UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JUNE 20, 1996
(JULY 5, 1996)
Commission file number 0-26374
PLAY BY PLAY TOYS & NOVELTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Texas 74-2623760
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4400 Tejasco
SAN ANTONIO, TEXAS 78218-0267
(Address of principal executive offices and zip code)
(210) 829-4666
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously reported, on May 1, 1996, Play By Play Toys & Novelties,
Inc. ("the Company", which term shall be deemed to include its subsidiaries,
unless the context indicates otherwise) entered into an Asset Purchase Agreement
(the "Agreement") with Ace Novelty Co., Inc., Specialty Manufacturing Ltd., ACME
Acquisition Corp., Benjamin H. Mayers, Lois E. Mayers, Ronald S. Mayers, Karen
Gamoran and Beth Weisfield (collectively "Ace") to acquire, through the
Company's wholly owned subsidiary, Ace Novelty Acquisition Co., Inc., ("ANAC")
certain of the assets and assume certain of the liabilities of Ace (the
"Acquisition"). On June 20, 1996, the Company completed the Acquisition. Under
the terms of the Agreement, the Company acquired substantially all of the
operating assets, business operations and facilities of Ace, including four
warehouse and distribution centers located in Bellevue, Washington; Los Angeles,
California; Chicago, Illinois; and Burnaby, British Columbia, Canada for
approximately $46.2 million, consisting of approximately $39.6 million in cash,
$2.9 million in subordinated debt and the assumption of approximately $3.7
million of certain liabilities of Ace, primarily trade payables and accrued
liabilities. The Company or ANAC have entered into employment agreements with
Ronald S. Mayers and James A. Weisfield, former executive officers of Ace
Novelty Co., Inc. and Saul Gamoran, a former consultant to Ace. In connection
with the acquisition, certain principals and selling stockholders executed
non-compete agreements in favor of the Company. In addition, the Company issued
a Warrant to Purchase Common Stock entitling Ace to purchase up to 35,000 shares
of the Company's common stock at a price per share equal to $14.90 exercisable
after one year from the acquisition closing date, or earlier in the event the
Company effects certain registration of the Company's common stock, if any.
Pursuant to the Agreement, the Company acquired substantially all of Ace's
accounts receivable, inventory, property, equipment, real estate, intellectual
property and certain other assets. The real estate acquired by the Company in
connection with the Acquisition includes the land and building comprising Ace's
warehouse and distribution center in Chicago, Illinois, and an undivided 51%
interest in the land and building comprising Ace's warehouse and distribution
center in Los Angeles, California. The Company has leased the remaining
undivided 49% interest in the Los Angeles facility as well as the Bellevue,
Washington warehouse and distribution center from affiliates of Ace. Pursuant to
the Agreement, the Burnaby, British Columbia, Canada warehouse and distribution
center, as well as certain other properties situated throughout the United
States previously operated by Ace, were assigned to and assumed by the Company
in connection with the Acquisition. The Company intends to use such facilities
and equipment substantially in the same manner as they were used by Ace. The
intellectual property acquired from Ace consists principally of the trademarks
and logos of "Ace" and "Acme." As a condition of closing, Ace was required to
obtain consents to assignment from Warner Bros. relative to Looney Tunes
licenses for the mass market, amusement industry and the Space Jam animated/live
action motion picture starring basketball superstar Michael Jordan and the
Looney Tunes characters. In addition, Ace agreed to use reasonable best efforts
to obtain consents to assignment covering the remaining licenses and other
contracts acquired from Ace in connection with the Acquisition.
The debt incurred by the Company in connection with the acquisition
consisted of (i) approximately $34.0 million in revolving credit and term loans
under a credit agreement dated June 20, 1996 (the "Credit Agreement") among
Chemical Bank (the "Bank") as agent, Heller Financial, Inc. and Texas Commerce
Bank N.A. (the "Lenders"), and the Company, ANAC and Newco Novelty, Inc., a
wholly owned subsidiary of ANAC, as borrowers, (ii) a $3.0 million subordinated
loan from the Company's Chairman of the Board and Chief Executive Officer,
Arturo G. Torres, and (iii) a $2.9 million subordinated loan from Ace. The
Credit Agreement provides for a revolving credit, term loan and letter of credit
facility (the "Credit Facility") with a maximum aggregate commitment of $65.0
million. The Credit Facility replaced the Company's $10.0 million Revolving
Credit and Term Loan Agreement with letter of credit facility with NationsBank
of Texas, N.A. The Credit Facility provides for a $53.0 million revolving line
of credit commitment, subject to availability under a borrowing base calculated
by reference to the level of eligible accounts receivable and inventory, and
includes a $15.0 million sublimit for the issuance of letters of credit. The
revolving credit facility matures on June 20, 1998. The Credit Facility also
includes a $12.0 million acquisition term loan which requires sixty equal
monthly principal payments of $200,000 plus accrued interest beginning August 1,
1996, with the entire unpaid balance being due and payable on June 20, 2001.
