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EXHIBIT 10.4
CONSENT, WAIVER AND THIRD AMENDMENT
TO LOAN AND SECURITY AGREEMENT
CONSENT, WAIVER AND THIRD AMENDMENT (this "Consent, Waiver and Amendment"),
dated as of July 27, 2000, by and among BANK OF AMERICA, N.A., a national bank
organized under the laws of the United States (the "Lender"); PENTECH
INTERNATIONAL, INC., a Delaware corporation ("Pentech"); PENTECH COSMETICS,
INC., a Delaware corporation ("Cosmetics"); and SAWDUST PENCIL CO., a Delaware
corporation ("Sawdust") (Pentech, Cosmetics and Sawdust, individually, a
"Borrower," and collectively, the "Borrowers").
W I T N E S S E T H:
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WHEREAS, the Lender and the Borrowers are parties to a Loan and Security
Agreement dated as of January 13, 1997 (as amended, restated, modified or
supplemented from time to time, the "Loan Agreement");
WHEREAS, JAKKS Pacific, Inc., a Delaware corporation ("JAKKS"), JAKKS
Acquisition II, Inc., a Delaware corporation ("Newco"), and Pentech have entered
into an Agreement of Merger of JAKKS Acquisition II, Inc. With and Into Pentech
International Inc., dated as of May 22, 2000, as amended by a First Amendment to
Agreement of Merger, dated as of July 13, 2000 (collectively, the "Merger
Agreement");
WHEREAS, pursuant to the Merger Agreement, at the Effective Time (as
defined in the Merger Agreement), there shall be consummated the Merger (as
defined in the Merger Agreement) whereby, among other things, Newco will be
merged with and into Pentech, with Pentech being the corporation surviving the
Merger (the "Surviving Corporation"); each share of common stock of Newco
outstanding at the Effective Time of the Merger will be converted into one share
of Pentech common stock; except as otherwise provided in the Merger Agreement,
each share of common stock of Pentech and each Eligible Option (as defined in
the Merger Agreement) with respect to such shares outstanding at the Effective
Time of the Merger will be converted into the right to receive the Merger
Consideration (as defined in the Merger Agreement); the Certificate of
Incorporation of Pentech immediately prior to the Effective Time shall continue
in full force and effect as the Certificate of Incorporation of the Surviving
Corporation, unless and until revoked or amended; the By-Laws of Newco
immediately prior to the Effective Time shall continue in full force and effect
as the By-Laws of the Surviving Corporation, unless and until revoked or
amended; the incumbent directors of Newco immediately prior to the Effective
Time shall thereupon become the directors of the Surviving Corporation; and all
incumbent officers of Pentech shall resign (or be removed) and the incumbent
officers of Newco immediately prior to the Effective Time shall thereupon become
the officers of the Surviving Corporation;
WHEREAS, upon, and as a result of, the consummation of the Merger, Pentech
will become a wholly-owned direct Subsidiary of JAKKS and Cosmetics and Sawdust
will become wholly-owned indirect Subsidiaries of JAKKS;
WHEREAS, the consummation of the Merger will violate the provisions of
Section 10.7 of the Loan Agreement and will constitute an Event of Default (the
"Merger Default") pursuant to Section 12.1(n) of the Credit Agreement;
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WHEREAS, the Borrowers will incur certain restructuring charges
("Restructuring Charges") in an aggregate amount up to $5 million in conjunction
with the Merger;
WHEREAS, as a result of, and after giving effect to, the Restructuring
Charges, the Borrowers will be in non-compliance (the "Financial Covenant
Non-compliance") with the Minimum EBITDA covenant set forth in Sections 10.21 of
the Loan Agreement for and with respect to the fiscal quarters ending on and
after July 31, 2000;
WHEREAS, the Borrowers have requested that the Lender consent to the
Merger, waive the Merger Default and waive the Financial Covenant
Non-compliance; and
WHEREAS, the Lender is willing to consent to the Merger, waive the Merger
Default and waive the Financial Covenant Non-compliance, on the condition that
certain amendments be made to the Loan Agreement and otherwise on the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Terms defined in the Loan Agreement and not
otherwise defined herein shall have the meanings set forth in the Loan
Agreement.
