its lien upon and right of setoff against
any monies, items, credits, deposits or instruments that Lender
may have in its possession and that belong to Grantor or to any
other person or entity liable for the payment of any or all of
the Obligations.
Lender may exercise any right that it may have under any other
document evidencing or securing the Obligations or otherwise
available to Lender at law or equity.
9. LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL.
Lender's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under
Section 9-207 of the UCC or otherwise, shall be to deal with it
in the same manner as Lender would deal with similar property
for its own account. Neither Lender nor any of its partners,
directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon all or any part of
the Collateral or for any delay in doing so or shall be under
any obligation to sell or otherwise dispose of any Collateral
upon the request of Grantor or otherwise.
10. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable
and powers coupled with an interest.
11. SEVERABILITY. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12. SECTION HEADINGS. The section headings used in this Security
Agreement are for convenience of reference only and are not to
affect the construction hereof or be taken into consideration in
the interpretation hereof.
13. NO WAIVER: CUMULATIVE REMEDIES. Lender shall not by any act
(except by a written instrument pursuant to Section 14 hereof),
delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in
any default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any
delay in exercising, on the part of Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder
shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by
Lender of any right or remedy hereunder on any occasion shall
not be construed as a bar to any right or remedy which Lender
would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies
provided by law.
SirromAgmts Page 72
14. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of the
terms or provisions of this Security Agreement may be waived,
amended, supplemented or otherwise modified except by a written
instrument executed by Grantor and Lender, provided that any
provision of this Security Agreement may be waived by Lender in
a written letter or agreement executed by Lender or by facsimile
transmission from Lender. This Security Agreement shall be
binding upon the successors and assigns of Grantor and shall
inure to the benefit of Lender and its successors and assigns.
15. NOTICES. Any and all notices, elections or demands permitted or
required to be made under this Security Agreement shall be in
writing, signed by the party giving such notice, election or
demand and shall be delivered personally, telecopied, or sent by
certified mail or overnight via nationally recognized courier
service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be
supplied in writing and of which receipt has been acknowledged
in writing. The date of personal delivery or telecopy or two (2)
business days after the date of mailing (or the next business
day after delivery to such courier service), as the case may be,
shall be the date of such notice, election or demand. For the
purposes of this Security Agreement:
The Address of Lender is: Sirrom Investments, Inc.
Xxxxx 000
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxx
Telecopy No.: 615/726-1208
with a copy to: Xxxxxxxxx, Xxxxxx & Xxxxxxx, P.C.
0000 Xxxxxx Xxxxxxxx
Xxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: J. Xxxxxxx Xxxxxx, Esq.
Telecopy No.: 423/265-9574
The Address of Grantor is: Dreams, Inc.
Dreams Franchise Corporation
Dreams Entertainment, Inc.
Dreams Products, Inc.
00-000 Xxxxxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
Attention: Xxx X. Xxxxxxxxxx
Telecopy No.: 760/779-0217
SirromAgmts Page 73
with a copy to: Hunter & Xxxxx
One Utah Center
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, XX 00000-0000
Attention: J. Xxxxx Xxxxxx
Telecopy No.: 801/532-8736
and to: Navon, Kopelman, X'Xxxxxxx & Xxxxx, P.A.
0000 Xxxxxxxx Xxxx, Xxxxx X-000
Xx. Xxxxxxxxxx, XX 00000
Attention: Xxx X. Xxxxx
Telecopy No.: 954/983-7021
16. GOVERNING LAW. This Security Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Tennessee applicable to contracts to be wholly
performed in such State, or to the extent required, by federal
law.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in
separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same Agreement.
18. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Grantor hereby
irrevocably consents to the Jurisdiction of the United States
District Court for the Middle District of Tennessee and of all
Tennessee state courts sitting in Davidson County, Tennessee,
for the purpose of any litigation to which Lender may be a party
and which concerns this Security Agreement or the Obligations.
It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee,
unless Lender agrees to the contrary in writing.
19. WAIVER OF TRIAL BY JURY. LENDER AND GRANTOR HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN
ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT
OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN
DOCUMENTS.
