EXHIBIT 10.8
EMPLOYMENT AGREEMENT
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This Employment Agreement ("Agreement") is hereby made and entered into
this 16th day of March, 1997, (the "Effective Date") by and between DSI Toys,
Inc. a Texas corporation, whose principal business address is 0000 Xxxx Xxx
Xxxxxxx Xxxxxxx, Xxxxx, Xxxxxxx, Xxxxx 00000 (hereinafter referred to as
"Employer" or "Company"), and J. Xxxxxxx Xxxxxx, an individual residing at
10918 Leaning Xxx Xxxx, Xxxxxxx, Xxxxx 00000 (hereinafter referred to as
"Employee").
W I T N E S S E T H:
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ARTICLE 1
GENERAL
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1.1 Employment. The Employer hereby employs Employee and Employee hereby
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accepts such employment with the Employer upon the terms and conditions
hereinafter set forth. Employee shall perform such duties and responsibilities
and exercise such powers for the Employer as may from time to time be assigned
or delegated to him by the Employer including such duties as may be customary
for an Executive Vice President and Chief Financial Officer in the toy
manufacturing and marketing industry. Employee acknowledges that the Company
shall be dependent upon the Employee for its continued ongoing business
operations and that the provisions hereof are necessary for the successful
conduct of the business and affairs of the Company.
1.2 Position. Employee shall be employed in the capacity and hold the
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position of Executive Vice President and Chief Financial Officer. In such
capacity, Employee agrees to, at all times, exercise his best efforts for the
benefit of the Company and to thereby undertake to use and implement the
management, organizational, intellectual, technical and other skills of Employee
to the best of his ability on the Company's behalf. Employee shall be
responsible to and report to the Chief Executive Officer of the Company.
1.3 Term. Subject to the provisions provided for and relating to
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termination set forth herein, the term of Employee's employment, pursuant to
this Agreement, shall be for a period beginning on the date hereof and ending on
March 15, 2000, (said period being hereinafter referred to as the "Employment
Term").
ARTICLE 2
REMUNERATION AND BENEFITS
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2.1 Base Salary. For all services rendered by Employee during the
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Employment Term, the Employer shall pay to Employee a salary of One Hundred
Eighty Thousand Dollars ($180,000) per year ("Base Salary") during the
Employment Term. Employee's Base Salary may be raised during the Employment
Term at the discretion of the Board of Directors of Employer.
For the period March 16, 1997, through May 31, 1997, Employee shall devote
fifty percent (50%) of his normal business time in the service of the Company as
its Executive Vice President and Chief Financial Officer. In return, during
said period, the Company shall pay to Employee a salary equal to fifty percent
(50%) of Employee's portion of Base Salary for the period.
The full Base Salary shall begin to accrue and be paid commencing June 1,
1997. All salary paid hereunder shall be distributed in semi-monthly
installments in arrears through the Employment Term. For any period during
which the Base Salary is earned but unpaid, the Base Salary shall accrue.
2.2 (a) Performance Bonus (Pre-IPO). For fiscal years prior to, and
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including, the fiscal year in which there is a completed Public Offering of the
Company's stock, Employee may become entitled hereinafter to receive a
performance bonus ("Performance Bonus") based on the Company's "Pre Tax Income"
(as defined below) for each fiscal year in which the Employee was employed by
the Company commencing with the fiscal year ended January 31, 1998, and ending
with the fiscal year ended January 31, 2002. Performance Bonus for the Employee
shall be calculated based on the Pre Tax Income of the Company. For each fiscal
year beginning with the fiscal year ended January 31, 1998, during the term of
this Agreement Employee shall be entitled to a Performance Bonus for each such
fiscal year in which the Pre Tax Income exceeds $5,800,000.00. The Performance
Bonus for any such fiscal year shall be equal to one and two tenths percent
(1.2%) of the total Pre Tax Income provided Pre Tax Income exceeds
$5,800,000.00, up to a maximum Performance Bonus equal to fifty (50%) of
Employee's earned Base salary (or portion thereof) for that fiscal year.
