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                                                                    EXHIBIT 10.4

                               POLYONE CORPORATION

                   2005 EQUITY AND PERFORMANCE INCENTIVE PLAN

      1. PURPOSE. The purpose of the 2005 Equity and Performance Incentive Plan
is to attract and retain directors, officers and other employees of PolyOne
Corporation, an Ohio corporation, and its Subsidiaries and to provide to such
persons incentives and rewards for superior performance.

      2. DEFINITIONS. As used in this Plan,

            (a) "Appreciation Right" means a right granted pursuant to Section 5
or Section 9 of this Plan, and will include both Tandem Appreciation Rights and
Free-Standing Appreciation Rights.

            (b) "Base Price" means the price to be used as the basis for
determining the Spread upon the exercise of a Free-Standing Appreciation Right
and a Tandem Appreciation Right.

            (c) "Board" means the Board of Directors of the Company and, to the
extent of any delegation by the Board to a committee (or subcommittee thereof)
pursuant to Section 16 of this Plan, such committee (or subcommittee).

            (d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.

            (e) "Common Shares" means the shares of common stock, par value
$0.01 per share, of the Company or any security into which such Common Shares
may be changed by reason of any transaction or event of the type referred to in
Section 12 of this Plan.

            (f) "Company" means PolyOne Corporation, an Ohio corporation.

            (g) "Covered Employee" means a Participant who is, or is determined
by the Board to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision).

            (h) "Date of Grant" means the date specified by the Board on which a
grant of Option Rights, Appreciation Rights, Performance Shares, Performance
Units or other awards contemplated by Section 10 of this Plan, or a grant or
sale of Restricted Stock, Restricted Stock Units, or other awards contemplated
by Section 10 of this Plan will become effective (which date will not be earlier
than the date on which the Board takes action with respect thereto).

            (i) "Detrimental Activity" means:

            (i)   Engaging in any activity, as an employee, principal, agent, or
                  consultant for another entity that competes with the Company
                  in any actual, researched, or prospective product, service,
                  system, or business activity

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                  for which the Participant has had any direct responsibility
                  during the last two years of his or her employment with the
                  Company or a Subsidiary, in any territory in which the Company
                  or a Subsidiary manufactures, sells, markets, services, or
                  installs such product, service, or system, or engages in such
                  business activity.

            (ii)  Soliciting any employee of the Company or a Subsidiary to
                  terminate his or her employment with the Company or a
                  Subsidiary.

            (iii) The disclosure to anyone outside the Company or a Subsidiary,
                  or the use in other than the Company's or a Subsidiary's
                  business, without prior written authorization from the
                  Company, of any confidential, proprietary or trade secret
                  information or material relating to the business of the
                  Company and its Subsidiaries, acquired by the Participant
                  during his or her employment with the Company or its
                  Subsidiaries or while acting as a consultant for the Company
                  or its Subsidiaries thereafter.

            (iv)  The failure or refusal to disclose promptly and to assign to
                  the Company upon request all right, title and interest in any
                  invention or idea, patentable or not, made or conceived by the
                  Participant during employment by the Company and any
                  Subsidiary, relating in any manner to the actual or
                  anticipated business, research or development work of the
                  Company or any Subsidiary or the failure or refusal to do
                  anything reasonably necessary to enable the Company or any
                  Subsidiary to secure a patent where appropriate in the United
                  States and in other countries.

            (v)   Activity that results in Termination for Cause. For the
                  purposes of this Section, "Termination for Cause" shall mean a
                  termination:

                  (A)   due to the Participant's willful and continuous gross
                        neglect of his or her duties for which he or she is
                        employed, or

                  (B)   due to an act of dishonesty on the part of the
                        Participant constituting a felony resulting or intended
                        to result, directly or indirectly, in his or her gain
                        for personal enrichment at the expense of the Company or
                        a Subsidiary.

            (vi)  Any other conduct or act determined to be injurious,
                  detrimental or prejudicial to any significant interest of the
                  Company or any Subsidiary unless the Participant acted in good
                  faith and in a manner he or she reasonably believed to be in
                  or not opposed to the best interests of the Company.

            (j)   "Director" means a member of the Board of Directors of the
                  Company.

            (k) "Evidence of Award" means an agreement, certificate, resolution
or other type or form of writing or other evidence approved by the Board that
sets forth the terms and conditions of the awards granted. An Evidence of Award
may be in an electronic medium, may

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be limited to notation on the books and records of the Company and, with the
approval of the Board, need not be signed by a representative of the Company or
a Participant.

            (l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, as such law, rules and
regulations may be amended from time to time.

            (m) "Free-Standing Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 or Section 9 of this Plan that is not granted in
tandem with an Option Right.

            (n) "Incentive Stock Options" means Option Rights that are intended
to qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.

            (o) "Management Objectives" means the measurable performance
objective or objectives established pursuant to this Plan for Participants who
have received grants of Performance Shares or Performance Units or, when so
determined by the Board, Option Rights, Appreciation Rights, Restricted Stock,
Restricted Stock Units, dividend credits and other awards pursuant to this Plan.
Management Objectives may be described in terms of Company-wide objectives or
objectives that are related to the performance of the individual Participant or
of the Subsidiary, division, department, region or function within the Company
or Subsidiary in which the Participant is employed. The Management Objectives
may be made relative to the performance of other companies. The Management
Objectives applicable to any award to a Covered Employee will be based on
specified levels of or growth in one or more of the following criteria:

            (i)   PROFITS (e.g., operating income, EBIT, EBT, net income,
                  earnings per share, residual or economic earnings -- these
                  profitability metrics could be measured before special items
                  and/or subject to GAAP definition);

            (ii)  CASH FLOW (e.g., EBITDA, operating cash flow, total cash flow,
                  cash flow in excess of cost of capital or residual cash flow
                  or cash flow return on investment);

            (iii) RETURNS (e.g., profits or cash flow returns on: assets,
                  invested capital, net capital employed, and equity);

            (iv)  WORKING CAPITAL (e.g., working capital divided by sales, days'
                  sales outstanding, days' sales inventory, and days' sales in
                  payables);

            (v)   PROFIT MARGINS (e.g., profits divided by revenues, gross
                  margins and material margins divided by revenues, and material
                  margin divided by sales pounds);

            (vi)  LIQUIDITY MEASURES (e.g., debt-to-capital, debt-to-EBITDA,
                  total debt ratio);

            (vii) SALES GROWTH, COST INITIATIVE AND STOCK PRICE METRICS (e.g.,
                  revenues, revenue growth, stock price appreciation, total
                  return to shareholders, sales

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                  and administrative costs divided by sales, and sales and
                  administrative costs divided by profits); and

           (viii) STRATEGIC INITIATIVE KEY DELIVERABLE METRICS consisting of
                  one or more of the following: product development, strategic
                  partnering, research and development, market penetration,
                  geographic business expansion goals, cost targets, customer
                  satisfaction, employee satisfaction, management of employment
                  practices and employee benefits, supervision of litigation and
                  information technology, and goals relating to acquisitions or
                  divestitures of subsidiaries, affiliates and joint ventures.

