EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made as of the 15th day of April
2002 by and between THE SINGING MACHINE COMPANY, INC., a Delaware corporation
with its principal office at 0000 Xxxxx Xxxx, Xxxxxxx Xxxxx, XX 00000 (The
"Company") and Xxxx Xxxxxxxx whose residence address is 00 Xxxxxxxxx Xxxxx,
Xxxxxxxxxx, XX 00000 (the "Employee").
The Company and the Employee hereby agree as follows with respect to
the Employee's relationship with the Company:
1. Relationship; Term. The Company shall retain the Employee and the
employee shall be retained by the Company, on the terms and conditions
hereinafter set forth, as an Employee for a period (the "Employment
Period") commencing on April 15, 2002 (the "Commencement Date"), and
ending on April 14, 2005 (the "Termination Date"), unless terminated
sooner pursuant to the provisions hereof. Such period of employment
shall be automatically extended for a one (1) one-year term unless
either the Company or the Employee notifies the other in writing at
least sixty (60) days prior to the end of the then current term that it
or he does not intend to renew such employment, in which case such
employment will expire at the end of the then current term. During the
entire term of this Agreement, the Employee shall be the Company's Sr.
Vice President - Sales and Marketing.
2. Efforts on Company's Behalf. The Employee shall devote all of his time
and his best efforts, skills and attention to the business and affairs
of the Company, shall serve the Company faithfully and competently and
shall at all times act in the Company's best interest. The services to
be rendered by Executive during the term hereof shall be as Sr. Vice
President Sales and Marketing subject at all times to the direction and
control of the President. Nothing herein shall be construed to prevent
Employee from investing in or participating in the management of
companies or other entities, which do not compete with the Company or
from serving on the board of directors of any other company.
a) Succession Plan. It is the desire but not the obligation of
the Singing Machine Company that over the period of this
contract, the Executive, based upon performance, will rise
within the company to Executive Vice President and eventually
President.
3. Base Compensation.
------------------
a) The Company shall pay to the Executive, and the Executive agrees to
accept, minimum base compensation of two hundred twenty thousand
($220,000) per year (the "Base Compensation"), payable in accordance
with normal payroll policies of the
Company and shall be subject to all usual and customary payroll
deductions including all applicable withholding taxes.
b) Employee's Base Compensation shall automatically increase over the
period year's Base Compensation each year during the term hereof by not
less than the greater of:
i. Five percent (5%); or
ii. An amount calculated by multiplying the prior year's Base
Compensation by a fraction, the numerator of which shall be
the consumer price index ("Consumer Price Index"), as
hereafter defined, for the month of January in the year of
adjustment and the denominator of which shall be the Consumer
Price Index for All Urban Consumers, U.S. City Average
(1982-84=100) All Items, Bureau of Labor Statistics of the
United States Department of Labor.
4. Bonus Compensation.
-------------------
A. The Executive shall be entitled to receive a bonus (the
"Profit Bonus") for each fiscal year of the Company ("Fiscal
Year") during the employment period.
B. Employee's Bonus, for the first year of this contract, shall
be based upon 1% of the Employee's new account sales shipped,
but shall be a minimum of $50,000. During the second year of
this contract, the Employee's bonus plan shall switch to 10%
share of the total company wide bonus pool for each successive
year of the contract. All bonuses shall be paid in accordance
with the Company's cash bonus incentive plan.
C. In consideration of Employee's services hereunder, the
Executive shall be granted the option to purchase a minimum of
50,000 shares of common stock of the Company in accordance
with the terms of a stock option agreement to be executed
between the Company and Employee after the effective date of
this agreement. In addition, a minimum amount of at least
50,000 shares of common stock options will be granted the
Executive for each subsequent year a distribution is granted
by the company's Board of Directors. Additionally, after one
year if the Executive would so decide, the company or
Company's representative will buy back the original 50,000
shares from the Executive for $100,000.
D. The Company will reimburse the employee monthly for an
Allowance of Auto expenses not to exceed $500 monthly or
$6.000 annually plus the cost of auto insurance.
E. The Company will pay for all moving related expenses to move
and relocate the executive to the Company's Florida location.
The Company and the
executive will have a separate agreement to aid the executive
with sale of his existing home in Massachusetts. The company
and the Employee will execute a separate agreement to cover
the Employee's relocation.
