**EXHIBIT10.6**

** **

**MEMORANDUM OF REBORROWINGOF PRINCIPAL**

 

This Memorandum of Reborrowing of Principal (“Memorandum”) is enteredinto as of the 21st day of May, 2002, by and between DSI Toys, Inc.(“DSI”), a Texas corporation, and MVII, LLC (“MVII”), a California limitedliability company.

 

# **RECITALS**

 

A.           A Promissory Note dated January 7, 2000, in theoriginal principal amount of $5,000,000.00 (the “Original Principal”) wasexecuted by DSI payable to the order of MVII (the “MVII Note”).  The current principal balance of the MVIINote is $4,350,000.00.

 

B.             DSI desires to reborrow up to $500,000.00 of theOriginal Principal that has been paid on the MVII Note.  MVII desires to re-loan such amount to DSI.

 

C.             The Loan and Security Agreement dated February 2,1999, as amended from time to time, (the “Loan Agreement”) by and between DSIand Sunrock Capital Corp., a Delaware corporation (“Sunrock”) sets forth, inSection 9.9(c), that “Borrower shall be permitted to reborrow principal amountspaid on the MVII Note from time to time, provided, that,  the outstandingprincipal amount of the MVII Note shall not exceed the original principalamount of the MVII Note; provided, further, that, the stated interest rate ofsuch indebtedness shall not be increased, the frequency of payments shall notbe increased and the principal amount of the MVII Note, as increased from timeto time, shall be payable no more frequently than monthly or in amounts greaterthan the amounts permitted by clause (ii) (B) above.  Borrower shall promptly provide written notice to Lender of anincrease in the outstanding principal amount of the MVII Note pursuant to theauthority granted in this Section 9.9(c).”

 

NOW, THEREFORE, inconsideration of the premises herein contained and other good and valuable consideration,the receipt and sufficiency of which are hereby acknowledged, the parties,intending to be legally bound, agree as follows:

 

1.               As of May 21, 2002, DSI shall reborrow from MVII, andMVII shall re-loan to DSI, a sum up to $500,000 (the “Reborrowed Amount”),representing DSI’s reborrowing of a portion of the Original Principal that waspreviously paid by DSI to MVII in accordance with the MVII Note.  The Reborrowed Amount is loaned pursuant toall the terms and obligations set forth in the MVII Note, and shall be added tothe existing principal balance of the MVII Note.

 

2.               The parties acknowledge that the Reborrowed Amount issubject to the terms and conditions of the MVII Note, as well as all the termsand conditions of that certain Subordination Agreement dated January 7, 2000,by and among E. Thomas Martin, MVII and Sunrock, together with any and allamendments thereto.

 

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3.               DSI represents and warrants to MVII that allconditions to DSI’s right to borrow the Reborrowed Amount, including but notlimited to those set forth in the Loan Agreement, have been satisfied.

 

4.               The parties agree that they will execute such otherinstruments and documents as are or may become necessary to carry out theintent and purpose of this Memorandum, and/or to evidence DSI’s indebtedness toMVII for the Reborrowed Amount.

 

IN WITNESS WHEREOF, this Memorandum has been dulyexecuted in triplicate originals as of the day and date first writtenhereinabove.

 
|                                    |                      |   |                      |
|-----------------------------------------|---------------------------|--------|---------------------------|
|                                    | **DSI  TOYS, INC.**       |
|                                    |                      |   |                      |
|                                    | By:                       |   | /s/ Robert L.  Weisgarber |
|                                    |                      |   | Robert  L. Weisgarber     |
|                                    |                      |   | CFO                       |
|                                    |                      |   |                      |
|                                    | **MVII, LLC**             |
|                                    |                      |   |                      |
|                                    | By:                       |   | /s/ E.  Thomas Martin     |
|                                    |                      |   | E.  Thomas Martin         |
|                                    |                      |   | Manager                   |
|                                    |                      |   |                      |
| Acknowledged this 23rd day of May 2002. |                      |   |                      |
|                                    |                      |   |                      |
|                                    | **SUNROCK CAPITAL CORP.** |
|                                    |                      |   |                      |
|                                    | By:                       |   | /s/ Y. Renee Hannah       |
|                                    |                      |   |                      |
|                                    | Name:                     |   | Y. Renee Hannah           |
|                                    |                      |   |                      |
|                                    | Title:                    |   | Account Executive         |
|                                    |                      |   |                      |
|                                         |                           |        |                           |  |

 

 

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