Document:

ex10-31.htm

 

EXHIBIT 10.31

 

Confidential Treatment Requested

 

 

 

Certain portions of this exhibit, as indicated by ***, have been omitted, pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934. The omitted materials have been separately filed with the Securities and Exchange Commission.

 

 

 

 

 

AGREEMENT

THIS AGREEMENT is made as of this 7th day of July, 2011 by and between Applied DNA Sciences, Inc., a company organized and existing under the laws of the State of Delaware, with offices at 25 Health Sciences Drive, Suite 215, Stony Brook, NY 11790 (“ADNAS”) and Disc Graphics, a company organized and existing under the laws of the State of Delaware, with offices at 10 Gilpin Avenue, Hauppauge, New York 11788 (“DG”) (collectively the “Parties”).

RECITALS

ADNAS, and its Affiliates, are engaged in the manufacture and sale of DNA security markers nucleic acid markers, among other products, and provide related services such as authentication.

DG, and its Affiliates, are engaged in the manufacture and sale of printing, packaging including but not limited to folding cartons, set-up boxes, flexible packaging, pressure sensitive labels and corrugated.

ADNAS desires to sell to DG, and DG desires to purchase from ADNAS, DNA security markers, of the type hereinafter described, subject to the following terms and conditions.

 

 

NOW, THEREFORE, in consider­ation of the mutual promises, covenants, and conditions herein contained, the Parties hereto agree as follows:

 

  

  

  

 

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AGREEMENT

The Recitals set forth hereinabove are incorporated herein by reference.

1.             DEFINITIONS.

For purposes of this Agreement, unless the context clearly or necessarily indicates otherwise, the following words or phrases shall have the meanings set forth in Section 1 herein.

	
1.1.  

	
Affiliate.  “Affiliate” means an entity that controls, is controlled by, or is under common control with either DG or ADNAS.

	
1.2.  

	
Coatings. “Coatings” means ***.

	
1.3.  

	
Effective Date.  “Effective Date” means the date when both Parties have executed this Agreement and all conditions herein contained have been met.

	
1.4.  

	
Products.  “Products” mean the DNA security marker that ADNAS will produce for DG pursuant to the Agreement. Product specifically excludes any rapid read component.

	
1.5.  

	
Purchase Order.  “Purchase Order” means a Purchase Order meeting the requirements of this Agreement submitted by DG for acceptance by ADNAS.

	
1.6.  

	
Purchase Price.  “Purchase Price” means the unit price for Products as set forth in the applicable Product Schedule. Product Schedule A as attached sets forth the initial pricing for the Products and will be amended from time to time, but no more than once per twelve (12) month period.

 

	
1.7.  

	
Year One. “Year One” means the 12 month period commencing on the Effective Date of this Agreement.

 

  

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1.8.  

	
Year Two. “Year Two” means the 12 month period commencing on the first anniversary of the Effective Date of this Agreement.

	
1.9.  

	
Year Three. “Year Three” means the 12 month period commencing on the second anniversary of the Effective Date of this Agreement.

2.             STATEMENT OF WORK.

ADNAS hereby appoints DG as its exclusive distributor (“Exclusivity”) for North America of a unique DNA security marker specifically for the folding carton offset print sector and non-exclusive distributor of pressure sensitive labels for the duration of the Agreement (“Period of Exclusivity”).  ADNAS agrees to supply enough DNA security markers to inoculate up to 33,000 total gallons of Coatings.

 

During the Period of Exclusivity, ADNAS may sell, offer for sale, or enter into any agreement for the future sale of any DNA security markers to the following companies:  ***, ***, ***, ***, ***, their designees, partners or customers and other companies agreed upon in writing by the Parties so long as such assignment does not interfere with Exclusivity herein granted DG,

 

During the Period of Exclusivity, in the event that DG signs one of their customers (Licensee) to a license agreement and DG does not have ***% of their business, ADNAS reserves the right to enable other parties to sell to Licensee. In the event that a DG customer (Licensee) covered by the Exclusivity requests Products that DG does not or cannot service, then ADNAS reserves the right to enable other parties to sell to Licensee. However, DG shall be entitled to ***% of the license fee charged to any such customers during Year One and ***% of the license fee charged to any such customers for the duration of this Agreement.  During this time, ADNAS will support DG on a reasonable efforts basis to increase DG’s share of print volume with the Licensee for the folding carton offset print and labels sector.

 

  

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In order to extend the Period of Exclusivity for the Term of the Agreement, ADNAS must receive a minimum of $*** in revenues from DG (***) by the end of the previous year, paid $*** per quarter in Year Two and each year thereafter as described in Paragraph 6.1 below.

 

DG shall purchase DNA security markers exclusively from ADNAS during the term of this Agreement or during the Period of Exclusivity, whichever is longer.

 

3.             TERM AND TERMINATION.

	
3.1.  

	
Term.  The term of this Agreement shall commence on the Effective Date and shall expire three (3) years from that date, given written notice by either party at least ninety (90) days before the end of Year Three.  This Agreement can be terminated sooner by the Parties pursuant to the terms detailed in Section 3.2. of this Agreement (the “Term”). Otherwise, this Agreement will automatically renew annually as long as DG fulfills the minimum *** paid quarterly as stated above and unless this Agreement is cancelled by either party by giving ninety (90) days prior written notice to the other party at the end of Year Three.

	
3.2.  

	
The following termination rights are in addition to the termination rights that may be provided elsewhere in the Agreement:

	
3.2.A.  

	
Immediate Right of Termination.  Either Party shall have the right to immediately terminate this Agreement by giving written notice to the other Party in the event that the Party does any of the following:

	
3.2.A.i.  

	
    Files a petition in bankruptcy or is adjudicated as bankrupt or insolvent, or makes an assignment for the benefit of creditors or an arrangement pursuant to any bankruptcy law, or if the Party discontinues or dissolves its business or if a receiver is appointed for the Party or for the Party’s business and such receiver is not discharged within 30 days;

 

  

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Right to Terminate.  ADNAS may terminate this Agreement in the event that DG does not make its quarterly payments to ADNAS in any year after Year One of this Agreement as outlined in Paragraph 6.1 below. ADNAS will provide a written notice of payment delinquency and DG will have 60 days to remedy before this Agreement can be terminated.

4.           PURCHASE ORDERING.

	
4.1.

	
Supply Agreement. ADNAS shall supply the Products on the terms and conditions set forth in this Agreement. DG shall provide to ADNAS a six (6) month rolling forecast on an ongoing basis.

 

	
4.2.

	
Purchase Orders.  DG shall issue Purchase Orders to ADNAS for the Products as desired. Each order placed by DG for Products during the term of this Agreement (“Purchase Order”) shall be subject to the terms and conditions set forth in this Agreement, and shall constitute a binding agreement by ADNAS to sell said Products to DG on the terms set forth herein.

	
4.3.

	
Acceptance.  ADNAS shall use reasonable commercial efforts to accept all DG Purchase Orders and to acknowledge written acceptance of DG Purchase Orders within five (5) business days of receipt.  It is agreed and understood that Purchase Orders will be deemed to have been accepted upon receipt by DG of an acknowledgement by ADNAS of a receipt of a Purchase Order in accordance with the terms and conditions of this Agreement and the applicable Product Schedule. Acceptance of DG purchase Orders by ADNAS shall not be unreasonably withheld.

	
4.4.

	
Modification, Cancellation, or Schedule Changes by DG.  Orders may be modified or cancelled, and scheduled shipments may be deferred or brought forward, only (i) upon DG’s prior written notice and ADNAS’s written acknowledgement and (ii) upon terms, satisfactory to ADNAS, that compensate ADNAS for all reasonable and customary costs incurred by reason of such modification, cancellation, deferment or expedition of orders, except those modifications, cancellations, or changes caused by Force Majeure.

  

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4.5.  

	
Modification, Cancellation, or Schedule Changes by ADNAS.  Orders may be modified or cancelled, and scheduled shipments may be deferred or brought forward, only (i) upon ADNAS’s prior written notice and DG’s written acknowledgement and (ii) upon terms, satisfactory to DG, that compensate DG for all reasonable and customary costs incurred by reason of such modification, cancellation, deferment or expedition of orders, except those modifications, cancellations, or changes caused by Force Majeure.

5.             SHIPMENT AND DELIVERY.

	
5.1.  

