Exhibit 10.2
March 30, 2007
Deborah F. Ricci
20190 Hidden Creek Court
Ashburn, VA 20147
Dear Debbie:
          On behalf of The Allied Defense Group, Inc. (the “Company”), I am very
pleased to offer you the position of chief financial officer. This letter
agreement clarifies and confirms the terms of your employment with the Company.
1.      POSITION; START DATE
          You shall have the duties and responsibilities as the chief financial
officer of the Company. You will report to the chief executive officer of the
Company (the “CEO”). You agree not to actively engage in any other employment,
occupation or consulting activity during your employment with the Company
without the prior written approval of the CEO. Unless we mutually agree
otherwise, you will commence as the Company’s chief financial officer on
April 6, 2007 (the “Start Date”).
2.      SALARY
          Your base salary will be $16,666.66 per month ($200,000 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 annually.
3.      BONUS
          In addition to your salary, you will be eligible to earn an annual
bonus of forty percent (40%) of your base salary (the “Target Bonus”) if you
meet certain performance standards which will be determined by the Company. If
you exceed the performance standards, you could earn an annual bonus of up to
two hundred percent (200%) of your base salary; there is no minimum guaranteed
annual bonus so that if you fail to meet your performance standards, you will
not be entitled to an annual bonus. The performance standards generally will be
determined during the first quarter of each calendar year and will be based
primarily on Company financial performance against various targets. Your annual
bonus shall be determined based on the assessment of your performance by the
CEO, subject to review and approval by the Compensation Committee of the Board
of Directors. You will be eligible for an annual bonus for any calendar year
only if you remain employed with the Company as of the date of the public
release by the Company (via filing of Form 10-K) of its financial results for
the relevant year. The bonus will be payable within ten (10) days of the public
release by the Company of its financial results.

 

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4.      BENEFITS
          You will be provided 9,000 shares of restricted Company stock on the
Start Date. The shares will vest ratably over a three (3) year period from the
State Date. You must still be employed by the Company on the vesting dates;
otherwise the unvested stock will be forfeited. The shares will also vest upon a
Change of Control (as herein defined). The terms of the restricted stock will be
set forth in a Restricted Stock Agreement dated as of the Start Date. 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, including all Company holidays and four (4) weeks of paid time
off. Unused time off or unused holidays will not roll over from one calendar
year to another calendar year unless approved in advance, in writing, by the
CEO.

    For purposes hereof, the term “Change of Control” means       (a)     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      
(b)     individuals who, as of the date hereof, constitute the Board (as of the
date hereof the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such person
were a member of the Incumbent Board; or       (c)     approval by the
shareholders of the Company of (x) a reorganization, merger, consolidation or
share exchange, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger,
consolidation or share exchange do not, immediately thereafter, own more than
50% of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged, consolidated or other surviving company’s
then outstanding voting securities, (y) a liquidation or dissolution of the
Company or (iii) the sale of all or substantially all of the assets of the
Company.

5.      TERMINATION OF EMPLOYMENT
          Your employment may be terminated at any time by you or by the Company
with or without Cause, without prior written notice. This at-will employment
relationship cannot be

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changed except in a writing signed by the CEO. The following matters will
provide the Company with justification for termination of your employment with
“Cause”:

    (a)     your conviction of any act by you of fraud or embezzlement;      
(b)     your conviction of any felony involving an act of dishonesty, moral
turpitude, deceit or fraud;       (c)     your conviction of any felony or
misdemeanor constituting an act of dishonesty or misconduct (whether in
connection with your responsibilities as an employee of the Company or
otherwise) that either materially impairs the Company’s business, goodwill or
reputation or materially compromises your ability to represent the Company with
the public or provide leadership to its employees; or       (d)     your failure
to perform your lawful duties to the Company after receiving written notice from
the Company describing such failure in reasonable detail and stating that
continued failure to perform may result in termination of your employment with
Cause.

