-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BG06g0CarmNRt9/hSQ9Aa4l+Gz0Y6JlHzm+d/ZD/yJk5oOwkgYlbgLBbLC/zkPDI W0s/xnu45psVSZT1Q84XyA== 0001144204-06-009779.txt : 20060314 0001144204-06-009779.hdr.sgml : 20060314 20060314152325 ACCESSION NUMBER: 0001144204-06-009779 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060308 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Termination of a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060314 DATE AS OF CHANGE: 20060314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINGING MACHINE CO INC CENTRAL INDEX KEY: 0000923601 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 953795478 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24968 FILM NUMBER: 06684868 BUSINESS ADDRESS: STREET 1: 6601 LYONS ROAD STREET 2: BLDG A-7 CITY: COCONUT CREEK STATE: FL ZIP: 33073 BUSINESS PHONE: 9545961000 MAIL ADDRESS: STREET 1: 6601 LYONS ROAD BLDG CITY: COCONUT CREEK STATE: FL ZIP: 33073 8-K 1 v037671_8k.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 8, 2006 THE SINGING MACHINE COMPANY, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 0-24968 95-3795478 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 6601 Lyons Road, Bldg. A-7, Coconut Creek, Florida 33073 -------------------------------------------------------- (Address of principal executive offices and Zip Code) Registrant's telephone number, including area code (954) 596-1000 Copies to: Darrin M. Ocasio, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas New York, New York 10018 Phone: (212) 930-9700 Fax: (212) 930-9725 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT. ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION. ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES. On March 8, 2006, we entered into a Bridge Loan Agreement (the "Loan Agreement") with Ever Solid Limited (the "Lender") pursuant to which the Lender agreed to lend to us an aggregate amount of $2,000,000 and in exchange, we issued a $2,000,000 principal amount 8% Senior Promissory Note (the "Note") to the Lender. The Note bears interest at 8% per annum and matures within 48 hours of the closing of that certain Stock Purchase Agreement (the "Stock Purchase Agreement") dated February 21, 2006 which we entered into with koncepts International Limited. If, however, the Stock Purchase Agreement fails to close for whatever reason, we will be required to repay all principal and accrued interest on or before September 8, 2006. In addition, our obligation to repay the principal and accrued interest under the Note is secured by all of our assets pursuant to a certain Collateral Security Agreement which we entered into with the Lender on March 8, 2006. We used the proceeds from the loan to repay our outstanding principal amount $4,000,000 8% convertible debentures (the "Debentures") issued pursuant to that certain Securities Purchase Agreement dated August 20, 2003 (the "Purchase Agreement") which came due on February 20, 2006, plus accrued interest in the aggregate amount of $270,000, which accrued interest was forgiven by the holders of the Debentures. In addition, we entered into a Settlement Agreement and Release (the "Settlement Agreement") with the holders of the Debentures on March 5, 2006 pursuant to which the holders and we agreed to release and discharge each other, and our respective officers, directors, principals, control persons, past and present employees, insurers, successors, agents and assigns from any and all actions, damages, judgments, claims, and demands existing or claimed to exist between the parties in connection with the Debentures or the Purchase Agreement. We claim an exemption from the registration requirements of the Act for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated thereunder since, among other things, the transaction did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about the company and their investment, the investors took the securities for investment and not resale, and we took appropriate measures to restrict the transfer of the securities. On March 14, 2006, we issued a press release announcing the entry and termination into the aforementioned material definitive agreements. A copy of this press release has been filed with this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference. In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Not applicable. (B) PRO FORMA FINANCIAL INFORMATION. Not applicable. (C) EXHIBITS. EXHIBIT NUMBER DESCRIPTION - -------------------------------------------------------------------------------- 10.1 Bridge Loan Agreement dated March 8, 2006, by and between The Singing Machine Company, Inc. and Ever Solid Limited. 10.2 Collateral Security Agreement dated March 8, 2006, by and between The Singing Machine Company, Inc. and Ever Solid Limited. 10.3 Bridge Note of The Singing Machine Company, Inc. dated March 8, 2006 10.4 Settlement Agreement and Release dated as of March 5, 2006 by and among The Singing Machine Company, Inc. and the holders of the Company's 8% Convertible Debentures. 99.1 Press Release of The Singing Machine Company, Inc. dated March 14, 2006. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE SINGING MACHINE, COMPANY, INC. Date: March 14, 2006 /s/ Yi Ping Chan ---------------------------------------- Yi Ping Chan Interim CEO and Chief Operating Officer EX-10.1 2 v037671_ex10-1.txt BRIDGE LOAN AGREEMENT THIS BRIDGE LOAN AGREEMENT, dated as of March 8, 2006, is entered into by and between THE SINGING MACHINE COMPANY, INC., a Delaware corporation located at 6601 Lyons Road, Building A-7 Coconut Creek, FL 33073, USA (the "Company"), and EVER SOLID LIMITED, a Hong Kong registered company, located at Shing Dao Industrial Bldg., F/5, 232 Aberdeen Main Road, Hong Kong or its successors or assigns (as used herein, each such signatory or their successors or assigns is referred to as the "Lender" or a "Lender"). W I T N E S S E T H: WHEREAS, the Company and the Lender are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; and WHEREAS, In connection with the Lender's intent to help Company facilitate its faithful performance under that certain Stock Purchase Agreement dated February 21, 2006 (hereafter "SPA") by and between Company on the one hand and koncepts International Limited ("koncepts") on the other, Lender has agreed to lend funds to the Company, subject to and upon the terms and conditions of this Agreement the repayment of which will be represented by a Promissory Note of the Company ("Senior Note"), on the terms and conditions referred to herein; and NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO LEND 1.1. Subject to the terms and conditions of this Agreement and the other Transaction Agreements, Lender hereby agrees to loan to the Company the principal amount of $2,000,000.00 US Dollars (the "Loan Amount or Aggregate Loan Amount") to be used exclusively to redeem existing outstanding Debentures held by Omicron Master Trust, SF Capital Partners, Ltd., Bristol Investment Fund, Ltd., Ascend Offshore Fund, Ltd., Ascend Partners LP, and Ascend Partners Sapient LP (collectively the "Sub-Debt Holders") in the original aggregate principal amount of $4,000,000. The obligation to repay the loan shall be evidenced by the Company's issuance of the Senior Note, which shall be shall be in the form of Annex 1 annexed hereto. 1.2. The loan to be made by the Lender and the issuance of the Senior Note to the Lender and the other transactions contemplated hereby are sometimes referred to herein and in the other Transaction Agreements (as defined below) collectively as the "Transactions." 2. TERMS OF REPAYMENT 2.1. The Note shall bear interest absent an event of default at the rate of eight percent (8%) per annum, commencing as of the date on which Lender advances funds to Company pursuant to the Senior Note, which interest, absent an event of default, shall all be due upon maturity of the Senior Note as provided for therein. If shareholder approval for completion of the SPA is granted, koncepts shall be entitled to deliver the original Senior Note marked 'Paid' and written satisfaction of this Bridge Loan Agreement to Company as payment for Two Million ($2,000,000 USD) dollars of koncepts total Three Million ($3,000,000 USD) dollars purchase consideration under the SPA thereby reducing the cash required at closing under the terms of the SPA to One Million dollars ($1,000,000 USD). Notwithstanding the foregoing, at such time Company will still owe Lender all amounts of accrued but unpaid interest and other fees, if any, owing under the terms of the Senior Note, and will concurrently pay such accrued but unpaid interest and fees, if any, to Lender in cash. If, however, shareholder approval is not granted, the Senior Note shall mature as per its terms on or before September 8, 2006. 3. SECURITY 3.1. The obligations of Company to Lender pursuant to this Bridge Loan Agreement and the Senior Note are secured by a separate Collateral Security Agreement executed of even date herewith. 4. CERTAIN DEFINITIONS. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires: 4.1.1. "Closing Date" means the date of the closing of the Transactions, as provided herein. 4.1.2. "Escrow Agent" means Anton Handal, Esq. 4.1.3. "Person" means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust. 4.1.4. "Securities" means the Senior Note. 4.1.5. "Transaction Agreements" means this Bridge Loan Agreement, the Senior Note, the Collateral Security Agreement, the Settlement Agreement and Release and includes all ancillary documents referred to in those agreements collectively. 5. FORM OF PAYMENT; DELIVERY OF CERTIFICATES. 5.1. The Lender shall advance to Company the Loan Amount by delivering immediately available good funds in United States Dollars to the Escrow Agent no later than the Closing Date. 5.2. No later than the Closing Date, the Company shall cause to be delivered to the Escrow Holder fully executed copies of the Settlement Agreement and Release in the form as set forth in Annex 2 to this agreement. 5.3. No later than the Closing Date, the Company shall cause to be delivered to the Escrow Holder a fully executed Senior Note and Collateral Security Agreement in the form as set forth in Annex 3 to this Agreement. 