EXHIBIT 10.6

CONFIDENTIAL TREATMENT REQUESTED
 
EXECUTIVE EMPLOYMENT AGREEMENT
 
This Executive Employment Agreement (this “Agreement”) is made and entered into
as of this 30th day of July, 2010 (the “Effective Date”), by and between TALON
INTERNATIONAL, INC., a Delaware corporation (the “Company”) and LONNIE D.
SCHNELL (“Executive”).
 
1.           Engagement and Duties.
 
1.1           Commencing as of the Effective Date, and upon the terms and
subject to the conditions set forth in this Agreement, the Company hereby
engages and employs Executive as an officer of the Company, with the title and
designation of Chief Executive Officer of the Company.  Executive hereby accepts
such engagement and employment.
 
1.2           Executive’s duties and responsibilities’ shall be those normally
and customarily vested in the office of Chief Executive Officer of a
corporation, subject to the supervision, direction and control of the Board of
Directors (the “Board”) of the Company. Executive shall report directly to the
Board.
 
1.3           Executive agrees to devote his primary business time, energies,
skills, efforts and attention to his duties hereunder, and will not, without the
prior written consent of the Board, which consent will not be unreasonably
withheld, render any material services to any other for-profit and/or
not-for-profit business concern or organization.  Executive will use his best
efforts and abilities faithfully and diligently to promote the Company’s
business interests.
 
1.4           Except for routine travel incident to the business of the Company,
Executive shall perform his duties and obligations under this Agreement
principally from an office provided by the Company in Woodland Hills,
California, or such other location in Los Angeles or Ventura County, California,
as the Board may from time to time determine.
 
2.           Term of Employment.  Executive’s employment pursuant to this
Agreement shall commence on the Effective Date and shall terminate on the
earliest to occur of the following (in any case, the “Term”) (the word “Term,”
as used throughout this Agreement, shall include any extensions of the Term, as
set forth in this Agreement or as otherwise agreed upon by the parties):
 
(a)           the close of business on December 31, 2013, provided, that if the
Company has not given Executive Notice of its decision not to renew the Term on
or before April 1, 2013, then, unless otherwise terminated as provided below,
the Term shall be automatically extended until the earlier of (i) a date which
is nine (9) months following delivery after April 1, 2013 by the Company to
Executive of Notice of its decision not to extend the Term further, and (ii)
December 31, 2014;
 
(b)           the death of Executive;
 

 
 

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(c)           delivery to Executive of written Notice (as defined below) of
termination by the Company if Executive shall suffer a “Permanent Disability,”
which for purposes of this Agreement shall mean Executive’s inability to perform
his duties and obligations under this Agreement for a period of 90 or more work
days in any 12-month period by reason of a medically determinable physical or
mental impairment which can be expected to last for a continuous period of not
less than twelve (12) months;
 
(d)           delivery to Executive of written Notice of termination by the
Company for “Cause,” which Notice shall identify the particular details of the
conduct that the Company believes constitutes Cause. For purposes of this
Agreement, “Cause” shall mean: (i) any act or omission knowingly undertaken or
omitted by Executive with the intent of causing damage to the Company, its
properties, assets or business or its stockholders, officers, directors or
employees; (ii) any fraud, misappropriation or embezzlement by Executive
resulting in a material personal profit to Executive, in any case, involving
properties, assets or funds of the Company or any of its subsidiaries; (iii)
Executive’s consistent failure to materially perform his normal duties as
described in Section 1.2, other than any such failure resulting from Executive’s
Permanent Disability; (iv) conviction of, or pleading nolo contendere to, (A)
any crime or offense involving monies or other property of the Company; or (B)
any felony offense involving a crime of moral turpitude; or (v) Executive’s
chronic or habitual use or consumption of drugs or alcoholic beverages, in
either case, that causes material damage to the Company, its properties, assets
or business, provided, that to the extent any circumstances that would otherwise
constitute Cause shall be capable of cure, including without limitation
subsections (iii) and (v) of this paragraph, Executive shall be given no less
than thirty days written notice by the Company to cure such circumstances prior
to any termination of his employment for Cause;
 
(e)           delivery to Executive of written Notice to Executive of
termination by the Company “without Cause;”
 
(f)           delivery to the Company of written Notice of termination by
Executive for “Good Reason,” by reason of: (i) the material diminution of
Executive’s duties, job title or responsibilities as provided in Section 1
above; (ii) a relocation of Executive’s principal work location to a location
that is inconsistent with the terms of Section 1.4 above; (iii) a material
breach by the Company of this Agreement, including without limitation, a
material reduction in any component of Executive’s compensation or benefits as
provided for herein; or (iv) a change in Executive’s reporting arrangement such
that Executive no longer reports directly to the Board; or (v) the commencement
of a voluntary or involuntary proceeding by or against the Company under Chapter
7 of the United States Bankruptcy Code or other law or statute of any
jurisdiction providing for the cessation of the Company’s business and the
liquidation of its assets; or
 
(g)           delivery to the Company of written Notice of termination by
Executive without “Good Reason.”
 

 
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3.           Compensation; Executive Benefit Plans.
 
3.1           The Company shall pay to Executive a base salary (the “Base
Salary”) at an annual rate of (i) $325,000 for the period effective from the
Effective Date through December 31, 2010, and (ii) $350,000 for the period from
January 1, 2011 through the remainder of the Term, which Base Salary shall be
subject to increase, but not decrease, at the discretion of the Board.  The Base
Salary shall be payable in installments throughout the year in the same manner
and at the same times the Company pays base salaries to similarly situated
executive officers of the Company, but in any event, no less frequently than
monthly.
 
3.2           Commencing with fiscal year 2010 and for each fiscal year during
the Term thereafter during which Executive is performing services to the
Company, Executive shall be eligible to receive an annual cash bonus on the
terms described on Exhibit A attached hereto (the “EBITDA Bonus”).
 
3.3           During the Term, Executive shall be entitled each year to vacation
for a minimum of four calendar weeks (pro-rated for any partial year of service
during the Term), plus such additional period or periods as the Board may
approve in the exercise of its reasonable discretion, during which time his
compensation shall be paid in full. To the extent that Executive does not use
any such vacation during any year, up to two calendar weeks of such unused
vacation shall be carried over from year to year; provided, however that in no
event shall Executive’s total accrued but unused vacation at any time exceed six
weeks.
 
3.4           Executive shall receive a restricted stock unit award (the “RSU
Award”) for an aggregate of 5,778,500 shares of common stock of the Company (the
“Common Stock”).  Except as otherwise provided below, and subject to earlier
termination in accordance with its terms, the RSU Award shall vest 50% on a date
which is 13 months following the grant date, and 10% on each date which is 18,
24, 30, 36 and 42 months following the grant date.  Executive shall be afforded
the opportunity to defer receipt of the Common Stock underlying the RSU Award
pursuant to a deferral election.  The RSU Award agreement (the “RSU Agreement”)
will provide for the full acceleration of all applicable vesting requirements of
all shares granted under the RSU Agreement upon a change in control of the
Company, as defined in the RSU Agreement.  The RSU Agreement shall be in the
form of Exhibit B attached hereto.  Any variation from the RSU Agreement
attached as Exhibit B shall be mutually agreed upon by the Company and
Executive; such agreement shall not be unreasonably withheld.
 
3.5           Executive agrees that all options to purchase Common Stock awarded
by the Company to Executive on or before December 31, 2007 shall, effective as
of the Effective Date, be cancelled and of no further force or effect, and
Executive shall have no further rights to acquire Common Stock pursuant
thereto.  The Company acknowledges and agrees that a “Change of Control” (as
defined in each of Executive’s existing equity compensation agreements) has
occurred as of the Effective Date, and that vesting under each such existing
equity compensation agreement has accelerated and that each such award is now
100% vested.
 

 
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3.6           During the Term, Executive shall be entitled to reimbursement from
the Company for the reasonable costs and expenses which he incurs in connection
with the performance of his duties and obligations under this Agreement,
substantiated in a manner consistent with the Company’s practices and policies
as adopted or approved from time to time by the Board for executive officers.
For the avoidance of doubt, “business class” travel shall constitute reasonable
costs and expenses on any flight greater than five hours in duration.
 
3.7           The Company shall promptly pay or reimburse to Executive legal
fees actually incurred by Executive in connection with the negotiation and
drafting of this Agreement, which fees shall not exceed $10,000 in the
aggregate.
 
3.8           The Company may deduct from any compensation payable to Executive
the minimum amounts sufficient to cover applicable federal, state and/or local
income and employment tax withholding.
 
4.           Other Benefits. During the Term, Executive shall be eligible to
participate in all operative employee compensation, fringe benefit and
perquisite, and other benefit and welfare plans or arrangements of the Company
then in effect from time to time and in which similarly situated executive
officers of the Company generally are entitled to participate, including without
limitation, to the extent then in effect, incentive, group life, medical,
dental, prescription, disability and other insurance plans, all on terms at
least as favorable as those offered to similarly situated executives of the
Company.  During the Term, the Company shall also pay to Executive, in
increments payable at the times that the Company pays the Base Salary to
Executive, an allowance of $1,000 per month for costs associated with the lease
or purchase, maintenance and insurance of an automobile.
 
