<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
DSI TOYS, INC.
(Name of Subject Company)
MVII, LLC
E. THOMAS MARTIN
(Bidders)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
232968 10 7
(CUSIP Number of Class of Securities)
E. THOMAS MARTIN
MVII, LLC
654 OSOS STREET
SAN LUIS OBISPO, CALIFORNIA 93401
(805) 545-7900
(Name, address and telephone number of persons authorized to
receive notices and communications on behalf of bidder)
With copies to:
<TABLE>
<S> <C>
J. TODD MIROLLA, ESQ. GREGG R. CANNADY, ESQ.
ANDRE, MORRIS & BUTTERY CARRINGTON, COLEMAN, SLOMAN &
1304 PACIFIC STREET BLUMENTHAL, L.L.P.
SAN LUIS OBISPO, CA 93401 200 CRESCENT COURT, SUITE 1500
(805) 543-4171 DALLAS, TX 75201
(214) 855-3067
</TABLE>
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
---------------------- ----------------------
<S> <C>
$7,008,000 $1,401.60
</TABLE>
- ---------------
* Estimated solely for purposes of calculating the amount of filing fee. The
Transaction Valuation assumes the purchase of 1,600,000 shares of Common
Stock, par value $.01 per share, of the Subject Company at the offer price of
$4.38 net per share in cash.
** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent
of the aggregate value of cash offered by MVII, LLC for such number of
shares.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: N/A
Filing Party: N/A
Form or Registration No.: N/A
Date Filed: N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CUSIP NO. 232968 10 7
<TABLE>
<C> <S>
- -----------------------------------------------------------------
1. NAME OF REPORTING PERSONS:
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
MVII, LLC
77-0509866
- -----------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(A) [ ]
(B) [ ]
- -----------------------------------------------------------------
3. SEC USE ONLY
- -----------------------------------------------------------------
4. SOURCE OF FUNDS (SEE INSTRUCTIONS):
WC
- -----------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(E) OR 2(F): [ ]
- -----------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION:
CALIFORNIA
- -----------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON:
4,098,491 (See Introduction and Sections 9, 11 and 12 of the
Offer to Purchase dated April 21, 1999, filed as Exhibit
(a)(1) hereto)*
- -----------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES:*
[X]
- -----------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (7)
APPROXIMATELY:
48%*
- -----------------------------------------------------------------
10. TYPE OF REPORTING PERSON:
OO
</TABLE>
- ---------------
* Prior to the execution of the agreement described below, MVII, LLC, a limited
liability company formed under the laws of the State of California (the
"Purchaser"), beneficially owned no shares of the Common Stock, $.01 par value
per share (the "Common Stock" or "Shares"), of DSI Toys, Inc., a Texas
corporation (the "Company"). On April 15, 1999, the Purchaser and the Company
entered into a Stock Purchase and Sale Agreement (the "Stock Purchase
Agreement") pursuant to which the Purchaser purchased 566,038 shares of Common
Stock from the Company at $2.12 per share for an aggregate purchase price of
$1,200,000 (the "Initial Funding Shares") and agreed to commence a tender
offer to purchase up to 1,600,000 shares of Common Stock for $4.38 per share
from the Company's shareholders (the "Offer"). The Purchaser has also agreed
to purchase 1,792,453 shares of Common Stock, subject to upward adjustments
not to exceed in the aggregate 140,000 shares of Common Stock, from the
Company (the "Second Funding Shares," and together with the Initial Funding
Shares, the "Common Stock Acquisitions") for an aggregate purchase price of
$3,800,000. Certain management shareholders of the Company and a limited
partnership controlled by a management shareholder of the Company (the
"Management Shareholders"), who collectively own 1,721,693 shares of Common
Stock, have agreed to tender shares of Common Stock owned by them into the
Offer in the event 1,600,000 shares of Common Stock (the "Minimum Tender
Condition") have not otherwise been tendered as of the initial scheduled
expiration date of the Offer, such that the Minimum Tender Condition will have
been satisfied, pursuant to the Side Letter
2
<PAGE> 3
Agreements dated April 15, 1999, between the Purchaser and each of the
Management Shareholders (the "Side Letter Agreements"). Upon consummation of the
transactions contemplated by the Stock Purchase Agreement, including the Offer,
the Purchaser will be both the record and beneficial owner of forty-eight
percent (48%) of the total number of shares of the Common Stock then
outstanding (assuming (i) there are upward adjustments in the aggregate of
140,000 shares to the number of Second Funding Shares, and (ii) no other
Shares are issued). The Stock Purchase Agreement and the Side Letter
Agreements are more fully described in Section 12 of the Offer to Purchase,
which is attached hereto as Exhibit (a)(1).
The Purchaser, the Company and the Management Shareholders have entered into
the Shareholders' and Voting Agreement dated April 15, 1999 (the
"Shareholders' Agreement"), pursuant to which, each of the Management
Shareholders has executed an irrevocable proxy appointing the Purchaser as
proxy and authorizing the Purchaser to vote such Management Shareholder's
Shares with respect to all Company-related matters subject to a shareholders
vote, subject to certain exceptions, effective as of the closing of the sale
of the Second Funding Shares. Both the voting agreement in the Shareholders'
Agreement and the irrevocable proxies are conditioned upon and have an
effective date that is the date of the closing of the Second Funding Shares.
In the event the Management Shareholders do not tender any Shares owned by
them into the Offer and the Minimum Tender Condition is otherwise met, there
is a possibility that, upon consummation of the transactions contemplated by
the Stock Purchase Agreement, including the Offer, the Purchaser will be the
beneficial owner of up to 5,820,184 (sixty-eight percent (68%)) of the shares
of Common Stock then outstanding (assuming (i) there are upward adjustments in
the aggregate of 140,000 shares to the number of Second Funding Shares, and
(ii) no other Shares are issued), by virtue of its power to vote Shares held
by the Management Shareholders pursuant to the Shareholders' Agreement and the
irrevocable proxies. The Purchaser has been advised by the Company that, to
the best of the Company's knowledge, all of the Management Shareholders
currently intend to tender Shares owned by them into the Offer. The Purchaser
has excluded from line 7 the Shares with respect to which it may acquire the
right to vote pursuant to the Shareholders' Agreement and the irrevocable
proxies. The Shareholders' Agreement is more fully described in Section 12 of
the Offer to Purchase.
E. Thomas (Tom) Martin and his wife, Noreen Martin (collectively, the
"Martins"), own ninety-nine percent (99%) of the membership interests in the
Purchaser as community property and their address is 654 Osos Street, San Luis
Obispo, California 93401. The Martins are the record owners of 140,000 shares
of Common Stock and beneficially own, through their control of the Purchaser,
4,238,491 shares. The Martins purchased 3,500 Shares on February 23, 1999, in
an open market transaction at a price of $2.44 per Share. Joseph Whitaker and
his wife, Myraline Whitaker (collectively, the "Whitakers"), own one percent
(1%) of the membership interests in the Purchaser as community property and
their address is 5615 Ladybird Lane, LaJolla, California 92037. The Whitakers
beneficially own 2,000 shares of Common Stock.
3
<PAGE> 4
CUSIP NO. 232968 10 7
<TABLE>
<C> <S>
- -----------------------------------------------------------------
1. NAME OF REPORTING PERSONS:
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
E. Thomas Martin
- -----------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(A) [ ]
(B) [ ]
- -----------------------------------------------------------------
3. SEC USE ONLY
- -----------------------------------------------------------------
4. SOURCE OF FUNDS (SEE INSTRUCTIONS):
PF
- -----------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(E) OR 2(F): [ ]
- -----------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION:
UNITED STATES OF AMERICA
- -----------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON:
4,238,491 (See Introduction and Sections 9 and 11 of the
Offer to Purchase dated April 21, 1999, filed as Exhibit
(a)(1) hereto)*
- -----------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES:*
[X]
- -----------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (7)
APPROXIMATELY:
50%*
- -----------------------------------------------------------------
10. TYPE OF REPORTING PERSON:
IN
</TABLE>
- ---------------
* Prior to the execution of the agreement described below, E. Thomas (Tom)
Martin was the beneficial and record owner of 140,000 shares of the Common
Stock, $.01 par value per share (the "Common Stock" or "Shares"), of DSI Toys,
Inc., a Texas corporation (the "Company"). Tom Martin and his wife, Noreen
Martin (collectively, the "Martins"), own ninety-nine percent (99%) of the
membership interests of MVII, LLC, a limited liability company formed under
the laws of the State of California (the "Purchaser"). Tom Martin is the sole
Manager and the President of the Purchaser. On April 15, 1999, the Purchaser
and the Company entered into a Stock Purchase and Sale Agreement (the "Stock
Purchase Agreement") pursuant to which the Purchaser purchased 566,038 shares
of Common Stock from the Company at $2.12 per share for an aggregate purchase
price of $1,200,000 (the "Initial Funding Shares") and agreed to commence a
tender offer to purchase up to 1,600,000 shares of Common Stock for $4.38 per
share from the Company's shareholders (the "Offer"). The Purchaser has also
agreed to purchase 1,792,453 shares of Common Stock, subject to upward
adjustments not to exceed in the aggregate 140,000 shares of Common Stock,
from the Company (the "Second Funding Shares," and together with the Initial
Funding Shares, the "Common Stock Acquisitions") for an aggregate purchase
price of $3,800,000. Certain management shareholders of the Company and a
limited partnership controlled by a management shareholder of the Company (the
"Management Shareholders"), who collectively own 1,721,693 shares of the
Company's Common Stock, have agreed to tender shares of Common Stock owned by
them into the Offer in the event 1,600,000 shares of Common Stock (the
"Minimum Tender Condition") have not otherwise been tendered as of the initial
scheduled expiration date of the Offer, such that the Minimum Tender Condition
will have been satisfied, pursuant to the Side Letter Agreements dated April
15, 1999, between the Purchaser and each of the
4
<PAGE> 5
Management Shareholders (the "Side Letter Agreements"). Upon consummation of the
transactions contemplated by the Stock Purchase Agreement, including the Offer,
the Purchaser will be both the record and beneficial owner of forty-eight
percent (48%) of the total number of Shares then outstanding (assuming (i)
there are upward adjustments in the aggregate of 140,000 shares to the number
of Second Funding Shares, and (ii) no other Shares are issued). Tom Martin,
through his control of the Purchaser, beneficially owns fifty percent (50%) of
the total number of shares of Common Stock outstanding (assuming (i) there are
upward adjustments in the aggregate of 140,000 shares to the number of Second
Funding Shares, and (ii) no other Shares are issued). The Stock Purchase
Agreement and the Side Letter Agreements are more fully described in Section
12 of the Offer to Purchase, which is attached hereto as Exhibit (a)(1).
The Purchaser, the Company and the Management Shareholders have entered into
the Shareholders' and Voting Agreement dated April 15, 1999 (the
"Shareholders' Agreement"), pursuant to which, each of the Management
Shareholders has executed an irrevocable proxy appointing the Purchaser as
proxy and authorizing the Purchaser to vote such Management Shareholder's
Shares with respect to all Company-related matters subject to a shareholders
vote, subject to certain exceptions, effective as of the closing of the sale
of the Second Funding Shares. Both the voting agreement in the Shareholders'
Agreement and the irrevocable proxies are conditioned upon and have an
effective date that is the date of the closing of the Second Fund Shares. In
the event the Management Shareholders do not tender any Shares owned by them
into the Offer and the Minimum Tender Condition is otherwise met, there is a
possibility that, upon consummation of the transactions contemplated by the
Stock Purchase Agreement, including the Offer, the Purchaser will beneficially
own up to 5,820,184 (sixty-eight percent (68%)), and Tom Martin, through his
control of the Purchaser, will beneficially own up to 5,960,184 (seventy
percent (70%)), of the shares of Common Stock then outstanding (assuming (i)
there are upward adjustments in the aggregate of 140,000 shares to the number
of Second Funding Shares, and (ii) no other Shares are issued), by virtue of
the Purchaser's power to vote Shares held by the Management Shareholders
pursuant to the Shareholders' Agreement and the irrevocable proxies. Tom
Martin has been advised by the Company that, to the best of the Company's
knowledge, all of the Management Shareholders currently intend to tender
Shares owned by them into the Offer. Tom Martin has excluded from line 7 the
Shares with respect to which the Purchaser may acquire the right to vote
pursuant to the Shareholders' Agreement and the irrevocable proxies. The
Shareholders' Agreement is more fully described in section 12 of the Offer to
Purchase.
The Martins purchased 3,500 shares on February 23, 1999, in an open market
transaction at a price of $2.44 per Share. The Martins' address is 654 Osos
Street, San Luis Obispo, California 93401. Joseph Whitaker and his wife,
Myraline Whitaker (collectively, the "Whitakers"), own one percent (1%) of the
membership interests in the Purchaser as community property and their address
is 5615 Ladybird Lane, LaJolla, California 92037. The Whitakers beneficially
own 2,000 shares of Common Stock.
5
<PAGE> 6
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1, which is being filed by
MVII, LLC, a limited liability company formed under the laws of the State of
California (the "Purchaser"), and E. Thomas (Tom) Martin, the sole Manager,
President and a controlling member of the Purchaser ("Mr. Martin"), relates to
an offer by the Purchaser to purchase up to 1,600,000 shares of Common Stock,
par value $.01 per share (the "Common Stock" or "Shares"), of DSI Toys, Inc., a
Texas corporation (the "Company"), at a price of $4.38 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated April 21, 1999 (the "Offer to Purchase"), and in the
related Letter of Transmittal (which, together with the Offer to Purchase and
any amendments or supplements hereto or thereto, collectively constitute the
"Offer"), which are attached hereto as Exhibits (a)(1) and (a)(2), respectively.
The item numbers and responses thereto below are in accordance with the
requirements of Schedule 14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is DSI Toys, Inc., a Texas corporation,
which has its principal executive offices at 1100 W. Sam Houston Parkway North,
Suite A, Houston, Texas 77043.
(b) The exact title of the class of equity securities being sought in the
Offer is Common Stock, par value $.01 per share. The information set forth in
the "Introduction" and Section 1 ("Terms of the Offer") of the Offer to Purchase
annexed hereto as Exhibit (a)(1) (the "Offer to Purchase") is incorporated
herein by reference.
(c) The information set forth in Section 6 ("Price Range of the Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) The Purchaser is a limited liability company formed under
the laws of the State of California. The information set forth in "Introduction"
and Section 9 ("Certain Information Concerning the Purchaser and Mr. Martin")
of, and Annex A ("Information Concerning the Sole Manager and the Executive
Officers of the Purchaser (Including Mr. Martin)") to, the Offer to Purchase is
incorporated herein by reference. The name, business address, present principal
occupation or employment, the material occupations, positions, offices or
employments for the past five years and citizenship of each executive officer
and each person controlling the Purchaser (including Mr. Martin), and the name,
principal business and address of any corporation or other organization in which
such occupations, positions, offices and employments are or were carried on are
set forth in Annex A of the Offer to Purchaser and are incorporated herein by
reference.
(e) and (f) During the last five (5) years, neither the Purchaser, Mr.
Martin, nor, to the best of the Purchaser's and Mr. Martin's knowledge, any of
the persons listed in Annex A ("Information Concerning the Sole Manager and the
Executive Officers of the Purchaser (Including Mr. Martin)") to the Offer to
Purchase, has, during the last five years, (i) been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors), or (ii) been
a party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) and (b) The information set forth in "Introduction," Section 9
("Certain Information Concerning the Purchaser and Mr. Martin"), Section 11
("Background of the Offer") and Section 12 ("Purpose of the Offer; Plans for the
Company; The Stock Purchase Agreement; The Side Letter Agreements; The
Shareholders' and Voting Agreement; The Registration Rights Agreement, and The
Consulting Agreement") of the Offer to Purchase is incorporated herein by
reference.
6
<PAGE> 7
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER COMPENSATION.
(a) The information set forth in Section 10 ("Source and Amount of Funds")
of the Offer to Purchase is incorporated herein by reference.
(b) and (c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in "Introduction," Section 6 ("Price
Range of the Shares; Dividends"); Section 11 ("Background of the Offer"); and
Section 12 ("Purpose of the Offer; Plans for the Company; The Stock Purchase
Agreement; The Side Letter Agreements; The Shareholders' and Voting Agreement;
The Registration Rights Agreement; and The Consulting Agreement") of the Offer
to Purchase is incorporated herein by reference.
(f) and (g) The information set forth in Section 7 ("Possible Effects of
the Offer on the Market for the Shares; Stock Quotation; Exchange Act
Registration; Margin Regulations") of the Offer to Purchase is incorporated
herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in "Introduction," Section 9
("Certain Information Concerning the Purchaser and Mr. Martin"), Second 11
("Background of the Offer") and Section 12 ("Purpose of the Offer; Plans for the
Company; The Stock Purchase Agreement; The Side Letter Agreements; The
Shareholders' and Voting Agreement; The Registration Rights Agreement; and The
Consulting Agreement") of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth in "Introduction," Section 9 ("Certain
Information Concerning the Purchaser and Mr. Martin"), Section 11 ("Background
of the Offer") and Section 12 ("Purpose of the Offer; Plans for the Company; The
Stock Purchase Agreement; The Side Letter Agreements; The Shareholders and
Voting Agreement; The Registration Rights Agreement; and The Consulting
Agreement") of the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in "Introduction" and Section 16 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 9 ("Certain Information Concerning the
Purchaser and Mr. Martin") of the Offer to Purchase is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) and (c) The information set forth in Section 15 ("Certain Legal
Matters") of the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in Section 7 ("Possible Effects of the Offer
on the Market for the Shares; Stock Quotation; Exchange Act Registration; Margin
Regulations"), Section 10 ("Source and Amount of Funds") and Section 15
("Certain Legal Matters") of the Offer to Purchase is incorporated herein by
reference.
(e) Not applicable.
7
<PAGE> 8
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)(1) -- Offer to Purchase dated April 21, 1999.
(a)(2) -- Letter of Transmittal.
(a)(3) -- Notice of Guaranteed Delivery.
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) -- Form of Summary Advertisement as published in the New
York Times on April 21, 1999.
(a)(8) -- Text of Press Release, dated April 15, 1999, issued by
the Company and Purchaser.
(a)(9) -- Text of Press Release, dated April 21, 1999, issued by
the Purchaser.
(b) -- None.
(c)(1) -- Stock Purchase and Sale Agreement dated April 15, 1999,
between the Company and the Purchaser.
(c)(2) -- Form of Side Letter Agreement dated April 15, 1999,
between the Purchaser and certain management shareholders
and a limited partnership controlled by a management
shareholder.
(c)(3) -- Shareholders' and Voting Agreement dated April 15, 1999,
among the Purchaser, the Company and certain management
shareholders and a limited partnership controlled by a
management shareholder.
(c)(4) -- Registration Rights Agreement dated April 15, 1999, among
the Company, the Purchaser, and certain management
shareholders and a limited partnership controlled by a
management shareholder.
(c)(5) -- Form of Irrevocable Proxy dated April 15, 1999, between
the Purchaser and certain management shareholders and a
limited partnership controlled by a management
shareholder.
(d) -- None.
(e) -- Not applicable.
(f) -- None.
</TABLE>
8
<PAGE> 9
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
MVII, LLC
By: /s/ E. THOMAS MARTIN
----------------------------------
Name: E. Thomas Martin
Title: Manager
Dated: April 21, 1999
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
/s/ E. THOMAS MARTIN
------------------------------------
E. Thomas Martin
Dated: April 21, 1999
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
(a)(1) -- Offer to Purchase dated April 21, 1999.
(a)(2) -- Letter of Transmittal.
(a)(3) -- Notice of Guaranteed Delivery.
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) -- Form of Summary Advertisement as published in the New
York Times on April 21, 1999.
(a)(8) -- Text of Press Release, dated April 15, 1999, issued by
the Company and Purchaser.
(a)(9) -- Text of Press Release, dated April 21, 1999, issued by
the Purchaser.
(b) -- None.
(c)(1) -- Stock Purchase and Sale Agreement dated April 15, 1999,
between the Company and the Purchaser.
(c)(2) -- Form of Side Letter Agreement dated April 15, 1999,
between the Purchaser and certain management shareholders
and a limited partnership controlled by a management
shareholder.
(c)(3) -- Shareholders' and Voting Agreement dated April 15, 1999,
among the Purchaser, the Company and certain management
shareholders and a limited partnership controlled by a
management shareholder.
(c)(4) -- Registration Rights Agreement dated April 15, 1999, among
the Company, the Purchaser, and certain management
shareholders and a limited partnership controlled by a
management shareholder.
(c)(5) -- Form of Irrevocable Proxy dated April 15, 1999, between
the Purchaser and certain management shareholders and a
limited partnership controlled by a management
shareholder.
(d) -- None.
(e) -- Not applicable.
(f) -- None.
</TABLE>
<PAGE> 1
EXHIBIT 99(A)(1)
OFFER TO PURCHASE FOR CASH
UP TO 1,600,000 SHARES OF COMMON STOCK
OF
DSI TOYS, INC.
AT
$4.38 NET PER SHARE
BY
MVII, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED.
THIS OFFER IS BEING MADE PURSUANT TO THE TERMS OF A STOCK PURCHASE AND SALE
AGREEMENT DATED APRIL 15, 1999 (THE "STOCK PURCHASE AGREEMENT"), BY AND BETWEEN
DSI TOYS, INC., A TEXAS CORPORATION (THE "COMPANY"), AND MVII, LLC, A LIMITED
LIABILITY COMPANY FORMED UNDER THE LAWS OF THE STATE OF CALIFORNIA (THE
"PURCHASER"). UPON CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE STOCK
PURCHASE AGREEMENT, INCLUDING THE OFFER, THE PURCHASER WILL BE THE RECORD AND
BENEFICIAL OWNER OF APPROXIMATELY FORTY-EIGHT PERCENT (48%) OF THE TOTAL NUMBER
OF SHARES OF THE COMPANY'S COMMON STOCK THEN OUTSTANDING (ASSUMING THAT NO OTHER
SHARES OF COMMON STOCK ARE ISSUED). FOLLOWING CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THE STOCK PURCHASE AGREEMENT, THE PURCHASER'S DESIGNEES WILL
CONSTITUTE A MAJORITY OF THE COMPANY'S BOARD OF DIRECTORS AND THE PURCHASER WILL
CONTROL THE COMPANY. THE PURCHASER HAS ENTERED INTO FIVE (5) SIDE LETTER
AGREEMENTS, EACH DATED APRIL 15, 1999 (THE "SIDE LETTER AGREEMENTS"), WITH
CERTAIN MANAGEMENT SHAREHOLDERS OF THE COMPANY AND A LIMITED PARTNERSHIP
CONTROLLED BY A MANAGEMENT SHAREHOLDER OF THE COMPANY (THE "MANAGEMENT
SHAREHOLDERS"), WHO BENEFICIALLY OWN IN THE AGGREGATE 1,721,693 SHARES. PURSUANT
TO THE SIDE LETTER AGREEMENTS, THE MANAGEMENT SHAREHOLDERS HAVE AGREED, AMONG
OTHER THINGS, TO TENDER INTO THE OFFER SUCH NUMBER OF SHARES OWNED BY THEM IN
THE EVENT THE MINIMUM TENDER CONDITION IS NOT MET AS OF THE INITIAL SCHEDULED
EXPIRATION DATE OF THE OFFER, SUCH THAT THE MINIMUM TENDER CONDITION WILL HAVE
BEEN SATISFIED. THE SIDE LETTER AGREEMENTS DO NOT LIMIT THE NUMBER OF SHARES
THAT MAY BE TENDERED BY THE MANAGEMENT SHAREHOLDERS INTO THE OFFER. THE TENDER
BY THE MANAGEMENT SHAREHOLDERS OF ALL OF THEIR SHARES ALONE WILL CAUSE THE
MINIMUM TENDER CONDITION TO BE SATISFIED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
1,600,000 SHARES (THE "MINIMUM TENDER CONDITION"). THE OFFER IS ALSO CONDITIONED
UPON RECEIPT BY THE PURCHASER OF CERTAIN REGULATORY APPROVALS AND THE
SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 14.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE STOCK PURCHASE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER. THE
BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER IS IN THE BEST
INTERESTS OF THE COMPANY'S SHAREHOLDERS AND RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES INTO THE OFFER. THE SHARES
ARE LISTED FOR TRADING ON THE NASDAQ SMALL CAP MARKET UNDER THE SYMBOL "DSIT."
SEE SECTION 6.
THE PURCHASER, THE COMPANY, AND THE MANAGEMENT SHAREHOLDERS HAVE ENTERED
INTO A SHAREHOLDERS' AND VOTING AGREEMENT DATED APRIL 15, 1999 (THE
"SHAREHOLDERS' AGREEMENT"), PURSUANT TO WHICH THE MANAGEMENT SHAREHOLDERS HAVE
APPOINTED THE PURCHASER AS THEIR PROXY AND AUTHORIZED THE PURCHASER TO VOTE
THEIR SHARES ON ALL COMPANY-RELATED MATTERS SUBJECT TO A SHAREHOLDERS VOTE,
SUBJECT TO CERTAIN EXCEPTIONS, CONDITIONED UPON AND EFFECTIVE AS OF THE DATE OF
THE SECOND CLOSING (AS DEFINED HEREIN). IN THE EVENT THE MANAGEMENT SHAREHOLDERS
DO NOT TENDER ANY OF THEIR SHARES INTO THE OFFER AND THE MINIMUM TENDER
CONDITION IS OTHERWISE MET, UPON CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
BY THE STOCK PURCHASE AGREEMENT, INCLUDING THE OFFER, THE PURCHASER WILL
BENEFICIALLY OWN UP TO SIXTY-EIGHT PERCENT (68%) OF THE TOTAL NUMBER OF THE
SHARES OF THE COMPANY'S COMMON STOCK THEN OUTSTANDING (ASSUMING THAT NO OTHER
SHARES OF COMMON STOCK ARE ISSUED), BY VIRTUE OF ITS RIGHT TO VOTE SHARES OWNED
BY THE MANAGEMENT SHAREHOLDERS. THE PURCHASER HAS BEEN ADVISED BY THE COMPANY
THAT, TO THE BEST OF THE COMPANY'S KNOWLEDGE, ALL OF THE MANAGEMENT SHAREHOLDERS
CURRENTLY INTEND TO TENDER SHARES OWNED BY THEM INTO THIS OFFER.
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares (as defined herein) should either (1) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it and any other required documents to
the Depositary and either deliver the certificate(s) representing such Shares to
the Depositary along with the Letter of Transmittal or tender such Shares
pursuant to the procedure for book-entry transfer set forth in Section 3 of this
Offer to Purchase prior to the expiration of the Offer, or (2) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such shareholder. A shareholder whose Shares are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if such shareholder desires to tender such Shares.
A shareholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis, may tender such Shares
by following the procedure for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent, at its addresses and telephone numbers set forth on the back cover of
this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter
of Transmittal, the Notice of Guaranteed Delivery and all other related
materials may be obtained from the Information Agent or from brokers, dealers,
commercial banks and trust companies, and will be furnished promptly at the
Purchaser's expense.
------------------------
<TABLE>
<S> <C>
The Dealer Manager for the Offer is: The Information Agent for the Offer is:
[SOUTHWEST SECURITIES LOGO] [MACKENZIE PARTNERS LOGO]
1201 Elm Street, Suite 3500 156 Fifth Avenue
Dallas, Texas 75270 New York, New York 10010
1-888-338-1300 (call toll free) (212) 929-5500 (call collect)
or
Call toll free: 800-322-2885
</TABLE>
April 21, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION................................................ 3
THE OFFER................................................... 6
1. Terms of the Offer.................................... 6
2. Acceptance for Payment and Payment for Shares......... 8
3. Procedure for Tendering Shares........................ 9
4. Withdrawal Rights..................................... 12
5. Certain Federal Income Tax Consequences............... 13
6. Price Range of the Shares; Dividends.................. 14
7. Possible Effects of the Offer on the Market for the
Shares; Stock Quotation; Exchange Act Registration;
Margin Regulations..................................... 14
8. Certain Information Concerning the Company............ 15
9. Certain Information Concerning the Purchaser and Mr.
Martin................................................. 19
10. Source and Amount of Funds............................ 21
11. Background of the Offer............................... 21
12. Purpose of the Offer; Plans for the Company; The Stock
Purchase Agreement; The Side Letter Agreements; The
Shareholders' and Voting Agreement; The Registration
Rights Agreement; and The Consulting Agreement........ 22
13. Dividends and Distributions........................... 31
14. Certain Conditions of the Offer....................... 31
15. Certain Legal Matters................................. 33
16. Fees and Expenses..................................... 35
17. Miscellaneous......................................... 35
ANNEX A -- INFORMATION CONCERNING THE SOLE MANAGER AND THE
EXECUTIVE OFFICERS OF THE PURCHASER (INCLUDING MR.
MARTIN)...................................................
</TABLE>
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<PAGE> 3
TO ALL HOLDERS OF COMMON STOCK OF DSI TOYS, INC.:
INTRODUCTION
MVII, LLC (the "Purchaser"), a limited liability company formed under the
laws of the State of California and controlled by E. Thomas (Tom) Martin, an
individual residing in San Luis Obispo, California ("Mr. Martin"), hereby offers
to purchase up to 1,600,000 shares of Common Stock, par value $0.01 per share
(the "Common Stock" or "Shares"), of DSI Toys, Inc., a Texas corporation (the
"Company"), at a purchase price of $4.38 per Share, net to the seller in cash,
without interest thereon (the "Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer"). The Offer is being made pursuant
to the terms of the Stock Purchase and Sale Agreement dated April 15, 1999, by
and between the Company and the Purchaser (the "Stock Purchase Agreement").
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE STOCK PURCHASE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER. THE
BOARD OF THE DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER IS IN THE
BEST INTERESTS OF THE SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES INTO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
1,600,000 SHARES (THE "MINIMUM TENDER CONDITION"). THE OFFER IS ALSO CONDITIONED
UPON RECEIPT BY THE PURCHASER OF CERTAIN REGULATORY APPROVALS AND THE
SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 14.
The Purchaser has entered into five (5) Side Letter Agreements, each dated
April 15, 1999 (the "Side Letter Agreements"), with certain management
shareholders of the Company and a limited partnership controlled by a management
shareholder of the Company (the "Management Shareholders"), who beneficially own
in the aggregate 1,721,693 Shares. Pursuant to the Side Letter Agreements, the
Management Shareholders have agreed, among other things, to tender into the
Offer such number of Shares owned by them in the event the Minimum Tender
Condition is not met as of the initial scheduled expiration date of the Offer,
such that the Minimum Tender Condition will have been satisfied. The Side Letter
Agreements do not limit the number of Shares that may be tendered by the
Management Shareholders. THE TENDER BY THE MANAGEMENT SHAREHOLDERS OF ALL OF
THEIR SHARES ALONE WILL CAUSE THE MINIMUM TENDER CONDITION TO BE SATISFIED.
The offer will expire at 5:00 p.m., New York City time, on Tuesday, May 25,
1999, unless extended.
Upon the terms and subject to the conditions of the Offer, the Purchaser
will purchase up to 1,600,000 shares, which Shares together with the Shares that
will be purchased by the Purchaser from the Company under the Stock Purchase
Agreement, will equal approximately forty-eight percent (48%) of the outstanding
shares (assuming that no other shares of Common Stock are issued). If more than
1,600,000 shares are validly tendered prior to the expiration of the Offer and
not properly withdrawn in accordance with Section 4, such Shares will be
accepted on a pro rata basis according to the number of Shares validly tendered
and not properly withdrawn by the expiration of the Offer (with appropriate
adjustments to avoid the purchase of fractional shares).
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. For purposes hereof, the term "stock transfer taxes" does
not include any income tax that may be required to be paid by a tendering
shareholder due to such shareholder reporting the income from the contemplated
transaction. However, any tendering Shareholder or other payee who fails to
complete and sign the Substitute Form W-9 that is included in the Letter of
Transmittal may be subject to a required
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<PAGE> 4
backup federal income tax withholding of thirty-one percent (31%) of the gross
proceeds payable to such shareholder or other payee pursuant to the Offer. See
Section 5. The Purchaser will pay all fees and expenses of Southwest Securities,
Inc., as Dealer Manager (in such capacity, the "Dealer Manager"), American Stock
Transfer & Trust Company, as Depositary (in such capacity, the "Depositary"),
and MacKenzie Partners, Inc., as Information Agent (in such capacity, the
"Information Agent"), incurred in connection with the Offer. For a description
of the fees and expenses to be paid by the Purchaser, see Section 16.
Pursuant to the terms of the Stock Purchase Agreement, the Purchaser has
purchased 566,038 shares (the "Initial Funding Shares") for an aggregate
purchase price of $1,200,000 and has agreed to commence the Offer. The Purchaser
has also agreed to purchase an additional 1,792,453 shares, subject to upward
adjustments not to exceed in the aggregate 140,000 shares (the "Second Funding
Shares" and together with the Initial Funding Shares, the "Common Stock
Acquisitions"), for an aggregate purchase price of $3,800,000. As a result of
its acquisition of the Initial Funding Shares, the Purchaser owns beneficially
and of record approximately nine percent (9%) of the outstanding Shares
(assuming that no other shares of Common Stock are issued).
The obligations of the Purchaser and the Company to consummate the sale of
the Second Funding Shares is subject to the satisfaction of certain conditions,
including approval by the Company's shareholders and the consummation of the
Offer, it being understood that the closing of the Second Funding Shares shall
occur simultaneously with and be conditioned upon the consummation of the Offer.
See Section 12.
In connection with the transactions contemplated by the Stock Purchase
Agreement, the Company, the Purchaser and the Management Shareholders have
entered into the Shareholders' and Voting Agreement dated as of April 15, 1999
(the "Shareholders' Agreement"), pursuant to which the Purchaser has a right of
first refusal with respect to sales of Shares by the Management Shareholders
under certain conditions, and the Management Shareholders have co-sale rights
with respect to sales of Shares by the Purchaser under certain conditions, among
other things. Pursuant to the terms of the Shareholders' Agreement, immediately
upon the closing of the sale of the Second Funding Shares (the "Second Closing")
and the consummation of the Offer, the Purchaser shall be entitled to designate
four (4) directors to serve on the Board of Directors of the Company.
Conditioned upon and effective as of the Second Closing, the parties to the
Shareholders' Agreement are required to vote the number of Shares they own for
the election of the individuals nominated by the Purchaser and the Management
Shareholders in accordance with the Shareholders' Agreement. In connection with
the Shareholders' Agreement, each of the Management Shareholders has executed an
irrevocable proxy that is conditioned upon and effective as of the Second
Closing appointing the Purchaser as proxy and authorizing the Purchaser to vote
such Management Shareholder's Shares for the election of directors and in all
other Company-related matters subject to a vote of shareholders, subject to
certain exceptions. In connection with the transactions contemplated by the
Stock Purchase Agreement, each of Messrs. Barry B. Conrad, Richard R. Neitz,
Jack R. Crosby, and Douglas A. Smith will tender their resignations from the
Board of Directors of the Company effective as of the closing of the sale of the
Second Funding Shares.
The Company has informed the Purchaser that as of April 15, 1999, there
were 6,566,038 shares of Common Stock issued and outstanding. Upon consummation
of the Offer and the Common Stock Acquisitions, the Purchaser will beneficially
and of record own approximately forty-eight percent (48%) of the total number of
shares of the Common Stock then outstanding (assuming (i) there are upward
adjustments in the aggregate of 140,000 shares to the number of Second Funding
Shares, and (ii) no other Shares are issued), and the Purchaser's designees will
constitute a majority of the Company's Board of Directors. Mr. Martin is the
sole Manager, President and a controlling member of the Purchaser. Mr. Martin
currently beneficially and of record owns 140,000 shares. Upon consummation of
the transactions contemplated by the Stock Purchase Agreement, including the
Offer, Mr. Martin, through his control of the Purchaser, will beneficially own
fifty percent (50%) of the total number of Shares then outstanding (assuming (i)
there are upward adjustments in the aggregate of 140,000 shares to the number of
Second Funding Shares, and (ii) no other Shares are issued).
4
<PAGE> 5
In the event the Management Shareholders do not tender any Shares owned by
them into the Offer and the Minimum Tender Condition is otherwise met, there is
a possibility that, upon consummation of the transactions contemplated by the
Stock Purchase Agreement, including the Offer, the Purchaser will be the
beneficial owner of up to sixty-eight percent (68%), and Tom Martin, through his
control of the Purchaser, will beneficially own up to seventy percent (70%), of
the total number of shares of Common Stock then outstanding (assuming (i) there
are upward adjustments in the aggregate of 140,000 shares to the number of
Second Funding Shares, and (ii) no other Shares are issued), by virtue of the
Purchaser's right to vote shares held by the Management Shareholders pursuant to
the Shareholders' Agreement and the irrevocable proxies. The Purchaser and Mr.
Martin have been advised by the Company that, to the best of the Company's
knowledge, all of the Management Shareholders currently intend to tender Shares
owned by them into the Offer.
The Purchaser, the Company, and the Management Shareholders have also
entered into a Registration Rights Agreement dated as of April 15, 1999 (the
"Registration Rights Agreement"), which grants the Purchaser certain demand, and
the Purchaser and the Management Shareholders certain incidental, registration
rights for the Shares owned by the Management Shareholders and acquired by the
Purchaser in the Common Stock Acquisitions. As a condition to the Purchaser's
obligation to purchase the Second Funding Shares, the Company and M. D. Davis
("Mr. Davis") will enter into a Consulting Agreement effective as of the date of
the Second Closing, pursuant to which Mr. Davis shall cease to be an employee
and officer of the Company and shall provide consulting services to the Company
for a period ending on the third annual anniversary of the date of the Second
Closing.
Immediately following the consummation of the Offer and the closing of the
sale of the Second Funding Shares, the Company will remain a public company
subject to the informational requirements of the Exchange Act, and the Shares
are expected to continue to trade on the Nasdaq Small Cap Market ("Nasdaq").
Certain federal income tax consequences of the sale of the Shares pursuant
to the Offer are described in Section 5.
Chaffe & Associates, Inc., which was hired to provide financial advisory
services to the Company, has delivered to the Company's Board of Directors its
written opinion that the average price per share of Common Stock to be sold in
the Common Stock Acquisitions is fair to the Company's shareholders from a
financial point of view. Such opinion does not constitute a recommendation as to
whether or not any holder of Shares should tender such Shares in connection with
the Offer.
THIS OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF
THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WOULD BE MADE ONLY PURSUANT TO
SEPARATE PROXY MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
5
<PAGE> 6
THE OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for up to 1,600,000
shares that are validly tendered on or prior to the Expiration Date and not
theretofore withdrawn as provided in Section 4. The term "Expiration Date" means
5:00 p.m., New York City time, on Tuesday, May 25, 1999, unless and until the
Purchaser, in its sole discretion (but subject to the terms of the Stock
Purchase Agreement), shall from time to time have extended the period of time
during which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire.
If more than 1,600,000 shares are validly tendered prior to the Expiration
Date and not properly withdrawn, the Purchaser will, upon the terms and subject
to the conditions of the Offer, accept such Shares for payment on a pro rata
basis, with appropriate adjustments to avoid purchases of fractional Shares,
based upon the number of Shares validly tendered prior to the Expiration Date
and not properly withdrawn. If proration is required, because of the time
required to determine the precise number of Shares validly tendered and not
properly withdrawn, the Purchaser does not expect to announce the final results
of proration or to pay for any Shares immediately after the Expiration Date. The
Purchaser will announce the preliminary results of proration by press release as
soon as practicable following the Expiration Date, and expects to be able to
announce the final results of proration within eight (8) Nasdaq trading days
after the Expiration Date. Holders of Shares may obtain such preliminary
information from the Information Agent, and also may be able to obtain such
preliminary information from their brokers.
Pursuant to the Stock Purchase Agreement, the Purchaser has agreed that it
will not, except as otherwise required by law and as set forth in the Stock
Purchase Agreement, without the prior written consent of the Company, extend the
Offer, except that, without the consent of the Company, the Purchaser may extend
the Expiration Date of the Offer (i) in the event that at the Expiration Date
any condition to the Offer shall not have been satisfied or earlier waived; (ii)
as required by the Securities and Exchange Commission (the "Commission") rules
and regulations; or (iii) for any reason for up to twenty (20) business days
beyond the latest expiration date that would otherwise be permitted under (i) or
(ii). As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1 under the Exchange Act. The Purchaser confirms that its
right to delay payment for Shares that it has accepted for payment is limited to
Rule 14e-1(c) under the Exchange Act, which requires that a tender offeror pay
the consideration offered or return the tendered securities promptly after the
termination or withdrawal of a tender offer.
In addition, the Purchaser has agreed in the Stock Purchase Agreement that,
among other things, it will not, without the consent of the Company, (i) reduce
the number of Shares subject to the Offer, (ii) reduce the Offer Price or change
the form of consideration payable in the Offer, or (iii) impose conditions to
the Offer in addition to the conditions set forth in Section 14.
Subject to the terms of the Stock Purchase Agreement and the applicable
rules and regulations of the Commission, the Purchaser expressly reserves the
right, in its sole discretion, at any time and from time to time, and regardless
of whether or not any of the events or facts set forth in Section 14 hereof
shall have occurred or shall have been determined by the Purchaser to have
occurred, (i) to extend the period of time during which the Offer is open, and
thereby delay acceptance for payment of, and the payment for, any Shares, by
giving oral or written notice of such extension to the Depositary, and (ii) to
amend the Offer in any other respect by giving oral or written notice of such
amendment to the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE
OFFER PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS
RIGHT TO EXTEND THE OFFER.
If, by 5:00 p.m., New York City time on Tuesday, May 25, 1999 (or any other
date or time then set as the Expiration Date), any or all conditions to the
Offer have not been satisfied or waived, the Purchaser reserves the right (but
shall not be obligated), subject to the terms and conditions contained in the
Stock Purchase Agreement and to the applicable rules and regulations of the
Commission, to (i) terminate the Offer and not
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<PAGE> 7
accept for payment or pay for any Shares and return all tendered Shares to
tendering shareholders, (ii) waive all the unsatisfied conditions and, subject
to complying with the terms of the Stock Purchase Agreement and the applicable
rules and regulations of the Commission, accept for payment and pay for all
Shares validly tendered prior to the Expiration Date and not theretofore
properly withdrawn, (iii) extend the Offer and, subject to the right of
shareholders to withdraw Shares until the Expiration Date, retain the Shares
that have been tendered during the period or periods for which the Offer is
extended, or (iv) amend the Offer. In the event the Purchaser waives any of the
conditions set forth in Section 14, the Commission may, if the waiver is deemed
to constitute a material change to the information previously provided to the
shareholders, require that the Offer remain open for an additional period of
time and/or that the Purchaser disseminate information concerning such waiver.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. Any extension, waiver, amendment or termination will be
followed as promptly as practicable by public announcement. In the case of an
extension, Rule 14e-1(d) under the Exchange Act requires that the announcement
be issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange
Act, which require that any material change in the information published, sent
or given to shareholders in connection with the Offer be promptly disseminated
to shareholders in a manner reasonably designed to inform shareholders of such
change) and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of or payment for Shares or it is unable to pay for Shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
shareholders are entitled to withdrawal rights as described in Section 4.
However, the ability of the Purchaser to delay the payment for Shares that the
Purchaser has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including a waiver of the Minimum Tender Condition), the Purchaser will
disseminate additional tender offer materials and extend the Offer to the extent
required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. Such
rules generally provide that the minimum period during which a tender offer must
remain open following a material change in the terms of the tender offer or
information concerning the tender offer, other than a change in price or a
change in the percentage of securities sought, will depend upon the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. In the Commission's view, an offer should generally remain
open for a minimum of ten (10) business days from the date a material change is
first published, sent or given to shareholders. With respect to a change in
price or a change in the percentage of securities sought, a minimum period of
ten (10) business days is generally required to allow for adequate dissemination
to shareholders.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Tender Condition, and other terms and conditions set forth in the Stock Purchase
Agreement, including the closing of the sale of the Second Funding Shares and
the expiration or termination of all waiting periods imposed by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the regulations
thereunder (the "HSR Act"). See Section 14. Subject to the terms and conditions
contained in the Stock Purchase Agreement, the Purchaser reserves the right (but
shall not be obligated) to waive any or all such conditions.
The Company has provided the Purchaser with the Company's shareholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
and other relevant materials will be mailed by the Purchaser to record holders
of Shares, and will be furnished by the Purchaser to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the names
of whose nominees, appear on the shareholder lists or, if applicable, who
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<PAGE> 8
are listed as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for up to
1,600,000 shares validly tendered prior to the Expiration Date and not properly
withdrawn in accordance with Section 4, as soon as practicable after the
Expiration Date. Any determination concerning the satisfaction or waiver of such
terms and conditions will be within the sole discretion of the Purchaser, and
such determination will be final and binding on all tendering shareholders. See
Sections 1 and 14. The Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of, or payment for, Shares in order
to comply in whole or in part with any applicable law, including, without
limitation, the HSR Act. Any such delays will be effected in compliance with
Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to
pay for or return tendered Shares promptly after the termination or withdrawal
of the Offer).
Purchaser expects to file a Notification and Report Form with respect to
the Offer under the HSR Act as promptly as practicable following the
commencement of the Offer. The waiting period under the HSR Act with respect to
the Offer will expire at 11:59 p.m., New York City time, on the 15th day after
the date such form is filed (anticipated to be May 11, 1999, unless early
termination of the waiting period is granted). In addition, the Antitrust
Division of the Department of Justice (the "Antitrust Division") or the Federal
Trade Commission (the "FTC") may extend the waiting period by requesting
additional information or documentary material from the Purchaser. If such a
request is made, such waiting period will expire at 11:59 p.m., New York City
time, on the 10th day after substantial compliance by the Purchaser with such
request. See Section 15 hereof for additional information concerning the HSR Act
and the applicability of the antitrust laws to the Offer.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates for
such Shares or timely confirmation (a "Book-Entry Confirmation") of the
book-entry transfer of such Shares into the Depositary's account at The
Depository Trust Company (a "Book-Entry Transfer Facility") pursuant to the
procedures set forth in Section 3, (ii) a Letter of Transmittal (or manually
signed facsimile thereof), properly completed and duly executed, with any
required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry transfer and (iii) any other documents required by
the Letter of Transmittal. The per Share consideration paid to any shareholder
pursuant to the Offer will be the highest per Share consideration paid to any
other shareholder pursuant to the Offer.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered to the Purchaser and
not withdrawn as, if and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering shareholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
8
<PAGE> 9
Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering shareholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering shareholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer. The Purchaser will pay
any stock transfer taxes incident to the transfer to it of validly tendered
Shares, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, as well as any charges and expenses of the Depositary and the
Information Agent. For purposes hereof, the term "stock transfer taxes" does not
include any income tax that may be required to be paid by a tendering
shareholder due to such shareholder reporting the income from the contemplated
transaction.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act,
which requires that a tender offeror pay the consideration offered or return the
tendered securities promptly after the termination or withdrawal of a tender
offer), the Depositary may, nevertheless, on behalf of the Purchaser, retain
tendered Shares, and such Shares may not be withdrawn except to the extent
tendering shareholders are entitled to exercise, and duly exercise, withdrawal
rights as described in Section 4.
If any tendered Shares are not purchased pursuant to the Offer because of
an invalid tender, proration or otherwise, certificates for any such Shares will
be returned, without expense to the tendering shareholder (or, in the case of
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
in Section 3, such Shares will be credited to an account maintained at the
appropriate Book-Entry Transfer Facility), as promptly as practicable after the
expiration or termination of the Offer.
If, prior to the Expiration Date, the Purchaser increases the consideration
to be paid per Share pursuant to the Offer, the Purchaser will pay such
increased consideration for all such Shares purchased pursuant to the Offer,
whether or not such Shares were tendered prior to such increase in
consideration.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to one or more direct or indirect wholly-owned
subsidiaries of the Purchaser, the right to purchase Shares tendered pursuant to
the Offer, but any such transfer or assignment will not relieve the Purchaser of
its obligations under the Offer and will in no way prejudice the rights of
tendering shareholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES
Valid Tender. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof), together with any required signature guarantees, or an
Agent's Message in connection with a book-entry delivery of Shares, and any
other documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase prior to the Expiration Date. In addition, either (i) certificates for
tendered Shares must be received by the Depositary at one of such addresses
along with the Letter of Transmittal at one of such addresses or such Shares
must be tendered pursuant to the procedure for book-entry transfer set forth
below (and a Book-Entry Confirmation received by the Depositary), in each case
prior to the Expiration Date, or (ii) the tendering shareholder must comply with
the guaranteed delivery procedure set forth below.
Book-Entry Transfer. The Depositary will make a request to establish an
account with respect to the Shares at each Book-Entry Transfer Facility for
purposes of the Offer within two (2) business days after the date of this Offer
to Purchase. Any financial institution that is a participant in any of the
Book-Entry Transfer Facilities' systems may make book-entry delivery of Shares
by causing a Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account at a Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for such transfer. However, although
delivery of Shares may be effected through book-entry at a Book-Entry Transfer
Facility, the Letter of Transmittal (or manually signed facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an
9
<PAGE> 10
Agent's Message in connection with a book-entry transfer, and any other required
documents, must, in any case, be transmitted to, and received by, the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date, or the tendering shareholder must comply with the
guaranteed delivery procedure described below. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (i) the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section 3, includes any participant
in any of the Book-Entry Transfer Facilities' systems whose name appears on a
security position listing as the owner of the Shares) of Shares tendered
therewith and such registered holder has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) such Shares are tendered for
the account of a bank, broker, dealer, credit union, savings association or
other entity that is a member in good standing of a recognized Medallion Program
approved by The Securities Transfer Association, Inc. or any other "Eligible
Guarantor Institution" as such term is defined in Rule 17Ad-15 under the
Exchange Act (such member, an "Eligible Institution"). In all other cases, all
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the
certificates for Shares are registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made or certificates
for Shares not tendered or not accepted for payment are to be returned to a
person other than the registered holder of the certificates surrendered, the
tendered certificates must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name or names of the registered
holders or owners appear on the certificates, with the signatures on the
certificates or stock powers guaranteed as described above. See Instruction 5 to
the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such shareholder's tender may be
effected if all the following conditions are met:
(1) such tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary, as provided below, prior to the Expiration
Date; and
(3) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to all such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees, or, in the
case of a book-entry transfer, an Agent's Message, and any other documents
required by the Letter of Transmittal, are received by the Depositary
within three (3) trading days after the date of execution of such Notice of
Guaranteed Delivery. A "trading day" is any day on which the Nasdaq Small
Cap Market operated by the National Association of Securities Dealers, Inc.
(the "NASD") is open for business.
Any Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, telex, facsimile transmission or mail to
the Depositary and must include a signature guarantee by an Eligible Institution
in the form set forth in such Notice of Guaranteed Delivery and a representation
that the
10
<PAGE> 11
shareholder on whose behalf the tender is being made is deemed to own the Shares
being tendered within the meaning of Rule 14e-4 under the Exchange Act.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for the Shares or a Book-Entry
Confirmation with respect to such Shares, (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message and (iii) any other documents required by the Letter of Transmittal.
Accordingly, tendering shareholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations with respect to
Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering shareholder and
the Purchaser upon the terms and subject to the conditions of the Offer,
including the tendering shareholder's representation and warranty that the
tender of such Shares complies with Rule 14e-4 under the Exchange Act.
Backup Federal Income Tax Withholding. In order to avoid "backup
withholding" of federal income tax on payments of cash pursuant to the Offer, a
shareholder surrendering Shares in the Offer must, unless an exemption applies,
provide the Depositary with such shareholder's correct taxpayer identification
number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury
that such TIN is correct and that such shareholder is not subject to backup
withholding. If a shareholder does not provide its correct TIN or fails to
provide the certifications described above, the Internal Revenue Service (the
"IRS") may impose a penalty on such shareholder and payment of cash to such
shareholder pursuant to the Offer may be subject to backup withholding of
thirty-one percent (31%). All shareholders surrendering Shares pursuant to the
Offer should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal to provide the information and
certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and the
Depositary). Certain shareholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign shareholders should complete and sign the main signature
form and a Form W-8, Certificate of Foreign Status, a copy of which may be
obtained from the Depositary, in order to avoid backup withholding. See
Instruction 10 to the Letter of Transmittal.
To prevent backup federal income tax withholding on payments made to
certain shareholders with respect to the purchase price of Shares purchased
pursuant to the Offer, each such shareholder must provide the Depositary with
his correct taxpayer identification number by completing the Substitute Form W-9
included in the Letter of Transmittal.
Appointment as Proxy. By executing the Letter of Transmittal as set forth
above, the tendering shareholder will irrevocably appoint designees of the
Purchaser as such shareholder's proxies in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of such
shareholder's rights with respect to the Shares tendered by such shareholder and
accepted for payment by the Purchaser and with respect to any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after April 21, 1999. All such proxies shall be considered coupled
with an interest in the tendered Shares. Such appointment will be effective
when, and only to the extent that, the Purchaser accepts for payment Shares
tendered by such shareholder as provided herein. Upon such acceptance for
payment, all prior proxies given by such shareholder with respect to such Shares
or other securities or rights will, without further action, be revoked and no
subsequent proxies may be given (and, if given, will not be deemed effective).
The designees of the Purchaser will thereby be empowered to exercise all voting
and other rights with respect to such Shares and other securities or rights in
respect of any annual, special or adjourned meeting of the Company's
shareholders, actions by written consent in lieu of any such meeting or
otherwise, as they in their sole discretion deem proper. The Purchaser reserves
the right to require that, in order for Shares to be deemed validly tendered,
immediately upon the Purchaser's acceptance for payment of such Shares, the
Purchaser
11
<PAGE> 12
must be able to exercise full voting and other rights with respect to such
Shares and other securities or rights, including voting at any meeting of
shareholders then scheduled.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser, in its sole discretion, which
determination will be final and binding. The Purchaser reserves the absolute
right to reject any or all tenders determined by it not to be in proper form or
the acceptance for payment of or payment for which may, in the opinion of the
Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right
to waive any defect or irregularity in any tender with respect to any particular
Shares, whether or not similar defects or irregularities are waived in the case
of other Shares. No tender of Shares will be deemed to have been validly made
until all defects or irregularities relating thereto have been cured or waived.
None of the Purchaser, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in tenders or incur any liability for failure to give any such
notification. The Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date (which
is initially May 25, 1999) and, unless theretofore accepted for payment and paid
for by the Purchaser pursuant to the Offer, may also be withdrawn at any time on
or after Friday, June 18, 1999 (or such later date as may apply in case the
Offer is extended).
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name of the registered holder of
the Shares to be withdrawn, if different from the name of the person who
tendered the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been delivered pursuant to the procedures
for book-entry transfer set forth in Section 3, any notice of withdrawal must
also specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Shares and otherwise comply
with such Book-Entry Transfer Facility's procedures. Withdrawals of tenders of
Shares may not be rescinded, and any Shares properly withdrawn will thereafter
be deemed not validly tendered for any purposes of the Offer. However, withdrawn
Shares may be tendered by again following one of the procedures described in
Section 3 at any time prior to the Expiration Date.
If the Purchaser extends the Offer, is delayed in its acceptance for
payment of, or payment for, Shares, or is unable to accept or pay for Shares for
any reason, then, without prejudice to the Purchaser's rights under the Offer,
tendered Shares may be retained by the Depositary on behalf of the Purchaser and
such shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as set forth in this Section 4.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its reasonable
discretion, which determination will be final and binding. None of the
Purchaser, the Dealer Manager, the Depositary, the Information Agent, or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered at any time prior to the Expiration Date by following the procedures
described in Section 3.
12
<PAGE> 13
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON THE LAW AS CURRENTLY IN EFFECT. THE TAX
TREATMENT OF EACH SHAREHOLDER WILL DEPEND IN PART UPON SUCH SHAREHOLDER'S
PARTICULAR SITUATION. SPECIAL TAX CONSEQUENCES NOT DESCRIBED HEREIN MAY BE
APPLICABLE TO PARTICULAR CLASSES OF TAXPAYERS, SUCH AS FINANCIAL INSTITUTIONS,
TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, BROKER-DEALERS, PERSONS WHO ARE
NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND SHAREHOLDERS WHO ACQUIRED
THEIR SHARES THROUGH THE EXERCISE OF ANY EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. ALL SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS.
U. S. Federal Income Tax Consequences. The receipt of cash for Shares
pursuant to the Offer will be a taxable transaction for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and
may also be a taxable transaction under applicable state, local or foreign
income or other tax laws. Generally, for federal income tax purposes, a
tendering shareholder will recognize gain or loss in an amount equal to the
difference between the cash received and the shareholder's adjusted tax basis in
the Shares tendered by the shareholder and purchased pursuant to the Offer. Gain
or loss generally will be calculated separately for each block of Shares
tendered and purchased pursuant to the Offer. Such gain or loss generally will
be capital gain or loss if the Shares disposed of were held as capital assets by
the shareholder. Any net capital gain (i.e., generally, capital gain in excess
of capital loss) recognized by an individual upon a disposition of the Shares
pursuant to the Offer that have been held for more than 18 months will generally
be subject to tax at a rate not to exceed twenty percent (20%). Net capital gain
recognized by an individual upon such a disposition of Shares that have been
held for more than 12 months but for not more than 18 months will be subject to
tax at a rate not to exceed twenty-eight percent (28%) and net capital gain
recognized upon the sale of Shares that have been held for 12 months or less
will be subject to tax at ordinary income tax rates. In addition, any net
capital gain recognized by a corporation upon a disposition of Shares pursuant
to the Offer will be subject to tax at ordinary income tax rates.
In general, in order to prevent backup federal income tax withholding at a
rate of thirty-one percent (31%) on the cash consideration to be received in the
Offer, each shareholder who is not otherwise exempt from such requirements must
provide such shareholder's correct taxpayer identification number (and certain
other information) by completing the Substitute Form W-9 in the Letter of
Transmittal.
13
<PAGE> 14
6. PRICE RANGE OF THE SHARES; DIVIDENDS
The information set forth in this Section regarding the Company is entirely
taken from or based upon public information, including the Company's Annual
Report on Form 10-K for the fiscal year ending January 31, 1998 (the "Company
Form 10-K"), and information supplied to the Purchaser by the Company. The
Purchaser does not assume any responsibility for the accuracy or completeness of
the information concerning the Company contained in such documents and records
or for any failure by the Company to disclose events which may have occurred or
may affect the significance or accuracy of any such information to the
Purchaser. The Common Stock is listed for quotation on the Nasdaq Small Cap
Market under the trading symbol "DSIT." The Common Stock was traded on the
Nasdaq National Market under the symbol "DSIT" from the Company's initial public
offering on May 29, 1997, through August 17, 1998. The Common Stock was approved
for trading on the Nasdaq Small Cap Market on August 17, 1998. The Company has
not declared nor paid any cash dividends to holders of Shares since its initial
public offering on May 29, 1997. The following table sets forth, for the periods
indicated, the high and low bid prices per Share on the Nasdaq Small Cap Market
and the Nasdaq National Market, as applicable.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
FISCAL 1997:
Second Quarter (commencing May 29, 1997)(1)............... $8 1/16 $7 1/16
Third Quarter............................................. $9 7/8 $4 7/16
Fourth Quarter............................................ $4 9/16 $1 1/2
FISCAL 1998:
First Quarter............................................. $2 15/16 $1 5/8
Second Quarter............................................ $2 $ 15/16
Third Quarter............................................. $1 13/16 $ 13/16
Fourth Quarter............................................ $1 3/4 $1
FISCAL 1999:
First Quarter (through April 19, 1999).................... $2 7/8 $1 19/32
</TABLE>
- ---------------
(1) The Company commenced trading pursuant to the initial public offering of its
Common Stock on May 29, 1997.
As of April 15, 1999, the approximate number of holders of record of the
Shares was 93.
On April 14, 1999, the last full trading day before the public announcement
of the execution of the Stock Purchase Agreement and the Purchaser's intention
to commence the Offer, the closing bid per Share on the Nasdaq Small Cap Market
was $2 1/32. On April 20, 1999, the last full trading day before the
commencement of the Offer, the closing bid per Share on the Nasdaq Small Cap
Market was $2 3/4. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE SHARES.
7. POSSIBLE EFFECTS OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATION;
EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS
The purchase of Shares pursuant to the Offer may reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly.
However, approximately fifty percent (50%) of the outstanding Shares will
continue to be held by persons other than the Purchaser, and the Purchaser does
not believe that its purchase of 1,600,000 shares pursuant to the Offer is
likely to result in the Company's failure to meet the requirements of the NASD
for continued inclusion in the Nasdaq Small Cap Market or should have a material
adverse effect on the liquidity and market value of the remaining Shares held by
the public.
The Shares are currently registered under the Exchange Act and, according
to the Company, will continue to be registered thereunder after the Offer.
However, such registration may be terminated upon application by the Company to
the Commission if the Shares are not listed on a national securities exchange
and there are fewer than 300 record holders of the Shares. The termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to
14
<PAGE> 15
holders of Shares and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
shareholders' meetings pursuant to Section 14(a), and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
If registration of the Shares under the Exchange Act were terminated, the
Shares would no longer be eligible for quotation on the Nasdaq Small Cap Market.
The Shares are not currently "margin securities" under the regulations of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Securities that are "margin securities" have the effect, among other
things, of allowing brokers to extend credit on the collateral of such
securities. It is unknown as to whether, following the Offer, the Shares will
become eligible to be "margin securities."
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Texas corporation with its principal executive office
located at 1100 West Sam Houston Parkway North, Houston, Texas 77043. The
telephone number of the Company at such office is (713) 365-9900.
The historical information concerning the Company contained in this Offer
to Purchase, including financial information, has been provided to the Purchaser
by the Company and is excerpted or derived from publicly available documents and
records on file with the Commission and other public sources. None of the
Purchaser, the Dealer Manager, the Depositary or the Information Agent assumes
any responsibility for the accuracy or completeness of the information
concerning the Company contained in such documents and records or for any
failure by the Company to disclose events which may have occurred or may affect
the significance or accuracy of any such information to the Purchaser.
According to the Company Form 10-K, the Company designs, develops, markets,
licenses, and distributes toys and children's consumer electronics. The
Company's core product categories are: (i) juvenile audio products, including
walkie-talkies, preschool audio products and musical toys; (ii) girls' toys,
including dolls, play sets and accessories; and (iii) boys' toys, including
radio-controlled vehicles, action figures and western and military action toys.
The Company sells primarily to retailers, including mass merchandising
discounters such as Wal-Mart, Kmart and Target, specialty toy stores such as
Toys "R" Us, Kay-Bee Toy & Hobby and F.A.O. Schwarz, and deep discount stores
such as Family Dollar Stores, Inc., Consolidated Stores Corporation and Value
City Department Stores, Inc.
The following table presents selected historical consolidated financial
information with respect to the Company and its subsidiaries and has been
provided to the Purchaser by the Company. Such information is excerpted or
derived from the information contained in the Company Form 10-K and from the
unaudited financial statements contained in the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31, 1998. More comprehensive
financial information is included in such reports and other documents filed by
the Company with the Commission, and the following summary is qualified in its
entirety by reference to such reports and such other documents and all the
financial information (including any related notes) contained therein. Such
reports and other documents should be available for inspection and copies
thereof should be obtainable in the manner set forth below under "Available
Information."
Three-month and nine-month financial information in the following table is
derived from unaudited financial statements. Fiscal year-end financial
information is derived from audited financial statements.
15
<PAGE> 16
DSI TOYS, INC.
SELECTED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................................... $24,563,262 $30,018,242 $48,014,196 $61,828,627
Costs of goods sold......................................... 18,948,648 22,643,185 37,376,724 44,531,494
----------- ----------- ----------- -----------
Gross profit................................................ 5,614,614 7,375,057 10,637,472 17,297,133
Selling, general and administrative expenses................ 3,148,296 13,434,338 8,340,922 20,779,001
----------- ----------- ----------- -----------
Operating income (loss)..................................... 2,466,318 (6,059,281) 2,296,550 (3,481,868)
Interest expense............................................ 276,916 286,124 710,103 1,158,138
Other income................................................ (26,963) (49,771) (64,185) (215,778)
----------- ----------- ----------- -----------
Income (loss) before income taxes........................... 2,216,365 (6,295,634) 1,650,632 (4,424,228)
Provision for (benefit from) income taxes................... 786,577 (2,266,428) 594,228 (1,592,721)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item..................... 1,429,788 (4,029,206) 1,056,404 (2,831,507)
Extraordinary item (net of tax)............................. -- -- -- (480,754)
----------- ----------- ----------- -----------
Net income (loss)........................................... $ 1,429,788 $(4,029,206) $ 1,056,404 $(3,312,261)
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ 0.24 $ (0.67) $ 0.18 $ (0.56)
=========== =========== =========== ===========
Earnings (loss) per share................................... $ 0.24 $ (0.67) $ 0.18 $ (0.66)
=========== =========== =========== ===========
Weighted average shares outstanding......................... 6,000,000 6,000,000 6,000,000 5,033,814
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ 0.24 $ (0.67) $ 0.18 $ (0.56)
=========== =========== =========== ===========
Earnings (loss) per share................................... $ 0.24 $ (0.67) $ 0.18 $ (0.66)
=========== =========== =========== ===========
Weighted average shares outstanding......................... 6,000,000 6,000,000 6,000,000 5,033,814
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................... $73,624,398 $63,219,212 $63,146,080
Costs of goods sold......................................... 55,285,501 42,023,044 43,428,075
----------- ----------- -----------
Gross profit................................................ 18,338,897 21,196,168 19,718,005
Selling, general and administrative expenses................ 24,245,064 15,569,422 14,624,519
Former sole shareholder bonus............................... -- -- 1,000,000
----------- ----------- -----------
Operating income (loss)..................................... (5,906,167) 5,626,746 4,093,486
Interest expense............................................ 1,360,067 2,599,942 700,986
Other income................................................ (231,968) (344,469) (383,801)
----------- ----------- -----------
Income (loss) before income taxes and extraordinary item.... (7,034,266) 3,371,273 3,776,301
Provision for (benefit from) income taxes................... (2,329,323) 1,220,000 1,449,677
----------- ----------- -----------
Income (loss) before extraordinary item..................... (4,704,943) 2,151,273 2,326,624
Extraordinary item (net of tax)............................. (480,754) -- --
----------- ----------- -----------
Net income (loss)........................................... $(5,185,697) $ 2,151,273 $ 2,326,624
=========== =========== ===========
BASIC EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ (0.91) $ 0.61 $ 0.66
Extraordinary item.......................................... (0.09) -- --
----------- ----------- -----------
Earnings (loss) per share................................... $ (1.00) $ 0.61 $ 0.66
=========== =========== ===========
Weighted average shares outstanding......................... 5,205,479 3,500,000 3,500,000
=========== =========== ===========
DILUTED EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ (0.91) $ 0.58 $ 0.66
Extraordinary item.......................................... (0.09) -- --
----------- ----------- -----------
Earnings (loss) per share................................... $ (1.00) $ 0.58 $ 0.66
=========== =========== ===========
Weighted average shares outstanding......................... 5,205,479 3,739,146 3,500,000
=========== =========== ===========
</TABLE>
16
<PAGE> 17
DSI TOYS, INC.
SELECTED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,213,621 $ 988,879
Restricted cash........................................... 150,000 150,000
Accounts receivable, net.................................. 6,893,518 10,646,447
Inventories............................................... 6,797,276 13,284,015
Income tax receivable..................................... 553,462 --
Prepaid expenses.......................................... 1,306,408 894,286
Deferred income taxes..................................... 499,000 370,000
------------ ------------
Total current assets.............................. 17,413,285 26,333,627
Property and equipment, net................................. 1,470,210 1,267,453
Advances to shareholder (life insurance premiums)........... 1,477,461 1,212,048
Deferred income taxes....................................... 667,790 404,027
Other assets................................................ 273,957 169,655
------------ ------------
$ 21,302,703 $ 29,386,810
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 10,745,675 $ 16,836,500
Current portion of long-term debt......................... 5,793,318 2,893,230
Income taxes payable...................................... 441,933 --
Deferred income taxes..................................... -- 100,225
------------ ------------
Total current liabilities......................... 16,980,926 19,829,955
Long term debt.............................................. -- 4,500,000
Deferred income taxes....................................... 119,000 --
------------ ------------
Total liabilities................................. 17,099,926 24,329,955
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding................. -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,719,000 shares issued, 6,000,000 shares
outstanding............................................ 87,190 87,190
Additional paid-in capital................................ 21,162,568 21,171,277
Common stock warrants..................................... 102,500 102,500
Retained earnings......................................... 5,494,057 6,311,089
Cumulative translation adjustment......................... 17,054 45,391
------------ ------------
26,863,369 27,717,447
Less: treasury stock, 2,719,000 shares, at cost........... (22,660,592) (22,660,592)
------------ ------------
Total shareholders' equity........................ 4,202,777 5,056,855
------------ ------------
$ 21,302,703 $ 29,386,810
============ ============
</TABLE>
17
<PAGE> 18
DSI TOYS, INC.
