Document:

Exhibit
10.31

 

AMERICAN DEFENSE SYSTEMS, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

FOR

 

 

Agreement

 

1.             Grant
of Option.  AMERICAN DEFENSE SYSTEMS, INC., a Delaware
corporation (the “Company”) hereby grants, as of                       
(“Date of Grant”), to                          
(the “Optionee”) an option (the “Option”) to purchase up to              
shares of the Company’s common stock, $.001 par value per share (the “Shares”),
at an exercise price per share equal to $2.00 (the “Exercise Price”).  The Option shall be subject to the terms and
conditions set forth herein.  The Option
was issued pursuant to the Company’s 2007 Incentive Compensation Plan (the “Plan”),
which is incorporated herein for all purposes. 
The Option is a Non-Qualified Stock Option, and not an Incentive Stock
Option.  The Optionee hereby acknowledges
receipt of a copy of the Plan and agrees to be bound by all of the terms and
conditions hereof and thereof and all applicable laws and regulations.

 

2.             Definitions.  Unless otherwise provided herein, terms used
herein that are defined in the Plan and not defined herein shall have the
meanings attributed thereto in the Plan.

 

3.             Exercise
Schedule.  Except as
otherwise provided in Sections 6 or 10 of this Agreement, or in the Plan, the Option
is exercisable in installments as provided below, which shall be cumulative. To
the extent that the Option has become exercisable with respect to a percentage
of Shares as provided below, the Option may thereafter be exercised by the
Optionee, in whole or in part, at any time or from time to time prior to the
expiration of the Option as provided herein. The following table indicates each
date (the “Vesting Date”) upon which the Optionee shall be entitled to exercise
the Option with respect to the percentage of Shares granted as indicated beside
the date, provided that the Continuous Service of the Optionee continues
through and on the applicable Vesting Date:

 

	
  Percentage of Shares

  	
   

  	
  Vesting Date

  
	
   

  	
   

  	
   

  
	
  20%

  	
   

  	
  First anniversary of the Date of Grant

  
	
  40%

  	
   

  	
  Second anniversary of the Date of Grant

  
	
  60%

  	
   

  	
  Third anniversary of the Date of Grant

  
	
  80%

  	
   

  	
  Fourth anniversary of the Date of Grant

  
	
  100%

  	
   

  	
  Fifth anniversary of the Date of Grant

  

 

Except as otherwise specifically provided herein, there shall be no
proportionate or partial vesting in the periods prior to each Vesting Date, and
all vesting shall occur only on the appropriate Vesting Date. Upon the
termination of the Optionee’s Continuous Service, any unvested portion of the
Option shall terminate and be null and void.

 

4.             Method
of Exercise.  The vested
portion of this Option shall be exercisable in whole or in part in accordance
with the exercise schedule set forth in Section 3 hereof by written notice

 

1

 

which
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other representations
and agreements as to the holder’s investment intent with respect to such Shares
as may be required by the Company pursuant to the provisions of the Plan.  Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company.  The written notice shall
be accompanied by payment of the Exercise Price.  This Option shall be deemed to be exercised
after both (a) receipt by the Company of such written notice accompanied
by the Exercise Price and (b) arrangements that are satisfactory to the
Committee in its sole discretion have been made for Optionee’s payment to the
Company of the amount, if any, that is necessary to be withheld in accordance
with applicable Federal or state withholding requirements.  No Shares shall be issued pursuant to the
Option unless and until such issuance and such exercise shall comply with all
relevant provisions of applicable law, including the requirements of any stock
exchange upon which the Shares then may be traded.

 

5.             Method
of Payment.  Payment of
the Exercise Price shall be by any of the following, or a combination thereof,
at the election of the Optionee:  (a) cash;
(b) check; (c) to the extent permitted by the Committee, with Shares
owned by the Optionee, or the withholding of Shares that otherwise would be
delivered to the Optionee as a result of the exercise of the Option, or (d) if
approved by the Committee, pursuant to a “cashless exercise” procedure by
delivery by the Optionee of a properly executed exercise notice together with
such other documentation, and subject to such guidelines, as the Committee shall
require to effect an exercise of the Option and delivery to the Company by a
licensed broker acceptable to the Company of proceeds from the sale of Shares
or a margin loan sufficient to pay the Exercise Price and any applicable income
or employment taxes, or (e) such other consideration or in such other
manner as may be determined by the Committee in its absolute discretion.

 

6.             Termination
of Option.

 

(a)           General.  Any unexercised portion of the Option shall
automatically and without notice terminate and become null and void at the time
of the earliest to occur of the following:

 

(i)            unless the Committee
otherwise determines in writing in its sole discretion, three months after the
date on which the Optionee’s Continuous Service is terminated other than by
reason of (A) by the Company or a Related Entity for Cause, (B) a
Disability of the Optionee as determined by a medical doctor satisfactory to
the Committee, or (C) the death of the Optionee;

 

(ii)           immediately upon the
termination of the Optionee’s Continuous Service by the Company or a Related
Entity for Cause;

 

(iii)          twelve months after the date
on which the Optionee’s Continuous Service is terminated by reason of a
Disability as determined by a medical doctor satisfactory to the Committee;

 

(iv)          (A) twelve months after
the date of termination of the Optionee’s Continuous Service by reason of the
death of the Optionee, or, if later, (B) three months after the 

 

2

 

date on which the Optionee shall die if such
death shall occur during the one year period specified in Section 6(a)(iii) hereof;
or

 

(v)           the seventh anniversary of
the date as of which the Option is granted.

