FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 0-22545
DSI TOYS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1673513
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1100 WEST SAM HOUSTON PARKWAY (NORTH)
SUITE 1100
HOUSTON, TEXAS 77043
(Address of principal executive offices) (Zip Code)
(713) 365-9900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
As of June 13, 1997, 6,000,000 shares of common stock, par value $.01 per
share, of DSI Toys, Inc. were outstanding.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet as of April 30, 1997 and January 31,
1997......................................................... 1
Consolidated Statement of Operations for the Three Months Ended
April 30, 1997 and 1996...................................... 2
Consolidated Statement of Cash Flows for the Three Months Ended
April 30, 1997 and 1996....................................... 3
Notes to Consolidated Financial Statements...................... 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 6
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS................................................ 9
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 9
Signatures................................................................. 10
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DSI TOYS, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS APRIL 30, JANUARY 31,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash ............................................ $ 577,309 $ 1,501,992
Restricted cash ................................. 150,000 150,000
Accounts receivable, net of allowance for
doubtful accounts of $119,284 and $104,781 ... 5,818,063 4,219,942
Due from shareholder ............................ 155,668 151,667
Shareholder insurance proceeds receivable ....... 169,260 511,765
Inventories ..................................... 5,324,405 4,615,087
Prepaid expenses ................................ 2,166,079 1,462,189
Deferred income taxes ........................... 365,000 362,000
------------ ------------
Total current assets ....................... 14,725,784 12,974,642
Property and equipment, net ........................ 1,425,207 1,190,498
Shareholder insurance proceeds receivable .......... 987,341 920,987
Deferred debt issuance costs ....................... 637,096 679,906
Other assets ....................................... 415,005 537,868
------------ ------------
$ 18,190,433 $ 16,303,901
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........ $ 6,591,901 $ 7,247,254
Current portion of long-term debt ............... 3,406,640 2,755,789
Income taxes payable ............................ 188,402 193,211
Deferred income taxes ........................... 100,000 158,000
------------ ------------
Total current liabilities ................... 10,286,943 10,354,254
Long-term debt ..................................... 10,818,107 8,203,108
Notes payable-- shareholder ........................ 6,000,000 6,000,000
Deferred income taxes .............................. 968,000 1,169,000
------------ ------------
Total liabilities .......................... 28,073,050 25,726,362
Shareholders' equity (deficit):
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; none issued or outstanding
Common Stock, $.01 par value, 20,000,000 shares
authorized; 6,219,000 shares issued; 3,500,000
shares outstanding ............................ 62,190 62,190
Additional paid-in capital ...................... 3,443,093 3,443,093
Common stock warrants ........................... 100,000 100,000
Retained earnings ............................... 9,142,777 9,623,350
Cumulative translation adjustment ............... 29,915 9,498
------------ ------------
12,777,975 13,238,131
Less-- treasury stock, 2,719,000 shares, at cost (22,660,592) (22,660,592)
------------ ------------
Total shareholders' equity (deficit) ....... (9,882,617) (9,422,461)
------------ ------------
$ 18,190,433 $ 16,303,901
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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DSI TOYS, INC.
Consolidated Statement of Operations
THREE MONTHS ENDED
APRIL 30,
--------------------------
1997 1996
----------- -----------
(Unaudited)
Net sales .................................. $ 7,427,707 $ 5,855,630
Costs of goods sold ........................ 4,703,910 3,615,191
----------- -----------
Gross profit ............................... 2,723,797 2,240,439
Selling, general and administrative expenses 3,017,695 2,786,027
----------- -----------
Operating loss ............................. (293,897) (545,588)
Interest expense ........................... 576,946 579,811
Other income ............................... (119,948) (24,944)
----------- -----------
Loss before income taxes ................... (750,895) (1,100,455)
Benefit from income taxes ................. (270,322) (396,164)
----------- -----------
Net loss ................................... $ (480,573) $ (704,291)
=========== ===========
Loss per share ............................. $ (0.14) $ (0.20)
=========== ===========
Weighted average shares outstanding ........ 3,500,000 3,500,000
=========== ===========
See accompanying notes to consolidated financial statements.
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DSI TOYS, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
--------------------------
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... $ (480,573) $ (704,291)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ................................. 94,347 119,190
Amortization of debt discount and issuance costs .............. 42,810 54,443
Provision for doubtful accounts ............................... 15,234 19,439
Gain on sale of equipment ..................................... (3,523) --
Deferred income taxes ......................................... (262,000) (23,939)
Changes in assets and liabilities:
Accounts receivable ......................................... (1,613,355) 1,693,535
Due from shareholder ........................................ (4,001) 625,783
Inventories ................................................. (709,318) (762,174)
Prepaid expenses ............................................ (703,890) (441,379)
Accounts payable and accrued liabilities .................... (655,353) (746,092)
Income taxes payable ........................................ (4,809) (364,827)
----------- -----------
Net cash used in operating activities .................... (4,284,431) (530,312)
Cash flows from investing activities:
Capital expenditures ............................................. (329,788) (59,724)
Proceeds from sale of equipment .................................. 4,255 --
(Increase) decrease in insurance receivable
from shareholders ............................................. 276,151 (84,560)
(Increase) decrease in other assets .............................. 122,863 (34,226)
----------- -----------
Net cash (used) provided by investing
activities ........................................... 73,481 (178,510)
Cash flows from financing activities:
Net borrowings (repayments) under revolving
lines of credit ................................................ 3,586,179 (1,584,975)
Payments on long-term debt ....................................... (320,329) (236,110)
----------- -----------
Net cash provided (used) by financing activies ................... 3,265,850 (1,821,085)
Effect of exchange rate changes on cash ............................. 20,417 7,679
----------- -----------
Net decrease in cash and cash equivalents ........................... (924,683) (2,522,228)
Cash and cash equivalents, beginning of period ...................... 1,501,992 2,660,456
----------- -----------
Cash and cash equivalents, end of period ............................ $ 577,309 $ 138,228
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid during period....................................... $ 425,221 $ 451,650
Income taxes paid during period................................... $ 279,443 $ 863,269
</TABLE>
See accompanying notes to consolidated financial statements
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DSI TOYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited consolidated
financial statements of DSI Toys, Inc., together with its wholly-owned
subsidiary, (the "Company") as of April 30, 1997 and for the three months ended
April 30, 1997 and 1996 include all adjustments, consisting only of normal
recurring adjustments, which are necessary to present fairly the financial
position, results of operations and cash flows of the Company for the periods
indicated. These interim results are not necessarily indicative of results for a
full year. The balance sheet at January 31, 1997 has been derived from the
audited consolidated financial statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, the
financial information included herein should be read in conjunction with the
Company's consolidated financial statements and related notes included in
Amendment No. 2 to the Company's Registration Statement on Form S-1 (No.
333-23961) filed with the Securities and Exchange Commission on May 28, 1997.
The terms "fiscal year" and "fiscal" refer to the Company's fiscal year
which is the year ending January 31 of the following calendar year mentioned
(I.E., a reference to fiscal 1996 is a reference to the fiscal year ending
January 31, 1997).
2. LOSS PER SHARE AND SUPPLEMENTAL LOSS PER SHARE
Earnings per share is computed based on the weighted average number of
common and dilutive common equivalent shares outstanding. Loss per share does
not include the assumed exercise of common stock equivalents because such
inclusion would be anti-dilutive.
Supplemental loss per share is based on the number of shares of common
stock outstanding after the Company's initial public offering (see Note 4 below)
and the decrease in net loss as a result of the reduction in interest expense
($473,000), net of tax ($170,000), related to the indebtedness presumed to have
been repaid. Supplemental loss per share for the three months ended April 30,
1997 was $(0.03).
3. RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128")
which establishes standards for computing and presenting earnings per share.
This statement simplifies the standards for computing earnings per share ("EPS")
previously found in APB Opinion No. 15, "Earnings per Share." The new standard,
which is effective for years ending after December 15, 1997, replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. For the three months ended April 30, 1997, SFAS 128 would have had no
impact on the reported EPS, as primary and basic EPS are equal since the
potentially dilutive securities were anti-dilutive.
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4. SUBSEQUENT EVENTS
Effective May 1, 1997, the Company's Articles of Incorporation were amended
to authorize the issuance of 5,000,000 shares of $0.01 par value preferred
stock, change the par value of common stock to $0.01, and reduce the authorized
shares of common stock to 20,000,000 shares.
On May 1, 1997, the Board of Directors authorized the issuance of warrants
to purchase 250,000 shares of common stock for an exercise price in excess of
the price of common stock sold by the Company in an initial public offering of
common stock, adopted the 1997 Stock Option Plan and reserved 600,000 shares of
common stock for issuance under such plan and 250,000 shares of common stock
issuable upon exercise of such warrants.
In June 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock, which provided the Company with net proceeds
of $17,900,000. All of the net proceeds were used to repay debt of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company designs, develops, markets and distributes a variety of toys
and children's consumer electronics. The Company's core product categories are
(i) juvenile audio products, including walkie-talkies, pre-school audio
products, pre-teen audio products and musical toys; (ii) girls' toys, including
dolls, play sets and accessories; and (iii) boys' toys, including radio control
vehicles, action figures and western and military action toys. Historically, the
majority of the Company's sales have been made to customers based in the United
States. All of the Company's international sales are denominated in United
States dollars. Therefore, the Company is not subject to exchange rate risk with
respect to international sales.
In December 1995, a series of transactions (the "Recapitalization") was
consummated whereby the Company repurchased 77.7% of the then outstanding Common
Stock from the then sole shareholder of the Company and issued 2,719,000 shares
of Common Stock to a group of new investors for $22.2 million. The
Recapitalization resulted in the incurrence of an aggregate of $17.9 million of
additional indebtedness. The stock purchased by the Company from its former sole
shareholder is held as treasury stock. On June 3, 1997, the Company completed
its initial public offering of 2,500,000 shares of its Common Stock, which
resulted in net proceeds to the Company of $17.9 million. All of the net
proceeds were used to repay the debt of the Company.
The Company expects that the amounts it expends for advertising will
increase in connection with its greater emphasis on the development of
proprietary products. A portion of the annual advertising expenses will be
accrued during each fiscal quarter based on the amount of net sales of the
related product for such fiscal quarter compared to the projected annual net
sales for such product. To the extent actual net sales vary from estimates,
adjustments in the quarterly accruals of advertising expenses will be made.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income and
expense items expressed as a percentage of net sales:
PERCENT OF NET SALES
THREE MONTHS ENDED APRIL 30,
----------------------------
1997 1996
------ ------
Net sales ............................................ 100.0% 100.0%
Costs of goods sold .................................. 63.3 61.7
------ ------
Gross profit ......................................... 36.7 38.3
Selling, general and administrative expenses ......... 40.6 47.6
------ ------
Operating loss ....................................... (3.9) (9.3)
Interest expense ..................................... 7.8 9.9
Other income ......................................... (1.6) (0.4)
------ ------
Loss before income taxes ............................. (10.1) (18.8)
Benefit from income taxes ............................ (3.6) (6.8)
------ ------
Net loss ............................................. (6.5)% (12.0)%
====== ======
THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THE THREE MONTHS ENDED APRIL 30,
1996
NET SALES. Net sales for the three months ended April 30, 1997 increased
approximately $1.6 million, or 26.9%, to approximately $7.4 million, from $5.8
million in the comparable period in 1996.
Net sales of juvenile audio products increased $767,000, or 37.2%, to $2.8
million during the first quarter of fiscal 1997, from $2.1 million in the
comparable period in 1996. This increase was due primarily to increased sales of
battery-operated guitars and headset walkie-talkies. Net sales of girls' toys
decreased by $88,000, or 2.8%, to $3.0 million during
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<PAGE>
the first quarter of fiscal 1997, from $3.1 million in the comparable period in
1996. Although net sales of Pattie(TM) dolls have increased and the Company has
introduced a new doll, Baby Pick Me Up(TM), these increases were offset by a
decrease in net sales of Rosie(R) dolls. Net sales of boys' toys increased
$750,000, or 201.6%, to approximately $1.1 million in the first quarter of
fiscal 1997 from $372,000 in the comparable period in 1996. The growth in net
sales of boys' toys was primarily attributable to the newly introduced
Kawasaki(R) Ninja(R) Supergyro(TM) Motorcycle. Net sales of products in other
categories increased $143,000, or 51.3%, to $422,000, during the first quarter
of fiscal 1997, from $279,000 in the comparable period in 1996. This increase
was due primarily to the introduction of the Hoppin' Poppin Spaceballs(TM)game.
International net sales increased $349,000, or 53.2%, to $1,005,000, during
the first quarter of fiscal 1997, from $656,000 in the corresponding period in
1996. The growth was due primarily to the increase in net sales to the United
Kingdom, Italy, and Middle East countries.
GROSS PROFIT. Gross profit increased approximately 21.6% to approximately
$2.7 million for the first quarter of fiscal 1997, from approximately $2.2
million in the comparable period in 1996. Gross profit as a percentage of net
sales decreased to approximately 36.7% in the first quarter of fiscal 1997 from
approximately 38.3% in the first quarter of fiscal 1996. Such decline was
principally related to sales of Rosie(R)and Pattie(TM)dolls that were made at
lower margins than in the prior year, reflecting the maturity of the products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 8.3% to approximately $3.0 million in the
first quarter of fiscal 1997 from approximately $2.8 million in the first
quarter of fiscal 1996. The increase resulted from television advertising,
marketing and promotion expenses related to the introduction of several new
products.
OTHER INCOME. Other income increased approximately $95,000, or 380.9%, to
$120,000 during the first quarter of fiscal 1997 from $25,000 in the comparable
period in 1996. The increase was due primarily to interest income on certain
insurance proceeds.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operations and capital requirements
from cash generated from operations and borrowings. The Company's primary
capital needs have consisted of acquisitions of inventory, funding accounts
receivable, and capital expenditures for product development. The Company's
working capital at April 30, 1997 was approximately $4.4 million and
unrestricted cash was approximately $577,000.
The Company's operating activities used net cash of $4.3 million during the
first quarter of fiscal 1997, consisting primarily of financing accounts
receivable and the seasonal build-up of inventories and prepaid advertising
expenses. Net cash provided by investing activities during the first quarter of
fiscal 1997 was $73,000, and was the net result of the repayment of an insurance
receivable from a shareholder offset by capital expenditures. Net cash provided
by financing activities was $3.3 million during the first quarter of fiscal 1997
and represented net borrowings under revolving lines of credit and term loans.
The seasonal nature of the toy business results in complex working capital
needs. The Company's working capital needs, which the Company generally
satisfies through short-term borrowings, are greatest in the first two fiscal
quarters. To manage these working capital requirements, the Company maintains a
line of credit facility (the "Hong Kong Credit Facility") with State Street Bank
and Trust Company, Hong Kong Branch, and a revolving credit facility with Bank
One, Texas, N.A. (the "Revolver").
The Company believes that available borrowings under the Revolver and the
Hong Kong Credit Facility and cash from operations will be sufficient to meet
the Company's operating cash requirements, fund the Company's anticipated
capital expenditures and fund scheduled debt service for the foreseeable future.
The Company has budgeted approximately $850,000 for capital expenditures,
consisting of purchases of tools, molds, office equipment and furnishings, for
fiscal 1997. At June 11, 1997, the Company had an additional borrowing capacity
of an aggregate of $5.5 million under the Revolver and the Hong Kong Credit
Facility.
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The Company is obligated to make future minimum royalty payments under
certain of its license agreements. As of April 30, 1997, the Company was
required to make an aggregate of approximately $55,000 in payments of guaranteed
royalties under these licenses in fiscal 1997 and $180,000 thereafter.
As a part of the Company's strategy, the Company will evaluate potential
acquisitions of other toy businesses or product lines which the Company believes
would complement its existing business. The Company has no present understanding
or agreement with respect to any acquisitions.
In connection with any future cash needs or acquisition opportunities, the
Company may incur additional debt or issue additional equity or debt securities
depending on market conditions and other factors.