6. METHOD OF PAYMENT. At Closing disbursement of the Loan Amount shall be made by wire transfer of funds directly from Escrow Holder's account to the below-referenced banks or such other financial institution as set forth in written instructions provided to Lender by the Company in the amounts set forth on the table below: SUB-DEBT HOLDERS BANK ACCOUNT/WIRING INFO. AMOUNT - ----------------------------------- ------------------------- ---------------- Omicron Master Trust $ 1,250,000.00 - ----------------------------------- ------------------------- ---------------- SF Capital Partners, Ltd. $ 250,000.00 - ----------------------------------- ------------------------- ---------------- Bristol Investment Fund, Ltd. $ 150,000.00 - ----------------------------------- ------------------------- ---------------- Ascend Offshore Fund, Ltd. $ 239,000.00 - ----------------------------------- ------------------------- ---------------- Ascend Partners LP $ 29,100.00 - ----------------------------------- ------------------------- ---------------- Ascend Partners Sapient LP $ 81,900.00 - ----------------------------------- ------------------------- ---------------- TOTAL $ 2,000,000.00 =================================== ========================= ================ 7. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION The Lender represents and warrants to, and covenants and agrees with, the Company as follows: 7.1. Without limiting Lender's right to sell the Securities pursuant to an effective registration statement or otherwise in compliance with the 1933 Act, if required, the Lender is purchasing the Securities for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof. 7.2. The Lender is (i) an "accredited investor" as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its Affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and to evaluate the merits and risks of an investment in the Securities, and (iv) able to afford the entire loss of its investment in the Securities. 7.3. All subsequent offers and sales of the Securities by the Lender shall be made pursuant to registration of the relevant Securities under the 1933 Act or pursuant to an exemption from registration, if required. 7.4. The Lender understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the 1933 Act and state securities laws and that the Company is relying upon the truth and accuracy of, and the Lender's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Lender set forth herein in order to determine the availability of such exemptions and the eligibility of the Lender to acquire the Securities. 7.5. This Agreement and the other Transaction Agreements to which the Lender is a party, and the transactions contemplated thereby, have been duly and validly authorized, executed and delivered on behalf of the Lender and are valid and binding agreements of the Lender enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally. 8. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to the Lender as of the date hereof and as of the Closing Date: 8.1. RIGHTS OF OTHERS AFFECTING THE TRANSACTIONS. There are no preemptive rights of any shareholder of the Company to acquire the Senior Notes. No party other than a Lender or an Other Lender has a currently exercisable right of first refusal, which would be applicable to any or all of the transactions contemplated by the Transaction Agreements. 8.2. STATUS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have or result in a Material Adverse Effect. The Company has registered its stock and is obligated to file reports pursuant to Section 12 or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the 1934 Act"). The Common Stock is quoted on the American Stock Exchange ("Principal Trading Market"). 8.3. TRANSACTION AGREEMENTS AND STOCK. This Agreement and each of the other Transaction Agreements, and the transactions contemplated thereby, have been duly and validly authorized by the Company, this Agreement has been duly executed and delivered by the Company and this Agreement is, and the Senior Note, and each of the other Transaction Agreements, when executed and delivered by the Company, will be, valid and binding consensual agreements of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors' rights generally. 8.4. NON-CONTRAVENTION. The execution and delivery of this Agreement and each of the other Transaction Agreements by the Company, the issuance of the Securities, and the consummation by the Company of the other transactions contemplated by this Agreement, the Senior Note, and the other Transaction Agreements do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the certificate of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock on the American or any other recognized stock exchange except as herein set forth, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, except such conflict, breach or default which would not have or result in a Material Adverse Effect. 8.5. APPROVALS. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the shareholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Lender as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained. 8.6. FULL DISCLOSURE. To the best of the Company's knowledge, there is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the Company's SEC Documents) that has not been disclosed in writing to the Lender. 8.7. CONFIRMATION. The Company confirms that all statements of the Company contained herein shall survive acceptance of this Agreement by the Lender. The Company agrees that, if any events occur or circumstances exist prior to the Closing Date or the release of the Loan Amount to the Company which would make any of the Company's representations, warranties, agreements or other information set forth herein materially untrue or materially inaccurate as of such date, the Company shall immediately notify the Lender (directly or through its counsel, if any) in writing prior to such date of such fact, specifying which representation, warranty or covenant is affected and the reasons therefor. 8.8. INTEGRATION. The Company has previously entered into that certain Securities Purchase Agreement with koncepts dated as of February 21, 2006 pursuant to which the Company made certain representations and warranties as are contained in that agreement. Such representations and warranties are hereby incorporated into this Agreement by reference, and the Company hereby reaffirms such representations and warranties as being accurate as of the date of this Agreement as if they were contained in this Agreement. 9. CERTAIN COVENANTS AND ACKNOWLEDGMENTS. 9.1. FILINGS. The Company undertakes and agrees to make all necessary filings in connection with the sale of the Securities to the Lender under any United States laws and regulations applicable to the Company, or by any domestic securities exchange or trading market, and to provide a copy thereof to the Lender promptly after such filing. 9.2. REPORTING STATUS. So long as the Lender beneficially owns any of the Securities and for at least twenty (20) Trading Days thereafter, the Company shall file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take all reasonable action under its control to ensure that adequate current public information with respect to the Company, as required in accordance with Rule 144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. The Company will take all reasonable action under its control to maintain the continued listing and quotation and trading of its Common Stock the Principal Trading Market or a listing on the NASDAQ/Small Cap or National Markets and, to the extent applicable to it, will comply in all material respects with the Company's reporting, filing and other obligations under the by-laws or rules of the Principal Trading Market and/or the National Association of Securities Dealers, Inc., as the case may be, applicable to it at least through the date which is sixty (60) days after the later of the date on which (x) all of the Notes have been converted or been paid in full or (y) all of the Warrants have been exercised or have expired. 9.3. USE OF PROCEEDS. The Company will use 100% of the proceeds received hereunder to retire all of its issued and outstanding debentures together with all accrued but unpaid interest and penalties. 9.4. PUBLICITY, FILINGS, RELEASES, ETC. Each of the parties agrees that it will not disseminate any information relating to the Transaction Agreements or the transactions contemplated thereby, including issuing any press releases, holding any press conferences or other forums, or filing any reports (collectively, "Publicity"), without giving the other party reasonable advance notice and an opportunity to comment on the contents thereof. Neither party will include in any such Publicity any statement or statements or other material to which the other party reasonably objects, unless in the reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included. In furtherance of the foregoing, the Company will provide to the Lender drafts of the applicable text of the first filing of a Current Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K intended to be made with the SEC which refers to the Transaction Agreements or the transactions contemplated thereby as soon as practicable (but at least two (2) Trading Days before such filing will be made) will not include in such filing any statement or statements or other material to which the other party reasonably objects, unless in the reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included. Notwithstanding the foregoing, each of the parties hereby consents to the inclusion of the text of the Transaction Agreements in filings made with the SEC as well as any descriptive text accompanying or part of such filing which is accurate and reasonably determined by the Company's counsel to be legally required. Notwithstanding, but subject to, the foregoing provisions of this Section 4(d), the Company will, after the Closing Date, promptly issue a press release and file a Current Report on Form 8-K or, if appropriate, a quarterly or annual report on the appropriate form, referring to the transactions contemplated by the Transaction Agreements. Both the Company and Lender hereby consent to Cove Partners LLC preparing a Tombstone relating to the transaction contemplated by this Agreement for use on its corporate website and in its marketing materials. 9.5. For so long as the Senior Note is outstanding, and unless the Lender has prior consented in writing, which consent can be withheld at the sole and absolute discretion of Lender, Company shall not incur in excess of $1,500,000 US Dollars of debt with Crestmark Bank, or any replacement accounts receivable lender or factor. 