SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) JANUARY 7, 2000
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DSI TOYS, INC.
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(Exact Name of Registrant as Specified in Charter)
TEXAS 0-22545 74-1673513
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1100 WEST SAM HOUSTON PARKWAY NORTH, HOUSTON, TEXAS 77043
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(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code (713) 365-9900
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(Former Name or Former Address, if Changes Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 7, 2000, DSI Toys, Inc., a Texas corporation (the "Registrant")
acquired all of the issued and outstanding shares of common stock (the "Meritus
Shares") of Meritus Industries, Inc., a New Jersey corporation ("Meritus"),
pursuant to a merger in which Meritus merged with and into the Registrant (the
"Merger"). Under the terms of the Merger, all of the issued and outstanding
Meritus Shares, all of which were owned by Walter S. Reiling and Susan Reiling
(collectively, "Reiling"), were converted into, and became exchangeable for (i)
six hundred thousand (600,000) unregistered shares of the Registrant's common
stock (the "Registrant Shares"), representing sixty thousand (60,000) Registrant
Shares for each of the ten (10) Meritus Shares issued and outstanding as of the
effective time of the Merger (less ninety-six thousand seven hundred and
seventy-four (96,774) Registrant Shares which are payable by Registrant upon
satisfaction of certain post closing conditions as set forth in a Closing and
Holdback Agreement (the "Holdback Agreement") between the parties); (ii) eight
hundred eighty-four thousand thirty-three dollars and 82 cents ($884,033.82) in
cash (less one hundred thousand dollars ($100,000) which are payable by
Registrant upon satifaction of certain post closing conditions as set forth in
the Holdback Agreement); and (iii) the Registrant's Subordinated Secured
Promissory Note for one million six hundred ninety thousand dollars
($1,690,000.00).
In addition, as part of the Merger, Registrant retired approximately $4.4
million of Meritus debt. On January 7, 2000, Registrant borrowed five million
dollars ($5,000,000.00) from MVII, LLC, a California limited liability company
and controlling shareholder of Registrant ("MVII"), pursuant to an unsecured
promissory note (the "MVII Note"). The principal balance of the MVII Note
accrues interest at an annual rate of the prime rate of Wells Fargo Bank plus
two percent (2%), and accrued interest is payable monthly. Monthly principal
payments of one hundred thousand dollars ($100,000.00) are due under the terms
of the MVII Note beginning on June 1, 2000. The MVII Note is due and payable in
full on July 1, 2004. The amounts advanced to Registrant by MVII as evidenced by
the MVII Note, as well as one hundred sixty five thousand four hundred forty
five dollars and eighty-two cents ($165,445.82) of Registrant's funds, were used
to consummate the Merger.
Meritus was a toy manufacturer. The Registrant currently intends to
continue the use of Meritus' assets in its toy business.
The consideration paid by the Registrant for the Meritus Shares was
negotiated at arm's length between the parties on the basis of the Registrant's
assessment of the value of Meritus and the Meritus Shares, following an
investigation of, and discussions with Meritus and its representatives
concerning Meritus and its business and prospects. It is intended that, for
federal income tax purposes, the Merger shall qualify as a reorganization under
the provisions of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder. For financial
accounting purposes, it is intended that the Merger will be accounted for as a
"purchase."
The Registrant, MVII, and Reiling have entered into a Shareholders' and
Voting Agreement dated January 7, 2000, pursuant to which (i) the parties agreed
that the number of directors that
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comprise the Board of Directors of the Company shall be increased from six (6)
to seven (7) within thirty (30) days of the Merger; (ii) MVII granted Reiling
the right to elect one (1) of the directors that MVII was previously entitled to
elect to the Registrant's Board of Directors pursuant to the terms and
conditions of that certain Shareholders and Voting Agreement dated April 15,
1999; and (iii) certain transfer restrictions were imposed upon the Registrant
Shares held by Reiling as a result of the Merger.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
The required financial statements for the business acquired will be filed
on or before the sixtieth day following the filing date of this Form 8-K.
(b) Pro Forma Financial Information
The required pro forma financial information is unavailable as of the date
of this filing. Such financial statements will be filed on or before the
sixtieth day following the filing date of this Form 8-K.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger between Meritus
et al, and the Registrant, dated as of
October 7, 1999 (filed as Exhibit 10.45 to
the Registrant's Form 10-Q for the quarterly
period ended October 31, 1999, and
incorporated herein by reference).
2.2 Articles/Certificate of Merger of Meritus
into Registrant, dated January 7, 2000.
2.3 Closing and Holdback Agreement dated January
7, 2000, by and between Registrant and
Meritus et al.
10.1 Shareholders' and Voting Agreement dated
January 7, 2000, by and among the
Registrant, MVII, and Reiling.
10.2 Limited Irrevocable Proxy dated January 7,
2000, between MVII and Reiling.
10.3 Registration Rights Agreement dated January
7, 2000, by and between the Registrant and
Reiling.
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10.4 Subordinated Secured Promissory Note dated
January 7, 2000, from the Registrant to
Reiling.
10.5 Promissory Note dated January 7, 2000, from
Registrant to MVII.
10.6 Amendment No. 2 dated January 7, 2000, to
Loan and Security Agreement, by and between
Sunrock Capital Corp. and Registrant.
10.7 Employment Agreement dated January 7, 2000,
by and between Registrant and Beth Reiling.
10.8 Employment Agreement dated January 7, 2000,
by and between Registrant and Joseph
Reiling.
99.1 Press release of the Registrant dated
January 7, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DSI TOYS, INC.
Date: January 21, 2000 By: /s/ ROBERT L. WEISGARBER
Robert L. Weisgarber
Chief Financial Officer
EXHIBIT 2.2
ARTICLES/CERTIFICATE OF MERGER
OF
MERITUS INDUSTRIES, INC.
INTO
DSI TOYS, INC.
Pursuant to the provisions of Sections 14A:10-4.1 and 14A:10-7 of
the New Jersey Business Corporation Act ("NJBCA") and Articles 5.01-5.06 of the
Texas Business Corporation Act ("TBCA"), the undersigned corporations, Meritus
Industries, Inc., a New Jersey corporation and DSI Toys, Inc., a Texas
corporation (collectively, the "Constituent Corporations"), adopt the following
Articles/Certificate of Merger for the purpose of merging Meritus Industries,
Inc. into DSI Toys, Inc.:
FIRST: The name of the surviving corporation is DSI Toys, Inc.
(hereinafter, the "Surviving Corporation") and the name of the
merging corporation is Meritus Industries, Inc. (hereinafter the
"Merged Corporation").
SECOND: The Plan of Merger setting forth the terms and conditions of
the merger is attached to this Certificate as Exhibit A.
THIRD: The Plan of Merger was approved by the board of directors of
the Surviving Corporation on December 17, 1999, and no vote of the
shareholders of the Surviving Corporation was required because of
Article 5.03G of the TBCA and the applicability of the provisions of
Section 14A:10-3(4) of the NJBCA to the Plan of Merger.
FOURTH: The shareholders of the Merged Corporation approved the Plan
of Merger on October 7, 1999.
FIFTH: The number of outstanding shares of each class and series of
shares of the Merged Corporation entitled to vote on the Plan of
Merger is ten (10). The number of shares voting for the
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Plan of Merger by the Merged Corporation is 10. No shareholder voted
against the Plan of Merger.
SIXTH: The laws of the State of Texas, the jurisdiction of
organization of the Surviving Corporation, permit the merger
contemplated by the Plan of Merger, and the laws of the State of
Texas, on fulfillment of all filing and recording requirements set
forth by the applicable laws of the State of Texas, will have been
complied with.
SEVENTH: The approval of the Plan of Merger was duly authorized by
all action required by the laws of the state of incorporation of the
Merged Corporation and by the Merged Corporation's constituent
documents.
EIGHTH: The Surviving Corporation hereby agrees (i) that it will
promptly pay to the dissenting shareholders of the Merged
Corporation the amount, if any, to which they shall be entitled
under the provisions of the NJBCA with respect to the rights of
dissenting shareholders, and (ii) that it may be served with process
in the State of New Jersey in any proceeding for enforcement of any
obligation of any Constituent Corporation previously amenable to
suit in the State of New Jersey, as well as for the enforcement of
the right of any stockholders as determined in appraisal proceedings
pursuant to the provisions of Section 14A:11-1 et. seq. of the
NJBCA. The Surviving Corporation hereby irrevocably appoints the
Secretary of State of the State of New Jersey as its agent to accept
service of process in any such suit or other proceedings and such
process shall be mailed by the Secretary of State of the State of
New Jersey to the Surviving Corporation at 1100 West Sam Houston
Parkway (North), Houston, Texas 77043: Attn.: President.
NINTH: No amendments to the Articles of Incorporation of the
Surviving Corporation are desired to be effected by the merger.
(TBCA Art. 5.04(A)(1)(c).)
TENTH: A copy of the Plan of Merger is on file at the office of the
Surviving Corporation and will be furnished by the Surviving
Corporation, on written request and without cost, to any shareholder
of the Surviving Corporation. (TBCA Art. 5.04(A)(1)(f)).
ELEVENTH: The merger of the Constituent Corporations shall be
effective as of the date of the filing of this Articles/Certificate.
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IN WITNESS WHEREOF, each of the undersigned Constituent Corporations
has caused this Articles/Certificate of Merger to be executed as of the 7th day
of January, 2000.
MERITUS INDUSTRIES, INC.
a New Jersey corporation
By: /s/ WALTER REILING
Walter Reiling
President
DSI TOYS, INC.
a Texas corporation
By: /s/ ROBERT L. WEISGARBER
Robert L. Weisgarber
Chief Financial Officer/
Vice President
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EXHIBIT "A"
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") dated the 7th day of October, 1999 is
between DSI TOYS, INC., a Texas corporation ("DSI" or the "Surviving
Corporation") and MERITUS INDUSTRIES, INC., a New Jersey corporation
("Meritus").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of each of Meritus and DSI
have approved and declared advisable the merger of Meritus with and into DSI
(the "Merger") and approved the Merger upon the terms and subject to the
conditions set forth in that certain Agreement and Plan of Merger (the
"Agreement") of even date herewith, whereby each issued and outstanding share of
the common stock, par value $.01 per share, of Meritus (a "Meritus Share" or,
collectively, the "Meritus Shares"), not owned directly or indirectly by
Meritus, will be converted into shares of common stock, $0.01 par value, of DSI
("DSI Shares"), and certain other consideration as provided in the Agreement;
WHEREAS, this Plan has been adopted by the Board of Directors of DSI and
Meritus and by the shareholders of Meritus.
NOW, THEREFORE, this Plan sets forth the following terms and conditions of
the Agreement upon which Meritus is to be merged with and into DSI:
A. TERMS AND CONDITIONS OF MERGER.
1. THE MERGER. At the Effective Time (as defined below), Meritus
shall be merged with and into DSI and the separate corporate existence of
Meritus shall thereupon cease. DSI shall be the Surviving Corporation in the
Merger and the separate corporate existence of DSI with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger, except as set forth in Section A.4 below;
2. EFFECTIVE TIME. The Merger shall become effective at the time
when the New Jersey Certificate of Merger has been duly filed with the Secretary
of State of New Jersey and the Texas Articles of Merger have been filed with the
Secretary of State of Texas.
3. CERTIFICATE OF INCORPORATION AND BYLAWS. The certificate of
incorporation of DSI as in effect immediately prior to the Effective Time shall
be the certificate of incorporation of the Surviving Corporation (the
"Charter"), until duly amended as provided therein or by applicable law. The
bylaws of DSI in effect immediately prior to the Effective Time shall be the
bylaws of the Surviving Corporation (the "Bylaws"), until thereafter amended as
provided therein or by applicable law.
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4. DIRECTORS. The directors of DSI immediately prior to the
Effective Time shall, from and after the Effective Time, continue to be
directors of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Charter and the Bylaws. Pursuant to the terms and
conditions of a voting trust agreement, as of the date that is no later than
thirty (30) days after the Effective Time, Mr. Walter Reiling shall be appointed
to the Board of Directors of DSI.
B. SHARE CONVERSION.
1. EFFECT ON CAPITAL STOCK. At the Effective Time, as a result of
the Merger and without any action on the part of the holder of any capital stock
of DSI, the Meritus Shares issued and outstanding immediately prior to the
Effective Time (other than any Meritus Shares owned by Meritus or any other
direct or indirect subsidiary of Meritus and not held on behalf of third parties
(collectively, "Excluded Shares"), shall be converted into, and become
exchangeable for (a) Six Hundred Thousand (600,000) validly issued, fully paid
and nonassessable DSI Shares, representing Sixty Thousand (60,000) DSI Shares
for each of the ten (10) Meritus Shares issued and outstanding as of the
Effective Time (provided, however, if the closing price for DSI Shares at the
close of the market on the day prior to the Effective Time is less than $3.10
per share, then DSI shall issue additional DSI Shares to Meritus so that the
aggregate value of the DSI Shares issued in the Merger is equal to One Million
Eight Hundred Sixty Thousand Dollars ($1,860,000); (b) One Million One Hundred
Thousand Dollars ($1,100,000) in cash; and (iii) DSI's Subordinated Secured
Promissory Note for One Million Six Hundred Ninety Thousand Dollars
($1,690,000.00) (the "Note"). DSI's obligations under the Note shall be secured
by a Letter of Credit. At the Effective Time, all Meritus Shares shall no longer
be outstanding and shall be canceled and retired and shall cease to exist, and
each certificate (a "Certificate") formerly representing any of such Meritus
Shares (other than Excluded Shares, if any) shall thereafter represent only the
right to receive the DSI Shares into which such Meritus Shares have been
converted and the right to receive One Hundred and Ten Thousand Dollars
($110,000) in cash per Meritus Share and the right, if any, to receive cash in
lieu of fractional shares into which such Meritus Shares have been converted
pursuant to Section B.2 below. Each Excluded Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
shall be canceled and retired without payment of any consideration therefor and
shall cease to exist.