SEASONALITY
The toy industry is very seasonal with the Christmas holiday season
representing over two-thirds of total annual retail toy sales. The Company has
experienced this seasonal pattern in its net sales. To accommodate this peak
selling season, holiday toy lines are introduced early in the first calendar
quarter. Retailers commit to their holiday season purchases during the first two
calendar quarters and those orders are shipped from Asia to the retailers'
distribution centers on a scheduled basis from May through September. As a
result of the seasonality of the Company's business, the Company expects to
incur a loss in the first quarter of each fiscal year for the foreseeable future
and may incur a loss in the fourth quarter of such fiscal year depending upon
the timing of product shipments.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-Q, including
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations regarding the Company's financial position, business
strategy, plans and objectives of management of the Company for future
operations and debt service requirements, are forward-looking statements. The
words "anticipate," "believe," "expect," "plan," "intend," "estimate,"
"project," "will," "could," "may" and similar expressions are intended to
identify forward-looking statements. Although the Company believes that the
expectations reflected in these forward-looking statements are reasonable, there
can be no assurance that the actual results or developments anticipated by the
Company will be realized or, even if substantially realized, that they will have
the expected effects on its business or operations. Among the factors that could
cause actual results to differ materially from the Company's expectations are
general economic conditions, changing consumer preferences, lack of success of
new products, loss of one of the Company's largest customers, dependence on
independent designers, licenses and other proprietary rights, reliance on
manufacturers based in Hong Kong and China, reliance on key personnel,
competition and government regulation. All subsequent oral and written
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these factors. The Company
assumes no obligation to update any of these statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 27, 1997, a former independent sales representative for the
Company sued the Company and the Estate of Tommy Moss for additional royalties
and sales commissions in Probate Court No. 3 of Harris County, Texas. The
representative also is seeking to recover exemplary damages, interest, costs and
attorneys fees. The Company intends to vigorously defend this claim and believes
that the outcome will not have a material adverse effect on the Company's
financial position.
The Company is involved in various legal proceedings and claims incident to
the normal conduct of its business. The Company believes that such legal
proceedings and claims, individually and in the aggregate, are not likely to
have a material adverse effect on its financial position or results of
operations. The Company maintains product liability and general liability
insurance in amounts it believes to be reasonable. There have been no material
developments in the legal proceedings noted in Amendment No. 2 to the Company's
Registration Statement on Form S-1 (No. 333-23961) filed with the Securities and
Exchange Commission on May 28, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Underwriting Agreement dated May 28, 1997 among the Company, the Tommy Moss
Living Trust, Hibernia Corporation and Tucker Anthony Incorporated and
Sutro & Co. Incorporated.
10.2 Warrant Agreement dated May 28, 1997 by and among the Company, Tucker
Anthony Incorporated and Sutro & Co. Incorporated.
11 Computation of Loss Per Share.
27 Financial Data Schedule.
(b) Reports Submitted on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DSI TOYS, INC.
Date: June 23, 1997 By: /S/ M.D. DAVIS
M.D. Davis
Chairman and Chief Executive Officer
Date: June 23, 1997 By: /S/ J. RUSSELL DENSON
J. Russell Denson
Executive Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
10.1 Underwriting Agreement dated May 28, 1997 among the Company, the Tommy Moss
Living Trust, Hibernia Corporation and Tucker Anthony Incorporated and
Sutro & Co. Incorporated.
10.2 Warrant Agreement dated May 28, 1997 by and among the Company, Tucker
Anthony Incorporated and Sutro & Co. Incorporated.
11 Computation of Loss Per Share.
27 Financial Data Schedule.
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EXHIBIT 10.1
DSI TOYS, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
UNDERWRITING AGREEMENT
Boston, Massachusetts
May 28, 1997
TUCKER ANTHONY INCORPORATED
SUTRO & CO. INCORPORATED
As Representatives of the
Several Underwriters
c/o Tucker Anthony Incorporated
One Beacon Street
Boston, Massachusetts 02108
Ladies and Gentlemen:
DSI Toys, Inc., a Texas corporation (the "Company"), and The Tommy Moss
Living Trust (the "Firm Selling Stockholder") confirm their agreement with
Tucker Anthony Incorporated ("Tucker Anthony") and Sutro & Co. Incorporated
("Sutro"), and each of the other underwriters, if any, named in Schedule A
hereto (collectively, the "Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 11), for whom Tucker
Anthony and Sutro are acting as representatives (in such capacity, Tucker
Anthony and Sutro are herein called the "Representatives"), with respect to the
sale by the Company and the Firm Selling Stockholder and the purchase by the
Underwriters, acting severally and not jointly, of an aggregate of 3,000,000
shares of the common stock, $0.01 par value per share, of the Company ("Common
Stock"), of which 2,500,000 shares are to be sold by the Company and 500,000
shares are to be sold by the Firm Selling Stockholder (collectively, the "Firm
Shares"), and with respect to the grant by the Company, the Firm Selling
Stockholder, and Hibernia Corporation (the "Option Selling Stockholder" and,
together with the Firm Selling Stockholder, the "Selling Stockholders") to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase therefrom all or any part of 450,000 additional
shares of Common Stock for the purpose of covering over-allotments, if any. The
Firm Shares and all or any part of the shares of Common Stock subject to the
option described in Section 2(b) hereof (the "Option Shares") are hereinafter
collectively referred to as the "Shares." The Company has also agreed to issue
to the Representatives "Representatives' Warrants" (defined below) to purchase
up to 250,000 shares of Common Stock. The words "you" and "your" refer to the
Representatives of the Underwriters.
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<PAGE>
Tucker, Anthony Incorporated
Sutro & Co. Incorporated
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
I. The Company represents and warrants to, and agrees with, each of the
Underwriters as of the date hereof, and as of the Closing Date, as defined in
Section 2(c) hereof, and the Option Closing Date, as defined in Section 2(b)
hereof, if any, as follows:
(a) A registration statement on Form S-1 (File No. 333-23961) with
respect to the Shares, the Representatives' Warrants, and the shares issuable
upon exercise of the Representatives' Warrants (the "Underwriters' Warrant
Shares") including a prospectus subject to completion, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the applicable Rules and Regulations (as defined below)
of the Securities and Exchange Commission (the "Commission") and has been filed
with the Commission; such amendments to such registration statement, and such
amended prospectuses subject to completion, as may have been required prior to
the date hereof have been similarly prepared and filed with the Commission; and
the Company will file such additional amendments to such registration statement,
and such amended prospectuses subject to completion, as may hereafter be
required. Copies of such registration statement and each such amendment, each
such related prospectus subject to completion (collectively, the "Preliminary
Prospectuses" and individually, a "Preliminary Prospectus"), each document
incorporated by reference therein and each exhibit thereto have been delivered
to you. For purposes hereof, "Rules and Regulations" means the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
If the registration statement has been declared effective under the Act by
the Commission, the Company will prepare and promptly file with the Commission,
pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
under the Act or as part of a post-effective amendment to the registration
statement (including a final form of prospectus), the information omitted from
the registration statement pursuant to Rule 430A(a) of the Rules and Regulations
under the Act. If the registration statement has not been declared effective
under the Act by the Commission,the Company will prepare and promptly file a
further amendment to the registration statement, including a final form of
prospectus. The term "Registration Statement" as hereinafter used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits in the form in which it became or becomes,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule
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430A(a) of the Rules and Regulations under the Act, the information deemed to be
a part of the registration statement at the time it became effective pursuant to
Rule 430A(b) of the Rules and Regulations under the Act) and, in the event of
any amendment thereto after the effective date of such registration statement,
shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended, together with any registration statement
filed by the Company pursuant to Rule 462(b) under the Act. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such registration statement at the time it became or
becomes effective, except that if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the Prospectus on file with the Commission at the time
the registration statement became or becomes effective (whether or not such
revised prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations under the Act), the term "Prospectus"
shall refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7)
under the Act. Any reference herein to the Registration Statement, the
Prospectus, any amendment or supplement thereto or any Preliminary Prospectus
shall be deemed to refer to and include the documents incorporated by reference
therein, and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement or Prospectus shall be
deemed to refer to and include the filing of any document with the Commission
deemed to be incorporated by reference therein.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
at the time of filing thereof, or instituted proceedings for that purpose, and
each such Preliminary Prospectus, at the time of filing thereof, has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, at the time of filing thereof, has not included any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein not misleading and at the time the Registration
Statement became or becomes effective and at all times subsequent thereto up to
and including the Closing Date (as hereinafter defined) and any Option Closing
Date (as hereinafter defined), and during such longer period as the Prospectus
may be required to be delivered in connection with sales by an Underwriter or a
dealer, (i) the Registration Statement and Prospectus, and any amendments or
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
conformed and will conform in all material respects to the requirements of the
Act and the
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Rules and Regulations, and (ii) neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto included or will include any
untrue statement of a material fact or omitted or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not misleading.
The documents incorporated by reference in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any Preliminary Prospectus,
when they became or become effective under the Act or were or are filed with the
Commission under the Exchange Act conformed or will conform in all material
respects with the requirements of the Act or the Exchange Act, as applicable,
and the Rules and Regulations, and as of the date any such document was or is
filed with the Commission under the Exchange Act such document did not, and on
the Closing Date and on any Option Closing Date will not, omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Texas. Each of the
subsidiaries of the Company (collectively, the "Subsidiaries" and individually,
a "Subsidiary") has been duly organized and is validly existing in good standing
under the laws of its jurisdiction of organization. The Company and each of the
Subsidiaries are duly qualified and licensed as a foreign corporation and in
good standing in each jurisdiction in which their respective operations requires
such qualification or licensing, except where the failure to be so qualified
would not have a material adverse effect on the condition, financial or
otherwise, or on the business affairs, position, prospects, value, operation,
properties, business or results of operation of the Company and the Subsidiaries
taken as a whole whether or not arising in the ordinary course of business (a
"Material Adverse Effect"). The Company and each of the Subsidiaries have all
requisite power and authority, and have obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, the United States Environmental Protection
Agency and those other officials and bodies having jurisdiction over similar
matters), to own or lease their respective properties and conduct their
respective businesses as described in the Prospectus (collectively, "Government
Approvals"), except where the failure to so obtain any such Government Approval
would not have a Material Adverse Effect; the Company and each of the
Subsidiaries are and have been doing business in compliance with all such
Government Approvals, except where the failure to so comply would not have a
Material Adverse
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Effect; and neither the Company nor any of the Subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
Government Approvals. All of the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and, except a set forth on Exhibit 1 are owned by the Company
free and clear of all liens, encumbrances and security interests, and no
options, warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into, or exchange any
securities for, shares of capital stock of or ownership interests in any of the
Subsidiaries are outstanding.
(d) The Company has the duly authorized, issued and outstanding
capitalization set forth in the Prospectus under "Capitalization" based upon the
assumptions set forth therein and would have had the as adjusted capitalization
set forth therein based upon the assumptions set forth therein, and the Company
is not a party to or bound by any instrument, agreement or other arrangement
(except as disclosed in the Prospectus) providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement
and the warrant agreement executed simultaneously with this Agreement between
the Company, Tucker Anthony and Sutro setting forth the terms of the
Representatives' Warrants (the "Warrant Agreement"). The Shares, the
Representatives' Warrants and all other securities issued or issuable by the
Company conform in all material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable and were not issued in
violation of any preemptive rights or other rights to subscribe for or purchase
securities. The Shares have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and are not and will not be subject to any preemptive or
other rights to subscribe for or purchase securities; the holders thereof will
not be subject to any liability solely as such holders; and the certificates
representing the Shares will be in due and proper form as previously authorized
by the Company. The Representatives' Warrant Shares have been validly authorized
and reserved for issuance upon exercise of the Representatives' Warrants and,
when issued in accordance with the Warrant Agreement, will be validly issued,
fully paid and non-assessable and free of preemptive rights.
(e) The audited and unaudited consolidated financial statements of
the Company, together with the notes and schedules thereto, included in the
Registration Statement, each Preliminary
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Prospectus and the Prospectus fairly present the financial position and the
results of operations, changes in cash flows and changes in stockholders' equity
of the Company at the respective dates and for the respective periods to which
they apply; and each of such audited consolidated financial statements has been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved, all
adjustments necessary for a fair presentation of results for such periods have
been made and such unaudited consolidated financial statements have been
prepared on a basis substantially consistent with that of such audited
consolidated financial statements. Except as described in the Prospectus, there
has been no change or development involving a Material Adverse Effect since the
date of the consolidated financial statements included in any of the Preliminary
Prospectuses, the Prospectus and the Registration Statement, and the outstanding
debt, the property, both tangible and intangible, and the business of the
Company and each of the Subsidiaries conform in all material respects to the
descriptions thereof contained in the Registration Statement and the Prospectus.
The summary and selected consolidated financial and statistical data included in
the Registration Statement and the Prospectus present fairly the or incorporated
by reference information shown therein and have been compiled on a basis
consistent with the unaudited and audited consolidated financial statements
included therein. The Company's internal accounting controls are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended. Neither the Company nor any of the Subsidiaries has any material
contingent obligation which is not disclosed in the Registration Statement.
(f) Price Waterhouse LLP ("Price Waterhouse"), whose reports are
filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the Rules
and Regulations.
(g) (i) The Company and each of the Subsidiaries has paid all
material federal, state, local and foreign taxes for which they are respectively
liable and which are due and payable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended, and (ii) none of the Company or any Subsidiary has any
tax deficiency or claims outstanding, assessed or, to their knowledge, proposed
against it.
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Shares, (ii) the purchase by the Underwriters of the Shares, or
(iii) the consummation by the
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Company and the Selling Stockholders of any of their respective obligations
under this Agreement.
(i) The Company and each of the Subsidiaries maintain insurance of
the types and in the amounts which the Company reasonably believes to be
adequate for their respective businesses, all of which insurance is in full
force and effect.
(j) Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry, investigation, litigation or governmental proceeding,
domestic or foreign, pending or, to the Company's knowledge, threatened against
(or currently existing or previously occurring facts or circumstances that
provide a basis for the same), or involving the properties or business of the
Company or any of the Subsidiaries, that (i) questions the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to or in connection with this Agreement, (ii) is
required to be disclosed in the Registration Statement that is not so disclosed
(and such proceedings, if any, as are summarized in the Registration Statement
are accurately summarized in all material respects), (iii) would have a Material
Adverse Effect or (iv) relates to or affects the Company or processes or
products which the Company designed, developed, licenses, uses, manufactures or
markets which, if adversely determined, would have a Material Adverse Effect.
(k) The Company has full legal right, power and authority to enter
into this Agreement and the Warrant Agreement and to consummate the transactions
provided for herein and therein; and this Agreement and the Warrant Agreement
have been duly authorized, executed and delivered by the Company. This
Agreement, assuming it has been duly authorized, executed and delivered by the
Underwriters, constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of the Company's
execution or delivery of this Agreement, its performance hereunder, its
consummation of the transactions contemplated herein or the conduct of its
business and that of each of the Subsidiaries as described in the Registration
Statement, the Prospectus and any amendments or supplements thereto conflicts
with or will conflict with in any material respect or results, or will result,
in any breach or violation of any of the material terms or provisions of, or
constitutes, or will constitute, a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance,
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pledge, security interest, defect or other restriction on equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
or any of the Subsidiaries, pursuant to the terms of (i) the corporate charter,
operating agreement or by-laws of the Company or any of the Subsidiaries, (ii)
any license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or by which any of them is or may be bound or to which any of their
respective properties or assets (tangible or intangible) is or may be subject or
(iii) any statute, judgment, decree, order, rule or regulation applicable to the
Company or any of the Subsidiaries of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of the Subsidiaries or any of their
respective activities or properties. The Representatives' Warrants, when issued
and sold to you in accordance with the Warrant Agreement will have been
authorized and validly issued and will constitute the legal, valid, and binding
obligations of the Company, entitled to the benefits of the Warrant Agreement.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Shares pursuant to the Prospectus
and the Registration Statement, or the performance of this Agreement and the
transactions contemplated hereby, except such as have been or may be obtained
under the Act, the Exchange Act or the Rules and Regulations or may be required
under state securities or Blue Sky laws in connection with the Underwriters'
purchase and distribution of the Shares.