Payment of the Performance Bonus, if any, is due thirty (30) days after
completion of the Company's audited financial statements or upon determination
in writing by the Company's Independent accountants of the "Pre Tax Income" of
the Company, whichever is sooner.
In the event the "Pre Tax Income" of the Company is less than $5,800,000.00
during any fiscal year during the Employment Term, no Performance Bonus will be
earned or paid to Employee for any such fiscal year.
For purposes of this Agreement, "Pre Tax Income" shall be computed on a
consolidated basis (defined as the Company's U.S. and Hong Kong companies
operations and including additional acquisitions made by the Company of similar
toy companies or businesses related to the business of the Company and
consolidated with the Company) by the Company's independent accountants in
accordance with generally accepted accounting principles for each fiscal year
end of the Company by reducing the sales of the Company by its cost of goods
sold, operating expenses, general, selling and administrative expenses,
interest, amortization, depreciation and other non-cash expense and not
including income taxes. "Pre Tax Income" shall be determined by the Company's
independent accountants and shall be binding on all parties.
(b) Performance Bonus (Post IPO). Should the Company complete a
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Public Offering of the Company's stock, Employee's Performance Bonus for fiscal
years subsequent to the fiscal year in which the public offering is completed
will be calculated and based upon the increase in Earnings Per Share for the
bonus period. The exact formula to be used will be
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determined by mutual agreement between the Employee and the Company after any
completed Public Offering, with the intent being to devise a formula which will
yield a similar performance bonus opportunity.
2.3 Stock Options. (a) Upon completion of a Public Offering of the
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Company's stock, Employee shall be granted Options for the purchase of 90,000
shares of Common Stock of the Company expiring 10 years from date of grant with
an exercise price equal to the Initial Public Offering selling price per share.
Employee shall be vested in said Options as follows: twenty-five percent (25%)
immediately upon the completion of said Public Offering; twenty-five percent on
March 16, 1999; twenty-five percent on March 16, 2000; and twenty-five percent
on March 16, 2001, so long as Employee remains in the employ of the Company;
provided, however, that vesting will accelerate upon any change in corporate
management or control occurring after December 31, 1997. Said options are
granted pursuant to, and governed by, the terms and provisions of the DSI Toys,
Inc. 1997 Stock Option Plan.
(b) Employee shall further be allowed to participate in the DSI Toys,
Inc. 1997 Stock Option Plan.
2.4 Benefits. Employee may be eligible to participate in any and all
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benefit plans which Employer may from time to time make generally available to
all employees of the Company, however, the extent to which Employee shall be
entitled to participate in such benefit plans shall be determined at the sole
discretion of the Company's Board of Directors. On the date hereof these
benefit plans include: medical insurance, dental insurance, life insurance,
long-term disability, and 401(K) profit sharing plan.
2.5 Extent of Service. During the Employment Term, Employee agrees to
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devote such reasonable business time, attention, energy and efforts to further
the business of the Employer consistent with services performed by a Executive
Vice President and Chief Financial Officer of a toy manufacturing and marketing
company. Further, during the Employment Term, Employee shall not be engaged in
any other business activity pursued for gain, profit or other pecuniary
advantage if such activity interferes with Employee's duties and
responsibilities as set forth herein. However, the foregoing limitations shall
not be construed as prohibiting Employee from making personal investments in any
business enterprise not competitive with that of Employer or investing in toy
companies that are "publicly traded" companies.
2.6 Offices. The Employer shall provide office space for the Employee,
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said arrangement to include provisions for secretarial and other support
services necessary to the maintenance and operating of such office and the
performance of Employee's duties.
2.7 Expense Allowance. The Employer shall promptly reimburse Employee for
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all approved deductible business expenses reasonably incurred in the performance
of his duties, including reasonable expenditures for entertainment. Upon
approval of the Chief Executive Officer, Employee may from time to time receive
advances necessary to cover deductible business expenses and shall promptly file
necessary expense reports to substantiate such advances.