Interest on borrowings outstanding under the revolving line of credit is
payable monthly at an annual rate equal to, or at the Company's option, (i) the
Bank's Alternate Base Rate (as defined below) plus 0.50% or (ii) the LIBOR rate
plus 2.50%. For amounts outstanding under the term loans, interest is payable
monthly in arrears at an annual rate equal to, at the Company's option, (i) the
Bank's Alternate Base Rate (as defined below) plus 0.75% or (ii) the LIBOR rate
plus 2.75%. The Bank's "Alternate Base Rate", means, as of any day of
determination thereof, a rate per annum equal to the sum of (a) the greater of
(i) the Prime Rate (as defined in the Credit Facility) in effect on a such day,
(ii) the Federal Funds Effective Rate (as defined in the Credit Facility) in
effect for such a day plus 1/2 of 1.0%, and (iii) the Base CD Rate (as defined
in the Credit Facility) in effect for such a day plus 1.0%. In connection with
the Credit Facility, the Company paid a structuring fee of $585,000 to the Bank
and the Lenders. Further, the Company agreed to pay a quarterly fee of 0.50% of
the unused portion of the revolving credit commitment, a fee of 2.0% of the face
amount of letters of credit when issued and an annual administrative fee equal
to $100,000.
The Credit Facility is secured by a first lien on substantially all of the
Company's assets, including 65% of the issued and outstanding stock of its
foreign subsidiaries. The Credit Facility excludes the assets of the Company's
foreign subsidiaries, but requires the Company to maintain certain financial
ratios, including tangible net worth, leverage and debt coverage ratios.
Negative covenants include restrictions on new indebtedness, sale or transfer of
assets, advances to third parties and advances to foreign subsidiaries in excess
of $650,000 per fiscal year during the term of the Credit Facility. The
Company's ability to pay dividends is restricted by the aforementioned
covenants. In addition, the Credit Facility prohibits Mr. Torres from
significantly reducing his ownership in the Company below specified levels,
which levels are reduced in the event of a secondary public offering of the
Company's common stock.
To partially finance the Acquisition, Mr. Torres provided a $3.0 million
unsecured demand loan. Interest on this loan is payable monthly at the Bank's
Alternate Base Rate and repayment of the note is subordinated to payment of the
Credit Facility pursuant to the terms of a Subordination Agreement dated June
20, 1996 by and among Mr. Torres, the Company and the Bank. Outstanding and
unpaid principal and interest on the Torres loan is payable no later than June
21, 1998, however, earlier repayment of the note is permissible contingent upon
the Company's attainment of certain financial ratios and upon the receipt and
acceptance by the Bank of the Company's monthly unaudited financial statements
for the month ending November 30, 1996.
As part of the consideration for the Acquisition, Ace received a $2.9
million note from the Company. The first installment on the Ace note in the
amount of $600,000 is due and payable two business days following the
determination of the final balance sheet of Ace and accrues interest at 8.0% per
annum. The second installment on the Ace note in the amount of $1.0 million is
due and payable on December 20, 1996, of which $500,000 is subject to offset
against any claims by the Company against Ace. The third installment on the Ace
note in the amount of $500,000 is due June 20, 1997 and is also subject to
offset against any claims by the Company against Ace. The fourth installment on
the Ace note in the amount of $800,000 is due and payable on June 21, 1998 and
is also subject to offset against any claims by the Company against Ace.
Interest on the Ace note, other than with respect to the first installment of
$600,000, is payable monthly in arrears at a rate of 12.0% per annum during the
first six months and 10.0% per annum thereafter, except with respect to the
$800,000 payment due June 21, 1998, which will continue to bear interest at
12.0% per annum. Payment of all obligations under the Ace note is subordinate to
payment of the Credit Facility. The note is secured by a security interest in
certain assets of the Company which is also subordinate to those securing the
Credit Facility.
ITEM 7. FINANCIAL STATEMENTS, FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired It is impractical to
include the required financial statements, such financial information
will be filed in an amendment to this Form 8-K as soon as
practicable, but no later than September 3, 1996.