(m) All executed agreements or copies of executed agreements filed
as exhibits to the Registration Statement to which the Company or any of the
Subsidiaries is a party or by which any of them may be bound or to which any of
their respective assets, properties or businesses may be subject have been duly
and validly authorized, executed and delivered by the Company or such
Subsidiaries, and, assuming due authorization, execution and delivery by the
other parties thereto, constitute the legal, valid and binding agreements of the
Company and such Subsidiaries enforceable against the Company and such
Subsidiaries in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable
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law). The descriptions in the Registration Statement of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by Form S-1, and there are
no contracts or other documents that are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
that are not described or filed as required, and the exhibits that have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor any of the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money (except for
borrowings made pursuant to the Company's and the Subsidiaries' existing credit
agreements), (ii) entered into any transaction which could reasonably be
expected to have a Material Adverse Effect or (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital stock.
(o) Except as disclosed in the Registration Statement, no material
default exists in the due performance and observance of any term, covenant or
condition of any license, contract, indenture, mortgage, installment sale
agreement, lease, deed of trust, voting trust agreement, stockholders agreement,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company or any of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries may be bound or to which any of the property or assets
(tangible or intangible) of the Company or any of the Subsidiaries is subject or
affected.
(p) The Company and each of the Subsidiaries have a generally
satisfactory employer-employee relationship with their respective employees and
are in compliance with all federal, state, local, and, where applicable,
foreign, laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours, except where the failure
to so comply would not have a Material Adverse Effect. To the Company's
knowledge, there are no pending investigations involving the Company or any of
the Subsidiaries by the United States Department of Labor or any other
governmental agency responsible for the enforcement of such federal, state,
local or foreign laws and regulations. To the Company's knowledge, there is no
unfair labor practice charge or complaint against the Company or any of the
Subsidiaries pending before the National Labor Relations
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Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending
or threatened against or involving the Company or any of the Subsidiaries, and
no such strike, picketing, boycott, dispute, slowdown or stoppage has ever
occurred. No representation question exists respecting the employees of the
Company or any of the Subsidiaries, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or any of the
Subsidiaries. There are no expired or existing collective bargaining agreements
of the Company or any of the Subsidiaries.
(q) Neither the Company nor any of the Subsidiaries has incurred any
liability arising under or as a result of the application of the provisions of
the Act.
(r) Except as disclosed in the Prospectus or Exhibit 2 hereto,
neither the Company nor any of the Subsidiaries maintains, sponsors or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan"
(collectively, the "ERISA Plans") as such terms are defined in Sections 3(2),
3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). With respect to any "defined benefit plan," as
defined in Section 3(35) of ERISA, that the Company or any of the Subsidiaries,
now or at any time previously, maintains or contributes to, all applicable
federal laws and regulations have been complied with, except for such instances
of noncompliance which, either singly or in the aggregate, would not have a
Material Adverse Effect. Neither the Company nor any of the Subsidiaries has
ever completely or partially withdrawn from a "multiemployer plan."
(s) The Company and its Subsidiaries are in compliance with all
applicable existing federal, state, local and foreign laws and regulations
relating to the protection of human health or the environment or imposing
liability or requiring standards of conduct concerning any Hazardous Materials
("Environmental Laws"), except for such instances of noncompliance which, either
singly or in the aggregate, would not have a Material Adverse Effect. The term
"Hazardous Material" means (i) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) any "hazardous waste" as defined by the Resource Conservation and
Recovery Act, as amended, (iii) any petroleum or petroleum product, (iv) any
polychlorinated biphenyl and (v) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law.
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(t) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) The Company has not distributed and will not distribute (within
the meaning of Rule 140 of the Rules and Regulations under the Act) any offering
material in connection with the offering and sale of the Shares, other than the
Prospectus, any Preliminary Prospectus, the Registration Statement and other
materials permitted by the Act.
(v) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right, except as may have been waived, to include any securities issued
by the Company in the Registration Statement or any registration statement to be
filed by the Company within 180 days of the date hereof or to require the
Company to file a registration statement under the Act during such 180 day
period.
(w) The Company has not taken and will not take, directly or
indirectly (except for any action that may be taken by the Underwriters), any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or otherwise.
(x) Except to the extent disclosed in the Prospectus, (i) the
Company and each of the Subsidiaries own or possess, or have a license or other
right to use, the patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), technology,
trademarks, service marks and trade names, together with all applications for
any of the foregoing, currently used or held for use by them in connection with
their respective businesses, except where the failure to own or possess, alone
or in aggregate, would not have a Material Adverse Effect on the Company, (ii)
neither the Company nor any of the Subsidiaries has received any notice of
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infringement of or conflict with asserted rights of others with respect to any
of the foregoing which has not been finally resolved and (iii) except as set
forth in the Registration Statement, neither the Company nor any of the
Subsidiaries is obligated or under any liability whatsoever to make any material
payments by way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, patent right, license, invention, trademark,
service mark, trade name, copyright, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), technology or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or otherwise.
(y) The Company and each of the Subsidiaries have good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus (including the financial
statements included or incorporated by reference therein) to be owned or leased
by them, free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions on equity of any kind
whatsoever, other than (i) those referred to in the Prospectus (including such
financial statements), (ii) liens for taxes not yet due and payable and (iii)
mechanics, materialmen, warehouse and other statutory liens arising in the
ordinary course of business which, either individually or in the aggregate, do
not have a Material Adverse Effect.
(z) Except as described in the Prospectus under "Underwriting" and
on the cover page thereof, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Shares hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company or any of the Subsidiaries or any of their respective officers,
directors, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(aa) Quotations and last sale data with respect to the Company's
Common Stock will be reported on the National Association of Securities Dealers
Automated Quotation National Market (the "NASDAQ-NM") under the symbol "DSIT"
and the Company knows of no currently existing reason or set of facts which is
likely to result in the inability or refusal to so quote the Common Stock or the
Shares.
(ab) The Company is not an "investment company" or an "affiliated
person" or "promoter" of, or "principal underwriter" for, an "investment
company", as such terms are defined in the
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Investment Company Act of 1940, as amended (the "1940 Act"), or subject to
regulation under the 1940 Act.
(ac) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel (as hereinafter
defined) shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(ad) The Company has delivered to the Representatives written
agreements, in form and substance satisfactory to the Representatives, with each
of its directors and executive officers who own Common Stock, the Selling
Stockholders, and certain other holders of the Company's securities (each such
person is named in Schedule C hereto), to the effect that, among other things,
such person will not, for a period ending 180 days after the date of the
Prospectus, directly or indirectly, offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise sell or dispose of
shares of Common Stock or other capital stock of the Company, any options,
rights or warrants to purchase shares of Common Stock or other capital stock of
the Company or any securities convertible into or exchangeable or exercisable
for shares of Common Stock or other capital stock of the Company now owned by
such person or subsequently acquired (or as to which such person now or
hereafter has the right to direct the disposition of) otherwise than hereunder
or with the prior written consent of Tucker Anthony; provided, however, that
such agreements may contain an exception providing that such persons during such
period may, without such consent, convey shares of Common Stock (i) by gift to
immediate family members or (ii) by will or intestacy to immediate family
members provided in both cases that such transferees enter into agreements for
the benefit of the Underwriters containing all of the restrictions set forth in
this Section 1.I.(ad) with respect to such shares of Common Stock.
II. Each Selling Stockholder represents and warrants to, and agrees with,
each of the Underwriters and the Company as of the date hereof and as of the
Closing Date, as defined in Section 2(c) hereof, and the Option Closing Date, as
defined in Section 2(b) hereof, if any, that:
(a) Such Selling Stockholder as of the Closing Date and the Option
Closing Date, as applicable, will have valid marketable title to such of the
Shares as are to be sold by such Selling Stockholder, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest other
than pursuant to this Agreement; such Selling Stockholder has full right, power
and authority to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder hereunder; and upon delivery of
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such Shares and payment of the purchase price as herein contemplated, each of
the Underwriters will obtain valid marketable title to the Shares purchased by
it from such Selling Stockholder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest.
(b) Such Selling Stockholder has duly authorized, executed and
delivered, in the form heretofore furnished to the Representatives, a Power of
Attorney (the "Power of Attorney") appointing M.D. Davis and Thomas V. Yarnell
as attorneys-in-fact (collectively, the "Attorneys" and individually, an
"Attorney") and a Custody Agreement (the "Custody Agreement") with American
Stock Transfer & Trust Company named therein, as custodian (the "Custodian");
each of the Power of Attorney and such Custody Agreement constitutes a valid and
binding agreement of the Selling Stockholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law;
and each of such Attorneys approved by such Selling Stockholder, acting alone,
is authorized to execute and deliver this Agreement and the certificate referred
to in Section 6(j) hereof on behalf of such Selling Stockholder, to determine
the purchase price to be paid by the several Underwriters to such Selling
Stockholder as provided in Section 2 hereof, to authorize the delivery of the
Shares as are to be sold by such Selling Stockholder under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Shares or a stock power or powers with respect thereto, to
accept payment therefor and otherwise to act on behalf of such Selling
Stockholder in connection with this Agreement and to pay all expenses in
connection therewith.
(c) All authorizations, approvals, consents and orders necessary for
the execution and delivery on behalf of the Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery on behalf of such
Selling Stockholder of this Agreement, and the sale and delivery of the Shares
as are to be sold by such Selling Stockholder under this Agreement (other than,
at the time of the execution hereof (if the Registration Statement has not yet
been declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; and the Selling Stockholder has full right, power and authority to enter
into and perform its obligations under the Power of Attorney
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and the Custody Agreement and this Agreement, to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, for a period ending 180 days
after the effective date of the Registration Statement, offer, sell, assign,
transfer, encumber, contract to sell, grant an option to purchase, or otherwise
sell or dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, owned directly by such Selling
Stockholder or with respect to which such Selling Stockholder has the power of
disposition, otherwise than hereunder or with the prior written consent of
Tucker Anthony. In addition, for a period beginning 181 days after the
commencement of the Offering and ending 360 days thereafter, the Firm Selling
Stockholder may only sell up to 2,000 shares of Common Stock per day (but in no
event more than 20,000 shares of Common Stock during any calendar month) in
transactions that comply with sections (f) and (g) of Rule 144 under the
Securities Act of 1933, as amended. Such Selling Stockholder agrees and consents
to the entry of stop transfer instruction with the Company's transfer agent
against the transfer of shares of Common Stock held by such Selling Stockholder
except in compliance with the foregoing restrictions.
(e) Certificates in negotiable form for all Shares to be sold by
such Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been or will be
placed in custody with the Custodian for the purpose of effecting delivery of
such Shares hereunder.
(f) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder and is a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except as the
indemnification and contribution provisions hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach of or default under any bond,
debenture, note or other evidence of indebtedness, or any contract, indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which such Selling Stockholder is a party or by which such Selling
Stockholder or any Shares as are to be sold by such Selling Stockholder
hereunder may be bound
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or result in any violation of any law, order, rule, regulation, writ, injunction
or decree of any court or governmental agency or body.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Shares as are to be
sold by such Selling Stockholder that is contained in such representations and
warranties of such Selling Stockholder, in the Selling Stockholder's Power of
Attorney or set forth in the Registration Statement and the Prospectus is, and
on the Closing Date and on the Option Closing Date, as applicable, will be,
true, correct and complete, and does not, and on the Closing Date and on the
Option Closing Date, as applicable, will not, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date or
the Option Closing Date, as applicable, and will advise one of its Attorneys
prior to the Closing Date or Option Closing Date, as applicable, if any
statement to be made on behalf of the Selling Stockholder in the certificate
contemplated by Section 6.I.(j) would be inaccurate if made of the Closing Date
or the Option Closing Date, as applicable.
(k) The Selling Stockholder does not have any preemptive right,
co-sale right or right of first refusal or other similar right to purchase any
of the Shares that are to be sold by the Company to the Underwriters pursuant to
this Agreement.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to sell 2,500,000 Firm Shares and the Representatives'
Warrants to the several Underwriters, the Firm Selling Stockholder agrees to
sell
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to the several Underwriters the number of Firm Shares set forth on Schedule B
opposite the name of Firm Selling Stockholder, and each Underwriter, severally
and not jointly, agrees to purchase that number of Firm Shares set forth in
Schedule A opposite its name plus any additional number of Firm Shares that such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
As of the Closing Date, certificates in negotiable form for the total
number of Shares (or securities exercisable for such Shares in negotiable form
together with the exercise price thereon in cash) to be sold hereunder by the
Selling Stockholders will have been placed in custody with the Custodian
pursuant to the Custody Agreements executed by the Selling Stockholders for
delivery of all Shares to be sold hereunder by the Selling Stockholders. The
Selling Stockholders specifically agree that the Shares represented by the
certificates held and to be held in custody for the Selling Stockholders under
the Custody Agreements are subject to the interests of the Underwriters
hereunder, and that the obligations of the Selling Stockholders hereunder shall
not be terminable by any act or deed of such Selling Stockholders (or by any
other person, firm or corporation including the Company, the Custodian or the
Underwriters) or by operation of law (including without limitation, the
bankruptcy, insolvency, dissolution, liquidation or termination of the Selling
Stockholders) or by the occurrence of any other event or events, except as set
forth in the Custody Agreements. If any such event should occur prior to the
delivery to the Underwriters of the Shares hereunder, certificates for the
Shares shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such event has not occurred, regardless of
whether or not the Custodian shall have received notice of such event.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained and upon not less than two business
days' notice from the Representatives of the Underwriters, for a period of
forty-five days from the effective date of this Agreement, the Company and the
Selling Stockholders grant to the Underwriters an option to purchase up to
450,000 Option Shares (such Option Shares, if less than the aggregate amount, to
be apportioned first between the Selling Stockholders on a pro rate basis based
on the maximum amount of Option Shares which the Selling Stockholders are
obligated to sell to the Underwriters pursuant to this Section 2(b) and then
from the Company, adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares). Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Shares and is
exercisable as provided in Section 4 hereof. Option Shares shall be purchased
severally for the account of the Underwriters in
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proportion to the number of Firm Shares set forth opposite the name of such
Underwriters in Schedule A hereto. (The time and date of delivery of any of the
Option Shares is herein called the "Option Closing Date.") The respective
purchase obligations of each Underwriter with respect to the Option Shares may
be adjusted by the Representatives so that no Underwriter shall be obligated to
purchase Option Shares other than in 100 share increments. The price of both the
Firm Shares and any Option Shares shall be $7.40 per share.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Shares and the Option Shares shall be made on each of the Closing Date
and the Option Closing Date, respectively, by wire transfer of immediately
available funds, payable to the order of the Company and the Custodian, as
applicable, at the offices of Tucker Anthony at One Beacon Street, Boston,
Massachusetts, or at such other place as shall be agreed upon by the
Representatives, the Company and the Selling Stockholders or, if mutually agreed
to by the Company and the Representatives, by wire transfer, upon delivery of
certificates (in form and substance satisfactory to the Representatives)
representing such securities to the Representatives. Delivery and payment for
the Firm Shares shall be made at 10:00 a.m. (Eastern Time) on the third business
day following the public offering, or at such other time and date as shall be
agreed upon by the Representatives and the Company. The time and date of payment
for and delivery of the Firm Shares is herein called the "Closing Date." In the
event that any or all of the Option Shares are purchased by the Underwriters,
the date and time at which certificates for Option Shares are to be delivered
shall be determined by the Representatives and the Company but shall not be
earlier than three nor later than ten full business days after the exercise of
such option, nor in any event prior to the Closing Date. Certificates for the
Firm Shares and the Option Shares, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Representatives may request in
writing at least two (2) business days prior to the Closing Date or the Option
Closing Date, as applicable. The certificates for the Firm Shares and the Option
Shares, if any, shall be made available to the Representatives at such office or
such other place as the Representatives may designate for inspection and
packaging not later than 9:30 a.m. (Eastern Time) on the last business day prior
to the Closing Date or the Option Closing Date, as applicable.
