EXHIBIT 10.9
CONVERTIBLE LOAN AGREEMENT
BY AND AMONG
PLAY BY PLAY TOYS & NOVELTIES, INC.
AS BORROWER
AND
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.,
RENAISSANCE US GROWTH & INCOME TRUST PLC
AND
BANC ONE CAPITAL PARTNERS II, LTD.
AS LENDERS
AND
RENAISSANCE CAPITAL GROUP, INC.,
AS AGENT FOR CERTAIN LENDERS
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITION OF TERMS...................................................................................1
Section 1.01. Definitions................................................................................1
Section 1.02. Other Definition Provisions................................................................9
ARTICLE II - LOAN PROVISIONS......................................................................................9
Section 2.01. The Loan...................................................................................9
Section 2.02. Use of Proceeds...........................................................................10
Section 2.03. Interest Rate and Interest Payments.......................................................10
Section 2.04. Maturity..................................................................................10
Section 2.05. Mandatory Principal Installments..........................................................10
Section 2.06. Redemption................................................................................11
Section 2.07. Fees and Expenses.........................................................................11
Section 2.08. Placement Fees............................................................................11
Section 2.09. Taxes.....................................................................................11
Section 2.10 Conversion Rights..........................................................................12
ARTICLE III - CONDITIONS PRECEDENT...............................................................................12
Section 3.01. Document Requirements.....................................................................12
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER..........................................................14
Section 4.01. Organization and Good Standing............................................................14
Section 4.02. Authorization and Power...................................................................14
Section 4.03. No Conflicts or Consents..................................................................14
Section 4.04. Enforceable Obligations...................................................................15
Section 4.05. No Liens..................................................................................15
Section 4.06. Financial Condition.......................................................................15
Section 4.07. No Default................................................................................15
Section 4.08. Material Agreements.......................................................................15
Section 4.09. No Litigation.............................................................................16
Section 4.10. Taxes.....................................................................................16
Section 4.11. Capitalization............................................................................16
Section 4.12. Use of Proceeds...........................................................................16
Section 4.13. Employee Benefit and Incentive Plans; ERISA...............................................17
Section 4.14. Compliance with Law.......................................................................17
Section 4.15. Compliance with Environmental Requirements................................................17
Section 4.16. Shares Issuable Upon Conversion...........................................................17
Section 4.17. Insider...................................................................................17
Section 4.18. Subsidiaries..............................................................................18
Section 4.19. Casualties................................................................................18
Section 4.20. Investment Company Act....................................................................18
Section 4.21. Sufficiency of Capital....................................................................18
Section 4.22. Corporate Names...........................................................................18
Section 4.23. Insurance.................................................................................19
Section 4.24. Licenses, Trademarks, Service Marks and Copyrights.......................................19
Section 4.25. Survival of Representations and Warranties................................................19
Section 4.26. Full Disclosure...........................................................................19
ii
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER....................................................................20
Section 5.01. Financial Statements, Reports and Documents...............................................20
Section 5.02. Preparation of Budget.....................................................................21
Section 5.03. Payment of Taxes and Other Indebtedness...................................................21
Section 5.04. Maintenance of Existence and Rights; Conduct of Business..................................21
Section 5.05. SEC Filings...............................................................................22
Section 5.06. Notice....................................................................................22
Section 5.07. Compliance with Loan Documents............................................................22
Section 5.08. Compliance with Material Agreements.......................................................22
Section 5.09. Operations and Properties.................................................................22
Section 5.10. Books and Records; Access.................................................................22
Section 5.11. Compliance with Law.......................................................................23
Section 5.12. Insurance.................................................................................23
Section 5.13. Authorizations and Approvals..............................................................23
Section 5.14. ERISA Compliance..........................................................................23
Section 5.15. Further Assurances........................................................................23
Section 5.16. Indemnity by Borrower.....................................................................24
Section 5.17. Reservation of Shares.....................................................................25
Section 5.18. Standby Agreement........................................................................25
Section 5.19. Shareholders' Meeting or Consent.........................................................25
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER......................................................................25
Section 6.01. Limitation on Indebtedness................................................................26
Section 6.02. Limitation on Liens.......................................................................26
Section 6.03. Limitation on Investments.................................................................26
Section 6.04. Alteration of Material Agreements.........................................................26
Section 6.05. Certain Transactions......................................................................26
Section 6.06. Limitations on Acquisition of Nonrelated Business.........................................27
Section 6.07. Limitation on Sale of Properties..........................................................27
Section 6.08. Fiscal Year and Accounting Method.........................................................27
Section 6.09. Liquidation...............................................................................27
Section 6.10. No Amendments to Articles of Incorporation or Bylaws......................................27
Section 6.11. Executive Compensation....................................................................27
Section 6.12. Restricted Payments.......................................................................28
Section 6.13. Consolidation or Merger..................................................................28
Section 6.14. Ownership of Subsidiaries................................................................28
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS....................................................28
Section 7.01. Financial Ratios..........................................................................28
ARTICLE VIII - EVENTS OF DEFAULT.................................................................................29
Section 8.01. Events of Default.........................................................................29
Section 8.02. Remedies Upon Event of Default............................................................30
Section 8.03. Performance by the Lenders................................................................30
Section 8.04. Payment of Expenses Incurred by the Lenders...............................................31
iii
ARTICLE IX - REGISTRATION RIGHTS.................................................................................31
Section 9.01. Demand Registration......................................................................31
Section 9.02. "Piggy-Back" Registration................................................................32
Section 9.03. Obligations of the Borrower..............................................................33
Section 9.04. Furnish Information......................................................................34
Section 9.05. Expenses of Registration.................................................................35
Section 9.06. Indemnification Regarding Registration Rights............................................35
Section 9.07. Reports Under the 1934 Act...............................................................37
Section 9.08. Assignment of Registration Rights........................................................38
Section 9.09. Other Matters............................................................................38
Section 9.10. Termination of Rights....................................................................39
ARTICLE X - INFORMATION; MEETINGS WITH MANAGEMENT................................................................39
Section 10.01. Information.............................................................................39
Section 10.02. Meetings with Management.................................................................39
Section 10.03. Nonliability of the Lenders..............................................................39
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS..................................................................39
Section 11.01. The Lenders' Representations and Warranties to Other Lenders.............................39
Section 11.02. Waiver of Loan Provisions or Interest or Principal Payments..............................40
Section 11.03. Agency..................................................................................40
ARTICLE XII - MISCELLANEOUS......................................................................................42
Section 12.01. Strict Compliance........................................................................42
Section 12.02. Waivers and Modifications................................................................42
Section 12.03. Limitation on Liability..................................................................42
Section 12.04. Choice of Forum; Consent to Service of Process and Jurisdiction..........................42
Section 12.05. Arbitration..............................................................................43
Section 12.06. Invalid Provisions.......................................................................44
Section 12.07. Maximum Interest Rate....................................................................45
Section 12.08. Participations and Assignments of the Debentures.........................................45
Section 12.09. Confidentiality..........................................................................46
Section 12.10. Binding Effect...........................................................................46
Section 12.11. No Third Party Beneficiary...............................................................46
Section 12.12. Entirety.................................................................................47
Section 12.13. Headings.................................................................................47
Section 12.14. Survival.................................................................................47
Section 12.15. Multiple Counterparts....................................................................47
Section 12.16. Notices..................................................................................47
Section 12.17. Governing Law............................................................................49
iv
AGREEMENT
THIS AGREEMENT, dated as of JULY 3, 1997, by and among PLAY BY PLAY
TOYS & NOVELTIES, INC., a Texas corporation, as borrower (the "BORROWER"),
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC., a Texas corporation,
RENAISSANCE US GROWTH & INCOME TRUST PLC, a public limited company registered in
England and Wales, and BANC ONE CAPITAL PARTNERS II, LTD., an Ohio limited
liability company (individually referred to as Renaissance III, Renaissance PLC,
and BOCPII, respectively, and together with any permitted assignees or
successors in interest individually referred to as each or any "LENDER" and
collectively referred to as the "LENDERS"), and RENAISSANCE CAPITAL GROUP, INC.,
a Texas corporation, as agent (the "AGENT") for Renaissance Capital Growth &
Income Fund III and Renaissance US Growth & Income Trust PLC).
WITNESSETH:
WHEREAS, Borrower seeks to obtain FIFTEEN MILLION DOLLARS ($15,000,000)
from the Lenders through the issuance of Debentures to be used for the payment
debt and for working capital and general corporate purposes in accordance with
Section 2.02 hereof; and
WHEREAS, Borrower has requested that the Lenders provide such loan as
herein provided, and that the Lenders are willing to furnish such to Borrower
upon the terms and subject to the conditions and for the considerations
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other valuable consideration, receipt and sufficiency of which
is acknowledged, the parties hereto agree as follows:
ARTICLE I - DEFINITION OF TERMS
SECTION 1.01. DEFINITIONS.
(a) For the purposes of this Agreement, the following terms shall have
the respective meanings assigned to them in this Article I or in the section or
recital referred to below:
"ACQUISITION INDEBTEDNESS" shall mean Indebtedness or preferred stock
of a Subsidiary incurred in connection with, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Subsidiary became a Subsidiary or
was acquired by the Borrower.
"AFFILIATE" with respect to any Person shall mean a person that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person.
"BOCPII" shall mean Banc One Capital Partners II, Ltd., an Ohio limited
liability company.
"CAPITAL EXPENDITURE" shall mean an expenditure for assets that is
properly classifiable as a capital expenditure in accordance with generally
accepted accounting principles.
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AGREEMENT (CONTINUED)
"CAPITAL LEASE" shall mean any lease of property, real or personal,
which would be properly classifiable as a capital lease in accordance with
generally accepted accounting principles.
"COMMON STOCK" shall mean Borrower's common stock, no par value.
"CONSOLIDATED CURRENT ASSETS" shall mean, for any Person as of any
date, the assets of such Person and its Consolidated Subsidiaries which would be
reflected as current assets on a consolidated balance sheet for such Person and
its Subsidiaries prepared as of such date in accordance with GAAP.
"CONSOLIDATED CURRENT LIABILITIES" shall mean, for any Person as of any
date, the liabilities of such Person and its Consolidated Subsidiaries which
would be reflected as current liabilities on a consolidated balance sheet for
such Person and its Subsidiaries prepared as of such date in accordance with
GAAP. For purposes of calculating compliance with any covenant contained in this
Agreement or any other Loan Document, the principal amount of Consolidated
Current Liabilities shall include any balance under any revolving credit
facility of the Borrower, regardless of whether such revolving credit facility
would be reflected as a current liability in accordance with GAAP.
"CONSOLIDATED NET INCOME" shall mean, for any Person for any period,
consolidated net income of such Person and its Consolidated Subsidiaries for
such period which would be reflected in accordance with GAAP, but excluding (a)
any gain or loss arising from the sale of capital assets, (b) any gain or loss
arising from any write-up or write-down of assets, (c) income or loss of any
other Person, substantially all of the assets of which have been acquired by
such Person in any manner, to the extent that such earnings or losses were
realized by such other Person prior to the date of such acquisition, (d) income
or loss of any Person in which the Person has any ownership interest (other than
Consolidated Subsidiaries of such Person), unless such earnings have actually
been received or paid by the Person or its Consolidated Subsidiaries in the form
of cash distributions or additional cash calls, (e) income or loss of any other
Person to which assets of the Person or its Consolidated Subsidiaries shall have
been sold, transferred or disposed of, or into which the Person shall have
merged, to the extent that such earnings or losses of any other Person arise
prior to the date of such transaction, (f) any gain or loss arising from the
acquisition of any securities of the Person or any of its Consolidated
Subsidiaries, and (g) any extraordinary gain or loss realized by such Person or
any of its Consolidated Subsidiaries during such period.
"CONSOLIDATED SUBSIDIARIES" shall mean those entities whose assets,
liabilities and operations are consolidated with those of the Borrower for
purposes of Borrower's consolidated financial statements.
"CONSOLIDATED TRAILING TWELVE MONTHS EBITDA" shall mean for any Person,
for the immediately preceding twelve-month period ended on such date,
Consolidated Net Income of such Person for such twelve-month period, plus (a)
all income tax expense of such Person and its Consolidated Subsidiaries for such
twelve-month period, (b) all interest expense of such Person and its
Consolidated Subsidiaries for such twelve-month period, (c) all depreciation
expense of such Person and its Consolidated Subsidiaries for such twelve-month
period, and (d) all amortization expense of such Person and its Consolidated
Subsidiaries for such twelve-month period.
2
AGREEMENT (CONTINUED)
"CONSOLIDATED TRAILING TWELVE MONTHS FREE CASH FLOW" shall mean for any
Person, for the immediately preceding twelve-month period ended on such date,
Consolidated Net Income of such Person for such twelve-month period, plus (a)
all deferred income tax expense of such Person and its Consolidated Subsidiaries
for such twelve-month period, (b) all depreciation expense of such Person and
its Consolidated Subsidiaries for such twelve-month period, and (c) all
amortization expense of such Person and its Consolidated Subsidiaries for such
twelve-month period, less Capital Expenditures of such Person and its
Consolidated Subsidiaries for such twelve-month period.
"CONVERSION " or "CONVERSION RIGHTS" shall mean exchange of, or the
rights to exchange, the Principal Amount of the Loan, or any part thereof, for
fully paid and nonassessable Common Stock on the terms and conditions provided
in the Debenture.
"CURRENT LIABILITIES" shall mean all liabilities classified in
accordance with GAAP as current liabilities, but specifically including all
amounts outstanding under the Borrower's revolving credit loans.
"CURRENT RATIO" shall mean, for any Person as of any date, the ratio of
such Person's Consolidated Current Assets to Consolidated Current Liabilities as
of such date.
"DEBENTURES" shall mean the Debentures executed by Borrower and
delivered pursuant to the terms of this Agreement, together with any renewals,
extensions or modifications thereof.
"DEBTOR LAWS" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar laws from time to time in effect affecting the rights of creditors or
debtors generally.
"DEFAULT" or "EVENT OF DEFAULT" shall mean any of the events specified
in Article VIII.
"DIVIDENDS," in respect of any corporation, shall mean (i) cash
distributions or any other distributions on, or in respect of, any class of
capital stock of such corporation, except for distributions made solely in
shares of stock of the same class, and (ii) any and all funds, cash and other
payments made in respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through the exchange of
such stock with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, together with all rules and regulations issued pursuant thereto.
"FIXED CHARGE COVERAGE RATIO" shall mean for the Borrower for the
immediately preceding twelve-month period ended on such date, the ratio of (a)
Consolidated Trailing Twelve Months Free Cash Flow, to (b) the Borrower's total
scheduled payments of principal on Indebtedness for the same twelve-month
period, excluding Indebtedness under the Borrower's revolving credit loans and
mandatory redemption payments as set forth herein.