Section 2. Consent to Merger and Waiver of Merger Default. The Lender
consents to the Merger and waives the Merger Default; provided, however, that
such consent is subject to the following conditions:
2.01. The Merger shall be consummated substantially in compliance with
the terms and conditions set forth in the (a) Merger Agreement and (b) the
Notice of Special Meeting of Stockholders of Pentech International Inc. and
Proxy Statement, dated June 28, 2000, as supplemented by the Supplement to
Notice of Special Meeting of Stockholders and Proxy Statement, dated July 17,
2000, together with all schedules and exhibits thereto (collectively, the
"Merger Proxy Materials"); and
2.02. All other conditions set forth in Section 5 of this Consent,
Waiver and Amendment shall have been satisfied.
Section 3. Waiver of Financial Covenant Non-compliance. The Lender hereby
waives compliance by the Borrowers with the Minimum EBITDA covenant set forth in
Section 10.21 of the Loan Agreement solely for and with respect to the fiscal
quarters ending on and after July 31, 2000; provided, however, that such waiver
is subject to the following conditions:
3.01. Such waiver shall be limited to non-compliance by the Borrowers
with the Minimum EBITDA covenant set forth in Section 10.21 of the Loan
Agreement resulting solely from, and solely to the extent resulting from,
non-cash Restructuring Charges in an amount up to $5 million incurred or to be
incurred by Pentech in conjunction with the Merger; and
3.02. All other conditions set forth in Section 5 of this Consent,
Waiver and Amendment shall have been satisfied.
Section 4. Amendments to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 5 of this Consent, Waiver and
Amendment, the Loan Agreement shall be amended in the following respects.
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4.01. Effective as of the date hereof, the following definitions shall
be added to Section 1.1 of the Loan Agreement in the appropriate alphabetical
order:
"Effective Time" has the meaning ascribed to such term in the Merger
Agreement.
"JAKKS" means JAKKS Pacific, Inc., a Delaware corporation.
"Merger" has the meaning ascribed to such term in the Merger
Agreement.
"Merger Agreement" means the Agreement of Merger of JAKKS Acquisition
II, Inc. With and Into Pentech International Inc., dated as of May 22,
2000, among JAKKS, Newco and Pentech, as amended by the First Amendment to
Agreement of Merger, dated as of July 13, 2000, among JAKKS, Newco and
Pentech.
"Merger Proxy Materials" means the Notice of Special Meeting of
Stockholders of Pentech International Inc. and Proxy Statement, dated June
28, 2000, as supplemented by the Supplement to Notice of Special Meeting of
Stockholders and Proxy Statement, dated July 17, 2000, together with all
schedules and exhibits thereto.
"Newco" means JAKKS Acquisition II, Inc., a Delaware corporation.
4.02. Effective as of the Effective Time, Section 9.4 of the Loan
Agreement shall be amended to read in its entirety as follows:
9.4 Corporate Name; Prior Transactions. No Borrower has, during
the past five years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or
acquired all or substantially all of the assets of any Person, or
acquired any of its Property out of the ordinary course of business,
except (a) for, or as resulted from, the merger of Newco with and into
Pentech, with Pentech being the corporation surviving such merger,
pursuant to the Merger Agreement and the Proxy Materials, and (b) as
otherwise set forth on Schedule 9.4.