(d) As of the Closing Date, the Company will issue and sell to you or, at
your direction, to your bona fide officers, for a total purchase price of
$2,500, warrants entitling the holders to purchase 250,000 shares of Common
Stock (equal to 10% of the Firm
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Shares being sold by the Company) at $10.80 per Share (135% of the public
offering price on the Effective Date) (the "Representatives' Warrants") for a
period of four years commencing one year after the effective date of the
Registration Statement. The Representatives' Warrants include the terms set
forth in the Warrant Agreement. You may designate that the Representatives'
Warrants be issued to your bona fide officers only if you determine that such
issuances would not violate the interpretations of the NASD relating to the
review of corporate financing arrangements. No sale, transfer, assignment, or
hypothecation of the Underwriter's Warrants shall be made for a period of five
(5) years from the effective date of the Registration Statement except to bona
fide officers of the Underwriter and officers or partners of selected dealers.
The holders of the Representatives' Warrants will be entitled to the
registration rights set forth in the Warrant Agreement.
3. PUBLIC OFFERING OF THE SHARES.
As soon after the Registration Statement becomes effective as the
Representatives deem advisable, the Underwriters shall make a public offering of
the Shares at the price and upon the other terms set forth in the Prospectus.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
I. The Company agrees with each of the Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; it will notify the Representatives, promptly
after it shall receive notice thereof, of the time when the Registration
Statement or any subsequent amendment to the Registration Statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a), the Company will
provide evidence satisfactory to the Representatives that the Prospectus
contains such information and has been filed, within the time period prescribed,
with the Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the
Rules and Regulations under the Act or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations under
the Act, it will provide evidence satisfactory to the Representatives that the
Prospectus contains such information
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and has been filed with the Commission within the time period prescribed; it
will notify the Representatives promptly of any request by the Commission for
the amending or supplementing of the Registration Statement or the Prospectus or
for additional information; promptly upon the Representatives' request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable so
as to comply with all applicable laws and regulations (including, without
limitation, Section 11 under the Act and Rule 10b-5 under the Exchange Act) in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify the
Representatives of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; in case
any Underwriter is required so as to comply with all applicable laws and
regulations (including, without limitation, Section 11 under the Act and Rule
10b-5 under the Exchange Act) to deliver a prospectus nine months or more after
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus (other than any document
required to be filed under the Exchange Act that upon filing is deemed
incorporated therein by reference) which shall not previously have been
submitted to the Representatives a reasonable time prior to the proposed filing
thereof or to which you shall reasonably object in writing or which is not in
compliance with the Act and the Rules and Regulations under the Act. The Company
will furnish to the Representatives at or prior to the filing thereof a copy of
any document that upon filing is deemed to be incorporated by reference in the
Registration Statement or Prospectus.
(b) The Company will advise the Representatives, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of the Registration
Statement or of the initiation or threat of any proceeding for that purpose; and
it will promptly use its best efforts to prevent the issuance of any stop order
or to
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obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as the
Representatives may designate and to continue such qualifications in effect for
so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction. In each jurisdiction in which
the Shares shall have been qualified as above provided, the Company will make
and file such statements and reports in each year as are or may be reasonably
required by the laws of such jurisdiction.
(d) The Company will furnish to each of the Underwriters, as soon as
available, copies of the Registration Statement (three of which, to be delivered
to the Representatives, will be manually signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendment or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the 45th day following the
end of the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement, an earnings statement (which will
be in reasonable detail but need not be audited) complying with the provisions
of Section 11(a) of the Act and covering a twelve-month period beginning after
the effective date of the Registration Statement.
(f) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(g) During a period of five years after the date hereof, the Company
will furnish to its stockholders, to the extent required by applicable laws or
the Rules and Regulations, as soon as practicable after the end of each
respective period, annual reports (including financial statements audited by
independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and each of the Underwriters, upon written request (i)
concurrently with furnishing to its stockholders, statements of operations of
the Company for each of the first three quarters in the form furnished to the
Company's stockholders;
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(ii) concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, cash flows and stockholders' equity of the Company for such fiscal
year, accompanied by a copy of the certificate or report thereon of independent
certified public accountants; (iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders; (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the NASD; (v) every material
press release and every material news item or article in respect of the Company
or its affairs which was released or prepared by the Company or any of the
Subsidiaries; and (vi) any additional information of a public nature concerning
the Company or any of the Subsidiaries, or their respective businesses, which
you may reasonably request. During such five year period the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company and the Subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any Subsidiary which is not so consolidated.
(h) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(i) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(j) The Company will cause the transfer agent for the Common Stock
to register the transfer of the Shares upon their presentation in proper form
for transfer by the Selling Stockholder and to have certificates representing
the Shares available to you as required hereunder; provided, that the Company
shall not be required to take any action unless the Registration Statement is
then effective under the Act.
(k) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or the
Selling Stockholders to perform any agreement on its part to be performed
hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement under Section 10(a),
the Company will reimburse the several Underwriters for all reasonable
out-of-pocket expenses up to $50,000 plus reasonable fees and disbursements of
Underwriters' Counsel up to $125,000) incurred by the Underwriters in
investigating, preparing to market and marketing the Shares.
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(l) If at any time during the 90-day period after the Registration
Statement becomes effective, any publication or event relating to or affecting
the Company shall occur as a result of which in your opinion the market price of
the Common Stock has been or is likely to be materially affected (regardless of
whether such publication or event necessitates a supplement to or amendment of
the Prospectus), the Company will, after written notice from the Representatives
advising the Company to the effect set forth above, forthwith prepare, consult
with the Representatives concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to the
Representatives, responding to or commenting on such publication or event.
(m) For a period ending 180 days from the date of the Prospectus,
the Company will not, without your prior written consent, issue, sell, offer or
agree to sell, or otherwise dispose of, directly or indirectly, any Common
Stock, any options, rights or warrants with respect to any shares of Common
Stock or any securities convertible into, exercisable for or exchangeable for
Common Stock other than the sale of the Shares and the Option Shares to be sold
by the Company hereunder, and the Company's issuance of shares of Common Stock
pursuant to the exercise of currently outstanding stock options and warrants or
grants of options under the Company's 1997 Stock Option Plan.
II. The Selling Stockholders agree with each of the Underwriters and the
Company that in order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, the Selling Stockholders shall
deliver to you prior to or on the Closing Date or the Option Closing Date, as
applicable, a properly completed and executed United States Treasury Department
Form W-9 or Form W-8 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
5. PAYMENT OF EXPENSES.
(a) The Company and the Selling Stockholders hereby agree to pay on each
of the Closing Date and the Option Closing Date (to the extent not paid on the
Closing Date) all expenses and fees (other than fees of Underwriters' Counsel,
except as provided in (iii), (v) and (vii) below) incident to the performance of
the obligations of the Company and the Selling Stockholders under this Agreement
(provided that as between the Company and the Selling Stockholders their
relative obligations to pay shall be in such a manner as the Company and the
Selling Stockholders have agreed or shall agree), including, without limitation,
(i) the fees and expenses of
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accountants and counsel for the Company and the Selling Stockholder, (ii) all
costs and expenses incurred in connection with the preparation, duplication,
printing, filing (including the filing fees of the Commission), mailing
(including postage with respect thereto) and delivery of the Registration
Statement, the Preliminary Prospectuses and the Prospectus and any amendments
and supplements thereto, including the cost of all copies thereof supplied to
the Underwriters in quantities as hereinabove stated, (iii) all costs and
expenses incurred in connection with the printing, mailing and delivery of this
Agreement, the Selected Dealer Agreements, the Agreement Among Underwriters,
Underwriters' Questionnaires, Underwriters' Powers of Attorney, the Selling
Stockholders' Powers of Attorney and Custody Agreements and related documents,
including the cost of all copies thereof supplied to the Underwriters in
quantities as hereinabove stated, (iv) the printing, engraving, issuance and
delivery of the Shares, including any transfer or other taxes payable thereon,
(v) the qualification of the Shares under state or foreign securities or Blue
Sky laws, including the costs of printing and mailing a Blue Sky Memorandum and
any supplements or amendments thereto and disbursements and fees of
Underwriters' Counsel, in connection therewith, (vi) fees and expenses of the
Company's transfer agent, (vii) fees and expenses incurred in connection with
the review by the NASD of certain of the matters set forth in this Agreement,
and (viii) the fees and expenses incurred in connection with the listing of the
Shares on the NASDAQ-NM and any other exchange.
(b) If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 6, Section 10(b) or Section 12, unless the basis
upon which the Representatives terminate this Agreement results from the default
or omission of any Underwriter, the Company shall reimburse and indemnify the
Underwriters for all of their reasonable out-of-pocket expenses (provided that
as between the Company and the Selling Stockholders their relative obligations
to pay shall be in such a manner as the Company and the Selling Stockholders
have agreed or shall agree), including the fees and disbursements of
Underwriters' Counsel, and the Blue Sky fees and expenses identified in Section
5(a)(v) above.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS.
I. The obligations of the Underwriters hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Company and the
Selling Stockholders herein as of the date hereof and as of the Closing Date and
the Option Closing Date, if any, as if they had been made on and as of the
Closing Date or the Option Closing Date, as the case may be; the accuracy on and
as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the
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provisions hereof; and the performance by the Company and the Selling
Stockholders on and as of the Closing Date and the Option Closing Date, if any,
of its respective covenants and obligations hereunder and to the following
further conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representatives, and, at the
Closing Date and the Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the satisfaction of
Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the
Rules and Regulations under the Act, the price of the Shares and any other
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations under the Act within
the prescribed time period, and, prior to the Closing Date, the Company shall
have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations under the Act.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact that, in the Representatives' opinion or in the opinion of Underwriters'
Counsel, is material, or omits to state a fact that, in the Representatives'
opinion or in the opinion of Underwriters' Counsel, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact that, in the Representatives' opinion or in the opinion
of Underwriters' Counsel, is material, or omits to state a fact that, in the
Representatives' opinion or in the opinion of Underwriters' Counsel, is material
and is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) On the Closing Date and the Option Closing Date, if any, the
Representatives shall have received from Representatives' Counsel the favorable
opinion to the effect that:
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(i) the capital stock of the Company, including, without limitation,
the Common Stock, conforms in all material respects to the description
thereof contained in the Prospectus;
(ii) the Registration Statement is effective under the Act, and if
applicable, the filing of all pricing and other information has been
timely made in the appropriate form under Rule 430A of the Rules and
Regulations, and, to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or threatened by the
Commission. Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company,
counsel for the Company, representatives of the independent certified
public accountants for the Company and the Representatives, at which
conferences the contents of the Registration Statement and the Prospectus
and related matters were discussed, and, although such counsel is not
passing upon and does not assume any responsibility for, nor has such
counsel independently verified, the accuracy, completeness or fairness of
the statements contained in the Registration Statement and Prospectus
(except as to matters referred to in subparagraph (i) above of this
Section 6(c)), no facts have come to the attention of such counsel
(relying as to materiality to a large extent upon the opinions of officers
and other representatives of the Company) that lead them to believe that
either the Registration Statement or any amendment thereto, at the time
such Registration Statement or amendment became effective or any
Preliminary Prospectus (other than information omitted pursuant to Rule
430A) or the Prospectus or any amendment or supplement thereto as of the
date of such opinion contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(it being understood that such counsel need express no view with respect
to the financial statements and schedules and other financial and
statistical data included in any Preliminary Prospectus, the Registration
Statement (including any exhibit thereto) or the Prospectus or any
amendment or supplement thereto);
(iii) each of the Preliminary Prospectuses, the Registration
Statement and the Prospectus and any amendments or supplements thereto
(other than the financial statements and schedules and other financial and
statistical data included therein, as to which no opinion need be
rendered)
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comply as to form in all material respects with the requirements of the
Act and the Rules and Regulations; and
(iv) this Agreement has been duly authorized, executed and delivered
by the Company.
The opinion of Underwriters' Counsel to be dated the Option Closing Date,
if any, may confirm as of the Option Closing Date the statements made by such
counsel in their opinion delivered on the Closing Date.
(d) On the Closing Date and the Option Closing Date, if any, the
Underwriters shall have received the favorable opinion of Thompson & Knight,
P.C., counsel to the Company, dated the Closing Date and the Option Closing
Date, if any, addressed to the Underwriters and in form and substance reasonably
satisfactory to Underwriters' Counsel, to the effect that:
(i) (A) the Company and each of the Subsidiaries are duly organized
and validly existing as corporations in good standing under the laws of
the jurisdiction of their organization, and (B) the Company is duly
qualified as a foreign corporation and in good standing in New York; all
of the outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued and are fully-paid and
non-assessable, and are owned of record by the Company; the outstanding
shares of capital stock of the Subsidiaries are owned by the Company free
and clear of all liens, encumbrances and security interests (except as
described in the Prospectus), and, to such counsel's knowledge, no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into, or
exchange any securities for, any shares of capital stock of or ownership
interests in any of the Subsidiaries are outstanding;
(ii) the Company and each of the Subsidiaries have the corporate
power to own, lease and operate their respective properties and to conduct
their respective businesses as described in the Prospectus;
(iii) the authorized and outstanding capital stock of the Company is
as set forth in the Prospectus under the heading "Capitalization," subject
to the assumptions set forth therein, and, except as provided for in this
Agreement and as described in the Prospectus, to such counsel's knowledge,
the Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities.
