THE SINGING MACHINE COMPANY, INC. SECURITIES PURCHASE AGREEMENT
THE
SINGING MACHINE COMPANY, INC.
This
Securities Purchase Agreement (this “Agreement”) is dated as of February 1,
2007, among The Singing Machine Company, Inc., a Delaware corporation (the
“Company”), and the purchasers identified on the signature pages hereto (each a
“Purchaser” and collectively the “Purchasers”).
RECITALS
WHEREAS,
the
Company has authorized the sale and issuance to the Purchasers of an aggregate
of up to 526,316
shares
(the “Shares”) of the Company’s Common Stock, par value $0.01 (the “Common
Stock”); and
WHEREAS,
Purchasers desire to purchase and the Company desires to sell the Shares on
the
terms and conditions set forth herein.
NOW,
THEREFORE,
in
consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Purchase
and Sale.
Pursuant
to the terms and conditions set forth in this Agreement, the Company agrees
to
sell to the Purchasers, and the Purchasers hereby agree to purchase the Shares
at a purchase price of $0.950
per
share, for a total purchase price equal to $500,000 US Dollars (the “Purchase
Price”).
2. Closing,
Delivery and Payment.
2.1. Closing.
Subject
to the terms and conditions herein, the closing of the transactions contemplated
hereby (“Closing”) shall take place on the first business day following such
date as the Company and each Purchaser has satisfied all of the closing
conditions set forth herein (the “Closing Date”) at the offices of Sichenzia
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP, located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇
▇▇▇▇. The Shares sold and issued on the Closing Date will be, and will be
distributed among the Purchasers, as set forth on Exhibit A.
2.2. Closing
Deliverables.
(a) At
the
Closing, and as a condition to the Purchaser’s obligations hereunder, the
Company will deliver the following to the Purchasers:
(i) an
executed copy of this Agreement;
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(ii) an
executed copy of corporate resolutions and Board authorizations which pursuant
to Delaware law authorize the issuance of the Shares to Purchasers as set forth
herein;
(iii) Such
documents from the American Stock Exchange, and any other applicable regulatory
bodies (collectively “AMEX”) which set forth that Purchasers’ purchase of the
Shares on the terms set forth in this Agreement and the Related Agreements
(as
hereinafter defined) has been approved by the AMEX such that Purchasers’
purchase of the Shares is completely free and clear of any voting restrictions
which may be imposed by the AMEX pursuant to Section 713, and any other
applicable sections, of the American Stock Exchange Company Guide, and any
additional applicable and related regulations (collectively “Regulatory
Approval”);
(iv) an
opinion of Company counsel that the Shares have been properly authorized,
conform with all laws relating to their issuance, and are free and clear of
all
liens, charges, or assessments of any form and character as of the Closing
Date;
(v) stock
certificates representing the Shares purchased at the Closing; and
This
Agreement is referred to herein as the “Related Agreements.”
(b) At
the
Closing, each Purchaser will deliver the following to the Company:
(i) an
executed copy of this Agreement; and
(ii) the
purchase consideration for the Shares to be purchased by such Purchaser at
the
Closing, via wire transfer to an account designated by the Company or an
instruction from the Purchaser to authorize the Company to off set the amount
due to the Purchaser from the normal trade.
3. Representations
and Warranties of the Company.
Except
as set forth in the Company’s filings under the Securities Exchange Act of 1934
(collectively, the “Exchange Act Filings”), copies of which have been made
available to the Purchasers, the Company hereby represents and warrants to
the
Purchaser as follows:
3.1. Organization,
Good, Standing and Qualification.
Each of
the Company and its active Subsidiaries (as defined below) is an entity duly
incorporated or otherwise organized, validly existing and in good standing
under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Set
forth on the attached Schedule 3.1 is a list identifying the name of the Company
and each Subsidiary, its jurisdiction of incorporation and foreign status
registration(s) as well as its directors and officers. Neither the Company
nor
any active Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the active Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate: (i) adversely affect the legality, validity
or
enforceability of this Agreement or the Related Agreements, (ii) have or result
in or be reasonably likely to have or result in a material adverse effect on
the
results of operations, assets, business or condition (financial or otherwise)
of
the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
the Company’s ability to perform fully on a timely basis its obligations under
this Agreement or the Related Agreements (any of (i), (ii) or (iii), a “Material
Adverse Effect”).
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3.2. Subsidiaries.
