SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (the Agreement), dated as of March 9, 2006, by and among The Allied Defense Group, Inc., a Delaware corporation with its corporate headquarters located at 8000 Towers Crescent Drive, Suite 260, Vienna, Virginia 22182, and the investors listed on the Schedule of Buyers attached hereto (individually, a Buyer and collectively, the Buyers).

WHEREAS:

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

B. The Company has authorized a new series of senior subordinated convertible notes of the Company, which notes shall be convertible into the Companys common stock, par value $0.10 per share (the "Common Stock), in accordance with the terms of such notes.

C. Each Buyer wishes to purchase, and (i) the Company wishes to sell, upon the terms and conditions stated in this Agreement, that aggregate principal amount of notes, in substantially the form attached hereto as Exhibit A (the Notes), set forth opposite such Buyers name in column (3) on the Schedule of Buyers (which aggregate amount for all Buyers shall be $30,000,000) (as converted and/or redeemed for shares of Common Stock pursuant to the terms of the Notes, collectively, the Conversion Shares) and (ii) the Company wishes to sell, upon the terms and conditions stated in this Agreement, warrants, in substantially the form attached hereto as Exhibit B (the Warrants), to acquire up to that number of additional shares of Common Stock set forth opposite such Buyers name in column (4) of the Schedule of Buyers (as exercised, collectively, the Warrant Shares).

D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, substantially in the form attached hereto as Exhibit C (the Registration Rights Agreement), pursuant to which the Company has agreed to provide certain registration rights with respect to the Conversion Shares and the Warrant Shares under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

E. The Notes, the Conversion Shares, the Warrants and the Warrant Shares, collectively, are referred to herein as the Securities.

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

1.

PURCHASE AND SALE OF NOTES AND WARRANTS.

(a) Purchase of Notes and Warrants.

(i) Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, on the Closing Date (as defined below), the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall purchase from the Company, (A) one or more Notes with an aggregate principal amount as is set forth opposite such Buyers name in column (3) on the Schedule of Buyers and (B) Warrants to acquire up to that number of Warrant Shares as is set forth opposite such Buyers name in column (4) on the Schedule of Buyers (the Closing).

(ii) Purchase Price. The purchase price for each Buyer of the Notes and the Warrants to be purchased by each such Buyer at the Closing (the Purchase Price) shall be the amount set forth opposite such Buyers name in column (5) of the Schedule of Buyers.

(b) Closing Date. The date and time of the Closing (the Closing Date) shall be 10:00 a.m., New York City Time, on the date hereof after notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6(a) and 7(a) below (or such later date as is mutually agreed to by the Company and Buyers) at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.

(c) Form of Payment. On the Closing Date, each Buyer shall pay its Purchase Price to the Company for the Notes and the Warrants to be issued and sold to such Buyer at such Closing, in United States dollars by wire transfer of immediately available funds in accordance with the Companys written wire instructions. At the Closing, the Company shall deliver to each Buyer (A) Notes (allocated in the principal amounts as such Buyer shall request) with an aggregate principal amount as is set forth opposite such Buyers name in column (3) on the Schedule of Buyers and (B) Warrants (allocated in the amounts as such Buyer shall request) to acquire up to an aggregate number of Warrant Shares as is set forth opposite such Buyers name in column (4) on the Schedule of Buyers, in each case duly executed on behalf of the Company and registered in the name of such Buyer.

2.

BUYERS REPRESENTATIONS AND WARRANTIES.

Each Buyer represents and warrants, with respect to only itself, that:

(a) No Public Sale or Distribution. Such Buyer is acquiring the Notes and the Warrants and upon conversion of the Notes and exercise of the Warrants (other than pursuant to a Cashless Exercise (as defined in the Warrants)) will acquire the Conversion Shares issuable upon conversion of the Notes and the Warrant Shares issuable upon exercise of the Warrants for investment purposes, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the ordinary course of its business. Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(b) Buyer Status. Such Buyer is an accredited investor as that term is defined in Rule 501(a) of Regulation D. Such Buyer is not a registered broker-dealer under Section 15 of the 1934 Act.
 

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