EMPLOYMENT
AGREEMENT




This
EMPLOYMENT AGREEMENT (“Agreement”) is effective this 1st day of January 2009,
between American Defense Systems, Inc. (“the Company”) and Russell Scales(“Executive”)
(sometimes referred to herein individually as “Party” or collectively as
“Parties”).




WHEREAS,
the Company desires to retain the services of Executive as Senior Vice President
of Business Development; and




WHEREAS,
Company and Employee desire to enter into this Agreement to set forth the terms
and conditions of the employment relationship between Company and
Employee;




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




1. Definitions.Those words and
terms that have special meanings for purposes of this Agreement
are specially defined through the use of parenthetical quotations and
upper-lower case lettering.




2. Employment.




2.1           Position and Term.The Company
hereby employs Executive and Executive hereby accepts said employment and agrees
to render such services to the Company on the terms and conditions set forth in
this Agreement. Unless terminated in accordance with Section 5 below, the term
of this Agreement will be for a term of three (3) years commencing on the
Effective Date of this Agreement (the “Initial Term”); and following the Initial
Term the Agreement will automatically renew for an additional term of one (1)
year (“Renewal Term”) on each one-year anniversary of the Agreement (the “Annual
Renewal Date”), unless one of the Parties gives the other Party written notice
of non-renewal in accordance with Section 6.2 below) at least thirty (30) days
before the impending Annual Renewal Date, in which event this Agreement shall
terminate at the end of the then current Term. Reference herein to “Term” shall
refer both to the Initial Term and any successive Renewal Term, as the context
requires.




2.2           Duties.During
theTerm, Executive
shall devote his full working time, attention and best efforts to further the
interests of the Company and shall perform such services for the Company as are
consistent with his position.




3. Compensation
and Benefits.




3.1           Base Salary.For services
rendered by Executive under this Agreement, the Company shall pay Executive a
minimum base salary of $211,230.50 per year (“Base Salary”). The Company shall
review Executive’s Base Salary on an annual basis and may, in its sole
discretion modify the Base Salary from time to time in such amounts as may
determined by the Board. Said Base Salary shall be payable in accordance with
the Company’s regular payroll practices for executive employees.









3.2           Bonus.Executive shall be
entitled to receive a bonus in the amount of 1.0%of all American Physical
Safety Group (“APSG”) sales. The Bonus shall be calculated on an annual basis.
If otherwise eligible, Executive need not be employed by the Company at the time
that the Bonus is calculated and/or paid in order to receive the Bonus.
Withholding. All payments required to be made by the Company to Executive under
this Agreement shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as must be withheld pursuant to any
applicable law or regulation.







3.3           Stock Options.Executive shall
be eligible to participate in the Company’s Stock Option Plan as it may be
amended from time to time. All grants under the Stock Option Plan shall be made
in accordance with and subject to the terms thereof.




3.4           Benefits.




3.4.1 Participation in Benefit
Plans.Except as otherwise provided in this Agreement, Executive shall be
entitled to participate in and receive the benefits of any benefit plans,
benefits and privileges given to similar level employees of the Company, to the
extent commensurate with his then duties and responsibilities (“Benefit Plans”)
when and if such Benefit Plans are established by the Company. The Company shall
not make any changes in such Benefit Plans that would adversely affect
Executive’s rights or benefits thereunder unless such change occurs pursuant to
a program applicable to all similar level employees of the Company and does not
result in a proportionately greater adverse change in the rights of or benefits
to Executive as compared with any other similar level employee of the
Company.




3.4.2 Vacation.Executive
shall be entitled to four (4) weeks of paid vacation each calendar
year.




4.          Expenses




4.1Expenses.The Company shall
reimburse Executive or otherwise provide for or pay for all reasonable expenses
incurred by Executive in furtherance of, or in connection with, the Company’s
business, including, but not by way of limitation, traveling expenses,
communication expenses, and all reasonable entertainment expenses (whether
incurred at Executive’s residence, while traveling or otherwise), subject to
such reasonable documentation and other limitations as may be established by the
Company.




5.          Termination.




5.1           Termination Due to Death.The
Company shall have the right to terminate
Executive’s employment by reason of his death, in which event the Company shall
promptly pay his spouse or estate, as applicable, all compensation, expenses and
other amounts owed to him as of the Date of Termination (as defined in Section
5.10 below) and thereafter shall have no further obligation to pay compensation
to his spouse or estate (unless required by applicable law).




