EXHIBIT 2.3
CLOSING AND HOLDBACK AGREEMENT
January 7, 2000
RE: DSI TOYS, INC./MERITUS INDUSTRIES, INC. AGREEMENT AND PLAN OF MERGER
DATED OCTOBER 7, 1999
Reference is made to that certain Agreement and Plan of Merger dated
October 7, 1999 (the "Merger Agreement"), by and between DSI Toys, Inc.
("Buyer") and Meritus Industries, Inc. ("Meritus"), Meritus Industries, Ltd.,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ shall
be referred to collectively as "Seller"). Any capitalized terms used herein and
not defined have the meaning ascribed to them in the Merger Agreement.
In connection with the consummation of the transactions contemplated by
the Merger Agreement, the parties to the Merger Agreement hereby agree as
follows:
1. PURCHASE PRICE The Cash Consideration set forth in Section 4.1(i)
of the Merger Agreement is hereby amended to be $884,033.82.
2. CREDITS HOLDBACK At the Effective Time, Buyer shall deduct from the
Cash Consideration to be paid to Seller the sum of One Hundred Thousand Dollars
($100,000.00)(the "Cash Credits Holdback"), and Buyer shall deduct from the DSI
Shares to be delivered to Seller 32,258 shares of DSI Common Stock (the "Stock
Credits Holdback," which with the Cash Credits Holdback and the Stock Credits
Holdback shall be referred to collectively as the "Credits Holdback"). The
Credits Holdback shall be held by Buyer until the Credits are collected or 180
days has expired, as described below.
2.1 After the Closing, Buyer shall use its best efforts to collect
all Credits, which, as of the date of this Agreement, total $371,548.75. Buyer
shall have the sole responsibility for the collection of the Credits, and Seller
shall not take any action with respect to the Credits, except with the prior
written consent of Buyer.
2.2 Buyer shall provide Seller with monthly statements, on the 10th
day of each month until the earlier of 180 days after the date of this Agreement
or after the full amount of the Credits Holdback has been paid to Seller, of
Credits collected (the "Monthly Statements"). Seller shall be entitled to
reimbursement from the Credits Holdback for all Credits collected by Buyer in
excess of $171,548.75 (the "Base Amount"). At such time as Buyer has collected
Credits exceeding the Base Amount, each Monthly Statement shall be delivered to
Seller along with a reimbursement of a portion of the Credits Holdback equal to
the Credits collected within the prior thirty (30) day period. Any and all such
payments due Seller shall be paid first from the
Cash Credits Holdback. Thereafter, the balance of any such payments due Seller
shall be paid by the issuance of Buyer's common stock from the Stock Credits
Holdback, based upon a per share price of $3.10. In no event shall Buyer be
obligated to make payment to Seller pursuant to this Section 2 in excess of the
Credits Holdback.
2.3 Notwithstanding anything in this Section 2, all Credits shall
have been collected by Buyer within 180 days after the date of this Agreement.
If, after 180 days from the date of this Agreement, all of the Credits have not
been collected by Buyer, then any and all sums then remaining in the Credits
Holdback shall be retained by Buyer.
3. DISCOUNTS AND WORKING CAPITAL HOLDBACK At the Effective Time, Buyer
shall withhold from the DSI Shares to be delivered to Seller an additional
64,516 shares of DSI Common Stock (the "Discount Holdback"). The Discount
Holdback shall be held by Buyer until the final determination of the discounts,
markdowns and allowances arising from sales made by Meritus in calendar year
1999 and not accrued in the financial statements of Meritus prior to the
Effective Time (the "Discounts"), and the final determination of the accuracy of
the Settlement Statement, as described below.
3.1 After the Effective Time, Buyer shall use its best efforts to
determine the Discounts. Buyer shall have the sole responsibility for
negotiation of the Discounts with Meritus's former customers, and Seller shall
not take any action with respect to the Discounts or the former customers of
Meritus, except with the prior written consent of Buyer. Any Discount totaling
in excess of $10,000.00 shall be approved in advance by E. ▇▇▇▇▇▇ ▇▇▇▇▇▇ on
behalf of Buyer.
3.2 After the Effective Time, Buyer shall use its best efforts to
determine the amount of the Working Capital as of the Effective Time, and to
confirm the information set forth in the Settlement Statement.