Each
direct and indirect Subsidiary of the Company, the direct owner of such
Subsidiary and its percentage ownership thereof, is set forth on the attached
Schedule 3.2. For the purpose of this Agreement, a “Subsidiary” of any person or
entity means (i) a corporation or other entity whose shares of stock or other
ownership interests having ordinary voting power (other than stock or other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity,
are
owned, directly or indirectly, by such person or entity or (ii) a corporation
or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the voting interests at such time.
3.3. Capitalization;
Voting Rights.
(a) The
authorized capital stock of the Company, as of the date hereof consists of
100,000,000 shares of common stock par value $0.01 of which 25,274,883 are
issued and outstanding and 1,000,000 shares of preferred stock $0.10 par value,
of which none are issued and outstanding. All issued and outstanding shares
of
the Company’s Common Stock: (a) have been duly authorized and validly issued and
are fully paid and nonassessable; and (b) were issued by the Company in full
compliance with all applicable state and federal laws concerning the issuance
of
securities.
(b) The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Company’s Certificate of Incorporation, as amended
(the “Charter”) and pursuant to applicable law.
3.4. Authorization
and Binding Obligations.
All
corporate, partnership or limited liability company, as the case may be, action
on the part of the Company (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company hereunder and under the other
Related Agreements at the Closing and, the authorization, sale, issuance and
delivery of the Shares has been taken or will be taken prior to the Closing.
This Agreement and the Related Agreements, when executed and delivered will
be
valid and binding obligations of each of the Company enforceable against the
Company in accordance with their terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights and general principles of
equity that restrict the availability of equitable or legal
remedies.
3.5. Liabilities.
Neither
the Company nor any of its Subsidiaries has any material contingent liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities disclosed in the Company’s Exchange Act Filings .
3.6. Agreements;
Action.
(a) there
are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company or any of its
Subsidiaries is a party or by which it is bound which may involve: (A)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $100,000; or (B) provisions restricting the development, manufacture or
distribution of the Company’s products or services.
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(b) For
the
purposes of this Section 3.6, all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed transactions involving
the
same person or entity (including persons or entities the Company has reason
to
believe are affiliated therewith) shall be aggregated for the purpose of meeting
the individual minimum dollar amounts of such subsections.
3.7. Obligations
to Related Parties.
There
are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:
(a) for
payment of salary for services rendered and for bonus payments;
(b) reimbursement
for reasonable expenses incurred on behalf of the Company and its Subsidiaries;
and
(c) for
other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by
the
Board of Directors of the Company).
Further,
except as described above, none of the officers, directors or, to the best
of
the Company’s knowledge, key employees or stockholders of the Company or any
members of their immediate families, are indebted to the Company, individually
or in the aggregate, in excess of $5,000 or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm
or
corporation which competes with the Company, other than passive investments
in
publicly traded companies (representing less than one percent (1%) of such
company) which may compete with the Company. Except as described above, no
officer, director or stockholder, or any member of their immediate families,
is,
directly or indirectly, interested in any material contract with the Company
and
no agreements, understandings or proposed transactions are contemplated between
the Company and any such person. Except as set forth on Schedule 3.7, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
3.8. Changes.
Since
September 30, 2006, except as disclosed or any other Schedule to this Agreement
or to any of the Related Agreements, there has not been:
(a) any
change in the business, assets, liabilities, condition (financial or otherwise),
properties or operations of the Company or any of its Subsidiaries, which
individually or in the aggregate has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect;
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(b) any
resignation or termination of any officer, key employee or group of employees
of
the Company or any of its Subsidiaries;
(c) any
material change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) any
damage, destruction or loss, whether or not covered by insurance, has had,
or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(e) any
waiver by the Company or any of its Subsidiaries of a valuable right or of
a
material debt owed to it;
(f) any
direct or indirect loans made by the Company or any of its Subsidiaries to
any
stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of
business;
(g) any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company or any of its
Subsidiaries;
(h) any
declaration or payment of any dividend or other distribution of the assets
of
the Company or any of its Subsidiaries;
(i) any
labor
organization activity related to the Company or any of its
Subsidiaries;
(j) any
debt,
obligation or liability incurred, assumed or guaranteed by the Company or any
of
its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) any
sale,
assignment, hypothecation or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets owned by the Company or any of its
Subsidiaries;
(l) any
change in any material agreement to which the Company or any of its Subsidiaries
is a party or by which either the Company or any of its Subsidiaries is bound
which either individually or in the aggregate has had, or could reasonably
be
expected to have, individually or in the aggregate, a Material Adverse
Effect;
(m) any
other
event or condition of any character that, either individually or in the
aggregate, has had, or could reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect; or
(n) any
arrangement or commitment by the Company or any of its Subsidiaries to do any
of
the acts described in subsection (a) through (m) above.
