Document:

MCG Capital Employment Agreement

Exhibit 10.1

EMPLOYMENT AGREEMENT

(as amended and restated)

THIS EMPLOYMENT AGREEMENT entered into as of the 5th day of March, 2008 (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, which was amended and restated on September 18, 2006 (collectively, the "Original Agreement"); and 

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

WHEREAS, the Company and the Executive desire (a) to enter into this Agreement to amend, restate and continue the Original Agreement upon the terms and subject to the conditions set forth herein and (b) to provide for the continued 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:

	Term.  The term of employment under this Agreement shall continue in effect through September 30, 2011 (the "Initial Term").  The Initial Term shall automatically be extended for successive one-year periods ("Extension Terms" and, collectively with the Initial Term, the "Term") unless either the Company or the Executive gives notice of non-extension to the other no later than sixty (60) days prior to the expiration of the then-applicable Term.  Except as otherwise provided herein, this Agreement shall be of no further force or effect following the end of the Term.

	Employment. 

	The Executive shall be employed as the Chief Operating Officer, Executive Vice President and Chief Financial Officer of the Company.  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.  The Executive shall report to the Chief Executive Officer of the Company.

	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 materially interfere with Executive's performance of his duties as an employee of the Company.

	Compensation.  

	Base Salary.  During the Term, the Company agrees to pay or cause to be paid to the Executive a base salary at the rate of $416,000 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 adjusted) 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 executive 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.

	Bonus.  During the Term, the Executive will be eligible to receive annual bonuses based upon achieving annual individual and corporate performance goals determined from time to time by either the Board or the Compensation Committee after consultation with the Executive (the "Annual Bonus").  The Executive's target annual bonus opportunity will equal 100% of Base Salary (the "Target Annual Bonus"), but the Executive will have the opportunity to earn an annual bonus between 0% and 200% of Base Salary.  The actual annual bonus for any year will depend on the achievement of performance goals, which will generally be based on individual and corporate goals, as determined from time to time by either the Board or the Compensation Committee.   

	Restricted Stock.  

	(A)  Subject to subparagraph 3(c)(i)(B) below, the Executive shall be granted 150,000 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 (the "Restricted Stock Plan") and form of restricted stock agreements approved by either the Board or the Compensation Committee.  The shares of Restricted Stock shall be granted promptly after the date on which the shareholders of the Company shall have approved the issuance of shares of stock of the Company at a price below net asset value, unless the Company shall have already issued such shares of Restricted Stock to the Executive.  The Restricted Stock shall become non-forfeitable, subject to accelerated non-forfeitability in accordance with Section 5 and Section 6 if applicable, as follows (the "Time-Based Schedule"):  12,500 shares of Restricted Stock shall become non-forfeitable on December 31, 2008 and on each March 31, June 30, September 30 and December 31 thereafter through and including September 30, 2011 (each, a "Forfeitability Date"), and subject to the Executive's continued employment with the Company on the applicable Forfeitability Date. 

(B)  If the grant of Restricted Stock under subparagraph 3(c)(i)(A) above is not made to the Executive prior to the earlier of September 30, 2008 and a Change of Control ("Issue Trigger Date"), then the Company and the Executive shall negotiate in good faith the provision to the Executive of some equity or cash consideration of a generally equivalent value to the value of such Restricted Stock ("Equivalent Consideration").  If the Company and the Executive fail to mutually agree to the value of such Restricted Stock and the Equivalent Consideration within 10 Business Days after the Issue Trigger Date, then the value of such Restricted Stock and the Equivalent Consideration shall be determined by binding arbitration in accordance with Section 9 hereof within 45 calendar days after the Issue Trigger Date.

	Except as set forth in Section 5 of this Agreement and unless either the Board or the Compensation Committee determines otherwise, any Restricted Stock that has not become non-forfeitable on the applicable Forfeitability Date as set forth in the Time-Based Schedule shall be immediately forfeited.  

	The Executive will be entitled to receive any cash dividends that are paid on the shares of Restricted Stock while such shares are held by the Executive, whether such shares are forfeitable or non-forfeitable at the time such dividends are paid.  

	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.

	Benefits.  During the Term, 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.

	Expenses.  During the Term, 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.  Any and all such reimbursements for expenses pursuant to this Section 3(e) shall be made promptly after receipt of such reasonable documentation but in no event later than March 15 of the year following the year in which such expenses are incurred and such documentation is provided.

	Executive Seminars.  During the Term, the Executive agrees to annually attend an executive training seminar at the Company's expense.

	Key Man Life Insurance.  At any time during the Term, the Company shall have the right to insure the life of the Executive for the Company's sole benefit.   The Company shall have the right to determine the amount of insurance ("Company Limit") and the type of policy, provided, however, that the Executive shall have the right, if the policy permits, to require the Company to purchase an amount of insurance in excess of the Company Limit (the "Executive Limit") if the Executive pays to the Company each month the difference between (i) the insurance premium for a policy at the Company Limit and (ii) the insurance premium for a policy at the Executive Limit.  The Executive shall cooperate with the Company in obtaining such insurance policy by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier.  Except as otherwise provided in this Section, (i) the Executive shall incur no financial obligation by executing any required document, and (ii) shall have no interest in any such policy.   

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

	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.

	Cause. The Company may terminate the Executive's employment for "Cause".  A termination for "Cause" shall mean (i) the Executive's conviction to, plea of no contest to, plea of nolo contendere to, or imposition of unadjudicated probation for any felony (other than a traffic offense that does not result in incarceration), (ii) the Executive's having been the subject of any order, judicial or administrative, obtained or issued by the Securities Exchange Commission, for any securities violation involving fraud or intentional misconduct, including, for example, any such order consented to by the Executive in which findings of facts or any legal conclusions establishing liability are neither admitted nor denied, (iii) a material breach by the Executive of this Agreement; or (iv) the Board in good faith determines that the Executive (A) willfully failed to substantially perform his duties and obligations to the Company or willfully failed to carry out, or comply with, any reasonable and lawful directive of the Board consistent with the terms of this Agreement (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 performance has been delivered to the Executive specifying the manner in which the Executive has failed to 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), (B) willfully engaged in conduct which is demonstrably and materially injurious to the Company or any of its Subsidiaries, monetarily or otherwise, or (C) committed a willful breach of fiduciary duty or an act of fraud, embezzlement, or misappropriation against the Company or any of its Subsidiaries; provided, however, that no termination of the Executive's employment shall be for Cause as set forth in clause (iv) 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 (iv) 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). No act, nor failure to act, on the Executive's part, shall be considered "willful" 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 take action was in the best interests of the Company. 

	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:

	A change in the Executive's status, title or position with the Company; or the assignment to the Executive of any material duties or responsibilities that are substantially inconsistent with such status, title or position; 

	A change in the Executive's responsibilities (including reporting responsibilities) with the Company that represents a substantial change in his responsibilities as in effect immediately prior thereto;

	Any failure to pay the Executive his Base Salary or a reduction in the Executive's Base Salary from the Base Salary in effect in the prior year (unless such reduction is implemented in accordance with Section 3);

	The Company's requiring the Executive to be based at any place outside a 50-mile radius from the office in which the Executive is employed on the date hereof, except for reasonably required travel on the Company's business;

	A material breach by the Company of this Agreement, including without limitation, a breach by the Company of its obligations under Section 3(c)(i);

	A Change in Control; and 

	The Company's giving notice to the Executive of non-extension of this Agreement pursuant to the terms of Section 1.   

Notwithstanding the foregoing, the occurrence of any conduct or circumstance covered under Clauses (i) through (v) shall not constitute Good Reason if 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.

	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, a "Notice of Termination" shall mean a notice which indicates 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 such 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.  

	Termination Date, Etc. "Termination Date" shall mean (i) in the case of the Executive's Death, the Executive's date of Death, (ii) if the Executive's employment is terminated for Disability, the date on which the Notice of Termination is given, (iii) if the Executive terminates his employment, on the date no earlier than sixty (60) days following the Notice of Termination if such termination is announced by the Executive; provided, however, that the Company may, in its sole discretion, advance the Termination Date to any date following the Company's receipt of the Notice of Termination, and (iv) 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.

	Compensation Upon Termination.  Upon termination of the Executive's employment during the Term, the Executive shall be entitled to the following benefits:

	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 and for reasonable and necessary expenses incurred by the Executive on behalf of the Company for the period ending on the Termination Date, (iii) accrued but unused vacation pay, and (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 (collectively, "Accrued Compensation"). 

	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:

	The Company shall pay the Executive or his beneficiaries all Accrued Compensation; 

	The Company shall pay to the Executive or his beneficiaries an amount equal to the Annual Bonus 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 target 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; 

	The Executive's Time-Based Shares shall immediately fully become non-forfeitable with respect to that number of Time-Based Shares that were scheduled to become non-forfeitable under the Time-Based Schedule through the fourth Forfeitability Date following the Executive's Termination Date; and

	Immediate and full vesting or lapsing of forfeiture conditions (as applicable) of any shares of restricted stock granted to Executive (A) which are not Restricted Stock, (B) which vest or become non-forfeitable solely based on Executive's continued employment with the Company, (C) which do not vest or become non-forfeitable subject to the achievement of any performance milestones (the "Additional Time-Based Shares"), and (D) which were scheduled to vest or become non-forfeitable through January 1 of the calendar year following the calendar year in which the Executive's Termination Date occurs. 

	If the Executive's employment with the Company shall be terminated (i) by the Company other than for Cause, death, or Disability, or (2) by the Executive for Good Reason, then, subject to the Executive promptly signing and not revoking a release of claims in substantially the form attached hereto as Exhibit A, the Executive shall be entitled to the benefits as provided below; provided, that no amount shall be payable pursuant to this Section 5(c) on or following the date the Executive first violates any of the covenants set forth in Section 7:

	The Company shall pay the Executive all Accrued Compensation;

	The Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, an amount (the "Severance Amount") equal to two times his then current Base Salary and two times his Target Annual Bonus; which shall, except as otherwise set forth in Section 5(c)(vi), be payable in equal monthly installments during the period beginning on the Termination Date and ending on the date twenty-four (24) months following the Termination Date; 

	The Executive shall be entitled to full and immediate vesting and/or lapsing of forfeiture conditions (as applicable) of all of the Executive's Time-Based Shares and Additional Time-Based Shares; and 

	Continuation coverage for the Executive and any eligible dependents under all the Company's group medical, dental, and hospitalization benefit plans ("Continuation Health Coverage"), until earlier of (A) twenty-four (24) months following the Termination Date or (B) the date the Executive first (1) violates any of the covenants set forth in Section 7 or (2) becomes eligible to participate in any other plan that provides medical, dental, or hospitalization benefits.  As of the date that the Executive ceases to receive coverage under any of the Company's group medical, dental, and hospitalization benefit plans pursuant to this Section 5(c)(iv), the Executive shall be eligible to elect to receive "COBRA" continuation coverage to the extent permitted by Section 601 et seq. of the Employee Retirement  Income Security Act of 1974, as amended. Notwithstanding the foregoing, the Parties acknowledge and agree that (a) any and all reimbursements for medical, dental or other expenses pursuant to this Section 5(c)(iv) shall be made promptly but in no event later than the end of the year following the year in which such expenses are incurred, and (b) no payment or benefit shall be made pursuant to this Section 5(c)(iv) to the extent that such payment or benefit would constitute a deferral of compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") (and to the extent permissible any such payment or benefit shall be modified to comply with Section 409A of the Code).  