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2.8 Vacations and Holidays. Employee shall be entitled to four (4) weeks
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vacation per calendar year in accordance with Employer policies established by
the Board of Directors, as well as those public holidays duly observed by the
Employer, however, no more than two (2) weeks vacation shall be taken at one
time.
2.9 Business Travel. Employee shall be entitled to travel portal to
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portal via first class on all international travel performed for the Company.
ARTICLE 3
TERMINATION
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3.1 Death. In the event of the Employee's death during the Employment
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Term, the Employer shall pay to Employee's executor(s), administrator(s) or
personal representative(s) an amount equal to the installment of his Base Salary
payable for the month in which he dies and for no period thereafter. Employer
shall pay any Performance Bonus due as required in Section 2.2, if such
Performance bonus has been earned by Employee. In the event of Employee's death
prior to the completion of a fiscal year during the Employment Term, Employee's
estate shall be entitled to a pro rated Performance Bonus based on the portion
of the fiscal year in which Employee was actually employed prior to his death.
Employer shall have no other liabilities or other obligations of any kind or
character under this Agreement to Employee's executor(s), administrator(s) or
personal representative(s) except such accrued benefits that Employee is
entitled at the time of death.
It is expressly understood and agreed that the Company may maintain Key Man
Term Life Insurance for the benefit of the Company on the life of Employee.
Additionally, the Company may maintain such other life insurance for the benefit
of Employer, the Company's shareholders, as from time to time the Board of
Directors of the Company deems reasonable and appropriate.
Upon the death of the Employee, all employee benefits accrued for the
benefit of the Employee shall be distributed in accordance with the provisions
set forth in the plan agreement or arrangement providing the applicable benefits
and otherwise distributed in accordance with applicable laws.
3.2 Disability, Failure to Perform Duties. In the event of the Employee's
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failure to perform his duties for a continuous period equal to or in excess of
ninety (90) consecutive days during the Employment Term by reason of some
illness or disability, the Employer shall have the option to terminate this
Agreement by giving thirty (30) days written notice of termination to Employee.
Upon such notice of termination, the Employer shall pay to Employee an amount
equal to the installments of his Base Salary payable up to the time this
Agreement is terminated with no further obligations regarding the Base Salary,
and shall distribute all accrued employee benefits, as of the date of
termination, to Employee in accordance with the provision of the plan, agreement
or arrangement giving rise to the applicable benefits. Upon the termination of
this Agreement as a result of such "disability", Employee shall have no other
liabilities or obligations of any kind or character to the Employee under this
Agreement, except Employee shall be entitled
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to a prorated Performance bonus based on a portion of the fiscal year in which
Employee was employed prior to notification of termination pursuant to this
Section 3.2 hereof.
3.3 By Employer for Cause. An Employee may be terminated "for cause" if
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Employee, after thirty (30) days written notice to Employee specifying the
details of Employee's default of his obligations under this Paragraph and the
actions necessary to cure such default, Employee fails to cure such "cause."
"For cause" shall be if Employee
(a) intentionally and willfully neglects the performance of his duties
established by the Board of Directors which he is reasonably required to perform
under the terms of this Agreement to the economic detriment of the Company; or
(b) intentionally and willfully fails or refuses in the opinion of the
Board of Directors to comply with the reasonable policies, standards and
regulations of the Company which from time to time may be established;
(c) is convicted of committing a felony against the Company; or
(d) commits a material breach of any of the terms and conditions of
this Agreement.
