EXHIBIT 10.8

The Securities represented by this Debenture have not been registered under the
Securities Act of 1933, as amended ("Act"), or applicable state securities laws
("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of Legal Counsel
for the Company, or such other evidence as may be satisfactory to Legal Counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts.

                       PLAY BY PLAY TOYS & NOVELTIES, INC.

                           8.00% CONVERTIBLE DEBENTURE

$2,500,000                                                                 NO. 1
                           Date of Issue: JULY 3, 1997

         PLAY BY PLAY TOYS & NOVELTIES, INC., a Texas corporation (the "Company"
or "Borrower"), for value received, promises to pay to:

                           Compass Bank, Custodian FBO
               RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

or to its order, (together with any assignee, jointly or severally, the "Holder"
or "Lender") on or before June 30, 2004 (the "Due Date") (unless this Debenture
shall have been sooner called for redemption or presented for conversion as
herein provided), the sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000) (the "Principal Amount") and to pay interest on the Principal
Amount at the rate of eight percent (8.00%) per annum as provided herein. The
Principal Amount shall be payable in equal monthly payments commencing on June
30, 2000 and continuing through June 30, 2004. All payments of both principal
and interest shall be made at the address of the Holder hereof as it appears in
the books and records of the Borrower, or at such other place as may be
designated by the Holder hereof. This Debenture shall rank PARI PASSU with all
Indebtedness of the Borrower, other than the Senior Obligations and the
Subordinated Debt.

         1. INTEREST: Interest on the Principal Amount outstanding from time to
time shall accrue at the rate of 8.00% per annum and shall be payable in monthly
installments commencing July 31, 1997, and subsequent payments shall be made on
the last day of each month thereafter until the Principal Amount and all accrued
and unpaid interest shall have been paid in full. Subject to Section 17 hereof,
overdue principal and interest on the Debenture shall bear interest at the rate
of 15% per annum.

         2. MATURITY: If not sooner paid, redeemed or converted, this Debenture
shall mature on June 30, 2004 at which time all then remaining unpaid principal
and all accrued and unpaid interest and any other charges then due under the
Loan Agreement shall be due and payable in full. Upon the request of the Holder,
this Debenture 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 Debenture, except for payments
of subordinated debt to the principal shareholder of the Company pursuant to
Section 2.02 of the Loan Agreement and former stockholders of Ace Novelty Co.,
Inc., but only if on the date of such prepayment the Borrower is not in
compliance with Section 7.01 of the Loan Agreement.

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                           Issuers Initial __________
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         3. MANDATORY PRINCIPAL INSTALLMENTS: If this Debenture is not sooner
redeemed or converted as provided hereunder, Borrower shall pay to Holder,
commencing on June 30, 2000, and the last day of each successive month
thereafter prior to maturity, mandatory principal redemption installments, each
of such installments to be in the amount of Ten Dollars ($10) per Thousand
Dollars ($1,000) of the then remaining principal amount of the Debenture and
further, at maturity, shall make a final installment of all of the remaining
unpaid Principal Amount balance due plus the amount of any unpaid interest and
other charges then due. Each of such installments shall be applied in partial
redemption of the Debenture when received by Holder.

         4. REDEMPTION BY HOLDER: (a) If at any time after the date hereof (i)
the Company's Common Stock, no par value ("Common Stock"), is not listed for
exchange on the NASDAQ National Market System ("National Market"), the New York
Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), or quoted on the
NASDAQ Small Cap System ("Small Cap System"), (ii) any Person acquires more than
a majority of the Common Stock, without the Required Lender's consent, or (iii)
there is a change during any twelve-month period of at least two-thirds of the
members of the Company's Board of Directors, without the Required Lender's
consent, the Holder shall have the right for a period of sixty (60) days after
the earlier of (y) the receipt of notice of any such event by the Company, or
(z) the occurrence of an event described in this paragraph, if no notice by the
Company is given, to require this Debenture to be redeemed by the Company, upon
thirty (30) days' notice by the Holder, at the sum equal to the Principal
Amount, together with, subject to Section 17 hereof, an amount equal to an 18%
annual yield on the Principal Amount through the date of redemption, but not in
excess of the maximum amount permitted by applicable law.

         (b) In the event that the Company refunds, refinances or extends the
maturity of the Indebtedness evidenced by the Senior Documents in an aggregate
principal amount not in excess of $45.8 million and the Company is not in
compliance with the agreed minimum financial ratios or standards set forth in
Section 7.01 of the Loan Agreement or would not be in compliance after giving
effect thereto, the Holder shall have the right for a period of sixty (60) days
after the earlier of (i) the receipt of the notice by the Company provided for
in clause (i) of Section 6.01 of the Loan Agreement, or (ii) the occurrence of
an event described in this paragraph, if no notice by the Company is given, to
require this Debenture to be redeemed by the Company upon thirty (30) days'
notice by the Holder, at 101% of par, together with all accrued and unpaid
interest through the redemption date.

         (c) In the event that the Company incurs Senior Obligations in an
aggregate principal amount not in excess of $45.8 million and the Company is not
in compliance with the agreed minimum financial ratios or standards set forth in
Section 7.01 of the Loan Agreement or would not be in compliance after giving
effect thereto, the Holder shall have the right for a period of sixty (60) days
after the earlier of (i) the receipt of the notice by the Company provided for
in clause (i) of Section 6.01 of the Loan Agreement, or (ii) the occurrence of
an event described in this paragraph, if no notice by the Company is given, to
require this Debenture to be redeemed by the Company upon thirty (30) days'
notice by the Holder at 101% of par, together with all accrued and unpaid
interest through the redemption date.

         5. OPTIONAL REDEMPTION BY COMPANY: (a) On any interest payment date,
and after prior irrevocable notice as provided for below, this Debenture is
redeemable, in whole but not in part, at 101% of par, together with accrued and
unpaid interest, by the Company until June 30, 2000, if the closing bid price
for the Common Stock averages at least $ 34.00 per share for the 20 consecutive
trading days prior to the irrevocable notice and the Common Stock is listed or
quoted on the National Market, the Small Cap System, AMEX or NYSE, and after
June 30, 2000, if the following conditions are satisfied: (i) the closing bid
price for the Common Stock averages at least $ 25.50 per share for the 20
consecutive trading days prior to the irrevocable notice and the Common Stock is
listed or quoted on the National Market, the Small Cap System, AMEX or NYSE;
(ii) the market price at the date of irrevocable notice is supported by a price
to earnings ratio of no greater than 30 times fully diluted net earnings per
share of Common Stock, determined in accordance with generally accepted
accounting principles, excluding any extraordinary gains or losses of the
Borrower; (iii) the average (20 days) daily trading volume shall be no less than
25,000 shares; and (iv) the Borrower shall have filed a registration statement
covering the shares of Common Stock issuable upon conversion of the Debenture,
which shall have become effective. The foregoing

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                           Issuers Initial __________
<PAGE>
earnings per share and bid price tests shall be duly adjusted for share splits,
stock dividends, mergers, consolidations, and other recapitalizations.
Redemption is subject to the Holder's prior right to conversion of the
Debenture.

         (b) The Company may exercise its right to redeem the Debenture prior to
maturity by giving notice (the "Redemption Notice") thereof to the Holder of
this Debenture as such name appears on the books of the Borrower, which notice
shall specify the terms of redemption (including the place at which the Holder
may obtain payment), the total principal amount to be redeemed (such principal
amount plus the premium thereon herein called the "Redemption Amount") and the
date for redemption (the "Redemption Date"), which date shall not be less than
30 days nor more than 60 days after the date of the notice. On the Redemption
Date, the Borrower shall pay all accrued unpaid interest on the Debenture up to
and including the Redemption Date and shall pay to the holder a dollar amount
equal to the Redemption Amount.

         6. CONVERSION RIGHT: The Holder of this Debenture shall have the right,
at holder's option, at any time, to convert all, or, in multiples of $10,000,
any part of this Debenture into such number of fully paid and nonassessable
shares of Common Stock as provided herein. The Holder of this Debenture may
exercise the conversion right by giving written notice (the "Conversion Notice")
to Borrower of the exercise of such right and stating the name or names in which
the stock certificate or stock certificates for the shares of Common Stock are
to be issued and the address to which such certificates shall be delivered. The
Conversion Notice shall be accompanied by the Debenture. The number of shares of
Common Stock that shall be issuable upon conversion of the Debenture shall equal
the face amount of the Debenture divided by the Conversion Price as defined
below and in effect on the date the Conversion Notice is given; provided,
however, that in the event that this Debenture shall have been partially
redeemed, shares of Common Stock shall be issued pro rata, rounded to the
nearest whole share. Conversion shall be deemed to have been effected on the
date the Conversion Notice is received (the "Conversion Date"). In the case of
any Debenture called for redemption, the conversion rights will expire at the
close of business on the Redemption Date. Within 20 business days after receipt
of the Conversion Notice, Borrower shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated in the Conversion Notice, a stock
certificate or stock certificates of Borrower representing the number of shares
of Common Stock to which Holder is entitled and a check or cash in payment of
all interest accrued and unpaid on the Debenture up to and including the
Conversion Date. The conversion rights will be governed by the following
provisions:

         (a) CONVERSION PRICE. On the issue date hereof and until such time as
an adjustment shall occur, the Conversion Price shall be $ 17.00 PER SHARE;
provided, however, that the Conversion Price shall be subject to adjustment at
the times and in accordance with the provisions set forth below.

         (i) ADJUSTMENT FOR ISSUANCE OF SHARES AT LESS THAN THE CONVERSION
PRICE. If and whenever any Additional Common Stock shall be issued by Borrower
(the "Stock Issue Date") for a consideration per share less than the Conversion
Price, then in each such case the initial Conversion Price shall be reduced to a
new Conversion Price in an amount equal to the price per share for the
Additional Common Stock then issued, if issued in connection with a sale of
shares, or the value of the Additional Common Stock then issued, as determined
in accordance with generally accepted accounting principles, if issued other
than for cash, and the number of shares issuable to Holder upon conversion shall
be proportionately increased; and, in the case of Additional Common Stock issued
without consideration, the initial Conversion Price shall be reduced in amount
and the number of shares issued upon conversion shall be increased in an amount
so as to maintain for the Holder the right to convert the Debenture into shares
equal in amount to the same percentage interest in the Common Stock of the
Company as existed for the Holder immediately preceding the Stock Issue Date.

