Document:

EX-10.1

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (the “Agreement”) is made as of December 12, 2006, by and among The
Allied Defense Group, Inc., a Delaware corporation with headquarters located at 8000 Towers
Crescent Drive, Suite 260, Vienna, Virginia 72182 (the “Company”), and the investors listed on the
Schedule of Investors attached hereto as Exhibit A (individually, an “Investor” and
collectively, the “Investors”).

BACKGROUND

A. The Company and each Investor are executing and delivering this Agreement in reliance upon
the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended
(the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United
States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

B. Each Investor, severally and not jointly, wishes to purchase, and the Company wishes to
sell, upon the terms and conditions stated in this Agreement (i) that aggregate number of shares
of the Common Stock, par value $.10 per share, of the Company (the “Common Stock”), set forth
opposite such Investor’s name in column two (2) on the Schedule of Investors in Exhibit A
(which aggregate amount for all Investors together shall be 400,000 shares of Common Stock and
shall collectively be referred to herein as the “Common Shares”).

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Investors agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the
following terms have the meanings indicated:

"Affiliate” means any Person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the 1933 Act.

"Agreement” has the meaning set forth in the Preamble.

"AMEX” means the American Stock Exchange.

“Best Efforts” means the efforts that a prudent person desirous of achieving a result would
use in similar circumstances to ensure that such result is achieved as expeditiously as practical;
provided, however, that an obligation to use Best Efforts under this Agreement does not require
the Company to dispose of or make any change to its business, expend any material funds or incur
any other material burden.

"Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.

"Closing” means the closing of the purchase and sale of the Common Shares pursuant to
Section 2.1.

"Closing Date” means the date and time of the Closing.

“Company” has the meaning set forth in the Preamble.

“Common Shares” means an aggregate of 400,000 shares of Common Stock, which are being issued
and sold by the Company to the Investors at the Closing.

“Common Stock” means the common stock of the Company, par value $0.10 per share.

“Convert Investors” means the purchasers of the Company’s outstanding convertible notes.

“Effective Date” means the date that the Registration Statement is first declared effective
by the SEC.

“Effectiveness Period” has the meaning set forth in Section 6.1(b).

"8-K Filing” has the meaning set forth in Section 4.5.

“Eligible Market” means any of the New York Stock Exchange, the AMEX, The Nasdaq Global
Select Market or The Nasdaq Capital Market.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Filing Date” means 45 days after the Closing Date.

“GAAP” has the meaning set forth in Section 3.1(f).

“Indemnified Party” has the meaning set forth in Section 6.4(c).

"Indemnifying Party” has the meaning set forth in Section 6.4(c).

“Investor” has the meaning set forth in the Preamble.

"Lien” means any lien, charge, claim, security interest, encumbrance, right of first refusal
or other restriction.

“Losses” means any and all losses, claims, damages, liabilities, settlement costs and
expenses, including, without limitation, reasonable attorneys‘ fees.

“Material Adverse Effect” means (i) a material adverse effect on the results of operations,
assets, business or financial condition of the Company, or (ii) materially and adversely impair the
Company’s ability to perform its obligations under any of the Transaction Documents, provided, that
none of the following alone shall be deemed, in and of itself, to constitute a Material Adverse
Effect: (a) a change in the market price or trading volume of the Common Stock or (b) changes in
general economic conditions or changes affecting the industry in which the Company operates
generally (as opposed to Company-specific changes) so long as such changes do not have a
disproportionate effect on the Company.

“Options” means any outstanding rights, warrants or options to subscribe for or purchase
Common Stock.

“Person” means any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, or joint stock company.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, or a partial proceeding, such as a deposition), whether commenced or threatened in
writing.

“Prospectus” means the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule 430A promulgated under the
1933 Act), as amended or supplemented by any prospectus supplement, with respect to the terms of
the offering of any portion of the Common Shares covered by the Registration Statement, and all
other amendments and supplements to the Prospectus including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registration Statement” means the registration statement required to be filed under Article
VI, including the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such registration
statement.

“Regulation D” has the meaning set forth in the Preamble.

“Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule 415 and Rule 424, respectively,
promulgated by the SEC pursuant to the 1933 Act, as such Rules may be amended from time to time, or
any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as
such Rule.

"SEC” means the Securities and Exchange Commission.

“SEC Reports” has the meaning set forth in Section 3.1(f).

“Shares” means shares of the Company’s Common Stock.

“Short Sales” has the meaning set forth in Section 3.2(h).

“Trading Day” means any day on which the Common Stock is listed or quoted and traded on its
primary Trading Market.

“Trading Market” means the American Stock Exchange or any other Eligible Market, or any
national securities exchange, market or trading or quotation facility on which the Common Stock is
then listed or quoted.

“Transaction Documents” means this Agreement, the schedules and exhibits attached hereto, and
the Transfer Agent Instructions.

