SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
DSI TOYS, INC.
(Name of Registrant as Specified In Its Charter)
DSI TOYS, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing. 1) Amount
Previously Paid:
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DSI TOYS, INC.
1100 WEST SAM HOUSTON PARKWAY (NORTH)
HOUSTON, TEXAS 77043
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 23, 1998
To the Shareholders of
DSI Toys, Inc.:
The annual meeting of shareholders of DSI Toys, Inc. a Texas corporation
(the "Company"), will be held on Tuesday, June 23, 1998, at 1:30 p.m., local
time, at the Company's corporate offices, 1100 West Sam Houston Parkway (North),
Houston, Texas, 77043 for the following purposes:
1. To elect two directors to the class of directors whose three-year
term will expire in 2001; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 21, 1998 as
the record date for the determination of shareholders entitled to notice of and
to vote at the annual meeting or any adjournment thereof. Only holders of record
of Common Stock at the close of business on the record date are entitled to
notice of and to vote at the meeting. A complete list of such shareholders will
be available for examination at the offices of the Company in Houston, Texas
during normal business hours for a period of 10 days prior to the meeting.
A record of the Company's activities during fiscal 1997 and financial
statements for the fiscal year ended January 31, 1998 are contained in the
accompanying 1997 Annual Report and Form 10-K. The Annual Report and Form 10-K
does not form any part of the material for solicitation of proxies.
All shareholders are cordially invited to attend the meeting. SHAREHOLDERS
ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING, TO SIGN, DATE AND
MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN THE POSTAGE-PAID ENVELOPE
PROVIDED. If a shareholder who has returned a proxy attends the meeting in
person, such shareholder may revoke the proxy and vote in person on all matters
submitted at the meeting.
By Order of the Board of Directors
/s/ THOMAS V. YARNELL
Thomas V. Yarnell
CORPORATE SECRETARY
Houston, Texas
May 22, 1998
DSI TOYS, INC.
1100 WEST SAM HOUSTON PARKWAY (NORTH)
HOUSTON, TEXAS 77043
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 23, 1998
GENERAL
This proxy statement is furnished to shareholders of DSI Toys, Inc. (the
"Company") in connection with the solicitation by the Board of Directors of the
Company of proxies for use at the annual meeting of shareholders to be held at
the time and place and for the purposes set forth in the accompanying notice.
The approximate date of mailing of this proxy statement and the accompanying
proxy or voting instruction card is May 22, 1998.
PROXY CARDS
If a proxy card is enclosed, it serves to appoint proxies for record
holders of common stock, par value $.01 per share ("Common Stock"), of the
Company. Shares represented by a proxy in such form, duly executed and returned
to the Company and not revoked, will be voted at the meeting in accordance with
the directions given. If no direction is made, the proxy will be voted FOR
election of the directors named in the proxy. Any shareholder giving a proxy may
revoke it at any time before it is voted by communicating such revocation in
writing to the Secretary of the Company or by executing and delivering a
later-dated proxy.
VOTING PROCEDURES AND TABULATION
The Company will appoint one or more inspectors of election to act at the
meeting and to make a written report thereof. Prior to the meeting, the
inspectors will sign an oath to perform their duties in an impartial manner and
according to the best of their ability. The inspectors will ascertain the number
of shares outstanding and the voting power of each, determine the shares
represented at the meeting and the validity of proxies and ballots, count all
votes and ballots, and perform certain other duties as required by law.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee. Votes that are withheld will be excluded entirely
from the vote and will have no effect. Brokers who hold shares in street name
have the authority to vote on certain "routine" items when they have not
received instructions from beneficial owners. Because brokers will have
discretionary authority to vote on the scheduled item of business, there will be
no broker non-votes (or other limited proxy).
RECORD DATE AND VOTING SECURITIES
The only voting security of the Company outstanding is its Common Stock.
Only holders of record of Common Stock at the close of business on May 21, 1998,
the record date for the meeting, are entitled to notice of and to vote at the
meeting. On the record date for the meeting, there were 6,000,000 shares of
Common Stock outstanding and entitled to be voted at the meeting. A majority of
such shares, present in person or represented by proxy, is necessary to
constitute a quorum. Each share of Common Stock is entitled to one vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of May 8, 1998 information with respect
to the only persons who were known to the Company to be the beneficial owners of
more than five percent of the outstanding shares of Common Stock.
COMMON STOCK
BENEFICIALLY OWNED (1)
----------------------
NAME AND ADDRESS OF NUMBER PERCENT OF
BENEFICIAL OWNER OF SHARES CLASS
---------------- --------- -----
M.D. Davis 1100 W. Sam Houston 472,945 (2) 7.88%
Parkway (N.)
