Document:

EXHIBIT

10.6

 

MEMORANDUM OF REBORROWING

OF PRINCIPAL

 

This Memorandum of Reborrowing of Principal (“Memorandum”) is entered

into as of the 21st day of May, 2002, by and between DSI Toys, Inc.

(“DSI”), a Texas corporation, and MVII, LLC (“MVII”), a California limited

liability company.

 

RECITALS

 

A.           A Promissory Note dated January 7, 2000, in the

original principal amount of $5,000,000.00 (the “Original Principal”) was

executed by DSI payable to the order of MVII (the “MVII Note”).  The current principal balance of the MVII

Note is $4,350,000.00.

 

B.             DSI desires to reborrow up to $500,000.00 of the

Original 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 DSI

and Sunrock Capital Corp., a Delaware corporation (“Sunrock”) sets forth, in

Section 9.9(c), that “Borrower shall be permitted to reborrow principal amounts

paid on the MVII Note from time to time, 

provided, that,  the outstanding

principal amount of the MVII Note shall not exceed the original principal

amount of the MVII Note; provided, further, that, the stated interest rate of

such indebtedness shall not be increased, the frequency of payments shall not

be increased and the principal amount of the MVII Note, as increased from time

to time, shall be payable no more frequently than monthly or in amounts greater

than the amounts permitted by clause (ii) (B) above.  Borrower shall promptly provide written notice to Lender of an

increase in the outstanding principal amount of the MVII Note pursuant to the

authority granted in this Section 9.9(c).”

 

NOW, THEREFORE, in

consideration 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, and

MVII 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 was

previously paid by DSI to MVII in accordance with the MVII Note.  The Reborrowed Amount is loaned pursuant to

all the terms and obligations set forth in the MVII Note, and shall be added to

the existing principal balance of the MVII Note.

 

2.               The parties acknowledge that the Reborrowed Amount is

subject to the terms and conditions of the MVII Note, as well as all the terms

and conditions of that certain Subordination Agreement dated January 7, 2000,

by and among E. Thomas Martin, MVII and Sunrock, together with any and all

amendments thereto.

 

 

3.               DSI represents and warrants to MVII that all

conditions to DSI’s right to borrow the Reborrowed Amount, including but not

limited to those set forth in the Loan Agreement, have been satisfied.

 

4.               The parties agree that they will execute such other

instruments and documents as are or may become necessary to carry out the

intent and purpose of this Memorandum, and/or to evidence DSI’s indebtedness to

MVII for the Reborrowed Amount.

 

IN WITNESS WHEREOF, this Memorandum has been duly

executed in triplicate originals as of the day and date first written

hereinabove.

 

	

   

  	

   

  	

   

  	

   

  
	

   

  	

  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

  
	

   

  	

   

  	

   

  	

   

  
					

 

 

2EXHIBIT

10.7

AMENDMENT

NO. 9 TO

LOAN AND SECURITY AGREEMENT

 

 

                THIS AMENDMENT NO. 9 TO LOAN AND SECURITY AGREEMENT

(this “Amendment”), is entered into as of June 12, 2002, by and between

SUNROCK CAPITAL CORP., a Delaware corporation (“Lender”), and DSI TOYS,

INC., a Texas corporation (“Borrower”).

 

RECITALS

 

                A.            Borrower

and Lender have entered into that certain Loan and Security Agreement, dated as

of February 2, 1999 (as the same has been, and may hereafter be, amended,

modified, supplemented or restated from time to time, the “Loan Agreement”).

 

                B.            The

Borrower and Lender have agreed to amend and modify the Loan Agreement as set

forth below, subject to the terms, conditions and limitations in the Loan

Agreement and this Amendment.

 

                NOW, THEREFORE, in consideration 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, hereby agree as follows:

 

ARTICLE I

Incorporation of Definitions

 

                1.01        Capitalized

terms used in this Amendment, to the extent not otherwise defined herein, shall

have the same meanings as in the Loan Agreement, as amended hereby.

 

ARTICLE II

Amendments

 

                2.01        Definition of Ninth Amendment.  Section 1 of the Loan Agreement is hereby amended by adding the

following Subsection 1.36:

 

                “1.36       “Ninth

Amendment” shall mean that certain Amendment No. 9 to Loan and Security

Agreement, executed as of June 12, 2002, by and between Lender and Borrower.”

 

                2.02  Amendment to Section 2.2 of the Loan

Agreement.  Section 2.2 of the Loan Agreement are

hereby amended and restated to read in its entirety as follows:

 

                “2.2         Seasonal Inventory Advances; Overadvance Facility.

 

 

                (a)           In addition to the Loans permitted under Section 2.1 above

and 2.2(b) below, but subject to, and upon the terms and conditions contained

herein (including, without limitation, the provisions set forth in Sections 2.4

and 2.5 below), Lender agrees to make Loans to Borrower from time to time up to

the lesser of:

 

                (1)           the Maximum Credit less Loans extended under

Section 2.1 above; and

 

                (2)           (i) during the period commencing January 1, 2002, and

extending through July 26, 2002, (A) ten percent (10%) of the Value of Eligible

Inventory; and (B) ten percent (10%) of the Value of Eligible In-Transit

Inventory; or

 

                                (ii) during the

period commencing January 1, 2003, and extending through June 30, 2003, the sum

of: (A) ten percent (10%) of the Value of Eligible Inventory; and (B) ten

percent (10%) of the Value of Eligible In-Transit Inventory; or

 

                                (iii) during the

period commencing January 1, 2004, and extending through June 30, 2004, the sum

of: (A) ten percent (10%) of the Value of Eligible Inventory; and (B) ten

percent (10%) of the Value of Eligible In-Transit Inventory (All Loan amounts

calculated pursuant to Section 2.2(a)(2)(i) through (iii), inclusive, shall be

subject to reduction for all applicable Availability Reserves); and

 

                (b)           In addition to the Loans permitted under Sections 2.1

and 2.2(a) above and notwithstanding the provisions of Section 2.4 to

the contrary, but otherwise subject to, and upon the terms and conditions

contained herein (including, without limitation, the provisions set forth in Sections

2.4 and 2.5 below), Lender agrees to allow overadvances to remain

outstanding up to, but not greater than, the following amounts during the

following periods:

 

(1)           $900,000

during the period commencing as of the date of the Ninth Amendment and ending

June 14, 2002;

 

(2)           $800,000

during the period commencing June 15, 2002, and ending June 21, 2002;

 

(3)           $700,000

during the period commencing June 22, 2002, and ending June 28, 2002;

 

(4)           $550,000

during the period commencing June 29, 2002, and ending July 5, 2002;

 

(5)           $400,000

during the period commencing July 6, 2002, and ending July 12, 2002;

 

2

 

(6)           $250,000

during the period commencing July 13, 2002, and ending July 19, 2002; and

 

(7)           $100,000

during the period commencing July 20, 2002, and ending July 26, 2002.