         (ii) SALE OF SHARES. In case of the issuance of Additional Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the gross amount of the cash paid
to Borrower for such shares, before deducting any underwriting compensation or
discount in the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith. In case of the issuance of any shares of Additional Common
Stock for a consideration part or all of which shall

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                           Issuers Initial __________
<PAGE>
be other than cash, the amount of the consideration therefor, other than cash,
shall be deemed to be the then fair market value of the property received.

         (iii) RECLASSIFICATION OF SHARES. In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend or
other distribution on any class of stock of Borrower shall be deemed to have
been issued without consideration.

         (iv) SPLIT UP OR COMBINATION OF SHARES. In case issued and outstanding
shares of Common Stock shall be subdivided or split up into a greater number of
shares of the Common Stock, the Conversion Price shall be proportionately
decreased, and in case issued and outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
shall be proportionately increased, such increase or decrease, as the case may
be, becoming effective at the time of record of the split-up or combination, as
the case may be.

         (v) EXCEPTIONS. The term "Additional Common Stock" herein shall mean
all shares of Common Stock hereafter issued by Borrower (including Common Stock
held in the treasury of Borrower), except (A) Common Stock issued upon the
conversion of any of the Debentures; (B) Common Stock issued upon exercise of
any outstanding warrants or options; (C) Common Stock issued upon exercise of
outstanding employee stock options; and (D) up to 200,000 shares of Common Stock
in addition to Common Stock described in the immediately preceding clauses (A),
(B) and (C).

         (b) ADJUSTMENT FOR MERGERS AND CONSOLIDATIONS.

         (i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of Borrower or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities or
assets, then, after such event, the Debenture will be convertible into the kind
and amount of securities, cash and other property which the holder of the
Debenture would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event.

         (ii) In case of any capital reorganization, reclassification of the
stock of Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture shall
be convertible into the kind and number of shares of stock or other securities
or property of Borrower to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such event.
The provisions of the immediately foregoing sentence shall similarly apply to
successive reorganizations, reclassifications, consolidations, exchanges,
leases, transfers or other dispositions or other share exchanges.

         (iii) The term "Fair Market Value," as used herein, is the value
ascribed to consideration other than cash as determined by the Board of
Directors of Borrower in good faith, which determination shall be final,
conclusive and binding. If the Board of Directors shall be unable to agree as to
such fair market value, then the issue of fair market value shall be submitted
to arbitration under and pursuant to the rules and regulations of the American
Arbitration Association, and the decision of the arbitrators shall be final,
conclusive and binding, and a final judgment may be entered thereon; provided,
however, that such arbitration shall be limited to determination of the fair
market value of assets tendered in consideration for the issue of Common Stock.

         (iv) In the event Borrower shall propose to take any action which shall
result in an adjustment in the Conversion Price, Borrower shall give notice to
the Holder of this Debenture, which notice shall specify the record date, if
any, with respect to such action and the date on which such action is to take
place. Such notice shall be given on or before the earlier of 10 days before the
record date or the date which such action shall be taken. Such notice shall also
set forth all facts (to the extent known) material to the effect of such action
on the Conversion Price and the number, kind or class of shares or

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                           Issuers Initial __________
<PAGE>
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of this Debenture.

         (v) Following completion of an event wherein the Conversion Price shall
be adjusted, Borrower shall furnish to the holder of this Debenture a statement,
signed by the Chief Executive Officer and the Secretary of the Borrower, of the
facts creating such adjustment and specifying the resultant adjusted Conversion
Price then in effect which statement shall constitute an amendment to this
Debenture.

         7. ONE-TIME ADJUSTMENT TO CONVERSION PRICE. (a) If the volume-weighted
average closing bid price of the Common Stock, as determined by Bloomberg, for
the 21 consecutive trading days following Borrower's public press release of its
1998 fiscal year-end financial results (such volume-weighted average closing bid
price herein referred to as the "1998 Conversion Price Adjustment Bid Price") is
a price less than the existing Conversion Price, then the Conversion Price shall
be adjusted downward to an amount equal to the greater of (i) ninety percent
(90%) of the 1998 Conversion Price Adjustment Bid Price, or (ii) five (5) times
the Company's earnings before interest, taxes, depreciation and amortization
(excluding extraordinary gains or losses) per share on a fully diluted basis
(excluding shares issued or issuable upon conversion of the Debentures),
calculated in accordance with generally accepted accounting principles, for the
1998 fiscal year. The adjustment shall only be utilized to adjust the Conversion
Price to a lesser amount than the existing Conversion Price, and no adjustment
shall be made if the Company's earnings before interest, taxes, depreciation and
amortization (excluding extraordinary gains or losses) for the fiscal year ended
July 31, 1998 exceed $17,900,000, excluding extraordinary gains or losses. If an
adjustment is required pursuant to Section 7, then the Borrower shall furnish to
the holder of this Debenture a statement, signed by the Chief Financial Officer
and the Secretary of Borrower, of the facts creating such adjustment and
specifying the resultant adjusted Conversion Price then in effect, which
statement shall constitute an amendment to the Debenture.

         (b) Notwithstanding anything herein or in the Loan Agreement to the
contrary, at no time may the aggregate number of shares of Common Stock into
which the Indebtedness represented by the Debentures may be converted, together
with the number of shares of Common Stock into which any Debentures have
previously been converted (the aggregate being referred to herein as the
"Conversion Shares"), exceed 976,219 without the prior approval of the holders
of a majority of the shares of Common Stock (excluding shares, if any, held by
holders of the Debentures and their Affiliates and acquired as a result of the
conversion of any Debenture) voting on such proposal at a duly called meeting of
the shareholders of the Company at which a quorum is present in person or by
proxy (the "Shareholder Approval").

         (c) If, but for paragraph (b) above, the Conversion Price would be
adjusted (the "Conversion Adjustment") as provided by paragraph (a) above such
that the number of Conversion Shares exceeds 976,219, then the Conversion Price
shall be adjusted as provided by paragraph (a) above, effective as of the
adjustment date provided for in paragraph (a) above, ONLY as to the Maximum
Convertible Amount. The "Maximum Convertible Amount" shall be the maximum
outstanding aggregate principal amount of all of the Debentures which may be
converted at the Conversion Price as adjusted by paragraph (a) above such that
the number of Conversion Shares would not exceed 976,219, as follows:

                            MCA = CP * (976,219 - SC)

where MCA = Maximum Convertible Amount;

CP = Conversion Price as adjusted by paragraph (a) above, without giving effect
to paragraph (b) above; and SC = the number of shares, if any, into which any of
the Debentures have been previously converted before effecting the adjustment to
the Conversion Price provided by paragraph (a) above

PROVIDED THAT the Maximum Convertible Amount shall be applied PRO RATA among the
principal amount of the Debentures outstanding at the time of the Conversion
Adjustment. The balance, if any, of the aggregate principal amount outstanding
at the time the Conversion Adjustment, after subtracting the Maximum Convertible
Amount, shall be the "Remaining

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                           Issuers Initial __________
<PAGE>
Principal Amount." The conversion rights provided for herein shall not be
applicable to the Remaining Principal Amount without the Shareholder Approval
being obtained.

         (d) Upon the Shareholder Approval being obtained, the Remaining
Principal Amount, if any, shall again be convertible in accordance with the
terms of this Debenture at the Conversion Price as adjusted by paragraph (a)
above. If, but only if, the Shareholder Approval is not obtained by December 31,
1998, then each holder of a Debenture shall have the right, until February 28,
1999, to require the Company, upon ten business days notice to the Company, to
redeem the amount of the Remaining Principal Amount, if any, represented by its
Debenture at the sum equal to the Remaining Principal Amount, together with
(subject to Section 17 hereof) an amount equal to an 18% annual yield on the
Remaining Principal Amount of this Debenture, but not in excess of the maximum
amount permitted by applicable law.

         8. RESERVATION OF SHARES: Borrower warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock or treasury shares of Common
Stock necessary to effect conversion of this Debenture.

         9. REGISTRATION RIGHTS: Shares issued upon conversion of this Debenture
shall be restricted from transfer by the holder except if and unless the shares
are duly registered for sale pursuant to the Securities Act of 1933, as amended,
or the transfer is exempt from registration. The Holder has certain rights with
respect to the registration of shares of Common Stock issued upon the conversion
of this Debenture pursuant to the terms of the Loan Agreement. Borrower agrees
that a copy of the Loan Agreement with all amendments, additions or
substitutions therefor shall be available to the Holder at the offices of
Borrower.

         10. TAXES: Subject to Section 2.09 of the Loan Agreement, the Borrower
shall pay any documentary or other transactional taxes attributable to the
issuance or delivery of this Debenture or the shares of Common Stock issued upon
conversion by the Holder (excluding any federal, state or local income taxes and
any franchise taxes or taxes imposed upon the Holder by the jurisdiction, or any
political subdivision thereof, under which such Holder is organized or is
qualified to do business.)

         11.  DEFAULT:

         (a) EVENT OF DEFAULT: An "Event of Default" shall exist if an "Event of
Default" (as defined in the Loan Agreement) shall occur and be continuing.

         (b) REMEDIES UPON EVENT OF DEFAULT: If an Event of Default shall have
occurred and be continuing, then Lender may exercise any one or more of the
rights and remedies provided in the Loan Agreement, as Lender in its sole
discretion, may deem necessary or appropriate.

         (c) REMEDIES NONEXCLUSIVE: Each right, power or remedy of the holder
hereof upon the occurrence of any Event of Default as provided for in this
Debenture or now or hereafter existing at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this Debenture or now or hereafter existing at
law or in equity or by statute, and the exercise or beginning of the exercise by
the holder or transferee hereof of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by the holder of
any or all such other rights, powers or remedies.

