RELEASE AND COVENANTS AGREEMENT
THIS RELEASE AND COVENANTS AGREEMENT (this "Agreement"),
is made as of the 7th day of August, 2001, by and between AMERICAN CAPITAL
STRATEGIES, LTD., a Delaware corporation with its principal place of business at
2 Bethesda Metro Center, 14th Floor, Bethesda, Maryland 20014 (the
"Corporation"), and DAVID J. GLADSTONE, an individual residing at 1161 Crest
Lane, McLean, Virginia 22101 ("Gladstone").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to a certain
Second Amended and Restated Employment Agreement dated as of August 6, 1999 (the
"Employment Agreement"); and
WHEREAS, as of even date herewith, the Corporation and
Gladstone are entering into the Amended and Restated Split Dollar Agreement with
the David J. Gladstone Irrevocable Insurance Trust, Lorna Gladstone, Trustee
(the "Amended Split Dollar Agreement"), and the obligations of Gladstone set
forth below, including certain covenants concerning confidential information,
competition and solicitation of employees, are important considerations for the
Corporation's agreement to provide benefits to Gladstone under the Amended Split
Dollar Agreement.
NOW, THEREFORE, in consideration of the foregoing and of
the mutual agreements and covenants herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1.
FINAL BONUS; TERMINATION OF EMPLOYMENT AGREEMENT.
THE CORPORATION HAS
PAID TO GLADSTONE AN AMOUNT EQUAL TO HIS BONUS FOR THE SECOND QUARTER OF 2001,
IN THE AMOUNT OF $54,744.54.
IN ADDITION, AT SUCH TIME IN 2002 AS THE
CORPORATION PAYS BONUSES TO SENIOR EXECUTIVES OF THE CORPORATION, GLADSTONE
SHALL BE ENTITLED TO RECEIVE AN ADDITIONAL PAYMENT EQUAL TO THE RESULT OF
SUBTRACTING FROM (A) THE RESULT OF MULTIPLYING HIS BASE SALARY ACTUALLY EARNED
IN 2001 UNDER THE EMPLOYMENT AGREEMENT BY TWO (2) BY THE AVERAGE BONUS RATIO (AS
DEFINED HEREIN), THE AMOUNT OF (B) BONUS PAYMENTS ACTUALLY RECEIVED BY GLADSTONE
IN 2001 INCLUDING THE AMOUNT OF $54,744.54 PAID IN ACCORDANCE WITH THE PRECEDING
SENTENCE.
THE "AVERAGE BONUS RATIO" SHALL BE EQUAL TO THE ARITHMETIC AVERAGE OF
THE BONUS RATIOS FOR EACH OF THE EMPLOYEES OF THE CORPORATION.
THE BONUS RATIO
FOR EACH SUCH EMPLOYEE SHALL EQUAL THE EMPLOYEE'S ACTUAL BONUS FOR 2001 DIVIDED
BY THE EMPLOYEE'S BASE SALARY FOR 2001 AND FURTHER DIVIDED BY THE MAXIMUM BONUS
PERCENTAGE THAT SUCH EMPLOYEE WAS ELIGIBLE TO RECEIVE AS APPROVED BY THE
COMPENSATION COMMITTEE OF THE CORPORATION'S BOARD OF DIRECTORS ON FEBRUARY 5,
2001 (OR AS SUBSEQUENTLY REVISED) (EXPRESSED AS A DECIMAL EQUIVALENT). THE
CORPORATION WILL PAY GLADSTONE THE BUSINESS EXPENSES HE INCURRED ON BEHALF OF
THE CORPORATION UPON SUBMISSION TO THE CORPORATION. THE PARTIES HERETO AGREE
THAT THE EMPLOYMENT AGREEMENT SHALL BE DEEMED TO BE TERMINATED AS OF THE DATE
HEREOF AND THE PARTIES RELEASED FROM THEIR RESPECTIVE OBLIGATIONS THEREUNDER.
2.
MUTUAL­ RELEASE.
(a)
Gladstone, on his own behalf and on behalf of his
heirs, representatives and assigns, hereby waives, releases, and forever and
irrevocably discharges the Corporation, and its agents, attorneys, officers,
directors, employees, successors and assigns (collectively, the "Corporation
Released