5.           Termination of Employment. Subject to the provisions of this
Section 5, either the Company or Executive may terminate Executive’s employment
at any time for any reason or no reason. The following provisions shall control
any such termination of Executive’s employment.
 
5.1           Termination Without Cause, for Good Reason, or due to Executive’s
death or Permanent Disability. The Company may terminate Executive’s employment
without Cause at any time upon 15 days’ prior written Notice to Executive, and
Executive may terminate his employment with Good Reason at any time upon 15
days’ prior written Notice to the Company, in each case, subject to any
applicable cure periods (in the case of a termination without Cause or for Good
Reason, the date specified in any such Notice in accordance with this Section
5.1 shall constitute the “Date of Termination”). For purposes of clarity, the
Company’s delivery of Notice in accordance with Section 2(a) of its decision not
to renew the Term shall not constitute termination without Cause, and shall be
governed by Section 5.5 below. Executive’s employment shall also terminate upon
the occurrence of Executive’s death or Permanent Disability (in the case of a
termination due to Executive’s death or Permanent Disability, the date of the
death or the date specified in a Notice from the Company indicating termination
due to Permanent Disability shall constitute the “Date of Termination”).  If
Executive’s employment is terminated pursuant to this Section 5.1, the Company
shall promptly, or in the case of obligations described in clauses (c) and (e)
below, as such obligations become due to Executive, pay or provide to Executive
(or his estate), (a) Executive’s earned but unpaid Base Salary accrued
 

 
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through such Date of Termination, (b) accrued but unpaid vacation time through
such Date of Termination, (c) any EBITDA Bonus required to be paid to Executive
pursuant to this Agreement for any fiscal year of the Company ending on or prior
to the Date of Termination, to the extent payable, but not previously paid, (d)
reimbursement of any business expenses incurred by Executive prior to the Date
of Termination that are reimbursable under Section 3.6 above, and (e) any vested
benefits and other amounts due to Executive under any plan, program, policy of,
or other agreement with, the Company (together, the “Accrued Obligations”).  In
addition, if Executive (or his estate) delivers to the Company a signed
settlement agreement and general release in the form attached hereto as Exhibit
C (the “Release”) and satisfies all conditions to make the Release effective,
Executive (or his estate) shall be entitled to the following payments and
benefits (the “Severance”) from the Company:
 
(i)           payment of an aggregate amount equal to Executive’s Base Salary
(at the rate then in effect, but disregarding any reduction of Base Salary in
violation of this Agreement) for the period (the “Severance Period”) commencing
on the Date of Termination and ending on a date which is eighteen (18) months
following the Date of Termination.  The Severance payable to the Executive
pursuant to this paragraph (i) is hereinafter referred to as the “Base Salary
Severance”.  Of the Base Salary Severance, (a) 50% of such amount shall be paid
on the date of Executive’s “separation from service” within the meaning of
Section 409A(a)(2)(A)(i) of the Code (a “separation from service”) , and (b) 50%
of such amount shall be paid in equal installments on the first day of each of
the twelve (12) calendar months immediately following such separation from
service;
 
(ii)           payment on the first day of the month during the Severance Period
of an allowance of $1,000 (or such greater amount in effect as of the Date of
Termination) per month for costs associated with the lease or purchase,
maintenance and insurance of an automobile; and
 
(iii)           all options to purchase Common Stock awarded by the Company to
Executive from and after January 1, 2008 and prior to the date hereof shall
remain outstanding and be exercisable for the Severance Period (and shall be
exercisable by Executive’s estate in the event of his death).  To the extent the
terms of this paragraph (iii) are inconsistent with the terms of any stock
option agreement previously executed between Executive and the Company for any
such options, the terms of this paragraph (iii) shall supersede the terms of any
such existing stock option agreement;
 
(iv)           if the Date of Termination occurs before a date on which 50% of
the RSU Award vests (i.e., 13 months following the grant date), then 50% of the
RSU Award shall vest as of the Date of Termination; and
 
(v)           continued medical coverage of the type provided to Executive
pursuant to Section 4 of this Agreement for Executive (if living) and his
dependents for the Severance Period, to the extent each such individual received
medical coverage immediately prior to such termination of employment, at the
same cost to Executive and his dependents as such coverage cost immediately
prior to such termination of employment (subject to premium increases affecting
participants in such plan(s)
 

 
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generally), provided, that if the Board determines, in its sole discretion, that
it is necessary or advisable for Executive to elect continuation medical
coverage under Section 4980B of the Code and the regulations thereunder in order
for the Company to provide such coverage under its healthcare plans, and the
Company so notifies the Executive, Executive hereby agrees to make such an
election. For the avoidance of doubt, if the Company requires that Executive
elect continuation coverage under Section 4980B of the Code, such coverage shall
nevertheless be provided to Executive and his dependents (as described above) at
the same cost to Executive and his dependents as was paid for medical coverage
immediately prior to Executive’s termination of employment.
 
5.2           EBITDA Bonus.  For purposes of clarity, the EBITDA Bonus for a
fiscal year shall be deemed earned by Executive if he was employed with the
Company on December 31 of such fiscal year.  If the Date of Termination occurs
on or after December 31 of a fiscal year, the Accrued Obligations shall include
the EBITDA Bonus, if any, for such fiscal year even if the EBITDA Bonus has not
yet been calculated as of the Date of Termination.  The Company shall pay
Executive the EBITDA Bonus, if any, as provided in Exhibit A.
 
5.3           Cause. If Executive’s employment becomes terminable by the Company
for Cause, the Company may terminate Executive’s employment immediately (subject
to the notice and cure rights described in Section 5.1) and Executive shall be
entitled to receive the Accrued Obligations upon the Date of Termination, or, in
the case of benefits described in Section 5.l(e), as such obligations become due
to Executive.
 
5.4           Resignation. Executive may terminate his employment without Good
Reason upon thirty (30) days’ Notice to the Company. If Executive so terminates
his employment, Executive shall be entitled to receive the Accrued Obligations
promptly, or, in the case of benefits described in Section 5.l(e), as such
obligations become due to Executive.
 
5.5           Nonrenewal. In the event that either the Company or the Executive
elects not to renew the Term (or any extension thereof) in accordance with
Section 2(a), Executive shall be entitled to receive the Accrued Obligations
upon the Date of Termination, or, in the case of benefits described in Sections
5.l(c) and (e), as such obligations become due to Executive.
 
5.6           Six-Month Delay.  Notwithstanding anything to the contrary in this
Agreement, no Severance payments or benefits subject to Section 409A of the Code
(including the RSU’s) shall be paid to Executive during the six-month period
following the Executive’s separation from service to the extent that the Company
and the Executive mutually determine in good faith that paying such amounts at
the time or times indicated in this Section 5 would cause the Executive to incur
an additional tax under Section 409A of the Code (in which case such amounts
shall be paid at the time or times indicated in this Section 5.6). If the
payment of any such amounts are delayed as a result of the previous sentence,
then on the first day following the end of such six-month period, the Company
will pay the Executive a lump-sum amount equal to the cumulative amount that
would have otherwise been payable to the Executive during such six-month period.
 

 
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6.           Confidentiality of Proprietary Information and Material.
 
6.1           Industrial Property Rights.  For the purpose of this Agreement,
“Industrial Property Rights” shall mean all of the Company’s patents,
trademarks, trade names, inventions, copyrights, know-how, formulas and science,
now in existence or hereafter developed or acquired by the Company or for its
use, relating to any and all products and services which are developed,
formulated and/or manufactured by the Company.
 
6.2           Trade Secrets.  For the purpose of this Agreement, “Trade Secrets”
shall mean any formula, pattern, device, or compilation of information that is
used in the Company’s business and gives the Company an opportunity to obtain an
advantage over its competitors who do not know and/or do not use it, and that
the Company has kept confidential in a manner sufficient to protect them as
trade secrets. This term includes, but is not limited to, information relating
to the marketing of the Company’s products and services, including price lists,
pricing information, customer lists, customer names, the particular needs of
customers, information relating to their desirability as customers, financial
information, intangible property and other such information which is not in the
public domain.
 
6.3           Technical Data.  For the purpose of this Agreement, “Technical
Data” shall mean all information of the Company in written, graphic or tangible
form relating to any and all products which are developed, formulated and/or
manufactured by the Company, as such information exists as of the Effective Date
or is developed by the Company during the Term of this Agreement.
 
