EMPLOYMENT AGREEMENT
AGREEMENT made as of the l0th day of January, 1998 by and between
HAUPPAUGE DIGITAL) INC., with offices at 00 Xxxxx Xxxxx, Xxxxxxxxx, Xxx Xxxx
00000 (the "Company") and XXXXXXX X. XXXXXXXX (the "Executive").
WHEREAS, the Company and the Executive are parties to an employment
agreement (the "Former Employment Agreement") that by its terms is to expire on
January 10, 1998; and
WHEREAS, the parties wish to enter into a new employment agreement
containing the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, the parties agree as follows:
1. EMPLOYMENT
1.1 The parties hereto acknowledge that with the exception of that
stock option grant for 150,000 shares of Common Stock of the Company, as
provided in Section 12 of the Former Employment Agreement, which grant shall be
deemed to continue in effect in accordance with the terms of the Former
Employment Agreement, and $21,562 of unpaid deferred salary, all obligations of
the parties due and owing under the Former Employment Agreement have been
fulfilled and except with respect to such stock option grant, the Former
Employment Agreement is hereby terminated in its entirety.
1.2 The Company hereby employs the Executive, and the Executive hereby
accepts employment as President, Treasurer, Chief Financial Officer and Chief
Operating Officer of the Company upon the terms and conditions hereafter set
forth. The Executive shall also serve in such capacity for each of the Company's
subsidiaries, unless otherwise agreed to by the parties.
2. TERM.
2.1 Subject to Section 12 below and further subject to Section 2.2
below, the term of this Agreement shall commence on January 10, 1998 and end on
January 9, 2001. Each twelve (12) month period from January 10 through January 9
during the term hereof shall be referred to as an "Annual Period".
2.2 Subject to Section 12 below, unless the Board of Directors or the
Executive shall determine to the contrary and shall so notify the other in
writing on or before the end of any Annual Period, as hereinbefore defined, then
at the end of each Annual Period hereunder, the term of this Agreement shall
automatically be extended for one (1) additional Annual Period to be added at
the end of the then current term of this Agreement.
3. DUTIES.
3.1. Excluding periods of vacation, illness and disability to which the
Executive is entitled, as hereinafter provided, the Executive agrees to devote
his full time, attention and energies during normal business hours to the
business and affairs of the Company in a faithful and diligent manner during the
term of this Agreement.
3.2 Nothing contained in this Agreement shall be construed to prevent
the Executive, during the term of this Agreement from, (A) serving on corporate,
civic or charitable boards or committees, (B) delivering lectures, fulfilling
speaking engagements or teaching at educational institutions, and (C) making
investments of any passive nature in any business (The making of an investment
of 5% or more in any company, without the consent of the board of directors,
shall be presumed to be not of a passive nature.); provided that all such
activities and investments do not interfere with the performance of the
Executive's duties hereunder or cause or result in a violation of Section 10 of
this Agreement. The Executive's ownership interest in Ladokk Realty Co. is
acceptable to the Company.
4. COMPENSATION.
4.1 Base Compensation.
4.1.1 During the first three Annual Periods during the term of
this Agreement, the Executive shall be paid the following minimum Base
Compensation:
1998- $125,000
1999- $150,000
2000- $180,000
4.1.2 For each Annual Period that this Agreement continues in
effect beyond the year 2000, the Executive shall receive an increase to his Base
Compensation as determined by mutual agreement of the Company and the Executive,
and if they cannot agree, then his Base Compensation shall be identical to that
payable during the preceding Annual Period.
4.1.3 The Executive's Base Compensation shall be paid in the
same manner as that paid to other executives of the Company.
4.2 Bonus.
4.2.1 At the end of each fiscal year of the Company, during
the term of this Agreement, commencing with the fiscal year ended September
30,1998, the Executive shall be paid a bonus ("Bonus") as follows:
A. An amount equal to 2% of the Company's
earnings excluding
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earnings that are not from operations and
before reduction for interest and income
taxes ("EBIT'), provided that the Company's
EBIT for the applicable fiscal year exceeds
120% of the prior fiscal year's EBIT and if
not, than 1 % of the Company's EBIT. The
determination of EBIT shall be made in
accordance with the Company's audited
financial statements in its filings with the
Securities and Exchange Commission on its
Form 10-KSB or Form 10-K
B. The Bonus shall be payable in full, in cash,
no later than 120 days after the close of
the applicable fiscal year for which the
Bonus is being paid.