            If the Board determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in which
it conducts its business, or other events or circumstances render the Management
Objectives unsuitable, the Board may in its discretion modify such Management
Objectives or the related minimum acceptable level of achievement, in whole or
in part, as the Board deems appropriate and equitable, except in the case of a
Covered Employee where such action would result in the loss of the otherwise
available exemption of the award under Section 162(m) of the Code. In such case,
the Board will not make any modification of the Management Objectives or minimum
acceptable level of achievement with respect to such Covered Employee.

            (p) "Market Value per Share" means, as of any particular date, the
fair market value of the Common Shares as determined by the Board.

            (q) "Non-Employee Director" means a person who is a "non-employee
director" of the Company within the meaning of Rule 16b-3 of the Securities and
Exchange Commission promulgated under the Exchange Act.

            (r) "Optionee" means the optionee named in an Evidence of Award
evidencing an outstanding Option Right.

            (s) "Option Price" means the purchase price payable on exercise of
an Option Right.

            (t) "Option Right" means the right to purchase Common Shares upon
exercise of an option granted pursuant to Section 4 or Section 9 of this Plan.

            (u) "Participant" means a person who is selected by the Board to
receive benefits under this Plan and who is at the time an officer, or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 90 days of the Date
of Grant, and will also include each Non-Employee Director who receives Common
Shares or an award of Option Rights, Appreciation Rights, Restricted Stock,
Restricted Stock Units or other awards under this Plan. The term "Participant"
shall also include any person who provides services to the Company or a
Subsidiary that are equivalent to those typically provided by an employee.

            (v) "Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which

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the Management Objectives relating to such Performance Share or Performance Unit
are to be achieved.

            (w) "Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.

            (x) "Performance Unit" means a bookkeeping entry awarded pursuant to
Section 8 of this Plan that records a unit equivalent to $1.00 or such other
value as is determined by the Board.

            (y) "Plan" means this PolyOne Corporation 2005 Equity and
Performance Incentive Plan (As Amended and Restated on July 21, 2005).

            (z) "Restricted Stock" means Common Shares granted or sold pursuant
to Section 6 or Section 9 of this Plan as to which neither the substantial risk
of forfeiture nor the prohibition on transfers has expired.

            (aa) "Restriction Period" means the period of time during which
Restricted Stock Units are subject to restrictions, as provided in Section 7 or
Section 9 of this Plan.

            (bb) "Restricted Stock Unit" means an award made pursuant to Section
7 or Section 9 of this Plan of the right to receive Common Shares or cash at the
end of a specified period.

            (cc) "Spread" means the excess of the Market Value per Share on the
date when an Appreciation Right is exercised, or on the date when Option Rights
are surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Base Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.

            (dd) "Subsidiary" means a corporation, company or other entity (i)
more than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of determining
whether any person may be a Participant for purposes of any grant of Incentive
Stock Options, "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.

            (ee) "Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 or Section 9 of this Plan that is granted in tandem with
an Option Right.

      3. SHARES AVAILABLE UNDER THE PLAN.

            (a) Subject to adjustment as provided in Section 12 of this Plan,
the number of Common Shares that may be issued or transferred (i) upon the
exercise of Option Rights or

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Appreciation Rights, (ii) as Restricted Stock and released from substantial
risks of forfeiture thereof, (iii) as Restricted Stock Units, (iv) in payment of
Performance Shares or Performance Units that have been earned, (v) as awards to
Non-Employee Directors, (vi) as awards contemplated by Section 10 of this Plan,
or (vii) in payment of dividend equivalents paid with respect to awards made
under the Plan will not exceed in the aggregate 5,000,000 Common Shares, plus
any shares relating to awards that expire or are forfeited or are cancelled.
Common Shares covered by an award granted under the Plan shall not be counted as
used unless and until they are actually issued and delivered to a Participant.
Without limiting the generality of the foregoing, upon payment in cash of the
benefit provided by any award granted under the Plan, any Common Shares that
were covered by that award will be available for issue or transfer hereunder.
Notwithstanding anything to the contrary contained herein: (A) shares tendered
in payment of the Option Price of a Option Right shall not be added to the
aggregate plan limit described above; (B) shares withheld by the Company to
satisfy the tax withholding obligation shall not be added to the aggregate plan
limit described above; (C) shares that are repurchased by the Company with
Option Right proceeds shall not be added to the aggregate plan limit described
above; and (D) all shares covered by an Appreciation Right, to the extent that
it is exercised and settled in Common Shares, and whether or not shares are
actually issued to the participant upon exercise of the right, shall be
considered issued or transferred pursuant to the Plan. Such shares may be shares
of original issuance or treasury shares or a combination of the foregoing.

            (b) If, under this Plan, a Participant has elected to give up the
right to receive compensation in exchange for Common Shares based on fair market
value, such Common Shares will not count against the number of shares available
in Section 3(a) above.

            (c) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary and subject to adjustment as provided in Section 12 of
this Plan: (i) the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options will not
exceed 3,000,000 Common Shares; (ii) no Participant will be granted Option
Rights or Appreciation Rights, in the aggregate, for more than 500,000 Common
Shares during any calendar year; (iii) no Participant will be granted Restricted
Stock or Restricted Stock Units that specify Management Objectives, Performance
Shares or other awards under Section 10 of this Plan, in the aggregate, for more
than 400,000 Common Shares during any calendar year; (iv) the number of shares
issued as Restricted Stock, Restricted Stock Units, Performance Shares and
Performance Units and other awards under Section 10 of this Plan (after taking
into account any forfeitures and cancellations) will not during the life of the
Plan in the aggregate exceed 1,500,000 Common Shares; and (v) awards will not be
granted under Section 9 or Section 10 of the Plan to the extent they would
involve the issuance of more than 500,000 shares in the aggregate.

            (d) Notwithstanding any other provision of this Plan to the
contrary, in no event will any Participant in any calendar year receive an award
of Performance Units having an aggregate maximum value as of their respective
Dates of Grant in excess of $3,000,000.

      4. OPTION RIGHTS. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase

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Common Shares. Each such grant may utilize any or all of the authorizations, and
will be subject to all of the requirements contained in the following
provisions:

            (a) Each grant will specify the number of Common Shares to which it
pertains subject to the limitations set forth in Section 3 of this Plan.

            (b) Each grant will specify an Option Price per share, which may not
be less than the Market Value per Share on the day immediately preceding the
Date of Grant.

            (c) Each grant will specify whether the Option Price will be payable
(i) in cash or by check acceptable to the Company or by wire transfer of
immediately available funds, (ii) by the actual or constructive transfer to the
Company of Common Shares owned by the Optionee for at least 6 months (or other
consideration authorized pursuant to Section 4(d)) having a value at the time of
exercise equal to the total Option Price, (iii) by a combination of such methods
of payment, or (iv) by such other methods as may be approved by the Board.

            (d) To the extent permitted by law, any grant may provide for
deferred payment of the Option Price from the proceeds of sale through a bank or
broker on a date satisfactory to the Company of some or all of the shares to
which such exercise relates.

            (e) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain unexercised.

