Exhibit
10.7


 


October 7, 2007


 


Personal
and Confidential


 


John F. Michitsch


2604 Golf Island Road


Ellicott City, MD  21042


 


	
  Re:

  	
  Designation
  of Eligibility for Retention and Severance under the

  
	
   

  	
  AAI
  Corporation Change in Control Retention and Severance Plan

  



 


Dear John:


 


We are pleased
to inform you that AAI Corporation (the “Company”) has selected you to be
eligible to receive a Retention Payment and Severance Benefits, described
below, under the AAI Corporation Change in Control Retention and Severance Plan
(the “Plan”). All terms and conditions for payment of these benefits are
described in this letter agreement and the Plan (copy enclosed). The Severance
Benefits provided under the Plan are in lieu of any payments and/or benefits
provided under any severance or termination arrangement, plan, policy or
practice of the Company and its affiliates. Since this letter agreement and the
Plan memorialize your right to receive a Retention Payment and Severance
Benefits (assuming all conditions are satisfied), we encourage you to retain
these materials with your other important papers.


 


I.              Retention Payment Under the Plan.


 


(a)           Amount of Retention Payment.


 


If you have
been continuously employed by the Company or any affiliate from September 1, 2007
(the Plan’s effective date) until December 31, 2008 (“Payment Date”), the
Company will pay you a Retention Payment in a lump sum, less applicable taxes,
in an amount equal to (A÷36)xB, where:


 


•      (A) equals your maximum cash
award at 1X target under the Company’s Long Term Incentive Plan (“LTIP”); and


 


•      (B) equals the number of
full and partial months (prorated on the basis of days in the applicable
partial month) between the date of the Change in Control and the Payment Date.


 

















 


The Retention Payment will be paid to you in
a single sum cash payment within 15 days after the Payment Date.


 


Except as
described below, you must be employed by the Company to receive your Retention
Payment.


 


(b)           Impact
of Separation from Service Prior to Payment Date.


 


If, after a Change in Control but prior to the Payment Date, you incur
a Separation from Service with the Company, either without Cause or by you for
Good Reason, you will still be entitled to receive the Retention Payment, as
described below. If your Separation from Service is due to “Disability” (as
defined in the Company’s long-term disability plan), you will still be eligible
to receive your Retention Payment but it will be offset (reduced), to the
extent not otherwise offset against any other amounts owed to you, by amounts
payable to you under the Company’s short or long-term disability plans. However,
you will not be entitled to receive a Retention Payment under the Plan
if your Separation from Service is: (i) for Cause, (ii) by you without Good
Reason, or (iii) on account of your death.


 


If you are a “Specified Employee,” i.e., one of
the top 50 “officers” (which is broadly defined) of the Company and its
affiliates having annual compensation in excess of $145,000 for 2007 or as
adjusted thereafter, payment of your Retention Payment will be delayed for six
months after the date of your Separation from Service unless your separation is
due to Disability. As soon as administratively feasible following the end of
the delay period, the Retention Payment will be paid to you in a single sum
cash payment.


 


If you are not a Specified Employee (or you are a Specified Employee
and your separation is due to Disability), the delay period will not apply to
you, and your Retention Payment will be paid to you in a single sum cash
payment within ten days after your Separation from Service.


 


II.            Severance
Benefits Under the Plan.


 


(a)           Severance
Benefits.


 


If, within 24 months following a Change in Control, you incur a
Separation from Service with the Company, either without Cause or by you for Good
Reason, you will be entitled to receive the Severance Benefits described below.
If your Separation from Service is due to “Disability” (as defined in the
Company’s long-term disability plan), you will still be eligible for Severance
Benefits but your severance will be offset (reduced) ), to the extent not
otherwise offset against any other amounts owed to you, by amounts payable to
you under the Company’s short or long-term disability plans. You will not
be entitled to Severance Benefits under the Plan if your Separation from
Service is: (i) for Cause, (ii) by you without Good Reason, or (iii) on account
of your death.


