EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of March 1998
by and between THE SINGING MACHINE COMPANY, INC., a Delaware corporation with
its principal office at 3101 N.W. 25th Avenue, Pompano Beach, Florida 33069 (the
"Company") and John F. Klecha whose residence address is 5571 Winston Park Blvd.
North, #304, Coconut Creek, FL 33073 (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 March 1, 1998 (the "Commencement Date"), and ending on February
28, 2000 (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 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 Chief Financial
Officer/Treasurer, subject to the direction of the Board of Directors.
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
Employee 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 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.
3. Base Compensation.
(a) The Company shall pay to the Employee, and the Employee agrees
to accept, minimum base compensation of Eighty Thousand Dollars and No/100 Cents
($80,000) 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 prior year's Base Compensation each year during the term hereof by not less
than the greater of:
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(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 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) Employee 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) Employee's Profit Bonus shall be equal to fifteen percent (20%)
of the Bonus Pool unless modified by the Company in its sole and absolute
discretion.
(c) For purposes of this Paragraph 4, PTNI 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: (i) income from extraordinary gains as set forth in the Financial
Statements (as hereinafter defined) (except that income from extraordinary gains
shall be applied to offset any extraordinary loss for the same Fiscal Year),
(ii) 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 audited
financial statements for all Fiscal Years within ninety (90) days of the end of
such Fiscal Year (the "Financial Statements"); provided, however, Employee shall
not have any right to complain or contest any failure by the Company to complete
such audited Financial Statements within such time frame if Employee is then
employed by the Company on substantially the same terms as provided herein. The
determination of PTNI by the Company's independent certified public accountants
shall be conclusive and binding upon the Company and Employee.
(d) The Profit Bonus due Employee, if any, with respect to a
particular Fiscal Year shall be payable in cash within thirty (30) days after
receipt by the Company of the Financial Statements for said Fiscal Year, but in
no event prior to completion of the audit of such Financial Statements. If
Employee's employment is terminated for any reason (including expiration of the
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term of this Agreement) prior to the end of any Fiscal Year during the
Employment Period, the Profit Bonus due Executive for such Fiscal Year shall be
for the entire Fiscal Year.
(e) In consideration of Employee's services hereunder, the Employee
shall be granted the option to purchase 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.
5. Benefit Plans.
(a) The Employee 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 $300 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 Employee, Employee 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 two (2)
weeks for the first year of this Agreement and three (3) weeks for each year
thereafter. Such vacation time allowance shall cumulatively accrue, and any
unused vacation time for each year can be used in the following year. 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 executive officers.
8. Death or Disabilitv.
(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(c)
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
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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 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 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 Employee'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 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 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 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 Employee is affiliated with a
subsidiary, the subsidiary) will continue to retain Employee and Employee 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 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.
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(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 100% 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 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 Employee,
whereupon this Agreement shall terminate on the date specified therein. The
Company shall pay the Employee a severance amount equal to six months, of
Employee'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 one (1) year of Employee'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
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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.
(c) 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, 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 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 software
specializing in the United States mass merchant marketplace.
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(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 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 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 to 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 Information" shall mean all of the materials and
information which Employee makes use of, acquires or develops or has made use
of, acquired or developed, 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
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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 have become public knowledge
through no action by or omission of the Employee. The Employee 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 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 any 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 final and
binding confidential arbitration conducted in accordance with, and before a
single 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 thereof. Each party is responsible
for their own legal fees and out-of-pocket expenses.
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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.
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 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 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 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 hereunder. The Employee's rights and obligations
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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. 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 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]
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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/ Edward Steele
-----------------------------
Edward Steele, President
/s/ John F. Klecha
-----------------------------
John F. Klecha
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