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                                                                    EXHIBIT 10.4

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                                Contract No. 1003

                                     BETWEEN

                              SOLTAM SYSTEMS LTD.

                                       AND

                              VALENTEC SYSTEMS INC.

                                       FOR

                       PRODUCTION, ASSEMBLY AND SUPPLY OF
                     MORTAR BOMBS PARTS 120MM, 81MM and 60MM

                                                                               1

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TABLE OF CONTENTS

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ARTICLE 1 - Definitions ............................................................     3
ARTICLE 2 - PREAMBLE, HEADINGS, ANNEXES AND CONTRACT SCOPE .........................     4
ARTICLE 3 - SALE ...................................................................     5
ARTICLE 4 - CONTRACT EFFECTIVE DATE (CED) ..........................................     5
ARTICLE 5 - SELLER'S REPRESENTATIONS AND OBLIGATIONS ...............................     5
ARTICLE 6 - DELIVERABLES AND SCHEDULE ..............................................     5
ARTICLE 7 - PRICE ..................................................................     6
ARTICLE 8 - PAYMENT ................................................................     6
ARTICLE 9  - PAYMENT SCHEDULE ......................................................     7
ARTICLE 10 - NOTIFICATION AND DELIVERY ADVICE ......................................     8
ARTICLE 11 - TITLE .................................................................     8
ARTICLE 12 - RISK OF LOSS ..........................................................     8
ARTICLE 13 - FREIGHT AND PACKING ...................................................     9
ARTICLE 14 - WARRANTY ..............................................................     9
ARTICLE 16 - BUYER FURNISHED INFORMATION ...........................................     9
ARTICLE 17 - BUYER PERSONNEL .......................................................    10
ARTICLE 18 - QUALITY CONTROL, DELIVERY AND ACCEPTANCE ..............................    10
ARTICLE 19 - TERMINATION FOR DEFAULT ...............................................    12
ARTICLE 20 - TERMINATION FOR CONVENIENCE ...........................................    12
ARTICLE 21 - SUBCONTRACTORS ........................................................    13
ARTICLE 22 - APPLICABLE LAW AND ARBITRATION ........................................    13
ARTICLE 23 - NEW MATERIALS .........................................................    14
ARTICLE 24 - PROPRIETARY RIGHTS IN THE PARTS .......................................    14
ARTICLE 25 - PROPRIETARY DATA AND CONFIDENTIALITY ..................................    14
ARTICLE 26 - INTELLECTUAL PROPERTY REPRESENTATION AND INDEMNIFICATION ..............    15
ARTICLE 27 - FORCE MAJEURE .........................................................    16
ARTICLE 28 - TAXES .................................................................    17
ARTICLE 29 - PERSONNEL DELEGATION ..................................................    17
ARTICLE 30 - VISAS .................................................................    17
ARTICLE 31 - HEADINGS ..............................................................    17
ARTICLE 32 - ENTIRE CONTRACT .......................................................    17
ARTICLE 33 - WAIVER ................................................................    17
ARTICLE 34 - RELIABILITY ...........................................................    18
ARTICLE 35 - MODIFICATION-- CHANGES ................................................    18
ARTICLE 36 - DISCLAIMER OF AGENCY ..................................................    19
ARTICLE 37 - DECLARATIONS ..........................................................    19
ARTICLE 38 - LANGUAGE OF DOCUMENTS .................................................    19
ARTICLE 39 - COMPUTATION OF TIME ...................................................    19
ARTICLE 40 - ASSIGNMENT ............................................................    19
ARTICLE 41 - NOTICES ...............................................................    19
ARTICLE 42 - U.S. GOVERNMENT REQUIRED CERTIFICATION AND AGREEMENT ..................    21
ARTICLE 43 - IMOD REQUIRED CERTIFICATION ...........................................    22
ARTICLE 44 - SECURITY ..............................................................    22
ARTICLE 45 - STOP WORK ORDERS ......................................................    23
ANNEX I - STATEMENT OF WORK (SOW)
ANNEX II - PARTS SPECIFICATION, DRAWING LIST
ANNEX III - PRICE, PAYMENT AND DELIVERY SCHEDULE
ANNEX IV - IRREVOCABLE STANDBY LETTER OF CREDIT
ANNEX V - CONTRACTORS DSCA CERTIFICATION (DRAFT)
ANNEX VI - FMF GUIDELINES
ANNEX VII - CERTIFICATE OF DELIVERY MILESTONE ACHIEVEMENT ..........................     1
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                               Contract No. 1003

This Contract is entered into this 22 day of October, 2004 by and between SOLTAM
SYSTEMS LTD., a private Israeli company having an address at P.O. Box 13
Yokneam, Israel 20692 (the "Buyer" or "SOLTAM") and VALENTEC SYSTEMS INC., a
private United States Company having offices at 2618 York Avenue, Minden,
L.A.71055 (the "Seller" or "VSI").

                                   WITNESSETH

WHEREAS,          Buyer has been awarded by the Israeli Ministry of Defense
                  (hereinafter referred to as "IMOD") as the prime contractor of
                  the Israeli Defense Forces (hereinafter referred to as "IDF")
                  Mortar Bombs Program (hereinafter referred to as "the
                  Program"), which will be financed primarily through United
                  States Foreign Military Financing ("FMF").

WHEREAS,          the parties have agreed that Seller will act as the
                  subcontractor of Buyer with respect to the Mortar Bombs to be
                  supplied by Buyer to the Israeli Defense Forces and will
                  produce and supply Buyer with certain Mortar Bombs' parts
                  (collectively, the "Parts"), in accordance with Buyer's Parts'
                  Specifications set forth in Annex II attached hereto and
                  Buyer's production know-how, which have already been disclosed
                  by Buyer to Seller; and

NOW, THEREFORE, in consideration of the terms, conditions and covenants
contained herein, the parties agree as follows:

ARTICLE 1 - DEFINITIONS

Whenever used in this Contract, the following terms shall have the meaning
assigned to them as hereunder:

1.1   MORTAR BOMBS - 120mm, 81mm and 60mm mortar bombs.

1.2   CONTRACT - this contract between the Parties.

1.3   DELIVERY SCHEDULE - the delivery schedule of the Parts set forth in Annex
      III attached hereto.

1.4   DSCA - The U.S. Defense Security Cooperation Agency.

1.5   FMF - Foreign Military Financing provided by the U.S. Government to fund
      direct commercial contracts between American contractors and the
      Government of Israel.

1.6   GOI - The Government of Israel.

1.7   IDF - The Israeli Defense Forces or any person or entity duly authorized
      to represent it.

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1.8   BUYER FURNISHED DATA - Technical data provided to Seller by the Buyer for
      the purposes of performing this Contract.

1.9   IMOD - The Israeli Ministry of Defense.

1.10  THE ORDER - IMOD order issued to SOLTAM for the supply of the Mortar
      Bombs.

1.11  PROGRAM - IMOD program for the purchase of the Mortar Bombs, which is the
      subject of the Order.

1.12  PROGRAM MANAGER - A member of Buyer's personnel designated by Buyer as the
      manager of the Program on its behalf.

1.13  SOW - The statement of work (attached hereto as Annex "I") and as may be
      updated or modified from time to time pursuant to ARTICLE 35, including
      any other documents referred to therein.

1.14  SUBCONTRACTORS - Contractors and suppliers of Seller and their respective
      employees who shall render goods or services to Seller, for the
      performance of this Contract.

1.15  SPECIFICATIONS - The technical specifications and drawings of the Parts as
      agreed upon by the Buyer and the Seller (attached hereto as part of Annex
      "II"), as may be updated or modified from time to time pursuant to ARTICLE
      35, including any other document referred to therein.

1.16  WORK - The work to be performed by Seller according to the SOW.

1.17  BUYER - Soltam Systems Ltd.

1.18  END USER - Israeli Ministry of Defense

1.19  EXPORT LICENSE - The export license(s), known as DSP-5, is defined as the
      license required to export the Parts to Israel.

1.20  SELLER - Valentec Systems Inc.

ARTICLE 2 - PREAMBLE, HEADINGS, ANNEXES AND CONTRACT SCOPE

2.1   The preamble to this Contract and the Annexes attached hereto, or the
      Annexes and documents incorporated by reference herein shall all form
      integral parts of this Contract for all intents and purposes.

2.2   The headings of the Articles in this Contract are provided for convenience
      only, and shall not affect the interpretation of this Contract.

2.3   The following Annexes (the "Annexes") are attached hereto, and form
      integral parts hereof:

      Annex I   -       Statement of Work (SOW)
      Annex II  -       Parts Specification, Drawing List
      Annex III -       Price, Payment and Delivery Schedule (Annex III(a)
      and Annex III(b)
      Annex IV  -       Irrevocable Standby Letter of Credit
      Annex V   -       Contractors DSCA Certification (DRAFT)
      Annex VI  -       FMF Guidelines
      Annex VII -       Certificate of Delivery Milestone Achievement

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                         (or Certificate of Completion)

      ARTICLE 3 - SALE

Seller agrees to sell and Buyer agrees to buy the quantity of the Parts set
forth in the attached Annex III hereto.

      ARTICLE 4 - CONTRACT EFFECTIVE DATE (CED)

      4.1   The date of the last to occur of the following shall be the
            effective date of this Contract (hereinafter referred to as "CED");

            A.    Execution of the Contract by the parties hereto;

            B.    Receipt by VALENTEC SYSTEMS INC. of the advance payment as set
                  out in Articles 5 and 10;

            C.    Seller's receipt of Defense Security Cooperation Agency,
                  (hereinafter referred to as "DSCA") approval of IMOD's funding
                  request for this Contract. Seller shall promptly notify Buyer
                  in writing of the IMOD's receipt of the required DSCA approval
                  after it receives notice of such approval from the IMOD.

            D.    Seller's receipt of the required export license(s), and, if
                  required, approval of a Technical Assistance Agreement (TAA).
                  A copy of the export license will be furnished to the IMOD.

      ARTICLE 5 - SELLER'S REPRESENTATIONS AND OBLIGATIONS

      5.1   Seller hereby represents and warrants that it possesses and its
            Subcontractors possess the necessary ability, fitness, know-how,
            professional expertise, resources and, in general, the capability
            and ability required to manufacture and supply the Parts, in the
            quantities requested and required, and to perform all of its
            obligations pursuant to this Contract.

      5.2   The Seller shall manufacture and supply the Parts in accordance with
            the SOW, the Specifications and drawings set forth in the attached
            Annex II, and the terms and provisions of this Contract and shall
            use qualified personnel and suitable materials and tools in the
            performance of its obligations hereunder.

      5.3   The Seller shall not sell, either directly or indirectly, or offer
            to sell the Parts or any part thereof, to any third party, without
            receiving prior written consent from the Buyer.

      ARTICLE 6 - DELIVERABLES AND SCHEDULE

      The Seller shall deliver the Parts EX-WORKS (Incoterms 2000) Seller's
      factory in Minden, Louisiana, U.S.A., in accordance with the Delivery
      Schedule and the other terms and conditions of this Contract. The
      foregoing shall not limit Seller's obligation to deliver any Parts in
      addition to those set forth in the Delivery Schedule or modify any items
      listed in the Delivery Schedule, if required for the Parts to meet the
      Specifications or other Contract requirements. Notwithstanding anything to
      the contrary stated in this Agreement, Seller shall be responsible for and
      shall bear the costs of the delivery of the Parts and all other
      deliverables set forth in the attached Annex III to and from Ashdod port,
      Israel in accordance with the delivery schedules in the attached Annex
      III.

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ARTICLE 7 - PRICE

7.1   It is agreed by and between the parties hereto that the total firm, fixed
      price of this Contract (the "Contract Price") shall be US$ 20,000,000
      (twenty million U.S. Dollars.) as follows: (a) the sum of US$ 19,010,000
      for the supply of the Parts in accordance with the attached Annex III(a)
      and (b) the sum of US$ 990,000 for the transportation of the Parts in
      accordance with the attached Annex III(b).

7.2   The Contract Price is calculated based on the prices set forth in the
      attached Annex III.

7.3   Payment for deliveries made by Seller hereunder shall be EX-WORKS VALENTEC
      SYSTEMS INC. Minden, Louisiana, U.S.A.

ARTICLE 8 - PAYMENT

8.1   The Contract Price shall be paid by IMOD, in accordance with this
      Contract, which shall make payment to the Seller in U.S. Dollars according
      to the corresponding delivery dates set forth in Annex III attached hereto
      (the "Delivery Milestone(s)").

8.2   Upon completion of all activities required for completion of a Delivery
      Milestone (including the receipt by Seller of the Certificates of
      Completion), the Seller shall deliver a signed Certificate of Delivery
      Milestone Achievement in the form set forth in Appendix VII, further
      accompanied by all the documents specified in Article 9 to the Buyer's
      Program Manager. The Buyer's Program Manager shall review and approve the
      Delivery Milestone material within seven (7) days. The Buyer will deliver
      the signed Certificate to IMOD and the Seller within fifteen (15) days
      after their receipt by the Buyer. The Buyer will telefax/email a copy of
      the countersigned certificates to the Seller at the time the Certificate
      is sent to the IMOD. The Seller shall submit to the Buyer a copy of each
      invoice and the associated Delivery Milestone material. The Seller shall
      submit to the IMOD six (6) copies of each invoice, each copy accompanied
      by a copy of the Certificate of Delivery Milestone Achievement. IMOD shall
      make payment to Seller within thirty (30) days of receipt of Seller's
      invoice accompanied by a Certificate of Delivery Milestone Achievement
      signed by the Seller and the Buyer and the appropriate documents as
      specified in the Article 9.

8.3   When sending an invoice relating to this Contract, the Seller shall
      indicate the applicable reference number from the attached Annex III.
      Failure to do so will prevent the processing and payment of the invoice.
      In the event a Delivery Milestone payment applies to more than one (1)
      reference number, the Seller shall submit a separate invoice for each
      reference number, which covers a portion of such payment. In addition,
      Seller's invoices must as a minimum contain the relevant information
      required by the FMF Guidelines, which are attached hereto as Appendix VI
      and Seller's Certification to the DSCA, including the following
      certification: "(Full Name of Seller) acknowledges that U.S. Government
      funds are being used by the Government of Israel to finance this Contract
      and certifies that the invoice(s) submitted with respect thereto are free
      from any material false statement or misrepresentation and do not omit any
      material facts."

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8.4   Payment shall be made by wire transfer as follows:

                Payee:   VALENTEC SYSTEMS INC.
                Mail to: VALENTEC SYSTEMS INC.
                         2618 YORK AVENUE
                         MINDEN, LOUISIANA, 71005
                         U.S.A.

                Payable to: BANK NAME: Bank of Hapoalim B.M. New York
                            1177 Avenue of America, New York, NY 10036
                            ROUTING NUMBER: ABA# 026008866
                            ACCOUNT NUMBER: 01067255-01
                            ACCOUNT NAME: Valentec Systems Inc.

8.5   The Delivery Milestones and corresponding payments and letter of credit
      amounts shall be as set forth in the attached Annex III.

8.6   IMOD's obligation to make the payments pursuant to the Delivery Milestones
      shown in Annex III is conditioned upon receipt by the Buyer of the
      Appendix IV Irrevocable Standby Letter of Credit.

8.7   All Delivery Milestones must be performed in full. Notwithstanding the
      Seller's successful completion of its obligations under a particular
      Delivery Milestone, neither the Buyer nor IMOD will have any payment
      obligation for such Delivery Milestone unless the Delivery Milestone has
      been successfully completed. All tasks within a Delivery Milestone must be
      successfully completed in order for the Delivery Milestone to be
      considered as having been successfully completed.

8.8   The Seller shall not deliver items prior to the dates set forth in the
      Delivery Schedule without first obtaining the prior written permission of
      the Buyer. Failure to obtain such permission shall give the Buyer and IMOD
      the right to delay processing and payment of the applicable invoice until
      the relevant payment date set forth in Annex III (with no interest
      accruing thereon). This Article is in no way intended as authorization for
      late delivery. Failure to meet the schedule as set forth in this Contract
      shall entitle the Buyer to all of its rights and remedies under this
      Contract, at law and in equity.

8.9   The Seller hereby confirms that the IMOD assumes no responsibility towards
      this Contract. The Seller agrees that under no circumstances shall IMOD be
      made a party to any dispute between the Buyer and the Seller, regardless
      of the nature of such dispute.

ARTICLE 9 - PAYMENT SCHEDULE

9.1   The contract provides for the direct payment of the Contract Price by the
      IMOD Mission to the United States to Seller, in accordance with DSCA FMF
      Guidelines.

9.2   Payment by direct wire transfer will be made NET 30 days in United States
      Dollars to Seller, Account No. 01067255-01 , Routing No. ABA# 026008866

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      at Bank of Hapoalim B.M. New York, 1177 Avenue of America, New York, NY
      10036.

9.3   The IMOD shall pay to Seller in accordance with the payment schedule set
      forth in Annex III attached hereto.

      Payment will be made to Seller's aforementioned account at the bank in
      USA, against Seller's invoice in six (6) copies, each copy accompanied by
      the Certificate of Delivery Milestone Achievement.

9.4   In addition with respect to the advance payment the following will apply:

      9.4.1 On the CED, an advance payment, equal to 15% of the Contract Price
            shall be made by IMOD to Seller. This advance payment shall be made
            against the Irrevocable Stand by Letter of Credit, as outlined in
            Annex IV, from an IMOD approved bank in USA, to be provided as per
            Section 9.4.2 below.

      9.4.2 This irrevocable standby letter of credit (the "Letter of Credit"),
            equal to the amount of the advance payment, will be provided by VSI
            to SOLTAM within thirty (30) days after the CED. The value of the
            Letter of Credit will be reduced at the time of Parts delivery in
            proportion to the value of the item being invoiced.

      9.4.3 This Letter of Credit will expire upon delivery of the last
            deliverable pursuant to Annex III. The Letter of Credit shall be
            payable to the United States Government in accordance with Article
            42 in the event Buyer is entitled to draw on the Letter of Credit in
            accordance with its terms.

      9.4.4 In the event that the scheduled date for completion of the final
            delivery is revised, Seller shall cause the expiration date of the
            Letter of Credit to be extended to a date one hundred twenty (120)
            days following the latest of such revised completion date.

ARTICLE 10 - NOTIFICATION AND DELIVERY ADVICE

Delivery advice shall be telefaxed to Buyer, fifteen (15) days prior to the
first scheduled delivery from VALENTEC SYSTEMS INC., Minden, LA., containing
such information as the contract number and a brief description of the
commodities to be shipped.

ARTICLE 11 - TITLE

Title to the Parts shall pass from Seller to Buyer upon delivery, EX WORKS
(INCOTERMS 2000).

ARTICLE 12 - RISK OF LOSS

The Parts shall be delivered to Buyer EX WORKS, VALENTEC SYSTEMS INC., 2618 York
Avenue, Minden, L.A 71055. Risk of loss or Parts (and other deliverables set
forth in the attached Annex III) damage to or deterioration of the Parts (and
other deliverables set forth in the attached Annex III) from whatever cause
arising shall be borne by Seller prior to and until their delivery to Ashdod
port in Israel.

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ARTICLE 13 - FREIGHT AND PACKING

Seller shall plan, arrange and pay for land and sea transportation from and to
and from its facility to and from Ashdod port in Israel, in accordance with
Annex III. Seller must use US carrier and shall follow all transportation
guidelines and restrictions.

ARTICLE 14 - WARRANTY

14.1  Seller warrants that the Parts delivered hereunder shall be free from
      manufacturing errors and errors, deficiencies and defects in materials and
      workmanship, and shall conform to the Specifications and their respective
      drawings (in the attached Annex II) and other provisions of this Contract.
      This warranty is limited (i) to the prompt correction of errors,
      deficiencies and defects in the Parts, and (ii) to the prompt repair,
      replacement or modification, at Seller's option, of defective goods or
      parts, and any parts damaged by reason thereof, returned to Seller,
      provided that written notice of the defect shall have been given to Seller
      within twelve (12) months of delivery of the Parts in accordance with
      Article 10 hereof; and provided further, that any warranties made by
      Subcontractors that extend beyond the term of this warranty shall inure to
      the benefit of the Buyer. Transportation charges to Seller's plant in
      connection with items returned to Seller and the return transportation
      charges for repaired, modified or replacement items shall be paid by
      Seller if Seller is responsible for repair, modification or replacement
      under the terms of this warranty and such items shall be shipped by a mode
      of transportation to reach Buyer's plant no later than 45 days after
      shipment from Seller's plant. Repaired, modified or replacement items
      shall be fully warranted again, for the full period, as any new item when
      first delivered to Buyer hereunder.

14.2  Any other provisions of this contract to the contrary notwithstanding,
      this warranty, except as to title, is in lieu of all other warranties,
      express or implied, including merchantability or fitness for any
      particular purpose, whether arising by law, custom, conduct or usage of
      trade, and the rights and remedies provided herein are exclusive and in
      lieu of any other right or remedies.

ARTICLE 15 - LEFT BLANK INTENTIONALLY

ARTICLE 16 - BUYER FURNISHED INFORMATION

16.1  Buyer has already furnished to Seller for use only in connection with this
      Contract certain information and materials. Title to said materials and
      information shall at all times remain In Buyer. Seller shall keep and
      maintain said materials in strict confidence, shall not disclose such
      information and material to any third party, and shall act with the
      information and material in accordance with the same practices it uses
      with respect to its own materials of like quality and type, and shall
      maintain control records with respect to Buyer furnished materials and
      information, which materials, information and records shall be subject to
      Buyer's inspection upon Buyer's request. Seller shall be entitled to
      disclose such information to its Subcontractors, who need to know such
      information for the sole purpose of performance of Seller's obligations
      under this Agreement, and provided that prior to such disclosure they will
      undertake in writing to be bound by the confidentiality obligations
      hereof, and further provided that Seller shall be responsible and liable
      toward Buyer for any breach by its Subcontractors of the confidentiality
      obligations hereunder. Seller shall be responsible for any loss or damage
      to Buyer furnished

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      materials from the time of delivery to Seller until their return to Buyer.
      At the earlier of either the completion of this Contract, at such time as
      specified elsewhere in this Contract, or Buyer's request, Seller shall
      pack and prepare for shipment and deliver EX Works Minden, LA all Buyer
      furnished information and materials (including all information and copies
      thereof), which Seller disclosed to its Subcontractors as mentioned above,
      all in accordance with directions given by Buyer.

ARTICLE 17- BUYER PERSONNEL

17.1  Buyer's personnel shall be entitled to conduct in-process monitoring and
      inspection of Contract performance (including all in-process testing) at
      Seller's facilities where the Work is being performed (hereinafter
      referred to as the "Seller's Plant") and at the facilities of Seller's
      major Subcontractors , subject to such major subcontractors permission,
      which Seller will make best efforts to obtain. This shall include access
      to Seller's quality assurance program. Also, the Seller will use its
      reasonable best efforts to enable the Buyer's personnel to conduct
      in-process monitoring and inspection of Subcontractors' performance at
      Subcontractor's plants. Subject to ARTICLE 17.3. the Seller shall provide
      the Buyer with access to drawings, designs, diagrams and specifications
      for the Parts and all portions thereof. The Seller shall enter into
      appropriate agreements with its Subcontractors and vendors to provide for
      the foregoing.