	In addition to any benefits that the Executive may be entitled to receive pursuant to the provisions in Sections 5(c)(i) to 5(c)(iv), the Company shall pay to the Executive the Change in Control Amount, if the Executive becomes eligible to receive the Change in Control Amount pursuant to the provisions in Section 6.  

	Notwithstanding anything to the contrary in Section 5(c)(ii), no Severance Amount 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 Section 5(c)(ii) would cause the Executive to incur an additional tax under Section 409A of the Code ("Section 409A"), in which case such amounts shall be paid at the time or times indicated in this Section 5(c)(vi).  If the payment of any Severance Amounts 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 previously paid to the Executive under this Agreement with the other eighteen months of the Severance Amount payable to the Executive in equal monthly installments during the period beginning on the seven-month anniversary of the Termination Date and ending on the twenty four-month anniversary thereof.

	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 5(c)(iv).

	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.

	Change in Control Benefits. 

	General Payments.  Upon a Change in Control that occurs during the Term, the Executive will be entitled to full and immediate vesting and/or lapsing of forfeiture provisions (as applicable) of all of the Executive's Restricted Stock, including all Time-Based Shares, and all Additional Time-Based Shares.  In addition to such full vesting and lapsing of forfeiture provisions (as applicable) and any severance payments and benefits that the Executive may be entitled to receive pursuant to Sections 5(c)(i) to 5(c)(iv), if within 12 months after a Change in Control that occurs during the Term, the Executive's employment with the Company shall be terminated (a) by the Company other than for Cause, death, or Disability, or (b) by the Executive for Good Reason, then the Executive will be entitled to receive an amount (the "Change in Control Amount") equal to his then current Base Salary, payable in the same manner as the Severance Amount is payable pursuant to Section 5(c)(ii) or Section 5(c)(vi), as applicable.

	Tax Payment.   In the event it shall be determined that any payment (other than the payment provided for in this Section 6(b)) or distribution of any type to or for the benefit of the Executive, by the Company, any Affiliate of the Company, any Person (as defined below) 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 "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, other than any interest or penalties that arise as a result of Section 409A (such excise tax, together with any includable 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 Payments; provided, however that in the event the aggregate value of the Payments exceeds three times the Executive's "base amount," as defined in Section 280G(b)(3) of the Code, (the "Parachute Threshold") by less than 10%, one or more Payments shall be reduced so that the aggregate value of the Payments is $1.00 less than the Threshold Amount.  The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the 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.  Notwithstanding the foregoing, the Parties acknowledge and agree that (i) any and all amounts required to be paid to the Executive pursuant to this Section 6(b) shall be made promptly after determination thereof but in no event later than the end of the year following the year in which such taxes, interest and/or penalties are incurred, and (ii) no payment shall be made pursuant to this Section 6(b) to the extent that such payment would constitute a deferral of compensation subject to excise tax under Section 409A of the Code, in which event the payment shall be delayed until such time as the payment would not be subject to excise tax, and (iii) all amounts paid to the Executive pursuant to this Section 6(b) shall otherwise be paid at a time and in a manner that comports with Section 409A of the Code . 

	Determination By Accountant. All mathematical determinations, and all determinations as to whether any of the Payments are "parachute payments" (within the meaning of Section 280G of the Code), that are required to be made under Section 6(b), 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 6(c) or whether the Payment should be reduced, shall be made by an independent accounting firm selected by the Executive from among the four (4) 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 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 therefore) 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, other than interest and penalties that arise under Section 409A, 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 6(b), 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.  Notwithstanding the foregoing, the Parties acknowledge and agree that (i) any and all amounts required to be paid to the Executive pursuant to this Section 6(c) shall be made promptly after determination thereof but in no event later than the end of the year following the year in which such taxes, interest and/or penalties are incurred, and (ii) no payment shall be made pursuant to this Section 6(c) to the extent that such payment would constitute a deferral of compensation subject to excise tax under Section 409A of the Code, in which event the payment shall be delayed until such time as the payment would not be subject to excise tax, and (iii) all amounts paid to the Executive pursuant to this Section 6(c) shall otherwise be paid at a time and in a manner that comports with Section 409A of the Code.

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

	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 (a "Subsidiary"), (ii) the Company or its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined);

	The individuals who, as of the 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

	The consummation of:

	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:

	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,

	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

	no Person other than (a) the Company, (b) any Subsidiary, (c) 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 (d) 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 (c)(i)(A) through (C) above shall herein be referred to as a "Non-Control Transaction"; or

	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 Securities and Exchange Act of 1934, as amended (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.

	Employee Covenants.

	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 breach by an employee of the Company of a similar 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 not specific to the Company and not proprietary to the Company or any of its Subsidiaries.

	Non-Competition. During the Term and during the Non-Competition Period, as defined in Section 7(d), 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. 

	Non-Solicitation. During the Term and during the Applicable Period (together, the "Non-Solicitation Period"), the Executive shall not divert, solicit or lure away the patronage of (i) 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 (ii) any prospective client or business of the Company or any of its Subsidiaries. As used herein, "prospective client" means any client that, to the knowledge of the Executive, the Company or any of its Subsidiaries (i) has solicited within the two (2) year period prior to the Termination Date, or (ii) is soliciting as of the Termination Date. 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 7(c) shall not be deemed to limit in any way the provisions of any other Section of this Agreement.

	The Non-Competition Period and the Applicable Period.  For purposes of this Agreement:

	the "Non-Competition Period" means:

	the period beginning on the Termination Date and ending twenty-four (24) months after the Termination Date, if the Executive's employment with the Company shall be terminated (1) by the Company other than for Cause or Disability, or (2) by the Executive for Good Reason; or 

	the period beginning on the Termination Date and ending 90 days after the Termination Date, if the Executive's employment with the Company shall be terminated (1) by the Company for Cause, (2) by the Executive other than for Good Reason, or (3) due to the Executive's Disability.

	the "Applicable Period" means: 

	the period beginning on the Termination Date and ending twenty-four (24) months after the Termination Date, if the Executive's employment with the Company shall be terminated (1) by the Company other than for Cause or Disability, or (2) by the Executive for Good Reason; or

	the period beginning on the Termination Date and ending twelve (12) months after the Termination Date, if the Executive's employment with the Company shall be terminated (1) by the Company for Cause, (2) by the Executive other than for Good Reason, or (3) due to the Executive's Disability.  

	Notwithstanding any provision in Section 7(d)(i) or Section 7(d)(ii) to the contrary, the Parties agree that the Company shall have the right to extend the Non-Competition Period and/or the Applicable Period, on a monthly basis, for a maximum of twenty-four (24) months after the Termination Date, by paying to the Executive during each month (the "Monthly Extension Amount") of the applicable time period that was extended an aggregate amount equal to:  (A) two times the Executive's Base Salary as of the Termination Date and two times the Executive's Target Annual Bonus as of the Termination Date, divided by (B) twenty-four (24) months (the "Extension Amount").  For example, if both the Non-Competition Period and the Applicable Period are extended so that they last until the date twenty-four (24) months following the Termination Date, then the Company will pay the Executive a total payment equal to the sum of two times the Executive's Base Salary as of the Termination Date and two times the Executive's Target Annual Bonus as of the Termination Date, which payment shall be paid on a pro-rata basis over such twenty-four (24) month period.      

	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 7(b) and (c). It is the intention of the Parties that the potential restrictions on the Executive's activities imposed by Sections 7(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 7(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 7(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 7(b) and (c) shall be enforced to the fullest extent permitted by law. In addition, if any provision of Sections 7(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.

	Remedies.  The Executive agrees that any breach of the terms of this Section 7 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 9 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 7, including but not limited to the recovery of damages from the Executive.

	Survival.  The provisions of this Section 7 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 7; 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 7.

	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).

	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, its Subsidiaries, 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 shall 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.

	Consequences of Challenging Enforceability of Non-Competition or Non-Solicitation Covenants. If at any time the Executive or his subsequent employer successfully challenges the enforceability of the non-competition and/or non-solicitation covenants of Sections 7(b) and 7(c), then (A) all references to 90 days, twelve (12) months, eighteen (18) months, or twenty-four (24) months in Sections 5(c) and 7(d) shall instead be references to the time period that such non-competition and non-solicitation covenants actually remain in effect, and (B) the Severance Amount and the Continuation Health Coverage that the Executive may receive pursuant to Section 5(c) and the Extension Amount that the Executive may receive pursuant to Section 7(d) shall automatically be reduced proportionately.

	Non-disparagement.  During his employment and for an indefinite period following termination of his employment with the Company, the Executive agrees not to disparage in any respect the Company, any of its products or practices, or any of its directors, officers, agents, representatives, stockholders or affiliates, either orally or in writing.  During the Term and for an indefinite period following the Term, the Company's officers and members of its Board shall not disparage in any respect the Executive.  Nothing in this paragraph shall prohibit the Executive or the Company's officers and members of its Board from responding truthfully when required by a governmental agency, law, subpoena or court order.

	Cooperation.  Executive agrees that during the Term and, upon the Company's reasonable request and at the Company's reasonable expense, following the Term, he will provide whatever assistance is required by the Company or its agents, including its attorneys, concerning any matter related to his employment with the Company.  Executive further agrees both to immediately notify the Company upon receipt of any court order, subpoena, or any legal discovery device that seeks or might require disclosure of any matter related to his employment with the Company, and to furnish, within three (3) business days of its receipt, a copy of such court order, subpoena, or legal discovery device to the Company, so that the Company may take appropriate measures to quash or otherwise defend its interests.  