“Transfer Agent” means Mellon Investor Services, LLC, or any successor transfer agent for the
Company.

“Transfer Agent Instructions” means, with respect to the Company, irrevocable transfer agent
instructions for issuance of the Common Shares, executed by the Company and delivered to and
acknowledged in writing by the Transfer Agent.

ARTICLE II

PURCHASE AND SALE

2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the
Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and
not jointly, purchase from the Company, such number of Common Shares for the price set forth
opposite such Investor’s name on Exhibit A hereto under the headings “Common Shares.” The
date and time of the Closing and shall be 11:00 a.m., Vienna, Virginia time, on the Closing Date.
The Closing shall take place at the offices of the Company.

2.2 First Refusal. It is understood that pursuant to a prior contractual obligation,
the Company must provide the Convert Investors the opportunity to purchase up to thirty percent
(30%) of the Common Shares. The Company will provide the Convert Investors an executed copy of
this Agreement and offer the Convert Investors the opportunity to purchase up to thirty percent
(30%) of the Common Shares on the same terms and conditions as set forth herein. In the event any
of the Convert Investors elect to purchase Common Shares, the number of Common Shares to be
purchased by each Investor hereunder will be proportionally reduced.

2.3 Closing Deliveries.

(a) At the Closing, the Company shall deliver or cause to be delivered to each Investor
the following:

(i) duly executed Transfer Agent Instructions acknowledged by the Transfer Agent; and

(ii) evidence of approval by AMEX of an additional shares listing application covering all of
the Common Shares.

(b) At the Closing, each Investor shall deliver or cause to be delivered to the Company
the purchase price set forth opposite such Investor’s name on Exhibit A hereto under
the heading “Purchase Price” in United States dollars and in immediately available funds, by
wire transfer to an account designated in writing to such Investor by the Company for such
purpose.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. The Company hereby represents and
warrants to the Investors as follows:

(a) Organization and Qualification. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware, with the
requisite legal authority to own and use its properties and assets and to carry on its
business as currently conducted.

(b) Authorization; Enforcement. The Company has the requisite corporate authority
to enter into and to consummate the transactions contemplated by each of the Transaction
Documents to which it is a party and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the Transaction Documents to which it is a
party by the Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of the Company and no
further consent or action is required by the Company, its Board of Directors or its
stockholders. Each of the Transaction Documents to which it is a party has been (or upon
delivery will be) duly executed by the Company and is, or when delivered in accordance with
the terms hereof, will constitute, the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors rights generally, and (ii) the effect of rules of law
governing the availability of specific performance and other equitable remedies.

(c) No Conflicts. The execution, delivery and performance of the Transaction
Documents to which it is a party by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not, and will not, (i) conflict with or
violate any provision of the Company’s certificate of incorporation or bylaws, (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company debt or otherwise) or other
understanding to which the Company is a party or by which any property or asset of the Company
is bound, or affected, except to the extent that such conflict, default, termination,
amendment, acceleration or cancellation right would not reasonably be expected to have a
Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company is subject, or by which any property or asset of the Company is bound or
affected, except to the extent that such violation would not reasonably be expected to have a
Material Adverse Effect.

(d) The Common Shares. The Common Shares are duly authorized and, when issued and
paid for in accordance with the Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens and will not be subject to preemptive or
similar rights of stockholders (other than those imposed by the Investors). The offer,
issuance and sale of the Common Shares to the Investors pursuant to the Agreement, are exempt
from the registration requirements of the 1933 Act.

(e) Capitalization. The aggregate number of shares and type of all authorized,
issued and outstanding classes of capital stock, options and other Common Shares of the Company
(whether or not presently convertible into or exercisable or exchangeable for shares of capital
stock of the Company) is set forth in Schedule 3.1(e) hereto. All outstanding shares of
capital stock are duly authorized, validly issued, fully paid and nonassessable and have been
issued in compliance in all material respects with all applicable securities laws. Except as
disclosed in Schedule 3.1(e) hereto, the Company did not have outstanding at November
30, 2006 any other options, warrants, script rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or entered into any agreement giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.

(f) SEC Reports., Financial Statements. Except as set forth on
Schedule 3.1(f), the Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the 12
months preceding the date hereof. Such reports required to be filed by the Company under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, together with any materials
filed or furnished by the Company under the Exchange Act, whether or not any such reports were
required being collectively referred to herein as the “SEC Reports”. As of their respective
dates, the SEC Reports filed by the Company complied in all material respects with the
requirements of the 1933 Act and the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and none of the SEC Reports, when filed by the Company, contained any
untrue statement of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements, the notes thereto and except
that unaudited financial statements may not contain all footnotes required by GAAP or may be
condensed or summary statements, and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, year-end audit adjustments.

(g) Form S-1 Eligibility. The Company is eligible to register the Common Shares
for resale by the Investors using Form S-1 promulgated under the 1933 Act.

