**INDEMNITYAGREEMENT**

 

               This Agreement is made as of the 8th day of September 2003, by and between TAYCODEVELOPMENTS, INC., a New York corporation having an office at 100 Taylor Drive,North Tonawanda, New York 14120-0748 (the "Corporation"), and Mark V. McDonough,an individual residing at 71 Leicester Road, Kenmore, NY 14217 ("Indemnitee"),an officer of the Corporation.

**               WHEREAS**, it is essential to the Corporation to retain and attract asdirectors and officers the most capable persons available; and

**               WHEREAS**, it is the policy of the Corporation to indemnify its directorsand officers so as to provide them with the maximum possible protectionpermitted by law; and

**               WHEREAS**, Section 722 of the Business Corporation Law of New York, underwhich the Corporation is organized, empowers corporations to indemnify anyperson serving as a director, officer, employee or agent of the corporation andany person who serves at the request of the corporation as a director, officer,employee or agent of another corporation, partnership, joint venture, trust, orother enterprise, and such Section 722 specifies that the indemnificationset forth therein shall not be deemed exclusive of any other rights to whichthose seeking indemnification may be entitled under any by-law, agreement, voteof shareholders or disinterested directors or otherwise; and

**               WHEREAS**, in order to serve, Indemnitee desires indemnification to theextent of the maximum protection permitted by law.

**               NOW, THEREFORE**, in consideration of the mutual covenants set forthherein, the Corporation and Indemnitee hereby agree as follows:

               1.***Agreement to Serve*****. Indemnitee agrees to serve as a directorand/or officer of the Corporation for so long as he is duly elected or appointedor until the effective date of his written resignation. This Agreement does notconstitute an employment agreement or confer any employee or other compensationrights other than the rights with respect to indemnification, advancement orExpenses (as defined below) and, if any, maintenance of directors and officersliability insurance specified herein.

               2.***Definitions*****. As used in this Agreement:

                       (a) The term "Proceeding" shall include any threatened, pending or completedaction, suit or proceeding, whether brought in the right of the Corporation orotherwise and whether of a civil, criminal, administrative or investigativenature, in which Indemnitee may be or may have been involved as a party, awitness or otherwise, by reason of the fact that Indemnitee is or was a directoror officer of the Corporation, by reason of any action taken by him or of anyinaction on his part while acting as such director or officer, or by reason ofthe fact that he is or was serving at the request of the Corporation as adirector, officer, trustee, employee or agent of another corporation,partnership, joint venture, trust or other enterprise, whether or not he isserving in such capacity at the time any liability or expense is incurred forwhich indemnification or reimbursement may be provided under thisAgreement.

                       (b) The term "Expenses" includes, without limitation thereto, expenses ofinvestigations, judicial or administrative proceedings or appeals, amounts paidin settlement by or on behalf of Indemnitee, attorneys' fees and disbursements,but shall not include the amount of judgments, fines or penalties againstIndemnitee.

                       (c) "Change in Control" means a change in control of the Corporation occurringafter the date of this Agreement of a nature that would be required to bereported under the Securities Exchange Act of 1934 or any regulation or rulethereunder (collectively the "Act"), whether or not the Corporation is thensubject to such reporting requirement; provided, however, that, withoutlimitation, such a Change in Control shall be deemed to have occurred if afterthe date of this Agreement (i) any "person" (as such term is used inSections 13(d) and 14(d) of the Act), other than a person who is presentlya member of the board of directors of the Corporation, is or becomes the"beneficial owner" (as defined in Rule 13d-3 under the Act), directly orindirectly, of securities of the Corporation representing 20% or more of thecombined voting power of the Corporation's then outstanding securities;(ii) the Corporation is a party to a merger,consolidation, sales of assets or other reorganization, or a proxy contest, as aconsequence of which members of the board of directors of the Corporation inoffice immediately prior to such transaction or event constitute less than amajority of the board of directors thereafter; or (iii) during anyperiod of two consecutive years, individuals who at the beginning of such periodconstituted the board of directors (including for this purpose any new directorwhose election or nomination for election by the Corporation's shareholders wasapproved by a vote of at least two-thirds of the directors then still in officewho were directors at the beginning of such period) cease for any reason toconstitute a majority of the board of directors.