4.03. Effective as of the Effective Time, Section 10.7 of the Loan
Agreement shall be amended to read in its entirety as follows:
10.7 Mergers, Consolidations, Acquisitions, or Sales. Neither any
Borrower nor any of its Subsidiaries shall enter into any transaction
of merger, reorganization, or consolidation except for the merger of
Newco with and into Pentech, with Pentech being the corporation
surviving such merger, pursuant to the Merger Agreement and the Proxy
Materials, or transfer, sell, assign, lease, or otherwise (except as
expressly otherwise permitted hereby) dispose of all or any part of
its Property, or wind up, liquidate or dissolve, or agree to do any of
the foregoing, except sales of Inventory in the ordinary course of its
business.
4.04. Effective as of the Effective Time, Section 12.01(n) of the Loan
Agreement shall be amended to read in its entirety as follows:
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(n) From and after the Effective Time, Pentech shall cease to be
a wholly-owned direct Subsidiary of JAKKS; or
4.05. Effective as of the Effective Time, the words "WHICH ARISE OUT
OF OR ARE IN ANY WAY BASED UPON THE NEGOTIATION, PREPARATION, EXECUTION,
DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION TO ACT, EVENT OR
TRANSACTION RELATED OR ATTENDANT THERETO" in the first sentence of Section 15.9
of the Loan Agreement shall be deleted, and the following words shall be
substituted therefor:
WHICH (A) ARISE OUT OF OR ARE IN ANY WAY RELATED TO THE MERGER, THE
MERGER AGREEMENT OR THE MERGER PROXY MATERIALS, OR (B) ARISE OUT OF OR
ARE IN ANY WAY BASED UPON THE NEGOTIATION, PREPARATION, EXECUTION,
DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR PROCEEDING
RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT,
OMISSION TO ACT, EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO
Section 5. Conditions to Effectiveness. This Consent, Waiver and Amendment
shall be effective as of the date first above written upon the satisfaction of
the following conditions:
5.01. The Lender shall have received counterparts of this Consent,
Waiver and Amendment executed by the Borrowers;
5.02. The Lender shall have received such other certificates,
representations, instruments and other documents as the Lender may require, in
form and substance satisfactory to the Lender;
5.03. The Lender shall have received evidence satisfactory to it that,
simultaneously with the Effective Time, JAKKS shall have made a cash
contribution to Pentech's capital (the "JAKKS Capital Contribution") in an
amount not less than $10 million;
5.04. Simultaneously with the Effective Time, Pentech shall have made
a prepayment of the Revolving Loans in an amount equal to, and with the proceeds
of, the JAKKS Capital Contribution;
5.05. At the Effective time and after giving effect to the Merger, the
representations and warranties contained in the Loan Agreement, in this Consent,
Waiver and Amendment and in each other document or instrument delivered by the
Borrowers are true and correct in all material respects as though made on and as
of the date thereof, except to the extent that such representations and
warranties expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such earlier
date); and there shall exist no Default or Event of Default; and
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5.06. The Borrowers shall have paid, or reimbursed the Lender for, all
fees and expenses (including the fees and disbursements of Xxxxxxxx Chance
Xxxxxx & Xxxxx LLP) incurred by the Lender in connection with this Consent,
Waiver and Amendment and billed to such date.