            (f) Each grant will specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary that is necessary
before the Option Rights or installments thereof will become exercisable;
provided, however, that Option Rights may not become exercisable by the passage
of time sooner than one-third per year over three years. A grant of Option
Rights may provide for the earlier exercise of such Option Rights in the event
of a change of control, as may be defined in an Evidence of Award.

            (g) Any grant of Option Rights may specify Management Objectives
that must be achieved as a condition to the exercise of such rights; provided,
however, that Option Rights that become exercisable upon the achievement of
Management Objectives may not become exercisable sooner than one year from the
Date of Grant.

            (h) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing. Incentive Stock
Options may only be granted to Participants who meet the definition of
"employees" under Section 3401(c) of the Code.

            (i) The Board may at the Date of Grant of any Option Rights (other
than Incentive Stock Options), provide for the payment of dividend equivalents
to the Optionee on either a current or deferred or contingent basis, either in
cash or in additional Common Shares.

            (j) The exercise of an Option Right will result in the cancellation
on a share- for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.

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            (k) No Option Right will be exercisable more than 10 years from the
Date of Grant.

            (l) The Board reserves the discretion at or after the Date of Grant
to provide for (i) the payment of a cash bonus at the time of exercise; (ii) the
availability of a loan at exercise; and (iii) the right to tender in
satisfaction of the Option Price nonforfeitable, unrestricted Common Shares,
which are already owned by the Optionee and have a value at the time of exercise
that is equal to the Option Price.

            (m) The Board may substitute, without receiving Participant
permission, Appreciation Rights paid only in Common Shares (or Appreciation
Rights paid in Common Shares or cash at the Board's discretion) for outstanding
Options; provided, however, that the terms of the substituted Appreciation
Rights are the same as the terms for the Options and the difference between the
Market Value Per Share of the underlying Common Shares and the Base Price of the
Appreciation Rights is equivalent to the difference between the Market Value Per
Share of the underlying Common Shares and the Option Price of the Options. If,
in the opinion of the Company's auditors, this provision creates adverse
accounting consequences for the Company, it shall be considered null and void.

            (n) Each grant of Option Rights will be evidenced by an Evidence of
Award. Each Evidence of Award shall be subject to the Plan and shall contain
such terms and provisions as the Board may approve.

      5. APPRECIATION RIGHTS.

            (a) The Board may authorize the granting (i) to any Optionee, of
Tandem Appreciation Rights in respect of Option Rights granted hereunder, and
(ii) to any Participant, of Free-Standing Appreciation Rights. A Tandem
Appreciation Right will be a right of the Optionee, exercisable by surrender of
the related Option Right, to receive from the Company an amount determined by
the Board, which will be expressed as a percentage of the Spread (not exceeding
100 percent) at the time of exercise. Tandem Appreciation Rights may be granted
at any time prior to the exercise or termination of the related Option Rights;
provided, however, that a Tandem Appreciation Right awarded in relation to an
Incentive Stock Option must be granted concurrently with such Incentive Stock
Option. A Free-Standing Appreciation Right will be a right of the Participant to
receive from the Company an amount determined by the Board, which will be
expressed as a percentage of the Spread (not exceeding 100 percent) at the time
of exercise.

            (b) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and will be subject to all of the requirements, contained in the
following provisions:

            (i)   Any grant may specify that the amount payable on exercise of
                  an Appreciation Right may be paid by the Company in cash, in
                  Common Shares or in any combination thereof and may either
                  grant to the Participant or retain in the Board the right to
                  elect among those alternatives.

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            (ii)  Any grant may specify that the amount payable on exercise of
                  an Appreciation Right may not exceed a maximum specified by
                  the Board at the Date of Grant.

            (iii) Any grant may specify waiting periods before exercise and
                  permissible exercise dates or periods; provided, however, that
                  Appreciation Rights may not become exercisable by the passage
                  of time sooner than one-third per year over three years.

            (iv)  Any grant may specify that such Appreciation Right may be
                  exercised only in the event of, or earlier in the event of, a
                  change of control, as may be defined in an Evidence of Award.

            (v)   Any grant may provide for the payment to the Participant of
                  dividend equivalents thereon in cash or Common Shares on a
                  current, deferred or contingent basis.

            (vi)  Any grant of Appreciation Rights may specify Management
                  Objectives that must be achieved as a condition of the
                  exercise of such Appreciation Rights; provided, however, that
                  Option Rights that become exercisable upon the achievement of
                  Management Objectives may not become exercisable sooner than
                  one year from the Date of Grant.

            (vii) Each grant of Appreciation Rights will be evidenced by an
                  Evidence of Award, which Evidence of Award will describe such
                  Appreciation Rights, identify the related Option Rights (if
                  applicable), and contain such other terms and provisions,
                  consistent with this Plan, as the Board may approve.

            (c) Any grant of Tandem Appreciation Rights will provide that such
Tandem Appreciation Rights may be exercised only at a time when the related
Option Right is also exercisable and at a time when the Spread is positive, and
by surrender of the related Option Right for cancellation.

            (d) Regarding Free-Standing Appreciation Rights only:

            (i)   Each grant will specify in respect of each Free-Standing
                  Appreciation Right a Base Price, which will be equal to or
                  greater than the Market Value per Share on the day immediately
                  preceding the Date of Grant;

            (ii)  Successive grants may be made to the same Participant
                  regardless of whether any Free-Standing Appreciation Rights
                  previously granted to the Participant remain unexercised; and

            (iii) No Free-Standing Appreciation Right granted under this Plan
                  may be exercised more than 10 years from the Date of Grant.

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      6. RESTRICTED STOCK. The Board may also authorize the grant or sale of
Restricted Stock to Participants. Each such grant or sale may utilize any or all
of the authorizations, and will be subject to all of the requirements, contained
in the following provisions:

            (a) Each such grant or sale will constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.

            (b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.

            (c) Each such grant or sale will provide that the Restricted Stock
covered by such grant or sale that vests upon the passage of time will be
subject to a "substantial risk of forfeiture" within the meaning of Section 83
of the Code for a period of not less than three years to be determined by the
Board at the Date of Grant and may provide for the earlier lapse of such
substantial risk of forfeiture in the event of a change of control, as may be
defined in an Evidence of Award.

            (d) Each such grant or sale will provide that during the period for
which such substantial risk of forfeiture is to continue, the transferability of
the Restricted Stock will be prohibited or restricted in the manner and to the
extent prescribed by the Board at the Date of Grant (which restrictions may
include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Stock to a continuing
substantial risk of forfeiture in the hands of any transferee).

            (e) Any grant of Restricted Stock may specify Management Objectives
that, if achieved, will result in termination or early termination of the
restrictions applicable to such Restricted Stock; provided, however, that
restrictions relating to Restricted Stock that vests upon the achievement of
Management Objectives may not terminate sooner than one year from the Date of
Grant. Each grant may specify in respect of such Management Objectives a minimum
acceptable level of achievement and may set forth a formula for determining the
number of shares of Restricted Stock on which restrictions will terminate if
performance is at or above the minimum level, but falls short of full
achievement of the specified Management Objectives.

