Document:

exv10w3

 

Exhibit 10.3

EMPLOYMENT AGREEMENT

     This AGREEMENT is made and entered into as of the [ ] day of [ ], 2004, by
and between GRAND TOYS INTERNATIONAL LIMITED (“Grand HK”), a limited company
organized under the laws of the Hong Kong Special Administrative Region of the
People’s Republic of China having its registered office at Room UG202, Floor
UG2, Chinachem Golden Plaza, 77 Mody Road, Tsimshatsui East, Kowloon, Hong
Kong, and TANIA M. CLARKE, a Canadian citizen residing at 5622 Schumack
Crescent, Pierrefonds, Quebec, Canada, H8Z 3K3 (“Clarke”).

     WHEREAS, Grand HK, through its wholly-owned subsidiaries, is engaged in
the business of designing, developing, producing, marketing, distributing,
importing and selling toys and toy-related products (the “Business”).

     WHEREAS,
Grand HK is desirous of employing Clarke as Vice President of Finance of
Grand HK and Vice President and
Chief Financial Officer of Grand Toys International, Inc. (“Grand US”), a
subsidiary of Grand HK, and Clarke is
willing to serve Grand HK in such capacity, all upon the terms and subject to
the conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, agree as
follows:

     1.   Employment.

     Grand HK agrees to employ Clarke, and Clarke agrees to be employed by
Grand HK, upon the terms and subject to the conditions of this Agreement.

     2.   Term.

     The term of this Agreement shall be for a period commencing on the date of
the closing of the reorganization merger of Grand HK and the acquisition of
Playwell International Limited, a private limited company organized under the
laws of the Hong Kong Special Administrative Region of the People’s Republic of
China (“Playwell”) and ending on the third anniversary of the commencement of
the Term, unless sooner terminated as hereinafter provided (the “Term”).

     3.   Duties; Efforts; Indemnification.

           (a) During
the term of this Agreement, Clarke shall serve as the Vice President
of Finance of Grand HK and Vice
President and Chief Financial Officer of Grand US. Her responsibilities shall include the oversight of the North
American operations (current and future) of Grand US from a financial
perspective. In addition, she shall also be responsible for the financial
management of Grand HK in her capacity of Vice President of Finance of Grand
HK. All duties to be rendered by Clarke shall be commensurate with her position
as the Vice President of Finance of Grand HK and Vice President and Chief Financial Officer of Grand US.

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Clarke shall be based in the greater Montreal, Quebec metropolitan area and
shall undertake such domestic and foreign travel as shall be reasonably
required to fulfill her duties.

           (b) Subject to and in accordance with the provisions of the Memorandum and
Articles of Association of Grand HK, Grand HK shall indemnify Clarke to the
fullest extent permitted by applicable law for all amounts (including, without
limitation, judgments, fines, settlement payments, expenses and attorney’s
fees) incurred or paid by Clarke in connection with any third party action,
suit, investigation or proceeding arising out of or relating to the performance
by Clarke of services for, or the acting by Clarke as the Vice President of Finance of
Grand HK and as the Vice President and
Chief Financial Officer of Grand US or as an officer or employee of any other person or entity at Grand
HK’s request, and Grand HK shall advance to Clarke or pay on her behalf such
amounts as the Board of Directors of Grand HK (the “Board”) shall determine to
be due by reason of such indemnification. Grand HK shall use its reasonable
best efforts to purchase and maintain during the Term directors’ and officers’
insurance covering Clarke with a liability limit commensurate with that of the
comparable insurance maintained by Grand US immediately prior to the
commencement of the Term, provided if, in the opinion of the Board, coverage in
that amount is not available on commercially reasonable terms, it shall
purchase and maintain insurance with such lower liability is it deems
commercially reasonable.

     4.   Compensation and Benefits.

           (a) Base Salary. Grand HK shall pay to Clarke a base salary (the “Base
Salary”) at a rate of US$170,000 per annum, payable in accordance with Grand
HK’s payroll practices for its executive employees. The Board will review the
Base Salary not less than annually, for increase, during the Term with a view
to ensuring that it remains commensurate with the time and effort required for
the discharge of Clarke’s responsibilities pursuant to this Agreement. The Base
Salary provided hereunder, as increased by the Board from time to time, shall
not be reduced without Clarke’s consent.

           (b) Incentive Compensation. Clarke shall be eligible for the following
incentive compensation:

                     (i) Stock Options. Clarke shall be granted options to purchase American
Depositary Shares (“ADSs”) representing 50,000 ordinary shares in the capital
of Grand HK at a price per ADS which shall be equivalent to the closing market
price of ADSs on the day prior to the date of grant of such options. The
options shall be granted within sixty (60) days after the date of this
Agreement, shall vest and become exercisable as to 16,667 shares on each of the
first and second anniversaries of such date and on the date of the expiration
of the Term, and shall expire on the fifth anniversary of the date hereof;
provided, however, that upon (i) the occurrence of a Change of Control, as
defined in Section 11, having the result described in the first sentence of
that section, or (ii) the termination of Clarke’s employment other than (A) by
Grand HK for Cause (as defined in Section 5(a)), (B) by reason of Clarke’s
death or Disability (as defined in Section 5(b)) or (C) by Clarke voluntarily,
all of such options then remaining unvested shall become vested immediately. Grand HK shall use reasonable best
efforts to cause

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the ADSs issuable upon exercise of such options to be registered for resale on
Form S-8 or other appropriate form for resale of securities upon exercise of
options under the Securities Act of 1933, provided that Grand HK shall have
determined in its reasonable judgment that the ADRs are eligible for such
registration.

