EXHIBIT 10.40
AMENDMENT NO. 1 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this "AMENDMENT"), is
entered into on this 30th day of June, 1999, by and between SUNROCK CAPITAL
CORP., a Delaware corporation ("LENDER"), and DSI TOYS, INC., a Texas
corporation ("BORROWER"), to be effective for all purposes as of the Effective
Date (as herein defined).
RECITALS
A. Borrower and Lender have entered into that certain Loan and Security
Agreement, dated as of February 2, 1999 (as the same may be amended, modified or
supplemented from time to time, the "LOAN AGREEMENT").
B. Pursuant to a letter agreement, dated as of April 8, 1999, by and
between Borrower and Lender (the "LETTER AGREEMENT"), Lender waived certain
specified provisions of the Loan Agreement in order to facilitate certain
transactions (the "CHANGE OF CONTROL TRANSACTIONS") between the Borrower, its
shareholders and a California limited liability company controlled by E. Xxxxxx
Xxxxxx and certain of his affiliates.
C. The Letter Agreement requires certain amendments to the Loan Agreement
to provide for the continued control of Borrower by E. Xxxxxx Xxxxxx.
D. The Change of Control Transactions occurred on June 1, 1999 (the
"EFFECTIVE DATE"), and Borrower and Lender desire to amend the Loan Agreement as
set forth herein, which amendments are to be effective for all purposes as of
the Effective Date.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment, to the extent not otherwise
defined herein, shall have the same meaning as in the Loan Agreement, as amended
hereby.
1.02 "MVII" shall mean MVII, LLC, a California limited liability company.
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ARTICLE II
EFFECTIVE DATE
2.01 The Amendments contained in this Amendment shall each be effective as
of the Effective Date. Each of Borrower and Lender agree that the amendments set
forth herein fulfill the requirements of EXHIBIT A, SUBPARAGRAPH (C), of the
Letter Agreement.
ARTICLE III
AMENDMENTS
3.01 AMENDMENT TO DEFINITION OF "CHANGE OF CONTROL" IN SECTION 1.5 OF THE
LOAN AGREEMENT. The definition of "Change of Control" contained in SECTION 1.5
of the Loan Agreement is hereby amended and restated to read in its entirety as
follows:
"'CHANGE OF CONTROL' shall be deemed to have occurred at such time as (i)
MVII, LLC, a California limited liability company, shall fail to own,
beneficially and of record, in excess of forty-five percent (45%) of each
class of capital stock then outstanding of Borrower normally entitled to
vote in the election of directors of the Borrower; (ii) E. Xxxxxx Xxxxxx,
in his individual capacity or through one or more wholly-owned Persons,
shall not have the ability to direct the management and policies of MVII,
LLC, a California limited liability company; or (iii) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, but excluding E. Xxxxxx Xxxxxx and MVII,
LLC) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of more than
thirty-four percent (34%) of the total voting power of any class of stock
then outstanding of Borrower normally entitled to vote in the election of
directors."
ARTICLE IV
WAIVER
4.01 Borrower has notified Lender that Borrower desires to make two cash
payments to Nickelodeon, each in the amount of $985,000, on June 30, 1999, and
December 15, 1999, respectively, such cash payment to be in full satisfaction of
certain outstanding payables for which a structured payment schedule had been
agreed upon (the "RESTRICTED PAYMENT"). Absent the consent of Lender, the
Restricted Payment would violate Borrower's covenant set forth at SECTION 9.9 of
the Loan Agreement (the "COVENANT DEFAULT"). Having advised the undersigned of
its intention to make the Restricted Payment, Borrower has requested that Lender
waive the Covenant Default that will result from such Restricted Payment. In the
exercise of its discretion as a prudent lender, Lender hereby waives the
Covenant Default that would otherwise result from the Restricted Payment. Except
as expressly set forth in this SECTION 4.01, nothing contained in this Amendment
or any other communication between Lender and Borrower shall be a waiver of any
other present or future violation or Event of Default under the Loan Agreement
or any agreement, document or instrument entered into in connection therewith
(collectively, the "OTHER VIOLATIONS"). Similarly, nothing contained in this
Amendment shall directly or indirectly in any way: (i) impair, prejudice or
otherwise adversely affect Lender's right at any time to exercise any
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right, privilege or remedy in connection with the Loan Agreement or any
agreement, document or instrument entered into in connection therewith with
respect to any Other Violations, or (ii) constitute any course of dealing or
other basis for altering any obligation of Borrower under the Loan Agreement or
any agreement, document or instrument entered into in connection therewith or
any right, privilege or remedy of Lender under the Loan Agreement or any
agreement, document or instrument entered into in connection therewith with
respect to the Other Violations. Nothing in this Amendment shall be construed to