 

(b)           Cancellation.  To the extent not previously exercised, (i) the
Option shall terminate immediately in the event of (A) the liquidation or
dissolution of the Company, or (B) any reorganization, merger,
consolidation or other form of corporate transaction in which the Company does
not survive or the Shares are exchanged for or converted into securities issued
by another entity, or an affiliate of such successor or acquiring entity,
unless the successor or acquiring entity, or an affiliate thereof, assumes the
Option or substitutes an equivalent option or right pursuant to Section 10(c) of
the Plan, and (ii) the Committee in its sole discretion may by written
notice (“cancellation notice”) cancel, effective upon the consummation of any
transaction that constitutes a Change in Control, the Option (or portion
thereof) that remains unexercised on such date. 
The Committee shall give written notice of any proposed transaction
referred to in this Section 6(b) a reasonable period of time prior to
the closing date for such transaction (which notice may be given either before
or after approval of such transaction), in order that the Optionee may have a
reasonable period of time prior to the closing date of such transaction within
which to exercise the Option if and to the extent that it then is exercisable
(including any portion of the Option that may become exercisable upon the
closing date of such transaction).  The
Optionee may condition his exercise of the Option upon the consummation of a
transaction referred to in this Section 6(b).

 

7.             Restrictions While Stock is Not Registered.

 

(a)           Restricted Shares.  Any Shares acquired upon exercise of the
Option specified in Section 1 and (i) all shares of the Company’s
capital stock received as a dividend or other distribution upon such shares,
and (ii) all shares of capital stock or other securities of the Company
into which such shares may be changed or for which such shares shall be
exchanged, whether through reorganization, recapitalization, stock split-ups or
the like, shall be subject to the provisions of this Section 7 at all
times, and only at those times, that Shares are not registered under the
Securities Exchange Act of 1934, as amended (such times during which the Stock
is not so registered sometimes hereinafter being referred to as the “Restricted
Period”) and are during the Restricted Period hereinafter referred to as “Restricted
Securities.”

 

(b)           No Sale or Pledge of
Restricted Securities. 
Except as otherwise provided herein, the Optionee agrees and covenants
that during the Restricted Period he or she shall not sell, pledge, encumber or
otherwise transfer or dispose of, and shall not permit to be sold, encumbered,
attached or otherwise disposed of or transferred in any manner, either
voluntarily or by operation of law (all hereinafter collectively referred to as
“transfers”), all or any portion of the Restricted Securities or any interest
therein except in accordance with and subject to the terms of this Section 7.

 

(c)           Voluntary Transfer
Repurchase Option.  If
the Optionee desires to effect a voluntary transfer of any of the Restricted
Securities during the Restricted Period, the Optionee shall first give written
notice to the Company of such intent to transfer (the “Offer Notice”)
specifying (i) the number of the Restricted Securities (the “Offered
Shares”) and the date of the 

 

3

 

proposed transfer (which shall not be less
than fifty (50) days after the giving of the Offer Notice), (ii) the name,
address, and principal business of the proposed transferee (the “Transferee”),
and (iii) the price and other terms and conditions of the proposed
transfer of the Offered Shares to the Transferee.  The Offer Notice by the Optionee shall
constitute an offer to sell all, but not less than all, of the Offered Shares,
at the price and on the terms specified in such Offer Notice, to the Company
and/or its designated purchaser.  If the
Company desires to accept the Optionee’s offer to sell, either for itself or on
behalf of its designated purchaser, the Company shall signify such acceptance
by written notice to Optionee within fifty (50) days following the giving of
the Option Notice.  Failing such
acceptance, the Optionee’s offer shall lapse on the fifty-first day following
the giving of the Option Notice.  With
such written acceptance, the Company shall designate a day not later than ten
days following the date of giving its notice of acceptance on which the Company
or its designated purchaser shall deliver the purchase price of the Offered
Shares (in the same form as provided in the Offer Notice) and the Optionee shall
deliver to the Company or its designated Purchaser, as applicable, all
certificates evidencing the Offered Shares endorsed in blank for transfer or
with separate stock powers endorsed in blank for transfer.  The Company may in its sole and absolute
discretion, notify the Optionee within fifty-one days following the giving of
the Option Notice that it does not permit the transfer of the Offered Shares to
the Transferee pursuant to the terms and conditions set forth in the Option
Notice in which event any such transfer or attempted transfer by the Optionee
to the Transferee shall be null and void. Upon the lapse without acceptance by
the Company of the Optionee’s offer to sell the Offered Shares, and unless the
Company shall provide written notice to the Optionee within fifty-one days
following the giving of the Option Notice that it will not permit the transfer
of the Offered Shares to the Transferee pursuant to the terms and conditions
set forth in the Option Notice, the Optionee shall be free to transfer the
Offered Shares not purchased by the Company or the designated purchaser to the
Transferee (and no one else), for a price and on terms and conditions which are
no more favorable to the Transferee than those set forth in the Offer Notice,
for a period of thirty days thereafter, but after such period the restrictions
of this Section 7 shall again apply to the Restricted Securities.  The Offered Shares so transferred by the
Optionee to the Transferee shall continue to be subject to all of the terms and
conditions of this Section 7 (including without limitation Section 7(f))
and the Company shall have the right to require, as a condition of such
transfer, that the Transferee execute an agreement substantially in the form
and content of the provisions of this Section 7, as well as any voting
agreement and/or shareholders agreement required by the Company.