                     (ii) Bonus. Clarke shall be entitled to an annual bonus of between 20% to
25% of her annual base salary, subject to the approval of the Board or the
Compensation Committee of the Board and the meeting of certain milestones
established by the Compensation Committee. The bonus shall be accrued at Grand
HK’s fiscal year end and paid to Clarke during the next year upon completion of
Grand HK’s annual audit and the approval of Clarke’s bonus by Grand HK’s Board
or Compensation Committee;

                     (iii) Transactional Compensation. Clarke may, at the discretion of the
Board, be granted additional stock options, bonuses or other incentive
compensation contingent upon the success of specific transactions.

           (c) Out-of-Pocket Expenses. Grand HK shall promptly pay to Clarke the
reasonable expenses incurred by her in the performance of her duties hereunder
in accordance with Grand HK’s policies in effect from time to time, including,
without limitation, those incurred in connection with business related travel
or entertainment, or, if such expenses are paid directly by Clarke, shall
promptly reimburse her for such payment, provided that Clarke provides proper
documentation thereof in accordance with Grand HK’s policy.

           (d) Participation in Benefit Plans. Clarke shall be entitled to
participate in or receive benefits under any pension plan, health and accident
plan or any other employee benefit plan or arrangement made available now or in
the future by Grand HK to its North American executives and key management
personnel. However, Clarke shall not receive less medical benefits than what
she received when employed in the capacity of Executive Vice President and
Chief Financial Officer of Grand US immediately prior to the commencement of
the Term.

           (e) Vacation. Clarke shall be entitled to such number of paid vacation
days in each calendar year that are generally awarded to Grand HK’s North
American executives, but in no event less than twenty (20) business days per
year. Vacation shall be prorated in any calendar year of the Term during which
Clarke is employed hereunder for less than an entire year in accordance with
the number of days in such year during which she is so employed. No vacation
time shall be paid if not taken or carried over into any subsequent calendar
year unless Grand HK’s policies then permit.

     5.   Termination.

     Clarke’s employment hereunder shall be terminated upon Clarke’s death or
Clarke’s voluntarily leaving the employ of Grand HK (other than as a result of
Grand HK’s material breach of this Agreement), and may be terminated as
follows:

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           (a) For Cause. Grand HK shall have the right to terminate Clarke’s
employment for “Cause.” A termination for “Cause” is a termination evidenced by
a resolution adopted by the Board finding that Clarke has:

                     (i) materially or repeatedly breached or failed to comply with any of the
material terms of this Agreement, including, without limitation, Sections 3, 7,
8 or 10 of this Agreement;

                     (ii) materially or repeatedly failed to perform her duties under this
Agreement, including refusing to carry out the reasonable lawful written
instructions of the Board or deliberately and intentionally disregarding the
lawful instructions from the Board, in either case which instructions are
consistent with the responsibilities and duties of Clarke contemplated by this
Agreement;

                     (iii) engaged in gross negligence or willful misconduct in connection with
or arising out of the performance of her duties hereunder, including, without
limitation, the misappropriation of funds;

                     (iv) been under the influence of drugs or alcohol (other than prescription
medicine or other medically-related drugs to the extent that they are taken in
accordance with their directions) during the performance of her duties under
this Agreement, or while under the influence of drugs or alcohol, engages in
grossly inappropriate conduct;

                     (v) engaged in behavior that would constitute grounds for liability for
sexual harassment or in the reasonable opinion of the Board other egregious
conduct violative of laws governing the workplace, in either case within the
jurisdiction in which Clarke is rendering services; or

                     (vi) committed any act of fraud, larceny, misappropriation of funds or
embezzlement or been convicted of a felony or a crime of moral depravity;

provided, however, that (A) in the case of clauses (i), (ii) and (iii) above,
Clarke shall receive thirty (30) days’ advance written notice that the Board
intends to meet to consider Clarke’s termination and specifying the actions
constituting Cause, Clarke shall have the opportunity to cure the conduct
constituting Cause during such thirty (30) day period and (B) any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for Grand HK shall be
conclusively presumed to be done, or omitted to be done, by Clarke in good
faith and in the best interests of Grand HK.

           (b) For Disability. Grand HK shall have the right to terminate Clarke’s
Employment as a result of Clarke’s “Disability.” For purposes of this
Agreement, a termination for “Disability” shall occur:

                     (i) immediately after the Board has provided a written termination notice
to Clarke supported by a written statement from a reputable independent physician

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selected by Grand HK to the effect that Clarke shall have become so
incapacitated as to be unable to resume, within 90 days, her employment
hereunder by reason of physical or mental illness or injury; or

                     (ii) upon rendering of a written termination notice by Grand HK after
Clarke has been unable to substantially perform her duties hereunder for 90
consecutive days (exclusive of any vacation permitted under Section 4(e)
hereof) or for 180 days in any 360 day period by reason of any physical or
mental illness or injury.

Clarke agrees to make herself available and to cooperate in any reasonable
examination by a reputable independent physician mutually selected by the
parties for the purpose of a termination pursuant to Section 5(b)(i).

     6.   Effect of Termination.

           (a) Death or Disability. In the event of the termination of Clarke’s
employment as a result of her death or Disability, Grand HK shall:

                     (i) pay to Clarke or her estate, as the case may be, the Base Salary and
any accrued and unpaid bonus or incentive compensation in accordance with
Section 4(b) through the date of her death or Disability (pro rated for any
partial month); and

                     (ii) reimburse Clarke, or her estate, as the case may be, for any expenses
pursuant to Section 4(c) (the amounts payable pursuant to the foregoing clauses
(i) and (ii) are hereafter referred to as the “Accrued Obligations”).

           (b) For Cause by Grand HK, by Clarke Voluntarily or upon
expiration of the Term. In the event that Clarke’s employment is terminated by Grand HK for Cause
or by Clarke voluntarily or upon expiration of the Term, Grand HK shall pay to
Clarke the Accrued Obligations and Clarke shall have no further entitlement to
any other compensation or benefits from Grand HK, except as set forth herein.