Houston, TX 77043
Jack R. Crosby 327 Congress Ave., 429,115 (2)(3) 7.15%
Suite 200
Austin, TX 78701
Douglas A. Smith 750 N. St. Paul, 381,849 (2) 6.36%
Suite 1200
Dallas, TX 75205
Joseph N. Matlock 1721 Wilshire Blvd. 331,110 (2) 5.52%
Austin, TX 78722
(1) Unless otherwise indicated, the beneficial owner has sole voting and
investment power with respect to all shares listed.
(2) Includes shares attributable to shares of Common Stock not outstanding but
subject to options currently exercisable, or exercisable within 60 days, as
follows: Mr. Davis -- 3,000 shares; Mr. Crosby -- 2,000 shares; Mr. Smith
-- 2,000 shares; and Mr. Matlock -- 2,000 shares.
(3) Includes 427,115 shares owned of record by Rust Capital, Ltd., as to which
Mr. Crosby is founder and Chairman.
ELECTION OF DIRECTORS
The Articles of Incorporation and Bylaws of the Company provide for three
classes of directors, with approximately one-third of the directors constituting
the Board being elected each year to serve a three-year term. Pursuant to the
Company's Bylaws, the number of directors has been established by resolution of
the Board at six.
The Board of Directors has nominated Richard R. Neitz and Douglas A. Smith
from the class of directors whose term expires at the 1998 annual meeting for
re-election as directors of the Company to serve three-year terms expiring in
2001.
The directors nominated for election this year will be elected by a
plurality of the shares of Common Stock present in person or represented by
proxy at the meeting and entitled to vote. All duly submitted and unrevoked
proxies in the form enclosed will be voted for the nominees selected by the
Board of Directors, except where authorization so to vote is withheld. THE BOARD
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF ITS NOMINEES FOR DIRECTOR.
Information with respect to the directors nominated for election this year,
and the directors whose terms do not expire at the 1998 annual meeting, is
presented below.
NOMINEES FOR DIRECTOR
RICHARD R. NEITZ MR. NEITZ has served as President of the Company
age 49, director since 1995 since March 1992 and Vice President, Marketing and
Product Development from March 1990 to March 1992.
2
He has served as Chief Operating Officer since
December 1995. Prior to joining the Company in
1990, Mr. Neitz served in various management and
marketing positions with Main Street Ltd., Joseph
Markovits, Inc., Toys "R" Us and McCrory Stores.
Mr. Neitz currently serves on the board of
directors of the Toy Manufacturers of America.
DOUGLAS A. SMITH MR. SMITH has been President of Vanguard
age 47, director since 1996 Investment Company, which has been active in
leveraged buy-out and management of middle market
companies, since 1983. He serves on the board of
directors of Steelworks, Inc., Blocksom & Co.,
Vanguard Investment Company, Everest Software, and
Vanguard Enterprises, Inc.
CLASS WHOSE TERM EXPIRES IN 1999
JACK R. CROSBY, MR. CROSBY is the founder and Chairman of Rust
age 71, director since 1995 Capital, Ltd., a small business investment
partnership headquartered in Texas. Mr. Crosby has
co-founded and/or financed two private venture
capital funds and has been one of the co-founders
of eight multiple system cable companies. He was
the founder, President and CEO of Tescorp, Inc., a
publicly traded company which owned and operated
cable television systems in Argentina, and was
sold in February 1998. He is the Chairman of the
Board and CEO of CinemaStar Luxury Theaters, Inc.
He also serves on board of directors of National
Dentex Corporation, and Heartland Wireless
Communications, Inc.
BARRY B. CONRAD, MR. CONRAD is a co-founder and Managing Partner of
age 57, director since 1995 Conrad/Collins Merchant Banking Group Ltd., a
Dallas, Texas-based merchant bank formed in 1988
that is active in leveraged buyouts of
middle-market companies in the southwestern United
States. Mr. Conrad has extensive investment
banking experience. He is Chairman of the Board of
NEI WebWorld, Inc.
CLASS WHOSE TERM EXPIRES IN 2000
JOSEPH N. MATLOCK, MR. MATLOCK has spent the majority of his career
age 49, director since 1995 in the financial services industry. From January
1986 to September 1988, Mr. Matlock served as
Chairman, Chief Executive Officer and President of
Franklin Savings Association in Austin, Texas; and
from September 1988 through September 1994, he
served as Chief Executive Officer, President and a
director of Franklin Federal. From September 1994
to January 1996, he was engaged in the merchant
banking and consulting business. From January 1996
to March 1998, he served as Executive Vice
President and Director of Business and Community
Relations for Bank of America. From September 1995
to the present, he has served as President (and
was the founder) of Afford America, Inc. which
provides housing for low income families. From
July 1997 to present he has served as Chairman of
Austin Jet International.
M. D. DAVIS MR. DAVIS has served as the Chairman of the Board
age 63, director since 1995 and Chief Executive Officer of the Company since
December 1995. Prior to joining the Company, Mr.