SirromAgmts Page 74
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
GRANTOR:
DREAMS, INC., a Utah corporation
By:
--------------------------------
Title:
-----------------------------
DREAMS FRANCHISE CORPORATION, a
California corporation
By:
--------------------------------
Title:
-----------------------------
DREAMS ENTERTAINMENT, INC., a Utah
corporation
By:
--------------------------------
Title:
-----------------------------
DREAMS PRODUCTS, INC., a Utah corporation
By:
--------------------------------
Title:
-----------------------------
LENDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By:
--------------------------------
Title:
-----------------------------
SirromAgmts Page 75
SCHEDULE A
SirromAgmts Page 76
SCHEDULE B
SirromAgmts Page 77
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Agreement"), dated
____________, 1998, is made by and between DREAMS, INC., a Utah corporation
("Borrower") and SIRROM INVESTMENTS, INC., Tennessee corporation with its
principal office and place of business in Nashville, Tennessee ("Lender").
RECITALS:
WHEREAS, pursuant to that certain Loan Agreement of even date
herewith, by and between Borrower and Lender, as amended, modified or
extended from time to time (the "Loan Agreement"), Lender has made a loan to
Borrower in the original principal amount of $3,000,000 (the "Loan"). The
Loan is evidenced by a Secured Promissory Note of even date herewith, in the
amount of the Loan, made and executed by Borrower, payable to the order of
Lender (herein referred to, together with any extensions, modifications,
renewals and/or replacements thereof, as the "Note"); and
WHEREAS, it is a condition of Lender's agreement to make the Loan to
Borrower that Borrower execute and deliver this Agreement to Lender.
AGREEMENT:
NOW THEREFORE, in consideration of the foregoing, and to enable
Borrower to obtain the Loan and to induce Lender to make the Loan and for
other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, Borrower and Lender hereby agree as follows:
1. PLEDGE. As collateral security for the payment and performance in
full of the Obligations (as defined in the Loan Agreement), Borrower hereby
pledges, hypothecates, assigns, transfers, sets over and delivers unto
Lender, and hereby grants to Lender a security interest in, the collateral
described in SCHEDULE 1 hereto, together with (i) all other shares of stock
of the issuer(s) of such pledged securities of any class or category, which
are now or hereafter owned by Borrower and (ii) the proceeds thereof and all
cash, additional securities or other property at any time and from time to
time receivable or otherwise distributable in respect of, in exchange for, or
in substitution for any and all such pledged securities (all such pledged
securities, the proceeds thereof, cash, dividends, additional securities and
other property now or hereafter pledged hereunder are hereinafter
collectively referred to as the "Pledged Securities");
SirromAgmts Page 78
TO HAVE AND TO HOLD the Pledged Securities, together with all
rights, titles, interests, powers, privileges and preferences pertaining or
incidental thereto, unto Lender, its successors and assigns, subject to the
terms, covenants and conditions hereinafter set forth.
Upon delivery to Lender, the Pledged Securities shall be accompanied
by executed stock powers in blank and by such other instruments or documents
as Lender or its counsel may reasonably request. Each delivery of
certificates for such Pledged Securities shall be accompanied by a schedule
showing the number of shares and the numbers of the certificates theretofore
and then pledged hereunder, which schedule shall be attached hereto as
SCHEDULE 1 and made a part hereof. Each schedule so delivered shall supersede
any prior schedule so delivered. In the event that additional securities of
the issuers listed on SCHEDULE 1 are issued to Pledgor, Pledgor agrees to
promptly deliver the certificates representing such securities together with
stock powers endorsed in blank, to Lender as part of the collateral pledged
hereunder and such securities shall constitute part of the Pledged Securities.
2. OBLIGATIONS SECURED. This Agreement is made, and the security
interest created hereby is granted to Lender, to secure prompt payment of the
Obligations (as defined in the Loan Agreement) and the prompt performance of
each of the covenants and duties of Borrower under the Loan Documents (as
defined in the Loan Agreement).