	Successors and Assigns.

 

	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.

	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.

	Arbitration.  Except as set forth in Section 7(f) 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.  Other than with respect to arbitrations pursuant to Section 3(c)(i)(B) (for which the Company shall bear the cost of such arbitration), 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.

	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.

	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.

	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.

	To the extent that the Company reasonably determines that any compensation or benefits payable under this Agreement are subject to Section 409A, this Agreement shall incorporate the terms and conditions required by Section 409A and Department of Treasury regulations as reasonably determined by the Company and the Executive.  To the extent applicable, this Agreement shall be interpreted in accordance with Section 409A and Department of Treasury regulations and other interpretative guidance issued thereunder, including without limitation any such regulations or other such guidance that may be issued after the Effective Date.  Notwithstanding any provision of this Agreement to the contrary, in the event that following the Effective Date the Company reasonably determines that any compensation or benefits payable under this Agreement may be subject to Section 409A and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Company and the Executive shall work together to adopt such amendments to this Agreement or adopt other policies or procedures (including amendments, policies and procedures with retroactive effect), or take any other commercially reasonable actions necessary or appropriate to (i) exempt the compensation and benefits payable under this Agreement from Section 409A and/or preserve the intended tax treatment of the compensation and benefits provided with respect to this Agreement, or (ii) comply with the requirements of Section 409A and related Department of Treasury guidance.

	The Company agrees to indemnify and hold harmless the Executive from any and all liability, and to pay directly or reimburse the Executive, for all Taxes and Consequential Amounts incurred by Executive as a direct result of the Company's cancellation and replacement of prior incentive compensation programs in which the Executive participated prior to the Effective Date of this Employment Agreement.  For purposes of this provision, "Taxes" shall mean and include all federal, state, and local taxes of any and every kind (including, without limitation, income, FICA, Medicare and other income and payroll taxes, and any excise taxes), interest and penalties assessed thereon, and a full "gross-up" for any and all taxes incurred as a direct result of the payment to the Executive of the indemnification for such Taxes and Consequential Amounts pursuant to this paragraph.  "Consequential Amounts" shall mean and include all reasonable legal, accounting and other professional fees incurred by the Executive as a direct result of the Company's cancellation and replacement of prior incentive compensation programs in which the Executive participated prior to the Effective Date of this Employment Agreement, including amounts incurred by the Executive in pursuing such challenges as the Company may request with respect to the assessment of any such Taxes.  The determination(s) of the amount(s) of Taxes, if any, and associated "gross up" for which indemnification payments are required pursuant to this paragraph shall be made by a certified public accountant ("CPA") selected by the Executive but subject to the approval of the Company (such approval not to be unreasonably withheld).  Taxes incurred by the Executive shall be paid or reimbursed by the Company, as applicable, promptly after the date on which the CPA provides to the Company a written certification detailing the amount of and rationale for the Taxes subject to indemnification under this paragraph ("Certification").  Any Consequential Amounts shall be paid or reimbursed by the Company, as applicable, promptly after the date on which the Executive provides to the Company documentation detailing the amount of the Consequential Amounts incurred by the Executive ("Documentation").  Anything herein to the contrary notwithstanding, Certifications and Documentation may be submitted piecemeal as Taxes and Consequential Amounts are determined and incurred.  All amounts paid to the Executive pursuant to this Section 12(c) shall be paid at a time and in a manner that comports with Section 409A of the Code; provided, however, that if any such indemnification payment to the Executive is delayed in order to comply with the requirements of Section 409A of the Code, then such payment to the Executive shall include interest thereon during the period of such delay calculated at an annual rate equal to the short-term AFR plus 2%.  This provision shall survive the termination of this Agreement and of Executive's employment hereunder.

	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.

	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.

	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.

[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:  Chief Executive Officer

 

Executive:  MICHAEL R. MCDONNELL

 

/s/ Michael R. McDonnell

 

EXHIBIT A

For and in consideration of the payments and other benefits due to _______ (the "Executive") pursuant to the Employment Agreement dated as of ______ __, 2006 (the "Employment Agreement"), by and between _______________, (the "Company") and the Executive, and for other good and valuable consideration, the Executive hereby agrees, for the Executive, the Executive's spouse and child or children (if any), the Executive's heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, to forever release, discharge and covenant not to sue the Company or any of its divisions, affiliates, subsidiaries, parents, branches, predecessors, successors, assigns, and, with respect to such entities, their officers, directors, trustees, employees, agents, shareholders, administrators, general or limited partners, representatives, attorneys, insurers and fiduciaries, past, present and future (the "Released Parties") from any and all claims of any kind arising out of, or related to, his employment with the Company, its affiliates and subsidiaries (collectively, with the Company, the "Affiliated Entities"), the Executive's separation from employment with the Affiliated Entities, which the Executive now has or may have against the Released Parties, whether known or unknown to the Executive, by reason of facts which have occurred on or prior to the date that the Executive has signed this Release.  Such released claims include, without limitation, any and all claims relating to the foregoing under federal, state or local laws pertaining to employment, including, without limitation, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et. seq., the Fair Labor Standards Act, as amended, 29 U.S.C. Section 201 et. seq., the Americans with Disabilities Act, as amended, 42 U.S.C. Section 12101 et. seq. the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et. seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. Section 701 et. seq., the Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 et. seq., and any and all state or local laws regarding employment discrimination and/or federal, state or local laws of any type or description regarding employment, including but not limited to any claims arising from or derivative of the Executive's employment with the Affiliated Entities, as well as any and all such claims under state contract or tort law.

The Executive has read this Release carefully, acknowledges that the Executive has been given at least 21 days to consider all of its terms and has been advised to consult with any attorney and any other advisors of the Executive's choice prior to executing this Release, and the Executive fully understands that by signing below the Executive is voluntarily giving up any right which the Executive may have to sue or bring any other claims against the Released Parties, including any rights and claims under the Age Discrimination in Employment Act.  The Executive also understands that the Executive has a period of seven days after signing this Release within which to revoke his agreement, and that neither the Company nor any other person is obligated to make any payments or provide any other benefits to the Executive pursuant to the Agreement until eight days have passed since the Executive's signing of this Release without the Executive's signature having been revoked other than any accrued obligations or other benefits payable pursuant to the terms of the Company's normal payroll practices or employee benefit plans.  Finally, the Executive has not been forced or pressured in any manner whatsoever to sign this Release, and the Executive agrees to all of its terms voluntarily. 

Notwithstanding anything else herein to the contrary, this Release shall not affect: (i) the Company's obligations under any compensation or employee benefit plan, program or arrangement (including, without limitation, obligations to the Executive under any stock option, stock award or agreements or obligations under any pension, deferred compensation or retention plan) provided by the Affiliated Entities where the Executive's compensation or benefits are intended to continue or the Executive is to be provided with compensation or benefits, in accordance with the express written terms of such plan, program or arrangement, beyond the date of the Executive's termination; or (ii) rights to indemnification the Executive may have as an insured under any director's and officer's liability insurance policy now or previously in force.

This Release is final and binding and may not be changed or modified except in a writing signed by both parties.

	
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                   Dateex4-1.htm

    
      

    

     EXHIBIT
4.1

     

    ACETO CORPORATION

     

    2007
LONG-TERM PERFORMANCE INCENTIVE PLAN

     

    1.
PURPOSE OF THE PLAN

     

    This 2007
Long-Term Performance Incentive Plan (the “Plan”) is being established to (a)
provide incentives and awards to non-employee directors, consultants and those
employees largely responsible for the long-term success of Aceto Corporation and
its subsidiaries (the “Company”), (b) enable the Company to attract and retain
executives, non-employee directors and consultants in the future, and (c)
encourage employees, non-employee directors and consultants to acquire a
proprietary interest in the performance of the Company by owning shares of the
Company’s Common Stock.

     

    The
adoption of the Plan is subject to the approval of the Plan by the Company’s
shareholders and shall not become effective until so approved.

     

    2.
GENERAL PROVISIONS

     

    2.1 Definitions. As used in the
Plan, the following terms shall have the following meanings unless otherwise
required by the context:

     

    
      (a) “Act”
means the Securities Exchange Act of 1934, as amended.

    

     

    
      (b)
“Award” means an Equity Award granted to an Employee, Non-employee Director or
Consultant.

    

     

    
      (c)
“Board of Directors” means the Board of Directors of the
Company.

    

     

    
      (d)
“Change in Control” means, except as provided in Section 10.3, the date on
which:

    

     

    (i) any
person (a “Person”), as such term is used in Sections 13(d) and 14(d) of the Act
(other than (A) the Company and/or its wholly owned subsidiaries; (B) any
“employee stock ownership plan” (as that term is defined in Code Section
4975(e)(7)) or other employee benefit plan of the Company and any trustee or
other fiduciary in such capacity holding securities under such plan; (C) any
corporation owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company;
or (D) any other Person who, within the one year prior to the event which would
otherwise be a Change in Control, is an executive officer of the Company or any
group of Persons of which he or she voluntarily is a part), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company’s then outstanding securities or such
lesser percentage of voting power, but not less than 15%, as determined by the
Independent Directors (as defined below).

     

    (ii)
during any two-year period after the effective date of the Plan, Directors of
the Company in office at the beginning of such period plus any new Director
(other than a Director designated by a Person who has entered into an agreement
with the Company to effect a transaction within the purview of subsections (i)
or (iii) hereof) whose election by the Board of Directors or whose nomination
for election by the Company’s shareholders was approved by a vote of at least
two-thirds of the Directors then still in office who either were Directors at
the beginning of the period or whose election or nomination for election was
previously so approved, shall cease for any reason to constitute at least a
majority of the Board of Directors;

     

    (iii) the
consummation of (A) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which the
Company’s Common Stock would be converted into cash, securities, and/or other
property, other than a merger of the Company in which holders of Common Stock
immediately prior to the merger have the same proportionate ownership of voting
securities of the surviving corporation immediately after the merger as they had
in the Common Stock immediately before; or (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of all
or substantially all the assets or earning power of the Company; or

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iv) the
Company’s shareholders or the Company’s Board of Directors shall approve the
liquidation or dissolution of the Company.

     

    (e)
“Code” means the Internal Revenue Code of 1986, as amended.

     

    (f)
“Committee” means the Compensation Committee of the Board of
Directors.

