THE SINGING MACHINE COMPANY, INC.
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
February 21, 2006, among The Singing Machine Company, Inc., a Delaware
corporation (the "Company"), and the purchasers identified on the signature
pages hereto (each a "Purchaser" and collectively the "Purchasers").
RECITALS
WHEREAS, the Company has authorized the sale and issuance to the
Purchasers of an aggregate of up to 12,875,536 shares (the "Shares") of the
Company's Common Stock, par value $0.01 (the "Common Stock");
WHEREAS, the Company wishes to issue warrants to the Purchasers to
purchase up to an aggregate of 5,000,000 shares of the Company's Common Stock in
connection with Purchasers' purchase of the Securities; and
WHEREAS, Purchasers desire to purchase and the Company desires to sell the
Shares and the Warrants (as defined below) on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. PURCHASE AND SALE. Pursuant to the terms and conditions set forth in
this Agreement, the Company agrees to sell to the Purchasers, and the Purchasers
hereby agree to purchase the Shares at a purchase price of $0.233 per share, for
a total purchase price equal to the greater of: (a) $3 million US Dollars (the
"Purchase Price") and three Warrants in the forms of Exhibit A, Exhibit B and
Exhibit C attached hereto (collectively, the "Warrants") (the Shares and the
Warrants are collectively referred to herein as the "Securities"). The Warrants
will be distributed pro-rata among the Purchasers based on the percentage of the
Shares purchased by each Purchaser.
2. FEES AND EXPENSES. On the Closing Date, the Company shall reimburse the
Purchasers for their expenses (including legal fees and expenses) incurred in
connection with the preparation and negotiation of this Agreement and the
Related Agreements (as defined below), the Purchasers' due diligence review of
the Company and all related matters in an amount equal to $30,000 US Dollars.
3. CLOSING, DELIVERY AND PAYMENT.
3.1. CLOSING. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby ("Closing") shall take place on
the first business day following such date as: (i) the Company has satisfied all
of the closing conditions set forth herein, and (ii) Purchaser and its corporate
parent have received regulatory approval from the Hong Kong Stock Exhange, (the
"Closing Date") at the offices of Xxxxxx & Associates ("Xxxxxx"), located at
0000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx. The Shares and Warrants
sold and issued in each on the Closing Date will be, and will be distributed
among the Purchasers, as set forth on Exhibit D.
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3.2. CLOSING DELIVERABLES.
(a) At the Closing, and as a condition to the Purchaser's
obligations hereunder, the Company will deliver the following to the
Purchasers:
(i) an executed copy of this Agreement;
(ii) an executed copy of the Registration Rights
Agreement attached hereto as Exhibit E (the "Registration
Rights Agreement");
(iii) an executed copy of corporate resolutions and
Board authorizations which pursuant to Delaware law authorize
the issuance of the Shares and Warrants to Purchasers as set
forth herein;
(iv) an executed copy of documents evidencing the
restructuring of Company's currently outstanding debentures on
the terms set forth herein, as well as the restructuring of
Company's related party indebtedness on the terms set forth
herein at paragraph 8.1;
(v) Such documents from the American Stock Exchange, and
any other applicable regulatory bodies (collectively "AMEX")
which set forth that Purchasers' purchase of the Shares and
Warrants on the terms set forth in this Agreement and the
Related Agreements (as hereinafter defined) has been approved
by the AMEX such that Purchasers' purchase of the Shares and
Warrants is completely free and clear of any voting
restrictions which may be imposed by the AMEX pursuant to
Section 713, and any other applicable sections, of the
American Stock Exchange Company Guide, and any additional
applicable and related regulations (collectively "Regulatory
Approval");
(vi) an opinion of Company counsel that the Shares and
Warrants have been properly authorized, conform with all laws
relating to their issuance, and are free and clear of all
liens, charges, or assessments of any form and character as of
the Closing Date;
(vii) stock certificates representing the Shares
purchased at the Closing; and
(viii) the Warrants purchased at the Closing.
The Warrants, Registration Rights Agreement and Amended Articles are referred to
herein as the "Related Agreements."
(b) At the Closing, each Purchaser will deliver the following
to the Company:
(i) an executed copy of this Agreement;
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(ii) an executed copy of the Registration Rights
Agreement;
(iii) the purchase consideration for the Shares to be
purchased by such Purchaser at the Closing, via wire transfer
to an account designated by the Company; and
(iv) Approval of the Hong Kong Stock Exchange..