F. In consideration and as an incentive for the Executive to join
the Singing Machine Company, a signing bonus of $50,000 will
be provided to the Executive. This bonus will be payable as
follows: 1/2 ($25,000) within 10 (ten) days of employment
commencement and 1/2 ($25,000) payable after six months of
service. There will be no obligation to pay back this signing
bonus if the Employee completes one year of continuous service
with the Company.
5. Benefit Plans.
--------------
a) The executive shall be entitled to participation in all
Company-sponsored benefit plans in accordance with terms,
conditions and costs with usual or customary Company policy
and will cover his entire family.
b) In the event that the Company purchases insurance on the life
of the Executive, Executive shall be entitled to purchase said
policy from the Company in the event of his termination,
pursuant to the terms hereof, for an amount equal to the cash
surrender value thereof.
6. Business Expenses. The Employee shall be reimbursed for all usual and
customary expenses incurred on behalf of the company, in accordance
with Company practices and procedures; provided that each such expense
is of a nature qualifying it as a proper deduction on the Federal
income tax returns of the Company, exclusive of any limitation rules as
a business expense of the Company and not as compensation to Employee,
and Employee furnishes the Company with adequate documentary evidence
to substantiate such expenses.
7. Vacation. Employee shall be entitled to a paid vacation of three (3)
weeks per each year of this agreement. Such vacation time allowance
shall cumulatively accrue, and any unused vacation time for each year
can be used in the following year or paid to the Employee at the
Employee's sole discretion. The Company shall make all reasonable
efforts to enable Employee to use his vacation leave each year.
Employee shall also be entitled to all paid holidays made generally
available by the company to its employees.
8. Death or Disability.
--------------------
a) Notwithstanding anything to the contrary contained in
Paragraph 1 above if, during the term hereof, the Employee
suffers a disability (as defined below) the Company shall,
subject to the provisions of Paragraph 8 hereof, continue to
pay
Employee the compensation provided in Paragraph 3 hereof
during the period of his disability; provided, however, that
in the event Employee is disabled for a continuous period of
ninety (90) consecutive days or for shorter periods
aggregating ninety (90) days in any twelve-month period that
the employee is incapable of substantially fulfilling the
duties set forth in Section 2 or hereafter assigned to him by
the President or Board of Directors because of physical,
mental or emotional incapacity resulting from injury, sickness
or disease as determined by an independent physician agreed
upon by both the Company and the Employee, the Company may, at
its election, terminate this Agreement. In the event of such
termination, the Company shall continue to be obligated to pay
Employee his compensation earned up to the date of
termination.
b) As used in this Agreement, the term "disability" shall mean
the substantial inability of Employee to perform his duties
under this Agreement as determined by an independent physician
agreed upon by both the Company and the Employee.
c) In the event that employment ceases prior to the end of a
calendar month as a result of his death or disability or in
the event of a termination described in Paragraph 10 below,
the Company shall pay Employee or his legal representatives,
as the case may be, in addition to any other amounts payable
by the Company hereunder, a lump cash sum which shall in no
event be less than the salary plus any bonus to which Employee
would have been entitled had he continued to be affiliated
with the Company until the end of the calendar month during
which his affiliation terminates.
9. Change of Control.
------------------
a) For the purposes of this Agreement a "Change of Control" shall
be deemed to have taken place if: (i) any person, including a
"group" as defined in Section 13 (d)(3) of the Securities
Exchange Act of 1934, as amended, becomes the owner or
beneficial owner of Company securities, after the date of this
Agreement, having 50% or more of the combined voting power of
the then outstanding securities of the Company that may be
case for the election of directors of the Company (other than
as a result of an issuance of securities initiated by the
Company, or open market purchases approved by the Board, as
long as the majority of the Board approving the purchases is
the majority at the time the purchases are made), or (ii) the
persons who were directors of the Company before such
transactions shall cease to constitute a majority of the Board
of the Company, or any successor to the Company, as the direct
or indirect result of, or in connection with, any cash tender
or exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the
foregoing transactions.
b) The Company and Employee hereby agree that, if Employee is
affiliated with the Company on the date on which a Change of
Control occurs (the "Change of Control Date") the Company (or,
if Executive is affiliated with a subsidiary, the subsidiary)
will continue to retain Executive, and Executive will remain
affiliated with the Company (or subsidiary), for the period
commencing on the Change of Control date and ending on the
first anniversary of such a date, to exercise such authority
and perform such Employee duties as are commensurate with the
authority being exercised and duties being performed by the
Employee immediately prior to the Change of Control Date.