 

No overadvances

shall remain outstanding pursuant to this Section 2.2(b) from and after

July 27, 2002.  In addition to the other

rights and remedies available to Lender upon the occurrence of any Default or

Event of Default, Lender may demand immediate payment of any amounts

outstanding pursuant to this Section 2.2(b) upon the occurrence and during the

continuation of any Default or Event of Default without exercising any other

rights or remedies or otherwise limiting the rights of Lender otherwise pursuant

to this Agreement or applicable law.”

 

2.03        Amendment

to Limit Payments on Certain Subordinated Indebtedness. 

Section 9.9(c) of the Loan Agreement is hereby amended and

restated to read in its entirety as follows:

 

“(c)         Borrower may incur

and suffer to exist unsecured indebtedness of Borrower to MVII, LLC, a

California limited liability company (“MVII”), as evidenced by that

certain Promissory Note, dated January 7, 2000, issued by Borrower and payable

to the order of MVII, LLC (the “MVII Note”), which indebtedness is

subject and subordinate in right of payment to the right of Lender to receive

the prior final payment and satisfaction in full of all of the Obligations; provided,

that:  (i) the principal amount

of such indebtedness shall not exceed $5,000,000.00, less the aggregate amount

of all repayments, repurchases or redemptions, whether optional or mandatory in

respect thereof, plus interest thereon at the rate provided for in such

agreement or instrument as in effect on the date thereof, (ii) Borrower shall

not, directly or indirectly, make any payments in respect of such indebtedness,

including, but not limited to, any prepayments or other non-mandatory payments,

except to the extent expressly permitted under that certain Amended and

Restated Subordination Agreement, dated of even date with the Ninth Amendment,

by and among E. Thomas Martin, MVII and Lender (the “MVII Subordination

Agreement”), as acknowledged and received by Borrower, which MVII

Subordination Agreement requires, among other conditions (A) that after giving

effect to each Permitted Payment (as defined in such Subordination Agreement)

and any other payments then permitted under this Section 9.9, the Excess

Availability (as defined in such MVII Subordination Agreement) shall be equal

to, or greater than, $750,000, (B) that principal payments on the MVII Note

shall be made no more frequently than monthly or in amounts greater than

$50,000 each month; provided, that an additional principal

payment not in excess of (x) $300,000, plus (y) the unpaid amount of previously

scheduled payments of principal and interest that would have been paid in prior

periods but for the limitations set forth in the MVII Subordination Agreement,

may be made on, or within ten (10) days after, the forty-fifth day following

delivery by Borrower to the Lender of the audited annual financial statements

described in Section 9.6(a)(ii) hereof to

 

3

 

the extent the

above-stated Excess Availability requirement for Permitted Payments shall

permit such payment (iii) Borrower shall not, directly or indirectly, (A)

amend, modify, alter or change any terms of such indebtedness or any agreement,

document or instrument related thereto, or (B) redeem, retire, defease, purchase

or otherwise acquire such indebtedness, or set aside or otherwise deposit or

invest any sums for such purpose, and (iv) Borrower shall furnish to Lender all

notices, demands or other materials concerning such indebtedness either

received by Borrower or on its behalf, promptly after receipt thereof, or sent

by Borrower or on its behalf, concurrently with the sending thereof, as the

case may be.  Notwithstanding Section

9.9(c)(i) above, Borrower shall be permitted to reborrow principal amounts

paid on the MVII Note from time to time, provided, that, the

outstanding principal amount of the MVII Note shall not exceed the original

principal amount of the MVII Note; provided, further, that,

the stated interest rate of such indebtedness shall not be increased, the frequency

of payments shall not be increased and the principal amount of the MVII Note,

as increased from time to time, shall be payable no more frequently than

monthly or in amounts greater than the amounts permitted by clause (ii)(B)

above.  Borrower shall promptly provide

written notice to Lender of an increase in the outstanding principal amount of

the MVII Note pursuant to the authority granted in this Section 9.9(c).”

 

                2.04        Amendment to Clean Down Period.  Section

9.20 of the Loan Agreement is hereby amended and restated to read in its

entirety as follows:

 

                                “9.20       Clean Down Period.

 

                                                (a)  Except as otherwise provided in Section

9.20(b) below, for not less than thirty (30) consecutive days during the

period January 31 to and including April 30 of each year, the Borrower shall

not permit the aggregate outstanding principal amount of the Loans to equal or

exceed $3,000,000.

 

                                                (b)  For not less than thirty (30) consecutive

days during the period January 31, 2003, to and including April 30, 2003, the Borrower

shall not permit the aggregate outstanding principal amount of the Loans to

equal or exceed $4,000,000.”

 

ARTICLE III

Waiver

 

                Upon satisfaction of the conditions set forth in

Article V of this Amendment, Lender hereby waives compliance with the provisions

of Section 9.20 of the Loan Agreement for the period commencing January

31, 2002, and ending April 30, 2002. 

The waiver agreed to herein is strictly limited to Section 9.20

of the Loan Agreement for the period described above, shall not impair, restrict

or limit any right or remedy of Lender with respect to any Event of Default

that may now exist or hereafter arise under the Loan Agreement, and shall not

constitute any course of dealing or other basis for altering any obligation of

the Borrower or any right, privilege or remedy of Lender under the Loan

Agreement.

 

4

 

ARTICLE IV

Borrower Acknowledgement

 

                Borrower acknowledges and agrees that the Overadvance

Facility does not create “excess availability” for advances of Loans as

calculated under Section 2.1 of the Loan Agreement, and that the ability

to make principal payments pursuant to Section 9.9(c) of the Loan

Agreement is subject to the limitations set forth in Section 9.9(c) of

the Loan Agreement, including the payment in full of the Overadvance

Facility.  Any payment of indebtedness

in violation of Section 9.9(c) of the Loan Agreement will result in an

immediate Event of Default under the Loan Agreement and the other Financing

Agreements.  The Lender will have all of

the rights and remedies provided in the Loan Agreement, the other Financing

Agreements, the Uniform Commercial Code and other applicable law, all of which

rights and remedies may be exercised without notice to or consent by the Borrower

or any Obligor.

 

ARTICLE V

Conditions to Effectiveness

 

                This Amendment shall become

effective upon satisfaction of the following conditions:

 

                (a)           the

execution of this Amendment by Borrower and Lender;  and

 

                (b)           payment

by Borrower of all fees and expenses required to be paid by Borrower pursuant

to Section 6.03 of this Amendment.

 

ARTICLE VI

Ratifications, Representations,

Warranties and Covenants

 

                6.01        Ratifications.

Except as expressly amended hereby, the terms and provisions of the Loan

Agreement are ratified and confirmed and shall continue in full force and

effect.  Borrower and Lender agree that

the Loan Agreement, as amended hereby, and each agreement and instrument

executed in connection herewith, shall continue to be legal, valid, binding and

enforceable in accordance with their respective terms.