     

    (g)
“Common Stock” means the Common Stock, par value $0.01 per share, of the
Company.

     

    (h)
“Consultant” shall mean an individual who is not an Employee or a Non-employee
Director and who has entered into a consulting arrangement with the Company to
provide substantial bona
fide services that (i) are not in connection with the offer or sale of
securities in a capital-raising transaction, and (ii) do not directly or
indirectly promote or maintain a market for the Company’s
securities.

     

    (i)
“Covered Employee” means each person who is either the chief executive officer
of the Company or whose total compensation is required to be reported to
shareholders of the Company under the Act by reason of being among the four
highest compensated officers (other than the chief executive officer) of the
Company. The intent of this definition is to identify those persons who are
“covered employees” for purposes of the applicable provisions of Code Section
162(m) and this definition is to be interpreted consistent with this intent. The
provisions of the Plan that specifically apply only to Covered Employees shall
apply to a Participant if he or she is reasonably expected to be a Covered
Employee with respect to the taxable year in which the Performance Period
begins, or the taxable year in which the Performance Award is to be
paid.

     

    (j)
“Employee” means an individual who is employed by the Company.

     

    (k)
“Equity Award” means a Stock Option, Stock Appreciation Right, or Restricted
Stock grant made under the Plan.

     

    (l) “Fair
Market Value” means, with respect to the applicable date, the last reported
sales price for a share of Common Stock as quoted on the principal stock
exchange on which the common stock is traded for that date; provided, however, if no such
sales are made on such date, then on the next preceding date on which there are
such sales. If for any day the Fair Market Value of a share of Common Stock is
not determinable by any of the foregoing means, then the Fair Market Value for
such day shall be determined in good faith by the Committee, subject to the
approval of a majority of the Independent Directors, under a method that
complies with Code Sections 422 and 409A.

     

    (m)
“Incentive Stock Option” means an option granted under the Plan which is
intended to qualify as an incentive stock option under Code Section
422.

     

    (n)
“Independent Directors” means the members of the Board of Directors who qualify
as an independent director under the rules of The Nasdaq Stock Market, as an
“outside director” (as that term is used for purposes of Code Section 162(m))
and as a “non-employee director” (as that term is used for purposes of Rule
16b-3 under the Act) with respect to the Plan.

     

    (o)
“Non-employee Director” means a Director of the Company who is not an
Employee.

     

    (p)
“Non-Qualified Stock Option” means an option granted under the Plan which is not
an Incentive Stock Option.

     

    (q)
“Participant” means an Employee, Non-employee Director or Consultant to whom an
Award has been granted under the Plan.

     

    (r)
“Performance Award” means Performance Stock and Performance Incentive
Units.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (s)
“Performance Incentive Unit” means a unit granted pursuant to Article
7.

     

    (t)
“Performance Period” means a period of one or more consecutive calendar years or
other periods as set by the Committee, and approved by a majority of the
Independent Directors. Nothing herein shall prohibit the creation of multiple
Performance Periods which may overlap with other Performance Periods established
under the Plan. In no event, however, shall a Performance Period begin on or
after the first shareholder meeting that occurs in 2012 unless shareholder
approval is obtained as required under Code Section 162(m).

     

    (u)
“Performance Program Target” means a performance program target set by the
Committee, and approved by a majority of the Independent Directors, for a
particular Performance Period as provided in Article 7.

     

    (v)
“Performance Stock” means a type of Restricted Stock, where the lapse of
restrictions is based on achievement of one or more Performance Program
Targets.

     

    (w)
“Restricted Stock” means Common Stock granted pursuant to Article 5 subject to
restrictions determined by the Committee and approved by a majority of the
Independent Directors.

     

    (x)
“Restricted Stock Unit” means a unit granted pursuant to Article 6 subject to
restrictions determined by the Committee and approved by a majority of the
Independent Directors.

     

    (y)
“Retirement” means Termination of Service after attainment of “Normal Retirement
Age” or “Early Retirement Age” as defined in the Company’s 401(k) Plan when the
Participant does not intend to continue gainful employment.

     

    (z)
“Short-Term Deferral Date” means, with respect to a Performance Incentive Unit,
the 15th day of
the third month following the end of the Performance Period for which such Award
was made, payment shall be treated as made on the Short-Term Deferral Date if
payment is made on such Date or on a later date that is as soon as practicable
after such Date and within the same calendar year, and a Participant shall have
no right to interest as a result of payment on such later date. Notwithstanding
the foregoing, for purposes of determining the date payment “would otherwise be
made” with respect to a Performance Incentive Unit under Sections 7.3 and 8.4,
the date payment is actually made to similarly situated Participants with
respect to the Performance Period shall be determinative, and not the Short-Term
Deferral Date (if the actual payment date is not the Short-Term Deferral
Date).

     

    (aa)
“Stock Appreciation Right” means a right granted pursuant to Article
4.

     

    (bb)
“Stock Option” means an Incentive Stock Option or Non-Qualified Stock Option
granted pursuant to Article 3.

     

    (cc)
“Subsidiary” means any corporation or other entity, the equity of which is more
than 50% owned, directly or indirectly, by the Company.

     

    (dd)
“Termination of Service” shall mean (i) with respect to an Award granted to an
Employee, the termination of the employment relationship between the Employee
and the Company and all Subsidiaries; (ii) with respect to an Equity Award
granted to a Non-employee Director, the cessation of the provision of services
as a Director of the Company; and (iii) with respect to an Equity Award granted
to a Consultant, the termination of the consulting arrangement between the
Consultant and the Company; provided, however, that if a
Participant’s status changes from Employee, Non-employee Director or Consultant
to any other status eligible to receive an Award under the Plan, the Committee
may provide, subject to the approval of a majority of the Independent Directors,
that no Termination of Service occurs for purposes of the Plan until the
Participant’s new status with the Company and all Subsidiaries terminates. For
purposes of this paragraph, if a Participant is an Employee of a Subsidiary and
not the Company, the Participant shall incur a Termination of Service when such
corporation ceases to be a Subsidiary, unless the Committee and a majority of
the Independent Directors determine otherwise.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (ee)
“Total Disability” shall mean the Participant is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months. Such
determination shall be made by a physician selected by the Committee and a
majority of the Independent Directors which is reasonably acceptable to the
Participant or the Participant’s legal representative. However, if the condition
constitutes total disability under the federal Social Security Acts, the
Administrator may rely on such determination for the purposes of this
Plan.

     

    2.2 Administration of the
Plan.

     

    (a) The
Plan shall be administered by the Committee, provided that any decisions made by
the Committee shall be subject to the subsequent approval and consent of a
majority of the Independent Directors. The Committee and the Independent
Directors together shall have the full power, subject to and within the limits
of the Plan, to interpret and administer the Plan and Awards granted under it,
make and interpret rules and regulations for the administration of the Plan, and
make changes in and revoke such rules and regulations. The Committee and the
Independent Directors together also shall have the authority to adopt
modifications, amendments, procedures, sub-plans and the like, which may be
inconsistent with the provisions of the Plan, as are necessary to comply with
the laws and regulations of other countries in which the Company operates in
order to assure the viability of Awards granted under the Plan to individuals in
such other countries. The Committee and the Independent Directors, in the
exercise of these powers, shall (i) generally determine all questions of policy
and expediency that may arise and may correct any defect, omission, or
inconsistency in the Plan or any agreement evidencing the grant of an Award in a
manner and to the extent it shall deem necessary to make the Plan fully
effective; (ii) determine those Employees, Non-employee Directors and
Consultants to whom Awards shall be granted, the type of Award to be granted and
the number of Awards to be granted, consistent with the provisions of the Plan;
(iii) determine the terms of Awards granted consistent with the provisions of
the Plan; and (iv) generally, exercise such powers and perform such acts in
connection with the Plan as are deemed necessary or expedient to promote the
best interests of the Company.

     

    (b) The
Committee and the Independent Directors shall further be permitted, in
connection with the granting of Equity Awards to Employees who are not Covered
Employees and who are not subject to Section 16(b) of the Act, to delegate
authority under the Plan to determine any individual grants to such Employees to
a subcommittee which may include members of senior management of the Company,
provided that the total amount of Equity Awards available for grant by any such
subcommittee, and the pricing of such Equity Awards, shall be fixed exclusively
by the Committee and a majority of the Independent Directors, and any Equity
Awards thereafter made by the subcommittee shall be subject in all respects to
the provisions of the Plan

     

    (c) The
Board of Directors may, at its discretion, select one or more of its Independent
Directors who are eligible to be members of the Committee as alternate members
of the Committee who may take the place of any absent member or members of the
Committee at any meeting of the Committee. The Committee may act only by a
majority vote of its members then in office; the Committee may authorize any one
or more of its members or any officer of the Company to execute and deliver
documents on behalf of the Committee.

     

    2.3 Effective Date. The Plan
shall be effective as of the date the Plan is approved by the Company’s Board of
Directors and ratified by the Company’s shareholders at a duly authorized
meeting (Special or Annual) of the Company’s shareholders. No awards may be
granted hereunder unless and until all such approvals are obtained. If the Plan
is not so approved by the Company’s shareholders, the Plan will become null and
void.

     

    2.4 Duration. If approved by the
shareholders of the Company as provided in Section 2.3, unless sooner terminated
by the Committee subject to the approval of a majority of the Independent
Directors, the Plan shall remain in effect for 10 years from the date of that
approval.

     

    2.5 Shares Subject to the Plan; Equity
Award Limits. The maximum aggregate number of shares of Common Stock
which may be subject to Equity Awards granted under the Plan shall be 700,000
(which is also the maximum aggregate number of shares that may be subject to
Incentive Stock Options under the Plan), subject to the following
limits:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a) No
Employee shall be granted during any one calendar year Stock Options entitling
such Employee to purchase more than two hundred thousand (200,000) shares of
Common Stock;

     

    (b) No
Employee shall be granted during any one calendar year Stock Appreciation Rights
entitling such Employee to appreciation with respect to more than two hundred
thousand (200,000) shares of Common Stock;

     

    (c) The
aggregate number of shares of Common Stock subject to Performance Stock granted
to an Employee during any one calendar year shall not exceed two hundred
thousand (200,000) shares;

     

    (d) No
more than three hundred fifty thousand (350,000) shares of Common Stock shall be
available for the granting of non-performance based Restricted Stock under the
Plan;

     

    (e) No
more than three hundred fifty thousand (350,000) shares of Common Stock shall be
available for the granting of non-performance based Restricted Stock Units under
the Plan;

     

    (f) No
more than three hundred fifty thousand (350,000) shares of Common Stock shall be
available for the granting of non-performance based Stock Appreciation Rights
under the Plan;

     

    Each
limit in the preceding sentence shall be subject to adjustment in accordance
with Section 10.2.

