EMPLOYMENT AGREEMENT

(as amended and restated)

THIS EMPLOYMENT AGREEMENT

(the "Agreement") is entered into as of September 18, 2006 (the "Effective
Date"), by and between MCG Capital Corporation (the "Company"), a Delaware
corporation, and Michael R. McDonnell, an individual (the "Executive")
(hereinafter collectively referred to as the "parties").

WHEREAS

, the Company and the Executive entered into a prior version of this Agreement
on July 14, 2004 (the "Original Agreement");

WHEREAS

, the Company desires to continue to retain the services and employment of the
Executive; and

WHEREAS

, the Company and the Executive desire to enter into this Agreement which will
provide for the employment of the Executive by the Company upon the terms and
subject to the conditions set forth herein.

NOW, THEREFORE

, in consideration of the respective agreements of the parties contained herein,
it is agreed as follows:

1. Term. The initial term of employment (the "Term") under this Agreement shall
be for the period commencing on the Effective Date, and shall continue in effect
until September 1, 2008, provided, however, that if the Term would otherwise
expire prior to the expiration of twelve (12) months after the occurrence of a
Change in Control (as defined below), then the Term shall not expire prior to
the expiration of twelve months after such Change in Control so long as either
the Executive consents to such extension of this Agreement or the Company causes
all of the Executive's shares of restricted stock of the Company ("Shares",
which term shall include the Restricted Stock to be granted in accordance with
Section 3(c)) that are still forfeitable to thereupon become non-forfeitable.

2. Employment. (a) The Executive shall be employed as Chief Operating Officer
and Executive Vice President and Chief Financial Officer of the Company or such
other position(s) as may be mutually agreed upon in writing by the parties, in
each instance, reporting to the Chief Executive Officer. The Executive shall
perform the duties, undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons situated in a similar
executive capacity.

(b) The Executive shall devote his full working time, attention and skill to the
performance of such duties, services and responsibilities, and will use his best
efforts to promote the interests of the Company. The Executive will not, without
prior written approval of the Board of Directors of the Company (the "Board"),
engage in any other activities that would interfere with the performance of his
duties as an employee of the Company, are in violation of written policies of
the Company, are in violation of applicable law, or would create a conflict of
interest with respect to the Executive's obligations as an employee of the
Company. The Executive may (1) serve on corporate, civil or charitable boards or
committees, (2) deliver lectures and teach at educational institutions, (3)
serve as a personal representative or trustee, (4) manage his personal,
financial and legal affairs, and (5) invest personally in any business where no
conflict of interest exists between such investment and the business of the
Company, as long as the foregoing activities do not require a material time
commitment by the Executive.

3. Compensation.

(a) Base Salary. The Company agrees to pay or cause to be paid to the Executive
during the term of this Agreement a base salary at the rate of $400,000 per
annum (such base salary, as may be adjusted from time to time in accordance with
this Section, the "Base Salary"). Such Base Salary shall be payable in
accordance with the Company's customary practices applicable to its executives.
Such Base Salary shall be reviewed (and may be increased) at least annually by
either the Board or the Compensation Committee of the Board (the "Compensation
Committee"). Such Base Salary may be reduced only if such reduction is
implemented by the Company as part of an overall general salary reduction plan
among all of its employees and such reduction to the Base Salary on a percentage
basis is equal to or less than the percentage reduction otherwise implemented
under such plan for other senior executives.

(b) Annual Bonus. It is the understanding and intention of the Company and the
Executive that, subject to approval of either the Board or the Compensation
Committee, the Executive will receive an annual bonus in a target range of
approximately 30% to 100% of the Executive's Base Salary. For fiscal year 2006,
the Company agrees to pay or cause to be paid to the Executive a minimum annual
bonus of $350,000 for the fiscal year ending on December 31, 2006. Such annual
bonuses shall be payable in accordance with the Company's customary practices
applicable to its executives.

(c) Restricted Stock. The Executive shall be granted 160,000 shares of
restricted common stock of the Company (the "Restricted Stock"), pursuant to the
terms and conditions of the Company's 2006 Employee Restricted Stock Plan and
form of restricted stock agreements approved by either the Board or the
Compensation Committee, as set forth below:

(i) 60,000 shares of Restricted Stock shall be granted to the Executive (or, in
the event of the Executive's death, to the Executive's estate), on or before
October 15, 2006, whether or not the Executive is then employed by the Company,
and such shares of Restricted Stock shall be non-forfeitable on the date of
grant. If, notwithstanding the foregoing obligation, the Company has not granted
and issued such shares of Restricted Stock to the Executive on or before
December 15, 2006, then the Company shall pay to the Executive in lieu of such
grant $975,000 on December 15, 2006.

