Robert P.
Dowski
8805 Mary Mead Court
Potomac, Maryland 20854
On behalf of the
Board of Directors (the “Board”) of The Allied Defense
Group, Inc. (the “Company”), I am very pleased to offer
you the position of Chief Financial Officer of the Company. This
letter agreement clarifies and confirms the terms of your
employment with the Company.
As Chief Financial
Officer of the Company, you shall have the duties and
responsibilities customarily associated with such position and such
duties as may be assigned to you by the Chief Executive Officer
and/or the Executive Vice President of the Company. Your office
will be at the Company’s headquarters, located at 8000 Towers
Crescent Drive, Suite 260, Vienna, Virginia 22182. You agree
not to actively engage in any other employment, occupation or
consulting activity that conflicts with the interests of the
Company. Unless we mutually agree otherwise, you will commence
employment on August 22, 2005 (the “Start
Date”).
Your salary will
be $17,500.00 per month ($210,000.00 annualized), payable monthly
in accordance with the Company’s standard payroll practice
and subject to applicable withholding taxes. Because your position
is exempt from overtime pay, your salary will compensate you for
all hours worked. Your salary will be reviewed and effective
annually by the Board or its Compensation Committee, and any
adjustments will be effective as of the date determined by the
Board or its Compensation Committee.
In addition to
your salary, commencing with respect to calendar year 2006 you will
be eligible to earn an annual bonus of up to 40% of your base
salary if you meet or exceed certain performance standards which
will be mutually determined by you and the Chief Executive Officer
and approved by the Compensation Committee. The performance
standards will be mutually determined and approved prior to the
beginning of each calendar year. You will be eligible for an annual
bonus for any calendar year only if you remain employed with the
Company as of December 31 of such calendar year. The bonus
will be payable within ten (10) days of the public release by
the Company of its financial results for the relevant calendar
year. The bonus will be payable, at your election, in cash and/or
shares of Company common stock.
For the
August 22, 2005 — December 31, 2005 short period,
you will be considered for a discretionary bonus based on your
performance during such period and the financial results of the
Company.
You will also be
entitled, during the term of your employment, to such employee
benefits as the Company may offer from time to time, subject to
applicable eligibility requirements.
As we discussed,
our compensation structure is weighted towards equity ownership
because we believe we will create the most value for the Company
and its shareholders over time by having employees think and act
like, and therefore be, owners. To this end, and subject to
Compensation Committee approval, you will be granted a five
(5) year option to purchase 80,000 shares of Company common
stock, which will vest as to 20,000 shares on December 30,
2005 and at the rate of 15,000 shares on the first day of September
of each of 2006, 2007, 2008 and 2009, provided you remain in the
employ of the Company on said dates. The options will provide for
accelerated vesting upon a Change of Control (as defined below).
The strike price will be the fair market value per share of such
stock on the last trading day immediately preceding the Start Date.
The options will be incentive stock options to the extent
permissible under the Internal Revenue Service code and
regulations. Your option will be documented by delivery to you of a
stock option agreement. The Board (or the Committee) will consider
and may in its discretion issue future option grants to you based
on your performance, the Company’s operating results and
other appropriate factors.
For purposes
hereof, the term “Change of Control” means:
(i) the
acquisition (other than by the Company) by any person, entity or
“group” within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934 (the “Exchange
Act”) (excluding, for this purpose, the Company or its
subsidiaries or any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting
securities of the Company) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act), of
50% or more of either the then outstanding shares of common stock
or the combined voting power of the Company’s then
outstanding capital stock entitled to vote generally in the
election of directors; or
(ii) individuals who, as of the date
hereof, constitute the Board (as of the
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