EMPLOYMENT AGREEMENT

Interstate General Company L.P. is a publicly traded limited partnership. Its
units are listed on the AMEX and the PSE. It is commonly referred to as IGC.
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the first
day of January 2000, by and among Interstate General Company Limited Partnership
("the Company") and Paul H. Dillon ("Mr. Dillon").

In consideration of the mutual covenants herein contained, the parties agree to
be bound by the following terms and conditions:

I.

POSITION AND AUTHORITY

Mr. Dillon will hold the title Chief Financial Officer of the Company. Mr.
Dillon shall report to the President and to the Chief Executive Officer of the
Company. Mr. Dillon shall have such authority as shall be defined from time to
time by the President, Chief Executive Officer, or the Board of Directors.

II.

TERM

The term of employment of Mr. Dillon by the Company (the "Term") shall begin on
January 1, 2000 and shall expire on December 31, 2000 and thereafter for
successive one-year terms; provided however, that either party may terminate
this Agreement on sixty (60 days) prior written notice, and the Company may
terminate this Agreement for "cause" (defined in Section VIII below) immediately
upon written notice.

 

III.

COMPANY RULES AND REGULATIONS

Mr. Dillon agrees to comply with all directives of the Board of Directors, the
President, and the Chief Executive Officer and all written rules, policies and
regulations of the Company.

IV.

LOCATION OF EMPLOYMENT

Mr. Dillon's office location will be in the Waldorf, Maryland area.

 

V.

DUTIES AND RESPONSIBILITIES

A. Mr. Dillon agrees to devote his entire professional time, energy, and ability
to the proper and efficient performance of professional services for the Company
and their Operating Affiliates. Without the prior express written authorization
of the Company, Mr. Dillon shall not, directly or indirectly, during his
employment with the Company render services of a professional nature to any
other person or firm, whether for compensation or otherwise.

B. If the Company or its affiliates obtains a contract to construct and operate
a waste disposal facility developed by the Company (or its affiliates), Mr.
Dillon agrees to negotiate in good faith a non-compete clause regarding all such
activities and future employment in a like industry.

VI.

COMPENSATION

A. Mr. Dillon shall be compensated by the Company with an annual base salary
payable semi-monthly ("Annual Base Salary"). Initially, the Annual Base Salary
payable to the Employee shall be $100,000, subject to annual adjustment.

B. On June 13, 2000 ("Grant Date"), IGC shall grant Mr. Dillon 7,500 unit
appreciation rights with respect to Class A Units ("Rights"), pursuant to the
Company's Employee Unit Incentive Plan ("the Plan"). The rights shall be subject
to the following terms: (A.) Base Price - $1; (B) Vesting -- 2,500 Rights shall
vest on each January 1, commencing on January 1, 2001, provided Mr. Dillon is
then an employee of IGC; (C.) Expiration Date -- the Rights will cease to be
exercisable upon the sooner of (i) ninety (90) days following the termination of
Mr. Dillon's employment agreement with IGC, or (ii) on the 10th Anniversary of
the Grant Date.

VII.

FRINGE BENEFITS

In addition to the compensation defined above, Mr. Dillon shall be entitled to
the following fringe benefits:

A. Mr. Dillon shall be eligible to participate in the Company' health plans,
life and disability insurance programs, retirement plans, vacation plans and
other employee benefit plans (collectively the "Employee Plans") available to
senior executive employees in accordance with the terms and provisions thereof.

B. Mr. Dillon is a CPA licensed in the state of Maryland. In order to maintain
licensing, forty (40) hours of continuing professional education ("CPE") are
required each year. The Company agrees that it will incur the cost for such CPE
courses and allow Mr. Dillon to attend such courses during normal business
hours. Course selection, and any related travel costs, must first be approved by
the Company's President. Mr. Dillon agrees to use his best professional judgment
in selecting courses relevant to the Company's accounting and economic
requirements.

 

 

VIII.