(ii) An additional 100,000 shares of Restricted Stock shall be granted to the
Executive on or before October 15, 2006, and 50,000 of such shares of Restricted
Stock shall become non-forfeitable on each of September 1, 2007, and September
1, 2008, subject to the Executive's continued employment with the Company on the
applicable forfeiture dates.

(iii) In addition to the Restricted Stock, the Executive will have the
opportunity each year to receive an annual grant of shares of restricted common
stock of the Company, subject to the approval of either the Board or the
Compensation Committee in its sole discretion.

(iv) For avoidance of doubt, the Executive will be entitled to receive any cash
dividends that are paid on the shares of Restricted Stock while such shares are
forfeitable but are still held by the Executive.

4. Employee Benefits. The Executive shall be entitled to participate in all
employee benefit plans, practices and programs maintained by the Company and
made available to employees generally including, without limitation, all
pension, retirement, profit sharing, savings, medical, hospitalization,
disability, dental, life or travel accident insurance benefit plans, vacation
and sick leave. The Executive's participation in such plans, practices and
programs shall be on the same basis and terms as are applicable to employees of
the Company generally.

5. Executive Benefits. The Executive shall be entitled to participate in all
executive benefit or incentive compensation plans now maintained or hereafter
established by the Company for the purpose of providing compensation and/or
benefits to executives of the Company. Unless otherwise provided herein, the
Executive's participation in such plans shall be on the same basis and terms as
other similarly situated executives of the Company. No additional compensation
provided under any of such plans shall be deemed to modify or otherwise affect
the terms of this Agreement or any of the Executive's entitlements hereunder.

6. Other Benefits.

(a) Fringe Benefits and Perquisites. The Executive shall be entitled to all
fringe benefits and perquisites generally made available by the Company to its
executives.

(b) Expenses. The Company agrees to pay all reasonable expenses, subject to
reasonable documentation, incurred by the Executive in furtherance of the
Company's business, including, without limitation, traveling and entertainment
expenses, and to reimburse the Executive for all such reasonable expenses
advanced by him and not reimbursed prior to the termination of this Agreement.

7. Termination. The Executive's employment hereunder may be terminated under the
following circumstances:

(a) Disability. The Company may terminate the Executive's employment after
having established the Executive's Disability or the Executive can terminate if
he has established his Disability. For purposes of this Agreement, "Disability"
means a physical or mental infirmity which impairs the Executive's ability to
substantially perform his duties under this Agreement for at least one hundred
eighty (180) days during any 365-consecutive-day period. The Executive shall be
entitled to the compensation and benefits provided for under this Agreement for
any period during the term of this Agreement and prior to the establishment of
the Executive's Disability during which the Executive is unable to work due to a
physical or mental infirmity. Notwithstanding anything contained in this
Agreement to the contrary, until the Termination Date specified in a Notice of
Termination (as each term is hereinafter defined) relating to the Executive's
Disability, the Executive shall be entitled to return to his position with the
Company as set forth in this Agreement in which event no Disability of the
Executive will be deemed to have occurred.

(b) Cause. The Company may terminate the Executive's employment for "Cause". A
termination for Cause shall mean (1) if the Executive has been convicted of a
felony (other than a traffic offense) or (2) a termination evidenced by a
resolution adopted in good faith by two-thirds (2/3) of the Board that the
Executive (i) willfully failed to substantially perform his duties and
obligations with the Company (other than a failure resulting from the
Executive's incapacity due to physical or mental illness) which, if it is the
first instance of such conduct, is not cured within thirty (30) days after a
written notice of demand for substantial performance has been delivered to the
Executive specifying the manner in which the Executive has failed to
substantially perform (and, if it is any instance of such conduct after the
first instance thereof and opportunity to cure, then no such opportunity to cure
need be provided with respect to such conduct), or (ii) willfully engaged in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise; provided, however, that no termination of the
Executive's employment shall be for Cause as set forth in clause (ii) above
until (y) there shall have been delivered to the Executive a copy of a written
notice setting forth that the Executive was guilty of the conduct set forth in
clause (ii) and specifying the particulars thereof in detail, and (z) the
Executive shall have been provided an opportunity to be heard by the Board (with
the assistance of the Executive's counsel if the Executive so desires). The
Executive shall not be considered to have acted or failed to act "willfully"
unless he has acted or failed to act, with an absence of good faith and without
a reasonable belief that his action or failure to act was in the best interest
of the Company. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after Notice of Termination is
given by the Executive shall constitute Cause for purposes of this Agreement.