           (c) Other than as a result of Clarke’s death or Disability, by Grand HK
for Cause or by Clarke. In the event that Clarke’s employment is terminated by
Grand HK other than for Cause, death or Disability or by Clarke voluntarily,
then, subject to receipt of a release of Grand HK, Grand US, their officers and
employees and their respective successors and assigns of claims by Clarke
against them solely by reason of her termination of employment hereunder:

                     (i) Grand HK shall pay to Clarke the Accrued Obligations;
and

                     (ii) Grand HK shall continue to pay Clarke the Base Salary plus benefits
in accordance with Section 4(d), together with bonus accruing in accordance
with Section 4(b)(ii) from and after the date of termination until the
earlier of (A) the last day of the Term (as if such termination had not
occurred) or (B) the date that shall be one year after the date

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of such termination. In addition, all stock options granted to Clarke pursuant
to Section 4(b)(i) shall vest as of the effective date of such termination, if
not already vested at termination date;

           (d) This Section 6 sets forth the only obligations of Grand HK with
respect to the termination of Clarke’s employment with Grand HK, and Clarke
acknowledges that upon the termination of her employment, she shall not be
entitled to any payments or benefits which are not explicitly provided herein
hereof. Any and all Accrued Obligations shall be paid within fifteen (15) days
of the termination of Clarke’s employment.

           (e) In no event shall Clarke be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Clarke under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not Clarke obtains other employment.

     7.   Non-Solicitation; Restriction of Competition; Interference.

               (a) As a significant inducement to Grand HK to enter into and perform its
obligations under this Agreement, during the Term and until the first
anniversary of the termination or expiration of the Term or any extension
hereof, for any reason other than the termination of Clarke’s employment
without Cause and subject to the provisions of Section 3(b), Clarke will not,
either directly or indirectly:

                     (i) either alone or in association with others, solicit, or permit any
person or organizations directly or indirectly to solicit, any individual who
at the time of the solicitation is, or who within the six (6) month period
prior to such solicitation was, an employee of Grand HK to leave the employ of
Grand HK or terminate his or her employment relationship with Grand HK, or hire
or attempt to hire or induce, any employee or employees of Grand HK to
terminate their employment with, or otherwise cease their relationship with,
Grand HK;

                     (ii) solicit, divert or take away, or attempt to divert or to take away,
the business or patronage of any of the clients, customers, vendors or
accounts, or prospective clients, customers, vendors or accounts of Grand HK;

                     (iii) directly or indirectly engage in any place in the world in any
business which develops, manufactures, promotes or distributes products that
are competitive with those that are marketed by Grand HK, or those products
which are then under active development by Grand HK (a “Competing Business”),
whether such engagement shall be as a Chief Financial Officer, Vice President
of Finance, officer, employee, stockholder, shareholder, partner, member or
other owner, affiliate or other participant in any Competing Business;

                     (iv) assist others in organizing or engaging in any Competing Business in
any capacity or manner described in clause (iii) above; or

                     (v) take any action reasonably likely to cause injury to the relationship
between Grand HK or any of its respective employees and any client, lessor,
lessee, vendor,

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supplier, customer, distributor, employee, consultant or other business
associate of Grand HK or any of its affiliates as such relationship relates to
Grand HK or its affiliates’ conduct of their business.

           (b) Notwithstanding anything in Section 7(a) to the contrary (i) the
provisions of clause 7(a)(iii) and 7(a)(iv) shall not be deemed to preclude
Clarke, after the end of the Term, from engagement by a corporation or entity
some of the activities of which are a Competing Business if Clarke’s engagement
does not, directly or indirectly, relate to, and Clarke is segregated
completely from, such Competitive Business and (ii) nothing contained in this
Section 7 shall be deemed to prohibit Clarke from directly acquiring or
holding, solely for investment, securities of any corporation or entity some of
the activities of which constitute a Competitive Business so long as such
securities do not, in the aggregate, constitute more than five percent (5%) of
any class or series of outstanding securities of such corporation or entity.

           (c) The geographic scope of this Section 7 shall extend to anywhere Grand
HK is doing business at the time of termination or expiration.

     8.   Protection of Confidential Information.

           (a) As a significant inducement to Grand HK to enter into and perform its
obligations under this Agreement, Clarke acknowledges that she has been and
will be provided with information about, and her employment by Grand HK will,
throughout the Term, bring her into close contact with, many confidential
affairs of Grand HK and Grand US, including, without limitation, books,
records, business plans, proprietary information about the Business, costs,
profits, markets, sales, customers, advertisers, vendors, suppliers, products,
key personnel, pricing policies, operational methods, technical processes and
other business affairs and methods, plans for future developments and other
information not readily available to the public (the “Confidential
Information”), all of which are highly confidential and proprietary and all of
which were developed by Grand HK and Grand US at great effort and expense.
Clarke further acknowledges that the services to be performed by her under this
Agreement are of a special, unique, unusual, extraordinary and intellectual
character and that the nature of the relationship of Clarke with Grand HK is
such that Clarke is capable of competing with Grand HK. In recognition of the
foregoing, Clarke covenants and agrees during the Term and thereafter she will:

                     (i) keep secret all Confidential Information and not disclose such
Confidential Information to anyone outside of Grand HK, either during or after
the Term, except with Grand HK’s prior written consent;

                     (ii) not make use of any Confidential Information for her own purposes or
the benefit of anyone other than Grand HK, provided that the confidential
matters referred to in clauses (i) and (ii) of this Section 7 shall not apply
to information which is generally known to the public other than as a result of
Clarke’s breach of this Section 7;

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                     (iii) deliver promptly to Grand HK on termination of this Agreement, or at
any time Grand HK may so request, all confidential memoranda, notes, records,
reports and other confidential documents (and all copies thereof) relating to
the Business which she may then possess or have under her control, except that
she may retain personal notes, notebooks, journals and diaries provided that
such materials do not contain Confidential Information; and

                     (iv) not disparage Grand HK, any affiliate of Grand HK, any officer,
employee or shareholder of Grand HK, or any affiliate of any such officer,
employee or shareholder of Grand HK by making (or causing others to make) any
oral or written statements or representations that could reasonably be
construed to be a false and misleading statement of fact or a libelous,
slanderous or disparaging statement of or concerning any of the aforementioned
persons.