C. If the Executive's employment is terminated
prior to the conclusion of a fiscal year of
the Company, then his Bonus, unless
otherwise provided in this Agreement, shall
be prorated to the date of close of the
Company's following fiscal quarter, based
upon the financial results to such period.
4.2.2 In addition to the foregoing, the Executive shall be
entitled to such other bonuses and raises as the Board of Directors of the
Company, in its sole discretion, shall determine.
4.3 Automobile Allowance. During the term of this Agreement, the
Company shall pay all of the Executive's reasonable expenses for the use and
maintenance of his automobile, such as gasoline, oil, tires, repairs and
automobile insurance. In addition, the Executive shall be entitled to $500 per
month payable on the first day of each month, to reimburse the Executive for the
purchase or lease of an automobile at any time acquired by him.
4.4 Bonus Upon Change In Control. Upon a Change of Control as
hereinafter defined, the Executive shall be entitled to the payment of that
bonus specified in Section 13.2 of this Agreement.
5. EXPENSES.
The Company will arrange for the payment of reasonable expenses
incurred by the Executive, in furtherance of or in connection with the business
of the Company, including, but not limited to, all travel expenses and all
entertainment expenses, whether incurred at the Executive's residence, while
traveling, or otherwise. The Company also recognizes that, in the performance of
his duties, the Executive may be required to entertain various persons and
representatives of organizations with whom the Company has or would like to have
business relationships. The Company will arrange for the prompt reimbursement of
these expenses upon presentation by the Executive of expense vouchers for such
expenses. In no event shall the Executive incur any expenses in excess of $5,000
without the approval of another executive officer of the Company.
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6. VACATIONS.
At all times throughout the term of this Agreement, the Executive shall
be entitled to paid vacations of not less than twenty (20) business days for
each Annual Period of this Agreement, to be taken at such times as determined by
the Executive. All vacation days not utilized shall be deemed forfeited.
7. DISABILITY.
If the Executive is unable to perform his duties hereunder by reason of
any illness, physical or mental disability or incapacity, for 125 business days
during any consecutive twelve (12) month period, he shall be entitled to the
full payment of his compensation under Section 4 and benefits under Section 8
during such 125 business days, less such benefits or compensation as payable to
the Executive by reason of State, Federal, Social Security, disability, worker's
compensation or comparable government benefits and the policies of disability
insurance procured by the Company for the Executive. The determination of the
Executive's illness, physical or mental disability shall be determined in
accordance with the terms of the disability insurance policy procured by the
Company, or if such policy is not then in effect as reasonably determined by the
Executive's medical doctor. During a continuation of the foregoing disability
and prior to the termination of his employment, the Executive shall not be
entitled to his compensation under Sections 4.1 and 4.3, but shall be entitled
to all other compensation under Section 4 and benefits under Section 8 payable
under this Agreement. Under no circumstance shall the Executive receive less
than that amount of disability insurance maintained for him by the Company. The
Company shall be required to obtain disability insurance in such amount and with
such reasonable waiting period and terms as determined by the board of directors
of the Company.
8. OTHER BENEFITS.
8.1 Medical Insurance. At all times throughout the term of this
Agreement, and as otherwise provided in this Agreement, the Company shall
maintain in full force and effect, and pay timely the premiums due on, a policy
or policies of major medical and hospitalization insurance for the benefit of
the Executive and his immediate family, with benefits similar to that supplied
for other executives of the Company. In lieu of the foregoing, the Executive may
elect to receive direct payment from the Company of such equivalent amount as
would otherwise be payable by the Company for such insurance.
8.2 Life Insurance. At all times throughout the term of this Agreement,
and as otherwise provided in this Agreement, the Company shall pay in full, each
year, in advance, the premiums on a term life insurance policy or policies in
the amount of $500,000 on the life of the Executive, owned by the Executive, or
his spouse, or a trust for their benefit or the benefit of the Executive's
family.