SELECTED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 383,690 $ 1,501,992 $ 2,660,455
Restricted cash.................................. 150,000 150,000 150,000
Accounts receivable, net......................... 8,008,288 3,231,789 4,235,665
Due from shareholder............................. -- 151,667 819,283
Advances to shareholder (life insurance
premiums)..................................... -- 511,765 --
Inventories...................................... 6,437,418 4,615,087 3,409,962
Income tax receivable............................ 642,264 -- --
Prepaid expenses................................. 894,704 1,462,189 1,130,006
Deferred income taxes............................ 183,000 362,000 351,000
------------ ------------ ------------
Total current assets..................... 16,699,364 11,986,489 12,756,371
Property and equipment, net........................ 1,252,572 1,190,498 1,514,096
Advances to shareholder (life insurance
premiums)........................................ 1,278,401 920,987 1,143,076
Deferred income taxes.............................. 1,752,000 -- --
Deferred debt issuance costs....................... -- 679,906 842,963
Other assets....................................... 224,783 537,868 145,316
------------ ------------ ------------
$ 21,207,120 $ 15,315,748 $ 16,401,822
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......... $ 9,740,201 $ 6,259,101 $ 5,492,704
Current portion of long-term debt................ 585,783 2,755,789 3,359,210
Income taxes payable............................. 108,630 193,211 314,874
Deferred income taxes............................ -- 158,000 79,408
------------ ------------ ------------
Total current liabilities................ 10,434,614 9,366,101 9,246,196
Long-term debt..................................... 7,495,000 8,203,108 11,187,702
Notes payable -- shareholder....................... -- 6,000,000 7,000,000
Deferred income taxes.............................. 119,000 1,169,000 549,987
------------ ------------ ------------
Total liabilities........................ 18,048,614 24,738,209 27,983,885
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding........ -- -- --
Common stock, $.01 par value 1998 and 1997,
$.0001 par value 1996, 20,000,000 shares
authorized, 8,719,000 shares issued 1998,
6,219,000 shares issued 1997 and 1996,
6,000,000 shares outstanding 1998, 3,500,000
shares outstanding 1997 and 1996.............. 87,190 62,190 622
Additional paid-in capital....................... 21,162,568 3,443,093 3,504,661
Common stock warrants............................ 102,500 100,000 100,000
Cumulative translation adjustment................ 29,187 9,498 1,169
Retained earnings................................ 4,437,653 9,623,350 7,472,077
------------ ------------ ------------
25,819,098 13,238,131 11,078,529
Less: treasury stock, 2,719,000 shares, at
cost.......................................... (22,660,592) (22,660,592) (22,660,592)
------------ ------------ ------------
Total shareholders' equity (deficit)..... 3,158,506 (9,422,461) (11,582,063)
$ 21,207,120 $ 15,315,748 $ 16,401,822
============ ============ ============
</TABLE>
18
<PAGE> 19
Available Information. The Company is subject to the reporting requirements
of the Exchange Act and, in accordance therewith, is required to file reports
and other information with the Commission relating to its business, financial
condition and other matters. Information, as of particular dates, concerning the
Company's directors and officers, their remuneration, options granted to them,
the principal holders of the Company's securities, any material interest of such
persons in transactions with the Company and other matters is required to be
disclosed in proxy statements distributed to the Company's shareholders and
filed with the Commission. Such reports and other information should be
available for inspection at the public reference facilities of the Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located in the Citicorp Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies should be obtainable, by mail, upon
payment of the Commission's customary charges, by writing to the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains an Internet website at http://www.sec.gov that
contains reports, proxy statements and other information. Such information
should also be available for inspection at the offices of the NASD, Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006. Although the Purchaser has
no knowledge that any such information is untrue, the Purchaser takes no
responsibility for the accuracy or completeness of information contained in this
Offer to Purchase with respect to the Company or for any failure by the Company
to disclose events which may have occurred or may affect the significance or
accuracy of any such information.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND MR. MARTIN
The Purchaser is a newly formed California limited liability company
organized in connection with the transactions contemplated by the Stock Purchase
Agreement, including the Offer, and has not carried on any activities other than
in connection with such transactions. The Purchaser does not have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Stock Purchase Agreement, including the Offer. Prior to the execution of
the Stock Purchase Agreement, the Purchaser beneficially owned no Shares. Upon
the Initial Closing, the Purchaser acquired 566,038 Shares. Pursuant to the
terms of the Stock Purchase Agreement, the Purchaser agreed to commence the
Offer for 1,600,000 Shares and agreed to purchase 1,792,453 Shares (subject to
upward adjustments not to exceed in the aggregate 140,000 Shares). By virtue of
its current ownership of the Company's Common Stock and its rights to acquire
additional Shares pursuant to the Stock Purchase Agreement, the Purchaser
currently beneficially owns 4,098,491 Shares.
The Purchaser is wholly owned by Mr. Martin and his wife, Noreen Martin
(collectively, the "Martins"), who own ninety-nine percent (99%) of the
membership interests of the Purchaser, as community property, and Joseph S.
Whitaker and his wife, Myraline Whitaker (collectively, the "Whitakers"), as
community property, who own one percent (1%) of the membership interests of the
Purchaser. The Martins are the record owners of 140,000 shares of Common Stock,
3,500 of which were purchased on February 23, 1999, in an open market
transaction at a price of $2.44 per Share. The Martins, through their control of
the Purchaser, currently beneficially own 4,238,491 shares of Common Stock. The
Whitakers beneficially own 2,000 shares of Common Stock.
Mr. Martin is the sole Manager and President of the Purchaser. While the
Purchaser does not have a board of directors, it has executive officers
responsible for its day-to-day operations. Joseph S. Whitaker serves as the Vice
President of the Purchaser. There are no executive officers of the Purchaser
other than Messrs. Martin and Whitaker. The citizenship, business address,
present principal occupation or employment and five-year employment history of
Tom Martin and Joseph S. Whitaker are set forth on Annex A hereto.
Upon consummation of the transactions contemplated by the Stock Purchase
Agreement, including the Offer, the Purchaser will be the record and beneficial
owner of forty-eight percent (48%), and Tom Martin, through his control of the
Purchaser, will be the beneficial owner of fifty percent (50%), of the total
number of Shares then outstanding (assuming (i) there are upward adjustments in
the aggregate of 140,000 shares to the number or Second Funding Shares, and (ii)
no other Shares are issued). In the event the Management Shareholders do not
tender any Shares owned by them into the Offer and the Minimum Tender Condition
is otherwise met, there is a possibility that, upon consummation of the
transactions contemplated by the Stock
19
<PAGE> 20
Purchase Agreement, including the Offer, the Purchaser will beneficially own up
to 5,820,184 (sixty-eight percent (68%)), and Tom Martin, through his control of
the Purchaser, will beneficially own up to 5,960,184 (seventy percent (70%)), of
the shares of Common Stock then outstanding (assuming (i) there are upward
adjustments in the aggregate of 140,000 shares to the number of Second Funding
Shares, and (ii) no other Shares are issued), by virtue of the Purchaser's power
to vote Shares held by the Management Shareholders pursuant to the Shareholders'
Agreement and the irrevocable proxies. The Purchaser and Tom Martin have been
advised by the Company that, to the best of the Company's knowledge, all of the
Management Shareholders currently intend to tender Shares owned by them into the
Offer.
Except as described in this Offer to Purchase and Annex A hereto, (i) none
of the Purchaser, Tom Martin, nor, to the best knowledge of the Purchaser and
Tom Martin, any of the persons listed in Annex A hereto, beneficially owns any
security of the Company or has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any securities of the
Company, joint ventures, loan or option arrangements, puts or calls, guaranties
of loans, guaranties against loss, or the giving or withholding of proxies, and
(ii) none of the Purchaser, Tom Martin, nor, to the best knowledge of the
Purchaser and Tom Martin, any of the other persons referred to above, has
effected any transaction in any security of the Company during the past 60 days.
The following tables present certain unaudited financial information with
respect to the Purchaser and Tom Martin.
MVII, LLC -- BALANCE SHEET
AS OF APRIL 19, 1999
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash............................ $ 300,000
Stock(1)........................ 1,200,000
Contributions Receivable........
Martin........................ 8,500,000
Whitaker...................... 100,000
-----------
Total Assets.................... $10,100,000
===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
- -----------
<S> <C>
Accounts Payable................ $ 214,400
Members Equity.................. $ 9,885,600
-----------
Total Liabilities............... $10,100,000
===========
</TABLE>
- ---------------
(1) Consists of 566,038 shares of Common Stock of the Company at $2.12 per share
(based upon cost).
E. THOMAS MARTIN -- STATEMENT OF FINANCIAL CONDITION
AS OF OCTOBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash........................... $ 13,675,947
Stocks(1)...................... 91,339,893
Bonds.......................... 7,552,796
Note Receivable................ 60,000
Real Estate.................... 1,910,263
Other Assets................... 245,000
------------
Total Assets................... $114,783,899
============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
- -----------
<S> <C>
Bank Note Payable.................. $225,266
--------
Total Liabilities.................. $225,266
========
Net Worth (Total Assets less
Total Liabilities)........... $114,558,633
============
</TABLE>
- ---------------
(1) Includes holdings of publicly traded common stock and private investments
made through limited partnerships and limited liability companies.
20
<PAGE> 21
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase the Shares
tendered pursuant to the Offer, the Initial Funding Shares and the Second
Funding Shares, and to pay related fees and expenses will be approximately
$12,750,000. The Purchaser will provide such funds from working capital obtained
from capital contributions made by its members. The Purchaser has not
conditioned the Offer or the closing of the sale of the Second Funding Shares on
obtaining financing.
11. BACKGROUND OF THE OFFER
As part of an on-going strategic effort to acquire a significant equity
position in a mid-sized toy company, in late 1998, Mr. Tom Martin identified
several toy companies of some interest, based upon their size, product lines and
histories. On December 18, 1998, Tom Martin met with Mr. Dominic Petito, of
Gerard, Klauer, Mattison & Co, Inc. The purpose of this meeting was to review
background information on various toy companies and to identify potential
acquisition targets. One of the companies identified at this meeting was the
Company.
On January 19, 1999, a meeting was arranged among representatives of the
Company, Mr. Martin and Mr. Petito. The meeting was held at the Dallas, Texas
showroom of the Company and was attended by Mr. Martin, Mr. Petito, Mr. Joseph
Whitaker (a consultant to Mr. Martin), Mr. M. D. Davis (the Chairman of the
Board of the Company), and Mr. Russell Denson (the then Chief Financial Officer
of the Company). At the meeting, Mr. Martin and Mr. Whitaker reviewed the
Company's 1999 product lines, discussed the Company's financial condition with
Messrs. Davis and Denson, and expressed an interest in acquiring a controlling
interest in the Company. Mr. Davis indicated the Company's interest in
discussing the merits of a possible acquisition by Mr. Martin and indicated a
general willingness to explore the possibilities of an acquisition in more
detail.
During late January 1999, Mr. Petito and Mr. Martin held numerous phone
discussions with Messrs. Davis and Denson regarding the possible acquisition of
a controlling interest in the Company by Mr. Martin.
On February 1, 1999, a meeting was held in Houston, Texas between Mr.
Martin, Mr. Petito, Mr. Davis and Mr. J. Todd Mirolla, counsel for Mr. Martin.
During this meeting, Mr. Martin and Mr. Davis discussed various possibilities
for the structure of a proposed transaction. Mr. Martin presented a term sheet
to Mr. Davis outlining a proposed merger between the Company and a new
corporation to be formed by Mr. Martin. The parties also discussed the basis for
Mr. Martin's proposed transaction terms.
During early February 1999, numerous conversations were held between
Messrs. Martin, Petito and Davis regarding the value of the Company and the
Company's response to the term sheet presented by Mr. Martin at the meeting on
February 1, 1999. As a result of these conversations, on February 14, 1999, Mr.
Martin presented a revised offer to the Company. This offer abandoned the
concept of a merger and proposed a direct acquisition of 2 million shares of
Common Stock for $5 million, along with the acquisition of 1.6 million shares of
the Company's issued and outstanding Common Stock pursuant to a tender offer at
$4.38 per share. The revised offer contemplated a voting trust agreement between
Mr. Martin and existing members of the Board of Directors of the Company and a
no-shop agreement. On February 17, 1999, in response to Mr. Martin's revised
offer, a meeting was held in Austin, Texas between representatives of Mr. Martin
and the Board of Directors of the Company. In attendance at this meeting were
Mr. Martin, Mr. Petito, Mr. Mirolla, Mr. Davis, Mr. Douglas R. Smith, Mr. Joseph
N. Matlock, Mr. Jack R. Crosby, Mr. Barry B. Conrad and Mr. Michael Bengtson,
counsel for the Company. During the meeting, Mr. Martin and the Company
exchanged proposals regarding the amount of investment that would be made by Mr.
Martin and certain terms of the investment. Throughout these discussions, Mr.
Martin indicated that he would require a super-majority representation on the
Board of Directors of the Company, and that his acquisition of a significant
number of shares of Common Stock would require that the proceeds from the
acquisition of stock from the Company remain in the Company to reduce debt and
provide the Company with capital for future operations and acquisitions. Mr.
Martin also indicated that an express condition of his willingness to move
forward in negotiations would be the execution of a no-shop agreement by the
Company
21
<PAGE> 22
and each of the individual members of the Company Board of Directors. The
members of the Board of Directors of the Company indicated their willingness to
execute no-shop agreements, provided that such agreements were subject to
appropriate fiduciary outs, and to commit to tender a portion of their Shares
(and with respect to Jack R. Crosby, Shares held by a limited partnership over
which he has control) in connection with any tender offer proposed by Mr.
Martin.
On or about February 26, 1999, the Company, the individual members of the
Board of Directors of the Company and Mr. Martin executed no-shop agreements
containing fiduciary outs and agreed to proceed with negotiations based upon an
agreed upon but non-binding term sheet. The terms of the offer involved the
acquisition by Mr. Martin or an entity to be formed by Mr. Martin of 2 million
shares of common stock from the Company for an aggregate purchase price of $5
million, as well as a tender offer by Mr. Martin for 1.6 million shares of
Common Stock, based upon a tender price of $4.38 per share. Mr. Martin and the
Company, together with their representatives (including legal counsel) proceeded
to negotiate the definitive terms of the Stock Purchase Agreement. During this
process, Mr. Martin and his representatives conducted due diligence on the
Company and its assets.
On March 16, 1999, a meeting was held in Dallas, Texas, between
representatives of Mr. Martin and representatives of the Company. In attendance
were Mr. Martin, Mr. Mirolla, Mr. Gregg Cannady (counsel for Mr. Martin), Ms.
Roshan Selod (counsel for Mr. Martin), Mr. Geoff King, CPA (Mr. Martin's
certified public accountant), Mr. Davis, Mr. Bengtson, Mr. Mark Gunnin (counsel
for the Company) and Mr. Barry Conrad. Following extensive negotiations, the
parties agreed on revised terms and conditions for Mr. Martin's acquisition of
between 2,358,491 and 2,498,491 shares, depending upon whether certain
conditions are met, from the Company for an aggregate purchase price of $5
million and for the tender offer by Mr. Martin for 1.6 million shares of Common
Stock, based upon a tender price of $4.38 per share. In addition, the parties
negotiated certain terms of the Stock Purchase Agreement.
On April 9, 1999, the Company's Board of Directors approved the Stock
Purchase Agreement and the transactions contemplated thereby. On April 15, 1999,
the Company, the Purchaser, and the Management Shareholders executed and
delivered the transaction agreements, including the Stock Purchase Agreement,
the Shareholders' Agreement, the Registration Rights Agreement, and the Side
Letter Agreements. At that time the Purchaser acquired 566,038 shares of Common
Stock from the Company at $2.12 per Share for an aggregate purchase price of
$1.2 million. Also, on April 15, 1999, the Company and the Purchaser issued a
joint press release announcing the transaction. The Management Shareholders are:
M. D. Davis, Rust Capital, Ltd., a Texas limited partnership controlled by Jack
R. Crosby, Douglas A. Smith, Joseph N. Matlock, and Barry B. Conrad.
12. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE STOCK PURCHASE AGREEMENT;
THE SIDE LETTER AGREEMENTS; THE SHAREHOLDERS' AND VOTING AGREEMENT; THE
REGISTRATION RIGHTS AGREEMENT; AND THE CONSULTING AGREEMENT
Purpose of the Offer; Plans for the Company
Except as otherwise described in this Offer to Purchase, the Purchaser has
no current plans or proposals that would relate to, or result in, any
extraordinary corporate transaction involving the Company, such as a merger,
reorganization or liquidation involving the Company or any of its subsidiaries,
a sale or transfer of a material amount of assets of the Company or any of its
subsidiaries, any change in the Company's capitalization or dividend policy or
any other material change in the Company's business, corporate structure or
personnel. The Purchaser and its affiliates reserve the right to purchase,
following consummation or termination of this Offer, additional Shares from the
Company, in the open market or otherwise. Any additional purchases of Shares
could be at a price greater or less than the price to be paid for Shares in the
Offer.
The Stock Purchase Agreement
The following is a summary of the material terms of the Stock Purchase
Agreement. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the
22
<PAGE> 23
complete text of the Stock Purchase Agreement, which is filed as an exhibit to
the Schedule 14D-1 and incorporated herein by reference. Capitalized terms used
herein and not otherwise defined shall have the meaning ascribed to them in the
Stock Purchase Agreement. The Stock Purchase Agreement may be examined, and
copies thereof may be obtained, as set forth in Section 8 above. YOU ARE URGED
TO READ THE STOCK PURCHASE AGREEMENT IN ITS ENTIRETY.
The Common Stock Acquisitions. The Company has agreed to sell to the
Purchaser, and the Purchaser has agreed to purchase from the Company, an
aggregate of 2,358,491 shares (subject to upward adjustments not to exceed in
the aggregate 140,000 shares) for an aggregate purchase price of $5,000,000, in
two separate sales transactions of 566,038 shares and 1,792,453 shares (subject
to upward adjustments not to exceed in the aggregate 140,000 shares),
respectively. The closing of the sale of the Initial Funding Shares (the
"Initial Closing") was consummated concurrently with the execution of the Stock
Purchase Agreement on April 15, 1999. Simultaneously with the Initial Closing,
the Company, the Purchaser, and the Management Shareholders entered into the
Shareholders' Agreement and the Registration Rights Agreement, and the Purchaser
and the Management Shareholders entered into the Side Letter Agreements.
The upward adjustments to the number of Second Funding Shares are not to
exceed in the aggregate 140,000 shares and are dependent upon two issues: (i)
the Company meeting certain working capital requirements as of the date of the
Second Closing, and (ii) the consummation of certain transactions resolving a
dispute with the estate of the Company's former controlling shareholder. The
Stock Purchase Agreement provides that, if as of the date of the Second Closing,
the working capital of the Company is less than $1,000,000, then the number of
Second Funding Shares shall be increased by the excess of $1,000,000 over such
amount of working capital, based upon a per Share price of $2.00, not to exceed
40,000 shares in the aggregate. The Stock Purchase Agreement further provides
that if the Company and the Management Shareholders shall not have consummated a
transaction with all necessary parties to resolve any disputes with the estate
of the Company's former controlling shareholder and related parties on or prior
to June 30, 1999, then the Company shall issue to the Purchaser an additional
100,000 shares on the date of the Second Closing or on July 1, 1999, if the
Second Closing occurs prior to June 30, 1999.
The Second Closing is to occur on or before July 1, 1999, or such date as
the Company and the Purchaser shall agree in writing. The Second Closing is
conditioned upon the consummation of the Offer, it being the understanding of
the parties that the Second Closing shall occur simultaneously with the
consummation of the Offer. The conditions to the Second Closing also include:
(i) the prior approval of the Company's shareholders, at a shareholder's meeting
to be called by the Company (the "Shareholders Meeting"), of the sale of the
Second Funding Shares; (ii) the expiration or termination of any waiting period
applicable to the transactions contemplated by the Stock Purchase Agreement
under the HSR Act; (iii) the truth and accuracy at the Second Closing of the
representations and warranties made by the parties in the Stock Purchase
Agreement, subject to certain qualifications; (iv) the performance by the
parties of their respective obligations under the Stock Purchase Agreement,
subject to certain qualifications; and (v) other conditions, including those
customary to transactions similar to those contemplated by the Stock Purchase
Agreement.
The Offer. Pursuant to the terms of the Stock Purchase Agreement, the
Purchaser was required to commence the Offer no later than five (5) business
days after the date of the Agreement. The obligations of the Purchaser to accept
for payment, and pay for, any Shares tendered pursuant to the Offer are subject
only to the conditions set forth in Section 14 (the "Offer Conditions") (any of
which may be waived in whole or in part by the Purchaser in its sole
discretion). The Purchaser may increase the Offer Price and may make any other
changes in the terms and conditions of the Offer; except that the Purchaser may
not without the Company's prior written consent: (i) reduce the number of Shares
subject to the Offer; (ii) reduce the Offer Price; (iii) add to the Offer
Conditions; (iv) except as provided in the next sentence, extend the Offer; or
(v) change the form of consideration payable in the Offer. The Purchaser may,
without the consent of the Company, (i) extend the Offer, if at the scheduled or
extended expiration date of the Offer any of the Offer Conditions shall not be
satisfied or waived, until such time as such conditions are satisfied or waived,
(ii) extend the Offer for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable to
the Offer, and (iii) extend the Offer for any reason on one or more occasions
for an aggregate period of not more than 20 business days beyond the latest
expiration date
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that would otherwise be permitted under clause (i) or (ii) of this sentence, in
each case subject to the right of the Purchaser or the Company to terminate the
Stock Purchase Agreement pursuant to the terms thereof. The Purchaser is not
obligated to keep the Offer open until the Shareholders Meeting occurs. In the
event the parties' obligations to close the sale of the Second Funding Shares
are terminated as discussed below, the Purchaser may elect, in its sole
discretion, to continue to conduct the Offer.
Subject to the Offer Conditions, the Purchaser is required to accept for
payment, purchase, and pay for, in accordance with the terms of the Offer,
Shares validly tendered and not properly withdrawn pursuant to the Offer at the
earliest time following expiration of the Offer that all conditions to the Offer
and its consummation have been satisfied or waived by the Purchaser. The Offer
Conditions are for the sole benefit of the Purchaser and may be asserted by the
Purchaser regardless of the circumstances giving rise to any such condition
(including without limitation, any action or inaction by the Purchaser) or may
be waived by the Purchaser, in whole or in part at any time and from time to
time, in the Purchaser's sole discretion.
Pursuant to the Stock Purchase Agreement, the Company has agreed that, not
later than the first business day after the date the Schedule 14D-1 is filed by
the Purchaser, it will file with the Commission and mail to its shareholders, a
Solicitation/Recommendation Statement on Schedule 14D-9 containing the
recommendation of the Board of Directors that the Company's shareholders accept
the Offer and tender their shares in the Offer.
The Shareholders Meeting. The Stock Purchase Agreement requires the Company
to call and hold, as soon as practicable, the Shareholders Meeting for the
purpose of voting on the approval of the sale of the Second Funding Shares and
the adoption and approval of the Stock Purchase Agreement and the Articles of
Amendment to the Company's Amended and Restated Articles of Amendment described
in further detail below. The Company has agreed that the proxy materials for the
Shareholders Meeting will contain the recommendation of the Board of Directors
that the shareholders approve the sale of the Second Funding Shares and will
state that the Board recommends the Offer.
Amendment to Articles of Incorporation. The Company's Board of Directors
has approved an amendment to the Amended and Restated Articles of Incorporation
of the Company, pursuant to which the number of authorized shares of capital
stock of the Company shall be increased from twenty-five million (25,000,000) to
forty million (40,000,000) as embodied in the Articles of Amendment attached as
an exhibit to the Stock Purchase Agreement (the "Articles of Amendment"). The
Company's Board of Directors has resolved to recommend the approval of the
Articles of Amendment by the shareholders and has directed that such Articles of
Amendment be submitted to the shareholders for their approval at the
Shareholders Meeting. At the Second Closing, the Company shall file the Articles
of Amendment with the Secretary of State of the State of Texas if such Articles
of Amendment have been approved by the shareholders at the Shareholders Meeting,
in accordance with the Company's governing instruments and applicable law.
Representations and Warranties. The Stock Purchase Agreement contains
various customary representations and warranties of the parties, including
representations by the Company as to the Company's organization and
qualification, capital structure, authority to enter into the Stock Purchase
Agreement and to consummate the transactions contemplated thereby, required
consents and approvals, filings made by the Company with the Commission
(including financial statements included in the documents filed by the Company
with the Commission), absence of material adverse changes, absence of
litigation, employee benefit plans, environmental laws and regulations,
intellectual property, tax matters and the inapplicability of certain state
takeover statutes.
The Purchaser has also made customary representations and warranties to the
Company, including, but not limited to, representations and warranties as to
organization, authority to enter into the Stock Purchase Agreement and to
consummate the transactions contemplated thereby, required consents and
approvals and financing.
Conduct of Business of the Company. The Stock Purchase Agreement provides
that until the Second Closing, the business of the Company and each of its
subsidiaries will be conducted in the ordinary and usual course of business.
Accordingly, without the Purchaser's approval, neither the Company nor any of
its
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<PAGE> 25
subsidiaries may, prior to the Second Closing, engage or agree to engage in an
enumerated list of actions generally characterized as being outside the ordinary
and usual course of business. Such actions requiring the Purchaser's approval
include, among other things (but subject to certain exceptions stated in the
Stock Purchase Agreement): (i) issuing equity securities other than under
specified circumstances; (ii) making any new grants or awards under any employee
benefit plans; (iii) compromising any claims or litigation, or entering into any
agreements for indebtedness or other agreements; or (iv) making new commitments
for capital expenditures in excess of specified levels.
Other Potential Bidders and Transactions. Pursuant to the terms of the
Stock Purchase Agreement, the Company may not, and the Company is required to
use its best efforts to not permit any of its subsidiaries and their respective
directors, officers, employees, attorneys, financial advisors, agents or other
representatives to, directly or indirectly, solicit, initiate or knowingly
encourage (including by way of furnishing information) any bona fide proposal or
offer (other than a proposal or offer by the Purchaser or any of the Purchaser's
affiliates), or any expression of interest relating to any actual or potential
merger, consolidation or other business combination involving the Company or any
of its subsidiaries or any acquisition in any manner (including, without
limitation, by tender or exchange offer) of a substantial equity interest in, or
a substantial portion of the assets of, the Company or any of its subsidiaries
(individually, a "Takeover Proposal" and collectively the "Takeover Proposals").
Notwithstanding the foregoing, the Stock Purchase Agreement permits the
Company to engage in discussions or negotiations with, and furnish information
to, any person that makes a written Takeover Proposal in respect of which the
Board of Directors of the Company concludes in good faith if consummated would
constitute a Superior Proposal (as defined herein), but only if the Board of
Directors of the Company concludes in good faith on the basis of the advice of
its outside counsel that the failure to take such action would be inconsistent
with the fiduciary obligations of the Board under applicable law. A "Superior
Proposal" is defined as a Takeover Proposal, on terms which a majority of the
members of the Board of Directors of the Company determines in good faith, and
based on the advice of outside counsel, to be more favorable to the Company and
its shareholders than the transactions contemplated by the Stock Purchase
Agreement and any revised transaction proposed by the Purchaser in response to a
Superior Proposal being made. The Purchaser has the right to be notified of the
material terms of any Takeover Proposal, including the identity of the person
making such Takeover Proposal, as soon as practicable but no later than the date
on which such Takeover Proposal is presented to the Board of Directors. In the
event the Company's Board of Directors determines in good faith that a Takeover
Proposal constitutes a Superior Proposal, the Company may not terminate the
Stock Purchase Agreement until a period of at least five (5) business days has
elapsed after delivery to the Purchaser of such determination by the Board of
Directors, during which time the Company is required to provide the Purchaser a
reasonable opportunity to propose a modification of the terms and conditions of
the Stock Purchase Agreement so that a business combination between the Company
and the Purchaser may be effected. If, after such period, the Company's Board of
Directors continues to believe in good faith that such Takeover Proposal
constitutes a Superior Proposal and simultaneously therewith or not later than
90 business days thereafter the Company enters into a definitive acquisition,
merger or similar agreement to effect such Superior Proposal, then the Company
may terminate the Stock Purchase Agreement, in which event the Company would be
required to pay Purchaser $1 million in cash (the "Termination Fee").
The Purchaser has the right to terminate the Stock Purchase Agreement in
the event, among other things the Board of the Directors of the Company shall
have recommended to the shareholders any Takeover Proposal (other than by the
Purchaser or any of Purchaser's affiliates) or shall have resolved to do so, in
which event, upon the acceptance of any such proposal, the Company would be
required to pay the Termination Fee.
Termination. The Stock Purchase Agreement may be terminated upon the mutual
written consent of the Company and the Purchaser, or by either the Company or
the Purchaser if: (i) there has been a breach by the other party of any
representation or warranty made as of the date of the Stock Purchase Agreement
that is not qualified by reference to a Material Adverse Effect (as defined
below), the effect of which has a Company Material Adverse Effect or a Buyer
Material Adverse Effect, as the case may be; (ii) there has been a breach by the
other party of any representation or warranty made as of the date of the Stock
Purchase Agreement that is qualified by reference to a Material Adverse Effect,
in each case, which breach has not been cured (if
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<PAGE> 26
capable of being cured) within fifteen (15) business days after receipt by the
breaching party of written notice of the breach; (iii) as a result of the
failure of any of the Offer Conditions, the Offer shall have terminated or
expired in accordance with its terms without the Purchaser having accepted for
payment any Shares pursuant to the Offer; (iv) the Purchaser shall not have
accepted for payment any Shares pursuant to the Offer prior to July 1, 1999;
provided, however, that with respect to Subsections (iii) and (iv) hereof, the
right to terminate the Stock Purchase Agreement shall not be available to any
party whose failure to perform any of its obligations under the Stock Purchase
Agreement results in the failure of any such condition or if the failure of such
condition results from facts or circumstances that constitute a breach of a
representation or warranty under the Stock Purchase Agreement by such party; (v)
the Second Closing and the consummation of the Offer have not been effected on
or prior to the close of business on July 1, 1999, whether such date is before
or after the date of approval of the Company's shareholders; provided, however,
that the right to terminate the Stock Purchase Agreement pursuant to this part
(v) of this paragraph shall not be available to any party whose failure to
fulfill any obligation of the Stock Purchase Agreement has been the cause of, or
resulted in, the failure of the Second Closing to have occurred on or prior to
such date; (vi) any court or other government or an agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state, or local,
domestic or foreign (a "Governmental Entity"), having jurisdiction over a party
to the Stock Purchase Agreement shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by the Stock Purchase Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable; or (vii) ten (10) business days elapse after all the conditions
to the Company's and the Purchaser's obligations to close the sale of the Second
Funding Shares shall have been satisfied or waived and the Second Closing shall
not have occurred through no fault of the terminating party.
The Company may terminate the Stock Purchase Agreement if: (i) the
Purchaser shall have failed to comply in any material respect with any of its
respective covenants or agreements contained in the Stock Purchase Agreement
required to be complied with prior to the date of such termination, which
failure to comply has not been cured within fifteen (15) business days after
written notice of such failure; (ii) the Company's shareholders shall not
approve the Stock Purchase Agreement and the transactions contemplated thereby
at a duly called and noticed special shareholders meeting at which a quorum is
present in person or by proxy, or any adjournment thereof prior to June 21,
1999; or (iii) the Board of Directors of the Company shall determine in good
faith that a Takeover Proposal constitutes a Superior Proposal; provided,
however, that the Company may not terminate the Stock Purchase Agreement
pursuant to part (iii) of this paragraph, unless (A) five (5) business days
shall have elapsed after delivery to the Purchaser of a written notice of such
determination by such Board of Directors and at all reasonable times during such
five (5) business-day period the Company shall have provided the Purchaser a
reasonable opportunity, to propose a modification of the terms and conditions of
the Stock Purchase Agreement so that a business combination between the Company
and the Purchaser may be effected, and (B) at the end of such five (5)
business-day period such Board of Directors shall continue to believe in good
faith that such Takeover Proposal constitutes a Superior Proposal and
simultaneously therewith or not later than ninety (90) business days thereafter
the Company shall enter into a definitive acquisition, merger or similar
agreement to effect such Superior Proposal.
The Purchaser may terminate the Stock Purchase Agreement if: (i) the
Company shall have failed to comply in any material respect with any of its
covenants or agreements contained in the Stock Purchase Agreement required to be
complied with prior to the date of such termination, which failure to comply has
not been cured within fifteen (15) business days after written notice of such
failure; (ii) the Company shall not have duly called and noticed a special
shareholders meeting to be held no later than June 4, 1999 (subject to
adjournment) within the notice period required by the Company's governing
instruments and applicable law; (iii) the shareholders shall not approve the
Stock Purchase Agreement and the transactions contemplated by the Stock Purchase
Agreement at a duly called and noticed shareholders meeting at which a quorum is
present in person or by proxy, or any adjournment thereof prior to June 21,
1999; (iv) the Board of Directors of the Company shall not have recommended the
Stock Purchase Agreement and the transactions contemplated thereby to the
Company's shareholders as contemplated by the Stock Purchase Agreement, or shall
have resolved not to make such recommendations, or shall have modified in a
manner adverse to the Purchaser or rescinded its recommendations to the
shareholders, or shall have modified or rescinded its
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<PAGE> 27
approval of the Stock Purchase Agreement or the transactions contemplated
thereby, or shall have resolved to do any of the foregoing; (v) the Board of
Directors of the Company shall have recommended to the shareholders any Takeover
Proposal (other than by the Purchaser or any of its affiliates) or shall have
resolved to do so; (vi) a tender offer or exchange offer for twenty percent
(20%) or more of the outstanding shares of capital stock of the Company is
commenced, and the Board of Directors of the Company fails to recommend against
acceptance of such tender offer or exchange offer by its shareholders within the
ten (10) business day period (or such shorter period) required by Section 14e-2
of the Exchange Act (the taking of no position by the expiration of such ten
business day period (or such shorter period) with respect to the acceptance of
such tender offer or exchange offer by its shareholders constituting such a
failure); or (vii) the Company or any of its subsidiaries, without having
received prior written consent from the Purchaser, shall have entered into,
authorized, recommended, proposed, or publicly announced its intention to enter
into, authorize, recommend or propose to its shareholders an agreement,
arrangement, understanding or letter of intent with any person (other than the
Purchaser or any of its affiliates) to (A) effect a merger or consolidation or
similar transaction involving the Company or any of its subsidiaries, (B)
purchase, lease, or otherwise acquire all or a substantial portion of the assets
of the Company or any of its subsidiaries, or (C) purchase or otherwise acquire
(including by way of merger, consolidation, share exchange or similar
transaction) beneficial ownership of securities representing twenty percent
(20%) or more of the voting power of the Company (in each case other than any
such merger, consolidation, purchase, lease or other transaction involving only
the Company and one (1) or more of its subsidiaries or involving only any two
(2) or more of its subsidiaries).
"Material Adverse Effect" as defined in the Stock Purchase Agreement means,
when used in connection with the Company or the Purchaser, any change or effect
that: (i) has had, or is reasonably likely to have a materially adverse impact
on the business, operations, or results of operations, assets or condition
(financial or otherwise) of such party or any of its subsidiaries; or (ii)
substantially impairs or delays the consummation of the transactions
contemplated by the Stock Purchase Agreement, but, in either such event, shall
not include (A) any change or effect that results from conditions, events or
circumstances generally affecting the industries in which the Company or the
Purchaser operate or the economy in general, (B) any action or change
specifically permitted or required by the provisions of the Stock Purchase
Agreement, or (C) the transactions contemplated by this Agreement or the
announcement hereof, provided, however, a Material Adverse Effect will be deemed
to include the circumstances set forth in (i) or (ii) above if those
circumstances are caused by any suit, action, cause or proceeding brought by any
third party seeking injunctive relief, damages, or any other relief concerning
the transactions contemplated by the Stock Purchase Agreement.
Transaction Expenses. Pursuant to the terms of the Stock Purchase
Agreement, except for the Termination Fee which shall be borne by the Company,
all costs and expenses incurred in connection with the Stock Purchase Agreement
and the transactions contemplated thereby shall be paid by the party incurring
such costs and expenses; provided, however, that: (i) all expenses incurred in
connection with the filing fees and printing and mailing costs of the Schedule
14D-1 and the other documents required to be filed with the Commission in
connection with the Stock Purchase Agreement, including the Offer, are to be
shared equally be the Purchaser and the Company, and (ii) all filing fees and
other costs incurred by any of the parties in connection with the HSR Act are to
be borne by the Company.
The Side Letter Agreements
The following is a summary of the material terms of the Side Letter
Agreements between the Purchaser and each of the Management Shareholders. This
summary is not a complete description of the terms and conditions thereof and is
qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of the form of which has been filed
as an exhibit to the Schedule 14D-1 containing this Offer to Purchase. The form
of Side Letter Agreement may be examined and copies thereof may be obtained, as
set forth in Section 8 above.
Under the Side Letter Agreements, each of the Management Shareholders
agrees, in the event the Minimum Tender Condition is not met as of the initial
scheduled expiration date of the Offer, to tender such number of the Management
Shareholder's Shares pursuant to the terms of the Offer, except where such sales
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<PAGE> 28
in response to the Offer might result in liability under Section 16(b) of the
Exchange Act, so that the number of shares tendered by such Management
Shareholder and all other shareholders of the Company shall meet the Minimum
Tender Condition. Each Management Shareholder may tender up to the full amount
of such person's Shares in the Offer, even if the Minimum Condition is otherwise
met, subject to the pro rata reduction as described in Section 1 of this Offer
to Purchase. Because the Management Shareholders own in the aggregate more than
1,600,000 Shares, the tender by the Management Shareholders of all of their
Shares alone will cause the Minimum Tender Condition to be satisfied. Each of
the Management Shareholders further agrees that he shall not, directly or
indirectly, solicit, initiate or knowingly encourage (including by way of
furnishing information), entertain or consider any Takeover Proposal from any
person other than the Purchaser or engage in or continue discussions or
negotiations relating to any Takeover Proposal, except that such Management
Shareholder shall not be restricted from acting in his capacity as a director in
responding to a Takeover Proposal as permitted in the Stock Purchase Agreement.
The Shareholders' and Voting Agreement
The following is a summary of the material terms of the Shareholders'
Agreement by and among the Company, the Purchaser and the Management
Shareholders. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof, which is incorporated herein by reference and a copy of which has
been filed as an exhibit to the Schedule 14D-1 containing this Offer to
Purchase. The Shareholders' Agreement may be examined and copies thereof may be
obtained, as set forth in Section 8 above.
Voting Agreement. Under the Shareholders' Agreement, which is conditioned
and effective upon the Second Closing, the Management Shareholders shall have
the right to nominate two (2) of the total number of directors of the Company
and the Purchaser shall have the right to nominate the remaining number of
directors. The initial nominees of the Management Shareholders under the
Shareholders' Agreement are Joseph N. Matlock and M. D. Davis and the initial
nominees of the Purchaser under the Shareholders' Agreement are E. Thomas
Martin, Robert L. Burke, Joseph S. Whitaker and John McSorley. The parties to
the Shareholders' Agreement are required to vote the number of Shares they own
for the election of the individuals nominated by the Purchaser and the
Management Shareholders in accordance with the Shareholders' Agreement.
In connection with the Shareholders' Agreement, each of the Management
Shareholders has executed an irrevocable proxy appointing the Purchaser as proxy
and authorizing the Purchaser to vote such Management Shareholder's Shares for
the election of the directors to the Board of Directors in accordance with the
Shareholders' Agreement. Such irrevocable proxies further designate the
Purchaser as a proxy for each Management Shareholder with respect to all other
matters of the Company subject to a vote of the Company's shareholders;
provided, however, that each Management Shareholder has retained the right to
vote his Shares with respect to matters concerning (i) a dissolution of the
Company, or (ii) the sale of all or substantially all of the assets of the
Company which requires a vote of shareholders under applicable law, the issuance
by the Company of Common Stock in such amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law. The irrevocable proxies are conditioned upon and are to become
effective upon the Second Closing.
Rights of First Refusal. Pursuant to the terms of the Shareholders'
Agreement, effective as of April 15, 1999, the Purchaser has a right of first
refusal with respect to the sale, transfer or other disposition (a "Transfer")
of Shares owned by each of the Management Shareholders. In the event a
Management Shareholder wishes to Transfer Shares other than in a transaction
effected on the Nasdaq Stock Market or any stock exchange or over-the-counter
trading system on which the Shares are traded (a "Public Transfer"), the
Purchaser will have an option for five (5) business days after receiving notice
of the proposed Transfer and the terms thereof (a "Seller Notice") to purchase
the Shares at the same price and on the same terms as specified in the Seller
Notice. In the event the Purchaser does not exercise its option with respect to
one hundred percent (100%) of the Shares specified in the Seller Notice (or less
than 100% if permitted under the terms of the Seller Notice), then the
Management Shareholder may transfer such Shares (or remaining Shares in the
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<PAGE> 29
event the Purchaser exercises its option to purchase less than 100% of the
Shares as permitted in the Seller Notice) free of the right of first refusal and
voting agreement on the terms specified in the Seller Notice (or at a higher
price with no material change in the other terms), provided such Transfer is
consummated within 180 days of the date of the Seller Notice.
In the event a Management Shareholder wishes to make a Public Transfer of
Shares, the Purchaser will have an option to purchase such Shares on the same
terms specified in the Public Transfer Notice (defined below) for three (3)
business days after receiving notice of such proposed transfer, which notice
shall contain the maximum number of Shares the Management Shareholder intends to
sell during the following sixty (60) days, and the minimum price at such Shares
may be sold (the "Public Transfer Notice"). In the event the Purchaser does not
purchase 100% of the Shares subject to the Public Transfer Notice, then the
Management Shareholder may sell the balance of the Shares specified in the
Public Transfer Notice at a price not less than the price specified in the
Public Transfer Notice free of the right of first refusal and voting agreement,
provided than any such Shares not Transferred within sixty (60) days of the date
of the Public Seller Notice shall again be subject to the Purchaser's right of
first refusal under the Shareholders' Agreement.
Notwithstanding the foregoing, under the Shareholders' Agreement, each
Management Shareholder may pledge Shares held by it as collateral for
indebtedness provided that the pledgee party agrees to be bound by all of the
terms and conditions of the Purchaser's rights of first refusal under the
Shareholders' Agreement. In addition, pursuant to the terms of the Shareholders'
Agreement, the Purchaser grants to the Management Shareholders a right of
participation with respect to future sales by the Purchaser of Shares where such
sales occur in any one transaction or series of related transactions in which
more than forty percent (40%) of the total number of Shares standing in the
Purchaser's name as of the date of the Second Closing are Transferred.
The Shareholders' Agreement and the irrevocable proxies executed in
connection therewith will be terminated upon the earlier of: (i) the termination
of the Stock Purchase Agreement in the event the Second Closing does not occur;
(ii) the fifth anniversary of the date of the Second Closing; (iii) the written
consent of the Company, the Purchaser and a majority in interest of the
Management Shareholders; or (iv) the dissolution of the Company.
In the event the Management Shareholders do not tender any Shares owned by
them into the Offer and the Minimum Tender Condition is otherwise met, there is
a possibility that, upon consummation of the transactions contemplated by the
Stock Purchase Agreement, including the Offer, the Purchaser will be the
beneficial owner of up to sixty-eight percent (68%), and Tom Martin, through his
control of the Purchaser, will beneficially own up to seventy percent (70%), of
the total number of Shares then outstanding (assuming (i) there are upward
adjustments in the aggregate of 140,000 shares to the number of Second Funding
Shares, and (ii) no other Shares are issued), by virtue of the Purchaser's right
to vote shares held by the Management Shareholders pursuant to the Shareholders'
Agreement and the irrevocable proxies. The Purchaser and Mr. Martin have been
advised by the Company that, to the best of the Company's knowledge, all of the
Management Shareholders currently intend to tender Shares owned by them into the
Offer.
The Registration Rights Agreement
The following is a summary of the material terms of the Registration Rights
Agreement by and among the Company, the Purchaser and the Management
Shareholders. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof, which is incorporated herein by reference and a copy of which has
been filed with the Commission as an exhibit to the Schedule 14D-1 containing
this Offer to Purchase. The Registration Rights Agreement may be examined, and
copies thereof may be obtained, as set forth in Section 8 above.
The Registration Rights Agreement was entered into concurrently with the
Stock Purchase Agreement. The Registration Rights Agreement provides, among
other things, that the Purchaser (and certain of its transferees) has the right
by written notice (a "Demand Notice") to require the company to file a
Registration Statement under the Securities Act where such Demand Notice covers
the registration of at least
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<PAGE> 30
250,000 shares purchased by the Purchaser from the Company under the Stock
Purchase Agreement; provided, however, this right may not be exercised on more
than two (2) occasions.
Pursuant to the Registration Rights Agreement, if the Company proposes to
register any of its securities under the Securities Act (other than a
registration on Form S-4 or Form S-8, or any other form not available for
registering the Registrable Securities (as defined herein) for sale to the
public) and the registration form may be used for the registration of the
Registrable Securities (a "Piggyback Registration"), then the Company is
required to give prompt notice to the Purchaser and the Management Shareholders
of its intention to effect such a registration and include in such registration
all Registrable Securities which the Purchaser and the Management Shareholders
request to be included in such registration by written notice to the Company.
Notwithstanding the foregoing, if in a Piggyback Registration the underwriter
advises the Company that the number of securities requested to be included in
such registration exceeds the number which can be sold in an orderly manner in
such offer within a price range acceptable to the Company, then the Company will
include in such registration: (i) if an offering of equity securities by the
Company, first, the securities to be sold by the Company, second, the MVII
Shares (defined below), third, the DSI Group Shares (defined below), and fourth,
other securities requested to be included in such registration; and (ii) if an
offering of equity securities by holders of the Company's securities, first, the
securities requested to be included therein by the holders requesting such
registration, second, the MVII Shares, and third, the DSI Group Shares.
For purposes of the Registration Rights Agreement the term "Registrable
Securities" means: (i) the Initial Funding Shares and the Second Funding Shares,
together with any shares of Common Stock issued or issuable with respect to such
shares by way of a share dividend or share split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization (the "MVII Shares"), and (ii) only with respect to a Piggyback
Registration, shares of Common Stock over which a Management Shareholder has
dispositive power as of the date of the Registration Rights Agreement, together
with any shares of Common Stock issued or issuable with respect to such shares
by way of a share dividend or share split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization (the
"DSI Group Shares").
The rights of the parties under the Registration Rights Agreement may not
be transferred, except that the rights of the Purchaser under such agreement may
be transferred at any time without the consent of the Company to any person
acquiring at least 250,000 of the Registrable Securities from the Purchaser or
any of its affiliates. The Registration Rights Agreement provides that expenses
relating to the registration of shares (other than underwriting expenses
relating to Registrable Securities and the selling shareholder's legal expenses)
will be paid by the Company and otherwise contains terms that are customary to
registration rights agreements of its type, including, but not limited to,
rights of indemnification and contribution.
The Consulting Agreement
The following is a summary of the material terms of the Consulting
Agreement to be entered into between the Company and Mr. Davis prior to the
Second Closing. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof, which is incorporated herein by reference and a copy of the form
of which has been filed as an exhibit to the Schedule 14D-1 containing this
Offer to Purchase. The form of Consulting Agreement may be examined and copies
thereof may be obtained, as set forth in Section 8 above.
As a condition to the Purchaser's obligation to purchase the Second Funding
Shares, the Company and Mr. Davis will enter into the Consulting Agreement which
shall be effective as of the date of the Second Closing, pursuant to which Mr.
Davis shall cease to be an employee and officer of the Company and shall provide
consulting services to the Company for a period ending on the third annual
anniversary of the date of the Second Closing. As compensation for his services
under the Consulting Agreement, Mr. Davis shall be entitled to compensation in
the amount of $450,000, payable in equal monthly installments of $12,500. Mr.
Davis shall be entitled to such compensation irrespective of a termination of
the Consulting Agreement, unless such termination is by Mr. Davis for reasons
other than a breach by the Company of its obligations
30
<PAGE> 31
under the Consulting Agreement. The Consulting Agreement contains a
non-disclosure covenant similar to the non-disclosure covenant contained in Mr.
Davis' previous employment agreement with the Company, a copy of which is filed
as a part of the Company's Registration Statement on Form S-1 filed with the
Commission on May 29, 1997.
13. DIVIDENDS AND DISTRIBUTIONS
According to the Company Form 10-K, the Company has not paid any dividends
to date. Pursuant to the terms of the Stock Purchase Agreement, the Company and
its subsidiaries are prohibited from declaring, setting aside, or paying any
dividends payable in cash, stock or property in respect of any capital stock
other than dividends from their direct or indirect wholly-owned subsidiaries
until after the Second Closing.
14. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer or the Stock Purchase
Agreement, and in addition to (and not in limitation of) the Purchaser's rights
to extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Stock Purchase Agreement), and subject to any applicable rules
and regulations of the Commission, including Rule 14e-1(c) relating to the
Purchaser's obligation to pay for or return tendered Shares after termination of
the Offer, the Purchaser is not required to accept for payment or pay for any
Shares tendered pursuant to the Offer unless the following conditions shall have
been satisfied: (i) there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer one million six hundred thousand
(1,600,000) Shares; (ii) any waiting period under the HSR Act applicable to the
purchase of Shares pursuant to the Offer shall have expired or been terminated;
(iii) there shall have been full compliance with Article 13.03 of the Texas
Business Corporation Act (the "TBCA"), including the approval of the acquisition
of the Initial Funding Shares and Second Funding Shares by the Purchaser as
contemplated by the Stock Purchase Agreement by the Company's Board of
Directors; (iv) the conditions to the Purchaser's obligations to purchase the
Second Funding Shares set forth in the Stock Purchase Agreement shall have been
satisfied or waived; and (v) the closing of the sale of the Second Funding
Shares shall have occurred pursuant to the Stock Purchase Agreement, it being
understood that the closing of the Offer shall occur simultaneously with and be
conditioned upon the closing of the sale of the Second Funding Shares.
Furthermore, notwithstanding any other term of the Offer or the Stock Purchase
Agreement, the Purchaser shall not be required to accept for payment or, subject
as aforesaid, to pay for any Shares not theretofore accepted for payment or paid
for, and may terminate the Offer if, at any time on or after the date of the
Stock Purchase Agreement and before the acceptance of such Shares for payment or
the payment therefor, any of the following conditions exists and with respect to
(a), (b), (c), (e) and (f) only, such condition has not been cured within ten
(10) days of receipt of notice thereof by the Purchaser (other than as a result
of any action or inaction of the Purchaser or any of its subsidiaries that
constitutes a breach of the Stock Purchase Agreement):
(a) there shall be threatened or pending by any Governmental Entity
any suit, action or proceeding (i) challenging the acquisition by the
Purchaser of any Shares under the Offer or the Stock Purchase Agreement,
seeking to restrain or prohibit the making or consummation of the Offer or
the performance of any of the other transactions contemplated by the Offer,
the Stock Purchase Agreement or the Shareholders' Agreement or the
Registration Rights Agreement (the "Other Agreements"), or seeking to
obtain from the Company or the Purchaser (in the case of the Purchaser in a
suit, action, or proceeding related to the Stock Purchase Agreement) any
damages that are material in relation to the Company or any of its
subsidiaries; (ii) seeking to prohibit or materially limit the ownership or
operation by the Company or any of its subsidiaries of a material portion
of the business or assets of the Company or any of its subsidiaries or to
compel the Company or the Purchaser to dispose of or hold separate any
material portion of the business or assets of the Company or any of its
subsidiaries, or the Purchaser or any of its subsidiaries, in each case as
a result of the Offer or any of the other transactions contemplated by the
Stock Purchase Agreement or the Other Agreements; (iii) seeking to impose
material limitations on the ability of the Purchaser to acquire or hold, or
exercise full rights of ownership of, any Shares to be accepted for payment
pursuant to the Offer or the Stock Purchase Agreement including, without
31
<PAGE> 32
limitation, the right to vote such Shares on all matters properly presented
to the shareholders; or (iv) which otherwise is reasonably likely to have a
Material Adverse Effect on the business of the Company or any of its
subsidiaries or the Purchaser or any of its subsidiaries, or there shall be
pending by any other person any suit, action or proceeding which is
reasonably likely to have a Material Adverse Effect on the business of the
Company or any of its subsidiaries or the Purchaser or any of its
subsidiaries;
(b) there shall be enacted, entered, enforced, promulgated or deemed
applicable to the Offer by any Governmental Entity, any statute, rule,
regulation, judgment, order or injunction, other than the application to
the Offer of applicable waiting periods under the HSR Act, that is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a)
above;
(c) there shall have occurred any Material Adverse Effect on the
business of the Company or any of its subsidiaries;
(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to the Purchaser its
approval or recommendation of the Offer, the sale of the Initial Funding
Shares or the Second Funding Shares, the Stock Purchase Agreement, the
Articles of Amendment or any of the Other Agreements or recommendation to
the shareholders of the Offer; (ii) the Board of Directors of the Company
or any committee thereof shall have resolved to take any of the foregoing
actions; (iii) the Company shall have approved or recommended any Takeover
Proposal; or (iv) the Company shall have entered into any agreement with
respect to any Superior Proposal in accordance with the Stock Purchase
Agreement;
(e) any of the representations and warranties of the Company set forth
in the Stock Purchase Agreement shall not be true and correct in each case:
(i) at the date of the Stock Purchase Agreement; and (ii) at the scheduled
or extended expiration of the Offer, except for such matters that, either
individually or when combined with any breach of any other representation
or warranty of the Company or any fact, circumstance, occurrence, breach or
default, or any failure to perform any covenant or obligation all as set
forth in Sections 6.2(b) and 6.2(c) of the Stock Purchase Agreement, are
not reasonably likely to have a Material Impact (as defined below);
(f) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant of the Company to be performed or
complied with by it under the Stock Purchase Agreement, except for such
matters that, either individually or when combined with any breach of any
representation or warranty of the Company set forth in the Stock Purchase
Agreement as of the times set forth in Section (e) above, or any fact,
circumstance, occurrence, breach or default, or any failure to perform any
covenant or obligation all as set forth in Sections 6.2(b) and 6.2(c) of
the Stock Purchase Agreement, are not reasonably likely to have a Material
Impact;
(g) there shall have occurred and continued to exist for not less than
three (3) business days (i) any general suspension of trading in, or
limitation on prices for, securities on a national securities exchange in
the United States (excluding any coordinated trading halt triggered solely
as a result of a specified decrease in a market index); (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States; (iii) any limitation (whether or not mandatory) by
any Governmental Entity on, or other event that materially adversely
affects, the extension of credit by banks or other lending institutions;
(iv) a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
which in any case is reasonably expected to have a Material Adverse Effect
on the Company or the Purchaser's ability to complete the Offer or
materially delay the consummation of the Offer; or
(h) the Stock Purchase Agreement shall have been terminated in
accordance with its terms.
The term "Material Impact" is defined in the Stock Purchase Agreement as any
matter or matters having an adverse impact or economic consequence that exceeds
$360,000.
32
<PAGE> 33
The Stock Purchase Agreement provides that the foregoing conditions are for
the sole benefit of the Purchaser and may, subject to the terms of the Stock
Purchase Agreement, be waived by the Purchaser in whole or in part at any time
and from time to time in its sole discretion. The failure by the Purchaser at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, the waiver of any such right with respect to particular facts
and circumstances shall not be deemed a waiver with respect to any other facts
and circumstances and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
15. CERTAIN LEGAL MATTERS
Except as described in this Section 15, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company, as well as certain representations
made to the Purchaser in the Stock Purchase Agreement by the Company, the
Purchaser is not aware of any regulatory license or regulatory permit that
appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by the Purchaser's
acquisition or ownership of Shares as contemplated herein or of any approval or
other action by any governmental entity that would be required or desirable for
the acquisition or ownership of Shares by the Purchaser as contemplated herein.
Should any such approval or other action be required or desirable, the Purchaser
currently contemplates that such approval or other action will be sought, except
as described below under "State Takeover Laws." Although, except as otherwise
expressly described in this Section 15, the Purchaser does not presently intend
to delay the acceptance for payment of or payment for Shares tendered pursuant
to the Offer pending the outcome of any such matter, there can be no assurance
that any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business or that certain parts of the Company's business might not
have to be disposed of if such approvals were not obtained or such other actions
were not taken or in order to obtain any such approval or other action. If
certain types of adverse action are taken with respect to the matters discussed
below, the Purchaser could decline to accept for payment or pay for any Shares
tendered. See Section 14 for Certain Conditions to the Offer.
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, shareholders, executive offices or places of business in such states. In
Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. However, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining shareholders, provided that such laws were applicable
only under certain conditions. Subsequently, a number of federal courts ruled
that various state takeover statutes were unconstitutional insofar as they apply
to corporations incorporated outside of the state of enactment.
The Company is incorporated under the laws of the State of Texas. In
general, Article 13.03 of the TBCA prevents an "issuing public corporation"
(generally, a domestic corporation that has any class of voting shares
registered under the Exchange Act) from, directly or indirectly, entering into
or engaging in any "business combination" (defined to include the issuance or
transfer in one transaction or series of transactions, shares of the issuing
public corporation) with an "affiliated shareholder" (generally, a person who
beneficially owns twenty percent (20%) or more of the then outstanding voting
shares of the issuing public corporation) for a period of three (3) years
following the date such person first became an affiliated shareholder unless,
among other things, prior to such date the board of directors of the corporation
approved either the business combination or the purchase or acquisition which
resulted in the shareholder becoming an affiliated shareholder.
33
<PAGE> 34
Upon consummation of the sale of the Second Funding Shares and the Offer,
the Purchaser will become an affiliated shareholder within the meaning of
Article 13.03 of the TBCA pursuant to the Stock Purchase Agreement. The Board of
Directors of the Company approved the Stock Purchase Agreement and the
transactions contemplated thereby on April 9, 1999, and, as a result, has
approved the purchase or acquisition of shares by the Purchaser prior to the
time the Purchaser will become an affiliated shareholder under Article 13.03 of
the TBCA. Accordingly, Article 13.03 is inapplicable to the Offer, and the
Common Stock Acquisitions.
Neither the Company nor the Purchaser has determined whether any other
state takeover laws and regulations will by their terms apply to the Offer or
the Common Stock Acquisitions, and, except as set forth above, neither the
Company nor the Purchaser has presently sought to comply with any other state
takeover statute or regulation. The Company and the Purchaser reserve the right
to challenge the applicability or validity of any state law or regulation
purporting to apply to the Offer or the Common Stock Acquisitions, and neither
anything in this Offer nor any action taken in connection herewith is intended
as a waiver of such right. In the event it is asserted that one or more state
takeover statutes is applicable to the Offer or the Common Stock Acquisitions
and an appropriate court does not determine that such statue is inapplicable or
invalid as applied to the Offer, the Company or the Purchaser might be required
to file certain information with, or to receive approval from the relevant state
authorities, and the Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer, or be delayed in consummating the Offer.
Antitrust. Under the provisions of the HSR Act and the rules promulgated
thereunder, the transactions contemplated by the Stock Purchase Agreement,
including the acquisition of Shares under the Offer, may be consummated
following the expiration of a thirty (30)-calendar day waiting period following
the filing by the Purchaser of a Notification and Report Form with respect to
such transactions, unless the Purchaser receives a request for additional
information or documentary material from the Antitrust Division or the FTC or
unless early termination of the waiting period is granted. Under the HSR Act and
the rules promulgated thereunder, while a fifteen (15)-calendar day waiting
period applies to the acquisition of shares in a cash tender offer, a longer,
thirty (30)-calendar day waiting period applies to the acquisition of shares in
non-public transactions. As a result, both waiting periods apply to the
transactions contemplated by the Stock Purchase Agreement, including the Offer.
The Purchaser will make such filing as promptly as practicable after the
commencement of the Offer. If, within the initial thirty (30)-day waiting
period, either the Antitrust Division or the FTC requests additional information
or documentary material from the Purchaser concerning such transactions, the
waiting period will be extended and would expire at 11:59 p.m., New York City
time, on the tenth calendar day after the date of substantial compliance by the
Purchaser with such request. Only one extension of the waiting period pursuant
to a request for additional information is authorized by the HSR Act.
Thereafter, such waiting period may be extended only by court order or with the
consent of the Purchaser. In practice, complying with a request for additional
information or material can take a significant amount of time. In addition, if
the Antitrust Division or the FTC raises substantive issues in connection with a
proposed transaction, the parties frequently engage in negotiations with the
relevant governmental agency concerning possible means of addressing those
issues and may agree to delay consummation of the transaction while such
negotiations continue. Expiration or termination of the applicable waiting
periods under the HSR Act is a condition to the Purchaser's obligation to accept
for payment and pay for Shares tendered pursuant to the Offer.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed purchase of
the Second Funding Shares and Shares tendered pursuant to the Offer by the
Purchaser. At any time before or after such purchases, the Antitrust Division or
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the transactions
or seeking the divestiture of Shares acquired by the Purchaser or the
divestiture of substantial assets of the Company or its subsidiaries or the
Purchaser or its subsidiaries. Private parties may also bring legal action under
the antitrust laws under certain circumstances. There can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, of the results thereof.
34
<PAGE> 35
16. FEES AND EXPENSES
Southwest Securities, Inc. is acting as Dealer Manager in connection with
the Offer. The Purchaser has agreed to pay the Dealer Manager reasonable
compensation for such services. In addition, the Purchaser has agreed to
reimburse the Dealer Manager for its out-of-pocket expenses, related to its
engagement, including the reasonable fees and expenses of its counsel, and to
indemnify the Dealer Manager and certain related persons against certain
liabilities and expenses, including certain liabilities under the federal
securities laws.
The Purchaser has retained MacKenzie Partners, Inc. to act as the
Information Agent and American Stock Transfer & Trust Company to serve as the
Depositary in connection with the Offer. The Information Agent and the
Depositary each will receive reasonable compensation for their services, be
reimbursed for certain reasonable out-of-pocket expenses and be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws. The Purchaser will not
pay any fees or commissions to any broker or dealer or any other person (other
than the Dealer Manager and the Information Agent) for soliciting tenders of
Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies will be reimbursed by the Purchaser upon request for customary mailing
and handling expenses incurred by them in forwarding material to their
customers.
17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the Offer or the
acceptance thereof would not be in compliance with the securities, blue sky or
other laws of such jurisdiction. The Purchaser is not aware of any jurisdiction
in which the making of the Offer or the tender of Shares in connection therewith
would not be in compliance with the laws of such jurisdiction. If the Purchaser
becomes aware of any state law prohibiting the making of the Offer or the
acceptance of Shares pursuant thereto in such state, the Purchaser will make a
good faith effort to comply with any such state statute or seek to have such
state statute declared inapplicable to the Offer. If, after such good faith
effort, the Purchaser cannot comply with any such state statute or have such
state statute declared inapplicable to the Offer, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of Shares in
such state. In these jurisdictions where securities laws require the Offer to be
made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of the Purchaser by the Dealer Manager or one or more registered brokers
or dealers that are licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER
OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain
additional information with respect to the Offer, and may file amendments
thereto. In addition, the Company shall file with the Commission the Schedule
14D-9 pursuant to Rule 14d-9 under the Exchange Act, together with exhibits,
setting forth its recommendation with respect to the Offer and the reasons for
such recommendation and furnishing certain additional related information. Such
Schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable in the manner set forth in
Section 8 (except that such material will not be available at the regional
offices of the Commission).
April 21, 1999 MVII, LLC
35
<PAGE> 36
ANNEX A
INFORMATION CONCERNING THE SOLE MANAGER AND THE EXECUTIVE
OFFICERS OF THE PURCHASER (INCLUDING MR. MARTIN)
The following table sets forth the name, business address, and principal
occupation or employment at the present time and during the past five years of
the sole manager and executive officers of the Purchaser. In addition, unless
otherwise noted, each such person's business address is 654 Osos Street, San
Luis Obispo, California 93401. All of the persons listed below are citizens of
the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT,
MATERIAL OCCUPATIONS, OFFICES OR EMPLOYMENT
NAME HELD DURING PAST FIVE YEARS
- ---- -------------------------------------------
<S> <C>
E. Thomas Martin..................... Tom Martin is the sole Manager and President of the
Purchaser. Mr. Martin is also currently the President of
Martin Resorts, Inc., a corporation engaged in the business
of owning and managing resort properties, the business
address of which is P.O. Box 12060, 654 Osos Street, San
Luis Obispo, California 93401. Mr. Martin has held such
position from January 1999 through the present. From October
1991 through July 1998, Mr. Martin served as President of MW
Sign Corp., a corporation engaged in the outdoor advertising
business, the address of which is 1245 Vine Street, Paso
Robles, California 93447. In addition, from February 1976 to
July 1998, Mr. Martin served as President of Martin &
MacFarlane, also an outdoor advertising business, the
address of which is 1245 Vine Street, Paso Robles,
California 93447.
Joseph S. Whitaker................... Mr. Whitaker currently serves as a Vice President of the
Purchaser. For the past five years, Mr. Whitaker has
operated a consulting business as a sole proprietorship,
providing services related to marketing, licensing and
product development, located at 5615 Ladybird Lane, La
Jolla, California 92037.
</TABLE>
On February 23, 1999, the Martins purchased 3,500 shares in an open market
transaction at a price of $2.44 per Share.
<PAGE> 37
Manually signed facsimile copies of the Letter of Transmittal will be accepted.
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each shareholder of the Company or such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
40 Wall Street (for Eligible Institutions 40 Wall Street
New York, New York 10005 Only) 46th Floor
(Attention: Corporate (718) 234-5001 New York, New York 10005
Trust Department) (Attention: Corporate
Confirm by Telephone: Trust Department)
(718) 921-8200
1-800-937-5449
</TABLE>
To Confirm Receipt of Facsimile
and for General Information
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Dealer Manager and the Information Agent at
their respective telephone numbers and locations listed below. You may also
contact your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
(800) 322-2885 (call toll free)
The Dealer Manager for the Offer is:
[SOUTHWEST SECURITIES LOGO]
1201 Elm Street, Suite 3500
Dallas, Texas 75270
1-888-338-1300 (call toll free)
<PAGE> 1
EXHIBIT 99(A)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
DSI TOYS, INC.
AT
$4.38 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE,
DATED APRIL 21, 1999
BY
MVII, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON TUESDAY, MAY 25, 1999 UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
40 Wall Street (for Eligible Institutions 40 Wall Street
New York, New York 10005 Only) 46th Floor
(Attention: Corporate Trust (718) 234-5001 New York, New York 10005
Department) Confirm by Telephone: (Attention: Corporate Trust
(718) 921-8200 Department)
1-800-937-5449
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST
SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED BELOW
AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by holders of Shares (as
defined below) of DSI Toys, Inc. (the "Tendering Shareholders") if certificates
evidencing Shares ("Certificates") are to be forwarded herewith or, unless an
Agent's Message (as defined in the Offer to Purchase (as defined below)) is
used, if delivery of Shares is to be made by book-entry transfer to an account
maintained by American Stock Transfer & Trust Company (the "Depositary") at The
Depositary Trust Company ("DTC") (a "Book-Entry Transfer Facility") pursuant to
the procedures set forth in Section 3 of the Offer to Purchase (as defined
below).
<PAGE> 2
Tendering Shareholders whose Certificates are not immediately available or who
cannot deliver either their Certificates for, or a Book-Entry Confirmation (as
defined in Section 2 of the Offer to Purchase) with respect to, their Shares and
all other required documents to the Depositary prior to the Expiration Date (as
defined in Section 1 of the Offer to Purchase) may tender their Shares according
to the guaranteed delivery procedures set forth in Section 3 of the Offer to
Purchase. See Instruction 2 hereof. Delivery of documents to a Book-Entry
Transfer Facility does not constitute delivery to the Depositary.