 

(d)           Involuntary Transfer
Repurchase Option.  Whenever, during the Restricted Period, the
Optionee has any notice or knowledge of any attempted, pending, or consummated
involuntary transfer or lien or charge upon any of the Restricted Securities,
whether by operation of law or otherwise, the Optionee shall give immediate
written notice thereof to the Company. 
Whenever the Company has any other notice or knowledge of any such
attempted, impending, or consummated involuntary transfer, lien, or charge, it
shall give written notice thereof to the Optionee.  In either case, the Optionee agrees to
disclose forthwith to the Company all pertinent information in his possession
relating thereto.  If during the
Restricted Period any of the Restricted Securities are subjected to any such
involuntary transfer, lien, or charge, the Company and its designated purchaser
shall at all times have the immediate and continuing option to purchase such of
the Restricted Securities upon notice by the Company to the Optionee or other
record holder at a price and on terms determined according to Section 7(g) below,
and any of the 

 

4

 

Restricted Securities so purchased by the
Company or its designated purchaser shall in every case be free and clear of
such transfer, lien, or charge.

 

(e)           Excepted Transfers.  The provisions of Sections 7(a) and (b) shall
not apply to transfers by the Optionee, either during his or her lifetime or
upon his or her death, to his or her spouse and/or lineal descendants, to the
trustee of any trusts for the sole benefit of the Optionee and/or the Optionee’s
spouse and/or the Optionee’s lineal descendants; provided, however, that during
the Restricted Period the Optionee shall continue to be subject to all of the
terms and provisions of this Section 7 with respect to any remaining
present or future interest whatsoever he or she may have in the transferred
Restricted Securities, and, further provided that during the Restricted Period
any shares transferred pursuant to this subsection (e) shall continue to
be treated as Restricted Securities and the transferee of any such Restricted
Securities shall likewise be subject to all such terms and conditions of this Section 7
as though such transferee were a party hereto.

 

(f)            Repurchase Option After
Termination of Continuous Service.  Anything set forth in this Agreement to the
contrary notwithstanding, the Company shall have the right (but not the
obligation) to purchase or designate a purchaser of all, but not less than all,
of the Restricted Securities (including, without limitation, any Restricted
Securities transferred pursuant to Section 7(e)) during the Restricted
Period and after termination of the Optionee’s Continuous Service for any
reason, for the purchase price and on terms specified in Section 7(g) hereof.  The Company may exercise its right to
purchase or designate a purchaser of the Restricted Securities at any time
(without any time limitation) after the Optionee’s termination of Continuous
Service and during the Restricted Period. 
If the Company chooses to exercise its right to purchase the Restricted
Securities hereunder, the Company shall give its notice of its exercise of this
right to the Optionee or his or her legal representative specifying in such
notice a date not later than ten (10) days following the date of giving
such notice on which the Company or its designated purchaser shall deliver, or
be prepared to deliver, the check or promissory note for the purchase price and
the Optionee or his or her legal representative shall deliver all stock
certificates evidencing such Restricted Securities duly endorsed in blank for
transfer or with separate stock powers endorsed in blank for transfer.

 

(g)           Repurchase Price.  For purposes of Sections 7(d) and (f) hereof,
the per share purchase price of Restricted Securities shall be an amount equal
to the Fair Market Value of such Share, determined by the Committee as of any
date determined by the Committee that is not more than one year prior to the
date of the event giving rise to the Company’s right to purchase such
Restricted Securities.  Notwithstanding
the foregoing, if the event that gives rise to the Company’s right to
repurchase the Restricted Securities is the termination of Optionee’s
Continuous Service by the Company or a Related Entity for Cause, the per share
purchase price of the Restricted Securities shall be an amount equal to the
lesser of (i) the Fair Market Value of such Share (as determined in
accordance with the previous sentence), and (ii) the original purchase
price per share the Optionee paid for such Restricted Securities.  Any determination of Fair Market Value made
by the Committee shall be binding and conclusive on all parties.  The purchase price shall, at the option of
the Company, be payable in cash or in the form of the Company’s promissory note
payable in up to three equal annual installments commencing 12 months after the
acquisition by the Company (the “Restricted Share Acquisition Date”) of the
Restricted Securities, together with interest on the unpaid balance thereof at
the rate equal to the 

 

5

 

prime rate of interest as quoted in the Wall
Street Journal on the Restricted Share Acquisition Date.

