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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO.1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
DREAMS, INC.
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(Name of Small Business Issuer in its charter)
UTAH 87-0368170
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5009 HIATUS ROAD, SUNRISE, FLORIDA 33351
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number ( 954 ) 742 - 8544
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE N/A
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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(Title of class)
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(Title of class)
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PART I
Item 1. DESCRIPTION OF BUSINESS.
GENERAL.
Dreams, Inc. ("Registrant") is a Utah Corporation which was formed in
April 1980. During fiscal year ended March 31, 1999, Registrant's primary lines
of business were the offer and sale of Field of Dreams-Registered Tradmark-
franchises through its subsidiary Dreams Franchise Corporation ("DFC") and the
manufacture and sale of sports and celebrity memorabilia products through DFC's
wholly-owned subsidiary Dreams Products, Inc. ("DPI") which employs the
trademark "Mounted Memories". There are currently 35 Field of Dreams-Registered
Tradmark- franchise stores open and operating. Additionally, six Area
Development Agreements which are currently effective have been sold to
franchisees. Included among the total 35 Field of Dreams-Registered Tradmark-
franchise stores are thirteen franchised stores which have been opened pursuant
to those six agreements. An additional eleven franchised stores may be opened
under those agreements. DPI has a manufacturing and distribution facility
located in Sunrise, Florida and a distribution center in Denver, Colorado. See
"Mounted Memories" for information regarding the reorganization of Registrant
which resulted in the acquisition of the assets and business now employed by
DPI. See "Consolidated Financial Statements" for financial information.
Registrant is filing this Form 10-SB in order to efficiently provide to the
public information regarding its business and to maintain eligibility for
quotation of its common stock on the OTC Bulletin Board ("OTCBB"). If this Form
10-SB has not cleared all Securities and Exchange Commission comments before
November 4, 1999, Registrant's common stock will no longer be eligible for
quotation on the OTCBB.
Prior to November 1996, Registrant was a reporting company under
Section 12(g) of the Securities Exchange Act of 1934 (the "34 Act"). In November
of 1996, Registrant's financial condition made continued filing burdensome and
Registrant filed documents with the Securities and Exchange Commission which
allowed Registrant to cease its reporting status. From November 1996 to present,
Registrant has continued to be public but has not filed any documents pursuant
to the 34 Act.
FIELD OF DREAMS-REGISTERED TRADMARK- FRANCHISING BACKGROUND.
Registrant conducts its Field of Dreams-Registered Tradmark- operations
through its subsidiary DFC. DFC licenses certain rights from MCA/Universal
Merchandising Inc. ("MCA") to use the name "Field of Dreams-Registered
Tradmark-" in connection with retail operations and catalog sales. Field of
Dreams-Registered Tradmark- is a copyright and trademark owned by Universal City
Studios, Inc. with all rights reserved. Universal has authorized MCA to license
the marks. Neither company is in any way related to or an affiliate of
Registrant. Registrant does not own or operate any Field of Dreams-Registered
Tradmark- stores. Registrant does not presently have any Field of
Dreams-Registered Tradmark- catalog.
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In July 1995, Registrant closed and terminated the business of its
restaurant/sports bar located in Palm Desert, California. On March 28,1996,
Registrant's shareholders approved, and Registrant sold, its assets related to
the operation of ten Shari's format restaurants. The purchaser of the ten
restaurants was Shari's Management Corporation ("SMC"), an unaffiliated third
party. Registrant retained two Heidi's format restaurants. In December of 1996,
the remaining Heidi's restaurants were sold to Battistone Financial Group in
consideration for the return of 2,000,000 shares of Registrant's common stock.
Except for tax liability in connection with the sale of its previous restaurant
operations, Registrant has no liabilities from restaurant operations. Registrant
is no longer involved in the restaurant or sports bar business.
MERCHANDISING LICENSE AGREEMENT.
DFC has acquired from MCA the exclusive license to use "Field of
Dreams-Registered Tradmark-" as the name of retail stores in the United States
and a non-exclusive right to use the name "Field of Dreams-Registered Tradmark-"
as a logo on products. DFC has also licensed from MCA the exclusive right to
sublicense the "Field of Dreams-Registered Tradmark-" name to franchisees for
use as a retail store name. The license agreement between DFC and MCA is
referred to herein as the "MCA License". Under the terms of the MCA License, DFC
is obligated to pay to MCA a 1% royalty based on gross sales of Field of
Dreams-Registered Tradmark- stores. DFC must pay MCA a $2,500 advance on
royalties for each company-owned store which is opened. DFC is obligated to pay
$5,000 to MCA upon the opening of each franchised store. The $5,000 fee is not
an advance on royalties. DFC guarantees to pay MCA a minimum yearly royalty of
$2,500 regardless of the amount of gross sales. The current term of the MCA
License expires in 2005. DFC has successive five year options to renew the MCA
License. The MCA License requires DFC to submit all uses of the Field of
Dreams-Registered Tradmark- mark for approval prior to use. Ownership of the
Field of Dreams-Registered Tradmark- name remains with MCA and will not become
that of DFC or Registrant. Should DFC breach the terms of the MCA License, MCA
may, in addition to other remedies, terminate DFC's rights to use the "Field of
Dreams-Registered Tradmark-" name. Such a termination would have a seriously
adverse effect on DFC's and Registrant's business.
If DFC is in compliance with the terms of the MCA License and if MCA
wishes to open and operate or license third parties to open and operate Field of
Dreams-Registered Tradmark- stores outside of the United States, DFC has a right
of first refusal to obtain the license for such non-United States territory.
Registrant may exercise its right of first refusal by notifying MCA of its
desire to undertake a proposed new territory and paying to MCA a non-refundable
advance license fee of $10,000. Following such notice and payment, Registrant
and MCA must negotiate in good faith to reach a definitive license agreement for
the additional territory. If Registrant fails to send notification, make the
$10,000 payment or if a definitive license cannot be reached, MCA may offer the
new territory to another party.
DFC is required to indemnify MCA for certain losses and claims,
including those based on defective products, violation of franchise law and
other acts and omissions of DFC. DFC is required to maintain insurance coverage
of $3,000,000 per single incident. The coverage must name MCA
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as an insured party. Registrant has guaranteed the monetary obligations of DFC
pursuant to the MCA License. In September 1997, DFC and MCA settled and released
claims in connection with the payment of royalties pursuant to the MCA license.
FRANCHISING.
In June 1991 DFC began offering franchises for the development and
operation of Field of Dreams-Registered Tradmark- stores in the United States.
The laws of each state vary regarding regulation of the sale of franchises.
Certain states require compliance with the regulations of the Federal Trade
Commission (the "FTC Regulations") prior to commencement of sales activity (the
"FTC States"). Other states require compliance with specific additional
registration procedures which vary in complexity. DFC is currently offering
franchises in FTC States and a limited number of other states. It will offer
franchises in other states as compliance with each states' regulation is
completed. Compliance with the FTC Regulations and various state regulations
requires preparation of an extensive offering circular and the filing of such
circular in certain states. Compliance with some state regulations requires
significant time in connection with satisfying comments of franchise offering
circular examiners. Compliance with FTC Regulations and certain state laws
significantly limits the means by which Registrant offers and sells franchises.
In the future, DFC intends to acquire from MCA the rights to open and franchise
stores in Canada and other countries. As summarized below, DFC offers five types
of franchises: Individual Standard Store ("Standard"), Individual Kiosk
("Kiosk"), Area Development ("Area Development"), Conversion ("Conversion"), and
Seasonal ("Seasonal"). Registrant does not depend on any one or a few
franchisees for a material portion of its revenues. Royalties from the largest
franchisee accounted for only one percent of Registrant's consolidated revenues.
STANDARD FRANCHISES:
Pursuant to a Standard franchise, a franchisee obtains the
right to open and operate a single Field of Dreams-Registered Tradmark-
store at a single specified location. Franchisees pay DFC $10,000 upon
execution of a Standard franchise agreement and an additional $22,500
upon execution by the franchisee of a lease for the franchised store.
Standard franchise agreements vary in length. It is DFC's general
practice that the term of Standard franchise agreements concur with the
term of the franchisee's lease. In addition to sublicensing the right
to use the Field of Dreams-Registered Tradmark- name for a single
franchised store, DFC is required to provide the franchisee certain
training, start-up assistance and a system for the operation of the
store. Prior to opening a Field of Dreams-Registered Tradmark- store, a
franchisee or its designated manager is required to attend and
successfully complete a 2-week training course. The course is conducted
at a DFC designated site. DFC also makes the same training available to
a reasonable number of the franchisee's employees. For a period of five
days during startup of a franchised store, DFC furnishes to a
franchisee a representative to assist in the store opening. DFC loans
to each franchisee a copy of its operations manual which sets out the
policies and procedures for operating a Field of Dreams-Registered
Tradmark- store. DFC does not provide an accounting system to
franchisees. DFC does provide operational advice to franchisees and
will, upon request, assist a franchisee in locating a site for a store.
DFC reserves the right to modify at any time
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the system used in the store. DFC also reserves the right to change the
name used in the system from Field of Dreams-Registered Tradmark- to
any other name and require all franchisees to discontinue any use of
any aspect of the system or the name Field of Dreams-Registered
Tradmark-. DFC considers it highly unlikely that it would change the
name of its system from Field of Dreams-Registered Tradmark- to another
name. DFC has reserved this right in its franchise agreements to
provide for the event that it determines that another name would be
better for its franchise system, that the royalty it pays to MCA in
connection with use of the name is excessive or if DFC should breach
the terms of the MCA license and lose the right to use the Field of
Dreams-Registered Tradmark- name.
DFC imposes certain controls and requirements on Field of
Dreams-Registered Tradmark- franchisees in connection with site
selection, site development, pre-opening purchases, initial training,
opening procedures, payment of fees, compliance with operating manual
procedures including purchasing through approved vendors, protection of
trademark and other proprietary rights, maintenance and store
appearance, insurance, advertising, owner participation in operations,
record keeping, audit procedures, autograph authenticity standards and
other matters. Franchisees are required to pay DFC 6% of gross revenues
as an on-going royalty. Payments must be made weekly. Franchisees are
required to comply with certain accounting procedures and use computer
systems acceptable to DFC. Franchisees are also required to contribute
an additional 1.5% of gross revenues to a marketing and development
fund which is administered by DFC for the promotion of the Field of
Dreams-Registered Tradmark- system. Each franchisee is also required to
spend 1% of its gross revenues for its own local advertising and
promotion. During its first 90 days of operation, each franchisee is
required to spend a minimum of $2,500 for promotion and advertising.
Franchisees are required to maintain standards of quality and
performance and to maintain the proprietary nature of the Field of
Dreams-Registered Tradmark- name. Franchisees must commence operation
of the franchised stores within 180 days after execution of the
Standard franchise agreement. DFC has prepared and amends from
time-to-time an approved supplier list from which franchisees may
purchase certain inventory and other supplies. Each franchisee is
required to maintain specified amounts of liability insurance which
names DFC and MCA as insured parties. Franchisee's rights under the
Standard franchise are not transferable without the consent of DFC and
DFC has a right of first refusal to purchase any franchised store which
is proposed to be sold.
KIOSK:
Pursuant to a Kiosk franchise, a franchisee acquires the same
rights as a Standard franchise, except that the franchisee is licensed
to open a freestanding Kiosk for an initial franchise fee of $19,000
rather than $32,500. Other fees paid by Kiosk franchisees, including
ongoing royalties, and marketing and development fund contributions are
the same as under a Standard franchise agreement.
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AREA DEVELOPMENT:
Under an Area Development agreement, DFC grants rights to
develop a minimum of four Field of Dreams-Registered Trademark- stores
in a designated area. The stores are required to be open pursuant to a
specified time schedule. The Developer must execute separate Standard
franchise agreements for each store as it is opened. Upon execution of
the Area Development agreement, the Developer is required to pay DFC
$5,000 for each store to be opened, with a minimum payment upon
execution of $20,000. The Developer must obtain DFC's approval for each
store site the Developer proposes to open. Developer then pays DFC an
additional $20,000 for each store upon execution by the Developer of a
lease for that store. Development Agreements are not transferrable
without the consent of DFC.
CONVERSION:
DFC offers Conversion franchises to certain operators of
businesses which currently sell sport related merchandise, memorabilia,
trading cards and similar products. Among other conditions to the
granting of a Conversion franchise, an operator must have run such a
business for a minimum of three months. Such a business owner will
execute a Standard franchise agreement as well as a Conversion
franchise addendum. A Conversion franchisee is required to pay DFC
$32,500 upon execution of the Standard franchise and the Conversion
addendum. The Conversion franchisee is required to pay to DFC all
amounts required in the Standard franchise. Conversion franchises are
not transferrable without the consent of DFC.
SEASONAL:
DFC offers existing franchisees the right to open one or more
temporary holiday Seasonal location stores during the period beginning
October 15 and ending not later than the Monday following the second
full calendar week in January of the following year. Seasonal
franchisees must pay Registrant an initial fee of $2,500 for each
seasonal location. As Seasonal franchises are open for a very limited
period of time, DFC offers very limited service to such franchisees.
Consequently, Seasonal franchises are available only to existing Field
of Dreams-Registered Trademark- Franchisees.
DFC has sold only Standard franchises, Area Development rights, and
Seasonal franchises. It has sold no Kiosk or Conversion Franchises. It is not
anticipated that Kiosk or Conversion Franchises will be a substantial portion of
DFC's business in the future. DFC does not actively market Kiosk and Conversion
Franchises and there appears to be little interest in those types of franchises
from potential purchases.
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FRANCHISE BROKER.
DFC does not currently employ a franchise broker. The officers of DFC
currently act as sales agents for Field of Dreams-Registered Trademark-
franchises. Registrant may engage an outside Franchise broker in the future. DFC
advertises Field of Dreams-Registered Trademark- franchises in a very limited
number of business magazines. Most persons expressing an interest in purchasing
a Field of Dreams-Registered Trademark- franchise have visited a Field of
Dreams-Registered Trademark- store and have subsequently contacted DFC.
MOUNTED MEMORIES.
Mounted Memories ("MMI") is a wholesaler of sports and celebrity
memorabilia products and acrylic cases. MMI also organizes, operates and
participates in hobby and collectible shows. Registrant has several
non-exclusive informal agreements with a few well-known athletes, including Pete
Rose and Dan Marino who frequently provide autographs at agreed-upon terms. On
occasion, Registrant also enters into exclusive agreements with athletes. As of
October 18, 1999, Registrant has only one exclusive contract in effect which was
with Dick Butkus. That contract provides for exclusive autograph and memorabilia
show appearances for an 18-month period starting in January 1999 and ending in
June 2000. The contract provides for six public memorabilia show appearances at
approximately $9,000 per show, six corporate memorabilia show appearances at
approximately $10,000 per show and 1,000 autographs for inventory purposes at
$15 to $20 per autograph, depending on the item being signed. As of October 18,
1999, the unfulfilled portions of the contract were three public memorabilia
show appearances, four corporate memorabilia appearances and approximately 500
autographs. Through its relationships with athletes, agents and other persons
and entities in the sporting industry, MMI is able to arrange for the appearance
of popular athletes and celebrities at hobby and collectible shows, and at the
same time, generate inventory for sale. Registrant arranges for third parties
the appearance of individuals at shows usually by targeting specific athletes
with geographical ties to the city where the show is held. Registrant negotiates
directly with the athlete or with the athlete's agent to determine contract
specifics. These contracts are formal in that they stipulate the logistic
specifics, payment terms and number of autographs to be received. Registrant
generally receives a fee when it arranges an athlete for a business function.
MMI has been in business since 1989 and has achieved its industry
leading status partly due to its strict authenticity policies. The only
memorabilia products sold by MMI are those produced by MMI through private or
public signings organized by MMI or purchased from an authorized agent of MMI
and witnessed by an MMI representative. In addition to sports and celebrity
memorabilia products, MMI offers the largest selection and supply of acrylic
cases, with over 50 combinations of materials, colors and styles. The primary
raw material used in the production process is plastic. There are many vendors
who sell plastic throughout South Florida and Registrant seeks to obtain the
best pricing through competitive vendor bidding. Registrant does not produce the
helmets, footballs, baseballs or other objects which are autographed. Those
objects are available through numerous suppliers.
MMI's customer base varies greatly and includes, for example, internet
companies, traditional catalog retailers and retail stores which sell sports and
celebrity memorabilia products and
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cases. Field of Dreams-Registered Trademark- franchise stores purchase products
from MMI and have historically provided approximately ten percent of MMI's
revenues. No other customer provides greater than ten percent of MMI's total
revenue.
The sports memorabilia industry faces several challenges, most notably
the assurance of product authenticity. Through its caution in only selling items
produced internally or purchased from authorized agents, witnessed by an MMI
representative, MMI avoids significant authenticity problems. MMI feels the way
it has achieved a competitive advantage over its competitors is through accurate
and timely shipping. MMI uses approximately 2,000 square feet of its warehousing
facility for shipping. MMI has achieved a significant positive reputation in its
industry for timely and accurate shipments and commits to shipping orders within
72 hours of order receipt. Additionally, through the implementation of advanced
and effective fulfillment techniques and processes, and utilization of the most
current shipping software, MMI has experienced a very low breakage ratio over
the past several years.
MMI BACKGROUND.
In November 1998, Registrant through its wholly-owned subsidiary, DPI,
purchased all of the assets of Mounted Memories, Inc., a Florida corporation.
The purchase price for the MMI assets was $2,275,000 in cash and 15,000,000
shares of Registrant's common stock. MMI since 1989 had engaged in the
manufacture and wholesale of sports and celebrity memorabilia products. Upon the
acquisition of MMI's assets, Registrant, through DPI continued the business of
MMI and uses the Mounted Memories trademark.
FINANCING OF MMI ACQUISITION.
In connection with the purchase of the MMI assets, Registrant and all
of its subsidiaries borrowed $3,000,000 from Sirrom Investments, Inc.
("Sirrom"). The loan bears interest at 14% per annum and is payable interest
only monthly until November 16, 2003 at which time all principal and interest is
due and payable. The loan is secured by all of Registrant's assets and a pledge
of 27,059,470 shares (and 750,000 options to acquire shares) pledged by the
control persons of Registrant and certain of their family members and associated
persons and entities. The pledgedshares constitute approximately 67% of
Registrant's currently issued and outstanding shares. Registrant also granted to
Sirrom warrants to purchase a number of shares of Registrant's common stock. The
number of shares which may be purchased pursuant to exercise of the warrants
varies between a minimum of 14% and a maximum of 18.5% of the then issued and
outstanding shares. The exercise price of the warrants is $0.01 per share. The
warrants have anti-dilution rights, registration rights and co-sale rights. The
warrant also has a "put" feature which entitles Sirrom to require Registrant to
purchase the warrants for their fair market value. Fair market value is
determined by an appraisal process. In the appraisal process, each of the
Registrant and Sirrom appoint an experienced appraiser who is a member of a
professional association. Each appraiser estimates the value of the shares which
would be issued upon exercise of the warrant. If the two appraisals do not vary
by more than 10%, the fair market value is the average of the two. If the two
appraisals vary by more than 10%, a third appraiser is chosen and fair market
value is determined
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to be the mean of the three appraisals. Payment of the "put" price may be paid
by Registrant by issuance to Sirrom of a promissory note with 10% interest per
annum and 24 monthly payments of principal and interest.
COMPETITION.
DFC competes with other larger, more well known and substantially
better funded franchisors for the sale of franchises. Field of
Dreams-Registered Trademark- stores compete with other retail establishments
of all kinds. Registrant believes that the principal competitive factors in
the sale of franchises are franchise sales price, services rendered, public
awareness and acceptance of trademarks and franchise agreement terms.
MMI competes with several major companies and numerous individuals in
the sports and celebrity memorabilia industry. MMI believes it competes well
within the industry because of the reputation it has established in its ten year
existence. MMI focuses on ensuring authenticity and providing the best possible
customer service. MMI has concentrated on maintaining and selling memorabilia
items of athletes and celebrities that have a broad national appeal. Several of
its competitors tend to focus on specific regional markets due to their
relationships with sports franchises in their immediate markets. The success of
those competitors typically depends on the athletic performance of those
specific franchises. Additionally, MMI typically focuses on the two core sports
that provide the greatest source of industry revenue, baseball and football.
Within the acrylic case line of business, MMI competes with other
companies which mass produce cases. MMI does not compete with companies which
custom design one-of-a-kind cases. MMI believes that because it is one of the
country's largest acrylic case manufacturers, it is very price competitive due
to its ability to purchase large quantities of material and pass the savings to
customers.
EMPLOYEES.
Registrant employs forty (40) full-time employees and four (4)
part-time employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL.
The Registrant's fiscal year ends March 31, and the fiscal years ended
March 31, 2000, March 31, 1999 and March 31, 1998 are referred to as "fiscal
2000", "fiscal 1999" and "fiscal 1998", respectively.
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Registrant operates through its wholly-owned subsidiary DFC and
through DPI and Dreams Entertainment, Inc. ("DEI"), wholly-owned subsidiaries
of DFC. DFC is a franchisor of Field of Dreams-Registered Trademark- retail
stores which sell sports and celebrity memorabilia products. As of September
1, 1999, there were 35 Field of Dreams-Registered Trademark- franchises
operating in 20 states and in the District of Columbia.
DPI is a wholesaler of sports memorabilia products and acrylic
cases. It sells to a wide customer base, which includes internet companies,
traditional catalog companies and other retailers of sports and celebrity
memorabilia products, including Field of Dreams-Registered Trademark- retail
stores. Approximately, ten percent of DPI's revenues are generated through
sales to Field of Dreams-Registered Trademark- franchises. DPI is licensed
by the National Football League and Major League Baseball as a distributor of
autographed products. DEI was incorporated in fiscal 1999 and has been
inactive since its inception. Registrant has no current plans to cause DEI to
engage in any business.
Registrant believes that the factors that will drive the future growth
of its business will be the opening of new franchised units and, to some extent,
capitalizing on its relationships with certain entities, such as the National
Football League, Major League Baseball, Universal Studios and with certain
well-known athletes, as those relationships and agreements will allow.
Registrant plans to open approximately ten franchised units each of the next
three fiscal years. There can be no assurance, however, that any such franchised
units will open or that they will be successful.
RESULTS OF OPERATIONS.
FISCAL 1999 COMPARED TO FISCAL 1998
REVENUES. Total revenues increased 269.2% from $1.9 million in fiscal
1998 to $7.0 million in fiscal 1999.
Retail and wholesale revenues increased 826.9% from $595,000 in fiscal
1998 to $5.5 million in fiscal 1999, due primarily to the acquisition of MMI
effective November 1, 1999. MMI had wholesale sales of approximately $5.5
million in fiscal 1999. Excluding MMI's wholesale sales, Registrant's retail and
wholesale revenues declined from $595,000 in fiscal 1998 to $4,000 in fiscal
1999, due primarily to Registrant realizing $475,000 from sales of an NBA
lithograph in fiscal 1998 which was not sold in fiscal 1999. The balance of the
decrease reflects Registrant's efforts to change its core business focus, moving
more towards franchising and wholesale sales and away from retail sales.
Franchise fee and royalty revenues increased 55.1% from $882,000 in
fiscal 1998 to $1.4 million in fiscal 1999, due primarily to the opening of
eight franchised units in fiscal 1999 ($308,000 of the increase) and the
inclusion of a full year of royalties from seven franchises opened during fiscal
1998 ($110,000 of the increase.)
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Other revenue increased 302.5% from $40,000 in fiscal 1998 to $161,000
in fiscal 1999, due to Registrant realizing a full year of commission revenue in
fiscal 1999 from an outside party's sale of miscellaneous products with the
Field of Dreams-Registered Trademark- logo imprinted on them. Prior to November
1997, Registrant sold these products directly and recognized the sales as retail
revenues.
In fiscal 1998, Registrant purchased the remaining minority shares of
DFC and recognized a one-time gain of $386,000. Additionally, in fiscal 1998,
Registrant sold property and equipment and recognized a gain of $5,000.
COSTS AND EXPENSES. Registrant's fiscal 1999 cost of sales of $3.1
million represent MMI's cost of sales from the date of acquisition during fiscal
1999. Fiscal 1998 cost of sales represent costs associated with the sale of the
NBA lithographs and other retail items sold by Registrant, which were phased out
in fiscal 1999. Operating expenses increased 163.6% from $472,000 in fiscal 1998
to $1.2 million in fiscal 1999, due to the acquisition of MMI ($384,000 of the
increase), significant write-off of bad debts ($169,000 of the increase) and
costs associated with a lithograph project which realized immaterial sales
($150,000 of the increase).
General and administrative expenses increased 131.7% from $811,000 in
fiscal 1998 to $1.9 million in fiscal 1999 due to the acquisition of MMI
($591,000 of the increase) and a $409,000 preferential distribution to a company
owned by Registrant's Chairman in fiscal 1999. The preferential distribution was
treated as compensation expense and was the result of Registrant issuing shares
of its common stock at a discounted value. Depreciation and amortization
increased from $10,000 in fiscal 1998 to $126,000 in fiscal 1999 due to
amortization of goodwill and debt issuance costs associated with the fiscal 1999
acquisition of MMI ($92,000 of the increase). Registrant eliminated its minority
interests in fiscal 1998.
INTEREST EXPENSE, NET. Net interest expense increased 133.9% from
$127,000 in fiscal 1998 to $297,000 in fiscal 1999, due primarily to interest
charges associated with the $3.0 million note issued by Registrant in November
1999 ($158,000 of the increase).
PROVISION FOR INCOME TAXES. At March 31, 1999, Registrant had available
net operating loss carryforwards of approximately $4.7 million, which expire in
various years beginning in 2007 through 2014. Accordingly, a valuation allowance
was provided for the full amount of federal taxes as of the end of fiscal 1998
and fiscal 1999. However, a provision for state income taxes was provided for in
fiscal 1999 for applicable taxes.
See Note 10 to the Consolidated Financial Statements of Registrant.
OTHER. Registrant realized income from discontinued operations of
$190,000 and $268,000 in fiscal 1998 and 1999, respectively. The amounts
represent gains associated with the foregiveness of debt, or expiration of
liability, to former shareholders and unrelated third party creditors of a
restaurant segment discontinued by Registrant prior to fiscal 1998. Registrant
also realized income from discontinued operations of $114,000 in fiscal 1998 due
to the reversal of previously accrued losses and foregiveness of debt relating
to an investment in which Registrant had a 50% interest.
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THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. Total revenues increased $2.7 million from $226,000 in the
first three months of fiscal 1999 to $2.9 million in the first three months of
fiscal 2000.
Retail and wholesale revenues increased $2.6 million from $19,000 in
the first three months of fiscal 1999 to $2.6 million in the first three months
of fiscal 2000, due primarily to the acquisition of MMI effective November 1,
1999 ($2.55 million of the increase).
Franchise fee and royalty revenues increased 42.5% from $207,000 in the
first three months of fiscal 1999 to $295,000 in the first three months of
fiscal 2000, due primarily to the opening of three franchised units in the first
quarter of fiscal 2000 versus two units in the first quarter of fiscal 1999
($23,000 of incremental franchise fees) and the opening of nine franchised units
since the first quarter of fiscal 1999 ($43,000 of additional royalties).
COSTS AND EXPENSES. Registrant's fiscal 2000 first quarter cost of
sales of $1.6 million represent MMI's cost of sales. Fiscal 1999 first quarter
cost of sales of $5,000 represent costs associated with the sale of
miscellaneous retail items sold by the Company, which were phased out during
fiscal 1999. Operating expenses increased 77.5% from $129,000 in the first three
months of fiscal 1999 to $229,000 in the first three months of fiscal 2000, due
primarily to the acquisition of MMI ($144,000 of the increase) offset by savings
realized by DFC through consolidating its company headquarters with MMI's during
the first quarter of fiscal 2000.
General and administrative expenses increased 138.7% from $230,000 in
the first three months of fiscal 1999 to $549,000 in the first three months of
fiscal 2000, due primarily to the acquisition of MMI ($408,000 of the increase)
offset by savings realized by DFC through consolidation of its company
headquarters with MMI's during the first quarter of fiscal 2000. Depreciation
and amortization increased from $2,000 in the first quarter of fiscal 1999 to
$66,000 in the first quarter of fiscal 2000 due to amortization of goodwill and
debt issuance costs associated with the November 1999 acquisition of MMI
($56,000 of the increase).
INTEREST EXPENSE, NET. Net interest expense increased 142.3% from
$52,000 in the first quarter of fiscal 1999 to $126,000 in the first quarter of
fiscal 2000, due primarily to interest charges associated with the $3.0 million
note issued by Registrant in November 1999 offset by elimination of debt after
the first quarter of fiscal 1999.
PROVISION FOR INCOME TAXES. At June 30, 1999, Registrant had available
net operating loss carryforwards of approximately $4.6 million, which expire in
various years beginning in 2007 through 2014. Accordingly, a valuation allowance
was provided for the full amount of federal taxes as of the end of the first
quarter for both fiscal 1999 and fiscal 2000. However, a provision for state
income taxes was provided for in the first quarter of fiscal 2000 for applicable
taxes. See Note 10 to the Consolidated Financial Statements of Registrant.
LIQUIDITY AND CAPITAL RESOURCES
12
<PAGE>
The primary sources of Registrant's cash are net cash flows from
operating activities and short-term vendor financing. Currently, Registrant does
not have available any established lines of credit with banking facilities.
Registrant's cash and cash equivalents were $346,000 as of June 30,
1999. At March 31, 1999, Registrant's cash and cash equivalents were $425,000
compared with $87,000 at March 31, 1998. During the three months ended June 30,
1999, consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA") increased $672,000 to $534,000 from a loss of ($138,000)
for the three months ended June 30, 1998. The increase directly relates to DPI's
acquisition of MMI in November 1998, which provided $434,000, or 81.3%, of
Registrant's first quarter fiscal 2000 EBITDA.
Registrant presently does not operate or own any Field of
Dreams-Registered Trademark- stores, and does not plan to own any in the
future. It will continue to sell franchised units to prospective and current
third-party franchisees. Additionally, there are no major capital
expenditures planned for in the foreseeable future, nor any payments planned
for off-balance sheet obligations or other demands or commitments for which
payments become due after the next 12 months.
Registrant believes its current available cash position, coupled with
its cash forecast for the year and periods beyond, is sufficient to meet its
cash needs on both a short-term and long-term basis. The balance sheet reflects
a strong working capital ratio and its long-term debt obligations require
interest-only payments totaling $39,000 per month. Registrant's management is
not aware of any known trends or demands, commitments, events, or uncertainties,
as they relate to liquidity which could negatively affect Registrant's ability
to operate and grow as planned.
YEAR 2000 READINESS.
The year 2000 issue pertains to computer programs that were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize the year
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations.
During fiscal years 1998 and 1999, Registrant replaced its accounting
software package with the latest available version that purported to be "Y2K
compliant". Registrant uses only the modules within its accounting software
package to run its operations. The only other software utilized are modules
within the most current version of Microsoft Office, which proclaims that all of
its software is "Y2K compliant". Registrant's server operates using Microsoft NT
software which proclaims to be "Y2K compliant". All hardware utilized for
Registrant's local area network has been purchased during fiscal 1998 and 1999.
The total cost for all hardware and software programs purchased to help ensure
year 2000 readiness approximated $35,000. Registrant is not aware of any
difficulties that will arise from customers or vendors who have not updated
their software to be year 2000 compliant. However, there can be no guarantee
that the Company will not encounter unexpected year 2000 compliance problems
that will adversely affect its operations.
13
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTIES.
Registrant leases approximately 26,000 square feet of office,
manufacturing and warehouse space between two offices in Sunrise, Florida
(approximately 23,000 square feet) and Denver, Colorado (approximately 3,000
square feet). All manufacturing is performed at the Florida location.
Registrant's principal executive offices are located at its Florida facility.
Registrant's Colorado lease terminates in September 2002. Colorado rent
is approximately $3,500 per month and escalates to approximately $3,800 per
month in its final year.
Registrant's Florida lease terminates in April 2003. Florida rent is
approximately $15,700 per month plus certain expenses and escalates to
approximately $17,700 in its final year.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS.
The following table sets forth as of September 1, 1999, the number of
Registrant's voting securities beneficially owned by persons who own five
percent or more of Registrant's voting stock, by each director, and by all
officers and directors as a group. The table presented below includes shares
issued and outstanding, and warrants to purchase shares and options exercisable
within 60 days.
<TABLE>
<CAPTION>
Name and Address Number of Percent
Title and of Type of Shares of
Class Beneficial Owner Ownership Owned Class
--------- ---------------- --------- ---------- ------
<S> <C> <C> <C> <C>
No par value Common Stock Sam D. Battistone Record and 14,266,495(1)(3) 27.7%
2887 Green Valley Pkwy Beneficial
Henderson, NV 89014
No par value Common Stock Ross Tannenbaum Record and 12,500,000 24.3%
5009 Hiatus Road Beneficial
Sunrise, FL 33351
No par value Dale Larsson Record and 425,300 0.8%
Common Stock 1776 North State St, #130 Beneficial
Orem, UT 84057
No par value Common Stock Mark Viner Record and 83,333(5) 0.2%
5009 Hiatus Road Beneficial
Sunrise, FL 33351
14
<PAGE>
No par value Sirrom Investments, Inc. Record and 10,871,753(4) 21.1%
Common Stock 500 Church St., Suite 200 Beneficial
Nashville, TN 37219
No par value Common Stock All Officers and Record and 27,275,128 52.9%
Directors as a Beneficial
Group (4 persons)(2)
</TABLE>
- ----------------------------------------
(1) Includes 3,100,000 shares owned by the following family
members of which Mr. Battistone disclaims beneficial
ownership:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES OWNED
---- ---------------------
<S> <C>
J. Roger Battistone 1,000,000
Justin Battistone 350,000
Kelly Battistone 350,000
Dann Battistone 350,000
Brian Battistone 350,000
Mark Battistone 350,000
Cynthia Battistone Hill 350,000
</TABLE>
(2) The directors and officers have sole voting and investment
power as to the shares beneficially owned by them.
(3) Sam D. Battistone, has pledged to B.A. Leasing and Capital
Corporation, an unaffiliated corporation, all shares of common
stock of Registrant which he now owns or may acquire in the
future to secure personal indebtedness. Mr. Battistone is
currently not in compliance with the terms of the applicable
agreements.
(4) Warrants to purchase shares issued in connection with Mounted
Memories financing.
(5) Includes 83,333 shares which are the subject of stock options.
27,059,470 shares of Registrant's no par value common stock (and
750,000 options) have been pledged to Sirrom to secure Registrant's obligations
in connection with a $3.0 million loan. Should Registrant default on any
obligation to Sirrom and should Sirrom exercise its rights as a secured party, a
change in control of Registrant would occur.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
DIRECTORS AND OFFICERS. The Directors and Executive Officers of
Registrant and the positions held by each of them are as follows. All directors
serve until Registrant's next annual meeting of shareholders.
15
<PAGE>
<TABLE>
<CAPTION>
Serving as
Director of Position Held With
Name Age Registrant Since the Registrant
---- --- ---------------- -------------------
<S> <C> <C> <C>
Sam D. Battistone 59 1983 Chairman/Director
Ross Tannenbaum 37 1998 President/Director
Dale Larsson 55 1999 Director
Mark Viner 33 1998 Secretary/Treasurer/
Chief Financial Officer
</TABLE>
BIOGRAPHICAL INFORMATION.
SAM D. BATTISTONE. For more than the past five years, Sam D. Battistone
has been majority shareholder, Chairman, Chief Executive Officer, President and
a Director of Registrant. He was the principal owner, founder and served as
Chairman of the Board, President and Governor of the New Orleans Jazz and Utah
Jazz of the National Basketball Association (NBA) from 1974 to 1986. In 1983, he
was appointed by the Commissioner of the NBA to the Advisory committee of the
Board of Governors of the NBA. He held that position until Registrant sold its
interest in the team. He served as a founding director of Sambo's Restaurants,
Inc. and variously as President, Chief Executive Officer, Vice-Chairman and
Chairman of the Board of Directors from 1967 to 1979. During that period,
Sambo's grew from a regional operation of 59 restaurants to a national chain of
more than 1,100 units in 47 states. From 1971 to 1973, he served on the Board of
Directors of the National Restaurant Association.
ROSS TANNENBAUM. Mr. Tannenbaum has served as President and a director
of Registrant since November 1998. From August 1994 to November 1998, Mr.
Tannenbaum was President, director and one-third owner of MMI. From May 1992 to
July 1994, Mr. Tannenbaum was a co-founder of Video Depositions of Florida. From
1986 to 1992, Mr. Tannenbaum served in various capacities in the investment
banking division of City National Bank of Florida.
DALE E. LARSSON. For more than the past five years until 1999, Dale E.
Larsson was the Secretary-Treasurer and director of Registrant. Mr. Larsson was
re-elected a director in August 1999. Mr. Larsson graduated from Brigham Young
University in 1971 with a degree in business. From 1972 to 1980, Mr. Larsson
served as controller of Invest West Financial Corporation, a Santa Barbara,
California based real estate company. From 1980 to 1981, he was employed by
Invest West Financial Corporation as a real estate representative. From 1981 to
1982, he served as the corporate controller of WMS Famco, a Nevada corporation
based in Salt Lake City, Utah, which engaged in the business of investing in
land, restaurants and radio stations.
MARK VINER. Mr. Viner has been Secretary, Treasurer and Chief Financial
Officer of Registrant since November 1998. He is a Certified Public Accountant.
From June 1994 to October 1997, Mr. Viner was the Director of Financial
Reporting for Planet Hollywood International, Inc.
16
<PAGE>
and was instrumental in every phase of that company's 1996 initial public
offering. From May 1992 to May 1994, Mr. Viner was a financial manager for the
Walt Disney Company, responsible for all financial activities of Pleasure
Island, a $75 million nighttime entertainment district.
Item 6. EXECUTIVE COMPENSATION.
The following table sets forth information concerning compensation for
services in all capacities by the Registrant and its subsidiaries for fiscal
years ended March 31, 1997, 1998 and 1999 of those persons who were, at March
31, 1999, the Chief Executive Officer of the Registrant and other highly
compensated executive officers and employees of Registrant.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Securities
Name and Principal Other Annual Underlying
Position Year Salary Compensation(3) Options/SARs
- ------------------ ---- ------ ------------ ----------------------
<S> <C> <C> <C> <C>
Ross Tannenbaum, 1997 - - -
CEO and Director 1998 - - -
1999 46,875(1) 4,000 -
Joseph Casey, former 1997 120,000 6,000 -
Officer and Director 1998 120,000 6,000 -
1999 120,000 6,000 500,000
John Walrod, Vice 1997 - - -
President 1998 21,846(2) - -
1999 120,000 - 200,000
</TABLE>
- -------------
(1) Mr. Tannenbaum's employment with Registrant commenced on November
10, 1998.
(2) Mr. Walrod's employment with Registrant commenced on January 27,
1998.
(3) Other Annual Compensation represents automobile allowances.
Registrant and Ross Tannenbaum entered into an Employment Agreement on
November 10, 1998. Under the terms of that Agreement, Mr. Tannenbaum is employed
for a five year period at a base salary rate of $250,000 per year subject to
certain adjustments based on Registrant's financial performance. Mr. Tannenbaum
also receives certain benefits including car allowance and insurance. The
Employment Agreement may be terminated for cause prior to expiration of its full
term.
Registrant and Mark Viner entered into an Employment Agreement on
September 4, 1998. Under the terms of that Agreement, Mr. Viner is employed for
a three year period at a base salary rate of $108,000 per year with minimum
eight percent per year increases. Mr. Viner received an incentive bonus in 1998
pursuant to the terms of the Agreement and was issued options to purchase
17
<PAGE>
250,000 shares of Registrant's common stock at an exercise price of $0.4375 per
share, the closing price of the common stock at the date of the Agreement. The
options are conditioned upon continued employment by Registrant of Mr. Viner and
vest 1/3 per year beginning on the first anniversary of his Employment
Agreement. Mr. Viner also receives certain benefits including car allowance and
insurance. The Employment Agreement may be terminated for cause prior to
expiration of its full term.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name (1) Granted (#) Fiscal Year ($ / Share) Date
- ------- ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
Joseph Casey 500,000 53% $ 0.44 09/25/03
Mark Viner 250,000 26% $ 0.44 10/01/01
John Walrod 200,000 21% $ 0.19 01/01/02
</TABLE>
(1) All options were issued pursuant to terms provided for in employment
agreements at the fair market value at the date of grants.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From October 1997 to November 1998, Registrant borrowed a total of
$522,000 from Signature, Inc., a corporation owned by the children of Sam D.
Battistone, Chairman of Registrant. Registrant repaid that indebtedness plus
interest in November 1998 by issuing 2,275,000 shares (at $0.20 per share) of
its common stock to Signature, Inc. plus cash payments totaling $90,000.
In July 1998, Registrant borrowed $200,000 from J. Roger Battistone,
the brother of Sam D. Battistone. Registrant repaid the principal plus accrued
interest in November 1998 by issuing 1,020,000 shares (at $0.20 per share) of
its common stock to J. Roger Battistone.
From April 1997 to July 1998, Registrant borrowed a total of $210,000
from Invest West Sports, Inc., a corporation owned by Sam D. Battistone.
Registrant repaid all indebtedness to Invest West Sports, Inc. (including
interest) during fiscal years 1998 and 1999.
During the fiscal year ended March 31, 1999, Registrant borrowed
$70,000 from Dreamstar, a corporation owned by Sam D. Battistone. During the
same fiscal year, the Registrant repaid all principal and accrued interest owed
Dreamstar by issuing to Dreamstar 460,000 shares (at $0.10 per
18
<PAGE>
share) of common stock and paying $25,000 in cash. The stock was trading at
approximately $0.20 at the time of the exchange. The $46,000 discount was booked
as compensation expense, and charged to a operational income during fiscal 1999.
In November 1998, Dreamstar assumed an obligation of Registrant and
Registrant was released of a $362,500 obligation Registrant owed to the National
Basketball Association. In consideration for that assumption and release,
Registrant issued to Dreamstar 3,625,000 shares (at $0.10 per share) of common
stock. The stock was trading at approximately $0.20 at the time of the exchange.
The $362,500 discount was booked as compensation expense, and charged to a
operational income during fiscal 1999.
Prior to five years ago, Registrant agreed to issue to Sam D.
Battistone 5,000,000 shares of its common stock for $250,000 (at $0.05 per
share). At that time, Battistone delivered $250,000 to Registrant but Registrant
had insufficient authorized shares to issue and deliver those shares to
Battistone. In March 1997, Registrant and Battistone determined to rescind the
transaction and return $250,000 to Battistone. Upon return of those funds,
Battistone purchased from Registrant for a total of $250,000, ten lithographs
depicting the National Basketball Association's 50 greatest players.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company has authorized 100,000,000 shares of Common Stock, no par
value per share, of which 40,148,500 shares of Common Stock are issued and
outstanding as of March 31, 1999. All presently outstanding shares of the
Company's Common Stock are validly issued, fully paid and non-assessable. The
holders of Common Stock do not have any preemptive or other subscription rights.
The holders of Common Stock are entitled to receive dividends, when, as
and if declared by the Board of Directors out of funds legally available
therefore. It is highly unlikely that dividends will be paid by the Company in
the foreseeable future on its Common Stock.
Each outstanding share has one vote on each matter voted on at a
shareholders' meeting.
Neither Registrant's Articles of Incorporation nor its Bylaws are
designed to delay, defer or prevent a change in control.
19
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Registrant's common stock is listed on the OTC Bulletin Board, an
electronic screen based market available to brokers on desk-top terminals. The
high and low bids of Registrant's common stock for each quarter during fiscal
years ended March 31, 1998 and 1999 and the three month period ended June 30,
1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1998: High Bid Price Low Bid Price
-------------- -------------
<S> <C> <C>
First Quarter .35 .21
Second Quarter .34375 .20
Third Quarter .3125 .23
Fourth Quarter .37 .23
Fiscal Year Ended March 31, 1999:
First Quarter .28 .17
Second Quarter .8125 .17
Third Quarter .4375 .1875
Fourth Quarter .375 .125
Fiscal Year Ended March 31, 2000:
First Quarter .6875 .34375
</TABLE>
On September 1, 1999, the high bid price was .375 and the low bid price
was $.375 for Registrant's common stock.
Such over-the-counter quotations reflect inter-dealer prices, without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.
The records of Fidelity Transfer, Registrant's transfer agent, indicate
that there are 328 registered owners of Registrant's common stock as of
September 1, 1999.
Registrant has paid no dividends in the past two fiscal years.
Registrant has no intention of paying dividends in the future.
ITEM 2. LEGAL PROCEEDINGS.
None
20
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On March 10, 1999, Registrant dismissed Pritchett, Siler & Hardy, P.C.
("PSH") and on March 12, 1999 engaged Margolies, Fink and Wichrowski as its
principal independent accountants. The change of independent accountants was
approved by Registrant's Board of Directors. There were no disagreements with
PSH on any matter of accounting principles or practices, financial disclosure or
auditing scope or procedure. PSH's audit reports of the past two years did not
contain any adverse or disclaimed opinions, nor were the opinions qualified or
modified as to uncertainty, audit scope or accounting principles.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Registrant has sold the following
securities without registration under the Securities Act of 1933. In each case,
sales were made directly by the Registrant without the involvement of an
underwriter. In each case Registrant relied upon the private placement exemption
set out in Section 4(2) of the Securities Act of 1933 and there was no
advertising or general solicitation. All purchasers were financially
sophisticated individuals with substantial net worth and/or met the definition
of "Accredited Investor" as set out in Regulation D promulgated pursuant to the
Securities Act of 1933. All purchasers received information regarding Registrant
and its financial condition and the opportunity to obtain additional information
from and ask questions of representatives of Registrant. Each purchaser provided
evidence of nondistributive intent and the transfer of shares was appropriately
restricted by Registrant. As sales were not made pursuant to Regulation D, no
Forms D were filed.
<TABLE>
<CAPTION>
Date of Sale Title of Security Amount Sold Total Purchase Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 1997 Common Stock 50,000 shares $9,000
($0.18 per share)
December 1997 Common Stock 1,450,000 shares Exchange for all shares of
Dreams Franchise
Corporation not owned by
Registrant
($700,000 at
$0.48 per share)
21
<PAGE>
September 1998 Common Stock (1) 4,085,000 shares Release of $46,000
indebtedness and
assumption of $362,500 of
debt owed by Registrant to
unrelated third party
($0.10 per share)
October 1998 Options to purchase shares 750,000 shares Issued in connection with
of Common Stock (2) employment agreements
(issued for services)
November 1998 Common Stock (3) 15,000,000 shares Partial consideration for
all assets of Mounted
Memories, Inc.
($1,500,000 at
$0.10 per share)
November 1998 Warrants to Purchase 11,873,758 shares Partial consideration for
Common Stock (4) loan by Sirrom
November 1998 Common Stock (5) 25,000 shares Fee For Subordination of
Debt
November 1998 Common Stock (5) 3,363,500 shares Release of $672,700 debt
owed to affiliates of
Registrant
($0.20 per share)
November 1998 Common Stock (5) 375,000 shares Issued in connection with
purchase of Mounted
Memories, Inc.
($75,000 at
$0.20 per share)
22
<PAGE>
November 1998 Common Stock (5) 800,000 shares Release of
$160,000 debt
($0.20 per share)
January 1999 Options to purchase shares 200,000 shares Issued in connection with
of Common Stock (2) employment agreement
(issued for services)
</TABLE>
- --------------------------
(1) Consideration paid by and all shares issued to corporation
owned and controlled by Sam D. Battistone, Chairman of
Registrant.
(2) Issued to one officer, one employee and one former officer of
Registrant in connection with employment agreements.
(3) Issued to three shareholders of Mounted Memories, Inc. in
connection with acquisition of Mounted Memories, Inc.
(4) Issued to Sirrom as partial consideration for loan to acquire
assets of Mounted Memories, Inc.
(5) Issued in connection with acquisition of Mounted Memories
assets.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following are the statutory, Articles of Incorporation, and Bylaw
provisions or other arrangements that insure or indemnify controlling persons,
directors or officers of the Registrant or affects his or her liability in that
capacity.
The Registrant's Articles of Incorporation provide the following:
ARTICLE V - INDEMNIFICATION AND LIMITATION OF LIABILITY
This corporation shall indemnify all officers, directors and agents to
the fullest extent permitted by law.
To the fullest extent permitted by the Utah Revised Business
Corporation Act or any other applicable law as now in effect or as it may
hereafter be amended, directors of this corporation shall not be personally
liable to the corporation or its shareholders for monetary damages for any
action taken or any failure to take any action as a director.
23
<PAGE>
Neither any amendment nor repeal of this resolution, or the adoption of
any provision of the Articles of Incorporation of this corporation inconsistent
with this resolution, shall eliminate or reduce the effect of this resolution in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this resolution, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
The Registrant's Bylaws provide the following:
ARTICLE VIII - INDEMNIFICATION
SECTION 1. INDEMNIFICATION. No officer or director shall be personally
liable for any obligations of the corporation or for any duties or obligations
arising out of any acts or conduct of said officer or director performed for or
on behalf of the corporation. The corporation shall and does hereby indemnify
and hold harmless each person and his heirs and administrators who shall serve
at any time as a director or officer of the corporation from and against any and
all claims, judgments and liabilities to which such persons shall become subject
by reason of his having heretofore or hereafter been a director or officer of
the corporation, or by reason of any action alleged to have been heretofore or
hereafter taken or omitted to have been taken by him as such director or
officer, and shall reimburse any such person for all legal and other expenses
reasonably incurred by him in connection with any such claim or liability;
PROVIDED that the corporation shall have the power to defend such person from
all suits or claims as provided for under the provisions of the Utah Business
Corporation Act; PROVIDED FURTHER, however, that no such person shall be
indemnified against, or be reimbursed for, or be defended against any expense or
liability incurred in connection with any claim or action arising out of his own
negligence or willful misconduct. The rights accruing to any person under the
foregoing provisions of this section shall not exclude any other right to which
he may lawfully be entitled, nor shall anything herein contained restrict the
right of the corporation to indemnify or reimburse such person in any proper
case, event though not specifically provided for herein or otherwise permitted.
The corporation, its directors, officers, employees and agents shall be fully
protected in taking any action or making any payment, or in refusing so to do in
reliance upon the advice of counsel.
SECTION 2. OTHER INDEMNIFICATION. The indemnification herein provided
shall not be deemed exclusive of any other right to indemnification to which any
person seeking indemnification may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise, both as to action
taken in his official capacity and as to action taken in an other capacity while
holding such office. It is the intent hereof that all officers and directors be
and hereby are indemnified to the fullest extent permitted by the laws of the
State of Utah and these Bylaws. The indemnification herein provided shall
continue as to any person who has ceased to be a director, officer or employee,
and shall inure to the benefits of the heirs, estate and personal representative
of any such person.
SECTION 3. INSURANCE. The board of Directors may, in its discretion,
direct that the corporation purchase and maintain insurance on behalf of any
person who is or was a director, officer or employee of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other
24
<PAGE>
enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against liability under the
provision of this section.
SECTION 4. SETTLEMENT BY CORPORATION. The right of any person to be
indemnified shall be subject always to the right of the corporation by the Board
of Directors, in lieu of such indemnify, to settle any claim, action, suit or
proceeding at the expense of the corporation by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
The Utah Revised Business Corporation Act provides as follows:
16-10a-840. General Standards of Conduct for Directors and Officers.
(1) Each Director shall discharge his duties as a Director, including
duties as a member of a committee, and each officer with discretionary authority
shall discharge his duties under that authority:
(a) in good faith;
(b) with the care an ordinarily prudent person in a like
position would exercise under similar circumstances; and
(c) in a manner the Director or officer reasonably believes to
be in the best interests of the corporation.
(2) In discharging his duties, a Director or officer is entitled to
rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by:
(a) one or more officers or employees of the corporation whom
the Director or officer reasonably believes to be reliable and
competent in the matters presented;
(b) legal counsel, public accountants, or other persons as to
matters the Director or officer reasonably believes are within the
person's professional or expert competence; or
(c) in the case of a Director, a committee of the board of
Directors of which he is not a member, if the Director reasonably
believes the committee merits confidence.
(3) A Director or officer is not acting in good faith if he has
knowledge concerning the matter in question that makes reliance otherwise
permitted by Subsection (2) unwarranted.
(4) A Director or officer is not liable to the corporation, its
shareholders, or any conservator or receiver, or any assignee or
successor-in-interest thereof, for any action taken, or any failure to take any
action, as an officer or Director, as the case may be, unless:
25
<PAGE>
(a) the Director or officer has breached or failed to perform
the duties of the office in compliance with this section; and
(b) the breach or failure to perform constitutes gross
negligence, willful misconduct, or intentional infliction of harm on
the corporation or the shareholders.
6-10a-841. Limitation of Liability of Directors.
(1) Without limiting the generality of Subsection 16-10a-840(4),
if so provided in the articles of incorporation or in the bylaws or a
resolution to the extent permitted in Subsection (3), a corporation may
eliminate or limit the liability of a Director to the corporation or to its
shareholders for monetary damages for any action taken or any failure to take
any action as a Director, except liability for:
(a) the amount of a financial benefit received by a Director
to which he is not entitled;
(b) an intentional infliction of harm on the corporation or
the shareholders;
(c) a violation of Section 16-10a-842; or
(d) an intentional violation of criminal law.
(2) No provision authorized under this section may eliminate or limit
the liability of a Director for any act or omission occurring prior to the date
when the provision becomes effective.
(3) Any provision authorized under this section to be included in the
articles of incorporation may also be adopted in the bylaws or by resolution,
but only if the provision is approved by the same percentage of shareholders of
each voting group as would be required to approve an amendment to the articles
of incorporation including the provision.
(4) Any foreign corporation authorized to transact business in this
state, including any federally chartered depository institution authorized under
federal law to transact business in this state, may adopt any provision
authorized under this section.
(5) With respect to a corporation that is a depository institution
regulated by the Department of Financial Institutions or by an agency of the
federal government, any provision authorized under this section may include the
elimination or limitation of the personal liability of a Director or officer to
the corporation's members or depositors.
6-10a-842. Liability of Directors for Unlawful Distributions.
(1) A Director who votes for or assents to a distribution made in
violation of Section 16- 0a-640 or the articles of incorporation is personally
liable to the corporation for the amount of the distribution that exceeds what
could have been distributed without violating Section 16-10a-640 or
26
<PAGE>
the articles of incorporation, if it is established that the Director's duties
were not performed in compliance with Section 16-10a-840. In any proceeding
commenced under this section, a Director has all of the defenses ordinarily
available to a Director.
