UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)
DSI TOYS, INC.
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(Name of Issuer)
Common Stock, Par Value $.01 Per Share
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(Title of Class of Securities)
232968 10 7
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(CUSIP Number)
Walter S. Reiling and Susan Reiling
15 Woodcrest Drive
Morristown, New Jersey 07960
(973) 898-1930
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
January 7, 2000
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [_].
<PAGE>
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CUSIP NO. 232968 10 7
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
MVII, LLC 77-0509866
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
N/A
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
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7 SOLE VOTING POWER
NUMBER OF
4,194,238
SHARES
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8 SHARED VOTING POWER
BENEFICIALLY
1,417,086(1)(2)
OWNED BY
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9 SOLE DISPOSITIVE POWER
EACH
4,194,238
REPORTING
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10 SHARED DISPOSITIVE POWER
PERSON WITH
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,611,324(1)(2)
- -----------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
- -----------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
61.4%
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14 TYPE OF REPORTING PERSON
OO
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(1) Includes 96,774 Holdback Shares (as defined herein) payable to Reiling (as
defined herein) upon satisfaction of certain post-closing conditions in
connection with the Merger (as defined herein).
(2) Includes Options (as defined herein) held by certain shareholders of the
Company to purchase an aggregate of 6,000 shares of Common Stock at $8.00 per
share exercisable at any time.
<PAGE>
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CUSIP NO. 232968 10 7
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- -----------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WALTER S. REILING AND SUSAN REILING
- -----------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
SC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
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7 SOLE VOTING POWER
NUMBER OF
0
SHARES
- -----------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
600,000(1)
OWNED BY
- -----------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
600,000(1)
REPORTING
- -----------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
0
- -----------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
600,000(1)
- -----------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
- -----------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.6%
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14 TYPE OF REPORTING PERSON
IN
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(1) Includes 96,774 Holdback Shares payable to Reiling upon satisfaction of
certain post-closing conditions in connection with the Merger.
<PAGE>
ITEM 1. SECURITY AND ISSUER
The title and class of equity securities to which this Statement relates is
the common stock, par value $0.01 per share (the "Common Stock") of DSI Toys,
Inc., a Texas corporation (the "Company").
The address of the principal executive offices of the Company is 1100 West
Sam Houston Parkway North, Suite A, Houston, Texas 77043.
ITEM 2. IDENTITY AND BACKGROUND
This Statement is being filed jointly by Walter S. Reiling and Susan
Reiling, husband and wife (collectively, "Reiling" or the "Reilings"), and MVII,
LLC ("MVII") as a group pursuant to Rule 13d-1(k)(1) and (2). Reiling and MVII
are jointly referred to herein as the "Reporting Persons."
The Reilings' residence is located at 15 Woodcrest Drive, Morristown, New
Jersey 07960. The Reilings are retired and are citizens of the United States of
America. Neither of the Reilings has, during the last five years, (a) been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (b) been a party to any civil proceeding of a judicial or
administrative body of competent jurisdiction, and as a result of such
proceeding was or is subject to a judgment, decree, or final order enjoining
future violations of, or prohibiting or mandating activities subject to federal
or state securities laws or finding any violation with respect to such laws.
MVII is a limited liability company formed under the laws of the state of
California. The principal business of MVII is to invest in the Company. The
address of MVII's principal business and principal office is 654 Osos Street,
San Luis Obispo, California 93401. No executive officer, manager, principal or
person controlling MVII has, during the last five years, (a) been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(b) been a party to any civil proceeding of a judicial or administrative body of
competent jurisdiction, and as a result of such proceeding was or is subject to
a judgment, decree, or final order enjoining future violations of, or
prohibiting or mandating activities subject to federal or state securities laws
or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
This Statement is filed pursuant to the Merger (as defined below)
consummated on January 7, 2000 in which the Company issued 503,226 shares of
Common Stock to Reiling in exchange for all of Reilings' shares of common stock
of Meritus Industries, Inc., a New Jersey corporation wholly owned by Reiling
("Meritus"). An additional 96,774 Holdback Shares (as defined below) are
payable to Reiling upon satisfaction of certain conditions.