 

(h)           Legends.  The certificate or certificates representing
any Restricted Securities acquired pursuant to the exercise of this Option
prior to the last day of the Restricted Period shall bear the following legends
(as well as any legends required by applicable state and federal corporate and
securities laws):

 

THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”)
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.

 

THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF
FIRST REFUSAL AND REPURCHASE OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS
SET FORTH IN A NONQUALIFIED STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER.  SUCH
TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE RIGHTS ARE BINDING
ON TRANSFEREES OF THESE SHARES.

 

8.             Transferability.  Unless otherwise determined by the Committee,
the Option granted hereby is not transferable otherwise than by will or under
the applicable laws of descent and distribution, and during the lifetime of the
Optionee the Option shall be exercisable only by the Optionee, or the Optionee’s
guardian or legal representative. In addition, the Option shall not be
assigned, negotiated, pledged or hypothecated in any way (whether by operation
of law or otherwise), and the Option shall not be subject to execution, attachment
or similar process. Upon any attempt to transfer, assign, negotiate, pledge or
hypothecate the Option, or in the event of any levy upon the Option by reason
of any execution, attachment or similar process contrary to the provisions
hereof, the Option shall immediately become null and void.  The terms of this Option shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.

 

9.             No
Rights of Stockholders.  Neither the Optionee nor any personal
representative (or beneficiary) shall be, or shall have any of the rights and
privileges of, a stockholder of the Company with respect to any Shares
purchasable or issuable upon the exercise of the Option, in whole or in part,
prior to the date on which the Shares are issued.

 

6

 

10.           Acceleration of
Exercisability of Option.

 

(a)           Acceleration
Upon Certain Terminations or Cancellations of Option.  This Option shall become immediately fully
exercisable in the event that, prior to the termination of the Option pursuant
to Section 6 hereof, (i) the Option is terminated pursuant to Section 6(b)(i) hereof,
or (ii) the Company exercises its discretion to provide a cancellation
notice with respect to the Option pursuant to Section 6(b)(ii) hereof.

 

(b)           Acceleration
Upon Change in Control.  This Option shall become immediately fully
exercisable in the event that, prior to the termination of the Option pursuant
to Section 6 hereof, and during the Optionee’s Continuous Service, there
is a “Change in Control”, as defined in Section 9(b) of the Plan.

 

(c)           Exception
to Acceleration Upon Change in Control.  Notwithstanding the foregoing, if in the
event of a Change in Control the successor company assumes or substitutes for
the Option, the vesting of the Option shall not be accelerated as described in Section 10(b).  For the purposes of this paragraph, the
Option shall be considered assumed or substituted for if following the Change
in Control the Option or substituted option confers the right to purchase, for
each Share subject to the Option immediately prior to the Change in Control,
the consideration (whether stock, cash or other securities or property)
received in the transaction constituting a Change in Control by holders of
Shares for each Share held on the effective date of such transaction (and if
holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares); provided,
however, that if such consideration received in the transaction constituting a
Change in Control is not solely common stock of the successor company or its
parent or subsidiary, the Committee may, with the consent of the successor
company, or its parent or subsidiary, provide that the consideration to be
received upon the exercise or vesting of the Option will be solely common stock
of the successor company or its parent or subsidiary substantially equal in
Fair Market Value to the per share consideration received by holders of Shares
in the transaction constituting a Change in Control.  The determination of such substantial
equality of value of consideration shall be made by the Committee in its sole
discretion and its determination shall be conclusive and binding.

 

11.           No Right to Continued
Employment.  Neither the
Option nor this Agreement shall confer upon the Optionee any right to continued
employment or service with the Company.

 

12.           Law Governing.  This Agreement shall be governed in
accordance with and governed by the internal laws of the State of Delaware.

 

13.           Interpretation /
Provisions of Plan Control. This Agreement is subject to all the
terms, conditions and provisions of the Plan, including, without limitation,
the amendment provisions thereof, and to such rules, regulations and
interpretations relating to the Plan adopted by the Committee as may be in
effect from time to time. If and to the extent that this Agreement conflicts or
is inconsistent with the terms, conditions and provisions of the Plan, the Plan
shall control, and this Agreement shall be deemed to be modified accordingly.
The Optionee accepts the Option subject to all of the terms and provisions of
the Plan and this Agreement.  The
undersigned Optionee hereby accepts as binding, conclusive and final all
decisions or

 

7

 

interpretations
of the Committee upon any questions arising under the Plan and this Agreement,
unless shown to have been made in an arbitrary and capricious manner.

 

14.           Notices.  Any notice under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered personally
or when deposited in the United States mail, registered, postage prepaid, and
addressed, in the case of the Company, to the Company’s Secretary at 230 Duffy
Avenue, Unit C, Hicksville, NY 11801, or if the Company should move its
principal office, to such principal office, and, in the case of the Optionee,
to the Optionee’s last permanent address as shown on the Company’s records,
subject to the right of either party to designate some other address at any
time hereafter in a notice satisfying the requirements of this Section.