     

    2.6 Amendments and Termination.
The Plan may be suspended, terminated, or reinstated, in whole or in part, at
any time by the Committee, subject to the approval of a majority of the
Independent Directors. The Committee, subject to the approval of a majority of
the Independent Directors, may from time to time make such amendments to the
Plan as it may deem advisable, and/or may amend any outstanding Award at any
time (including an amendment that applies to a Participant who has incurred a
Termination of Service); provided, however, that,
without the approval of the Company’s shareholders, no amendment shall be made
which:

     

    (a)
Increases the maximum number of shares of Common Stock which may be subject to
Awards granted under the Plan (other than as provided in Section
10.2);

     

    (b)
Materially modifies the requirements as to eligibility for participation in the
Plan with respect to Incentive Stock Options;

     

    (c) To
the extent compliance with Code Section 162(m) is desired, modifies the Plan in
a manner that would cause any Award to fail to meet the requirements to be
treated under Code Section 162(m) as “performance-based
compensation”

     

    (d)
Requires shareholder approval under the rules of the exchange or market on which
the Common Stock is listed or traded;

     

    or

     

    (e)
Reduces the exercise price of, or otherwise reprices, an Award.

     

    No
amendment, suspension or termination of the Plan or amendment of an outstanding
Award shall affect the Participant’s rights under an outstanding Award or cause
the modification (within the meaning of Code Section 424(h)) of any Award,
without the consent of the Participant affected thereby. The foregoing
limitation on amendments, suspension and termination shall not apply to any
amendment, suspension or termination (i) pursuant to Section 10.2, or (ii) that
the Committee and a majority of the Independent Directors determine is necessary
or appropriate to avoid the additional tax under Code Section
409A(a)(1)(B).

     

    2.7 Participants and Grants. The
Committee may recommend the grant of one or more Awards to Non-employee
Directors, Consultants and Employees, which grants shall be subject in all
respects to the approval of a majority of the Independent Directors. In
determining the number of shares of Common Stock subject to an Equity Award and
the number of Performance Incentive Units to be granted to an Employee, the
Committee (and the Independent Directors) shall consider the Employee’s base
salary, his or her expected contribution to the long-term performance of the
Company, and such other relevant facts as the Committee (and the Independent
Directors) shall deem appropriate. More than one Award may be granted to any
Employee, Non-employee Director or Consultant, and terms and conditions of
Awards and types of Awards need not be consistent from Participant to
Participant nor from year to year.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.
STOCK OPTIONS

     

    3.1 General. Each Stock Option
granted under the Plan to an Employee, Non-employee Director or Consultant shall
be granted by the Committee, subject in all cases, however, to the approval of a
majority of the Independent Directors. The granting of any such Stock Option,
including the terms thereof in accordance with Sections 3.2 to 3.7, shall be
evidenced by an agreement which shall state the number of shares of Common Stock
which may be purchased upon the exercise thereof and shall contain such
investment representations and other terms and conditions as the Committee and a
majority of the Independent Directors may from time to time determine that are
not inconsistent with the terms of the Plan, Code Section 409A and, for
Incentive Stock Options, Code Section 422.

     

    3.2 Price. Subject to the
provisions of Section 3.6(d), the purchase price per share of Common Stock
subject to a Stock Option shall not be less than one hundred percent (100%) of
the Fair Market Value of a share of Common Stock on the date the Stock Option is
granted.

     

    3.3 Period. The duration or term
of each Stock Option granted under the Plan shall be for such period as the
Committee and a majority of the Independent Directors shall determine but in no
event more than ten (10) years from the date of grant thereof.

     

    3.4 Exercise. A Stock Option
shall be exercisable in such installments, upon fulfillment of such conditions
(such as performance-based requirements), or on such dates as the Committee may
specify. Once exercisable, a Stock Option shall be exercisable, in whole or in
part, by delivery of a notice of exercise to the Secretary or Assistant
Secretary of the Company at the principal office of the Company or to the
Company’s designated administrator specifying the number of shares of Common
Stock as to which the Stock Option is then being exercised together with payment
of the full purchase price for the shares being purchased upon such exercise.
Until the shares of Common Stock as to which a Stock Option is exercised are
paid for in full and issued, the Participant shall have none of the rights of a
shareholder of the Company with respect to such Common Stock.

     

    3.5 Payment. The Committee,
subject to the approval of a majority of the Independent Directors, shall
determine from the alternatives set forth in subsections (a) through (d) the
methods by which the exercise price may be paid.

     

    (a) In
United States dollars in cash, or by check, bank draft, or money order payable
in United States dollars to the order of the Company;

     

    (b) By
the delivery by the Participant to the Company of whole shares of Common Stock
having an aggregate Fair Market Value on the date of exercise equal to the
aggregate of the purchase price of Common Stock as to which the Stock Option is
then being exercised;

     

    (c) In
United States dollars in cash, or by check, bank draft, or money order payable
in United States dollars to the order of the Company delivered to the Company by
a broker in exchange for its receipt of stock certificates from the Company in
accordance with instructions of the Participant to the broker pursuant to which
the broker is required to deliver to the Company the amount required to pay the
purchase price; or

     

    (d) By a
combination of any number of the foregoing.

     

    The
Committee may impose limitations, conditions, and prohibitions on the use by a
Participant of shares of Common Stock to pay the purchase price payable by such
Participant upon the exercise of a Stock Option, subject to the approval of such
limitations, conditions, and prohibitions by a majority of the Independent
Directors.

     

    3.6 Special Rules for Incentive Stock
Options. Notwithstanding any other provision of the Plan, the following
provisions shall apply to Incentive Stock Options granted under the
Plan:

     

    (a)
Incentive Stock Options shall only be granted to Participants who are United
States based Employees.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) To
the extent that the aggregate Fair Market Value (as of the date of grant) of
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by a Participant during any calendar year under this Plan and
under any other plan of the Company or a Subsidiary under which “incentive stock
options” (as that term is defined in Code Section 422) are granted exceeds
$100,000, such Stock Options shall be treated as Non-Qualified Stock
Options.

     

    (c) Any
Participant who disposes of shares of Common Stock acquired upon the exercise of
an Incentive Stock Option by sale or exchange either within two (2) years after
the date of the grant of the Incentive Stock Option under which the shares were
acquired or within one (1) year of the acquisition of such shares, shall
promptly notify the Assistant Secretary of the Company at the principal office
of the Company of such disposition, the amount realized, the purchase price per
share paid upon exercise, and the date of disposition.

     

    (d) No
Incentive Stock Option shall be granted to a Participant who, at the time of the
grant, owns stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock either of the Company or any parent or
Subsidiary of the Company, unless the purchase price of the shares of Common
Stock purchasable upon exercise of such Incentive Stock Option is at least one
hundred ten percent (110%) of the Fair Market Value (at the time the Incentive
Stock Option is granted) of the Common Stock and the Incentive Stock Option is
not exercisable more than five (5) years from the date it is
granted.

     

    3.7 Termination of
Service.

     

    (a) In
the event a Participant incurs a Termination of Service because of involuntary
termination by the Company while a Participant holds Stock Options under the
Plan, all Stock Options held by the Participant shall expire immediately upon
such Termination of Service.

     

    (b)
Except as otherwise provided in subsection (a) , if a Participant, while
holding  exercisable Stock Options, (i) incurs a Termination of
Service because of Total Disability, (ii) dies prior to Termination of Service,
or (iii) incurs a Termination of Service because of Retirement, then each such
exercisable Stock Option held by the Participant shall be exercisable by the
Participant (or, in the case of death, by the executor or administrator of the
Participant’s estate or by the person or persons to whom the deceased
Participant’s rights thereunder shall have passed by will or by the laws of
descent or distribution) until the earlier of (A) its stated expiration date or
(B) the date occurring one (1) year after the date of such Termination of
Service or death, as the case may be.

     

    (c) If a
Participant while holding exercisable Stock Options incurs a Termination of
Service because of a voluntary resignation, other than Retirement, then each
such exercisable Stock Option held by the Participant shall be exercisable by
the Participant until the earlier of (A) its stated expiration date or (B)
ninety (90) days after such Termination of Service.

     

    (d) The
Committee may accelerate the date as of which a Stock Option becomes
exercisable, if the Committee in its discretion deems such acceleration to be
desirable and a majority of the Independent Directors consent to
same.

     

    (e) To
the extent a Stock Option held by a Participant is not exercisable at the time
of (or as a result of) his or her Termination of Service, such Stock Option
shall terminate.

     

    3.8 Effect of Leaves of Absence.
It shall not be considered a Termination of Service when a Participant is on
military or sick leave or such other type of leave of absence which is
considered as continuing intact the relationship of the Participant with the
Company or its Subsidiaries. In case of such leave of absence, the relationship
shall be continued until the later of the date when such leave equals ninety
(90) days, the date when the Participant’s right to reemployment shall no longer
be guaranteed either by statute or contract, or the date when the Participant
incurs a Termination of Service.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    4.
STOCK APPRECIATION RIGHTS

     

    4.1 General. Each Stock
Appreciation Right granted under the Plan to an Employee, Non-employee Director
or Consultant shall be granted by the Committee. The granting of any Stock
Appreciation Right, including the terms thereof in accordance with Sections 4.2
to 4.6, shall be subject in all respects to the approval of a majority of a
majority of the Independent Directors and shall be evidenced by an agreement
which shall state the number of shares of Common Stock with respect to which
appreciation shall be measured and shall contain such investment representations
and other terms and conditions as the Committee may from time to time determine
that are not inconsistent with the provisions of the Plan and Code Section
409A.

     

    4.2 Amount Payable on Exercise. A
Stock Appreciation Right entitles the Participant to receive, with respect to
each share of Common Stock to which the Stock Appreciation Right is exercised,
the excess of the Fair Market Value of the share on the date of exercise over
the Fair Market Value of the share on the date the Stock Appreciation Right is
granted (the “Spread”). Such excess will be paid in shares of Common Stock
(having a Fair Market Value on the date of exercise equal to the
Spread).

