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EXHIBIT 99.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of
April 15, 1999, is made by and among DSI Toys, Inc., a Texas corporation (the
"Company"), MVII, LLC, a limited liability company formed under the laws of the
State of California (the "Shareholder"), and M. D. Davis, Rust Capital, Ltd., a
Texas limited partnership, Douglas A. Smith, Joseph N. Matlock, and Barry B.
Conrad (each, a "DSI Group Shareholder," and collectively, the "DSI Group
Shareholders"). The Shareholder and the DSI Group Shareholders are each
sometimes referred to herein as a "Holder," and collectively as the "Holders."
RECITALS:
WHEREAS, concurrently herewith, the Company and the Shareholder are
entering into that certain Stock Purchase and Sale Agreement dated as of even
date herewith (the "Stock Purchase Agreement") by and between the Company and
the Shareholder;
WHEREAS, the Stock Purchase Agreement provides, among other things, for
the sale by the Company of two million three hundred fifty-eight thousand four
hundred ninety-one (2,358,491) shares, subject to adjustment as provided in the
Stock Purchase Agreement (such shares, together with any shares of Common Stock
issued or issuable with respect to such shares by way of a share dividend or
share split or in connection with a combination of shares, recapitalization,
merger consolidation or other reorganization, being the "MVII Shares") of common
stock, par value $.01 per share, of the Company (the "Common Stock") to the
Shareholder; and
WHEREAS, the Company, the Shareholder, and the DSI Group Shareholders
desire to enter into this Agreement to provide for the registration with the
Securities and Exchange Commission (the "Commission"), under certain
circumstances, of the MVII Shares and shares of Common Stock owned by the DSI
Group.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1.. Registrable Securities. For purposes of this Agreement "Registrable
Securities" shall mean (a) the MVII Shares, (b) only with respect to a Piggyback
Registration described in Section 2 hereof, shares of Common Stock over which a
DSI Group Shareholder has dispositive power as of the date hereof and any shares
of Common Stock issued or issuable with respect to such shares by way of a share
dividend or share split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization (the "DSI Group
Shares"). As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act of 1933, as amended (the "Securities Act")
and such securities shall have been disposed of in accordance with such
registration statement, (b) they shall have been distributed to
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the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, (c) they shall have been otherwise transferred, new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of them shall not require
registration or qualification under the Securities Act or any state law in force
at the time a Holder or a Shareholder Transferee (as defined in Section 8
hereof) proposes to sell or otherwise dispose of the Registrable Securities, or
(d) they shall have ceased to be outstanding.
2. Registration Rights.
(a) Right to Piggyback. If the Company proposes to register
any of its securities under the Securities Act (other than a registration on
Form S-4 or Form S-8, any other form used solely in connection with an employee
benefit or stock ownership plan, or any successor similar forms or any other
form not available for registering the Registrable Securities for sale to the
public) and the registration form to be used may be used for the registration of
the Registrable Securities (a "Piggyback Registration"), then the Company will
give prompt written notice to the Shareholder and the DSI Group Shareholders of
its intention to effect such a registration (each a "Piggyback Notice"). Subject
to subparagraphs (i) and (ii) below, the Company will include in such
registration all Registrable Securities which the Shareholder and the DSI Group
Shareholders request that the Company include in such registration by written
notice given to the Company within 15 days after the date of sending of the
Piggyback Notice.
(i) Priority on Primary Registrations. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by the Company and the managing underwriters advise the
Company in writing that in their opinion the number of securities
requested (and consented to) to be included in such registration
exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the Company, the Company
will include in such registration: (A) first, the securities proposed
to be sold by the Company, (B) second, the MVII Shares, (C) third, the
DSI Group Shares, and (D) fourth, other securities requested to be
included in such registration.
(ii) Priority on Secondary Registrations. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by holders of the Company's securities and the managing
underwriters advise the Company in writing that in their opinion the
number of securities requested (and consented to) to be included in
such registration exceeds the number which can be sold in an orderly
manner within a price range acceptable to the holders initially
requesting such registration, the Company will include in such
registration: (A) first, the securities requested to be included
therein by the holders requesting such registration, (B) second, the
MVII Shares, and (C) third, the DSI Group shares.
