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
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
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