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the Company's filings under the Securities Exchange Act of 1934 (collectively,
the "Exchange Act Filings"), copies of which have been made available to the
Purchasers, the Company hereby represents and warrants to the Purchaser as
follows:
4.1. ORGANIZATION, GOOD, STANDING AND QUALIFICATION. Each of the
Company and its active Subsidiaries (as defined below) is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Set
forth on the attached Schedule 4.1 is a list identifying the name of the Company
and each Subsidiary, its jurisdiction of incorporation and foreign status
registration(s) as well as its directors and officers. Neither the Company nor
any active Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the active Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate: (i) adversely affect the legality, validity or
enforceability of this Agreement or the Related Agreements, (ii) have or result
in or be reasonably likely to have or result in a material adverse effect on the
results of operations, assets, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
this Agreement or the Related Agreements (any of (i), (ii) or (iii), a "Material
Adverse Effect").
4.2. SUBSIDIARIES. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on the attached Schedule 4.2. For the purpose of this
Agreement, a "Subsidiary" of any person or entity means (i) a corporation or
other entity whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other persons or entities performing similar
functions for such person or entity, are owned, directly or indirectly, by such
person or entity or (ii) a corporation or other entity in which such person or
entity owns, directly or indirectly, more than 50% of the voting interests at
such time.
4.3. CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as of the
date hereof consists of 100,000,000 shares of common stock par value
$0.01of which 10,060,802 are issued and outstanding and 1,000,000
shares of preferred stock $0.10 par value, of which none are issued
and outstanding. The authorized capital stock of each active
Subsidiary of the Company is set forth on Schedule 4.3.
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(b) Except as disclosed on Schedule 4.3 there are no
outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder
agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities
other than this Agreement and the Related Agreements.
(c) All issued and outstanding shares of the Company's Common
Stock: (a) have been duly authorized and validly issued and are
fully paid and nonassessable; and (b) were issued by the Company in
full compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Company's
Articles of Incorporation, as amended (the "Charter") and pursuant
to applicable law.
4.4. AUTHORIZATION AND BINDING OBLIGATIONS. All corporate,
partnership or limited liability company, as the case may be, action on the part
of the Company (including the respective officers and directors) necessary for
the authorization of this Agreement and the Related Agreements, the performance
of all obligations of the Company hereunder and under the other Related
Agreements at the Closing and, the authorization, sale, issuance and delivery of
the Securities has been taken or will be taken prior to the Closing. This
Agreement and the Related Agreements, when executed and delivered will be valid
and binding obligations of each of the Company enforceable against the Company
in accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights and general principles of equity that
restrict the availability of equitable or legal remedies.
4.5. LIABILITIES. Neither the Company nor any of its Subsidiaries
has any material contingent liabilities, except current liabilities incurred in
the ordinary course of business and liabilities disclosed in the Company's
Exchange Act Filings or on Schedule 4.5.
4.6. AGREEMENTS; ACTION. Except as set forth on Schedule 4.6:
(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company or any of its Subsidiaries is a party
or by which it is bound which may involve: (A) obligations
(contingent or otherwise) of, or payments to, the Company in excess
of $100,000; or (B) provisions restricting the development,
manufacture or distribution of the Company's products or services.
(b) Since March 31, 2005, neither the Company nor any of its
Subsidiaries has: (A) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series
of its capital stock; (B) incurred any indebtedness for money
borrowed or any other liabilities in excess of $250,000 or, in the
case of indebtedness and/or liabilities individually less than
$250,000, in excess of $250,000 in the aggregate; (C) made any loans
or advances to any person not in excess, individually or in the
aggregate, of $50,000; or (D) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory
in the ordinary course of business.
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(c) For the purposes of this Section 4.6, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and
proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7. OBLIGATIONS TO RELATED PARTIES. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf
of the Company and its Subsidiaries; and
(c) for other standard employee benefits made generally
available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of
Directors of the Company).
Further, except as described above or set forth on Schedule 4.7, none of
the officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company, individually or in the aggregate, in
excess of $5,000 or have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete with
the Company. Except as described above, no officer, director or stockholder, or
any member of their immediate families, is, directly or indirectly, interested
in any material contract with the Company and no agreements, understandings or
proposed transactions are contemplated between the Company and any such person.
Except as set forth on Schedule 4.7, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
4.8. CHANGES. Since March 31, 2005, except as disclosed on Schedule
4.8 or any other Schedule to this Agreement or to any of the Related Agreements,
there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties or operations of the Company or
any of its Subsidiaries, which individually or in the aggregate has
had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key
employee or group of employees of the Company or any of its
Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise;
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(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of
its Subsidiaries to any stockholder, employee, officer or director
of the Company or any of its Subsidiaries, other than advances made
in the ordinary course of business;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder of the
Company or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its
Subsidiaries;
(i) any labor organization activity related to the Company or
any of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except those
for immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(k) any sale, assignment, hypothecation or transfer of any
patents, trademarks, copyrights, trade secrets or other intangible
assets owned by the Company or any of its Subsidiaries;
(l) any change in any material agreement to which the Company
or any of its Subsidiaries is a party or by which either the Company
or any of its Subsidiaries is bound which either individually or in
the aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a)
through (m) above.