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All shares of Common Stock of the Company issued and outstanding on the
date hereof prior to the issuance of the Shares have been duly authorized
and validly issued and are fully paid and non-assessable; and to such
counsel's knowledge, none of such shares were issued in violation of any
preemptive rights under the Texas Business Corporation Act, or similar
statutory rights; and the capital stock of the Company, including, without
limitation, the Common Stock, conforms in all material respects to the
description thereof contained in the Prospectus. To such counsel's
knowledge, the Firm Shares and the Option Shares are not and will not be
subject to any preemptive rights under the Texas Business Corporation Act
or similar statutory rights. The Firm Shares and the Option Shares being
sold by the Company have been duly authorized and (with respect to the
Shares being sold by the Company), when issued, paid for and delivered in
accordance with the terms hereof, will be validly issued, fully paid and
non-assessable; and the certificates representing the Shares are in due
and proper form. To such counsel's knowledge, no holders of any securities
of the Company or of any options, warrants or other convertible or
exchangeable securities of the Company exercisable for or convertible or
exchangeable for securities of the Company have the right, except as have
been waived, to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the
Company within 180 days of the date hereof or to require the Company to
file a registration statement under the Act during such 180 day period;
(iv) the Registration Statement is effective under the Act, and, if
applicable, the filing of all pricing and other information has been
timely made in the appropriate form under Rule 430A of the Rules and
Regulations under the Act, and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for that purpose have been instituted
or, to such counsel's knowledge, threatened by the Commission;
(v) the Registration Statement and the Prospectus and any amendment
or supplement thereto (other than the financial statements and schedules,
related notes and other financial and statistical data included therein,
as to which no opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Rules and Regulations
under the Act;
(vi) (A) to such counsel's knowledge, there is not pending or
threatened against the Company or any of the
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Subsidiaries, or involving any of their respective properties or
businesses, any action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding, domestic or foreign, that (y) is
required to be disclosed in the Registration Statement and is not so
disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all material respects), or (z)
questions the validity of the capital stock of the Company, this
Agreement, the Warrant Agreement, or any action taken or to be taken by
the Company pursuant to or in connection with this Agreement and (B) no
statute or regulation or legal or, to such counsel's knowledge,
governmental proceeding required to be described in the Prospectus is not
described as required;
(vii) the Company has the corporate power and authority to enter
into this Agreement and the Warrant Agreement and to consummate the
transactions provided for herein and therein; and this Agreement and the
Warrant Agreement have been duly authorized, executed and delivered by the
Company. None of the Company's execution or delivery of this Agreement and
the Warrant Agreement, its performance hereunder or its consummation of
the transactions contemplated herein or therein or results or will result
in any breach or violation of any of the material terms or provisions of,
or constitutes or will constitute a default under, or result in the
creation or imposition of any lien, charge, claim, pledge, security
interest, or other encumbrance upon, any property or assets (tangible or
intangible) of the Company or any of the Subsidiaries pursuant to the
terms of (A) the corporate charter, operating agreement or by-laws or
other governing instrument of the Company or any of the Subsidiaries, (B)
to such counsel's knowledge, any voting trust agreement or any
stockholders agreement, or any indenture, mortgage, deed of trust, note,
loan or credit agreement or other agreement or instrument known to such
counsel to which the Company or any of the Subsidiaries is a party or by
which any of them is or may be bound or to which any of their respective
properties or assets (tangible or intangible) is or may be subject, or (C)
any statute, rule or regulation or, to such counsel's knowledge, any
judgment, decree or order applicable to the Company or any of the
Subsidiaries of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body having jurisdiction over the
Company or any of the Subsidiaries or any of their respective activities
or properties, the violation of which would have a Material Adverse
Effect;
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(viii) no consent, approval, authorization or order, and no filing
with, any federal or state court, regulatory body, government agency or
other body (other than such as have been effected under the Act and the
Exchange Act and such as may be required under Blue Sky or state
securities laws or the rules of the NASD in connection with the purchase
and distribution of the Shares by the Underwriters, as to which no opinion
need be rendered) is required in connection with the issuance of the
Shares pursuant to the Prospectus and the Registration Statement, the
performance of this Agreement and the transactions contemplated hereby;
(ix) to such counsel's knowledge neither the Company nor any of the
Subsidiaries is in violation of any term or provision of its corporate
charter, operating agreement, or by-laws or other governing instrument;
(x) the statements in the Prospectus under the captions "THE
RECAPITALIZATION," "DIVIDEND POLICY," "-GOVERNMENT AND INDUSTRY
REGULATION," "-TARIFFS AND DUTIES," "MANAGEMENT-EMPLOYMENT AGREEMENTS,"
"-1997 STOCK OPTION PLAN," "-BONUS PLAN," "401(K) PLAN," "-INDEMNIFICATION
ARRANGEMENTS," "CERTAIN TRANSACTIONS," "SHARES ELIGIBLE FOR FUTURE SALE,"
and "DESCRIPTION OF CAPITAL STOCK" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes,
written contracts, or rules or regulations are correct in all material
respects;
(xi) the Company is not an "investment company" or an "affiliated
person" or "promoter" of, or "principal underwriter" for, an "investment
company," as defined in the 1940 Act or subject to regulation under such
Act; and
(xii) The Representatives' Warrants will conform to their
description in the Registration Statement and Prospectus and have been
authorized, and, when issued and sold in accordance with the Warrant
Agreement, will constitute the legal, valid, and binding obligations of
the Company entitled to the rights and benefits of the Warrant Agreement,
subject as to enforceability of the application of bankruptcy law or
general principles of equity. The Underwriter's Warrant Shares have been
validly authorized and reserved for issuance upon exercise of the
Representatives' Warrants and, when issued in accordance with the Warrant
Agreement, will be validly issued, fully paid and nonassessable and free
of preemptive rights under the Texas Business Corporation Act.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company
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and representatives of the independent certified public accountants for the
Company, at which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed, and, although such counsel is not
passing upon and does not assume any responsibility for, nor has such counsel
independently verified, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus no facts have come to the
attention of such counsel that lead them to believe that either the Registration
Statement or any amendment thereto, at the time such Registration Statement or
amendment became effective or any Preliminary Prospectus circulated by the
Underwriters (other than information omitted pursuant to Rule 430A) or the
Prospectus or any amendment or supplement thereto as of the date of such opinion
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; (it being understood that such
counsel need express no view with respect to the financial statements and
schedules, related notes, and other financial and statistical data included or
incorporated by reference in any Preliminary Prospectus circulated by the
Underwriters, the Registration Statement (including any exhibit thereto) or the
Prospectus or any amendment or supplement thereto). In addition, such counsel
shall state that they know of no contracts, leases or other documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed or incorporated by reference as exhibits to the Registration
Statement which are not described or filed or incorporated by reference as
required.
The foregoing opinions may be limited to the laws of the State of Texas,
the laws of Hong Kong and applicable United States federal law. In rendering the
foregoing opinions, counsel may rely, to the extent they deem such reliance
proper, on the opinions of other counsel as to matters governed by the laws of
jurisdictions other than the United States and the State of Texas. In rendering
such opinions, such counsel may rely as to matters of fact, to the extent they
deem proper, on certificates and written statements of responsible officers of
the Company and the Subsidiaries and certificates or other written statements of
officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and the
Subsidiaries, provided that copies of any such statements or certificates shall
be delivered to Underwriters' Counsel if requested.
For purposes of any of the opinions to be rendered by such counsel
pursuant to this subsection d of Section 6, the term "to such counsel's
knowledge" shall mean, to the extent that such opinion relates to a factual
issue or to a mixed question of law
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and fact, that after examination of
documents in such counsel's files and considering the actual knowledge of the
individual attorneys in such counsel's firm who have given substantive attention
to matters on behalf of the Company, such counsel finds no reason to believe
that any of such opinions is factually incorrect.
The opinion of counsel to the Company, to be dated the Option Closing
Date, if any, may confirm as of the Option Closing Date the statements made by
such counsel in their opinion delivered on the Closing Date.
(e) The Underwriters shall have received, on the Closing Date the
favorable opinion of counsel to the Firm Selling Stockholder, dated the Closing
Date, and on the Option Closing Date, if any, the favorable opinion of counsel
to each of the Selling Stockholders addressed to the Underwriters and in form
and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) the Power of Attorney and the Custody Agreement of such Selling
Stockholder have been duly authorized, executed and delivered on behalf of
such Selling Stockholder and are valid instruments legally sufficient for
the purposes intended;
(ii) such Selling Stockholder has full right, power and authority to
enter into and to perform its obligations under this Agreement and to
sell, transfer, assign and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(iii) this Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholder;
(iv) upon the delivery of and payment for the Shares as contemplated
in this Agreement, and upon registration of the Shares in the names of the
Underwriters, the Underwriters will have acquired good and valid title to
the Shares being sold by such Selling Stockholder free of any pledge,
lien, security interest, encumbrance, claim or equitable interest,
including any lien in favor of the Company or any restriction on transfer
imposed by the Company; and the owner of the Shares being sold by such
Selling Stockholder hereunder, if other than the Selling Stockholder, is
precluded from asserting against such Underwriters the ineffectiveness of
any unauthorized endorsement.
(f) On the Closing Date and the Option Closing Date, if any, the
Underwriters shall have received the favorable opinion of patent counsel to the
Company, dated the Closing Date and the
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Option Closing Date, if any, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) such counsel is not aware that any of the Company's patents is
invalid or that any patent issued in respect of any of the Company's
patent applications would be invalid;
(ii) such counsel is not aware that any valid patent is infringed by
the activities of the Company described in the Prospectus;
(iii) such counsel is not aware of any material defects or form in
the preparation or filing of patent applications on behalf of the Company.
Such patent applications have been diligently pursued by the Company;
(iv) such counsel is not aware of any pending or threatened action,
suit, proceeding or claim by others that the Company is infringing or
otherwise violating any patents, trademarks, trade secrets, know-how or
other proprietary rights;
(v) except as specifically disclosed in the Prospectus, such counsel
is not aware of any pending or threatened action, suit, proceeding, or
claim by others challenging the validity or scope of the patent
applications or the patents held by or licensed to the Company;
(vi) according to such counsel's records, the Company is listed or
is in the process of being listed in the records of the appropriate
foreign office as the sole holder of record of the foreign patents and
foreign patent applications set forth in a schedule of such opinion. Such
counsel knows of no claims of third parties to any ownership interest or
lien with respect to any of such patents or patent applications.
Such counsel shall also state that since at least 1993 it has represented
the Company in the prosecution of all of its patents and that such counsel has
participated in conferences with employees of the Company at which the Company's
patents, patent applications and the contents of the Intellectual Property
portion of the Registration Statement were discussed, and, although such counsel
is not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement (except as to matters referred to in subparagraph (vi) of this Section
6(f)), on the basis of such conferences and such representation of the Company,
nothing has come to the attention of such counsel which leads them
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to believe that the Intellectual Property portion of the Registration Statement
or any amendment thereto, at the time such Registration Statement or amendment
became effective, and such portion of the Prospectus or any amendment or
supplement thereto, on the date such Prospectus or amendment or supplement
thereto was filed pursuant to Rule 424(b), and such portion of the Registration
Statement and the Prospectus, or any amendment or supplement thereto, as of the
date of such opinion contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
For purposes of any of the opinions to be rendered by such counsel
pursuant to this subsection (f) of Section 6, the term "to the best of such
counsel's knowledge" shall mean, to the extent that such opinion relates to a
factual issue or to a mixed question of law and fact, that after examination of
documents in such counsel's files and considering the actual knowledge of the
individual attorneys in such counsel's firm who have given substantive attention
to matters on behalf of the Company, such counsel finds no reason to believe
that any of such opinions is factually incorrect.
The favorable opinion of patent counsel to the Company, to be dated the
Option Closing Date, if any, may confirm as of the Option Closing Date the
statements made in their opinion delivered on the Closing Date.
(g) On or prior to each of the Closing Date and the Option Closing Date,
if any, Underwriters' Counsel shall have been furnished such customary
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, the Selling Stockholders or herein contained.
(h) Prior to each of the Closing Date and the Option Closing Date, if any,
(i) from the respective dates as of which information is set forth in the
Registration Statement and Prospectus, there shall have been no developments
that, individually or in the aggregate, have had a Material Adverse Effect; (ii)
there shall have been no transaction, not in the ordinary course of business,
entered into by the Company or any of the Subsidiaries, from the latest date as
of which the financial condition of the Company and the Subsidiaries is set
forth in the Registration Statement and Prospectus, that, individually or in the
aggregate, has had a Material Adverse Effect; (iii) neither the Company nor any
of the
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Subsidiaries shall be in default under any provision of any instrument
relating to any of their respective outstanding indebtedness; (iv) no material
amount of the assets of the Company or any of the Subsidiaries shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus (including the exhibits to the Registration Statement); (v) no
action, suit or proceeding, at law or in equity, shall have been pending or, to
the knowledge of the Company, threatened against the Company or any of the
Subsidiaries, or affecting any of their respective properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect; and (vi) no stop order shall have been issued
under the Act and no proceedings therefor shall have been initiated, or, to the
Company's knowledge, threatened or contemplated by the Commission.
(i) At each of the Closing Date and the Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the effect
that each of such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of such officer, are
threatened under the Act;
(iii) none of the Registration Statement, the Prospectus nor any
amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
neither the Preliminary Prospectus nor any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and
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(iv) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, neither the
Company nor any of the Subsidiaries have incurred up to and including the
Closing Date or the Option Closing Date, as the case may be, other than in
the ordinary course of their respective businesses, any material
liabilities or obligations, direct or contingent; the Company has not paid
or declared any dividends or other distributions on its capital stock;
neither the Company nor any of the Subsidiaries has entered into any
transactions not in the ordinary course of business; and there has not
been any material change in the capital stock or long-term debt or any
material increase in the short-term borrowings of the Company or any of
the Subsidiaries; neither the Company nor any of the Subsidiaries has
sustained any material loss or damage to its property or assets, whether
or not insured; there is no litigation that is pending or, to the
knowledge of such officers, threatened against the Company or any of the
Subsidiaries that is required to be set forth in an amended or
supplemented Prospectus that has not been set forth; and there has
occurred no event required to be set forth in an amended or supplemented
Prospectus that has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (i) are to such documents as amended and supplemented at the date of
such certificate.
(j) At the Closing Date, the Underwriters shall have received a
certificate of the Firm Selling Stockholder dated the Closing Date or, of each
Selling Stockholder, dated the Option Closing Date, as applicable, to the effect
that the representations and warranties of such Selling Stockholder in this
Agreement are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as applicable, and such Selling Stockholder has complied
with all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to the Closing
Date or the Option Closing Date, as applicable.
(k) On the date of this Agreement, the Representatives shall have received
a letter in form and substance satisfactory to the Underwriters and the
Underwriters' Counsel addressed to the Underwriters and dated the date of this
Agreement from Price Waterhouse and signed by such firm with respect to such
matters as shall have been specified to such firm by the Representatives prior
to the date hereof. At the Closing Date and the Option Closing Date, if any, the
Underwriters shall have received from Price Waterhouse a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, reaffirming the
statements made
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in the letter furnished by Price Waterhouse to the Underwriters concurrently
with the execution of this Agreement, each such reaffirming letter to be in form
and substance satisfactory to the Underwriters and the Underwriters' Counsel.
(l) On each of the Closing Date and the Option Closing Date, if any, there
shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Shares.
(m) No order suspending the sale of the Shares in any jurisdiction
designated by the Representatives pursuant to subsection I(c) of Section 4
hereof shall have been issued on either the Closing Date or the Option Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
to the knowledge of the Representatives or the Company shall be contemplated.
(n) The Underwriters shall have received the written agreements of the
persons referred to in Section 1.I(ad) hereof.
(o) The Shares delivered on the Closing Date or the Option Closing Date
shall have been duly listed, subject to notice of official issuance, on the
NASDAQ-NM.
(p) The Company shall have executed the Warrant Agreement and shall have
delivered properly executed Underwriter's Warrants to you simultaneously with
the closing of the sale of the Firm Shares.
If any condition to the Underwriters' obligations thereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, they may waive any such
conditions that have not been fulfilled or extend the time for their
fulfillment.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, specifically
including but not limited to losses, claims, damages or liabilities related to
negligence on the part of any Underwriter, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any breach of any representation, warranty, agreement or covenant of the
Company herein contained or any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, any Preliminary
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Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
and agrees to reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement, in reliance upon and in strict conformity with
written information furnished with respect to any Underwriter by such
Underwriter expressly for use in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, provided
that such written information or omissions only pertain to disclosures in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto directly relating to the transactions effected
by the Underwriters in connection with this offering, and provided further that
the foregoing indemnity with respect to any Preliminary Prospectus shall not
inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) if such untrue statement or omission or alleged
untrue statement or omission made in any Preliminary Prospectus is eliminated or
remedied in the Prospectus and a copy of the Prospectus has not been furnished
to the person asserting any such loss, claim, damage or liability at or prior to
the written confirmation of the sale of such Shares to such person.
The indemnity agreement in this Section 7(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of each person, if any,
who controls any Underwriter within the meaning of the Act. This indemnity
agreement shall be in addition to any liabilities which the Company or the
Selling Stockholder may otherwise have.
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(b) Each Selling Stockholder agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any breach of any representation, warranty, agreement or
covenant of such Selling Stockholder contained in Section 1.II, or any untrue
statement or alleged untrue statement of any material fact concerning such
Selling Stockholder contained under the captions "The Recapitalization,"
"Certain Transactions" or "Business-Legal Proceedings" in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or arise out of or are based upon the omission or alleged
omission to state therein a material fact concerning such Selling Stockholder
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading if made
regarding such Selling Stockholder or in reliance upon information supplied to
the Company by such Selling Stockholder; and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Selling Stockholder shall not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or any such
alleged untrue statement or any such omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by any Underwriter, directly or through
you, specifically for use in the preparation thereof.
The indemnity agreement in this Section 7(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of each person, if any,
who controls any Underwriter within the meaning of the Act. This indemnity
agreement shall be in addition to any liabilities which the Company or the
Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company and the Selling Stockholder to the same extent as the
foregoing indemnity from the Company to the Underwriters but only with respect
to statements or omissions, if any, made in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
made in reliance upon, and in strict conformity with, written information
furnished with respect to any Underwriter by such Underwriter expressly for use
in the Registration Statement, any Preliminary Prospectus or the Prospectus or
any amendment or
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supplement thereto, provided that such written information or omissions only
pertain to disclosures in the Registration Statement, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto directly relating to
the transactions effected by the Underwriters in connection with this offering.