         (d) EXPENSES: Upon the occurrence of a Default or an Event of Default,
which occurrence is not cured within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all costs and expenses
(including attorneys' fees and expenses) incurred by Lender or Agent in
connection with the preservation and enforcement of Lender's
rights under the Loan Agreement, the Debenture, or any other Loan Document. 12.
FAILURE TO ACT AND WAIVER: No failure or delay by the holder hereof to require
the performance of any term or terms of this Debenture or not to exercise any
right or any remedy shall constitute a waiver of any such term or of any right
or of any default, nor shall such delay or failure preclude the holder hereof
from exercising any such right, power or remedy at any later time or times. By
accepting payment after the due date of any amount payable under this Debenture,
the holder hereof shall not be deemed to waive the right either to require
payment when due of all other amounts payable, or to later declare a default for
failure to effect such payment of any such other amount. The failure of the
holder of this Debenture to give notice of any failure or breach of the Borrower
under this Debenture shall not constitute a waiver of any right or remedy in
respect of such continuing failure or breach or any subsequent failure or
breach.

         13. CONSENT TO JURISDICTION: The Borrower hereby agrees and consents
that any action, suit or proceeding arising out of this Debenture may be brought
in any appropriate court in the State of Texas including the United States
District Court for the Northern District of Texas, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder
hereof, and by the issuance and execution of this Debenture the Borrower
irrevocably consents to the jurisdiction of each such court. The Borrower hereby
irrevocably appoints CT Corporation System, Dallas, Texas, as agent for the
Borrower to accept service of process for and on behalf of the Borrower in any
action, suit or proceeding arising out of this Debenture. Except for default in
payment of interest or principal when and as they become due, and except as
otherwise specifically set forth herein or otherwise agreed to in writing by the
parties, any action dispute, claim or controversy (all such herein called
"Dispute") between or among the parties as to the facts or the interpretation of
the Debenture shall be resolved by arbitration as set forth in Section 12.05 of
the Loan Agreement.

         14. HOLDERS RIGHT TO REQUEST MULTIPLE DEBENTURES: The Holder shall,
upon written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
units, each of such to be in such amounts as shall be requested; provided
however that no Debenture shall be issued in denominations of face amount less
than $10,000.00.

         15. TRANSFER: Subject to Section 12.08 of the Loan Agreement, this
Debenture may be transferred on the books of the Borrower by the registered
Holder hereof, or by Holder's attorney duly authorized in writing, only upon (i)
delivery to the Borrower of a duly executed assignment of the Debenture, or part
thereof, to the proposed new Holder, along with a current notation of the amount
of payments received and net Principal Amount yet unfunded, and presentment of
such Debenture to the Borrower for issue of a replacement Debenture, or
Debentures, in the name of the new Holder, (ii) the designation by the new
Holder of the Lender's agent for notice, such agent to be the sole party to whom
Borrower shall be required to provide notice when notice to Lender is required
hereunder and who shall be the sole party authorized to represent Lender in
regard to modification or waivers under the Debenture, the Loan Agreement, or
other Loan Documents; and any action, consent or waiver, (other than a
compromise of principal and interest), when given or taken by Lender's agent for
notice, shall be deemed to be the action of the holders of a majority in amount
of the Principal Amount of the Debenture, as such holders are recorded on the
books of the Borrower, and (iii) in compliance with the legend to read as
follows:

         The Securities represented by this Debenture have not been registered
         under the Securities Act of 1933, as amended ("Act"), or applicable
         state securities laws ("State Acts") and shall not be sold,
         hypothecated, donated or otherwise transferred unless the Company shall
         have received an opinion of Legal Counsel for the Company, or such
         other evidence as may be satisfactory to Legal Counsel for the Company,
         to the effect that any such transfer shall not require registration
         under the Act and the State Acts.

         The Borrower shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.


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                           Issuers Initial __________
<PAGE>
         16. NOTICES: All notices and communications under this Debenture shall
be in writing and shall be either delivered in person or by overnight service
such as FedEx and accompanied by a signed receipt therefor; or mailed
first-class United States certified mail, return receipt requested, postage
prepaid, and addressed as follows: (i) if to the Borrower at its address for
notice as stated in the Loan Agreement; and, (ii) if to the Holder of this
Debenture, to the address (a) of such Holder as it appears on the books of the
Borrower, or (b) in the case of a partial assignment to one or more Holders, to
the Lender's agent for notice, as the case may be. Any notice of communication
shall be deemed given and received as of the date of such delivery if delivered;
or if mailed, then three days after the date of mailing.

         17. MAXIMUM INTEREST RATE: (a) Regardless of any provision contained in
this Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and, in the event that 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 Debenture 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 Lender shall, to the maximum extent
permitted under applicable law, (i) characterize any non principal 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 Debenture; provided that, if the Debenture is 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, Lender shall refund to Borrower the
amount of such excess or credit the amount of such excess against the principal
amount of the Debenture and, in such event, Lender 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 (if any) 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 Debenture under the laws which are
presently in effect of the United States of America or by the laws of any other
jurisdiction which are or may be applicable to the holders of the Debenture and
such Indebtedness or, to the extent permitted by law, under such applicable laws
of the United States of America or by the laws of any other jurisdiction which
are or may be applicable to the holder of the Debenture and which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.

         18. RIGHTS UNDER LOAN AGREEMENT: This Debenture is issued pursuant to
the Convertible Loan Agreement, dated July 3, 1997, by and among the Company,
Renaissance III, Renaissance PLC and BOCPII, as Lenders, and Agent and the
holders hereof are entitled to all the rights and benefits, and are subject to
all the obligations of Lender under said agreement, including the maximum
interest rates limitations as specified therein. Both Borrower and Lenders have
participated in the negotiation and preparation of the Loan Agreement and of
this Debenture. Borrower agrees that a copy of the Loan Agreement with all
amendments, additions and substitutions therefor shall be available to the
Holders at the offices of Borrower.

         19. DEFINED TERMS: Capitalized Terms used but not defined herein shall
have the meaning given them in the Loan Agreement.

         20. 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., the Chase Manhattan Bank, agent, and Renaissance III, Renaissance PLC,
BOCPII, as Lenders, and Agent, dated as of July 3, 1997, which is incorporated
herein by reference, (ii) the terms of the form of the Standby Agreement
attached as Exhibit A to the Loan Agreement (which terms are hereby incorporated
by reference and which terms shall apply with respect to any Senior Obligations
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 of
Section 5.18 of the Loan Agreement), and (iii) the terms

                                     Page 7
                           Issuers Initial __________
<PAGE>
of any other Standby Agreement hereinafter executed by the holders of Debentures
pursuant hereto and pursuant to Section 5.18 of the Loan Agreement. Each holder
of a Debenture hereby agrees, upon the request of Borrower, to enter into a
Standby Agreement in the form of Exhibit A to the Loan Agreement with any holder
of Senior Obligations.

         21. GOVERNING LAW: This Debenture shall be governed by and construed
and enforced in accordance with the substantive laws of the State of Texas,
without regard to the conflicts of laws provisions thereof, and the applicable
laws of the United States.

         IN WITNESS WHEREOF, the undersigned Borrower has caused this Debenture
to be duly issued, executed and delivered on the date and year above stated.

                                         BORROWER

                                         PLAY BY PLAY TOYS & NOVELTIES, INC.

                                         By:___________________________________

                                     Page 8

                           Issuers Initial __________
<PAGE>
The Securities represented by this Debenture have not been registered under the
Securities Act of 1933, as amended ("Act"), or applicable state securities laws
("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of Legal Counsel
for the Company, or such other evidence as may be satisfactory to Legal Counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts.

                       PLAY BY PLAY TOYS & NOVELTIES, INC.

                           8.00% CONVERTIBLE DEBENTURE

$2,500,000                                                                 NO. 2
                           Date of Issue: JULY 3, 1997

         PLAY BY PLAY TOYS & NOVELTIES, INC., a Texas corporation (the "Company"
or "Borrower"), for value received, promises to pay to:

                           Compass Bank, Custodian FBO
                    RENAISSANCE US GROWTH & INCOME TRUST PLC

or to its order, (together with any assignee, jointly or severally, the "Holder"
or "Lender") on or before June 30, 2004 (the "Due Date") (unless this Debenture
shall have been sooner called for redemption or presented for conversion as
herein provided), the sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000) (the "Principal Amount") and to pay interest on the Principal
Amount at the rate of eight percent (8.00%) per annum as provided herein. The
Principal Amount shall be payable in equal monthly payments commencing on June
30, 2000 and continuing through June 30, 2004. All payments of both principal
and interest shall be made at the address of the Holder hereof as it appears in
the books and records of the Borrower, or at such other place as may be
designated by the Holder hereof. This Debenture shall rank PARI PASSU with all
Indebtedness of the Borrower, other than the Senior Obligations and the
Subordinated Debt.

         1. INTEREST: Interest on the Principal Amount outstanding from time to
time shall accrue at the rate of 8.00% per annum and shall be payable in monthly
installments commencing July 31, 1997, and subsequent payments shall be made on
the last day of each month thereafter until the Principal Amount and all accrued
and unpaid interest shall have been paid in full. Subject to Section 17 hereof,
overdue principal and interest on the Debenture shall bear interest at the rate
of 15% per annum.

         2. MATURITY: If not sooner paid, redeemed or converted, this Debenture
shall mature on June 30, 2004 at which time all then remaining unpaid principal
and all accrued and unpaid interest and any other charges then due under the
Loan Agreement shall be due and payable in full. Upon the request of the Holder,
this Debenture 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 Debenture, except for payments
of subordinated debt to the principal shareholder of the Company pursuant to
Section 2.02 of the Loan Agreement and former stockholders of Ace Novelty Co.,
Inc., but only if on the date of such prepayment the Borrower is not in
compliance with Section 7.01 of the Loan Agreement.

                                     Page 1

                           Issuers Initial __________
<PAGE>
         3. MANDATORY PRINCIPAL INSTALLMENTS: If this Debenture is not sooner
redeemed or converted as provided hereunder, Borrower shall pay to Holder,
commencing on June 30, 2000, and the last day of each successive month
thereafter prior to maturity, mandatory principal redemption installments, each
of such installments to be in the amount of Ten Dollars ($10) per Thousand
Dollars ($1,000) of the then remaining principal amount of the Debenture and
further, at maturity, shall make a final installment of all of the remaining
unpaid Principal Amount balance due plus the amount of any unpaid interest and
other charges then due. Each of such installments shall be applied in partial
redemption of the Debenture when received by Holder.