8.3 Other Benefits. This Agreement is not intended to and shall not be
deemed to be in lieu of any other rights, benefits and privileges to which the
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Executive may be entitled as an executive of the Company or as a participant
under any other retirement, pension, profit-sharing, or stock option plan of the
Company, and it is understood that the Executive shall have the same rights and
privileges to participate in such plans and benefits as any other executive of
the Company during his period of employment.
9. CONFIDENTIAL INFORMATION.
9.1 The Executive will not, during or subsequent to his employment
hereunder, without the consent of the Board of Directors of the Company,
divulge, furnish or make accessible to any person or entity (except to employees
of the Company, as may be necessary in the regular course of the business of the
Company and except as may be required pursuant to any court order, judgment or
decision from any court of competent jurisdiction) any knowledge or information,
customer lists, techniques, processes, formulas, machinery, plans, devices or
materials of the Company with respect to any confidential or secret development
or research work of the Company or with respect to any other confidential or
secret aspect of the business of the Company ("Confidential Information"). The
foregoing shall not apply to information which is in the public domain on the
date hereof; which after it is disclosed to the Executive by the Company is
published or becomes part of the public domain through no fault of the
Executive; or, after the Executive is no longer employed by the Company, which
is thereafter disclosed to the Executive in good faith by a third party who is
not under any obligation of confidence or secrecy to the Company with respect to
such information at the time of disclosure to him. Upon termination of this
Agreement, the Executive shall return to the Company all Confidential
Information in his possession.
9.2 In the event of a violation of this Section, the Company shall be
entitled, in addition to any other relief at law or in equity, and without any
election of remedy limitation, to injunctive relief in a Court of competent
jurisdiction.
10. COVENANT NOT TO COMPETE.
10.1 Provided the Company is not in default of any of its obligations
under this Agreement, the Executive agrees that at all times during the term of
this Agreement, and for one (1) year after its termination, not to, directly or
indirectly, on his own or in concert with others, for his own behalf or in
behalf of others:
10.1.1 persuade or attempt to persuade, sell, solicit the
sale, offer to sell, or make sales calls to any person or entity, which is a
customer, client or supplier of the Company, or was its customer, client or
supplier within twelve (12) months prior to the termination of his employment by
the Company, with respect to any products or services sold by the Company, and
any products or services similar to that sold by the Company or the Company,
except on behalf of the Company; or
10.1.2 own an equity interest in, loan money to, or serve as a
consultant, director or officer of, or be employed by or for, any corporation,
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partnership or business entity which competes, directly or indirectly, with the
business of the Company, except that the Executive shall not be prohibited from
owning an equity interest in a competitor thereof which is not in excess of five
(5%) percent of the outstanding shares of such competitor whose common stock is
regularly traded on a national stock exchange or quoted by NASDAQ and further
provided that after the termination of this Agreement, the Executive shall not
be prohibited from owning any equity interest in or working for any company
located in any country located at and which sells its competing products
exclusively in a country or countries where none of the Company's products are
sold; or
10.1.3 interfere with, attempt to interfere with, solicit,
persuade. or attempt to persuade, or entice away any of the Company's employees.
10.2 In the event of a violation of this Section the Company shall be
entitled, in addition to any other relief at law or in equity, and without any
election of remedy limitation to injunctive relief in a Court of competent
jurisdiction.
10.3 The provisions of this Section 10 shall not be applicable to any
period after the termination of this Agreement if the Company has not offered to
renew this Agreement on terms at least as favorable as the terms and conditions
provided herein during such period.
11. LIFE INSURANCE FOR THE BENEFIT OF THE COMPANY.
The Company may apply for and own life insurance on the life of the
Executive for the benefit of the Company in such amounts as the Board of
Directors may, from time to time determine. The Company shall pay the premiums
as they become due on any such insurance policies, and all dividends and cash
value and proceeds on such insurance shall belong to the Company. The Executive
shall give his full cooperation, including submission to medical examinations,
to enable the Company to purchase the aforesaid insurance.