 

                6.02        Representations

and Warranties.  Borrower

hereby represents and warrants to Lender that (a) the execution, delivery and

performance of this Amendment has been authorized by all requisite corporate

action on the part of Borrower and does not violate the Articles of

Incorporation or Bylaws of Borrower; (b) the representations and warranties

contained in the Loan Agreement, are true and correct on and as of the date

hereof; (c) upon the effectiveness of this Amendment, no Event of Default under

the Loan Agreement is continuing and no event or condition exists that with the

giving of notice or the lapse of time, or both, would be an Event of Default;

and (d) Borrower is in full compliance with all covenants and agreements

contained in the Loan Agreement and each agreement and instrument entered into

in connection therewith (assuming execution and delivery of this Amendment).

 

5

 

                6.03        Fee Payable

to Lender Payment of Legal and Other Expenses.  Upon the execution of this Amendment by

Lender, Borrower hereby agrees to pay to Lender a commitment fee in the amount

of $15,000.00, which may be charged by Lender to Borrower’s loan account

without further agreement or consent of Borrower.  In addition and as provided in the Loan Agreement, Borrower

agrees to pay on demand all costs and expenses incurred by Lender in connection

with the preparation, negotiation and execution of this Amendment, including,

without limitation, the costs and fees of Lender’s legal counsel, and all costs

and expenses incurred by Lender in connection with the enforcement or

preservation of any rights under the Loan Agreement, as amended hereby, or any

agreement, document or instrument executed in connection therewith.

 

                6.04        Covenant

to Obtain Amended and Restated Subordination Agreement.  On or before July 1, 2002, Borrower shall

(a) cause E. Thomas Martin and MVII, LLC, a California limited liability

company, to execute and deliver to Lender an Amended and Restated Subordination

Agreement in substantially the same form as attached hereto as Exhibit A

and (b) execute such acknowledgements and covenants with respect to such

Amended and Restated Subordination Agreement as Lender may require.  The failure of Borrower to timely deliver

executed copies of such Amended and Restated Subordination Agreement and

acknowledgements shall be an Event of Default under the Loan Agreement without

notice or opportunity to cure, and Lender at its option shall be entitled to

cease advancing sums to, or for the benefit of, Borrower and exercise such

other rights and remedies as may be available to Lender pursuant to the Loan

Agreement, the other Financing Agreements or applicable law.

 

 

ARTICLE VII

Miscellaneous Provisions

 

                7.01  Survival

of Representations and Warranties. 

All representations and warranties made herein and in the Loan Agreement

shall survive the execution and delivery of this Amendment, and no

investigation by Lender shall affect the representations and warranties or the

right of Lender to rely upon them.

 

                7.02        Reference to

Loan Agreement.  The Loan

Agreement, as amended hereby, and all other agreements, documents or

instruments now or hereafter executed and delivered pursuant to the terms

thereof are hereby amended so that any reference in the Loan Agreement or such

other agreements, documents and instruments shall mean a reference to the Loan

Agreement, as amended hereby.

 

                7.03        Severability.  Any provision of this Amendment held by a

court of competent jurisdiction to be invalid or unenforceable shall not impair

or invalidate the remainder of this Amendment and the effect thereof shall be

confined to the provision so held to be invalid or unenforceable.

 

                7.04        Successors

and Assigns.  This Amendment

is binding upon and shall inure to the benefit of Lender and Borrower and their

respective successors and assigns, except Borrower

 

6

 

may not assign or

transfer any of its rights or obligations hereunder without the prior written

consent of Lender.

 

                7.05        Counterparts.  This Amendment may be executed in one or

more counterparts, each of which when so executed shall be deemed to be an

original, but all of which when taken together shall constitute one and the

same instrument.

 

                7.06        Headings.  The headings, captions, and arrangements

used in this Amendment are for convenience only and shall not affect the

interpretation of this Amendment.

 

                7.07        Applicable

Law.  THIS AMENDMENT AND ALL OTHER LOAN

DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE

PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE

LAWS OF THE STATE OF TEXAS.

 

                7.08        Final Agreement.  THE FINANCING AGREEMENTS (INCLUDING THE LOAN

AGREEMENT AND THIS AMENDMENT), AS AMENDED HEREBY, REPRESENT THE ENTIRE

EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE

THIS AMENDMENT IS EXECUTED.  THE

FINANCING AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF

PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS

BETWEEN THE PARTIES.  NO MODIFICATION,

RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT

SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND LENDER.

 

                7.09        Release.  BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,

COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE

WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS

LIABILITY TO REPAY THE OBLIGATIONS (AS DEFINED IN THE LOAN AGREEMENT) OR TO

SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER.  BORROWER HEREBY VOLUNTARILY AND KNOWINGLY

RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,

SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF

ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,

ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR

CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE

THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER

HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND

ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF

CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, 

 

7

 

AND ARISING FROM ANY LOANS (AS DEFINED IN THE LOAN

AGREEMENT), INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,

TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST

LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN

AGREEMENT OR ANY FINANCING AGREEMENT, DOCUMENT OR INSTRUMENT ENTERED INTO IN

CONNECTION THEREWITH.

 

[Signature Page Follows]

 

8

 

Executed as of the day and year first written above.

	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  DSI TOYS, INC.

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  By:

  	

  /s/ Robert L.

  Weisgarber

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  Name:

  	

  Robert L.

  Weisgarber

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  Title:

  	

  Chief Financial

  Officer

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  SUNROCK CAPITAL CORP.

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  By:

  	

  /s/ Y. Renee

  Hannah

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  Name:

  	

  Y. Renee Hannah

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  Title:

  	

  Account

  Executive

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  

 

9

 

Exhibit A

 

AMENDED AND RESTATED SUBORDINATION

AGREEMENT

 

                This AMENDED AND RESTATED SUBORDINATION AGREEMENT

(this “Subordination Agreement”) is made and entered into this

        day

of                     ,

2002, by and among E. Thomas Martin, an individual, and MVII, LLC, a California

limited liability company (collectively, the “Subordinated Creditor”),

and Sunrock Capital Corp., a Delaware corporation (“Sunrock”).

 

RECITALS

 

                A.            DSI

Toys, Inc., a Texas corporation (“Borrower”), is, or may become,

indebted to Subordinated Creditor in the amount and on the evidences of

indebtedness described on Exhibit A attached hereto.