10. CLOSING DATE. 10.1. The Closing Date shall occur on the date which is the first Business Day after each of the conditions contemplated by Sections 7 and 8 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run. 10.2. The closing of the Transactions shall occur on the Closing Date at the offices of Handal & Associates, 1200 Third Ave., Suite 1321, San Diego, CA 92101, and shall take place no later than 5:00 P.M., New York time on such day, or such other day and time, as is mutually agreed upon by the Company and the Lender. 11. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. 11.1. The Lender understands that the Company's obligation to sell the Notes to the Lender pursuant to this Agreement on the Closing Date is conditioned upon: 11.1.1. The execution and delivery of this Agreement by the Lender; 11.1.2. Delivery by the Lender of good funds as payment in full of an amount equal to the Loan Amount in accordance with this Agreement; 11.1.3. The accuracy on such Closing Date of the representations and warranties of the Lender contained in this Agreement, each as if made on such date, and the performance by the Lender on or before such date of all covenants and agreements of the Lender required to be performed on or before such date; and 11.1.4. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained. 12. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE. 12.1. The Company understands that the Lender's obligation to purchase the Notes on the Closing Date is conditioned upon: 12.1.1. Delivery to Escrow Holder by the Company of a fully executed copy of this Agreement and Note; 12.1.2. Delivery to Escrow Holder by the Company of a fully executed Sub-Debt Holder Settlement and Release Agreement in the form attached hereto as Annex 2; 12.1.3. Delivery to Escrow Holder of a fully executed Broad-Form UCC1 filing statement and collateral security agreement securitizing the Note; 12.1.4. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date; and 12.1.5. Approval of this Agreement and all related Transaction Agreements by the Hong Kong Stock Exchange; 12.2. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and 12.3. From and after the date hereof to and including the Closing Date, each of the following conditions will remain in effect: (i) the trading of the Common Stock shall not have been suspended by the SEC or on the Principal Trading Market; (ii) trading in securities generally on the Principal Trading Market shall not have been suspended or limited; (iii) no minimum prices shall been established for securities traded on the Principal Trading Market; and (iv) there shall not have been any material adverse change in any financial market. 12.4. Company shall reimburse Lender its direct out-of-pocket costs in connection with the transactions contemplated under this Bridge Loan Agreement to a maximum of $15,000 US Dollars. 13. INDEMNIFICATION AND REIMBURSEMENT. 13.1. The Company agrees to indemnify and hold harmless the Lender and its officers, directors, employees, and agents, and each Lender Control Person from and against any losses, claims, damages, liabilities or expenses incurred (collectively, "Damages"), joint or several, and any action in respect thereof to which the Lender, its partners, Affiliates, officers, directors, employees, and duly authorized agents, and any such Lender Control Person becomes subject to, resulting from, arising out of or relating to any misrepresentation, breach of warranty or non-fulfillment of or failure to perform any covenant or agreement on the part of Company contained in this Agreement, as such Damages are incurred, except to the extent such Damages result primarily from Lender's failure to perform any covenant or agreement contained in this Agreement or the Lender's or its officer's, director's, employee's, agent's or Lender Control Person's gross negligence, recklessness or bad faith in performing its obligations under this Agreement. 13.2. The Company hereby agrees that, if the Lender, other than by reason of its gross negligence, illegal or willful misconduct (in each case, as determined by a non-appealable judgment to such effect), (x) becomes involved in any capacity in any action, proceeding or investigation brought by any shareholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Agreements, or if the Lender is impleaded in any such action, proceeding or investigation by any Person, or (y) becomes involved in any capacity in any action, proceeding or investigation brought by the SEC, any self-regulatory organization or other body having jurisdiction, against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Agreements, or (z) is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall indemnify, defend and hold harmless the Lender from and against and in respect of all losses, claims, liabilities, damages or expenses resulting from, imposed upon or incurred by the Lender, directly or indirectly, and reimburse such Lender for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. The indemnification and reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Lender who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and Lender Control Persons (if any), as the case may be, of the Lender and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Lender, any such Affiliate and any such Person. The Company also agrees that neither the Lender nor any such Affiliate, partner, director, agent, employee or Lender Control Person shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of this Agreement or the other Transaction Agreements, except as may be expressly and specifically provided in or contemplated by this Agreement. 14. JURY TRIAL WAIVER. The Company and the Lender hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the Parties hereto against the other in respect of any matter arising out or in connection with the Transaction Agreements. 15. GOVERNING LAW: MISCELLANEOUS. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws. Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the County of New York or the state courts of the State of New York sitting in the County of New York in connection with any dispute arising under this Agreement or any of the other Transaction Agreements and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper. To the extent determined by such court, the Company shall reimburse the Lender for any reasonable legal fees and disbursements incurred by the Lender in enforcement of or protection of any of its rights under any of the Transaction Agreements. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law. 15.1. The Company and the Lender acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Agreements were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and the other Transaction Agreements and to enforce specifically the terms and provisions hereof and thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. 15.2. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. 15.3. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. 15.4. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 15.5. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. 15.6. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original. 15.7. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. 15.8. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. 15.9. This Agreement may be amended only by an instrument in writing signed by both Parties. 16. NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of: 16.1. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission, 16.2. the fifth Business Day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or 16.3. the third Business Day after mailing by domestic or international express courier, with delivery costs and fees prepaid, 16.4. in each case, addressed to each of the other parties thereunto: 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the Lender's representations and warranties herein shall survive the execution and delivery of this Agreement and the delivery of the Certificates and the payment of the Loan Amount, and shall inure to the benefit of the Lender and the Company and their respective successors and assigns. 18. ISSUANCE OF EQUITY OR DEBT SECURITIES. For so long as the Securities or Senior Note is outstanding, and absent prior receipt by the Company of an express written waiver from the Lender of this condition, which waiver can be withheld for any or no reason by Lender in its sole and absolute discretion, Company will not enter into any agreement pursuant to which it will issue, or be obligated to issue, any form of equity or quasi-equity securities, or debt instrument which may be converted into any form of equity or quasi-equity securities, or has attached to it any form of warrants or options which entitle the holder thereof to purchase and/or receive in any manner equity securities of the Company. 19. BROAD FORM UCC FILING. The Company shall grant Lender a consensual and perfected "broad form" UCC-1 filing secured by all of the assets of the Company, such that Lender shall be deemed a consensual secured lender in the event of either a voluntary or non-voluntary filing by or against Company under United States Code Title 11 or any similar state or federal statute. In this regard Company shall promptly execute such documents as Lender may reasonably request from time to time so as to perfect its position as a secured lender to Company. IN WITNESS WHEREOF, with respect to the Loan Amount specified below, this Agreement has been duly executed by the Lender and the Company as of the date set first above written. LENDER: COMPANY: THE SINGING MACHINE COMPANY, EVER SOLID, LTD. INC. (a Hong Kong registered company) By: /s/ Sak Hong Lau By: /s/ Yi Ping Chan --------------------------------- ---------------------------------- (Signature of Authorized Person) (Signature of Authorized Person) Yi Ping Chan, Sak Hong Lau, Chairman Interim Chief Executive Officer - ------------------------------------- -------------------------------------- Printed Name and Title Printed Name and Title EX-10.2 3 v037671_ex10-2.txt COLLATERAL SECURITY AGREEMENT THIS COLLATERAL SECURITY AGREEMENT, dated as of March 8, 2006, is entered into by and between THE SINGING MACHINE COMPANY, INC., a Delaware corporation located at 6601 Lyons Road, Building A-7 Coconut Creek, FL 33073, USA (the "Borrower"), and EVER SOLID LIMITED, a Hong Kong registered company, located at Shing Dao Industrial Bldg., F/5, 232 Aberdeen Main Road, Hong Kong or its successors or assigns (as used herein, each