(c) Good Reason. The Executive may terminate his employment for "Good Reason" at
any time within three (3) months of his knowledge of its occurrence. For
purposes of this Agreement, "Good Reason" shall mean the occurrence of any of
the events or conditions described in the following Subsections hereof:

(i) a change in the Executive's status, title, position or responsibilities
(including reporting responsibilities) that represents an adverse change from
his status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any material duties or
responsibilities that are inconsistent with such status, title, position or
responsibilities; or any removal of the Executive from or failure to reappoint
or reelect him to any of such positions (or positions of substantially similar
status, title or responsibility), except in connection with the termination of
his employment for Disability, Cause, as a result of his death or by the
Executive other than for Good Reason;

(ii) a reduction in the Executive's Base Salary from the then current Base
Salary (unless such reduction is implemented in accordance with Section 3);

(iii) the Company's requiring the Executive to be based at any place outside a
50-mile radius from the Company's offices in Arlington, Virginia on any date
after the Effective Date hereof, except for reasonably required travel on the
Company's business;

(iv) the failure by the Company to (A) continue in effect any material
compensation or benefit plan, or (B) provide the Executive with compensation and
benefits at least equal (in terms of benefit levels and/or reward opportunities)
to those provided for under each employee benefit plan, program and practice; if
the Executive's participation in (A) or (B) above shall be reduced or altered on
the same basis and terms as other similarly situated executives of the Company,
it shall not be Good Reason; and

(v) any material breach by the Company of any provision of this Agreement,
including failure to pay Base Salary.

Notwithstanding

the foregoing, the occurrence of any conduct or circumstance covered under
Clauses (i), (iv) or (v) shall not constitute Good Reason if (Y) such particular
conduct or circumstance has not previously occurred during the Term of this
Agreement and (Z) such conduct or circumstance is cured by the Company within
thirty (30) days after written notice thereof has been delivered to the Company
by the Executive specifying the nature of such Good Reason, provided, however,
that such cure period shall be limited to five (5) business days in the instance
of a failure by the Company to pay Base Salary under Clause (v).

(d) Change in Control. For purposes of this Agreement, "Change in Control" means
the occurrence of any of the following events:

(1) An acquisition in one or more transactions (other than directly from the
Company) of any voting securities of the Company by any Person (as defined
below) immediately after which such Person has Beneficial Ownership (as defined
below) of fifty percent (50%) or more of the combined voting power of the
Company's then outstanding voting securities; provided, however, in determining
whether a Change in Control has occurred, voting securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any corporation or other
Person of which a majority of its voting power or its voting equity securities
or equity interest is owned, directly or indirectly, by the Company (for
purposes of this definition, a "Subsidiary"), (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction"
(as hereinafter defined);

(2) The individuals who, as of the Effective Date hereof are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least a
majority of the members of the Board or, following a Merger (as defined below),
the board of directors of the ultimate Parent Corporation (as defined below);
provided, however, that if the election, or nomination for election by the
Company's common stockholders, of any new director was approved by a vote of at
least a majority of the Incumbent Board (or, with respect to the directors who
are not "interested persons" as defined in the Investment Company Act of 1940,
by a majority of the directors who are not "interested persons" serving on the
Incumbent Board), such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of an actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") including by reason of any agreement intended to avoid
or settle any Proxy Contest; or

(3) The consummation of:

(i) A merger, consolidation or reorganization involving the Company (a "Merger")
or an indirect or direct subsidiary of the Company, or to which securities of
the Company are issued, unless:

(A) the stockholders of the Company, immediately before a Merger, own, directly
or indirectly immediately following the Merger, more than fifty percent (50%) of
the combined voting power of the outstanding voting securities of (x) the
corporation resulting from the Merger (the "Surviving Corporation") if fifty
percent (50%) or more of the combined voting power of the then outstanding
voting securities of the Surviving Corporation is not Beneficially Owned,
directly or indirectly, by another Person or group of Persons (a "Parent
Corporation"), or (y) if there is one or more Parent Corporations, the ultimate
Parent Corporation,

(B) the individuals who were members of the Incumbent Board immediately prior to
the execution of the agreement providing for a Merger constitute at least a
majority of the members of the board of directors of (x) the Surviving
Corporation or (y) the ultimate Parent Corporation, if the ultimate Parent
Corporation, directly or indirectly, owns fifty percent (50%) or more of the
combined voting power of the then outstanding voting securities of the Surviving
Corporation, and

(C) no Person other than (1) the Company, (2) any Subsidiary, (3) any employee
benefit plan (or any trust forming a part thereof) maintained by the Company,
the Surviving Corporation, any Subsidiary, or the ultimate Parent Corporation,
or (4) any Person who, together with its Affiliates (as defined below),
immediately prior to a Merger had Beneficial Ownership of fifty percent (50%) or
more of the then outstanding voting securities, owns, together with its
Affiliates, Beneficial Ownership of fifty percent (50%) or more of the combined
voting power of the then outstanding voting securities of (x) the Surviving
Corporation or (y) the ultimate Parent Corporation.

Each transaction described in clauses (A) through (C) above shall herein be
referred to as a "Non-Control Transaction".

(ii) A complete liquidation or dissolution of the Company (other than where
assets of the Company are transferred to or remain with a Subsidiary or
Subsidiaries of the Company).

