EMPLOYMENT AGREEMENT
AGREEMENT made as of the 10th day of January, 1998 by and between
HAUPPAUGE DIGITAL, INC., with offices at 00 Xxxxx Xxxxx, Xxxxxxxxx, Xxx Xxxx
00000 (the "Company") and XXXXXXX XXXXXXX (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 Chairman of the Board of Directors, Chief Executive
Officer, Vice President and Secretary 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.
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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
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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
earnings that are not from operations and before reduction for
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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 pro-rated
to the date of the 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.
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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.
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
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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
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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
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
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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, 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
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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
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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 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
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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;
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(B) the Company acts to materially reduce Executive's duties
and responsibilities under this Agreement;
(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 and a Director of Company on the
effective date hereof), including a "group" as defined in Section
13(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
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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 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
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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
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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 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
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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.
17.2 The provisions of this Agreement shall survive the termination of this
Agreement.
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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), 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
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(ii) if to the Executive:
Xxxxxxx Xxxxxxx
00 Xxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Fax: 000-000-0000
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:-------------------------------
Xxxxxxx X. Xxxxxxxx
----------------------------------
Xxxxxxx Xxxxxxx - Executive
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