         4. REDEMPTION BY HOLDER: (a) If at any time after the date hereof (i)
the Company's Common Stock, no par value ("Common Stock"), is not listed for
exchange on the NASDAQ National Market System ("National Market"), the New York
Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), or quoted on the
NASDAQ Small Cap System ("Small Cap System"), (ii) any Person acquires more than
a majority of the Common Stock, without the Required Lender's consent, or (iii)
there is a change during any twelve-month period of at least two-thirds of the
members of the Company's Board of Directors, without the Required Lender's
consent, the Holder shall have the right for a period of sixty (60) days after
the earlier of (y) the receipt of notice of any such event by the Company, or
(z) the occurrence of an event described in this paragraph, if no notice by the
Company is given, to require this Debenture to be redeemed by the Company, upon
thirty (30) days' notice by the Holder, at the sum equal to the Principal
Amount, together with, subject to Section 17 hereof, an amount equal to an 18%
annual yield on Principal Amount through the date of redemption, but not in
excess of the maximum amount permitted by applicable law.

         (b) In the event that the Company refunds, refinances or extends the
maturity of the Indebtedness evidenced by the Senior Documents in an aggregate
principal amount not in excess of $45.8 million and the Company is not in
compliance with the agreed minimum financial ratios or standards set forth in
Section 7.01 of the Loan Agreement or would not be in compliance after giving
effect thereto, the Holder shall have the right for a period of sixty (60) days
after the earlier of (i) the receipt of the notice by the Company provided for
in clause (i) of Section 6.01 of the Loan Agreement, or (ii) the occurrence of
an event described in this paragraph, if no notice by the Company is given, to
require this Debenture to be redeemed by the Company upon thirty (30) days'
notice by the Holder, at 101% of par, together with all accrued and unpaid
interest through the redemption date.

         (c) In the event that the Company incurs Senior Obligations in an
aggregate principal amount not in excess of $45.8 million and the Company is not
in compliance with the agreed minimum financial ratios or standards set forth in
Section 7.01 of the Loan Agreement or would not be in compliance after giving
effect thereto, the Holder shall have the right for a period of sixty (60) days
after the earlier of (i) the receipt of the notice by the Company provided for
in clause (i) of Section 6.01 of the Loan Agreement, or (ii) the occurrence of
an event described in this paragraph, if no notice by the Company is given, to
require this Debenture to be redeemed by the Company upon thirty (30) days'
notice by the Holder at 101% of par, together with all accrued and unpaid
interest through the redemption date.

         5. OPTIONAL REDEMPTION BY COMPANY: (a) On any interest payment date,
and after prior irrevocable notice as provided for below, this Debenture is
redeemable, in whole but not in part, at 101% of par, together with accrued and
unpaid interest, by the Company until June 30, 2000, if the closing bid price
for the Common Stock averages at least $ 34.00 per share for the 20 consecutive
trading days prior to the irrevocable notice and the Common Stock is listed or
quoted on the National Market, the Small Cap System, AMEX or NYSE, and after
June 30, 2000, if the following conditions are satisfied: (i) the closing bid
price for the Common Stock averages at least $ 25.50 per share for the 20
consecutive trading days prior to the irrevocable notice and the Common Stock is
listed or quoted on the National Market, the Small Cap System, AMEX or NYSE;
(ii) the market price at the date of irrevocable notice is supported by a price
to earnings ratio of no greater than 30 times fully diluted net earnings per
share of Common Stock, determined in accordance with generally accepted
accounting principles, excluding any extraordinary gains or losses of the
Borrower; (iii) the average (20 days) daily trading volume shall be no less than
25,000 shares; and (iv) the Borrower shall have filed a registration statement
covering the shares of Common Stock issuable upon conversion of the Debenture,
which shall have become effective. The foregoing

                                     Page 2

                           Issuers Initial __________
<PAGE>
earnings per share and bid price tests shall be duly adjusted for share splits,
stock dividends, mergers, consolidations, and other recapitalizations.
Redemption is subject to the Holder's prior right to conversion of the
Debenture.

         (b) The Company may exercise its right to redeem the Debenture prior to
maturity by giving notice (the "Redemption Notice") thereof to the Holder of
this Debenture as such name appears on the books of the Borrower, which notice
shall specify the terms of redemption (including the place at which the Holder
may obtain payment), the total principal amount to be redeemed (such principal
amount plus the premium thereon herein called the "Redemption Amount") and the
date for redemption (the "Redemption Date"), which date shall not be less than
30 days nor more than 60 days after the date of the notice. On the Redemption
Date, the Borrower shall pay all accrued unpaid interest on the Debenture up to
and including the Redemption Date and shall pay to the holder a dollar amount
equal to the Redemption Amount.

         6. CONVERSION RIGHT: The Holder of this Debenture shall have the right,
at holder's option, at any time, to convert all, or, in multiples of $10,000,
any part of this Debenture into such number of fully paid and nonassessable
shares of Common Stock as provided herein. The Holder of this Debenture may
exercise the conversion right by giving written notice (the "Conversion Notice")
to Borrower of the exercise of such right and stating the name or names in which
the stock certificate or stock certificates for the shares of Common Stock are
to be issued and the address to which such certificates shall be delivered. The
Conversion Notice shall be accompanied by the Debenture. The number of shares of
Common Stock that shall be issuable upon conversion of the Debenture shall equal
the face amount of the Debenture divided by the Conversion Price as defined
below and in effect on the date the Conversion Notice is given; provided,
however, that in the event that this Debenture shall have been partially
redeemed, shares of Common Stock shall be issued pro rata, rounded to the
nearest whole share. Conversion shall be deemed to have been effected on the
date the Conversion Notice is received (the "Conversion Date"). In the case of
any Debenture called for redemption, the conversion rights will expire at the
close of business on the Redemption Date. Within 20 business days after receipt
of the Conversion Notice, Borrower shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated in the Conversion Notice, a stock
certificate or stock certificates of Borrower representing the number of shares
of Common Stock to which Holder is entitled and a check or cash in payment of
all interest accrued and unpaid on the Debenture up to and including the
Conversion Date. The conversion rights will be governed by the following
provisions:

         (a) CONVERSION PRICE. On the issue date hereof and until such time as
an adjustment shall occur, the Conversion Price shall be $ 17.00 PER SHARE;
provided, however, that the Conversion Price shall be subject to adjustment at
the times and in accordance with the provisions set forth below.

         (i) ADJUSTMENT FOR ISSUANCE OF SHARES AT LESS THAN THE CONVERSION
PRICE. If and whenever any Additional Common Stock shall be issued by Borrower
(the "Stock Issue Date") for a consideration per share less than the Conversion
Price, then in each such case the initial Conversion Price shall be reduced to a
new Conversion Price in an amount equal to the price per share for the
Additional Common Stock then issued, if issued in connection with a sale of
shares, or the value of the Additional Common Stock then issued, as determined
in accordance with generally accepted accounting principles, if issued other
than for cash, and the number of shares issuable to Holder upon conversion shall
be proportionately increased; and, in the case of Additional Common Stock issued
without consideration, the initial Conversion Price shall be reduced in amount
and the number of shares issued upon conversion shall be increased in an amount
so as to maintain for the Holder the right to convert the Debenture into shares
equal in amount to the same percentage interest in the Common Stock of the
Company as existed for the Holder immediately preceding the Stock Issue Date.

         (ii) SALE OF SHARES. In case of the issuance of Additional Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the gross amount of the cash paid
to Borrower for such shares, before deducting any underwriting compensation or
discount in the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith. In case of the issuance of any shares of Additional Common
Stock for a consideration part or all of which shall

                                     Page 3

                           Issuers Initial __________
<PAGE>
be other than cash, the amount of the consideration therefor, other than cash,
shall be deemed to be the then fair market value of the property received.

         (iii) RECLASSIFICATION OF SHARES. In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend or
other distribution on any class of stock of Borrower shall be deemed to have
been issued without consideration.

         (iv) SPLIT UP OR COMBINATION OF SHARES. In case issued and outstanding
shares of Common Stock shall be subdivided or split up into a greater number of
shares of the Common Stock, the Conversion Price shall be proportionately
decreased, and in case issued and outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
shall be proportionately increased, such increase or decrease, as the case may
be, becoming effective at the time of record of the split-up or combination, as
the case may be.

         (v) EXCEPTIONS. The term "Additional Common Stock" herein shall mean
all shares of Common Stock hereafter issued by Borrower (including Common Stock
held in the treasury of Borrower), except (A) Common Stock issued upon the
conversion of any of the Debentures; (B) Common Stock issued upon exercise of
any outstanding warrants or options; (C) Common Stock issued upon exercise of
outstanding employee stock options; and (D) up to 200,000 shares of Common Stock
in addition to Common Stock described in the immediately preceding clauses (A),
(B) and (C).

         (b) ADJUSTMENT FOR MERGERS AND CONSOLIDATIONS.

         (i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of Borrower or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities or
assets, then, after such event, the Debenture will be convertible into the kind
and amount of securities, cash and other property which the holder of the
Debenture would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event.

         (ii) In case of any capital reorganization, reclassification of the
stock of Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture shall
be convertible into the kind and number of shares of stock or other securities
or property of Borrower to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such event.
The provisions of the immediately foregoing sentence shall similarly apply to
successive reorganizations, reclassifications, consolidations, exchanges,
leases, transfers or other dispositions or other share exchanges.

         (iii) The term "Fair Market Value," as used herein, is the value
ascribed to consideration other than cash as determined by the Board of
Directors of Borrower in good faith, which determination shall be final,
conclusive and binding. If the Board of Directors shall be unable to agree as to
such fair market value, then the issue of fair market value shall be submitted
to arbitration under and pursuant to the rules and regulations of the American
Arbitration Association, and the decision of the arbitrators shall be final,
conclusive and binding, and a final judgment may be entered thereon; provided,
however, that such arbitration shall be limited to determination of the fair
market value of assets tendered in consideration for the issue of Common Stock.

         (iv) In the event Borrower shall propose to take any action which shall
result in an adjustment in the Conversion Price, Borrower shall give notice to
the Holder of this Debenture, which notice shall specify the record date, if
any, with respect to such action and the date on which such action is to take
place. Such notice shall be given on or before the earlier of 10 days before the
record date or the date which such action shall be taken. Such notice shall also
set forth all facts (to the extent known) material to the effect of such action
on the Conversion Price and the number, kind or class of shares or

                                     Page 4

                           Issuers Initial __________
<PAGE>
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of this Debenture.