     9.   Specific Remedies; Severability.

           (a) For the purposes of Sections 7 and 8 of this Agreement, references to
Grand HK shall include all current and future majority-owned subsidiaries of
Grand HK and all current and future joint ventures in which Grand HK may from
time to time be involved. It is understood by Clarke and Grand HK that the
covenants contained in this Section 9 and in Sections 7 and 8 hereof are
essential elements of this Agreement and that, but for the agreement of Clarke
to comply with such covenants, Grand HK would not have agreed to enter into
this Agreement or consummate the Transaction. Grand HK and Clarke have
independently consulted with their respective counsel and have been advised
concerning the reasonableness and propriety of such covenants with specific
regard to the nature of the business conducted by Grand HK and all interests of
Grand HK and its shareholders. Clarke agrees that the covenants of Sections 7
and 8 are reasonable and valid. If Clarke commits a breach of any of the
provisions of Sections 7 and 8 hereof, such breach shall be deemed to be
grounds for termination for Cause. In addition, notwithstanding the provisions
of Sections 7 and 8, Clarke acknowledges that Grand HK may have no adequate
remedy at law if she violates any of the terms hereof. Clarke therefore
understands and agrees that Grand HK shall have without prejudice as to any
other remedies:

                     (i) the right upon application to any court of proper jurisdiction to a
temporary restraining order, preliminary injunction, injunction, specific
performance or other equitable relief; and

                     (ii) the right to apply to any court of proper jurisdiction to require
Clarke to account for and pay over all compensation, profits, monies, accruals,
increments and other benefits (collectively the “Benefits”) derived or received
by Clarke as a result of any transaction constituting a breach of any of the
provisions of Sections 7 or 8, and, if a court so orders, Clarke hereby agrees
to account for and pay over such Benefits to Grand HK.

           (b) Each of the rights enumerated in Sections 7 or 8 hereof and the
remedies enumerated in this Section 9 shall be independent of the others and
shall be in addition to and not in lieu of any other rights and remedies
available to Grand HK at law or in equity. If any provision of this Agreement,
or any part of any of them, is hereafter construed or adjudicated to

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be invalid or unenforceable, the same shall not affect the remainder of the
covenants or rights or remedies which shall be given full effect without regard
to the invalid portions. If any of the covenants set forth herein is held to be
invalid or unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court making such determination
shall reduce the duration and/or area of such provision and in its reduced form
said provision shall then be enforceable. No such holding of invalidity or
unenforceability in one jurisdiction shall bar or in any way affect Grand HK’s
right to the relief provided in Section 9(a) or otherwise in the court of any
other state or jurisdiction within the geographical scope of such covenants as
to breaches of such covenants in such other respective states or jurisdictions,
such covenants being, for this purpose, severable into diverse and independent
covenants.

     10.   Other Agreements.

     Clarke hereby represents that she is not bound by the terms of any
agreement with any previous employer, or with any other party, that would
impair her right or ability to enter the employ of Grand HK or perform fully
her obligations pursuant to this Agreement. Clarke further represents and
warrants that her performance of all the terms of this Agreement and as an
executive of Grand HK does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by her in
confidence or in trust prior to her employment with Grand HK.

     11.   Change of Control.

     In the event that, as a result of any Change in Control of Grand HK,
Clarke ceases to act in the capacity of Vice President of Finance of
Grand HK and Vice President and Chief Financial
Officer of Grand US in accordance
with the provisions of this Agreement for any reason other than termination for
Cause, she shall be entitled to the same compensation and benefits as if her
employment had been terminated by Grand HK without Cause, as provided in
Section 6(c). For purposes hereof, a “Change of Control” of Grand HK shall mean
any sale, transfer, pledge or other encumbrance of shares, or the issuance of
shares, or any other transaction or event including, without limitation, merger
or consolidation, as a result of which Cornerstone Overseas Investments
Limited, either alone or with its affiliates, shall cease to have control of
Grand HK, where “control” shall mean the right, either directly or indirectly,
to elect a majority of the board of directors of Grand HK without the consent
or acquiescence of any third party, other than as contemplated in that
Shareholder Agreement, dated August    , 2004, by and between Cornerstone Overseas Investments Limited, Grand
HK, Stephen Altro, David Mars and their affiliates.

     12.   Notices.

     Any notice or other communications required or permitted hereunder shall
be in writing and shall be deemed effective (i) upon delivery, if delivered by
hand and followed by notice by mail or facsimile transmission, or electronic
mail, (ii) three (3) days after the date of deposit in the mails, if mailed by
certified or registered mail (return receipt requested), or (iii) on

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the next business day, if mailed by an overnight mail service to the parties or
sent by facsimile transmission,

     if to Grand HK:

	 	 	Grand Toys International Limited

Room UG202, Floor UG2

Chinachem Golden Plaza

77 Mody Road

Tsimshatsui East

Kowloon, Hong Kong

Attention: Managing Director

Facsimile No.: (852) 2520-5515

     with copies to:

	 	 	Katten Muchin Zavis Rosenman

575 Madison Avenue

New York, NY 10022

Attention: Paul J. Pollock, Esq.

Facsimile: (212) 894-5511

     and

	 	 	Dorsey & Whitney

One Pacific Place, Suite 3008

88 Queensway

Hong Kong

Attention: Steven C. Nelson, Esq.

Facsimile No.: (852) 2524-3000

     if to Clarke:

	 	 	Tania M. Clark

5622 Shumack Crescent

Pierrefonds, Quebec, Canada H8Z 3K3

or at such other address or telecopy number (or other similar number) as either
party may from time to time specify to the other.

