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                                                                    Exhibit 10.1

                    SEPARATION AGREEMENT AND GENERAL RELEASE

         This Separation Agreement and General Release ("Separation Agreement")
is made by and between New York Mortgage Trust, Inc., a Maryland Corporation
(the "Company") and Raymond A. Redlingshafer, Jr. (the "Executive"). The Company
and the Executive may be referred to collectively herein from time to time as
"the Parties."

         WHEREAS, Executive has been employed by the Company pursuant to an
Employment Agreement executed on June 29, 2004 ("Employment Agreement"); and

         WHEREAS, in an effort to improve the efficiency and profitability of
Company, the Board of Directors have undertaken to restructure the Company's
management team in a manner that will result in a substantial alteration in the
nature of Executive's responsibilities within the Company; and

         WHEREAS, Executive has informed the Company that he wishes to resign
and pursue other career opportunities; and

         WHEREAS, the Company wishes to demonstrate its appreciation for
Executive's valuable service and has agreed to treat Executive's resignation as
a resignation for "Good Reason" as provided in Section 6(e) of Executive's
Employment Agreement;

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Parties agree as follows:

1.   Effective Date of Agreement. This Separation Agreement shall become
     effective and enforceable ("effective date") on the eighth day after the
     date it is executed. Once effective, all of the terms, conditions, benefits
     and restrictions of this Settlement Agreement shall be fully enforceable
     and binding on the Parties.

2.   Termination of Employment.

     a.   Executive hereby resigns his employment and any positions held with
          the Company and its subsidiaries, to include his position on the
          Company's Board of Directors, and any other duties and
          responsibilities he holds with the Company and its subsidiaries, as of
          June 30, 2005. Effective on the date of his resignation,

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          Executive will have no duties or responsibilities to be performed for
          the Company and its subsidiaries and shall have no authority to act or
          endeavor to act on behalf of the Company or its subsidiaries for any
          reason. For purposes of this Separation Agreement, Executive's "Date
          of Termination" shall be June 30, 2005. \

     b.   Executive will not receive any compensation or benefits from the
          Company after the Date of Termination, except as hereinafter provided
          in this Separation Agreement. Executive acknowledges and understands
          that some of these benefits are not routinely provided, that they
          exceed those provided under existing policies, and that they exceed
          those to which he is or otherwise would be entitled, and that they are
          given in consideration of his release and waiver of any claim that he
          may have against the Company in connection with his employment and
          termination of employment, as well as Executive's other agreements as
          set forth herein.

3.   Consideration to Executive. The Company shall provide Executive the
     following:

          a.   In lieu of the notice and employment provisions of Section 6 of
               Executive's Employment Agreement, the Company will pay to
               Executive on or before the tenth day following the Date of
               Termination the amount of $67,315.00 (Sixty-Seven Thousand, Three
               Hundred Fifteen Dollars), said amount representing 60 days of his
               current Base Salary as defined in Section 5(a) of Executive's
               Employment Agreement.

          b.   On or before the tenth day following the Date of Termination, the
               Company shall pay to Executive the amount of $14,175.00 (Fourteen
               Thousand, One Hundred Seventy-Five Dollars), said payment
               constituting 1.8 weeks of vacation time that Executive will have
               accrued as of the Date of Termination.

          c.   The Company shall pay the full cost for Executive to participate
               in the health insurance plan in which Executive was enrolled
               immediately prior to the Date of Termination for a period of
               Eighteen (18) months from the Date of Termination, provided that
               Executive's continued participation is possible under the general
               terms and provisions of such plans and programs. In the event
               that the Executive's participation in any such plan or program is
               barred, the Company

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               shall arrange to provide the Executive with benefits
               substantially similar to those which the Executive would
               otherwise have been entitled to receive under such plan from
               which his continued participation is barred.

          d.   The Company agrees to carry Directors and Officers insurance
               coverage on Executive for a period of Twenty-Four (24) months
               from the Date of Termination for his acts and omissions while an
               officer and director of the Company on a basis no less favorable
               to him than the coverage provided to current officers and
               directors.

          e.   The Company agrees to reimburse Executive for any amounts
               otherwise due to him under Section 5(d) (iii) (B) under the
               Employment Agreement as well as for business expenses incurred
               through the Date of Termination in accordance with Section 5(d)
               (viii) of the Employment Agreement.

4.   Additional Consideration in Return for Executive's General Release and
     Other Agreements. In accordance with the terms of Sections 7(d)(ii) and
     (iv) of Executive's Employment Agreement, in return for Executive's waiver
     and release of claims and covenant not to sue provided hereunder in Section
     6 and Executive's other agreements as set forth in this Separation
     Agreement, the Company agrees to pay to Executive the following additional
     consideration:

          a.   On or before the tenth day following the Date of Termination, the
               Company shall pay Executive a lump sum amount of $2,398,500.00
               (Two Million, Three Hundred Ninety-Eight Thousand, Five Hundred
               Dollars), said payment constituting an amount reached using the
               following calculation:

                    The Executive's Base Salary in effect as of the Date of
                    Termination, which is $409,500.00 (Four Hundred Nine
                    Thousand, Five Hundred Dollars), Plus the Executive's
                    highest Annual Bonus earned in the last three fiscal years,
                    which was $390,000.00 (Three Hundred Ninety Thousand
                    Dollars), the total of these two figures then Multiplied By
                    the whole number three (3).

          b.   The Company agrees that all stock options, restricted stock
               awards and any other equity awards actually granted by the
               Company to Executive shall become fully vested, unrestricted and
               exercisable as of the Date of Termination. These shares

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               are as follows: 95,583 (Ninety-Five Thousand, Five Hundred
               Eighty-Three) shares of the Company's common stock, issued to
               Executive in accordance with the terms and conditions of Section
               5(c)(ii) of Executive's Employment Agreement, of which 53,101
               shares have previously vested and the remaining 42,442 shares
               shall vest on the effective date of this Separation Agreement.
               Unless otherwise agreed to in writing by Executive, the Parties
               agree that the Company will satisfy any applicable withholding
               obligations by withholding such amount from the amount provided
               to Executive in Section 4(a).

5.   Additional Payments by the Company.

          a.   If it is determined (as hereafter provided) that any payment or
               distribution by the Company to or for the benefit of the
               Executive, whether paid or payable or distributed or
               distributable pursuant to the terms of this Separation Agreement,
               Executive's Employment Agreement, or otherwise pursuant to or by
               reason of any other agreement, policy, plan, program or
               arrangement, including without limitation any option, share
               appreciation right or similar right, or the lapse or termination
               of any restriction on or the vesting or exercisability of any of
               the foregoing (a "Payment"), would be subject to the excise tax
               imposed by Section 4999 of the Code (or any successor provision
               thereto) or to any similar tax imposed by state or local law, or
               any interest or penalties with respect to such excise tax (such
               tax or taxes, together with any such interest and penalties, are
               hereafter collectively referred to as the "Excise Tax"), then
               Executive will be entitled to receive an additional payment or
               payments (a "Gross-Up Payment") in an amount such that, after
               payment by Executive of all taxes (including any interest or
               penalties imposed with respect to such taxes), including any
               Excise Tax, imposed upon the Gross-Up Payment, Executive retains
               an amount of the Gross-Up Payment equal to the Excise Tax imposed
               upon the Payments.

          b.   All determinations required to be made under this Section 5,
               including whether an Excise Tax is payable by Executive and the
               amount of such Excise Tax and whether a Gross-Up Payment is
               required and the amount of such Gross-Up