3.2 Representations and Warranties of the Investors. Each Investor hereby, as to
itself only and for no other Investor, represents and warrants to the Company as follows:

(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with the
requisite corporate, partnership or other power and authority to enter into and to consummate
the transactions contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The purchase by such Investor of the Common Shares
hereunder has been duly authorized by all necessary action on the part of such Investor. This
Agreement has been duly executed and delivered by such Investor and constitutes the valid and
binding obligation of such Investor, enforceable against it in accordance with its terms,
except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting the enforcement of creditors rights generally,
and (ii) the effect of rules of law governing the availability of specific performance and
other equitable remedies.

(b) No Conflicts. The execution, delivery and performance by such Investor of this
Agreement and the consummation by such Investor of the transactions contemplated hereby will
not (i) result in a violation of the organizational documents of such Investor or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture or instrument to which such Investor is a party,
or (iii) result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Investor, except in the case
of clauses (ii) and (iii) above, for such that are not material and do not otherwise affect the
ability of such Investor to consummate the transactions contemplated hereby.

(c) No Public Sale or Distribution. Such investor is (i) acquiring the Common
Shares, in the ordinary course of business for its own account and not with a view towards, or
for resale in connection with, the public sale or distribution thereof, except pursuant to
sales registered under the 1933 Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws, and such Investor does not have a
present arrangement to effect any distribution of the Common Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Investor does not agree to hold any of the Common Shares for any minimum or other specific term
and reserves the right to dispose of the Common Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.

(d) Investor Status. At the time such Investor was offered the Common Shares, it
was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the
1933 Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the 1933 Act.
Such Investor is not a registered broker dealer registered under Section 15(a) of the Exchange
Act, or a member of the NASD, Inc. or an entity engaged in the business of being a broker
dealer.

(e) Experience of Such Investor. Such Investor, either alone or together with its
representatives has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the prospective investment in
the Common Shares, and has so evaluated the merits and risks of such investment. Such Investor
understands that it must bear the economic risk of this investment in the Common Shares
indefinitely, and is able to bear such risk and is able to afford a complete loss of such
investment.

(f) Access to Information. Such Investor acknowledges that it has reviewed the SEC
Reports and has been afforded: (i) the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Common Shares and the merits and risks of investing in
the Common Shares; (ii) access to information (other than material non-public information)
about the Company and its respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the Company possesses or can
acquire without unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Such Investor acknowledges receipt of copies of the
SEC Reports.

(g) No Governmental Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has passed on or made
any recommendation or endorsement of the Common Shares or the fairness or suitability of the
investment in the Common Shares nor have such authorities passed upon or endorsed the merits of
the offering of the Common Shares.

(h) Illegal Transactions. No Investor, directly or indirectly, and no Person acting
on behalf of or pursuant to any understanding with any Investor, has engaged in any transactions
in the Common Shares of the Company (including, without limitation, any Short Sales involving
any of the Company’s Common Shares) since the time that such Investor was first contacted by the
Company regarding an investment in the Company. Such Investor covenants that neither it nor any
Person acting on its behalf or pursuant to any understanding with such Investor will engage,
directly or indirectly, in any transactions in the Common Shares of the Company (including Short
Sales) prior to the time the transactions contemplated by this Agreement are publicly disclosed.
“Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated
under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges,
forward sale contracts, options, puts, calls, short sales, swaps, derivatives and similar
arrangements (including on a total return basis), and sales and other transactions through
non-U.S. broker-dealers or foreign regulated brokers.

(i) Restricted Common Shares. The Investors understand that the Common Shares are
characterized as “restricted Common Shares” under the U.S. federal securities laws inasmuch as
they are being acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such Common Shares may be resold without
registration under the 1933 Act only in certain limited circumstances.

(j) Legends. It is understood that, except as provided in Section 4.1(b) of this
Agreement, certificates evidencing such Common Shares may bear the legend set forth in Section
4.1(b)

(k) No Legal, Tax or Investment Advice. Such Investor understands that nothing in
this Agreement or any other materials presented by or on behalf of the Company to the Investor
in connection with the purchase of the Common Shares constitutes legal, tax or investment
advice. Such Investor has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase of the Common
Shares.

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1 Transfer Restrictions.

(a) The Investors covenant that the Common Shares will only be disposed of pursuant to an
effective registration statement under, and in compliance with the requirements of, the 1933
Act or pursuant to an available exemption from the registration requirements of the 1933 Act,
and in compliance with any applicable state securities laws. In connection with any transfer of
Common Shares other than pursuant to an effective registration statement or to the Company, or
pursuant to Rule 144(k), the Company may require the transferor to provide to the Company an
opinion of counsel selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does not require
registration under the 1933 Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with its transfer agent, without any
such legal opinion, except to the extent that the transfer agent requests such legal opinion,
any transfer of Common Shares by an Investor to an Affiliate of such Investor, provided that
the transferee certifies to the Company that it is an “accredited investor” as defined in Rule
501(a) under the 1933 Act and provided that such Affiliate does not request any removal of any
existing legends on any certificate evidencing the Common Shares.