	
ADNAS shall ship Products in accordance with each accepted Purchase Order, subject to the terms and conditions of this Agreement.  Delivery of Products shall be made F.O.B. at the loading dock of the ADNAS’s US facility in Stony Brook, NY on the dates specified in the applicable Purchase Order.  Title to, and risk of loss for, Products shall pass to DG at the time of delivery of possession of the Products to a common carrier.

6.             PRICES; OTHER COSTS; INVOICING.

	
6.1  

	
Annual Fee: DG shall pay to ADNAS $*** per year. An initial nonrefundable payment of $*** shall be due and payable upon signing of this Agreement (“Initial Payment”) and the balance of $*** shall be due and payable in installments of $*** on ***; $*** on *** and $*** on ***. The Initial Payment includes the cost of creating a unique DNA security marker for DG, an origination fee and formulation into Coatings. The balance of $*** includes the costs of production and delivery of DNA to mark up to *** of Coatings. This Annual Fee shall be due and payable after Year One in quarterly payments of $*** for as long as this Agreement is in effect. The $*** Annual Fee after Year One includes the cost of production of delivery of DNA to mark up to *** of Coatings. Fees paid by DG are exclusive of the costs of shipping and insurance and any applicable federal, state and local taxed, which shall be borne by DG.

  

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6.2  

	
Invoice and Payment.  For products other than those covered by this agreement, ADNAS shall invoice DG concurrently with each shipment of Products.  A proper invoice shall include ADNAS’s name, invoice number and invoice date, DG’s relevant Purchase Order number, the total quantity, unit and extended price and the complete mailing address where payment is to be sent.  DG shall pay such invoices in full within thirty (30) days after the end of the month the invoice is issued.

 

7.             FORCE MAJEURE.

	
7.1  

	
Neither party shall be liable for its failure to perform hereunder due to any occurrence beyond its reasonable control, including acts of God, fires, floods, wars, terrorism, sabotage, accidents, labor disputes or shortages, governmental laws, ordinances, rules and regulations, whether valid or invalid, inability to obtain material, equipment or transportation, and any other similar or different occurrence; provided, however, that obligations for payment for Products produced and shipped shall not be relieved or suspended by any event or force majeure.  The party whose performance is prevented by any such occurrence shall notify the other party thereof in writing as soon as is reasonably possible after the commencement of such occurrence, and shall promptly give written notice to the other party of the cessation of such occurrence.  The party affected by such occurrence shall use reasonable commercial efforts to remedy or remove such event of force majeure as expeditiously as possible.

8.             INTELLECTUAL PROPERTY.

Ownership of Intellectual Property.  Each party acknowledges that it shall not acquire any Intellectual Property Rights under this Agreement in the products or associated materials of the other, and all rights therein are strictly reserved. Any goodwill arising in the course of this Agreement in respect of the products of either party shall accrue solely for the benefit of that party.

Inventorship shall be determined in accordance with principles of equitability and contributions made by the inventors of the two parties.

 

  

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8.1  

	
Confidentiality.  The parties acknowledge that each party’s Proprietary Information set forth in Section 8.1 contains valuable trade secrets that are the sole and exclusive property of the other party.  Each party agrees that it will maintain and protect the confidentiality of the other party’s Proprietary Information using the same standard of care that such party uses to protect its own Proprietary Information, which in no event shall be less than reasonable care.  The obligation to keep each party’s Proprietary Information confidential under this Section 8 shall survive the termination or expiration of this Agreement.

	
9.  

	
CONFIDENTIALITY.

In the course of the performance of this Agreement, the one Party ("Disclosing Party") may furnish the other Party ("Receiving Party") with confidential and proprietary information and trade secrets (collectively, "Confidential Information"). Confidential Information of the Disclosing Party is deemed to include, among other things, customer lists, proposed or planned products or services, product designs or improvements, marketing plans, financial and accounting records, pricing, cost and profit figures, forecasts, projections and Confidential Information of third parties, that are observed, identified or disclosed under or as a result of this Agreement. The Receiving Party will not disclose the Confidential Information, must immediately return it upon expiration or termination of this Agreement, and must keep it in strict confidence and not use it for any purpose other than the Parties' respective performance under this Agreement. The Disclosing Party will use reasonable efforts to mark or cause to be marked all materials containing its Confidential Information to clearly indicate ownership of the materials and their confidential status; however, failure to mark does not by itself disqualify information from being Confidential Information if other factors or circumstances, or a Party's course of performance, clearly indicate to the Receiving Party at the time of disclosure or the Receiving Party acknowledges that the information is confidential. The Receiving Party recognizes that the Confidential Information of the Disclosing Party (l) was designed and developed by the Disclosing Party at great expense and over lengthy periods of time; (2) is secret, confidential and unique; (3) constitutes the exclusive property and/or trade secrets of the Disclosing Party; and (a) that any use of the Confidential Information by the Receiving Party for any purpose other than in accordance with this Agreement and in furtherance of obligations hereunder would be wrongful and would cause irreparable injury to the Disclosing Party for which damages are not an adequate remedy. The restrictions and obligations in this Section concerning confidentiality will survive the expiration or termination of this Agreement for a period of three (3) years. The obligations of the Parties herein will not apply to information which: (i) was known to the Receiving Party prior to receipt thereof from the Disclosing Party, as evidenced by the written records of the Receiving Party; (ii) was disclosed to the Receiving Party in good faith by a third party who is in lawful possession of and who had the right to make such disclosures; (iii) became part of the public domain, by publication or otherwise, through no fault of the Receiving Party; or, (iv) was independently developed by the Receiving Party as evidenced by the Receiving Party's written records. Each Party understands and agrees that, in the event that it violates any of the Confidentiality provisions of this Section 9, the other Party will suffer immediate and irreparable harm that cannot be accurately calculated in monetary damages. Consequently, notwithstanding anything to the contrary in this Agreement, the violating Party acknowledges and agrees that the other Party shall be entitled to immediate injunctive relief, either by temporary or permanent injunction, to prevent such a violation. The violating Party acknowledges and agrees that this injunctive relief shall be in addition to any other legal or equitable relief to which the other Party would be entitled.

 

  

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10.           PRODUCT WARRANTY AND DISCLAIMER.

	
10.1.  

	
Product Warranty.  ADNAS warrants that Products manufactured hereunder will be free from defects in workmanship for a period of 2 years from the date of delivery of the Products to DG but ADNAS’s sole liability under such warranty shall be limited to replacing Product which ADNAS accepts as having been defective in workmanship. ADNAS shall at no charge perform Quality Control tests as needed to validate the authenticity of the printed packages and pressure sensitive labels  and  Authenticity tests as mutually agreed upon by both parties. As part of this testing DG will provide ADNAS folding cartons and pressure sensitive labels with and without ADNAS Products for the purpose of blind testing. ADNAS shall promptly notify DG in writing of any noncompliance in the Products, which notification shall describe the noncompliance in sufficient detail to permit DG to isolate the cause for defect.  Upon notification from ADNAS, ADNAS will provide DG with instructions on returning the Product under warranty claim. DG shall promptly notify ADNAS in writing of any noncompliance in DG’s manufacturing process as it relates specifically to Products, which notification shall describe the noncompliance in sufficient detail to permit ADNAS to isolate the cause for defect.

	
10.2.  

	
This warranty does not apply to:  (i) any Products which have been repaired by DG or a third party; (ii) any Products which have been altered or modified in any way by DG or third party; or (iii) any products which have been subject to misuse, abnormal use or neglect.

	
10.3.  

	
Disclaimer. THE WARRANTY STATED ABOVE IS IN LIEU OF ALL OTHER WARRANTIES, CONDITIONS OR OTHER TERMS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF TERMS AS TO QUALITY, FITNESS FOR PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE WHETHER IMPLIED BY CUSTOM OR LAW.  Without limiting the foregoing disclaimer, DG understands, acknowledges and agrees that ADNAS does not warrant any parts, components or other materials used in the manufacture of the Products. , ADNAS will ensure the compatibility of its Products with DG existing equipment  only as it relates to the application of Coatings.

11.           REPRESENTATIONS AND WARRANTIES; LIMITATION OF LIABILITY.

	
11.1.  

	
Representations and Warranties of ADNAS.  ADNAS represents and warrants that the Products that are delivered to DG hereunder shall:

 

  

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	 	11.1.A.	    Conform in all respects with the requirements of this Agreement, including the then current specifications for such Product, and the applicable Purchase Order;
	 	 	 
	 	

11.1.B. 

	    Be free and clear of all liens and encumbrances, or other defects in title.
	 	 	 