(2) A Director held liable under Subsection (1) for an unlawful
distribution is entitled to contribution:
(a) from every other Director who could be held liable under
Subsection (1) for the unlawful distribution; and
(b) from each shareholder, who accepted the distribution
knowing the distribution was made in violation of Section 16-10a-640 or
the articles of incorporation, the amount of the contribution from each
shareholder being the amount of the distribution to the shareholder
multiplied by the percentage of the amount of distribution to all
shareholders that exceeded what could have been distributed to
shareholders without violating Section 16-10a-640 or the articles of
incorporation.
(3) A proceeding under this section is barred unless it is commenced
within two years after the date on which the effect of the distribution is
measured under Subsection 16-10a-640(5) or (7).
16-10a-902. Authority to Indemnify Directors.
(1) Except as provided in Subsection (4), a corporation may indemnify
an individual made a party to a proceeding because he is or was a Director,
against liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not
opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
(2) A Director's conduct with respect to any employee benefit plan for
a purpose he reasonably believed to be in or not opposed to the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of Subsection (1)(b).
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the Director did not meet the standard of conduct
described in this section.
27
<PAGE>
(4) A corporation may not indemnify a Director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the Director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that the
Director derived an improper personal benefit, whether or not involving
action in his official capacity, in which proceeding he was adjudged
liable on the basis that he derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
16-10a-903. Mandatory Indemnification of Directors.
Unless limited by its articles of incorporation, a corporation shall
indemnify a Director who was successful, on the merits or otherwise, in the
defense of any proceeding, or in the defense of any claim, issue, or matter in
the proceeding, to which he was a party because he is or was a Director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
16-10a-904. Advance of Expenses for Directors.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a Director who is a party to a proceeding in advance of final
disposition of the proceeding if:
(a) the Director furnishes the corporation a written
affirmation of his good faith belief that he has met the applicable
standard of conduct described in Section 16-10a-902;
(b) the Director furnishes to the corporation a written
undertaking, executed personally or on his behalf, to repay the advance
if it is ultimately determined that he did not meet the standard of
conduct; and
(c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under this
part.
(2) The undertaking required by Subsection (1)(b) must be an unlimited
general obligation of the Director but need not be secured and may be accepted
without reference to financial ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in Section 16-10a-906.
28
<PAGE>
16-10a-905. Court-Ordered Indemnification of Directors.
Unless a corporation's articles of incorporation provide otherwise, a
Director of the corporation who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court, after giving
any notice the court considers necessary, may order indemnification in the
following manner:
(1) if the court determines that the Director is entitled to mandatory
indemnification under Section 16-10a-903, the court shall order indemnification,
in which case the court shall also order the corporation to pay the Director's
reasonable expenses incurred to obtain court-ordered indemnification; and
(2) if the court determines that the Director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the Director met the applicable standard of conduct set forth in Section
16-10a-902 or was adjudged liable as described in Subsection 16-10a-902(4), the
court may order indemnification as the court determines to be proper, except
that the indemnification with respect to any proceeding in which liability has
been adjudged in the circumstances described in Subsection 16-10a-902(4) is
limited to reasonable expenses incurred.
16-10a-906. Determination and Authorization of Indemnification of Directors.
(1) A corporation may not indemnify a Director under Section
16-10a-902 unless authorized and a determination has been made in the
specific case that indemnification of the Director is permissible in the
circumstances because the Director has met the applicable standard of conduct
set forth in Section 16-10a-902. A corporation may not advance expenses to a
Director under Section 16-10a-904 unless authorized in the specific case
after the written affirmation and undertaking required by Subsections
16-10a-904(1)(a) and (b) are received and the determination required by
Subsection 16-10a-904(1)(c) has been made.
(2) The determinations required by Subsection (1) shall be made:
(a) by the board of Directors by a majority vote of those
present at a meeting at which a quorum is present, and only those
Directors not parties to the proceeding shall be counted in satisfying
the quorum; or
(b) if a quorum cannot be obtained as contemplated in
Subsection (2)(a), by a majority vote of a committee of the board of
Directors designated by the board of Directors, which committee shall
consist of two or more Directors not parties to the proceeding, except
that Directors who are parties to the proceeding may participate in the
designation of Directors for the committee;
(c) by special legal counsel:
29
<PAGE>
(i) selected by the board of Directors or its
committee in the manner prescribed in Subsection (a) or (b);
or
(ii) if a quorum of the board of Directors cannot be
obtained under Subsection (a) and a committee cannot be
designated under Subsection (b), selected by a majority vote
of the full board of Directors, in which selection Directors
who are parties to the proceeding may participate.
(d) by the shareholders, by a majority of the votes entitled
to be cast by holders of qualified shares present in person or by proxy
at a meeting.
(3) A majority of the votes entitled to be cast by the holders of all
qualified shares constitutes a quorum for purposes of action that complies with
this section. Shareholders' action that otherwise complies with this section is
not affected by the presence of holders, or the voting, of shares that are not
qualified shares.
(4) Unless authorization is required by the bylaws, authorization of
indemnification and advance of expenses shall be made in the same manner as the
determination that indemnification or advance of expenses is permissible.
However, if the determination that indemnification or advance of expenses is
permissible is made by special legal counsel, authorization of indemnification
and advance of expenses shall be made by a body entitled under Subsection (2)(c)
to select legal counsel.
16-10a-907. Indemnification of Officers, Employees, Fiduciaries, and Agents.
Unless a corporation's articles of incorporation provide otherwise:
(1) an officer of the corporation is entitled to mandatory
indemnification under Section 16-10a-903, and is entitled to apply for
court-ordered indemnification under Section 16-10a-905, in each case to the same
extent as a Director;
(2) the corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
Director; and
(3) a corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a Director to a greater
extent, if not inconsistent with public policy, and if provided for by its
articles of incorporation, bylaws, general or specific action of its board of
Directors, or contract.
16-10a-908. Insurance.
A corporation may purchase and maintain liability insurance on behalf
of a person who is or was a Director, officer, employee, fiduciary, or agent of
the corporation, or who, while serving as a Director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request of the
corporation as a Director, officer, partner, trustee, employee, fiduciary, or
agent of another foreign or domestic corporation or other person, or of an
employee benefit plan, against
30
<PAGE>
liability asserted against or incurred by him in that capacity or arising from
his status as a Director, officer, employee, fiduciary, or agent, whether or not
the corporation would have power to indemnify him against the same liability
under Section 16-10a-902, 16-10a-903, or 16-10a-907. Insurance may be procured
from any insurance company designated by the board of Directors, whether the
insurance company is formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including any insurance company
in which the corporation has an equity or any other interest through stock
ownership or otherwise.
16-10a-909. Limitations on Indemnification of Directors.
(1) A provision treating a corporation's indemnification of, or advance
for expenses to, Directors that is contained in its articles of incorporation or
bylaws, in a resolution of its shareholders or board of Directors, or in a
contract (except an insurance policy) or otherwise, is valid only if and to the
extent the provision is not inconsistent with this part. If the articles of
incorporation limit indemnification or advance of expenses, indemnification and
advance of expenses are valid only to the extent not inconsistent with the
articles of incorporation.
(2) This part does not limit a corporation's power to pay or reimburse
expenses incurred by a Director in connection with the Director's appearance as
a witness in a proceeding at a time when the Director has not been made a named
defendant or respondent to the proceeding.
Registrant does not carry errors and omissions insurance covering its
officers, Directors or control persons.
31
<PAGE>
PART F/S
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DREAMS, INC.
INDEPENDENT AUDITORS' REPORTS F/S-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet F/S-3
Consolidated Statements of Income F/S-4
Consolidated Statements of Stockholders' Equity F/S-6
Consolidated Statements of Cash Flows F/S-7
Notes to Consolidated Financial Statements F/S-9
MOUNTED MEMORIES, INC.
INDEPENDENT AUDITORS' REPORTS F/S-28
FINANCIAL STATEMENTS:
Statements of Income F/S-29
Statements of Cash Flows F/S-30
Notes to Financial Statements F/S-31
PRO FORMA CONDENSED FINANCIAL STATEMENTS
PRO FORMA CONDENSED STATEMENTS OF INCOME (UNAUDITED) F/S-34
</TABLE>
Part FS Table of Contents
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Dreams, Inc.
We have audited the accompanying consolidated balance sheet of Dreams, Inc. and
subsidiaries as of March 31, 1999, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dreams,
Inc. and subsidiaries as of March 31, 1999 and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/
Margolies, Fink and Wichrowski
Certified Public Accountants
Pompano Beach, Florida
June 23, 1999
Part FS Page 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
DREAMS, INC.
We have audited the accompanying consolidated balance sheet of Dreams, Inc. at
March 31, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year ended March 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the consolidated financial position of Dreams,
Inc. as of March 31, 1998, and the consolidated results of its operations and
its cash flows for the year ended March 31, 1998, in conformity with generally
accepted accounting principles.
/s/
June 1, 1998
Pritchett, Siler & Hardy, P.C.
Salt Lake City, Utah
Part FS Page 2
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Unaudited)
June 30, March 31, March 31,
1999 1999 1998
ASSETS
------- ---------- --------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 346 $ 425 $ 87
Restricted cash 374 415 2
Accounts receivable, net 1,144 1,369 11
Inventories 2,890 2,799 139
Prepaid expenses and deposits 137 34 50
Due from related party - - 2
Notes receivable 19 19 5
----- ----- -----
Total current assets 4,910 5,061 296
PROPERTY AND EQUIPMENT, NET 130 119 -
INTANGIBLE ASSETS, NET 2,415 2,446 -
DEFERRED LOAN COSTS, NET 260 275 -
DEBT ISSUANCE COSTS, NET 423 437 -
----- ----- -----
TOTAL ASSETS $8,138 $8,338 $ 296
------ ------ ------
------ ------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 502 $ 883 $ 149
Accrued liabilities 782 865 655
Current portion of long-term debt - - 25
Notes payable, including $0, $0
and $91 to related parties - - 1,087
Payable to restricted cash - - 218
Deferred franchise fees 90 128 105
Net liabilities of discontinued
restaurant segment - - 268
------ ------ ------
Total current liabilities 1,374 1,876 2,507
LONG-TERM DEBT, LESS CURRENT PORTION 3,443 3,443 402
DETACHABLE STOCK WARRANTS 300 300 -
------ ------ ------
TOTAL LIABILITIES 5,117 5,619 2,909
------ ------ ------
COMMITMENTS AND CONTINGENCIES - - -
Part FS Page 3
<PAGE>
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.00, $0.00 and $0.05 par
value; authorized 100,000,000, 100,000,000
and 50,000,000 shares; 40,148,500,
40,148,500 and 16,500,000 shares
issued and outstanding 18,084 18,084 825
Additional paid-in-capital - - 12,530
Accumulated deficit (15,063) (15,365) (15,968)
------ ------ ------
Total stockholders' equity (deficit) 3,021 2,719 (2,613)
------ ------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 8,138 $ 8,338 $ 296
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
DREAMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
------------------------------
June 30, June 30, Fiscal Fiscal
1999 1998 1999 1998
-------- -------- ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Retail / Wholesale $ 2,578 $ 19 $ 5,515 $ 595
Franchise fees and royalties 295 207 1,368 882
Other 3 - 161 40
Gain on purchase of minority interest - - - 386
Gain on sale of property and equipment - - - 5
----------- ------------ ------------ -----------
Total revenues 2,876 226 7,044 1,908
----------- ------------ ------------ -----------
EXPENSES:
Cost of sales 1,564 5 3,064 354
Operating expenses 229 129 1,244 472
General and administrative expenses 549 230 1,878 811
Depreciation and amortization 66 2 126 10
Minority interest in earnings of
consolidated subsidiary - - - 6
----------- ------------ ------------ -----------
Total expenses 2,408 366 6,312 1,653
----------- ------------ ------------ -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST AND TAXES 468 (140) 732 255
----------- ------------ ------------ -----------
Interest, net 141 52 322 127
----------- ------------ ------------ -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 327 (192) 410 128
Current tax expense 25 - 416 -
Deferred tax expense - - (341) -
----------- ------------ ------------ -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 302 (192) 335 128
Part FS Page 4
<PAGE>
DISCONTINUED OPERATIONS:
Gain on disposal of restaurant segment - - 268 190
Gain on disposal of operations of
unconsolidated subsidiary - - - 114
----------- ------------ ------------ -----------
INCOME FROM DISCONTINUED OPERATIONS - - 268 304
NET INCOME (LOSS) $ 302 $ (192) $ 603 $ 432
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
EARNINGS PER SHARE:
BASIC:
Income from continuing operations $ 0.01 $ (0.01) $ 0.01 $ 0.01
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Net income $ 0.01 $ (0.01) $ 0.02 $ 0.03
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Weighted average shares outstanding 40,148,500 16,500,000 25,181,915 15,398,630
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
DILUTED:
Income from continuing operations $ 0.01 $ (0.01) $ 0.01 $ 0.01
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Net income $ 0.01 $ (0.01) $ 0.02 $ 0.03
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Weighted average shares outstanding 40,148,500 16,500,000 25,181,915 15,398,630
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Part FS Page 5
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Additional Total
Shares Common Paid-in Accumulated Stockholders'
Outstanding Stock Capital Deficit Equity
----------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 15,000,000 $ 750 $ 12,234 $ (16,400) $ (3,416)
Issuance of 50,000 shares common
stock for cash, December 1997, at
$0.18 per share 50,000 3 6 - 9
Shares issued to acquire minority
interest in subsidiary (See Note 9) 1,450,000 72 290 - 362
Net income for the year ended
March 31, 1998 - - - 432 432
---------- ------- -------- ------------ -----------
Balance at March 31, 1998 16,500,000 $ 825 $ 12,530 $ (15,968) $(2,613)
Shares issued in exchange of notes
payable (See Note 9) 8,248,500 412 1,237 - 1,649
Shares issued to acquire assets of
Mounted Memories, Inc. (See Note 3) 15,000,000 750 2,250 - 3,000
Conversion of third party fees to equity 400,000 20 60 - 80
Elimination of par value - 16,077 (16,077) - -
Net income for the year ended
March 31, 1999 - - - 603 603
---------- ------- -------- ------------ -----------
Balance at March 31, 1999 40,148,500 $18,084 $ - $ (15,365) $ 2,719
Net income for the three months ended
June 30, 1999 - - - 302 302
---------- ------- -------- ------------ -----------
Balance at June 30, 1999 (unaudited) 40,148,500 $18,084 $ - $ (15,063) $ 3,021
---------- ------- -------- ------------ -----------
---------- ------- -------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Part FS Page 6
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended (unaudited)
------------------------------
June 30, June 30, Fiscal Fiscal
1999 1998 1999 1998
-------- --------- -------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 302 $(192) $ 603 $ 432
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization:
Property and equipment 10 2 35 10
Goodwill 31 - 52 -
Debt issuance and debt discount costs 40 - 64 -
Provision for losses on accounts
and notes receivable - - 211 -
Gain on purchase of minority interest - - - (386)
Gain on sale of property and equipment - - - (5)
Gain on disposal of restaurant segment - - (268) (190)
Gain on disposal of operations
of unconsolidated subsidiary - - - (114)
Change in assets and liabilities, net of effects
from acquisition of business:
(Increase) decrease in accounts receivable 225 (3) (356) 25
(Increase) decrease in accounts
receivable - related party - 2 2 (2)
(Increase) decrease in inventories (91) 6 (590) 106
(Increase) decrease in prepaid
expenses (103) (7) 83 6
Increase in notes receivable - - (14) (77)
Increase (decrease) in accounts
payable (381) 19 249 (33)
Increase (decrease) in accrued
liabilities (83) 29 143 (212)
Increase (decrease) in deferred
franchise fees (38) (2) 23 (30)
Decrease in net liabilities of
discontinued operations - - - (7)
Other (11) (36) 52 -
-------- --------- -------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (99) (182) 289 (477)
-------- --------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Mounted Memories, Inc.,
net of cash acquired - - (2,218) -
Purchase of property and equipment (21) - (24) (8)
-------- --------- -------- -------
NET CASH USED IN INVESTING ACTIVITIES (21) - (2,242) (8)
-------- --------- -------- -------
</TABLE>
Part FS Page 7
<PAGE>
<TABLE>
<CAPTION>
Three months ended (unaudited)
------------------------------
June 30, June 30, Fiscal Fiscal
1999 1998 1999 1998
-------- --------- -------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 232 591 232
Proceeds from long-term debt - - 3,000 368
Payments on notes payable - (137) (450) (504)
Financing costs capitalized - - (437) -
Purchase of common stock - - - 8
Minority interest - - - 6
-------- --------- -------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 95 2,704 110
-------- --------- -------- -------
NET INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH $(120) $ (87) $ 751 $(375)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
AT BEGINNING OF PERIOD 840 89 89 464
-------- --------- -------- -------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
AT END OF PERIOD $ 720 $ 2 $ 840 $ 89
-------- --------- -------- -------
-------- --------- -------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Part FS Page 8
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Dreams, Inc. (the "Company") operates through its wholly-owned
subsidiary, Dreams Franchise Corporation ("DFC") and through Dreams
Entertainment, Inc. ("DEI") and Dreams Products, Inc. ("DPI"),
wholly-owned subsidiaries of DFC. DFC is in the business of selling
Field of Dreams retail store franchises and generates revenues through
the sale of those franchises and continuing royalties. DEI was
incorporated in fiscal 1999 and was inactive throughout fiscal 1999 and
as of March 31, 1999. DPI is a wholesaler of sports memorabilia
products and acrylic cases. DPI pays an annual fee to the National
Football League which officially licenses DPI's football memorabilia
products.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All material intercompany
transactions and accounts have been eliminated in consolidation.
Results of operations of acquired companies accounted for as purchases
are included from their respective dates of acquisition. The fiscal
years ended March 31, 1999 and March 31, 1998 are herein referred to as
"fiscal 1999" and "fiscal 1998", respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid investments with
original maturities of three months or less and consist of amounts held
as bank deposits.
RESTRICTED CASH
Field of Dreams franchisees pay advertising royalties to DFC to be used
for designated franchise advertising and promotional activities. These
restricted funds are held by the Company. Restricted cash relating to
advertising royalties paid by franchisees was $90 and $2 at March 31,
1999 and 1998, respectively. The Company also had $325 restricted as to
use at March 31, 1999 relating to an acquisition (see Note 3).
ACCOUNTS RECEIVABLE
The Company's accounts receivable principally result from uncollected
royalties and advertising royalties from Field of Dreams franchisees
and from credit sales to third-party customers.
RETAIL AND WHOLESALE REVENUES
Retail and wholesale revenues are recognized as the products are sold
and shipped to customers. DPI had wholesale sales to Field of Dreams
franchises of $755 and $0 in fiscal 1999 and 1998, respectively.
Part FS Page 9
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
FRANCHISE FEE AND ROYALTY REVENUES
Revenues from the sale of franchises are deferred until the Company
fulfills its obligations under the franchise agreement and the
franchised unit opens. The franchise agreements provide for continuing
royalty fees based on a percentage of gross receipts.
ADVERTISING AND PROMOTIONAL
COSTS All advertising and promotional costs associated with advertising
and promoting the Company's lines of business are expensed in the
period incurred.
INVENTORIES
Inventories, consisting primarily of sports memorabilia products and
acrylic cases, are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method for both raw
materials and finished goods.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the
assets ranging from three to ten years. Leasehold improvements are
amortized over the lease period or the estimated useful life of the
improvements, whichever is less.
Maintenance and repairs are charged to expense as incurred and major
renewals and betterments are capitalized. Gains and losses are credited
or charged to earnings upon disposition.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets of purchased
companies (goodwill) is being amortized by the straight-line method
over 20 years. As of March 31, 1999, unamortized goodwill was $487, net
of accumulated amortization of $10. Trademarks acquired are also being
amortized by the straight-line method over 20 years. As of March 31,
1999, unamortized trademarks were $1.9 million, net of accumulated
amortization of $42. Goodwill and other intangibles are reassessed
annually to determine whether any potential impairment exists.
Costs relating to the issuance of debt are capitalized and amortized
over the term of the related debt. As of March 31, 1999, the
unamortized debt issuance costs were $437, net of accumulated
amortization of $40.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the carrying
value of long-lived assets, including associated intangibles, may be
impaired, an evaluation of recoverability is
Part FS Page 10
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
performed by comparing the estimated future undiscounted cash flows
associated with the asset to the asset's carrying amount to determine
if a write-down to market value or discounted cash flow is required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximated their fair values
because of the short maturity of these instruments. The fair value of
the Company's notes payable and long-term debt is estimated based on
quoted market prices for the same or similar issues or on current rates
offered to the Company for debt of the same remaining maturities. At
March 31, 1999 and 1998, the aggregate fair value of the Company's
notes payable and long-term debt approximated its carrying value.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under the asset and liability method
with SFAS No. 109, deferred income taxes are required for the tax
consequences of temporary differences by applying enacted statutory
rates applicable to future years to the difference between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
NET INCOME PER SHARE
During fiscal 1998, the Company adopted the provisions of SFAS No. 128,
"Earnings Per Share". SFAS No. 128 requires companies to present basic
earnings per share ("EPS") and diluted EPS, instead of the primary and
fully diluted EPS presentations that were formerly required by the
Accounting Principles Board Opinion No. 15, "Earnings Per Share". Basic
EPS is computed by dividing net income available to common stockholders
by the weighted average of common shares outstanding during the period.
Dilutive earnings per share was not presented, as its effect was not
material to the financial statements for fiscal years presented. When
applicable, the Company's diluted EPS will include the dilutive effect
of potential stock options and certain warrant exercises, calculated
using the treasury stock method.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock Based Compensation", is effective for fiscal years beginning
after December 15, 1995. Statement No. 123 provides companies with a
choice to follow the provisions of No. 123 in determination of stock
based compensation expense or to continue with the provisions of
Part FS PAGE 11
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
APB 25, "Accounting for Stock Issued to Employees". The Company will
continue to follow APB 25 and will provide proforma disclosure as
required by Statement No. 123 in the notes to the consolidated
financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated
financial statements and related notes to the financial statements.
Estimates are used when accounting for uncollectable accounts
receivable, inventory obsolescence, depreciation, taxes, contingencies,
among others. Actual results could differ from those estimated by
management and changes in such estimates may affect amounts reported in
future periods.
RECLASSIFICATION
Certain items previously reported in specific financial statement
captions have been reclassified to conform with the fiscal 1999
presentation.
2. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and
accounts receivable arising from its normal business activities.
Franchisee receivables subject the Company to credit risk. The
Company's franchisee receivables are derived primarily from royalties
on franchisee sales, sales of merchandise to franchisees and the
reimbursement of various costs incurred on behalf of franchisees.
Regarding retail accounts receivable, the Company believes that credit
risk is limited due to the large number of entities comprising the
Company's customer base and the diversified industries in which the
Company operates. The Company performs certain credit evaluation
procedures and does not require collateral. The Company believes that
credit risk is limited because the Company routinely assesses the
financial strength of its customers, and based upon factors surrounding
the credit risk of customers, establishes an allowance for
uncollectable accounts and, as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowances is
limited. The Company had a consolidated allowance for doubtful accounts
at March 31, 1999 of approximately $211. The Company believes any
credit risk beyond this amount would be negligible.
Part FS PAGE 12
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
3. BUSINESS COMBINATION
During November 1998, DPI acquired all of the assets of Mounted
Memories, Inc. ("MMI"), a wholesaler of sports memorabilia products and
acrylic cases. The aggregate consideration paid was $5.3 million,
consisting of cash in the amount of $2.3 million and the issuance of
15,000,000 shares of Dreams, Inc. common stock, which was trading at
approximately $0.20 at the date of the transaction. The purchase price
was financed through the issuance of a long-term note of $3.0 million
(see Note 8). The acquisition was accounted for as a purchase and,
accordingly, MMI's results are included in the consolidated financial
statements since the date of acquisition. The aggregate of the net
assets acquired was approximately $2.8 million, which was allocated
based on the fair values of the assets and liabilities acquired at the
date of acquisition. The excess of purchase price ($5.3 million) over
net assets acquired of $2.5 million has been allocated to goodwill
($498) and $2.0 million to trademarks. These amounts will be amortized
on the straight-line basis over 20 years. Liabilities of $552 were
assumed in connection with the acquisition, consisting primarily of
accounts payable and accrued liabilities.
As of March 31, 1999, $325 of the loan proceeds was being held by an
escrow agent of the lender until certain criteria have been met. The
criteria relates to Dreams, Inc.'s payment, or creditor's acceptance of
a plan for payment, of liabilities for certain state income taxes,
penalties and interest (see Note 10). Upon these conditions being met,
the funds in escrow will be released to the shareholders of MMI to be
used to pay its tax liability attributable to MMI's operations from
January 1, 1998 through the date of acquisition, and the Company will
accordingly adjust goodwill. If the conditions are not met, the funds
must be returned to the lender. Since the conditions for release have
not been met as of March 31, 1999, the Company appropriately
categorized the escrowed funds as restricted cash on the balance sheet.
The following unaudited proforma information has been prepared assuming
MMI had been acquired as of the beginning of the periods presented. The
proforma information is presented for information purposes only and is
not necessarily indicative of what would have occurred if the
acquisition had been made as of those dates. In addition, the proforma
information is not intended to be a projection of future results and
does not reflect synergies expected to result from the integration of
MMI and the Company's operations.
Part FS PAGE 13
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PROFORMA INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED MARCH 31 1999 1998
-------------------- ---- ----
<S> <C> <C>
Sales and other income $12,446 $9,334
Net income from continuing operations 575 220
Earnings per share from continuing operations $ 0.01 $ 0.01
</TABLE>
4. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
(Unaudited)
June 30, March 31, March 31,
1999 1999 1998
---------- ----------- ----------
<S> <C> <C> <C>
Memorabilia products $ 2,298 $ 2,199 $139
Licensed products 391 370 -
Acrylic cases and raw materials 276 305 -
------- ------- ----
2,965 2,874 139
Less reserve for obsolescence (75) (75) -
------- ------- ----
$ 2,890 $ 2,799 $139
------- ------- ----
</TABLE>
5. PROPERTY AND EQUIPMENT
The components of property and equipment as of March 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Leasehold improvements $ 23 $ 20
Machinery and equipment 71 -
Office and other equipment 232 47
Transportation equipment 47 -
----- ----
373 67
Less accumulated depreciation
and amortization (254) (67)
----- ----
$ 119 $ -
----- ----
</TABLE>
During the year ended March 31, 1998 the Company wrote down the
remaining property and equipment in connection with the purchase of the
minority interest (see Note 9).
Part FS PAGE 14
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
6. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Accrued liabilities consisted of the following at March 31:
1999 1998
---- ----
<S> <C> <C>
Payroll costs (including commissions) $ 99 $ 25
Interest 35 15
Rent - 50
Sales taxes 9 -
Income taxes, penalties and interest
(see Note 10) 491 425
Other 231 140
---- ----
$865 $655
---- ----
---- ----
</TABLE>
7. NOTES PAYABLE
Notes payable consisted of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Notes payable to a related party (company owned
by major shareholder), interest at 12%, due on
demand, unsecured $ - $ 91
Various notes payable to others, interest ranging to
24 percent, due on demand, unsecured - 3
Notes payable to franchisee at a rate of 12 percent
interest, convertible into DFC common stock at $1.50 per
share, principal and interest due March 1,
1998, unsecured - 25
Note payable to bank, interest at variable rate equal to
1.5% percent over index rate, principal and interest
payments due April 1998 - 149
Note payable to vendor, interest at 18%, principal and
interest payment of $1 due May 1998 - 1
Part FS Page 15
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
Note payable to NBA Legends Foundation for inventory
financing, payments based on sales with minimum payments
of no less than $125 per quarter beginning
July 15, 1997 until January 15, 1998 at which time
payments shall be no less than $250 - 363
Unsecured demand notes payable to an individual,
interest at 12% - 305
Six $25 unsecured demand notes payable to four
individuals, loans bear a flat rate of interest of $5
per note - 150
------ ------
$ - $1,087
------ ------
</TABLE>
In July 1998, the Company borrowed $200 at a rate of 12% interest
from the brother of the Company's Chairman. The Company repaid
the principal and accrued interest of $4 through the issuance of
1,020,000 shares of its common stock in November 1998. The stock
was trading at approximately $0.20 at the time of the exchange.
In November 1998, Dreamstar, a corporation owned by the Company's
Chairman, assumed the Company's obligation of $363 owed to the
NBA Legends Foundation. In consideration for that assumption and
release, the Company issued Dreamstar 3,625,000 shares of common
stock. The stock was trading at approximately $0.20 at the time
of the exchange. The preferential distribution of $363 was booked
as compensation expense, and charged to operational income during
fiscal 1999.
In addition, Dreamstar loaned the Company $70, at a rate of 12%
interest, during fiscal 1999. As of November 1998, the Company
owed Dreamstar $46, net of repayments and accrued interest of $1.
The Company paid this obligation in November 1998 by issuing
460,000 shares of its common stock. The stock was trading at
approximately $0.20 at the time of the exchange. The preferential
distribution of $46 was booked as compensation expense, and
charged to operational income during fiscal 1999.
In November 1998, the Company exchanged its remaining notes
payable for 3,143,500 of its common shares. The total amount of
remaining notes payable at the time of the exchange was $629, net
of repayments and accrued interest of $32. The stock was trading
at approximately $0.20 at the time of the exchange.
Part FS Page 16
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
8. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable to a lending institution at 14% interest, with monthly
interest only payments of $35 through November 2003. Principal
balance of $3.0 million due November 2003. Secured by all of the
assets of the Company and Company stock pledged by the Company's
Chairman, President and other key employees, family members and
associated persons
and entities. $3,000 $ -
Note payable to an individual at 12% interest, with monthly interest
only payments of $4 through November 2007. Secured through a personal
guarantee of the Company's Chairman and is
subordinate to the 14% note described above 443 427
------ -----
3,443 427
Less current portion (-) (25)
------ ------
$3,443 $ 402
------ ------
</TABLE>
Future maturities of long-term debt are summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
<S> <C>
2000 $ -
2001 -
2002 -
2003 -
2004 3,000
Thereafter 443
------
$3,443
</TABLE>
9. STOCKHOLDERS' EQUITY
On January 14, 1999 the stockholders of the Company approved a
resolution which amended the Company's Restated Articles of
Incorporation to increase the number of authorized shares of common
stock from 50,000,000 shares, par value $0.05, to 100,000,000 shares,
of no par value common stock. As a result of this amendment, the
additional paid-in capital account has been combined with common stock
as presented in the Consolidated Statements of Stockholders' Equity.
Part FS Page 17
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
COMMON STOCK
During December 1997, the Company issued 50,000 shares of its
previously authorized, but unissued common stock. Total proceeds from
the sale of stock amounted to $9.
During December 1997, the Company issued 1,450,000 common shares valued
at $0.25 per share or $362 to purchase the 5,111,465 remaining minority
shares of DFC. In connection with the purchase, the Company wrote down
the value of all non-current assets including $18 in property and
equipment, $72 in long-term notes receivable and $4 in other assets.
This transaction resulted in the Company recognizing a one-time gain of
$386 during fiscal 1998.
During November 1998, the Company issued 400,000 shares of its
previously authorized, but unissued common stock to third parties for
services rendered. The value assigned to the issuance of these shares
totaled $80. The stock was trading at approximately $0.20 per share at
the time of the transaction.
WARRANTS
The Company granted the lending institution which loaned the Company
$3.0 million in fiscal 1999 warrants to purchase approximately
6,658,000 of the Company's common stock. The number of shares which may
be purchased pursuant to exercise of the warrants varies between a
minimum of 14% and a maximum of 18.5% of the issued and outstanding
shares. In connection with the issuance of the debt, $300 of the
proceeds has been allocated to the detachable stock warrants. Upon
surrender of a warrant, the holder is entitled to purchase one share of
the Company's common stock for $0.01. The amount allocated to the
warrants has been recorded as a liability as of March 31, 1999. The
related deferred debt discount has been recorded and amortized to
interest expense over the life of the loan. Amortization of debt
discount of $25 has been included in interest expense for the year
ended March 31, 1999. The warrants have anti-dilution rights,
registration rights and co-sale rights. The warrants also have a "put"
feature which entitles the lending institution to require the Company
to purchase the warrants for their fair market value determined by an
appraisal process. Payment of the "put" price may be paid by the
Company by issuance to the lending institution of a promissory note
with 10% interest per annum and 24 monthly payments of principal and
interest.
STOCK OPTIONS
During fiscal 1999, the Company's Board of Directors adopted a stock
option plan for certain employees and franchisees ("Optionees") whereby
Optionees are granted the right to purchase shares of the Company's
common stock at a price of 100% of the fair market value of the shares
at the date of grant, 110% in the case of a holder of more than 10% of
the Company's stock. The options generally vest over a three or five
year period.
Part FS Page 18
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
Transactions and other information relating to the plan for fiscal 1999
are summarized as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
-------------------------------
SHARES WTD. AVG. PRICE
---------- ---------------
<S> <C> <C>
Outstanding at April 1, 1998 -0-
Granted 950,000 $ .38
Exercised -
-------
Outstanding at March 31, 1999 950,000 $ .38
-------
-------
</TABLE>
The exercise prices of the stock options discussed below were the fair market
value of the common stock on the date the options were granted.
On August 25, 1998, the Company issued options to purchase 500,000
shares at $.4375 per share to a former employee, officer and director
of the Company. The options expire on September 25, 2003 and 250,000
were exercisable upon issuance. The remaining 250,000 vest ratably over
five years beginning on the first anniversary date of the grant.
On September 4, 1998, the Company issued options to purchase 250,000
shares at $.4375 per share to an employee and officer of the Company.
The options expire on October 1, 2001. The options vest ratably over
three years beginning on the first anniversary date of the grant.
On January 1, 1999, the Company issued options to purchase 200,000
shares at $.1875 per share to an employee of the Company. The options
expire on January 1, 2002 and 100,000 were exercisable upon issuance.
The remaining 100,000 vest on the first anniversary date of the grant.
Part FS Page 19
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
The following table summarizes information about all of the stock options
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
Outstanding options Exercisable options
---------------------------------------------------------------------
Weighted
average
Range of remaining Weighted Weighted
exercise prices Shares life (years) avg. price Shares avg. price
--------------- -------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
$ .15 - .25 200,000 2.75 $ .19 100,000 $ .19
.26 - .50 750,000 3.83 .44 250,000 .44
- ----------------------------------------------------------------------------------------------------
$ .15 - .50 950,000 3.61 $ .38 350,000 $ .37
--------------- -------- --------- ---------- ------- --------
--------------- -------- --------- ---------- ------- --------
</TABLE>
For purposes of the following proforma disclosures, the weighted average fair
value of each option has been estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions used for grants in fiscal 1999: no dividend yield; volatility of
24%; risk-free interest rate of 6%; and an expected term of five years. The
weighted average Black-Scholes value of options granted during fiscal 1999 was
$.31 per option. Had compensation cost for the Company's fixed stock-based
compensation plan been determined based on the fair value at the grant dates for
awards under this plan consistent with the method of SFAS 123, the Company's pro
forma net income and pro forma net income per share would have been as indicated
below:
<TABLE>
<CAPTION>
For the years ended March 31,
1999 1998
--------------- --------------
<S> <C> <C>
Net income -
As reported $ 628 $ 432
--------------- ---------------
--------------- ---------------
Pro forma $ 630 $ 432
--------------- ---------------
--------------- ---------------
Basic income per share -
As reported $ .02 $ .03
--------------- ---------------
--------------- ---------------
Pro forma $ .02 $ .03
--------------- ---------------
--------------- ---------------
Diluted income per share -
As reported $ .02 $ .03
--------------- ---------------
--------------- ---------------
Pro forma $ .02 $ .03
--------------- ---------------
--------------- ---------------
</TABLE>
Part FS Page 20
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
10. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Federal tax expense $ 341 $ -
State tax expense 75 -
Deferred:
Federal tax expense $(341) $ -
State tax expense - -
----- -----
$ 75 $ -
----- -----
</TABLE>
The Company's deferred tax balances consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 1,608 $ 1,992
Accelerated depreciation for book purposes - 5
Accrued liabilities 54 73
Deferred revenue 50 41
Inventory capitalization adjustment 15 -
Allowance for doubtful accounts 52 -
---------- -------
1,779 2,111
Deferred tax liability:
Accelerated depreciation for tax purposes (9) -
---------- -------
1,770 2,111
Valuation allowance (1,770) (2,111)
---------- -------
$ - $ -
---------- -------
</TABLE>
SFAS No. 109 requires a valuation allowance to be recorded when it is
more likely than not that some or all of the deferred tax assets will
not be realized. At March 31, 1999, a valuation allowance for the full
amount of the net deferred tax asset was recorded because of pre-1999
losses and uncertainties as to the amount of taxable income that would
be generated in future years. The net change in the valuation allowance
for the years ended March 31, 1999 and 1998 was $341 and $17,
respectively.
Part FS Page 21
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
A reconciliation of the Company's effective tax rate compared to the
statutory federal tax rate for the years ended March 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal income taxes at statutory rate 34% 34%
State taxes, net of federal benefit 6 5
Gain on acquisition of minority interest - (35)
Valuation allowance (52) (4)
Stock based compensation adjustment 24 -
Other (1) -
----- -----
$ 11% $ - %
----- -----
</TABLE>
The Company at March 31, 1999 and 1998 has $415 and $425, respectively,
owing to certain states for income taxes, penalties and fees, and
interest. The amount has been accrued by the Company and is included in
accrued liabilities (see Note 6).
At March 31, 1999, the Company had available net operating loss
carryforwards of approximately $4,728, which expire in various years
beginning in 2007 through 2014.
The Company closed operations of its B.B. O'Brien's sports bar ("BB's")
during July 1995. Since operations have ceased, it is doubtful that
these tax benefits will ever be realized. If certain substantial
changes in the Company's ownership should occur, there would be an
annual limitation on the amount of carryforwards that could be
utilized. BB's had pre-acquisition tax net operating loss carryforwards
which arose prior to becoming a member of the consolidated group on
November 1, 1990, which were available to offset future taxable income
of BB's. The possible benefit to be recognized from the realization of
these amounts has not been recorded, as there is no assurance as to
their ultimate realization. The tax benefits, which may ultimately be
realized, are limited to approximately $100 per year. BB's
pre-acquisition tax net operating loss carryforwards total
approximately $1,501, which expire in various years through 2005.
11. COMMITMENTS AND CONTINGENCIES
As of March 31, 1999, the Company leases office and warehouse space
under operating leases in Florida (approximately 23,000 square feet)
and Colorado (approximately 3,000 square feet). The leases for these
two facilities expire in April 2003 and September 2002, respectively.
Rent expense charged to operations for fiscal 1999 and fiscal 1998 was
$118 and $29, respectively.
Part FS Page 22
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
The aggregate minimum annual lease payments under noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL
<S> <C>
2000 $ 208
2001 206
2002 204
2003 212
2004 17
Thereafter -
------
Total minimum lease commitments $ 847
------
</TABLE>
The Company has executed employment agreements with several of its key
employees. The most significant agreement is with its President. This
employment agreement, which expires in November 2003, calls for a
salary of $250 per year and an annual car allowance of $10.
The Company's Chairman does not have an employment agreement but can be
compensated under terms set forth by the lending institution which lent
the Company $3.0 million in fiscal 1999 (see Note 8). The Chairman does
not receive a base salary. However, for fiscal years 2000 - 2003, the
Company may make a bonus payment to the Chairman in the amount of $90
if the Company's audited earnings before interest, depreciation and
amortization ("EBITDA") exceeds $1.5 million for such fiscal year. An
additional $90 bonus payment may be made to the Chairman if EBITDA in
such fiscal year exceeds $2.0 million.
The Company's Chairman did not receive any salary or bonus payments in
fiscal 1999.
12. DISCONTINUED OPERATIONS OF RESTAURANTS CLOSED AND SOLD
The Company was formerly engaged in the ownership and operation of
family style restaurants and a sports cafe through Heidi's Holding
Corporation ("HHC") (formerly known as Shari's Franchise Corporation
("SFC")) and B.B. O'Brien's, Inc. ("BB's"), respectively. These
operations were discontinued with the sale of HHC and the related
restaurants. During February and March 1996, the Company sold a
majority of the family style restaurants owned by HHC to various third
parties.
Effective December 31, 1996, the Company sold the stock of HHC, which
included the one remaining Heidi's restaurant to Battistone Financial
Group, a related party, for the return of 2,000,000 shares of the
Company's common stock. The gain on the sale of this stock totaling
$631 was accounted for as an increase in additional paid-in capital
during the year ended March 31, 1997.
Part FS Page 23
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
In July 1995, the Company closed its BB O'Brien's sports bar. All fixed
assets and goodwill related to BB's were fully depreciated and
amortized during the year ended March 31, 1995. At March 31, 1998, BB's
had net liabilities owed to unrelated third parties of $268. The
Company received an opinion during fiscal 1999 from independent counsel
concluding that the statute of limitations for liability on these
obligations had expired. Consequently, the Company eliminated these
liabilities from its balance sheet and recognized the effect in
discontinued operations in fiscal 1999.
13. RELATED PARTY TRANSACTIONS
The Company's Chairman often makes advances to the Company, which are
non-interest bearing and payable upon demand. These net advances
totaled $52 and $59 at March 31, 1999 and 1998, respectively, and have
been included in accrued liabilities on the balance sheet for those
respective dates.
The Company had certain amounts payable and receivable to related
parties for purchases of certain sports memorabilia merchandise. During
the year ended March 31, 1998, the payable and receivable were combined
leaving a receivable from the related parties for $2. This amount was
repaid in fiscal 1999.
During the years ended March 31, 1999 and 1998 a shareholder and
officer of the Company through December 1998, loaned the Company $92
and $29, respectively, to pay for obligations of the Company. The
fiscal 1998 loan included a flat rate of interest of $2. As of March
31, 1998, the fiscal 1998 loan and applicable interest was paid in
full. The fiscal 1999 loans included interest at 12% per annum. The net
amount due, including accrued interest of $1, at November 18, 1999 was
$14 and was repaid through issuance of the Company's common stock at
the market rate at the time of the exchange (see Note 7).
14. DFC FRANCHISE INFORMATION
DFC licenses the right to use the proprietary name Field of Dreams from
Universal Studios Licensing, Inc. ("USL"), formerly known as Universal
Merchandising, Inc. Pursuant to the license agreement, DFC pays USL one
percent of each company-owned unit's gross sales, with a minimum annual
royalty of $3 per store. DFC pays royalties of $5 for each new
franchised unit opened and one percent of each franchised unit's gross
sales. This $5 fee is not an advance against royalties. At March 31,
1999, DFC had 34 units owned by franchisees and had no company-owned
units.
Effective June 1, 1991, DFC has the right to use and display the Field
of Dreams service mark in company-owned or franchised retail units
located in the United States. It also provides for the non-exclusive
right to affix the Field of Dreams trademark to approved
Part FS Page 24
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
licensed articles for resale. DFC also has certain rights of first
refusal related to the use of the service mark outside the United
States. There is an exception of the right to transfer this licensing
agreement to Dreams, Inc. or to a newly incorporated majority-owned
subsidiary of Dreams, Inc. within a six-month period; these licensing
rights are non-transferable and non-assignable.
The license agreement expires December 2000. The agreement may be
renewed for additional five-year terms, provided that DFC is in
compliance with all aspects of the agreement. If DFC fails to comply
with the license requirements of the agreement, either during the
initial term of during an option term, the agreement may be terminated
USL. Termination of the license agreement would eliminate DFC's right
to use the Field of Dreams service mark.
On June 5, 1997, DFC received from USL a notice of termination of the
USL License based upon an allegation of more than four material
breaches within a period of eighteen (18) months. Subsequently, USL
suspended the notice of termination as DFC and USL negotiated a
settlement of and amendment to the License agreement. Effective
September 1997, DFC and USL agreed that the USL License is in good
standing. Under the terms of the settlement agreement, DFC was required
to pay to USL $100 over a one year period and immediately pay all
royalties due. The Company paid USL $75 in fiscal 1998 and the
remaining $25 in fiscal 1999. The settlement agreement also modified
the USL License to exclude USL properties and the surrounding five-mile
radius (excluding large regional malls) from DFC's exclusive territory.
DFC has the right of first refusal to the third-party retail sports
memorabilia operation on the USL properties. Should DFC fail to meet
its obligation under the settlement agreement, the USL license would
again be in breach and subject to termination by USL.
DFC may be precluded from offering franchises in certain states where
USL may be deemed to be a franchisor under the laws of the applicable
states. Accordingly, before offering franchises in said states, DFC
shall notify USL of its intent, and USL must conclude that it will not
be deemed a franchisor in those states, or the rights to sell
franchises may be withheld.
DFC is required to indemnify USL from certain losses and claims,
including those based on defective products, violation of franchise law
and other acts and omissions of DFC. DFC is required to maintain
insurance coverage of $3 million per single incident. The coverage must
name USL as an insured party. At March 31, 1999, DFC had the required
insurance coverage.
Part FS Page 25
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
The Company has entered into a continuing guarantee agreement with USL,
whereby the Company has guaranteed the full and prompt payment to USL
of all amounts due under this agreement. Royalty expense for the years
ended March 31, 1999 and 1998 was $189 and $126, respectively.
DFC franchise activity is summarized as follows for the years ended
March 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
In operation at year end 34 27
Opened during the year 8 7
Closed during the year 1 3
Under development at year end 3 2
</TABLE>
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during fiscal 1999 and 1998 was $156 and $131,
respectively. The Company did not pay any income taxes during fiscal
1999 or fiscal 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Noncash investing and financing activities:
Capital stock issued for acquisition $ 3,000 $ -
Capital stock issued as consideration to
extinguish debt 1,649 -
Capital stock issued for payment of services
to third parties 80 -
Capital stock issued to acquire minority
interest in subsidiary - 362
Details of acquisition:
Fair value of assets acquired $ 3,577 $ -
Liabilities assumed (552) -
Capital stock issued (750) -
---------- -------
Cash paid 2,275 -
Less cash acquired (57) -
----------- -------
Net cash paid for acquisition $ 2,218 $ -
----------- -------
</TABLE>
Part FS Page 26
<PAGE>
DREAMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
16. UNAUDITED INTERIM STATEMENTS
The financial statements as of June 30, 1999 and for the three months
ended June 30, 1999 and 1998 are unaudited; however, in the opinion of
the management of Dreams, Inc., all adjustments (consisting solely of
normal recurring adjustments) necessary to a fair presentation of the
financial statements for these interim periods have been made. The
results for the interim period ended June 30, 1999 are not necessarily
indicative of the results to be obtained for a full fiscal year.
Part FS Page 27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Mounted Memories, Inc.
We have audited the accompanying statements of income and cash flows of Mounted
Memories, Inc. for the seven month period ended October 31, 1998 and the year
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of income and cash flows are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of income and cash
flows. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of income and cash flows presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statements of income and cash flows referred to above
present fairly, in all material respects, the results of Mounted Memories, Inc.
operations and their cash flows for the seven month period ended October 31,
1998 and the year ended March 31, 1998, in conformity with generally accepted
accounting principles.
/s/
Margolies, Fink and Wichrowski
Certified Public Accountants
Pompano Beach, Florida
June 23, 1999
Part FS Page 28
<PAGE>
MOUNTED MEMORIES, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Seven Months Twelve Months
Ended Ended
October 31, 1998 March 31, 1998
---------------- ---------------
<S> <C> <C>
REVENUES $ 5,402 $ 7,426
EXPENSES:
Cost of sales 3,530 4,244
Operating expenses 596 1,109
General and administrative expenses 661 1,306
Depreciation and amortization 21 41
----------- ------------
Total expenses 4,808 6,700
INCOME BEFORE INTEREST 594 726
Interest, net 8 1
----------- ------------
NET INCOME $ 586 $ 725
----------- ------------
----------- ------------
EARNINGS PER SHARE:
BASIC:
Income from continuing operations $ 0.04 $ 0.05
----------- ------------
----------- ------------
Net income $ 0.04 $ 0.05
----------- ------------
----------- ------------
Weighted average shares outstanding 16,500,000 15,398,630
----------- ------------
----------- ------------
DILUTED:
Income from continuing operations $ 0.04 $ 0.05
----------- ------------
----------- ------------
Net income $ 0.04 $ 0.05
----------- ------------
----------- ------------
Weighted average shares outstanding 16,500,000 15,398,630
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Part FS Page 29
<PAGE>
MOUNTED MEMORIES, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Seven Months Twelve Months
Ended Ended
October 31, 1998 March 31, 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 586 $ 725
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 21 41
Provision for losses on accounts receivable 56 55
Change in assets and liabilities:
Increase in accounts receivable (565) (145)
Increase in inventories (658) (426)
Increase (decrease) in prepaid expenses 137 (193)
Increase (decrease) in accounts payable (11) 211
Increase (decrease) in accrued expenses (65) 26
Other (53) 17
---------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (552) 311
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (52) (50)
NET CASH USED IN INVESTING ACTIVITIES (52) (50)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 175 -
NET CASH PROVIDED BY FINANCING ACTIVITIES 175 -
---------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (429) 261
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 486 225
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57 $ 486
---------------- --------------
---------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Part FS Page 30
<PAGE>
MOUNTED MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Mounted Memories, Inc. (the "Company") is a wholesaler of sports
memorabilia products and acrylic cases. The Company pays an annual fee
to the National Football League which officially licenses the Company's
football memorabilia products.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid investments with
original maturities of three months or less and consist of amounts held
as bank deposits.
WHOLESALE REVENUES
Wholesale revenues are recognized as the products are sold and shipped
to customers.
ADVERTISING AND PROMOTIONAL COSTS
All advertising and promotional costs associated with advertising and
promoting the Company are expensed in the period incurred.
INVENTORIES
Inventories, consisting primarily of sports memorabilia products and
acrylic cases, are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method for both raw
materials and finished goods.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
for using the straight-line method over the estimated useful lives of
the assets ranging from three to ten years. Leasehold improvements
are amortized over the lease period or the estimated useful life of
the improvements, whichever is less.
Maintenance and repairs are charged to expense as incurred and major
renewals and betterments are capitalized. Gains and losses are credited
or charged to earnings upon disposition.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event facts and circumstances indicate that the carrying value
of long-lived assets may be impaired, an evaluation of recoverability
is performed by comparing the estimated future undiscounted cash flows
associated with the asset to the asset's carrying amount to determine
if a write-down to market value or discounted cash flow is required.
Part FS Page 31
<PAGE>
MOUNTED MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximated their fair values
because of the short maturity of these instruments.
INCOME TAXES
The Company is taxed under the provisions of Subchapter S (S
Corporation) of the Internal Revenue Code and for Florida tax purposes
under applicable sections of the state income tax laws. These elections
eliminate federal and state income taxes at the corporate level and
profits are taxed directly to the Company's stockholders.
NET INCOME PER SHARE
During the year ended March 31, 1998, the Company adopted the
provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires
companies to present basic earnings per share ("EPS") and diluted EPS,
instead of the primary and fully diluted EPS presentations that were
formerly required by the Accounting Principles Board Opinion No. 15,
"Earnings Per Share". Basic EPS is computed by dividing net income
available to common stockholders by the weighted average of common
shares outstanding during the period. Dilutive EPS was not presented,
as its effect was not material to the financial statements for the
periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and related notes to the financial statements. Estimates are
used when accounting for uncollectable accounts receivable, inventory
obsolescence, depreciation, contingencies, among others. Actual results
could differ from those estimated by management and changes in such
estimates may affect amounts reported in future periods.
2. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and
accounts receivable arising from normal business activities.
Regarding accounts receivable, the Company believes that credit risk is
limited due to the large number of entities comprising the Company's
customer base and the diversified industries in which the Company
operates. The Company performs certain credit evaluation procedures and
does not require collateral. The Company believes that credit risk is
limited because the Company routinely assesses the financial strength
of its customers, and based upon factors surrounding the credit risk of
customers, establishes an allowance for
Part FS Page 32
<PAGE>
MOUNTED MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
uncollectable accounts and, as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowances is
limited. The Company had an allowance for doubtful accounts at October
31, 1998 of approximately $111. The Company believes any credit risk
beyond this amount would be negligible.
3. COMMITMENTS AND CONTINGENCIES
As of October 31, 1998, the Company leases office and warehouse space
under operating leases in Florida (approximately 23,000 square feet)
and Colorado (approximately 3,000 square feet). The leases for these
two facilities expire in April 2003 and September 2003, respectively.
Rent expense charged to operations for the seven months ended October
31, 1998 and for the twelve months ended March 31, 1998 was $126 and
$143, respectively.
The aggregate minimum future lease payments under noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Five months ended March 31, 1999 $ 85
Twelve months ended March 31, 2000 208
Twelve months ended March 31, 2001 206
Twelve months ended March 31, 2002 204
Twelve months ended March 31, 2003 212
Twelve months ended March 31, 2004 17
Thereafter -
------
Total minimum future lease commitments $ 932
------
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during the seven months ended October 31, 1998
and the twelve months ended March 31, 1998 was $8 and $1, respectively.
The Company did not pay any income taxes during either of those two
periods.
Part FS Page 33
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During November 1998, Dreams Products, Inc. ("DPI") acquired all of the
assets of Mounted Memories, Inc. ("MMI"), a wholesaler of sports memorabilia
products and acrylic cases. The aggregate consideration paid was $5.3 million,
consisting of cash in the amount of $2.3 million and the issuance of 15,000,000
of Dreams, Inc. common stock, which was trading at approximately $0.20 at the
date of the transaction. DPI financed the purchase price through the issuance of
a long-term note in the amount of $3.0 million.
The acquisition was accounted for as a purchase and, accordingly, MMI's
results are included in the consolidated financial statements since the date of
acquistion. The aggregate of the net assets acquired was approximately $2.8
million, which was allocated based on the fair values of the assets and
liabilities acquired at the date of acquisition. The excess of purchase price
over net assets acquired of $2.5 million has been allocated with $498,000 to
goodwill and $2.0 million to trademarks. These amounts will be amortized on the
straight-line basis over 20 years. Liabilities of $552 were assumed in
connection with the acquisition, consisting primarily of accounts payable and
accrued liabilities.
The accompanying Pro Forma Condensed Consolidated Statements of Income
for the years ended March 31, 1999 and 1998 assume that the acquisition of MMI
took place on April 1, 1997, the beginning of Dreams, Inc.'s fiscal year ended
March 31, 1998. The Pro Forma Condensed Consolidated Statements of Income do not
include the effect of any non-recurring write-offs directly attributable to the
acquisition.