 

15.           Market Stand-Off Agreement.  In the event of an initial public offering of
the Company’s securities and upon request of the Company or the underwriters
managing any underwritten offering of the Company’s securities, the Optionee
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Shares (other than those included in
the registration) acquired pursuant to the exercise of the Option, without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time (not to exceed 180 days) from the effective date of
such registration as may be requested by the Company or such managing
underwriters.

 

16.           Optionee’s Representations.  In the event that the Company’s issuance of
the Shares purchasable pursuant to the exercise of this Option has not been
registered under the Securities Act of 1933, as amended, at the time this
Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver to
the Company his or her Investment Representation Statement in the form attached
to this Agreement as Exhibit A or in such other form as the Company may
request.

 

IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of
the            day of
                                      ,
2007.

 

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AMERICAN
  DEFENSE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  

 

8

 

The
Optionee acknowledges receipt of a copy of the Plan and represents that he or
she has reviewed the provisions of the Plan and this Option Agreement in their
entirety, is familiar with and understands their terms and provisions, and hereby
accepts this Option subject to all of the terms and provisions of the Plan and
the Option Agreement.  The Optionee
further represents that he or she has had an opportunity to obtain the advice
of counsel prior to executing this Option Agreement.

 

	
  Dated:

  	
   

  	
   

  	
  OPTIONEE:

  
	
   

  	
   

  	
   

   

  
	
   

  	
   

  	
  By:

  	
   

  

 

9

 

EXHIBIT A

 

INVESTMENT REPRESENTATION STATEMENT

 

	
  PURCHASER

  	
  :

  	
   

  
	
   

  	
   

  	
   

  
	
  COMPANY

  	
  :

  	
  AMERICAN
  DEFENSE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
  SECURITY

  	
  :

  	
   

  
	
   

  	
   

  	
   

  
	
  AMOUNT

  	
  :

  	
   

  
	
   

  	
   

  	
   

  
	
  DATE :

  	
   

  

 

In
connection with the purchase of the above-listed Securities, I, the Purchaser,
represent to the Company the following:

 

(a)           I am aware of the
Company’s business affairs and financial condition, and have acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the Securities. I am purchasing these Securities for my own
account for investment purposes only and not with a view to, or for the resale
in connection with, any “distribution” thereof for purposes of the Securities
Act of 1933, as amended (the “Securities Act”).

 

(b)           I understand that
the Company’s issuance of the Securities has not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the “SEC”), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.

 

(c)           I further understand
that the Securities must be held indefinitely unless the transfer is
subsequently registered under the Securities Act or unless an exemption from
registration is otherwise available. Moreover, I understand that the Company is
under no obligation to register any transfer of the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless registered
or such registration is not required in the opinion of counsel for the Company.

 

(d)           I am familiar with
the provisions of Rule 701 and Rule 144, each promulgated under the
Securities Act, which, in substance, permit limited public resale of “restricted
securities” acquired, directly or indirectly, from the issuer thereof, in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of
issuance of the Securities, such issuance will be exempt from

 

10

 

registration
under the Securities Act. In the event the Company later becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter the securities exempt under Rule 701
may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the sale
being made through a broker in an unsolicited “broker’s transaction” or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount of
securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable. Notwithstanding this
paragraph (d), I acknowledge and agree to the restrictions set forth in
paragraph (e) hereof.

 

In
the event that the Company does not qualify under Rule 701 at the time of
issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which
requires among other things: (1) the availability of certain public
information about the Company, (2) the resale occurring not less  than one  year after the
party has purchased, and made full payment for, within the meaning of Rule 144,
the securities to be sold; and, in the case of an affiliate, or of a
non-affiliate who has held the securities less than two years, (3) the
sale being made through a broker in an unsolicited “broker’s transaction” or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934) and the amount of securities being sold during
any three month period not exceeding the specified limitations stated therein,
if applicable.

 

(e)           I further understand
that in the event all of the applicable requirements of Rule 144 or Rule 701
are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 and Rule 701 are not
exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 or Rule 701 will
have a substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own
risk.

 

	
   

  	
  Signature
  of Purchaser:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
				

 

11Exhibit 10.32

 

EMPLOYMENT AGREEMENT

 

This
EMPLOYMENT AGREEMENT (“Agreement”) is effective this 1st day of January, 2007, between American Defense
Systems, Inc. (“the Company”) and Victor L. LaSala (“Executive”)
(sometimes referred to herein individually as “Party” or collectively as “Parties”).

 

WHEREAS,
the Company, having employed Executive on an ongoing basis, now wishes to
formalize the relationship and employ Executive on the terms and conditions
contained in this Agreement; and Executive wishes to accept such employment.