5.2           Termination Due to Disability.The Company shall have the right to terminate
Executive’s employment hereunder, if the Executive shall, as the result of
mental and physical incapacity, illness, or disability become unable to perform
his duties hereunder for in excess of ninety (90) days in any 12-month
period.




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5.3           Termination by Executive by
Resignation. Executive shall have the right to
resign his employment upon thirty (30) days notice, in which event the Company
shall promptly pay him all compensation, expenses and other amounts owed to him
as of the Date of Termination (as defined in Section 5.10 below) and thereafter
shall have no further obligation to pay him compensation (unless required by
applicable law).




5.4           Termination by the Company Without
Cause. The Company shall have the right to terminate Executive’s
employment without Cause with thirty (30) days written notice (subject to and in
accordance with Sections 5.10 and 6.2 below), in which event the
Company:




(a)  shall, on
the Date of Termination, pay Executive all compensation, expenses and other
amounts owed to him as of the Date of Termination (as defined in Section 5.10
below);




(b)  shall
continue to pay Executive’s Base Salary (in effect as of the Date of
Termination) for six months from the Date of Termination.




5.5           Termination by the Company for
Cause. The Company shall have the right to terminate Executive’s
employment for Cause subject to the conditions set forth herein. If the Company
terminates Executive’s employment for Cause, the Company shall promptly pay
Executive all compensation, expenses and other amounts owed to him as of the
Date of Termination (as defined in Section 5.10 below) and thereafter shall have
no further obligation to pay him compensation. As used in this Agreement,
“Cause” shall mean any of the following: (i) Executive’s repeated failure or
refusal to perform reasonably assigned duties; (ii) Executive’s commission of
fraud or theft, conviction of a felony or crime involving moral turpitude, or
substance abuse; (iii) Executive’s disclosure of Confidential Information (as
defined herein) or trade secrets, except in connection with his duties to
Company; (iv) the association, directly or indirectly, of Executive, for his
profit or financial benefit, with any person firm, partnership, association,
entity, or corporation that competes in any material way, with the Company; (v)
Executive’s willful misconduct or gross negligence in the performance of his
duties or obligations to the Company; or (vi) Executive’s material breach of the
Agreement.




5.6           Benefits Upon Termination.
Except as otherwise provided in this Agreement,
in the event of termination of Executive’s employment under Sections 5.1 through
5.6 above, Executive’s entitlement to benefits under any Benefit Plan (as
defined in Section 3.5 above) shall be determined in accordance with applicable
law and the provisions of such Benefit Plan.




5.7           Termination by Mutual Consent.
Notwithstanding any of the foregoing provisions of this Section 5, if, at any
time during the Term, the Parties by mutual consent decide to terminate this
Agreement, they may and shall do so by separate agreement setting forth the
terms and conditions of such termination.




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5.8           Withholding.All payments
required to be made by the Company to Executive under Section 5 of this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as must be withheld pursuant to any
applicable law or regulation.




5.9           Notice of Termination.Any
termination of Executive’s employment by the Company for any reason, or by
Executive for any reason, shall be communicated by a written “Notice of
Termination” to the other Party and shall include a “Date of
Termination”.




6.         Nondisclosure
of Confidential and Proprietary Information




6.1           The
Executive acknowledges that during the period of employment, Executive
will have access to and possession of trade secret, confidential information,
and proprietary information (collectively, as defined more extensively below,
“Confidential Information”) of the Company, its parents, subsidiaries, and
affiliates and their respective clients. The Executive recognizes and
acknowledges that this Confidential Information is valuable, special, and unique
to the Company’s business, and that access to and knowledge thereof are
essential to the performance of the Executive’s duties to the Company. During
the Employment Period and thereafter, Executive will keep secret and will not
use or disclose to any person or entity other than the Company, in any fashion
or for any purpose whatsoever, any Confidential Information relating to the
Company, its parents, subsidiaries, affiliates, or its clients, except at the
request or the Company. To the extent that Executive has signed any other
confidentiality agreement, such agreement continues in full force and
effect.