	 	

11.1.C.

	    The foregoing representations and warranties shall survive inspection, delivery and payment for the Products, and shall be for the benefit of DG and its customers.

 

	
11.2.  

	
Other Representations and Warranties.  Each of the parties hereby represents and warrants to the other that: (a) it has full power and authority required to enter into, execute and deliver this Agreement, to carry out its obligations hereunder and to perform the transactions contemplated; (b) this Agreement has been duly executed and delivered by, is the valid and binding obligation of, and is enforceable against, such party in accordance with its terms; and (c) the execution, delivery and performance of this Agreement by such party does not conflict with or violate any other agreement to which it is a party or by which it is bound, or any applicable law to which it is bound or subject.

	
11.3.  

	
Neither party shall, without the prior written consent of the other party, use in advertising, publicity, or otherwise, the name, trademark, logo, symbol, or other image of the other party.

	
11.4.  

	
Warranty and Liability Limitation. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 12  (INDEMNIFICATION) OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR CONNECTED WITH OR RESULTING FROM THE MANUFACTURE, SALE, DELIVERY, RESALE, REPAIR, REPLACEMENT, OR USE OF ANY PRODUCTS OR THE FURNISHING OF ANY SERVICE OR PART THEREOF, WHETHER SUCH LIABILITY IS BASED IN CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAD BEEN WARNED OF THE POSSIBILITY OF ANY SUCH DAMAGES. In the event ADNAS supplies to DG substandard product whether knowingly or unknowingly, then DG will not be restricted by this clause. However, should DG brings a frivolous lawsuit and does not prevail then DG shall be responsible for reimbursing ADNAS for any and all costs incurred, including but not limited to attorneys fees, Product authentication fees, production costs and any other costs or expenses incurred as a result of DG’s  exercise of this clause.

 

  

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11.5.  

	
ADNAS  warrants that its Products will be free of defects and one hundred percent (100%) compatible with DG applications in Coatings as applied to DG’s folded carton offset print and pressure sensitive labels business.

 

12.    INDEMNIFICATION.

	
12.1.A.  

	
    Indemnification by ADNAS.  ADNAS shall indemnify, defend and hold harmless, DG and its Affiliates, and DG’s and such entities’ respective officers, directors, agents, insurers, employees, stockholders, and customers, from and against all claims, suits, liability and expense (including but not limited to reasonable attorneys’ fees) (each a “Liability”), whether or not such Liability is stated as a product liability claim, a strict liability claim or other similar claim, that is caused by or based upon any: (a) breach by ADNAS of any of the representations or warranties in Section 11, including, without limitation, any Liability based upon any alleged defect in Products resulting from ADNAS’s failure to meet the specifications or quality analysis standards for such Product; (b) material breach by ADNAS of any other provision of this Agreement; or (c) strict liability, negligence, misconduct, or violation of any applicable law, rule or regulation by ADNAS or any of its Affiliates in the performance of ADNAS’s obligations under this Agreement; provided, however, that DG shall: (i) give ADNAS prompt notice of any such Liabilities; (ii) give ADNAS the right to assume full and sole control of the defense or settlement of the same through ADNAS’s counsel; (iii) give ADNAS all information in its possession relating to such Liabilities; (iv) give its authorization for and assistance (at ADNAS’s cost) in such defense; and (v) give ADNAS the right to approve any settlement, which approval shall not be unreasonably withheld;

 

  

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12.2.  

	
Indemnification by DG. DG shall indemnify, defend and hold harmless ADNAS and its Affiliates, and ADNAS’s and such entities’ respective officers, directors, agents, insurers, employees, and shareholders from and against all Liabilities relating to any product manufactured or sold by DG that incorporates Products to the extent such Liabilities are based upon allegations of personal injuries, death, or property damages or loss proximately caused by the use of a product manufactured or sold by DG, unless the proximate cause is alleged to relate specifically to the Product supplied by ADNAS, whether such Liability is stated as a product liability claim, a strict liability claim or other similar claim; provided, however, that:

 

	 	12.2.A.	    ADNAS shall: (i) give DG prompt notice of any such Liabilities; (ii) give DG the right to assume full and sole control of the defense or settlement of the same through DG’s counsel; (iii) give DG all information in its possession relating to such Liabilities; (iv) give its authorization for and assistance (at DG’s cost) in such defense; and (v) give DG the right to approve any settlement, which approval shall not be unreasonably withheld;
	 	 	 
	 	

12.2.B.

	    DG shall not, however, indemnify, defend or hold harmless the ADNAS Indemnities for any matter which would give rise to a claim by DG for indemnity from ADNAS under Section 12.1; and
	 	 	 
	 	12.2.C. 	    DG shall have sole and unqualified discretion to select attorneys to defend any Liability which is the subject of DG’s obligations hereunder, and notwithstanding anything contained herein to the contrary, DG’s Liability for attorney fees will only apply to DG-selected attorneys.
	 	 	 
	 	

12.2.D.

	    ADNAS shall not, however, indemnify, defend or hold harmless the DG Indemnities for any matter which would give rise to a claim by ADNAS for indemnity from DG under Section 12.2; and

 

  

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12.2.E.  

	
    ADNAS shall have sole and unqualified discretion to select attorneys to defend any Liability which is the subject of ADNAS’s obligations hereunder, and notwithstanding anything contained herein to the contrary, ADNAS’s Liability for attorney fees will only apply to ADNAS-selected attorneys.

 

	
13.

	
ADVERTISING AND PROMOTION

 

	
13.1  

	
DG and ADNAS shall be entitled to advertise and promote the Products, but neither party shall not use any advertising materials or promotional literature without the prior written consent of the other party which consent shall not be unreasonably withheld. Both parties agree to review any advertising or promotional literature provided by the other party within seven (7) business days of its receipt.

 

	
13.2  

	
DG agrees to recognize and acknowledge ADNAS as an innovator of DNA security markers for folding carton offset print in all information, publications, data, advertising, marketing, promotional materials, and publicity, “Powered by ADNAS”.

 

	
13.3  

	
ADNAS shall, where the parties agree, participate with DG in fairs and exhibitions at ADNAS’ own cost.

 

14.           MISCELLANEOUS PROVISIONS

	
14.1  

	
Export Control. Anything contained in this Agreement to the contrary notwithstanding, the obligations of the Parties hereto and of the subsidiaries of the Parties shall be subject to all laws, present and future and including export control laws and regulations, of any government having jurisdiction over the Parties hereto or the subsidiaries of the Parties, and to orders, regulations, directions, or requests of any such government.  Each party shall undertake to comply with and be solely responsible for complying with such laws applicable to such party.

	
14.2  

	
Notice and Payment. Any notice required to be given under this Agreement shall be in writing and delivered personally to the other designated party at the below stated address or mailed by certified, registered or Express mail, return receipt requested or by Federal Express.

 

  

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14.3  

	
Correspondence Address for DG:

Disc Graphics

ATTN: V.P. Finance

10 Gilpin Avenue

Hauppauge, New York 11788

	
14.4  

	
Correspondence Address for ADNAS:

Applied DNA Sciences, Inc.

ATTN: CFO

25 Health Sciences Drive, Suite 215,

Stony Brook, NY 11790

	
14.5  

	
Either party may change the address to which notice or payment is to be sent by written notice to the other under any provision of this paragraph.

	
14.6  

	
Jurisdiction and Disputes.  This Agreement shall be governed in accordance with the laws of the State of New York.  All disputes under this Agreement shall be resolved by litigation in the courts of the State of New York including the federal courts therein and the Parties all consent to the jurisdiction of such courts, agree to accept service of process by mail, and hereby waive any jurisdictional or venue defenses otherwise available to it.

	
14.7  

	
Severability.  If any term, clause or provision hereof is held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect the validity or operation of any other term, clause or provision and such invalid term, clause or provision shall be deemed to be severed from the Agreement.

 

  

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14.8  

	
Written Modifications.  No amendment, modification or release from any provision of this Agreement, the Product Schedule attached hereto or Purchase Orders issued hereunder shall be of any force or effect unless it is in writing and signed by both parties hereto and specifically refers to this Section 14.8.

	
14.9  

	
No Assignment.  This Agreement shall not be assigned by either party without prior written consent of the other party and any attempt to do so shall be void. Notwithstanding the foregoing, either party must make an assignment to an affiliate, subsidiary or parent company or must assign the Agreement to a successor-in-interest through a merger or sale of assets or stock upon notice to the other party but without that party’s consent.

