Valentec Systems, Inc Watch

from 10QSB 10 pages Borrower: Valentec Systems, Inc. and Subsidiaries. Lender: Rockland Credit Finance, LLC Total Facility: A Two-Year Secured Credit Facility in the Aggregate Not to Exceed $10,000,000. Lender Will Consider Increases in the Total Facility Up to $15,000,000 Within the Collateral Formulas Provide Below Without Additional Origination Fees During the Term of This Facility. Revolver: Lender Will Make Available to Borrower a Secured Revolving Factoring Facility (The “Revolver”) of Up to an Aggregate Amount of $10,000,000 Based Upon an Advance Rate of Up to 90% of the Net Amount of “Eligible” Billed Accounts Receivable and Up to 70% of the Net Amount of “Eligible” Unbilled Receivables. the Revolver Will Have a Term of Two (2) Years Commencing on the Initial Funding Date of the Credit Facility (“Closing Date”). Eligible Billed and Unbilled Accounts Are Those That Meet Lender’s Customary Eligibility and Reserve Requirements. the Facility Will Include a Sub-Limit of $7,000,000 for Advances Against Unbilled Receivables. Mr. Robert A. Zummo June 28, 2006, Page 2 of 9

from 10KSB 16 pages Multiple-Loan Rider to Promissory Note Loan(s) Denominated in U.S. or Other Currency Libor-Based Rate