4.9. TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set forth
on Schedule 4.9, the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
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(b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially
impair the operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound except where such failure to be in
compliance, either individually or in the aggregate has had, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
4.10. INTELLECTUAL PROPERTY.
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes necessary for
its business as now conducted, as presently proposed to be conducted
(the "Intellectual Property"), without any infringement of the
rights of others. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights,
nor is the Company or any of its Subsidiaries bound by or a party to
any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and
processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard
products.
(b) Neither the Company nor any of its Subsidiaries are in
breach of any intellectual property right of any third party nor
have they received any communications alleging that the Company or
any of its Subsidiaries has violated any of the patents, trademarks,
service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company
or any of its Subsidiaries aware of any basis therefor.
(c) The Company does not and will not utilize any inventions,
trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any
of its Subsidiaries.
4.11. COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any
of its Subsidiaries is in violation or default of (i) any material term of its
Charter or Bylaws, or (ii) of any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by which it
is bound or of any judgment, decree, order or writ, which violation or default,
in the case of this clause (ii), has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Securities by the Company pursuant hereto, will not, with or without the passage
of time or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term or provision, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
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4.12. FILINGS, CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other person in
connection with the execution, delivery and performance by the Company of this
Agreement or the Related Agreements, other than (i) a current report on Form 8-K
announcing the transactions contemplated under this Agreement, (ii) the filing
of a registration statement with the SEC as required under the Registration
Rights Agreement, (iii) the notice and/or application(s) to the American Stock
Exchange ("AMEX") for the issuance and sale of the Securities and the listing of
the shares of Common Stock issuable upon exercise of the Warrants for trading
thereon in the time and manner required thereby, and (iv) the filing of Form D
with the SEC and applicable Blue Sky filings (collectively, the "Required
Approvals").
4.13. LITIGATION. Except as set forth on Schedule 4.13 hereto, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
4.14. TAX RETURNS AND PAYMENTS. Except as set forth on Schedule
4.14, the Company and each of its Subsidiaries have timely filed all tax returns
(federal, state, local, and foreign) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and all other
taxes due and payable by the Company or any of its Subsidiaries on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 4.14, neither the Company nor any of
its Subsidiaries has been advised:
(a) that any of its returns, federal, state, local, foreign,
or other, have been or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to
its federal, state, local, foreign, or other taxes.
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
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4.15. EMPLOYEES. Except as set forth on Schedule 4.15, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed on Schedule 4.15, neither the Company nor
any of its Subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company's knowledge, no employee of the Company or any
of its Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company or any of its Subsidiaries because of the nature of the business to be
conducted by the Company or any of its Subsidiaries; and to the Company's
knowledge the continued employment by the Company or any of its Subsidiaries of
its present employees, and the performance of the Company's and its
Subsidiaries' contracts with its independent contractors, will not result in any
such violation. Neither the Company nor any of its Subsidiaries is aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.15, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.16. COMPLIANCE WITH LAWS; PERMITS. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as has been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
4.17. ENVIRONMENTAL AND SAFETY LAWS. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety and no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation except for such violations that individually, or in
the aggregate, have had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect. No Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or any of its Subsidiaries or, to the Company's knowledge, by any other person
or entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, "Hazardous Materials"
shall mean:
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(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal
and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes, or
other activities involving hazardous substances, including building
materials; or
(b) any petroleum products or nuclear materials.
4.18. INSURANCE. Set forth on Schedule 4.18 is a list of each policy
of indemnity or insurance stating the inception date, termination date, policy
number, named insured(s), policy limits (individual and aggregate claims), and
deductible or Self Insured Retention amounts. A copy of every declaration page
from each such policy shall be attached and incorporated herein. Each of the
Company and each of its Subsidiaries have general commercial, fire and casualty
insurance policies with coverages which the Company believes are customary for
companies similarly situated to the Company and its Subsidiaries in the same or
similar business.
4.19. SEC REPORTS. Except as set on Schedule 4.19, the Company has
timely filed all proxy statements, reports and other documents required to be
filed by it under the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange
Act"). The Company has made available to the Purchaser copies of: (i) its Annual
Reports on Form 10-K for its fiscal year ended March 31, 2005; (ii) its
quarterly reports on Form 10-Q for the fiscal quarters ended June 30, 2004,
September 30, 2004, December 31, 2004, June 30, 2005, September 30, 2005, and
December 31, 2005 and (iii) its reports on Form 8-K which have been filed from
March 31, 2005 to date (collectively, the "SEC Reports"). Except as set forth on
Schedule 4.19, each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. Each
Purchaser hereby represents, warrants and covenants to the Company as follows:
5.1. AUTHORIZATION; ENFORCEABILITY. Subject to receipt by
Purchaser's corporate parent of approval of the Hong Kong Stock Exchange prior
to the Closing, each Purchaser has the power and authority to purchase the
Securities and to execute and deliver this Agreement and the Related Agreements
to which such Purchaser is a party and to perform the provisions hereof and
thereof. This Agreement constitutes, and upon execution and delivery thereof,
each other Related Agreement to which such Purchaser is a party will constitute,
such Purchaser's valid and legally binding obligation, enforceable in accordance
with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) general principles of equity.
