Document:

ex10_25.htm

    Exhibit
10.25

     

    FORWARD
AIR CORPORATION

    

    AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR STOCK
PLAN

    

    

    SECTION 1.  Establishment; Purpose.

    

    Effective May 24, 2006, Forward Air
Corporation, a Tennessee corporation (the “Company”), established and
currently maintains the 2006 Non-Employee Director Stock Plan (the “2006 NED Plan”) to attract
and retain well-qualified persons for service as directors of the Company and to
provide directors with an opportunity to increase their ownership interest in
the Company and, thereby, increase their personal interest in the Company’s
continued success.  The Company’s Board of Directors (the “Board”) now finds it
desirable and in the best interests of the Company and its shareholders to amend
and restate the 2006 NED Plan as set forth herein and to be known hereafter as
the Amended and Restated Non-Employee Director Stock Plan (the “Plan”).  The Plan,
upon its approval by the Company’s shareholders, shall be a continuation of the
2006 NED Plan under these amended and restated terms.

    

    Under the Plan, the Company may grant
non-employee directors equity compensation in the from of restricted shares (the
“Restricted Shares”) of
the $0.01 par value common stock of the Company (the “Common Stock”), unrestricted
shares of Common Stock (the “Unrestricted Shares” and,
together with the Restricted Shares, the “Award Shares”), and
nonstatutory stock options (the “Options”) for the purchase of
Common Stock (all such grants are referred to individually as an “Award” and collectively as
“Awards”).

    

    SECTION 2.
Administration.

    

    Responsibility and authority to
administer and interpret the provisions of the Plan shall be conferred upon the
Board.  The Board shall, subject to the provisions of the Plan, have
the power to construe the Plan, to determine all questions arising thereunder
and to adopt and amend rules and regulations for the administration of the
Plan.  Without limiting the foregoing, the Board shall have the
discretion to determine the form, size, timing and vesting of Awards, and such
discretion may be exercised with respect to future or then-outstanding Awards
and need not be exercised uniformly among all directors.  The Board
may employ attorneys, consultants, accountants or other persons, and the Board,
the Company and its officers shall be entitled to rely upon the advice, opinions
or valuations of any such persons.  All usual and reasonable expenses
of the Board shall be paid by the Company.  All actions taken and all
interpretations and determinations made by the Board in good faith shall be
final and binding upon all recipients who have received Awards, the Company and
other interested persons.  No member of the Board shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan or Awards made hereunder, and all members of the
Board shall be fully indemnified and protected by the Company in respect of any
such action, determination or interpretation.

    

    SECTION 3.
Shares of Common Stock Subject
to the Plan.

    

    (a)           Number of Shares Issuable
Under the Plan.  Subject to Section 3(b), up to 200,000 shares
of Common Stock may be issued with respect to grants of Awards under the Plan
(inclusive of Awards granted under the 2006 NED Plan prior to its amendment and
restatement herein).  In the event that any Awards, or portions of an
Award, granted under the Plan, or Stock Units credited to a bookkeeping reserve
account with respect to deferred Award Shares, terminate unexercised or are
canceled, surrendered or forfeited for any reason, then the number of Award
Shares and Stock Units or the number of shares underlying the Options which
terminated unexercised or were canceled, surrendered or forfeited shall be added
to the remaining number of shares of Common Stock for which Awards may be issued
under the Plan.

    

    (b)           Adjustments.  The
Board shall appropriately adjust the exercise price of outstanding Options and
the maximum number and kind of shares subject to the Plan, Stock Units credited
under the Plan, outstanding Awards and subsequent Awards in the event of
reorganization, recapitalization, stock split, reverse stock split, stock
dividend, exchange or combination of shares, merger, consolidation, rights
offering or any change in capitalization of the Company.

    

    (c)           Source of
Shares.  The Common Stock issued under the Plan will come from
authorized but unissued shares of Common Stock, treasury shares, purchases by
the Company on the open market or from any other proper source.  The
Company will set aside and reserve for issuance under the Plan the number of
shares set forth in Section 3(a), as adjusted.

    

    SECTION 4.
Eligibility.

