Exhibit 4.4

                               SECURITY AGREEMENT

         SECURITY AGREEMENT, dated as of September 30, 2003, by and among
Arotech Corporation, a Delaware corporation (f/k/a Electric Fuel Corporation)
(the "Parent"), I.E.S. Defense Services, Inc. ("IDS"), and IES Interactive
Training, Inc. ("IES" and, together with IDS and the Parent, the "Debtors") and
the secured parties signatory hereto (each, a "Secured Party", and collectively,
the "Secured Parties").


                              W I T N E S S E T H:

         WHEREAS, pursuant to the Securities Purchase Agreement, dated the date
hereof by and among the Parent and the investors named therein (the "Secured
Parties") (the "Purchase Agreement"), the Secured Parties have agreed to
purchase 8% Secured Convertible Debentures, due September 30, 2006 (the
"Debentures");

         WHEREAS, in order to induce the Secured Parties to enter into the
Purchase Agreement, the Debtors wish to grant to the Investors a first priority,
perfected security interest in (A) the Parent Collateral (as defined below) and
(B) the MAC Stock Collateral (as defined below), a second priority security
interest in (A) the IES Collateral and (B) the Subsidiary Stock Collateral (as
defined below) and a third priority security interest in the IES/IDS/MDT Stock
Collateral (as defined below) to secure the prompt payment, performance and
discharge in full of all of the Parent's Obligations under the Debentures and
related transaction documents; and

         WHEREAS, it is contemplated that the Secured Parties will be granted
(i) a first priority, perfected security interest in (A) the Parent Collateral
and (B) the MAC Stock Collateral, (ii) a second priority security interest in
(A) the IES Collateral and (B) the Subsidiary Stock Collateral, junior only to
the first priority security interest, granted to certain investors (the "First
Investors") pursuant to a Security Agreement, dated as of December 31, 2002,
among the Parent, its subsidiaries party thereto and the First Investors, with
respect to the security interest (the "First Investors' Security Interest")
granted to the First Investors in such IES Collateral and Subsidiary Stock
Collateral and (iii) a third priority security interest, junior only to the
First Investors' Security Interest and to the second priority security interest
of IES Electronics Industries, Ltd. ("IES Electronics") pursuant to the IES
Security Agreements (defined below) to secure obligations of which the aggregate
amount of $450,000 is currently outstanding (the "Electronics' Security
Interest"), in the IES/IDS/MDT Stock Collateral.

         NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

         1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "General Intangibles" and "Proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.


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                  (a) "Accounts" shall mean all present and future rights of the
         Debtors to payment for goods sold or leased or for services rendered,
         which are not evidenced by instruments or chattel paper, and whether or
         not earned by performance.

                  (b) "Acquisition" shall mean the purchase, acquisition by
         lease, exchange, merger, consolidation, succession or other acquisition
         by or on behalf of the Parent (whether directly or indirectly through a
         Subsidiary or other entity currently existing or hereafter created in
         which Parent or any of its subsidiaries own more than 50% of the
         ownership interests) of more than 10% of the stock or assets of any
         entity. Assets so acquired that are held by Electric Fuel Battery
         Corporation ("EFBC") for use by EFBC in its zinc-air military battery
         business ("Battery Assets"), or stock acquired by EFBC of entities the
         primary business assets of which consist of Battery Assets, shall not
         be deemed to be Acquisitions under this agreement, provided that the
         consideration paid for such stock and/or asset should not exceed
         $1,000,000.

                  (c) "Agent" means Smithfield Fiduciary LLC as agent for each
         of the Secured Parties pursuant to this Agreement and the IP Security
         Agreement, or such other Person as shall have been subsequently
         appointed as a successor agent pursuant to this Agreement.

                  (d) "Collateral" means collectively, the IES Collateral, the
         Parent Collateral, the IES/IDS/MDT Stock Collateral, the Subsidiary
         Stock Collateral and the MAC Stock Collateral.

                  (e) "First Investors' Security Agreement" means the Security
         Agreement dated as of December 31, 2002 made by the Debtors and certain
         other Subsidiaries of the Parent in favor of the First Investors.

                  (f) "First Purchase Agreement" means the Securities Purchase
         Agreements dated as of December 31, 2002, by and among the Parent and
         the First Investors.

                  (g) "IES Collateral" means all personal property and assets of
         IES, including, without limitation, the following, whether presently
         owned or existing or hereafter acquired or coming into existence, and
         all additions and accessions thereto and all substitutions and
         replacements thereof, and all proceeds, products and Accounts thereof,
         including, without limitation, all proceeds from the sale or transfer
         of the Collateral and of insurance covering the same and of any tort
         claims in connection therewith:

                           (i) All Goods of IES, including, without limitations,
                  all machinery, equipment, computers, motor vehicles, trucks,
                  tanks, boats, ships, appliances, furniture, special and
                  general tools, fixtures, test and quality control devices and
                  other equipment of every kind and nature and wherever
                  situated, together with all documents of title and documents
                  representing the same, all additions and accessions thereto,
                  replacements therefor, all parts therefor, and all substitutes
                  for any of the foregoing and all other items used and useful
                  in connection with IES' businesses and all improvements
                  thereto (collectively, the "Equipment"); and

                           (ii) All Inventory of IES; and



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                           (iii) All of IES' contract rights and general
                  intangibles, including, without limitation, all partnership
                  interests, stock or other securities, licenses, distribution
                  and other agreements, computer software development rights,
                  leases, franchises, customer lists, quality control
                  procedures, grants and rights, goodwill, trademarks, service
                  marks, trade styles, trade names, patents, patent
                  applications, copyrights, deposit accounts, and income tax
                  refunds (collectively, the "General Intangibles"); and

                           (iv) All Accounts of IES including all insurance
                  proceeds, and rights to refunds or indemnification whatsoever
                  owing, together with all instruments, all documents of title
                  representing any of the foregoing, all rights in any
                  merchandising, goods, equipment, motor vehicles and trucks
                  which any of the same may represent, and all right, title,
                  security and guaranties with respect to each Receivable,
                  including any right of stoppage in transit;

                           (v) All IES Pledged Shares; and

                           (vi) All of IES' documents, instruments and chattel
                  paper, files, records, books of account, business papers,
                  computer programs and the products and proceeds of all of the
                  foregoing Collateral set forth in clauses (i)-(v) above.

                  (h) "IES Electronics' Security Agreements" means the Pledge,
         Security and Escrow Agreement dated as of August 2, 2002 made by the
         Parent in favor of IES Electronics relating to the shares of IDS, as
         modified by the letter agreement between the Parent and IES Electronics
         dated as of December 31, 2002, and the Security Agreement dated as of
         March 17, 2003 made by the Parent in favor of IES Electronics relating
         to the shares of IES, IDS and MDT.

                  (i) "IES/IDS/MDT Stock Collateral" means (i) all the shares of
         capital stock of each of IES, IDS and MDT of which the Parent is the
         direct or indirect beneficial and record holder and set forth on
         Schedule C attached hereto; (ii) all additional shares of each of MDT,
         IDS and IES from time to time acquired by the Parent in any manner
         provided, however, that to the extent any such subsidiary is organized
         or formed under the laws of a jurisdiction other than the United States
         of America, a pledge of the shares of common stock of such subsidiary
         will be limited to sixty-six percent (66%) of the shares of common
         stock of such subsidiary; (iii) the certificates representing the
         shares referred to in clauses (i) and (ii) above; and (iv) subject to
         Section 4, all dividends, cash, instruments, options, rights and other
         property or proceeds, from time to time received, receivable or
         otherwise distributed or distributable in respect of or in exchange for
         any or all of the shares referred to in clauses (i) and (ii) above.

                  (j) "IES Pledged Shares" means (i) all the shares of capital
         stock of Summit Training International, Inc., a Delaware corporation
         ("STI") and of any other corporation or other entity of which IES is
         the direct or indirect beneficial and record holder and set forth on
         Schedule C attached hereto; (ii) all additional shares of each of the
         Subsidiaries from time to time acquired by IES in any manner provided,
         however, that to the extent any such Subsidiary is organized or formed
         under the laws of a jurisdiction other than the United States of
         America, a pledge of the shares of capital stock of such Subsidiary
         will be limited to sixty-six percent (66%) of the shares of capital
         stock of such Subsidiary; (iii) the certificates representing the
         shares referred to in clauses (i) and (ii) above; and (iv) subject to
         Section 4, all dividends, cash,



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         instruments, options, rights and other property or proceeds, from time
         to time received, receivable or otherwise distributed or distributable
         in respect of or in exchange for any or all of the shares referred to
         in clauses (i) and (ii) above.

