Chief Financial Officer Employment Agreement

Exhibit 10.1August 19, 2005 Robert P. Dowski
8805 Mary Mead Court
Potomac, Maryland 20854Dear Robert: 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.1. POSITIONS; START DATE 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" ).2. SALARY 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.3. BONUS 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.4. 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.5. STOCK OPTION 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 " Ch ...