6.4           Proprietary Information.  For the purpose of this Agreement,
“Proprietary Information” shall mean all of the Company’s Industrial Property
Rights, Trade Secrets and Technical Data. Proprietary Information shall not
include any information which (i) was lawfully in the possession of Executive
prior to Executive’s employment with the Company, (ii) may be obtained by a
reasonably diligent businessperson from readily available and public sources of
information, (iii) is lawfully disclosed to Executive after termination of
Executive’s employment by a third party which does not have an obligation to the
Company to keep such information confidential, or (iv) is independently
developed by Executive without utilizing any of the Company’s Proprietary
Information.
 
6.5           Agreement Not To Copy Or Use.  Executive agrees, at any time
during the Term of this Agreement and for a period of ten years thereafter, not
to copy, use or disclose (except (i) as required, authorized or permitted in
connection with the performance of Executive’s services hereunder to the
Company, (ii) as required by law after first notifying the Company and giving it
an opportunity to object, or (iii) as required to enforce Executive’s rights
under this Agreement) any Proprietary Information without the Company’s prior
written permission. The Company may withhold such permission as a matter within
its sole discretion during the Term of this Agreement and thereafter, except as
set forth in this paragraph.
 
7.           Return of Corporate Property. Upon any termination of this
Agreement, Executive shall turn over to the Company all property, writings or
documents then in his possession or custody belonging to or relating to the
affairs of the Company or comprising or relating to any Proprietary Information.
 

 
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8.           Discoveries and Inventions.
 
8.1           Disclosure. Executive will promptly disclose in writing to the
Company complete information concerning each and every invention, discovery,
improvement, device, design, apparatus, practice, process, method, product or
work of authorship, in any case, relating to the business, products, practices,
techniques or confidential information of the Company, whether patentable or
not, made, developed, perfected, devised, conceived or first reduced to practice
by Executive, (hereinafter referred to as “Developments”), either solely or in
collaboration with others, (a) prior to the Term while working for the Company,
(b) during the Term or (c) within six months after the Term.
 
8.2           Assignment. Executive, to the extent that he has the legal right
to do so, hereby acknowledges that any and all Developments that are created
during the Term, are the property of the Company and hereby assigns and agrees
to assign to the Company any and all of Executive’s right, title and interest in
and to any and all of such Developments; provided, however, that, in accordance
with California Labor Code Sections 2870 and 2872, the provisions of this
Section 8.2 shall not apply to any Development that Executive developed entirely
on his own time without using the Company’s equipment, supplies, facilities or
trade secret information except for those Developments that either:
 
(a)           relate at the time of conception or reduction to practice of the
Development to the Company’s business, or actual or demonstrably anticipated
research or development of the Company; or
 
(b)           result directly from any work performed by Executive for the
Company.
 
8.3           Assistance of Executive. Upon the Company’s request and at no
expense to Executive, whether during the Term or thereafter, Executive will do
all reasonable lawful acts, including, but not limited to, the execution of
papers and lawful oaths and the giving of testimony, that, in the reasonable
opinion of the Company, its successors and assigns, may be necessary or
desirable in obtaining, sustaining, reissuing, extending and enforcing United
States and foreign Letters Patent, including, but not limited to, design
patents, on any and all Developments and for perfecting, affirming and recording
the Company’s complete ownership and title thereto, subject to the proviso in
Section 8.2 hereof, and Executive will otherwise reasonably cooperate in all
proceedings and matters relating thereto. Executive shall be compensated at a
rate of $250 per hour for any actions he is required to take and reimbursed for
Executive’s reasonable expenses incurred as a result of any actions he is
required to take pursuant to this Section 8.3 after the Term.
 
8.4           Records. Executive will keep complete and accurate accounts,
notes, data and records of all Developments in the manner and form reasonably
requested by the Company in writing. Such accounts, notes, data and records
shall be the property of the Company, subject to the proviso in Section 8.2
hereof, and, upon written request by the Company, Executive will promptly
surrender the same to it.
 

 
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8.5           Obligations, Restrictions and Limitations. Executive understands
that the Company may enter into agreements or arrangements with agencies of the
United States Government and that the Company may be subject to laws and
regulations which impose obligations, restrictions and limitations on it with
respect to inventions and patents which may be acquired by it or which may be
conceived or developed by employees, consultants or other agents rendering
services to it.  Executive agrees that he shall be bound by all such
obligations, restrictions and limitations applicable to any such invention
conceived or developed by him during the Term and shall take any reasonable
action which may be required to discharge such obligations and to comply with
such restrictions and limitations.
 
9.           Non-solicitation Covenant.
 
9.1           Non-solicitation and Noninterference. Until the earlier of (i) two
years following termination of this Agreement and (ii) December 31, 2014,
Executive shall not (a) induce or attempt to induce any employee of the Company
to leave the employ of the Company, (b) induce or attempt to induce any employee
of the Company to work for, render services or provide advice to or supply
confidential business information or Trade Secrets of the Company to any third
person, firm or corporation, or (c) induce or attempt to induce any customer,
supplier, licensee, licensor or other business relation of the Company to cease
doing business with the Company, provided, that advertisements and general
solicitations shall not constitute a breach of this Section 9.1.
 
9.2           Indirect Solicitation. Executive agrees that, during the period
covered by Section 9.1 hereof, he will not, directly or indirectly, assist or
encourage any other person in carrying out, directly or indirectly, any activity
that would be prohibited by the provisions of Section 9.1 if such activity were
carried out by Executive, either directly or indirectly; and, in particular,
Executive agrees that he will not, directly or indirectly, induce any employee
of the Company to carry out, directly or indirectly, any such activity.
 
10.           Injunctive Relief.   Executive hereby recognizes, acknowledges and
agrees that in the event of any breach by Executive of any of his covenants,
agreements, duties or obligations contained in Sections 6, 7, 8 and 9 of this
Agreement, the Company would suffer great and irreparable harm, injury and
damage, the Company would encounter extreme difficulty in attempting to prove
the actual amount of damages suffered by the Company as a result of such breach,
and the Company would not be reasonably or adequately compensated in damages in
any action at law. Executive therefore covenants and agrees that, in addition to
any other remedy the Company may have at law, in equity, by statute or
otherwise, in the event of any breach by Executive of any of his covenants,
agreements, duties or obligations contained in Sections 6, 7, 8 and of this
Agreement, the Company shall be entitled to seek and receive temporary,
preliminary and permanent injunctive and other equitable relief from any court
of competent jurisdiction to enforce any of the duties or obligations contained
in Sections 6. 7. 8 and 9 of this Agreement without the necessity of proving the
amount of any actual damage to the Company or any affiliate thereof resulting
therefrom; provided, however, that nothing contained in this Section 10 shall be
deemed or construed in any manner whatsoever as a waiver by the Company of any
of the rights which the Company may have against Executive at law, in equity, by
statute or otherwise arising out of, in connection with or resulting from the
breach by Executive of any of his covenants, agreements, duties or obligations
hereunder.
 

 
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11.           Code Section 409A. Certain amounts under this Agreement may
constitute “nonqualified deferred compensation” which are intended to comply
with the requirements of Section 409A of the Code. To the extent that the
parties reasonably determine that any compensation or benefits payable under
this Agreement are subject to Section 409A of the Code, this Agreement shall
incorporate the terms and conditions required by Section 409A of the Code and
Department of Treasury regulations as reasonably determined by the Company and
the Executive. To the extent applicable, this Agreement shall be interpreted in
accordance with Section 409A of the Code and Department of Treasury regulations
and other interpretative guidance issued thereunder. In the event that following
the Effective Date, the Company and the Executive reasonably determine that any
compensation or benefits payable under this Agreement may be subject to Section
409A of the Code and related Department of Treasury guidance, the Company and
the Executive shall work together to adopt such amendments to this Agreement or
adopt other policies or procedures (including amendments, policies and
procedures with retroactive effective), or take any other commercially
reasonable actions necessary or appropriate to (a) exempt the compensation and
benefits payable under this Agreement from Section 409A of the Code and/or
preserve the intended tax treatment of the compensation and benefits provided
with respect to this Agreement, or (b) comply with the requirements of Section
409A of the Code and related Department of Treasury guidance.
 