    

    All directors of the Company who are
neither employees of the Company nor officers of the Company shall be eligible
participants in the Plan.

    

    SECTION 5.
Grants of
Awards.

    

    (a)           Annual
Grants.  Each individual who serves as a director of the
Company and is, on the grant date, an eligible participant shall automatically
be granted an Award, in such form and size as the Board determines from year to
year (the “Annual
Grant”), on the first business day after each Annual Meeting of
Shareholders of the Company at which directors are elected (an “Annual Meeting”).  Each
Annual Grant shall be evidenced by a written agreement or other evidence of
issuance (an “Award
Agreement”) in such form acceptable to the Company and not inconsistent
with the terms and conditions specified in the Plan.

    

    (b)           Pro-Rata
Grants.  Each person who first becomes an eligible director on
a date other than the date of an Annual Meeting shall receive, within 30 days of
the date such person is appointed as or first becomes a non-employee director, a
pro-rata grant of a number of Award Shares or Options, depending on the form of
Annual Grant granted on the first business day following the last preceding
Annual Meeting (the “Preceding
Annual Grant”), equal to the number, rounded up to the nearest whole
number, determined by multiplying the shares underlying the Preceding Annual
Grant by a fraction, (i) the numerator of which is the number of whole and
partial months during the period measured from the date of appointment as an
eligible director until the next following May 1st, and (ii) the
denominator of which is 12.

    

    SECTION 6.  Terms and Conditions of
Award Shares.

    

    Award
Shares may be granted with or without restrictions.  The terms and
conditions of such Awards shall be as set forth below.

    

    (a)           Unrestricted
Shares.  Unrestricted Shares are vested, nonforfeitable and
freely transferable when granted under the Plan.

    

    (b)           Restricted
Shares.

    

    (i)           Vesting.  Restricted
Shares are nonvested and forfeitable when granted under the
Plan.  Unless otherwise determined by the Board, Restricted Shares
shall become vested and nonforfeitable one year after the date of grant so long
as the director’s service with the Company has not earlier
terminated.  If the director’s service with the Company terminates due
to death or total disability, the Restricted Shares that have not previously
become vested and nonforfeitable shall become vested and nonforfeitable as of
the date that the director’s service with the Company so
terminates.  If the director’s service with the Company terminates for
any reason other than death or total disability, then, unless the Board
determines otherwise, all Restricted Shares that are not then vested and
nonforfeitable will be immediately forfeited by the director and transferred to
the Company upon such termination at no cost to the Company.

    

    (ii)           Restrictions on
Transfer.  Until the Restricted Shares become vested and
nonforfeitable, the Restricted Shares may not be assigned, transferred, pledged,
hypothecated or disposed of in any way (whether by operation of law or
otherwise), except by will or the laws of descent and distribution, and shall
not be subject to execution, attachment or similar process.  The
Company shall not be required to (i) transfer on its books any Restricted
Shares that have been sold or transferred in contravention of the Plan or
(ii) treat as the owner of shares, or otherwise accord voting, dividend,
distribution or liquidation rights to, any transferee to whom Restricted Shares
have been transferred in contravention of the Plan.

    

    (iii)           Shareholder Rights; Share
Certificates.  Each participating director shall be reflected
on the Company’s books as the owner of record of the Restricted Shares as of the
date of grant and shall possess all incidents of ownership of such shares,
subject to Section 6(b)(ii), including the right to receive cash dividends
with respect to such shares and to vote such shares; provided, that shares of
Common Stock distributed in connection with a stock split or stock dividend
shall be subject to restrictions on transfer and a risk of forfeiture to the
same extent as the Restricted Shares with respect to which such shares are
distributed.  The Company will hold the share certificates for
safekeeping, or otherwise retain the shares in uncertificated book entry form,
until the Restricted Shares become vested and nonforfeitable.  Until
the Restricted Shares become vested and nonforfeitable, any share certificates
representing such shares will include a legend to the effect that the director
may not sell, assign, transfer, pledge or hypothecate the Restricted
Shares.  All regular cash dividends on the Restricted Shares held by
the Company will be paid directly to the director.  As soon as
practicable after vesting of the Restricted Shares, the Company will deliver a
share certificate to the director, or deliver shares electronically or in
certificate form to the director’s designated broker on the director’s behalf,
for such vested Restricted Shares.