3
AGREEMENT (CONTINUED)
"GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis, set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants or the Financial Accounting Standards Board or their successors,
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles observed in a current period are comparable in
all material respects to those applied in a preceding period.
"GOVERNMENTAL AUTHORITY" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or any
of its or their businesses, operations or properties.
"GUARANTY" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person in effect guarantees
the payment of any Indebtedness of any other Person (the "Primary Obligor") in
any manner, whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the Primary Obligor
to make payment; or (iii) otherwise to assure the holder of the Indebtedness of
the Primary Obligor against loss in respect thereof, except that "Guaranty"
shall not include the endorsement by Borrower or a Subsidiary in the ordinary
course of business of negotiable instruments or documents for deposit or
collection.
"HOLDER" shall mean the owner of Registrable Securities.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, the following indebtedness, obligations and liabilities of such
Person: (i) indebtedness for borrowed money; (ii) all obligations of such Person
in respect of any Guaranty; (iii) all obligations of such Person in respect of
any Capital Lease, (iv) all obligations, indebtedness and liabilities secured by
any lien or any security interest on any property or assets of such Person, but
only to the extent so secured; and (v) all preferred stock of such Person which
is subject, at the time of calculation of Indebtedness, to a mandatory
redemption requirement, valued at the greater of its involuntary redemption
price or liquidation preference plus accrued and unpaid dividends.
"INVESTMENT" in any Person shall mean any investment, whether by means
of share purchase, loan, advance, capital contribution or otherwise, in or to
such Person, the Guaranty of any Indebtedness of such Person, or the
subordination of any claim against such Person to other Indebtedness of such
Person; provided however, that "Investment" shall not include (i) any demand
deposits in a duly chartered state or national bank or other cash equivalent
investments (ii) any loans permitted by Section 6.12, or (iii) any acquisitions
of equity in any other Person.
"IRS CODE" shall mean the Internal Revenue Code of 1986, as amended,
together with all rules and regulations issued thereunder.
4
AGREEMENT (CONTINUED)
"LIEN" shall mean any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention arrangement, or any
other interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"LOAN" shall mean the money lent to Borrower pursuant to this
Agreement, along with any accrued, unpaid interest thereon.
"LOAN CLOSING" or "LOAN CLOSING DATE" shall mean the initial
disbursement of Loan funds, which shall occur on a date 30 days from the date
hereof or such earlier date on which Borrower requests, and the Lenders approve,
as the date at which the initial advance of the Loan funds shall be consummated,
provided that such date may be mutually extended beyond 30 days, but only by
written agreement of the parties hereto.
"LOAN DOCUMENTS" shall mean this Agreement, the Debentures and any
other agreements or documents required to be executed or delivered by Borrower
pursuant to the terms of this Agreement (and any amendments or supplements
hereto or modifications hereof).
"MATERIAL ADVERSE EFFECT" or "Material Adverse Change" shall mean any
change, factor or event that shall (i) have a material adverse effect upon the
validity or enforceability of any Loan Documents, (ii) have a material adverse
effect upon the financial condition, results of operations, business,
properties, operations or assets of Borrower or its Subsidiaries taken as a
whole, or, (iii) have a material adverse effect upon the ability of the Borrower
to fulfill its obligations under the Loan Documents, or (iv) any event that
causes an Event of Default or which, with notice or lapse of time or both, could
become an Event of Default.
"MATERIAL INDEBTEDNESS" shall mean any debt incurred by Borrower that
shall (i) have a Material Adverse Effect upon the ability of Borrower to fulfill
its obligations under the Loan Documents, or (ii) have a Material Adverse Effect
upon the financial conditions or business operations of Borrower and its
Subsidiaries taken as a whole, or (iii) cause an Event of Default or which, with
notice or lapse of time or both, could become an Event of Default.
"OBLIGATION" shall mean: (i) all present and future indebtedness,
obligations and liabilities of Borrower to the Lenders arising pursuant to this
Agreement, regardless of whether such indebtedness, obligations and liabilities
are direct, indirect, fixed, contingent, joint, several, or joint and several;
(ii) all present and future indebtedness, obligations and liabilities of
Borrower to the Lenders arising pursuant to or represented by the Debentures and
all interest accruing thereon, and reasonable attorneys' fees incurred in the
enforcement or collection thereof; (iii) all present and future indebtedness,
obligations and liabilities of Borrower and any Subsidiary evidenced by or
arising pursuant to any of the Loan Documents; (iv) all costs incurred by the
Lenders or Agent, including but not limited to reasonable attorneys' fees and
legal expenses related to this transaction and (v) all renewals, extensions and
modifications of the indebtedness referred to in the foregoing clauses, or any
part thereof.
"PERMITTED INDEBTEDNESS" shall mean Indebtedness outstanding as of the
date hereof or incurred in compliance with Section 6.01 and the other terms of
this Agreement that constitutes (i) Senior Obligations, (ii) obligations under
capital leases, (iii) letters of credit, (iv) subordinated notes payable to the
principal
5
AGREEMENT (CONTINUED)
shareholder of the Borrower and to be paid pursuant to Section 2.02 and to
former shareholders of Ace Novelty Co., (v) Current Liabilities, (vi) debt
associated with Permitted Liens, (vii) any other Subordinated Debt, (viii)
Acquisition Indebtedness, (ix) purchase money Indebtedness, (x) Indebtedness of
foreign Subsidiaries, (xi) intercompany Indebtedness, (xii) Indebtedness under
this Agreement or the Debentures, and (xii) any refunding, refinancing or
extension of any of the above.
"PERMITTED LIENS" shall mean: (i) Liens (if any) granted for the
benefit of the Lenders; (ii) Liens to secure the Permitted Indebtedness; (iii)
pledges or deposits made to secure payment of worker's compensation insurance
(or to participate in any fund in connection with worker's compensation
insurance), unemployment insurance, pensions or social security programs; (iv)
Liens imposed by mandatory provisions of law such as for carriers', landlord's,
materialmen's, mechanics', warehousemen's, vendors' and other like Liens arising
in the ordinary course of business, securing Indebtedness whose payment is made
within 30 days of the date such Lien arises, or that are being contested in good
faith by appropriate proceedings as to which adequate reserves have been
established to the extent required by GAAP; (v) Liens for taxes, assessments and
governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate cash reserves
have been provided or if an extension is obtained with respect thereto; (vi)
Liens arising from good faith deposits in connection with tenders, leases, bids
or contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure public or statutory obligations and deposits to secure (or in
lieu of) surety, stay, appeal or customs bonds and deposits to secure the
payment of taxes, assessments, customs duties or other similar charges; (vii)
encumbrances consisting of zoning restrictions, easements, reservations,
licenses, covenants and other minor irregularities of title or other
restrictions on the use of real property (whether owned or leased) provided that
such items do not materially impair the intended use of such property, and none
of which is violated by Borrower's existing structures or land use; (viii)
mortgages, financing statements, equipment leases or other encumbrances incurred
in connection with the acquisition of property or equipment or the replacement
of existing property or equipment, provided that such liens shall be limited to
the property or equipment then being acquired; and (ix) Liens listed in Schedule
4.05.
"PERSON" shall include an individual, a corporation, a joint venture, a
general or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"PLAN" shall mean an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and/or any Subsidiaries and covered by Title
IV of ERISA, or subject to the minimum funding standards under Section 412 of
the Internal Revenue Code of 1986, as amended.
"PRINCIPAL AMOUNT" shall mean, as of any time, the then aggregate
outstanding face amount of the Debentures after any conversions or redemptions
and after giving effect to any installment payments received by the Lenders.
"REGISTRABLE SECURITIES" shall mean (i) the Common Stock issuable upon
Conversion of the Debentures, and (ii) any Common Stock issued upon Conversion
of the Debentures or exercise of any warrant, right or other security that is
issued with respect to the Common Stock referred to in clause (i) and (ii) above
by way of (a) stock dividend; (b) any other distribution with respect to or in
exchange for, or in replacement
6
AGREEMENT (CONTINUED)
of Common Stock; (c) stock split; or (d) in connection with a combination of
shares, recapitalization, merger, or consolidation excluding in all cases,
however, any Common Stock that is not a Restricted Security and any Registrable
Securities sold or transferred by a Person in a transaction in which the rights
under this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean an amount equal to
the number of Registrable Securities outstanding which have been issued pursuant
to the Conversion of the Debentures.
"RENAISSANCE III" shall mean Renaissance Capital Growth & Income Fund
III, Inc., a Texas corporation.
"RENAISSANCE PLC" shall mean Renaissance US Growth & Income Trust PLC,
a public limited company registered in England and Wales.
"RENAISSANCE GROUP" shall mean Renaissance Capital Group, Inc., a Texas
corporation.
"REQUIRED LENDERS" shall mean at any time a determination thereof is
required, the Lenders holding, in the aggregate, 75% of the outstanding
principal amount of the Loan at such time.
"RESTRICTED SECURITY" shall mean a security that has not been (i)
registered under the 1933 Act or (ii) distributed to the public pursuant to Rule
144 (or any similar provisions that are in force) under the 1933 Act.
"SEC" shall mean the Securities and Exchange Commission.
"1933 ACT" shall refer to the Securities Act of 1933, as amended.
"1934 ACT" shall refer to the Securities Exchange Act of 1934, as
amended.
"1940 ACT" shall refer to the Investment Company Act of 1940, as
amended.
"SENIOR DOCUMENTS" means that certain Credit Agreement dated as of June
20, 1996 (the "Credit Agreement"), by and among Borrower, Ace Novelty
Acquisition Co, Inc., a Texas corporation, Newco Novelty, Inc., a Texas
corporation, Chemical Bank, a New York Banking Corporation ("Chemical"), Heller
Financial, Inc., a Delaware corporation, and Texas Commerce Bank National
Association, together with the loan documents and related security agreement
evidencing the loans under the Credit Agreement loans thereto, together with all
other documents, instruments, agreements executed in connection therewith, as
each may now or hereafter be amended, modified, supplemented, renewed or
extended from time to time.
"SENIOR LENDERS" means the "Lenders" (as defined in the Credit
Agreement) from time to time and their successors and assigns.
7
AGREEMENT (CONTINUED)
"SENIOR OBLIGATIONS" means one or more senior debt facilities
(including loans and other extensions of credit under the Senior Documents) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, capital expenditure loans, receivables
financings (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time
in compliance with Section 6.01 and the other terms of this Agreement.
"SOLVENT" shall mean, with respect to any Person on a particular date,
that on such date: (i) the fair value of the assets of such Person is greater
than the total amount of liabilities, of such Person; (ii) the estimated present
fair salable value, in the ordinary course of business, of the assets of such
Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured; (iii)
such Person is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business; (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's assets would constitute unreasonably small
capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount which, in light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"SUBORDINATED DEBT" shall mean any indebtedness of the Borrower or any
Subsidiaries, now existing or hereafter incurred in compliance with Section 6.01
and the other terms of this Agreement, which indebtedness is, by its terms,
junior in right of repayment to the payment of the Debentures.
"SUBSIDIARY" or "SUBSIDIARIES" shall mean any or all corporations or
entities whether now existing or hereafter acquired of which over 50% the Voting
Shares or equity interests are owned, directly or indirectly, by Borrower.
"TOTAL CAPITALIZATION" shall mean for any Person, total Indebtedness
plus shareholders' equity as defined in accordance with GAAP.
"VOTING AGREEMENT" shall mean the Voting Agreements to be executed by
the principal shareholders and executive officers of the Borrower, in the form
of Exhibit B.
"VOTING SHARES" of any corporation shall mean shares of any class or
classes (however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of Directors (or other governing
bodies) of such corporation, other than shares having such power only by reason
of the happening of a contingency.
8
AGREEMENT (CONTINUED)
SECTION 1.02. OTHER DEFINITION PROVISIONS.
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in the Debentures or any other Loan Documents, certificate,
report or other document made or delivered pursuant to this Agreement, unless
the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural
and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) References to financial statements and reports shall be deemed to
be a reference to such statements and reports prepared in accordance with GAAP.
(e) Accounting terms not specifically defined above in this Agreement
shall be construed in accordance with GAAP.
ARTICLE II - LOAN PROVISIONS
SECTION 2.01. THE LOAN.
(a) Subject to the terms and conditions of this Agreement, and the
compliance with such terms and conditions by all parties, each Lender agrees to
lend to Borrower, and Borrower agrees to borrow from the Lenders, the aggregate
sum of FIFTEEN MILLION DOLLARS ($15,000,000) as follows:
RENAISSANCE CAPITAL GROWTH & INCOME III, INC $ 2,500,000
RENAISSANCE US GROWTH & INCOME TRUST PLC .... 2,500,000
BANC ONE CAPITAL PARTNERS II, LTD ........... 10,000,000
(b) The Loan shall be disbursed at Loan Closing, subject to the
conditions provided hereunder, and shall be evidenced by Borrower's Debentures,
dated July 3, 1997, in the Principal Amounts specified above. The Principal
Amount shall be payable as provided for in the Debentures. The Debentures shall
rank PARI PASSU with all Indebtedness of the Borrower, other than the Senior
Obligations and the Subordinated Debt.
(c) Unless otherwise mutually agreed, the Loan Closing shall be at the
offices of Renaissance Capital Group, Inc., 8080 North Central Expressway, Suite
210, Dallas, Texas.
(d) If, within 30 days of the date of this Agreement (i) Borrower has
failed to comply with the conditions precedent to the Loan Closing as specified
in Article III hereof (unless compliance with such conditions in whole or in
part has been waived or modified by the Lenders in their sole discretion) or
(ii) the
9
AGREEMENT (CONTINUED)
Loan Closing has not occurred (unless the date of such Loan Closing has been
mutually extended) then, in either such case, the obligations of the Lenders
under this Agreement shall terminate, provided however that Borrower shall be
obligated for payment of the fees and expenses provided in Section 2.07 due and
payable as of such date of termination.
SECTION 2.02. USE OF PROCEEDS.
(a) Borrower intends to use the Loan proceeds for the payment of
approximately $3 million of subordinated debt to the principal shareholder of
the Company and for working capital and general corporate purposes.
(b) Borrower hereby acknowledges that the proceeds from the Loan shall
be of benefit to Borrower for the growth of its business by providing capital
which will provide additional opportunities for Borrower.
SECTION 2.03. INTEREST RATE AND INTEREST PAYMENTS.
Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of 8.00% per annum, with the first installment of accrued,
unpaid interest being due and payable on JULY 31, 1997 and subsequent payments
of accrued, unpaid interest being due and payable on the last day of each month
thereafter. Subject to Section 12.07, overdue principal and interest on the
Debentures shall bear interest at the rate of 15% per annum. Interest on the
Principal Amount of each Debenture shall be calculated, from time to time, on
the basis of the actual days elapsed in a year consisting of 365 days.
SECTION 2.04. MATURITY.