(b) The Investors agree to the imprinting, so long as is required by this Section
4.1(b), of the following legend on any certificate evidencing any of the Common Shares:

THESE COMMON SHARES HAVE NOT BEEN REGISTERED W1TII THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURTIES ACT OF 1933, AS AMENDED (THE “1933
ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS.

Certificates evidencing Common Shares shall not be required to contain such legend or any other
legend (i) while a registration statement (including the Registration Statement) covering the
resale of the Common Shares is effective under the 1933 Act, (ii) following any sale of such
Common Shares pursuant to Rule 144 if the holder provides the Company with a legal opinion (and
the documents upon which the legal opinion is based) reasonable acceptance to the Company to the
effect that the Common Shares can be sold under Rule 144, (iii) if the holder provides the
Company with a legal opinion (and the documents upon which the legal opinion is based) reasonably
acceptable to the Company to the effect that the Common Shares are eligible for sale under Rule
144(k), or (iv) if the holder provides the Company with a legal opinion (and the documents upon
which the legal opinion is based) reasonably acceptable to the Company to the effect that the
legend is not required under applicable requirements of the 1933 Act (including controlling
judicial interpretations and pronouncements issued by the Staff of the SEC). The Company shall
cause its counsel to issue the legal opinion included in the Transfer Agent Instructions to the
Transfer Agent on the Effective Date. Following the Effective Date or at such earlier time as a
legend is no longer required for certain Common Shares, the Company will no later than three
Trading Days following the delivery by an Investor to the Company or the Transfer Agent of (i) a
legended certificate representing such Common Shares, and (ii) an opinion of counsel to the
extent required by Section 4.1(a), deliver or cause to be delivered to such Investor a
certificate representing such Common Shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section.

4.2 Furnishing of Information. Until the date that any Investor owning Shares may
sell all of them under Rule 1 44(k) of the 1933 Act (or any successor provision), the Company
covenants to use its commercially reasonable efforts to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. The Company further covenants that
it will take such further action as any holder of Common Shares may reasonably request to satisfy
the provisions of this Section 4.2.

4.3 Integration. The Company shall not, and shall use its commercially reasonably
efforts to ensure that no Affiliate thereof shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the 1933 Act) that would
be integrated with the offer or sale of the Common Shares in a manner that would require the
registration under the 1933 Act of the sale of the Common Shares to the Investors or that would be
integrated with the offer or sale of the Common Shares for purposes of the rules and regulations of
any Trading Market.

4.4 Reservation of Common Shares. The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations to issue such shares under the Transaction Documents.
In the event that at any time the then authorized shares of Common Stock are insufficient for the
Company to satisfy its obligations to issue such shares under the Transaction Documents, the
Company shall promptly take such actions as may be required to increase the number of authorized
shares.

4.5 Common Shares Laws Disclosure: Publicity. The Company shall, on or before 8:30
a.m., New York time, on the first Trading Day following execution of this Agreement, issue a press
release disclosing all material terms of the transactions contemplated hereby. On the Closing Date,
the Company shall file a Current Report on Form 8-If with the SEC (the “8-K Filing”) describing the
terms of the transactions contemplated by the Transaction Documents and including as exhibits to
such Current Report on Form 8-K the Transaction Documents (including the schedules and the names,
and addresses of the Investors and the amount(s) of Common Shares respectively purchased), in the
form required by the Exchange Act. Thereafter, the Company shall timely file any filings and
notices required by the SEC or applicable law with respect to the transactions contemplated hereby
and provide copies thereof to the Investors promptly after filing.

4.6 Use of Proceeds. The Company intends to use the net proceeds from the sale of the
Common Shares for working capital and general corporate purposes.

ARTICLE V

CONDITIONS

5.1 Conditions Precedent to the Obligations of the Investors. The obligation of each
Investor to acquire Common Shares at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:

(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as of the date when
made and as of the Closing as though made on and as of such date; and

(b) Performance. The Company and each other Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing.

(c) Closing Deliveries. The Company shall have made all Closing deliveries as
set forth in Section 2.3(a) hereof.

5.2 Conditions Precedent to the Obligations of the Company. The obligation of the
Company to sell the Common Shares at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following conditions:

(a) Representations and Warranties. The representations and warranties of the
Investors contained herein shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made on and as of such date; and

(b) Performance. The Investors shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investors at or prior to the
Closing.

(c) Closing Deliveries. The Investors shall have made the Closing Deliveries set
forth in Section 2.3(b) hereof.

(d) AMEX. AMEX approval shall have been obtained.

