EXHIBIT 10.18
CLIENT SUBORDINATION AGREEMENT
(DEBT EVIDENCED BY NOTES)
Dated: February 9, 2004
To: XXXXXXX FACTORS, INC.
00 XXXX XXXXXX
XXX XXXX, XX 00000
Gentlemen:
The Singing Machine Company, Inc. (hereinafter designated as "Client")
is now indebted to the undersigned in the respective sum(s) set opposite the
signature(s) of the undersigned below. The undersigned represent(s) that said
indebtedness has not heretofore been assigned to or, other than with respect to
LaSalle Business Credit, LLC, subordinated in favor of any other person, firm or
corporation and that the undersigned hold(s) no security therefor.
To induce you to enter into or to refrain at this time from terminating
a certain factoring agreement bearing the effective date of February 9, 2004
with Client and/or to continue under your present arrangement with Client and/or
to make loans and advances and/or to grant financial accommodation or credit
otherwise to Client at any time (including the extension or renewal, in whole or
in part, of any antecedent or other debt) upon such terms and for such amounts
as may be mutually agreeable to you and Client, the undersigned hereby agree(s),
except as otherwise specifically provided in the following paragraph, to make
subject and subordinate and do(es) hereby make subject and subordinate the
payment of the aforementioned indebtedness and any and all other present or
future indebtedness of Client to the undersigned together with any and all
interest accrued or to accrue thereon (all hereinafter referred to as "secondary
obligations") to the payment of any and all debts, obligations and liabilities
of Client to you, whether absolute or contingent, due or to become due, now
existing or hereafter arising and whether direct or acquired by you by transfer,
assignment or otherwise (all hereinafter referred to as "primary obligations"),
and, except as otherwise specifically provided in the following paragraph, the
undersigned agree(s) not to ask, demand, or xxx for, or take or receive payment
of or security for all or any part of said secondary obligations until and
unless all and every part of said primary obligations shall have been fully paid
and discharged.
Notwithstanding anything herein to the contrary:
(a) you hereby acknowledge and agree that certain of the
secondary obligations are set forth in certain
convertible securities (the "Convertible
Instruments") and as such, in order for the holder of
the Convertible Instruments to enforce Client's
obligations under the terms of the Convertible
Instruments and realize its benefit of the bargain
with Client, this instrument does not prohibit,
restrict or limit the undersigned's right to receive
shares of Client's common stock upon conversion or
exercise of the Convertible Instruments pursuant to
the terms of the Convertible Instruments, to seek
specific performance therefor to cause Client to
satisfy its obligations under the Convertible
Instruments (to the extent permitted hereby and
subject to the limitations herein), to receive
payments of interest under the Convertible
Instruments pursuant to the terms of the Convertible
Instruments, or to receive payment of liquidated
damages ("Liquidated Damages") pursuant to the terms
of the Convertible Instruments or the transaction
documents entered into in connection therewith,
provided that (i) no cash payments shall be made in
any calendar year other than (x) interest payments in
an amount not to exceed 8.5% of the principal amount
of the Convertible Instruments held by the
undersigned and (y) Liquidated Damages payments in an
amount not to exceed 3.75% of the principal amount of
the Convertible Instruments held by the undersigned
on February 9, 2004 and (ii) no payment shall be made
after the undersigned is notified that Client is in
default of its obligations under the primary
obligations or that the payment of such amounts would
result in a default under the primary obligations or
Client failing to meet its financial requirements
under the primary obligations; and
(b) in the event that the undersigned gives written
notice to you on or after February 20, 2006, that the
secondary obligations have not been satisfied in
whole or in part, then on or after the later of (i)
the date six months after you receive such written
notice and (ii) December 31 of the year in which such
notice is given, the undersigned may ask, demand or
xxx for the secondary obligations, it being
understood, however, that if you shall have demanded
payment in full of the primary obligations, then
until the primary obligations have been paid in full
in cash, the undersigned shall not accept any payment
on account of the secondary obligations (other than
debt or equity securities of the Client, the payment
of which is subordinated in right of payment, at
least to the extent provided in this instrument with
respect to the secondary obligations, to the prior
payment in full of the primary obligations
("Reorganization Securities")).