 

                B.            Borrower

and Sunrock have entered into that certain Loan and Security Agreement, dated

as of February 2, 1999, as amended by that certain Amendment No. 1 to Loan and

Security Agreement, dated effective as of June 30, 1999, by and between Sunrock

and Borrower, that certain Amendment No. 2 to Loan and Security Agreement,

dated as of the date hereof, by and between Sunrock and Borrower, that certain

Amendment No. 3 to Loan and Security Agreement, dated July 13, 2000, between

Borrower and Sunrock, that certain Amendment No. 4 to Loan and Security

Agreement, dated March 30, 2001, between Borrower and Sunrock, that certain

Amendment No. 5 to Loan and Security Agreement, dated July 1, 2001, between

Borrower and Sunrock, that certain Amendment No. 6 to Loan and Security

Agreement, dated August 13, 2001, between Borrower and Sunrock, that certain

Amendment No. 7 to Loan and Security Agreement, dated March    ,

2002, between Borrower and Sunrock, that certain Amendment No. 8 to Loan and

Security Agreement, dated March 29, 2002, between Borrower and Sunrock, and

that certain Amendment No. 9 to Loan and Security Agreement, dated June 12,

2002, between Borrower and Sunrock (as the same may be amended, modified or

supplemented from time to time, the “Loan Agreement”), pursuant to which

Sunrock has a first priority lien in substantially all the assets and property

of Borrower, including the proceeds thereof.

 

                C.            Subordinated

Creditor has benefited, and will continue to benefit, from Sunrock’s loans to

Borrower.

 

                D.            It

is a condition precedent to Sunrock’s consent to the transactions currently

proposed by Borrower that Subordinated Creditor subordinate its claims against

Borrower to the claims of Sunrock against the Borrower, to the extent and in

the manner provided by this Subordination Agreement.

 

                NOW, THEREFORE, to induce Sunrock to consent to the

transactions currently proposed by Borrower, Subordinated Creditor and Sunrock

hereby agree as follows:

 

10

 

                1.             Definitions.           The following terms shall have the

following definitions for purposes of this Subordination Agreement:

 

                                “Bankruptcy Code” shall mean

Chapter 11 of Title 11 of the United States Code (11 U.S.C. §101 et  seq.).

 

                “Excess Availability”

shall mean as of any date, the average dollar amount of Loans (as defined in

the Loan Agreement) available to Borrower for the thirty (30) day period

immediately preceding the applicable date of payment under the Subordinated

Debt.  For purposes of the foregoing,

the amount of Loans available to Borrower as of any date shall be determined by

Sunrock in accordance with the formula set forth at Section 2.1 of the Loan

Agreement, after giving effect to all Availability Reserves (as defined in the

Loan Agreement) and the limitations set forth at Section 2.4 of the Loan

Agreement.

 

                                “Event of Default” shall have

the meaning set forth from time to time under the Loan Agreement.

 

                                “Letter of Credit” shall mean

Irrevocable Letter of Credit Number N75340949, dated January 7, 2000, issued by

Wells Fargo Bank, N.A., for the benefit of Walter S. Reiling and Susan Reiling,

together with all replacements and substitutions thereof, which Letter of

Credit is the letter of credit referred to at, and fulfilling the requirement

of, Section 4.1(i) of the Merger Agreement.

 

                                “Merger Agreement” shall mean

the Agreement and Plan of Merger, dated October 7, 1999, between Borrower and

Meritus Industries, Inc., a New Jersey corporation, Meritus Industries, Ltd., a

Hong Kong corporation, Walter S. Reiling and Susan Reiling.

 

                                “Potential Default” shall mean

the occurrence of any event that Sunrock determines may, with the passage of

time or the giving of notice, or both, result in an Event of Default under the

Loan Agreement.

 

                                “Property” shall mean all, or

any portion of the assets and property of Borrower.

 

                                “Senior Debt” shall mean all

loans, advances, debts, principal, interest (including any interest that, but

for the provisions of the Bankruptcy Code, would have accrued), contingent

reimbursement obligations under any outstanding letters of credit, premiums

(including early termination or prepayment premiums), liabilities (including

all amounts charged to Borrower’s loan accounts established pursuant to the

Senior Debt Documents), obligations, fees, charges, costs, or expenses

reimbursable or payable to Sunrock (including any fees or expenses that, but

for the provisions of the Bankruptcy Code, would have accrued), lease payments,

guaranties, covenants, and duties owing by Borrower to Sunrock of any kind and

description (whether pursuant to or evidenced by the Senior Debt Documents or

pursuant to any other agreement between Sunrock and Borrower, and irrespective

of whether for the payment of money), whether direct or indirect, absolute or

contingent, due or to become due, now existing or hereafter arising, and

including any debt, liability, or obligation owing from Borrower to others that

Sunrock may

 

11

 

have obtained by

assignment or otherwise, and further including all interest not paid when due

and all expenses that Borrower is required to pay or reimburse Sunrock pursuant

to the Senior Debt Documents, by law or otherwise.

 

                                “Senior Debt Documents” shall

mean, collectively, each promissory note, loan agreement, security agreement,

pledge agreement, guaranty, financing statement, deed of trust, mortgage,

assignment of leases and rents, and any and all other agreements executed or

delivered by Borrower in connection with the Senior Debt, and all amendments,

renewals, extensions, increases or modifications thereof, including without

limitation the Loan Agreement, as the same has been, or may hereafter be,

amended, renewed, extended, increased or modified from time to time.

 

                                “Subordinated

Debt” shall mean any and all indebtedness and financial obligations of

Borrower to Subordinated Creditor, whether now or hereafter existing, incurred,

or created, whether the obligations of Borrower shall be direct, contingent,

primary, secondary, several, joint and several, or otherwise, howsoever such

indebtedness may be hereafter extended, renewed or evidenced, including,

without limitation, the indebtedness and financial obligations described on Exhibit

A attached hereto.

 

                Capitalized terms used herein but not defined herein

shall have the meanings given them in the Loan Agreement.

 

                2.             Subordination.

Subordinated Creditor agrees to subordinate and does hereby subordinate payment

by Borrower of all and any part of the Subordinated Debt to the prior

indefeasible payment in full, in cash, to Sunrock, its successors and assigns,

of any and all of the Senior Debt. 