2. FRACTIONAL SHARES. No certificates or scrip representing
fractional DSI Shares shall be issued upon the surrender for exchange of
Certificates; no dividend or other distribution by DSI and no stock split,
combination or reclassification shall relate to any such fractional share; and
no such fractional share shall entitle the record or beneficial owner thereof to
vote or to any other rights of a stockholder of DSI. In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
thereto upon the surrender of Certificate(s) for exchange will be paid an amount
in cash (without interest) rounded up to the nearest whole cent, determined by
multiplying (i) the per share closing price on the NASDAQ (the "NASDAQ") of DSI
Shares (as reported in The Wall Street Journal) on the date on which the
Effective Time shall occur (or, if the DSI Shares shall not trade on NASDAQ on
such date, the first day of trading in DSI Shares on NASDAQ thereafter) by (ii)
the fractional share to which such holder would otherwise be entitled.
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3. ADJUSTMENTS OF CONVERSION NUMBER. In the event that Meritus
changes the number of Meritus Shares or securities convertible or exchangeable
into or exercisable for Meritus Shares, or DSI changes the number of DSI Shares
or securities convertible or exchangeable into or exercisable for DSI Shares,
issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split), dividend or
distribution, recapitalization, merger (other than the Merger), subdivision,
issuer tender or exchange offer for the issuer's own shares (other than
repurchases by DSI between the date hereof and the Effective Time of less than
5% of the outstanding DSI Shares pursuant to Rule 10b-18, promulgated under the
Securities Exchange Act of 1934, as amended), or other similar transaction with
a materially dilutive effect, or if a record date with respect to any of the
foregoing shall occur prior to the Effective Time, the conversion number shall
be equitably adjusted.
IN WITNESS WHEREOF, DSI has approved this Plan as of the date first above
written pursuant to a resolution of its Board of Directors and Meritus' Board of
Directors and shareholders have approved this Plan as of the date first above
written.
DSI TOYS, INC.,
a Texas corporation
By: /s/ ROBERT L. WEISGARBER
Name: Robert L. Weisgarber
Title: Chief Financial Officer/
Vice President
MERITUS INDUSTRIES, INC.,
a New Jersey corporation
By: /s/ WALTER REILING
Name: Walter Reiling
Title: President
EXHIBIT 2.3
CLOSING AND HOLDBACK AGREEMENT
January 7, 2000
RE: DSI TOYS, INC./MERITUS INDUSTRIES, INC. AGREEMENT AND PLAN OF MERGER
DATED OCTOBER 7, 1999
Reference is made to that certain Agreement and Plan of Merger dated
October 7, 1999 (the "Merger Agreement"), by and between DSI Toys, Inc.
("Buyer") and Meritus Industries, Inc. ("Meritus"), Meritus Industries, Ltd.,
Walter S. Reiling and Susan Reiling (Walter S. Reiling and Susan Reiling shall
be referred to collectively as "Seller"). Any capitalized terms used herein and
not defined have the meaning ascribed to them in the Merger Agreement.
In connection with the consummation of the transactions contemplated by
the Merger Agreement, the parties to the Merger Agreement hereby agree as
follows:
1. PURCHASE PRICE The Cash Consideration set forth in Section 4.1(i)
of the Merger Agreement is hereby amended to be $884,033.82.
2. CREDITS HOLDBACK At the Effective Time, Buyer shall deduct from the
Cash Consideration to be paid to Seller the sum of One Hundred Thousand Dollars
($100,000.00)(the "Cash Credits Holdback"), and Buyer shall deduct from the DSI
Shares to be delivered to Seller 32,258 shares of DSI Common Stock (the "Stock
Credits Holdback," which with the Cash Credits Holdback and the Stock Credits
Holdback shall be referred to collectively as the "Credits Holdback"). The
Credits Holdback shall be held by Buyer until the Credits are collected or 180
days has expired, as described below.
2.1 After the Closing, Buyer shall use its best efforts to collect
all Credits, which, as of the date of this Agreement, total $371,548.75. Buyer
shall have the sole responsibility for the collection of the Credits, and Seller
shall not take any action with respect to the Credits, except with the prior
written consent of Buyer.
2.2 Buyer shall provide Seller with monthly statements, on the 10th
day of each month until the earlier of 180 days after the date of this Agreement
or after the full amount of the Credits Holdback has been paid to Seller, of
Credits collected (the "Monthly Statements"). Seller shall be entitled to
reimbursement from the Credits Holdback for all Credits collected by Buyer in
excess of $171,548.75 (the "Base Amount"). At such time as Buyer has collected
Credits exceeding the Base Amount, each Monthly Statement shall be delivered to
Seller along with a reimbursement of a portion of the Credits Holdback equal to
the Credits collected within the prior thirty (30) day period. Any and all such
payments due Seller shall be paid first from the
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Cash Credits Holdback. Thereafter, the balance of any such payments due Seller
shall be paid by the issuance of Buyer's common stock from the Stock Credits
Holdback, based upon a per share price of $3.10. In no event shall Buyer be
obligated to make payment to Seller pursuant to this Section 2 in excess of the
Credits Holdback.
2.3 Notwithstanding anything in this Section 2, all Credits shall
have been collected by Buyer within 180 days after the date of this Agreement.
If, after 180 days from the date of this Agreement, all of the Credits have not
been collected by Buyer, then any and all sums then remaining in the Credits
Holdback shall be retained by Buyer.
3. DISCOUNTS AND WORKING CAPITAL HOLDBACK At the Effective Time, Buyer
shall withhold from the DSI Shares to be delivered to Seller an additional
64,516 shares of DSI Common Stock (the "Discount Holdback"). The Discount
Holdback shall be held by Buyer until the final determination of the discounts,
markdowns and allowances arising from sales made by Meritus in calendar year
1999 and not accrued in the financial statements of Meritus prior to the
Effective Time (the "Discounts"), and the final determination of the accuracy of
the Settlement Statement, as described below.
3.1 After the Effective Time, Buyer shall use its best efforts to
determine the Discounts. Buyer shall have the sole responsibility for
negotiation of the Discounts with Meritus's former customers, and Seller shall
not take any action with respect to the Discounts or the former customers of
Meritus, except with the prior written consent of Buyer. Any Discount totaling
in excess of $10,000.00 shall be approved in advance by E. Thomas Martin on
behalf of Buyer.
3.2 After the Effective Time, Buyer shall use its best efforts to
determine the amount of the Working Capital as of the Effective Time, and to
confirm the information set forth in the Settlement Statement.
3.3 Buyer shall deliver to Seller no later than June 7, 2000, a
schedule with reasonable supporting materials providing the final computation of
the Discounts (the "Discounts Schedule") and a schedule with reasonable
supporting materials providing the final computation of the Working Capital as
of the Effective Time (the "Working Capital Schedule"). Buyer shall pay to
Seller, no later than June 15, 2000, the Discount Holdback, less (i) the amount
by which the Working Capital reported by Meritus in the Settlement Statement
exceeds the amount set forth in the Working Capital Schedule; and (ii) the
amount by which the Discounts exceed the sum of $200,000.00. Any such payments
due Seller shall be paid by the issuance of Buyer's common stock from the
Discount Holdback, based upon a per share price of $3.10. In no event shall
Buyer be obligated to make payment to Seller pursuant to this Section 3 in
excess of the Discount Holdback. In no event shall Seller's obligations pursuant
to this Section 3 exceed the amount of the Discount Holdback; provided, however,
that nothing herein shall preclude Buyer from asserting its rights and remedies
under the Merger Agreement.
4. AUTOMOBILES. Seller, jointly and severally, shall hold harmless and
indemnify Buyer from and against , and shall compensate and reimburse Buyer for,
any Damages which are directly or indirectly suffered or incurred by Buyer or to
which Buyer may otherwise become subject to or at any time which may arise
directly or indirectly from or are connected with the
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following automobile leases, pursuant to which Meritus and/or its employees
leased certain automobiles prior to the Effective Time: (i) lease of 1999
Mercedes from Banc One; (ii) lease of 1999 Saab from Chase Manhattan Bank; (iii)
lease of 1999 Infinity from Key Bank; and (vi) lease of 1998 Cadillac from
General Motors Acceptance Corporation. Any and all such Damages shall be borne
by Seller on a dollar-for-dollar basis, exclusive of the threshold and ceiling
on Damages contained in Section 9.3 of the Merger Agreement. Buyer shall have
the option of recovering any and all such Damages by means of a direct setoff
against any and all sums due under the Note.
5. 401(K) PLAN. Seller, jointly and severally, shall hold harmless and
indemnify Buyer from any and all Damages, including interest expenses, arising
in any manner from Seller's failure to fully fund the 401(k) Plan prior to the
Effective Time. Seller hereby confirms that Meritus has fully funded any and all
sums due under the 401(k) Plan. Any and all such Damages and interest expenses
shall be borne by Seller on a dollar-for-dollar basis, exclusive of the
threshold and ceiling on Damages contained in Section 9.3 of the Merger
Agreement. Buyer shall have the option of recovering any and all such Damages by
means of a direct setoff against any and all sums due under the Note.
6. SUBSIDIARY TRANSFERS. Seller shall use Seller's best efforts to
cooperate with Buyer, at Buyer's sole cost and expense, to cause to be delivered
to Buyer all original stock certificates of Meritus' Subsidiaries, and any and
all instruments or documents reasonably requested by Buyer to transfer the
shares of Meritus' Subsidiaries to Buyer.
7. CHEVROLET LICENSE. Seller, jointly and severally, hereby represent and
warrant that neither Seller nor Meritus has knowledge of or reason to believe
that there has been or will be any request or demand by Chevrolet Motor Division
for any fee or charge, other than a $250 application fee, to effect the
assignment of that certain Trademark License Agreement by and between Chevrolet
Motor Division and Meritus dated on or about January 8, 1998. Seller shall
indemnify and hold harmless Buyer for any Damages resulting from Seller's breach
of the representation in this Section 7, which shall be borne by Seller on a
dollar-for-dollar basis, exclusive of the threshold and ceiling on Damages
contained in Section 9.3 of the Merger Agreement. Buyer shall have the option of
recovering any and all such Damages by means of a direct setoff against any and
all sums due under the Note.
8. MISCELLANEOUS PROVISIONS.
8.1 Seller agrees to furnish Buyer with any documents or records in
Seller's possession or control that may be reasonably requested by Buyer to
calculate and/or confirm the Credits, Discounts and/or Working Capital.
8.2 The covenants contained in this Agreement shall survive the
Closing Date without limitation.
8.3 This Agreement may be executed in counterpart, and facsimile
signatures shall be deemed originals.
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9. New Li & Fung Debt. Buyer shall pay the New Ling & Fung Debt of
approximately $508, 404 on or before January 31, 2000. Buyer shall indemnify and
hold harmless Seller for a breach of this covenant in the manner provided in
Section 9.5 of the Merger Agreement.
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.
"DSI" "MERITUS"
DSI TOYS, INC., A TEXAS CORPORATION MERITUS INDUSTRIES, INC., A NEW JERSEY
CORPORATION
By: /s/ ROB WEISGARBER By: /s/ WALTER S. REILING
Name: Rob Weisgarber Name: Walter S. Reiling
Title: Chief Financial Officer Title: President, Meritus Industries,
Inc.
By: /s/ WALTER S. REILING
Walter S. Reiling
By: /s/ SUSAN REILING
Susan Reiling
EXHIBIT 10.1
SHAREHOLDERS' AND VOTING AGREEMENT
This Shareholders' and Voting Agreement (the "Agreement") is made this 7th
day of January, 2000, 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 Walter S. Reiling and Susan Reiling
(collectively, "Reiling"). MVII and Reiling are sometimes hereinafter referred
to as the "Shareholders".
RECITALS:
WHEREAS, the Company has an authorized capitalization of thirty-five
million shares of common stock, par value $.01 per share (the "Common Shares");
WHEREAS, the Company, Reiling and Meritus Industries, Inc., a New Jersey
corporation ("Meritus") have entered into an Agreement and Plan of Merger, dated
October 7, 1999 (the "Merger Agreement"), pursuant to which Meritus shall be
merged into the Company and the Company shall be the surviving corporation (the
"Merger").
WHEREAS, upon the closing under the Merger Agreement and the completion of
the Merger, 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 their respective 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.
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
changed from six (6) to seven (7) within thirty (30) days of the date first
above written; 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 is currently entitled to nominate all but two (2) of the
total number of directors of the Company. The remaining two (2) directors of the
Company are entitled to be
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nominated by certain additional Shareholders of the Company pursuant to the
terms and conditions of that certain Shareholders and Voting Agreement dated
April 15, 1999 (the "Prior Agreement").
(i) Throughout the term of this Agreement, Reiling shall be
entitled to nominate one (1) of the directors of the Company MVII is entitled to
nominate.
(ii) MVII and Reiling 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.
(iii) With respect to the nominees of MVII and Reiling, the
Company shall be entitled to rely on written notice from E. Thomas Martin on
behalf of MVII and from Walter S. Reiling on behalf of Reiling, as to the
identity of each Shareholder's nominees (Mr. Martin and Mr. Reiling are referred
to herein as a "Spokesperson"). MVII and Reiling may change its Spokesperson by
giving the Company written notice of a change in such Spokesperson. Reiling's
initial nominee for director is Walter S. Reiling. MVII shall use its best
efforts to cause the current board of directors of the Company to vote in favor
of Walter S. Reiling to fill the vacancy created by adding an additional seat on
the Company's board of directors as provided in Section 1.01 of this Agreement.