(iii) The direct or indirect sale or other disposition of all or substantially
all of the assets of the Company to any Person (other than (A) a transfer to a
Subsidiary, (B) under conditions that would constitute a Non-Control Transaction
with the disposition of assets being regarded as a Merger for this purpose, or
(C) the distribution to the Company's stockholders of the stock of a Subsidiary
or any other assets).

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding voting securities as a
result of the acquisition of voting securities by the Company which, by reducing
the number of voting securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of voting securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional voting securities which increases the percentage of the
then outstanding voting securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur. "Affiliate" means, with respect to any
Person, any other Person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such Person. "Beneficial Ownership" means ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act. "Person" means "person" as such term
is used for purposes of Section 13(d) or 14(d) of the Exchange Act, including
without limitation, any individual, corporation, limited liability company,
partnership, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity or any group of Persons.

(e) Notice of Termination. Any purported termination by the Company or by the
Executive shall be communicated by written Notice of Termination to the other.
For purposes of this Agreement, except in the case of the Executive's
termination of his employment other than for Good Reason, a "Notice of
Termination" shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no purported
termination of employment shall be effective without such Notice of Termination.
For the purposes of this Agreement, after a Notice of Termination has been
delivered to the Executive by the Company, he may not terminate his employment
for Good Reason or otherwise. After the Executive has terminated his employment
for Good Reason or otherwise, the Company may not deliver a Notice of
Termination to the Executive terminating his employment.

(f) Termination Date, Etc. "Termination Date" shall mean (1) in the case of the
Executive's Death, the Executive's date of Death, (2) if the Executive's
employment is terminated for Disability, the date on which the Notice of
Termination is given, (3) if the Executive terminates his employment, the date
on which the Notice of Termination is given by the Executive, and (4) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination, which shall not be longer than seven (7) days after
the Notice of Termination.

8. Compensation Upon Termination. Upon termination of the Executive's employment
during the term of this Agreement (including any extensions thereof), the
Executive shall be entitled to the following benefits:

(a) If the Executive's employment is terminated by the Company for Cause or by
the Executive (other than for Good Reason), then the Company shall pay the
Executive all amounts earned or accrued hereunder through the Termination Date
but not paid as of the Termination Date, including (i) Base Salary, (ii)
reimbursement for any and all monies advanced or expenses incurred in connection
with the Executive's employment for reasonable and necessary expenses incurred
by the Executive on behalf of the Company for the period ending on the
Termination Date, (iii) vacation pay, (iv) any bonuses or incentive compensation
with respect to the fiscal year ended prior to the fiscal year in which the
Termination Date occurs that was earned and unpaid and (v) any previous
compensation which the Executive has previously deferred (including any interest
earned or credited thereon) (collectively, "Accrued Compensation"). The
Executive will forfeit any Shares as to which the forfeiture restrictions have
not lapsed as of the Termination Date.

(b) If the Executive's employment terminates for Disability or for reason of the
Executive's death, then the Executive shall be entitled to the benefits provided
below:

(i) the Company shall pay the Executive or his beneficiaries all Accrued
Compensation;

(ii) the Company shall pay to the Executive or his beneficiaries an amount equal
to the bonus or incentive award (which, for this purpose, shall not include any
Shares) that the Executive would have been entitled to receive in respect of the
fiscal year in which the Executive's Termination Date occurs had he continued in
employment until the end of such fiscal year, calculated as if all performance
targets and goals (if applicable) had been fully met by the Company and by the
Executive, as applicable, for such year, multiplied by a fraction the numerator
of which is the number of days in such fiscal year through the Termination Date
and the denominator of which is 365 (a "Pro Rata Bonus"); and

(iii) With respect to Shares, for purposes of determining which forfeiture
restrictions have lapsed, the Executive will be considered to remain an
Executive through the end of the fourth three-month period beginning immediately
after the end of the three-month period in which the Termination Date occurs.
The Executive will forfeit any Shares to which the forfeiture restrictions have
not lapsed as of the end of that fourth three-month period.

(c) If the Executive's employment with the Company shall be terminated (1) by
the Company other than for Cause, death, or Disability, or (2) by the Executive
for Good Reason, then the Executive shall be entitled to the benefits provided
below:

(i) the Company shall pay the Executive all Accrued Compensation and a Pro Rata
Bonus (which Pro Rata Bonus shall be calculated based upon the greater of (A)
any applicable minimum bonus under Section 3(c) not previously paid the
Executive or (B) the actual performance by the Company during such fiscal year,
rather than assuming all applicable performance targets and goals had been fully
met by the Company);