If more than 1,600,000 shares are validly tendered prior to the Expiration
Date and not withdrawn, MVII, LLC (the "Purchaser") will, upon the terms and
subject to the conditions of the Offer, accept such Shares for payment on a
pro-rata basis, with adjustments to avoid purchases of fractional Shares, based
upon the number of Shares validly tendered prior to the Expiration Date and not
withdrawn. Because of the time required to determine the precise number of
Shares validly tendered and not withdrawn, if proration is required, the
Purchaser does not expect to announce the final results of proration until
approximately eight trading days on the Nasdaq Small Cap Market after the
Expiration Date. Preliminary results of proration will be announced by press
release as promptly as practicable after the Expiration Date. Holders of Shares
may obtain such preliminary information from the Depositary or the Information
Agent, and also may be able to obtain such preliminary information from their
brokers.
2
<PAGE> 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESSES OF REGISTERED HOLDER(S) SHARE NUMBER OF SHARES
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE REPRESENTED BY NUMBER OF SHARES
APPEAR(S) ON THE CERTIFICATES) NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by holders of Shares delivering Shares by Book-Entry Transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares represented by Certificates delivered to the
Depositary are being tendered. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY, AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER).
Name of Tendering Institution: ----------------------------------------
<TABLE>
<S> <C>
Account Number: -------------------- Transaction Code Number: --------------------
</TABLE>
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s): ----------------------------------------
Window Ticket Number (if any): ----------------------------------------
Date of Execution of Notice of Guaranteed Delivery: --------------------
Name of Institution which Guaranteed Delivery: --------------------
If delivered by book-entry transfer, check box:
[ ] DTC
<TABLE>
<S> <C>
Account Number: -------------------- Transaction Code Number: --------------------
</TABLE>
3
<PAGE> 4
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to MVII, LLC, a California limited liability
company (the "Purchaser"), the above-described shares of Common Stock, par value
$.01 per share, of DSI Toys, Inc., a Texas corporation (the "Company"), at a
price of $4.38 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated April 21, 1999 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together with the Offer
to Purchase (and any amendments or supplements hereto or thereto, collectively)
constitute the "Offer"). The undersigned understands that the Purchaser reserves
the right to transfer or assign, in whole or from time to time in part or to one
or more direct or indirect wholly-owned subsidiaries of the Purchaser, the right
to purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer and will in no way prejudice the rights of tendering
holders of the Shares ("Tendering Shareholders") to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of, or payment for,
Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms or conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Purchaser all right,
title and interest in and to all of the Shares that are being tendered hereby
and any and all other Shares or other securities issued or issuable in respect
of such Shares on or after April 21, 1999, (collectively, "Distributions") and
irrevocably constitutes and appoints the Depositary the true and lawful agent
and attorney-in-fact of the undersigned with respect to such Shares (and any
Distributions), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
Certificates evidencing such Shares (and any Distributions), or transfer
ownership of such Shares (and any Distributions) on the account books maintained
by a Book-Entry Transfer Facility together, in any such case, with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Purchaser, upon receipt by the Depositary as the undersigned's agent, of the
purchase price with respect to such Shares, (ii) present such Shares (and any
Distributions) for transfer on the books of the Company and (iii) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Shares (and any Distributions), all in accordance with the terms and subject to
the conditions of the Offer.
The undersigned hereby irrevocably appoints each designee of the Purchaser
as the proxy of the undersigned, each with full power of substitution, to the
full extent of the undersigned's rights with respect to all Shares tendered
hereby and accepted for payment and paid for by the Purchaser (and any
Distributions), including, without limitation, the right to vote such Shares
(and any Distributions) in such manner as each such proxy or his substitute
shall, in his sole discretion, deem proper. All such proxies, being deemed to be
irrevocable, shall be considered coupled with an interest in the Shares tendered
herewith. Such appointment will be effective when, and only to the extent that,
the Purchaser accepts such Shares for payment. Upon such acceptance for payment,
all prior proxies given by the undersigned with respect to such Shares (and any
Distributions) will, without further action, be revoked and no subsequent
proxies may be given with respect thereto (and, if given, will be deemed
ineffective). The designees of the Purchaser will, with respect to the Shares
(and any Distributions) for which such appointment is effective, be empowered to
exercise all voting and other rights of the undersigned with respect to such
Shares (and any Distributions) as they in their sole discretion may deem proper.
The Purchaser reserves the absolute right to require that, in order for Shares
to be deemed validly tendered, immediately upon the acceptance for payment of
such Shares, the Purchaser or its designees are able to exercise full voting
rights and all other rights which inure to a record and beneficial holder with
respect to such Shares (and any Distributions) including voting at any meeting
of shareholders then scheduled.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators, trustee in bankruptcy, personal and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned.
4
<PAGE> 5
Except as stated in the Offer to Purchase, this tender is irrevocable, provided
that the Shares tendered pursuant to the Offer may be withdrawn prior to their
acceptance for payment.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any Distributions) and that, when the same are accepted for
payment and paid for by the Purchaser, the Purchaser will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances, and that the Shares tendered hereby (and
any Distributions) will not be subject to any adverse claim. The undersigned,
upon request, will execute and deliver any additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of Shares tendered hereby (and any Distributions). In
addition, the undersigned shall promptly remit and transfer to the Depositary
for the account of the Purchaser any and all Distributions issued to the
undersigned on or after April 21, 1999 in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer, and, pending such
remittance and transfer or appropriate assurance thereof, the Purchaser shall be
entitled to all rights and privileges as owner of any such Distributions and may
withhold the entire purchase price or deduct from the purchase price the amount
of value thereof, as determined by the Purchaser in its sole discretion.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser with respect to such Shares upon the terms and subject to the
conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Purchaser may not be required to accept for payment
any of the Shares tendered hereby.
The undersigned understands that if more than 1,600,000 shares are validly
tendered prior to the expiration of the Offer and not validly withdrawn in
accordance with Section 4 of the Offer to Purchase, Shares so tendered and not
validly withdrawn shall be accepted for payment on a pro rata basis, with
appropriate adjustments to avoid the purchase of fractional shares, according to
the number of Shares validly tendered and not withdrawn by the Expiration Date.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment in the name(s) of the
registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment (and accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing under "Description of Shares Tendered." In the event that both the
"Special Payment Instructions" and the "Special Delivery Instructions" are
completed, please issue the check for the purchase price and/or return any such
Certificates evidencing Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) in the name(s) of, and deliver such
check and/or return such certificates (and accompanying documents, as
appropriate) to, the person(s) so indicated. Unless otherwise indicated herein
under "Special Payment Instructions," in the case of a book-entry delivery of
Shares, please credit the account maintained at the Book-Entry Transfer Facility
indicated above with respect to any Shares not accepted for payment. The
undersigned recognizes that the Purchaser has no obligation pursuant to the
"Special Payment Instructions" to transfer any Shares from the name of the
registered holder thereof if the Purchaser does not accept for payment any of
the Shares tendered hereby.
5
<PAGE> 6
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Certificates for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares accepted
for payment are to be issued in the name of someone other than the undersigned,
or if Shares delivered by book-entry transfer that are not accepted for payment
are to be returned by credit to an account maintained at a Book-Entry Transfer
Facility, other than to the account indicated above.
Issue (check appropriate box(es)):
[ ] Check to:
[ ] Certificate(s) to:
Name:
- -------------------------------------------
Address:
- -------------------------------------------
- -------------------------------------------
(include Zip Code)
- -------------------------------------------
(Tax Identification or Social Security No.)
(SEE SUBSTITUTE FORM W-9)
[ ] Credit unpurchased Shares delivered by book-entry transfer to the DTC Book-
Entry Transfer Facility account.
- -------------------------------------------
DTC Account Number
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Certificates for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares accepted
for payment are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Mail (check appropriate box(es)):
[ ] Check to:
[ ] Certificate(s) to:
Name:
- -------------------------------------------
Address:
- -------------------------------------------
- -------------------------------------------
(include Zip Code)
- -------------------------------------------
(Tax Identification or Social Security No.)
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, signatures
on this Letter of Transmittal must be guaranteed by a member firm of a
registered national securities exchange (registered under Section 6 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), by a member
firm of the National Association of Securities Dealers, Inc. (the "NASD"), by a
commercial bank or trust company having an office or correspondent in the United
States or by any other "Eligible Guarantor Institution" (bank, broker, dealer,
credit union, savings association or other entity that is a member in good
standing of a recognized Medallion Program approved by the Securities Transfer
Association, Inc. (each of the foregoing constituting an "Eligible
Institution"), unless the Shares tendered hereby are tendered (i) by the
registered holder (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Shares) of such Shares who has completed
neither the box entitled "Special Payment Instructions" nor the box entitled
"Special Delivery Instructions" herein or (ii) for the account of an Eligible
Institution. See Instruction 5. If the Certificates are registered in the name
of a person other than the signer of this Letter of Transmittal, or if payment
is to be made or delivered to, or Certificates evidencing unpurchased Shares are
to be issued or returned to, a person other than the registered owner, then the
tendered Certificates must be endorsed or accompanied by duly executed stock
powers, in either case signed exactly as the name or names of the registered
owner or owners appear on the Certificates, with the signatures on the
Certificates or stock powers guaranteed by an Eligible Institution as provided
herein. See Instruction 5.
2. Requirements of Tender. This Letter of Transmittal is to be completed by
Tendering Shareholders if Certificates evidencing Shares are to be forwarded
herewith or if delivery of Shares is to be made pursuant to the procedures for
book-entry transfer set forth in Section 3 of the Offer to Purchase. For a
Tendering Shareholder to validly tender Shares pursuant to the Offer, either (a)
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof), with any required signature guarantees or an Agent's
Message (as defined in the Offer to Purchase) in the case of a book-entry
delivery of Shares, and any other required documents, must be received by the
Depositary at one of its addresses set forth herein on or prior to the
Expiration Date and either (i) Certificates for tendered Shares must be received
by the Depositary at one of such addresses on or prior to the Expiration Date or
(ii) Shares must be delivered pursuant to the procedures for book-entry transfer
set forth in Section 3 of the Offer to Purchase and a Book-Entry Confirmation
must be received by the Depositary on or prior to the Expiration Date or (b) the
Tendering Shareholder must comply with the guaranteed delivery procedures set
forth below and in Section 3 of the Offer to Purchase.
Tendering Shareholders whose Certificates are not immediately available or
who cannot deliver their Certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer on or prior to the
Expiration Date may tender their Shares by properly completing and duly
executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase. Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution,
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Purchaser, must be received by
the Depositary prior to the Expiration Date, and (iii) the Certificates
representing all tendered Shares in proper form for transfer, or a Book-Entry
Confirmation with respect to all tendered Shares, together with a Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
duly executed, with any required signature guarantees (or in the case of a
book-entry transfer, an Agent's Message) and any other documents required by
this Letter of Transmittal, must be received by the Depositary within three
Nasdaq Small Cap Market trading days after the date of such Notice of Guaranteed
Delivery. A "trading day" is any day on which the Nasdaq Small Cap Market
operated by the NASD is open for business. If Certificates are forwarded
separately to the Depositary, a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) must accompany each such
delivery.
7
<PAGE> 8
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION).
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All Tendering Shareholders, by execution of
this Letter of Transmittal (or a facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein is inadequate, the
information required under "Description of Shares Tendered" should be listed on
a separate signed schedule attached hereto.
4. Partial Tenders. If fewer than all of the Shares represented by any
Certificates delivered to the Depositary herewith are to be tendered hereby,
fill in the number of Shares which are to be tendered in the box entitled
"Number of Shares Tendered." In such case, a new Certificate for the remainder
of the Shares that were evidenced by your old certificate(s) will be sent,
without expense, to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal, as soon
as practicable after the Expiration Date. All Shares represented by
Certificate(s) delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. Signatures on Letter of Transmittal, Instruments of Transfer and
Endorsements. If this Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered hereby, the signature(s) must correspond
exactly with the name(s) as written on the face of the Certificate(s) without
alteration, enlargement or any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Certificates.
If this Letter of Transmittal or any Certificates or instruments of
Transfer are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to the Purchaser of such person's authority to so
act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Certificates or
separate instruments of transfer are required unless payment is to be made, or
Certificates not tendered or not purchased are to be issued or returned, to a
person other than the registered holder(s). Signatures on such Certificates or
instruments of transfer must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by the Certificate(s) listed and
transmitted hereby, the Certificate(s) must be endorsed or accompanied by
appropriate instruments of transfer, in either case signed exactly as the
name(s) of the registered holder(s) appear on the Certificate(s). Signatures on
such Certificate(s) or instruments of transfer must be guaranteed by an Eligible
Institution.
6. Transfer Taxes. Except as set forth in this Instruction 6, the Purchaser
will pay or cause to be paid any transfer taxes with respect to the transfer and
sale of Shares to it or its order pursuant to the Offer. If, however, payment of
the purchase price is to be made to, or (in the circumstances permitted hereby)
if Certificates for Shares not tendered or not purchased are to be registered in
the name of, any person other than the registered holder(s), or if tendered
Certificates are registered in the name of any person other than the
8
<PAGE> 9
person(s) signing this Letter of Transmittal, the amount of any transfer taxes
(whether imposed on the registered holder(s) or such persons) payable on account
of the transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted. The term "transfer tax" does not include any state or federal income
tax that may be required to be paid by a Tendering Shareholder due to such
Tendering Shareholder reporting the income from the contemplated transaction.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Certificate(s) listed in this Letter of
Transmittal.
7. Special Payment and Delivery Instructions. If a check and/or
Certificates for unpurchased Shares are to be issued in the name of a person
other than the signer of this Letter of Transmittal or if a check is to be sent
and/or such Certificates are to be returned to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed. If any
tendered Shares are not purchased for any reason and such Shares are delivered
by Book Entry Transfer Facility, such Shares will be credited to an account
maintained at the appropriate Book Entry Transfer Facility.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance may be directed to the Information Agent or the Dealer Manager at
their respective addresses or telephone numbers set forth below and requests for
additional copies of the Offer to Purchase, this Letter of Transmittal and the
Notice of Guaranteed Delivery may be directed to the Information Agent or
brokers, dealers, commercial banks and trust companies and such materials will
be furnished at the Purchaser's expense.
9. Waiver of Conditions. The conditions of the Offer may be waived by the
Purchaser, in whole or in part, at any time or from time to time, in the
Purchaser's reasonable discretion.
10. Backup of Withholding Tax. Each Tendering Shareholder is required,
unless an exemption applies, to provide the Depositary with a correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9, which is provided under
"Important Tax Information" below and to certify that the shareholder is not
subject to backup withholding. Failure to provide the information on the
Substitute Form W-9 may subject the Tendering Shareholder to 31% federal income
tax backup withholding on the payment of the purchase price for the Shares. The
Tendering Shareholder should indicate in the box in Part III of the Substitute
Form W-9 if the Tendering Shareholder has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the Tendering
Shareholder has indicated in the box in Part III that a TIN has been applied for
and the Depositary is not provided with a TIN by the time of payment, the
Depositary will withhold 31% of all payments of the purchase price, if any, made
thereafter pursuant to the Offer until a TIN is provided by the Depositary.
11. Lost or Destroyed Certificates. If any Certificate(s) representing
Shares has been lost or destroyed, the holders should promptly notify the
Company's transfer agent, American Stock Transfer & Trust Company. The holders
will then be instructed as to the procedure to be followed in order to replace
the Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed Certificates have
been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE THEREOF
(TOGETHER WITH CERTIFICATES OR A BOOK-ENTRY CONFIRMATION FOR SHARES AND ANY
OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY, OR A NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE
EXPIRATION DATE.
9
<PAGE> 10
IMPORTANT TAX INFORMATION
Under current federal income tax law, a Tendering Shareholder whose
tendered Shares are accepted for payment is required to provide the Depositary
(as payor) with such Tendering Shareholder's correct TIN on Substitute Form W-9
below. If such Tendering Shareholder is an individual, the TIN is his Social
Security number. If the Tendering Shareholder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future, such
Tendering Shareholder should so indicate on the Substitute Form W-9. See
Instruction 10. If the Depositary is not provided with the correct TIN, the
Tendering Shareholder may be subject to a $50 penalty imposed by the Internal
Revenue Service. Moreover, if the Tendering Shareholder makes a false statement
with no reasonable basis that results in no back-up withholding the Tendering
Shareholder is subject to a $500 Civil Penalty. Criminal penalties may apply for
willfully falsifying certifications. In addition, payments that are made to such
Tendering Shareholders with respect to Shares purchased pursuant to the Offer
may be subject to backup federal income tax withholding.
Certain Tendering Shareholders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that Tendering Shareholder must submit a statement, signed
under penalties of perjury, attesting to that individual's exempt status. Forms
for such statements can be obtained from the Depositary. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the Tendering Shareholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup federal income tax withholding with respect to payment of
the purchase price for Shares purchased pursuant to the Offer, a Tendering
Shareholder must provide the Depositary with his correct TIN by completing the
Substitute Form W-9 below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Tendering Shareholder is awaiting a TIN) and that
(1) such Tendering Shareholder has not been notified by the Internal Revenue
Service that he is subject to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal Revenue Service has
notified the Tendering Shareholder that he is no longer subject to backup
withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The Tendering Shareholder is required to give the Depositary the Social
Security number or employer identification number of the record holder of the
Shares tendered hereby. If the Shares are registered in more than one name or
are not in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report. If the Tendering Shareholder has
not been issued a TIN and has applied for a number or intends to apply for a
number in the near future, he or she should write "Applied For" in the space
provided for in the TIN in Part III, and sign and date the Substitute Form W- 9.
If "Applied For" is written in Part III and the Depositary is not provided with
a TIN within 60 days, the Depositary will withhold 31% on all payments of the
purchase price made thereafter until a TIN is provided to the Depositary.
10
<PAGE> 11
IMPORTANT
TENDERING SHAREHOLDER: SIGN HERE AND COMPLETE SUBSTITUTE
FORM W-9 ON REVERSE
- --------------------------------------------------------------------------------
(Signatures of Tendering Shareholders)
Dated:
- --------------------- , 1999
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
the Certificates or on a security position listing or by person(s) authorized to
become registered holder(s) by Certificates and documents transmitted herewith.
If signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, agents, officers of corporations or others acting in a fiduciary or
representative capacity, please provide the following information. See
Instruction 5.)
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(See Instruction 5)
Address: -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Indicate Zip Code)
Area Codes and Telephone No.:
- ------------------------------------------------------------------------------
(Home)
- --------------------------------------------------------------------------------
(Business)
Taxpayer Identification or Social Security No.:
- --------------------------------------------------------------------------------
(Complete Substitute Form W-9 on Reverse)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature(s):
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Name of Firm:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
- --------------------------------------------------------------------------------
Dated:
- --------------------- , 1999
11
<PAGE> 12
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN IN THE PART III -- Social Security Number
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND OR Employer Identification Number
DATING BELOW -------------------------------
(if awaiting TIN write "Applied For")
----------------------------------------------------------------------------------
DEPARTMENT OF THE PART II -- For Payees Exempt Backup Withholding see the enclosed Guidelines
TREASURY INTERNAL for Certification of Taxpayer Identification Number on Substitute
REVENUE SERVICE Form W-9 and complete as instructed therein.
PAYER'S REQUEST FOR Certification -- Under penalties of perjury, I certify that:
TAXPAYER
IDENTIFICATION (1) The Number shown on this form is my correct Taxpayer Identification Number
NUMBER ("TIN") (or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or
the IRS has notified me that I am no longer subject to backup withholding.
Certificate Instructions -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of under
reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
--------------------------------------------------------------------------------
NAME -------------------------------------------------------------------------
(Please Print)
SIGNATURE ---------------------------------------------- DATE-------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER TO PURCHASE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
12
<PAGE> 13
CERTIFICATE OF TAXPAYER AWAITING IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31%
of all payments of the Offer Price made to me thereafter will be withheld until
I provide a number.
SIGNATURE DATE
The Information Agent for the Offer is
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
Call toll free: 800-322-2885
The Dealer Manager for the Offer is
[SOUTHWEST SECURITIES LOGO]
1201 Elm Street, Suite 3500
Dallas, Texas 75270
1-888-338-1300 (call toll free)
13
<PAGE> 1
EXHIBIT 99(A)(3)
NOTICE OF GUARANTEED DELIVERY
FOR TENDERING SHARES OF COMMON STOCK
OF
DSI TOYS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED.
April 21, 1999
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below) if certificates representing
the Common Stock, par value $.01 per share (the "Shares"), of DSI Toys, Inc., a
Texas corporation, are not immediately available or the procedures for book-
entry transfer cannot be completed on a timely basis or time will not permit all
required documents to reach American Stock Transfer & Trust Company (the
"Depositary") prior to the Expiration Date (as defined in the Offer to Purchase
(as defined below)). This Notice of Guaranteed Delivery may be delivered by hand
or transmitted by facsimile transmission or mail to the Depositary. See Section
3 of the Offer to Purchase.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
40 Wall Street (for Eligible Institutions 40 Wall Street
New York, New York 10005 Only) 46th Floor
(Attention: Corporate Trust (718) 234-5001 New York, New York 10005
Department) Confirm by Telephone: (Attention: Corporate Trust
(718) 921-8200 Department)
1-800-937-5449
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to MVII, LLC, a California limited liability
company (the "Purchaser"), upon the terms and subject to the conditions set
forth in the Offer to Purchase dated April 21, 1999 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which, together with the Offer to
Purchase (and any amendments or supplements thereto, collectively) constitute
the "Offer"), receipt of each of which is hereby acknowledged, the number of
Shares indicated below pursuant to the guaranteed delivery procedures set forth
in Section 3 of the Offer to Purchase.
<TABLE>
<CAPTION>
NAME(S) OF RECORD HOLDER(S) NUMBER OF SHARES CERTIFICATE NOS.
--------------------------- ---------------- ----------------
(IF AVAILABLE)
<S> <C> <C>
- --------------------------------- --------------------------------- ---------------------------------
- --------------------------------- --------------------------------- ---------------------------------
- --------------------------------- --------------------------------- ---------------------------------
- --------------------------------- --------------------------------- ---------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Address(es):
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
(Zip Code) (Zip Code)
</TABLE>
Area Code and Tel. No.:
- --------------------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Check box if Shares will be tendered by book-entry transfer:
[ ] The Depository Trust Company
Signature(s): Dated: 1999
--------------------------- ---------------------------
---------------------
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, as Eligible Institution (as such term is defined in
Section 3 of the Offer to Purchase), hereby (a) represents that the tender of
Shares effected hereby complies with Rule 14e-4 under the Securities Exchange
Act of 1934, as amended, and (b) guarantees to deliver to the Depositary the
certificates representing the Shares tendered hereby, in proper form for
transfer, or a Book-Entry Confirmation (as defined in Section 2 of the Offer to
Purchase) with respect to transfer of such Shares into the Depositary's account
at The Depository Trust Company, together with a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof) with any
required signature guarantees or an Agent's Message (as defined in Section 2 of
the Offer to Purchase) in the case of a book-entry delivery of Shares, and any
other documents required by the Letter of Transmittal, all within three Nasdaq
Small Cap Market trading
2
<PAGE> 3
days after the date hereof. A "trading day" is any day on which the Nasdaq Small
Cap Market operated by the National Association of Securities Dealers, Inc. is
open for business.
Name of Firm:
- -------------------------------------
Address:
- -------------------------------------
- -------------------------------------
(Zip Code)
Area Code and Tel. No.:
- -------------------------------------
- -------------------------------------
(Authorized Signature)
Name:
- -------------------------------------
Title:
- -------------------------------------
Date:
- -------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES SHOULD BE SENT ONLY TOGETHER WITH YOUR
LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99(A)(4)
OFFER TO PURCHASE FOR CASH
UP TO 1,600,000 SHARES OF COMMON STOCK
OF
DSI TOYS, INC.
AT
$4.38 NET PER SHARE
BY
MVII, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED.
April 21, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by MVII, LLC, a California limited liability company
(the "Purchaser"), to act as the Dealer Manager in connection with the
Purchaser's offer to purchase for cash up to 1,600,000 shares of common stock,
par value $.01 per share (the "Shares"), of DSI Toys, Inc., a Texas corporation
(the "Company"), for $4.38 per Share, net to the seller in cash, upon the terms
and subject to the conditions set forth in the Offer to Purchase dated April 21,
1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which
together with the Offer to Purchase (and any amendments or supplements thereto,
collectively) constitute the "Offer") enclosed herewith.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares in your name or in the name of your nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase dated April 21, 1999.
2. The Letter of Transmittal to tender Shares for your use and for the
information of your clients. Facsimile copies of the Letter of Transmittal
may be used to tender Shares.
3. A letter to shareholders of the Company from M.D. Davis, Chairman
of the Board and Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to
shareholders of the Company.
4. The Notice of Guaranteed Delivery for Shares to be used to accept
the Offer if neither of the two procedures for tendering Shares set forth
in the Offer to Purchase can be completed on a timely basis.
5. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name or in the name of
your nominee, with space provided for obtaining such clients' instructions
with regard to the Offer.
<PAGE> 2
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to American Stock Transfer & Trust
Company, the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY
AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS
EXTENDED.
Please note the following:
1. The tender price is $4.38 per Share, net to the seller in cash.
2. The Offer is subject to there being validly tendered and not
withdrawn prior to the expiration of the Offer at least 1,600,000 shares
and certain other conditions.
3. The Offer is being made for up to 1,600,000 shares. If more than
1,600,000 shares are tendered and not withdrawn prior to the expiration of
The Offer, then tendered Shares will be accepted for payment on a pro rata
basis, as described in the Offer to Purchase.
4. The Offer is being made pursuant to the Stock Purchase Agreement
(as defined in the Offer to Purchase).
5. Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, transfer taxes on the purchase of Shares by the
Purchaser pursuant to the Offer. However, federal income tax backup
withholding at a rate of 31% may be required, unless an exemption is
provided or unless the required taxpayer identification information is
provided. See Instruction 10 of the Letter of Transmittal.
6. The Board of Directors of the Company (the "Board") has unanimously
approved the Offer and the other transactions described in the Offer to
Purchase and recommends that shareholders tender their shares in the Offer.
7. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all cases be made
only after timely receipt by the Depositary of (a) Certificates pursuant to
the procedures set forth in Section 3 of the Offer to Purchase or a timely
Book-Entry Confirmation (as defined in the Offer to Purchase) with respect
to such Shares, (b) the Letter of Transmittal (or a manually signed
facsimile thereof), properly completed and duly executed, with any required
signature guarantees or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry delivery of Shares, and (c) any
other documents required by the Letter of Transmittal. Accordingly, payment
may not be made to all tendering shareholders at the same time depending
upon when Certificates are actually received by the Depositary. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO
BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY
DELAY IN MAKING SUCH PAYMENT.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal (or a manually signed facsimile thereof) and any
required signature guarantees or an Agent's Message in connection with a
book-entry transfer and other required documents should be sent to the
Depositary and (ii) Certificates representing the tendered Shares or a timely
Book-Entry Confirmation (as defined in the Offer to Purchase) should be
delivered to the Depositary in accordance with the instructions set forth in the
Letter of Transmittal and the Offer to Purchase.
2
<PAGE> 3
If holders of Shares wish to tender, but it is impracticable for them to
forward their Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender may be
effected by following the guaranteed delivery procedures specified in Section 3
of the Offer to Purchase.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person (other than the Dealer Manager and the Information Agent as
described in the Offer to Purchase) for soliciting tenders of Shares pursuant to
the Offer. The Purchaser will, however, upon request, reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Purchaser will pay or cause to be paid
any stock transfer taxes payable on the transfer of Shares to it, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Southwest Securities, Inc. or MacKenzie Partners, Inc., the Information Agent,
at their respective addresses and telephone numbers set forth on the back cover
of the Offer to Purchase.
Requests for copies of the enclosed materials may be directed to the
Information Agent at its address and telephone number set forth on the back
cover of the enclosed Offer to Purchase.
Very truly yours,
SOUTHWEST SECURITIES, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON THE AGENT OF THE PURCHASER, THE COMPANY, THE DEALER MANAGER,
THE DEPOSITARY, THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
EXHIBIT 99(A)(5)
OFFER TO PURCHASE FOR CASH
UP TO 1,600,000 SHARES OF COMMON STOCK
OF
DSI TOYS, INC.
AT
$4.38 NET PER SHARE
BY
MVII, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED.
April 21, 1999
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated April 21,
1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with the Offer to Purchase (and any amendments or supplements thereto,
collectively) constitute the "Offer") relating to the offer by MVII, LLC, a
California limited liability company (the "Purchaser"), to purchase up to
1,600,000 shares of Common Stock, par value $.01 per share (the "Shares"), of
DSI Toys, Inc., a Texas corporation (the "Company"), at a purchase price of
$4.38 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer. Also enclosed is the Letter to Shareholders
of the Company from the Chairman of the Board and Chief Executive Officer of the
Company accompanied by the Company's Solicitation/Recommendation Statement on
Schedule 14D-9. Holders of Shares whose certificates for such Shares (the
"Certificates") are not immediately available or who cannot deliver their
Certificates and all other required documents to the depositary (the
"Depositary") or complete the procedures for book-entry transfer prior to the
Expiration Date (as defined in the Offer to Purchase) must tender their Shares
according to the guaranteed delivery procedures set forth in Section 3 of the
Offer to Purchase.
WE ARE (OR OUR NOMINEE IS) THE HOLDER OF RECORD OF SHARES HELD BY US FOR
YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD
BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all Shares held by us for your account pursuant to
the terms and conditions set forth in the Offer.
Please note the following:
1. The tender price is $4.38 per Share, net to the seller in cash.
2. The Offer is subject to there being validly tendered and not
withdrawn prior to the expiration of the Offer at least 1,600,000 shares
and certain other conditions.
<PAGE> 2
3. The Offer is being made for up to 1,600,000 shares. If more than
1,600,000 shares are tendered and not withdrawn prior to the expiration of
the Offer, then tendered Shares will be accepted for payment on a pro rata
basis, as described in the Offer to Purchase.
4. The Offer is being made pursuant to the Stock Purchase Agreement
(as defined in the Offer to Purchase).
5. Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the purchase of Shares by
the Purchaser pursuant to the Offer. However, federal income tax backup
withholding at a rate of 31% may be required, unless an exemption is
provided or unless the required taxpayer identification information is
provided. See Instruction 10 of the Letter of Transmittal.
6. The Board of Directors of the Company (the "Board") has approved
the Offer and the other transactions described in the Offer to Purchase and
recommends that the shareholders tender their Shares in the Offer.
7. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all cases be made
only after timely receipt by the Depositary of (a) Certificates pursuant to
the procedures set forth in Section 3 of the Offer to Purchase or a timely
Book-Entry Confirmation (as defined in the Offer to Purchase) with respect
to such Shares, (b) the Letter of Transmittal (or a manually signed
facsimile thereof), properly completed and duly executed, with any required
signature guarantees or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry delivery of Shares, and (c) any
other documents required by the Letter of Transmittal. Accordingly, payment
may not be made to all tendering shareholders at the same time depending
upon when Certificates are actually received by the Depositary. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO
BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY
DELAY IN MAKING SUCH PAYMENT.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing, detaching and returning
to us the instruction form set forth below. If you authorize the tender of your
Shares, all such Shares will be tendered unless otherwise specified below. An
envelope to return your instructions to us is enclosed. YOUR INSTRUCTIONS SHOULD
BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF
PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the Offer or the
acceptance thereof would not be in compliance with the securities, blue sky or
other laws of such jurisdiction. However, the Purchaser may, in its discretion,
take such action as it may deem necessary to make the Offer in any jurisdiction
and extend the Offer to holders of Shares in such jurisdiction.
In those jurisdictions where securities laws require the Offer to be made
by a licensed broker or dealer, the Offer shall be deemed to be made on behalf
of the Purchaser by Southwest Securities, Inc., the Dealer Manager in the Offer,
or one or more registered brokers or dealers that are licensed under the laws of
such jurisdiction.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH
UP TO 1,600,000 SHARES OF COMMON STOCK OF DSI TOYS, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated April 21, 1999, and the related Letter of Transmittal
in connection with the Offer by MVII, LLC, a California limited liability
company (the "Purchaser"), to purchase up to 1,600,000 shares of Common Stock,
par value $.01 per share (the "Shares"), of DSI Toys, Inc., a Texas corporation.
This will instruct you to tender to the Purchaser the number of Shares
indicated below (or if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
<TABLE>
<S> <C>
Number of Shares to be Tendered SIGN HERE
- ----------------------------------------------------- -----------------------------------------------------
(Signature(s))
-----------------------------------------------------
-----------------------------------------------------
(Print Name(s))
-----------------------------------------------------
-----------------------------------------------------
(Print Address(es))
-----------------------------------------------------
(Area Code and Telephone Number(s))
-----------------------------------------------------
(Taxpayer Identification or
Social Security Number(s))
</TABLE>
- ---------------
(1) Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
3
<PAGE> 1
EXHIBIT 99(A)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
<S> <C>
GIVE THE SOCIAL
SECURITY NUMBER
(OR EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT NUMBER) OF--
- -----------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife The actual owner of
(joint account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in name of guardian or The ward, minor, or
committee for a designated incompetent person(3)
ward, minor, or incompetent
person
7. a. The usual revocable savings a. The grantor-
trust account (grantor is trustee(1)
also trustee)
b. So-called trust account b. The actual owner(1)
that is not a legal or valid
trust under state law
8. Sole proprietorship account The owner(4)
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
GIVE THE SOCIAL
SECURITY NUMBER
(OR EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT NUMBER) OF--
- -----------------------------------------------------------
<C> <S> <C>
9. A valid trust, estate or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account The partnership
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- -----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's Social Security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's Social Security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
4
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees/Payments specifically exempted from backup withholding include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of the Code.
- An exempt charitable remainder trust or a non-exempt trust described in
section 4947(a)(1) of the Code.
- An entity registered at all times under the Investment Company Act of
1940, as amended.
- A foreign central bank of issue.
- Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441
of the Code.
- Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Payments of interest not generally subject to backup withholding include
the following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends
under section 852 of the Code).
- Payments described in section 6049(b)(5) of the Code to non-resident
aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE MUST STILL COMPLETE THE SUBSTITUTE FORM W-9
ENCLOSED HEREWITH TO AVOID POSSIBLE ERRONEOUS BACK-
UP WITHHOLDING. FILE SUBSTITUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY
YOUR TAXPAYER IDENTIFICATION NUMBER ON PART III OF THE FORM, WRITE "EXEMPT" ON
THE FACE OF THE FORM AND SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042,
<PAGE> 3
6044, 6045, 6049, 6050A and 6050N of the Code and their regulations.
Privacy Act Notice -- Section 6109 of the Code requires most recipients of
dividends, interest, or other payments to give taxpayer identification numbers
to payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the numbers whether or not recipients are required to file
a tax return. Payers must generally withhold 31% of taxable interest, dividends
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If
you fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
EXHIBIT 99(A)(7)
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase dated
April 21, 1999, and the related Letter of Transmittal and is being made to all
holders of Shares. The Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction in which the Offer
or the acceptance thereof would not be in compliance with the securities, blue
sky or other laws of such jurisdiction. However, the Offeror may, in its
discretion, take such action as it may deem necessary to make the Offer in any
jurisdiction and extend the Offer to holders of Shares in such jurisdiction. In
those jurisdictions where securities laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of the
Offeror by one or more registered brokers or dealers that are licensed under the
laws of such jurisdiction.
Notice of Offer to Purchase for Cash
up to 1,600,000 shares of Common Stock
of
DSI Toys, Inc.
at
$4.38 Net Per Share
by
MVII, LLC
MVII, LLC (the "Offeror"), a California limited liability company
controlled by E. Thomas Martin, an individual residing in San Luis Obispo,
California, hereby offers to purchase up to 1,600,000 of the outstanding shares
of Common Stock, par value $.01 per share (the "Common Stock" or "Shares"), of
DSI Toys, Inc., a Texas corporation (the "Company"), at a purchase price of
$4.38 per Share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
April 21, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON TUESDAY, MAY 25, 1999 UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to expiration of the Offer at least 1,600,000
Shares (the "Minimum Tender Condition"), (ii) any waiting period under the HSR
Act (as defined in the Offer to Purchase) applicable to the purchase of Shares
pursuant to the Offer having expired or having been terminated prior to the
expiration of the Offer and (iii) the satisfaction of certain other terms and
conditions described in the Offer to Purchase.
The Offer is being made pursuant to the Stock Purchase Agreement, dated as
of April 15, 1999 (the "Stock Purchase Agreement"), between the Offeror and the
Company. On April 15, 1999, in connection with the execution of the Stock
Purchase Agreement, the Offeror acquired 566,038 shares of Common Stock and
agreed to commence the Offer. The Stock Purchase Agreement further provides that
upon approval by the Company's shareholders and the satisfaction of certain
other terms and conditions described in the Offer to Purchase, the Offeror may
acquire an additional 1,792,453 Shares, subject to upward adjustments not to
exceed in the aggregate 140,000 Shares. Those Shares, when combined with the
Shares purchased upon consummation of the Offer will represent approximately 48%
of all of the issued and outstanding Shares, based on the number of Shares
outstanding as of April 15, 1999 (assuming that no other Shares are issued). The
purpose of the Offer is to acquire a controlling interest in the Company. In
connection therewith, the
<PAGE> 2
Offeror will be entitled to designate four of the six members of the Board of
Directors pursuant to a Shareholders' and Voting Agreement, dated as of April
15, 1999, among the Offeror, the Company and certain management shareholders of
the Company and a limited partnership controlled by a management shareholder of
the Company (the "Management Shareholders").
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER AND THE OTHER
TRANSACTIONS DESCRIBED IN THE OFFER TO PURCHASE AND RECOMMENDS THAT SHAREHOLDERS
TENDER THEIR SHARES INTO THE OFFER.
The Offeror has entered into 5 Side Letter Agreements, each dated as of
April 15, 1999 (the "Side Letter Agreements"), with the Management Shareholders,
who beneficially own in the aggregate 1,721,693 Shares, which represent
approximately 26% of the issued and outstanding Shares. Pursuant to the terms of
the Side Letter Agreements, the Management Shareholders have agreed, among other
things, to tender into the Offer such number Shares owned by them in the event
the Minimum Tender Condition is not met as of the initial scheduled expiration
date thereof, such that the Minimum Tender Condition will have been satisfied.
The Side Letter Agreements do not restrict the number of Shares that may be
tendered by the Management Shareholders into the Offer. THE TENDER BY THE
MANAGEMENT SHAREHOLDERS OF ALL OF THEIR SHARES ALONE WILL CAUSE THE MINIMUM
TENDER CONDITION TO BE SATISFIED.
For purposes of the Offer, the Offeror will be deemed to have accepted for
payment (and thereby purchased), Shares properly tendered to the Offeror and not
withdrawn as, if and when the Offeror gives oral or written notice to American
Stock Transfer & Trust Company (the "Depositary") of the Offeror's acceptance
for payment of such Shares pursuant to the Offer. Upon the terms and subject to
the conditions of the Offer, payment for Shares so accepted for payment pursuant
to the Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payments from the Offeror and transmitting such payments to
tendering stockholders. Under no circumstances will interest on the purchase
price for Shares be paid by the Offeror, regardless of any extension of the
Offer or delay in making such payment. In all cases, payment for Shares tendered
and accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of (1) certificates representing Shares ("Share
Certificates"), or timely confirmation of a book-entry transfer of such Shares,
into the Depositary's account at The Depository Trust Company (a "Book-Entry
Transfer Facility") pursuant to the procedures set forth in Section 3 of the
Offer to Purchase, (2) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an Agent's Message (as defined in Section 2 of the Offer to Purchase) in
connection with a book-entry transfer and (3) all other documents required by
the Letter of Transmittal.
Subject to the terms of the Stock Purchase Agreement and the applicable
rules of the Securities and Exchange Commission, the Offeror expressly reserves
the right (but shall not be obligated), in its sole discretion, at any time and
from time to time, and regardless of whether or not any of the events set forth
in Section 14 of the Offer to Purchase shall have occurred or shall have been
determined by the Offeror to have occurred, (i) to extend the period during
which the Offer is open, and thereby delay acceptance for payment of, or payment
for, any Shares, by giving oral or written notice of such extension to the
Depositary and (ii) to amend the Offer in any other respect by giving oral or
written notice of such amendment to the Depositary. The Offeror shall not have
any obligation to pay interest on the purchase price for tendered Shares whether
or not the Offeror exercises such rights. Any such extension will be followed as
promptly as practicable by public announcement thereof, such announcement to be
made no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date.
The term "Expiration Date" means 5:00 p.m., New York City time, on Tuesday,
May 25, 1999, unless and until the Offeror, in its sole discretion and subject
to the terms of the Stock Purchase Agreement, shall have extended the period
during which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by the Offeror,
shall expire.
If more than 1,600,000 Shares are validly tendered prior to the Expiration
Date and not withdrawn, the Offeror will, upon the terms and subject to the
conditions of the Offer, accept such Shares for payment on a pro rata basis,
with adjustments to avoid purchases of fractional Shares, based upon the number
of Shares
2
<PAGE> 3
validly tendered prior to the Expiration Date and not properly withdrawn.
Because of the time required to determine the precise number of Shares validly
tendered and not withdrawn, if proration is required, the Offeror does not
expect to announce the final results of proration immediately after the
Expiration Date. The Offeror will announce the preliminary results of proration
by press release as promptly as practicable and expects to be able to announce
the final results of proration within eight trading days of the Nasdaq Small Cap
Market after the Expiration Date. Holders of Shares may obtain such preliminary
information and final results from the Depositary or the Information Agent, and
also may be able to obtain such preliminary information and final results from
their brokers.
Except as otherwise provided in Section 4 of the Offer to Purchase, tenders
of Shares made pursuant to the Offer are irrevocable, except that Shares
tendered pursuant to the Offer may be withdrawn at any time on or prior to the
Expiration Date and, unless theretofore accepted for payment by the Offeror
pursuant to the Offer, may also be withdrawn at any time after Friday, June 18,
1999 (or such later date as may apply in case the Offer is extended). In order
for a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of the Offer to Purchase. Any
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If Share Certificates to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and the signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to
Purchase) unless such Shares have been tendered for the account of any Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in Section 3 of the Offer to Purchase, any
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and must
otherwise comply with the procedures of such Book-Entry Transfer Facility, in
which case a notice of withdrawal will be effective if delivered to the
Depositary by any method of delivery described in the second sentence of this
paragraph. All questions as to the form and validity (including time of receipt)
of any notice of withdrawal will be determined by the Offeror, in its reasonable
discretion, whose determination will be final and binding.
The information required to be disclosed by Paragraph (e)(1)(vii) of Rule
14d-6 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, is contained in the Offer to Purchase and is incorporated
herein by reference.
The Company has provided to the Offeror its lists of shareholders and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase, the related Letter of Transmittal and other
related materials will be mailed to record holders of Shares, and will be mailed
to brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder lists or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
3
<PAGE> 4
Questions and requests for assistance may be directed to the Dealer Manager
and the Information Agent at their respective addresses and telephone numbers as
set forth below. The Offeror will not pay any fees or commissions to any broker
or dealer or any other person (other than the Dealer Manager and the Information
Agent) for soliciting tenders of Shares pursuant to the Offer. Additional copies
of the Offer to Purchase, the Letter of Transmittal and all other related
materials may be obtained from the Information Agent or from brokers, dealers,
commercial banks and trust companies and will be furnished promptly at the
Offeror's expense.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
Call toll free: 800-322-2885
The Dealer Manager for the Offer is:
[SOUTHWEST SECURITIES LOGO]
1201 Elm Street, Suite 3500
Dallas, Texas 75270
1-888-338-1300 (call toll free)
4
<PAGE> 1
EXHIBIT 99(A)(8)
NEWS RELEASE
DSI Toys, Inc. MVII, LLC
1100 W. Sam Houston Parkway North 654 Osos Street
Suite A San Luis Obispo, CA 93401
Houston, TX 77043 (805) 545-7900
(713) 365-9900
DSI TOYS TO RECEIVE $5 MILLION INVESTMENT FROM
LLC CONTROLLED BY TOM MARTIN;
LLC ALSO AGREES TO INITIATE CASH TENDER OFFER
FOR 1.6 MILLION SHARES OF DSI TOYS AT $4.38 PER SHARE
FOR CONTROLLING INTEREST IN THE COMPANY
Houston, TX, April 15, 1999 -- DSI Toys, Inc. (Nasdaq: DSIT) and MVII, LLC
jointly announced today a $5 million investment by MVII in DSI Toys through the
sale of common stock to MVII, a California limited liability company controlled
by Tom Martin. Today, MVII purchased $1.2 million of DSI Toys' common stock,
with the remainder of the common stock to be purchased upon shareholder and
certain other approvals. As part of the transaction, MVII agreed to commence a
tender offer to purchase up to 1.6 million shares of DSI Toys' outstanding
common stock at $4.38 per share in cash. The tender offer and the purchases of
common stock are being made pursuant to a stock purchase agreement and certain
other related agreements and definitive offering documents to be filed with the
Securities and Exchange Commission. The offer is conditional upon the tender of
a minimum number of shares and receipt of regulatory approvals as well as
certain other conditions to be set forth in the offering documents. Certain
members of DSI's management and board of directors have entered into agreements
under which they have agreed to tender shares held by them into the offer. DSI's
Board of Directors has unanimously approved the Stock Purchase Agreement
including the tender offer. Upon consummation of the transaction, MVII will own
more than 47% of DSI Toys' outstanding shares and MVII will be entitled to
nominate four of the six members of the board of directors of DSI.
With the infusion of new equity and the involvement of Mr. Martin, after the
consummation of the transaction, Mr. Martin plans to grow sales through a
combination of acquisitions and new product development. Mr. Martin said, "I am
pleased with the DSIT investment. DSI Toys is a solid platform in the toy, doll,
and children's electronic businesses. They have proven capability to design and
market exciting, but staple products. Our investment will provide the capital
needed for growth. I believe that the toy industry is an excellent business for
the rapid formation of a significant, mid-sized company."
<PAGE> 2
Mr. M. D. Davis, chairman and CEO of DSI, said, "We are very pleased to have Tom
join DSI. We believe that the Martin transaction is good for DSI shareholders.
It brings capital and expertise to DSI to posture it for future growth and
provides an opportunity for shareholders to get an immediate return with the
tender offer by MVII."
DSI Toys, Inc. designs, develops, markets and distributes high quality,
value-priced toys and children's consumer electronics. Core product categories
are juvenile audio products (including Tech-Link(TM) and Digi-Tech(TM)
walkie-talkies, pre-teen audio products and Kawasaki(R) musical toys), girls'
toys (including dolls, play sets and accessories), and boys' toys (including
Kawasaki(R) and Burnin' Thunder(TM) radio control vehicles, BlockMen(TM)
construction sets, and western and military action toys). DSI's web sites can be
reached at HTTP://WWW.DSITOYS.COM and HTTP://WWW.BLOCKMEN.COM.
MVII is led by Tom Martin. Before his involvement in MVII, Mr. Martin was
president and CEO of Martin Media LP, a closely held outdoor advertising
business. Mr. Martin joined Martin Media in 1976 and, through 50-plus
acquisitions and internal growth, positioned Martin Media as one of the top ten
outdoor advertising firms in the nation. In July 1998 Martin Media was sold to
Chancellor Media for $610 million. Prior to managing Martin Media, Mr. Martin
spent ten years in the toy business at Mattel, Inc. as a design and marketing
executive.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Statements in this press release that are not historical facts, including
statements about plans and expectations regarding products and opportunities,
demand and acceptance of new and existing products, capital resources, and
future financial condition and results are forward-looking. Forward-looking
statements involve risks and uncertainties, which may cause DSI's actual results
in future periods to differ materially and adversely from those expressed. These
uncertainties and risks include changing consumer preferences, lack of success
of new products, loss of DSI's customers, liquidity of DSI, competition, and
other factors discussed from time to time in DSI's filings with the Securities
and Exchange Commission.
For more information, contact:
M. D. Davis Tom Martin
DSI Toys, Inc. MVII, LLC
1100 W. Sam Houston Parkway North 654 Osos Street
Suite A San Luis Obispo, CA 93401
Houston, TX 77043 (805) 545-7900
(713) 365-9900
<PAGE> 1
EXHIBIT 99(A)(9)
NEWS RELEASE
MVII, LLC
654 Osos Street
San Luis Obispo, CA 93401
(805) 545-7900
LLC CONTROLLED BY TOM MARTIN
INITIATES CASH TENDER OFFER
FOR 1.6 MILLION SHARES OF DSI TOYS AT $4.38 PER SHARE
FOR CONTROLLING INTEREST IN THE COMPANY
Dallas, TX, April 21, 1999 -- MVII, LLC, a California limited liability
company controlled by Tom Martin, announced that today it is commencing a tender
offer to purchase up to 1.6 million shares of the Common Stock of DSI Toys, Inc.
(Nasdaq: DSIT) at $4.38 per share in cash. The tender offer is being made
pursuant to a Stock Purchase Agreement and other related agreements and
definitive offering documents that are being filed today with the Securities and
Exchange Commission. The offer is conditional upon the tender of a minimum
number of shares and receipt of regulatory approvals, as well as certain other
conditions that are set forth in the offering documents. Certain members of
DSI's management and board of directors have entered into agreements under which
they have agreed to tender shares held by them into the offer.
On April 15, MVII announced a $5 million investment in DSI Toys and at that
time purchased $1.2 million of DSI Toys' common stock. The additional $3.8
million investment in the Company is subject to shareholder and certain other
approvals as set forth in the Stock Purchase Agreement. DSI's Board of Directors
has unanimously approved the Stock Purchase Agreement, including the tender
offer. Upon consummation of the transaction, MVII will own more than 47% of DSI
Toys' outstanding shares and MVII will be entitled to nominate four of the six
members of the Board of Directors of DSI.
The tender offer, proration and withdrawal rights expire at 5:00 p.m., New
York City time, on Tuesday, May 25, 1999, unless the offer is extended.
Southwest Securities, Inc. is serving as the Dealer Manager and MacKenzie
Partners, Inc. is serving as the Information Agent for the tender offer. The
information filed with the Securities and Exchange Commission in connection with
the tender offer may be obtained by calling MacKenzie Partners, Inc., toll-free,
at 800-322-2885.
DSI Toys, Inc. designs, develops, markets and distributes high quality,
value-priced toys and children's consumer electronics. Core product categories
are juvenile audio products (including Tech-Link(TM) and Digi-Tech(TM)
walkie-talkies, pre-teen audio products and Kawasaki(R) and Burnin' Thunder(TM)
radio control vehicles, BlockMen(TM) construction sets, and western and military
action toys). DSI's web sites can be reached at http://www.dsitoys.com and
http://www.blockmen.com.
MVII is led by Tom Martin. Before his involvement in MVII, Mr. Martin was
president and CEO of Martin Media LP, a closely held outdoor advertising
business. Mr. Martin joined Martin Media in 1976 and, through 50-plus
acquisitions and internal growth, positioned Martin Media as one of the top ten
outdoor advertising firms in the nation. In July 1998 Martin Media was sold to
Chancellor Media for $610 million. Prior to managing Martin Media, Mr. Martin
spent ten years in the toy business at Mattel, Inc. as a design and marketing
executive.
<PAGE> 2
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Statements in this press release that are not historical facts, including
statements about plans and expectations regarding products and opportunities,
demand and acceptance of new and existing products, capital resources, and
future financial condition and results are forward-looking. Forward-looking
statements involve risks and uncertainties, which may cause DSI's actual results
in future periods to differ materially and adversely from those expressed. These
uncertainties and risks include changing consumer preferences, lack of success
of new products, loss of DSI's customers, liquidity of DSI, competition, and
other factors discussed from time to time in DSI's filings with the Securities
and Exchange Commission.
For more information, contact:
Tom Martin
MVII, LLC
654 Osos Street
San Luis Obispo, CA 93401
(805) 545-7900
2
<PAGE> 1
EXHIBIT 99(C)(1)
STOCK PURCHASE AND SALE AGREEMENT
by and between
DSI TOYS, INC.,
and
MVII, LLC
Dated as of April 15, 1999
<PAGE> 2
This STOCK PURCHASE AND SALE AGREEMENT ("Agreement") is entered into by
and between MVII, LLC, a limited liability company formed under the laws of the
State of California ("Buyer"), and DSI Toys, Inc., a Texas corporation (the
"Company"). This Agreement is made with specific reference to the following
facts:
RECITALS:
A. WHEREAS, the Company owns and operates a business engaged in
the development, manufacturing and distribution of toys and
children's consumer electronics;
B. WHEREAS, the Board of Directors of the Company has approved
the sale of five hundred sixty-six thousand thirty-eight
(566,038) shares (the "Initial Funding Shares") of common
stock, par value $.01 per share, of the Company (the "Common
Stock" or the "Shares"), on the Initial Closing Date (as that
term is defined herein) and an additional one million seven
hundred ninety-two thousand four hundred fifty- three
(1,792,453) Shares (the "Second Funding Shares") on the Second
Closing Date (as that term is defined herein) plus a potential
upward adjustment of an additional one hundred forty thousand
(140,000) Shares as provided herein, by the Company to Buyer,
on the terms and subject to the conditions set forth in this
Agreement;
C. WHEREAS, the Board of Directors of the Company has approved
the acquisition of up to one million six hundred thousand
(1,600,000) shares of Common Stock (the "Tendered Shares") by
Buyer from the Company's shareholders (the "Shareholders"), on
the terms and subject to the conditions set forth in this
Agreement;
D. WHEREAS, in furtherance of such acquisition, Buyer proposes to
make a tender offer (as it may be amended from time to time as
permitted under this Agreement, the "Offer") to purchase the
Tendered Shares at a purchase price of $4.38 per share (the
"Offer Price") net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set
forth in this Agreement, and the Board of Directors of the
Company has adopted resolutions approving the Offer;
E. WHEREAS, the Board of Directors has approved the terms of that
certain Shareholders' and Voting Agreement of DSI Toys, Inc.
(the "Shareholders Agreement") by and among the Company,
Buyer, and M. D. Davis, Rust Capital, Ltd., a Texas limited
partnership, Douglas A. Smith, Joseph N. Matlock, and Barry B.
Conrad (collectively, the "DSI Group"), entered into
concurrently with the execution of this Agreement, and in
connection therewith, members of the DSI Group have executed
irrevocable proxies in favor of Buyer (the "Irrevocable
Proxies"), as an inducement to Buyer and the Company to enter
into this Agreement;
F. WHEREAS, the Board of Directors has approved the terms of that
certain Registration Rights Agreement (the "Registration
Rights Agreement") (the
-2-
<PAGE> 3
Registration Rights Agreement and the Shareholders Agreement
are hereinafter collectively referred to as the "Other
Agreements") by and among the Company, Buyer, and the DSI
Group, entered into concurrently with the execution of this
Agreement as an inducement to Buyer to enter into this
Agreement; and
G. WHEREAS, the Company and Buyer desire to make certain
representations, warranties, covenants and agreements in
connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, the receipt and sufficiency of which
are acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
PURCHASE OF SHARES
SECTION 1.1 Purchase and Sale of Initial Funding Shares. Upon the terms
and subject to the conditions set forth in this Agreement the Company shall sell
to Buyer and Buyer shall purchase from the Company the Initial Funding Shares
for a total consideration of One Million Two Hundred Thousand Dollars
($1,200,000.00) (the "Initial Funding Shares Purchase Price").
SECTION 1.2 Purchase and Sale of Second Funding Shares. Upon the terms
and subject to the conditions set forth in this Agreement the Company shall sell
to Buyer and Buyer shall purchase from the Company the Second Funding Shares for
a total consideration of Three Million Eight Hundred Thousand Dollars
($3,800,000.00) (the "Second Funding Shares Purchase Price"), subject to
adjustment pursuant to Section 1.2(a).
(a) If as of 11:59 p.m. on the Second Closing Date (as defined below)
(the "Relevant Time"), the Working Capital (as defined below), is less than the
Base Amount (as defined below), then the Second Funding Shares shall be
increased by the excess of the Base Amount over the amount of Working Capital of
the Company as of the Relevant Time, based upon a stock price of Two Dollars
($2.00) per Second Funding Share; provided that the Second Funding Shares shall
not be increased by more than forty thousand (40,000) shares. "Working Capital"
shall mean current assets less current liabilities (excluding current portion of
long-term debt). The term "Base Amount" shall mean One Million Dollars
($1,000,000.00).
(b) Within three (3) business days prior to the Second Closing Date,
the Company shall deliver to Buyer a statement (together with appropriate
schedules and other support, the "Settlement Statement") that: (i) provides
Buyer with a good faith estimate of its Working Capital as of the Relevant Time,
as adjusted, for any collections, payments or distributions to be made prior to
the Relevant Time, and (ii) calculates the increase of the Second Funding Shares
pursuant to Section 1.2(a) hereof, if applicable.
-3-
<PAGE> 4
(c) If the Settlement Statement requires any adjustments to the Second
Funding Shares as described in Section 1.2(a) and Buyer agrees with the
adjustments as set forth in the Settlement Statement, then such adjustment shall
be reflected in the amount of Second Funding Shares to be issued to Buyer on the
Second Closing Date pursuant to Section 1.3(b).
(d) Unless Buyer has notified Seller that it agrees with the
adjustments as set forth in the Settlement Statement on or before the Second
Closing Date, then on the Second Closing Date, the Company shall sell to Buyer
one million seven hundred ninety-two thousand four hundred fifty-three
(1,792,453) Shares and, if Buyer elects to challenge the amount of Working
Capital contained in the Settlement Statement, Buyer shall notify the Company of
its challenge of the amount of Working Capital in writing no later than ten (10)
business days following the Second Closing Date. If Buyer and the member of the
Company's Board of Directors appointed to represent the Company by those members
of the Company's Board of Directors who are nominated by the DSI Group (the "DSI
Representative") do not agree within ten (10) days of such challenge on any such
adjustment, Buyer shall engage Arthur Andersen, who shall conduct such tests and
procedures as it deems reasonable to finally determine the amount of Working
Capital, as applicable, on the Second Closing Date, no later than sixty (60)
days following the Second Closing Date. If Arthur Andersen determines the amount
of Working Capital of the Company as of the Relevant Time differs from that set
forth in the Settlement Statement, it shall so notify the Company and the Buyer
of such difference. If Arthur Andersen determines that the Working Capital of
the Company as of the Relevant Time is greater than the Base Amount, then this
Agreement shall continue in full force and effect without any changes to the
Second Funding Shares. If Arthur Andersen determines that the Working Capital of
the Company as of the Relevant Time is less than the Base Amount, then the
Second Funding Shares shall be increased by the excess of the Base Amount over
the amount of Working Capital of the Company as of the Relevant Time as
determined by Arthur Andersen, based upon a stock price of Two Dollars ($2.00)
per Second Funding Share, and the Company shall issue to Buyer an additional
number of Second Funding Shares that the Company should have issued on the
Second Closing Date, pursuant to Section 1.2(a) hereof, based upon the findings
of Arthur Andersen.
(e) If the Company fails to satisfy the terms of Section 5.20 below,
Buyer shall be issued the Moss Default Shares (as defined in Section 5.20
below).
SECTION 1.3 Closings.
(a) Initial Closing. The closing of the purchase and sale of
the Initial Funding Shares (the "Initial Closing") shall take place at the
offices of Thompson & Knight, 1200 Chase Tower, 600 Travis Street, Houston,
Texas 77002, at 10:00 a.m., local time, on the date hereof, or at such other
time and place as the Company and Buyer shall agree in writing (the "Initial
Closing Date"). At the Initial Closing:
(i) The Company shall deliver to Buyer: (A) one or
more certificates representing five hundred sixty-six thousand
thirty-eight (566,038) Shares, duly endorsed in blank or with duly
executed stock powers, free and clear of any Liens; (B) the Other
Agreements and the Irrevocable Proxies duly executed by the parties
thereto in the forms
-4-
<PAGE> 5
attached hereto as Exhibits 5.15, 5.16 and 1.3(a)(i)(B), respectively;
(C) those certain Side Letter Agreements executed by each of the
members of the DSI Group and the Company in the forms attached hereto
as Exhibit 1.3(a)(i)(C); (D) a favorable opinion of counsel dated as of
the Initial Closing Date in form and substance satisfactory to Buyer
and Buyer's Counsel; (E) certified copies of resolutions duly adopted
by the Company's board of directors approving this Agreement and the
transactions contemplated hereby; (F) duly executed consents of any
party having a contractual relationship with the Company or any of its
Subsidiaries and whose consent is required to be obtained to execute
this Agreement or in connection with the Initial Closing and who has
been identified as such by Company in the Seller Disclosure Letter (as
defined herein), including, but not limited to, Sunrock Capital Corp.
("Sunrock"); (G) draft copies of the consolidated balance sheet
(including related notes and schedules) and consolidated statements of
income, shareholders' equity and of cash flows to be included in the
Company's annual report on Form 10-K for the fiscal year ending January
31, 1999 (the "1998 Financial Statements"); (H) a written consent and
waiver in the form attached hereto as Exhibit 1.3(a)(i)(H) executed by
Sunrock consenting to the transactions contemplated hereby and waiving
any breaches and/or events of default arising out of or in connection
with the transactions contemplated hereby; and (I) the opinion of
Chaffe and Associates, Inc., a copy of which is attached hereto as
Exhibit 3.29.
(ii) Buyer shall deliver to the Company, (A) by wire
transfer of immediately available funds the Initial Funding Shares
Purchase Price, (B) the Other Agreements duly executed by the Buyer,
(C) a favorable opinion of counsel dated as of the Initial Closing Date
in form and substance satisfactory to the Company and the Company's
counsel, and (D) certified copies of resolutions duly adopted by the
Buyer's board of directors approving this Agreement and the
transactions contemplated hereby.
(b) Second Closing. The closing of the purchase and sale of
the Second Funding Shares (the "Second Closing") shall take place at the offices
of Thompson & Knight, 1200 Chase Tower, 600 Travis Street, Houston, Texas 77002,
at 10:00 a.m., local time, on or before July 1, 1999, as the Company and Buyer
shall agree in writing (the "Second Closing Date").
(i) The Company shall deliver to Buyer one or more
certificates representing one million seven hundred ninety-two thousand
four hundred fifty-three (1,792,453) Shares (and such additional
Shares, if any, as set forth in the Settlement Statement and agreed to
by Buyer as provided in Section 1.3(c) hereof), duly endorsed in blank
or with duly executed stock powers, free and clear of any Liens;
(ii) Buyer shall deliver by wire transfer of
immediately available funds the Second Funding Shares Purchase Price to
the Company;
(iii) The Company shall amend the Amended and
Restated Articles of Incorporation of the Company to increase the
number of authorized shares of capital stock from twenty-five million
(25,000,000) to forty million (40,000,000) pursuant to the Articles of
Amendment to the Amended and Restated Articles of Incorporation
attached hereto as
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Exhibit 1.3 (the "Articles of Amendment"), by filing the Articles of
Amendment with the Secretary of State of the State of Texas, if such
Articles of Amendment have been approved by the Shareholders at the
Shareholders Meeting (as defined herein); and
(iv) The parties shall deliver all remaining items
and perform all remaining covenants required by the terms and
conditions of this Agreement.
ARTICLE II
TENDER OFFER
SECTION 2.1 The Offer
(a) Not later than the first business day after the date of this
Agreement, Buyer will make a public announcement of the offer to purchase one
million six hundred thousand (1,600,000) Shares at the Offer Price net to the
seller in cash. Notwithstanding the foregoing, the Offer Price will be subject
to possible increase as provided in Section 2.1(b) hereof.
(b) Subject to the provisions of this Agreement, as promptly as
practicable but in no event later than five business days after the date of the
public announcement by Buyer of the Offer, Buyer shall commence the Offer. The
obligation of Buyer to commence the Offer and accept for payment, and pay for,
any Shares tendered pursuant to the Offer shall be subject only to the
conditions set forth in Exhibit 2.1 attached hereto (the "Offer Conditions")
(any of which may be waived in whole or in part by Buyer in its sole
discretion). Buyer expressly reserves the right to modify the terms of the
Offer, except that, without the prior written consent of the Company, Buyer
shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the
Offer Price, (iii) add to the Offer Conditions, (iv) except as provided in the
next sentence, extend the Offer, or (v) change the form of consideration payable
in the Offer. Notwithstanding the foregoing, Buyer may, without the consent of
the Company, (i) extend the Offer, if at the scheduled or extended expiration
date of the Offer (the initial scheduled expiration date being such date as
shall be identified in the Offer Documents (as herein defined)), any of the
Offer Conditions shall not be satisfied or waived, until such time as such
conditions are satisfied or waived, (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the
Offer, and (iii) extend the Offer for any reason on one or more occasions for an
aggregate period of not more than twenty (20) business days beyond the latest
expiration date that would otherwise be permitted under clause (i) or (ii) of
this sentence, in each case subject to the right of Buyer or the Company to
terminate this Agreement pursuant to the terms hereof. The obligation of Buyer
to accept for payment, and pay for, any Shares tendered pursuant to the Offer
shall be subject only to the conditions set forth on Exhibit 2.1 (any of which
may be waived in whole or in part by Buyer in its sole discretion). Subject to
the terms and conditions of the Offer, Buyer shall accept for payment, and pay
for, all Shares validly tendered and not withdrawn pursuant to the Offer that
Buyer becomes obligated to accept for payment, pursuant to the Offer as soon as
practicable after the expiration of the Offer.
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(c) On the date of commencement of the Offer, Buyer shall file with the
SEC a Tender Offer Statement in Schedule 14D-1 (the "Schedule 14D-1") with
respect to the Offer, which shall contain an offer to purchase and a related
letter of transmittal (such Schedule 14D-1 and the documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "Offer Documents"), and Buyer shall cause to be
disseminated the Offer Documents to holders of Common Stock (collectively, the
"Shareholders" and individually, a "Shareholder") as and to the extent required
by applicable federal securities laws. Buyer and the Company each agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and Buyer further agrees to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be promptly filed with
the SEC and the other Offer Documents as so corrected to be promptly
disseminated to the Shareholders, in each case as and to the extent required by
applicable federal securities laws. The Company and its counsel shall be given
reasonable opportunity to review and comment upon the Offer Documents prior to
their filing with the SEC or dissemination to the Shareholders. Buyer agrees to
provide the Company and its counsel any comments Buyer or its counsel may
receive from the SEC or its staff with respect to the Offer Documents promptly
after the receipt of such comments.
(d) Buyer shall provide on a timely basis the funds necessary to accept
for payment, and pay for, any Shares that Buyer becomes obligated to accept for
payment, and pay for, pursuant to the Offer.
SECTION 2.2 Company Actions.
(a) The Company hereby represents that the Board of Directors of the
Company has, at a meeting duly called and held, duly adopted resolutions whereby
it: (i) determined that this Agreement, the Offer and the transactions
contemplated hereby and thereby are in the best interests of the Company and the
Shareholders, (ii) adopted and approved this Agreement, the Offer and the
transactions contemplated hereby and thereby, and (iii) resolved to recommend
that the Shareholders accept the Offer, tender their shares in response to the
Offer, and approve the sale of the Second Funding Shares by the Company to Buyer
pursuant to the terms of this Agreement. Simultaneously with the execution of
this Agreement, pursuant to the terms of the Side Letter Agreements, each of the
members of the DSI Group has agreed that if the Minimum Condition (as that term
is defined in Exhibit 2.1 attached hereto) is not met as of the initial
scheduled expiration date of the Offer, each of the members of the DSI Group
shall tender their Shares in the Offer, except where such sales in response to
the Offer might result in liability under Section 16(b) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), such that the number of
Shares tendered by each member of the DSI Group and non-DSI Group Shareholders,
shall meet the Minimum Condition. Nothing herein contained shall prevent any
member of the DSI Group from tendering any or all Shares over which such member
has dispositive power, even if the Minimum Condition is otherwise met, and any
such Shares so tendered shall be subject to a pro rata reduction to the same
extent as the Shares tendered by any other Shareholder.
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<PAGE> 8
(b) Not later than the first business day after the date the Offer
Documents are filed with the SEC, the Company shall file with the SEC a
Solicitation/Recommendation Statement in Schedule 14D-9 with respect to the
Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9")
containing the recommendations described in Section 2.2(a) hereof and will
disseminate the Schedule 14D-9 as required by Rule 14d-9 under the Exchange Act.