6.      PAYMENTS UPON TERMINATION OF EMPLOYMENT
          The payments you will be entitled to receive from the Company upon
termination of your employment will be as follows:

    (a)     If you terminate your employment or if the Company terminates your
employment with or without Cause, the Company will pay you any accrued and
unpaid compensation (subject to normal withholding and other deductions) to the
effective date of termination of your employment.       (b)     In addition, you
may be entitled to additional payments under paragraphs 6(c) or 6(d) below.    
  (c)     If your employment with the Company is terminated by the Company
within twelve (12) months following a Change in Control or if you terminate your
employment with the Company within twelve (12) months following a Change in
Control:

 
(A)     you will be entitled to a severance payment equal to the sum of (x) two
(2) times your annual salary immediately prior to the termination and (y) two
(2) times the greater of the Target Bonus or the average annual bonus earned by
you for the three (3) most recent annual periods; and
 
(B)     you will be entitled to receive medical, dental, vision, long-term care,
life and long-term disability insurance coverage and your 401(k) entitlement for
the lesser of (i) two (2) years following the termination, (ii) the maximum
period for which such benefits may be provided under Section 409A of the
American Jobs Creation Act of 2004 without triggering any liabilities
thereunder, or (iii) when you secure new employment and are eligible to be
covered under the employer’s

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benefit plans, in any case at levels comparable to that provided immediately
prior to your termination and at the cost of the Company except for any
contributions paid by you prior to the termination.

    (d)     If your employment with the Company is terminated by the Company
without Cause or if you terminate your employment with the Company following a
reduction in your base salary:

 
(A)     you will be entitled to a severance payment equal to the sum of (x) one
times (1) your annual base salary immediately prior to the termination and
(y) one times (1) the greater of the Target Bonus or the average annual bonus
earned by you for the three (3) most recent annual periods; and
 
(B)     you will be entitled to receive medical, dental, vision, long-term care,
life and long-term disability insurance coverage and your 401(k) entitlement for
the lesser of (i) one (1) year following the termination, (ii) the maximum
period for which such benefits may be provided under Section 409A of the
American Jobs Creation Act of 2004 without triggering any liabilities
thereunder, or (iii) when you secure new employment and are eligible to be
covered under the employer’s benefit plans, in any case at levels comparable to
that provided immediately prior to your termination and at the cost of the
Company except for any contributions paid to you prior to the termination.

    (e)     The severance payment set forth in paragraph 6(c)(A) above or in
paragraph 6(d) above payable as a result of a termination of employment
initiated by the Company shall be payable in a lump sum within thirty (30) days
of the date of employment termination. The severance payment set forth in
paragraph 6(c)(A) above or in paragraph 6(d) above payable as a result of a
termination of employment initiated by you shall be payable in a lump sum seven
(7) months from the date of employment termination.       (f)     If either the
Company or you receives confirmation from the Company’s independent counsel or
its certified public accounting firm (the “Tax Advisor”) that any payment by the
Company to you would be considered to be an “excess parachute payment” within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or
any successor statute then in effect (the “Code”), then the aggregate payments
by the Company shall be reduced to the highest amount that may be paid to you by
the Company without having any portion of any amount payable treated as such an
“excess parachute payment”, and, if permitted by applicable law and without
adverse tax consequence, such reduction shall be made to the last payment due
hereunder.

7.      CONFIDENTIALITY
          With your employment comes the responsibility that you will honor any
confidentiality agreements you have signed with other entities. If you have any
confidential information or trade secrets, written, or otherwise known by you,
you agree not to bring them to the Company, and you agree not to use them in any
way. You attest that you have not signed a “non-competition” agreement or any
other agreement that would prohibit you from working here.

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8.     ADDITIONAL PROVISIONS
          The terms described in this letter agreement will be the terms of your
employment, and this letter supersedes any previous discussions or offers and
all prior employment and consulting agreements between you and the Company or
any of its subsidiary corporations. Any additions or modifications of these
terms would have to be in writing and signed by you and the CEO.
          The validity, interpretation, construction and performance of this
letter agreement shall be governed by the laws of the State of Delaware (except
the provisions governing the choice of law).
          If you agree that this letter agreement evidences our agreement
concerning your employment with the Company, please indicate so by signing both
copies of this letter retaining one for your files.

            Sincerely,

John J. Marcello, President and Chief Executive Officer
                       

ACCEPTANCE
I accept employment with The Allied Defense Group, Inc. under the terms set
forth in this letter agreement:

Debbie F. Ricci

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