EXHIBIT 10.1


                            STOCK PURCHASE AGREEMENT

         AGREEMENT (the "AGREEMENT"),  dated as of July 15, 2004, is between and
among  AROTECH  CORPORATION,  a  Delaware  corporation  (the  "BUYER")  with its
principal  place of business  located at 250 West 57th  Street,  Suite 310,  New
York, New York 10107, ARMOUR OF AMERICA,  INCORPORATED, a California corporation
with its  principal  place of  business  at 1814  West  135th  Street,  Gardena,
California 90249 (the "COMPANY"),  and ARTHUR G. SCHREIBER, the sole shareholder
of the Company,  with a principal residence at 211 Spalding Drive #101N, Beverly
Hills, California 90212 (the "SHAREHOLDER").

         WHEREAS,  the Buyer has  proposed to purchase and the  Shareholder  has
proposed to sell all of the  outstanding  shares of Common  Stock  issued by the
Company (the "COMPANY  COMMON STOCK") and the shareholder and sole member of the
Board  of  Directors  of the  Company  has  determined  that  it is in the  best
interests  of the Company and the  Shareholder  to consent to that  purchase and
sale (the "PURCHASE/SALE") upon the terms and conditions set forth herein;

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

                                    ARTICLE I

                                   DEFINITIONS

         1.1      DEFINED TERMS.  For the purposes of this  Agreement, the terms
listed below shall have the following meanings:

                  1.1.1  "AGREEMENT"  shall  mean this  agreement,  as it may be
         amended from time to time.

                  1.1.2 "AROTECH COMMON STOCK" shall mean the Common Stock, with
         $0.01 par value, issued by the Buyer.

                  1.1.3  "ASSOCIATION" shall have the meaning defined in Section
         10.2.

                  1.1.4 "BURDENSOME CONDITION" shall have the meaning defined in
         Sections 6.2.9.

                  1.1.5  "BUYER"  shall  mean  Arotech  Corporation,  a Delaware
         corporation.

                  1.1.6 "BUYER'S ACCOUNTANT" shall mean Stark, Winter, Schenkein
         & Co.,  LLP, or any other  certified  public  accountant  that shall be
         designated by Buyer.

                  1.1.7 "CLAIM" shall have the meaning defined in Section 8.4.

                  1.1.8 "CLOSING" shall have the meaning defined in Section 7.1.

                  1.1.9 "CLOSING  CONSIDERATION"  shall have the meaning defined
         in Section 2.3.

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                  1.1.10  "CLOSING  CASH  CONSIDERATION"  shall have the meaning
         defined in Section 2.3.

                  1.1.11  "CLOSING  DATE"  shall  have the  meaning  defined  in
         Section 7.1.

                  1.1.12 "CODE" shall mean the Internal Revenue Code of 1986, as
         amended.

                  1.1.13  "COMPANY"  shall  mean  Armour  of  America,  Inc.,  a
         California corporation.

                  1.1.14 "COMPANY COMMON STOCK" shall mean the Company's  Common
         Stock, par value $1.00 per share.

                  1.1.15 "COMPANY  FINANCIAL  STATEMENTS" shall have the meaning
         defined in Section 3.14.

                  1.1.16 "DISCLOSURE SCHEDULE" shall have the meaning defined in
         Section 1.3.

                  1.1.17  "DISPUTE  NOTICE"  shall have the  meaning  defined in
         Section 10.1.

                  1.1.18  "DOWN  PAYMENT"  shall  have the  meaning  defined  in
         Section 2.3.1.

                  1.1.19 "EBIT" shall mean the income of the Company  before any
         deductions for interest  expenses or taxes, but otherwise as determined
         in  accordance   with   generally   accepted   accounting   principles,
         consistently applied from period to period.

                  1.1.20  "EBIT  CALCULATION  PERIOD"  shall  have  the  meaning
         defined in Section 2.5.3.

                  1.1.21 "EARNOUT  CONSIDERATION" shall have the meaning defined
         in Section 2.5.

                  1.1.22  "EARNOUT  ORDER"  shall  have the  meaning  defined in
         Section 2.5.1.

                  1.1.23  "EARNOUT STOCK  CONSIDERATION"  shall have the meaning
         defined in Section 2.5.1.

                  1.1.24   "ESCROW AGENT" shall mean M. Neil Cummings, Esq.

                  1.1.25 "ESCROW  AGREEMENT"  shall have the meaning  defined in
         Section 2.3.