Subordinated Creditor acknowledges that the Subordinated Debt is not

secured by any Property of the Borrower, and Subordinated Creditor does not

currently have, nor is Subordinated Creditor, entitled to the benefit of any

liens or security interests in or to the Property of Borrower.  All liens and security interests of

Subordinated Creditor, if any, whether now or hereafter arising or howsoever

existing, in the Property of Borrower shall be and are hereby subordinated to

the rights and interests of Sunrock in or to such Property.  Subordinated Creditor shall have no right to

possession of any portion of the Property or to foreclose upon any portion of

the Property, whether by judicial action or otherwise, unless and until all of

the Senior Debt shall have been indefeasibly paid in full, in cash.  In furtherance thereof, Subordinated

Creditor agrees, unless and until the Senior Debt shall have been indefeasibly

paid in full, in cash, Subordinated Creditor: (i) will not to ask for, demand

or sue for all or any part of the Subordinated Debt; (ii) will not take or

receive all or any part of the Subordinated Debt (other than Permitted Payments

to the extent allowed under Section 7 hereof); (iii) will not take or receive

any security for the Subordinated Debt or seek to enforce any claim against the

Property of Borrower; and (iv) upon Sunrock’s reasonable request, Subordinated

Creditor will execute and deliver to Sunrock documents confirming the

subordination of any and all of Subordinated Creditor’s liens, claims and

security interests against the Borrower or any of the Borrower’s Property.  Subordinated Creditor acknowledges and

agrees that, in the event Permitted Payments (as defined in Section 7 hereof)

are not made because the Excess Availability of Borrower as of the scheduled

payment date is less than $750,000.00, Subordinated Creditor shall take no

action

 

12

 

to accelerate the

Subordinated Debt or enforce its rights to receive payment from Borrower,

except as otherwise expressly permitted under Section 7 below.

 

                3.             Subrogation.  Subordinated Creditor agrees that Sunrock

shall be subrogated to Subordinated Creditor with respect to (i) Subordinated

Creditor’s claims against Borrower, and (ii) Subordinated Creditor’s rights,

liens and security interests, if any, in any of Borrower’s assets or Property

and the proceeds thereof until the Senior Debt shall have been indefeasibly

paid in full, in cash.

 

                4.             Insurance

Claims and Proceeds.  Subordinated

Creditor shall have no right to participate in the adjustment or settlement of

any insurance losses or condemnation claims with respect to the Property.  Subordinated Creditor hereby agrees, upon

the request and at the direction of Sunrock, to endorse in favor of Sunrock any

and all checks payable to Subordinated Creditor that represent insurance

proceeds paid for claims relating to the Property in any manner.  Subordinated Creditor agrees, upon request

by Sunrock, to assign to Sunrock any and all insurance proceeds payable to

Subordinated Creditor for claims relating to the Property.  Subordinated Creditor hereby appoints

Sunrock as its attorney–in–fact to settle all insurance claims

relating to the Property and to receive all payments and endorse all checks

with respect to such claims to the full extent of the Senior Debt.

 

                5.             Limitation

on Subordinated Creditor’s Actions. 

So long as any of the Senior Debt remains unpaid, in whole or in part,

Subordinated Creditor agrees: (i) not to commence, or to join with any other

creditor in commencing, any bankruptcy, reorganization or insolvency

proceedings with respect to Borrower without the prior written consent of

Sunrock; and (ii) not to commence, prosecute, or participate in any

administrative, legal, or equitable action that might adversely affect Borrower

or Sunrock or any of their interests or Property, including without limitation,

any claim of any fraudulent transfer or conveyance from any person or entity to

any of the Borrower or Sunrock.  Nothing

contained in this Section 5 of this Subordination Agreement shall restrict the

assignment of any claims possessed by Borrower in respect of the transactions

contemplated by the Letter of Credit to the Subordinated Creditor such that

Subordinated Creditor may pursue such claims directly against the issuer of said

Letter of Credit or the beneficiaries of such Letter of Credit.

 

6.             Readjustment of Subordinated

Debt.  Subordinated Creditor further

agrees that, upon any distribution of the assets or readjustment of the

indebtedness of Borrower, whether by reason of liquidation, composition,

bankruptcy, arrangement, receivership, assignment for the benefit of creditors

or any other action or proceeding involving the readjustment of all or any of

the Subordinated Debt, or the application of the assets of Borrower to the

payment or liquidation thereof, Sunrock shall be entitled to receive payment in

full in cash of the Senior Debt prior to the payment of all or any part of the

Subordinated Debt.

 

                7.             Permitted

Payments.  Notwithstanding the

foregoing provisions, but subject to the limitations set forth below, until

such time as Subordinated Creditor shall have received, or be deemed to have

received, written notice in accordance with the terms hereof from Sunrock or

its agents of the occurrence of an Event of Default or Potential Default,

Subordinated Creditor may

 

13

 

accept and retain from

Borrower payments in respect of the Subordinated Debt to the extent expressly

set forth on Exhibit A hereto (collectively, the “Permitted Payments”); provided,

however: (i) after giving effect to each such Permitted Payment and any

other payments then permitted under Section 9.9 of the Loan Agreement, the

Excess Availability shall be equal to, or greater than, $750,000.00; (ii)

Permitted Payments shall include only payments in respect of the original

amortization schedule, if any, of the stated principal amount of the

Subordinated Debt as set forth in the instruments described on Exhibit A

without regard to any future amendment of such instruments (unless such

amendment shall delay or reduce the otherwise scheduled principal payments) and

only to the extent permitted by Exhibit A; (iii) Permitted Payments

shall not include any amounts due and owing by Borrower to Subordinated

Creditor in respect of reimbursement obligations (whether through contract,

common law right of contribution or otherwise) related to the Letter of Credit

or any increase in the stated principal amount of the Subordinated Debt as a

result of any draw on the Letter of Credit; and (iv) to the extent any

Permitted Payment is not permitted to be made when scheduled as a result of the

foregoing conditions, such payment shall be deferred until the maturity of the

Subordinated Debt. The original stated principal amount of the Subordinated

Debt is hereby acknowledged and agreed to be as set forth on Exhibit A.  From and after Subordinated Creditor’s

receipt, or deemed receipt, of written notice of an Event of Default or

Potential Default, Permitted Payments may not be accepted or retained by

Subordinated Creditor until all Events of Default and Potential Defaults shall

have been cured or otherwise waived by Sunrock.  Upon receipt, or deemed receipt, of notice from Sunrock that all

Events of Default and Potential Defaults have been cured or otherwise waived by

Sunrock, Permitted Payments may resume.

 

                8.             Property

Held in Trust.  If (i) any money or

other Property (other than the Permitted Payments that Subordinated Creditor is

permitted to receive and retain under Section 7 preceding) is received by

Subordinated Creditor for application on the Subordinated Debt or (ii) any

money or other Property shall be disbursed to Subordinated Creditor at any time

after (a) Sunrock’s delivery to Subordinated Creditor of notice of an Event of

Default or Potential Default and prior to Sunrock’s delivery of notice that all

Events of Default and Potential Defaults have been cured or otherwise waived by

Sunrock or (b) during any time when the Excess Availability shall be less than

$750,000.00, Subordinated Creditor will hold such money and other Property in

trust for Sunrock and, promptly after receipt thereof and written request from

Sunrock, deliver such money and other Property to Sunrock.  Notwithstanding the foregoing, in the event

disbursement of a Permitted Payment results in the occurrence of an Event of

Default, Potential Default or Excess Availability less than $750,000.00,

Subordinated Creditor will hold such money or other Property disbursed in such

Permitted Payment in trust for Sunrock and, promptly following Sunrock’s

request, deliver such money or other Property to Sunrock.  No payment or distribution to Sunrock

pursuant to the provisions of this Subordination Agreement shall entitle

Subordinated Creditor to exercise any rights of subrogation in respect thereof

until the Senior Debt shall have been indefeasibly paid in full in cash.