The Company and Buyer each agrees to correct promptly any information provided
by it for use in the Schedule 14D-9 if and to the extent that information is or
becomes incomplete or inaccurate in any material respect and the Company will
file promptly any corrected Schedule 14D-9 with the SEC and disseminate promptly
the corrected Schedule 14D-9 to the Shareholders to the extent required by the
Exchange Act or the rules thereunder. Buyer and its counsel shall be given
reasonable opportunity to review and comment upon the Schedule 14D-9 prior to
its filing with the SEC or dissemination to the Shareholders. The Company agrees
to provide Buyer and its counsel any comments the Company or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish Buyer promptly with mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of those
persons becoming record holders subsequent to such date, together with copies of
all lists of Shareholders, security position listings and computer files and all
other information in the Company's possession or control regarding the
beneficial owners (as defined under Rule 13d-3 of the Securities Act of 1933, as
amended (the "Securities Act")) of Common Stock, and shall furnish to Buyer such
additional information and assistance (including updated lists of Shareholders,
security position listings and computer files) as Buyer may reasonably request
in communicating the Offer to the Shareholders. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents, Buyer and its agents shall hold in confidence the information
contained in any such labels, listings and files, and will use such information
only in connection with the Offer.
SECTION 2.3 The Closing of the Offer. The closing of the Offer (the
"Offer Closing") shall occur simultaneously with and be conditioned upon the
Second Closing of the sale of the Second Funding Shares as provided in Section
1.3 hereof and the satisfaction or waiver of the conditions set forth in Exhibit
2.1 (the "Offer Closing Date"), unless another date is agreed to in writing by
the parties hereto.
SECTION 2.4 Payment for Tendered Shares.
(a) Paying Agent. Prior to the date of the consummation of the
transactions contemplated by the Offer (the "Effective Time"), Buyer shall
designate a bank or trust company or an entity which in the ordinary course of
business acts as a participation agent to act as paying agent in the Offer (the
"Paying Agent"), and, from time to time on, prior to or after the Effective
Time, Buyer shall make available to the Paying Agent cash in amounts and at the
times necessary for the payment of the purchase price for each Tendered Share
purchased (the "Tender Price") upon surrender of certificates representing
Shares (it being understood that any and all interest earned on funds made
available to the Paying Agent pursuant to this Agreement shall be turned over to
Buyer).
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<PAGE> 9
(b) Payment Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented Shares (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in a form and have such other provisions as Buyer may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Tender Price for such Shares surrendered.
Upon surrender of a Certificate to the Paying Agent or to such other agent or
agents as may be appointed by Buyer, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the Tender Price for each Share theretofore represented by
such Certificate which shall have been tendered. In the event of a transfer of
ownership of Shares that is not registered in the transfer records of the
Company, payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such Certificate or
establish to the satisfaction of the Buyer that such tax has been paid or is not
applicable. No interest will be paid or will accrue on the cash payable upon the
surrender of any Certificate. If more than one million six hundred thousand
(1,600,000) Shares are validly tendered prior to the Effective Time and not
withdrawn, the Buyer will, upon the terms and conditions of the Offer, accept
such Shares for payment on a pro rata basis as provided by Section 14(d)(6) of
the Exchange Act and Rule 14(d) promulgated thereunder, with adjustments to
avoid purchases of fractional Shares, based upon the number of Shares validly
tendered prior to the Effective Time and not withdrawn.
SECTION 2.5 Directors.
(a) Upon the Second Closing and the Offer Closing, Buyer shall be
entitled to designate four of the six directors on the Board of Directors of the
Company. In furtherance thereof, each of Barry B. Conrad ("Conrad"), Jack R.
Crosby ("Crosby"), Richard R. Neitz ("Neitz"), and Douglas A. Smith ("Smith")
has agreed to tender his resignation as a member of the Board of Directors
effective upon the Second Closing and the Offer Closing to enable Buyer's
designees to be so elected to the Company's Board of Directors, and the Company
agrees to take all actions available to cause Buyer's designees to be so
elected. At such time, the Company shall, if requested by Buyer, also cause
persons designated by Buyer to constitute at least the same percentage as is on
the Company's Board of Directors of (i) each committee of the Company's Board of
Directors, (ii) each board of directors of each Subsidiary of the Company, and
(iii) each committee (or similar body) of each such board.
(b) The Company shall promptly take all actions required, if any,
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations with respect to Section 2.5(a)
hereof, including mailing to Shareholders the information required by such
Section 14(f) and Rule 14f-1 as is necessary to enable Buyer's designees to be
elected to the Company's Board of Directors. Buyer will supply the Company and
be solely
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<PAGE> 10
responsible for any information with respect to it and its nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section 2.5 are in addition to and shall not limit any rights
which Buyer or any of its affiliates may have as a beneficial owner of Shares as
a matter of law with respect to the election of directors or otherwise.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company represents and warrants to Buyer, as follows:
SECTION 3.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority to
own and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation of its
properties or conduct of its business requires such qualification, except where
the failure to be so qualified or in good standing is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect or prevent or
materially delay the consummation of the Offer. Section 3.1 of the disclosure
letter delivered to Buyer by the Company on or prior to entering into this
Agreement and incorporated by reference herein (the "Seller Disclosure Letter")
contains complete and correct copies of the Company's and its Subsidiaries'
certificates or articles of incorporation, as the case may be, and bylaws, each
as amended to date. The Company's and its Subsidiaries' certificates of
incorporation and bylaws so delivered are in full force and effect.
SECTION 3.2 Capital Structure. The authorized capital stock of the
Company consists of 25,000,000 shares of capital stock, 20,000,000 of which are
shares of Common Stock, and 5,000,000 of which are shares of Preferred Stock, of
which 6,000,000 shares of Common Stock and no shares of Preferred Stock were
outstanding and 2,719,000 Shares were held by the Company in its treasury, as of
the close of business on April 14, 1999. All of the outstanding Shares have been
duly authorized and are validly issued, fully paid and nonassessable and, upon
the sale thereof, the Initial Funding Shares and the Second Funding Shares will
be duly authorized, validly issued, fully paid and nonassessable. The Company
has no Shares reserved for issuance except for 603,000 Shares reserved for
issuance upon exercise of outstanding options granted under and pursuant to the
Company's Stock Option Plan, as amended from time to time (the "Stock Plan");
and 638,888 Shares reserved for issuance upon the exercise of outstanding
warrants as described in Section 32 of the Seller Disclosure Letter. Section 3.2
of the Seller Disclosure Letter contains a correct and complete list as of April
14, 1999, of each outstanding option to purchase Shares, under the Stock Plan
and pursuant to the outstanding warrants described in Section 3.2 of the Seller
Disclosure Letter (each a "Company Option"), including the holder, date of
grant, exercise price and number of Shares subject thereto, along with complete
and correct copies of the Company Options and the Stock Plan. Except as set
forth in Section 3.2 of the Seller Disclosure Letter, each of the outstanding
shares of capital stock or other securities of each of the Company's
Subsidiaries is duly authorized, validly
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<PAGE> 11
issued, fully paid and nonassessable and owned by the Company, free and clear of
any Lien, right of first refusal agreement, limitation on voting rights, claim
or other encumbrance. Except as set forth in Section 3.2 of the Seller
Disclosure Letter, there are no preemptive or other outstanding rights (other
than rights accruing to the Company or its Subsidiaries), options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements or commitments to issue or sell any shares of
capital stock or other securities of the Company or any of its Subsidiaries or
any securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any securities of
the Company or any of its Subsidiaries, and no securities or obligations
evidencing such rights are authorized, issued or outstanding. The Company does
not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the Shareholders of the Company on any
matter. There is not outstanding any contractual obligations of the Company or
any of its Subsidiaries (i) to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company, or (ii) to vote or to dispose of any
shares of capital stock of any of the Subsidiaries.
SECTION 3.3 Corporate Authority; Approval and Fairness. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized and approved by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize or
approve this Agreement, or to consummate the transactions contemplated hereby
other than: (i) the approval and adoption of this Agreement and the transactions
contemplated hereby, including the approval of the sale of the Second Funding
Shares by the Company to Buyer by the affirmative vote of Shareholders holding a
majority of Shares represented in person or by proxy at a duly called meeting at
which a quorum is present or represented, and (ii) the approval of the Articles
of Amendment by the affirmative vote of Shareholders holding a majority of the
Shares then outstanding. The Board of Directors has resolved to recommend the
approval of the sale of the Second Funding Shares by the Company to Buyer and
the adoption of this Agreement and the Articles of Amendment by the
Shareholders, and has directed that the sale of the Second Funding Shares, this
Agreement and the Articles of Amendment be submitted to the Shareholders for
their approval. The Company has all corporate power and authority to enter into
this Agreement and the Other Agreements to which the Company is a party and to
consummate the transactions contemplated hereby and thereby, subject to the
approval of the Shareholders described in subsections (i) and (ii) above. This
Agreement and the Other Agreements to which the Company is a party have been
duly executed and delivered by the Company and (assuming the valid
authorization, execution and delivery of such agreement by each other party
thereto) each constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that
enforceability may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights or by principles governing the availability of
equitable remedies (the "Bankruptcy Exception").
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SECTION 3.4 Governmental Filings; No Violations.
(a) Except as set forth in Section 3.4(a) of the Seller Disclosure
Letter, other than the filings and/or notices (i) pursuant to this Agreement,
(ii) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), if applicable, and the Exchange Act and the Securities Act,
(iii) to comply with state securities or "blue-sky" laws, if any; and (iv)
required to be made with the NASDAQ, no notices, reports or other filings are
required to be made by the Company or any of its Subsidiaries with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by the Company or any of its Subsidiaries from, any governmental or
regulatory authority, agency, commission, body or other governmental entity,
domestic, foreign, or supranational ("Governmental Entity"), in connection with
the execution and delivery of this Agreement and the consummation by the Company
of the sale of the Initial Funding Shares and the Second Funding Shares to Buyer
and the other transactions contemplated hereby.
(b) Except for those agreements for which consents must be obtained as
set forth in Section 6.2(c) of the Seller Disclosure Letter, the execution,
delivery and performance of this Agreement by the Company does not, and the
consummation by the Company of this Agreement and the other transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of, or a default under, the articles of incorporation or bylaws of the Company
or the comparable governing instruments of any of its Subsidiaries, (ii) a
breach or violation of, or a default under, or the acceleration of any
obligations or the creation of a Lien or other encumbrance on the assets of the
Company or any of its Subsidiaries (with or without notice, lapse of time or
both) pursuant to, any loan or credit agreement, note, bond, warrant, indenture
or other instrument evidencing indebtedness for borrowed money ("Debt
Contracts") or any other agreement, lease, contract, arrangement or other
obligation ("Other Contracts") binding upon the Company or any of its
Subsidiaries or any Law (as defined in Section 3.9 below) or governmental or
non-governmental permit or license to which the Company or any of its
Subsidiaries is subject or any judgment, order or decree to which the Company or
any of its Subsidiaries or any of its properties is subject; or (iii) any change
in the rights or obligations of any party under any of the Debt Contracts or
Other Contracts, except, in the case of clause (ii) or (iii) above, for any
breach, violation, default, acceleration, creation or change that, individually
or in the aggregate, is not reasonably likely to have a Material Adverse Effect
or prevent, delay or impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
(c) Except as set forth in Section 3.4(c) of the Seller Disclosure
Letter, no event has occurred or is occurring that constitutes or, but for the
giving of notice or lapse of time, or both, would constitute an event of default
by the Company or any of its Subsidiaries under any Debt Contract or Other
Contracts binding upon the Company or any of its Subsidiaries.
SECTION 3.5 Company Reports; Financial Statements. The Company has
filed all reports and other documents to be filed by it since its formation
under the Exchange Act or the Securities Act. Section 3.5 of the Seller
Disclosure Letter contains a complete list of each registration statement,
report, proxy statement or information statement (including any amendments
thereto) filed by it with the SEC (collectively, including any such reports
filed subsequent to the date hereof, the
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"Company Reports"). The Company has delivered or will deliver promptly after
filing true and correct copies of each of the Company Reports to Buyer. As of
their respective dates, the Company Reports did not, and any Company Reports
filed with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances in which they were made, not misleading. Each of the
Company Reports complied in all material respects with the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations
thereunder. To the Knowledge of the Company, each of the consolidated balance
sheets included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents, or will fairly
present, in all material respects, the consolidated financial position of the
Company and each of its Subsidiaries as of its date, and each of the
consolidated statements of income, shareholders' equity and of cash flows
included in or incorporated by reference into the Company Reports (including any
related notes and schedules) (together with such consolidated balance sheets
hereinafter the "Financial Statements") fairly presents, or will fairly present,
in all material respects, the results of consolidated operations, shareholders'
equity and cash flows, as the case may be, of the Company and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to notes and normal year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein.
SECTION 3.6 Absence of Certain Changes. Except as disclosed in the
Company credit reports required to be submitted by the Company, including,
without limitation, those prepared by Dun and Bradstreet and reports delivered
by the Company to the Company's lenders under any Debt Contracts (the
"Reports"), filed prior to the date hereof and as set forth in Section 3.6 of
the Seller Disclosure Letter, since October 31, 1998 (the "Financial Statement
Date"), the Company and each of its Subsidiaries have conducted their respective
businesses only in, and have not entered into or engaged in any material
transaction other than in, the ordinary and usual course of such businesses and
there has not been (a) any change in the financial condition, properties,
business or results of operations of the Company or any of its Subsidiaries or
any development or combination of developments that, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect;
(b) any damage, destruction or other casualty loss with respect to any asset or
property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance, except as is not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect; (c)
any declaration, setting aside or payment of any dividend or other distribution
in respect of the capital stock of the Company, except for dividends or other
distributions on its capital stock publicly announced prior to the date hereof;
(d) any material change by the Company in accounting principles, practices or
methods; or (e) any entry by the Company or any of its Subsidiaries into any
employment, consulting, severance, termination or indemnification agreement or
arrangement with any employee or director. Since the Financial Statement Date,
except as provided for herein or as disclosed in the Company Reports filed prior
to the date hereof, there has not been any increase in the compensation payable
or that could become payable by the Company or any of its Subsidiaries to
directors, officers or key employees or any amendment of any
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of the Compensation and Benefit Plans (as defined in Section 3.8 below) other
than increases or amendments in the ordinary course.
SECTION 3.7 Litigation and Liabilities. Except as set forth in Section
3.7 of the Seller Disclosure Letter, there are no (a) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the Knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any current or former director or officer of the
Company or any of its Subsidiaries (in their capacity as such) or (b)
obligations or liabilities, whether or not accrued, contingent or otherwise,
including those relating to matters involving any Environmental Law (as defined
in Section 3.11 below), that, in the case of either clause (a) or (b),
individually or in the aggregate, are reasonably likely in either such case to
have a Material Adverse Effect or prevent or impair the ability of the Company
to consummate the transactions contemplated by this Agreement, including,
without limitation, the consummation of the Offer. Except as disclosed in the
Company Reports filed prior to the date hereof and as set forth in Section 3.7
of the Seller Disclosure Letter, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against the Company or
any of its Subsidiaries, any of its or their properties, assets or business, or,
to the Knowledge of the Company, any of its or their current or former directors
or officers, in their capacities as directors or officers of the Company, as
such, that is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect.
SECTION 3.8 Employee Matters.
(a) Neither the Company nor any of its Subsidiaries has any labor
contracts or collective bargaining agreements with respect to any persons
employed by or otherwise performing services for the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has engaged in any
unfair labor practice. As of the date hereof, there is no unfair labor practice
complaint pending, or to the Knowledge of the Company threatened, against the
Company or any of its Subsidiaries. There is no labor strike, dispute, slowdown,
or stoppage pending or to the Knowledge of the Company threatened, against the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has experienced any primary work stoppage or labor difficulty
involving its employees during the last three (3) years, except in each case as
is not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect.
(b) Section 3.8(b) of the Seller Disclosure Letter is a true and
complete list of each bonus, deferred compensation, pension, retirement, profit
sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock option, employment, termination, severance,
compensation, medical, health, welfare, fringe benefits or other plan,
agreement, policy or arrangement which the Company or any of its Subsidiaries
maintains, or as to which the Company or any of its Subsidiaries is or will be
required to make any payment for the benefit of any employee, director, former
employee or former director of the Company and its Subsidiaries (the
"Compensation and Benefit Plans"). The Company has delivered or made available
to Buyer with respect to each Compensation and Benefit Plan correct and complete
copies, where applicable, of (i) all plan documents and amendments thereto,
trust agreements and amendments thereto and insurance and annuity contracts and
policies, (ii) the current summary plan description, (iii) the
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Annual Reports (Form 5500 series) and accompanying schedules, as filed, for the
most recently completed two plan years for which such reports have been filed,
(iv) the financial statements for the most recently completed two plan years for
which statements have been prepared, (v) the most recent determination letter
issued by the Internal Revenue Service (the "IRS") and the application submitted
with respect to such letter, and (vi) all correspondence with the IRS or
Department of Labor concerning any pending controversy. Any "change of control"
or similar provisions contained in any Compensation and Benefit Plan are
specifically identified in Section 3.8(b) of the Seller Disclosure Letter.
(c) All Compensation and Benefit Plans have been administered in all
material respects in accordance with their terms and are in compliance in all
material respects with all applicable laws, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Compensation
and Benefit Plan that is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA (a "Pension Plan") and that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the IRS, and the Company is not aware as of the date hereof of any
circumstances likely to result in revocation of any such favorable determination
letter or of any circumstance indicating that any such plan is not so qualified
in operation. As of the date hereof, there is no pending or, to the Knowledge of
the Company, threatened litigation, claim or audit by any Person relating to the
Compensation and Benefit Plans. To the Knowledge of the Company, no prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code has
occurred which would be expected to result in material liability to the Company
or any of its Subsidiaries, assuming that, for purposes of determining
materiality, the "taxable period" within the meaning of Section 4975 of the Code
with respect to such prohibited transaction had expired as of the date hereof.
(d) As of the date hereof, no liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by the Company or any
Subsidiary with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate"). None of the Company, any of its
Subsidiaries and their ERISA Affiliates have contributed, or been obligated to
contribute, to a multi-employer plan under Subtitle E of Title IV of ERISA at
any time, and no liability has been or is expected to be incurred by the Company
or any Subsidiary with respect to any such plan. None of the Company, any of its
Subsidiaries or any ERISA Affiliate contributes to or maintains a Pension Plan
subject to Title IV of ERISA or has contributed to or maintained any such plan
at any time during the six-year period prior to the date hereof.
(e) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof, have been timely made or
have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Company Reports prior to the date hereof.
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(f) Neither the Company nor any of its Subsidiaries has any obligations
for retiree health and life benefits under any Compensation and Benefit Plan,
except as required under Part 6 of Title I of ERISA.
(g) Except as contemplated by this Agreement or disclosed in Section
3.8(g) of the Seller Disclosure Letter, the consummation of this Agreement and
the other transactions contemplated by this Agreement will not (i) entitle any
employees of the Company or its Subsidiaries to severance pay, (ii) accelerate
the time of payment or vesting or trigger any payment of compensation or
benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Compensation and Benefit Plans or the Stock
Plan or (iii) result in any breach or violation of, or default under, any of the
Compensation and Benefit Plans or the Stock Plan.
SECTION 3.9 Compliance with Laws; Permits. Except as set forth in the
Company Reports filed prior to the date hereof and as set forth in Section 3.9
of the Seller Disclosure Letter, the businesses of each of the Company and its
Subsidiaries are being conducted in compliance with applicable federal, state,
local and foreign laws (collectively, "Laws"), except for such violations that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect or prevent or materially burden or materially impair the ability
of the Company to consummate the transactions contemplated by this Agreement.
The Company and its Subsidiaries each has all governmental permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to own or lease and operate their respective
properties and conduct its business as presently conducted except those the
absence of which are not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect or prevent or burden or impair the ability of the
Company to consummate this Agreement and the other transactions contemplated by
this Agreement.
SECTION 3.10 Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation (each a
"Takeover Statute") or any applicable anti-takeover provision in the Company's
articles of incorporation, by-laws or any shareholder rights agreement, except
Article 13.03 of the Texas Business Corporation Act, is, or as of the Second
Closing Date will be, applicable to the Company, the sale of the Initial Funding
Shares and the Second Funding Shares, the Offer or the other transactions
contemplated by this Agreement. The Board of Directors of the Company has taken
all action so that Buyer will not be prohibited from entering into a "business
combination" with the Company as an "affiliated shareholder" (as those terms are
defined in Article 13.02 of the Texas Business Corporation Act) as a result of
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 3.11 Environmental Matters. Except as disclosed in the Company
Reports filed prior to the date hereof, and as set forth in Section 3.11 of the
Seller Disclosure Letter, (i) to the Knowledge of the Company, the Company and
its Subsidiaries are in compliance with all applicable Environmental Laws; (ii)
the Company and its Subsidiaries have not received any written notices from any
Governmental Entity or any other person or entity alleging the violation of any
applicable Environmental Law; (iii) the Company and its Subsidiaries are not the
subject of any court order,
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administrative order or decree arising under any Environmental Law; (iv) to the
Knowledge of the Company, there has not been a release of Hazardous Substances
(as defined below) on any of the properties owned or operated by the Company or
any of its Subsidiaries; and (v) to the Knowledge of the Company neither the
Company nor any Subsidiary has generated, stored, used, emitted, discharged or
disposed of any Hazardous Substances in violation of or giving rise to liability
under applicable Environmental Laws.
As used herein, "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit, order,
decree or injunction relating to the protection of the environment (including
air, water, soil and natural resources), or regulating or imposing standards of
care with respect to the use, storage, handling, release or disposal of any
Hazardous Substance, including petroleum.
As used herein, "Hazardous Substance" means any substance listed,
defined, designated, regulated or classified as hazardous, toxic or radioactive
under any applicable Environmental Law, including petroleum and petroleum
products.
SECTION 3.12 Tax Matters. Except to the extent disclosed in Section
3.12 of the Seller Disclosure Letter:
(a) The Company and each of its Subsidiaries (the Company and each
Subsidiary of the Company are hereinafter referred to collectively as the
"Taxpayers" or individually "Taxpayer") has (i) prepared in good faith and duly
and timely filed (or there have been filed on its behalf) with the appropriate
Tax authorities all Tax Returns required to be filed by it on or prior to the
date hereof, and such Tax Returns are true, complete, and correct in all
material respects, except to the extent that any failure to file any Tax Return
or any inaccuracies in filed Tax Returns would not, individually or in the
aggregate, have a Material Adverse Effect and (ii) paid in full all Taxes that
are shown as due on such filed Tax Returns except for Taxes provided for in a
reserve which is adequate for the payment of such Taxes and is reflected in the
financial statements included in the Company Reports filed prior to the date
hereof or the books and records of the Company. There is no audit or other
matter in controversy with respect to any Taxes due and owing by any Taxpayer,
and there is no Tax deficiency or claim assessed or, to the best of the
Taxpayer's Knowledge, proposed or threatened (whether orally or in writing)
against any Taxpayer, other than (x) in respect of any such audits,
controversies, deficiencies, assessments, or proposed assessments that are being
contested in good faith, for which adequate reserves have been established in
accordance with GAAP or (y) would not, individually or in the aggregate, have a
Material Adverse Effect. Section 3.12 of the Seller Disclosure Letter sets forth
any contested tax liability in respect of which the amount being contested
exceeds Ten Thousand Dollars ($10,000.00).
(b) None of the Taxpayers (i) has waived any statutory period of
limitations for the assessment of any Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency other than in the case of any
such waivers or extensions in respect of an assessment or deficiency, the Tax
liability of which has been satisfied or settled, (ii) has filed a consent under
Code Section 341(f) concerning collapsible corporation, or (iii) has any
liability for the Taxes of any other
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person as defined in Section 7701(a)(1) of the Code under Treas. Reg. ss.1.502-6
(or any similar provisions of state, local, or foreign law), as a transferee,
successor or by contract (other than liability for Taxes imposed by contract
entered into in the ordinary course of business for the acquisition by a
Taxpayer of assets used in the business of the Company or stock of any entity
holding any such assets used in the business of the Company), except to the
extent that any such waiver, consent, or liability referred to in clauses (i),
(ii) and (iii), respectively, of this Section 3.12(b) would not, individually or
in the aggregate, have a Material Adverse Effect;
(c) No claim has been made since January 1, 1994 by any authority in a
jurisdiction where the Taxpayer does not file Tax Returns that a Taxpayer is or
may be subject to taxation by that jurisdiction, other than in the case of any
such claims the liability of which has been satisfied or settled;
(d) None of the assets of a Taxpayer (i) are required to be treated as
being owned by any other person pursuant to the so-called safe harbor lease
provisions of former Section 168(f)(8) of the Code, (ii) secures any debt the
interest on which is tax-exempt under Code Section 103(a), or (iii) is
tax-exempt use property within the meaning of Code Section 168(h);
(e) None of the Taxpayers has agreed to nor is it required to make any
adjustment pursuant to Code Section 481(a) by reason of a change in accounting
method initiated by any such Taxpayer and no director or executive officer of
the Company has Knowledge that the IRS has proposed any such adjustment or
change in accounting method;
(f) None of the Taxpayers has requested an extension of the time within
which to file any foreign, federal or state Tax Return for which such Tax Return
has not been filed;
(g) None of the Taxpayers has any obligation under any Tax allocation
or sharing agreement among or between the Taxpayers and the Company or any
Affiliates thereof, and after the Second Closing Date, no Taxpayer shall be a
party to, bound by or have any obligation under any Tax allocation or sharing
agreement or have any liability thereunder among or between any Taxpayer and the
Company or any Affiliates thereof for amounts due in respect of periods prior to
the Closing Date; and
(h) As a result of the transactions contemplated by this Agreement and
the Other Agreements or the transactions contemplated hereby or thereby, none of
the Taxpayers will be obligated to make a payment that would be an "excess
parachute payment" to an individual that is currently a "dissatisfied
individual" with respect to the Company as those terms are defined in Section
2806 of the Code, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future.
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SECTION 3.13 Intellectual Property.
(a) Section 3.13(a) of the Seller Disclosure Letter lists all
Intellectual Property Rights (as defined below) of the Company and its
Subsidiaries. To the Knowledge of the Company, the Company and/or each of its
Subsidiaries owns all right, title and interest to, or has the right to use
pursuant to a valid license, as the case may be, all Intellectual Property
Rights used in the business of the Company and its Subsidiaries as presently
conducted. All registrations for Intellectual Property Rights owned by the
Company or any Subsidiary are valid and in force. Except as disclosed in Section
3.13(a) of the Seller Disclosure Letter, all applications for registrations of
Intellectual Property Rights filed by the Company or any Subsidiary are pending
and in good standing, all without challenge of any kind. To the Knowledge of the
Company, the Intellectual Property Rights owned by the Company or any of its
Subsidiaries are valid and enforceable. Except as set forth in Section 3.13(a)
of the Seller Disclosure Letter, the Company or its Subsidiaries have the sole
and exclusive right to bring actions for infringement, misappropriation or
unauthorized use of Owned Software (as defined below) and the Intellectual
Property Rights owned by the Company and its Subsidiaries, except for any rights
that, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect.
(b) Except as is disclosed in Section 3.13(b) of the Seller Disclosure
Letter:
(i) Neither the Company nor any of its Subsidiaries is, nor will
the Company or any of its Subsidiaries be, as a result of the
execution and delivery of this Agreement or the performance of
its obligations hereunder, in violation of any license,
sublicense, or other agreement as to which the Company or any
of its Subsidiaries is a party and pursuant to which the
Company or any of its Subsidiaries is authorized to use any
third-party Intellectual Property Rights or computer software
programs or applications;
(ii) To the Knowledge of the Company, there has been no
infringement, misappropriation, or violation of any
Intellectual Property Rights of any other person that has
occurred or results in any way from the operations of the
respective businesses of the Company or its Subsidiaries. No
claim of any infringement, misappropriation or violation of
any Intellectual Property Rights of any other person has been
made or asserted in respect of the operations of the
respective businesses of the Company or its Subsidiaries.
Neither the Company nor any of its Subsidiaries has had notice
of, nor do the executive officers of the Company have
Knowledge of any valid grounds for any bona fide claim against
the Company or its Subsidiaries that its Intellectual Property
Rights, operations, activities, products, software, equipment,
machinery or processes infringe, misappropriate or violate any
Intellectual Property Rights of any other person;
(iii) (A) The Company or its Subsidiaries has maintained and
protected the software that each owns, if any (the "Owned
Software") including, without
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limitation, all source code and system specifications
associated with such software, with such measures as are
reasonably necessary to protect the proprietary, trade secret
or confidential information contained therein; and (B) the
executive officers of the Company do not know of any
infringement, misappropriation or violation of any
Intellectual Property Rights of any other person with respect
to the Owned Software. Section 3.13(b) of the Seller
Disclosure Letter lists all Owned Software and the location of
the service codes for all Owned Software;
(iv) All employees, agents, consultants, or contractors who have
contributed to or participated in the creation or development
of inventions, discoveries, trade secrets, copyrightable
works, or ideas on behalf of the Company, any of its
Subsidiaries or any predecessor in interest thereto, if and
only if necessary to vest ownership rights in such material
with the Company and/or the Subsidiaries, either: (A) is a
party to a "work-for-hire" agreement under which the Company,
a Subsidiary (or such predecessor in interest, as applicable),
is deemed to be the original owner/author of all property
rights therein; or (B) has executed an assignment or an
agreement to assign in favor of the Company, or its Subsidiary
(or such predecessor in interest, as applicable), all right,
title and interest in such inventions, discoveries, trade
secrets, copyrightable works, or ideas.
(c) As used herein, the term "Intellectual Property Rights" shall mean:
(i) all United States and foreign patents, patent applications, continuations,
continuations-in-part, divisions, reissues, patent disclosures, extensions,
re-examinations, inventions (whether or not patentable) or improvements thereto;
(ii) all United States, state, foreign and common law trademarks, service marks,
domain names, logos, trade dress and trade names (including all assumed or
fictitious names under which the Company and each Subsidiary is conducting its
business or has within the previous five years conducted its business), whether
registered or unregistered, and pending applications to register the foregoing;
(iii) all United States and foreign copyrights, whether registered or
unregistered and pending applications to register the same; and (iv) all
confidential ideas, trade secrets, know-how, concepts, methods, processes,
formulae, reports, data, customer lists, mailing lists, business plans, or other
proprietary information.
SECTION 3.14 Brokers and Finders. Neither the Company nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with this Agreement or the other transactions contemplated by this Agreement.
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SECTION 3.15 Events Subsequent to Financial Statements. Except as set
forth in Section 3.15 of the Seller Disclosure Letter, since January 31, 1998,
there has not been:
(a) Any material adverse change in the consolidated financial
condition, results of operations, business or prospective sales (meaning the
aggregate current, open purchase orders) of the Company or any of its
Subsidiaries;
(b) Any sale, lease, conveyance, license or assignment of any material
assets, tangible or intangible, of the Company or any of its Subsidiaries, other
than sales of inventory in the ordinary course of business;
(c) Any damage, destruction or property loss in excess of Fifty
Thousand Dollars ($50,000.00), individually or in the aggregate, in each
instance not covered by insurance, affecting adversely the properties or
business of the Company or any of its Subsidiaries;
(d) Any declaration or setting aside or payment of any dividend or
distribution with respect to the shares of capital stock of the Company or any
of its Subsidiaries or any redemption, purchase or other acquisition of any such
shares other than consummating the transactions contemplated and provided for in
this Agreement;
(e) Any mortgage or pledge of, or subjection to any lien, charge,
security interest or encumbrance of any kind on any of the assets, tangible or
intangible, of the Company or any of its Subsidiaries (other than liens arising
by operation of law which secure obligations which are not yet due and payable),
nor any incurrence of indebtedness or liability or assumption of obligations by
the Company or any of its Subsidiaries other than (i) those incurred in the
ordinary course of business, which would include any working capital loans
pursuant to the Company's credit line with Bank One, Sunrock and/or State Street
(ii) those which do not exceed Fifty Thousand Dollars ($50,000.00) in the
aggregate; and (iii) those incurred in the course of negotiating, documenting
and consummating the transactions contemplated and provided for in this
Agreement;
(f) Any cancellation or satisfaction by the Company or any of its
Subsidiaries of any debt or claim or advance, except for adjustments made in the
ordinary course of business, which in the aggregate, are not material other than
consummating the transactions contemplated or provided for in this Agreement;
(g) Any waiver or release other than the cancellation of open purchase
orders by customers, by the Company or any of its Subsidiaries of any right of
any material value in excess of Fifty Thousand Dollars ($50,000.00);
(h) Any sale, assignment, transfer or grant by the Company or any of
its Subsidiaries of any material rights under any concessions, leases, licenses,
agreements, patents, inventions, trademarks, trade name or copyrights other than
sales or gifts of products or advertising or other rights or releases thereof in
the ordinary course of business;
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(i) Any arrangement, agreement or undertaking entered into by the
Company or its Subsidiaries not terminable on thirty (30) days or less notice
without cost or liability (including, without limitation, any payment of or
promise to pay any bonus or special compensation or any increase in
compensation) with employees or any increase in compensation or benefits to
officers or directors of the Company or any of its Subsidiaries, other than in
the ordinary course of business or consummating the transactions contemplated or
provided for in this Agreement;
(j) Any change made or authorized in the articles of incorporation or
other charter documents or bylaws (or comparable governing instruments) of the
Company or any of its Subsidiaries other than those contemplated or provided for
in this Agreement;
(k) Any loan to or other transaction with any officer, director or
Shareholder of the Company or any of its Subsidiaries giving rise to any claim
or right of the Company or any of its Subsidiaries against any such person or of
such person against the Company or any of its Subsidiaries other than normal
recurring travel and expense advances and expense accounts made in the ordinary
course of business;
(l) Any acceleration, termination, modification or cancellation or
threat thereof by any party of any contract, lease or other agreement or
instrument, other than the cancellation or modification of open purchase orders
by customers or vendors of the Company, that individually or in the aggregate
involves in excess of Fifty Thousand Dollars ($50,000.00) to which the Company
or any of its Subsidiaries is a party or by which it is bound, which has had or
is reasonably likely to have a Material Adverse Effect on the properties or
business of the Company or any of its Subsidiaries;
(m) Any pledge or gift of any charitable or other capital contribution
outside the ordinary course of business;
(n) Any other transaction or commitment in excess of Fifty Thousand
Dollars ($50,000.00) or related transactions or commitments, other than the
modification or cancellation of open purchase orders by customers or vendors of
the Company, in the aggregate in excess of Fifty Thousand Dollars ($50,000.00)
entered into by the Company or any of its Subsidiaries which has had or is
reasonably likely to have a Material Adverse Effect on the properties or
business of the Company or any of its Subsidiaries, or other than those
contemplated or provided for in this Agreement; or
(o) Any termination, modification or cancellation of any booked open
purchase orders by any customer of the Company in excess of One Hundred Thousand
Dollars ($100,000.00) for any individual order or Two Hundred Fifty Thousand
Dollars ($250,000.00) in the aggregate by any single customer.
SECTION 3.16 Disclosure. The Company has made available to Buyer and
its officers, attorneys, accountants, and representatives true and correct
copies of all material agreements, documents, and other items listed in the
Seller Disclosure Letter and all books and records of the
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Company and its Subsidiaries, and neither this Agreement, the Seller Disclosure
Letter, nor any information, agreements, or documents delivered to or made
available to Buyer or its officers, attorneys, accountants, or representatives
pursuant to this Agreement, contain any untrue statements of a material fact or
omits to state any material fact necessary to make the statements made herein or
therein, as the case may be, not misleading.
SECTION 3.17 Real Property. Section 3.17 of the Seller Disclosure
Letter contains a complete and accurate list and brief description of all real
property owned or leased by the Company or its Subsidiaries. With respect to
each lease so set forth: (a) the lease has been validly executed and delivered
by the Company or its Subsidiaries, as applicable, and, to the Knowledge of the
Company, by the other party or parties thereto, and is in full force and effect;
(b) neither the Company nor its Subsidiary, as applicable, nor to the Knowledge
of the Company, any other party to the lease, is in material breach or default,
and no event has occurred on the part of the Company or its Subsidiaries, as
applicable or, to the Knowledge of the Company, on the part of any other party,
which, with notice or lapse of time, would constitute such a breach or default
or permit termination, modification or acceleration under the lease; (c) the
lease will continue to be binding in accordance with its terms following the
Initial Closing and the Second Closing and sale of the Shares to Buyer; (d)
neither the Company nor its Subsidiaries has repudiated and no other party to
the lease has repudiated, any provision thereof; (e) there are no written
notices of disputes, oral agreements or delayed payment programs in effect as to
the lease; and (f) all facilities leased thereunder have been approved by all
necessary Government Entities, and are in good condition, working order and
repair, ordinary wear and tear excepted.
SECTION 3.18 Tangible Property. Except as set forth in Section 3.18 of
the Seller Disclosure Letter, each of the Company and its Subsidiaries has good
and legal title to, or a valid leasehold interest in, each item of tangible
property, whether real, personal or mixed, reflected on its books and records as
owned or used by it, subject to no encumbrances, loans, security interests,
mortgages or pledges except those which arise by matter of law or in the
ordinary course of business, or which are inventory sold subsequent to the date
of entry on the books and which sales are not entered in the books of the
Company or its Subsidiaries on the date of this Agreement or the Second Closing
Date, or which are set forth in Section 3.18 of the Seller Disclosure Letter.
SECTION 3.19 Contracts. Section 3.19 of the Seller Disclosure Letter
lists the following contracts and written arrangements under which the Company
or any other person has continuing obligations or benefits, true and complete
copies of which have been delivered to Buyer, to which the Company or any of the
Subsidiaries is a party.
(a) Any contract for the lease of personal property from or to third
parties providing for lease payments in excess of Twenty-Five Thousand Dollars
($25,000.00) per annum;
(b) Any contract for the purchase or sale of raw materials,
commodities, supplies, products manufactured by the Company or any of its
Subsidiaries or other personal property or for the furnishing or receipt of
goods or services which contract calls for performance over a period of
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more than one year and/or which involves more than the sum of Fifty Thousand
Dollars ($50,000.00);
(c) Any partnership or foreign joint venture agreement;
(d) Any agreement or instrument under which the Company or any of its
Subsidiaries is or may become indebted for borrowed money in an amount
individually or in the aggregate in excess of Fifty Thousand Dollars
($50,000.00);
(e) Any employment agreement and any non-competition agreement.
Except as otherwise described in Section 3.19 of the Seller Disclosure
Letter, all material contracts and arrangements listed in Section 3.19 of the
Seller Disclosure Letter are valid and binding agreements and are in full force
and effect as to the Company and its Subsidiaries. Neither the Company nor any
of its Subsidiaries is, and no other party is in material breach or default, and
no event has occurred on the part of the Company or any of its Subsidiaries, or,
to the Company's Knowledge, on the part of any other party to any such contract
or arrangement, which with notice or lapse of time would constitute a material
breach or default or permit termination under any such contract or arrangement.
Except as set forth in Section 3.19 of the Seller Disclosure Letter, none of
such contracts or arrangements will be terminated or modified by the execution
and delivery of this Agreement, the Other Agreements, or the consummation of the
transactions contemplated hereby or thereby, nor will any of such actions result
in or constitute a breach or default under any such contracts or arrangements.
Neither the Company nor any of its Subsidiaries is a party to any verbal
contract or arrangement which, if reduced to written form, would be required to
be listed in Section 3.19 of the Seller Disclosure Letter under the terms of
this Section 3.19 other than with its representatives and vendors which are set
out in Section 3.19 of the Seller Disclosure Letter.
SECTION 3.20 Suppliers and Customers. Section 3.20 of the Seller
Disclosure Letter is a true and complete list of all suppliers of the Company
and each of the Subsidiaries to whom the Company or any of its Subsidiaries made
payments during the fiscal year ended January 31, 1999, in excess of five
percent (5%) of the Company's and the Subsidiaries' consolidated cost of goods
sold as reflected in the 1998 Financial Statements (as defined in Section
1.3(a)(i)) and all customers of the Company and each of the Subsidiaries that
paid the Company or the Subsidiary, during the fiscal year ended January 31,
1999, more than five percent (5%) of the consolidated revenues of the Company
and the Subsidiaries as reflected in the 1998 Financial Statements. Since
January 31, 1998, and until ten (10) days prior to the Second Closing Date, no
such supplier of the Company or any of the Subsidiaries has, or has indicated
that it will, stop, or decrease materially the rate of, supplying materials,
products or services to the Company or the Subsidiary, as the case may be, and
no such customer of the Company or the Subsidiaries has materially decreased or
ceased business with the Company or the Subsidiary, as the case may be, or has
indicated that it will materially decrease or cease doing business with the
Company or the Subsidiary.
SECTION 3.21 Accounts Receivable. To the Company's Knowledge, as of the
date of this Agreement, there are and as of the Second Closing Date to the
extent included in Section 3.21 of the
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Seller Disclosure Letter, there will be, properly reflected on their respective
books and records, all notes receivable and accounts receivable of the Company
and the Subsidiaries, each of which are and will be valid receivables subject to
no known setoffs or counterclaims other than normal and routine discounts,
mark-downs, returns of defective goods, doubtful accounts, credits and exchanges
of products and warranty claims, all of which are and will be consistent with
past practice. To the Company's Knowledge, except as set forth in Section 3.21
of the Seller Disclosure Letter, or except normal and routine discounts,
mark-downs, returns of defective goods, doubtful accounts, credits and exchanges
of products and warranty claims, all of which are and will be consistent with
past practice, all such receivables are collectable in the ordinary course of
business for the Company. Section 3.21 of the Seller Disclosure Letter is a
complete list of all notes receivable and accounts receivable of the Company and
its Subsidiaries as of March 31, 1999.
SECTION 3.22 Powers of Attorney. Except as set forth in Section 3.22 of
the Seller Disclosure Letter, other than for patent applications, trademark
applications and customs brokerage agreements and in security agreements for
current loans of the Company and its Subsidiaries, there are no outstanding
powers of attorney or similar instruments executed by the Company or any of the
Subsidiaries.
SECTION 3.23 Condition of Property. Each building, fixture, machine and
piece of equipment (having a net book value of Five Thousand Dollars ($5,000.00)
or more), owned or used by the Company or any of its Subsidiaries is listed in
Section 3.23 of the Seller Disclosure Letter and is in good operating condition
and repair (ordinary wear and tear excepted), and is in compliance with all
zoning, building and fire codes, except for such instances of noncompliance that
would not have or be reasonably likely to have a Material Adverse Effect. The
Company or its Subsidiaries owns and has good and legal title to, or leases
under leases which are valid and under which the Company or its Subsidiaries, or
to the Knowledge of the Company any other party thereto, are not currently in
default, all buildings, machinery, equipment and other tangible assets used in
the conduct of the Company's or such Subsidiary's business as presently
conducted, reflected in the most recent Financial Statements, and, except as set
forth in Section 3.23 of the Seller Disclosure Letter, are free and clear of all
liens, claims and encumbrances.
SECTION 3.24 Insurance. The Company and its Subsidiaries are insured
under the policies listed in Section 3.24 of the Seller Disclosure Letter. All
such policies have been in full force and effect since January 31, 1998, are in
full force and effect as of the date hereof, and will remain so through the
Second Closing Date.
SECTION 3.25 Guarantees. Except as set forth in Section 3.25 of the
Seller Disclosure Letter, neither the Company nor any of its Subsidiaries is a
guarantor or otherwise liable for any indebtedness of any other person, firm or
corporation other than endorsements for collection in the ordinary course of
business and for its Subsidiaries.
SECTION 3.26 Certain Business Relationships. Except as set forth in
Section 3.26 of the Seller Disclosure Letter, none of the present or former
directors, officers or employees of the
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Company or any of its Subsidiaries, or to the Company's Knowledge any present or
former Shareholders, owns, directly or indirectly, any interest in any business,
corporation or other entity (other than investments in publicly held companies)
which, on the date hereof or within the past twelve (12) months, has been
involved in any manner in any material business arrangement or relationship with
the Company or any of its Subsidiaries, and none of the foregoing persons owns
any property or rights, tangible or intangible, which are used in the business
of the Company or any of its Subsidiaries.
SECTION 3.27 Inventory. To the Company's Knowledge, the inventory of
the Company and its Subsidiaries (the "Inventory") as of the date of this
Agreement and as of the Second Closing Date does and will consist of goods which
are merchantable and fit for the purposes for which they were procured, and, to
the Company's Knowledge, the allowance for slow-moving, obsolete, damaged or
defective inventory reflected in the Financial Statements as of January 31,
1999, is adequate. To the Company's Knowledge, Section 3.27 of the Seller
Disclosure Letter contains a complete listing of the Inventory as of March 31,
1999, and the Company will deliver to Buyer an updated list of the Inventory as
of the Second Closing Date as of a date no sooner than three (3) calendar days
prior to the Second Closing Date.
SECTION 3.28 Questionable Payments. Neither the Company nor any of its
Subsidiaries has directly or indirectly (i) used corporate funds for unlawful
contributions, gifts, entertainment, or for other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, (iii) violated or is in violation of any
provision or the Foreign Corrupt Practices Act of 1977 applicable to the conduct
of their business, or (iv) established or maintained any unlawful or unrecorded
fund of corporate monies or other assets.
SECTION 3.29 Opinion of Financial Advisor. The Company has delivered to
Buyer a copy of the opinion of Chaffe and Associates, Inc., dated the date
hereof, a copy of which opinion is attached hereto as Exhibit 3.29. The Company
has been authorized by Chaffe and Associates, Inc. to permit inclusion of such
opinion (and references thereto) in the Offer Documents, the Schedule 14D-9, and
the Proxy Statement.
SECTION 3.30 Information. None of the information provided or that may
be provided by the Company for use in the Schedule 14D-1, the Offer Documents,
or any other documents to be filed with the SEC or any other Governmental Entity
in connection with the transactions contemplated by this Agreement, and none of
the Proxy Statement, the Schedule 14D-9, or the statement required to be filed
pursuant to Section 2.5(b) hereof, shall, at the time filed with the SEC or such
other Governmental Entity, and, in the case of the Proxy Statement, at the time
mailed to the Company's Shareholders, or at the time of the Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any information provided or that may be provided by
Buyer specifically for use in such documents. The Schedule 14D-9, the Proxy
Statement and the statement to be filed pursuant to
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Section 2.5(b) hereof will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants the Company as follows:
SECTION 4.1 Organization, Qualification, Etc. Buyer is a limited
liability company duly organized, validly existing and in good standing under
the laws of the state of California and has the power and authority to own and
operate its properties and assets and to carry on its business as it is now
being conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect or prevent or
materially delay the consummation of the Offer.
SECTION 4.2 Authority Relative to this Agreement: No Violation. Buyer
has the power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary and appropriate action of Buyer. This Agreement has
been duly and validly executed and delivered by Buyer and, assuming this
Agreement has been duly and validly executed and delivered by the Company, this
Agreement constitutes a valid and binding agreement of Buyer, enforceable
against it in accordance with its terms (except insofar as enforceability may be
limited by the Bankruptcy Exception.
SECTION 4.3 Investigations: Litigation. Except as set forth in Section
4.3 of the disclosure letter delivered by the Company by Buyer on or prior to
entering into this Agreement and incorporated by reference herein (the "Buyer
Disclosure Letter"), there are no civil, criminal or administrative actions,
suits, claims, hearings, investigations or proceedings pending or, to the
Knowledge of Buyer, threatened against, Buyer or any current or former directors
or officers of Buyer or any of its Subsidiaries (in their capacities as such)
that, individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on, prevent, or impair the ability of Buyer to consummate the
transactions contemplated by this Agreement, including, without limitation, the
consummation of the Offer.
SECTION 4.4 Financing. Buyer will have available to it, at the time
required, the funds necessary to consummate the Offer, and the purchase of the
Initial Funding Shares and the Second Funding Shares.
SECTION 4.5 Information. None of the information provided or that may
be provided by Buyer for use in the Proxy Statement, the Schedule 14D-9, the
statement required to be filed
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pursuant to Section 2.5(b) hereof, or any other documents to be filed with the
SEC or any other Governmental Entity in connection with the transactions
contemplated by this Agreement, and the Schedule 14D-1, shall not, at the time
filed with the SEC, and in the case of the Proxy Statement, at the time mailed
to the Shareholders or the date of the Shareholders Meeting, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. Notwithstanding the
foregoing, Buyer makes no representation or warranty with respect to any
information provided or that may be provided by the Company specifically for use
in such documents. The Schedule 14D-1 will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
SECTION 4.6 Investment Representation. Buyer is acquiring the Initial
Funding Shares and the Second Funding Shares for its own account for investment
and not with a view to, or for sale or other disposition in connection with, any
distribution of all or any part thereof, except (i) in an offering covered by a
registration statement filed with the SEC under the Securities Act covering such
Shares or (ii) pursuant to an applicable exemption under the Securities Act. In
acquiring the Initial Funding Shares and the Second Funding Shares, Buyer is not
offering or selling, and will not offer or sell, for the Company in connection
with any distribution of the Initial Funding Shares and the Second Funding
Shares, and Buyer does not have a participation and will not participate in any
such undertaking or in any underwriting of such an undertaking except in
compliance with applicable federal and state securities laws.
SECTION 4.7 Disclosure of Information. Buyer acknowledges that it or
its representatives have been furnished with substantially the same kind of
information regarding the Company and its business, assets, results of
operation, and financial condition as would be contained in a registration
statement prepared in connection with a public sale of the Initial Funding
Shares and the Second Funding Shares. Buyer further represents that it has had
an opportunity to ask questions of and receive answers from the Company
regarding the Company and its business, assets, results of operation, and
financial condition and the terms and conditions of the issuance of the Initial
Funding Shares and the Second Funding Shares.
SECTION 4.8 Investment Experience. Buyer acknowledges that it is able
to fend for itself, can bear the economic risk of its investment in the Initial
Funding Shares and the Second Funding Shares, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Initial Funding Shares and the
Second Funding Shares. Buyer is an "accredited investor" as such term is defined
in Regulation D under the Securities Act.
SECTION 4.9 Restricted Securities. Buyer understands that the Initial
Funding Shares and the Second Funding Shares have not been registered pursuant
to the Securities Act or any applicable state securities laws, that the Initial
Funding Shares and the Second Funding Shares will be characterized as
"restricted securities" under federal securities laws, and that under such laws
and applicable regulations the Initial Funding Shares and the Second Funding
Shares cannot be sold or otherwise disposed of without registration under the
Securities Act or an exemption therefrom. In
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this connection, Buyer represents that it is familiar with Rule 144 promulgated
under the Securities Act, as currently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. Stop transfer
instructions may be issued to the transfer agent for securities of the Company
(or a notation may be made in the appropriate records of the Company) in
connection with the Initial Funding Shares and the Second Funding Shares.
SECTION 4.10 Legend. It is agreed and understood by Buyer that the
certificates representing the Initial Funding Shares and the Second Funding
Shares shall each conspicuously set forth on the face or back thereof, in
addition to any legends required by applicable law or other agreement, a legend
in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A WRITTEN
OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
SECTION 4.11 Brokerage Fees. Neither Buyer nor any of its Affiliates
has retained any financial advisor, broker, agent, or finder or paid or agreed
to pay any financial advisor, broker, agent, or finder on account of this
Agreement or any transaction contemplated hereby except that Gerard, Klauer,
Mattison & Co., Inc.("GKM") has been retained as Buyer's financial advisor in
connection with the transactions contemplated hereby and Buyer may retain
additional advisors, brokers or agents as it may determine. Buyer shall
indemnify and hold harmless the Company from and against any and all losses,
claims, damages, and liabilities (including legal and other expenses reasonably
incurred in connection with investigating or defending any claims or actions)
with respect to any finder's fee, brokerage commission, or similar payment in
connection with any transaction contemplated hereby asserted by any person on
the basis of any act or statement made or alleged to have been made by Buyer or
any of its Affiliates, including the fee of GKM.
ARTICLE V
COVENANTS
SECTION 5.1 Interim Operations. The Company covenants and agrees as to
itself and each of its Subsidiaries that, through the Second Closing Date
(unless Buyer shall otherwise approve, and except as otherwise expressly
contemplated by this Agreement):
(a) The business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and its
Subsidiaries shall use all commercially reasonable efforts to preserve its
business organization intact and maintain its existing relations and
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goodwill with customers, suppliers, distributors, creditors, lessors, employees
and business associates;
(b) Neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any capital stock owned by it or any of its
Subsidiaries in any of its Subsidiaries or other Affiliates, except pursuant to
the exercise of existing Company Options or warrants disclosed to Buyer pursuant
to Section 3.2 hereof in accordance with their terms; (ii) amend its articles of
incorporation or by-laws (or comparable organizational documents); (iii) split,
combine or reclassify its outstanding shares of capital stock; (iv) declare, set
aside or pay any dividend payable in cash, stock or property in respect of any
capital stock other than dividends from its direct or indirect wholly-owned
Subsidiaries; or (v) repurchase, redeem or otherwise acquire, except in
connection with the payment of the exercise price of any option outstanding on
the date hereof under the Stock Plan, or permit any of its Subsidiaries to
purchase or otherwise acquire, any shares of its capital stock or any securities
convertible into or exchangeable or exercisable for any shares of its capital
stock;
(c) Neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class or
any other property or assets (other than shares issuable pursuant to options
outstanding on the date hereof under the Stock Plan or warrants outstanding on
the date hereof as described in Section 3.2 of the Seller Disclosure Letter);
(ii) purchase, transfer, lease, sell, mortgage, pledge, dispose of or encumber
any real property, or effect any improvements or expansions thereon; (iii) other
than in the ordinary and usual course of business, purchase, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any other
property or assets (including capital stock of any of its Subsidiaries) or incur
or modify any material indebtedness or other liability; (iv) make or authorize
or commit for any capital expenditure(s) in excess of $25,000; (v) make draws
against the Company's credit facility with Sunrock other than in the ordinary
course of business, provided however that after such time that the Company's
draws against such credit facility equal or exceed five million dollars
($5,000,000) in the aggregate, any additional draws against such credit
facility, whether in the ordinary course of business or otherwise, may not be
made without the prior approval of Buyer, which approval shall not be
unreasonably delayed or denied; or (vi) by any means, make any acquisition of,
or investment in any business, whether through the acquisition of assets or
stock of any other Person;
(d) Except as may be required by applicable law, and except as provided
in Section 5.8, neither it nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards under, amend or
otherwise modify, any Compensation and Benefit Plans or increase the salary,
wage, bonus, severance, incentive or other compensation of any employees,
officers or directors;
(e) Neither it nor any of its Subsidiaries shall settle or compromise
any claims or litigation or, except in the ordinary and usual course of business
consistent with past practice, enter into any Debt Contracts or Other Contracts,
or modify, amend or terminate prior to the scheduled
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expiration thereof any of its Debt Contracts or Other Contracts or waive,
release or assign any material rights or claims;
(f) Neither it nor any of its Subsidiaries shall make any Tax election
or permit any insurance policy naming it as a beneficiary or loss-payable payee
to be amended or canceled;
(g) Neither it nor any of its Subsidiaries shall take any action, other
than reasonable and usual actions in the ordinary and usual course of business
consistent with past practice, with respect to accounting policies or
procedures;
(h) Neither it nor any of its Subsidiaries shall sell, transfer, assign
or abandon any patents, trademarks or licenses which are owned or controlled
directly or indirectly by the Company or any of its Subsidiaries except in the
ordinary and usual course of business consistent with past practice;
(i) Neither it nor any of its Subsidiaries shall license or otherwise
encumber any patents or trademarks which are owned or controlled directly or
indirectly by the Company or any of its Subsidiaries, except in the ordinary and
usual course of business;
(j) Neither it nor any of its Subsidiaries shall make any modification
to employee or customer incentives or trade policies which would reasonably be
expected to cause the Company's distributors or end-user customers to increase
purchases above those levels normally required to meet their respective needs or
cause a material increase or decrease in the Company's inventories or Working
Capital; and
(k) Neither it nor any of its Subsidiaries shall authorize or announce
an intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
SECTION 5.2 Acquisition Proposals. From and after the date hereof, the
Company shall not, and it shall use its best efforts to not permit any of its
directors, officers, employees, attorneys, financial advisors, agents or other
representatives or those of any of its Subsidiaries to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of furnishing
information) any Takeover Proposal (as hereinafter defined) from any Person
other than Buyer, or engage in or continue discussions or negotiations relating
to any Takeover Proposal; provided, however, that the Company may engage in
discussions or negotiations with, and furnish information to, any Person that
makes a written Takeover Proposal in respect of which the Board of Directors of
the Company concludes in good faith if consummated would constitute a Superior
Proposal (as hereinafter defined), but only if the Board of Directors of the
Company shall conclude in good faith on the basis of the advice of its outside
counsel that the failure to take such action would be inconsistent with the
fiduciary obligations of such Board of Directors under applicable law; and
provided further that notwithstanding anything to the contrary herein contained,
the Board of Directors of the Company may take and disclose to the Shareholders
a position contemplated by Rule 14e-2 promulgated under the Exchange Act, comply
with Rule 14d-9 thereunder and make all disclosures required by applicable law
in connection therewith. The Company shall as soon as practicable and in any
event
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no later than the date on which such Takeover Proposal is presented to the
Company's Board of Directors notify Buyer of any Takeover Proposal received by
it or any of its directors, officers, employees, attorneys, financial advisors,
agents or other representatives or those of any of its Subsidiaries or the
receipt by the Company or any of the foregoing of any notice of any intention to
make a Takeover Proposal, including the identity of the person making such
Takeover Proposal or intending to make a Takeover Proposal and the material
terms of any such Takeover Proposal. As used in this Agreement: (i) "Takeover
Proposal" means any bona fide proposal or offer (other than a proposal or offer
by Buyer or any of its Affiliates), or any expression of interest by any Person
relating to any actual or potential merger, consolidation or other business
combination involving the Company or any of its Subsidiaries or any acquisition
in any manner (including, without limitation, by tender or exchange offer) of a
substantial equity interest in, or a substantial portion of the assets of, the
Company or any of its Subsidiaries (each being a "Material Corporate
Transaction"); and (ii) "Superior Proposal" means a bona fide proposal or offer
made by any Person concerning a Material Corporate Transaction, in each case on
terms which a majority of the members of the Board of Directors of the Company
determines in good faith, and based on the advice of outside counsel, to be more
favorable to the Company and its Shareholders than the transactions contemplated
hereby (including any revised transaction proposed by Buyer pursuant to Section
7.1(g)). During the period from the date of this Agreement through the Second
Closing Date, the Company shall not terminate, amend, modify or waive any
provision of any standstill agreement to which it or any of its Subsidiaries is
a party. During such period, the Company shall enforce, to the fullest extent
permitted under applicable law, but subject to the exercise by the Board of
Directors of the Company of their fiduciary obligations after consultation with
outside counsel, the provisions of any such agreement, including, but not
limited to, by obtaining injunctions to prevent any breaches of such agreements
and to enforce specifically the terms and provisions thereof in any court of the
United States of America or of any state having jurisdiction.
SECTION 5.3 Information Supplied. The Company and Buyer each agrees, as
to itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its Subsidiaries for inclusion or incorporation by reference
in (i) the Schedule 14D-1, the Offer Documents, the Schedule 14D-9, the Proxy
Statement, the statement required to be filed pursuant to Section 2.5(b) hereof,
or any other documents to be filed with the SEC or any other Governmental Entity
in connection with the transactions contemplated by this Agreement will, at the
time filed with the SEC, contain any untrue statement of a material fact or 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, and (ii) the Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to the Shareholders and at the
time of the meeting of Shareholders to be held in connection with this
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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SECTION 5.4 Company Action. In order to consummate the transactions
contemplated hereby, the Company will, in accordance with applicable law and its
articles of incorporation and bylaws:
(a) hold a special meeting of the Shareholders (the "Shareholders
Meeting") as soon as practicable following the date of this Agreement for the
purpose of: (i) approving the sale of the Second Funding Shares by the Company
to Buyer as contemplated herein and (ii) adopting and approving this Agreement
and the Articles of Amendment;
(b) as promptly as practicable after the date of this Agreement, (i)
file with the SEC a proxy statement (the "Proxy Statement") and other proxy
soliciting materials relating to the Shareholders Meeting, (ii) respond promptly
to any comments made by the SEC with respect to the Proxy Statement or other
proxy soliciting materials, (iii) cause the Proxy Statement to be mailed to the
Shareholders at the earliest practicable time after the date of this Agreement,
and (iv) in all other respects use its best efforts to cause the Shareholders to
approve the sale of the Second Funding Shares by the Company to Buyer, and
approve and adopt this Agreement and the Articles of Amendment; and
(c) include in the Proxy Statement, the recommendation of the Board
that the Shareholders of the Company vote in favor of the sale of the Second
Funding Shares by the Company to Buyer and adopt and approve this Agreement and
the Articles of Amendment; provided, however, the Company's Board of Directors
shall not be required to make, and shall be entitled to withdraw, any such
recommendation (and cease such solicitation) if such Board concludes in good
faith on the basis of the advice of its outside counsel that the making of, or
the failure to withdraw, such recommendation would violate the fiduciary
obligations of such Board under applicable law.
Buyer and its counsel shall be given reasonable opportunity to review and
comment upon the Proxy Statement prior to its filing with the SEC or
dissemination to Shareholders of the Company. The Company agrees to provide
Buyer and its counsel any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Proxy Statement promptly after the
receipt of such comments.
SECTION 5.5 Filings; Other Actions; Notification.
(a) The Company shall use its best efforts to obtain all necessary
state securities law or "blue sky" permits and approvals, if any, required in
connection with the sale of the Initial Funding Shares and the Second Funding
Shares to Buyer and to consummate the other transactions contemplated by this
Agreement and will pay all expenses incident thereto;
(b) The Company and Buyer shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective best efforts
to take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
Laws to consummate and make effective the transactions contemplated by this
Agreement as soon as practicable, including preparing and filing as promptly as
practicable
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all documentation to effect all necessary notices, reports and other filings,
responding promptly to any requests for further information and to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the transactions contemplated by
this Agreement as promptly as practicable. Subject to applicable laws relating
to the exchange of information, Buyer and the Company shall have the right to
review in advance, and each will consult the other on, all the information
relating to Buyer or the Company, as the case may be, and any of their
respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party, the SEC and/or any other Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the Company and Buyer shall act
reasonably and as promptly as practicable;
(c) The Company and Buyer each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and Shareholders and such other matters as may be reasonably
necessary or advisable in connection with the Schedule 14D-1, the Offer
Documents, the Schedule 14D-9, the Proxy Statement, the statement required to be
filed pursuant to Section 2.5(b) hereof or any other statement, filing, notice
or application made by or on behalf of Buyer, the Company or any of their
respective Subsidiaries to any third party, the SEC and/or any other
Governmental Entity in connection with the transactions contemplated by this
Agreement;
(d) The Company and Buyer each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or other
communications received by Buyer or the Company, as the case may be, or any of
its Subsidiaries, from any third party, the SEC, and/or any other Governmental
Entity with respect to the transactions contemplated by this Agreement;
(e) Without limiting the generality of the undertakings pursuant to
this Section 5.5, (i) the Company and Buyer agree to provide promptly to any and
all federal, state, local or foreign court or Government Entity with
jurisdiction over enforcement of any applicable antitrust laws ("Government
Antitrust Entity") information and documents requested by any Government
Antitrust Entity or necessary, proper or advisable to permit consummation of the
transactions contemplated by this Agreement; and (ii) in connection with any
filing or submission or other action required to be made or taken by either
Buyer or the Company to effect the transactions contemplated hereby or thereby,
the Company shall not, without Buyer's prior written consent, commit to any
divestiture transaction, and, neither Buyer nor any of its Affiliates shall be
required to divest or hold separate or otherwise take or commit to take any
action that limits its freedom of action with respect to, or its ability to
retain, the Company or any portions thereof or any of the business, product
lines, properties or assets of Buyer or any of its Affiliates.
SECTION 5.6 Access. Upon reasonable notice, and except as may otherwise
be required by applicable law, the Company shall (and shall cause its
Subsidiaries to) afford Buyer's officers, employees, counsel, accountants and
other authorized representatives ("Representatives") access, during normal
business hours throughout the period prior to the Second Closing Date, to its
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properties, books, contracts and records (including its audit work papers and
related documents) and, during such period, shall (and shall cause its
Subsidiaries to) furnish promptly to Buyer all information concerning its
business, properties and personnel as may reasonably be requested, provided that
no investigation pursuant to this Section 5.6 shall affect or be deemed to
modify any representation or warranty made by the Company, and provided,
further, that the foregoing shall not require the Company to permit any
inspection, or to disclose any information, that in the reasonable judgment of
the Company, would result in the disclosure of any trade secrets of it or third
parties or violate any of its obligations with respect to confidentiality if the
Company shall have used reasonable efforts to obtain the consent of such third
party to such inspection or disclosure. All requests for information made
pursuant to this Section 5.6 shall be directed to an executive officer of the
Company or such Person as may be designated by its officers. Buyer and the
Company shall each designate two representatives to meet (either in person or by
conference telephone), on a semi-monthly basis to discuss the Company's capital
expenditures, inventory management, sales promotions, distribution arrangements,
construction projects, group purchasing organization contracts, other material
contracts, patents, licenses and such other business matters concerning the
Company's operations as are desired. All such information supplied hereunder
shall be governed by the terms of that certain Confidentiality Agreement between
the Company and E. Thomas Martin.
SECTION 5.7 Publicity. The initial press releases by Buyer and the
Company concerning this Agreement and the transactions contemplated hereby shall
be mutually agreed as to content prior to thereafter the Company and Buyer shall
consult with each other prior to issuing any press releases or otherwise making
public announcements with respect to the transactions contemplated by this
Agreement and prior to making any filings with any third party, the SEC and/or
any other Governmental Entity (including any national securities exchange) with
respect thereto, except as may be required by law or by obligations pursuant to
any listing agreement with or rules of any national securities exchange or
NASDAQ.
SECTION 5.8 Employee Benefits. For a period of one (1) year immediately
following the Second Closing, Buyer agrees to cause the Company to provide to
all active employees of the Company as of the Second Closing who continue to be
employed by the Company coverage under group medical, group dental, 401(k)
savings, disability insurance, life insurance, accidental death and disability,
and vacation plans or arrangements which are, in the aggregate, substantially
similar to the plans providing such benefits to the employees immediately prior
to the Second Closing Date.
SECTION 5.9 Fees and Expenses.
(a) Except as otherwise provided in this Section 5.9, whether or not
the transactions contemplated by this Agreement shall be consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, the fees and disbursements
of counsel, financial advisors, accountants, actuaries and consultants, shall be
paid by the party incurring such costs and expenses, provided that: (i) all
expenses incurred in connection with the filing fees and the printing and
mailing costs of the Schedule 14D-1, the Offer Documents, the Schedule 14D-9,
the Proxy Statement, and the statement required by Section 2.5(a) hereof shall
be shared equally by Buyer and the Company, and (ii) all
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filing fees and other costs incurred by any of the parties hereto in connection
with the HSR Act, if any, shall be borne by the Company.
(b) Notwithstanding any provisions in this Agreement to the contrary,
if the Agreement is terminated in accordance with Sections 7.1(g) or 7.1(h), the
Company shall pay Buyer $1 million simultaneously with accepting such proposal.
Nothing contained in this Section 5.9 shall be deemed to limit any
remedies available to any party for any breach of this Agreement by any other
party which such remedies shall be in addition to any amounts received by any
party pursuant to this Section 5.9; provided, however, that, with respect to any
breach by the Company of the provisions of Section 5.2 that is not the result of
bad faith on the part of the Company, Buyer's exclusive remedy in respect of
such breach shall be limited to the $1 million, and the Company shall have no
other liability to Buyer in respect of such breach.
SECTION 5.10 Takeover Statute. If any Takeover Statute is or may become
applicable to the transactions contemplated by this Agreement, then each of
Buyer and the Company and its Board of Directors, subject to applicable law,
shall grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
SECTION 5.11 Notification of Certain Matters. Buyer, shall give prompt
notice to the Company, and the Company shall give prompt notice to Buyer, of:
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would cause (A) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
or (B) any covenant, condition or agreement contained in this Agreement not to
be complied with or satisfied in any material respect; and (ii) any failure of
Buyer or the Company, as the case may be, to comply with any covenant or
agreement to be complied with by it hereunder in any material respect; provided,
however, that the delivery of any notice pursuant to this Section 5.11 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 5.12 Phase I Environmental Audit. Buyer may obtain at its own
expense, as soon as practicable, but in any event within thirty (30) days of the
date of this Agreement, Phase I reports pursuant to ASTM Standard E 1527-97 or
other standard environmental assessments (the "Environmental Reports") with
respect to any properties owned or leased by the Company from and environmental
engineering firm selected by Buyer. Buyer acknowledges and agrees that the
Company leases all its real property and, as a result, Buyer's ability to obtain
such Environmental Reports may be limited. If Buyer elects to obtain such
Environmental Reports, Buyer shall, promptly (but in no event later than five
(5) business days) after receipt thereof, provide a copy of such Environmental
Reports to the Company.