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender (a) that Borrower is the legal and equitable owner of the
Pledged Securities, (b) that Borrower has the complete and unconditional
authority to pledge the Pledged Securities being pledged by it, and holds the
same free and clear of all liens, charges, encumbrances and security
interests of every kind and nature, (c) that any consent or approval of any
governmental body or regulatory authority, or of any other party, that was or
is necessary to the validity of this pledge, has been obtained, and (d) that
the Pledged Securities are not subject to any limitations, restrictions, or
obligations pursuant to any shareholder agreement, voting trust agreement or
similar instrument.
4. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. Lender shall have
the right (in its sole and absolute discretion) to hold the certificates
representing the Pledged Securities in its own name or in the name of the
Borrower, endorsed or assigned in blank or in favor of Lender. Upon request
and delivery of certificates representing the Pledged Securities to the
issuer of the Pledged Securities, Lender may have such Pledged Securities
registered in the name of Lender or any nominee or nominees of Lender. Lender
shall at all times have the right to exchange the certificates representing
Pledged Securities for certificates of smaller or larger denominations for
any purpose consistent with this Agreement.
SirromAgmts Page 79
5. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default
under and as defined in the Loan Agreement, then, and in any such event,
Lender shall have all of the rights, privileges and remedies of a secured
party under the Uniform Commercial Code as in effect in the State of
Tennessee, and without limiting the foregoing, Lender may (a) collect any and
all amounts payable in respect of the Pledged Securities and exercise any and
all rights, privileges, options and remedies of the holder and owner thereof,
and (b) sell, transfer and/or negotiate the Pledged Securities, or any part
thereof, at public or private sale, for cash, upon credit or for future
delivery, as Lender shall deem appropriate, including without limitation, at
Lender's option, the purchase of all or any part of the Pledged Securities at
any public sale by Lender. Upon consummation of any sale, Lender shall have
the right to assign, transfer and deliver to the purchaser or purchasers
thereof the Pledged Securities so sold. Each such purchaser at any such sale
shall hold the property sold absolutely, free from any claim or right on the
part of the Borrower, and the Borrower hereby waives (to the extent permitted
by law) all rights of redemption, stay or appraisal that Borrower now has or
may at any time in the future have under any rule of law or statute now
existing or hereinafter enacted. Borrower hereby expressly waives notice to
redeem and notice of the time, place and manner of such sale.
6. APPLICATION OF PROCEEDS. The proceeds of the sale of Pledged
Securities sold pursuant to Section 5 hereof, and the proceeds of the
exercise of any of Lender's other remedies hereunder, shall be applied by
Lender in the manner set forth in the Loan Agreement.
7. REIMBURSEMENT OF LENDER. Borrower agrees to reimburse Lender,
upon demand, for all expenses, including without limitation reasonable
attorneys' fees, incurred by it in connection with the administration and
enforcement of this Agreement, and agrees to indemnify Lender and hold it
harmless from and against any and all liability incurred by it hereunder or
in connection herewith, unless such liability shall be due to willful
misconduct or gross negligence on the part of Lender.
8. NO WAIVER. No failure on the part of Lender to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by Lender preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies are cumulative
and are not exclusive of any other remedies provided by law.
9. LIMITATION OF LENDER LIABILITY. Except in the case of their
wilful misconduct or gross negligence, neither Lender nor its officers,
employees, agents, representatives or nominees shall be liable for any loss
incurred by Borrower arising out of any act or omission of Lender, its
officers, employees, agents, representatives or nominees, with respect to the
care, custody or preservation of the Pledged Securities.
SirromAgmts Page 80
10. BINDING AGREEMENT. This Agreement and the terms, covenants and
conditions hereof shall be binding upon and inure to the benefit of the
parties hereto and to all holders of the Obligations and their respective
successors and assigns.
11. GOVERNING LAW; AMENDMENTS. This Agreement shall in all respects
be construed in accordance with and governed by the laws of the State of
Tennessee applicable to contracts to be wholly performed in such state. This
Agreement may not be amended or modified, nor may any of the Pledged
Securities be released except in a writing signed by the parties hereto. Time
is of the essence with respect to the obligations of Borrower pursuant to
this Agreement.