The accompanying pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations which would actually have been reported had the
acquisition been in effect during the periods presented, or which may be
reported in the future.
The accompanying Pro Forma Condensed Consolidated Statements of Income
should be read in conjunction with the historical financial statements and
related notes thereto for Dreams, Inc. and MMI.
Part FS Page 34
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the twelve months ended March 31, 1999 (Unaudited)
(In thousands, except per share date)
<TABLE>
<CAPTION>
Dreams, Inc. MMI
Twelve Months Seven Months
Ended Ended Pro Forma Pro Forma
March 31, 1999 October 31, 1998 Adjustments Combined
-------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 7,044 $ 5,402 $ - $ 12,446
Cost of sales 3,064 3,530 - 6,594
-------------- ---------------- ------------ ------------
Gross profit 3,980 1,872 - 5,852
Operating and general
and administrative expenses 3,122 1,257 - 4,379
Depreciation and amortization 126 21 128 (1) 275
-------------- ---------------- ------------ ------------
Income from continuing operations before
interest and taxes 732 594 (128) 1,198
Interest, net 322 8 201 (2) 531
-------------- ---------------- ------------ ------------
Income from continuing operations before taxes 410 586 (329) 667
Deferred tax expense 75 - 90 (3) 165
-------------- ---------------- ------------ ------------
Income from continuing operations 335 586 (419) 502
Gain on disposal of restaurant segment 268 - - 268
-------------- ---------------- ------------ ------------
Net income $ 603 $ 586 $ (419) $ 770
-------------- ---------------- ------------ ------------
-------------- ---------------- ------------ ------------
Net income per share $ 0.02 $ 0.02
-------------- ------------
-------------- ------------
Weighted average shares outstanding 25,181,915 40,148,500
-------------- ------------
-------------- ------------
</TABLE>
(1) Reflects amortization of goodwill, trademarks and debt issuance costs
resulting from acquisition.
(2) Interest expense adjusted to reflect debt remaining after acquisition.
(3) Related tax effect of pro forma adjustments and combined businesses.
Part FS Page 35
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the twelve months ended March 31, 1998
(Unaudited)
(In thousands, except per share date)
<TABLE>
<CAPTION>
Dreams, Inc. MMI
Twelve Months Twelve Months
Ended Ended Pro Forma Pro Forma
March 31, 1998 March 31, 1998 Adjustments Combined
-------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 1,908 $ 7,426 $ - $ 9,334
Cost of sales 354 4,244 - 4,598
------------ -------------- ----------- --------------
Gross profit 1,554 3,182 - 4,736
Operating and general
and administrative expenses 1,283 2,415 - 3,698
Depreciation and amortization 10 41 220 (1) 270
Minority interest in earnings of
consolidated subsidiary 6 - - 6
------------ -------------- ----------- --------------
Income from continuing operations before
interest and taxes 255 726 (220) 762
Interest, net 127 1 403 (2) 531
------------ -------------- ----------- --------------
Income from continuing operations before taxes 128 725 (623) 231
Provision for income taxes - - 120 (3) 120
------------ -------------- ----------- --------------
Income from continuing operations 128 725 (743) 111
Gain on disposal of restaurant segment 190 - - 190
Gain on disposal of operations of
unconsolidated subsidiary 114 - - 114
------------ -------------- ----------- --------------
Net income $ 432 $ 725 $ (743) $ 415
------------ -------------- ----------- --------------
------------ -------------- ----------- --------------
Net income per share $ 0.03 $ 0.01
------------ --------------
------------ --------------
Weighted average shares outstanding 15,398,630 40,148,500
------------ --------------
------------ --------------
</TABLE>
(1) Reflects amortization of goodwill, trademarks and debt issuance costs
resulting from acquisition.
(2) Interest expense adjusted to reflect debt remaining after acquisition.
(3) Related tax effect of pro forma adjustments and combined businesses.
Part FS PAge 36
<PAGE>
PART III
Item 1
Exhibit Index
Exhibit Number Page #
2 (i) Articles of Incorporation
(ii) Bylaws
6 Material Contracts
(i) Sirrom Financing Agreements
(ii) Ross Tannenbaum Employment Agreement
(iii) Merchandise License Agreement
(iv) Standard Franchise Documents
7 Letter on change in certifying accountant
Exhibit Index
<PAGE>
Pursuant to the requirements of Section 12 of the Securities Exchange Age of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
DREAMS, INC.
Date: October 20, 1999 By: /s/
---------------------------- ------------------------------------
(Signature)
Signature Page
<PAGE>
EXHIBIT 2(i)
Articles of Incorporation
<PAGE>
ARTICLES OF AMENDMENT
Pursuant to Section 16-10a-1006 of the Utah Revised Business
Corporation Act, Dreams, Inc., a Utah corporation hereby files with the Utah
Division of Corporations and Commercial Code the following Articles of
Amendment:
FIRST: The name of the corporation is Dreams, Inc.
SECOND: The following Article replaces in its entirety the
correspondingly numbered Article in the Company's Revised
Articles of Incorporation:
ARTICLE IV - STOCK
THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK WHICH THIS
CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS 100,000,000 (ONE
HUNDRED MILLION) NO PAR VALUE PER SHARE.
UPON THE EFFECTIVENESS OF THESE ARTICLES OF AMENDMENT
PURSUANT TO THE UTAH REVISED BUSINESS CORPORATION ACT, EACH
SHARE OF THE CORPORATION'S PREVIOUSLY ISSUED AND OUTSTANDING
$0.05 PAR VALUE COMMON STOCK SHALL BE DEEMED CONVERTED INTO
ONE SHARE OF THIS CORPORATION'S NO PAR VALUE COMMON STOCK. THE
CORPORATION SHALL INSTITUTE PROCEDURES TO PROVIDE FOR THE
ORDERLY EXCHANGE OF CERTIFICATES.
THIRD: Provisions for implementing the conversion of $0.05 par value
common shares into no par value common shares are contained in
Article IV.
FOURTH: The Amendment was adopted on January 14, 1999.
FIFTH: The Amendment was approved by the Company's shareholders. The
number of shares of common stock, the Company's only class of
stock, issued and outstanding on January 14, 1999 was
40,148,500 (Forty Million One Hundred Forty Eight Thousand
Five Hundred).
SIXTH: The number of shares entitled to be voted was 40,148,500
(Forty Million One Hundred Forty Eight Thousand Five Hundred).
SEVENTH: 23,946,495 (Twenty Three Million Nine Hundred Forty Six
Thousand Four Hundred Ninety Five) shares were indisputably
represented at the meeting.
EIGHTH: The total number of shares cast in favor of the above
amendment was 23,946,495 (Twenty Three Million Nine Hundred
Forth Six Thousand Four Hundred Ninety Five) and the total
number of shares cast against the above
Art Of Inc Page 1
<PAGE>
amendment was - 0 - (None). The number of votes cast for the
amendment was sufficient for approval.
Filed in accordance with Section 16-10a-120 of the Utah Revised
Business Corporation Act this 14th day of January, 1999.
DREAMS, INC., a Utah corporation
By:____________________________________
SAM D. BATTISTONE
Its: President
By:____________________________________
MARK VINER
Its: Secretary
STATE OF NEVADA )
: ss.
COUNTY OF CLARK )
On the 14th day of January, 1999, before me, the undersigned Notary,
personally appeared Sam D. Battistone, known or identified to me to be the
President of Dreams, Inc., a Utah corporation, and acknowledged to me that such
corporation executed the foregoing instrument.
Dated this 14th day of January, 1999.
__________________________________________
NOTARY PUBLIC
My Commission Expires:
Art Of Inc Page 2
<PAGE>
ARTICLES OF AMENDMENT
Pursuant to Section 16-10a-1006 of the Utah Revised Business
Corporation Act, the corporation known prior to this amendment as StratAmerica
Corporation hereby files with the Utah Division of Corporations and Commercial
Code the following Articles of Amendment:
FIRST: The name of the corporation, prior to the effectiveness of
this amendment, is StratAmerica Corporation.
SECOND: The following articles replace in their entirety the
correspondingly numbered articles in the Company's Revised
Articles of Incorporation:
ARTICLE I - NAME
The name of this corporation is Dreams, Inc.
ARTICLE IV - STOCK
The aggregate number of shares of common stock which this corporation
shall have authority to issue is 50,000,000 (fifty million) $.05 par value per
share.
ARTICLE V - INDEMNIFICATION AND
LIMITATION OF LIABILITY
This corporation shall indemnify all officers, directors and agents to
the fullest extent permitted by law.
To the fullest extent permitted by the Utah Revised Business
Corporation Act or any other applicable law as now in effect or as it may
hereafter be amended, directors of this corporation shall not be personally
liable to the corporation or its shareholders for monetary damages for any
action taken or any failure to take any action as a director.
Neither any amendment nor repeal of this resolution, or the adoption of
any provision of the Articles of Incorporation of this corporation inconsistent
with this resolution, shall eliminate or reduce the effect of this resolution in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this resolution, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
THIRD: Each of the above amendments were adopted on March 28, 1996,
by the Shareholders of the Company in the manner prescribed by
Utah law.
FOURTH: The number of shares of common stock, the Company's only class
of stock, issued and outstanding on March 28, 1996, was
10,000,000 (ten million).
Art Of Inc Page 3
<PAGE>
FIFTH: The number of shares entitled
to be voted was 10,000,000 (ten million).
SIXTH: The total number of shares cast in favor of all the above
amendments was 8,117,490 and the total number of shares cast
against the above amendments was 18,540.
SEVENTH: 8,132,430 shares were indisputably represented at the meeting.
Filed in accordance with Section 16-10a-120 of the Utah Revised
Business Corporation Act this 28th day of March, 1996.
STRATAMERICA CORPORATION, a
Utah corporation
By:____________________________________
SAM D. BATTISTONE
Its: President
By:____________________________________
DALE E. LARSSON
Its: Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the 28th day of March, 1996, before me, the undersigned Notary,
personally appeared Sam D. Battistone, known or identified to me to be the
President of StratAmerica Corporation, and acknowledged to me that such
corporation executed the foregoing instrument.
Dated this 28th day of March, 1996.
___________________________________
NOTARY PUBLIC
My Commission Expires:
Art Of Inc Page 4
<PAGE>
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the 28th day of March, 1996, before me, the undersigned Notary,
personally appeared Dale E. Larsson, known or identified to me to be the
Secretary of StratAmerica Corporation, and acknowledged to me that such
corporation executed the foregoing instrument.
Dated this 28th day of March, 1996.
___________________________________
NOTARY PUBLIC
My Commission Expires:
Art Of Inc Page 5
<PAGE>
REVISED ARTICLES OF INCORPORATION
OF STRATAMERICA CORPORATION
ARTICLE I - NAME
The name of this corporation is StratAmerica Corporation.
ARTICLE II - DURATION
The duration of this corporation is perpetual.
ARTICLE III - PURPOSES
A. The purposes for which this corporation is organized are to
engage in all aspects of the restaurant business.
B. This corporation shall have all of the powers granted or
allowed by the Utah Business Corporation Act, as may be amended from time to
time, and all of the powers necessary or convenient to effect any or all of
the purposes for which this corporation is organized.
C. This corporation shall have power to acquire by purchase,
exchange, gift, bequest, subscription or otherwise, and to hold, own,
mortgage, pledge, hypothecate, sell, assign, transfer, exchange or otherwise
dispose of or deal in or with its own corporate securities or stock or other
securities, including, without limitation, any shares of stock, bonds,
debentures, notes, mortgages, or other obligations, and any certificates,
receipts or other instruments representing rights or interest therein or any
property or assets created or issued by any person, firm, association, or
corporation, or any government or subdivisions, agencies or instrumentalities
thereof; to make payment therefor in any lawful manner or to issue in
exchange therefor its own securities or to use its unrestricted any
unreserved earned surplus and/or unrestricted and unreserved capital surplus
for the purchase of its own shares, and to exercise as owner or holder of any
securities, any and all rights, powers and privileges in respect thereof.
D. This corporation shall have power to act as fully and to
the same extent as a natural person might, or could do, in any part of the
world as principal, agent, partner, general or limited, trustee or otherwise,
either alone or in conjunction with any person, firm or corporation.
ARTICLE IV - STOCK
The aggregate number of shares of common stock which this
corporation shall have authority to issue is 10,000,000 shares, $.05 par
value share.
Art Of Inc Page 6
<PAGE>
Effective upon the issuance by the Utah Division of Corporations and
Commercial Code of a Certificate of Revision effecting these Revised Articles
of Incorporation, each five shares of the corporation's previously issued and
outstanding $.01 par value stock shall be deemed converted into one share of
the corporation's $.05 par value common stock. The corporation shall
institute procedures to provide for the orderly exchange of certificates and
payment for fractional shares.
ARTICLE V - INDEMNIFICATION AND LIMITATION OF LIABILITY
This corporation shall indemnify all officers, directors and agents
to the fullest extent permitted by law.
To the fullest extent permitted by the Utah Business Corporation Act
as the same exists or may hereafter be amended, a director of this
corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
ARTICLE VI - PRE-EMPTIVE RIGHTS
Shareholders shall not have pre-emptive rights to acquire shares of
common stock of this corporation.
ARTICLE VII - DIRECTORS
The number of Directors shall be not less than three (3). The number
of Directors constituting the initial Board of Directors is three (3).
Thereafter, the number of Directors shall be determined by the Bylaws.
ARTICLE VII - COMMON DIRECTORS
No contract or other transaction between this corporation and one or
more of its Directors or any other corporation, firm, association or entity
in which one or more of its Directors are directors or officers or are
financially interested, shall be either void or voidable because of such
relationship or interest, or because such Director or Directors are present
at the meeting of the Board of Directors, or a committee thereof, which
authorizes, approves or ratifies such contract or transaction, or because his
or their votes are counted for such purpose of: (a) the fact of such
relationship or interest is disclosed or known to the Board of Directors or
committee which authorizes, approves or ratifies the contract or transaction
by vote or consent of such interested Director; or (b) the fact of such
relationship or interest is disclosed or known to the shareholders entitled
to vote and they authorize, approve or ratify such contract or transaction by
vote or written consent; or (c) the contract or transaction is fair and
reasonable to the corporation. Common or interested Directors may be counted
in determining the presence of a quorum at a meeting of the Board of
Directors or committee thereof which authorizes, approves or ratifies such
contract or transaction.
Art Of Inc Page 7
<PAGE>
ARTICLE IX - REVISED ARTICLES
These Revised Articles of Incorporation supercede the original
Articles of Incorporation and all amendments thereto.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF STRATAMERICA CORPORATION
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The following Amendment to the Articles of Incorporation
was adopted by the shareholders of StratAmerica Corporation on June 2, 1989
in the manner prescribed by the Utah Business Corporation Act:
The attached Revised Articles of Incorporation were adopted and are
incorporated by this reference.
SECOND: The number of shares of common stock of the corporation
outstanding at the time of such adoption was 24,630,981 and the number of
shares entitled to vote thereon was 24,630,981.
THIRD: The number of shares voted for such amendment was
18.585,683 and the number of shares voted against such amendment was 57,750.
FOURTH: The exchange and cancellation of issued certificates and
the issuance and delivery of new certificates shall be effected in the manner
set forth in the Revised Articles of Incorporation.
FIFTH: Stated capital of StratAmerica Corporation is not changed
by this Amendment.
STRATAMERICA CORPORATION
By:____________________________________
Sam D. Battistone, President
ATTESTED AND VERIFIED this 8th day of June, 1989.
__________________________________
Dale E. Larsson, Secretary
Art Of Inc Page 8
<PAGE>
STATE OF CALIFORNIA )
:ss.
COUNTY OF RIVERSIDE )
The foregoing instrument was acknowledged before me this 8th day of
June, 1989, by Sam D. Battistone, President of StratAmerica Corporation, a
Utah corporation.
__________________________________________
NOTARY PUBLIC
Residing at:______________________________
Art Of Inc Page 9
<PAGE>
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this 8th day of
June, 1989, by Dale E. Larsson, Secretary of StratAmerica Corporation, a Utah
corporation.
__________________________________________
NOTARY PUBLIC
Residing at:______________________________
My Commission Expires:
______________________
Art Of Inc Page 10
<PAGE>
EXHIBIT 2(ii)
Bylaws
<PAGE>
BYLAWS
OF
DREAMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I NAME, REGISTERED OFFICE, AND REGISTERED AGENT
1.1 Name......................................................... 1
1.2 Business Office.............................................. 1
1.3 Registered Office............................................ 1
ARTICLE II SHAREHOLDERS
2.1 Annual Shareholder Meetings.................................. 1
2.2 Special Shareholder Meetings................................. 2
2.3 Place of Shareholder Meeting................................. 2
2.4 Notice of Shareholder Meeting................................ 2
2.5 Fixing of Record Date........................................ 4
2.6 Shareholder List.............................................. 5
2.7 Shareholder Quorum and Voting Requirements................... 5
2.8 Increasing Either Quorum or Voting Requirements.............. 5
2.9 Proxies...................................................... 6
2.10 Voting of Shares............................................. 6
2.11 Corporation's Acceptance of Votes............................ 6
2.12 Informal Action by Shareholders.............................. 7
2.13 Voting For Directors......................................... 8
2.14 Shareholder's Right to Inspect Corporate Records............. 8
2.15 Financial Statements shall be Furnished to the Shareholders.. 9
2.16 Dissenter's Rights........................................... 10
ARTICLE III BOARD OF DIRECTORS
3.1 General Powers............................................... 10
3.2 Number, Tenure, and Qualifications of Directors.............. 10
3.3 Regular Meetings of the Board of Directors................... 10
3.4 Special Meetings............................................. 11
</TABLE>
Bylaws Index Page i
<PAGE>
<TABLE>
<S> <C>
3.5 Notice of, and Waiver of Notice for, Special Director
Meetings................................................... 11
3.6 Director Quorum.............................................. 11
3.7 Directors, Manner of Acting.................................. 12
3.8 Establishing a "Supermajority" Quorum or Voting Requirement
for the Board of Directors................................. 12
3.9 Director Action Without a Meeting............................ 13
3.10 Removal of Directors......................................... 13
3.11 Board of Director Vacancies.................................. 13
3.12 Director Compensation........................................ 14
3.13 Director Committees.......................................... 14
3.14 Chairman..................................................... 15
ARTICLE IV OFFICERS
4.1 Number of Officers........................................... 15
4.2 Appointment and Term of Office............................... 15
4.3 Removal of Officers.......................................... 16
4.4 President.................................................... 16
4.5 The Vice-Presidents.......................................... 16
4.6 The Secretary................................................ 16
4.7 The Treasurer................................................ 17
4.8 Assistant Secretaries and Assistant Treasurers............... 17
4.9 Salaries..................................................... 17
4.10 Other Officers............................................... 17
4.11 Surety Bonds................................................. 18
ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES
5.1 Indemnification of Directors................................. 18
5.2 Advance Expenses for Directors............................... 19
5.3 Indemnification of Officers, Agents and Employees Who Are
Not Directors.............................................. 19
ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Certificates for Shares...................................... 19
6.2 Shares Without Certificates.................................. 20
6.3 Registration of the Transfer of Shares....................... 20
6.4 Restrictions on Transfer of Shares Permitted................. 21
6.5 Acquisition of Shares........................................ 22
6.6 Lost or Destroyed Certificates............................... 22
</TABLE>
Bylaws Index Page ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII DISTRIBUTIONS
7.1 Distributions................................................ 22
ARTICLE VIII CORPORATE SEAL
8.1 Corporate Seal............................................... 22
ARTICLE IX CONTRACTS, LOANS, CHECKS AND DEPOSITS
9.1 Contracts.................................................... 23
9.2 Loans........................................................ 23
9.3 Deposits..................................................... 23
9.4 Checks and Drafts............................................ 23
9.5 Bonds and Debentures......................................... 23
ARTICLE X EMERGENCY BYLAWS
10.1 Emergency Bylaws............................................. 23
ARTICLE XI AMENDMENTS
11.1 Amendments................................................... 24
ARTICLE XII EXEMPTION FROM CONTROL SHARES ACQUISITION ACT................ 25
</TABLE>
Bylaws Index Page iii
<PAGE>
BYLAWS OF
DREAMS, INC.
ARTICLE I
NAME, OFFICES AND REGISTERED AGENT
1.1 NAME.
The name of this corporation is Dreams, Inc.
1.2 BUSINESS OFFICE.
The principal office of the corporation shall be located at any
place either within or outside the State of Utah as designated in the
company's most recent document on file with the Utah Department of Commerce,
Division of Corporations and Commercial Code (the "Division") providing
information regarding the principal office of the corporation. The
corporation may have such other offices, either within or without the State
of Utah as the board of directors may designate or as the business of the
corporation may require from time to time. The corporation shall maintain at
its principal office a copy of certain records, as specified in Section 2.14
of Article II of these bylaws.
1.3 REGISTERED OFFICE.
The registered office of the corporation, required by Section 501 of
the Utah Revised Business Corporation Act (the "Act") shall be located within
Utah. The address of the registered office may be changed from time to time.
The name of the initial registered agent of this corporation is Dale E.
Larsson.
ARTICLE II
SHAREHOLDERS
2.1 ANNUAL SHAREHOLDER MEETING.
The annual meeting of the shareholders shall be held on the 31st day
of July, in each year, beginning with the year 2000, at the hour of 11:00
o'clock a.m., or at such other time on such other day within such month as
shall be fixed by the board of directors, for the purpose of electing
directors and for the transaction of such other business as may come before
the meeting. If the day fixed for the annual meeting shall be a legal holiday
in the State of Utah, such meeting shall be held on the next succeeding
business day.
If the election of directors shall not be held on the day designated
herein for any annual meeting of the shareholders, or at any subsequent
continuation after adjournment thereof, the board of directors may cause the
election to be held at a special meeting of the shareholders when convenient.
Failure to hold an annual meeting shall not work a forfeiture or
dissolution of the corporation.
Bylaws Page 1
<PAGE>
2.2 SPECIAL SHAREHOLDER MEETINGS.
Special meetings of the shareholders, for any purpose or purposes,
described in the meeting notice, may be called by the president, or by the
board of directors and shall be called by the president at the request of the
holders of not less than one-tenth of all outstanding votes of the
corporation entitled to be cast on any issue at the meeting.
2.3 PLACE OF SHAREHOLDER MEETING.
The board of directors may designate any place for any annual or
special meeting of the shareholders, unless a majority of the shareholders
entitled to vote at the meeting agree by written consents (which may be in
the form of waiver of notice or otherwise) to another location, which may be
either within or without the State of Utah. If no designation is made, the
place of meeting shall be the principal office of the corporation.
2.4 NOTICE OF SHAREHOLDER MEETING.
(a) REQUIRED NOTICE.
Written notice stating the place, day and hour of any annual
or special shareholder meeting shall be delivered not less than 10 nor
more than 60 days before the date of the meeting, either personally or
by mail, by or at the direction of the president, the board of
directors, or other persons calling the meeting, to each shareholder of
record, entitled by the Act or the articles of incorporation to receive
notice of the meeting. Notice shall be deemed to be effective at the
earlier of:
(1) When deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of
the corporation, with postage thereon prepaid;
(2) On the date shown on the return receipt if sent by
registered or certified mail, return receipt requested, and the receipt
is signed by or on behalf of the addressee;
(3) When received; or
(4) Five days after deposit in the United States mail, if
mailed postpaid and correctly addressed to an address other than that
shown in the corporation's current record of shareholders.
Bylaws Page 2
<PAGE>
(b) ADJOURNED MEETING.
If any shareholder meeting is adjourned to a different date,
time, or place, notice need not be given of the new date, time and
place, if the new date, time and place is announced at the meeting
before adjournment. But if a new record date for the adjourned meeting
is, or must be fixed then notice must be given pursuant to the
requirements of paragraph (a) of this Section 2.4, to those persons who
are shareholders as of the new record date.
(c) WAIVER OF NOTICE.
The shareholder may waive notice of the meeting (or any notice
required by the Act, articles of incorporation, or bylaws), by a
writing signed by the shareholder entitled to the notice, which is
delivered to the corporation (either before or after the date and time
stated in the notice) for inclusion in the minutes or filing with the
corporate records.
A shareholders's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of
the meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting;
(2) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the
matter when it is presented.
(d) CONTENTS OF NOTICE.
The notice of each special shareholder meeting shall include a
description of the purpose or purposes for which the meeting is called.
Except as provided in this Section 2.4(d), or as provided in the
corporation's articles, or otherwise in the Act, the notice of an
annual shareholder meeting need not include a description of the
purpose or purposes for which the meeting is called.
If a purpose of any shareholder meeting is to consider either:
(1) A proposed amendment to the articles of incorporation
(including any restated articles requiring shareholder approval);
(2) A plan of merger or share exchange;
(3) The sale, lease, exchange or other disposition of all, or
substantially all of the corporation's property;
(4) The dissolution of the corporation; or
Bylaws Page 3
<PAGE>
(5) The removal of a director, the notice must so state and be
accompanied by respectively a copy or summary of the:
(i) Articles of amendment;
(ii) Plan of merger or share exchange; and
(iii) Transaction for disposition of all the
corporation's property.
If the proposed corporate action creates dissenters' rights, the
notice must state that shareholders are, or may be entitled to assert
dissenters' rights, and must be accompanied by a copy of Part 13 of the Act.
If the corporation issues, or authorizes the issuance of shares for
promissory notes or for promises to render services in the future, the
corporation shall report in writing to all the shareholders the number of
shares authorized or issued, and the consideration received with or before
the notice of the next shareholder meeting. Likewise, if the corporation
indemnifies or advances expenses to a director, this shall be reported to all
the shareholders with or before notice of the next shareholder's meeting.
2.5 FIXING OF RECORD DATE.
For the purpose of determining shareholders of any voting group
entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any distribution or dividend, or
in order to make a determination of shareholders for any other proper
purpose, the board of directors may fix in advance a date as the record date.
Such record date shall not be more than 70 days prior to the date on which
the particular action, requiring such determination of shareholders, is to be
taken. If no record date is so fixed by the board for the determination of
shareholders entitled to notice of, or to vote at a meeting of shareholders,
or shareholders entitled to receive a share dividend or distribution, the
record date for determination of such shareholders shall be at the close of
business on:
(a) With respect to an annual shareholder meeting or any special
shareholder meeting called by the board or any person specifically authorized
by the board or these bylaws to call a meeting, the day before the first
notice is delivered to shareholders;
(b) With respect to a special shareholder's meeting demanded by the
shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the
board authorizes the share dividend;
(d) With respect to actions taken in writing without a meeting
(pursuant to Article II, Section 2.12), the date the first shareholder signs
a consent;
(e) And with respect to a distribution to shareholders, (other than
one involving a repurchase or reacquisition of shares), the date the board
authorizes the distribution.
Bylaws Page 4
<PAGE>
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof unless the board of directors fixes a
new record date which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
2.6 SHAREHOLDER LIST.
The officer or agent having charge of the stock transfer books for
shares of the corporation shall make a complete record of the shareholders
entitled to vote at each meeting of shareholders thereof, arranged in
alphabetical order, with the address of and the number of shares held by
each. The list must be arranged by voting group (if such exists, see Article
II, Section 2.6) and within each voting group by class or series of shares.
The shareholder list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which
the list was prepared and continuing through the meeting. The list shall be
available at the corporation's principal office or at a place identified in
the meeting notice in the city where the meeting is to be held. A
shareholder, his agent, or attorney is entitled on written demand to inspect
and, subject to the requirements of Section 2.13 of this Article II, to copy
the list during regular business hours and at his expense, during the period
it is available for inspection. The corporation shall maintain the
shareholder list in written form or in another form capable of conversion
into written form within a reasonable time.
2.7 SHAREHOLDER QUORUM AND VOTING REQUIREMENTS.
If the articles of incorporation or the Act provides for voting by a
single voting group on a matter, action on that matter is taken when voted
upon by that voting group.
Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect
to that matter. Unless the articles of incorporation, a bylaw or the Act
provide otherwise, a majority of the votes entitled to be cast on the matter
by the voting group constitutes a quorum of that voting group for action on
that matter. If the articles of incorporation or the Act provide for voting
by two or more voting groups on a matter, action on that matter is taken only
when voted upon by each of those voting groups counted separately. Action may
be taken by one voting group on a matter even though no action is taken by
another voting group entitled to vote on the matter.
Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for
any adjournment of that meeting unless a new record date is or must be set
for that adjourned meeting. If a quorum exists, action on a matter (other
than the election of directors) by a voting group is approved if the votes
cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the articles of incorporation, a bylaw or the Act
require a greater number of affirmative votes.
Bylaws Page 5
<PAGE>
2.8 INCREASING EITHER QUORUM OR VOTING REQUIREMENTS.
For purposes of this Section 2.8 a "supermajority" quorum is a
requirement that more than a majority of the votes of the voting group be
present to constitute a quorum; and a "supermajority" voting requirement is
any requirement that requires the vote of more than a majority of the
affirmative votes of a voting group at a meeting.
The shareholders, but only if specifically authorized to do so by
the articles of incorporation, may adopt, amend, or delete a bylaw which
fixes a "supermajority" quorum or "supermajority" voting requirement.
The adoption or amendment of a bylaw that adds, changes, or deletes
a "supermajority" quorum or voting requirement for shareholders must meet the
same quorum requirement and be adopted by the same vote and voting groups
required to take action under the quorum and voting requirement then in
effect or proposed to be adopted, whichever is greater.
A bylaw that fixes a supermajority quorum or voting requirement for
shareholders may not be adopted, amended, or repealed by the board of
directors.
2.9 PROXIES.
At all meetings of shareholders, a shareholder may vote in person,
or vote by proxy which is executed in writing by the shareholder or which is
executed by his duly authorized attorney-in-fact. Such proxy shall be filed
with the secretary of the corporation or other person authorized to tabulate
votes before or at the time of the meeting. No proxy shall be valid after 11
months from the date of its execution unless otherwise provided in the proxy.
2.10 VOTING OF SHARES.
Unless otherwise provided in the articles, each outstanding share
entitled to vote shall be entitled to one vote upon each matter submitted to
a vote at a meeting of shareholders.
Except as provided by specific court order, no shares held by
another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting. Provided,
however, the prior sentence shall not limit the power of the corporation to
vote any shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after notice of
redemption is mailed to the holders and a sum sufficient to redeem the shares
has been deposited with a bank, trust company, or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares.
Bylaws Page 6
<PAGE>
2.11 CORPORATION'S ACCEPTANCE OF VOTES.
(a) If the name signed on a vote, consent, waiver, or proxy
appointment corresponds to the name of a shareholder, the corporation if
acting in good faith is entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholders.
(b) If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of its shareholder, the
corporation if acting in good faith is nevertheless entitled to accept the
vote, consent, waiver, or proxy appointment and give it effect as the act of
the shareholder if:
(1) The shareholder is an entity as defined in the Act and the
name signed purports to be that of an officer or agent of the entity;
(2) The name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder and, if
the corporation requests, evidence of fiduciary status acceptable to
the corporation has been presented with respect to the vote, consent,
waiver, or proxy appointment;
(3) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation
requests, evidence of this status acceptable to the corporation has
been presented with respect to the vote, consent, waiver, or proxy
appointment;
(4) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to the vote, consent, waiver, or proxy appointment;
(5) Two or more persons are the shareholder as co-tenants or
fiduciaries and the named signed purports to be the name of at least
one of the co-owners and the person signing appears to be acting on
behalf of all the co-owners.
(c) The corporation is entitled to reject a vote, consent, waiver or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about
the validity of the signature on it or about the signatory's authority to
sign for the shareholder.
(d) The corporation and its officer or agent who accepts or rejects
a vote, consent, waiver, or proxy appointment in good faith and in accordance
with the standards of this section are not liable in damages to the
shareholder for the consequences of the acceptance or rejection.
(e) Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a
court of competent jurisdiction determines otherwise.
Bylaws Page 7
<PAGE>
2.12 INFORMAL ACTION BY SHAREHOLDERS.
Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if one or more consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares having no less than the minimum number of votes that would
be necessary to authorize or take the action and are entitled to vote with
respect to the subject matter thereof and are delivered to the corporation
for inclusion in the minute book. If the act to be taken requires that notice
be given to non-voting shareholders, the corporation shall give the
non-voting shareholders written notice of the proposed action at least 10
days before the action is taken, which notice shall contain or be accompanied
by the same material that would have been required if a formal meeting had
been called to consider the action. A consent signed under this section has
the effect of a meeting vote and may be described as such in any document.
2.13 VOTING FOR DIRECTORS.
Unless otherwise provided in the articles of incorporation,
directors are elected by a plurality of the votes cast by the shares entitled
to vote in the election at a meeting at which a quorum is present.
2.14 SHAREHOLDER'S RIGHT TO INSPECT CORPORATE RECORDS.
(a) MINUTES AND ACCOUNTING RECORDS. The corporation shall keep as
permanent records minutes of all meetings of its shareholders or board of
directors, a record of all actions taken by the shareholders or board of
directors without a meeting, and a record of all actions taken by a committee
of the board of directors in place of the board of directors on behalf of the
corporation. The corporation shall maintain appropriate accounting records.
(b) ABSOLUTE INSPECTION RIGHTS OF RECORDS REQUIRED AT PRINCIPAL
OFFICE. If he gives the corporation written notice of his demand at least
five business days before the date on which he wishes to inspect and copy, a
shareholder (or his agent or attorney) has the right to inspect and copy,
during regular business hours any of the following records, all of which the
corporation is required to keep at its principal office:
(1) Its articles or restated articles of incorporation and all
amendments to them currently in effect;
(2) Its bylaws or restated bylaws and all amendments to them
currently in effect;
(3) Resolutions adopted by its board of directors creating one
or more classes or series of shares, and fixing their relative rights,
preferences, and limitations, if shares issued pursuant to those
resolutions are outstanding;
(4) The minutes of all shareholders' meetings, and records of
all action taken by shareholders without a meeting, for the past three
years;
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(5) All written communications to shareholders generally
within the past three years, including the financial statement
furnished for the past three years to the shareholders;
(6) A list of the names and business addresses of its current
directors and officers; and
(7) Its most recent annual report delivered to the Secretary
of State.
(c) CONDITIONAL INSPECTION RIGHT. In addition, if he gives the
corporation a written demand made in good faith and for a proper purpose at
least five business days before the date on which he wishes to inspect and
copy, he describes with reasonable particularity his purpose and the records
he desires to inspect, and the records are directly connected with his
purpose, a shareholder of a corporation (or his agent or attorney) is
entitled to inspect and copy, during regular business hours at a reasonable
location specified by the corporation, any of the following records of the
corporation:
(1) Excerpts from minutes of any meeting of the board of
directors, records of any action of a committee of the board of
directors on behalf of the corporation, minutes of any meeting of the
shareholders, and records of action taken by the shareholders or board
of directors without a meeting, to the extent not subject to inspection
under paragraph (a) of this Section 2.13;
(2) Accounting records of the corporation; and
(3) The record of shareholders (compiled no earlier than the
date of the shareholder's demand).
(d) COPY COSTS. The right to copy records includes, if reasonable,
the right to receive copies made by photographic, xerographic, or other
means. The corporation may impose a reasonable charge, covering the costs of
labor and material, for copies of any documents provided to the shareholder.
The charge may not exceed the estimated cost of production or reproduction of
the records.
(e) SHAREHOLDER INCLUDES BENEFICIAL OWNER. For purposes of this
Section 2.14, the term "shareholder" shall include a beneficial owner whose
shares are held in a voting trust or by a nominee on his behalf.
2.15 FINANCIAL STATEMENTS SHALL BE FURNISHED TO THE SHAREHOLDERS.
(a) The corporation shall furnish its shareholders annual financial
statements, which may be consolidated or combined statements of the
corporation and one or more of its subsidiaries, as appropriate, that include
a balance sheet as of the end of the fiscal year, an income statement for
that year, and a statement of changes in shareholders' equity for the year
unless that information appears
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elsewhere in the financial statements. If financial statements are prepared
for the corporation on the basis of generally accepted accounting principles,
the annual financial statements for the shareholders also must be prepared on
that basis.
(b) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(1) Stating his reasonable belief whether the statements were
prepared on the basis of generally accepted accounting principles and,
if not, describing the basis of preparation; and
(2) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements
prepared for the preceding year.
(c) A corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year. Thereafter,
on written request from a shareholder who was not mailed the statements, the
corporation shall mail him the latest financial statements.
2.16 DISSENTER'S RIGHTS.
Each shareholder shall have the right to dissent from and obtain
payment for his shares when so authorized by the Act, articles of
incorporation, these bylaws, or in a resolution of the board of directors.
ARTICLE III
BOARD OF DIRECTORS
3.1 GENERAL POWERS.
Unless the articles of incorporation have dispensed with or limited
the authority of the board of directors by describing who will perform some
or all of the duties of a board of directors, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of the board of directors.
3.2 NUMBER, TENURE, AND QUALIFICATIONS OF DIRECTORS.
Unless otherwise provided in the articles of incorporation, the
number of directors of the corporation shall be not less than three (3) nor
more than seven (7). Each director shall hold office until the next annual
meeting of shareholders or until removed. However, if his term expires, he
shall continue to serve until his successor shall have been elected and
qualified or until there is a decrease in the number of directors. Directors
need not be residents of the State of Utah or shareholders of the corporation
unless so required by the articles of incorporation.
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3.3 REGULAR MEETINGS OF THE BOARD OF DIRECTORS.
A regular meeting of the board of directors shall be held without
other notice than this bylaw immediately after, and at the same place as, the
annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution. (If so permitted by Section 3.7,
any such regular meeting may be held by telephone.)
3.4 SPECIAL MEETINGS OF THE BOARD OF DIRECTORS.
Special meetings of the board of directors may be called by or at
the request of the president or any one director. The person authorized to
call special meetings of the board of directors may fix any place, only
within the county where this corporation has its principal office as the
place for holding any special meeting of the board of directors, or if
permitted by Section 3.7, such meeting may be held by telephone.
3.5 NOTICE OF, AND WAIVER OF NOTICE FOR, SPECIAL DIRECTOR MEETINGS.
Unless the articles of incorporation provide for a longer or shorter
period, notice of any special director meeting shall be given at least two
days previously thereto either orally or in writing. If mailed, notice of any
director meeting shall be deemed to be effective at the earlier of:
(a) When received;
(b) Five days after deposited in the United States mail, addressed
to the director's business office, with postage thereon prepaid; or
(c) The date shown on the return receipt if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the director.
Any director may waive notice of any meeting. Except as provided in
the next sentence, the waiver must be in writing, signed by the director
entitled to the notice, and filed with the minutes or corporate records. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express
purpose of objecting to the transaction of any business and at the beginning
of the meeting (or promptly upon his arrival) objects to holding the meeting
or transacting business at the meeting, and does not thereafter vote for or
assent to action taken at the meeting. Unless required by the articles of
incorporation, neither the business to be transacted at, nor the purpose of,
any special meeting of the board of directors need be specified in the notice
or waiver of notice of such meeting.
3.6 DIRECTOR QUORUM.
If bylaw Section 3.2 establishes a fixed board size, a majority of
the number of directors shall constitute a quorum for the transaction of
business at any meeting of the board of directors, unless the articles
require a greater number.
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If bylaw Section 3.2 permits a variable-range size board (a board
size set by resolution within a given range), a majority of the number of
directors prescribed by resolution, (or if no number is prescribed the number
in office immediately before the meeting begins) shall constitute a quorum
for the transaction of business at any meeting of the board of directors,
unless the articles require a greater number.
Any amendment to this quorum requirement is subject to the
provisions of Section 3.8 of this Article III.
3.7 DIRECTORS, MANNER OF ACTING.
The act of the majority of the directors present at a meeting at
which a quorum is present when the vote is taken shall be the act of the
board of directors unless the articles of incorporation require a greater
percentage. Any amendment which changes the number of directors needed to
take action, is subject to the provisions of Section 3.8 of this Article III.
Unless the articles of incorporation provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct of
the meeting through the use of, any means of communication by which all
directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.
A director who is present at a meeting of the board of directors or
a committee of the board of directors when corporate action is taken is
deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly upon his
arrival) to holding it or transacting business at the meeting; or
(b) His dissent or abstention from the action taken is entered in
the minutes of the meeting; or
(c) He delivers written notice of his dissent or abstention to the
presiding officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting.
The right of dissent or abstention is not available to a director who
votes in favor of the action taken.
3.8 ESTABLISHING A "SUPERMAJORITY" QUORUM OR VOTING REQUIREMENT FOR THE
BOARD OF DIRECTORS.
For purposes of this Section 3.8, a "supermajority" quorum is a
requirement that more than a majority of the directors in office constitute a
quorum; and a "supermajority" voting requirement is any requirement that
requires the vote of more than a majority of those directors present at a
meeting at which a quorum is present to be the act of the directors.
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A bylaw that fixes a supermajority quorum or supermajority voting
requirement may be amended or repealed:
(a) If originally adopted by the shareholders, only by the
shareholders (unless otherwise provided by the shareholders);
(b) If originally adopted by the board of directors, either by the
shareholders or by the board of directors.
A bylaw adopted or amended by the shareholders that fixes a
supermajority quorum or supermajority voting requirement for the board of
directors may provide that it may be amended or repealed only by a specified
vote of either the shareholders or the board of directors.
Subject to the provisions of the preceding paragraph, action by the
board of directors to adopt, amend, or repeal a bylaw that changes the quorum
or voting requirement for the board of directors must meet the same quorum
requirement and be adopted by the same vote required to take action under the
quorum and voting requirement then in effect or proposed to be adopted,
whichever is greater.
3.9 DIRECTOR ACTION WITHOUT A MEETING.
Unless the articles of incorporation provide otherwise, any action
required or permitted to be taken by the board of directors at a meeting may
be taken without a meeting if all the directors take the action, each one
signs a written consent describing the action taken, and the consents are
filed with the records of the corporation. Action taken by consents is
effective when the last director signs the consent, unless the consent
specifies a different effective date. A signed consent has the effect of a
meeting vote and may be described as such in any document.
3.10 REMOVAL OF DIRECTORS.
The shareholders may remove one or more directors at a meeting
called for that purpose if notice has been given that a purpose of the
meeting is such removal. The removal may be with or without cause unless the
articles provide that directors may only be removed with cause. If a director
is elected by a voting group of shareholders, only the shareholders of that
voting group may participate in the vote to remove him. If cumulative voting
is not authorized, a director may be removed only if the number of votes
sufficient to elect him under cumulative voting is voted against his removal.
If cumulative voting is not authorized, a director may be removed only if the
number of votes cast to remove him exceeds the number of votes cast not to
remove him.
3.11 BOARD OF DIRECTOR VACANCIES.
Unless the articles of incorporation provided otherwise, if a
vacancy occurs on the board of directors, including a vacancy resulting from
an increase in the number of directors, the shareholders may fill the
vacancy. During such time that the shareholders fail or are unable to fill
such vacancies then and until the shareholders act:
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(a) The board of directors may fill the vacancy; or
(b) If the directors remaining in office constitute fewer than a
quorum of the board, they may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office.
If the vacant office was held by a director elected by a voting
group of shareholders, only the holders of shares of that voting group are
entitled to vote to fill the vacancy if it is filled by the shareholders.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date) may be filled before the vacancy
occurs but the new director may not take office until the vacancy occurs.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected. However, if his term
expires, he shall continue to serve until his successor is elected and
qualifies or until there is a decrease in the number of directors.
3.12 DIRECTOR COMPENSATION.
Unless otherwise provided in the articles, by resolution of the
board of directors, each director may be paid his expenses, if any, of
attendance at each meeting of the board of directors, and may be paid a
stated salary as director or a fixed sum for attendance at each meeting of
the board of directors or both. No such payment shall preclude any director
from serving the corporation in any capacity and receiving compensation
therefor.
3.13 DIRECTOR COMMITTEES.
(a) CREATION OF COMMITTEES. Unless the articles of incorporation
provide otherwise, the board of directors may create one or more committees
and appoint members of the board of directors to serve on them. Each
committee must have two or more members, who serve at the pleasure of the
board of directors.
(b) SELECTION OF MEMBERS. The creation of a committee and
appointment of members to it must be approved by the greater of:
(1) A majority of all the directors in office when the action
is taken; or
(2) The number of directors required by the articles of
incorporation to take such action, (or if not specified in the articles
the numbers required by Section 3.7 of this Article III to take
action).
(c) REQUIRED PROCEDURES. Sections 3.4, 3.5, 3.6, 3.7, 3.8 and 3.9
of this Article III, which govern meetings, action without meetings, notice
and waiver of notice, quorum and voting requirements of the board of
directors, apply to committees and their members.
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(d) AUTHORITY. Unless limited by the articles of incorporation,
each committee may exercise those aspects of the authority of the board of
directors which the board of directors confers upon such committee in the
resolution creating the committee. Provided, however, a committee may not:
(1) Authorize distributions;
(2) Approve or propose to shareholders action that the Utah
Revised Business Corporation Act requires be approved by shareholders;
(3) Fill vacancies on the board of directors or on any of its
committees;
(4) Amend the articles of incorporation pursuant to the
authority of directors, to do so granted by Section 10.02 of the Utah
Revised Business Corporation Act;
(5) Adopt, amend, or repeal bylaws;
(6) Approve a plan of merger not requiring shareholder
approval;
(7) Authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the board of directors;
or
(8) Authorize or approve the issuance or sale or contract for
sale of shares or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except
that the board of directors may authorize a committee (or a senior
executive officer of the corporation) to do so within limits
specifically prescribed by the board of directors.
3.14 CHAIRMAN.
The board of directors may elect from its own number a chairman of
the board, who shall preside at all meetings of the board of directors, and
shall perform such other duties as may be prescribed from time to time by the
board of directors.
ARTICLE IV
OFFICERS
4.1 NUMBER OF OFFICERS.
The officers of the corporation shall be a president, a secretary,
and a treasurer, each of whom shall be appointed by the board of directors.
Such other officers and assistant officers as may be deemed necessary,
including any vice-presidents, may be appointed by the board of directors. If
specifically authorized by the board of directors, an officer may appoint one
or more officers or assistant officers. The same individual may
simultaneously hold more than one office in the corporation.
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4.2 APPOINTMENT AND TERM OF OFFICE.
The officers of the corporation shall be appointed by the board of
directors for a term as determined by the board of directors. (The
designation of a specified term grants to the officer no contract rights, and
the board can remove the officer at any time prior to the termination of such
term). If no term is specified, they shall hold office until they resign,
die, or until they are removed in the manner provided in Section 4.3 of this
Article IV.
4.3 REMOVAL OF OFFICERS.
Any officer or agent may be removed by the board of directors at any
time, with or without cause. Such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Appointment of an officer
or agent shall not of itself create contract rights.
4.4 PRESIDENT.
The president shall be the principal executive officer of the
corporation and, subject to the control of the board of directors, shall in
general supervise and control all of the business and affairs of the
corporation. He shall, when present, preside at all meetings of the
shareholders and of the board of directors. He may sign, with the secretary
or any other proper officer of the corporation thereunto authorized by the
board of directors, certificates for shares of the corporation and deeds,
mortgages, bonds, contracts, or other instruments which the board of
directors has authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the board of directors
or by these bylaws to some other officer or agent of the corporation, or
shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the board of directors from time to time.
4.5 THE VICE-PRESIDENTS.
If appointed, in the absence of the president or in the event of his
death, inability or refusal to act, the vice-president (or in the event there
be more than one vice presidency, the vice-presidents in the order designated
at the time of their election, or in the absence of any designation, then in
the order of their appointment) shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president.) Any vice-president may sign, with the
secretary or an assistant secretary, certificates for shares of the
corporation the issuance of which have been authorized by resolution of the
board of directors; and shall perform such other duties as from time to time
may be assigned to him by the president or by the board of directors.
4.6 THE SECRETARY.
The secretary shall:
(a) Keep the minutes of the proceedings of the shareholders and
of the board of directors in one or more books provided for that purpose;
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(b) See that all notices are duly given in accordance with the
provisions of these bylaws or as required by law;
(c) Be custodian of the corporate records and of any seal of
the corporation and if there is a seal of the corporation, see that it is
affixed to all documents the execution of which on behalf of the corporation
under its seal is duly authorized;
(d) When requested or required, authenticate any records of the
corporation;
(e) Keep a register of the post office address of each
shareholder which shall be furnished to the secretary by such shareholder;
(f) Sign with the president, or a vice-president, certificates
for shares of the corporation, the issuance of which shall have been
authorized by resolution of the board of directors;
(g) Have general charge of the stock transfer books of the
corporation; and
(h) In general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him
by the president or by the board of directors.
4.7 THE TREASURER.
The treasurer shall:
(a) Have charge and custody of and be responsible for all funds
and securities of the corporation;
(b) Receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the
name of the corporation in such banks, trust companies, or other depositaries
as shall be selected by the board of directors; and
(c) In general perform all of the duties incident to the office
of treasurer and such other duties as from time to time may be assigned to
him by the president or by the board of directors. If required by the board
of directors, the treasurer shall give a bond for the faithful discharge of
his duties in such sum and with such surety or sureties as the board of
directors shall determine.
4.8 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The assistant secretaries, when authorized by the board of
directors, may sign with the president or a vice-president certificates for
shares of the corporation the issuance of which shall have been authorized by
a resolution of the board of directors. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
board of directors shall determine. The assistant secretaries and assistant
treasurers, in general, shall perform such duties as shall be assigned to
them by the secretary or the treasurer, respectively, or by the president or
the board of directors.
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4.9 SALARIES.
The salaries of the officers shall be fixed from time to time by the
board of directors.
4.10 OTHER OFFICERS.
Other officers may be elected by the board of directors and shall
perform such duties and have such powers as may be assigned to them by the
board of directors.
4.11 SURETY BONDS.
If the board of directors shall so require, any officer or agent of
the corporation shall execute to the corporation a bond in such funds and
with such surety or sureties as the board of directors may direct.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES
5.1 INDEMNIFICATION OF DIRECTORS.
Unless otherwise provided in the articles, the corporation shall
indemnify any individual made a party to a proceeding because he is or was a
director of the corporation, against liability incurred in the proceeding,
but only if the corporation has authorized the payment in accordance with
Section 906 of the Act and a determination has been made in accordance with
the procedures set forth in Section 906(2) of the Act that the director met
the standards of conduct in paragraph (a), (b) and (c) below.
(a) STANDARD OF CONDUCT. The individual shall demonstrate that:
(1) He conducted himself in good faith; and
(2) He reasonably believed:
(i) In the case of conduct in his
official capacity with the corporation, that his conduct was
in its best interests;
(ii) In all other cases, that his conduct
was at least not opposed to its best interests; and
(iii) In the case of any criminal
proceeding, he had no reasonable cause to believe his conduct
was unlawful.
(b) NO INDEMNIFICATION PERMITTED IN CERTAIN CIRCUMSTANCES. The
corporation shall not indemnify a director under this Section 5.1 of Article V:
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(1) In connection with a proceeding by or in the right of the
corporation which the director was adjudged liable to the corporation;
or
(2 ) In connection with any other proceeding charging improper
personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him.
(c) INDEMNIFICATION IN DERIVATIVE ACTIONS LIMITED. Indemnification
permitted under this Section 5.1 of Article V in connection with a proceeding
by or in the right of the corporation is limited to reasonable expenses
incurred in connection with the proceeding.
5.2 ADVANCE EXPENSES FOR DIRECTORS.
If a determination is made, following the procedures of Section 906
that the director has met the following requirements; and if an authorization
of payment is made, following the procedures and standards set forth in
Section 906 of the Act then unless otherwise provided in the articles of
incorporation, the company shall pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding, if:
(a) The director furnishes the corporation a written
affirmation of his good faith belief that he has meet the standard of conduct
described in Section 5.1 of this Article V;
(b) The director furnishes the corporation a written
undertaking, executed personally or on his behalf, to repay the advance if it
is ultimately determined that he did not meet the standard of conduct (which
undertaking must be an unlimited general obligation of the director but need
not be secured and may be accepted without reference to financial ability to
make repayment); and
(c) A determination is made that the facts then known to those
making the determination would not preclude indemnification under Section 5.1
of this Article V or the Act.
5.3 INDEMNIFICATION OF OFFICERS, AGENTS AND EMPLOYEES WHO ARE NOT
DIRECTORS.
Unless otherwise provided in the articles of incorporation, the
board of directors may indemnify and advance expenses to any officer,
employee, or agent of the corporation, who is not a director of the
corporation, to any extent consistent with public policy, as determined by
the general or specific action of the board of directors.
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ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 CERTIFICATES FOR SHARES.
(a) CONTENT. Certificates representing shares of the
corporation shall at minimum, state on their face the name of the issuing
corporation and that it is formed under the laws of Utah; the name of the
person to whom issued; and the number and class of shares and the designation
of the series, if any, the certificate represents; and be in such form as
determined by the board of directors. Such certificates shall be signed
(either manually or by facsimile) by the president or a vice president and by
the secretary or an assistant secretary and may be sealed with a corporate
seal or a facsimile thereof. Each certificate for shares shall be
consecutively numbered or otherwise identified.
(b) LEGEND AS TO CLASS OR SERIES. If the corporation is
authorized to issue different classes of shares or different series within a
class, the designations, relative rights, preferences, and limitations
applicable to each class and the variations in rights, preferences, and
limitations determined for each series (and the authority of the board of
directors to determine variations for future series) must be summarized on
the front or back of each certificate. Alternatively, each certificate may
state conspicuously on its front or back that the corporation will furnish
the shareholder this information on request in writing and without charge.
(c) SHAREHOLDER LIST. The name and address of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the stock transfer books of the
corporation.
(d) TRANSFERRING SHARES. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have
been surrendered and canceled, except that in case of a lost, destroyed, or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the corporation as the board of directors may prescribe.
6.2 SHARES WITHOUT CERTIFICATES.
(a) ISSUING SHARES WITHOUT CERTIFICATES . Unless the articles
of incorporation provide otherwise, the board of directors may authorize the
issue of some or all the shares of any or all of its classes or series
without certificates. The authorization does not affect shares already
represented by certificates until they re surrendered to the corporation.
(b) INFORMATION STATEMENT REQUIRED. Within a reasonable time
after the issue or transfer of shares without certificates, the corporation
shall send the shareholder a written statement containing at minimum:
(1) The name of the issuing corporation and that it is
organized under the law of this state;
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(2) The name of the person to whom issued; and
(3) The number and class of shares and the designation of the
series, if any, of the issued shares.