                       (d) "Corporate Status" means and describes the status of a person who is or wasa director, officer, employee, agent or fiduciary of the Corporation, or is orwas serving at the request of the Corporation as a director, officer, employee,agent or fiduciary of any other "Other Enterprise."

                       (e) The term "Disinterested Director" means a director of the Corporation who isnot and was not a party to the Proceeding in respect of which indemnification issought by the Indemnitee.

                       (f) The term "Other Enterprise" shall include any wholly or partly ownedsubsidiary of the Corporation, any employee compensation or benefit plan of anyone or more of the Corporation and its subsidiaries and affiliates, and anyother corporation, partnership, joint venture, trust or enterprise of which theIndemnitee is or was serving at the request of the Corporation as a director,officer, employee, agent or otherwise.

                       (g) Reference to "fines" shall include, any excise tax assessed with respect toany employee benefit plan; references to "serving at the request of theCorporation" shall include any service as a director, officer, employee or agentof the Corporation which imposes duties on, or involves services by, suchdirector, officer, employee, or agent with respect to an employee benefit plan,its participants, or beneficiaries; and a person who acted in good faith and ina manner he reasonably believed to be in the interest of the participants andbeneficiaries of an employee benefit plan shall be deemed to have acted in amanner "not opposed to the best interests of the Corporation" as referred to inthis Agreement.

               3.***Indemnity and Advancement of Expenses to the Extent Permitted byLaw*****. Subject to theterms of Paragraph 8 of this Agreement, the Corporation shall indemnify andadvance Expenses to the Indemnitee to the fullest extent permitted by applicablelaw now in effect. Without limitation of the foregoing, indemnification shall bedeemed to be permitted by applicable law for purposes of this Agreement ifindemnification is required by Paragraph 4 or 5 hereof, and advancement ofexpenses shall be deemed permitted under applicable law, and as moreparticularly set forth in Paragraph 8 hereof.

               4.***Indemnity in Third Party Proceedings*****. The Corporation shall indemnify Indemnitee inaccordance with the provisions of this Paragraph 4 if Indemnitee is a partyto or is threatened to be made a party to or is otherwise involved in anyProceeding (other than a Proceeding by or in the right of the Corporation toprocure a judgment in its favor) against all Expenses, liabilities, judgments,fines and penalties actually and reasonably incurred by Indemnitee in connectionwith the defense or settlement of such Proceeding, but only if Indemnitee actedin good faith and in a manner which he reasonably believed to be in or notopposed to the best interests of the Corporation and, in the case of a criminalProceeding, in addition, had no reasonable cause to believe that his conduct wasunlawful.

               5.***Indemnity in Proceedings By or In the Right of theCorporation*****. TheCorporation shall indemnify Indemnitee in accordance with the provisions of thisSection if Indemnitee is a party to or is threatened to be made a party to or isotherwise involved in any Proceeding by or in the right of the Corporation toprocure a judgment in its favor (a "Corporation Claim") against all Expensesactually and reasonably incurred by Indemnitee in connection with the defense orsettlement of such Proceeding, but only if he acted in good faith and in amanner which he reasonably believed to be in or not opposed to the bestinterests of the Corporation; provided, however, that no indemnification shallbe made under this Paragraph 5 for (i) judgments, fines,penalties, or amounts paid in settlement by or on behalf of Indemnitee; or(ii) other Expenses in respect of any claim, issue ormatter as to which Indemnitee shall have been adjudged to be liable to theCorporation, unless and only to the extent that any court in which suchProceeding was brought shall determine upon application that, despite anyadjudication of liability but in view of all circumstances of the case,Indemnitee is fairly and reasonably entitled to indemnity for such judgments,fines, penalties, or Expenses as such court shall deem proper. 