 

                9.             Assignment

or Amendment of Subordinated Debt. 

Subordinated Creditor hereby agrees not to assign or transfer, at any

time while this Subordination Agreement remains in effect, any rights, claim or

interest of any kind in or to any of the Subordinated Debt without (i) first

notifying Sunrock and (ii) making such assignment expressly subject to this

Subordination

 

14

 

Agreement. Subordinated

Creditor will, upon request from Sunrock, deliver any note or other evidence of

the Subordinated Debt to Sunrock, and Sunrock may (or Subordinated Creditor,

upon request from Sunrock, will) add a legend, substantially in the form set

forth on Exhibit B, to such note or other evidence of the Subordinated

Debt stating that payment thereof is subject to the provisions of this

Subordination Agreement.  Subordinated

Creditor shall not subordinate any of the Subordinated Debt to any indebtedness

of the Borrower or any affiliate of Borrower, other than the Senior Debt.  Subordinated Creditor agrees that it shall

not amend or modify the terms of the Subordinated Debt without the prior

written consent of Sunrock in any manner that has the effect of accelerating

the time of payments under the Subordinated Debt, increasing the amount of such

payments or adding any additional covenants or defaults under the documents

evidencing the same.

 

                10.           Assignment

of Senior Debt.  Sunrock may, from time

to time, whether before or after any discontinuance of this Subordination

Agreement, in its sole discretion and without notice to Subordinated Creditor,

assign or transfer any or all of the Senior Debt or any interest therein, and,

notwithstanding any such assignment or transfer or subsequent assignment or

transfer thereof, the Senior Debt Documents and the Senior Debt shall remain

senior to the Subordinated Debt for the purposes of this Subordination

Agreement.

 

                11.           Renewal

and Extension of Senior Debt.  This

is a continuing agreement of subordination and Sunrock may continue, without

notice to Subordinated Creditor, to extend credit or other accommodation or

benefit and lend moneys to or for the account of Borrower on the faith

hereof.  It is further understood and

agreed that Sunrock may at any time, in its sole discretion, increase the

amount of, or renew or extend the time of payment of all or any part of any

existing or future indebtedness or obligations of Borrower to Sunrock or renew,

waive or release the lien in the Property or the security interest in any

collateral which may be held therefor at any time and in reference thereto to

make and enter into any such agreement or agreements as Sunrock may deem proper

or desirable without notice to or further assent from Subordinated Creditor and

without in any manner impairing or affecting this Subordination Agreement or

any of Sunrock’s rights hereunder.

 

                12.           Waiver

of Notice.  Subordinated Creditor

hereby expressly waives notice of acceptance by Sunrock of the subordination

and other provisions of this Subordination Agreement and, except as expressly

provided herein, all other notices whatsoever, including, without limitation,

notice of the creation of any indebtedness or liability of Borrower to Sunrock,

notice of the giving or extension of credit by Sunrock to Borrower, notice of

protest and default, and all other notices to which Subordinated Creditor might

otherwise be entitled from Sunrock. 

Subordinated Creditor consents and agrees that Sunrock shall be under no

obligation to marshal any assets in favor of Subordinated Creditor or against

or in payment of any or all of the Senior Debt.

 

                13.           Rights

of Sunrock as Senior Creditor. 

Subordinated Creditor expressly waives reliance by Sunrock upon the subordination

and other agreements as herein provided and presentment, demand and

protest.  Subordinated Creditor agrees

that Sunrock has made no warranties or representations with respect to the due

execution, legality, validity, completeness or

 

15

 

enforceability of the

Senior Debt Documents, or the collectibility of the Senior Debt, that Sunrock

shall be entitled to manage and supervise its loans to Borrower in accordance

with its usual practices, modified from time to time as Sunrock deems

appropriate under the circumstances, without regard to the existence of any

rights that Subordinated Creditor may now or hereafter have in or to any of the

assets of Borrower, and that Sunrock shall have no liability to Subordinated

Creditor for, and waives any claim which Subordinated Creditor may now or

hereafter have against Sunrock arising out of (i) any and all actions which

Sunrock, takes or omits to take (including, without limitation, actions with

respect to the creation, perfection or continuation of liens or security

interests in the Property or other collateral for the Senior Debt, actions with

respect to the occurrence of a “Default” or an “Event of Default” (as defined

in any of the Senior Debt Documents), actions with respect to the foreclosure

upon, sale, release of, depreciation of or failure to realize upon the Property

or other collateral for the Senior Debt, and actions with respect to the

collection of any claim for all or any part of the Senior Debt from any account

debtor, guarantor or any other party with respect to the Senior Debt Documents

or to the collection of the Senior Debt 

or the valuation, use, protection or release of the Property or other

collateral for the Senior Debt, (ii) Sunrock’s election, in any proceeding

instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)

of the Bankruptcy Code, and/or (iii) any borrowing or grant of a security

interest under Section 364 of the Bankruptcy Code.  Sunrock may, at any time and from time to time, without the

consent of or notice to Subordinated Creditor, without incurring responsibility

to Subordinated Creditor, and without impairing or releasing any of Sunrock’s

rights, or any of the obligations of Subordinated Creditor hereunder, change

the amount, manner, place or terms of payment of, or change or extend the time

of payment of, or renew or alter Senior Debt in any and all respects; sell,

exchange, release, or otherwise deal with all or any part of any Property

securing Senior Debt; exercise or refrain from exercising any rights against

the Borrower and others (including Subordinated Creditor); add or release any

party or other person primarily or secondarily liable for the Senior Debt; and

apply any sums, by whomsoever paid or howsoever realized, to Senior Debt.

 

                14.           Remedies

Upon Default.  Subordinated Creditor

hereby covenants and agrees that upon the occurrence and continuance of an

Event of Default, Sunrock may, at its sole option, without notice to

Subordinated Creditor:  (i) with or

without releasing and extinguishing any liens or security interests created by

the Senior Debt Documents, cause title in and to all or any portion of the

Property (or any interest of any kind in the Property, including, without

limitation, a beneficial interest in a land trust) to be transferred, assigned

or conveyed to a nominee for Sunrock, subject to the liens of the Subordinated

Debt, if any; and/or (ii) take possession of the Property and take all actions

necessary to operate and maintain the Property (and to increase the amounts

owed by Borrower pursuant to the Senior Debt by an amount equal to such costs)

and the right to lease or sell all or any portion of the Property or any

interest in the Property.  Subordinated

Creditor hereby expressly waives the right to assert any and all claims and

defenses against Sunrock relating to or arising from any action taken by

Sunrock pursuant to this Section 14.