If the corporation is authorized to issue different classes of
shares or different series within a class, the written statement shall
describe the designations, relative rights, preferences, and limitations
applicable to each class and the valuation in rights, preferences, and
limitations determined for each series (and the authority of the board of
directors to determine variations for future series).
6.3 REGISTRATION OF THE TRANSFER OF SHARES.
Registration of the transfer of shares of the corporation shall be
made only on the stock transfer books of the corporation. In order to
register a transfer, the record owner shall surrender the shares to the
corporation for cancellation, properly endorsed by the appropriate person or
persons with reasonable assurances that the endorsements are genuine and
effective. Unless the corporation has established a procedure by which a
beneficial owner of shares held by a nominee is to be recognized by the
corporation as the owner, the person in whose name shares stand on the books
of the corporation shall be deemed by the corporation to be the owner thereof
for all purposes.
6.4 RESTRICTIONS ON TRANSFER OF SHARES PERMITTED.
The board of directors (or shareholders) may impose restrictions on
the transfer or registration of transfer of shares (including any security
convertible into, or carrying a right to subscribe for or acquire shares). A
restriction does not affect shares issued before the restriction was adopted
unless the holders of the shares are parties to the restriction agreement or
voted in favor of the restriction.
A restriction on the transfer or registration of transfer of shares
may be authorized:
(a) To maintain the corporation's status when it is dependent on
the number or identity of its shareholders;
(b) To preserve exemptions under federal or state securities law;
(c) For any other reasonable purpose. A restriction on the
transfer or registration of transfer of shares may:
(1) Obligate the shareholder first to offer the corporation or
other persons separately, consecutively, or simultaneously) an
opportunity to acquire the restricted shares;
(2) Obligate the corporation or other persons (separately,
consecutively, or simultaneously) to acquire the restricted shares;
Bylaws Page 21
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(3) Require the corporation, the holders or any class of its
shares, or another person to approve the transfer of the restricted
shares, if the requirement is not manifestly unreasonable;
(4) Prohibit the transfer of the restricted shares to
designated persons or classes of persons, if the prohibition is not
manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if
the restriction is authorized by this section and its existence is noted
conspicuously on the front or back of the certificate or is contained in the
information statement required by Section 6.2 of this Article VI with regard
to shares issued without certificates. Unless so noted, a restriction is not
enforceable against a person without knowledge of the restriction.
6.5 ACQUISITION OF SHARES.
The corporation may acquire its own shares and unless otherwise
provided in the articles of incorporation, the shares so acquired constitute
authorized but unissued shares.
If the articles of incorporation prohibit the reissue of acquired
shares, the number of unauthorized shares is reduced by the number of shares
acquired, effective upon amendment of the articles of incorporation, which
amendment shall be adopted by the shareholders or the board of directors
without shareholder action. The articles of amendment must be delivered to
the Secretary of State and must set forth:
(a) The name of the corporation;
(b) The reduction in the number of authorized shares, itemized by
class and series; and
(c) The total number of authorized shares, itemized by class and
series, remaining after reduction of the shares.
6.6 LOST OR DESTROYED CERTIFICATES.
The board of directors may direct a new certificate to be issued to
replace any certificate heretofore issued by the corporation and alleged to
have been lost or destroyed if the owner makes an affidavit that the
certificate is lost or destroyed. The board of directors may, at its
discretion, require the owner of such certificate or has legal representative
to give the corporation a bond in such sum and with such sureties as the
board of directors may direct to indemnify the corporation and transfers,
agents and registrars, if any, against claims that may be made on account of
the issuance of such new certificates. A new certificate may be issued with
declaring any bond.
Bylaws Page 22
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ARTICLE VII
DISTRIBUTIONS
7.1 DISTRIBUTIONS.
The board of directors may authorize, and the corporation may make,
distributions (including dividends on its outstanding shares) in the manner
and upon the terms and conditions provided by law and in the corporation's
articles of incorporation.
ARTICLE VIII
CORPORATE SEAL
8.1 CORPORATE SEAL.
The board of directors may provide a corporate seal which may be
circular in form and have inscribed thereon any designation including the
name of the corporation, State of Utah as the state of incorporation, and the
words "Corporate Seal."
ARTICLE IX
CONTRACTS, LOANS, CHECKS AND DEPOSITS
9.1 CONTRACTS.
The board of directors may authorize any officer(s), or agent(s), to
enter into any contract or execute and deliver any instrument in the name and
on behalf of the corporation, and such authority may be either general or
confined to specific instances.
9.2 LOANS.
No loan or advances shall be contracted on behalf of the
corporation, no negotiable paper or other evidence of its obligation under
any loan or advance shall be issued in its name, and no property of the
corporation shall be mortgaged, pledged, hypothecated, or transferred as
security for the payment of any loan, advance, indebtedness, or liability of
the corporation unless and except as authorized by the board of directors.
Any such authorization may be either general confined to specific instances.
9.3 DEPOSITS.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the board of directors may select,
or as may be selected by an officer or agent so authorized by the board of
directors.
Bylaws Page 23
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9.4 CHECKS AND DRAFTS.
All notes, drafts, acceptances, checks, endorsements, and evidences
of indebtedness of the corporation shall be signed by the president and by
the treasurer of the corporation and in such manner as the board of directors
from time to time may determine. Endorsements for deposit to the credit of
the corporation in any of its duly authorized depositories shall be made in
such manner as the board of directors from time to time may determine.
9.5 BONDS AND DEBENTURES.
Every bond or debenture issued by the corporation shall be evidenced
by an appropriate instrument which shall be signed by the president or a
vice-president and by the treasurer or by the secretary and the seal of the
corporation may, but need not, be affixed thereto.
ARTICLE X
EMERGENCY BYLAWS
10.1 EMERGENCY BYLAWS.
Unless the articles of incorporation provide otherwise, the
following provisions of this Article IX, Section 9.1 "Emergency Bylaws" shall
be effective during an emergency which is defined as when a quorum of the
corporation's directors cannot be readily assembled because of some
catastrophic event. During such emergency:
(a) NOTICE OF BOARD MEETINGS. Any one member of the board of
directors or any one of the following officers: president, vice-president,
secretary, or treasurer, may call a meeting of the board of directors. Notice
of such meeting need be given only to those directors whom it is practicable
to reach, and may be given in any practical manner, including by publication
and radio. Such notice shall be given at least six hours prior to
commencement of the meeting.
(b) TEMPORARY DIRECTORS AND QUORUM. One or more officers of
the corporation present at the emergency board meeting, as is necessary to
achieve a quorum, shall be considered to be directors for the meeting, and
shall so serve in order of rank, and within the same rank, in order of
seniority. In the event that less than a quorum (as determined by Article
III, Section 3.6) of the directors are present (including the officers
serving as directors) shall constitute a quorum.
(c) ACTIONS PERMITTED TO BE TAKEN. The board as constituted in
paragraph (b), and after notice as set forth in paragraph (a) may:
(1) OFFICERS' POWERS. Prescribe emergency posers to any
officer of the corporation;
(2) DELEGATION OF ANY POWER. Delegate to any officer or
director, any of the powers of the board of directors;
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(3) LINES OF SUCCESSION. Designate lines of succession of
officers and agents, in the event that any of them are unable to
discharge their duties;
(4) RELOCATE PRINCIPAL PLACE OF BUSINESS. Relocate the
principal place of business, or designate successive or simultaneous
principal places of business;
(5) ALL OTHER ACTION. Take any other action,
convenient, helpful, or necessary to carry on the business of the
corporation.
ARTICLE XI
AMENDMENTS
11.1 AMENDMENTS.
The corporation's board of directors may amend or repeal the
corporation's bylaws unless:
(a) The articles of incorporation or the Act reserve this power
exclusively to the shareholders in whole or part; or
(b) The shareholders in adopting, amending, or repealing a
particular bylaw provide expressly that the board of directors may not amend
or repeal that bylaw; or
(c) The bylaw either establishes, amends, or deletes, a
supermajority shareholder quorum or voting requirement (as defined in Section
2.7 of Article II).
Any amendment which changes the voting or quorum requirement for the
board must comply with Article III, Section 3.8, and for the shareholders,
must comply with Article II, Section 2.8.
The corporation's shareholders may amend or repeal the corporation's
bylaws even though the bylaws may also be amended or repealed by its board of
directors.
ARTICLE XII
EXEMPTION FROM CONTROL SHARES ACQUISITION ACT
The provisions of the Control Shares Acquisition Act as set out in
Section 61-6-1 et. seq. as amended or any replacement Act shall not apply to
control share acquisitions of shares of this Corporation.
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I certify that the foregoing Bylaws are the Bylaws of Dreams, Inc.,
a Utah corporation and that the same remain in effect unchanged to the
present date.
DATED: This _________ day of _____________________, 1999.
-------------------------------------
Mark Viner, Secretary
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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
<PAGE>
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
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individually referred to as a "Loan Document" and collectively referred to as
the "Loan Documents." The term "Obligations" as used herein shall refer to
(a) the Loan to be made concurrently or in connection with this Agreement, as
evidenced by the Note, and any renewals or extensions thereof, (b) the full
and prompt payment and performance of any and all other indebtednesses and
other obligations of Borrowers to Lender, direct or contingent (including but
not limited to obligations incurred as indorser, guarantor or surety),
however evidenced or denominated, and however and whenever incurred,
including but not limited to indebtednesses incurred pursuant to any present
or future commitment of Lender to Borrowers and (c) all future advances made
by Lender for taxes, levies, insurance and preservation of the collateral
securing the Loan and all attorneys' fees, court costs and expenses of
whatever kind incident to the collection of any of said indebtedness or other
obligations and the enforcement and protection of the security interest
created hereby or by the other Loan Documents.
1.2 PROCESSING FEE. Borrowers shall pay Lender a processing fee of
Ninety Thousand Dollars ($90,000), Twenty Thousand Dollars ($20,000) of which
has previously been paid to Lender and Seventy Thousand Dollars ($70,000) of
which shall be paid on the date the Loan is funded.
1.3 PREPAYMENT. Borrowers may prepay the indebtedness evidenced
by the Note in whole or in part at any time and from time to time, without
penalty or premium.
1.4 PURPOSES OF LOAN AND USE OF PROCEEDS. The purpose of the Loan
shall be to (i) provide additional working capital to Borrowers and (ii)
finance the acquisition of Mounted Memories, Inc.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 BORROWER'S REPRESENTATIONS. Each Borrower hereby represents and
warrants to Lender as follows (except as set forth on a disclosure schedule
hereto which shall be labeled to correspond to the appropriate provision
hereof):
(a) CORPORATE STATUS. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Utah or California, as applicable; and has the corporate power
to own and operate its properties, to carry on its business as now
conducted and to enter into and to perform its obligations under this
Agreement and the other Loan Documents to which it is a party. Each
Borrower is duly qualified to do business and in good standing in each
state in which a failure to be so qualified would have a material
adverse effect on Borrower's financial condition or its ability to
conduct its business in the manner now conducted.
(b) SUBSIDIARIES. Schedule 2.1(b) hereto is a complete list of each
corporation, partnership, joint venture or other business organization
(the "Subsidiary" or, with respect to all such organizations, the
"Subsidiaries") in which each Borrower or any Subsidiary
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owns, directly or indirectly, any capital stock or other equity
interest, or with respect to which each Borrower or any Subsidiary,
alone or in combination with others, is in a control position, which
list shows the jurisdiction of incorporation or other organization and
the percentage of stock or other equity interest of each Subsidiary
owned by such Borrower. Each Subsidiary which is a corporation is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to transact
business as a foreign corporation and is in good standing in the
jurisdictions listed in Schedule 2.1(b), which are the only
jurisdictions where the properties owned or leased or the business
transacted by it makes such licensing or qualification to do business
as a foreign corporation necessary, and no other jurisdiction has
demanded, requested or otherwise indicated that (or inquired whether)
it is required so to qualify. Each Subsidiary which is not a
corporation is duly organized and validly existing under the laws of
the jurisdiction of its organization. The outstanding capital stock of
each Subsidiary which is a corporation is validly issued, fully paid
and nonassessable. Each Borrower and its Subsidiaries have good and
valid title to the equity interests in the Subsidiaries shown as owned
by each of them on Schedule 2.1(b), free and clear of all liens,
claims, charges, restrictions, security interests, equities, proxies,
pledges or encumbrances of any kind. Except where otherwise indicated
herein or unless the context otherwise requires, any reference to
Borrowers herein shall include Borrowers and all of their Subsidiaries.
(c) AUTHORIZATION. Each Borrower has full legal right, power and
authority to conduct its business and affairs. Each Borrower has full
legal right, power and authority to enter into and perform its
obligations under the Loan Documents, without the consent or approval
of any other person, firm, governmental agency or other legal entity.
The execution and delivery of this Agreement, the borrowing hereunder,
the execution and delivery of each Loan Document to which each Borrower
is a party, and the performance by each Borrower of its obligations
thereunder are within the corporate powers of each Borrower and have
been duly authorized by all necessary corporate action properly taken
and each Borrower has received all necessary governmental approvals, if
any, that are required. The officer(s) executing this Agreement, the
Note and all of the other Loan Documents to which each Borrower is a
party are duly authorized to act on behalf of such Borrower.
(d) VALIDITY AND BINDING EFFECT. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of each
Borrower, enforceable in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or the
application of general equitable principles.
(e) CAPITALIZATION. As of the date hereof and giving effect to the
Mounted Memories, Inc. acquisition, the authorized capital stock of
Dreams, Inc. consists solely of 50,000,000 shares of common stock, $.05
par value per share ("Common Stock"), of which 40,898,500 shares are
issued and outstanding (the "Shares") and 11,873,758 shares of which
are reserved for issuance upon exercise of the Stock Purchase Warrant
dated as of the date hereof and issued to Lender (the "Warrant");
provided, however, that the number of shares
SirromAgmts Page 3
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reserved for issuance upon exercise of the Warrant may be increased
from time to time in accordance with the term of the Warrant. Attached
hereto as Schedule 2.1(e) as a table showing the capitalization of
Dreams, Inc., as of the date hereof, on a fully diluted basis. As of
the date hereof, Dreams, Inc. does not have outstanding any stock or
securities convertible or exchangeable for any shares of its Common
Stock or containing any profit participation features, and does not
have outstanding any rights or options to subscribe for or to purchase
its Common Stock or any stock appreciation rights or phantom stock
plans, except as set forth on Schedule 2.1(e) and the Warrant. Schedule
2.1(e) accurately sets forth the following with respect to all
outstanding options and rights to acquire the Dreams, Inc.'s Common
Stock: (i) the total number of shares issuable upon exercise of all
outstanding options; (ii) the range of exercise prices for all such
outstanding options; (iii) the number of shares issuable, the exercise
price and the expiration date for each such outstanding option; and
(iv) with respect to all outstanding options, warrants and rights to
acquire Dreams, Inc.'s capital stock other than the Warrant, the
holder, the number of shares covered, the exercise price and the
expiration date. As of the date hereof, Dreams, Inc. is not subject to
any obligation (contingent or otherwise) to repurchase, redeem, retire
or otherwise acquire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except as set
forth in the Warrant or on Schedule 2.1(e). As of the date hereof, all
of the outstanding shares of Dreams, Inc.'s capital stock are validly
issued, fully paid and nonassessable. Except as set forth on Schedule
2.1(e), there are no statutory or contractual preemptive rights, rights
of first refusal, anti-dilution rights or any similar rights, held by
stockholders or option holders of Dreams, Inc., with respect to the
issuance of the Warrant or the issuance of the Common Stock upon
exercise of the Warrant and all such rights have been effectively
waived with regard to the issuance of the Warrant, the exercise of the
Warrant and the issuance of the Common Stock upon exercise of the
Warrant. Dreams, Inc. has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any
of its capital stock, and the offer, sale and issuance of the Warrant
hereunder do not require registration under the Securities Act of 1933,
as amended, or any applicable state securities laws. To the best of
Dreams, Inc.'s knowledge, there are no agreements among Dreams, Inc.'s
shareholders with respect to any other aspect of Dreams, Inc.'s
affairs, except as set forth on Schedule 2.1(e). Dreams, Inc. owns all
of the issued and outstanding shares of capital stock of Dreams
Franchise Corporation and Dreams Entertainment, Inc. and Dreams
Franchise Corporation owns all of the issued and outstanding shares of
capital stock of Dreams Products, Inc.
(f) TRADEMARKS, PATENTS, ETC. Schedule 2.1(f) is an accurate and
complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses,
formulas and applications therefor owned by each Borrower or used or
required by each Borrower in the operation of its business, title to
each of which is, except as set forth in Schedule 2.1(f) hereto, held
by such Borrower free and clear of all adverse claims, liens, security
agreements, restrictions or other encumbrances. Except as set forth in
Schedule 2.1(f), each Borrower owns or possesses adequate (and will use
its best efforts to obtain as expediently as possible any additional)
licenses or other rights to use all patents, trademarks, trade names,
service marks, trade secrets or other intangible property rights and
SirromAgmts Page 4
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know-how necessary to entitle such Borrower to conduct its business as
presently being conducted. There is no infringement action, lawsuit,
claim or complaint which asserts that any Borrower's operations violate
or infringe the rights or the trade names, trademarks, trademark
registrations, service names, service marks or copyrights of others
with respect to any apparatus or method of such Borrower or any
adversely held trademarks, trade names, trademark registrations,
service names, service marks or copyrights, and no Borrower is not in
any way making use of any confidential information or trade secrets of
any person, except with the consent of such person. Except as set forth
in Schedule 2.1(f), each Borrower has taken reasonable steps to protect
its proprietary information (except disclosure of source codes pursuant
to licensing agreements) and is the lawful owner of the proprietary
information free and clear of any claim of any third party. As used
herein, "proprietary information" includes without limitation, (i) any
computer programming language, software, hardware, firmware or related
documentation, inventions, technical and nontechnical data related
thereto, and (ii) other documentation, inventions and data related to
patterns, plans, methods, techniques, drawings, finances, customer
lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used
by any Borrower or marketing studies conducted by any Borrower, all of
which such Borrower considers to be commercially important and
competitively sensitive and which generally has not been disclosed to
third parties.
(g) NO CONFLICTS. Consummation of the transactions contemplated
hereby and the performance of the obligations of each Borrower under
and by virtue of the Loan Documents do not conflict with, and will not
result in any breach of, or constitute a default or trigger a lien
under, any mortgage, security deed or agreement, deed of trust, lease,
bank loan or credit agreement, corporate charter or bylaws, agreement
or certificate of limited partnership, partnership agreement, license,
franchise or any other instrument or agreement to which any Borrower is
a party or by which any Borrower or its respective properties may be
bound or affected or to which any Borrower has not obtained an
effective waiver.
(h) LITIGATION. Except as set forth on Schedule 2.1(h), there are
no actions, suits, arbitrations, administrative hearings or other
proceedings pending, or, to the knowledge of each Borrower threatened,
against or affecting any Borrower or any of Borrower's property or
involving the validity or enforceability of any of the Loan Documents
at law or in equity, or before any governmental or administrative
agency. To each Borrower's knowledge, such Borrower is not subject to
any order, writ, injunction, decree or demand of any court or any
governmental authority.
(i) FINANCIAL STATEMENTS. The financial statements of Borrowers
dated March 31, 1998, which are attached hereto as Schedule 2.1(i)(A),
are true and correct in all material respects, have been prepared on
the basis of generally accepted accounting principles consistently
applied, and fairly present the financial condition of Borrowers as of
the date(s) thereof. No material adverse change has occurred in the
financial condition of any Borrower since the date(s) thereof, and no
additional borrowings have been made by any Borrower since the date(s)
thereof other than as set forth on Schedule 2.1(i)(B).
SirromAgmts Page 5
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(j) OTHER AGREEMENTS; NO DEFAULTS. Schedule 2.1(r) is a list of the
contracts and corporate restrictions that could have a material adverse
effect on the business, properties, assets, operations or conditions,
financial or otherwise, of any Borrower, or the ability of Borrower to
carry out its obligations under the Loan Documents to which it is a
party. No Borrower is in default in any respect in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its
business to which it is a party, including but not limited to this
Agreement and the other Loan Documents, and no other default or event
has occurred and is continuing that with notice or the passage of time
or both would constitute a default or event of default under any of
same.
(k) COMPLIANCE WITH LAW. Each Borrower has obtained all necessary
licenses, permits and approvals and authorizations necessary or
required in order to conduct its business and affairs as heretofore
conducted and as hereafter intended to be conducted except to the
extent that any failure to obtain such licenses, permits, approvals or
authorizations, in the aggregate, cannot be reasonably expected to have
a material adverse effect on its business, operations, property or
financial condition and will not materially adversely affect such
Borrower's ability to perform its obligations under the Loan Documents.
To each Borrower's knowledge, such Borrower is in compliance with all
laws, regulations, decrees and orders applicable to it (including but
not limited to laws, regulations, decrees and orders relating to
environmental, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), except
to the extent that any noncompliance, in the aggregate, cannot
reasonably be expected to have a material adverse effect on its
business, operations, property or financial condition and will not
materially adversely affect such Borrower's ability to perform its
obligations under the Loan Documents.
(l) DEBT. Schedule 2.1(l) is a complete and correct list of all
credit agreements, indentures, purchase agreements, promissory notes
and other evidences of indebtedness, guaranties, capital leases and
other instruments, agreements and arrangements presently in effect
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which each Borrower or any of its
properties is in any manner directly or contingently obligated and the
maximum principal or face amounts of the credit in question that are
outstanding and that can be outstanding are correctly stated, and all
liens of any nature given or agreed to be given as security therefor
are correctly described or indicated in Schedule 2.1(l).
(m) TAXES. Except as set forth on Schedule 2.1(m), each Borrower
has filed or caused to be filed all tax returns that are required to be
filed (except for returns that have been appropriately extended), and
has paid, or will pay when due, all taxes shown to be due and payable
on said returns and all other taxes, impositions, assessments, fees or
other charges imposed on it by any governmental authority, agency or
instrumentality, prior to any delinquency with respect thereto (other
than taxes, impositions, assessments, fees and
SirromAgmts Page 6
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charges currently being contested in good faith by appropriate
proceedings, for which appropriate amounts have been reserved). Except
as set forth on Schedule 2.1(m), no tax liens have been filed against
any Borrower or any of its property.
(n) CERTAIN TRANSACTIONS. Except as set forth on Schedule 2.1(n)
hereto, no Borrower is indebted, directly or indirectly, to any of its
shareholders, officers or directors or to their respective spouses or
children, in any amount whatsoever, and none of said shareholders,
officers or directors or any members of their immediate families, are
indebted to any Borrower or have any direct or indirect ownership
interest in any firm or corporation with which any Borrower has a
business relationship, or any firm or corporation which competes with
any Borrower, except that shareholders, officers and/or directors of
each Borrower may own no more than 4.9% of outstanding stock of
publicly traded companies which may compete with any Borrower. No
shareholder, officer or director or any member of their immediate
families, is, directly or indirectly, interested in any material
contract with Borrower. No Borrower is a guarantor or indemnitor of any
indebtedness of any other person, firm, corporation or other legal
entity.
(o) SMALL BUSINESS CONCERN. Dreams, Inc., together with its
"affiliates" (as that term is defined in Title 13, Code of Federal
Regulations, Section 121.103), is a "small business concern" within the
meaning of the Small Business Investment Act of 1958, as amended, and
the regulations promulgated thereunder. The information set forth in
the Small Business Administration Forms 480, 652 and Parts A and B of
Form 1031 regarding Dreams, Inc. upon delivery, pursuant to Section 4.1
hereof, will be accurate and complete. Dreams, Inc. does not presently
engage in, and it will not hereafter engage in, any activities, and
Dreams, Inc. will not use directly or indirectly, the proceeds from the
Loan, for any purpose for which a Small Business Investment Company is
prohibited from providing funds by the Small Business Investment Act
and the regulations thereunder, including Title 13, Code of Federal
Regulations Section 107.720.
(p) STATEMENTS NOT FALSE OR MISLEADING. No representation or
warranty given as of the date hereof by any Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by any Borrower to Lender pursuant hereto, taken as a whole, contains
or will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading in any material respect.
(q) MARGIN REGULATIONS. No Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying margin
stock. No proceeds received pursuant to this Agreement will be used to
purchase or carry any equity security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
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(r) SIGNIFICANT CONTRACTS. Schedule 2.1(r) is a complete and
correct list of all contracts, agreements and other documents pursuant
to which any Borrower receives revenues in excess of $25,000 per fiscal
year or has committed to make expenditures in excess of $25,000 per
fiscal year. Each such contract, agreement and other document is in
full force and effect as of the date hereof and no Borrower knows of
any reason why such contracts, agreements and other documents would not
remain in full force and effect pursuant to the terms thereof.
(s) ENVIRONMENT. Each Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder. Each Borrower has
been issued and will maintain all required federal, state and local
permits, licenses, certificates and approvals relating to (i) air
emissions; (ii) discharges to surface water or groundwater; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (which shall include any and all such materials
listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder as hazardous or
potentially hazardous); or (vi) other environmental, health or safety
matters. No Borrower has received notice of, or knows of, or suspects
facts which might constitute any violations of any federal, state or
local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder with respect to its
businesses, operations, assets, equipment, property, leaseholds, or
other facilities. Except in accordance with a valid governmental
permit, license, certificate or approval, there has been no emission,
spill, release or discharge into or upon (i) the air; (ii) soils, or
any improvements located thereon; (iii) surface water or groundwater;
or (iv) the sewer, septic system or waste treatment, storage or
disposal system servicing the premises, of any toxic or hazardous
substances or wastes at or from the premises; and accordingly the
premises of each Borrower are free of all such toxic or hazardous
substances or wastes. There has been no complaint, order, directive,
claim, citation or notice by any governmental authority or any person
or entity with respect to (i) air emissions; (ii) spills, releases or
discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or
disposal systems servicing the premises; (iii) noise emissions; (iv)
solid or liquid waste disposal; (v) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or waste;
or (vi) other environmental, health or safety matters affecting each
Borrower or its business, operations, assets, equipment, property,
leaseholds or other facilities. No Borrower has any indebtedness,
obligation or liability (absolute or contingent, matured or not
matured), with respect to the storage, treatment, cleanup or disposal
of any solid wastes, hazardous wastes or other toxic or hazardous
substances (including without limitation any such indebtedness,
obligation, or liability with respect to any current regulation, law or
statute regarding such storage, treatment, cleanup or disposal).
(t) FEES/COMMISSIONS. No Borrower has agreed to pay any finder's
fee, commission, origination fee (except for the processing and
commitment fees due pursuant
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to Section 1.2 hereof and a commission payable to Brent Knudsen 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.
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(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 billings 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.
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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
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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
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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.
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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
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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.
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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 &
Brown, dated the Closing Date, in form and substance satisfactory to
Lender's counsel, Chambliss, Bahner & Stophel, 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, Mark Battistone, Cynthia
Hill, Justin Battistone, Kelly Battistone, Dann Battistone, Brian
Battistone, Roger Battistone, Dreamstar, Sam D. Battistone, Joseph
Casey, Dale Larsson, Ross Tannenbaum, and Mark Viner, in form and
substance satisfactory to
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Lender and related UCC-1 Financing Statement(s) executed by Joseph
Casey and Mark Viner, 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 Mitch
Adelstein, Ross Tannenbaum and Scott Widelitz (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 Ross Tannenbaum and Sam Battistone, 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 Robert L. Hild, in form and substance satisfactory to
Lender.
Borrowers shall have delivered to Lender a payoff letter executed by First
Bank, N.A.
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Borrowers shall have delivered to Lender Release of Obligations and Stock
Purchase Agreements executed by Signature, Inc., Robert Kester, Riley
Robinson, Dayton Wittke, Dino Satallante, Roger Battistone, and Dale
Larsson, 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 Ross Tannenbaum, Mark Viner, Joseph Casey, Scott Widelitz
and Mitch Adelstein, 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
<PAGE>
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
<PAGE>
(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) Ross Tannenbaum or Sam Battistone 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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
Suite 200
500 Church Street
Nashville, TN 37219
Attention: John Kirks
Telecopy No.: 615/726-1208
with a copy to: Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No.: 423/265-9574
The Address of Borrower is: Dreams, Inc.
Dreams Franchise Corporation
Dreams Entertainment, Inc.
Dreams Products, Inc.
42-620 Caroline Court
Palm Desert, CA 92211
Attention: Sam D. Battistone
Telecopy No.: 760/779-0217
SirromAgmts Page 23
<PAGE>
with a copy to: Hunter & Brown
One Utah Center
201 South Main Street, Suite 1300
Salt Lake City, UT 84111-2215
Attention: J. Scott Hunter
Telecopy No.: 801/532-8736
and to: Navon, Kopelman, O'Donnell & Lavin P.A.
2699 Stirling Road, Suite B-100
Ft. Lauderdale, FL 33312
Attention: Sam Navon
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Schedule 3.18
With regard to Sam D. Battistone, Borrower may make the following payments:
for the fiscal year ending March 31, 1999, no salary
payments or bonus payments may be made to Sam D. Battistone; 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 Sam D. Battistone
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 Sam D. Battistone 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 Ross Tannenbaum, 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): Mitch Adelstein, Scott
Widelitz, Joseph Casey, John Walrod, Mark Viner, and Dale Larsson.
SirromAgmts Page 28
<PAGE>
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., P.O. Box 30443, Nashville, TN 37241-0443, 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
<PAGE>
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
<PAGE>
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
<PAGE>
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"):
<TABLE>
<CAPTION>
DATE BASE AMOUNT
- --------------------------------- ------------------------------------------------
<S> <C>
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
</TABLE>
(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
<PAGE>
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
<PAGE>
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 Chambliss, Bahner & Stophel, 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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 Ross Tannenbaum 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 Ross Tannenbaum 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,
Ross Tannenbaum 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
Ross Tannenbaum is the Management Shareholder who
receives the offer to sell shares, then if Holder elects
to accept such offer, then Holder and Ross Tannenbaum
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.
Suite 200
500 Church Street
Nashville, TN 37219
Attention: John Kirks
Telecopy No. 615/726-1208
SirromAgmts Page 44
<PAGE>
with a copy to: Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No. 423/265-9574
The Address of Company is: Dreams, Inc.
42-620 Caroline Drive
Palm Desert, CA 92211
Attention: Sam D. Battistone
Telecopy No. 760/779-0217
with a copy to: Hunter & Brown
One Utah Center
201 South Main Street, Suite 1300
Salt Lake City, UT 84111-2215
Attention: J. Scott Hunter
Telecopy No. 801/532-8736
and to: Navon, Kopelman, O'Donnell & Lavin P.A.
2699 Stirling Road, Suite B-100
Ft. Lauderdale, FL 33312
Attention: Sam Navon
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
<PAGE>
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: Lee
Barney, Joseph Casey, Leah Jones, Dale Larsson, Mark Morse,
Bethanie Mueller, Jolaine Saxton, John Walrod, Mark Viner,
Monica Wall and Richard Watt 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 Joseph Casey, Dale Larsson or
Mark Viner ("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
<PAGE>
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:
-----------------------------------
Sam D. Battistone
-----------------------------------
Joseph Casey
-----------------------------------
Dale Larsson
-----------------------------------
Ross Tannenbaum
-----------------------------------
Mark Viner
SirromAgmts Page 47
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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 bill 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
<PAGE>
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
<PAGE>
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:
---------------------------
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LENDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By:
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Title:
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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.
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SCHEDULE 3(b)
PRINCIPAL PLACE(S) OF BUSINESS
AND LOCATION(S) OF COLLATERAL
Principal place of business:
42-620 Caroline Court
Palm Desert CA 92211
Other Locations of Tangible Collateral/Records Concerning Intangible Collateral:
1776 N. State Street, Suite 130
Orem, UT 84057
17744 Skypark Circle, Suite 225
Irvine, CA 92614
5009 Hiatus Road
Sunrise, FL 33351
(Mounted Memories, Inc.)
8201 East Pacific Place
Unit 604
Denver, CO 80231
(Mounted Memories, Inc.)
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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.
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"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.
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"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
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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.
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(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
sue, 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
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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
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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 mark 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 mark
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
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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 sue 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.
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(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
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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
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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.
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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
<PAGE>
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.
Suite 200
500 Church Street
Nashville, TN 37219
Attention: John Kirks
Telecopy No.: 615/726-1208
with a copy to: Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No.: 423/265-9574
The Address of Grantor is: Dreams, Inc.
Dreams Franchise Corporation
Dreams Entertainment, Inc.
Dreams Products, Inc.
42-620 Caroline Court
Palm Desert, CA 92211
Attention: Sam D. Battistone
Telecopy No.: 760/779-0217
SirromAgmts Page 73
<PAGE>
with a copy to: Hunter & Brown
One Utah Center
201 South Main Street, Suite 1300
Salt Lake City, UT 84111-2215
Attention: J. Scott Hunter
Telecopy No.: 801/532-8736
and to: Navon, Kopelman, O'Donnell & Lavin, P.A.
2699 Stirling Road, Suite B-100
Ft. Lauderdale, FL 33312
Attention: Sam D. Navon
Telecopy No.: 954/983-7021
16. GOVERNING LAW. This Security Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Tennessee applicable to contracts to be wholly
performed in such State, or to the extent required, by federal
law.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in
separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same Agreement.
18. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Grantor hereby
irrevocably consents to the Jurisdiction of the United States
District Court for the Middle District of Tennessee and of all
Tennessee state courts sitting in Davidson County, Tennessee,
for the purpose of any litigation to which Lender may be a party
and which concerns this Security Agreement or the Obligations.
It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee,
unless Lender agrees to the contrary in writing.
19. WAIVER OF TRIAL BY JURY. LENDER AND GRANTOR HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN
ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT
OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN
DOCUMENTS.
SirromAgmts Page 74
<PAGE>
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
<PAGE>
SCHEDULE A
SirromAgmts Page 76
<PAGE>
SCHEDULE B
SirromAgmts Page 77
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
The undersigned hereby acknowledges and confirms that the necessary
changes and registrations on the books of the undersigned have been made to
reflect the pledge of the Pledged Securities under the Pledge Agreement. In
particular, the undersigned acknowledges and confirms that Lender has been
designated as the only registered pledgee of the Pledged Securities.
DREAMS FRANCHISE CORPORATION
By:
--------------------------------
Title:
-----------------------------
The undersigned hereby acknowledges and confirms that the necessary
changes and registrations on the books of the undersigned have been made to
reflect the pledge of the Pledged Securities under the Pledge Agreement. In
particular, the undersigned acknowledges and confirms that Lender has been
designated as the only registered pledgee of the Pledged Securities.
DREAMS ENTERTAINMENT, INC.
By:
--------------------------------
Title:
-----------------------------
SirromAgmts Page 83
<PAGE>
SCHEDULE 1
PLEDGED SECURITIES
<TABLE>
<CAPTION>
No. of
Issuer Shares Class Certificate Nos.
- ---------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
1. Dreams Franchise Corporation
2. Dreams Entertainment, Inc.
</TABLE>
SirromAgmts Page 84
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
SCHEDULE 1
PLEDGED SECURITIES
<TABLE>
<CAPTION>
No. of
Issuer Shares Class Certificate Nos.
- ---------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
1. Dreams Products, Inc.
</TABLE>
SirromAgmts Page 91
<PAGE>
EXHIBIT 6(II)
Ross Tannenbaum Employment Agreement
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (THE "Agreement"), dated as of the 10th day
of November, 1998, is between Dreams, Inc., a Utah corporation (the "Company")
and Ross Tannenbaum (the "Employee").
In consideration of the foregoing and the mutual promises and covenants
set forth herein, Company and Employee agree:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The company hereby employs the
Employee, and Employee shall serve the company, upon the terms and
conditions herein set forth, for a term commencing on the date of this
Agreement and expiring on the last day of the 60th calendar month
following the date first written above (the "Term of Employment"),
unless earlier terminated pursuant to Section 4 below.
1.2 POSITION AND DUTIES. The Employee is engaged as
Vice-President to exercise and faithfully perform to the best of his
ability on behalf of Company such duties as shall be determined by the
Board of Directors of the Company, and as same may be modified from
time to time.
1.3 OTHER ACTIVITIES. Nothing in this Agreement shall be
construed to prevent Employee from devoting a portion of his time to
community or charitable activities, from investing his assets in any
form or manner he deems appropriate or from serving as a director of
any corporation, provided such activities do not unreasonably interfere
with the performance of duties under this Agreement and do not violate
the provisions of Section 3.1.
2. COMPENSATION.
2.1 BASE SALARY. Company shall pay Employee Two Hundred Fifty
Thousand and No/100 Dollars ($250,000) per calendar year, payable
semi-monthly, subject, however, to the "EBITA" (as hereinafter defined)
adjustment. Notwithstanding the foregoing, commencing as of April 1,
2000, and on April 1st of each and every calendar year thereafter
during the Term of Employment, in the event that the Company's EBITA
for the immediately preceding fiscal year is: (a) less than One Million
Two Hundred Thousand and No/100 Dollars ($1,200,000.00), then for the
fiscal year then in question (commencing April 1, 2000 through March
31, 2001), the base salary shall be Two Hundred Thousand and No/100
Dollars ($200,000.00), payable semi-monthly; or (b) equal to or greater
than One Million Two Hundred Thousand and No/100 Dollars
($1,200,000.00), then for the fiscal year then in question (commencing
April 1, 2000 through March 31, 2001), the base salary shall
Employment Agmt Page 1
<PAGE>
be Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), payable
semi-monthly. For purposes of this Agreement, the term "EBITA" shall
mean net income plus interest expense, plus income tax, 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.
2.2 HEALTH INSURANCE. The Company shall provide health,
medical and dental care insurance coverage for Employee and his
dependents in amounts and coverage equivalent to the greater of the
amount and coverage previously provided to Employee by his previous
employer, Mounted Memories, Inc., or the insurance benefits and
coverage provided by the Company in its health insurance coverage
provided for other Company officers.
2.3 AUTOMOBILE ALLOWANCE. Company shall reimburse Employee or
otherwise provide Employee an automobile allowance in the amount of
Eight Hundred and No/100 dollars ($800.00) per month and a
reimbursement for all insurance, fuel, maintenance, cellular and mobile
telephones, repairs and upkeep therefor. The automobile allowance shall
increase effective immediately preceding the adjustment then in
question by a ratio of the "Index" (as hereinafter defined) for the
month of November preceding the year of the date of adjustment then in
question divided by the Index for the month of November of 1997. The
"Index" shall mean the index numbers of retail commodity prices
designated "Revised Consumer Price Index for all Urban Consumers - U.S.
City Average - All Items (1982-1984=100) Prepared by the Bureau of
Labor Statistics of the United States Department of Labor". In the
event such Index is not published, then an index most comparable to the
commodity index published shall be utilized.
2.4 DISABILITY AND LIFE INSURANCE.
(a) Company shall pay for or reimburse Employee the
cost of a disability insurance policy which shall provide
the highest rate of compensation then available, but in no
event less than Two Hundred Thousand and No/100 Dollars
($200,000.00) per year, a ninety (90) day waiting period,
and benefits payable through the age of seventy-five (75).
(b) Company shall pay for or reimburse Employee for a
life insurance policy which will provide a death benefit in
the amount of Two Million and No/100 Dollars
($2,000,000.00), which shall contain a cost of living
adjustment endorsement for each calendar year during the
term of this Agreement.
Employment Agmt Page 2
<PAGE>
(c) Provided, however, that the total annual cost of
such disability and life insurance coverage for Employee to
be paid by the Company shall not exceed Two Thousand
Dollars ($2,000) per year. Any cost of such insurance in
excess of $2,000 per year shall be paid by Employee.
2.5 DIRECTORS' AND OFFICERS' INSURANCE. At such time as it
becomes available and economically feasible, Company will maintain
director's and officers' insurance in sufficient amounts to insure
against the personal liability of the Employee as a director of the
Company for certain losses resulting from claims brought against
directors and officers because of their alleged wrongful acts.
2.6 VACATION. The Employee shall be entitled to a four (4)
week vacation each calendar year during the term of this Agreement.
2.7 BENEFITS. In addition to the other provisions of Section 2
set forth above, Company shall provide to Employee all other standard
benefits and perquisites as are provided for other Company officers,
directors and employees.
2.8 WITHHOLDING. Employee agrees that the Company shall deduct
and withhold from his salary and from all other amounts paid to
Employee, all state and federal tax and other withholdings.
2.9 EXPENSES. Employee is authorized to incur reasonable
expenses for the business of company which are necessary for the
promotion of Company's business and similar expenses that assist
Employee in the performance of his duties hereunder.
2.10 TERMINATION. Without in any way limiting the other
provisions of this Agreement, upon termination of Employee's
employment, whether by expiration of the term of this Agreement or as
provided for in Section 4, Employee shall cease to receive or have any
right to receive salary or any other compensation provided for above or
otherwise, provided, however, that nay previously earned compensation
shall be paid by Company to Employee in accordance with the terms and
provisions of this Agreement.
3. DISCLOSURE OF INFORMATION.
3.1 DISCLOSURE OF INFORMATION. The Employee recognizes and
acknowledges that the confidential, proprietary information of the
Company, and other intellectual property of this Company including
contacts made prior to the commencement of this Agreement and those
made within the scope of Employee's duties hereunder and such trade
secrets or information as may exist from time to time, including
without limitation, technical
Employment Agmt Page 3
<PAGE>
information regarding the Company's business, information as to the
identity of employees, customers and potential or existing suppliers
of the Company or its affiliates, information as to the marketing or
other plans of the Company and other similar items, are valuable,
special and unique assets of the Company's business, access to and
knowledge of which are essential to the performance of the duties of
Employee hereunder. Such property and information shall remain the
exclusive property of the Company at all times during and subsequent
to the Term of Employment. Employee will not, during or after the
Term of Employment, in whole or in part, remove Company's records
either in original, duplicated or copied form, from the premises of
the Company, nor disclose such secrets or confidential or
proprietary information to any person, firm, corporation,
association or other entity (except the Company or its affiliates)
under any circumstances, during or after the Term of Employment.
3.2 INJUNCTIVE RELIEF. If there is a breach or threatened
breach of the provisions of Section 3.1 of this Agreement by Employee,
the Company shall be entitled to an injunction restraining the Employee
from breaching or violating the provisions of this Section 3, it being
agreed that the loss and damages suffered by virtue of any breach are
incapable of being made certain.
3.3 EVENTS OF DEFAULT BY COMPANY. In the event of a breach or
default by the Company hereunder, which results in Employee not
receiving base salary (as set forth in Paragraph 2.1 above), for any
reason and for a period of ninety (90) consecutive days, which reasons
include, but are not limited to, the failure of the Company to pay to
Employee the base salary while Employee remains in the employ of the
Company or Employee ceases to be employed by the Company directly as a
result of such breach or default by the Company, then the provisions of
this Section 3 shall be void and of no further force or effect.
4. EARLY TERMINATION OF AGREEMENT.
4.1 EARLY TERMINATION OF AGREEMENT. This Agreement shall
terminate earlier than expiration of the Term of Employment ("Early
Termination") upon the occurrence of any of the following events:
(a) Immediately upon notice from the Company to the
Employee for cause. The term "cause" shall refer and be
limited to: (i) any act of embezzlement or conversion of
assets of the Company; (ii) the employee's breach of any
material covenant of this Agreement; (iii) habitual or
repeated non-performance of material duties. However, with
regard to (ii) and (iii) above, "cause" shall not have
occurred until Company notifies Employee of such event, in
writing, and Employee shall not have cured such event
within a period of fifteen (15) days after receipt of such
Employment Agmt Page 4
<PAGE>
written notice, provided however, in the event such cure
cannot be reasonably completed within said fifteen (15) day
period, Employee shall have the right to commence to cure
such event and diligently pursue such cure to completion.
(b) Upon mutual agreement of Company and Employee.
4.2 OBLIGATIONS SURVIVING EARLY TERMINATION. Notwithstanding
the Early Termination of this Agreement as contemplated in Section 4.1
above or expiration of the term if this Agreement, the provisions of
this Agreement relating to the Employee's covenant not to compete, and
Employee's obligation to maintain and protect trade secrets and
confidential, proprietary rights and information of the Company shall
maintain in force and effect pursuant to the terms of this Agreement.
5. GENERAL PROVISIONS.
(a) BINDING AGREEMENT. This Agreement shall be binding upon
and shall inure to the benefit of the heirs, legal representatives,
successors and assigns, as applicable, of the respective parties hereto,
and any entities resulting from the reorganization, consolidation or
merger of any party hereto.
(b) HEADINGS. The headings used in this Agreement are inserted
for reference purposes only and shall not be deemed to limit or affect
in any way the meaning or interpretation of any of the terms or
provisions of this Agreement.
(c) COUNTERPARTS. This Agreement may be signed upon any number
of counterparts with the same effect as if the signature to any
counterpart were upon the same instrument.
(d) SEVERABILITY. The provisions of this Agreement are
severable, and should any provision hereof be found to be void, voidable
or unenforceable, such void, voidable or unenforceable provision shall
not affect any other portion or provision of this Agreement. without
limiting the generality of the above, should any provision be
unenforceable as a result of a time period or geographic area, the time
period and/or geographic area shall be reduced to the longest period
and/or largest area which would render the provision enforceable.
(e) WAIVER. Any waiver by any party hereto of any breach of
any kind or character whatsoever by any other party, whether such waiver
be direct or implied, shall not be construed as a continuing waiver or
consent to any subsequent breach of this Agreement on the part of the
other party.
Employment Agmt Page 5
<PAGE>
(f) MODIFICATION. This Agreement may not be modified except
by an instrument in writing signed by the parties hereto.
(g) GOVERNING LAW. This Agreement shall be interpreted,
construed and enforced according to the laws of the State of Florida.
Venue with respect to any litigation regarding this Agreement shall only
be permitted in the Seventeenth Judicial Circuit in and for Broward
County, Florida.
(h) ATTORNEYS' FEES. In the event any action or proceeding is
brought by either party against the other under this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees
and costs through all trial and appellate levels.
(i) NOTICE. Any notice, consent, request, objection or
communication to be given by either party to this Agreement shall be in
writing and shall be either delivered personally or by Airborne, Federal
Express or other commercial overnight delivery service addressed as
follows:
Company: Dreams, Inc.
42620 Caroline Court
Palm Desert, CA 92211
Employee: Ross Tannenbaum
10520 Paris Street
Cooper City, FL 33026
(j) ASSIGNMENT. Employee may not assign his rights and
obligations pursuant to this Agreement to a third party without the
written consent of the Company.
(k) SECURITIES DOCUMENTS. It shall be a condition to the
issuance of any securities by Company to Employee, including shares of
the Company's common stock, that Employee shall execute and deliver to
Company all documents deemed necessary by the Company's counsel in order
to comply with the securities laws of the United States and the states
thereof.
Employment Agmt Page 6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first set forth above.
COMPANY:
DREAMS, INC., a Utah corporation
By:
----------------------------
Its: Secretary
EMPLOYEE:
-------------------------------
Ross Tannenbaum
Employment Agmt Page 7
<PAGE>
EXHIBIT 6(III)
Merchandise License Agreement
Merchandise License Agreement
<PAGE>
MERCHANDISING LICENSE AGREEMENT
PRINCIPAL TERMS
This Merchandising License agreement, consisting of (i) these Principal
Terms (of which Schedule I attached hereto and incorporated herein is a part)
and (ii) the Standard Terms and Conditions attached hereto and incorporated
herein by this reference ("Standard Terms") (collectively the "Agreement"),
dated May 22, 1991 ("Agreement Date"), is entered into between MERCHANDISING
CORPORATION OF AMERICA, INC., 100 Universal City Plaza, Universal City,
California 91608 ("Licensor") and SPORTS ARCHIVES, INC. 73-199 El Paseo,
Suite A, Palm Desert, California 90060, ("Licensee").
WHEREAS, Licensor owns, controls or is authorized by the owner of the
Licensed Elements (as herein defined) (the "Property Owner") to grant to third
parties the right to use and exploit the Licensed Elements in connection with
merchandising activities in accordance with the terms of this Agreement; and
WHEREAS, Licensor desires to license to Licensee, and Licensee desires
to license from Licensor, certain rights in and to the Licensed Elements in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, it is agreed as follows:
I. DEFINITIONS. Capitalized terms not defined herein are as defined
on Schedule I or in the Standard Terms.
II. GRANT OF LICENSE.
(a) Subject to and in accordance with the provisions of this
Agreement, including without limitation Schedule I hereto and the
Standard Terms, Licensor hereby grants to Licensee:
(i) the exclusive right to use and display the "Field of
Dreams" service mark, during the Term described on Schedule I, to
identify Licensee-owned retail stores in the Territory which offer
and sell sports-related or celebrity-oriented merchandise and
collectibles;
License Agmt Page 1
<PAGE>
(ii) the exclusive right to sublicense to franchisees the
right to use and display the "Field of Dreams" service mark, during
the Term, to identify franchised retail stores in the Territory
which offer and sell sports-related or celebrity-oriented
merchandise and collectibles;
(iii) the non-exclusive right to affix the "Field of Dreams"
trademark to Licensed Articles manufactured by Licensee or third
party manufacturers which have been approved by Licensor, during
the Term, which Licensed Articles shall be sold by Licensee only in
Licensee-owned and franchised "Field of Dreams" retail stores or
through mail order catalogs distributed by Licensee or its
franchisees solely within the Territory;
(iv) the exclusive right to use and display the "Field of
Dreams" marks, during the Term, to advertise and promote franchises
for "Field of Dreams" retail stores; and
(v) the exclusive right to use and display, and sublicense
franchisees to use and display, during the Term, the "Field of
Dreams" marks in connection with the operation of Licensee-owned
and franchisee-owned "Field of Dreams" retail stores, and
advertising and promotional activities pertaining thereto, and on
mail order catalogs distributed solely within the Territory.
(b) The parties agree that Licensor has not prescribed and shall
not provide Licensee with any marketing plan or system relating to the
retail stores or catalog sales business to be conducted by the Licensee
or its franchisees, nor shall Licensor provide any services or
assistance to Licensee, or any franchisee, in connection therewith.
Licensee shall be free to operate and license others to operate such
retail stores and catalog sales businesses in accordance with Licensee's
own advertising, marketing and operational systems, techniques, methods
and plans, subject only to the limited controls set forth herein, which
the parties acknowledge are necessary in order for Licensor to protect
its interests in its trademarks, service marks, and copyrights. All
offers and sales of franchises by Licensee, and all marketing conducted
in connection therewith, shall be conducted by Licensee in its own name
and on its own behalf, and in no event shall Licensee offer or sell, or
purport to offer or sell, franchises in the name or on behalf of
Licensor. Licensor in no event shall be obligated participate in any way
with Licensee in connection with any franchising activities that
Licensee may undertake or be characterized as a "franchisor" or "master
franchisor" in any agreement or disclosure document used by Licensee.
Without limiting the generality of the foregoing, Licensor shall not be
obligated to submit to any state or federal agency, or provide to
Licensee for its submission to any state or federal agency, any
registration application or other filing, financial statements,
biographical or other information concerning Licensor's officers,
directors or other personnel, or otherwise assist Licensee in any way in
connection with its submission or prosecution of franchise registration
applications, and in
License Agmt Page 2
<PAGE>
no event shall Licensor be required to assume or undertake any
obligation or liability to any franchisee or take any action which would
expose Licensor to any obligation or liability to any of Licensee's
franchisees. Licensee shall be solely responsible for, and shall bear
all costs and expenses associated with, compliance with all applicable
franchise laws, rules and regulations, and shall reimburse Licensor for
any costs or expenses it may incur in connection therewith.
III. OPERATION OF AGREEMENT. This Agreement and the License herein
granted shall become effective upon Licensor receiving a signed copy of these
Principal Terms from Licensee and Licensor countersigning same, and the
satisfaction of any other conditions precedent set forth herein or in the
Standard Terms. In the event of any inconsistency between these Principal
Terms and the Standard Terms, the Principal Terms shall control. In the case
of any inconsistency between these Principal Terms and Schedule I, Schedule I
shall control.
IV. SPECIAL PROVISIONS.
A. Nothing herein grants Licensee, or any franchisee, any right
to use the names or likenesses of any actor or celebrity, including any
actor or celebrity who appeared in the "Field of Dreams" motion picture.
B. Neither Licensee, nor any franchisee, shall have the right to
use the Property in whole or in part as its business name.
C. Licensee and its franchisees may sell Licensed Articles on a
"return" basis provided that such returns shall not reduce the Royalty
payable to Licensor.
D. Notwithstanding the Standard Terms, Licensor hereby consents
(i) to the transfer of the outstanding shares of Licensee to
Stratamerica Corporation and (ii) to the merger of Licensee, within six
(6) months following the date on which this Agreement is executed, with
a newly incorporated Utah or Delaware corporation, wholly owned by
Stratamerica Corporation; provided that such surviving newly
incorporated corporation shall thereupon assume and become responsible
for all obligations of Licensee to Licensor.
V. RIGHT OF FIRST REFUSAL. Provided that Licensee fully complies with
its obligations under this Agreement, Licensor shall not open or sublicense
any third party to open "Field of Dreams" retail locations in any geographic
area outside the Territory unless Licensor shall have allowed Licensee a
right of first refusal, exercisable strictly in the following manner:
License Agmt Page 3
<PAGE>
(a) If Licensor shall decide to license any third party to open
"Field of Dreams" retail locations in any geographic area outside the
Territory (the "Additional Territory"), Licensor first shall deliver to
Licensee a written notice (the "Notice") setting forth the following
information:
(i) A description of the proposed Additional Territory;
(ii) The amount of the initial license fee required to be
paid to Licensor, and the amount or method of calculating any
required continuing royalty to Licensor; and
(iii) The minimum number of stores that the licensee must
commit to open and the period of time during which such total
number of stores must be opened.
(b) If Licensee desires to undertake to develop the Additional
Territory, it must within ten (10) days after Licensor's delivery of the
Notice, notify Licensor in writing that it desires to undertake such
development upon the terms set forth in the Notice (the "Exercise
Notice"), and shall deliver to Licensor a non-refundable advance against
the initial license fee equal to ten thousand United States dollars
(U.S. $10,000.00) ("Exercise Fee");
(c) If Licensee timely delivers its Exercise Notice and Exercise
Fee to Licensor in the manner described in paragraph (b), then the
Licensor and Licensee shall negotiate in good faith for a period of
ninety (90) days following Licensor's receipt of the Exercise Notice and
Fee (the "Negotiation Period") in an effort to agree upon and execute a
formal written license agreement for the Additional Territory;
(e) If Licensee fails to timely and properly deliver the Exercise
Notice and Exercise Fee, or if Licensor and Licensee fail to enter into
an agreement pursuant to paragraph (c) within the Negotiation Period,
Licensor shall thereafter be free to enter into an agreement with a
third party to open "Field of Dreams" stores within the Additional
Territory upon terms and conditions no more favorable to the Licensee
than specified in the Notice. Notwithstanding the foregoing, if Licensee
timely and properly delivers the Exercise Notice and Exercise Fee and
the parties fail to enter into an agreement pursuant to paragraph (c)
within the Negotiation Period by reason of Licensee's rejection of one
or more specific, material terms offered by Licensor which Licensee has
identified in writing prior to the
License Agmt Page 4
<PAGE>
expiration of the Negotiation Period as the basis for the parties'
inability to reach an agreement, Licensor may not enter into a license
agreement with any third party unless the third party accepts the
identified terms rejected by the Licensee.