 

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

 

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

 

2.     EMPLOYMENT.

 

2.1.  Position and Term. 
The Company hereby employs Executive as Vice President of Research &
Development, reporting directly to the Company’s Chief Executive Officer, and
Executive hereby accepts said employment and agrees to render such services to
the Company on the terms and conditions set forth in this Agreement.  Unless terminated in accordance with Section 5
below, this Agreement shall terminate five (5) years from the Effective
Date of this Agreement (the “Initial Term”); provided, however, that, while
this Agreement is in effect, beginning one (1) year following the
Effective Date and continuing on each one-year anniversary of the Agreement
(the “Annual Renewal Date”), this Agreement shall be automatically extended for
an additional one (1) year (“Renewal Term”), unless one of the Parties
gives the other Party written notice of non-renewal (in accordance with Section 6.2
below) at least thirty (30) days before the impending Annual Renewal Date (in
which event this Agreement shall continue in effect for the remainder of the
then current Term).  Reference herein to “Term”
shall refer both to the Initial Term and any successive Renewal Term, as the
context requires.

 

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

 

3.     COMPENSATION
AND BENEFITS.

 

3.1.  Base Salary.  For
services rendered by Executive under this Agreement, the Company shall pay
Executive a minimum base salary of $173,880 per year (“Base Salary”).  The Company’s Chief Executive Officer shall
review and Executive’s Base Salary on an annual basis and may, in his sole
discretion, increase the Base Salary from time to time in such amounts as may
determined by him.  Said Base Salary
shall be

 

1

 

payable
in accordance with the Company’s regular payroll practices for executive
employees.

 

3.2.  Bonus(es).  Executive shall be entitled
to the bonus or bonuses set forth in Schedule A hereto, which is incorporated
by reference hereto.

 

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

 

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

 

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

 

4.     SUPPORT
AND EXPENSES

 

4.1.  Support.  The Company shall provide Executive with
secretarial, administrative and support staff, and furnished offices and
conference facilities, in the Hicksville, New York area, and in such other
location, if any, in which Executive hereafter agrees to perform services on
behalf of the Company, all of which shall be consistent with Executive’s duties
and sufficient for the efficient performance of those duties.

 

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

 

5.     TERMINATION.

 

5.1.  Termination Due to Death.  This Agreement shall terminate automatically
upon Executive’s death, in which event the Company shall promptly pay his
spouse or estate, as applicable, all compensation, expenses and other amounts
owed to him as of the

 

2

 

date
of his death and thereafter shall have no further obligation to pay him
compensation (unless required by applicable law).

 

5.2.  Termination Due to
Disability.  The Company
shall have the right to terminate Executive’s employment due to his Disability,
in which event the Company shall promptly pay him all compensation, expenses
and other amounts owed to him as of the Date of Termination (as defined in Section 5.10
below) and thereafter shall have no further obligation to pay him compensation
(unless required by applicable law).  “Disability”
for purposes of this Section shall mean Executive is unable to perform the
essential functions of his position with or without accommodation due to a
disability (as such term is defined in the Americans with Disabilities Act) for
at least six months in the aggregate during any twelve month period.  This definition shall be interpreted and
applied consistent with the Americans with Disabilities Act and other
applicable laws.

 

5.3.  Termination by Executive
without Good Reason.  Executive
shall have the right to terminate his employment at any time without Good
Reason (as that term is defined in Section 5.6 below, and subject to the
conditions specified in Section 5.10 below), in which event the Company
shall promptly pay him all compensation, expenses and other amounts owed to him
as of the Date of Termination (as defined in Section 5.10 below) and
thereafter shall have no further obligation to pay him compensation (unless
required by applicable law).

 

5.4.  Termination by the Company
Without Cause.  The Company
shall have the right to terminate Executive’s employment without Cause upon sixty
(60) days written notice (subject to and in accordance with Sections 5.10 and
6.2 below), in which event the Company shall: (a) on the Date of
Termination, pay Executive all compensation, expenses and other amounts owed to
him as of the Date of Termination (as defined in Section 5.10 below); and (b) continue
to pay Executive’s Base Salary (in effect as of the Date of Termination) for
the remainder of the Term or for two (2) years after the Date of
Termination, whichever is greater; provided however, that upon a termination
pursuant to this Section 5.4 within six (6) months before the
effective date of a Change in Control (as defined herein), or within eighteen
(18) months following the effective date of such a Change in Control, the
Company shall continue to pay Executive’s Base Salary for the remainder of the
Term or for three (3) years after the Date of Termination, whichever is
greater.  “Change in Control” as used in
this Agreement means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:  (i)  any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) (an “Exchange Act Person”) becomes the “beneficial owner” (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the combined voting
power of the Company’s then outstanding securities other than by virtue of a
merger, consolidation or similar transaction. 
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because the level of ownership held by any Exchange Act Person
(the “Subject Person”) exceeds the designated percentage threshold of the
outstanding voting securities as a result of a repurchase or other acquisition
of voting securities by the Company reducing the number of shares outstanding,
provided that if a Change in Control would occur (but for the

 

3

 

operation
of this sentence) as a result of the acquisition of voting securities by the
Company, and after such share acquisition, the Subject Person becomes the owner
of any additional voting securities that, assuming the repurchase or other
acquisition had not occurred, increases the percentage of the then outstanding
voting securities owned by the Subject Person over the designated percentage
threshold, then a Change in Control shall be deemed to occur;  (ii) there is consummated a merger, consolidation or
similar transaction involving (directly or indirectly) the Company if,
immediately after the consummation of such merger, consolidation or similar
transaction, the stockholders of the Company immediately prior thereto do not
own, directly or indirectly, either (A) outstanding voting securities
representing more than fifty percent (50%) of the combined outstanding voting
power of the surviving entity in such merger, consolidation or similar
transaction or (B) more than fifty percent (50%) of the combined
outstanding voting power of the parent of the surviving entity in such merger,
consolidation or similar transaction; (iii)  there is consummated a sale,
lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its subsidiaries, other than a sale,
lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its subsidiaries to an entity, more than
fifty percent (50%) of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially the same
proportion as their ownership of the Company immediately prior to such sale,
lease, license or other disposition; or (iv)  during any period of 12
consecutive months, individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period.