Davis spent eighteen years with Ernst & Whinney in
Houston, where, as a partner, he headed the
healthcare practice. He left Ernst & Whinney in
1981 when he purchased Southwest Medical
Packaging, Inc. This company was sold to Cooper
Vision, Inc. (now Cooper Company, Inc.) in 1985
and later to Alcon Laboratories, Inc. in 1989.
During this time, Mr. Davis maintained senior
management positions at both companies. In 1990,
Mr. Davis and another employee acquired Southwest
Medical Packaging, Inc. from Alcon Laboratories.
In June 1994, this company was sold to Maxxim
Medical, Inc. From June 1994 until December 1995,
Mr. Davis was engaged in personal investment
activities.
3
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
BOARD MEETINGS AND COMMITTEES
During fiscal 1997 the Board of Directors held five (5) meetings. All
members of the Board of Directors attended at least 75% of the meetings of the
Board and any committees on which they served. The Company has standing audit,
compensation, executive, and stock option administrative committees of the Board
of Directors. The Board of Directors does not have a nominating committee. The
selection of nominees for the Board of Directors is made by the entire Board of
Directors. The current members of the committees, number of meetings held by
each committee in fiscal 1997, and a brief description of the functions
performed by each committee are set forth below:
AUDIT COMMITTEE (3 MEETINGS). Joseph N. Matlock, Chairman;
M.D. Davis and Barry B. Conrad. The primary responsibilities of the
audit committee are to review with the Company's auditors the scope of
the audit procedures to be applied in conducting the annual audit and
the results of the annual audit.
COMPENSATION COMMITTEE (4 MEETINGS). Barry B. Conrad,
Chairman; Jack R. Crosby; Joseph N. Matlock; and Douglas A. Smith. The
primary responsibilities of the compensation committee are to review
and set the compensation levels of the officers of the Company,
including those officers who are also directors, evaluate the
performance of management, consider management succession and related
matters and administer the annual compensation plans of the Company.
EXECUTIVE COMMITTEE (NO MEETINGS). M.D. Davis, Chairman;
Barry B. Conrad and Joseph N. Matlock. The primary responsibilities of
the executive committee are to advise the Company's officers and to
act on certain matters at times between meetings of the full Board of
Directors.
STOCK OPTION ADMINISTRATIVE COMMITTEE(4 MEETINGS). Barry B.
Conrad, Chairman; Jack R. Crosby, Joseph N. Matlock and Douglas A.
Smith. The primary responsibility of the committee is to administer
the Stock Option Plan, including the granting of options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The current
members of the compensation committee identified above were the only persons who
served on such committee during fiscal 1997. No officer or employee of the
Company is a member of the Company's compensation committee. No member of the
Board of Directors of the Company or its compensation committee serves as a
member of the Board of Directors or compensation committee of an entity that has
one or more executive officers serving as a member of the Company's Board of
Directors or compensation committee.
COMPENSATION OF DIRECTORS
ANNUAL RETAINER AND OTHER FEES AND EXPENSES. Non-employee directors are
paid an annual retainer of $20,000. The Company also reimburses directors for
travel, lodging and related expenses they may incur in attending Board and
committee meetings.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS. Under the 1997 Stock Option Plan (the
"Stock Option Plan"), which was approved and ratified by shareholders on May 1,
1997, non-employee directors may from time to time at the discretion of the
Stock Option Committee, receive a grant of an option to purchase Common Stock of
the Company. The options are granted at an exercise price as determined by the
Committee and are exercisable, as determined by the Committee, over a period of
time from grant date, unless sooner terminated as described in the Stock Option
Plan.
4
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of May 8, 1998 the beneficial ownership
of Common Stock by each director of the Company, each named executive officer
listed in the Summary Compensation Table appearing on page 8 of this proxy
statement, and all directors and executive officers as a group.
COMMON STOCK
BENEFICIALLY OWNED (1)
----------------------
NUMBER PERCENT OF
NAME OF SHARES CLASS
---- --------- -----
DIRECTORS
M. D. Davis.............................. 472,945(2) 7.88%
Jack R. Crosby........................... 429,115(2)(3) 7.15%
Douglas A. Smith......................... 381,849(2) 6.36%
Joseph N. Matlock........................ 331,110(2) 5.52%
Richard R. Neitz......................... 175,500(2) 2.92%
Barry B. Conrad.......................... 107,674(2) 1.79%
NAMED EXECUTIVE OFFICERS (EXCLUDING
ANY DIRECTOR NAMED ABOVE) AND GROUP
Tommy Yau................................ 83,000(2) 1.38%
J. Russell Denson........................ 51,500(2) 0.85%
Thomas W. Neville........................ 34,391(2)(4) 0.57%
Dale Y. Chen............................. 24,072(2)(5) 0.40%
All directors and executive
officers as a group (12 persons)....... 2,113,526(6) 34.95%
(1) Unless otherwise indicated, the beneficial owner has sole voting and
investment power with respect to all shares listed.