12.           Code Section 280G.  If any payment or benefit received or to be
received by Executive in connection with a “change in ownership or control” of
the Company (within the meaning of Section 280G of the Code), whether payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company or an affiliate of the Company (the “Payments”),
would constitute a “parachute payment” within the meaning of Section 280G of the
Code, the Payments shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the Code
but only if, by reason of such reduction, the net after-tax benefit to Executive
shall exceed the net after-tax benefit to Executive if no such reduction was
made. For purposes of this Section 12, “net after-tax benefit” shall mean (i)
the total of all payments and the value of all benefits which Executive receives
or is then entitled to receive from the Company that would constitute “parachute
payments” within the meaning of Section 280G of the Code, less (ii) the amount
of all federal, state and local income taxes payable with respect to the
foregoing calculated at the maximum marginal income tax rate for each year in
which the foregoing shall be paid to Executive (based on the rate in effect for
such year as set forth in the Code as in effect at the time of the first payment
of the foregoing), less (iii) the amount of excise taxes imposed with respect to
the payments and benefits described in (i) above by Section 4999 of the code.
The foregoing determination will be made by a nationally recognized accounting
firm (the “Accounting Firm”) selected by Executive and reasonably acceptable to
the Company, provided, that the Accounting Firm’s determination shall be made
based upon “substantial authority” within the meaning of Section 6662 of the
Code. The Accounting Firm shall provide Executive and the Company with its
determinations and detailed supporting calculations with respect thereto at
least 15 business days prior to the date on which Executive would be entitled to
receive a Payment (or as soon as practicable in the event that the Accounting
Firm has less than 15 business days advance notice that Executive may receive a
Payment) in order that Executive may determine whether it is in Executive’s best
interest to waive the receipt of any or all amounts which may constitute “excess
parachute payments.” If the Accounting Firm determines that such reduction is
required by this Section 12, Executive, in his sole and absolute discretion, may
determine which of the Payments shall be
 

 
10

--------------------------------------------------------------------------------

 
reduced to the extent necessary so that no portion thereof shall be subject to
the excise tax imposed by Section 4999 of the Code, and the Company shall pay
such reduced amount to Executive. Executive and the Company shall each provide
the Accounting Firm access to and copies of any books, records, and documents in
the possession of Executive or the Company, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by this Section 12. The first $10,000 of fees and
expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by this Section 12 will be borne
exclusively by the Company, and the balance of any such fees and expenses, if
any shall be borne exclusively by Executive.
 
13.           Miscellaneous.
 
13.1           Arbitration.  The parties agree that they will use their best
efforts to amicably resolve any dispute arising out of or relating to this
Agreement. Executive and the Company agree to submit to mandatory binding
arbitration any future disputes, including any claim arising out of or relating
to this Agreement.  Any controversy, claim or dispute that cannot be so resolved
shall be settled by final, binding arbitration before the Judicial Arbitration
and Mediation Service in the State of California, Country of Los Angeles or
Ventura.  The parties waive any rights that they may have to trial by jury of
any claims.  The parties agree that the Judicial Arbitration and Mediation
Service will administer any such arbitration(s) under its then-in-effect rules
for the resolution of employment disputes,  with administrative and arbitrator’s
fees to be borne entirely by the Company. The arbitrator shall issue a written
arbitration decision stating his or her essential findings and conclusions upon
which the award is based.  A party’s right to review of the decision is limited
to the grounds provided under applicable law.  The parties agree that the
arbitration award shall be enforceable in any court having jurisdiction to
enforce this Agreement.  This Agreement does not extend or waive any statutes of
limitations or other provisions of law that specify the time within which a
claim must be brought. Notwithstanding the foregoing, each party retains the
right to seek injunctive relief in a court of competent jurisdiction to preserve
the status quo or prevent irreparable injury before a matter can be heard in
arbitration.  Each party shall bear its own costs and expenses and an equal
share of the arbitrator’s expenses and administrative fees of arbitration,
subject to a party’s right to recover such costs and expenses pursuant to
Section 13.2 of this Agreement.
 
13.2           Attorneys’ Fees.  If any legal action is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach or
default in connection with or arising out of any of the provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys’ fees and other costs incurred in that action or
proceeding, including the prevailing party’s share of the arbitrator’s expenses
and administrative fees of arbitration, in addition to any other relief to which
such party or parties may be entitled.
 
13.3           Notices. All notices, requests and other communications
(collectively, “Notices”) given pursuant to this Agreement shall be in writing,
and shall be delivered by fax, email, personal service, reputable overnight
carrier or by United States first class, registered or certified mail (return
receipt requested), postage prepaid, addressed to the party at the address set
forth below:
 

 
11

--------------------------------------------------------------------------------

 
If to Company:
 
Talon International, Inc.
21900 Burbank Boulevard, Suite 270
Woodland Hills, CA 91367
Attn: Board of Directors
Fax:  818-444-4110
mdyne@ecamail.com
 
If to Executive, at the address, fax or email maintained for Executive in the
Company’s payroll records.
 
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed to
have been duly given three days from date of deposit in the United States mails,
unless sooner received. Either party may from time to time change its address
for further Notices hereunder by giving Notice to the other party in the manner
prescribed in this section.
 
13.4           Entire Agreement. This Agreement, together with the RSU Agreement
and each Existing Option Agreement, contains the sole and entire agreement and
understanding of the parties with respect to the entire subject matter of this
Agreement, and any and all prior agreements, discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.  This Agreement
supersedes and replaces in its entirety that certain Executive Employment
Agreement, dated June 18, 2008, between the Company and Executive.
 
13.5           Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES THEREOF.
 
13.6           Indemnification/Insurance. The Company shall defend, indemnify
and hold Executive harmless from any and all liabilities, obligations, claims or
expenses which arise in connection with or as a result of Executive’s service as
an officer, director, or fiduciary of the Company, to the greatest extent now
provided in the Company’s Articles and Bylaws and as otherwise allowed by
law.  During the Term and for a period of at least six years thereafter,
Executive shall be entitled to the same directors and officers’ liability
insurance coverage and fiduciary liability insurance coverage that the Company
provides generally to its other current directors and officers, as they may be
amended from time to time for such current directors and officers (commonly
referred to as “tail” coverage).
 
13.7           Amendment. The terms of this Agreement may not be amended or
modified other than by a written instrument executed by the parties hereto or
their respective successors.
 

 
12

--------------------------------------------------------------------------------

 
13.8           Waiver.  Failure by any party hereto to insist upon strict
compliance with any provision of this Agreement or to assert any right such
party may have hereunder shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
 
13.9           Assignment.  This Agreement is binding on and for the benefit of
the parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives.
 
13.10         Captions.  The various captions of this Agreement are for
reference only and shall not be considered or referred to in resolving questions
of interpretation of this Agreement.
 
13.11         Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
 
13.12         Business Day.  If the last day permissible for delivery of any
Notice under any provision of this Agreement, or for the performance of any
obligation under this Agreement, shall be other than a business day, such last
day for such Notice or performance shall be extended to the next following
business day (provided, however, under no circumstances shall this provision be
construed to extend the date of termination of this Agreement).
 
13.13         Savings and Severability Clause.  Should any court, arbitrator or
government agency of competent jurisdiction declare or determine any of the
provisions of this Agreement to be illegal, invalid or unenforceable, those
provisions shall be severed and the remaining parts, terms or provisions shall
not be affected thereby and shall remain legal, valid and enforceable.
 

 
(Signatures on Following Page)
 

 
13

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
 
Company:
 
Executive:
 
TALON INTERNATIONAL, INC.
 
 
By:  /s/ Mark Dyne                                      
        Mark Dyne
        Chairman of the Board
 
 
/s/ Lonnie D. Schnell                                  
Lonnie D. Schnell

 

 
S-1

--------------------------------------------------------------------------------

 

EXHIBIT A
 
EBITDA Bonus
 
Commencing with fiscal year 2010 and for each fiscal year during the Term
thereafter during which Executive is performing services to the Company,
Executive shall be eligible to earn a cash bonus, referred to herein as the
EBITDA Bonus.
 
The EBITDA Bonus shall be an amount determined by reference to the Company’s
Adjusted EBITDA for such fiscal year.  For purposes hereof and subject to the
terms of this Exhibit A, “Adjusted EBITDA” means earnings before interest,
taxes, depreciation and amortization, stock-based compensation expense, CVC
Management Charges, and CVC Reorganization Expenses, calculated based on the
Company’s audited consolidated financial statements for the applicable fiscal
year in question prepared in accordance with generally accepted accounting
principles in the United States.  Adjusted EBTIDA will be calculated after
taking into account the EBITDA Bonus and any other management incentive cash
bonuses.  For purposes of calculating Adjusted EBITDA:
 
“CVC” means CVC California, LLC, together with its affiliates, successors and
assigns;
 
“CVC Management Expenses” means all investment oversight, debt maintenance or
similar fees, charges or other expenses arising in connection with the Company’s
debt arrangements with CVC or CVC’s investment in equity securities of the
Company; and
 
“CVC Reorganization Expenses” means any direct expenses, fees or charges
incurred or accrued with connection with the restructuring of the Company’s
previously existing Revolving Credit and Term Loan Agreement with CVC and the
acquisition by CVC of shares of the Company’s preferred stock on or about the
date of this Agreement, including without limitation any legal or accounting
expenses, consulting or advisory fees and other expenses, and any fees, charges
or penalties associated with all prior debt agreements with CVC.
 