Section 6. Representations and Warranties. The Borrowers hereby each
represent and warrant to the Lender that (i) the execution, delivery and
performance of this Consent, Waiver and Amendment and the consummation of the
Merger by each of the Borrowers are within their respective corporate powers and
have been duly authorized by all necessary corporate action; (ii) no consent,
approval, authorization of, or declaration or filing with, any Public Authority,
and no consent of any other Person, is required in connection with the
execution, delivery and performance of this Consent, Waiver and Amendment or the
consummation of the Merger, except for those already duly obtained; (iii) this
Consent, Waiver and Amendment has been duly executed by each of the Borrowers
and constitutes the legal, valid and binding obligation of each of the
Borrowers, enforceable against them in accordance with its terms; (iv) the
execution, delivery and performance by each of the Borrowers of this Consent,
Waiver and Amendment, and the consummation by Pentech of the Merger, do not and
will not conflict with, or constitute a violation or breach of, or constitute a
default under, or result in the creation or imposition of any Lien upon the
property of any Borrower or any of its Subsidiaries (except as contemplated by
the Loan Agreement and the other Loan Documents) by reason of the terms of (a)
any contract, mortgage, lease, agreement, or instrument to which such Borrower
or such Subsidiary is a party or which is binding upon it, (b) any Requirement
of Law applicable to such Borrower or such Subsidiary, or (c) the Certificate or
Articles of Incorporation or By-Laws of such Borrower or such Subsidiary; (v)
after giving effect to this Consent, Waiver and Amendment, the representations
and warranties contained in the Loan Agreement and in each other document or
instrument delivered by such Borrower are true and correct in all material
respects as though made on and as of the date hereof, except to the extent that
such representations and warranties expressly relate solely to an earlier date
(in which case such representations and warranties were true and accurate on and
as of such earlier date); (vi) after giving effect to this Consent, Waiver and
Amendment, there exists no Default or Event of Default; (vi) Pentech has
delivered to the Lender true, correct and complete copies of the Merger
Agreement and the Merger Proxy Materials; and (vii) the aggregate amount of
Restructuring Charges incurred and to be incurred by the Borrowers in
conjunction with the Merger shall not exceed $5 million in the aggregate.
Section 7. Covenants of the Borrowers. The Borrowers hereby covenant to the
Lender as follows:
7.01. The Borrowers shall deliver to the Lender, within ten (10)
Business Days after the Effective Time, a borrowing base report giving effect to
the Merger and all Restructuring Charges incurred and to be incurred by the
Borrowers; and
7.02. The Borrowers shall deliver to the Lender, within five (5)
Business Days after the Effective Time, (i) a copy of the Certificate of Merger
of Newco and Pentech as filed with, and certified by, the Secretary of State of
the State of Delaware; (ii) a copy of the Certificate of Incorporation of the
Surviving Corporation, certified by the Secretary of State of the State of
Delaware; (iii) a copy of the By-Laws of the Surviving Corporation, certified by
the Secretary or Assistant Secretary of the Surviving Corporation, (iv) a
certificate of incumbency of officers of the Surviving Corporation, with
specimen signatures, certified by the Secretary or Assistant Secretary and
attested to by the President or a Vice President of the Surviving Corporation;
and (v) such signature cards and other routine account maintenance documents as
the Lender may require.
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Section 8. Reference to and Effect on Loan Documents.
8.01. On and after the date hereof, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like
import, and each reference in the other Loan Documents to the Loan Agreement,
shall mean and be a reference to the Loan Agreement as amended hereby.
8.02. Except as specifically amended above, all of the terms of the
Loan Agreement shall remain unchanged and in full force and effect.
8.03. The execution, delivery and effectiveness of this Consent,
Waiver and Amendment shall not operate as a waiver of any right, power or remedy
of any Lender or the Agent under the Loan Agreement or any of the other Loan
Documents, nor constitute a waiver of any provision of the Loan Agreement or any
of the other Loan Documents, except as expressly set forth herein.
Section 9. Execution in Counterparts. This Consent, Waiver and Amendment
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
Section 10. Governing Law. This Consent, Waiver and Amendment shall be
governed by, and shall be construed and enforced in accordance with, the laws of
the State of New York.
Section 11. Headings. Section headings in this Consent, Waiver and
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Consent, Waiver and Amendment or be given any
substantive effect.
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IN WITNESS WHEREOF, this Consent, Waiver and Amendment has been duly
executed as of the date first above written.
PENTECH INTERNATIONAL, INC.
By: /s/ XXXXX XXXXXXX
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Title:
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PENTECH COSMETICS, INC.
By: /s/ XXXXX XXXXXXX
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Title:
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SAWDUST PENCIL CO.
By: /s/ XXXXX XXXXXXX
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Title:
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BANK OF AMERICA, N.A.
By: /s/ XXXXXXX X. XXXXXX
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Title: Vice President
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