Additionally, this Statement is filed pursuant to the Reiling Voting
Agreement (as defined below) and Proxy (as defined below). No funds were used
by the Reporting Persons in connection with entering into the Reiling Voting
Agreement or Proxy.
ITEM 4. PURPOSE OF TRANSACTION
On January 7, 2000, the Company acquired all of the issued and outstanding
shares of common stock of Meritus (the "Meritus Shares") pursuant to a merger in
which Meritus merged with and into the Company (the "Merger"). Under the terms
of the Agreement and Plan of Merger dated October 7, 1999 by and among the
Company, Meritus, Meritus Industries, Ltd. ("Industries") and Reiling (the
"Merger Agreement"), all of the issued and outstanding Meritus Shares, all of
which were owned by Reiling, were converted into, and became exchangeable for
(i) 600,000 unregistered shares of Common Stock of the Company (including, for
purposes of this Schedule 13D, 96,774 shares of Common Stock (the "Holdback
Shares") payable by the Company pursuant to the terms and conditions of a
Closing and Holdback Agreement between the parties (the "Holdback
Agreement"))--; (ii) $884,033.82 in cash (less $100,000 payable by the Company
pursuant to the terms and conditions of the Holdback Agreement); and (iii) the
Company's Subordinated Secured Promissory Note for $1,690,000.00.
<PAGE>
In connection with the Merger, the Company, MVII and Reiling entered into a
Shareholders' and Voting Agreement (the "Reiling Voting Agreement") pursuant to
which, among other things, (i) the parties agreed that the number of directors
that comprise the Board of Directors of the Company shall be increased from six
to seven within 30 days of the Merger, (ii) MVII granted Reiling the right to
elect one of the directors that MVII was previously entitled to elect to the
Company's Board of Directors pursuant to the terms of a Shareholders' and Voting
Agreement dated April 15, 1999, but effective as of June 1, 1999, by and among
the Company, MVII and certain shareholders of the Company (the "Primary Voting
Agreement"), and (iii) MVII and Reiling are required to vote the number of
shares of Common Stock they own for the election of the individuals nominated by
MVII and Reiling in accordance with the Reiling Voting Agreement. Reiling also
executed an irrevocable proxy (the "Proxy") appointing MVII as proxy for the
limited purpose of authorizing MVII to vote Reiling's shares of Common Stock (a)
for the election of directors to the Company's Board of Directors; (b) with
respect to any matter affecting the size or composition of the Company's Board
of Directors; (c) with respect to any matter relating to the creation or
composition of any committee of the Company's Board of Directors; 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 (b) and
(c) above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
Prior to the Merger, MVII had the sole power to vote and the sole power to
dispose of 4,194,238 shares of Common Stock which it holds of record. MVII
continues to have the sole power to vote and the sole power to dispose of those
4,194,238 shares. Under the terms of the Primary Voting Agreement, MVII has the
shared power to vote 817,086 shares of Common Stock. At the conclusion of the
Merger, pursuant to the terms of the Reiling Voting Agreement, MVII has the
shared power to vote 600,000 shares of Common Stock (after giving effect to the
to the issuance of the 96,774 Holdback Shares). Therefore, MVII beneficially
owns 5,611,324 shares of Common Stock by virtue of its record ownership, the
Primary Voting Agreement (including options held by certain of shareholders of
the Company to purchase an aggregate of 6,000 shares of Common Stock at $8.00
per share exercisable at any time (the "Options")) and the Reiling Voting
Agreement, representing 61.4% of the outstanding Common Stock of the Company.