For fiscal year 2010 and thereafter, Executive shall be entitled to an EBITDA
Bonus, if any, equal to a percentage of Executive’s Base Salary for such fiscal
year, if the Company achieves in such fiscal year actual Adjusted EBITDA of at
least 80% of targeted Adjusted EBITDA for such fiscal year, pursuant to the
following matrix:
 

   
2010
2011
2012
2013
Target Adjusted EBITDA
 
*
*
*
*
           
Percentage of Target
 
Percentage of Base Salary
(Equal to or Greater than)
 
2010
2011
2012
2013
80%
 
20%
20%
25%
25%
90%
 
50%
50%
55%
55%
100%
 
70%
100%
100%
100%
110%
 
100%
120%
120%
120%

 
 
* Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
Request filed with the Securities and Exchange Commission (“SEC”) and have been
filed separately with the SEC.

 
Exhibit A-1

--------------------------------------------------------------------------------

 

 
The EBITDA Bonus, if any, shall be payable in cash on or about April 15 of the
year immediately following the fiscal year for which such EBITDA Bonus is
calculated.
 

 
Exhibit A-2

--------------------------------------------------------------------------------

 

EXHIBIT B
 
RSU Agreement
 
 

 

TALON INTERNATIONAL, INC.

RESTRICTED STOCK UNIT AGREEMENT
 
 
 
 
 
 
 
 

 
Exhibit B-1

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TALON INTERNATIONAL, INC.
NOTICE OF RESTRICTED STOCK UNIT GRANT

You have been granted the following Restricted Stock Units (“RSUs”) of Talon
International, Inc. (“Talon” or the “Company”):
 
 
Name of Recipient:
Lonnie Schnell

 
 
Total Number of RSUs:
5,778,500

 
 
Value of Stock on Grant Date:
$            

 
 
Grant Date:
July 30, 2010

 
 
Vesting Commencement Date:
July 30, 2010

 
 
Vesting Schedule:
50% of the Total Number of RSUs will vest on the date which is thirteen months
following the Vesting Commencement Date, and an additional 10% of the Total
Number of RSUs will vest on each date which is eighteen, twenty-four, thirty,
thirty-six and forty-two months following the Vesting Commencement Date, subject
to acceleration as set forth in the Standard Terms.

By your signature and the signature of the Company’s representative below, you
and the Company agree that the RSUs are granted under and governed by the terms
and conditions of the Restricted Stock Unit Agreement, which is attached hereto
and is made a part of this document.
 

Recipient:
Talon International, Inc.
 
 
By:                   
Name:  Lonnie Schnell
 
 
 
By:                     
Mark Dyne
Its:         Chairman of the Board

 

 
 
Exhibit B-2

--------------------------------------------------------------------------------

 

TALON INTERNATIONAL, INC.
 
Restricted Stock Unit Agreement
 
1.           Terms.  Unless provided otherwise in the Notice of Restricted Stock
Unit Grant (“Notice of Grant”), the following standard terms and conditions
(“Standard Terms”) apply to Restricted Stock Units (“RSUs”) granted to
you.  Your Notice of Grant and these Standard Terms constitute the entire
understanding between you and Talon.
 
2.           Definitions.  In addition to the terms defined elsewhere in these
Standard Terms, as used herein, the following terms shall have the following
meanings:
 
(a)           “Administrator” means the Board or any of its Committees as shall
be administering this RSU.
 
(b)           “Board” means the Board of Directors of the Company.
 
(c)           “Cause” shall have the meaning given such term in the Employment
Agreement.
 
(d)           “Change in Control” shall mean (i) the dissolution or liquidation
of the Company, (ii) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of the
Company, (iii) any merger or consolidation of the Company in which the holders
of voting stock of the Company immediately before the merger or consolidation
will not own thirty five percent (35%) or more of the voting stock of the
continuing or surviving corporation immediately after such merger or
consolidation; or (iv) a change of fifty percent (50%) (rounded to the next
whole person) in the membership of the Board within a twelve (12)-month period,
unless the election or nomination for election by stockholders of each new
director within such period was approved by the vote of a majority of the
directors then still in office who were in office at the beginning of the twelve
(12)-month period; provided, however, that the election or replacement by the
holders of Series B Preferred Stock of the Company of directors that the holders
of Series B Preferred Stock of the Company are entitled to elect shall not, by
itself, constitute a “Change in Control” hereunder.  A Change in Control must
also constitute a change in the ownership or effective control of the Company or
the ownership of a substantial portion of the Company’s assets within the
meaning of Code Section 409A.
 
(e)           “Code” means the Internal Revenue Code of 1986, and the
regulations promulgated thereunder, as such is amended from time to time, and
any reference to a section of the Code shall include any successor provision of
the Code.
 
(f)           “Committee” means a committee appointed by the Board from among
its members to administer this RSU.
 
(g)           “Common Stock” means the common stock, $0.001 par value, of the
Company.
 
(h)           “Company” means Talon International, Inc.
 

 
Exhibit B-3

--------------------------------------------------------------------------------

 

(i)           “Consultant” means any person, including an advisor, engaged by
the Company or a Subsidiary to render services and who is compensated for such
services; provided such services are not in connection with the offer or sale of
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Company’s securities; and provided further
that the term “Consultant” shall not include Directors who are paid only a
director’s fee by the Company or who are not otherwise compensated by the
Company for their services as Directors.

(j)           “Director” means a member of the Board.
 
(k)           “Permanent Disability” shall have the meaning given such term in
the Employment Agreement.
 
(l)           “Employee” means any person, including Officers and Directors,
employed by the Company or any Subsidiary of the Company.  Neither service as a
Director nor payment of a director’s fee by the Company shall be sufficient to
constitute “employment” by the Company.
 
(m)           “Employment Agreement” means that certain Executive Employment
Agreement, dated of even date herewith, by and between you and the Company.
 
(n)           “Exchange Act” means the Securities Exchange Act of 1934, as
amended.
 
(o)           “Good Reason” shall have the meaning given such term in the
Employment Agreement.
 
(p)           “Officer” means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
 
(q)           “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
 
(r)           “Share” means a share of the Common Stock.
 
(s)           “Service” means service to the Company or any of its Subsidiaries
as an Employee, Director or Consultant.
 
(t)           “Subsidiary” means any corporation or entity in which the Company
owns or controls, directly or indirectly, fifty percent (50%) or more of the
voting power or economic interests of such corporation or entity.
 
3.           Vesting of RSUs.
 
(a)           Provided that you continuously provide Service from the Grant Date
specified in the Notice of Grant through each vesting date specified in the
Notice of Grant, the RSUs shall vest and be converted into the right to receive
the number of shares of Common Stock specified on the Notice of Grant with
respect to such vesting date, except as otherwise provided in these Standard
Terms.  If a vesting date falls on a weekend or any other day on which the
Over-the-
 

 
Exhibit B-4

--------------------------------------------------------------------------------

 

Counter Bulletin Board (the “OTCBB”) is not open, affected RSUs shall vest on
the next following OTCBB business day.

(b)           RSUs will vest to the extent provided in and in accordance with
the terms of the Notice of Grant and these Standard Terms.  Except as expressly
provided otherwise in these Standard Terms, if your Service (as defined below)
terminates for any reason, whether voluntarily or involuntarily, all unvested
RSUs shall be cancelled on the date of Service termination.

(c)           For purposes of these Standard Terms, your Service is not deemed
terminated if, prior to sixty (60) days after the date of termination of your
Service, you are re-engaged by the Company or a Subsidiary on a basis that would
make you eligible for future RSU grants, nor would your transfer from the
Company to any Subsidiary or from any one Subsidiary to another, or from a
Subsidiary to the Company be deemed a termination of your Service.  Further,
your provision of service as an employee, director or consultant to any
partnership, joint venture or corporation not meeting the requirements of a
Subsidiary in which the Company or a Subsidiary is a party shall be considered
Service for purposes of this provision if either (a) the entity is designated by
the Administrator as a Subsidiary for purposes of this provision or (b) you are
specifically designated as providing Service for purposes of this provision.
 
4.           Conversion into Common Stock.
 
(a)           Shares of Common Stock will be issued or become free of
restrictions as soon as practicable following vesting of the RSUs, provided that
you have satisfied your tax withholding obligations as specified under Section
10 of these Standard Terms and you have completed, signed and returned any
documents and taken any additional action that the Administrator reasonably
deems appropriate to enable it to accomplish the delivery of the shares of
Common Stock.  The shares of Common Stock will be issued in your name (or may be
issued to your executor or personal representative or other applicable party, as
permitted in Section 11, in the event of your death or Permanent Disability),
and may be effected by recording shares on the stock records of the Company or
by crediting shares in an account established on your behalf with a brokerage
firm or other custodian, in each case as determined by the Administrator.  In no
event will the Company be obligated to issue a fractional share.
 
(b)           Notwithstanding the foregoing, (i) the Company shall not be
obligated to deliver any shares of Common Stock during any period when the
Administrator reasonably determines that the conversion of an RSU or the
delivery of shares hereunder would violate any federal, state or other
applicable laws and/or may issue shares subject to any restrictive legends that,
as reasonably determined by the Company’s counsel, is necessary to comply with
securities or other regulatory requirements, and (ii) the date on which shares
are issued may include a reasonable delay in order to provide the Company such
time as it reasonably determines appropriate to address tax withholding and
other administrative matters.
 