         (v) Following completion of an event wherein the Conversion Price shall
be adjusted, Borrower shall furnish to the holder of this Debenture a statement,
signed by the Chief Executive Officer and the Secretary of the Borrower, of the
facts creating such adjustment and specifying the resultant adjusted Conversion
Price then in effect which statement shall constitute an amendment to this
Debenture.

         7. ONE-TIME ADJUSTMENT TO CONVERSION PRICE. (a) If the volume-weighted
average closing bid price of the Common Stock, as determined by Bloomberg, for
the 21 consecutive trading days following Borrower's public press release of its
1998 fiscal year-end financial results (such volume-weighted average closing bid
price herein referred to as the "1998 Conversion Price Adjustment Bid Price") is
a price less than the existing Conversion Price, then the Conversion Price shall
be adjusted downward to an amount equal to the greater of (i) ninety percent
(90%) of the 1998 Conversion Price Adjustment Bid Price, or (ii) five (5) times
the Company's earnings before interest, taxes, depreciation and amortization
(excluding extraordinary gains or losses) per share on a fully diluted basis
(excluding shares issued or issuable upon conversion of the Debentures),
calculated in accordance with generally accepted accounting principles, for the
1998 fiscal year. The adjustment shall only be utilized to adjust the Conversion
Price to a lesser amount than the existing Conversion Price, and no adjustment
shall be made if the Company's earnings before interest, taxes, depreciation and
amortization (excluding extraordinary gains or losses) for the fiscal year ended
July 31, 1998 exceed $17,900,000, excluding extraordinary gains or losses. If an
adjustment is required pursuant to Section 7, then the Borrower shall furnish to
the holder of this Debenture a statement, signed by the Chief Financial Officer
and the Secretary of Borrower, of the facts creating such adjustment and
specifying the resultant adjusted Conversion Price then in effect, which
statement shall constitute an amendment to the Debenture.

         (b) Notwithstanding anything herein or in the Loan Agreement to the
contrary, at no time may the aggregate number of shares of Common Stock into
which the Indebtedness represented by the Debentures may be converted, together
with the number of shares of Common Stock into which any Debentures have
previously been converted (the aggregate being referred to herein as the
"Conversion Shares"), exceed 976,219 without the prior approval of the holders
of a majority of the shares of Common Stock (excluding shares, if any, held by
holders of the Debentures and their Affiliates and acquired as a result of the
conversion of any Debenture) voting on such proposal at a duly called meeting of
the shareholders of the Company at which a quorum is present in person or by
proxy (the "Shareholder Approval").

         (c) If, but for paragraph (b) above, the Conversion Price would be
adjusted (the "Conversion Adjustment") as provided by paragraph (a) above such
that the number of Conversion Shares exceeds 976,219, then the Conversion Price
shall be adjusted as provided by paragraph (a) above, effective as of the
adjustment date provided for in paragraph (a) above, ONLY as to the Maximum
Convertible Amount. The "Maximum Convertible Amount" shall be the maximum
outstanding aggregate principal amount of all of the Debentures which may be
converted at the Conversion Price as adjusted by paragraph (a) above such that
the number of Conversion Shares would not exceed 976,219, as follows:

                            MCA = CP * (976,219 - SC)

where MCA = Maximum Convertible Amount;

CP = Conversion Price as adjusted by paragraph (a) above, without giving effect
to paragraph (b) above; and SC = the number of shares, if any, into which any of
the Debentures have been previously converted before effecting the adjustment to
the Conversion Price provided by paragraph (a) above

PROVIDED THAT the Maximum Convertible Amount shall be applied PRO RATA among the
principal amount of the Debentures outstanding at the time of the Conversion
Adjustment. The balance, if any, of the aggregate principal amount outstanding
at the time the Conversion Adjustment, after subtracting the Maximum Convertible
Amount, shall be the "Remaining

                                     Page 5

                           Issuers Initial __________
<PAGE>
Principal Amount." The conversion rights provided for herein shall not be
applicable to the Remaining Principal Amount without the Shareholder Approval
being obtained.

         (d) Upon the Shareholder Approval being obtained, the Remaining
Principal Amount, if any, shall again be convertible in accordance with the
terms of this Debenture at the Conversion Price as adjusted by paragraph (a)
above. If, but only if, the Shareholder Approval is not obtained by December 31,
1998, then each holder of a Debenture shall have the right, until February 28,
1999, to require the Company, upon ten business days notice to the Company, to
redeem the amount of the Remaining Principal Amount, if any, represented by its
Debenture at the sum equal to the Remaining Principal Amount, together with
(subject to Section 17 hereof) an amount equal to an 18% annual yield on the
Remaining Principal Amount of this Debenture, but not in excess of the maximum
amount permitted by applicable law.

         8. RESERVATION OF SHARES: Borrower warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock or treasury shares of Common
Stock necessary to effect conversion of this Debenture.

         9. REGISTRATION RIGHTS: Shares issued upon conversion of this Debenture
shall be restricted from transfer by the holder except if and unless the shares
are duly registered for sale pursuant to the Securities Act of 1933, as amended,
or the transfer is exempt from registration. The Holder has certain rights with
respect to the registration of shares of Common Stock issued upon the conversion
of this Debenture pursuant to the terms of the Loan Agreement. Borrower agrees
that a copy of the Loan Agreement with all amendments, additions or
substitutions therefor shall be available to the Holder at the offices of
Borrower.

         10. TAXES: Subject to Section 2.09 of the Loan Agreement, the Borrower
shall pay any documentary or other transactional taxes attributable to the
issuance or delivery of this Debenture or the shares of Common Stock issued upon
conversion by the Holder (excluding any federal, state or local income taxes and
any franchise taxes or taxes imposed upon the Holder by the jurisdiction, or any
political subdivision thereof, under which such Holder is organized or is
qualified to do business.)

         11.  DEFAULT:

         (a) EVENT OF DEFAULT: An "Event of Default" shall exist if an "Event of
Default" (as defined in the Loan Agreement) shall occur and be continuing.

         (b) REMEDIES UPON EVENT OF DEFAULT: If an Event of Default shall have
occurred and be continuing, then Lender may exercise any one or more of the
rights and remedies provided in the Loan Agreement, as Lender in its sole
discretion, may deem necessary or appropriate.

         (c) REMEDIES NONEXCLUSIVE: Each right, power or remedy of the holder
hereof upon the occurrence of any Event of Default as provided for in this
Debenture or now or hereafter existing at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this Debenture or now or hereafter existing at
law or in equity or by statute, and the exercise or beginning of the exercise by
the holder or transferee hereof of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by the holder of
any or all such other rights, powers or remedies.

         (d) EXPENSES: Upon the occurrence of a Default or an Event of Default,
which occurrence is not cured within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all costs and expenses
(including attorneys' fees and expenses) incurred by Lender or Agent in
connection with the preservation and enforcement of Lender's
rights under the Loan Agreement, the Debenture, or any other Loan Document. 12.
FAILURE TO ACT AND WAIVER: No failure or delay by the holder hereof to require
the performance of any term or terms of this Debenture or not to exercise any
right or any remedy shall constitute a waiver of any such term or of any right
or of any default, nor shall such delay or failure preclude the holder hereof
from exercising any such right, power or remedy at any later time or times. By
accepting payment after the due date of any amount payable under this Debenture,
the holder hereof shall not be deemed to waive the right either to require
payment when due of all other amounts payable, or to later declare a default for
failure to effect such payment of any such other amount. The failure of the
holder of this Debenture to give notice of any failure or breach of the Borrower
under this Debenture shall not constitute a waiver of any right or remedy in
respect of such continuing failure or breach or any subsequent failure or
breach.

         13. CONSENT TO JURISDICTION: The Borrower hereby agrees and consents
that any action, suit or proceeding arising out of this Debenture may be brought
in any appropriate court in the State of Texas including the United States
District Court for the Northern District of Texas, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder
hereof, and by the issuance and execution of this Debenture the Borrower
irrevocably consents to the jurisdiction of each such court. The Borrower hereby
irrevocably appoints CT Corporation System, Dallas, Texas, as agent for the
Borrower to accept service of process for and on behalf of the Borrower in any
action, suit or proceeding arising out of this Debenture. Except for default in
payment of interest or principal when and as they become due, and except as
otherwise specifically set forth herein or otherwise agreed to in writing by the
parties, any action dispute, claim or controversy (all such herein called
"Dispute") between or among the parties as to the facts or the interpretation of
the Debenture shall be resolved by arbitration as set forth in Section 12.05 of
the Loan Agreement.

         14. HOLDERS RIGHT TO REQUEST MULTIPLE DEBENTURES: The Holder shall,
upon written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
units, each of such to be in such amounts as shall be requested; provided
however that no Debenture shall be issued in denominations of face amount less
than $10,000.00.

         15. TRANSFER: Subject to Section 12.08 of the Loan Agreement, this
Debenture may be transferred on the books of the Borrower by the registered
Holder hereof, or by Holder's attorney duly authorized in writing, only upon (i)
delivery to the Borrower of a duly executed assignment of the Debenture, or part
thereof, to the proposed new Holder, along with a current notation of the amount
of payments received and net Principal Amount yet unfunded, and presentment of
such Debenture to the Borrower for issue of a replacement Debenture, or
Debentures, in the name of the new Holder, (ii) the designation by the new
Holder of the Lender's agent for notice, such agent to be the sole party to whom
Borrower shall be required to provide notice when notice to Lender is required
hereunder and who shall be the sole party authorized to represent Lender in
regard to modification or waivers under the Debenture, the Loan Agreement, or
other Loan Documents; and any action, consent or waiver (other than a compromise
of principal and interest), when given or taken by Lender's agent for notice,
shall be deemed to be the action of the holders of a majority in amount of the
Principal Amount of the Debenture, as such holders are recorded on the books of
the Borrower, and (iii) in compliance with the legend to read as follows:

         The Securities represented by this Debenture have not been registered
         under the Securities Act of 1933, as amended ("Act"), or applicable
         state securities laws ("State Acts") and shall not be sold,
         hypothecated, donated or otherwise transferred unless the Company shall
         have received an opinion of Legal Counsel for the Company, or such
         other evidence as may be satisfactory to Legal Counsel for the Company,
         to the effect that any such transfer shall not require registration
         under the Act and the State Acts.

         The Borrower shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.