                  1.1.26 "ESCROW  CONSIDERATION"  shall have the meaning defined
         in Section 2.3.


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                  1.1.27  "ESCROW  ORDER"  shall  have the  meaning  defined  in
         Section 2.4.1.

                  1.1.28 "EXTRAORDINARY COSTS" shall have the meaning defined in
         Section 2.5.4.

                  1.1.29  "FORCE  MAJEURE"  with  respect  to any  party to this
         Agreement shall mean all prevention,  delays or stoppages when the same
         is caused by and due to Acts of God (e.g., fire, flood, earthquake) and
         extraordinary  acts of man  (e.g.,  war,  insurrection,  civil  unrest,
         strike) and/or other extraordinary,  causes not reasonably  foreseeable
         and beyond the  reasonable  control of the party  obligated to perform,
         except that Force  Majeure  shall only excuse the  performance  of such
         party  for the  period  of  time  equal  to the  duration  of any  such
         prevention,  delays and/or stoppages,  after which time the performance
         of all obligations under this Agreement shall no longer be excused. The
         inability  of Buyer  to  raise  or pay all or any part of the  Purchase
         Price due to a loan,  credit  application or asset sale being denied or
         refused  by a lender or  lenders,  or a buyer or  buyers,  shall not be
         considered Force Majeure.

                  1.1.30   "GOVERNMENTAL   AUTHORITY"  shall  mean  any  nation,
         territory or government, foreign or domestic, any state, local or other
         political  subdivision  thereof,  and  any  bureau,  tribunal,   board,
         commission,  department,  agency or other entity exercising  executive,
         legislative,   judicial,  regulatory  or  administrative  functions  of
         government, including, without limitation, all taxing authorities.

                  1.1.31  "INDEMNIFIED  PARTY" shall have the meaning defined in
         Section 8.3.

                  1.1.32  "INDEMNIFYING  PARTIES" shall have the meaning defined
         in Section 8.4.

                  1.1.33  "INDEMNITY  NOTICE" shall have the meaning  defined in
         Section 8.4.

                  1.1.34   "INTELLECTUAL   PROPERTY"  shall  mean  any  and  all
         proprietary technology, knowledge, formulas, specifications, processes,
         techniques,  technical data and other know-how, whether now existing or
         hereafter developed, including without limitation Patents and Marks, to
         which the  Company has any  rights.  Until such time as any  particular
         patent has issued in accordance with the terms of a patent application,
         the  term  "Intellectual  Property"  shall be  deemed  to  include  all
         inventions claimed in such patent  application.  The term "Intellectual
         Property"  shall also include all  proprietary  technology,  knowledge,
         formulas,  specifications,  processes,  techniques,  technical data and
         other know-how  included in any patent  application  but which have not
         been included within an allowed claim in any patent.

                  1.1.35 "INTERIM  FINANCIAL  STATEMENTS" shall have the meaning
         defined in Section 3.14.


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                  1.1.36   "LIEN"  shall  mean  any   interest,   consensual  or
         otherwise,  in property,  whether real,  personal or mixed  property or
         assets,  tangible or intangible,  securing an obligation  owed to, or a
         claim by a third  Person,  or  otherwise  evidencing  an  interest of a
         Person other than the owner of the  property,  whether such interest is
         based on common  law,  statute  or  contract,  and  including,  but not
         limited to, any security interest,  security title or lien arising from
         a mortgage, recordation of abstract of judgment, deed of trust, deed to
         secure debt, encumbrance,  restriction,  charge, covenant, restriction,
         claim,  exception,  encroachment,  easement,  right  of  way,  license,
         permit,  incorporeal  hereditament,  pledge,  conditional  sale, option
         trust  (constructive  or  otherwise)  or  trust  receipt  or  a  lease,
         consignment   or  bailment  for  security   purposes  and  other  title
         exceptions and encumbrances affecting the property.

                  1.1.37 "LOSSES" shall have the meaning defined in Section 8.1.

                  1.1.38 "MARKS" shall mean all trademarks, service marks, trade
         dress and trade names,  including all  registrations  and  applications
         with respect  thereto,  and all  copyright  registrations  owned by the
         Company or in which the Company has any rights or licenses.

                  1.1.39  "MATERIAL  ADVERSE CHANGE" means any material  adverse
         change in the business (as now conducted or as proposed to be conducted
         by the  Company at the date hereof and at the  Closing  Date),  assets,
         financial  condition,  liabilities,  operations  or  prospects  of  the
         Company.