    

    SECTION 7.
Terms and Conditions of
Options.

    

    (a)           Exercisability.  Unless
the Board determines otherwise, the Options shall become exercisable one year
after the date of grant so long as the director’s service with the Company has
not earlier terminated.  Once an Option has become exercisable, it
shall remain exercisable, to the extent not exercised, until its expiration date
or earlier termination pursuant to Section 7(b).

    

    (b)           Post-Termination
Exercise.  If a director’s service with the Company terminates
due to the director’s death or total disability, the outstanding Options granted
to such director shall become exercisable in full and shall remain exercisable
for a period of one year thereafter but not beyond their expiration
date.  If a director’s service with the Company terminates for any
other reason, unless the Board determines otherwise, all Options granted to such
director which are not then exercisable shall be canceled and the remaining
Options shall continue to be exercisable for 90 days thereafter but not beyond
their expiration date.

    

    (c)           Exercise
Price.  The exercise price per share for each Option granted
under the Plan shall be 100% of the Fair Market Value (as defined below) of a
share of Common Stock as of the date of grant.  “Fair Market Value” as of a
given date for purposes of the Plan and any Award Agreement means (i) the
closing sale price for the shares on The NASDAQ Stock Market or any national
exchange on which shares of Common Stock are traded on such date (or if such
market or exchange was not open for trading on such date or no shares of Common
Stock traded on that day but were listed for trade, the next preceding date on
which it was open and the shares of Common Stock did trade); or (ii) if the
Common Stock is not listed on The NASDAQ Stock Market or on an established and
recognized exchange, such value as the Board, in good faith, shall determine
based on such relevant facts, which may include opinions of independent experts,
as may be available to the Board.

    

    (d)           Method of
Exercise.  Unless the Board determines otherwise, payment of
the exercise price shall be in cash, in shares of Common Stock valued at their
Fair Market Value on the date of exercise, or both, as elected by the
director.

    

    (e)           Restrictions on
Transfer.  The Options shall be exercisable only by the
director during his or her lifetime and may not be transferred other than by
will or the laws of descent and distribution unless the Board determines
otherwise.

    

    (f)           Expiration of the
Options.  The Options shall expire, if not sooner exercised or
terminated, as of such date determined by the Board and set forth in the
applicable Award Agreement; provided, however, that no Option shall expire later
than 10 years after its date of grant.

    

    SECTION 8.
Deferral of Award
Shares.

    

    (a)           Deferral of Award
Shares.  Directors may elect to defer receipt of Award Shares
in accordance with the election procedures set forth below.  If a
director elects to defer the receipt of Award Shares, the number of Award Shares
deferred shall be credited as Stock Units to a bookkeeping reserve account
established for the director under the Plan as of the date that the Award Shares
otherwise would have been issued to the director.  Each Stock Unit
shall represent the right to receive one share of Common Stock when the director
incurs a separation from service with the Company (a “Separation From Service”)
within the meaning of Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”),
provided that the Stock Unit is or has become vested and nonforfeitable on or
before such date.  Stock Units representing deferred Restricted Shares
shall become vested and nonforfeitable at the same time and subject to the same
conditions as the corresponding Restricted Shares to which they relate would
have become vested and nonforfeitable but for their deferral of
issuance.

    

    (b)           Settlement of Stock
Units.  Except as provided in Section 9(a), all vested Stock
Units shall be settled upon the date that the director incurs a Separation From
Service with the Company or as soon as practicable thereafter but in no event
later than the close of the calendar year in which the Separation From Service
occurs or such later date as may be permitted under Section 409A of the
Code.  Except as provided in Section 9(a), all vested Stock Units
shall be settled in the form of shares of Common Stock issued to the director or
the director’s estate as applicable, provided that any vested fractional Stock
Units credited to a director’s bookkeeping reserve account shall be settled in
cash.  If the director’s service with the Company terminates for any
reason other than death or total disability, all Stock Units that are not then
vested will be immediately forfeited by the director.

