December 8, 2006

December 8, 2006

Wynnefield Capital Management LLC
000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxx

Dear Xxxxxx:

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

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

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

Our offer to add Xx. Xxxxxxxxx to the Board is further conditioned on the agreement of the Wynnefield Group to vote at the upcoming annual meeting all of its shares of ADG common stock in favor of the eight ADG management nominees to be included in the ADG proxy statement (i.e., Messrs. Xxxx, Xxxxxxxx, Xxxxx, Xxxxxx, Xxxxxxxx, Xxxxxx, Xxxx and Xxxxxxxxx) and to take no actions inconsistent with the election of these nominees.

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

Sincerely,

X. X. Xxxxxxx Xxxx, III

AGREED

Wynnefield Capital Management LLC

By:

Xxxxxx Xxxx, Managing Member