Upon such determination, the Employer may, at its option, terminate this
Agreement by giving thirty (30) days written notice of such termination to
Employee, without prejudice to any other remedy to which the Employer may be
entitled either at law or in equity, or under this Agreement. In such event,
any of the obligations of the Employer under this Agreement shall be terminated
as of the date given in the notice of termination referred to hereinabove,
following payment by the Employer to Employee of that portion of the Base Salary
then accrued, due and owing in accordance with Section 2.1 hereof and a pro
rated Performance bonus based on a portion of the fiscal year prior to the time
Employee was terminated hereunder. Notwithstanding the foregoing, in the event
that Employee is terminated "for cause" based on actions of the Employee to the
material economic detriment of the Company, or Employee enters into competition
with Company in its line of business, then Employee shall only be entitled to
his accrued Base Salary due at the time of notification of termination and shall
not be entitled to any Performance Bonus for the portion of the fiscal year
currently employed. Employee shall remain entitled in such event to any
Performance Bonus for such prior fiscal year for which he was employed that was
earned pursuant to this Agreement but which has not been paid as of the date of
termination pursuant to Section 3.3. Any future Performance Bonuses to be
earned under this Agreement shall also be deemed to have been waived and
forfeited.
3.4 Termination Without Cause. (a) Without cause, Company may terminate
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this Agreement upon thirty (30) days' prior written notice to Employee. In such
event, Employee shall be paid his regular Base Salary from the date of
termination for a period of six (6) months and shall be entitled to a prorated
Performance Bonus for such portion of the fiscal year in which he was employed
by the Company payable within thirty (30) days after receipt by the Company of
its audited financial statements, but no other severance shall be paid to the
Employee. Further, upon payment by the Employer to Employee of the six (6)
months Base Salary and prorated
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Performance Bonus, Employee shall have no further rights and Employer no other
liabilities or other obligations of any kind or nature under this Agreement
except for accrued employee benefits to which Employee is already entitled.
(b) In the event Employer terminates this Agreement without cause
during the first twelve (12) months after the effective date hereof after a
change in the corporate management or control, other than a public offering,
Employee shall be paid his regular Base Salary from the date of termination for
a period of one (1) year and shall be entitled to a prorated Performance Bonus
for such portion of the fiscal year in which he was employed by the Company
payable within thirty (30) days after receipt by the Company of its audited
financial statements, but no other severance shall be paid to the Employee.
Further, upon payment by the Employer to Employee of the one (1) year Base
Salary and prorated Performance Bonus, Employee shall have no further rights and
Employer no other liabilities or other obligations of any kind or nature under
this Agreement except for accrued employee benefits to which Employee is already
entitled.
(c) The Employee may terminate this Agreement upon thirty (30) days
written notice to the Company if at any time prior to the completion of a public
offering of Employer's stock, Xxxxx Acquisition, L.L.C.'s ownership interest in
Employer is terminated or Xxxxx Acquisition, L.L.C. is no longer the controlling
shareholder of Employer. In such event, Employee shall be paid his regular Base
Salary for one year from the date of termination, but shall not be entitled to
any Performance bonus for such portion of the fiscal year in which he was
employed prior to termination. Additionally the non-competition provision of
Section 4.2 and the non-solicitation provision of Section 4.3 shall be void and
unenforceable against Employee.
(d) Without cause, the Employee may terminate this Agreement upon
thirty (30) days written notice to the Company. In such event, Employee shall
be paid his regular Base Salary for two weeks from the date of termination, but
shall not be entitled to any Performance Bonus for such portion of the fiscal
year in which he was employed prior to termination.
ARTICLE 4
COVENANTS
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4.1 Disclosure of Information. Employee recognizes and acknowledges that
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he has and will have access to certain confidential information, proprietary
data and trade secrets of the Employer, and of entities and individuals
controlling, controlled by or under common control with Employer ("affiliates"),
including but not limited to, contracts, patterns, devices, calculations,
drawings, productions, plans, specifications, records, compilations of
information, and other confidential information and data either compiled by
employer or received from its customers or Employee and that such information is
not generally available to the public and constitutes valuable, special and
unique property of the Employer, provided, however, that the names of the
Company's customers shall not be deemed confidential information pursuant to
this Agreement. Employee shall not, during or after the term of this Agreement,
undertake in any fashion, to take commercial or proprietary advantage of or
profit from any of such confidential information, proprietary data and/or trade
secrets, directly or indirectly, or disclose any of such information to any
person or firm, corporation, association or other entity for any reason or
purpose whatsoever,
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except to authorized representatives of the Employer and as otherwise may be
proper in the course of performing his employment hereunder. Further, Employee
shall maintain the confidentiality of all such information of the Employer, its
affiliates or its customers for the sole use and benefit of the Employer. All
files, records, documents, drawings, plans, specifications, contract, products,
equipment or similar items relating to the business of the Employer and/or its
affiliates, whether prepared by Employee or otherwise coming into his possession
during the Employment Term or hereafter, shall remain the exclusive property of
the Employer and/or the affiliates, as applicable, and shall not be removed from
the premises of the Employer and/or its affiliates without the prior written
consent of the Employer and/or its affiliates, as applicable.