                  1.1.40  "MATERIAL  ADVERSE EFFECT" means any material  adverse
         effect on the business (as now conducted or as proposed to be conducted
         by the  Company at the date hereof and at the  Closing  Date),  assets,
         financial  condition,  liabilities,  operations  or  prospects  of  the
         Company.

                  1.1.41  "ORGANIZATIONAL  DOCUMENTS" shall mean a corporation's
         Articles of  Incorporation,  Certificate of  Incorporation,  By-Laws or
         equivalent organizational documents.

                  1.1.42  "PATENTS"  shall mean shall mean the Company's  right,
         title  and  interest  in and  to all  unexpired  domestic  and  foreign
         patents, patent applications, similar grants and applications therefor,
         and    any    improvements,    continuations,    continuations-in-part,
         divisionals,  extensions,  reissues,  reexaminations  or  substitutions
         thereof, and any and all inventions embodied within the foregoing.

                  1.1.43  "PERSON" shall mean any individual or any corporate or
         other entity,  including without limitation  federal,  state, local and
         foreign governmental agencies and all subdivisions thereof.

                  1.1.44 "PLAN" shall have the meaning defined in Section 3.19.


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                  1.1.45  "PURCHASE  PRICE"  shall have the  meaning  defined in
         Section 2.2.

                  1.1.46 "PURCHASE/SALE" shall mean the purchase and sale of the
         Company Common Stock pursuant to this Agreement

                  1.1.47 "REQUISITE  REGULATORY APPROVAL" shall have the meaning
         defined in Section 6.1.2.

                  1.1.48  "RESOLUTION  NOTICE" shall have the meaning defined in
         Section 10.1.

                  1.1.49  "REVIEW  NOTICE"  shall  have the  meaning  defined in
         Section 10.1.

                  1.1.50 "SHAREHOLDER" shall mean Arthur G. Schreiber.

                  1.1.51  "SHAREHOLDER'S   ACCOUNTANT"  shall  mean  Castillo  &
         Ebenhoch.

                  1.1.52 "STOCK DEPOSIT DATE" shall have the meaning  defined in
         Section 2.5.1.

                  1.1.53 "SUBCHAPTER S TAX LIABILITY" shall mean the federal and
         state  income  Taxes  payable by the  Shareholder  with  respect to the
         taxable  income  realized  by the  Company  in 2003  and  2004  that is
         allocated  to the  Shareholder  pursuant to  Subchapter  S of the Code,
         calculated for the Shareholder  upon the assumption that such allocated
         taxable  income will be subject to income tax at the  highest  marginal
         rate under the Code or other applicable taxing statute.

                  1.1.54  "TAX"  means any  federal,  state,  local,  or foreign
         income,  gross  receipts,   license,   payroll,   employment,   excise,
         severance, stamp, occupation,  premium, windfall profits, environmental
         (including  taxes under Code ss. 59A),  customs duties,  capital stock,
         franchise,   profits,   withholding,   social  security  (or  similar),
         unemployment, disability, real property, personal property, sales, use,
         transfer,  registration,  value added,  alternative or add-on  minimum,
         estimated,  or other tax,  assessment  or levy of any kind  whatsoever,
         including any interest,  penalty, or addition thereto, whether disputed
         or not.

                  1.1.55 "TAX RETURN" means any federal, state, local or foreign
         return, declaration, report, claim for refund, or information return or
         statement  relating to Taxes,  including  any  schedule  or  attachment
         thereto, and including any amendment thereof.

                  1.1.56  "TRADE  SECRETS"  shall  mean  shall  mean any and all
         proprietary technology, knowledge, formulas, specifications, processes,
         techniques,  technical data and other know-how, whether now existing or
         hereafter  developed,  to which the Company has any rights.  Until such
         time as any particular  patent has issued in accordance  with the terms
         of a patent  application,  the term "Trade  Secrets" shall be deemed to
         include all  inventions  claimed in such patent  application.  The term
         "Trade  Secrets"  shall  also  include  all   proprietary   technology,


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         knowledge, formulas,  specifications,  processes, techniques, technical
         data and other know-how  included in any patent  application  but which
         have not been included within an allowed claim in any patent.

                  1.1.57  "UNAFFILIATED   ACCOUNTANT"  shall  have  the  meaning
         defined in Section 10.1.

         1.2 OTHER DEFINITIONAL MATTERS.  Other terms used herein are defined in
the preamble and elsewhere in this Agreement Terms defined in the singular shall
have a comparable meaning when used in the plural, and vice versa.