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3.9. Title
to Properties and Assets; Liens, Etc.
Except
as set forth on Schedule 3.9, the Company and each of its Subsidiaries has
good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than:
(a) those
resulting from taxes which have not yet become delinquent;
(b) minor
liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company
or
any of its Subsidiaries; and
(c) those
that have otherwise arisen in the ordinary course of business.
All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 3.9, the Company
and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound except where such failure to be in
compliance, either individually or in the aggregate has had, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
3.10. Intellectual
Property.
(a) Each
of
the Company and each of its Subsidiaries owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights,
trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted, as presently proposed to be
conducted (the “Intellectual Property”), without any infringement of the rights
of others. There are no outstanding options, licenses or agreements of any
kind
relating to the foregoing proprietary rights, nor is the Company or any of
its
Subsidiaries bound by or a party to any options, licenses or agreements of
any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of “off the shelf” or standard products.
(b) Neither
the Company nor any of its Subsidiaries are in breach of any intellectual
property right of any third party nor have they received any communications
alleging that the Company or any of its Subsidiaries has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets
or
other proprietary rights of any other person or entity, nor is the Company
or
any of its Subsidiaries aware of any basis therefor.
(c) The
Company does not and will not utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment
by the Company or any of its Subsidiaries, except for inventions, trade secrets
or proprietary information that have been rightfully assigned to the Company
or
any of its Subsidiaries.
3.11. Compliance
with other Instruments.
Neither
the Company nor any of its Subsidiaries is in violation or default of (i) any
material term of its Charter or Bylaws, or (ii) of any provision of any
indebtedness, mortgage, indenture, contract, agreement or instrument to which
it
is party or by which it is bound or of any judgment, decree, order or writ,
which violation or default, in the case of this clause (ii), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The execution, delivery and performance of and
compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Shares by the Company pursuant hereto,
will not, with or without the passage of time or giving of notice, result in
any
such material violation, or be in conflict with or constitute a default under
any such term or provision, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture
or nonrenewal of any permit, license, authorization or approval applicable
to
the Company, its business or operations or any of its assets or
properties.
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3.12. Filings,
Consents and Approvals.
Neither
the Company nor any Subsidiary is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other person in connection with the execution,
delivery and performance by the Company of this Agreement or the Related
Agreements, other than (i) a current report on Form 8-K announcing the
transactions contemplated under this Agreement, (ii) the filing of a
registration statement with the SEC as required under the Registration Rights
Agreement, (iii) the notice and/or application(s) to the American Stock Exchange
(“AMEX”) for the issuance and sale of the Shares for trading thereon in the time
and manner required thereby, and (iv) the filing of Form D with the SEC and
applicable Blue Sky filings (collectively, the “Required
Approvals”).
3.13. Litigation.
There is
no action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any
of
its Subsidiaries, nor is the Company aware that there is any basis to assert
any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party
or
subject to the provisions of any order, writ, injunction, judgment or decree
of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to
initiate.
3.14. Tax
Returns and Payments.
Except
as set forth on Schedule 3.14, the Company and each of its Subsidiaries have
timely filed all tax returns (federal, state, local, and foreign) required
to be
filed by it. All taxes shown to be due and payable on such returns, any
assessments imposed, and all other taxes due and payable by the Company or
any
of its Subsidiaries on or before the Closing, have been paid or will be paid
prior to the time they become delinquent. Except as set forth on Schedule 3.14,
neither the Company nor any of its Subsidiaries has been advised:
(a) that
any
of its returns, federal, state, local, foreign, or other, have been or are
being
audited as of the date hereof; or
7
(b) of
any
deficiency in assessment or proposed judgment to its federal, state, local,
foreign, or other taxes.