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               Payment, will be made by the Company's then current outside
               auditors; provided that if that firm is unwilling or unable to
               provide such services, another accounting firm may be selected by
               the Company (such accounting firm the "Accounting Firm"). The
               Company will direct the Accounting Firm to submit its
               determination and detailed supporting calculations to both the
               Company and Executive within 30 calendar days after the date such
               determination may be requested by the Company or Executive. If
               the Accounting Firm determines that any Excise Tax is payable by
               Executive, the Company will pay the required Gross-Up Payment to
               Executive no later than five calendar days prior to the due date
               for Executive's income tax return on which the Excise Tax is
               included. If the Accounting Firm determines that no Excise Tax is
               payable by Executive, it will, at the same time as it makes such
               determination, furnish Executive with an opinion that he has
               substantial authority not to report any Excise Tax on his
               federal, state, local income or other tax return. Any
               determination by the Accounting Firm as to the amount of the
               Gross-Up Payment will be binding upon the Company and Executive.
               As a result of the uncertainty in the application of Section 4999
               of the Code (or any successor provision thereto) and the
               possibility of similar uncertainty regarding applicable state or
               local tax law at the time of any determination by the Accounting
               Firm hereunder, it is possible that Gross-Up Payments which will
               not have been made by the Company should have been made (an
               "Underpayment"), consistent with the calculations required to be
               made hereunder. In the event that the Company exhausts or fails
               to pursue its remedies pursuant to Section 5(f) hereof and
               Executive thereafter is required to make a payment of any Excise
               Tax, Executive shall so notify the Company, which will direct the
               Accounting Firm to determine the amount of the Underpayment that
               has occurred and to submit its determination and detailed
               supporting calculations to both the Company and Executive as
               promptly as possible. Any such Underpayment will be promptly paid
               by the Company to, or for the benefit of, Executive within five
               business days after receipt of such determination and
               calculations.

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          c.   The Company and Executive will each provide the Accounting Firm
               access to and copies of any books, records and documents in the
               possession of the Company or Executive, as the case may be,
               reasonably requested by the Accounting Firm, and otherwise
               cooperate with the Accounting Firm in connection with the
               preparation and issuance of the determination contemplated by
               Section 5(b) hereof.

          d.   The federal, state and local income or other tax returns filed by
               Executive will be prepared and filed on a consistent basis with
               the determination of the Accounting Firm with respect to the
               Excise Tax payable by Executive. To the extent the Excise Tax has
               not been previously withheld from amounts paid to the Executive,
               Executive will make proper payment of the amount of any Excise
               Tax, and at the request of the Company, provide to the Company
               true and correct copies (with any amendments) of his federal
               income tax return as filed with the Internal Revenue Service and
               corresponding state and local tax returns, if relevant, as filed
               with the applicable taxing authority, and such other documents
               reasonably requested by the Company, evidencing such payment. If
               prior to the filing of Executive's federal income tax return, or
               corresponding state or local tax return, if relevant, the
               Accounting Firm determines that the amount of the Gross-Up
               Payment should be reduced, Executive will within five business
               days pay to the Company the amount of such reduction.

          e.   The fees and expenses of the Accounting Firm for its services in
               connection with the determinations and calculations contemplated
               by Sections 5(b) and 5(d) hereof will be borne by the Company. If
               such fees and expenses are initially advanced by Executive, the
               Company will reimburse Executive the full amount of such fees and
               expenses within five business days after receipt from Executive
               of a statement therefore and reasonable evidence of his payment
               thereof.

          f.   Executive will notify the Company in writing of any claim by the
               Internal Revenue Service that, if successful, would require the
               payment by the Company of a Gross-Up Payment. Such notification
               will be given as promptly as practicable but no later than ten
               (10) business days after Executive actually receives notice of

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               such claim and Executive will further apprise the Company of the
               nature of such claim and the date on which such claim is
               requested to be paid (in each case, to the extent known by
               Executive). Executive will not pay such claim prior to the
               earlier of (x) the expiration of the 30-calendar-day period
               following the date on which he gives such notice to the Company
               and (y) the date that any payment of amount with respect to such
               claim is due. If the Company notifies Executive in writing prior
               to the expiration of such period that it desires to contest such
               claim. Executive will:

                    i.   provide the Company with any written records or
                         documents in his possession relating to such claim
                         reasonably requested by the Company;

                    ii.  take such action in connection with contesting such
                         claim as the Company reasonably requests in writing
                         from time to time, including without limitation
                         accepting legal representation with respect to such
                         claim by an attorney competent in respect of the
                         subject matter and reasonably selected by the Company;

                    iii. cooperate with the Company in good faith in order
                         effectively to contest such claim; and

                    iv.  permit the Company to participate in any proceedings
                         relating to such claim; provided, however, that the
                         Company will bear and pay directly all costs and
                         expenses (including interest and penalties) incurred in
                         connection with such contest and will indemnify and
                         hold harmless Executive, on an after-tax basis, for and
                         against any Excise Tax or income tax, including
                         interest and penalties with respect thereto, imposed as
                         a result of such representation and payment of costs
                         and expenses. Without limiting the foregoing provisions
                         of this Section 5(f), the Company will control all
                         proceedings taken in connection with the contest of any
                         claim contemplated by this Section 12(f) and, at its
                         sole option. may pursue or forego any and all
                         administrative appeals, proceedings, hearings and
                         conferences with the taxing authority in respect of
                         such claim (provided

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                         that Executive may participate therein at his own cost
                         and expense) and may, at its option, either direct
                         Executive to pay the tax claimed and sue for a refund
                         or contest the claim in any permissible manner, and
                         Executive agrees to prosecute such contest to a
                         determination before any administrative tribunal, in a
                         court of initial jurisdiction and in one or more
                         appellate courts, as the Company will determine;
                         provided, however, that if the Company directs
                         Executive to pay the tax claimed and sue for a refund,
                         the Company will advance the amount of such payment to
                         Executive on an interest-free basis and will indemnify
                         and hold Executive harmless, on an after-tax basis,
                         from any Excise Tax or income tax, including interest
                         or penalties with respect thereto, imposed with respect
                         to such advance; and provided further, however, that
                         any extension of the statute of limitations relating to
                         payment of taxes for the taxable year of Executive with
                         respect to which the contested amount is claimed to be
                         due is limited solely to such contested amount.
                         Furthermore, the Company's control of any such
                         contested claim will be limited to issues with respect
                         to which a Gross-Up Payment would be payable hereunder
                         and Executive will be entitled to settle or contest, as
                         the case may be, any other issue raised by the Internal
                         Revenue Service or any other taxing authority.

          g.   If, after the receipt by Executive of an amount advanced by the
               Company pursuant to Section 5(f) hereof, Executive receives any
               refund with respect to such claim, Executive will (subject to the
               Company's complying with the requirements of Section 5(f))
               hereof) promptly pay to the Company the amount of such refund
               (together with any interest paid or credited thereon after any
               taxes applicable thereto). If, after the receipt by Executive of
               an amount advanced by the Company pursuant to Section 5(f)
               hereof, a determination is made that Executive will not be
               entitled to any refund with respect to such claim and the Company
               does not notify Executive in writing of its intent to contest
               such denial or refund prior to the expiration of 30 calendar days
               after such determination, then such advance will be forgiven and
               will not be required to be repaid and the amount of such advance
               will offset, to the extent thereof, the amount of Gross-Up

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               Payment required to be paid pursuant to this Section 5. If, after
               the receipt by Executive of a Gross-Up Payment but before the
               payment by Executive of the Excise Tax, it is determined by the
               Accounting Firm that the Excise Tax payable by Executive is less
               than the amount originally computed by the Accounting Firm and
               consequently that the amount of the Gross-Up Payment is larger
               than that required by this Section 5, Executive shall promptly
               refund to the Company the amount by which the Gross-Up Payment
               initially made to Executive exceeds the Gross-Up Payment required
               under this Section 5.