            (f) Any such grant or sale of Restricted Stock may require that any
or all dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional shares of
Restricted Stock, which may be subject to the same restrictions as the
underlying award.

            (g) Each grant or sale of Restricted Stock will be evidenced by an
Evidence of Award and will contain such terms and provisions, consistent with
this Plan, as the Board may approve. Unless otherwise directed by the Board, all
certificates representing shares of Restricted Stock will be held in custody by
the Company until all restrictions thereon will have lapsed, together with a
stock power or powers executed by the Participant in whose name such
certificates are registered, endorsed in blank and covering such Shares.

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      7. RESTRICTED STOCK UNITS. The Board may also authorize the granting or
sale of Restricted Stock Units to Participants. Each such grant or sale may
utilize any or all of the authorizations, and will be subject to all of the
requirements contained in the following provisions:

            (a) Each such grant or sale will constitute the agreement by the
Company to deliver Common Shares or cash to the Participant in the future in
consideration of the performance of services, but subject to the fulfillment of
such conditions (which may include the achievement of Management Objectives)
during the Restriction Period as the Board may specify. If a grant of Restricted
Stock Units specifies that the Restriction Period will terminate only upon the
achievement of Management Objectives, such Restriction Period may not terminate
sooner than one year from the Date of Grant. Each grant may specify in respect
of such Management Objectives a minimum acceptable level of achievement and may
set forth a formula for determining the number of shares of Restricted Stock on
which restrictions will terminate if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives.

            (b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.

            (c) If the Restriction Period lapses by the passage of time, each
such grant or sale will be subject to a Restriction Period of not less than
three years, as determined by the Board at the Date of Grant, and may provide
for the earlier lapse or other modification of such Restriction Period in the
event of a change of control, as may be defined in an Evidence of Award.

            (d) During the Restriction Period, the Participant will have no
right to transfer any rights under his or her award and will have no rights of
ownership in the Restricted Stock Units and will have no right to vote them, but
the Board may at the Date of Grant, authorize the payment of dividend
equivalents on such Restricted Stock Units on either a current or deferred or
contingent basis, either in cash or in additional Common Shares.

            (e) Each grant or sale of Restricted Stock Units will be evidenced
by an Evidence of Award and will contain such terms and provisions, consistent
with this Plan, as the Board may approve.

      8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also authorize
the granting of Performance Shares and Performance Units that will become
payable to a Participant upon achievement of specified Management Objectives
during the Performance Period. Each such grant may utilize any or all of the
authorizations, and will be subject to all of the requirements, contained in the
following provisions:

            (a) Each grant will specify the number of Performance Shares or
Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors; provided,
however, that no such adjustment will be made in the

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case of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code.

            (b) The Performance Period with respect to each Performance Share or
Performance Unit will be such period of time (not less than three years),
commencing with the Date of Grant as will be determined by the Board at the time
of grant which may be subject to earlier lapse or other modification in the
event of a change of control, as may be defined in an Evidence of Award.

            (c) Any grant of Performance Shares or Performance Units will
specify Management Objectives which, if achieved, will result in payment or
early payment of the award, and each grant may specify in respect of such
specified Management Objectives a minimum acceptable level of achievement and
will set forth a formula for determining the number of Performance Shares or
Performance Units that will be earned if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives. The grant of Performance Shares or Performance Units will specify
that, before the Performance Shares or Performance Units will be earned and
paid, the Board must certify that the Management Objectives have been satisfied.

            (d) Each grant will specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash, in Common Shares or in any combination thereof and may either grant to
the Participant or retain in the Board the right to elect among those
alternatives.

            (e) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the Board at
the Date of Grant. Any grant of Performance Units may specify that the amount
payable or the number of Common Shares issued with respect thereto may not
exceed maximums specified by the Board at the Date of Grant.

            (f) The Board may at the Date of Grant of Performance Shares,
provide for the payment of dividend equivalents to the holder thereof on either
a current or deferred or contingent basis, either in cash or in additional
Common Shares.

            (g) Each grant of Performance Shares or Performance Units will be
evidenced by an Evidence of Award and will contain such other terms and
provisions, consistent with this Plan, as the Board may approve.

      9. AWARDS TO NON-EMPLOYEE DIRECTORS. The Board may, from time to time and
upon such terms and conditions as it may determine, authorize the granting to
Non-Employee Directors Option Rights, Appreciation Rights or other awards
contemplated by Section 10 of this Plan and may also authorize the grant or sale
of Common Shares, Restricted Stock or Restricted Stock Units to Non-Employee
Directors.

            (a) Each grant of Option Rights awarded pursuant to this Section 9
will be upon terms and conditions consistent with Section 4 of this Plan and
will be evidenced by an Evidence of Award in such form as will be approved by
the Board. Each grant will specify an

                                       12
<PAGE>

Option Price per share, which will not be less than the Market Value per Share
on the day immediately preceding the Date of Grant. Each such Option Right
granted under the Plan will expire not more than 10 years from the Date of Grant
and will be subject to earlier termination as hereinafter provided. Unless
otherwise determined by the Board, such Option Rights will be subject to the
following additional terms and conditions:

            (i)   Each grant will specify the number of Common Shares to which
                  it pertains subject to the limitations set forth in Section 3
                  of this Plan.

            (ii)  If a Non-Employee Director subsequently becomes an employee of
                  the Company or a Subsidiary while remaining a member of the
                  Board, any Option Rights held under the Plan by such
                  individual at the time of such commencement of employment will
                  not be affected thereby.

            (iii) Option Rights may be exercised by a Non-Employee Director only
                  upon payment to the Company in full of the Option Price of the
                  Common Shares to be delivered. Such payment will be made in
                  cash or in Common Shares then owned by the optionee for at
                  least six months, or in a combination of cash and such Common
                  Shares.

            (b) Non-Employee Directors, pursuant to this Section 9, may be
awarded, or may be permitted to elect to receive, pursuant to procedures
established by the Board, all or any portion of their annual retainer, meeting
fees or other fees in Common Shares in lieu of cash.

            (c) Each grant or sale of Appreciation Rights pursuant to this
Section 9 will be upon terms and conditions consistent with Section 5 of this
Plan.

            (d) Each grant or sale of Restricted Stock pursuant to this Section
9 will be upon terms and conditions consistent with Section 6 of this Plan.

            (e) Each grant or sale of Restricted Stock Units pursuant to this
Section 9 will be upon terms and conditions consistent with Section 7 of this
Plan.

            (f) Non-Employee Directors may be granted, sold, or awarded other
awards as contemplated by Section 10 of this Plan.

      10. OTHER AWARDS.

            (a) The Board may, subject to limitations under applicable law,
grant to any Participant such other awards that may be denominated or payable
in, valued in whole or in part by reference to, or otherwise based on, or
related to, Common Shares or factors that may influence the value of such
shares, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Common Shares,
purchase rights for Common Shares, awards with value and payment contingent upon
performance of the Company or specified Subsidiaries, affiliates or other
business units thereof or any other factors designated by the Board, and awards
valued by reference to the book value of Common Shares or the value of
securities of, or the performance of specified Subsidiaries or affiliates or
other business units of the Company. The Board shall determine the terms and
conditions of such

                                       13
<PAGE>

awards. Common Shares delivered pursuant to an award in the nature of a purchase
right granted under this Section 10 shall be purchased for such consideration,
paid for at such time, by such methods, and in such forms, including, without
limitation, cash, Common Shares, other awards, notes or other property, as the
Board shall determine.