17.2  The Buyer shall give the Seller at least thirty (30) days prior written
      notice of the visit date to the Seller's Plant and its Subcontractors.

17.3  The Seller's obligations set forth in Articles 17.1 and 17.2 above are
      conditioned on the Seller obtaining all necessary approvals from the U.S.
      Government including the U.S. Department of State, and the Buyer complying
      with the applicable U.S. Government laws and security regulations and
      seller's Plant rules and escort requirements.

17.4  The Buyer's personnel mentioned in this Contract may include
      representatives of the IMOD and IDF who will have the same rights as the
      Buyer's personnel.

17.5  Without derogating from the aforesaid, the Program Manager has the right
      to visit at the Seller's Plant from time on a non-interference basis
      during the term of this Contract and is authorized to execute Certificates
      of Delivery Milestones Achievement or issuing comments in respect to
      technical documents requiring the Buyer's approval. The Program Manager
      shall have no authority to make Contract changes or to grant approvals,
      which require Contract changes, such approvals to be made on the Buyer's
      behalf only in writing signed by the authorized signatories of the Buyer,
      as stipulated in ARTICLE 18.3.

17.6  The Seller agrees to provide the Program Manager, with normal furnished
      office space; reasonable access to office equipment, including, but not
      limited to, photocopying equipment; supplies, secretarial services; local
      and long distance domestic telephone services, at Seller's expense while
      staying at Seller's facilities.

ARTICLE 18 - QUALITY CONTROL, DELIVERY AND ACCEPTANCE

18.1  Seller will be obligated to receive Buyer's approval of the First Article
      (as defined in the SOW), which will be submitted by Seller to Buyer in
      accordance with Section 6 of the SOW, prior to commencing production of
      the Parts hereunder.

18.2  Seller shall perform interim production, quality control, and final tests
      in accordance with the SOW, schedule and procedures and to the standards
      specified in this

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      Contract. All deliverable items hereunder shall be delivered in accordance
      with the Delivery Schedule, which sets forth deliverable items by name,
      quantity and delivery date relative to the effective date of the Contract.

18.3  All acceptance tests shall be conducted pursuant to acceptance test plans
      and acceptance test procedures ("ATP") as set forth in the SOW. The
      Buyer's and IMOD's representatives may witness all tests set forth in the
      SOW. The Seller shall give the Buyer at least sixty (60) days prior
      written notice of the commencement date of each lot of the acceptance
      tests, the Buyer shall respond and notify the Seller within forty-five
      (45) days of receipt of the said notice, if the Buyer and/or IMOD
      representatives intend to attend the relevant test. Upon a determination
      that the acceptance test results comply with the applicable ATP and pass
      the criteria specified therein, the Buyer and the Seller shall sign
      Certificates of Completion with respect to such acceptance tests. If the
      Buyer elects not to attend the acceptance tests, or if Buyer attends the
      acceptance tests but does not act upon Seller's request for signature
      within fourteen (14) days of receipt of said request, Seller shall be
      authorized to sign the Certificate of Completion so long as the acceptance
      test results comply with the applicable ATPs and pass the criteria
      specified therein. The form for the Certificate of Completion shall be as
      set out in Annex VII attached hereto.

18.4  The Seller acknowledges that each lot of Parts delivered hereunder shall
      be subject to and must pass the IDF acceptance tests set forth in the SOW.

18.5  The delivery of the Parts shall be Ex-Works (INCOTERMS 2000), Seller's
      facilities at 2618 York Avenue, Minden, Louisiana, USA 71055. The Buyer
      (or IMOD) shall furnish the Seller with shipping instructions within a
      reasonable time following execution by Buyer of the Certification of
      Completion for each lot of Parts. Such shipping instructions will set
      forth the date(s) by which ocean freight containers are to be loaded by
      Seller. Seller shall provide ninety (90) days temporary storage at its
      facilities at no cost to Buyer, pending loading of the containers. Parts
      not shipped within ninety (90) days may incur storage costs. Buyer agrees
      to pay the storage costs, if any are imposed by the U.S. Army or their
      designated representatives.

18.6  Neither the provisions of this Article 18, nor actions taken pursuant
      hereto, nor any approvals or comments by Buyer with respect to Seller's
      work shall affect or diminish the full and absolute responsibility of
      Seller to comply with the requirements of this Contract.

18.7  Without derogating from any right or remedy available to Buyer under any
      law or Contract, it is hereby specifically clarified that any delay or
      expected delay in the delivery dates as set forth in the Delivery Schedule
      shall be notified in writing by Seller to Buyer immediately upon Seller's
      becoming aware of such delay. Seller shall specify in its notice the
      reasons for the delay and the expected date of delivery.

18.8  Each Part or lot of Parts delivered by Seller to Buyer shall be
      accompanied by a certificate confirming the following:

      (a)   That each of the Parts was built and examined in strict accordance
            with the final and approved technical documentation (Specifications
            and the production file);

      (b)   That each of the Parts was examined and successfully passed the
            qualification acceptance tests as specified in the Specifications
            and the SOW; and

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      (c)   That all of the Parts as a whole were examined and successfully
            passed the mutually agreed upon acceptance tests and meet the
            acceptance tests standards set forth in the SOW.

ARTICLE 19 - TERMINATION FOR DEFAULT

19.1  Each party shall have the right to terminate this Agreement at any time
      upon ninety (90) days prior written notice to the other party in any of
      the following events: (i) winding-up, receivership, or dissolution
      proceedings shall be commenced with respect to the other party (provided
      that if such proceedings shall be rescinded within ninety (90) days of
      their commencement, such notice of termination shall have no effect); or
      (ii) the other party shall substantially cease to carry on business; or
      (iii) a substantial part of the other party's assets shall be attached or
      levied by a court or another official agency (provided that if such
      attachment or levy shall be removed within ninety (90) days, such notice
      of termination shall have no effect); or (iv) the other party shall fail
      to perform or shall be in breach of any of its material obligations under
      this Agreement and such failure or breach shall not be rectified within
      ninety (90) days after receiving a written notice from the other party,
      specifying the failure or breach and demanding its cessation.

19.3  However, if there is a dispute between Buyer and Seller concerning the
      alleged default of the Contract such dispute shall be settled under the
      Arbitration Article 22. Under a dispute situation, the amount as mentioned
      above, would not be paid to Buyer unless the Arbitration Board decided the
      dispute in favor of Buyer.

19.4  Except for defaults of subcontractors at any tier, the Seller shall not be
      liable for any excess costs if the failure to perform the contract arises
      from causes beyond the control and without the fault or negligence of the
      Seller. Examples of such causes include (1) acts of God (2) fires, (3)
      floods, (4) epidemics, (5) quarantine restrictions, (6) strikes, (7)
      freight embargoes, and (8) unusually severe weather. In each instance the
      failure to perform must be beyond the control and without the fault or
      negligence of the Seller.

19.4  If the failure to perform is caused by the default of a subcontractor at
      any tier, and if the cause of the default is beyond the control of both
      the Seller and subcontractor, and without the fault or negligence of
      either, the Seller shall not be liable for any excess costs for failure to
      perform, unless the subcontracted supplies or services were obtainable
      from other sources in sufficient time for the Seller to meet the required
      delivery schedule.

19.5  It is agreed by and between the parties that the remedies available to
      Seller and Buyer as set forth above are the sole and exclusive remedies,
      recourse and liability to each of the parties under this Article of this
      Contract. Under no circumstances shall Buyer or Seller be liable under
      this Article or any other provision of this Contract to a cumulative
      liability greater than the Contract Price.

ARTICLE 20 - TERMINATION FOR CONVENIENCE

20.1  Buyer shall have the right, at its convenience and discretion, to
      terminate this Contract, in whole or from time to time in part, by
      delivery to Seller of a notice

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      of termination for convenience, specifying the extent to which the
      performance of the Program under this Contract is terminated, and the date
      upon which such termination shall become effective, which termination
      shall be subject to the terms set forth in Paragraph 52.249-2 of the
      September 1996 edition of the Federal Acquisition Regulation of the United
      States Government, with Buyer being substituted for the "Contracting
      Officer" and the "Government" and Seller being substituted for
      "Contractor", except that any disputes in connection herewith shall be
      resolved in accordance with ARTICLE 22 hereunder. Costs included in Seller
      termination claim may be verified by DCAA.

ARTICLE 21 - SUBCONTRACTORS

21.1  Seller shall notify Buyer the identity of its Subcontractors who may take
      part in the performance of Seller's obligations and undertakings pursuant
      to this Contract and in addition, the types of work in which they shall be
      engaged.

21.2  Seller shall cause, that all the required provisions of this Contract,
      shall be included in each agreement between Seller and any of its
      Subcontractors, mutatis mutandis, and shall ensure that each of its
      Subcontractors shall adhere to the provisions of this Contract, provided
      that the aforesaid will apply only to the Subcontractors whose contract
      price is above US$ 500,000 (five hundred thousand U.S. Dollars).

21.3  Notwithstanding the above provisions, nothing in this Contract creates
      contractual relations between Buyer and the Subcontractors or shall impose
      on Buyer any financial obligation towards the Subcontractors and/or
      diminishes Seller's responsibilities and liabilities, undertakings and
      obligations to perform this Contract as it is written, and according to
      its provisions.

ARTICLE 22 - APPLICABLE LAW AND ARBITRATION

22.1  Applicable Law and Enforcement

      It is agreed by and between the parties hereto that this Contract shall be
      construed and interpreted in accordance with the laws of New York
      (excluding conflict of laws principles). Any arbitration award shall be
      based on and accompanied by findings of fact and conclusions of law, and
      shall be conclusive. Any award shall be confirmable by any U.S. District
      Court having jurisdiction over the parties and action.

22.2  Arbitration Required

      All disputes and/or claims between the parties hereto based upon any
      alleged breach of any of the obligations created hereunder shall be
      finally settled by an arbitrator appointed pursuant to the then rules and
      regulations of the American Arbitration Association.

22.3  Language of Arbitration

      The arbitration proceeding shall be conducted in accordance with the rules
      of the American Arbitration Association then in force and shall be in the
      English language. The arbitration shall take place in New York, New York,
      U.S.A.

22.4  Confidentiality

      The parties agree that any arbitration proceedings hereunder shall be
      conducted on a confidential basis, and subject to the security provisions
      of this Contract.

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22.5  Costs

      Each party shall be responsible for its respective costs incurred in
      arbitration, except that costs and fees imposed by the arbitrator for his
      fees and expenses shall be borne equally by the parties.

22.6  Scope of Awards

      The award of the arbitrator may be, alternatively or cumulatively, for
      monetary damages, an order requiring performance of non-mandatory
      obligations (including specific performance or an obligation to cease and
      desist) or any other appropriate order or remedy; however, under no
      circumstances shall the arbitrator be authorized to award, nor shall the
      arbitrator award, consequential damages, punitive damages or multiple
      damages. The arbitrator may issue interim awards and order any provisional
      measures that should be taken to preserve the respective right of either
      party.

ARTICLE 23 - New Materials

Seller warrants that the supplies and components to be provided by Seller under
this Contract are new, not used or reconditioned (except to the extent that such
supplies and components must be used or modified in the performance hereof), and
that at the time of the Parts delivery, none of such supplies and components
shall be of such age or so deteriorated as impair their usefulness or safety.

ARTICLE 24 - Proprietary Rights in the Parts

Buyer owns and will continue to own the proprietary rights in the Parts. Seller
will be entitled to manufacture, assemble, test and deliver the Parts under this
Contract.

ARTICLE 25 - Proprietary Data and Confidentiality

25.1  All specifications, technical data and information furnished to Seller by
      Buyer in writing prior to the date of this Contract and all
      specifications, technical data and information to be furnished to Seller
      by Buyer in the course of this Contract which are clearly and
      conspicuously marked Proprietary Data will not be disclosed by Seller to
      third parties other than the U.S. Government (and with respect to such
      disclosure to the U.S. Government only if required to do so by law or
      regulation).

25.2  Each of the Parties shall keep confidential, shall not to disclose, or
      allow to be disclosed and shall not expose or allow to be exposed, all or
      any part of any information which it will be, or may be exposed to, or
      will obtain or will have access to, directly or indirectly, regarding the
      other Party's respective intellectual property, work techniques,
      technologies, any financial or commercial information, cost information,
      customer and/or client lists, suppliers, subcontractors, prices or any
      other Information regarding the other Party's business or affairs
      (hereinafter: the "Confidential information") and not to make use of the
      Confidential Information in any manner, for any purpose other than for the
      purpose of performing its respective undertakings and obligations as
      provided herein, and not to transfer any of the Confidential information
      to any third party. IMOD will not be regarded as a third party with
      respect to the limitations under this ARTICLE.

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      25.3  The provisions in ARTICLES 25.1 and 25.2 hereinabove shall not apply
            to Proprietary Data aforementioned or Confidential Information that
            the receiving Party can prove by documentary evidence that such
            Confidential Information:

            25.3.1 Has already been known to the receiving Party not in
            connection with this Contract before being disclosed to it by the
            disclosing Party;

            25.3.2 Has become generally known to the public through no breach of
            the receiving party's undertakings herein by such Party or on its
            behalf.

            24.3.3 Has been rightfully received by the receiving Party from a
            third person who did not breach any restriction of disclosure or
            obligation of confidentiality;

            25.3.4 Has been independently developed for the receiving Party, by
            its employees (who, at no time, have been exposed to the
            Confidential Information) without use, directly or indirectly of the
            Confidential Information or any part thereof received from the other
            Party or on its behalf.

      25.4  Notwithstanding anything to the contrary contained herein, in the
            event that either Seller or Buyer shall be required to provide their
            subcontractors with any of the other Party's Confidential
            Information, in order to fulfill its undertakings and obligations in
            connection to the performance of this Contract, it shall:

            25.4.1 Ensure that its subcontractors sign a Confidentiality
            Undertaking similar to its undertaking, pursuant to this Contract,
            and

            25.4.2 Receive back from its subcontractors, any and all such
            Confidential Information, promptly upon such Subcontractors
            concluding performing their respective undertakings related to the
            Confidential Information.

      25.5  Each of the Parties undertakes to ensure that all of their
            respective employees, consultants, officers, directors,
            shareholders, subsidiaries and anyone else affiliated or related in
            any way to either of the Parties, shall abide with the above
            undertaking. Each Party acknowledges its liability for any breach of
            the above undertaking made by one or more of the persons or entities
            referred to above.

      25.6  The provisions of this ARTICLE 25 shall survive any termination or
            expiration of this Contract.

ARTICLE 26- INTELLECTUAL PROPERTY REPRESENTATION AND INDEMNIFICATION

      26.1  Seller represents that to the best of its knowledge, the items,
            data, information, drawings or any other material delivered by
            Seller hereunder are free from infringement from any patents or
            claim of other third party proprietary rights, and that Seller has
            not granted to any third party an exclusive license to manufacture
            or sell the same in Israel, and knows of no such grant.

      26.2  Seller shall, without limitation, at its sole cost and expense,
            indemnify and hold Buyer harmless from, and defend any claims, suits
            or proceedings arising out of, any infringement or claimed
            infringement of:

                  (a) Any letters patent; or

                  (b) Any other proprietary rights.

      26.3  Seller shall pay any judgments entered, or any settlements made with
            Seller's prior written approval, with respect to the suits or
            proceedings referred to in

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      ARTICLE 26.2 above. Such defense and payments under this ARTICLE 26 are
      conditioned on the following:

      A.    Buyer shall promptly notify Seller in writing of any notice of such
            claim;

      B.    Seller or its nominee shall have control of the defense of any
            action on such claim and all negotiations for its settlement or
            compromise; provided, however, that if the Buyer is a named
            defendant, Buyer shall have the right to approve counsel and to
            cooperate in such defense; and

      C.    Buyer shall give Seller assistance reasonably required in connection
            with such defense or negotiations.

26.4  Articles 26.2 and 26.3 shall have no application if:

      A.    The Infringement or claimed infringement results from compliance
            with specific written instructions by Buyer directing a change in
            the supplies to be delivered or in the materials or equipment to be
            used; or

      B.    The Infringement results from the addition to, or change in, the
            supplies or services furnished, which addition or change was made
            subsequent to delivery or performance by Seller.

26.5  Should the use of any item or any part thereof delivered hereunder be
      enjoined, or in Seller's opinion be likely to become enjoined, or in the
      event Seller desires to minimize its liabilities hereunder, Seller will,
      at its option, either substitute a fully equivalent, non-infringing
      product, modify such item so that it no longer infringes but remains
      functionally equivalent, or obtain for Buyer, at the expense of Seller or
      its nominee, the right to continue use of the item or any part thereof.

ARTICLE 27 - FORCE MAJEURE

27.1  A delay in the performance hereunder by a party shall only be excused when
      said delay in performance is caused by an event beyond the reasonable
      control of that party and which could not have reasonably been anticipated
      and was without the party's default or neglect, including but not limited
      to acts of God, war, strikes, explosions, hijacking, accidents, Government
      acts including limitations on travel and export limitations, Seller's
      self-imposed restrictions on travel based on US State Department travel
      advisories, act of the public enemy, and failure or inability of
      subcontractors to perform due to any such causes as above unless the
      parties otherwise agree that subcontract commodities to be furnished under
      the contract are procurable in the open market. The foregoing provision
      shall not, however, release a party claiming force majeure from using its
      best efforts to avoid or diligently remove such circumstances. When a
      party is excused from performance of any of the above-mentioned
      circumstances, that party shall resume performance with utmost dispatch as
      soon as such circumstances are removed. A party claiming such an excusable
      delay, in order for it to be recognized, shall promptly give written
      notice verified by the appropriate Chamber of Commerce.

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ARTICLE 28 - TAXES

28.1  The Contract price includes all United States federal, state or local
      taxes, levies and duties imposed on the Seller, its Subcontractors or
      employees. The Contract price does not include any amounts for Israeli
      value added tax, custom duty, stamps or any other taxes, charges or fees
      that may be levied in Israel on the Parts to be supplied by the Seller.

28.2  Any export tax, fee or other charges of any nature now existing or which
      may hereafter be imposed by the U.S. Government shall be paid by Seller.

ARTICLE 29 - PERSONNEL DELEGATION

29.1  It is understood and agreed that all technical specialists whose services
      are furnished to assist Buyer as contemplated herein shall operate under
      the direction of Seller, but Seller shall assure that such persons are
      fully responsive to Buyer's requirements. It is understood and agreed that
      employees of one party, while visiting the plant of the other, shall not
      be considered to be employees of the other, and that their salaries,
      traveling expenses, and living costs, as well as an liability for
      workmen's compensation, accident and health insurance or other benefits,
      shall be borne by their own employer which shall assume all responsibility
      with respect thereto. Seller shall not be liable for any injuries or death
      or for any loss or damage to property arising out of or caused by their
      performance of this Contract unless due to willful misconduct or
      negligence of Seller. Such employees shall abide by all of the plant rules
      and regulations of the plant that they are visiting or at which they are
      resident. Each party shall make its own best efforts to obtain compliance
      therewith.

ARTICLE 30 - VISAS

30.1  If required, Buyer shall assist Seller in obtaining Visas for Seller's
      personnel sent to Israel under this Contract.

30.2.1 If required, Seller shall assist Buyer in obtaining Visas for Buyer's
       personnel sent to the U.S. under this Contract.

ARTICLE 31 - HEADINGS

31.1  The articles and paragraphs headings contained herein are for convenience
      and reference only, and are not a part of this Contract, nor shall they in
      any way effect the interpretation thereof.

ARTICLE 32 - ENTIRE CONTRACT

32.1  This Contract contains and constitutes the entire understanding and
      agreement between the parties hereto respecting the subject matter hereof
      and supersedes and cancels all previous negotiations, agreements,
      commitments and writing in connection therewith.

ARTICLE 33 - WAIVER

33.1  Any waiver by either party of a breach or default shall not constitute a
      waiver of any other breach or default subsequently occurring.

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ARTICLE 34 - RELIABILITY

34.1  The parties agree that if any portion of this Contract shall be held to be
      illegal and/or unenforceable, the parties will provide notice of such fact
      to each other and will arrive at the solution by mutual agreement. The
      remaining portions of this Contract shall continue to be binding and
      enforceable provided that the affectivity of the remaining portion of this
      Contract would not defeat the overall intent of the parties, or give one
      party any substantial financial benefit to the detriment of the other
      party.

ARTICLE 35 - MODIFICATION -- CHANGES

35.1  Buyer may at any time, by written order make changes within the general
      scope of this contract in any one or more of the following:

            (1) Drawings, designs, or specifications

            (2) Content of Seller scope of work

35.2  If any such change causes an increase or decrease in the cost of, or the
      time required for, performance of any part of the work under this
      contract, the Buyer shall make an equitable adjustment in the contract
      price, the delivery schedule, or both, and shall modify the contract.
      Seller shall assert its right to an adjustment under this clause within 30
      days from the date of receipt of the written order. Seller shall provide
      Buyer with a proposal for equitable adjustment no later than 90 days after
      asserting its right. Buyer and Seller recognize that reductions in
      Seller's scope of work may Impact Seller's indirect cost rates, including
      but not limited to Overhead, Fringe and G&A. In those situations, Buyer
      and Seller agree that Seller's claim shall be adjusted to reflect the
      changes in rates as allowed in the latest edition of the Federal
      Acquisition Regulation of the United States Government, with Buyer being
      substituted for the "Contracting Officer" and the "Government" and Seller
      being substituted for "Contractor". DCAA shall be the audit authority for
      any claim. If Seller's proposal includes the cost of material made
      obsolete or excess by the change, the Buyer shall have the right to
      prescribe the manner of the disposition of the material. Failure of Buyer
      and Seller to agree to any adjustment shall be a considered a "dispute"
      under Article - 22-Applicable Law and Arbitration of this contract.

35.3  No change altering price, payment terms or Program Schedule shall be
      effective unless accompanied by an amendment signed by the authorized
      representatives of Buyer and Seller. Seller shall not proceed with the
      change request pending the Contract amendment. If Seller does proceed with
      the change despite not having received a signed amendment to this
      Contract, all costs associated with such change shall be deemed to be
      covered by the firm fixed price of this Contract and will not be
      reimbursed by Buyer or IMOD.

35.4  Any amendment to this Contract is subject to the prior written consent of
      Seller, IMOD and DSCA.

35.5  Seller shall use reasonable efforts to reduce delays agreed upon by the
      Parties in the timetable, as a result of the performance of any changes.

35.6  No change altering any technical or other contractual requirement shall be
      effective unless accompanied by an amendment signed by the authorized
      representatives of Buyer and Seller. Seller shall not proceed with any
      such change request pending the Contract amendment.

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ARTICLE 36 - DISCLAIMER OF AGENCY

The parties to this Contract are independent legal entities. There is no
relationship existing of principal and agent. Therefore, neither party shall
have authority to accept on behalf of the other any order, agreement, or
contract, or to create any claim, guarantee, debt, obligation, expense or
liability of any kind on behalf of the other party.