12. TERMINATION.
12.1 Termination by the Company
12.1.1 Termination for Cause. The Company may terminate this
Agreement upon written notice for Cause. For purposes hereof, "Cause" shall mean
(A) engaging by the Executive in conduct that is in violation of Sections 9 or
10 of this Agreement; (B) the conviction of the Executive for the commission of
a felony; (C) the habitual abuse of alcohol or controlled substances; (D) the
failure of the Executive to be present for work for a period of sixty (60)
business days during any consecutive twelve (12) month period for reason other
than vacation, illness, physical or mental disability or incapacity and/or (E)
the wilful failure of the Executive to perform his duties under this Agreement.
Notwithstanding anything to the contrary in this Section 12.1.1 the Company may
not terminate Executive's employment under this Agreement for Cause unless the
Executive shall have first received notice from the Board of Directors advising
the Executive of the specific acts or omissions alleged to constitute Cause, and
such acts or omissions continue after the Executive shall
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have had a reasonable opportunity (at least 10 days from the date Executive
receives the notice from the Board of Directors) to correct the acts or
omissions so complained of. In the event of the termination of this Agreement
for Cause, the Executive shall be entitled to no further compensation, or
expense reimbursement that accrues after the date of termination of this
Agreement.
12.1.2 Termination for Disability. The Company may terminate
Executive's employment under this Agreement while the Executive is
incapacitated, and not performing his duties if, as a result of any illness,
physical or mental disability, or incapacity, Executive shall have failed to
perform his duties under this Agreement for any prior period of 125 business
days during any consecutive twelve (12) month period. If Executive's employment
is terminated under this Section 12.1.2: (A) for the first six (6) months after
termination, Executive shall be paid 100% of his compensation under Section 4 of
this Agreement and for the following six (6) months Executive shall be paid an
amount equal to fifty (50%) percent of his compensation under Section 4 of this
Agreement and thereafter he shall receive no compensation under Section 4 of
this Agreement, and (B) the Company shall pay for a period until three (3) years
from the date of termination of his employment all benefits under Sections 8.1
and 8.2 of this Agreement. Any amounts payable by the Company to the Executive
under this Section with respect to Section 4 shall be reduced by the amount of
any disability payments paid pursuant to disability insurance actually received
by the Executive or his beneficiary.
12.1.3 Termination Upon Death. The Company shall cause to be
immediately paid the proceeds of the insurance pursuant to Section 8.2 of this
Agreement. This Agreement shall automatically terminate upon the death of
Executive and no further compensation or expenses shall be payable, except that
Executive's estate shall be entitled to receive the pro-rata amount of any Bonus
payable under Section 4.2 and any profit sharing plans that the Company may
institute for the period prior to Executive's death and any other amount to
which Executive was entitled at the time of his death. All health insurance and
other benefits applicable to Executive's immediate family pursuant to Section
8.1 shall continue for thirty-six (36) months from the date of Executive's death
and be paid for by the Company.
12.2. Termination by Executive
12.2.1 The Executive shall have the right to terminate his
employment under this Agreement upon thirty (30) days' notice to Company given
within ninety (90) days following the occurrence of any of the following events
(A) through (E) or within one (1) year following the occurrence of event (F):
(A) the Executive is not elected or retained as provided in
Section 1.2 of this Agreement;
(B) the Company acts to materially reduce Executive1s
duties and responsibilities under this Agreement;
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(C) the Company acts to change the geographic location of
the performance of Executive's duties from the New York
Metropolitan area. For purposes of this Agreement, the
New York Metropolitan area shall be deemed to be the
area within 50 road miles of Company's present offices;
(D) a failure by Company to obtain the assumption of this
Agreement by any successor;
(E) a breach of any of the terms of this Agreement by the
Company, which is not cured within thirty (30) days of
written notice by the Executive to the Company of such
breach; and
(F) a "Change of Control" by which a person (other than a
person who is both an officer date and a Director of
Company on the effective hereof), including a "group"
as defined in Section 1 3(d)(3) of the Securities
Exchange Act of 1934, becomes, or obtains the right to
become, the beneficial owner of Company securities
having 20% 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 in the ordinary course of
business) or the composition of the Board of Directors
of the Company changes so that present members of the
Board of Directors of the Company no longer hold a
majority of the seats.