(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 Reiling respectively wish to
nominate as members of the Board of Directors of the Company. 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 Reiling, from time to time, pursuant to
SECTION 1.02 of this Agreement as the directors of the Company. Reiling shall
execute an irrevocable proxy, in a form approved by the Board of Directors,
appointing MVII as proxy for the limited purpose of authorizing MVII to vote
Reiling's Common Shares (a) for the election of the directors to the Board of
Directors in accordance with this Agreement; (b) any matter affecting the size
or composition of the Board of Directors of the Company; (c) with respect to any
matter relating to the creation or composition of any committee of the Board of
Directors of the Company; and (d) with respect to any proposal to amend or
modify the Company's bylaws or articles of incorporation for the sole purpose of
affecting the matters described in clauses (b) and (c) of this Section 1.03.
Such irrevocable proxies shall have the same duration as Article I of this
Agreement. Reiling shall retain the right to vote his or her Common Shares with
respect to all other matters that are put before the Company's shareholders.
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1.04 REMOVAL OF DIRECTORS. MVII shall not vote its Common Shares or
Reiling's Common Shares as proxy in favor of removal of a director nominated by
Reiling unless so requested by Reiling, as required by law.
1.05 VOTING AGREEMENT. The provisions contained in this Article I
constitute 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 TERM OF VOTING AGREEMENT. The voting agreement in this Article I will
terminate upon the earlier of (i) the fifth anniversary of the date first above
written, (ii) the written agreement of the Company, MVII and Reiling, or (iii)
the dissolution of the Company.
ARTICLE II
TRANSFER RESTRICTIONS
2.01 RIGHT OF FIRST REFUSAL IN CONNECTION WITH TRANSFERS OTHER THAN PUBLIC
TRANSFERS. Subject to the provisions hereof, before any Common Shares may be
transferred, sold, assigned, conveyed, pledged or otherwise disposed or
delivered by Reiling or a Permitted Transferee (as hereinafter defined) (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) If Reiling or a Permitted Transferee proposes to Transfer any
Common Shares (the "Selling Shareholder"), then 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 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 fifteen (15) 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 all, but
not less than all, of 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. 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 all of the Offered
Shares, the Selling Shareholder may thereafter Transfer all 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).
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(d) If timely exercised by MVII pursuant to Section 2.01(b) hereto,
the right to purchase the Offered Shares shall be exercised by written notice,
signed by MVII, and delivered or mailed to the Company and the Selling
Shareholder as provided in SECTION 3.01(H). Such notice shall specify the time,
place and date for settlement of such purchase, which shall be held within ten
(10) 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 the Offered 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 ninety (90) days of the date of the Seller
Notice. If the Selling Shareholder fails to consummate the Transfer within such
ninety (90) 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, any Reiling shall be entitled to Transfer his/her Common Shares
without complying with this Section 2.01 (i) to his/her spouse, their lineal
descendants, a trust established for the benefit of members of their immediate
family or to a limited partnership of which any Reiling is the general partner
and all limited partners are his/her lineal descendants ("Permitted
Transferee"), provided that the Permitted Transferee agrees to be bound by all
of the terms and conditions of this Agreement, (ii) pursuant to the co-sale
rights set forth in Section 2.04 hereof, and (iii) to an unaffiliated commercial
third-party lender as collateral security for indebtedness only, provided such
lender agrees to be bound by the voting agreement in Article I of this
Agreement. If Reiling or any Permitted Transferee pledges any Common Shares held
by it as collateral for indebtedness as provided in this Section 2.01(f),
simultaneous with such pledge, Reiling or any Permitted Transferee 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 Reiling or any Permitted Transferee shall immediately notify
MVII of such event or occurrence.
2.02 RIGHT OF FIRST REFUSAL IN CONNECTION WITH PUBLIC TRANSFERS. Subject
to the provision hereof, Common Shares may be Transferred to any Proposed
Transferee in a Public Transfer under the following circumstances:
(a) From time to time Reiling or a Permitted Transferee (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 a part of the Public
Offered Shares in accordance with the provisions set forth below.
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(b) MVII will have an option, for five (5) 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 Public Selling Shareholder and the
Company as provided in SECTION 3.01(H). Such notice shall specify the
time, place and date for settlement of such purchase, which shall be held
within five (5) 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 2.04 hereunder shall not adversely affect MVII's right of
first refusal with respect to subsequent Transfers by Reiling or any Permitted
Transferee pursuant to this Agreement. Subject to the provisions of SECTION
1.06, the provisions of this 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 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 date of this Agreement unless Reiling or
any Permitted Transferee is permitted to sell a number of Common Shares owned by
Reiling or any Permitted Transferee determined in accordance with SECTION
2.04(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.
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(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 Reiling in the manner specified in SECTION
3.01(I). Within fifteen (15) Business Days after delivery of the Inclusion
Notice, Reiling or any Permitted Transferee may accept the offer included in the
Inclusion Notice by furnishing written notice of such acceptance to MVII. If
Reiling or any Permitted Transferee fails to accept such offer within such time
period, MVII shall be free, at any time within the next 180 days from the date
of the Inclusion Notice 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) Reiling or any Permitted Transferee shall have the right to sell
pursuant to the Third Party Offer, free and clear of MVII's right of first
refusal and the voting agreement, 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 the Reiling or the Permitted Transferee, in each case, who has elected to
sell under this Section 2.04 and the denominator of which is the total number of
Common Shares then owned by MVII, Reiling and all of the Permitted
Transferee(s).
2.05 TERMS OF ARTICLE II. The provisions of this Article II shall continue
in full force and effect with respect to any Common Shares subject thereto until
such time as such Common Shares have been transferred in accordance with this
Agreement free and clear of the restrictions set forth in this Article II.
ARTICLE III
MISCELLANEOUS
3.01 MISCELLANEOUS. The following miscellaneous provisions shall apply to
this Agreement.
(a) SPOUSE'S INTEREST IN COMMON SHARES. By their signatures below,
the spouse of each Reiling shareholder (a "Spouse") agrees to be bound in all
respects by the terms of this Agreement to the same extent as the remaining
Reiling. Each Spouse further agrees that should he or she predecease or become
divorced from a Reiling shareholder, any of the Common Shares in which he or she
may have any interest shall remain subject to all of the restrictions and to all
of the rights of the Company and MVII 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 a Reiling Shareholder's Spouse, in such Common
Shares.
(b) INDEMNIFICATION. Reiling agrees to jointly and 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 Reiling or any Permitted Transferee of any of
the provisions of this Agreement, and MVII agrees to indemnify and hold harmless
Reiling and the Company from and against any and all damages, losses, claims,
liabilities,
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demands, charges, suits and penalties Reiling or the Company incurs or to which
Reiling or the Company becomes subject arising out of any breach or default by
MVII of any of the provisions of this Agreement.
(c) 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.
(d) 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 Reiling.
(e) 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.
(f) 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
containing the provision held to be invalid, and the rights and obligations of
the parties shall be construed and enforced accordingly.
(g) 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.
(h) 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: Rob Weisgarber (fax: 713/365-9911).
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,
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1102 Laurel Lane, San Luis Obispo, CA 93401, Attention: J. Todd Mirolla, Esq.
(fax: 805/543- 0752).
If to Reiling or a Permitted Transferee, at the address set forth opposite
each Reiling Shareholder's name on the signature pages attached hereto, with a
copy to Graham, Curtin & Sheridan, 4 Headquarters Plaza, Morristown, New Jersey
07962, Attention: Robert P. Regimbal, Esq. (fax: 973/292-1767).
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 twenty-four (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.
(i) 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
one person) of the prevailing party's reasonable attorney's fees and costs.
(j) 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.
(k) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
(l) 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.
(m) EFFECTIVE DATE. This Agreement is effective as of the date and
year first above written.
/ / /
/ / /
/ / /
/ / /
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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/ ROB WEISGARBER
Name: Rob Weisgarber
Title: Chief Financial Officer
MVII, LLC
By: /s/ E. THOMAS MARTIN
Name: E. Thomas Martin
Title: Manager
REILING
Address:
15 Woodcrest Drive /s/ WALTER S. REILING
Morristown, NJ 07960 WALTER S. REILING
Address:
15 Woodcrest Drive /s/ SUSAN REILING
Morristown, NJ 07960 SUSAN REILING
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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 his/her spouse 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/ WALTER S. REILING
WALTER S. REILING
/s/ SUSAN REILING
SUSAN REILING
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EXHIBIT 10.2
LIMITED IRREVOCABLE PROXY
Date: January 7, 2000
The undersigned hereby appoints MVII, LLC, a California limited liability
company ("MVII") limited 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, as if
the undersigned were personally present and voting: (a) for the election of the
directors to the Board of Directors; (b) with respect to any matter affecting
the size or composition of the Board of Directors of the Company; (c) with
respect to any matter relating to the creation or composition of any committee
of the Board of Directors of the Company; and (d) with respect to any proposal
to amend or modify the Company's bylaws or articles of incorporation for the
sole purpose of affecting the matters described in clauses (b) and (c), above.
This is an irrevocable proxy coupled with an interest and is granted in
furtherance of that certain Shareholders' and Voting Agreement by and among the
Company, MVII and the undersigned, dated as of even date herewith. This
irrevocable proxy shall automatically terminate upon the occurrence of any of
the events set forth in Section 1.06 of the Shareholders' and Voting Agreement
between the parties hereto.
/s/ WALTER S. REILING /s/ SUSAN REILING
-------------------------------------------
Walter S. Reiling Susan Reiling
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of January
7, 2000, is made by and between DSI Toys, Inc., a Texas corporation (the
"Company"), and Walter S. Reiling and Susan Reiling (each a "Reiling
Shareholder" and collectively, the "Reiling Shareholders").
RECITALS:
WHEREAS, the Company and the Reiling Shareholders have entered into that
certain Agreement and Plan of Merger dated as of October 7, 1999 (the "Merger
Agreement");
WHEREAS, the Merger Agreement provides, among other things, for the
issuance and sale by the Company of Six Hundred Thousand (600,000) shares (the
"Reiling Shares") of common stock, par value $.01 per share, of the Company (the
"Common Stock") to the Reiling Shareholders; and
WHEREAS, the Company and the Reiling 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 Common Stock
owned by the Reiling Shareholders.
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 Reiling Shares, and (b) any shares of Common
Stock issued or issuable with respect to the Reiling Shares by way of a share
dividend or share split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. 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 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 Shareholder Transferee or a Reiling Shareholder (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
<PAGE>
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 Reiling 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 Reiling
Shareholders request that the Company include in such registration by written
notice given to the Company within fifteen (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 shares of Common Stock owned by MVII,
LLC, a limited liability company formed under the laws of the State of
California (the "MVII Shares"), who has been granted registration rights with
respect to the MVII Shares pursuant to that certain Registration Rights
Agreement dated June 1, 1999, (C) third, the shares of Common Stock owned by the
DSI Group (as such term is defined in the Registration Rights Agreement dated
June 1, 1999) (the "DSI Group Shares"), (D) fourth, the Reiling Shares, and (E)
fifth, 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, (C) third,
the DSI Group Shares, and (D) fourth, the Reiling Shares.
(b) 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
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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 Reiling Shareholder has requested
that any Registrable Securities be registered pursuant to this Agreement in
compliance with the requirements of SECTION 2 herein:
(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 Reiling
Shareholder copies of all such documents proposed to be filed;
(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 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 Reiling Shareholder 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
Reiling Shareholder 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 Reiling Shareholder reasonably requests and do any and all
other acts or things which may be reasonably necessary or advisable to enable
the Reiling Shareholder to consummate the disposition in such jurisdictions of
the Registrable Securities owned by the Reiling Shareholder, 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;
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(v) furnish to the Reiling Shareholder a copy, or, upon
request, a signed counterpart, addressed to the Reiling Shareholder (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 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 Reiling Shareholder (or the underwriters, if any)
may reasonably request;
(vi) notify the Reiling Shareholder, 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, in light of the
circumstances under which they are made, not misleading, and, at the request of
the Reiling Shareholder, 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, in light of the circumstances under which they are made, 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 Reiling Shareholder, the Company will prepare
and file a post- effective amendment to the registration statement as required
under the Securities Act.
(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;
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(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 causes 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
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 Reiling Shareholder furnishes to the
Company in writing such information with respect to the Reiling Shareholder 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
Reiling Shareholder by name or otherwise as the holder of any securities of the
Company, the Reiling Shareholder shall have the right to require (i) the
inclusion in such registration statement of language, in form and substance
reasonably satisfactory to the Reiling Shareholder, to the effect that the
holding of such securities by the Reiling Shareholder is not to be construed as
a recommendation by the Reiling Shareholder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
the Reiling Shareholder will assist in the meeting any future financial
requirements of the Company, or (ii) in the event that such reference to the
Reiling Shareholder is not required by the Securities Act or any similar federal
statute then in force, the deletion of the reference to the Reiling Shareholder;
provided, that the respect to this clause (ii) the Reiling Shareholder 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 Reiling Shareholder 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
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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.
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 Reiling Shareholder 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 Reiling Shareholder.
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 Reiling Shareholder
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 Reiling Shareholder 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 Reiling Shareholder 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 Reiling Shareholder'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
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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 (IN LIGHT OF THE CIRCUMSTANCES UNDER
WHICH THEY WERE MADE) OR NECESSARY TO MAKE THE STATEMENTS THEREIN (IN LIGHT OF
THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE) NOT MISLEADING, AND THE COMPANY
WILL REIMBURSE SUCH HOLDER AND EACH SUCH DIRECTOR, OFFICER, UNDERWRITER AND
CONTROLLER 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 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
PROCEEDINGS 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
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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; 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
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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 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
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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 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 OTHER EQUITABLE CONSIDERATION
PROVIDED FOR IN THIS SECTION 6(F).