ARTICLE 37 - DECLARATIONS

It is agreed by and between the parties that they shall render one to the other
whatever assistance is deemed appropriate in obtaining any Governmental
approvals for this Contract, if required.

ARTICLE 38 - LANGUAGE OF DOCUMENTS

All documents such as shipping documents, shipping advice, markings, drawings,
instruction manuals, guarantees, letters, telegrams, telefaxes, etc., in
connection with the contract shall be in English, unless otherwise authorized by
Seller.

ARTICLE 39 - COMPUTATION OF TIME

Time, if stated in number of days, will include Saturday, Sunday and Holidays.

ARTICLE 40 - ASSIGNMENT

40.1  Except as otherwise expressly provided herein, neither party shall assign
      or in any manner transfer its rights and/or obligations or any part
      thereof under this Contract without express prior written consent of the
      other party, which consent shall not be unreasonably withheld.

40.2  Subject to any required governmental licensing approvals or restriction,
      either party may, without the other party's consent, assign its rights
      and/or obligations hereunder to (i) its parent company, if any; (ii) any
      complete successor in interest in the event of change in corporate name,
      merger, acquisition or consolidation of its parent or itself, or (iii) a
      wholly owned subsidiary of its parent or itself.

ARTICLE 41 - NOTICES

41.1  Any and all notices hereunder shall be sent by registered airmail or cable
      as follows:

                To Buyer:

                SOLTAM Systems Ltd.
                P.O.B. 13
                Yokneam 20692
                Israel

                Attention: Mr. Cohen Rachamim
                           Program Manager

                Telephone: 097249896450
                Telefax:   097249896452
                E-Mail:    rachamim_c@soltam.com

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                And MR. JACOB INBAR
                        Technical Manager
                Telephone: 09724989680
                Telefax:   097249893643
                E-Mail:    Jacob_i@soltam.com

                To Seller:

                Notices on all contractual matters for the Program shall be
                addressed to:

                VALENTEC SYSTEMS INC.,
                2618 York Avenue
                Minden, LA 71055
                Attention: Mr. James E. Hawley

                Telephone:318-459-5120
                Telefax:  318-459-5129
                E-Mail:   kethy crafvsi@valentec.net

                A copy of all notices on all technical matters for the Program
                shall be addressed to:

                JAMES E. HAWLEY
                Program Manager

                Telephone: 318-459-5123
                Telefax:   318-459-5129
                E-Mail:    jhawlet@valentec.net

Contracts Manager
RON MACKEY
Telephone-318-459-5143
Telefax-318-459-5129
rmackey@valentec.net

      All airmail notices shall be effective and deemed given one week after
      posted, and all email / fax notices seventy-two (72) hours after delivery
      to the email / fax address, unless the party can confirm receipt
      otherwise.

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ARTICLE 42 - U.S. GOVERNMENT REQUIRED CERTIFICATION AND AGREEMENT

42.1  Contractor's Certification - In order for Seller/IMOD to obtain approval
      of the U.S. Defense Security Cooperation Agency ("DSCA") (formerly Defense
      Security Assistance Agency) to use Foreign Military Financing ("FMF")
      credit funds for this procurement, Seller agrees to complete, execute in
      duplicate and furnish Buyer for transmittal to the DSCA the form entitled
      "Contractors Certification and Agreement with Defense Security Cooperation
      Agency", hereinafter referred to as "Contractors Certification", in the
      form attached hereto as Appendix V (or such modified form as may be
      required by DSCA). Seller agrees that any breach of any of its obligations
      under said Contractors Certification shall constitute a breach of Seller's
      obligation to Buyer/IMOD under this Contract.

42.2  FMF Guidelines - Seller acknowledges receipt of the Guidelines for Foreign
      Military Financing of Direct Commercial Contracts - Israel, dated August
      2001 (the "FMF Guidelines"), a copy of which is annexed hereto as Appendix
      VI. Seller agrees to observe the FMF Guidelines. Seller will not make any
      changes to the U.S. content / non-US content identified in its
      Certification without the prior written authorization of Buyer/IMOD.

42.3  Seller is fully responsible for maintaining the U.S. content percentage
      set forth in Seller's certification to the DSCA. All costs associated with
      maintaining the U.S. content percentage (i.e. shifting additional work to
      the U.S.) shall be Seller's responsibility and shall not be reimbursed by
      Buyer. In the event Seller fails to maintain such U.S. content percentages
      and because of such failure the DSCA suspends or revokes, in whole or in
      part, its FMF funding approval, Seller shall be deemed to be in material
      breach of its obligations under this contract and Buyer shall be entitles
      to return all items previously delivered (including finally accepted
      items) for full refund of all amounts previously paid by Buyer to Seller
      with no further Buyer financial obligations to Seller.

42.3  Payments to the U.S. Government - In accordance with Paragraph 18 of the
      FMF Guidelines and Paragraph 19 of the Contractors Certification, Seller
      and Buyer agree that all payments to the U.S. Government must be made
      payable to the United States Treasury and remitted (1) directly by check
      to the DSCA or (2) by wire transfer to the U. S. Treasury's account.
      Checks shall be made payable to "United States Treasury" and mailed to:

      Defense Finance and Accounting Service (DFAS-DE/IADD)
      6760 E. Irvington Place
      Denver, CO 80279-5000

      The check shall be accompanied by a letter of explanation Identifying
      Israel as the purchasing country. Wire transfer payments shall be
      transferred as follows:

           United States Treasury
           New York, New York
           021-030-004
           DFAS-DE/IADD
           Agency Code 3801

      Refund from Seller, for purchases made by the Government of Israel under
      GOI Contract/Purchase Order No.

                                                                   Page 21 of 28

<PAGE>

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[VALENTEC LOGO]     AMMUNITION MULTI YEAR PROGRAM - CONTRACT NO. 1003       [SOLTAM SYSTEMS LOGO]
</TABLE>

      Seller shall furnish to Buyer concurrently with any transmittal to the
      U.S. Government, copies of any check, wire transfer, letter of explanation
      or other relevant correspondence, which is sent to U.S. Government.

42.4  DCMA and DCAA Administrative Services - As a condition of FMF funding of
      the Contract, Seller agrees that Defense Contract Audit Agency (DCAA)
      contract audit services will be performed to ensure that Seller is in
      compliance with the Defense Security Cooperation Agency (DSCA)
      contractor's certification. DCAA will perform contract audit services in
      accordance with the contractor's certification. To ensure contractor
      compliance, DCAA contract audit services will be provided over the life of
      the Contract and will be coordinated with the Defense Contract Management
      Agency.

ARTICLE 43 - IMOD REQUIRED CERTIFICATION

43.1  Seller agrees that by signing this Contract it is certifying that
      throughout the conduct of the solicitation leading to this Contract no
      officer, director, employee, representative or agent of Seller offered,
      promised or discussed with Buyer/IMOD personnel involved in this Contract
      1) the future employment of (or business opportunity with) any Buyer/IMOD
      personnel, 2) the transfer of any money, gratuity or other thing of value
      to any Buyer/IMOD personnel, and/or 3) the transfer by any Buyer/IMOD
      personnel to Seller of any proprietary or source selection information
      regarding this or any other procurement. For purposes of the preceding
      sentence (and only for purposes of such preceding sentence), Buyer/IMOD
      shall be defined so as to include officers in the Israeli Defense Forces
      or employees of Buyer. The prohibited conduct described above shall
      continue to be prohibited following the award of this Contract. Seller
      further certifies that except as disclosed to Buyer/IMOD prior to Seller's
      signature of this Contract, Seller does not currently employ any
      individual or retain any agents who at any time within the past two years
      were 1) employed by the Government of Israel Ministry of Defense
      (including, but not limited to, Its Mission to the U.S.) or 2 officers on
      active duty in the Israel Defense Forces. Any breach by Seller of the
      certifications set forth above shall constitute a breach of Seller's
      obligations to Buyer/IMOD under this contract. Such breach shall entitle
      Buyer/IMOD to terminate this Contract without any Buyer/IMOD liability to
      Seller (including the right to return items already delivered for a refund
      of amounts already paid).

ARTICLE 44 - SECURITY

44.1  The Program covered by this Contract is unclassified.

44.2  Except as required by U.S. and Israeli law, neither Seller nor its
      Subcontractors shall release any publicity as to Buyer's identity or other
      information concerning this Contract (including publication in internal or
      trade newsletters) without the prior written consent of Buyer.

44.3  The furnishing of any classified information and materials to Seller by
      Buyer in connection with this Contract requires the prior written consent
      of IMOD. IMOD's consent may be conditioned upon execution of an agreement
      between Seller and Buyer on procedures governing the treatment of such
      information and materials.

                                                                   Page 22 of 28

<PAGE>

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[VALENTEC LOGO]     AMMUNITION MULTI YEAR PROGRAM - CONTRACT NO. 1003       [SOLTAM SYSTEMS LOGO]
</TABLE>

44.4  Buyer agrees not to disclose or present the Program (or any part thereof)
      to any third party excluding the U.S. Government and Seller's
      Subcontractors on a need to know basis, without the prior written consent
      of Seller's Security Department.

44.5  The disclosure, transmittal, use, storage, distribution and disposition of
      all information, data, documentation and equipment produced or exchanged
      by either Party under the terms of this Contract shall be in accordance
      with the procedure utilized by Seller for the protection of U.S.
      Government work.

44.6  All of Seller's personnel, who are to perform services under this Contract
      in Israel, if any, shall be subject to Israeli security requirements.
      Buyer supplied questionnaires shall be completed by Seller personnel who
      are to perform services in Israel, if there are any, and submitted to the
      Director of Buyer's Security Department at least thirty (30) days prior to
      planned departure from the U.S.

44.7  Seller agrees to insert security provisions, which conform to requirements
      of this Article in all subcontracts awarded to Subcontractors.

44.8  Seller shall comply with U.S. security procedures at its plant, inter
      highlight, in order to implement the above security requirements upon the
      signing of this Contract and shall inform all employees and agents
      connected with the Contract of the provisions of this ARTICLE.

44.9  Buyer and IMOD personnel shall be subject to the Visit Request procedures
      of the U.S. Government, Seller and Subcontractors.

44.10 Notwithstanding any provisions in this Contract to the contrary, in no
      event shall Buyer deny Seller consent to disclose information relating to
      this Contract to U.S. Government, if such disclosure is required by U.S.
      law or regulations.

44.11 The Parties' authorized representatives concerning all security matters
      relating to the performance of this Contract are as follows

           SOLTAM: Head of Security of SOLTAM and
           Director of Security
           Government of Israel
           Ministry of Defense
           Mission to the United States

           VALENTEC SYSTEMS INC.

           Security Chief - Mr. Jim leathers
           Valentec Systems, Inc.
           2618 York Avenue
           Minden, LA 71105
           Telephone: (318) 459-5014
           Telefax: (318)-459-5691       E-mail:jleathers@valentec.net

ARTICLE 45 - STOP WORK ORDERS

45.1  Buyer may, by written order to Seller at any time, require Seller to stop
      all, or any part, of the work called for by this Contract for a period of
      up to ninety (90) days after the stop work order is delivered to Seller
      and for any further period to which the parties may agree. Any such order
      shall be specifically

                                                                   Page 23 of 28

<PAGE>

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[VALENTEC LOGO]     AMMUNITION MULTI YEAR PROGRAM - CONTRACT NO. 1003       [SOLTAM SYSTEMS LOGO]
</TABLE>

      identified as a stop work order issued pursuant to this ARTICLE. Upon
      receipt of such an order, Seller shall forthwith comply with its terms and
      take all reasonable steps to minimize the incurrence of cost allocable to
      the work covered by the order during the period of work stoppage. Within a
      period of ninety (90) days after a stop work order is delivered to Seller,
      or within any extension of that period to which the parties have mutually
      agreed to an extension, Buyer shall either:

            (i) Cancel the stop work order; or

            (ii) Terminate the work covered by such order by reason of Seller's
            default or as provided in ARTICLE 20, Termination for Convenience.

45.2  If a stop work order issued under this ARTICLE is cancelled or the period
      of the order or any extension thereof expires, Seller shall resume work.
      An equitable adjustment shall be made in the delivery schedule or Contract
      Price, or both, and the Contract shall be modified in writing accordingly,
      if:

      A.    The stop work order results in an increase in the time required for,
            or in Seller's cost properly allocable to, the performance of any
            part of this Contract; and

      B.    Seller asserts a claim for such adjustment within thirty (30) days
            after the end of the period of work stoppage;

ARTICLE 46 - FIELD PRICING SUPPORT

46.1  Seller agrees to the requirement for field pricing support as stipulated
      hereunder. This support will be provided by Defense Contract Management
      Command (DCMC) and Defense Contract Audit Agency and will normally include
      technical and cost analysis of Seller's proposal. IMOD shall request field
      pricing support through the DCMC international Logistics Office in New
      York, NY. Field pricing support will include an audit review by the
      cognizant contract audit activity before concluding negotiation of the
      Contract or any modification. Seller will submit cost or pricing data in
      connection with the pricing of this Contract or any modification to this
      Contract which affects the price of the Contract.

46.2  The U.S. Government (USG) representatives shall have the right to examine
      and audit all of Seller's books, records, documents, and other data,
      related to proposing, negotiating, pricing, or performing this Contract,
      in order to evaluate the accuracy, completeness, and currency of the cost
      or pricing data. The right of examination shall extend to all documents
      necessary to permit adequate evaluation of the cost or pricing data
      submitted, along with the computations and projections used. Seller shall
      make available at its office at all reasonable times the materials
      described above for examination, audit, or reproduction, until 3 years
      after final payment under the Contract. General access to Seller's books
      and financial records shall be limited to USG representatives. The USG
      representatives shall verbally notify the IMOD immediately of data
      provided that is so deficient as to preclude review, or where Seller has
      denied access to records or to cost or pricing data considered essential
      to the performance of a satisfactory review. This verbal notification
      shall be promptly confirmed in writing to the IMOD describing the
      deficiency or the denial of access to data or records. Seller failure to
      provide adequate cost and pricing data may disqualify the Contract from
      consideration for FMF approval.

                                                                   Page 24 of 28

<PAGE>

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[VALENTEC LOGO]     AMMUNITION MULTI YEAR PROGRAM - CONTRACT NO. 1003       [SOLTAM SYSTEMS LOGO]
</TABLE>

46.3  Field pricing support is intended to give the IMOD a detailed analysis of
      the proposal for use in the Contract negotiations to determine a fair and
      reasonable price. It normally includes an audit review by the cognizant
      audit activity and a technical analysis by DCMC. Seller has no objection
      that Buyer will receive from IMOD the results and conclusions of said
      audit.

      A.    Cost analysis will include, as appropriate:

            1. Verification of cost or pricing data and evaluation of cost
            elements.

            2. Evaluating the effect of Seller's current practices on future
            costs to ensure that the effects of inefficient or uneconomical past
            practices are not projected into the future.

      B.    Comparison of cost proposed by Seller for individual cost elements
            with:

            1 . Actual costs previously incurred by Seller;

            2. Previous cost estimates from Seller or from other offers for the
            same or similar items;

            3. Other cost estimates received in response to the IMOD's request;

            4. Independent cost estimates by technical personnel;

            5. Forecasts or planned expenditures.

      C.    Verification that Seller's cost submissions are in accordance with
            U.S. DOD contract cost principles and procedures and, when
            applicable, the requirements and procedures of the Cost Accounting
            Standards.

      D.    Review to determine that all cost or pricing data necessary to make
            Seller's proposal accurate, complete, and current has been either
            submitted or identified in writing by Seller.

      E.    Analysis of the results of any make-or-buy program reviews, in
            evaluating Seller costs.

46.4  Technical analysis will include, at a minimum, a review and assessment of:
      the quantities and kinds of material proposed; the need for the number and
      kinds of labor hours and the labor mix; any special tooling and facilities
      proposed; reasonableness of proposed scrap and spoilage factors; and any
      other data that may be pertinent to the cost or price analysis.

46.5  Any Subcontracts meeting the $750,000.00 or more threshold will be subject
      to the same surveillance as Seller.

ARTICLE 47 - MISCELLANEOUS

47.1  No cancellation, modification, amendment, deletion, addition or other
      change in this Contract or any provision hereof, or waiver of any right or
      remedy herein provided, shall be effective for any purpose unless
      specifically set forth in a writing signed by the party to be bound
      thereby. No waiver of any right or remedy in respect of any occurrence or
      event on one occasion shall be deemed a waiver of such right or remedy in
      respect of such occurrence or event on any other occasion.

                                                                   Page 25 of 28

<PAGE>

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[VALENTEC LOGO]     AMMUNITION MULTI YEAR PROGRAM - CONTRACT NO. 1003       [SOLTAM SYSTEMS LOGO]
</TABLE>

47.2  This Contract supersedes all other agreements, oral or written, heretofore
      made with respect to the subject hereof and the transactions contemplated
      hereby, and contains the entire agreement of the parties, except to the
      documents references in this Contract which were executed prior to this
      Contract coming into effect.

47.3  Seller shall not assign this Contract or its obligations under this
      Contract or any part of them without the prior written consent of Buyer,
      which consent shall not be unreasonably withheld, subject to provisions as
      may be determined by Buyer.

47.4  Any change, modification or amendment of this Contract shall be made in
      writing, shall be signed by the duly authorized representatives of the
      Parties and shall be subject to and shall have no force and effect without
      the previous written consent of IMOD and DSCA.

47.5  In no event shall either party be liable for indirect, incidental or
      consequential damages.

47.6  Any provision hereof prohibited by, or that is unlawful or unenforceable
      under, any applicable law of any jurisdiction, shall as to such
      jurisdiction be ineffective without affecting any other provisions of this
      Contract; provided, however, that if the provisions of such applicable law
      may be waived, they are hereby waived, to the end that this Contract be
      deemed to be a valid and binding agreement enforceable in accordance with
      its terms.

47.7  The provisions of this Contract shall be binding upon and inure to the
      benefit of Buyer and Seller and their respective successors and assigns,
      but this provision shall not be deemed to expand or otherwise affect the
      limitation on assignment and transfers set forth above, and no party is
      intended to or shall have any right or interest under this Contract,
      except as provided above.

47.8  This Contract may be executed in several counterparts in the English
      language, each of which shall be deemed to be an original and all such
      counterparts together shall constitute but one and the same instrument.

                                 End of Articles

                            (Signature page follows)

                                                                   Page 26 of 28

<PAGE>

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[VALENTEC LOGO]     AMMUNITION MULTI YEAR PROGRAM - CONTRACT NO. 1003       [SOLTAM SYSTEMS LOGO]
</TABLE>

            IN WITNESS WHEREOF, the authorized representatives of the parties
            hereto have executed this Contract on the dates set forth below

            SOLTAM SYSTEMS LTD.                   VALENTEC SYSTEMS, INC.

/s/ Zwika Kreizman                            By: /s/ Steve Shows
--------------------------                        ------------------------
Mr. Zwika Kreizman                                Mr. Steve Shows
Title: Deputy Manager & V.P for Finance           Title: Vice Pres. & G.M.
Soltam Group

/s/ Cohen Rachamim                            By: /s/ Ronald M. Mackey
--------------------------                        ------------------------
Mr. Cohen Rachamim                                Mr. Ronald M. Mackey
i.e. V.P Sales & Marketing                        Title: Contracts & Purchasing
& S.B.U Manager Mortars & Ammunition              Mgr.

DATE: 10/23/04                                    DATE: 10/23/04

                                                                   Page 27 of 28

<PAGE>
[SOLTAM SYSTEMS LOGO]                                                  [LOG0]

                   Ship in Place Funding Availability Schedule
                          for the Israeli Ammo Project

                                   [ILLEGIBLE]<PAGE>
                                                                               .
                                                                               .
                                                                               .

                                                                    EXHIBIT 10.5

<TABLE>
<S>                                   <C>
                                      1. THIS CONTRACT IS A RATED ORDER   RATING DOA6    PAGE 1 OF 40
           AWARD/CONTRACT                UNDER DPAS (15 CFR 700)
-----------------------------------------------------------------------------------------------------------------------
2. CONTRACT (PROC. INST. IDENT) NO.   3. EFFECTIVE DATE        4. REQUISITION/PURCHASE REQUEST/PROJECT NO.

 W52P1J-05-C-0015                        3 FEB 2005                            SEE SCHEDULE
-----------------------------------------------------------------------------------------------------------------------
5. ISSUED BY                          CODE W52P1J   6. ADMINISTERED BY (IF OTHER THAN ITEM 5)     CODE  S4404A
   HQ AFSC                                             DCMA SAN ANTONIO
   AMSFS-CCA-R                                         615  EAST HOUSTON STREET
   MITZI WAGNER (309)782-4657                          P O  BOX 1040
   ROCK ISLAND, IL 61299-6500                          SAN ANTONIO   TX 78294-1040

   BLDGS 350 & 390

E-MAIL ADDRESS: WAGNERM@AFSC.ARMY.MIL                      SCD C  PAS S4404A4906APC    ADP PT HQ0338
-----------------------------------------------------------------------------------------------------------------------
7. NAME AND ADDRESS OF CONTRACTOR (NO. STREET, CITY,     8. DELIVERY
   COUNTY, STATE, AND ZIP CODE)                             [ ] FOB Origin [X] Other (See Below) SEE SCHEDULE
   VALENTEC SYSTEMS INC.
   2618 YORK AVE                                         9. DISCOUNT FOR PROMPT PAYMENT
   MINDEN, LA 71055-2618

 TYPE BUSINESS: Other Small Business Performing in U.S. 10. SUBMIT INVOICES                         ITEM
                                                        (4 COPIES UNLESS OTHERWISE SPECIFIED)        12
 CODE  1PD90               FACILITY CODE                TO THE ADDRESS SHOWN IN:
-----------------------------------------------------------------------------------------------------------------------
11. SHIP TO/MARK FOR           CODE       12. PAYMENT WILL BE MADE BY                        CODE  HQ0339
    SEE SCHEDULE                              DFAS COLUMBUS CENTER
                                              DFAS-CO/WEST ENTITLEMENT OPERATIONS
                                              P.O. BOX 182381
                                              COLUMBUS, OH 43218-2317
-----------------------------------------------------------------------------------------------------------------------
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:    14. ACCOUNTING AND APPROPRIATION DATA
[X] 10 U.S.C. 2304(c)(3  )    [ ] 41 U.S.C. 253(c)(  )               SEE SECTION G
-----------------------------------------------------------------------------------------------------------------------
   15A. ITEM NO.   15B. SCHEDULE OF SUPPLIES/SERVICES   15C. QUANTITY   15D. UNIT    15E. UNIT PRICE   15F. AMOUNT
-----------------------------------------------------------------------------------------------------------------------
SEE SCHEDULE      CONTRACT TYPE:                          KIND OF CONTRACT:
                    Fixed-Price Economic Price Adjustment    Supply Contracts and Priced Orders

-----------------------------------------------------------------------------------------------------------------------
                                                                 15G. TOTAL AMOUNT OF CONTRACT    $1,969,500.00
-----------------------------------------------------------------------------------------------------------------------

                                           16. TABLE OF CONTENTS
-----------------------------------------------------------------------------------------------------------------------
(X)  SECTION        DESCRIPTION           PAGE(s) (X)  SECTION               DESCRIPTION                PAGE(s)
-----------------------------------------------------------------------------------------------------------------------
                Part I - The Schedule                  Part II - Contract Clauses
X       A     Solicitation/Contract Form    1     X      I        Contract Clauses                        32
X       B     Supplies or Services and      7          Part III - List Of Documents, Exhibits, And Other Attachments
              Prices/Costs
X       C     Description/Specs/Work        10    X      J        List of Attachments                     40
              Statement
X       D     Packaging and Marking         16         Part IV - Representations And Instructions
X       E     Inspection and Acceptance     18           K        Representations, Certifications, and
                                                                  Other Statements of Offerors
X       F     Deliveries or Performance     28
X       G     Contract Administration       29           L        Instrs., Conds., and Notices to Offerors
              Data
X       H     Special Contract              30           M        Evaluation Factors for Award
              Requirements

                            Contracting Officer Will Complete Item 17 Or 18 As Applicable
-----------------------------------------------------------------------------------------------------------------------
17. [ ] Contractor's Negotiated Agreement (Contractor is     18. [X] Award (Contractor is not required to sign this
required to sign this document and return ________           document.) Your offer on Solicitation Number
copies to issuing office.) Contractor agrees to furnish      W52P1J04R0180 including the additions or changes made by
and deliver all items or perform all the services set        you which additions or changes are set forth in full
forth or otherwise identified above and on any               above, is hereby accepted as to the items listed above
continuation sheets for the consideration stated herein.     and on any continuation sheets. This award consummates
The rights and obligations of the parties to this            the contract which consists of the following documents:
contract shall be subject to and governed by the             (a) the Government's solicitation and your offer, and
following documents: (a) this award/contract, (b) the        (b) this award/contract. No further contractual document
solicitation, if any, and (c) such provisions,               is necessary.
representations, certifications, and specifications,
as are attached or incorporated by reference herein.
(Attachments are listed herein.)
-----------------------------------------------------------------------------------------------------------------------
19A. NAME AND TITLE OF SIGNER (TYPE OR PRINT)                20A. NAME OF CONTRACTING OFFICER
                                                                  NORM BROWN
                                                                  BROWNN@AFSC.ARMY.MIL (309)782-3607
-----------------------------------------------------------------------------------------------------------------------
19B. NAME OF CONTRACTOR               19C. DATE SIGNED       20B. UNITED STATES OF AMERICA         20C. DATE SIGNED

By                                                           By /s/ Norman L. Brown                3 Feb 2005
  ---------------------------------------                       ----------------------------------
  (Signature of person authorized to sign)                      (Signature of Contracting Officer)
-----------------------------------------------------------------------------------------------------------------------
NSN 7540-01-152-8069                                         25-106           STANDARD FORM 26 (REV. 4-85)
PREVIOUS EDITIONS UNUSABLE                            GPO: 1985 0-478-632     PRESCRIBED BY GSA-FAR (4.8 CFR) 53.214(a)
</TABLE>
<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 2 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION A - SUPPLEMENTAL INFORMATION

1. This document constitutes award of solicitation W52P1J-04-R-0180 and is
subject to the terms and conditions stated herein.

