LaSalle Business Credit, Inc.
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Member ABN AMRO Group
135 South LaSalle Street AUGUST 13, 2002
Suite 425
Chicago, Illinois 60603
(312) 904-8490
VIA FEDERAL EXPRESS
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AUGUST 26, 2002
Ms. April Green
The Singing Machine Company, Inc.
6601 Lyons Road
Suite A-7
Coconut Creek, Florida 33073
Re: Fifth Amendment
Dear Ms. Green:
Enclosed please find a fully executed original of the Fifth Letter Amendment to
the Loan and Security Agreement for your file.
If you have any questions or comments, please feel free to call Casey Orlowski
at (312) 904-8418 or me at (312) 904-6319.
Respectfully,
/s/ Carmen L. Nieves
Carmen L. Nieves
/cln
Enclosure
cc: Casey Orlowski (w/o encl.)
Bruce Denby (w/o encl.)
Steve Fenton, Esq. (w/o encl.)
Tom Hirsh, Esq. (w/o encl.)
Maria Mercado (w/o encl.)
Bernadette Harper (w/o encl.)
LaSalle Business Credit, Inc.
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Member ABN AMRO Group
135 South LaSalle Street August 13, 2002
Suite 425
Chicago, Illinois 60603
(312) 904-8490
The Singing Machine Company, Inc.
6601 Lyons Road
Suite A-7
Coconut Creek, Florida 33073
Re: Fifth Amendment
Gentlemen:
The Singing Machine Company, Inc., a Delaware corporation ("Borrower")
and LaSalle Business Credit, Inc., a Delaware corporation ("Lender") have
entered into that certain Loan and Security Agreement dated April 26, 2001 (the
"Security Agreement"). From time to time thereafter, Borrower and Bank may have
executed various amendments (each an "Amendment" and collectively the
"Amendments") to the Security Agreement (the Security Agreement and the
Amendments hereinafter are referred to, collectively, as the "Agreement").
Borrower and Lender now desire to further amend the Agreement as provided
herein, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Subparagraph 11(o) of the Agreement is deleted in its entirety and
the following is substituted in its place:
(o) Borrower's Tangible Net Worth shall not at any time be less
than the "Minimum Tangible Net Worth"; Minimum Tangible Net
Worth being defined for purposes of this subparagraph as
Fourteen Million and No/100 Dollars ($14,000,000.00) at all
times from March 31, 2002 through June 29, 2002. Commencing
June 30, 2002 through September 29, 2002, Minimum Tangible
worth shall be equal to Fourteen Million Two Hundred Fifty
Thousand and No/100 Dollars ($14,250,000.00). Commencing
September 30, 2002 through October 30, 2002, Minimum
Tangible Net Worth shall be equal to Sixteen Million Five
Hundred Thousand and No/100 Dollars ($16,500,000.00).
Commencing October 31, 2002
LaSalle Business Credit, Inc.
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The Singing Machine Company, Inc. Member ABN AMRO Group
August 13, 2002
Page 2
through December 30, 2002, Minimum Tangible Net Worth shall
be equal to Twenty Million and No/100 Dollars
($20,000,000.00). Commencing December 31, 2002 through
December 30, 2003, Minimum Tangible Net Worth shall be equal
to Thirty Million and No/100 Dollars ($30,000,000.00).
Commencing December 31, 2003 through December 30, 2004,
Minimum Tangible Net Worth shall equal to Thirty-Five
Million and No/100 Dollars ($35,000,000.00). Thereafter,
from December 31st of each year through December 30th of the
succeeding year, "Minimum Tangible Net Worth" shall be equal
to Minimum Tangible Net Worth during the immediately
preceding fiscal year plus Five Million and No/100 Dollars
($5,000,000.00); and "Tangible Net Worth" being defined for
purposes of this subparagraph as Borrower's shareholders'
equity (including retained earnings) less the book value of
all intangible assets as determined solely by Lender on a
consistent basis plus the amount of any debt subordinated to
Lender, all as determined under generally accepted
accounting principles applied on a basis consistent with the
financial statement dated March 31, 2002, except as set
forth herein;
(b) Paragraph (1) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(1) LOANS: Subject to the terms and conditions of the Agreement
and the Other Agreements, Lender shall, absent the
occurrence of an Event of Default, advance an amount up to
the sum of the following sublimits (the "Loan Limit"):
(a) Up to seventy percent (70%), or such lesser percentage
as determined by Lender in its sole discretion
exercised in good faith, of the face amount (less
maximum discounts, credits and allowances which may be
taken by or granted to Account Debtors in connection
therewith in the ordinary course
LaSalle Business Credit, Inc.