	
14.10  

	
No Waiver.  A failure to exercise any right hereunder with respect to any breach shall not constitute a waiver of such right, power, or authority to act or to create any obligation, express or implied, on behalf of the other.

	
14.11  

	
Integration.  This Agreement constitutes the entire understanding of the Parties, and revokes and supersedes all prior agreements between the Parties and is intended as a final expression of their Agreement.  This Agreement shall not be modified or amended except in writing signed by the Parties hereto and specifically referring to this Agreement.  This Agreement shall take precedence over any other documents which may conflict with this Agreement.

 

  

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IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby, have caused this Agreement to be executed by their duly authorized officers or representatives.

	 	
  

 

 

	 	  
	 	
Disc Graphics

(“DG”)

	 	
Applied DNA Sciences, Inc.

(“ADNAS”)

	 	
/s/ Margaret Krumholz

By: Margaret Krumholz

Title: President

Date: 7/8/11

 

	 	
/s/ Kurt H. Jensen

By: Kurt H. Jensen

Title: CFO

Date:7/8/11

 

  

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PRODUCT SCHEDULE A

	 	
PRODUCT/SERVICE

	 	
TYPE

	 	
QUANTITY

	 	
PRICE

	 	
DNA SECURITY

MARKER

	 	  	 	  	 	
***   *

 

	 	
AUTHENTICATION

	 	
SERVICE

	 	
Per Request

	 	
***  **

	 	
EXPERT WITNESS

REPORT

	 	
SERVICE

	 	
Per Request

	 	
***

* DG shall receive *** of this fee for all DG customers that agree to pay licensing “DNA Marker Security”

** DG authentications are included in fee; authentication service prices are for DG customers

 

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EXHIBIT 10.32

 

EMPLOYMENT AGREEMENT

 

AGREEMENT made as of the 11th day of July, 2011, by and between APPLIED DNA SCIENCES, INC., a Delaware corporation (the “Company”), and JAMES A. HAYWARD (“Executive”).

 

1.      Employment. Executive shall continue to be employed as the Chief Executive Officer of the Company, which employment will be subject to and governed by this Agreement.

 

1.1           Duties and Responsibilities. Executive will have the authority, duties and responsibilities customarily associated with the position of Chief Executive Officer, consistent with the Company’s by-laws and applicable law. Executive will have such additional duties and responsibilities commensurate with his position as the Company’s Board of Directors (the “Board”) may assign to him from time to time. Executive will report directly to and be subject to the control and direction of the Board. The Company will use its reasonable efforts to ensure that Executive will continue to be a member of the Board during the period of his employment under this Agreement. At the request of the Board, Executive shall serve as an officer and director of the Company’s subsidiaries and other affiliates without additional compensation. Executive will observe and adhere to all applicable written Company policies and procedures in effect from time to time, including, without limitation, policies on business ethics and conduct, and policies on the use of inside information and insider trading.

 

1.2           Term. Unless sooner terminated pursuant to Section 3, the term of this Agreement (the “Term”) will begin July 1, 2011 and end June 30, 2014. Thereafter, the Term will automatically be renewed for successive one-year periods unless either party provides written notice of non-renewal to the other at least 90 days before the end of the then-current Term.

 

1.3           Full Time. Executive shall devote all of his business time and attention to the performance of his duties and responsibilities under this Agreement. Executive will not render services to others for compensation or, without the written consent of the Board (which should not be unreasonably withheld), serve on the board of directors or other governing body of another for profit entity, provided, however, that the Company hereby consents to Executive’s continuing to engage in the other business activities listed on Exhibit A hereto, so long as such activities do not conflict or interfere with Executive’s obligations and covenants under this Agreement or Executive’s ability to fully and properly perform the duties and responsibilities of his employment under this Agreement. Executive may engage in personal, charitable and passive investment activities, so long as such activities do not conflict or interfere with his ability to perform the duties and responsibilities of his employment under this Agreement.

 

1.4           Location of Employment. Executive’s principal place of employment will be at the Company’s principal offices, currently located in Stony Brook, New York. The Company will not relocate the Executive’s office beyond a 75 mile radius of the then current location without Executive’s consent. Notwithstanding the foregoing, Executive acknowledges that he will have to engage in business travel in connection with the performance of his duties and in accordance with the needs of the Company.

 

  

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2.      Compensation.

 

2.1           Base Salary. The Company will pay base salary (“Base Salary”) to Executive, in accordance with its regular payroll practices, at an initial annual rate of $225,000. The Board and/or the Compensation Committee of the Board (the “Compensation Committee”) will review Executive’s Base Salary annually. The Board or the Compensation Committee, acting in its discretion, may increase (but may not decrease) the annual rate of Executive’s Base Salary. If, for any calendar quarter beginning after the date hereof, the Company has revenues in excess of $1 million, then, effective as of the first day of the next succeeding quarter, Executive’s annual rate of Base Salary will be increased to $350,000.

 

2.2           Annual Bonus Opportunity. The Board or Compensation Committee may award an annual bonus to the Executive in such amount and upon such terms and conditions as the Board or the Compensation Committee, acting in its discretion, determines (provided that the Executive will not be treated less favorably with respect to annual bonuses than other executives of the Company). The bonus for any fiscal year will be payable to the Executive as soon as practicable after the end of the year, but in no event later than the 15th day of the third calendar month following such fiscal year.

 

2.3           Initial Cash Incentive Award. The Company will pay a cash bonus to Executive of up to $750,000, to be earned as follows: $300,000 for the first fiscal year ending after the date hereof in which the Company’s revenue equals at least $6 million, plus $75,000 for each $2 million of revenue in excess of $6 million. For example, if the Company’s has $8 million of revenue in the first fiscal year in which its revenues equal or exceed $6 million, the Executive will be entitled to $375,000; and if the Company has revenue of $12 million in the next succeeding fiscal year, then Executive will earn an additional $225,000; and, if the Company has $14 million of revenue in the second succeeding fiscal year, the Executive will earn an additional $225,000 as of the end of that year, at which point, Executive will have earned the $750,000 aggregate maximum incentive amount under this subsection 2.3.

 

  

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2.4           Initial Equity Awards. Simultaneously with Executive’s execution and delivery of this Agreement, the Company will (a) issue 15 million shares of the Company’s common stock to Executive, subject to Executive’s making a cash payment to cover the Company’s withholding tax obligations with respect to such award of shares, and (b) grant to Executive options to purchase 40 million shares, with an exercise price per share equal to the closing price per share on the date of such execution and delivery, which options shall vest at the rate of 25% on the grant date and 37.5% on each of the next two anniversaries of the grant date, subject to Executive’s continuous employment through the applicable vesting date, provided, however, that (a) no portion of the vested option will be exercisable prior to the execution of this Agreement by Executive, and (b) if the Company’s revenues for any fiscal quarter beginning after the date hereof are at least $1 million more than the Company’s revenues for the immediately preceding fiscal quarter, then vesting of the next 37.5% installment will accelerate (such that, if the $1 million increase is met in at least two quarters before the second anniversary of the option grant date, all of the options will have become fully vested as of the end of the second quarter for which the $1 million increase is met). Notwithstanding the foregoing, exercisability of the option is further conditioned upon shareholder approval (at the next annual meeting of shareholders) of the Board’s amendment increasing the number of shares of Company common stock available for issuance under the Company’s 2005 Incentive Stock Plan from 100 million shares to 350 million shares and the number of shares of Common Stock that can be covered by awards made to any participant in any calendar year from 25,000,000 to 50,000,000 shares, and if the amendment is not so approved, the option shall expire.

 

2.5           Annual Equity Awards. Executive will be eligible for annual equity awards under the Company’s equity incentive plan on a basis that is not less favorable than the annual equity awards being made generally to other senior executives of the Company.

 

2.6           Employee Benefits. Executive will be eligible to participate in such retirement, welfare and other employee benefit and fringe benefit plans, arrangements, programs and perquisites as are provided by the Company from time to time to or for the benefit of the Company’s other executives, on comparable terms and conditions. Executive shall be entitled to five weeks of vacation time during each calendar year of his employment, subject to the Company’s vacation policies and procedures. Executive will be entitled to carry over unused vacation for any year and will be entitled to payment for any accrued and unused vacation.

