EXHIBIT 10.6
AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT (this "AMENDMENT"), is
entered into on this 7th day of January, 2000, by and between SUNROCK CAPITAL
CORP., a Delaware corporation ("LENDER"), and DSI TOYS, INC., a Texas
corporation ("BORROWER").
RECITALS
A. Borrower and Lender have entered into that certain Loan and Security
Agreement, dated as of February 2, 1999, as amended by that certain Amendment
No. 1 to Loan and Security Agreement, dated effective as of June 30, 1999, by
and between Lender and Borrower (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 December 30, 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 "MERGER") contemplated by a Merger Agreement between Borrower,
Meritus Industries, Inc., a New Jersey corporation, Meritus Industries, Ltd., a
Hong Kong corporation, Walter S. Reiling and Susan Reiling.
C. The Letter Agreement requires certain amendments to the Loan Agreement.
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.
ARTICLE II
AMENDMENTS
2.01 DEFINITION OF NET INCOME. SECTION 1 of the Loan Agreement is hereby
amended by adding the following SUBSECTIONS 1.31:
1.31 "Net Income" shall mean as to any Person, as of any date of
determination, the net income (or loss) of such Person and its
Subsidiaries (if any), calculated on a consolidated basis and in
accordance with GAAP, for the period commencing on the first day of the
fiscal year in which the date of determination occurs and ending on such
date of determination.
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2.02 DEFINITION OF SECOND AMENDMENT. SECTION 1 of the Loan Agreement
is hereby amended by adding the following SUBSECTION 1.32:
1.32 "Second Amendment" shall mean that certain Amendment No. 2 to
Loan and Security Agreement, dated as of January 7, 2000, by and between
Lender and Borrower.
2.03 AMENDMENT TO PERMIT SUBORDINATED INDEBTEDNESS. SECTION 9.9 of the
Loan Agreement is hereby amended and restated to read in its entirety as
follows:
0.9 INDEBTEDNESS.
(a) Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations
or indebtedness, EXCEPT: (a) the Obligations; (b) trade obligations and
normal accruals in the ordinary course of business not yet due and
payable, or with respect to which the Borrower is contesting in good faith
the amount or validity thereof by appropriate proceedings diligently
pursued and available to Borrower, and with respect to which adequate
reserves have been set aside on its books; (c) purchase money indebtedness
(including capital leases) to the extent not incurred or secured by liens
(including capital leases) in violation of any other provision of this
Agreement; (d) indebtedness expressly permitted by SECTIONS 9.9(B) AND (C)
below and subject to the conditions set forth in such sections; and (e)
the indebtedness set forth on Schedule 9.9 hereto; PROVIDED, THAT, (i)
Borrower may only make regularly scheduled payments of principal and
interest in respect of such indebtedness in accordance with the terms of
the agreement or instrument evidencing or giving rise to such indebtedness
as in effect on the date hereof, (ii) Borrower shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (iii) Borrower shall furnish to
Lender all notices or demands in connection with such indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof,
or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
(b) Borrower may incur and suffer to exist unsecured
indebtedness of Borrower to Walter S. Reiling and Susan Reiling, evidenced
by that certain Subordinated Secured Promissory Note, dated January 7,
2000, issued by Borrower payable to the order of such individuals, which
indebtedness is subject and subordinate in right of payment to the right
of Lender to receive the prior final payment and satisfaction in full of
all of the Obligations; PROVIDED, THAT: (i) the principal amount of such
indebtedness shall not exceed $1,690,000.00, less the aggregate amount of
all repayments, repurchases or redemptions, whether optional or mandatory
in respect thereof, plus interest thereon at the rate provided for in such
agreement or instrument as in effect on the date hereof, (ii) Borrower
shall not, directly or indirectly, make any payments in respect of such
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indebtedness, including, but not limited to, any prepayments or other
non-mandatory payments, except to the extent expressly permitted under
that certain Subordination Agreement, dated January 7, 2000, between
Walter S. Reiling and Susan Reiling as acknowledged and received by
Borrower and Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change any terms of such indebtedness or any agreement,
document or instrument related thereto, or (B) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose except as otherwise permitted
under any subordination agreement with Lender with respect to such
indebtedness, and (iii) Borrower shall furnish to Lender all notices,
demands or other materials concerning such indebtedness either received by
Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the
case may be.
