FIRST AMENDMENT TO CONVERTIBLE LOAN AGREEMENT
THIS FIRST AMENDMENT TO CONVERTIBLE LOAN AGREEMENT (this "Amendment") made
as of October 22, 1999, by and among Play by Play Toys & Novelties, Inc., a
Texas corporation ("Borrower"), Renaissance Capital Group, Inc., a Texas
corporation ("Agent"), and the Lenders party to the Original Agreement defined
below ("Lenders").
R E C I T A L S
A. Borrower, Agent and Lenders entered into that certain Convertible Loan
Agreement dated as of July 3, 1997 (as amended and supplemented to the date
hereof, the "Original Agreement"), for the purpose and consideration therein
expressed, whereby Lenders became obligated to make loans to Borrower as therein
provided.
B. Borrower, Agent and Lenders desire to amend the Original Agreement and
the Debentures to waive certain Defaults existing thereunder and amend certain
terms thereof, in connection with the closing of Borrower's senior credit
facility with Congress Financial Corporation (Southwest) ("Congress").
In consideration of the premises and the mutual covenants and agreements
contained herein and in the Original Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context otherwise
requires or unless otherwise expressly defined herein, the terms defined in the
Original Agreement shall have the same meanings whenever used in this Amendment.
1.2 OTHER DEFINED TERMS. Unless the context otherwise requires, the
following terms when used in this Amendment shall have the meanings assigned to
them in this Section 1.2.
"Amendment" means this First Amendment to Convertible Loan
Agreement.
"Amendment Documents" means this Amendment, the Security
Agreement, the
Deed of Trust and the Subordination Agreement.
"Congress Facility" means that certain Loan and Security Agreement
dated of even date herewith by and among Borrower, Ace Novelty Co., Inc.,
Newco Novelty, Inc., as borrowers, Friends Food & Games, Inc., as
guarantor and Congress, as from time to time amended, modified or
restated.
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"Deed of Trust" means that certain Deed of Trust of even date
herewith made by Ace Novelty Acquisition Co., Inc., in favor of Agent for
the Lenders.
"Loan Agreement" means the Original Agreement as amended hereby.
"Security Agreement" means that certain Security Agreement dated of
even date herewith executed by Borrower in favor of Agent and Bank One
Capital Partners II, L.L.C.
"Subordination Agreement" means that certain Intercreditor and
Subordination Agreement dated of even date herewith among Congress,
Lenders and Agent.
ARTICLE II
AMENDMENTS TO LOAN DOCUMENTS
2.1 AMENDMENT OF TERMS. The Loan Documents are hereby amended as follows:
(a) DEFINITION OF CREDIT AGREEMENT. The term "Credit Agreement" is hereby
amended to mean the Congress Facility.
(b) INTEREST RATE. Section 2.03 of the Original Agreement and Section 1 of
each Debenture are amended to provide that interest on the Principal Amount
outstanding from time to time shall bear interest at the rate of 10.5% per
annum.
(c) MATURITY. Section 2.04 of the Original Agreement and Section 2 of each
Debenture are amended to provide that the Debentures shall mature on December
31, 2000.
(d) CONVERSION PRICE.
(i) Section 6(a)(v) of the Debentures is hereby amended by adding
the following to the fourth line following the word "options": "(and
stock options granted after the date of the Amendment to employees
of Borrower (other than executive officers of Borrower) in an
aggregate amount not to exceed the outstanding options held by such
employees as of the date of the Amendment.)".
(ii) Effective 31 days from the date of this Amendment, the
Conversion Price provided under Section 6(a) of the Debentures shall
be amended (the "First Reset") to equal the lesser of (i) $16 per
share and (ii) the greater of (A) $6 per share and (B) the average
closing price of the Common Stock for the trading days included in
the 30 day period beginning on the date following the date of this
Amendment. In addition, if Borrower fails to pay in full all
outstanding principal and accrued interest on the Debentures on
December 31, 2000, the Conversion Price shall be amended (the
"Second Reset") to equal the lesser of (i) the Conversion Price
determined in accordance with the preceding sentence and (ii)
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the average closing price of the Common Stock of Borrower for the
trading days in December 2000. Promptly following each
redetermination of the Conversion Prices as provided in this Section
2.1(e), Borrower shall give each Lender notice of the Conversion
Price as so redetermined, together with support for the calculation
thereof. The foregoing adjustment is in addition of the provisions
of Section 6(a)(i) of the Debentures.