"LICENSEE" "LICENSOR"
MERCHANDISING CORPORATION OF
AMERICA, INC.
By: /s/ By: /s/
---------------------------- ----------------------------
Name: Sam D. Battistone Name: Sidney A. Kaufman
Title: President Title: President
Date: May 21, 1991 Date: 5/22/91
License Agmt Page 5
<PAGE>
MERCHANDISING LICENSE AGREEMENT
SCHEDULE I TO PRINCIPAL TERMS
LICENSEE: Sports Archives, Inc.
AGREEMENT DATE: June 1, 1990
PROPERTY: "Field of Dreams" trademark and service mark
LICENSED ARTICLES: Licensor-approved memorabilia bearing the "Field of
Dreams" trademark, to be sold in Licensee's
company-owned and franchised "Field of Dreams" retail
stores, upon the terms and conditions set forth herein.
TERRITORY: United States [subject to Section 4(b) of the Standard
Terms]
TERM: INITIAL TERM EXPIRATION DATE: December 31, 1995
OPTION TO EXTEND? Yes
OPTION TERMS: Successive five (5) year terms
ADVANCE: INITIAL TERM ADVANCE:
(a) $22,500, $2,500 of which was previously paid
and the balance of which shall be paid upon execution
hereof;
(b) $2,500 payable upon the opening of each
Licensee-owned store (as an advance against royalties); and
(c) $5,000 payable upon the opening of each franchised store
(not an advance against royalties).
GUARANTEES: INITIAL TERM GUARANTEE: $2,500 per contract year
OPTION TERM GUARANTEE: $2,500 per contract year
License Agmt Page 6
<PAGE>
ROYALTY RATE: 1% of Gross Sales of each and every store (licensee-owned and
franchised), and of all mail order catalogue sales, payable semi-annually.
MARKETING DATE: N/A
INITIAL SHIPMENT DATE: N/A
COPYRIGHT AND TRADEMARK NOTICE (except as may otherwise be approved by
Licensor in writing on a case by case basis):
[R] & [c] 1989 Universal City Studios, Inc. All rights reserved.
Licensed by Merchandising Corporation of America, Inc.
License Agmt Page 7
<PAGE>
MERCHANDISING LICENSE AGREEMENT
STANDARD TERMS AND CONDITIONS
These Standard Terms and Conditions ("Standard Terms"), together with
the Principal Terms to which they are attached, and any other schedules or
exhibits attached hereto or thereto, constitute the Merchandising License
Agreement ("Agreement") between the Licensor and Licensee. All capitalized
terms not defined herein are as defined in the Principal Terms. In the event
of any inconsistency between these Standard Terms and the Principal Terms,
the Principal Terms shall control.
1. LICENSE. Upon the terms and conditions set forth in this
Agreement, by this Agreement Licensor hereby grants to Licensee a
non-transferable, non-assignable license to utilize (a) that artwork
which is pre-approved in writing by Licensor relating to the Property,
and (b) the name, title and logo of the Property (collectively the
"Licensed Elements") solely in connection with the advertisement,
manufacture, sale and distribution of the Licensed Articles in the
Licensed Territory during the Term (the "License").
2. RIGHTS IN LICENSE ELEMENTS. No action, omission or statement
by Licensor or Licensee shall in any way extend or grant to Licensee:
(a) any rights of ownership with respect to the Licensed Elements, or
any physical materials, including without limitation artwork supplied to
Licensee in connection with this Agreement ("Materials"); or (b) any
other rights in the Licensed Elements or such Materials other than the
License expressly created by this Agreement. Licensee shall have no
rights whatsoever, other than the limited License herein granted, in
either the Licensed Elements, any Materials supplied by Licensor, any
modification or additions to the Licensed Elements or any copyrights,
trademarks, trade names, or service marks which are in whole or in part
derivative of the Licensed Elements or Materials, whether created by
Licensee, Licensor or otherwise, all of which shall be the sole and
exclusive property of Property Owner. Licensee hereby assigns and
transfers to Property Owner all of Licensee's right, title and interest,
throughout the universe in perpetuity, in: (a) all copyrights and
goodwill in and to the Licensed Articles, artwork, literary text,
instructions, cartons, containers, packing and wrapping material, tags,
labels, devices, and advertising and display materials created in
connection with the Licensed Articles now in existence or hereafter
created by Licensee; and (b) all trademarks, trade names and/or service
marks created by or through or arising out of Licensee's use of the
Licensed Elements. Upon the request of Licensor, Licensee shall sign and
deliver to Licensor or Property Owner documentation in form and
substance satisfactory to Licensor confirming and effecting the
foregoing. Nothing in this paragraph 2 is intended to convey to Licensor
ownership of the tangible goods to which the Licensed Elements are
affixed, or of any copyrights, trademarks, trade names, or service marks
which are not in whole or in part derivative of the Licensed Elements or
Materials, subject however, to Licensee's obligations upon expiration or
termination as set forth in Section 10 below.
License Agmt Page 8
<PAGE>
3. TERM; OPTION TO EXTEND. Unless terminated earlier in
accordance with the terms of this Agreement, the License herein granted
shall commence upon the Agreement Date and shall continue until the
Initial Term Expiration Date (the "Initial Term"); provided, however,
that if the Principal Terms provide for an Option to Extend for one or
more additional Option Terms, then Licensee may extend the Term at the
end of the Initial Term, and each Option Term, for an additional Option
Term provided that the Term shall not exceed in the aggregate, the
Initial Term plus all Option Terms provided in the Principal Terms,
provided that it shall be a condition to each such extension that during
the Initial Term or then current Option Term, as applicable: (a)
Licensee has fully performed all, and is not in default of any, of its
material obligations under this Agreement; (b) Licensor has received in
U.S. dollars in the United States, royalty payments from Licensee,
inclusive of all advances, at least equal to the Option Term Guarantee;
and (c) Licensee provides Licensor with at least 30 days written notice
prior to the Initial Term Expiration Date of Licensee's exercise of such
Option to Extend. As used herein, "Term" shall refer to the aggregate of
the Initial Term and, if applicable, the Option Terms.
4. LICENSED TERRITORY.
(a) The Licensed Territory shall be as set forth in the Principal
Terms. If the Licensed Territory is comprised of individual countries
expressly set forth in the Principal Terms, then such countries are
herein referred to individually as a "Country". Licensee agrees that:
(a) Licensee will not market, advertise, distribute or sell, nor permit
any marketing, advertising, distribution or sales, directly or
indirectly, of the Licensed Articles or the Licensed Elements or any
likeness, characterization or representation thereof in any geographic
area other than the Licensed Territory; (b) Licensee will not ship,
deliver or otherwise transfer, or to the extent legally controllable by
Licensee, permit the shipping, delivery or other transfer for resale of
any Licensed Articles across or outside of the boundaries of the
Licensed Territory; and (c) Licensee will not sell or permit the sale of
Licensed Articles to persons or entities who Licensee knows or should
know (through Licensee's own operations or by notice from Licensor)
intend to, or are likely to resell the Licensed Articles in any
geographic area other than the Licensed Territory.
(b) If the offer or sale, or proposed offer or sale, of franchises
by Licensee in the states of Hawaii, South Dakota, Minnesota or
Washington, would in the opinion of the applicable state franchise law
administrator or of Licensor's counsel, cause Licensor to be deemed to
be a "franchisor" under the laws of any such state, thereby requiring
Licensor to register or provide disclosure to prospective franchisees,
or imposing any other duty, liability or obligation to any franchisee,
Licensee shall not offer or sell any franchise in such state unless and
until Licensee shall provide to Licensor a no-action letter, opinion or
comparable determination by such state administrator, or other assurance
satisfactory to Licensor, confirming that Licensor shall not be subject
to any such obligation and liability. Licensee shall not file any
application to register to sell franchises in any said state unless
first it shall have notified Licensor in writing of its intent to do so.
Licensee shall promptly reimburse
License Agmt Page 9
<PAGE>
Licensor for all costs and expenses (including attorney's fees) that it
may incur in connection with any such application and/or in determining
Licensor's legal rights and obligations associated with Licensee's
proposed offer and sale of franchisees in such state(s).
5. CONSIDERATION. In consideration of the License herein
granted, Licensee agrees to pay Licensor the following amounts:
(a) ROYALTY.
(i) Licensee shall pay to Licensor a royalty in an amount
equal to one percent (1%) of all Gross Sales during the Term,
payable semi-annually, on or before July 15 with respect to Gross
Sales during the first six (6) months of that calendar year, and
January 15 with respect to Gross Sales during the last six (6)
months of the preceding calendar year.
(ii) The term "Gross Sales" as used herein shall mean the
aggregate amount of all sums received or receivable by Licensee and
its sublicensees and franchisees, directly or indirectly, from or
in connection with the operation of "Field of Dreams" stores and
from or in connection with sales by means of catalogs, mail order
and other media and methods of distribution connected with the use
of the Licensed Elements, including revenues generated from any and
all sources on account of the sale of goods and products, and from
the rendering of services of any kind or nature, at or from such
stores, or under, or connected with the use of, the Licensed
Elements, whether for cash, credit, or barter. There shall be
deducted from Gross Sales for purposes of said computation (but
only to the extent that they have been included) the amount of all
sales tax receipts or similar tax receipts which, by law, are
chargeable to customers, if such taxes are separately stated when
the customer is charged, and the amount of any actual refunds,
rebates, overrings, and allowances given to customers in good faith.
(b) ADVANCES.
The Initial Term Advance, in the amount set forth in the Principal
Terms, shall be due and payable to Licensor concurrently with delivery
by Licensee to Licensor of a signed copy of the Principal Terms. The
Initial Term Advance shall be a non-returnable, non-refundable advance
against royalties payable to Licensor during the Initial Term.
License Agmt Page 10
<PAGE>
(c) ROYALTY GUARANTEES.
(i) Licensee agrees that the aggregate amount of royalties
paid to Licensor pursuant to Paragraph 5(a) during the Initial Term
together with the Initial Term Advance paid to Licensor pursuant to
Paragraph 5(b)(i) shall not be less than the amount of the Initial
Term Guarantee set forth in the Principal Terms. Concurrently with
the rendering of the statement due from Licensee, in accordance
with Paragraph 6 hereof, after the expiration or earlier
termination of the Initial Term, Licensee shall pay to Licensor an
amount equal to that portion of the Initial Term Guarantee not
previously paid to Licensor pursuant to Paragraphs 5(a) and 5(b)(i)
above.
(ii) If Licensee is granted and exercises an Option to Extend
in accordance with Paragraph 3 hereof, Licensee agrees that the
aggregate amount of royalties paid to Licensor pursuant to
Paragraph 5(a) during the Option Term together with the Option Term
Advance paid to Licensor pursuant to Paragraph 5(b)(ii) shall not
be less than the amount of the Option Term Guarantee set forth on
the Principal Terms. Concurrently with the rendering of the
statement due from License, in accordance with Paragraph 6 hereof,
after the expiration or earlier termination of the Option Term,
Licensee shall pay to Licensor an amount equal to that portion of
the Option Term Guarantee not previously paid to Licensor pursuant
to Paragraphs 5(a) and 5(b)(ii) above.
6. PAYMENTS; ACCOUNTING. Not later than twenty-one (21) days
following the end of: (a) each semi-annual reporting period (ending June
30, and December 31) during the Term of this Agreement, including each
Option Term, if any, Licensee shall furnish to Licensor a full, complete
and accurate statement on the form prescribed by Licensor from time to
time, upon reasonable prior notice, specifying, for the applicable
period:
(i) the aggregate amount of all Gross Sales;
(ii) the amount of Gross Sales of each store (whether
Licensee-owned or franchised), and the address and owner of such store;
(iii) the amount, by category, of Gross Sales from mail order
sales, catalog sales, and other media and methods of distribution; and
(iv) such other information as Licensor may reasonably require.
License Agmt Page 11
<PAGE>
Sales billed in other than U.S. dollars shall be computed and
reported in U.S. dollars using the conversion rate in effect on the last
day of the period to which the statement relates. Each statement shall
be accompanied by payment of the amounts due Licensor under this
Agreement, as shown on the statement. Licensor shall have the right to
require that the statements rendered hereunder be certified as complete,
true and accurate by a certified public accountant, to the best of his
knowledge, and/or by Licensee's chief financial officer, with any
expense of such certification borne by Licensee. Statements shall be
provided for each period described in this Paragraph regardless of
whether there are any Gross Sales during such period. The receipt or
acceptance by Licensor of any royalty statement furnished pursuant to
this Agreement, or the receipt or acceptance of any royalty payment made
hereunder, shall not prevent Licensor from later contesting the validity
or accuracy of such statement.
7. BOOKS, RECORD AND AUDIT.
(a) MAINTENANCE AND ACCESS. Licensee shall keep and cause its
sublicensees and franchisees to keep full, complete and accurate books
of account and records covering all of its transactions relating to the
subject matter of this Agreement, and Licensor shall have the right to
examine or audit any or all such books of account and records as
provided herein, and to make copies and extracts thereof. Licensee shall
cause Licensor or its designated agent or agents to have reasonable
access thereto for such purposes during normal business hours or at such
other times as may be mutually agreeable to the parties hereto. Licensee
shall maintain and cause its sublicensees and franchisees to maintain
all such books and records for a period of at least three (3) years or
such longer period as may be required by law, except that if a dispute
arises between Licensee and Licensor prior to the end of any such three
(3) year period with respect to any payment or the information contained
in such books and records, then Licensee will maintain and cause its
sublicensees and franchisees to maintain such books and records until
the resolution of the dispute or six (6) years from the date of
termination, whichever last occurs.
(b) COSTS OF AUDIT. Examinations and audits requested by Licensor
shall be conducted at the expense of Licensor, and Licensee shall
provide in advance (at no cost to Licensor except for copying and
mailing costs) copies of all other audits conducted by or for Licensee
bearing on the subject of any such requested audit, and related
auditor's work papers. Licensee shall provide to Licensor, at no charge,
copies of each annual audited financial statement prepared by Licensee's
auditors, and upon request, copies of each unaudited financials prepared
by or for Licensee. If any audit discloses an underpayment by Licensee
of five percent (5%) or more of the amount which should have been paid,
Licensee shall immediately pay the additional amount with interest at a
rate of four percent (4%) above the prime rate charged by Licensor's
primary lending bank (or the maximum rate permissible under law, if less
than such rate), and shall reimburse Licensor all costs incurred in
connection with such audit.
License Agmt Page 12
<PAGE>
8. QUALITY STANDARDS.
(a) HIGH QUALITY OPERATING STANDARDS. Licensee agrees that all
retail stores operated by Licensee and its franchisees under the "Field
of Dreams" name, and all advertising, promotion and merchandising
activities relating thereto, including but not limited to sales through
catalogs and mail order, and all sales and promotion of franchises by
Licensee: (i) at all times shall be of high standard and of such style,
appearance and quality as to protect and enhance the Property, the
Licensed Elements and the goodwill pertaining thereto; (ii) shall meet
Property Owner's and Licensor's quality standards and specifications;
and (iii) shall comply with all applicable Federal, State and local laws.
(b) HIGH QUALITY STANDARDS FOR LICENSED ARTICLES. Licensee agrees
that the Licensed Articles covered by this Agreement: (i) at all times
shall be of high standard and of such style, appearance and quality as
to protect and enhance the Property, the Licensed Elements and the
goodwill pertaining thereto; (ii) shall meet Property Owner's and
Licensor's quality standards and specifications; and (iii) shall be
manufactured, sold, distributed and marketed in accordance with all
applicable Federal, State and local laws. Licensee shall not
manufacture, authorize any third party to manufacture, offer, sell,
market or distribute, or permit any franchisee or sublicensee to offer,
sell, market or distribute, any Licensed Article which has not been
approved first by Licensor in writing in its sole discretion. Licensee
further agrees not to cause, suffer or permit the manufacture, sale,
distribution or marketing of any damaged or defective Licensed Articles.
(c) MANUFACTURING.
(i) If Licensee desires to use any third party to manufacture
or supply any Licensed Article or any advertisement, product
packaging, carton, tag, promotional material, display for retail or
wholesale sales, or other item related to any Licensed Articles or
Licensee's exploitation thereof (collectively herein "Collateral
Materials"), it shall first obtain Licensor's prior written
approval of such manufacturer which shall not be unreasonably
withheld. Licensor may impose reasonable conditions to such
approval, including without limitation that such supplier (x)
demonstrate to Licensor's reasonable satisfaction that it possesses
the resources, facilities and capacity to manufacture a product
which shall consistently meet the Licensor's high quality
standards, and all applicable governmental standards and
regulations, and (y) enter into a trademark license agreement in
form prescribed by Licensor which may require the manufacturer,
among other things, to permit Licensor to make periodic inspections
and/or provide free product samples upon Licensor's request, and to
manufacture products only for sale to Licensee and its franchisees
during the term thereof.
License Agmt Page 13
<PAGE>
(ii) Prior to the regular manufacture of any Licensed Article,
Licensee shall furnish to Licensor for approval one (1)
representative sample or prototype of each design of each and every
Licensed Article (herein "Preproduction Samples"). Licensor in its
sole discretion may approve or disapprove the use of such Licensed
Article as represented by the sample. In addition, once regular
manufacture has begun, and prior to shipment, Licensee shall
furnish to Licensor at no charge to Licensor, twenty-five (25)
samples of each design of each Licensed Article manufactured by
Licensee ("Manufactured Samples"); provided, that if the per unit
cost to Licensee of the Licensed Articles exceeds $250, Licensee
shall furnish to Licensor at no charge to Licensor, five (5)
samples of each such Manufactured Sample, and such additional
evidence and assurance of consistent quality as Licensor may
reasonably request.
(iii) Licensed Articles shall not differ in any material
respect from the approved Preproduction Samples without Licensor's
prior written consent. No Licensed Articles shall be offered or
sold until Licensor shall have approved the Manufactured Samples in
writing. Sale of any Licensed Article by Licensee or any
franchisee, the quality of which has not been specifically approved
by Licensor as provided herein, shall be a material breach of this
Agreement. Licensee agrees that Licensor shall have the right to
take samples at random from production runs from time to time as
Licensor may determine, in order to assure that proper quality
control has been established. Licensor shall also have the right to
have its representatives visit Licensee's plant or plants where the
Licensed Articles or any element thereof are made, and where the
containers, packaging material and the like are printed or produced
in order to determine whether or not proper quality controls are
being exercised.
(iv) Prior to the institution of any changes in the method of
production, form of production, materials used in production, or
any other changes in engineering, design, or other criteria which
could have a material effect on a Licensed Article previously
approved for production or manufacture, Licensee shall furnish to
Licensor for approval, one (1) Preproduction Sample in accordance
with the provisions of Paragraph 8(b)(i), as well as twenty-five
(25) Manufactured Samples manufactured in accordance with such new
method.
(v) In the event Licensor does not disapprove, in whole or in
part, of samples submitted under this Paragraph within 14 days
after receipt, such failure automatically constitutes disapproval
by Licensor. Licensee may not manufacture or sell or offer for sale
any Licensed Article without express written approval from Licensor
as required herein.
License Agmt Page 14
<PAGE>
(d) APPROVAL OF COLLATERAL MATERIALS. Prior to regular manufacture
or production of any Collateral Materials, Licensee shall submit a
sample or, in Licensor's discretion, other representation of such item
of Collateral Material to Licensor for approval. In the event Licensor
does not disapprove of same, in whole or in part, within 14 days after
receipt, such failure automatically constitutes disapproval by Licensor.
Any alteration in any Collateral Material must be approved in advance by
Licensor. Licensee shall provide Licensor, at no charge to Licensor,
twenty-five (25) samples of each Collateral Material created by or at
the request of Licensee.
(e) QUALITY STANDARDS FOR OTHER GOODS AND SERVICES. Licensee
agrees that with respect to all products and services other than
Licensed Articles which are offered, sold, marketed or distributed by
Licensee or its franchisees or sublicensees at "Field of Dreams" stores
or by mail order or catalogs ("Non-Licensed Goods and Services"), such
Non-Licensed Goods and Services: (i) at all times shall be of high
standard and of such style, appearance and quality as to protect and
enhance the Property, the Licensed Elements and the goodwill pertaining
thereto; (ii) shall satisfy Property Owner's and Licensor's quality
standards and specifications; and (iii) shall be manufactured, sold,
distributed and marketed in accordance with all applicable Federal,
State and local laws. Without limiting the generality of the foregoing,
neither Licensee nor any of its franchisees or sublicensees shall offer,
sell, market or distribute any Non-Licensed Goods or Services at any
"Field of Dreams" store or through any related mail order or catalog
sales activities if in Licensor's reasonable judgment the offer or sale
of such goods or services might tend to injure, or diminish the value
of, the name and reputation of the Licensor, or the Property or Licensed
Elements or the goodwill pertaining thereto, and Licensee shall cease
and cause its franchisees to cease to offer and sell any such product or
service within fourteen (14) days after delivery of written notice by
Licensor.
(f) COMPLIANCE WITH LAW. Licensee shall comply in all respects
with the Federal Trade Commission Rule on Franchising (the "FTC Rule")
and all applicable state laws, rules and regulations pertaining to
franchising; Licensee shall prepare its own Uniform Franchise Offering
Circular, shall register and maintain proper registrations in all states
and jurisdictions where such registration is or shall be required, and
shall at all times comply with all of the provisions of all other
applicable federal, state or local statutes, rules or ordinances.
Licensee shall not file or use any offering circulars, prospectuses or
other disclosure documents without first having (i) fully disclosed the
terms of this License Agreement and its effects upon its franchisees,
including without limitation the effect of Licensor's termination
rights, (ii) fully disclosed in such offering circulars, prospectuses
and disclosure documents, and provided in all agreements with
franchisees, that Licensor shall have no obligation, liability or
responsibility to any franchisee under any circumstances, and (iii)
obtained the Licensor's prior written approval as to the form and
content of such disclosures and provisions, which it may grant or
withhold in its sole discretion. Such
License Agmt Page 15
<PAGE>
approval shall not constitute a warranty or representation by Licensor
that any said document complies with any applicable law or that the
disclosures therein made by Licensee are truthful or accurate, and such
approval shall in no way limit, curtail or otherwise affect Licensee's
indemnity obligations to Licensor pursuant to Section 13(a).
9. MARKETING DATE; SHIPMENT DEADLINES.
(a) If the Principal Terms provide for a Marketing Date, then
Licensee shall not: (i) sell or permit any third party to sell any
Licensed Article to the public prior to the Marketing Date; (ii)
advertise or market, or permit any third party to advertise or market,
the Licensed Articles to the public earlier than the date which is
thirty (30) days following such termination execute a trademark license
agreement with Licensor upon the form prescribed by Licensor, which
shall be terminable by the franchisee upon thirty (30) days prior to the
Marketing Date; nor (iii) make any presentations to the trade, or permit
any third party to make any presentations to the trade, with respect to
the Licensed Articles, earlier than the date which is one hundred twenty
(120) days prior to the Marketing Date.
(b) If the Principal Terms provide for a Marketing Date, then in
addition to Licensor's right to seek damages or any other remedies
available under law or equity, Licensor reserves the right to terminate
this Agreement, or to terminate the License as to all or any Licensed
Articles throughout the Licensed Territory and/or as to any Country, by
written notice to Licensee at any time if Licensee has not: (i) made
available to Licensor complete Preproduction Samples of each Licensed
Article for approval within three (3) months after the Agreement Date;
or (ii) begun the regular distribution, sale and shipment of each and
every Licensed Article throughout the Licensed Territory in commercially
reasonable amounts by the Initial Shipment Date set forth on the
Principal Terms; or (iii) for a period of three (3) or more consecutive
months after initial shipment, continued the regular distribution, sale
and shipment of each and every Licensed Article throughout the Licensed
Territory in commercially reasonable amounts. As used herein,
"commercially reasonable amounts" shall mean quantities and assortments
sufficient to meet the public demand for the Licensed Articles. In the
event of such termination, any and all rights herein terminated relative
to any Licensed Article(s) and/or Country(ies*) shall forthwith
automatically revert to Licensor and Property Owner. Termination of
Licensee's rights with respect to any Licensed Article or Country under
this Paragraph shall not relieve Licensee of its obligations to account
to and pay Licensor royalties for all shipment of Licensed Articles, and
to pay the applicable guarantee amounts in accordance with Paragraphs
5(a), 5(b) and 6 of these Standard Terms.
License Agmt Page 16
<PAGE>
10. EFFECT OF EXPIRATION OR EARLY TERMINATION.
(a) Subject to paragraph 10(b) through 10(e) below, upon the
expiration or early termination of the Term, Licensee and all of its
franchisees shall (i) forthwith discontinue the use of the License
Elements, including without limitation use of the Licensed Elements to
identify the stores operated by Licensee and its franchisees and in
connection with any catalogs or mail order materials, and otherwise; and
(ii) not thereafter operate or do business under any name or in any
manner that might tend to give the general public the impression that he
is a Licensee of Licensor and shall promptly take such action as
Licensor may direct to prevent any possible confusion in the mind of the
public that Licensee or such franchisees are affiliated with or licensed
by Licensor, including but not limited to, removal of signage,
advertising, and other fixtures and furnishings that might tend to cause
the public to associate Licensee or its franchisees with Licensor.
(b) Except if in the opinion of Licensor's counsel to do so would
constitute the unlawful offer or sale of a franchise to such franchisee,
upon the early termination of this Agreement, Licensor shall permit each
of Licensee's franchisees, but not Licensee, to continue to use the
Licensed Elements to identify the stores operated by such franchisee for
a period of up to six (6) months following the termination hereof,
provided that (i) such franchisee's store is then operating in
conformity with Licensor's and Property Owner's high standards for
style, appearance and quality as to protect and enhance the Property,
the Licensed Elements and the goodwill pertaining thereto, and with all
applicable Federal, State and local laws, and (ii) such franchisee shall
within thirty (30) days prior written notice and shall provide among
other things for the payment by such franchisee of a royalty equal to
four percent (4%) of such franchisee's Gross Sales during the term of
such license agreement. Such royalty shall be payable solely for the
continued right during the term thereof to use the Licensed Elements to
identify the stores. Licensor shall have no obligation to provide any
services or assistance whatsoever to the franchisee in connection with
its operation of such store.
(c) If at the end of the Initial Term or any Option Term, this
Agreement expires without being extended pursuant to Section 3, and if
Licensee shall have satisfied each of the conditions precedent set forth
in paragraph (d) below, Licensee shall have the right, for a period not
to exceed sixty (60) days following expiration hereof, to sell such
inventory of Licensed Articles then on hand to (i) its franchisees who
have ceased to conduct business under the name "Field of Dreams" for
resale at their franchised locations to the general public in the
ordinary course of business and not through "going-out-of-business",
close-out, consignment, liquidation or auction sales, or similar
methods; (ii) to the general public in the ordinary course of business
and not through "going-out-of-business", close-out, consignment,
liquidation or auction sales, or similar methods, at Company-owned
stores which have ceased to conduct business under the name "Field of
Dreams", and (iii) to customers placing orders through catalogs which
were distributed at least ninety (90) days prior to the expiration of
the Term. At the expiration of such sixty (60) day sell-off period, or
License Agmt Page 17
<PAGE>
immediately upon the expiration of this Agreement if Licensee fails to
satisfy the conditions set forth in paragraph (d), Licensee shall, at
Licensor's option and at Licensee's sole cost, immediately either (i)
obliterate or remove the Licensed Elements from all Licensed Articles,
or (ii) offer to sell to Licensor all inventory of Licensed Articles
then on hand which is in good, resalable condition, at a price equal to
fifty percent (50%) of Licensee's lowest wholesale price charged for
such products to its franchisees during the preceding twelve (12)
months, provided that Licensor may offset against such purchase price
any sums payable by Licensee, or its affiliates, to Licensor.
(d) Licensee's sixty (60) day sell of right as described in
Section 10(c) shall be subject to Licensee's satisfaction of all of the
following conditions precedent:
(i) during the Term, Licensee shall have performed all of the
material terms and conditions hereof on its part to be performed;
(ii) at least thirty (30) days prior to the expiration of the
Initial Term, or then current Option Term, Licensee shall have
delivered to Licensor written notice of Licensee's intention not to
extend the Term ("Non-Renewal Notice"), together with a written
statement of Licensee's inventory of all of the Licensed Articles
on hand, and of all orders for such inventory which have been
received but not filled, as of the date of such notice;
(iii) during the period from six (6) months prior to the date
of Licensee's Non-Renewal Notice through the date of Licensee's
notice of intent not to renew, Licensee shall not have caused to be
manufactured more Licensed Articles than reasonably necessary to
meet anticipated demand and during the period following delivery of
Licensee's Non-Renewal Notice it shall not have manufactured
products in excess of those required to satisfy orders on hand at
the date of its Non-Renewal Notice;
(iv) within seven (7) days after the expiration hereof,
Licensee shall have delivered to Licensor a written statement of
inventory of all of the Licensed Articles on hand at the time of
such expiration or termination; provided, however, that Licensor
shall have the right to take a physical inventory to ascertain or
verify such inventory and statement, and refusal by Licensee to
submit to such physical inventory by Licensor shall cause a
forfeiture of Licensee's right to dispose of such inventory, with
Licensor retaining all other legal and equitable rights Licensor
may have in the circumstances; and
License Agmt Page 18
<PAGE>
(v) within seven (7) days after the expiration or termination
hereof, Licensee shall pay Licensor, in addition to the royalty
provided for in Paragraph 5(a) of these Standard Terms for the last
six (6) months of the Term, an amount equal to one-third (1/3) of
such amount in consideration for such sixty (60) day sell-off
right, plus the full amount of any and all other sums then due to
Licensor.
(e) In the event of the termination of this Agreement for any
reason prior to the expiration of the Term, unless Licensor shall agree
otherwise, Licensee shall have no right to continue to sell Licensed
Articles and shall, at Licensor's option and at Licensee's sole cost,
immediately either (i) obliterate or remove the Licensed Elements from
all Licensed Articles, and furnish Licensor with a Certificate
evidencing such obliteration or removal, or (ii) offer to sell to
Licensor all inventory of Licensed Articles then on hand, which is in
good, resaleable condition, at a price equal to fifty percent (50%) of
Licensee's lowest wholesale price charged for such products to its
franchisees during the preceding twelve (12) months, provided that
Licensor may offset against such purchase price any sums payable by
Licensee, or its affiliates, to Licensor.
(f) In no event shall Licensee have the right to manufacture or
cause or permit any third party to manufacture any Licensed Articles
after the expiration or earlier termination of the Term. Upon expiration
or earlier termination of the Term, Licensee shall, at Licensor's option
and at Licensee's sole cost, immediately either (i) destroy all stamps
and devises used to imprint or affix the Licensed Elements on Licensed
Articles, and with respect to any Licensed Articles as to which Licensee
or Property Owner own the copyrights or trademarks destroy all molds,
casts, modules and like equipment used to manufacture (collectively
"molds") and provide Licensor with a Certificate of Destruction upon the
completion of said destruction or (ii) deliver all such stamps, devices
and, if applicable, molds to Licensor, and Licensor shall have the right
to use all or any of such stamps, devices and molds without obligation
to Licensee.
(g) In the event of the termination of this Agreement for any
reason prior to the expiration of the Term, all monies owed Licensor
from Licensee, including without limitation any unpaid guarantee
provided for in Paragraph 5(c) for the period of the Term in which the
termination, if any, shall occur, shall be immediately due and payable,
and shall be accounted for in accordance with Paragraph 6.
(h) The expiration or termination of this Agreement shall be
without prejudice to the rights of Licensor against Licensee and such
expiration or termination shall not relieve Licensee of any of its
obligations to Licensor existing at the time of expiration or
termination or terminate those obligations of Licensee which, by their
nature, survive the expiration or termination of this Agreement. It is
expressly understood and agreed that the promises and agreements of
Licensee contained in this Agreement, are also for the benefit of
Licensor's parent company, and either of them may, in its own name,
exercise all rights and remedies
License Agmt Page 19
<PAGE>
necessary or desirable to protect or enforce its respective interests,
including, without limitation, obtaining injunctive relief to enforce
the obligations of Licensee set forth in this Agreement.
11. LICENSEE'S BREACH; RIGHT TO CURE.
(a) If Licensee breaches any of the terms and provisions of this
Agreement, then Licensor, in addition to any other rights or remedies it
may have under this Agreement or at law or in equity, shall have the
right, if it so elects, to serve upon Licensee written notice of such
breach. Except for the incurable breaches described in Paragraph 12
below, Licensee shall thereupon have a period of thirty (30) calendar
days from the date of delivery of such notice within which to remedy
such breach; except that with respect to breaches involving nonpayment
the cure period shall be ten (10) calendar days. If, because of the
nature of any breach other than one involving nonpayment, Licensee shall
be unable to cure the same within said thirty (30) day period but
demonstrates to Licensor's subjective satisfaction that it is making a
good faith, diligent effort to remedy such breach, Licensee shall be
given such additional time as Licensor deems reasonably necessary to
cure said breach, upon the condition that Licensee shall continue
diligently to do so.
(b) Without limiting the generality of the foregoing, the
following events shall constitute grounds for termination subject to the
Licensee's right to cure, as set forth in paragraph (a):
(i) If Licensee should make, sell, offer for sale, use
distribute, broadcast, display or exhibit any Licensed Article or
any Collateral Material which has not been approved by Licensor;
(ii) If Licensee should sell, offer for sale, use distribute
broadcast, display or exhibit any Licensed Articles or any
Collateral Material which does not contain the appropriate legal
notices; or
(iii) If any of the Licensed Articles should be the subject of
any government recall because of safety, health or other hazards or
risks to the public (it being expressly understood that Licensee is
obligated to comply with all governmental regulations relating to
the Licensed Articles at its sole expense).
(iv) If during the Term there shall cease to be at least one
(1) Licensee-owned or franchised "Field of Dreams" retail store
open and in operation within the Territory, and Licensee shall fail
to demonstrate to Licensor's sole subjective satisfaction that
Licensee is actively and diligently engaged in bona fide efforts to
License Agmt Page 20
<PAGE>
open additional "Field of Dreams" retail stores within thirty (30)
days following written notice of Licensor's intent to terminate
this Agreement on account of such absence of operating stores;
(c) If Licensee fails to remedy such breach to Licensor's
reasonable satisfaction within the applicable time period described
above, then Licensor shall, in addition to any other rights or remedies,
have the right to terminate this Agreement and the License herein
granted as of the expiration of such applicable cure period, and shall
have the right to sue for damages caused by such breach, including
without limitation the right to receive unpaid royalties or guarantees.
12. LICENSOR'S ADDITIONAL RIGHTS TO TERMINATE. Notwithstanding
Paragraph 11, Licensor shall, in addition to any other rights, have the
right to terminate this Agreement immediately and without notice or
opportunity to cure, upon the occurrence of any of the following events:
(a) If Licensee should fail to deliver to Licensor evidence of
insurance required by Paragraph 14 hereof, within fifteen (15) days
following written request;
(b) If, without Licensor's prior written consent, Licensee should
sell substantially all of its assets to a single purchaser or to a group
of purchasers, or if there should be a change of control of Licensee. As
used herein, "control" shall mean 50% or more of the voting control of
Licensee;
(c) If Licensee should make an assignment for the benefit of
creditors;
(d) If Licensee should file a voluntary petition under Chapter 7
of the United States Bankruptcy Code (the "Code") or the involuntary
adjudication of the Licensee as a debtor under either Chapter 7 or
Chapter 11 of the Code, or the appointment of a trustee under the Code
to operate or manage the affairs of the Licensee;
(e) If more than six (6) months shall pass during which there is
not open and in operation at least one (1) Licensee-owned or franchised
"Field of Dreams" retail store, notwithstanding any demonstration of
Licensee's best efforts to open additional stores; or
(f) If Licensee shall default in any material obligation as to
which Franchisee has previously received a notice of default from
Licensor within the preceding twelve (12) months.
License Agmt Page 21
<PAGE>
(g) If Licensee, on four (4) or more occasions within any eighteen
(18) month period, fails to comply with one (1) or more material
requirements of this Agreement whether or not corrected after notice.
13. INDEMNITY.
(a) Licensee hereby agrees to defend, indemnify and hold harmless
Licensor and its affiliated companies, shareholders, directors,
officers, employees, attorneys and agents (collectively the "indemnified
parties") from and against the losses, damages, costs and expenses
associated with any and all claims, demands, suits, proceedings or
judgments arising out of (i) any alleged unauthorized use of or
infringement upon any patent, copyright, design, mark, process, idea,
method, device, right of privacy, publicity, or other property right by
Licensee or any of its franchisees in connection with the Licensed
Articles covered by this Agreement (except all claims that the use of
Licensed Elements by Licensee in accordance with this Agreement
infringes any such rights); (ii) any alleged defects in the Licensed
Articles, or any alleged failure by Licensee or any of its franchisees
to adequately perform any agreement or render any service, or any injury
resulting from the sale or use of Licensed Articles, or the rendering of
services by Licensee or any of its franchisees; (iii) any alleged
violation of any law, rule or regulation governing the offer or sale of
franchises or the relationship between franchisors and franchisees; any
alleged breach of any agreement or contract between Licensee and any
franchisee, whether oral, written express or implied; any alleged unfair
acts or practices, fraud, misrepresentation, failure to disclose or
other act or omission by Licensee in connection with its promotion,
offer or sale of franchises or its continuing relationship with any of
its franchisees; and (iv) any other alleged acts or omissions by
Licensee. With respect to the foregoing indemnity, Licensee shall defend
and hold harmless all of the indemnified parties and each of them, at no
cost or expenses to them whatsoever, including but not limited to
attorneys' fees and court costs. Licensor shall have the right, but not
the obligation, to control the defense and resolution of any such action
with attorneys of its own selection, and to be promptly reimbursed upon
demand for all costs and expenses incurred in defending and resolving
any such claims.
(b) Licensor hereby indemnifies Licensee and undertakes to hold it
harmless against any claims or suits arising solely out of the use by
Licensee of the Licensed Elements as authorized in this Agreement,
provided that prompt notice is given to Licensor of any claim or suit
and provided further, that Licensor shall have the option to undertake
and control the defense or resolution of any claim so made or suit so
brought with attorneys of its own selection at Licensor's cost and
expense. If Licensor elects to so control the defense and/or resolution,
any costs, including without limitation attorneys' fees, incurred by
Licensee in connection therewith without Licensor's express prior
written consent shall be borne by Licensee.
License Agmt Page 22
<PAGE>
14. INSURANCE. Licensee agrees to maintain, at its sole expense, a
Comprehensive General Liability insurance policy for the entire Term of
this Agreement, as well as any sell-off period, including the coverage
parts for contractual liability (applying to the terms and conditions of
this Agreement), Products Liability and Personal Injury Liability, with
a minimum combined single limit of liability of not less than U.S.
$3,000,000.00 per occurrence, with a maximum deductible of $10,000.00.
Licensee shall provide Certificates of Insurance evidencing same to
Licensor from time to time upon request. License shall provide Licensor
with a policy endorsement to Licensee's Product Liability insurance
coverage, or an acceptable certificate of insurance naming Property
Owner, Licensor, and any other parent or affiliated company of Licensor
which Licensor may request to be named, as additional insureds. Such
insurance policy shall provide that Licensor and any additional insureds
shall receive at least thirty (30) days written notice before any
cancellation or modification of such policy.
15. PROTECTION OF PROPERTY OWNER'S AND LICENSOR'S RIGHTS.
(a) TRADEMARK AND COPYRIGHT NOTICE. Licensee shall cause to appear
on or within each Licensed Article manufactured by or for Licensee under
this License and within all Collateral Material proper legal copyright
and/or trademark notices in the form set forth in the Principal Terms or
otherwise requested in writing by Licensor. In no event shall Licensee
manufacture any Licensed Articles or Collateral Material depicting the
copyright and/or trademark notices to be contained thereon without
written approval from Licensor. Each and every tag, label, carton,
container, wrapping and packaging containing such notice and all
advertising, promotional or display material bearing the Licensed
Elements with such notice shall be submitted by Licensee to Licensor for
its written approval prior to use by Licensee. Approval by Licensor
shall not constitute a waiver of Licensor's rights or Licensee's duties
under any provision of this Agreement. In the event that Licensee
manufactures or distributes Licensed Articles or Collateral Material
without the appropriate trademark and copyright notices, Licensor shall,
in addition to all other rights and remedies under this Agreement, have
the right to require Licensee, at its sole cost and expense, to recall
said Licensed Articles or Collateral Material and correct the notice or
destroy the Licensed Articles or Collateral Material.
(b) VALUE AND SECONDARY MEANING. Licensee recognizes the great
value of the Licensed Elements and of the goodwill associated therewith
and acknowledges that the Licensed Elements and all rights therein
(including copyright and trademark) and goodwill pertaining thereto and
to all derivative works belong exclusively to Property Owner, that the
Licensed Elements has a secondary meaning in the mind of the public (so
that use by anyone of the foregoing without Property Owner's or
Licensor's authorization would be unlawful); and that all use of the
Licensed Elements pursuant to this Agreement will inure to the benefit
of Property Owner.
License Agmt Page 23
<PAGE>
(c) PROPERTY OWNER'S AND LICENSOR'S RIGHTS, TITLE AND INTEREST.
(i) All rights in and to the Licensed Elements, including
any modifications or additions to said Licensed Elements whether
created by or under the authority of Licensor or Licensee, shall be
the sole and exclusive property of Property Owner, and Property
Owner shall own all copyrights and other rights therein, without
obligation to Licensee.
(ii) Licensee hereby agrees that its every use of the
Licensed Elements shall inure to the benefit of Property Owner and
that Licensee shall not at any time acquire any rights in the
Licensed Elements by virtue of any use it may make of the Licensed
Elements. Furthermore, Licensee agrees that to the extent that
creation of the Licensed Articles, or any modifications of or
additions or contributions to the Licensed Articles or the Licensed
Elements by Licensee create any copyright, trademark or other
rights, such rights shall be and are hereby assigned to Property
Owner. The Licensee, its employees, successors and/or assignees
shall not register the Licensed Articles for copyright or trademark.
(iii) Licensee, in acknowledging the rights, title and
interest of Property Owner and Licensor in the Licensed Elements,
agrees that it will not during the Term hereof or thereafter attack
the rights of Property Owner or Licensor in the Licensed Elements,
regardless of the basis of such attack and regardless of whether
the same relates to title or validity. Licensee further agrees that
it shall not during the Term hereof, or any time thereafter,
dispute or contest, directly or indirectly, the validity of any of
Property Owner's copyrights or trademarks in the Licensed Articles
or Property subject to this Agreement.
(iv) Licensee agrees to cooperate with Licensor to the extent
necessary to acquire for Property Owner property rights in the
Licensed Elements and to protect and enforce Property Owner's and
Licensor's rights to the Licensed Elements. Licensor or Property
Owner may commence or prosecute any claims or suits regarding the
Licensed Articles in their own name or in the name of Licensee or
join Licensee as a party thereto. Licensee shall notify Licensor in
writing of any infringements or imitations of the Licensed Elements
on articles similar to those covered by this Agreement which may
come to Licensee's attention, and Licensor shall have the sole
right to determine whether or not any action shall be taken on
account of any such infringements or imitations. Licensee shall not
institute any suite or take any actions on account of any such
infringements or imitations without first obtaining the written
consent of Licensor to do so, which may be given or withheld in
Licensor's sole discretion.
License Agmt Page 24
<PAGE>
(v) Licensee will cooperate fully and in good faith with
Property Owner and Licensor for the purpose of securing and
preserving the rights of Property Owner and Licensor in and to the
Licensed Elements. In the event there has been no previous
registration of the Licensed Elements, Licensed Articles, or any
material relating thereto, Licensee shall cooperate fully and in
good faith with Property Owner and Licensor so as to enable
Property Owner and Licensor to file, prosecute and register the
same for purposes of copyright or trademark protection in
appropriate classes in the name of Property Owner and/or Licensor,
as Property Owner may determine. Upon request by Licensor, Licensee
shall furnish at least six (6) photographs and/or specimens, as
well as invoices or other proper evidence satisfactory to Licensor
duly showing the first commercial shipment in interstate commerce,
and such other things and documents as Licensor may require in the
obtaining or preserving of a trademark, and thereafter, on a
regular basis, representative samples of each Licensed Article and
of any or all materials bearing trademarks.
16. REMEDIES.
(a) Licensee acknowledges that its breach of this Agreement or its
failure (except as otherwise provided herein) to cease the manufacture,
marketing, sale and distribution of Licensed Articles at the termination
or expiration of this Agreement or otherwise in violation of any terms
hereof will result in immediate and irreparable damage to Licensor and
to the rights of any subsequent licensee. Licensee acknowledges and
admits that there is no adequate remedy at law for such breach of this
Agreement or for such failure to cease manufacture, marketing, sale or
distribution and Licensee agrees that in the event of such breach or
such failure, Licensor shall be entitled to equitable relief by way of
temporary and permanent injunctions and such other and further relief as
any court of competent jurisdiction may deem just and proper.
(b) Any and all payments due hereunder and not made to Licensor on
a timely basis shall bear interest at a rate of two percent (2%) above
the prime rate charged by Licensor's primary lending bank, but in no
event higher than the maximum interest permissible by law.
(c) Under no circumstances will Licensee have the right to offset
from amounts otherwise payable from Licensee to Licensor hereunder or
under any other agreements between Licensor and Licensee, any amounts,
whether or not fixed, owing or allegedly owing from Licensor to Licensee
under this Agreement or any other agreement between Licensor and
Licensee.
License Agmt Page 25
<PAGE>
(d) Resort to any remedies referred to herein shall not be
construed as a waiver of any other rights and remedies to which Licensor
is entitled under this Agreement or otherwise, nor shall an election to
terminate be deemed an election of remedies or a waiver of any claim for
damage or otherwise.
17. NO PREMIUMS/PROMOTIONS/CLOSE-OUTS/CONSIGNMENTS.
Licensee shall not sell or give away any Licensed Article in
connection with any premium, giveaway or promotional arrangement, which
rights are expressly reserved by Licensor. Licensee agrees to sell to
Licensor, at favorable prices, such quantities of Licensed Articles
requested by Licensor to sell or otherwise use in connection with any
premium or promotional arrangement. The term "premium arrangement" shall
refer to any arrangement whereby a Licensed Article is given away or
sold in conjunction with another product or service.
18. RESERVATION OF RIGHTS.
(a) If according to the Principal Terms the License hereby granted
is exclusive then, subject to any other provision of these Standard
Terms or the Principal Terms, Licensee's rights hereunder shall be
exclusive during the Term and Licensor shall grant no conflicting
rights. If according to the Principal Terms the Licensee herein granted
is non-exclusive, then Licensee's rights hereunder shall be
non-exclusive and nothing shall prevent Licensor from granting, or shall
impair or limit Licensor's rights to grant, the same, similar or
competing rights to one or more third parties.
(b) All rights not expressly granted to Licensee are reserved to
Licensor, and the exercise by Licensor of any reserved rights is hereby
consented to by Licensee, without regard to the extent to which the
exercise of any such rights by Licensor may be competitive with Licensee
or the rights granted to Licensee hereunder. Without limiting the
generality of the preceding sentence or of Paragraph 17 above, and
notwithstanding anything to the contrary contained in this Agreement,
Licensor expressly reserves the right to manufacture, market, distribute
and sell any products, services or articles utilizing all or any of the
Licensed Elements, which are similar or identical to the Licensed
Articles (a) in connection with the promotion of exhibition of the
Property, or (b) for any reason, if the sale of such products, services
or articles occurs on the grounds, or within ten (10) miles, of any
studio tour/theme park owned or operated by Licensor or any affiliate of
Licensor.
19. NO REPRESENTATION BY LICENSOR. Licensor makes no warranty or
representation as to the amount of gross sales, Net Sales or profits
Licensee will derive hereunder from the Licensed Articles, or as to the
performance or continued exploitation of, or marketing and advertising
budget with respect to, any other product or products, including without
limitation any television or theatrical motion pictures, based upon the
Property.
License Agmt Page 26
<PAGE>
20. NOTICES. Whenever notice is required to be given under this
Agreement, a writing signed by an officer of the party serving such
notice by personal delivery, by telecopy or facsimile transmission, or
by registered or certified mail, return receipt requested, to the other
party shall be deemed good and sufficient notice delivered on the date
of (i) receipt in the case of personal delivery or facsimile or telecopy
transmission, or (ii) three (3) days after posting if sent by registered
or certified mail. Such notice shall be addressed to Licensor and
Licensee at their respective addresses set forth on page 1 of the
Principal Terms, or such other address of which either party may notify
the other in accordance with this Paragraph, or if by facsimile, to the
following telephone numbers:
If to Licensor: (818) 777-6271
If to Licensee: ( )
21. NO ASSIGNMENT OR SUBLICENSE. This Agreement shall not be
assigned or sublicensed by Licensee except with the prior written
consent of Licensor and shall not be assigned by operation of law. Any
assignment or sublicense in violation of the preceding sentence shall be
null and void. This Agreement may be assigned by Licensor without any
consent. Subject to such restriction and to the restriction against
assignment by operation of law provided above, this Agreement shall be
binding upon and inure to the benefit of the parties, their successors
and assigns.
22. ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final and complete expression of their agreement, and supersedes
any and all prior and contemporaneous agreements and understandings
relating to the subject matter hereof.
23. MODIFICATION AND WAIVER. This Agreement may not be modified
and none of its terms may be waived, except in writing signed by both
parties. A waiver by either party of any default shall not be deemed a
waiver of a prior or subsequent default of the same or other provisions
of this Agreement. The failure of either party to enforce, or the delay
by either party in enforcing, any of its rights shall not be deemed a
continuing waiver or a modification of this Agreement.
24. SEPARABILITY. If any part of this Agreement shall be declared
invalid or unenforceable by a court of competent jurisdiction, it shall
not affect the validity of the balance of this Agreement, provided,
however, that if any provision of this Agreement pertaining to the
payment of royalties by Licensee to Licensor shall be declared invalid
or unenforceable by court of competent jurisdiction, Licensor shall have
the right, at its option, to terminate this Agreement upon giving not
less than ten (10) days' written notice to Licensee.
License Agmt Page 27
<PAGE>
25. PARAGRAPH HEADINGS. The headings of the Paragraphs are for
convenience only and in no way limit or affect the provisions hereof.
26. GOVERNING LAW. This agreement shall be governed by and
interpreted in accordance with the laws of the State of California
applicable to agreements entered into and to be performed wholly in
California.
27. CONSENT TO JURISDICTION. Licensee hereby consents to the
exclusive jurisdiction of any State or Federal court empowered to
enforce this Agreement in the State of California, Los Angeles County,
and waives any objection thereto on the basis of personal jurisdiction
or venue.
* * END OF STANDARD TERMS * *
License Agmt Page 28
<PAGE>
EXHIBIT 6(iv)
Standard Franchise Documents
<PAGE>
DREAMS FRANCHISE CORPORATION
FRANCHISE AGREEMENT
FranchiseDocs Page 1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
I. APPOINTMENT AND FRANCHISE FEE .............................2
II. TERM AND RENEWAL...........................................4
III. STORE LOCATION.............................................6
IV. TRAINING AND ASSISTANCE....................................8
V. PROPRIETARY MARKS..........................................9
VI. CONFIDENTIAL OPERATIONS MANUAL............................11
VII. CONFIDENTIAL INFORMATION..................................11
VIII. MODIFICATION OF THE SYSTEM................................12
IX. ADVERTISING...............................................13
X. CONTINUING SERVICES AND ROYALTY FEE.......................15
XI. ACCOUNTING AND RECORDS....................................16
XII. STANDARDS OF QUALITY AND PERFORMANCE......................17
XIII. FRANCHISEE'S OBLIGATIONS TO PURCHASE FROM
APPROVED SOURCES..........................................20
XIV. FRANCHISOR'S OPERATIONS ASSISTANCE........................21
XV. INSURANCE.................................................22
XVI. COVENANTS.................................................24
XVII. DEFAULT AND TERMINATION...................................26
FranchiseDocs Page 2
<PAGE>
XVIII. RIGHTS AND DUTIES OF PARTIES UPON
EXPIRATION OR TERMINATION.................................29
XIX. TRANSFERABILITY OF INTEREST...............................31
XX. DEATH OR INCAPACITY OF FRANCHISEE.........................35
XXI. RIGHT OF FIRST REFUSAL....................................36
XXII. OPERATION IN THE EVENT OF ABSENCE,
DISABILITY OR DEATH.......................................36
XXIII. INDEPENDENT CONTRACTOR AND
INDEMNIFICATION...........................................36
XXIV. NON-WAIVER................................................37
XXV. NOTICE....................................................38
XXVI. COST OF ENFORCEMENT OR DEFENSE............................38
XXVII. ENTIRE AGREEMENT..........................................39
XXVIII. SEVERABILITY AND CONSTRUCTION.............................39
XXIX. APPLICABLE LAW............................................40
XXX. GUARANTY..................................................40
XXXI. FORCE MAJEURE.............................................41
XXXII. CAVEAT....................................................41
XXXIII. ACKNOWLEDGMENTS...........................................41
</TABLE>
FranchiseDocs Page 2
<PAGE>
EXHIBITS
A. GUARANTY AND ASSUMPTION OF OBLIGATIONS
B. MAP OF DESIGNATED AREA
FranchiseDocs Page 3
<PAGE>
DREAMS FRANCHISE CORPORATION
FRANCHISE AGREEMENT
This Franchise Agreement ("this Agreement"), made this ______________
day of____________________, 19 ____, by and between DREAMS FRANCHISE
CORPORATION, a California corporation, having its principal place of business
at 5009 Hiatus Road, Sunrise FL 33351 ("Franchisor"), and ____________________
_______________________________________________________________________________
____________________________________________ ("Franchisee").
WITNESSETH:
WHEREAS, Franchisor and its parent, Dreams, Inc. (fka StratAmerica
Corporation), as the result of the expenditure of time, skill, effort and
money have developed and own a unique system ("System"), identified by the
mark "FIELD OF DREAMS-Registered Trademark-*", relating to the establishment,
development and operation of a store for the retail sale of sports-related
merchandise and celebrity-oriented merchandise, sports collectibles,
memorabilia, trading cards and related merchandise and products authorized
and approved by Franchisor and utilizing Franchisor's System and Marks, all
of which may be changed, improved or further developed by Franchisor from
time to time; and
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior layout, design and color
scheme; exclusively designed signage, decorations, furnishings and materials;
specialized procedures, techniques and methods for merchandising activities;
distinct inventory specifications and standards; the FIELD OF DREAMS-Registered
Tradmark- Confidential Operations Manual; the FIELD OF DREAMS-Registered
Tradmark- Proprietary Software Program; and methods and techniques for inventory
and cost controls, record keeping and reporting, personnel management,
purchasing, sales promotion, marketing and advertising; all of which may be
changed, improved and further developed by Franchisor from time to time; and
WHEREAS, Franchisor has obtained from Universal Studios Licensing,
Inc. ("USL") the exclusive right and license in the United States, excluding
properties owned or controlled by USL, to utilize the mark "FIELD OF
DREAMS-Registered Tradmark-" ("Mark(s)") as the name of and in the design of
retail stores as described above as well as the exclusive right to sublicense
others to use the Mark "FIELD OF DREAMS-Registered Tradmark-" in the
development and operation of franchised retail stores. Franchisee
- ----------------
*"FIELD OF DREAMS -Registered Trademark-" is a service mark of
Universal City Studios, Inc., licensed to Franchisor by Universal Studios
Licensing, Inc. ("USL").