     

    4.3 Period. The duration or term
of each Stock Appreciation Right granted under the Plan shall be for such period
as the Committee, subject to the approval of a majority of the Independent
Directors, shall determine but in no event more than ten (10) years from the
date of grant thereof.

     

    4.4 Exercise. A Stock
Appreciation Right shall be exercisable in such installments, upon fulfillment
of such conditions (such as performance-based requirements), or on such dates as
the Committee, subject to the approval of a majority of the Independent
Directors, may specify. Once exercisable, a Stock Appreciation Right shall be
exercisable, in whole or in part, by delivery of a notice of exercise to the
Secretary or Assistant Secretary of the Company at the principal office of the
Company or to its designated administrator specifying the number of shares of
Common Stock as to which the Stock Appreciation Right is then being
exercised.

     

    4.5 Termination of Service. For
purposes of determining the extent to which, and the period during which, a
Stock Appreciation Right may be exercised following a Participant’s Termination
of Service, Section 3.7 shall be applied by replacing the terms “Stock Option”
and “Stock Options” in each place such terms appear in Section 3.7, with the
terms “Stock Appreciation Right” and “Stock Appreciation Rights,”
respectively.

     

    4.6 Effect of Leaves of Absence.
It shall not be considered a Termination of Service when a Participant is
on military or sick leave or such other type of leave of absence which is
considered as continuing intact the relationship of the Participant with the
Company or its Subsidiaries. In case of such leave of absence, the relationship
shall be continued until the later of the date when such leave equals ninety
(90) days, the date when the Participant’s right to reemployment shall no longer
be guaranteed either by statute or contract, or the date when the Participant
incurs a Termination of Service.

     

     5.
RESTRICTED STOCK

     

    5.1 Grant. Restricted Stock may
be granted by the Committee to an Employee, Non-employee Director or Consultant
under this Article for no consideration in the form of an award of Common Stock
subject to restrictions. At the time Restricted Stock is granted, the Committee
shall determine whether the Restricted Stock is Performance Stock (where the
lapse of restrictions is based on Performance Program Targets), or Restricted
Stock that is not Performance Stock (where the lapse of restrictions is based on
times and/or conditions determined by the Committee). The period beginning on
the date of grant and ending on the date the restrictions lapse is the
“Restriction Period.” The granting of any Restricted Stock, including the terms
thereof in accordance with this Section 5.1 and Sections 5.2 to 5.5, shall be
subject in all respects to the approval of a majority of the Independent
Directors.

     

    5.2 Restrictions. Except as
otherwise provided in this Article, Restricted Stock shall not be sold,
exchanged, transferred, pledged, assigned, hypothecated, or otherwise encumbered
or disposed of during the Restriction Period.

     

    5.3 Lapse of
Restrictions.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a) Restricted Stock Other Than
Performance Stock. With respect to Restricted Stock that is not
Performance Stock, the restrictions described in Section 5.2 shall lapse at the
earliest of (i) such time or times, and on such conditions, as shall have been
specified at the time of grant, (ii) the Participant’s death prior to
Termination of Service, (iii) the Participant’s Total Disability prior to
Termination of Service, (iv) the Participant’s Retirement, (v) the Participant’s
involuntary Termination of Service  without cause, or (vi) a Change in
Control.  If a Participant incurs a Termination of Service because of
voluntary resignation (other than Retirement) or involuntary termination for
cause,  as determined by the Committee and a majority of the
Independent Directors, prior to the date the Restriction Period would otherwise
lapse, the Participant shall forfeit all Restricted Stock that is still within
Restriction Period.  The Committee, subject to the approval of a
majority of the Independent Directors, may at any time accelerate the time at
which the restrictions on all or any part of the shares of Restricted Stock
(other than Performance Stock) will lapse.

     

    (b) Performance Stock. With
respect to Performance Stock granted to a Participant, the restrictions
described in Section 5.2 shall lapse after the end of the relevant Performance
Period based on the Performance Program Targets established in accordance with
Article 8 and achieved for such Period. As promptly as practicable after the end
of the Performance Period, the Committee shall, in accordance with Article 8 and
subject to the approval of a majority of the Independent Directors, determine
the extent to which the Performance Program Targets have been achieved. Except
as provided in Section 8.4 and Section 9.4, the extent to which such
restrictions lapse shall be based solely on the achievement of Performance
Program Targets, in accordance with Article 8; the Committee shall not have the
discretion to increase the extent to which such restrictions lapse. Except as
provided in Section 8.4 and Section 9.4, if a Participant incurs a Termination
of Service for any reason prior to the date the Restriction Period would
otherwise lapse with respect to Performance Stock, the Participant shall forfeit
all Performance Stock granted with respect to such Performance Period. The
Restriction Period with respect to Performance Stock shall end on the date the
Committee and the Independent Directors make their determination regarding
achievement of Performance Program Targets in accordance with Article 8, but
only to the extent such targets are achieved.

     

    (c) In General. Upon the lapse of
restrictions in accordance with this Section 5.3 with respect to a share of
Restricted Stock, the Restriction Period shall end and such share of Common
Stock shall cease to be Restricted Stock for purposes of the Plan. Except as
provided in Section 8.4 and Article 9, any Restricted Stock with respect to
which the Restriction Period has not lapsed at the time of (or as a result of)
the Participant’s Termination of Service, shall be forfeited.

     

    5.4 Custody of Shares. The
Committee may require under such terms and conditions as it deems appropriate or
desirable that the certificates for shares of Restricted Stock be held in
custody by a bank or other institution or that the Company may itself hold such
certificates in custody until the lapse of restrictions under Section 5.3 and
may require additional documents as it deems necessary. The shares of Common
Stock that cease to be Restricted Stock under Section 5.3(c) shall be issued
promptly after the conclusion of the Restriction Period and the satisfaction of
any applicable withholding requirements.

     

    5.5 Shareholder Rights. Each
Participant who receives Restricted Stock shall have all of the rights of a
shareholder with respect to such shares, subject to the restrictions set forth
in Section 5.2, including the right to vote the shares and receive dividends and
other distributions. Any shares of Common Stock or other securities of the
Company received by a Participant with respect to a share of Restricted Stock,
as a stock dividend, or in connection with a stock split or combination, share
exchange or other recapitalization, shall have the same status and be subject to
the same restrictions as such Restricted Stock.

     

    6.
RESTRICTED STOCK UNITS

     

    6.1 Nature of Restricted Stock
Units. A Restricted Stock Unit entitles the Participant to receive one
share of Common Stock, cash equal to the Fair Market Value of a share of Common
Stock on the date of vesting, or a combination thereof, with respect to each
Restricted Stock Unit that vests in accordance with Section 6.3; any
fractional Restricted Stock Unit shall be payable in cash. The Committee, in its
sole discretion, shall determine the medium of payment.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    6.2 Grant of Restricted Stock
Units. At the time of grant, the Committee shall determine (a) the
Employee, Non-employee Director or Consultant receiving the grant, (b) the
number of Restricted Stock Units subject to the Award, (c) whether the
Restricted Stock Unit is a Performance Stock Unit (where vesting is based on
Performance Program Targets), or a Restricted Stock Unit that is not a
Performance Stock Unit (where vesting is based on times and/or conditions
determined by the Committee), and (d) when such Restricted Stock Units
shall vest in accordance with Section 6.3. The Company shall establish a
bookkeeping account in the Participant’s name which reflects the number and type
of Restricted Stock Units standing to the credit of the
Participant.

     

    6.3 Vesting.

     

    (a) Restricted Stock Units Other Than
Performance Stock Units. With respect to Restricted Stock Units that are
not Performance Stock Units, the Committee shall determine the time period and
conditions (such as continued employment or performance measures) that must be
met in order for such Restricted Stock Units to vest.  Restricted
Stock Units that are not Performance Stock Units and have not vested shall vest
in full upon the earliest of (i) the Participant’s death prior to Termination of
Service, (ii) the Participant’s Total Disability prior to Termination of
Service, (iii) the Participant’s Retirement, (iv) the Participant’s involuntary
Termination of Service without cause, or (v) a Change in Control.  
Restricted Stock Units that have not vested shall be forfeited upon the
Participant’s voluntary Termination of Service (other than Retirement) or the
Participant’s involuntary Termination of Service for cause, as determined by the
Committee and a majority of the Independent Directors.

    

    (b) Performance Stock Units. The
Committee shall determine the extent to which a Participant’s Performance Stock
Units vest after the end of the relevant Performance Period, based on the
Performance Program Targets established in accordance with Article 8 and
achieved for such Period. As promptly as practicable after the end of the
Performance Period, the Committee shall, in accordance with Article 8, determine
the extent to which the Performance Program Targets have been achieved. Except
as provided in Section 8.4 and Section 9.4, the extent to which Performance
Stock Units vest shall be based solely on the achievement of Performance Program
Targets, in accordance with Article 8; the Committee shall not have the
discretion to increase the extent to which such Performance Stock Units vest.
Except as provided in Section 8.4 and Section 9.4, if a Participant
incurs a Termination of Service for any reason prior to the date Performance
Stock Units would otherwise vest, the Participant shall forfeit all Performance
Stock Units granted with respect to such Performance Period. Performance Stock
Units shall vest on the date the Committee makes its determinations regarding
achievement of Performance Program Targets in accordance with Article 8, but
only to the extent such targets are achieved.

     

    (c) Payment. Except as otherwise
provided in the agreement evidencing the Participant’s Restricted Stock Unit
grant, payment with respect to a Restricted Stock Unit shall be made on the
Short-Term Deferral Date.

     

    6.4 Dividend Equivalent Rights.
The Company shall credit to the Participant’s bookkeeping account, on each date
that the Company pays a cash dividend to holders of Common Stock generally, an
additional number of Restricted Stock Units equal to the total number of
Restricted Stock Units credited to the Participant’s bookkeeping account on such
date, multiplied by the dollar amount of the per share cash dividend, and
divided by the Fair Market Value of a share of Common Stock on such date.
Restricted Stock Units attributable to such dividend equivalent rights shall be
subject to the same terms and conditions as the Restricted Stock Units to which
such dividend equivalent rights relate.

     

    7.
PERFORMANCE INCENTIVE UNITS

     

    7.1 Grants. The Committee may
grant Performance Incentive Units to an Employee with respect to a Performance
Period. However, no Participant shall receive, under the terms of the Plan,
compensation payable in cash attributable to his or her Performance Incentive
Units during any one calendar year in an amount in excess of the lesser of five
(5) times the Participant’s base salary, or five million dollars ($5,000,000).
The granting of any Performance Incentive Unit, including the terms thereof in
accordance with Sections 6.2 and 6.3, shall be subject in all respects to the
approval of a majority of the Independent Directors.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.2 Stated Value and Change in
Performance Targets.