               6.***Exceptions to Indemnitee's Rights*****. Notwithstanding any other provisions of thisAgreement, the Corporation shall not be liable to make any payment in connectionwith any claim made against the Indemnitee:

                       (a) to the extent that payment is actually made to Indemnitee under anyinsurance policy; 

                       (b) to the extent that Indemnitee is indemnified and actually paid otherwisethan pursuant to this Agreement;

                       (c) if such claim is proven by a final judgment in a court of law or in otheradjudication to have been based upon or attributable to the Indemnitee's havinggained any personal profit or advantage to which he was not legallyentitled;

                       (d) for disgorgement of profits, made from the purchase and sale by theIndemnitee of securities, pursuant to Section 16(b) of the SecuritiesExchange Act of 1934 and amendments thereto or similar provisions of any statestatutory law or common law; or

                       (e) brought about or contributed to by the dishonesty of the Indemnitee seekingpayment hereunder; provided, however, that the Indemnitee shall be entitled tothe benefit of this Agreement as to any claim upon which suit may be broughtagainst him by reason of any alleged dishonesty on his part, unless a judgmentor other final adjudication thereof adverse to the Indemnitee shall establishthat he committed (i) acts of active and deliberate dishonesty;(ii) with actual dishonest purpose and intent;(iii) which acts were material to the cause of actionso adjudicated.

               7.***Indemnification of Expenses of SuccessfulParty*****. To the extentthat Indemnitee has been successful, on the merits or otherwise, in defense ofany Proceeding or in defense of any claim, issue or matter therein, includingthe dismissal of an action without prejudice, Indemnitee shall be indemnifiedagainst all Expenses incurred in connection therewith.

               8.***Advancement of Expenses*****. The Expenses incurred by Indemnitee withrespect to any Proceeding governed by Paragraph 4 or 5 shall be paid by theCorporation at reasonable intervals in advance of any final resolution of suchProceeding, in each case within 20 days after the Corporation receivesIndemnitee's written request therefor; provided, however, that Indemnitee shallundertake to repay such amounts to the Corporation to the extent that it isultimately determined that Indemnitee was not entitled to indemnification ofsuch Expense, as hereinafter provided.

               In the event, and to the extent that, the Corporation has made any advances tothe Indemnitee for Expenses which are determined at some later time to be withinthe category of exceptions to this Agreement set forth in Paragraph 6, or towhich Indemnitee is not otherwise entitled, Indemnitee hereby agrees toreimburse the Corporation in full for such Expenses, within 90 days afterwritten notice by the Corporation of such determination; and Indemnitee furtheragrees that execution and delivery by him of this Agreement shall constitute avalid and binding obligation on the part of Indemnitee, and his successors andassigns, to repay such obligation in full.

               9.***Rights of Indemnitee to Indemnification Upon Application;Procedures Upon Application*****. Any indemnification under Paragraph 4 or5 shall be made no later than 45 days after receipt of the written requestof Indemnitee for indemnification together with documentation in support of suchrequest, unless the Corporation determines within such 45-day period that theIndemnitee has not met the relevant standards for indemnification set forth inParagraph 4 or 5, as the case may be, and is not otherwise entitled toindemnification under applicable law; provided, however, that if, within such45-day period, the Corporation has not reached any determination hereunder, anypayment made to Indemnitee pursuant to this Paragraph 9 shall be madesubject to and conditioned upon Indemnitee's agreement to reimburse theCorporation within 20 days of demand by the Corporation therefor, to the extentthat the Corporation subsequently determines that Indemnitee was not entitled toreceive such payment.