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5.2. NO CONFLICT WITH OTHER INSTRUMENTS. The (i) execution, delivery
and performance of this Agreement by each Purchaser and the other Related
Agreements to which such Purchaser is a party, and (ii) consummation of the
transactions contemplated hereby and thereby by such Purchaser has not and will
not result in default (and to the knowledge of such Purchaser, no event has
occurred which, with notice or lapse of time or both, would constitute a
default) under any provision of any instrument or contract to which such
Purchaser is a party or by which such Purchaser or any of its property is bound,
or in violation of any provision of any governmental requirement applicable to
such Purchaser.
5.3. CONSENT. FILINGS, CONSENTS AND APPROVALS. Except in connection
with Purchaser's corporate parent's obligation to secure approval of the Hong
Kong Stock Exchange prior to Closing, which Company acknowledges as a condition
precedent to Purchaser's obligations to purchase the Shares, no Purchaser is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other person in connection with
the execution, delivery and performance by the Purchaser of this Agreement or
the Related Agreements, other than the Required Approvals or any other filing or
notice required under federal or state securities laws to report the
transactions contemplated in this Agreement and the Related Agreements.
5.4. INVESTMENT FOR OWN ACCOUNT. Such Purchaser will hold the
Securities for their own account for investment purposes only, and not with a
view to, or for resale in connection with, any distribution that would require
registration under the Securities Act or the securities laws of any state. Such
Purchaser does not presently have any reason to anticipate any change in
circumstances or other particular occasion or event which would require selling
the Securities or any part thereof or interest therein. Such Purchaser
understands that there will be no established market for the Securities and that
such Purchaser may be restricted from selling the Securities except in a sale
exempt under federal and state securities laws.
5.5. NO REGISTRATION. Such Purchaser understands that: (a) the
Securities (i) have not been registered under the Securities Act or any state
securities laws, (ii) will be issued in reliance upon an exemption from the
registration and prospectus delivery requirements of the Securities Act which
relate to private offerings, (iii) may be required to be held by such Purchaser
indefinitely, and (b) such Purchaser must therefore bear the economic risk of
such investment indefinitely unless a subsequent disposition thereof is
registered under the Securities Act and applicable state securities laws or is
exempt therefrom. Such Purchaser further understands that such exemptions depend
upon, among other things, the accuracy of such Purchaser's representations set
forth in this Section 5.
5.6. ACCESS TO INFORMATION. Such Purchaser has had an opportunity to
ask questions of, and receive satisfactory answers from, the Company and its
representatives or agents concerning the terms of this investment and the
undersigned's potential acquisition of the Securities, and all such questions
have been answered to such Purchaser's full satisfaction. Such Purchaser has
been furnished by the Company all information (or provided access to all
information) regarding the business and financial condition of the Company, the
attributes of the Securities and the merits and risks of an investment in the
Securities which such Purchaser has requested or otherwise needs to evaluate the
investment in the Securities, and such Purchaser does not desire any further
information or data concerning the Company. Specifically, such Purchaser
acknowledges receipt from the Company of, without limitation, the following
information (collectively, the "Investment Information"):
11
(a) the Company's Exchange Act Filings; and
(b) the Company's Charter and Bylaws.
Such Purchaser has received, read and understands the Investment Information.
Such Purchaser has examined all written materials furnished by the Company, or
caused the same to be examined by such Purchaser's representatives, to the
extent such Purchaser deemed necessary or appropriate. The undersigned
acknowledges that the Company has made available to the undersigned the
opportunity to obtain additional information to verify the accuracy of any
material shown to the undersigned by the Company and to evaluate the merits and
risks of this investment.
5.7. ACCREDITED INVESTOR. Such Purchaser is an "accredited investor"
as defined in Rule 501 of Regulation D promulgated under the Securities Act, and
such Purchaser, or those persons retained by such Purchaser, have knowledge,
skill and experience in financial, business and investment matters relating to
an investment of this type and are capable of evaluating the merits and risks of
such investment and protecting such Purchaser in connection with an investment
in the Securities. At such Purchaser's own expense, the undersigned has, to the
extent deemed necessary by such Purchaser, retained and relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of an investment in the Securities. Such Purchaser has not received
any legal, business, tax or other advice from the Company, its counsel or other
representatives.
5.8. RISK OF INVESTMENT. Such Purchaser acknowledges that (i) it has
been called to such Purchaser's attention that such Purchaser's investment in
the Securities involves a high degree of risk, (ii) any investment in the
Company is not insured by any governmental or other entity, and (iii) such
Purchaser understands that the Securities will be an illiquid investment.