    

    (c)           Deferral Election
Procedures.  All deferral elections shall be made in accordance
with the following procedures:

    

    (i)           An
election pursuant to Section 8(a) shall be made by the director by
executing and delivering a deferral agreement, in the form approved by the
Company, to the Secretary of the Company.  The deferral agreement
shall become effective with respect to such director as of the first day of
January following the date such deferral agreement is received by the Secretary
of the Company, except as otherwise provided below.  In the case of
the first year in which a director becomes eligible to participate in the Plan,
the director may execute and deliver a deferral agreement to the Secretary of
the Company before or within 30 days after the date the individual becomes
an eligible director.  If a newly eligible director delivers a
deferral agreement after, but within 30 days of, the date of appointment as a
director, the deferral agreement will apply, solely with respect to the first
grant of Award Shares received by the director after such appointment, to a
number of Award Shares equal to (A) the Award Shares granted in such first grant
minus (B) one-twelfth (1/12) times, as applicable, either the number of shares
awarded under the Annual Grant if the individual first becomes an eligible
director on the date of an Annual Meeting or the number of shares awarded under
the Preceding Annual Grant if the individual first becomes an eligible director
on a date other than the date of an Annual Meeting.  If a newly
eligible director delivers a deferral agreement on or before the date of
appointment, the deferral agreement will apply to the entire first grant of
Award Shares received by the director after such appointment.  A
director’s election shall continue in effect, unless earlier modified by the
director, until the director no longer serves as a director of the Company or,
if earlier, until the director ceases to participate in the Plan.

    

    (ii)           A
director may unilaterally modify a deferral agreement (either to terminate,
increase or decrease the portion of the director’s future grants of Award Shares
which are subject to deferral) by providing a written modification of the
deferral agreement, in a form approved by the Company, to the Secretary of the
Company.  The modification shall become effective as of the first day
of January following the date such written modification is received by the
Secretary of the Company.

    

    (iii)           The
Board may from time to time establish policies or rules consistent with the
requirements of Section 409A of the Code, to govern the manner in which
deferrals of Award Shares may be made.

    

    (d)           Rights in Respect of
Deferred Award Shares.  Award Shares that are deferred shall
not represent an actual ownership in shares of Common Stock and the director
shall have no voting or other rights as a shareholder in respect of Stock Units
credited to the director’s bookkeeping reserve account.  On each cash
dividend payment date with respect to shares of Common Stock, each director who
has Stock Units credited to a bookkeeping reserve account under the Plan on the
record date for such dividend shall have credited to such account, as a dividend
equivalent payment, additional Stock Units which shall be fully
vested.  The number of additional Stock Units to be so credited shall
equal: (i) the product of (x) the per-share cash dividend payable,
multiplied by (y) the total number of Stock Units which have not been
settled or forfeited as of the record date for such dividend, divided by
(ii) the Fair Market Value (as defined in Section 7(c)) of one share
of Common Stock on the payment date of such dividend.  If the unit
holder’s Stock Units have been settled after the record date but prior to the
dividend payment date, any Stock Units that would be credited pursuant to the
preceding sentence shall be settled on or as soon as practicable after the
dividend payment date.

    

    (e)           Transferability of
Rights.  No director shall have the right to assign any right
or interest in any Stock Unit or shares of Common Stock subject to a Stock Unit,
or to cause or permit any encumbrance, pledge or charge of any nature to be
imposed on any such Stock Unit or shares of Common Stock so deferred or any such
right or interest, other than by will or the laws of descent and
distribution.

    

    SECTION 9.  Change in
Control.

    

    (a)           Acceleration of Vesting,
Exercisability, and Award Termination upon Change in
Control.  In the event of a “Change in Control” (as defined
below), (1) all Restricted Shares, Options and Stock Units awarded under
the Plan not previously vested, exercisable and nonforfeitable shall become
fully vested, exercisable and nonforfeitable as of the date of, and immediately
before, such Change in Control; (2) all outstanding Options not exercised
prior to or upon the Change in Control will terminate at the effective time of
such Change in Control unless provision is made in connection with the
transaction for the continuation, assumption or settlement of such Options by,
or for the substitution of equivalent options of, the surviving or successor
entity or a parent thereof; and (3) all Stock Units credited to accounts as
of the Change in Control will be settled in shares or in cash at the discretion
of the Board upon the Change in Control or as soon as practicable thereafter but
in no event later than the close of the calendar year in which the Change in
Control occurs.