(2) Includes shares attributable to shares of Common Stock not outstanding
but subject to options currently exercisable, or exercisable within 60
days, as follows: Mr. Davis -- 3,000 shares; Mr. Crosby -- 2,000 shares;
Mr. Smith -- 2,000 shares; Mr. Matlock -- 2,000 shares; Mr. Neitz --
3,000 shares; Mr. Conrad -- 2,000 shares; Mr. Yau -- 3,000 shares; Mr.
Denson -- 25,500 shares; Mr. Neville -- 600 shares; and Mr. SWChen --
450 shares.
(3) Includes 427,115 shares owned of record by Rust Capital, Ltd., as to
which Mr. Crosby is founder and Chairman.
(4) Includes 24,888 shares held by Mr. Neville's wife.
(5) Includes 1,760 shares held by Mr. Chen's wife.
(6) Includes 47,000 shares not outstanding but subject to currently
exercisable options. See footnote (2) above.
5
EXECUTIVE COMPENSATION
The following report of the compensation committee on executive
compensation and the information herein under "Executive
Compensation--Performance Graph" shall not be deemed to be "soliciting material"
or to be "filed" with the SEC or subject to the SEC's proxy rules, except for
the required disclosure herein, or to the liabilities of Section 18 of the
Securities Exchange Act of 1934 (the "Exchange Act"), and such information shall
not be deemed to be incorporated by reference into any filing made by the
Company under the Securities Act of 1933 or the Exchange Act.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Administrative Committees collectively
(the "Committee") of the Board of Directors are currently composed entirely of
outside, non-employee directors. The Compensation Committee reviews and sets the
compensation levels of the Company's Chief Executive Officer ("CEO") and other
executives, evaluates the performance of management, and considers management
succession and related matters. The Stock Option Administrative Committee
administers the Stock Option Plan. All decisions by the Committee relating to
the compensation of executive officers are reviewed by the full Board.
The Company has retained the services of The Penicle Group, a management
and compensation consulting firm, to assist the Committee in the performance of
its responsibilities. The Committee considers information with respect to the
reasonableness of compensation paid to senior officers of the Company, as well
as all employees of the Company and its subsidiaries in managerial positions.
The Committee also takes into account how compensation compares to compensation
paid by competitors in the Company's industry as well as the performance of the
Company.
COMPENSATION POLICIES AND PROGRAMS
The compensation policies of the Company, set by management and supported
by the Committee, focus on enhancing shareholder value. Specific policies are
designed to attract, motivate and retain persons of high quality who will have
the skill, training and dedication to assist the Company to achieve its
corporate goals. The executive compensation program for fiscal 1997 consisted of
three elements: base salary, annual incentive bonus, and long-term incentive
through the granting of stock options pursuant to the Stock Option Plan.
BASE SALARY: Base salary for executive officers is determined principally
by competitive factors and the marketplace. The policy of the Committee is
generally to set base salary levels for positions at approximately the median
levels determined from survey information for positions deemed comparable by the
Committee.
ANNUAL INCENTIVE BONUS: The compensation policy of the Company is that a
part of the annual compensation of each officer be related to and contingent
upon the performance of the Company, as well as the individual contribution of
each officer.
LONG-TERM INCENTIVE COMPENSATION: It is also the compensation policy of the
Company to use stock options as a means of furnishing longer-term incentive to
officers and other employees of the Company and its subsidiary. Under the Stock
Option Plan, which was approved by shareholders in 1997, the Company has
flexibility in creating options.
On August 28, 1997, the Committee granted stock options to executive
officers of the Company. Each executive officer received stock options that were
based on his responsibilities and relative position in the Company. All stock
options in 1997 were granted with an exercise price of fair market value at the
date of grant. Except as noted below, the stock options vest over seven
anniversary dates commencing January 31, 1998 and each January 31 thereafter
through January 31, 2004. Five percent of the stock options vest each January
31, 1998-2001; Fifteen percent vest on January 31, 2002 and 2003 and Fifty
percent vest on January 31, 2004. In any fiscal year (1997, 1998, or 1999) in
which the Company meets its Target Earnings Per Share (EPS), the vesting of
one-third of the options granted on August 28, 1997 accelerates such that
one-third of the accelerated options vest 30 days after receipt of the audited
financial statements for the fiscal year in which the Target EPS is met, and
one-third of the accelerated options vest on January 31 of each of the next two
following fiscal years. Non-accelerated options vest over the schedule for the
seven anniversary dates (or, in the event of some accelerated vesting, until
such time as 100% of the options have vested, or unvested options have expired).
6
The stock options granted to M.D. Davis on August 28, 1997 vest as follows:
Five percent on January 31, 1998; five percent on January 31, 1999 and ninety
percent on June 12, 1999. The options granted to M.D. Davis also contain the
acceleration provisions described above.