(ii) the Company shall pay the Executive as severance pay and in lieu of any
further salary for periods subsequent to the Termination Date, in twenty-four
(24) equal monthly installments on the first business day of each month, an
amount in cash equal to 1/24th of two (2) times the sum of (A) the Executive's
Base Salary at the highest rate in effect at any time within the current or the
prior three (3) fiscal year periods preceding the Termination Date (or if the
Executive's employment is terminated after a Change in Control, the Executive's
Base Salary immediately prior to the Change in Control, if greater) and (B) the
"Bonus Amount" (as defined below). The term "Bonus Amount" shall mean the total
amount of all cash bonus or incentive compensation received or earned by the
Executive (which, for this purpose, shall not include any Shares or any signing
bonus or relocation allowance) during the three (3) full fiscal year periods
immediately preceding the Termination Date divided by three (3) (or, if the
Executive has been employed by the Company for less than three (3) full fiscal
year periods immediately preceding the Termination Date, then the average from
the fiscal year periods that the Executive was employed by the Company);

(iii) for twenty-four (24) months following the Termination Date, the Company
shall at its expense continue on behalf of the Executive and his dependents and
beneficiaries the life insurance, disability, medical, dental and
hospitalization benefits which were being provided to the Executive at the time
Notice of Termination is given (or, if the Executive is terminated following a
Change in Control, the benefits provided to the Executive at the time of the
Change in Control, if greater). The benefits provided in this Section 8(c)(iii)
shall be no less favorable to the Executive, in terms of amounts and deductibles
and costs to him, than the coverage provided the Executive under the plans
providing such benefits at the time Notice of Termination is given (or, if the
Executive is terminated following a Change in Control, at the time of the Change
in Control if more favorable to the Executive). The Company's obligation
hereunder with respect to the foregoing benefits shall be limited to the extent
that the Executive obtains any such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the coverage of any benefits
it is required to provide the Executive hereunder as long as the aggregate
coverage of the combined benefit plans is no less favorable to the Executive, in
terms of amounts and deductibles and costs to him, than the coverage required to
be provided hereunder. This Subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive or his dependents may be entitled
under any of the Company's employee benefit plans, programs or practices
following the Executive's termination of employment, including without
limitation, retiree medical and life insurance benefits; and

(iv) With respect to Shares, the forfeiture restrictions will lapse on the
Termination Date, and such Shares shall become non-forfeitable on such date.

(d) Intentionally Blank.

(e) The amounts provided for in Sections 8(a), 8(b)(i), 8(b)(ii), and 8(c)(i)
(with respect to Accrued Compensation only) shall be paid within ten (10)
business days after the Executive's Termination Date, and the amounts provided
for in Section 8(c)(i) with respect to Pro Rata Bonus shall be paid to the
Executive in accordance with the Company's customary timing for paying such
bonuses or incentive awards. However, notwithstanding anything to the contrary
in this Agreement, no payments other than Accrued Compensation will be paid
during the six-month period following the Termination Date if either the Board
or the Compensation Committee determines, in its good faith judgment, that
paying such amounts at the time or times indicated in this Agreement would cause
the Executive to incur an additional tax under Section 409A of the Code, in
which case such amounts shall be paid at the time or times indicated in this
Section 8(e). If the payments are delayed as a result of the previous sentence,
on the first day following the end of the six-month period, the Company will pay
the Executive a lump-sum amount equal to the cumulative amount that would have
otherwise been paid to the Executive under this Agreement during such six month
period with the other payments payable to the Executive over the remaining
period of the applicable payment schedule.

(f) The Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise and no
such payment shall be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment other than as
provided under Section 8(c)(iii).

(g) The Executive's entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit plans and other
applicable programs and practices then in effect.

(h) Vesting and Severance Rights Upon a Change of Control. Upon a Change of
Control, if the Executive enters into a new or amended employment agreement with
the acquiring or surviving entity, then such new or amended agreement shall
supercede this Agreement and govern the extent to which the Executive is
thereafter entitled to severance. Alternatively, upon a Change of Control, if
the Executive does not enter into a new or amended employment agreement with the
acquiring or surviving entity and the Term is not extended pursuant to Section
1(b), then the Term of this Agreement shall terminate and the Executive shall
thereupon be entitled to the severance set forth in Section 8(c)(i), (ii), (iii)
and (iv).

