# **Exhibit 10.12**

# ** **

EMPLOYMENT AGREEMENT OF JOHN STONER

 

This Employment Agreement (this “*Agreement*”) is entered into on this 17thof October, 2002, by and between The Selmer Company, Inc., a Delawarecorporation d/b/a as CONN-SELMER (the *“Company”)*with a principal place of business at 600 Industrial Parkway, ElkhartIN 46516**and John M. Stoner Jr., an individual residing at 804Nissley Drive, Middletown, PA  17057(the “*Executive*”).

 

RECITALS

 

**WHEREAS,**the Companydesires to retain the services and employment of the Executive with the Companyand the Executive wishes to provide such services and to become employed by theCompany, all in accordance with the terms and conditions provided herein.

 

**NOW THEREFORE,** inconsideration of the foregoing and of mutual covenants, agreements, and representations herein**contained,the parties hereto agree as follows:

 

AGREEMENT

 

1.             Term ofEmployment     The Company agrees toemploy the Executive and the Executive hereby agrees to accept employment, foran initial term commencing on the 11th day of November, 2002  (the “*CommencementDate”*), and ending on December 31, 2003 (the “*Term*”). Such Term is subject to termination and extension in accordance with *paragraphs* 8 *and 9*hereunder.

 

2.             Duties andResponsibilities

 

a.             The Executive shallbe employed as the President and C.E.O. of the Company, and shall perform suchduties as are from time to time assigned to him by the Steinway MusicalInstruments, Inc. (“*SMI*”) Boardof Directors  (the *“Board*”) and that are normally associated withsuch positions. If the Executive serves as a member of the Board, the Executiveshall serve in such capacity without any additional compensation.

 

b.             In addition, theExecutive’s duties and responsibilities shall include those ordinarily andcustomarily performed by a person holding such position, and shall includeprimary responsibility for hiring of and management of all personnel andsupervising all operations of the Company. The Executive shall be entitled tooffice and support staff consistent with such position.

 

c.             During the periodof his employment hereunder, the Executive agrees to devote his entire businesstime, attention, energies and his best efforts to the performance of hisduties.

 

3.             Place ofPerformance and Relocation Expenses   In connection with the Executive’s employment by the Company, theExecutive shall be based at the principal executive offices of the Company inElkhart, Indiana.  The Executive shallrelocate his primary residence from Middletown, Pennsylvania to Indiana withinthree (3) months from the Commencement Date. The Company shall either pay for or reimburse the Executive forrelocation expenses in accordance with Exhibit A attached hereto.

 

1

----

 

4.             Compensation

 

a.             For all services tobe performed by the Executive during the Term, the Company shall pay to him,together with other compensation as hereinafter provided, an annual salary of$310,000 (subject to such deductions and withholdings as may be required by lawor by further agreement with the Executive), commencing on the CommencementDate.

 

b.             Without limitingand in addition to the foregoing, commencing with the 2003 fiscal year theExecutive shall be eligible to receive an annual bonus with a target of 35% ofbase salary as determined in accordance with the Company’s bonus plan, a copyof which is attached hereto as Exhibit B.

 

c.             The Executive shallbe eligible to receive annual salary increases based on the performance of hisduties, but any such increases shall****be in**the sole and absolutediscretion of the Board.

 

5.             Benefits        In addition to any other items of compensation provided for in thisAgreement, the Executive shall be entitled to the following benefits (the“Benefits”):

 

a.             The Executive shallbe entitled to participate in any retirement, life******insurance, health, medical, disability orother plans of benefits, whetherinsured or self-insured, which**theCompany in its sole and absolute discretion may make available generally fromtime to time for its executives.

 

b.             The Executive shallbe entitled to four weeks paid vacation per year.

 

c.             In accordance withthe terms established by the Board, the Executive shall be entitled to a leasedautomobile, up to a maximum lease payment of $800/month, and all out-of-pocket expenses for theupkeep and******maintenanceof the automobile. The Executive’s personal use thereof shall be deemedadditional compensation and, therefore, subject to income tax to him.  Any such income taxes shall be the soleresponsibility of the Executive.