SEVERANCE

Upon termination of Mr. Dillon's employment, all payment and benefit obligations
of the Company shall immediately terminate except as follows:

A. In the event of a termination of Mr. Dillon's employment due to his death or
disability, Mr. Dillon or his estate shall continue to receive his Annual Base
Salary and benefits (excluding the Specified Benefits) for which Mr. Dillon
remains eligible under the terms of the Company' benefit plans (collectively
"Severance Compensation") for a period commencing on the effective date of Mr.
Dillon's termination determined by the Board (the "Termination Date") and ending
(3) months following the Termination Date; and

B. In the event of a Qualifying Termination (defined below) by the Company, Mr.
Dillon shall receive Severance Compensation for a period commencing on the
Termination Date and ending at the later of (i) the end of the current contract
term, or (ii) three months following the Termination Date.

For purposes of this Agreement, "Qualifying Termination" shall mean any
termination of Mr. Dillon by the Company other than for "cause" or any
termination by Mr. Dillon for "Good Reason". For purposes hereof, "cause" shall
be defined as (i) conviction of a felony, other crime involving theft or fraud,
or other crime of moral turpitude involving the Company, and/or (ii) engaging in
fraud or conduct with the intent of causing substantial harm to the Company. In
the event the Company elects to terminate Mr. Dillon's employment for cause,
such termination may be made effective immediately, and no advance notice shall
be required.

 

For purposes of this Section VIII, Mr. Dillon shall have terminated the
employment for a Good Reason if:

A. Mr. Dillon terminates the employment relationship within two (2) years
following the occurrence of (i) a transaction or series of transactions other
than as a result of a Financial Closing or other equity investment in the
Company which results in the family of James J. Wilson not exercising at least
fifty percent (50%) of the voting control of the Company; or (ii) a transfer of
all or substantially all of the assets of the Company or the merger of the
Company into another entity other than an entity at least 50% of the voting
control of which is held by either IGC or the Wilson family; or

B. Mr. Dillon terminates the employment relationship within six (6) months
following the occurrence of (i) the Company materially reducing, diminishing,
terminating or otherwise impairing his duties, titles and/or responsibilities
despite his written objection delivered to the Board of Directors; (ii) the
Company instructing Mr. Dillon, despite his written objection delivered to the
Board of Directors, to take any action which is in violation of any law,
ordinance or regulation or would require any act of dishonesty or moral
turpitude; or (iii) the Company committing a material breach of any of the
provisions of this Agreement.

IX.

RETURN OF COMPANY MATERIALS

Upon termination of this employment for any reason, Mr. Dillon shall return to
the Company all Company Materials (defined below) and all other items of
personal property, including all Company credit cards, telephone cards, keys,
identification cards and software, that were in Mr. Dillon's possession, custody
or control as of the termination date and that were generated or acquired by him
for use in connection with his employment by the Company (collectively "Company
Materials"). "Company Materials" shall mean all copies of all written materials,
notes, notebooks, minutes, letters, memoranda, books of account, litigation
records, files, drawings, photographs, video recordings, audio recordings,
electronically or magnetically stored data, charts, plans, specifications, maps
and other documents relating to the Company or any of their affiliates, or any
of their respective officers, personnel, customers, suppliers, contractors,
counsel, accountants or other parties having any business relationship with the
Company and any of their affiliates (collectively "Covered Persons"); provided,
that, Company Materials shall not include any written materials or other
documents relating to the foregoing that have been made generally available to
the public without violating any property rights of the Company.

X.

INDEMNIFICATION

The Company agrees to indemnify Mr. Dillon with respect to his performance of
his duties described herein, to the maximum extent permitted by law.

XI.