SECTION 5.13 Shareholder Claims. The Company shall not agree to, cause
or permit the settlement or compromise of any claim brought by any present,
former or purported holder of any
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securities of the Company prior to the Second Closing Date without prior written
consent of Buyer, which shall not be unreasonably withheld.
SECTION 5.14 Notice of Changes. The Company shall inform Buyer in
writing within five (5) days of any change, or prior to the Second Closing Date
if less than five (5) days prior to the Second Closing, which occurs or is
threatened (or if any development occurs or is threatened involving a
prospective change) in the financial condition, results of operations, business,
or prospective sales that has or may reasonably be expected to have a Material
Adverse Effect on the financial condition, results of operations, business or
prospective sales of the Company; provided, however, that the delivery of any
notice pursuant to this Section 5.14 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
SECTION 5.15 Shareholders' and Voting Agreement. As a condition to the
Company's and Buyer's willingness to enter into this Agreement, the Company and
Buyer have entered into that certain Shareholders' and Voting Agreement by and
among the Company, Buyer and the DSI Group, in the form attached hereto as
Exhibit 5.15.
SECTION 5.16 Registration Rights Agreement. As a condition to Buyer's
willingness to enter into this Agreement, Buyer has entered into that certain
Registration Rights Agreement by and among Buyer, the Company, and the DSI Group
in the form attached hereto as Exhibit 5.16.
SECTION 5.17 Consulting Agreement. On or promptly following the Second
Closing, the Company and M. D. Davis ("Davis") will enter into a Consulting
Agreement (the "Consulting Agreement") in the form attached hereto as Exhibit
5.17.
SECTION 5.18 Side Letter Agreements. On or prior to the Second Closing
Date, each of the members of the DSI Group will execute a Side Letter Agreement
in the form attached hereto as Exhibit 5.18.
SECTION 5.19 Indemnification Arrangements. Buyer agrees that for the
period from the Second Closing Date until three (3) years after the Second
Closing Date Buyer shall use its best efforts (i) to cause the Company and its
Subsidiaries to maintain in effect without any reduction in scope or coverage
indemnification provisions for present and former directors, officers, employees
and agents of the Company and its Subsidiaries that are at least as favorable to
all such persons as those contained in the Company's Articles of Incorporation
and Bylaws in effect as of the date hereof; (ii) if available on commercially
reasonable terms, to cause the Company to maintain its current levels of errors
and omissions insurance coverage for its directors and officers in effect as of
the date hereof; and (iii) prevent the Company from unlawfully transferring
assets of the Company that would otherwise be available for the lawful indemnity
claims of the Company's then current and former directors, officers, employees
and agents; provided, however, nothing contained herein shall prevent or
preclude Buyer from causing or permitting the Company to enter into a
commercially reasonable transaction with a third party for the sale of all or
substantially all of the Company's assets or that involves the merger or
consolidation of the Company with another entity; and provided
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further that Buyer shall not be required to take any action that prevents Buyer
or any of Buyer's officers, directors or members from exercising any fiduciary
obligation they may have to the Company.
SECTION 5.20 Moss Estate. On or before June 30, 1999, the Company and
the DSI Group shall have consummated a transaction with all necessary parties to
resolve any disputes with the Moss Estate substantially similar to the terms and
conditions of the proposed agreement(s) identified in Section 5.20 of the Seller
Disclosure Letter (the "Moss Agreements"). If the Company and all additional
parties shall not have consummated the transactions contemplated by the Moss
Agreements on or before June 30, 1999, then the Company shall issue to Buyer on
the Second Closing Date (or on July 1, 1999, if the Second Closing Date occurs
prior to June 30, 1999), one hundred thousand (100,000) additional Shares (the
"Moss Default Shares"), for no additional consideration.
SECTION 5.21 Sunrock Agreements. There shall not occur a default or
breach, nor shall there occur any fact or circumstance, which with notice or
lapse of time would constitute a breach or default or permit termination of any
contract, loan or agreement of any type with Sunrock.
SECTION 5.22 Use of Proceeds. Immediately upon the consummation of the
Initial Closing, the Company shall apply all of the proceeds of the Initial
Funding Shares Purchase Price to the reduction of the Company's indebtedness to
Sunrock.
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Sale of
the Second Funding Shares. The respective obligation of each party to effect the
sale of the Second Funding Shares from the Company to Buyer is subject to the
satisfaction or waiver at or prior to the Second Closing Date of each of the
following conditions:
(a) Shareholder Approval. This Agreement and all transactions
contemplated herein shall have been duly approved by the Shareholders in
accordance with all applicable law and the articles of incorporation and by-laws
of Company;
(b) Regulatory Consents. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated and all notices, reports and other
filings required to be made prior to the Second Closing Date by the Company,
Buyer or any of their respective Subsidiaries with, and all consents,
registrations, approvals, permits and authorizations required to be obtained
prior to the Second Closing Date by the Company, Buyer or any of their
respective Subsidiaries from, any Governmental Entity (collectively,
"Governmental Consents") in connection with the execution and delivery of this
Agreement and the consummation of the other transactions contemplated hereby by
the Company
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shall have been made or obtained (as the case may be), except those that the
failure to make or to obtain are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on the business of the
Company or any of its Subsidiaries;
(c) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of this Agreement and the
transactions contemplated hereby (collectively, an "Order"); and
(d) Blue Sky Approvals. The Company shall have received all state
securities and "blue sky" permits and approvals, if any, necessary to consummate
the transactions contemplated hereby.
SECTION 6.2 Conditions to Obligations of Buyer. The obligations of
Buyer to purchase the Second Funding Shares are also subject to the satisfaction
or waiver by Buyer at or prior to the Second Closing Date of the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement shall have been true and
correct when made and also shall be true and correct at and as of the Second
Closing Date as if made at and as of the Second Closing Date, except as
contemplated or permitted by this Agreement and except for such matters that,
either individually or when combined with any breach of any other representation
or warranty of the Company or any fact, circumstance, occurrence, breach or
default, or any failure to perform any covenant or obligation all as set forth
in Sections 6.2(b) or 6.2(c) hereof, are not reasonably likely to have a
Material Impact (as defined in this Section 6.2(a) below), and Buyer shall have
received a certificate signed on behalf of the Company by its Chief Executive
Officer and its Chief Financial Officer to such effect. For purposes of Sections
6.2, 6.3 and Exhibit 2.1, a "Material Impact" shall be any matter or matters
having an adverse impact or economic consequence that exceeds Three Hundred
Sixty Thousand Dollars ($360,000).
(b) Performance of Obligations of the Company. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Second Closing Date, except for such matters that, either
individually or when combined with any breach of any representation or warranty
of the Company as of the times set forth in Section 6.2(a) or any fact,
circumstance, occurrence, breach or default, or any failure to perform any
covenant or obligation all as set forth in this Section 6.2(b) and in Section
6.2(c) hereof, are not reasonably likely to have a Material Impact, and Buyer
shall have received a certificate signed on behalf of the Company by its Chief
Executive Officer and its Chief Financial Officer to such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be required
under any Debt Contract or Other Contract to which the Company or any of its
Subsidiaries is a party, all of which are listed in Section 6.2(c) of the Seller
Disclosure Letter, and there shall not have occurred any breach or default, nor
shall there have occurred any fact or circumstance which with notice or lapse of
time would
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constitute a breach or default or permit termination of any Debt Contract or
Other Contract to which the Company or any of its Subsidiaries is a party,
except for such matters that, either individually or when combined with any
breach of any representation or warranty of the Company as of the times set
forth in Section 6.2(a) or any fact, circumstance, occurrence, breach or
default, or any failure to perform any covenant or obligation all as set forth
in Section 6.2(b) or this Section 6.2(c), are not reasonably likely to have a
Material Impact, and Buyer shall have received a certificate signed on behalf of
the Company by its Chief Executive Officer and its Chief Financial Officer to
such effect.
(d) Shareholders' and Voting Agreement. The Company, Buyer, and the DSI
Group shall have entered into the Shareholders' and Voting Agreement in the form
attached hereto as Exhibit 5.15.
(e) Davis Consulting Agreement. Davis shall have entered into the Davis
Consulting Agreement in the form attached hereto as Exhibit 5.17.
(f) Offer Conditions. The conditions specified in Exhibit 2.1 shall
have been satisfied or waived.
(g) Side Letter Agreement. Each of the members of the DSI Group shall
have executed a Side Letter Agreement in the form attached hereto as Exhibit
5.18.
(h) Opinion of Counsel. The Company shall have caused to be delivered
to Buyer a favorable opinion of counsel dated the Second Closing Date
substantially in the form attached hereto as Exhibit 6.2(h).
(i) Resignations. Each of Conrad, Crosby, Neitz, and Smith shall have
delivered his resignation from the Board of Directors of the Company effective
as of the Second Closing Date.
(j) Closing Certificates. At the Second Closing Date, the Company or
the Shareholders, as applicable, will have delivered to Buyer the following:
(i) A certificate executed on behalf of the Company by its
Chief Executive Officer and Chief Financial Officer, dated
as of the Second Closing Date, to the effect that each of
the conditions specified above in Section 6.2(a)-(c) is
satisfied in all respects;
(ii) Share certificates representing the Second Funding Shares.
(iii) Certified copies of the resolutions duly adopted by the
Company and the Shareholders approving this Agreement and
all transactions contemplated hereby; and
(iv) Such other usual and customary documents as Buyer may
reasonably request in connection with the transactions
contemplated hereby.
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(k) Environmental Reports. The Environmental Reports prepared pursuant
to Section 5.12 hereof, if any, shall not have disclosed any condition that has
or is reasonably likely to have a Material Adverse Effect on the Company or any
of its Subsidiaries.
(l) Audited Financial Statements. The Company shall have delivered to
Buyer copies of the audited consolidated balance sheet (including related notes
and schedules) and audited consolidated statements of income, shareholders
equity, and of cash flows which shall be substantially identical to the 1998
Financial Statements.
SECTION 6.3 Conditions to Obligation of the Company. The obligation of
the Company to effect this Agreement and the transactions contemplated hereby is
also subject to the satisfaction or waiver by the Company at or prior to the
Second Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Buyer contained in this Agreement shall have been true and correct
when made and shall be true and correct in all material respects at and as of
the Second Closing Date as if made at and as of the Second Closing Date, in each
case except as contemplated or permitted by this Agreement and the Company shall
have received a certificate to this effect signed on behalf of Buyer by its
Chief Executive Officer and its Chief Financial Officer;
(b) Performance of Obligations of Buyer. Buyer shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Second Closing Date and the Company shall have
received a certificate to this effect signed on behalf of Buyer by its Chief
Executive Officer and its Chief Financial Officer to such effect;
(c) Consents Under Agreements. The parties shall have obtained the
consent or approval of each Person identified in Section 6.2(c) of the Seller
Disclosure Letter whose consent or approval shall be required in order to
consummate the transactions contemplated by this Agreement, except where the
failure to obtain such consents or approvals is not, individually or in the
aggregate, reasonably likely to have material impact;
(d) Opinion of Counsel. Buyer shall have caused to be delivered to
Company a favorable opinion of counsel dated the Second Closing Date
substantially in the form attached hereto as Exhibit 6.3(d);
(e) Davis Consulting Agreement. The Company shall have entered into the
Davis Consulting Agreement in the form attached hereto as Exhibit 5.17;
(f) Purchase of Shares. Buyer shall have consummated the purchase of
the Minimum Amount of Shares validly tendered and not withdrawn pursuant to the
Offer, it being understood that the Second Closing of the sale of the Second
Funding Shares shall occur simultaneously with and be conditioned upon the Offer
Closing pursuant to Section 2.3 hereof; and
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(g) Closing Certificates. At the Second Closing, the Buyer will have
delivered to the Company the following:
(i) A certificate executed on behalf of Buyer by its Chief
Executive Officer and Chief Financial Officer, dated as of
the Second Closing Date, to the effect that each of the
conditions specified above in Section 6.3(a) and (b) is
satisfied in all respects;
(ii) The Second Funding Shares Purchase Price in immediately
available funds;
(iii) Certified copies of resolutions duly adopted by Buyer
approving this Agreement and all transactions contemplated
hereby; and
(iv) Such other usual and customary documents as the Company may
reasonably request in connection with the transactions
contemplated hereby.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby abandoned, at any time prior to the Second
Closing Date, whether before or after any approval by the Shareholders of the
matters presented in connection with this Agreement:
(a) By mutual written consent of Buyer and the Company;
(b) By Buyer, by written notice to the Company if (i) the Company shall
have failed to comply in any material respect with any of its covenants or
agreements contained in this Agreement required to be complied with prior to the
date of such termination, which failure to comply has not been cured within
fifteen (15) business days after receipt by the Company of written notice of
such failure to comply; or (ii) the Company shall not have duly called and
noticed a special shareholders meeting to be held no later than June 4, 1999
(subject to adjournment) within the notice period required by law and the
Company's articles of incorporation and bylaws; or (iii) the Shareholders shall
not approve this Agreement and the transactions contemplated by this Agreement
at a duly called and noticed special shareholders meeting at which a quorum is
present in person or by proxy, or any adjournment thereof prior to June 21,
1999;
(c) By the Company, by written notice to Buyer, if (i) Buyer shall have
failed to comply in any material respect with any of its respective covenants or
agreements contained in this Agreement required to be complied with prior to the
date of such termination, which failure to comply has not been cured within
fifteen (15) business days after receipt of Buyer of written notice of such
failure to comply; or (ii) the Shareholders shall not approve this Agreement and
the transactions contemplated by this Agreement at a duly called and noticed
special shareholders
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meeting at which a quorum is present in person or by proxy, or any adjournment
thereof prior to June 21, 1999;
(d) By either Buyer or the Company, by written notice from the
terminating party to the other party, if there has been (i) a breach by the
other party of any representation or warranty made as of the date hereof that is
not qualified by reference to a Material Adverse Effect, the effect of which has
a Company Material Adverse Effect or a Buyer Material Adverse Effect, as the
case may be, or (ii) a breach by the other party of any representation or
warranty made as of the date hereof that is qualified by reference to a Material
Adverse Effect, in each case, which breach has not been cured (if capable of
being cured) within fifteen (15) business days after receipt by the breaching
party of written notice of the breach;
(e) By either Buyer or the Company: if (i) as a result of the failure
of any of the offer conditions set forth in Exhibit 2.1 the Offer shall have
terminated or expired in accordance with its terms without Buyer having accepted
for payment any Shares pursuant to the Offer or (ii) Buyer shall not have
accepted for payment any Shares pursuant to the Offer prior to July 1, 1999;
provided, however, that the right to terminate this Agreement pursuant to this
Section 7.1(e) shall not be available to any party whose failure to perform any
of its obligations under this Agreement results in the failure of any such
condition or if the failure of such condition results from facts or
circumstances that constitute a breach of a representation or warranty under
this Agreement by such party;
(f) By either Buyer or the Company, by written notice from the
terminating party to the other party, if: (i) the Second Closing and the Offer
Closing have not been effected on or prior to the close of business on July 1,
1999, whether such date is before or after the date of approval by the
Shareholders; provided, however, that the right to terminate this Agreement
pursuant to this clause (f) shall not be available to any party whose failure to
fulfill any obligation of this Agreement has been the cause of, or resulted in,
the failure of the Second Closing to have occurred on or prior to such date; or
(ii) any court or other Governmental Entity having jurisdiction over a party
hereto shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable;
(g) By the Company, by written notice to Buyer, if the Board of
Directors of the Company shall determine in good faith that a Takeover Proposal
constitutes a Superior Proposal; provided, however, that the Company may not
terminate this Agreement pursuant to this clause (g) unless (i) five (5)
business days shall have elapsed after delivery to Buyer of a written notice of
such determination by such Board of Directors and at all reasonable times during
such five (5) business-day period the Company shall have provided Buyer a
reasonable opportunity, during such five (5) business-day period, to propose a
modification of the terms and conditions of this Agreement so that a business
combination between the Company and Buyer may be effected, and (ii) at the end
of such five (5) business-day period such Board of Directors shall continue to
believe in good faith that such Takeover Proposal constitutes a Superior
Proposal and simultaneously therewith or not
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later than ninety (90) business days thereafter the Company shall enter into a
definitive acquisition, merger or similar agreement to effect such Superior
Proposal;
(h) By Buyer, by written notice to the Company, if (i) the Board of
Directors of the Company shall not have recommended this Agreement and the
transactions contemplated hereby to the Company's Shareholders as contemplated
by Sections 2.2 and 3.3 hereof, or shall have resolved not to make such
recommendations, or shall have modified in a manner adverse to Buyer or
rescinded its recommendations to the Shareholders, or shall have modified or
rescinded its approval of this Agreement or the transactions contemplated
herein, or shall have resolved to do any of the foregoing, (ii) the Board of
Directors of the Company shall have recommended to the Shareholders any Takeover
Proposal (other than by Buyer or an Affiliate of Buyer) or shall have resolved
to do so, (iii) a tender offer or exchange offer for twenty percent (20%) or
more of the outstanding shares of capital stock of the Company is commenced, and
the Board of Directors of the Company fails to recommend against acceptance of
such tender offer or exchange offer by its Shareholders within the ten (10)
business day period (or such shorter period) required by Section 14e-2 of the
Exchange Act (the taking of no position by the expiration of such ten (10)
business day period (or such shorter period) with respect to the acceptance of
such tender offer or exchange offer by its shareholders constituting such a
failure), or (iv) the Company or any of its Subsidiaries, without having
received prior written consent from Buyer, shall have entered into, authorized,
recommended, proposed, or publicly announced its intention to enter into,
authorize, recommend or propose to its Shareholders an agreement, arrangement,
understanding or letter of intent with any Person (other than Buyer or any of
its Affiliates) to (A) effect a merger or consolidation or similar transaction
involving the Company or any of its Subsidiaries, (B) purchase, lease, or
otherwise acquire all or a substantial portion of the assets of the Company or
any of its Subsidiaries or (C) purchase or otherwise acquire (including by way
of merger, consolidation, share exchange or similar transaction) beneficial
ownership of securities representing twenty percent (20%) or more of the voting
power of the Company (in each case other than any such merger, consolidation,
purchase, lease or other transaction involving only the Company and one (1) or
more of its Subsidiaries or involving only any two (2) or more of its
Subsidiaries); and
(i) By Buyer or the Company, by written notice to the other party, if
ten (10) business days elapse after all the conditions set forth in Article VI
(other than conditions that by their nature are to be satisfied at the Second
Closing) shall be satisfied or waived and the Second Closing shall not have
occurred through no fault of the terminating party.
The right of Buyer or the Company, to terminate this Agreement pursuant
to this Section 7.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of such party, whether
prior to or after the execution of this Agreement.
SECTION 7.2 Effect of Termination. In the event of the termination of
this Agreement by either Buyer or the Company as provided in Section 7.1, this
Agreement shall forthwith become void without any liability hereunder on the
part of the Company or Buyer or their respective directors or officers, except
for Section 5.9, Article VIII, and the last sentence of Section 5.6, which shall
survive
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any such termination; provided, however, that nothing contained in this Section
7.2 shall relieve any party hereto from any liability for any breach of this
Agreement.
SECTION 7.3 Extension: Waiver. At any time prior to the Second Closing
Date, the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties, (ii) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement, or (iii) waive compliance with
any of the agreements or conditions of the other party contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in any instrument in writing signed on behalf
of such party. The failure or any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights. Notwithstanding the foregoing, no failure or delay by the Company or
Buyer in exercising any right hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise of any other right hereunder.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION; REMEDIES
SECTION 8.1 Survival of Representations and Warranties. All of the
representations and warranties of the Company contained in this Agreement,
except for the representations and warranties in Sections 3.7, 3.11, and 3.12,
shall survive the Second Closing hereunder and continue in full force and effect
for a period of three (3) years. The representations and warranties of the
Company in Section 3.11 shall survive the Second Closing and continue in full
force and effect for a period of six (6) years, and the representations and
warranties of the Company in Sections 3.7 and 3.12 shall survive the Second
Closing and continue in full force and effect for a period of eight (8) years.
Notwithstanding any right of Buyer to fully investigate the affairs of the
Company and notwithstanding any knowledge of facts determined or determinable by
Buyer pursuant to such investigation or right of investigation, Buyer has the
right fully to rely upon the representation, warranties and covenants of the
Company.
SECTION 8.2 Indemnification by the Company.
(a) The Company agrees to indemnify, defend and save Buyer and its
Affiliates and each of their respective officers, directors, employees, and
agents (each, a "Buyer Indemnified Party"), harmless from and against, and to
promptly pay to a Buyer Indemnified Party or reimburse a Buyer Indemnified Party
for, any and all liabilities (whether contingent, fixed or unfixed, liquidated
or unliquidated, or otherwise), obligations, deficiencies, demands, claims,
suits, actions, or causes of action, assessments, losses, costs, expenses,
interest, fines, penalties, actual or punitive damages or costs or expenses of
any and all investigations, proceedings, judgments, environmental remediations,
settlements and compromises (including reasonable fees and expenses of
attorneys, accountants and other experts) (individually and collectively,
"Losses") sustained or incurred by any Buyer Indemnified Party relating to,
resulting from, arising out of or otherwise by virtue of any
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<PAGE> 46
(i) misrepresentation or breach of a warranty made in Article III or (ii)
non-compliance or breach by the Company of any of the covenants or agreements
contained in this Agreement.
(b) A Buyer Indemnified Party or Seller Indemnified Party (as herein
defined) shall be entitled to indemnification pursuant to Section 8.2(a) or
Section 8.3, as applicable, only if and to the extent that the aggregate amount
of Losses and with respect to which all claims for indemnification made pursuant
to Section 8.2(a) or Section 8.3, as applicable, exceed, in the aggregate, One
Hundred Seventy-Five Thousand Dollars ($175,000.00) (the "Deductible"),
whereupon the Company or Buyer, as applicable, shall be obligated to pay in full
all such Losses, and provided that the Buyer Indemnified Parties or Seller
Indemnified Parties, respectively, shall not be entitled to aggregate
indemnification payments pursuant to Section 8.2(a) or Section 8.3, as
applicable, in excess of Twelve Million Dollars ($12,000,000.00) (the "Cap").
SECTION 8.3 Indemnification by Buyer. From and after the Initial
Closing, Buyer agrees to indemnify, defend and save the Company and its
officers, directors, employees and agents (each a "Seller Indemnified Party"),
harmless from and against, and to promptly pay to a Seller Indemnified Party or
reimburse a Seller Indemnified Party for, any and all Losses sustained or
incurred by such Seller Indemnified Party relating to, resulting from, arising
out of or otherwise by virtue of any (i) misrepresentation or breach of warranty
made in Article IV, or (ii) non-compliance with or breach by Buyer of any of the
covenants or agreements contained in this Agreement to be performed by Buyer.
SECTION 8.4 Indemnification Procedure for Third Party Claims. In the
event that subsequent to the Initial Closing any person or entity entitled to
indemnification under this Agreement (an "Indemnified Party") asserts a claim
for indemnification or receives notice of the assertion of any claim or of the
commencement of any action or proceeding by any entity who is not a party to
this Agreement or an Affiliate of such a party (including, but not limited to
any Governmental Entity) (a "Third Party Claim") against such Indemnified Party,
against which a Party is required to provide indemnification under this
Agreement (an "Indemnifying Party"), the Indemnified Party shall give written
notice together with a statement of any available information regarding such
claim to the Indemnifying Party within thirty (30) days after learning of such
claim (or within such shorter time as may be necessary to give the Indemnifying
Party a reasonable opportunity to respond to such claim). The Indemnifying Party
shall have the right, upon written notice to the Indemnified Party (the "Defense
Notice") within thirty (30) days after receipt from the Indemnified Party of
notice of such claim, (which notice by the Indemnifying Party shall specify the
counsel it will appoint to defend such claim ("Defense Counsel")), to conduct at
its expense the defense against such claim in its own name, or if necessary in
the name of the Indemnified Party; provided, however, that the Indemnified Party
shall have the right to approve the Defense Counsel, which approval shall not be
unreasonably withheld or delayed.
(a) In the event that the Indemnifying Party shall fail to give such
notice, it shall be deemed to have elected not to conduct the defense of the
subject claim, and in such event the Indemnified Party shall have the right to
conduct such defense in good faith and to compromise and settle the claim
without prior consent of the Indemnifying Party and the Indemnifying Party will
be
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<PAGE> 47
liable for all costs, expenses, settlement amounts or other Losses paid or
incurred in connection therewith.
(b) In the event that the Indemnifying Party does elect to conduct the
defense of the subject claim, the Indemnified Party will cooperate with and make
available to the Indemnifying Party such assistance and materials as may be
reasonably requested by it, all at the expense of the Indemnifying Party, and
the Indemnified Party shall have the reasonable right at its expense to
reasonably participate in the defense assisted by counsel of its own choosing at
its own expense, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
Without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld or delayed, the Indemnifying Party will not enter
into any settlement of any Third Party Claim or cease to defend against such
claim, if pursuant to or as a result of such settlement or cessation (i)
injunctive or other equitable relief would be imposed against the Indemnified
Party or its Affiliates; or (ii) such settlement or cessation would lead to
liability or create any financial or other obligation on the part of the
Indemnified Party or its Affiliates for which the Indemnified Party is not
entitled to indemnification hereunder. If a firm offer is made to settle a Third
Party Claim, which offer the Indemnifying Party is permitted to accept pursuant
to the preceding sentence, and the Indemnifying Party desires to accept and
agree to such offer, the Indemnifying Party will give written notice to the
Indemnified Party to that effect. If the Indemnified Party notifies the
Indemnifying Party that it does not wish such offer to be accepted within twenty
calendar days after its receipt of such notice, the Indemnified Party may elect
by such notice to the Indemnifying Party to continue to contest or defend such
Third Party Claim, and in such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will not exceed the amount of such settlement
offer, plus costs and expenses paid or incurred by the Indemnified Party through
the end of such twenty day period. Notwithstanding anything to the contrary
contained herein, the Indemnifying Party shall not be entitled to control, and
the Indemnified Party shall be entitled to have sole control over, the defense
or settlement of any claim to the extent that claim seeks an order, injunction
or other equitable relief against the Indemnified Party which, if successful,
could have a Material Adverse Effect on the Indemnified Party or its Affiliates
(and the cost of such defense shall constitute a Loss for which the Indemnified
Party is entitled to indemnification hereunder).
(c) Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
SECTION 8.5 Direct Claims. It is the intent of the parties hereto that
all direct claims by an Indemnified Party against a party hereto not arising out
of Third Party Claims shall be subject to and benefit from the terms of this
Article VIII. Any claim under this Article VIII by an Indemnified Party for
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party written notice
thereof.
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SECTION 8.6 Failure to Give Timely Notice. A failure by an Indemnified
Party to give timely, complete or accurate notice as provided in Sections 8.4 or
8.5, will not affect the rights or obligations of any party hereunder except and
only to the extent that, as a result of such failure, any party entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or to the extent that it was otherwise damaged as
a result of such failure to give timely notice.
SECTION 8.7 Reduction of Loss. The amount of Losses payable with
respect to an indemnification claim shall be determined on an after tax basis
and reduced by receipt of payment (i) under insurance policies which are not
subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (ii) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof),
shall be credited against such Loss. No Indemnified Party shall take any action
the purpose and intent of which is to prejudice the defense of any claim subject
to indemnification hereunder or to induce a third party to assert a claim
subject to indemnification hereunder.
SECTION 8.8 Subrogation. The Indemnifying Party shall be subrogated to
the Indemnified Party's rights of recovery to the extent of any Loss satisfied
by the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the Company.
SECTION 8.9 Limitations. Other than for claims of fraud or intentional
misrepresentation, after the Second Closing Date the remedies afforded under
this Article VIII shall be the exclusive remedy available to the parties hereto
seeking damages for a breach of a representation, warranty or covenant contained
herein; provided, however, nothing contained herein shall limit or restrict a
party hereto from seeking or obtaining injunctive or other equitable relief.
SECTION 8.10 Determination Procedure. The parties hereto agree that in
the event a Buyer Indemnified Party makes a claim for indemnification under this
Article VIII and Buyer and the DSI Representative cannot agree on whether such
Buyer Indemnified Party is entitled to indemnification under this Article VIII,
then, unless Buyer and the DSI Representative agree on a different mechanism for
resolving such dispute, such determination shall be submitted to a panel of
three arbitrators. Such arbitration shall be conducted in accordance with the
Federal Arbitration Act and the rules of the American Arbitration Association.
The decision of the arbitrators or a majority thereof, made in writing, shall be
final and binding upon the parties hereto as to the determination of entitlement
to indemnification. In all matters relating to claims for indemnification or
other disputes under this Agreement, the DSI Representative shall represent the
Company and Buyer shall represent itself.
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<PAGE> 49
ARTICLE IX
MISCELLANEOUS AND GENERAL
SECTION 9.1 Definitions. For purposes of this Agreement:
(a) "Affiliate" of any person means another person that directly or
indirectly, through on or more intermediaries, controls, is controlled by, or is
under common control with, such first person.
(b) "Antitrust Laws" mean and include the Sherman Act, as amended, the
Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal, state or foreign statutes, rules, regulations,
orders, decrees, administrative and judicial doctrines and other laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade.
(c) "Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
(d) "Governmental Entity" means any government or an agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
(e) "Knowledge" or "Known" A Person is deemed to have "knowledge" of a
particular fact or matter if any of its executive officers, directors or
managers (i) is actually aware of such fact or matter, or (ii) could reasonably
be expected to be aware of such fact or matter after a due diligence
investigation of such scope and extent as a reasonably prudent person would
undertake under similar facts and circumstances.
(f) "Lien" means any encumbrance, hypothecation, infringement, lien,
mortgage, pledge, restriction, security interest, title retention or other
security arrangement, or any adverse right or interest, charge or claim of any
nature whatsoever of, on, or with respect to any asset, property or property
interest; provided, however, that the term "Lien" shall not include (i) liens
for water and sewer charges and current taxes including, without limitation,
real estate taxes, not yet due and payable or being contested in good faith;
(ii) mechanics', carriers', workers', repairers', materialmen's, warehousemen's
and other similar liens arising or incurred in the ordinary course of business;
(iii) all liens approved in writing by the other party hereto; or (iv)
restrictions on transfer imposed by federal or state securities laws.
(g) "Material Adverse Effect" means, when used in connection with the
Company or Buyer, any change or effect that (i) has had, or is reasonably likely
to have a materially adverse impact on the business, operations, or results of
operations, assets or condition (financial or otherwise) of such Party or any of
its Subsidiaries, or (ii) substantially impairs or delays the
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<PAGE> 50
consummation of the transactions contemplated hereby, but, in either such event,
shall not include (A) any change or effect that results from conditions, events
or circumstances generally affecting the industries in which the Company or
Buyer operate or the economy in general, (B) any action or change specifically
permitted or required by the provisions of this Agreement, or (C) the
transactions contemplated by this Agreement or the announcement hereof,
provided, however, a Material Adverse Effect will be deemed to include the
circumstances set forth in (i) or (ii) above if those circumstances are caused
by any suit, action, cause or proceeding brought by any third party seeking
injunctive relief, damages, or any other relief concerning the transactions
contemplated by this Agreement.
(h) "Party" or "Parties" means the Company on the one hand, and Buyer
on the other hand.
(i) "Person" means any natural person, firm, individual, business
trust, trust, association, corporation, partnership, joint venture, company,
unincorporated entity or Governmental Entity.
(j) "Subsidiary" or "Subsidiaries" of any Person means another Person,
an amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its board of
directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first Person.
(k) "Tax" or "Taxes" means all federal, state, local and foreign taxes,
net or gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, personal property, real property, capital stock, profits,
social security, (or similar) unemployment, disability, registration, value
added, estimated, alternative or add-on minimum taxes, customs, duties or other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto, imposed by a Tax authority.
(l) "Tax Returns" means all federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms, and information
returns and any amendments thereto.
SECTION 9.2 Modification or Amendment. Subject to the provisions of the
applicable law, at any time prior to the Second Closing Date, the Parties hereto
may modify or amend this Agreement, by written agreement executed and delivered
by duly authorized officers of the respective Parties.
SECTION 9.3 Waiver of Conditions. The conditions to each of the
Parties' obligations to consummate this Agreement are for the sole benefit of
such Party and may be waived by such Party in whole or in part to the extent
permitted by applicable law.
SECTION 9.4 Counterparts. This Agreement may be executed in any number
of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
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<PAGE> 51
SECTION 9.5 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF TEXAS WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The
Parties hereby irrevocably submit to the jurisdiction of the courts
of the State of Texas and the Federal courts of the United States of America
located in the State of Texas solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated hereby, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the Parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a Texas State or Federal court. The Parties hereby consent to and grant
any such court jurisdiction over the person of such Parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
9.6 below or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
(a) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
SECTION 9.6 Notices. Any notice, request, instruction or other document
to be given hereunder by any party to the others shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by facsimile:
If to Buyer:
Attention: Tom Martin
654 Osos Street
San Luis Obispo, CA 93401
fax: 805/545-7590
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<PAGE> 52
with copies to: J. Todd Mirolla, Esq.
Andre, Morris & Buttery
1304 Pacific Street
San Luis Obispo, CA 93401
fax: 805/543-0752
Gregg R. Cannady, Esq.
Carrington, Coleman, Sloman & Blumenthal, L.L.P.
200 Crescent Court, Suite 1500
Dallas, TX 75201
fax: 214/855-1333
If to Company:
Attention: President
1100 W. Sam Houston Parkway North, Suite A
Houston, TX 77043
fax: 713/365-9911
with a copy to: Michael L. Bengtson, Esq.
Thompson & Knight
1200 San Jacinto Center
98 San Jacinto Boulevard
Austin, TX 78701
fax: 512/469-6180
or to such other persons or addresses as may be designated in writing by the
Party to receive such notice as provided above.
SECTION 9.7 Entire Agreement; No Other Representations. This Agreement
(including any exhibits hereto), the Seller Disclosure Letter, the Buyer
Disclosure Letter and the Exhibits constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the subject
matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER BUYER NOR THE COMPANY MAKES ANY
OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH
RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR
THE OTHER'S REPRESENTATIVES OF ANY
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<PAGE> 53
DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE
FOREGOING.
SECTION 9.8 No Third Party Beneficiaries. Except as provided in Section
5.2 and Article VIII (Indemnification), this Agreement is not intended to confer
upon any Person other than the Parties hereto any rights or remedies hereunder.
SECTION 9.9 Obligations of Buyer and of the Company. Whenever this
Agreement requires a Subsidiary of Buyer to take any action, such requirement
shall be deemed to constitute an undertaking on the part of Buyer to cause such
Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of
the Company to take any action, such requirement shall be deemed to constitute
an undertaking on the part of the Company to cause such Subsidiary to take such
action.
SECTION 9.10 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
SECTION 9.11 Interpretation. The table of contents and headings herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Where a reference in this Agreement is made to a Section or Exhibit,
such reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
SECTION 9.12 Assignment. This Agreement shall not be assignable by
operation of law or otherwise.
SECTION 9.13 Specific Performance. The Parties hereto agree that
irreparable damage would occur in the event that any of the terms or provisions
of this Agreement were not performed in accordance with their specific wording
or were otherwise breached. It is accordingly agreed that each of the Parties
hereto shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States of America or any state having jurisdiction, such
remedy being in addition to any other remedy to which any Party may be entitled
at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the Parties hereto as of the date first
written above.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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MVII, LLC
By: /s/ E. Thomas Martin
-------------------------
Name: E. Thomas Martin
-------------------------
Title: Manager
-------------------------
DSI TOYS, INC.
By: /s/ M.D. Davis
-------------------------
Name: M.D. Davis
-------------------------
Title: Chief Executive Officer
-------------------------
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<PAGE> 56
STOCK PURCHASE AGREEMENT EXHIBIT 1.3
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DSI TOYS, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act (the "Act"), the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation ("Articles of
Incorporation"):
ARTICLE ONE
The name of the corporation (hereinafter called the "Corporation") is
DSI Toys, Inc.
ARTICLE TWO
At the annual meeting of the shareholders of the Corporation held on
______________ ___, 1999, the holders of at least two-thirds of the outstanding
shares of the Corporation entitled to vote thereon adopted an amendment to the
Corporation's Amended and Restated Articles of Incorporation whereby Article
Four thereof was amended to read in its entirety as follows:
ARTICLE FOUR
The aggregate number of shares that the corporation
shall have the authority to issue is 40,000,000 shares,
consisting of 35,000,000 shares of Common Stock, par value
$0.01 per share, and 5,000,000 shares of Preferred Stock, par
value $0.01 per share.
The descriptions of the different classes of capital
stock of the corporation and the preferences, designations,
relative rights, privileges and powers, and the restrictions,
limitations and qualifications thereof, of said classes of
stock are as follows:
<PAGE> 57
Division A
The shares of Preferred Stock may be divided into and issued
in one or more series, the relative rights and preferences of
which series may vary in any and all respects. The board of
directors of the corporation is hereby vested with the
authority to establish series of Preferred Stock by fixing and
determining all the preferences, limitations and relative
rights of the shares of any series so established, to the
extent not provided for in these articles of incorporation or
any amendment hereto, and with the authority to increase or
decrease the number of shares within each such series;
provided, however, that the board of directors may not
decrease the number of shares within a series below the number
of shares within such series that is then issued. The
authority of the board of directors with respect to each such
series shall include, but not be limited to, determination of
the following:
(1) the distinctive designation and number of shares
of that series;
(2) the rate of dividend (or the method of
calculation thereof) payable with respect to shares
of that series, the dates, terms and other conditions
upon which such dividends shall be payable, and the
relative rights of priority of such dividends to
dividends payable on any other class or series of
capital stock of the corporation;
(3) the nature of the dividend payable with respect
to shares of that series as cumulative, noncumulative
or partially cumulative, and if cumulative or
partially cumulative, from which date or dates and
under what circumstances;
(4) whether shares of that series shall be subject to
redemption, and, if made subject to redemption, the
times, prices, rates, adjustments and other terms and
conditions of such redemption (including the manner
of selecting shares of that series for redemption if
fewer than all shares of such series are to be
redeemed);
(5) the rights of the holders of shares of that
series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the
corporation (which rights may be different if such
action is voluntary than if it is involuntary),
including the relative rights of priority in such
event as to the rights of the holders of any other
class or series of capital stock of the corporation;
<PAGE> 58
(6) the terms, amounts and other conditions of any
sinking or similar purchase or other fund provided
for the purchase or redemption of shares of that
series;
(7) whether shares of that series shall be
convertible into or exchangeable for shares of
capital stock or other securities of the corporation
or of any other corporation or entity, and, if
provision be made for conversion or exchange, the
times, prices, rates, adjustments and other terms and
conditions of such conversion or exchange;
(8) the extent, if any, to which the holders of
shares of that series shall be entitled (in addition
to any voting rights provided by law) to vote as a
class or otherwise with respect to the election of
directors or otherwise;
(9) the restrictions and conditions, if any, upon the
issue or reissue of any additional Preferred Stock
ranking on a parity with or prior to shares of that
series as to dividends or upon liquidation,
dissolution or winding up;
(10) any other repurchase obligations of the
corporation, subject to any limitations of applicable
law; and
(11) notwithstanding their failure to be included in
(1) through (10) above, any other designations,
preferences, limitations or relative rights of shares
of that series.
Any of the designations, preferences, limitations or relative
rights (including the voting rights) of any series of
Preferred Stock may be dependent on facts ascertainable
outside these articles of incorporation.
Shares of any series of Preferred Stock shall have no voting
rights except as required by law or as provided in the
preferences, limitations and relative rights of such series.
<PAGE> 59
Division B
1. Dividends. Dividends may be paid on the Common
Stock out of any assets of the corporation available for such
dividends subject to the rights of all outstanding shares of
capital stock ranking senior to the Common Stock in respect of
dividends.
2. Distribution of Assets. In the event of any
liquidation, dissolution or winding up of the corporation,
after there shall have been paid to or set aside for the
holders of capital stock ranking senior to the Common Stock in
respect of rights upon liquidation, dissolution or winding up
the full preferential amounts to which they are respectively
entitled, the holders of the Common Stock shall be entitled to
receive, pro rata, all of the remaining assets of the
corporation available for distribution to its shareholders.
3. Voting Rights. The holders of the Common Stock
shall be entitled to one vote per share for all purposes upon
which such holders are entitled to vote.
Division C
1. No Preemptive Rights. No shareholder of the
corporation shall by reason of his holding shares of any class
have any preemptive or preferential right to acquire or
subscribe for any additional, unissued or treasury shares of
any class of the corporation now or hereafter to be
authorized, or any notes, debentures, bonds or other
securities convertible into or carrying any right, option or
warrant to subscribe to or acquire shares of any class now or
hereafter to be authorized whether or not the issuance of any
such shares, or such notes, debentures, bonds or other
securities, would adversely affect the dividends or voting or
other rights of such shareholder, and the board of directors
may issue or authorize the issuance of shares of any class, or
any notes, debentures, bonds or other securities convertible
into or carrying rights, options or warrants to subscribe to
or acquire shares of any class, without offering any such
shares of any class, either in whole or in part, to the
existing shareholders of any class.
2. Share Dividends. Subject to any restrictions in
favor of any series of Preferred Stock provided in the
relative rights and preferences of such series, the
corporation may pay a share dividend in shares of any class or
series of capital stock of the corporation to the holders of
shares of any class or series of capital stock of the
corporation.
<PAGE> 60
3. No Cumulative Voting. Cumulative voting for the
election of directors is expressly prohibited as to all
shares of any class or series.
ARTICLE THREE
The number of shares of all classes of capital stock of the Corporation
outstanding at the time of the adoption of the foregoing amendment was
__________, and the number of shares of all such classes entitled to vote
thereon was _________.
ARTICLE FOUR
The number of shares of all classes of capital stock of the Corporation
voting for the amendment was ______________, and the number of shares of all
such classes voting against the amendment was _________________.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment on behalf of the Corporation this ___ day of ________________, 1999.
DSI TOYS, INC.
By:
--------------------------------
M. D. Davis,
Chief Executive Officer
<PAGE> 61
STOCK PURCHASE AGREEMENT EXHIBIT 1.3(a)(i)(B)
IRREVOCABLE PROXY
Date: _____________
The undersigned hereby appoints MVII, LLC, a California limited
liability company ("MVII"), proxy, and hereby authorizes MVII to vote all of the
common shares (the "Common Shares") of DSI Toys, Inc. (the "Company") (i)
standing in the name of the undersigned as of the date hereof, (ii) that may
subsequently be acquired by the undersigned, and (iii) as to which the
undersigned is or may be appointed as proxy and has the authority to vote, for
the election of the Board of Directors of the Company as if the undersigned were
personally present and voting for such directors. The undersigned further grants
MVII the authority to vote all such Common Shares with respect to all other
matters of the Company subject to a vote of the Company's common shareholders,
however the undersigned shall retain the right to vote his or her Common Shares
with respect to matters concerning (i) a dissolution of the Company, or (ii) the
sale of a Controlling Interest (as hereinafter defined) of the Company. This is
an irrevocable proxy coupled with an interest and is granted in furtherance of
that certain Shareholders' and Voting Agreement (the "Agreement"), by and among
the Company, MVII and the undersigned and the other members of the DSI Group (as
defined in the Agreement), dated as of even date herewith. This irrevocable
proxy shall become effective and shall have the same duration as the voting
agreement found in Article I of the Agreement and shall automatically terminate
if and when the Agreement is terminated for any reason. "Controlling Interest"
shall mean the sale of all or substantially all of the assets of the Company
which requires a vote of shareholders under applicable law, the issuance by the
Company of common stock in such an amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law.
-----------------------------
M.D. Davis
<PAGE> 62
IRREVOCABLE PROXY
Date: __________
The undersigned hereby appoints MVII, LLC, a California limited
liability company ("MVII"), proxy, and hereby authorizes MVII to vote all of the
common shares (the "Common Shares") of DSI Toys, Inc. (the "Company") (i)
standing in the name of the undersigned as of the date hereof, (ii) that may
subsequently be acquired by the undersigned, and (iii) as to which the
undersigned is or may be appointed as proxy and has the authority to vote, for
the election of the Board of Directors of the Company as if the undersigned were
personally present and voting for such directors. The undersigned further grants
MVII the authority to vote all such Common Shares with respect to all other
matters of the Company subject to a vote of the Company's common shareholders,
however the undersigned shall retain the right to vote his or her Common Shares
with respect to matters concerning (i) a dissolution of the Company, or (ii) the
sale of a Controlling Interest (as hereinafter defined) of the Company. This is
an irrevocable proxy coupled with an interest and is granted in furtherance of
that certain Shareholders' and Voting Agreement (the "Agreement"), by and among
the Company, MVII and the undersigned and the other members of the DSI Group (as
defined in the Agreement), dated as of even date herewith. This irrevocable
proxy shall become effective and shall have the same duration as the voting
agreement found in Article I of the Agreement and shall automatically terminate
if and when the Agreement is terminated for any reason. "Controlling Interest"
shall mean the sale of all or substantially all of the assets of the Company
which requires a vote of shareholders under applicable law, the issuance by the
Company of common stock in such an amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law.
RUST CAPITAL, LTD.,
a Texas limited partnership
By: Rust Investment Corporation,
its general partner
By:
----------------------------------
Jack R. Crosby, President
<PAGE> 63
IRREVOCABLE PROXY
Date: ___________
The undersigned hereby appoints MVII, LLC, a California limited
liability company ("MVII"), proxy, and hereby authorizes MVII to vote all of the
common shares (the "Common Shares") of DSI Toys, Inc. (the "Company") (i)
standing in the name of the undersigned as of the date hereof, (ii) that may
subsequently be acquired by the undersigned, and (iii) as to which the
undersigned is or may be appointed as proxy and has the authority to vote, for
the election of the Board of Directors of the Company as if the undersigned were
personally present and voting for such directors. The undersigned further grants
MVII the authority to vote all such Common Shares with respect to all other
matters of the Company subject to a vote of the Company's common shareholders,
however the undersigned shall retain the right to vote his or her Common Shares
with respect to matters concerning (i) a dissolution of the Company, or (ii) the
sale of a Controlling Interest (as hereinafter defined) of the Company. This is
an irrevocable proxy coupled with an interest and is granted in furtherance of
that certain Shareholders' and Voting Agreement (the "Agreement"), by and among
the Company, MVII and the undersigned and the other members of the DSI Group (as
defined in the Agreement), dated as of even date herewith. This irrevocable
proxy shall become effective and shall have the same duration as the voting
agreement found in Article I of the Agreement and shall automatically terminate
if and when the Agreement is terminated for any reason. "Controlling Interest"
shall mean the sale of all or substantially all of the assets of the Company
which requires a vote of shareholders under applicable law, the issuance by the
Company of common stock in such an amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law.
--------------------------
Barry B. Conrad
<PAGE> 64
IRREVOCABLE PROXY
Date:___________
The undersigned hereby appoints MVII, LLC, a California limited
liability company ("MVII"), proxy, and hereby authorizes MVII to vote all of the
common shares (the "Common Shares") of DSI Toys, Inc. (the "Company") (i)
standing in the name of the undersigned as of the date hereof, (ii) that may
subsequently be acquired by the undersigned, and (iii) as to which the
undersigned is or may be appointed as proxy and has the authority to vote, for
the election of the Board of Directors of the Company as if the undersigned were
personally present and voting for such directors. The undersigned further grants
MVII the authority to vote all such Common Shares with respect to all other
matters of the Company subject to a vote of the Company's common shareholders,
however the undersigned shall retain the right to vote his or her Common Shares
with respect to matters concerning (i) a dissolution of the Company, or (ii) the
sale of a Controlling Interest (as hereinafter defined) of the Company. This is
an irrevocable proxy coupled with an interest and is granted in furtherance of
that certain Shareholders' and Voting Agreement (the "Agreement"), by and among
the Company, MVII and the undersigned and the other members of the DSI Group (as
defined in the Agreement), dated as of even date herewith. This irrevocable
proxy shall become effective and shall have the same duration as the voting
agreement found in Article I of the Agreement and shall automatically terminate
if and when the Agreement is terminated for any reason. "Controlling Interest"
shall mean the sale of all or substantially all of the assets of the Company
which requires a vote of shareholders under applicable law, the issuance by the
Company of common stock in such an amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law.
----------------------------
Joseph N. Matlock
<PAGE> 65
IRREVOCABLE PROXY
Date: __________
The undersigned hereby appoints MVII, LLC, a California limited
liability company ("MVII"), proxy, and hereby authorizes MVII to vote all of the
common shares (the "Common Shares") of DSI Toys, Inc. (the "Company") (i)
standing in the name of the undersigned as of the date hereof, (ii) that may
subsequently be acquired by the undersigned, and (iii) as to which the
undersigned is or may be appointed as proxy and has the authority to vote, for
the election of the Board of Directors of the Company as if the undersigned were
personally present and voting for such directors. The undersigned further grants
MVII the authority to vote all such Common Shares with respect to all other
matters of the Company subject to a vote of the Company's common shareholders,
however the undersigned shall retain the right to vote his or her Common Shares
with respect to matters concerning (i) a dissolution of the Company, or (ii) the
sale of a Controlling Interest (as hereinafter defined) of the Company. This is
an irrevocable proxy coupled with an interest and is granted in furtherance of
that certain Shareholders' and Voting Agreement (the "Agreement"), by and among
the Company, MVII and the undersigned and the other members of the DSI Group (as
defined in the Agreement), dated as of even date herewith. This irrevocable
proxy shall become effective and shall have the same duration as the voting
agreement found in Article I of the Agreement and shall automatically terminate
if and when the Agreement is terminated for any reason. "Controlling Interest"
shall mean the sale of all or substantially all of the assets of the Company
which requires a vote of shareholders under applicable law, the issuance by the
Company of common stock in such an amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law.
--------------------------
Douglas A. Smith
<PAGE> 66
STOCK PURCHASE AGREEMENT EXHIBIT 1.3(a)(i)(C)
SIDE LETTER AGREEMENT
This Side Letter Agreement (this "Agreement"), is entered into this
_______ day of _______, _______, between MVII, LLC, a limited liability company
formed under the laws of the State of California ("Purchaser"), and M.D. Davis
("Shareholder").
WHEREAS, Shareholder beneficially owns and has dispositive power over
__________ shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of DSI Toys, Inc., a Texas corporation (the "Company");
WHEREAS, concurrently herewith, the Company and Purchaser are entering
into a Stock Purchase Agreement dated as of _____________ (the "Stock Purchase
Agreement"), pursuant to which Purchaser has agreed, among other things, to make
a cash tender offer (the "Offer") for up to 1,600,000 shares of Common Stock of
the Company at $4.38 per share (or any higher price paid in the Offer, the
"Offer Price"), net to the seller in cash;
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Stock Purchase Agreement, Purchaser has required that Shareholder agree, and
in order to induce Purchaser to enter into the Stock Purchase Agreement,
Shareholder has agreed, among other things, to tender the Shares into the Offer;
and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Tender of Shares.
(a) Shareholder agrees, in the event the Minimum Condition is
not met as of the initial scheduled expiration date of the Offer, to tender and
sell to Purchaser, free and clear of all mortgages, pledges, security interests,
encumbrances, liens, options, debts, charges, claims and restrictions of any
kind, such number of Shareholder's Shares, pursuant to the terms of the Offer,
except where such sales in response to the Offer might result in liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), so that the number of Shares tendered by Shareholder and all
other shareholders of the Company shall meet the Minimum Condition. Shareholder
agrees that Shareholder shall deliver to the depository for the Offer for
receipt prior to the initial scheduled expiration date of the Offer, either a
letter of transmittal together with the certificates for the Shares, if
available, or a "Notice of Guaranteed Delivery," if the Shares are not
available. Shareholder agrees not to withdraw any Shares tendered into the
Offer. Nothing contained herein shall prevent Shareholder from tendering any or
all Shares, even if the Minimum Condition is otherwise met, subject to the pro
rata reduction as described in Section 1(b) of this Agreement.
<PAGE> 67
(b) In the event more than 1,600,000 shares of Common Stock
are tendered into the Offer, the Shares tendered by the Shareholder shall be
subject to a pro rata reduction to the same extent as the shares of Common Stock
tendered by any other shareholder in the Offer, as required by the Stock
Purchase Agreement.
2. Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Purchaser as follows:
2.1 Title.
Shareholder is the owner (both beneficially and of record) of
the Shares. Except for the Shares and as set forth in Exhibit 2.1 attached
hereto, Shareholder is not the record or beneficial owner of any shares of, and
does not have any other rights of any nature to acquire any additional shares
of, capital stock of the Company. Shareholder will deliver in accordance with
the terms of this Agreement, all of the Shares, free and clear of all security
interests, liens, claims, pledges, options, restrictions, rights of first
refusal, agreements, limitations on Shareholder's voting rights, charges and
other encumbrances of any nature whatsoever, except for those rights and
limitations contemplated by the Stock Purchase Agreement and the Other
Agreements. Except as provided in that certain Shareholders' and Voting
Agreement of DSI Toys, Inc. dated as of even date herewith among the Company,
Purchaser, and the DSI Group, Shareholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to any of the
Shares. The Shareholder has sole power of disposition with respect to all of the
Shares.
2.2 Authority Relative to This Agreement.
Shareholder has all necessary power and authority to execute
and deliver this Agreement, to perform Shareholder's obligations hereunder and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Shareholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a legal, valid
and binding obligation of Shareholder enforceable against Shareholder in
accordance with its terms.
2.3 No Conflict.
The execution and delivery of this Agreement by Shareholder
does not, and the performance of this Agreement by Shareholder will not, (a)
except for any filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), require any consent,
approval, authorization or permit of, or filing with or notification to , any
governmental or regulatory authority, domestic or foreign, or (b) conflict with,
violate or result in any breach of or constitute a default under (or an event
which with notice or lapse of time or both would become a default under) any
agreement, judgment, injunction, order, law, rule, regulation, decree or
arrangement to which Shareholder or the Company is a party or is bound.
<PAGE> 68
2.4 Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Shareholder or the Company.
2.5 Absence of Claims.
Shareholder has no claims, demands, actions, causes of action,
suits, damages, or losses of any nature whatsoever, whether asserted or
unasserted, as a result of actions or omissions through the date of this
Agreement, including without limitation any claims of alleged employment
discrimination, either as a result of the negotiated and specifically agreed to
separation of the Shareholders's employment with the Company or otherwise, under
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, the Americans with Disabilities Act, any other federal, state or local
statute, rule, ordinance, or regulation, as well as any claims for alleged
wrongful discharge, negligent or intentional infliction of emotional distress,
breach of contract, including, without limitation, the breach of any employment
agreement between the Company and the Shareholder, or any other claims sounding
in tort, contract, or any other unlawful or wrongful behavior ("Claims"), and
knows of no set of facts which, currently or with the passage of time, would
give rise to any Claims by the Shareholder, against the Company, any of its
subsidiaries or any affiliated companies and businesses thereof, or any of their
successors, assigns, officers, owners, directors, agents, representatives,
attorneys or employees (the "Company Affiliates").
3. Representations and Warranties of Purchaser.
3.1 Authority Relative to This Agreement.
Purchaser has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly and
validly executed and delivered by Purchaser and, assuming the due authorization,
execution and delivery by Shareholder, constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
3.2 No Conflict.
The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, (a) except for
any filings required under the HSR Act, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, (b) conflict with or violate the
governing instruments of Purchaser, (c) conflict with, violate or result in any
breach of or constitute a default under (or an event which with notice or lapse
of time or both would become a default under) any agreement, judgment,
injunction, order, law, rule, regulation, decree or arrangement applicable to
Purchaser or by which any property or asset of Purchaser is bound or affected,
other than, in the case of clause (c), any such conflicts, violations, breaches
or defaults that, individually
<PAGE> 69
or in the aggregate, would not materially impair the ability of Purchaser to
perform its obligations hereunder.
3.3 Brokers.
Except for Gerard, Klauer, Mattison & Co., Inc. and other
broker-dealers Purchaser may elect to retain, all of whose fees will be paid by
Purchaser, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Purchaser.
3.4 Investment Intent.
Purchaser hereby represents that any securities it purchases
pursuant to this Agreement are being purchased for its own account for
investment and not with a view to, or for sale in connection with, any public
distribution thereof.
4. Covenant of Shareholder.
Shareholder shall not, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information), entertain or
consider any Takeover Proposal from any Person other than Purchaser or engage in
or continue discussions or negotiations relating to any Takeover Proposal,
except that the provisions of this Section 4 shall not restrict the
Shareholder's ability to act in such Shareholder's capacity as a director of the
Company in accordance with Section 5.2 of the Stock Purchase Agreement.
Shareholder shall immediately cease any existing activities, discussions or
negotiations by Shareholder or any investment banker, attorney, accountant or
other advisor or representative of Shareholder with parties conducted heretofore
with respect to any of the foregoing.
5. Additional Covenants of Shareholder.
Shareholder hereby covenants and agrees that until the earlier of the
Second Closing or the termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof, except as contemplated by this Agreement
and except pursuant to the Offer, Shareholder shall not, and shall not offer or
agree to, sell, transfer, tender, assign, or otherwise dispose of, or create or
permit to exist any restriction, right of first refusal, agreement or limitation
on Shareholder's voting rights, with respect to, the Shares now owned or any
other shares that may hereafter be acquired by Shareholder, other than as
contemplated by the Stock Purchase Agreement and the Other Agreements.
6. Termination.
This Agreement shall terminate automatically on the earlier to occur of
the Second Closing or termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof.
<PAGE> 70
7. Miscellaneous.
7.1 Expenses.
All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
7.2 Survival.
The representations and warranties of the Shareholder
contained in this Agreement shall survive the termination of this Agreement only
upon the occurrence of the Second Closing until the fourth anniversary of the
Second Closing.
7.3 Further Assurances.
Shareholder and Purchaser shall execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7.4 Specific Performance.
The parties hereto agree that irreparable damage would occur
in the event any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
7.5 Entire Agreement.
This Agreement constitutes the entire agreement between
Purchaser and Shareholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between Purchaser and Shareholder with respect to the subject matter hereof.
7.6 Assignment.
This Agreement shall not be assigned by operation of law or
otherwise.
7.7 Parties in Interest.
This Agreement shall be binding upon, inure solely to the
benefit of, and be enforceable by, the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
7.8 Amendment; Waiver.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto. Any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
<PAGE> 71
agreement or condition contained herein, provided, however, any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
7.9 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
fully in force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
7.10 Notices.
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Purchaser:
Tom Martin
654 Osos Street
San Luis Obispo, CA 93401
Fax #: 805/545-7590
with a copy to:
J. Todd Mirolla, Esq.
Andre, Morris & Buttery
1304 Pacific Street
San Luis Obispo, CA 93401
Fax #: 805/543-0752
<PAGE> 72
if to Shareholder:
M.D. Davis
13606 Taylorcrest
Houston, TX 77079
Fax #: 713/465-2773
with a copy to:
Michael L. Bengtson, Esq.
Thompson & Knight
1200 San Jacinto Center
98 San Jacinto Boulevard
Austin, TX 78701
Fax #: 512/469-6180
7.10 Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts executed
in and to be performed in Texas without regard to any principles of choice of
law or conflicts of law of such State.
7.11 Headings.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.12 Counterparts.
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when as executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
<PAGE> 73
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
PURCHASER:
By:
----------------------------------
Name: E. Thomas Martin
Title: Manager
SHAREHOLDER:
--------------------------------------
M.D. Davis
<PAGE> 74
SIDE LETTER AGREEMENT
This Side Letter Agreement (this "Agreement"), is entered into this
_____ day of _____, _______, between MVII, LLC, a limited liability company
formed under the laws of the State of California ("Purchaser"), and Douglas A.
Smith ("Shareholder").
WHEREAS, Shareholder beneficially owns and has dispositive power over
__________ shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of DSI Toys, Inc., a Texas corporation (the "Company");
WHEREAS, concurrently herewith, the Company and Purchaser are entering
into a Stock Purchase Agreement dated as of ___________ (the "Stock Purchase
Agreement"), pursuant to which Purchaser has agreed, among other things, to make
a cash tender offer (the "Offer") for up to 1,600,000 shares of Common Stock of
the Company at $4.38 per share (or any higher price paid in the Offer, the
"Offer Price"), net to the seller in cash;
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Stock Purchase Agreement, Purchaser has required that Shareholder agree, and
in order to induce Purchaser to enter into the Stock Purchase Agreement,
Shareholder has agreed, among other things, to tender the Shares into the Offer;
and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Tender of Shares.
(a) Shareholder agrees, in the event the Minimum Condition is
not met as of the initial scheduled expiration date of the Offer, to tender and
sell to Purchaser, free and clear of all mortgages, pledges, security interests,
encumbrances, liens, options, debts, charges, claims and restrictions of any
kind, such number of Shareholder's Shares, pursuant to the terms of the Offer,
except where such sales in response to the Offer might result in liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), so that the number of Shares tendered by Shareholder and all
other shareholders of the Company shall meet the Minimum Condition. Shareholder
agrees that Shareholder shall deliver to the depository for the Offer for
receipt prior to the initial scheduled expiration date of the Offer, either a
letter of transmittal together with the certificates for the Shares, if
available, or a "Notice of Guaranteed Delivery," if the Shares are not
available. Shareholder agrees not to withdraw any Shares tendered into the
Offer. Nothing contained herein shall prevent Shareholder from tendering any or
all Shares, even if the Minimum Condition is otherwise met, subject to the pro
rata reduction as described in Section 1(b) of this Agreement.
<PAGE> 75
(b) In the event more than 1,600,000 shares of Common Stock
are tendered into the Offer, the Shares tendered by the Shareholder shall be
subject to a pro rata reduction to the same extent as the shares of Common Stock
tendered by any other shareholder in the Offer, as required by the Stock
Purchase Agreement.
2. Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Purchaser as follows:
2.1 Title.
Shareholder is the owner (both beneficially and of record) of
the Shares. Except for the Shares and as set forth in Exhibit 2.1 attached
hereto, Shareholder is not the record or beneficial owner of any shares of, and
does not have any other rights of any nature to acquire any additional shares
of, capital stock of the Company. Shareholder will deliver in accordance with
the terms of this Agreement, all of the Shares, free and clear of all security
interests, liens, claims, pledges, options, restrictions, rights of first
refusal, agreements, limitations on Shareholder's voting rights, charges and
other encumbrances of any nature whatsoever, except for those rights and
limitations contemplated by the Stock Purchase Agreement and the Other
Agreements. Except as provided in that certain Shareholders' and Voting
Agreement of DSI Toys, Inc. dated as of even date herewith among the Company,
Purchaser, and the DSI Group, Shareholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to any of the
Shares. The Shareholder has sole power of disposition with respect to all of the
Shares.
2.2 Authority Relative to This Agreement.
Shareholder has all necessary power and authority to execute
and deliver this Agreement, to perform Shareholder's obligations hereunder and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Shareholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a legal, valid
and binding obligation of Shareholder enforceable against Shareholder in
accordance with its terms.
2.3 No Conflict.
The execution and delivery of this Agreement by Shareholder
does not, and the performance of this Agreement by Shareholder will not, (a)
except for any filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), require any consent,
approval, authorization or permit of, or filing with or notification to , any
governmental or regulatory authority, domestic or foreign, or (b) conflict with,
violate or result in any breach of or constitute a default under (or an event
which with notice or lapse of time or both would become a default under) any
agreement, judgment, injunction, order, law, rule, regulation, decree or
arrangement to which Shareholder or the Company is a party or is bound.
<PAGE> 76
2.4 Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Shareholder or the Company.
2.5 Absence of Claims.
Shareholder has no claims, demands, actions, causes of action,
suits, damages, or losses of any nature whatsoever, whether asserted or
unasserted, as a result of actions or omissions through the date of this
Agreement, including without limitation any claims of alleged employment
discrimination, either as a result of the negotiated and specifically agreed to
separation of the Shareholders's employment with the Company or otherwise, under
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, the Americans with Disabilities Act, any other federal, state or local
statute, rule, ordinance, or regulation, as well as any claims for alleged
wrongful discharge, negligent or intentional infliction of emotional distress,
breach of contract, including, without limitation, the breach of any employment
agreement between the Company and the Shareholder, or any other claims sounding
in tort, contract, or any other unlawful or wrongful behavior ("Claims"), and
knows of no set of facts which, currently or with the passage of time, would
give rise to any Claims by the Shareholder, against the Company, any of its
subsidiaries or any affiliated companies and businesses thereof, or any of their
successors, assigns, officers, owners, directors, agents, representatives,
attorneys or employees (the "Company Affiliates").
3. Representations and Warranties of Purchaser.
3.1 Authority Relative to This Agreement.
Purchaser has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly and
validly executed and delivered by Purchaser and, assuming the due authorization,
execution and delivery by Shareholder, constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
3.2 No Conflict.
The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, (a) except for
any filings required under the HSR Act, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, (b) conflict with or violate the
governing instruments of Purchaser, (c) conflict with, violate or result in any
breach of or constitute a default under (or an event which with notice or lapse
of time or both would become a default under) any agreement, judgment,
injunction, order, law, rule, regulation, decree or arrangement applicable to
Purchaser or by which any property or asset of Purchaser is bound or affected,
other than, in the case of clause (c), any such conflicts, violations, breaches
or defaults that, individually
<PAGE> 77
or in the aggregate, would not materially impair the ability of Purchaser to
perform its obligations hereunder.
3.3 Brokers.
Except for Gerard, Klauer, Mattison & Co., Inc. and other
broker-dealers Purchaser may elect to retain, all of whose fees will be paid by
Purchaser, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Purchaser.
3.4 Investment Intent.
Purchaser hereby represents that any securities it purchases
pursuant to this Agreement are being purchased for its own account for
investment and not with a view to, or for sale in connection with, any public
distribution thereof.
4. Covenant of Shareholder.
Shareholder shall not, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information), entertain or
consider any Takeover Proposal from any Person other than Purchaser or engage in
or continue discussions or negotiations relating to any Takeover Proposal,
except that the provisions of this Section 4 shall not restrict the
Shareholder's ability to act in such Shareholder's capacity as a director of the
Company in accordance with Section 5.2 of the Stock Purchase Agreement.
Shareholder shall immediately cease any existing activities, discussions or
negotiations by Shareholder or any investment banker, attorney, accountant or
other advisor or representative of Shareholder with parties conducted heretofore
with respect to any of the foregoing.
5. Additional Covenants of Shareholder.
Shareholder hereby covenants and agrees that until the earlier of the
Second Closing or the termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof, except as contemplated by this Agreement
and except pursuant to the Offer, Shareholder shall not, and shall not offer or
agree to, sell, transfer, tender, assign, or otherwise dispose of, or create or
permit to exist any restriction, right of first refusal, agreement or limitation
on Shareholder's voting rights, with respect to, the Shares now owned or any
other shares that may hereafter be acquired by Shareholder, other than as
contemplated by the Stock Purchase Agreement and the Other Agreements.
6. Termination.
This Agreement shall terminate automatically on the earlier to occur of
the Second Closing or termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof.
<PAGE> 78
7. Miscellaneous.
7.1 Expenses.
All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
7.2 Survival.
The representations and warranties of the Shareholder
contained in this Agreement shall survive the termination of this Agreement only
upon the occurrence of the Second Closing until the fourth anniversary of the
Second Closing.
7.3 Further Assurances.
Shareholder and Purchaser shall execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7.4 Specific Performance.
The parties hereto agree that irreparable damage would occur
in the event any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
7.5 Entire Agreement.
This Agreement constitutes the entire agreement between
Purchaser and Shareholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between Purchaser and Shareholder with respect to the subject matter hereof.
7.6 Assignment.
This Agreement shall not be assigned by operation of law or
otherwise.
7.7 Parties in Interest.
This Agreement shall be binding upon, inure solely to the
benefit of, and be enforceable by, the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
7.8 Amendment; Waiver.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto. Any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
<PAGE> 79
agreement or condition contained herein, provided, however, any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
7.9 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
fully in force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
7.10 Notices.
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Purchaser:
Tom Martin
654 Osos Street
San Luis Obispo, CA 93401
Fax #: 805/545-7590
with a copy to:
J. Todd Mirolla, Esq.
Andre, Morris & Buttery
1304 Pacific Street
San Luis Obispo, CA 93401
Fax #: 805/543-0752
<PAGE> 80
if to Shareholder:
Douglas A. Smith
6829 Golf Drive
Dallas, TX 75205
Fax #: 214/980-1503
with a copy to:
Michael L. Bengtson, Esq.