                  (k) "IP Security Agreement" means that certain security
         agreement, dated the date hereof, among the Debtors and the Secured
         Parties, granting to the Secured Parties a security interest in the
         intellectual property of the Debtors in accordance with the terms
         thereof.

                  (l) "MAC Stock Collateral" means (i) all the shares of capital
         stock of MDT Armor Corporation of which the Parent is the direct or
         indirect beneficial and record holder and set forth on Schedule C
         attached hereto, (ii) all additional shares of MDT Armor Corporation
         from time to time acquired by the Parent in any manner provided,
         however, that to the extent such Subsidiary is organized or formed
         under the laws of a jurisdiction other than the United States of
         America, a pledge of the shares of common stock of such Subsidiary will
         be limited to sixty-six percent (66%) of the shares of common stock of
         such Subsidiary; (iii) the certificates representing the shares
         referred to in clauses (i) and (ii) above; and (iv) subject to Section
         4, all dividends, cash, instruments, options, rights and other property
         or proceeds, from time to time received, receivable or otherwise
         distributed or distributable in respect of or in exchange for any or
         all of the shares referred to in clauses (i) and (ii) above.

                  (m) "Obligations" means all of the Debtors' obligations under
         this Agreement, the Debentures, the IP Security Agreement, the Purchase
         Agreement and the transaction documents contemplated thereby, in each
         case, whether now or hereafter existing, voluntary or involuntary,
         direct or indirect, absolute or contingent, liquidated or unliquidated,
         whether or not jointly owed with others, and whether or not from time
         to time decreased or extinguished and later increased, created or
         incurred, and all or any portion of such obligations or liabilities
         that are paid, to the extent all or any part of such payment is avoided
         or recovered directly or indirectly from the Secured Parties as a
         preference, fraudulent transfer or otherwise as such obligations may be
         amended, supplemented, converted, extended or modified from time to
         time.

                  (n) "Parent Collateral" means all personal property and assets
         of the Parent hereafter acquired or coming into existence in connection
         with any Acquisition, and all additions and accessions thereto and all
         substitutions and replacements thereof, and all proceeds, products and
         Accounts thereof, including, without limitation, all proceeds from the
         sale or transfer of the Collateral and of insurance covering the same
         and of any tort claims in connection therewith:

                           (i) All Goods of the Parent, including, without
                  limitations, all machinery, equipment, computers, motor
                  vehicles, trucks, tanks, boats, ships, appliances, furniture,
                  special and general tools, fixtures, test and quality control
                  devices and other equipment of every kind and nature and
                  wherever situated, together with all documents of title and
                  documents representing the same, all additions and accessions
                  thereto, replacements therefor, all parts therefor, and all
                  substitutes for any of the foregoing and all other items used
                  and useful in connection with the Parent's businesses and all
                  improvements thereto (collectively, the "Equipment"); and

                           (ii) All Inventory of the Parent; and



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                           (iii) All of the Parent's contract rights and general
                  intangibles, including, without limitation, all partnership
                  interests, stock or other securities, licenses, distribution
                  and other agreements, computer software development rights,
                  leases, franchises, customer lists, quality control
                  procedures, grants and rights, goodwill, trademarks, service
                  marks, trade styles, trade names, patents, patent
                  applications, copyrights, deposit accounts, and income tax
                  refunds (collectively, the "General Intangibles");

                           (iv) All Accounts of the Debtors including all
                  insurance proceeds, and rights to refunds or indemnification
                  whatsoever owing, together with all instruments, all documents
                  of title representing any of the foregoing, all rights in any
                  merchandising, goods, equipment, motor vehicles and trucks
                  which any of the same may represent, and all right, title,
                  security and guaranties with respect to each Receivable,
                  including any right of stoppage in transit; and

                           (v) All Parent Pledged Shares.

                  (o) All of the Debtors' documents, instruments and chattel
         paper, files, records, books of account, business papers, computer
         programs and the products and proceeds of all of the foregoing
         Collateral set forth in clauses (i)-(v) above.

                  (p) "Parent Pledged Shares" means (i) all additional shares of
         any entity from time to time acquired by the Parent in any manner in or
         in connection with an Acquisition provided, however, that to the extent
         any such Subsidiary is organized or formed under the laws of a
         jurisdiction other than the United States of America, a pledge of the
         shares of common stock of such Subsidiary will be limited to sixty-six
         percent (66%) of the shares of common stock of such Subsidiary; (ii)
         the certificates representing the shares referred to in clause (i)
         above; and (iii) subject to Section 4, all dividends, cash,
         instruments, options, rights and other property or proceeds, from time
         to time received, receivable or otherwise distributed or distributable
         in respect of or in exchange for any or all of the shares referred to
         in clause (i) above.

                  (q) "Pledged Shares" means collectively the IES Pledged Shares
         and the Parent Pledged Shares.

                  (r) "Stock Collateral" means collectively the MAC Stock
         Collateral, the IES/IDS/MDT Stock Collateral and the Subsidiary Stock
         Collateral.

                  (s) "Subsidiary" means each of Electric Fuel Transportation
         Corp., a Delaware corporation ("EFT"), Electric Fuel B.V., a
         Netherlands corporation ("EF-BV"), Electric Fuel Battery Corporation, a
         Delaware corporation (formerly known as Instant Power Corporation)
         ("IPC"), Electric Fuel GmbH, a German corporation ("EF-G"), IES, MDT,
         Electric Fuel UK Ltd., a British corporation ("EF-UK"), Arotech
         Security Corporation, a Delaware corporation ("ASC"), and Arcon
         Security Corporation, a Delaware corporation.

                  (t) "Subsidiary Stock Collateral" means (i) all the shares of
         capital stock of each of the Subsidiaries set forth on Schedule C
         attached hereto; (ii) all additional shares of the Subsidiaries from
         time to time acquired by the Parent in any manner provided, however,
         that to the extent any such Subsidiary is organized or formed under the
         laws of a jurisdiction other than



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         the United States of America, a pledge of the shares of common stock of
         such Subsidiary will be limited to sixty-six percent (66%) of the
         shares of common stock of such Subsidiary; (iii) the certificates
         representing the shares referred to in clauses (i) and (ii) above; and
         (iv) subject to Section 4, all dividends, cash, instruments, options,
         rights and other property or proceeds, from time to time received,
         receivable or otherwise distributed or distributable in respect of or
         in exchange for any or all of the shares referred to in clauses (i) and
         (ii) above.

                  (u) "UCC" means the Uniform Commercial Code and/or any other
         applicable law of each jurisdiction in which any Debtor is incorporated
         or organized (including, without limitation the State of Delaware) and
         any jurisdiction as to any Collateral located therein.

                  2. Grant of Security Interest. As an inducement for the
         Secured Parties to enter into the Purchase Agreement, and to secure the
         complete and timely payment, performance and discharge in full of the
         Obligations, each of the Debtors hereby, unconditionally and
         irrevocably, pledges, grants and hypothecates to the Agent for the
         benefit of the Secured Parties:

                  (a) a continuing first priority, perfected security interest
         (the "First Priority Security Interest") in and lien upon and a right
         of set-off against all of the Debtors' right, title and interest of
         whatsoever kind and nature in and to (i) the Parent Collateral, and
         (ii) the MAC Stock Collateral;

                  (b) a continuing second priority security interest (the
         "Second Priority Security Interest") and a second lien upon and a right
         of set-off against all of the Debtors' right, title and interest of
         whatsoever kind and nature in and to (i) the IES Collateral and (ii)
         the Subsidiary Stock Collateral, provided that the such Second Security
         Interest is and shall be subordinate to the First Investors' Security
         Interest in such IES Collateral and such Subsidiary Stock Collateral;
         and

                  (c) a continuing third priority security interest (the "Third
         Priority Security Interest", and together with the Second Priority
         Security Interest, the "Security Interests") in and lien upon and a
         right of set-off against all of the Debtors' right, title and interest
         of whatsoever kind and nature in and to the IES/IDS/MDT Stock
         Collateral, provided that such Third Priority Security Interest is and
         shall be subordinate to (x) the First Investors' Security Interest and
         (y) the Electronics' Security Interest in such IES/IDS/MDT Stock
         Collateral.