such signatory or their successors or assigns is referred to as the "Lender" or a "Lender"). W I T N E S S E T H: WHEREAS, the Borrower and the Lender are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; and WHEREAS, In connection with the Lender's intent to help Borrower facilitate its faithful performance under that certain Stock Purchase Agreement dated February 21, 2006 (hereafter "SPA") by and between Company on the one hand and koncepts International, Limited ("koncepts") on the other, Lender has agreed to lend funds to the Borrower, subject to and upon the terms and conditions of this Agreement the repayment of which will be represented by a Senior Promissory Note of the Borrower ("Senior Note"), on the terms and conditions referred to herein; and NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO LEND: Subject to the terms and conditions of this Agreement, the Senior Note, and the Bridge Loan Agreement of even date herewith, Lender hereby agrees to loan to the Borrower the principal amount of $2,000,000.00 US Dollars (the "Loan Amount or Aggregate Loan Amount") to be used exclusively to redeem existing outstanding Debentures held by Omicron Master Trust, SF Capital Partners, Ltd., Bristol Investment Fund, Ltd., Ascend Offshore Fund, Ltd., Ascend Partners LP, and Ascend Partners Sapient LP (collectively the "Sub-Debt Holders") in the original aggregate principal amount of $4,000,000. The obligation to repay the loan shall be evidenced by the Borrower's execution of the Senior Note. 2. TERMS OF REPAYMENT: The Senior Note shall bear interest absent an event of default at the rate of eight percent (8%) per annum, commencing as of the date on which Lender advances funds to Company pursuant to the Senior Note, which interest, absent an event of default, shall all be due upon maturity of the Senior Note as provided for therein. If shareholder approval for completion of the SPA is granted, koncepts shall be entitled to deliver the original Senior Note marked "Paid" and written satisfaction of this Bridge Loan Agreement to Company as payment for Two Million ($2,000,000 USD) dollars of koncepts' total Three Million ($3,000,000 USD) dollars purchase consideration under the SPA thereby reducing the cash required at closing under the terms of the SPA to One Million dollars ($1,000,000 USD). Notwithstanding the foregoing, at such time Company will still owe Lender all amounts of accrued but unpaid interest and other fees, if any, owing under the terms of the Senior Note, and will concurrently pay such accrued but unpaid interest and fees, if any, to Lender in cash. If, however, shareholder approval is not granted, the Senior Note shall mature as per its terms on or before September 8, 2006. 3. SECURITY: The Bridge Loan and Senior Note described above is secured as more fully set forth herein. 4. SECURITY INTEREST: 4.1 GRANT OF SECURITY INTEREST: Borrower grants to Lender a continuing consensual and perfected security interest in, and lien on, all of Borrowers assets both foreign and domestic of whatever form or character (collectively the "Collateral") to secure the payment of the indebtedness and the performance of all of Borrower's obligations under this Agreement and the Collateral Documents. Borrower acknowledges that nothing contained in this Agreement or any other agreement will be (i) construed as an agreement by Lender to resort to or look to a particular type of the Collateral as security for the repayment of the indebtedness or (ii) deemed to limit or reduce any security interest in or lien upon any portion of the Collateral for the indebtedness. 4.2 PERFECTION OF SECURITY INTEREST: (a) FILING OF FINANCING STATEMENT: The Borrower irrevocably authorizes Lender at any time and from time to time to file any initial financing statements and amendments thereto describing the Collateral and perfecting Lender's security interest therein, and agrees to execute upon demand such documents as are required by Lender to perfect Lender's security interest in the Collateral. The Borrower will pay all taxes and other costs of the filing and any other costs associated therewith. The Borrower also ratifies the filing of any financing statement already filed by Lender prior to the date hereof. (b) POSSESSION: The Borrower will have possession of the Collateral, except where Lender chooses to perfect its security interest by possession in addition to the filing of a financing statement. If the Collateral is in the possession of a third party, the Borrower will join with Lender in notifying the third party of Lender's security interest and obtaining an acknowledgement from the third party that it is holding the Collateral for the benefit of Lender. (c) CONTROL: The Borrower will cooperate with Lender in obtaining control with respect to the Collateral consisting of, but not limited to all foreign and domestic: (i) Deposit Accounts; (ii) Investment Property; (iii) Letter-of-Credit rights; and (iv) Electronic chattel paper; (d) Marking of Chattel Paper: The Borrower will not create any Chattel Paper without placing a legend on the Chattel paper acceptable to Lender indicating that Lender has a security interest in the Chattel Paper. 4.3 NO DISPOSITION OF COLLATERAL: Lender does not authorize, and Borrower agrees not to (a) sell or lease any of the Collateral, except for Inventory in the ordinary course of business; (b) license any of the Collateral; or (c) grant any other security interest in any of the Collateral. 4.4 PURCHASE MONEY SECURITY INTERESTS: To the extent that the Borrower uses the Loan to purchase the Collateral, Borrower's repayment of the Loan will apply on a "first-in-first out" basis so that the portion of the Loan used to purchase a particular item of the Collateral will be paid in the chronological order the Borrower purchased the Collateral. 4.5 BORROWER REMAINS LIABLE: Notwithstanding anything contained herein to the contrary, (a) Borrower will remain liable for all damages, obligations, and liabilities under the contracts and agreements included in the Collateral to perform all of its duties and obligations to the same extent as if this Agreement had not been executed, (b) the exercise by Lender of any of its rights under this Agreement or the Collateral Documents will not release the Borrower from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) Lender will have no obligation or liability under the contracts and agreements included in the Collateral, nor will Lender be obligated to perform any of the obligations or duties of Borrower thereunder or to take any action to collect or enforce any claim for payment. Borrower will pay all taxes, levies, assessments and charges of any kind upon or related to the Collateral, Borrower's business, income, revenues and assets. 5. REPRESENTATIONS AND WARRANTIES: The Borrower represents and warrants to Lender that: 5.1 ORGANIZATION AND AUTHORITY: The Borrower is a Delaware corporation, duly organized and in good standing under the laws of the State of Delaware and has the power and authority to own its assets and transact its business. The precise legal name of the Borrower is set forth on the first page of this Agreement. The Person executing this Agreement has full power and complete authority to execute this Agreement and all Collateral Documents on behalf of Borrower. 5.2 TRANSACTIONS LEGAL AND AUTHORIZED: The execution, delivery and performance of this Agreement and the Collateral Documents have been duly authorized by all necessary action of Borrower, and the execution, delivery and performance of this Agreement and the Collateral Documents does not violate Borrower's formation documents, or the terms of any contract, indenture, agreement or undertaking to which Borrower is a party or by which it is bound. 5.3 ENFORCEABILITY OF OBLIGATIONS: This Agreement, the Senior Note, and the Collateral Documents are valid, binding upon, in full force and effect and fully enforceable against Borrower, Validity Guarantor or any other party thereto in accordance with their respective terms. 5.4 LITIGATION: No litigation or other proceeding before any court or administrative agency is pending or threatened. Furthermore, Borrower is not in default with respect to any order, writ, injunction, or demand of any court or governmental department or agency. 5.5 FINANCIAL STATEMENTS/REPORTS/CERTIFICATES: (a) EXISTING FINANCIAL INFORMATION/NO ADVERSE CHANGES: The financial statements furnished to Lender are true and correct and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved. The balance sheet fairly presents the condition of Borrower as of the date thereof, and the profit and loss statement fairly presents the results of operations. There have been no material adverse changes in the condition of Borrower, financial or otherwise subsequent to the date of the most recent financial statement furnished to Lender. (b) FUTURE FINANCIAL INFORMATION: All financial information, statements, reports and certificates required by this Agreement are true and accurate. Lender are based upon reasonable assumptions or facts then known to Borrower, and fairly present, to the best knowledge of Borrower, the projected condition of Borrower as therein set forth, and fairly presents, to the best knowledge of Borrower, the projected results of operations. 5.6 OWNERSHIP OF COLLATERAL; NO LIENS: Except as set forth below in Exhibit "A" and any collateral security agreement executed by Borrower in favor of Crestmark Bank, Borrower is the owner of and has good and indefeasible title to all of the Collateral. The Collateral is not subject to any liens, purchase options, mortgages, pledges, encumbrances, claims (legal or equitable), or charges of any kind except Permitted Encumbrances. As of the date hereof, Borrower has not sold any Collateral except in the ordinary course of business. Lender's security interest in the Collateral is a first priority security interest, and Borrower will defend and indemnify Lender against the claims and demands of all other persons claiming an interest in the Collateral. 5.7 PERSONAL PROPERTY: The Collateral will remain personal property at all times. The Borrower will not affix any of the Collateral to any real property in any manner which would change its nature from that of personal property to real property or a fixture. 5.8 TAX RETURNS AND TAXES: Borrower has filed all federal, state, local and foreign tax returns which are required to be filed and has paid all taxes, withholdings, assessments and other government charges which have become due. Borrower does not know of any proposed material additional tax assessment against it, or any of its properties, or any basis therefore. 