exv10w1



 




Exhibit
 10.1





May 12, 2005




John J. Marcello

Managing Director

MECAR, S.A.

Rue Grinfaux, 50

B-7181 Petit-Roeulx-lez-Nivelles

Belgium


Dear John:




     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 President and Chief Executive Officer of
the Company. This letter agreement clarifies and confirms the terms of your employment with the
Company.



1. POSITIONS; START DATE




     As President and Chief Executive 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 Board. 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 assume the office of President and Chief Executive
Officer on June 17, 2005 immediately following the annual shareholders meeting (the “Start Date”).



2. SALARY




     Your salary will be $24,583.33 per month ($295,000 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 and effective annually by the Compensation Committee and any
adjustments will be effective as of the date determined by the Compensation Committee.



3. STOCK AWARD




     As a one-time “signing bonus”, you will be granted a restricted stock award of 16,000 shares
of Company common stock as of the Start Date. As will be set forth in a separate stock award
agreement, the shares will vest ratably over a four (4) year period. In view of this restriction,
the certificate evidencing the shares of Allied stock will be held in escrow by the Company pending
release as the shares vest.



 









 





4. BONUS




     In addition to your salary, you will be eligible to earn an annual bonus of up to 50% of your
base salary if you meet or exceed certain performance standards which will be mutually determined
by you and the Chairman of the Board and approved by the Compensation Committee. The performance
standards for 2005 will be mutually determined and approved within thirty (30) days of commencement
of employment and prior to the beginning of each subsequent 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.



5. BENEFITS




     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. In
addition, the Company shall pay or reimburse you up to $4,000 annually for premiums on additional
life insurance as long as you are employed by the Company. You shall be entitled to designate the
beneficiary of the policy.



6. 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 changed except in a
writing signed by the Chairman of the Compensation Committee. The following matters will provide
the Company with justification to terminate 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 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



     (d) your material failure to perform your lawful duties to the Company after receiving written
notice from the Board describing such failure in reasonable detail.



7. 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:



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     (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, if your employment is terminated by the Company without Cause or if you
terminate your employment following (i) a material adverse alteration or diminution in the nature
or status of your authority, duties or responsibilities from those in effect immediately prior to
such change, (ii) a reduction in your title of President and Chief Executive Officer or (iii) a
reduction in your base salary:




     (A) you will be entitled to aggregate severance payments equal to the sum of (x) your
annual salary immediately prior to the termination and (y) the average annual bonus earned
by you for the two (2) 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 one (1) year
following the termination at levels comparable to that provided immediately prior to your
termination (all at the cost of the Company except for any contributions paid by you prior
to the termination).



     (c) The aggregate severance payments set forth in paragraph 7(b)(A) above shall be payable in
equal monthly installments over the one (1) year period; provided, however, that if such
termination occurs within twelve (12) months following a Change of Control (as herein defined), the
entire sum shall be payable, at your election, either in a lump sum within thirty (30) days of the
date of employment termination or in periodic payments over a period not to exceed three (3) years.



     (d) You shall not be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to you under any provisions of this paragraph 7.



     (e) 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



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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.



     (f) If your employment with the Company is terminated by the Company without Cause or if you
terminate your employment with the Company following (i) a material adverse alteration or
diminution in the nature or status of your authority, duties or responsibilities from those in
effect immediately prior to such change, (ii) a reduction in your title of President and Chief
Executive Officer or (iii) a reduction in your base salary, any non-vested stock or stock option
which is scheduled to vest within the next twelve (12) months will vest as of the date of the
termination of your employment in an amount equal to the amount scheduled to vest as of said future
date multiplied by a fraction, the numerator of which shall be the number of days of the then
current period up to and including the date of termination and the denominator of which will be
365.



8. NON-COMPETITION




     For a one (1) year period from and after termination of your employment for any reason (except
if such termination occurs within twelve (12) months following a Change of Control), you shall not
engage, directly or indirectly, either on your own behalf or on behalf of any other person, firm,
corporation or other entity, in any business competitive with any business of the Company (or any
of its subsidiaries), in the geographic area or areas in which Company (or any of its subsidiaries)
is conducting business at the time of termination of your employment, or own more than 5% of any
such firm, corporation or other entity. Upon any violation of the foregoing sentence, you will
forfeit any remaining amounts payable to you hereunder in addition to any other remedies available
to the Company as a result of the violation.



9. 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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10. TRANSITION




     It is understood and agreed that you will need to spend substantial amounts of time during the
balance of 2005 at our Belgian defense subsidiary, MECAR S.A., pending engagement of a replacement
Managing Director. You will work cooperatively with the Company’s Chief Operating Officer during
this period to insure that all necessary Chief Executive Officer functions are appropriately
handled in your absence.



     The Company will honor and comply with its remaining tax gross-up and relocation obligations
to you arising from your current employment agreement dated November 8, 2002, as amended. Also,
the Company will work with you as you negotiate an early termination of the lease of your Belgian
residence. For all other purposes, said agreement is terminated and replaced by this letter
agreement.



11. 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. Any additions or modifications of these
terms would have to be in writing and signed by you and the Chairman of the Compensation
Commission.



     The validity, interpretation, construction and performance of this letter agreement shall be
governed by the laws of the State of Delaware (except their 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.



     We are very excited about you joining us. I look forward to a productive and mutually
beneficial working relationship. Please let me know if I can answer any questions for you about
any of the matters outlined in this letter agreement.


Sincerely,


J.H. Binford Peay, III,

Chairman of the Board



ACCEPTANCE



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




			
	 
	 	 	 
	John J. Marcello

	 	 
	 
	Allied/Peay ltr to Marcello 05-12-05
	 	 







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