 

                15.           Financial

Condition of Borrower.  Subordinated

Creditor hereby assumes responsibility for keeping itself informed of the

financial condition of Borrower and of all other circumstances bearing upon the

risk of nonpayment of the Subordinated Debt that diligent

 

16

 

inquiry would reveal, and

Subordinated Creditor hereby agrees that Sunrock shall have no duty to advise

Subordinated Creditor of information known to Sunrock regarding such condition

or any such circumstances.

 

                16.           Entire

Debt.  Subordinated Creditor

represents and warrants to Sunrock that Exhibit A attached hereto

identifies all of Borrower’s existing indebtedness and obligations to

Subordinated Creditor.  Subordinated

Creditor agrees that no person or entity owned or controlled by the

Subordinated Creditor, or under common control with, any of the foregoing

(other than the Borrower) shall make loans to, or otherwise extend any credit

to, the Borrower, without entering into a subordination agreement in favor of

Sunrock in substantially the same form as this Subordination Agreement.

 

                17.           Other

Instruments.  Subordinated Creditor

further agrees to execute and deliver to Sunrock such assignments,

endorsements, or other instruments as may be reasonably required by Sunrock in

order to enable Sunrock to enforce any and all claims provided or permitted

hereunder and to collect any and all dividends or other payments or

disbursements which may be made at any time on account of all or any of the

Subordinated Debt, other than Permitted Payments to the extent allowed

hereunder.

 

                18.           Binding

Effect.  This Subordination

Agreement is binding on Subordinated Creditor, its legal representatives,

successors and assigns, and shall inure to the benefit of Sunrock, its

successors and assigns.  Whenever

reference is made in this Subordination Agreement to Borrower, such term shall

include any heir, legal representative, successor or assign of Borrower,

including, without limitation, a receiver, trustee or debtor–in–possession.

 

                19.           Notice.

Any notice or notification required, permitted or contemplated hereunder shall

be in writing, shall be addressed to the party to be notified at the address

set forth below or at such other address as each party may designate for itself

from time to time by notice hereunder, and shall be deemed to have been validly

served, given or received (i) three days following deposit in the United States

mail, with proper first class postage prepaid, certified, return receipt

requested, (ii) the next business day after such notice was delivered to a

regularly scheduled overnight delivery carrier with delivery fees either

prepaid or an arrangement, satisfactory with such carrier, made for the payment

of such fees, or (iii) upon receipt of notice given by telecopy, mailgram,

telegram, telex, or personal delivery:

 

	

   

  	

  To Sunrock:

  	

   

  	

  Sunrock Capital

  Corp.

  
	

   

  	

   

  	

   

  	

  11 Penn Center

  
	

   

  	

   

  	

   

  	

  1835 Market

  Street

  
	

   

  	

   

  	

   

  	

  Philadelphia,

  Pennsylvania 19103

  
	

   

  	

   

  	

   

  	

  Attention:  John Erwin

  
	

   

  	

   

  	

   

  	

  Facsimile:  215-979-7679

  
	

   

  	

   

  	

   

  	

  Telephone:  215-979-7654

  

 

17

 

	

   

  	

   

  	

   

  	

   

  
	

   

  	

  with copies to:

  	

   

  	

  Hughes &

  Luce, L.L.P.

  
	

   

  	

   

  	

   

  	

  1717 Main

  Street, Suite 2800

  
	

   

  	

   

  	

   

  	

  Dallas, Texas

  75201

  
	

   

  	

   

  	

   

  	

  Attn:  John O. Sutton, Jr., Esq.

  
	

   

  	

   

  	

   

  	

  Facsimile: 214.939.6100

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  To Subordinated

  Creditor:

  	

   

  	

  MVII, LLC

  
	

   

  	

   

  	

   

  	

  654 Osos Street

  
	

   

  	

   

  	

   

  	

  San Luis Obispo,

  California 93406

  
	

   

  	

   

  	

   

  	

  Attention: E.

  Thomas Martin

  
	

   

  	

   

  	

   

  	

  Facsimile:

  805.545.7590

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  with copies to:

  	

   

  	

  Andre, Morris &

  Buttery

  
	

   

  	

   

  	

   

  	

  1102 Laurel Lane

  
	

   

  	

   

  	

   

  	

  San Luis Obispo,

  California 93406

  
	

   

  	

   

  	

   

  	

  Attention: J. Todd

  Mirolla

  
	

   

  	

   

  	

   

  	

  Facsimile: 805.543.0752

  
	

   

  	

   

  	

   

  	

   

  

                20.          GOVERNING LAW.  THIS SUBORDINATION AGREEMENT SHALL BE

INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN

ACCORDANCE WITH THE LOCAL LAW OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF

LAW RULE OR PRINCIPLE THAT MIGHT OTHERWISE REFER CONSTRUCTION OR INTERPRETATION

OF THIS SUBORDINATION AGREEMENT TO THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION,

AND ALL OTHER LAWS OF MANDATORY APPLICATION.

 

                21.           Entire

Agreement.  This Subordination

Agreement sets forth the complete undertaking and agreements of Sunrock and

Subordinated Creditor with respect to the subject matter hereof, and there are

no other agreements or understandings binding upon them, including, without

limitation, any conflicting provisions of any agreement or note referred to on Exhibit

A attached hereto.

 

                22.           Execution in Counterparts and Facsimile Signatures.  This Subordination Agreement may be executed

in a number of identical counterparts. 

If so executed, each of such counterparts shall be deemed to be an

original for all purposes, and all such counterparts shall collectively

constitute one Subordination Agreement. 

This Subordination Agreement may be signed by facsimile signature, and a

facsimile signature shall, for all purposes, have the effect of an original

signature.

 

18

 

                IN WITNESS WHEREOF, this

Subordination Agreement has been duly executed by Subordinated Creditor and

Sunrock as of the day and date first written above.

 

 

 

	

   

  	

   

  	

   

  
	

   

  	

   

  	

  E. Thomas

  Martin, an individual

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   MVII, LLC

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

  Name:

  	

   

  
	

   

  	

   

  	

  Title:

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  SUNROCK CAPITAL

  CORP.

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
									

 

19

 

ACKNOWLEDGMENT BY BORROWER

 

                The Borrower

hereby acknowledges receipt of a copy of the foregoing Subordination Agreement,

confirms the accuracy of the information set forth in Exhibit A attached

hereto and that Exhibit A identifies all of Borrower’s existing

indebtedness and obligations to Subordinated Creditor, and agrees that it will

not pay any indebtedness subordinated by the foregoing Subordination Agreement

(except as otherwise permitted thereby) until all indebtedness of Borrower to

Sunrock, its successors and assigns, now existing and hereafter arising shall

have been indefeasibly paid in full, in cash. 