                                     Page 6

                           Issuers Initial __________
<PAGE>
         16. NOTICES: All notices and communications under this Debenture shall
be in writing and shall be either delivered in person or by overnight service
such as FedEx and accompanied by a signed receipt therefor; or mailed
first-class United States certified mail, return receipt requested, postage
prepaid, and addressed as follows: (i) if to the Borrower at its address for
notice as stated in the Loan Agreement; and, (ii) if to the Holder of this
Debenture, to the address (a) of such Holder as it appears on the books of the
Borrower, or (b) in the case of a partial assignment to one or more Holders, to
the Lender's agent for notice, as the case may be. Any notice of communication
shall be deemed given and received as of the date of such delivery if delivered;
or if mailed, then three days after the date of mailing.

         17. MAXIMUM INTEREST RATE: (a) Regardless of any provision contained in
this Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and, in the event that 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 Debenture 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 Lender shall, to the maximum extent
permitted under applicable law, (i) characterize any non principal 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 Debenture; provided that, if the Debenture is 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, Lender shall refund to Borrower the
amount of such excess or credit the amount of such excess against the principal
amount of the Debenture and, in such event, Lender 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 (if any) 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 Debenture under the laws which are
presently in effect of the United States of America or by the laws of any other
jurisdiction which are or may be applicable to the holders of the Debenture and
such Indebtedness or, to the extent permitted by law, under such applicable laws
of the United States of America or by the laws of any other jurisdiction which
are or may be applicable to the holder of the Debenture and which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.

         18. RIGHTS UNDER LOAN AGREEMENT: This Debenture is issued pursuant to
the Convertible Loan Agreement, dated July 3, 1997, by and among the Company,
Renaissance III, Renaissance PLC and BOCPII, as Lenders, and Agent and the
holders hereof are entitled to all the rights and benefits, and are subject to
all the obligations of Lender under said agreement, including the maximum
interest rates limitations as specified therein. Both Borrower and Lenders have
participated in the negotiation and preparation of the Loan Agreement and of
this Debenture. Borrower agrees that a copy of the Loan Agreement with all
amendments, additions and substitutions therefor shall be available to the
Holders at the offices of Borrower.

         19. DEFINED TERMS: Capitalized Terms used but not defined herein shall
have the meaning given them in the Loan Agreement.

         20. 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., the Chase Manhattan Bank, agent, and Renaissance III, Renaissance PLC,
BOCPII, as Lenders, and Agent, dated as of July 3, 1997, which is incorporated
herein by reference, (ii) the terms of the form of the Standby Agreement
attached as Exhibit A to the Loan Agreement (which terms are hereby incorporated
by reference and which terms shall apply with respect to any Senior Obligations
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 of
Section 5.18 of the Loan Agreement), and (iii) the terms

                                     Page 7

                           Issuers Initial __________
<PAGE>
of any other Standby Agreement hereinafter executed by the holders of Debentures
pursuant hereto and pursuant to Section 5.18 of the Loan Agreement. Each holder
of a Debenture hereby agrees, upon the request of Borrower, to enter into a
Standby Agreement in the form of Exhibit A to the Loan Agreement with any holder
of Senior Obligations.

         21. GOVERNING LAW: This Debenture shall be governed by and construed
and enforced in accordance with the substantive laws of the State of Texas,
without regard to the conflicts of laws provisions thereof, and the applicable
laws of the United States.

         IN WITNESS WHEREOF, the undersigned Borrower has caused this Debenture
to be duly issued, executed and delivered on the date and year above stated.

                                         BORROWER

                                         PLAY BY PLAY TOYS & NOVELTIES, INC.

                                         By:___________________________________

                                     Page 8

                           Issuers Initial __________
<PAGE>
The Securities represented by this Debenture have not been registered under the
Securities Act of 1933, as amended ("Act"), or applicable state securities laws
("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of Legal Counsel
for the Company, or such other evidence as may be satisfactory to Legal Counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts.

                       PLAY BY PLAY TOYS & NOVELTIES, INC.

                           8.00% CONVERTIBLE DEBENTURE

$10,000,000                          NO. 3
                                            Date of Issue: JULY 3, 1997

         PLAY BY PLAY TOYS & NOVELTIES, INC., a Texas corporation (the "Company"
or "Borrower"), for value received, promises to pay to:

                       BANC ONE CAPITAL PARTNERS II, LTD.

or to its order, (together with any assignee, jointly or severally, the "Holder"
or "Lender") on or before June 30, 2004 (the "Due Date") (unless this Debenture
shall have been sooner called for redemption or presented for conversion as
herein provided), the sum of TEN MILLION DOLLARS ($10,000,000) (the "Principal
Amount") and to pay interest on the Principal Amount at the rate of eight
percent (8.00%) per annum as provided herein. The Principal Amount shall be
payable in equal monthly payments commencing on June 30, 2000 and continuing
through June 30, 2004. All payments of both principal and interest shall be made
at the address of the Holder hereof as it appears in the books and records of
the Borrower, or at such other place as may be designated by the Holder hereof.
This Debenture shall rank PARI PASSU with all Indebtedness of the Borrower,
other than the Senior Obligations and the Subordinated Debt.

         1. INTEREST: Interest on the Principal Amount outstanding from time to
time shall accrue at the rate of 8.00% per annum and shall be payable in monthly
installments commencing July 31, 1997, and subsequent payments shall be made on
the last day of each month thereafter until the Principal Amount and all accrued
and unpaid interest shall have been paid in full. Subject to Section 16 hereof,
overdue principal and interest on the Debenture shall bear interest at the rate
of 15% per annum.

         2. MATURITY: If not sooner paid, redeemed or converted, this Debenture
shall mature on June 30, 2004 at which time all then remaining unpaid principal
and all accrued and unpaid interest and any other charges then due under the
Loan Agreement shall be due and payable in full. Upon the request of the Holder,
this Debenture 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 Debenture, except for payments
of subordinated debt to the principal shareholder of the Company pursuant to
Section 2.02 of the Loan Agreement and former stockholders of Ace Novelty Co.,
Inc., but only if on the date of such prepayment the Borrower is not in
compliance with Section 7.01 of the Loan Agreement.

         3. MANDATORY PRINCIPAL INSTALLMENTS: If this Debenture is not sooner
redeemed or converted as provided hereunder, Borrower shall pay to Holder,
commencing on June 30, 2000, and the last day of each successive month

                                     Page 1

                           Issuers Initial __________
<PAGE>
thereafter prior to maturity, mandatory principal redemption installments, each
of such installments to be in the amount of Ten Dollars ($10) per Thousand
Dollars ($1,000) of the then remaining principal amount of the Debenture and
further, at maturity, shall make a final installment of all of the remaining
unpaid Principal Amount balance due plus the amount of any unpaid interest and
other charges then due. Each of such installments shall be applied in partial
redemption of the Debenture when received by Holder.

         4. REDEMPTION BY HOLDER: (a) If at any time after the date hereof (i)
the Company's Common Stock, no par value ("Common Stock"), is not listed for
exchange on the NASDAQ National Market System ("National Market"), the New York
Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), or quoted on the
NASDAQ Small Cap System ("Small Cap System"), (ii) any Person acquires more than
a majority of the Common Stock, without the Required Lender's consent, or (iii)
there is a change during any twelve-month period of at least two-thirds of the
members of the Company's Board of Directors, without the Required Lender's
consent, the Holder shall have the right for a period of sixty (60) days after
the earlier of (y) the receipt of notice of any such event by the Company, or
(z) the occurrence of an event described in this paragraph, if no notice by the
Company is given, to require this Debenture to be redeemed by the Company, upon
thirty (30) days' notice by the Holder, at the sum equal to the Principal
Amount, together with, subject to Section 16 hereof, an amount equal to a 20%
compounded annual rate of return through the date of redemption, but not in
excess of the maximum amount permitted by applicable law.

         (b) In the event that the Company refunds, refinances or extends the
maturity of the Indebtedness evidenced by the Senior Documents in an aggregate
principal amount not in excess of $45.8 million and the Company is not in
compliance with the agreed minimum financial ratios or standards set forth in
Section 7.01 of the Loan Agreement or would not be in compliance after giving
effect thereto, the Holder shall have the right for a period of sixty (60) days
after the earlier of (i) the receipt of the notice by the Company provided for
in clause (i) of Section 6.01 of the Loan Agreement, or (ii) the occurrence of
an event described in this paragraph, if no notice by the Company is given, to
require this Debenture to be redeemed by the Company upon thirty (30) days'
notice by the Holder, at 101% of par, together with all accrued and unpaid
interest through the redemption date.

         (c) In the event that the Company incurs Senior Obligations in an
aggregate principal amount not in excess of $45.8 million and the Company is not
in compliance with the agreed minimum financial ratios or standards set forth in
Section 7.01 of the Loan Agreement or would not be in compliance after giving
effect thereto, the Holder shall have the right for a period of sixty (60) days
after the earlier of (i) the receipt of the notice by the Company provided for
in clause (i) of Section 6.01 of the Loan Agreement, or (ii) the occurrence of
an event described in this paragraph, if no notice by the Company is given, to
require this Debenture to be redeemed by the Company upon thirty (30) days'
notice by the Holder at 101% of par, together with all accrued and unpaid
interest through the redemption date.

         5. OPTIONAL REDEMPTION BY COMPANY: (a) On any interest payment date,
and after prior irrevocable notice as provided for below, this Debenture is
redeemable, in whole but not in part, at 101% of par, together with accrued and
unpaid interest, by the Company until June 30, 2000, if the closing bid price
for the Common Stock averages at least $ 34.00 per share for the 20 consecutive
trading days prior to the irrevocable notice and the Common Stock is listed or
quoted on the National Market, the Small Cap System, AMEX or NYSE, and after
June 30, 2000, if the following conditions are satisfied: (i) the closing bid
price for the Common Stock averages at least $ 25.50 per share for the 20
consecutive trading days prior to the irrevocable notice and the Common Stock is
listed or quoted on the National Market, the Small Cap System, AMEX or NYSE;
(ii) the market price at the date of irrevocable notice is supported by a price
to earnings ratio of no greater than 30 times fully diluted net earnings per
share of Common Stock, determined in accordance with generally accepted
accounting principles, excluding any extraordinary gains or losses of the
Borrower; (iii) the average (20 days) daily trading volume shall be no less than
25,000 shares; and (iv) the Borrower shall have filed a registration statement
covering the shares of Common Stock issuable upon conversion of the Debenture,
which shall have become effective. The foregoing earnings per share and bid
price tests shall be duly adjusted for share splits, stock dividends, mergers,
consolidations, and other recapitalizations. Redemption is subject to the
Holder's prior right to conversion of the Debenture.