Upon any distribution of any assets of Client (other than
Reorganization Securities), whether by reason of sale, reorganization,
liquidation, dissolution, arrangement, bankruptcy, receivership, assignment for
the benefit of creditors, foreclosure or otherwise, you shall be entitled to
receive payment in full of said primary obligations prior to the payment of all
or any part of said secondary obligations. If the undersigned shall fail to file
a proper claim or proof of debt in any such proceeding in the form required in
any such proceeding at least 30 days prior to the last day fixed by statute,
court rule or court order, then you or any person whom you may designate are
hereby irrevocably appointed attorney in fact for the undersigned with full
power to act in the place and stead of the undersigned to make, present and file
such claim or proof of debt on account of all or any part of said secondary
obligations as you may deem advisable. In addition, if the undersigned fails to
endorse, assign or pay over to you any items of payment received by the
undersigned on account of the secondary obligations, which are required by the
terms hereof to be endorsed, assigned or paid over to you, the undersigned
hereby irrevocably makes, constitutes and appoints you (and all persons
designated by you for that purpose) as the undersigned's true and lawful
attorney and agent-in-fact, to make such endorsement or assignment or to pay
over such amounts in the undersigned's name. The undersigned will execute and
deliver to you such instruments as may be required by you to effectuate the
aforesaid powers of attorney.
While this instrument remains in effect the undersigned will not
transfer or assign any right, claim or interest of any kind or otherwise grant
any security interest in or to all or any part of said secondary obligations
unless (i) you are given prior written notice thereof and (ii) the transferee,
assignee or secured party agrees in writing to be bound by the terms of this
instrument and such writing is delivered to you. You may at any time, in your
discretion, renew or extend the time of payment of all or any of said primary
obligations or waive or release any collateral which may be held therefor, and
you may enter into such agreements with Client as you may deem desirable without
notice to or further assent from the undersigned and without in any way
affecting your rights hereunder.
The within instrument is and shall be deemed to be a continuing
subordination and shall be and remain in full force and effect until you have
irrevocably received payment in full in cash of all of the primary obligations,
the factoring agreement has terminated, and you have ceased making loans and
advances and granting financial accommodations and credit to Client. The words
"you" and "your" as used herein shall mean and include and this instrument shall
apply in favor of and be severally enforceable by each addressee hereinabove
named and/or any concern which is or may at any time be its parent or
subsidiary.
THIS INSTRUMENT SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS
OF THE STATE OF NEW YORK, without regard to conflict of laws principles thereof.
To induce you to accept this instrument, the undersigned irrevocably agrees
that, subject to your sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN
ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT
SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY, CITY AND STATE OF
NEW YORK. THE UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID COUNTY, CITY AND STATE. THE
UNDERSIGNED HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE
OF ANY LITIGATION BROUGHT AGAINST THE UNDERSIGNED BY YOU IN ACCORDANCE WITH THIS
PARAGRAPH. THE UNDERSIGNED HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS INSTRUMENT.
SIGNATURE OF SUBORDINATORS
Name and Address Amount of Indebtedness
By
---------------------------------
Name:
Title:
To: Xxxxxxx Factors, Inc.
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
This 9th day of January, 2004, the undersigned Client hereby
acknowledges notice of the within and foregoing subordination and agrees to be
bound by all the terms, provisions and conditions thereof. The amount of
secondary obligations stated therein is hereby acknowledged to be due and owing
as of the date hereof. The undersigned Client further agrees, without your
written consent thereto first procured, not to repay all or any part of said
secondary obligations or to issue any note or other instrument evidencing the
same. The undersigned Client further agrees to notify the holder of the
secondary obligations named above promptly upon payment in full of the primary
obligations and promptly upon receiving notice of the existence of an event of
default under the primary obligations.
THE SINGING MACHINE COMPANY, INC.
By:
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Yi Xxxx Xxxx, Interim CEO & COO
