Exhibit 10.1

 

[LETTERHEAD OF MERRILL LYNCH]

 

March 11, 2005

 

Dreams Products, Inc.

2 South University Drive

Suite 325

 

Re: Amendment to Loan Documents

 

Ladies & Gentlemen:

 

This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. (“MLBFS”), Dreams Products, Inc. (“Customer”),
Dreams, Inc. (“Dreams”), and Dreams Franchise Corporation (“Franchise”) with
respect to: (I) that certain FORBEARANCE AGREEMENT dated as of December 30, 2004
between MLBFS on the one hand, and Customer, Dreams and Franchise (collectively,
Customer, Dreams and Franchise, the “Obligors” or the “Parties”) on the other
hand (including any previous amendments and extensions thereof), and (ii) all
other agreements between MLBFS and Obligors including without limitation the
Loan Documents. Capitalized terms used herein and not defined herein shall have
the meaning set forth in the Forbearance Agreement, or if not defined in the
Forbearance Agreement, the Loan Documents.

 

Subject to the last sentence of this Letter Agreement, effective as of today,
the Loan Documents are hereby amended as follows:

 

(a) Section 4(e)(i) of the Forbearance Agreement is hereby amended and restated
in its entirety as follows: The term “Maximum WCMA Line of Credit” shall mean,
(i) as of the Effective Date (as hereinafter defined) through and including the
calendar day immediately preceding the “Change Date” (as hereinafter defined),
$4,500,000.00 and (iii) effective the Change Date through April 29, 2005,
$3,500,000.00. For purposes hereof, the term “Change Date” shall mean the
earlier to occur of (a) the date of the closing of any transaction involving the
sale of $2,200,000.00, or any other sum, in equity by the Customer or any
Obligor through a “rights offering” or any other equity offering consummated by
Customer or any Obligor (the “Rights Offering”), or (b) April 15, 2005. CUSTOMER
AGREES THAT IT WILL, WITHOUT DEMAND, INVOICING OR THE REQUEST OF MLBFS, FROM
TIME TO TIME MAKE SUFFICIENT PAYMENTS ON ACCOUNT OF THE WCMA LOAN BALANCE TO
ASSURE THAT THE WCMA LOAN BALANCE WILL NOT AT ANY TIME EXCEED THE MAXIMUM WCMA
LINE OF CREDIT, AS REDUCED EACH MONTH PURSUANT TO THIS SECTION IN THE AMOUNTS
SPECIFIED IN THIS SECTION.

 

(b) Obligors hereby agree to pay to MLBFS, the sum of $50,000.00 (“Exit Fee”) if
the Obligations under the Forbearance Agreement and Loan Documents are not fully
repaid by April 29, 2005. The Exit Fee shall be in addition to all other charges
under the Forbearance Agreement and Loan Documents, and shall become a WCMA
Loan, due immediately and added to the WCMA Loan Balance in the same manner as
provided for accrued interest with respect to the WCMA Line of Credit.

 

By their execution of this Letter Agreement, the Obligors hereby consent to the
foregoing modifications to the Forbearance Agreement, and hereby agree that
except as expressly amended hereby, the Forbearance Agreement and Loan Documents
shall continue in full force and effect upon all of their terms and conditions.

 

Obligors acknowledge, warrant and agree, as a primary inducement to MLBFS to
enter into this Agreement, that: (a) no Default or Event of Default has occurred
and is continuing under the Forbearance Agreement or Loan Documents, other than
the Defaults or Events of Defaults referenced in the Forbearance Agreement; (b)
each of the warranties of Obligors in the Forbearance Agreement and Loan
Documents are true and correct as of the date hereof and shall be deemed remade
as of the date hereof; (c) no Obligor has any claim against MLBFS or any of its
affiliates arising out of or in connection with the Forbearance Agreement or
Loan Documents or any other matter whatsoever; and (d) no Obligor has any
defense to payment of any amounts owing, or any right of counterclaim for any
reason under, the Forbearance Agreement or Loan Documents.

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Notwithstanding the foregoing, if each Obligor does not execute and return the
duplicate copy of this Letter Agreement to MLBFS by 5PM CST March 11, 2005, then
all of said amendments and agreements will, at the sole option of MLBFS, be
void.

 

Very truly yours,

 

Merrill Lynch Business Financial Services Inc.

By:     /s/ Bill Kocolowski

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          Bill Kocolowski

          Vice President

Agreed and Accepted:

Dreams, Inc.

By:     /s/ Ross Tannenbau

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Printed Name:

 

Ross Tannenbaum

Title: President/CEO

Dreams Products, Inc.

By:     /s/ Ross Tannenbau

--------------------------------------------------------------------------------

Printed Name:

 

Ross Tannenbaum

Title: President/CEO

Dreams Franchise Corporation

By:     /s/ Ross Tannenbaum

--------------------------------------------------------------------------------

Printed Name:

 

Ross Tannenbaum

Title: President/CEO