c) During the remaining term hereof after the Change of Control
Date, the Company (or subsidiary) will (i) continue to pay
Employee a salary at not less than the level applicable to
Employee on the Change of Control Date, (ii) pay Employee
Bonuses in amounts not less in amount than those paid during
the twelve month period preceding the Change of Control Date,
and (iii) continue employee benefit programs as to Employee at
levels in effect on the Change of Control Date (but subject to
such reductions as may be required to maintain such plans in
compliance with applicable federal law regulating employee
benefit programs).
d) If during the remaining term hereof after the Change of
Control Date (i) Employee's employment is terminated by the
Company (or subsidiary), or (ii) there shall have occurred a
material reduction in Employee's compensation or employment
related benefits, or a material change in Employee's status,
working conditions, management responsibilities or titles, and
Employee voluntarily terminates his relationship with the
company within sixty (60) days of any such occurrence, or the
last in a series of occurrences, then Employee shall be
entitled to receive, subject to the provisions of
subparagraphs (e) and (f) below, a lump sum payment equal to
50% of Employee's "base period income" as determined under (e)
below. Such amount will be paid to Employee within thirty (30)
business days after his termination of affiliation with the
Company.
e) The Employee's "base period income" shall be his base salary
and annual incentive bonuses paid or payable to him during or
with respect to the twelve month period preceding the date of
his termination of affiliation.
f) The amounts payable to Employee under any other compensation
arrangement maintained by the Company (or a subsidiary) which
became payable after payment of the lump sum provided for in
(a), upon or as a result of the exercise by Employee of rights
which are contingent on a Change of Control (and would be
considered a "parachute payment" under Internal Revenue Code &
280G and regulations thereunder), shall be increased by an
additional amount representing a gross-up of any federal
income tax liability arising from an excess parachute payment
or otherwise.
10. Termination.
------------
a) Termination for Cause. This agreement may be immediately
terminated by the Company at any time during the Employment
Period for "cause". In such an event of termination, the
Company shall be obligated only to continue to pay to Employee
his Base Salary earned up to the effective date of
termination. "Cause" for purposes hereof shall mean a breach
of any of the provisions of this Agreement by Employee,
unsatisfactory performance of Employee's duties hereunder as
reasonably determined by the Company's Board of Directors,
willful misconduct or neglect of duties, conviction of any
criminal offense involving a felony, gross negligence,
malfeasance or a crime of moral turpitude.
b) Continuing Effect. Notwithstanding any termination of the
Employee as provided in this Section 10 or otherwise, the
provisions of Section 12 and 13 shall remain in full force and
effect and shall be binding on the Employee and his legal
representatives, a successors and assigns.
11. Consolidation, Merger or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another
corporation, which assumes this Agreement and all obligations of the
Company hereunder, in writing. Upon such consolidation, merger, or
transfer of assets and assumption, the term "the Company" as used
herein, shall mean such other corporation and this Agreement shall
continue in full force and effect.
12. Restrictive Covenants.
----------------------
a) The Employee acknowledges that his services and
responsibilities are unique in character and are of particular
significance to the Company, that the Company is a competitive
business and that the Employee's continued and exclusive
service to the Company under this Agreement is of a high
degree of importance to the Company. Therefore, during the
Employment Period and for the applicable periods specified
below (each, the "Noncompete Period"), the Employee shall not,
directly or indirectly, as owner, partner, joint venture,
Employee, broker, agent, corporate, officer, principal,
licensor, shareholder (unless as owner of no more than five
percent (5%) of the issued and outstanding capital stock of
such entity if such stock is traded on a major securities
exchange, or in any other capacity whatsoever, engage in or
have any connection with any business which is competitive
with the Company, and which operates anywhere in the {World]
on the effective date of termination of this Agreement.