     

    (a) Stated Value. Within the
period set forth in Section 8.2, and subject to the approval of a majority of
the Independent Directors, the Committee shall establish the value (which shall
be expressed in dollars) of Performance Incentive Units (the “Stated Value”) to
be granted to a Participant with respect to a Performance Period, and shall fix
the percentage, if any, of the Stated Value to be earned upon the achievement of
the Performance Program Targets established for the relevant Performance Period.
In no event, however, shall the percentage of Stated Value to be earned upon
achievement of the maximum Performance Program Target established with respect
to a Performance Period exceed 200% of Stated Value fixed for that Performance
Period.

     

    (b) Change in Performance
Targets. If the Committee determines that an unforeseen change during a
Performance Period in the Company’s business operations, corporate structure,
capital structure, or manner in which it conducts business is significant,
nonrecurring and material and that the Performance Program Targets established
for the Performance Period are no longer suitable, the Committee may, but only
with the approval of a majority of the Independent Directors, modify the
Performance Program Targets as it deems appropriate and equitable; provided, however, that no such
modification shall increase the Performance Program Targets in effect for any
Performance Period (i.e., establish a target that
is more difficult to achieve than the original Performance Program Target); and
provided, further, that no such modification shall be made that would cause the
benefits payable to a Covered Employee with respect to such Performance Program
Target to fail to qualify as “performance-based compensation” for purposes of
Code Section 162(m).

     

    7.3 Payment. As promptly as
practicable after the end of each Performance Period, the Committee shall
determine, subject to completion of any necessary audits and the approval of a
majority of the Independent Directors, its determination of the earned
percentage of Stated Value of the Performance Incentive Units granted with
respect to such completed Performance Period. The Company shall, on the
Short-Term Deferral Date, pay to each Participant holding Performance Incentive
Units granted with respect to such completed Performance Period, for each such
Performance Incentive Unit held by him or her, an amount equal to the product
obtained by multiplying Stated Value by the earned percentage of Stated Value;
provided, however, that except
as provided in Section 8.4 and Section 9.4, no amounts shall be due or payable
with respect to any Performance Incentive Units if the Participant to whom such
Performance Incentive Units have been granted incurs a Termination of Service
for any reason prior to the date the payment would otherwise be made with
respect to such Performance Incentive Units.

     

    8.
COMMON RULES FOR PERFORMANCE AWARDS

     

    8.1 In General. Notwithstanding
any provision of the Plan to the contrary, this Article 8 shall apply to
Performance Awards. This Article 8 is intended to ensure that Performance Awards
granted to any Participant who is a Covered Employee shall qualify as
“performance-based compensation” for purposes of Code Section 162(m). All
discretionary actions taken under the Plan with respect to such Performance
Awards shall be exercised by the Committee, subject at all times to the approval
of a majority of the Independent Directors.

     

    8.2 Committee Determinations.
With respect to Performance Awards, the Committee shall determine and make a
recommendation to the Independent Directors:

     

    (a) The
Employee to whom the Award shall be granted;

     

    (b) The
type of Award to be granted;

     

    (c) The
Performance Period applicable to the Award;

     

    (d) The
Performance Program Target(s) applicable to the Award; and

     

    (e) Other
terms and conditions of the Award consistent with the terms of the
Plan.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    All such
determinations shall be made within the first ninety (90) days of the
Performance Period or, if shorter, within the first 25% of such Performance
Period, provided in either case that the outcome is substantially uncertain when
the Performance Program Targets are established. Each of the above
determinations shall be made by the Committee, subject to the approval of a
majority of the Independent Directors, without any requirement for consistency
among, for example, (i) the types of Awards granted to Participants, and (ii)
the Performance Periods or Performance Program Targets applicable to
Participants or to different types of Awards.

     

    8.3 Performance Program
Targets.

     

    (a) The
Performance Program Targets shall provide an objective method for determining
whether the Performance Program Targets have been achieved, and an objective
method for computing the amount to be paid, or the number of shares of Common
Stock which shall vest or be distributed, to the Participant based on the
attainment of one or more goals included in the Performance Program
Targets.

     

    (b)
Performance Program Targets shall be based upon one or more of the following
business criteria (which may be determined for these purposes by reference to
(i) the Company as a whole, (ii) any of the Company’s subsidiaries, operating
divisions, regional business units or other operating units, or (iii) any
combination thereof): profit before taxes, stock price, market share, gross
revenue, net revenue, pre-tax income, operating income, cash flow, earnings per
share, return on equity, return on invested capital or assets, cost reductions
and savings, return on revenues or productivity, or any other business criteria
the Committee deems appropriate that are approved by a majority of the
Independent Directors, which may be modified at the discretion of the Committee
to take into account significant nonrecurring items or which may be adjusted to
reflect such costs or expense as the Committee deems appropriate, provided that
any modifications are approved by majority of the Independent Directors; provided, however, that with
respect to Performance Awards granted to a Covered Employee, any such
modification or adjustment shall be established not later than the end of the
period stated in Section 8.2. Performance Program Targets may also be based upon
a Participant’s attainment of personal objectives with respect to any of the
foregoing business criteria or implementing policies and plans, negotiating
transactions and sales, developing long-term business goals or exercising
managerial responsibility, or any other criteria the Committee deems appropriate
that are approved by majority of the Independent Directors; provided, however, that with
respect to a Covered Employee, such objectives and criteria are consistent with
the goal of providing for deductibility under Code Section 162(m).

     

    (c)
Measurements of actual performance against the Performance Program Targets shall
be objectively determinable and shall, to the extent applicable, be determined
according to generally accepted accounting principles as in existence on the
date on which the Performance Program Targets are established and, without
regard to any changes in such principles after such date, except where the
Committee has specified that such changes shall be taken into account and, with
respect to Covered Employees, such specification is made not later than the end
of the period set forth in Section 8.2. The Committee may provide for
appropriate adjustments to any business criteria used in connection with
measuring attainment of Performance Program Targets to take into account
fluctuations in exchange rates, where relevant, provided that the adjustments
are approved by the Independent Directors.

     

    8.4 Termination of Service Prior to End
of Restriction Period, Vesting or Payment Date.

     

    (a) Employment Requirement.
Except as provided in Section 9.4, no Performance Award shall be payable under
the Plan to any Participant who incurs a Termination of Service prior to the
date the Restriction Period ends (with respect to Performance Stock), or the
date the Performance Period ends (with respect to Performance Incentive Units)
unless the Participant incurs a Termination of Service prior to such date, but
after one-half of the Performance Period has elapsed, on account of his or her
death or Total Disability, or after attainment of his or her “normal retirement
age” or “early retirement age” as such terms are defined in the Aceto
Corporation 401(k) Plan, or under such other circumstances as the Committee
shall determine and the Independent Directors shall approve; except as provided
in Section 9.4, if a Participant incurs a Termination of Service prior to the
date the Restriction Period ends (with respect to Performance Stock), the date
of vesting (with respect to Performance Stock Units), or the date the payment
would otherwise be made (with respect to Performance Incentive Units) under any
circumstances other than those described above or unless  the
Committee, in its sole discretion, specifically provides for payment of the
Participant’s Performance Award if the Participant incurs a Termination of
Service after the end of the Performance Period but before such date payment
would otherwise be made, the Performance Award shall be forfeited on the date of
such Termination of Service.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) Proration of Performance
Award.

     

    (i) If a
Participant is on a leave of absence during a Performance Period, the
Participant’s Performance Award shall be prorated based on active service during
the Performance Period, except as provided in Section 9.4.

     

    (ii) If a
Participant incurs a Termination of Service under the circumstances set forth in
Section 8.4(a), any Performance Award payable shall be prorated based on active
service during the Performance Period, except as provided in Section
9.4.

     

    8.5 Conditions to Payment or
Vesting. No Participant may receive any payment (of unrestricted Common
Stock or cash) with respect to a Performance Award unless and until (A) the Plan
is approved by the Company’s shareholders, and (B) except as provided in Section
9.4, the Committee has certified in writing that the Performance Program Target
or Targets for a Performance Period have been achieved and the Independent
Directors have approved the Performance Program Target or Targets set by the
Committee.

     

    9.
CHANGE IN CONTROL

     

    9.1 Stock Options and Stock Appreciation
Rights. Upon the occurrence of a Change in Control, all Stock Options and
Stock Appreciation Rights granted and outstanding under the Plan to such
Participant shall become immediately exercisable in full regardless of any terms
of such an Award to the contrary; provided, however, that the
extent to which a Stock Option or Stock Appreciation Right is exercisable shall
not be increased under this Section if the Participant incurred a Termination of
Service before the Change in Control.

     

    9.2 Restricted Stock other than
Performance Stock. Upon the occurrence of a Change in Control, the
restrictions described in Section 5.2 shall lapse with respect to all Restricted
Stock other than Performance Stock outstanding on the date of the Change in
Control; provided, however, that this
section shall not apply  and the provisions of Section 5.3 shall apply
to a participant who before the Change in Control incurred a Termination of
Service because of a voluntary resignation (other than a Retirement) or an
involuntary termination for cause as determined by the Committee and a majority
of the Independent Directors .

     

    9.3 Restricted Stock Units other than
Performance Stock Unit. Upon the occurrence of a Change in Control, the
restrictions described in Section 6.2 shall lapse with respect to all Restricted
Stock Units other than Performance Stock Units outstanding on the date of the
Change in Control; provided, however, that this
section shall not apply and the provisions of Section 6.3 shall apply to a
participant who before the Change in Control incurred a voluntary Termination of
Service  (other than a Retirement) or an involuntary termination for
cause as determined by the Committee and a majority of the Independent
Directors.

     

    9.4 Performance
Awards.

     

    (a) In General. This Section 9.4
shall apply in the case of a Performance Award to a Participant who is an
Employee, Non-employee Director or Consultant on the day before the Change in
Control.