 
Exhibit B-5

--------------------------------------------------------------------------------

 

5.           Adjustments of and Changes in the Common Stock.
 
(a)           The existence of outstanding RSUs shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations, exchanges, or other changes
in the Company’s capital structure or its business, or any merger or
consolidation of the Company or any issuance of Shares or other securities or
subscription rights thereto, or any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Shares or other securities of
the Company or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.  Further, except as expressly provided herein or by the
Administrator, (i) the issuance by the Company of shares of stock or any class
of securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, (ii) the payment of a dividend
in property other than Shares, or (iii) the occurrence of any similar
transaction, and in any case whether or not for fair value, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
Shares subject to the RSUs, unless the Administrator shall determine that an
adjustment is necessary or appropriate.
 
(b)           If the outstanding Shares or other securities of the Company, or
both, for which the RSU is to be settled shall at any time be changed or
exchanged by declaration of a stock dividend, stock split, combination of
shares, extraordinary dividend of cash and/or assets, recapitalization,
reorganization or any similar equity restructuring transaction (as that term is
used in Statement of Financial Accounting Standards No. 123 (revised) affecting
the Shares or other securities of the Company, the Administrator shall adjust
the number and kind of Shares or other securities that are subject to the RSUs
so as to maintain the proportionate number of Shares or other securities subject
to the RSUs.
 
(c)           Subject to the other terms set forth in these Standard Terms, and
not in limitation of any other rights you have under these Standard Terms
(including, without limitation, acceleration of unvested RSUs upon the
occurrence of a Change in Control as provide in Section 6 below), in the event
the Company is a party to a merger or other reorganization, the RSUs shall be
subject to the agreement of merger or reorganization, which agreement may
provide, without limitation, for the assumption of outstanding RSUs by the
surviving corporation or its parent, for their continuation by the Company (if
the Company is a surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash, unless such merger or other
reorganization constitutes a Change in Control, in which case all RSUs will
immediately vest, as discussed below in Section 6.
 
6.           Change in Control.  All unvested RSUs will vest immediately prior
to the effective date of the occurrence of a Change in Control.  In addition, in
the event that your Service is terminated by you for Good Reason or by the
Company for reasons other than Cause within three (3) months prior to the
occurrence of a Change in Control, then all unvested RSUs will vest immediately
prior to the effective date of such termination.
 

 
Exhibit B-6

--------------------------------------------------------------------------------

 

7.           Leaves of Absence.  For any purpose under these Standard Terms,
your Service shall be deemed to continue while you are on a bona fide leave of
absence, to the extent required by applicable law.  To the extent applicable law
does not require such a leave to be deemed to continue your Service such Service
shall be deemed to continue if, and only if, expressly provided in writing by
the Administrator or an Officer of the Company or Subsidiary for whom you
provide Service.

8.           Termination Without Cause, for Good Reason, or Upon Death or
Disability.  In the event that your Service is terminated by you for Good
Reason, by the Company for reasons other than Cause, or as a result of your
Death or Permanent Disability, in each case at any time on or before the date
that the initial 50% of your RSUs vest (i.e., the 13th month following the
Vesting Commencement Date), than a portion of your RSUs equal to 50% of the
Total Number of RSUs shall vest immediately prior to the effective date of such
termination or, if later, the date of determination of your Permanent
Disability.
 
9.           Termination for Cause.  In the event that your Service is
terminated for Cause, all unvested RSUs shall be cancelled immediately prior to
the effective date of such termination and neither you nor any beneficiary shall
be entitled to any claim with respect to the cancelled RSUs whatsoever.
 
10.           Tax Withholding.
 
(a)           To the extent required by applicable federal, state or other law,
you shall make arrangements satisfactory to the Company for the satisfaction of
any withholding tax obligations that arise by reason of vesting of an RSU and,
if applicable, any sale of shares of Common Stock.  The Company shall not be
required to issue or lift any restrictions on shares of Common Stock or to
recognize any purported transfer of shares of Common Stock until such
obligations are satisfied.  Upon your request, but not without your agreement,
the Administrator may permit these obligations to be satisfied by having the
Company withhold a portion of the shares of Common Stock that otherwise would be
issued to you upon vesting of the RSUs, or to the extent permitted by the
Administrator, by tendering shares of Common Stock previously acquired.
 
(b)           You are ultimately liable and responsible for all taxes owed by
you in connection with your RSUs, regardless of whether the Administrator or the
Company satisfies its tax withholding obligations that arise in connection with
your RSUs.  The Company makes no representation or undertaking regarding the
treatment of any tax withholding in connection with the grant, issuance, vesting
or settlement of your RSUs or the subsequent sale of any of the shares of Common
Stock underlying your RSUs that vest.  The Company does not commit and is under
no obligation to administer the RSUs in a manner that reduces or eliminates your
tax liability.
 
11.           Transferability; Rights as a Stockholder.
 
(a)           Unless otherwise provided by the Administrator, each RSU shall be
transferable only:
 
(i)           pursuant to your will or upon your death to your beneficiaries;
 

 
Exhibit B-7

--------------------------------------------------------------------------------

 

(ii)           by gift to your Immediate Family (defined below), partnerships
whose only partners are you or members of your Immediate Family, limited
liability companies whose only members are you or members of your Immediate
Family, or trusts established solely for the benefit of you or members of your
Immediate Family; or

(iii)           by gift to a foundation in which you and/or members of your
Immediate Family control the management of the foundation’s assets.
 
(b)           For purposes of these Standard Terms, “Immediate Family” is
defined as your spouse or domestic partner, children, grandchildren, parents, or
siblings.  Any purported assignment, transfer or encumbrance that does not
qualify under Section 11(a) above shall be void and unenforceable against the
Company.  Any RSU transferred by you pursuant to this section shall not be
transferable by the recipient except by will or the laws of descent and
distribution.  The transferability of RSUs is subject to any applicable laws of
your country of residence or employment.
 
(c)           You will have the rights of a stockholder only after shares of
Common Stock have been issued to you following vesting of your RSUs and
satisfaction of all other conditions to the issuance of those shares as set
forth in these Standard Terms.  RSUs shall not entitle you to any rights of a
stockholder of Common Stock and there are no voting or dividend rights with
respect to your RSUs.  RSUs shall remain terminable pursuant to these Standard
Terms at all times until they vest and convert into shares.  As a condition to
having the right to receive shares of Common Stock pursuant to your RSUs, you
acknowledge that unvested RSUs shall have no value for purposes of any aspect of
your Service relationship with the Company.
 
12.           Disputes.  Any question concerning the interpretation of these
Standard Terms, your Notice of Grant or the RSUs, any adjustments required to be
made thereunder, and any controversy that may arise under the Standard Terms,
your Notice of Grant or the RSUs shall be settled in accordance with Section
13.1 of your Employment Agreement.
 
13.           Other Matters.
 
(a)           Any prior agreements, commitments or negotiations concerning the
RSUs are superseded by these Standard Terms and your Notice of Grant.  The grant
of RSUs to you in any one year, or at any time, does not obligate the Company or
any Subsidiary to make a grant in any future year or in any given amount and
should not create an expectation that the Company or any Subsidiary might make a
grant in any future year or in any given amount.
 
(b)           Nothing contained in these Standard Terms creates or implies an
employment contract or term of employment upon which you may rely.
 

 
Exhibit B-8

--------------------------------------------------------------------------------

 

(c)           Notwithstanding any provision of these Standard Terms or the
Notice of Grant to the contrary, if, at the time of your termination of Service
with the Company, you are a “specified employee” as defined in Section 409A of
the Code, and one or more of the payments or benefits received or to be received
by you pursuant to the RSUs would constitute deferred compensation subject to
Section 409A, no such payment or benefit will be provided under the RSUs until
the earliest of (A) the date which is six (6) months after your “separation from
service” for any reason, other than death or “disability” (as such terms are
used in Section 409A(a)(2) of the Code), (B) the date of your death or
“disability” (as such term is used in Section 409A(a)(2)(C) of the Code) or (C)
the effective date of a “change in the ownership or effective control” of the
Company (as such term is used in Section 409A(a)(2)(A)(v) of the Code).  The
provisions of this Section 13(c) shall only apply to the extent required to
avoid your incurrence of any penalty tax or interest under Section 409A of the
Code or any regulations or Treasury guidance promulgated thereunder.  In
addition, if any provision of the RSUs would cause you to incur any penalty tax
or interest under Section 409A of the Code or any regulations or Treasury
guidance promulgated thereunder, the Administrator may reform such provision to
maintain to the maximum extent practicable the original intent of the applicable
provision without violating the provisions of Section 409A of the Code.
 