(b) Request for Registration. Subject to Section 2(b)(i)
hereof, if the Company shall receive a written request (specifying that it is
being made pursuant to this Section 2(b)), at any time from the Shareholder
requesting that the Company file a registration statement under the Securities
Act, or a similar document pursuant to any other statute then in effect
corresponding to the Securities Act, covering the registration of at least
250,000 of the Registrable Securities, then the Company shall promptly use its
reasonable best efforts to cause all Registrable Securities that the Shareholder
requested be registered to be registered under the Securities Act.
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(i) No request under this Section 2(b) shall be effective
if made during the period starting with the date 120 days prior to the
Company's estimated date of filing of, and ending on a date 180 days
following the effective date of, a registration statement pertaining to
an underwritten public offering of securities for the account of the
Company, provided that no other selling shareholder has the right to
exercise demand registration rights during such time period and the
Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that the
Company's estimate of the date of filing such registration statement is
made in good faith.
(ii) The Company shall not be obligated to effect more
than two registrations pursuant to this Section 2(b). Any request for
registration under this Section 2(b) must be for a firmly underwritten
public offering to be managed by an underwriter or underwriters of
recognized national standing reasonably acceptable to the Company. The
registration statement filed pursuant to this Section 2(b) may, subject
to the provisions hereof, include other securities of the Company with
respect to which registration rights have been granted, and may include
securities of the Company being sold for the account of the Company.
(iii) The Company may postpone for up to 180 days the
filing or the effectiveness of a registration statement for a
registration requested pursuant to this Section 2(b) if: (A) the
Company determines that such registration might have an adverse effect
on any proposal or plan by the Company to engage in any acquisition of
assets (other than in the ordinary course) or any merger,
consolidation, tender offer or similar transaction, or (B) any other
material, non-public development or transaction is pending; provided
that the Company may not postpone the filing or effectiveness of a
registration statement pursuant to this sentence more frequently than
once during any period of 12 consecutive months.
(c) Expenses. All expenses incurred in connection with
effecting each registration pursuant to Section 2 hereof (other than
underwriting fees, disbursements, discounts and commissions relating to
Registrable Securities, which shall be borne by the Holder of such Registrable
Securities, and fees and disbursements of counsel retained by such Holder, which
shall be borne by such Holder), including, without limitation, in each case, all
registration, filing and securities exchange fees; all fees and expenses of
complying with securities or blue sky laws; all word processing, duplicating and
printing expenses, messenger, delivery and shipping expenses; fees and
disbursements of the accountants and counsel for the Company including the
expenses of any special audits or "cold comfort" letters or opinions required by
or incident to such registrations; and premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities and any fees and disbursements of underwriters not
relating to Registrable Securities, shall be borne by the Company.
3. Registration Procedures. Whenever a Holder has requested that
any Registrable Securities be registered pursuant to this Agreement in
compliance with the requirements of Section 2 herein:
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(a) the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective,
provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the
counsel selected by the Holder copies of all such documents proposed to
be filed, and provided further that the Company may discontinue any
registration of its securities which are not Registrable Securities and
in such event any corresponding Piggyback Registration of Registrable
Securities;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective: (A) with respect to a registration statement on
Form S-1, for a period of up to thirty days, and (B) with respect to a
registration statement on any other form, for a period of up to six
months; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by any such
registration statement during such period in accordance with the
intended methods of distribution by the sellers thereof set forth in
such registration statement;
(iii) furnish to the Holder such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, and
such other documents, as the Holder may reasonably request;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as the Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the Holder to consummate the disposition in such jurisdictions
of the Registrable Securities owned by the Holder, provided that the
Company will not be required (A) to qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (B) to subject itself to taxation in any
such jurisdiction, or (C) to consent to general service of process in
any such jurisdiction;
(v) furnish to the Holder a copy, or, upon request, a
signed counterpart, addressed to the Holder (and the underwriters, if
any) of (A) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration includes
an underwritten public offering, dated the date of the closing under
the underwriting agreement), and (B) a "comfort" letter addressed to