     13.   Entire Agreement.

     This Agreement constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this Agreement.

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     14.   Amendment.

     This Agreement may be amended or modified only by a written instrument
executed by Grand HK and Clarke.

     15.   Governing Law.

     This Agreement shall be governed by, and interpreted and construed in
accordance with, the laws of the State of New York, USA, which shall be the
proper law hereof notwithstanding any rule or principle of conflict of laws
therein contained under which any other body of law would be made applicable.
If and to the extent that Clarke should, pursuant to the mandatory laws of any
other jurisdiction, acquire by reason of the employment relationship created
hereunder any rights other than those contemplated by this Agreement, she
expressly waives any and all such rights.

     16.   Successors and Assigns.

     This Agreement is personal to Clarke and without the prior written consent
of Grand HK shall not be assignable by Clarke otherwise than by will or the
laws of descent and distribution with respect to Clarke’s rights, if any, to be
paid or receive benefits hereunder. This Agreement shall inure to the benefit
of and be enforceable by Clarke’s legal representatives.

     17.   Headings.

     The headings of this Agreement are for convenience of reference only and
shall not affect in any manner any of the terms and conditions hereof.

     18.   Acts and Documents.

     The parties agree to do, sign and execute all acts, deeds, documents and
corporate proceedings necessary or desirable to give full force and effect to
this Agreement.

     19.   Counterparts.

     This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same agreement.

     20.   Modifications and Waivers.

     No term, provision or condition of this Agreement may be modified or
discharged unless such modification or discharge is authorized by the Board of
Grand HK and is agreed to in writing and signed by Clarke. No waiver by either
party hereto of any breach by the other party hereto of any term, provision or
condition of this Agreement to be performed by such other

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party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

     21.   Entire Agreement.

     This Agreement constitutes the entire agreement between the parties with
respect to the subject matter herein and supersedes all prior agreements,
negotiations and discussions between the parties hereto.

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     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties or their duly authorized officers as of the date first written
above.

	 	 	 	 
	 	GRAND TOYS INTERNATIONAL LIMITED
	 
	 
	 	By:	 	
	 	 	 	

	 
	 
	 
	 	 	 	

	 	 	 	Tania M. Clarke

13exv10w5

 

Exhibit 10.5

EMPLOYMENT AGREEMENT

     This AGREEMENT is made and entered into as of the [  ] day of [     
], 2004, by and between GRAND TOYS INTERNATIONAL LIMITED, a limited company
organized under the laws of the Hong Kong Special Administrative Region of the
People’s Republic of China having its registered office at Room UG202, Floor
UG2, Chinachem Golden Plaza, 77 Mody Road, Tsimshatsui East, Kowloon, Hong Kong
(“Grand”), and RAYMOND CHAN HONG LEUNG, a Hong Kong
resident at [     ],
Hong Kong (“Employee”).

     WHEREAS, Grand, through its wholly-owned subsidiaries, is engaged in the
business of designing, developing, producing, marketing, distributing,
importing and selling toys and toy-related products (the “Business”).

     WHEREAS, Grand is desirous of employing Employee as Chief Operating
Officer – Playwell Division, and Employee is willing to serve Grand in such
capacity, all upon the terms and subject to the conditions hereinafter set
forth.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, agree as
follows:

     1. Employment

          Grand agrees to employ Employee, and Employee agrees to be employed by
Grand, at its offices in the Hong Kong Special Administrative Region of the
People’s Republic of China (“Hong Kong”) as specified in first paragraph of
this Agreement, upon the terms and subject to the conditions of this Agreement.

     2. Term

          The term of this Agreement shall be for a period of three (3) years
commencing on the date hereof and ending on the date of Grand’s annual general
meeting in 2007 unless sooner terminated as hereinafter provided (the “Term”).

     3. Duties; Efforts; Indemnification

          (a) During the term of this Agreement, Employee shall serve as Chief
Operating Officer – Playwell Division of Grand, reporting directly to the Chief
Executive Officer of Grand. He shall be responsible for the management of
Grand’s operational matters in the Playwell Division as well as all such other
duties as are commensurate with such positions. He shall also perform such
executive duties as may be assigned to him from time to time by the Board of
Directors of Grand (the “Board”) and the Chief Executive Officer of Grand so
long as such duties are not inconsistent with his positions as Chief Operating
Officer of a company of comparable size.

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          (b) Employee shall devote all of his business time, attention and
energies, on a full time and exclusive basis, to the business and affairs of
Grand, shall use his best efforts to advance the best interests of Grand, and
shall not during the Term be engaged in any other business activities, whether
or not such business activities are pursued for gain, profit or other pecuniary
advantage, without Board consent; provided, however, that, it shall not be a
violation of this Agreement for Employee to (i) serve on corporate, civic or
charitable boards or committees, (ii) manage passive personal investments, in
either case so long as any such activities do not interfere with the
performance of his responsibilities as an employee of Grand in accordance with
this Agreement, or (iii) provide services to Cornerstone Overseas Investments,
Limited (“Cornerstone”) under Employee’s Service Agreement with Cornerstone,
dated [                   ].

          (c) Subject to and in accordance with the provisions of the Memorandum and
Articles of Association of Grand, Grand shall indemnify Employee to the fullest
extent permitted by applicable law for all amounts (including, without
limitation, judgments, fines, settlement payments, expenses and attorney’s
fees) incurred or paid by Employee in connection with any third party action,
suit, investigation or proceeding arising out of or relating to the performance
by Employee of services for, or the acting by Employee as a director, officer
or employee of, Grand or of any other person or entity at Grand’s request, and
Grand shall advance to Employee or pay on his behalf such amounts as the
directors of Grand determine to be due by reason of such indemnification.