The indemnity agreement in this Section 7(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company who has signed the Registration Statement, the Selling
Stockholder and each person, if any, who controls the Company or the Selling
Stockholder within the meaning of the Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have. For
purposes of this Agreement, the Company and the Selling Stockholder acknowledge
that the statements with respect to the public offering of the Shares set forth
under the heading "UNDERWRITING" and the stabilization legend in the Prospectus
and the last paragraph on the outside front cover page of the Prospectus have
been furnished by the Underwriters expressly for use therein and constitute the
only information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(d) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party under this Section 7
(except to the extent that the omissions of such notice causes actual prejudice
to the indemnifying party), or otherwise than under this Section 7. In case any
such action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent that it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified parties and the
indemnifying party and counsel for the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel reasonably satisfactory to the indemnifying party or
parties to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of
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such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 7 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel approved by the indemnifying
party, representing all the indemnified parties under Section 7(a), 7(b) or 7(c)
hereof who are parties to such action), (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved the
terms of such settlement; provided however that such consent shall not be
unreasonably withheld.
(e) In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this Section 7 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 7 provides for indemnification
in such case, all the parties hereto shall contribute to the aggregate loses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that, except as set forth in Section 7(f)
hereof, the Underwriters are responsible pro rata for the portion represented by
the percentage that the underwriting discount bears to the initial public
offering price, and the Company and the Selling Stockholder are responsible for
the remaining portion, provided, however, that (i) no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to a contribution from any person who is not guilty
of such fraudulent misrepresentation. This subsection (e) shall not be operative
as to any Underwriter to the extent that the Company or the Selling Stockholder
has received indemnity payments from such Underwriter
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under this Section 7 which
are not required to be returned pursuant to the order of any court of competent
jurisdiction.
(f) The liability of each Selling Stockholder under the representations
and warranties contained in Section 1 hereof and under the indemnity agreements
contained in the provisions of this Section 7 shall be limited in the aggregate
to an amount equal to the initial public offering price of the Shares sold by
such Selling Stockholder to the Underwriters minus the amount of the
underwriting discount paid thereon to the Underwriters by the Selling
Stockholder. The Company and the Selling Stockholders may agree, as between
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including without limitation the
provisions of this Section 7, and are fully informed regarding such provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy, as interpreted
by the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 7, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under this Section 7 and further agree not to attempt to assert any such
defense.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement
or contained in certificates of officers of the Company submitted pursuant
thereto shall be deemed to be representations, warranties and agreements at the
Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements, and the indemnity and contribution
agreements contained in Section 7 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter, the Company, the Selling Stockholders or any controlling person,
and shall survive termination of this Agreement or the issuance or sale and
delivery of the Shares to the Underwriters.
9. EFFECTIVE DATE.
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Tucker, Anthony Incorporated
Sutro & Co. Incorporated
This Agreement shall become effective at 9:30 a.m., Eastern Time, on the
date hereof, or at such earlier time after the Registration Statement becomes
effective as the Representatives, in their sole discretion, shall release the
Shares for the sale to the public, provided, however that the provisions of
Sections 5, 7 and 9 of this Agreement shall at all times be effective. For
purposes of this Section 9, the Shares to be purchased hereunder shall be deemed
to have been so released upon the earlier of dispatch by the Representatives of
telegrams to securities dealers releasing such Shares for offering or the
release by the Representatives for publication of the first newspaper
advertisement that is subsequently published relating to the Shares.
10. TERMINATION.
(a) Subject to subsection (d) of this Section 10, the Company may at any
time before this Agreement becomes effective in accordance with Section 9,
terminate this Agreement.
(b) Subject to subsection (d) of this Section 10, the Representatives
shall have the right to terminate this Agreement, (i) if any calamitous domestic
or international event or act or occurrence has materially disrupted, or in the
Representatives' opinion will in the immediate future materially disrupt,
general securities markets in the United States; or (ii) if trading on the New
York Stock Exchange, the NASDAQ-NM or in the over-the-counter market shall have
been suspended, or minimum or maximum prices for trading shall have been fixed,
or maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iii) if the United States shall
have become involved in a war or major hostilities; or (iv) if a banking
moratorium has been declared by the State of Texas, the State of New York, the
Commonwealth of Massachusetts or any federal authority; or (v) if a moratorium
in foreign exchange trading has been declared; or (vi) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act that, whether or not such loss shall have been insured, will, in the
Representatives' reasonable opinion, make it inadvisable to proceed with the
delivery of the Shares; or (vii) if there shall have been a Material Adverse
Effect.
(c) If any party hereto elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, such
party shall notify, on the same day as such election is made, the other parties
hereto in accordance with the provisions of Section 13 hereof.
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(d) Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 11 and 12 hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Sections 5, 7 and 9 shall
not be in any way affected by such election or termination or failure to carry
out the terms of this Agreement or any part hereof.
11. SUBSTITUTION OF THE UNDERWRITERS.
If one or more of the Underwriters shall fail (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 6, Section 10 or Section 12 hereof) to purchase the Shares that it or
they are obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the Representatives shall use their best efforts within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24 hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the total
number of Firm Shares to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total number
of Firm Shares and arrangements satisfactory to the Representatives for the
purchase of the Defaulted Securities are not made within 36 hours, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriters. The Company or the Selling Stockholder may assist the
Representatives in making such arrangements by procuring another party
satisfactory to the Representatives to purchase the Defaulted Securities on the
terms set forth herein.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default that does not result in a termination of
this Agreement, the Representatives shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
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12. DEFAULT BY THE COMPANY OR THE SELLING STOCKHOLDERS.
If the Company or either of the Selling Stockholders, as applicable, shall
fail at the Closing Date or the Option Closing Date, as applicable, to sell and
deliver the number of Shares that it is obligated to sell hereunder on such
date, then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Shares to be purchased on the Option Closing Date, the
Underwriters may at the Representatives' option, by notice from the
Representatives to the Company, terminate the Underwriters' several obligations
to purchase Shares from the Company on such date) without any liability on the
part of any non-defaulting party other than pursuant to Section 5 and Section 7
hereof. No action taken pursuant to this Section shall relieve the Company or
the Selling Stockholder from liability, if any, in respect of such default.
13. NOTICES.
All notices and communications hereunder may be mailed or transmitted by
any standard form of telecommunication and, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given when delivered to a notice party hereto at the address specified herein or
at the address subsequently communicated in writing to the notice parties.
Notices to the Underwriters shall be directed to the Representatives c/o Tucker
Anthony Incorporated, One Beacon Street, Boston, Massachusetts 02108, Attention:
L.J. Fuiks, Managing Director, with a copy to Glenn D. Smith, Esq., c/o Stroock
& Stroock & Lavan LLP, 2029 Century Park East, Suite 1800, Los Angeles,
California 90067- 3086. Notices to the Company shall be directed to DSI Toys,
Inc., 1100 West Sam Houston Parkway (North), Suite A, Houston, Texas 77243,
Attention: Chairman, with a copy to Michael L. Bengtson, Esq., c/o Thompson &
Knight, P.C., 1700 Pacific Avenue, Suite 3300, Dallas, Texas, 75201. Notices to
the Firm Selling Stockholder shall be directed to The Tommy Moss Living Trust,
1001 Fannin, Suite 3700, Houston, Texas 77002, Attention: Myron M. Sheinfeld,
Trustee, with a copy to Adam P. Schiffer, c/o Vinson & Elkins, L.L.P., 1001
Fannin Street, Suite 2300, Houston, Texas 77002. Notices to the Option Selling
Stockholders shall be directed to Hibernia Corporation, 313 Carondelet Street,
New Orleans, Louisiana 70130, Attention: Thomas B. Hoyt, with a copy to Phelps
Dunbar, L.L.P., Texaco Center, 400 Poydras Street, New Orleans, Louisiana 70130,
Attention: Virginia Boulet. In each case a notice party may change its address
for notice hereunder by a written communication to the other notice parties.
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Tucker, Anthony Incorporated
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14. PARTIES.
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriters, the Selling Stockholders, the Company and the
controlling persons, directors and officers referred to in Section 7 hereof, and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Shares from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
15. CONSTRUCTION.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES.
16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which taken together shall
be deemed to be one and the same instrument.
17. ENTIRE AGREEMENT.
This Agreement and the Schedules hereto contain the entire agreement
between the parties hereto in connection with the subject matter hereof and
supersede all prior agreements, written or oral, with respect to such subject
matter.
18. AMENDMENT.
This Agreement and the Schedules hereto may not be amended, modified or
altered without the written agreement of the Company, the Selling Stockholder
and the Representatives. If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
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<PAGE>
Tucker, Anthony Incorporated
Sutro & Co. Incorporated
Very truly yours,
DSI TOYS, INC.
By: /S/ M.D. DAVIS
NAME: M.D. Davis
TITLE: Chairman
SELLING STOCKHOLDERS LISTED ON
SCHEDULE B HERETO
THE TOMMY MOSS LIVING TRUST
By: /S/ M.D. DAVIS
NAME: M.D. Davis
TITLE: Attorney-in-fact
HIBERNIA CORPORATION
By: /S/ THOMAS V. YARNELL
NAME: Thomas V. Yarnell
TITLE: Attorney-in-fact
CONFIRMED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN
TUCKER ANTHONY INCORPORATED
SUTRO & CO. INCORPORATED
By: TUCKER ANTHONY INCORPORATED
By: /S/ L.J. FUIKS
Title: Managing Director
For themselves and on behalf of and as the
Representatives of the other Underwriters
named in Schedule A hereto.
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<PAGE>
Tucker, Anthony Incorporated
Sutro & Co. Incorporated
SCHEDULE A
NUMBER OF
NAME FIRM SHARES
- ---- -----------
Tucker Anthony Incorporated .................................... 980,000
Sutro & Co. Incorporated ....................................... 980,000
Alex Brown & Sons Incorporated ................................. 60,000
Donaldson, Lufkin & Jenrette Securities Corporation ............ 60,000
Oppenheimer & Co., Inc. ........................................ 60,000
PaineWebber Incorporated ....................................... 60,000
Adams, Harkness & Hill, Inc. ................................... 40,000
Advest, Inc. ................................................... 40,000
Arnhold and S. Bleichroeder, Inc. .............................. 40,000
Robert W. Baird & Co. Incorporated ............................. 40,000
J.C. Bradford & Co. ............................................ 40,000
Crowell, Weedon & Co. .......................................... 40,000
Everen Securities, Inc. ........................................ 40,000
Fahnestock & Co. Inc. .......................................... 40,000
First of Michigan Corporation .................................. 40,000
Friedman, Billings, Ramsey & Co., Inc. ......................... 40,000
Gerard Klauer Mattison & Co., Inc. ............................. 40,000
Hoak Breedlove Wesneski & Co. .................................. 40,000
Jeffries & Company ............................................. 40,000
McDonald & Company Securities, Inc. ............................ 40,000
Morgan Keegan & Company, Inc. .................................. 40,000
Pennsylvania Merchant Group Ltd. ............................... 40,000
Principal Financial Securities, Inc. ........................... 40,000
Rauscher Pierce Refsnes, Inc. .................................. 40,000
Raymond James & Associates, Inc. ............................... 40,000
The Robinson-Humphrey Company, Inc. ............................ 40,000
---------
3,000,000
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Tucker, Anthony Incorporated
Sutro & Co. Incorporated
SCHEDULE B
NUMBER OF NUMBER OF
NAME FIRM SHARES OPTION SHARES
- ---- ----------- -------------
FIRM SELLING STOCKHOLDER
The Tommy Moss Living Trust 500,000 281,000
OPTION SELLING STOCKHOLDER
Hibernia Corporation -- 150,000
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Tucker, Anthony Incorporated
Sutro & Co. Incorporated
SCHEDULE C
NAME
- ----
Jack R. Crosby Stanley So Chun Ming
The Tommy Moss Living Trust Polly Leung Po Yin
Hibernia Corporation Jender Chan Wai-Ha
Joseph N. Matlock Jackson Chu Chun Yuen
M.D. Davis Elsa Chow Shuk Mei
Conrad/Colins Merchant Banking Georgiana Chan Kwan Yee
Fund, Inc. Linda Jackson
Douglas A. Smith Paul Tsui Ming Kai
Ross W. & Frances B. Vick, Jr. Alex lu Cheung Kit
Robert C. & Gail B. Thomas Tommy Yau Wing Kong
Mervyn Lapin Jane Mary Yi Yung Yee
Delbert B. & Iris Johnson Chow Yuk Ha Can
Judy and Ron Girotto Shirley Cheang Man I
Edward Kahn - D&E Sales & Phoebe Lou Shuk Ling
Marketing Yan Pui Han
Duane D'Agostino- D&E Sales & Clarence Mak Wai Shing
Marketing Andy Hing Tsan Choi
Jan E. Vernie Mervyn Lapin
Thinh & Vivian Doan Joe L. Savoy
Loyd W. Harlan Conrad/Collins Merchant
Thomas V. Yarnell Banking Group Ltd.
Steve & Angela Yen Barry B. Conrad
Magdalena B. Aganon Floyd W. Collins
Stewart E. & Janet R. Angst Rust Capital, Ltd.
Diane Haake
David W. Jones, Jr.
Amanda Kindt
Thomas A. & Janet L. Kuhl
Michael R. Moss
DLJSC IRA FBO Susan M. Neville
Thomas W. Neville
Allen R. Payne
Virginia Robichaux
Roland Rosilez
Margie A. Walberg
Waymon & Barbara Wittman
Richard R. Neitz
Holly Investments Limited
Partnership
Dale & Peggy Chen
Linda Jackson
Neil & Kathleen Austrian
Neil Austrian Sr.
Robert Lemer
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EXHIBIT 10.2
WARRANT AGREEMENT
By and Among
DSI TOYS, INC.
and
TUCKER ANTHONY INCORPORATED
SUTRO & CO. INCORPORATED
Dated as of May 28, 1997
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of May 28, 1997 by and among DSI TOYS,
INC., a Texas corporation (the "Company"), and TUCKER ANTHONY INCORPORATED and
SUTRO & CO. INCORPORATED (the "Underwriters").
The Company proposes to issue to the Underwriters warrants as
hereinafter described (the "Warrants") to purchase up to an aggregate of 250,000
shares of the Company's Common Stock, $0.01 par value per share (the "Common
Stock"), subject to adjustment as provided in Section 8 hereof (such 250,000
shares, as adjusted, being hereinafter referred to as the "Shares"), each
Warrant entitling the holder ("Holder") thereof to purchase one hundred shares
of Common Stock. All capitalized terms used herein and not otherwise defined
herein shall have the same meanings as in that certain underwriting agreement,
of even date herewith, by and between the Company and the Underwriters (the
"Underwriting Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. On the Closing Date the
Company will issue, sell and deliver the Warrants to the Underwriters or their
bona fide officers for an aggregate price of $2,500. The Warrants shall be
issued to the Underwriters or such designees in the amounts set forth on
Schedule I attached hereto. The form of the Warrant and of the form of election
to purchase Shares to be attached thereto shall be substantially as set forth on
Exhibit A attached hereto. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
Chairman, President or any Vice President of the Company and attested by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
2. REGISTRATION. The Warrants shall be numbered and shall be
registered in a Warrant register (the "Warrant Register"). The Company shall be
entitled to treat the registered holder of any Warrant on the Warrant Register
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or are to be registered in the name of
a fiduciary or the nominee of a fiduciary unless made with the Company's actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with such knowledge
<PAGE>
of such facts that its participation therein amounts to bad faith. The Warrants
shall be registered initially in the name of the Underwriters in such
denominations as the Underwriters may request in writing to the Company;
PROVIDED, HOWEVER, that the Underwriters may designate in writing that all or a
portion of the Warrants be issued in varying amounts directly to their bona fide
officers and not to the Underwriters. Such designation will only be made by the
Underwriters if they determine that such issuances would not violate the
interpretation of the Board of Governors of the National Association of
Securities Dealers, Inc. (the "NASD"), relating to the review of corporate
financing arrangements.