Reason for Termination Noncompete Period
Termination without cause 1 year
Termination for cause 2 years
For purposes of this Agreement a business will be deemed to be
competitive with The Company if it is an importer/re-seller of
Karaoke hardware and/or software specializing in the United
States mass merchant marketplace.
b) In addition to the restrictions set forth in Section 12(a),
during the Noncompete period, the Employee shall not:
i. directly or indirectly, by initiating contact or
otherwise, induce influence, combine or conspire
with, or attempt to induce, influence, combine or
conspire with any of the officers, Employees or
agents of the Company to terminate his, her or its
employment or relationship with or to compete against
the company; or
ii. directly or indirectly, by initiating contact or
otherwise, divert or attempt to divert any or all of
any customers' or suppliers business with the
Company.
c) If, in any judicial proceedings, a court shall refuse to
enforce any of the covenants included in this Section 12 due
to extent, geographic scope or duration thereof, or otherwise,
then such unenforceable covenant shall be amended to relate to
such lesser extent, geographic scope or duration and this
Section 12 shall be enforceable, as amended. In the event the
Company should bring any legal action or other proceeding
against Employee for enforcement of this Agreement, the
calculation of the Noncompete Period shall not include the
period of time commencing with the filing or legal action or
other proceeding to enforce this Agreement through the date of
final judgment or final resolution, including all appeals, if
any of such legal action or other proceeding unless the
Company is receiving the practical benefits of this Section 12
during such time. The existence of any claim or cause of
action by the Employee against the Company predicted on this
Agreement or otherwise shall not constitute a defense to the
enforcement by the Company of these covenants.
d) The Employee has carefully considered the nature and extent of
the restrictions upon the Employee and the rights and remedies
conferred upon the Company under this Section 12, and the
Employee hereby acknowledges that the restrictions on his
activity as contained herein are reasonably required for the
Company's protection, would not operate as a bar to the
Employee's sole means of support, are fully required to
protect the legitimate interests of the Company, do not confer
a benefit on the Company disproportionate to the detriment of
the Employee and are material inducements to the Company to
enter into this Agreement. The Employee hereby agrees that in
the event of a violation by him of
any of the provisions of this Agreement, the Company will be
entitled to institute and prosecute proceedings at law or in
equity to obtain damages with respect to such violation or to
enforce the specific performance of this Agreement by the
Employee or to enjoin the Employee from engaging in any
activity in violation hereof.
13. Treatment and Ownership of Confidential Information. The Employee
acknowledges that during his employment he will learn and will have
access to Confidential Information regarding the Company. For purposes
of this Agreement, the term "Confidential" acquires or develops or has
made use of, in whole or in part in connection with Employee's
employment with the Company (whether before or after the date of this
Agreement), including any financial data, client names and addresses,
employee data, discoveries, processes, formulas, inventions, know-how,
techniques and any other materials or information related to the
business or activities of the Company which are not generally known to
others engaged in similar businesses or activities. The Employee
acknowledges that such Confidential Information as is acquired and used
by the Company or its affiliates is a special, valuable and unique
asset. The Employee will not, except in connection with and as required
by his performance of his duties under this Agreement, for any reason
use for his own benefit, or the benefit of any person or entity with
which he may be associated, or disclose any such Confidential
Information to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever without the prior written
consent of the Company's Board of Directors, unless such Confidential
Information previously shall be and shall remain the exclusive property
of the Company. The Employee agrees to promptly disclose to the Company
all Confidential Information developed in whole or in part by the
Employee within the scope of this Agreement and to assign to the
Company and right title, or interest the Employee may have in such
Confidential Information. The Employee agrees to turn over to the
Company all physical manifestations of the Confidential Information in
his possession or under his control at the request of the Company.
14. Employee Representations and Warranties. The Employee represents and
warrants that he is not a party to, or bound by, any other employment
agreements. The Employee further represents and warrants to the Company
that he is free of known physical and mental disabilities that would,
with or without reasonable accommodations that would create an undue
hardship for the Company, impair his performance hereunder and he is
fully empowered to enter and perform his obligations under this
Agreement. Without limiting the generality of the foregoing, the
Employee represents and warrants that he is under no restrictive
covenants to any person or entity that will be violated by his entering
into and performing this Agreement.
15. Arbitration. Except as provided in sections 12 and 25 hereof, any
dispute, controversy or claim arising under, out of, in connection
with, or in relation to this Agreement, or the breach, termination,
validity or enforceability of any provision of this Agreement, will be
settled by an arbitrator (the "Arbitrator") chosen according to the
rules of the American Arbitration Association's National Rules for
Resolution of Employment Disputes, with the additional proviso that all
steps necessary to insure the confidentiality of the proceedings will
be added to the basic rules. Unless otherwise mutually agreed upon by
the parties, the arbitration hearings shall be held in the Broward
County, Florida. The parties hereby agree that the Arbitrator has full
power and authority to hear and determine the controversy and make an
award in writing in the form of a reasoned judicial opinion. The
parties hereby stipulate in advance that the award is binding and
final. The parties hereto also agree that judgment upon the arbitration
award may be entered in any federal or state court having jurisdiction
thereof. Each party is responsible for their own legal fees and
out-of-pocket expenses.