            (b) Cash awards, as an element of or supplement to any other award
granted under this Plan, may also be granted pursuant to this Section 10 of this
Plan.

            (c) The Board may grant Common Shares as a bonus, or may grant other
awards in lieu of obligations of the Company or a Subsidiary to pay cash or
deliver other property under this Plan or under other plans or compensatory
arrangements, subject to such terms as shall be determined by the Board.

      11. TRANSFERABILITY.

            (a) Except as otherwise determined by the Board, no Option Right,
Appreciation Right or other derivative security granted under the Plan shall be
transferable by the Participant except by will or the laws of descent and
distribution. Except as otherwise determined by the Board, Option Rights and
Appreciation Rights will be exercisable during the Participant's lifetime only
by him or her or, in the event of the Participant's legal incapacity to do so,
by his or her guardian or legal representative acting on behalf of the
Participant in a fiduciary capacity under state law and/or court supervision.

            (b) The Board may specify at the Date of Grant that part or all of
the Common Shares that are (i) to be issued or transferred by the Company upon
the exercise of Option Rights or Appreciation Rights, upon the termination of
the Restriction Period applicable to Restricted Stock Units or upon payment
under any grant of Performance Shares or Performance Units or (ii) no longer
subject to the substantial risk of forfeiture and restrictions on transfer
referred to in Section 6 of this Plan, will be subject to further restrictions
on transfer.

      12. ADJUSTMENTS. The Board may make or provide for such adjustments in the
numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Restricted Stock Units, Performance Shares and Performance Units granted
hereunder and, if applicable, in the number of Common Shares covered by other
awards granted pursuant to Section 10 hereof, in the Option Price and Base Price
provided in outstanding Appreciation Rights, and in the kind of shares covered
thereby, as the Board, in its sole discretion, exercised in good faith, may
determine is equitably required to prevent dilution or enlargement of the rights
of Participants or Optionees that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Company, or (b) any merger, consolidation,
spin-off, split- off, spin-out, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of rights or warrants to
purchase securities, or (c) any other corporate transaction or event having an
effect similar to any of the foregoing. Moreover, in the event of any such
transaction or event, the Board, in its discretion, may provide in substitution
for any or all outstanding awards under this Plan such alternative consideration
(including cash), if any, as it, in good faith, may determine to be equitable in
the circumstances and may require in connection therewith the surrender of all
awards so replaced. The Board may also make or provide for such adjustments in
the numbers of shares specified in

                                       14
<PAGE>

Section 3 of this Plan as the Board in its sole discretion, exercised in good
faith, may determine is appropriate to reflect any transaction or event
described in this Section 12; provided, however, that any such adjustment to the
number specified in Section 3(c)(i) will be made only if and to the extent that
such adjustment would not cause any option intended to qualify as an Incentive
Stock Option to fail so to qualify.

      13. FRACTIONAL SHARES. The Company will not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.

      14. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
will be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit.

      15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America or who
provide services to the Company under an agreement with a foreign nation or
agency, as the Board may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom. Moreover, the Board may approve
such supplements to or amendments, restatements or alternative versions of this
Plan as it may consider necessary or appropriate for such purposes, without
thereby affecting the terms of this Plan as in effect for any other purpose, and
the Secretary or other appropriate officer of the Company may certify any such
document as having been approved and adopted in the same manner as this Plan. No
such special terms, supplements, amendments or restatements, however, will
include any provisions that are inconsistent with the terms of this Plan as then
in effect unless this Plan could have been amended to eliminate such
inconsistency without further approval by the shareholders of the Company.

      16. ADMINISTRATION OF THE PLAN.

            (a) This Plan will be administered by the Board, which may from time
to time delegate all or any part of its authority under this Plan to the
Compensation and Governance Committee of the Board (or a subcommittee thereof),
as constituted from time to time. To the extent of any such delegation,
references in this Plan to the Board will be deemed to be references to such
committee or subcommittee. A majority of the committee (or subcommittee) will
constitute a quorum, and the action of the members of the committee (or
subcommittee) present at any meeting at which a quorum is present, or acts
unanimously approved in writing, will be the acts of the committee (or
subcommittee).

            (b) The interpretation and construction by the Board of any
provision of this Plan or of any agreement, notification or document evidencing
the grant of Option Rights,

                                       15
<PAGE>

Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Shares, Performance Units or other awards pursuant to Section 10 of this Plan
and any determination by the Board pursuant to any provision of this Plan or of
any such agreement, notification or document will be final and conclusive. No
member of the Board will be liable for any such action or determination made in
good faith.

            (c) The Board or, to the extent of any delegation as provided in
Section 16(a), the committee, may delegate to one or more of its members or to
one or more officers of the Company, or to one or more agents or advisors, such
administrative duties or powers as it may deem advisable, and the Board, the
committee, or any person to whom duties or powers have been delegated as
aforesaid, may employ one or more persons to render advice with respect to any
responsibility the Board, the committee or such person may have under the Plan.
The Board or the committee may, by resolution, authorize one or more officers of
the Company to do one or both of the following on the same basis as the Board or
the committee: (i) designate employees to be recipients of awards under this
Plan; (ii) determine the size of any such awards; provided, however, that (A)
the Board or the Committee shall not delegate such responsibilities to any such
officer for awards granted to an employee who is an officer, Director, or more
than 10% beneficial owner of any class of the Company's equity securities that
is registered pursuant to Section 12 of the Exchange Act, as determined by the
Board in accordance with Section 16 of the Exchange Act; (B) the resolution
providing for such authorization sets forth the total number of Common Shares
such officer(s) may grant; and (iii) the officer(s) shall report periodically to
the Board or the committee, as the case may be, regarding the nature and scope
of the awards granted pursuant to the authority delegated.

      17. AMENDMENTS, ETC.

            (a) The Board may at any time and from time to time amend the Plan
in whole or in part; provided, however, that if an amendment to the Plan (i)
would materially increase the benefits accruing to participants under the Plan,
(ii) would materially increase the number of securities which may be issued
under the Plan, (iii) would materially modify the requirements for participation
in the Plan or (iv) must otherwise be approved by the shareholders of the
Company in order to comply with applicable law or the rules of the New York
Stock Exchange or, if the Common Shares are not traded on the New York Stock
Exchange, the principal national securities exchange upon which the Common
Shares are traded or quoted, then, such amendment will be subject to shareholder
approval and will not be effective unless and until such approval has been
obtained.

            (b) The Board will not, without the further approval of the
shareholders of the Company, authorize the amendment of any outstanding Option
Right to reduce the Option Price. Furthermore, no Option Right will be cancelled
and replaced with awards having a lower Option Price without further approval of
the shareholders of the Company. This Section 17(b) is intended to prohibit the
repricing of "underwater" Option Rights and will not be construed to prohibit
the adjustments provided for in Section 12 of this Plan.