3. TRANSFER OF WARRANTS. The Warrants will not be sold, transferred,
assigned or hypothecated, in part or in whole, prior to the first anniversary of
the effective date of the Registration Statement, and thereafter only to bona
fide officers, directors, shareholders, employees or registered representatives
of the Underwriters upon written request to the Company delivered in accordance
with Section 12 and upon delivery of the Warrant Certificate duly endorsed by
the Holder or by his duly authorized attorney or representative, or accompanied
by proper evidence of succession, assignment or authority to transfer. In all
cases of transfer by an attorney, the original power of attorney, duly approved,
or an official copy thereof, duly certified, shall be deposited with the
Company. In case of transfer by executors, administrators, guardians or other
legal representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the persons entitled thereto. The Warrants may be
exchanged at the option of the Holder thereof for other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of shares of Common Stock upon surrender to the Company
or its duly authorized agent. The Company may require payment of a sum
sufficient to cover all taxes and other governmental charges that may be imposed
in connection with any voluntary transfer, exchange or other disposition of the
Warrants. Notwithstanding the foregoing, the Company shall have no obligation to
cause Warrants to be transferred on its books to any person, if such transfer
would violate the Securities Act of 1933, as amended (the "Act") or applicable
state securities laws.
4. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) TERM OF WARRANTS. Each Warrant entitles the registered
owner thereof to purchase one hundred Shares at a purchase price of $10.80
per Share (as adjusted from time to time pursuant to the provisions
hereof, the "Exercise Price") at any time from the first anniversary of
the
2
<PAGE>
effective date of the Registration Statement until 5:00 p.m., New York
City time, on May 28, 2002 (the "Warrant Expiration Date").
(b) EXERCISE OF WARRANTS. The Exercise Price and the number of
Shares issuable upon exercise of Warrants are subject to adjustment upon
the occurrence of certain events,pursuant to the provisions of Section 8
of this Agreement. Subject to the provisions of this Agreement, and in
addition to the right to surrender warrants without any cash payment as
set forth in subsection (c) below, each Holder shall have the right, which
may be exercised as set forth in such Warrants, to purchase from the
Company (and the Company shall issue and sell to such Holder) the number
of fully paid and nonassessable Shares specified in such Warrants, upon
surrender to the Company, or its duly authorized agent, of such Warrants,
with the form of election to purchase attached thereto duly completed and
signed, with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank (not a savings bank or savings and
loan association) or trust company located in the United States or a
member of the NASD and upon payment to the Company of the Exercise Price,
as adjusted in accordance with the provisions of Section 8 of this
Agreement, for the number of Shares in respect of which such Warrants are
then exercised. No adjustment shall be made for any dividends on any
Shares issuable upon exercise of a Warrant. Upon each surrender of
Warrants and payment of the Exercise Price, the Company shall issue and
cause to be delivered with all reasonable dispatch, but in no event later
than three trading days following such surrender and payment, to or upon
the written order of the Holder of such Warrants and in such name or names
as such Holder may designate, a certificate or certificates for the number
of full Shares so purchased upon the exercise of such Warrants, together
with cash, as provided in Section 9 of this Agreement, in respect of any
fractional Shares otherwise issuable upon such surrender. Such certificate
or certificates shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become a holder of
record of such Shares as of the date of the surrender of Warrants and
payment of the Exercise Price as aforesaid; provided, however, that if, at
the date of surrender of such Warrants, the transfer books for the Common
Stock or other class of securities issuable upon the exercise of such
Warrants shall be closed, the certificates for the Shares shall be
issuable as of the date on which such books shall next be opened (whether
before, on or after the Warrant Expiration Date) and until such date the
Company shall be under no duty to deliver any certificate for such Shares;
provided, further, however, that the transfer books of record, unless
otherwise required by law, shall not be
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closed at any one time for a period longer than twenty (20) days. The
rights of purchase represented by the Warrants shall be exercisable, at
the election of the Holder(s) thereof, either in full or from time to time
in part in increments of 100 Shares and, in the event that any Warrant is
exercised in respect of less than all of the Shares issuable upon such
exercise at any time prior to the Warrant Expiration Date, a new Warrant
or Warrants will be issued for the remaining number of Shares specified in
the Warrant so surrendered.
(c) PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price
may be made in cash or by certified check or official bank check payable
to the order of the Company. In addition and in lieu of any cash payment,
the Holder of the Warrants shall have the right at any time and from time
to time to exercise the Warrants in full or in part by surrendering the
Warrant in exchange for the number of Shares equal to the product of (x)
the number of shares as to which the Warrants are being exercised
multiplied by (y) a fraction, the numerator of which is the Market Price
(as defined below) of the Shares less the Exercise Price and the
denominator of which is such Market Price. Solely for the purposes of this
paragraph, "Market Price" shall be the average last reported sale price of
the Common Stock as calculated over the five (5) trading day period
preceding the date on which the Election to Purchase is sent to the
Company.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance of Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue or delivery of any certificates for Shares in a name other than that of
the Holder of Warrants in respect of which such Shares are issued.
6. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall
be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence reasonably satisfactory to the Company of such
mutilation, loss, theft or destruction of such Warrant and indemnity, if
requested, reasonably satisfactory to the Company. An applicant for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such other reasonable charges and expenses as the Company may prescribe.
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7. RESERVATION OF SHARES, ETC. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the outstanding Warrants.
American Stock Transfer & Trust Company, transfer agent for the Common Stock
(the "Transfer Agent"), and every subsequent transfer agent, if any, for the
Company's securities issuable upon the exercise of the Warrants will be
irrevocably authorized and directed at all times until the Warrant Expiration
Date to reserve such number of authorized and unissued shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
file with the Transfer Agent and with every subsequent transfer agent for any
shares of the Company's securities issuable upon the exercise of the Warrants.
Upon request, the Company will supply the Transfer Agent or any subsequent
transfer agent with duly executed certificates for such purpose and will itself
provide or otherwise make available any cash which may be distributable as
provided in Section 9 of this Agreement. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be canceled, and such canceled
Warrants shall constitute sufficient evidence of the number of Shares that have
been issued upon the exercise of such Warrants. No shares of Common Stock shall
be subject to reservation in respect of unexercised Warrants subsequent to the
Warrant Expiration Date.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise
Price and the number and kind of securities issuable upon exercise of each
Warrant shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) In case the Company shall (i) declare a dividend on its
Common Stock in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue by reclassification of its shares of
Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the number of Shares purchasable
upon exercise of each Warrant immediately prior thereto shall be adjusted
so that the Holder of each Warrant shall be entitled to receive the kind
and number of Shares or other securities of the Company which he would
have owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date
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of such event retroactive to immediately after the record date, if any,
for such event.
(b) In case the Company shall issue rights, options or
warrants to all holders of its shares of Common Stock, without any charge
to such holders, entitling them (for a period expiring within 45 days
after the record date mentioned below in this paragraph (b)) to subscribe
for or to purchase shares of Common Stock at a price per share that is
lower at the record date mentioned below than the then current market
price per share of Common Stock (as defined in paragraph (d) below), the
number of Shares thereafter purchasable upon exercise of each Warrant
shall be determined by multiplying the number of Shares theretofore
purchasable upon exercise of each Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator shall
be the number of shares of Common Stock outstanding on such record date
plus the number of shares which the aggregate offering price of the total
number of shares of Common Stock so offered would purchase at the then
current market price per share of Common Stock. Such adjustment shall be
made whenever such rights, options or warrants are issued, and shall
become effective retroactively to immediately after the record date for
the determination of shareholders entitled to receive such rights, options
or warrants.
(c) In case the Company shall distribute to all holders of its
shares of Common Stock shares of stock other than Common Stock or
evidences of its indebtedness or assets (excluding cash dividends payable
out of consolidated earnings or retained earnings and dividends or
distributions referred to in paragraph (a) above) or rights, options or
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred
to in paragraph (b) above), then in each case the number of Shares
thereafter issuable upon the exercise of each Warrant shall be determined
by multiplying the number of Shares theretofore issuable upon the exercise
of each Warrant, by a fraction, of which the numerator shall be the
current market price per share of Common Stock (as defined in paragraph
(d) below) on the record date mentioned below in this paragraph (c), and
of which the denominator shall be the current market price per share of
Common Stock on such record date, less the then fair value (as determined
in good faith by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the shares of stock
other than Common Stock or assets or evidences of indebtedness so
distributed or of such subscription rights, options or
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warrants, or of such convertible or exchangeable securities applicable to
one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of
distribution retroactive to immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(d) For the purpose of any computation under paragraphs (b)
and (c) of this Section 8, the current market price per share of Common
Stock at any date shall be the average of the daily closing prices for
fifteen (15) consecutive trading days commencing twenty (20) trading days
before the date of such computation. The closing price for each day shall
be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the closing bid and asked
prices regular way for such day, in either case on the principal national
securities exchange on which the shares are listed or admitted to trading,
or if they are not listed or admitted to trading on any national
securities exchange, but are traded in the over-the-counter market, the
closing sale price of the Common Stock or, in case no sale is publicly
reported, the average of the representative closing bid and asked
quotations for the Common Stock, on the NASDAQ system or any comparable
system, or if the Common Stock is not listed on the NASDAQ system or a
comparable system, the closing sale price of the Common Stock or, in case
no sale is publicly reported, the average of the closing bid and asked
prices as furnished by two members of the NASD selected from time to time
by the Company for that purpose.
(e) No adjustment in the number of Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of Shares
purchasable upon the exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (e) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one thousandth
of a share.
(f) Whenever the number of Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Shares purchasable upon the exercise of each
Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Shares so purchasable immediately thereafter.
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(g) For the purpose of this Section 8, the term "shares of
Common Stock" shall mean (i) the class of stock designated as the Common
Stock of the Company at the date of this Agreement or (ii) any other class
of stock resulting from successive changes or reclassification of such
shares consisting solely of changes in par value, or from no par value to
par value, or from par value to no par value. In the event that at any
time, as a result of an adjustment made pursuant to paragraph (a) above,
the Holders shall become entitled to purchase any shares of capital stock
of the Company other than shares of Common Stock, thereafter the number of
such other shares so purchasable upon exercise of each Warrant and the
Exercise Price of such shares shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Shares contained in paragraphs (a) through
(f), inclusive, and paragraphs (h) through (m), inclusive, of this Section
8, and the provisions of Sections 4, 5, 7 and 10, with respect to the
Shares, shall apply on like terms to any such other shares.
(h) Upon the expiration of any rights, options, warrants or
conversion rights or exchange privileges, if any thereof shall not have
been exercised, the Exercise Price and the number of shares of Common
Stock purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as each would have
been had it originally been adjusted (or had the original adjustment not
been required, as the case may be) as if (i) the only shares of Common
Stock so issued were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such rights, options, warrants or conversion
rights or exchange privileges and (ii) such shares of Common Stock, if
any, were issued or sold for the consideration actually received by the
Company upon such exercise plus the aggregate consideration, if any,
actually received by the Company for the issuance, sale or grant of all of
such rights, options, warrants or conversion rights or exchange privileges
whether or not exercised; provided, however, that no such readjustment
shall have the effect of decreasing the number of shares issuable upon the
exercise of each Warrant or increasing the Exercise Price by an amount in
excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such rights, options, warrants or conversion
rights or exchange privileges.
(i) The Company may, at its option and in its sole discretion
at any time during the term of the Warrants, reduce the then current
Exercise Price to any amount deemed appropriate by the Board of Directors
of the Company.
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(j) Whenever the number of Shares issuable upon the exercise
of each Warrant or the Exercise Price of such Shares is adjusted, as
herein provided, the Company shall promptly mail by first class mail,
postage prepaid, to each Holder notice of such adjustment or adjustments.
(k) Except as provided in this Section 8, no adjustment in
respect of any dividends shall be made during the term of a Warrant or
upon the exercise of a Warrant.
(l) In case of any consolidation of the Company with or merger
of the Company with or into another corporation or in case of any sale or
conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation (or an affiliate of such successor or purchasing
corporation), as the case may be, agrees that each Holder shall have the
right thereafter upon payment of the Exercise Price in effect immediately
prior to such action to purchase upon exercise of each Warrant the kind
and amount of shares and other securities and property (including cash)
which he would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale or conveyance had such
Warrant been exercised immediately prior to such action. The provisions of
this paragraph (l) shall similarly apply to successive consolidations,
mergers, sales or conveyances.
(m) Notwithstanding any adjustment in the Exercise Price or
the number or kind of shares purchasable upon the exercise of the Warrants
pursuant to this Agreement, certificates for Warrants issued prior or
subsequent to such adjustment may continue to express the same price and
number and kind of Shares as are initially issuable pursuant to this
Agreement.
9. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of Shares on the exercise of Warrants. If more than one Warrant shall
be presented for exercise in full at the same time by the same Holder, the
number of Shares which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of Shares issuable on exercise of
the Warrants so presented. If any fraction of a Share would, except for the
provisions of this Section 9, be issuable on the exercise of any Warrant (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the current market price per share
of Common Stock (determined as provided in Section 8(d) of this Agreement) on
the date of exercise.
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10. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and agrees
with the Underwriters and any other or subsequent Holders of the Registrable
Securities (as defined in paragraph (f) of this Section 10) that, subject to the
availability of audited financial statements which would comply with Regulation
S-X under the Act, upon written request of the then Holder(s) of at least a
majority of the Warrants or the Registrable Securities, or both, which were
originally issued to the Underwriters or their designees, made at any time
within the period commencing one year and ending five years after the Effective
Date, the Company will file as promptly as practicable and, in any event, within
60 days after receipt of such written request, no more than once, a
post-effective amendment (the "Amendment") to the Registration Statement, or a
new registration statement under the Act, registering or qualifying the
Registrable Securities for sale. Within fifteen (15) days after receiving any
such notice, the Company shall give notice to the other Holders of the
Registrable Securities advising that the Company is proceeding with such
Amendment or registration statement, as applicable and offering to include
therein the Registrable Securities of such Holders. The Company shall not be
obligated to any such other Holder unless such other Holder shall accept such
offer by notice in writing to the Company within ten (10) days after receipt of
such notice. The Company will use its best efforts, through its officers,
directors, auditors and counsel in all matters necessary or advisable, to file
and cause to become effective such Amendment or registration statement as
promptly as practicable and for a period of two years thereafter to reflect in
the Amendment or registration statement financial statements which are prepared
in accordance with Section 10(a)(3) of the Act and any facts or events arising
that, individually, or in the aggregate, represent a fundamental and/or material
change in the information set forth in the Amendment or registration statement
to enable any Holders of the Warrants to exercise such Warrants and sell Shares,
or to enable any holders of Shares to sell such Shares, during said two year
period. If any registration pursuant to this paragraph (a) is an underwritten
offering, the Holders of a majority of the Registrable Securities to be included
in such registration shall be entitled to select the underwriter or managing
underwriter (in the case of a syndicated offering) of such offering, subject to
the Company's approval which shall not be unreasonably withheld.
(b) PIGGYBACK REGISTRATION RIGHTS. The Company covenants and agrees
with the Underwriters and any other Holders or subsequent Holders of the
Registrable Securities that if, at any time within the period commencing one
year and ending five years after the Effective Date, it proposes to file a
registra-tion statement with respect to any class of equity or equity-related
security (other than in connection with an offering to
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the Company's employees or in connection with an acquisition, merger or similar
transaction) under the Act in a primary registration on behalf of the Company
and/or in a secondary registration on behalf of holders of such securities and
the registration form to be used may be used for registration of the Registrable
Securities, the Company will give prompt written notice (which, in the case of a
registration statement or notification pursuant to the exercise of demand
registration rights other than those provided in Section 10(a) of this
Agreement, shall be within ten (10) business days after the Company's receipt of
notice of such exercise and, in any event, shall be at least 30 days prior to
such filing) to the Holders of Registrable Securities (regardless of whether
some of the Holders shall have theretofore availed themselves of the right
provided in Section 10(a) of this Agreement) at the addresses appearing on the
records of the Company of its intention to file a registration statement and
will offer to include in such registration statement all of the Registrable
Securities subject to paragraphs (i) and (ii) of this paragraph (b), such number
of Registrable Securities with respect to which the Company has received written
requests for inclusion therein within ten (10) days after the giving of notice
by the Company. All registrations requested pursuant to this paragraph (b) are
referred to herein as "Piggyback Registrations". This paragraph is not
applicable to a registration statement filed by the Company with the Commission
on Forms S-4 or S-8 or any successor forms.