(c) Borrower may incur and suffer to exist unsecured
indebtedness of Borrower to MVII, LLC, a California limited liability
company, evidenced by that certain Promissory Note, dated January 7, 2000,
issued by Borrower payable to the order of MVII, LLC (the "MVII NOTE"),
which indebtedness is subject and subordinate in right of payment to the
right of Lender to receive the prior final payment and satisfaction in
full of all of the Obligations; PROVIDED, THAT: (i) the principal amount
of such indebtedness shall not exceed $5,000,000.00, less the aggregate
amount of all repayments, repurchases or redemptions, whether optional or
mandatory in respect thereof, plus interest thereon at the rate provided
for in such agreement or instrument as in effect on the date hereof , (ii)
Borrower shall not, directly or indirectly, make any payments in respect
of such indebtedness, including, but not limited to, any prepayments or
other non-mandatory payments, except to the extent expressly permitted
under that certain Subordination Agreement, dated January 4, 2000, by and
among E. Thomas Martin and MVII, LLC and Lender, as acknowledged and
received by Borrower, and Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change any terms of such indebtedness or any
agreement, document or instrument related thereto, or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose except as otherwise
permitted under any subordination agreement with Lender with respect to
such indebtedness, and (iii) Borrower shall furnish to Lender all notices,
demands or other materials concerning such indebtedness either received by
Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the
case may be. Notwithstanding SECTION 9.9(C)(I) above, Borrower shall be
permitted to increase the outstanding principal amount of the MVII Note
from time to time by an amount not to exceed $500,000 in the aggregate for
all such increases; PROVIDED, THAT, the stated interest rate of such
indebtedness shall not be increased, the frequency of payments shall not
be increased and the principal amount of the MVII Note, as increased from
time to time, shall be payable no more frequently than monthly or in
amounts greater than $100,000. Borrower shall promptly provide written
notice to Lender of an increase in the stated principal amount of the MVII
Note pursuant to the authority granted in this SECTION 9.9(C).
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2.04 AMENDMENT TO NET WORTH. SUBSECTION 9.14 of the Loan Agreement is
hereby amended and restated to read in its entirety as follows:
9.14 NET WORTH. The Borrower will not permit its Net Worth to be
less than the following respective amounts at the following respective
dates:
DATE MINIMUM NET WORTH
-------- -----------------
12/31/99 $ 6,500,000
03/31/00 $ 6,000,000
06/30/00 $ 6,500,000
09/30/00 $10,000,000
12/31/00 $10,500,000
03/31/01 $ 8,500,000
06/30/01 $ 9,000,000
09/30/01 $12,500,000
12/31/01 $13,000,000
03/31/02 $11,000,000
06/30/02 $11,500,000
09/30/02 $15,000,000
12/31/02 $15,500,000
2.05 FISCAL YEAR OF BORROWER. SECTION 9 of the Loan Agreement is hereby
amended by adding the following SUBSECTION 9.18:
9.18 BORROWER'S FISCAL YEAR. Borrower's fiscal year shall be a
period of 365 or 366 consecutive days, as appropriate, beginning on the
first day after the last day of the immediately preceding fiscal year and
ending on the next-following December 31, beginning with the 365
consecutive days ending on December 31, 1999.
2.06 MINIMUM NET INCOME. SECTION 9 of the Loan Agreement is hereby mended
by adding the following SUBSECTION 9.19:
9.19 NET INCOME. The Borrower will not permit its Net Income to be
less than the following respective cumulative amounts for the periods
ended as of the following respective dates, each of which dates shall be a
date of determination for purposes of the definition of Net Income set
forth at SUBSECTION 1.31 hereof:
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DATE NET INCOME
-------- ------------
03/31/00 $(2,000,000)
06/30/00 $(1,500,000)
09/30/00 $ 2,000,000
12/31/00 $ 2,500,000
03/31/01 $(2,000,000)
06/30/01 $(1,500,000)
09/30/01 $ 2,000,000
12/31/01 $ 2,500,000
03/31/02 $(2,000,000)
06/30/02 $(1,500,000)
09/30/02 $ 2,000,000
12/31/02 $ 2,500,000
2.07 AMENDMENT OF SECTION 10.1. SECTIONS 10.1(M) and 10.1(N) of the Loan
Agreement are hereby amended and restated in their entirety as set forth below,
and a new SECTION 10.1(O) is hereby added to SECTION 10.1 as follows:
(m) there shall be an event of default under any of the other
Financing Agreements;
(n) DSI (HK) Limited shall fail to maintain its existing
credit facility with State Street Bank and Trust Company or one or more
credit facilities acceptable to Lender, in either case upon such terms and
conditions as Lender may find adequate to provide financing for the
continued operations of DSI (HK) Limited in the manner then conducted; or
(o) Borrower shall make any payment to the holders of the
subordinated indebtedness permitted pursuant to SECTIONS 9.9(B) or 9.9(C)
of this Agreement at a time when such payments are not permitted under the
subordination agreements entered into between Lender and the holders of
such subordinated indebtedness and acknowledged by Borrower.