FranchiseDocs Page 4
<PAGE>
understands and acknowledges, however, that in the event Franchisor's right
to use the Marks terminates for any reason whatsoever, Franchisee shall be
obligated to discontinue its use of the Marks and any associated logos or
commercial symbols immediately upon the direction of Franchisor or USL.
Franchisor has also obtained a non-exclusive right from USL to utilize the
mark "FIELD OF DREAMS-Registered Tradmark-" upon or in connection with the
manufacture, sale and distribution of sports and celebrity memorabilia and
paraphernalia by Franchisor and its franchisees. Such FIELD OF
DREAMS-Registered Tradmark- products shall be maintained as part of the
inventory of all Franchised Stores at all times. Franchisor shall continue to
develop, use and control such Marks for the benefit and use of itself and all
franchisees in order to identify for the public the source of and to
represent the System's high standards of quality regarding the appearance,
service and value throughout the operation of a retail store; and
WHEREAS, Franchisor grants to qualified persons franchises to own and
operate FIELD OF DREAMS-Registered Tradmark- retail stores offering and selling
sports-related merchandise and celebrity-oriented merchandise, sports
collectibles, memorabilia, trading cards and related merchandise and products
authorized and approved by Franchisor and utilizing Franchisor's System and
Marks. Franchisee desires to operate a FIELD OF DREAMS-Registered Tradmark-
retail store using Franchisor's System and Marks and has applied for a
franchise, which application has been approved by Franchisor in reliance upon
all of the representations made therein; and
WHEREAS, Franchisee understands and acknowledges the importance of
Franchisor's high and uniform standards of quality and service and the necessity
of operating the FIELD OF DREAMS-Registered Tradmark- store in conformity with
Franchisor's standards and specifications; and
WHEREAS, Franchisee understands and acknowledges that the franchise
granted herein is for the operation of a FIELD OF DREAMS-Registered Tradmark-
retail store only and does not include any rights to distribute the products or
service through mail order operations or any other channel of distribution
whatsoever; and
WHEREAS, Franchisor expressly disclaims the making of and Franchisee
acknowledges that it has not received nor relied upon any warranty or guaranty,
express or implied, as to the revenues, profits or success of the business
venture contemplated by this Agreement. Franchisee acknowledges that it has read
this Agreement and Franchisor's Uniform Franchise Offering Circular and that it
has no knowledge of any representations by Franchisor, or its officers,
directors, shareholders, employees or agents that are contrary to the statements
made in Franchisor's Uniform Franchise Offering Circular or to the terms herein.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other set forth in this Agreement hereby agree
as follows:
FranchiseDocs Page 5
<PAGE>
I. APPOINTMENT AND FRANCHISE FEE
A. Franchisor hereby grants to Franchisee, upon the terms and
conditions herein contained, the right, license and privilege to use the Mark
"FIELD OF DREAMS-Registered Tradmark-". Such grant is subject and subordinate to
the terms of the license granted by USL to Franchisor pursuant to that certain
License Agreement dated June 1, 1990 and all amendments thereto. Upon the
termination of such License Agreement, for any reason, Franchisee's right,
license and privilege to use the Mark "FIELD OF DREAMS-Registered Tradmark-"
shall thereupon terminate, and Franchisee shall thereafter operate under such
substitute name as Franchisor may direct. Franchisee undertakes the obligation,
to operate a FIELD OF DREAMS-Registered Tradmark- store offering and selling at
retail sports-related merchandise, celebrity-oriented merchandise collectibles,
memorabilia, trading cards and related merchandise and products ("Franchised
Store"), and to use solely in connection therewith Franchisor's System, as it is
currently established, and as it may be changed, improved and further developed
from time to time, at one (1) location only, such location to be:
1)__________________________________________________________________
________________________________________________________ or
2) At a location to be designated, as provided in Paragraph III.A.
hereof within the following area:_______________________________________________
_______________________________________________________ Provided, however, that
when a location has been designated and approved by the parties, said location
shall become Paragraph I.A.1., as if originally incorporated therein.
B. Franchisee receives an exclusive territory which will vary in size
and dimensions. Franchisor shall not grant to itself or another person a FIELD
OF DREAMS-Registered Tradmark- franchise within such exclusive territory.
Franchisee acknowledges, however, that any shopping mall located within any such
territory shall be specifically excluded from all provisions of this Agreement
regarding territorial exclusivity. The criteria used for determining the
boundaries of the exclusive territory include: the number of residential homes,
condominiums and/or apartments; the apparent degree of affluence of residents
and businesses within the territory; major and restricting topographical
features which clearly define contiguous areas, such as rivers, mountains, major
freeways, and underdeveloped land areas; the automobile and other traffic that
passes and/or is active in the territory; and the density of residential and
business entities. In the event the Franchised Store is located within a
shopping mall, Franchisee's exclusive territory shall be limited to the
boundaries and address of the shopping mall itself. The determination of the
exclusive territory shall be made and agreed upon between Franchisor and
Franchisee. The exclusive territory so selected is described in writing below
and in a map attached hereto as Exhibit B and hereby made a part of this
Agreement. Franchisee may relocate its store within the same general vicinity,
while remaining in the aforesaid territory, only with the prior written approval
of Franchisor and subject to the rights of other franchisees.
FranchiseDocs Page 6
<PAGE>
C. Franchisor will not, so long as this Agreement is in force and
effect and Franchisee is not in material default under any of the terms hereof,
enfranchise or operate any other FIELD OF DREAMS-Registered Tradmark- store
within the following area: ___________________________________________________
______________________________________("Designated Area").
D. Franchisor has the right, in its sole discretion, to grant such
other franchises outside of the Designated Area as Franchisor, in its sole and
exclusive discretion, deems appropriate. Further, both within and outside of the
Designated Area, Franchisee acknowledges that USL, Franchisor and their
affiliates may offer and sell at wholesale or retail (through mail order catalog
sales, internet site or any other species of wholesale or retail vendor
whatsoever), the products which may comprise, or may in the future comprise a
part of the FIELD OF DREAMS-Registered Tradmark- System. Franchisee shall not be
permitted to engage in mail order telemarketing, direct marketing or direct
solicitation without written approval from the Franchisor. Franchisee may not
prepare or sell through a catalog. Franchisee may not sell product through an
internet site, page or other internet use. USL and Franchisor further have the
right both within and outside the Designated Area to sell at both wholesale and
retail all merchandise and products which do not comprise a part of the FIELD OF
DREAMS-Registered Tradmark- System. Those products and services which comprise a
part of the FIELD OF DREAMS-Registered Tradmark- System are delineated and set
forth in detail in the FIELD OF DREAMS-Registered Tradmark- Confidential
Operations Manual ("Confidential Operations Manual"), which Confidential
Operations Manual may be amended from time to time to reflect additions to,
deletions from and modifications to the specifications of those services and
products which comprise a part of the System.
E. In consideration of the franchise for a store at the location
specified in Paragraph I.A. and granted herein, Franchisee shall pay to
Franchisor the sum of _____________________ Dollars ($_________) upon execution
of this Agreement and [strike if inapplicable: the sum of ____________________
Dollars ($_________) upon execution of the lease for the Franchised Store].
Except as may be otherwise specifically provided in this Agreement and/or any
Exhibit attached hereto, said fees shall be deemed fully earned and
non-refundable upon execution of this Agreement.
F. [DELETED]
G. Franchisee acknowledges and agrees that because complete and
detailed uniformity under many varying conditions may not be possible or
practical, Franchisor specifically reserves the right and privilege, at its sole
discretion and as it may deem in the best interests of all concerned in any
specific instance, to vary standards for any System franchisee based upon the
peculiarities of the particular site or circumstance, density of population,
business potential, population of trade area, existing business practices or any
other condition which Franchisor deems to be of importance to the successful
operation of such franchisee's business. Franchisee shall not be entitled to
require Franchisor to disclose or grant to franchisee a like or similar
variation hereunder. Further, any grant of a franchise to another franchisee
shall not constitute a breach of any obligations of Franchisor to Franchisee
pursuant to this Agreement.
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II. TERM AND RENEWAL
A. This Agreement shall be effective and binding from the date of its
execution for an initial term equal to _________________________________
commencing on the date of execution of this Agreement. The term of this
Agreement is unaffected by the terms of any agreement other than the lease or
sublease for the premises of the Franchised Store.
B. Franchisee shall have the right to renew this franchise before the
expiration of the initial term of the franchise for __________________________
additional successive terms of _____________________________ each, providing all
of the conditions hereinafter set forth have been fulfilled.
1. Franchisee has, during the entire term of this Agreement,
complied with all its provisions;
2. Franchisee maintains possession of the Franchised Store and
before the expiration date of this Agreement has brought the Franchised
Store into full compliance with the specifications and standards then
applicable for new or renewing FIELD OF DREAMS-Registered Tradmark-
stores and presents evidence satisfactory to Franchisor that it has the
right to remain in possession of the Franchised Store premises for the
duration of any renewal term; or, in the event Franchisee is unable to
maintain possession of the premises of the Franchised Store, or if, in
the judgment of Franchisor, the Franchised Store should be relocated,
Franchisee secures substitute premises approved by Franchisor and has
furnished, stocked and equipped such premises to bring the Franchised
Store at its substituted premises into full compliance with the
then-current specifications and standards before the expiration date of
this Agreement;
3. Franchisee has given notice of renewal to Franchisor as provided
hereinafter;
4. Franchisee has satisfied all monetary obligations owed by
Franchisee to Franchisor and Franchisor's affiliates and has met these
obligations timely throughout the term of this Agreement;
5. Franchisee has executed upon renewal Franchisor's then-current
form of Franchise Agreement (with appropriate modifications to reflect
the fact that the agreement relates to the grant of a renewal
franchise), which agreement shall supersede in all respects this
Agreement, and the terms of which may differ from the terms of this
Agreement, including, without limitation, a different percentage
Continuing Services and Royalty Fees and advertising contribution; a
different territory; provided, however, Franchisee shall not be
required to pay the then-current initial franchise fee or its
equivalent;
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6. Franchisee has complied with Franchisor's then-current
qualification and training requirements; and
7. Franchisee has executed a general release, in a form prescribed
by Franchisor, of any and all claims against Franchisor and its
subsidiaries and affiliates, and their respective officers, directors,
agents, shareholders and employees.
C. If Franchisee desires to renew this franchise before the expiration
of this Agreement, Franchisee shall give Franchisor written notice of its desire
to renew at least six (6) months, but not more than twelve (12) months, prior to
the expiration of the initial term of this Agreement. Within ninety (90) days
after its receipt of such timely notice, Franchisor shall furnish Franchisee
with written notice of: (1) reasons which could cause Franchisor not grant a
renewal to Franchisee including but not limited to any deficiencies which
require correction and a schedule for correction thereof by Franchisee; and (2)
Franchisor's then-current requirements relating to the image, appearance,
decoration, furnishing, equipping and stocking of FIELD OF DREAMS-Registered
Tradmark- stores, and a schedule for effecting upgrading or modifications in
order to bring the Franchised Store in compliance therewith, as a condition of
renewal. Renewal of the franchise shall be conditioned upon Franchisee's
compliance with such requirements and continued compliance with all the terms
and conditions of this Agreement up to the date of termination of the initial
term, provided, however, that in the event Franchisee is diligently curing any
deficiencies as required by Franchisor, the term of this Agreement shall be
extended for a period of time equal to the number of days required to cure such
deficiency, the maximum of which shall equal ninety (90) days.
III. STORE LOCATION
A. Franchisee shall operate the Franchised Store only at the location
specified in Paragraph I hereof. If the lease for the site of the Franchised
Store expires or terminates without fault of Franchisee, or if the site is
destroyed, condemned or otherwise rendered unusable, or as otherwise may be
agreed upon in writing by Franchisor and Franchisee, Franchisor will grant
permission for relocation of the Franchised Store at a location and site
acceptable to Franchisor. Any such relocation shall be at Franchisee's sole
expense and Franchisor shall have the right to charge Franchisee for any and all
reasonable costs incurred by Franchisor, and a reasonable fee for its services,
in connection with any such relocation of the Franchised Store.
B. Franchisee shall be responsible for purchasing or leasing a suitable
site for the Franchised Store. Within three (3) months after the date of this
Agreement, Franchisee shall submit a letter of intent or other evidence
satisfactory to Franchisor which confirms Franchisee's favorable prospects for
obtaining the proposed site. Franchisor shall provide Franchisee written notice
of approval or disapproval of the proposed site within fifteen (15) business
days after receiving Franchisee's written proposal. Franchisee acknowledges that
any site selection assistance or approval provided by Franchisor shall not be
construed or interpreted as a guarantee of success for
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said location nor shall any location recommendation or approval made by
Franchisor be deemed a representation that any particular location is available
for use and a FIELD OF DREAMS-Registered Tradmark- store.
C. If Franchisor or its affiliates identify an acceptable site for use
as a Franchised Store, Franchisor may lease or sublease such site to Franchisee.
However, unless Franchisor has agreed in a separate written agreement to
purchase or acquire by leasing the property in which the Franchised Store is to
be located, Franchisor shall have no obligation to enter into a lease or
sublease with Franchisee and shall only be obligated to act in an advisory
capacity to assist Franchisee in acquiring a location. Any real estate and
improvement costs associated with the development of the location of the
Franchised Store shall be the responsibility of Franchisee and may be included
in determining the lease or sublease rental payments.
D. After receiving Franchisor's written approval of the location of the
Franchised Store as provided in Paragraph III.B. hereof, Franchisee shall,
subject to the prior approval of terms by Franchisor execute a lease (if the
premises are to be leased) or a binding agreement to purchase the site.
Franchisor's approval of the lease or purchase agreement shall be conditioned
upon inclusion in the lease of terms acceptable to Franchisor, and at
Franchisor's option, the lease shall contain such provisions, including, but not
limited to:
1. A provision reserving to Franchisor the right, at Franchisor's
election, to receive an assignment of the leasehold interest upon
termination or expiration of the franchise grant;
2. A provision which expressly requires the lessor of the premises
to provide Franchisor all sales and other information lessor may have
related to the operation of the Franchised Store, as Franchisor may
request;
3. A provision which requires the lessor concurrently to provide
Franchisor with a copy of any written notice of deficiency under the
lease sent to Franchisee and which grants to Franchisor, in its sole
discretion, the right (but not obligation) to cure any deficiency under
the lease within fifteen (15) business days after the expiration of the
period in which Franchisee had to cure any such default should
Franchisee fail to do so;
4. A provision which evidences the right of Franchisee to display
the proprietary Marks in accordance with the specifications required by
the Confidential Operations Manual, subject only to the provisions of
applicable law;
5. A provision that the premises be used solely for the operation of
a franchised FIELD OF DREAMS-Registered Tradmark- store; and
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6. A provision which expressly states that any default under the
lease shall constitute a default under the Franchise Agreement, and any
default under the Franchise Agreement shall constitute a default under
the lease.
E. Franchisee agrees that promptly after obtaining possession of the
site for the Franchised Store it will: (i) cause to be prepared and submit for
approval by Franchisor a description of any modifications to Franchisor's basic
architectural plans and specifications for a FIELD OF DREAMS-Registered
Tradmark- store (including requirements for dimensions, exterior design,
materials, interior design and layout, equipment, fixtures, furniture, signs and
decorating materials) required for the development of a FIELD OF
DREAMS-Registered Tradmark- store at the site leased or purchased therefor,
provided that Franchisee may modify Franchisor's basic plans and specifications
only to the extent required to comply with all applicable ordinances, building
codes and permit requirements and with prior notification to and approval by
Franchisor; (ii) obtain all required zoning changes; all required building,
utility, health, sanitation, sign permits and licenses and any other required
permits and licenses; (iii) purchase or lease equipment, fixtures, furniture and
signs as provided herein; (iv) complete the construction and/or remodeling,
equipment, fixture, furniture and sign installation and decorating of the
Franchised Store in full and strict compliance with plans and specifications
therefor approved by Franchisor and all applicable ordinances, building codes
and permit requirements; (v) obtain all customary contractors' sworn statements
and partial and final waivers of lien for construction, remodeling, decorating
and installation services; and (vi) otherwise complete development of and have
the Franchised Store ready to open and commence the conduct of its business in
accordance with Paragraph XII hereof.
F. If a lease is not executed and Franchisee fails to open the
Franchised Store within three (3) months after submission of the letter of
intent specified in Paragraph III.B., herein, then and in that event, upon
written application from either party, this contract shall be terminated and
deposits received by Franchisor shall be returned to Franchisee; however,
Franchisee shall forfeit to Franchisor the sum of Five Thousand Dollars ($5,000)
as liquidated damages in payment for Franchisor's expenses in its site
evaluation and selection activities. Franchisee and Franchisor agree that the
amount set forth to wit, Five Thousand Dollars ($5,000) as liquidated damages is
a reasonable amount and that due to the nature of the subject matter, it will be
impossible to ascertain the exact amount of damages sustained by the recipient
therefore.
G. Franchisee shall be required to periodically make reasonable capital
expenditures to remodel, modernize and redecorate the Franchised Store and to
replace and modernize the premises of the Franchised Store (including but not
limited to replacement of floor coverings) so that the Franchised Store will
reflect the then-current image intended to be portrayed by FIELD OF
DREAMS-Registered Tradmark- stores. All remodeling, modernization, or
redecoration of the Franchised Store and its premises must be done in accordance
with the standards and specifications as prescribed by Franchisor from time to
time and with the prior written approval of Franchisor. All replacements must
conform to Franchisor's then-current quality standards and specifications and
must be approved by Franchisor in writing. Franchisee shall not be required to
remodel, modernize or redecorate the Franchised Store and its premises more than
once during the initial term of this Agreement, requiring
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expenditures in excess of Twelve Thousand Dollars ($12,000), however,
maintenance of the premises of the Franchised Store may exceed this amount, and
maintenance costs may not be credited to remodeling, modernization or
redecoration expenditures.
IV. TRAINING AND ASSISTANCE
A. Franchisor shall make training available to Franchisee, Franchisee's
designated manager and to a reasonable number of Franchisee's employees.
Franchisee and/or its designated manager is required to attend and successfully
complete to Franchisor's satisfaction prior to opening for business a training
and familiarization course of two (2) weeks or ten (10) calendar days in
duration to be conducted at Franchisor's headquarters or at such other place as
Franchisor shall designate. Said training programs shall cover material aspects
of the operation of a FIELD OF DREAMS-Registered Tradmark- franchise, including
financial controls; general bookkeeping procedures; procedures and techniques
regarding the retail sale of sports and celebrity related merchandise,
collectibles, memorabilia, trading cards and related merchandise and products;
customer relations techniques; inventory and cost control methods; service and
operational techniques; marketing and advertising techniques; training and
deployment of labor; and maintenance of quality standards. All expenses incurred
by Franchisee and its employees in attending such programs, including without
limitation, travel costs, room and board expenses and employees' salaries, shall
be the sole responsibility of Franchisee.
B. For five (5) days during start up of operations of Franchisee's
Franchised Store, Franchisor will furnish to Franchisee, at Franchisee's
premises and at Franchisor's expense, one (1) of Franchisor's representatives
for the purpose of facilitating the opening of Franchisee's Franchised Store.
During this period, such representative will also assist Franchisee in
establishing and standardizing procedures and techniques essential to the
operation of a FIELD OF DREAMS-Registered Tradmark- store and shall assist in
training personnel; however, Franchisee acknowledges that Franchisor shall not
be responsible for training or offering guidance with respect to compliance with
any laws, ordinances or other legal matters. Should Franchisee request
additional assistance from Franchisor in order to facilitate the opening of the
Franchised Store, and should Franchisor deem it necessary and appropriate to
comply with the request, Franchisee shall reimburse Franchisor for an agreed
upon fee plus the expenses of Franchisor in providing such additional
assistance.
C. If Franchisor determines, in its sole discretion, that Franchisee is
unable to satisfactorily complete the training program described above,
Franchisor shall have the right to terminate this Agreement in the manner herein
provided. If this Agreement is terminated pursuant to this Paragraph, Franchisor
shall return to Franchisee the franchise fees paid by Franchisee to Franchisor
minus the expenses incurred by Franchisor as of such date for providing training
to Franchisee, including, without limitation, the cost of recruitment, attorneys
fees, travel and living and such other expenses incurred by Franchisor in
relation to services provided pursuant to this Agreement. Upon return of said
amount, Franchisor shall be fully and forever released from any claims or causes
of action Franchisee may have under or pursuant to this Agreement, and
Franchisee shall have no further right, title or interest in the Marks or the
System.
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D. If Franchisee designates new or additional managers after the
initial training program, Franchisor shall provide training to such managers to
the extent that Franchisor can reasonably accommodate such managers in
Franchisor's regularly scheduled training course. Franchisor shall provide such
training at no charge to Franchisee, except that Franchisee shall pay all
employee salaries and travel and living expenses incurred by Franchisee's
managers or employees in attending such training programs.
E. Franchisor from time to time may provide and if it does and may
require that previously-trained and experienced Franchisees or their managers or
employees attend and successfully complete refresher training programs or
seminars to be conducted at such location as may be designated by Franchisor.
Attendance at such refresher training programs or seminars shall be at
Franchisee's sole expense, provided, however, that attendance will not be
required at more than two (2) such programs in any calendar year and which shall
not collectively exceed four (4) business days in duration during any calendar
year.
V. PROPRIETARY MARKS
A. Franchisee acknowledges that USL and its affiliates are the owners
of all right, title and interest together with all the goodwill of the Marks and
that Franchisor has been licensed the right to use such Marks and the right to
sublicense others. Franchisee further acknowledges that Franchisees's right to
use the Marks is derived solely from this Agreement and is limited to the
conduct of business by Franchisee pursuant to and in compliance with this
Agreement and all applicable standards, specifications, and operating procedures
prescribed by Franchisor from time to time during the term of the Franchise. Any
unauthorized use of the Marks by Franchisee is a breach of this Agreement and an
infringement of the rights of USL and Franchisor in and to the Marks. Franchisee
acknowledges and agrees that all usage of the Marks by Franchisee and any
goodwill established by Franchisee's use of the Marks shall inure to the
exclusive benefit of USL and its affiliates and that this Agreement does not
confer any goodwill or other interests in the Marks upon Franchisee. Franchisee
acknowledges, further, that it acquires no right, title or interest in any of
the marks or any additional trademark which may be developed unless specifically
granted such pursuant to the terms of a separate license agreement. Franchisee
shall not, at any time during the term of this Agreement or after its
termination or expiration, contest the validity or ownership of any of the Marks
or assist any other person in contesting the validity or ownership of the Marks.
All provisions of this Agreement applicable to the Marks apply to any and all
additional trademarks, service marks, and commercial symbols authorized for use
by and licensed to Franchisee by Franchisor after the date of this Agreement.
B. Franchisee shall not use any Mark or portion of any Mark as part of
a corporate or trade name, or with any prefix, suffix, or other modifying words,
terms, designs, or symbols, or in any modified form. Franchisee shall not use
any Mark in connection with the sale of any unauthorized product or service or
in any other manner not expressly authorized in writing by
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Franchisor. Franchisee agrees to properly attribute the ownership of the Marks
to USL and its affiliates and to give such notices of trademark and service mark
registrations as Franchisor specifies and to obtain such fictitious or assumed
name registrations as may be required under applicable law.
C. Franchisee shall promptly notify Franchisor of any attempt by any
other person, firm or corporation to use the Marks or any colorable imitation
thereof. Upon receipt of timely notice of such infringement USL and Franchisor
shall have the sole right to determine whether or not any action shall be taken
on account of any such infringements or imitations. USL and Franchisor shall
have the exclusive right to contest or bring action against any third party
regarding the third party's use of any of the Marks and shall exercise such
right in their sole discretion. Franchisee shall not institute any suit or take
any actions with regards to the Marks without first obtaining the written
consent of Franchisor to do so, which may be given or withheld in Franchisor's
sole discretion. In any defense or prosecution of any litigation relating to the
Marks or components of the System undertaken by Franchisor or USL, Franchisee
shall cooperate with Franchisor or USL and execute any and all documents and
take all actions as may be desirable or necessary in the opinion of counsel, to
carry out such defense or prosecution. Franchisor and Franchisee shall make
every effort consistent with the foregoing to protect, maintain, and promote the
Marks as identifying the System. FRANCHISOR MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE USE, EXCLUSIVE OWNERSHIP, VALIDITY OR
ENFORCEABILITY OF THE MARKS.
D. If it becomes advisable at any time, in Franchisor's sole
discretion, for Franchisor to modify or discontinue use of any Mark, and/or use
one or more additional or substitute trade names, trademarks, service marks, or
other commercial symbols, Franchisee agrees to comply with Franchisor's
directions within a reasonable time after notice to Franchisee by Franchisor.
Franchisee understands and acknowledges, however, that in the event Franchisor's
right to use the Marks is terminated for any reason whatsoever, Franchisee shall
be obligated to discontinue its use of the Marks and any associated logos or
commercial symbols immediately upon the direction of Franchisor or USL.
Franchisor shall have no liability or obligation whatsoever with respect to
Franchisee's modification or discontinuance of any Mark.
E. In order to preserve the validity and integrity of the Marks and
copyrighted material licensed herein and to assure that Franchisee is properly
employing the same in the operation of its Franchised Store, Franchisor or its
agents shall have the right of entry and inspection of Franchisee's premises and
operating procedures at all reasonable times. Franchisor shall have the right to
observe the manner in which Franchisee is rendering its FIELD OF
DREAMS-Registered Tradmark- services and conducting its operations, to confer
with Franchisee's employees and customers, to inspect service techniques and
procedures, to inspect inventory mix, and to select sports-related merchandise,
celebrity-oriented merchandise, collectibles, memorabilia, trading cards and
related merchandise, products, supplies, accessories and other items for and
evaluation purposes to make certain that the services, products, materials and
supplies are satisfactory and meet the quality control provisions and
performance standards established by Franchisor.
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VI. CONFIDENTIAL OPERATIONS MANUAL
A. Franchisor will loan to Franchisee during the term of the franchise
one (1) copy of a Confidential Operations Manual containing reasonable and
mandatory specifications, standards, operating procedures and rules prescribed
from time to time by Franchisor for FIELD OF DREAMS-Registered Tradmark- stores
and information relative to other obligations of Franchisee hereunder.
Franchisor may also set forth guidelines and additional recommendations for
operational procedures. Franchisor shall have the right to add to and otherwise
modify the Confidential Operations Manual from time to time to reflect changes
in the specifications, standards, operating procedures and rules prescribed by
Franchisor for FIELD OF DREAMS-Registered Tradmark- stores, provided that no
such addition or modification shall alter Franchisee's fundamental status and
rights under this Franchise Agreement.
B. The Confidential Operations Manual shall at all times remain the
sole property of Franchisor and shall promptly be returned upon the expiration
or other termination of this Agreement.
C. The Confidential Operations Manual contains proprietary information
of Franchisor and shall be kept confidential by Franchisee both during the term
of the franchise and subsequent to the expiration and/or termination of the
franchise. Franchisee shall at all times insure that its copy of the
Confidential Operations Manual be available at the Franchised Store premises in
a current and up-to-date manner. Franchisee shall not make any unauthorized use,
disclosure or duplication of any portion of the Confidential Operations Manual.
At all times that the Confidential Operations Manual is not in use by authorized
personnel, Franchisee shall maintain the Confidential Operations Manual in a
locked receptacle at the premises of the Franchised Store, and shall only grant
authorized personnel, as defined in the Confidential Operations Manual, access
to the key or lock combination of such receptacle. In the event of any dispute
as to the contents of the Confidential Operations Manual, the terms of the
master copy of the Confidential Operations Manual maintained by Franchisor at
Franchisor's home office shall be controlling.
D. Upon receipt of a copy of the Confidential Operations Manual,
Franchisee shall deliver $500 to Franchisor. Franchisor shall hold the $500 in
its general account and return it to the Franchisee when the entire confidential
Operations Manual is returned to the Franchisor by the Franchisee.
VII. CONFIDENTIAL INFORMATION
A. Franchisee acknowledges that its entire knowledge of the operation
of a FIELD OF DREAMS-Registered Tradmark- store, including without limitation
the Confidential Operations Manual, the method of marketing, pricing and
dispensing of sports-related merchandise, celebrity-oriented merchandise,
collectibles, memorabilia, trading cards and related merchandise and products,
services, standards and retail store operating procedures of a FIELD OF
DREAMS-Registered Tradmark- store, customer names and addresses, is derived from
information disclosed to Franchisee by Franchisor and that such
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information is proprietary, confidential and the trade secret of Franchisor.
Franchisee agrees that it will maintain the absolute confidentiality of all such
information during and after the term of the franchise and that it will not use
any such information in any other business or in any manner not specifically
authorized or approved in writing by Franchisor.
B. Franchisee shall divulge such confidential information only to such
of its employees as must have access to it in order to operate the Franchised
Store. Unless designated otherwise in writing by Franchisor, any and all
information, knowledge and know-how, including, without limitation, drawings,
materials, computer equipment, other equipment, specifications, techniques,
retail store systems, and other data, shall be deemed confidential for purposes
of this Agreement, except information which Franchisee can demonstrate came to
its attention prior to disclosure thereof by Franchisor; or which, at the time
of disclosure by Franchisor to Franchisee, had become a part of the public
domain, through non-wrongful publication or communication by others; or which,
after disclosure to Franchisee by Franchisor, becomes a part of the public
domain, through non-wrongful publication or communication by others.
C. Due to the special and unique nature of the confidential
information, Marks, and Confidential Operations Manual of Franchisor, Franchisee
hereby agrees and acknowledges that Franchisor shall be entitled to seek
immediate equitable remedies, including but not limited to, restraining orders
and injunctive relief in order to safeguard such proprietary, confidential,
unique, and special information of Franchisor and that money damages alone would
be an insufficient remedy with which to compensate Franchisor for any breach of
the terms of Paragraph V, VI, and VII of this Agreement. All employees of
Franchisee having access to the confidential and proprietary information
agreements or other proprietary information of Franchisor shall be required to
execute confidential information agreements in the form acceptable to
Franchisor.
D. Franchisee shall not use in advertising or any other form of
promotion, or in any manner the copyrighted materials of Franchisor without the
appropriate copyright and trademark designations.
VIII. MODIFICATION OF THE SYSTEM
Franchisee recognizes and agrees that from time to time hereafter
Franchisor may change or modify the System presently identified by the Marks,
including, without limitation, the adoption and use of new, different or
modified trade names, trademarks, service marks or copyrighted materials, new
products, new equipment or new techniques. Upon direction of Franchisor,
Franchisee shall immediately discontinue its use of any part of the System and
accept, use and display for the purpose of this Agreement any additions to the
System, as if they were part of this Agreement at the time of execution hereof.
Franchisee shall make such expenditures as are reasonably required by such
changes or modifications in the System. Franchisee shall not change, modify or
alter the System in any way.
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IX. ADVERTISING
Recognizing the value of advertising and the importance of the
standardization of advertising and promotion to the furtherance of the goodwill
and the public image of FIELD OF DREAMS-Registered Tradmark- stores, Franchisee
agrees as follows:
A. Before any use of promotional and advertising materials, Franchisee
shall submit to Franchisor or its designated agency, for its prior approval, all
information pertaining to promotional materials and advertising initiated by
Franchisee, including, but not limited to, newspapers, radio and television
advertising, direct mail advertising, specialty and novelty items, signs, boxes
or bags. In the event written disapproval of any such advertising and
promotional material has not been given by Franchisor to Franchisee within
ninety (90) days from the date such information has been received by Franchisor,
such materials shall be deemed approved. Failure by Franchisee to conform with
the provisions herein and subsequent nonaction by Franchisor to require
Franchisee to cure or remedy any such failure and default shall not be deemed a
waiver of future or additional failures and defaults by Franchisee under this
provision and/or any other provision of this Agreement. The submission of
advertising information to Franchisor for approval, as herein required, shall
not affect Franchisee's right to determine the prices at which Franchisee sells
franchise products and/or services.
B. Franchisee shall contribute to the FIELD OF DREAMS-Registered
Tradmark- Marketing and Development Fund ("Fund") an amount equal to three
percent (3%) of Franchisee's Gross Revenues, as defined in Paragraph X.
Franchisee's required payments to the Fund shall be made at the same time and in
the same manner as, and in addition to, the Continuing Services and Royalty Fee
provided in Paragraph X herein. Such payment shall be made in addition to and
exclusive of any sums that Franchisee may be required to spend on local and
cooperative advertising and promotion. The fund shall be maintained and
administered by Franchisor or its designee, as follows:
1. Franchisor shall direct all advertising programs with sole
discretion over the creative concepts, materials and media used in such
programs and the placement and allocation thereof. Franchisee agrees
and acknowledges that the Fund is intended to maximize general public
recognition and acceptance of the Marks for the benefit of the System
and that Franchisor or its designee undertake no obligation in
administering the Fund to make expenditures for Franchisee which are
equivalent or proportionate to its contribution, or to ensure that any
particular franchisee benefits directly PRO RATA from the placement of
advertising.
2. Franchisor shall contribute any advertising monies provided by
product suppliers to Franchisor for collective advertising purposes
directly to the Fund.
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3. The funds may be used to meet any and all costs of maintaining,
administering, directing and preparing advertising (including, without
limitation, the cost of preparing and conducting television, radio,
magazine and newspaper advertising campaigns and other public relations
activities; employing advertising agencies to assist therein; and
providing promotional brochures and other marketing materials to
franchisees in the system). All or a portion of funds may be rebated to
Franchisees on any basis deemed advantageous by Franchisor. All sums
paid by Franchisee to the Fund shall be maintained in a separate
account from the other funds of Franchisor and shall not be used to
defray any of Franchisor's general operating expenses, except for such
reasonable administrative costs and overhead, if any, as Franchisor may
incur in activities reasonably related to the administration or
direction of the Fund and advertising programs including, without
limitation, conducting market research, preparing marketing and
advertising materials, and collecting and accounting for assessments
for the Fund. All sums paid by Franchisee to the Fund may be invested
in passbook-type savings accounts and other low yielding investments;
however, Franchisor has no obligation to seek the highest yielding
investments for the Fund. Franchisor may seek and at its discretion,
follow the advice and counsel of various Franchisees or Franchisees'
groups regarding the use of advertising funds.
4. It is anticipated that all contributions to the Fund shall be
expended for advertising and promotional purposes during Franchisor's
fiscal year within which contributions are made. If, however, excess
amounts remain in the Fund at the end of such fiscal year, all
expenditures in the following fiscal year(s) shall be made first out of
any current interest or other earnings of the Fund, next out of any
accumulated earnings, and finally from principal.
5. Although Franchisor intends the Fund to be of perpetual duration,
Franchisor maintains the right to terminate the Fund. The Fund shall
not be terminated, however, until all monies in the Fund have been
expended for advertising and promotional purposes.
6. An accounting of the operation of the Fund shall be prepared
annually and shall be made available to Franchisee upon request.
Franchisor reserves the right, at its option, to require that such
annual accounting include an audit of the operation of the Fund
prepared by an independent certified public accountant selected by
Franchisor and prepared at the expense of the Fund.
C. Franchisee shall be required each year to spend on local advertising
and promotion (including Yellow Pages listings and mall advertising) an amount
equal to one percent (1%) of the Gross Revenues for each calendar year derived
from the Franchised Store. Such expenditures shall be made directly by
Franchisee, subject to approval and direction by Franchisor or Franchisor's
designated advertising agency. Annually Franchisee shall furnish to Franchisor
an accurate accounting of the previous year's expenditures on local advertising
and promotion.
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D. Franchisee shall expend an amount not less than Two Thousand Five
Hundred Dollars ($2,500) on newspaper, direct mail, advertising or promotional
items through other media to generate initial consumer awareness during the
first ninety (90) days of operation of the Franchise Store. Such advertising and
promotional items are to be designated as "Grand Opening" advertising and
promotion.
E. Franchisor may, from time to time, develop and market special
promotional items which will be made available to Franchisee at Franchisor's
cost plus a reasonable mark up and Franchisee shall maintain a representative
inventory of such promotional items to meet public demand. Franchisee shall have
the right to purchase alternative promotional items provided that such
alternative goods conform to the specifications and quality standards
established by Franchisor from time to time.
F. Franchisor may, from time to time, develop and market special
advertising or promotional programs designed to increase consumer awareness of
the sports and celebrity related merchandise, collectibles, memorabilia, trading
cards and related merchandise and products available at each Franchise Store,
and Franchisee shall have the right, but not the obligation, to participate
therein. Franchisor shall notify Franchisee of the creation of all such
advertising or promotional programs and shall advise Franchisee with respect to
all of the elements thereof. Within five (5) days after receipt of such notice,
Franchisee shall advise Franchisor as to whether or not Franchisee wishes to
participate in such programs. If Franchisee notifies Franchisor that it wishes
to participate, Franchisee shall in all respects, adhere to all elements of said
program. If Franchisee elects to be excluded from such program or programs,
Franchisor shall have the right to advise consumers, by advertising, sales
solicitation or otherwise, that Franchisee is not a participant in such program,
and Franchisee shall not be entitled to the benefits thereof. Franchisor shall
establish all such programs in its sole, subjective discretion, and shall not
consult or confer with Franchisee or any other franchisee of Franchisor with
respect to the nature, content or amount of any discount, prices or service
established pursuant to any such program.
G. Franchisee shall maintain a business phone and advertise
continuously in the classified or Yellow Pages of the local telephone directory
under listings deemed appropriate by Franchisor using mats of the type and size
approved in advance by Franchisor. When more than one (1) FIELD OF
DREAMS-Registered Tradmark- store serves a metropolitan area, classified
advertisements shall list all FIELD OF DREAMS-Registered Tradmark- stores
operating within the distribution area of such classified directories, and
Franchisee shall contribute its equal share in the cost of such advertisement.
H. Franchisee shall not advertise or use in advertising or any other
form of promotion, the trademarks, service marks or commercial symbols of
Franchisor without the appropriate -Registered Tradmark- registration mark or
the designations TM or SM where applicable.
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X. CONTINUING SERVICES AND ROYALTY FEE
A. Franchisee shall pay without offset, credit or deduction of any
nature, to Franchisor, so long as this Agreement shall be in effect, a weekly
Continuing Services and Royalty Fee equal to six percent (6%) of the Gross
Revenues derived from the Franchised Store. Said Continuing Services and Royalty
Fees shall be paid weekly in the manner specified below or as otherwise
prescribed in the Confidential Operations Manual.
1. On or before Monday of each week, Franchisee shall submit to
Franchisor on a form approved by Franchisor, a correct statement,
signed by Franchisee, of Franchisee's Gross Revenues for the preceding
week ended Sunday. Each weekly statement of Gross Revenues shall be
accompanied by the Continuing Services and Royalty Fee payment based on
the Gross Revenues reported in the statement so submitted. Franchisee
will make available to Franchisor all original books and records that
Franchisor may deem necessary to ascertain Franchisee's Gross Revenues
for reasonable inspection at reasonable times. Franchisee shall, on a
daily basis, make such information directly accessible to Franchisor
through the use of compatible computer communications equipment as
designated by Franchisor. Franchisor may require that all payments of
Continuing Services an Royalty Fees be made via electronic transfer or
credit card draft in the manner prescribed in the Confidential
Operations Manual.
2. The term "Gross Revenues", as used herein, shall mean and include
the total of all sales of all merchandise, products and services to
customers of Franchisee, whether or not sold or performed at or from
the FIELD OF DREAMS-Registered Tradmark- Franchised Store, less any
sales tax, use tax, or service taxes collected and paid to the
appropriate taxing authority and customer refunds.
B. All Continuing Services and Royalty Fees, advertising contributions,
amounts due for purchases by Franchisee from Franchisor and its affiliates, and
other amounts which Franchisee owes to Franchisor or its affiliates shall bear
interest after due date at the highest applicable legal rate for open account
business credit not to exceed one and one-half percent (1.5%) per month.
Franchisee acknowledges that this Paragraph shall not constitute agreement by
Franchisor or its affiliates to accept such payments after same are due or a
commitment by Franchisor to extend credit to, or otherwise finance Franchisee's
operation of, the Franchised Store. Further, Franchisee acknowledges that its
failure to pay all amounts when due shall constitute grounds for termination of
this Agreement, as provided in Paragraph XVIII hereof, notwithstanding the
provisions of this Paragraph.
C. Notwithstanding any designation by Franchisee, Franchisor shall have
the sole discretion to apply any payments by Franchisee to any past due
indebtedness of Franchisee for Continuing Services and Royalty Fees, advertising
contributions, purchases from Franchisor and its affiliates, interest or any
other indebtedness.
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XI. ACCOUNTING AND RECORDS
A. Franchisee shall maintain during the term of this Agreement, and
shall preserve for the time period specified in the Confidential Operations
Manual, full, complete, and accurate books, records, and accounts in accordance
with the standard accounting system prescribed by Franchisor in the Confidential
Operations Manual or otherwise in writing. Franchisee shall retain during the
term of this Agreement and for three (3) years thereafter all books and records
related to the Franchised Store, including without limitation, sale checks,
purchase orders, invoices, payroll records, customer lists, check stubs, sales
tax records and returns, cash receipts and disbursement journals and general
ledgers.
B. Franchisee will supply to Franchisor on or before the end of each
preceding calendar month, in the form approved by Franchisor, a balance sheet
and profit and loss statement and an activity report for the last preceding
calendar month. Additionally, Franchisee shall, at its expense, submit to
Franchisor within ninety (90) days after the end of each fiscal year during the
term of this Agreement, a profit and loss statement for such fiscal year and a
balance sheet as of the last day of such fiscal year, prepared on an accrual
basis in accordance with Generally Accepted Accounting Principles including all
adjustments necessary for fair presentation of the financial statements. Such
financial statements will be certified to be true and correct by Franchisee.
Franchisor reserves the right to require annual financial statements, prepared
in accordance with generally accepted accounting standards, audited by an
independent certified public accountant.
C. Franchisee shall submit to Franchisor such other periodic reports,
forms and records as specified, and in the manner and at the time as specified
in the Confidential Operations Manual or as Franchisor shall otherwise require
in writing from time to time.
D. Franchisee shall record all sales on electronic cash registers
approved by Franchisor or on such other types of cash registers as may be
designated by Franchisor in the Confidential Operations Manual or otherwise in
writing. Franchisee shall utilize computer-based point-of-sale cash registers
which are fully compatible with any program or system which Franchisor, in its
discretion, may employ, and Franchisee shall record all Gross Revenues and all
sales information on such equipment. Franchisor shall have full access to all of
Franchisee's data, system and related information by means of direct access
whether in person, or by telephone/modem. Franchiser shall use the PLU system
set out in the Confidential Operations Manual.
E. Franchisor or its designated agents shall have the right at all
reasonable times to examine and copy, at their expense, the books, records, and
tax returns of Franchisee. Franchisor shall also have the right, at any time, to
have an independent audit made of the books and records of Franchisee at
Franchisor's expense. If an inspection should reveal that any payments due to
Franchisor have been understated in any report to Franchisor, then Franchisee
shall immediately pay to Franchisor the amount understated upon demand, in
addition to interest from the date such amount was due until paid, at the
maximum rate permitted by law. If an inspection discloses an understatement of
Gross Revenues in any report by two percent (2%) or more, Franchisee shall, in
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addition, reimburse Franchisor for any and all costs and expenses connected with
the inspection (including, without limitation, reasonable accounting and
attorneys' fees). The foregoing remedies shall be in addition to any other
remedies Franchisor may have.
F. Franchisee acknowledges that nothing contained herein constitutes
Franchisor's agreement to accept any payments after same are due or a commitment
by Franchisor to extend credit to or otherwise finance Franchisee's operation of
the Franchised Store. Further, Franchisee acknowledges that its failure to pay
all amounts when due shall constitute a material default of, and grounds for
termination of this Agreement.
XII. STANDARDS OF QUALITY AND PERFORMANCE
A. Franchisee shall comply with all requirements set forth in this
Agreement, the Confidential Operations Manual and other written policies
supplied to Franchisee by Franchisor. Mandatory specifications, standards,
operating procedures and rules prescribed from time to time by Franchisor in the
Confidential Operations Manual or otherwise communicated to Franchisee in
writing, shall constitute provisions of this Agreement as if fully set forth
herein. All references herein to this Agreement shall include all such mandatory
specifications, standards and operating procedures and rules. Franchisee shall
comply with the entire FIELD OF DREAMS-Registered Tradmark- System including,
but not limited to, the provisions of this Paragraph XII.
B. Franchisee shall commence operation of the Franchised Store not
later than one hundred eighty (180) days after the execution of this Agreement
or as otherwise required or approved in writing by Franchisor. Prior to such
opening, Franchisee shall have complied with all Franchisor's pre-opening
standards and specifications. If Franchisee for any reason fails to commence
operation as herein provided, such failure shall be considered a default and
Franchisor may terminate this Agreement as herein provided. Franchisee hereby
grants to Franchisor all rights to use and to allow other franchisees to use
designs or styles used in a Franchised Store including any designs which modify
a Franchised Store.
C. Franchisee agrees to maintain the condition and appearance of the
premises of the Franchised Store consistent with Franchisor's quality controls
and standards. Franchisee shall maintain the premises of the Franchised Store as
is from time to time required to maintain or improve the appearance and
efficient operation of the Franchised Store, including, but not limited to,
replacement of worn out or obsolete fixtures, floor coverings and signs, repair
of the exterior and interior of the premises of the Franchised Store. If at any
time in Franchisor's judgment the general state of repair or the appearance of
the premises of the Franchised Store or its equipment, fixtures, signs or decor
does not meet Franchisor's quality control and standards therefor, Franchisor
shall so notify Franchisee, specifying the action to be taken by Franchisee to
correct such deficiency. If Franchisee fails or refuses to initiate within
thirty (30) days after receipt of such notice, and thereafter continue, a bona
fide program to complete any required maintenance, Franchisor shall
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have the right, in addition to all other remedies, to enter upon the premises of
the Franchised Store and effect such repairs, painting, maintenance or
replacements of equipment, fixtures or signs on behalf of Franchisee and
Franchisee shall pay the entire costs thereof on demand.
D. Franchisee shall make no material alterations to the premises of the
Franchised Store nor shall Franchisee make material replacements of or
alterations to the equipment, fixtures or signs of the Franchised Store without
the prior written approval by Franchisor.
E. Franchisee shall offer for sale and sell at the Franchised Store all
types, categories and quantities of sports-related merchandise,
celebrity-related merchandise, collectibles, memorabilia, trading cards and
related merchandise and products that Franchisor from time to time authorizes
and Franchisee shall not offer for sale or sell at the Franchised Store or the
premises which it occupies any other products or any products not specifically
approved by Franchisor. Any items bearing trademarks, likenesses, copyrighted
material or other proprietary material must be licensed from the proper owner or
agent. Evidence of a valid license must be available for inspection by the
Franchisor. Franchisee may not use such premises for any purpose other than the
operation of a Franchised Store in full compliance with this Franchise
Agreement. Franchisee shall not stock or display any items which Franchisor
believes, in its sole discretion, do not enhance the Marks or the System or are
incompatible with the standards of the System.
F. Franchisee shall secure and maintain in force and effect all
required licenses, permits and certificates relating to the operation of the
Franchised Store and shall operate the Franchised Store in full compliance with
all applicable laws, ordinances and regulations, including, without limitation,
all government regulations relating to occupational hazards and health, consumer
protection, trade regulation, worker's compensation, unemployment insurance and
withholding and payment of Federal and State income taxes and social security
taxes and sales, use and property taxes.
G. Franchisee agrees to refrain from any merchandising, advertising or
promotional practice which is unethical or may be injurious to the business of
Franchisor and/or other franchised stores or to the goodwill associated with the
Marks.
H. Franchisee shall in the operation of the Franchised Store use only
displays, boxes, bags, labels, forms and other paper products imprinted with the
Marks and colors as prescribed from time to time by Franchisor.
I. Franchisee shall at all times maintain a representative inventory of
sports-related merchandise, collectibles, memorabilia, trading cards and related
merchandise and products, and other products, materials and supplies of such
quantities and quality that will permit operation of the Franchised Store at
maximum capacity as prescribed by Franchisor.
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J. The Franchised Store shall at all times be under the direct,
on-premises supervision of Franchisee (or a trained and competent employee).
Franchisee shall keep Franchisor informed at all times of the identity of any
employee(s) acting as manager(s) of the Franchised Store. Franchisee shall at
all times faithfully, honestly and diligently perform its obligations hereunder
and shall not engage in any business or other activities that will conflict with
its obligations hereunder.
K. Franchisee shall not install or maintain on the premises of the
Franchised Store any newspaper racks, video games, jukeboxes, gaming machines,
gum machines, games, rides, vending machines or other similar devices without
the written approval of Franchisor.
L. Franchisee agrees to participate actively in a FIELD OF
DREAMS-Registered Tradmark- Regional Advisory Franchisee Council ("Council") and
participate in all Council programs approved by Franchisor for Franchisee's
particular Council. The purposes of the Council(s) include, but are not limited
to, exchanging ideas and problem solving methods, advising Franchisor on
expenditures for regional advertising, and coordinating System franchisee
efforts. Such Council(s) may be formed by Franchisor at such time that more than
one (1) franchisee conducts a FIELD OF DREAMS-Registered Tradmark- Franchised
Business in any given region, the boundaries of such region to be determined in
the sole and unfettered discretion of Franchisor.
M. Franchisee shall notify Franchisor in writing within five (5) days
of the commencement of any action, suit, or proceeding, and of the issuance of
any order, writ, injunction, award or decree of any court, agency, or other
governmental instrumentality, which may adversely affect the operation or
financial condition of the Franchised Store.
N. Franchisee recognizes that it is essential to protect the integrity
and good will of the System and the Marks that uniform procedures and programs
be established. Therefore, while Franchisee is not required to use or purchase
"Field of Dreams Guarantee of Authenticity" certificates, Franchisee shall meet
all quality assurance and product authenticity standards and requirements as
prescribed by Franchisor in the Confidential Operations Manual. Such standards
and specifications are enumerated in the Confidential Operations Manual.
O. If at any time Francisor questions the authenticity of any item
offered for sale by Franchisee, Franchisor may require Franchisee to deliver
such item to Franchisor or its representative for authentication. If the results
of the authentication indicates that the item is authentic, Franchisor shall pay
for the authentication. If the results of the authentication indicate that the
item is not authentic, Franchisee will immediately remove any similar items from
this inventory and immediately pay to Franchisor the reasonable cost of the
authentication process.
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XIII. FRANCHISEE'S OBLIGATIONS TO PURCHASE FROM APPROVED SOURCES
A. From time to time, Franchisor shall provide to Franchisee a list of
approved manufacturers, suppliers and distributors ("Approved Suppliers List")
and approved inventory, products, fixtures, furniture, equipment, signs,
stationery, supplies, and other items or services necessary to operate the
Franchised Store ("Approved Supplies List"). Such list shall specify the
manufacturer, supplier and distributor and the inventory products, fixtures,
furniture, equipment, signs, stationery, supplies and services which Franchisor
has approved to be carried or used in the System. Franchisor may revise the
Approved Suppliers List and Approved Supplies List from time to time in its sole
discretion and such lists shall be submitted to Franchisee as Franchisor deems
advisable. If Franchisee proposes to offer for sale at the Franchised Store any
brand of product, or to use in the operation of Franchised Store any other
inventory item or other material or supply which is not then approved by
Franchisor as meeting its minimum specifications and quality standards, or to
purchase any product from a supplier that is not then designated by Franchisor
as an approved supplier, Franchisee shall first notify Franchisor and shall upon
request by Franchisor submit samples and such other information as Franchisor
requires for examination and/or testing or to otherwise determine whether such
product, material or supply, or such proposed supplier meets its specifications
and quality standards. A charge not to exceed the reasonable cost of the
inspection and evaluation and the actual cost of the test shall be paid by
Franchisee or the supplier. Franchisor reserves the right, at its option, to
re-inspect the stores and products of any supplier of an approved item and to
revoke its approval of any item which fails to continue to meet any of
Franchisor's criteria.
B. All inventory, products and materials, and other items and supplies
used in the operation of the Franchised Store which are not specifically
required to be purchased in accordance with Franchisor's Approved Supplies List
and Approved Suppliers List shall conform to the specifications and quality
standards established by Franchisor from time to time. Any items bearing
trademarks, likenesses, copyrighted material or other proprietary material must
be licensed from the proper owner or agent. Evidence of a valid license must be
available for inspection by the Franchisor.
C. Franchisee acknowledges that Franchisor or its affiliate are in the
process of developing and will continue to develop a custom designed,
fully-integrated computer-based point-of-sale system, inventory system,
accounting and credit systems, programs, computer hardware and equipment ("FIELD
OF DREAMS-Registered Tradmark- Proprietary Software Program"), providing a
variety of accounting, inventory, purchasing and marketing functions. The FIELD
OF DREAMS-Registered Tradmark- Proprietary Software Program is intended to be
proprietary to Franchisor. Franchisee acknowledges that Franchisor has the
exclusive right to require Franchisee to use in the Franchised Store such FIELD
OF DREAMS-Registered Tradmark- Proprietary Software Program. The FIELD OF
DREAMS-Registered Tradmark- Proprietary Software Program will continue to be
developed on an ongoing basis. New developments shall be implemented at
Franchisor's discretion into the franchising System. Franchisee acknowledges
that it is only purchasing and agreeing to this franchise independent of the
benefits of any FIELD OF
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DREAMS-Registered Tradmark- Proprietary Software Program which may be developed.