                  3. Representations, Warranties, Covenants and Agreements of
         the Debtors. The Debtors jointly and severally represent and warrant
         to, and covenant and agree with, the Secured Parties as follows:

                  (a) Each Debtor has the requisite corporate power and
         authority to enter into this Agreement and otherwise to carry out its
         obligations thereunder. The execution, delivery and performance by each
         Debtor of this Agreement and the filings contemplated therein have been
         duly authorized by all necessary action on the part of such Debtor and
         no further action is required by such Debtor.

                  (b) Each Debtor represents and warrants that its jurisdiction
         of organization and organization identification number are as set forth
         on Schedule A attached hereto;



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                  (c) (i) Except for the Security Interests and as set forth in
         Schedule 3(c)(i) hereto, each Debtor is the sole owner of the
         Collateral (except for non-exclusive licenses granted by the Debtors in
         the ordinary course of business), free and clear of any liens, security
         interests, encumbrances, rights or claims, and is fully authorized to
         grant the Security Interests in the Collateral. There is not on file in
         any governmental or regulatory authority, agency or recording office an
         effective financing statement, security agreement, license or transfer
         or any notice of any of the foregoing (other than those that have been
         filed in favor of (i) the Secured Parties in accordance with this
         Agreement, (ii) the First Investors pursuant to the First Investors'
         Security Agreement, or (iii) IES Electronics pursuant to the
         Electronics' Security Agreements) covering or affecting any of the
         Collateral. So long as this Agreement shall be in effect, the Debtors
         shall not execute and shall not knowingly permit to be on file in any
         such office or agency any such financing statement or other document or
         instrument (except to the extent filed or recorded in favor of the
         Secured Parties pursuant to the terms of this Agreement).

                           (ii) The Debtors are the record, direct and
                  beneficial owner of the Pledged Shares and Stock Collateral.
                  Except as set forth in Schedule 3(c)(ii) hereto, all of the
                  Pledged Shares and Stock Collateral are owned by the Debtors,
                  free and clear of any lien, claim, encumbrance, security
                  interest, right or other charge, other than (A) the Security
                  Interests granted hereunder, (B) the First Investors' Security
                  Interest, and (C) Electronics' Security Interest. The Debtors
                  have the power, authority and legal right to pledge, assign,
                  transfer, deliver, deposit and set over the MAC Stock
                  Collateral and the Pledged Shares pledged to the Secured
                  Parties as provided herein.

                           (iii) Concurrently with or promptly following the
                  execution of this Agreement, all certificates or instruments
                  representing or evidencing the Pledged Shares and the Stock
                  Collateral, which are not currently in the possession of the
                  Agent, have been delivered to and held by the Agent for the
                  benefit of the Secured Parties pursuant to this Agreement
                  together with undated stock powers duly endorsed in blank and
                  irrevocable proxies, provided that such delivery shall not be
                  required with respect to any such certificates or instruments
                  delivered to the First Investors pursuant to the terms of the
                  First Investors' Security Agreement.

                  (d) No part of the Collateral has been judged invalid or
         unenforceable. No written claim has been received that any Collateral
         or the Debtors' use of any Collateral violates the rights of any third
         party. There has been no adverse decision to the Debtors' claim of
         ownership rights in or exclusive rights to use the Collateral in any
         jurisdiction or to the Debtors' right to keep and maintain such
         Collateral in full force and effect, and there is no proceeding
         involving said rights pending or, to the best knowledge of the Debtors,
         threatened before any court, judicial body, administrative or
         regulatory agency, arbitrator or other governmental authority.

                  (e) Each Debtor shall at all times maintain its books of
         account and records relating to the Collateral at its principal place
         of business and its Collateral at the locations set forth on Schedule A
         attached hereto and may not relocate such books of account and records
         or tangible Collateral unless it delivers to each of the Secured
         Parties at least 30 days prior to such relocation (i) written notice of
         such relocation and the new location thereof (which must be within the
         United States) and (ii) evidence that appropriate financing statements
         under the UCC



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         and other necessary documents have been filed and recorded and other
         steps have been taken to perfect the Security Interests to create in
         favor of each of the Secured Parties (A) a valid, perfected and
         continuing first priority security interest and lien in the Parent
         Collateral and the MAC Stock Collateral, (B) a valid and continuing
         second priority security interest and lien in the IES Collateral and
         the Subsidiary Stock Collateral, subordinate only to the First
         Investors' Security Interest and (C) a valid and continuing third
         priority security interest and lien in the IES/IDS/MDT Stock
         Collateral, subordinate only to the First Investors' Security Interest
         and the Electronics' Security Interest. The principal place of business
         of each of the Debtors is located at the address set forth in Schedule
         A hereto, and will not be moved without notice to each Secured Party.

                  (f) This Agreement creates in favor of the Secured Parties a
         valid security interest in the Collateral securing the payment and
         satisfaction of the Obligations and, upon making the filings described
         in Section 3(g), a perfected security interest in the Parent
         Collateral, the IES Collateral and the MAC Stock Collateral, which
         security interest shall have the respective priorities set forth in
         clause (e) above. Except for the filing of financing statements
         pursuant to the UCC with the proper filing and recording agencies in
         the jurisdictions indicated on Schedule B, attached hereto, no
         authorization or approval of or filing with or notice to any
         governmental authority or regulatory body is required either (i) for
         the grant by the Debtors of, or the effectiveness of, the Security
         Interests granted hereby or for the execution, delivery and performance
         of this Agreement by the Debtors or (ii) for the perfection of or
         exercise by the Secured Parties of their rights and remedies hereunder.

                  (g) The Debtors acknowledge and agree that on the date of
         execution of this Agreement, the Secured Parties will file one or more
         financing statements under the UCC with respect to the Security
         Interests with the proper filing and recording agencies in the
         jurisdictions, all as indicated on Schedule B, attached hereto and in
         such other jurisdictions as the Secured Parties may deem necessary.

                  (h) The execution, delivery and performance of this Agreement
         does not conflict with or cause a breach or default, or an event that
         with or without the passage of time or notice, shall constitute a
         breach or default, under any agreement to which the Debtors are a party
         or by which the Debtors are bound. No consent (including, without
         limitation, from stock holders or creditors of the Debtors) is required
         for the Debtors to enter into and perform their obligations hereunder.

                  (i) The Debtors shall at all times maintain the liens and
         Security Interests provided for hereunder as valid liens and security
         interests in the Collateral in favor of the Secured Parties in
         accordance with the terms hereof to ensure that such liens and Security
         Interests are and remain senior to all not existing and hereafter
         created security interests and liens. The Collateral will be kept free
         of all liens, security interest, claims and encumbrances whatsoever,
         except for the First Investors' Security Interest and the Electronics'
         Security Interest. Each Debtor hereby agrees to defend the same against
         any and all persons. Each Debtor shall safeguard and protect all
         Collateral for the account of the Secured Parties. At the request of
         the Agent and/or the Secured Parties, the Debtors will sign and deliver
         to the Secured Parties at any time or from time to time one or more
         financing statements pursuant to the UCC in form reasonably
         satisfactory to the Secured Parties and will pay the cost of filing the
         same in all public



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<PAGE>

         offices wherever filing is, or is deemed by the Secured Parties to be,
         necessary or desirable to effect the rights and obligations provided
         for herein. Without limiting the generality of the foregoing, the
         Debtors shall pay all fees, taxes and other amounts necessary to
         maintain the Collateral and the Security Interests hereunder, and the
         Debtors shall obtain and furnish to the Secured Parties from time to
         time, upon demand, such releases and/or subordinations of claims and
         liens which may be required to maintain the priority of the Security
         Interests.

                  (j) The Debtors will not allow any Collateral to be abandoned,
         forfeited or dedicated to the public without the prior written consent
         of the Secured Parties. The Debtors will not transfer, pledge,
         hypothecate, encumber, license (except for non-exclusive licenses
         granted by the Debtors in the ordinary course of business), sell or
         otherwise dispose of any of the Collateral without the prior written
         consent of the Secured Parties.