Employee covenants and agrees to promptly return and deliver to the
Employer all documents, drawings, information, or other material or property of
any kind or character which in any way relate to the business of the Company or
any of its affiliates or customers, whether or not asserted to be the exclusive
property of the Company, and, further, Employee shall not attempt to retain
copies or duplicates of any such property. In the event of a breach or a
threatened breach by Employee, Employer and/or its affiliates, in addition to
all other remedies made available hereby or as a matter of law or in equity, may
seek an injunction restraining Employee from disclosing, in whole or in part,
such confidential information. In addition to any other damages sustained by
Employer, Employee shall pay to Employer all profits, payments, earnings
compensation or other emoluments paid or accruing to Employee, directly or
indirectly, by reason of Employee's disclosure of information as provided by
this Article 4. Nothing herein shall be construed as prohibiting the Employer
and/or its affiliates from pursuing any other remedies available to it or them
for such breach or threatened breach, including the recovery of damages from
Employee.
4.2 Non-Competition. During the Employment Term, and if this Agreement is
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terminated in accordance with Section 3.3 or 3.4 and Employer has not breached
its obligation hereunder, for a period of one year thereafter, except in the
course of his employment hereunder, Employee shall not directly or indirectly,
either for himself, or as an employer, employee, owner, manager, independent
contractor, consultant, agent, principal, partner, co-venturer, shareholder,
director, officer or in any other capacity, engage or have any indirect interest
in any person that is engaged, or to the knowledge of Employee is planning to
engage, in competition in any manner whatsoever with the business of Employer
within the United States, including, without limitation, any person that
manufactures, markets, imports, sells or distributes toys. If the Employment
Term is terminated by Employer pursuant to Section 3.4(a) and Employer elects to
enforce the provisions of this Section 4.2., Employer shall be obligated to pay
Employee as additional consideration on or before the fifteenth (15th) day of
each month during the one year period following termination of the Employment
Term an amount equal to one-twelfth (1/12) of the annual salary set forth in
Section 2.1. If the Employment Term is terminated by Employee pursuant to
Section 3.4(d) and Employer elects to enforce the provisions of this Section
4.2, Employer shall be obligated to pay Employee a one time payment of
$50,000.00 as additional consideration within thirty (30) days of Employee's
termination.
4.3 Agreement Not to Solicit. During the Employment Term, and if this
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Agreement is terminated in accordance with Sections 3.3 and 3.4 for a period of
one (1) year thereafter, Employee will not, either directly or indirectly, on
his own or in the service of other:
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(a) knowingly call upon, solicit, divert or attempt to solicit or divert
any of the business contacts of Employer except on behalf of a
business which is not competitive with Employer or in the same or a
similar business as Employer;
(b) knowingly employ any employee of Employer or solicit, divert, recruit
or induce any employee of Employer to leave the employ of Employer,
whether or not such employment is at will; and/or
(c) knowingly induce or advise any service provider or representative of
Employer to terminate or materially alter its relationship with
Employer.
4.4 Intellectual Property. Employee covenants and agrees that all right,
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title and interest, including, without limitation, all trademarks, copyrights
and patents, in and to any material produced, or inventions developed by him
which affect or relate to the Company's business or affect or relate to the
Employer's industry shall vest in the Company and that he shall have no personal
right, title or interest whatsoever therein.