12. FURTHER ASSURANCES. Borrower agrees to do such further acts and
things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as Lender may at any time request in connection
with the administration and enforcement of this Agreement or relative to the
Pledged Securities or any part thereof or in order to better assure and
confirm unto Lender its rights and remedies hereunder.
13. HEADINGS. Section numbers and headings used herein are for
convenience only and are not to affect the construction of or to be taken
into consideration in interpreting this Agreement.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
15. VOTING. As long as no Event of Default shall have occurred and
be continuing, Borrower shall be entitled to exercise all voting and
consensual powers with respect to the Pledged Securities. Immediately and
without further notice to Borrower, upon the occurrence of any Event of
Default, Lender shall have the right, at its election, to exercise all voting
and consensual rights with respect to the Pledged Securities, and Borrower
shall exercise and deliver to Lender such proxies as shall be necessary to
permit Lender's exercise of such voting and consensual rights.
16. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Borrower hereby
irrevocably consents to the Jurisdiction of the United States District Court
for the Middle District of Tennessee and of all Tennessee state courts
sitting in Davidson County, Tennessee, for the purpose of any litigation to
which Lender may be a party and which concerns this Agreement or the
Obligations. It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee, unless Lender
agrees to the contrary in writing.
SirromAgmts Page 81
17. WAIVER OF TRIAL BY JURY. LENDER AND BORROWER HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY
ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT
OR OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement, or have caused this Agreement to be duly executed by a duly
authorized officer, all as of the day first above written.
BORROWER:
DREAMS, INC.,
a Utah corporation
By:
--------------------------------
Title:
-----------------------------
LENDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By:
--------------------------------
Title:
-----------------------------
SirromAgmts Page 82
The undersigned hereby acknowledges and confirms that the necessary
changes and registrations on the books of the undersigned have been made to
reflect the pledge of the Pledged Securities under the Pledge Agreement. In
particular, the undersigned acknowledges and confirms that Lender has been
designated as the only registered pledgee of the Pledged Securities.
DREAMS FRANCHISE CORPORATION
By:
--------------------------------
Title:
-----------------------------
The undersigned hereby acknowledges and confirms that the necessary
changes and registrations on the books of the undersigned have been made to
reflect the pledge of the Pledged Securities under the Pledge Agreement. In
particular, the undersigned acknowledges and confirms that Lender has been
designated as the only registered pledgee of the Pledged Securities.
DREAMS ENTERTAINMENT, INC.
By:
--------------------------------
Title:
-----------------------------
SirromAgmts Page 83
SCHEDULE 1
PLEDGED SECURITIES
No. of
Issuer Shares Class Certificate Nos.
---------------------------------- ------------------- ------------------- -------------------
1. Dreams Franchise Corporation
2. Dreams Entertainment, Inc.
SirromAgmts Page 84
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Agreement"), dated
____________, 1998, is made by and between DREAMS FRANCHISE CORPORATION, a
California corporation ("Borrower") and SIRROM INVESTMENTS, INC., Tennessee
corporation with its principal office and place of business in Nashville,
Tennessee ("Lender").
RECITALS:
WHEREAS, pursuant to that certain Loan Agreement of even date
herewith, by and between Borrower and Lender, as amended, modified or
extended from time to time (the "Loan Agreement"), Lender has made a loan to
Borrower in the original principal amount of $3,000,000 (the "Loan"). The
Loan is evidenced by a Secured Promissory Note of even date herewith, in the
amount of the Loan, made and executed by Borrower, payable to the order of
Lender (herein referred to, together with any extensions, modifications,
renewals and/or replacements thereof, as the "Note"); and
WHEREAS, it is a condition of Lender's agreement to make the Loan to
Borrower that Borrower execute and deliver this Agreement to Lender.