(e) FINANCIAL COVENANTS. Section 7.01 of the Original Agreement is
hereby amended
by deleting such section in its entirety.
(f) EVENTS OF DEFAULT: Section 8.01 (a)(iii) of the Original Agreement is
hereby amended by adding the following to the second line following the word
"Documents,": "or in
Section 9.16 of the Congress Facility,"
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 WAIVER OF EXISTING DEFAULTS; CONSENT TO TRANSACTIONS. Lenders hereby
irrevocably waive each Default existing under the Loan Documents as of the date
of this Amendment. Lenders further consent and agree that the transactions
contemplated by ( and the performance by the Company and its Subsidiaries of
their respective obligations under) (i) the Congress Facility and (ii) that
certain Settlement Agreement and Mutual Release of Claims dated as of October
19, 1999, attached as Appendix A hereto shall not constitute a Default under
Loan Documents.
3.2 AMENDMENT DOCUMENTS. Concurrently with the execution and delivery of
this Amendment, Lenders and Borrower have executed and delivered the other
Amendment Documents, which, together with this Amendment, shall become a part of
the
Loan Documents.
3.3 ACCRUAL AND PAYMENT OF PAST DUE INTEREST. Notwithstanding the terms of
the Loan Documents, interest on the Debentures from June 1, 1999 shall be
accrued at a rate of 10.5% per annum. Interest accrued for the period from June
1, 1999 through the date of this Amendment shall be payable as follows:
(i) One-half upon the execution and delivery of this Amendment;
(ii) One-sixth on October 31, 1999;
(iii) One-sixth on November 30, 1999; and
(iv) One-sixth on December 31, 1999.
3.4 FINANCIAL REPORTING. Borrower shall provide each Lender with monthly
financial information 45 days following the end of each month (60 days for the
months of October,
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November and December 1999), consisting of monthly income statements and balance
sheets, budgets and such other information as may be reasonably requested from
time to time in writing by Lenders, and quarterly cash flow statements within 45
days after the end of each fiscal quarter and 90 days after the end of each
fiscal year.
3.5 REGISTRATION OF UNDERLYING COMMON STOCK. As soon as practicable
following the determination of the First Reset and the Second Reset, Borrower
shall use its best efforts to cause all shares of Common Stock issuable upon
conversion of the Debentures to be registered under the Securities Act of 1933,
as amended.
3.6 SIZE OF BOARD OF DIRECTORS. After the date of this Amendment, without
the prior written consent of the Required Lenders, the size of Borrowers' Board
of Director shall not
exceed nine members.
3.7 OBSERVATION RIGHTS. Borrower shall give Agent the same written notice
of each meeting of its board of directors as is given to the members of the
board of directors, and Borrower shall permit two representatives designated by
Agent (the "Lender Representatives") to attend as observers all meetings of its
board of directors and comment on matters discussed at such meetings; provided,
that in the case of telephonic meetings conducted in accordance with Borrower's
bylaws and applicable law, the Lender Representatives need receive only actual
notice thereof at least 48 hours prior to any such meeting, and the Lender
Representatives shall be given the opportunity to listen to such telephonic
meetings. The Lender Representatives shall be entitled to receive all written
materials and other information (including, without limitation, copies of
meeting minutes) given to directors in connection with such meetings at the same
time such materials and information are given to the directors. If Borrower
proposes to take any action by written consent in lieu of a meeting of its board
of directors, Borrower shall give written notice thereof to the Lender
Representatives prior to the effective date of such consent describing in
reasonable detail the nature and substance of such action.
3.8 LENDER DIRECTORS. If Borrower fails to pay in full all outstanding
principal and accrued interest on the Debentures on December 31, 2000, Borrower
shall cause those persons designated from time to time by holders of a majority
of the outstanding principal amount of the Debentures (the "Lender Directors")
to be appointed as members of the Board of Directors of Borrower. The holders of
the Debentures may elect not to designate one or more of such persons, and in
such case the Company shall be free to nominate other persons to fill such
directorships. The number of Lender Directors shall be the greater of (i) three
and (ii) a proportion of the full Board of Directors as equal as possible to the
percentage of Lenders' ownership of Common Stock on an as converted basis.