12.2.2 If the Company shall terminate Executive's employment
in any way that is a breach of this Agreement, or if Executive shall terminate
this Agreement under Section 12.2.1 of this Agreement, the Company's obligations
shall be absolute and unconditional and not subject to any offset or
counterclaim and the Executive shall continue to be entitled to receive all
amounts provided for by Section 13 of this Agreement regardless of the amount of
compensation he may earn with respect to any other employment he may obtain,
provided the Company shall be entitled to offset any compensation received by
the Executive after one (1) year from any other employer. Notwithstanding the
foregoing, the Executive shall have no responsibility to mitigate his damages at
any time.
13. CONSEQUENCES OF BREACH BY COMPANY: EMPLOYMENT TERMINATION.
13.1 If this Agreement is terminated pursuant to Section 12.2.1 (A)-(E)
hereof, or if the Company shall terminate Executive's employment under this
Agreement in any way that is a breach of this Agreement by the Company, the
following shall apply;
13.1.1 Executive shall receive a cash payment equal without
discount to Executive's
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total compensation under Section 4 and benefits under Section 8 of this
Agreement, for the remainder of the term hereof, payable within thirty (30) days
of the date of such termination, except that Bonuses shall be paid for the
remainder of the term promptly when determined;
13.1.2 Executive shall be entitled to the immediate payment of
all unpaid accrued compensation and benefits under this Agreement;
13.1.3 All stock options, warrants and stock appreciation
rights granted by Company to Executive under any plan or otherwise prior to the
date of termination shall become vested, accelerate and become immediately
exercisable, where relevant at an exercise price of 10(cents) per share. In the
event Executive owns or is entitled to receive any unregistered securities of
Company, the Company shall use its best efforts to cause the registration of all
such securities as soon as practicable, but no later than 120 days after the
date of termination of this Agreement or ninety (90) days after the close of the
Company's fiscal year, if such close occurs during the ninety (90) days after
the termination of this Agreement; provided, however, that such period may be
extended or delayed by Company for one period of up to 60 days if, upon the
advice of counsel at the time such registration is required to be filed, or at
the time Company is required to exercise its best efforts to cause such
registration statement to become effective, such delay is advisable and in the
best interests of Company because of the existence of non-public material
information, or to allow Company to complete any pending audit of its financial
statements;
13.2 If this Agreement is terminated pursuant to Section 12.2.1(F),
then the Executive shall be entitled to a one-time bonus equal to three (3)
times the amount of his Average Annual Compensation, as hereinafter defined,
received by him during the thirty-six (36) month period preceding the date of
the Change of Control. Average Annual Compensation shall include all salaries,
bonuses and benefits, paid or accrued pursuant to Sections 4 and 8 of this
Agreement during the thirty-six (36) month period preceding the date of the
Change of Control. Said bonus shall be paid within thirty (30) days from the
date of the notice of termination by the Executive. Payment of the Bonus
hereunder shall constitute full payment of all of the Company's obligations
under Section 4 of the Agreement that were not accrued prior to the date of the
notice of termination by the Executive.
13.3 In the event of the termination of Executive's employment by the
Company, other than pursuant to Section 12.1 of this Agreement, or if the
Executive terminates this Agreement pursuant to Section 12.2 of this Agreement,
or in the event the Company delays for more than 15 days the making of any
payment required to be made hereunder, without in any way excusing Company's
obligations under this Agreement, the provisions of Section 10 shall not apply
to the Executive.
14. REMEDIES
The Company recognizes that because of the Executive's special talents,
stature and opportunities in the industry, in the event of termination by
Company hereunder (except under
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Section 12.1.1) before the end of the agreed term, Company acknowledges and
agrees that the provisions of this Agreement regarding further payments of Base
Compensation, expenses, Bonuses and the exercisability of stock options,
warrants and stock appreciation rights constitute fair and reasonable provisions
for the consequences of such termination, do not constitute a penalty, and such
payments and benefits shall not be limited or reduced by amounts Executive might
earn or be able to earn from any other employment of ventures during the
remainder of the agreed term of this Agreement.