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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 Reiling Shareholder at any time, in whole or
in part, without the consent of the Company, to up to five Permitted Transferees
(as that term is defined in that certain Shareholders' and Voting Agreement of
even date herewith by and among the Company, MVII, LLC, a California limited
liability company, and the Reiling Shareholders) or any person acquiring at
least 125,000 of the outstanding Registrable Securities from the Reiling
Shareholder or any of its affiliates (each such person being a "Shareholder
Transferee" or a "Reiling Shareholder") 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 Reiling 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.
9. MISCELLANEOUS.
(a) NOTICES. All notices, 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: Robert Weisgarber (fax:
713/365-9911), or at such other address or addresses as may have been furnished
in writing by the Company to the Reiling Shareholders.
If to any of the Reiling Shareholders, at 15 Woodcrest Drive,
Morristown, New Jersey 07960 (fax: 973/898-1927) or at such other address or
addresses as may be furnished in writing to the Company, with a copy to Robert
P. Regimbal, Graham, Curtin & Sheridan, 4 Headquarters Plaza, Morriston, New
Jersey 07962 (fax: 973/292-1760).
Notices provided in accordance with this paragraph (a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) 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
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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.
(c) 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 all of the parties hereto.
(d) 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.
(e) 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.
(f) HEADINGS. The headings of this Agreement are for convenience
only and do not constitute a part of this Agreement.
(g) 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.
(h) 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 or appropriate to carry out the intent and
purposes of this Agreement and to consummate the transactions contemplated
hereby.
(i) 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.
/ / /
/ / /
/ / /
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
"COMPANY"
DSI TOYS, INC., a Texas corporation
By: /s/ ROB WEISGARBER
Name: Rob Weisgarber
Title: Chief Financial Officer
"REILING"
/s/ WALTER S. REILING
Walter S. Reiling
/s/ SUSAN REILING
Susan Reiling
Page 13
EXHIBIT 10.4
SUBORDINATED SECURED PROMISSORY NOTE
$1,690,000.00 January 7, 2000
Morristown, New Jersey
FOR VALUE RECEIVED, DSI TOYS, INC., a Texas corporation ("Borrower"),
hereby promises to pay to the order of Walter S. Reiling and Susan Reiling
(collectively, "Lender"), in lawful money of the United States of America and by
wire transfer of immediately available funds, the principal sum of One Million
Six Hundred Ninety Thousand Dollars, ($1,690,000.00) (the "Loan") together with
accrued and unpaid interest thereon, each due and payable on the dates and in
the manner set forth below.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan and
accrued interest thereon, together with any other amounts due under this Note
shall be due and payable on or before January 7, 2005.
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall accrue at the annual rate of 10.0375% (the "Fixed
Interest"). In addition, Borrower agrees that, upon the occurrence of an Event
of Default (as defined in Section 7, below), the unpaid principal shall accrue
interest at an annual rate of twelve percent (12%). The interest set forth in
this Section 2 shall survive any action or judgment on this Note.
If, from any circumstances whatsoever, the fulfillment of any provision of
this Note or any other agreement now or hereafter evidencing, securing or in any
way relating to the indebtedness evidenced hereby shall involve the payment of
interest in excess of the maximum rate permitted by applicable law (the "Maximum
Rate"), then IPSO FACTO, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Lender
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing
hereafter arising between Borrower and Lender with respect to the indebtedness
evidenced hereby.
3. QUARTERLY PAYMENTS/LATE CHARGE. Commencing on April 1, 2000, and
continuing through the Maturity Date, Borrower shall make equal quarterly
payments of principal and interest of $108,500.00 on the outstanding balance of
this Loan. Each quarterly payment shall be due in arrears not later than the
first day of each calendar quarter for the preceding quarter. If any regular
quarterly installment of principal and interest shall not be paid at the place
required under this Loan on or before the fifth (5th) day following the due date
thereof, Borrower shall pay to Lender a late
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<PAGE>
charge (the "Late Charge") of five cents ($.05) for each Dollar so overdue in
order to compensate Lender for their frustration in the meeting of their
financial and loan commitments. The Late Charge shall be in addition to any
other remedy Lender may have and is in addition to Lender's right to collect
fees and charges of any agents or attorneys which Lender employs in connection
with any Event or Default.
4. PLACE OF PAYMENT. All amounts payable hereunder shall be payable by
wire transfer of immediately available funds to the account of Lender as
specified in ATTACHMENT NO. 1, unless another place of payment shall be
specified in writing by Lender.
5. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to
accrued interest, and thereafter to the outstanding principal balance hereof.
6. PREPAYMENT PENALTY. The Note may not be prepaid, in whole or in part,
at any time except that this Loan may be prepaid in full provided that Borrower
pays to Lender at the time of such prepayment (i) all other amounts due under
this Note, and (ii) a penalty in an amount equal to the difference between (a)
Two Million One Hundred Seventy Thousand Dollars ($2,170,000.00), and (b) all
principal (including the amount prepaid) and Fixed Interest payments paid by
Borrower to Lender under this Loan (the "Prepayment Penalty").
7. EVENTS OF DEFAULT. Notwithstanding anything herein contained to the
contrary, the unpaid principal amount owing hereunder, together with all accrued
interest thereon, the Prepayment Penalty and all other amounts due hereunder,
shall become immediately due and payable, at the election of Lender, without
demand or notice, in the event any of the following occurs (each, an "Event or
Default").
(a) The Borrower shall fail to pay when due any payment of principal or
interest on this Loan and such failure shall continue for five (5) days
following written notice of an Event of Default from Lender; provided however,
that Borrower's exercise of its right, in accordance with Section 9.6 of that
certain Agreement and Plan of Merger by and between Meritus Industries, Inc.,
Lender and Borrower dated October 7, 1999 (the "Merger Agreement"), to set off
amounts owed to Borrower by Lender from amounts payable to Lender pursuant to
the terms of this Note (the "Setoff") shall not be an Event of Default;
(b) Borrower shall materially breach, and shall have failed to cure
such breach after fifteen (15) days prior written notice from Lender, any of the
following agreements, each dated as of the date hereof (i) that certain
Shareholders' and Voting Trust Agreement by and among Meritus Industries, Inc.,
Lender, Borrower and MVII, LLC; or (ii) that certain Registration Rights
Agreement by and among Meritus Industries, Inc., Lender and Borrower
(collectively, the "Agreements");
(c) The Borrower shall fail to provide to Lender a replacement letter
of credit in favor of Lender in the form and substance of the Letter of Credit
within forty-five (45) days prior to
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<PAGE>
the expiration date or termination of the Letter of Credit, or any replacement
letter of credit;
(d) The voluntary institution by Borrower of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or release under the
federal Bankruptcy Code, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official for all or any
substantial part of its property; or
(e) There shall occur a material event of default under the Borrower's
Senior Indebtedness, as defined herein.
Upon the occurrence of an Event of Default, the principal amount of this
Loan, all interest thereon, and all other amounts payable hereunder (including
without limitation, the Prepayment Penalty) shall thereupon and concurrently
therewith become due and payable.
The Borrower agrees that Lender shall be entitled to collect from Borrower
the Prepayment Penalty in connection with and in addition to the collection by
Lender of all other amounts due under this Note upon an Event of Default.
8. SUBORDINATION. Provided that no Event of Default has occurred pursuant
to Section 7(c) hereunder, the indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of Senior Indebtedness. Nothing
herein contained shall prevent Lender from exercising its rights against the
Letter of Credit (as defined in Section 13 below) upon an Event of Default.
(a) "SENIOR INDEBTEDNESS." Shall mean, unless expressly subordinated to
or made on a parity with the amounts due under this Note, the principal of,
unpaid interest on and amounts reimbursable, fees, expenses, costs of
enforcement and other amounts due in connection with (i) indebtedness of
Borrower (including indebtedness of Borrower as a co-borrower) to banks or
commercial finance, or other lending institutions regularly engaged in the
business of lending money (including venture capital, investment banking,
leasing or similar institutions and their affiliates which sometimes engage in
lending activities but which are primarily engaged in investments in equity
securities), equipment lessors and landlords whether or not secured, and (ii)
any such indebtedness or any debentures, notes, or other evidence of
indebtedness issued in exchange for such Senior Indebtedness, or any
indebtedness arising from the satisfaction of such Senior Indebtedness by a
guarantor.
(b) INSOLVENCY PROCEEDINGS. If there shall occur any receivership or
proceeding, insolvency, assignment for the benefit of creditors generally,
reorganization, or arrangements with creditors generally (whether or not
pursuant to bankruptcy or other insolvency laws), dissolution, liquidation, or
any other marshaling of the assets and liability of Borrower, such event shall
constitute an Event of Default under this Note entitling Lender to exercise its
rights against the Letter
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<PAGE>
of Credit, and after such event (a) no amount shall be paid by Borrower in
respect of the principal of, interest on or other amounts due with respect to
this Note at the time outstanding, unless and until the principal of and
interest on the Senior Indebtedness then outstanding shall be paid in full, and
(b) no claim or proof of claim shall be filed by or on behalf of Lender which
shall assert any right to receive any payments in respect of the principal of
and interest on this Note except subject to the payment in full of the principal
of and interest on all of the Senior Indebtedness then outstanding.
(c) FURTHER ASSURANCES. By acceptance of this Note, Lender agrees to
execute and deliver customary forms of subordination agreement requested from
time to time by the holders of Senior Indebtedness and, as a condition to
Lender's rights hereunder, Borrower may require that Lender execute such forms
of subordination agreement, provided that such forms shall not impose on Lender
terms less favorable than those provided herein.
(d) LIEN SUBORDINATION. Any lien or security interest of Lender,
whether now or hereafter existing in connection with the amounts due under this
Note, on any assets or property of Borrower or any proceeds or revenues
therefrom which Lender may have at any time as security for any amounts due, and
obligations under, this Note shall be subordinate to all liens or security
interests now or hereafter granted to a holder of Senior Indebtedness by
Borrower or by law notwithstanding the date, order or method of attachment or
perfection of any such lien or security interest or the provisions of any
applicable law.
(e) APPLICABILITY OF PRIORITIES. The priority of the holder of the
Senior Indebtedness provided for herein with respect to security interests and
liens are applicable only to the extent that such security interests and liens
are enforceable and perfected and have not been avoided; if a security interest
or lien is judicially determined to be unenforceable or unperfected or is
judicially avoided with respect to any claim of the holder of the Senior
Indebtedness or any part thereof, the priority provided for herein shall not be
available to such security interest of lien to the extent that it is avoided or
determined to be unenforceable or unperfected. The foregoing notwithstanding,
Lender covenants and agrees that it shall not challenge, attach or seek to avoid
any security interest or lien to the extent that it secures any holder of the
Senior Indebtedness. Nothing in this Section 5(e) affects the operation of any
subordination of indebtedness or turnover of payment provisions hereof, or of
any other agreements among any of the parties hereto.
(f) RELIANCE OF HOLDERS OF SENIOR INDEBTEDNESS. Lender, by its
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and each such holder of Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and holding, or in continuing to hold, such Senior Indebtedness.
9. WAIVER. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred,
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<PAGE>
including, without limitation, reasonable attorneys' fees, costs and other
expenses. The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law.
10. NOTICES. Except as otherwise provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be delivered in person, with receipt acknowledged, or sent by telex,
telecopy, computer transmission or by United States mail, registered or
certified, return receipt requested, postage prepaid and addressed as follows:
If to Lender: Walter S. Reiling
15 Woodcrest Drive
Morristown, New Jersey 07960
Facsimile: (973) 898-1927
With a copy to: Robert P. Regimbal, Esq.
Graham, Curtin & Sheridan
4 Headquarters Plaza
P.O. Box 1991
Morristown, NJ 07962-1991
Facsimile: (973) 292-1767
If to Borrower: DSI Toys, Inc.
1100 West Sam Houston Parkway North
Houston, TX 77043
Facsimile: (713) 365-9911
With a copy to: J. Todd Mirolla
Andre, Morris & Buttery
1102 Laurel Lane
San Luis Obispo, CA 93401
Facsimile: (805) 543-4171
11. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Texas. The parties hereby
irrevocably submit to the jurisdiction of the courts of the State of New Jersey
and the federal courts of the United States of America located in the State of
New Jersey solely in respect to the enforcement and interpretation of this Note.
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 10. Notwithstanding the foregoing,
nothing herein shall be construed as a submission by the parties to venue in New
Jersey courts with respect to any matter or agreement between the parties other
than this Note, including but not limited to the Setoff and the Agreements.
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<PAGE>
12. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Borrower and shall extend to any
holder hereof.
13. SECURITY. Borrower's obligations under and full performance of the
terms and conditions of this Note shall be secured by a letter of credit in a
form reasonably acceptable to Lender in favor of Lender for the benefit of
Borrower, in the principal amount of Eight Hundred Sixty Eight Thousand Dollars
($868,000.00) (The "Letter of Credit").
14. MODIFICATIONS. No amendment, modification, alteration or change of any
of the provisions of this Note shall be effective unless in writing signed by
Borrower and Lender and only to the extent therein set forth.
15. INVALIDITY. In the event that any term or provision of this Note shall
be finally determined to be superseded, invalid, illegal or otherwise
unenforceable pursuant to applicable law by any authority having jurisdiction,
such determination shall not impair or otherwise affect the validity, illegality
or enforceability of the remaining terms and provisions of this Note, which
shall be enforced as if the unenforceable term or provision were deleted.
"BORROWER"
DSI TOYS, INC., A TEXAS CORPORATION
By: /s/ ROB WEISGARBER
Printed Name: Rob Weisgarber
Title: Chief Financial Officer
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<PAGE>
ATTACHMENT NO. 1
PLACE OF PAYMENT
RFB: Walter and Susan Reiling
Chase Manhattan Bank
Acct: Prudential Securities, Inc.