         1.3  DISCLOSURE  STANDARDS.  Immediately  prior  to the  execution  and
delivery of this Agreement,  the Shareholder has delivered to the Buyer, and the
Buyer has  delivered  to the  Shareholder,  a schedule  ("DISCLOSURE  SCHEDULE")
setting forth,  among other things,  on schedules  corresponding to the Sections
hereof,  items the  disclosure  of which is necessary or  appropriate  either in
response to an express disclosure requirement contained in a provision hereof or
as an exception to one or more of such party's  representations,  warranties  or
covenants  contained  in this  Agreement,  or that  are  necessary  to make  the
statements made in this Agreement and in the Disclosure  Schedule,  individually
and taken as a whole, not misleading.

                                   ARTICLE II

               PURCHASE/SALE AND TRANSFER OF COMPANY COMMON STOCK

         2.1  PURCHASE/SALE.  Subject  to  the  terms  and  conditions  of  this
Agreement,  the Buyer shall purchase and the  Shareholder  shall sell all of the
Company Common Stock at the Closing, effective as of the Closing Date.

         2.2 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE")
for all of the issued and outstanding  shares of the Company Common Stock is the
sum of the  Closing  Consideration  established  pursuant to Section 2.3 and the
Earnout  Consideration  established pursuant to Section 2.5; provided,  however,
that under no circumstances shall the aggregate Purchase Price to be paid by the
Buyer be in excess of $40,000,000.

         2.3 CLOSING CONSIDERATION. The portion of the Purchase Price payable in
cash at the Closing (the "CLOSING CONSIDERATION") will be an amount equal to (i)
$22,000,000  in  cash to the  Shareholder  at the  closing  (the  "CLOSING  CASH
CONSIDERATION"), and (ii) $3,000,000 in cash (the "ESCROW CONSIDERATION") to the
Escrow Agent, to be held in an escrow account (the "ESCROW ACCOUNT") pursuant to
the terms of an escrow agreement in substantially the form of Exhibit 2.3 hereto
(the  "ESCROW  AGREEMENT"),  a copy of which has been  executed  by the  parties
thereto simultaneously with the execution of this Agreement.

                  2.3.1  On  or  prior  to  the  date  hereof,   the  Buyer  has
         transferred  to the  Escrow  Agent  the  sum  of  $500,000  (the  "DOWN
         PAYMENT"), receipt of which the Shareholder hereby acknowledges,  to be
         held by the Escrow Agent in the Escrow Account pursuant to the terms of
         the Escrow Agreement.


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                  2.3.2  The  Closing  Cash  Consideration  shall be paid at the
         Closing by (i) release to the Shareholder of the Down Payment, and (ii)
         delivery  to the  Shareholder  by wire  transfer of funds to an account
         specified by the  Shareholder  pursuant to Section  7.2.1 hereof in the
         amount  of  $21,500,000,  or such  lesser  amount as shall be due after
         operation of the provisions of Section 7.1 hereof.

                  2.3.3 The Escrow Consideration shall be paid at the Closing by
         wire  transfer  of funds to an account  specified  by the Escrow  Agent
         pursuant to Section  7.2.2  hereof in the amount of  $3,000,000,  to be
         held in  escrow  in the  Escrow  Account  pursuant  to the terms of the
         Escrow Agreement.

         2.4    ESCROW CONSIDERATION. The Escrow Consideration shall be released
from the Escrow Account as follows:

                  2.4.1 Within 15 days after the receipt by the Company prior to
         December 31, 2005 and  delivery to the Escrow Agent of signed  purchase
         orders or contracts,  with estimated  gross profit  margins  relatively
         consistent  with  historical  levels,  from specific  programs that are
         identified  in  writing  by  the  Buyer  and  the  Shareholder,  in the
         cumulative amount of not less than $2,000,000 (an "ESCROW ORDER"),  the
         amount of  $3,000,000  will be  released  to the  Shareholder  from the
         Escrow Account.  Any dispute with respect to this  subsection  shall be
         resolved in the manner specified in Section 10.1.

                  2.4.2 Any money  remaining in the Escrow Account on January 1,
         2006 shall be returned to the Buyer as soon as  practicable  after such
         date.

