1ST Renewal of Packaging Services Agreement 4/1/97

EXHIBIT 10.6
FIRST RENEWAL
PACKAGING SERVICES AGREEMENT


This First Renewal Packaging Services Agreement (this "Agreement"), dated as of March 1, 1997, is made by and among Pinnacle Trading Card Company, a Delaware corporation ("Pinnacle"), Performance Printing Corporation, a Texas corporation ("Performance"), and Performance Packaging, L.C., a Texas Limited Liability Company ("Packaging").


In consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:


1. Engagement. Packaging hereby agrees to provide to Pinnacle or any Affiliate of Pinnacle (hereinafter defined), the slitting, collating, over wrapping and boxing of any projects and other requested services relating thereto (collectively, the "Services") as requested by Pinnacle during the Normal Term (as such term is hereinafter defined), upon the terms and subject to the conditions set forth herein. Pinnacle shall not be obligated to request that Packaging perform any Services during the term of this Agreement. As used herein, an "Affiliate" of Pinnacle shall mean any person or entity controlling, controlled by or under common control with Pinnacle.


2. Services.


(a) Capacity. Packaging owns certain equipment and
leases certain facilities including, but not limited to, those
described on Schedule A hereto (along with replacements thereof and
substitutions therefor, the "Initial Equipment on Hand"). Packaging
has agreed to acquire additional equipment and a new facility
designated by Pinnacle and reasonably acceptable to Performance at a
cost not in excess of $1,230,000 (along with replacements thereof and
substitutions therefor, the "Initial Expansion Equipment").


If Pinnacle wants Packaging to acquire additional equipment
and/or facilities (in addition to the Initial Equipment on Hand and
the Initial Expansion Equipment) to meet Pinnacle's needs and agrees
in writing that its Fixed Cost Payments (hereinafter defined) will be
adjusted in the manner set forth in Section 4(a)(i) hereof, then
Packaging shall use its best efforts to acquire such additional
equipment and/or facilities (along with replacements thereof and
substitutions therefor, the "Additional Expansion Equipment"). It is
possible that Pinnacle will 2
desire that Packaging acquire additional equipment and/or facilities
to meet Pinnacle's needs but that Pinnacle does not require the
full-time use of such additional equipment and/or facilities. If
Pinnacle and Packaging agree in writing that Pinnacle's Fixed Cost
Payments will be adjusted as a result of the acquisition of such
equipment and/or facilities (which adjustment would not reflect the
full amount of the debt service relating to the acquisition of such
equipment and/or facilities), such additional equipment and/or
facilities shall also be "Additional Expansion Equipment."


Except as hereinafter set forth in this Section 2(a),
Packaging shall at all times dedicate such equipment and labor as may
be necessary to provide the Services required by Pinnacle within the
time periods required by Pinnacle (even if that means preempting the
work of other Packaging customers). If the Services requested by
Pinnacle require the use of equipment then owned by Packaging other
than Initial Equipment on Hand, the Initial Expansion Equipment or any
Additional Expansion Equipment (the "Non-Fixed Cost Capacity
Equipment"), then such Non-Fixed Cost Capacity Equipment shall be
available to Pinnacle on a first-come, first- served basis along with
Packaging's other customers. If the Services requested by Pinnacle
require the use of Partial Additional Expansion Equipment (hereinafter
defined), then such Partial Additional Expansion Equipment shall be
available to Pinnacle on such basis (i) as is agreed to by Packaging,
Pinnacle and Performance at the time such Partial Additional Expansion
Equipment is acquired, or (ii) if they do not agree, as is determined
by the Board of Packaging (hereinafter defined) (such basis to mean
whether Pinnacle will be entitled to use such Partial Additional
Expansion Equipment on the basis described in the first sentence of
this paragraph or on a first-come, first-served basis along with
Packaging's other customers). The term "Partial Additional Expansion
Equipment" means Additional Expansion Equipment for which (i) Pinnacle
indicated at the time of the proposed acquisition of such Additional
Expansion Equipment that Pinnacle did not require the full-time use of
such Additional Expansion Equipment, and (ii) Pinnacle and Packaging
are able to agree in writing to the amount of Pinnacle's Fixed Cost
Payments for such Additional Expansion Equipment.