                                     Page 2

                           Issuers Initial __________
<PAGE>
         (b) The Company may exercise its right to redeem the Debenture prior to
maturity by giving notice (the "Redemption Notice") thereof to the Holder of
this Debenture as such name appears on the books of the Borrower, which notice
shall specify the terms of redemption (including the place at which the Holder
may obtain payment), the total principal amount to be redeemed (such principal
amount plus the premium thereon herein called the "Redemption Amount") and the
date for redemption (the "Redemption Date"), which date shall not be less than
30 days nor more than 60 days after the date of the notice. On the Redemption
Date, the Borrower shall pay all accrued unpaid interest on the Debenture up to
and including the Redemption Date and shall pay to the holder a dollar amount
equal to the Redemption Amount.

         6. CONVERSION RIGHT: The Holder of this Debenture shall have the right,
at holder's option, at any time, to convert all, or, in multiples of $10,000,
any part of this Debenture into such number of fully paid and nonassessable
shares of Common Stock as provided herein. The Holder of this Debenture may
exercise the conversion right by giving written notice (the "Conversion Notice")
to Borrower of the exercise of such right and stating the name or names in which
the stock certificate or stock certificates for the shares of Common Stock are
to be issued and the address to which such certificates shall be delivered. The
Conversion Notice shall be accompanied by the Debenture. The number of shares of
Common Stock that shall be issuable upon conversion of the Debenture shall equal
the face amount of the Debenture divided by the Conversion Price as defined
below and in effect on the date the Conversion Notice is given; provided,
however, that in the event that this Debenture shall have been partially
redeemed, shares of Common Stock shall be issued pro rata, rounded to the
nearest whole share. Conversion shall be deemed to have been effected on the
date the Conversion Notice is received (the "Conversion Date"). In the case of
any Debenture called for redemption, the conversion rights will expire at the
close of business on the Redemption Date. Within 20 business days after receipt
of the Conversion Notice, Borrower shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated in the Conversion Notice, a stock
certificate or stock certificates of Borrower representing the number of shares
of Common Stock to which Holder is entitled and a check or cash in payment of
all interest accrued and unpaid on the Debenture up to and including the
Conversion Date. The conversion rights will be governed by the following
provisions:

         (a) CONVERSION PRICE. On the issue date hereof and until such time as
an adjustment shall occur, the Conversion Price shall be $ 17.00 PER SHARE;
provided, however, that the Conversion Price shall be subject to adjustment at
the times and in accordance with the provisions set forth below.

         (i) ADJUSTMENT FOR ISSUANCE OF SHARES AT LESS THAN THE CONVERSION
PRICE. If and whenever any Additional Common Stock shall be issued by Borrower
(the "Stock Issue Date") for a consideration per share less than the Conversion
Price, then in each such case the initial Conversion Price shall be reduced to a
new Conversion Price in an amount equal to the price per share for the
Additional Common Stock then issued, if issued in connection with a sale of
shares, or the value of the Additional Common Stock then issued, as determined
in accordance with generally accepted accounting principles, if issued other
than for cash, and the number of shares issuable to Holder upon conversion shall
be proportionately increased; and, in the case of Additional Common Stock issued
without consideration, the initial Conversion Price shall be reduced in amount
and the number of shares issued upon conversion shall be increased in an amount
so as to maintain for the Holder the right to convert the Debenture into shares
equal in amount to the same percentage interest in the Common Stock of the
Company as existed for the Holder immediately preceding the Stock Issue Date.

         (ii) SALE OF SHARES. In case of the issuance of Additional Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the gross amount of the cash paid
to Borrower for such shares, before deducting any underwriting compensation or
discount in the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith. In case of the issuance of any shares of Additional Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor, other than cash, shall be deemed to be the
then fair market value of the property received.


                                     Page 3

                           Issuers Initial __________
<PAGE>
         (iii) RECLASSIFICATION OF SHARES. In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend or
other distribution on any class of stock of Borrower shall be deemed to have
been issued without consideration.

         (iv) SPLIT UP OR COMBINATION OF SHARES. In case issued and outstanding
shares of Common Stock shall be subdivided or split up into a greater number of
shares of the Common Stock, the Conversion Price shall be proportionately
decreased, and in case issued and outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
shall be proportionately increased, such increase or decrease, as the case may
be, becoming effective at the time of record of the split-up or combination, as
the case may be.

         (v) EXCEPTIONS. The term "Additional Common Stock" herein shall mean
all shares of Common Stock hereafter issued by Borrower (including Common Stock
held in the treasury of Borrower), except (A) Common Stock issued upon the
conversion of any of the Debentures; (B) Common Stock issued upon exercise of
any outstanding warrants or options; (C) Common Stock issued upon exercise of
outstanding employee stock options; and (D) up to 200,000 shares of Common Stock
in addition to Common Stock described in the immediately preceding clauses (A),
(B) and (C).

         (b) ADJUSTMENT FOR MERGERS AND CONSOLIDATIONS.

         (i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of Borrower or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities or
assets, then, after such event, the Debenture will be convertible into the kind
and amount of securities, cash and other property which the holder of the
Debenture would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event.

         (ii) In case of any capital reorganization, reclassification of the
stock of Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture shall
be convertible into the kind and number of shares of stock or other securities
or property of Borrower to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such event.
The provisions of the immediately foregoing sentence shall similarly apply to
successive reorganizations, reclassifications, consolidations, exchanges,
leases, transfers or other dispositions or other share exchanges.

         (iii) The term "Fair Market Value," as used herein, is the value
ascribed to consideration other than cash as determined by the Board of
Directors of Borrower in good faith, which determination shall be final,
conclusive and binding. If the Board of Directors shall be unable to agree as to
such fair market value, then the issue of fair market value shall be submitted
to arbitration under and pursuant to the rules and regulations of the American
Arbitration Association, and the decision of the arbitrators shall be final,
conclusive and binding, and a final judgment may be entered thereon; provided,
however, that such arbitration shall be limited to determination of the fair
market value of assets tendered in consideration for the issue of Common Stock.

         (iv) In the event Borrower shall propose to take any action which shall
result in an adjustment in the Conversion Price, Borrower shall give notice to
the Holder of this Debenture, which notice shall specify the record date, if
any, with respect to such action and the date on which such action is to take
place. Such notice shall be given on or before the earlier of 10 days before the
record date or the date which such action shall be taken. Such notice shall also
set forth all facts (to the extent known) material to the effect of such action
on the Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of this Debenture.


                                     Page 4

                           Issuers Initial __________
<PAGE>
         (v) Following completion of an event wherein the Conversion Price shall
be adjusted, Borrower shall furnish to the holder of this Debenture a statement,
signed by the Chief Executive Officer and the Secretary of the Borrower, of the
facts creating such adjustment and specifying the resultant adjusted Conversion
Price then in effect which statement shall constitute an amendment to this
Debenture.

         7. ONE-TIME ADJUSTMENT TO CONVERSION PRICE. (a) If the volume-weighted
average closing bid price of the Common Stock, as determined by Bloomberg, for
the 21 consecutive trading days following Borrower's public press release of its
1998 fiscal year-end financial results (such volume-weighted average closing bid
price herein referred to as the "1998 Conversion Price Adjustment Bid Price") is
a price less than the existing Conversion Price, then the Conversion Price shall
be adjusted downward to an amount equal to the greater of (i) ninety percent
(90%) of the 1998 Conversion Price Adjustment Bid Price, or (ii) five (5) times
the Company's earnings before interest, taxes, depreciation and amortization
(excluding extraordinary gains or losses) per share on a fully diluted basis
(excluding shares issued or issuable upon conversion of the Debentures),
calculated in accordance with generally accepted accounting principles, for the
1998 fiscal year. The adjustment shall only be utilized to adjust the Conversion
Price to a lesser amount than the existing Conversion Price, and no adjustment
shall be made if the Company's earnings before interest, taxes, depreciation and
amortization (excluding extraordinary gains or losses) for the fiscal year ended
July 31, 1998 exceed $17,900,000, excluding extraordinary gains or losses. If an
adjustment is required pursuant to Section 7, then the Borrower shall furnish to
the holder of this Debenture a statement, signed by the Chief Financial Officer
and the Secretary of Borrower, of the facts creating such adjustment and
specifying the resultant adjusted Conversion Price then in effect, which
statement shall constitute an amendment to the Debenture.

         (b) Notwithstanding anything herein or in the Loan Agreement to the
contrary, at no time may the aggregate number of shares of Common Stock into
which the Indebtedness represented by the Debentures may be converted, together
with the number of shares of Common Stock into which any Debentures have
previously been converted (the aggregate being referred to herein as the
"Conversion Shares"), exceed 976,219 without the prior approval of the holders
of a majority of the shares of Common Stock (excluding shares, if any, held by
holders of the Debentures and their Affiliates and acquired as a result of the
conversion of any Debenture) voting on such proposal at a duly called meeting of
the shareholders of the Company at which a quorum is present in person or by
proxy (the "Shareholder Approval").

         (c) If, but for paragraph (b) above, the Conversion Price would be
adjusted (the "Conversion Adjustment") as provided by paragraph (a) above such
that the number of Conversion Shares exceeds 976,219, then the Conversion Price
shall be adjusted as provided by paragraph (a) above, effective as of the
adjustment date provided for in paragraph (a) above, ONLY as to the Maximum
Convertible Amount. The "Maximum Convertible Amount" shall be the maximum
outstanding aggregate principal amount of all of the Debentures which may be
converted at the Conversion Price as adjusted by paragraph (a) above such that
the number of Conversion Shares would not exceed 976,219, as follows:

                            MCA = CP * (976,219 - SC)

where MCA = Maximum Convertible Amount;

CP = Conversion Price as adjusted by paragraph (a) above, without giving effect
to paragraph (b) above; and SC = the number of shares, if any, into which any of
the Debentures have been previously converted before effecting the adjustment to
the Conversion Price provided by paragraph (a) above

PROVIDED THAT the Maximum Convertible Amount shall be applied PRO RATA among the
principal amount of the Debentures outstanding at the time of the Conversion
Adjustment. The balance, if any, of the aggregate principal amount outstanding
at the time the Conversion Adjustment, after subtracting the Maximum Convertible
Amount, shall be the "Remaining Principal Amount." The conversion rights
provided for herein shall not be applicable to the Remaining Principal Amount
without the Shareholder Approval being obtained.