6.2           The
term “Confidential Information” means confidential data and confidential
information relating to the business of the Company, its parents, subsidiaries,
and affiliates and their respective clients, that is or has been disclosed to
Executive or of which Executive became aware as a consequence of or through
Executive’s employment with the Company and that has value to the Company and is
not generally known to the competitors of the Company and includes but is not
limited to information written, in digital form, in graphic form, electronically
stored, orally transmitted or memorized concerning the Company’s business or
operations plans, strategies, portfolio, prospects or objectives, structure,
products, product development, technology, distribution, sales, services,
support and marketing plans, practices, and operations; research and
development, financial records and information, and client lists.




6.3The
Executive further recognizes that the Company has received and in the
future will receive from third parties confidential or proprietary information
(“Third Party Information”) subject to a duty on the Company’s part to maintain
the confidentiality of such information and to use it only for certain limited
purposes. During the Employment Period and thereafter, Executive will hold Third
Party Information in the strictest confidence and will not disclose to anyone
(other than Company personnel who need to know such information in connection
with their work for the Company) or use, except in connection with work for the
Company, Third Party Information unless expressly authorized by the Company in
writing.




6.4           The
Executive further agrees to store and maintain all Confidential Information
in a secure place. On the termination of the relationship, Executive agrees to
deliver all records, data, information, and other documents produced or acquired
during the period of employment, and all copies thereof, to the Company. Such
material at all times will remain the exclusive property of the Company, unless
otherwise agreed to in writing by the Company. Upon termination of the
relationship, Executive agrees to make no further use of any Confidential
Information on his or her own behalf or on behalf of any other person or entity
other than the Company.




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7. Assignment
Of Inventions and Intellectual Property




In
consideration of Executive’s employment, Executive acknowledges and agrees that
the Company shall have exclusive, unlimited ownership rights to all materials,
information and other items created, prepared, derived or developed in
connection with or arising from Executive’s employment relationship with the
Company, whether individually or jointly with others, whether original or
considered enhancements, improvement or modifications, whether or not completed,
and whether or not protectable as trade secrets, service or trademarks, or
through patent, copyright, mask work or any other intellectual, industrial or
other form of property protection or proprietary rights (“Inventions”).
Executive further agrees that all Inventions shall be deemed made in the course
and scope of Executive’s employment with the Company and shall belong
exclusively to the Company, with the Company having the sole right to obtain,
hold and renew, in its own name and for its own benefit, all registrations and
other protections that may be available by contract, license, law, equity and/or
regulation. To the extent that exclusive title or ownership rights do not
originally vest in the Company as contemplated, Executive hereby irrevocably
assigns, transfers and conveys (and agrees to assign, transfer and convey in the
future) to the Company all such rights. Executive agrees to give the Company all
reasonable assistance and execute all documents reasonably necessary to assist
and enable the Company to perfect, preserve, enforce, register and record its
rights. To the extent that Executive has signed any other assignment of
inventions agreement, such agreement continues in full force and
effect.




8. Agreement
Not to Compete




8.1           The
Executive agrees with the Company that the services which the Executive
will render during the Employment Period are unique, special and of
extraordinary character, that the Company will be substantially dependent upon
such services to develop and market its products and to earn a profit, and that
the application of the Executive’s knowledge and services to any competitive
business would be substantially detrimental to the Company. Accordingly, in
consideration for employment by the Company and compensation and other benefits
pursuant to this Agreement, and any compensation the Executive may receive after
her employment is terminated, the Executive will not compete or interfere with
the Company or any affiliate of the Company (or any of their successors or
assigns), directly or indirectly during the Employment Period or for the six (6)
month period following termination of Executive’s employment the “Restricted
Period”).




The term
“compete” as used herein means to engage in, assist, or have any interest in,
including without limitation as a principal, consultant, employee, owner,
shareholder, director, officer, partner, member, advisor, agent, or financier,
any entity that is, or that is about to become engaged in, any activity that is
in competition with, or competes with the Company, provided that the Executive
shall not be deemed to “compete” with the Company if he does not perform any
duties or services for the competing entity that relate, directly or indirectly,
to managing, producing, soliciting or selling services, programs or products
that provide similar functions to any of the Company’s services, programs or
proposed products .




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8.2           Furthermore,
during the Restricted Period, Executive shall not, directly or indirectly, with
respect to the Company (including any parents, subsidiaries or affiliates of the
Company), or any successors or assigns:




(a)  Solicit
any of the Company’s customers except on the Company’s behalf, or direct any
current or prospective customer to anyone other than the Company for goods or
services that the Company provides;




(b)  Directly
or indirectly influence any of the Company’s employees to terminate their
employment with the Company or accept employment with any of the Company’s
competitors; or




(c)  Interfere
with any of the Company’s business relationships, including without limitation
those with customers, suppliers, consultants, attorneys, or other agents,
whether or not evidenced by written or oral agreements.