     

    (b) Performance Stock.
Notwithstanding any provision of the Plan to the contrary, in the event of a
Change in Control, (i) with respect to Performance Stock that is (A) held by a
Participant described in subsection (a), and (B) relates to a Performance Period
that ended before the date of the Change in Control, the restrictions described
in Section 5.2 shall lapse on the date of such Change in Control based on
achievement during the applicable Performance Period, and (ii) the Company (or
any successor thereto as a result of the Change in Control) shall pay (in cash
or unrestricted Common Stock) to each Participant described in subsection (a)
(or his or her beneficiary) the pro rata portion of the Participant’s
Performance Stock with respect to any Performance Period in which such Change in
Control occurs, such payment to be made on as soon as practicable, but in no
event later than the 15th day of
the third month following such Change in Control. The pro rata portion shall be
calculated on the fractional portion (the numerator of the fraction being the
number of days between the first day of the applicable Performance Period and
the date of such Change in Control, and the denominator being the total number
of days in the applicable Performance Period) of the Performance Stock for which
the restrictions described in Section 5.2 would have lapsed had the Change in
Control not occurred, and the target level of performance been achieved for the
applicable Performance Period.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) Performance Stock Units.
Notwithstanding any provision of the Plan to the contrary, in the event of a
Change in Control, (i) with respect to a Performance Stock Unit that is (A) held
by a Participant described in subsection (a), and (B) relates to a Performance
Period that ended before the date of the Change in Control, the restrictions
described in Section 6.2 shall lapse on the date of such Change in Control based
on achievement during the applicable Performance Period, and (ii) the Company
(or any successor thereto as a result of the Change in Control) shall pay (in
cash or unrestricted Common Stock) to each Participant described in subsection
(a) (or his or her beneficiary) the pro rata portion of the Participant’s
Performance Stock with respect to any Performance Period in which such Change in
Control occurs, such payment to be made on as soon as practicable, but in no
event later than the 15th day of
the third month following such Change in Control. The pro rata portion shall be
calculated on the fractional portion (the numerator of the fraction being the
number of days between the first day of the applicable Performance Period and
the date of such Change in Control, and the denominator being the total number
of days in the applicable Performance Period) of the Performance Stock Unit for
which the restrictions described in Section 6.2 would have lapsed had the Change
in Control not occurred, and the target level of performance been achieved for
the applicable Performance Period.

     

    (d) Performance Incentive Units.
Notwithstanding any provision of the Plan to the contrary, this subsection (d)
shall apply in the event of a Change in Control; provided, however, that in the
event any payment under this subsection (d) on account of a Change in Control
would not qualify as a short-term deferral (within the meaning of regulations
under Code Section 409A), this subsection (d) shall apply to such payment only
in the event such Change in Control is also a change in control within the
meaning of regulations issued under Code Section 409A:

     

    (i)
Performance Incentive Units that are (A) held by a Participant described in
subsection (a), and (B) relate to a Performance Period that ended before the
date of the Change in Control, shall be paid to such Participant on the date of
such Change in Control (or as soon as practicable thereafter), based on
achievement during the applicable Performance Period; and

     

    (ii) The
Company (or any successor thereto as a result of the Change in Control) shall
pay to each Participant described in subsection (a) (or his or her beneficiary)
the pro rata portion of the Participant’s Performance Incentive Units (in cash)
with respect to any Performance Period in which such Change in Control occurs,
such payment to be made on the as soon as practicable, but in no event later
than the 15th day of
the third month following such Change in Control. The pro rata portion shall be
calculated on the fractional portion (the numerator of the fraction being the
number of days between the first day of the applicable Performance Period and
the date of such Change in Control, and the denominator being the total number
of days in the applicable Performance Period) of the amount that would have been
payable had the Change in Control not occurred, and the target level of
performance been achieved for the applicable Performance Period.

     

    10.
MISCELLANEOUS PROVISIONS

     

    10.1
Agreement. Each Equity
Award granted under the Plan shall be evidenced by an agreement between the
Company and the Participant which shall set forth the number of shares of Common
Stock subject to the Equity Award, and such terms and conditions of the Equity
Award as the Committee may determine that are not inconsistent with the terms of
the Plan, Code Section 409A and, for Incentive Stock Options, Code Section 422,
subject in all respects to the approval of a majority of the Independent
Directors.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    10.2
Adjustments Upon Changes in
Capitalization. In the event of changes to the outstanding shares of
Common Stock of the Company through reorganization, merger, consolidation,
recapitalization, reclassification, stock splits, stock dividend, spin-off,
stock consolidation or otherwise, or in the event of a sale of all or
substantially all of the assets of the Company, an appropriate and proportionate
adjustment shall be made in the number and kind of shares as to which Awards may
be granted. A corresponding adjustment changing the number and kind of shares
issuable upon exercise or vesting of outstanding Stock Options, Stock
Appreciation Rights and/or Restricted Stock Units (as well as the exercise price
of outstanding Stock Options and the amount over which appreciation of
outstanding Stock Appreciation Rights is measured) shall likewise be made.
Notwithstanding the foregoing, in the case of a reorganization, merger or
consolidation, or sale of all or substantially all of the assets of the Company,
in lieu of adjustments as aforesaid, the Committee, subject to the approval of a
majority of the Independent Directors, may in its discretion accelerate the date
after which a Stock Option or Stock Appreciation Right may or may not be
exercised or the stated expiration date thereof and may accelerate the
termination date of any Award or Performance Period then in effect; provided, however, that not
fewer than seven (7) days’ advance notice shall be provided to each Participant
whose Award is to be so terminated. Subject to the approval of a majority of the
Independent Directors, adjustments or changes under this Section shall be made
by the Committee, which determination, as so approved, as to what adjustments or
changes shall be made, and the extent thereof, shall be final, binding, and
conclusive; provided, however, that no such
adjustment or change shall cause the modification (within the meaning of Section
409A of the Code) of an outstanding Stock Option or Stock Appreciation
Right.

     

    10.3
Non-Transferability. No
Incentive Stock Option, Restricted Stock, or Performance Incentive Unit shall be
assignable or transferable by the Participant except by will or the laws of
descent and distribution or pursuant to a Qualified Domestic Relations Order
(QDRO). No Incentive Stock Option shall be exercisable during the Participant’s
lifetime by any person other than the Participant or his or her guardian or
legal representative. Except as provided in the agreement evidencing a
Participant’s Award, such limits on assignment, transfer and exercise shall also
apply to Non-Qualified Stock Options and Stock Appreciation Rights.

     

    10.4
Withholding. The
Company’s obligations in connection with this Plan shall be subject to
applicable Federal, state, and local tax withholding requirements. If the
Participant shall either fail to pay, or make arrangements satisfactory to the
Committee and the Independent Directors for the payment, to the Company of all
such Federal, state, and local taxes required to be withheld by the Company,
then the Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to such Participant an amount equal
to any Federal, state, or local taxes of any kind required to be withheld by the
Company. The amount of this withholding shall not exceed the minimum tax
withholding.

     

    10.5
Compliance with Law and
Approval of Regulatory Bodies. No Stock Option or Stock Appreciation
Right shall be exercisable and no shares will be delivered under the Plan except
in compliance with all applicable Federal and state laws and regulations
including, without limitation, compliance with all Federal and state securities
laws and withholding tax requirements and with the rules of The Nasdaq Stock
Market and of all domestic stock exchanges on which the Common Stock may be
listed. Any share certificate issued to evidence shares for which a Stock Option
or Stock Appreciation Right is exercised or for which an Award has been granted
may bear legends and statements that the Committee, upon the advice of counsel,
shall deem advisable to assure compliance with Federal and state laws and
regulations. No Stock Option or Stock Appreciation Right shall be exercisable
and no shares will be delivered under the Plan, until the Company has obtained
consent or approval from regulatory bodies, Federal or state, having
jurisdiction over such matters. In the case of a payment (in cash or Common
Stock) with respect to an Award to a person or estate acquiring the right to
payment as a result of the death of the Participant, the Committee and/or the
Independent Directors may require reasonable evidence as to the ownership of the
Award and may require consents and releases of taxing authorities that it may
deem advisable.

     

    10.6
No Right to Employment.
Neither the adoption of the Plan nor its operation, nor any document describing
or referring to the Plan, or any part thereof, nor the granting of any Award
shall confer upon any Participant under the Plan any right to continue in the
employ of the Company or any Subsidiary, or shall in any way affect the right
and power of the Company to terminate the employment of any Participant at any
time with or without assigning a reason therefor, to the same extent as might
have been done if the Plan had not been adopted.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    10.7
Exclusion from Pension
Computations. By acceptance of a grant of an Award under the Plan, the
recipient shall be deemed to agree that any income realized upon the receipt,
exercise, or vesting thereof or upon the disposition of the shares received upon
exercise will not be taken into account as “base remuneration,” “wages,”
“salary,” or “compensation” in determining the amount of any contribution to or
payment or any other benefit under any pension, retirement, incentive,
profit-sharing, or deferred compensation plan of the Company, except to the
extent any such amount is taken into consideration under the express terms of
any such plan.

     

    10.8
Interpretation of the
Plan. Headings are given to the Articles and Sections of the Plan solely
as a convenience to facilitate reference. Such headings, numbering, and
paragraphing shall not in any case be deemed in any way material or relevant to
the construction of the Plan or any provision hereof. The use of the masculine
gender shall also include within its meaning the feminine. The use of the
singular shall also include within its meaning the plural and vice
versa.

     

    10.9
Use of Proceeds. Funds
received by the Company upon the exercise of Stock Options granted under the
Plan shall be used for the general corporate purposes of the
Company.

     

    10.10
Construction of Plan.
The place of administration of the Plan shall be in the State of New York, and
the validity, construction, interpretation, administration, and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws of the State of New York (without
reference to principles of conflicts of laws) to the extent Federal law is not
applicable.

     

    10.11
Successors. The
provisions of the Plan shall bind and inure to the benefit of the Company and
its successors and assigns. The term “successors” as used herein shall include
any corporate or other business entity which shall, whether by merger,
consolidation, share exchange, purchase or otherwise, acquire all or
substantially all of the business and assets of the Company.

     

    10.12
Unfunded Plan. Except
as provided in Article 5, the Plan shall be unfunded and the Company shall not
be required to segregate any assets that may at any time be represented by
Awards under the Plan. Any liability of the Company to any person with respect
to any Award under this Plan shall be based solely upon any contractual
obligations that may be created pursuant to the Plan. No such obligation of the
Company shall be deemed to be secured by any pledge of, or other encumbrance on,
any property of the Company.

     

    10.13
No Warranty of Tax
Effect. Except as may be contained in any Award Agreement, no opinion
shall be deemed to be expressed or warranties made as to the effect of foreign,
federal, state or local tax on any awards.

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