be a consent by Lender to any Other Violations.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. Except as expressly modified and superseded by this
Amendment, the terms and provisions of the Loan Agreement, the Letter Agreement
are ratified and confirmed and shall continue in full force and effect. Borrower
and Lender agree that the Loan Agreement, as amended hereby, and each agreement
and instrument executed in connection therewith, shall continue to be legal,
valid, binding and enforceable in accordance with their respective terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender (a) on or prior to the Effective Date Borrower received not
less than $5 million as net consideration for the issuance or sale of common
stock, par value $.01 per share, to MVII, which consideration is not be subject
to any claim by or through MVII (other than Borrower's potential liability in
respect of indemnification obligations of the type customarily undertaken by
Persons engaged in transactions of similar size and nature to the Change of
Control Transaction); (b) all corporate proceedings taken in connection with the
Change of Control Transaction and all documents, instruments and other legal
matters incident thereto conform in all material respects to the Term Sheet (as
defined in the Letter Agreement), and concurrently with the execution of this
Amendment, Sunrock has been provided copies of all such documentation; (c) the
execution, delivery and performance of this Amendment have been authorized by
all requisite corporate action on the part of Borrower and will not violate the
Articles of Incorporation or Bylaws of Borrower; (d) the representations and
warranties contained in the Loan Agreement, as amended hereby, are true and
correct on and as of the date hereof; (e) as of the date hereof and as of the
Effective Date, no Event of Default under the Loan Agreement was or is
continuing and no event or condition exists that with the giving of notice or
the lapse of time, or both, would be an Event of Default; and (f) Borrower is in
full compliance with all covenants and agreements contained in the Loan
Agreement and each agreement and instrument entered into in connection
therewith.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made herein and in the Loan Agreement shall survive the execution and
delivery of this Amendment, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.
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6.02 REFERENCE TO LOAN AGREEMENT. The Loan Agreement, as amended hereby,
and all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms thereof are hereby amended so that any reference
in the Loan Agreement or such other agreements, documents and instruments shall
mean a reference to the Loan Agreement, as amended hereby.
6.03 EXPENSES OF LENDER AND WAIVER FEE. In consideration of the waiver
provided in Section 4.01 hereof, Borrower shall pay to Lender a waiver fee in
the amount of $1,000 which fee shall be earned by Lender and shall be due and
payable upon execution by Lender of a counterpart of this Amendment. In addition
to such waiver fee and as provided in the Loan Agreement, Borrower agrees to pay
on demand all costs and expenses incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment, including, without
limitation, the costs and fees of Lender's legal counsel, and all costs and
expenses incurred by Lender in connection with the enforcement or preservation
of any rights under the Loan Agreement, as amended hereby, or any agreement,
document or instrument executed in connection therewith.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender
to or for any breach of or deviation from any covenant or condition by Borrower
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 FINAL AGREEMENT. THE LOAN DOCUMENTS, AS AMENDED HEREBY, REPRESENT THE
ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO
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THE SUBJECT MATTER HEREOF IN THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN
DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION,
WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE,
EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND LENDER.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE OBLIGATIONS (AS DEFINED IN THE LOAN AGREEMENT) OR TO SEEK
AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY
VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE
CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND
LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS
EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND
IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION
OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY LOANS (AS DEFINED IN
THE LOAN AGREEMENT), INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER
THE LOAN AGREEMENT OR ANY AGREEMENT, DOCUMENT OR INSTRUMENT ENTERED INTO IN
CONNECTION THEREWITH.
Executed as of this 30th day of June, 1999.
DSI TOYS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
Name: Xxxxxx X. Xxxxxxx
Title: Administrative Vice President
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SUNROCK CAPITAL CORP.
By: /s/ XX Xxxxx
Name: Xxxx X. Xxxxx
Title: Senior Vice President
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