                  (k) Each Debtor shall keep and preserve its Equipment,
         Inventory and other tangible Collateral in good condition, repair and
         order and shall not operate or locate any such Collateral (or cause to
         be operated or located) in any area excluded from insurance coverage.

                  (l) Each Debtor shall, within ten (10) days of obtaining
         knowledge thereof, advise the Agent, in sufficient detail, of any
         substantial change in the Collateral, and of the occurrence of any
         event which would have a material adverse effect on the value of the
         Collateral or the Security Interests.

                  (m) Each Debtor shall promptly execute and deliver to the
         Secured Parties such further deeds, mortgages, assignments, security
         agreements, financing statements or other instruments, documents,
         certificates and assurances and take such further action as the Secured
         Parties may from time to time request and may in its sole discretion
         deem necessary to perfect, protect or enforce its security interest in
         the Collateral including, without limitation, the IP Security Agreement
         in which each the Secured Parties has been granted a security interest
         hereunder, substantially in a form acceptable to the Secured Parties,
         which IP Security Agreement, other than as stated therein, shall be
         subject to all of the terms and conditions hereof.

                  (n) The Debtors shall permit the Secured Parties and their
         representatives and agents upon reasonable prior notice to inspect the
         Collateral at any time during normal business hours, and to make copies
         of records pertaining to the Collateral as may be requested by the
         Secured Parties from time to time.

                  (o) Each Debtor will, at its own expense, take all steps
         reasonably necessary to diligently pursue and seek to preserve, enforce
         and collect any rights, claims, causes of action and accounts
         receivable in respect of the Collateral.

                  (p) Each Debtor shall promptly notify the Secured Parties in
         sufficient detail upon becoming aware of any attachment, garnishment,
         execution or other legal process levied against any Collateral and of
         any other information received by the Debtors that may materially
         affect the value of the Collateral, the Security Interests or the
         rights and remedies of the Secured Parties hereunder.

                  (q) Each Debtor shall not use or permit any Collateral to be
         used unlawfully or in violation of any provision of this Agreement or
         any applicable statute, regulation or



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<PAGE>

         ordinance or any policy of insurance covering the Collateral where
         violation is reasonably likely to have a material adverse effect on the
         Secured Parties' rights in the Collateral or Secured Parties' ability
         to foreclose on the Collateral.

                  (r) The Debtors shall not grant to any person or entity any
         rights or interests in or to any of the Collateral that are senior to,
         or pari passu with, the Secured Parties.

                  (s) Each Debtor shall notify the Agent of any change in such
         Debtor's name, identity, chief place of business, chief executive
         office or residence within 10 days prior to such change.

                  (t) All information heretofore, herein or hereafter supplied
         to the Secured Parties by or on behalf of the Debtors with respect to
         the Collateral is accurate and complete in all material respects as of
         the date furnished.

                  4. Voting Rights; Dividends; Etc.

                  (a) Subject to the first priority rights of the First
         Investors in the Subsidiary Stock Collateral and the IES/IDS/MDT Stock
         Collateral, and to the second priority rights of IES Electronics in the
         IES/IDS/MDT Stock Collateral, as long as no Event of Default (as
         defined in Section 5) shall have occurred and be continuing and, in the
         case of Section 4(b)(i), as long as no notice thereof shall have been
         given by the Secured Parties to the Parent):

                           (i) The Debtors shall be entitled to exercise any and
                  all voting and other consensual rights pertaining to the Stock
                  Collateral and Pledged Shares pledged by it hereunder or any
                  part thereof for any purpose not inconsistent with the terms
                  of this Agreement or the Debentures; provided, however, that
                  the Parent shall not exercise or refrain from exercising any
                  such right if such action would have an adverse effect on the
                  value of the Stock Collateral and Pledged Shares or any part
                  thereof.

                           (ii) The Debtors shall be entitled to receive and
                  retain any and all dividends paid in respect of the Stock
                  Collateral and Pledged Shares pledged by it hereunder, other
                  than any and all:

                                    (1) dividends paid or payable other than in

                  cash in respect of, and instruments and other property
                  received, receivable or otherwise distributed in respect of,
                  or in exchange for, any Stock Collateral and Pledged Shares;

                                    (2) dividends and other distributions paid

                  or payable in cash in respect of any Stock Collateral and
                  Pledged Shares in connection with a partial or total
                  liquidation or dissolution or in connection with a reduction
                  of capital, capital surplus or paid-in-surplus; and

                                    (3) cash paid, payable or otherwise
                  distributed in redemption of, or in exchange for, any Stock
                  Collateral and Pledged Shares,

                  all of which shall be, and all of which shall be forthwith
         delivered to the Secured Parties to hold as pledged shares, provided
         that, such delivery shall not be required with respect



                                      -10-
<PAGE>

         to the Subsidiary Stock Collateral and the IES/IDS/MDT Stock Collateral
         or any Pledged Shares so long as these are subject to the First
         Investors' Security Interest and Industries' Security Interest (as
         applicable), and shall, if received by the any Debtor, be received in
         trust for the benefit of the Secured Parties, be segregated from the
         other property or funds of the Debtors, and be forthwith delivered to
         Agent for the benefit of the Secured Parties as pledged shares in the
         same form as so received (with any necessary endorsement). Upon
         termination of the First Investors' Security Interest or the
         Electronics' Security Interest, the Debtors will take all steps
         necessary to cause the First Investors or IES Electronics, as the case
         may be, to return any of the Subsidiary Stock Collateral, IES/IDS/MDT
         Stock Collateral or Pledged Shares held by the First Investors or IES
         Electronics to the Debtors and promptly upon receipt by the Debtors
         deliver these to the Agent to for the benefit of the Secured Parties.

                           (iii) The Secured Parties shall execute and deliver
                  (or cause to be executed and delivered) to the Debtors all
                  such proxies and other instruments as the Debtors may
                  reasonably request for the purpose of enabling the Debtors to
                  exercise the voting and other rights which it is entitled to
                  exercise pursuant to subsection (a)(i) above and to receive
                  the dividends which it is authorized to receive and retain
                  pursuant to subsection (a)(ii) above.

                  (b) Upon the occurrence and during the continuance of an Event
         of Default:

                           (i) All rights of the Debtors to exercise the voting
                  and other consensual rights which it would otherwise be
                  entitled to exercise pursuant to Section 4(a)(i) above shall
                  cease upon notice from the Secured Parties to the Debtors, and
                  all such rights shall thereupon become vested in the Secured
                  Parties who shall thereupon have the sole right to exercise
                  such voting and other consensual rights and any and all rights
                  of conversion, exchange, subscription or any other rights,
                  privileges or options pertaining to the Stock Collateral and
                  Pledged Shares or any part thereof, subject to the rights of
                  the First Investors to exercise voting and other consensual
                  rights upon the occurrence and during the continuance of an
                  "Event of Default" under the First Investors' Security
                  Agreement, and the rights of IES Electronics to exercise
                  voting and other consensual rights upon the occurrence and
                  during the continuance of an "Event of Default" under the
                  Electronics' Security Agreements, and the Secured Parties may
                  exercise such powers in such manner as the Secured Parties may
                  elect, but the Secured Parties shall have no duty to exercise
                  any of the aforesaid right, privileges or options and shall
                  not be responsible for any failure to do so or delay in doing
                  so.

                           (ii) All rights of the Debtors to receive the
                  dividends which the Debtors would otherwise be authorized to
                  receive and retain pursuant to Section 4(a)(ii) above shall
                  cease, and all such rights shall thereupon become vested in
                  the Secured Parties who shall thereupon have the sole right to
                  receive and hold as part of the Pledged Shares such dividends,
                  subject to the rights of the First Investors to receive such
                  dividends under the First Security Agreement and to the rights
                  of IES Electronics to receive such dividends under the
                  Electronics' Security Agreements.

                           (iii) All dividends which are received by the Debtors
                  contrary to the provisions of paragraph (ii) of this Section
                  4(b) shall be received in trust for the benefit of



                                      -11-
<PAGE>

                  the Secured Parties, shall be segregated from other funds of
                  the Debtors and shall be forthwith paid over to the Secured
                  Parties as Pledged Shares in the same form as so received
                  (with any necessary endorsement).