 

d.             Executive shall beeligible to receive option grants under SMI’s 1996 Amended and Restated StockPlan (the “*Plan*”).  Upon the Commencement Date, Executive shallbe granted incentive stock options to purchase 40,000 shares of SMI CommonStock in accordance with the terms of the Plan.  Additional grants shall be determined in the sole and absolutediscretion of the Board.

 

6.             Reimbursement ofExpenses     The Executive shall beentitled to be reimbursed for all reasonable travel and entertainment expensesthat are (a) incurred by him in the performance of his duties hereunder and (b)evidenced by appropriate documentation in accordance with Company’s expensereporting procedures.

 

7.             RestrictiveCovenants    The Executiveacknowledges that certain of the Company’s products and services areproprietary in nature and have been manufactured, assembled and marketedthrough the use of customer lists, supplier lists, trade secrets, methods ofoperation and other confidential information possessed by the Company and**disclosed in confidence tothe Executive (the “*Trade Secrets*”),which may not be easily accessible to other persons in the trade. The Executivealso acknowledges that**hewill have substantial and ongoing contact with the Company’s customers andsuppliers and will thereby gain knowledge of customer needs and preferences,sources of equity funding sources of supply, methods of assembly and othervaluable information necessary for the success of the Company’s business.  Therefore, except as provided insubparagraphs (a) and (d) below, and except as provided in *paragraph* 8; during the time the Executiveis employed****under the provisions of thisAgreement and until**thedate of the third anniversary of the termination of the Executive’s employment,the Executive shall not, without theprior written consent of the Company*:*

* *

2

----

 

a.              Engage in any business activity that competeswith the Company in the manufacturing of musical instruments or other businessin which**the Company is engaged, orexploits or utilizes any**ofthe Trade Secrets; *provided, however*,that the Executive may invest in**anypublicly-traded company that is similar in nature to the business in which theCompany is engaged, provided that such**investmentshall not exceed 5% of the equity interest in such company on a fully dilutedbasis;

 

b.             Solicit any personemployed by the Company or any affiliate of the Company,appointed as a representative of the Company, or any affiliate of the Company,to join him**as**a partner, co-venturer, employee, investor or otherwise, inany substantial business activity whatsoever*;*

 

c.             Disclose or revealany Trade Secrets or other confidential information of the Company to anyone;or

 

d.             Become employed byor associated with, any entity that**owns,operates, manages or has a substantial interest in any business activity that**competes with the Companyin the manufacturing of musical instruments or other significant business inwhich the Company is engaged, or exploits or utilizes any of the Trade Secrets*; provided, however*, if the Executive’s employment is terminatedby the Company other than for Cause (as defined herein), said period for the purposes of this*subparagraph d*shall bereduced to one year after the termination of his employment.

 

8.             Termination

 

a.    The Company shall have theoption to terminate the Executive’s employment for “Cause”, which shall be**defined as follows: (i) any**criminalact**or criminal omission by theExecutive that causes damage to the Company or**any of itsproperties, assets*,*business, officers, directors,stockholders or employees including but not limited to any violation of S.E.C.regulations; (ii) any fraud, misappropriation or embezzlement by the Executiveinvolving properties, assets or funds of the Company; (iii) a conviction of theExecutive, or plea of nolo contendere by the Executive, to any crime or offenseinvolving monies or other property ofthe Company**or any other felony or criminal act involving moralturpitude; (iv) the violation by the Executive of any non-competition orconfidentiality agreement with the Company; or (v) the Executive’s intoxicationor drug addiction while engaged in the performance of his duties to theCompany. In the event of termination of the Executive’s employment for Cause,any obligation of the Company to provide any compensation and Benefits to himas herein set forth, shall cease immediately except as provided in *paragraph* 11.

 

b.   Notwithstanding any other provisions of this Agreement the Company**may,in its sole and absolute discretion*,*electto terminate the Executive’s employment at any time upon 10 days writtennotice, *provided, however*, ifsuch should happen, the Company shall continue to pay the Executive his basesalary for a period of twelve (12) months after the date of termination (lessdeductions for applicable taxes) and continue his benefits as outlined under *paragraph 11*, in full satisfaction of allits obligations to him under the provisions of this Agreement and any other severanceor other benefit plan of the Company. In the event of a breach of *paragraph 7of*this Agreement by the Executive after his receipt of this paymentin addition to any other remedies at law or in equity, the Executive,recognizing that the harm to the Company caused by a breach of *paragraph 7*hereof may not be remediable in damages and consents to injunctive relief inrespect of such breach.