If not sooner redeemed or converted, the Debentures shall mature on
JUNE 30, 2004, at which time all the remaining unpaid principal, interest and
any other charges then due under this Agreement shall be due and payable in
full. Upon the request of each holder, the Debentures shall be prepaid (without
premium or penalty) on a PRO RATA basis together with any prepayments of
Indebtedness (other than Senior Obligations) which is PARI PASSU with or
subordinated to the Debentures (except for payments of subordinated debt to the
principal shareholder of Borrower in accordance with Section 2.02 hereof and the
former stockholders of Ace Novelty Co., Inc.) but only if on the date of such
prepayments the Borrower is not in compliance with Section 7.01.
SECTION 2.05. MANDATORY PRINCIPAL INSTALLMENTS.
Mandatory principal redemption installments on each Debenture shall be
as provided for in the Debentures.
10
AGREEMENT (CONTINUED)
SECTION 2.06. REDEMPTION.
The Debentures shall be subject to redemption as provided in the
Debentures.
SECTION 2.07. FEES AND EXPENSES.
Subject to Section 12.07 hereof:
(a) Subject in all events to Section 12.07, Borrower agrees to pay to
the Agent at Loan Closing a Loan commitment fee of 0.50% of the amount of the
Loan from Renaissance III and Renaissance PLC.
(b) Subject in all events to Section 12.07, Borrower agrees to pay to
Agent at Loan Closing a Loan closing fee of 0.50% of the amount of the Loan from
Renaissance III and Renaissance PLC. Borrower agrees to pay to Banc One Capital
Corporation at Loan Closing a Loan Closing fee of $125,000.
(c) Subject in all events to Section 12.07, Borrower agrees to pay to
Agent at Loan Closing a due diligence fee of 0.50% of the amount of the Loan
from Renaissance III and Renaissance PLC, less $25,000, which shall have been
previously paid.
(d) Subject in all events to Section 12.07, Borrower agrees to pay on
behalf of Renaissance III and Renaissance PLC to legal counsel 0.50% of the
amount of the Loan from Renaissance III and Renaissance PLC to cover their legal
fees and expenses, and to pay on behalf of BOCPII its fees and expenses to legal
counsel, in connection with the negotiation, preparation, execution and delivery
of this Agreement, the Debentures, the other Loan Documents, and in connection
with the Loan Closing.
SECTION 2.08. PLACEMENT FEES.
The Borrower shall be responsible for payment of the placement fees and
expenses of Rauscher Pierce Refsnes, Inc. and all other commissions, brokerage
or finder's fees incurred by Borrower in connection with this Agreement.
SECTION 2.09. TAXES.
(a) Each Debenture shall be convertible into shares of Common Stock and
on such terms as are stated in the Debentures. Such conversion shall be made
without deduction for any present or future taxes, duties, charges or
withholdings, (excluding, in the case of the Lenders, any foreign taxes, any
federal, state or local income taxes and any franchise taxes or taxes imposed
upon them by the jurisdiction, or any political subdivision thereof, under which
the Lenders are organized or are qualified to do business), and all liabilities
with respect thereto (herein "Taxes") shall be paid by Borrower. If Borrower
shall be required by law to deduct any Taxes for which Borrower is responsible
under the preceding sentence from any sum payable hereunder to the Lenders: (i)
the sum payable shall be increased so that after making all required deductions,
11
AGREEMENT (CONTINUED)
the Lenders shall receive an amount equal to the sum it would have received had
no such deductions been made; (ii) Borrower shall make such deductions; and
(iii) Borrower shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable law. Borrower shall
be entitled to any refunds or returns from any such taxing authority.
(b) Except as otherwise set forth in this Agreement or the other Loan
Documents, Borrower shall pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Borrower shall indemnify the Lenders for the full amount of Taxes
and Other Taxes reasonably paid by the Lenders or any liability (including any
penalties or interest assessed because of Borrower's defaults) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within thirty (30) days
from the date the Lenders make written demand therefor. The Lenders shall
subrogate any and all rights and claims relating to such Taxes and Other Taxes
to Borrower upon payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower in this Section
2.09 shall survive the payment in full of the Obligation.
SECTION 2.10 CONVERSION RIGHTS.
Each Debenture shall be convertible into shares of Common Stock on such
terms and in such amounts as are stated in the Debenture. The holders of the
shares issued upon exercise of the right of conversion as provided in said
Debenture shall be entitled to all the rights of the Lenders as stated in this
Agreement or the other Loan Documents, to the extent such rights are
specifically stated to survive the surrender of the Debenture for conversion as
therein provided.
ARTICLE III - CONDITIONS PRECEDENT
SECTION 3.01. DOCUMENT REQUIREMENTS.
The obligation of the Lenders to advance funds at the Loan Closing Date
hereof is subject to the condition precedent that, on or before the date of such
advance, the Lenders shall have received the following:
(i) Duly executed Debentures aggregating the Principal Amount of Loan
funds then advanced, each in amounts as requested by the Lenders, which shall be
styled "River Oaks Trust Company, FBO, Renaissance Capital Growth and Income
Fund III, Inc.," "River Oaks Trust Company, FBO, Renaissance U.S. Growth and
Income Trust PLC," and "Banc One Capital Partners II, Ltd.," which shall be in
form and substance acceptable to the Lenders and its counsel.
12
AGREEMENT (CONTINUED)
(ii) A true and correct certificate signed by a duly authorized officer
of the Borrower and dated as of the Loan Closing Date stating that, to the best
knowledge and belief of such officer, after reasonable and due investigation and
review of matters pertinent to the subject matter of such certificate: (A) all
of the representations and warranties contained in Article IV hereof and the
other Loan Documents are true and correct in all material respects as of the
Loan Closing Date and (B) no event has occurred and is continuing, or would
result from the Loan, which constitutes a Default or an Event of Default.
(iii) Copies of resolutions, as adopted by the Borrower's Board of
Directors, approving the execution, delivery and performance of this Agreement,
the Debentures, and the other Loan Documents, including the transactions
contemplated herein and accompanied by a certificate of the Secretary or
Assistant Secretary of Borrower stating that such resolutions have been duly
adopted, are true and correct, have not been altered or repealed and are in full
force and effect.
(iv) A signed certificate of the Secretary or Assistant Secretary of
the Borrower which shall certify the names of the officers of Borrower
authorized to sign each of the Loan Documents to be executed by such officer,
together with the true signatures of each of such officers. It is herewith
stipulated and agreed that the Lenders may thereafter rely conclusively on the
validity of this certificate as a representation of the officers of Borrower
duly authorized to act with respect to the Loan Documents until such time as the
Lenders shall receive a further certificate of the Secretary or Assistant
Secretary of Borrower canceling or amending the prior certificate and submitting
the signatures of the officers thereupon authorized in such further certificate.
(v) Certificates of good standing (or other similar instrument) for the
Borrower issued by the Secretary of State of the state of incorporation of
Borrower, and certificates of qualification and good standing for Borrower
issued by the Secretary of State of each of the states wherein such Borrower has
operating facilities of such nature so as to be required to be qualified to do
business as a foreign corporation, dated within ten (10) days prior to Loan
Closing.
(vi) A copy of the Articles of Incorporation of the Borrower and all
amendments thereto, certified by the Secretary of State of the state of
incorporation and dated within ten (10) days prior to Loan Closing and a copy of
the bylaws of Borrower and all amendments thereto, certified by the Secretary or
Assistant Secretary of Borrower, as being true, correct and complete as of the
date of such certification.
(vii) Copies of all registration statements, reports and proxy
statements filed with the SEC during or for the three fiscal years ended July
31, 1996 and the nine months ended April 30, 1997.
(viii) A Standby Agreement executed by the Agent, Renaissance III,
Renaissance PLC, BOCPII and Chase Manhattan Bank, as agent.
(ix) A legal opinion from counsel to Borrower, in form and substance
satisfactory to the Lenders and their counsel.
(x) Lock-up Agreements executed by the principal shareholders and
executive officers of Borrower, in form and substance satisfactory to the
Lenders and their counsel.
13
AGREEMENT (CONTINUED)
(xi) Voting Agreement executed by the principal shareholders and
executive officers of Borrower, in form and substance satisfactory to the
Lenders and their counsel.
(xii) Such other information, documents and agreements as may
reasonably be required by the Lenders and the Lenders' counsel to substantiate
Borrower's compliance with the requirements of this Agreement and the Lenders'
compliance with the 1940 Act.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER
To induce the Lenders to make the Loan hereunder, Borrower represents
and warrants to the Lenders that:
SECTION 4.01. ORGANIZATION AND GOOD STANDING.
Borrower is duly organized and existing in good standing under the laws
of the state of its incorporation, is duly qualified as a foreign corporation
and in good standing in all states in which failure to qualify would have a
Material Adverse Effect, and has the corporate power and authority to own its
properties and assets and to transact the business in which it is engaged and is
or will be qualified in those states wherein it proposes to transact material
business operations in the future.
SECTION 4.02. AUTHORIZATION AND POWER.
Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. The Borrower
is duly authorized to, and has taken all corporate action necessary to
authorize, execute, deliver and perform the Loan Documents executed by Borrower.
The Borrower is and will continue to be duly authorized to perform the Loan
Documents executed by Borrower.
SECTION 4.03. NO CONFLICTS OR CONSENTS.
Except as disclosed on Schedule 4.03, neither the execution and
delivery of the Loan Documents, nor the consummation of any of the transactions
therein contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any judgment, license, order or permit
applicable to Borrower, or any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by which
Borrower is or becomes bound, or to which Borrower is or becomes subject, or
violate any provision of the charter or bylaws of Borrower. 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
the Loan Documents or to consummate the transactions contemplated hereby or
thereby except those that have been obtained.
14
AGREEMENT (CONTINUED)
SECTION 4.04. ENFORCEABLE OBLIGATIONS.
The Loan Documents have been duly executed and delivered by the
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms.
SECTION 4.05. NO LIENS.
Except for Permitted Liens, all of the properties and assets owned by
the Borrower are free and clear of all Liens and other adverse claims of any
nature, and Borrower has good and marketable title to such properties and
assets. A true and complete list of all known or recorded liens for borrowed
money is disclosed on Schedule 4.05, which Lenders agree will be delivered by
Borrower within 30 days after the Loan Closing Date.
SECTION 4.06. FINANCIAL CONDITION.
Borrower has delivered to the Lenders copies of the balance sheets of
Borrower as of July 31, 1996, and the related statements of income,
stockholders' equity and statement of cash flow for the year then ended, audited
by its independent certified public accountant. Borrower has also delivered to
the Lenders copies of the balance sheet of Borrower as of April 30, 1997, and
the related statements of income, stockholders' equity and statement of cash
flow for the period ended such date, which financial statements have not been
audited by its independent certified public accountant. Such financial
statements are true and correct in all material respects, fairly represent the
financial condition of Borrower as of such dates and have been prepared in
accordance with GAAP (except unaudited financial statements omit certain
footnotes); and as of the date hereof, there are no obligations, liabilities or
Indebtedness (including contingent and indirect liabilities and obligations) of
Borrower which are (separately or in the aggregate) material and are not
reflected in such financial statements or otherwise disclosed herein. Since the
date of the above-referenced year end financial statements and quarterly
financial statements, there have not been, except as disclosed in Schedule 4.06:
(i) any Material Adverse Change; (ii) any dividend declared or paid or
distribution made on the capital stock of the Borrower or any capital stock
thereof redeemed or repurchased; (iii) any incurrence of long-term debt by the
Borrower; (iv) any salary, bonus or compensation increases to any officers, key
employees or agents of the Borrower or; (v) any other material transaction
entered into by the Borrower except in the ordinary course of business and
consistent with past practice.
SECTION 4.07. NO DEFAULT.
No event has occurred and is continuing which constitutes, or with
notice and passage of time or both, would constitute, a Default or an Event of
Default under this Agreement.
SECTION 4.08. MATERIAL AGREEMENTS.
Neither the Borrower nor any other party is in default, and no event
has occurred and is continuing which, with notice or lapse of time or both,
would constitute, a default, under any material contract, lease, loan
15
AGREEMENT (CONTINUED)
agreement, indenture, mortgage, security agreement, license agreement or other
agreement or obligation to which it is a party or by which any of its properties
is subject, except as described on Schedule 4.08.
SECTION 4.09. NO LITIGATION.
Except as disclosed on Schedule 4.09, there are no actions, suits,
investigations, arbitrations or administrative proceedings pending, or to the
knowledge of Borrower threatened, against Borrower, and there has been no change
in the status of any of the actions, suits, investigations, litigation or
proceedings disclosed to the Lenders which could reasonably be expected have a
Material Adverse Effect on Borrower or on any transactions contemplated by any
Loan Document.
SECTION 4.10. TAXES.
All tax returns required to be filed by Borrower in any jurisdiction
have been filed and all taxes (including mortgage recording taxes), assessments,
fees and other governmental charges upon Borrower or upon any of its properties,
income or franchises now due have been paid, in each case, except where the same
are being contested in good faith by appropriate proceedings, as disclosed on
Schedule 4.10.
Except as disclosed on Schedule 4.10, the Borrower has not received any
notice of deficiency or other adjustment from any taxing authority that is
unresolved as of the Closing. No audit or examination, claim or proposed
assessment by any taxing authority is pending or, to the knowledge of the
Borrower, threatened against the Borrower or any of its properties. All ad
valorem and other property taxes imposed on Borrower, or that may become a lien
on the Borrower's assets and that are due and payable, have been paid in full
where the failure to do so would have a Material Adverse Effect. The Borrower
has withheld or collected from each payment made to each of its U.S. employees
the amount of all taxes (including federal income taxes, Federal Insurance
Contributions Act ("FICA") taxes, and state and local income, payroll, and wage
taxes, among others) required to be withheld or collected.
SECTION 4.11. CAPITALIZATION.
The authorized capital stock of Borrower consists of 20,000,000 shares
of Common Stock, no par value ("Common Stock"), and 10,000,000 shares of
Preferred Stock, no par value, of which 4,881,100 shares of Common Stock and no
shares of Preferred Stock are issued and outstanding as of the date hereof. All
of such outstanding shares have been duly authorized and validly issued are
fully paid and nonassessable, and were not issued in violation of the preemptive
rights of any person.
SECTION 4.12. USE OF PROCEEDS.
The Borrower intends to use proceeds from the Loan as disclosed in
Section 2.02 hereof.
16
AGREEMENT (CONTINUED)
SECTION 4.13. EMPLOYEE BENEFIT AND INCENTIVE PLANS; ERISA.
(a) Borrower is not obligated under any Plan.
(b) Except as set forth on Schedule 4.13, Borrower is not a party to
any collective bargaining agreement and is not aware of any activities of any
labor union that is currently seeking to represent or organize its employees.
Borrower has not experienced any material labor problems, including work
stoppages, disputes or slowdowns with respect to its employees.
SECTION 4.14. COMPLIANCE WITH LAW.