(b) Supply of Materials. Pinnacle will timely provide
Packaging with all direct materials such as printed sheets, packaging
and packing materials including all boxes, wrapping materials and tape
that are required by Packaging in order to provide the Services. Said
materials shall be of the types and quality compatible with the
equipment to be used by Packaging in performing the 3
Services. To the extent that additional costs are incurred by
Packaging due to delays in delivery of materials by Pinnacle or due to
substandard quality or incompatibility of materials supplied by
Pinnacle, Packaging shall timely inform Pinnacle (in advance of
performing the Services relating to such project when feasible), that
the cost to Pinnacle for that particular job shall be increased by the
amount of increased costs incurred by Packaging as a result of such
delays, substandard quality or incompatibility. If Packaging,
Pinnacle and Performance do not agree whether there are, or the amount
of, additional costs incurred, such additional costs, if any, shall be
determined by the Board of Packaging. Packaging is responsible for
providing normal operating supplies.


(c) Quality of Products; Scrap. All finished products,
when delivered to Pinnacle by Packaging in accordance herewith, will
adhere to the high standards of quality associated with Pinnacle's
products. For services listed on Schedule B hereto and under existing
production practices, to the extent 5% or more scrap is created on any
Program (i.e. -- a year specific, brand specific, sport specific,
product specific, packaging type specific and series specific
project), Packaging shall be liable to Pinnacle for Pinnacle's cost of
such excess scrap. Similar maximum acceptable scrap rates for new
services or new production practices will be set either (i)
unanimously by Packaging, Pinnacle and Performance or (ii) if they do
not agree, by the Board of Packaging. By written notice from
Pinnacle's President or Chief Financial Officer, Pinnacle shall be
entitled to offset such excess scrap cost against any payments due to
Packaging hereunder. If any party believes the then applicable
maximum acceptable scrap rate for a particular service or production
practice (whether the 5% or another rate) should be changed, it may
petition the Board of Packaging to change the rate and if the Board so
agrees the rate shall be so amended. All scrap shall be the property
of Pinnacle.


(d) Equipment. Packaging will at all times adequately
maintain the condition of, and repair, its equipment and machinery.


(e) Inspection. Packaging will provide to Pinnacle for
inspection the initial packages with respect to each project performed
pursuant to this Agreement. Prior to Packaging's going forward with
any such project, Pinnacle's representatives may inspect and approve
the initial packages for content, collation and quality (although it
shall have no obligation to do so). At any time and from time to time
during a project, Packaging shall deliver to Pinnacle for inspection,
such packages as Pinnacle may 4
request. If a representative of Pinnacle disapproves of the initial
packages or any other packages, then Packaging shall, upon notice,
correct any such errors or flaws. Pinnacle may also inspect the
facilities of Packaging and observe the Services at any time or from
time to time.


(f) Delivery. Final products will be shipped by
Packaging as designated by Pinnacle. All shipping costs (both to and
from Packaging) will be payable by Pinnacle including all delivery
costs for materials, scrap and inspection items. Packaging is
responsible for (both with respect to physically and paying for)
loading and unloading products onto the trucks (or other
transportation) and for providing administrative support relating to
shipping. If Pinnacle requests fulfillment services from Packaging,
then such fulfillment services will be available to Pinnacle on such
basis (i) as is agreed to by Packaging, Pinnacle and Performance at
the time such fulfillment services are requested, or (ii) if they do
not agree, as is determined by the Board of Packaging.