8.3           The
Executive agrees that any breach of this Section 8 shall cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Executive agrees that (i) the Executive shall not be entitled to any
further payments due under the terms of this Agreement, and (ii) any stock
option granted but not exercised shall be void and have no further force or
effect. Furthermore, in addition to any other remedies that may be available,
the Company shall have the right to seek specific performance and injunctive
relief as set forth in this Agreement, without the need to post a bond or other
security.




8.4The
Executive further acknowledges that the covenants contained in this Section
are a material part of this Agreement and if this Agreement is terminated for
any reason, the Executive will be able to earn a livelihood without violating
these provisions.




9. Return
of Company Property




When the
Executive leaves the employ of the Company, the Executive will deliver to the
Company (and will not keep in his possession, recreate or deliver to anyone
else) any and all devices, records, recordings, data, notes, reports, proposals,
lists, correspondence, specifications, drawings, blueprints, sketches,
materials, computer materials, equipment, other documents or property, together
with all copies thereof (in whatever medium recorded), belonging to the Company,
its successors or assigns. The Executive further agrees that any property
situated on the Company’s premises and owned by the Company, including computer
disks and other digital, analog or hard copy storage media, filing cabinets or
other work areas, is subject to inspection by Company personnel at any time with
or without notice.




10. Legal
and Equitable Remedies




Because
the Executive’s services are personal and unique and because the Executive may
have access to and become acquainted with the Proprietary Information of the
Company, and because the parties agree that irrepressible harm would result in
the event of a breach of Sections 6, 7, 8, and 9 by the Executive, the Company
may not have an adequate remedy at law, the Company will have the right to
enforce Sections 6, 7, 8, and 9 and any of their provisions by injunction,
restraining order, specific performance or other injunction relief, without
bond, and without prejudice to any other rights and remedies that the Company
may have for a breach of this Agreement. The Company’s remedies under this
Section 10 are not exclusive and shall not prejudice or prohibit any other
rights or remedies under this Agreement or otherwise.




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11. General
Provisions.




11.1         Assignment. The Company shall
assign this Agreement and its rights and obligations hereunder in whole, but not
in part, to any corporation or other entity with or into which the Company may
hereafter merge or consolidate or to which the Company may transfer all or
substantially all of its assets, if in any such ease said corporation or other
entity shall by operation of law or expressly in writing assume all obligations
of the Company hereunder as fully as if it had been originally made a party
hereto; the Company may not otherwise assign this Agreement or its rights and
obligations hereunder. Executive may not assign or transfer this Agreement or
any rights or obligations hereunder.




11.2         Notice. All Notices of
Termination and other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below:




To
      the
      Company:
                American
      Defense Systems, Inc.230
      Duffy Ave., Unit CHicksville,
      NY 11801To
      Executive:
                Russell
      Scales10509
      Old Coast Guard RdEmerald
      Isle, NC 28594




Either
Party may change the address to which Notices of Termination and other
communications provided for in this Agreement shall be sent to that Party, by
giving the other Party notice in the manner provided in this
Section.




11.3         Indemnification. The Company
shall indemnify Executive and hold him harmless for any and all liabilities
arising from the performance of his duties under this Agreement and services for
the Company, subject to and in accordance with applicable law and any applicable
indemnification provisions in the Company’s Articles of Incorporation and/or
Bylaws.




11.4         Tax Treatment of Payments and/or
Benefits. Each payment made pursuant to the terms and Agreement is
intended as a separate payment within the meaning of Code Section 409A and
Department of Treasury regulations and other interpretive guidance issued
thereunder. To the extent applicable and notwithstanding any other provisions of
this Agreement, this Agreement and payments and benefits hereunder shall be
administered, operated and interpreted in accordance with Code Section 409A and
Department of Treasury regulations and other interpretive guidance issued
thereunder, including without limitation any such regulation or other guidance
that may be issued after the Effective Date of this agreement; provided however,
in the event that the Company determines that any payments or benefits hereunder
may be taxable to Executive under Code 409A and related Treasury guidance prior
to the payment and/or delivery of such amount, the Company, may adopt such
amendments to the Agreement that the Company reasonably and in good faith
determines necessary or appropriate to preserve the intended tax treatment of
the benefits provided under this Agreement and/or (ii) take such other actions,
including delaying the payment or delivery hereunder, as the Company determines
necessary or appropriate to comply with or exempt the payments or benefits from
the requirements of Code Section 409A including but not limited to delaying any
separation payments under this Agreement to the sixth month anniversary of the
date of Executive’s separation from service.