The FIELD OF DREAMS-Registered Tradmark- Proprietary Software Program shall be
comprised of proprietary systems, programs, hardware and equipment and shall be
the Confidential Information of Franchisor.
D. Franchisor may develop and own a proprietary line of sports-related
merchandise and products ("FIELD OF DREAMS-Registered Tradmark- Trademarked
Product Lines"). Franchisee acknowledges that it will be required to purchase
FIELD OF DREAMS-Registered Tradmark- Trademarked Products from Franchisor or a
limited number of suppliers so authorized by Franchisor. Franchisor or its
designees shall sell to Franchisees such quantities of FIELD OF
DREAMS-Registered Tradmark- Trademarked Products as Franchisee requires from
time to time in the operation of the Franchised Store and at prices in effect at
the time of purchase. All FIELD OF DREAMS-Registered Tradmark- businesses shall
be required to use in their operations Trademarked Products as designated by
Franchisor.
XIV. FRANCHISOR'S OPERATIONS ASSISTANCE
A. Franchisor may from time to time advise or offer guidance to
Franchisee relative to prices for the sports-related and celebrity-related
merchandise, collectibles, memorabilia, trading cards and related merchandise
and products offered for sale by the Franchised Store that in Franchisor's
judgment constitute good business practice. Such guidance will be based on the
experience of Franchisor and its Franchisees in operating FIELD OF
DREAMS-Registered Tradmark- stores and an analysis of the costs of such products
and prices charged for competitive products. Franchisee shall not be obligated
to accept any such advice or guidance and shall have the sole right to determine
the prices to be charged from time to time by the Franchised Store and no such
advice or guidance shall be deemed or construed to impose upon Franchisee any
obligation to charge any fixed, minimum or maximum prices for any product
offered for sale by the Franchised Store.
B. Upon commencement of operation of the Franchised Store, and during
the term of this Agreement, Franchisor shall do the following:
1. Provide to Franchisee a comprehensive list of established sources
of sports-related and celebrity-related merchandise, collectibles,
memorabilia, trading cards and related merchandise and products,
equipment and supplies necessary for the operation of the Franchised
Store and provide specifications for such products;
2. Coordinate product distribution and purchasing for local,
regional and national suppliers as Franchisor deems necessary;
3. Regulate quality standards and products in conformance with the
System throughout the network of Franchised Stores; and
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4. Attempt to negotiate volume discounts for purchases of
sports-related merchandise, collectibles, memorabilia, trading cards
and related merchandise and products made by stores within the System.
C. Franchisor, or its representative, may advise Franchisee of problems
arising out of the operation of the Franchised Store as disclosed by reports
submitted to Franchisor, or its representative, by Franchisee or by inspections
conducted by Franchisor of the Franchised Store. Franchisor, or its
representative, may furnish Franchisee with such assistance in connection with
the operation of the Franchised Store as is reasonably determined to be
necessary by Franchisor from time to time. Operations assistance may consist of
advice and guidance with respect to:
1. Proper procedures to be utilized by the Franchised Store with
respect to routines regarding the sale of all sports-related and
celebrity-related merchandise, collectibles, memorabilia, trading cards
and related merchandise and products as approved by Franchisor;
2. Additional products and services authorized for sale from the
franchised FIELD OF DREAMS-Registered Tradmark- stores;
3. Purchase of sports-related and celebrity related merchandise,
collectibles, memorabilia, trading cards and related merchandise and
products, materials and supplies;
4. The institution of proper administrative, bookkeeping,
accounting, inventory control, supervisory and general operating
procedures for the effective operation of the Franchised Store; and
5. Advertising and promotional programs.
D. Franchisor, or its representative, may make periodic visits to the
Franchised Store for the purposes of consultation, assistance, and guidance of
Franchisee in all aspects of the operation and management of the Franchised
Store. Franchisor, or Franchisor's representatives, who attend at the Franchised
Store will prepare, for the benefit of both Franchisor and Franchisee, written
reports with respect to such visits outlining any suggested changes or
improvements in the operations of the Franchised Store and detailing any
defaults in such operations which become evident as a result of any such visit,
and a copy of each such written report shall be provided to both Franchisor, or
its representative, and Franchisee.
E. All of the specifications, Approved Suppliers List, Approved
Supplies List, training and operations manuals to be provided by Franchisor
to Franchisee pursuant to this Agreement shall be delivered to Franchisee at
the initial training program described in Paragraph IV.A. herein.
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XV. INSURANCE
A. Franchisee shall procure at its expense and maintain in full force
and effect during the term of this Agreement, an insurance policy or policies
protecting Franchisee, Franchisor and USL, and their officers, directors,
partners and employees against any loss, liability, personal injury, death, or
property damage or expense whatsoever arising or occurring upon or in connection
with the Franchised Store, as Franchisor may reasonably require for their own
and Franchisee's protection. Franchisor and USL and such of their respective
affiliates shall be named additional insured in such policy or policies.
B. Such policy or policies shall be written by an insurance company
satisfactory to Franchisor in accordance with standards and specifications set
forth in the Confidential Operations Manual or otherwise in writing, and shall
include, at a minimum (except as different coverages and policy limits may
reasonably be specified for all Franchisees from time to time by Franchisor in
the Confidential Operations Manual or otherwise in writing) the following:
1. All risks coverage insurance on the FIELD OF DREAMS-Registered
Tradmark- Franchised Store and all fixtures, equipment, supplies and
other property used in the operation of the FIELD OF DREAMS-Registered
Tradmark- Franchised Store, for full repair and replacement value of
the equipment, improvements and betterments, without any applicable
co-insurance clause, except that an appropriate deductible clause shall
be permitted.
2. Worker's compensation and employer's liability insurance as well
as such other insurance as may be required by statute or rule of the
state in which the Franchised Store is located and operated.
3. Comprehensive general liability insurance and product liability
insurance with limits of Three Million Dollars ($3,000,000) combined
single limit including the following coverages: personal injury
(employee and contractual inclusion deleted); products/completed
operation; and fire legal; insuring Franchisor and Franchisee against
all claims, suits, obligations, liabilities and damages, including
attorneys' fees, based upon or arising out of actual or alleged
personal injuries or property damage resulting from, or occurring in
the course of, or on or about or otherwise relating to the Franchised
Store, provided that the required amounts herein may be modified from
time to time by Franchisor to reflect inflation or future experience
with claims.
4. Automobile liability insurance, including owned, hired and
non-owned vehicle coverage, with a combined single limit of at least
One Million Dollars ($1,000,000).
5. Such insurance and types of coverage as may be required by the
terms of any lease for the Franchised Store, or as may be required from
time to time by Franchisor.
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6. Business interruption insurance for actual losses sustained.
C. The insurance afforded by the policy or policies respecting
liability shall not be limited in any way by reason of any insurance which may
be maintained by Franchisor. Within one hundred twenty (120) days of the signing
of this Agreement, but in no event later than the date on which Franchisee
acquires an interest in the real property on which it will develop and operate
the Franchised Store, a Certificate of Insurance showing compliance with the
foregoing requirements shall be furnished by Franchisee to Franchisor for
approval. Such certificate shall state that said policy or policies will not be
canceled or altered without at least twenty (20) days prior written notice to
Franchisor and shall reflect proof of payment of premiums. Maintenance of such
insurance and the performance by Franchisee of the obligations under this
Paragraph shall not relieve Franchisee of liability under the indemnity
provision set forth in this Agreement. Franchisee acknowledges that minimum
limits as required above may be modified by Franchisor in its sole discretion
from time to time, by written notice to Franchisee.
D. Should Franchisee, for any reason, not procure and maintain such
insurance coverage as required by this Agreement, Franchisor shall have the
right and authority (without, however, any obligation to do so) immediately to
procure such insurance coverage and to charge same to Franchisee, which charges,
together with a reasonable fee for expenses incurred by Franchisor in connection
with such procurement, shall be payable by Franchisee immediately upon notice.
XVI. COVENANTS
A. Unless otherwise specified, the term "Franchisee" as used in this
Paragraph XVI shall include, collectively and individually, all officers,
directors, and holders of a beneficial interest of five percent (5%) or more of
the securities of Franchisee, and of any corporation directly or indirectly
controlling Franchisee, if Franchisee is a corporation; and the general partners
and any limited partner (including any corporation and the officers, directors,
and holders of a beneficial interest of five percent (5%) or more of securities,
of a corporation which controls, directly or indirectly, any general or limited
partner), if Franchisee is a partnership.
B. Franchisee covenants that during the term of this Agreement, except
as otherwise approved in writing by Franchisor, Franchisee (if Franchisee is an
individual), a shareholder of a beneficial interest of ten percent (10%) or more
of the securities of Franchisee (if Franchisee is a corporation), a general
partner of Franchisee (if Franchisee is a partnership), or Franchisee's approved
Manager shall devote full time, energy, and best efforts, to the management and
operation of the Franchised Store.
C. Franchisee covenants that during the term of this Agreement, except
as otherwise approved in writing by Franchisor, Franchisee shall not, either
directly or indirectly, for himself, or through, on behalf of, or in conjunction
with any person, persons, partnership, or corporation:
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1. Divert or attempt to divert any business or customer of the
Franchised Store to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act
injurious or prejudicial to the goodwill associated with Franchisor's
Marks and the System.
2. Employ or seek to employ any person who is at that time employed
by Franchisor or by any other franchisee of Franchisor, or otherwise
directly or indirectly induce or seek to induce such person to leave
his or her employment thereat.
3. Own, maintain, engage in, consult with, or have any interest in
any business (including any business operated by Franchisee prior to
entry into this Agreement) specializing in whole or in part, in
selling, offering or providing through any channel of distribution
whatsoever sports-related or celebrity related merchandise,
collectibles, memorabilia, trading cards, and related merchandise and
products the same as or similar to that provided or sold through the
System.
D. Franchisee specifically acknowledges that, pursuant to this
Agreement, Franchisee will receive valuable training and confidential
information, including, without limitation, information regarding the
promotional, operational, sales and marketing methods and techniques of
Franchisor and the System. Accordingly, Franchisee covenants that, except as
otherwise approved in writing by Franchisor, Franchisee shall not, for a period
of two (2) years after the expiration or termination of this Agreement,
regardless of the cause of termination, either directly or indirectly, for
himself, or through, on behalf of, or in conjunction with any person, persons,
partnership, or corporation, own, maintain, engage in, consult with, or have any
interest in any business specializing in whole or in part, in selling, offering
or providing through any channel of distribution whatsoever sports-related or
celebrity-related merchandise, collectibles, memorabilia, trading cards and
related merchandise and products, or any other business which sells or offers to
sell products or services the same as or similar to those sold in the System:
1. Within a radius of three (3) miles of the location franchised
hereunder; or
2. Within a radius of three (3) miles of the location of any other
business using the System, whether franchised or owned by Franchisor,
or any affiliate of Franchisor.
E. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
If all or any portion of a covenant in this Paragraph XVI is held unreasonable
or unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which Franchisor is a party, Franchisee expressly agrees to be
bound by any lesser covenant subsumed within the terms of such covenant that
imposes the maximum duty permitted by law, as if the resulting covenant were
separately stated in and made a part of this Paragraph XVI.
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F. Franchisee understands and acknowledges that Franchisor shall have
the right, in its sole discretion, to reduce the scope of any covenant set forth
in Paragraphs XVI.C. and XVI.D. in this Agreement, or any portion thereof,
without Franchisee's consent, effective immediately upon receipt by Franchisee
of written notice thereof, and Franchisee agrees that it shall comply forthwith
with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Paragraph XXVI hereof.
G. Paragraphs XVI.C. and XVI.D. shall not apply to ownership by
Franchisee of less than five percent (5%) beneficial interest in the outstanding
equity securities of any corporation which is registered under the Securities
Exchange Act of 1934.
H. Franchisor shall have the right to require all of Franchisee's
personnel performing managerial or supervisory functions and all personnel
receiving training from Franchisor to execute similar covenants in a form
satisfactory to Franchisor.
XVII. DEFAULT AND TERMINATION
A. If Franchisee is in substantial compliance with this Agreement and
Franchisor materially breaches this Agreement and fails to cure such breach
within a reasonable time after written notice thereof is delivered to
Franchisor, Franchisee may terminate this Agreement. Such termination shall be
effective thirty (30) days after delivery to Franchisor of written notice that
such breach has not been cured and Franchisee elects to terminate this
Agreement. A termination of this Agreement by Franchisee for any reason other
than breach of this Agreement by Franchisor and Franchisor's failure to cure
such breach within a reasonable time after receipt of written notice thereof
shall be deemed a termination by Franchisee without cause.
1. Upon termination of this Agreement by Franchisee, Franchisee
shall pay all sums owed to Franchisor for Continuing Services and
Royalty Fees, advertising contributions to the Fund, amounts due for
purchases made from Franchisor or its affiliates, and all other amounts
due to Franchisor or its affiliates.
2. Franchisor shall not be obligated to return to Franchisee any
monies received from Franchisee as required herein.
3. Upon termination as provided in this Paragraph XVII, the parties
shall be bound by all post termination obligations as provided in
Paragraph XVIII of this Agreement.
B. This Agreement shall terminate automatically upon delivery of
written notice of termination to Franchisee, if Franchisee or its owner(s),
officer(s), or manager(s):
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1. Fails to decorate and equip the premises as provided in Paragraph
III hereof, or fails to satisfactorily complete the training program as
provided in Paragraph IV of this Agreement;
2. Has made any material misrepresentation or omission in the
application for the franchise;
3. Is convicted of or pleads no contest to a felony or other crime
or offense that is likely to adversely affect the reputation of
Franchisee or the FIELD OF DREAMS-Registered Tradmark- Franchised
Store;
4. Makes any unauthorized use, disclosure or duplication of any
portion of the Confidential Operations Manual or duplicates or
discloses or makes any unauthorized use of any trade secret or
confidential information provided to Franchisee by Franchisor;
5. Abandons or fails or refuses to actively operate the Franchised
Store for two (2) business days in any twelve (12) month period, unless
the Franchised Store has been closed for a purpose approved by
Franchisor or fails to relocate to approved premises within an approved
period of time following expiration or termination of the lease for the
premises of the Franchised Store;
6. Surrenders or transfers control of the operation of the FIELD OF
DREAMS-Registered Tradmark- Franchised Store, makes an unauthorized
direct or indirect assignment of the franchise or an ownership interest
in Franchisee or fails or refuses to assign the franchise or the
interest in Franchisee of a deceased or disabled controlling owner
thereof as herein required;
7. Submits to Franchisor on two (2) or more separate occasions at
any time during the term of the franchise any reports or other data,
information or supporting records which understate by more than three
percent (3%) the Continuing Services and Royalty Fees for any period
of, or periods aggregating, three (3) or more weeks, and Franchisee is
unable to demonstrate that such understatements resulted from
inadvertent error;
8. Commits any affirmative act of insolvency, or files any petition
or action of insolvency, or for appointment of a receiver or trustee,
or makes any assignment for the benefit of creditors, or fails to
vacate or dismiss within sixty (60) days after filing any such
proceedings commenced against Franchisee by a third party;
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9. Is subject to a dismissal of a liquidation proceeding pursuant
to 11 U.S.C. Section 707, dismissal of a reorganization proceeding
pursuant to 11 U.S.C. Section 1112, revocation of an order of
confirmation pursuant to 11 U.S.C. Section 1330(b) or dismissal of a
debt adjustment proceeding pursuant to 11 U.S.C. Section 1307;
10. Materially misuses or makes an unauthorized use of any Marks or
commits any act which can reasonably be expected to materially impair
the goodwill associated with any Marks including, but not limited to,
the use of the Mark on any article not specifically approved by
Franchisor;
11. Materially misuses or makes an unauthorized use of the FIELD OF
DREAMS-Registered Tradmark- Proprietary Software Program, if any;
12. Fails on two (2) or more separate occasions within any period of
twelve (12) consecutive months to submit when due reports or other
information or supporting records, to pay when due the Continuing
Services and Royalty Fees, advertising contributions, amounts due for
purchases from Franchisor and its affiliates or other payments due to
Franchisor and its affiliates, or otherwise fails to comply with this
Agreement, whether or not such failures to comply are corrected after
notice thereof is delivered to Franchisee;
13. On three or more occasions offers for sale products which bear a
false autograph or otherwise violate the rights of a third party or
violate state or federal law;
14. On four or more occasions during any twenty-four (24 month
period fails to maintain in the Franchised Store authenticity
documentation as required by the Confidential Operations Manual.
C. This Agreement shall terminate without further action by Franchisor
or notice to Franchisee if Franchisee or Franchisee's owner:
1. Fails or refuses to make payments of any amounts due Franchisor
or its affiliates for Continuing Services and Royalty Fees, advertising
contributions, purchases from Franchisor or its affiliates or any other
amounts due to Franchisor or its affiliates, and does not correct such
failure or refusal within ten (10) business days after written notice
of such failure is delivered to Franchisee;
2. Fails or refuses to comply with any other provision of this
Agreement, or any mandatory specification, standard or operating
procedure prescribed in the Confidential Operations Manual or otherwise
in writing, and does not correct such failure within thirty (30) days
(or provide proof acceptable to Franchisor that all reasonable efforts
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to correct such failure have been made and will continue to make all
reasonable efforts to cure until a cure is effected if such failure
cannot reasonably be corrected within thirty (30) days) after written
notice of such failure to comply is delivered to Franchisee.
D. To the extent that the provisions of this Agreement provide for
periods of notice less than those required by applicable law, or provide for
termination, cancellation, non-renewal or the like other than in accordance with
applicable law, such provisions shall, to the extent such are not in accordance
with applicable law, not be effective, and Franchisor shall comply with
applicable law in connection with each of these matters.
E. In addition to Franchisor's right to terminate this Agreement, and
not in lieu of such right or any other rights against Franchisee, Franchisor, in
the event that Franchisee shall not have cured a default under this Agreement
within the twenty (20) business days after receipt of a written notice to cure
from Franchisor, may, at its option, enter upon the premises of the FIELD OF
DREAMS-Registered Trademark- Franchised Store and exercise complete authority
with respect to the operation of said business until such time as Franchisor
determines that the default of Franchisee has been cured and that there is
compliance with the requirements of this Agreement. Franchisee specifically
agrees that a designated representative of Franchisor may take over, control,
and operate said business, and that Franchisee shall pay Franchisor a service
fee of not less than Two Hundred Dollars ($200.00) per day plus all travel
expenses, room and board and other expenses reasonably incurred by such
representative so long as it shall be required by the representative to enforce
compliance herewith. Franchisee further agrees that if, as herein provided,
Franchisor temporarily operates for Franchisee the business licensed herein,
Franchisee shall indemnify and hold harmless Franchisor and any representative
of Franchisor who may act hereunder, respecting any and all acts and omissions
which Franchisor may perform, or fail to perform as regards the interests of
Franchisee or third parties.
F. Default by Franchisee pursuant to the terms of any agreement, other
than this Agreement, by and between Franchisee and Franchisor shall also be
deemed to be a default pursuant to this Agreement. After default by Franchisee
upon such other agreement and after the lapse of any applicable cure period
within the applicable agreement, an uncured default by Franchisee pursuant to
any such other agreement between Franchisee and Franchisor shall constitute a
default under this Agreement and Section XVII.B. above, shall be applicable.
XVIII. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION
Upon termination or expiration, this Agreement and all rights granted
hereunder to Franchisee shall forthwith terminate, and:
A. Franchisee shall immediately cease to operate the Franchised Store
under this Agreement, and shall not thereafter, directly or indirectly,
represent to the public or hold itself out as a present or former franchisee of
Franchisor.
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B. Upon demand by Franchisor, Franchisee shall assign to Franchisor
Franchisee's interest in any lease then in effect for the Franchised Store
premises, and Franchisee shall furnish Franchisor with evidence satisfactory to
Franchisor of compliance with this obligation within thirty (30) days after
termination or expiration of this Agreement.
C. Franchisee shall immediately and permanently cease to use, by
advertising or in any manner whatsoever, any confidential methods, procedures,
and techniques associated with the System; the Marks and distinctive forms,
slogans, signs, symbols, logos, or devices associated with the System. In
particular, Franchisee shall cease to use and return to Franchisor, without
limitation, all signs, advertising materials, stationery, forms, and any other
articles which display the Marks associated with the System.
D. Franchisee shall take such action as may be necessary to cancel or
assign to Franchisor or Franchisor's designee, at Franchisor's option, any
assumed name rights or equivalent registration filed with state, city, or county
authorities which contains the name "FIELD OF DREAMS-Registered Trademark-" or
Marks, and Franchisee shall furnish Franchisor with evidence satisfactory to
Franchisor of compliance with this obligation within thirty (30) days after
termination or expiration of this Agreement.
E. Franchisee agrees, in the event it continues to operate or
subsequently begins to operate any other business, not to use any reproduction,
counterfeit, copy or colorable imitation of the Marks either in connection with
such other business or the promotion thereof, which is likely to cause
confusion, mistake or deception, or which is likely to dilute Franchisor's
rights in and to the Marks and further agrees not to utilize any designation of
origin or description or representation which falsely suggests or represents an
association or connection with Franchisor so as to constitute unfair
competition. Franchisee shall make such modifications or alterations to the
premises of the Franchised Store (including, without limitation, the changing of
the telephone number and not using the same telephone number even for a
different business or personal use) immediately upon termination or expiration
of this Agreement as may be necessary to prevent any association between
Franchisor or the System and any business thereon subsequently operated by
Franchisee or others, and shall make such specific additional changes thereto as
Franchisor may reasonably request for that purpose, including, without
limitation, removal of all distinctive physical and structural features
identifying the System. In the event Franchisee fails or refuses to comply with
the requirements of this Paragraph XVIII, Franchisor shall have the right to
enter upon the premises where Franchisee's Franchised Store was conducted,
without being guilty of trespass or any other tort, for the purpose of making or
causing to be made such changes as may be required at the expense of Franchisee,
which expense Franchisee agrees to pay upon demand.
F. Franchisee shall promptly pay all sums owing to Franchisor. In the
event of termination for any default of Franchisee, such sums shall include all
damages, costs, and expenses, including reasonable attorneys' fees, incurred by
Franchisor as a result of the default.
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G. Franchisee shall pay to Franchisor all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor subsequent to the
termination or expiration of the franchise herein granted in obtaining
injunctive or other relief for the enforcement of any provisions of this
Paragraph XVIII or Paragraph XVI.
H. Franchisee shall immediately turn over to Franchisor all manuals,
including the Confidential Operations Manual, the FIELD OF DREAMS-Registered
Trademark- Proprietary Software Program, if any, customer lists, records, files,
instructions, brochures, agreements, disclosure statements, and any and all
other materials provided by Franchisor to Franchisee relating to the operation
of the franchised business (all of which are acknowledged to be Franchisor's
property).
I. Franchisor shall have the right, title and interest to any sign or
sign faces bearing Franchisor's Marks. Franchisee hereby acknowledges
Franchisor's right to access the premises of the Franchised Store should
Franchisor elect to take possession of any said sign or sign faces bearing
Franchisor's Marks.
J. Franchisor shall have the right (but not the duty), to be exercised
by notice of intent to do so within thirty (30) days after termination or
expiration, to purchase for cash any or all assets of the Franchised Store,
including leasehold improvements, equipment, supplies, and other inventory,
advertising materials, and all items bearing Franchisor's Marks, at Franchisee's
cost or fair market value, whichever is less. If the parties cannot agree on
fair market value within a reasonable time, Franchisor and Franchisee shall each
designate an independent appraiser, which two (2) appraisers shall designate a
third independent appraiser, whose determination shall be binding. If Franchisor
elects to exercise any option to purchase as herein provided, it shall have the
right to set off all amounts due from Franchisee under this Agreement, and the
cost of the appraisal, if any, against any payment therefor.
K. Franchisee hereby acknowledges that all telephone numbers used in
the operation of the franchised business constitute assets of the franchised
business; and upon termination or expiration of this Agreement Franchisee shall
assign to Franchisor or its designee, all Franchisee's right, title, and
interest in and to Franchisee's telephone numbers and shall notify the telephone
company and all listing agencies of the termination or expiration of
Franchisee's right to use any telephone number and any regular, classified or
other telephone directory listing associated with the Marks and to authorize a
transfer of same to or at the direction of Franchisor.
L. Franchisee shall comply with the covenants contained in Paragraph
XVI of this Agreement.
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XIX. TRANSFERABILITY OF INTEREST
A. This Agreement and all rights hereunder can be assigned and
transferred by Franchisor and, if so, shall be binding upon and inure to the
benefit of Franchisor's successors and assigns.
B. This Agreement and all rights hereunder may be assigned and
transferred by Franchisee and, if so, shall be binding upon and inure to the
benefit of Franchisee's successors and assigns, subject to the following
conditions and requirements, and Franchisor's right of first refusal as set
forth herein:
1. No Franchisee, partner of Franchisee (if Franchisee is a
partnership), or share holder of Franchisee (if Franchisee is a
corporation), without Franchisor's prior written consent, by operation
of law or otherwise shall sell, assign, transfer, convey, give away, or
encumber to any person, firm, or corporation, all or any part of its
interest in this Agreement or its interest in the franchise granted
hereby or its interest in any proprietorship, partnership or
corporation which owns any interest in the franchise, nor offer,
permit, or suffer the same to be sold, assigned, transferred, conveyed,
given away, or encumbered in any way to any person, firm, or
corporation. Franchisee may not, without the prior written consent of
Franchisor, fractionalize any of the rights of Franchisee granted
pursuant to this Agreement. Any purported assignment of any of
Franchisee's rights herein not having the aforesaid consent shall be
null and void and shall constitute a material default hereunder.
2. Franchisor shall not unreasonably withhold its consent to any
transfer referenced in Paragraph XIX.B.1. of this Agreement when
requested; provided, however, that the following conditions and
requirements shall first be met to the full satisfaction of Franchisor.
(a) If Franchisee is an individual or partnership and
desires to assign and transfer its rights to a corporation:
(1) Said transferee corporation shall be newly
organized and its charter shall provide that its
activities are confined exclusively to acting as a FIELD
OF DREAMS-Registered Trademark- franchisee as licensed
under this Agreement;
(2) Franchisee shall be and shall remain the owner
of the majority (51%) stock interest of the transferee
corporation;
(3) The individual Franchisee (or, if Franchisee is
a partnership, one of the partners) shall be and shall
remain the principal executive officer of the
corporation;
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(4) The transferee corporation shall enter into
a written assignment (in a form satisfactory to
Franchisor), in which the transferee corporation assumes
all of Franchisee's obligations hereunder;
(5) All shareholders of the transferee corporation
shall enter into a written agreement, in a form
satisfactory to Franchisor, jointly and severally
guaranteeing the full payment and performance of the
transferee corporation's obligations under this
Agreement;
(6) Each stock certificate of the transferee
corporation shall have conspicuously endorsed upon it a
statement that it is held subject to, and that further
assignment or transfer thereof is subject to, all
restrictions imposed upon assignments by this Agreement;
(7) No new shares of common or preferred voting
stock in the transferee corporation shall be issued to
any person, partnership, trust, foundation, or
corporation without obtaining Franchisor's prior written
consent and then only upon disclosure of the terms and
conditions contained herein being made to the
prospective new holders of the stock;
(8) All accrued money obligations of Franchisee to
Franchisee's suppliers, Franchisor, its affiliates or
assignees, shall be satisfied prior to assignment or
transfer.
(b) If the transfer, other than such transfer as is
authorized under Paragraph XIX.B.2.a. of this Agreement, if
consummated alone or together with other related previous,
simultaneous, or proposed transfers, would have the effect of
transferring control of the franchise licensed herein to someone
other than an original signatory of this Agreement:
(1) The transferee(s) shall be of good moral
character and reputation and shall have a good credit
rating and competent business qualifications reasonably
acceptable to Franchisor. Franchisee shall provide
Franchisor with such information as Franchisor may
require to make such determination concerning each such
proposed transferee(s).
(2) The transferee(s) or such other individual(s) as
shall be the actual manager of the franchise shall have
successfully completed and passed the training course
then in effect for franchisees, or otherwise
demonstrated to Franchisor's satisfaction, sufficient
ability to operate the unit being transferred.
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(3) The transferee(s), including all shareholders,
officers, directors and partners of the transferee(s),
shall jointly and severally execute any or all of the
following, at Franchisor's sole discretion and as
Franchisor shall direct:
(i) A Franchise Agreement and other standard
ancillary agreements with Franchisor on the current
standard forms being used by Franchisor, except that
an additional franchise fee shall not be charged;
and/or
(ii) A written assignment from Franchisee in a
form satisfactory to Franchisor, wherein transferee
shall assume all of Franchisee's obligations
hereunder.
(4) Approval by Franchisor of any transfer by
Franchisee of the franchise herein granted or any of
Franchisee's rights under this Agreement shall in no way
be deemed a release by Franchisor of Franchisee's
obligations pursuant to this Agreement. Consent by
Franchisor to a transfer of the franchise shall not
constitute or be interpreted as consent for any future
transfer thereof.
(5) The term of said agreements required pursuant to
subparagraph XIX.B.2.b.(3) shall be for the unexpired
term of this Agreement and for any extensions or
renewals as provided herein.
(6) If transferee is a corporation:
(i) Each stock certificate of the transferee
corporation shall have conspicuously endorsed upon
it a statement that it is held subject to, and that
further assignment or transfer thereof is subject
to, all restrictions imposed upon assignments by
this Agreement; and
(ii) No new shares of common or preferred
voting stock in the transferee corporation shall be
issued to any person, partnership, trust,
foundation, or corporation without obtaining
Franchisor's prior written consent and then only
upon disclosure of the terms and conditions
contained herein being made to the prospective new
holders of the stock; and
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(iii) All shareholders of the transferee
corporation shall enter into a written
agreement, in a form satisfactory to Franchisor,
jointly and severally, guaranteeing full payment
and the performance of the transferee
corporation of all obligations under this
Agreement.
(7) All accrued money obligations of Franchisee
to Franchisee's suppliers, Franchisor, its affiliates or
assignees, shall be satisfied prior to assignment or
transfer, and Franchisee shall not be in default under
the terms of this Agreement.
(8) Franchisee, prior to the transfer, shall
execute a general release, in a form prescribed by
Franchisor, of any and all existing claims against
Franchisor and its affiliate and their respective
officers, directors, agents and employees, except such
claims as are not permitted to be waived under
applicable law.
3. Franchisee shall have fully paid and satisfied all of
Franchisee's obligations to Franchisor, and the transferee or
Franchisee shall have fully paid to Franchisor a transfer fee equal to
twenty percent (20%) of the then-current initial franchise fee charged
by Franchisor for the training, supervision, administrative costs,
overhead and profit, counsel fees, accounting and other Franchisor
expenses in connection with the transfer. This transfer fee does not
apply to an assignment of interest to a corporation under Paragraph
XIX.B.2.a. of this Agreement.
4. No sale, assignment, transfer, conveyance, encumbrance, or gift
of any interest in this Agreement or in the franchise granted thereby,
shall relieve Franchisee and the shareholders or partners participating
in any transfer, of the obligations of the covenants contained in
Paragraph XVI, except where Franchisor shall expressly authorize in
writing. All transferees shall execute a general release, in a form
prescribed by Franchisor, of any and all claims against Franchisor and
its subsidiaries and affiliates pertaining to the operation of the
business prior to the proposed transfer.
C. Franchisee must give Franchisor ninety (90) days written notice
prior to any sale or assignment by Franchisee. The purpose of this Paragraph is
to enable Franchisor to comply with any applicable state or federal franchise
disclosure laws. Franchisee agrees to indemnify and hold harmless Franchisor for
Franchisee's failure to comply with this Paragraph.
D. Franchisee must promptly ("promptly" herein defined as within
fifteen (15) days of receipt of an offer to buy) give Franchisor written notice
whenever Franchisee has received an offer to buy Franchisee's franchise.
Franchisee must also give Franchisor written notice simultaneously with any
offer to sell the franchise made by, for, or on behalf of Franchisee. The
purpose of this
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Paragraph is to enable Franchisor to comply with any applicable state or federal
franchise disclosure laws or rules. Franchisee agrees to indemnify and hold
harmless Franchisor for Franchisee's failure to comply with this Paragraph.
E. Franchisee shall not, without prior written consent of Franchisor,
place in, on or upon the location of the Franchised Store, or in any
communication media, any form of advertising, or list with any business, real
estate broker, agent, or attorney any information relating to the sale of the
Franchised Store or the rights granted hereunder.
F. Franchisee acknowledges that because complete and detailed
uniformity under the varying conditions and terms of any proposed transfer may
not be possible or practical, Franchisor specifically reserves the right and
privilege, at its sole discretion and as it may deem in the best interests of
all concerned in any specific instance, to vary standards for any such transfer
based upon the peculiarities of the particular transaction or any other
condition which Franchisor deems to be of importance. Franchisee shall not be
entitled to require Franchisor to disclose or grant to franchisee a like or
similar variation hereunder to that which may be accorded to any other
transferee.
XX. DEATH OR INCAPACITY OF FRANCHISEE
A. In the event of the death or incapacity of an individual Franchisee,
or any partner of a Franchisee which is a partnership or any shareholder owning
fifty percent (50%) or more of the capital stock of a Franchisee which is a
corporation, the heirs, beneficiaries, devisees, or legal representatives of
said individual, partner or shareholders shall, within one hundred eighty (180)
days of such event:
1. Apply to Franchisor for the right to continue to operate the
franchise for the duration of the term of this Agreement and any
renewals hereof, which right shall be granted upon the fulfillment of
all of the conditions set forth in Paragraph XIX.B.2.b. of this
Agreement (except that no transfer fee shall be required); or
2. Sell, assign, transfer, or convey Franchisee's interest in
compliance with the provisions of Paragraphs XIX.B. and XXI of this
Agreement; provided, however, in the event a proper and timely
application for the right to continue to operate has been made and
rejected, the one hundred eighty (180) days to sell, assign, transfer
or convey shall be computed from the date of said rejection. For
purposes of this Paragraph, Franchisor's silence on an application made
pursuant to Paragraph XX.A.1. through the one hundred and eighty (180)
days following the event of death or incapacity shall be deemed a
rejection made on the last day of such period.
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B. In the event of the death or incapacity of an individual Franchisee,
or any partner or shareholder of a Franchisee which is a partnership or
corporation, where the aforesaid provisions of Paragraph XIX have not been
fulfilled within the time provided, all rights licensed to Franchisee under this
Agreement shall, at the option of Franchisor, terminate forthwith and Franchisor
shall have the option to purchase the Franchised Store in accordance with
Paragraph XVIII.J. herein.
C. For purposes of this Agreement, "incapacity" shall be defined as the
inability of Franchisee to operate or oversee the operation of the Franchised
Store on a regular basis by reason of any continuing physical, mental or
emotional incapacity, chemical dependency or other limitation. Any dispute as to
the existence of an incapacity as defined herein shall be resolved by majority
decision of three licensed medical physicians practicing in the Metropolitan
Statistical Area ("MSA"), as that term is defined by the Census Bureau of the
United States, in which the Franchised Store is located, with each party
selecting one medical physician, and the two medical physicians so designated
selecting the third medical physician. The determination of the majority of the
three medical physicians shall be binding upon the parties and all costs of
making said determination shall be borne by the party against whom it is made.
XXI. RIGHT OF FIRST REFUSAL
If Franchisee or its owners propose to sell the Franchised Store (or
its assets) or part or all of the ownership of Franchisee, Franchisee or its
owners shall obtain and deliver a bona fide, executed written offer to purchase
same to Franchisor, which shall, for a period of up to thirty (30) days from the
date of delivery of such offer to Franchisor, have the right, exercisable by
written notice to Franchisee or its owners, to purchase the Franchised Store (or
its assets) or such ownership for the price and on the terms and conditions
contained in such offer, provided that Franchisor may substitute cash for any
form of payment proposed in such offer. If Franchisor does not exercise this
right of first refusal, the offer may be accepted by Franchisee or its owners,
subject to the prior written approval of Franchisor, as provided in Paragraph
XIX hereof, provided that if such offer is not so accepted within six (6) months
of the date thereof, Franchisor shall again have the right of first refusal
herein described.
XXII. OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH
In order to prevent any interruption of the franchised business which
would cause harm to the Franchised Store and thereby depreciate the value
thereof, Franchisee authorizes Franchisor, in the event that Franchisee is
absent or incapacitated by reason of illness or death and is not, therefore, in
the sole judgment of Franchisor, able to operate the Franchised Store, to
operate the Franchised Store for so long as Franchisor deems necessary and
practical, and without waiver of any other rights or remedies Franchisor may
have under this Agreement. Provided, however, that Franchisor shall not be
obligated to so operate the franchise. All monies from the operation of the
business during such period of operation by Franchisor shall be kept in a
separate account and the expenses of the Franchised Store, including reasonable
compensation and expenses for Franchisor's representative, shall be charged to
said account. If, as herein provided, Franchisor temporarily operates for
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Franchisee the Franchised Store, Franchisee agrees to indemnify and hold
harmless Franchisor and any representative of Franchisor who may act hereunder,
from any and all claims arising from the operation of the Franchised Store,
including, without limitation, the acts and omissions of Franchisor and its
representative.
XXIII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. This Agreement does not create a fiduciary relationship between the
parties, nor does it constitute Franchisee as an agent, legal representative,
joint venturer, partner, employee, or servant of Franchisor for any purpose
whatsoever; and it is understood between the parties hereto that Franchisee
shall be an independent contractor and is in no way authorized to make any
contract, agreement, warranty or representation on behalf of Franchisor, to
incur any debt, or to create any obligation, express or implied, on behalf of
Franchisor.
B. Franchisee shall prominently display, by posting of a sign within
public view, on or in the premises of the franchised location, a statement that
clearly indicates that the Franchised Store is independently owned and operated
by Franchisee as a FIELD OF DREAMS-Registered Tradmark- franchise of Franchisor
and not as an agent thereof.
C. Franchisee agrees to defend at its own cost and to indemnify and
hold harmless Franchisor, its shareholders, directors, officers, employees and
agents, from and against any and all loss, costs, expenses (including, without
limitation, reasonable accountants', attorneys', and expert witness fees, costs
of investigation and proof of facts, court costs, other litigation expenses and
travel and living expenses), damages and liabilities, however caused, resulting
directly or indirectly from or pertaining to the use, condition, or
construction, equipping, decorating, maintenance or operation of the Franchised
Store, including the sale of sports-related and celebrity-related merchandise,
collectibles, memorabilia, trading cards and related merchandise and products
sold from the Franchised Store. Such loss, claims, costs, expenses, damages and
liabilities shall include, without limitation, those arising from latent or
other defects in the Franchised Store, whether or not discoverable by
Franchisor, and those arising from the death or injury to any person or arising
from damage to the property of Franchisee or Franchisor, their agents or
employees, or any third person, firm or corporation, whether or not such losses,
claims, costs, expenses, damages, or liabilities were actually or allegedly
caused wholly or in part through the active or passive negligence of Franchisor
or any of its agents or employees or resulted from any strict liability imposed
on Franchisor or any of its agents or employees. All such indemnification shall
survive the termination of this Agreement.
D. Franchisor shall not, by virtue of any approvals, advice or services
provided to Franchisee, assume responsibility or liability to Franchisee or any
third parties to which Franchisor would not otherwise be subject.
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E. Franchisee agrees to take or refrain from taking, as applicable, any
action that Franchisor is obligated to take or refrain from taking pursuant to
the provisions of any license agreement between Franchisor and USL, or that
shall be necessary in Franchisor's judgment in order for Franchisor to fulfill
its obligations to USL pursuant to such license agreement. Franchisee
acknowledges further that such license agreement may include requirements
concerning the posting of notices by Franchisee. Franchisee acknowledges and
agrees that Franchisee is not an intended third party beneficiary of any such
license agreement and that USL shall have no obligation, liability or
responsibility to Franchisee under any circumstances.
XXIV. NON-WAIVER
No failure of Franchisor to exercise any power reserved to it
hereunder, or to insist upon strict compliance by Franchisee with any obligation
or condition hereunder, and no custom or practice of the parties in variance
with the terms hereof, shall constitute a waiver of Franchisor's right to demand
exact compliance with the terms hereof. Waiver by Franchisor of any particular
default by Franchisee shall not be binding unless in writing and executed by the
party sought to be charged and shall not affect or impair Franchisor's right
with respect to any subsequent default of the same or of a different nature; nor
shall any delay, waiver, forbearance, or omission of Franchisor to exercise any
power or rights arising out of any breach or default by Franchisee of any of the
terms, provisions, or covenants hereof, affect or impair Franchisor's rights nor
shall such constitute a waiver by Franchisor of any right hereunder or of the
right to declare any subsequent breach or default. Subsequent acceptance by
Franchisor of any payment(s) due to it hereunder shall not be deemed to be a
waiver by Franchisor of any preceding breach by Franchisee of any terms,
covenants or conditions of this Agreement.
XXV. NOTICE
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered or mailed by certified mail, return
receipt requested, to the respective parties at the following addresses unless
and until a different address has been designated by written notice to the other
party:
Notices to Franchisor: DREAMS FRANCHISE CORPORATION
5009 Hiatus Road
Sunrise , Florida 33351
Copy to: J. Scott Hunter, Esq.
HUNTER & BROWN
201 South Main, Suite 1300
Salt Lake City, Utah 84111-2215
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Notices to Franchisee: At the address specified on Page 1 of this
Agreement.
Copy to:
Any notice by certified mail shall be deemed to have been given at the date and
time of mailing.
XXVI. COST OF ENFORCEMENT OR DEFENSE
In the event of litigation between Franchisor and Franchisee, the
prevailing party shall be entitled to recover the amount of all reasonable
attorney's fees and all other expenses and costs associated with such
litigation. In the event that one party to this Agreement is required to employ
legal counsel or to incur other expenses to enforce any obligation of the second
party hereunder, or to defend against any claim, demand, action, or proceeding
by reason of the second party's failure to perform any obligation imposed upon
the second party by this Agreement, and provided that legal action is filed and
such action or the settlement thereof establishes the second party's default
hereunder, then the first party shall be entitled to recover from the second
party the amount of all reasonable attorney's fees of such counsel and all other
expenses incurred in enforcing such obligation or in defending against such
claim, demand, action, or proceeding, whether incurred prior to, or in
preparation for, or in contemplation of the filing of such action or thereafter.
XXVII. ENTIRE AGREEMENT
This Agreement, any Exhibit attached hereto, and the documents referred
to herein, shall be construed together and constitute the entire, full and
complete agreement between Franchisor and Franchisee concerning the subject
matter hereof, and supersede all prior agreements. No other representation has
induced Franchisee to execute this Agreement, and there are no representations,
inducements, promises, or agreements, oral or otherwise, between the parties not
embodied herein, which are of any force or effect with reference to this
Agreement or otherwise. No amendment, change or variance from this Agreement
shall be binding on either party unless executed in writing by both parties.
XXVIII. SEVERABILITY AND CONSTRUCTION
A. Each Paragraph, part, term and/or provision of this Agreement shall
be considered severable, and if, for any reason, any Paragraph, part, term
and/or provision herein is determined to be invalid and contrary to, or in
conflict with, any existing or future law or regulation, such shall not impair
the operation of or affect the remaining portions, sections, parts, terms and/or
provisions of this Agreement, and the latter will continue to be given full
force and effect and bind the parties hereto; and said invalid sections, parts,
terms and/or provisions shall be deemed not part of this
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Agreement; provided, however, that if Franchisor determines that said finding of
illegality adversely affects the basic consideration of this Agreement,
Franchisor may, at its option, terminate this Agreement.
B. Anything to the contrary herein notwithstanding, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Franchisor or Franchisee and such of their respective
successors and assigns as may be contemplated by this Agreement, any rights or
remedies under or by reason of this Agreement.
C. Franchisee expressly agrees to be bound by any promise or covenant
imposing the maximum duty permitted by law which is contained within the terms
of any provision hereof, as though it were separately stated in and made a part
of this Agreement, that may result from striking from any of the provisions
hereof any portion or portions which a court may hold to be unreasonable and
unenforceable in a final decision to which Franchisor is a party, or from
reducing the scope of any promise or covenant to the extent required to comply
with such a court order.
D. All captions herein are intended solely for the convenience of the
parties, and none shall be deemed to affect the meaning or construction of any
provision hereof. The singular usage includes the plural, where appropriate in
the context, and the masculine and neuter usages include the other and the
feminine.
E. The recitals set forth in this Agreement are specifically
incorporated into the terms of this Agreement and hereby constitute a part
thereof.
XXIX. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY
FRANCHISOR IN CALIFORNIA; AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE LAWS
THEREOF, WHICH LAWS SHALL PREVAIL IN THE EVENT OF ANY CONFLICT OF LAW, EXCEPT TO
THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15,
U.S.C. SECTIONS 1051 ET SEQ).
B. FRANCHISEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT IS ENTERED
INTO IN RIVERSIDE COUNTY, CALIFORNIA AND THAT ANY ACTION COMMENCED FOR THE
PURPOSE OF ENFORCING THE TERMS AND PROVISIONS HEREOF MAY BE COMMENCED IN THE
FOLLOWING COURTS, AT THE SOLE OPTION OF FRANCHISOR; (1) THE UNITED STATES
DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA; (2) THE SUPERIOR COURT OF
RIVERSIDE COUNTY, STATE OF CALIFORNIA, OR (3) THE UNITED STATES
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DISTRICT COURT, COURT OF GENERAL JURISDICTION FOR THE STATE, OR INFERIOR COURT
FOR THE JUDICIAL DISTRICT IN WHICH FRANCHISEE'S FIELD OF DREAMS-REGISTERED
TRADMARK- FRANCHISED STORE IS LOCATED.
C. NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO FRANCHISOR OR
FRANCHISEE BY THIS AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE
OF ANY OTHER RIGHT OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR PERMITTED,
BUT EACH SHALL BE CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.
D. NOTHING HEREIN CONTAINED SHALL BAR FRANCHISOR'S RIGHT TO OBTAIN
INJUNCTIVE RELIEF AGAINST THREATENED CONDUCT THAT WILL CAUSE IT LOSS OR DAMAGES,
UNDER THE USUAL EQUITY RULES, INCLUDING THE APPLICABLE RULES FOR OBTAINING
RESTRAINING ORDERS AND PRELIMINARY INJUNCTIONS.
XXX. GUARANTY
By their signatures hereto, all partners, shareholders, officers and
directors of the entity that signs this Agreement as Franchisee acknowledge and
accept the duties and obligations imposed upon each of them, individually, by
the terms of this Agreement. All partners of the entity that executes this
Agreement, in the event said entity is a partnership and all shareholders,
officers and directors of the entity that executes this Agreement, in the event
said entity is a corporation, shall execute the Guaranty and Assumption of
Obligations attached hereto as Exhibit A and made a part hereof.
XXXI. FORCE MAJEURE
Whenever a period of time is provided in this Agreement for either
party to do or perform any act or thing, except the payment of monies, neither
party shall be liable or responsible for any delays due to strikes, lockouts,
casualties, acts of God, war, governmental regulation or control or other causes
beyond the reasonable control of the parties ("Force Majeure"), and in any event
said time period for the performance of an obligation hereunder shall be
extended for the amount of time of the delay. This clause shall not apply or not
result in an extension of the term of this Agreement.
XXXII. CAVEAT
The success of the business venture contemplated to be undertaken by
Franchisee by virtue of this Agreement is speculative and depends, to a large
extent, upon the ability of Franchisee as an independent businessperson, its
active participation in the daily affairs of the business, market
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conditions, area competition, availability of product, quality of services
provided as well as other factors. Franchisor does not make any representation
or warranty express or implied as to the potential success of the business
venture contemplated hereby.
XXXIII. ACKNOWLEDGMENTS
A. Franchisee represents and acknowledges that it has received, read
and understood this Agreement and Franchisor's Uniform Franchise Offering
Circular; and that Franchisor has fully and adequately explained the provisions
of each to Franchisee's satisfaction; and that Franchisor has accorded
Franchisee ample time and opportunity to consult with advisors of its own
choosing about the potential benefits and risks of entering into this Agreement.
B. Franchisee acknowledges that Franchisee received a copy of this
Agreement, the attachments hereto, if any, and agreements relating thereto, if
any, at least five (5) business days prior to the date on which this Agreement
was executed. Franchisee further acknowledges that Franchisee has received the
disclosure document required by the Trade Regulation Rule of the Federal Trade
Commission entitled Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures, at least ten (10) business days
prior to the date on which this Agreement was executed.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, sealed and delivered this Agreement in _____________
(duplicate or triplicate) the day and year first above written.
DREAMS FRANCHISE CORPORATION
By: _____________________________
Its:_____________________________
FRANCHISEE:
By: _____________________________
Its:_____________________________
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_________________________________
an Individual
_________________________________
an Individual
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EXHIBIT A
GUARANTY AND ASSUMPTION OF OBLIGATIONS
THIS GUARANTY AND ASSUMPTION OF OBLIGATIONS is given this ______ day of
__________________, 19__, by ___________________________________________________
________________________________________________________________________________
________________________________________________________________________________
In consideration of, and as an inducement to, the execution of that
certain Franchise Agreement of even date herewith (the "Agreement") by DREAMS
FRANCHISE CORPORATION ("Franchisor"), each of the undersigned hereby
personally and unconditionally (a) guarantees to Franchisor, and its
successors and assigns, for the term of the Agreement and thereafter as
provided in the Agreement, that _________________________ ("Franchisee")
shall punctually pay and perform each and every undertaking, agreement and
covenant set forth in the Agreement; and (b) agrees to be personally bound
by, and personally liable for the breach of each and every provision in the
Agreement, both monetary obligations and obligations to take or refrain from
taking specific actions or to engage or refrain from engaging in specific
activities, including without limitation the provisions of Paragraph XVI.
Each of the undersigned waives: (1) acceptance and notice of acceptance by
Franchisor of the foregoing undertakings; (2) notice of demand for payment of
any indebtedness or non-performance of any obligations hereby guaranteed; (3)
protest and notice of default to any party with respect to the indebtedness
or non-performance of any obligations hereby guaranteed; (4) any right he may
have to require that an action be brought against Franchisee or any other
person as a condition of liability; and (5) any and all other notices and
legal or equitable defenses to which he may be entitled.
Each of the undersigned consents and agrees that : (1) his direct and
immediate liability under this guaranty shall be joint and several; (2) he shall
render any payment or performance required under the Agreement upon demand if
Franchisee fails or refuses punctually to do so; (3) such liability shall not be
contingent or conditioned upon pursuit by Franchisor of any remedies against
Franchisee or any other person; and (4) such liability shall not be diminished,
relieved or otherwise affected by any extension of time, credit or other
indulgence which Franchisor may from time to time grant to Franchisee or to any
other person, including without limitation the acceptance of any partial payment
or performance, or the compromise or release of any claims, none of which shall
in any way modify or amend this guaranty, which shall be continuing and
irrevocable during the term of the Agreement.
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IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his
signature on the same day and year as the Agreement was executed.
PERCENTAGE OF OWNERSHIP
GUARANTOR(S) IN FRANCHISEE
_____________________________ _________%
_____________________________ _________%
_____________________________ _________%
_____________________________ _________%
_____________________________ _________%
_____________________________ _________%
_____________________________ _________%
_____________________________ _________%
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EXHIBIT B
MAP OF DESIGNATED AREA
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<PAGE>
DREAMS FRANCHISE CORPORATION
AREA DEVELOPMENT AGREEMENT
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TABLE OF CONTENTS
AREA DEVELOPMENT AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
I. GRANT.......................................................2
II. DEVELOPMENT FEE.............................................3
III. DEVELOPMENT SCHEDULE AND MANNER OF
EXERCISING OPTIONS..........................................3
IV. TERM AND RIGHT OF FIRST REFUSAL.............................4
V. DUTIES OF THE DEVELOPER.....................................5
VI. PROPRIETARY MARKS/CONFIDENTIALITY...........................6
VII. DEFAULT AND TERMINATION.....................................6
VIII. TRANSFERABILITY.............................................8
IX. COVENANTS...................................................9
X. NOTICES....................................................10
XI. INDEPENDENT CONTRACTOR AND INDEMNIFICATION.................11
XII. APPROVALS..................................................11
XIII. NON-WAIVER.................................................12
XIV. SEVERABILITY AND CONSTRUCTION..............................12
XV. ENTIRE AGREEMENT...........................................12
XVI. SUPERIORITY OF FRANCHISE AGREEMENT.........................12
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<PAGE>
XVII. APPLICABLE LAW.............................................13
XVIII. CAVEAT.....................................................13
XIX. ACKNOWLEDGMENTS............................................13
</TABLE>
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EXHIBITS:
A. DEVELOPMENT SCHEDULE
B. GUARANTY AND ASSUMPTION OF OBLIGATIONS
C. FRANCHISE AGREEMENT
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DREAMS FRANCHISE CORPORATION
AREA DEVELOPMENT AGREEMENT
This Development Agreement is entered into this _________ day of_____,
19___ by and between DREAMS FRANCHISE CORPORATION, a corporation formed and
operating under the laws of the State of California and having its principal
place of business at 5009 Hiatus Road, Sunrise FL 33351 ("Franchisor"), and ____
________________________________________________________________________________
_______________________________________________ ("Developer").
WITNESSETH:
WHEREAS, Franchisor and its parent, Dreams, Inc. (fka StratAmerica
Corporation), as the result of the expenditure of time, skill, effort and money
have developed and own a unique system ("System"), identified by the mark "FIELD
OF DREAMS-Registered Tradmark-2", relating to the establishment, development and
operation of a store for the retail sale of sports-related and
celebrity-oriented merchandise sports collectibles, memorabilia, trading cards
and related merchandise and products authorized and approved by Franchisor and
utilizing Franchisor's System and Marks, all of which may be changed, improved
or further developed by Franchisor from time to time; and
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior layout, design and color
scheme; exclusively designed signage, decorations, furnishings and materials;
specialized procedures, techniques and methods for merchandising activities;
distinct inventory specifications and standards; the FIELD OF DREAMS-Registered
Tradmark- Confidential Operations Manual; the FIELD OF DREAMS-Registered
Tradmark- Proprietary Software Program; and methods and techniques for inventory
and cost controls, record keeping and reporting, personnel management,
purchasing, sales promotion, marketing and advertising; all of which may be
changed, improved and further developed by Franchisor from time to time; and
WHEREAS, Franchisor has obtained from Universal Studios Licensing, Inc.