the underwriters, dated the effective date of such registration
statement (or, if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have
audited the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect
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to such registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other
financial matters, and, in the case of the legal opinion such other
legal matters, as the Holder (or the underwriters, if any) may
reasonably request;
(vi) notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of
a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, the Company
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein not
misleading, or of the determination by the Company that a
post-effective amendment to a registration statement would be required
under the Securities Act, and, at the request of the Holder, the
Company will prepare and file a post-effective amendment to the
registration statement as required under the Securities Act; provided,
however, that the Company shall not be required to prepare and deliver
any such prospectus supplement or amendment or prepare and file any
post-effective amendment to a registration statement if (A) the Company
determines that such prospectus supplement or amendment or
post-effective amendment might have an adverse effect on any proposal
or plan by the Company to engage in any acquisition of assets (other
than in the ordinary course) or any merger, consolidation, tender offer
or similar transaction, or (B) any other material, non-public
development or transaction is pending; and provided further that the
Company may not postpone the delivery of a prospectus supplement or
amendment or filing of a post-effective amendment pursuant to this
sentence more frequently than once during any period of 12 consecutive
months;
(vii) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the
Company are then listed and to be qualified for trading on each system
on which similar securities issued by the Company are from time to time
qualified;
(viii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and thereafter maintain such a transfer agent
and registrar;
(ix) enter into such customary agreements and take all
such other actions as the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities;
(x) make available for inspection by any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any
such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply
all information reasonably requested by any such underwriter, attorney,
accountant or agent in connection with such registration
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statement, provided that any person to whom such information is
provided shall agree to keep it confidential and use it only in
connection with such offering;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder; and
(xii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included in
such registration statement for sale in any jurisdiction, the Company
will use its reasonable best efforts promptly to obtain the withdrawal
of such order.
(b) The Company shall not be required to include any
Registrable Securities in any registration unless the Holder furnishes to the
Company in writing such information with respect to the Holder and the
distribution of such Registrable Securities as the Company may from time to time
reasonably request in writing and as shall be required by law or the Commission
in connection therewith.
(c) If any such registration or comparable statement refers to
the Holder by name or otherwise as the holder of any securities of the Company,
the Holder shall have the right to require (i) the inclusion in such
registration statement of language, in form and substance reasonably
satisfactory to the Holder, to the effect that the holding of such securities by
the Holder is not to be construed as a recommendation by the Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that the Holder will assist in the meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to the Holder is not required by the Securities Act or any similar federal
statute then in force, the deletion of the reference to the Holder; provided,
that with respect to this clause (ii) the Holder shall furnish to the Company an
opinion of counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Company.
(d) Each Holder and Shareholder Transferee agrees that upon
receipt of any notice from the Company of the happening of any event of the kind
described in the subdivision (a)(vi) of this Section 3, such person will
forthwith discontinue such person's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such person's receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (a)(vi) of this Section 3 and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such person's possession
of the prospectus relating to such Registrable Securities current at the time of
receipt of such notice. Nothing contained in this Agreement shall be deemed to
require the Company to disclose any information that, in the good faith opinion
of the management of the Company, is not yet required to be disclosed and would
not be in the best interests of the Company to disclose.
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4. Underwritten Offerings. If the Company at any time proposes to
register any of its securities under the Securities Act as contemplated by
Section 2 hereof and such securities are to be distributed by or through one or
more underwriters, the Company will, if requested by the Holder as provided in
Section 2 hereof, arrange for such underwriters to include in the securities to
be distributed by such underwriters all of the Registrable Securities to be
offered and sold by the Holder.