Thompson & Knight
1200 San Jacinto Center
98 San Jacinto Boulevard
Austin, TX 78701
Fax #: 512/469-6180
7.10 Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts executed
in and to be performed in Texas without regard to any principles of choice of
law or conflicts of law of such State.
7.11 Headings.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.12 Counterparts.
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when as executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
<PAGE> 81
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
PURCHASER:
By:
----------------------------------
Name: E. Thomas Martin
Title: Manager
SHAREHOLDER:
-------------------------------------
Douglas A. Smith
<PAGE> 82
SIDE LETTER AGREEMENT
This Side Letter Agreement (this "Agreement"), is entered into
this______ day of _______, ________, between MVII, LLC, a limited liability
company formed under the laws of the State of California ("Purchaser"), and Rust
Capital, Ltd., a Texas limited partnership ("Shareholder").
WHEREAS, Shareholder beneficially owns and has dispositive power over
__________ shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of DSI Toys, Inc., a Texas corporation (the "Company");
WHEREAS, concurrently herewith, the Company and Purchaser are entering
into a Stock Purchase Agreement dated as of __________ (the "Stock Purchase
Agreement"), pursuant to which Purchaser has agreed, among other things, to make
a cash tender offer (the "Offer") for up to 1,600,000 shares of Common Stock of
the Company at $4.38 per share (or any higher price paid in the Offer, the
"Offer Price"), net to the seller in cash;
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Stock Purchase Agreement, Purchaser has required that Shareholder agree, and
in order to induce Purchaser to enter into the Stock Purchase Agreement,
Shareholder has agreed, among other things, to tender the Shares into the Offer;
and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Tender of Shares.
(a) Shareholder agrees, in the event the Minimum Condition is
not met as of the initial scheduled expiration date of the Offer, to tender and
sell to Purchaser, free and clear of all mortgages, pledges, security interests,
encumbrances, liens, options, debts, charges, claims and restrictions of any
kind, such number of Shareholder's Shares, pursuant to the terms of the Offer,
except where such sales in response to the Offer might result in liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), so that the number of Shares tendered by Shareholder and all
other shareholders of the Company shall meet the Minimum Condition. Shareholder
agrees that Shareholder shall deliver to the depository for the Offer for
receipt prior to the initial scheduled expiration date of the Offer, either a
letter of transmittal together with the certificates for the Shares, if
available, or a "Notice of Guaranteed Delivery," if the Shares are not
available. Shareholder agrees not to withdraw any Shares tendered into the
Offer. Nothing contained herein shall prevent Shareholder from tendering any or
all Shares, even if the Minimum Condition is otherwise met, subject to the pro
rata reduction as described in Section 1(b) of this Agreement.
<PAGE> 83
(b) In the event more than 1,600,000 shares of Common Stock
are tendered into the Offer, the Shares tendered by the Shareholder shall be
subject to a pro rata reduction to the same extent as the shares of Common Stock
tendered by any other shareholder in the Offer, as required by the Stock
Purchase Agreement.
2. Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Purchaser as follows:
2.1 Title.
Shareholder is the owner (both beneficially and of record) of
the Shares. Except for the Shares and as set forth in Exhibit 2.1 attached
hereto, Shareholder is not the record or beneficial owner of any shares of, and
does not have any other rights of any nature to acquire any additional shares
of, capital stock of the Company. Shareholder will deliver in accordance with
the terms of this Agreement, all of the Shares, free and clear of all security
interests, liens, claims, pledges, options, restrictions, rights of first
refusal, agreements, limitations on Shareholder's voting rights, charges and
other encumbrances of any nature whatsoever, except for those rights and
limitations contemplated by the Stock Purchase Agreement and the Other
Agreements. Except as provided in that certain Shareholders' and Voting
Agreement of DSI Toys, Inc. dated as of even date herewith among the Company,
Purchaser, and the DSI Group, Shareholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to any of the
Shares. The Shareholder has sole power of disposition with respect to all of the
Shares.
2.2 Authority Relative to This Agreement.
Shareholder has all necessary power and authority to execute
and deliver this Agreement, to perform Shareholder's obligations hereunder and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Shareholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a legal, valid
and binding obligation of Shareholder enforceable against Shareholder in
accordance with its terms.
2.3 No Conflict.
The execution and delivery of this Agreement by Shareholder
does not, and the performance of this Agreement by Shareholder will not, (a)
except for any filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), require any consent,
approval, authorization or permit of, or filing with or notification to , any
governmental or regulatory authority, domestic or foreign, or (b) conflict with,
violate or result in any breach of or constitute a default under (or an event
which with notice or lapse of time or both would become a default under) any
agreement, judgment, injunction, order, law, rule, regulation, decree or
arrangement to which Shareholder or the Company is a party or is bound.
<PAGE> 84
2.4 Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Shareholder or the Company.
2.5 Absence of Claims.
Shareholder has no claims, demands, actions, causes of action,
suits, damages, or losses of any nature whatsoever, whether asserted or
unasserted, as a result of actions or omissions through the date of this
Agreement, including without limitation any claims of alleged employment
discrimination, either as a result of the negotiated and specifically agreed to
separation of the Shareholders's employment with the Company or otherwise, under
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, the Americans with Disabilities Act, any other federal, state or local
statute, rule, ordinance, or regulation, as well as any claims for alleged
wrongful discharge, negligent or intentional infliction of emotional distress,
breach of contract, including, without limitation, the breach of any employment
agreement between the Company and the Shareholder, or any other claims sounding
in tort, contract, or any other unlawful or wrongful behavior ("Claims"), and
knows of no set of facts which, currently or with the passage of time, would
give rise to any Claims by the Shareholder, against the Company, any of its
subsidiaries or any affiliated companies and businesses thereof, or any of their
successors, assigns, officers, owners, directors, agents, representatives,
attorneys or employees (the "Company Affiliates").
3. Representations and Warranties of Purchaser.
3.1 Authority Relative to This Agreement.
Purchaser has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly and
validly executed and delivered by Purchaser and, assuming the due authorization,
execution and delivery by Shareholder, constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
3.2 No Conflict.
The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, (a) except for
any filings required under the HSR Act, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, (b) conflict with or violate the
governing instruments of Purchaser, (c) conflict with, violate or result in any
breach of or constitute a default under (or an event which with notice or lapse
of time or both would become a default under) any agreement, judgment,
injunction, order, law, rule, regulation, decree or arrangement applicable to
Purchaser or by which any property or asset of Purchaser is bound or affected,
other than, in the case of clause (c), any such conflicts, violations, breaches
or defaults that, individually
<PAGE> 85
or in the aggregate, would not materially impair the ability of Purchaser to
perform its obligations hereunder.
3.3 Brokers.
Except for Gerard, Klauer, Mattison & Co., Inc. and other
broker-dealers Purchaser may elect to retain, all of whose fees will be paid by
Purchaser, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Purchaser.
3.4 Investment Intent.
Purchaser hereby represents that any securities it purchases
pursuant to this Agreement are being purchased for its own account for
investment and not with a view to, or for sale in connection with, any public
distribution thereof.
4. Covenant of Shareholder.
Shareholder shall not, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information), entertain or
consider any Takeover Proposal from any Person other than Purchaser or engage in
or continue discussions or negotiations relating to any Takeover Proposal,
except that the provisions of this Section 4 shall not restrict the
Shareholder's ability to act in such Shareholder's capacity as a director of the
Company in accordance with Section 5.2 of the Stock Purchase Agreement.
Shareholder shall immediately cease any existing activities, discussions or
negotiations by Shareholder or any investment banker, attorney, accountant or
other advisor or representative of Shareholder with parties conducted heretofore
with respect to any of the foregoing.
5. Additional Covenants of Shareholder.
Shareholder hereby covenants and agrees that until the earlier of the
Second Closing or the termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof, except as contemplated by this Agreement
and except pursuant to the Offer, Shareholder shall not, and shall not offer or
agree to, sell, transfer, tender, assign, or otherwise dispose of, or create or
permit to exist any restriction, right of first refusal, agreement or limitation
on Shareholder's voting rights, with respect to, the Shares now owned or any
other shares that may hereafter be acquired by Shareholder, other than as
contemplated by the Stock Purchase Agreement and the Other Agreements.
6. Termination.
This Agreement shall terminate automatically on the earlier to occur of
the Second Closing or termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof.
<PAGE> 86
7. Miscellaneous.
7.1 Expenses.
All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
7.2 Survival.
The representations and warranties of the Shareholder
contained in this Agreement shall survive the termination of this Agreement only
upon the occurrence of the Second Closing until the fourth anniversary of the
Second Closing.
7.3 Further Assurances.
Shareholder and Purchaser shall execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7.4 Specific Performance.
The parties hereto agree that irreparable damage would occur
in the event any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
7.5 Entire Agreement.
This Agreement constitutes the entire agreement between
Purchaser and Shareholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between Purchaser and Shareholder with respect to the subject matter hereof.
7.6 Assignment.
This Agreement shall not be assigned by operation of law or
otherwise.
7.7 Parties in Interest.
This Agreement shall be binding upon, inure solely to the
benefit of, and be enforceable by, the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
7.8 Amendment; Waiver.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto. Any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
<PAGE> 87
agreement or condition contained herein, provided, however, any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
7.9 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
fully in force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
7.10 Notices.
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Purchaser:
Tom Martin
654 Osos Street
San Luis Obispo, CA 93401
Fax #: 805/545-7590
with a copy to:
J. Todd Mirolla, Esq.
Andre, Morris & Buttery
1304 Pacific Street
San Luis Obispo, CA 93401
Fax #: 805/543-0752
<PAGE> 88
if to Shareholder:
Rust Capital, Ltd.
c/o Jack R. Crosby, General Partner
327 Congress Avenue, Suite 350
Austin, TX 78701
Fax #: 512/474-1610
with a copy to:
Michael L. Bengtson, Esq.
Thompson & Knight
1200 San Jacinto Center
98 San Jacinto Boulevard
Austin, TX 78701
Fax #: 512/469-6180
7.10 Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts executed
in and to be performed in Texas without regard to any principles of choice of
law or conflicts of law of such State.
7.11 Headings.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.12 Counterparts.
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when as executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
<PAGE> 89
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
PURCHASER:
By:
-----------------------------------
Name: E. Thomas Martin
Title: Manager
SHAREHOLDER:
RUST CAPITAL, LTD.,
a Texas limited partnership
By: Rust Investment Corporation,
its general partner
By:
-----------------------------------
Jack R. Crosby, President
<PAGE> 90
SIDE LETTER AGREEMENT
This Side Letter Agreement (this "Agreement"), is entered into this
_______ day of _______, _______, between MVII, LLC, a limited liability company
formed under the laws of the State of California ("Purchaser"), and Joseph N.
Matlock ("Shareholder").
WHEREAS, Shareholder beneficially owns and has dispositive power over
__________ shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of DSI Toys, Inc., a Texas corporation (the "Company");
WHEREAS, concurrently herewith, the Company and Purchaser are entering
into a Stock Purchase Agreement dated as of ____________ (the "Stock Purchase
Agreement"), pursuant to which Purchaser has agreed, among other things, to make
a cash tender offer (the "Offer") for up to 1,600,000 shares of Common Stock of
the Company at $4.38 per share (or any higher price paid in the Offer, the
"Offer Price"), net to the seller in cash;
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Stock Purchase Agreement, Purchaser has required that Shareholder agree, and
in order to induce Purchaser to enter into the Stock Purchase Agreement,
Shareholder has agreed, among other things, to tender the Shares into the Offer;
and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Tender of Shares.
(a) Shareholder agrees, in the event the Minimum Condition is
not met as of the initial scheduled expiration date of the Offer, to tender and
sell to Purchaser, free and clear of all mortgages, pledges, security interests,
encumbrances, liens, options, debts, charges, claims and restrictions of any
kind, such number of Shareholder's Shares, pursuant to the terms of the Offer,
except where such sales in response to the Offer might result in liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), so that the number of Shares tendered by Shareholder and all
other shareholders of the Company shall meet the Minimum Condition. Shareholder
agrees that Shareholder shall deliver to the depository for the Offer for
receipt prior to the initial scheduled expiration date of the Offer, either a
letter of transmittal together with the certificates for the Shares, if
available, or a "Notice of Guaranteed Delivery," if the Shares are not
available. Shareholder agrees not to withdraw any Shares tendered into the
Offer. Nothing contained herein shall prevent Shareholder from tendering any or
all Shares, even if the Minimum Condition is otherwise met, subject to the pro
rata reduction as described in Section 1(b) of this Agreement.
<PAGE> 91
(b) In the event more than 1,600,000 shares of Common Stock
are tendered into the Offer, the Shares tendered by the Shareholder shall be
subject to a pro rata reduction to the same extent as the shares of Common Stock
tendered by any other shareholder in the Offer, as required by the Stock
Purchase Agreement.
2. Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Purchaser as follows:
2.1 Title.
Shareholder is the owner (both beneficially and of record) of
the Shares. Except for the Shares and as set forth in Exhibit 2.1 attached
hereto, Shareholder is not the record or beneficial owner of any shares of, and
does not have any other rights of any nature to acquire any additional shares
of, capital stock of the Company. Shareholder will deliver in accordance with
the terms of this Agreement, all of the Shares, free and clear of all security
interests, liens, claims, pledges, options, restrictions, rights of first
refusal, agreements, limitations on Shareholder's voting rights, charges and
other encumbrances of any nature whatsoever, except for those rights and
limitations contemplated by the Stock Purchase Agreement and the Other
Agreements. Except as provided in that certain Shareholders' and Voting
Agreement of DSI Toys, Inc. dated as of even date herewith among the Company,
Purchaser, and the DSI Group, Shareholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to any of the
Shares. The Shareholder has sole power of disposition with respect to all of the
Shares.
2.2 Authority Relative to This Agreement.
Shareholder has all necessary power and authority to execute
and deliver this Agreement, to perform Shareholder's obligations hereunder and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Shareholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a legal, valid
and binding obligation of Shareholder enforceable against Shareholder in
accordance with its terms.
2.3 No Conflict.
The execution and delivery of this Agreement by Shareholder
does not, and the performance of this Agreement by Shareholder will not, (a)
except for any filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), require any consent,
approval, authorization or permit of, or filing with or notification to , any
governmental or regulatory authority, domestic or foreign, or (b) conflict with,
violate or result in any breach of or constitute a default under (or an event
which with notice or lapse of time or both would become a default under) any
agreement, judgment, injunction, order, law, rule, regulation, decree or
arrangement to which Shareholder or the Company is a party or is bound.
<PAGE> 92
2.4 Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Shareholder or the Company.
2.5 Absence of Claims.
Shareholder has no claims, demands, actions, causes of action,
suits, damages, or losses of any nature whatsoever, whether asserted or
unasserted, as a result of actions or omissions through the date of this
Agreement, including without limitation any claims of alleged employment
discrimination, either as a result of the negotiated and specifically agreed to
separation of the Shareholders's employment with the Company or otherwise, under
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, the Americans with Disabilities Act, any other federal, state or local
statute, rule, ordinance, or regulation, as well as any claims for alleged
wrongful discharge, negligent or intentional infliction of emotional distress,
breach of contract, including, without limitation, the breach of any employment
agreement between the Company and the Shareholder, or any other claims sounding
in tort, contract, or any other unlawful or wrongful behavior ("Claims"), and
knows of no set of facts which, currently or with the passage of time, would
give rise to any Claims by the Shareholder, against the Company, any of its
subsidiaries or any affiliated companies and businesses thereof, or any of their
successors, assigns, officers, owners, directors, agents, representatives,
attorneys or employees (the "Company Affiliates").
3. Representations and Warranties of Purchaser.
3.1 Authority Relative to This Agreement.
Purchaser has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly and
validly executed and delivered by Purchaser and, assuming the due authorization,
execution and delivery by Shareholder, constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
3.2 No Conflict.
The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, (a) except for
any filings required under the HSR Act, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, (b) conflict with or violate the
governing instruments of Purchaser, (c) conflict with, violate or result in any
breach of or constitute a default under (or an event which with notice or lapse
of time or both would become a default under) any agreement, judgment,
injunction, order, law, rule, regulation, decree or arrangement applicable to
Purchaser or by which any property or asset of Purchaser is bound or affected,
other than, in the case of clause (c), any such conflicts, violations, breaches
or defaults that, individually
<PAGE> 93
or in the aggregate, would not materially impair the ability of Purchaser to
perform its obligations hereunder.
3.3 Brokers.
Except for Gerard, Klauer, Mattison & Co., Inc. and other
broker-dealers Purchaser may elect to retain, all of whose fees will be paid by
Purchaser, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Purchaser.
3.4 Investment Intent.
Purchaser hereby represents that any securities it purchases
pursuant to this Agreement are being purchased for its own account for
investment and not with a view to, or for sale in connection with, any public
distribution thereof.
4. Covenant of Shareholder.
Shareholder shall not, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information), entertain or
consider any Takeover Proposal from any Person other than Purchaser or engage in
or continue discussions or negotiations relating to any Takeover Proposal,
except that the provisions of this Section 4 shall not restrict the
Shareholder's ability to act in such Shareholder's capacity as a director of the
Company in accordance with Section 5.2 of the Stock Purchase Agreement.
Shareholder shall immediately cease any existing activities, discussions or
negotiations by Shareholder or any investment banker, attorney, accountant or
other advisor or representative of Shareholder with parties conducted heretofore
with respect to any of the foregoing.
5. Additional Covenants of Shareholder.
Shareholder hereby covenants and agrees that until the earlier of the
Second Closing or the termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof, except as contemplated by this Agreement
and except pursuant to the Offer, Shareholder shall not, and shall not offer or
agree to, sell, transfer, tender, assign, or otherwise dispose of, or create or
permit to exist any restriction, right of first refusal, agreement or limitation
on Shareholder's voting rights, with respect to, the Shares now owned or any
other shares that may hereafter be acquired by Shareholder, other than as
contemplated by the Stock Purchase Agreement and the Other Agreements.
6. Termination.
This Agreement shall terminate automatically on the earlier to occur of
the Second Closing or termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof.
<PAGE> 94
7. Miscellaneous.
7.1 Expenses.
All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
7.2 Survival.
The representations and warranties of the Shareholder
contained in this Agreement shall survive the termination of this Agreement only
upon the occurrence of the Second Closing until the fourth anniversary of the
Second Closing.
7.3 Further Assurances.
Shareholder and Purchaser shall execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7.4 Specific Performance.
The parties hereto agree that irreparable damage would occur
in the event any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
7.5 Entire Agreement.
This Agreement constitutes the entire agreement between
Purchaser and Shareholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between Purchaser and Shareholder with respect to the subject matter hereof.
7.6 Assignment.
This Agreement shall not be assigned by operation of law or
otherwise.
7.7 Parties in Interest.
This Agreement shall be binding upon, inure solely to the
benefit of, and be enforceable by, the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
7.8 Amendment; Waiver.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto. Any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
<PAGE> 95
agreement or condition contained herein, provided, however, any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
7.9 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
fully in force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
7.10 Notices.
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Purchaser:
Tom Martin
654 Osos Street
San Luis Obispo, CA 93401
Fax #: 805/545-7590
with a copy to:
J. Todd Mirolla, Esq.
Andre, Morris & Buttery
1304 Pacific Street
San Luis Obispo, CA 93401
Fax #: 805/543-0752
<PAGE> 96
if to Shareholder:
Joseph N. Matlock
515 Congress Avenue, Suite 2626
Austin, TX 78701
Fax #: 512/346-4404
with a copy to:
Michael L. Bengtson, Esq.
Thompson & Knight
1200 San Jacinto Center
98 San Jacinto Boulevard
Austin, TX 78701
Fax #: 512/469-6180
7.10 Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts executed
in and to be performed in Texas without regard to any principles of choice of
law or conflicts of law of such State.
7.11 Headings.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.12 Counterparts.
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when as executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
<PAGE> 97
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
PURCHASER:
By:
------------------------------------
Name: E. Thomas Martin
Title: Manager
SHAREHOLDER:
---------------------------------------
Joseph N. Matlock
<PAGE> 98
SIDE LETTER AGREEMENT
This Side Letter Agreement (this "Agreement"), is entered into this
______ day of ______, _______, between MVII, LLC, a limited liability company
formed under the laws of the State of California ("Purchaser"), and Barry B.
Conrad ("Shareholder").
WHEREAS, Shareholder beneficially owns and has dispositive power over
__________ shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of DSI Toys, Inc., a Texas corporation (the "Company");
WHEREAS, concurrently herewith, the Company and Purchaser are entering
into a Stock Purchase Agreement dated as of ____________ (the "Stock Purchase
Agreement"), pursuant to which Purchaser has agreed, among other things, to make
a cash tender offer (the "Offer") for up to 1,600,000 shares of Common Stock of
the Company at $4.38 per share (or any higher price paid in the Offer, the
"Offer Price"), net to the seller in cash;
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Stock Purchase Agreement, Purchaser has required that Shareholder agree, and
in order to induce Purchaser to enter into the Stock Purchase Agreement,
Shareholder has agreed, among other things, to tender the Shares into the Offer;
and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Tender of Shares.
(a) Shareholder agrees, in the event the Minimum Condition is
not met as of the initial scheduled expiration date of the Offer, to tender and
sell to Purchaser, free and clear of all mortgages, pledges, security interests,
encumbrances, liens, options, debts, charges, claims and restrictions of any
kind, such number of Shareholder's Shares, pursuant to the terms of the Offer,
except where such sales in response to the Offer might result in liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), so that the number of Shares tendered by Shareholder and all
other shareholders of the Company shall meet the Minimum Condition. Shareholder
agrees that Shareholder shall deliver to the depository for the Offer for
receipt prior to the initial scheduled expiration date of the Offer, either a
letter of transmittal together with the certificates for the Shares, if
available, or a "Notice of Guaranteed Delivery," if the Shares are not
available. Shareholder agrees not to withdraw any Shares tendered into the
Offer. Nothing contained herein shall prevent Shareholder from tendering any or
all Shares, even if the Minimum Condition is otherwise met, subject to the pro
rata reduction as described in Section 1(b) of this Agreement.
<PAGE> 99
(b) In the event more than 1,600,000 shares of Common Stock
are tendered into the Offer, the Shares tendered by the Shareholder shall be
subject to a pro rata reduction to the same extent as the shares of Common Stock
tendered by any other shareholder in the Offer, as required by the Stock
Purchase Agreement.
2. Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Purchaser as follows:
2.1 Title.
Shareholder is the owner (both beneficially and of record) of
the Shares. Except for the Shares and as set forth in Exhibit 2.1 attached
hereto, Shareholder is not the record or beneficial owner of any shares of, and
does not have any other rights of any nature to acquire any additional shares
of, capital stock of the Company. Shareholder will deliver in accordance with
the terms of this Agreement, all of the Shares, free and clear of all security
interests, liens, claims, pledges, options, restrictions, rights of first
refusal, agreements, limitations on Shareholder's voting rights, charges and
other encumbrances of any nature whatsoever, except for those rights and
limitations contemplated by the Stock Purchase Agreement and the Other
Agreements. Except as provided in that certain Shareholders' and Voting
Agreement of DSI Toys, Inc. dated as of even date herewith among the Company,
Purchaser, and the DSI Group, Shareholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to any of the
Shares. The Shareholder has sole power of disposition with respect to all of the
Shares.
2.2 Authority Relative to This Agreement.
Shareholder has all necessary power and authority to execute
and deliver this Agreement, to perform Shareholder's obligations hereunder and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Shareholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a legal, valid
and binding obligation of Shareholder enforceable against Shareholder in
accordance with its terms.
2.3 No Conflict.
The execution and delivery of this Agreement by Shareholder
does not, and the performance of this Agreement by Shareholder will not, (a)
except for any filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), require any consent,
approval, authorization or permit of, or filing with or notification to , any
governmental or regulatory authority, domestic or foreign, or (b) conflict with,
violate or result in any breach of or constitute a default under (or an event
which with notice or lapse of time or both would become a default under) any
agreement, judgment, injunction, order, law, rule, regulation, decree or
arrangement to which Shareholder or the Company is a party or is bound.
<PAGE> 100
2.4 Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Shareholder or the Company.
2.5 Absence of Claims.
Shareholder has no claims, demands, actions, causes of action,
suits, damages, or losses of any nature whatsoever, whether asserted or
unasserted, as a result of actions or omissions through the date of this
Agreement, including without limitation any claims of alleged employment
discrimination, either as a result of the negotiated and specifically agreed to
separation of the Shareholders's employment with the Company or otherwise, under
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, the Americans with Disabilities Act, any other federal, state or local
statute, rule, ordinance, or regulation, as well as any claims for alleged
wrongful discharge, negligent or intentional infliction of emotional distress,
breach of contract, including, without limitation, the breach of any employment
agreement between the Company and the Shareholder, or any other claims sounding
in tort, contract, or any other unlawful or wrongful behavior ("Claims"), and
knows of no set of facts which, currently or with the passage of time, would
give rise to any Claims by the Shareholder, against the Company, any of its
subsidiaries or any affiliated companies and businesses thereof, or any of their
successors, assigns, officers, owners, directors, agents, representatives,
attorneys or employees (the "Company Affiliates").
3. Representations and Warranties of Purchaser.
3.1 Authority Relative to This Agreement.
Purchaser has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly and
validly executed and delivered by Purchaser and, assuming the due authorization,
execution and delivery by Shareholder, constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
3.2 No Conflict.
The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, (a) except for
any filings required under the HSR Act, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, (b) conflict with or violate the
governing instruments of Purchaser, (c) conflict with, violate or result in any
breach of or constitute a default under (or an event which with notice or lapse
of time or both would become a default under) any agreement, judgment,
injunction, order, law, rule, regulation, decree or arrangement applicable to
Purchaser or by which any property or asset of Purchaser is bound or affected,
other than, in the case of clause (c), any such conflicts, violations, breaches
or defaults that, individually
<PAGE> 101
or in the aggregate, would not materially impair the ability of Purchaser to
perform its obligations hereunder.
3.3 Brokers.
Except for Gerard, Klauer, Mattison & Co., Inc. and other
broker-dealers Purchaser may elect to retain, all of whose fees will be paid by
Purchaser, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Purchaser.
3.4 Investment Intent.
Purchaser hereby represents that any securities it purchases
pursuant to this Agreement are being purchased for its own account for
investment and not with a view to, or for sale in connection with, any public
distribution thereof.
4. Covenant of Shareholder.
Shareholder shall not, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information), entertain or
consider any Takeover Proposal from any Person other than Purchaser or engage in
or continue discussions or negotiations relating to any Takeover Proposal,
except that the provisions of this Section 4 shall not restrict the
Shareholder's ability to act in such Shareholder's capacity as a director of the
Company in accordance with Section 5.2 of the Stock Purchase Agreement.
Shareholder shall immediately cease any existing activities, discussions or
negotiations by Shareholder or any investment banker, attorney, accountant or
other advisor or representative of Shareholder with parties conducted heretofore
with respect to any of the foregoing.
5. Additional Covenants of Shareholder.
Shareholder hereby covenants and agrees that until the earlier of the
Second Closing or the termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof, except as contemplated by this Agreement
and except pursuant to the Offer, Shareholder shall not, and shall not offer or
agree to, sell, transfer, tender, assign, or otherwise dispose of, or create or
permit to exist any restriction, right of first refusal, agreement or limitation
on Shareholder's voting rights, with respect to, the Shares now owned or any
other shares that may hereafter be acquired by Shareholder, other than as
contemplated by the Stock Purchase Agreement and the Other Agreements.
6. Termination.
This Agreement shall terminate automatically on the earlier to occur of
the Second Closing or termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof.
<PAGE> 102
7. Miscellaneous.
7.1 Expenses.
All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
7.2 Survival.
The representations and warranties of the Shareholder
contained in this Agreement shall survive the termination of this Agreement only
upon the occurrence of the Second Closing until the fourth anniversary of the
Second Closing.
7.3 Further Assurances.
Shareholder and Purchaser shall execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7.4 Specific Performance.
The parties hereto agree that irreparable damage would occur
in the event any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
7.5 Entire Agreement.
This Agreement constitutes the entire agreement between
Purchaser and Shareholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between Purchaser and Shareholder with respect to the subject matter hereof.
7.6 Assignment.
This Agreement shall not be assigned by operation of law or
otherwise.
7.7 Parties in Interest.
This Agreement shall be binding upon, inure solely to the
benefit of, and be enforceable by, the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
7.8 Amendment; Waiver.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto. Any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
<PAGE> 103
agreement or condition contained herein, provided, however, any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
7.9 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
fully in force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
7.10 Notices.
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Purchaser:
Tom Martin
654 Osos Street
San Luis Obispo, CA 93401
Fax #: 805/545-7590
with a copy to:
J. Todd Mirolla, Esq.
Andre, Morris & Buttery
1304 Pacific Street
San Luis Obispo, CA 93401
Fax #: 805/543-0752
<PAGE> 104
if to Shareholder:
Barry B. Conrad
Independent Bankers Capital Fund
1700 Pacific Avenue, Suite 1400
Dallas, TX 75201
Fax #: 214/765-1485
with a copy to:
Michael L. Bengtson, Esq.
Thompson & Knight
1200 San Jacinto Center
98 San Jacinto Boulevard
Austin, TX 78701
Fax #: 512/469-6180
7.10 Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts executed
in and to be performed in Texas without regard to any principles of choice of
law or conflicts of law of such State.
7.11 Headings.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.12 Counterparts.
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when as executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
<PAGE> 105
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
PURCHASER:
By:
----------------------------------------
Name: E. Thomas Martin
Title: Manager
SHAREHOLDER:
-------------------------------------------
Barry B. Conrad
<PAGE> 106
STOCK PURCHASE AGREEMENT EXHIBIT 1.3(a)(i)(H)
SUNROCK CAPITAL CORP.
11 PENN CENTER
1835 MARKET STREET
PHILADELPHIA, PA 19103
DSI Toys, Inc.
1100 West Sam Houston Parkway (North)
Suite A
Houston, Texas 77043
Re: Consent and waiver relating to the proposed transactions with a
California limited liability company to be formed by E. Thomas
Martin and certain of his affiliates ("Newco")
Gentlemen:
Reference is made to the Loan and Security Agreement, dated as of
February 2, 1999 (the "Loan Agreement"), by and between Sunrock Capital Corp., a
Delaware corporation ("Sunrock"), and DSI Toys, Inc., a Texas corporation (the
"Borrower"). Unless otherwise indicated, all capitalized terms used but not
defined herein shall have the meanings assigned to them in the Loan Agreement.
Borrower has notified Sunrock that E. Thomas Martin and certain of its
affiliates, acting through Newco, propose to acquire a controlling interest in
Borrower pursuant to a series of transactions (collectively, the "Proposed
Transactions") to be consummated upon substantially the terms set forth on
Exhibit B hereto (the "Term Sheet").
Absent Sunrock's prior written consent and waiver of the covenant set
forth at Section 9.7 of the Loan Agreement (limiting sales of stock) and the
Event of Default set forth at Section 10.1(j) of the Loan Agreement (providing
for an Event of Default upon the occurrence of a Change in Control), the
consummation of the Proposed Transactions would be prohibited by the terms of
the Loan Agreement.
In the exercise of its discretion as a prudent lender and subject to
fulfillment of the terms and conditions set forth on Exhibit A, Sunrock hereby:
(a) consents to the issuance or sale of stock by Borrower to Newco
for the consideration and as otherwise contemplated by the
Term Sheet; and
(b) waives the Event of Default that would occur under Section
10.1(j) of the Loan Agreement upon the Change in Control
contemplated in connection with the
<PAGE> 107
Proposed Transactions, provided that the Change in Control
occurs substantially as described in the Term Sheet.
The consent and waiver set forth in the immediately preceding sentence are
hereinafter collectively referred to as the "Transaction Consent".
In addition to the foregoing Transaction Consent, Sunrock hereby
consents to the issuance or sale of up to 566,038 shares of the common stock,
par value $.01 per share, of the Borrower to Newco for not less than net
consideration of $1.2 million; provided, however, that such issuance or sale
shall occur on or before April 15, 1999, and no Event of Default shall then be
continuing under the Loan Agreement. The consent provided in this paragraph is
hereinafter referred to as the "Initial Consent."
The Transaction Consent and the Initial Consent are referred to
collectively as the "Consent".
The Initial Consent or the Transaction Consent, as applicable, shall be
null and void ab initio if: (a) with respect to the Transaction Consent, each of
the conditions set forth on Exhibit A are not fulfilled on or before the
respective dates set forth on such exhibits, or (b) with respect to the Initial
Consent, the Borrower shall not have received net consideration of at least $1.2
million on or before April 15, 1999, or an Event of Default shall then be
continuing under the Loan Agreement.
In the event either the Initial Consent or the Transaction Consent
shall be void, Sunrock shall have the right to terminate the Loan Agreement as a
result of the occurrence or existence of any Event of Default under the Loan
Agreement on or after such date, and Sunrock shall be entitled to receive the
prepayment premium required pursuant to Section 12.1(c) thereof. It is hereby
acknowledged and agreed by Sunrock and Borrower that, in the event Borrower
shall terminate the Loan Agreement, in order to receive the benefit of Section
12.1(d), Borrower must terminate the Loan Agreement and make all required
payments, including payment in full of all Obligations and payment of the
required premium on or before June 2, 1999; otherwise, the provisions of Section
12.1(c) shall control the calculation of all prepayment premiums due and payable
upon termination of the Loan Agreement.
The Consent applies only to the Proposed Transactions as described on
the Term Sheet and the actions taken by the Borrower in connection therewith,
and nothing contained in this letter of any other communication between Sunrock
and Borrower shall be a waiver of any other present or future violation, default
or Event of Default under the Loan Agreement or any other agreements entered
into in connection with the Loan Agreement (collectively, the "Loan Documents"),
including, without limitation, any present or future default or Event of Default
arising under the Loan Agreement as a result of transactions (whether in
connection with the Proposed Transactions or otherwise) between the Borrower and
E. Thomas Martin, Newco or
2
<PAGE> 108
any other Person (collectively, "Other Violations"). Similarly, nothing
contained in this letter shall directly or indirectly in any way whatsoever
either: (i) impair, prejudice or otherwise adversely affect Sunrock's right at
any time to exercise any right, privilege or remedy in connection with the Loan
Agreement or any other Loan Document with respect to any Other Violations; (ii)
amend or alter any provision of the Loan Agreement or any other Loan Document or
any other contract or instrument, or (iii) constitute any course of dealing or
other basis for altering any obligation of Borrower under the Loan Documents or
any right, privilege or remedy of Sunrock under the Loan Agreement or any other
Loan Document or any other contract or instrument with respect to any Other
Violations. Nothing in this letter shall be construed to be a consent by Sunrock
to any Other Violations.
Except as otherwise expressly provided herein, the Loan Agreement
remains in full force and effect.
This letter may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute one and the same
instrument. Delivery of an executed copy of this letter by facsimile
transmission shall have the same effect as delivery of an originally executed
copy of this letter, whether an originally executed copy shall be delivered
subsequent thereto.
This letter agreement is executed as of the date first written above.
Very truly yours,
SUNROCK CAPITAL CORP.
By:
------------------------------------
Name: Robert J. Kancha
Title: Senior Vice President
AGREED AND ACKNOWLEDGED:
DSI TOYS, INC.
By:
------------------------------------
Name: M.D. Davis
Title: Chief Executive Officer
Dated: April 8, 1999
<PAGE> 109
EXHIBIT A
CONDITIONS PRECEDENT
Conditions to Effectiveness. The effectiveness of the consent and
waiver letter to which this Exhibit A is attached (the "Consent") is subject to
the satisfaction of the following conditions precedent, unless specifically
waived in writing by Sunrock:
(a) Borrower shall have delivered to Sunrock the Consent which this Exhibit
A is attached, duly executed by Borrower on or before April 15, 1999;
(b) No Event of Default shall have occurred and be continuing during the
time period commencing with the date of the Consent and ending upon
consummation of the Proposed Transactions, unless such Event of Default
has been specifically waived in writing by Sunrock;
(c) On or prior to the consummation of the Proposed Transactions, the Loan
Agreement shall have been amended to require that (i) Newco (as defined
in the Consent), shall at all times own, beneficially and of record, in
excess of forty-five percent (45%) of each class of capital stock then
outstanding of Borrower normally entitled to vote in the election of
directors of the Borrower, and E. Thomas Martin, in his individual
capacity or through one or more wholly-owned Persons, shall have the
ability to direct the management and policies of Newco; and (ii) no
other "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) shall be the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of more than thirty-four
percent (34%) of the total voting power of any class of stock then
outstanding of Borrower normally entitled to vote in the election of
directors.
(d) Borrower shall have received as net consideration for the issuance or
sale of common stock, par value $.01 per share, of Borrower not less
than $5 million or before July 31, 1999, which consideration shall not
be subject to any claim by or through Newco, other than Borrower's
potential liability in respect of indemnification obligations of the
type customarily undertaken by Persons engaged in transactions similar
size and nature to the Proposed Transactions.
(e) All corporate proceedings taken in connection with the Proposed
Transactions and all documents, instruments and other legal matters
incident thereto shall conform in all material respects to the Term
Sheet and Sunrock shall have been provided copies of all such
documentation.
<PAGE> 110
EXHIBIT B
DSI TOYS, INC.
TRANSACTION TERM SHEET
<TABLE>
<S> <C> <C>
Transaction: Tom Martin and affiliates (collectively, the "Martin Group")
propose to acquire a controlling interest in DSI Toys, Inc.
("DSI" or the "Company") in a transaction (the "Transaction")
with a California limited liability company to be formed by the
Martin Group ("Newco") for purposes of the Transaction. The
Martin Group will capitalize Newco to provide for the
acquisition of control of the Company.
Transaction Consideration: Aggregate consideration of $12 million in cash for a 48%
interest in DSI:
- a tender offer for 1.6 million shares of DSI common stock at $4.38 per
share in cash (in the aggregate, approximately $7.0 million).
- a direct investment of $5 million in DSI's common stock for 2,358,491
shares of DSI common stock. This sale of shares to the Martin Group will be
approved by DSI's shareholders. Post-transaction, the Martin Group
will own approximately 52% and current DSI shareholders will own 48%
of DSI's basic shares outstanding. All proceeds from Martin Group's
purchase of DSI common stock from DSI shall be used for the benefit of DSI
and not distributed to DSI shareholders or employees.
- The Martin Group may receive an additional 140,000 shares of DSI
common stock for no additional consideration in the event specified
conditions and/or covenants of the Stock Purchase Agreement are not
satisfied by DSI on or before the Closing Date.
Closing Date: The Martin Group and DSI will use their best efforts to close
the Transaction on or before May 31, 1999.
</TABLE>
-1-
<PAGE> 111
<TABLE>
<S> <C>
Right of First Refusal: As a condition of the Transaction, the Martin Group will have
a right of first refusal to purchase all of the DSI common stock
holdings of the following five (5) individuals, who collectively
own approximately 1.71 million shares of DSI common stock:
Messrs. Dick Davis; Jack R. Crosby (and/or Rust Capital, Ltd.);
Douglas A. Smith; Joseph N. Matlock; and Barry B. Conrad
(collectively, the "DSI Group"). This right of first refusal will
expire five (5) years from the closing date of the Transaction.
The Martin Group will grant the DSI Group tag along rights
with respect to sales of any significant amounts of DSI
common stock by the Martin Group.
Voting Agreement: The DSI Group will enter into a Voting Agreement and/or
Shareholders' Agreement with the Martin Group whereby the
DSI Group will grant the Martin Group an irrevocable proxy to
vote all of its shares following the Transaction; provided,
however, the DSI Group shall retain the right to vote their
shares upon a dissolution of DSI or the sale of a controlling
interest in DSI by the Martin Group.
Board Representation: Following the Transaction, pursuant to the Voting Agreement
and/or the Shareholders' Agreement, the Martin Group shall
have the right to designate four (4) of the six (6) directors to
serve on DSI's board of directors. The DSI Group shall have
the right to designate two (2) of the six (6) directors to serve on
DSI's board of directors. The members of the DSI Group not
designated to serve on the Company's board of directors
following the transaction shall resign from the DSI board
effective at the closing of the Transaction.
Consulting Agreement: Mr. Dick Davis will agree to act as consultant to DSI for a
period of three (3) years following the closing of the
Transaction for an annual consulting fee of $150,000.
Transaction Costs: The Martin Group and DSI will each be responsible for their respective
costs incurred in connection with the proposed Transaction, such as
investment banking and legal fees.
</TABLE>
<PAGE> 112
-2-
<TABLE>
<S> <C>
Exclusivity: In consideration of Martin Group's time, effort and expense
incurred in connection with its investigation, review and
evaluation of the Transaction contemplated herein, DSI and the
DSI Group agree not to solicit, consider or negotiate any other
offer for the acquisition of DSI or any of its businesses or any
investment in DSI while negotiations are pending or the Stock
Purchase Agreement is executory. DSI and the DSI Group
shall execute lock-up agreements in favor of the Martin Group.
Break-up Fee: Upon the parties' execution of a definitive agreement for the
Transaction, should DSI accept a third party offer for the purchase
of the assets or stock of Company, DSI shall pay the Martin Group a
break-up fee in the amount of $1,000,000.
Confidentiality: Except as may be required by law, DSI and DSI Group agree
that they will not make any public statements, including,
without limitation, any press release, concerning this Term
Sheet and the Transaction contemplated herein without the
prior written consent of the Martin Group. If a public
statement becomes required by law, the parties will consult
with each other in advance and agree upon the content and
timing of the statement.
Due Diligence Review: The Transaction shall be conditioned on the Martin Group's
ability to conduct customary due diligence. The Martin Group
shall complete its due diligence prior to the execution of a
definitive agreement. DSI and the DSI Group agree to provide
the Martin Group and its agents with all due diligence materials
requested in a prompt and complete manner.
Other Conditions: The Transaction will be contingent upon obtaining all the
necessary approvals, including stockholder and bank approvals,
the execution of mutually acceptable definitive agreements, the
satisfactory amendment or termination of the Company's
obligation to pay insurance policy premiums for the benefit of
the Tommy and JoBeth Moss Joint Life Insurance Trust, the
establishment of mutually satisfactory non-compete,
employment and stock option plan agreements with selected
key executives, and such matters as may be customary and
normal for a transaction of this type. To the extent anything in
this Transaction Term Sheet is inconsistent with the parties'
letter agreement, the terms of the letter agreement shall control.
</TABLE>
-3-
<PAGE> 113
STOCK PURCHASE AGREEMENT EXHIBIT 2.1
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement, Buyer
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Buyer's obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares tendered pursuant
to the Offer unless (i) there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer one million six hundred thousand
(1,600,000) Shares (the "Minimum Condition"); (ii) any waiting period under the
HSR Act applicable to the purchase of Shares pursuant to the Offer shall have
expired or been terminated (the "HSR Condition"); (iii) there shall have been
full compliance with Article 13.03 of the Texas Business Corporation Act,
including the approval of the acquisition of the Shares by Buyer as contemplated
by this Agreement by the Company's Board of Directors; (iv) the conditions of
Sections 6.1 and 6.2 of this Agreement shall have been satisfied or waived and
(v) the Second Closing of the sale of the Second Funding Shares shall have
occurred pursuant to Section 1.3 of this Agreement, it being understood that the
closing of the Offer shall occur simultaneously and be conditioned upon the
Second Closing of the sale of the Second Funding. Furthermore, notwithstanding
any other term of the Offer or this Agreement, Buyer shall not be required to
accept for payment or, subject as aforesaid, to pay for any Shares not
theretofore accepted for payment or paid for, and may terminate the Offer if, at
any time on or after the date of this Agreement and before the acceptance of
such Shares for payment or the payment therefor, any of the following conditions
exists and with respect to (a), (b), (c), (e) and (f) only, such condition has
not been cured within 10 days of receipt of notice thereof by Buyer (other than
as a result of any action or inaction of Buyer or any of its Subsidiaries that
constitutes a breach of this Agreement):
(a) there shall be threatened or pending by any Governmental Entity any
suit, action or proceeding (i) challenging the acquisition by Buyer of any
Shares under the Offer or this Agreement, seeking to restrain or prohibit the
making or consummation of the Offer or the performance of any of the other
transactions contemplated by the Offer, this Agreement or the Other Agreements,
or seeking to obtain from the Company or Buyer (in the case of Buyer in a suit,
action, or proceeding related to this Agreement) any damages that are material
in relation to the Company or any of its Subsidiaries, (ii) seeking to prohibit
or materially limit the ownership or operation by the Company or any of its
Subsidiaries of a material portion of the business or assets of the Company or
any of its Subsidiaries or to compel the Company or Buyer to dispose of or hold
separate any material portion of the business or assets of the Company or any of
its Subsidiaries, or Buyer or any of its Subsidiaries, in each case as a result
of the Offer or any of the other transactions contemplated by this Agreement or
the Other Agreements, (iii) seeking to impose material limitations on the
ability of Buyer to acquire or hold, or exercise full rights of ownership of,
any Shares to be accepted for payment pursuant to the Offer or this Agreement
including, without limitation, the right to vote such Shares on all matters
properly presented to the Shareholders, or (iv) which otherwise is reasonably
likely to have a Material Adverse Effect on the business of the Company or any
of its Subsidiaries or the Buyer or any of its Subsidiaries, or there shall be
pending by any other person any suit, action or proceeding which is reasonably
likely to have a Material Adverse Effect on the business of the Company or any
of its Subsidiaries or Buyer or any of its Subsidiaries.
<PAGE> 114
(b) there shall be enacted, entered, enforced, promulgated or deemed
applicable to the Offer by any Governmental Entity any statute, rule,
regulation, judgment, order or injunction, other than the application to the
Offer of applicable waiting periods under the HSR Act that is reasonably likely
to result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (iv) of paragraph (a) above;
(c) there shall have occurred any Material Adverse Effect on the
business of the Company or any of its Subsidiaries;
(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Buyer its approval or
recommendation of the Offer, the sale of the Initial Funding Shares or the
Second Funding Shares, this Agreement, the Articles of Amendment or any of the
Other Agreements or recommendation to the Shareholders of the Offer, (ii) the
Board of Directors of the Company or any committee thereof shall have resolved
to take any of the foregoing actions, (iii) the Company shall have approved or
recommended any Takeover Proposal, or (iv) the Company shall have entered into
any agreement with respect to any Superior Proposal in accordance with Section
5.2 of this Agreement.
(e) any of the representations and warranties of the Company set forth
in this Agreement shall not be true and correct in each case: (i) at the date of
this Agreement; and (ii) at the scheduled or extended expiration of the Offer,
except for such matters that, either individually or when combined with any
breach of any other representation or warranty of the Company or any fact,
circumstance, occurrence, breach or default, or any failure to perform any
covenant or obligation all as set forth in Sections 6.2(b) and 6.2(c) of this
Agreement, are not reasonably likely to have a Material Impact;
(f) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant of the Company to be performed or complied
with by it under this Agreement, except for such matters that, either
individually or when combined with any breach of any representation or warranty
of the Company set forth in this Agreement as of the times set forth in Section
(e) of this Exhibit 2.1, or any fact, circumstance, occurrence, breach or
default, or any failure to perform any covenant or obligation all as set forth
in Sections 6.2(b) and 6.2(c) of this Agreement, are not reasonably likely to
have a Material Impact.
(g) there shall have occurred and continued to exist for not less than
three business days (i) any general suspension of trading in, or limitation on
prices for, securities on a national securities exchange in the United States
(excluding any coordinated trading halt triggered solely as a result of a
specified decrease in a market index), (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (iii) any limitation (whether or not mandatory) by any Governmental
Entity on, or other event that materially adversely affects, the extension of
credit by banks or other lending institutions, (iv) a commencement of a war or
armed hostilities or other national or international calamity directly or
indirectly involving the United States which in any case is reasonably expected
to have a Material Adverse Effect on the Company or the Buyer's ability to
complete the Offer or materially delay the consummation of the Offer; or
<PAGE> 115
(h) this Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Buyer and may,
subject to the terms of this Agreement, be waived by Buyer in whole or in part
at any time and from time to time in its sole discretion. The failure by Buyer
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to particular facts
and circumstances shall not be deemed a waiver with respect to any other facts
and circumstances and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time. Terms used but not defined herein
shall have the meanings assigned to such terms in the Agreement to which this
Exhibit 2.1 is a part.
<PAGE> 116
STOCK PURCHASE AGREEMENT EXHIBIT 3.29
April 8, 1999
The Board of Directors
DSI Toys, Inc.
1100 West Sam Houston Parkway, North
Houston, Texas 77043
Members of the Board:
We understand that DSI Toys, Inc. (the "Company") proposed to enter
into a Stock Purchase and Sale Agreement (the "Agreement") with the Martin Group
(the "Buyer") upon the terms and subject to conditions set forth in the
Agreement (i) to sell to the Buyer for cash 566,038 shares of the common stock
of the Company on the Initial Closing Date (as that term is defined in the
Agreement) for a total purchase price of $1,200,000; and (ii) to sell to the
Buyer for cash 1,792,453 shares of the common stock of the Company on the Second
Closing Date (as that term is defined in the Agreement) for a total purchase
price of $3,800,000, subject to certain adjustments as further defined in the
Agreement. The adjustments are dependent upon two issues: (1) the Company
meeting certain working capital requirements at the Second Closing Date; and (2)
the consummation of certain transactions resolving a dispute with the estate of
the Company's former owner. If the Company is unable to resolve these issues
favorably, then the adjustments may result in the issuance to the Buyer of up to
an additional 140,000 shares of Company common stock at no additional cost. If
the Company issues the maximum number of shares under the Agreement, the
weighted average price per share of Company common stock to be sold in the
proposed transactions will be $2.00 (the "Minimum Share Price"). Additionally,
the Buyer will make a tender offer to purchase from stockholders 1,600,000
shares of common stock of the Company at a purchase price of $4.38 per share net
to the seller in cash (the "Offer").
You have asked our opinion as to whether on the date hereof, from a
financial point of view, the Minimum Share Price is fair to the Shareholders of
the Company.
Chaffe & Associates, Inc. ("Chaffe"), through our experience in the
securities industry, investment analysis and appraisal, and in related corporate
finance and investment banking activities, including mergers and acquisitions,
corporate recapitalization, and valuations for corporate and other purposes,
states that we are competent to provide an opinion as to the fairness of the
Minimum Share Price. Neither Chaffe nor any of our officers or employees has an
interest in the Company common stock. The fee received for the preparation and
delivery of this opinion is not dependent or contingent upon the consummation of
the proposed transactions.
<PAGE> 117
The Board of Directors April 8, 1999
DSI Toys, Inc. Page 2
In connection with rendering our opinion, Chaffe, among other things:
(i) reviewed a copy of the draft Agreement dated April 5, 1999, and the related
draft Shareholders' and Voting Agreement dated April 6, 1999; (ii) reviewed and
analyzed Company audited financial statements for the years ending January 31,
1995 through 1998 and internally prepared financial statements for the year
ending January 31, 1999, as well as other financial and operating data
concerning the Company prepared by its management, including budget projections
dated as of March 24, 1999 for fiscal year 2000; (iii) reviewed and discussed
the past and current operations, financial condition and prospects of the
Company with members of the Company's senior management; (iv) reviewed the
reported prices and trading activity for the Company common stock; (v) reviewed
and discussed the strategic rationale for the proposed transactions with members
of the Company's senior management and with a representative of the Buyer; (vi)
compared the financial performance of the Company and the prices and trading
activity of the Company common stock with those of certain comparable
publicly-traded companies and their securities; (vii) reviewed the financial
terms of certain recent comparable business combinations in the toy industry
specifically, and other industries generally; (viii) considered a number of
valuation methodologies, including among others, a discounted cash flow analysis
and a leveraged buyout model; and (ix) performed such other studies and analyses
as Chaffe deemed appropriate to this opinion.
Five shareholders who are also members of the Board of Directors of the
Company (collectively, the "DSI Group"), the Company and the Buyer propose to
enter into the Shareholders' and Voting Agreement concurrently with the
execution of the Agreement. Chaffe notes and has considered in our opinion that
the proposed transactions in conjunction with the Shareholders' and Voting
Agreement will result in a shift of control of the Company from the present
management to the Martin Group.
The Company has made no assurances that the issues relating to the
issuance of additional shares of Company common stock can be resolved favorably.
Therefore, for purposes of our analysis, Chaffe has assumed that the maximum
number of shares contemplated under the Agreement will be issued at the Minimum
Share Price.
In our review, Chaffe relied, without independent verification, upon
the accuracy and completeness of the historical and projected financial
information and all other information reviewed by us for purposes of our
opinion. Chaffe did not make or obtain an independent review of the Company's
assets or liabilities, nor was Chaffe furnished with any such appraisals. With
respect to the Company's projected financial results, Chaffe has assumed that
they were reasonably prepared on bases reflecting the Company management's best
currently available estimates and judgments of future financial performance. We
have further relief upon the assurances of the management of the Company that
they are unaware of any facts that would make the information or projections
provided to us incomplete or misleading. This opinion was
<PAGE> 118
The Board of Directors April 8, 1999
DSI Toys, Inc. Page 3
necessarily based upon market, economic and other conditions as they existed on,
and could be evaluated as of the date hereof. Chaffe expresses no opinion on the
tax consequences of the proposed transactions on the Company or its
Shareholders.
It is understood that this letter is for the information of the Board
of Directors of the Company and may be included in its entirety in the Offer
Documents, S.E.C. Schedule 14D-9 and the Proxy Statement. This letter may not be
used for any other purposes without our prior written consent.
Based upon and subject to the foregoing and based upon such other
matters as we considered relevant, it is our opinion as of the date hereof, that
from a financial point of view, the Minimum Share Price, subject to the other
terms and conditions of the Agreement, is fair to the shareholders the Company.
Very truly yours,
CHAFFE & ASSOCIATES, INC.
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<PAGE> 119
STOCK PURCHASE AGREEMENT EXHIBIT 5.15
SHAREHOLDERS' AND VOTING AGREEMENT OF DSI TOYS, INC.
This Shareholders' and Voting Agreement of DSI Toys, Inc. (the
"Agreement") is made this _______ day of ________, __________, by and among DSI
Toys, Inc., a Texas corporation (the "Company"), MVII, LLC, a limited liability
company formed under the laws of the State of California ("MVII"), and M.D.
Davis ("Davis"), Rust Capital, Ltd., a Texas limited partnership ("Rust"),
Douglas A. Smith ("Smith"), Joseph N. Matlock ("Matlock") and Barry B. Conrad
("Conrad). Davis, Rust, Smith, Matlock and Conrad are hereinafter referred to
collectively as the "DSI Group" and individually as a "DSI Shareholder". MVII
and the DSI Group are sometimes hereinafter referred to as the "Shareholders".
RECITALS:
WHEREAS, the Company has an authorized capitalization of twenty million
(20,000,000) shares of common stock, par value $.01 per share (the "Common
Shares");
WHEREAS, MVII has agreed to purchase two million three hundred
fifty-eight thousand four hundred ninety-one (2,358,491) Common Shares, subject
to adjustment, under the terms of that certain Stock Purchase and Sale Agreement
dated as of even date herewith (the "Stock Purchase Agreement") by and between
the Company and MVII (the "Stock Purchase");
WHEREAS, MVII proposes to make a tender offer to purchase up to one
million six hundred thousand (1,600,000) Common Shares from the Company's
shareholders on the terms and subject to the conditions of the Stock Purchase
Agreement (the "Tender Offer");
WHEREAS, the DSI Group currently owns approximately one million seven
hundred and ten thousand (1,710,000) Common Shares;
WHEREAS, upon the closing of the Stock Purchase and the completion of
the Tender Offer, the Shareholders will collectively own the majority of the
issued and outstanding Common Shares; and
WHEREAS, the Shareholders desire to agree among themselves and with the
Company with respect to certain matters relating to the Common Shares including,
without limitation, restrictions on certain transfers and purchases of the
Common Shares and the exercise of the voting rights evidenced by the Common
Shares.
<PAGE> 120
AGREEMENT:
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement, the Company, and the
Shareholders agree as follows:
ARTICLE I
VOTING AGREEMENT
1.01 Number of Directors. The Shareholders agree that the number of
directors which shall comprise the Board of Directors of the Company shall be
equal to six (6) upon completion of the Stock Purchase; provided, however, the
number of directors which shall comprise the Board of Directors of the Company
may be changed from time to time as permitted by the Company's Articles of
Incorporation, Bylaws and by law.
1.02 Nomination of Directors.
(a) MVII and the DSI Group shall each be entitled to nominate,
from time to time, the members of the Board of Directors of the
Company. The DSI Group shall be entitled to nominate two of the total
number of directors of the Company, and MVII shall be entitled to
nominate the remaining number of directors.
MVII and the DSI Group shall have the exclusive right to
nominate any director to replace a director previously nominated by it
who has vacated his or her directorship by reason of death,
resignation, or removal.
With respect to the nominees of MVII and the DSI Group, the
Company shall be entitled to rely on written notice from E. Thomas
Martin on behalf of MVII and from M.D. Davis on behalf of the DSI
Group, as to the identity of each Shareholder's nominees (each of Mr.
Martin and Mr. Davis is referred to herein as a "Spokesperson"). MVII
and the DSI Group may change its Spokesperson by giving the Company
written notice of a change in such Spokesperson, executed by a majority
in interest (not in number) of the DSI Shareholders in the case of the
DSI Group. The initial nominees for directors are as follows:
<TABLE>
<CAPTION>
IDENTITY OF SHAREHOLDERS NOMINEE
------------------------ -------
<S> <C> <C>
MVII E. Thomas Martin
MVII Robert L. Burke
MVII Joseph S. Whitaker
MVII John McSorley
DSI Group Joseph N. Matlock
DSI Group M.D. Davis
</TABLE>
(b) At least sixty (60) days prior to any meeting of the
Shareholders at which an election of directors is to be held, the
Company shall send to each Spokesperson a notice of such meeting
soliciting from such individual the names of the persons that MVII and
the DSI Group respectively wish to nominate as members of the Board of
Directors of the Company, which nomination may, but need not be, the
persons named in paragraph
<PAGE> 121
(a) of this Section 1.02. Such nominations must be received by the
Company within fifteen (15) days following the date of the Company's
notice soliciting nominations.
1.03 Election of Directors and Irrevocable Proxy. In exercising any
voting rights to which the Shareholders may be entitled by virtue of owning
Common Shares, the Shareholders shall, with respect to the election of directors
of the Company, vote the number of Common Shares that the Shareholders own for
election of the individuals nominated by MVII and the DSI Group, from time to
time, pursuant to Section 1.02 of this Agreement as the directors of the
Company. Each DSI Shareholder shall execute an irrevocable proxy, in a form
approved by the Board of Directors, appointing MVII as proxy, and authorizing
MVII to vote such DSI Shareholder's Common Shares for the election of the
directors to the Board of Directors in accordance with this Agreement. Such
irrevocable proxies shall further designate MVII as proxy for each DSI
Shareholder with respect to all other matters of the Company subject to a vote
of the Company's common shareholders, however each DSI Shareholder shall retain
the right to vote his or her Common Shares with respect to matters concerning
(a) a dissolution of the Company, or (b) the sale of a Controlling Interest (as
that term is defined in the irrevocable proxies). Such irrevocable proxies shall
have the same duration as this Agreement.
1.04 Removal of Directors. MVII shall not vote its Common Shares or the
DSI Group's Common Shares as proxy in favor of removal of a director nominated
by the DSI Group unless so requested by the DSI Group, as required by law.
1.05 Voting Agreement. This Agreement constitutes a voting agreement
made pursuant to the provisions of the Texas Business Corporation Act. A
counterpart of this Agreement will be deposited with the Company at its
principal office and is subject to the same rights of examination by any
shareholder of the Company, in person or by agent or attorney, as are the
Company's books and records.
1.06 Effective Date. The provisions of Article I of this Agreement
shall automatically take effect and are conditioned upon the completion of the
Second Closing, as such term is defined in the Stock Purchase Agreement.
ARTICLE II
TRANSFER RESTRICTIONS
2.01 Right of First Refusal in Connection With Transfers Other Than
Public Transfers. Subject to the provisions of Section 3.01(b) hereof, before
any Common Shares may be transferred, sold, assigned, conveyed or otherwise
disposed or delivered by a DSI Shareholder (a "Transfer") to any individual,
firm, company, corporation, unincorporated association, partnership, trust,
joint venture or other entity (a "Proposed Transferee") in any transaction other
than a transaction effected on the Nasdaq Stock Market or any stock exchange or
over-the-counter trading system on which the Company's Common Shares are traded
(a "Public Transfer"), the Common Shares shall first be offered to MVII in the
following manner:
(a) The DSI Shareholder who proposes to Transfer any Common
Shares (the "Selling Shareholder") shall give a written notice (the
"Seller Notice") to MVII stating (i) the Selling Shareholder's bona
fide intention to Transfer such Common Shares, (ii) the name of
<PAGE> 122
the Proposed Transferee, (iii) the number of Common Shares the Selling
Shareholder desires to Transfer (the "Offered Shares") and (iv) the
price for which the Selling Shareholder proposes to Transfer the
Offered Shares. MVII shall thereafter have an option to purchase the
Offered Shares in accordance with the provisions set forth below.
(b) MVII will have an option, for five (5) Business Days (as
hereinafter defined) after receiving the Seller Notice, to give written
notice to the Selling Shareholder and the Company of its election to
purchase the Offered Shares. The purchase price and other terms at
which the Offered Shares are offered to MVII shall be the price and
terms specified in the Seller Notice, including, if specified in the
Seller Notice, the requirement that all (but not less than all) of the
Offered Shares be purchased. A "Business Day" shall mean any day other
than a Saturday or Sunday or any other day on which banks in Houston,
Texas are authorized or required to close.
(c) In the event MVII does not elect to purchase 100% of the
Offered Shares (if that option is available under the terms of the
Seller Notice), the Selling Shareholder may thereafter Transfer the
balance of the Offered Shares in accordance with Section 2.01(e) hereof
free of the right of first refusal and voting agreement set forth in
this Agreement (subject to such right of first refusal being revived as
provided in Section 2.01(e) hereof).
(d) If exercised by MVII pursuant hereto, the right to
purchase the Offered Shares shall be exercised by written notice,
signed by MVII, and delivered or mailed to the Company as provided in
Section 3.01(i). Such notice shall specify the time, place and date for
settlement of such purchase, which shall be held within three (3)
Business Days after the expiration of the notice period specified in
Section 2.01(b).
(e) If MVII has not exercised its right of first refusal to
purchase the Offered Shares in accordance with Section 2.01(d) hereof,
the Selling Shareholder may thereafter Transfer such remaining Common
Shares free of the right of first refusal and voting agreement
contained in this Agreement to the Proposed Transferee at the price and
on the terms specified in the Seller Notice or at a higher price but
with no material change in the other terms, provided that such Transfer
is consummated within 180 days of the date of the Seller Notice. If the
Selling Shareholder fails to consummate the Transfer within such 180
day period, the purchase rights of MVII provided hereby shall be deemed
to be revived with respect to such shares and no Transfer of Common
Shares shall be effected without first offering such shares in
accordance herewith.
(f) Notwithstanding anything contained in this Agreement to
the contrary, the DSI Shareholders shall be entitled to Transfer their
Common Shares to their lineal descendants, members of their immediate
family and charities free of the right of first refusal contained in
this Section 2.01 provided that the Transferee agrees to be bound by
all of the terms and conditions of this Agreement.
2.02 Right of First Refusal in Connection With Public Transfers.
Subject to the provisions of Section 3.01(b) hereof, Common Shares may be
Transferred to any Proposed Transferee in a Public Transfer under the following
circumstances:
<PAGE> 123
(a) From time to time a DSI Shareholder (a "Public Selling
Shareholder") may deliver a written notice to MVII (the "Public
Transfer Notice") stating (i) the maximum number of Common Shares that
such Public Selling Shareholder intends to sell during the next sixty
(60) days (the "Public Offered Shares"), and (ii) the minimum price at
which such Public Selling Shareholder intends to sell such Common
Shares. MVII shall thereafter have an option to purchase all or part of
the Public Offered Shares in accordance with the provisions set forth
below.
(b) MVII will have an option, for three (3) Business Days
after receiving the Public Transfer Notice, to give written notice to
the Public Selling Shareholder and the Company of its election to
purchase all or part of the Public Offered Shares. The purchase price
at which the Public Offered Shares are offered to MVII shall be the
price and terms specified in the Public Transfer Notice.
(c) In the event MVII does not elect to purchase 100% of the
Public Offered Shares, the Public Selling Shareholder may thereafter
effect a Public Transfer of the balance of the Offered Shares in
accordance with Section 2.02(e) hereof free of the right of first
refusal and voting agreement set forth in this Agreement (subject to
such right of first refusal being revived as provided in Section
2.02(e) hereof).
(d) If exercised by MVII pursuant hereto, the right to
purchase the Public Offered Shares shall be exercised by written
notice, signed by MVII, and delivered or mailed to the Company as
provided in Section 3.01(i). Such notice shall specify the time, place
and date for settlement of such purchase, which shall be held within
three (3) Business Days after the expiration of the notice period
specified in Section 2.02(b).
(e) If MVII has not exercised its rights of first refusal to
purchase 100% of the Public Offered Shares in accordance with Section
2.02(a) hereof, the Public Selling Shareholder may thereafter effect
one or more Public Transfers of such remaining Common Shares free of
the right of first refusal and voting agreement contained in this
Agreement at a price not less than the price specified in the Public
Seller Notice, provided that, with respect to any Common Shares not
Transferred within sixty (60) days of the date of the Public Seller
Notice, the purchase rights of MVII provided hereby shall be deemed to
be revived with respect to such shares and no Transfer of Common Shares
shall be effected without first offering such shares in accordance
herewith.
2.03 Continuing Rights. The exercise or non-exercise of co-sale rights
pursuant to Section 2.05 hereunder shall not adversely affect MVII's right of
first refusal with respect to subsequent Transfers by a DSI Shareholder pursuant
to this Agreement. Subject to the provisions of Section 3.01(b), the provisions
of the voting agreement shall continue to apply to all Common Shares unless and
until they are transferred to a third party in accordance with the terms and
provisions of this Article II.
2.04 Right to Pledge Common Shares. A DSI Shareholder may pledge Common
Shares held by it as collateral for indebtedness provided that the pledgee party
agrees to be bound by all of the terms and conditions of Article II of this
Agreement in the event that the pledgee party becomes the owner of the pledged
Common Shares, whether by foreclosure, transfer in lieu of foreclosure or
otherwise. If any DSI Shareholder pledges any Common Shares held by it as
collateral for
<PAGE> 124
indebtedness as provided in this Section 2.04, simultaneous with such pledge,
the DSI Shareholder shall notify MVII of such pledge, the name, address and
phone number of the pledgee party, and the type and amount of indebtedness
secured by the collateral. If there shall occur an event of default in
connection with repayment of the indebtedness or any other event giving rise to
the pledgee party's right to foreclose on the collateral or accept or take the
collateral in lieu of foreclosure, or any event that otherwise allows or permits
the pledgee party to become the owner of the collateral, then the DSI
Shareholder shall immediately notify MVII of such event or occurrence.
2.05 Co-Sale Rights.
(a) MVII shall not Transfer in any one transaction or series
of related transactions more than forty percent (40%) of the total
number of Common Shares standing in its name as of the Second Closing
Date unless the DSI Shareholders are permitted to sell a number of
Common Shares owned by the DSI Group determined in accordance with
Section 2.05(c) to the third-party offeror at the same price and on the
same terms as the offer is proposed to be effected (a "Third-Party
Offer") to MVII.
(b) MVII shall cause the Third Party Offer to be reduced to
writing and shall send written notice of the Third Party Offer,
including the name of the offeror, the number of Common Shares the
offeror proposes to purchase, and the price and other terms the offeror
proposes for the purchase of the Common Shares (the "Inclusion Notice")
to each DSI Shareholder in the manner specified in Section 3.01(i).
Within five (5) Business Days after delivery of the Inclusion Notice,
each DSI Shareholder may accept the offer included in the Inclusion
Notice by furnishing written notice of such acceptance to MVII. If none
of the DSI Shareholders accepts such offer within such time period,
MVII shall be free, at any time within the next 180 days to sell its
shares to such third party on the terms contained in the Third Party
Offer free and clear of the terms and conditions of this Agreement.
(c) Each DSI Shareholder shall have the right to sell pursuant
to the Third Party Offer a number of Common Shares equal to the product
of (x) the number of Common Shares covered by the Third Party Offer and
(y) a fraction, the numerator of which is the total number of Common
Shares then owned by such DSI Shareholder and the denominator of which
is the total number of Common Shares then owned by MVII and such DSI
Shareholder free and clear of MVII's right of first refusal and the
voting agreement.