Stock options were granted to Mr. J. Russell Denson on June 3, 1997
pursuant to his employment Agreement. These options vest twenty-five percent on
June 3, 1997; twenty-five percent on March 16, 1999; twenty-five percent on
March 16, 2000 and twenty-five percent on March 16, 2001 and do not contain the
acceleration provisions described above.
FISCAL 1997 COMPENSATION OF CEO
The 1997 salary of the CEO, M.D. Davis, of $150,000 was determined by an
employment agreement negotiated in good faith and entered in effective December
11, 1995. The compensation amount was based upon the job description and time
commitment of the position as set forth in the Agreement. The Compensation
Committee believes that Mr. Davis' compensation level is appropriate.
On August 28, 1997 the Committee granted the CEO an option to purchase
60,000 shares of Common Stock pursuant to the Stock Option Plan. In granting
these options, the Committee relied upon competitive data provided by The
Penicle Group and its own assessment of the CEO's performance.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code contains provisions which could
limit the deductibility of certain compensation payments to the Company's
executive officers. The Company believes that any compensation realized in
connection with the exercise of stock options granted by the Company will
continue to be deductible as performance-based compensation. The policy of the
Company is to design its compensation programs generally to preserve the tax
deductibility of compensation paid to its executive officers. The Committee
could determine, however, taking into consideration the burdens of compliance
with Section 162(m) and other relevant facts and circumstances, to pay
compensation that is not fully deductible, if the Committee believes such
payments are in the Company's best interests.
SUMMARY
The members of the Committee believe that linking executive compensation to
corporate performance results in a better alignment of compensation with
corporate goals and shareholder interests. As performance goals are met or
exceeded, resulting in increased value to shareholders, executive officers are
to be rewarded commensurately. The members of the Committee believe that
compensation levels during fiscal 1997 adequately reflect the compensation goals
and policies of the Company. No executive compensation increases have been
announced.
7
The following table sets forth certain summary information concerning the
compensation awarded to, earned by or paid to the Chief Executive Officer of the
Company and each other person who is an executive officer of the Company whose
combined salary and bonus for fiscal 1997 exceeded $100,000 (collectively, the
"named executive officers") for the years indicated.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
OTHER STOCK
ANNUAL OPTION/SARS
NAME AND FISCAL COMPENSA- (NUMBER OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS TION SHARES) (1) COMPENSATION
------------------ ---- ------ ----- ---- ----------- ------------
M. D. Davis, ................ 1997 $150,000 $ -- -- 60,000 $ 3,274 (3)
Chairman and Chief .......... 1996 150,000 500 -- 9,500 (3)
Executive Officer (2) ....... 1995 21,346 -- -- --
Richard R. Neitz, ........... 1997 225,000 -- -- 60,000 4,462 (4)(5)
President and Chief ......... 1996 225,000 500 10,100 (4)(5)
Operating Officer ........... 1995 223,125 1,157,000 -- 600 (5)
J. Russell Denson, .......... 1997 145,000 -- -- 150,000 359 (4)(5)
Executive Vice
President and Chief
Financial Officer(6)
Tommy Yau, .................. 1997 180,000 (7) -- -- 60,000 --
Managing Director - ......... 1996 180,000 (7) 9,500 (7) -- --
DSI (HK) Limited ............ 1995 173,756 (7) 45,249 (7) -- --
Thomas W. Neville, .......... 1997 101,390 -- -- 12,000 2,531 (4)
Vice President .............. 1996 95,000 500 -- 9,500 (4)
1995 79,625 11,730 -- --
Dale Y. Chen, ............... 1997 100,000 -- -- 9,000 2,375 (4)
Vice President and .......... 1996 100,000 6,000 -- 9,500 (4)
Controller .................. 1995 90,750 30,930 -- --
(1) Options represent the right to purchase shares of Common Stock at a fixed
price per share.
(2) Mr. Davis became an officer and employee of the Company in December 1995.
(3) Consists of Company contributions to defined contribution plan of $2,375
and $9,500 for fiscal 1997 and 1996, respectively, and term life
insurance premiums of $899 for fiscal 1997.
(4) Consists of Company contributions or other allocations to defined
contribution plan, as follows: Mr. Neitz -- $1,579 and $9,500 for fiscal
1997 and 1996, respectively; Mr. Denson -- $210; Mr. Neville -- $2,531 and
$9,500 for fiscal 1997 and 1996, respectively; and Mr. Chen -- $2,375 and
$9,500 for fiscal 1997 and 1996, respectively.
(5) Consists of life insurance premiums as follows: Mr. Neitz-- $2,883, $600
and $600 for fiscal 1997,1996, and 1995, respectively; Mr. Denson-- $149.
(6) Mr. Denson became an officer and an employee of the Company in March 1997.
(7) Pursuant to Mr. Yau's employment agreement dated December 11, 1995, he is
paid HK $116,000 per month which, based on average exchange rates,
translates to US $180,000 per annum. For fiscal 1995 Mr. Yau was paid HK
$1,344,000 which, based on average exchange rates, translates to US
$173,756. Mr. Yau was paid bonuses of HK $73,483 and HK $350,000 for
fiscal 1996 and 1995, respectively, which, based on average exchange rates
at the time, translates to US $ 9,500 and US $45,249, respectively.