 

5.5.  Termination by the Company
for Cause.  The Company
shall have the right to terminate Executive’s employment for Cause subject to
the conditions set forth herein.  If the
Company terminates Executive’s employment for Cause, the Company shall promptly
pay Executive all compensation, expenses and other amounts owed to him as of
the Date of Termination (as defined in Section 5.10 below) and thereafter
shall have no further obligation to pay him compensation.  As used in this Agreement, “Cause” shall mean
any of the following: (a) Executive’s conviction of a felony crime; (b) Executive’s
commission of fraud against, or embezzlement or material misappropriation from,
the Company; or (c) Executive’s material breach of this Agreement.  With respect to matters relating to
subsections 5.5(b) and (c) herein, the Board shall give Executive
prompt notice (in accordance with Section 6.2 below), and shall afford
Executive thirty days after his receipt of such written notice to cure such
grounds.  Cause shall be determined in
good faith by the affirmative vote of a majority of the whole Board (excluding
Executive if he is a member of the Board) after Executive has been provided the
opportunity to make a presentation to the Board (which presentation may be with
counsel).

 

5.6.  Termination by Executive for Good Reason.  Executive shall have the right to terminate
his employment for Good Reason, in which event he shall be entitled to receive
the same payments and benefits specified in Section 5.4 of this
Agreement.  “Good Reason” shall mean the
occurrence of any of the following without Executive’s prior express written
consent: (a) the Company, or a successor as contemplated in Section 6.1

 

4

 

below,
breaches any material term of this Agreement; (b) the Company, or a
successor as contemplated in Section 6.1 below, makes or causes a material
adverse change in his functions, duties or responsibilities; (c) the
Company, or a successor as contemplated in Section 6.1 below, reduces his
Base Salary (as the same may be increased from time to time); (d) the
Company, or a successor as contemplated in Section 6.1 below, causes or
allows a material reduction in his entitlement to benefits under Section 3
above (except to the extent permitted by Section 3.5 thereof); (e) the
Company, or a successor as contemplated in Section 6.1 below, requires him
to work in an office more than twenty-five (25) miles from the location of his
current principal executive office (except for required travel on the Company’s
business to an extent substantially consistent with Executive’s business travel
obligations); (f) the Company, or a successor as contemplated in Section 6.1
below, terminates Victor L. LaSala’s employment without Cause, or Victor L.
LaSala terminates his employment for Good Reason; and (g) the Company, or
a successor as contemplated in Section 6.1 below, fails to obtain the
assumption of, and agreement to perform, this Agreement by a successor as
contemplated in Section 6.1 below. 
In order to terminate his employment under this Section, Executive
shall: (i) give the Company written notice of termination under this Section (subject
to and in accordance with Sections 5.10 and 6.2 below) within ninety (90) days
of the most recent event(s) constituting grounds for termination under
this Section; and (ii) give the Company thirty (30) days written notice
(subject to and in accordance with Sections 5.10 and 6.2 below) of such
termination, during which thirty (30) day period the Company shall be afforded
the opportunity to cure the deficiencies giving rise to such termination.

 

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

 

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

 

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

 

5.10.  Notice of Termination. 
Any purported termination of Executive’s employment by the Company for
any reason, or by Executive for any reason, shall be communicated by a written “Notice
of Termination” to the other Party.  A “Notice
of Termination” shall mean a dated notice that: (a) indicates the specific
termination provision in this Agreement relied on; (b) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive’s employment under the provision so indicated; (c) specifies
a Date of Termination; and (d) is given in the manner specified in Section 6.2.  “Date of Termination” shall mean the later
of: (i) the

 

5

 

date
specified in the Notice of Termination required by this Section; and (ii) the
date Notice of Termination is deemed to have been duly given in accordance with
Section 6.2 of this Agreement.

 

6.     GENERAL
PROVISIONS.

 

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

 

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

 

	
  To
  the Company:

  	
   

  	
  American
  Defense Systems, Inc.