               The determination as to entitlement shall be made as follows. If there has beenno Change in Control prior to the date of determination of entitlement toindemnification, the determination shall be made by (i) the Board ofDirectors of the Corporation by a majority vote of a quorum consisting ofDisinterested Directors; or (ii) if a quorum of Disinterested Directors is notobtainable, by independent legal counsel reasonably acceptable to theCorporation, but retained by Indemnitee at his sole expense, in a writtenopinion, in form and substance reasonably satisfactory to the Corporation, thatindemnification in the particular case is permissible.

               10.***Presumptions as to the Indemnitee'sConduct*****. For thepurposes of this Agreement, the Indemnitee's conduct shall not be deemed to havebeen knowingly fraudulent or deliberately dishonest, the Indemnitee shall not bedeemed to have had any reasonable cause to believe the Indemnitee's conduct wasunlawful, nor shall any presumption arise that the Indemnitee did not meet anyparticular standard of conduct or have any particular belief, if theIndemnitee's conduct was based on (i) the records or books of account of theCorporation or Other Enterprise; (ii) informationsupplied to the Indemnitee by an officer or officers of the Corporation or OtherEnterprise in the course of such individual's duties; (iii) the advice oflegal counsel for the Corporation or Other Enterprise; or (iv) information orrecords given or reports made to the Corporation or Other Enterprise by anindependent public accountant, by an appraiser or by other experts selected bythe Corporation or Other Enterprise. The knowledge, actions or failures to actof any director, officer, employee or agent of the Corporation shall not beimputed to the Indemnitee for the purposes of determining the right toindemnification under this Agreement. An Indemnitee who acted in good faith andin a manner the Indemnitee reasonably believed to be in the interest of theparticipants and beneficiaries of an employee benefit or compensation plan shallbe deemed to have acted in a manner not opposed to the best interests of theCorporation. The termination of any Proceeding which is covered by thisAgreement by judgment, order, settlement (whether with or without courtapproval) or conviction, or a plea of *nolo contendere* or its equivalentshall not of itself create a presumption for the purposes of this Agreement thatthe Indemnitee did not act in good faith and in a manner which the Indemniteereasonably believed to be in or not opposed to the best interests of theCorporation and, with respect to any criminal Proceeding, had reasonable causeto believe the conduct of the Indemnitee was unlawful.

               11.***Indemnification Hereunder NotExclusive*****. Theindemnification provided by this Agreement shall not be deemed exclusive of anyother rights to which Indemnitee may be entitled under the Corporation'sCertificate of Incorporation or By-Laws, any agreement, any vote of shareholdersor disinterested directors, the Business Corporation Law of the State of NewYork, or otherwise, both as to action in his official capacity and as to actionin another capacity while holding such office. If the New York BusinessCorporation Law, or the Certificate of Incorporation or By-laws of theCorporation is amended after the date of this Agreement to limit or restrictindemnification permitted to the Indemnitee, then with respect to all mattersarising prior to the effective date of such amendment the Corporation shallnevertheless indemnify the Indemnitee to the fullest extent permitted by thisAgreement, the Certificate of Incorporation or By-laws, and such law as ineffect prior to such amendment. 

               12.***Corporation Participation inLitigation*****. Withrespect to any proceeding for which indemnification is requested, theCorporation will be entitled to participate therein at its own expense and,except as otherwise provided below, to the extent that it may wish, theCorporation may assume the defense thereof, with counsel satisfactory to theIndemnitee. After notice from the Corporation to the Indemnitee of its electionto assume the defense of a Proceeding, the Corporation will not be liable to theIndemnitee under this Agreement for any Expenses subsequently incurred by theIndemnitee in connection with the defense thereof, other than as provided below.The Corporation shall not settle any Proceeding in any manner which would imposeany penalty or limitation on the Indemnitee without the Indemnitee's writtenconsent. The Indemnitee shall have the right to employ his own counsel in anyProceeding, but the fees and expenses of such counsel incurred after notice fromthe Corporation of its assumption of the defense of the Proceeding shall be atthe expense of the Indemnitee, unless (i) the employment ofcounsel by the Indemnitee has been approved by a majority vote of a quorumconsisting of Disinterested Directors; (ii) the Indemniteeor the Corporation shall have reasonably concluded that there may be a conflictof interest between the Corporation and the Indemnitee in the conduct of thedefense of a proceeding and shall have communicated such conclusion, with a fullstatement of the reasons, in writing to the Corporation; or (iii) the Corporationshall not in fact have employed counsel to assume the defense of a Proceeding,in each of which cases the fees and expenses of the Indemnitee's counsel shallbe advanced by the Corporation. The Corporation shall not be entitled to assumethe defense of any Corporation Claim.