6.   Waiver, Release of Claims, and Covenant Not to Sue.

          a.   Executive, for himself, his agents, personal representatives,
               heirs and assigns, hereby unconditionally releases and forever
               discharges the Company and all of its affiliated entities and
               subsidiaries, as well as their respective officers, directors,
               partners, owners, employees, agents, representatives,
               predecessors and successors (collectively "Released Parties")
               from all liability for any acts, occurrences or omissions arising
               out of or connected in any way with Executive's employment,
               prospective employment, or termination of employment by, or
               services as a member of the Board of Directors of, the Company
               and any of its affiliates or subsidiaries, both as to matters now
               known and those discovered hereafter. The foregoing includes, but
               is not limited to, any and all claims for monetary relief,
               injunctive relief, back pay, fringe benefits, attorney fees,
               costs, and employment or reinstatement, that could have been
               raised under common law, including wrongful discharge, breach of
               any contractual rights, both express or implied, breach of any
               covenant of good faith and fair dealing, both express or implied,
               any tort, any claim of invasion of privacy, any legal
               restrictions on the Released Parties' rights to terminate
               employees, and any federal, state, or other governmental statute,
               regulation, ordinance, or directive, including but not limited to
               Title VII of the Civil Rights Act of 1964, the Americans with
               Disabilities Act, the Family and Medical Leave Act, the Fair
               Labor Standards Act, the Age Discrimination in Employment Act,
               the Employee Retirement Income Security Act, the New York State
               Human Rights Law (New York Exec. Laws Section.290 et. seq.), the
               New York City Human Rights Law (New York Admin. Codes
               Section.8-107

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               et. seq.), the Securities Act of 1933, the Securities Exchange
               Act of 1934, and state securities laws. Executive covenants not
               to sue the Released Parties with respect to any of the released
               claims or potential claims described above. The foregoing release
               does not waive or infringe (i) Executive's right to receive
               retirement benefits to the extent he is eligible for such
               benefits pursuant to the terms of any applicable retirement or
               pension program; (ii) any rights to vested stock described in
               Section 4(b) hereof, and (iii) any indemnification rights under
               the Separation Agreement, Employment Agreement, the Company's
               by-laws, or otherwise.

          b.   The Company hereby unconditionally releases and forever
               discharges Executive from all liability for any acts, occurrences
               or omissions arising out of or connected in any way with
               Executive's employment, prospective employment, or termination of
               employment by, or services as a member of the Board of Directors
               of, the Company and any of its affiliates or subsidiaries, both
               as to matters now known and those discovered hereafter. The
               Company covenants not to sue the Executive with respect to any of
               the released claims or potential claims described above.

          c.   The Parties expressly understand and agree that the waivers,
               releases and covenants not to sue set forth in clauses (a) and
               (b) above do not preclude either Party from acting to enforce the
               terms, conditions, rights, obligations and requirements of this
               Separation Agreement as provided herein.

7.   OWBPA Compliance. This Separation Agreement is intended by the parties to
     comply with the requirements of the Older Workers Benefits Protection Act
     (29 U.S.C. Section.626(f)). To that end the parties acknowledge that (a)
     Executive has read and understands the terms of this Separation Agreement
     and he accepts them knowingly and voluntarily, (b) the claims released by
     Executive pursuant to this Separation Agreement include claims arising
     under the Age Discrimination in Employment Act (29 U.S.C. Section.626 et.
     seq.), (c) Executive does not waive any of his rights or claims that may
     arise after the date this Separation Agreement is

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     effective, (d) the consideration provided in Paragraph 4 of this Separation
     Agreement in exchange for Executive's release of claims is in addition to
     anything of value which Executive is already entitled to receive from the
     Company, (e) Executive has been advised in writing to consult with an
     attorney prior to signing this Separation Agreement, (f) Executive has been
     given a period of up to 21 days in which to consider the terms of this
     Separation Agreement, and (g) Executive has a period of 7 days following
     the date he signs this Separation Agreement to revoke it, and the
     Separation Agreement shall not become effective or enforceable until the
     revocation period has expired, as provided for in Section 1 herein.

8.   Nondisclosure of Confidential Information. The Executive shall hold in a
     fiduciary capacity for the benefit of the Company all secret or
     Confidential Information, knowledge or data relating to the Company or any
     of its affiliated companies, and their respective businesses, which shall
     have been obtained by the Executive during the Executive's employment by
     the Company or any of its affiliated companies and which shall not be or
     become public knowledge (other than by acts by the Executive or
     representatives of the Executive in violation of this Separation
     Agreement). Executive shall not, without the prior written consent of the
     Company or as may otherwise be required by law or legal process,
     communicate or divulge any such information, knowledge or data to anyone
     other than the Company and those designated by it. The agreement made in
     this Section 8 shall be in addition to, and not in limitation or derogation
     of, any obligations otherwise imposed by law upon the Executive in respect
     of confidential information of the Company. "Confidential Information," as
     used in this Separation Agreement, means any and all confidential
     information (whether recorded in documentary form or by electronic or other
     means) relating to the business methods, corporate plans, business plans,
     strategic plans, employee information (including compensation,
     qualifications, and utilization), management systems, finances, existing or
     developing business opportunities, processes under development, potential
     product applications, or research and development projects of the Company,
     or relating to the marketing or sales of any past, present or future
     product or service of the Company including, without limitation, sales
     techniques, price lists, discount structures, advertising and promotional
     material, the names, addresses, telephone numbers and contact names of
     customers and potential customers of and suppliers and potential suppliers
     to the

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     Company, the nature of their business operations, their requirements for
     any product or service sold to or purchased by the Company and all
     confidential aspects of their business relationship with the Company and
     any trade secrets, secret formulae, processes, inventions, designs,
     know-how, discoveries, and technical information relating to any past,
     present or future product or service of the Company. Confidential
     Information also includes any other information to which the Company
     attaches an equivalent level of confidentiality or in respect of which it
     owes an obligation of confidentiality to any third party, knowledge of
     which Executive acquired at any time during his employment by the Company
     or any of its affiliated companies and which is not readily ascertainable
     to persons not connected with the Company either at all or without
     significant expenditure of labor, skill or money. The nondisclosure
     obligation set forth in this Paragraph is in addition to Executive's
     fiduciary, statutory and other common law duties to maintain the
     confidentiality of the Company's Confidential Information and, to the
     extent not otherwise provided herein, the Company's trade secrets.

9.   Non-Competition. The Company is willing to enter into this Separation
     Agreement only on the condition that Executive accept certain
     post-employment restrictions with respect to subsequent reemployment.
     Executive agrees to and is prepared to accept such conditions as set forth
     herein:

          a.   Executive agrees that, for a period of Twelve (12) months
               following the Date of Termination, Executive shall not, directly
               or indirectly, as an employee, consultant or otherwise, for
               himself or on behalf of or in conjunction with any other person,
               persons, company, firm, partnership, corporation, business, group
               or other entity (each, a "Person") work for or provide services
               regarding any "residential mortgage loan business" (as defined
               below) within any state where the Company is doing business or
               has plans for commencing business as of the Date of Termination.
               Executive's passive ownership of less than five percent (5%) of
               the securities of a public company shall not be treated as an
               action in competition with the Company.

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          b.   "Residential mortgage loan business" shall be defined for
               purposes of this Separation Agreement as any Person that
               satisfies all of the following criteria: (i) is or intends to
               elect to be or to reorganize itself as a real estate investment
               trust, (REIT); and (ii) originates or intends to originate,
               directly or through one or more subsidiaries, residential
               mortgage loans for such REIT's portfolio; and (iii) directly
               competes with the Company.

          c.   Executive hereby acknowledges and agrees that his employment with
               the Company placed him in a position of trust and confidence with
               respect to the business operations, customers, prospects and
               personnel of the Company. He agrees that, due to his position and
               knowledge, his engaging in any business that competes with the
               Company in the residential mortgage loan business will cause the
               Company significant and irreparable harm.