5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to the provisions hereof, the Company will give the Holder whose
Registrable Securities are to be included in such registration statement and one
counsel or firm of counsel and one accountant or firm of accountants
representing such Holder the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give the
Holder such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of the Holder's counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
6. INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. IN THE EVENT ANY
REGISTRABLE SECURITIES ARE INCLUDED IN A REGISTRATION STATEMENT HEREUNDER, TO
THE EXTENT PERMITTED BY LAW, THE COMPANY WILL, AND HEREBY DOES, INDEMNIFY AND
HOLD HARMLESS THE HOLDER OF SUCH REGISTRABLE SECURITIES, ITS DIRECTORS AND
OFFICERS, EACH OTHER PERSON WHO PARTICIPATES AS AN UNDERWRITER IN THE OFFERING
OR SALE OF SUCH SECURITIES AND EACH OTHER PERSON, IF ANY, WHO CONTROLS THE
HOLDER OR ANY SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT, AGAINST
ANY LOSSES, CLAIMS, DAMAGES OR LIABILITIES, JOINT OR SEVERAL, TO WHICH THE
HOLDER OR ANY SUCH DIRECTOR OR OFFICER OR UNDERWRITER OR CONTROLLING PERSON MAY
BECOME SUBJECT UNDER THE SECURITIES ACT OR OTHERWISE, INSOFAR AS SUCH LOSSES,
CLAIMS, DAMAGES OR LIABILITIES (OR ACTIONS OR PROCEEDINGS, WHETHER COMMENCED OR
THREATENED, IN RESPECT THEREOF) ARISE OUT OF OR ARE BASED UPON ANY UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OF ANY MATERIAL FACT CONTAINED IN ANY
REGISTRATION STATEMENT UNDER WHICH SUCH SECURITIES WERE REGISTERED UNDER THE
SECURITIES ACT, ANY PRELIMINARY PROSPECTUS, FINAL PROSPECTUS OR SUMMARY
PROSPECTUS CONTAINED THEREIN, OR ANY AMENDMENT OR SUPPLEMENT THERETO, OR ANY
OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT REQUIRED TO BE
STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, AND
THE COMPANY WILL REIMBURSE SUCH HOLDER AND EACH SUCH DIRECTOR, OFFICER,
UNDERWRITER AND CONTROLLING PERSON FOR ANY LEGAL OR ANY OTHER EXPENSES
REASONABLY INCURRED BY THEM IN CONNECTION WITH INVESTIGATING OR DEFENDING ANY
SUCH LOSS, CLAIM, LIABILITY, ACTION OR PROCEEDING; PROVIDED THAT THE COMPANY
SHALL NOT BE LIABLE IN ANY
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SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY (OR ACTION
OR PROCEEDING IN RESPECT THEREOF) OR EXPENSE ARISES OUT OF OR IS BASED UPON AN
UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION
MADE IN SUCH REGISTRATION STATEMENT, ANY SUCH PRELIMINARY PROSPECTUS, FINAL
PROSPECTUS, SUMMARY PROSPECTUS, AMENDMENT OR SUPPLEMENT IN RELIANCE UPON AND IN
CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY THE HOLDER
EXPRESSLY FOR USE IN THE PREPARATION THEREOF, AND PROVIDED FURTHER THAT THE
COMPANY SHALL NOT BE LIABLE TO ANY PERSON WHO PARTICIPATES AS AN UNDERWRITER IN
THE OFFERING OR SALE OF REGISTRABLE SECURITIES OR ANY OTHER PERSON WHO CONTROLS
SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT, IN ANY SUCH CASE TO
THE EXTENT THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY (OR ACTION OR PROCEEDING
IN RESPECT THEREOF) OR EXPENSE ARISES OUT OF SUCH PERSON'S FAILURE TO SEND OR
GIVE A COPY OF THE FINAL PROSPECTUS, AS THE SAME MAY BE THEN SUPPLEMENTED OR
AMENDED, TO THE PERSON ASSERTING AN UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT
OR OMISSION OR ALLEGED OMISSION AT OR PRIOR TO THE WRITTEN CONFIRMATION OF THE
SALE OF REGISTRABLE SECURITIES TO SUCH PERSON IF SUCH STATEMENT OR OMISSION WAS
CORRECTED IN SUCH FINAL PROSPECTUS. SUCH INDEMNITY SHALL REMAIN IN FULL FORCE
AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF THE HOLDER OR
ANY SUCH DIRECTOR, OFFICER, UNDERWRITER OR CONTROLLING PERSON AND SHALL SURVIVE
THE TRANSFER OF SUCH SECURITIES BY THE HOLDER.