               13.***Continuation of Right of Indemnification and Advancement ofExpenses*****. The rightsof the Indemnitee under this Agreement shall continue as to the Indemnitee aftertermination for any reason of Corporate Status, and shall inure to the benefitof the heirs, personal representatives, successors and assigns of theIndemnitee.

               14.***Maintenance of Directors and Officers LiabilityInsurance*****. TheCorporation agrees that, so long as the Indemnitee shall have a Corporate Statusand thereafter so long as the Indemnitee shall be subject to any Proceeding, theCorporation shall purchase and maintain in effect for the benefit of theIndemnitee one or more valid, biding and enforceable policies of directors andofficers liability insurance. The Corporation shall not be required to maintainany policies of directors and officers liability insurance if, in the solediscretion and reasonable business judgment of the directors of the Corporation,(i) such insurance is not reasonably available; or(ii) the premium cost for such insurance issubstantially disproportionate to the amount of coverage provided; or(iii) the coverage provided by such insurance is solimited by exclusions that there would be insufficient benefit from suchinsurance.

               15.***Partial Indemnification*****. If Indemnitee is entitled under any provisionof this Agreement to indemnification by the Corporation for some or a portion ofthe Expenses, judgments, fines or penalties actually and reasonably incurred byhim in the investigation, defense, appeal or settlement of any Proceeding butnot for the total amount thereof, the Corporation shall nevertheless provideindemnification to Indemnitee for that portion of such Expenses, judgment, finesor penalties for which Indemnitee is entitled to be indemnifiedhereunder.

               16.***Severability*****. If any provision of this Agreement orapplication of any such provision to any person or circumstance is held invalid,the remainder of this Agreement, and the application of such provision otherthan to the extent it is held invalid, will not be invalidated or affectedthereby.

               17.***Notice*****. Indemnitee shall, as a condition precedent tohis right to be indemnified under this Agreement, give the Corporation notice inwriting as soon as practicable of any claim made against him for which indemnitywill or could be sought under this Agreement. In addition, Indemnitee shall givethe Corporation such information and cooperation as it may reasonably requireand shall be within Indemnitee's power. Notice to the Corporation shall bedirected to TAYCO DEVELOPMENTS, INC., 100 Taylor Drive, North Tonawanda, NewYork 14120-0748, Attention: President (or such other address as the Corporationshall designate in writing to Indemnitee). Notices to Indemnitee shall bedirected to the Indemnitee at the address of the Indemnitee as shown at thebeginning of this Agreement (or such other address as the Indemnitee shalldesignate in writing to the Corporation). Notices shall be deemed received threedays after the date postmarked if sent by prepaid mail, propertyaddressed.

               18.***Counterparts*****. This Agreement may be executed in any numberof counterparts, each of which shall constitute one and the sameoriginal.

               19.***Applicable Law*****. This Agreement shall be governed by andconstrued in accordance with New York law, without regard to conflict oflaws.

               20.***Successors and Assigns*****. This Agreement shall be binding upon theCorporation and its successors and assigns.

**               IN WITNESS WHEREOF**, the parties hereto have caused this Agreement to beduly executed and signed as of the day and year first above written.

 

**                                                                               TAYLOR DEVICES, INC.**

                                                                               By:s/Douglas P. Taylor