10.  Non-Solicitation. In consideration of the compensation and benefits
     extended to him under this Separation Agreement, Executive agrees that, for
     Twelve (12) months following the Date of Termination, the Executive shall
     not, for any reason whatsoever, directly or indirectly, for himself or on
     behalf of or in conjunction with any other Person with whom Executive works
     or is affiliated:

          a.   solicit and/or hire any Person who is on the Date of Termination,
               or has been within six (6) months prior to the Date of
               Termination, an employee of the Company or its affiliates;

          b.   solicit, induce or attempt to induce any Person who is, at the
               Date of Termination, or has been within six (6) months prior to
               the Date of Termination, an actual customer, client, business
               partner, or a prospective customer, client, business partner,
               i.e., a customer, client or business partner who is party to a
               written proposal (including, with respect to the Company's
               borrowers, a mortgage loan application) or letter of intent with
               the Company, in each case written less than six (6) months prior
               to the Date of Termination of the Company, said entities to
               include without limitation the following categories: real estate
               developers, borrowers, realtors and acquisition candidates, for
               the purpose or with the intent

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               of (A) inducing or attempting to induce such Person to cease
               doing business with the Company or its affiliates, or (B) in any
               way interfering with the relationship between such Person and the
               Company or its affiliates; or

          c.   solicit, induce or attempt to induce any Person who is or that
               is, at the time of the Date of Termination, or has been within
               six (6) months prior to the Date of Termination, a supplier,
               licensee or consultant of, or provider of goods or services to
               the Company or its affiliates, for the purpose or with the intent
               of (A) inducing or attempting to induce such Person to cease
               doing business with the Company or its affiliates or (B) in any
               way interfering with the relationship between such Person and the
               Company or its affiliates.

11.  Acknowledgement of Enforceability of Covenants. It is agreed by the Parties
     that the covenants contained in Sections 8, 9 and 10 impose a fair and
     reasonable restraint on Executive in light of the activities and business
     of the Company on the date of the execution of this Separation Agreement
     and the current plans of the Company; but it is also the intent of the
     Company and Executive that such covenants be construed and enforced in
     accordance with the changing activities, business and locations of the
     Company and its affiliates throughout the term of these covenants.
     Executive also acknowledges that this restraint will not prevent him from
     earning a living in his chosen field of work.

          a.   In the event any court of competent jurisdiction shall determine
               that the scope, time or territorial restrictions set forth herein
               are unreasonable, then it is the intention of the Parties that
               such restrictions be enforced to the fullest extent that such
               court deems reasonable, and the Agreement shall thereby be
               reformed to reflect the same.

          b.   It is specifically agreed that the duration of the period during
               which the agreements and covenants of Executive made in Sections
               8, 9 and 10 shall be effective shall be computed by excluding
               from such computation any time during which Executive is in
               violation of any provision of Sections 8, 9 and 10.

          c.   Notwithstanding any of the foregoing, if any applicable law,
               judicial ruling or order shall reduce the time period during
               which Executive shall be prohibited

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               from engaging in any competitive activity described in Sections
               8, 9 and 10 hereof, the period of time for which Executive shall
               be prohibited pursuant to Sections 8, 9 and 10 hereof shall be
               the maximum time permitted by law.

12.  Consultation in Advance of Action. Before Executive engages in any action
     which may reasonably be construed as a violation of this Separation
     Agreement, or as to which Executive believes the application of the
     Separation Agreement is not clear, specifically including the provisions of
     Sections 8, 9 and 10 above, Executive, or his attorney, agrees to contact
     and confer with the Chairman of the Audit Committee of the Company's Board
     of Directors, or his designee, regarding Executive's intended action, to
     make a good faith effort to avoid a violation, and to discuss the
     availability of alternative courses of action that would not result in a
     violation. Both Parties agree to engage in such discussions in good faith.

13.  Injunctive and Contractual Relief. Executive understands and agrees that
     the covenants contained in Sections 8, 9 and 10 are special, unique and of
     an extraordinary character. Because of the difficulty of measuring economic
     losses to the Company as a result of a breach of the foregoing covenants,
     and because of the immediate and irreparable damage that could be caused to
     the Company for which it would have no other adequate remedy, in the event
     of any default, breach or threatened breach of these Sections by Executive,
     the Company shall be entitled to institute and prosecute proceedings as
     provided for in Section 17, and shall be entitled specifically to
     injunctive relief and to such other and further relief as may be available
     to the Company at law and/or in equity. Executive hereby waives any right
     to require the posting of a bond in the event the Company seeks injunctive
     and/or other equitable relief to enforce this Separation Agreement. The
     rights, obligations and remedies provided in this Section and in Section 17
     shall be in addition to, and not in lieu of, any rights, obligations and/or
     remedies imposed by applicable law under statutes enforcing the protection
     of trade secrets and other proprietary information.

14.  Severability. The Parties understand and agree that every Section, and each
     subpart, sub-paragraph or provision therein, of this Separation Agreement
     is separable, severable and divisible from the rest of the Separation
     Agreement. If any Section, subpart, sub-paragraph

                                  Page 15 of 19

<PAGE>

     or provision herein is ruled invalid, illegal, unenforceable or void by any
     arbitrator, regulatory agency or court of competent jurisdiction, the
     Parties understand and agree that the remainder of this Separation
     Agreement shall continue to be enforceable to the fullest extent permitted
     by law.

15.  Choice of Governing Law. The Parties understand and agree that the
     validity, interpretation, construction and performance of this Separation
     Agreement, as well as the rights of the Parties under this Separation
     Agreement, shall be governed in accordance with the laws of the State of
     New York, without regard to its conflicts of law principles.

16.  Full Integration. This Separation Agreement constitutes the entire
     agreement between the parties regarding the resignation of Executive's
     employment with the Company. It fully supercedes any and all prior oral or
     written representations, communications or agreements between the parties
     pertaining to its subject matter. The Parties understand and agree that by
     executing this Separation Agreement, the Parties mutually and voluntarily
     release one another from each and every of their respective rights and
     obligations under the Employment Agreement to the extent said rights and
     obligations are not specifically referenced herein. The Parties also
     understand and agree that, to the extent any term, right, benefit or
     obligation as set forth the in Executive's Employment Agreement is
     inconsistent with, or conflicts in any way with any term, right, benefit or
     obligation as set forth in this Separation Agreement, the term, right,
     benefit or obligation as set forth in this Separation Agreement shall be
     controlling and shall supercede Executive's Employment Agreement. The
     Parties further acknowledge that no written or oral representations
     inconsistent with or additional to the terms and conditions of this
     Separation Agreement have been made or reached. Except as provided herein,
     the parties further agree that no modification, amendment or waiver of any
     of the provisions of this Separation Agreement shall be effective unless
     made in writing, specifically referring to this Separation Agreement, and
     signed by Executive and the Company.

17.  Disputes.

                                  Page 16 of 19

<PAGE>

          a.   Any dispute or controversy arising under or in connection with
               this Separation Agreement shall, at Executive's sole discretion,
               be settled exclusively by such judicial remedies as Executive may
               seek to pursue or by arbitration conducted before a panel of
               three arbitrators in New York, New York, in accordance with the
               rules of the American Arbitration Association then in effect.
               Judgment may be entered on any arbitrator's award in any court
               having jurisdiction. The expenses of arbitration shall be borne
               by the Company.

          b.   Notwithstanding the provisions of Section 17(a.), the Company
               shall be entitled to seek any and all relief to which it is
               entitled in any court of competent jurisdiction with respect to
               any violation or threatened violation by Executive of the
               provisions of Sections 8, 9 and 10 of this Separation Agreement.

          c.   Except as otherwise set forth in Section 17(a.) above, in the
               event a Party institutes any proceeding to enforce his or its
               legal rights under, or to recover damages for breach by the other
               Party of, this Separation Agreement, the prevailing Party shall
               be entitled to recover from the other Party any actual expenses
               for attorney's fees and disbursements incurred by such prevailing
               Party.

18.  No Waiver. The Parties acknowledge and agree that the failure to enforce at
     any time any of the provisions of this Separation Agreement or to require
     at any time performance by any party of any of the provisions hereto shall
     in no way be construed as a waiver of such provision or effect the validity
     of this Separation Agreement or any part thereof, or the right of each
     party thereafter to enforce each and every provision in accordance with the
     terms of this Separation Agreement.

19.  Assignability. This Separation Agreement is not assignable by Executive but
     is assignable by the Company. This Separation Agreement shall be binding
     upon and inure to the benefit of the Company and its successors and
     assigns.