AGREEMENT:
NOW THEREFORE, in consideration of the foregoing, and to enable
Borrower to obtain the Loan and to induce Lender to make the Loan and for
other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, Borrower and Lender hereby agree as follows:
1. PLEDGE. As collateral security for the payment and performance in
full of the Obligations (as defined in the Loan Agreement), Borrower hereby
pledges, hypothecates, assigns, transfers, sets over and delivers unto
Lender, and hereby grants to Lender a security interest in, the collateral
described in SCHEDULE 1 hereto, together with (i) all other shares of stock
of the issuer(s) of such pledged securities of any class or category, which
are now or hereafter owned by Borrower and (ii) the proceeds thereof and all
cash, additional securities or other property at any time and from time to
time receivable or otherwise distributable in respect of, in exchange for, or
in substitution for any and all such pledged securities (all such pledged
securities, the proceeds thereof, cash, dividends, additional securities and
other property now or hereafter pledged hereunder are hereinafter
collectively referred to as the "Pledged Securities");
SirromAgmts Page 85
TO HAVE AND TO HOLD the Pledged Securities, together with all
rights, titles, interests, powers, privileges and preferences pertaining or
incidental thereto, unto Lender, its successors and assigns, subject to the
terms, covenants and conditions hereinafter set forth.
Upon delivery to Lender, the Pledged Securities shall be accompanied
by executed stock powers in blank and by such other instruments or documents
as Lender or its counsel may reasonably request. Each delivery of
certificates for such Pledged Securities shall be accompanied by a schedule
showing the number of shares and the numbers of the certificates theretofore
and then pledged hereunder, which schedule shall be attached hereto as
SCHEDULE 1 and made a part hereof. Each schedule so delivered shall supersede
any prior schedule so delivered. In the event that additional securities of
the issuers listed on SCHEDULE 1 are issued to Pledgor, Pledgor agrees to
promptly deliver the certificates representing such securities together with
stock powers endorsed in blank, to Lender as part of the collateral pledged
hereunder and such securities shall constitute part of the Pledged Securities.
2. OBLIGATIONS SECURED. This Agreement is made, and the security
interest created hereby is granted to Lender, to secure prompt payment of the
Obligations (as defined in the Loan Agreement) and the prompt performance of
each of the covenants and duties of Borrower under the Loan Documents (as
defined in the Loan Agreement).
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender (a) that Borrower is the legal and equitable owner of the
Pledged Securities, (b) that Borrower has the complete and unconditional
authority to pledge the Pledged Securities being pledged by it, and holds the
same free and clear of all liens, charges, encumbrances and security
interests of every kind and nature, (c) that any consent or approval of any
governmental body or regulatory authority, or of any other party, that was or
is necessary to the validity of this pledge, has been obtained, and (d) that
the Pledged Securities are not subject to any limitations, restrictions, or
obligations pursuant to any shareholder agreement, voting trust agreement or
similar instrument.
4. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. Lender shall have
the right (in its sole and absolute discretion) to hold the certificates
representing the Pledged Securities in its own name or in the name of the
Borrower, endorsed or assigned in blank or in favor of Lender. Upon request
and delivery of certificates representing the Pledged Securities to the
issuer of the Pledged Securities, Lender may have such Pledged Securities
registered in the name of Lender or any nominee or nominees of Lender. Lender
shall at all times have the right to exchange the certificates representing
Pledged Securities for certificates of smaller or larger denominations for
any purpose consistent with this Agreement.
5. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default
under and as defined in the Loan Agreement, then, and in any such event,
Lender shall have all of the rights, privileges and remedies of a secured
party under the Uniform Commercial Code as in effect in the
SirromAgmts Page 86
State of Tennessee, and without limiting the foregoing, Lender may (a)
collect any and all amounts payable in respect of the Pledged Securities and
exercise any and all rights, privileges, options and remedies of the holder
and owner thereof, and (b) sell, transfer and/or negotiate the Pledged
Securities, or any part thereof, at public or private sale, for cash, upon
credit or for future delivery, as Lender shall deem appropriate, including
without limitation, at Lender's option, the purchase of all or any part of
the Pledged Securities at any public sale by Lender. Upon consummation of any
sale, Lender shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Pledged Securities so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right on the part of the Borrower, and the Borrower hereby
waives (to the extent permitted by law) all rights of redemption, stay or
appraisal that Borrower now has or may at any time in the future have under
any rule of law or statute now existing or hereinafter enacted. Borrower
hereby expressly waives notice to redeem and notice of the time, place and
manner of such sale.