("USL") the exclusive right and license in the United States, excluding
properties owned or controlled by USL, to utilize the mark "FIELD OF
DREAMS-Registered Tradmark-" ("Mark(s)") as the name of and in the design of
retail stores as described above as well as the exclusive right to sublicense
others to use the Mark "FIELD OF DREAMS-Registered Tradmark-" in the development
and operation of franchised retail stores. Franchisor has also obtained a
non-exclusive right from USL to utilize the mark "FIELD OF DREAMS-Registered
Tradmark-" upon or in connection with the manufacture, sale and distribution of
sports memorabilia and celebrity
_______________________
"FIELD OF DREAMS-Redgistered Trademark- is a service mark of Universal
City Studios, Inc., licensed to Franchisor by Universal Studios Licensing, Inc.
("USL").
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memorabilia and paraphernalia by Franchisor and its franchisees. Such FIELD OF
DREAMS-Registered Tradmark- products shall be maintained as part of the
inventory of all Franchised Stores at all times. Franchisor shall continue to
develop and use such Marks for the benefit and use of itself and all franchisees
in order to identify for the public the source of celebrity-related and
sports-related, player oriented merchandise and collectibles including, but not
limited to, autographed baseballs, bats, custom-made plaques, trading cards, and
related merchandise and products marketed thereunder and to represent the
System's high standards of quality regarding the appearance, service and value
throughout the operation of a retail store; and
WHEREAS, Franchisor grants to qualified persons option rights for
franchise grants to develop and operate several FIELD OF DREAMS-Registered
Tradmark- stores offering and selling celebrity-related and sports-related
merchandise, sports collectibles, memorabilia, trading cards and related
merchandise and products authorized and approved by Franchisor and using the
System and Developer has applied to Franchisor to obtain such option rights for
that purpose, which application has been approved by Franchisor in reliance upon
all of the representations made therein; and
WHEREAS, Developer understands and acknowledges the importance of
Franchisor's high and uniform standards of quality, operations, and service and
the necessity of operating a FIELD OF DREAMS-Registered Tradmark- store in
strict conformity with Franchisor's standards and specifications; and
WHEREAS, Franchisor expressly disclaims the making of and Developer
acknowledges that it has not received nor relied upon any warranty or guaranty,
express or implied, as to the revenues, profits or success of the business
venture contemplated by this Agreement. Developer acknowledges that it has read
this Agreement and Franchisor's Uniform Franchise Offering Circular and that it
has no knowledge of any representation by Franchisor, or its officers,
directors, shareholders, employees or agents that are contrary or in addition to
the statements made in Franchisor's Uniform Franchise Offering Circular or to
the terms hereof.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other set forth in this Agreement hereby agree
as follows:
I. GRANT
A. Franchisor hereby grants to Developer, pursuant to the terms
and conditions of this Development Agreement, options to obtain licenses
to establish and operate _____________ but no less than four (4) FIELD
OF DREAMS-Registered Tradmark- stores, and to use solely in connection
therewith Franchisor's System, within the following territory
("Designated Territory"):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
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B. Developer agrees to develop the options granted hereunder
pursuant to the development schedule set forth in Paragraph III.A. Time
is of the essence. Each FIELD OF DREAMS-Registered Tradmark- store shall
be established and operated pursuant to a separate Franchise Agreement
to be entered into by Developer and Franchisor pursuant to Paragraph
III.B. hereof, the form of which Franchise Agreement is incorporated
herein by reference and attached hereto as Exhibit C.
C. Except as otherwise provided in this Agreement, Franchisor
shall not establish, nor license any one other than Developer to
establish any FIELD OF DREAMS-Registered Tradmark- store in the
Designated Territory prior to the expiration of the development schedule
set forth in Paragraph III.A. hereof.
D. This Agreement is not a Franchise Agreement, and Developer
shall have no right to use in any manner the Marks by virtue hereof.
E. Developer shall have no right under this Agreement to license
others.
II. DEVELOPMENT FEE
A. As consideration for the rights and options granted herein,
the Developer shall pay to Franchisor initial individual franchise fees
of Twenty-five Thousand Dollars ($25,000) for each store opened pursuant
to this Agreement. Simultaneous with the execution of this Agreement,
Developer shall pay an amount equal to Five Thousand Dollars ($5,000)
for each store to be developed in the Designated Territory. The total to
be paid at the time of execution of this Agreement is Dollars ($ ). Said
amount is fully earned by Franchisor upon execution of this Agreement
and is non-refundable. The balance of the initial franchise fees shall
be due as specified in Paragraph II.B. hereof.
B. For every such FIELD OF DREAMS-Registered Tradmark- store
established within the Designated Territory by the Developer, there
shall be submitted a separate application to Franchisor, and upon
approval of the site of the FIELD OF DREAMS-Registered Tradmark- store
by Franchisor, a separate Franchise Agreement shall be executed for each
such store. Upon execution of the Franchise Agreement, the sum of Twenty
Thousand Dollars ($20,000), representing the balance of the individual
franchise fee, as enumerated in Paragraph II.A. hereof, is due and
owing.
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III. DEVELOPMENT SCHEDULE AND MANNER OF EXERCISING OPTIONS
A. Developer shall exercise the options for a minimum of four
(4) store(s) according to a schedule agreed upon by Developer and
Franchisor.
B. Developer shall exercise each option granted herein only by
executing a Franchise Agreement as hereinafter provided for a FIELD OF
DREAMS-Registered Tradmark- store at a site approved by Franchisor in
the Designated Territory. Franchisor shall execute the Franchise
Agreement only if Developer is in compliance with all requirements of
this Agreement and all other Agreements between Franchisor and
Developer.
C. Prior to the acquisition by lease or purchase of any site for
a FIELD OF DREAMS-Registered Tradmark- store in the Designated
Territory, Developer shall submit to Franchisor in the form specified by
Franchisor a description of the site, and such other information or
materials as Franchisor may reasonably require for site approval.
Franchisor shall, applying applicable criteria and standards then in
effect, determine within a reasonable time whether each such proposed
site is suitable for the operation of a FIELD OF DREAMS-Registered
Tradmark- store. If Franchisor determines that a proposed site is
suitable, Franchisor will grant a franchise to Developer to own and
operate a FIELD OF DREAMS-Registered Tradmark- store at such proposed
site on the terms and conditions of the then current form of the
Franchise Agreement. Developer acknowledges that any site selection
assistance or approval provided by Franchisor shall not be construed or
interpreted as a guarantee of success for said location nor shall any
location recommendation or approval made by Franchisor be deemed a
representation that any particular location is available for use as a
FIELD OF DREAMS-Registered Tradmark- Store. Franchisor's approval of the
lease for any proposed site may be conditioned upon inclusion in the
lease of terms acceptable to Franchisor and, at Franchisor's option,
shall contain such provisions as franchisor may reasonably require,
including, but not limited to:
1. A provision reserving to Franchisor the right, at
Franchisor's election, to receive an assignment of the leasehold
interest upon termination or expiration of the franchise grant;
2. A provision which expressly permits the lessor of the
premises to provide Franchisor all sales and other information
it may have related to the operation of the franchise store, as
Franchisor may request;
3. A provision which requires the lessor concurrently to
provide Franchisor with a copy of any written notice of
deficiency under the lease sent to Developer and which grants to
Franchisor, in its sole discretion, the right (but no
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obligation) to cure any deficiency under the lease, should
Developer fail to do so within fifteen (15) days after the
expiration of the period in which Developer may cure the
default;
4. A provision which evidences the right of Developer to
display the proprietary Marks in accordance with the
specifications required by the Confidential Operating Manual,
subject only to the provisions of applicable law;
5. A provision that the premises shall be used solely
for the operation of a FIELD OF DREAMS-Registered Tradmark-
Franchised Store; and
6. A provision which expressly states that any default
under the lease shall constitute a default under the Franchise
Agreement, and any default under the Franchise Agreement shall
constitute a default under the lease.
D. Developer shall comply with the Development Schedule attached
hereto as Exhibit A.
IV. TERM AND RIGHT OF FIRST REFUSAL
Unless sooner terminated in accordance with the terms of this
Agreement, the term of this Agreement and all rights granted hereunder
shall expire on the date of Franchisor's acceptance and execution of a
Franchise Agreement for the last of the FIELD OF DREAMS-Registered
Tradmark- stores to be established pursuant to the development schedule
set forth in Paragraph III.A. hereof.
V. DUTIES OF THE DEVELOPER
A. Franchisor shall furnish to Developer the following:
1. Site selection guidelines, and such site selection
counseling and assistance as Franchisor may deem advisable.
2. Such site evaluation as Franchisor may deem advisable
in response to Developer's requests for site approval; provided,
however, that Franchisor shall not provide on-site evaluation
for any proposed site prior to the receipt of the appropriate
site information prepared by Developer as required by Paragraph
III.C. hereof. If on-site evaluation is deemed necessary and
appropriate by Franchisor (on its own
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initiative or at Developer's request), Developer shall reimburse
Franchisor for all reasonable expenses incurred by Franchisor in
relation to such on-site evaluation, including, without
limitation, the cost of travel, lodging and meals.
3. A set of prototype plans and specifications for a
FIELD OF DREAMS-Registered Tradmark- store.
B. Developer accepts the following obligations:
1. Developer shall comply with all terms and conditions
set forth in this Agreement.
2. Developer shall comply with all requirements
specified in each individual Franchise Agreement.
3. Developer shall at all times preserve in confidence
any and all materials and information furnished or disclosed to
Developer by Franchisor and designated by Franchisor as
confidential, and Developer shall disclose such information or
materials only to such of its employees or agents who must have
access to it in connection with their employment. Developer
shall not at any time, without Franchisor's prior written
consent, copy, duplicate, record or otherwise reproduce such
materials or information, in whole or in part, nor otherwise
make the same available to any unauthorized person.
4. Developer shall comply with all requirements of
federal, state and local laws, rules and regulations.
5. Should Developer at some time in the future desire to
make either a public or a private offering of its securities,
prior to such offering and sale, and prior to the public release
of any statements, data, or other information of any kind
relating to the proposed offering of Developer's securities,
Developer shall secure the written approval of Franchisor, which
approval shall not be unreasonably withheld. Developer shall
secure Franchisor's prior written approval of any and all press
releases, news releases and any and all other publicity, the
primary purpose of which is in the public interest in its
offering. Only after written approval has been given by
Franchisor may Developer proceed to file, publish, issue, and
release and make public any said data, material and information
regarding its securities offering. It is specifically understood
that any review by Franchisor is solely for its own information,
and its approval shall not constitute any kind of authorization,
acceptance, agreement, endorsement, approval, or ratification of
the same, either expressly or implied; and Developer shall make
no oral or written notice of any kind
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whatsoever indicating or implying that Franchisor and/or related
corporations or persons have any interest in the relationship
whatsoever to the proposed offering other than acting as
Franchisor. Developer agrees to indemnify and hold harmless
Franchisor and any and all subsidiaries of Franchisor from all
claims, demands, costs, fees, charges, liability or expense of
any kind whatsoever arising from Developer's offering of
information published or communicated in actions taken with
regard thereto.
VI. PROPRIETARY MARKS/CONFIDENTIALITY
A. It is understood and agreed that this Agreement does not
grant the Developer any right to the use of the Marks. Use of the Marks
is granted only under the franchise agreements to be executed by
Franchisor and the Developer.
B. Developer shall not, during the term of this Agreement or
thereafter, communicate, divulge, or use for the benefit of any other
person, persons, partnership, association, or corporation any
confidential information, knowledge, or know-how concerning the System
which may be communicated to the Developer, or of which the Developer
may be apprised by virtue of the Developer's operations under the terms
of this Agreement. The Developer shall divulge such confidential
information only to such of its employees as must have access to it in
order to carry out the purposes of this Agreement. Any and all
information, knowledge, and know-how, including, without limitation,
drawings, materials, computer equipment, other equipment,
specifications, techniques, retail store systems, marketing techniques,
customer lists, processes, and other data, which Franchisor designates
as confidential shall be deemed confidential for purposes of this
Agreement, except information which the Developer demonstrates came to
its attention prior to disclosure thereof by Franchisor; or which, at
the time of disclosure by Franchisor to Developer, had become a part of
the public domain, through non-wrongful publication or communication by
others.
C. Developer shall require all employees performing managerial
functions (and all corporate officers, directors, and shareholders if
the Developer is a corporation; and all partners if the Developer is a
partnership) to execute agreements, in a form satisfactory to
Franchisor, to maintain the confidentiality during the course of
employment and thereafter of all information designated by Franchisor as
confidential. Copies of the executed agreements shall be submitted to
Franchisor upon request.
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VII. DEFAULT AND TERMINATION
A. The options and territorial exclusivity granted to Developer
in this Agreement have been granted in reliance on Developer's
representations and assurances, among others, that the conditions set
forth in Paragraphs I and III of this Development Agreement will be met
by Developer in a timely manner.
B. Developer shall be deemed in default under this Agreement,
and all rights granted herein shall automatically terminate without
notice if Developer shall become insolvent by reason of any affirmative
act of insolvency by Developer, or the filing by Developer of any
petition or action of insolvency, or for appointment of a receiver or
trustee, or an assignment by Developer for the benefit of creditors, or
the failure to vacate or dismiss within sixty (60) days after filing any
such proceedings commenced against Developer by a third party, or
dismissal of the liquidation proceeding pursuant to 11 U.S.C. Section
707, dismissal of a reorganization proceeding pursuant to 11 U.S.C.
Section 1330(b) or dismissal of a debt adjustment proceeding pursuant to
11 U.S.C. Section 1307, or if a receiver or other custodian (permanent
or temporary) of Developer's business or assets is appointed by any
court of competent jurisdiction, or if proceedings for a composition
with creditors under any state or federal law should be instituted by or
against Developer, of if a final judgment remains unsatisfied or of
record for thirty (30) days or longer (unless supersedeas bond is
filed), or if execution is levied against Developer's property, or suit
to foreclose any lien or mortgage against the property is instituted
against Developer and not dismissed within thirty (30) days, or if any
substantial real or personal property of Developer shall be sold after
levy thereupon by any sheriff, marshal, or constable.
C. If Developer fails to exercise an option prior to the
option's expiration date as set forth in Paragraph III.A. of this
Agreement, fails to comply with any other terms and conditions of this
Agreement, fails to comply with the terms and conditions of any
individual Franchise Agreement between Developer and Franchisor, or
makes or attempts to make a transfer or assignment in violation of
Paragraph VIII.C. hereof, such action shall constitute a default under
this Development Agreement. Upon such default, Franchisor, in its
discretion, may do any one or more of the following:
1. Terminate this Agreement and all rights granted
hereunder without affording Developer any opportunity to cure
the default any without granting to Developer any refund of any
monies paid, effective immediately upon receipt of written
notice by Developer;
2. Reduce the number of units granted Developer in
Paragraph I.A. of this Agreement;
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3. Terminate the territorial exclusivity granted
Developer in Paragraph I hereof, or reduce the area of
territorial exclusivity granted Developer hereunder.
D. Upon termination of the Agreement, all remaining options
shall be null and void. Developer shall have no right to establish or
operate any FIELD OF DREAMS-Registered Tradmark- store(s) for which a
Franchise Agreement has not been executed by Franchisor. Franchisor
shall be entitled to establish, and to license others to establish,
FIELD OF DREAMS-Registered Tradmark- stores in the Designated Territory
except as may be otherwise provided under any Franchise Agreement which
has been executed between Franchisor and Developer. No default under
this Development Agreement shall constitute a default under any
Franchise Agreement between the parties hereto under which all
applicable franchise fees have been paid and for which a Franchised
Store has commenced operations.
E. No right or remedy herein conferred upon or reserved to
Franchisor is exclusive of any other right or remedy provided or
permitted by law or equity.
VIII. TRANSFERABILITY
A. Franchisor shall have the right to transfer all or any part
of its rights or obligations herein to any person or legal entity.
B. Developer understands and acknowledges that the rights and
duties set forth in this Development Agreement are personal to Developer
and are granted in reliance upon the personal qualifications of
Developer. Developer has represented to Franchisor that Developer is
entering into this Development Agreement with the intention of complying
with its terms and conditions and not for the purpose of resale of the
developmental and option rights hereunder.
C. Neither Developer nor any partner or shareholder thereof
shall, without Franchisor's prior written consent, directly or
indirectly sell, assign, transfer, convey, give away, pledge, mortgage
or otherwise encumber any interest in this Development Agreement or in
Developer. Any such proposed assignment occurring by operation of law or
otherwise, including any assignment by the trustee in bankruptcy,
without Franchisor's prior written consent shall be a material default
of this Agreement.
D. All proposed transfers or assignments of this Agreement by
Developer shall be subject to approval by Franchisor. As a condition to
granting its approval of any such assignment or transfer, Franchisor may
require Developer or the assignee or transferee to pay to Franchisor its
then current assignment fee, which will not be less than $2,000, to
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defray expenses incurred by Franchisor in connection with the assignment
or transfer, legal and accounting fees, credit and other investigation
charges and evaluation of the assignee or transferee and the terms of
the assignment or transfer. Franchisor shall have the right to require
Developer and its owners to execute a general release of Franchisor in a
form satisfactory to Franchisor as a condition to its approval of the
assignment of this Agreement or ownership of Developer.
E. Subject to the prior written approval of Franchisor, the
Development Agreement may be assigned to a partnership or corporation
which conducts no business other than the business contemplated
hereunder, which is actively managed by Developer and in which Developer
owns and controls not less than fifty-one percent (51%) of the general
partnership interest or the equity and voting power, provided that all
partners or shareholders shall execute an Assignment Agreement in form
approved by Franchisor undertaking to be bound jointly and severally by
all provisions of this Agreement and all issued and outstanding stock
certificates of such corporation shall bear a legend reflecting or
referring to the restrictions of Paragraph VIII.C. herein.
F. If Developer or its owners shall at any time determine to
sell the rights under this Development Agreement or an ownership
interest in Developer, Developer or its owners shall obtain a bona fide,
executed written offer from a responsible and fully disclosed purchaser
and shall submit an exact copy of such offer to Franchisor, which shall,
for a period of thirty (30) days from the date of delivery of such
offer, have the right, exercisable by written notice to Developer or its
owners, to purchase the rights under this Development Agreement or such
ownership interest for the price and on the terms and conditions
contained in such offer, provided that Franchisor may substitute cash
for any form of payment proposed in such offer and that Franchisor shall
have not less than sixty (60) days to prepare for closing. If Franchisor
does not exercise its right of first refusal, Developer or its owners
may complete the sale of the Developer or such ownership interest,
subject to Franchisor's approval of the purchaser as provided in
Paragraph VIII.D. herein, provided that if such sale is not completed
within one hundred twenty (120) days after delivery of such offer to
Franchisor, Franchisor shall again have the right of first refusal
herein provided. This paragraph shall not apply to an assignment to a
partnership or corporation to which Paragraph VIII.E. herein, is
applicable.
IX. COVENANTS
A. Unless otherwise specified, the term "Developer" as used in
this Paragraph IX but no where else in this Agreement shall include,
collectively and individually, all officers, directors, and holders of a
beneficial interest of five percent (5%) or more of the securities of
Developer, and of any corporation directly or indirectly controlling
Developer, if Developer is a corporation; and the general partners and
any limited partner (including any
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corporation and the officers, directors, and holders of a beneficial
interest of five percent (5%) or more of securities, of a corporation
which controls, directly or indirectly, any general or limited partner),
if Developer is a partnership.
B. Developer covenants that during the term of this Agreement
and any renewals thereof, except as otherwise approved in writing by
Franchisor, Developer (if Developer is an individual), a shareholder of
a beneficial interest of ten percent (10%) or more of the securities of
Developer (if Developer is a corporation), a general partner of
Developer (if Developer is a partnership), or Developer's approved
Designated Manager shall devote full time, energy, and best efforts, to
the management and operation of the stores to be franchised in
accordance with the rights and options granted pursuant to this
Agreement.
C. Developer covenants that during the term of this Agreement
and for a period of two (2) years following the termination of this
Agreement, except as otherwise approved in writing by Franchisor,
Developer shall not, either directly or indirectly, for himself, or
through, on behalf of, or in conjunction with any person, persons,
partnership, or corporation own, maintain, engage in, or have any
interest in any business (including any business operated by Developer
prior to entry of this Agreement) specializing in whole or in part, in
selling or offering through any channel of distribution whatsoever
sports-related or celebrity-related merchandise, collectibles,
memorabilia, trading cards or any related merchandise or products of a
type the same as or similar to the type of merchandise, products and
service offered, sold or provided through the System.
D. The parties agree that each of the foregoing covenants shall
be construed as independent of any other covenant or provision of this
Agreement. If all or any portion of a covenant in this Paragraph IX is
held unreasonable or unenforceable by a court or agency having valid
jurisdiction in an unappealed final decision to which Franchisor is a
party, Developer expressly agrees to be bound by any lesser covenant
subsumed within the terms of such covenant that imposes the maximum duty
permitted by law, as if the resulting covenant were separately stated in
and made a part of this Paragraph IX.
E. Developer understands and acknowledges that Franchisor shall
have the right, in its sole discretion, to reduce the scope of any
covenant set forth in Paragraph IX.C. in this Agreement, or any portion
thereof, without Developer's consent, effective immediately upon receipt
by Developer of written notice thereof, and Developer agrees that it
shall comply forthwith with any covenant as so modified, which shall be
fully enforceable notwithstanding the provisions of Paragraph IX hereof.
F. Paragraph IX.C. shall not apply to ownership by Developer of
less than a five percent (5%) beneficial interest in the outstanding
equity securities of any corporation which is registered under the
Securities Exchange Act of 1934.
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G. Franchisor shall have the right to require all of Developer's
personnel performing managerial or supervisory functions and all personnel
receiving special training from Franchisor to execute similar covenants in a
form satisfactory to Franchisor.
X. NOTICES
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered or mailed by certified mail,
return receipt requested, to the respective parties at the following
addresses unless and until a different address has been designated by written
notice to the other party:
Notices to Franchisor: DREAMS FRANCHISE CORPORATION
5009 Hiatus Road
Sunrise, Florida 33351
Notices to Developer: ---------------------------------
---------------------------------
---------------------------------
Any notice by certified mail shall be deemed to have been given at the
date and time of mailing.
XI. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that nothing
in this Development Agreement is intended to constitute either party an agent,
legal representative, subsidiary, joint venturer, partner, employee or servant
of the other for any purpose whatsoever. Each party to this Agreement is an
independent contractor, and neither shall be responsible for the debts or
liabilities incurred by the other.
B. Developer shall hold himself out to the public to be an independent
contractor operating pursuant to this Agreement. Developer agrees to take such
actions as shall be necessary to that end.
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C. Developer understands and agrees that nothing in this Development
Agreement authorizes Developer to make any contract, agreement, warranty or
representation on Franchisor's behalf, or to incur any debt or other obligation
in Franchisor's name, and that Franchisor assumes no liability for, nor shall be
deemed liable by reason of, any act or omission of Developer in Developer's
conduct of the business licensed by this Development Agreement, or any claim or
judgment arising therefrom. Developer shall indemnify and hold Franchisor
harmless against any and all such claims directly or indirectly from, as a
result of, or in connection with Developer's operations hereunder, as well as
the costs, including attorneys' fees, of defending against them.
D. Developer acknowledges that because complete and detailed uniformity
under many varying conditions may not be possible or practical, Franchisor
specifically reserves the right and privilege, at its sole discretion and as it
may deem in the best interests of all concerned in any specific instance, to
vary standards for any developer based upon the peculiarities of the particular
location or circumstance, business potential, population of trade area, existing
business practices or any other condition which Franchisor deems to be of
importance to the successful operation of such developer's business. Developer
shall not be entitled to require Franchisor to disclose or grant to Developer a
like or similar variation hereunder to that which may be accorded to any other
developer.
XII. APPROVALS
A. Whenever this Development Agreement requires the prior approval or
consent of Franchisor, Developer shall make a timely written request to
Franchisor therefore, and, except as otherwise provided herein, any approval or
consent granted shall be in writing.
B. Franchisor makes no warranties or guarantees upon which Developer
may rely and assumes no liability or obligation to Developer or any third party
to which it would not otherwise be subject, by providing any waiver, approval,
advice, consent or services to Developer in connection with this Development
Agreement, or by reason of any neglect, delay or denial of any request therefor.
XIII. NON-WAIVER
No failure of Franchisor to exercise any power reserved to it in this
Agreement or to insist upon compliance by Developer with any obligation or
condition in this Development Agreement, and no custom or practice of the
parties at variance with the terms hereof, shall constitute a waiver of
Franchisor's rights to demand exact compliance with the terms of this Agreement.
Waiver by Franchisor of any particular default shall not affect or impair
Franchisor's right in respect to any subsequent default of the same or of a
different nature, nor shall any delay, forbearance, or omission of Franchisor to
exercise any power or right
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arising out of any breach or default by Developer of any of the terms,
provisions, or covenants of this Agreement, affect or impair Franchisor's
rights, nor shall such constitute a waiver by Franchisor of any rights
hereunder or rights to declare any subsequent breach or default.
XIV. SEVERABILITY AND CONSTRUCTION
A. This Agreement shall be deemed severable.
B. Nothing in this Agreement shall confer upon any person or legal
entity other than Franchisor or Developer and such of their respective
successors and assigns as may be contemplated by Paragraph VIII hereof, any
rights or remedies under or by reason of this Agreement.
C. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
D. All references herein to gender and number shall be construed to
include such other gender and number as the context may require, and all
acknowledgments, promises, covenants, agreements and obligations herein made
or undertaken by Developer shall be deemed jointly and severally undertaken
by all the parties hereto on behalf of Developer.
E. This Agreement may be executed in triplicate, and each copy so
executed shall be deemed an original.
XV. ENTIRE AGREEMENT
This Agreement constitutes the entire, full, and complete Agreement
between Franchisor and Developer concerning the subject matter hereof, and
supersedes all prior agreements. No amendment, change, or variance from this
Agreement shall be binding on either party unless mutually agreed to by the
parties and executed by themselves or their authorized officers or agents in
writing.
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XVI. SUPERIORITY OF FRANCHISE AGREEMENT
For each FIELD OF DREAMS-Registered Trademark- individual franchised
business developed in the Territory, a separate Franchise Agreement shall be
executed and any Individual Franchise Fee as prescribed by Franchisor shall
be paid to Franchisor. It is understood and agreed by Developer that any and
all Franchise Agreements executed in connection with FIELD OF
DREAMS-Registered Trademark- individual franchised business within the
Territory are independent of this Area Development Agreement. The continued
existence of any such Franchise Agreement shall not depend on the continuing
existence of this Area Development Agreement. If any conflict shall arise in
connection with this Area Development Agreement and any Franchise Agreement
executed within the Territory, the latter shall have precedence and
superiority over the former.
XVII. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY
FRANCHISOR IN CALIFORNIA; AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE
LAWS THEREOF, WHICH LAWS SHALL PREVAIL IN THE EVENT OF ANY CONFLICT OF LAW,
EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.).
B. DEVELOPER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT IS ENTERED
INTO IN RIVERSIDE COUNTY, CALIFORNIA AND THAT ANY ACTION COMMENCED FOR THE
PURPOSE OF ENFORCING THE TERMS AND PROVISIONS HEREOF MAY BE COMMENCED IN THE
FOLLOWING COURTS, AT THE SOLE OPTION OF FRANCHISOR; (1) THE UNITED STATES
DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA; (2) THE SUPERIOR COURT
OF RIVERSIDE COUNTY, STATE OF CALIFORNIA; OR (3) THE UNITED STATES DISTRICT
COURT, COURT OF GENERAL JURISDICTION FOR THE STATE, OR INFERIOR COURT FOR THE
JUDICIAL DISTRICT IN WHICH DEVELOPER'S FIELD OF DREAMS-REGISTERED TRADEMARK-
FRANCHISED STORE IS LOCATED.
C. NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO FRANCHISOR OR
DEVELOPER BY THIS AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE
OF ANY OTHER RIGHT OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR
PERMITTED, BUT EACH SHALL BE CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.
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D. NOTHING HEREIN CONTAINED SHALL BAR FRANCHISOR'S RIGHT TO OBTAIN
INJUNCTIVE RELIEF AGAINST THREATENED CONDUCT THAT WILL CAUSE IT LOSS OR
DAMAGES, UNDER THE USUAL EQUITY RULES, INCLUDING THE APPLICABLE RULES FOR
OBTAINING RESTRAINING ORDERS AND PRELIMINARY INJUNCTIONS.
XVIII. CAVEAT
The success of the business venture contemplated to be undertaken by
Developer by virtue of this Agreement is speculative and depends, to a large
extent, upon the ability of Developer as an independent businessman, and his
active participation in the daily affairs of the business as well as other
factors. Franchisor does not make any representation or warranty express or
implied as to the potential success of the business venture contemplated
hereby.
XIX. ACKNOWLEDGMENTS
A. Developer represents and acknowledges that it has received, read
and understood this Agreement and Franchisor's Uniform Franchise Offering
Circular; and that Franchisor has fully and adequately explained the
provisions of each to Developer's satisfaction; and that Franchisor has
accorded Developer ample time and opportunity to consult with advisors of its
own choosing about the potential benefits and risks of entering into this
Agreement.
B. Developer acknowledges that it has received a copy of this
Agreement and the attachments thereto, at least five (5) business days prior
to the date on which this Agreement was executed. Developer further
acknowledges that Developer has received the disclosure document required by
the Trade Regulation Rule of the Federal Trade Commission entitled Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures, at least ten (10) business days prior to the date on which this
Agreement was executed.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement in ________________________ (duplicate or
triplicate) on the day and year first above written.
DREAMS FRANCHISE CORPORATION
By:
---------------------------------
Its:
--------------------------------
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DEVELOPER:
------------------------------------
By:
---------------------------------
Its:
--------------------------------
------------------------------------
an Individual
------------------------------------
an Individual
------------------------------------
an Individual
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EXHIBIT A
DEVELOPMENT SCHEDULE
The Developer is obligated by Paragraph III of the Area Development
Agreement to comply with the following Development Schedule:
<TABLE>
<CAPTION>
Date by Which Date by
Franchise Agreement Which Store
Location Must be Executed Must be Opened
- -------- ------------------- --------------
<S> <C> <C>
- --------------------------- --------------------- --------------
- --------------------------- --------------------- --------------
- --------------------------- --------------------- --------------
- --------------------------- --------------------- --------------
- --------------------------- --------------------- --------------
- --------------------------- --------------------- --------------
- --------------------------- --------------------- --------------
- --------------------------- --------------------- --------------
</TABLE>
FranchiseDocs Page 74
<PAGE>
EXHIBIT B
GUARANTY AND ASSUMPTION OF OBLIGATIONS
THIS GUARANTY AND ASSUMPTION OF OBLIGATIONS is given this _________ day
of ______________________, 19____, by ______________________________________.
In consideration of, and as an inducement to, the execution of that
certain AREA DEVELOPMENT AGREEMENT of even date herewith ("Agreement") by
DREAMS FRANCHISE CORPORATION ("Franchisor"), each of the undersigned hereby
personally and unconditionally (1) guarantees to Franchisor, and its
successors and assigns, for the term of the Agreement and thereafter as
provided in the Agreement, that ("Developer") shall punctually pay and
perform each and every undertaking, agreement and covenant set forth in the
Agreement; and (2) agrees to be personally bound by, and personally liable
for the breach of each and every provision in the Agreement, both monetary
obligations and obligations to take or refrain from taking specific actions
or to engage or refrain from engaging in specific activities, including
without limitation the provisions of Paragraph IX.
Each of the undersigned waives: (1) acceptance and notice of acceptance
by Franchisor of the foregoing undertakings; (2) notice of demand for payment
of any indebtedness or nonperformance of any obligations hereby guaranteed;
(3) protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; (4) any
right he may have to require that an action be brought against Developer or
any other person as a condition of liability; and (5) any and all other
notices and legal or equitable defenses to which he may be entitled.
Each of the undersigned consents and agrees that: (1) his direct and
immediate liability under this guaranty shall be joint and several; (2) he
shall render any payment or performance required under the Agreement upon
demand if Developer fails or refuses punctually to do so; (3) such liability
shall not be contingent or conditioned upon pursuit by Franchisor of any
remedies against Developer or any other person; and (4) such liability shall
not be diminished, relieved or otherwise affected by any extension of time,
credit or other indulgence which Franchisor may from time to time grant to
Developer or to any other person, including without limitation the acceptance
of any partial payment or performance, or the compromise or release of any
claims, none of which shall in any way modify or amend this guaranty, which
shall be continuing and irrevocable during the term of the Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his
signature on the same day and year as the Agreement was executed.
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
GUARANTOR(S) OF DEVELOPER
<S> <C>
%
- --------------------------------------- ------------------------
%
- --------------------------------------- ------------------------
%
- --------------------------------------- ------------------------
%
- --------------------------------------- ------------------------
%
- --------------------------------------- ------------------------
%
- --------------------------------------- ------------------------
</TABLE>
FranchiseDocs Page 76
<PAGE>
DREAMS FRANCHISE CORPORATION
CONVERSION FRANCHISE ADDENDUM
TO FRANCHISE AGREEMENT
FranchiseDocs Page 77
<PAGE>
DREAMS FRANCHISE CORPORATION
CONVERSION FRANCHISE ADDENDUM
TO FRANCHISE AGREEMENT
This Conversion Addendum ("this Addendum") is made and entered into
this ____ day of _____________, 19___ between DREAMS FRANCHISE CORPORATION, a
California corporation with its principal office at 5009 Hiatus Road, Sunrise
FL 33351, ("Franchisor") and _________________________________________________,
whose principal address is ___________________________________________________,
an individual/partnership/corporation incorporated in the State of ____________
("Conversion Franchisee").
WITNESSETH:
WHEREAS, Franchisor and Conversion Franchisee have simultaneously
herewith entered into a certain Franchise Agreement whereby Conversion
Franchisee is granted a franchise to operate a FIELD OF DREAMS-Registered
Trademark-(3) Franchised Store; to use the "FIELD OF DREAMS-Registered
Trademark-" marks; and, to utilize Franchisor's System in connection
therewith (the "Franchise Agreement");
WHEREAS, Conversion Franchisee has submitted an application to
Franchisor seeking permission to become a Conversion Franchisee of Franchisor
and Franchisor has approved such application;
WHEREAS, Conversion Franchisee presently owns and operates a business
offering or selling sports-related merchandise, collectibles, memorabilia
trading cards and related merchandise and products similar, if not identical,
to those offered by FIELD OF DREAMS-Registered Trademark- Franchised Stores
from a location approved by Franchisor and has done so for a period of not
less than three (3) continuous months, and further, Conversion Franchisee
represents and acknowledges that it has met Franchisor's standards and
qualifications to be classified as a "Conversion", and upon reliance on
Conversion Franchisee's representation to Franchisor of such, Franchisor
approves of such conversion classification;
- ---------------
(3) "FIELD OF DREAMS-Registered Trademark-" is a service mark of
Universal City Studios, Inc., licensed to Franchisor by Universal Studios
Licensing, Inc.
FranchiseDocs Page 78
<PAGE>
WHEREAS, Conversion Franchisee has represented and acknowledged that it
does not operate under a franchise agreement, licensing agreement, or a
prescribed marketing plan or system of another company and is not subject to
any agreements limiting or restricting Conversion Franchisee's ability to
conduct said business;
WHEREAS, Conversion Franchisee acknowledges that by becoming a
Franchisee of Franchisor it will be subject to covenants against competition,
confidentiality agreements and standards of performance and quality which
otherwise would not attach to its business operations; and
WHEREAS, Franchisor desires to grant to Conversion Franchisee a
franchise upon the terms and subject to the conditions hereof and subject to
the terms and conditions of the Franchise Agreement executed simultaneously
herewith.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
I. INCORPORATION OF TERMS OF FRANCHISE AGREEMENT
A. This Addendum shall amend and supplement the Franchise Agreement
simultaneously executed by the parties herein. The terms, covenants, and
conditions of this Addendum are incorporated into the Franchise Agreement,
and with respect to any conflict between the two (2) agreements, the terms of
this Addendum shall be controlling with respect to the subject matter thereof.
B. Except as expressly set forth in this Addendum, the rights, duties
and obligations of the parties with respect to the FIELD OF DREAMS-Registered
Trademark- Franchised Store shall be the same as the rights, duties, and
obligations of the parties with respect to the Franchised Store described in
the Franchise Agreement.
II. INITIAL FRANCHISE FEE
A. Notwithstanding the provisions of Section I.E of the Franchise
Agreement, in consideration for the franchise granted herein, Franchisee
shall pay to Franchisor, upon execution of the Franchise Agreement and this
Conversion Addendum, a conversion franchise fee of THIRTY-TWO THOUSAND FIVE
HUNDRED Dollars ($32,500). The conversion franchise fee is not refundable in
whole or in part and shall be deemed fully earned when paid.
B. In addition, Conversion Franchisee is required to pay to Franchisor
all other fees and payments as are more fully described in the Franchise
Agreement without deduction from the Conversion Franchise Fee.
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<PAGE>
III. CONVERSION OF FRANCHISEE'S BUSINESS TO THE FIELD OF DREAMS-REGISTERED
TRADEMARK- SYSTEM
A. Prior to the execution of the Franchise Agreement and this
Addendum, Conversion Franchisee shall have furnished to Franchisor, in
conjunction with its application to be accepted as a FIELD OF
DREAMS-Registered Trademark-Conversion Franchisee, information pertaining to
the existing site of Conversion Franchisee's business. Such information
includes, but is not limited to, a map and written description of the
existing site; photographs of the existing location; the lease for the
location; and, such other information as Franchisor in its sole discretion
deems appropriate.
B. Within sixty (60) days after the execution of the Franchise
Agreement, Conversion Franchisee shall deliver to Franchisor a copy of the
lease for the location of the Franchised Store. Any default under the lease
shall constitute a default under the Franchise Agreement. In the event that
Conversion Franchisee renews said lease at any time during the initial term
or any renewal term of the Franchise Agreement, Conversion Franchisee shall
obtain from lessor and submit to Franchisor for approval a lease containing
those provisions required in Paragraph III.D. of the Franchise Agreement.
C. Any such amended lease, sub-lease or other rental or purchase
agreement must meet with Franchisor's prior written approval (not to be
unreasonably withheld) and, in the event Franchisor does not approve such
amended lease, sub-lease, or other rental agreement, within the time limits
and following the procedure specified herein, this Addendum and the Franchise
Agreement may be terminated by Franchisor, at its sole election.
D. Immediately following the execution of this Addendum, Franchisor
shall furnish to Conversion Franchisee the design criteria specifications for
the premises of the Franchised Store as set forth in the Franchise Agreement.
Conversion Franchisee must perform such construction, renovation and
refurbishing as is necessary to conform and comply with Franchisor's
standards, specifications and criteria. Prior to the commencement of
construction, renovation, or refurbishing of the premises, Conversion
Franchisee must submit to Franchisor (or its designee) all pertinent
architectural, engineering, construction, layout and design plans, prints,
drawings and related documents for review and final approval as is more fully
detailed in Paragraph III.E. of the Franchise Agreement.
E. Prior to the commencement of operation of the Franchised Store,
Conversion Franchisee must remove all materials, furniture, fixtures, signs
and equipment which do not conform with the FIELD OF DREAMS-Registered
Trademark-System; are not approved by Franchisor; or, which do not meet the
standards and specifications prescribed in Franchisor's Confidential
Operations Manual (as amended from time to time).
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<PAGE>
F. Conversion Franchisee understands and hereby acknowledges that
every component of the FIELD OF DREAMS-Registered Trademark- System is vital
to Franchisor, to other FIELD OF DREAMS-Registered Trademark- franchisees and
to the operation of the business franchised hereby, and that compliance with
the System is of the essence of this Addendum. Franchisee shall at all times
conduct the Franchised Store hereunder in compliance with the FIELD OF
DREAMS-Registered Trademark- System and cease rendering services or using
equipment, materials, furniture, fixtures or signs which are not designated
by Franchisor to be components of the FIELD OF DREAMS-Registered Trademark-
System.
G. As of the date on which Conversion Franchisee commences operating
its business as a FIELD OF DREAMS-Registered Trademark- Franchised Store,
Conversion Franchisee shall identify and represent its business as a FIELD OF
DREAMS-Registered Trademark- business through the use and display of
Franchisor's proprietary marks. During a period of one (1) year from the
commencement of business as a FIELD OF DREAMS-Registered Trademark-
franchisee, Conversion Franchisee may display, with Franchisor's prior
written approval, secondary signage of such size, content and style as is
prescribed by Franchisor in its Confidential Operations Manual, for the
purpose of advising the public of the former trade name under which
Conversion Franchisee had previously conducted its business. However, on the
first anniversary of the commencement of operations as a FIELD OF
DREAMS-Registered Trademark- franchisee, or at such later date as the parties
may agree, Conversion Franchisee, at its sole cost and expense, shall cease
using all references to its prior trade name and carry out its business
activities only as a FIELD OF DREAMS-Registered Trademark- franchisee and
only under the FIELD OF DREAMS-Registered Trademark- Marks.
H. As of the date on which Conversion Franchisee commences operating
its business as a FIELD OF DREAMS-Registered Trademark- franchisee,
Conversion Franchisee shall convert all of its books, accounts, ledgers,
customer lists, bookkeeping systems, and related records and systems so as to
comply with the standards and specifications of the FIELD OF
DREAMS-Registered Trademark- System, including, without limitation, the
installation of a computer and modem, as is more fully set forth in the
Franchisor's Confidential Operations Manual, as amended from time to time.
I. Conversion Franchisee and/or its designated manager shall
successfully complete Franchisor's required training program. Conversion
Franchisee must complete all necessary construction, renovations, or
refurbishing; comply with all of Franchisor's standards and specifications
with respect to goods, materials, equipment and services; and commence
operation of the Franchised Store within sixty (60) days after the execution
of the Franchise Agreement and this Addendum.
IV. CONFIDENTIAL INFORMATION AND RESTRICTIVE COVENANTS
A. Conversion Franchisee acknowledges that notwithstanding the fact
that it has operated a business or has been employed in a capacity offering
or selling goods and services and other related activities similar to those
offered under the FIELD OF DREAMS-Registered Trademark- System, it covenants
and agrees to be bound by the restrictions on the use of confidential
information set forth in Paragraph VII of the Franchise Agreement. Conversion
Franchisee further acknowledges that all
FranchiseDocs Page 81
<PAGE>
information pertaining to customers of Conversion Franchisee prior to
the execution of the Franchise Agreement shall be deemed to be
"confidential information" as that term is defined in Paragraph VII of
the Franchise Agreement.
B. Conversion Franchisee expressly acknowledges that despite the
fact that it had been in the business or has been employed in the
capacity of offering and selling sports-related merchandise,
collectibles, memorabilia, trading cards and related merchandise and
products prior to becoming a FIELD OF DREAMS-Registered Trademark-
franchisee, Conversion Franchisee shall be bound by the in-term and
post-term covenants not to compete set forth in Paragraph XVI of the
Franchise Agreement and all other applicable provisions of Paragraph VII
of the Franchise Agreement.
V. ACKNOWLEDGMENTS
Conversion Franchisee acknowledges, warrants and represents to
Franchisor that:
A. It has, for at least the past three (3) continuous months,
owned and operated a business offering or selling sports-related
merchandise, collectibles, memorabilia, trading cards and related
merchandise and products similar to those offered through the franchised
System.
B. It is the majority owner and operator of its business.
C. It does not operate or hold a majority interest in other
sports-related or celebrity-related retail businesses which have not
been converted to the FIELD OF DREAMS-Registered Trademark- System.
D. Its business does not operate under either a franchise
agreement, licensing agreement, or pursuant to any form of commercial
arrangement whereby a third party prescribes a particular marketing plan
or system upon its business operations. Furthermore, Conversion
Franchisee is not subject to any covenant against competition.
E. No other person, firm, corporation, or other entity has any
right, title or interest in or to Conversion Franchisee's business.
Conversion Franchisee's business has not been mortgaged, pledged, or
assigned and there are no judgments, liens, executions or proceedings
pending which may alter, decrease or remove Conversion Franchisee's
interest in said business.
F. Conversion Franchisee acknowledges that the information
submitted and the representations made to Franchisor as an inducement
for Franchisor to enter into this Addendum are accurate and truthful.
G. Conversion Franchisee acknowledges that by virtue of the
terms and conditions of the Franchise Agreement and this Addendum the
manner and operation of its business must be in strict compliance with
Franchisor's standards and specifications and furthermore acknowledges
that
FranchiseDocs Page 82
<PAGE>
its ability to directly or indirectly engage in any other business
which offers or sells services or products which comprise or may in the
future comprise a part of the FIELD OF DREAMS-Registered Trademark-
System is expressly limited.
H. Furthermore, Conversion Franchisee expressly acknowledges and
understands that this Addendum amends and supplements the Franchise
Agreement and that the terms and conditions of this Addendum are
incorporated into the Franchise Agreement as though set forth in full
therein.
IN WITNESS WHEREOF, the parties hereunder have duly executed, sealed
and delivered this Addendum to the Franchise Agreement on the day and year first
set forth above.
DREAMS FRANCHISE CORPORATION
By: _________________________________
Its:_________________________________
FRANCHISEE:
_____________________________________
By: _________________________________
Its:_________________________________
_____________________________________
an Individual
_____________________________________
an Individual
FranchiseDocs Page 83
<PAGE>
DREAMS FRANCHISE CORPORATION
KIOSK STORE ADDENDUM
TO FRANCHISE AGREEMENT
FranchiseDocs Page 84
<PAGE>
DREAMS FRANCHISE CORPORATION
KIOSK STORE ADDENDUM
TO FRANCHISE AGREEMENT
This Kiosk Store Addendum ("this Addendum") is made and entered into
this_________day of , 19___ between DREAMS FRANCHISE CORPORATION, a California
corporation with its principal office at 5009 Hiatus Road, Sunrise FL 33351,
("Franchisor") and_____________________________________________, whose principal
address is_____________________________________________, an
individual/partnership/corporation incorporated in the State of________________
("Kiosk Franchisee").
WITNESSETH:
WHEREAS, Franchisor and Kiosk Franchisee have simultaneously herewith
entered into a certain Franchise Agreement whereby Kiosk Franchisee is granted a
franchise to operate a FIELD OF DREAMS-Registered Trademark-4 Franchised Store;
to use the "FIELD OF DREAMS-Registered Trademark-" marks; and, to utilize
Franchisor's System in connection therewith;
WHEREAS, Kiosk Franchisee has submitted an application to Franchisor
seeking permission to become a Kiosk Franchisee of Franchisor and Franchisor has
approved such application;
WHEREAS, Kiosk Franchisee will be given the rights to open a FIELD OF
DREAMS-Registered Trademark- store which consists of a freestanding kiosk to be
located as agreed upon between Kiosk Franchisee and Franchisor. The term "Kiosk"
as referred to herein shall mean a freestanding retail stand to be located in a
shopping mall concourse or other shopping area concourse. A Kiosk does not refer
to a standard retail space located in a mall or other shopping location.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
I. INCORPORATION OF TERMS OF FRANCHISE AGREEMENT
A. This Addendum shall amend and supplement the Franchise Agreement
simultaneously executed by the parties herein. The terms, covenants, and
conditions of this Addendum are incorporated into the Franchise Agreement, and
with respect to any conflict between the two (2) agreements, the terms of this
Addendum shall be controlling with respect to the subject matter thereof.
_____________________________
"FIELD OF DREAMS-Registered Trademark-is a service mark of Universal
City Studios, Inc., licensed to Franchisor by Universal Studios Licensing, Inc.
FranchiseDocs Page 85
<PAGE>
B. Except as expressly set forth in this Addendum, the rights, duties
and obligations of the parties with respect to the FIELD OF DREAMS-Registered
Trademark- Franchised Store shall be the same as the rights, duties, and
obligations of the parties with respect to the Franchised Kiosk Store described
in the Franchise Agreement.
C. The rights granted to Kiosk Franchisee are specifically limited to
and shall only pertain to the use of the FIELD OF DREAMS-Registered Trademark-
System at a Kiosk, and shall not pertain to nor is any right granted to use the
FIELD OF DREAMS-Registered Trademark- System in connection with the standard
FIELD OF DREAMS-Registered Trademark- retail store.
II. INITIAL FRANCHISE FEE
A. Nothwithstanding the provisions of Section I.E of the Franchise
Agreement, in consideration for the franchise granted herein, Franchisee shall
pay to Franchisor, upon execution of the Franchise Agreement and this Kiosk
Addendum, an initial franchise fee of Nineteen Thousand Dollars ($19,000).
B. In addition, Kiosk Franchisee is required to pay to Franchisor all
other fees and payments as are more fully described in the Franchise Agreement.
III. OTHER TERMS
A. Kiosk Franchisee expressly acknowledges and understands that this
Addendum amends and supplements the Franchise Agreement and under the terms of
this Addendum are incorporated into the Franchise Agreement as though set forth
in full therein. Further, it is agreed that Franchise Agreement is hereby
amended so that all obligations of a Franchisee as set out in the Franchise
Agreement with regarding to the standard store using the FIELD OF
DREAMS-Registered Trademark- System shall be applicable to the operation of a
Kiosk store using the FIELD OF DREAMS-Registered Trademark- System by the
Franchisee.
IN WITNESS WHEREOF, the parties hereunder have duly executed, sealed
and delivered this Addendum to the Franchise Agreement on the day and year first
set forth above.
DREAMS FRANCHISE CORPORATION
By: _________________________________
Its:_________________________________
FranchiseDocs Page 86
<PAGE>
FRANCHISEE:
_____________________________________
By: _________________________________
Its:_________________________________
_____________________________________
an Individual
_____________________________________
an Individual
_____________________________________
an Individual
FranchiseDocs Page 87
<PAGE>
DREAMS FRANCHISE CORPORATION
SEASONAL LOCATION ADDENDUM
TO FRANCHISE AGREEMENT
FranchiseDocs Page 88
<PAGE>
DREAMS FRANCHISE CORPORATION
SEASONAL LOCATION ADDENDUM
TO FRANCHISE AGREEMENT
This Seasonal Location Agreement (the "Agreement") is made and entered
into this_________day of______________, 19___ by and between Dreams Franchise
Corporation, a California corporation ("Franchisor") and_______________________
an individual/partnership/corporation incorporated in the State of_____________
("Franchisee").
WITNESSETH:
WHEREAS, Franchisee is a Franchisee in the FIELD OF DREAMS-Registered
Tradmark- System and whose Franchise Agreement as of the date of this Agreement
is in good standing and all amounts required to be paid thereunder have been
paid; and
WHEREAS, Franchisee wishes to open a Seasonal Location on the terms and
conditions contained herein; and
WHEREAS, "Seasonal Location" as used herein shall mean a temporary
FIELD OF DREAMS-Registered Tradmark- store to be located as provided herein to
be opened during the limited duration herein.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
I. INCORPORATION OF TERMS OF FRANCHISE AGREEMENT
A. This Agreement shall amend and supplement the Franchise Agreement by
and between Franchisor and Franchisee. The terms, covenants and conditions of
this Agreement are incorporated into the Franchise Agreement, and with respect
to any conflict between the two (2) Agreements, the terms of this Agreement
shall be controlling with respect to the subject matter hereof.
B. Except as expressly set forth in this Agreement, the rights, duties
and obligations of the parties with respect to a FIELD OF DREAMS-Registered
Tradmark- Franchised Seasonal Location shall be the same as the rights, duties
and obligations of the parties with respect to the FIELD OF DREAMS-Registered
Tradmark- Seasonal Location described in the Franchise Agreement.
C. The rights of Franchisee are specifically limited to and shall only
pertain to the use of the FIELD OF DREAMS-Registered Tradmark- System at a
Seasonal Location and shall not pertain to nor is any right granted to use the
FIELD OF DREAMS-Registered Tradmark- System in connection with any other
operations.
FranchiseDocs Page 89
<PAGE>
II. INITIAL FRANCHISEE FEE
A. In consideration of the franchise granted herein, Franchisee shall
pay to Franchisor upon execution of this Agreement an initial Seasonal Location
franchise fee of Two Thousand Five Hundred Dollars ($2,500).
B. In addition, Franchisee shall pay Franchisor all royalties, fees,
and other amounts, including the 6% royalty and the 3% contribution to the
Marketing and Development Fund, as required by the Franchise Agreement at the
time and frequency required by the Franchise Agreement for all Franchise
locations, including this Seasonal Location.
III. DURATION OF AGREEMENT
A. Franchisee shall have the right to operate the Seasonal Location
during the "Season" which shall begin on October 15, 19____ and shall terminate
no later than the Monday following the second full calendar week in January of
the following year.
IV. OTHER TERMS
A. Franchisee expressly acknowledges and understands that this
Agreement amends and supplements the Franchise Agreement by and between
Franchisee and Franchisor and the terms of this Agreement are incorporated into
the Franchise Agreement as though set forth in full therein. Further it is
agreed that the Franchise Agreement between Franchisor and Franchisee is hereby
amended so that all obligations of Franchisee as set out in the Franchise
Agreement shall be applicable to the operation of the Seasonal Location except
as specifically set out to the contrary in the Franchise Agreement.
IN WITNESS WHEREOF, the parties hereunder have duly executed, sealed
and delivered this Seasonal Location Agreement to the Franchise Agreement on the
day and year first set forth above.
DREAMS FRANCHISE CORPORATION
By: ___________________________________
Its:___________________________________
FranchiseDocs Page 90
<PAGE>
FRANCHISEE:
ATTEST: By: ___________________________________
Its:___________________________________
_________________________
_____________________________ _______________________________________
Witness Franchisee
_____________________________ _______________________________________
Witness Franchisee
FranchiseDocs Page 91
<PAGE>
AGREED UPON SEASONAL LOCATIONS:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
FranchiseDocs Page 92
<PAGE>
EXHIBIT 7
Letter on Change In Certifying Accountant
Change In Certifying Accountant
<PAGE>
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
430 EAST 400 SOUTH
SALT LAKE CITY, UTAH 84111
(801) 328-2727 - FAX (801) 328-1123
August 31, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the statements of Dreams, Inc. pertaining to our firm included
under Item 3 of Form 10-SB and agree with such statements as they pertain to our
firm. We have no basis to agree or disagree with other statements of the
registrant contained therein.
PRITCHETT, SILER & HARDY, P.C.
Change In Certifying Accountant