            (c) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to

                                       16
<PAGE>

receive a cash bonus or other compensation otherwise payable by the Company or a
Subsidiary to the Participant.

            (d) If permitted by Section 409A of the Code, in case of termination
of employment by reason of death, disability or normal or early retirement, or
in the case of unforeseeable emergency or other special circumstances, of a
Participant who holds an Option Right or Appreciation Right not immediately
exercisable in full, or any shares of Restricted Stock as to which the
substantial risk of forfeiture or the prohibition or restriction on transfer has
not lapsed, or any Restricted Stock Units as to which the Restriction Period has
not been completed, or any Performance Shares or Performance Units which have
not been fully earned, or any other awards made pursuant to Section 10 subject
to any vesting schedule or transfer restriction, or who holds Common Shares
subject to any transfer restriction imposed pursuant to Section 11(b) of this
Plan, the Board may, in its sole discretion, accelerate the time at which such
Option Right, Appreciation Right or other award may be exercised or the time at
which such substantial risk of forfeiture or prohibition or restriction on
transfer will lapse or the time when such Restriction Period will end or the
time at which such Performance Shares or Performance Units will be deemed to
have been fully earned or the time when such transfer restriction will terminate
or may waive any other limitation or requirement under any such award.

            (e) This Plan will not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary, nor will it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.

            (f) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision will be null and void with respect to such
Option Right. Such provision, however, will remain in effect for other Option
Rights and there will be no further effect on any provision of this Plan.

            (g) The Board may amend the terms of any award theretofore granted
under this Plan prospectively or retroactively, but subject to Section 12 above,
no such amendment shall impair the rights of any Participant without his or her
consent. The Board may, in its discretion, terminate this Plan at any time.
Termination of this Plan will not affect the rights of Participants or their
successors under any awards outstanding hereunder and not exercised in full on
the date of termination.

      18. DETRIMENTAL ACTIVITY. Any Evidence of Award may provide that if a
Participant, either during employment by the Company or a Subsidiary or within a
specified period after termination of such employment, shall engage in any
Detrimental Activity, and the Board shall so find, forthwith upon notice of such
finding, the Participant shall:

            (a) Forfeit any award granted under the Plan then held by the
Participant;

            (b) Return to the Company, in exchange for payment by the Company of
any amount actually paid therefor by the Participant, all Common Shares that the
Participant has not

                                       17
<PAGE>

disposed of that were offered pursuant to this Plan within a specified period
prior to the date of the commencement of such Detrimental Activity, and

            (c) With respect to any Common Shares so acquired that the
Participant has disposed of, pay to the Company in cash the difference between:

            (i)   Any amount actually paid therefor by the Participant pursuant
                  to this Plan, and

            (ii)  The Market Value per Share of the Common Shares on the date of
                  such acquisition.

To the extent that such amounts are not paid to the Company, the Company may set
off the amounts so payable to it against any amounts that may be owing from time
to time by the Company or a Subsidiary to the Participant, whether as wages,
deferred compensation or vacation pay or in the form of any other benefit or for
any other reason.

      19. COMPLIANCE WITH SECTION 409A OF THE CODE. To the extent applicable, it
is intended that this Plan and any grants made hereunder comply with the
provisions of Section 409A of the Code. The Plan and any grants made hereunder
shall be administrated in a manner consistent with this intent, and any
provision that would cause the Plan or any grant made hereunder to fail to
satisfy Section 409A of the Code shall have no force and effect until amended to
comply with Section 409A of the Code (which amendment may be retroactive to the
extent permitted by Section 409A of the Code and may be made by the Company
without the consent of Participants). Any reference in this Plan to Section 409A
of the Code will also include any proposed, temporary or final regulations, or
any other guidance, promulgated with respect to such Section by the U.S.
Department of the Treasury or the Internal Revenue Service.

      20. GOVERNING LAW. The Plan and all grants and awards and actions taken
thereunder shall be governed by and construed in accordance with the internal
substantive laws of the State of Ohio.

      21. TERMINATION. No grant will be made under this Plan more than 10 years
after the date on which this Plan is first approved by the shareholders of the
Company, but all grants made on or prior to such date will continue in effect
thereafter subject to the terms thereof and of this Plan.

      22. GENERAL PROVISIONS.

            (a) No award under this Plan may be exercised by the holder thereof
if such exercise, and the receipt of cash or stock thereunder, would be, in the
opinion of counsel selected by the Board, contrary to law or the regulations of
any duly constituted authority having jurisdiction over this Plan.

            (b) Absence on leave approved by a duly constituted officer of the
Company or any of its Subsidiaries shall not be considered interruption or
termination of service of any employee for any purposes of this Plan or awards
granted hereunder, except that no awards may be granted to an employee while he
or she is absent on leave.

                                       18
<PAGE>

            (c) No Participant shall have any rights as a stockholder with
respect to any shares subject to awards granted to him or her under this Plan
prior to the date as of which he or she is actually recorded as the holder of
such shares upon the stock records of the Company.

            (d) If any provision of the Plan is or becomes invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any award
under any law deemed applicable by the Board, such provision shall be construed
or deemed amended or limited in scope to conform to applicable laws or, in the
discretion of the Board, it shall be stricken and the remainder of the Plan
shall remain in full force and effect.|Heading 2|ZZMPTAG|

Approved by Shareholders - May 19, 2005
Amended and Restated by the Board - July 21, 2005

                                       19Exhibit 10.1

                              EMPLOYMENT AGREEMENT

        AGREEMENT effective this _1st_ day of June, 2005 by and between
TSR Inc., a Delaware corporation, with offices at 400 Oser Avenue,
Hauppauge, New York 11788 (hereinafter called the "Corporation") and John G.
Sharkey, residing at xxxxx., xxxxx, xx xxx (hereinafter called "Executive").

                             W I T N E S S E T H :

        WHEREAS, the Corporation desires to employ Executive and Executive is
willing to undertake such employment on the terms and subject to the conditions
hereinafter set forth;

        NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:

        1. The Corporation hereby employs Executive as Vice President of
Finance and Controller of the Corporation or such other position as he may be
elected or appointed to by the Corporation's Board of Directors, to perform
such supervisory or executive duties on behalf of the Corporation as the Board
of Directors of the Corporation may from time to time determine.

        2. Executive hereby accepts such employment and agrees that throughout
the period of his employment hereunder, he will devote his full time, attention,
knowledge and skills, faithfully, diligently and to the best of his ability, in
furtherance of the business of the Corporation and to promote the interest of
the Corporation, will perform the duties assigned to him pursuant to Paragraph
1 hereof, subject, at all times, to the direction and control of the Board of
Directors of the Corporation and the Corporation's President. Executive shall
at all times be subject to, observe and carry out such rules and regulations as
the Board of Directors or President of the Corporation may from time to time
establish. During the period of Executive's employment hereunder, Executive
shall not be entitled to additional compensation for serving in any office of
the Corporation or any of its subsidiaries to which he is elected, including
without limitation as a director of the Corporation or any of its subsidiaries.