ARTICLE VI

REGISTRATION RIGHTS

6.1 Registration Statement.

(a) Prior to the Filing Date, the Company shall prepare and file with the SEC a
Registration Statement covering the resale of all Common Shares for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-1 and
shall contain (except if otherwise directed by the Investors or requested by the SEC) the “Plan
of Distribution” in substantially the form attached hereto as Exhibit B.

(b) The Company shall use its commercially reasonable efforts to cause the Registration
Statement to be declared effective by the SEC as promptly as possible after the filing thereof,
and shall use its commercially reasonable efforts to keep the Registration Statement
continuously effective under the 1933 Act until the earlier of the date that all Common Shares
covered by such Registration Statement have been sold or can be sold publicly under Rule 144(k)
(the “Effectiveness Period”); provided that, upon notification by the SEC that a Registration
Statement will not be reviewed or is no longer subject to further review and comments, the
Company shall request acceleration of such Registration Statement within five (5) Trading Days
after receipt of such notice and request that it becomes effective on 4:00 p.m. New York City
time on the Effective Date. (or otherwise), by 9:00 a.m. New York City time the day after the
Effective Date.

(c) The Company shall notify the Investors in writing promptly (and in any event within
two Trading Days) after receiving notification from the SEC that the Registration Statement has
been declared effective.

(d) Notwithstanding anything in this Agreement to the. contrary, after 60 consecutive
Trading Days of continuous effectiveness of the initial Registration Statement filed and
declared effective pursuant to this Agreement, the Company may, by written notice to the
Investors, suspend sales under a Registration Statement after the Effective Date thereof and/or
require that the Investors immediately cease the sale of shares of Common Stock pursuant
thereto and/or defer the filing of any subsequent Registration Statement if the Company is
engaged in a material merger, acquisition or sale and the Board of Directors determines in good
faith, by appropriate resolutions, that, as a result of such activity, (i) it would be
materially detrimental to the Company (other than as relating solely to the price of the Common
Stock) to maintain a Registration Statement at such time or (ii) it is in the best interests of
the Company to suspend sales under such registration at such time. Upon receipt of such notice,
each Investor shall immediately discontinue any sales of Common Shares pursuant to such
registration until such Investor is advised in writing by the Company that the current
Prospectus or amended Prospectus, as applicable, may be used. In no event, however, shall this
right be exercised to suspend sales beyond the period during which (in the good faith
determination of the Company’s Board of Directors) the failure to require such suspension would
be materially detrimental to the Company. The Company’s rights under this Section 6(e)
may be exercised for a period of no more than 20 Trading Days at a time and not more than three
times in any twelve-month period. Immediately after the end of any suspension period under
this Section 6(e), the Company shall take all necessary actions (including filing any
required supplemental prospectus) to restore the effectiveness of the applicable Registration
Statement and the ability of the Investors to publicly resell their Common Shares pursuant to
such effective Registration Statement.

6.2 Registration Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:

(a) Not less than three Trading Days prior to the filing of a Registration Statement or
any related Prospectus or any amendment or supplement thereto, furnish via email to those
Investors who have supplied the Company with email addresses copies of all such documents
proposed to be filed, which documents (other than any document that is incorporated or deemed
to be incorporated by reference therein) will be subject to the review of such Investors. The
Company shall reflect in each such document when so filed with the SEC such comments regarding
the Investors and the plan of distribution as the Investors may reasonably and promptly propose
no later than two Trading Days after the Investors have been so furnished with copies of such
documents as aforesaid.

(b) (i) Prepare and file with the SEC such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep the Registration Statement continuously effective and (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus supplement, and as
so supplemented or amended to be filed pursuant to Rule 424.

(c) Notify the Investors as promptly as reasonably possible, and (if requested by the
Investors) confirm such notice in writing no later than two Trading Days thereafter, of any of
the following events: (i) the SEC notifies the Company whether there will be a “review” of any
Registration Statement; (ii) the SEC comments in writing on any Registration Statement; (iii)
any Registration Statement or any post-effective amendment is declared effective; (iv) the SEC
or any other Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information related thereto;
(v) the SEC issues any stop order suspending the effectiveness of any Registration Statement or
initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension
of the qualification or exemption from qualification of any Common Shares for sale in any
jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the
financial statements included in any Registration Statement become ineligible for inclusion
therein or any Registration Statement or Prospectus or other document contains any untrue
statement of a material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading.

(d) Use its reasonable Best Efforts to avoid the issuance of or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of any Registration Statement, or (ii)
any suspension of the qualification (or exemption from qualification) of any of the Common
Shares for sale in any jurisdiction, as soon as possible.

(e) Comply with all rules and regulations of the SEC applicable to the registration of the
Common Shares.