         2.5      EARNOUT  CONSIDERATION.  The  portion  of  the Purchase  Price
payable on the basis of the operations of the Company following the Closing (the
"EARNOUT CONSIDERATION") will equal the following:

                  2.5.1 If at any time prior to  December  31,  2005 the Company
         receives signed  purchase orders or contracts,  which shall be promptly
         delivered to the Escrow  Agent,  with  estimated  gross profit  margins
         relatively  consistent with historical levels, in the cumulative amount
         of at least $15,000,000,  from specific programs that are identified in
         writing by the Buyer and the Shareholder (an "EARNOUT ORDER"), then the
         Buyer  shall pay or shall  cause the  Company to pay and deliver to the
         Shareholder  cash or, at Buyer's  option,  an amount in Arotech  Common
         Stock  having  a  value  equal  to  $15,000,000   (the  "EARNOUT  STOCK
         CONSIDERATION"),  with such  payment  and  delivery  to be made 15 days
         after receipt of such a signed purchase order or contract,  (the "STOCK
         DEPOSIT  DATE").  The  number of shares of Arotech  Common  Stock to be
         delivered to the Shareholder shall be determined based upon the average
         of the last  sale  price  during  the  five  trading  days  immediately
         preceding  the date of the Earnout  Order.  The Buyer shall then have a
         period  of up to 60 days  after  the  Stock  Deposit  Date in  which to
         register  and sell  the  Earnout  Stock  Consideration,  such  that the
         Shareholder  receives  $15,000,000 in net cash proceeds pursuant to the
         procedures  established in Section 2.5.2 below. Any questions regarding


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         the computation of the Earnout Stock Consideration shall be resolved in
         the manner  specified in Section 10.1. The Buyer,  Shareholder  and the
         Company shall use their commercially  reasonable best efforts to obtain
         such signed  purchase  orders or  contracts  for the  Earnout  Order by
         December 31, 2005.  However,  the Shareholder shall receive the Earnout
         Stock   Consideration  if  the  Earnout  Order  is  a  linked  contract
         consisting of a prototype  order obtained by December 31, 2005 followed
         by a production  order,  the latter of which must be signed by June 30,
         2006.

                  2.5.2 In connection with the Earnout Stock Consideration,  the
         Buyer will  implement as rapidly as possible  the sale,  in one or more
         transactions,  of  that  number  of the  shares  of the  Earnout  Stock
         Consideration  as will be  required  to  generate  net  proceeds to the
         Shareholder  (after all  transactional  expenses) of  $15,000,000  and,
         within three (3) business  days  following  each such sale, to disburse
         such net proceeds to the  Shareholder by wire transfer to an account or
         accounts designated by the Shareholder. Unless at the written directive
         of  the   Shareholder,   no  sales  of  shares  of  the  Earnout  Stock
         Consideration will be completed at a price that is less than 80% of the
         price per share that was the  valuation  basis for the  issuance of the
         Earnout Stock  Consideration.  All cumulative net proceeds in excess of
         $15,000,000  shall  be  delivered  to the  Buyer.  If any  such  excess
         cumulative  net proceeds are not delivered to the Buyer,  the Buyer may
         deduct an amount equal to such excess  cumulative net proceeds from any
         Earnout  Consideration  to be paid.  If as of the  sixtieth  (60th) day
         following the Stock Deposit Date,  the cumulative net proceeds from the
         sale of the Earnout Stock Consideration  distributed to the Shareholder
         equals  less than  $15,000,000,  then the  Shareholder  shall  have the
         right, as of or at any time after such sixtieth (60th) day, exercisable
         by written notice delivered to the Buyer, to require that the Buyer pay
         to the Shareholder in cash any remaining sums due in order to cause the
         amount of Earnout Stock Consideration paid to be equal to $15,000,000.

                  2.5.3 The Buyer  shall pay to the  Shareholder  as the Earnout
         Consideration  for  operations  of the  Company an  additional  amount,
         one-half  in cash and  one-half  in  registered  stock  (valued  at the
         average  of the last  sale  price of the  Buyer's  common  stock on the
         Nasdaq  National  Market  during  the  five  trading  days  immediately
         preceding the payment  date) equal to the amount,  if any, by which (i)
         3.0 times the amount by which EBIT  realized  by the  Company  from all
         operations  (not  including  any EBIT  realized by the  Company  from a
         Navair CH-46 order (under  contract  dated  6/10/04),  an Escrow Order,
         and/or an Earnout  Order which have become part of the Purchase  Price)
         during  the  eighteen  months  ending  December  31,  2005  (the  "EBIT
         CALCULATION PERIOD") exceeds (ii) $9,000,000;  provided,  however, that
         under no  circumstances  shall  the  amount  of  Earnout  Consideration
         payable by the Buyer  pursuant to this  subsection  exceed  $7,000,000.
         However,  if the Shareholder does not receive any Escrow  Consideration
         and/or Earnout Stock Consideration, then the EBIT contribution from the
         respective  contracts  that could have  resulted in such  Consideration
         shall be included in the EBIT Calculation Period. For such purposes the
         EBIT  realized by the Company for the EBIT  Calculation  Period will be