Acct# 08A-022529-K5
ABA: 021000021
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EXHIBIT 10.5
PROMISSORY NOTE
$5,000,000.00 Houston, Texas
January 7, 2000
FOR VALUE RECEIVED, the undersigned, DSI Toys, Inc., a Texas corporation
("Borrower"), promises to pay to the order of MVII, LLC, a California limited
liability company ("Lender"), at its office at 654 Osos Street, San Luis Obispo,
California 93401, or at such other place as the holder hereof may designate, in
lawful money to the United States of America and in immediately available funds,
the principal sum of $5,000,000.00, with interest thereon as set forth herein.
1. INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum 2.00000% above the Prime Rate in effect from time to time. The
"Prime Rate" is defined as the prime rate of Wells Fargo Bank as from time to
time established and which serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto. Each change in
the rate of interest hereunder shall become effective on the date each Prime
Rate change is announced by Wells Fargo Bank.
(b) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on
the 1st day of each month, commencing February 1, 2000.
(c) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
2. REPAYMENT AND PREPAYMENT:
(a) REPAYMENT. The outstanding principal balance of this Note, together
with any and all accrued but unpaid interest, shall be due and payable in full
on July 1, 2004. Beginning on June 1, 2000, and on the first day of each month
thereafter throughout the term of this Note, in addition to the monthly payment
of accrued interest, Borrower shall make principal payments of One Hundred
Thousand Dollars ($100,000.00) to Lender.
<PAGE>
(b) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
(c) PREPAYMENT. Borrower may prepay principal on this Note at any time, in
any amount and without penalty.
(d) LATE FEE. Borrower's failure to timely pay any sum of principal or
interest due under this Note within five (5) calendar days of the date due shall
result in a late fee charge equal to five percent (5%) of the sums then past
due, to cover costs related to collecting and accounting for such past due
installment(s), it being understood that Lender's actual damages will be
extremely difficult to ascertain in such event. Further, all interest shall
continue to accrue on all outstanding sums due hereunder.
3. EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay any principal, interest, fees or other charges when
due hereunder;
(b) (i) The filing of a petition by or against Borrower, under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
(ii) the appointment of a receiver, trustee, custodian or liquidator of or for
any part of the assets or property of Borrower; (iii) if Borrower becomes
insolvent, makes a general assignment for the benefit of creditors or is
generally not paying its debts as they become due; or (iv) any attachment or
like levy on any property of Borrower;
(c) The dissolution or liquidation of Borrower;
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which Borrower has incurred any obligation for borrowed
money, any purchase obligation, or any other liability of any kind to any person
or entity, including the holder of this note, and any such default remains
uncured after fifteen (15) calendar days from the event of default;
<PAGE>
(e) Any financial statement provided by Borrower to Lender or any third
party proves to be incorrect, false or misleading in any material respect;
(f) Any sale or transfer of all or a substantial or material part of the
assets or outstanding shares of Borrower other than in the ordinary course of
its business;
(g) Any violation or breach of any provision of, or any defined event of
default under, any subsequent addendum to this Note; or
(h) Any "Event of Default" by Borrower, as such term is defined in that
certain Subordinated Secured Promissory Note dated January 7, 2000, issued
by Borrower in favor of Walter S. Reiling and Susan Reiling in the original
principal sum of $1,690,000.00 (the "Reiling Note"), which Event of Default
results in a draw against the "Letter of Credit" (as such term is defined in
Section 13 of the Reiling Note). Further, in the event there is a draw against
the Letter of Credit, any and all such sums drawn on the Letter of Credit shall
be added to the then existing principal balance of this Note and shall be repaid
to Lender by Borrower in accordance with the terms and conditions of this Note.
4. SUBORDINATION:
The indebtedness evidenced by this Note is hereby expressly subordinated,
to the extent and in the manner hereinafter set forth, in right of payment to
the prior payment in full of Senior Indebtedness.
(a) "SENIOR INDEBTEDNESS." Shall mean, unless expressly subordinated
to or made on a parity with the amounts due under this Note, the principal of,
unpaid interest on and amounts reimbursable, fees, expenses, costs of
enforcement and other amounts due in connection with (i) indebtedness of
Borrower (including indebtedness of Borrower as a co-borrower) to Sunrock
Capital Corp. and State Street Bank; (ii) or other evidence of indebtedness
issued in exchange for such Senior Indebtedness; or (iii) or any indebtedness
arising from the satisfaction of such Senior Indebtedness by a guarantor.
(b) INSOLVENCY PROCEEDINGS. If there shall occur any receivership or
proceeding, insolvency, assignment for the benefit of creditors generally,
reorganization, or arrangements with creditors generally (whether or not
pursuant to bankruptcy or other insolvency laws), dissolution, liquidation, or
any other marshaling of the assets and liability of Borrower, such event shall
constitute an Event of Default under this Note entitling Lender to exercise its
rights hereunder,
<PAGE>
and after such event (a) no amount shall be paid by Borrower in respect of the
principal of, interest on or other amounts due with respect to this Note at the
time outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full, and (b) no claim or proof
of claim shall be filed by or on behalf of Lender which shall assert any right
to receive any payments in respect of the principal of and interest on this Note
except subject to the payment in full of the principal of and interest on all of
the Senior Indebtedness then outstanding.
(c) FURTHER ASSURANCES. By acceptance of this Note, Lender agrees to
execute and deliver customary forms of subordination agreement requested from
time to time by the holders of Senior Indebtedness and, as a condition to
Lender's rights hereunder, Borrower may require that Lender execute such forms
of subordination agreement, provided that such forms shall not impose on Lender
terms less favorable than those provided herein.
(d) LIEN SUBORDINATION. Any lien or security interest of Lender,
whether now or hereafter existing in connection with the amounts due under this
Note, on any assets or property of Borrower or any proceeds or revenues
therefrom which Lender may have at any time as security for any amounts due, and
obligations under, this Note shall be subordinate to all liens or security
interests now or hereafter granted to a holder of Senior Indebtedness by
Borrower or by law notwithstanding the date, order or method of attachment or
perfection of any such lien or security interest or the provisions of any
applicable law.
(e) APPLICABILITY OF PRIORITIES. The priority of the holder of the
Senior Indebtedness provided for herein with respect to security interests and
liens are applicable only to the extent that such security interests and liens
are enforceable and perfected and have not been avoided; if a security interest
or lien is judicially determined to be unenforceable or unperfected or is
judicially avoided with respect to any claim of the holder of the Senior
Indebtedness or any part thereof, the priority provided for herein shall not be
available to such security interest of lien to the extent that it is avoided or
determined to be unenforceable or unperfected. The foregoing notwithstanding,
Lender covenants and agrees that it shall not challenge, attach or seek to avoid
any security interest or lien to the extent that it secures any holder of the
Senior Indebtedness. Nothing in this Section 4(e) affects the operation of any
subordination of indebtedness or turnover of payment provisions hereof, or of
any other agreements among any of the parties hereto.
(f) RELIANCE OF HOLDERS OF SENIOR INDEBTEDNESS. Lender, by its
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and each such holder of Senior Indebtedness
shall be deemed
<PAGE>
conclusively to have relied on such subordination provisions in acquiring and
holding, or in continuing to hold, such Senior Indebtedness.
5. MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest then outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Borrower shall pay to the holder immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees expended or incurred by the
holder in connection with the enforcement of the holder's rights and/or the
collection of any amounts which become due to the holder under this Note, and
the prosecution or defense of any action in any way related to this Note,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Lender or any other person) relating to
Borrower or any other person or entity.
(b) SUCCESSORS; ASSIGNS; AMENDMENT. This Note shall be binding upon and
inure to the benefit of the legal representatives, successors and assigns of the
parties, and may be amended or modified only in a writing signed by an
authorized representative of Lender and Borrower.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California.
(d) SEVERABILITY. If any provision of this Note shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or any remaining provisions of
this Note.
(e) WAIVER. The holder hereof shall not, by any act of omission or
commission, be deemed to waive any of its rights or remedies hereunder, unless
such waiver be in writing and signed by the party to be charged, and then only
to the extent specifically set forth in such a writing. A waiver of one event
shall not be deemed a waiver of subsequent events of the same or different
types.
<PAGE>
(f) NOTICES. All notices, requests and demands required under this Note
must be in writing, addressed to Lender at the address specified above and to
Borrower at the address of its chief executive office specified below or to such
other address as any party may designate by written notice to each other party,
and shall be deemed to have been given or made as follows: (i) if personally
delivered, upon delivery; (ii) if sent by mail, upon the earlier of the date of
receipt or three (3) calendar days after deposit in the U.S. mail, first class
and postage prepaid; and (iii) if sent by telecopy, upon receipt.
(g) COMPLIANCE WITH LAWFUL INTEREST RATE. Notwithstanding any other
provisions of this Note, if, for any reason whatsoever, the payment of any sums
by Borrower pursuant to the terms of the Note would result in the payment of
interest which would exceed the amount that the Lender may charge legally under
the laws of the State of California, then the amount by which payment exceeds
the lawful interest rate shall be deducted automatically from the principal
balance owing on the Note, so that in no event shall Borrower be obligated under
the terms of the Note to pay any interest which would exceed the lawful rate.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
DSI TOYS, INC.,
a Texas corporation
By: /s/ ROBERT L. WEISGARBER
Title: CFO
By: N/A
Title: N/A
Address: 1100 W. Sam Houston Parkway, North
Houston, TX 77043
EXHIBIT 10.6
AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT (this "AMENDMENT"), is
entered into on this 7th day of January, 2000, by and between SUNROCK CAPITAL
CORP., a Delaware corporation ("LENDER"), and DSI TOYS, INC., a Texas
corporation ("BORROWER").
RECITALS
A. Borrower and Lender have entered into that certain Loan and Security
Agreement, dated as of February 2, 1999, as amended by that certain Amendment
No. 1 to Loan and Security Agreement, dated effective as of June 30, 1999, by
and between Lender and Borrower (as the same may be amended, modified or
supplemented from time to time, the "LOAN AGREEMENT").
B. Pursuant to a letter agreement, dated as of December 30, 1999, by and
between Borrower and Lender (the "LETTER AGREEMENT"), Lender waived certain
specified provisions of the Loan Agreement in order to facilitate certain
transactions (the "MERGER") contemplated by a Merger Agreement between Borrower,
Meritus Industries, Inc., a New Jersey corporation, Meritus Industries, Ltd., a
Hong Kong corporation, Walter S. Reiling and Susan Reiling.
C. The Letter Agreement requires certain amendments to the Loan Agreement.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment, to the extent not
otherwise defined herein, shall have the same meaning as in the Loan Agreement,
as amended hereby.
ARTICLE II
AMENDMENTS
2.01 DEFINITION OF NET INCOME. SECTION 1 of the Loan Agreement is hereby
amended by adding the following SUBSECTIONS 1.31:
1.31 "Net Income" shall mean as to any Person, as of any date of
determination, the net income (or loss) of such Person and its
Subsidiaries (if any), calculated on a consolidated basis and in
accordance with GAAP, for the period commencing on the first day of the
fiscal year in which the date of determination occurs and ending on such
date of determination.
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2.02 DEFINITION OF SECOND AMENDMENT. SECTION 1 of the Loan Agreement
is hereby amended by adding the following SUBSECTION 1.32:
1.32 "Second Amendment" shall mean that certain Amendment No. 2 to
Loan and Security Agreement, dated as of January 7, 2000, by and between
Lender and Borrower.
2.03 AMENDMENT TO PERMIT SUBORDINATED INDEBTEDNESS. SECTION 9.9 of the
Loan Agreement is hereby amended and restated to read in its entirety as
follows:
0.9 INDEBTEDNESS.
(a) Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations
or indebtedness, EXCEPT: (a) the Obligations; (b) trade obligations and
normal accruals in the ordinary course of business not yet due and
payable, or with respect to which the Borrower is contesting in good faith
the amount or validity thereof by appropriate proceedings diligently
pursued and available to Borrower, and with respect to which adequate
reserves have been set aside on its books; (c) purchase money indebtedness
(including capital leases) to the extent not incurred or secured by liens
(including capital leases) in violation of any other provision of this
Agreement; (d) indebtedness expressly permitted by SECTIONS 9.9(B) AND (C)
below and subject to the conditions set forth in such sections; and (e)
the indebtedness set forth on Schedule 9.9 hereto; PROVIDED, THAT, (i)
Borrower may only make regularly scheduled payments of principal and
interest in respect of such indebtedness in accordance with the terms of
the agreement or instrument evidencing or giving rise to such indebtedness
as in effect on the date hereof, (ii) Borrower shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (iii) Borrower shall furnish to
Lender all notices or demands in connection with such indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof,
or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
(b) Borrower may incur and suffer to exist unsecured
indebtedness of Borrower to Walter S. Reiling and Susan Reiling, evidenced
by that certain Subordinated Secured Promissory Note, dated January 7,
2000, issued by Borrower payable to the order of such individuals, which
indebtedness is subject and subordinate in right of payment to the right
of Lender to receive the prior final payment and satisfaction in full of
all of the Obligations; PROVIDED, THAT: (i) the principal amount of such
indebtedness shall not exceed $1,690,000.00, less the aggregate amount of
all repayments, repurchases or redemptions, whether optional or mandatory
in respect thereof, plus interest thereon at the rate provided for in such
agreement or instrument as in effect on the date hereof, (ii) Borrower
shall not, directly or indirectly, make any payments in respect of such
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indebtedness, including, but not limited to, any prepayments or other
non-mandatory payments, except to the extent expressly permitted under
that certain Subordination Agreement, dated January 7, 2000, between
Walter S. Reiling and Susan Reiling as acknowledged and received by
Borrower and Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change any terms of such indebtedness or any agreement,
document or instrument related thereto, or (B) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose except as otherwise permitted
under any subordination agreement with Lender with respect to such
indebtedness, and (iii) Borrower shall furnish to Lender all notices,
demands or other materials concerning such indebtedness either received by
Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the
case may be.