6.3 Registration Expenses. The Company shall pay all fees and expenses incident to
the performance of or compliance with Article VI of this Agreement by the Company, including
without limitation (a) all registration and filing fees and expenses, including without limitation
those related to filings with the SEC, any Trading Market and in connection with applicable state
securities or Blue Sky laws, (b) printing expenses (including without limitation expenses of
printing certificates for Common Shares), (c) messenger, telephone and delivery expenses, (d) fees
and disbursements of counsel for the Company, (e) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions contemplated by this
Agreement, and (f) all listing fees to be paid by the Company to the AMEX.

6.4 Indemnification.

(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Investor, the officers,
directors, partners, members, agents and employees of each of them, each Person who controls any
such Investor (within the meaning of Section 15 of the 1933 Act or Section 20 of the Exchange
Act) and the officers, directors, partners, members, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law, from and against any and
all Losses, as incurred, arising out of or relating to (i) any misrepresentation or breach of
any representation or warranty made by the Company in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any
covenant, agreement or obligation of the Company contained in the Transaction Documents or any
other certificate, instrument or document contemplated hereby or thereby, (iii) any cause of
action, suit or claim brought or made against such Indemnified Party (as defined in Section
6.4(c) below) by a third party (including for these purposes a derivative action brought on
behalf of the Company), arising out of or resulting from execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, or (iv) any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus or any form of Company prospectus
or in any amendment or supplement thereto or in any Company preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in the light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (A) such untrue statements,
alleged untrue statements, omissions or alleged omissions are based solely upon information
regarding such investor furnished in writing to the Company by such Investor for use therein, or
to the extent that such information relates to such Investor or such Investor’s proposed method
of distribution of Common Shares and was reviewed and expressly approved by such Investor
expressly for use in the Registration Statement, or (B) with respect to any prospectus, if the
untrue statement or omission of material fact contained in such prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented, if such corrected prospectus
was timely made available by the Company to the Holder, and the Holder seeking indemnity
hereunder was advised in writing not to use the incorrect prospectus prior to the use giving
rise to Losses.

(b) Indemnification by Investors. Each Investor shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the 1933 Act and
Section 20 of the Exchange Act), and the directors, officers, agents or employees of
such controlling Persons, to the fullest extent permitted by applicable law, from and against
all Losses (as determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of any untrue statement of a material fact contained in
the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising out of or relating to any omission of a material fact required to
be stated therein or necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in the light of the circumstances under which they
were made) not misleading, but only to the extent that such untrue statement or omission is
contained in any information so furnished by such Investor in writing to the Company
specifically for inclusion in such Registration Statement or such Prospectus or to the extent
that such untrue statements or omissions are based solely upon information regarding such
Investor furnished to the Company by such Investor in writing expressly for use therein, or to
the extent that such information relates to such Investor or such Investor’s proposed method of
distribution of Common Shares and was reviewed and expressly approved by such Investor
expressly for use in the Registration Statement. No investor shall be required to make any
indemnification payment in an amount in excess of the amount of the payment by the Investor for
the Common Shares it purchases hereunder.

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought (the
“Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of
its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that
it shall be finally determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the Indemnifying Party,
and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense thereof and the reasonable fees and expenses of separate
counsel shall be at the expense of the Indemnifying Party). It being understood, however, that the
Indemnifying Party shall not, in connection with any one such Proceeding (including separate
Proceedings that have been or will be consolidated before a single judge) be liable for the fees
and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties,
which firm shall be appointed by a majority of the Indemnified Parties. The Indemnifying Party
shall not be liable for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending Proceeding in
respect of which any Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the subject matter of such
Proceeding.

All reasonable fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party,
as incurred, within 20 Trading Days of written notice thereof to the Indemnifying Party
(regardless of whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification hereunder).

(d) Contribution. If a claim for indemnification under Section 6.4(a) or
(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise),
then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute
to the amount paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken or made by, or
relates to information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth in Section
6.4(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been indemnified
for such fees or expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

The parties hereto agree that it would not be just and equitable if contribution pursuant to
this Section 6.4(d) were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section 6.4(d), no
Investor shall be required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Investor from the sale of the Common Shares subject
to the Proceeding exceeds the amount of any damages that such Investor has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation.

The indemnity and contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.

6.5 Dispositions. Each Investor agrees that it will comply with the prospectus
delivery requirements of the 1933 Act as applicable to it in connection with sales of Common
Shares pursuant to the Registration Statement and shall sell its Common Shares in accordance with
the Plan of Distribution set forth in the Prospectus. Each Investor further agrees that, upon
receipt of a notice from the Company of the occurrence of any event of the kind described in
Sections 6.2(c)(v), (vi) or (vii), such Investor will discontinue
disposition of such Common Shares under the Registration Statement until such Investor is advised
in writing by the Company that the use of the Prospectus, or amended Prospectus, as applicable,
may be used. The Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

ARTICLE VII

MISCELLANEOUS

7.1 Termination. This Agreement may be terminated by the Company or any Investor, by
written notice to the other parties, if the Closing has not been consummated by December 31, 2006.