(B) INDEMNIFICATION BY THE HOLDERS. THE COMPANY MAY
REQUIRE, AS A CONDITION TO INCLUDING ANY REGISTRABLE SECURITIES IN ANY
REGISTRATION STATEMENT FILED PURSUANT TO SECTION 3 HEREOF, THAT THE COMPANY
SHALL HAVE RECEIVED AN UNDERTAKING SATISFACTORY TO IT FROM THE HOLDER OF SUCH
REGISTRABLE SECURITIES, TO INDEMNIFY AND HOLD HARMLESS (IN THE SAME MANNER AND
TO THE SAME EXTENT AS SET FORTH IN SUBDIVISION (A) OF THIS SECTION 6) EACH
UNDERWRITER, EACH PERSON WHO CONTROLS SUCH UNDERWRITER WITHIN THE MEANING OF THE
SECURITIES ACT, THE COMPANY, EACH DIRECTOR OF THE COMPANY, EACH OFFICER OF THE
COMPANY AND EACH OTHER PERSON, IF ANY, WHO CONTROLS THE COMPANY WITHIN THE
MEANING OF THE SECURITIES ACT, WITH RESPECT TO ANY STATEMENT OR ALLEGED
STATEMENT IN OR OMISSION OR ALLEGED OMISSION FROM SUCH REGISTRATION STATEMENT,
ANY PRELIMINARY PROSPECTUS, FINAL PROSPECTUS OR SUMMARY PROSPECTUS CONTAINED
THEREIN, OR ANY AMENDMENT OR SUPPLEMENT THERETO, IF SUCH STATEMENT OR ALLEGED
STATEMENT OR OMISSION OR ALLEGED OMISSION WAS MADE IN RELIANCE UPON AND IN
STRICT CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY THE
HOLDER EXPRESSLY FOR USE IN THE PREPARATION OF SUCH REGISTRATION STATEMENT,
PRELIMINARY PROSPECTUS, FINAL PROSPECTUS, SUMMARY PROSPECTUS, AMENDMENT OR
SUPPLEMENT;
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PROVIDED THAT THE HOLDER SHALL NOT BE LIABLE TO THE COMPANY OR ANY PERSON WHO
PARTICIPATES AS AN UNDERWRITER IN THE OFFERING OR SALE OF REGISTRABLE SECURITIES
OR ANY OTHER PERSON, IF ANY, WHO CONTROLS SUCH UNDERWRITER WITHIN THE MEANING OF
THE SECURITIES ACT, IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS, CLAIM,
DAMAGE, LIABILITY (OR ACTION OR PROCEEDING IN RESPECT THEREOF) OR EXPENSE ARISES
OUT OF SUCH PERSON'S FAILURE TO SEND OR GIVE A COPY OF THE FINAL PROSPECTUS, AS
THE SAME MAY BE THEN SUPPLEMENTED OR AMENDED, TO THE PERSON ASSERTING AN UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION AT OR
PRIOR TO THE WRITTEN CONFIRMATION OF THE SALE OF REGISTRABLE SECURITIES TO SUCH
PERSON IF SUCH STATEMENT OR OMISSION WAS CORRECTED IN SUCH FINAL PROSPECTUS.
SUCH INDEMNITY SHALL REMAIN IN FULL FORCE AND EFFECT, REGARDLESS OF ANY
INVESTIGATION MADE BY OR ON BEHALF OF ANY UNDERWRITER, THE COMPANY OR ANY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON AND SHALL SURVIVE THE TRANSFER OF SUCH
SECURITIES BY THE HOLDER. IN NO EVENT SHALL THE LIABILITY OF THE HOLDER UNDER
THIS SECTION 6(B) BE GREATER IN AMOUNT THAN THE DOLLAR AMOUNT OF THE PROCEEDS
RECEIVED BY THE HOLDER UPON THE SALE OF THE REGISTRABLE SECURITIES GIVING RISE
TO SUCH INDEMNIFICATION OBLIGATION.