8
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the year ended January 31, 1998 to each
of the named executive officers.
OPTION/SAR GRANTS IN FISCAL 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------- VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
% OF OPTION TERM (3)
NUMBER TOTAL ----------------------
OF OPTIONS PER SHARE
OPTIONS/SARS GRANTED TO EXERCISE EXPIRATION
NAME GRANTED (1) EMPLOYEES PRICE (2) DATE 5% 10%
- ---- ----------- --------- --------- ---- -------- ----------
M.D. Davis ................ 60,000 (4) 11% $ 8.00 8/27/07 $293,073 $ 750,990
Richard R. Neitz .......... 60,000 (5) 11% 8.00 8/27/07 293,073 750,990
J. Russell Denson ......... 60,000 (5) 11% 8.00 8/27/07 293,073 750,990
J. Russell Denson ......... 90,000 (6) 17% 8.00 6/02/07 452,804 1,147,495
Tommy Yau ................. 60,000 (5) 11% 8.00 8/27/07 293,073 750,990
Thomas W. Neville ......... 12,000 (7) 2% 8.00 8/27/07 58,615 150,198
Dale Y. Chen .............. 9,000 (8) 2% 8.00 8/27/07 43,961 112,649
(1) All options granted vest and become exercisable in a range from immediate
to seven years from grant date and in increments between 5% per year and
90% per year.
(2) All grants were made at the average fair market value as of the date of
grant.
(3) The "potential realizable value" shown will be achieved only if the
options have been held for the full ten years and the stock price has
appreciated at the assumed rate. For the named executive officers, the
value is calculated from the option price per share of options granted in
fiscal year 1997. Potential realizable value is listed for illustration
purposes only. The values disclosed are not intended to be and should not
be interpreted as representations or projections of future value of
Company stock or of the stock price.
(4) Consists of incentive stock options for 13,155 shares and non-qualified
stock options for 46,845 shares. Each category vests as follows: 5% on
January 31, 1998; 5% on January 31, 1999; and 90% on June 12, 1999.
Subject to accelerated vesting (see EXECUTIVE COMPENSATION - COMPENSATION
POLICIES AND PROGRAMS).
(5) Consists of incentive stock options for 25,000 shares and non-qualified
stock options for 35,000 shares. Each category vests as follows: 5% on
each of January 31, 1998; January 31, 1999; January 31, 2000 and January
31, 2001; 15% on January 31, 2002 and 15% on January 31, 2003; and 50% on
January 31, 2004. Subject to accelerated vesting (see EXECUTIVE
COMPENSATION - COMPENSATION POLICIES AND PROGRAMS).
(6) Consists of non-qualified stock options for 90,000 shares vesting as
follows: 25% on June 3, 1997; 25% on March 16, 1999; 25% on March 16,
2000; and 25% on March 16, 2001.
(7) Consists of incentive stock options for 12,000 shares vesting as follows:
5% on each of January 31, 1998, January 31, 1999, January 31, 2000 and
January 31, 2001; 15% on January 31, 2002 and 15% on January 31, 2003; and
50% on January 31, 2004. Subject to accelerated vesting (see EXECUTIVE
COMPENSATION - COMPENSATION POLICIES AND PROGRAMS).
(8) Consists of incentive stock options for 9,000 shares vesting as follows:
5% on each of January 31, 1998, January 31, 1999, January 31, 2000 and
January 31, 2001; 15% on January 31, 2002 and 15% on January 31, 2003; and
50% on January 31, 2004. Subject to accelerated vesting (see EXECUTIVE
COMPENSATION - COMPENSATION POLICIES AND PROGRAMS).
9
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock and SARs during the year ended
January 31, 1998, and the unexercised options held at January 31, 1998 and the
value thereof, by each of the named executive officers.
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND 1/31/98 OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT OPTIONS/SARS AT
ON EXERCISE 1/31/98 (SHARES) FISCAL YEAR END
-----------------------------------------------------
(NUMBER VALUE
NAME OF SHARES) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------- ---------- -------- ----------- ------------- ----------- -------------
M.D. Davis 0 $ 0 3,000 57,000 $ 0 $ 0
Richard R. Neitz 0 0 3,000 57,000 0 0
J. Russell Denson 0 0 25,500 124,500 0 0
Tommy Yau 0 0 3,000 57,000 0 0
Thomas W. Neville 0 0 600 11,400 0 0
Dale Y. Chen 0 0 450 8,550 0 0
EMPLOYMENT AND RELATED AGREEMENTS
Effective January 2, 1996, M.D. Davis entered into an employment agreement
with the Company, pursuant to which he will be employed as Chairman of the Board
and Chief Executive Officer of the Company until December 31, 1998 and will be
paid an annual salary of $150,000 (which salary may be raised at the discretion
of the Board of Directors). The agreement contains non-disclosure,
non-competition and non-solicitation provisions applicable during the term of
employment under the agreement and until one year after termination of
employment. Upon termination of Mr. Davis's employment without cause, the
Company must continue to pay Mr. Davis his salary for a period of six months (in
the event the non-competition provisions are enforced, the Company is obligated
to pay an additional one-year salary during the non-compete period) following
termination.