  
	
   

  	
   

  	
  230
  Duffy Ave., Unit C

  
	
   

  	
   

  	
  Hicksville,
  NY 11801

  
	
   

  	
   

  	
   

  
	
  To
  Executive:

  	
   

  	
  [INSERT
  APPLICABLE ADDRESS]

  

 

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

 

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

 

6.4.  Tax Treatment of Payments
and/or Benefits.  Each payment
made pursuant to the terms of this Agreement is intended as a separate payment
within the meaning of Code Section 409A and Department of Treasury
regulations and other interpretive guidance issued thereunder.  To the extent applicable and notwithstanding
any other provision in this Agreement, this Agreement and payments or benefits
hereunder shall be administered, operated and interpreted in accordance with
Code Section 409A and Department of Treasury regulations and other
interpretive guidance issued thereunder, including without limitation any such
regulations or other guidance that may be issued after the Effective Date of
this Agreement; provided, however, in the event that the Company determines
that any payments or benefits hereunder may be taxable to

 

6

 

Executive
under Code Section 409A and related Department of Treasury guidance prior to
the payment and/or delivery of such amount, the Company may (i) adopt such
amendments to the Agreement that the Company reasonably and in good faith
determines necessary or appropriate to preserve the intended tax treatment of
the benefits provided under this Agreement and/or (ii) take such other
actions, including delaying the payment or delivery hereunder, as the Company
determines necessary or appropriate to comply with or exempt the payments or
benefits from the requirements of Code Section 409A.

 

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

 

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

 

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

 

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

 

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

 

7

 

shall be disqualified from serving as
arbitrator.  The arbitrator may, in the
award, allocate all or part of the costs, fees and expenses of the arbitration,
including the arbitrator’s fees and the prevailing Party’s attorneys’
fees.  Judgment on the arbitration award
may be entered in any court having jurisdiction.  The
provisions of this Section may be enforced by any court of competent
jurisdiction, and the Party seeking enforcement shall be entitled to an award
of all costs, fees and expenses, including attorneys’ fees, to be paid by the
Party against whom enforcement is ordered.

 

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

 

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

 

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

 

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

 

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

 

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

 

 

	
  American Defense
  Systems, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Anthony J. Piscitelli

  	
   

  	
  /s/ Victor L. La Sala

  
	
   

  	
  Anthony J. Piscitelli

  	
   

  	
  Victor L. La. Sala

  
	
   

  	
  Chief Executive Officer

  	
   

  	
   

  

 

8

 

SCHEDULE A

VICTOR L. LASALA EMPLOYMENT AGREEMENT

 

3.2.  Annual Bonuses.  For the 2007 fiscal year, Executive shall be
entitled to earn and be paid an annual bonus (“2007 Annual Bonus”) based on his
performance.  The Company shall
determine, reasonably and in good faith, the amount of the 2007 Annual
Bonus.  The 2007 Annual Bonus shall be
paid in cash not later than the ninetieth (90th) day following the last day of the 2007 fiscal year
and in a manner in accordance with the Company’s regular payroll practices for
executive employees.  Beginning with the
2008 fiscal year, Executive shall be entitled to earn and be paid an annual
bonus each fiscal year of 1.25% of the increase in the Company’s EBITDA over
the preceding fiscal year (“Annual Bonus”). 
(For example, in 2008 Executive would be entitled to 1.25% of the amount
by which EBITDA for the fiscal year ended in 2008 is greater than the FYE in
2007.)  The Annual Bonus, if earned,
shall be paid in cash within sixty (60) days following the date the Company’s
auditors issue their audit report on the Company’s financial statements for the
fiscal year with respect to which such Annual Bonus relates, and in any event
not later than one hundred (120) days after the last day of such fiscal year,
and in a manner in accordance with the Company’s regular payroll practices for
executive employees.  The payment of the
Annual Bonus shall be prorated for any partial fiscal year during the
Term.  The term “EBITDA” means earnings
before interest income, interest expense, taxes, depreciation and amortization
of the Company’s consolidated businesses each as determined in accordance with
U.S. generally accepted accounting principles. 
If otherwise eligible, Executive: (a) need not be employed by the
Company at the time the 2007 Annual Bonus and/or the Annual Bonus is/are
calculated and/or paid out in order to receive the 2007 Annual Bonus or Annual
Bonus, as applicable; and (b) is entitled to a pro-rated portion of 2007
Annual Bonus or the Annual Bonus, as applicable, if his employment terminates
for any reason before the end of the applicable fiscal year.

 

3.5  Benefits.

 

3.5.1.  Vacation.  Executive shall be entitled to four (4) weeks
of paid vacation each calendar year.  In
the event that the Company terminates Executive’s employment without Cause or
Executive terminates his employment for Good Reason, the Company shall pay
Executive for all unused vacation for the remainder of the Company’s then
current fiscal year.

 

3.5.2.  D&O Liability Insurance. 
The Company shall provide
Executive with directors’ and officers’ liability insurance coverage in an
amount that the Company, reasonably and in good faith, determines to be
appropriate and affordable.  After the
expiration of Executive’s employment and/or the termination of this Agreement,
the Company shall provide Executive with directors’ and officers’ liability
insurance coverage in an amount and for a period of time that the Company,
reasonably and in good faith, determines to be appropriate and affordable.

 

9

 

3.5.3.  Life Insurance.  The Company shall provide Executive with life
insurance in accordance with the terms of any applicable life insurance plan
established by the Company.

 

3.5.4.  Long-Term Disability
Insurance.  The Company
shall provide Executive with long-term disability insurance in accordance with
the terms of any applicable long-term disability plan established by the
Company.

 

10

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