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EXHIBIT 10.39
SUNROCK CAPITAL CORP.
11 PENN CENTER
1835 MARKET STREET
PHILADELPHIA, PA 19103
May 5, 1999
DSI Toys, Inc.
1100 West Sam Houston Parkway (North)
Suite A
Houston, Texas 77043
Re: Temporary Increase in Advance Rates
Gentlemen:
Reference is made to the Loan and Security Agreement, dated as of
February 2, 1999 (the "Loan Agreement"), by and between Sunrock Capital Corp., a
Delaware corporation ("Sunrock"), and DSI Toys, Inc., a Texas corporation (the
"Borrower"). Unless otherwise indicated, all capitalized terms used but not
defined herein shall have the meanings assigned to them in the Loan Agreement.
Borrower has requested that Sunrock increase the advance rates set
forth in Section 2.2(ii) of the Loan Agreement in effect during the period
commencing on the date hereof and extending through June 1, 1999. Sunrock, in
the exercise of its discretion as a prudent lender, has agreed to increase such
advance rates in the manner and subject at all times to the conditions set forth
in this letter agreement.
At the request of the Borrower, Sunrock hereby agrees that in addition
to the Loans permitted under Section 2.1 of the Loan Agreement, but at all times
subject to the terms and conditions contained in the Loan Agreement (including,
without limitation, the provisions set forth in Section 2.4 of the Loan
Agreement) and this letter agreement, Sunrock agrees to make Loans to Borrower
from and after the date hereof and extending through June 1, 1999, in an amount
up to the lesser of:
(a) the Maximum Credit less Loans extended under Section 2.1 of the Loan
Agreement; and
(b) the lesser of: (i) the sum of (A) twenty percent (20%) of the Value of
Eligible Inventory and (B) twenty percent (20%) of the Value of Eligible
In-Transit Inventory; or (ii) one million dollars ($1,000,000).
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The Loans provided for in this letter agreement shall bear interest in
accordance with the Loan Agreement without regard to the terms of Section
3.1(a)(ii), until such time as an Event of Default shall occur.
The Loans provided for herein are in lieu of all Loans under Section
2.2(ii) of the Loan Agreement during the period commencing on the date hereof
and extending through June 1, 1999. In no event shall Sunrock be requested or
required to make any Loans to the Borrower pursuant to Section 2.2 of the Loan
Agreement during the period commencing on the date hereof and extending through
June 1, 1999. If an Event of Default shall occur during the period commencing on
the date hereof and extending through June 1, 1999, the provisions of this
letter agreement (other than the fee required to be paid pursuant to the next
following paragraph, which shall be fully earned upon the execution of this
letter agreement by the Borrower) shall terminate immediately, and the rights of
Borrower and Sunrock shall be determined without reference to this letter
agreement.
For and in consideration of the foregoing agreements of Sunrock, the
Borrower hereby agrees to pay to Sunrock a fee in an amount equal to $5,000.00
on June 10, 1999; provided, however, such fee shall be waived in the event: (a)
the Borrower shall have received a cash equity contribution of at least $3.8
million on or before June 10, 1999; (b) no Event of Default shall have occurred
from and after the date hereof through June 1, 1999; and (c) the Borrower shall
be in compliance with its applicable borrowing limitations under the Loan
Agreement as of June 1, 1999 (without regard to the Loans provided for herein).
Except as expressly set forth above, nothing contained in this letter
agreement or any other communication between Sunrock and the Borrower
constitutes a waiver or amendment of any term or provision of the Loan Agreement
or any other agreements entered into in connection therewith (collectively, the
"Loan Documents"). Similarly, nothing contained in this letter agreement shall
directly or indirectly in any way whatsoever either: (a) impair, prejudice or
otherwise adversely affect Sunrock's right at any time to exercise any right,
privilege or remedy in connection with the Loan Agreement or any other Loan
Document (including, without limitation, the right of Sunrock to establish
Availability Reserves pursuant to Section 2.5 of the Loan Agreement at any
time); or (b) constitute any agreement, course of dealing or other basis for
altering any obligation of Borrower under the Loan Agreement or any other Loan
Document.
Except as otherwise expressly provided herein, the Loan Agreement
remains in full force and effect. The Borrower hereby represents and warrants
that no Event of Default is continuing as of the date hereof.
This letter agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute one and the same
letter agreement. Delivery of an executed copy of this letter agreement by
facsimile transmission shall have the same effect as delivery of an originally
executed copy of this letter agreement, whether an originally executed copy
shall be delivered subsequent thereto.
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This letter agreement is executed as of the date first written above.
Very truly yours,
SUNROCK CAPITAL CORP.
By: /s/ Robert J. Katcha
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Name: Robert J. Katcha
Title: Senior Vice President
AGREED AND ACKNOWLEDGED:
DSI TOYS, INC.
By: /s/ M. D. Davis
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Name: M. D. Davis
Title: CEO