20.  SEC Disclosure Statement. The Parties understand that, in accordance with
     federal law and regulation, this Separation Agreement will be filed with
     the Securities and Exchange Commission and that the Company will issue a
     public disclosure statement addressing the

                                  Page 17 of 19

<PAGE>

     circumstances of Executive's resignation from the Company. The Company
     agrees that, prior to releasing any such disclosure statement, it will
     provide Executive a reasonable opportunity to review said statement and
     provide comments to the Company regarding its content. The Company agrees
     to consider in good faith any suggestions made by Executive. Executive
     understands and agrees that the Company need not obtain Executive's
     approval of the content of the disclosure statement and/or consent to its
     release prior to releasing said statement.

21.  Non-Disclosure of Agreement.

          a.   The Parties agree that, prior to the filing of the disclosure
               statement referenced in Section 20 above, they will keep any and
               all matters relating to this Separation Agreement, including its
               existence, terms and the negotiations and circumstances which led
               to the parties' agreement, secret and confidential such that they
               will not disclose such matters to any person or entity at any
               time; provided that Executive may disclose such matters to his
               attorney and accountant, and the Company may disclose such
               matters to any of its affiliated entities, subsidiary and parent
               organizations and its corporate affiliates, as well as their
               officers, directors, partners, owners, employees, agents,
               representatives, predecessors and successors, to the extent such
               disclosure is reasonably necessary to effectuate the terms and
               conditions of this Separation Agreement. If Executive's spouse
               agrees to the same confidentiality obligations and penalties
               provided hereunder, he may disclose to her the terms of this
               Separation Agreement.

          b.   The Parties agree that, subsequent to the filing of the
               disclosure statement referenced in Section 20 above, they shall
               not publicly discuss this Separation Agreement, the circumstances
               which led to the Parties' agreements herein, or the circumstances
               surrounding the termination of Executive's employment with the
               Company, other than to refer to said disclosure statement.

22.  Non-Disparagement. The Parties agree that they will not take any action or
     make any comments which impugns, defames, disparages, criticizes,
     negatively characterizes or casts in an unfavorable light, the other.
     Executive's obligation under this Paragraph shall apply to

                                  Page 18 of 19

<PAGE>

     the Company and to the Released Parties, including their officers,
     directors, management, employees, agents, policies, practices, processes,
     or products. Executive agrees not to voluntarily provide assistance or
     information to any person or entity pursuing any claim, charge or complaint
     against the Company, except that nothing herein shall be interpreted to
     limit Executive's right to confer with counsel or to provide truthful
     testimony pursuant to subpoena or notice of deposition or as otherwise
     required by law.

23.  Attorney's Fees. The Company agrees to bear the cost of Executive's actual
     and reasonable legal fees and disbursements incurred in connection with his
     resignation from the Company in an amount not to exceed $50,000.00 (Fifty
     Thousand Dollars). Executive agrees that, as a condition to the Company's
     obligation to pay such legal fees and disbursements, he is required to
     submit to the Company's legal counsel, Hunton & Williams LLP, no later than
     ten (10) days after the effective date of this Separation Agreement, a
     detailed invoice of Executive's outside counsel setting forth individual
     time entries by attorney and date, attorney billing rates and itemized
     disbursements. The Company shall pay such invoice directly to Executive's
     counsel no later than ten (10) days after Executive submits said invoice,
     but in no event shall the Company be required to pay any such invoice
     before the effective date of this Separation Agreement. A determination
     whether Executive's legal fees are actual and reasonable shall be made by
     the Company's legal counsel prior to any payment to Executive's counsel.

24.  Counterparts. This Separation Agreement may be executed in counterparts,
     each of which shall be deemed an original for all purposes.

<PAGE>

Both Parties have read this Separation Agreement, understand and agree to its
terms and enter into it voluntarily. By signing below, Executive acknowledges
that he is receiving a signed copy of this Separation Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Separation Agreement to
be signed as of the day and year first below written.

                                             New York Mortgage Trust, Inc.

Date:  June 30, 2005                         /s/ Steven B. Schnall
                                             -----------------------------------
                                             By:    Steven B. Schnall
                                             Title: Chairman and Co-Chief
                                                    Executive Officer

Date:  June 30, 2005                         /s/  David A. Akre
                                             -----------------------------------
                                             By:    David A. Akre
                                             Title: Co-Chief Executive Officer

Date:  June 30, 2005                         /s/ Raymond A. Redlingshafer, Jr.
                                             -----------------------------------
                                             Raymond A. Redlingshafer, Jr.EXHIBIT 10.1

 

RETENTION BONUS AND SEVERANCE AGREEMENT

This RETENTION BONUS AND
SEVERANCE AGREEMENT (the “Agreement”), entered into as of
the 30th day of
June, 2005 (the “Effective Date”), between Party City Corporation (the “Company”), with its
principal place of business in the State of New Jersey, and (the “Employee”), residing
at________________________________________ .

WHEREAS the Company’s Board of Directors (the “Board”) has formed a special committee to explore
strategic alternatives for the Company; and,

WHEREAS the Employee is a key employee that the Company desires to retain as an employee of the
Company during the exploratory process and through the closing of any Qualifying Event (as defined
below) that may occur as a result of any strategic alternative;

NOW THEREFORE, in consideration for the Employee remaining employed with the Company under the
conditions set forth below, in recognition of past service, and for considerations provided by the
Company as contained herein, it is agreed as follows:

Section 1. Definitions. For the purposes of this Agreement, capitalized terms used
and not elsewhere defined herein will have the meanings below:

(a) “Cause” is defined as any of the following: (i) fraud, personal dishonesty, embezzlement,
defalcation or acts of intentional misconduct on the part of the Employee in the course of his
employment with the Company; (ii) a material breach of Employee’s fiduciary duty of loyalty to the
Company; (iii) a material breach by the Employee of this Agreement, any other written agreement
between the Employee and the Company or any written Company policy; (iv) the Employee’s conviction
of (x) a felony; (y) any other crime (other than minor traffic violations) involving moral
turpitude; (v) the Employee’s use of alcohol, narcotics or other controlled substances which is, or
could reasonably be expected to become, materially injurious to the reputation or business of the
Company or which impairs, or could reasonably be expected to impair, the Employee’s performance of
his duties to the Company; (vi) the Employee’s breach of any of the covenants in Section 4 of this
Agreement; (vii) willful failure by the Employee to follow the lawful directions of the Board or
Chief Executive Officer of the Company (“CEO”) or his delegate; (viii) the Employee’s willful
refusal or failure to assist the Company in connection with any lawful strategic alternative
including a Qualifying Event; or (ix) Qualifying Event, the Employee’s rejection of an offer of
increased or expanded responsibilities, duties and/or authority from those in effect immediately
prior to the Closing Date, if such offer includes a commensurate increase in his rate of base
salary.

(b) “Change in CEO” shall mean the first appointment of a new CEO following the Effective Date and
on or prior to the third anniversary of the Effective Date.