Prior to the Merger, the Reilings owned no Common Stock. At the conclusion
of the Merger, the Reilings have the sole power to dispose of 600,000 shares of
Common Stock which they hold of record. Under the terms of the Reiling Voting
Agreement, the Reilings have the shared power to vote all 600,000 shares of
Common Stock (after giving effect to the 96,774 Holdback Shares). Therefore,
the Reilings beneficially own 600,000 shares of Common Stock by virtue of their
record ownership and the Reiling Voting Agreement, representing 6.6% of the
outstanding Common Stock of the Company.
As a group, the Reporting Persons are the beneficial owners of an
aggregate of 4,794,238 shares of Common Stock (including the Holdback Shares),
and such beneficial ownership constitutes 52.5% of the total outstanding Common
Stock of the Company. MVII is the beneficial owner of an additional 817,086
shares of Common Stock (including the Options) as a result of the Primary Voting
Agreement, to which the Reilings are not parties.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
The Reporting Persons have agreed, as evidenced by their signatures below,
to jointly prepare and file this Statement reporting each Reporting Person's
ownership of Common Stock of the Company, and the Reporting Persons hereby
affirm that this Statement is being filed on behalf of the undersigned. The
Reporting Persons have agreed to jointly prepare and file this Statement as a
result of being parties to the Reiling Voting Agreement.
The description of the Merger Agreement, Holdback Agreement, Reiling Voting
Agreement and the Proxy contained in Item 4 hereto is hereby incorporated by
reference.
<PAGE>
Pursuant to the terms of the Reiling Voting Agreement, MVII has a right of
first refusal with respect to the sale, transfer or other disposition (a
"Transfer") of Common Stock owned by Reiling. In the event Reiling wishes to
Transfer Common Stock other than in a transaction effected on the Nasdaq Stock
Market or any stock exchange or over-the-counter trading system on which the
Common Stock is traded (a "Public Transfer"), MVII will have an option for 15
business days after receiving notice of the proposed Transfer and the terms
thereof (a "Seller Notice") to purchase the Common Stock at the same price and
on the same terms as specified in the Seller Notice. In the event MVII does not
exercise its option with respect to 100% of the Common Stock specified in the
Seller Notice (or less than 100% if permitted under the terms of the Seller
Notice), then Reiling may transfer such Common Stock (or remaining shares of
Common Stock in the event MVII exercises its option to purchase less than 100%
of the Common Stock as permitted in the Seller Notice) free of the right of
first refusal and Reiling Voting Agreement on the terms specified in the Seller
Notice (or at a higher price with no material change in the other terms),
provided such Transfer is consummated within 90 days of the date of the Seller
Notice.
In the event Reiling wishes to make a Public Transfer of Common Stock, MVII
will have an option to purchase such Common Stock on the same terms specified in
the Public Transfer Notice (as defined below) for 5 business days after
receiving notice of such proposed transfer, which notice shall contain the
maximum number of shares of Common Stock the Management Shareholder intends to
sell during the following 60 days, and the minimum price at which such Common
Stock may be sold (the "Public Transfer Notice"). In the event MVII does not
purchase 100% of the Common Stock subject to the Public Transfer Notice, then
Reiling may sell the balance of the Common Stock specified in the Public
Transfer Notice at a price not less than the price specified in the Public
Transfer Notice free of the right of first refusal and Reiling Voting Agreement,
provided than any such Common Stock not Transferred within sixty (60) days of
the date of the Public Seller Notice shall again be subject to MVII's right of
first refusal under the Reiling Voting Agreement.
In addition, pursuant to the terms of the Reiling Voting Agreement, MVII
granted to Reiling a right of participation with respect to future sales by MVII
of Common Stock where such sales occur in any one transaction or series of
related transactions in which more than 40% of the total number of shares of
Common Stock standing in MVII's name as of January 7, 2000 are Transferred.