    

    (b)           Definition of Change in
Control.  For purposes of this Section 9, a “Change in Control” means the
earliest to occur of any of the following events, construed in accordance with
Section 409A of the Code:

    

    (i)           Any
one Person or more than one Person Acting as a Group (each as defined in this
Section 9(b)) acquires, or has acquired during the 12-month period ending
on the date of the most recent acquisition by such Person or Group, beneficial
ownership of more than a majority of the total fair market value or total voting
power of the Company’s then-outstanding securities;

    

    (ii)           Any
one Person or more than one Person Acting as a Group (each as defined in this
Section 9(b)) acquires, or has acquired during the 12-month period ending
on the date of the most recent acquisition by such Person or Group, assets of
the Company that have a total gross fair market value (as determined by the
Board) of 75% or more of the total gross fair market value of all of the assets
of the Company immediately prior to the initiation of the acquisition;
or

    

    (iii)           A
majority of the members of the Board is replaced during any 12-month period by
directors whose appointment or election is not endorsed or approved by at least
two-thirds of the members of the Board who were members of the Board prior to
the initiation of the replacement.

    

    For
purposes of this Section 9(b), a “Person” means any individual,
entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended, other than (A) the Company,
(B) any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or (C) any corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company.  Persons will
be considered to be “Acting as
a Group” (or a “Group”) if they are owners of
a corporation that enters into a merger, consolidation, purchase or acquisition
of stock, or similar business transaction with the corporation.  If a
Person owns stock in both corporations that enter into a merger, consolidation,
purchase or acquisition of stock, or similar transaction, such shareholder is
considered to be Acting as a Group with other shareholders only with respect to
the ownership in that corporation before the transaction giving rise to the
change and not with respect to the ownership interest in the other
corporation.  Persons will not be considered to be Acting as a Group
solely because they purchase assets of the same corporation at the same time or
purchase or own stock of the same corporation at the same time, or as a result
of the same public offering.

    

    For
purposes of this Section 9(b), Section 318(a) of the Code applies to
determine stock ownership.  Stock underlying a vested option is
considered owned by the individual who holds the vested option (and the stock
underlying an unvested option is not considered owned by the individual who
holds the unvested option).  For purposes of the preceding sentence,
however, if a vested option is exercisable for stock that is not substantially
vested (as defined by Treasury Regulation Section 1.83-3(b) and (j)), the
stock underlying the option is not treated as owned by the individual who holds
the option.

    

    SECTION 10.
Amendment or
Discontinuance.

    

    The Board may amend, suspend or
terminate the Plan or any portion thereof at any time as it determines
appropriate, without further action by the Company’s shareholders, except to the
extent required by applicable law or by any stock exchanges upon which the
Common Stock may be listed; provided, however, that no action of the Board to
amend, suspend or terminate the Plan may impair a director’s rights with respect
to any Awards or Stock Units previously made under the Plan without the
director’s consent.  Notwithstanding the foregoing, the Plan may be
amended by the Board at any time, retroactively if required in the opinion of
the Company, in order to ensure that the Plan complies with the requirements of
Section 409A of the Code.  No such amendment shall be considered
prejudicial to any interest of a director.

    

    SECTION 11.
Effective Date and Term of
Plan.

    

    The Plan as herein amended and
restated shall become effective on the day after the date of the 2007 Annual
Meeting of Shareholders of the Company, subject to the approval of a majority of
the shareholders of the Company.  Unless sooner terminated by the
Board, the Plan shall continue in effect indefinitely until all shares of Common
Stock approved for issuance under the Plan by the shareholders of the Company
have been issued.  Awards and Stock Units granted prior to termination
of the Plan shall, notwithstanding termination of the Plan, continue to be
effective and shall be governed by the Plan.

    

    SECTION 12.  Continuation of Director or Other
Status.