(c) “Change in Control” is defined as the first occurrence on or prior to the third anniversary of
the Effective Date of any of the following:

(i) the acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) of 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange

 

 

Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more (on a fully diluted basis) of either (x) the
Outstanding Common Stock or (y) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of directors (the
“Outstanding Voting Securities”); provided, however, that the following acquisitions shall
not constitute a Change in Control: (A) any acquisition by the Company or any “affiliate”
of the Company, within the meaning of 17 C.F.R. §230.405 (an “Affiliate”), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Affiliate of the Company, (C) any acquisition that is described in (x), (y)
and (z) of Section 1 (a) (i), or (D) any acquisition by any entity in which the Employee
has a direct or indirect equity interest of greater than five percent; or

(ii) the consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such Business Combination, (x) all or
substantially all of the Persons who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of the then
outstanding shares of common stock or interests and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of directors, as
the case may be, of the Surviving Entity in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, and (y) no Person (excluding (A) any
employee benefit plan (or related trust) sponsored or maintained by the Company or Surviving
Entity or any Affiliate of either of them, and (B) any entity in which the Employee has a
direct or indirect equity interest of greater than five percent or any Affiliate of such
entity) beneficially owns, directly or indirectly, 50% or more (on a fully diluted basis)
of, respectively, the then outstanding shares of common stock or interests of the Surviving
Entity, taking into account as outstanding for this purpose all common stock or interests
issuable upon the exercise of options or warrants, the conversion of convertible stock,
interests or debt, and the exercise of all similar rights to acquire such common stock or
interests, or the combined voting power of the then outstanding voting securities of such
Surviving Entity except to the extent that such ownership existed prior to the Business
Combination and (z) at least a majority of the members of the board of directors or
equivalent governing body of the Surviving Entity were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the other action of the Board,
providing for such Business Combination; or

(iii) the approval by the shareholders or equityholders of the Company of a complete
liquidation or dissolution of the Company;

provided, however, that notwithstanding anything to the contrary in the foregoing, the acquisition
(whether by merger, consolidation, reorganization or otherwise) of beneficial ownership of 50% or
more of the Outstanding Common Stock or Outstanding Voting Securities

2

 

by any person or group that, as of the Effective Date, beneficially owns 15% or more of the
Outstanding Common Stock or Outstanding Voting Securities shall not constitute a Change in Control.

(d) “Closing Date” with respect to a Change in Control is defined as the date of the consummation
of such Change in Control; “Closing Date” with respect to a Change in CEO is defined as the
effective date of the Change in CEO.

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

(f) “Disabled” is defined as the inability of the Employee to perform his or her duties for the
Company by reason of a mental or physical injury or disorder to the extent such condition would
qualify as a disability under any welfare benefit plan provided by the Company to the Employee, as
determined by the Board.

(g) “Good Reason” is defined as the occurrence of any of the following within two years following
the Closing Date (i) a reduction in the Employee’s base salary as in effect on the Closing Date;
(ii) the relocation of the Employee’s principal place of employment to a location that that is
greater than 35 miles from the location of the Employee’s office on the Closing Date; except for
required travel on the Company’s business to an extent substantially consistent with the business
travel obligations which the Employee undertook on behalf of the Company prior to the Closing Date,
unless the Employee shall have continued employment with the Company following any such relocation;
or (iii) a substantially material reduction in the Employee’s level of responsibility, position,
authority or duties arising from the occurrence of the Qualifying Event; provided, however, that
the Employee’s resignation for Good Reason will be effective only if the Employee has provided
written notice to the Board or CEO within thirty days following the occurrence of an event
specified in subsections (i) through (iii) above and such condition or event is not cured within
ten days following receipt of such notice.

(h) “Key Employee” shall have the meaning set forth in Section 416(i) of the Code, as interpreted
in accordance with Section 409A of the Code and Department of Treasury regulations and other
interpretive guidance issued thereunder, including without limitation any such regulations or other
guidance that may be issued after the Effective Date.

(i) “Outstanding Common Stock” as of any date of determination is defined as the number of
outstanding shares of Common Stock, treating as outstanding for this purpose all shares issuable
upon the exercise of then outstanding options or warrants, and assuming the conversion of then
outstanding convertible debt and equity securities and the exercise of all similar outstanding
rights to acquire shares of Common Stock.

(j) “Performance Bonus” is defined as an annual bonus pursuant to the Company’s annual incentive
bonus plan as in effect from time to time and based on attaining certain performance objectives
thereunder.

(k) “Qualifying Event” is defined as the first to occur of a Change in Control or Change in CEO, in
each case within three years following the Effective Date.

3

 

(l) “Severance Commencement Date” shall mean (i) if the Board (or its delegate) determines in its
discretion that the Employee is a Key Employee as of the date of termination of employment and that
Section 409A of the Code applies with respect to a payment to the Employee hereunder pursuant to 0,
the six-month anniversary of the date of termination of employment; or (ii) if the Board (or its
delegate) determines in its discretion that the Employee is not a Key Employee as of the date of
termination of employment (or that Section 409A of the Internal Revenue Code does not apply with
respect to a payment to the Executive pursuant to
Section 3(a)), the date of termination of employment.

(m) “Surviving Entity” is defined as the Company following a Business Combination, or the
corporation or other entity resulting from a Business Combination (including, without imitation, a
corporation or entity which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or more subsidiaries).

Section 2. Retention Bonus. Subject to Section (a), if there occurs a Qualifying
Event and the Employee remains employed with the Company or Surviving Entity through the date that
is six months following the Closing Date of such Qualifying Event (the “Retention Date”), the
Company or Surviving Entity shall pay the Employee a lump sum payment of_________ (the “Retention
Bonus”) within 30 days following the Retention Date.

Section 3. Severance Payments upon Termination of Employment. If there occurs a
Qualifying Event and the Employee’s employment with the Company is terminated thereafter but prior
to the second anniversary of the Closing Date by reason of termination by the Company without Cause
or his resignation with Good Reason:

(a) the Company shall pay the Employee in a lump sum within 30 days following the Severance
Commencement Date:

(i) the product of (A) ___and (B) his base salary at the greater of the rate in effect
on the date of termination or the Effective Date;

(ii) if the Employee
has not yet been paid any Retention Bonus pursuant to Section 2, an amount
equal to the Retention Bonus described in Section 2;

(iii) the amount of any unpaid Performance Bonus in respect of years ending prior to the
year of termination of employment and a pro rata portion of the Performance Bonus, if any,
that would otherwise be payable to him for the year in which occurs his termination of
employment (the “Pro Rata Bonus”). The Pro Rata Bonus shall equal the product of (A) the
Performance Bonus that would otherwise have been payable to the Employee for the relevant
year based on the achievement of performance targets as of the date of termination of
employment and (B) a ratio, the numerator of which is the number of days in such year
preceding the date of termination of employment and the denominator of which is 365.

(b) If the Employee timely elects COBRA continuation coverage (for himself, his spouse and/or
eligible dependents), the Company will pay or reimburse the Employee for the employer portion of
such coverage provided to active employees (the Company’s share hereinafter referred

4

 

to as the “Benefit Amount”) for the first _____________ following his termination of
employment (the “Severance Period”) or until the earlier expiration of such COBRA coverage.

(c) All options to acquire shares of Common Stock (or to acquire stock of the Surviving Entity)
held by the Employee as of the date of termination of employment shall immediately vest in full on
such date.

(d) The Company shall provide the Employee with outplacement assistance by a vendor of the
Company’s choice for a three (3) month period to be used by the Employee during the Severance
Period; provided, however, that the aggregate cost for such outplacement assistance shall in no
event exceed an amount as may be reasonably established by the Company.

Section 4. Restrictive Covenants. The Employee hereby agrees that:

(a) Noncompetition. During his employment with the Company and through the later of the last day
of the Severance Period and the date that is six months after his termination of employment with
the Company for any reason (the “Restriction Period”), the Employee shall not, directly or
indirectly, whether as a principal, partner, employee, agent, consultant, shareholder (other than
shares purchased prior to the effective date of this Agreement or as a holder, or a member of a
group which is a holder, of not in excess of five percent (5%) of the outstanding voting shares of
any publicly traded company) or in any other relationship or capacity be affiliated with any
business corporation, partnership, enterprise or entity in any geographic area, which competes with
the Company’s Business (as defined below) as of the date of termination of employment. For
purposes of this Agreement, the “Company’s Business” at any time means a retail specialty business
that is substantially or completely involved with selling party supplies i.e. A Birthday Place,
all4fun, Birthday Depot, Birthday Direct, Birthday Express, Confetti The Party Store, Factory Card
Outlet, Hollywood Mega Store, iparty, Oriental Trading Company, Paper Mart, Party America, Party
Depot, Party Fair, Party Mania, Party Pro, Party Supplies Store, Party Supplies World, Party
Unlimited, Party Works, Party! Party! Party!, Partyareus, Pinatas, ShinDigz, Spencer Gifts,
Woodland Party, etc., which the Company or any of its subsidiaries , (collectively, the “Company
Group”) is engaged in.