                  (c) In order to permit the Secured Parties to exercise the
         voting and other rights which it may be entitled to exercise pursuant
         to Section 4(b)(i) above, and to receive all dividends and
         distributions which it may be entitled Secured Parties, from time to
         time execute and deliver to the Secured Parties appropriate proxies,
         dividend payment orders and other instruments as the Secured Parties
         may reasonably request.

                  5. Defaults. The following events shall be "Events of
         Default":

                  (a) The occurrence of an Event of Default (as defined in the
         Debentures) under the Debentures;

                  (b) Any representation or warranty of the Debtors in this
         Agreement or in the IP Security Agreement shall prove to have been
         incorrect in any material respect when made;

                  (c) The failure by a Debtor to observe or perform any of its
         obligations hereunder or in the IP Security Agreement for ten (10) days
         after receipt by a Debtor of notice of such failure from the Secured
         Parties; or

                  (d) The failure by the Debtors to pay all amounts owed to IES
         Electronics by December 31, 2003 and cause the Electronics' Security
         Interest to be terminated as soon as practicable thereunder, subject to
         any rights of setoff that the Debtors may claim.

                  6. Duty To Hold In Trust. Upon the occurrence and the
         continuation of any Event of Default, the Debtors shall, upon receipt
         by the Debtors of any revenue, income or other sums subject to the
         Security Interests, whether payable pursuant to the Debentures or
         otherwise, or of any check, draft, note, trade acceptance or other
         instrument evidencing an obligation to pay any such sum, hold the same
         in trust for the Secured Parties and shall forthwith endorse and
         transfer any such sums or instruments, or both, to the Secured Parties
         for application, on a pro rata basis, to the satisfaction of the
         Obligations.

                  7. Rights and Remedies Upon Default. Upon the occurrence and
         during the continuation of any Event of Default, the Agent (on behalf
         of, and for the benefit of, itself and each of the Secured Parties)
         shall have the right to exercise all of the remedies conferred
         hereunder, under the Debentures and under the IP Security Agreement,
         and the Agent (on behalf of and for the benefit of the Secured Parties)
         shall have all the rights and remedies of a secured party under the
         UCC. Without limitation, the Agent (on behalf of and for the benefit of
         the Secured Parties) shall have the following rights and powers:

                  (a) The Agent shall have the right to take possession of all
         tangible manifestations or embodiments of the Collateral and, for that
         purpose, enter, with the aid and assistance of any person, any premises
         where the Collateral, or any part thereof, is or may be placed and
         remove the same, and the Debtors shall assemble the Collateral and make
         it available to the Agent at places which the Agent shall reasonably
         select, whether at the Debtors' premises or elsewhere, and make
         available to the Agent, without rent, all of the Debtors' respective


                                      -12-
<PAGE>

         premises and facilities for the purpose of the Agent taking possession
         of, removing or putting the Collateral in saleable or disposable form.

                  (b) The Agent shall have the right to operate the business of
         the Debtors using the Collateral and shall have the right to assign,
         sell, lease or otherwise dispose of and deliver all or any part of the
         Collateral, at public or private sale or otherwise, either with or
         without special conditions or stipulations, for cash or on credit or
         for future delivery, in such parcel or parcels and at such time or
         times and at such place or places, and upon such terms and conditions
         as the Agent may deem commercially reasonable, all without (except as
         shall be required by applicable statute and cannot be waived)
         advertisement or demand upon or notice to the Debtors or right of
         redemption of the Debtors, which are hereby expressly waived. Upon each
         such sale, lease, assignment or other transfer of Collateral, the Agent
         may, unless prohibited by applicable law which cannot be waived,
         purchase all or any part of the Collateral being sold, free from and
         discharged of all trusts, claims, right of redemption and equities of
         the Debtors, which are hereby waived and released.

                  (c) The Agent may license or, to the same extent the Debtors
         are permitted by law and contract to do so, sublicense, whether on an
         exclusive or non-exclusive basis, any of the Collateral throughout the
         world for such period, on such conditions and in such manner as the
         Secured Parties shall, in its reasonable discretion, determine.

                  (d) The Agent may (without assuming any obligations or
         liabilities thereunder), at any time, enforce (and shall have the
         exclusive right to enforce) against licensee or sublicensee all rights
         and remedies of the Debtors in, to and under any license agreement with
         respect to such Collateral, and take or refrain from taking any action
         thereunder.

                  (e) The Agent may, in order to implement the assignment,
         license, sale or other disposition of any of the Collateral pursuant to
         this Section, pursuant to the authority provided for in Section 13,
         execute and deliver on behalf of the Debtors one or more instruments of
         assignment of the Collateral in form suitable for filing, recording or
         registration in any jurisdictions as the Secured Parties may determine
         advisable.

                  (f) In the event that any Secured Party shall recover from the
         Debtors or the Collateral more than its pro rata share of the
         Obligations owed to all Secured Parties hereunder, whether by
         agreement, understanding or arrangement with the Debtors or any other
         Person, set off or other means, such Secured Party shall immediately
         deliver or pay over to the other Secured Parties a pro rata portion of
         any such recovery in the form received.

                  (g) Agent may, at any time or times that an Event of Default
         exists or has occurred and is continuing, (i) notify any or all account
         debtors that the Accounts have been assigned to Secured Parties and
         that Secured Parties have a security interest therein and Agent may
         direct any or all accounts debtors to make payment of Accounts directly
         to Secured Parties, (ii) extend the time of payment of, compromise,
         settle or adjust for cash, credit, return of merchandise or otherwise,
         and upon any terms or conditions, any and all Accounts or other
         obligations included in the Collateral and thereby discharge or release
         the account debtor or any other party or parties in any way liable for
         payment thereof without affecting any of the Obligations, (iii) demand,
         collect or enforce payment of any Accounts or such other obligations,


                                      -13-
<PAGE>

         but without any duty to do so, and Agent and Secured Parties shall not
         be liable for its failure to collect or enforce the payment thereof nor
         for the negligence of its agents or attorneys with respect thereto and
         (iv) take whatever other action Agent may deem necessary or desirable
         for the protection of its interests. At any time that an Event of
         Default exists or has occurred and is continuing, at Agent's request,
         all invoices and statements sent to any account debtor shall state that
         the Accounts and such other obligations have been assigned to Secured
         Parties and are payable directly and only to Secured Parties and the
         Debtors shall deliver to Agent such originals of documents evidencing
         the sale and delivery of goods or the performance of services giving
         rise to any Accounts as Agent may require.

                  8. Apportionment and Application of Proceeds. (a) Except as
         otherwise provided herein, the proceeds of any such sale, lease,
         license or other disposition of the Collateral hereunder shall be
         apportioned ratably among the Secured Parties (according to the unpaid
         balance of the Obligations to which such payments relate held by each
         Secured Party) and shall be applied as follows, provided that any
         apportionment and application under this Section 8 shall be subject to
         any apportionment among the First Investors and IES Electronics and
         application of the proceeds of any Collateral under the First
         Investors' Security Agreement and the Electronics' Security Agreements:

                           (i) first, to the expenses of retaking, holding,
                  storing, processing and preparing for sale, selling, and the
                  like (including, without limitation, any taxes, fees and other
                  costs incurred in connection therewith) of the Collateral,

                           (ii) second, to the reasonable attorneys' fees and
                  expenses incurred by the Agent and/or Secured Parties in
                  enforcing its rights hereunder and in connection with
                  collecting, storing and disposing of such Collateral,

                           (iii) third, to satisfaction of the Obligations due
                  to the Secured Parties,

                           (iv) fourth, to the payment of any other amounts
                  required by applicable law, and

                           (v) fifth, to the Debtors any surplus proceeds.

                  (b) If, upon the sale, license or other disposition of the
         Collateral, the proceeds thereof are insufficient to pay all amounts to
         which the Secured Parties are legally entitled, the Debtors will be
         liable for the deficiency, together with interest thereon, at the rate
         of 12% per annum or the lesser amount permitted by applicable law (the
         "Default Rate"), and the reasonable fees of any attorneys employed by
         the Agent and/or Secured Parties to collect such deficiency. To the
         extent permitted by applicable law, each Debtor waives all claims,
         damages and demands against the Secured Parties arising out of the
         repossession, removal, retention or sale of the Collateral, unless due
         to the gross negligence or willful misconduct of the Agent and/or
         Secured Parties.