 

2.7           Reimbursement of Business Expenses. Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities of his employment under this Agreement, and the Company will promptly reimburse him for all expenses that are so incurred upon presentation of appropriate vouchers or receipts, subject to the Company’s expense reimbursement policies applicable to senior executives generally as in effect from time to time. Executive will be entitled to first class travel on flights that are scheduled to exceed three hours. The Company will pay or reimburse Executive for the cost of computer, phone and other equipment and services reasonably required in order to enable Executive to conduct business from his home outside of regular business hours.

 

2.8           Other Items. The Company will pay or reimburse Executive for the payment of up to $1,500 per month for the costs associated with an automobile used by Executive and, in addition, will provide Executive with a gas credit card (the charges on which will not be taken into account in applying the $1,500 monthly automobile allowance). The Company will pay or reimburse Executive for the payment of an annual or monthly gym membership and for at least one airline club membership. The Company will also pay for the use of an outside driver for Executive for up to 20 hours per week.

 

  

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3.      Termination of Employment Before End of Term.

 

3.1           Termination by Company for Cause. The Company may terminate Executive’s employment before the end of the Term for Cause if Executive: (a) is convicted of or pleads nolo contendre to a felony, (b) commits fraud or a material act or omission involving dishonesty affecting the assets, business or reputation of the Company or any of its subsidiaries or affiliates, (c) willfully fails or refuses to carry out the material responsibilities of his employment, as reasonably determined by the Board, (d) engages in gross negligence, willful misconduct or a pattern of behavior that has had or is reasonably likely to have a significant adverse effect on the Company or the ability of Executive to perform the duties and responsibilities of his employment, or (e) willfully engages in any act or omission that is in material violation of Company policy, including, without limitation, Company policy on business ethics and conduct, and Company policy on the use of inside information and insider trading; provided, however, that, if the conduct giving rise to termination for Cause is curable without material harm to the business or assets of the Company, the Executive will be afforded an opportunity to effect such a cure within 30 days after notice of termination and thereby avoid a termination for Cause based upon such conduct.

 

3.2           Resignation by Executive. Executive may terminate his employment before the end of the Term, subject to at least 60 days’ prior written notice to the Company. Upon receipt of such notice, the Company may relieve Executive of some or all of his duties and/or set an earlier termination date.

 

3.3           Termination by Company without Cause. Company may terminate Executive’s employment without Cause before the end of the Term, subject to 60 days prior written notice to Executive. Following such notice, the Company may relieve Executive of some or all of his duties, provided that Company continues to pay Executive through the end of the notice period. For the purposes hereof, the termination of this Agreement at the expiration of the initial Term or the expiration of either of the first two renewal Terms (if any) due to non-renewal by Company pursuant to Section 1.2 will be deemed to be a termination of Executive’s employment by Company without Cause.

 

3.4           Termination Due to Disability or Death. Company may terminate Executive’s employment before the end of the Term due to “Disability” if Executive is unable to substantially perform the customary duties and responsibilities of his employment for at least 120 consecutive calendar days or 150 or more calendar days during any 365 calendar day period by reason of physical or mental illness,  injury, impairment or incapacity. No minimum notice is required for a termination due to Executive’s Disability. If Executive dies before the end of the Term, his employment will terminate on the date of his death.

 

  

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3.5           Termination by Executive for Good Reason. Executive may terminate his employment for Good Reason at any time, subject to applicable notice and cure conditions described below. For this purpose, the term “Good Reason” means any of the following: (a) a material adverse change by Company of Executive’s status or position as the Chief Executive Officer, including, without limitation, a material diminution of his position, duties, responsibilities or authority or the assignment to him of duties or responsibilities that are materially inconsistent with his status or position; (b) a reduction by the Company of Executive’s annual Base Salary or failure to pay same ; (c) a breach by the Company of any of its material obligations under this Agreement; (d) relocation of Executive without Executive’s consent beyond a 75 mile radius of Executive’s then principal place of employment in violation of this Agreement; or (e) in connection with a Change in Control, the failure or refusal by the successor or acquiring company to expressly assume the obligations of Company under this Agreement. As a condition to terminating his employment for Good Reason, Executive must, within 60 days after the occurrence of the event or condition giving rise to such termination, provide written notice to the Company (or the successor or acquiring company) of his desire to terminate for Good Reason, specifying the nature of the act or omission that Executive deems to constitute Good Reason. The Company shall have 30 days after receipt of such notice to review and, if required, correct the situation (and thus prevent Executive’s termination for Good Reason).

 

3.6           Definition of Change in Control.  For the purposes hereof, a “Change in Control” will be deemed to have occurred if and when, after the date of this Agreement,

 

(a)          any person, as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), other than (1) the Company, (2) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, (3) the Executive, or (4) any entity owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 30 percent or more of the combined voting power of the Company’s then outstanding voting securities;

 

(b)         during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (c) or (d) of this subsection) whose election by the Board or nomination for election by the company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof;

 

  

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(c)          there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other entity, other than (1) a merger or consolidation which results in the directors of the Company immediately prior to such merger or consolidation continuing to constitute at least a majority of the board of directors of the Company, the surviving entity or any parent thereof or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (other than persons described in any of parts (1) – (4) of subsection (a) above) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 30% or more of the combined voting power of the Company’s then outstanding securities; or

 

(d)          the complete liquidation or dissolution of the Company or the sale or other disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or a majority of the Company’s assets, income or revenue to an entity, at least 70% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

 

4.      Payments and Benefits Upon Termination of Employment.

 

4.1           Termination of Employment by Company without Cause or by Executive for Good Reason. Except as provided in Section 4.4 (relating to the effect of a Change in Control), if Executive’s employment is terminated by Company without Cause pursuant to Section 3.3 or by Executive for Good Reason pursuant to Section 3.5, then, subject to Section 5, Executive shall receive the following payments and benefits:

 

(a)          a single cash payment equal to the sum of (1) the unpaid amount, if any, of Base Salary previously earned by Executive through the date of his termination, and (2) the unpaid amount, if any, of the annual bonus earned by Executive for the preceding year;

 

(b)          payment of any business and other expenses described in Sections 2.7 and 2.8 that were previously incurred but not reimbursed and are otherwise eligible for reimbursement;

 

(c)          any payments or benefits payable to Executive or his covered spouse, or a dependent or beneficiary of Executive, under and in accordance with the provisions of any employee benefit plan of the Company;

 

(d)          a cash payment equal to the product of (1) the greater of (A) the annual bonus award (if any) that would have been earned by Executive for the fiscal year in which his employment terminates if his employment had continued through the end of such year, and (B) the annual bonus earned by Executive for the preceding year, multiplied by (2) a fraction, the numerator of which is the number of days elapsed from the beginning of that fiscal year until the date his employment terminates, and the denominator of which is 365 (“Pro Rata Bonus”), which payment will be made when the bonus for such year would otherwise have been paid;

 

  

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(e)          an amount of severance equal to the greater of (1) 3 times Executive’s annual rate of Base Salary in effect at the time his employment terminates, or (2) 2 times the sum of (A) such annual rate of Base Salary, plus (B) the annual bonus, if any, earned by Executive for the year preceding the year of termination, or, if greater, the target bonus, if any, for the year of termination, which amount (the greater of (1) and (2)) shall be payable ratably for a period of 24 months following such termination of employment as if it were salary payable in accordance with the Company’s normal payroll practices, provided, however, that the initial installment will begin on the 60th day following the date on which Executive’s employment terminates and will include the payments that would otherwise have been made during such 60-day period;

 

(f)          any vested stock options and stock appreciation rights held by Executive at the time of his termination of employment will remain exercisable by the Executive or his beneficiary, as the case may be, for a period of at least three years following the termination of his employment (but in no event later than the stated expiration date of such option or stock appreciation right;

 

(g)         if the Executive and/or his covered spouse or dependents elect COBRA continuation coverage as a result of the termination of Executive’s employment, then the Company will pay the full amount of the COBRA premium for such coverage for a period of up to 18 months following the termination of Executive’s employment, it being understood that Executive may be taxable on the value of such coverage in order to enable the Company to avoid any penalty or additional tax that may otherwise be incurred by reason of the provision of such subsidized COBRA coverage; and

 

(h)          if the Executive is covered by Company-provided life insurance, continuing life insurance benefits for 24 months following the termination of his employment as if Executive’s employment had continued.