ARTICLE III
MISCELLANEOUS
3.01
(a) Spouse's Interest in Common Shares. By their signatures
below, the spouse of each DSI Shareholder (a "Spouse") agrees to be
bound in all respects by the terms of this Agreement to the same extent
as each DSI Shareholder. Each Spouse further agrees that should he or
she predecease or become divorced from a DSI Shareholder, any of the
Common Shares in which he or she may have any interest shall remain
subject to all of the
<PAGE> 125
restrictions and to all of the rights of the Company and the other
Shareholders as contained in this Agreement. Whenever reference is made
in this Agreement to "Common Shares," unless the context clearly
requires otherwise, such Common Shares will include any community
property or other interest of the DSI Shareholder's Spouse, if any, in
such Common Shares.
(b) Termination of Agreement. This Agreement and the
irrevocable proxies contemplated hereby will terminate upon the earlier
of (i) the termination of the Stock Purchase Agreement in the event the
Second Closing (as therein defined) does not occur, (ii) the fifth
anniversary of the date of the Second Closing under the Stock Purchase
Agreement, (iii) written consent of the Company, MVII and a majority in
interest of the DSI Group, or (iv) the dissolution of the Company.
(c) Indemnification. Each DSI Shareholder agrees to severally
indemnify and hold harmless MVII and the Company from and against any
and all damages, losses, claims, liabilities, demands, charges, suits
and penalties MVII or the Company incurs or to which MVII or the
Company becomes subject arising out of any breach or default by that
DSI Shareholder of any of the provisions of this Agreement, and MVII
agrees to indemnify and hold harmless each DSI Shareholder and the
Company from and against any and all damages, losses, claims,
liabilities, demands, charges, suits and penalties the DSI Shareholders
or the Company incurs or to which the DSI Shareholders or the Company
becomes subject arising out of any breach or default by MVII of any of
the provisions of this Agreement. Under no circumstances shall a DSI
Shareholder be liable in any way for indemnity under this Section
3.01(c) for the action or inaction of another DSI Shareholder.
(d) Remedies. The parties hereto acknowledge that remedies at
law for any breach or attempted breach of the provisions of this
Agreement will be inadequate, and therefore each party to this
Agreement will be entitled to specific performance and injunctive and
other equitable relief in case of any breach or attempted breach by any
other party. Each party to this Agreement waives any requirements for
securing or posting any bond in connection with obtaining any such
injunctive or other equitable relief.
(e) Amendments and Waivers. Any modification or amendment to,
or waiver of, any provision of this Agreement may be made only by an
instrument in writing executed by the Company, MVII and a majority in
interest of the DSI Group.
(f) Successors and Assigns. Subject to the restrictions on
transfer and assignment contained in this Agreement, the provisions of
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns.
(g) Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable under any applicable law,
then such contravention or invalidity shall not invalidate the entire
Agreement. Such provision shall be deemed to be modified to the extent
necessary to render it legal, valid and enforceable, and if no such
modification shall render it legal, valid and enforceable, then this
Agreement shall be construed as if not
<PAGE> 126
containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced accordingly.
(h) Waiver. No failure or delay on the part of any party in
exercising any right, power or privilege hereunder or under any of the
other agreements, instruments or documents delivered in connection with
this Agreement shall operate as a waiver of such right, power or
privilege; nor shall any single or partial exercise of any such right,
power or privilege preclude any other or future exercise thereof or the
exercise of any other right, power or privilege.
(i) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be
delivered personally, or by overnight delivery service, or by facsimile
transmission (with a copy sent by overnight delivery service) to the
parties at the addresses or facsimile numbers set forth below:
If to the Company, at DSI Toys, Inc., 1100 W. Sam Houston
Parkway N., Suite A, Houston, Texas 77043, Attention: M.D. Davis (fax:
713/468-8194), with a copy to Thompson & Knight, 1200 San Jacinto
Center, 98 San Jacinto Boulevard,Austin,TX78701, Attention: Michael L.
Bengtson, Esq.(fax: 512/469-6180).
If to MVII, at MVII, LLC, 654 Osos Street, San Luis Obispo,
CA 93401, Attention: E. Thomas Martin (fax: 805/545-7590) or at such
other address or addresses as may have been furnished in writing by
the Shareholder to the Company, with a copy to Andre, Morris &
Buttery, 1304 Pacific Street, San Luis Obispo, CA 93401, Attention: J.
Todd Mirolla, Esq. (fax: 805/543-0752).
If to any DSI Shareholder, at the address set forth opposite
such DSI Shareholder's name on the signature pages attached hereto,
with a copy to Thompson & Knight, 1200 San Jacinto Center, 98 San
Jacinto Boulevard,Austin,TX78701, Attention: Michael L.
Bengtson, Esq.(fax: 512/469-6180).
Notice so given shall, in the case of notice so given by overnight
delivery service, on the date of actual delivery, in the case of notice so given
by facsimile transmission, on the later of 24 hours after actual transmission or
on the date of actual delivery of the copy sent by overnight delivery service
or, in the case of personal delivery, on the date of actual delivery.
(j) Attorney's Fees. In the event that a party brings suit or
otherwise attempts to collect damages or enforce this Agreement in
connection with a breach of any of the terms and conditions of this
Agreement, the prevailing party shall be entitled to reimbursement from
the losing party (severally in proportion to their fault in the case of
a suit against more than person) of the prevailing party's reasonable
attorney's fees and costs.
(k) Headings. The headings of the articles, sections,
subsections and paragraphs of this Agreement have been inserted for
convenience of reference only and do not constitute a part of this
Agreement.
<PAGE> 127
(l) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
(m) Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate
counterparts, with the same effect as if all parties had signed the
same document. All such counterparts shall be deemed an original, shall
be construed together and shall constitute one and the same instrument.
(n) Effective Date. Except for the provisions of Article I,
which shall take effect as provided in Section 1.06 hereof, all other
terms and provisions of this Agreement shall be effective as of the
date first above written.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
DSI TOYS, INC.:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
MVII, LLC:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
DSI GROUP:
Address: 13606 Taylorcrest -----------------------------------
Houston, TX 77079 M. D. Davis
(fax: 713/465-2773)
Address: c/o Jack R. Crosby RUST CAPITAL, LTD.:
327 Congress Avenue
Suite 350 By: Rust Investment Corporation,
Austin, TX 78701 its general partner
(fax: 512/474-1610)
By:
--------------------------------
Jack R. Crosby, President
<PAGE> 128
Address: 6829 Golf Drive --------------------------------
Dallas, TX 75205 Douglas A. Smith
(fax: 972/980-1503)
Address: 515 Congress Avenue --------------------------------
Suite 2626 Joseph N. Matlock
Austin, TX 78701
(fax: 512/346-4404)
Address: Independent Bankers Capital Fund --------------------------------
1700 Pacific Avenue Barry B. Conrad
Suite 1400
Dallas, TX 75201
(214) 765-1485
<PAGE> 129
SPOUSAL CONSENT
Each of the undersigned is fully aware of, understands, and fully
consents to the provisions of this Agreement and its binding effect upon any
community property or other interest that he or she may now or hereafter own in
the Common Shares subject to this Agreement, and agrees that the termination of
his or her marital relationship with a DSI Shareholder for any reason, including
his or her death, will not remove any Common Shares otherwise subject to this
Agreement from the coverage of this Agreement and that his or her awareness,
understanding, consent, and agreement are evidenced by his or her signature to
this Agreement.
----------------------------------------
Name:
----------------------------------------
Name:
----------------------------------------
Name:
----------------------------------------
Name:
----------------------------------------
Name:
<PAGE> 130
STOCK PURCHASE AGREEMENT EXHIBIT 5.16
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of
__________, ________, is made by and among DSI Toys, Inc., a Texas corporation
(the "Company"), MVII, LLC, a limited liability company formed under the laws of
the State of California (the "Shareholder"), and M. D. Davis, Rust Capital,
Ltd., a Texas limited partnership, Douglas A. Smith, Joseph N. Matlock, and
Barry B. Conrad (each, a "DSI Group Shareholder," and collectively, the "DSI
Group Shareholders"). The Shareholder and the DSI Group Shareholders are each
sometimes referred to herein as a "Holder," and collectively as the "Holders."
RECITALS:
WHEREAS, concurrently herewith, the Company and the Shareholder are
entering into that certain Stock Purchase and Sale Agreement dated as of even
date herewith (the "Stock Purchase Agreement") by and between the Company and
the Shareholder;
WHEREAS, the Stock Purchase Agreement provides, among other things, for
the sale by the Company of two million three hundred fifty-eight thousand four
hundred ninety-one (2,358,491) shares, subject to adjustment as provided in the
Stock Purchase Agreement (such shares, together with any shares of Common Stock
issued or issuable with respect to such shares by way of a share dividend or
share split or in connection with a combination of shares, recapitalization,
merger consolidation or other reorganization, being the "MVII Shares") of common
stock, par value $.01 per share, of the Company (the "Common Stock") to the
Shareholder; and
WHEREAS, the Company, the Shareholder, and the DSI Group Shareholders
desire to enter into this Agreement to provide for the registration with the
Securities and Exchange Commission (the "Commission"), under certain
circumstances, of the MVII Shares and shares of Common Stock owned by the DSI
Group.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1.. Registrable Securities. For purposes of this Agreement "Registrable
Securities" shall mean (a) the MVII Shares, (b) only with respect to a Piggyback
Registration described in Section 2 hereof, shares of Common Stock over which a
DSI Group Shareholder has dispositive power as of the date hereof and any shares
of Common Stock issued or issuable with respect to such shares by way of a share
dividend or share split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization (the "DSI Group
Shares"). As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act of 1933, as amended (the "Securities Act")
and such securities shall have been
<PAGE> 131
disposed of in accordance with such registration statement, (b) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification under the Securities Act or any state law
in force at the time a Holder or a Shareholder Transferee (as defined in Section
8 hereof) proposes to sell or otherwise dispose of the Registrable Securities,
or (d) they shall have ceased to be outstanding.
2.. Registration Rights.
(a) Right to Piggyback. If the Company proposes to register
any of its securities under the Securities Act (other than a registration on
Form S-4 or Form S-8, any other form used solely in connection with an employee
benefit or stock ownership plan, or any successor similar forms or any other
form not available for registering the Registrable Securities for sale to the
public) and the registration form to be used may be used for the registration of
the Registrable Securities (a "Piggyback Registration"), then the Company will
give prompt written notice to the Shareholder and the DSI Group Shareholders of
its intention to effect such a registration (each a "Piggyback Notice"). Subject
to subparagraphs (i) and (ii) below, the Company will include in such
registration all Registrable Securities which the Shareholder and the DSI Group
Shareholders request that the Company include in such registration by written
notice given to the Company within 15 days after the date of sending of the
Piggyback Notice.
(i) Priority on Primary Registrations. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by the Company and the managing underwriters advise the
Company in writing that in their opinion the number of securities
requested (and consented to) to be included in such registration
exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the Company, the Company
will include in such registration: (A) first, the securities proposed
to be sold by the Company, (B) second, the MVII Shares, (C) third, the
DSI Group Shares, and (D) fourth, other securities requested to be
included in such registration.
(ii) Priority on Secondary Registrations. If a
Piggyback Registration relates to an underwritten public offering of
equity securities by holders of the Company's securities and the
managing underwriters advise the Company in writing that in their
opinion the number of securities requested (and consented to) to be
included in such registration exceeds the number which can be sold in
an orderly manner within a price range acceptable to the holders
initially requesting such registration, 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
MVII Shares, and (C) third, the DSI Group shares.
(b) Request for Registration. Subject to Section 2(b)(i)
hereof, if the Company shall receive a written request (specifying that it is
being made pursuant to this Section 2(b)), at any time from the Shareholder
requesting that the Company file a registration statement under the Securities
Act, or a similar document pursuant to any other statute then in effect
corresponding to the Securities Act, covering the registration of at least
250,000 of the Registrable Securities, then the Company shall promptly use its
reasonable best efforts to cause all Registrable Securities that the Shareholder
requested be registered to be registered under the Securities Act.
<PAGE> 132
(i) No request under this Section 2(b) shall be
effective if made during the period starting with the date 120 days
prior to the Company's estimated date of filing of, and ending on a
date 180 days following the effective date of, a registration statement
pertaining to an underwritten public offering of securities for the
account of the Company, provided that no other selling shareholder has
the right to exercise demand registration rights during such time
period and the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing such
registration statement is made in good faith.
(ii) The Company shall not be obligated to effect
more than two registrations pursuant to this Section 2(b). Any request
for registration under this Section 2(b) must be for a firmly
underwritten public offering to be managed by an underwriter or
underwriters of recognized national standing reasonably acceptable to
the Company. The registration statement filed pursuant to this Section
2(b) may, subject to the provisions hereof, include other securities of
the Company with respect to which registration rights have been
granted, and may include securities of the Company being sold for the
account of the Company.
(iii) The Company may postpone for up to 180 days the
filing or the effectiveness of a registration statement for a
registration requested pursuant to this Section 2(b) if: (A) the
Company determines that such registration might have an adverse effect
on any proposal or plan by the Company to engage in any acquisition of
assets (other than in the ordinary course) or any merger,
consolidation, tender offer or similar transaction, or (B) any other
material, non-public development or transaction is pending; provided
that the Company may not postpone the filing or effectiveness of a
registration statement pursuant to this sentence more frequently than
once during any period of 12 consecutive months.
(c) Expenses. All expenses incurred in connection with
effecting each registration pursuant to Section 2 hereof (other than
underwriting fees, disbursements, discounts and commissions relating to
Registrable Securities, which shall be borne by the Holder of such Registrable
Securities, and fees and disbursements of counsel retained by such Holder, which
shall be borne by such Holder), including, without limitation, in each case, all
registration, filing and securities exchange fees; all fees and expenses of
complying with securities or blue sky laws; all word processing, duplicating and
printing expenses, messenger, delivery and shipping expenses; fees and
disbursements of the accountants and counsel for the Company including the
expenses of any special audits or "cold comfort" letters or opinions required by
or incident to such registrations; and premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities and any fees and disbursements of underwriters not
relating to Registrable Securities, shall be borne by the Company.
3.. Registration Procedures. Whenever a Holder has requested
that any Registrable Securities be registered pursuant to this Agreement in
compliance with the requirements of Section 2 herein:
<PAGE> 133
(a) the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective,
provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the
counsel selected by the Holder copies of all such documents proposed to
be filed, and provided further that the Company may discontinue any
registration of its securities which are not Registrable Securities and
in such event any corresponding Piggyback Registration of Registrable
Securities;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective: (A) with respect to a registration statement on
Form S-1, for a period of up to thirty days, and (B) with respect to a
registration statement on any other form, for a period of up to six
months; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by any such
registration statement during such period in accordance with the
intended methods of distribution by the sellers thereof set forth in
such registration statement;
(iii) furnish to the Holder such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, and
such other documents, as the Holder may reasonably request;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as the Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the Holder to consummate the disposition in such jurisdictions
of the Registrable Securities owned by the Holder, provided that the
Company will not be required (A) to qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (B) to subject itself to taxation in any
such jurisdiction, or (C) to consent to general service of process in
any such jurisdiction;
(v) furnish to the Holder a copy, or, upon request, a
signed counterpart, addressed to the Holder (and the underwriters, if
any) of (A) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration includes
an underwritten public offering, dated the date of the closing under
the underwriting agreement), and (B) a "comfort" letter addressed to
the underwriters, dated the effective date of such registration
statement (or, if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have
audited the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect
<PAGE> 134
to such registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other
financial matters, and, in the case of the legal opinion such other
legal matters, as the Holder (or the underwriters, if any) may
reasonably request;
(vi) notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of
a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, the Company
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein not
misleading, or of the determination by the Company that a
post-effective amendment to a registration statement would be required
under the Securities Act, and, at the request of the Holder, the
Company will prepare and file a post-effective amendment to the
registration statement as required under the Securities Act; provided,
however, that the Company shall not be required to prepare and deliver
any such prospectus supplement or amendment or prepare and file any
post-effective amendment to a registration statement if (A) the Company
determines that such prospectus supplement or amendment or
post-effective amendment might have an adverse effect on any proposal
or plan by the Company to engage in any acquisition of assets (other
than in the ordinary course) or any merger, consolidation, tender offer
or similar transaction, or (B) any other material, non-public
development or transaction is pending; and provided further that the
Company may not postpone the delivery of a prospectus supplement or
amendment or filing of a post-effective amendment pursuant to this
sentence more frequently than once during any period of 12 consecutive
months;
(vii) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the
Company are then listed and to be qualified for trading on each system
on which similar securities issued by the Company are from time to time
qualified;
(viii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and thereafter maintain such a transfer agent
and registrar;
(ix) enter into such customary agreements and take all
such other actions as the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities;
(x) make available for inspection by any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any
such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply
all information reasonably requested by any such underwriter, attorney,
accountant or agent in connection with such registration
<PAGE> 135
statement, provided that any person to whom such information is
provided shall agree to keep it confidential and use it only in
connection with such offering;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder; and
(xii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included in
such registration statement for sale in any jurisdiction, the Company
will use its reasonable best efforts promptly to obtain the withdrawal
of such order.
(b) The Company shall not be required to include any
Registrable Securities in any registration unless the Holder furnishes to the
Company in writing such information with respect to the Holder and the
distribution of such Registrable Securities as the Company may from time to time
reasonably request in writing and as shall be required by law or the Commission
in connection therewith.
(c) If any such registration or comparable statement refers to
the Holder by name or otherwise as the holder of any securities of the Company,
the Holder shall have the right to require (i) the inclusion in such
registration statement of language, in form and substance reasonably
satisfactory to the Holder, to the effect that the holding of such securities by
the Holder is not to be construed as a recommendation by the Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that the Holder will assist in the meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to the Holder is not required by the Securities Act or any similar federal
statute then in force, the deletion of the reference to the Holder; provided,
that with respect to this clause (ii) the Holder shall furnish to the Company an
opinion of counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Company.
(d) Each Holder and Shareholder Transferee agrees that upon
receipt of any notice from the Company of the happening of any event of the kind
described in the subdivision (a)(vi) of this Section 3, such person will
forthwith discontinue such person's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such person's receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (a)(vi) of this Section 3 and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such person's possession
of the prospectus relating to such Registrable Securities current at the time of
receipt of such notice. Nothing contained in this Agreement shall be deemed to
require the Company to disclose any information that, in the good faith opinion
of the management of the Company, is not yet required to be disclosed and would
not be in the best interests of the Company to disclose.
<PAGE> 136
4. Underwritten Offerings. If the Company at any time proposes to
register any of its securities under the Securities Act as contemplated by
Section 2 hereof and such securities are to be distributed by or through one or
more underwriters, the Company will, if requested by the Holder as provided in
Section 2 hereof, arrange for such underwriters to include in the securities to
be distributed by such underwriters all of the Registrable Securities to be
offered and sold by the Holder.
5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to the provisions hereof, the Company will give the Holder whose
Registrable Securities are to be included in such registration statement and one
counsel or firm of counsel and one accountant or firm of accountants
representing such Holder the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give the
Holder such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of the Holder's counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
6. INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. IN THE EVENT ANY REGISTRABLE
SECURITIES ARE INCLUDED IN A REGISTRATION STATEMENT HEREUNDER, TO THE EXTENT
PERMITTED BY LAW, THE COMPANY WILL, AND HEREBY DOES, INDEMNIFY AND HOLD HARMLESS
THE HOLDER OF SUCH REGISTRABLE SECURITIES, ITS DIRECTORS AND OFFICERS, EACH
OTHER PERSON WHO PARTICIPATES AS AN UNDERWRITER IN THE OFFERING OR SALE OF SUCH
SECURITIES AND EACH OTHER PERSON, IF ANY, WHO CONTROLS THE HOLDER OR ANY SUCH
UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT, AGAINST ANY LOSSES,
CLAIMS, DAMAGES OR LIABILITIES, JOINT OR SEVERAL, TO WHICH THE HOLDER OR ANY
SUCH DIRECTOR OR OFFICER OR UNDERWRITER OR CONTROLLING PERSON MAY BECOME SUBJECT
UNDER THE SECURITIES ACT OR OTHERWISE, INSOFAR AS SUCH LOSSES, CLAIMS, DAMAGES
OR LIABILITIES (OR ACTIONS OR PROCEEDINGS, WHETHER COMMENCED OR THREATENED, IN
RESPECT THEREOF) ARISE OUT OF OR ARE BASED UPON ANY UNTRUE STATEMENT OR ALLEGED
UNTRUE STATEMENT OF ANY MATERIAL FACT CONTAINED IN ANY REGISTRATION STATEMENT
UNDER WHICH SUCH SECURITIES WERE REGISTERED UNDER THE SECURITIES ACT, ANY
PRELIMINARY PROSPECTUS, FINAL PROSPECTUS OR SUMMARY PROSPECTUS CONTAINED
THEREIN, OR ANY AMENDMENT OR SUPPLEMENT THERETO, OR ANY OMISSION OR ALLEGED
OMISSION TO STATE THEREIN A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR
NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, AND THE COMPANY WILL
REIMBURSE SUCH HOLDER AND EACH SUCH DIRECTOR, OFFICER, UNDERWRITER AND
CONTROLLING PERSON FOR ANY LEGAL OR ANY OTHER EXPENSES REASONABLY INCURRED BY
THEM IN CONNECTION WITH INVESTIGATING OR DEFENDING ANY SUCH LOSS, CLAIM,
LIABILITY, ACTION OR PROCEEDING; PROVIDED THAT THE COMPANY SHALL NOT BE LIABLE
IN ANY
<PAGE> 137
SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY (OR ACTION
OR PROCEEDING IN RESPECT THEREOF) OR EXPENSE ARISES OUT OF OR IS BASED UPON AN
UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION
MADE IN SUCH REGISTRATION STATEMENT, ANY SUCH PRELIMINARY PROSPECTUS, FINAL
PROSPECTUS, SUMMARY PROSPECTUS, AMENDMENT OR SUPPLEMENT IN RELIANCE UPON AND IN
CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY THE HOLDER
EXPRESSLY FOR USE IN THE PREPARATION THEREOF, AND PROVIDED FURTHER THAT THE
COMPANY SHALL NOT BE LIABLE TO ANY PERSON WHO PARTICIPATES AS AN UNDERWRITER IN
THE OFFERING OR SALE OF REGISTRABLE SECURITIES OR ANY OTHER PERSON WHO CONTROLS
SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT, IN ANY SUCH CASE TO
THE EXTENT THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY (OR ACTION OR PROCEEDING
IN RESPECT THEREOF) OR EXPENSE ARISES OUT OF SUCH PERSON'S FAILURE TO SEND OR
GIVE A COPY OF THE FINAL PROSPECTUS, AS THE SAME MAY BE THEN SUPPLEMENTED OR
AMENDED, TO THE PERSON ASSERTING AN UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT
OR OMISSION OR ALLEGED OMISSION AT OR PRIOR TO THE WRITTEN CONFIRMATION OF THE
SALE OF REGISTRABLE SECURITIES TO SUCH PERSON IF SUCH STATEMENT OR OMISSION WAS
CORRECTED IN SUCH FINAL PROSPECTUS. SUCH INDEMNITY SHALL REMAIN IN FULL FORCE
AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF THE HOLDER OR
ANY SUCH DIRECTOR, OFFICER, UNDERWRITER OR CONTROLLING PERSON AND SHALL SURVIVE
THE TRANSFER OF SUCH SECURITIES BY THE HOLDER.
(B) INDEMNIFICATION BY THE HOLDERS. THE COMPANY MAY REQUIRE, AS A
CONDITION TO INCLUDING ANY REGISTRABLE SECURITIES IN ANY REGISTRATION STATEMENT
FILED PURSUANT TO SECTION 3 HEREOF, THAT THE COMPANY SHALL HAVE RECEIVED AN
UNDERTAKING SATISFACTORY TO IT FROM THE HOLDER OF SUCH REGISTRABLE SECURITIES,
TO INDEMNIFY AND HOLD HARMLESS (IN THE SAME MANNER AND TO THE SAME EXTENT AS SET
FORTH IN SUBDIVISION (A) OF THIS SECTION 6) EACH UNDERWRITER, EACH PERSON WHO
CONTROLS SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT, THE COMPANY,
EACH DIRECTOR OF THE COMPANY, EACH OFFICER OF THE COMPANY AND EACH OTHER PERSON,
IF ANY, WHO CONTROLS THE COMPANY WITHIN THE MEANING OF THE SECURITIES ACT, WITH
RESPECT TO ANY STATEMENT OR ALLEGED STATEMENT IN OR OMISSION OR ALLEGED OMISSION
FROM SUCH REGISTRATION STATEMENT, ANY PRELIMINARY PROSPECTUS, FINAL PROSPECTUS
OR SUMMARY PROSPECTUS CONTAINED THEREIN, OR ANY AMENDMENT OR SUPPLEMENT THERETO,
IF SUCH STATEMENT OR ALLEGED STATEMENT OR OMISSION OR ALLEGED OMISSION WAS MADE
IN RELIANCE UPON AND IN STRICT CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO
THE COMPANY BY THE HOLDER EXPRESSLY FOR USE IN THE PREPARATION OF SUCH
REGISTRATION STATEMENT, PRELIMINARY PROSPECTUS, FINAL PROSPECTUS, SUMMARY
PROSPECTUS, AMENDMENT OR SUPPLEMENT;
<PAGE> 138
PROVIDED THAT THE HOLDER SHALL NOT BE LIABLE TO THE COMPANY OR ANY PERSON WHO
PARTICIPATES AS AN UNDERWRITER IN THE OFFERING OR SALE OF REGISTRABLE SECURITIES
OR ANY OTHER PERSON, IF ANY, WHO CONTROLS SUCH UNDERWRITER WITHIN THE MEANING OF
THE SECURITIES ACT, IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS, CLAIM,
DAMAGE, LIABILITY (OR ACTION OR PROCEEDING IN RESPECT THEREOF) OR EXPENSE ARISES
OUT OF SUCH PERSON'S FAILURE TO SEND OR GIVE A COPY OF THE FINAL PROSPECTUS, AS
THE SAME MAY BE THEN SUPPLEMENTED OR AMENDED, TO THE PERSON ASSERTING AN UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION AT OR
PRIOR TO THE WRITTEN CONFIRMATION OF THE SALE OF REGISTRABLE SECURITIES TO SUCH
PERSON IF SUCH STATEMENT OR OMISSION WAS CORRECTED IN SUCH FINAL PROSPECTUS.
SUCH INDEMNITY SHALL REMAIN IN FULL FORCE AND EFFECT, REGARDLESS OF ANY
INVESTIGATION MADE BY OR ON BEHALF OF ANY UNDERWRITER, THE COMPANY OR ANY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON AND SHALL SURVIVE THE TRANSFER OF SUCH
SECURITIES BY THE HOLDER. IN NO EVENT SHALL THE LIABILITY OF THE HOLDER UNDER
THIS SECTION 6(B) BE GREATER IN AMOUNT THAN THE DOLLAR AMOUNT OF THE PROCEEDS
RECEIVED BY THE HOLDER UPON THE SALE OF THE REGISTRABLE SECURITIES GIVING RISE
TO SUCH INDEMNIFICATION OBLIGATION.
(C) NOTICES OF CLAIMS, ETC. PROMPTLY AFTER RECEIPT BY AN
INDEMNIFIED PARTY OF NOTICE OF THE COMMENCEMENT OF ANY ACTION OR PROCEEDING
INVOLVING A CLAIM REFERRED TO IN THE PRECEDING SUBDIVISIONS OF THIS SECTION 6,
SUCH INDEMNIFIED PARTY WILL, IF A CLAIM IN RESPECT THEREOF IS TO BE MADE AGAINST
AN INDEMNIFYING PARTY, GIVE WRITTEN NOTICE TO THE LATTER OF THE COMMENCEMENT OF
SUCH ACTION; PROVIDED THAT THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE NOTICE
AS PROVIDED HEREIN SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS OBLIGATIONS
UNDER THE PRECEDING SUBDIVISIONS OF THIS SECTION 6, EXCEPT TO THE EXTENT THAT
THE INDEMNIFYING PARTY IS ACTUALLY PREJUDICED BY SUCH FAILURE TO GIVE NOTICE. IN
CASE ANY SUCH ACTION IS BROUGHT AGAINST AN INDEMNIFIED PARTY, UNLESS IN SUCH
INDEMNIFIED PARTY'S REASONABLE JUDGMENT A CONFLICT OF INTEREST BETWEEN SUCH
INDEMNIFIED AND INDEMNIFYING PARTIES MAY EXIST IN RESPECT OF SUCH CLAIM, THE
INDEMNIFYING PARTY SHALL BE ENTITLED TO PARTICIPATE IN AND TO ASSUME THE DEFENSE
THEREOF, JOINTLY WITH ANY OTHER INDEMNIFYING PARTY SIMILARLY NOTIFIED TO THE
EXTENT THAT IT MAY WISH, WITH COUNSEL REASONABLY SATISFACTORY TO SUCH
INDEMNIFIED PARTY, AND AFTER NOTICE FROM THE INDEMNIFYING PARTY TO SUCH
INDEMNIFIED PARTY OF ITS ELECTION SO TO ASSUME THE DEFENSE THEREOF, THE
INDEMNIFYING PARTY SHALL NOT BE LIABLE TO SUCH INDEMNIFIED PARTY FOR ANY LEGAL
OR OTHER EXPENSES SUBSEQUENTLY INCURRED BY THE LATTER IN CONNECTION WITH THE
DEFENSE THEREOF OTHER THAN REASONABLE COSTS OF INVESTIGATION. NO INDEMNIFYING
PARTY SHALL, WITHOUT THE CONSENT OF THE INDEMNIFIED PARTY, CONSENT TO ENTRY OF
<PAGE> 139
ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WHICH DOES NOT INCLUDE AS AN
UNCONDITIONAL TERM THEREOF THE GIVING BY THE CLAIMANT OR PLAINTIFF TO SUCH
INDEMNIFIED PARTY OF A FULL RELEASE FROM ALL LIABILITY IN RESPECT TO SUCH CLAIM
OR LITIGATION.
(D) OTHER INDEMNIFICATION. INDEMNIFICATION SIMILAR TO THAT
SPECIFIED IN THE PRECEDING SUBDIVISIONS OF THIS SECTION 6 (WITH APPROPRIATE
MODIFICATIONS) SHALL BE GIVEN BY THE COMPANY AND THE HOLDER WITH RESPECT TO ANY
REQUIRED REGISTRATION OR OTHER QUALIFICATION OF SECURITIES UNDER ANY FEDERAL OR
STATE LAW OR REGULATION OF ANY GOVERNMENTAL AUTHORITY OTHER THAN THE SECURITIES
ACT.
(E) INDEMNIFICATION PAYMENTS. THE INDEMNIFICATION REQUIRED BY THIS
SECTION 6 SHALL BE MADE BY PERIODIC PAYMENTS OF THE AMOUNT THEREOF DURING THE
COURSE OF THE INVESTIGATION OR DEFENSE, AS AND WHEN BILLS ARE RECEIVED OR
EXPENSE, LOSS, DAMAGE OR LIABILITY IS INCURRED.
(F) CONTRIBUTION. IF THE INDEMNIFICATION PROVIDED FOR IN THIS
SECTION 6 FROM THE INDEMNIFYING PARTY IS UNAVAILABLE TO AN INDEMNIFIED PARTY
HEREUNDER IN RESPECT OF ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES
REFERRED TO HEREIN, THEN THE INDEMNIFYING PARTY, IN LIEU OF INDEMNIFYING SUCH
INDEMNIFIED PARTY, SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH
INDEMNIFIED PARTY AS A RESULT OF SUCH LOSS, CLAIMS, DAMAGES, LIABILITIES OR
EXPENSES IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT THE RELATIVE FAULT OF
THE INDEMNIFYING PARTY AND INDEMNIFIED PARTIES IN CONNECTION WITH THE ACTIONS
WHICH RESULTED IN SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES, AS WELL
AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. THE RELATIVE FAULT OF SUCH
INDEMNIFYING PARTY AND INDEMNIFIED PARTIES SHALL BE DETERMINED BY REFERENCE TO,
AMONG OTHER THINGS, WHETHER ANY ACTION IN QUESTION, INCLUDING ANY UNTRUE
STATEMENT OF MATERIAL FACT OR OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL
FACT, HAS BEEN MADE BY, OR RELATES TO INFORMATION SUPPLIED BY, SUCH INDEMNIFYING
PARTY OR INDEMNIFIED PARTIES, AND THE PARTIES' RELATIVE INTENT, KNOWLEDGE,
ACCESS TO INFORMATION AND OPPORTUNITY TO CORRECT OR PREVENT SUCH ACTION. THE
AMOUNT PAID OR PAYABLE BY A PARTY AS A RESULT OF THE LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND EXPENSES REFERRED TO ABOVE SHALL BE DEEMED TO INCLUDE, SUBJECT
TO THE LIMITATIONS SET FORTH IN SECTION 6(C) HEREOF, ANY LEGAL OR OTHER FEES OR
EXPENSES REASONABLY INCURRED BY SUCH PARTY IN CONNECTION WITH ANY INVESTIGATION
OR PROCEEDING.
THE PARTIES HERETO AGREE THAT IT WOULD NOT BE JUST AND EQUITABLE IF
CONTRIBUTION PURSUANT TO THIS SECTION 6(F) WERE
<PAGE> 140
DETERMINED BY PRO RATA ALLOCATION OR BY ANY OTHER METHOD OF ALLOCATION WHICH
DOES NOT TAKE ACCOUNT OF THE EQUITABLE CONSIDERATIONS REFERRED TO IN THE
IMMEDIATELY PRECEDING PARAGRAPH. NOTWITHSTANDING THE PROVISIONS OF THIS SECTION
6(F), NO UNDERWRITER SHALL BE REQUIRED TO CONTRIBUTE ANY AMOUNT IN EXCESS OF THE
AMOUNT BY WHICH THE TOTAL PRICE AT WHICH THE REGISTRABLE SECURITIES UNDERWRITTEN
BY IT AND DISTRIBUTED TO THE PUBLIC WERE OFFERED TO THE PUBLIC EXCEEDS THE
AMOUNT OF ANY DAMAGES WHICH SUCH UNDERWRITER HAS OTHERWISE BEEN REQUIRED TO PAY
BY REASON OF SUCH UNTRUE OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED
OMISSION, AND THE HOLDER SHALL BE REQUIRED TO CONTRIBUTE ANY AMOUNT IN EXCESS OF
THE AMOUNT BY WHICH THE TOTAL PRICE AT WHICH THE REGISTRABLE SECURITIES WERE
OFFERED TO THE PUBLIC EXCEEDS THE AMOUNT OF ANY DAMAGES WHICH THE HOLDER HAS
OTHERWISE BEEN REQUIRED TO PAY BY REASON OF SUCH UNTRUE STATEMENT OR OMISSION.
NO PERSON GUILTY OF FRAUDULENT MISREPRESENTATION (WITHIN THE MEANING OF SECTION
11(F) OF THE SECURITIES ACT) SHALL BE ENTITLED TO CONTRIBUTION FROM ANY PERSON
WHO WAS NOT GUILTY OF SUCH FRAUDULENT MISREPRESENTATION.
IF INDEMNIFICATION IS AVAILABLE UNDER THIS SECTION 6, THE INDEMNIFYING
PARTIES SHALL INDEMNIFY EACH INDEMNIFIED PARTY TO THE FULL EXTENT PROVIDED IN
SECTION 6(A) THROUGH SECTION 6(E) HEREOF WITHOUT REGARD TO THE RELATIVE FAULT OF
SAID INDEMNIFYING PARTY OR INDEMNIFIED PARTY OR ANY OTHER EQUITABLE
CONSIDERATION PROVIDED FOR IN THIS SECTION 6(F).
7. Forms. All references herein to particular forms of registration
statements are intended to include, and shall be deemed to include, references
to all successor forms which are intended to replace, or to apply to similar
transactions as, the forms herein referenced.
8. Transfer of Registration Rights. The registration rights granted
hereunder may be transferred by the Shareholder at any time, in whole or in
part, without the consent of the Company, to any person acquiring at least
250,000 of the outstanding Registrable Securities from the Shareholder or any of
its affiliates (each such person being a "Shareholder Transferee") and the terms
and provisions set forth in this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the Shareholder, whether so expressed or not. Notwithstanding the foregoing
provisions of this Section 8, the registration rights granted hereunder with
respect to any Registrable Securities may not be transferred if (a) a
registration statement with respect to the disposition of such Registrable
Securities shall have become effective under the Securities Act and such
Registrable Securities shall have been disposed of pursuant to such effective
registration statement, or (b) such Registrable Securities shall have been sold
under circumstances in which all of the applicable conditions of Rule 144 (or
any similar provisions then in force) under the Securities Act are met. The
registration rights granted hereunder may not be transferred by the DSI Group
Shareholders.
<PAGE> 141
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders in this Agreement.
(b) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
personally or by facsimile transmission (with a copy sent by overnight delivery
service or by first class certified or registered mail) or by overnight delivery
service or 72 hours after having been mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
If to the Company, at DSI Toys, Inc., 1100 W. Sam Houston Parkway
N., Suite A, Houston, Texas 77043, Attention: M.D. Davis (fax: 713/468-8194) or
at such other address or addresses as may have been furnished in writing by the
Company to the Holders, with a copy to Thompson & Knight, 1200 San Jacinto
Center, 98 San Jacinto Boulevard,Austin,TX78701, Attention: Michael L. Bengtson,
Esq.(fax: 512/469-6180).
If to the Shareholder, at MVII, LLC, 654 Osos Street, San Luis
Obispo, CA 93401, Attention: E. Thomas Martin (fax: 805/545-7590) or at such
other address or addresses as may have been furnished in writing by the
Shareholder to the Company, with a copy to Andre, Morris & Buttery, 1304 Pacific
Street, San Luis Obispo, CA 93401, Attention: J. Todd Mirolla, Esq. (fax:
805/543-0752).
If to any of the Holders other than the Shareholder, to the address
set forth opposite such Holder's signature to this Agreement, with a copy to
Thompson & Knight, 1200 San Jacinto Center, 98 San Jacinto
Boulevard,Austin,TX78701, Attention: Michael L. Bengtson, Esq.(fax:
512/469-6180).
Notices provided in accordance with this paragraph (b) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(c) Remedies. Any person having rights under any provision of this
Agreement to enforce such rights specifically to recover damages caused by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or other
security) for specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, no
amendment, modification, termination or cancellation of this Agreement shall be
effective unless made in writing signed by the all of the parties hereto.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
<PAGE> 142
(f) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
(g) Headings. The headings of this Agreement are for convenience
only and do not constitute a part of this Agreement.
(h) Governing Law. The construction, validity and interpretation of
this Agreement will be governed by the internal laws of the State of Texas
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
(i) Further Assurances. Each party to this Agreement hereby
covenants and agrees, without the necessity of any further consideration, to
execute and deliver any and all such further documents and take any and all such
other actions as may be necessary to appropriate to carry out the intent and
purposes of this Agreement and to consummate the transactions contemplated
hereby.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same documents.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
DSI TOYS, INC.:
By:
----------------------------------------
Name: M.D. Davis
--------------------------------------
Title: C.E.O.
-------------------------------------
MVII, LLC:
By:
----------------------------------------
Name: E. Thomas Martin
--------------------------------------
Title: Manager
-------------------------------------
<PAGE> 143
DSI GROUP:
Address: 13606 Taylorcrest --------------------------------
Houston, TX 77079 M. D. Davis
(fax: 713/465-2773)
Address: c/o Jack R. Crosby RUST CAPITAL, LTD.:
327 Congress Avenue
Suite 350 By: Rust Investment Corporation,
Austin, TX 78701 its general partner
(fax: 512/474-1610)
By:
-----------------------------
Name: Jack R. Crosby
Title: President
Address: 6829 Golf Drive --------------------------------
Dallas, TX 75205 Douglas A. Smith
(fax: 972/980-1503)
Address: 515 Congress Avenue --------------------------------
Suite 2626 Joseph N. Matlock
Austin, TX 78701
(fax: 512/346-4404)
Address: Independent Bankers Capital Fund --------------------------------
1700 Pacific Avenue Barry B. Conrad
Suite 1400
Dallas, TX 75201
(214) 765-1485
<PAGE> 144
STOCK PURCHASE AGREEMENT EXHIBIT 5.17
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into as of
_____________ ____, 1999, between DSI Toys, Inc., a Texas corporation (the
"Company") and M. D. Davis (the "Consultant").
WHEREAS, the Consultant has acquired extensive knowledge of and
experience in the businesses conducted by the Company;
WHEREAS, the Company desires to obtain the benefit of the Consultant's
knowledge and experience by retaining the Consultant, and the Consultant desires
to accept such position, for the term and upon the other conditions hereinafter
set forth;
WHEREAS, the Company and MVII, LLC have entered into that certain Stock
Purchase Agreement dated as of _____________ (the "Stock Purchase Agreement"),
pursuant to which MVII, LLC will acquire a substantial equity interest in the
Company, subject to the terms and conditions thereof; and
WHEREAS, the Consultant will cease to be an employee and officer of the
Company and of all its subsidiaries, effective as of the Second Closing (as such
term is defined in the Stock Purchase Agreement).
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the adequacy and sufficiency of which are hereby acknowledged,
the Company, Purchaser and the Consultant hereby agree as follows:
1. Term of the Agreement. The Company engages the Consultant as a
consultant, subject to the terms and conditions hereof, for the period
commencing at the Second Closing and ending on the third annual anniversary of
the Second Closing (the "Consulting Period"), subject to earlier termination
pursuant to Section 5 hereof.
2. Consulting Services; Expenses. During the Consulting Period, the
Consultant shall make himself available at times and places that are mutually
convenient to the Company and the Consultant to perform consulting services with
respect to the business conducted, or in development, by the Company. Such
consulting services shall include those matters as the Board of Directors of the
Company may reasonably request from time to time. At such mutually convenient
times and places, the Consultant shall use commercially reasonable efforts to
perform such consulting services, provided that the Consultant shall not be
required to provide such consulting services for more than twenty (20) hours per
month during the Consulting Period. The Company shall reimburse the Consultant
for all necessary travel and other reasonable out-of-pocket expenses incurred by
the Consultant in providing such consulting services in accordance with the
Company's policies for reimbursing such expenses as the same may be in effect
from time to time, subject to the reasonable approval of the Company's Board of
Directors.
<PAGE> 145
3. Independent Contractor. The Consultant shall perform the consulting
services described in Section 2 hereof as an independent contractor without the
power to bind, obligate or represent the Company for any purpose whatsoever. The
Consultant shall not, by virtue of being a consultant hereunder, be eligible to
receive any benefits for which officers or other employees of the Company are
eligible at any time, such as insurance, participation in Company pension plans
or other employee benefits. The Consultant hereby acknowledges his separate
responsibility for all federal and state withholding taxes, Federal Insurance
Contribution Act taxes, and workers' compensation and unemployment compensation
taxes, if applicable, and agrees to indemnify and hold the Company harmless from
any claim or liability therefor.
4. Compensation. As compensation for the consulting services to be
performed by the Consultant hereunder, the Company shall pay the Consultant
$450,000.00 (the "Consulting Payment"), payable in equal monthly installments of
$12,500.00. No amounts shall be payable following termination of this Agreement,
except as provided in Section 5 hereof.
5. Termination.
(a) This Agreement may be terminated at any time by the
Consultant on sixty (60) days' prior written notice to the Company. In
the event of such termination by the Consultant, the obligation of the
Company to pay compensation to the Consultant pursuant to Section 4
hereof shall cease, effective on the date of such termination.
(b) This Agreement may be terminated at any time by the
Company upon written notice to the Consultant. In the event of such
termination by the Company, the Company shall pay to the Consultant the
unpaid portion of the Consulting Payment in one lump sum within thirty
(30) days of such termination.
(c) This Agreement may be terminated by the Consultant upon
ten (10) days prior written notice to the Company in the event that the
Company shall breach any of its obligations under Section 2 or 4
hereof; provided, however, that the Consultant shall not be entitled to
terminate this Agreement pursuant to this Section 5(c) in the event
that the Company shall cure any such breach within such ten (10) day
period. In the event of such termination by Consultant, the Company
shall pay to the Consultant, the unpaid portion of the Consulting
Payment in one lump sum within thirty (30) days of such termination.
(d) This Agreement shall terminate immediately upon the death
of the Consultant or the permanent disability of the Consultant which
disability prevents him from performing the services described
hereunder. In the event of such termination by Consultant, the Company
shall pay to the Consultant, the Consultant's estate or the
Consultant's guardian, the unpaid portion of the Consulting Payment in
one lump sum within thirty (30) days of such termination.
6. Disclosure of Information. The Consultant recognizes and
acknowledges that he has and will have access to certain confidential
information, proprietary data and trade secrets of the
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<PAGE> 146
Company, and of entities and individuals controlling, controlled by or under
common control with the Company ("affiliates"), including but not limited to,
contracts, patterns, devices, calculations, drawings, productions, plans,
specifications, records, compilations of information, and other confidential
information and data either compiled by the Company or received from its
customers or the Consultant and that such information is not generally available
to the public and constitutes valuable, special and unique property of the
Company. The Consultant shall not, during or after the term of this Agreement,
undertake in any fashion to take commercial or proprietary advantage of or
profit from any of such confidential information, proprietary data and/or trade
secrets, directly or indirectly, or disclose any of such information to any
person or firm, corporation, association or other entity for any reason or
purpose whatsoever, except to authorized representatives of the Company and as
otherwise may be proper in the course of performing his services hereunder.
Further, the Consultant shall maintain the confidentiality of all such
information of the Company, its affiliates or its customers for the sole use and
benefit of the Company. All files, records, documents, drawings, plans,
specifications, contracts, products, equipment or similar items relating to the
business of the Company and/or its affiliates, whether prepared by the
Consultant or otherwise coming into his possession during the Consulting Period
or hereafter, shall remain the exclusive property of the Company and/or the
affiliates, as applicable, and shall not be removed from the premises of the
Company and/or its affiliates without the prior written consent of the Company
and/or its affiliates, as applicable. The Consultant covenants and agrees to
promptly return and deliver to the Company, on written request, all documents,
drawings, information, or other material or property of any kind or character
which in any way relate to the business of the Company or any of its affiliates
or customers, whether or not asserted to be the exclusive property of the
Company, and, further, the Consultant shall not attempt to retain copies or
duplicates of any such property. In the event of a breach or a threatened breach
by the Consultant, the Company and/or its affiliates may seek an injunction
restraining the Consultant from disclosing, in whole or in part, such
confidential information, in addition to all other remedies made available
hereby as a matter of law or in equity. In addition to any other damages
sustained by the Company, the Consultant shall pay to the Company all profits,
payments, earnings, compensation or other emoluments paid or accruing to the
Consultant, directly or indirectly, by reason of the Consultant's disclosure of
information as provided by this Section 6. Nothing herein shall be construed as
prohibiting the Company and/or its affiliates from pursuing any other remedies
available to it or them for such breach or threatened breach, including the
recovery of damages from the Consultant.
7. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the Consultant and by his personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees, and by the Company and Purchaser and their respective successors and
assigns.
8. Assignment. This Agreement is personal to the Consultant and shall
not be assigned or otherwise transferred by the Consultant.
9. Notices. All notices and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered, when delivered by facsimile or by courier or
overnight express service or five days after
-3-
<PAGE> 147
having been sent by certified or registered mail, postage prepaid, addressed:
(a) if to the Consultant, to the Consultant's address set forth below, or if to
the Company, to Tom Martin, 654 Osos Street, San Luis Obispo, CA 93401, fax
#805/545-7590, with a copy to J. Todd Mirolla, Esq., Andre, Morris & Buttery,
1304 Pacific Street, San Luis Obispo, CA 93401, fax #805/543- 0752, or (b) to
such other address as any party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Governing Law; Validity. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Texas without regard to
principles of conflicts of laws. The invalidity or enforceability of any other
provisions of this Agreement, which other provisions shall remain in full force
and effect.
11. Counterparts. This Agreement may be executed in three
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
12. Miscellaneous. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and executed
by the Consultant and by a duly authorized officer of the Company. No waiver by
any party hereto at any time of any breach by another party hereto of, or
failure to comply with, any condition or provision of this Agreement to be
performed or complied with by such other party shall be deemed a wavier of any
similar or dissimilar conditions or provisions at the same or at any prior or
subsequent time. Failure by the Consultant, the Company to insist upon strict
compliance with any provisions of this Agreement or to assert any right which
the Consultant, the Company may have hereunder shall not be deemed to be a
waiver of such provision or right or any other provision of or right under this
Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Consultant has executed this
Agreement as of the day and year first above written.
DSI TOYS, INC.
By:
-------------------------------
Name: M.D. Davis
Title: C.E.O.
CONSULTANT:
----------------------------------
M. D. Davis
X
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<PAGE> 148
STOCK PURCHASE AGREEMENT EXHIBIT 5.18
SIDE LETTER AGREEMENT
This Side Letter Agreement (this "Agreement"), is entered into this ___
day of ______, 1999, between MVII, LLC, a limited liability company formed under
the laws of the State of California ("Purchaser"), and ______________
("Shareholder").
WHEREAS, Shareholder beneficially owns and has dispositive power over
__________ shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of DSI Toys, Inc., a Texas corporation (the "Company");
WHEREAS, the Company and Purchaser have entered into a Stock Purchase
Agreement dated as of April 15, 1999 (the "Stock Purchase Agreement"), pursuant
to which Purchaser has agreed, among other things, to make a cash tender offer
(the "Offer") for up to 1,600,000 shares of Common Stock of the Company at $4.38
per share (or any higher price paid in the Offer), net to the seller in cash;
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Stock Purchase Agreement, Purchaser has required that Shareholder agree, and
in order to induce Purchaser to enter into the Stock Purchase Agreement,
Shareholder has agreed, among other things, to tender the Shares into the Offer;
and
WHEREAS, to induce Purchaser to consummate the transactions
contemplated by the Stock Purchase Agreement, Purchaser has agreed to restate
certain representations made by Shareholder to Purchaser in that certain Side
Letter Agreement dated April 15, 1999, governing the tender of Shares by
Shareholder into the Offer.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, in the Stock Purchase Agreement, the Other Agreements (as
defined in the Stock Purchase Agreement), the Side Letter Agreement dated April
15, 1999, and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Absence of Claims.
Shareholder represents and warrants to Purchaser that he has no claims,
demands, actions, causes of action, suits, damages, or losses of any nature
whatsoever, whether asserted or unasserted, as a result of actions or omissions
through the date of this Agreement, including without limitation any claims of
alleged employment discrimination, either as a result of the negotiated and
specifically agreed to separation of the Shareholders's employment with the
Company or otherwise, under the Age Discrimination in Employment Act, Title VII
of the Civil Rights Act of 1964, the Americans with Disabilities Act, any other
federal, state or local statute, rule, ordinance, or regulation, as well as any
claims for alleged wrongful discharge, negligent or intentional infliction of
emotional distress,
<PAGE> 149
breach of contract, including, without limitation, the breach of any employment
agreement between the Company and the Shareholder, or any other claims sounding
in tort, contract, or any other unlawful or wrongful behavior ("Claims"), and
knows of no set of facts which, currently or with the passage of time, would
give rise to any Claims by the Shareholder, against the Company, any of its
subsidiaries or any affiliated companies and businesses thereof, or any of their
successors, assigns, officers, owners, directors, agents, representatives,
attorneys or employees.
2. Miscellaneous.
2.1 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
fully in force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
2.2 Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts executed
in and to be performed in Texas without regard to any principles of choice of
law or conflicts of law of such State.
2.3 Headings.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
2.4 Counterparts.
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when as executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
<PAGE> 150
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
PURCHASER:
By:
-----------------------------------
Name: E. Thomas Martin
Title: Manager
SHAREHOLDER:
--------------------------------------
[NAME]
<PAGE> 151
STOCK PURCHASE AGREEMENT EXHIBIT 6.2(h)
------------
MVII, LLC
654 Osos Street
San Luis Obispo, CA 93401
Re: Stock Purchase and Sale Agreement dated April 15, 1999 (the
"Agreement") between DSI Toys, Inc. (the "Company") and MVII,
LLC ("MVII")
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.2(h) of
the Agreement. Capitalized terms which are defined in the Agreement and which
are used but not defined herein shall have the meanings given them in the
Agreement.
We have acted, in connection with the transactions provided for in the
Agreement (the "Transactions"), as counsel for the Company. We have also
assisted the Company in the negotiation of the Agreement and the Other
Agreements (the Agreement and the Other Agreements to which the Company is a
party are collectively referred to as the "Transaction Documents"). In
connection with the foregoing, we have examined the originals or copies,
certified or otherwise authenticated to our satisfaction, of such corporate
records of the Company, agreements or other instruments, certificates of public
officials and of officers of the Company, and other instruments and documents as
we have deemed necessary to require as a basis for the opinions hereinafter
expressed. As to various questions of fact material to such opinions, we have,
where relevant facts were not independently established, relied upon statements
and certificates of officers of the Company where we deemed such reliance
appropriate under the circumstances. In making our examinations and
investigations we have assumed, with respect to all documents which we have
examined: the genuineness of all signatures thereon, the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies, and the authenticity of the originals of
such copies.
Based upon the foregoing, and subject to the qualifications and
exceptions hereinafter set forth, we are of the opinion that:
1. The Company is a corporation, validly existing and in good standing
under the laws of the State of Texas, and has full corporate power and
authority to own its properties and to conduct its business as the same
is now being conducted.
<PAGE> 152
MVII, LLC
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Page 2
2. The Company has full corporate power and authority to execute, deliver,
and perform its obligations under the Transaction Documents and to
consummate the Transactions. The execution, delivery and performance by
the Company of the Transaction Documents, and, assuming approval of the
Transactions by the Company's shareholders, the consummation by the
Company of the Transactions have been duly authorized by all necessary
corporate action.
3. The Transaction Documents have been duly and validly executed and
delivered by the Company and the Transaction Documents are valid and
binding obligations of the Company, enforceable against it in
accordance with their terms.
4. The _____________ Shares are duly authorized. Assuming delivery of the
cash contemplated by the Agreement on the Second Closing Date, the
_____________ Shares will be validly issued, outstanding, fully paid
and non-assessable.
5. The authorized capital stock the Company consists of 20,000,000 shares
of common stock, par value $.01 per share, of which 6,000,000 shares
are issued and outstanding. All of such issued and outstanding shares
are duly authorized, validly issued, fully paid and non-assessable.
6. Except as disclosed in Seller's Disclosure Letter or in the Agreement,
to our knowledge, there are no authorized or outstanding warrants,
options or rights of any kind to acquire from the Company and each
Subsidiary any equity or debt securities of the Company and each
Subsidiary or securities convertible into or exchangeable for equity or
debt securities of any the Company and each Subsidiary.
7. The execution, delivery and performance by the Company of the
Transaction Documents and the consummation of the Transactions will not
(i) violate any provision of law or any regulation customarily
applicable to transactions of the type contemplated by the Transaction
Documents and applicable to the Company, or (ii) to our knowledge,
violate any order, judgment, or decree of any court or other agency of
government to which the Company or any Subsidiary is subject, or (iii)
violate any provision of the Articles of Incorporation or By-Laws of
the Company or any Subsidiary, or (iv) to our knowledge, cause a breach
by the Company or any Subsidiary or permit the cancellation of any
agreement to which the Company or any Subsidiary is a party or by which
any of their respective assets are bound or result in creation of any
lien, security interest, charge or encumbrance upon any of such
properties, or (v) to our knowledge permit the acceleration of the
maturity of any indebtedness secured by the property of, the Company or
any Subsidiary.
8. To our knowledge, no actions or proceedings have been instituted or
threatened for the purpose or with the reasonable likely effect of
enjoining or preventing the consummation
<PAGE> 153
MVII, LLC
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Page 3
of the transactions contemplated by the Transaction Documents or
seeking damages on account thereof.
9. No action, consent or approval of or filing with any federal or state
governmental authority, in each case as is customarily applicable to
transactions of the type contemplated by the Agreement and applicable
to the Company, is required in connection with the execution, delivery,
or performance of the Transaction Documents by the Company, except for
(i) those identified on Seller's Disclosure Schedule or the Agreement,
(ii) those previously obtained or made, (iii) filings to occur in the
ordinary course of business following the consummation of the
transactions contemplated by the Transaction Documents, and (iv) those
which, if not obtained or made, would not have a material adverse
effect on the Company or its operations.
This opinion is limited by, subject to and based on the following:
(a) This opinion letter is limited in all respects to the laws of the
State of Texas and applicable federal law.
(b) We have assumed that each other signatory to the Transaction
Documents has all requisite power and authority to enter into and perform its
obligations under the Transaction Documents, and that each has duly authorized,
executed and delivered the Transaction Documents to which it is a party.
(c) The qualification of any opinion or statement herein by the use of
the words "to our knowledge" or "known to us" or "of which we have knowledge"
means the conscious awareness of an attorney in this firm who has had active
involvement in negotiating the Transaction Documents. Please note in this regard
that, with your consent, we have not reviewed any agreements or instruments
other than the Agreement and the Other Agreements or undertaken any
investigation to determine the existence of such facts or any such documents,
and no inference as to our knowledge thereof shall be drawn from the fact of our
delivery of the opinions contained herein, our representation of the Company or
otherwise.
(d) We have, to the extent we have deemed appropriate, assumed that the
statements, recitals, representations and warranties contained in the
Transaction Documents are accurate and complete.
(e) The enforceability of the respective obligations of the parties to
the Transaction Documents, and the availability of certain rights and remedies
provided for therein, may be limited by (i) general principles of equity, and
(ii) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and similar laws applicable to creditors' rights generally. The enforceability
of particular obligations, rights and remedies provided for in the Transaction
Documents may also be limited by various additional state and federal laws and
judicial decisions, but in our opinion such additional limitations do not
substantially interfere with the
<PAGE> 154
MVII, LLC
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Page 4
practical realization of the benefits expressed in the Transaction Documents
except for the consequences of any delay which may result therefrom.
(f) We express no opinion with respect to the validity or
enforceability of any provision in the Transaction Documents providing for (i)
waivers of trial by jury, waivers or stipulations as to jurisdiction or venue,
or waivers or stipulations as to service of process, (ii) waivers of or
restrictions on a party's right to sue upon any claim for any special,
exemplary, punitive, indirect or consequential damages, or (iii) the
indemnification or exculpation of any party (1) in violation of public policy,
(2) to the extent precluded by federal or state securities laws, or (3) from the
consequences of its own gross negligence or strict liability.
(g) We have assumed that the Sunrock Consent is valid, binding and in
effect.
The opinions herein expressed are for the benefit of MVII and may be
relied upon only by MVII in connection with the transactions contemplated by the
Agreement and for no other purpose. This opinion letter is limited to the
matters expressly stated herein and no opinion may be inferred or implied beyond
the matters expressly stated herein. The opinions expressed herein are rendered
and speak only as of the date hereof, and we specifically disclaim any
responsibility to update such opinions or to advise you of subsequent
developments affecting such opinions that hereafter may come to our attention.
Respectfully submitted,
THOMPSON & KNIGHT,
A Professional Corporation
By:
------------------------------
Attorney
<PAGE> 155
[RICHARDS BUTLER LETTERHEAD]
MVII, LLC
654 Osos Street
San Luis, Obispo,
CA 93401
U.S.A.
our ref CJW/T222-003
15th April, 1999
Dear Sirs:
DSI (H.K.) LIMITED (THE "COMPANY")
1. Introduction
We have been asked to give this opinion as to Hong Kong law in relation
to the Company.
2. Documents
For the purposes of giving this opinion, we have examined the following
documents (the "Documents"):
(i) copies of the certificate of incorporation, the memorandum of
association of the Company (the "Memorandum") and the articles
of association of the Company (the "Articles") obtained from
the search conducted at the Hong Kong Companies Registry
referred to below;
(ii) fax copies of the register of members and register of
directors of the Company;
(iii) a certificate signed by a director of the Company certifying
the nature of the current business of the Company (the
"Director's Certificate");
(iv) a copy of a resolution in writing of all the members of the
Company dated 10th January, 1992, and a copy of the minutes of
the first meeting of the directors of the Company dated 10th
January, 1992; and
<PAGE> 156
(v) the results of searches carried out in relation to the Company at:
(a) the Hong Kong Companies Registry on 15th April, 1999; and
(b) the Registry of the High Court in Hong Kong on 15th April,
1999.
3. Scope of opinion
We have not made any investigation of, and do not express or imply any
opinion on, the laws of any jurisdiction other than Hong Kong. This
opinion is limited to the laws of Hong Kong as applied by the Hong Kong
Courts as at the date hereof. Our opinion relates solely to the
Company.
4. Assumptions
In our examination of the Documents and in giving our opinion
hereunder, we have assumed with your consent and without further
enquiry that:
(i) all signatures are genuine, that all documents submitted to us
as originals are authentic and that all documents submitted to
us as copies conform to the originals;
(ii) all factual statements made in the Documents are correct and
they are complete and up to date;
(iii) the copies of the Memorandum and Articles, registers of
directors and members of the Company, the resolution in
writing of all the members of the Company and the minutes of
the first meeting of the directors of the Company which we
have examined are complete, accurate and up-to-date and have
not been amended, varied or superseded;
(iv) the resolution of the members of the Company was validly
passed;
(v) the first meeting of the directors was held with a quorum
present, notice of the meeting having been duly given to all
the directors entitled to receive the same and the proceedings
of the meeting are accurately recorded in the minutes; and
(vi) the searches referred to in paragraph 2(v) above reveal all
matters required by law to be notified to the Hong Kong
Companies Registry, and the Registry of the Supreme Court in
Hong Kong (notwithstanding that any time limit for any such
notification has not yet expired) and have not been amended or
updated or any
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<PAGE> 157
further documents filed at the Hong Kong Companies Registry or
the Registry of the Supreme Court in Hong Kong in relation
thereto since the date of the searches.
5. Opinion
Subject to the assumptions set out above and the reservations set out
below and to any matters not disclosed to us or inaccurately disclosed
to us by the parties concerned, we are of the opinion that:
(i) the Company has been duly incorporated, is validly existing as
a company under the laws of Hong Kong and has the corporate
power and authority required to carry on its business as
described in the Director's Certificate and is permitted by
the Memorandum to own, lease and operate its properties;
(ii) the Company is permitted by the Memorandum to do business in
jurisdictions other than Hong Kong;
(iii) the duly authorized share capital of the Company is
US$20,000.00 divided into 20,000 shares of US$1.00 each, of
which 10,000 ordinary share have been duly authorized and
validly issued and allotted by the Company. All of the issued
ordinary shares of the Company were when issued part of the
duly authorized share capital of the Company and such issued
shares are recorded in the register of members of the Company
as fully paid; and
(iv) DSI Toys, Inc. and Yau Wing Kong, Tommy are the registered
owners of the issued share capital of the Company. DSI Toys,
Inc. is the registered owner of 9,999 issued shares and Yau
Wing Kong, Tommy is the registered owner of 1 issued share.
Our reservations are that:
(i) we express no opinion as to any law other than Hong Kong law;
(ii) due to the time allowed for issuing this opinion, we have not
been able to conduct a search at the Office of the Official
Receiver in Hong Kong. Accordingly, we give no opinion as to
the solvency of the Company or whether the Company is subject
to any winding-up or insolvency proceedings; and
(iii) the registered owner of a share is not necessarily the
beneficial owner of such share.
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<PAGE> 158
This opinion is limited to and given on the basis of Hong Kong law, rules and
regulations in force as at the date hereof and that it will be governed by and
construed and have effect in accordance with Hong Kong law. It is also limited
to the matters stated herein and is addressed to you for your benefit only.
It may be relied upon by Thompson & Knight, P.C., in rendering its opinion in
connection with the transaction involving the Company and/or DSI Toys, Inc.
currently contemplated, but may not be disclosed to any third party other than
persons who by law or in the ordinary course of business would have access to
your papers and records.
Yours faithfully,
RICHARDS BUTLER
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<PAGE> 159
STOCK PURCHASE AGREEMENT EXHIBIT 6.3(d)
--------------
DSI Toys, Inc.
c/o Michael L. Bengston, Esq.
Thompson & Knight, P.C.
Third Floor South
1200 San Jacento Center
Austin, TX 78701
RE: MVII/DSI TOYS, INC. STOCK PURCHASE AND SALE AGREEMENT
DATED APRIL 15, 1999
Ladies and Gentlemen:
We have acted as co-counsel to MVII, LLC, a California limited
liability company ("Buyer"), in connection with: (i) the Stock Purchase and Sale
Agreement dated April 15, 1999 (the "Purchase Agreement"), by and between Buyer
and DSI Toys, Inc., a Texas corporation ("Seller"); (ii) certain other documents
related to the Purchase Agreement; and (iii) the transactions contemplated
thereby (the "Transactions").
This opinion is being delivered pursuant to Section 6.3(d) of the
Purchase Agreement. Capitalized terms used but not otherwise defined in this
opinion shall be defined as set forth in the Purchase Agreement.
In connection with this opinion, we have considered such matters of law
and fact as we deemed appropriate, including the examination of originals or
copies, certified or otherwise identified to our satisfaction, of the relevant
records of Buyer and such other agreements and documents as we have deemed
necessary to render the opinions set forth below (collectively, the "Other
Agreements" and together with the Purchase Agreement, the "Agreements").
As to questions of fact material to this opinion, we have solely relied
upon the representations and warranties of the parties made in the Agreements
and such certificates and other statements of Buyer as we deemed appropriate,
together with certificates or other communications of appropriate public
officials. We have made no independent investigation or verification of factual
matters.
<PAGE> 160
DSI Toys, Inc.
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Page 2
In such examination, we have assumed: (i) the genuineness of all
signatures other than the signatures of Buyer; (ii) the authenticity of all
documents submitted to us as originals; and (iii) the conformity to original
documents of all documents submitted to us as copies.
Based on the foregoing, and subject to the qualifications and
assumptions set forth herein, we are of the opinion that:
1. Buyer is a California limited liability company, validly existing
and in good standing under the laws of the State of California. Buyer has the
power to execute and deliver the Agreements, to perform its obligations
thereunder, to own and use its assets and to conduct its business as the same is
now being conducted.
2. Buyer has duly authorized the execution and delivery of the
Agreements and all performance by it thereunder, and has duly executed and
delivered the Agreements.
3. The Agreements have been duly and validly executed and delivered by
Buyer and constitute legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their terms.
4. No action, consent or approval of or filing with any federal, state,
county or local governmental authority, in each case as is customarily
applicable to transactions of the type contemplated by the Purchase Agreement
and applicable to Buyer, is required in connection with the execution, delivery
or performance of the Agreements by Buyer, except for (i) in the Agreement, (ii)
those previously obtained or made, (iii) filings to occur in the ordinary course
of business following the consummation of the transactions contemplated by the
Agreement; and (iv) those which, if not obtained or made, would not have a
material adverse effect on Buyer or its operations.
5. We have no actual knowledge of any actions or proceedings that have
been instituted or threatened for the purpose or with the reasonable likely
effect of enjoining or preventing the consummation of the Transactions.
6. The execution, delivery and performance by Buyer of the Agreements
and the consummation of the Transactions contemplated thereby will not (i)
violate any provision of law or any regulation customarily applicable to
transactions of the type contemplated by the
<PAGE> 161
DSI Toys, Inc.
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Page 3
Agreements and applicable to Buyer; (ii) to our actual knowledge, violate any
order, judgment, or decree of any court or other agency of government to which
the Buyer is subject; (iii) violate any provision of the Articles of
Organization or Operating Agreement of Buyer; or (iv) to our actual knowledge,
cause a breach of any agreement that would be reasonably likely to have the
effect of preventing the consummation of the Transactions.
The opinions expressed herein are subject to the following
qualifications and comments:
A. We have not examined the laws of any state other than California and
this opinion is based exclusively upon the laws of the State of California and
the laws of the United States of America. We express no opinion concerning the
laws of any other jurisdiction.
B. We express no opinion concerning the application of the doctrines of
waiver, estoppel, or election of remedies, where the application of usual
equitable principles and equitable remedies are sought.
C. All opinions expressed in Paragraph 1 above regarding the validity
and authority of Buyer are based solely on certificates of public officials
regarding the good standing and qualification of Buyer to do business in
California. We have made no independent investigation or verification of the
factual matters with regard to Buyer's validity and authority.
D. The opinions expressed in Paragraph 3 above concerning the validity,
binding effect and enforceability of the Agreements are further limited as
follows:
(1) We express no opinion as to the effect of any bankruptcy,
insolvency, reorganization, fraudulent transfer, preference, equitable
subordination, moratorium, bulk sales, marshaling or similar laws affecting
enforcement of Seller's rights generally.