                  (c) In the event of a direct conflict between the priority
         provisions of this Section 8 and other provisions contained in any
         other Debentures or documents executed in connection with the
         Debentures, it is the intention of the parties hereto that such
         priority provisions in such documents shall be read together and
         construed, to the fullest extent possible,



                                      -14-
<PAGE>

         to be in concert with each other. In the event of any actual,
         irreconcilable conflict that cannot be resolved as aforesaid, the terms
         and provisions of this Section 8 shall control and govern.

                  9. Costs and Expenses. The Debtors agree to pay all
         out-of-pocket fees, costs and expenses incurred in connection with any
         filing required hereunder, including without limitation, any financing
         statements pursuant to the UCC, continuation statements, partial
         releases and/or termination statements related thereto or any expenses
         of any searches reasonably required by the Agent. The Debtors shall
         also pay all other claims and charges which in the reasonable opinion
         of the Agent and/or Secured Parties might prejudice, imperil or
         otherwise affect the Collateral or the Security Interests therein. The
         Debtors will also, upon demand, pay to the Agent and/or Secured Parties
         the amount of any and all reasonable expenses, including the reasonable
         fees and expenses of its counsel and of any experts and agents, which
         the Agent and/or Secured Parties may incur in connection with (i) the
         enforcement of this Agreement, (ii) the custody or preservation of, or
         the sale of, collection from, or other realization upon, any of the
         Collateral, or (iii) the exercise or enforcement of any of the rights
         of the Secured Parties under the Debentures. Until so paid, any fees
         payable hereunder shall be added to the principal amount of the
         Debentures and shall bear interest at the Default Rate.

                  10. Responsibility for Collateral. Each Debtor assumes all
         liabilities and responsibility in connection with all Collateral, and
         the obligations of such Debtor hereunder, under the Debentures or under
         the IP Security Agreement shall in no way be affected or diminished by
         reason of the loss, destruction, damage or theft of any of the
         Collateral or its unavailability for any reason.

                  11. Security Interests Absolute. All rights of the Secured
         Parties and all Obligations of the Debtors hereunder, shall be absolute
         and unconditional, irrespective of: (a) any lack of validity or
         enforceability of this Agreement, the Debentures, IP Security Agreement
         or any agreement entered into in connection with the foregoing, or any
         portion hereof or thereof; (b) any change in the time, manner or place
         of payment or performance of, or in any other term of, all or any of
         the Obligations, or any other amendment or waiver of or any consent to
         any departure from the Debentures, or the IP Security Agreement or any
         other agreement entered into in connection with the foregoing; (c) any
         exchange, release or nonperfection of any of the Collateral, or any
         release or amendment or waiver of or consent to departure from any
         other collateral for, or any guaranty, or any other security, for all
         or any of the Obligations; (d) any action by the Secured Parties to
         obtain, adjust, settle and cancel in its sole discretion any insurance
         claims or matters made or arising in connection with the Collateral; or
         (e) any other circumstance which might otherwise constitute any legal
         or equitable defense available to the Debtors, or a discharge of all or
         any part of the Security Interests granted hereby. Until the
         Obligations shall have been paid and performed in full, the rights of
         the Secured Parties shall continue even if the Obligations are barred
         for any reason, including, without limitation, the running of the
         statute of limitations or bankruptcy. Each Debtor expressly waives
         presentment, protest, notice of protest, demand, notice of nonpayment
         and demand for performance. In the event that at any time any transfer
         of any Collateral or any payment received by the Secured Parties
         hereunder shall be deemed by final order of a court of competent
         jurisdiction to have been a voidable preference or fraudulent
         conveyance under the bankruptcy or insolvency laws of the United
         States, or shall be deemed to be otherwise due to any party other than
         the Secured Parties, then, in any such event, the Debtors' obligations
         hereunder shall survive cancellation of



                                      -15-
<PAGE>

         this Agreement, and shall not be discharged or satisfied by any prior
         payment thereof and/or cancellation of this Agreement, but shall remain
         a valid and binding obligation enforceable in accordance with the terms
         and provisions hereof. Each Debtor waives all right to require the
         Secured Parties to proceed against any other person or to apply any
         Collateral which the Secured Parties may hold at any time, or to
         marshal assets, or to pursue any other remedy. Each Debtor waives any
         defense arising by reason of the application of the statute of
         limitations to any obligation secured hereby.

                  12. Term of Agreement. This Agreement and the Security
         Interests shall terminate on the date on which all payments under the
         Debentures have been made in full or otherwise converted pursuant to
         the terms thereof and all other Obligations have been paid or
         discharged. Upon such termination, the Secured Parties, at the request
         and at the expense of the Debtors, will join in executing any
         termination statement with respect to any financing statement executed
         and filed pursuant to this Agreement.

                  13. Power of Attorney; Further Assurances. (a) Each Debtor
         authorizes the Secured Parties, and does hereby make, constitute and
         appoint it, and its respective officers, agents, successors or assigns
         with full power of substitution, as the Debtors' true and lawful
         attorney-in-fact, with power, in its own name or in the name of the
         Debtors, to, after the occurrence and during the continuance of an
         Event of Default, (i) endorse any notes, checks, drafts, money orders,
         or other instruments of payment (including payments payable under or in
         respect of any policy of insurance) in respect of the Collateral that
         may come into possession of the Secured Parties; (ii) to sign and
         endorse any financing statement pursuant to the UCC or any invoice,
         freight or express bill, bill of lading, storage or warehouse receipts,
         drafts against debtors, assignments, verifications and notices in
         connection with accounts, and other documents relating to the
         Collateral; (iii) to pay or discharge taxes, liens, security interests
         or other encumbrances at any time levied or placed on or threatened
         against the Collateral; (iv) to demand, collect, receipt for,
         compromise, settle and sue for monies due in respect of the Collateral;
         and (v) generally, to do, at the option of the Secured Parties, and at
         the Debtors' expense, at any time, or from time to time, all acts and
         things which the Secured Parties deems necessary to protect, preserve
         and realize upon the Collateral and the Security Interests granted
         therein in order to effect the intent of this Agreement, the Debentures
         and the IP Security Agreement all as fully and effectually as the
         Debtors might or could do; and each Debtor hereby ratifies all that
         said attorney shall lawfully do or cause to be done by virtue hereof.
         This power of attorney is coupled with an interest and shall be
         irrevocable for the term of this Agreement and thereafter as long as
         any of the Obligations shall be outstanding.

                  (b) On a continuing basis, each Debtor will make, execute,
         acknowledge, deliver, file and record, as the case may be, with the
         proper filing and recording agencies in any jurisdiction, including,
         without limitation, the jurisdictions indicated on Schedule B, attached
         hereto, all such instruments, and take all such action as may
         reasonably be deemed necessary or advisable, or as reasonably requested
         by the Secured Parties, to perfect the Security Interests granted
         hereunder and otherwise to carry out the intent and purposes of this
         Agreement, or for assuring and confirming to the Secured Parties the
         grant or perfection of Security Interests in all the Collateral under
         the UCC having the priority set forth in this Agreement.



                                      -16-
<PAGE>

                  (c) Each Debtor hereby irrevocably appoints the Secured
         Parties as such Debtor's attorney-in-fact, with full authority in the
         place and stead of such Debtor and in the name of such Debtor, from
         time to time in the Secured Parties' discretion, to take any action and
         to execute any instrument which the Secured Parties may deem necessary
         or advisable to accomplish the purposes of this Agreement, including
         the filing, in its sole discretion, of one or more financing or
         continuation statements and amendments thereto, relative to any of the
         Collateral without the signature of such Debtor where permitted by law.