(c) Borrower may incur and suffer to exist unsecured
indebtedness of Borrower to MVII, LLC, a California limited liability
company, evidenced by that certain Promissory Note, dated January 7, 2000,
issued by Borrower payable to the order of MVII, LLC (the "MVII NOTE"),
which indebtedness is subject and subordinate in right of payment to the
right of Lender to receive the prior final payment and satisfaction in
full of all of the Obligations; PROVIDED, THAT: (i) the principal amount
of such indebtedness shall not exceed $5,000,000.00, less the aggregate
amount of all repayments, repurchases or redemptions, whether optional or
mandatory in respect thereof, plus interest thereon at the rate provided
for in such agreement or instrument as in effect on the date hereof , (ii)
Borrower shall not, directly or indirectly, make any payments in respect
of such indebtedness, including, but not limited to, any prepayments or
other non-mandatory payments, except to the extent expressly permitted
under that certain Subordination Agreement, dated January 4, 2000, by and
among E. Thomas Martin and MVII, LLC and Lender, as acknowledged and
received by Borrower, and Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change any terms of such indebtedness or any
agreement, document or instrument related thereto, or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose except as otherwise
permitted under any subordination agreement with Lender with respect to
such indebtedness, and (iii) Borrower shall furnish to Lender all notices,
demands or other materials concerning such indebtedness either received by
Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the
case may be. Notwithstanding SECTION 9.9(C)(I) above, Borrower shall be
permitted to increase the outstanding principal amount of the MVII Note
from time to time by an amount not to exceed $500,000 in the aggregate for
all such increases; PROVIDED, THAT, the stated interest rate of such
indebtedness shall not be increased, the frequency of payments shall not
be increased and the principal amount of the MVII Note, as increased from
time to time, shall be payable no more frequently than monthly or in
amounts greater than $100,000. Borrower shall promptly provide written
notice to Lender of an increase in the stated principal amount of the MVII
Note pursuant to the authority granted in this SECTION 9.9(C).
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2.04 AMENDMENT TO NET WORTH. SUBSECTION 9.14 of the Loan Agreement is
hereby amended and restated to read in its entirety as follows:
9.14 NET WORTH. The Borrower will not permit its Net Worth to be
less than the following respective amounts at the following respective
dates:
DATE MINIMUM NET WORTH
-------- -----------------
12/31/99 $ 6,500,000
03/31/00 $ 6,000,000
06/30/00 $ 6,500,000
09/30/00 $10,000,000
12/31/00 $10,500,000
03/31/01 $ 8,500,000
06/30/01 $ 9,000,000
09/30/01 $12,500,000
12/31/01 $13,000,000
03/31/02 $11,000,000
06/30/02 $11,500,000
09/30/02 $15,000,000
12/31/02 $15,500,000
2.05 FISCAL YEAR OF BORROWER. SECTION 9 of the Loan Agreement is hereby
amended by adding the following SUBSECTION 9.18:
9.18 BORROWER'S FISCAL YEAR. Borrower's fiscal year shall be a
period of 365 or 366 consecutive days, as appropriate, beginning on the
first day after the last day of the immediately preceding fiscal year and
ending on the next-following December 31, beginning with the 365
consecutive days ending on December 31, 1999.
2.06 MINIMUM NET INCOME. SECTION 9 of the Loan Agreement is hereby mended
by adding the following SUBSECTION 9.19:
9.19 NET INCOME. The Borrower will not permit its Net Income to be
less than the following respective cumulative amounts for the periods
ended as of the following respective dates, each of which dates shall be a
date of determination for purposes of the definition of Net Income set
forth at SUBSECTION 1.31 hereof:
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DATE NET INCOME
-------- ------------
03/31/00 $(2,000,000)
06/30/00 $(1,500,000)
09/30/00 $ 2,000,000
12/31/00 $ 2,500,000
03/31/01 $(2,000,000)
06/30/01 $(1,500,000)
09/30/01 $ 2,000,000
12/31/01 $ 2,500,000
03/31/02 $(2,000,000)
06/30/02 $(1,500,000)
09/30/02 $ 2,000,000
12/31/02 $ 2,500,000
2.07 AMENDMENT OF SECTION 10.1. SECTIONS 10.1(M) and 10.1(N) of the Loan
Agreement are hereby amended and restated in their entirety as set forth below,
and a new SECTION 10.1(O) is hereby added to SECTION 10.1 as follows:
(m) there shall be an event of default under any of the other
Financing Agreements;
(n) DSI (HK) Limited shall fail to maintain its existing
credit facility with State Street Bank and Trust Company or one or more
credit facilities acceptable to Lender, in either case upon such terms and
conditions as Lender may find adequate to provide financing for the
continued operations of DSI (HK) Limited in the manner then conducted; or
(o) Borrower shall make any payment to the holders of the
subordinated indebtedness permitted pursuant to SECTIONS 9.9(B) or 9.9(C)
of this Agreement at a time when such payments are not permitted under the
subordination agreements entered into between Lender and the holders of
such subordinated indebtedness and acknowledged by Borrower.
2.08 AMENDMENT TO THE TERM OF THE LOAN AGREEMENT. SUBSECTION 12.1(A) of
the Loan Agreement is hereby amended and restated to read in its entirety as
follows:
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on February 2, 2003
(the "Termination Date"). On the Termination Date Borrower hereby promises
to pay to Lender, in full, all outstanding and unpaid Obligations and
shall furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including checks or other
payments provisionally credited to the Obligations
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and/or as to which Lender has not yet received final and indefeasible
payment. Such payments in respect of the Obligations and cash collateral
shall be remitted by wire transfer in Federal funds to such bank account
of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the
next business day, if the amounts so paid by Borrower to the bank account
designated by Lender are received in such bank account later than 12:00
noon, Philadelphia, Pennsylvania, time.
2.09 AMENDMENT TO EARLY TERMINATION FEE. SUBSECTION 12.1(C) of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of
Lender's lost profits as a result thereof, Borrower agrees to pay to
Lender, upon the effective date of such termination, an early termination
fee in the amount set forth below if such termination is effective in the
period indicated:
AMOUNT PERIOD
----------------------------- -------------------------------
(iv) 3.00% of Maximum Credit From the date of the Second
Amendment to and including
February 2, 2001
(v) 2.00% of Maximum Credit From February 3, 2001 to and
including February 2, 2002
(vi) 1.00% of Maximum Credit From and after February 3, 2002
but excluding the Termination
Date
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower
agrees that it is reasonable under the circumstances currently existing.
In addition, Lender shall be entitled to such early termination fee upon
the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h) hereof, even if Lender does not exercise its right to terminate
this Agreement, but elects, at its option, to provide financing to
Borrower or permit the use of cash collateral under the United States
Bankruptcy Code. Borrower may elect to terminate this Agreement as of any
date; provided, that Borrower shall provide Lender with fifteen (15) days'
prior written notice of such election (which notice shall specify the
effect date of such termination) and, on such date of termination, pay to
Lender all amounts required to be paid upon termination of this Agreement
in accordance with this SECTION 12.1. Any notice of termination given by
Borrower to Lender pursuant to this SECTION 12.1 shall be irrevocable and
binding, unless consented to in writing by Lender. The early termination
fee provided for in this SECTION 12.1 shall be deemed included in the
Obligations.
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2.10 DELETION OF SECTION 12.1(D). SECTION 12.1(D) of the Loan Agreement
is hereby deleted in its entirety.
2.11 AMENDMENT OF SCHEDULE 9.9. Schedule 9.9 to the Loan Agreement is
hereby amended by deleting therefrom all references to indebtedness owing to
Bank One, Texas, NA.
ARTICLE III
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
3.01 RATIFICATIONS. Except as expressly amended hereby, the terms and
provisions of the Loan Agreement and the Letter Agreement are ratified and
confirmed and shall continue in full force and effect. Borrower and Lender agree
that the Loan Agreement, as amended hereby, and each agreement and instrument
executed in connection therewith, shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
3.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) all corporate proceedings taken in connection with
Merger and all documents, instruments and other legal matters incident thereto
conform in all material respects to the Merger Agreement (as defined in the
Letter Agreement), and concurrently with the execution of this Amendment,
Sunrock has been provided copies of all such documentation; (b) the execution,
delivery and performance of this Amendment has been authorized by all requisite
corporate action on the part of Borrower and does not violate the Articles of
Incorporation or Bylaws of Borrower; (c) the representations and warranties
contained in the Loan Agreement, as amended hereby, are true and correct on and
as of the date hereof; (d) as of the date hereof no Event of Default under the
Loan Agreement has is continuing and no event or condition exists that with the
giving of notice or the lapse of time, or both, would be an Event of Default;
and (e) Borrower is in full compliance with all covenants and agreements
contained in the Loan Agreement and each agreement and instrument entered into
in connection therewith.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made herein and in the Loan Agreement shall survive the execution and
delivery of this Amendment, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.
4.02 REFERENCE TO LOAN AGREEMENT. The Loan Agreement, as amended hereby,
and all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms thereof are hereby amended so that any reference
in the Loan Agreement or such other agreements, documents and instruments shall
mean a reference to the Loan Agreement, as amended hereby.
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4.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation and execution of this Amendment, including,
without limitation, the costs and fees of Lender's legal counsel, and all costs
and expenses incurred by Lender in connection with the enforcement or
preservation of any rights under the Loan Agreement, as amended hereby, or any
agreement, document or instrument executed in connection therewith.
4.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
4.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
4.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
4.07 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
4.08 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
4.09 FINAL AGREEMENT. THE FINANCING AGREEMENTS (INCLUDING THE LOAN
AGREEMENT, THIS AMENDMENT AND THE LETTER AGREEMENT), AS AMENDED HEREBY,
REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF IN THE DATE THIS AMENDMENT IS EXECUTED. THE FINANCING AGREEMENTS,
AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR
AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN
AGREEMENT SIGNED BY BORROWER AND LENDER.
4.10 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE
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OBLIGATIONS (AS DEFINED IN THE LOAN AGREEMENT) OR TO SEEK AFFIRMATIVE RELIEF OR
DAMAGES OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND
KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS,
CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR
UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR
HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS
AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM
ANY LOANS (AS DEFINED IN THE LOAN AGREEMENT), INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT OR ANY FINANCING AGREEMENT, DOCUMENT OR
INSTRUMENT ENTERED INTO IN CONNECTION THEREWITH.
[Signature Page Follows]
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Executed as of this ___ day of January, 2000.
DSI TOYS, INC.
By: /s/ ROBERT L. WEISGARBER
Name: Robert L. Weisgarber
Title: CFO/Vice President
SUNROCK CAPITAL CORP.
By: /s/ ROBERT J. KATCHA
Name: Robert J. Katcha
Title: Senior Vice President
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is hereby made and entered into
this 7th day of January, 2000, by and between DSI Toys, Inc., a Texas
corporation, whose principal business address is 1100 West Sam Houston Parkway,
Houston, Texas 77043 ("Employer" or "Company"), and Beth Reiling, an individual
("Employee").
RECITALS
A. Employer is in the business of inventing, developing, manufacturing and
marketing toys. Employer is a public company.
B. Employee has extensive experience and expertise in the toy industry.
C. Employer wishes to employ Employee and Employee wishes to become an
employee of Employer pursuant to the terms and conditions of this Agreement.
ARTICLE 1
GENERAL
1.1 EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts such employment with Employer upon the terms and conditions hereinafter
set forth. Employee shall perform such duties and responsibilities and exercise
such powers for the Employer as may from time to time be assigned or delegated
to her by Employer, including such duties as may be customary for a Vice
President, Girl's Division, in the toy industry. Employee acknowledges that
Employer shall be dependent upon Employee for its continued ongoing business
operations and that the provisions hereof are necessary for the successful
conduct of the business and affairs of the Company.
1.2 POSITION. Employee shall be employed in the capacity and hold
the position of Vice President, Girl's Division. In such capacity, Employee
agrees to, at all times, exercise her best efforts for the benefit of the
Company and to thereby undertake to use and implement the management,
organizational, intellectual, technical and other skills of Employee to the best
of her ability on the Company's behalf. Employee shall be responsible to and
report to the Senior Vice President, New Business Development, of the Company.
1.3 TERM. Subject to the provisions provided for and relating to
termination set forth herein, the term of Employee's employment pursuant to this
Agreement shall be for a period beginning on January 7, 2000, and ending on the
date that is three (3) years thereafter (said period being hereinafter referred
to as the "Employment Term").
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ARTICLE 2
REMUNERATION AND BENEFITS
2.1 BASE SALARY. For all services rendered by Employee during the
Employment Term, Employer shall pay to Employee a salary of One Hundred Twenty
Thousand Dollars ($120,000.00) per year (the "Base Salary"). The Base Salary
shall begin to accrue and be paid on the Effective Date of this Agreement and
shall be distributed in semi-monthly installments in arrears through the
Employment Term.
(a) At a minimum, the Base Salary shall be adjusted annually
on the anniversary date to reflect any increase in the Consumer Price Index -
All Urban Wage Earners (the "Index"). The Base Salary shall not be adjusted
downward to reflect any decrease in the Index.
(b) The Base Salary may also be raised at any time during the
Employment Term at the discretion of the Company's Board of Directors.
2.2 BENEFITS. Employee shall be eligible to participate in any and
all benefit plans which Employer may from time to time make generally available
to all employees of the Company, including but not limited to participation in
the Company's 401(k) plan, group life insurance and health insurance programs.