 

c.    In the event oftermination of the Executive’s employment by reason of death or permanent disability, he**and/or his estate**shall be entitled to his salary andBenefits under the terms of this Agreement for a period of six months followingthe date of his death or the date upon which he becomes permanently disabled,in addition to any other benefits provided by the Company.

 

3

----

 

d.    In the event oftermination of the Executive’s employment by reason of his resignation, writtennotice of which shall be given by him to the Company at least sixty days priorthereto, he shall be entitled to his salary and Benefits hereunder up to thedate of such termination, subject to extension of Benefits required by anygovernmental laws and regulations.

 

9.             Renewal   This Agreement shall automatically renew on an annual basis until andunless one party provides written notice to the other of its intent not torenew at least sixty (60) days prior to the expiration of the then currentterm.

 

 

10.           Indemnification    The Company agrees to indemnify theExecutive to the same extent that the Company agrees to indemnify otherofficers and directors of the Company in their capacity as such. The Companyfurther agrees that such indemnification shall survive the Executive’sresignation, termination or expiration of this Agreement, with respect to actions**taken by him during hisemployment with the Company, unless such actions could have been grounds fortermination for Cause.

 

11.           EmploymentBenefits to Continue After Termination   If the Executive is terminated by the Company without Cause, the Companyshall continue to provide the Executive with a leased vehicle for a period ofthree (3) months and all health and medical benefits then in effect for aperiod of twelve (12) months.  Inaddition, the Executive will be entitled to receive a bonus computed inaccordance with the Company’s bonus plan, pro-rated for the period ofemployment up to the Termination date. If the Executive’s employment is terminated by the Company with Cause,or by resignation, he shall be entitled to continue to participate in any suchplans if he so elects and pays the premium cost of such insurer in advance tothe Company until such time as he becomes a participant in another plan or foran additional period of time in accordance with governmental laws and regulations.The Company is not obligated to maintain any such**benefit plans under thisAgreement.

 

12.           Notices*    *All notices and other**communications required or permitted tobe given under the terms of this Agreement shall be given in writing and shallbe deemed to have been duly given (a) when delivered personally, (b) if sent byfacsimile, when receipt thereof is acknowledged at the facsimile number listedbelow for the**receivingparty, (c) the day following the day onwhich the same has**been delivered prepaid for overnightdelivery to a national air courier service or (d) three days following depositin the United States Mail, registered lot certified, postage prepaid, in eachcase addressed as follows (or to such other addresses that may have been designatedby the respective parties hereto for this purpose):

 

If to the Company:

 
| Steinway Musical Instruments, Inc. |
|------------------------------------|
| Attention: Dennis M. Hanson        |
| 800 South Street, Suite 305        |
| Waltham, Massachusetts 02453       |
| Facsimile: (781) 894-9803          |
|                               |
| If to the Executive:               |
|                               |
| John M. Stoner                     |
| C/O Conn-Selmer                    |
| 600 Industrial Parkway             |
| Elkhart, IN  46516            |

 

4

----

 

13.           Entire AgreementThis Agreement constitutes the entire agreement between the parties inconnection with the subject matter hereof, supersedes any and all prioragreements or understandings between the parties and may only be changed byagreement in writing between the parties.

 

14.           Binding Nature ofAgreement: Assignment  ThisAgreement shall be binding upon the parties hereto, the heirs and legalrepresentatives of the Executive and the successors and assigns**of the Company.

 

15.           Governing Law  This**Agreementshall be construed**andenforced in accordance with the laws of the State of Indiana without givingeffect to the conflict of laws principles thereof.

 

16.           Construction and Jurisdiction

 

a.  If any legal action or otherproceeding is brought by any party for the enforcement of this Agreement orbecause of an alleged dispute, breach or default in connection with any provisions of this**Agreement,such action shall be commenced in the State of Indiana, and the parties heretoagree that such State shall have exclusive jurisdiction**thereof; *provided, however*, if**any court in said Stateshall decline to afford injunctive relief to the Company on account of thebreach or threatened breach of this Agreement by the Executive, the Companyshall be entitled to seek such relief from any other court of competentjurisdiction, wherever located.

