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
SirromAgmts Page 1
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
SirromAgmts Page 2
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
SirromAgmts Page 3
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
SirromAgmts Page 4
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).
SirromAgmts Page 5
(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.
SirromAgmts Page 7
(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
SirromAgmts Page 8
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 Obligation. 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:
-------------------------
SiiromAgmts Page 83
SCHEDULE 1
PLEDGED SECURITIES
No. of Certificate Nos.
Issuer Shares Class
----------------------- --------------- ---------- --------------------
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 Certificate Nos.
Issuer Shares Class
------------------------- ------------ ----------- -------------------
1. Dreams
Products, Inc.
SirromAgmts Page 91