        3. Executive shall be employed for a term of five (5) years commencing
as of the 1st day of June, 2005 and ending on the 31st day of May, 2010
(the "Term"), unless his employment is terminated prior to the expiration of
said five (5) year term pursuant to the provisions hereof.

<PAGE>

        4. As full compensation for his services hereunder, the Corporation will
pay to Executive a salary at the rate of One Hundred Fifty Thousand ($150,000)
Dollars per annum, payable in equal installments no less frequently than
semi-monthly. The annual salary shall be subject to increase in the discretion
of the President of the Corporation. In addition, Executive shall be entitled to
a discretionary bonus, in an amount determined in good faith by the President of
the Corporation, based on standards relating to the Executive's performance and
the Corporation's performance determined in good faith by the President of the
Corporation. The bonus provided for hereunder shall be payable by the
Corporation to Executive within 30 days of the end of the fiscal year to which
such bonus relates. In addition to such compensation, Executive shall be
entitled to participate, to the extent he is eligible under the terms and
conditions thereof, in any pension, profit-sharing, retirement, hospitalization,
insurance medical services, or other employee benefit plan generally available
to executives of the Corporation which may be in effect from time to time during
the period of his employment hereunder. The Corporation shall be under no
obligation to institute or continue the existence of any such employee benefit
plan. Employee shall also continue to be entitled to a leased car comparable to
the car which he is currently provided. Executive shall be entitled to four
weeks of paid vacation for each year.

        5. The Corporation shall reimburse Executive for all expenses reasonably
incurred by him in connection with the performance of his duties hereunder in
the business of the Corporation, upon the submission to the Corporation of
appropriate vouchers therefor and approval thereof by the President of the
Corporation; provided, however, that no reimbursement has been made by the
Corporation for expenses substantially disallowed, Executive shall reimburse the
Corporation for any such amounts. Such reimbursements shall be subject to the
expense reimbursement policies of the Corporation which are in effect from time
to time.

        6. Notwithstanding any provision contained herein to the contrary, the
Corporation may terminate Employee's employment hereunder at any time for
"Cause" as such term has been interpreted pursuant to the decisions of the
courts of the State of New York which have interpreted the meaning for "Cause"
for justifiable termination pursuant to employment arrangements generally. The
Corporation may terminate such employment without Cause at any time; provided
however, the Corporation shall continue to pay the Employee his base
compensation, which shall not exceed the rate of $150,000 per annum, during the
balance of the term. In the event of a termination of Employe's employment
Employee shall be eligible to continue to receive, at the Company's expense, all
benefits provided by the Corporation as enumerated in Paragraph 4, above.

        7. CHANGE IN CONTROL. (a) Executive shall have the right to terminate
hisemployment hereunder following a Change in Control. If Executive elects to
terminate his employment hereunder, he shall do so by written notice given
within 90 days after the event constituting a Change in Control.

     (b) For purposes of this Agreement  "Change in Control" shall mean that any
of the following events has occurred:

<PAGE>

        (i)     An acquisition (other than directly from the Corporation) of
                any voting securities of the Corporation (treating all classes
                of outstanding voting securities or other securities
                convertible into voting securities as if they were converted
                into voting securities) (the "VOTING SECURITIES") by any
                "person", "entity" or "group of affiliated persons" (as such
                terms are used for purposes of Section 13(d) or 14(d)
                (collectively, "PERSONS") of the Securities Exchange Act of
                1934, as amended (the "1934 Act")(other than Joseph Hughes or a
                group which includes Joseph Hughes) immediately after which
                such Person has "Beneficial Ownership" (within the meaning of
                Rule 13d-3 promulgated under the 1934 Act and irrespective of
                any vesting or waiting periods) of twenty (20%) percent or more
                of the combined voting power of the Corporation's then
                outstanding Voting Securities; unless immediately after such
                acquisition Joseph Hughes beneficially owns a greater
                percentage of the Voting Securities than such Persons.

        (ii)    An acquisition of any voting securities of the corporation
                (treating all classes of outstanding voting securities or other
                securities convertible into voting securities as if they were
                converted into voting securities) (the "VOTING SECURITIES") by
                any "person," "entity" or "group of affiliated persons" as such
                terms are used for purposes of Section 13(d) or 14(d)
                (collectively, "PERSONS") of the Securities Exchange Act of
                1934,as amended the "1934 Act")(other than Joseph Hughes or a
                group which includes Joseph Hughes) immediately after which
                such Person has "Beneficial Ownership" within the meaning of
                Rule 13d-3 promulgated under the 1934 Act and irrespective of
                any vesting or waiting periods) of a greater percentage of the
                Voting Securities than Joseph Hughes, if within six months
                thereafter the individuals who were members of the Board of
                Directors immediately prior to such acquisition or the initial
                agreement relating to such acquisition no longer constitute at
                least a majority of the members of the Board of Directors of
                the Company.

        (iii)   A merger, consolidation or reorganization involving the
                Corporation or a sale of all or substantially all of the assets
                of the Corporation, unless

                (A) the shareholders of the Corporation, immediately before
                such merger, consolidation or reorganization, own, directly or
                indirectly, immediately following such merger, consolidation or
                reorganization, more than fifty (50%) percent of the combined
                voting power of the outstanding Voting Securities of the entity
                resulting from such merger or consolidation or reorganization
                or sale of all or substantially all of the assets (the
                "SURVIVING ENTITY") in substantially the same proportion as
                their ownership of the Voting Securities immediately before such
                merger, consolidation or reorganization or sale of all or
                substantially all of the assets, and

<PAGE>

                (B) the individuals who were members of the Board of Directors
                immediately prior to the execution of the agreement providing
                for such merger, consolidation or reorganization or sale of all
                or substantially all of the assets constitute at least a
                majority of the members of the board of directors of the
                Surviving Entity or an entity beneficially owning, directly or
                indirectly, a majority of the Voting Securities of the
                Surviving Entity, and

                (C) no Person (other than the Corporation, any subsidiary, any
                employee benefit plan (or any trust forming a part thereof)
                maintained by the Corporation, the Surviving Entity or any
                subsidiary, or any Person who, immediately prior to such merger,
                consolidation or reorganization or sale of all or substantially
                all of the assets had Beneficial Ownership of thirty (30%)
                percent or more of the then outstanding Voting Securities) owns,
                directly or indirectly, thirty (30%) percent or more of the
                combined voting power of the Surviving Entity's then
                outstanding Voting Securities.

        (iv)    A complete liquidation or dissolution of the Corporation.

        (v)     There has been a public announcement of a Change in Control of
                the Corporation (provided, however, that consummation of the
                Change in Control of the Corporation shall be a condition
                precedent to the effectiveness of this provision) and at any
                time thereafter the employment of the Executive under this
                Agreement is terminated for any reason whatsoever;

     (c) 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 outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Corporation which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares  Beneficially  Owned by the Subject Person,  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  Corporation,  and after
such share  acquisition  by the  Corporation,  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.