Borrower shall nominate the Lender Directors for election as members of its
Board of Directors until the Debentures have been paid in full.
3.9 TITLE POLICY. Borrower shall use its best efforts to cause a CLTA Loan
policy to be issued in favor of Agent as soon as practicable after the date
hereof. Such loan policy shall cover the real property subject to the lien of
the Deed of Trust, and shall insure the title of Ace
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Novelty Acquisition Co., Inc. to such property and the lien in favor of Agent
created under the
Deed of Trust.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to induce each
Lender to enter into this Amendment, Borrower represents and warrants to each
Lender
that:
(a) Borrower is duly authorized to execute and deliver this Amendment and
each of the other Amendment Documents and is duly authorized to perform its
obligations under the Loan Documents. Borrower has duly taken all corporate
action necessary to authorize the execution and delivery of this Amendment and
each of the other Amendment Documents and to authorize the performance of the
obligations of Borrower hereunder and thereunder.
(b) The execution and delivery by Borrower of this Amendment and each of
the other Amendment Documents, the performance by Borrower of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby do not and will not conflict with any provision of law,
statute, rule or regulation or of the articles of incorporation and bylaws of
Borrower, or of any material agreement, judgment, license, order or permit
applicable to or binding upon Borrower, or, except as provided in the Security
Agreement, result in the creation of any lien, charge or encumbrance upon any
assets or properties of Borrower. Except for those which have been obtained, no
consent, approval, authorization or order of any court or governmental authority
or third party is required in connection with the execution and delivery by
Borrower of this Amendment and each of the other Amendment Documents or to
consummate the transactions contemplated hereby and thereby.
(c) When duly executed and delivered, each of this Amendment and the other
Amendment Documents will be a legal and binding obligation of Borrower,
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights and by equitable principles of general application.
4.2 REPRESENTATIONS AND WARRANTIES OF LENDERS. Each Lender hereby
represents and warrants to Borrower that it owns and holds as of the date hereof
the Debentures purchased by it under the Original Agreement, and is duly
authorized to execute and deliver this Amendment.
ARTICLE V
MISCELLANEOUS
5.1 RATIFICATION OF AGREEMENTS. The Original Agreement as hereby amended
is hereby ratified and confirmed in all respects. The Loan Documents, as they
may be amended or
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affected by the various Amendment Documents, are hereby ratified and confirmed
in all respects. Any reference to the Loan Agreement in any Loan Document shall
be deemed to be a reference to the Original Agreement as hereby amended. Any
reference to the Debentures in any Loan Document shall be deemed to be a
reference to the Debentures are hereby amended. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of Lenders under the Loan
Agreement, the Debentures or any other Loan Document nor constitute a waiver of
any provision of the Loan Agreement, the Debentures or any other Loan Document.
5.2 SURVIVAL OF AGREEMENTS. All representations, warranties, covenants and
agreements of Borrower herein shall survive the execution and delivery of this
Amendment and the performance hereof, and shall further survive until all of the
Obligations are paid in full. All statements and agreements contained in any
certificate or instrument delivered by Borrower hereunder or under the Credit
Agreement to any Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under this Amendment
and under the Loan Agreement.
5.3. LOAN DOCUMENTS. This Amendment and each of the other Amendment
Documents are each a Loan Document, and all provisions in the Loan Agreement
pertaining to Loan Documents apply hereto and thereto.
5.4. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance the laws of the State of Texas and any applicable laws of the United
States of America in all respects, including construction, validity and
performance.
5.5. COUNTERPARTS; FAX. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment. This Amendment and the other Amendment Documents may be validly
executed by facsimile or other electronic transmission.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
PLAY BY PLAY TOYS & NOVELTIES,
INC.
By:__________________________________
Name:
Title:
RENAISSANCE US GROWTH &
INCOME TRUST PLC
By:__________________________________
Name:
Title:
RENAISSANCE CAPITAL GROWTH &
INCOME FUND III, INC.
By:__________________________________
Name:
Title:
BANC ONE CAPITAL PARTNERS II,
LLC
By: Banc One Capital Partners
Holdings,
Ltd., Manager
By:__________________________________
Name:
Title:
RENAISSANCE CAPITAL GROUP,
INC., AS AGENT
By:__________________________________
Name:
Title:
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