(C) NOTICES OF CLAIMS, ETC. PROMPTLY AFTER RECEIPT BY AN
INDEMNIFIED PARTY OF NOTICE OF THE COMMENCEMENT OF ANY ACTION OR PROCEEDING
INVOLVING A CLAIM REFERRED TO IN THE PRECEDING SUBDIVISIONS OF THIS SECTION 6,
SUCH INDEMNIFIED PARTY WILL, IF A CLAIM IN RESPECT THEREOF IS TO BE MADE AGAINST
AN INDEMNIFYING PARTY, GIVE WRITTEN NOTICE TO THE LATTER OF THE COMMENCEMENT OF
SUCH ACTION; PROVIDED THAT THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE NOTICE
AS PROVIDED HEREIN SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS OBLIGATIONS
UNDER THE PRECEDING SUBDIVISIONS OF THIS SECTION 6, EXCEPT TO THE EXTENT THAT
THE INDEMNIFYING PARTY IS ACTUALLY PREJUDICED BY SUCH FAILURE TO GIVE NOTICE. IN
CASE ANY SUCH ACTION IS BROUGHT AGAINST AN INDEMNIFIED PARTY, UNLESS IN SUCH
INDEMNIFIED PARTY'S REASONABLE JUDGMENT A CONFLICT OF INTEREST BETWEEN SUCH
INDEMNIFIED AND INDEMNIFYING PARTIES MAY EXIST IN RESPECT OF SUCH CLAIM, THE
INDEMNIFYING PARTY SHALL BE ENTITLED TO PARTICIPATE IN AND TO ASSUME THE DEFENSE
THEREOF, JOINTLY WITH ANY OTHER INDEMNIFYING PARTY SIMILARLY NOTIFIED TO THE
EXTENT THAT IT MAY WISH, WITH COUNSEL REASONABLY SATISFACTORY TO SUCH
INDEMNIFIED PARTY, AND AFTER NOTICE FROM THE INDEMNIFYING PARTY TO SUCH
INDEMNIFIED PARTY OF ITS ELECTION SO TO ASSUME THE DEFENSE THEREOF, THE
INDEMNIFYING PARTY SHALL NOT BE LIABLE TO SUCH INDEMNIFIED PARTY FOR ANY LEGAL
OR OTHER EXPENSES SUBSEQUENTLY INCURRED BY THE LATTER IN CONNECTION WITH THE
DEFENSE THEREOF OTHER THAN REASONABLE COSTS OF INVESTIGATION. NO INDEMNIFYING
PARTY SHALL, WITHOUT THE CONSENT OF THE INDEMNIFIED PARTY, CONSENT TO ENTRY OF
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ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WHICH DOES NOT INCLUDE AS AN
UNCONDITIONAL TERM THEREOF THE GIVING BY THE CLAIMANT OR PLAINTIFF TO SUCH
INDEMNIFIED PARTY OF A FULL RELEASE FROM ALL LIABILITY IN RESPECT TO SUCH CLAIM
OR LITIGATION.
(D) OTHER INDEMNIFICATION. INDEMNIFICATION SIMILAR TO THAT
SPECIFIED IN THE PRECEDING SUBDIVISIONS OF THIS SECTION 6 (WITH APPROPRIATE
MODIFICATIONS) SHALL BE GIVEN BY THE COMPANY AND THE HOLDER WITH RESPECT TO ANY
REQUIRED REGISTRATION OR OTHER QUALIFICATION OF SECURITIES UNDER ANY FEDERAL OR
STATE LAW OR REGULATION OF ANY GOVERNMENTAL AUTHORITY OTHER THAN THE SECURITIES
ACT.
(E) INDEMNIFICATION PAYMENTS. THE INDEMNIFICATION REQUIRED BY
THIS SECTION 6 SHALL BE MADE BY PERIODIC PAYMENTS OF THE AMOUNT THEREOF DURING
THE COURSE OF THE INVESTIGATION OR DEFENSE, AS AND WHEN BILLS ARE RECEIVED OR
EXPENSE, LOSS, DAMAGE OR LIABILITY IS INCURRED.
(F) CONTRIBUTION. IF THE INDEMNIFICATION PROVIDED FOR IN THIS
SECTION 6 FROM THE INDEMNIFYING PARTY IS UNAVAILABLE TO AN INDEMNIFIED PARTY
HEREUNDER IN RESPECT OF ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES
REFERRED TO HEREIN, THEN THE INDEMNIFYING PARTY, IN LIEU OF INDEMNIFYING SUCH
INDEMNIFIED PARTY, SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH
INDEMNIFIED PARTY AS A RESULT OF SUCH LOSS, CLAIMS, DAMAGES, LIABILITIES OR
EXPENSES IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT THE RELATIVE FAULT OF
THE INDEMNIFYING PARTY AND INDEMNIFIED PARTIES IN CONNECTION WITH THE ACTIONS
WHICH RESULTED IN SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES, AS WELL
AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. THE RELATIVE FAULT OF SUCH
INDEMNIFYING PARTY AND INDEMNIFIED PARTIES SHALL BE DETERMINED BY REFERENCE TO,
AMONG OTHER THINGS, WHETHER ANY ACTION IN QUESTION, INCLUDING ANY UNTRUE
STATEMENT OF MATERIAL FACT OR OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL
FACT, HAS BEEN MADE BY, OR RELATES TO INFORMATION SUPPLIED BY, SUCH INDEMNIFYING
PARTY OR INDEMNIFIED PARTIES, AND THE PARTIES' RELATIVE INTENT, KNOWLEDGE,
ACCESS TO INFORMATION AND OPPORTUNITY TO CORRECT OR PREVENT SUCH ACTION. THE
AMOUNT PAID OR PAYABLE BY A PARTY AS A RESULT OF THE LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND EXPENSES REFERRED TO ABOVE SHALL BE DEEMED TO INCLUDE, SUBJECT
TO THE LIMITATIONS SET FORTH IN SECTION 6(C) HEREOF, ANY LEGAL OR OTHER FEES OR
EXPENSES REASONABLY INCURRED BY SUCH PARTY IN CONNECTION WITH ANY INVESTIGATION
OR PROCEEDING.