The
Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
3.15. Employees.
Neither
the Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company’s knowledge, threatened with respect to the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries is a party
to
or bound by any currently effective employment contract with its corporate
officers, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company’s knowledge, no employee of the Company or any of its
Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating
to
the right of any such individual to be employed by, or to contract with, the
Company or any of its Subsidiaries because of the nature of the business to
be
conducted by the Company or any of its Subsidiaries; and to the Company’s
knowledge the continued employment by the Company or any of its Subsidiaries
of
its present employees, and the performance of the Company’s and its
Subsidiaries’ contracts with its independent contractors, will not result in any
such violation. Neither the Company nor any of its Subsidiaries is aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries,
no
employee of the Company or any of its Subsidiaries has been granted the right
to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company
or
any of its Subsidiaries. The Company is not aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with
the
Company or any of its Subsidiaries, nor does the Company or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
3.16. Compliance
with Laws; Permits.
Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, rule, regulation, order or restriction of any domestic or foreign
government or any instrumentality or agency thereof in respect of the conduct
of
its business or the ownership of its properties which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations
or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any other Related Agreement and the issuance
of
any of the Shares, except such as has been duly and validly obtained or filed,
or with respect to any filings that must be made after the Closing, as will
be
filed in a timely manner. Each of the Company and its Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary
for
the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have
a
Material Adverse Effect.
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3.17. Environmental
and Safety Laws.
Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety and no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation except for such
violations that individually, or in the aggregate, have had, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect. No Hazardous Materials (as defined below) are used or have been used,
stored, or disposed of by the Company or any of its Subsidiaries or, to the
Company’s knowledge, by any other person or entity on any property owned, leased
or used by the Company or any of its Subsidiaries. For the purposes of the
preceding sentence, “Hazardous Materials” shall mean:
(a) materials
which are listed or otherwise defined as “hazardous” or “toxic” under any
applicable local, state, federal and/or foreign laws and regulations that govern
the existence and/or remedy of contamination on property, the protection of
the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials;
or
(b) any
petroleum products or nuclear materials.
3.18. Insurance.
Each of
the Company and each of its Subsidiaries have general commercial, fire and
casualty insurance policies with coverages which the Company believes are
customary for companies similarly situated to the Company and its Subsidiaries
in the same or similar business.
3.19. SEC
Reports.
The
Company has timely filed all proxy statements, reports and other documents
required to be filed by it under the Securities ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended
(the “Exchange Act”). The Company has made available to the Purchaser copies of:
(i) its Annual Reports on Form 10-K for its fiscal year ended March 31, 2006;
(ii) its quarterly reports on Form 10-Q for the fiscal quarters ended June
30,
2004, September 30, 2004, December 31, 2004, June 30, 2005, September 30, 2005,
December 31, 2005, June 30, 2006 and September 30, 2006 and (iii) its reports
on
Form 8-K which have been filed from July 31, 2006 to date (collectively, the
“SEC Reports”). Each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4. Representations,
Warranties and Covenants of the Purchaser.
Each
Purchaser hereby represents, warrants and covenants to the Company as follows:
4.1. Authorization;
Enforceability.
Each
Purchaser has the power and authority to purchase the Shares and to execute
and
deliver this Agreement and the Related Agreements to which such Purchaser is
a
party and to perform the provisions hereof and thereof. This Agreement
constitutes, and upon execution and delivery thereof, each other Related
Agreement to which such Purchaser is a party will constitute, such Purchaser’s
valid and legally binding obligation, enforceable in accordance with its terms,
subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws of general application relating
to or affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity.
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4.2. No
Conflict with Other Instruments.
The (i)
execution, delivery and performance of this Agreement by each Purchaser and
the
other Related Agreements to which such Purchaser is a party, and (ii)
consummation of the transactions contemplated hereby and thereby by such
Purchaser has not and will not result in default (and to the knowledge of such
Purchaser, no event has occurred which, with notice or lapse of time or both,
would constitute a default) under any provision of any instrument or contract
to
which such Purchaser is a party or by which such Purchaser or any of its
property is bound, or in violation of any provision of any governmental
requirement applicable to such Purchaser.
4.3. Consent.
Filings,
Consents and Approvals. No
Purchaser is required to obtain any consent, waiver, authorization or order
of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other person in
connection with the execution, delivery and performance by the Purchaser of
this
Agreement or the Related Agreements, other than the Required Approvals or any
other filing or notice required under federal or state securities laws to report
the transactions contemplated in this Agreement and the Related
Agreements.
4.4. Investment
for Own Account.