(2) The enforceability of the Agreements is subject to the
effect of general principles of equity, including, without limitation, concepts
of materiality, reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance or injunctive relief regardless of
whether considered in a proceeding in equity or at law.
(3) We express no opinion concerning the enforceability of any
provision in the Agreements concerning jurisdiction, waiver or waiver of jury
trial.
<PAGE> 162
DSI Toys, Inc.
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Page 4
E. The qualifications of any opinion or statement herein by the use of
the words "to our actual knowledge" or "known to us" or "of which we have
knowledge" means the conscious awareness of an attorney in this firm who has had
active involvement in negotiating the Agreements. Please note in this regard
that, with your consent, we have not reviewed any agreements or instruments
other than the Agreements, or undertaken any investigation to determine the
existence of such facts or any such documents, and no inference as to our
knowledge thereof shall be drawn from the fact of our delivery of the opinions
contained herein, our representation of Buyer or otherwise.
This opinion is limited to the matters expressly stated herein and no
opinion or other statement may be inferred or implied beyond the matters
expressly stated herein. This opinion is given only for your use and benefit,
and is given solely for use in connection with the Purchase Agreement. This
opinion may not be relied upon by any other person or entity without our prior
written consent. We shall have no obligation to update or supplement this
opinion to reflect any facts or circumstances which may hereafter come to our
attention or any changes in laws which may hereafter occur.
Yours very truly,
ANDRE, MORRIS & BUTTERY,
a Professional Law Corporation
By:
---------------------------
J. Todd Mirolla
cc: MVII, LLC
<PAGE> 1
EXHIBIT 99(C)(2)
SIDE LETTER AGREEMENT
This Side Letter Agreement (this "Agreement"), is entered into this
15th day of April, 1999, between MVII, LLC, a limited liability company formed
under the laws of the State of California ("Purchaser"), and ___________________
("Shareholder").
WHEREAS, Shareholder beneficially owns and has dispositive power over
__________ shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of DSI Toys, Inc., a Texas corporation (the "Company");
WHEREAS, concurrently herewith, the Company and Purchaser are entering
into a Stock Purchase Agreement dated as of April 15, 1999, (the "Stock Purchase
Agreement"), pursuant to which Purchaser has agreed, among other things, to make
a cash tender offer (the "Offer") for up to 1,600,000 shares of Common Stock of
the Company at $4.38 per share (or any higher price paid in the Offer, the
"Offer Price"), net to the seller in cash;
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Stock Purchase Agreement, Purchaser has required that Shareholder agree, and
in order to induce Purchaser to enter into the Stock Purchase Agreement,
Shareholder has agreed, among other things, to tender the Shares into the Offer;
and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Tender of Shares.
(a) Shareholder agrees, in the event the Minimum Condition is
not met as of the initial scheduled expiration date of the Offer, to tender and
sell to Purchaser, free and clear of all mortgages, pledges, security interests,
encumbrances, liens, options, debts, charges, claims and restrictions of any
kind, such number of Shareholder's Shares, pursuant to the terms of the Offer,
except where such sales in response to the Offer might result in liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), so that the number of Shares tendered by Shareholder and all
other shareholders of the Company shall meet the Minimum Condition. Shareholder
agrees that Shareholder shall deliver to the depository for the Offer for
receipt prior to the initial scheduled expiration date of the Offer, either a
letter of transmittal together with the certificates for the Shares, if
available, or a "Notice of Guaranteed Delivery," if the Shares are not
available. Shareholder agrees not to withdraw any Shares tendered into the
Offer. Nothing contained herein shall prevent Shareholder from tendering any or
all Shares, even if the Minimum Condition is otherwise met, subject to the pro
rata reduction as described in Section 1(b) of this Agreement.
<PAGE> 2
(b) In the event more than 1,600,000 shares of Common Stock
are tendered into the Offer, the Shares tendered by the Shareholder shall be
subject to a pro rata reduction to the same extent as the shares of Common Stock
tendered by any other shareholder in the Offer, as required by the Stock
Purchase Agreement.
2. Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Purchaser as follows:
2.1 Title.
Shareholder is the owner (both beneficially and of record) of
the Shares. Except for the Shares and as set forth in Exhibit 2.1 attached
hereto, Shareholder is not the record or beneficial owner of any shares of, and
does not have any other rights of any nature to acquire any additional shares
of, capital stock of the Company. Shareholder will deliver in accordance with
the terms of this Agreement, all of the Shares, free and clear of all security
interests, liens, claims, pledges, options, restrictions, rights of first
refusal, agreements, limitations on Shareholder's voting rights, charges and
other encumbrances of any nature whatsoever, except for those rights and
limitations contemplated by the Stock Purchase Agreement and the Other
Agreements. Except as provided in that certain Shareholders' and Voting
Agreement of DSI Toys, Inc. dated as of even date herewith among the Company,
Purchaser, and the DSI Group, Shareholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to any of the
Shares. The Shareholder has sole power of disposition with respect to all of the
Shares.
2.2 Authority Relative to This Agreement.
Shareholder has all necessary power and authority to execute
and deliver this Agreement, to perform Shareholder's obligations hereunder and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Shareholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a legal, valid
and binding obligation of Shareholder enforceable against Shareholder in
accordance with its terms.
2.3 No Conflict.
The execution and delivery of this Agreement by Shareholder
does not, and the performance of this Agreement by Shareholder will not, (a)
except for any filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), require any consent,
approval, authorization or permit of, or filing with or notification to , any
governmental or regulatory authority, domestic or foreign, or (b) conflict with,
violate or result in any breach of or constitute a default under (or an event
which with notice or lapse of time or both would become a default under) any
agreement, judgment, injunction, order, law, rule, regulation, decree or
arrangement to which Shareholder or the Company is a party or is bound.
-2-
<PAGE> 3
2.4 Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Shareholder or the Company.
2.5 Absence of Claims.
Shareholder has no claims, demands, actions, causes of action,
suits, damages, or losses of any nature whatsoever, whether asserted or
unasserted, as a result of actions or omissions through the date of this
Agreement, including without limitation any claims of alleged employment
discrimination, either as a result of the negotiated and specifically agreed to
separation of the Shareholders's employment with the Company or otherwise, under
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, the Americans with Disabilities Act, any other federal, state or local
statute, rule, ordinance, or regulation, as well as any claims for alleged
wrongful discharge, negligent or intentional infliction of emotional distress,
breach of contract, including, without limitation, the breach of any employment
agreement between the Company and the Shareholder, or any other claims sounding
in tort, contract, or any other unlawful or wrongful behavior ("Claims"), and
knows of no set of facts which, currently or with the passage of time, would
give rise to any Claims by the Shareholder, against the Company, any of its
subsidiaries or any affiliated companies and businesses thereof, or any of their
successors, assigns, officers, owners, directors, agents, representatives,
attorneys or employees (the "Company Affiliates").
3. Representations and Warranties of Purchaser.
3.1 Authority Relative to This Agreement.
Purchaser has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly and
validly executed and delivered by Purchaser and, assuming the due authorization,
execution and delivery by Shareholder, constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
3.2 No Conflict.
The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, (a) except for
any filings required under the HSR Act, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, (b) conflict with or violate the
governing instruments of Purchaser, (c) conflict with, violate or result in any
breach of or constitute a default under (or an event which with notice or lapse
of time or both would become a default under) any agreement, judgment,
injunction, order, law, rule, regulation, decree or arrangement
-3-
<PAGE> 4
applicable to Purchaser or by which any property or asset of Purchaser is bound
or affected, other than, in the case of clause (c), any such conflicts,
violations, breaches or defaults that, individually or in the aggregate, would
not materially impair the ability of Purchaser to perform its obligations
hereunder.
3.3 Brokers.
Except for Gerard, Klauer, Mattison & Co., Inc. and other
broker-dealers Purchaser may elect to retain, all of whose fees will be paid by
Purchaser, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Purchaser.
3.4 Investment Intent.
Purchaser hereby represents that any securities it purchases
pursuant to this Agreement are being purchased for its own account for
investment and not with a view to, or for sale in connection with, any public
distribution thereof.
4. Covenant of Shareholder.
Shareholder shall not, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information), entertain or
consider any Takeover Proposal from any Person other than Purchaser or engage in
or continue discussions or negotiations relating to any Takeover Proposal,
except that the provisions of this Section 4 shall not restrict the
Shareholder's ability to act in such Shareholder's capacity as a director of the
Company in accordance with Section 5.2 of the Stock Purchase Agreement.
Shareholder shall immediately cease any existing activities, discussions or
negotiations by Shareholder or any investment banker, attorney, accountant or
other advisor or representative of Shareholder with parties conducted heretofore
with respect to any of the foregoing.
5. Additional Covenants of Shareholder.
Shareholder hereby covenants and agrees that until the earlier of the
Second Closing or the termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof, except as contemplated by this Agreement
and except pursuant to the Offer, Shareholder shall not, and shall not offer or
agree to, sell, transfer, tender, assign, or otherwise dispose of, or create or
permit to exist any restriction, right of first refusal, agreement or limitation
on Shareholder's voting rights, with respect to, the Shares now owned or any
other shares that may hereafter be acquired by Shareholder, other than as
contemplated by the Stock Purchase Agreement and the Other Agreements.
6. Termination.
This Agreement shall terminate automatically on the earlier to occur of
the Second Closing or termination of the Stock Purchase Agreement in accordance
with the terms and conditions thereof.
-4-
<PAGE> 5
7. Miscellaneous.
7.1 Expenses.
All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
7.2 Survival.
The representations and warranties of the Shareholder
contained in this Agreement shall survive the termination of this Agreement only
upon the occurrence of the Second Closing until the fourth anniversary of the
Second Closing.
7.3 Further Assurances.
Shareholder and Purchaser shall execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7.4 Specific Performance.
The parties hereto agree that irreparable damage would occur
in the event any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
7.5 Entire Agreement.
This Agreement constitutes the entire agreement between
Purchaser and Shareholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between Purchaser and Shareholder with respect to the subject matter hereof.
7.6 Assignment.
This Agreement shall not be assigned by operation of law or
otherwise.
7.7 Parties in Interest.
This Agreement shall be binding upon, inure solely to the
benefit of, and be enforceable by, the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
-5-
<PAGE> 6
7.8 Amendment; Waiver.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto. Any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
agreement or condition contained herein, provided, however, any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
7.9 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
fully in force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
7.10 Notices.
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Purchaser:
Tom Martin
654 Osos Street
San Luis Obispo, CA 93401
Fax #: 805/545-7590
with a copy to:
J. Todd Mirolla, Esq.
Andre, Morris & Buttery
1304 Pacific Street
San Luis Obispo, CA 93401
Fax #: 805/543-0752
-6-
<PAGE> 7
if to Shareholder:
---------------------------
---------------------------
---------------------------
---------------------------
with a copy to:
Michael L. Bengtson, Esq.
Thompson & Knight
1200 San Jacinto Center
98 San Jacinto Boulevard
Austin, TX 78701
Fax #: 512/469-6180
7.10 Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts executed
in and to be performed in Texas without regard to any principles of choice of
law or conflicts of law of such State.
7.11 Headings.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.12 Counterparts.
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when as executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
-7-
<PAGE> 8
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
PURCHASER:
By:
---------------------------------------
Name: E. Thomas Martin
Title: Manager
SHAREHOLDER:
------------------------------------------
Name:
-8-
<PAGE> 1
EXHIBIT 99(C)(3)
SHAREHOLDERS' AND VOTING AGREEMENT OF DSI TOYS, INC.
This Shareholders' and Voting Agreement of DSI Toys, Inc. (the
"Agreement") is made this 15th day of April, 1999, by and among DSI Toys, Inc.,
a Texas corporation (the "Company"), MVII, LLC, a limited liability company
formed under the laws of the State of California ("MVII"), and M.D. Davis
("Davis"), Rust Capital, Ltd., a Texas limited partnership ("Rust"), Douglas A.
Smith ("Smith"), Joseph N. Matlock ("Matlock") and Barry B. Conrad ("Conrad).
Davis, Rust, Smith, Matlock and Conrad are hereinafter referred to collectively
as the "DSI Group" and individually as a "DSI Shareholder". MVII and the DSI
Group are sometimes hereinafter referred to as the "Shareholders".
RECITALS:
WHEREAS, the Company has an authorized capitalization of twenty million
(20,000,000) shares of common stock, par value $.01 per share (the "Common
Shares");
WHEREAS, MVII has agreed to purchase two million three hundred
fifty-eight thousand four hundred ninety-one (2,358,491) Common Shares, subject
to adjustment, under the terms of that certain Stock Purchase and Sale Agreement
dated as of even date herewith (the "Stock Purchase Agreement") by and between
the Company and MVII (the "Stock Purchase");
WHEREAS, MVII proposes to make a tender offer to purchase up to one
million six hundred thousand (1,600,000) Common Shares from the Company's
shareholders on the terms and subject to the conditions of the Stock Purchase
Agreement (the "Tender Offer");
WHEREAS, the DSI Group currently owns approximately one million seven
hundred and ten thousand (1,710,000) Common Shares;
WHEREAS, upon the closing of the Stock Purchase and the completion of
the Tender Offer, the Shareholders will collectively own the majority of the
issued and outstanding Common Shares; and
WHEREAS, the Shareholders desire to agree among themselves and with the
Company with respect to certain matters relating to the Common Shares including,
without limitation, restrictions on certain transfers and purchases of the
Common Shares and the exercise of the voting rights evidenced by the Common
Shares.
<PAGE> 2
AGREEMENT:
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement, the Company, and the
Shareholders agree as follows:
ARTICLE I
VOTING AGREEMENT
1.01 Number of Directors. The Shareholders agree that the number of
directors which shall comprise the Board of Directors of the Company shall be
equal to six (6) upon completion of the Stock Purchase; provided, however, the
number of directors which shall comprise the Board of Directors of the Company
may be changed from time to time as permitted by the Company's Articles of
Incorporation, Bylaws and by law.
1.02 Nomination of Directors.
(a) MVII and the DSI Group shall each be entitled to nominate,
from time to time, the members of the Board of Directors of the
Company. The DSI Group shall be entitled to nominate two of the total
number of directors of the Company, and MVII shall be entitled to
nominate the remaining number of directors.
MVII and the DSI Group shall have the exclusive right to
nominate any director to replace a director previously nominated by it
who has vacated his or her directorship by reason of death,
resignation, or removal.
With respect to the nominees of MVII and the DSI Group, the
Company shall be entitled to rely on written notice from E. Thomas
Martin on behalf of MVII and from M.D. Davis on behalf of the DSI
Group, as to the identity of each Shareholder's nominees (each of Mr.
Martin and Mr. Davis is referred to herein as a "Spokesperson"). MVII
and the DSI Group may change its Spokesperson by giving the Company
written notice of a change in such Spokesperson, executed by a majority
in interest (not in number) of the DSI Shareholders in the case of the
DSI Group. The initial nominees for directors are as follows:
IDENTITY OF SHAREHOLDERS NOMINEE
------------------------ -------
MVII E. Thomas Martin
MVII Robert L. Burke
MVII Joseph S. Whitaker
MVII John McSorley
DSI Group Joseph N. Matlock
DSI Group M.D. Davis
(b) At least sixty (60) days prior to any meeting of the
Shareholders at which an election of directors is to be held, the
Company shall send to each Spokesperson a notice of such meeting
soliciting from such individual the names of the persons that MVII and
the DSI Group respectively wish to nominate as members of the Board of
Directors of the Company, which nomination may, but need not be, the
persons named in paragraph
<PAGE> 3
(a) of this Section 1.02. Such nominations must be received by the
Company within fifteen (15) days following the date of the Company's
notice soliciting nominations.
1.03 Election of Directors and Irrevocable Proxy. In exercising any
voting rights to which the Shareholders may be entitled by virtue of owning
Common Shares, the Shareholders shall, with respect to the election of directors
of the Company, vote the number of Common Shares that the Shareholders own for
election of the individuals nominated by MVII and the DSI Group, from time to
time, pursuant to Section 1.02 of this Agreement as the directors of the
Company. Each DSI Shareholder shall execute an irrevocable proxy, in a form
approved by the Board of Directors, appointing MVII as proxy, and authorizing
MVII to vote such DSI Shareholder's Common Shares for the election of the
directors to the Board of Directors in accordance with this Agreement. Such
irrevocable proxies shall further designate MVII as proxy for each DSI
Shareholder with respect to all other matters of the Company subject to a vote
of the Company's common shareholders, however each DSI Shareholder shall retain
the right to vote his or her Common Shares with respect to matters concerning
(a) a dissolution of the Company, or (b) the sale of a Controlling Interest (as
that term is defined in the irrevocable proxies). Such irrevocable proxies shall
have the same duration as this Agreement.
1.04 Removal of Directors. MVII shall not vote its Common Shares or the
DSI Group's Common Shares as proxy in favor of removal of a director nominated
by the DSI Group unless so requested by the DSI Group, as required by law.
1.05 Voting Agreement. This Agreement constitutes a voting agreement
made pursuant to the provisions of the Texas Business Corporation Act. A
counterpart of this Agreement will be deposited with the Company at its
principal office and is subject to the same rights of examination by any
shareholder of the Company, in person or by agent or attorney, as are the
Company's books and records.
1.06 Effective Date. The provisions of Article I of this Agreement
shall automatically take effect and are conditioned upon the completion of the
Second Closing, as such term is defined in the Stock Purchase Agreement.
ARTICLE II
TRANSFER RESTRICTIONS
2.01 Right of First Refusal in Connection With Transfers Other Than
Public Transfers. Subject to the provisions of Section 3.01(b) hereof, before
any Common Shares may be transferred, sold, assigned, conveyed or otherwise
disposed or delivered by a DSI Shareholder (a "Transfer") to any individual,
firm, company, corporation, unincorporated association, partnership, trust,
joint venture or other entity (a "Proposed Transferee") in any transaction other
than a transaction effected on the Nasdaq Stock Market or any stock exchange or
over-the-counter trading system on which the Company's Common Shares are traded
(a "Public Transfer"), the Common Shares shall first be offered to MVII in the
following manner:
(a) The DSI Shareholder who proposes to Transfer any Common
Shares (the "Selling Shareholder") shall give a written notice (the
"Seller Notice") to MVII stating (i) the Selling Shareholder's bona
fide intention to Transfer such Common Shares, (ii) the name of
<PAGE> 4
the Proposed Transferee, (iii) the number of Common Shares the Selling
Shareholder desires to Transfer (the "Offered Shares") and (iv) the
price for which the Selling Shareholder proposes to Transfer the
Offered Shares. MVII shall thereafter have an option to purchase the
Offered Shares in accordance with the provisions set forth below.
(b) MVII will have an option, for five (5) Business Days (as
hereinafter defined) after receiving the Seller Notice, to give written
notice to the Selling Shareholder and the Company of its election to
purchase the Offered Shares. The purchase price and other terms at
which the Offered Shares are offered to MVII shall be the price and
terms specified in the Seller Notice, including, if specified in the
Seller Notice, the requirement that all (but not less than all) of the
Offered Shares be purchased. A "Business Day" shall mean any day other
than a Saturday or Sunday or any other day on which banks in Houston,
Texas are authorized or required to close.
(c) In the event MVII does not elect to purchase 100% of the
Offered Shares (if that option is available under the terms of the
Seller Notice), the Selling Shareholder may thereafter Transfer the
balance of the Offered Shares in accordance with Section 2.01(e) hereof
free of the right of first refusal and voting agreement set forth in
this Agreement (subject to such right of first refusal being revived as
provided in Section 2.01(e) hereof).
(d) If exercised by MVII pursuant hereto, the right to
purchase the Offered Shares shall be exercised by written notice,
signed by MVII, and delivered or mailed to the Company as provided in
Section 3.01(i). Such notice shall specify the time, place and date for
settlement of such purchase, which shall be held within three (3)
Business Days after the expiration of the notice period specified in
Section 2.01(b).
(e) If MVII has not exercised its right of first refusal to
purchase the Offered Shares in accordance with Section 2.01(d) hereof,
the Selling Shareholder may thereafter Transfer such remaining Common
Shares free of the right of first refusal and voting agreement
contained in this Agreement to the Proposed Transferee at the price and
on the terms specified in the Seller Notice or at a higher price but
with no material change in the other terms, provided that such Transfer
is consummated within 180 days of the date of the Seller Notice. If the
Selling Shareholder fails to consummate the Transfer within such 180
day period, the purchase rights of MVII provided hereby shall be deemed
to be revived with respect to such shares and no Transfer of Common
Shares shall be effected without first offering such shares in
accordance herewith.
(f) Notwithstanding anything contained in this Agreement to
the contrary, the DSI Shareholders shall be entitled to Transfer their
Common Shares to their lineal descendants, members of their immediate
family and charities free of the right of first refusal contained in
this Section 2.01 provided that the Transferee agrees to be bound by
all of the terms and conditions of this Agreement.
2.02 Right of First Refusal in Connection With Public Transfers.
Subject to the provisions of Section 3.01(b) hereof, Common Shares may be
Transferred to any Proposed Transferee in a Public Transfer under the following
circumstances:
<PAGE> 5
(a) From time to time a DSI Shareholder (a "Public Selling
Shareholder") may deliver a written notice to MVII (the "Public
Transfer Notice") stating (i) the maximum number of Common Shares that
such Public Selling Shareholder intends to sell during the next sixty
(60) days (the "Public Offered Shares"), and (ii) the minimum price at
which such Public Selling Shareholder intends to sell such Common
Shares. MVII shall thereafter have an option to purchase all or part of
the Public Offered Shares in accordance with the provisions set forth
below.
(b) MVII will have an option, for three (3) Business Days
after receiving the Public Transfer Notice, to give written notice to
the Public Selling Shareholder and the Company of its election to
purchase all or part of the Public Offered Shares. The purchase price
at which the Public Offered Shares are offered to MVII shall be the
price and terms specified in the Public Transfer Notice.
(c) In the event MVII does not elect to purchase 100% of the
Public Offered Shares, the Public Selling Shareholder may thereafter
effect a Public Transfer of the balance of the Offered Shares in
accordance with Section 2.02(e) hereof free of the right of first
refusal and voting agreement set forth in this Agreement (subject to
such right of first refusal being revived as provided in Section
2.02(e) hereof).
(d) If exercised by MVII pursuant hereto, the right to
purchase the Public Offered Shares shall be exercised by written
notice, signed by MVII, and delivered or mailed to the Company as
provided in Section 3.01(i). Such notice shall specify the time, place
and date for settlement of such purchase, which shall be held within
three (3) Business Days after the expiration of the notice period
specified in Section 2.02(b).
(e) If MVII has not exercised its rights of first refusal to
purchase 100% of the Public Offered Shares in accordance with Section
2.02(a) hereof, the Public Selling Shareholder may thereafter effect
one or more Public Transfers of such remaining Common Shares free of
the right of first refusal and voting agreement contained in this
Agreement at a price not less than the price specified in the Public
Seller Notice, provided that, with respect to any Common Shares not
Transferred within sixty (60) days of the date of the Public Seller
Notice, the purchase rights of MVII provided hereby shall be deemed to
be revived with respect to such shares and no Transfer of Common Shares
shall be effected without first offering such shares in accordance
herewith.
2.03 Continuing Rights. The exercise or non-exercise of co-sale rights
pursuant to Section 2.05 hereunder shall not adversely affect MVII's right of
first refusal with respect to subsequent Transfers by a DSI Shareholder pursuant
to this Agreement. Subject to the provisions of Section 3.01(b), the provisions
of the voting agreement shall continue to apply to all Common Shares unless and
until they are transferred to a third party in accordance with the terms and
provisions of this Article II.
2.04 Right to Pledge Common Shares. A DSI Shareholder may pledge Common
Shares held by it as collateral for indebtedness provided that the pledgee party
agrees to be bound by all of the terms and conditions of Article II of this
Agreement in the event that the pledgee party becomes the owner of the pledged
Common Shares, whether by foreclosure, transfer in lieu of foreclosure or
otherwise. If any DSI Shareholder pledges any Common Shares held by it as
collateral for
<PAGE> 6
indebtedness as provided in this Section 2.04, simultaneous with such pledge,
the DSI Shareholder shall notify MVII of such pledge, the name, address and
phone number of the pledgee party, and the type and amount of indebtedness
secured by the collateral. If there shall occur an event of default in
connection with repayment of the indebtedness or any other event giving rise to
the pledgee party's right to foreclose on the collateral or accept or take the
collateral in lieu of foreclosure, or any event that otherwise allows or permits
the pledgee party to become the owner of the collateral, then the DSI
Shareholder shall immediately notify MVII of such event or occurrence.
2.05 Co-Sale Rights.
(a) MVII shall not Transfer in any one transaction or series
of related transactions more than forty percent (40%) of the total
number of Common Shares standing in its name as of the Second Closing
Date unless the DSI Shareholders are permitted to sell a number of
Common Shares owned by the DSI Group determined in accordance with
Section 2.05(c) to the third-party offeror at the same price and on the
same terms as the offer is proposed to be effected (a "Third-Party
Offer") to MVII.
(b) MVII shall cause the Third Party Offer to be reduced to
writing and shall send written notice of the Third Party Offer,
including the name of the offeror, the number of Common Shares the
offeror proposes to purchase, and the price and other terms the offeror
proposes for the purchase of the Common Shares (the "Inclusion Notice")
to each DSI Shareholder in the manner specified in Section 3.01(i).
Within five (5) Business Days after delivery of the Inclusion Notice,
each DSI Shareholder may accept the offer included in the Inclusion
Notice by furnishing written notice of such acceptance to MVII. If none
of the DSI Shareholders accepts such offer within such time period,
MVII shall be free, at any time within the next 180 days to sell its
shares to such third party on the terms contained in the Third Party
Offer free and clear of the terms and conditions of this Agreement.
(c) Each DSI Shareholder shall have the right to sell pursuant
to the Third Party Offer a number of Common Shares equal to the product
of (x) the number of Common Shares covered by the Third Party Offer and
(y) a fraction, the numerator of which is the total number of Common
Shares then owned by such DSI Shareholder and the denominator of which
is the total number of Common Shares then owned by MVII and such DSI
Shareholder free and clear of MVII's right of first refusal and the
voting agreement.
ARTICLE III
MISCELLANEOUS
3.01
(a) Spouse's Interest in Common Shares. By their signatures
below, the spouse of each DSI Shareholder (a "Spouse") agrees to be
bound in all respects by the terms of this Agreement to the same extent
as each DSI Shareholder. Each Spouse further agrees that should he or
she predecease or become divorced from a DSI Shareholder, any of the
Common Shares in which he or she may have any interest shall remain
subject to all of the
<PAGE> 7
restrictions and to all of the rights of the Company and the other
Shareholders as contained in this Agreement. Whenever reference is made
in this Agreement to "Common Shares," unless the context clearly
requires otherwise, such Common Shares will include any community
property or other interest of the DSI Shareholder's Spouse, if any, in
such Common Shares.
(b) Termination of Agreement. This Agreement and the
irrevocable proxies contemplated hereby will terminate upon the earlier
of (i) the termination of the Stock Purchase Agreement in the event the
Second Closing (as therein defined) does not occur, (ii) the fifth
anniversary of the date of the Second Closing under the Stock Purchase
Agreement, (iii) written consent of the Company, MVII and a majority in
interest of the DSI Group, or (iv) the dissolution of the Company.
(c) Indemnification. Each DSI Shareholder agrees to severally
indemnify and hold harmless MVII and the Company from and against any
and all damages, losses, claims, liabilities, demands, charges, suits
and penalties MVII or the Company incurs or to which MVII or the
Company becomes subject arising out of any breach or default by that
DSI Shareholder of any of the provisions of this Agreement, and MVII
agrees to indemnify and hold harmless each DSI Shareholder and the
Company from and against any and all damages, losses, claims,
liabilities, demands, charges, suits and penalties the DSI Shareholders
or the Company incurs or to which the DSI Shareholders or the Company
becomes subject arising out of any breach or default by MVII of any of
the provisions of this Agreement. Under no circumstances shall a DSI
Shareholder be liable in any way for indemnity under this Section
3.01(c) for the action or inaction of another DSI Shareholder.
(d) Remedies. The parties hereto acknowledge that remedies at
law for any breach or attempted breach of the provisions of this
Agreement will be inadequate, and therefore each party to this
Agreement will be entitled to specific performance and injunctive and
other equitable relief in case of any breach or attempted breach by any
other party. Each party to this Agreement waives any requirements for
securing or posting any bond in connection with obtaining any such
injunctive or other equitable relief.
(e) Amendments and Waivers. Any modification or amendment to,
or waiver of, any provision of this Agreement may be made only by an
instrument in writing executed by the Company, MVII and a majority in
interest of the DSI Group.
(f) Successors and Assigns. Subject to the restrictions on
transfer and assignment contained in this Agreement, the provisions of
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns.
(g) Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable under any applicable law,
then such contravention or invalidity shall not invalidate the entire
Agreement. Such provision shall be deemed to be modified to the extent
necessary to render it legal, valid and enforceable, and if no such
modification shall render it legal, valid and enforceable, then this
Agreement shall be construed as if not
<PAGE> 8
containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced accordingly.
(h) Waiver. No failure or delay on the part of any party in
exercising any right, power or privilege hereunder or under any of the
other agreements, instruments or documents delivered in connection with
this Agreement shall operate as a waiver of such right, power or
privilege; nor shall any single or partial exercise of any such right,
power or privilege preclude any other or future exercise thereof or the
exercise of any other right, power or privilege.
(i) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be
delivered personally, or by overnight delivery service, or by facsimile
transmission (with a copy sent by overnight delivery service) to the
parties at the addresses or facsimile numbers set forth below:
If to the Company, at DSI Toys, Inc., 1100 W. Sam Houston
Parkway N., Suite A, Houston, Texas 77043, Attention: M.D. Davis (fax:
713/468-8194), with a copy to Thompson & Knight, 1200 San Jacinto
Center, 98 San Jacinto Boulevard,Austin,TX78701, Attention: Michael L.
Bengtson, Esq.(fax: 512/469-6180).
If to MVII, at MVII, LLC, 654 Osos Street, San Luis Obispo, CA
93401, Attention: E. Thomas Martin (fax: 805/545-7590) or at such other
address or addresses as may have been furnished in writing by the
Shareholder to the Company, with a copy to Andre, Morris & Buttery,
1304 Pacific Street, San Luis Obispo, CA 93401, Attention: J. Todd
Mirolla, Esq. (fax: 805/543-0752).
If to any DSI Shareholder, at the address set forth opposite
such DSI Shareholder's name on the signature pages attached hereto,
with a copy to Thompson & Knight, 1200 San Jacinto Center, 98 San
Jacinto Boulevard,Austin,TX78701, Attention: Michael L. Bengtson,
Esq.(fax: 512/469-6180).
Notice so given shall, in the case of notice so given by overnight
delivery service, on the date of actual delivery, in the case of notice so given
by facsimile transmission, on the later of 24 hours after actual transmission or
on the date of actual delivery of the copy sent by overnight delivery service
or, in the case of personal delivery, on the date of actual delivery.
(j) Attorney's Fees. In the event that a party brings suit or
otherwise attempts to collect damages or enforce this Agreement in
connection with a breach of any of the terms and conditions of this
Agreement, the prevailing party shall be entitled to reimbursement from
the losing party (severally in proportion to their fault in the case of
a suit against more than person) of the prevailing party's reasonable
attorney's fees and costs.
(k) Headings. The headings of the articles, sections,
subsections and paragraphs of this Agreement have been inserted for
convenience of reference only and do not constitute a part of this
Agreement.
<PAGE> 9
(l) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
(m) Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate
counterparts, with the same effect as if all parties had signed the
same document. All such counterparts shall be deemed an original, shall
be construed together and shall constitute one and the same instrument.
(n) Effective Date. Except for the provisions of Article I,
which shall take effect as provided in Section 1.06 hereof, all other
terms and provisions of this Agreement shall be effective as of the
date first above written.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
DSI TOYS, INC.:
By: /s/ M.D. Davis
-------------------------------
Name: M.D. Davis
-----------------------------
Title: Chief Executive Officer
----------------------------
MVII, LLC:
By: /s/ E. Thomas Martin
-------------------------------
Name: E. Thomas Martin
-----------------------------
Title: Manager
----------------------------
DSI GROUP:
Address: 13606 Taylorcrest /s/ M.D. Davis
Houston, TX 77079 ----------------------------------
(fax: 713/465-2773) M. D. Davis
Address: c/o Jack R. Crosby RUST CAPITAL, LTD.:
327 Congress Avenue
Suite 350 By: Rust Investment Corporation,
Austin, TX 78701 its general partner
(fax: 512/474-1610)
By: /s/ Jack R. Crosby
-------------------------------
Jack R. Crosby, President
Address: 6829 Golf Drive /s/ Douglas A. Smith
Dallas, TX 75205 ----------------------------------
(fax: 972/980-1503) Douglas A. Smith
<PAGE> 10
Address: 515 Congress Avenue /s/ Joseph N. Matlock
Suite 2626 -----------------------------------
Austin, TX 78701 Joseph N. Matlock
(fax: 512/346-4404)
Address: Independent Bankers Capital Fund /s/ Barry B. Conrad
1700 Pacific Avenue -----------------------------------
Suite 1400 Barry B. Conrad
Dallas, TX 75201
(214) 765-1485
<PAGE> 11
SPOUSAL CONSENT
Each of the undersigned is fully aware of, understands, and fully
consents to the provisions of this Agreement and its binding effect upon any
community property or other interest that he or she may now or hereafter own in
the Common Shares subject to this Agreement, and agrees that the termination of
his or her marital relationship with a DSI Shareholder for any reason, including
his or her death, will not remove any Common Shares otherwise subject to this
Agreement from the coverage of this Agreement and that his or her awareness,
understanding, consent, and agreement are evidenced by his or her signature to
this Agreement.
/s/ Dorothy J. Davis
---------------------------------------
Name: Dorothy J. Davis
/s/ Karin Smith
---------------------------------------
Name: Karin Smith
/s/ Laura Lee Matlock
---------------------------------------
Name: Laura Lee Matlock
/s/ Carol W. Conrad
---------------------------------------
Name: Carol W. Conrad
<PAGE> 1
EXHIBIT 99(C)(4)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of
April 15, 1999, is made by and among DSI Toys, Inc., a Texas corporation (the
"Company"), MVII, LLC, a limited liability company formed under the laws of the
State of California (the "Shareholder"), and M. D. Davis, Rust Capital, Ltd., a
Texas limited partnership, Douglas A. Smith, Joseph N. Matlock, and Barry B.
Conrad (each, a "DSI Group Shareholder," and collectively, the "DSI Group
Shareholders"). The Shareholder and the DSI Group Shareholders are each
sometimes referred to herein as a "Holder," and collectively as the "Holders."
RECITALS:
WHEREAS, concurrently herewith, the Company and the Shareholder are
entering into that certain Stock Purchase and Sale Agreement dated as of even
date herewith (the "Stock Purchase Agreement") by and between the Company and
the Shareholder;
WHEREAS, the Stock Purchase Agreement provides, among other things, for
the sale by the Company of two million three hundred fifty-eight thousand four
hundred ninety-one (2,358,491) shares, subject to adjustment as provided in the
Stock Purchase Agreement (such shares, together with any shares of Common Stock
issued or issuable with respect to such shares by way of a share dividend or
share split or in connection with a combination of shares, recapitalization,
merger consolidation or other reorganization, being the "MVII Shares") of common
stock, par value $.01 per share, of the Company (the "Common Stock") to the
Shareholder; and
WHEREAS, the Company, the Shareholder, and the DSI Group Shareholders
desire to enter into this Agreement to provide for the registration with the
Securities and Exchange Commission (the "Commission"), under certain
circumstances, of the MVII Shares and shares of Common Stock owned by the DSI
Group.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1.. Registrable Securities. For purposes of this Agreement "Registrable
Securities" shall mean (a) the MVII Shares, (b) only with respect to a Piggyback
Registration described in Section 2 hereof, shares of Common Stock over which a
DSI Group Shareholder has dispositive power as of the date hereof and any shares
of Common Stock issued or issuable with respect to such shares by way of a share
dividend or share split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization (the "DSI Group
Shares"). As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act of 1933, as amended (the "Securities Act")
and such securities shall have been disposed of in accordance with such
registration statement, (b) they shall have been distributed to
<PAGE> 2
the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, (c) they shall have been otherwise transferred, new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of them shall not require
registration or qualification under the Securities Act or any state law in force
at the time a Holder or a Shareholder Transferee (as defined in Section 8
hereof) proposes to sell or otherwise dispose of the Registrable Securities, or
(d) they shall have ceased to be outstanding.
2. Registration Rights.
(a) Right to Piggyback. If the Company proposes to register
any of its securities under the Securities Act (other than a registration on
Form S-4 or Form S-8, any other form used solely in connection with an employee
benefit or stock ownership plan, or any successor similar forms or any other
form not available for registering the Registrable Securities for sale to the
public) and the registration form to be used may be used for the registration of
the Registrable Securities (a "Piggyback Registration"), then the Company will
give prompt written notice to the Shareholder and the DSI Group Shareholders of
its intention to effect such a registration (each a "Piggyback Notice"). Subject
to subparagraphs (i) and (ii) below, the Company will include in such
registration all Registrable Securities which the Shareholder and the DSI Group
Shareholders request that the Company include in such registration by written
notice given to the Company within 15 days after the date of sending of the
Piggyback Notice.
(i) Priority on Primary Registrations. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by the Company and the managing underwriters advise the
Company in writing that in their opinion the number of securities
requested (and consented to) to be included in such registration
exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the Company, the Company
will include in such registration: (A) first, the securities proposed
to be sold by the Company, (B) second, the MVII Shares, (C) third, the
DSI Group Shares, and (D) fourth, other securities requested to be
included in such registration.
(ii) Priority on Secondary Registrations. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by holders of the Company's securities and the managing
underwriters advise the Company in writing that in their opinion the
number of securities requested (and consented to) to be included in
such registration exceeds the number which can be sold in an orderly
manner within a price range acceptable to the holders initially
requesting such registration, 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
MVII Shares, and (C) third, the DSI Group shares.
(b) Request for Registration. Subject to Section 2(b)(i)
hereof, if the Company shall receive a written request (specifying that it is
being made pursuant to this Section 2(b)), at any time from the Shareholder
requesting that the Company file a registration statement under the Securities
Act, or a similar document pursuant to any other statute then in effect
corresponding to the Securities Act, covering the registration of at least
250,000 of the Registrable Securities, then the Company shall promptly use its
reasonable best efforts to cause all Registrable Securities that the Shareholder
requested be registered to be registered under the Securities Act.
<PAGE> 3
(i) No request under this Section 2(b) shall be effective
if made during the period starting with the date 120 days prior to the
Company's estimated date of filing of, and ending on a date 180 days
following the effective date of, a registration statement pertaining to
an underwritten public offering of securities for the account of the
Company, provided that no other selling shareholder has the right to
exercise demand registration rights during such time period and the
Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that the
Company's estimate of the date of filing such registration statement is
made in good faith.
(ii) The Company shall not be obligated to effect more
than two registrations pursuant to this Section 2(b). Any request for
registration under this Section 2(b) must be for a firmly underwritten
public offering to be managed by an underwriter or underwriters of
recognized national standing reasonably acceptable to the Company. The
registration statement filed pursuant to this Section 2(b) may, subject
to the provisions hereof, include other securities of the Company with
respect to which registration rights have been granted, and may include
securities of the Company being sold for the account of the Company.
(iii) The Company may postpone for up to 180 days the
filing or the effectiveness of a registration statement for a
registration requested pursuant to this Section 2(b) if: (A) the
Company determines that such registration might have an adverse effect
on any proposal or plan by the Company to engage in any acquisition of
assets (other than in the ordinary course) or any merger,
consolidation, tender offer or similar transaction, or (B) any other
material, non-public development or transaction is pending; provided
that the Company may not postpone the filing or effectiveness of a
registration statement pursuant to this sentence more frequently than
once during any period of 12 consecutive months.
(c) Expenses. All expenses incurred in connection with
effecting each registration pursuant to Section 2 hereof (other than
underwriting fees, disbursements, discounts and commissions relating to
Registrable Securities, which shall be borne by the Holder of such Registrable
Securities, and fees and disbursements of counsel retained by such Holder, which
shall be borne by such Holder), including, without limitation, in each case, all
registration, filing and securities exchange fees; all fees and expenses of
complying with securities or blue sky laws; all word processing, duplicating and
printing expenses, messenger, delivery and shipping expenses; fees and
disbursements of the accountants and counsel for the Company including the
expenses of any special audits or "cold comfort" letters or opinions required by
or incident to such registrations; and premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities and any fees and disbursements of underwriters not
relating to Registrable Securities, shall be borne by the Company.
3. Registration Procedures. Whenever a Holder has requested that
any Registrable Securities be registered pursuant to this Agreement in
compliance with the requirements of Section 2 herein:
<PAGE> 4
(a) the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective,
provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the
counsel selected by the Holder copies of all such documents proposed to
be filed, and provided further that the Company may discontinue any
registration of its securities which are not Registrable Securities and
in such event any corresponding Piggyback Registration of Registrable
Securities;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective: (A) with respect to a registration statement on
Form S-1, for a period of up to thirty days, and (B) with respect to a
registration statement on any other form, for a period of up to six
months; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by any such
registration statement during such period in accordance with the
intended methods of distribution by the sellers thereof set forth in
such registration statement;
(iii) furnish to the Holder such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, and
such other documents, as the Holder may reasonably request;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as the Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the Holder to consummate the disposition in such jurisdictions
of the Registrable Securities owned by the Holder, provided that the
Company will not be required (A) to qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (B) to subject itself to taxation in any
such jurisdiction, or (C) to consent to general service of process in
any such jurisdiction;
(v) furnish to the Holder a copy, or, upon request, a
signed counterpart, addressed to the Holder (and the underwriters, if
any) of (A) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration includes
an underwritten public offering, dated the date of the closing under
the underwriting agreement), and (B) a "comfort" letter addressed to
the underwriters, dated the effective date of such registration
statement (or, if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have
audited the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect
<PAGE> 5
to such registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other
financial matters, and, in the case of the legal opinion such other
legal matters, as the Holder (or the underwriters, if any) may
reasonably request;
(vi) notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of
a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, the Company
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein not
misleading, or of the determination by the Company that a
post-effective amendment to a registration statement would be required
under the Securities Act, and, at the request of the Holder, the
Company will prepare and file a post-effective amendment to the
registration statement as required under the Securities Act; provided,
however, that the Company shall not be required to prepare and deliver
any such prospectus supplement or amendment or prepare and file any
post-effective amendment to a registration statement if (A) the Company
determines that such prospectus supplement or amendment or
post-effective amendment might have an adverse effect on any proposal
or plan by the Company to engage in any acquisition of assets (other
than in the ordinary course) or any merger, consolidation, tender offer
or similar transaction, or (B) any other material, non-public
development or transaction is pending; and provided further that the
Company may not postpone the delivery of a prospectus supplement or
amendment or filing of a post-effective amendment pursuant to this
sentence more frequently than once during any period of 12 consecutive
months;
(vii) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the
Company are then listed and to be qualified for trading on each system
on which similar securities issued by the Company are from time to time
qualified;
(viii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and thereafter maintain such a transfer agent
and registrar;
(ix) enter into such customary agreements and take all
such other actions as the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities;
(x) make available for inspection by any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any
such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply
all information reasonably requested by any such underwriter, attorney,
accountant or agent in connection with such registration
<PAGE> 6
statement, provided that any person to whom such information is
provided shall agree to keep it confidential and use it only in
connection with such offering;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder; and
(xii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included in
such registration statement for sale in any jurisdiction, the Company
will use its reasonable best efforts promptly to obtain the withdrawal
of such order.
(b) The Company shall not be required to include any
Registrable Securities in any registration unless the Holder furnishes to the
Company in writing such information with respect to the Holder and the
distribution of such Registrable Securities as the Company may from time to time
reasonably request in writing and as shall be required by law or the Commission
in connection therewith.
(c) If any such registration or comparable statement refers to
the Holder by name or otherwise as the holder of any securities of the Company,
the Holder shall have the right to require (i) the inclusion in such
registration statement of language, in form and substance reasonably
satisfactory to the Holder, to the effect that the holding of such securities by
the Holder is not to be construed as a recommendation by the Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that the Holder will assist in the meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to the Holder is not required by the Securities Act or any similar federal
statute then in force, the deletion of the reference to the Holder; provided,
that with respect to this clause (ii) the Holder shall furnish to the Company an
opinion of counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Company.
(d) Each Holder and Shareholder Transferee agrees that upon
receipt of any notice from the Company of the happening of any event of the kind
described in the subdivision (a)(vi) of this Section 3, such person will
forthwith discontinue such person's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such person's receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (a)(vi) of this Section 3 and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such person's possession
of the prospectus relating to such Registrable Securities current at the time of
receipt of such notice. Nothing contained in this Agreement shall be deemed to
require the Company to disclose any information that, in the good faith opinion
of the management of the Company, is not yet required to be disclosed and would
not be in the best interests of the Company to disclose.
<PAGE> 7
4. Underwritten Offerings. If the Company at any time proposes to
register any of its securities under the Securities Act as contemplated by
Section 2 hereof and such securities are to be distributed by or through one or
more underwriters, the Company will, if requested by the Holder as provided in
Section 2 hereof, arrange for such underwriters to include in the securities to
be distributed by such underwriters all of the Registrable Securities to be
offered and sold by the Holder.
5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to the provisions hereof, the Company will give the Holder whose
Registrable Securities are to be included in such registration statement and one
counsel or firm of counsel and one accountant or firm of accountants
representing such Holder the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give the
Holder such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of the Holder's counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
6. INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. IN THE EVENT ANY
REGISTRABLE SECURITIES ARE INCLUDED IN A REGISTRATION STATEMENT HEREUNDER, TO
THE EXTENT PERMITTED BY LAW, THE COMPANY WILL, AND HEREBY DOES, INDEMNIFY AND
HOLD HARMLESS THE HOLDER OF SUCH REGISTRABLE SECURITIES, ITS DIRECTORS AND
OFFICERS, EACH OTHER PERSON WHO PARTICIPATES AS AN UNDERWRITER IN THE OFFERING
OR SALE OF SUCH SECURITIES AND EACH OTHER PERSON, IF ANY, WHO CONTROLS THE
HOLDER OR ANY SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT, AGAINST
ANY LOSSES, CLAIMS, DAMAGES OR LIABILITIES, JOINT OR SEVERAL, TO WHICH THE
HOLDER OR ANY SUCH DIRECTOR OR OFFICER OR UNDERWRITER OR CONTROLLING PERSON MAY
BECOME SUBJECT UNDER THE SECURITIES ACT OR OTHERWISE, INSOFAR AS SUCH LOSSES,
CLAIMS, DAMAGES OR LIABILITIES (OR ACTIONS OR PROCEEDINGS, WHETHER COMMENCED OR
THREATENED, IN RESPECT THEREOF) ARISE OUT OF OR ARE BASED UPON ANY UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OF ANY MATERIAL FACT CONTAINED IN ANY
REGISTRATION STATEMENT UNDER WHICH SUCH SECURITIES WERE REGISTERED UNDER THE
SECURITIES ACT, ANY PRELIMINARY PROSPECTUS, FINAL PROSPECTUS OR SUMMARY
PROSPECTUS CONTAINED THEREIN, OR ANY AMENDMENT OR SUPPLEMENT THERETO, OR ANY
OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT REQUIRED TO BE
STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, AND
THE COMPANY WILL REIMBURSE SUCH HOLDER AND EACH SUCH DIRECTOR, OFFICER,
UNDERWRITER AND CONTROLLING PERSON FOR ANY LEGAL OR ANY OTHER EXPENSES
REASONABLY INCURRED BY THEM IN CONNECTION WITH INVESTIGATING OR DEFENDING ANY
SUCH LOSS, CLAIM, LIABILITY, ACTION OR PROCEEDING; PROVIDED THAT THE COMPANY
SHALL NOT BE LIABLE IN ANY
<PAGE> 8
SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY (OR ACTION
OR PROCEEDING IN RESPECT THEREOF) OR EXPENSE ARISES OUT OF OR IS BASED UPON AN
UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION
MADE IN SUCH REGISTRATION STATEMENT, ANY SUCH PRELIMINARY PROSPECTUS, FINAL
PROSPECTUS, SUMMARY PROSPECTUS, AMENDMENT OR SUPPLEMENT IN RELIANCE UPON AND IN
CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY THE HOLDER
EXPRESSLY FOR USE IN THE PREPARATION THEREOF, AND PROVIDED FURTHER THAT THE
COMPANY SHALL NOT BE LIABLE TO ANY PERSON WHO PARTICIPATES AS AN UNDERWRITER IN
THE OFFERING OR SALE OF REGISTRABLE SECURITIES OR ANY OTHER PERSON WHO CONTROLS
SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT, IN ANY SUCH CASE TO
THE EXTENT THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY (OR ACTION OR PROCEEDING
IN RESPECT THEREOF) OR EXPENSE ARISES OUT OF SUCH PERSON'S FAILURE TO SEND OR
GIVE A COPY OF THE FINAL PROSPECTUS, AS THE SAME MAY BE THEN SUPPLEMENTED OR
AMENDED, TO THE PERSON ASSERTING AN UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT
OR OMISSION OR ALLEGED OMISSION AT OR PRIOR TO THE WRITTEN CONFIRMATION OF THE
SALE OF REGISTRABLE SECURITIES TO SUCH PERSON IF SUCH STATEMENT OR OMISSION WAS
CORRECTED IN SUCH FINAL PROSPECTUS. SUCH INDEMNITY SHALL REMAIN IN FULL FORCE
AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF THE HOLDER OR
ANY SUCH DIRECTOR, OFFICER, UNDERWRITER OR CONTROLLING PERSON AND SHALL SURVIVE
THE TRANSFER OF SUCH SECURITIES BY THE HOLDER.
(B) INDEMNIFICATION BY THE HOLDERS. THE COMPANY MAY
REQUIRE, AS A CONDITION TO INCLUDING ANY REGISTRABLE SECURITIES IN ANY
REGISTRATION STATEMENT FILED PURSUANT TO SECTION 3 HEREOF, THAT THE COMPANY
SHALL HAVE RECEIVED AN UNDERTAKING SATISFACTORY TO IT FROM THE HOLDER OF SUCH
REGISTRABLE SECURITIES, TO INDEMNIFY AND HOLD HARMLESS (IN THE SAME MANNER AND
TO THE SAME EXTENT AS SET FORTH IN SUBDIVISION (A) OF THIS SECTION 6) EACH
UNDERWRITER, EACH PERSON WHO CONTROLS SUCH UNDERWRITER WITHIN THE MEANING OF THE
SECURITIES ACT, THE COMPANY, EACH DIRECTOR OF THE COMPANY, EACH OFFICER OF THE
COMPANY AND EACH OTHER PERSON, IF ANY, WHO CONTROLS THE COMPANY WITHIN THE
MEANING OF THE SECURITIES ACT, WITH RESPECT TO ANY STATEMENT OR ALLEGED
STATEMENT IN OR OMISSION OR ALLEGED OMISSION FROM SUCH REGISTRATION STATEMENT,
ANY PRELIMINARY PROSPECTUS, FINAL PROSPECTUS OR SUMMARY PROSPECTUS CONTAINED
THEREIN, OR ANY AMENDMENT OR SUPPLEMENT THERETO, IF SUCH STATEMENT OR ALLEGED
STATEMENT OR OMISSION OR ALLEGED OMISSION WAS MADE IN RELIANCE UPON AND IN
STRICT CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY THE
HOLDER EXPRESSLY FOR USE IN THE PREPARATION OF SUCH REGISTRATION STATEMENT,
PRELIMINARY PROSPECTUS, FINAL PROSPECTUS, SUMMARY PROSPECTUS, AMENDMENT OR
SUPPLEMENT;
<PAGE> 9
PROVIDED THAT THE HOLDER SHALL NOT BE LIABLE TO THE COMPANY OR ANY PERSON WHO
PARTICIPATES AS AN UNDERWRITER IN THE OFFERING OR SALE OF REGISTRABLE SECURITIES
OR ANY OTHER PERSON, IF ANY, WHO CONTROLS SUCH UNDERWRITER WITHIN THE MEANING OF
THE SECURITIES ACT, IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS, CLAIM,
DAMAGE, LIABILITY (OR ACTION OR PROCEEDING IN RESPECT THEREOF) OR EXPENSE ARISES
OUT OF SUCH PERSON'S FAILURE TO SEND OR GIVE A COPY OF THE FINAL PROSPECTUS, AS
THE SAME MAY BE THEN SUPPLEMENTED OR AMENDED, TO THE PERSON ASSERTING AN UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION AT OR
PRIOR TO THE WRITTEN CONFIRMATION OF THE SALE OF REGISTRABLE SECURITIES TO SUCH
PERSON IF SUCH STATEMENT OR OMISSION WAS CORRECTED IN SUCH FINAL PROSPECTUS.
SUCH INDEMNITY SHALL REMAIN IN FULL FORCE AND EFFECT, REGARDLESS OF ANY
INVESTIGATION MADE BY OR ON BEHALF OF ANY UNDERWRITER, THE COMPANY OR ANY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON AND SHALL SURVIVE THE TRANSFER OF SUCH
SECURITIES BY THE HOLDER. IN NO EVENT SHALL THE LIABILITY OF THE HOLDER UNDER
THIS SECTION 6(B) BE GREATER IN AMOUNT THAN THE DOLLAR AMOUNT OF THE PROCEEDS
RECEIVED BY THE HOLDER UPON THE SALE OF THE REGISTRABLE SECURITIES GIVING RISE
TO SUCH INDEMNIFICATION OBLIGATION.
(C) NOTICES OF CLAIMS, ETC. PROMPTLY AFTER RECEIPT BY AN
INDEMNIFIED PARTY OF NOTICE OF THE COMMENCEMENT OF ANY ACTION OR PROCEEDING
INVOLVING A CLAIM REFERRED TO IN THE PRECEDING SUBDIVISIONS OF THIS SECTION 6,
SUCH INDEMNIFIED PARTY WILL, IF A CLAIM IN RESPECT THEREOF IS TO BE MADE AGAINST
AN INDEMNIFYING PARTY, GIVE WRITTEN NOTICE TO THE LATTER OF THE COMMENCEMENT OF
SUCH ACTION; PROVIDED THAT THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE NOTICE
AS PROVIDED HEREIN SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS OBLIGATIONS
UNDER THE PRECEDING SUBDIVISIONS OF THIS SECTION 6, EXCEPT TO THE EXTENT THAT
THE INDEMNIFYING PARTY IS ACTUALLY PREJUDICED BY SUCH FAILURE TO GIVE NOTICE. IN
CASE ANY SUCH ACTION IS BROUGHT AGAINST AN INDEMNIFIED PARTY, UNLESS IN SUCH
INDEMNIFIED PARTY'S REASONABLE JUDGMENT A CONFLICT OF INTEREST BETWEEN SUCH
INDEMNIFIED AND INDEMNIFYING PARTIES MAY EXIST IN RESPECT OF SUCH CLAIM, THE
INDEMNIFYING PARTY SHALL BE ENTITLED TO PARTICIPATE IN AND TO ASSUME THE DEFENSE
THEREOF, JOINTLY WITH ANY OTHER INDEMNIFYING PARTY SIMILARLY NOTIFIED TO THE
EXTENT THAT IT MAY WISH, WITH COUNSEL REASONABLY SATISFACTORY TO SUCH
INDEMNIFIED PARTY, AND AFTER NOTICE FROM THE INDEMNIFYING PARTY TO SUCH
INDEMNIFIED PARTY OF ITS ELECTION SO TO ASSUME THE DEFENSE THEREOF, THE
INDEMNIFYING PARTY SHALL NOT BE LIABLE TO SUCH INDEMNIFIED PARTY FOR ANY LEGAL
OR OTHER EXPENSES SUBSEQUENTLY INCURRED BY THE LATTER IN CONNECTION WITH THE
DEFENSE THEREOF OTHER THAN REASONABLE COSTS OF INVESTIGATION. NO INDEMNIFYING
PARTY SHALL, WITHOUT THE CONSENT OF THE INDEMNIFIED PARTY, CONSENT TO ENTRY OF
<PAGE> 10
ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WHICH DOES NOT INCLUDE AS AN
UNCONDITIONAL TERM THEREOF THE GIVING BY THE CLAIMANT OR PLAINTIFF TO SUCH
INDEMNIFIED PARTY OF A FULL RELEASE FROM ALL LIABILITY IN RESPECT TO SUCH CLAIM
OR LITIGATION.
(D) OTHER INDEMNIFICATION. INDEMNIFICATION SIMILAR TO THAT
SPECIFIED IN THE PRECEDING SUBDIVISIONS OF THIS SECTION 6 (WITH APPROPRIATE
MODIFICATIONS) SHALL BE GIVEN BY THE COMPANY AND THE HOLDER WITH RESPECT TO ANY
REQUIRED REGISTRATION OR OTHER QUALIFICATION OF SECURITIES UNDER ANY FEDERAL OR
STATE LAW OR REGULATION OF ANY GOVERNMENTAL AUTHORITY OTHER THAN THE SECURITIES
ACT.
(E) INDEMNIFICATION PAYMENTS. THE INDEMNIFICATION REQUIRED BY
THIS SECTION 6 SHALL BE MADE BY PERIODIC PAYMENTS OF THE AMOUNT THEREOF DURING
THE COURSE OF THE INVESTIGATION OR DEFENSE, AS AND WHEN BILLS ARE RECEIVED OR
EXPENSE, LOSS, DAMAGE OR LIABILITY IS INCURRED.
(F) CONTRIBUTION. IF THE INDEMNIFICATION PROVIDED FOR IN THIS
SECTION 6 FROM THE INDEMNIFYING PARTY IS UNAVAILABLE TO AN INDEMNIFIED PARTY
HEREUNDER IN RESPECT OF ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES
REFERRED TO HEREIN, THEN THE INDEMNIFYING PARTY, IN LIEU OF INDEMNIFYING SUCH
INDEMNIFIED PARTY, SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH
INDEMNIFIED PARTY AS A RESULT OF SUCH LOSS, CLAIMS, DAMAGES, LIABILITIES OR
EXPENSES IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT THE RELATIVE FAULT OF
THE INDEMNIFYING PARTY AND INDEMNIFIED PARTIES IN CONNECTION WITH THE ACTIONS
WHICH RESULTED IN SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES, AS WELL
AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. THE RELATIVE FAULT OF SUCH
INDEMNIFYING PARTY AND INDEMNIFIED PARTIES SHALL BE DETERMINED BY REFERENCE TO,
AMONG OTHER THINGS, WHETHER ANY ACTION IN QUESTION, INCLUDING ANY UNTRUE
STATEMENT OF MATERIAL FACT OR OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL
FACT, HAS BEEN MADE BY, OR RELATES TO INFORMATION SUPPLIED BY, SUCH INDEMNIFYING
PARTY OR INDEMNIFIED PARTIES, AND THE PARTIES' RELATIVE INTENT, KNOWLEDGE,
ACCESS TO INFORMATION AND OPPORTUNITY TO CORRECT OR PREVENT SUCH ACTION. THE
AMOUNT PAID OR PAYABLE BY A PARTY AS A RESULT OF THE LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND EXPENSES REFERRED TO ABOVE SHALL BE DEEMED TO INCLUDE, SUBJECT
TO THE LIMITATIONS SET FORTH IN SECTION 6(C) HEREOF, ANY LEGAL OR OTHER FEES OR
EXPENSES REASONABLY INCURRED BY SUCH PARTY IN CONNECTION WITH ANY INVESTIGATION
OR PROCEEDING.
THE PARTIES HERETO AGREE THAT IT WOULD NOT BE JUST AND EQUITABLE IF
CONTRIBUTION PURSUANT TO THIS SECTION 6(F) WERE
<PAGE> 11
DETERMINED BY PRO RATA ALLOCATION OR BY ANY OTHER METHOD OF ALLOCATION WHICH
DOES NOT TAKE ACCOUNT OF THE EQUITABLE CONSIDERATIONS REFERRED TO IN THE
IMMEDIATELY PRECEDING PARAGRAPH. NOTWITHSTANDING THE PROVISIONS OF THIS SECTION
6(F), NO UNDERWRITER SHALL BE REQUIRED TO CONTRIBUTE ANY AMOUNT IN EXCESS OF THE
AMOUNT BY WHICH THE TOTAL PRICE AT WHICH THE REGISTRABLE SECURITIES UNDERWRITTEN
BY IT AND DISTRIBUTED TO THE PUBLIC WERE OFFERED TO THE PUBLIC EXCEEDS THE
AMOUNT OF ANY DAMAGES WHICH SUCH UNDERWRITER HAS OTHERWISE BEEN REQUIRED TO PAY
BY REASON OF SUCH UNTRUE OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED
OMISSION, AND THE HOLDER SHALL BE REQUIRED TO CONTRIBUTE ANY AMOUNT IN EXCESS OF
THE AMOUNT BY WHICH THE TOTAL PRICE AT WHICH THE REGISTRABLE SECURITIES WERE
OFFERED TO THE PUBLIC EXCEEDS THE AMOUNT OF ANY DAMAGES WHICH THE HOLDER HAS
OTHERWISE BEEN REQUIRED TO PAY BY REASON OF SUCH UNTRUE STATEMENT OR OMISSION.
NO PERSON GUILTY OF FRAUDULENT MISREPRESENTATION (WITHIN THE MEANING OF SECTION
11(F) OF THE SECURITIES ACT) SHALL BE ENTITLED TO CONTRIBUTION FROM ANY PERSON
WHO WAS NOT GUILTY OF SUCH FRAUDULENT MISREPRESENTATION.
IF INDEMNIFICATION IS AVAILABLE UNDER THIS SECTION 6, THE INDEMNIFYING
PARTIES SHALL INDEMNIFY EACH INDEMNIFIED PARTY TO THE FULL EXTENT PROVIDED IN
SECTION 6(A) THROUGH SECTION 6(E) HEREOF WITHOUT REGARD TO THE RELATIVE FAULT OF
SAID INDEMNIFYING PARTY OR INDEMNIFIED PARTY OR ANY OTHER EQUITABLE
CONSIDERATION PROVIDED FOR IN THIS SECTION 6(F).
7. Forms. All references herein to particular forms of registration
statements are intended to include, and shall be deemed to include, references
to all successor forms which are intended to replace, or to apply to similar
transactions as, the forms herein referenced.
8. Transfer of Registration Rights. The registration rights granted
hereunder may be transferred by the Shareholder at any time, in whole or in
part, without the consent of the Company, to any person acquiring at least
250,000 of the outstanding Registrable Securities from the Shareholder or any of
its affiliates (each such person being a "Shareholder Transferee") and the terms
and provisions set forth in this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the Shareholder, whether so expressed or not. Notwithstanding the foregoing
provisions of this Section 8, the registration rights granted hereunder with
respect to any Registrable Securities may not be transferred if (a) a
registration statement with respect to the disposition of such Registrable
Securities shall have become effective under the Securities Act and such
Registrable Securities shall have been disposed of pursuant to such effective
registration statement, or (b) such Registrable Securities shall have been sold
under circumstances in which all of the applicable conditions of Rule 144 (or
any similar provisions then in force) under the Securities Act are met. The
registration rights granted hereunder may not be transferred by the DSI Group
Shareholders.
<PAGE> 12
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders in this Agreement.
(b) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
personally or by facsimile transmission (with a copy sent by overnight delivery
service or by first class certified or registered mail) or by overnight delivery
service or 72 hours after having been mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
If to the Company, at DSI Toys, Inc., 1100 W. Sam Houston
Parkway N., Suite A, Houston, Texas 77043, Attention: M.D. Davis (fax:
713/468-8194) or at such other address or addresses as may have been furnished
in writing by the Company to the Holders, with a copy to Thompson & Knight, 1200
San Jacinto Center, 98 San Jacinto Boulevard,Austin,TX78701, Attention: Michael
L. Bengtson, Esq.(fax: 512/469-6180).
If to the Shareholder, at MVII, LLC, 654 Osos Street, San Luis
Obispo, CA 93401, Attention: E. Thomas Martin (fax: 805/545-7590) or at such
other address or addresses as may have been furnished in writing by the
Shareholder to the Company, with a copy to Andre, Morris & Buttery, 1304 Pacific
Street, San Luis Obispo, CA 93401, Attention: J. Todd Mirolla, Esq. (fax:
805/543-0752).
If to any of the Holders other than the Shareholder, to the
address set forth opposite such Holder's signature to this Agreement, with a
copy to Thompson & Knight, 1200 San Jacinto Center, 98 San Jacinto
Boulevard,Austin,TX78701, Attention: Michael L. Bengtson, Esq.(fax:
512/469-6180).
Notices provided in accordance with this paragraph (b) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(c) Remedies. Any person having rights under any provision of
this Agreement to enforce such rights specifically to recover damages caused by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or other
security) for specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
(d) Amendments and Waivers. Except as otherwise provided
herein, no amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by the all of the
parties hereto.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
<PAGE> 13
(f) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(g) Headings. The headings of this Agreement are for
convenience only and do not constitute a part of this Agreement.
(h) Governing Law. The construction, validity and
interpretation of this Agreement will be governed by the internal laws of the
State of Texas without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Texas or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Texas.
(i) Further Assurances. Each party to this Agreement hereby
covenants and agrees, without the necessity of any further consideration, to
execute and deliver any and all such further documents and take any and all such
other actions as may be necessary to appropriate to carry out the intent and
purposes of this Agreement and to consummate the transactions contemplated
hereby.
(j) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same documents.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
DSI TOYS, INC.:
By: /s/ M.D. Davis
------------------------------
Name: M.D. Davis
----------------------------
Title: Chief Executive Officer
----------------------------
MVII, LLC:
By: /s/ E. Thomas Martin
------------------------------
Name: E. Thomas Martin
----------------------------
Title: Manager
---------------------------
<PAGE> 14
DSI Group:
Address: 13606 Taylorcrest /s/ M.D. Davis
Houston, TX 77079 ---------------------------------
(fax: 713/465-2773) M. D. Davis
Address: c/o Jack R. Crosby Rust Capital, Ltd.:
327 Congress Avenue
Suite 350 By: Rust Investment Corporation,
Austin, TX 78701 its general partner
(fax: 512/474-1610)
By: /s/ Jack R. Crosby
------------------------------
Jack R. Crosby, President
Address: 6829 Golf Drive /s/ Douglas A. Smith
Dallas, TX 75205 ---------------------------------
(fax: 972/980-1503) Douglas A. Smith
<PAGE> 15
Address: 515 Congress Avenue /s/ Joseph N. Matlock
Suite 2626 ---------------------------------
Austin, TX 78701 Joseph N. Matlock
(fax: 512/346-4404)
Address: Independent Bankers Capital /s/ Barry B. Conrad
Fund ---------------------------------
1700 Pacific Avenue Barry B. Conrad
Suite 1400
Dallas, TX 75201
(214) 765-1485
<PAGE> 1
EXHIBIT 99(C)(5)
IRREVOCABLE PROXY
Date: April 15, 1999
The undersigned hereby appoints MVII, LLC, a California limited
liability company ("MVII"), proxy, and hereby authorizes MVII to vote all of the
common shares (the "Common Shares") of DSI Toys, Inc. (the "Company") (i)
standing in the name of the undersigned as of the date hereof, (ii) that may
subsequently be acquired by the undersigned, and (iii) as to which the
undersigned is or may be appointed as proxy and has the authority to vote, for
the election of the Board of Directors of the Company as if the undersigned were
personally present and voting for such directors. The undersigned further grants
MVII the authority to vote all such Common Shares with respect to all other
matters of the Company subject to a vote of the Company's common shareholders,
however the undersigned shall retain the right to vote his or her Common Shares
with respect to matters concerning (i) a dissolution of the Company, or (ii) the
sale of a Controlling Interest (as hereinafter defined) of the Company. This is
an irrevocable proxy coupled with an interest and is granted in furtherance of
that certain Shareholders' and Voting Agreement (the "Agreement"), by and among
the Company, MVII and the undersigned and the other members of the DSI Group (as
defined in the Agreement), dated as of even date herewith. This irrevocable
proxy shall become effective and shall have the same duration as the voting
agreement found in Article I of the Agreement and shall automatically terminate
if and when the Agreement is terminated for any reason. "Controlling Interest"
shall mean the sale of all or substantially all of the assets of the Company
which requires a vote of shareholders under applicable law, the issuance by the
Company of common stock in such an amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law.
-------------------------
Name:
