Employment Agreement

EMPLOYMENT AGREEMENT


This Agreement is entered into as of May 12, 2005 by and between Albany International Corp. (the "Company") and Joseph G. Morone ("Executive").


1. Duties and Scope of Employment.


(a) Positions and Duties. Commencing on the Effective Date, Executive will serve as President of the Company, reporting to the Company's Chief Executive Officer. Commencing on January 1, 2006, Executive will serve as President and Chief Executive Officer, reporting to the Company's Board of Directors (the "Board"). The Effective Date will be such date during the period from July 1, 2005 through September 1, 2005 as Executive shall designate by at least ten days' notice to the Chief Executive Officer of the Company. The period during which Executive is employed by the Company under this Agreement is referred to herein as the "Employment Term". During the Employment Term, Executive will render such business and professional services in the performance of his duties, consistent with Executive's position within the Company, as may reasonably be assigned to him by the Chief Executive Officer, prior to January 1, 2006, and by the Board after such date.


(b) Obligations. During the Employment Term, Executive will devote Executive's full business efforts to the Company and will use good faith efforts to discharge Executive's obligations under this Agreement to the best of Executive's ability. For the duration of the Employment Term, Executive agrees not to serve as a director for any for-profit entity or organization or actively engage in any employment, occupation, or consulting activity for any direct or indirect remuneration without the prior approval of the Board, in its sole discretion; provided, however, that Executive may, without the approval of the Board, (i) serve in any capacity with any civic, educational, or charitable organization, and (ii) continue to serve on the Board of Directors of Transworld Entertainment Corporation (and committees of such Board); in each case, provided such services do not interfere with Executive's obligations to the Company.


2. Term of Agreement; At-Will Employment. Executive and the Company agree that Executive's employment with the Company constitutes "at-will" employment. Executive and the Company acknowledge that, subject to the provisions of Sections 5, 6, 7 and 8 of this Agreement, Executive's employment relationship with the Company may be terminated at any time, upon written notice to the other party, with or without good cause, at the option either of the Company or Executive.


3. Compensation.


(a) Base Salary. Commencing on the Effective Date, the Company will pay Executive an annual salary of $600,000 as compensation for his services (such annual salary, as is then effective, to be referred to herein as "Base Salary"). The Base Salary will be paid periodically in accordance with the Company's normal payroll practices and be subject to standard and customary withholdings. Executive's salary will be subject to review by the Compensation Committee of the Board, or any successor thereto (the "Committee"), at least annually, and adjustments will be made in the discretion of the Committee.


(b) Annual Bonus. Executive will be eligible for a cash bonus for 2005 under the Company's existing annual cash bonus program for senior management, to be determined and paid during early 2006. Under this program, Executive's 2005 target bonus will be equal to 50% of his actual 2005 base compensation, pro-rated for the portion of the year during which he is actually employed. (For example, if the Effective Date is September 1, 2005, the target amount would be $100,000 [50% of $600,000 x 4/12] ). The Compensation Committee of the Company's Board of


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Directors has determined that 2005 senior management bonuses will be based on Company performance with respect to operating income, share of market and management of inventories and accounts receivable. The Committee retains the right to exercise its discretion, after the end of 2005, as in prior years, to determine to what extent the cash bonuses of Executive and the other executive officers are earned, and reserves the right to take individual performance factors into account, and to employ subjective and objective criteria. Executive will be eligible thereafter to participate in any annual executive cash bonus program, as the same may be amended, modified or terminated by the Company, in accordance with its terms. Target bonuses in future periods will be at the discretion of the Compensation Committee.


(c) Restricted Stock Units. Executive will receive, as of the Effective Date, a grant of 30,000 stock units under the Company's Restricted Stock Unit Plan, pursuant to the form of Restricted Stock Unit Award attached to this Agreement as Exhibit A.


(d) Initial Payment. On the Effective Date, Executive will receive a one-time cash payment (the "Initial Payment") in the amount of $425,000 which amount shall be reduced by any amount paid or payable to Executive with respect to the "Deferred Compensation Agreement" between Executive and Bentley College.


(e) Relocation. Executive will be entitled to benefits provided pursuant to the Company's Relocation Policy, a copy of which has been provided to the Executive.


(f) Perquisites. Executive will be eligible to receive such perquisites as are from time-to-time made generally available to senior executives of the Company. Such perquisites currently include financial planning assistance from AYCO and subsidies for country-club membership, but do not include Company cars.


4. Employee Benefits and Policies. Executive will be entitled to two weeks of vacation with pay during the remainder of 2005, and thereafter will be entitled to four weeks of vacation per calendar year, unless the Company's then-current vacation policy applicable to executive officers provides for a greater period. In addition, Executive will be eligible to participate in all of the Company's employee benefit plans, policies, and arrangements that are applicable to other executive officers of the Company (including, without limitation, 401(k), health care, vision, dental, life insurance and disability), as such plans, policies, and arrangements may exist from time to time.


5. Termination of Employment. In the event Executive's employment with the Company terminates for any reason, Executive will be entitled to any (a) unpaid Base Salary accrued to the effective date of termination, (b) unpaid but earned and accrued annual cash bonus for the portion of the year in which the termination of employment occurs and for any completed prior year for which the annual cash bonus has not been paid, (c) pay for accrued but unused vacation to which the Executive is entitled calculated in accordance with the Company's vacation policy, (d) benefits or compensation required to be provided after termination pursuant to, and in accordance with the terms of, any employee benefit plans, policies or arrangements applicable to Executive, (e) unreimbursed business expenses incurred prior to termination and required to be reimbursed to Executive pursuant to the Company's policy, and (f) any rights to indemnification to which Executive may be entitled under the Company's Articles of Incorporation, Bylaws, or separate indemnification agreement, as applicable. In addition, if the termination is by the Company without Cause, Executive will be entitled to the amounts and benefits specified in Section 6.


6. Severance. If Executive's employment is terminated by the Company without Cause, Executive will receive an amount equal to twice the Base Salary of Executive at the time of termination, payable in 24 equal monthly installments. Executive's right to receive payments under this Section is contingent upon Executive's continuing compliance with the provisions of Sections 7 and 8 of this


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Agreement and upon the Executive's having executed and delivered to the Company a release of any and all claims relating to his termination. Executive will not be required to mitigate the amount of payments under this Section 6, nor will any earnings that Executive may receive from any other source reduce any such payments. For purposes of this Section,


(a) Termination "by the ...