 

4.2           Termination Due to Disability or Death. If Executive’s employment is terminated pursuant to Section 3.4 by reason of his death or Disability, then, subject to Section 5, Executive (or, as applicable, his spouse, covered dependents and/or beneficiaries) shall receive the payments and benefits described in Sections 4.1(a) – (d) and 4.1(g), and any vested stock options held by Executive at the time of his termination of employment will remain exercisable by the Executive or his beneficiary, as the case may be, for a period of at least three  years following the termination of his employment (but in no event later than the stated expiration date of the option, as such date may be extended without causing the option to become subject to Section 409A of the Code).

 

4.3           Termination by Company for Cause or Resignation by Executive. If Company terminates Executive’s employment for Cause pursuant to Section 3.1 or if Executive resigns his employment pursuant to Section 3.2 (other than a resignation for Good Reason pursuant to Section 3.5), Executive shall not be entitled to any payments or benefits except for those described in section 4.1 (a)-(c).

 

4.4           Effect of Change in Control.

 

(a)           Vesting of Certain Equity Awards. If a Change in Control occurs, then immediately prior to such Change in Control, Executive will become fully vested in any then outstanding unvested stock options, restricted stock or other equity incentive awards for shares of Company stock, unless and except to the extent that they are assumed by or otherwise converted into economically equivalent stock options, restricted stock or other equity incentive awards with respect to shares of stock of the acquiring company, the surviving company or any of its or their affiliates.

 

  

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(b)           Termination of Employment in Connection with Change in Control. If Executive’s employment is terminated by Company without Cause or by Executive for Good Reason within two years after a Change in Control or within 6 months prior to a Change in Control, then (1) the amount of severance payable to Executive pursuant to Section 4.1(e) (or, as the case may be, the amount remaining to be paid to Executive at the time of a Change in Control occurring within 6 months after the termination of Executive’s employment) will be payable to Executive in a single sum cash payment on the 60th day following his termination of employment (or, if Executive’s employment terminated before the Change in Control, on the later of the date of the Change in Control or the date which is 60 days after the date Executive’s employment terminated); and (2) any stock options and stock appreciation rights that are outstanding at the time of such termination of employment will remain exercisable for at least three years following the date on which the Change in Control occurs or, if later, the date Executive’s employment terminates (but in no event later than the stated expiration date of such option or stock appreciation right).

 

5.      Release of Claims; Restoration of Payments; Section 280G.

 

5.1           Release.  Notwithstanding anything to the contrary contained herein, as conditions to the Company’s being obligated to make the separation payments and provide the benefits described in Sections 4.1(d) – 4.1(h) (and, by extension, Section 4.2)), (a) within 60 days after the date of Executive’s termination, the Company must have received from Executive an executed valid general release of claims substantially in the form attached hereto as Exhibit A, that is no longer subject to revocation, and (b) on or before Executive’s termination date, the Executive shall have (1) turned over all Company property in his possession or control to the Company, and (2) resigned from the Board of the Company and the board of directors or comparable body of every subsidiary or other Affiliate of the Company, and every committee thereof. Executive shall not be entitled to receive such severance payment and benefits if the conditions described in the preceding sentence are not timely satisfied.

 

5.2           Restoration of Payments. Executive’s right to receive any separation payments and benefits pursuant to this Agreement shall be subject to his compliance with the restrictive covenants referenced or set forth in Section 6 and repayment pursuant to this Section. If Executive violates or is in breach of any said restrictive covenants, then (a) Executive shall not be entitled to any further separation payments and benefits under this Agreement, (b) Executive shall be obligated to immediately return to the Company any separation payments and the value of any separation benefits previously received hereunder, and (c) Executive shall have no further rights or entitlements under this Agreement. This Section shall not in any manner supersede or limit any other right the Company may have to enforce or seek legal or equitable relief with respect to a violation or breach by Executive of any of said restrictive covenants.

 

  

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5.3           Section 280G.

 

(a)           General. If any payment or benefit received or to be received by Executive in connection with or contingent on a change in ownership or control of the Company, within the meaning of Section 280G of the Code, whether or not in connection with Executive’s termination of employment, and whether or not pursuant to this Agreement (such payments or benefits being referred to as the “Total Payments”) will be subject to an excise tax as provided for in Section 4999 of the Code (the “Excise Tax”), then Executive will be entitled to receive either (a) the full amount of the Total Payments, or (b) a portion of the Total Payments having a value equal to one dollar less than three times Executive’s “base amount” (as such term is defined in Section 280G(b)(3)(A) of the Code), whichever of clauses (a) and (b), after taking into account applicable federal, state, and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the greatest portion of the Total Payments. For purposes of determining the after-tax amounts in (a) and (b) above, Executive will be deemed to pay federal, state and local income tax at the highest marginal rates, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If there is a reduction of the Total Payments pursuant to the foregoing, then, unless the parties agree otherwise, such reduction will occur in the following order: (A) any cash severance payable under this Agreement; (B) any other cash amount payable to Executive; (C) any benefit valued as a “parachute payment;” and (D) acceleration of vesting of any equity awards.

 

(b)           Determinations. All determinations under this subsection must be made by a nationally recognized accounting firm, which must not be the auditor of the acquiror in the transaction constituting a change in ownership or control of the Company, selected by the Company (the “Auditor”), and the Company will pay all costs and expenses of the Auditor. The Company will cooperate in good faith in making such determinations and in providing the necessary information for this purpose.

 

6.      Restrictive Covenants.

 

6.1           Nondisclosure of Confidential Information; Inventions.

 

(a)      The Company possesses valuable business and technical information, know-how and trade secrets (whether written or oral) related to its and its subsidiaries’ current, future and proposed products, including, but not limited to, research, developments, improvements, methods, procedures, discoveries, patents, patent applications, inventions, processes, formulas, technology, designs, models, drawings, product plans, products, services, customers, customer lists, strategies, studies, business plans, forecasts, markets, techniques, engineering, testing systems, hardware configuration information, computer software and programs (including source code and related documentation), test and/or experimental data and results, laboratory notebooks, marketing, finances or other business information (herein collectively referred to as “Confidential Information”).  Confidential Information shall include any and all information relating to the Company, and its subsidiaries, affiliates, clients, customers, investors, and joint venture and strategic partners.

 

  

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(b)      The Executive is an employee of the Company and as such the Company has and will disclose Confidential Information to the Executive.  The Executive shall not communicate the Company’s Confidential Information to any third party without the prior written consent of the Company, and the Executive shall use his best efforts to prevent inadvertent disclosure of the Company’s Confidential Information to any third party.  The Executive hereby acknowledges that he is aware that United States securities laws prohibits any person who has received from an issuer material, non-public information from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. The obligation of this Section 6.1(b) shall terminate with respect to any particular portion of the Company’s Confidential Information when the Executive can document that the information is part of the public domain other than as a result of the Executive’s or another person’s breach of duty to maintain confidentiality.

 

(c)      In the event that the Executive is requested or required (by oral question or request for information or documents and legal proceedings, interrogatories, subpoena, civil investigative demand or similar process) to disclose Confidential Information of the Company, or if the Executive is advised by his legal counsel that it is legally required to disclose the Confidential Information, it is agreed that the Executive (i) will provide the Company prompt notice of any request or requirement, (ii) will provide the Company full and complete cooperation to seek an appropriate order or remedy, (iii) will cooperate with the Company in obtaining reliable assurances that confidential treatment will be accorded to the disclosure of Confidential Information, and (iv) will, if disclosure of said Confidential Information is required, disclose only that portion of the Confidential Information which is legally required to be disclosed.

 

(d)      The Executive will make full and prompt disclosure to the Company of all inventions, creations, improvements, discoveries, trade secrets, secret processes, technology, know-how, methods, developments, software, and works of authorship or other creative works, whether patentable or not, which are created, made, conceived or reduced to practice by him or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (herein collectively referred to as “Developments”).

 

(e)      The Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications.  However, this Section 6.1(f) shall not apply to Developments that do not relate to the present or planned business or research and development of the Company and which are made and conceived by the Executive not during normal working hours, not on the Company premises and not using the Company’s tools, devices, equipment or Confidential Information.

 

  

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(f)       The Executive agrees to cooperate fully with the Company and to take such further actions as may be necessary or desirable, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments.  The Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development.  The Executive further agrees that if the Company is unable, after reasonable effort, to secure the signature of the Executive on any such papers, any executive officer of the Company shall be entitled to execute any such papers as the agent and the attorney-in-fact of the Executive, and the Executive hereby irrevocably designates and appoints each executive officer of the Company as his/her agent and attorney-in-fact to execute any such papers on his/her behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Development, under the conditions described in this sentence.