7.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and
issuance of Common Shares.

7.3 Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules. At or after the Closing, and without further consideration, the Company will execute
and deliver to the Investors such further documents as may be reasonably requested in order to
give practical effect to the intention of the parties under the Transaction Documents.

7.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile or email at the facsimile number or email address specified in this Section prior to
5:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile or email at the facsimile
number or email address specified in this Section on a day that is not a Trading Day or later than
5:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of
deposit with a nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses, facsimile numbers and email
addresses for such notices and communications are those set forth on the signature pages hereof,
or such other address or facsimile number as may be designated in writing hereafter, in the same
manner, by any such Person.

7.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and each of the
Investors or, in the case of a waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor shall any delay
or omission of either party to exercise any right hereunder in any manner impair the exercise of
any such right. Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of Investors under
Article VI may be given by Investors holding at least a majority of the Common Shares to
which such waiver or consent relates.

7.6 Construction. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The
language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against any party.

7.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. Neither the Company nor any
Investor may assign this Agreement or any rights or obligations hereunder without the prior written
consent of the other.

7.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except that each Indemnified
Party is an intended third party beneficiary of Section 6.4 and (in each case) may enforce
the provisions of such Sections directly against the parties with obligations thereunder.

7.9 Governing Law: Waiver of Jury Trial. THE CORPORATE LAWS OF THE STATE OF DELAWARE
SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
COMPANY AND THE INVESTORS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

7.10 Survival. The representations and warranties, agreements and covenants contained
herein shall survive the Closing.

7.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission or email attachment, such signature shall create
a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or email-attached signature page
were an original thereof.

7.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and
provisions of this Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision that is a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

7.13 Replacement of Common Shares. If any certificate or instrument evidencing any
Common Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and the execution by the
holder thereof of a customary lost certificate affidavit of that fact and an agreement to
indemnify and hold harmless the Company for any losses in connection therewith. The applicants for
a new certificate or instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Common Shares.

7.14 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Investors and the Company will be
entitled to seek specific performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation (other than in connection with any action for
temporary restraining order) the defense that a remedy at law would be adequate.

7.15 Payment Set Aside. To the extent that the Company makes a payment or payments to
any Investor hereunder or any Investor enforces or exercises its rights hereunder or thereunder,
and such payment or payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company by
a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall
be revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

7.16 Independent Nature of Investors’ Obligations and Rights. The obligations of each
Investor under any Transaction Document are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of the obligations of
any other Investor under any Transaction Document. The decision of each Investor to purchase Common
Shares pursuant to this Agreement has been made by such Investor independently of any other
Investor and independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or given by any other
Investor or by any agent or employee of any other Investor, and no Investor or any of its agents or
employees shall have any liability to any other Investor (or any other person) relating to or
arising from any such information, materials, statements or opinions. Nothing contained herein or
in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed
to constitute the Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the Transaction Document. Each
Investor acknowledges that no other Investor has acted as agent for such Investor in connection
with making its investment hereunder and that no other Investor will be acting as agent of such
Investor in connection with monitoring its investment hereunder. Each Investor shall be entitled to
independently protect and enforce its rights, including without limitation the rights arising out
of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any
other Investor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURE PAGES TO FOLLOW]

1

IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.

	 	 	 	THE
ALLIED DEFENSE GROUP, INC.

By:

	 	 	 	John
J. Marcello,

	 	 	 	President and Chief Executive Officer

	 	 	 	Address for Notice:

	 	 	 	8000
Towers Crescent Drive

Suite 260

	 	 	 	Vienna, Virginia 22182

	 	 	 	Facsimile No.: (703) 847-5334

	 	 	 	Telephone No.: (703) 847-5268

	 	 	 	Attn:
Robert P. Dowski,

Chief Financial Officer

With a copy to: James E. Baker, Jr.

Baxter, Baker, Sidle, Conn & Jones, P.A.

120 E. Baltimore Street, Suite 2100

Baltimore, MD 21202

Facsimile: (410) 230-3801

Telephone: (410) 230-3800

With a copy to: Eleazer N. Klein, Esq.

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Facsimile: (212) 756-2200

Telephone: (212) 593-5955

Investor Signature Page

By its execution and delivery of this signature page, the undersigned Investor hereby joins
in and agrees to be bound by the terms and conditions of the Common Shares Purchase Agreement
dated as of December 12, 2006 (the “Purchase Agreement”) by and among The Allied Defense Group,
Inc. and the Investors (as defined therein), as to the number of shares of Common Stock and
Warrants set forth below, and authorizes this signature page to be attached to the Purchase
Agreement or counterparts thereof.