9. Employee Covenants.

(a) Confidentiality. The Executive shall not, without the prior express written
consent of the Company, directly or indirectly, use for any purpose any
Confidential Information (as defined below) in any way, or divulge, disclose or
make available or accessible any Confidential Information to any person, firm,
partnership, corporation, trust or any other entity or third party unless (i)
such disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Company or
(ii) such disclosure is required by applicable law or (iii) the Executive is
requested or required by a judicial or arbitration body or governmental agency
(by oral question, interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) to disclose any such
information, in which case the Executive will (A) promptly notify the Company of
such request or requirement, so that the Company may seek an appropriate
protective order and (B) cooperate with the Company, at its expense, in seeking
such an order. "Confidential Information" means all information respecting the
business and activities of the Company and any of its Subsidiaries, including,
without limitation, respecting the clients, customers, suppliers, employees,
consultants, prospects, computer or other files, projects, products, computer
disks or other media, computer hardware or computer software programs,
underwriting, lending or investment standards, marketing plans, financial
information, methodologies, know-how, processes, trade secrets, policies,
practices, projections, forecasts, formats, operational methods, product
development techniques, research, strategies or information agreed to with
third-parties to be kept confidential by the Company and any of its
Subsidiaries. Notwithstanding the immediately preceding sentence, Confidential
Information shall not include any information that is, or becomes, a part of the
public domain or generally available to the public (unless such availability
occurs as a result of any breach by the Executive of this Agreement) or any
business knowledge and experience of the type usually acquired by persons
engaged in positions similar to the Executive's position with the Company, to
the extent such knowledge and experience is non-Company specific and not
proprietary to the Company or any of its Subsidiaries.

(b) Non-Competition. During the period commencing on September 1, 2004 and
ending two (2) years after the Termination Date (the "Applicable Period"), and
provided the Company complies with all of its obligations set forth in Section 8
hereof, the Executive shall not, without the prior written consent of the
Company, engage in any business or activity, whether as an employee, consultant,
partner, principal, agent, representative, stockholder (other than as the holder
of an interest of two percent (2%) or less in the equity of a publicly traded
corporation) or other individual, corporate or representative capacity, or
render any services or provide any advice or assistance to any business, person
or entity, if such business, activity, person or entity competes anywhere in the
United States with the Company or any of its Subsidiaries in respect of (i) any
then current product, service or business of the Company or any of its
Subsidiaries on the Termination Date or (ii) any product, service or business as
to which the Company or any of its Subsidiaries has begun preparing to develop
or offer as of the Termination Date. Nothing herein shall be construed to
prevent the Executive from being employed by any person or entity in a line of
business or activity that does not compete with (i) products, services or
businesses offered or conducted by the Company or its Subsidiaries as of the
Termination Date, or (ii) products, services or business which the Company or
any of its Subsidiaries has begun preparing to develop or offer as of the
Termination Date. A product, service or business shall not be deemed to compete
with the Company or its Subsidiaries if it is offered in any industry or market
sector in which the Company and its Subsidiaries do not compete nor have begun
preparing to compete as of the Termination Date. If termination of employment is
due to the expiration of the Term, this Section 9(b) shall not be applicable.
For purposes of this Section 9(b), the term "Subsidiary" shall only include
entities that are consolidated with the Company for financial reporting
purposes.

(c) Non-Solicitation. During the period commencing on September 1, 2004 and
ending two (2) years after the Termination Date (the "Non-Solicitation Period"),
the Executive shall not divert, solicit or lure away the patronage of (1) any
client or business of the Company or any of its Subsidiaries as of or within the
two (2) year period prior to the Termination Date or (2) any prospective client
or business of the Company or any of its Subsidiaries. As used herein,
"prospective client" means any client that the Company or any of its
Subsidiaries (i) has solicited within the two (2) year period prior to the
Termination Date, (ii) is soliciting as of the Termination Date, or (iii) as of
the Termination Date, is maintained in the Company's data base of prospective
clients. Nothing herein shall be construed to prevent the Executive from
soliciting clients or prospective clients of the Company or its Subsidiaries
with respect to products, services or businesses which the Company and its
Subsidiaries neither offer or conduct, nor have begun preparing to develop or
offer, as of the Termination Date. The Executive shall not, during the
Non-Solicitation Period, directly or indirectly, recruit, hire or assist others
in recruiting or hiring, or otherwise solicit for employment, any employees of
the Company or any of its Subsidiaries. The provisions of this Section 9(c)
shall not be deemed to limit in any way the provisions of any other Section of
this Agreement.

(d) Interpretation. The parties hereto recognize that the laws and public
policies of the various states of the United States may differ as to the
validity and enforceability of covenants similar to those set forth in Sections
9(b) and (c). It is the intention of the parties that the potential restrictions
on the Executive's activities imposed by Sections 9(b) and (c) be reasonable in
both duration and geographic scope and in all other respects, it being
understood that the business conducted by the Company and its Subsidiaries is
nationwide in scope. It is also the intention of the parties that the provisions
of Sections 9(b) and (c) be enforced to the fullest extent permissible under the
laws and policies of each jurisdiction in which enforcement may be sought, and
that in the event that any provision of Sections 9(b) and (c) shall, for any
reason, be held invalid or unenforceable in any respect, it shall not
invalidate, render unenforceable or otherwise affect any other provision hereof,
and such invalid or unenforceable provision shall be construed by limiting it so
as to be valid and enforceable to the fullest extent permissible under
applicable law. If applicable law does not permit an invalid or unenforceable
provision to be so construed, then the invalid or unenforceable provision shall
be stricken and the remaining portions of Sections 9(b) and (c) shall be
enforced to the fullest extent permitted by law. In addition, if any provision
of Sections 9(b) and (c) shall be determined to be invalid or unenforceable,
such invalidity or unenforceability shall be deemed to apply only with respect
to the operation of such provision in the particular jurisdiction in which such
determination is made and not with respect to any other provision or
jurisdiction.