                  14. Agent.

                  (a) Actions The Agent shall at all times act upon and in
         accordance with written instructions received from a
         Majority-in-Interest (as defined in Section 17) time to time. The Agent
         shall be deemed to be authorized on behalf of each Secured Party to act
         on behalf of such Secured Party under this Agreement and the IP
         Security Agreement and, in the absence of written instructions from a
         Majority-in-Interest (with respect to which the Agent agrees that it
         will, subject to the last two sentences of this Section, comply, except
         as otherwise advised by counsel), to exercise such powers hereunder and
         thereunder as are specifically delegated to or required of the Agent by
         the terms hereof and thereof, together with such powers as may be
         reasonably incidental thereto. The Agent shall have no duty to
         ascertain or inquire as to the performance or observance of any of the
         terms of this Agreement or the IP Security Agreement by the Debtors. By
         accepting their Debentures each Secured Party shall be deemed to have
         agreed to indemnify the Agent (which agreement shall survive any
         termination of such Secured Party's percentage), from and against any
         and all liabilities, obligations, losses, damages, penalties, actions,
         judgments, suits, costs, expenses or disbursements of any kind or
         nature whatsoever which may at any time be imposed on, incurred by, or
         asserted against the Agent in any way relating to or arising out of
         this Agreement, the Debentures and the IP Security Agreement, including
         the reimbursement of the Agent for all out-of-pocket expenses
         (including attorneys' fees) incurred by the Agent hereunder or in
         connection herewith or in enforcing the Obligations of the Debtors
         under this Agreement, the Debentures or the IP Security Agreement, in
         all cases as to which the Agent is not reimbursed by the Debtors;
         provided that no Secured Party shall be liable for the payment of any
         portion of such liabilities, obligations, losses, damages, penalties,
         actions, judgments, suits, costs, expenses or disbursements determined
         by a court of competent jurisdiction in a final proceeding to have
         resulted solely from the Agent's gross negligence or willful
         misconduct. The Agent shall not be required to take any action
         hereunder, under the Debentures or under IP Security Agreement, or to
         prosecute or defend any suit in respect of this Agreement or under the
         Debentures or under IP Security Agreement, unless the Agent is
         indemnified to its reasonable satisfaction by the Secured Parties
         against loss, costs, liability and expense. If any indemnity in favor
         of the Agent shall become impaired, it may call for additional
         indemnity and cease to do the acts indemnified against until such
         additional indemnity is given.

                  (b) Exculpation. Neither the Agent nor any of its directors,
         officers, partners, members, shareholders, employees or agents shall be
         liable to any Secured Party for any action taken or omitted to be taken
         by it under this Agreement, the Debentures or the IP Security
         Agreement, or in connection herewith or therewith, except for its own
         willful misconduct or gross negligence or be responsible for the
         consequences of any error in judgment. Neither the Agent nor any of its
         directors, officers, partners, members, shareholders, employees or
         agents has



                                      -17-
<PAGE>

         any fiduciary relationship with any Secured Party by virtue of this
         Agreement or the IP Security Agreement. The Agent shall not be
         responsible to any Secured Party for any recitals, statements,
         representations or warranties herein or in any certificate or other
         document delivered in connection herewith or for the authorization,
         execution, effectiveness, genuineness, validity, enforceability,
         perfection, collectibility, or sufficiency this Agreement, the
         Debentures or the IP Security Agreement, the financial condition of the
         Debtors or the condition or value of any of the Collateral, or be
         required to make any inquiry concerning either the performance or
         observance of any of the terms, provisions or conditions of this
         Agreement, the Debentures or the IP Security Agreement, the financial
         condition of the Debtors or the existence or possible existence of any
         default or event of default. The Agent shall be entitled to rely upon
         advice of counsel concerning legal matters and upon any notice,
         consent, certificate, statement or writing which it believes to be
         genuine and to have presented by a proper person.

                  (c) Obligations Held by the Agent. The Agent shall have the
         same rights and powers with respect to any Debentures held by it or any
         of its affiliates, as any Secured Party and may exercise the same as if
         it were not the Agent. Each of the Debtors and the Secured Parties
         hereby waives, and each successor to any Secured Party shall be deemed
         to waive, any right to disqualify any Secured Party from serving as the
         Agent or any claim against that Secured Party for serving as Agent.

                  (d) Copies, etc. The Agent shall give prompt notice to each
         Secured Party of each notice or request required or permitted to be
         given to the Agent by the Debtors pursuant to the terms of this
         Agreement. The Agent will distribute to each Secured Party each
         instrument and other agreement received for its account and copies of
         all other communications received by the Agent from a Debtor for
         distribution to the Secured Parties by the Agent in accordance with the
         terms of this Agreement. Notwithstanding anything herein contained to
         the contrary, all notices to and communications with the Debtors under
         this Agreement shall be effected by the Secured Parties through the
         Agent.

                  (e) Resignation of Agent. The Agent may resign as such at any
         time upon at least thirty (30) days' prior notice to the Debtors and
         all the Secured Parties, such resignation not to be effective until a
         successor Agent is in place. If the Agent at any time shall resign, a
         Majority-in-Interest may jointly appoint another Secured Party as a
         successor Agent which shall thereupon become the Agent hereunder. Upon
         the acceptance of any appointment as Agent hereunder by a successor
         Agent, such successor Agent shall be entitled to receive from the
         retiring Agent such documents of transfer and assignment as such
         successor Agent may reasonably request, and shall thereupon succeed to
         and become vested with all rights, powers, privileges, and duties of
         the retiring Agent, and the retiring Agent shall be discharged from its
         duties and obligations under this Agreement.

                  (f) Replacement of Agent. A Majority-in-Interest may at any
         time and for any reason replace the Agent with a successor Agent
         jointly selected by them, upon at least ten days written notice to the
         Debtors and the other Secured Parties. Upon the acceptance of any
         appointment as Agent hereunder by a successor Agent, such successor
         Agent shall be entitled to receive from the terminated Agent such
         documents of transfer and assignment as such successor Agent may
         reasonably request, and shall thereupon succeed to and become vested
         with all rights,



                                      -18-
<PAGE>

         powers, privileges, and duties of the retiring Agent, and the
         terminated Agent shall be discharged from its duties and obligations
         under this Agreement.

                  15. Notices. All notices, requests, demands and other
         communications hereunder shall be in writing, with copies to all the
         other parties hereto, and shall be deemed to have been duly given when
         (i) if delivered by hand, upon receipt, (ii) if sent by facsimile, upon
         receipt of proof of sending thereof, (iii) if sent by nationally
         recognized overnight delivery service (receipt requested), the next
         business day or (iv) if mailed by first-class registered or certified
         mail, return receipt requested, postage prepaid, four days after
         posting in the U.S. mails, in each case if delivered to the following
         addresses:

         If to the Debtors:                Arotech Corporation
                                           632 Broadway, Suite 1200
                                           New York, NY 10012
                                           Facsimile No.: (646) 654-2187
                                           Attn:  Chief Executive Officer

         With a copy to:                   Electric Fuel (E.F.L.) Ltd.
                                           One HaSolela Street, POB 641
                                           Western Industrial Park
                                           Beit Shemesh 99000, Israel
                                           Facsimile No.: 011-972-2-990-6688
                                           Attn.: General Counsel

         If to the Secured Parties:        To the address set forth under such
                                           Secured Parties' name on the
                                           signature pages hereto.

                  16. Other Security. To the extent that the Obligations are now
         or hereafter secured by property other than the Collateral or by the
         guarantee, endorsement or property of any other person, firm,
         corporation or other entity, then the Secured Parties shall have the
         right, in its sole discretion, to pursue, relinquish, subordinate,
         modify or take any other action with respect thereto, without in any
         way modifying or affecting any of the Secured Parties' rights and
         remedies hereunder.

                  17. Actions by Secured Parties. Any action required or
         permitted hereunder to be taken by or on behalf of the Secured Parties
         shall, for such action to be valid, require the approval of the
         Majority-in-Interest prior to the taking of such action. If the
         consent, approval or disapproval of the Secured Parties is required or
         permitted pursuant to this Agreement, such consent, approval or
         disapproval shall only be valid if given by the Majority-in-Interest.
         "Majority-in-Interest" means the Secured Party or Secured Parties (as
         the case may be) holding in excess of a majority of the outstanding
         aggregate principal amount under the Debentures, determined on a
         cumulative basis.

                  18. Miscellaneous.

                  (a) No course of dealing between the Debtors and the Secured
         Parties, nor any failure to exercise, nor any delay in exercising, on
         the part of the Secured Parties, any right,



                                      -19-
<PAGE>

         power or privilege hereunder, under the Debentures or under the IP
         Security Agreement shall operate as a waiver thereof; nor shall any
         single or partial exercise of any right, power or privilege hereunder
         or thereunder preclude any other or further exercise thereof or the
         exercise of any other right, power or privilege.

