SHAREHOLDERS' AND VOTING AGREEMENT
----------------------------------
This Shareholders' and Voting Agreement (the "Agreement") is made this 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 Xxxxxx X. Xxxxxxx and Xxxxx Xxxxxxx
(collectively, "Xxxxxxx"). MVII and Xxxxxxx 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, Xxxxxxx 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 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, Xxxxxxx shall be
entitled to nominate one (1) of the directors of the Company MVII is
entitled to nominate.
(ii) MVII and Xxxxxxx 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 Xxxxxxx, the
Company shall be entitled to rely on written notice from E. Xxxxxx
Xxxxxx on behalf of MVII and from Xxxxxx X. Xxxxxxx on behalf of
Xxxxxxx, as to the identity of each Shareholder's nominees (Xx. Xxxxxx
and Xx. Xxxxxxx are referred to herein as a "Spokesperson"). MVII and
Xxxxxxx may change its Spokesperson by giving the Company written
notice of a change in such Spokesperson. Xxxxxxx'x initial nominee for
director is Xxxxxx X. Xxxxxxx. MVII shall use its best efforts to
cause the current board of directors of the Company to vote in favor
of Xxxxxx X. Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx, from time to time,
pursuant to Section 1.02 of this Agreement as the directors of the Company.
-------------
Xxxxxxx 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 Xxxxxxx'x 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. Xxxxxxx 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.
1.04 Removal of Directors. MVII shall not vote its Common Shares or
----------------------
Xxxxxxx'x Common Shares as proxy in favor of removal of a director nominated by
Xxxxxxx unless so requested by Xxxxxxx, 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 Xxxxxxx, 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 Xxxxxxx 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 Xxxxxxx 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).
(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 Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx 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, Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx 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.
(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 Xxxxxxx 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
Xxxxxxx or any Permitted Transferee is permitted to sell a number of Common
Shares owned by Xxxxxxx 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.
(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 Xxxxxxx in the
manner specified in Section 3.01(i). Within fifteen (15) Business Days
----------------
after delivery of the Inclusion Notice, Xxxxxxx or any Permitted Transferee
------
may accept the offer included in the Inclusion Notice by furnishing written
notice of such acceptance to MVII. If Xxxxxxx 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) Xxxxxxx 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 Xxxxxxx 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, Xxxxxxx 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 Xxxxxxx shareholder (a "Spouse") agrees to be bound in all
respects by the terms of this Agreement to the same extent as the remaining
Xxxxxxx. Each Spouse further agrees that should he or she predecease or
become divorced from a Xxxxxxx 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 Xxxxxxx
Shareholder's Spouse, in such Common Shares.
(b) Indemnification. Xxxxxxx 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 Xxxxxxx or any Permitted Transferee
of any of the provisions of this Agreement, and MVII agrees to indemnify
and hold harmless Xxxxxxx and the Company from and against any and all
damages, losses, claims, liabilities, demands, charges, suits and penalties
Xxxxxxx or the Company incurs or to which Xxxxxxx 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 Xxxxxxx.
(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., 0000 X. Xxx Xxxxxxx Xxxxxxx X., Xxxxx
X, Xxxxxxx, Xxxxx 00000, Attention: Xxx Xxxxxxxxxx (fax: 713/000-0000).
If to MVII, at MVII, LLC, 000 Xxxx Xxxxxx, Xxx Xxxx Xxxxxx, XX 00000,
Attention: E. Xxxxxx Xxxxxx (fax: 805/000-0000) 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, 0000 Xxxxxx Xxxx, Xxx Xxxx
Xxxxxx, XX 00000, Attention: J. Xxxx Xxxxxxx, Esq. (fax: 805/000-0000).
If to Xxxxxxx or a Permitted Transferee, at the address set forth opposite
each Xxxxxxx Shareholder's name on the signature pages attached hereto, with a
copy to Xxxxxx, Xxxxxx & Xxxxxxxx, 0 Xxxxxxxxxxxx Xxxxx, Xxxxxxxxxx, Xxx Xxxxxx
00000, Attention: Xxxxxx X. Xxxxxxxx, Esq. (fax: 973/000-0000).
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.
/ / /
/ / /
/ / /
/ / /
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
DSI TOYS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
MVII, LLC
By:________________________________
Name:______________________________
Title:_____________________________
XXXXXXX
Address:
00 Xxxxxxxxx Xxxxx ___________________________________
Xxxxxxxxxx, XX 00000 XXXXXX X. XXXXXXX
Address:
00 Xxxxxxxxx Xxxxx ___________________________________
Xxxxxxxxxx, XX 00000 XXXXX XXXXXXX
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.
______________________________
XXXXXX X. XXXXXXX
______________________________
XXXXX XXXXXXX