2.08 AMENDMENT TO THE TERM OF THE LOAN AGREEMENT. SUBSECTION 12.1(A) of
the Loan Agreement is hereby amended and restated to read in its entirety as
follows:
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on February 2, 2003
(the "Termination Date"). On the Termination Date Borrower hereby promises
to pay to Lender, in full, all outstanding and unpaid Obligations and
shall furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including checks or other
payments provisionally credited to the Obligations
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and/or as to which Lender has not yet received final and indefeasible
payment. Such payments in respect of the Obligations and cash collateral
shall be remitted by wire transfer in Federal funds to such bank account
of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the
next business day, if the amounts so paid by Borrower to the bank account
designated by Lender are received in such bank account later than 12:00
noon, Philadelphia, Pennsylvania, time.
2.09 AMENDMENT TO EARLY TERMINATION FEE. SUBSECTION 12.1(C) of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of
Lender's lost profits as a result thereof, Borrower agrees to pay to
Lender, upon the effective date of such termination, an early termination
fee in the amount set forth below if such termination is effective in the
period indicated:
AMOUNT PERIOD
----------------------------- -------------------------------
(iv) 3.00% of Maximum Credit From the date of the Second
Amendment to and including
February 2, 2001
(v) 2.00% of Maximum Credit From February 3, 2001 to and
including February 2, 2002
(vi) 1.00% of Maximum Credit From and after February 3, 2002
but excluding the Termination
Date
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower
agrees that it is reasonable under the circumstances currently existing.
In addition, Lender shall be entitled to such early termination fee upon
the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h) hereof, even if Lender does not exercise its right to terminate
this Agreement, but elects, at its option, to provide financing to
Borrower or permit the use of cash collateral under the United States
Bankruptcy Code. Borrower may elect to terminate this Agreement as of any
date; provided, that Borrower shall provide Lender with fifteen (15) days'
prior written notice of such election (which notice shall specify the
effect date of such termination) and, on such date of termination, pay to
Lender all amounts required to be paid upon termination of this Agreement
in accordance with this SECTION 12.1. Any notice of termination given by
Borrower to Lender pursuant to this SECTION 12.1 shall be irrevocable and
binding, unless consented to in writing by Lender. The early termination
fee provided for in this SECTION 12.1 shall be deemed included in the
Obligations.
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2.10 DELETION OF SECTION 12.1(D). SECTION 12.1(D) of the Loan Agreement
is hereby deleted in its entirety.
2.11 AMENDMENT OF SCHEDULE 9.9. Schedule 9.9 to the Loan Agreement is
hereby amended by deleting therefrom all references to indebtedness owing to
Bank One, Texas, NA.
ARTICLE III
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
3.01 RATIFICATIONS. Except as expressly amended hereby, the terms and
provisions of the Loan Agreement and 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.
3.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) all corporate proceedings taken in connection with
Merger and all documents, instruments and other legal matters incident thereto
conform in all material respects to the Merger Agreement (as defined in the
Letter Agreement), and concurrently with the execution of this Amendment,
Sunrock has been provided copies of all such documentation; (b) the execution,
delivery and performance of this Amendment has been authorized by all requisite
corporate action on the part of Borrower and does not violate the Articles of
Incorporation or Bylaws of Borrower; (c) the representations and warranties
contained in the Loan Agreement, as amended hereby, are true and correct on and
as of the date hereof; (d) as of the date hereof no Event of Default under the
Loan Agreement has 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 (e) 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 IV
MISCELLANEOUS PROVISIONS
4.01 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.
4.02 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.
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4.03 EXPENSES OF LENDER. 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.
4.04 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.
4.05 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.
4.06 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.
4.07 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
4.08 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.
4.09 FINAL AGREEMENT. THE FINANCING AGREEMENTS (INCLUDING THE LOAN
AGREEMENT, THIS AMENDMENT AND THE LETTER AGREEMENT), AS AMENDED HEREBY,
REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF IN THE DATE THIS AMENDMENT IS EXECUTED. THE FINANCING AGREEMENTS,
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.
4.10 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
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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 FINANCING AGREEMENT, DOCUMENT OR
INSTRUMENT ENTERED INTO IN CONNECTION THEREWITH.
[Signature Page Follows]
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Executed as of this ___ day of January, 2000.
DSI TOYS, INC.
By: /s/ ROBERT L. WEISGARBER
Name: Robert L. Weisgarber
Title: CFO/Vice President
SUNROCK CAPITAL CORP.
By: /s/ ROBERT J. KATCHA
Name: Robert J. Katcha
Title: Senior Vice President