     4. Compensation and Benefits

          (a) Base Salary. Grand shall pay to Fremed a base salary (the “Base
Salary”) at a rate of US$175,000 per annum, payable in accordance with Grand’s
payroll practices for its executive employees. The Board will review the Base
Salary for possible increase not less than semiannually during the Term with a
view to ensuring that it remains commensurate with the time and effort required
for the discharge of his responsibilities pursuant to this Agreement.

          (b) Incentive Compensation. In addition to the amounts of compensation
provided for in subsection (a) hereof, Employee shall be eligible for such
incentive compensation, including stock options, share appreciation rights or
bonuses under plans adopted by the Board for the benefit of employees of Grand,
as the Board may determine at its discretion from time to time.

          (c) Out-of-Pocket Expenses. Grand shall promptly pay to Employee the
reasonable expenses incurred by him in the performance of his duties hereunder
in accordance with Grand’s policies in effect from time to time, including,
without limitation, those incurred in connection with business related travel
or entertainment, or, if such expenses are paid directly by Employee, shall
promptly reimburse him for such payment, provided that Employee provides proper
documentation thereof in accordance with Grand’s policy.

          (d) Participation in Benefit Plans. Employee shall be entitled to
participate in or receive benefits under any pension plan, health and accident
plan or any other employee benefit plan or arrangement made available now or in
the future by Grand to its Hong Kong

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executives and key management personnel, provided that such plans or
arrangements are applicable to employees who are employed less than full-time.

     5. Termination

          Employee employment hereunder shall be terminated upon Employee’s death or
Employee’s voluntarily leaving the employ of Grand (other than as a result of
Grand’s material breach of this Agreement), and may be terminated as follows:

          (a) For Cause. Grand shall have the right to terminate Employee’s
employment for “Cause.” A termination for “Cause” is a termination evidenced
by a resolution adopted by the Board finding that Employee has:

               (i) breached or failed to comply with any of the material terms of this
Agreement, including, without limitation, Sections 3, 7, 8 or 10 of this
Agreement;

               (ii) failed to perform his duties under this Agreement, including refusing
to carry out the reasonable written instructions of the Board or deliberately
and intentionally disregarding the lawful instructions from the Board, in
either case which instructions are consistent with the responsibilities and
duties of Employee contemplated by this Agreement;

               (iii) engaged in gross negligence or willful misconduct in connection with
or arising out of the performance of his duties hereunder, including, without
limitation, the misappropriation of funds;

               (iv) been under the influence of drugs or alcohol (other than prescription
medicine or other medically-related drugs to the extent that they are taken in
accordance with their directions) during the performance of his duties under
this Agreement, or while under the influence of drugs or alcohol, engages in
grossly inappropriate conduct;

               (v) engaged in behavior that would constitute grounds for liability for
sexual harassment under Hong Kong law or, in the reasonable opinion of the
Board, other egregious conduct violative of laws governing the workplace; or

               (vi) committed any act of fraud, larceny, misappropriation of funds or
embezzlement or been convicted of a felony or a crime of moral depravity;

provided, however, that (A) in the case of clauses (i), (ii) and (iii) above,
Employee shall receive thirty (30) days’ advance written notice that the Board
intends to meet to consider Employee’s termination and specifying the actions
constituting Cause, Employee shall have the opportunity to cure the conduct
constituting Cause during such thirty (30) day period and (B) any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for Grand shall be
conclusively presumed to be done, or omitted to be done, by Employee in good
faith and in the best interests of Grand.

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          (b) For Disability. Grand shall have the right to terminate Employee’s
Employment as a result of Employee’s “Disability.” For purposes of this
Agreement, a termination for “Disability” shall occur:

               (i) immediately after the Board has provided a written termination notice
to Employee supported by a written statement from a reputable independent
physician selected by Grand to the effect that Employee shall have become so
incapacitated as to be unable to resume, within 90 days, his employment
hereunder by reason of physical or mental illness or injury; or

               (ii) upon rendering of a written termination notice by Grand after
Employee has been unable to substantially perform his duties hereunder for 90
consecutive days (exclusive of any vacation permitted under Section 4(e)
hereof) or for 180 days in any 360 day period by reason of any physical or
mental illness or injury.

Employee agrees to make himself available and to cooperate in any reasonable
examination by a reputable independent physician selected by Grand for the
purpose of a termination pursuant to Section 5(b)(i).

     6. Effect of Termination

          (a) Death or Disability. In the event of the termination of Employee’s
employment as a result of his death or Disability, Grand shall:

               (i) pay to Employee or his estate, as the case may be, the Base Salary
through the date of his death or Disability (pro rated for any partial month);
and

               (ii) reimburse Employee, or his estate, as the case may be, for any
expenses pursuant to Section 4(c) (the amounts payable pursuant to the
foregoing clauses (i) and (ii) are hereafter referred to as the “Accrued
Obligations”).

          (b) For Cause by Grand, by Employee Voluntarily or upon expiration of the
Term. In the event that Employee’s employment is terminated by Grand for Cause
or by Employee voluntarily or upon expiration of the Term, Grand shall pay to
Employee the Accrued Obligations and Employee shall have no further entitlement
to any other compensation or benefits from Grand, except as set forth herein.

          (c) Other than as a result of Employee’s death or Disability, or by Grand
otherwise than for Cause. In the event that Employee’s employment is
terminated other than by reason of his death or Disability or by Grand
otherwise than for Cause, then, subject to receipt of a release of Grand and
its directors, officers and employees and their respective successors and
assigns of claims of Employee against them arising out of or by reason of his
termination of employment hereunder:

               (i) Grand shall pay to Employee the Accrued Obligations; and

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               (ii) Grand shall continue to pay Employee the Base Salary plus benefits in
accordance with Section 4(d) from and after the most recent anniversary of the
date hereof, until the earlier of (A) the last day of the Term (as if such
termination had not occurred) or (B) the date that shall be one year after the
date of such termination.