16. Binding Effect. Except as herein otherwise provided, this Agreement
shall inure to the benefit of and shall be binding upon the parties
hereto, their personal representatives, successors, heirs and assigns.
17. Severability. Invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforce4ability of any other
provision.
18. Terminology. All personal pronouns used in this Agreement, whether used
in the masculine, feminine or neuter gender, shall include all other
genders, the singular shall include the plural and vice versa. Titles
of Paragraphs are for convenience only, and neither limit nor amplify
the provisions of the Agreement itself.
19. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida.
20. Entire Agreement. This Agreement contains the entire understanding
between the parties and may not be changed or modified except by an
Agreement in writing signed by all the parties.
21. Notice. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered when deposited in the United States
mail, postage prepaid, registered or certified mail, return receipt
required, addressed to the parties at the addresses first stated
herein, or to such other address as either party
hereto shall from time to time designate to the other party by notice
in writing as provided herein.
22. No Publicity. The Employee agrees that he will not engage in any
conduct that is injurious to the Company's reputation and interests,
including but not limited to, publicly disparaging (or inducing or
encouraging others to publicly disparage) the Company or any of the
Company's directors, officers, employees or agents.
23. Cooperation. Employee agrees to cooperate fully with the Company by
providing information to the Company and its representatives, agents or
advisors regarding any business matters with which the Employee may
become involved during the term of this Agreement and to cooperate
fully in the event of any litigation or legal, administrative or
regulatory proceeding by providing information, including but not
limited to, providing truthful testimony at any legal administrative or
regulatory proceeding, regarding any facts or information of which
Employee has knowledge and/or any business matters of which Employee
has or had knowledge.
24. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company, provided that such successor or
assign shall acquire all or substantially all of the assets and
business of the Company and, further provided that any such assignment
shall not release the Company from its obligations to the Employee
thereunder. The Employee's rights and obligations hereunder may not be
assigned or alienated without the prior written consent of the Company
and any attempt to do so by the Employee will be void.
25. Attorney's Fees. If any legal action or other proceeding is brought by
the Company for the enforcement of Section 12 of this Agreement, or
because of an alleged dispute, breach, default or misrepresentation by
the Employee in connection with any provision of this Agreement, the
Company or the Employee in such legal action or other proceeding, shall
be responsible for its own attorneys' fees, sales and use taxes, court
costs and other expenses incurred in that action or proceeding.
26. Injunctive Relief. The Employee acknowledges and agrees that in the
event Employee violates any term, covenant or provision of Section 12
of this Agreement, the Company will suffer irreparable harm for which
the Company will have no adequate remedy at law. The Employee agrees
that the Company shall be entitled to injunctive relief for any breach
or violation of Section 12 of this Agreement, including but not limited
to the issuance of an ex parte preliminary
injunction, in addition to and not in limitation of any and all other
remedies available to the Company at law or in equity.
27. No Offsets. The existence of any claim or cause of action of the
Employee against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the
Company of this Agreement.
28. Employee Acknowledgement. The Employee acknowledges and agrees that
Employee has read and understands the terms set forth in this Agreement
and has been given a reasonable opportunity to consult with an attorney
prior to execution of this Agreement.
29. Other Instruments. The parties hereby covenant and agree that they will
execute such other and further instruments and documents as are or may
become necessary or convenient to effectuate and carry out the terms of
this Agreement.
30. Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed
an original.
31. Assignability. This Agreement shall not be assigned by either party,
except with the written consent of the other.
[SIGNATURE PAGE ON NEXT PAGE]
IN WITNESS WHEREOF, this Agreement has been duly signed by the Employee and on
behalf of the Company on the day and year first above written.
THE SINGING MACHINE COMPANY, INC.
By:
/s/ Xxxx Xxxxxx /s/ Xxxx Xxxxxxxx
---------------------- ----------------------
Xxxx Xxxxxx Xxxx Xxxxxxxx
President C.O.O. Employee