5.9 FULL DISCLOSURE: Neither this Agreement nor any written statement furnished by or on behalf of Borrower to Lender in connection with the Loan, taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein or herein not misleading. There is no fact relating to Borrower or its business which Borrower has not disclosed to Lender in writing, which materially and adversely affects, or as far as Borrower can now foresee, will materially and adversely affect Borrower's business (financial or otherwise). 5.10 CASUALTY LOSS OR JUDGMENT: The Collateral has not suffered any loss, substantial damage, or destruction and no attachment, lien, levy, garnishment or commencement of any related proceeding has occurred against the Collateral. 5.11 NO MATERIAL ADVERSE CHANGE: No material adverse change has occurred in the existing or prospective financial condition, business, assets or liabilities of the Borrower. 6. AFFIRMATIVE COVENANTS: Borrower covenants and agrees that until all indebtedness due Lender is paid in full, Borrower will: 6.1 PAYMENTS ON INDEBTEDNESS: Pay all indebtedness when due, whether by acceleration or otherwise. Furthermore, Borrower will not have any Advances outstanding under the Loan contrary to any provisions of the Loan Agreement or the Collateral Documents, including any Advances in excess of the Advance Formula which are not immediately repaid to Lender. 6.2 PERFORMANCE OF OBLIGATIONS: Perform or cause to be performed, all of the terms, conditions, obligations and covenants of Borrower or any other Person as required by this Agreement, the Collateral Documents or any other agreement, executed between Lender and Borrower and/or another Person, whether now existing or hereafter created. Borrower will also take all action (or not take any action) necessary to keep the representations and warranties true and accurate. 6.3 INFORMATION: Furnish promptly and in a form satisfactory to Lender, such information as Lender may request, from to time, and to permit a representative of Lender access to any of its premises, computer systems and financial records to inspect and examine Borrower's books and records. 6.4 NOTIFICATION OF DISPUTES: Notify Lender promptly of any litigation, or administrative or tax proceeding, or other action threatened or instituted against Borrower or any property of Borrower or any other material matter which could adversely impair Borrower's financial condition or its ability to conduct its business. For the purposes of this Agreement, any single such claim in which the sum in dispute is in excess of Twenty Thousand ($20.000.00) Dollars, or all such claims in which the aggregate sums in dispute are Twenty Thousand ($20,000.00) Dollars or more, will be deemed to be material and adverse. 6.5 PAYMENT OF TAXES: Pay when due all taxes, assessments, and other governmental charges to which Borrower or it's property is or will be subject before such charges become delinquent, except that no such charge need be paid so long as its validity or amount is being contested in good faith by appropriate proceedings and Borrower has established a cash reserve with respect thereto; provided, however, that any such tax, assessment, or charge shall be paid forthwith (under protest) upon the filing of any lien securing the same, commencement of levy, other form of execution, or any other collection action. 6.6 INSURANCE: Maintain insurance in such form and amount as is satisfactory to Lender, with loss payable clauses in favor of Lender and providing that any losses under the policies are payable to Lender. If Borrower fails to obtain or maintain any required policies, then Lender, without waiving any Default by Borrower relating thereto, may (but without any obligation) at any time thereafter make such payment or obtain such coverage and take such other actions as Lender deems advisable. Borrower will not take out separate insurance concurrent in form or contributing in the event of a loss. Borrower will also maintain insurance pursuant to all applicable Worker's Compensation laws, and liability insurance for damage to persons. All such insurance shall be in such form, with such companies and in such amounts as shall be acceptable to Lender and each policy shall provide that the insurance company will provide at least thirty (30) days notice to Lender prior to any cancellation or material alteration or amendment of any policy. In the event any proceeds are payable to Borrower, or otherwise become available, as a result of a casualty to any Collateral, all such proceeds are be the property of Lender, immediately turned over to Lender and applied to the Indebtedness due Lender. 6.7 COMPLIANCE WITH LAWS: Continue at all times to comply with all laws, ordinances, regulations or requirements of any governmental authority relating to Borrower's business, property or affairs, including, without limitation, all environmental laws and the Fair Labor Standards Act of 1938, 29 U.S.C. 200, et seq., as amended from time to time. 6.8 PRESERVATION OF COLLATERAL: Maintain the Collateral in good repair, working order and condition. With respect to Accounts, Borrower will pursue collections diligently and present evidence thereof to Lender, if requested. Borrower will, upon request, immediately deliver to Lender evidence of ownership and/or certificates of title relative to the Collateral. 7. NEGATIVE COVENANTS: Borrower covenants and agrees that until all indebtedness due Lender is paid in full, it will not: 7.1 NO CHANGES: The Borrower will not change its state of incorporation or organization. The Borrower will also not change its name, adopt an assumed name, or move its chief executive office without giving Lender at least sixty (60) days prior written notice. 7.2 DIVIDENDS: Declare or pay any dividend, or make any other distribution of, or with regard to, its capital stock or other equity security, or purchase or retire any of its capital stock or other equity security. Provided, however, with respect to any year in which Borrower is taxed by the Internal Revenue Service as an " S corporation, Borrower may make a distribution of profits to its shareholders in an amount not to exceed the sum necessary to enable its shareholders to pay their personal state and federal taxes directly attributable to the profits earned by Borrower for the year. 7.3 LOANS LIABILITIES: Make a loan, or incur or assume any obligations or liabilities as guarantor, surety, indemnitor or otherwise with respect to any indebtedness or other obligation of any Person, except in the ordinary course of business. 7.4 TRANSACTIONS WITH AFFILIATES/NO SUBSIDIARIES: Enter into any transaction with any stockholders of Borrower or such stockholders' affiliates, except on terms not less favorable than would be usual and customary in similar transactions between persons or entities dealing at arm's length. Borrower does not have and will not organize or acquire any subsidiaries. 7.5 REDEMPTION/ISSUANCE: Release, redeem, retire, purchase or otherwise acquire, directly or indirectly, any of its capital stock or other equity security without the prior written consent of Lender. 7.6 DEFAULT IN PAYMENT OF OTHER DEBT: Default in the payment of any indebtedness owed to any Person for borrowed money. 7.7 JUDGMENT: Suffer or permit any judgment, decree or order not fully covered by insurance to be entered by a court of competent jurisdiction against Borrower or Validity Guarantor or permit or suffer any writ or warrant of attachment or any similar process to be filed against Borrower or Validity Guarantor or against any property or asset of Borrower or Validity Guarantor. Borrower covenants and agrees that until all indebtedness due Lender is paid in full, it will keep proper books of accounts in a manner satisfactory to Lender. Lender will have the right, at any time, to verify any of the Collateral, documentation or books, whether such documentation is furnished weekly, monthly or annually in whatever manner and in whatever frequency Lender deems necessary. 8.1 QUARTERLY FINANCIAL STATEMENTS AND REPORTS: Borrower will deliver to Lender quarterly management prepared financial statements, balance sheets, and profit and loss statements for the quarter then ended, certified to by the president or chief financial officer of Borrower. Such reports will set forth the financial affairs and true condition of Borrower for (each quarter and will be delivered to Lender no later than thirty (45) days after the end of each quarter. In addition, Borrower will furnish to Lender the following certified to by the president or chief financial officer of Borrower within the time periods set forth: (a) ACCOUNTS RECEIVABLE REPORTS: Monthly detailed Accounts Receivable Aging Reports no later than fifteen (15) days after the end of each month; (b) Accounts Payable Reports: Monthly detailed Accounts Payable Aging Reports no later than fifteen (15) days after the end of each month; All financial and operating statements are and will be prepared in accordance with GAAP applied on a consistent basis. 8.2 FIELD EXAMINATIONS: Borrower will permit Lender to perform annual field examinations of Borrower's assets and liabilities, to be performed by Lender's inspector, whether a Lender officer or an independent party, with fees and expenses thereof to be paid by Borrower. The information compiled by the field examination is for Lender's internal use, and Lender has no obligation to share the field examination, in whole or in part, with Borrower. 8.3 ANNUAL FINANCIAL STATEMENTS/PROJECTIONS: Each year Borrower will deliver to Lender annual reviewed financial statements, balance sheets, and profits and loss statements prepared by a certified public accountant acceptable to Lender. Such reports will set forth in detail Borrower's true condition as of the end of Borrower's fiscal year no later than ninety (90) days after the end of Borrower's fiscal years. Borrower will also deliver to Lender semi-annually management prepared financial projections forecasting on a month by month basis that month's balance sheet, income statement and a detailed schedule of cash disbursements and borrowing availability. Said projections shall be submitted within thirty (30) days after the Company's fiscal year end for each year and at each six month point after year end that the Loan is outstanding. 