(i) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration includes an underwritten primary registration on behalf of
the Company, and the underwriter(s) for such offering determines in good
faith and advises the Company in writing that in its/their opinion the
number of Registrable Securities requested to be included in such
registration exceeds the number that can be sold in such offering without
materially adversely affecting the distribution of such securities by the
Company, the Company will include in such registration (A) first, the
securities that the Company proposes to sell and (B) second, the
Registrable Securities requested to be included in such registration and
the shares of Common Stock entitled to registration rights under that
certain Warrant Agreement dated December 11, 1995 (the "Hibernia Shares"),
apportioned pro rata among the Holders of Registrable Securities and the
holders of the Hibernia Shares, provided, however, the Company will use
its best efforts to include not less than 20% of the Registrable
Securities requested to be included in such registration, and (C) third,
securities of the holders of other securities requesting registration.
(ii) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration consists only of an underwritten secondary registration on
behalf of holders of securities of
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the Company (other than pursuant to Section 10(a)), and the underwriter(s)
for such offering advises the Company in writing that in its/their opinion
the number of Registrable Securities requested to be included in such
registration exceeds the number which can be sold in such offering without
materially adversely affecting the distribution of such securities by the
Company, the Company will include in such registration (A) first, the
securities requested to be included therein by the holders requesting such
registration; (B) second, the Registrable Securities requested to be
included in such registration, pro rata among all such holders on the
basis of the number of shares requested to be included by each such holder
(provided, that if the person requesting registration is not a holder of
Hibernia Shares, the securities to be included in such registration under
this clause (B) shall be the Registrable Securities and the Hibernia
Shares requested to be included in such registration, apportioned pro rata
among the Holders of Registrable Securities and the holders of the
Hibernia Shares); and (C) third, other securities requested to be included
in such registration.
Notwithstanding the foregoing, if any such underwriter shall consent
to such Registrable Securities being included in the Company's registration
statement but shall determine in good faith and advise the Company in writing
that the distribution of the Registrable Securities requested to be included in
the registration concurrently with the securities being registered by the
Company would materially adversely affect the distribution of such securities by
the Company, then the Holders of such Registrable Securities shall delay their
offering and sale for such period ending on the earliest of (1) 90 days
following the effective date of the Company's registration statement, (2) the
day upon which the underwriting syndicate, if any, for such offering shall have
been disbanded or, (3) such date as the Company, managing underwriter and
Holders of Registrable Securities shall otherwise agree. In the event of such
delay, the Company shall file such supplements, post-effective amendments and
take any such other steps as may be necessary to permit such Holders to make
their proposed offering and sale for a period of 120 days immediately following
the end of such period of delay. If any party disapproves of the terms of any
such underwriting, it may elect to withdraw therefrom by written notice to the
Company, the underwriter, and the Underwriters. Notwithstanding the foregoing,
the Company shall not be required to file a registration statement to include
Shares pursuant to this Section 10(b) if independent counsel, reasonably
satisfactory to counsel for the Company and counsel for the Underwriters,
renders an opinion to the Company that the Shares proposed to be disposed of may
be transferred pursuant to the provisions of Rule 144 under the Act or otherwise
without registration under the Act.
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(c) OTHER REGISTRATION RIGHTS. In addition to the rights above
provided, the Company will cooperate with the then Holders of the Registrable
Securities in preparing and signing any registration statement, in addition to
the registration statements discussed above, required in order to sell or
transfer the Registrable Securities and will supply all information required
therefor, but such additional registration statement, shall be at the then
Holders' cost and expense; PROVIDED, HOWEVER, that if the Company elects to
register or qualify additional shares of Common Stock, the cost and expense of
such registration statement will be pro rated between the Company and the
Holders of the Registrable Securities according to the aggregate sales price of
the securities being issued. Notwithstanding the foregoing, the Company will not
be required to file a registration statement pursuant to this paragraph (c), (i)
at a time when the audited financial statements required to be included therein
are not available, which time shall be limited to the period commencing 45 days
after the end of the Company's last fiscal year and ending 90 days after the end
of such fiscal year, or (ii) within 90 days after completion of a public
offering by the Company of any of its Common Stock or equity-related securities
or (iii) if it would adversely impact the Company in its capital raising plans
or otherwise (in which latter case filing may be delayed no longer than 120
days).
(d) During a period of up to 45 days duration (a Blackout Period),
the Holders agree that upon receipt of a notice from the Company of the
occurrence of an event which requires the making of any change in a registration
statement or related prospectus so that such document will not contain any
untrue statements of material fact or omit to state any material fact required
to be stated therein, Holders will forthwith discontinue disposition of the
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until the Holders shall have received notice from the
Company of the end of such delay period and, if applicable, copies of any
supplemental or amended prospectus; provided, that the aggregate number of days
during which one or more Blackout Periods in effect shall not exceed 90 days
during any twelve month period and at least 20 days shall have elapsed between
each Blackout Period.
(e) ACTION TO BE TAKEN BY THE COMPANY. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company agrees to:
(i) Bear the expenses of any registration or qualification
under paragraphs (a) or (b) of this Section 10, including, but not limited
to, legal, accounting and printing fees; PROVIDED, HOWEVER, that in no
event shall the Company be obligated to pay (A) any fees and
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disbursements of counsel for Holders of Registrable Securities, or (B) any
underwriters' discount or commission in respect of such Registrable
Securities, (C) any stock transfer taxes attributable to the sale of the
Registrable Securities, or (D) upon the exercise of any demand
registration right provided for in paragraph (a) of this Section 10, the
cost of any liability or similar insurance required by an underwriter, to
the extent that such costs are attributable solely to the offering of such
Registrable Securities, payment of which shall, in each case, be the sole
responsibility of the Holders of the Registrable Securities; and
(ii) Use its best efforts to register or qualify the Registrable
Securities for offer or sale under state securities or Blue Sky laws of
such jurisdictions in which the Underwriters or such Holders shall
reasonably request, PROVIDED, HOWEVER, that no qualification shall be
required in any jurisdiction where, as a result thereof, the Company would
be subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then
subject, and to do any and all other acts and things which may be
necessary or advisable to enable the holders to consummate the proposed
sale, transfer or other disposition of such securities in any
jurisdiction.
(f) ACTION TO BE TAKEN BY THE HOLDERS. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company's obligation shall be conditioned as to each
such public offering upon a timely receipt by the Company in writing of:
(i) Information as to the terms of such public offering
furnished by or on behalf of each Holder intending to make a public
offering of his or its Registrable Securities; and
(ii) Such other information as the Company may reasonably
require from such Holders, or any underwriter for any of them, for
inclusion in such Registration Statement.
(g) For purposes of this Section 10, (i) the term "Holder" shall
include holders of Shares, and (ii) the term "Registrable Securities" shall
include the Warrants and the Shares, if issued.
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11. NOTICES TO HOLDERS.
(a) Nothing contained in this Agreement or in any of the Warrants
shall be construed as conferring upon the Holders thereof the right to vote or
to receive dividends or to consent or to receive notice as shareholders in
respect of the meetings of shareholders or the election of directors of the
Company or any other matter, or any rights whatsoever as shareholders of the
Company; PROVIDED, HOWEVER, that in the event that a meeting of shareholders
shall be called to consider and take action on a proposal for the voluntary
dissolution of the Company, other than in connection with a consolidation,
merger or sale of all, or substantially all, of its property, assets, business
and good will as an entirety, then and in that event the Company shall cause a
notice thereof to be sent by first-class mail, postage prepaid, at least twenty
(20) days prior to the date fixed as a record date or the date of closing the
transfer books in relation to such meeting, to each registered Holder of
Warrants at such Holder's address appearing on the Warrant Register; but failure
to mail or to receive such notice or any defect therein or in the mailing
thereof shall not affect the validity of any action taken in connection with
such voluntary dissolution.
(b) In the event the Company intends to make any distribution on its
Common Stock (or other securities which may be issuable in lieu thereof upon the
exercise of Warrants), including, without limitation, any such distribution to
be made in connection with a consolidation or merger in which the Company is the
continuing corporation, or to issue subscription rights or warrants to holders
of its Common Stock, the Company shall cause a notice of its intention to make
such distribution to be sent by first-class mail, postage prepaid, at least
twenty (20) days prior to the date fixed as a record date or the date of closing
the transfer books in relation to such distribution, to each registered Holder
of Warrants at such Holder's address appearing on the Warrant Register, but
failure to mail or to receive such notice or any defect therein or in the
mailing thereof shall not affect the validity of any action taken in connection
with such distribution.
12. NOTICES. Any notice pursuant to this Agreement to be given or
made by the Holder of any Warrant and/or the holder of any Share to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed as follows or to such other address as the Company may
designate by notice given in accordance with this Section 12, to the Holders of
Warrants and/or the holders of Shares:
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DSI TOYS, INC.
1100 West Sam Houston Parkway (North)
Suite A
Houston, Texas 77043
Attention: Chairman
Notices or demands authorized by this Agreement to be given or made
by the Company to or on the Holder of any Warrant and/or the holder of any Share
shall be sufficiently given or made (except as otherwise provided in this
Agreement) if sent by first-class mail, postage prepaid, addressed to such
Holder or such holder of Shares at the address of such Holder or such holder of
Shares as shown on the Warrant Register or the books of the Company, as the case
may be.
13. GOVERNING LAW. This Agreement and each Warrant issued hereunder
shall be governed by and construed in accordance with the substantive laws of
the Commonwealth of Massachusetts. The Company hereby agrees to accept service
of process by notice given to it pursuant to the provisions of Section 12.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
[Remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day, month and year first above written.
DSI TOYS, INC.
By: /S/ M.D. DAVIS
Its: CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
TUCKER ANTHONY INCORPORATED
By: /S/ L.J. FUIKS
Its: MANAGING DIRECTOR
SUTRO & CO. INCORPORATED
By: /S/ M.D. BROWN
Its: MANAGING DIRECTOR
17
<PAGE>
SCHEDULE I
NAME OF NUMBER OF
UNDERWRITER WARRANTS
---------
Tucker Anthony Incorporated 1,000
Sutro & Co. Incorporated 1,500
---------
Total 2,500
=========
<PAGE>
No. ____ _____ Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY TIME
ON ________ __, 2002
DSI TOYS, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received ________________, or registered
assigns, is the owner of the number of Warrants set forth above, each of which
entitles the owner thereof to purchase at any time from ________ __, 1998, until
5:00 p.m., New York City time on ________ __, 2002 (the "Warrant Expiration
Date"), one hundred fully paid and nonassessable shares of common stock, $0.01
par value per share (the "Common Stock"), of DSI TOYS, INC., a Texas corporation
(the "Company"), at the purchase price of $____ per share (as adjusted from time
to pursuant to the Warrant Agreement referenced below, the "Exercise Price")
upon presentation and surrender at the principal office of the Company or its
duly authorized agent of this Warrant Certificate with the Form of Election to
Purchase duly executed. The number of Warrants evidenced by this Warrant
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Exercise Price per share set forth above, are
the number and Exercise Price as of the date of original issuance of the
Warrants, based on the shares of Common Stock of the Company as constituted at
such date. As provided in the Warrant Agreement referred to below, the Exercise
Price and the number or kind of shares which may be purchased upon the exercise
of the Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated as of
________ __, 1997 (the "Warrant Agreement") among the Company and Tucker Anthony
Incorporated and Sutro & Co. Incorporated, which Warrant Agreement is hereby
incorporated herein by reference and made a part hereof and to which Warrant
Agreement reference is hereby made for a full description of the rights,
limitations of rights, duties and immunities hereunder of the Company and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are on file
at the principal office of the Company.
1
<PAGE>
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the holder to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant Certificate or
Warrant Certificates surrendered entitled such holder to purchase. If this
Warrant Certificate shall be exercised in part, the holder hereof shall be
entitled to receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote,
receive dividends, subscription rights or be deemed the holder of Common Stock
or any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger, conveyance,
or otherwise) or, except as provided in the Warrant Agreement, to receive notice
of meetings, until the Warrant or Warrants evidenced by this Warrant Certificate
shall have been exercised and the Shares shall have become deliverable as
provided in the Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for the Company's Common Stock or other class of
stock purchasable upon the exercise of this Warrant are closed for any purpose,
the Company shall not be required to make delivery of certificates for shares
purchasable upon such exercise until the date of the reopening of said transfer
books, provided, however, that such books shall not be closed for longer than a
20-day period.
2
<PAGE>
IN WITNESS WHEREOF, DSI TOYS, INC. has caused the signature
(or facsimile signature) of its Chairman or its President and its
Secretary to be affixed hereon and its corporate seal (or
facsimile) to be affixed hereon.
Dated ________ __, 1997
DSI TOYS, INC.
By:_____________________________
Its: ________________________
Attest:
_________________________
3
<PAGE>
FORM OF
ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED __________________ hereby sells, assigns and
transfers unto ________________________ this Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ____________________, to transfer the within Warrant Certificate on
the books of the within-named Company, with full power of substitution.
The undersigned represents and warrants that the transfer of the within
Warrant is permitted by the terms of the Warrant Agreement pursuant to which the
within Warrant has been issued, and the transferee hereof, by his acceptance of
this Assignment, represents and warrants that he is familiar with the terms of
said Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Dated: ______________________, ____
___________________________________
Signature
Signature Guaranteed:
NOTICE
The signature of the foregoing Assignment must correspond to the name
as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate).
TO: DSI TOYS, INC.
The undersigned hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate to purchase ______ shares of Common
Stock issuable upon the exercise of such Warrants and requests that certificates
for such shares be issued in the name of:
Please insert social security, tax identification or other
identifying number
___________________________
___________________________
___________________________
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security, tax identification or other
identifying number
_____________________________
_____________________________
_____________________________
(Please print name and address)
Dated: _______________, ____
______________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate)
Signature Guaranteed:
EXHIBIT 11
DSI TOYS, INC. AND SUBSIDIARY
COMPUTATION OF LOSS PER SHARE
(In thousands, except per share amounts)
THREE MONTHS ENDED
APRIL 30,
----------------------
1997 1996
------- -------
Primary loss per share:
Net loss $ (481) $ (704)
======= =======
Average common shares outstanding during the period 3,500 3,500
======= =======
Loss per common share $ (0.14) $(0.20)
======= =======
Supplemental loss per share:
Loss used in primary calculation $ (481)
Add back interest on debt to be repaid from
proceeds 473
Less income tax effect at 36% (170)
-------
Earnings used in supplemental calculation $ (178)
=======
Shares used in primary calculation 3,500
Plus shares issued to retire debt 2,500
-------
Shares used in supplemental calculation 6,000
-------
Supplemental earnings per share $ (0.03)
=======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE DSI TOYS, INC. FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS
ENDED APRIL 30,1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 727,309
<SECURITIES> 0
<RECEIVABLES> 5,937,347
<ALLOWANCES> (119,284)
<INVENTORY> 5,324,405
<CURRENT-ASSETS> 14,725,784
<PP&E> 4,364,741
<DEPRECIATION> (2,939,543)
<TOTAL-ASSETS> 18,190,433
<CURRENT-LIABILITIES> 10,286,943
<BONDS> 16,818,107
0
0
<COMMON> 62,190
<OTHER-SE> (9,944,807)
<TOTAL-LIABILITY-AND-EQUITY> 18,190,433
<SALES> 7,427,707
<TOTAL-REVENUES> 7,427,707
<CGS> 4,703,910
<TOTAL-COSTS> 3,017,693
<OTHER-EXPENSES> 119,948
<LOSS-PROVISION> 15,234
<INTEREST-EXPENSE> (576,946)
<INCOME-PRETAX> (750,895)
<INCOME-TAX> (270,322)
<INCOME-CONTINUING> (480,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (480,573)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