                                     Page 5

                           Issuers Initial __________
<PAGE>
         (d) Upon the Shareholder Approval being obtained, the Remaining
Principal Amount, if any, shall again be convertible in accordance with the
terms of this Debenture at the Conversion Price as adjusted by paragraph (a)
above. If, but only if, the Shareholder Approval is not obtained by December 31,
1998, then each holder of a Debenture shall have the right, until February 28,
1999, to require the Company, upon ten business days notice to the Company, to
redeem the amount of the Remaining Principal Amount, if any, represented by its
Debenture at the sum equal to the Remaining Principal Amount, together with
(subject to Section 17 hereof) an amount equal to a 20% compounded annual rate
of return on the Remaining Principal Amount, but not in excess of the maximum
amount permitted by applicable law.

         8. RESERVATION OF SHARES: Borrower warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock or treasury shares of Common
Stock necessary to effect conversion of this Debenture.

         9. REGISTRATION RIGHTS: Shares issued upon conversion of this Debenture
shall be restricted from transfer by the holder except if and unless the shares
are duly registered for sale pursuant to the Securities Act of 1933, as amended,
or the transfer is exempt from registration. The Holder has certain rights with
respect to the registration of shares of Common Stock issued upon the conversion
of this Debenture pursuant to the terms of the Loan Agreement. Borrower agrees
that a copy of the Loan Agreement with all amendments, additions or
substitutions therefor shall be available to the Holder at the offices of
Borrower.

         10. TAXES: Subject to Section 2.09 of the Loan Agreement, the Borrower
shall pay any documentary or other transactional taxes attributable to the
issuance or delivery of this Debenture or the shares of Common Stock issued upon
conversion by the Holder (excluding any federal, state or local income taxes and
any franchise taxes or taxes imposed upon the Holder by the jurisdiction, or any
political subdivision thereof, under which such Holder is organized or is
qualified to do business.)

         11.  DEFAULT:

         (a) EVENT OF DEFAULT: An "Event of Default" shall exist if an "Event of
Default" (as defined in the Loan Agreement) shall occur and be continuing.

         (b) REMEDIES UPON EVENT OF DEFAULT: If an Event of Default shall have
occurred and be continuing, then Lender may exercise any one or more of the
rights and remedies provided in the Loan Agreement, as Lender in its sole
discretion, may deem necessary or appropriate.

         (c) REMEDIES NONEXCLUSIVE: Each right, power or remedy of the holder
hereof upon the occurrence of any Event of Default as provided for in this
Debenture or now or hereafter existing at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this Debenture or now or hereafter existing at
law or in equity or by statute, and the exercise or beginning of the exercise by
the holder or transferee hereof of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by the holder of
any or all such other rights, powers or remedies.

         (d) EXPENSES: Upon the occurrence of a Default or an Event of Default,
which occurrence is not cured within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all costs and expenses
(including attorneys' fees and expenses) incurred by Lender or Agent in
connection with the preservation and enforcement of Lender's
rights under the Loan Agreement, the Debenture, or any other Loan Document. 12.
FAILURE TO ACT AND WAIVER: No failure or delay by the holder hereof to require
the performance of any term or terms of this Debenture or not to exercise any
right or any remedy shall constitute a waiver of any such term or of any right
or of any default, nor shall such delay or failure preclude the holder hereof
from exercising any such right, power or remedy at any later time or times. By
accepting payment after the due date of any amount payable under this Debenture,

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the holder hereof shall not be deemed to waive the right either to require
payment when due of all other amounts payable, or to later declare a default for
failure to effect such payment of any such other amount. The failure of the
holder of this Debenture to give notice of any failure or breach of the Borrower
under this Debenture shall not constitute a waiver of any right or remedy in
respect of such continuing failure or breach or any subsequent failure or
breach.

         13. HOLDERS RIGHT TO REQUEST MULTIPLE DEBENTURES: The Holder shall,
upon written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
units, each of such to be in such amounts as shall be requested; provided
however that no Debenture shall be issued in denominations of face amount less
than $10,000.00.

         14. TRANSFER: Subject to Section 12.08 of the Loan Agreement, this
Debenture may be transferred on the books of the Borrower by the registered
Holder hereof, or by Holder's attorney duly authorized in writing, only upon (i)
delivery to the Borrower of a duly executed assignment of the Debenture, or part
thereof, to the proposed new Holder, along with a current notation of the amount
of payments received and net Principal Amount yet unfunded, and presentment of
such Debenture to the Borrower for issue of a replacement Debenture, or
Debentures, in the name of the new Holder, (ii) the designation by the new
Holder of the Lender's agent for notice, such agent to be the sole party to whom
Borrower shall be required to provide notice when notice to Lender is required
hereunder and who shall be the sole party authorized to represent Lender in
regard to modification or waivers under the Debenture, the Loan Agreement, or
other Loan Documents; and any action, consent or waiver, (other than a
compromise of principal and interest), when given or taken by Lender's agent for
notice, shall be deemed to be the action of the holders of a majority in amount
of the Principal Amount of the Debenture, as such holders are recorded on the
books of the Borrower, and (iii) in compliance with the legend to read as
follows:

         The Securities represented by this Debenture have not been registered
         under the Securities Act of 1933, as amended ("Act"), or applicable
         state securities laws ("State Acts") and shall not be sold,
         hypothecated, donated or otherwise transferred unless the Company shall
         have received an opinion of Legal Counsel for the Company, or such
         other evidence as may be satisfactory to Legal Counsel for the Company,
         to the effect that any such transfer shall not require registration
         under the Act and the State Acts.

         The Borrower shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.

         15. NOTICES: All notices and communications under this Debenture shall
be in writing and shall be either delivered in person or by overnight service
such as FedEx and accompanied by a signed receipt therefor; or mailed
first-class United States certified mail, return receipt requested, postage
prepaid, and addressed as follows: (i) if to the Borrower at its address for
notice as stated in the Loan Agreement; and, (ii) if to the Holder of this
Debenture, to the address (a) of such Holder as it appears on the books of the
Borrower, or (b) in the case of a partial assignment to one or more Holders, to
the Lender's agent for notice, as the case may be. Any notice of communication
shall be deemed given and received as of the date of such delivery if delivered;
or if mailed, then three days after the date of mailing.

         16. MAXIMUM INTEREST RATE: (a) Regardless of any provision contained in
this Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and, in the event that 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 Debenture 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 Lender shall, to the maximum extent
permitted under applicable law, (i) characterize any non principal payment as an
expense, fee or premium rather than as interest; (ii) exclude voluntary
prepayments and the

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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 Debenture; provided that, if the Debenture is 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, Lender shall refund to Borrower the amount of such excess
or credit the amount of such excess against the principal amount of the
Debenture and, in such event, Lender 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 (if any) 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 Debenture under the laws which are
presently in effect of the United States of America or by the laws of any other
jurisdiction which are or may be applicable to the holders of the Debenture and
such Indebtedness or, to the extent permitted by law, under such applicable laws
of the United States of America or by the laws of any other jurisdiction which
are or may be applicable to the holder of the Debenture and which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.

         17. RIGHTS UNDER LOAN AGREEMENT: This Debenture is issued pursuant to
the Convertible Loan Agreement, dated July 3, 1997, by and among the Company,
Renaissance III, Renaissance PLC and BOCPII, as Lenders, and Agent and the
holders hereof are entitled to all the rights and benefits, and are subject to
all the obligations of Lender under said agreement, including the maximum
interest rates limitations as specified therein. Both Borrower and Lenders have
participated in the negotiation and preparation of the Loan Agreement and of
this Debenture. Borrower agrees that a copy of the Loan Agreement with all
amendments, additions and substitutions therefor shall be available to the
Holders at the offices of Borrower.

         18. DEFINED TERMS: Capitalized Terms used but not defined herein shall
have the meaning given them in the Loan Agreement.

         19. 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., the Chase Manhattan Bank, agent, and Renaissance III, Renaissance PLC,
BOCPII, as Lenders, and Agent, dated as of July 3, 1997, which is incorporated
herein by reference, (ii) the terms of the form of the Standby Agreement
attached as Exhibit A to the Loan Agreement (which terms are hereby incorporated
by reference and which terms shall apply with respect to any Senior Obligations
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 of
Section 5.18 of the Loan Agreement), and (iii) the terms of any other Standby
Agreement hereinafter executed by the holders of Debentures pursuant hereto and
pursuant to Section 5.18 of the Loan Agreement. Each holder of a Debenture
hereby agrees, upon the request of Borrower, to enter into a Standby Agreement
in the form of Exhibit A to the Loan Agreement with any holder of Senior
Obligations.

         20. GOVERNING LAW: This Debenture is payable in the State of Ohio, and
the principal executive offices of the Holder are located in the State of Ohio.
The laws of the State of Ohio (other than its conflict-of-laws principles) and
the laws of the United States of America shall govern the validity or
enforceability and the interpretation or construction of all of the provisions
of this Debenture and all issues thereunder, including, without limitation, the
maximum lawful rate, and any questions or issues with respect to whether
interest, fees, and other consideration charged, contracted for or received by
the Holder under this Debenture or any other Loan Documents exceed the maximum
lawful rate.

         21. SUBMISSION TO JURISDICTION: WAIVER OF SERVICE AND VENUE: Borrower
agrees to the jurisdiction of any state court sitting in the County of Franklin,
State of Ohio, and to the jurisdiction of any federal court sitting in the
Southern District, Eastern Division of Ohio, and waives any objection based on
venue or FORUM NON CONVENIENS with respect to any action instituted therein, and
agrees that any dispute concerning this Debenture shall be heard only in the
courts described above.

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         IN WITNESS WHEREOF, the undersigned Borrower has caused this Debenture
to be duly issued, executed and delivered on the date and year above stated.


                                         BORROWER

                                         PLAY BY PLAY TOYS & NOVELTIES, INC.

                                         By:___________________________________

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                           Issuers Initial __________