Name of Investor:

By:

Name:

Title:

Address:

Telephone No.:

Facsimile No.:

Email Address:

Number of Shares:

Aggregate Purchase Price: That price (rounded up to the nearest $0.01) equal to the average of the
volume weighted average closing price of the Common Stock for the ten (10) day period ending
November 30, 2006.

2

Exhibits:

	 	 	 
	A

B

	 	Schedule of Investors

Plan of Distribution

3

Exhibit A

Schedule of Investors

	 	 	 	 	 	 	 	 	 
	Investor	 	Common Shares	 	Purchase Price
	Pirate Capital LLC
	 		261,261		 		4,365,671.31	
	Wynnefield Capital Management LLC
	 		64,000		 		1,069,440.00	

	 	 	LBI Group, Inc. 41,739 697,458.69

	 	 	Halcyon/slifka Offshore Management 33,000 551,430.00

	 	 	TOTAL $ 6,684,000.00

4

Exhibit B

PLAN OF DISTRIBUTION

The selling stockholders may, from time to time, sell any or all of their shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use
any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• short sales;

• broker-dealers may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the 1933 Act, if
available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved. Any profits on the
resale of shares of common stock by a broker-dealer acting as principal might be deemed to be
underwriting discounts or commissions under the 1933 Act. Discounts, concessions, commissions and
similar selling expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the shares if liabilities are imposed on that
person under the 1933 Act.

The selling stockholders may from time to time pledge or grant a security interest in some or
all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock
from time to time under this prospectus after we have filed a supplement to this prospectus under
Rule 424(b)(3) or other applicable provision of the 1933 Act of 1933 supplementing or amending the
list of selling stockholders to include the pledgee, transferee or other successors in interest as
selling stockholders under this prospectus.

The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus and may sell the shares of common
stock from time to time under this prospectus after we have filed a supplement to this
prospectus under Rule 424(b)(3) or other applicable provision of the 1933 Act supplementing or
amending the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.

The selling stockholders and any broker-dealers or agents that are involved in selling the
shares of common stock may be deemed to be “underwriters” within the meaning of the 1933 Act in
connection with such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares of common stock purchased by them may be deemed
to be underwriting commissions or discounts under the 1933 Act.

We are required to pay all fees and expenses incident to the registration of the shares of
common stock. We have agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the 1933 Act.

The selling stockholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding the sale of their
shares of common stock, nor is there an underwriter or coordinating broker acting in connection
with a proposed sale of shares of common stock by any selling stockholder. If we are notified by
any selling stockholder that any material arrangement has been entered into with a broker-dealer
for the sale of shares of common stock, if required, we will file a supplement to this prospectus.
If the selling stockholders use this prospectus for any sale of the shares of common stock, they
will be subject to the prospectus delivery requirements of the 1933 Act.

The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may
apply to sales of our common stock and activities of the selling stockholders.

5EX-10.2

December 8, 2006

Wynnefield Capital Management LLC

450 Seventh Avenue

Suite 509

New York, New York 10123

Attn: Nelson Obus

Dear Nelson:

This letter will memorialize our agreements concerning the Board of Directors (the “Board”) of
The Allied Defense Group, Inc. (“ADG”). You have requested that we expand the Board and add
Frederick G. Wasserman (“Wasserman”) thereto. We have met with Mr. Wasserman and agree that he
would be a valuable addition to the Board.

Accordingly, we are willing to immediately expand the Board, to add Mr. Wasserman to the
Board, and to include Mr. Wasserman as a company-nominee in the ADG proxy statement for the
upcoming annual meeting of ADG stockholders (currently scheduled for January 25, 2007). However,
the Board conditioned these actions on the agreements set forth below.

Specifically, we believe it appropriate that Wynnefield and its affiliates (“Wynnefield
Group”) agree that during Mr. Wasserman’s tenure on the Board: (i) the Wynnefield Group will be
deemed an “insider” of ADG; and (ii) the Wynnefield Group will be restricted with respect to the
ADG securities transactions to the same extent as if you were a member of the Board. As we have
discussed, each member of the Board is subject to ADG stock trading restrictions as set forth in
Policy Letter Number 2, a copy of which is attached hereto.

Our offer to add Mr. Wasserman to the Board is further conditioned on the agreement of the
Wynnefield Group to vote at the upcoming annual meeting all of its shares of ADG common stock in
favor of the eight ADG management nominees to be included in the ADG proxy statement (i.e., Messrs.
Peay, Marcello, Meyer, Hudson, Griffith, Decker, Ream and Wasserman) and to take no actions
inconsistent with the election of these nominees.

Please sign the enclosed copy of this letter and return it to me evidencing the Wynnefield
Group’s agreement with the foregoing. Upon receipt thereof, we will formally extend the Board seat
to Mr. Wasserman and include him in the ADG proxy statement for the upcoming annual meeting.

Sincerely,

J. H. Binford Peay, III

AGREED

Wynnefield Capital Management LLC

By:

Nelson Obus, Managing Member

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