(b) Nondisclosure. Unless specifically authorized in writing by the Company to do so,
except to the extent required by an order of a court having competent jurisdiction or under
subpoena from an appropriate government agency, the Employee shall not disclose (i) any information
disclosed or made available to the Employee or known by the Employee as a direct or indirect
consequence of or through employment by the Company, or (ii) any other information related to the
Company’s referral sources, business practices, trade secrets, operating methods, techniques,
products, processes, services or other operations (individually or collectively “Operations”),
including, but not limited to, information relating to research, development, inventions,
accounting, engineering or marketing of such Operations and including any such information of any
third party which the Company is under an obligation to keep confidential (individually or
collectively, “Confidential Information”) to any third person unless such Confidential Information
has been previously disclosed to the public by the Company or is in the public domain (other than
by reason of the Employee’s breach of this Section 4(b)). Notwithstanding the foregoing, if the Employee is
required by an order of a court having

5

 

competent jurisdiction or
under subpoena from an appropriate government agency to disclose Confidential Information, the
Employee shall provide the Company with prompt written notice of such requirement and shall assist
the Company to seek a protective order or other appropriate remedy protecting its interests. In
any event, the Employee will furnish only that part of the Confidential Information that is
required to be disclosed by the court order or subpoena and will use reasonable efforts to obtain
reliable assurances that confidential treatment will be accorded to any Confidential Information so
furnished.

(c) Nonsolicitation of Employees. During the Restriction Period the Employee shall not
directly or indirectly solicit, encourage or induce any employee of the Company Group to terminate
employment with the Company Group, and shall not directly or indirectly, either individually or as
owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or
was employed by the Company Group unless such person shall have ceased to be employed by the
Company Group for a period of at least six months.

(d) Company Property. Except as expressly provided herein, at the time of the
Employee’s termination of employment or at any other time as the Board may request, provided such
request does not interfere with or impede Employee’s ability to perform his job functions, the
Employee shall return to the Company all property of the Company Group, including any credit cards,
keys or entry cards, automobile and other machinery, all computers, cell phones or other electronic
equipment and all memoranda, notes, records, reports, manuals, drawings and blueprints, including
electronic versions, concerning the Company’s Business (and all copies thereof) in the Employee’s
possession or under his control.

(e) Developments the Property of the Company. All discoveries, inventions, ideas,
technology, formulas, designs, software, programs, algorithms, products, systems, applications,
processes, procedures, methods and improvements and enhancements conceived, developed or otherwise
made or created or produced by the Employee alone or with others, and in any way relating to the
Company’s Business, whether or not subject to patent, copyright or other protection and whether or
not reduced to tangible form, at any time during the period of the Employee’s employment with the
Company (“Developments”), shall be the sole and exclusive property of the Company. The Employee
agrees to, and hereby does, assign to the Company, without any further consideration, all of the
Employee’s right, title and interest throughout the world in, and to, all Developments. The
Employee agrees that all such Developments that are copyrightable may constitute works made for
hire under the copyright laws of the United States and, as such, acknowledges that the Company is
the author of such Developments and owns all of the rights comprised in the copyright of such
Developments and the Employee hereby assigns to the Company without any further consideration all
of the rights comprised in the copyright and other proprietary rights the Employee may have in such
Developments to the extent that it might not be considered a work made for hire. The Employee
shall make and maintain adequate and current written records of all Developments and shall disclose
all Developments fully, and in writing, to the Company promptly after the development of same, and
at any time upon request.

(f) Non-Disparagement. The Employee shall not at any time after the date hereof disparage
the Company Group or any of its officers, directors, shareholders or any of their respective
affiliates. The obligations of the Employee under this Section 4(f) shall not apply to truthful

6

 

disclosures that are required by applicable law, regulation or order of a court or governmental
agency or to truthful disclosures made in connection with lawful competitive activities after the
conclusion of the Restriction Period.

(g) Protection of Legitimate Business Interests. The Employee acknowledges that (i) the
Employee’s position with the Company requires the performance of services which are special, unique
and extraordinary in character and places him in a position of confidence and trust with the
customers and employees of the Company, through which, among other things, he will obtain knowledge
of the Company’s technical information and know-how and become acquainted with its customers, in
which matters the Company has substantial proprietary interests, (ii) the restrictive covenants in
this Section 4 are necessary in order to protect and maintain such proprietary interests and other
legitimate business interests of the Company, and (iii) the Company would not have entered into
this Agreement unless such covenants were included herein.

(h) Injunctive Relief and Other Remedies with Respect to Covenants. The Employee
acknowledges and agrees that the covenants and obligations of the Employee with respect to
noncompetition, nonsolicitation, confidentiality, Company property, developments and
nondisparagement relate to special, unique and extraordinary matters and that a violation of any of
the terms of such covenants and obligations will cause the Company irreparable injury for which
adequate remedies are not available at law. Therefore, the Employee agrees that the Company shall
(i) be entitled to an injunction, restraining order or such other equitable relief (without the
requirement to post bond) restraining the Employee from committing any violation of the covenants
and obligations contained in this Section 4 (h) and (ii) have no further obligation to make any
payments to the Employee hereunder following any material violation of the covenants and
obligations contained in this Section 4. These remedies are cumulative and are in addition to any
other rights and remedies the Company may have at law or in equity. The Employee (x) acknowledges
and agrees that the covenants set forth in Section 4 are reasonable and valid in geographical and
temporal scope and in all other respects and (y) represents that his economic means and
circumstances are such that such covenants will not prevent him from providing for himself and his
family on a basis satisfactory to him.(i) Notifications. The Employee agrees that prior to
becoming employed by any entity during the Restriction Period, the Employee will (i) provide notice
to the Company of such employment and (ii) provide copies of Sections 4(a), (b) and (c) to such
prospective employer. The Employee further agrees that the Company may provide notice to such
prospective employer of the Employee’s obligations under this Agreement, including, without
limitation, the Employee’s obligations pursuant to this Section 4.

Section 5. Conditions to Payments/Coordination with other Plans and Programs.

(a) The payment of the Severance Benefits hereunder are subject to the Employee’s execution and
non-revocation of a general release (the “Release”) of any and all claims relating to or arising
out of his employment with the Company through the Termination Date. The Release shall be
substantially in the form of Exhibit A annexed hereto.

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(b) The Employee will not be entitled to any benefits under this Agreement unless and until he
satisfies all transition assistance requests of the Company to the Company’s reasonable
satisfaction, which shall include aiding in the location of files, preparing accounting records,
returning all Company property in his possession, and other reasonable transition assistance
determined by the CEO or his delegate.

(c) During the period this Agreement is in effect, Employee shall not be entitled to receive any
benefits to which Employee might otherwise be entitled under any other severance or similar plan of
the Company, or any other agreement or contract of employment, to the extent the payment of such
benefits would be duplicative of benefits actually received by Employee hereunder. Benefits under
this Agreement will not be counted as “compensation” for purposes of determining benefits under any
other benefit plan, pension plan, or similar arrangement.

(d) The amounts payable hereunder are not intended to duplicate such benefits as workers’
compensation wage replacement benefits, disability benefits, pay-in-lieu-of-notice, severance pay,
or similar benefits under other benefit plans, severance programs, employment contracts, or
applicable laws, such as the WARN Act. Should any such other benefits be payable to the Employee,
the payments and benefits under this Agreement will be reduced accordingly or, alternatively,
benefits previously paid hereunder will be treated as having been paid to satisfy such other
benefit obligations so that there is no duplication of payments. In either case, the
Board, in its sole discretion, will determine how to apply this provision and may override other
provisions in this Agreement in doing so.

Section 6. Parachute Payments.