Borrower is in compliance with all laws, rules, regulations, orders and
decrees which are applicable to Borrower or its properties by reason of any
Governmental Authority the noncompliance with which, individually or in the
aggregate, would have a Material Adverse Effect.
SECTION 4.15. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS.
Except as set forth in Schedule 4.15, all properties of Borrower are in
compliance in all material respects with all federal, state or local
environmental protection laws, statutes, rules and regulations which are
material to the conduct of the business of the Borrower, and the Borrower is
currently in compliance in all material respects with all material environmental
reporting requirements which are applicable to Borrower or its properties.
SECTION 4.16. SHARES ISSUABLE UPON CONVERSION.
The shares of Common Stock of the Borrower when issued to the Lenders
upon conversion of the Debentures will be duly and validly issued, fully paid
and nonassessable and in compliance with all applicable securities laws. Such
issuance will not give rise to preemptive rights or similar rights by any other
security holder of Borrower.
SECTION 4.17. INSIDER.
(a) Neither the Borrower, nor any Person having "control" (as that term
is defined in the 1940 Act or in the regulations promulgated pursuant thereto)
of the Borrower is an "executive officer," "director," or "principal
shareholder" (as those terms are defined in the 1940 Act) of any Lender.
(b) The Borrower's 1996 Annual Report on Form 10-K discloses all
material transactions required to be disclosed therein pursuant to Item 404 of
Regulation S-K promulgated under the 1933 Act.
(c) All agreements between the Borrower and any of its officers,
directors, and principal shareholders, including employment agreements, are
disclosed in reports and filings made with the SEC or listed on Schedule 4.17.
17
AGREEMENT (CONTINUED)
SECTION 4.18. SUBSIDIARIES.
(a) All of the Subsidiaries of the Borrower are listed on Schedule
4.18. Except as disclosed on Schedule 4.18, Borrower owns all of the outstanding
capital stock or other equity interests of the Subsidiaries, free and clear of
all adverse claims, other than Liens securing the Senior Obligations. All of
such outstanding capital stock of each Subsidiary has been duly and validly
authorized and issued and is fully paid and nonassessable. All such Subsidiaries
are duly organized and existing in good standing under the laws of the
respective jurisdictions of their incorporation or organization, are duly
qualified as foreign corporations and in good standing in all jurisdictions in
which failure to qualify would have a Material Adverse Effect, and have the
corporate power and authority to own their respective properties and assets and
to transact the business in which they are engaged and are or will be qualified
in those jurisdictions wherein they propose to transact material business
operations in the future.
(b) Except as disclosed on Schedule 4.18, the Borrower does not own any
equity or long-term debt interest in any other Person, or any right or option to
acquire any such interest in any such Person.
SECTION 4.19. CASUALTIES.
Neither the business nor the properties of Borrower is currently
affected by any environmental hazard, fire, explosion, accident, strike, lockout
or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or
other casualty (whether or not covered by insurance), which would have a
Material Adverse Effect.
SECTION 4.20. INVESTMENT COMPANY ACT.
Borrower is not an "investment company" as defined in Section 3 of the
1940 Act nor a company that would be an investment company, except for the
exclusions from the definition of an investment company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.
SECTION 4.21. SUFFICIENCY OF CAPITAL.
Borrower is, and after consummation of this Agreement and giving effect
to all Indebtedness incurred and transactions contemplated in connection
herewith will be, Solvent.
SECTION 4.22. CORPORATE NAMES.
The Borrower has not, during the preceding five (5) years, been known
as or used any other corporate, fictitious or trade names, except Toys
Management, Inc. and the Ace Novelty Co.
18
AGREEMENT (CONTINUED)
SECTION 4.23. INSURANCE.
All of the insurable properties of the Borrower are insured for its
benefit under valid and enforceable policies, issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
Borrower's industry.
SECTION 4.24. LICENSES, TRADEMARKS, SERVICE MARKS AND COPYRIGHTS.
Borrower owns or possesses legal, valid and binding licenses to use all
material trademarks, service marks, trade names, patents and copyrights
presently used to conduct its business. All material licenses of Borrower are
listed in Schedule 4.24, showing licensor, character or trademark license,
product and licensed area, date of grant, date of renewal or modification (if
any) and date of expiration. Borrower has the right to use such intellectual
property rights without infringing or violating the rights of any third parties.
Except as disclosed in Schedule 4.24, no claim has been asserted by any person
to the ownership of or right to use any such rights or challenging or
questioning the validity or effectiveness of any such license or agreement.
Borrower is not in default of any such license agreements in any material
respect and no event has occurred and is continuing which, with notice or lapse
of time or both, would constitute a material default, except as disclosed in
Schedule 4.24. Each license agreement is enforceable in accordance with its
terms and has not been canceled, abandoned or terminated, nor has Borrower
received notice thereof. There are no claims for trademark or copyright
infringement against Borrower or the Subsidiaries, or their respective officers
or directors that could be reasonably expected to have a Material Adverse
Effect. Neither Borrower nor any Subsidiary is currently using copyrightable
material for which Borrower or any Subsidiary needs, but does not have, a
license to conduct its existing business, where the failure to have such license
could reasonably be expected to have a Material Adverse Effect. Neither Borrower
nor any Subsidiary is currently using any trademarks for which Borrower or any
Subsidiary needs, but does not have, a valid character or trademark license to
conduct its existing business, where the failure to have such license could
reasonably be expected to have a Material Adverse Effect.
SECTION 4.25. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of Borrower herein shall survive the
Loan Closing and the delivery of the Debentures, and any investigation at any
time made by or on behalf of the Lenders shall not diminish the Lenders' right
to rely on Borrower's representations and warranties as herein set forth.
SECTION 4.26. FULL DISCLOSURE.
Neither the representations, warranties, schedules, financial
statements referenced in Section 4.06, nor any business plan, offering
memorandum, prospectus, SEC registration statement, report or proxy statement,
certificate, document or written statement to be delivered or caused to be
delivered by Borrower or any of its agents or representatives to the Lenders in
connection with this Agreement, contains or will contain, as of the date
thereon, any untrue statement of a material fact or omits or will omit to state
any material fact necessary to keep the statements contained herein or therein
from being misleading in any material respect.
19
AGREEMENT (CONTINUED)
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Required Lenders shall otherwise consent in
writing, Borrower agrees that:
SECTION 5.01. FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.
(a) The Borrower shall accurately and fairly maintain its books of
account in accordance with GAAP, retain a firm of independent certified public
accountants, which firm is one of the six largest national accounting firms or
which is approved by the Required Lenders, to make annual audits of its accounts
in accordance with generally accepted auditing standards.
(b) The Borrower shall provide the following reports and information to
each Lender:
(i) As soon as available, and in any event within forty-five
(45) days after the close of each fiscal quarter, Borrower's quarterly reports
on Form 10-Q with exhibits for said period. As soon as available, Borrower's
reports on Form 8-K with any exhibits.
(ii) As soon as available, and in any event within ninety (90)
days after the close of each fiscal year, Borrower's annual report on Form 10-K
with exhibits for said period.
(iii) Each fiscal quarter, concurrent with the periodic report
required above, a certificate executed by the Chief Financial Officer or Chief
Executive Officer of the Borrower, (A) stating that a review of the activities
of the Borrower during such fiscal period has been made under his supervision
and that the Borrower has observed, performed and fulfilled each and every
obligation and covenant contained herein and is not in default under any of the
same or, if any such default shall have occurred, specifying the nature and
status thereof, and (B) stating that Borrower and the Subsidiaries are in
compliance as of the end of such fiscal quarter with the agreed minimum
financial ratios and standards set forth in Schedule 7.01 to this Agreement.
(iv) Promptly (but in any event within five (5) business days)
upon becoming aware of the existence of any condition or event which constitutes
a Default or which, with notice or the passage of time or both would become a
Default or an Event of Default, written notice specifying the nature and period
of existence thereof and the action which Borrower is taking or proposes to take
with respect thereto.
(v) Promptly (but in any event within five (5) business days)
upon the receipt thereof by the Borrower or the Board of Directors of the
Borrower, copies of all reports, all management letters and other detailed
information submitted to the Borrower or the Board by independent accountants in
connection with each annual or interim audit or review of the accounts or
affairs of the Borrower made by such accountants.
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AGREEMENT (CONTINUED)
(vi) Promptly (but in any event within five (5) business
days), such other information relating to the finances, properties, business and
affairs of the Borrower and each Subsidiary, as the Lenders may reasonably
request from time to time.
(vii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
Borrower to stockholders generally, and of each regular or periodic report,
registration statement or prospectus filed by Borrower with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which the Borrower is a party.
SECTION 5.02. PREPARATION OF BUDGETS.
(a) Prior to the beginning of Borrower's fiscal year Borrower agrees to
prepare and submit to the Board and furnish to each Lender a copy of, an annual
plan for such year which shall include, without limitation, plans for expansion,
if any, plans for incurrences of Indebtedness and projections regarding other
sources of funds, quarterly projected capital and operating expense budgets,
cash flow statements, profit and loss statements and balance sheet projections,
itemized in such detail as the Board and/or the Lenders may request.
(b) Borrower shall furnish to the Lenders monthly financial reports,
including budgets (as currently used by management in the conduct of business)
within 45 days of the end of each month until June 30, 1998 and within 30 days
of the end of each month thereafter.
SECTION 5.03. PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Borrower shall, and shall cause its Subsidiaries to, pay and discharge
(i) all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits, or upon any property belonging to it, before
delinquent, (ii) all lawful claims (including claims for labor, materials and
supplies), which, if unpaid, will give rise to a Lien upon any of its property,
and (iii) all of its other Indebtedness, except as prohibited hereunder;
provided, however, that Borrower and its Subsidiaries, if any, shall not be
required to pay any such tax, assessment, charge, levy or other claim if and so
long as the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and appropriate accruals and
reserves therefor have been established in accordance with GAAP.
SECTION 5.04. MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
Subject to Section 6.13, Borrower shall, and shall cause its operating
Subsidiaries to, preserve and maintain their respective corporate existence and
all of their respective material rights, privileges and franchises necessary in
the normal conduct of its business, except to the extent that the failure to
maintain any such rights, privileges and franchises could not reasonably be
expected to cause a Material Adverse Effect, and conduct its business in an
orderly and efficient manner consistent with good business practices and in
accordance with all valid regulations and orders of any Governmental Authority.
Borrower shall keep its principal place of business within the United States.
21
AGREEMENT (CONTINUED)
SECTION 5.05. SEC FILINGS.
So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, Borrower shall duly file, when due, all reports and
proxy statements required of a company whose securities are registered for
public trading under and pursuant to the 1934 Act and any rules and regulations
issued thereunder, and to preserve and maintain its registration thereunder.
SECTION 5.06. NOTICE.
Borrower shall promptly notify the Lenders of (i) any Material Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness having
an aggregate principal amount in excess of $1,000,000, material agreement,
contract or other instrument to which it is a party or by which any of its
properties are bound, or any acceleration of the maturity of any Indebtedness
having an aggregate principal amount in excess of $1,000,000, if any, (iii) any
material adverse claim against or affecting Borrower or its Subsidiaries, if
any, or any of its properties, and (iv) the commencement of, and any material
determination in, any litigation with any third party or any proceeding before
any Governmental Authority, the negative result of which has a Material Adverse
Effect on Borrower and its Subsidiaries, taken as a whole.
SECTION 5.07. COMPLIANCE WITH LOAN DOCUMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
comply with any and all covenants and provisions of the Loan Documents.
SECTION 5.08. COMPLIANCE WITH MATERIAL AGREEMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, comply in
all material respects with all material agreements, indentures, mortgages or
documents binding on it or affecting its properties or business, to the extent
noncompliance with which would cause a Material Adverse Effect .
SECTION 5.09. OPERATIONS AND PROPERTIES.
Borrower shall, and shall cause each of its Subsidiaries to, act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Borrower shall, and
shall cause each of its Subsidiaries to, keep in good working order and
condition, ordinary wear and tear excepted, all of its assets and properties
which are necessary to the conduct of its business.
SECTION 5.10. BOOKS AND RECORDS; ACCESS.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
complete and accurate books and records of its transactions in accordance with
good accounting practices. Borrower shall give each duly authorized
representative of the Lenders access during all normal business hours to, and
shall permit such representative to examine, copy or make excerpts from, any and
all books, records and documents in the
22
AGREEMENT (CONTINUED)
possession of Borrower and its Subsidiaries and relating to its affairs, and to
inspect any of the properties of Borrower and its Subsidiaries, provided that
Borrower may refuse such access for up to three (3) business days, unless a
Default or Event of Default has occurred or is continuing, if it believes, in
good faith, that providing such access would be disruptive to its operations.
Borrower shall make a copy of this Agreement, along with any waivers, consents,
modifications or amendments, available for review at its principal office by the
Lenders or the Lenders' representatives.
SECTION 5.11. COMPLIANCE WITH LAW.
Borrower shall, and shall cause each of its Subsidiaries to, comply
with all applicable laws, rules, regulations, and all orders of any Governmental
Authority applicable to it or any of its property, business operations or
transactions, except where a breach of which could not reasonably be expected to
have a Material Adverse Effect.
SECTION 5.12. INSURANCE.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
such worker's compensation insurance, liability insurance and insurance on its
properties, assets and business, now owned or hereafter acquired, against such
casualties, risks and contingencies, and in such types and amounts, as are
consistent with customary practices and standards of companies engaged in
similar businesses.
SECTION 5.13. AUTHORIZATIONS AND APPROVALS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder and under the other Loan Documents.
SECTION 5.14. ERISA COMPLIANCE.
Borrower shall (i), at all times, make prompt payment of all
contributions required under all Plans, if any, and shall meet the minimum
funding standards set forth in ERISA with respect to its Plans subject to ERISA,
if any, (ii) notify the Lenders immediately of any fact in connection with any
of its Plans, which might constitute grounds for termination thereof by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer such Plan, together with
a statement, if requested by the Lenders as to the reason therefor and the
action, if any, proposed to be taken with respect thereto, and (iii) furnish to
the Lenders upon its request such additional information concerning any of its
Plans as may be reasonably requested.
SECTION 5.15. FURTHER ASSURANCES.
Borrower shall, and shall cause each of its Subsidiaries to, make,
execute or endorse, and acknowledge and deliver or file or cause the same to be
done, all such notices, certifications and additional agreements,
23
AGREEMENT (CONTINUED)
undertakings, transfers, assignments, or other assurances, and take any and all
such other action, as the Lenders may, from time to time, deem reasonably
necessary or proper in connection with any of the Loan Documents, or the
obligations of Borrower or its Subsidiaries, if any, thereunder, which the
Lenders may request from time to time.
SECTION 5.16. INDEMNITY BY BORROWER.