Without limiting the foregoing, Borrower agrees that Borrower shall not

make any payment to Subordinated Creditor at any time at which the Excess

Availability (as defined in the foregoing Subordination Agreement) is less than

$750,000.00.  The failure of Borrower to

comply with the foregoing covenant shall constitute an Event of Default under

Section 10 of the Loan Agreement (as defined below).  The foregoing Subordination Agreement shall constitute a

“Financing Agreement” for purposes of the Loan and Security Agreement, dated

February 2, 1999, by and between Borrower and Sunrock Capital Corp. (as

amended, the “Loan Agreement”).

 

 

	

   

  	

   

  	

   

  
	

   

  	

  DSI TOYS, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

  Name:

  
	

   

  	

  Title:

  
	

   

  	

   

  	

   

  

 

 

20

 

	

  STATE OF 

  	

   

  	

   

  	

   

  	

  §

  
	

   

  	

   

  	

   

  	

   

  	

  §

  
	

  COUNTY OF 

  	

   

  	

   

  	

   

  	

  §

  

 

                Before

me                                                    ,

the undersigned Notary Public, on this day personally appeared E. Thomas

Martin, known to me (or proved to me on the oath

of                                 

or through                               

(description of identity card or other document)) to be the person whose name

is subscribed to the foregoing instrument and acknowledged to me that he

executed the same for the purposes and consideration therein expressed.

 

                Given under my hand and seal of

office this        day of June, A.D., 2002.

 

 

	

   

  	

   

  
	

   

  	

  Notary Public, State of

  
	

  [AFFIX SEAL]

  	

  Printed Name:

  	

   

  
	

   

  	

  Commission Expiration:

  	

   

  

 

 

21

 

	

  STATE OF 

  	

   

  	

   

  	

   

  	

  §

  
	

   

  	

   

  	

   

  	

   

  	

  §

  
	

  COUNTY OF 

  	

   

  	

   

  	

   

  	

  §

  

 

                Before

me                                                    ,

the undersigned Notary Public, on this day personally appeared

                                                    ,

known to me (or proved to me on the oath of                                 

or through                               

(description of identity card or other document)) to be the                               

of MVII, LLC, a California limited liability company, and acknowledged to me

that he executed the same for the purposes and consideration therein expressed.

 

                Given under my hand and seal of

office this        day of June, A.D., 2002.

 

	

   

  	

   

  
	

   

  	

  Notary Public, State of

  
	

  [AFFIX SEAL]

  	

  Printed Name:

  	

   

  
	

   

  	

  Commission Expiration:

  	

   

  

 

22

 

	

   

  	

   

  	

  §

  
	

   

  	

   

  	

   

  	

   

  	

  §

  
	

   

  	

   

  	

  §

  
					

 

                This instrument

was acknowledged before me on the        day

of June, A.D., 2002,

by                                         ,

                                                              

of Sunrock Capital Corp., a Delaware corporation, on behalf of said

corporation.

 

	

   

  	

   

  	

   

  
	

   

  	

  Notary Public, 

  	

   

  
	

   

  	

  Notary’s Printed/Stamped Name:

  
	

   

  	

   

  	

   

  
	

  My Commission Expires:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  

 

23

 

	

  THE STATE OF TEXAS 

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

  §

  
	

  COUNTY OF HARRIS

  	

   

  	

   

  
					

 

                This instrument

was acknowledged before me on the        day

of June, A.D., 2002,

by                                         ,

                                                              

of DSI Toys, Inc., a Texas corporation, on behalf of said corporation.

 

	

   

  	

   

  
	

   

  	

  Notary Public, State of Texas

  
	

   

  	

  Notary’s Printed/Stamped Name:

  
	

   

  	

   

  
	

  My Commission Expires:

  	

   

  
	

   

  	

   

  
	

   

  	

   

  

 

 

24

 

EXHIBIT A

 

TO

 

AMENDED AND RESTATED SUBORDINATION AGREEMENT

 

AMENDED AND RESTATED

DEBT OWED TO SUBORDINATED CREDITOR

 

1.             $5,000,000.00,

evidenced by, and payable in accordance with, the Promissory Note (the “Subordinated

Note”), dated January 4, 2000, executed by DSI Toys, Inc., payable to the

order of MVII, LLC, a California limited liability company, in installments,

the final installment of which is due on July 1, 2004, a copy of which is

attached to this Exhibit A, for which Permitted Payments shall include

only the following payments, subject to the limitations of Section 7 of the

foregoing Subordination Agreement:  (a)

interest at the rate specified in the Subordinated Note (without giving effect

to any event of default) on the first day of each calendar month or the

next-following day if such day shall not be a business day; (b) principal

payments in the amount of $50,000 on the first day of each calendar month or

the next-following business day if such day shall not be a business day, and

(c) an annual principal payment in the amount of $300,000 on, or within ten (10) days after, the

forty-fifth day following delivery by Borrower to Sunrock of Borrower’s audited

annual financial statements in compliance with the Senior Debt Documents;

provided, that to the extent any of the foregoing payments is not permitted by

the terms of the foregoing Subordination Agreement to be made when scheduled,

such payment shall be deferred until the maturity of the Subordinated

Note.  MVII, LLC shall be permitted to

make future loans to Borrower and increase the outstanding principal amount of

the Subordinated Note from time to time by the amount of such future loans, not

to exceed $700,000 in the aggregate for all such loans; provided, that,

the stated interest rate of the Subordinated Note shall not be increased, the

frequency of payments shall not be increased and the principal amount of the Subordinated

Note, as increased from time to time, shall be payable no more frequently than

monthly or in principal amounts greater than the amounts permitted by clauses

(b) and (c) above.

 

2.             Reimbursement

obligations under the Letter of Credit (as defined in the foregoing

Subordination Agreement), not to exceed $868,000.00 in the aggregate, for which

no Permitted Payments shall be made.

 

 

EXHIBIT B

 

TO

 

AMENDED AND RESTATED

SUBORDINATION AGREEMENT

 

LEGEND TO NOTE

 

THIS PPROMISSORY NOTE, AND PAYMENT AND ENFORCEMENT HEREOF, IS SUBJECT

TO THE TERMS AND PROVISIONS OF THAT CERTAIN AMENDED AND RESTATED SUBORDINATION

AGREEMENT DATED

                                           ,

2002, AMONG SUNROCK CAPITAL CORP., E. THOMAS MARTIN AND MVII, LLC, A CALIFORNIA

LIMITED LIABILITY COMPANY, AND ACKNOWLEDGED BY DSI TOYS, INC., AS SUCH

SUBORDINATION AGREEMENT MAY BE AMENDED FROM TIME TO TIME.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}]]