    

    Nothing in the Plan or in any
instrument executed pursuant to the Plan or any action taken pursuant to the
Plan shall be construed as creating or constituting evidence of any agreement or
understanding, express or implied, that the Company will retain a participant as
a director or in any other capacity for any period of time or at a particular
retainer or other rate of compensation, as conferring upon any participant any
legal or other right to continue as a director or in any other capacity, or as
limiting, interfering with or otherwise affecting the provisions of the
Company’s charter, bylaws or the Tennessee Business Corporation Act relating to
the removal of directors.

    

    SECTION 13.  The Company’s
Rights.

    

    The existence of the Plan, grants of
Awards, or crediting of Stock Units shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company’s capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or other stocks with
preference ahead of or convertible into, or otherwise affecting the Common Stock
or the rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of the Company’s assets or business, or any
other corporate act or proceeding, whether of a similar character or
otherwise.

    

    SECTION 14.  No Trust or Fund
Created.

    

    Neither the Plan nor any Awards or
crediting of Stock Units to a bookkeeping reserve account shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a director or any other
person.  To the extent that any director or other person acquires a
right to receive payments from the Company pursuant to the Plan, such right
shall be no greater than the right of any unsecured general creditor of the
Company.

    

    SECTION 15.
Governing
Law.

    

    The Plan and all determinations made
and actions taken pursuant to the Plan shall be governed by the laws of the
State of Tennessee pertaining to contracts made and to be performed wholly
within such jurisdiction.

    

    SECTION 16.  409A Savings
Clause.

    

    (a)           It
is intended that the Plan comply with Section 409A of the
Code.  The Plan shall be administered, interpreted and construed in a
manner consistent with such Section.  Should any provision of the Plan
not comply with Section 409A of the Code, that provision shall be modified and
given effect, in the sole discretion of the Board and without requiring consent
of any Award holder, in such manner as the Board determines to be necessary or
appropriate to comply with Section 409A of the Code.

    

    (b)           In
the event that a holder of Stock Units is a “specified employee” upon
“separation of service” (each within the meaning of Section 409A of the Code as
determined in good faith by the Board), settlement of any Stock Units, the
settlement of which is triggered by the occurrence of the separation from
service, will be delayed until the first business day after the expiration of
six months following the date of the separation from service.

    

    SECTION 17.  Compliance with
Laws.

     

    To the
extent the Company is unable to or the Board deems it infeasible to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company’s counsel to be necessary to the lawful issuance of any
shares under the Plan, the Company shall be relieved of any liability with
respect to the failure to issue such shares as to which such requisite authority
shall not have been obtained.[LETTERHEAD OF ESPEY MFG. & ELECTRONICS CORP.]

              SECOND AMENDED AND RESTATED HOWARD PINSLEY AGREEMENT

AGREEMENT dated as of February 20, 2009, by and between Espey Mfg. & Electronics
Corp.,  a New York  corporation  having its  principal  place of business at 233
Ballston  Avenue,  Saratoga  Springs,  New York 12866 (the "Company") and Howard
Pinsley, an individual residing at 5 Longwood Drive, Saratoga Springs, New York,
12866 (the "Employee").

WHEREAS,  the Employee has been a valued employee of the Company for many years,
and is now President and Chief Executive Officer of the Company;

WHEREAS,  the Board of Directors of the Company wish to amend and restate  again
the terms of an  agreement  originally  dated as of May 25, 2006 and amended and
restated  as of August 17,  2007,  providing  for  transitional  services by the
Employee incidental to his succession as Chief Executive Officer of the Company;

NOW, THEREFORE,  in consideration of the mutual promises and covenants set forth
herein, the parties agree as follows:

         1.  RESIGNATION  OR  TERMINATION.  Upon the  Employee's  resignation or
             ----------------------------
         termination as Chief Executive  Officer during the Term (as hereinafter
         defined) of this  Agreement,  the Employee shall become a non-executive
         officer of the Company for a period of thirty-six  (36) months from the
         date of such resignation or termination.