Such
Purchaser will hold the Shares for their own account for investment purposes
only, and not with a view to, or for resale in connection with, any distribution
that would require registration under the Securities Act or the securities
laws
of any state. Such Purchaser does not presently have any reason to anticipate
any change in circumstances or other particular occasion or event which would
require selling the Shares or any part thereof or interest therein. Such
Purchaser understands that there will be no established market for the Shares
and that such Purchaser may be restricted from selling the Shares except in
a
sale exempt under federal and state securities laws.
4.5. No
Registration.
Such
Purchaser understands that: (a) the Shares (i) have not been registered under
the Securities Act or any state securities laws, (ii) will be issued in reliance
upon an exemption from the registration and prospectus delivery requirements
of
the Securities Act which relate to private offerings, (iii) may be required
to
be held by such Purchaser indefinitely, and (b) such Purchaser must therefore
bear the economic risk of such investment indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt therefrom. Such Purchaser further understands
that
such exemptions depend upon, among other things, the accuracy of such
Purchaser’s representations set forth in this Section 4.
4.6. Access
to Information.
Such
Purchaser has had an opportunity to ask questions of, and receive satisfactory
answers from, the Company and its representatives or agents concerning the
terms
of this investment and the undersigned’s potential acquisition of the Shares,
and all such questions have been answered to such Purchaser’s full satisfaction.
Such Purchaser has been furnished by the Company all information (or provided
access to all information) regarding the business and financial condition of
the
Company, the attributes of the Shares and the merits and risks of an investment
in the Shares which such Purchaser has requested or otherwise needs to evaluate
the investment in the Shares, and such Purchaser does not desire any further
information or data concerning the Company. Specifically, such Purchaser
acknowledges receipt from the Company of, without limitation, the following
information (collectively, the “Investment Information”):
(a) the
Company’s Exchange Act Filings; and
10
(b) the
Company’s Charter and Bylaws.
Such
Purchaser has received, read and understands the Investment Information. Such
Purchaser has examined all written materials furnished by the Company, or caused
the same to be examined by such Purchaser’s representatives, to the extent such
Purchaser deemed necessary or appropriate. The undersigned acknowledges that
the
Company has made available to the undersigned the opportunity to obtain
additional information to verify the accuracy of any material shown to the
undersigned by the Company and to evaluate the merits and risks of this
investment.
4.7. Accredited
Investor.
Such
Purchaser is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act, and such Purchaser, or those persons
retained by such Purchaser, have knowledge, skill and experience in financial,
business and investment matters relating to an investment of this type and
are
capable of evaluating the merits and risks of such investment and protecting
such Purchaser in connection with an investment in the Shares. At such
Purchaser’s own expense, the undersigned has, to the extent deemed necessary by
such Purchaser, retained and relied upon appropriate professional advice
regarding the investment, tax and legal merits and consequences of an investment
in the Shares. Such Purchaser has not received any legal, business, tax or
other
advice from the Company, its counsel or other representatives.
4.8. Risk
of Investment.
Such
Purchaser acknowledges that (i) it has been called to such Purchaser’s attention
that such Purchaser’s investment in the Shares involves a high degree of risk,
(ii) any investment in the Company is not insured by any governmental or other
entity, and (iii) such Purchaser understands that the Shares will be an illiquid
investment. Further, such Purchaser acknowledges that there are certain tax
risks associated with the proposed investment and no assurances are being made
that existing tax laws and regulations will not be modified in the future,
thus
altering tax consequences associated with this potential investment. The Company
has never made any representation, guarantee or warranty (a) as to the
approximate or exact length of time that such Purchaser will be required to
remain an owner of the Shares (or any other securities of the Company); (b)
the
percentage of profit, amount of or type of consideration and/or profit or loss,
if any, that will result from an investment in the Shares; or (c) that any
future expectations relating to the Company’s performance indicate in any way
what the Company’s financial condition or results of operations will be in the
future. Such Purchaser understands the speculative nature of an investment
in
the Shares and the financial risks associated with the Shares.
4.9. Restrictions
on Transfer.
The
Offering is being made in reliance upon exemptions from registration under
the
Securities Act and applicable state securities laws for an offer and sale of
securities not involving a public offering. The Shares may not be sold,
transferred or otherwise disposed of without satisfaction of certain conditions,
including registration under, or the availability of an exemption from
registration under, the Securities Act and applicable state securities laws.
Such Purchaser agrees that the Company may permit the transfer of the Shares
out
of such Purchaser’s name only when any request for transfer is accompanied by an
opinion of counsel acceptable in form and substance to Company counsel to the
effect that the proposed transfer results in no violation of the Securities
Act
or any applicable state securities laws. A legend to this effect will be placed
upon each certificate representing the Shares.