(e) Remedies. The Executive agrees that any breach of the terms of this Section
9 would result in irreparable injury and damage to the Company for which the
Company would have no adequate remedy at law; the Executive therefore also
agrees that in the event of said breach or any threat of breach, the Company
shall be entitled to an immediate injunction and restraining order from a court
of competent jurisdiction to prevent such breach and/or threatened breach and/or
continued breach by the Executive and/or any and all persons and/or entities
acting for and/or with the Executive, without having to prove damages. The
availability of injunctive relief shall be in addition to any other remedies to
which the Company may be entitled at law or in equity but remedies other than
injunctive relief may only be pursued in an arbitration brought in accordance
with Section 13 of this Agreement. The terms of this paragraph shall not prevent
the Company from pursuing in an arbitration any other available remedies for any
breach or threatened breach of this Section 9, including but not limited to the
recovery of damages from the Executive.

The provisions of this Section 9 shall survive any termination of this
Agreement, and the existence of any claim or cause of action by the Executive
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of the covenants and
agreements of this Section 9; provided, however, that this paragraph shall not,
in and of itself, preclude the Executive from defending himself against the
enforceability of the covenants and agreements of this Section 9.

(f) Return of Materials. Upon the request of the Company and, in any event, upon
termination of employment, the Executive will leave with the Company all
memoranda, notes, records, manuals, or other documents and media (in whatever
form maintained, whether documentary, computer storage or otherwise) pertaining
to the Company's business, including all copies thereof; other than such
documents and items that are personal to the employee (e.g., pay stubs, personal
tax documentation and other compensation or employment related materials).

(g) Ownership of Executive Developments. All copyrights, patents, trade secrets,
or other intellectual property rights associated with any ideas, concepts,
techniques, inventions, processes, or works of authorship developed or created
by the Executive during the course of performing work for the Company, or its
clients, including, but not limited to, software programs, manuals, publications
and reports (collectively, the "Work Product") belongs and shall belong
exclusively to the Company and shall, to the extent possible, be considered a
work made by the Executive for hire for the Company within the meaning of Title
17 of the United States Code. To the extent the Work Product may not be
considered work made by the Executive for hire for the Company, the Executive
agrees to assign, and automatically assign at the time of creation of the Work
Product, without any requirement of further consideration, any right, title, or
interest he may have in such Work Product. Upon request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment. Notwithstanding anything else in this Agreement, any ideas,
concepts, techniques, inventions, processes or works of authorship developed or
created by the Executive on the Executive's own time, and which have no
application in the business of the Company ("Executive Work Product"), shall not
be considered Work Product, and the Company shall have no interest in any such
Executive Work Product.

(h) Consequences of Challenging Enforceability of Non-Compete. If at any time
the Executive or his subsequent employer successfully challenges the
enforceability of the Non-compete and/or Non-solicitation provisions of Sections
9(b) and 9(c), then (1) all references to 2 years and/or 24 months in Sections
8(c)(ii), 8(c)(iii), 9(b) and 9(c) shall instead be references to the time
period that such non-compete and non-solicitation restrictions actually remain
in effect, and (2) the amount of Base Salary and Bonus Amount that the Executive
may receive as severance under Section 8(c)(ii) shall automatically be reduced
proportionately.

10. Treatment of Section 280G.

(a) Tax Payment. In the event it shall be determined that any payment (other
than the payment provided for in this Section 10(a)) or distribution of any type
to or for the benefit of the Executive, by the Company, any Affiliate of the
Company, any Person who acquires ownership or effective control of the Company
or ownership of a substantial portion of the Company's assets (within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder) or any Affiliate of such Person,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (the "Total Payments"), is or will be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive a payment in an amount equal to the Excise Tax
imposed upon the Total Payments; provided, however that the Total Payments shall
be reduced (but not below zero) if and to the extent that a reduction in the
Total Payments would result in the Executive retaining a larger amount, on an
after-tax basis (taking into account federal, state and local income taxes and
the Excise Tax) than if the Executive received the entire amount of such Total
Payments and the amount equal to the Excise Tax. Unless the Executive shall have
given prior written notice specifying a different order to the Company to
effectuate the foregoing, the Company shall reduce or eliminate the Total
Payments by first reducing or eliminating the portion of the Total Payments
which are not payable in cash and then by reducing or eliminating cash payments,
in each case in reverse order beginning with payments or benefits which are to
be paid the farthest in time from the Determination (as hereinafter defined).
Any notice given by the Executive pursuant to the preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.

