EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") effective as of May 2, 2003 by and between
THE SINGING MACHINE COMPANY INC. a Delaware corporation with its principal
offices at 6601 Lyons Road, Coconut Creek, FL 33073 (the "Company") and Mr. Yi
Ping Chan whose residence address is 10 Belfran Road, Flat 1B, Kowloon, Hong
Kong (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 1, 2003 (the Commencement
Date), and ending on March 31, 2006 (the "Termination Date"), unless terminated
sooner pursuant to the provisions hereof. Such period of employment shall be
automatically extended for two -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 she 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 Operating Officer
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 Operating Officer, subject at all times to the direction and control
of the Chief Executive Officer. 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. COMPENSATION PACKAGE:
(a) The Company shall pay to the Employee, and the Employee agrees to accept,
base salary of two hundred and fifty thousand dollars ($250,000) per year,
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) The Employee's annual base salary increase over the prior year's base
salary each year during the term hereof should be the sold discretion of
the Company's Board of Directors based on Company and the Employee's
performance.
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4. BONUS/BENEFITS COMPENSATION:
(a) The 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 at the discretion of the Company's Board of Directors.
(b) Employee's Bonus shall be at the sole discretion of the Company's Board of
Directors based on Company and the Employee's performance.
(c) In consideration of Employee's services hereunder, the employee has been
granted the option to purchase 150,000 shares of common stock of the
Company to be vested 1/3 each over the next three years (1/3 by December
31, 2003, 1/3 by December 31, 2004 and 1/3 by December 31, 2005) in
accordance with the terms of stock option agreement to be executed between
the Company and Employee after the effective date of this agreement.
(d) The Company shall pay up to $ 40,000 for all the moving related expenses to
move and relocate the Employee and his families from Hong Kong to Florida
and upon termination of this contract, the Company shall pay up to $ 40,000
for all the moving related expenses to move and relocate the Employee and
his families from Florida to Hong Kong or another destination of the
Employee's choice.
(e) The Company shall pay to the employee a car allowance of $ 500 per month
and car maintenance.
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) 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 three 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. 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.
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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 (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 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 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, sales of assets or contested election, or any
combination of the foregoing transactions.
(b) The Company and the 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
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 a date, to exercise such authority and perform such
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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 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 (f) below. Such amount will be paid to Employee within
thirty (30) business days after his termination of affiliation with the
Company.
(e) If during the remaining term hereof after the Change of Control Date
(i) Employee, at his option, can voluntarily terminate 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 (f) and (g) below,
a lump sum payment equal to 100% of Employee's "base period income" as
determined under (f) below. Such amount will be paid to Employee within
thirty (30) business days after his termination of affiliation with the
Company.
(ii) This Clause has precedent over the Clauses 9 (c) and (d) should there
be multiple events.
(f) The Employee's "base period income" shall be his base salary and annual
incentive bonuses paid or payable to his during or with respect to the
twelve month period preceding the date of his termination of affiliation.
(g) 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 International 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.
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(h) All the options granted to Employee shall be vest immediately upon any type
of termination of employment resulted from the Change of Control.
10. TERMINATION:
(a) Termination Without Cause:
The Company may terminate this Agreement without cause at anytime 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 twelve months of Employee's Base Salary and Bonus (the "Severance Amount"),
payable in full within thirty (30) 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.
At the same time, all the options granted to Employee shall be vested
immediately upon termination without causes.
(b) Termination for Cause:
The Company may immediately terminate this Agreement 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, wilful misconduct or neglect of duties, conviction
of any criminal offence 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.
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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, Corporate Officer, Agent, 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 his 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. (Lawyer to revise:
the following is not re-enforceable)
Reason for Termination Non-compete Period
---------------------- ------------------
Termination without cause 1 year
Termination for cause 2 years
For the 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 specialising 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 of legal
action or other proceeding to enforce this Agreement through the date of
final judgement 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 defence 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,
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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 his 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,
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 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 she 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 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 his 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.
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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 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 judgement 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 insure to the benefit
of and shall be binding upon the parties hereto, their personal representatives,
successors, heirs and assigns.
17. SEVER ABILITY:
Invalidity or unenforceability of any provisions 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.
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22. NO PUBLICITY:
The Employee agrees that she 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 agent.
23. CO-OPERATION:
Employee agrees to co-operate 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 co-operate 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.
The Company is acknowledged that the Employee is currently a director, general
partner and a major shareholder of MaxValue Capital Ltd. which is a Hong Kong
legal entity engaging in investment and consulting services. Employee is in the
process of transferring or winding down his duties at MaxValue Capital Ltd. but
is expected to be remained as director and shareholder of MaxValue Capital Ltd
during the term of his Employment Agreement. The time will be minimal which does
not impact the Employee's primary obligation to the Company. The Employee was a
consultant on behalf of MaxValue Capital Ltd. to the Company prior to this
Employment Agreement.
24. ASSIGN ABILITY:
The rights and obligations of the Company under this Agreement shall insure 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 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.
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If any legal action or other proceeding is brought by any party against the
Company and/ or the Employee, the Company shall be responsible for the
Employee's fees, sales and use taxes, court costs and other expenses incurred in
that action or proceeding and at the same time indemnify the Employee from any
loss.
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 defence 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. ASSIGN ABILITY:
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 Employee and on
behalf of the Company on the day and year first above written.
THE SINGING MACHINE COMPANY INC.
/s/ Edward Steele
- ------------------------------
By: Edward Steele
Chief Executive Officer
EMPLOYEE
/s/ Yi Ping Chan
- ------------------------------
Yi Ping Chan
WITNESS
/s/ Alicia Haskamp
- -------------------------------
Alicia Haskamp
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