2. The contract award is for a total of 50,000 each M14B4 Spiral wrap Cartridge
Cases, at a unit price of $39.39, for a total contract price of $1,969,500.00.

3. First article is required and is to be in accordance with section E of the
contract.

4. FOB destination as follows: 20,000 each to Blue Grass Army Depot
                               15,000 each to McAlester Army Ammunition Plant
                               15,000 each to Hawthorne Army Depot

5. This contract award also includes a 100% evaluated option for FY 05 at a unit
price of $36.66 and a 100% evaluated option for FY 06 at a unit price of $38.47,
These options may be exercised anytime preceding the end of each fiscal year
ending 30 September each year, by giving written notice to the contractor. See
clause, IF6080, 52.217-6 Evaluated Option for Increase Quantity.

6. Award is made only to the M14B4 Spiral Wrap Cartridge Case (Clin 0003 with
subclins). The M14 Brass Cartridge case (Clin 0001 with subclins) and M14B1
steel Cartridge Case (Clin 0002 with subclins) shown in the solicitation are not
awarded and hereby cancelled. All clauses that make reference to clins 0001 and
0002 do not apply.

7. Early deliveries will be accepted at no additional coat to either party.

                         *** END OF NARRATIVE A 007 ***

For Local Clauses See: http://www.afsc.army.mil/ac/aais/ioc/clauses/index.htm

        Regulatory Cite                   Title                      Date
        ---------------             -----------------              --------
A-1     52.252-4500                 FULL TEXT CLAUSES              SEP/1997
        LOCAL

1. This contract incorporates one or more clauses and provisions by reference,
with the same force and effect as if they were set forth in full text. upon
request the Contracting officer will make their full text available.

2. The entire body of full text regulatory and command unique clauses and
provisions will no longer be included in solicitations or contracts. These
clauses and provisions have the same force and effect as if the entire full text
was included in the solicitation/contract. where text has been Incorporated by
reference three astericks are put in its place (***).

3. You can view or obtain a copy of the clauses and provisions on the internet
at: www.afsc.army.mil/ac/aais/ioc/clauses/index.htm. Click on command unique
first to locate the clause. If it is not located under command unique click on
regulatory to find.

4. All full text clauses have a 6 or 7 as the third digit of the clause number
(i.e. AS7000).

                                 (End of clause)

(AS7001)

1. This Request for Proposal (RFP) solicits proposals for three (3) different
types of cartridge cases in support of the 105MM Recap program. Award will be
made to the ONE (1) Cartridge Case that represents the best value to the
Government. Only one award will be made, offerors may submit proposals on any or
all of the cartridge case types. The three (3) types are H14 Brass, NSN:
1315-00-824- 4503, P/N: 7548409, M14B1 Steel, MSN: 1315-00-077-2129, P/N:
7548025 and M14B4 Spiral Wrap, NSN: 1315-01-335-7918, P/N: 12938083. Offers are
solicited with First Article and F.O.B. Destination. The RFP contains an
evaluated option of 100% for each FY05 and FY06.

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 3 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

2. Most of the RFP clauses apply to all of the items, however if a clause
applies to a specific item, the CLIN will be identified before the clause text.
If a clause applies to all items and requires item specific information, that
information will be identified by CLIN number.

3. This RFP is restricted to U.S. and Canadian sources under the authority of 10
USC 2304 (c)(3). Offerors are cautioned that the requirement must be
manufactured in the U.S. or Canada to include forging and heat treatment.
Proposals must be submitted in U.S. dollars.

4. There are three (3) separate Technical Data Packages (TDP) for this
solicitation. Two (2) TDP's (M14 Brass and N14B1 Steel) are classified as
Distribution A and are available via the website. One (1) TDP (M14B4 Spiral
wrap) is classified as Distribution C and is not releasable through the website.
To obtain a copy, you must submit a request in writing to the contract
specialist.

5. Offers are advised that a Best value approach will be used to evaluate
proposals submitted in response to this RFP. All offerors are cautioned to pay
specific attention to Section L, "Instructions and Conditions for Submission of
Proposals', and to Section M in its entirety. Award will be based on the
following factors and subfactors:

      (A) Capability/Facilities (Go/No-Go)
      (B) Past Performance (to include)

          (1) On Time Delivery

          (2) Quality

      (C) Price
      (D) Small Business Utilization

Under the Best value approach, the Government is not bound to award to the
lowest evaluated price offer in the event that other evaluation factors justify
payment of a premium. Award will be made to the offeror whose proposal is
determined to be the best value to the Government based upon the cited criteria.
Offerors are responsible for including sufficient detail to permit a complete
and accurate evaluation of their proposal. The Government will not make
assumptions concerning an offeror's intent, capabilities, facilities or
experience. Clear identification is the sole responsibility of the offeror.
Offerors are cautioned to ensure that their proposal is complete, including all
fill-in's and blanks in the solicitation.

6. Offerors should note the provision at AFAR 52.215-1, "Instructions to
Offerors-Competitive Acquisition". The Government intends to award a contract
resulting from this RFP without discussions with offerors (except clarifications
described in PAR 15.306(a). Therefore, offerors initial proposals should contain
the beat terms from all factors/subfactors standpoint. However, the Government
reserves the right to conduct discussions if determined necessary by the
procuring contracting officer.

7. This solicitation will result in a firm fixed price contract with a mandatory
Economic Price Adjustment (EPA) clause for brass/steel. The EPA clause is
numbered as I-62. Potential offerors are cautioned that failure to provide the
price information required by that clause may render your offer nonresponsive.
The cost data provided in this clause will not be considered in the evaluation
of price. This information will be used only in the calculation of an applicable
EPA. For a better understanding of the EPA clause, the following examples are
given:

                               EPA CLAUSE EXAMPLE

BACKGROUND - The unit price of the item being purchased is $100.00. The unit
price makeup for material (brass and/or steel only) is $50.00. (This is the
price of brass and/or steel - it does not include additives such as labor, 0/H,
OLA and profit)/

The EPA clause allows an adjustment based on the total unit price that, in this
case is $100.00. The EPA clause allows for an upward adjustment of up to 10%.
There is no downward limit-on the Adjustment. This adjustment is aggregate, not
per occurrence, during the same contract or option period. There is no immediate
adjustment for changes in material (brass and/or steel) prices of + or - 3% ($3)
to the total unit price, unless requested by either party after final delivery.

EXAMPLE A. During contract performance, the unit price makeup of brass/steel
rises by $8, from $50 to $58. This $8 increase amounts to 8% of the unit price
of the item. Because the rise in unit price of brass/steel is within the 10%
limit established by the clause, the contractor is entitled to receive an
increase of $8 per unit.

EXAMPLE B. During contract performance, the unit price makeup of brass/steel
drops by $5, from $50 to $45. This $5 decrease amounts to 5% of the unit price
of the item. Because the drop in the price of brass/steel is within the downward
limit established by the clause, the Government is entitled to receive a
decrease of $5 per unit.

EXAMPLE C. During contract performance, the unit price makeup of brass/steel
rises by $15, from $50 to $65. This $15 increase amount to 15% of the unit price
of the item. Because the rise in the price of brass/steel is greater than the
10% limit established by the clause, the contractor is entitled to receive an
increase of only $10 per unit.

EXAMPLE D. During contract performance, the unit price makeup of brass/steel
drops by $13, from $50 to $37. This $13 decrease amounts to

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 4 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

13% OF the unit price of the item. As there is no downward limit established by
the clause, the government is entitled to a decrease of $13 per unit.

                         *** END OF NARRATIVE A 001 ***

1. The following changes are hereby made to this solicitation.

   Delete clause 52.219-9 (I-18) "Small Business Subcontracting Plan - Alternate
      II", from page 31 Section I.

   Delete Clause 52.226-2 (K-13) "Historically Black College or University or
      Minority institution Representation", page 44 Section K.

   Add Clause 52.219-16 "Liquidated Damages - Subcontracting Plan"

   Add Clause 52.226-1 "Utilization of Indian Organizations and Indian-Owned
      Economic Enterprises"

   Add Clause 252.226-7001 "Utilization of Indian Organizations and
      Indian-Owned Economic Enterprises"

2. The added clauses are attached.

3. The closing date will remain unchanged.

4. All other terms and conditions remain unchanged.

                         *** END OF NARRATIVE A 002 ***

NSN- 1315-00-824-4503

P/N: 7548409

1. The purpose of this amendment is to extend the closing date from 17 Aug 04 to
      26 Aug 04, at 3:00 PM CT.

2. All other terms and conditions remain unchanged.

                         *** END OF NARRATIVE A 003 ***

The purpose of this amendment is to do the following:

      1. Notify all potential offerors that the M14B4 Item Specification was
missing from TDP/CD 12938083. This information will be sent to potential
offerors who have already requested a copy of this TDP. As TDP 12938083 is
classified as Distribution c, any offerors who have not already requested a
copy must do so in writing to the contract specialist. The TDP and item
specification will be sent via U.S. Mail.

      2. Clarify the M14B4 Spiral Wrap Cartridge Case -

      - Is not a hybrid design, it is an improvement to the previous design.
Test quantities of the improved case with base cup were made and have been
ballistically tested and incorporated as the current design. The base cup was
added so that higher pressure charges could be used with the cartridge case.

      - M14B4 cartridge Case is used on all 105mm rounds, the M915/916 have
their own unique Cases.

      - Specifications MIL-V-12276 and MIL-C-46487 are hereby reinstated,
however paragraph 4.4.5.3 of specification MIL-V-12276 for ODCs reveals a test
is required which uses 1 ml of carbon tetrachloride.

      A non ODC alternative method to paragraph 4.4.5.3 OF MIL-V-12276 is hereby
provided:

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 5 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

FEP Test Method Std No 141 Method 7356.1.

see section J, attachment 010 for a copy of these specifications (note the spec
provided does not cite the non ODC alternative method).

         - Drawing 7548320 is the current/preferred packaging for the M14B4
Cartridge case.

      3. Clarity M14 Brass Cartridge Case -

         - Clarification is made to DTL 7548409, paragraphs 3.5 and 4.4.6:
      The 15# dead load defines "freely enter". The contractor can easily supply
      a gage to referee the force needed to chamber any case that seems, to the
      operator, to require extra effort to chamber. No extraction force is
      specified.

         A chamber gage will be provided as GFE.

      4. Clarify M14B1 Steel Cartridge Case

         - Drawings 9280433. 9280434 and 9280435 are incorporated. (See
Section J, attachment 011).

         - Characteristics listed in DTL 7548025, 4.3.2.1, "Case, cartridge,
before plating" shall be inspected before plating, as stated. Characteristics in
4.3.2.2, "Case, cartridge, after plating" shall be inspected after plating.
characteristics in 4.3.2.3, "Case, cartridge, after coating with wax" shall
apply after coating with wax.

      5. Incorporate Engineering Change Proposal (ECP) R04Q2008 (See Section J,
attachment 012).

      6. contractors are advised the EPA clause (Page 2, paragraph 7 and Page
36. Clause I-62 of the basic solicitation) is not mandatory.

      7. Reference section B of the solicitation, Clins 0001AB/AC, 0002AB/AC and
0003AB/AC, the FOB Point is changed from Origin to Destination. The quantity and
destinations are as follows:

            20,000 ea Blue Grass Army Depot

            15,000 ea McAlester Army Ammunition Plant

            15,000 ea Hawthorne Army Depot

      8. Clause 52.214-7 entitled "Hand-Delivered Bids, Quotes, or Proposals"
(LS7003), on pages 48 and 49 of the solicitation has been revised and is
furnished in this amendment.

The closing date is hereby extended to 01 Sep 04, 3:00 PM CT.

Acknowledgement of this amendment is required.

All other terms and conditions remain unchanged.

                         *** END OF NARRATIVE A 004 ***

1. The purpose of this amendment is to incorporate additional information into
section C, FAR clause 52.210-4501. This information is applicable to Clin 0003
(M14B4 Spiral Wrap Cartridge Case):

      All product Drawings Add: Distribution Statement C

      On Drawing 12938083, Varnish Specs MIL-c-46487 and MIL-v-12276 Can be Used
      for this Procurement.

      All Inspection Drawings Add: Distribution Statement A

      Drawing 8647358, Change Spec from OO-T-830 to ASTM A681

      The following test will replace the test that uses carbon Tetrachloride of
      Spec MIL-v-12276. "FEP TEST METHOD STD #141 METHOD 7356.1"

      The following cancelled specs can be used for this TDP: MIL-V-12276 and
      MIL-C-46487

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 6 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

2. The closing date remains 1 Sep 04, 3:00 PM CT.

3. All other terms and conditions remain unchanged.

                         *** END OF NARRATIVE A 005 ***

1.The purpose of this amendment is to make the following clarification.

  This is applicable to Clin 0003 (M14B4 Spiral wrap Cartridge Case):

  Reference specification MIL-C-48423A, paragraph 6.1 - The PCO will approve
a "process control lot" test prior to submission of FAT. If a contractor
chooses to take that option, the contractor must state this in their proposal.
Contractor mast also specify the number of rounds to be pre-tested in accordance
with the specification. Additional government testing costs will then be
calculated into the evaluation process.

2. Revised Section M (revision of price evaluation, para 3(c)) is enclosed.

3. The closing date remains unchanged.

4. All other terms and conditions remain unchanged.

                         *** END OF NARRATIVE A 006 ***

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 7 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

<TABLE>
<CAPTION>
 ITEM NO                       SUPPLIES/SERVICES                   QUANTITY   UNIT   UNIT PRICE       AMOUNT
----------   ---------------------------------------------------   --------   ----   ----------   --------------
<S>          <C>                                                   <C>        <C>    <C>          <C>
             SECTION B  -  SUPPLIES OR SERVICES AND PRICES/COSTS

0003         PRODUCTION QUANTITY

             NSN: 1315-01-335-7918
             NOUN: M14B4   SPIRAL WRAP CART. CASE
             FSCM: 19200
             PART NR: 12938083
             SECURITY CLASS: Unclassified

0003AA       FIRST ARTICLE                                            1        LO    $ ** NSP **  $    ** NSP **

             NOUN: M14B4  SPIRAL WRAP CART. CASE

             Packaging and Marking

             Inspection and Acceptance

             INSPECTION: Origin   ACCEPTANCE: Origin
             Government Approval/Disapproval Days: 45

             Deliveries or Performance

             DOC                SUPPL
             REL CD  MILSTRIP   ADDR   SIG CD  MARK FOR   TP CD
                001             Z55555                      3
             DEL REL CD         QUANTITY           DEL DATE
                001                1            02 - MAY - 2005

             FOB POINT: Origin

             SHIP TO: PARCEL POST ADDRESS
             (Z55555)   SEE SECTION E

0003AB       PRODUCTION QUANTITY                                     35000      EA    $ 39,39000   $ 1,378,650.00

             NOUN: M14B4 SPIRAL WRAP CTG CASE
             PRON: HH3B6038N2 PRON AMD: 01   ACRN: AA
             AMS CD: 41374220020

             Packaging and Marking

             Inspection and Acceptance

             INSPECTION: Origin     ACCEPTANCE: Origin
</TABLE>

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 8 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

<TABLE>
<CAPTION>
 ITEM NO                      SUPPLIES/SERVICES                    QUANTITY   UNIT   UNIT PRICE       AMOUNT
----------   ---------------------------------------------------   --------   ----   ----------   --------------
<S>          <C>                                                   <C>        <C>    <C>          <C>
             Deliveries or Performance

             DOC                  SUPPL

             REL CD   MILSTRIP    ADDR   SIG CD  MARK FOR  TP CD
              001   W52PIJ5029A710   W22PVK  M               3

             DEL REL CD             QUANTITY      DEL DATE
                001                  7,000      30-SEP-2005
                002                  7,000      31-OCT-2005
                003                  6,000      30-NOV-2005

             FOB POINT: Destination

             SHIP TO: PARCEL POST ADDRESS

             (W22PVK)  XU MUNITIONS STORAGE POINT
                       BLUE GRASS ARMY DEPOT
                       2091 KINGSTON HWY
                       RICHMOND                 KY 40475-5000

             DOC                  SUPPL

             REL CD  MILSTRIP     ADDR    SIG CD MARK FOR  TP CD
               002  W52PIJ5029A711   W65XME  M               3

                    PROJ CD       BRK BLK PT
                     HMX

             DEL REL CD             QUANTITY      DEL DATE
                001                  7,500      30-DEC-2005
                002                  7,500      30-JAN-2006

             FOB POINT: Destination

             SHIP TO: PARCEL POST ADDRESS
             (W65XME)   XU W39Y USA MAC DEPOT HAWTHORNE
                        WHOLESALE SUP ACCT
                        1 SOUTH MAIN AVE
                        HAWTHORNE        NV 89415-9404

0003AC       PRODUCTION QUANTITY                                    15000      EA    $ 39,39000   $ 590,850.00

             NOUN: M14B4 SPIRAL WRAP CTG CASE
             PRON: HH4B6037M2     PRON AMD: 01    ACRN: AB
             AMS CD: 41370630016

             Packaging and Marking

             Inspection and Acceptance

             INSPECTION: Origin      ACCEPTANCE: Origin
</TABLE>

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED     PAGE 9 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

<TABLE>
<CAPTION>
 ITEM NO                      SUPPLIES/SERVICES                    QUANTITY   UNIT   UNIT PRICE    AMOUNT
----------   ---------------------------------------------------   --------   ----   ----------   ---------
<S>          <C>                                                   <C>        <C>    <C>          <C>
             Deliveries or Performance

             DOC                  SUPPL

             REL CD   MILSTRIP    ADDR   SIG CD  MARK FOR  TP CD
              001   W52PIJ5029A712  W44XMF  M               3

                    PROJ CD       BRK BLK PT
                     HMK

             DEL REL CD             QUANTITY      DEL DATE
                001                  7,500      28-FEB-2006
                002                  7,500      30-MAR-2006

             FOB POINT: Destination

             SHIP TO: PARCEL POST ADDRESS
             (W44XMF)   XR W390 MCALESTER ARMY AMMO PLANT
                        WHOLESALE SUP ACCT
                        MCALESTER         OK  74501-5000

0004         DATA ITEM                                                               $ ** NSP **  $ ** NSP **

             SECURITY CLASS: Unclassified

             Contractor will prepare and deliver the technical
             data in accordance with the requirements, quantities,
             and schedules set forth in the Contract Data
             Requirements List (DD Form 1423), Exhibit A.

                                   (End of narrative B001)

             Inspection and Acceptance

             INSPECTION: Origin      ACCEPTANCE: Origin
</TABLE>

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 10 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT

For Local Clauses See: http://www.afsc.army.mil/ac/aais/ioc/clauses/index.htm

       Regulatory Cite                Title                       Date
       ---------------   ----------------------------------     ---------
C-l        52.210-4501   DRAWINGS/SPECIFICATIONS                MAR/1988
             LOCAL

The following information is applicable to Clin 0001 (M14 Brass Cartridge Case):

In addition to the drawing(s) and/or specifications listed below, other
documents which are part of this procurement and which apply to
Preservation/Packaging/Packing and inspection and Acceptance are contained
elsewhere.

      The following drawing(s) and specifications are applicable to this
procurement.

      Drawings and Specifications in accordance with enclosed Technical Data
Package Listing - TDPL 7548409 with revisions in effect as of 1 Aug 03 (except
as follows):

The following engineering changes apply to this procurement action:

  DOCUMENT      DELETE   REPLACE WITH
  -----------   ------   ------------
  PL  7548409     X           - -

      All product drawings without distribution statement are to be Distribution
"A".

      Inspection drawings Distribution Statement A. applies.

The following information is applicable to Clin 0002 (M14B1 Steel Cartridge
Case):

      In addition to the drawing(s) and/or specifications listed below, other
documents which are part of this procurement and which apply to
Preservation/Packaging/Packing and Inspection and Acceptance are contained
elsewhere.

      The following drawing(s) and specifications are applicable to this
procurement.