         2. COMPENSATION AND DUTIES. In consideration of the Employee's services
         for a period equivalent to ten (10) days a month,  based upon a regular
         work week of four (4) days,  after his  resignation  or  termination as
         Chief Executive Officer,  his agreement to perform duties as reasonably
         requested by the Company and his compliance with paragraph 5 herein, it
         is agreed as follows:

                  (A) The Employee  shall receive  $16,000 a month,  and, to the
         extent  permissible,  all  benefits  being  received at the time of his
         resignation or termination as Chief  Executive  Officer for a period of
         three months, after the date of resignation or termination.

                  (B) At the  end of the  above  three  months,  the  Employee's
         compensation   will  change  to  $6,666.67   per  month  for  the  next
         consecutive  33 months,  and he shall  receive all current  benefits as
         above.  The Employee  shall be eligible to  participate,  to the extent
         permissible,  in new  benefits  should they occur during this period of
         time.  For ESOP and all other  benefit  purposes,  the  Employee  shall
         continue to be treated as a full-time  employee for the duration of the
         Agreement to the extent  permissible  and consistent  with the terms of
         the ESOP and all applicable laws.

                  (C)  It is  agreed  that  the  Employee  shall  be  reasonably
         available by telephone or otherwise to render  advice and counsel,  but
         need not be  physically  present at the Company's  offices,  unless his
         physical  presence is reasonably  requested by the Company.  Should the
         employee be required to engage in any  activity not within the scope of
         this  agreement,  he shall be  reimbursed,  in  addition to his monthly
         salary,  at an  hourly  rate to be  mutually  agreed  upon  between  an
         authorized representative of the Company and himself.

                  (D) If the Employee  dies either  during the Term,  before his
         resignation or termination as Chief Executive Officer, or during the 36
         month period after his transitional services become effective following
         such resignation or termination, the compensation payments provided for
         in Sections 2 (A) and

                                       25
<PAGE>

         (B) will be paid, as scheduled,  to the Employee's estate. In the event
         of the Employee's death, all other benefits shall cease at death.

                  (E) The compensation  and benefits payable  hereunder shall be
         the Employee's sole and exclusive entitlement following his resignation
         or termination as Chief Executive Officer.

         3. EXPENSES.  If the Employee is requested by the Company, at any point
         -  --------
         while he is receiving payments under paragraphs (A) or (B) of Section 2
         of this Agreement,  to return to Saratoga Springs,  and the Employee is
         then not in the  Saratoga  Springs  area,  the  Company  shall  pay the
         reasonable  transportation  costs  for  the  Employee  to  return.  The
         Employee  shall  not be  reimbursed  for any other  expenses  hereunder
         unless the Employee and the Company so agree with respect to a specific
         expense.

         4. TERM.  This  Agreement  shall  continue in effect until December 31,
         -  ----
         2011 at which time this  Agreement  shall  terminate  (the "Term").  If
         during  the  Term,  the  Employee  resigns  or is  terminated  as Chief
         Executive Officer of the Company, then the provisions of this Agreement
         shall  continue in effect  during the 36 month  period  following  such
         resignation or termination and as provided in Section 5 below.

         5. RESTRICTIVE COVENANT: CONFIDENTIAL INFORMATION.
         -  ----------------------------------------------

                  (A) The Employee agrees that during the Term of this Agreement
         and for a period of five (5) years thereafter, he shall not directly or
         indirectly, on behalf of himself or on behalf of any other corporation,
         person or entity other than the Company,  compete or interfere with the
         Company,  render any services to, consult for,  contract with or become
         an employee,  officer, director,  partner, member, or (except as a five
         percent (5%) or less  shareholder of any publicly traded company) owner
         or  shareholder  of,  any  individual  or entity  which  engages in the
         Company's business or which otherwise competes with the Company.

                  (B) The Employee  recognizes and  acknowledges  that there has
         been made available to him confidential  information concerning matters
         affecting  or  relating  to the  products,  services or business of the
         Company, its subsidiaries,  or affiliates,  including,  but not limited
         to,  intellectual  property,   technology,   proprietary   information,
         customer   lists   and   other   financial   information,   contractual
         relationships,   past  or  contemplated  actions,   personnel  matters,
         marketing  or  sales  data  and  written  or  oral   communications  or
         understandings of any sort of the Company or of any of its customers in
         either tangible or intangible form  ("Confidential  Information").  The
         Employee  further  recognizes and acknowledges  that this  Confidential
         Information  as it may exist from time to time  belongs to the  Company
         and is a valuable,  special and unique asset of the Company's business.
         The Employee will not, during or after the Term of this  Agreement,  at
         any time, directly or indirectly,  divulge, disclose or communicate any
         Confidential Information to any person, firm, corporations, association
         or other entity for any reason or purpose whatsoever.