Further, such Purchaser acknowledges that there are certain tax risks associated
with the proposed investment and no assurances are being made that existing tax
laws and regulations will not be modified in the future, thus altering tax
consequences associated with this potential investment. The Company has never
made any representation, guarantee or warranty (a) as to the approximate or
exact length of time that such Purchaser will be required to remain an owner of
the Securities (or any other securities of the Company); (b) the percentage of
profit, amount of or type of consideration and/or profit or loss, if any, that
will result from an investment in the Securities; or (c) that any future
expectations relating to the Company's performance indicate in any way what the
Company's financial condition or results of operations will be in the future.
Such Purchaser understands the speculative nature of an investment in the
Securities and the financial risks associated with the Securities.
5.9. RESTRICTIONS ON TRANSFER. The Offering is being made in
reliance upon exemptions from registration under the Securities Act and
applicable state securities laws for an offer and sale of securities not
involving a public offering. The Securities may not be sold, transferred or
otherwise disposed of without satisfaction of certain conditions, including
registration under, or the availability of an exemption from registration under,
the Securities Act and applicable state securities laws. Such Purchaser agrees
that the Company may permit the transfer of the Securities out of such
Purchaser's name only when any request for transfer is accompanied by an opinion
of counsel acceptable in form and substance to Company counsel to the effect
that the proposed transfer results in no violation of the Securities Act or any
applicable state securities laws. A legend to this effect will be placed upon
each certificate representing the Securities.
12
5.10. REPRESENTATIONS AND WARRANTIES. No person or entity, other
than the Company, has been authorized to give any information or to make any
representations on behalf of the Company in connection with the offering of the
Securities and, if given or made, such information or representations have not
been relied upon by the undersigned as having been made or authorized by the
Company. The only representations, warranties and information made by the
Company in connection with the Offering are those contained in this Agreement
and the Investment Information.
5.11. GENERAL SOLICITATION. The solicitation of an offer to buy the
Securities was communicated to such Purchaser in such a manner that at no time
was such Purchaser presented with or solicited by or through any leaflet, public
promotional meeting, television, radio, internet or other published
advertisement or any other form of general or public advertising or
solicitation.
5.12. PURCHASER'S EXPERIENCE. By reason of such Purchaser's business
and financial experience, such Purchaser has the capacity to protect such
Purchaser's own interests in investments of this nature. Such Purchaser has
evaluated such Purchaser's financial resources and investment position, and the
risks associated with the proposed investment and concluded that such Purchaser
has the ability to bear the economic risks associated with this proposed
investment.
5.13. NON-PUBLIC INFORMATION. After the date hereof, such Purchaser
agrees to hold in strict confidence any non-public information of the Company
(the "Information") acquired by such Purchaser, and not to use such Information
for any competitive purpose. Such Purchaser may transmit Information to its
partners, directors, officers, employees, agents or representatives, including
attorneys, accountants and consultants (collectively, "Representatives"), but
only to such Representatives who are informed of the confidential nature of the
Information and are directed to treat such Information as confidential.
Notwithstanding anything to the contrary herein, such Purchaser may disclose any
Information to the extent such Information or portion thereof (i) is or becomes
generally available to the public other than as a result of a disclosure by the
undersigned or its Representatives in breach of the terms hereof, (ii) is or
becomes available to such Purchaser on a non-confidential basis from a source,
other than the Company or its representatives, without violation of a duty of
confidentiality to the Company, or (iii) was known to such Purchaser on a
non-confidential basis prior to the disclosure to such Purchaser by the Company
or any of its representatives.
6. COVENANTS OF THE COMPANY AND PURCHASER.
13
6.1. LISTING. The Company shall as promptly as practicable after
Closing secure the listing of the shares of Common Stock and Shares issuable
upon the exercise of the Warrants on the AMEX (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of Common
Stock shall be so listed. The Company will use commercially reasonable best
efforts to maintain the listing of its Common Stock on AMEX, and will comply
with the Company's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable.
6.2. MARKET REGULATIONS. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchasers and promptly provide copies thereof to the Purchasers.
6.3. REPORTING REQUIREMENTS; REPORTS FOR PURCHASERS. The Company
will timely file with the SEC all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an issuer required by
the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination. The Company will
prepare and timely file with the Commission, at the Company's expense, any
filings pursuant to Section 13 or 16 of the Exchange Act that are required for
Purchasers in connection with this transaction and for any exercise of the
Warrants in the future; provided, however, that Purchasers agree to deliver any
necessary information required to complete such filings to the Company no later
than the next business day after the transaction requiring such filing occurs.