      Drawings and Specifications in accordance with enclosed Technical Data
Package Listing - TDPL 7548025 with revisions in effect as of 29 May 03 (except
as follows):

The following engineering changes apply to this procurement action:

Drawing         Delete                  Replace With
-------         -------------           ----------------
7548235         DOD-STD-00100           MIL-STD-100
7548235         PPP-B-636               ASTM D5118/D518M
7548235         PPP-T-45                A-A-1492

ASTM D4727/D4727M will be used for material requirements of double faced
Corrugated Fiberboard.

The following specifies Recycle Content Requirements for selected packaging
materials:

"The Comprehensive Procurement Guideline (CPG) requirements shall be included in
this contract. The CPG program includes a listing of EPA Categories and
Designated Items that must contain specified amounts of recovered/recycled
materials. Detailed and updated information pertaining to the CPG program can be
found at << http://www.epa.gov/cpg/ >> . Packaing materials must either meet or
exceed the CPG unless otherwise specified*.

Document     Delete
---------    ------
PL7548025       X

The following information is applicable to Clin 0003 (M14B4 Spiral Wrap
Cartridge Case):

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 11 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

      In addition to the drawing(s) and/or specifications listed below, other
documents which are part of this procurement and which apply to
Preservation/Packaging/packing and Inspection and Acceptance are contained
elsewhere.

      The following drawing(s) and specifications are applicable to this
procurement.

      Drawings and Specifications in accordance with enclosed Technical Data
Package Listing - TDPL 12938083 with revisions in effect as of 1 Aug 03 (except
as follows):

The following engineering changes apply to this procurement action:

   All product drawings add: Distribution Statement C

   On drawing 12938083, varnish specs MIL-C-46487 and MIL-V-12276 can be used
for this procurement

      All inspection drawings add: Distribution A

      Drawing 8647258 change spec from: QQ-T-830 to ASTM A681

                           (End of statement of work)

(cs6100)

 C-2  52.246-4506  STATEMENT OF WORK FOR STATISTICAL PROCESS CONTROL   FEB/1999
      LOCAL

The following is applicable to Clins 0001, 0002 and 0003:

      In accordance with DI-MGMT-80004 and contract clause 52.246-4506, the
following supplemental information shall be considered and used when designing
your general and detailed SPC plans.

1.0 General Management Plan

      This section shall define management's SPC responsibilities and
involvement and shall include management's commitment to continuous process
improvement. The plan shall embrace a total commitment to quality and shall be
capable of standing on its own merit.

1.1 policy/Scops: Describe the Contractor's policy for applying SPC, including
goals and management commitment to SPC.

1.2 Applicable Document: List documents that are the basis for the contractor's
SPC program (i.e., ANSI standard, textbooks, Government documents).

1.3 SPC Management Structure: Define the SPC management structure within the
organization. Identify and include interrelationships of all departments
involved in SPC (i.e., Production, Quality, Engineering, purchasing, etc.).
Identify by job title or position all key personnel within departments involved
in the application of SPC. Describe which functions are performed by key
personnel and when these functions are performed (i.e., include personnel
responsible for performing inspections/audits, charting and interpreting data;
personnel responsible for determining, initiating and implementing corrective
action upon detecting assignable causes, etc.).

1.4 SPC Training: identify by job title or position the primary individual
responsible for overseeing that SPC training is accomplished. Describe the
qualification program required and in use for all personnel utilizing SPC
techniques, including the qualification of trainers. Identify who is to be
trained and the type, extent and length of such training (i.e., on-the-job,
classroom. etc.). Identify when refresher training is required and how personnel
using SPC techniques are monitored.

1.5 Manufacturing Controls: Identify the criteria for performing SPC gage
capability studies and describe how and when these studies should be applied.
Repeatability and accuracy of gages should be addressed.

1.6 Determination of SPC Use: Describe how the process/operation parameters are
determined appropriate for SPC application and explain what actions are taken if
SPC is not deemed appropriate for critical, special and major process/operation
parameters (i.e., Pareto analysis, analysis of characteristics with tight
tolerances, etc.).

1.7 process stability and Capability:

      a. Identify the criteria for performing process capability studies and
describe how and when these studies are applied. Describe how the process
capability index is calculated and include the frequency of these calculations.
Describe what actions are taken as methodologies when process capability is for
variable and attribute data. To determine a capable process, the

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 12 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

process/operation parameters shall meet the following requirements:

            (1) Variable data: Process capability (Cp) shall be determined.
Process performance index shall be greater than or equal to 1.33 (Cpk). For
critical parameters/characteristics, the process performance index shall be
greater than or equal to 2.0 (Cpk).

            (2) Attribute data: Process capability/performance shall be the
percent beyond the upper/lower specification limit less than or equal to .003
percent (Cpk = 1.33).

      b. Describe what actions will be taken if process/operation is
sub-marginal or marginal (Cpk less than 1.33 or 2.0 for criticals or grand
average fraction defective is greater than .003 percent).

      c. Include analysis of statistical distributions and define all formulas
and symbology utilized.

1.8 Control Chart Policy:

      a. Type of charts to be used (i.e., x bar/R x bar/S, etc.) and rationale
for use; the criteria for selection of sample size, frequency of sampling and
rational subgroups.

      b. Procedures for establishing and updating control limits, including
frequency of adjustments.

      c. Criteria for determining out-of-control conditions (i.e., trends,
points beyond control limits, etc.) and the corrective action taken, to include
failure analysis when the process is unstable or when nonconforming product has
resulted from unstable processes. Illustrate out-of-control tests.

      d. Describe the method of recording pertinent facts on control charts such
as changes in raw materiel, Machines, manufacturing methods and environment, and
corrective actions taken and describe how control charts are traceable to the
product.

1.9 Vendor/Subcontractor Purchase Controls: Identify whether suppliers are
required to utilize SPC and describe the extent the vendor's policies and
procedures are consistent with in-house procedures of the prime contractor.
Describe the following: methods utilized to determine that suppliers have
adequate controls to assure defective product is not produced and delivered; the
system utilized to audit suppliers, what will be audited and how often, what
action will be taken when out-of-control conditions exist at
subcontract or/vendor facilities.

1.10 SPC Audit System: At a minimum, the contractor's SPC Audit System shall
consist of auditing compliance with the planned arrangements specified in the
general and detailed SPC plans followed by a review and analysis of the outcome
to include implementation of necessary corrective action.

1.11 SPC Records: Identify various records to be used in support of SPC And
describe their use. Identify retention periods.

2.0 Detailed Plan:

      This section shall detail specific manufacturing process/operation
parameters under control.

2.1 Control of Process/Operation parameters or Characteristics:

      a. Identify the following for each process/operation by name or
characteristic under control:

            (1) Identify process/operation by name or characteristic and provide
rationale for selection; justification for nonselection if the parameter or
characteristic is identified as critical, special and/or major.

            (2) Describe how the characteristic is proceduced; the chain of
events, type and number of machines involved, location of manufacturing
facility, tolerances maintained, etc.

            (3) production and inspection machinery used. Include the production
rate, number of shifts and length of shifts plus whether inspection is fully or
semi-automatic or manual. If manual, identify the type of gages in use.

            (4) Identify the type of charts to be maintained and whether the
process/operation is performed in-house or subcontracted oupt; identify
facility/vendor where process/operation parameters are targeted for SPC.

2.2 Reduction or Elimination of Inspection/Test: The Procuring Contracting
Officer (PCO) will accept submissions of requests for reduction or elimination
of final acceptance inspection/testing when the requirements of the SPC contract
clause and this SOW are met. Each request shall contain and/or address the
following: control charts documenting twenty (20) consecutive production shifts
or more for the same process/operation parameter under control; type of control
chart utilized; control chart limits and process average or grand average
fraction defective (as applicable); definition of out-of-control condition and
corrective actions taken during out-of-

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 13 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

control conditions; specification and part number.

                           (End of statement of work)

(CS7100)

   C-3 52.246-4535   STATEMENT Of WORK - AMMUNITION DATA CARDS AND
                     REPORT OF CONTRACTOR                               AUG/2002

       LOCAL         BALLISTIC TESTING

The following is applicable to Clins 0001, 0002 and 0003:

Ammunition Data Cards shall be prepared in accordance with MIL-STD-1168 and
shall follow the format required by the world wide web application identified as
WARP or Worldwide Ammunition-data Repository Program. Additional details on WARP
are provided below. Prior to gaining access to WARP contractor/facility
personnel involved in the preparation of ammunition data cards shall obtain a
user name and password for the Army Electronic Product Support (AEPS) network.
Instructions and help for obtaining access to ASPS are provided below:

AEPS Access Procedures

The Army Electronic Product support (AEPS) is a Department of Defense logistics
website. Entering ABPS will allow you access to the SECURED AREA of the Army
Electronic Product Support Network. A username and password are required to
enter this area. Only authorized DoD personnel and contractors with current
active contracts with DoD will receive access into the AEPS website. If you have
a requirement for the AEPS website, you must fill out and submit the AEPS Access
Request Form found at the following web address:

      http://aeps.ria.army.mil/aepspublic.cfm

you must click on "Access Request Form" and continue through the steps until
completion and click on SUBMIT. You are required to provide a supervisor name,
email and phone number if you are a DoD civilian or military. Government
contractors are required to provide CAGE code. Contract Number and COR/COTR with
"Government" email address. All requestors must provide their information
Assurance Security Officer's (IASO, formerly ISSO) name, email, DSN phone and
commercial phone.

After submitting the request, your supervisor/COR/COTR will be emailed a copy of
your request and will be asked to verify your information before a user ID will
be issued. AEPS User ID and AEPS Login Name mean the same. Your supervisor must
REPLY back to the email provding the following:

      Approval?  (YES/NO)

      Supervisor Name

      Supervisor E-Mail

      Supervisor Phone

The COR/COTR must also provide the same information stated above in his/her
REPLY plus provide the contract Expiration Date (format - MM/DD/YYYY).

Upon notification from your supervisor/COR/COTR, you will be emailed an AEPS
User Login Name and instructions for logging into the AEPS website. You will use
the AEPS password that you assigned to yourself when you filled out the access
request form.

Once you gain access to the AEPS website, you can change your personal
information when needed to keep your file current.

AEPS HELP-DESK and Problem Reporting Procedures

Reporting Problems - The AEPS Help Desk has several means of reporting problems:

      Call 1-888-LOO-HELP (1-888-564-4357) to speak to an AEPS representative

      Contact the AEPS Help-Desk at Comm. (309) 782-0699 or DSN 793-0699 or
      (309) 782-1426 or DSN 793-1426

      Contact the AEPS Help-Desk by FAX: (309) 782-1436 or DSN 793-1426

      Contact the AEPS Webmaster by Email: Webmaster (martinjzoria.army.mil)

Each phone call, email or fax is handled in a prompt and courteous manner.
Responses to problems are provided by phone and/or email.

Other means to help assist you in identifying your problems can be found on the
AEPS Help Section at web link:

      http://aeps/ria.army.mil/help.cfm

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 14 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

Here you will find Questions and Answers by clicking in either of the two FAQ
subcategories reflected under the HELP tab:

      FAQs - AEPS Access Request Process or SSL FAQs - Secured Socket Layer

You may also check out our new Frequently Asked Questions
(https://aeps.ria.army.mil/aepsqa.cfm) page to get answers on access problems
 as another means of assistance.

The AEPS Help section screen http://aeps.ria.army.milhelp.cfm also reflects
two other topics chat can be clicked on to provide further assistance:

      "Password Problems or Request status" at
      https://aeps.ria.army.mil/request/info/UserScreen.cfm

      "Ask the AEPS Public Help Knowledge Base" at
      http://aeps.ria.army.mil/help/aepshmlpeain.cfm'

Worldwide Ammunition-data Repository Program (WARP)

Once you have obtained an AEPS user name and password allowing entry to the
secured area of AEPS you can access the WARP application by scrolling to the
bottom of the list of AEPS applications. The WARP opening main page and all
subsequent pages contain Multiple navigational aids to guide you through the
process of inputting information necessary for creating a new ammunition data
card. An online users manual will provide additional help in the development of
an ammunition data card and it is recommended that you download and read the
users manual prior to inputting your initial data card. The user's manual also
contains screen shots, which depict what the inputter will see during the ADC
input process.

Ammunition Data Card Input

ADC input allows current contractors and government facilities the capability to
create, and submit for approval, ADCs which meet the former requirement of
MIL-STD-1168B. ADCs are automatically forwarded to the respective Governmental
Agency Responsible for Acceptance (GARA). The GARA, in most cases the Defense
Contract Management Agency (DCMA) Quality Assurance Representative (QAR),
reviews contractor input for accuracy and completeness, and after updating the
disposition code for the specific lot, submits the ADC to the database. The
inputter is granted access only to ADCs identified with its specific
manufacturing code, as identified in MIL-HDBK-1461A, Manufacturer's Symbols. The
use of previously inputted ADCs through the TEMPLATE option, significantly
reduces input effort, while increasing accuracy and consistency of data.

Email Notification

WARP provides immediate, automated notification to process participants when
actions are required. When the producer has completed an ADC submission, an
email message is routed to the GARA advising that an ADC awaits review and
approval. If the GARA approves the ADC as submitted, the ADC is released to the
base and an email, with approved data card, is routed back to the originator. If
the ADC requires modification or correction to be in accordance with
MIL-STD-1168B requirements, an email is provided to the ADC originator advising
that corrective action is required prior to approval.

Information Updates

It is important that the System Administrators are apprised when a producer
receives a new contract. The producer shall notify OSC-WARPSoc.army.mil within
30 days after receipt of a new contract. Information to be included shall be the
contract number, item, GARA, Manufacturer's identification symbol and the names
of the individuals who will be inputting ADCs ino the system. If you are a new
producer and do not have a Manufacturer's identification symbol, you can obtain
one by sending an email to OSC-WARPSosc.army.mil. The email must contain
manufacturer's name, address where performance of the contract will take place,
and a point of contact.

                           (End of statement of work)

(CS7200)

 C-4     52.248-4502   CONFIGURATION MANAGEMENT DOCUMENTATION      MAY/2001
         LOCAL

The contractor may submit Engineering Change Proposals (ECPs), Value
Engineering change Proposals (VECPs) (code V shall be assigned to an engineering
change that will effect a net life cycle cost), including Notices of Revision
(NORs), and Requests for Deviation (RFDs) for the documents in the Technical
Data Package (TDP). The contractor shall prepare these documents in accordance
with the Data Item Descriptions cited in block 04 on the enclosed DD Form 1423,
Contract Data Requirements List.

Contractor ECPa/VECPs shall describe and justify all proposed changes and shall
include NORs completely defining the

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 15 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

changes to be made. Contractors may also submit RFDs, which define a temporary
departure from the TDP or other baseline documentation under Government control.
The contractor shall not deliver any units Incorporating any change/deviation to
Government documentation until notified by the Government that the
change/deviation has been approved and the change/deviation has been
incorporated in the contract.

If the Government receives the same or substantially the same VECPs from two or
more contractors, the contractor whose VECP is received first will be entitled
to share with the Government in all instant, concurrent, future, and collateral
savings.

Duplicate VECPs, which are received subsequently, will be returned to the
contractor(s) without formal evaluation, regardless of whether or not the first
VECP has been approved and accepted by the Government.

                                 (End of clause)

(CS7600)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 16 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION D - PACKAGING AND MARKING

For Local Clauses See: http://www.afsc.army.mil/ac/aais/ioc/clauses/index.htm

        Ragulatory Cite                Title                  Date
        ---------------      ----------------------         --------
 D-1    52.211-4508          PACKAGING REQUIREMENTS         JUL/1997
        LOCAL

The following is applicable to Clin 0001 (M14 Brass Cartridge Case):

Packaging shall be in accordance with 7348320 revision T, dated 6 Sap 2002.

When lot numbering is required, no more than one lot shall be packaged in an
outer shipping container.

Marking shall be in accordance with 7549320, Revision T, dated 6 Sep 2002. 2-D
bar code marking is required in accordance with 12982865, Revision, dated 1
May 2003. ECP R3K3021 applies to 12982865.

EXCEPTION: HEAT TREAT WOOD QUALITY MARKING:

      All non-manufactured wood used in the pallotized load shall be heat
treated to a core temperature of 56 degrees Celsius for a minimum of 30 minutes.
The pallet manufacturer and the manufacturer of wood to build filler assemblies
and spacer/support gate assemblies for the palletized load, shall be affiliated
with an inspection agency accredited by the American Lumber Standards Committee.
The pallet Manufacturer and the manufacturer of wood used to build filler
assemblies and spacer/support gate assemblies for the palletised load shall
ensure traceability to the original source of heat treatment. Bach pallet,
filler assembly, and spacer/support gate assembly, shall be marked to show the
conformance to the International Plant Protection Convention Standard. Pallets,
filler assemblies and spacer/support assemblies made of non-manufactured wood
shall be heat treated and marked appropriately. The quality mark for the pallet
shall be placed on two opposite end posts on the same side as the preservative
marking. The quality marking for the filler assemblies and spacer/support
assemblies shall be placed on two opposite sides. Foreign manufacturers shall
have the heat treatment of non-manufactured wood products verified in accordance
with their National Plant protection Organization's compliance program.

The following is applicable to Clin 0002 (M14B1 Steel Cartridge Case):

Packaging shall be in accordance with 7548235 revision F, dated 15 Nov 1990.

When lot numbering is required, no more than one lot shall be packaged in an
outer shipping container.

Marking shall be in accordance with MIL-STD-129, Revision P, dated 15 Dec 2002.
Bar code marking is required.

EXCEPTION: WOOD USED IN PALLETIZATION:

      The following beat treatment requirement applies to this contract: All
non-manufactured wood used in the palletized load shall be heat treated to a
core temperature of 56 degrees Celsius for a minimum of 30 minutes. The pallet
manufacturer and the manufacturer of wood to build filler assemblies and
spacer/support gate assemblies for the palletized load, shall be affiliated with
an inspection agency accredited by the American Lumber Standards Committee. The
pallet manufacturer and the manufacturer of wood used to build filler assemblies
and spacer/support gate assemblies for the palletized load shall ensure
traceability to the original source of heat treatment. Each pellet, filler
assembly, and spacer/support gate assembly, shall be marked to show the
conformance to the International Plant Protection Convention standard. Pallets,
filler assemblies and spacer/support assemblies made of non-manufactured wood
shall be beat treated and marked appropriately. The quality mark for the pallet
shall be placed on two opposite end posts on the same side as the preservative
marking. The quality marking for the filler assemblies and spacer/support
assemblies shall be placed on two opposite sides. Foreign manufacturers shall
have the heat treatment of non-manufactured wood products verified in accordance
with their National Plant Protection organization's compliance program.

The following is applicable to Clin 0003 (M14B4 Spiral Wrap Cartridge Case):

Packaging shall be in accordance with 7548320 revision T, dated 6 Sep 2002.

When lot numbering is requited, no more than one lot shall be packaged in an
outer shipping container.

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 17 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

Marking shall be in accordance with ASTM D3951. Revision 98. dated 10 Nov 1998.
Bar code marking is required.

EXCEPTION: WOOD USED IN PALLETIZATION: HEAT TREAT WOOD QUALITY MARKING:

      All non-manufactured wood used in the palletized load shall be heat
treated to a core temperature of 56 degrees Celsius for a minimum of 30 minutes.
The pallet manufacturer and the manufacturer of wood to build filler assemblies
and spacer/support gate assemblies for the palletized load, shall be affiliated
with an inspection agency accredited by the American Lumber Standards Committee.
The pallet Manufacturer and the manufacturer of wood used to build filler
assemblies and spacer/support gate assemblies for the palletized load shall
ensure traceability to the original source of heat treatment. Each pallet,
filler assembly, and spacer/support gate assembly, shall be marked to show the
conformance to the International Plant Protection Convention Standard. Pallets,
filler assemblies and spacer/support assemblies made of non-manufactured wood
shall be heat treated and marked appropriately. The quality mark for the pallet
shall be placed on two opposite end posts on the same side as the preservative
marking. The quality marking for the filler assemblies and spacer/support
assemblies shall be placed on two opposite sides. Foreign manufacturers shall
have the heat treatment of non-manufactured wood products verified in accordance
with their Rational Plant Protection Organization's compliance program.

                                 (End of clause)

(DS6303)

 D-2    52.247-4521     UNITIZATION/PALLETIZATION                    MAR/1918
        LOCAL

The following is applicable to Clins 0001, 0002 and 0003:

            (a) Shipments of identical items going to the same destination shall
be palletized if they have a total cubic displacement of 50 cubic feet or more,
unless skids or other forklift handling features are included in the containers.
Pallet loads must be stable, and to the greatest extent possible, provide a
level top for ease in stacking.

            (b) A palletized load shall not exceed 4,000 pounds and should not
exceed 52 inches in length or width, or 54 inches in height. When the item being
palletized is ammunition/explosive, at least one of the horizontal dimensions
must be less than 47 inches. When level A packaging is required, a four-way
entry pallet or pallet box, shall be used. All pallet loads shall contain the
load in a manner that will permit safe, multiple rehandling during storage and
shipment

                                 (End of clause)

(DS7203)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 18 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015          MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION E - INSPECTION AND ACCEPTANCE

For Local Clauses See: http://www.afsc.army.mil/ac/aais/ioc/clauses/index.htm

The following Federal Acquisition Regulation (FAR), DoD FAR Supplement clauses
and provisions, the full text of which will be made available upon request, are
incorporated herein by reference with the same force and effect as if set forth
in full text.

The text of the clauses incorporated by reference herein are available from the
contract specialist indicated in block 7 of the Standard Form 33 or (as
applicable) the contracting officer and will be furnished upon request. Other
documents are available as indicated in the schedule.