Employee further convenants and agrees that he will, at all times during
his employment and after termination of his employment for any reason, assist
the Company and its nominees in every proper way, without charge by him but at
the Company's expense, to obtain for its benefit patents for such inventions in
any or all countries; and to this end he will execute, acknowledge and deliver,
when so requested, all such further papers, including applications for patents,
assignments and affidavits, as may be needed in order to obtain or to maintain
such patents or to vest title thereto in the Company, its successors and
assigns, or its nominees.
Employee has attached hereto a list identifying all trademarks, trademark
applications, copyrights, copyright applications, patents and patent
applications not assigned to the Company which have heretobefore been taken out
or filed on his behalf and briefly describing all unpatented inventions made
before his employment by the Company, which are expected from the operation of
this agreement; and he covenants and represents that this list is complete and,
if no list is attached, that he has no such trademarks, trademark applications,
copyrights, copyright applications, patents, patent applications or inventions
at the time of signing this agreement.
ARTICLE 5
MISCELLANEOUS PROVISIONS
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5.1 Notices. Any notice required or permitted to be given under this
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Agreement shall be in writing and shall be deemed to have been given when hand
delivered or when deposited in the mails, by registered or certified first class
mail, postage prepaid, return receipt required addressed, at the respective
addresses first written above, or at such other address as either party shall
designate by written notice to the other given in accordance with the foregoing.
Any notice so given shall be deemed to have been given as of the date mailed.
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5.2 Successors Bounds, Survival of Covenants. The rights and obligations
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of the parties hereunder shall inure to the benefit of and shall be binding upon
the successors of each respective party. The representations, warranties,
covenants, and agreements of the parties, as well as any rights and benefits of
the parties, shall survive the execution hereof and following the employment
Term to the extent so provided herein.
5.3 Governing Law. The laws of the State of Texas applicable to contracts
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to be performed within such state shall govern all questions related to the
execution, construction, validity, interpretation and performance of this
Agreement and to all other issues or claims arising hereunder.
5.4 Arbitration. All disputes, controversies or differences which may
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arise between the parties out of or in relation to or in connection with this
Agreement, or for the breach thereof, shall be finally settled by arbitration in
accordance with the Rules of the American Arbitration Association, the said
arbitration to be convened and to take place in Houston, Texas and such
arbitration shall be absolute and binding upon the parties.
5.5 Waiver. Failure to insist upon strict compliance with any provisions
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hereof shall not be deemed to a waiver of such provisions or any other provision
hereof.
5.6 Amendment. This Agreement may not be modified except by mutual
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agreement in writing duly executed by the parties hereto and approved by the
Board of Directors of the Company.
5.7 Severability and Invalid Provisions. If any provision of this
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Agreement (including, without limitation, any provision relating to the
activities covered by, time period of, or geographical area of the covenants
contained in Article 4 of this Agreement) is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term thereof,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be effected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and legal,
valid, and enforceable and that shall not be more restrictive than the one
severed herefrom.
5.8 Assignment. The Employee may not assign his rights or obligations
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hereunder. The rights and obligations of the Company hereunder shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Employer.
5.9 Attorneys' Fees. In any claim or cause of action pursued hereunder,
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each party shall pay its own attorney's fees and legal costs.
5.10 Time Is Of The Essence. All parties agree that time is of the essence
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in the performance of their respective obligations hereunder.
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Executed as of the Effective Date stated above. Employee by his execution
below has read all terms and conditions of this Agreement and has had ample
opportunity to ask questions regarding this Agreement and seek legal and tax
advice concerning the effects to Employee.
EMPLOYER: DSI TOYS, INC. EMPLOYEE: J. Xxxxxxx Xxxxxx
By: /s/ M.D. XXXXX By: /s/ J. XXXXXXX XXXXXX
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M.D. Xxxxx, C.E.O.
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