In connection with the Merger, the Company and Reiling entered into a
Registration Rights Agreement dated as of January 7, 2000 pursuant to which the
Company granted "piggyback" registration rights to Reiling. In the event that
the Company registers any of its securities with the Securities and Exchange
Commission, Reiling may request that the Company include in such registration as
many shares of Common Stock owned by Reiling as Reiling requests be so included,
subject to certain priority restrictions.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following exhibits are filed with this Amendment:
Exhibit 1. Agreement and Plan of Merger dated as of October 7, 1999 by
And among Meritus, Industries, Reiling, and the Company
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q filed December 15, 1999).
Exhibit 2. Closing and Holdback Agreement dated January 7, 2000 by and
among Registrant, Meritus, Industries and Reiling.
Exhibit 3. Reiling Voting Agreement dated January 7, 2000, among the
Company, MVII and Reiling.
Exhibit 4. Irrevocable Proxy dated January 7, 2000 between MVII and
Reiling.
Exhibit 5. Primary Voting Agreement dated April 15, 1999, among the
Company, MVII and certain shareholders of the Company
(incorporated by reference to Exhibit 1 contained in the
Statement on Schedule 13D filed by MVII and certain
shareholders of the Company on June 10, 1999).
<PAGE>
SIGNATURES
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
MVII, LLC
Dated: January 17, 2000 By: /s/ E. Thomas Martin, Manager
-----------------------------
E. Thomas Martin, Manager
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
Dated: January 17, 2000 /s/ Walter S. Reiling
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Walter S. Reiling
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
Dated: January 17, 2000 /s/ Susan Reiling
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Susan Reiling
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
Exhibit 1. Agreement and Plan of Merger dated as of October 7, 1999 by and
among Meritus, Industries, Reiling, and the Company (incorporated
by reference to the Company's Quarterly Report on Form 10-Q filed
December 15, 1999).
Exhibit 2. Closing and Holdback Agreement dated January 7, 2000 by and among
Registrant, Meritus, Industries and Reiling.
Exhibit 3. Reiling Voting Agreement dated January 7, 2000, among the
Company, MVII and Reiling.
Exhibit 4. Irrevocable Proxy dated January 7, 2000 between MVII and Reiling.
Exhibit 5. Primary Voting Agreement dated April 15, 1999, among the Company,
MVII and certain shareholders of the Company (incorporated by
reference to Exhibit 1 contained in the Statement on Schedule 13D
filed by MVII and certain shareholders of the Company on June 10,
1999).
<PAGE>
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.,
Walter S. Reiling and Susan Reiling (Walter S. Reiling and Susan Reiling 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.
<PAGE>
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. Thomas Martin 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.
<PAGE>
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.
<PAGE>
9. New Li & Fung Debt. Buyer shall pay the New Ling & Fung 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.
<PAGE>
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.
<PAGE>
"DSI" "MERITUS"
DSI TOYS, INC., A TEXAS CORPORATION MERITUS INDUSTRIES, INC., A NEW JERSEY
CORPORATION
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
By: /S/ WALTER S. REILING
--------------------------
WALTER S. REILING
By: /S/ SUSAN REILING
---------------------
By: SUSAN REILING
<PAGE>
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 Walter S. Reiling and Susan Reiling
(collectively, "Reiling"). MVII and Reiling 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, Reiling 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.
-------------------------
<PAGE>
(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, Reiling shall be
entitled to nominate one (1) of the directors of the Company MVII is
entitled to nominate.
(ii) MVII and Reiling 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 Reiling, the
Company shall be entitled to rely on written notice from E. Thomas
Martin on behalf of MVII and from Walter S. Reiling on behalf of
Reiling, as to the identity of each Shareholder's nominees (Mr. Martin
and Mr. Reiling are referred to herein as a "Spokesperson"). MVII and
Reiling may change its Spokesperson by giving the Company written
notice of a change in such Spokesperson. Reiling's initial nominee for
director is Walter S. Reiling. MVII shall use its best efforts to
cause the current board of directors of the Company to vote in favor
of Walter S. Reiling 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 Reiling 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 Reiling, from time to time,
pursuant to Section 1.02 of this Agreement as the directors of the Company.