         The  Employee  will  promptly  deliver to the Company all copies of all
         Confidential  Information  and all material of any nature  belonging to
         the  Company,  and the  Employee  will  not  take  with  him  any  such
         Confidential  Information,  materials or  reproductions  thereof or any
         proprietary information of the Company in tangible or intangible form.

         6.  MISCELLANEOUS.  Not withstanding any provision in this Agreement to
         -   -------------
         the  contrary,  if during the Term of this  Agreement  the  Employee is
         terminated  from the  Company  for good and  sufficient  cause then all
         payments and benefits  provided herein shall  immediately  cease unless
         the  Employee  seeks  Arbitration  pursuant to Section 14.  Arbitration
         herein in which case such payments and benefits  shall  continue  until
         the arbitrator has made an award or decision. Good and sufficient cause
         shall  mean:  (a) willful  misconduct  with  respect to the  reasonable
         directions  of  the  Board;  (b)  conviction  of a  crime  or  indecent
         exposure;  or (c) gross negligence or malfeasance in the performance of
         his obligations hereunder.

         7.  SUCCESSOR  AND ASSIGNS.  This  Agreement  shall be binding upon and
         -   ----------------------
         insure to the benefit of the parties hereto, and their respective legal
         representatives, heirs, successors and assigns.

         8. NOTICES. Any notices,  consents or information required or requested
         -  -------
         or  permitted  by this  Agreement  shall be sent to the  parties at the
         addresses shown above, unless such address is changed by written notice
         hereunder.

                                       26
<PAGE>

         9.  SEVERABILITY.  In the event any provision of this  Agreement or any
         -   ------------
         portion  thereof  shall be  deemed  invalid  or  unenforceable  for any
         reason,  that  portion or provision  shall be deemed  excised from this
         Agreement  and  this  Agreement  shall  be  governed,  interpreted  and
         enforced in all respects as if such invalid or unenforceable  provision
         were originally omitted from this Agreement.

         10.  WAIVER.  The waiver of any party of a breach of any  provision  of
         --   ------
         this Agreement  shall not operate as or be construed as a waiver of any
         subsequent breach.

         11. GOVERNING LAW. This Agreement shall be governed by and construed in
         --  -------------
         accordance with the laws of the State of New York.

         12. HEADINGS.  The descriptive  headings used in this Agreement are for
         --  --------
         purposes  of  convenience  only  and do not  constitute  a part of this
         Agreement.

         13. ENTIRE AGREEMENT.  This Agreement is the entire Agreement among the
         --  ----------------
         parties  regarding the subject matter hereof,  and supersedes any prior
         agreements or discussions.

         14.  ARBITRATION.  Any claim,  controversy or dispute arising out of or
         --   -----------
         relating to this Agreement,  or the breach thereof, shall be settled by
         final and binding  arbitration before a single arbitrator in accordance
         with the rules of the American  arbitration  Association,  and judgment
         upon the award or decision rendered by the arbitrator may be entered in
         a Court. Any such arbitration shall be held in New York and the parties
         to this Agreement shall be equally the costs of the arbitrator.

         This  AGREEMENT may not be altered or amended  except in writing signed
         by both parties.  In the event of any conflict  between this  Agreement
         and the terms of any of the Company's employment policies,  manuals, or
         other  statements  regarding  employment  generally,  now  existing  or
         hereafter promulgated, the terms of the Agreement shall control.

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

                                              ESPEY MFG. & ELECTRONICS CORP.

                                              By:
                                                       -------------------------

                                              Name:     David O'Neil
                                                       -------------------------

                                              Title:    Treasurer
                                                       -------------------------

                                              Employee:
                                                       -------------------------
                                                        Howard Pinsley

                                       27

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