 


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Your Severance Benefits will consist of the following:


 


•      Severance Payment:  You will receive a lump sum Severance Payment
equal to your Base Salary in effect immediately prior to your separation for twelve
months,  less applicable taxes; and


 


•      Continued Health Coverage
at Active Employee Rates:  Subject to your timely election of
continuation coverage under the Consolidated Budget Omnibus Reconciliation Act
of 1985, as amended (“COBRA”), and your continued co-payment of required
premiums at the same coverage level and cost to you as if you were an active
employee of the Company (excluding, for purposes of calculating cost, your
ability to pay premiums with pre-tax dollars), continued participation in the
Company’s group medical and dental (to the extent permitted under applicable
law and the terms of such plan) at the Company’s expense for twelve months, provided
that you are eligible and remain eligible for COBRA coverage, and if you
obtain other employment that offers health benefits, such continuation of
coverage by the Company shall immediately cease.


 


Payment of your Severance Benefits is conditioned on your execution
(and non-revocation) of an Agreement and Release (as provided in Section 8.1 of
the Plan).


 


Severance Benefits payable under the Plan supersede all other severance
payable to you by the Company under any plan, policy or arrangement, including
an approved, executed agreement with the Company or any affiliate that has not
expired as of the date of your termination (“Individual Severance Agreement”). In
order to be eligible to receive Severance Benefits under the Plan, you must
consent (by signing this agreement in the space provided on the last page of
this letter agreement) to the foregoing waiver of any and all severance otherwise
payable to you under your Individual Severance Agreement upon your Separation
from Service on or after a Change in Control, as described in this letter
agreement and the Plan.


 


(b)           Timing
for Severance Payment.


 


If you are a “Specified Employee,” i.e., one of
the top 50 “officers” (which is broadly defined) of the Company and its
affiliates having annual compensation in excess of $145,000 for 2007 or as
adjusted thereafter, your Severance Payment will not be paid until the date
that is six months after the date of your Separation from Service unless your
separation is due to Disability. Following this delay period, the Severance
Payment will be paid in a single sum cash payment as soon as administratively
feasible. If your severance is payable in installments, your first payment will
consist of the regular installment amount plus all of the payments that were
not permitted to be paid to you during the delay period.


 


If you are not a Specified Employee (or you are a Specified Employee
and your separation is due to Disability), the delay period will not apply to
you, and your Severance Payment will be paid in a single sum cash payment
within 10 days after the date of your Separation from Service.


 


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III.           Other
Important Terms.


 


The Company is extending participation in the Plan to only selected
employees. For this reason, we ask and you agree that you will keep the terms
of the Plan and this letter agreement completely confidential.


 


This letter agreement is not an employment agreement or guarantee of
continued employment by the Company. In addition, the agreement is personal to
you: you may not assign this agreement or the benefits provided by it to
anyone.


 


This letter agreement may not be amended, except in a writing signed by
you and the Company. This letter agreement will be construed and enforced in accordance
with the laws of the State of Maryland  (without
regard to the principles of conflicts of law).


 


You are hereby advised by the Company to consult your own legal counsel
and/or your own personal financial or tax advisors before signing this letter agreement.
By signing below, you acknowledge that you have carefully read this letter
agreement in its entirety; that you have had an adequate opportunity to
consider it and to consult with any advisors of your choice about it; that you
understand the terms of this letter agreement and their significance; that you
knowingly and voluntarily assent to all the terms and conditions contained in
this agreement, including but not limited to the waiver of any and all
severance payable to you under your Individual Severance Agreement upon a
Separation from Service on or after a Change in Control, as described herein;
and that you are signing this letter agreement voluntarily and of your own free
will.


 


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Please indicate your agreement to the terms of this letter by signing
it in the space provided below and returning a hard copy to me confidentially. Please
do not hesitate to contact me if you have any questions.


 


 


	
   

  	
  Very truly yours

  
	
   

  	
   

  
	
   

  	
  AAI CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Anna-Maria G. Palmer

  	
   

  
	
   

  	
  Name:  Anna-Maria G. Palmer

  
	
   

  	
  Title:  Vice President, Human
  Resources

  



 


 


The undersigned accepts the above letter agreement and agrees that it
contains the entire agreement of the parties relating to the subject matter
hereof, and supersedes in its entirety any and all prior agreements,
understandings, offers or representations relating to the subject matter
hereof, whether oral or written, and that there are no other terms, express or
implied.


 


	
  Accepted and Agreed:

  
	
   

  
	
   

  
	
  /s/ John F. Michitsch

  	
   

  
	
  John F. Michitsch

  
	
   

  
	
  Dated: October 7, 2007

  



 


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