Any company/individual wishing to purchase a copy of the Federal Acquisition
Regulation (FAR), the Army FAX Supplement or the DOD FAR Supplement, may do so
from the Superintendent of Documents, US Government Printing Office, Washington
DC 20402

(EA7001)

        Regulatory Cite               Title                              Date
        ---------------  ----------------------------------------      --------
  E-l   52.246-2         INSPECTION OF SUPPLIES-FIXED-PRICE            ADC/1996

  E-2   52.246-16        RESPONSIBILITY FOR SUPPLIES                   APR/1914

  E-3   52.209 4511      FIRST ARTICLE TEST (GOVERNMENT TESTING)       MAY/1994
        LOCAL

The following is applicable to Clin 0001:

      a. The first article shall be performed in accordance with DTL 7548409,
Paragraph 4.2 and Table III, shall be examined and tested in accordance with
contract requirements, the item specification (s), the Quality Assurance
Provisions (QAPS) and drawings listed in the Technical Data Package.

      b. The first article shall be delivered to: Contractor's facility. The
first article shall be delivered by the Contractor Free on Board (FOB)
destination except when transportation protective service or transportation
security is required by other provision of this contract. If such is the case,
the first article shall be delivered FOB origin and shipped on Government Bill
of Lading.

      c. The first article shall be representative of items to be manufactured
using the same processes and procedures as contract production. All parts and
materials, including packaging and packing, shall be obtained from the same
source of supply as will be used during regular production. All components,
subassemblies, and assemblies in the first article sample shall have been
produced by the Contractor (including subcontractors) using the technical data
package provided by the Government.

      d. Prior to delivery, each of the first article assemblies, subassemblies,
and components shall be inspected by the Contractor for all contract, drawing,
QAP and specification requirements except for any environmental or destructive
tests indicated below: None. The contractor shall provide to the contracting
officer at least 15 calendar days advance notice of the schedule date for final
inspection of the first article. Those inspections which are of a destructive
nature shall be performed upon additional sample parts selected from the same
lot(s) or batch(es) from which the first article was selected. Results of
contractor inspections (including supplier's and Vendor's inspection records
when applicable) shall be verified by the Government Quality Assurance
Representative (QAR). The QAR shall attach to the contractor's inspection report
a completed DD Form 1222. One copy of the contractor's inspection report with
the DD Form 1222 shall be forwarded with the first article, two copies shall be
provided to the contracting officer. Upon delivery to the Government, the first
article my be subjected to inspection for all contract, drawing, specification,
and QAP requirements.

      e. Notwithstanding the provisions for waiver of first article, an
additional first article sample or portion thereof, may be ordered by the
Contracting officer in writing when (i) a major change is made to the technical
data, (ii) whenever there is a lapse in production for a period in excess of 90
days, or (iii) whenever a change occurs in the place of performance,
manufacturing process, material used, drawing, specification or source supply.
When conditions (i), (ii), or (iii) above occurs, the Contractor shall notify
the Contracting officer so that a determination can be made concerning the need
for an additional first article sample or portion thereof, and instructions
provided concerning the submission, inspection and notification of results.
Costs of the first article testing resulting from production process change,
change in the place of performance, or material substitution shall be borne by
the Contractor.

      f. Rejected first articles or portions thereof not destroyed during
inspection and testing will be held at the government first article test site
for a period of 30 days following the date of notification of rejection, pending
receipt of instructions from the Contractor for the disposition of the rejected
material. The Contractor agrees that failure to furnish such instructions within
said 30 day period shell constitute abandonment of said material by the
Contractor and shall confer upon the Government the right to destroy or
<PAGE>

                     REFERENCE NO. OF DOCUMENT BEING CONTINUED   PAGE 19 OF 40
CONTINUATION SHEET

                      PIIN/SIIN W52P1J-05-C-0015      MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: SYSTEMS INC.

otherwise dispose of the rejected items at the discretion of the Government
without liability to the Contractor by reason of such destruction or
disposition.

The following is applicable to Clin 0002:

   a. The first article shall be performed in accordance with DTL 7548025,
Paragraph 4.2 and Table II, shall be examined and tested in accordance with
contract requirements, the item specification (s), the Quality Assurance
Provisions (QAPS) and drawings listed in the Technical Data Package.

   b. The first article shall be delivered to: Contractor's facility. The first
article shall be delivered by the Contractor Free on Board (FOB) destination
except when transportation protective service or transportation security is
required by other provision of this contract. If such is the case, the first
article shall be delivered FOB origin and shipped on Government Bill of Lading.

   c. The first article shall be representative of items to be manufactured
using the same processes and procedures as contract production. All parts and
materials, including packaging and packing, shall be obtained from the same
source of supply as will be used during regular production. All components,
subassemblies, and assemblies in the first article sample shall have been
produced by the Contractor (including subcontractors) using the technical data
package provided by the Government.

   d. Prior to delivery, each of the first article assemblies, subassemblies,
and components shall be inspected by the Contractor for all contract, drawing,
QAP and specification requirements except for any environmental or destructive
tests indicated below: None. The Contractor shall provide to the Contracting
officer at least 15 calendar days advance notice of the schedule date for final
inspection of the first article. Those inspections which are of a destructive
nature shall be performed upon additional sample parts selected from the same
lot(s) or batch(es) from which the first article was selected. Results of
contractor inspections (including supplier's and vendor's inspection records
when applicable) shall be verified by the Government Quality Assurance
Representative (QAR). The QAR shall attach to the contractor's inspection report
a completed DD Form 1222. One copy of the contractor's inspection report with
the DD Form 1222 shall be forwarded with the first article; two copies shall be
provided to the contracting officer. Upon delivery to the Government, the first
article my be subjected to inspection for all contract, drawing, specification,
and QAP requirements.

   e. Notwithstanding the provisions for waiver of first article, an additional
first article sample or portion thereof, may be ordered by the Contracting
Officer in writing when (i) a major change is made to the technical data, (ii)
whenever there is a lapse in production for a period in excess of 90 days, or
(iii) whenever a change occurs in the place of performance, manufacturing
process, material used, drawing, specification or source supply When conditions
(i), (ii), or (iii) above occurs, the Contractor shall notify the Contracting
Officer so that a determination can be made concerning the need for an
additional first article sample or portion thereof, and instructions provided
concerning the submission, inspection and notification of results. Costs of the
first article testing resulting from production process change, change in the
place of performance, or material substitution shall be borne by the contractor.

   f. Rejected first articles or portions thereof not destroyed during
inspection and testing will be held at the government first article test site
for a period of 30 days following the date of notification of rejection, pending
receipt of instructions from the Contractor for the disposition of the rejected
material. The Contractor agrees that failure to furnish such instructions within
said 30 day period shall constitute abandonment of said material by the
Contractor and shall confer upon the Government the right to destroy or
otherwise dispose of the rejected items at the discretion of the Government
without liability to the Contractor by reason of such destruction or
disposition.

The following is applicable to Clin 0003;

   a. The first article shall be performed in accordance with MIL-C-48423A with
Amendment 3, Paragraph 4.3 and Table I, shall be examined and tested in
accordance with contract requirements, the item specification (a), the Quality
Assurance Provisions (QAPS) and drawings listed in the Technical Data Package.

   b. The first article shall be delivered to: contractor's facility. The first
article shall be delivered by the Contractor Free on Board (FOB) destination
except when transportation protective service or transportation security is
required by other provision of this contract. If such is the case, the first
article shall be delivered FOB origin and shipped on Government Bill of Lading.

   c. The first article shall be representative of items to be manufactured
using the same processes and procedures as contract production. All parts and
materials, including packaging and packing, shall be obtained from the same
source of supply as will be used during regular production. All components,
subassemblies, and assemblies in the first article sample shall have been
produced by the Contractor (including subcontractors) using the technical data
package provided by the Government.

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 20 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD
NAME  OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

   d. Prior to delivery, each of the first article assemblies, subassemblies,
and components shall be inspected by the contractor for a11 contract, drawing,
QAP and specification requirements except for any environmental or destructive
tests indicated below: None. The Contractor shall provide to the Contracting
Officer at least 15 calendar days advance notice of the schedule date for final
inspection of the first article. Those inspections which are of a destructive
nature shall be performed upon additional sample parts selected from the same
lot(s) or batch(es) from which the first article was selected. Results of
contractor inspections (including supplier's and Vendor's inspection records
when applicable) shall be verified by the Government Quality Assurance
Representative (QAR). The QAR shall, attach to the contractor's inspection
report a completed DD Form 1222. One copy of the contractor's inspection report
with the DO From 1222 shall be forwarded with the first article; two copies
shall be provided to the Contracting Officer. Upon delivery to the Government,
the first article my be subjected to inspection for all contract, drawing,
specification, and QAP requirements.

   e. Notwithstanding the provisions for waiver of first article, an additional
first article sample or portion thereof, may be ordered by the Contracting
Officer in writing when (i) a major change is made to the technical data, (ii)
whenever there is a lapse in production for a period in excess of 90 days, or
(iii) whenever a change occurs in the place of performance, manufacturing
process, material used, drawing, specification or source supply. When conditions
(1), (ii), or (iii) above occurs, the Contractor shall notify the Contracting
officer so that a determination can be made concerning the need for an
additional first article sample or portion thereof, and instructions provided
concerning the submission, inspection and notification of results. Costs of the
first article testing resulting from production process change, change in the
place of performance, or material substitution shall be borne by the Contractor.

   f. Rejected first articles or portions thereof not destroyed during
inspection and testing will be held at the government first article test site
for a period of 30 days following the date of notification of rejection, pending
receipt of instructions from the Contractor for the disposition of the rejected
material. The contractor agrees that failure to furnish such instructions within
said 30 day period shall constitute abandonment of said material by the
contractor and shall confer upon the Government the right to destroy or
otherwise dispose of the rejected items at the discretion of the Government
without liability to the Contractor by reason of such destruction or
disposition.

                                (End of clause)

 (ES6033)

   E-4    52.246-11    HIGHER-LEVEL CONTRACT QUALITY REQUIREMENT        FEB/2004
          LOCAL

The following is applicable to clins 0001, 0002 and 0003:

   (a) Definition. "Contract date", as used in this clause, means the date set
for bid opening; or if this is a negotiated contract or a modification, the
effective date of this contract or modification.

   (b) The Contractor shall comply with:

            ( ) ISO 9002

            (X) ISO 9001-2000; only design/development exclusions permitted

            ( ) ISO 9001-2000; no exclusions permitted

or an alterate program/system approved by the activity listed in block 7 of the
Standard Form 33, in effect on the contract date and which is hereby
incorporated into this contract.

                                 (End of clause)

(ES6001)

   E-5    S2.246-4506  STATISTICAL PROCESS CONTROL (SPC)                FEB/2004
          LOCAL

The following is applicable to Clins 0001, 0002 and 0003:

   a. In addition to the quality requirements of the technical data package, the
Contractor shall implement Statistical Process Control (SPC) in accordance with
a government accepted SPC Program Plan. Control chart techniques shall be in
accordance with the American National Standards Institute (ANSI) Bl, B2 and B3.
Alternate SPC charting methods may be proposed end submitted to the Government
for review.

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 21 OF 40
CONTINUATION SHEET

                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

   b. The SPC Program Plan developed by the contractor shall consist of a
general plan and a detailed plan. The plans shall be structured as delineated on
the Data Item Description referenced in the DD Form 1423. The general and the
detailed plans shall be submitted to the government for review per DD Form 1423
requirements. Notification by the Government of acceptance or nonacceptance of
the plans shall be provided in accordance with the timeframes specified on the
DD Form 1423. Once a general plan for a facility has bean approved by this
Command, the approval remains in effect for subsequent contracts as long as the
contractual requirements remain substantially unchanged from contract to
contract. Therefore, resubmission of a previously accepted general SPC plan is
not required if current SPC contract clause and Data Item Description (DID)
requirements are fulfilled. If this Command has previously accepted the general
SPC plan under essentially the same SPC contractual requirements, so indicate by
providing the Contracting Officer with the following information:

      Date of Acceptance _______

      Contract Number(s) _______

   c. The contractor is responsible for updating the general plan to current SPC
contractual requirements. If errors or omissions are encountered in a previously
accepted SPC general plan, opportunities for improvement will be identified by
the Government, and corrective action shall be accomplished by the contractor.

   d. A milestone schedule will be submitted for those facilities who do not
have, or have never had, a fully implemented SPC program and will not have a
fully operational SPC program once production is initiated. The milestones shall
provide a time phased schedule of all efforts planned relative to implementation
of an SPC program acceptable to the Government. A milestone schedule shall
include implementation start and complete dates for those SPC subjects addressed
in the Statistical Process Control Statement of Work located in Section C. The
milestone schedule shall only include those actions that can not be accomplished
prior to first article or the initiation of production, if a first article is
not required. Milestones shall be developed for each commodity identified for
SPC application. Milestones shall be submitted through the Government Quality
Assurance Representative to the Contracting Officer for review and acceptance.
Any deviations from the accepted milestones, to include justification for such
deviations, shall be resubmitted through the same channels for review. The
Government reserves the right to disapprove any changes to the previously
accepted milestones. Notification by the Government of the acceptance or
nonacceptance of the milestones shall be furnished to the Contractor by the
Contracting Officer.

   e. The Contractor shall review all process and operation parameters for
possible application of SPC techniques. This review shall include processes and
operations under the control of the prime contractor and those under the control
of subcontractor or vendor facilities. A written justification shall be included
in the detailed plan for each process and operation parameter that controls or
influences characteristics identified as critical, special, or major which have
been deemed impractical for the application of SPC techniques. A pamphlet on
application of SPC for short production runs is available through the
Contracting Officer.

   f. Statistical evidence in the form of control charts shall be prepared and
maintained for each process or operation parameter identified in the detailed
plan. These charts shall identify all corrective actions taken on statistical
signal. During production runs, control charts shall be maintained in such a
manner to assure product is traceable to the control charts. At the conclusion
of the production run, a collection of charts traceable to the product, shall be
maintained for a minimum of 3 years. The control charts shall be provided to the
Government for review at any time upon request.

   g. When the process or operation parameter under control has demonstrated
both stability and capability, the Contractor -1- request, in writing, through
Administrative Contracting Officer (ACO) and Contracting Officer (CO) channels
to the Product Assurance and Test Directorate, that acceptance inspection or
testing performed in accordance with contract requirements be reduced or
eliminated. Upon approval by the CO, acceptance shall then be based upon the
accepted SPC plan, procedures, practices and the control charts.

   h. The Government will not consider requests for reduction or elimination of
100% acceptance inspection and testing of parameters or characteristics
identified as critical in the technical data package, specifications or drawings
of this contract if any one of the following conditions exist:

      (1) The existing process currently utilizes a fully automated, cost
effective, and sufficiently reliable method of 100% acceptance inspection or
testing for an attribute-type critical parameter or characteristic.

      (2) The Contractor utilizes attribute SPC control chart methods for the
critical parameter or characteristic.

      (3) The critical parameter or characteristic is a first order, single
point safety failure mode (nonconformance of the critical parameter or
characteristic in and of itself would cause a catastrophic failure).

   i. The Government will only consider reduction or elimination of the 100%
acceptance inspection or test requirement for other critical parameters or
characteristics if either of the following conditions are met:

      (1) The process is in a state of statistical control utilizing variable
control chart methods for the critical parameter or characteristic under control
and the process performance index (Cpk) is at least 2.0. The Contractor shall
maintain objective quality evidence through periodic audits that the process
performance index is being maintained for each production delivery.

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 22 OF 40
CONTINUATION SHEET

                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

      (2) The critical parameter or characteristic is conclusively shown to be
completely controlled by one or more process or operation parameters earlier in
the process, and those parameters are in a state of statistical control
utilising variable data, and the product of the probability of the conformance
for each earlier parameter associated to the critical characteristic is better
then or equal to a value equivalent to that provided by a Cpk of at least 2.0.
The Contractor shall maintain objective quality evidence through periodic audits
that the process performance indexes are being maintained, for each production
delivery.

   j. For characteristics other than critical, requests for reduction or
elimination of acceptance inspection and testing shall be considered when the
process performance index is greater than or equal to a Cpk of 1.33 for
variables data. Requests shall be considered for attributes data when the
percent beyond the specification limits is less than or equal to .003
(Cpk=1.33).

   k. Process or operation parameters under reduced or eliminated inspection or
testing that undergo a break in production less than 6 months in length, may
continue to operate under reduced or eliminated inspection or testing provided
there has been no degradation below a Cpk of 1.33 (2.0 for criticals). Any break
in production greater than 6 months shall require resubmission of the request
for reduction or elimination of inspection or testing through the same channels
cited in paragraph g above.

   l. Not used.

   m. Immediately following a change to a process or operation parameter under
reduced or eliminated inspection, the process capability (Cp) or process
performance indexes (Cpk) shall be recalculated and documented for variable
data; the grand average fraction defective shall be recalculated for attribute
data. If any of these values have deteriorated, immediate notification shall be
made to the Government along with the associated documentation. Return to
original inspection and test requirements may be imposed as stipulated in
paragraph n below.

   n. The Government reserves the right to withdraw authorization to reduce or
eliminate final acceptance inspection or testing and direct the Contractor to
return to original contract inspection or test procedures at any indication of
loss of process control or deterioration of quality.

                                 (End of clause)

(ES6034)

<TABLE>
<S>       <C>               <C>                                                            <C>
E-6       52.246-4530       SUBMISSION OF PRODUCTION LOT SAMPLES (GOVERNMENT TESTING)      MAY/1994
          LOCAL
</TABLE>

The following is applicable to Clin 0001 (M14 Brass Cartridge Case):

   a. A Lot acceptance test sample is required to be submitted by the contractor
from each production lot tendered to the Government for acceptance. This sample
shall consist of: 30 each M14 Cartridges however, if test results indicate a
retest, an additional 60 each Cartridges shall be required. Reference DTL
7548409, paragraph 4.3.3.1 and 4.3.3.1.2. The sample units shall be delivered
by the Contractor Free on Board (FOB) destination, except when transportation
protective service of transportation security is required by other provision of
this contract. When such is the case, the sample units shall be delivered FOB
origin and shipped to the test facility identified below on a Government Bill of
Lading for the following tests:

         TEST: Ballistic test shall be conducted in accordance with DTL 7548409,
         Paragraphs 3.4 and 4.4

         REQUIREMENTS: The requirements shall be in accordance with DTL 7548409,
         Paragraph 3.4.1, 3.4.2, 3.4.3 and 3.4.4. See DTL 7548409 Table IV.

         SAMPLE: The ballistic sample size shall be 30 Cartridges. If the test
         results indicate a retest, an additional 60 Cartridges shall be
         required.

         TEST FACILITY: Yuma Proving Ground

   b. When the production lot sample consists of components parts which require
uploading at a Government Load, Assemble, and Pack (LAP) facility, and a
shipping address is provided below, the contractor shall ship the sample units
as specified above directly to the LAP facility. The LAP facility, upon
completion of the uploading, will be responsible for shipping the samples to the
tests facility indicated above in paragraph a.

         LAP FACILITY: Yuma Proving Ground

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 23 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

   c. The sample units shall be randomly selected from the entire lot by or in
the presence of the Government Quality Assurance Representative. Unless
otherwise specified, the sample units are considered to be destructively tested
and are in addition to the units deliverable under the contract.

   d. Prior to selection of the sample units, the lot shall have been inspected
to and meet all other requirements of the contract. A sample shall not be
submitted from a lot rejected for nonconformance to the detailed requirements of
the specifications) and drawing(s) unless authorized by the Contracting Officer.

   e. Unless authorized by the Contracting Officer, the lot from which the
samples are drawn shall not be shipped until official notification has been
provided by the Contracting Officer that the tested units have satisfactorily
met the established requirements. Final acceptance of the lot shall not proceed
until such notification has been provided.

   f. If the production lot sample contains samples for ballistic testing, the
test samples shall be identified as such on the outer packs and the applicable
Ballistic Test Request (BTR) number shall be stenciled on all outer packs and
included on all shipping documents.

   g. The Contracting Officer shall by written notice to the Contractor within
30 days after receipt of the sample units by the government, approve,
disapprove, or conditionally approve the lot acceptance sample.

   h. If the production lot sample fails to meet applicable requirements, the
Contractor may be required at the option of the Government, to submit an
additional production lot test sample for test. When notified by the Government
to submit an additional production lot test sample, the Contractor shall at no
additional cost to the Government make any necessary changes, modifications, or
repairs and select another sample for testing. The additional test sample shall
be furnished to the Government under the terms and conditions and within the
time specified in the notification. The Government shall take action on this
test sample within the time limit specified in paragraph g above. All costs
associated with the additional testing shall be borne by the Contractor.

   i. If a ballistic test sample fails to meet contractual performance or
functional requirements, the Contractor shall reimburse the Government for
transportation costs associated with the failing sample, including the cost of
transportation protective service and transportation security requirements when
such security is required by other provision of this contract. An exception to
this requirement for reimbursement of Government transportation costs will occur
if the Government determines that the functional test samples failed to meet
contractual performance requirements through no fault of the contractor.

   j. If the Contractor fails to deliver any production lot test sample(s) for
test within the time or times specified, or if the Contracting Officer
disapproves any production lot test sample(s), the Contractor shall be deemed to
have failed to make delivery within the meaning of the Default clause of this
contract. Therefore, this contract may be subject to termination for default.
Failure of the Government in such an event to terminate this contract for
default shall not relieve the contractor of the responsibility to meet the
delivery schedule for production quantities.

   k. In the event the Contracting Officer does not approve, conditionally
approve, or disapprove the production lot test sample(s) within the time
specified in paragraph g above, the Contracting Officer shall equitably adjust
the delivery or performance dates, or the contract price, or both, and any other
contractual provision affected by such delay in accordance with the procedures
provided in the Changes clause. Failure to agree to any adjustment shall be a
dispute concerning a question of the fact within the meaning of the clause of
this contract entitled Disputes.

The following is applicable to Clin 0002 (M14B1 Steel Cartridge Case):

   a. A lot acceptance test sample is required to be submitted by the Contractor
from each production lot tendered to the Government for acceptance. This sample
shall consist of: 100 each Cartridge Cases, if test results indicate a retest,
an additional 200 cartridges shall be required. After three consecutive accepted
production lots, without retest, the quantity for acceptance testing may be
reduced to 50. Reference DTL 7548025, Paragraph 4.3.3.1.2. The sample units
shall be delivered by the Contractor Free on Board (FOB) destination, except
when transportation protective service of transportation security is required by
other provision of this contract. When such is the case, the sample units shall
be delivered FOB origin and shipped to the test facility identified below on a
Government Bill of Lading for the following tests:

         TEST: Service Pressure (reference DTL 7548025, Paragraph 4.4.1.1)

         REQUIREMENTS: Obturation verification; Extraction verification; Primer
         retention verification; Soundness verification; Failure to chamber;
         sidewall cracks within one caliber of the head and; all other sidewall
         cracks (reference DTL 7548025, Paragraph 4.4.1.1a, 4.4.1.1b, 4.4.1.1c,
         4.4.1.1d, 4.4.1.1e and Table III)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 24 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

         SAMPLE: See Paragraph A above.

         TEST FACILITY: Yuma Proving Ground

   b. When the production lot sample consists of components parts which require
uploading at a Government Load. Assemble, and Pack (LAP) facility, and a
shipping address is provided below, the contractor shall ship the sample units
as specified above directly to the LAP facility. The LAP facility, upon
completion of the uploading, will be responsible for shipping the samples to the
tests facility indicated above in paragraph a.