11
4.10. Representations
and Warranties.
No
person or entity, other than the Company, has been authorized to give any
information or to make any representations on behalf of the Company in
connection with the offering of the Shares and, if given or made, such
information or representations have not been relied upon by the undersigned
as
having been made or authorized by the Company. The only representations,
warranties and information made by the Company in connection with the Offering
are those contained in this Agreement and the Investment
Information.
4.11. General
Solicitation.
The
solicitation of an offer to buy the Shares was communicated to such Purchaser
in
such a manner that at no time was such Purchaser presented with or solicited
by
or through any leaflet, public promotional meeting, television, radio, internet
or other published advertisement or any other form of general or public
advertising or solicitation.
4.12. Purchaser’s
Experience.
By
reason of such Purchaser’s business and financial experience, such Purchaser has
the capacity to protect such Purchaser’s own interests in investments of this
nature. Such Purchaser has evaluated such Purchaser’s financial resources and
investment position, and the risks associated with the proposed investment
and
concluded that such Purchaser has the ability to bear the economic risks
associated with this proposed investment.
4.13. Non-public
Information.
After
the date hereof, such Purchaser agrees to hold in strict confidence any
non-public information of the Company (the “Information”) acquired by such
Purchaser, and not to use such Information for any competitive purpose. Such
Purchaser may transmit Information to its partners, directors, officers,
employees, agents or representatives, including attorneys, accountants and
consultants (collectively, “Representatives”), but only to such Representatives
who are informed of the confidential nature of the Information and are directed
to treat such Information as confidential. Notwithstanding anything to the
contrary herein, such Purchaser may disclose any Information to the extent
such
Information or portion thereof (i) is or becomes generally available to the
public other than as a result of a disclosure by the undersigned or its
Representatives in breach of the terms hereof, (ii) is or becomes available
to
such Purchaser on a non-confidential basis from a source, other than the Company
or its representatives, without violation of a duty of confidentiality to the
Company, or (iii) was known to such Purchaser on a non-confidential basis prior
to the disclosure to such Purchaser by the Company or any of its
representatives.
5. Covenants
of the Company and Purchaser.
5.1 Registration
Rights. If
at any
time after the date hereof, the Company shall determine to prepare and file
with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to
be
issued solely in connection with any acquisition of any entity or business
or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall use its best efforts to include in such
registration statement all of such Shares to the extent the Company may do
so
without violating registration rights of others which exist as of the date
of
this Agreement, subject to customary underwriter cutbacks applicable to all
holders of registration rights and subject to obtaining any required the consent
of any selling stockholder(s) to such inclusion under such registration
statement. The Company shall have a right to postpone, delay or withdraw any
registration pursuant to this Section 5.1 without obligation to the Holder.
12
5.2. Listing.
The
Company shall as promptly as practicable after Closing secure the listing of
the
Shares on the AMEX (subject to official notice of issuance) and shall maintain
such listing so long as any other shares of Common Stock shall be so listed.
The
Company will use commercially reasonable best efforts to maintain the listing
of
its Common Stock on AMEX, and will comply with the Company’s reporting, filing
and other obligations under the bylaws or rules of the National Association
of
Securities Dealers (“NASD”) and such exchanges, as applicable.
5.3. Market
Regulations.
The
Company shall notify the SEC, NASD and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may
be
required and permitted by applicable law, rule and regulation, for the legal
and
valid issuance of the Shares to the Purchasers and promptly provide copies
thereof to the Purchasers.
5.4. Reporting
Requirements;
Reports for Purchasers.
The
Company will timely file with the SEC all reports required to be filed pursuant
to the Exchange Act and refrain from terminating its status as an issuer
required by the Exchange Act to file reports thereunder even if the Exchange
Act
or the rules or regulations thereunder would permit such termination. The
Company will prepare and timely file with the Commission, at the Company’s
expense, any filings pursuant to Section 13 or 16 of the Exchange Act that
are required
for Purchasers in connection with this transaction in the future;
provided,
however,
that
Purchasers agree to deliver any necessary information required to complete
such
filings to
the
Company no later than the next business day after the transaction requiring
such filing occurs.