THE PARTIES HERETO AGREE THAT IT WOULD NOT BE JUST AND EQUITABLE IF
CONTRIBUTION PURSUANT TO THIS SECTION 6(F) WERE
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DETERMINED BY PRO RATA ALLOCATION OR BY ANY OTHER METHOD OF ALLOCATION WHICH
DOES NOT TAKE ACCOUNT OF THE EQUITABLE CONSIDERATIONS REFERRED TO IN THE
IMMEDIATELY PRECEDING PARAGRAPH. NOTWITHSTANDING THE PROVISIONS OF THIS SECTION
6(F), NO UNDERWRITER SHALL BE REQUIRED TO CONTRIBUTE ANY AMOUNT IN EXCESS OF THE
AMOUNT BY WHICH THE TOTAL PRICE AT WHICH THE REGISTRABLE SECURITIES UNDERWRITTEN
BY IT AND DISTRIBUTED TO THE PUBLIC WERE OFFERED TO THE PUBLIC EXCEEDS THE
AMOUNT OF ANY DAMAGES WHICH SUCH UNDERWRITER HAS OTHERWISE BEEN REQUIRED TO PAY
BY REASON OF SUCH UNTRUE OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED
OMISSION, AND THE HOLDER SHALL BE REQUIRED TO CONTRIBUTE ANY AMOUNT IN EXCESS OF
THE AMOUNT BY WHICH THE TOTAL PRICE AT WHICH THE REGISTRABLE SECURITIES WERE
OFFERED TO THE PUBLIC EXCEEDS THE AMOUNT OF ANY DAMAGES WHICH THE HOLDER HAS
OTHERWISE BEEN REQUIRED TO PAY BY REASON OF SUCH UNTRUE STATEMENT OR OMISSION.
NO PERSON GUILTY OF FRAUDULENT MISREPRESENTATION (WITHIN THE MEANING OF SECTION
11(F) OF THE SECURITIES ACT) SHALL BE ENTITLED TO CONTRIBUTION FROM ANY PERSON
WHO WAS NOT GUILTY OF SUCH FRAUDULENT MISREPRESENTATION.
IF INDEMNIFICATION IS AVAILABLE UNDER THIS SECTION 6, THE INDEMNIFYING
PARTIES SHALL INDEMNIFY EACH INDEMNIFIED PARTY TO THE FULL EXTENT PROVIDED IN
SECTION 6(A) THROUGH SECTION 6(E) HEREOF WITHOUT REGARD TO THE RELATIVE FAULT OF
SAID INDEMNIFYING PARTY OR INDEMNIFIED PARTY OR ANY OTHER EQUITABLE
CONSIDERATION PROVIDED FOR IN THIS SECTION 6(F).
7. Forms. All references herein to particular forms of registration
statements are intended to include, and shall be deemed to include, references
to all successor forms which are intended to replace, or to apply to similar
transactions as, the forms herein referenced.