 

b.  The prevailing party shallbe entitled to recover reasonable attorney’s fees and other reasonable costsincurred in such action or proceeding in addition to any other relief to whichit may be entitled.

 

c.  The parties hereby furtheragree that, in connection therewith, service of process by registered orcertified mail or in person shall confer jurisdiction over them.

 

17.           Severability     The invalidity or unenforceability of anyprovision of this Agreement shall not affect the other provisions hereof, andthis Agreement shall be construed in all respects as if such invalid orunenforceable provision or provisions were omitted.

 

18.           Section Headings     The section headings herein have beeninserted for convenience of reference only and shall in no way modify orrestrict any of the terms or provisionshereof.

 

19.           Waiver of Breach     The waiver by any party hereto of abreach of any provision of this Agreement shall not operate or be construed asa waiver by said party of any other or subsequent breach.

 

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and**yearfirst above written.

 
| The Selmer Company, Inc. | EXECUTIVE                     |
|--------------------------|-------------------------------|
|                     |                          |
|                     |                          |
| By:                      | /s/ Dennis M. Hanson          |   | /s/ John M. Stoner, Jr. |
|                     |                          |
| Title:                   | /s/  Executive Vice President |   |
|                          |                               |  |  |  |

# ** **

5

----

 

**Exhibit A**

 

The Selmer Company L.P.

P.O. Box 310 Elkhart, Indianan 46515-0310 U.S.A

 

### **SUBJECT MATTER**

RELOCATION POLICY

 
| FORM # 100.3 | Date Effective  8/19/94 | Revision Date 9/21/93 |
|--------------|------------------------------|-----------------------|

 

PURPOSE

 

The Company may assist certain employees at the discretion of the Companywhen the Company asks them to move from one location to another in order tominimize any financial burden they might experience.

 

ELIGIBILITY

 

All full-time salaried employees who are required to move more than fifty(50) miles.

 

PAID RELOCATION EXPENSES

 

House Hunting

 

The employee and his/her spouse may take a maximum of two trips (for nomore than a total of five days).  Theemployee will be reimbursed for:

 

•                  Transportation – cartolls and mileage or airline tickets and car rental at new location during househunting

 

•                  The lesser of actualexpenses or $200 per diem for food and lodging

 

Transporting Household and Personal Property

 

The Company pays for the transportation of household and personal propertyto an employee’s new home.  All itemsare subject to prior Company approval. The Company also pays for packing, unpacking, insurance, and temporarystorage for up to sixty (60) days.

 

The employee must notify the Personnel Department when he/she establishesa new address and the date of his/her move. The Company will then select the mover and make arrangements for themove.

 

Temporary Living Expenses

 

If an employee experiences a delay in gaining access to his/her new home,the Company will reimburse the employee for the cost of meals and lodging(subject to a maximum of $150 per day) for his/her family at the new locationfor up to sixty (60) days.

 

6

----

 

Moving the Employee’s Family

 

The employee will be reimbursed for the cost of moving his/her family fromhis/her former residence to his/her new one. Tolls and mileage for a maximum of two cars will be paid.  Meals and lodging are subject to a maximumreimbursement of $200 per day or actual expenses, whichever is less.

 

Other Expenses

 

The employee will be reimbursed for other reasonable and necessaryexpenses directly related to the move (e.g. closing costs for new home)provided such expense have been approved in advance and supported byappropriate documentation.

 

TAXES

 

The employee will be responsible for any additional taxes incurred due tothe Company’s reimbursement of relocation expenses.  Receipts for relocation expenses should be saved by the employeein order that he/she may take proper income tax deductions.

 

IF YOU LEAVE THE COMPANY

 

If you voluntarily terminate your employment within twelve (12) monthsfrom the date you assume your new duties, you will be required to repay allrelocation expenses.

 

TERMINATION OR CHANGE OF POLICY

 

This program can be withdrawn or changed at any time by the Company.

 

7

----