EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made as of the lst day of June 2000
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 Xxxxxx whose residence address is 0000 Xxxxx Xxxxxx Xxxxxx Xxxx,
Xxxxxxx, XX 00000 (the "Employee").
The Company and the Executive hereby agree as follows with respect to
the Employee's relationship with the Company:
1. Relationship; Term. The Company shall retain the Executive and the
Executive 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 June 1, 2000 (the "Commencement Date"), and ending on May 31, 2003
(the "Termination Date"), unless terminated sooner pursuant to the provisions
hereof. Such period of employment shall be automatically extended for one (1)
one-year term unless either the Company or the Executive 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 Executive shall be the Company's Chief Operating Officer,
Treasurer and Financial Officer, subject to the direction of the Company's Board
of Directors.
2. Efforts on Company's Behalf. The Executive 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 Chief Financial Officer/Treasurer,
subject at all times to the direction and control of the Company's Board of
Directors. Nothing herein shall be construed to prevent Executive 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.
3. Base Compensation.
(a) The Company shall pay to the Executive, and the Executive
agrees to accept, minimum base compensation of two hundred seventy-five thousand
dollars ($275,000.00) 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) Executive's Base Compensation shall automatically increase
over the prior 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
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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 the month of January in the
prior year. The "Consumer Price Index" shall mean 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. Executive shall be entitled to receive a bonus (the "Profit
Bonus") for each fiscal year of the Company ("Fiscal Year") during the
Employment Period based on a percentage of a bonus pool (the "Bonus Pool"). The
Bonus Pool shall be equal to ten percent (10%) of the fiscal year-end profit of
the Company (net income before taxes and interest as listed in the Company's
audited year end financial statements).
B. Executive's Profit Bonus shall be equal to forty percent
(40%) of the Bonus Pool, unless modified by the Company's Board of Directors
in its sole and absolute discretion.
C. For purposes of this Xxxxxxxxx 0, XXXX shall be based on
the Company's year end audited financial statements as determined in the course
of the Company's normal audit for the Fiscal Years ending during the Employment
Period increased by any amounts payable for, or expenses associated with, the
Bonus Pool for any Fiscal Year; provided, however, that in no event shall PTNI
include: 1) income from extra ordinary gains as set forth in the Financial
Statements, 2) expenses related to the provision of key man life insurance
acquired during the lives of Executive or other key executive employees. The
Company undertakes to use its best efforts to cause the preparation and
completion of the audited financial statements for all Fiscal Years within
ninety (90) days of the end of such Fiscal Year. Executive shall not have any
right to complain or contest any failure by the Company to complete such audited
Financial Statements within such time frame. The determination of PTNI by the
Company's independent certified public accountants shall be conclusive and
binding upon the Company and Executive.
D. The Profit Bonus due Executive, if any, with respect to a
particular Fiscal Year shall be payable by check within thirty (30) days after
receipt by the Company of the Financial Statements for said Fiscal Year by the
Company's independent certified public accountants, however the Executive shall
have the right to draw up to fifty percent (50%) of such Profit Bonus 60 days
after the close of the Company's Fiscal Year based upon the Company's internal
Financial Statements and completion of the field work portion of the Fiscal Year
Audit by the Company's independent certified public accountants. If Executive's
employment is terminated for any reason (including expiration of the term of
this Agreement) prior to the end of any Fiscal Year during the Employment
Period, the Profit Bonus due the Executive for such Fiscal Year shall be for the
entire Fiscal Year.
E. In consideration of Executive's services hereunder, the
Executive shall be granted the option to purchase shares of common stock of the
Company in accordance with the terms
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of a stock option agreement to be executed between the Company and Executive
after the effective date of this agreement.
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.
(b) An automobile allowance of $500 per month, which allowance
shall automatically increase by five percent (5%) over the prior year's base
allowance each year during the term hereof, and reimbursement for all automobile
expenses including, but not limited to, insurance, gasoline, oil and repairs;
(c) In the event that the Company purchases insurance on the
life of 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 Executive 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 Executive, and Executive furnishes the Company with
adequate documentary evidence to substantiate such expenses.
7. Vacation. Executive shall be entitled to a paid vacation of four (4)
weeks for the first 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 Executive at the Executive's sole discretion.
The Company shall make all reasonable efforts to enable Executive to use his
vacation leave each year. Employee shall also be entitled to all paid holidays
made generally available by the Company to its executive officers.
8. Death or Disability.
(a) Notwithstanding anything to the contrary contained in
Paragraph 1 above if, during the term hereof, the Executive suffers a disability
(as defined below) the Company shall, subject to the provisions of Paragraph
8(c) hereof, continue to pay Executive the compensation provided in Paragraph 3
hereof during the period of his disability; provided, however, that, in the
event Executive 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 Executive is incapable of substantially fulfilling the duties
set forth in Section 2 or hereafter assigned to him by the Chief Executive
Officer/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 Executive, the
Company may, at its election, terminate
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this Agreement. In the event of such termination, the Company shall continue to
be obligated to pay Executive his compensation earned up to the date of
termination.
