CLOSING AND HOLDBACK AGREEMENT
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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
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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
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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,
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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 Buyer's obligations pursuant to this Section 3
exceed the amount of the Discount Holdback; provided, however, that nothing
herein shall preclude Seller from asserting its rights and remedies under
the Merger Agreement.
4. Automobiles. Seller, jointly and severally, shall hold harmless
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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
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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
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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
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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.
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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:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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By: /S/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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By: ▇▇▇▇▇ ▇▇▇▇▇▇▇
