SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) JANUARY 7, 2000
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DSI TOYS, INC.
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(Exact Name of Registrant as Specified in Charter)
TEXAS 0-22545 74-1673513
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1100 WEST SAM HOUSTON PARKWAY NORTH, HOUSTON, TEXAS 77043
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(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code (713) 365-9900
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(Former Name or Former Address, if Changes Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 7, 2000, DSI Toys, Inc., a Texas corporation (the "Registrant")
acquired all of the issued and outstanding shares of common stock (the "Meritus
Shares") of Meritus Industries, Inc., a New Jersey corporation ("Meritus"),
pursuant to a merger in which Meritus merged with and into the Registrant (the
"Merger"). Under the terms of the Merger, all of the issued and outstanding
Meritus Shares, all of which were owned by Walter S. Reiling and Susan Reiling
(collectively, "Reiling"), were converted into, and became exchangeable for (i)
six hundred thousand (600,000) unregistered shares of the Registrant's common
stock (the "Registrant Shares"), representing sixty thousand (60,000) Registrant
Shares for each of the ten (10) Meritus Shares issued and outstanding as of the
effective time of the Merger (less ninety-six thousand seven hundred and
seventy-four (96,774) Registrant Shares which are payable by Registrant upon
satisfaction of certain post closing conditions as set forth in a Closing and
Holdback Agreement (the "Holdback Agreement") between the parties); (ii) eight
hundred eighty-four thousand thirty-three dollars and 82 cents ($884,033.82) in
cash (less one hundred thousand dollars ($100,000) which are payable by
Registrant upon satifaction of certain post closing conditions as set forth in
the Holdback Agreement); and (iii) the Registrant's Subordinated Secured
Promissory Note for one million six hundred ninety thousand dollars
($1,690,000.00).
In addition, as part of the Merger, Registrant retired approximately $4.4
million of Meritus debt. On January 7, 2000, Registrant borrowed five million
dollars ($5,000,000.00) from MVII, LLC, a California limited liability company
and controlling shareholder of Registrant ("MVII"), pursuant to an unsecured
promissory note (the "MVII Note"). The principal balance of the MVII Note
accrues interest at an annual rate of the prime rate of Wells Fargo Bank plus
two percent (2%), and accrued interest is payable monthly. Monthly principal
payments of one hundred thousand dollars ($100,000.00) are due under the terms
of the MVII Note beginning on June 1, 2000. The MVII Note is due and payable in
full on July 1, 2004. The amounts advanced to Registrant by MVII as evidenced by
the MVII Note, as well as one hundred sixty five thousand four hundred forty
five dollars and eighty-two cents ($165,445.82) of Registrant's funds, were used
to consummate the Merger.
Meritus was a toy manufacturer. The Registrant currently intends to
continue the use of Meritus' assets in its toy business.
The consideration paid by the Registrant for the Meritus Shares was
negotiated at arm's length between the parties on the basis of the Registrant's
assessment of the value of Meritus and the Meritus Shares, following an
investigation of, and discussions with Meritus and its representatives
concerning Meritus and its business and prospects. It is intended that, for
federal income tax purposes, the Merger shall qualify as a reorganization under
the provisions of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder. For financial
accounting purposes, it is intended that the Merger will be accounted for as a
"purchase."
The Registrant, MVII, and Reiling have entered into a Shareholders' and
Voting Agreement dated January 7, 2000, pursuant to which (i) the parties agreed
that the number of directors that
comprise the Board of Directors of the Company shall be increased from six (6)
to seven (7) within thirty (30) days of the Merger; (ii) MVII granted Reiling
the right to elect one (1) of the directors that MVII was previously entitled to
elect to the Registrant's Board of Directors pursuant to the terms and
conditions of that certain Shareholders and Voting Agreement dated April 15,
1999; and (iii) certain transfer restrictions were imposed upon the Registrant
Shares held by Reiling as a result of the Merger.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
The required financial statements for the business acquired will be filed
on or before the sixtieth day following the filing date of this Form 8-K.
(b) Pro Forma Financial Information
The required pro forma financial information is unavailable as of the date
of this filing. Such financial statements will be filed on or before the
sixtieth day following the filing date of this Form 8-K.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger between Meritus
et al, and the Registrant, dated as of
October 7, 1999 (filed as Exhibit 10.45 to
the Registrant's Form 10-Q for the quarterly
period ended October 31, 1999, and
incorporated herein by reference).
2.2 Articles/Certificate of Merger of Meritus
into Registrant, dated January 7, 2000.
2.3 Closing and Holdback Agreement dated January
7, 2000, by and between Registrant and
Meritus et al.
10.1 Shareholders' and Voting Agreement dated
January 7, 2000, by and among the
Registrant, MVII, and Reiling.
10.2 Limited Irrevocable Proxy dated January 7,
2000, between MVII and Reiling.
10.3 Registration Rights Agreement dated January
7, 2000, by and between the Registrant and
Reiling.
10.4 Subordinated Secured Promissory Note dated
January 7, 2000, from the Registrant to
Reiling.
10.5 Promissory Note dated January 7, 2000, from
Registrant to MVII.
10.6 Amendment No. 2 dated January 7, 2000, to
Loan and Security Agreement, by and between
Sunrock Capital Corp. and Registrant.
10.7 Employment Agreement dated January 7, 2000,
by and between Registrant and Beth Reiling.
10.8 Employment Agreement dated January 7, 2000,
by and between Registrant and Joseph
Reiling.
99.1 Press release of the Registrant dated
January 7, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DSI TOYS, INC.
Date: January 21, 2000 By: /s/ ROBERT L. WEISGARBER
Robert L. Weisgarber
Chief Financial Officer