3. Term. This Agreement shall commence on the date first above written and terminate on the last day of the Normal Term.


(a) Normal Term. The "Normal Term" shall commence on
March 1, 1997, and shall end on (i) the fifth anniversary date of the
commencement of the Normal Term (or on such later date as to which
Pinnacle renews and extends the Normal Term), or (ii) such earlier
date as Pinnacle terminates this Agreement in accordance with the
terms hereof.


(b) Renewal. Pinnacle may, at its sole option and at any
time, renew and extend the Normal Term of this Agreement for up to
five successive one year terms (for one year at a time). If Pinnacle
does not provide written notice to Performance and Packaging at least
90 days prior to the end of the Normal Term (as it may be extended
from time to time) that it is not renewing and extending this
Agreement, the Normal Term of this Agreement shall automatically be
extended for a one year term on the terms and provisions hereinafter
set forth relating to renewals and extensions.


(c) Termination.


(i) Pinnacle may terminate this
Agreement at any time without further obligation and without
payment of cancellation fees or other amounts upon giving 90
days' advance written notice of the termination to Packaging
and Performance if Pinnacle 5
believes that the delivery times or quality of services
rendered by Packaging hereunder is not up to the standards
expected by Pinnacle whether or not it is entitled to
terminate this Agreement pursuant to Section 3(c)(iii) hereof
(such delivery and quality standards to include, but not be
limited to (A) Packaging's failure to meet Pinnacle's delivery
schedule twice during the term of this Agreement, or (B) with
respect to any Program, Packaging's making more than two
specific quality infractions which have been designated in
writing by Pinnacle). The effective date of the termination
shall be the ninetieth day following delivery of the written
notices to Packaging and Performance.


(ii) Pinnacle may terminate this Agreement at any
time without cause and without further obligation upon
tendering to Packaging the cancellation fee specified opposite
from the year of cancellation below, such termination to be
effective as of the date such cancellation fee is tendered:


(A) the cancellation fee for
termination of this Agreement pursuant to this
Section 3(c)(ii) in any year shall be equal to the
amount set forth opposite that year below:


TWELVE MONTHS
ENDING MARCH 1ST: PAYMENT

1998 $500,000
1999 $400,000
2000 $300,000
2001 $200,000
2002 $100,000


(B) In addition, if Packaging has
acquired prior to such date of termination any
Additional Expansion Equipment and this Agreement is
being terminated pursuant to this Section 3(c)(ii),
then an amount, if any, equal to the excess of the
debt then owing on such Additional Expansion
Equipment over the aggregate fair market value of the
Initial Equipment on Hand, the Initial Expansion
Equipment, and other Additional Expansion Equipment
shall also be paid by Pinnacle (but such additional
payment shall not be considered part of the
cancellation fee).


(iii) Pinnacle may terminate this Agreement
at any time without further obligation and without payment of
cancellation fees or other amounts 6
upon giving written notice thereof to Performance upon the
occurrence of any of the following events:


(A) the material breach by Packaging
or Performance of any covenant or other agreement set
forth in this Agreement, the Amended and Restated
Regulations of Packaging; that certain Acquisition
Agreement entered into on June 13, 1994 (the
"Acquisition Agreement") or that certain
Organizational Agreement entered into on June 13,
1994 (the Organizational Agreement); provided that,
if such breach is curable, such breach is not cured
by Packaging or Performance within 30 days after
Pinnacle notifies Packaging of such breach and
provided further that Packaging and Performance shall
be entitled to cure the breach of a particular
covenant or agreement only once during the term of
this Agreement, and Packaging and Performance shall
only be entitled to cure an aggregate of three
breaches of covenant or agreement during the term of
this Agreement;


(B) any representation or warranty
made by Packaging or Performance in this Agreement,
the Amended and Restated Regulations of Packaging,
the Acquisition Agreement or the Organizational
Agreement shall have been materially incorrect, false
or misleading when made;


(C) the commission by Packaging,
Performanc ...