9. REMEDIES UPON DEFAULT: Upon the occurrence of any Default, Lender can charge the default interest rate on the Senior Note, and Lender has the following rights and remedies. These rights and remedies are cumulative and not exclusive. 9.1 GENERAL: Upon any Default, Lender may pursue any remedy available at law (including those available under the UCC), in equity or by agreement of the parties. 9.2 ACCELERATION: Upon any Default, Lender can accelerate all or part of the Indebtedness without notice or demand, and declare such amount to be immediately due and payable, without presentation, notice or demand, notwithstanding the maturity or due date, if any, therein to the contrary, all of which are expressly waived by Borrower and Validity Guarantor. 9.3 CONFORMER REMEDIES: Upon any Default, Lender has the right to pursue any of the following remedies separately, successively or simultaneously: (i) file suit and obtain judgment and, in conjunction with any action, Lender may seek any ancillary remedies provided by law, including levy of attachment and garnishment; (ii) take possession of any Collateral and any books and records of the Borrower without demand and without legal process. Upon Lender's demand, Borrower will assemble and make the Collateral and books and records available to Lender as it directs. Borrower grants to Lender the right, for this purpose, to enter into or on any premises where the Collateral may be located; and (iii) without taking possession, sell, lease or otherwise dispose of the Collateral at public or private sale in accordance with the UCC. 9.4 RIGHT OF OFFSET: Lender may offset against any funds (i) of Borrower or Validity Guarantor on deposit with or in the possession of Lender, and (ii) of Borrower or Validity Guarantor on deposit in any deposit account. 9.5 ACCOUNTS AND/OR ACCOUNTS RECEIVABLE: (a) Lender may notify any and all Account Debtors to make payment on any Account directly to Lender. (b) Lender may in its own name or in the name of Borrower: (i) demand, collect, receive payment of, receipt for and give discharges and releases, upon payment of all or any of the Accounts and any monies due or to become due in respect thereof and to notify all Account Debtors of the Default and to direct all Account Debtors to pay Lender directly; (ii) settle, compromise, compound, or adjust all or any of the Accounts which are in dispute; (iii) commence, prosecute, settle and compromise any and all suits, actions, or proceedings in law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Accounts or to enforce any rights in respect thereof; and (iv) file any claim or take any other action or proceeding which Lender may deem necessary or appropriate to protect and preserve and realize upon the security interest of Lender in the Accounts and the proceeds thereof; and (v) generally to sell, assign, transfer, pledge, make any agreement with respect to or otherwise reasonably deal with all or any of the Accounts as fully and completely as though Lender were the absolute owner thereof for all purposes. Borrower hereby waives any statutory rule or constitutional restriction, prohibition, or procedure in connection with the rights granted Lender in this subsection and gives Lender the right to peaceful repossession of the Collateral without hearing or court order. 9.6 SALES AS CREDIT: If after a Default, Lender sells any Collateral on credit, the Borrower will be credited only with payments actually made by the purchaser, received by Lender and applied to the Indebtedness. If the purchaser fails to pay for the Collateral, Lender may resell the Collateral and the Borrower will be credited with the proceeds of the sale. 9.7 WAIVERS: To the extent permitted by applicable law, Borrower hereby absolutely and irrevocably waives and relinquishes the benefits and advantages of any valuation, stay, appraisement, extension or redemption laws now or hereafter existing which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, or otherwise. The Borrower also waives any rights to compel Lender to pursue collection of any Collateral or to collect any income on the Collateral. 10. STANDARDS FOR EXERCISING REMEDIES: To the extent that applicable law imposes duties on Lender to exercise remedies in a commercially reasonable manner, the Borrower acknowledges and agrees that it is not commercially unreasonable for Lender: (a) EXPENSES: To fail to incur expenses deemed significant by Lender to prepare, clean up or repair the Collateral or complete raw material or work in process into finished goods or other finished products prior to disposition; (b) CONSENTS: To fail to obtain third party consents for access to the Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of the Collateral; (c) PURSUIT OF THIRD PARTIES; LIENS: To fail to exercise collection remedies against account debtors or other persons obligated on the Collateral or to remove liens or encumbrances or adverse claims against the Collateral, and Borrower waives any right it may have to require Lender to pursue any third parties; (d) COLLECTION SPECIALISTS: To exercise collection remedies against Account Debtors and other person obligated on the Collateral directly or through the of collection agencies and other collection specialists; (e) ADVERTISING: To advertise dispositions of the Collateral through publications or media of general circulations, whether or not the Collateral is of a specialized nature; (f) SOLICITING: To contact other persons, whether or not in the same business as the Borrower, for expressions of interest in acquiring all or any portion of the Collateral; (g) AUCTIONEERS: To hire one or more professional auctioneers to assist in the disposition of the Collateral, whether or not the Collateral is of a specialize nature; (h) WHOLESALE SALES PERMITTED: To dispose of assets in wholesale rather than retail markets; (i) DISCLAIMER OF WARRANTIES: To disclaim any warranties as to the Collateral, including as to title; (j) INSURANCE: To purchase insurance or credit enhancements to insure Lender against risks of loss, collection or disposition of the Collateral or to provide to Lender a guaranteed return from the collection or disposition of the Collateral; or (k) OTHER PROFESSIONALS: To the extent deemed appropriate by Lender, to obtain the services of other brokers, investment bankers, consultants, attorneys and other professionals to assist Lender in the collection or disposition of any of the Collateral, the costs of which, if any, shall be added to the principal amount of the Senior Note. The Borrower acknowledges that the purpose of this Section 10 is to provide non-exhaustive indications of what actions or omissions by Lender would not be commercially unreasonable in Lender's exercise of remedies against the Collateral and that other actions or omissions by Lender will not be deemed commercially unreasonable solely on account of not being indicated in this Section 10. Without limitation upon the foregoing, nothing contained in this section will be construed to grant any rights to the Borrower or to impose any duties on Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this section. Nothing contained in this Agreement will be construed to make Lender an agent or trustee of Borrower or Validity Guarantor for any purpose whatsoever. Lender will not be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause thereof (except to the extent it is determined by final judicial decision that Lender's act or omission constituted gross negligence or willful misconduct). Lender will not, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of any of the Accounts, liquidation of the Collateral or any instrument received in payment thereof or for any damage resulting therefrom (except to the extent it is determined by a final judicial decision that Lender's error, omission or delay constituted gross negligence or willful misconduct). Lender does not, by anything herein or in any assignment or otherwise, assume any of the Borrower's or Validity Guarantor's obligations under any contract or agreement assigned to Lender, and Lender shall not be responsible in any way for the performance by the Borrower or Validity Guarantor of any kind of the terms and conditions thereof. 11. APPLICATION OF PROCEEDS: After the occurrence of a Default and acceleration of the indebtedness by Lender, or after demand for repayment of all indebtedness, the proceeds of any sale or other disposition of the Collateral will be applied by Lender, first upon all expenses authorized by this Agreement, the Collateral Documents or by law, including reasonable attorney's fees incurred by Lender; the balance of the proceeds of such sale or other disposition will be applied to the payment of the indebtedness, first to interest, then to principal, then to other unpaid Indebtedness, and the surplus, if any, shall be paid over to the Borrower or to such other Person or Persons as may be entitled thereto under applicable law. The Borrower and Validity Guarantor will remain liable for any deficiency, which the Borrower or Validity Guarantor will pay to Lender immediately upon demand. 12. EXPENSES: Borrower will pay to Lender, on demand, any and all expenses, including reasonable attorneys' fees and collection expenses, incurred or paid by Lender in protecting or enforcing its rights under this Agreement, the Collateral Documents or pursuant to any other document or agreement relating to the Loan. 13. NOTICE: Any notice to Borrower or Lender will be deemed effective if it is written and sent by facsimile with confirmation of receipt, by certified mail, return receipt requested, postage prepaid, or other expedited mail service, or by other personal delivery service addressed to Borrower or Lender at the address set forth in this Agreement or at such other address as is designated by one to the other in writing. 14. TERMINATION/RENEWAL: All of Borrower's obligations, duties, promises, covenants, representations and warranties under this Agreement and Collateral Documents will continue and remain in full force and effect until the indebtedness is irrevocably paid in full in cash or in kind, including all exit fees under the Senior Note. 15. MISCELLANEOUS: 15.1 BINDING EFFECT: This Agreement is binding upon and inures to the benefit of Borrower, Validity Guarantor and Lender, and their respective successors and assigns and will bind all persons who become bound as a debtor to this Agreement. The foregoing, will not, however, authorize any assignment by Borrower of its rights or duties hereunder, which assignment, in whole or in part, by Borrower is not permissible. Lender may assign its rights and interests under this Agreement and the Collateral Documents. If an assignment by Lender is made, Borrower and Validity Guarantor will make all payments to and render performance under this Agreement and the Collateral Documents to Lender's assignee. Borrower and Validity Guarantor waive and will not assert against any assignee any claims, defenses or set-offs, which Borrower or Validity Guarantor could assert against Lender except defenses which cannot be waived. 