 

(g)      Nothing herein shall be construed as giving the Executive any right in or to the Confidential Information or Developments or granting the Executive any license under any intellectual property rights.

 

6.2           Duty to Return Company Documents and Property.  Upon the termination of Executive’s employment with the Company for any reason, Executive shall immediately return and deliver to the Company any and all papers, books, records, documents, memoranda and manuals, e-mail, electronic or magnetic recordings or data, including all copies thereof, belonging to the Company or any of its subsidiaries or relating to the business of the Company or any of its subsidiaries, in Executive’s possession, whether prepared by Executive or others. If at any time after the termination of employment, Executive determines that he has any trade secrets or other confidential information belonging to the Company or any of its subsidiaries in his possession or control, Executive shall immediately return to the Company all such trade secrets and other confidential information, including all copies and portions thereof.

 

6.3           Non-Solicitation. During the period of Executive’s employment or other service with the Company and for 24 months thereafter, Executive shall not, without the prior written consent of the Company, directly or indirectly: (a) solicit, request, advise, entice, persuade, induce, offer to employ, or hire any employee, consultant, or independent contractor employed by or working on behalf of the Company or any of its subsidiaries at any time during the one-year period prior to the Executive’s termination of employment with the Company to leave the Company or any of its subsidiaries or to engage in any activity which, were it done by the Executive, would violate the terms of this Agreement; (b) or solicit, request, advise, entice, persuade or induce any individual or entity, including but not limited to any customer, supplier, vendor, investor, equity or financing source, or other contracting party of the Company or any of its subsidiaries, to terminate, reduce or refrain from continuing or renewing their present or prospective contractual or business relationship with the Company or any of its subsidiaries. Upon request, Executive will execute a standard form of Company non-solicitation agreement, as in effect from time to time for executives generally, which shall apply in addition to and not in lieu of the covenants contained in this Agreement (it being understood that, in the event of any inconsistency, the provisions of this Agreement shall govern).

 

  

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6.4           Non-Competition Restrictions. During the period of Executive’s employment or other service with the Company and for 24 months thereafter, Executive shall not, directly or indirectly, without the prior written consent of the Company, engage in, become financially interested in, be employed by, render any consultation or business advice with respect to, or have any connection with, any business engaged in the research, development, testing, design, manufacture, sale, lease, marketing, utilization or exploitation of any products or services which are designed for the same purpose as, are similar to, or are otherwise competitive with, products or services of the Company or any of its subsidiaries, in any geographic area where, during the period of his employment with the Company or any subsidiary or at the time of the termination of his employment or other service with the Company and its subsidiaries, as the case may be, the business of the Company or any of its subsidiaries was being conducted or was proposed to be conducted in any manner whatsoever; provided, however, that Executive’s mere purchase or holding, for investment purposes, of securities representing less than 5% of the outstanding value or voting interest of a publicly traded company shall not be deemed to be a violation of the provisions of this paragraph.

 

6.5           Reformation. Executive acknowledges that the Company and its subsidiaries conduct their business on a world-wide basis, that their sales and marketing prospects are for continued expansion into world markets and that, therefore, the territorial and time limitations set forth in Section 6.4 are reasonable and properly required for the adequate protection of the business of the Company and its subsidiaries. If a court concludes that any time period and/or the geographic area specified in Section 6.4 is unenforceable, then the time period will be reduced by the number of months, or the geographic area will be reduced by the elimination of the overbroad portion, or both, as the case may be, so that the restrictions may be enforced in the geographic area and for the time to the fullest extent permitted by law.

 

6.6           Remedies. It is intended that, in view of the nature of the Company’s business, the restrictions contained in Sections 6.1 through 6.4 (including, without limitation, the restrictions that are specifically incorporated herein by reference), are considered reasonable and necessary to protect the Company’s legitimate business interests and that any violation of these restrictions would result in irreparable injury to the Company.  In the event of a breach or a threatened breach by Executive of any restrictive covenant contained herein, the Company shall be entitled to a temporary restraining order and injunctive relief restraining Executive from the commission of any breach, and to recover the Company’s attorneys’ fees, costs and expenses related to the breach or threatened breach. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for any breach or threatened breach, including, without limitation, the restoration and other remedies specified in this Agreement and/or the recovery of money damages, attorneys’ fees, and costs.  These covenants and restrictions shall each be construed as independent of any other provisions in the Agreement, and the existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants and restrictions.

 

  

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6.7           Severability.  Should a court determine that any paragraph or sentence, or any portion of a paragraph or sentence of this Section 6 is invalid, unenforceable, or void, this determination shall not have the effect of invalidating or validating the remainder of the paragraph, sentence or any other provision of this Section 6.  Further, it is intended that the court should construe this Section 6 by limiting and reducing it only to the extent necessary to be enforceable under then applicable law.

 

7.      Recoupment Upon Certain Restatement of Financial Statements. If the Company is required to restate all or a portion of its financial statement(s) for any period following the date of this agreement, and if the Board or the Compensation Committee determines that such restatement is attributable in whole or in significant part to fraud, negligence, or intentional misconduct on the part of Executive or known to Executive, then, subject to applicable law, the Board or the Compensation Committee, acting in its discretion, may require Executive to reimburse the Company for the amount of any incentive compensation paid to him, cause the cancellation of outstanding equity compensation awards, and seek reimbursement of any gains otherwise realized by him in respect of the exercise or settlement of any such awards if and to the extent that (a) the amount of such incentive compensation was or will be based upon the achievement of certain financial results that were subsequently reduced due to such restatement, and (b) the amount of the incentive compensation that was, would have been or would be paid or provided to Executive if the financial results had been properly reported would have been lower than the amount actually paid or provided.

 

8.      Assignment. The services and duties to be performed by Executive hereunder are personal and may not be assigned.  This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns and Executive and his heirs and representatives. Company may assign this Agreement to a successor in interest, provided that any such assignee affirmatively adopts and agrees to fulfill all obligations to Executive hereunder.

 

9.      Legal Fees to Enforce Rights after a Change in Control.  If, following a Change in Control, the Company fails to comply with any of its obligations under this Agreement or the Company takes any action to declare this Agreement void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from Executive (or Executive’s beneficiary) the payments and benefits intended to be provided, then Executive (or Executive’s beneficiary, as the case may be) shall be entitled to select and retain counsel at the expense of the Company to represent Executive (or Executive’s beneficiary) in connection with the good faith initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company or any successor thereto in any jurisdiction.

 

  

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10.      No Impediment to Agreement.  Executive covenants that, except as otherwise specifically disclosed herein, he is not, as of the date hereof, aware of any circumstance or condition (legal, health or otherwise), which, in any such case, would constitute an impediment to, or restriction upon, his ability to enter into this Agreement and to perform the duties and responsibilities of his employment hereunder.

 

11.      Arbitration. Except as otherwise specifically provided herein (relating to the Company’s right to obtain injunctive or other equitable relief from a court) or enforcement rights by Executive after a Change of Control, any claim or controversy arising out of or relating to this Agreement or the breach hereof shall be resolved exclusively by arbitration. Any such arbitration will be administered in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association (“AAA”), in the metropolitan area of New York before an experienced employment law arbitrator licensed to practice law in that jurisdiction who has been selected in accordance with such Rules. Each party may be represented by counsel of its or his own choosing and at its or his own expense; provided, however, that attorneys’ fees and costs may be awarded to a prevailing party in the discretion of the arbitrator. The arbitrator’s award will be enforceable, and a judgment may be entered thereon, in a federal or state court of competent jurisdiction in the state where the arbitration was held.  The decision of the arbitrator will be final and binding.

 

12.      Governing Law. This Agreement shall be governed by the laws of the State of New York, excluding its conflict of law rules.

 

13.      Indemnification; D&O Insurance. To the extent permitted by its Certificate of Incorporation and By-laws and subject to applicable law, the Company will indemnify, defend and hold Executive harmless from and against any claim, liability or expense (including reasonable attorneys’ fees) made against or incurred by him as a result of his employment with the Company or any subsidiary or other affiliate of the Company, including service as an officer or director of the Company or any subsidiary or other affiliate of the Company. The Company shall cover Executive under directors and officers liability insurance both during and, while potential liability exists, after the Term, in the same amount and to the same extent as the Company covers its other officers and directors.

 

14.      Withholding. All payments made by Company to or for the benefit of Executive in connection with his employment shall be subject to applicable tax withholding.

 

15.      Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

 

  

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16.      Section 409A.