(d)           Because these Standard Terms relate to terms and conditions under
which you may be issued shares of Common Stock, an essential term of these
Standard Terms is that it shall be governed by the laws of the State of
Delaware, without regard to choice of law principles of the State of Delaware or
other jurisdictions.  Any action, suit, or proceeding relating to these Standard
Terms or the RSUs granted hereunder shall be brought in the state or federal
courts of competent jurisdiction in the State of California.
 
(e)           Copies of the Company’s Annual Report to Stockholders for its
latest fiscal year and the Company’s latest quarterly report are available,
without charge, at the Company’s business office.
 
(f)           Any notice required by these Standard Terms shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit
with the United States Postal Service, by registered or certified mail, with
postage and fees prepaid.  Notice shall be addressed to you at the address set
forth in the records of the Company.  Notice shall be addressed to the Company
at:
 

 
Talon International, Inc.
 
21900 Burbank Blvd. Suite 270
Woodland Hills, CA 91367
Attn:  Chairman of the Board

 
(g)           You shall have the right to elect to defer the settlement date of
all or part of the RSUs set forth herein, as defined herein, by completing and
returning to the Company the Restricted Stock Unit Deferral Election provided
herewith no later than a date which is 30 calendar days following the Grant
Date.
 

 
Exhibit B-9

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EXHIBIT C
 
Release
 
 
[TALON INTERNATIONAL, INC. LETTERHEAD]
 
 
RELEASE
 
[DATE]
 
EMPLOYEE NAME
ADDRESS
 
Re:           Separation Terms and General Release Agreement
 
Dear [NAME]:
 
This letter confirms the terms of your separation from the employment of Talon
International, Inc. and consideration in exchange for your waiver and general
release of claims in favor of Talon International, Inc. and its officers,
directors, employees, agents, representatives, subsidiaries, divisions,
affiliated companies, successors, and assigns (collectively, the “Company” or
“TLN”).
 
1.           Termination Date. Your employment with the Company will end
effective _____________ (the “Termination Date”).  Between now and the
Termination Date, you should assist with any transition-related activities as
directed by the employee to whom you directly report.
 
2.           Acknowledgment of Payment of Wages. On or before execution of this
release, we delivered to you a final paycheck that includes payment for all
accrued wages, salary, accrued and unused vacation time, reimbursable expenses,
and any similar payments due and owing to you from the Company as of the
Termination Date (collectively referred to as “Wages”).  You are entitled to
these Wages regardless of whether you sign this Separation Terms and General
Release Agreement (the “Agreement”).
 
3.           Consideration For Release. In consideration of the waiver and
release of claims set forth in Paragraphs 7 and 8 below, and in exchange for
your signing this Agreement, the Company agrees to provide you with the
post-termination payments (the “Severance Payments”) described in Section 5 of
that certain Executive Employment Agreement, dated July 30, 2010.  The Severance
Payments are in addition to any amounts owed to you by the Company.  You
acknowledge and agree that but for the terms of the Employment Agreement, you
would not otherwise be entitled to receive the Severance Payments.  You
understand that if you do not sign the Agreement, or if you revoke the signed
Agreement as described in Paragraph 19 below (if applicable), the Company has no
obligation to provide you with the Severance Payments.
 
4.           COBRA and Cal-COBRA Continuation Coverage. Your Company provided
health coverage will end on the last day of the month of your Termination
Date.  If you are eligible for, and timely elect COBRA and/or Cal-COBRA
continuation coverage, you may continue health coverage pursuant to the terms
and conditions of COBRA and/or Cal-COBRA at
 

 
Exhibit C-1

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your own expense, unless the Company has agreed to pay for such coverage as part
of your Severance Payments.  Our Human Resources Department will contact you
shortly after your Termination Date.  All other insured benefit coverage (e.g.,
life insurance, disability insurance) will end on your Termination Date, unless
the Company has agreed to pay for such coverage as part of your Severance
Payments.
 
5.           Return of Company Property.  By signing below, you represent that
you have returned all the Company property and data of any type whatsoever,
except such information relevant to the terms and conditions of your employment,
that was in your possession or control.
 
6.           Confidential Information. You hereby acknowledge that as a result
of your employment with the Company you have had access to the Company’s
confidential information. You acknowledge your continuing obligations under any
proprietary information and inventions agreement you have previously executed,
and you agree you will hold all such confidential information in strictest
confidence and that you may not make any use of such confidential
information.  You further confirm that you have delivered to the Company all
documents and data of any nature containing or pertaining to such confidential
information and that you have not taken with you any such documents or data or
any copies thereof.
 
7.           General Release and Waiver of Claims.
 
7.1.           The payments and agreements set forth in this Agreement fully
satisfy any and all accrued salary, vacation pay, bonus and commission pay,
stock-based compensation, profit sharing, termination benefits or other
compensation to which you may be entitled by virtue of your employment with the
Company or your termination of employment.  You acknowledge that you have no
claims and have not filed any claims against the Company based on your
employment with or the separation of your employment with the Company.
 
7.2.           Except for the exclusions set forth in Paragraph 7.3, to the
fullest extent permitted by law, you hereby release and forever discharge the
Company, its successors, subsidiaries and affiliates, directors, shareholders,
current and former officers, agents and employees (all of whom are collectively
referred to as “Releasees”) from any and all existing claims, demands, causes of
action, damages and liabilities, known or unknown, that you ever had, now have
or may claim to have had arising out of or relating in any way to your
employment or separation from employment with the Company including, without
limitation, claims based on any oral, written or implied employment agreement,
claims for wages, bonuses, commissions, stock-based compensation, expense
reimbursement, and any claims that the terms of your employment with the
Company, or the circumstances of your separation, were wrongful, in breach of
any obligation of the Company or in violation of any of your rights,
contractual, statutory or otherwise.  Each of the Releasees is intended to be a
third party beneficiary of the General Release and Waiver of Claims set forth in
this Paragraph 7.2.
 
(a)           Release of Statutory and Common Law Claims.  Except for the
exclusions set forth in Paragraph 7.3, such rights include, but are not limited
to, your rights under the following federal and state statutes: the Employee
Retirement Income Security Act (ERISA) (regarding employee benefits); the
Occupational Safety and Health Act (safety matters); the Family and Medical
Leave Act of 1993; the Worker Adjustment and Retraining Act (“WARN”)
 

 
Exhibit C-2

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(notification requirements for employers who are curtailing or closing an
operation) and common law; tort; wrongful discharge; public policy; workers’
compensation retaliation; tortious interference with contractual relations,
misrepresentation, fraud, loss of consortium; slander, libel, defamation,
intentional or negligent infliction of emotional distress; claims for wages,
bonuses, commissions, stock-based compensation or fringe benefits; vacation pay;
sick pay; insurance reimbursement, medical expenses, and the like.
 
(b)           Release of Discrimination Claims.  You understand that various
federal, state and local laws prohibit age, sex, race, disability, benefits,
pension, health and other forms of discrimination, harassment and retaliation,
and that these laws can be enforced through the U.S. Equal Employment
Opportunity Commission, the National Labor Relations Board, the Department of
Labor, and similar state and local agencies and federal and state courts. You
understand that if you believe your treatment by the Company violated any laws,
you have the right to consult with these agencies and to file a charge with
them.  Instead, you have decided voluntarily to enter into this Agreement,
release the claims and waive the right to recover any amounts to which you may
have been entitled under such laws, including but not limited to, any claims you
may have based on age or under the Age Discrimination in Employment Act of 1967
(ADEA; 29 U.S.C. Section 621 et. seq.) (age); the Older Workers Benefit
Protection Act (“OWBPA”) (age); Title VII of the Civil Rights Act of 1964 (race,
color, religion, national origin or sex); the 1991 Civil Rights Act; the
Vocational Rehabilitation Act of 1973 (disability); The Americans with
Disabilities Act of 1990 (disability); 42 U.S.C. Section 1981, 1986 and 1988
(race); the Equal Pay Act of 1963 (prohibits pay differentials based on sex);
the Immigration Reform and Control Act of 1986; Executive Order 11246 (race,
color, religion, sex or national origin); Executive Order 11141 (age); Vietnam
Era Veterans Readjustment Assistance Act of 1974 (Vietnam era veterans and
disabled veterans); and California state statutes and local laws of similar
effect.
 
7.3.           Notwithstanding the releases contained in this Section 7 of the
Agreement, Releasees and you do not intend that you release, and you are not
releasing claims (i) which you may not release as a matter of law (including,
but not limited to, indemnification claims under applicable law); (ii) for
unemployment, state disability and/or paid family leave insurance benefits
pursuant to the terms of applicable state law; (iii) for any benefit
entitlements that are vested as of the Termination Date pursuant to the terms of
a Company-sponsored benefit plan governed by the federal law known as “ERISA” or
otherwise provided for in the Employment Agreement and concurrently executed
agreements related thereto; (iv) for vested stock, vested stock units and/or
vested option shares pursuant to the written terms and conditions of your
existing stock, stock unit and stock option grants and agreements existing as of
the Termination Date; and (v) rights to extended directors and officers
insurance coverage and fiduciary liability insurance coverage provided for in
Section 13.6 of the Employment Agreement.  To the fullest extent permitted by
law, any dispute regarding the scope of the general release shall be determined
by an arbitrator under the procedures set forth in paragraph 12.
 