(b) Pro Forma Financial Information
It is impractical to include the required financial statements, such
financial information will be filed in an amendment to this Form 8-K
as soon as practicable, but no later than September 3, 1996.
(c) Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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2.1 Asset Purchase Agreement dated May 1, 1996 by and among Ace
Novelty Acquisition Co., Inc. a Texas corporation ("Buyer"),
Play By Play Toys & Novelties, Inc., a Texas corporation and
the parent corporation of Buyer ("PBYP"), Ace Novelty Co.,
Inc., a Washington corporation ("ACE"), Specialty
Manufacturing Ltd., a British Columbia, Canada corporation
("Specialty"), ACME Acquisition Corp., a Washington
corporation ("ACME"), and Benjamin H. Mayers and Lois E.
Mayers, husband and wife, Ronald S. Mayers, a married
individual, Karen Gamoran, a married individual, and Beth
Weisfield, a married individual (collectively,
"Stockholders").
2.2 Amendment No. 1 to Asset Purchase Agreement dated June 20,
1996 by and Among Buyer, PBYP, ACE, Specialty, ACME and
Stockholders.
4 Play By Play Toys & Novelties, Inc. Warrant to Purchase Common
Stock.
10.1 Credit Agreement dated June 20, 1996, by and among Play By
Play Toys & Novelties, Inc., Ace Novelty Acquisition Co.,
Inc., Newco Novelty, Inc. and Chemical Bank, a New York
banking corporation as agent for the lenders.
10.2 Promissory Note dated June 20, 1996, of Play By Play Toys &
Novelties, Inc. payable to the order of Arturo G. Torres in
the principal sum of $3,000,000.
10.3 Subordination Agreement dated June 20, 1996, by and among
Arturo Torres , Play By Play Toys & Novelties, Inc. and
Chemical Bank.
10.4 Loan Agreement dated June 20, 1996 by and between Arturo G.
Torres and Play By Play Toys & Novelties, Inc.
10.5 Promissory Note dated June 20, 1996, of Ace Novelty
Acquisition Co., Inc. payable to the order of Ace Novelty Co.,
Inc. in the principal sum of $2,900,000.
99.1 (1) Financial Statements of business acquired.
99.2 (1) Pro forma financial information.
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(1) To be filed as soon as practicable, but no later than September 3, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
PLAY BY PLAY TOYS & NOVELTIES, INC.
By: /s/
Joe M. Guerra
CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY
Dated: July 5, 1996
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE
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2.1 Asset Purchase Agreement dated May 1, 1996 by and among Ace Novelty
Acquisition Co., Inc. a Texas corporation ("Buyer"), Play By Play Toys
& Novelties, Inc., a Texas corporation and the parent corporation of
Buyer ("PBYP"), Ace Novelty Co., Inc., a Washington corporation
("ACE"), Specialty Manufacturing Ltd., a British Columbia, Canada
corporation ("Specialty"), ACME Acquisition Corp., a Washington
corporation ("ACME"), and Benjamin H. Mayers and Lois E. Mayers,
husband and wife, Ronald S. Mayers, a married individual, Karen
Gamoran, a married individual, and Beth Weisfield, a married
individual (collectively, "Stockholders").
2.2 Amendment No. 1 to Asset Purchase Agreement dated June 20, 1996 by and
Among Buyer, PBYP, ACE, Specialty, ACME and Stockholders.
4 Play By Play Toys & Novelties, Inc. Warrant to Purchase Common Stock.
10.1 Credit Agreement dated June 20, 1996, by and among Play By Play Toys &
Novelties, Inc., Ace Novelty Acquisition Co., Inc., Newco Novelty,
Inc. and Chemical Bank, a New York banking corporation as agent for
the lenders.
10.2 Promissory Note dated June 20, 1996, of Play By Play Toys & Novelties,
Inc. payable to the order of Arturo G. Torres in the principal sum of
$3,000,000.
10.3 Subordination Agreement dated June 20, 1996, by and among Arturo
Torres , Play By Play Toys & Novelties, Inc. and Chemical Bank.
10.4 Loan Agreement dated June 20, 1996 by and between Arturo G. Torres and
Play By Play Toys & Novelties, Inc.
10.5 Promissory Note dated June 20, 1996, of Ace Novelty Acquisition Co.,
Inc. payable to the order of Ace Novelty Co., Inc. in the principal
sum of $2,900,000.
99.1(1) Financial Statements of business acquired.
99.2(1) Pro forma financial information.
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(1) To be filed as soon as practicable, but no later than September 3, 1996.