The Company has entered into an employment agreement with Richard R. Neitz.
Pursuant to this agreement, Mr. Neitz will be employed as President and Chief
Operating Officer until January 31, 2000 and will be paid an annual salary of
$225,000 (which salary may be raised at the discretion of the Board of
Directors). Beginning with fiscal 1996, Mr. Neitz is entitled to a fiscal
year-end performance bonus based on the Company's total pre-tax income, provided
that such pre-tax income exceeds $5.8 million. The agreement contains
non-disclosure, non-competition and non-solicitation provisions applicable
during the term of employment under the agreement and until one year after
termination of employment. Upon termination of Mr. Neitz's employment without
cause the Company must continue to pay Mr. Neitz his salary for a period of six
months (in the event the non-competition provisions are enforced, the Company is
obligated to pay an additional one-year salary during the non-compete period)
following termination and must pay a pro-rated performance bonus.
The Company has entered into an employment agreement with J. Russell
Denson. Pursuant to this agreement, Mr. Denson will be employed as Executive
Vice President and Chief Financial Officer until March 15, 2000 and will be paid
an annual salary of $180,000 (which salary may be raised at the discretion of
the Board of Directors). Mr. Denson is entitled to a performance bonus based on
the Company's total pre-tax income for fiscal 1997 and increases in earnings per
share for subsequent fiscal years. The agreement contains non-disclosure,
non-competition and non-solicitation provisions applicable during the term of
employment under the agreement and until one year after termination of
employment. Upon termination of Mr. Denson's employment without cause the
Company must continue to pay Mr. Denson his salary for a period of six months
(in the event the non-competition provisions are enforced, the Company is
obligated to pay an additional one-year salary during the non-compete period)
following termination and must pay a pro-rated performance bonus.
DSI (HK) has entered into an employment agreement with Tommy Yau, pursuant
to which he will be employed as Managing Director of DSI (HK) until January 31,
2000 and will be paid a monthly salary of HK $116,000 (approximately US $15,000
based on currency exchange rates). Beginning with fiscal 1996, Mr. Yau is
entitled to a
10
fiscal year-end performance bonus based on the Company's total pre-tax income,
provided that such pre-tax income exceeds $5.8 million. The agreement contains
non-disclosure, non-competition and non-solicitation provisions applicable
during the term of employment under the agreement and until one year after
termination of employment. Upon termination of Mr. Yau's employment without
cause the Company must continue to pay Mr. Yau his salary for a period of six
months (in the event the non-competition provisions are enforced, the Company is
obligated to pay an additional one-year salary during the non-compete period)
following termination and must pay a pro-rated performance bonus.
The Company has entered into an employment agreement with Thomas W. Neville
pursuant to which he will serve as the National Sales Manager of the Company. He
will be paid an annual salary of at least $95,000 (which salary may be raised at
the discretion of the Company). The Agreement is for a one year, renewable term
and was last extended on January 1, 1998. Mr. Neville is entitled to a fiscal
year-end performance bonus based on the Company's total pre-tax income, provided
such income exceeds $5.8 million. The agreement contains non-disclosure,
non-competition and non-solicitation provisions applicable during the term of
employment under the agreement and until one year after termination of
employment. Upon termination of Mr. Neville's employment without cause, if the
non-competition provisions are enforced, the company is obligated to pay Mr.
Neville his salary for a period of one year following termination and must pay a
pro-rated performance bonus.
The Company has entered into an employment agreement with Dale Y. Chen
renewable for a one year term which was last extended for one year on December
11, 1997. Mr. Chen's agreement provides that he will serve as Controller and
will receive an annual salary of at least $100,000. This agreement contains
non-disclosure provisions applicable during the term of employment and
thereafter.
The Company has entered into similar employment agreements with its other
executive officers.
11
PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return for
the Common Stock, the Standard & Poor's 500 Index, and a Competitor Group Index
since May 29, 1997 (the date on which the Common Stock was first traded on the
Nasdaq Market).
COMPARISON OF EIGHT MONTH CUMULATIVE TOTAL RETURN (1)
AMONG DSI TOYS, INC., STANDARD & POOR'S 500 INDEX
AND COMPETITOR GROUP INDEX (2)
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
5/29/97 1/31/98
------- -------
DSI Toys, Inc....................... $100 $ 30
Peer Group(3)....................... $100 $ 83
Standard & Poor's 500 Index......... $100 $ 124
(1) Total return assuming reinvestment of dividends. Assumes $100 invested on
May 29, 1997 in Common Stock, the Standard & Poor's 500 Index and a
Company constructed competitor group index.