8.           Waiver of Unknown Claims.  Except for the exclusions set forth in
Paragraph 7.3, you expressly waive any benefits of Section 1542 of the Civil
Code of the State of California (and any other laws of similar effect), which
provides:
 

 
Exhibit C-3

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“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.”
 
9.           Covenant Not to Sue.
 
9.1.           To the fullest extent permitted by law, you agree that you will
not now or at any time in the future pursue any charge, claim, or action of any
kind, nature and character whatsoever against any of the Releasees, or cause or
knowingly permit any such charge, claim or action to be pursued, in any federal,
state or municipal court, administrative agency, arbitral forum, or other
tribunal, arising out of any of the matters covered by paragraphs 7 and 8 above,
except as necessary to enforce your rights and the claims excepted under Section
7.3, above.
 
9.2.           Except as necessary to enforce your rights and the claims
excepted under Section 7.3, above, you further agree that you will not pursue,
join, participate, encourage, or directly or indirectly assist in the pursuit of
any legal claims against the Releasees, whether the claims are brought on your
own behalf or on behalf of any other person or entity.
 
9.3.           Nothing in this paragraph shall prohibit you from: (1) providing
truthful testimony in response to a subpoena or other compulsory legal process,
and/or (2) filing a charge or complaint with a government agency such as the
Equal Employment Opportunity Commission, the National Labor Relations Board or
applicable state anti-discrimination agency; (3) and/or filing and maintaining a
claim or complaint excepted under Section 7.3.
 
10.           Non-disparagement.  You agree that you will not make any
statement, written or oral, or engage in any conduct that is or could reasonably
be construed to be disparaging of the Company or its products, services, agents,
representatives, directors, officers, shareholders, attorneys, employees,
vendors, affiliates, successors or assigns, or any person acting by, through,
under or in concert with any of them.  The Company agrees that its officers,
directors, and other executive management personnel will not make any statement,
written or oral, or engage in any conduct that is or could reasonably be
construed to be disparaging of you, and shall not encourage, direct, or
participate in any such actions by third parties.  Nothing in this paragraph
shall prohibit you or the Company from providing truthful testimony in response
to a subpoena or other compulsory legal process.
 
11.           Legal and Equitable Remedies.  You and the Company agree that
either party shall have the right to enforce this Agreement and any of its
provisions by injunction, specific performance or other equitable relief without
prejudice to any other rights or remedies that either party may have at law or
in equity for breach of this Agreement.
 
12.           Arbitration of Disputes.  Except for claims for injunctive relief
arising out of a breach of any proprietary information and inventions agreement
you have executed in favor of the Company, you and the Company agree to submit
to mandatory binding arbitration any future disputes between you and the
Company, including any claim arising out of or relating to this Agreement. By
signing below, you and the Company waive any rights you and the Company
 

 
Exhibit C-4

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may have to trial by jury of any such claims. You agree that the Judicial
Arbitration and Mediation Service will administer any such arbitration(s) under
its then-in-effect rules for the resolution of employment disputes in
California,  with administrative and arbitrator’s fees to be borne entirely by
the Company. The arbitrator shall issue a written arbitration decision stating
his or her essential findings and conclusions upon which the award is based.  A
party’s right to review of the decision is limited to the grounds provided under
applicable law. The parties agree that the arbitration award shall be
enforceable in any court having jurisdiction to enforce this Agreement. This
Agreement does not extend or waive any statutes of limitations or other
provisions of law that specify the time within which a claim must be brought.
Notwithstanding the foregoing, each party retains the right to seek preliminary
injunctive relief in a court of competent jurisdiction to preserve the status
quo or prevent irreparable injury before a matter can be heard in arbitration.
 
13.           Attorneys’ Fees.  If any legal action arises or is brought to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees, costs and expenses from the other party,
in addition to any other relief to which such prevailing party may be entitled,
except where the law provides otherwise.  The costs and expenses that may be
recovered exclude arbitration fees pursuant to paragraph 12 above.
 
14.           Confidentiality Provision.  You agree to keep the contents, terms
and conditions of this Agreement confidential and not disclose them except to
your spouse or domestic partner, attorneys, accountant or as required by
subpoena or court order.
 
15.           Materiality of Breach.  Any material breach of the provisions
contained in paragraphs 6 through 10 and/or 14 will be deemed a breach of this
Agreement.
 
16.           No Admission of Liability.  You agree that this Agreement is not
an admission or evidence of any wrongdoing or liability on the part of the
Company, its representatives, attorneys, agents, partners, officers,
shareholders, directors, employees, subsidiaries, affiliates, divisions,
successors or assigns. This Agreement will be afforded the maximum protection
allowable under California Evidence Code Section 1152 and/or any other state or
Federal provisions of similar effect.
 
17.           Indemnification.  This Release shall not apply with respect to any
claims arising under your existing rights to indemnification and defense
pursuant to (a) the articles and bylaws of the Company for acts as a director
and/or officer, (b) any indemnification agreement with the Company, or (c) your
rights of insurance under any director and officer liability policy in effect
covering the Company’s directors and officers.
 
18.           Review of Agreement.  You may not sign this Agreement prior to
your Termination Date. You may take up to twenty-one (21) days from the date you
receive this Agreement, or until your Termination Date, whichever date is later,
to consider this Agreement and release and, by signing below, affirm that you
were advised by this letter to consult with an attorney before signing this
Agreement and were given ample opportunity to do so. You understand that this
Agreement will not become effective until you return the original properly
signed Agreement to the Company, Attention: Human Resources Department, at the
Company’s principal executive offices in Los Angeles, California, and after
expiration of the revocation period without revocation by you.
 

 
Exhibit C-5

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[IF EMPLOYEE IS OVER 40 AT THE TIME OF TERMINATION, THE FOLLOWING SECTION 19
APPLIES:
 
19.           Revocation of Agreement.  You acknowledge and understand that you
may revoke this Agreement by faxing a written notice of revocation to the
Company, Attention: Human Resources Department, at (818) 444-4108 any time up to
seven (7) days after you sign it.  After the revocation period has passed,
however, you may no longer revoke your Agreement.
 
IF EMPLOYEE IS UNDER 40 AT THE TIME OF TERMINATION, THE FOLLOWING SECTION 19
APPLIES:
 
19.           Intentionally Omitted.]
 
20.           Entire Agreement.  This Agreement together with any proprietary
information and inventions agreement you have executed in favor of the Company
is the entire agreement between you and the Company with respect to the subject
matter of this Agreement and supersedes all prior negotiations and agreements,
whether written or oral, relating to this subject matter.  You acknowledge that
none of the Company, its agents or attorneys made any promise or representation,
express or implied, written or oral, not contained in this Agreement to induce
you to execute this Agreement.  You acknowledge that you have signed this
Agreement knowingly, voluntarily and without coercion, relying only on such
promises, representations and warranties as are contained in this document. You
understand that you do not waive any right or claim that may arise after the
date this Agreement is executed.
 
21.           Modification.  By signing below, you acknowledge your
understanding that this Agreement may not be altered, amended, modified, or
otherwise changed in any respect except by another written agreement that
specifically refers to this Agreement, executed by the Company’s authorized
representatives and you.
 
22.           Governing Law.  This Agreement is governed by, and is to be
interpreted according to, the laws of the State of California.
 
23.           Savings and Severability Clause.  Should any court, arbitrator or
government agency of competent jurisdiction declare or determine any of the
provisions of this Agreement to be illegal, invalid or unenforceable, those
provisions shall be severed, and the remaining parts, terms or provisions shall
not be affected thereby and shall remain legal, valid and enforceable. Further,
it is the intention of the parties to this Agreement that, if a court,
arbitrator or agency concludes that any claim under paragraph 7 above may not be
released as a matter of law, the General Release in paragraph 7 and the Waiver
Of Unknown Claims in paragraph 8 shall otherwise remain effective as to any and
all other claims.
 
If this Agreement accurately sets forth the terms of your separation from the
Company and if you voluntarily agree to accept the terms of the severance
package offered please sign below no earlier than your Termination Date and
return it to the Company’s Human Resources Department.
 

 
Exhibit C-6

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PLEASE REVIEW CAREFULLY.  THIS AGREEMENT CONTAINS
A GENERAL RELEASE OF KNOWN AND UNKNOWN CLAIMS.
 
Sincerely,
 
[NAME]
 
REVIEWED, UNDERSTOOD AND AGREED:
 
By:                          
[NAME]
 
Date:                                    
 
DO NOT SIGN PRIOR TO YOUR TERMINATION DATE
 

 
Exhibit C-7

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