          (d) This Section 6 sets forth the only obligations of Grand with respect
to the termination of Employee’s employment with Grand, and Employee
acknowledges that upon the termination of his employment, he shall not be
entitled to any payments or benefits which are not explicitly provided herein
hereof. Any and all Accrued Obligations shall be paid within fifteen (15) days
of the termination of Employee’s employment.

     7. Non-Solicitation; Restriction of Competition; Interference

          (a) As a significant inducement to Grand to enter into and perform its
obligations under this Agreement, during the Term and until the first
anniversary of the termination or expiration of the Term or any extension
hereof, for any reason, Employee will not, either directly or indirectly:

               (i) either alone or in association with others, solicit, or permit any
person or organizations directly or indirectly to solicit, any individual who
was an employee of Grand on the date of Employee’s termination to leave the
employ of Grand or terminate his or her employment relationship with Grand, or
hire or attempt to hire or induce, any employee or employees of Grand to
terminate their employment with, or otherwise cease their relationship with,
Grand;

               (ii) solicit, divert or take away, or attempt to divert or to take away,
the business or patronage of any of the clients, customers, vendors or
accounts, or prospective clients, customers, vendors or accounts of Grand who
was a client, customer, vendor or prospective client of Grand within the one
year period prior to the date of Employee’s termination;

               (iii) directly or indirectly engage any place in the world in any business
which develops, manufactures, promotes or distributes products that are
competitive with those that are marketed by Grand, or those products which are
then under active development by Grand (a “Competing Business”), whether such
engagement shall be as a director, officer, employee, stockholder, shareholder,
partner, member or other owner, affiliate or other participant in any Competing
Business, provided that employment after the Term or any extension thereof by
an entity that carries both a Competing Business and one or more other
businesses shall not constitute a breach of this clause (iii) if such
employment can be shown not to involve participation in such Competing
Business;

               (iv) assist others in organizing or engaging in any Competing Business in
any capacity or manner described in clause (iii) above;

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               (v) induce any client, customer, vendor, agent or other person or entity
with whom or which Grand has a business relationship, contractual or otherwise,
to terminate or alter such business relationship;

               (vi) take any action reasonably likely to cause injury to the relationship
between Grand or any of its respective employees and any client, lessor,
lessee, vendor, supplier, customer, distributor, employee, consultant or other
business associate of Grand or any of its affiliates as such relationship
relates to Grand or its affiliates’ conduct of their business.

          (b) The geographic scope of this Section 7 shall extend to anywhere Grand
is doing business at the time of termination or expiration.

     8. Protection of Confidential Information

          As a significant inducement to Grand to enter into and perform its
obligations under this Agreement, Employee acknowledges that he has been and
will be provided with information about, and his employment by Grand will,
throughout the Term, bring him into close contact with, many confidential
affairs of Grand, including, without limitation, books, records, business
plans, proprietary information about the Business, costs, profits, markets,
sales, customers, advertisers, vendors, suppliers, products, key personnel,
pricing policies, operational methods, technical processes and other business
affairs and methods, plans for future developments and other information not
readily available to the public (the “Confidential Information”), all of which
are highly confidential and proprietary and all of which were developed by
Grand at great effort and expense. Employee further acknowledges that the
services to be performed by him under this Agreement are of a special unique,
unusual, extraordinary and intellectual character and that the nature of the
relationship of Employee with Grand is such that Employee is capable of
competing with Grand. In recognition of the foregoing, Employee covenants and
agrees during the Term and thereafter he will:

          (a) keep secret all Confidential Information and not disclose such
Confidential Information to anyone outside of Grand, either during or after the
Term, except with Grand’s prior written consent;

          (b) not make use of any Confidential Information for his own purposes or
the benefit of anyone other than Grand, provided that the confidential matters
referred to in this Section 8 shall not apply to information which is generally
known to the public other than as a result of Employee’s breach of this Section
8;

          (c) deliver promptly to Grand on termination of this Agreement, or at any
time Grand may so request, all confidential memoranda, notes, records, reports
and other confidential documents (and all copies thereof) relating to the
Business which he may then possess or have under his control, except that he
may retain personal notes, notebooks, journals and diaries provided that such
materials do not contain Confidential Information; and

6

 

          (d) not disparage Grand, any affiliate of Grand, any director, officer,
employee or shareholder of Grand, or any affiliate of any such director,
officer, employee or shareholder of Grand by making (or causing others to make)
any oral or written statements or representations that could reasonably be
construed to be a false and misleading statement of fact or a libelous,
slanderous or disparaging statement of or concerning any of the aforementioned
persons.

     9. Specific Remedies; Severability

          (a) For the purposes of Sections 7 and 8 of this Agreement, references to
Grand shall include all current and future majority-owned subsidiaries of Grand
and all current and future joint ventures in which Grand may from time to time
be involved. It is understood by Employee and Grand that the covenants
contained in this Section 9 and in Sections 7 and 8 hereof are essential
elements of this Agreement and that, but for the agreement of Employee to
comply with such covenants, Grand would not have agreed to enter into this
Agreement or consummate the Transaction. Grand and Employee have independently
consulted with their respective counsel and have been advised concerning the
reasonableness and propriety of such covenants with specific regard to the
nature of the business conducted by Grand and all interests of Grand and its
stockholders. Employee agrees that the covenants of Sections 7 and 8 are
reasonable and valid. If Employee commits a breach of any of the provisions of
Sections 7 and 8 hereof, such breach shall be deemed to be grounds for
termination for Cause. In addition, notwithstanding the provisions of Sections
7 and 8, Employee acknowledges that Grand may have no adequate remedy at law if
he violates any of the terms hereof. Employee therefore understands and agrees
that Grand shall have without prejudice as to any other remedies:

               (i) the right upon application to any court of proper jurisdiction to a
temporary restraining order, preliminary injunction, injunction, specific
performance or other equitable relief; and

               (ii) the right apply to any court of proper jurisdiction, to require
Employee to account for and pay over all compensation, profits, monies,
accruals, increments and other benefits (collectively the “Benefits”) derived
or received by Employee as a result of any transaction constituting a breach of
any of the provisions of Sections 7 or 8, and, if a court so orders, Employee
hereby agrees to account for and pay over such Benefits to Grand.