3.3 Buyer shall deliver to Seller no later than June 7, 2000, a
schedule with reasonable supporting materials providing the final computation of
the Discounts (the "Discounts Schedule") and a schedule with reasonable
supporting materials providing the final computation of the Working Capital as
of the Effective Time (the "Working Capital Schedule"). Buyer shall pay to
Seller, no later than June 15, 2000, the Discount Holdback, less (i) the amount
by which the Working Capital reported by Meritus in the Settlement Statement
exceeds the amount set forth in the Working Capital Schedule; and (ii) the
amount by which the Discounts exceed the sum of $200,000.00. Any such payments
due Seller shall be paid by the issuance of Buyer's common stock from the
Discount Holdback, based upon a per share price of $3.10. In no event shall
Buyer be obligated to make payment to Seller pursuant to this Section 3 in
excess of the Discount Holdback. In no event shall Seller's obligations pursuant
to this Section 3 exceed the amount of the Discount Holdback; provided, however,
that nothing herein shall preclude Buyer from asserting its rights and remedies
under the Merger Agreement.
4. AUTOMOBILES. Seller, jointly and severally, shall hold harmless and
indemnify Buyer from and against , and shall compensate and reimburse Buyer for,
any Damages which are directly or indirectly suffered or incurred by Buyer or to
which Buyer may otherwise become subject to or at any time which may arise
directly or indirectly from or are connected with the
following automobile leases, pursuant to which Meritus and/or its employees
leased certain automobiles prior to the Effective Time: (i) lease of 1999
Mercedes from Banc One; (ii) lease of 1999 Saab from Chase Manhattan Bank; (iii)
lease of 1999 Infinity from Key Bank; and (vi) lease of 1998 Cadillac from
General Motors Acceptance Corporation. Any and all such Damages shall be borne
by Seller on a dollar-for-dollar basis, exclusive of the threshold and ceiling
on Damages contained in Section 9.3 of the Merger Agreement. Buyer shall have
the option of recovering any and all such Damages by means of a direct setoff
against any and all sums due under the Note.
5. 401(K) PLAN. Seller, jointly and severally, shall hold harmless and
indemnify Buyer from any and all Damages, including interest expenses, arising
in any manner from Seller's failure to fully fund the 401(k) Plan prior to the
Effective Time. Seller hereby confirms that Meritus has fully funded any and all
sums due under the 401(k) Plan. Any and all such Damages and interest expenses
shall be borne by Seller on a dollar-for-dollar basis, exclusive of the
threshold and ceiling on Damages contained in Section 9.3 of the Merger
Agreement. Buyer shall have the option of recovering any and all such Damages by
means of a direct setoff against any and all sums due under the Note.
6. SUBSIDIARY TRANSFERS. Seller shall use Seller's best efforts to
cooperate with Buyer, at Buyer's sole cost and expense, to cause to be delivered
to Buyer all original stock certificates of Meritus' Subsidiaries, and any and
all instruments or documents reasonably requested by Buyer to transfer the
shares of Meritus' Subsidiaries to Buyer.
7. CHEVROLET LICENSE. Seller, jointly and severally, hereby represent and
warrant that neither Seller nor Meritus has knowledge of or reason to believe
that there has been or will be any request or demand by Chevrolet Motor Division
for any fee or charge, other than a $250 application fee, to effect the
assignment of that certain Trademark License Agreement by and between Chevrolet
Motor Division and Meritus dated on or about January 8, 1998. Seller shall
indemnify and hold harmless Buyer for any Damages resulting from Seller's breach
of the representation in this Section 7, which shall be borne by Seller on a
dollar-for-dollar basis, exclusive of the threshold and ceiling on Damages
contained in Section 9.3 of the Merger Agreement. Buyer shall have the option of
recovering any and all such Damages by means of a direct setoff against any and
all sums due under the Note.
8. MISCELLANEOUS PROVISIONS.
8.1 Seller agrees to furnish Buyer with any documents or records in
Seller's possession or control that may be reasonably requested by Buyer to
calculate and/or confirm the Credits, Discounts and/or Working Capital.
8.2 The covenants contained in this Agreement shall survive the
Closing Date without limitation.
8.3 This Agreement may be executed in counterpart, and facsimile
signatures shall be deemed originals.
9. New Li & ▇▇▇▇ Debt. Buyer shall pay the New Ling & ▇▇▇▇ Debt of
approximately $508, 404 on or before January 31, 2000. Buyer shall indemnify and
hold harmless Seller for a breach of this covenant in the manner provided in
Section 9.5 of the Merger Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
"DSI" "MERITUS"
DSI TOYS, INC., A TEXAS CORPORATION MERITUS INDUSTRIES, INC., A NEW JERSEY
CORPORATION
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Financial Officer Title: President, Meritus Industries,
Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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