6.4. SHAREHOLDER APPROVAL. If required by law, the Company will call
a special meeting of the Company's shareholders, which shall be held no later
than July 31, 2006, for the Company's shareholders to vote to approve this
Agreement, the Related Agreements and the transactions contemplated hereby and
thereby. The Company's Board of the Directors (the "Board") will make a
unanimous recommend that the shareholders vote in favor of such proposal.
6.5. BOARD SEATS. Within 5 days of the Closing Date, the Board will
take such actions as are legally required to allow Purchasers to appoint such
number of individuals designated by Purchasers to the Company's Board of
Directors to fill such number of either vacant or newly created seats as is
required to grant Purchasers representation on the Board which is pro rata with
their shareholding in the Company as of the Closing.
6.6. RESTRICTIONS If required by law, until this Agreement and
the Related Agreements are approved by the holders a majority of the outstanding
shares of capital stock of the Company entitled to vote ("Shareholder
Approval"), no holder of Shares or Warrants shall be entitled to vote such
holder's Shares or exercise such holder's Warrants, if such holder will hold
more than 19.99% of the outstanding Common Stock or voting power of the Company
on the date of such vote or exercise.
7. INDEMNIFICATION.
14
7.1. COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchasers, each Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchasers which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchasers
relating hereto or thereto.
7.2. PURCHASERS' INDEMNIFICATION. Each Purchaser agrees to
indemnify, hold harmless, reimburse and defend the Company and each of the
Company's officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon: (i) any misrepresentation by the Purchasers or breach of any warranty by
the Purchasers in this Agreement, any other Related Agreement or in any exhibits
or schedules attached hereto or thereto; or (ii) any breach or default in
performance by the Purchasers of any covenant or undertaking to be performed by
the Purchasers hereunder, under any other Related Agreement or any other
agreement entered into by the Company and/or any of its Subsidiaries and
Purchasers relating hereto or thereto.
8. MISCELLANEOUS.
8.1. DEBT RESTRUCTURING. As of the Closing Date, Company shall have
entered into such legally binding agreements as are required to restructure its
related party debt in the current outstanding principal amount of $300,000
("Related Party Debt") and outstanding debentures as set forth herein. With
regard to its Related Party Debt, Company may use $50,000 of the proceeds to be
received by Company from Purchasers at Closing to retire a like portion of its
Related Party Debt, and shall cause the remainder of the Related Party Debt to
take the form of three year unsecured promissory notes payable on an interest
only basis with quarterly payments of interest at the annual rate of five and
one-half percent (5.5%) ("Related Party Debt Restructure"). Concurrent with the
Related Party Debt Restructure and as of the Closing Date, Company shall enter
into such legally binding agreements as are required to restructure its
currently outstanding debentures in the current outstanding principal amount of
$4,000,000 ("Debentures") such that the Company may: (i) use up to $2,000,000 of
the proceeds to be received by Company from Purchasers at Closing to retire the
Debentures in full as to both principal and accrued interest owing as of the
Closing Date, and (ii) cause the exercise price of the warrants currently held
by the holders of the Debentures to be lowered to $0.85 per share ("Debenture
Restructure").
8.2. FINANCING RIGHT OF FIRST REFUSAL. Company shall grant to
Purchasers the right of first refusal to provide Company with a working capital
line of credit on the same terms and conditions as those offered to Company by a
third-party institutional lender, excepting Crestmark Bank.
8.3. EQUITY FINANCING RIGHT OF FIRST REFUSAL. Company shall grant
the Purchasers the right of first refusal to purchase from Company any equity or
quasi-equity securities which Company may choose to issue after the Closing Date
("Equity First Refusal Right"). Such Equity First Refusal Right shall expire on
the third anniversary of the Closing Date.
15
8.4. ENTIRE AGREEMENT. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
8.5. CHOICE OF LAW. This Agreement shall be governed under the laws
of the State of New York, without regard to conflicts of law. The parties agree
that the venue for the resolution of any conflicts arising under this Agreement
or for the interpretation of this Agreement shall be in San Diego, California
and that the Courts of the State of California shall have jurisdiction over any
such disputes and over the parties hereto.
8.6. ATTORNEY'S FEES. In the event any litigation, arbitration,
mediation, or other proceeding ("Proceeding") is initiated by any party(ies)
against any other party(ies) to enforce, interpret or otherwise obtain judicial
or quasi-judicial relief in connection with this Agreement, the prevailing
party(ies) in such Proceeding shall be entitled to recover from the unsuccessful
party(ies) all costs, expenses, actual attorney's and expert witness fees,
relating to or arising out of: (i) such Proceeding (whether or not such
Proceeding proceeds to judgment), and (ii) any post-judgment or post-award
proceeding including, without limitation, one to enforce any judgment or award
resulting from any such Proceeding. Any such judgment or award shall contain a
specific provision for the recovery of all such subsequently incurred costs,
expenses, actual attorney and expert witness fees.