(b) Determination By Accountant. All mathematical determinations, and all
determinations as to whether any of the Total Payments are "parachute payments"
(within the meaning of Section 280G of the Code), that are required to be made
under this Section 10(a), including determinations as to whether a Excise Tax is
required, the amount of such Excise Tax and amounts relevant to the last
sentence of this Section 10(b) or whether the Total Payment should be reduced,
shall be made by an independent accounting firm selected by the Executive from
among the five (5) largest accounting firms in the United States (the
"Accounting Firm"), which shall provide its determination (the "Determination"),
together with detailed supporting calculations regarding the amount of any
Excise Tax and any other relevant matter, both to the Company and the Executive
by no later than ten (10) days following the Termination Date, if applicable, or
such earlier time as is requested by the Company or the Executive (if the
Executive reasonably believes that any of the Total Payments may be subject to
the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive and the Company with an opinion
reasonably acceptable to the Executive and the Company that no Excise Tax is
payable (including the reasons therefor) and that the Executive has substantial
authority not to report any Excise Tax on his federal income tax return. If an
Excise Tax is determined to be payable, it shall be paid to the Executive within
ten (10) days after the Determination (and all accompanying calculations and
other material supporting the Determination) is delivered to the Company by the
Accounting Firm. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive, absent manifest error. As a result of uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Excise Tax
payments not made by the Company should have been made ("Underpayment"), or that
Excise Tax payments will have been made by the Company which should not have
been made ("Overpayments"). In either such event, the Accounting Firm shall
determine the amount of the Underpayment or Overpayment that has occurred. In
the case of an Underpayment, the amount of such Underpayment (together with any
interest and penalties payable by the Executive as a result of such
Underpayment) shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including, if reasonable, the filing of returns and claims for refund), and
otherwise reasonably cooperate with the Company to correct such Overpayment,
provided, however, that (1) the Executive shall not in any event be obligated to
return to the Company an amount greater than the net after-tax portion of the
Overpayment that he has retained or has recovered as a refund from the
applicable taxing authorities and (2) this provision shall be interpreted in a
manner consistent with the intent of Section 10(a), it being understood that the
correction of an Overpayment may result in the Executive repaying to the Company
an amount which is less than the Overpayment. The fees and expenses of the
Accounting Firm shall be paid by the Company.

11. Successors and Assigns.

(a) This Agreement shall be binding upon and shall inure to the benefit of the
Company, its successors and assigns. The term "Company" as used herein shall
include such successors and assigns. The term "successors and assigns" as used
herein shall mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this Agreement) whether by
operation of law or otherwise.

(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.

12. Fees and Expenses. The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) in excess of $50,000
incurred by the Executive as they become due as a result of (i) the Executive's
termination of employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination of employment), (ii)
the Executive's hearing before the Board as contemplated in Section 7(b) of this
Agreement, or (iii) the Executive's seeking to obtain or enforce any right or
benefit provided by this Agreement or by any other plan or arrangement
maintained by the Company under which the Executive is or may be entitled to
receive benefits; provided, however, that if the Executive is successful in
enforcing any such rights or benefits provided under this Agreement, then the
Company shall reimburse the Executive for the first $50,000 of such fees and
expenses incurred by the Executive.

13. Arbitration. Except as set forth in Section 9(e) hereof, any and all
disputes, claims and controversies between the Company or any of its Affiliates
and the Executive arising out of or relating to this Agreement, or the breach
thereof, or otherwise arising out of or relating to the Executive's employment
or the termination thereof shall be resolved by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitration shall take place in the Washington, D.C.
metropolitan area. The arbitrator shall have no authority to award punitive
damages. The award of the arbitrator shall be final and judgment thereon may be
entered in any court having jurisdiction. The parties shall share the costs of
the arbitration equally, unless otherwise ordered by the arbitrator. Judgment
upon the arbitration award may be entered in any federal or state court having
jurisdiction.

14. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.

15. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under any other agreements
with the Company or any of its subsidiaries. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.

16. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.

17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Virginia without
giving effect to the conflict of law principles thereof.

18. Severability. The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.

19. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto and supersedes all prior agreements, if any, understandings
and arrangements, oral or written, between the parties hereto with respect to
the subject matter hereof, including the Original Employment Agreement.

[Balance of Page Intentionally Blank]

IN WITNESS WHEREOF

, the Company has caused this Agreement to be executed by its duly authorized
officer and the Executive has executed this Agreement as of the day and year
first above written.

MCG Capital Corporation

/s/ Steven F. Tunney

Name: Steven F. Tunney

Title: President and Chief Executive Officer

 

 

 

Executive: Michael R. McDonnell

/s/ Michael R. McDonnell