-------------
Reiling 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 Reiling's 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. Reiling 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.
<PAGE>
1.04 Removal of Directors. MVII shall not vote its Common Shares or
----------------------
Reiling's Common Shares as proxy in favor of removal of a director nominated by
Reiling unless so requested by Reiling, 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 Reiling, 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 Reiling 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 Reiling 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).
<PAGE>
(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 Reiling 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 Reiling 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 Reiling 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, Reiling 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 Reiling 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 Reiling 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.
<PAGE>
(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 Reiling 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
Reiling or any Permitted Transferee is permitted to sell a number of Common
Shares owned by Reiling 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.
<PAGE>
(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 Reiling in the
manner specified in Section 3.01(i). Within fifteen (15) Business Days
----------------
after delivery of the Inclusion Notice, Reiling or any Permitted Transferee
------
may accept the offer included in the Inclusion Notice by furnishing written
notice of such acceptance to MVII. If Reiling 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) Reiling 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 Reiling 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, Reiling 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 Reiling shareholder (a "Spouse") agrees to be bound in all
respects by the terms of this Agreement to the same extent as the remaining
Reiling. Each Spouse further agrees that should he or she predecease or
become divorced from a Reiling 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 Reiling
Shareholder's Spouse, in such Common Shares.
<PAGE>
(b) Indemnification. Reiling 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 Reiling or any Permitted Transferee
of any of the provisions of this Agreement, and MVII agrees to indemnify
and hold harmless Reiling and the Company from and against any and all
damages, losses, claims, liabilities, demands, charges, suits and penalties
Reiling or the Company incurs or to which Reiling 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 Reiling.
(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., 1100 W. Sam Houston Parkway N., Suite
A, Houston, Texas 77043, Attention: Rob Weisgarber (fax: 713/365-9911).
<PAGE>
If to MVII, at MVII, LLC, 654 Osos Street, San Luis Obispo, CA 93401,
Attention: E. Thomas Martin (fax: 805/545-7590) 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, 1102 Laurel Lane, San Luis
Obispo, CA 93401, Attention: J. Todd Mirolla, Esq. (fax: 805/543-0752).
If to Reiling or a Permitted Transferee, at the address set forth opposite
each Reiling Shareholder's name on the signature pages attached hereto, with a
copy to Graham, Curtin & Sheridan, 4 Headquarters Plaza, Morristown, New Jersey
07962, Attention: Robert P. Regimbal, Esq. (fax: 973/292-1767).
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.
/ / /
/ / /
/ / /
/ / /
<PAGE>
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:_____________________________
REILING
Address:
15 Woodcrest Drive ___________________________________
Morristown, NJ 07960 WALTER S. REILING
Address:
15 Woodcrest Drive ___________________________________
Morristown, NJ 07960 SUSAN REILING
<PAGE>
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.
______________________________
WALTER S. REILING
______________________________
SUSAN REILING
<PAGE>
LIMITED IRREVOCABLE PROXY
Date: _____________
The undersigned hereby appoints MVII, LLC, a California limited liability
company ("MVII") limited proxy, and hereby authorizes MVII to vote all of the
common shares (the "Common Shares") of DSI Toys, Inc. (the "Company") (i)
standing in the name of the undersigned as of the date hereof, (ii) that may
subsequently be acquired by the undersigned, and (iii) as to which the
undersigned is or may be appointed as proxy and has the authority to vote, as if
the undersigned were personally present and voting: (a) for the election of the
directors to the Board of Directors; (b) with respect to 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), above.
This is an irrevocable proxy coupled with an interest and is granted in
furtherance of that certain Shareholders' and Voting Agreement by and among the
Company, MVII and the undersigned, dated as of even date herewith. This
irrevocable proxy shall automatically terminate upon the occurrence of any of
the events set forth in Section 1.06 of the Shareholders' and Voting Agreement
between the parties hereto.
__________________________________________
WALTER S. REILING/SUSAN REILING
<PAGE>