8.7. COUNTERPARTS. This Agreement may be signed in one (1) or more
counterparts, each of which shall constitute an original but all of which
together shall be one (1) and the same document. Signatures received by
facsimile shall be deemed to be original signatures.
8.8. PARTIAL INVALIDITY. Each provision of this Agreement will be
valid and enforceable to the fullest extent permitted by law. If any provision
of this Agreement or the application of the provision to any person or
circumstance will, to any extent, be invalid or unenforceable, the remainder of
this Agreement, or the application of the provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, will not be
affected by such invalidity or unenforceability, unless the provision or its
application is essential to this Agreement.
8.9. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.10. DRAFTING AMBIGUITIES. Each party to this Agreement and their
legal counsel have reviewed and revised this Agreement. The rule of construction
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any amendments or exhibits
to this Agreement.
8.11. NOTICES. Any notice from one party to another shall be
delivered either personally, via facsimile or by United States mail, postage
fully prepaid, addressed as follows:
16
Purchasers: To the respective addresses set forth below the
Purchaser's signature at the foot of this
Agreement.
With a copy (not
constituting notice): Xxxxxx & Associates
Attention: Xxxxx Xxxxxx, Esq.
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000-0000
Company: The Singing Machine Company, Inc.
Attention: Yi Xxxx Xxxx
0000 Xxxxx Xxxx, Xxxxxxxx X-0
Xxxxxxx Xxxxx, XX 00000
With a copy to (not
constituting notice): Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
Attention: Xxxxxx X. Xxxxxx, Esq.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Any notice being delivered within the continental United States shall be deemed
delivered upon (a) personal service, or (b) transmission via facsimile (with the
original thereof to be immediately sent via mail, postage prepaid), or (c) forty
eight (48) hours after the time of deposit in the mail, as the case may be. In
the event any Party changes its address, such change of address shall be
communicated to the other Party in the manner set forth in this Section.
8.12. DEFINITION OF KNOWLEDGE. For the purposes of this Agreement,
the Company shall only be deemed to have "knowledge" of a particular fact or
other matter, if an executive officer of the Company is actually aware of such
fact or matter, or a reasonably prudent individual operating in the capacity of
an executive officer of the Company could be expected to discover or otherwise
become aware of such fact or matter in the ordinary course of fulfilling the
responsibilities of an executive officer.
8.13. INTERPRETATION/REPRESENTATION. Wherever the context of this
Agreement requires, all words used in the singular shall be construed to have
been used in the plural, and vice versa, and the use of any gender specific
pronoun shall include any other appropriate gender. The term "person" shall
refer to any individual, corporation or legal entity having standing to bring an
action in its own name under applicable state law. The conjunctive "or" shall
mean "and/or" unless otherwise required by the context in which the conjunctive
"or" is used.
8.14. SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
17
8.15. SUCCESSORS. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchasers pursuant to Rule 144 or an effective
registration statement.
8.16. AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and a majority in interest of the
Purchasers.
(b) The obligations of the Company and the rights of the
Purchasers under this Agreement may be waived only with the written
consent of a majority in interest of the Purchasers.
(c) The obligations of the Purchasers and the rights of the
Company under this Agreement may be waived only with the written
consent of the Company.
8.17. DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
COMPANY:
THE SINGING MACHINE COMPANY, INC.
a Delaware corporation
/s/Yi Xxxx Xxxx
------------------------------
Yi Xxxx Xxxx, Interim Chief Executive Officer
PURCHASERS:
KONCEPTS INTERNATIONAL LIMITED
By: /s/ Xxx Sak Hong
------------------------------
Name: Xxx Sak Hong
Its: Chairman
Address: 5/F., Xxxxx Xxx Industrial Building
000 Xxxxxxxx Xxxx Xxxx
Xxxx Xxxx
19
EXHIBIT A
FORM OF WARRANT
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
CLOSING SHARE DISTRIBUTION SCHEDULE
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
EXHIBIT F
AMENDED ARTICLES (IF REQUIRED)
Schedule 4.1: Company and Subsidiary Identification
INTERNATIONAL SMC (HK) LTD (A HONG KONG CORPORATION)
100% owned by The Singing Machine Company, Inc. (A Delaware corporation)
Office address: Xxxxx 0000, Xxxxx Xxxxxx, 0 Xxxxxx Xxxx, Xxxxxxx, Xxxx Xxxx
THE SINGING MACHINE HOLDINGS LTD. (A BVI CORPORATION)
100% owned by The Singing Machine Company, Inc.
Registered Office: C/O Trident Trust Company (B.V.I.) Limited, Trident
Xxxxxxxx, X.X. Xxx 000, Xxxx Xxxx, Xxxxxxx, Xxxxxxx Xxxxxx Xxxxxxx
SMC (COMERCIAL OFFSHORE DE MACAU) LIMITADA (A MACAU CORPORATION)
100% owned by The Singing Machine Holdings Ltd.