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11.5         Amendment and Waiver. No
amendment or modification of this Agreement shall be valid or binding upon the
Parties unless made in writing and signed by each of the Parties for that
express purpose.




11.6         Non-Waiver of Breach. No
failure by either Party to declare a default due to any breach of any obligation
under this Agreement by the other, nor failure by either Party to act with
regard thereto, shall be considered to be a waiver of any such obligation, or of
any future breach.




11.7         Severability. In the event
that any provision or portion of this Agreement, shall be determined to be
invalid or unenforceable for any reason, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full force and
effect.




11.8         Governing Law. The validity
and effect of this Agreement and the rights and obligations of the Parties
hereto shall be construed and determined accordance with the law of the State of
New York without regard to its conflicts of laws or principles.




11.9         Dispute Resolution. Any
controversy, dispute or claim arising out of or relating to this Agreement or
breach thereof shall first be resolved through good faith negotiation between
the Parties. If the Parties are unsuccessful at resolving the dispute through
such negotiation, the Parties agree to attempt in good faith to resolve the
dispute by mediation in New York City, New York (or such other location agreed
upon between the Parties), administered by JAMS. Either Party may commence such
mediation by providing the other Party (in accordance with Section 6.2 above)
and JAMS a written request for mediation, setting forth the subject of the
dispute and the relief requested. The Parties covenant that they will cooperate
in good faith with JAMS and one another in selecting a mediator from JAMS panel
of neutrals and in scheduling and participating in the mediation proceedings. If
the Parties are unsuccessful at resolving the dispute through such mediation,
the Parties agree to final and binding arbitration in New York City, New York
(or such other location agreed upon between the Parties), administered by JAMS
pursuant to its Employment Arbitration Rules & Procedures (except insofar as
they conflict with the express provisions of this Section) and subject to JAMS
Policy on Employment Arbitration Minimum Standards of Procedural Fairness.
Either Party initiating such arbitration must do so by filing a written demand
for arbitration (and giving the other Party notice in accordance with Section
6.2 above) at any time following the initial mediation session or 45
days after the date of filing the written request for mediation, whichever
occurs first. The mediation may continue after the commencement of arbitration
if the Parties so agree. Unless otherwise agreed by the Parties, the mediator
shall be disqualified from serving as arbitrator. The arbitrator may, in the
award, allocate all or part of the costs, fees and expenses of the arbitration.
Judgment on the arbitration award may be entered in any court having
jurisdiction. The provisions of this Section may be enforced by any court of
competent jurisdiction, and the Party seeking enforcement shall be entitled to
an award of all costs, fees and expenses, including attorneys’ fees, to be paid
by the Party against whom enforcement is ordered.




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11.10      Entire Agreement.Unless
otherwise specified this Agreement contains all of the terms agreed upon by the
Company and Executive with respect to the subject matter hereof and supersedes
all prior agreements, arrangements and communications between the Parties
dealing with such subject matter, whether oral or written.




11.11      Binding Effect.This Agreement
shall be binding upon and shall inure to the benefit of the transferees,
successors and assigns of the Company, including any corporation or entity with
which the Company may merge or consolidate.




11.12      Headings.Numbers and titles
to Sections hereof are for information purposes only and, where inconsistent
with the text, are to be disregarded.




11.13      Counterparts.This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which when taken together, shall be and constitute one and the same
instrument.




11.14      Executive’s Warranties.Executive expressly warrants that he has carefully read and filly
understands all the provisions of this Agreement and is hereby advised by the
Company to consult an attorney of his own choosing in deciding whether to sign
this Agreement




IN
WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date and year first written above.




The Company:
              AMERICAN DEFENSE SYSTEMS,
      INC.By:
              /s/ Anthony
      J. PiscitelliAnthony
      J. PiscitelliChief
      Executive Officer
 Executive:
              By:
              /s/ Russell
      Scales




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