6. APPLICATION OF PROCEEDS. The proceeds of the sale of Pledged
Securities sold pursuant to Section 5 hereof, and the proceeds of the
exercise of any of Lender's other remedies hereunder, shall be applied by
Lender in the manner set forth in the Loan Agreement.
7. REIMBURSEMENT OF LENDER. Borrower agrees to reimburse Lender,
upon demand, for all expenses, including without limitation reasonable
attorneys' fees, incurred by it in connection with the administration and
enforcement of this Agreement, and agrees to indemnify Lender and hold it
harmless from and against any and all liability incurred by it hereunder or
in connection herewith, unless such liability shall be due to willful
misconduct or gross negligence on the part of Lender.
8. NO WAIVER. No failure on the part of Lender to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by Lender preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies are cumulative
and are not exclusive of any other remedies provided by law.
9. LIMITATION OF LENDER LIABILITY. Except in the case of their
wilful misconduct or gross negligence, neither Lender nor its officers,
employees, agents, representatives or nominees shall be liable for any loss
incurred by Borrower arising out of any act or omission of Lender, its
officers, employees, agents, representatives or nominees, with respect to the
care, custody or preservation of the Pledged Securities.
10. BINDING AGREEMENT. This Agreement and the terms, covenants and
conditions hereof shall be binding upon and inure to the benefit of the
parties hereto and to all holders of the Obligations and their respective
successors and assigns.
SirromAgmts Page 87
11. GOVERNING LAW; AMENDMENTS. This Agreement shall in all respects
be construed in accordance with and governed by the laws of the State of
Tennessee applicable to contracts to be wholly performed in such state. This
Agreement may not be amended or modified, nor may any of the Pledged
Securities be released except in a writing signed by the parties hereto. Time
is of the essence with respect to the obligations of Borrower pursuant to
this Agreement.
12. FURTHER ASSURANCES. Borrower agrees to do such further acts and
things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as Lender may at any time request in connection
with the administration and enforcement of this Agreement or relative to the
Pledged Securities or any part thereof or in order to better assure and
confirm unto Lender its rights and remedies hereunder.
13. HEADINGS. Section numbers and headings used herein are for
convenience only and are not to affect the construction of or to be taken
into consideration in interpreting this Agreement.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
15. VOTING. As long as no Event of Default shall have occurred and
be continuing, Borrower shall be entitled to exercise all voting and
consensual powers with respect to the Pledged Securities. Immediately and
without further notice to Borrower, upon the occurrence of any Event of
Default, Lender shall have the right, at its election, to exercise all voting
and consensual rights with respect to the Pledged Securities, and Borrower
shall exercise and deliver to Lender such proxies as shall be necessary to
permit Lender's exercise of such voting and consensual rights.
16. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Borrower hereby
irrevocably consents to the Jurisdiction of the United States District Court
for the Middle District of Tennessee and of all Tennessee state courts
sitting in Davidson County, Tennessee, for the purpose of any litigation to
which Lender may be a party and which concerns this Agreement or the
Obligations. It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee, unless Lender
agrees to the contrary in writing.
17. WAIVER OF TRIAL BY JURY. LENDER AND BORROWER HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY
ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT
OR OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
SirromAgmts Page 88
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement, or have caused this Agreement to be duly executed by a duly
authorized officer, all as of the day first above written.
BORROWER:
DREAMS FRANCHISE CORPORATION, INC.,
a California corporation
By:
--------------------------------
Title:
-----------------------------
LENDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By:
--------------------------------
Title:
-----------------------------
SirromAgmts Page 89
The undersigned hereby acknowledges and confirms that the necessary
changes and registrations on the books of the undersigned have been made to
reflect the pledge of the Pledged Securities under the Pledge Agreement. In
particular, the undersigned acknowledges and confirms that Lender has been
designated as the only registered pledgee of the Pledged Securities.
DREAMS PRODUCTS, INC.
By:
--------------------------------
Title:
-----------------------------
SirromAgmts Page 90
SCHEDULE 1
PLEDGED SECURITIES
No. of
Issuer Shares Class Certificate Nos.
---------------------------------- ------------------- ------------------- -------------------
1. Dreams Products, Inc.
SirromAgmts Page 91