         LAP FACILITY: To Be Determined

   c. The sample units shall be randomly selected from the entire lot by or in
the presence of the Government Quality Assurance Representative. Unless
otherwise specified, the sample units are considered to be destructively tested
and are in addition to the units deliverable under the contract.

   d. Prior to selection of the sample units, the lot shall have been inspected
to and meet all other requirements of the contract. A sample shall not be
submitted from a lot rejected for nonconformance to the detailed requirements of
the specifications) and drawing(s) unless authorized by the Contracting Officer.

   e. Unless authorized by the Contracting Officer, the lot from which the
samples are drawn shall not be shipped until official notification has been
provided by the Contracting Officer that the tested units have satisfactorily
met the established requirements. Final acceptance of the lot shall not proceed
until such notification has been provided.

   f. If the production lot sample contains samples for ballistic testing, the
test samples shall be identified as such on the outer packs and the applicable
Ballistic Test Request (BTR) number shall be stenciled on all outer packs and
included on all shipping documents.

   g. The Contracting Officer shall by written notice to the Contractor within
30 days after receipt of the sample units by the government, approve,
disapprove, or conditionally approve the lot acceptance sample.

   h. If the production lot sample fails to meet applicable requirements, the
Contractor may be required at the option of the Government, to submit an
additional production lot test sample for test. When notified by the Government
to submit an additional production lot test sample, the Contractor shall at no
additional cost to the Government make any necessary changes, modifications, or
repairs and select another sample for testing. The additional test sample shall
be furnished to the Government under the terms and conditions and within the
time specified in the notification. The Government shall take action on this
test sample within the time limit specified in paragraph g above. All costs
associated with the additional testing shall be borne by the Contractor.

   i. If a ballistic test sample fails to meet contractual performance or
functional requirements, the Contractor shell reimburse the Government for
transportation costs associated with the failing sample, including the cost of
transportation protective service and transportation security requirements when
such security is required by other provision of this contract. An exception to
this requirement for reimbursement of Government transportation costs will occur
if the Government determines that the functional test samples failed to meet
contractual performance requirements through no fault of the contractor.

   j. If the Contractor fails to deliver any production lot test sample(s) for
test within the time or times specified, or if the Contracting Officer
disapproves any production lot test sample(s), the Contractor shall be deemed to
have failed to make delivery within the meaning of the Default clause of this
contract. Therefore, this contract may be subject to termination for default.
Failure of the Government in such an event to terminate this contract for
default shall not relieve the contractor of the responsibility to meet the
delivery schedule for production quantities.

   k. In the event the Contracting Officer does not approve, conditionally
approve, or disapprove the production lot test sample(s) within the time
specified in paragraph g above, the Contracting Officer shall equitably adjust
the delivery or performance dates, or the contract price, or both, and any other
contractual provision affected by such delay in accordance with the procedures
provided in the Changes clause. Failure to agree to any adjustment shall be a
dispute concerning a question of the fact within the meaning of the clause of
this contract entitled Disputes.

The following is applicable to Clin 0003 (M14B4 Spiral Wrap Cartridge Case):

   a. A lot acceptance test sample is required to be submitted by the Contractor
from each production lot tendered to the Government for acceptance. This sample
shall consist of: 30 Cartridge Cases. The sample units shall be delivered by the
Contractor Free on Board (FOB) destination, except when transportation
protective service of transportation security is required by other provision of
this

<PAGE>

                      REFERENCE NO. OF DOCUMENT BRING CONTINUED    PAGE 25 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

contract. When such is the case, the sample units shall be delivered [ILLEGIBLE]
FOB origin and shipped to the test facility identified below on a Government
Bill of Lading for the following tests:

         TEST: EXCESS PRESSURE PHASE

         REQUIREMENTS: Obturation failure; Ejection failure; Primer retention
         failure; Splits or cracks in sidewall; Loose assembly; Splits or cracks
         within one caliber of the heat that do not extend through all layers of
         metal. Reference MIL-C-48423A with Amendment 3, Paragraphs 3.7.1,
         3.7.2, 3.7.3, 3.7.4 and 4.4.5.2.1.

         SAMPLE: 30 CARTRIDGE CASES

         TEST FACILITY: YUMA PROVING GROUND

   b. When the production lot sample consists of components parts which require
uploading at a Government Load, Assemble, and Pack (LAP) facility, and a
shipping address is provided below, the contractor shall ship the sample units
as specified above directly to the LAP facility. The LAP facility, upon
completion of the uploading, will be responsible for shipping the samples to the
tests facility indicated above in paragraph a.

         LAP FACILITY: To Be Determined

   c. The sample units shall be randomly selected from the entire lot by or in
the presence of the Government Quality Assurance Representative. Unless
otherwise specified, the sample units are considered to be destructively tested
and are in addition to the units deliverable under the contract.

   d. Prior to selection of the sample units, the lot shall have been inspected
to and meet all other requirements of the contract. A sample shall not be
submitted from a lot rejected for nonconformance to the detailed requirements of
the specifications) and drawing(s) unless authorized by the Contracting Officer.

   e. Unless authorized by the Contracting Officer, the lot from which the
samples are drawn shall not be shipped until official notification has been
provided by the Contracting Officer that the tested units have satisfactorily
met the established requirements. Final acceptance of the lot shall not proceed
until such notification has been provided.

   f. If the production lot sample contains samples for ballistic testing, the
test samples shall be identified as such on the outer packs and the applicable
Ballistic Test Request (BTR) number shall be stenciled on all outer pack and
included on all shipping documents.

   g. The Contracting Officer shall by written notice to the Contractor within
30 days after receipt of the sample units by the government, approve,
disapprove, or conditionally approve the lot acceptance sample.

   h. If the production lot sample fails to meet applicable requirements, the
Contractor may be required at the option of the Government, to submit an
additional production lot test sample for test. When notified by the Government
to submit an additional production lot test sample, the Contractor shall at no
additional cost to the Government make any necessary changes, modifications, or
repairs and select another sample for testing. The additional test sample shall
be furnished to the Government under the terms and conditions and within the
time specified in the notification. The Government shall take action on this
test simple within the time limit specified in paragraph g above. All costs
associated with the additional testing shall be borne by the Contractor.

   i. If a ballistic test sample fails to meet contractual performance or
functional requirements, the Contractor shall reimburse the Government for
transportation costs associated with the failing sample, including the cost of
transportation protective service and transportation security requirements when
such security is required by other provision of this contract. An exception to
this requirement for reimbursement of Government transportation costs will occur
if the Government determines that the functional test samples failed to meet
contractual performance requirements through no fault of the contractor.

   j. If the Contractor fails to deliver any production lot test sample(s) for
test within the time or times specified, or if the Contracting Officer
disapproves any production lot test sample(s), the Contractor shall be deemed to
have failed to make delivery within the meaning of the Default clause of this
contract. Therefore, this contract may be subject to termination for default.
Failure of the Government in such an event to terminate this contract for
default shall not relieve the contractor of the responsibility to meet the
delivery schedule for production quantities.

   k. In the event the Contracting Officer does not approve, conditionally
approve, or disapprove the production lot test sample(s) within the time
specified in paragraph g above, the Contracting Officer shall equitably adjust
the delivery or performance dates, or the contract price, or both, and any other
contractual provision affected by such delay in accordance with the procedures
provided in the Changes clause. Failure to agree to any adjustment shall be a
dispute concerning a question of the fact within the meaning of the

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 26 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

clause of this contract entitled Disputes.

                                 (End of Clause)

(ES6035)

<TABLE>
<S>       <C>               <C>                                                 <C>
E-7       52.246-4528       REWORK AND REPAIR OF NONCOMFORMING MATERIAL         MAY/1994
          LOCAL
</TABLE>

The following is applicable to Clins 0001, 0002, and 0003:

   a. Rework And Repair Are Defined As Follows:

      (1) Rework - The reprocessing of nonconforming material to make it conform
completely to the drawings, specifications or contract requirements.

      (2) Repair - The reprocessing of nonconforming material in accordance with
approved written procedures and operations to reduce, but not completely
eliminate, the nonconformance. The purpose of repair is to bring nonconforming
material into a usable condition. Repair is distinguished from rework in that
the item after repair still does not completely conform to all of the applicable
drawings, specifications or contract requirements.

   b. Rework procedures along with the associated inspection procedures shall be
documented by the Contractor and submitted to the Government Quality Assurance
Representative (QAR) for review prior to implementation. Rework procedures are
subject to the QAR's disapproval.

   c. Repair procedures shall be documented by the Contractor and submitted on a
Request for Deviation/Waiver, DD Form 1694, to the Contracting Officer for
review and written approval prior to implementation.

   d. Whenever the Contractor submits a repair or rework procedure for
Government review, the submission shall also include a description of the cause
for the nonconformances and a description of the action taken or to be taken to
prevent recurrence.

   e. The rework or repair procedure shall also contain a provision for
reinspection which will take precedence over the Technical Data Package
requirements and shall, in addition, provide the Government assurance that the
reworked or repaired items have met reprocessing requirements.

                                 (End of clause)

(ES7012)

<TABLE>
<S>       <C>              <C>                                                  <C>
E-8       52.246.4531      ACCEPTANCE INSPECTION EQUIPMENT                      MAY/1994
          LOCAL
</TABLE>

The following is applicable to Clins 0001, 0002, and 0003:

   a. Acquisition, maintenance, and disposition of inspection equipment shall be
in accordance with ANSI/NCSL Z540-1 or ISO 10012-1.

   b. The Contractor shall provide all Acceptance Inspection Equipment (AIE)
(except for any equipment listed as available in Section H and/or in Appendix I
of this contract) necessary to assure conformance of components and end items to
contract requirements. Equipment listed as available shall be furnished by the
Government in accordance with the Government Property clause of this contract.
Government furnished Acceptance Inspection Equipment shall not be used by the
contractor or his subcontractors in lieu of work gages.

   c. All AIE shall be available for use prior to First Article submission, if
First Article is required, or prior to initiation of production under this
contract.

   d. Contractor furnished AIE shall be made (i) in accordance with the
equipment drawings specified in Section C description/specifications section),
or (ii) in accordance with any other design, provided that the design
documentation is approved by the Government. AIE designs utilized for inspection
of characteristics that are classified as Minor require approval by the
Government

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 27 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

Quality Assurance Representative (QAR) . AIE design documentation for inspection
of characteristics listed as Critical, Special, or Major shall be submitted to
the Government for review and approval in accordance with the Contract Data
Requirements List. DO Form 1423.

   e. Resubmission of AIE design documentation for approval on a follow on
contract in not required provided inspection characteristic parameters)
specified in the current technical data package and the previously approved AIE
design documentation remain unchanged. The contractor shall provide the contract
number and identify previously approved AIE documentation that meets the above
prerequisites.

   f. The Government reserves the right to disapprove at any time during
performance of this contract, use of any AIE not meeting the requirements of the
approved design documentation.

                                 (End of clause)

(ES7010)

<TABLE>
<S>       <C>               <C>                                         <C>
E-9       52.246-4532       DESTRUCTIVE TESTING                         MAY/1994
          LOCAL
</TABLE>

The following is applicable to Clins 0001, 0002 and 0003:

   a. All costs for destructive testing by the Contractor and items destroyed by
the Government are considered as being included in the contract unit price.

   b. Where destructive testing of items or components thereof is required by
contract or specification, the number of items or components required to be
destructively tested, whether destructively tested or not, shall be in addition
to the quantity to the delivered to the Government as set forth in the Contract
Schedule.

   c. All pieces of the complete First Article shall be considered as
destructively tested items unless specifically exempted by other provisions of
this contract.

   d. The contractor shall not reuse any components from items used in a
destructive test during First Article, lot acceptance or inprocess testing,
unless specifically authorized by the Contracting Officer.

   e. The Government reserves the right to take title to all or any items or
components described above. The Government may take title to all or any items or
components upon notice to the Contractor. The items or components of items to
which the Government takes title shall be shipped in accordance with the
Contracting Officer's instructions. Those items and components to which the
Government does not obtain title shall be rendered inoperable and disposed of as
scrap by the Contractor.

                                (End of clause)

(ES7011)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 28 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015      MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION F - DELIVERIES OR PERFORMANCE

For Local Clauses See: http://www.afsc.army.mil/ac/aais/ioc/clauses/index.htm

The following Federal Acquisition Regulation (FAR), DoD FAR Supplement clauses
and provisions, the full text of which will be made available upon request, are
incorporated herein by reference with the same force and effect as if set forth
in full text.

The text of the clauses incorporated by reference herein are available from the
contract specialist indicated in block 7 of the Standard Form 33 or (as
applicable) the contracting officer and will be furnished upon request. Other
documents are available as indicated in the schedule.

Any company/individual wishing to purchase a copy of the Federal Acquisition
Regulation (FAR), the Army FAR Supplement or the DOD FAR Supplement, may do so
from the Superintendent of Documents, US Government Printing Office, Washington
DC 20402.

(FA7001)

<TABLE>
<CAPTION>
          Regulatory Cite                         Title                           DATE
          ---------------       -----------------------------------------       --------
<S>       <C>                   <C>                                             <C>
F-l       52.242-15             STOP-WORK ORDER                                 AUG/1989
F-2       52.242-17             GOVERNMENT DELAY OF WORK                        APR/1984
F-3       52.247-34             F.O.B. DESTINATION                              NOV/1991
F-4       52.247-48             F.O.B. DESTINATION - EVIDENCE OF SHIPMENT       FEB/1999
F-5       252.247-7023          TRANSPORTATION OF SUPPLIES BY SEA               MAY/2002

          DFARS

F-6       52.247-4531           COGNIZANT TRANSPORTATION OFFICER                MAY/1993
          LOCAL
</TABLE>

      (a) The contract administration office designated at the time of contract
award, or the office servicing the point of shipment if subsequently designated
by the original office, will be the contact point to which the contractor will:

            (1) Submit, as necessary, DD Form 1659, Application for U.S.
Government Bill(s) of Lading/Export Traffic Release, in triplicate at least ten
days prior to date supplies will be available for shipment;

            (2) Obtain shipping instructions as necessary for F.O.B. Destination
delivery, and

            (3) Furnish necessary information for MILSTRIP/MILSTAMP or other
shipment documentation and movement control, Including air and water terminal
clearances.

            (4) For FMS, at least ten days in advance of actual shipping date
the contractor should request verification of "Ship to" and "Notification"
address from the appropriate DCMAO.

      (b) The contract administration office will provide to the contractor data
necessary for shipment marking and freight routing.

      (c) The contractor shall not ship directly to a military air or water port
terminal without authorisation by the designated point of contact.

                                 (End of clause)

(FS7240)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 29 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION G - CONTRACT ADMINISTRATION DATA

<TABLE>
<CAPTION>
         PRON/                                                                   JOB
LINE     AMS CD/               OBLG                                             ORDER    ACCOUNTING     OBLIGATED
ITEM     MIPR           ACRN   STAT         ACCOUNTING  CLASSIFICATION          NUMBER    STATION         AMOUNT
------   ------------   ----   ----   ---------------------------------------   ------   ----------   --------------
<S>      <C>            <C>    <C>    <C>                                       <C>      <C>          <C>
0003AB   HH3B6038M2      AA     2     21  32034000031B1B02P41374226IEB S28017   3RM005   W52P1J       $ 1,378,650.00
         41374220020
         A1314020HGHH

0003AC   HH4B6037M2      AB     2     21  42034000041B1B02P41370626EB  S28017   4RM020   W52P1J       $   590,850.00
         41370630016
         A1414016HGHH
                                                                                                      --------------
                                                                                         TOTAL        $ 1,969,500.00
</TABLE>

<TABLE>
<CAPTION>
SERVICE                                                            ACCOUNTING     OBLIGATED
 NAME     TOTAL BY ACRN         ACCOUNTING CLASSIFICATION           STATION         AMOUNT
-------   -------------   --------------------------------------   ----------   --------------
<S>       <C>             <C>                                      <C>          <C>
Army            AA        21 32034000031B1B02P41374226EB  S28017   W52P1J       $ 1,378,650.00
Army            AB        21 42034000041B1B02P41370626EB  S28017   W52P1J       $   590,850.00
                                                                                --------------

                                                                   TOTAL        $ 1,969,500.00
</TABLE>

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 30 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION H - SPECIAL CONTRACT REQUIREMENTS

For Local Clauses See: http://www.afsc.army.mil/ac/aais/ioc/clauses/index.htm

The following Federal Acquisition Regulation (FAR), DoD FAR Supplement clauses
and provisions, the Full text of which will be made available upon request, are
incorporated herein by reference with the same force and effect as if set forth
in full text.

The text of the clauses incorporated by reference herein are available from the
contract specialist indicated in block 7 of the Standard Form 33 or (as
applicable) the contracting officer and will be furnished upon request. Other
documents are available as indicated in the schedule.

Any company/individual wishing to purchase a copy of the Federal Acquisition
Regulation (FAR), the Army FAR Supplement or the DOD FAR Supplement, may do so
from the Superintendent of Documents, US Government Printing Office, Washington
DC 20402.

(HA7001)

<TABLE>
<CAPTION>
       Regulatory Cite                          Title                             Date
       ---------------    -------------------------------------------------     --------
<S>    <C>                <C>                                                   <C>
H-l    252.247-7024       NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA     MAR/2000
       DFARS

H 2    52.242-4506        PROGRESS PAYMENT LIMITATION                           MAR/1988
       LOCAL
</TABLE>

Prior to first article approval, only costs incurred for the first article are
allowable for progress payments; however, such payments shall not exceed ten
percent (10%) of the initial award value of the contract.\

                                 (End of Clause)

(HS6002)
<TABLE>
<S>    <C>                <C>                                                   <C>
H-3    246.671 LOCAL      MATERIAL INSPECTION AND RECEIVING REPORTS (DD         JAN/1995
                          FORM 250)
</TABLE>

Material Inspection and Receiving Report (DD Form 250), required to be prepared
and furnished to the Government under the clause of this contract entitled
'Material Inspection and Receiving Report', will be distributed by the
Contractor in accordance with DOD FAR Supplement Appendix F, Part 4.

Send copies to:

1.    Purchasing Office

          Commander
          U.S. Army Field Support Command
          ATTN:  ANSFS-CCA-R
          Rock Island, IL 61299-6000

2.    Production Management

          Commander
          U.S. Army Joint Munitions Command
          ATTN: SFSJM-CDL
          Rock Island, IL  61299-6000

3.    Send additional copies in accordance with Table 1 and Table 2.

                                 (End of clause)

(MA[ILLEGIBLE]6025)

<TABLE>
<S>    <C>              <C>                                                     <C>
H-4    52.247-4545      PLACE OF CONTRACT SHIPPING POINT, RAIL INFORMATION      NAY/1993
</TABLE>

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 31 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

            LOCAL

The bidder/offerer is to fill in the 'Shipped From' address, if different from
'Place of Performance' indicated elsewhere in this section.

      Shipped From:
_______________________

_______________________

_______________________

For contracts involving F.O.B. Origin shipments furnish the following rail
information:

Does Shipping Point have a private railroad siding////______YES _______ NO

If YES, give name of rail carrier serving it: ______________

If NO, give name and address of nearest rail freight station and carrier serving
it:

Rail Freight Station Name and Address: __________________

Serving Carrier: __________________

                                 (End of Clause)

(HS7600)

<PAGE>

CONTINUATION SHEET    REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 32 OF 40

                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION I - CONTRACT CLAUSES

For Local Clauses See: http://ww.afsc.army.mil/ac/aais./ioc/clauses/index.htm

<TABLE>
<CAPTION>
          Regulatory Cite                             Title                              Date
          ---------------    -----------------------------------------------------     --------
<S>       <C>                <C>                                                       <C>
 I-1      52.202-1           DEFINITIONS                                               JUL/2004
 I-2      52.203-3           GRATUITIES                                                APR/1984
 I-3      52.203-5           COVENANT AGAINST CONTINGENT FEES                          APR/1984
 I-4      52.203-6           RESTRICTIONS ON SUBCONTRACTOR SALES TO THE GOVERNMENT     JUL/1995
 I-5      52.203-7           ANTI-KICKBACK PROCEDURES                                  JUL/1995
 I-6      52.203-8           CANCELLATION, RESCISSION, AND RECOVERY OF FUNDS FOR       JAN/1997
                             ILLEGAL OR IMPROPER ACTIVITY
 I-7      52.203-10          PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER
                             ACTIVITY                                                  JAN/1997
 I-8      52.203-12          LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN FEDERAL
                             TRANSACTIONS                                              JUN/2003
 I-9      52.204-4           PRINTED OR COPIED DOUBLE-SIDED ON RECYCLED PAPER          AUG/2000

I-10      52.204-7           CENTRAL CONTRACTOR REGISTRATION                           OCT/2003
I-11      52.209-4           FIRST ARTICLE APPROVAL-GOVERNMENT TESTING (SEP 1989)-     JAN/1997
                             ALTERNATE I
I-12      52.209-6           PROTECTING THE GOVERNMENT'S INTEREST WHEN                 JAN/2005
                             SUBCONTRACTING WITH CONTRACTORS DEBARRED, SUSPENDED,
                             OR PROPOSED FOR DEBARMENT
I-13      52.211-5           MATERIAL REQUIREMENTS                                     AUG/2000
I-14      52.211-15          DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS              SEP/1990
I-15      52.215-2           AUDIT AND RECORDS - NEGOTIATION                           JUN/1999
I 16      52.215-8           ORDER OF PRECEDENCE-UNIFORM CONTRACT FORMAT               OCT/1997
I-17      52.219-8           UTILIZATION OF SMALL BUSINESS CONCERNS                    MAY/2004
I-18      52.219 9           SMALL BUSINESS SUBCONTRACTING PLAN (JAN 2002) -           OCT/2001
                             ALTERNATE II
I-19      52.219-9           SMALL BUSINESS SUBCONTRACTING PLAN                        JAN/2OO2
I-20      52.219-16          LIQUIDATED DAMAGES - SUBCONTRACTING PLAN                  JAN/1999
I-21      52.222-19          CHILD LABOR-COOPERATION WITH AUTHORITIES AND REMEDIES     JUN/2004
I-22      52.222-20          WALSH-HEALEY PUBLIC CONTRACTS ACT                         DEC/1996
I-23      52.222-26          EQUAL OPPORTUNITY                                         APR/2002
I-24      52.222-35          EQUAL OPPORTUNITY FOR SPECIAL DISABLED VETERANS,          DEC/2001
                             VETERANS OF THE VIETNAM ERA, AND OTHER ELIGIBLE
                             VETERANS
I-25      52.222-36          AFFIRMATIVE ACTION FOR WORKERS WITH DISABILITIES          JUN/1998
I-26      52.222-37          EMPLOYMENT REPORTS ON SPECIAL DISABLED VETERANS,          DEC/2001
                             VETERANS OF THE VIETNAM ERA, AND OTHER ELIGIBLE
                             VETERANS
I-27      52.226-1           UTILIZATION OF INDIAN ORGANIZATIONS AND INDIAN-OWNED      JUN/2000
                             ECONOMIC ENTERPRISES
I-28      52.229-3           FEDERAL, STATE, AND LOCAL TAXES                           APR/2003
I-29      52.232-1           PAYMENTS                                                  APR/1984
I-30      52.232-8           DISCOUNTS FOR PROMPT PAYMENT                              FEB/2002
I-31      52.232-11          EXTRAS                                                    APR/1984
I-32      52.232-17          INTEREST                                                  JUN/1996
I-33      52.232-25          PROMPT PAYMENT                                            OCT/2003
I-34      52.232-33          PAYMENT BY ELECTRONIC FUNDS TRANSFER - CENTRAL            OCT/2003
                             CONTRACTOR REGISTRATION
I-35      52.233-1           DISPUTES                                                  JUL/2002
I-36      52.233-3           PROTEST AFTER AWARD                                       AUG/1996
I-37      52.242-2           PRODUCTION PROGRESS REPORTS                               APR/1991
I-38      52.242-12          REPORT OF SHIPMENT (REPSHIP)                              JUN/2003
I-39      52.242-13          BANKRUPTCY                                                JUL/1995
I-40      52.243-1           CHANGES - FIXED PRICE                                     AUG/1987
I-41      52.243-7           NOTIFICATION OF CHANGES                                   APR/1984
I-42      52.247-63          PREFERENCE FOR U.S. - FLAG AIR CARRIERS                   JUN/2003
I-43      52.249-2           TERMINATION FOR CONVENIENCE OF THE GOVERNMENT             MAY/2004
                             (FIXED-PRICE)
I-44      52.249-8           DEFAULT (FIXED-PRICE SUPPLY AND SERVICE)                  APR/1984
I-45      52.253-1           COMPUTER GENERATED FORMS                                  JAN/1991
1-46                         *** THIS REFERENCE (IA0707) IS NO LONGER VALID ***
I-47      252.203-7001       PROHIBITION ON PERSONS CONVICTED OF FRAUD OR OTHER        MAR/1999
          DFARS              DEFENSE-CONTRACT - RELATED FELONIES
I-48      252.204-7003       CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT              APR/1992
          DFARS
I-49      252.204-7004       REQUIRED CENTRAL CONTRACTOR REGISTRATION                  NOV/2003
          DFARS
I-50      252.205-7000       PROVISION OF INFORMATION TO COOPERATIVE AGREEMENT         DEC/1991
                             HOLDERS
</TABLE>

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 33 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

<TABLE>
<CAPTION>
          Regulatory Cite                             Title                              Date
          ---------------    -----------------------------------------------------     --------
<S>       <C>                <C>                                                       <C>
          DFARS
I-51      252.225-7012       PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES               MAY/2004
          DFARS
I-52      252.226-7001       UTILIZATION OF INDIAN ORGANIZATIONS, INDIAN-OWNED         SEP/2004
                             ECONOMIC ENTERPRISES, AND NATIVE HAWAIIAN SMALL
          DFARS              BUSINESS CONCERNS
I-53      252.231-7000       SUPPLEMENTAL COST PRINCIPLES                              DEC/1991
          DFARS
I-54      252.242 7000       POSTAWARD CONFERENCE                                      DEC/1991
          DFARS
I-55      252.243-7001       PRICING OF CONTRACT MODIFICATIONS                         DEC/1991
          DFARS
I-56      252.246-7000       MATERIAL INSPECTION AND RECEIVING REPORT                  MAR/2003
          DFARS
I-57      52.209-4           FIRST ARTICLE APPROVAL-GOVERNMENT TESTING                 SEP/1989
</TABLE>

The following is applicable to Clin 0001:

      (a) The Contractor shall deliver *unit(s) of Lot/Item * within ** calendar
days from the date of this contract to the Government at _______ (insert name
and address of the testing facility] for first article tests. The shipping
documentation shall contain this contract number and the Lot/Item
identification. The characteristics that the first article must meet and the
testing requirements are specified elsewhere in this contract.