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The Singing Machine Company, Inc. Member ABN AMRO Group
August 13, 2002
Page 3
of Borrower's business) of Borrower's Eligible
Accounts; plus
(b) Subject to subparagraph (3)(a) of this Exhibit A, the
lesser of: up to forty percent (40%), or such lesser
percentage as determined by Lender in its sole
discretion exercised in good faith, of the lower of the
cost or market value of Borrower's Eligible Inventory
or (i) Two Million Five Hundred Thousand and No/100
Dollars ($2,500,000.00) during the period of May 1st
through July 31st of each calendar year; (ii) Five
Million and No/100 Dollars ($5,000,000.00) during the
period of August 1st through November 30th of each
calendar year, said sublimit shall reduce by One
Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00) per week and shall continue to reduce
on the same day of each week until December 15th of
each calendar year, on which date said advance rate
shall reduce to zero percent (0%) during the period of
December 15th of each following calendar year; plus
(c) Subject to subparagraph (3)(a) of this Exhibit A, the
lesser of: up to forty percent (40%), or such lesser
percentage as determined by Lender in its sole
discretion exercised in good faith, against the face
amount of commercial Letters of Credit issued or
guaranteed by Lender for the purpose of purchasing
Eligible Inventory; provided, that such commercial
Letters of Credit are in form and substance
satisfactory to Lender or Two Million Five Hundred
Thousand and No/100 Dollars ($2,500,000.00); provided,
that said advance rate shall reduce to zero percent
(0%) during the period of December 1st of each calendar
LaSalle Business Credit, Inc.
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The Singing Machine Company, Inc. Member ABN AMRO Group
August 13, 2002
Page 4
year through April 30th of each following calendar
year; minus
(d) Such reserves as Lender elects, in its sole discretion
exercised in good faith, to establish from time to
time, including without limitation, (i) a seasonal
dilution reserve in the amount of One Million and
No/100 Dollars ($1,000,000.00) against Borrower's
"Eligible Accounts" during the period of October 1,
2002 through December 31, 2002 and (ii) to the extent
that the ratio of Free on Board sales to domestic sales
increases, Lender in its sole discretion may create a
reserve to account for the additional dilution;
Provided that the Loan Limit shall in no event exceed
(i) Twenty-Five Million and No/100 Dollars
($25,000,000.00) during the period of August 1st
through December 15th of each calendar year; (ii)
Twenty Million and No/100 Dollars ($20,000,000.00)
during the period of December 16th through December
31st of each calendar year; and (iii) Ten Million and
No/100 Dollars ($10,000,000.00) during the period of
January 1st through July 31st of each calendar year;
and (iv) zero ($0) during any consecutive ninety (90)
day period between December 15th of each year through
April 30th of each following year (the "Clean Up
Period") as determined by Borrower (the amount may be
increased or, following the occurrence of an Event of
Default, decreased by Lender, in its sole discretion,
exercised in good faith, from time to time.
(c) Paragraph (5) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(c) One-Time Amendment Fees: Borrower shall pay to Bank a
one-time amendment fee of One Hundred Fifty Thousand and
No/100 Dollars ($150,000.00),
LaSalle Business Credit, Inc.
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The Singing Machine Company, Inc. Member ABN AMRO Group
August 13, 2002
Page 5
which fee shall be deemed fully earned on the date of
this Amendment and payable as follows: (i) Seventy-Five
Thousand and No/100 Dollars ($75,000.00) shall be
payable on August 31, 2002; and (ii) Seventy-Five
Thousand and No/100 Dollars ($75,000.00) shall be
payable on October 31, 2002.
2. This Amendment shall not become effective until fully executed by
all parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE BUSINESS CREDIT, INC.
By /s/ [illegible]
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Title Vice President
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ACKNOWLEDGED AND AGREED TO
This 13th day of August, 2002
The Singing Machine Company, Inc.
By /s/ John F. Klecha
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John F. Klecha
Title President/Secretary