15. EXCISE TAX.
In the event that any payment or benefit received or to be received by
Executive in connection with a termination of his employment with Company would
constitute a "parachute payment" within the meaning of Code Section 280G or any
similar or successor provision to 280G and/or would be subject to any excise tax
imposed by Code Section 4999 of the Code or any similar or successor provision
then the Company shall assume all liability for the payment of any such tax and
the Company shall immediately reimburse Executive on a "grossed-up" basis for
any income taxes attributable to Executive by reason of such Company payment and
reimbursements.
16. ARBITRATION.
Any controversies between Company and Executive involving the
construction or application of any of the terms, provisions or conditions of
this Agreement, save and except for any breaches arising out of Sections 9 and
10 hereof, shall on the written request of either party served on the other by
submitted to arbitration. Such arbitration shall comply with and be governed by
the rules of the American Arbitration Association and shall be before three (3)
arbitrators. Judgment may thereafter be entered upon any award in any court of
competent jurisdiction. An arbitration demand must be made within one (1) year
of the date on which the party demanding arbitration first had notice of the
existence of the claim to be arbitrated, or the right to arbitration along with
such claim shall be considered to have been waived. Three (3) arbitrators shall
be selected according to the procedures of the American Arbitration Association.
The cost of arbitration shall be born by the losing party or in such proportions
as the arbitrator shall decide. The arbitrator shall have no authority to add
to, subtract from or otherwise modify the provisions of this Agreement, or to
award punitive damages to either party.
17. ENTIRE AGREEMENT: SURVIVAL.
17.1 This Agreement contains the entire Agreement between the parties
with respect to the transactions contemplated herein and supersedes, as of the
effective date hereof any prior agreement or understanding between Company and
Executive with respect to Executive's employment by Company. The
unenforceability of any provision of this Agreement shall not effect the
enforceability of any other provision. This Agreement may not be amended except
by an agreement in writing signed by the Executive and the Company. Waiver of or
failure to exercise any rights provided by this Agreement and in any respect
shall not be deemed a waiver of any further or future rights.
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17.2 The provisions of this Agreement shall survive the termination of
this Agreement.
18. ASSIGNMENT
This Agreement shall not be assigned to other parties, but shall be
binding upon any purported successors and assigns of Company.
19. GOVERNING LAW.
This Agreement and all the amendments hereof, and waivers and consents
with respect thereto shall be governed by the internal laws of the State of New
York, without regard to the conflicts laws principles thereof.
20. NOTICES.
20.1 All notices, responses, demands or other communications under this
Agreement shall be in writing and shall be deemed to have been given and
received when:
(A) delivered by hand;
(B) three (3) days after sent by telex or telefax, (with
receipt confirmed)1 provided that a copy is mailed by registered or certified
mail, return receipt requested; or
(C) two (2) days after sent by express delivery service
(receipt requested) in each case to the appropriate address as the party may
designate to itself by notice to the other parties:
(i) if to the Company:
Hauppauge Digital, Inc.
00 Xxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: President
Telephone: 000-000-0000
Fax: 000-000-0000
(ii) if to the Executive:
Xxxxxxx X. Xxxxxxxx
00 Xxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Fax: 000-000-0000
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21. SEVERABILITY OF AGREEMENT.
Should any part of this Agreement for any reason be declared invalid by
a court of competent jurisdiction, or in arbitration, such decision shall not
affect the validity of any remaining portion, which remaining provisions shall
remain in full force and effect as if this Agreement had been executed with the
invalid portion thereof eliminated, and it is hereby declared the intention of
the parties that they would have executed the remaining portions of this
Agreement without including any such part, parts or portions which may, for any
reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
HAUPPAUGE DIGITAL, INC.
By:/s/ Xxxxxxx Xxxxxxx
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/s/ Xxxxxxx X. Xxxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxxx - Executive
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