Borrower shall indemnify, save, and hold harmless, the Lenders and
their directors, officers, lenders, attorneys, and employees (singularly or
collectively, the "Indemnitee") from and against (i) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee if
the claim, demand, action or cause of action directly or indirectly relates to
this Agreement and the other Loan Documents issued pursuant thereto, the use of
proceeds of the Loans, or the relationship of Borrower and the Lenders under
this Agreement or any transaction contemplated pursuant to this Agreement, (ii)
any administrative or investigative proceeding by any Governmental Authority
directly or indirectly related to a claim, demand, action or cause of action
described in clause (i) above, and (iii) any and all liabilities, losses, costs,
or expenses (including reasonable attorneys' fees and disbursements) that any
Indemnitee suffers or incurs as a result of any of the foregoing; provided,
however, that Borrower shall have no obligation under this Section 5.16 to the
Lenders with respect to any of the foregoing arising out of the gross negligence
or willful misconduct of the Lenders or their assignees or the breach by any
Lender or their assignees of this Agreement or any other Loan Document or other
document executed in connection with any of the aforesaid, the breach by the
Lenders or their assignees of any intercreditor or participation agreement or
commitment with other parties, the violation or alleged violation of any law,
rule or regulation by the Lenders or their assignees, or from the transfer or
disposition by the Lenders of any Debenture or the Common Stock issued upon
conversion of the Debenture. If any claim, demand, action or cause of action is
asserted against any Indemnitee, such Indemnitee shall promptly notify Borrower,
but the failure to so promptly notify Borrower shall not affect Borrower's
obligations under this Section unless such failure materially prejudices
Borrower's right or ability to participate in the contest of such claim, demand,
action or cause of action, as hereinafter provided. In the event that such
Indemnitee's failure to properly notify the Borrower materially prejudices
Borrower's right or ability to participate in the contest of such claim, demand,
action, or cause of action, then said Indemnitee shall have no right to receive,
and Borrower shall have no obligation to pay, any indemnification amounts
hereunder. Borrower may elect to defend any such claim, demand, action or cause
of action (at its own expense) asserted against said Indemnitee and, if
requested by Borrower in writing and so long as no Default or Event of Default
shall have occurred and be continuing, such Indemnitee (at Borrower's expense)
shall in good faith contest the validity, applicability and amount of such
claim, demand, action or cause of action and shall permit Borrower to
participate in such contest. Any Indemnitee that proposes to settle or
compromise any claim or proceeding for which Borrower may be liable for payment
to or on behalf of an Indemnitee hereunder shall give Borrower written notice of
the terms of such proposed settlement or compromise reasonably in advance of
settling or compromising such claim or proceeding and shall obtain Borrower's
written concurrence thereto. In the event that said Indemnitee fails to obtain
Borrower's prior written consent to any such settlement or compromise, said
Indemnitee shall have no right to receive and Borrower shall have no obligation
to pay any indemnification amounts hereunder. Each Indemnitee may employ counsel
in enforcing its rights hereunder and in defending against any claim, demand,
action, or cause of action covered by this Section 5.16; provided, however, that
each Indemnitee shall endeavor in connection with any matter covered by this
Section which
24
AGREEMENT (CONTINUED)
also involves any other Indemnitee, use reasonable efforts to avoid unnecessary
duplication of effort by counsel for all Indemnitees, including by allowing
Borrower to select one lawyer for all parties, such selection to be subject to
the approval of such parties, which approval shall not be unreasonably withheld.
Any obligation or liability of Borrower to any Indemnitee under this Section
5.16 shall survive the expiration or termination of this Agreement and the
repayment of the Debentures.
SECTION 5.17. RESERVATION OF SHARES.
Borrower shall at all times reserve and keep available sufficient
authorized and unissued shares of Common Stock to effect the conversion of the
Debentures.
SECTION 5.18. STANDBY AGREEMENT.
This Agreement and the Debentures, and the indebtedness and obligations
evidenced thereby, are subject to (i) the provisions of the Standby Agreement by
and among Play By Play Toys & Novelties, Inc., Chase Manhattan Bank, agent, and
Renaissance III, Renaissance PLC, BOCPII and Agent, dated as of July 3, 1997,
which is incorporated herein by reference, (ii) the terms of the form of Standby
Agreement attached as Exhibit A hereto (which terms are hereby incorporated by
reference and which terms shall apply with respect to any Senior Obligation
hereafter arising without regard to any failure by a holder of a Debenture to
enter into a Standby Agreement in accordance with the terms hereof), and (iii)
the terms of any other Standby Agreement hereafter executed by the Lenders. Each
Lender and the Agent hereby agrees, upon the request of Borrower, to enter into
a Standby Agreement substantially in the form of Exhibit A hereto with any
holder of Senior Obligations.
SECTION 5.19. SHAREHOLDERS' MEETING OR CONSENT.
The Borrower shall submit to a vote or consent of its shareholders at
its next annual meeting of shareholders a proposal (the "Proposal") to approve
the issuance of shares of Common Stock upon conversion of the Debentures, unless
the Required Lenders shall otherwise consent. The Borrower shall cause the Board
of Directors to recommend that the shareholders vote in favor of, or consent to,
the Proposal, and the Borrower shall cause its principal shareholders and
executive officers to vote in favor of the Proposal in accordance with the terms
of the Voting Agreement.
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER
So long as any part of the Debentures have not been redeemed or
converted hereunder, and until such redemption or conversion in full, unless the
Required Lenders shall otherwise consent in writing, Borrower agrees that:
25
AGREEMENT (CONTINUED)
SECTION 6.01. LIMITATION ON INDEBTEDNESS.
At Loan Closing, Borrower and its Subsidiaries shall not have any
outstanding Indebtedness, except Indebtedness arising out of this Agreement, the
Debentures, Permitted Indebtedness or as set forth in Schedule 6.01. Borrower or
its Subsidiaries will not incur or guarantee any Indebtedness, unless:
(i) Borrower shall be in compliance with Section 7.01, as set forth in
its quarterly compliance certificate most recently delivered pursuant
to Section 5.01 provided that, notwithstanding the foregoing, during
any period in which Borrower is not in compliance with Section 7.01
upon prior written notice to each Lender, the Borrower may incur Senior
Obligations or may refund, refinance or extend the maturity of the
Indebtedness evidenced by the Senior Documents in the aggregate
principal amount not in excess of $45,800,000, subject to the Lenders'
rights of redemption as provided in the Debentures, or (ii) Borrower or
its Subsidiaries shall have obtained the consent of Required Lenders.
SECTION 6.02. LIMITATION ON LIENS.
Borrower shall not, and shall not permit its Subsidiaries to, create,
cause, incur, permit, suffer to exist any Lien upon any of its properties or
assets, other than Permitted Liens.
SECTION 6.03. LIMITATION ON INVESTMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, make or
have outstanding any Investments in any Person, except for Borrower's and any
Subsidiary's acquisition or ownership of stock of or other equity interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect to
such Investments), loans and other transactions between the Borrower and any
Subsidiaries, short term bank deposits or money market investments, and such
other "cash equivalent" investments as the Lenders may from time to time
approve, and customer obligations and receivables arising out of sales or leases
made or the rendering of services in the ordinary course of business.
SECTION 6.04. ALTERATION OF MATERIAL AGREEMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, consent
to or permit any alteration, amendment, modification, release, waiver or
termination of any material agreement to which it is party, other than in the
ordinary course of business, if such alteration, amendment, modification,
release, waiver or termination could reasonably be expected to have a Material
Adverse Effect.
SECTION 6.05. CERTAIN TRANSACTIONS.
Except as disclosed in Schedule 6.05, Borrower shall not, and shall not
permit its Subsidiaries to, enter into any transaction not in the ordinary
course of business with, or pay any management fees to, any Affiliate, except
for intercompany transactions, without the consent of the Required Lenders,
unless the terms thereof
26
AGREEMENT (CONTINUED)
(1) are no less favorable to Borrower or such Subsidiary than those that could
be obtained at the time of such transaction in arm's-length dealings with a
Person who is not an Affiliate, or (2) if such transaction involves an amount
less than $250,000, are set forth in writing and have been approved by a
majority of the members of the Board of Directors having no personal stake in
the transaction.
SECTION 6.06. LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.
Borrower shall not, and shall not permit its Subsidiaries to, engage in
any line of business or acquire any new product lines or business or acquire any
companies unless such new product line or business of the company acquired is
primarily involved in, or substantially similar or related to, the Borrower's
current lines of business.
SECTION 6.07. LIMITATION ON SALE OF PROPERTIES.
Borrower shall not, and shall not permit its Subsidiaries to, (i) sell,
assign, convey, exchange, lease or otherwise dispose of any of its properties,
rights, assets or business (including the capital stock of its operating
Subsidiaries), whether now owned or hereafter acquired having a market value in
excess of $2.5 millions in any single transaction or series of related
transactions, except (x) Borrower's vending business, (y) warehouse facilities
and (z) in the ordinary course of business and for fair consideration, or (ii)
sell, assign or discount any accounts receivable except in the ordinary course
of business (which shall include receivable financing or securitization) without
the consent of the Required Lenders.
SECTION 6.08. FISCAL YEAR AND ACCOUNTING METHOD.
Borrower shall not, and shall not permit its Subsidiaries to, change
its fiscal year or method of accounting, except as permitted by GAAP.
SECTION 6.09. LIQUIDATION.
Borrower shall not, and shall not permit its Subsidiaries to, (i)
dissolve or liquidate (except for dissolution or liquidation of inactive
Subsidiaries in the ordinary course of business) or (ii) enter into any other
transaction that has a similar effect.
SECTION 6.10. NO AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
Borrower shall not, and shall not permit its Subsidiaries to, amend its
Articles of Incorporation or bylaws in any manner that could reasonably be
expected to have a Material Adverse Effect, without the consent of the Required
Lenders.
SECTION 6.11. EXECUTIVE COMPENSATION.
27
AGREEMENT (CONTINUED)
(a) Borrower will not increase the salary, bonus, or other compensation
programs (whether in cash, securities, or other property, and whether payment is
deferred or current) of its five most senior executive officers, unless such
compensation increase is approved by a majority of the Board or a Compensation
Committee of the Board of Directors, a majority of whom shall nonemployee
Directors.
(b) Borrower shall not implement any bonus, profit sharing or other
incentive plans, until such plans are formally adopted by the majority of the
Board or a Compensation Committee of the Board of Directors, a majority of which
shall be nonemployee Directors. Borrower's executive compensation shall be
consistent with the general compensation policies adopted by the Compensation
Committee of the Board of Directors.
SECTION 6.12. RESTRICTED PAYMENTS.
Borrower shall not (i) declare or pay any dividend (other than stock
dividends) or make any other cash distribution on any Common Stock or Preferred
Stock, without the consent of the Required Lenders, (ii) purchase, redeem, or
otherwise acquire any shares of Common Stock or Preferred Stock, without the
consent of the Required Lenders, (iii) make any payments of Indebtedness (other
than Senior Obligations) which are PARI PASSU or subordinated to the Debentures,
if at the time of such payment, the Borrower is in Default with respect to any
monetary obligation in respect of the Loan, except for the payment of
subordinated debt to the principal shareholder of Borrower pursuant to Section
2.02 hereof and to the former shareholders of Ace Novelty Co., Inc.
SECTION 6.13. CONSOLIDATION OR MERGER.
Borrower shall not consolidate with or merge into any other
corporation, unless the surviving corporation after such merger or consolidation
will not be in Default and the surviving corporation becomes a party to this
Agreement. Subsidiaries shall only consolidate with or merge into the Borrower
or another Subsidiary.
SECTION 6.14. OWNERSHIP OF SUBSIDIARIES.
The Borrower shall own at all times all of the capital stock, or other
equity interests in, of the Subsidiaries except for directors qualifying shares
and minority interests of foreign subsidiaries as required by applicable law.
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
SECTION 7.01. FINANCIAL RATIOS.
So long as any of the Debentures have not been redeemed or converted
hereunder, and until such redemption or conversion has been made in full, or
unless the Required Lenders shall otherwise consent in writing, the Borrower, on
a consolidated basis, shall be in compliance with the agreed minimum financial
ratios
28
AGREEMENT (CONTINUED)
and standards provided in Schedule 7.01, as of the end of each fiscal quarter of
Borrower and as set forth in its most recent quarterly compliance certificates
delivered pursuant to Section 5.01.
ARTICLE VIII - EVENTS OF DEFAULT
SECTION 8.01. EVENTS OF DEFAULT.
(a) An "Event of Default" shall exist if any one or more of the
following events (herein collectively called "Events of Default") shall occur
and be continuing:
(i) Borrower shall fail to pay when due (or shall state in
writing an intention not to pay or its inability to pay) any installment of
interest on or principal of, any Debenture or any fee, expense or other payment
required hereunder, and such failure continues for three (3) days following the
due date;
(ii) Any representation or warranty made under this Agreement,
or any of the other Loan Documents, or in any certificate or statement furnished
or made to Agent pursuant hereto or in connection herewith or with the Loans
hereunder, shall prove to be untrue or inaccurate in any material respect as of
the date on which such representation or warranty was made;
(iii) Default shall occur in the performance of any of the
covenants or agreements of Borrower or of its Subsidiaries contained herein, or
in any of the other Loan Documents, which Default is not remedied within (x) in
the case of any covenant in Article V or VI, thirty (30) days after the
occurrence of such breach or failure to perform, (y) in the case of any covenant
in Article VII, ten (10) days after the occurrence of such breach or failure to
perform and (z) in the case of any other covenant, thirty (30) days after notice
of the occurrence of such breach or failure to perform is given to Borrower by
Required Lender; provided that such 30 day grace period shall not apply to
defaults of any payment or notice required to be made or given by Borrower.
(iv) Default shall occur in the payment of any Senior
Obligations or in the payment of any other Indebtedness having an aggregate
principal amount in excess of $1,000,000, or nonmonetary default shall occur in
respect of any note, loan agreement or credit agreement relating to any
Indebtedness having an aggregate principal amount in excess of $5,000,000, and
such default continues for more than the period of grace, if any, specified
therein or any Indebtedness having an aggregate principal amount in excess of
$5,000,000, shall become due before its stated maturity by acceleration of the
maturity, or any indebtedness having an aggregate principal amount in excess of
$1,000,000, shall become due by its terms and shall not be promptly paid or
extended;
(v) Any of the Loan Documents shall cease to be legal, valid
and binding agreements enforceable against the Borrower in accordance with the
respective terms, or shall in any way be terminated or become or be declared by
any court or by Borrower or any Subsidiary in any legal proceeding to be
ineffective or inoperative, or shall in any way whatsoever cease to give or
provide the respective rights, titles, interests, remedies, powers or privileges
stated therein to be created thereby;
(vi) Borrower or its Subsidiaries shall (A) apply for or
consent to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself, or of all or substantially all of such Person's assets,
(B) file a
29
AGREEMENT (CONTINUED)
voluntary petition in bankruptcy, admit in writing that such Person is unable to
pay such Person's debts as they become due or generally not pay such Person's
debts as they become due, (C) make a general assignment for the benefit of
creditors, (D) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (E) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (F) take corporate action for the
purpose of effecting any of the foregoing;
(vii) An involuntary petition or complaint shall be filed
against Borrower or any of its Subsidiaries seeking bankruptcy or reorganization
of such Person or the appointment of a receiver, custodian, trustee, intervenor
or liquidator of such Person, or all or substantially all of such Person's
assets, and such petition or complaint shall not have been dismissed within
sixty (60) days of the filing thereof or an order, order for relief, judgment or
decree shall be entered by any court of competent jurisdiction or other
competent authority approving a petition or complaint seeking reorganization of
Borrower or its subsidiary or appointing a receiver, custodian, trustee,
intervenor or liquidator of such Person, or of all or substantially all of such
Person's assets;
(viii) Any final judgment(s) for the payment of money in
excess of the sum of $500,000 in the aggregate shall be rendered against
Borrower or any subsidiary and such judgment or judgments shall not be satisfied
or discharged prior to the date on which any of its assets could be lawfully
sold to satisfy such judgment; or
(ix) The Borrower shall fail to issue and deliver shares of
Common Stock as provided herein upon conversion of the Debenture.