2.3 EXTENT OF SERVICE. During the Employment Term, Employee agrees
to devote such amount of time, attention, energy and effort as is necessary to
further the business and profitability of Employer. Further, during the
Employment Term, Employee shall not be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage. However, the foregoing
limitations shall not be construed as prohibiting Employee from making personal
investments in any business enterprise not competitive with that of Employer in
such form or manner as will neither require her services in the operations or
affairs of enterprises in which such investments are made, nor otherwise violate
the terms of this Agreement.
2.4 OFFICES. Employer shall provide office space for Employee, with
provisions for secretarial and other support services necessary to the
maintenance and operations of such office, and the performance of Employee's
duties hereunder.
2.5 EXPENSE ALLOWANCE. Employer shall reimburse Employee for all
approved, deductible business expenses reasonably incurred in the performance of
her duties hereunder.
2.6 VACATIONS AND HOLIDAYS. Employee shall be entitled to fifteen
(15) vacation days annually in accordance with the policies established by
Employer's Board of Directors, as well as those public holidays duly observed by
Employer; provided, however, no more than ten (10) consecutive vacation days
shall be taken at any one time.
2.7 INSURANCE. Employee shall be provided group life, disability and
health insurance coverages by Employer throughout the term of this Agreement. If
qualified, Employee
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shall be provided a group life insurance policy with a death benefit of no less
than $200,000.00.
2.8 BUSINESS TRAVEL. Employee shall be entitled to travel portal to
portal via business class on all international air travel performed for the
Company. All domestic air travel performed for the Company shall be via coach
class.
2.9 CAR ALLOWANCE. Employee shall receive a car allowance of Five
Hundred Dollars ($500.00) per month.
ARTICLE 3
TERMINATION
3.1 DEATH. In the event of the Employee's death during the
Employment Term, the Employer shall pay to Employee's executor(s),
administrator(s) or personal representative(s) an amount equal to the
installment of her Base Salary payable for the month in which she dies and for
no period thereafter. Employer shall have no other liabilities or other
obligations of any kind or character under this Agreement to Employee's
executor(s), administrator(s) or personal representative(s) except such accrued
salary and unused vacation that Employee is entitled at the time of death.
(a) It is expressly understood and agreed that the Company may
maintain key man term life insurance for the benefit of the Company on the life
of Employee. Additionally, the Company may maintain such other life insurance
for the benefit of Employer, the Company's shareholders, as from time to time
the Board of Directors of the Company deems reasonable and appropriate.
(b) Upon the death of Employee, any and all vested employee
benefits accrued for the benefit of Employee shall be distributed in accordance
with the provisions set forth in the subject plan agreement or arrangement
providing the applicable benefits, and otherwise distributed in accordance with
applicable laws.
3.2 DISABILITY; FAILURE TO PERFORM DUTIES. In the event of
Employee's failure to perform her duties hereunder by reason of illness or
disability for a period equal to or in excess of ninety (90) consecutive days
during the Employment Term or for ninety (90) days during any twelve (12) month
period throughout the Employment Term, Employer shall have the option to
terminate this Agreement by giving thirty (30) days written notice of
termination to Employee. Upon such notice of termination, Employer shall pay to
Employee an amount equal to the installments of her Base Salary payable up to
the time this Agreement is terminated, and Employer shall distribute any and all
accrued employee benefits as of the date of termination to Employee in
accordance with the provision of the applicable benefit plan, agreement or
arrangement giving rise to the applicable benefits. Upon the termination of this
Agreement as a result of such disability, Employer shall have no other
liabilities or obligations of any kind or character to Employee under this
Agreement.
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3.3 TERMINATION FOR CAUSE. Employee may be terminated for cause by
Employer upon written notice to Employee. For purposes of this Agreement, "for
cause" shall be if Employee:
(a) Neglects the performance of her duties required to be
performed under the terms of this Agreement to the economic detriment of the
Company;
(b) Fails or refuses in the opinion of the Board of Directors
to comply with the reasonable policies, standards and regulations of the Company
which from time to time may be established;
(c) Is convicted of a crime or is charged with committing a
felony;
(d) Materially breaches any of the terms or conditions of this
Agreement; or
(e) Performs any action constituting fraud or an intentional
misrepresentation.
Upon such determination, Employer may, at its option, terminate this
Agreement immediately without prejudice to any other remedy to which Employer
may be entitled either at law or in equity, or under this Agreement. In such
event, except as specifically provided in this Section 3.3, any of the
obligations of Employer under this Agreement shall be terminated as of the date
given in the notice of termination referred to hereinabove, following payment by
Employer to Employee of that portion of the Base Salary and vacation then
accrued, due and owing in accordance with Section 2.1 hereof. In the event
Employee is terminated for cause, Employee shall be paid her regular Base Salary
from the date of termination for a period of three (3) months, but no other
severance shall be paid to the Employee.
ARTICLE 4
COVENANTS
4.1 DISCLOSURE OF INFORMATION. Employee recognizes and acknowledges
that she has and will have access to certain confidential information,
proprietary data and trade secrets of Employer, and of entities and individuals
controlling, controlled by or under common control with Employer ("affiliates"),
including but not limited to, contracts, patterns, devices, calculations,
drawings, productions, plans, specifications, records, compilations or
information, and other confidential information and data either compiled by
Employer or received from its customers or Employer, and that such information
is not generally available to the public and constitutes valuable, special and
unique property of the Employer. Employee 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 such confidential information to any person or
firm, corporation, association or other entity for any reason or purpose
whatsoever, except to authorized representatives of Employer and as otherwise
may be proper in the course of performing her employment hereunder. Further,
Employee shall
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maintain the confidentiality of all such information of Employer, its affiliates
or its customers for the sole use and benefit of Employer. All files, records,
documents, drawings, plans, specifications, contracts, products, equipment or
similar items relating to the business of Employer and/or the affiliates shall
not be removed from the premises of Employer and/or its affiliates without the
prior consent of Employer and/or its affiliates, as applicable.
(a) Employee further covenants and agrees to promptly return
and deliver to Employer all documents, information, or other material or
property of any kind or character which in any way relate to the business of
Employer or any of its affiliates or customers, whether or not asserted to be
the exclusive property of Employer; and, further, Employee shall not attempt to
retain copies or duplicates of any such property. In the event of a breach or a
threatened breach of these covenants by Employee, Employer and/or its
affiliates, in addition to all other remedies made available hereby or as a
matter of law or in equity, may seek an injunction restraining Employee from
disclosing, in whole or in part, such confidential information. In addition to
any other damages sustained by Employer, Employee shall pay to Employer all
profits, payments, earnings compensation or other emoluments paid or accruing to
Employee, directly or indirectly, by reason of Employee's disclosure of
information as provided herein. Nothing herein shall be construed as prohibiting
Employer 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 Employee.
4.2 NON-COMPETITION. During the Employment Term, and if this
Agreement is terminated in accordance with Sections 3.3, for a period of one (1)
year from the date of Employee's termination of employment hereunder, Employee
shall not directly or indirectly, either for herself, or as an employer,
employee, owner, manager, independent contractor, consultant, agent, principal,
partner, co-venturer, shareholder, director, officer or in any other capacity,
engage or have any indirect interest in any person that is engaged, or to the
knowledge of Employee is planning to engage, in competition in any manner
whatsoever with the business of Employer including, without limitation, any
person that manufactures, markets, imports, sells or distributes toys. If the
Employment Term is terminated by Employer pursuant to Section 3.3 and Employer
elects to enforce the provisions of this Section 4.2, Employer shall be
obligated to pay Employee as additional consideration on or before the fifteenth
(15th) day of each month during the one (1) year period following termination of
the Employment Term an amount equal to one-twelfth (1/12) of Employee's then
existing Base Salary.
4.3 AGREEMENT NOT TO SOLICIT. During the Employment Term, and if
this Agreement is terminated in accordance with Section 3.3, for a period of one
(1) year from the date of Employee's termination of employment hereunder,
Employee will not, either directly or indirectly, on her own or in the service
of another:
(a) Knowingly call upon, solicit, divert or attempt to solicit
or divert any of the business contacts of Employer;
(b) Knowingly employ any employee of Employer or solicit,
divert, recruit or induce any employee of Employer to leave the employ of
Employer, whether or not such employment is at will; and/or
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(c) Knowingly induce or advise any service provider, customer,
factory or representative of Employer to terminate or materially alters its then
existing relationship with Employer.
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.1 MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
shall apply to the terms and conditions of this Agreement:
(a) Pursuit of any one remedy shall not preclude pursuit of
any other remedies provided for herein or by law. No waiver of one violation of
this Agreement shall be deemed or construed to constitute a waiver of any
similar violations subsequently occurring, or any other violation whatsoever.
(b) This Agreement shall be construed under the laws of Texas,
and the rights and obligations of each of the parties to this Agreement during
the term hereof and upon its termination shall be governed exclusively by Texas
law.
(c) This instrument contains all of the understandings and
agreements of whatsoever kind and nature existing between the parties hereto
with respect to this Agreement, and the rights, interests, understandings,
agreements and obligations of the respective parties and their prior oral
agreements.
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
(e) If any one or more of the provisions contained in this
Agreement are held to be invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other provision hereof, and
the intent manifested thereby shall be recognized.
(f) Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, other than the parties hereto
and their respective heirs and successors, any legal or equitable rights, remedy
or claim under or in respect to this Agreement, or any provisions herein
contained.
(g) This Agreement may not be amended, altered or modified
except by a written instrument signed by each of the parties.
(h) If any legal proceeding, arbitration or other action is
brought or threatened for the enforcement or interpretation of this Agreement,
or because of any alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, and
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the prevailing party in any such action should incur any legal fees, including,
but not limited to, attorneys' fees, paralegal fees, expert witness fees, and
other similar costs, a successful prevailing party or parties to any such
dispute or action will be entitled to recover their reasonable attorneys' fees
and additional legal costs incurred, together with any other relief to which
he/it may otherwise be entitled, as determined by an arbitrator, judgment at
trial, upon appeal or petition.
5.2 SUCCESSORS BOUND; SURVIVAL OF COVENANTS. The rights and
obligations of the parties hereunder shall inure to the benefit of and shall be
binding upon the successors of each respective party. The representations,
warranties, covenants, and agreements of the parties, as well as any rights and
benefits of the parties, shall survive the execution hereof and following the
Employment Term to the extent so provided herein.
5.3. ARBITRATION. All disputes, controversies or differences which
may arise between the parties out of or in relation to or in connection with
this Agreement, or for the breach thereof, shall be finally settled by
arbitration in accordance with the Rules of the American Arbitration
Association. Any such arbitration shall be convened and take place in Houston,
Texas. Any such arbitration shall be absolute and binding upon the parties.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on and
as of the date first above written.
"EMPLOYEE" "EMPLOYER"
DSI TOYS, INC., A TEXAS CORPORATION
/s/ BETH REILING By: /s/ ROBERT WEISGARBER
Beth Reiling
Title: Chief Financial Officer
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is hereby made and entered into
this 7th day of January, 2000, by and between DSI Toys, Inc., a Texas
corporation, whose principal business address is 1100 West Sam Houston Parkway,
Houston, Texas 77043 ("Employer" or "Company"), and Joseph Reiling, an
individual ("Employee").
RECITALS
A. Employer is in the business of inventing, developing, manufacturing and
marketing toys. Employer is a public company.
B. Employee has extensive experience and expertise in the toy industry.
C. Employer wishes to employ Employee and Employee wishes to become an
employee of Employer pursuant to the terms and conditions of this Agreement.
ARTICLE 1
GENERAL
1.1 EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts such employment with Employer upon the terms and conditions hereinafter
set forth. Employee shall perform such duties and responsibilities and exercise
such powers for the Employer as may from time to time be assigned or delegated
to him by Employer, including such duties as may be customary for a Vice
President of Product Development in the toy industry. Employee acknowledges that
Employer shall be dependent upon Employee for its continued ongoing business
operations and that the provisions hereof are necessary for the successful
conduct of the business and affairs of the Company.
1.2 POSITION. Employee shall be employed in the capacity and hold
the position of Vice President of Product Development, Girl's Division. In such
capacity, Employee agrees to, at all times, exercise his best efforts for the
benefit of the Company and to thereby undertake to use and implement the
management, organizational, intellectual, technical and other skills of Employee
to the best of his ability on the Company's behalf. Employee shall be
responsible to and report to the Vice President, Girl's Division.
1.3 TERM. Subject to the provisions provided for and relating to
termination set forth herein, the term of Employee's employment pursuant to this
Agreement shall be for a period beginning on January 7, 2000, and ending on the
date that is three years thereafter (said period being hereinafter referred to
as the "Employment Term").
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ARTICLE 2
REMUNERATION AND BENEFITS
2.1 BASE SALARY. For all services rendered by Employee during the
Employment Term, Employer shall pay to Employee a salary of One Hundred and Five
Thousand Dollars ($105,000.00) per year (the "Base Salary"). The Base Salary
shall begin to accrue and be paid on the Effective Date of this Agreement and
shall be distributed in semi-monthly installments in arrears through the
Employment Term.
(a) At a minimum, the Base Salary shall be adjusted annually
on the anniversary date to reflect any increase in the Consumer Price Index -
All Urban Wage Earners (the "Index"). The Base Salary shall not be adjusted
downward to reflect any decrease in the Index.
(b) The Base Salary may also be raised at any time during the
Employment Term at the discretion of the Company's Board of Directors.
2.2 BENEFITS. Employee shall be eligible to participate in any and
all benefit plans which Employer may from time to time make generally available
to all employees of the Company, including but not limited to participation in
the Company's 401(k) plan, group life insurance and health insurance programs.