15.2 DELAY/WAIVER: No delay or failure of Lender in exercising any right, remedy, power or privilege hereunder will affect such right, remedy, power or privilege, nor will any single or partial exercise thereof preclude the exercise of any other right, remedy, power or privilege. No delay or failure of Lender at any time to demand strict adherence to the terms of this Agreement will be deemed to constitute a course of conduct inconsistent with Lender's right at any time to demand strict adherence to the terms of this Agreement or the Collateral Documents. 15.3 INCORPORATION BY REFERENCE: The Collateral Documents are incorporated herein by reference. In the event any provision of the Collateral Documents is inconsistent with the provisions of this Agreement, then this Agreement will be deemed paramount unless the rights and remedies of Lender would be adversely affected or diminished thereby. 15.4 APPLICABLE LAW: This Agreement and the Collateral Documents will be interpreted, and the rights of the parties hereunder will be determined, under the laws of the State of California (without regard to conflict of laws). 15.5 FURTHER ASSURANCES: Borrower and Validity Guarantor, from time to time, upon Lender's request, will each make, execute, acknowledge and deliver all such further and additional instruments and agreements and take all such further action as may be required, to carry out the intent and purpose of this Agreement or any part thereof. 15.6 HOLD HARMLESS/INDEMNITY: Borrower assumes responsibility and liability for, and holds harmless and indemnifies Lender from and against, any and all liabilities, demands, obligations, injuries, costs, damages (direct, indirect or consequential), awards, loss of interest, principal, or any portion of the Indebtedness, charges, expenses, payments of monies and reasonable attorney fees, incurred or suffered, directly or indirectly, by Lender and/or asserted against Lender by any Person whatsoever, including Borrower or Validity Guarantor, which arise in whole or in part out of this Agreement, or the Collateral Documents, or the relationship herein set forth or the exercise of any right or remedy including the realization, disposition or sale of the Collateral, or any portion thereof, or the exercise of any right in connection therewith even if the above are caused by the sole action, inaction, omission or negligence of Lender, but Borrower or Validity Guarantor will not be liable if the damages result solely from the fraud or gross negligence of Lender. 15.7 LIMITATION OF LIABILITY: Neither Lender nor any of its affiliates, directors, officers, agents, attorneys or employees shall be liable to Borrower, Validity Guarantor or any of Borrower's affiliates for any action taken, or omitted to be taken, by it or them or any of them under this Agreement or any of the Collateral Documents or in connection herewith or therewith, except that no person shall be relieved of any liability imposed by law for gross negligence, recklessness or fraud. Except for claims of gross negligence, recklessness or fraud, no claim may be made by Borrower, Validity Guarantor or by any of Borrower's affiliates, directors, officers, agents, attorneys or employees, for any special, consequential, indirect or punitive damages in respect of any breach or wrongful conduct (whether the claim is based on contract or tort or duty imposed by law) arising out of or related to this Agreement or any other Collateral Documents, or the transactions contemplated hereby or thereby, or any act, omission or event occurring in connection herewith or therewith. 15.8 SURVIVAL AND CONTINUATION: All representations, warranties, covenants, indemnifications, consents and agreements contained in this Agreement and/or any of the Collateral Documents will survive the execution of this Agreement, the Collateral Documents and any investigations by Lender and will be, and continue at all times while any Indebtedness is outstanding, to be true and accurate. 15.9 RULES OF CONSTRUCTION: (a) No reference to "proceeds" in this Agreement authorizes any sale, transfer, or other disposition of the Collateral by the Borrower; (b)"includes and "including" are not limiting; (c) "Or" is not exclusive; and (d) "all includes "any" and "any includes "all." 15.10 COMPLETE AGREEMENT: This Agreement incorporates and/or contains the entire agreement of the parties hereto with respect to its subject matter. None of the parties to this Agreement will be bound by anything not expressed in writing. This Agreement and the Collateral Documents may only be amended or modified by a written agreement executed by Lender and Borrower. 15.11 SEVERABILITY: If any provision of this Agreement is in conflict with any statute or rule of law or is otherwise unenforceable for any reason, then that provision will be deemed null and void to the extent of the conflict or unenforceability and will be deemed severable. The offending provision will not invalidate any other provision of this Agreement. - -------------------------------------------------------------------------------- LENDER: COMPANY: - ------- -------- EVER SOLID, LTD. THE SINGING MACHINE COMPANY, INC. (a Hong Kong registered company) By: /s/ Sak Hong Lau By: /s/ Yi Ping Chan ---------------------------------- -------------------------------- (Signature of Authorized Person) (Signature of Authorized Person) Sak Hong Lau, Chairman Yi Ping Chan, Interim CEO ------------------------------------ -------------------------------- Printed Name and Title Printed Name and Title - -------------------------------------------------------------------------------- EX-10.3 4 v037671_ex10-3.txt THE SINGING MACHINE COMPANY, INC. ------------------------- SENIOR PROMISSORY NOTE $2,000,000 MARCH 8, 2006 The Singing Machine Company, Inc., a Delaware corporation ("Maker"), hereby promises to pay to Ever Solid, Limited., a Hong Kong registered company ("Holder"), at the Shing Dao Industrial Bldg., 5/F, 232 Aberdeen Main Road, Hong Kong, or at such other address as may be specified by Holder, the principal sum of Two Million Dollars and no cents ($2,000,000 USD) if paid within forty-eight (48) hours of the closing of that certain Stock Purchase Agreement dated February 21, 2006 by and between Singing Machine, Inc., and koncepts International Limited a Hong Kong registered company ("koncepts") ("Stock Purchase Agreement"). If, however, the Stock Purchase Agreement fails to close for whatever reason, Maker shall make payment to Holder of all principal and interest then owing on or before September 8, 2006, in lawful money of the United States of America. Absent an event of default, the principal indebtedness evidenced by this Senior Note shall earn interest at the rate of eight percent (8%) per annum. Principal and interest shall be paid in one installment on the earlier of: (a) September 8, 2006, or (b) within forty-eight (48) hours of the closing of the Stock Purchase Agreement. This Note may be prepaid in full, but not in part, at any time without penalty. The principal amount of this Senior Note is "Senior Indebtedness" as defined in the Bridge Loan Agreement dated the date hereof among Maker and Holder. This Senior Note is also secured by a consensual and perfected "broad form" UCC-1 filing secured by all of the assets of Maker, both foreign and domestic, such that Lender shall be deemed a consensual secured lender in the event of either a voluntary or non-voluntary filing by or against Maker under United States Code Title 11 or any similar state or federal statute. In this regard Maker shall promptly execute such documents as Lender may reasonably request from time to time so as to perfect its position as a secured lender to Maker. Maker hereby waives presentment, protest, demand or notice of any kind in connection with any failure to pay when due the indebtedness evidenced by this Note. If Maker fails to pay the indebtedness when due, Maker agrees to pay Holder's reasonable legal fees and expenses incurred in connection with the enforcement of this Note. Regardless of the place of its execution, this Note shall be construed in accordance with the laws of the State of California. THE SINGING MACHINE COMPANY, INC., A DELAWARE CORPORATION By: /s/ Yi Ping Chan ------------------------------------ Yi Ping Chan, Interim - CEO EX-10.4 5 v037671_ex10-4.txt SETTLEMENT AGREEMENT AND RELEASE -------------------------------- This Settlement Agreement and Release (the "Agreement") is dated as of March 5, 2006 and is made by and between Omicron Master Trust, SF Capital Partners, Ltd., Bristol Investment Fund, Ltd., Ascend Offshore Fund, Ltd., Ascend Partners LP, and Ascend Partners Sapient LP (collectively the "Investors") and The Singing Machine Company, Inc., a Delaware corporation ("Singing Machine"). WHEREAS, Singing Machine, issued to the Investors an aggregate of $4,000,000.00 principal amount 8% convertible debentures pursuant to the Securities Purchase Agreement dated August 20, 2003 (collectively the "Debentures"); WHEREAS, Singing Machine desires to redeem all outstanding Debentures, including interest and penalties ("Remaining Debentures") in accordance with the terms and conditions hereof; and NOW, THEREFORE, in consideration of the mutual conditions and covenants contained in this Agreement, and for other good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, it is hereby stipulated, consented to and agreed by and among the Investors and Singing Machine as follows: 1. On or before March 10, 2006, Singing Machine shall (i) pay to the Investors an aggregate of $2,000,000.00 (the "Funds") as set forth on Exhibit A hereto, by wire transfer to the bank and account as set forth on Exhibit A hereto, and (ii) reduce the exercise price to $0.85 per share for the warrants on the attached Exhibit B in full satisfaction of the Remaining Debentures. Upon receipt of the Funds, the Investors shall return, via overnight delivery, the Remaining Debentures to Singing Machine. 