8. Transfer of Registration Rights. The registration rights granted
hereunder may be transferred by the Shareholder at any time, in whole or in
part, without the consent of the Company, to any person acquiring at least
250,000 of the outstanding Registrable Securities from the Shareholder or any of
its affiliates (each such person being a "Shareholder Transferee") and the terms
and provisions set forth in this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the Shareholder, whether so expressed or not. Notwithstanding the foregoing
provisions of this Section 8, the registration rights granted hereunder with
respect to any Registrable Securities may not be transferred if (a) a
registration statement with respect to the disposition of such Registrable
Securities shall have become effective under the Securities Act and such
Registrable Securities shall have been disposed of pursuant to such effective
registration statement, or (b) such Registrable Securities shall have been sold
under circumstances in which all of the applicable conditions of Rule 144 (or
any similar provisions then in force) under the Securities Act are met. The
registration rights granted hereunder may not be transferred by the DSI Group
Shareholders.
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9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders in this Agreement.
(b) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
personally or by facsimile transmission (with a copy sent by overnight delivery
service or by first class certified or registered mail) or by overnight delivery
service or 72 hours after having been mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
If to the Company, at DSI Toys, Inc., 1100 W. Sam Houston
Parkway N., Suite A, Houston, Texas 77043, Attention: M.D. Davis (fax:
713/468-8194) or at such other address or addresses as may have been furnished
in writing by the Company to the Holders, with a copy to Thompson & Knight, 1200
San Jacinto Center, 98 San Jacinto Boulevard,Austin,TX78701, Attention: Michael
L. Bengtson, Esq.(fax: 512/469-6180).
If to the Shareholder, at MVII, LLC, 654 Osos Street, San Luis
Obispo, CA 93401, Attention: E. Thomas Martin (fax: 805/545-7590) or at such
other address or addresses as may have been furnished in writing by the
Shareholder to the Company, with a copy to Andre, Morris & Buttery, 1304 Pacific
Street, San Luis Obispo, CA 93401, Attention: J. Todd Mirolla, Esq. (fax:
805/543-0752).
If to any of the Holders other than the Shareholder, to the
address set forth opposite such Holder's signature to this Agreement, with a
copy to Thompson & Knight, 1200 San Jacinto Center, 98 San Jacinto
Boulevard,Austin,TX78701, Attention: Michael L. Bengtson, Esq.(fax:
512/469-6180).
Notices provided in accordance with this paragraph (b) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(c) Remedies. Any person having rights under any provision of
this Agreement to enforce such rights specifically to recover damages caused by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or other
security) for specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
(d) Amendments and Waivers. Except as otherwise provided
herein, no amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by the all of the
parties hereto.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
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(f) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(g) Headings. The headings of this Agreement are for
convenience only and do not constitute a part of this Agreement.
(h) Governing Law. The construction, validity and
interpretation of this Agreement will be governed by the internal laws of the
State of Texas without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Texas or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Texas.
(i) Further Assurances. Each party to this Agreement hereby
covenants and agrees, without the necessity of any further consideration, to
execute and deliver any and all such further documents and take any and all such
other actions as may be necessary to appropriate to carry out the intent and
purposes of this Agreement and to consummate the transactions contemplated
hereby.
(j) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same documents.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
DSI TOYS, INC.:
By: /s/ M.D. Davis
------------------------------
Name: M.D. Davis
----------------------------
Title: Chief Executive Officer
----------------------------
MVII, LLC:
By: /s/ E. Thomas Martin
------------------------------
Name: E. Thomas Martin
----------------------------
Title: Manager
---------------------------
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DSI Group:
Address: 13606 Taylorcrest /s/ M.D. Davis
Houston, TX 77079 ---------------------------------
(fax: 713/465-2773) M. D. Davis
Address: c/o Jack R. Crosby Rust Capital, Ltd.:
327 Congress Avenue
Suite 350 By: Rust Investment Corporation,
Austin, TX 78701 its general partner
(fax: 512/474-1610)
By: /s/ Jack R. Crosby
------------------------------
Jack R. Crosby, President
Address: 6829 Golf Drive /s/ Douglas A. Smith
Dallas, TX 75205 ---------------------------------
(fax: 972/980-1503) Douglas A. Smith
15
Address: 515 Congress Avenue /s/ Joseph N. Matlock
Suite 2626 ---------------------------------
Austin, TX 78701 Joseph N. Matlock
(fax: 512/346-4404)
Address: Independent Bankers Capital /s/ Barry B. Conrad
Fund ---------------------------------
1700 Pacific Avenue Barry B. Conrad
Suite 1400
Dallas, TX 75201
(214) 765-1485