SEPARATION AND RELEASE AGREEMENT

  THIS SEPARATION AND RELEASE AGREEMENT (the "Agreement") is effective as of December 8, 2006 by and between Yi Ping Chan (the "Employee") and The Singing Machine Company, Inc., a Delaware corporation (the "Company").

WHEREAS , the Employee was employed by the Company on various positions such as Interim CEO, COO, and a member of the Board of Directors;

WHEREAS , the Company and the Employee have mutually decided that the Employee will resign and receive compensation pursuant to the terms and conditions contained herein;

  NOW, THEREFORE , the Employee and the Company, intending to be legally bound hereby and in consideration of the promises contained herein, do hereby agree as follows:

1.   Resignation. The Employee agrees to resign as (i) the Company's Interim CEO and COO and from any other positions that he holds with the Company and (ii) a director and from any other positions that he holds with any of the Company’s subsidiaries, if any, effective as of the end of the business day on December 31, 2006 (the "Resignation Date"). The Employee acknowledges and agrees that from the date hereof until the Resignation Date, the Employee will have the authority to represent or bind the Company or its subsidiaries as an officer or employee, but only with the requisite approval from the Board of Directors of the Company. In addition, the Employee acknowledges and agrees that after the Resignation Date, he will not have the authority to represent or bind the Company or its subsidiaries as an officer or employee.

  2.   Termination of Employment and Options.  

2.1 Employee acknowledges and agrees that this Agreement shall serve to terminate his employment and that this Agreement sets forth all the compensation that is payable to him, effective as of the Resignation Date. The Employee will continue to receive regular salary pursuant to the Company's normal payroll practices through the Resignation Date.

2.2   The Company agrees, and the Employee acknowledges, that any and all unvested options (“Unvested Options”) that have been granted to him by the Company during the term of his employment with the Company will immediately vest on the Resignation Date. The Employee agrees that he will have until March 31, 2007 (“Expiration Date”), to exercise any vested options (“Vested Options”), and any Unvested Options that immediately vest on the Resignation Date, that have been granted to him by the Company during the term of his employment with the Company. The Employee acknowledges and agrees that the only Unvested Options that he owns as of the date of this Agreement are as follows: (i) options to purchase 53,333 shares of the Company’s common stock at an exercise price of $0.60 per share, (ii) options to purchase 120,000 shares at an exercise price of $0.33 per share. The Employee acknowledges and agrees that the only Vested Options that he owns as of the date of this Agreement are as follows: (i) options to purchase 52,800 shares of the Company’s common stock at an exercise price of $1.97 per share, (ii) options to purchase 26,667 shares at an exercise price of $0.60 per share. The Employee agrees that any of the Vested Options, and any Unvested Options that immediately vest on the Resignation Date, which the Employee has not exercised by the Expiration Date will be deemed to be cancelled, null and void at the end of the business day on the Expiration Date.

2.3   The Employee agrees that he will be bound by the non-solicitation provisions set forth in Section 3 of the Intellectual Property Right and Confidentiality Agreement for a period of six months after the date of this Agreement.

3.   Severance Payments.  

3.1   Severance Payment . In consideration of the covenants set forth herein, the Company agrees to pay the Employee a severance payment equal to $72,916 in the aggregate, to be paid through the regular payroll date beginning on January 18, 2007. In addition, the Company will pay to the Employee a relocation expense payment equal to $40,000 on January 4, 2007. The Company will make the salary payments in the amounts and on the dates set forth on Schedule 1 attached hereto.

3.2   Benefits. The Company will provide the Employee with information regarding any benefits which may be converted to individual coverage and/or coverage which includes his spouse in accordance with Consolidated Omnibus Budget Reconciliation Act (COBRA) regulations. Employee acknowledges and agrees that he will not be entitled to any perquisites, benefits or other compensation whatsoever after the Resignation Date, except as described in this Agreement.

3.3   Amounts Stated Before Taxes . All amounts stated in this Agreement are prior to any deduction for applicable withholding taxes and other amounts that are required to be withheld or deducted by federal and Florida law

4.   Waiver and Release.  

4.1     Employees Waiver and Release.  The Employee waives, acquits, forever discharges and hereby releases the Company, and its directors, officers, agents and advisors, from any and all claims, demands, actions, or causes of action, whether known or unknown, arising from or related in any way to any employment of or past or future failure or refusal to employ the Employee by the Company, or any other past or future claim (except as reserved by this Agreement or where expressly prohibited by law) that relates in any way to the Employee’s employment, employment contract, any termination, compensation, benefits, reemployment or application for employment, with the exception of any claim either party may have for enforcement of this Agreement. This release includes any and all claims, direct or indirect, which might otherwise be made under any applicable local, state or federal authority, including but not limited to any claim arising under the state or local statutes where the Employee was employed by the Company dealing with employment, discrimination in employment, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act of 1993, the Equal Pay Act of 1963, Executive Order 11246, the Rehabilitation Act of 1973, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Fair Labor Standards Act, wage and hour statutes of the state where employed, all as amended, any regulations under such authorities, or any other applicable statutory contract, tort, or common law theories, except that the Employee does not release the Company from its obligations under this Agreement, its contribution and indemnification obligations, if any, or from any coverage under any policy of insurance providing indemnity and related costs for the benefit of the Employee.

4.2   The Company’s Waiver and Release. The Company waives, acquits, forever discharges and hereby releases the Employee from any and all claims, demands, actions, or causes of action, whether known or unknown, arising from or related in any way to any employment of the Employee by the Company, or any other past or future claim (except as reserved by this Agreement or where expressly prohibited by law) that relates in any way to the Employee’s employment, Employment Agreement, with the exception of any claim the Company may have for enforcement of this Agreement. This release includes any and all claims, direct or indirect, which might otherwise be made under any applicable local, state or federal authority, including but not limited to any claim arising under the state or local statutes where the Employee was employed by the Company dealing with employment, or any other applicable statutory contract, tort, or common law theories, except that the Company does not release the Employee from his obligations under this Agreement.

  5.   No Admission of Liability. Execution of this Agreement and payment of the payments specified in Section 3 o