2.3 EXTENT OF SERVICE. During the Employment Term, Employee agrees
to devote such amount of time, attention, energy and effort as is necessary to
further the business and profitability of Employer. Further, during the
Employment Term, Employee shall not be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage. However, the foregoing
limitations shall not be construed as prohibiting Employee from making personal
investments in any business enterprise not competitive with that of Employer in
such form or manner as will neither require his services in the operations or
affairs of enterprises in which such investments are made, nor otherwise violate
the terms of this Agreement.
2.4 OFFICES. Employer shall provide office space for Employee, with
provisions for secretarial and other support services necessary to the
maintenance and operations of such office, and the performance of Employee's
duties hereunder.
2.5 EXPENSE ALLOWANCE. Employer shall reimburse Employee for all
approved, deductible business expenses reasonably incurred in the performance of
his duties hereunder.
2.6 VACATIONS AND HOLIDAYS. Employee shall be entitled to fifteen
(15) vacation days annually in accordance with the policies established by
Employer's Board of Directors, as well as those public holidays duly observed by
Employer; provided, however, no more than ten (10) consecutive vacation days
shall be taken at any one time.
2.7 INSURANCE. Employee shall be provided group life, disability and
health insurance coverages by Employer throughout the term of this Agreement. If
qualified, Employee
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shall be provided a group life insurance policy with a death benefit of no less
than $200,000.00.
2.8 BUSINESS TRAVEL. Employee shall be entitled to travel portal to
portal via business class on all international air travel performed for the
Company. All domestic air travel performed for the Company shall be via coach
class.
2.9 CAR ALLOWANCE. Employee shall receive a car allowance of Five
Hundred Dollars ($500.00) per month.
ARTICLE 3
TERMINATION
3.1 DEATH. In the event of the Employee's death during the
Employment Term, the Employer shall pay to Employee's executor(s),
administrator(s) or personal representative(s) an amount equal to the
installment of his Base Salary payable for the month in which he dies and for no
period thereafter. Employer shall have no other liabilities or other obligations
of any kind or character under this Agreement to Employee's executor(s),
administrator(s) or personal representative(s) except such accrued salary and
unused vacation that Employee is entitled at the time of death.
(a) It is expressly understood and agreed that the Company may
maintain key man term life insurance for the benefit of the Company on the life
of Employee. Additionally, the Company may maintain such other life insurance
for the benefit of Employer, the Company's shareholders, as from time to time
the Board of Directors of the Company deems reasonable and appropriate.
(b) Upon the death of Employee, any and all vested employee
benefits accrued for the benefit of Employee shall be distributed in accordance
with the provisions set forth in the subject plan agreement or arrangement
providing the applicable benefits, and otherwise distributed in accordance with
applicable laws.
3.2 DISABILITY; FAILURE TO PERFORM DUTIES. In the event of
Employee's failure to perform his duties hereunder by reason of illness or
disability for a period equal to or in excess of ninety (90) consecutive days
during the Employment Term or for ninety (90) days during any twelve (12) month
period throughout the Employment Term, Employer shall have the option to
terminate this Agreement by giving thirty (30) days written notice of
termination to Employee. Upon such notice of termination, Employer shall pay to
Employee an amount equal to the installments of his Base Salary payable up to
the time this Agreement is terminated, and Employer shall distribute any and all
accrued employee benefits as of the date of termination to Employee in
accordance with the provision of the applicable benefit plan, agreement or
arrangement giving rise to the applicable benefits. Upon the termination of this
Agreement as a result of such disability, Employer shall have no other
liabilities or obligations of any kind or character to Employee under this
Agreement.
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<PAGE>
3.3 TERMINATION FOR CAUSE. Employee may be terminated for cause by
Employer upon written notice to Employee. For purposes of this Agreement, "for
cause" shall be if Employee:
(a) Neglects the performance of his duties required to be
performed under the terms of this Agreement to the economic detriment of the
Company;
(b) Fails or refuses in the opinion of the Board of Directors
to comply with the reasonable policies, standards and regulations of the Company
which from time to time may be established;
(c) Is convicted of a crime or is charged with committing a
felony;
(d) Materially breaches any of the terms or conditions of this
Agreement; or
(e) Performs any action constituting fraud or an intentional
misrepresentation.
Upon such determination, Employer may, at its option, terminate this
Agreement immediately without prejudice to any other remedy to which Employer
may be entitled either at law or in equity, or under this Agreement. In such
event, except as specifically provided in this Section 3.3, any of the
obligations of Employer under this Agreement shall be terminated as of the date
given in the notice of termination referred to hereinabove, following payment by
Employer to Employee of that portion of the Base Salary and vacation then
accrued, due and owing in accordance with Section 2.1 hereof. In the event
Employee is terminated for cause, Employee shall be paid his regular Base Salary
from the date of termination for a period of three (3) months, but no other
severance shall be paid to the Employee.
ARTICLE 4
COVENANTS
4.1 DISCLOSURE OF INFORMATION. Employee recognizes and acknowledges
that he has and will have access to certain confidential information,
proprietary data and trade secrets of Employer, and of entities and individuals
controlling, controlled by or under common control with Employer ("affiliates"),
including but not limited to, contracts, patterns, devices, calculations,
drawings, productions, plans, specifications, records, compilations or
information, and other confidential information and data either compiled by
Employer or received from its customers or Employer, and that such information
is not generally available to the public and constitutes valuable, special and
unique property of the Employer. Employee 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 such confidential information to any person or
firm, corporation, association or other entity for any reason or purpose
whatsoever, except to authorized representatives of Employer and as otherwise
may be proper in the course of performing his employment hereunder. Further,
Employee shall maintain the confidentiality of all such information of Employer,
its affiliates or its customers for
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<PAGE>
the sole use and benefit of Employer. All files, records, documents, drawings,
plans, specifications, contracts, products, equipment or similar items relating
to the business of Employer and/or the affiliates shall not be removed from the
premises of Employer and/or its affiliates without the prior consent of Employer
and/or its affiliates, as applicable.
(a) Employee further covenants and agrees to promptly return
and deliver to Employer all documents, information, or other material or
property of any kind or character which in any way relate to the business of
Employer or any of its affiliates or customers, whether or not asserted to be
the exclusive property of Employer; and, further, Employee shall not attempt to
retain copies or duplicates of any such property. In the event of a breach or a
threatened breach of these covenants by Employee, Employer and/or its
affiliates, in addition to all other remedies made available hereby or as a
matter of law or in equity, may seek an injunction restraining Employee from
disclosing, in whole or in part, such confidential information. In addition to
any other damages sustained by Employer, Employee shall pay to Employer all
profits, payments, earnings compensation or other emoluments paid or accruing to
Employee, directly or indirectly, by reason of Employee's disclosure of
information as provided herein. Nothing herein shall be construed as prohibiting
Employer 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 Employee.
4.2 NON-COMPETITION. During the Employment Term, and if this
Agreement is terminated in accordance with Sections 3.3, for a period of one (1)
year from the date of Employee's termination of employment hereunder, Employee
shall not directly or indirectly, either for himself, or as an employer,
employee, owner, manager, independent contractor, consultant, agent, principal,
partner, co-venturer, shareholder, director, officer or in any other capacity,
engage or have any indirect interest in any person that is engaged, or to the
knowledge of Employee is planning to engage, in competition in any manner
whatsoever with the business of Employer including, without limitation, any
person that manufactures, markets, imports, sells or distributes toys. If the
Employment Term is terminated by Employer pursuant to Section 3.3 and Employer
elects to enforce the provisions of this Section 4.2, Employer shall be
obligated to pay Employee as additional consideration on or before the fifteenth
(15th) day of each month during the one (1) year period following termination of
the Employment Term an amount equal to one-twelfth (1/12) of Employee's then
existing Base Salary.
4.3 AGREEMENT NOT TO SOLICIT. During the Employment Term, and if
this Agreement is terminated in accordance with Section 3.3, for a period of one
(1) year from the date of Employee's termination of employment hereunder,
Employee will not, either directly or indirectly, on his own or in the service
of another:
(a) Knowingly call upon, solicit, divert or attempt to solicit
or divert any of the business contacts of Employer;
(b) Knowingly employ any employee of Employer or solicit,
divert, recruit or induce any employee of Employer to leave the employ of
Employer, whether or not such employment is at will; and/or
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<PAGE>
(c) Knowingly induce or advise any service provider, customer,
factory or representative of Employer to terminate or materially alters its then
existing relationship with Employer.
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.1 MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
shall apply to the terms and conditions of this Agreement:
(a) Pursuit of any one remedy shall not preclude pursuit of
any other remedies provided for herein or by law. No waiver of one violation of
this Agreement shall be deemed or construed to constitute a waiver of any
similar violations subsequently occurring, or any other violation whatsoever.
(b) This Agreement shall be construed under the laws of Texas,
and the rights and obligations of each of the parties to this Agreement during
the term hereof and upon its termination shall be governed exclusively by Texas
law.
(c) This instrument contains all of the understandings and
agreements of whatsoever kind and nature existing between the parties hereto
with respect to this Agreement, and the rights, interests, understandings,
agreements and obligations of the respective parties and their prior oral
agreements.
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
(e) If any one or more of the provisions contained in this
Agreement are held to be invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other provision hereof, and
the intent manifested thereby shall be recognized.
(f) Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, other than the parties hereto
and their respective heirs and successors, any legal or equitable rights, remedy
or claim under or in respect to this Agreement, or any provisions herein
contained.
(g) This Agreement may not be amended, altered or modified
except by a written instrument signed by each of the parties.
(h) If any legal proceeding, arbitration or other action is
brought or threatened for the enforcement or interpretation of this Agreement,
or because of any alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, and the prevailing
party in any such action should incur any legal fees, including, but not limited
to,
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<PAGE>
attorneys' fees, paralegal fees, expert witness fees, and other similar costs, a
successful prevailing party or parties to any such dispute or action will be
entitled to recover their reasonable attorneys' fees and additional legal costs
incurred, together with any other relief to which he/it may otherwise be
entitled, as determined by an arbitrator, judgment at trial, upon appeal or
petition.
5.2 SUCCESSORS BOUND; SURVIVAL OF COVENANTS. The rights and
obligations of the parties hereunder shall inure to the benefit of and shall be
binding upon the successors of each respective party. The representations,
warranties, covenants, and agreements of the parties, as well as any rights and
benefits of the parties, shall survive the execution hereof and following the
Employment Term to the extent so provided herein.
5.3. ARBITRATION. All disputes, controversies or differences which
may arise between the parties out of or in relation to or in connection with
this Agreement, or for the breach thereof, shall be finally settled by
arbitration in accordance with the Rules of the American Arbitration
Association. Any such arbitration shall be convened and take place in Houston,
Texas. Any such arbitration shall be absolute and binding upon the parties.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on and
as of the date first above written.
"EMPLOYEE" "EMPLOYER"
DSI TOYS, INC., A TEXAS CORPORATION
/s/ JOSEPH REILING By: /s/ ROB WEISGARBER
Joseph Reiling
Title: Chief Financial Officer
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EXHIBIT 99.1
[DSI TOYS LETTERHEAD]
CONTACT: DSI TOYS, INC.
Nasdaq: DSIT
Robert L. Weisgarber, CFO
Brook Wootton, Mgr. IR
(713) 365-9900
FOR RELEASE : JANUARY 7, 2000 3:45 PM CT
DSI TOYS, INC. ANNOUNCES MERGER
DSI Toys, Inc., DSI, (NASDAQ: DSIT) is pleased to announce that it has
acquired Meritus Industries, Inc. (Meritus) by way of a merger which has been
consummated today. Meritus is a privately held toy manufacturer headquartered in
Fairfield, NJ, with offices and distribution facilities in Hong Kong. Pursuant
to the terms of the previously announced merger, Meritus was merged with and
into DSI, with DSI as the surviving company in the merger.
Meritus manufactures and markets dolls, doll houses, doll accessories, and
girls' toys such as BABY BEANS(R), soft bean bag dolls, FOREVER GIRL FRIENDS(R),
a line of accessories for 11 1/2" fashion dolls, and LITTLE DARLINGS(TM), value
priced action feature dolls. Meritus recently introduced ELITE DOLLS(TM) which
was created specifically to manufacture and market "Lifetime Play Dolls", a new
line of exquisite 18" dolls and accessories suitable for playing or collecting.
Meritus products are available at retail toy outlets and specialty stores and
are sold in more than 40 countries worldwide.
Pursuant to the terms of the merger, which became effective today, DSI
Toys' acquired all of the issued and outstanding stock of Meritus for 600,000
shares of DSI Toys' common stock and $2.6 million in other consideration to the
shareholders of Meritus. Contemporaneously with the merger, DSI satisfied $4.4
million of existing Meritus debt.
"The Meritus merger continues DSI's strategy of diversifying and expanding
its product lines," stated Michael J. Lyden, CEO and President, "Meritus offers
DSI an expanded presence in the doll and girls' toy segments of the toy
business. In addition to significant consolidation benefits, we view the Meritus
/ Elite product lines as having excellent growth potential".
"We are excited to become a part of DSI's promising future, and believe
that the merger will enable DSI to capitalize on new opportunities in the toy
industry," commented Walter S. Reiling.
The consolidated 2000 product lines will be shown to retailers at the
American International Toy Fair in New York City next month.
DSI Toys, Inc. (NASDAQ: DSIT) designs, develops, markets and distributes
high quality, toys, dolls and children's consumer electronics. Core products are
juvenile audio toys (including Tech-Link(TM) walkie-talkies and Kawasaki(R)
musical toys), remote control vehicles under the GEARHEAD RC(TM) brand,
BLOCKMEN(R) constructions sets, and dolls including Hush Lil Baby(TM) and Sweet
Faith(TM). The Company's web sites can be reached at HTTP://WWW.DSITOYS.COM and
HTTP://WWW.BLOCKMEN.COM.
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, COMPETITION, AND OTHER FACTORS
DISCUSSED FROM TIME TO TIME IN DSI'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