     (d) If Employee's  employment is terminated  pursuant to this Section,  the
Corporation  shall pay to the  Executive (i) his full salary at the rate then in
effective  through the date of termination and plus an amount equal to two times
the annual salary  payable  hereunder at the rate then in effect and (ii) and an
amount equal to the pro rata portion of the bonus to which Executive is entitled
for the then  current year (based on the portion of the year through the date of
termination)  through  the  date of  termination  or if such  amount  cannot  be
determined,  the pro rata  portion  of the  bonus  paid for the  preceding  year
through the date of termination  plus an amount equal to the bonus payable for a
two year period based on the annual bonus  payable for the then current year, or
if such amount cannot be determined,  the amount of the bonus paid for the prior
year. In addition, the Company will continue to provide and to Executive, at the
Company's expense,  all benefits as enumerated in Paragraph 4 above for a period
of two years.

<PAGE>

     8. The Corporation and Employee are simultaneously herewith entering into a
Maintenance  of Confidence  and  Non-Compete  Agreement,  the terms of which are
hereby expressly incorporated into this Agreement,  provided,  however, that the
Maintenance  of  Confidence  and  Non-Compete  Agreement  shall  continue  to be
effective notwithstanding any termination of Employee?s employment hereunder and
shall continue in effect upon expiration of this Employment  Agreement  pursuant
to the terms of the Maintenance of Confidence and Non-Compete Agreement.

     9. In the event of Executive's  death during the Term, this Agreement shall
terminate  immediately,  and Executive's legal representatives shall be entitled
to receive the salary due Executive  through the last day of the calendar  month
during which his death shall have occurred.

     10.  If,  during  the  Term,  Executive  is unable to  perform  his  duties
hereunder on account of illness, accident or other physical or mental incapacity
and such  illness or other  incapacity  shall  continue  for a period of six (6)
consecutive  months or an  aggregate of one hundred and eighty (180) days in any
consecutive  twelve (12) month period,  the Corporation shall have the right, on
fifteen (15) days written  notice  (given  after such period) to  Executive,  to
terminate this Agreement.  In such event, the Corporation  shall be obligated to
pay to Executive his compensation only to the end of the calendar month in which
such termination occurs. However, if prior to the date specified in such notice,
Executive's  illness or incapacity shall have terminated and he shall have taken
up the  performance  of his duties  hereunder,  Executive  shall be  entitled to
resume his employment hereunder, as though such notice had not been given.

     11. (a) The Corporation shall have the right from time to time to purchase,
increase,  modify or terminate  insurance  policies on the life of Executive for
the  benefit  of the  Corporation,  in such  amounts  as the  Corporation  shall
determine in its sole discretion

        (b) In connection with paragraph 11(a) above, Executive shall, at such
time or times and at such place or places as the Corporation  may reasonable
 direct, submit  himself to such  physical  examinations  and  executive and
deliver such documents as the Corporation may deem necessary or desirable.

     12.  CONFIDENTIALITY.  Executive  acknowledges  that, through his status as
Vice  President,  Finance  and  Controller  of the  Corporation,  and will have,
possession of Confidential Information (as defined herein) as to the business of
the  Corporation.  Executive  agrees  that  all  such  Confidential  Information
constitutes a vital part of the business of the  Corporation  and its affiliates
and is by its nature trade secrets and confidential  information  proprietary to
the Corporation and its affiliates.  Executive agrees that he shall not divulge,
communicate,  furnish  or make  accessible  (whether  orally or in writing or in
books,  articles  or any other  medium  to any  individual,  firm,  partnership,
corporation or other entity or person, any knowledge or information with respect
to Confidential  Information  directly or indirectly relating to the business of
the Corporation or any of its affiliates.  The term  "Confidential  Information"
shall  mean  any  information  not  generally  known  in the  relevant  trade or
otherwise  not  generally  available to the public,  which was obtained from the
Corporation or which was learned, discovered,  developed,  conceived, originated
or  prepared  during  or as a  result  of the  performance  of any  services  by
Executive on behalf of the Corporation.

     13. The parties hereto acknowledge that Executive's  service are unique and
that, in the event of a breach of Executive of any of his obligations under this
Agreement, the corporation will not have an adequate remedy at law. Accordingly,
in the event of any such breach of threatened
<PAGE>

breach by Executive,  the  Corporation  shall be entitled to such  equitable and
injunctive relief as may be available to restrain the Executive participating in
such breach of threatened  breach from the violation of the provisions  thereof.
Nothing herein shall be construed as prohibiting the  Corporation  from pursuing
any other  remedies  at law or in equity for such breach or  threatened  breach,
including  the  recovery  of  damages  and  the  immediate  termination  of  the
employment of Executive hereunder.

     14.  This  Agreement  together  with  the  Maintenance  of  Confidence  and
Non-Compete  Agreement  executed on the same date hereof,  constitute the entire
agreement of the parties hereto and no amendment or modification hereof shall be
valid or binding  unless  made in writing and signed by the party  against  whom
enforcement thereof is sought.

     15. Any notice  required,  permitted or desired to be given pursuant to any
of the  provisions of this Agreement  shall be deemed to have been  sufficiently
given or served for all  purposes if  delivered  in person or sent by  certified
mail, return receipt requested, postage and fees prepaid as follows:

                If to the Corporation at:

                Chairman of the Board
                TSR,  Inc.
                400 Oser Avenue
                Hauppauge,  New York 11788

                With a copy to:

                Steven A. Fishman, Esq.
                Proskauer Rose LLP
                1585 Broadway
                New York, NY 10036

                If to the Executive at:
                Mr. John Sharkey
                Xxxxxxx xx.
                xxxxx, xx xxxxx

Either of the  parties  hereto may at any time and from time to time  change the
address to which  notice  shall be sent  hereunder  by notice to the other party
given under this paragraph 15. The date of the giving of any notice sent by mail
shall be the date of the posting of the mail.

     16. Neither this Agreement nor the right to receive any payments  hereunder
may be assigned by Executive.  This Agreement  shall be binding upon  Executive,
his heirs, executors and administrators and upon the Corporation, its successors
and assigns.

<PAGE>
     17. No course of dealing  nor any delay on the part of the  Corporation  in
exercising any rights hereunder shall operate as a waiver of any such rights. No
waiver of any default or breach of this  Agreement  shall be deemed a continuing
waiver or a waiver of any other breach or default.
<PAGE>

     18.  This  Agreement  shall  be  governed,  interpreted  and  construed  in
accordance  with  the  laws of the Sate of New  York  applicable  to  agreements
entered into and to be performed entirely therein.

     19. If any clause,  paragraph,  section of part of this Agreement  shall be
held or declared to be void, invalid or illegal, for any reason, by any court of
competent jurisdiction, such provision shall be ineffective but shall not in any
way  invalidate or affect any other clause,  paragraph,  section or part of this
Agreement.

     20.  Employee  acknowledges  that he is not subject to any agreement  which
would in any way restrict him from carrying out his  employment as  contemplated
hereunder.

     21. This agreement supersedes any prior employment agreement.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed as of the day in year first above written.

                        TSR, INC.

                        By:     /s/ J. F. HUGHES
                                ------------------------------------
                                Name: J.F. Hughes
                                Title: President

                                /s/ JOHN G. SHARKEY
                                -----------------------------------
                                John G. Sharkey

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