 

16.1           Parties’ Intent. The intent of the parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement will be interpreted to be in compliance therewith. To the extent any of the payments or benefits required under this Agreement are, or in the opinion of counsel to the Company or Executive, could be interpreted in the future to create, a nonqualified deferred compensation plan that does not meet the requirements of Code Section 409A(a)(2), (3) and (4), the Company and Executive hereby agree to execute any and all amendments to this Agreement or otherwise reform this Agreement as deemed necessary by either of such counsel and reasonably acceptable to the other, and prepared by counsel to the Company, to either cause such payments or benefits not to be a nonqualified deferred compensation plan or to meet the requirement of Code Section 409A. In amending or reforming this Agreement for Code Section 409A purposes, the parties maintain, to the maximum extent practicable, the original intent and economic benefit of this Agreement without subjecting Executive to additional tax or interest; provided further, however, the Company will not be obligated to pay any additional material amount to Executive as a result of such amendment.

 

16.2           Delayed Distribution to Key Employees. If the Company determines in accordance with Code Sections 409A and 416(i), that Executive is a “Specified Employee” (within the meaning of Code Section 409A) of the Company on the date his employment with the Company terminates and, the parties agree that a delay in severance pay and benefits provided under this Agreement is necessary for compliance with Code Section 409A(a)(2)(B)(i), then any severance payments and any continuation of benefits or reimbursement of benefit costs provided under this Agreement, and not otherwise exempt from Code Section 409A (for example, pursuant to the “short-term deferral” or “separation pay” exemptions”), will be delayed until the earlier of (i) the first day of the seventh (7th) calendar month commencing after Executive’s termination of employment, or (ii) Executive’s death, consistent with and to the extent necessary to meet the requirements of Code Section 409A (the “409A Delay Period”). In such event, any such severance payments and the cost of any such continuation of benefits provided under this Agreement that would otherwise be due and payable to Executive during the 409A Delay Period will be paid to Executive in a lump sum cash amount at the end of the 409A Delay Period.

 

16.3           Separation from Service. A termination of employment will not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits following or upon a termination of employment (to the extent such payments or benefits are subject to Code Section 409A) unless such termination also constitutes a “Separation from Service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,” “separation from service” or like terms mean Separation from Service.

 

16.4           Separate Payments. Each payment required under this Agreement will be considered a separate payment for purposes of determining the applicability of or exemption from Section 409A. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period will be within the sole discretion of the Company.

 

  

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16.5           Reimbursements. To the extent that reimbursements or other in-kind benefits under this Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A, (i) all expenses or other reimbursements hereunder will be made no later than the time frame set forth in this Agreement, but in any event, on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive, (ii) any right to reimbursement or in-kind benefits will not be subject to liquidation or exchange for another benefit, and (iii) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year will in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.

 

17.      Counterparts.  This Agreement may be executed in separate counterparts, each of which will be an original and all of which taken together shall constitute one and the same agreement, and any party hereto may execute this Agreement by signing any such counterpart.

 

18.      Amendment or Waiver.  No provision of this Agreement may be modified, amended, waived or terminated except by an instrument in writing signed by the parties to this Agreement.  No course of dealing between the parties will modify, amend, waive or terminate any provision of this Agreement or any rights or obligations of any party under or by reason of this Agreement.  No delay on the part of the Company in exercising any right hereunder shall operate as a waiver of such right.  No waiver, express or implied, by a party of any right or any breach by the other party shall constitute a waiver of any other right of such party or breach by such other party.

 

19.      Notices.  Any notice given to a party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, or express mail to the recipient at his or its last known address.

 

20.      Entire Agreement.  This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes any prior and/or contemporaneous understandings, agreements or representations, written or oral, relating to the subject matter hereof and Executive’s compensation for employment with the Company.

 

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

 

	 	APPLIED DNA SCIENCES, INC.
	 	 	 
	 	By:	  /s/ Kurt H. Jensen 
	 	 	 
	 	/s/ James A. Hayward
	 	 
	 	James A. Hayward

 

  

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EXHIBIT A

SECTION 1.3

PERMITTED ACTIVITIES

 

This Exhibit A is attached to the Employment Agreement (the “Agreement”) made as of July 11, 2011, by and between Applied DNA Sciences, Inc. (“Company”) and James A. Hayward (“Executive”). Subject to Section 1.3 of the Agreement, Executive is permitted to continue to engage in any one or more of the outside business activities listed below.

 

Boards:

 

Not for profit

 

1) Stony Brook Foundation

 

2) Ward Melville Heritage Foundation

 

3) Gallery North Art League

 

Corporate

 

1) Softheon

 

2) Neogenix Corp.

 

3) Neomatrix Corp.

 

4) Evotope

 

  

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EXHIBIT B

FORM OF RELEASE

 

In consideration of the premises and the payments and benefits to be made or provided by Applied DNA Sciences, Inc. (the Company”) to James A. Hayward (the “Executive”) under this Release and the provisions of Section 4 of the Employment Agreement between the parties to which this Exhibit is attached (the “Employment Agreement”) relating to the termination of Executive’s employment with the Company, the Executive, for the Executive and for the executors and administrators of the Executive’s estate, and the Executive’s heirs, successors and assigns, hereby releases and forever discharges the Company and its officers, directors, employees, agents and stockholders from any and all claims, actions, causes of action, suits, sums of money, debts, dues, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, demands or damages of any nature whatsoever or by reason of any matter, cause or thing regardless of whether known or unknown at present, which against the Company or any of its officers, directors, employees, agents or stockholders Executive ever had, now has or may have arising out of or relating to any transaction, dealing, relationship, conduct, act or omission, or any other matters or things occurring or existing at any time prior to and including the date of this Release (collectively defined herein as “Claims”). This Release includes, but is not limited to, all Claims the Executive might have under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§2000e, et. seq.; 42 U.S.C. §§1981, et. seq.; the Americans with Disabilities Act, 29 U.S.C. §§2000e, et. seq.; the Age Discrimination in Employment Act; the Older Workers Benefits Protection Act; the federal Family and Medical Leave Act; Section 451 et. seq.; similar Connecticut laws, the New York State Executive Law, and any and all statutory and common law causes of action for defamation; slander; slander per se; defamation per se; false light; tortious interference with prospective business relationships; assault; sexual assault; battery; sexual harassment; sexual discrimination; hostile work environment; discrimination; retaliation; workers’ compensation retaliation; wrongful termination; intentional infliction of emotional distress; breach of a duty or obligation of any kind or description, including any implied covenant of good faith and fair dealing; and for breach of contract or any tort whatsoever, as well as any expenses or attorney’s fees associated with such Claims. The parties acknowledge that this Release does not either affect the rights and responsibilities of the Equal Employment Opportunity Commission to enforce the Age Discrimination in Employment Act, or justify interfering with the protected right of an employee to file a charge or participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission under the Age Discrimination in Employment Act. In the event the Equal Employment Opportunity Commission commences a proceeding against the Company in which Executive is a named party, the Executive agrees to waive and forego any monetary claims which may be alleged by the Equal Employment Opportunity Commission to be owed to Executive. Notwithstanding the foregoing, nothing in the provisions of this Release shall act as a release by the Executive of any Claims against the Company with respect to (i) any amounts or benefits to which the Executive may become entitled to receive under the Employment Agreement after the date hereof, including the right to indemnity referenced therein, (ii) the Executive’s rights under and in accordance with the terms of any employee benefit plan in which Executive participates, and (iii) any Claims arising with respect to acts, events or occurrences taking place after the date of this Release.

 

  

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The Company has advised the Executive in writing to consult with an attorney prior to executing this Release. By executing this Release, the Executive acknowledges that (a) the Executive has been provided an opportunity to consult with an attorney or other advisor of the Executive’s choice regarding the terms of this Release, (b) Executive has been given twenty-one (21) days (or, if required by applicable law, 45 days) in which to consider whether the Executive wishes to enter into this Release, (c) Executive has elected to enter into this Agreement knowingly and voluntarily, (d) Executive’s waiver of rights or claims is in exchange for the good and valuable consideration herein; and (e) if Executive does so within fewer than twenty-one (21) days (or, if required by applicable law, 45 days) from receipt of this Release, Executive has knowingly and voluntarily waived the remaining time. This Release will become effective, enforceable and irrevocable on the eighth day after the date on which it is executed by the Executive (the “Effective Date”). During the seven-day period prior to the Effective Date, the Executive may revoke this Release by delivering a written notice of revocation to the Company.

 

 

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