SECTION 8.02. REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing, then
the Required Lenders may exercise any one or more of the following rights and
remedies, and any other remedies provided in any of the Loan Documents, as the
Required Lenders in their sole discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of
any payments or installments received by the Lenders) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding;
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce
any of the Lenders' rights and remedies under the Loan Documents, or otherwise
provided under or pursuant to any applicable law or agreement, all of which
rights may be specifically enforced.
SECTION 8.03. PERFORMANCE BY THE LENDERS.
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AGREEMENT (CONTINUED)
Should Borrower fail to perform any covenant, duty or agreement
contained herein or in any of the other Loan Documents, any Lender or Agent may
perform or attempt to perform such covenant, duty or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of any Lender or Agent,
promptly pay any amount reasonably expended by any Lender or Agent in such
performance or attempted performance to any Lender or Agent at its principal
office, together with interest thereon, at the interest rate specified in the
Debenture, from the date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly understood that any Lender or Agent assumes no
liability or responsibility for the performance of any duties of Borrower
hereunder or under any of the other Loan Documents.
SECTION 8.04. PAYMENT OF EXPENSES INCURRED BY THE LENDERS.
Upon the occurrence of a Default or an Event of Default, which
occurrence is not cured within the notice provisions, if any, provided herein,
Borrower agrees to pay and shall pay all costs and expenses (including
attorneys' fees and expenses) incurred by any Lender or Agent in connection with
the preservation and enforcement of the Lenders' rights under this Agreement,
the Debenture or any other Loan Document.
ARTICLE IX - REGISTRATION RIGHTS
SECTION 9.01. DEMAND REGISTRATION.
(a) Subject to the Holder's rights to convert all or part of the
Debentures, the Borrower hereby agrees to register, subject to the terms and
conditions set forth herein, all or any portion of the Registrable Securities on
one occasion at least 18 months after Closing if it shall receive a written
request from the Holders of at least thirty-three percent (33%) of the
Registrable Securities Then Outstanding that the Borrower file a registration
statement under the 1933 Act covering the registration of at least a majority of
the Registrable Securities Then Outstanding. The Borrower shall, within 20 days
of its receipt thereof, give written notice of such request to all Holders of
record of Registrable Securities. The Holders of said Registrable Securities
shall then have 15 days from the date of mailing of such notice by the Borrower
to request that all or a portion of their respective Registrable Securities be
included in said registration. The Borrower hereby agrees, subject to the
limitations hereof, to use its reasonable efforts to effect as soon as
reasonably possible, and in any event (if legally possible, and as allowed by
the SEC, and if no factor outside the Borrower's reasonable control prevents it)
within 150 days of the receipt of the initial written registration request, to
effect the registration under the 1933 Act of all Registrable Securities which
the Holders thereof (the "Initiating Holders") have requested.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Borrower as a part of their request made pursuant to this Agreement,
and the Borrower shall include such information in the written notice to the
other Holders of Registrable Securities referred to in Section 9.01(a). In such
event, the right of any Holder to include its Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by the Borrower, the underwriter,
a majority in interest of the Initiating Holders and such Holder) is limited to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Borrower as provided in
Section 9.03(e)) enter into an underwriting agreement in customary form with the
underwriter or
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AGREEMENT (CONTINUED)
underwriters selected for such underwriting by mutual agreement of the Borrower
and a majority in interest of the Initiating Holders, which agreement shall not
be unreasonably withheld. Notwithstanding any other provision of this Section
9.01, if the underwriter advises the Initiating Holders and the Borrower in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Initiating Holder(s) shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated on a pro rata basis among all Holders that have
requested to participate in such registration. The rights of Holders shall be
senior to those of any Persons subsequently granted registration rights.
(c) Notwithstanding the foregoing, if the Borrower shall furnish to the
Initiating Holders a certificate signed by the President of the Borrower stating
that in the good faith judgment of the Board of Directors of the Borrower, it
would be materially detrimental to the Borrower and its shareholders for such
registration statement to be filed at that time, and it is therefore essential
to defer the filing of such registration statement, the Borrower shall have the
right to defer the commencement of such a filing for a period of not more than
180 days after receipt of the request of the Initiating Holders; provided,
however, that at least 12 months must elapse between any two such deferrals.
SECTION 9.02. "PIGGY-BACK" REGISTRATION.
If the Borrower proposes to register any of its capital stock under the
1933 Act in connection with the public offering of such securities for its own
account or for the account of its security holders, other than Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration Statement"),
except for (i) a registration relating solely to the sale of securities to
participants in the Borrower's stock plans or employee benefit plans or (ii) a
registration relating solely to an transaction for which Form S-4 may be used,
then:
(a) The Borrower shall give written notice of such determination to
each Holder of Registrable Securities, and each such Holder shall have the right
to request, by written notice given to the Borrower within 15 days of the date
that such written notice was mailed by the Borrower to such Holder, that a
specific number of Registrable Securities held by such Holder be included in the
Piggy-Back Registration Statement (and related underwritten offering, if any);
(b) If the Piggy-Back Registration Statement relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of the
managing underwriter or underwriters for such offering. In addition such notice
shall also specify the number of securities to be registered for the account of
the Borrower and for the account of its shareholders (other than the Holders of
Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an underwritten
offering, each Holder of Registrable Securities to be included therein must
agree (i) to sell such Holder's Registrable Securities on the same basis as
provided in the underwriting arrangement approved by the Borrower, and (ii) to
timely complete and execute all questionnaires, powers of attorney, indemnities,
hold-back agreements, underwriting agreements and other documents required under
the terms of such underwriting arrangements or by the SEC or by any state
securities regulatory body;
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AGREEMENT (CONTINUED)
(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Securities in such offering would
materially adversely affect the ability of the underwriters for such offering to
sell all of the securities requested to be included for sale in such offering at
the best price obtainable therefor, the aggregate number of Registrable
Securities that may be sold by the Holders shall be limited to such number of
Registrable Securities, if any, that the managing underwriter or underwriters
determine may be included therein without such adverse effect as provided below.
If the number of securities proposed to be sold in such underwritten offering
exceeds the number of securities that may be sold in such offering, there shall
be included in the offering, first, up to the maximum number of securities to be
sold by the Borrower for its own account and for the account of other
stockholders (other than Holders of Registrable Securities), as they may agree
among themselves, and second, as to the balance, if any, Registrable Securities
requested to be included therein by the Holders thereof (pro rata as between
such Holders based upon the number of Registrable Securities initially proposed
to be registered by each), or in such other proportions as the managing
underwriter or underwriters for the offering may require; provided, however,
that in the event that the number of securities proposed to be sold in such
underwritten offering exceeds the number of securities that may be sold in such
offering pursuant to the terms and conditions set forth above and the Piggy-Back
Registration Statement is a result of public offering by the Borrower of its
securities for its own account, there shall be included in the offering, first,
up to the maximum number of securities to be sold by the Borrower for its own
account and second, as to the balance, if any, securities to be sold for the
account of the Borrower's stockholders (both the Holders of Registrable
Securities requested and such other stockholders of the Borrower requested to be
included therein) on a pro rata basis;
(e) Holders of Registrable Securities shall have the right to withdraw
their Registrable Securities from the Piggy-Back Registration Statement, but if
the same relates to an underwritten offering, they may only do so during the
time period and on the terms agreed upon among the underwriters for such
underwritten offering and the Holders of Registrable Securities; and
(f) The exercise of the registration rights of the Holders with respect
to any specific underwriters offering shall be subject to a 90-day delay at the
request of the managing underwriter.
SECTION 9.03. OBLIGATIONS OF THE BORROWER.
Whenever required to effect the registration of any Registrable
Securities pursuant to this Agreement, the Borrower shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use all reasonable efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the sooner of all such Registrable Securities having been
distributed, or until 120 days have elapsed since such registration statement
became effective (subject to extension of this period as provided below);
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or
33
AGREEMENT (CONTINUED)
120 days have elapsed since such registration statement became effective
(subject to the extension of this period as provided below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Borrower shall not be required in connection therewith or as a
condition thereto to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any such
states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to the Borrower and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and
(g) In the event of the notification provided for in Section 9.03(f)
above, the Borrower shall use its best efforts to prepare and file with the SEC
(and to provide copies thereof to the Holders) as soon as reasonably possible an
amended prospectus complying with the 1933 Act, and the period during which the
prospectus referred to in the notice provided for in Section 9.03(f) above
cannot be used and the time period prior to the use of the amended prospectus
referred to in this Section 9.03(g) shall not be counted in the 120 day period
of this Section 9.03.
SECTION 9.04. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Borrower to take any action pursuant to this Article IX that the selling Holders
shall furnish to the Borrower any and all information reasonably requested by
the Borrower, its officers, directors, employees, counsel, agents or
representatives, the underwriter or underwriters, if any, and the SEC or any
other Governmental Authority, including but not limited to: (i) such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities, as shall be required to effect the
registration of their Registrable Securities, and (ii) the identity of and
compensation to be paid to any proposed underwriter or broker-dealer to be
employed in connection therewith.
34
AGREEMENT (CONTINUED)
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Borrower
shall give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be registered and their underwriters, if any, and
their respective counsel and accountants, at such Holders' sole cost and expense
(except as otherwise set forth herein), such access to copies of the Borrower's
records and documents and such opportunities to discuss the business of the
Borrower with its officers and the independent public accountants who have
certified its financial statements as shall be reasonably necessary in the
opinion of such Holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the 1933 Act.
SECTION 9.05. EXPENSES OF REGISTRATION.
Except as set forth below, all expenses, other than underwriting
discounts and commissions incurred in connection with not more than one demand
registration pursuant to Section 9.01 above or any number of "piggyback"
registration rights pursuant to Section 9.06, including, without limitation, all
registration, filing and qualification fees, printers' expenses, accounting and
legal fees and expenses of Borrower, and legal fees and expenses of one counsel
for the selling Holders, shall be borne by the Borrower.
SECTION 9.06. INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
If any Registrable Securities are included in a registration statement
under this Article IX:
(a) To the extent permitted by law, the Borrower will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages, liabilities (joint or
several) or any legal or other costs and expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action to which they may become subject under the 1933 Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
costs, expenses or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact with respect to the Borrower or its securities
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements therein;
(ii) the omission or alleged omission to state therein a material fact with
respect to the Borrower or its securities required to be stated therein or
necessary to make the statements therein not misleading; or (iii) any violation
or alleged violation by the Borrower of the 1933 Act, the 1934 Act, any federal
or state securities law or any rule or regulation promulgated under the 1933
Act, the 1934 Act or any state securities law. Notwithstanding the foregoing,
the indemnity agreement contained in this Section 9.06(a) shall not apply and
the Borrower shall not be liable (i) in any such case for any such loss, claim,
damage, costs, expenses, liability or action to the extent that it arises out of
or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person, or (ii) for
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the prior written consent of the
Borrower, which consent shall not be unreasonably withheld.
35
AGREEMENT (CONTINUED)
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless the Borrower, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls the
Borrower within the meaning of the 1933 Act or the 1934 Act, each of the
Borrower's employees, agents, counsel and representatives, any underwriter and
any other Holder selling securities in such registration statement, or any of
its directors or officers, or any person who controls such Holder, against any
losses, claims, damages, costs, expenses, liabilities (joint or several) to
which the Borrower or any such director, officer, controlling person, employee,
agent, representative, underwriter, or other such Holder, or director, officer
or controlling person thereof, may become subject, under the 1933 Act, the 1934
Act or other federal or state law, only insofar as such losses, claims, damages,
costs, expenses or liabilities or actions in respect thereto arise out of or are
based upon any Violation, in each case to the extent and only to the extent that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such.
Each such Holder will indemnify any legal or other expenses reasonably incurred
by the Borrower or any such director, officer, employee, agent representative,
controlling person, underwriter or other Holder, or officer, director or of any
controlling person thereof, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 9.06(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, costs, expenses, liability
or action if such settlement is effected without the prior written consent of
the Holder, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9.06 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.06, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
of such counsel to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve the indemnifying party of its obligations under this Section 9.06,
except to the extent that the failure results in a failure of actual notice to
the indemnifying party and such indemnifying party is materially prejudiced in
its ability to defend such action solely as a result of the failure to give such
notice.
(d) If the indemnification provided for in this Section 9.06 is
unavailable to an indemnified party under this Section in respect of any losses,
claims, damages, costs, expenses, liabilities or actions referred to herein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, costs, expenses, liabilities or actions
in such proportion as is appropriate to reflect the relative fault of the
Borrower, on the one hand and of the Holder, on the other, in connection with
the Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of the Borrower, on the one hand, and
of the Holder, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of the material fact or
the
36
AGREEMENT (CONTINUED)
omission to state a material fact relates to information supplied by the
Borrower or by the Holder, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
(e) The Borrower, on the one hand, and the Holders, on the other hand,
agree that it would not be just and equitable if contribution pursuant to this
Section 9.06 were determined by a pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of losses, claims, damages, costs, expenses,
liabilities and actions referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses incurred by such indemnified party in connection with
defending any such action or claim. Notwithstanding the provisions of this
Section 9.06, neither the Borrower nor the Holders shall be required to
contribute any amount in excess of the amount by which the total price at which
the securities were offered to the public exceeds the amount of any damages
which the Borrower or each such Holder has otherwise been required to pay by
reason of such Violation. No person guilty of fraudulent misrepresentations
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
SECTION 9.07. REPORTS UNDER THE 1934 ACT.