ARBITRATION; REMEDIES

A. Any dispute or controversy arising between Mr. Dillon and the Company
relating to this Agreement or otherwise to Mr. Dillon's employment by the
Company shall be submitted to private, binding arbitration, upon the written
request of either Mr. Dillon or the Company, before a panel of three
arbitrators, under the administration of and in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). In the event
of such dispute or controversy, the Company and Mr. Dillon shall independently
and simultaneously select and identify one arbitrator each, both of whom must
have no past or present familial or business relationships with the parties and
must possess expertise in the area of compensation of senior management
employees. In the event that a party has not selected its arbitrator within 60
days of initiation of the arbitration, the AAA shall select such arbitrator.
These two arbitrators shall jointly agree upon and select a third arbitrator who
also possesses such credentials. These three arbitrators shall hear and decide
the dispute or controversy by majority vote, and their decision and award shall
be final and conclusive upon the parties, and their heirs, administrators,
executors, successors, and assigns. The arbitrators shall have no power or
authority to add to, subtract from, or otherwise modify the terms of this
Agreement. Wherever the Commercial Arbitration Rules of the AAA conflict with
the procedures set forth in this Section, the terms of this Section shall
govern. Mr. Dillon and the Company agree that the arbitration must be initiated
by personally delivering a statement of claim to the AAA and to the party
against whom the claim is asserted no later than ninety (90) days after the
basis of the claim becomes known, or reasonably should have been known or
discovered, by the party asserting the claim. In the event arbitration is not
initiated within such ninety (90) day period, such claim, dispute, or
controversy shall be irrevocably time-barred. A judgement based upon such
arbitration award may be entered in any court having jurisdiction thereof.

B. Notwithstanding the foregoing, any action brought by the Company seeking a
temporary restraining order, temporary and/or permanent injunction, and/or a
decree of specific performance of the terms of this Agreement may be brought in
a court of competent jurisdiction without the obligation to proceed first to
arbitration.

XII.

ASSIGNMENT AND BINDING EFFECT

Neither party may assign this Agreement, or any obligation or rights hereunder,
to any other person or entity without the express written consent of the other
party. This Agreement shall be binding upon Mr. Dillon and his heirs, executors,
administrator and successors.

XIII.

GOVERNING LAW

This Agreement shall be governed by the laws of the State of Maryland.

XIV.

CAPTIONS

All captions contained in this Agreement are for convenience only and in no way
define or describe the intent of the parties or specific terms hereof.

XV.

SEVERABILITY

If any provision of this Agreement shall to any extent be held invalid or
unenforceable, the remaining terms and provisions shall not be affected thereby.

XVI.

ENTIRE AGREEMENT

This Agreement contains the entire agreement between the parties relating to the
subject matter hereof. All prior negotiations or stipulations concerning any
matter that preceded or accompanied the execution hereof are conclusively deemed
to be superceded hereby.

No provisions of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing signed by Mr.
Dillon and such officer or director as may be specifically designed by the Board
of Directors.

XVII.

NOTICES; MISCELLANEOUS

For purposes of this Agreement, notices and all other communications provided
for in this Agreement shall be in writing and shall be duly given when delivered
by hand or facsimile transmission or when mailed by United States registered or
certified mail, return receipt

requested, postage prepaid, addressed as follows:

If to the Company:

 

Mr. Mark Augenblick

Interstate General Company L.P.

5160 Parkstone Drive

Suite 260 B

Chantilly, VA 20151

 

If to Mr. Dillon:

 

Mr. Paul H. Dillon

3145 Apple Creek Lane

Waldorf, MD 20603

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

XVIII.

WITHHOLDING

Anything in this Agreement to the contrary notwithstanding, all payments
required to be made by the Company to Mr. Dillon or his estate or beneficiaries
shall be subject to the withholding of such amounts relating to taxes as the
Company may reasonably determine it should withhold pursuant to any applicable
law or regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in their sole discretion, accept other provisions for payment of
taxes and withholdings as required by law, provided it is satisfied that all
requirements of law affecting its responsibilities to withhold compensation have
been satisfied.

 

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first set forth below, and the parties represent that they have the capacity and
authorization, whether it be personal or by the Board of Directors of the
Company, to execute this Agreement.

 

INTERSTATE GENERAL COMPANY L.P.

       

Dated: January 1, 2000

By: /s/ Mark Augenblick

 

Mark Augenblick
Vice Chairman, President and Director

 

PAUL H. DILLON

       

Dated: January 1, 2000

By: /s/ Paul H. Dillon

 

 

In order to induce Mr. Dillon to enter into this Employment Agreement,
Interstate Business Corporation, Inc., a Delaware corporation, hereby
unconditionally guarantees the performance of the obligations of IGC under this
Employment Agreement.

 

INTERSTATE BUSINESS CORPORATION

       

Dated: January 1, 2000

By: /s/ J. Michael Wilson

 

J. Michael Wilson
President