(a) In the event that prior to the application of the provisions of this Section 6 the Retention
Bonus, Severance Benefits or other payments and benefits provided for in this Agreement or
otherwise payable to the Employee (including without limitation any vesting or payment with respect
to options) (collectively, a “Payment”) (i) constitute “parachute payments” within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) would be
subject to the excise tax imposed by Section 4999 of the Code (the “Parachute Tax”), then the
Employee’s Retention Bonus and Severance Benefits under this Agreement shall be payable as follows:

(i) If the amount of the Employee’s “excess parachute payments” is less than or equal to
110% of the Employee’s “base amount” (each as determined in accordance with Section 280G of
the Code and the regulations thereunder) the Retention Bonus and Severance Benefits shall be
reduced (first by reducing the cash payments under this Agreement, then by reducing any
fringe or other benefits (including without limitation any accelerated vesting of equity
based compensation awards) required to be provided under this Agreement, and then by
reducing the payments and/or benefits under any other plan, arrangement or agreement) to an
amount which is ten dollars (U.S.$10.00) less than the amount of the Payments that could be
made to the Employee before any portion of the Payments would be subject to the Parachute
Tax.

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(ii) If the amount of the Employee’s “excess parachute payments” is greater than 110% of the
Employee’s “base amount” (each as determined in accordance with Section 280G of the Code and
the regulations thereunder) then the Company shall pay to the Employee, prior to the time
the Parachute Tax is payable with respect to such Payments, an additional payment (a
“Gross-Up Payment”) in an amount such that, after payment by the Employee of all taxes
(including any Parachute Tax) imposed upon the Gross-Up Payment, the Employee retains an
amount of the Gross-Up Payment equal to the Parachute Tax imposed upon the Payment.

(b) Unless the Company and the Employee otherwise agree in writing, any determination required
under this Section shall be made in writing by the Company’s independent public accountants (the
“Accountants”), whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by this Section, the
Accountants may make reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999
of the Code. The Company and the Employee shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make the determinations under this
Section. The Company shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section.

Section 7. Miscellaneous Provisions.

(a) Withholdings: Company may withhold and deduct from any amount payable under this
Agreement all applicable deductions and any taxes or other withholdings required by federal, state
or local law.

(b) Severability: If any provision of this Agreement is found, held or deemed to be void,
unlawful or unenforceable under any applicable statute or other controlling law, the remainder of
this Agreement shall continue in full force and effect.

(c) Governing Law: This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New Jersey without regard to the principles of the conflicts of laws.

(d) Amendment: The terms of this Agreement are subject to amendment only by specific
writing executed by Employee and the Company.

(e) Non-Alienation: Except as provided herein, the right to receive any payment under this
Agreement may not be transferred, assigned or pledged.

(f) Dispute Resolution: Any dispute regarding the enforcement of this Agreement other than
a dispute with respect to the Employee’s obligations under Section 4 shall be referred to and
decided by a mutually selected arbitrator from the American Arbitration Association (“AAA”) in
accordance with its Labor and Employment Rules then in effect and judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. The hearing will be held in
Morris County, New Jersey under an order of confidentiality. Said arbitrator shall have the
authority to enforce the terms of this Agreement. The Company and the Employee

9

 

agree to split equally the costs of the arbitration, except that either party making an appeal of
the arbitration award shall be solely responsible for the costs of the appeal. If a dispute over
a breach of this Agreement by Employee arises, the Company shall not make any payments until the
dispute is resolved through arbitration or by mutual agreement of the parties.

(g) Unfunded Obligations: All amounts payable under this Agreement are unfunded and
unsecured and are payable out of the general funds of the Company. In no event shall this
Agreement be considered to be a benefit plan for the benefit of Employee and Employee specifically
acknowledges that this Agreement provides no absolute rights to receive or obtain monetary
compensation except upon strict performance of the provisions contained herein.

(h) Not Right to Employment: Unless stated otherwise in an existing agreement or contract
of employment between the Company and Employee, Employee’s employment is and shall continue to be
“at will”, as defined under applicable law. Nothing in this Agreement shall give the Employee the
right to be retained in the service of the Company or interfere with or restrict an otherwise
unrestricted right of the Company to discharge or retire the Employee at any time for any reason.
Nothing in this Agreement shall be construed as entitling Employee to any payments, benefits,
damages, awards or compensation other than as specifically provided in this Agreement in the event
of a termination for any reason, including (without limitation) any termination prior to a
Qualifying Event. Nothing in this Agreement is intended to impair or diminish any benefits or
rights Employee might have under a written employment agreement between the Employee and the
Company, except as set forth in Section 5 (c) hereof.

(i) Interpretation: Where the context so indicates, the singular will include the plural
and vice versa. Titles and headings are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Agreement. Unless the context clearly
indicates to the contrary, a reference to a statute or document shall be construed as referring to
any subsequently enacted, adopted, or executed counterpart.

(j) Entirety of Agreement: This Agreement constitutes the entire Agreement between the
Employee and the Company as it relates to the subject matter hereof and any obligation herein, and
is distinguished from any other contractual arrangement or agreement between the parties.

(k) Delegation and Assignment; Successors: The Company shall require any successor to the
Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) or to all or substantially all of the Company’s business and/or assets to assume the
obligations under this Agreement and to agree expressly to perform the obligations under this
Agreement in the same manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. The Company’s failure to do so shall constitute a
material breach of this Agreement and the Company shall continue to be responsible for the payment
hereunder. For all purposes under this Agreement, the term “Company” shall include any Surviving
Entity or other successor to the Company’s business and/or assets which executes and delivers the
assumption agreement described in this Section 7 (k) or which becomes bound by the terms of this
Agreement by operation of law. The Executive shall not delegate his employment obligations under
this Agreement to any other person. The terms of this Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the

10

 

Employee’s personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees

(l) Notices: Notices and all other communications contemplated by this Agreement shall be
in writing and shall be deemed to have been duly given when personally delivered or one day
following deposit with the United States Postal Service, Federal Express or similar overnight
courier service. In the case of the Employee, mailed notices shall be addressed to the Employee at
the Employee’s home address that the Company has on file for the Employee. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be
directed to the attention of its Secretary. Any termination by the Company for Cause or by the
Employee for Good Reason shall be communicated by a notice of termination to the other party hereto
given in accordance with Section 7 (l) of this Agreement. Such notice shall indicate the specific
termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than thirty (30) days after the giving
of such notice).

(m) Sales of Securities: The Employee agrees to use his best efforts to comply in all respects
with the Company’s applicable policies regarding the purchase and sale of the Company’s securities
by employees, as such policies may be amended from time to time. In particular, and without
limitation, the Employee agrees that he shall not purchase or sell Company securities (a) at any
time that he possesses material non-public information about the Company or any of its businesses;
and (b) during any “trading blackout period” as may be determined by the Company as set forth in
the Company’s applicable policies from time to time.

(n) Termination. If no Qualifying Event shall have occurred on or prior to the third
anniversary of the Effective Date, this Agreement shall expire by its terms on such date.

(o) Non-Qualified Deferred Compensation. The parties acknowledge and agree that, to the
extent applicable, this Agreement shall be interpreted in accordance with Section 409A of the Code
and Department of Treasury regulations and other interpretive guidance issued thereunder, including
without limitation any such regulations or other guidance that may be issued after the Effective
Date. Notwithstanding any provision of this Agreement to the contrary, in the event that the
Company determines that any amounts payable hereunder will be immediately taxable to the Executive
under Section 409A of the Code and related Department of Treasury guidance, the Company may (a)
adopt such amendments to this Agreement and appropriate policies and procedures, including
amendments and policies with retroactive effect, that the Company determines necessary or
appropriate to preserve the intended tax treatment of the benefits provided by this Agreement
and/or (b) take such other actions as the Company determines necessary or appropriate to comply
with the requirements of Section 409A of the Code and related Department of Treasury guidance,
including such Department of Treasury guidance and other interpretive materials as may be issued
after the Effective Date.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first
written herein.

	 	 	 	 	 	 	 	 	 	 	 
	Employee:	 	 	 	Company:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 

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