So long as the Borrower has a class of securities registered pursuant
to Section 12 of the 1934 Act, with a view to making available to the Holders
the benefits of Rule 144 promulgated under the 1933 Act ("Rule 144") and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Borrower to the public without registration or pursuant to a
registration on Form S-3, if applicable, the Borrower agrees to use its
reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Borrower under the 1933 Act and the 1934 Act;
(c) Use its best efforts to include all Common Stock covered by such
registration statement on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list all Common Stock covered by such registration statement on such
securities exchange on which any of the Common Stock is then listed; or, if the
Common Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its best efforts to have such Common Stock covered by such
registration statement quoted on NASDAQ or, at the option of the Borrower,
listed on a national securities exchange; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, (i) forthwith upon request a copy of the most recent annual or
quarterly report of the Borrower and such other SEC reports and documents so
filed by the Borrower, and (ii) such other information (but not any opinion of
counsel) as may be reasonably requested by any Holder seeking to avail himself
of any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
37
AGREEMENT (CONTINUED)
SECTION 9.08. ASSIGNMENT OF REGISTRATION RIGHTS.
Subject to the terms and conditions of this Agreement, and the
Debentures, the right to cause the Borrower to register Registrable Securities
pursuant to this Agreement may be assigned by Holder to any transferee or
assignee of such securities; provided that said transferee or assignee is a
transferee or assignee of at least ten percent (10%) of the Registrable
Securities and provided that the Borrower is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act; it being the intention that so long as Holder
holds any Registrable Securities hereunder, either Holder or its transferee or
assignee of at least ten percent may exercise the demand right to registration
and piggy-back registration rights hereunder. Other than as set forth above, the
parties hereto hereby agree that the registration rights hereunder shall not be
transferable or assigned and any contemplated transfer or assignment in
contravention of this Agreement shall be deemed null and void and of no effect
whatsoever.
SECTION 9.09. OTHER MATTERS.
(a) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, with respect to each offering of the
Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or nonunderwritten offering, such Holder will
comply with Rules 10b-2, 10b-6 and 10b-7 of the 1934 Act and such other or
additional anti-manipulation rules then in effect until such offering has been
completed, and in respect of any nonunderwritten offering, in writing will
inform the Borrower, any other Holders who are selling shareholders, and any
national securities exchange upon which the securities of the Borrower are
listed, that the Registrable Securities have been sold and will, upon the
Borrower's request, furnish the distribution list of the Registrable Securities.
In addition, upon the request of the Borrower, each Holder will supply the
Borrower with such documents and information as the Borrower may reasonably
request with respect to the subject matter set forth and described in this
Section 9.09.
(b) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, upon receipt of any notice from the
Borrower of the happening of any event which makes any statement made in the
registration statement, the prospectus or any document incorporated therein by
reference, untrue in any material respect or which requires the making of any
changes in the registration statement, the prospectus or any document
incorporated therein by reference, in order to make the statements therein not
misleading in any material respect, such Holder will forthwith discontinue
disposition of Registrable Securities under the prospectus related to the
applicable registration statement until such Holder's receipt of the copies of
the supplemented or amended prospectus, or until it is advised in writing by the
Borrower that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus.
(c) The Borrower hereby agrees not to effect any public sale or other
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such equity securities, during the period
commencing on the 7th day prior to, and ending on the 90th day (subject to
extension as provided in Section 9.03 hereof) following the effective date of
any underwritten demand registration, other than pursuant to Form S-8.
38
AGREEMENT (CONTINUED)
SECTION 9.10. TERMINATION OF RIGHTS.
The Holders' right to demand registration of Registrable Securities
shall terminate after the Holder has exercised one demand registration right at
the expense of the Borrower as provided in Article IX of this Agreement. The
Holders' right to piggy-back registration of Registrable Securities shall
terminate after the earlier of two years after the date of issuance of the
Debentures or the date upon which the Registrable Securities may be sold under
Rule 144(k).
ARTICLE X - INFORMATION; MEETINGS WITH MANAGEMENT
SECTION 10.01. INFORMATION.
Borrower shall furnish to each Lender within three (3) business days of
receipt or occurrence all material correspondence, reports, memoranda and other
information provided by Borrower to, and all minutes and consents of, the Board
of Directors, committees of the Board of Directors, and shareholders of
Borrower, together with all information provided by Borrower to its Senior
Obligations lenders.
SECTION 10.02. MEETINGS WITH MANAGEMENT.
Borrower's executive management shall meet quarterly with each Lender
or its representative, at the expense of Borrower, upon at least three (3)
business days' notice by the Required Lenders of any such meeting. Borrower may
postpone any such meeting for up to five (5) business days if it believes, in
good faith, that such a meeting will be disruptive to its business, unless a
Default exists and is continuing.
SECTION 10.03. NONLIABILITY OF THE LENDERS.
The relationship between Borrower and the Lenders is, and shall at all
times remain, solely that of borrower and lender. The Lenders neither undertake
nor assume any responsibility or duty to the Borrower to review, inspect,
supervise, pass judgment upon, or inform Borrower of any matter in connection
with any phase of Borrower's business, operations, or condition, financial or
otherwise. Borrower shall rely entirely upon its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment, or
information supplied to Borrower by the Lenders, or any representative or agent
of the Lenders, in connection with any such matter is for the protection of the
Lenders, and neither Borrower nor any third party is entitled to rely thereon.
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS
SECTION 11.01. THE LENDERS' REPRESENTATIONS AND WARRANTIES TO OTHER LENDERS.
Each Lender represents and warrants to the other Lenders and the Agent:
(a) It is legal for it to make its portion of the Loan, and the making
of such portion of the Loan complies with laws applicable to it;
39
AGREEMENT (CONTINUED)
(b) It has made, without reliance upon any other Lenders, its own
independent review (including any desired investigations and inspections) of,
and it accepts and approves, the Loan, this Agreement and the associated
documents and all other matters and information which it deems pertinent. It
acknowledges that the Loan Documents are a complete statement of all
understandings and respective rights and obligations between and among the
Lenders and Borrowers regarding the Loan.
(c) None of the Lenders have made any express or implied representation
or warranty to any other Lender with respect to this transaction.
(d) It will, independently and without reliance upon any other Lender,
and based upon such documents and information as it shall deem appropriate at
the time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and will make such
investigation as it deems necessary to inform itself as to the Loan, the Loan
Document, the Borrower and any collateral; provided, however, nothing contained
in this Section shall limit Agent's obligation to provide the other Lenders with
the information and documents Agent is expressly required to deliver under this
Agreement.
(e) The relationship of each Lender is, and shall at all times remain,
solely that of each Lender of its respective Loan. The Lenders are not partners
or joint venturers in connection with the Loan.
SECTION 11.02. WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS.
A waiver of an interest or principal payment, a declaration of a
Default or any amendment, modification or waiver of this Agreement or the
Debentures will require the consent of the Required Lenders.
SECTION 11.03. AGENCY.
(a) Renaissance III and Renaissance PLC (the "Renaissance Funds") each
hereby designate and appoint Renaissance Group as its Agent under this Agreement
and authorizes the Agent to take such action on its behalf under the provisions
of this Agreement and the other Loan Documents and to exercise such powers as
are set forth herein or therein, together with such other powers as are
reasonable incidental thereto. In performing its functions and duties under this
Agreement, the Agent shall act solely as agent of Renaissance III and
Renaissance PLC and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for the Borrower or
BOCPII. The Agent may perform any of its duties under this Agreement, or under
the other Loan Documents, by or through its agents or employees.
(b) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement or in the other Loan Documents. Except as
expressly provided herein, the duties of the Agent shall be mechanical and
administrative in nature. The Agent shall have and may use its sole discretion
with respect to exercising or refraining from taking any actions which the Agent
is expressly entitled to take or assert under this Agreement and the other Loan
Documents. The Agent shall not have by reason of this Agreement a fiduciary
relationship with respect to the Renaissance Funds. Nothing in this Agreement or
any of the other Loan Documents, express or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement
or any of the other Loan Documents except as expressly set forth herein or
therein. If the Agent seeks
40
AGREEMENT (CONTINUED)
the consent or approval of the Renaissance Funds to the taking or refraining
from taking any action hereunder, the Agent shall send notice thereof to the
Renaissance Funds. The Agent may employ agents, co-agents and attorneys-in-fact
and shall not be responsible to Renaissance III, Renaissance PLC, the Borrower
or BOCPII , except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care.
(c) Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to the Renaissance Funds for any action taken or omitted
by it or any of them under this Agreement or under any of the other Loan
Documents, or in connection herewith or therewith, except that no Person shall
be relieved of any liability imposed by law, intentional tort or gross
negligence. The Agent shall not be not be responsible to the Renaissance Funds
for any recitals, statements, representations or warranties contained in this
Agreement or for the execution, effectiveness, genuineness, validity,
enforceability, collectability, or sufficiency of this Agreement or any of the
other Loan Documents or any of the transactions contemplated thereby, or for the
financial condition of any of the Borrowers. The Agent shall not be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or any of the other Loan
Documents or the financial condition of the Borrower, or the existence or
possible existence of any Default or Event of Default. Agent shall give the
Renaissance Funds notice of any Default or Event of Default of which Agent has
actual notice. The Agent may at any time request instructions from Renaissance
III and Renaissance PLC with respect to any actions or approvals which by the
terms of this Agreement or of any of the other Loan Documents the Agent is
permitted or required to take or to grant, and if such instructions are promptly
requested, the Agent shall be absolutely entitled to refrain from taking any
action or to withhold any approval and shall not be under any liability
whatsoever to any Person for refraining from any action or withholding any
approval under any of the Loan Documents until it shall have received such
instructions from the Renaissance Funds. Without limiting the foregoing, the
Renaissance Funds shall not have any right of action whatsoever against the
Agent as a result of the Agent acting or refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the instructions
of the Renaissance Funds.
(d) The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement or any of the other Loan Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.
(e) To the extent that the Agent is not reimbursed and indemnified by
the Borrower, Renaissance III and Renaissance PLC will reimburse and indemnify
the Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, advances or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any of the other Loan Documents or any action taken or omitted by
the Agent under this Agreement or any of the other Loan Documents, in proportion
to the Renaissance Funds' pro rata share. The obligations of Renaissance III and
Renaissance PLC under this indemnification provision shall survive the payment
in full of the Loans and the termination of this Agreement.
41
AGREEMENT (CONTINUED)
ARTICLE XII - MISCELLANEOUS
SECTION 12.01. STRICT COMPLIANCE.
Any waiver by the Required Lenders of any breach or any term or
condition of this Agreement or the other Loan Documents shall not be deemed a
waiver of any other breach, nor shall any failure to enforce any provision of
this Agreement or the other Loan Documents operate as a waiver of such provision
or of any other provision, nor constitute nor be deemed a waiver or release of
the Borrower for anything arising out of, connected with or based upon this
Agreement or the other Loan Documents.
SECTION 12.02. WAIVERS AND MODIFICATIONS.
All modifications, consents, amendments or waivers (herein "Waivers")
of any provision of this Agreement, the Debentures or any other Loan Documents,
and any consent to departure therefrom, shall be effective only if the same
shall be in writing by the Required Lenders and then shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
given in any case shall constitute a waiver of the right to take other action in
the same, similar or other instances without such notice or demand. No failure
to exercise, and no delay in exercising, on the part of Agent or any Lender, any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise any other right. The rights of any Lender hereunder and under the other
Loan Documents shall be in addition to all other rights provided by law.
SECTION 12.03. LIMITATION ON LIABILITY.
The duties, warranties, covenants and promises arising from the Loan
Documents of each Lender to Borrower shall be several and not joint, and the
Borrower shall have no legal or equitable cause of action against any Lender (or
its successors or assigns) for any liability of any other Lender (or its
successors or assigns).
SECTION 12.04. CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
Any suit, action or proceeding against the Borrower with respect to
this Agreement, the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
the State of Ohio, County of Franklin, or in the United States courts located in
the States of Texas or Ohio, as each Lender in its sole discretion may elect,
and Borrower hereby submits to the nonexclusive jurisdiction of such courts for
the purpose of any such suit, action or proceeding. Borrower hereby agrees that
service of all writs, process and summonses in any such suit, action or
proceeding brought in the State of Texas may be brought upon, and Borrower
hereby irrevocably appoints, the CT Corporation System, Dallas, Texas, as its
true and lawful attorney-in-fact in the name, place and stead of Borrower to
accept such service of any and all such writs, process and summonses. Borrower
hereby irrevocably waives any objections which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Agreement or any Debenture brought in such courts, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum.
42
AGREEMENT (CONTINUED)
SECTION 12.05. ARBITRATION.
(a) Upon the demand of the Required Lenders or Borrower (collectively
the "parties"), made before the institution of any judicial proceeding or not
more than 60 days after service of a complaint, third party complaint,
cross-claim or counterclaim or any answer thereto or any amendment to any of the
above, any Dispute (as defined below) shall be resolved by binding arbitration
in accordance with the terms of this arbitration clause. A "Dispute" shall
include any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now existing
or hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement, any document evidencing, creating, governing, or
securing any indebtedness guaranteed pursuant to the terms hereof, or any
related agreements, documents, or instruments (the "Documents"). The parties
understand that by this Agreement they have decided that the Disputes may be
submitted to arbitration rather that being decided through litigation in court
before a judge or jury and that once decided by an arbitrator the claims
involved cannot later be brought, filed, or pursued in court. IF BORROWER SHALL
FAIL TO PAY (OR SHALL STATE IN WRITING AN INTENTION NOT TO PAY OR ITS INABILITY
TO PAY) NOT LATER THAN THREE (3) DAYS AFTER THE DUE DATE, ANY INSTALLMENT OF
INTEREST ON OR PRINCIPAL OF, ANY DEBENTURE OR ANY FEE, EXPENSE OR OTHER PAYMENT
REQUIRED HEREUNDER, THE LENDERS MAY, AT THEIR OPTION, ENFORCE THEIR RIGHTS
OUTSIDE THE ARBITRATION PROVISION FOUND IN THIS SECTION 12.05 OR ANY DEBENTURE.
(b) Arbitrations conducted pursuant to this Agreement, including
selection of arbitrators, shall be administered by the American Arbitration
Association ("Administrator") pursuant to the Commercial Arbitration rules of
the Administrator. Arbitrations conducted pursuant to the terms hereof shall be
governed by the provisions of the Federal Arbitration Act (Title 9 of the United
States Code), and to the extent the foregoing are inapplicable, unenforceable or
invalid, the laws of the State of Texas. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction; provided, however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. 91 or similar
governing state law. Any party who fails to submit to binding arbitration
following a lawful demand by the opposing party shall bear all costs and
expenses, including reasonable attorneys' fees, incurred by the opposing party
in compelling arbitration of any Dispute.
(c) No provision of, nor the exercise of any rights under, this
arbitration clause shall limit the right of any party to (i) foreclose against
any real or personal property collateral or other security, (ii) exercise
self-help remedies (including repossession and setoff rights) or (iii) obtain
provisional or ancillary remedies such as injunctive relief, sequestration,
attachment, replevin, garnishment, or the appointment of a receiver from a court
having jurisdiction. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action as described above
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the Dispute to arbitration, nor render inapplicable the
compulsory arbitration provisions hereof. Any claim or Dispute related to
exercise of any self-help, auxiliary or other exercise of rights under this
section shall be a Dispute hereunder.