(b) As used in this Agreement, the term "disability" shall
mean the substantial inability of Executive to perform his duties under this
Agreement as determined by an independent physician agreed upon by both the
Company and the Executive.
(c) In the event that Executive's 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
Executive 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 Executive 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 30% or more of the combined voting power of the then
outstanding securities of the Company that may be cast 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 Executive hereby agree that, if Executive
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 Chanqe of Control Date and ending on the first anniversary of
such date, to exercise such authority and perform such Executive duties as are
commensurate with the authority being exercised and duties being performed by
the Executive 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 Executive a
salary at not less than the level applicable to Executive on the Change of
Control Date, (ii) pay Executive 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 Executive at levels in effect
on the Change
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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) Executive's employment is terminated by the Company (or
subsidiary), or (ii) there shall have occurred a material reduction in
Executive's compensation or employment related benefits, or a material change in
Executive's status, working conditions, management responsibilities or titles,
and Executive voluntarily terminates his relationship with the Company within
sixty (60) days of any such occurrence, or the last in a series of occurrences,
then Executive shall be entitled to receive, subject to the provisions of
subparagraphs (e) and (f) below, a lump sum payment equal to 200% of Executive's
"base period income" as determined under (e) below. Such amount will be paid to
Executive within thirty (30) business days after his termination of affiliation
with the Company.
(e) The Executive'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 Executive 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 Executive of rights which are contingent on a Change
of Control (and would be considered a "parachute payment" under Internal Revenue
Code ss.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 Without Cause. The Company may terminate this
Agreement without cause at any time upon written notice to the Executive,
whereupon this Agreement shall terminate on the date specified therein. The
Company shall pay the Employee a severance amount equal to six months, of
Executive's Base Compensation, (the "Severance Amount"), payable in full within
five (5) days from the date specified therein (hereinafter, the "Severance
Payout Period") and shall be subject to all usual and customary payroll
deductions, including applicable withholding taxes. After the first year of this
Agreement, the Severance Amount shall be increased to three (3) years of
Executive's Base Compensation.
(b) 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 Executive 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 Executive, unsatisfactory performance of
Executive'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.
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(c) Continuing Effect. Notwithstanding any termination of the
Executive 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
Executive and his legal representatives, 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 Executive 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 Executive'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
Executive shall not, directly or indirectly, as owner, partner, joint venturer,
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 [United States] on the effective date of termination of this
Agreement:
Reason for Termination Noncompete Period
---------------------- -----------------
Termination without cause Severance Payout Period
Termination for cause 1 year
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 Executive 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
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(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 Executive for
enforcement of this Agreement, the calculation of the Noncompete Period shall
not include the period of time commencing with the filing of 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 predicated on this Agreement or otherwise shall
not constitute a defense to the enforcement by the Company of these covenants.
(d) The Executive has carefully considered the nature and
extent of the restrictions upon the Executive and the rights and remedies
conferred upon the Company under this Section 12, and the Executive 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 Executive'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 to the Executive and are material inducements
to the Company to enter into this Agreement. The Executive 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 Executive or to enjoin the
Executive from engaging in any activity in violation hereof.
13. Treatment and Ownership of Confidential Information. The Executive
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, acquires or
develops or has made use of, acquires or develops or has made use of, acquired
or developed in whole or in part in connection with Executive'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
Executive acknowledges that such Confidential Information as is acquired and
used by the Company or its affiliates is a special, valuable and unique asset.
The Executive 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
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Directors, unless such Confidential Information previously shall have become
public knowledge through no action by or omission of the Executive. The
Executive covenants and agrees that all right, title and interest in any
Confidential Information shall be and shall remain the exclusive property of the
Company. The Executive agrees to promptly disclose to the Company all
Confidential Information developed in whole or in part by the Executive within
the scope of this Agreement and to assign to the Company any right, title, or
interest the Executive may have in such Confidential Information. The Executive
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. Executive Representations and Warranties. The Executive represents
and warrants that he is not a party to, or bound by, any other employment
agreements. The Executive 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 Executive 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 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 agree that the
Arbitrator has full power and authority to hear and determine the controversy
and make and 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 enforceability of any other
provisions.
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.
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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 requested,
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 Executive 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. Executive 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 Executive may become
involved with during the terms 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 Executive has knowledge and/or any business
matters of which Executive 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 Executive hereunder. The Executive'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 Executive will be void.
25. Attorneys' 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 Executive in
connection with any provision of this Agreement, the Company or the Executive 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 Executive acknowledges and agrees that
in the event Executive 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 Executive agrees
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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 Executive 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. Executive Acknowledgment. The Executive acknowledges and
agrees that Executive 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.
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IN WITNESS WHEREOF, this Agreement has been duly signed by the
Executive and on behalf of the Company on the day and year first above written.
THE SINGING MACHINE COMPANY. INC.
By: /s/ Xxxxx Xxxxxx - C.E.O.
------------------------------
Xxxxxx Xxxxxx, President
/s/ Xxxx Xxxxxx
---------------------------------
Xxxx X. Xxxxxx
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