(2) Fiscal year ending December 31.
(3) In accordance with the SEC's rules, the Company has elected to select a
group of peer companies on an industry basis for comparison purposes. The
competitor group is composed of 12 industry participants: Empire of
Carolina, Inc., Equity Marketing, Inc., Galoob Toys Inc., Grand Toys
International Inc., Jakks Pacific Inc., Janex International, Inc., Just
Toys Inc., Play by Play Toys & Novelties, Inc., Racing Champions Corp.,
Toy Biz, Inc., Toymax International, Inc., and Yes! Entertainment
Corporation. Total return calculations were weighted according to the
respective company's market capitalization.
12
CERTAIN TRANSACTIONS
The Company paid Conrad/Collins Merchant Banking Group Ltd. ("MBG") a
financial advisory fee of $100,000 upon consummation of the Company's initial
public offering in June 1997. The general partner of MBG is Conrad/Collins,
Inc., a corporation of which Barry B. Conrad is an officer and director and in
which Mr. Conrad owns a controlling interest. Mr. Conrad is a director of the
Company.
The Company paid Joseph N. Matlock a fee of $240,000 as compensation for
consulting services rendered in connection with the Recapitalization of the
Company in 1995. The fee was paid in equal installments of $80,000 on January 1,
1998, 1997 and 1996. Mr. Matlock is a director of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and officers of the
Company, and persons who own more than 10 percent of the Common Stock, to file
with the SEC initial reports of ownership and reports of changes in ownership of
such stock. Directors, officers and beneficial owners of more than 10 percent of
the Common Stock are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended January 31, 1998, all Section 16(a)
filing requirements applicable to its directors, officers, and beneficial owners
of more than 10 percent of its Common Stock were complied with, except that each
of the officers and directors who were officers and directors on the date of the
Initial Public Offering filed one late Form 3.
AUDITORS
The Board of Directors has appointed Price Waterhouse LLP, which has
audited the Company's financial statements since September 1, 1992, to audit the
financial statements of the Company for the year ending January 31, 1999. Such
appointment will not be submitted to shareholders for ratification or approval.
Representatives of Price Waterhouse LLP are expected to be present at the
meeting to respond to appropriate questions from the shareholders and will be
given the opportunity to make a statement should they desire to do so.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Shareholder proposals for inclusion in the Company's proxy materials in
connection with the 1999 annual meeting of shareholders must be received by the
Company at its office in Houston, Texas, addressed to the Secretary of the
Company, no later than January 31, 1999.
The cost of solicitation of proxies will be borne by the Company. Certain
officers and employees of the Company, who will receive no additional
compensation for their services, may solicit proxies in person or by mail,
telephone, facsimile telecommunication or telegraph.
The Board of Directors does not intend to present any other matter at the
meeting and knows of no other matters that will be presented. However, if any
other matter comes before the meeting, the persons named in the enclosed proxy
intend to vote thereon in accordance with their best judgment.
DSI TOYS, INC.
/s/ M.D. DAVIS
M.D. Davis
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Houston, Texas
May 22, 1998
13
DSI TOYS, INC.
1100 West Sam Houston Parkway (North)
Houston, TX 77043
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints M.D. Davis and Thomas V. Yarnell and each of
them, as the undersigned's attorneys and proxies, each with the power to appoint
his substitute, and hereby authorizes them to represent and to vote, as directed
on the reverse side hereof, all the shares of common stock of DSI TOYS, INC.
(the "Company") held of record by the undersigned on May 21, 1998, at the annual
meeting of shareholders to be held on June 23, 1998, or any adjournment thereof.
(TO BE SIGNED ON REVERSE SIDE)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
DSI TOYS, INC.
JUNE 23, 1998
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as marked to vote for all nominees
to the contrary below) listed at right
1. ELECTION [ ] [ ] NOMINEES:
OF
DIRECTORS: Richard R. Neitz ____
(INSTRUCTION: To withhold authority to vote for any Douglas A. Smith ____
individual nominee(s), strike a line through the
nominee's name or write a zero ("0") in the space
following his or her name at right)
2. In his or her discretion, the Proxy is authorized to vote upon any matters
which may properly come before the Meeting or any adjournment or postponement
thereof.
IT IS UNDERSTOOD THAT WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. WHERE NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER, THE PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS PROPOSED IN ITEM 1 AND IN FAVOR OF ITEM 2.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said proxy or his substitutes may do by
virtue hereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
PLEASE CHECK THIS BOX IF YOU INTEND [ ]
TO BE PRESENT AT THE MEETING.
Signature:____________________________
Printed Name:_____________________________ Dated:________, 1998
Signature if held jointly:________________________
Printed Name:_____________________________ Dated:________, 1998
(Note that you should sign exactly as your name appears above.)