2. In consideration of the foregoing, upon receipt by the Investors of the Funds, the Investors release and discharge Singing Machine, Singing Machine's officers, directors, principals, control persons, past and present employees, insurers, successors, agents and assigns ("Singing Machine Parties") from all actions, cause of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty or equity, which against Singing Machine Parties ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever, whether or not known or unknown, from the beginning of the world to the day of the date of this Release arising under the Debentures and Securities Purchase Agreement dated August 20, 2003. 3. In consideration of the foregoing, upon receipt by the Investors of the Funds, the Company releases and discharges the Investors, its officers, directors, principals, control persons, past and present employees, insurers, successors, agents and assigns ("Investor Parties") from all actions, cause of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty or equity, which against Investor Parties ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever, whether or not known or unknown, from the beginning of the world to the day of the date of this Release arising under the Debentures and Securities Purchase Agreement dated August 20, 2003. 4. Singing Machine and the Investors each understand and agree that this Agreement (including all of its terms) is forever deemed confidential between them. Except as required under the statutes, rules or regulations of any federal or state government, government agency or court of competent jurisdiction, each of Singing Machine and the Investors, and their respective counsel, shall not disclose or divulge any of the matters underlying this Agreement, or any of the terms or substance of this Agreement to others. All inquiries, if any, regarding the other party's performance shall be responded to promptly. Each party shall furnish the other party with a written copy of each and every written response; or, if such response was oral the date, time and person to whom a response was given. 5. All parties acknowledge and represent that: (a) they have read the Agreement; (b) they clearly understand the Agreement and each of its terms; (c) they fully and unconditionally consent to the terms of this Agreement; (d) they have had the benefit and advice of counsel of their own selection; (e) they have executed this Agreement, freely, with knowledge, and without influence or duress; (f) they have not relied upon any other representations, either written or oral, express or implied, made to them by any person; and (g) the consideration received by them has been actual and adequate. 6. This Agreement contains the entire agreement and understanding concerning the subject matter hereof between the parties and supersedes and replaces all prior negotiations, proposed agreement and agreements, written or oral. Each of the parties hereto acknowledges that neither any of the parties hereto, nor agents or counsel of any other party whomsoever, has made any promise, representation or warranty whatsoever, express or implied, not contained herein concerning the subject hereto, to induce it to execute this Agreement and acknowledges ands warrants that it is not executing this Agreement in reliance on any promise, representation or warranty not contained herein. 7. This Agreement may not be modified or amended in any manner except by an instrument in writing specifically stating that it is a supplement, modification or amendment to the Agreement and signed by each of the parties hereto. 8. Should any provision of this Agreement be declared or be determined by any court or tribunal to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be severed and deemed not to be part of this Agreement. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. 10. This Agreement may be executed in counterparts, each of which, when all parties have executed at least one such counterpart, shall be deemed an original, with the same force and effect as if all signatures were appended to one instrument, but all of which together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first indicated above. OMICRON MASTER TRUST SF CAPITAL PARTNERS, LTD. By: /s/ Bruce Bernstein By: /s/ Daniel J. McNally ------------------------ ------------------------ Name: Bruce Bernstein Name: Daniel J. McNally Title: Managing Partner Its: General Counsel of its Investment Manager BRISTOL INVESTMENT FUND, LTD. ASCEND OFFSHORE FUND, LTD. By: /s/ Paul Kessler By: /s/ Malcolm Fairbairn ------------------------ ------------------------ Name: Paul Kessler Name: Malcolm Fairbairn Title: Director Title: Director ASCEND PARTNERS LP ASCEND PARTNERS SAPIENT LP By: /s/ Malcolm Fairbairn By: /s/ Malcolm Fairbairn ------------------------ ------------------------ Name: Malcolm Fairbairn Name: Malcolm Fairbairn Title: General Partner Title: Director THE SINGING MACHINE COMPANY, INC. By: /s/ Yi Ping Chan ------------------------ Name: Yi Ping Chan Title: Interim CEO EXHIBIT A ALLOCATIONS AND WIRE TRANSFER INSRUCTIONS - -------------------------------------------------------------------------------- INVESTOR BANK ACCOUNT AMOUNT - -------------------------------------------------------------------------------- Omicron Master Trust $1,250,000.00 - -------------------------------------------------------------------------------- SF Capital Partners Ltd. $250,000.00 - -------------------------------------------------------------------------------- Bristol Investment Fund Ltd. $150,000.00 - -------------------------------------------------------------------------------- Ascend Offshore Fund Ltd. $239,000.00 - -------------------------------------------------------------------------------- Ascend Partners, LP $29,100.00 - -------------------------------------------------------------------------------- Ascend Partners Sapient LP $81,900.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOTAL $2,000,000.00 - -------------------------------------------------------------------------------- EX-99.1 6 v037671_ex99-1.txt [GRAPHIC OMITTED] INVESTOR CONTACT: COMPANY CONTACT: THE SINGING MACHINE Neil Berkman Y.P. Chan Berkman Associates Interim CEO (310) 826 - 5051 (954) 596 - 1000 info@BerkmanAssociates.com www.SingingMachine.com -------------------------- ---------------------- FOR IMMEDIATE RELEASE THE SINGING MACHINE COMPANY ANNOUNCES RESTRUCTURING OF $4 MILLION SUBORDINATED DEBENTURE Entire Debenture Plus Interest Retired For $2 Million in Cash ------------------------------------------------------------- COCONUT CREEK, FL, March 14, 2006 -- THE SINGING MACHINE COMPANY (AMEX: SMD) announced today that it has retired the entire $4 million subordinated debenture which came due on February 20, 2006, plus accrued interest of $270,000, for a total cash payment of $2 million. The Company expects to report a one-time gain of approximately $2.27 million related to the retirement of the debenture in its financial statements for the three months ended March 31, 2006. Warrants expiring on September 7, 2006 to purchase approximately 487,000 shares of The Singing Machine common stock for $0.85 per share that were issued in connection with the subordinated debenture remain outstanding. Funds to complete this transaction were provided by a $2 million bridge loan from Ever Solid Ltd., a Hong Kong subsidiary of Starlight International Holdings Ltd. (Hong Kong Stock Exchange: 485). On February 27, 2006, The Singing Machine announced an agreement in principle under which, subject to the successful restructuring of the $4 million subordinated debenture and other conditions, koncepts International Ltd., a Hong Kong subsidiary of Starlight International Holdings Ltd., would acquire approximately 12.9 million newly issued, unregistered shares of the Company's common stock (representing approximately 56% of the total number of shares issued and outstanding following the closing of the proposed transaction) for a total of $3 million, or $0.233 per share, and would receive warrants to acquire up to an additional 5.0 million shares over a four-year period at prices ranging from $0.233 to $0.350 per share. Y.P. Chan, Interim CEO of The Singing Machine, said, "We are extremely pleased to resolve the subordinated debt issue, which has been a major challenge and distraction for the Company. I want to thank all of the sub-debt investors for their level-headed common sense business approach to reaching a resolution of this matter as well as for their ongoing support. This restructuring removes the major contingency for the koncepts International Ltd. investment in The Singing Machine. We look forward to completing that transaction in the near future and to working with Starlight, our key supplier, to expand our business." ABOUT THE SINGING MACHINE Incorporated in 1982, The Singing Machine Company develops and distributes a full line of consumer-oriented karaoke machines and music as well as other products under The Singing MachineTM, MotownTM, MTVTM, NickelodeonTM, Hi-5TM and other brand names. The first to provide karaoke systems for home entertainment in the United States, The Singing Machine sells its products in North America, Europe and Asia. THE SINGING MACHINE COMPANY, INC. 6601 Lyons Road o Building A-7 o Coconut Creek, Florida 33073 o (954) 596-1000 o Fax (954) 596-2000 FORWARD-LOOKING STATEMENTS This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about the Company's business based, in part, on assumptions made by management and include, but are not limited to statements about our financial statements for the fiscal year ended March 31, 2006. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including the risks that our vendors in China may not ship our products on the scheduled basis and that we will have sufficient cash flow to finance our working capital needs in the second and third quarter of this fiscal year. In addition, you should review our risk factors in our SEC filings which are incorporated herein by reference. Such forward-looking statements speak only as of the date on which they are made and the company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release. * * * * THE SINGING MACHINE COMPANY, INC. 6601 Lyons Road o Building A-7 o Coconut Creek, Florida 33073 o (954) 596-1000 o Fax (954) 596-2000 -----END PRIVACY-ENHANCED MESSAGE-----