                  (b) All of the rights and remedies of the Secured Parties with
         respect to the Collateral, whether established hereby, by the
         Debentures, by the IP Security Agreement or by any other agreements,
         instruments or documents or by law shall be cumulative and may be
         exercised singly or concurrently.

                  (c) This Agreement constitutes the entire agreement of the
         parties with respect to the subject matter hereof and is intended to
         supersede all prior negotiations, understandings and agreements with
         respect thereto. Except as specifically set forth in this Agreement, no
         provision of this Agreement may be modified or amended except by a
         written agreement signed by the parties hereto.

                  (d) In the event that any provision of this Agreement is held
         to be invalid, prohibited or unenforceable in any jurisdiction for any
         reason, unless such provision is narrowed by judicial construction,
         this Agreement shall, as to such jurisdiction, be construed as if such
         invalid, prohibited or unenforceable provision had been more narrowly
         drawn so as not to be invalid, prohibited or unenforceable. If,
         notwithstanding the foregoing, any provision of this Agreement is held
         to be invalid, prohibited or unenforceable in any jurisdiction, such
         provision, as to such jurisdiction, shall be ineffective to the extent
         of such invalidity, prohibition or unenforceability without
         invalidating the remaining portion of such provision or the other
         provisions of this Agreement and without affecting the validity or
         enforceability of such provision or the other provisions of this
         Agreement in any other jurisdiction.

                  (e) No waiver of any breach or default or any right under this
         Agreement shall be considered valid unless in writing and signed by the
         party giving such waiver, and no such waiver shall be deemed a waiver
         of any subsequent breach or default or right, whether of the same or
         similar nature or otherwise.

                  (f) This Agreement shall be binding upon and inure to the
         benefit of each party hereto and its successors and assigns.

                  (g) Each party shall take such further action and execute and
         deliver such further documents as may be necessary or appropriate in
         order to carry out the provisions and purposes of this Agreement.

                  (h) This Agreement shall be construed in accordance with the
         laws of the State of New York, except to the extent the validity,
         perfection or enforcement of a security interest hereunder in respect
         of any particular Collateral which are governed by a jurisdiction other
         than the State of New York in which case such law shall govern. Each of
         the parties hereto irrevocably submits to the exclusive jurisdiction of
         any New York State or United States Federal court sitting in New York
         county over any action or proceeding arising out of or relating to this
         Agreement, and the parties hereto hereby irrevocably agree that all
         claims in respect of such action or proceeding may be heard and
         determined in such New York State or Federal court.



                                      -20-
<PAGE>

         The parties hereto agree that a final judgment in any such action or
         proceeding shall be conclusive and may be enforced in other
         jurisdictions by suit on the judgment or in any other manner provided
         by law. The parties hereto further waive any objection to venue in the
         State of New York and any objection to an action or proceeding in the
         State of New York on the basis of forum non convenient. If either party
         shall commence an action or a proceeding to enforce any provisions of
         this Agreement, then the prevailing party in such action or proceeding
         shall be reimbursed by the other party for its attorney's fees and
         other costs and expenses incurred with the investigation, preparation
         and prosecution of such action or proceeding.

                  (i) EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE
         RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
         ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO
         BE ALL ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND
         THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
         LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL
         OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES
         THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO
         A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
         WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL
         CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH
         PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
         WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY
         WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING SUCH CONSULTATION. THIS
         WAIVER IS IRREVOCABLE, MEANING THAT, NOTWITHSTANDING ANYTHING HEREIN TO
         THE CONTRARY, IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND
         THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS AND
         SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A
         LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
         BY THE COURT.

                  (j) This Agreement may be executed in any number of
         counterparts, each of which when so executed shall be deemed to be an
         original and, all of which taken together shall constitute one and the
         same Agreement. In the event that any signature is delivered by
         facsimile transmission, such signature shall create a valid binding
         obligation of the party executing (or on whose behalf such signature is
         executed) the same with the same force and effect as if such facsimile
         signature were the original thereof.



                              * * * * * * * * * * *




                                      -21-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

                          Arotech Corporation



                          By:
                                -----------------------------------------------
                          Name:
                          Title:



                          I.E.S. DEFENSE SERVICES, INC.


                          By:
                             -------------------------------------------------
                          Name:
                          Title:



                          IES INTERACTIVE TRAINING, INC.


                          By:
                             -------------------------------------------------
                          Name:
                          Title:



                                      -22-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

                            SMITHFIELD FIDUCIARY LLC

                            By:_____________________________________
                            Name:
                            Title:

                            Address for Notice:

                            c/o Highbridge Capital Management, LLC
                            9 West 57th Street, 27th Floor
                            New York, New York  10019
                            Attention:  Ari J. Storch / Adam J. Chill
                            Facsimile No.:  (212) 751-0755
                            Telephone No.:  (212) 287-4720

                            With a copy to:

                            Schulte Roth & Zabel LLP
                            919 Third Avenue
                            New York, New York  10022
                            Facsimile No.:  (212) 593-5955
                            Telephone No.:  (212) 756-2376
                            Attention:  Eleazer Klein, Esq.




                                      -23-
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

                                 OMICRON MASTER TRUST

                                 By:_____________________________________
                                 Name:
                                 Title:

                                 Address for Notice:

                                 c/o Omicron Capital L.P.
                                 810 Seventh Avenue
                                 39th Floor
                                 New York, New York 10019
                                 Attention:  Brian Daly
                                 Facsimile:  (212) 803-5269
                                 Telephone:  (212) 803-5263






                                      -24-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

                                  PORTSIDE GROWTH AND OPPORTUNITY FUND

                                  By:______________________________
                                  Name:
                                  Title:

                                  Address for Notice:

                                  c/o Ramius Capital Group, L.L.C.
                                  666 Third Avenue, 26th Floor
                                  New York, New York 10006
                                  Facsimile No.: (212) 845-7999
                                  Telephone No.: (212) 845-7917
                                  Attention:     Jeffrey Solomon
                                                 Jeffrey Smith







                                      -25-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

                                MAINFIELD ENTERPRISES INC.

                                By:_____________________________________
                                Name:
                                Title:

                                Address for Notice:

                                c/o Cavallo Capital Corp.
                                660 Madison Avenue, 18th Floor
                                New York, New York  10021
                                Attention:  Mor Sagi
                                Facsimile:  (212) 651-9010
                                Telephone:  (212) 651-9005







                                      -26-
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

                                      CRANSHIRE CAPITAL L.P.

                                      By:_____________________________________
                                      Name:
                                      Title:

                                      Address for Notice:

                                      c/o Downsview Capital, Inc.
                                      The General Partner
                                      666 Dundee Road, Suite 1901
                                      Northbrook, IL  60062
                                      Attention:  Mitchell D. Kopin
                                      Facsimile:  (847) 562-9031
                                      Telephone:  (847) 562-9030






                                      -27-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

                                    CLEVELAND OVERSEAS LTD.

                                    By:_________________________________
                                    Name:
                                    Title:

                                    Address for Notice:

                                    -----------------------------

                                    -----------------------------

                                    -----------------------------

                                    Facsimile No.:    (___) ___-____
                                    Telephone No.: (___) ___-_______
                                    Attention:  ____________________




                                      -28-
<PAGE>

                                   Schedule A

Jurisdiction of Organization of the Debtors:


Organization Identification Number:





                                      -29-
<PAGE>

                                   Schedule B

Jurisdictions:






                                      -30-
<PAGE>

                                   Schedule C



<TABLE>
<CAPTION>
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
Name/Address of Issuer   Name/Address of     Jurisdiction of        Class of        No. of Shares     No. of Pledged
                              Holder           Incorporation        Securities        Outstanding         Shares
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
<S>                     <C>                 <C>                  <C>               <C>                <C>
I.E.S. Defense
Services, Inc.
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
IES Interactive
Training, Inc.
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
Electric Fuel GmbH
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
Summit Training
International, Inc.
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
Electric Fuel UK Ltd.
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
M.D.T. Protective
Services Ltd.
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
Electric Fuel Ltd.
----------------------- ------------------- -------------------- ----------------- ------------------ ----------------
</TABLE>



                                      -31-