5.5. Restrictions.
If
required by law, until this Agreement and the Related Agreements are approved
by
the holders a majority of the outstanding shares of capital stock of the Company
entitled to vote (“Shareholder Approval”), no holder of Shares shall be entitled
to vote such holder’s Shares, if such holder will hold more than 9.99% of the
outstanding Common Stock or voting power of the Company on the date of such
vote
or exercise.
6. Indemnification.
6.1. Company
Indemnification.
The
Company agrees to indemnify, hold harmless, reimburse and defend the Purchasers,
each Purchaser’s officers, directors, agents, affiliates, control persons, and
principal shareholders, against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by
or
imposed upon the Purchasers which results, arises out of or is based upon:
(i)
any misrepresentation by the Company or any of its Subsidiaries or breach of
any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto;
or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchasers
relating hereto or thereto.
13
6.2. Purchasers’
Indemnification.
Each
Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, affiliates, control
persons and principal shareholders, at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal
fees)
of any nature, incurred by or imposed upon the Company which results, arises
out
of or is based upon: (i) any misrepresentation by the Purchasers or breach
of
any warranty by the Purchasers in this Agreement, any other Related Agreement
or
in any exhibits or schedules attached hereto or thereto; or (ii) any breach
or
default in performance by the Purchasers of any covenant or undertaking to
be
performed by the Purchasers hereunder, under any other Related Agreement or
any
other agreement entered into by the Company and/or any of its Subsidiaries
and
Purchasers relating hereto or thereto.
7. Miscellaneous.
7.1. Entire
Agreement.
This
Agreement, the Related Agreements, the exhibits and schedules hereto and thereto
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by
any
representations, warranties, covenants and agreements except as specifically
set
forth herein and therein.
7.2
Choice
of Law.
This
Agreement shall be governed under the laws of the State of New York, without
regard to conflicts of law. The parties agree that the venue for the resolution
of any conflicts arising under this Agreement or for the interpretation of
this
Agreement shall be in New York, New York and that the Courts of the State of
New
York shall have jurisdiction over any such disputes and over the parties
hereto.
7.3
Attorney’s
Fees.
In the
event any litigation, arbitration, mediation, or other proceeding (“Proceeding”)
is initiated by any party(ies) against any other party(ies) to enforce,
interpret or otherwise obtain judicial or quasi-judicial relief in connection
with this Agreement, the prevailing party(ies) in such Proceeding shall be
entitled to recover from the unsuccessful party(ies) all costs, expenses, actual
attorney’s and expert witness fees, relating to or arising out of: (i) such
Proceeding (whether or not such Proceeding proceeds to judgment), and (ii)
any
post-judgment or post-award proceeding including, without limitation, one to
enforce any judgment or award resulting from any such Proceeding. Any such
judgment or award shall contain a specific provision for the recovery of all
such subsequently incurred costs, expenses, actual attorney and expert witness
fees.
7.4
Counterparts.
This
Agreement may be signed in one (1) or more counterparts, each of which shall
constitute an original but all of which together shall be one (1) and the same
document. Signatures received by facsimile shall be deemed to be original
signatures.
7.5
Partial
Invalidity.
Each
provision of this Agreement will be valid and enforceable to the fullest extent
permitted by law. If any provision of this Agreement or the application of
the
provision to any person or circumstance will, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of the
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, will not be affected by such invalidity or
unenforceability, unless the provision or its application is essential to this
Agreement.
14
7.6
Titles
and Subtitles.
The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.
7.7
Drafting
Ambiguities.
Each
party to this Agreement and their legal counsel have reviewed and revised this
Agreement. The rule of construction that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any amendments or exhibits to this Agreement.
7.8
Notices.
Any
notice from one party to another shall be delivered either personally, via
facsimile or by United States mail, postage fully prepaid, addressed as follows:
|
Purchasers:
|
To
the respective addresses set forth below the Purchaser’s signature at the
foot of this Agreement.
|
|
|
With
a copy (not
constituting
notice):
|
||
|
Company:
|
The
Singing Machine Company, Inc.
|
|
|
Attention:
▇▇▇▇▇ ▇▇▇▇▇
|
||
|
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇-▇
|
||
|
▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
||
|
With
a copy to (not
constituting
notice):
|
Sichenzia
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
|
|
|
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
|
||
|
▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
|
||
|
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
|
Any
notice being delivered within the continental United States shall be deemed
delivered upon (a) personal service, or (b) transmission via facsimile (with
the
original thereof to be immediately sent via mail, postage prepaid), or (c)
forty
eight (48) hours after the time of deposit in the mail, as the case may be.