Office address: Alameda Xx. Xxxxxx x'Xxxxxxxxx, Xx. 000, Xxxxxxxx Xxxxx Xxxxx
Xxxxx, 00 xxxxx, Xxxxx
Schedule 4.2: Ownership of Subsidiaries
(See Above at Schedule 4.1)
Schedule 4.3: Capitalization and Voting Rights
Issuing Date Vesting Period Fully Vested Date Options #Cancelled
(YR)
9/11/2002 3 09/10/05 90,000 60,000
12/31/2002 5 12/30/07 237,000 163,500
1/24/2003 1 01/24/04 10,000 --
3/8/2003 3 03/07/06 180,000 --
4/18/2003 5 04/16/08 10,000
12/19/2003 5 12/17/08 229,920 97,360
1/23/2004 5 01/21/09 32,000 --
2/6/2004 1 02/05/05 42,060 35,560
2/26/2004 1 02/25/05 60,000 20,000
3/29/2004 1 03/29/05 20,000 --
4/5/2004 5 04/04/09 50,000 50,000.00
4/26/2004 5 04/25/09 12,000 --
9/30/2004 5 09/29/09 50,000 50,000.00
11/29/2004 1 11/29/05 60,000 --
12/1/2004 1 12/01/05 40,000 --
2/1/2005 5 01/31/10 12,000 --
5/9/2005 3 05/08/08 621,000 50,000.00
1/20/2006 3 01/19/09 60,000 --
Total 1,815,980 526,420
Total Option as of Feb 21, 2006 1,289,560
Warrants as of Feb 21, 2006
Private Warrants Issued Vested Expiration
------ ------ ----------
Xxxx Capital Partners LLP 4.025 103,896 9/8/2003 9/8/2003 9/7/2006
Omicron Master Trust 4.025 285,714 9/8/2003 9/8/2003 9/7/2006
SF Capital Partners, Ltd. 4.025 57,143 9/8/2003 9/8/2003 9/7/2006
Bristol Investment Fund, Ltd. 4.025 34,286 9/8/2003 9/8/2003 9/7/2006
Ascend Offshore Fund, Ltd. 4.025 54,629 9/8/2003 9/8/2003 9/7/2006
Ascend Partners LP 4.025 6,651 9/8/2003 9/8/2003 9/7/2006
Ascend Partners Sapient LP 4.025 18,720 9/8/2003 9/8/2003 9/7/2006
-
Omicron Master Trust 1.52 18,750 2/9/2004 2/9/2004 9/7/2006
SF Capital Partners, Ltd. 1.52 3,750 2/9/2004 2/9/2004 9/7/2006
Bristol Investment Fund, Ltd. 1.52 2,250 2/9/2004 2/9/2004 9/7/2006
Ascend Offshore Fund, Ltd. 1.52 3,585 2/9/2004 2/9/2004 9/7/2006
Ascend Partners LP 1.52 437 2/9/2004 2/9/2004 9/7/2006
Ascend Partners Sapient LP 1.52 1,229 2/9/2004 2/9/2004 9/7/2006
=======
Unexercised Warrants 591,040
Schedule 4.5: Liabilities
None
Schedule 4.6: Agreements
None
Schedule 4.7: Obligations to Related Parties
None
Schedule 4.8: Changes in Condition
None
Schedule 4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC
Properties pledged as collateral to Crestmark Bank, a lender
All personal properties of The Singing Machine Company, Inc., which including:
1) Accounts receivable
2) Inventory
3) Chattel paper (N/A)
4) Equipment
5) Investment property (N/A)
6) Deposit account
7) General Intangible
As of February 21, 2006. Our loan balance with the Crestmark Bank is zero.
Schedule 4.13: Litigation
None
Schedule 4.14: Tax Returns and Payments
As of February 21, 2006, International SMC (HK), Ltd. Owes Internal Revenue
Service (US) $137,475 for the income tax due for tax year ended March 31, 2003
before penalty and interest. The amount is included in our latest consolidated
financial statements filed with SEC dated February 14, 2006.
Schedule 4.15: Employees
Employment Agreement with Xxxxxx Xxxxxxx
Schedule 4.18 Insurance
Account 1602 12/31/2005
Prepaid Insurance
Agent Policy # Expiration Total Premium
AIG - Gulf Coast Insurance -
Workers Comp - FL WC WC00681263400 10/17/2005-10/17/2006 $ 28,606.00
Premium Assn Corp-Summit
Global - Directors &Office D&O
212645 11/10/05-11/10/06 $ 176,750.00
The Hartford P&L 21UUNYY6200/ 7/1/2005-7/1/06 $ 44,329.31
21XHUTT5984
Int'l Marine Underwriter Cargo 1/03/05 - 1/2/06 Monthly xxxx
Schedule 4.19: SEC Reporting