          (b) Each of the rights enumerated in Sections 7 or 8 hereof and the
remedies enumerated in this Section 9 shall be independent of the others and
shall be in addition to and not in lieu of any other rights and remedies
available to Grand at law or in equity. If any provision of this Agreement, or
any part of any of them, is hereafter construed or adjudicated to be invalid or
unenforceable, the same shall not affect the remainder of the covenants or
rights or remedies which shall be given full effect without regard to the
invalid portions. If any of the covenants set forth herein is held to be
invalid or unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court making such determination
shall reduce the duration and/or area of such provision and in its reduced form
said provision shall then be

7

 

enforceable. No such holding of invalidity or unenforceability in one
jurisdiction shall bar or in any way affect Grand’s right to the relief
provided in Section 9(a) or otherwise in the court of any other state or
jurisdiction within the geographical scope of such covenants as to breaches of
such covenants in such other respective states or jurisdictions, such covenants
being, for this purpose, severable into diverse and independent covenants.

     10. Other Agreements

          Employee hereby represents that he is not bound by the terms of any
agreement with any previous employer, or with any other party, that would
impair his right or ability to enter the employ of Grand or perform fully his
obligations pursuant to this Agreement. Employee further represents and
warrants that his performance of all the terms of this Agreement and as an
executive of Grand does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by him in
confidence or in trust prior to his employment with Grand.

     11. Change of Control

          In the event that, as a result of any Change in Control of Grand, Employee
ceases to act in the capacity of Chief Operating Officer – Playwell Division of
Grand in accordance with the provisions of this Agreement for any reason other
than termination for Cause, he shall be entitled to the same compensation and
benefits as if his employment had been terminated by Grand without Cause, as
provided in Section 6(c). For purposes hereof, a “Change of Control” of Grand
shall mean any sale, transfer, pledge or other encumbrance of shares, or the
issuance of shares, or any other transaction or event including, without
limitation, merger or consolidation, as a result of which Cornerstone Overseas
Investments, Limited, either alone or with its affiliates, shall cease to have
control of Grand, where “control” shall mean the right, either directly or
indirectly, to elect a majority of the directors of Grand without the consent
or acquiescence of any third party.

     12. Notices

          Any notice or other communications required or permitted hereunder shall
be in writing and shall be deemed effective (i) upon delivery, if delivered by
hand and followed by notice by mail or facsimile transmission, or electronic
mail, (ii) three (3) days after the date of deposit in the mails, if mailed by
certified or registered mail (return receipt requested), or (iii) on the next
business day, if mailed by an overnight mail service to the parties or sent by
facsimile transmission,

          If to Grand:

Grand Toy International Limited

Room UG202, Floor UG2

Chinachem Golden Plaza

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77 Mody Road

Tsimshatsui East

Kowloon, Hong Kong

Attention: Managing Director

Facsimile No.: (852) 2520 5515

          with copies to:

Katten Muchin Zavis Rosenman

1251 Avenue of the Americas, 29th Floor

New York, NY 10020

Attention: Paul J. Pollock, Esq.

Fax: (212) 894-5511

          and

Dorsey & Whitney

One Pacific Place, Suite 3008

88 Queensway

Hong Kong

Attention: Steven C. Nelson, Esq,

Facsimile No.: (852) 2524-3000

          If to Employee:

Mr. Raymond Chan Hong Leung

[ADDRESS]

Hong Kong

Facsimile No.:

or at such other address or telecopy number (or other similar number) as either
party may from time to time specify to the other.

     13. Entire Agreement

          This Agreement constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this Agreement.

     14. Amendment

          This Agreement may be amended or modified only by a written instrument
executed by Grand and Employee.

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     15. Governing Law

          This Agreement shall be governed by, and interpreted and construed in
accordance with, the laws of the Hong Kong Special Administrative Region of the
People’s Republic of China. If and to the extent that Employee should,
pursuant to the mandatory laws of any other jurisdiction, acquire by reason of
the employment relationship created hereunder any rights other than those
contemplated by this Agreement, he expressly waives any and all such rights.

     16. Successors and Assigns

          This Agreement is personal to Employee and without the prior written
consent of Grand shall not be assignable by Employee otherwise than by will or
the laws of descent and distribution with respect to Employee’s rights, if any,
to be paid or receive benefits hereunder. This Agreement shall inure to the
benefit of and be enforceable by Employee’s legal representatives.

     17. Headings

          The headings of this Agreement are for convenience of reference only and
shall not affect in any manner any of the terms and conditions hereof.

     18. Further Assurances

          The parties agree to do, sign and execute all acts, deeds, documents and
corporate proceedings necessary or desirable to give full force and effect to
this Agreement.

     19. Counterparts

          This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same agreement.

     20. Modifications and Waivers

          No term, provision or condition of this Agreement may be modified or
discharged unless such modification or discharge is authorized by the Board of
Directors of Grand and is agreed to in writing and signed by Employee. No
waiver by either party hereto of any breach by the other party hereto of any
term, provision or condition of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

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     21. Entire Agreement

          This Agreement constitutes the entire agreement between the parties with
respect to the subject matter herein and supersedes all prior agreements,
negotiations and discussions between the parties hereto.

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
parties or their duly authorized officers as of the date first written above.

	 	 	 	 	 
	 	 	GRAND TOYS INTERNATIONAL LIMITED
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	

	 
	 	 	 	 
	

	 	 	 	

	 
	 	 	 	 
	

	 	 	 	Raymond Chan Hong Leung

12

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