      (b) Within 30 calendar days after the Government receives the first
article, the Contracting Officer shall notify the Contractor, in writing, of the
conditional approval, approval, or disapproval of the first article. The notice
of conditional approval or approval shall not relieve the Contractor from
complying with all retirements of the specifications and all other terms and
conditions of this contract. A notice of conditional approval shall state any
further action required of the Contractor. A notice of disapproval shall cite
reasons for the disapproval.

***

*  (See instructions regarding submission of First Article clause)
** (See schedule B)

 The following is applicable to Clins 0002 and 0003:

      (a) The contractor shall deliver *_unit(s) of Lot/Item * within **
calendar days from the date of this contract to the Government at _____ [insert
name and address of the testing facility] for first article tests. The shipping
documentation shall contain this contract number and the Lot/Item
identification. The characteristics that the first article must meet and the
testing retirements are specified elsewhere in this contract.

      (b) Within 45 calendar days after the Government receives the first
article, the Contracting officer shall notify the Contractor, in writing, of the
conditional approval, approval, or disapproval of the first article. The notice
of conditional approval or approval shall not relieve the Contractor from
complying with all requirements of the specifications and all other terms and
condition of this contract. A notice of conditional approval shall state any
further action required of the contractor. A notice of disapproval shall cite
reasons for the disapproval.

***

*  (See instructions regarding submission of First Article clause)

** (See Schedule B)

                                 (End of clause)

(IF8003)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 34 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

I-58      52. 248-1    VALUE ENGINEERING                                FEB/2000

***

(a) Data. The Contractor may restrict the Government's right to use any part of
a VECP or the supporting data by marking the following legend on the affected
parts: These data, furnished under the Value Engineering clause of contract
-1-, shall not be disclosed outside the Government or duplicated, used, or
disclosed, in whole or in part, for any purpose other than to evaluate a value
engineering change proposal submitted under the clause. This restriction does
not limit the Government's right to use information contained in these data if
it has been obtained or is otherwise available from the Contractor or from
another source without limitations.

If a VECP is accepted, the Contractor hereby grants the Government unlimited
rights in the VECP and supporting data, except that, with respect to data
qualifying and submitted as limited rights technical data, the Government shall
have the rights specified in the contract modification implementing the VECP and
shall appropriately mark the data. (The terms "unlimited rights" and "limited
rights" are defined in Part 27 of the Federal Acquisition Regulation.)

                                (End of clause)

(IF8400)

<TABLE>
<S>      <C>           <C>                                              <C>
I-59     52.217-6      EVALUATED OPTION FOR INCREASED QUANTITY          MAR/1989
</TABLE>

      a. This solicitation includes an evaluated option (See Section M).

      b. The Government reserves the right to increase the quantity of the
awarded clin by a quantity of up to and including but not exceeding 100 percent
for each FY 05 and FY 06 as an evaluated option at the price(s) quoted below.

      c. If the Contractor does not quote a price hereunder, the lowest price
offered/bid in the schedule for the identical item(s) shall be the price used
for evaluation/award of any option quantities. All evaluation factors identified
in the solicitation, except F.O.B. origin transportation costs, will be applied
to the option quantity for evaluation purposes.

      d. The Contracting Officer may exercise the evaluated option at any time
preceding the end of each fiscal year ending 30 September each year, by giving
written notice to the Contractor.

      e. Delivery of the items added by exercise of this option shall continue
immediately after, and at the same rate as delivery of like items called for
under the contract, unless the parties agree otherwise.

      f. Subject to the limitations contained in this clause, the Government may
exercise this option on one or more occasions.

      g. Offered Unit Prices for the Option Quantities are:

<TABLE>
<CAPTION>
                                   Unit Price
                                   ----------------------
<S>                                <C>
Evaluated Option
(F.O.B. Origin)                    $______CLIN 0003 (FY 05)

                                   $______CLIN 0003 (FY 06)
</TABLE>

Varying prices nay be offered for the option quantities actually ordered and the
dates when ordered. In as much as the unit price for the basic quantity may
contain starting, load, testing, tooling, transportation or other costs not
applicable to option quantities, offerors are requested to take these factors
into consideration while setting forth the unit price(s) for the option
quantities. The option price is expected (but not required) to be lower than the
unit price for the initial quantity.

                                (End of Clause)

(IF6080)

<TABLE>
<S>      <C>           <C>                                              <C>
I-60     52.243-7      NOTIFICATION OF CHANGES                          APR/1984
</TABLE>

   (a) Definitions. "Contracting Officer." as used in this clause, does not
include any representative of the Contracting Officer. "Specifically Authorized
Representative (SAR)," as used in this clause, means any person the Contracting
Officer has so designated by written notice (a copy of which shall be provided
to the Contractor) which shall refer to this paragraph and shall be issued to
the designated representative before the SAR exercises such authority.

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 35 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFERER OR CONTRACTOR: VALENTEC SYSTEMS INC.

   (b) Notice. The primary purpose of this clause is to obtain prompt reporting
of Government conduct that the Contractor considers to constitute a change to
this contract. Except for changes identified as such in writing and signed by
the Contracting Officer, the Contractor shall notify the Administrative
Contracting Officer in writing promptly, within _________ (to be negotiated)
calendar days from the date that the Contractor identifies any Government
conduct (including actions, inactions, and written or oral communications) that
the Contractor regards as a change to the contract terms and conditions. On the
basis of the most accurate information available to the Contractor, the notice
shall state-

      (1) The date, nature, and circumstances of the conduct regarded as
[ILLEGIBLE] change;

      (2) The name, function, and activity of each Government individual and
Contractor official or employee involved in or knowledgeable about such conduct;

      (3) The identification of any documents and the substance of any oral
communication involved in such conduct;

      (4) In the instance of alleged acceleration of scheduled performance or
delivery, the basis upon which it arose;

      (5) The particular elements of contract performance for which the
Contractor may seek an equitable adjustment under this clause, including-

         (i) What contract line items have been or may be affected by the
alleged change;

         (ii) What labor or materials or both have been or may be added,
deleted, or wasted by the alleged change;

         (iii) To the extent practicable, what delay and disruption in the
manner and sequence of performance and effect on continued performance have been
or may be caused by the alleged change;

         (iv) What adjustments to contract price, delivery schedule, and other
provisions affected by the alleged change are estimated; and

      (6) The Contractor's estimate of the time by which the Government must
respond to the Contractor's notice to minimize cost, delay or disruption of
performance.

   (c) Continued performance. Following submission of the notice required by
paragraph (b) of this clause, the Contractor shall diligently continue
performance of this contract to the maximum extent possible in accordance with
its terms and conditions as construed by the Contractor, unless the notice
reports a direction of the Contracting Officer or a communication from a SAR of
the Contracting Officer, in either of which events the Contractor shall continue
performance; provided, however, that if the Contractor regards the direction or
communication as a change as described in paragraph (b) of this clause, notice
shall be given in the manner provided. All directions, communications,
interpretations, orders and similar actions of the SAR shall be reduced to
writing prosptly and copies furnished to the Contractor and to the contracting
Officer. The Contracting Officer shall promptly countermand any action which
exceeds the authority of the SAR.

   (d) Government response. The Contracting Officer shall promptly, within _____
(to be negotiated) calendar days after receipt of notice, respond to the notice
in writing. In responding, the Contracting Officer shall either-

      (1) Confirm that the conduct of which the Contractor gave notice
constitutes a change and when necessary direct the mode of further performance;

      (2) Countermand any communication regarded as a change;

      (3) Deny that the conduct of which the contractor gave notice constitutes
a change and when necessary direct the mode of further performance; or

      (4) In the event the Contractor's notice information is inadequate to make
a decision under paragraphs (d)(1), (2), or (3) of this clause, advise the
Contractor what additional information is retired, and establish the date by
which it should be furnished and the date, thereafter by which the Government
will respond.

   (e) Equitable adjustments.

      (1) If the Contracting Officer confirms that Government conduct effected a
change as alleged by the Contractor, and the conduct causes on increase or
decrease in the Contractor's cost of, or the time required for, performance of
any part of the work under this contract, whether changed or not changed by such
conduct, an equitable adjustment shall be made-

         (i) In the contract price or delivery schedule or both; and

         (ii) In such other provisions of the contract as may be affected.

      (2) The contract shall be modified in writing accordingly. In the case of
drawings, designs or specifications which are defective and for which the
Government is responsible, the equitable adjustment shall include the cost and
time extension for delay reasonably incurred by the Contractor in attempting to
comply with the defective drawings, designs or specifications before the
Contractor identified, or reasonably should have identified, such defect. When
the cost of property made obsolete or excess as a result of a change confirmed
by the Contracting Officer under this clause is included in the equitable
adjustment, the Contracting Officer shall have the right to prescribe the manner
of disposition of the property. The equitable adjustment shall not include
increased costs or time extensions for delay resulting from the contractor's
failure to provide notice or to continue performance as provided, respectively,
in paragraphs (b) and (c) of this clause.

Note: The phrases "contract price" and "cost" wherever they appear in the
clause, may be appropriately modified to apply to cost-reimbursement or
incentive contracts, or to combinations Thereof.

                                (End of clause)

(IF6250)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 36 OF 40
CONTINUATION SHEET
                       PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

<TABLE>
<S>      <C>           <C>                                              <C>
I-61     52.246-17     WARRANTY OF SUPPLIES OF A NONCOMPLEX NATURE      JUN/2003
</TABLE>

The following is applicable to Clins 0001, 0002 and 0003:

***

   (b) Contractor's obligations.

      (1) Notwithstanding inspection and acceptance by the Government of
supplies furnished under this contract, or any condition of this contract
concerning the conclusivenese thereof, the Contractor warrants that for 1095
days after acceptance [Contracting Officer shall state specific period of time
after delivery, or the specified event whose occurrence will terminate the
warranty period; e.g., the number of miles or hours of use, or combinations of
any applicable events or periods of time]-

***

   (c) REMEDIES AVAILABLE TO THE GOVERNMENT.

      (1) The Contracting Officer shall give written notice to the Contractor of
any breach of warranties in paragraph (b)(l) of this clause within 120 days
after discovery of the defect. [Contracting officer shall insert specific period
of time; e.g., "45 days of the last delivery under this contract, "or "45 days
after discovery of the defect"].

***

                                 (End of clause)

(IF6070)

<TABLE>
<S>      <C>           <C>                                              <C>
I-62     52.252-6      AUTHORIZED DEVIATIONS IN CLAUSES                 APR/1984
</TABLE>

   (a) The use in this solicitation or contract of any Federal Acquisition
Regulation (48 CFR Chapter 1) clause with an authorized deviation is indicated
by the addition of "(DEVIATION)" after the date of the clause.

   (b) The use in this solicitation or contract of any DOD FAR SUPPLEMENT (48
CFR Chapter 2) clause with an authorized deviation is indicated by the addition
of "(DEVIATION)" after the name of the regulation.

                                 (End of clause)

(IF7016)

<TABLE>
<S>      <C>           <C>                                                                  <C>
I-63     252.211-7005  SUBSTITUTIONS FOR MILITARY OR FEDERAL SPECIFICATIONS AND STANDARDS   FEB/2003
         DFARS
</TABLE>

   (a) Definition. SPI process, as used in this clause, means a management or
manufacturing process that has been accepted previously by the Department of
Defense under the Single Process Initiative (SPI) for use in lieu of a specific
military or Federal specification or standard at specific Facilities. Under SPI,
these processes are reviewed and accepted by a Management Council, which
includes representatives of the Contractor, the Defense Contract Management
Agency, the Defense Contract Audit Agency, and the military departments.

   (b) Offerors are encouraged to propose SPI processes in lieu of military or
Federal specifications and standards cited in the solicitation. A listing of SPI
processes accepted at specific facilities is available via the Internet in Excel
format at http://www.dcma.mil/onebook/7.0/7.2./7.2.6/reports/modified.xls.

   (c) An offeror proposing to use an SPI process in lieu of military or Federal
specifications or standards cited in the solicitation shall

      (1) Identify the specific military or Federal specification or standard
for which the SPI process has been accepted;

      (2) Identify each facility at which the offeror proposes to use the
specific SPI process in lieu of military or Federal specifications or standards
cited in the solicitation;

      (3) Identify the contract line items, subline items, components, or
elements affected by the SPI process; and

      (4) If the proposed SPI process has been accepted at the facility at which
it is proposed for use, but is not yet listed at the Internet site specified in
paragraph (b) of this clause, submit documentation of Department of Defense
acceptance of the SPI process.

   (d) Absent a determination that an SPI process is not acceptable for this
procurement, the Contractor shall use the following SPI processes in lieu of
military or Federal specifications or standards:

(Offeror insert information for each SPI process)

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 37 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SPI Process:

Facility:

Military or Federal Specification or standard:

Affected Contract Line Item Number, Subline Item Number, Component, or Element:

   (e) If a prospective offeror wishes to obtain, prior to the time specified
for receipt of offers, verification that an SPI process is an acceptable
replacement for military or Federal specifications or standards required by the
solicitation, the prospective offeror

          (1) Hay submit the information required by paragraph (d) of this
clause to the Contracting Officer prior to submission of an offer: but

          (2) Must submit the information to the Contracting Officer at
least 10 working days prior to the date specified for receipt of offers.

                                 [End of clause)

(IA7015)

<TABLE>
<S>      <C>            <C>                                             <C>
I-64     152.243-7002   REQUESTS FOR EQUITABLE ADJUSTMENT               MAR/1998
         DFARS
</TABLE>

***

   (b) In accordance with 10 U.S.C. 2410(a), any request for equitable
adjustment to contract terms that exceeds the simplified acquisition threshold
shall bear, at the time of submission, the following certificate executed by an
individual authorized to certify the request on behalf of the Contractor:

            I certify that the request is made in good faith, and that the
            supporting data are accurate and complete to the best of my
            knowledge and belief.

                             ________________________

                               (Official's Name)

                             ________________________

***                                  (Title)

(IA7035)                         (End of clause)

I-62    ECONOMIC PRICE ADJUSTMENT-MATERIAL (BRASS/STEEL)

a) This clause applies to the unit price(s) for brass and steel only. The amount
of increases or decreases will be limited to the unit price(s) of the actual
material (brass/steel) only and shall not include such costs as labor, overhead,
G&A and profit. The Contractor shall notify the Contracting Officer if, at any
time during contract performance, the unit price(s) for brass and/or steel
either increases or decreases. For the purpose of defining contract performance,
the basic contract and any options are considered to be individual performance
periods and will be considered independent of each other. The Contractor shall
furnish this notice within 60 days after the increase or decrease, or within any
additional period that the Contracting Officer may approve in writing, but not
later than the date of final payment under this contract. The notice shall
include the Contractor's proposal for an adjustment in the contract unit
price(s) to be negotiated under paragraph (b) of this clause, and shall include,
in the form required by the Contracting Officer, supporting data explaining the
cause and effective date, and amount of the increase or decrease and the amount
of the Contractor's

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED   PAGE 38 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015        MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

adjustment proposal.

(b) Promptly after the Contracting Officer receives the notice and data under
paragraph (a) of this clause, the Contracting Officer and the Contractor shall
negotiate a price adjustment in the contract unit price(s) and its effective
date. However, the Contracting officer may postpone the negotiations until an
accumulation of increases and decreased in unit price(s) of brass and/or steel
results in an adjustment allowable under paragraph (c)(3) of this clause. The
contracting officer shall modify this contract (1) to include the price
adjustment and its effective date and (2) to revise the unit price(s) of
material (brass/steel) as proposed to reflect the increases or decreases
resulting from the adjustment. The Contractor shall continue performance pending
agreement or, or determination of, any adjustment and its effective date.

(c) Any price adjustment under this clause is subject to the following
limitations:

   (1) Any adjustment shall be limited to the effect on unit price(s) of the
increase or decreases in the unit price(s) for brass and/or steel. There shall
be no adjustment for-

      (i) Supplies or services for which the production cost is not affected by
such changes;

      (ii) Changes in unit price(s) other than those proposed; or

      (iii) Changes in the quantities of material (brass/steel) used from those
proposed for each item.

   (2) No upward adjustment shall apply to supplies or services that are
required to be delivered or perforated before the effective dace of the
adjustment, unless the contractor's failure to deliver or perform according to
the delivery schedule results from causes beyond the Contractor's control and
without its fault or negligence, within the meaning of the Default clause.

   (3) There shall be no adjustment for any change in the unit price(s) for
material (brass/steel) which would not result in a net change of at least 3
percent of the then-current total contract price. This limitation shall not
apply, however, if after final delivery of all contract line items, either party
requests an adjustment under paragraph (b) of this clause. If the contractor
anticipates such an adjustment will be required they shall inform the
Contracting Officer no later than 90 days prior to final delivery during any
performance period.

   (4) The aggregate of the increases in any contract unit price made under this
contract shall not exceed 10 percent of the original unit price of material
during any performance period of the contract. There is no percentage limitation
on the amount of decreases that may be made under this clause.

(d)The Contracting Officer may examine the Contractor's books, records, and
other supporting data relevant to the cost of material (brass/steel) during all
reasonable times until the end of 3 years after the date of final payment under
this contract or the time periods specified in Subpart 4.7 of the Federal
Acquisition Regulation (FAR), whichever is earlier. Notwithstanding any other
requirement of this clause the contractor shall provide to the Contracting
Officer, on a semi-annual basis, in a form to be negotiated, information
pertaining to actual or anticipated increases or decreases to the unit price(s)
for material (brass/steel). As also required by this provision, the contractor
shall complete the information required below:

BASE YEAR W/2 OPTION YEARS

<TABLE>
<CAPTION>
M14 Brass Cartridge Case                Base Year      FY05           FY06
-------------------------------------   ---------      ----           ----
<S>                                     <C>            <C>            <C>
Proposed Brass Lbs.                     #              #              #
Proposed Brass Unit Price               $              $              $
Proposed Ml4 Brass Cartridge Case
 Unit Price                             $              $              $

</TABLE>

<TABLE>
<CAPTION>
M14B1 Steel Cartridge Case              Base Year      FY05           FY06
-------------------------------------   ---------      ----           ----
<S>                                     <C>            <C>            <C>
Proposed Steel Lbs.                     #              #              #
Proposed Steel Unit Price               $              $              $
Proposed M14B1 Steel Cartridge Case
 Unit Price                             $              $              $
</TABLE>

<TABLE>
<CAPTION>
M14B4 Spiral wrap cartridge case        Base Year      FY05           FY06
-------------------------------------   ---------      ----           ----
<S>                                     <C>            <C>            <C>
Proposed Steel Lbs.                     #              #              #
Proposed Steel Unit Price               $              $              $
Proposed M14B4 Spiral Wrap Cartridge
 Case Unit Price                        $              $              $
</TABLE>

<PAGE>

CONTINUATION SHEET    REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 39 OF 40

                      PIIN/SIIN  W52P1J-05-C-0015      MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEM INC.

(End of Clause)

                         *** END OF NARRATIVE I 001 ***

<PAGE>

                      REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE 40 OF 40
CONTINUATION SHEET
                      PIIN/SIIN W52P1J-05-C-0015       MOD/AMD

NAME OF OFFEROR OR CONTRACTOR: VALENTEC SYSTEMS INC.

SECTION J - LIST OF ATTACHMENTS

<TABLE>
<CAPTION>
   List of                                                                       Number
   Addenda                            Title                             Date    of pages   Transmitted by
--------------     ----------------------------------------------       ----    --------   --------------
<S>                <C>                                                  <C>     <C>        <C>
Exhibit A          CONTRACT DATA REQUIREMENTS LIST (CDRL) DD FORM
                     1423 M14
                   BRASS
Exhibit B          CONTRACT DATA REQUIREMENTS LIST (CDRL) DD FORM
                     1423 M14B1
                   STEEL
Exhibit C          CONTRACT DATA REQUIREMENTS LIST (CDRL) DD FORM
                     1423 M14B4
                   SPIRAL WRAP
Attachment 001     INSTRUCTIONS FOR DD FORM 1423
Attachment 002     GUIDANCE
Attachment 003     ADDRESS LIST
Attachment 004     DOCUMENT SUMMARY LIST M14 BRASS
Attachment 005     DOCUMENT SUMMARY LIST M14B1 STEEL
Attachment 006     DOCUMENT SUMMARY LIST M14B4 SPIRAL WRAP
Attachment 007     ADDRESS CODE FOR DISTRIBUTION
Attachment 008     IOC FORM 715-3  DEFENSE PRIORITIES AND
                     ALLOCATIONS SYSTEM
Attachment 009     SF LLL  DISCLOSURE OF LOBBYING ACTIVITIES
Attachment 010     SPECS MIL-V-12276 AND MIL-C-46487
Attachment 011     DRAWINGS 9280433. 9280434, 9280435
Attachment 012     ECP R04Q2008
</TABLE>

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