In
the event any Party changes its address, such change of address shall be
communicated to the other Party in the manner set forth in this
Section.
7.8
Definition
of Knowledge.
For the
purposes of this Agreement, the Company shall only be deemed to have “knowledge”
of a particular fact or other matter, if an executive officer of the Company
is
actually aware of such fact or matter, or a reasonably prudent individual
operating in the capacity of an executive officer of the Company could be
expected to discover or otherwise become aware of such fact or matter in the
ordinary course of fulfilling the responsibilities of an executive
officer.
7.9
Interpretation/Representation.
Wherever
the context of this Agreement requires, all words used in the singular shall
be
construed to have been used in the plural, and vice versa, and the use of any
gender specific pronoun shall include any other appropriate gender. The term
“person” shall refer to any individual, corporation or legal entity having
standing to bring an action in its own name under applicable state law. The
conjunctive “or” shall mean “and/or” unless otherwise required by the context in
which the conjunctive “or” is used.
15
7.10
Survival.
The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by
the
Company hereunder solely as of the date of such certificate or
instrument.
7.11
Successors.
Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the
benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and
be
enforceable by each person who shall be a holder of the Shares from time to
time, other than the holders of Common Stock which has been sold by the
Purchasers pursuant to Rule 144 or an effective registration statement.
7.12
Amendment and Waiver.
(a) This
Agreement may be amended or modified only upon the written consent of the
Company and a majority in interest of the Purchasers.
(b) The
obligations of the Company and the rights of the Purchasers under this Agreement
may be waived only with the written consent of a majority in interest of the
Purchasers.
(c) The
obligations of the Purchasers and the rights of the Company under this Agreement
may be waived only with the written consent of the Company.
7.2. Delays
or Omissions.
It is
agreed that no delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach, default or noncompliance by another party under
this Agreement or the Related Agreements, shall impair any such right, power
or
remedy, nor shall it be construed to be a waiver of any such breach, default
or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. All remedies, either under this
Agreement or the Related Agreements, by law or otherwise afforded to any party,
shall be cumulative and not alternative.
[Remainder
of Page Intentionally Left Blank.]
16
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement as of the date set forth in the
first paragraph hereof.
COMPANY:
The
Singing Machine Company, Inc.
a
Delaware corporation
| /s/ ▇▇▇▇▇ ▇▇▇▇▇ | |||
|
▇▇▇▇▇
▇▇▇▇▇, Interim Chief Executive Officer
|
PURCHASERS:
Arts
Electronics Co., Ltd
| By: | /s/ ▇▇ ▇▇▇▇ | |||
|
|
||||
| Name: ▇.▇. ▇▇▇▇ | ||||
|
Its:
Chairman
|
||||
Address:
▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇/▇
▇▇-▇▇
▇▇ ▇▇▇ ▇▇▇
Fo
Tan, Shatin
N.T.
Hong Kong
17
EXHIBIT
A
Closing
Share Distribution Schedule
Arts
Electronics Co Ltd. 526,316
shares for total of US$500,000.00
Schedule
3.1: Company and Subsidiary Identification
The
Singing Machine Holdings Ltd. (A BVI Corporation)
100%
owned by The Singing Machine Company, Inc.
Registered
Office: C/O Trident Trust Company (B.V.I.) Limited, Trident ▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇
▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
SMC
(Comercial Offshore de Macau) Limitada (A Macau
Corporation)
100%
owned by The Singing Machine Holdings Ltd.
Office
address: Alameda ▇▇. ▇▇▇▇▇▇ ▇’▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇
▇▇▇▇▇, ▇▇▇▇▇
Schedule
3.2: Ownership of Subsidiaries
(See
Above at Schedule 4.1)
Schedule
3.9 Title
to Properties and Assets; Liens, Etc
Properties
pledged as collateral to Crestmark Bank, a lender
All
personal properties of The Singing Machine Company, Inc., which
including:
| 1) |
Accounts
receivable
|
| 2) |
Inventory
|
| 3) |
Chattel
paper (N/A)
|
| 4) |
Equipment
|
| 5) |
Investment
property (N/A)
|
| 6) |
Deposit
account
|
| 7) |
General
Intangible
|
As
of December 31, 2006, our loan balance with the Crestmark Bank was
$1,157,806.
Schedule
3.14: Tax Returns and Payments
All
the
tax liabilities has been included in our latest consolidated financial
statements filed with SEC dated September 30, 2006.