(d) Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Texas. Arbitrator(s) may make an
award of attorneys' fees and expenses if permitted by law or the agreement of
the parties. All statutes of limitation applicable to any Dispute shall apply to
any proceeding in accordance with this arbitration clause. Any arbitrator
selected to act as the only arbitrator in a Dispute shall be
43
AGREEMENT (CONTINUED)
required to be a practicing attorney with not less than five (5) years practice
in commercial law in the State of Texas. With respect to a Dispute in which the
claims or amounts in controversy do not exceed five hundred thousand dollars
($500,000), a single arbitrator shall be chosen and shall resolve the Dispute.
In such case the arbitrator shall have authority to render an award up to but
not to exceed five hundred thousand dollars ($500,000) including all damages of
any kind whatsoever, costs, fees and expenses. Submission to a single arbitrator
shall be a waiver of all parties' claims to recover more than five hundred
thousand dollars ($500,000). A Dispute involving claims or amounts in
controversy exceeding five hundred thousand dollars ($500,000) shall be decided
by a majority vote of a panel of three arbitrators ("Arbitration Panel"), one of
whom must possess the qualifications to sit as a single arbitrator in a Dispute
decided by one arbitrator. If the arbitration is consolidated with one conducted
pursuant to the terms of an agreement between the Required Lenders and the
Borrower related to the indebtedness guaranteed, then the Arbitration Panel
shall be one which meets the criteria set forth between the Required Lenders and
Borrower. Arbitrator(s) may, in the exercise of their discretion, at the written
request of a party, (i) consolidate in a single proceeding any multiple party
claims that are substantially identical and all claims arising out of a single
loan or series of loans including claims by or against borrower(s), guarantors,
sureties and/or owners of collateral if different from the Borrower, and (ii)
administer multiple arbitration claims as class actions in accordance with Rule
23 of the Federal Rules of Civil Procedure. The arbitrator(s) shall be empowered
to resolve any dispute regarding the terms of this Agreement or any Dispute or
any claim that all or any part (including this provision) is void or voidable
but shall have no power to change or alter the terms of this Agreement. The
award of the arbitrator(s) shall be in writing and shall specify the factual and
legal basis for the award.
(e) To the maximum extent practicable, the Administrator, the
arbitrator(s) and the parties shall take any action necessary to require that an
arbitration proceeding hereunder be concluded within 180 days of the filing of
the Dispute with the Administrator. The arbitrator(s) shall be empowered to
impose sanctions for any party's failure to proceed within the times established
herein. Arbitration proceedings hereunder shall be conducted in Texas at a
location determined by the Administrator. In any such proceeding a party shall
state as a counterclaim any claim which arises out of the transaction or
occurrence or is in any way related to the Documents which does not require the
presence of a third party which could not be joined as a party in the
proceeding, The provisions of this arbitration clause shall survive any
termination, amendment, or expiration of the Documents and repayment in full of
sums owed to the Lenders by Borrower unless the parties otherwise expressly
agree in writing. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required in the ordinary course of business of the parties or as required by
applicable law or regulation.
SECTION 12.06. INVALID PROVISIONS.
If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from such
Loan Document. Furthermore, in lieu of each such illegal, invalid or
unenforceable provision shall be added as part of such Loan Document a provision
mutually agreeable to Borrower and the Lenders as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable. In the event Borrower and the Lenders are unable to agree
upon a provision to be added to the Loan Document within a period of ten (10)
business
44
AGREEMENT (CONTINUED)
days after a provision of the Loan Document is held to be illegal, invalid or
unenforceable, then a provision acceptable to independent arbitrators, such to
be selected in accordance with the provisions of the American Arbitration
Association, as similar in terms to the illegal, invalid or unenforceable
provision as is possible and be legal, valid and enforceable shall be added
automatically to such Loan Document. In either case, the effective date of the
added provision shall be the date upon which the prior provision was held to be
illegal, invalid or unenforceable.
SECTION 12.07. MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in any of the Loan Documents,
the Lenders shall never be entitled to receive, collect or apply as interest on
the Debentures any amount in excess of interest calculated at the Maximum Rate,
and, in the event that any Lender ever receives, collects or applies as interest
any such excess, the amount which would be excessive interest shall be deemed to
be a partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the Obligation is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds interest calculated at the
Maximum Rate, Borrower and the Lenders shall, to the maximum extent permitted
under applicable law, (i) characterize any nonprincipal payment as an expense,
fee or premium rather than as interest; (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, pro rate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term of
the Debentures; provided that, if the Debentures are paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds interest calculated
at the Maximum Rate, the Lenders shall refund to Borrower the amount of such
excess or credit the amount of such excess against the principal amount of the
Debentures and, in such event, the Lenders shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate
of interest permitted by applicable law on such day that at any time, or from
time to time, may be contracted for, taken, reserved, charged or received on the
Indebtedness evidenced by the Debentures under the laws which are presently in
effect of the United States of America and the laws of any other jurisdiction
which are or may be applicable to the holders of the Debentures and such
Indebtedness or, to the extent permitted by law, under such applicable laws of
the United States of America and the laws of any other jurisdiction which are or
may be applicable to the holder of the Debentures and which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
SECTION 12.08. PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.
(a) The Lenders and the Agent shall have the right to enter into a
participation agreement with any other party with respect to the Debentures or
its affiliates, or to sell all or any part of the Debentures, but any
participation or sale shall not affect the rights and duties of any such Lender
or the Agent hereunder vis-a-vis Borrower. In the event that all or any portion
of the Loan shall be, at any time, assigned, transferred or conveyed to other
parties, any action, consent or waiver (except for compromise or extension of
maturity), to be given or taken by any Lender or the Agent hereunder (herein
"Action"), shall be such action as taken by the holders of a majority
45
AGREEMENT (CONTINUED)
in amount of the Principal Amount of the Debentures then outstanding, as such
holders are recorded on the books of the Borrower and represented by the Agent
as described in subsection (b) below.
(b) Assignment or sale of the Debentures shall be effective, on the
books of the Borrower only upon (i) endorsement of the Debenture, or part
thereof, to the proposed new holder, along with a current notation of the amount
of payments or installments received and net Principal Amount yet unfunded or
unpaid, and presentment of such Debenture to the Borrower for issue of a
replacement Debenture, or Debentures, in the name of the new holder; and (ii)
delivery of an opinion of counsel, reasonably satisfactory to Borrower, that
transfer shall not require registration or qualification under applicable state
or federal securities laws.
(c) The Debentures may be sold, transferred or assigned only to
Affiliates of the Lenders or permitted transferees. With the consent of the
Borrower, which shall not be unreasonably withheld, BOCPII may sell, transfer or
assign no less than $5 million principal amount of Debentures, in any case, to
not more than three (3) unaffiliated purchasers or their affiliates (if they act
through an agent).
SECTION 12.09. CONFIDENTIALITY.
(a) All financial reports or information that are furnished to the
Lenders, or its director designee or other representatives, pursuant to this
Agreement or pursuant to the Debentures or other Loan Documents shall be treated
as confidential unless and to the extent that such information has been
otherwise disclosed by the Borrower, but nothing herein contained shall limit or
impair the Lenders' right to disclose such reports to any appropriate
Governmental Authority, or to use such information to the extent pertinent to an
evaluation of the Obligation, or to enforce compliance with the terms and
conditions of this Agreement, or to take any lawful action which the Lenders
deems necessary to protect its interests under this Agreement.
(b) The Lenders and the Agent shall use their reasonable efforts to
protect and preserve the confidentiality of such information, except for such
disclosure as shall be required for compliance by the Lenders or its director
designees with SEC reporting requirements or otherwise as a matter of law. The
provisions of Section 5.01 notwithstanding, Borrower may refuse to provide
information as required pursuant thereto to an assignee or successor in interest
to the Lenders unless and until such assignee or successor shall have executed
an agreement to maintain the confidentiality of the information as provided
herein.
SECTION 12.10. BINDING EFFECT.
The Loan Documents shall be binding upon and inure to the benefit of
Borrower and the Lenders and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of the Lenders, assign any rights, powers, duties or obligations
thereunder.
SECTION 12.11. NO THIRD PARTY BENEFICIARY.
The parties do not intend the benefits of this Agreement to inure to
any third party, nor shall this Agreement be construed to make or render the
Lenders liable to any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, or for debts or claims
accruing to any such persons against Borrower.
46
AGREEMENT (CONTINUED)
Notwithstanding anything contained herein or in the Debentures, or in any other
Loan Document, no conduct by any or all of the parties hereto, before or after
signing this Agreement nor any other Loan Document, shall be construed as
creating any right, claim or cause of action against the Lenders, or any of its
officers, directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrower, nor to any other person or entity other than Borrower.
SECTION 12.12. ENTIRETY.
This Agreement and the Debentures and the other Loan Documents issued
pursuant thereto contain the entire agreement between the parties and supersede
all prior agreements and understandings, written or oral (if any), relating to
the subject matter hereof and thereof.
SECTION 12.13. HEADINGS.
Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the interpretation
of this Agreement.
SECTION 12.14. SURVIVAL.
All representations and warranties made by Borrower herein shall
survive delivery of the Debentures and the making of the Loans.
SECTION 12.15. MULTIPLE COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
SECTION 12.16. NOTICES.
(a) Any notices or other communications required or permitted to be
given by this Agreement or any other documents and instruments referred to
herein must be (i) given in writing and personally delivered, mailed by prepaid
certified or registered mail or sent by overnight service, such as Federal
Express, or (ii) made by telex or facsimile transmission delivered or
transmitted to the party to whom such notice or communication is directed, with
confirmation thereupon given in writing and personally delivered or mailed by
prepaid certified or registered mail.
(b) Any notice to be mailed, sent or personally delivered shall be
mailed or delivered to the principal offices of the party to whom such notice is
addressed, as that address is specified herein below. Any such notice or other
communication shall be deemed to have been given (whether actually received or
not) on the day it is mailed, postage prepaid, or sent by overnight service or
personally delivered or, if transmitted by telex or facsimile transmission, on
the day that such notice is transmitted; provided, however, that any notice by
telex or facsimile transmission, received by any Borrower or the Lenders after
4:00 p.m., Standard Time, at the recipient's address,
47
AGREEMENT (CONTINUED)
on any day, shall be deemed to have been given on the next succeeding business
day. Any party may change its address for purposes of this Agreement by giving
notice of such change to the other parties.
If to Borrower to:
Play By Play Toys & Novelties, Inc.
4400 Tejasco
San Antonio, Texas 78218-0267
210/829-4666
210/824-6565 (fax)
with a copy to:
David R. Schneider, Esq.
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
713/651-3639
713/651-5246 (fax)
If to the Lenders to:
Renaissance Capital Growth & Income Fund III, Inc.
Renaissance US Growth & Income Trust PLC
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
214/891-8294
214/891-8291 (fax)
Banc One Capital Partners II, Ltd.
Attention Suzanne B. Kriscunas
300 Crescent Court, Suite 1600
Dallas, Texas 75201
214/979-4364
214/979-4355 (fax)
Banc One Capital Partners II, Ltd.
Attention John P. Witten, Esq.
150 East Gay Street
Columbus, Ohio 43215
614/217-1249
614/217-1217 (fax)
48
AGREEMENT (CONTINUED)
with a copy to:
Norman R. Miller, Esq.
Wolin, Ridley & Miller, LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
214/939-4906
214/939-4949 (fax)
If to Agent to:
Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
214/891-8294
214/891-8291 (fax)
with a copy to:
Norman R. Miller, Esq.
Wolin, Ridley & Miller, LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
214/939-4906
214/939-4949 (fax)
Any notice delivered personally in the manner provided herein will be
deemed given to the party to whom it is directed upon the party's (or its
agent's) actual receipt. Any notice addressed and mailed in the manner provided
here will be deemed given to the party to whom it is addressed at the close of
business, local time of the recipient, on the fourth business day after the day
it is placed in the mail, or, if earlier, the time of actual receipt.
SECTION 12.17. GOVERNING LAW.
THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
LOAN AGREEMENT.
49
AGREEMENT (CONTINUED)
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed and delivered, as of the date and year first above written.
BORROWER
Play By Play Toys & Novelties, Inc.
By:
Mark Gawlik, President and Chief Operating Officer
THE LENDERS
Renaissance US Growth & Income Trust PLC
By:
Vance M. Arnold, Vice President
Renaissance Capital Growth & Income Fund III, Inc.
By:
Vance M. Arnold, Vice President
Banc One Capital Partners II, Ltd.
By: BOCP Holdings Corporation, Manager
By:
Suzanne B. Kriscunas
Authorized Signer
AGENT
Renaissance Capital Group, Inc.
By:
Vance M. Arnold, Executive Vice President
50
SCHEDULES TO CONVERTIBLE LOAN AGREEMENT
Schedule 4.03 Schedule of Conflicts or Consents
Schedule 4.05 Schedule of Permitted Liens
Schedule 4.06 Schedule of Any Material Adverse Change
Schedule 4.08 Schedule of Material Agreements
Schedule 4.09 Schedule of Litigation
Schedule 4.10 Schedule of Unpaid Taxes
Schedule 4.15 Environmental Matters
Schedule 4.17 Schedule of Agreements between the Borrower and any
of its officers, directors, and principal
shareholders, including employment agreements
Schedule 4.18 Schedule of Subsidiaries
Schedule 4.23 Schedule of Insurance
Schedule 4.24 Schedule of Licenses, Trademarks, Service Marks and
Copyrights
Schedule 7.01 Schedule of Financial Ratios
51
SCHEDULE 7.01 FINANCIAL RATIOS
(a) CURRENT RATIO. The Borrower will not permit its Current Ratio as of the
end of each fiscal quarter to be less than 1.60: 1.
(b) INDEBTEDNESS TO EBITDA RATIO. The Borrower will not permit its ratio of
Indebtedness to Consolidated Trailing Twelve Months EBITDA as of the
end of each fiscal quarter to exceed the following respective limits:
FOR FISCAL QUARTERS MAXIMUM
Beginning 7/31/97 through 7/31/98 4.00: 1
Beginning 10/31/98 through 7/31/99 3.75: 1
Beginning 10/31/99 through 7/31/2000 3.50: 1
After 7/31/2000 3.25: 1
(c) INDEBTEDNESS TO TOTAL CAPITALIZATION RATIO. The Borrower will not
permit its ratio of Indebtedness to Total Capitalization as of the end
of each fiscal quarter to exceed the following respect limits:
FOR FISCAL QUARTERS MAXIMUM
Beginning 7/31/97 through 7/31/98 60.0%
After 10/30/98 55.0%
(d) FIXED CHARGE COVERAGE RATIO. The Borrower will not permit its Fixed
Charge Coverage Ratio as of the end of each fiscal quarter to be less
than 1.0: 1.
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