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         determined  in  accordance  with  U.S.  generally  accepted  accounting
         principles  consistently  applied from period to period, but subject to
         the  limitation  on  Extraordinary  Costs of the Company as provided in
         Section 2.5.4.  The Buyer will cause the Buyer  Accountants,  not later
         than March 31, 2006, to prepare and deliver to the  Shareholder and the
         Buyer  an  audited  financial  statement  of the  Company  for the EBIT
         Calculation Period, together with a computation prepared by the Buyer's
         Accountants of the Company's EBIT for the EBIT Calculation Period based
         upon the  information  contained in that  financial  statement  and the
         Earnout  Consideration payable to the Shareholder based upon that EBIT.
         Not later than April 30, 2006, the Buyer shall pay to the  Shareholder,
         by  wire  transfer  of  funds,  the  amount  specified  by the  Buyer's
         Accountants as the Earnout Consideration.  Any questions regarding that
         computation  of the  Earnout  Consideration  shall be  resolved  in the
         manner specified in Section 10.1.

                  2.5.4 During the EBIT Calculation Period, the Buyer will cause
         the  operation  of  the  Company's   business  to  be  conducted  in  a
         commercially  reasonable  manner  consistent with past practices and in
         the ordinary course.  In computing the EBIT for purposes of the Earnout
         Consideration,  expenses  outside  the  ordinary  course  that  are not
         consistent  with past  practices  ("EXTRAORDINARY  COSTS") shall not be
         deducted from EBIT,  it being agreed that all costs in connection  with
         the addition of a marketing  manager,  an operations  manager,  and the
         leasing  of  additional  space  shall not be  considered  Extraordinary
         Costs.

                  2.5.5  If the  EBIT  for  the  EBIT  Calculation  Period  (not
         including EBIT realized by the Company from a Navair CH-46 order (under
         contract  dated  6/10/04),  an Escrow Order,  and/or an Earnout  Order)
         equals or exceeds $9.0  million,  and EBIT for the twelve  months ended
         June 30, 2004 (not  including  any EBIT  realized by the Company from a
         Navair CH-46 order (under  contract  dated  6/10/04),  an Escrow Order,
         and/or an Earnout  Order)  equals or exceeds $6.0  million,  then Buyer
         shall pay Shareholder by wire transfer of funds, by no later than April
         30, 2006,  the amount of such EBIT for the twelve months ended June 30,
         2004 that is in excess of $6.0  million.  However,  if the  Shareholder
         does  not  receive  any  Escrow   Consideration  and/or  Earnout  Stock
         Consideration, then the EBIT contribution from the respective contracts
         that could have resulted in such Consideration shall be included in the
         EBIT Calculation Period.

                  2.5.6 In the event that prior to December  31,  2005,  (i) the
         Buyer shall sell the Company or its  business,  or (ii) the Buyer shall
         sell fifty and one tenth  percent  (50.1%)  of the Common  Stock of the
         Buyer,  or (iii) the Buyer shall sell or cede  majority  control of the
         Board of Directors  of the Buyer,  the amount of the Escrow and Earnout
         Consideration  shall be a lump-sum payment of $7,000,000,  irrespective
         of the C-17 contract status or the level of EBIT achieved, and shall be
         paid within 10 days of such  event.  The Escrow  Consideration  and the
         Earnout  Consideration  associated  with  the  Earnout  Order  shall be
         obligations of the Company to be assumed by any purchaser of the assets
         or stock of the  Company,  and shall remain in full force and effect as


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<PAGE>

         obligations of the Company. However, such payments cannot result in the
         Purchase Price exceeding $40,000,000.

         2.6 TRANSFER OF SHARES. At the Closing,  the Shareholder shall transfer
all of the shares of Company Common Stock registered in the  Shareholder's  name
or otherwise beneficially owned by the Shareholder to the Buyer by endorsing (by
means of an undated stock power  executed in blank) and  delivering to the Buyer
the original  Stock  Certificate(s)  representing  such shares of Company Common
Stock.

                                   ARTICLE III

                REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER

         The Shareholder hereby represents and warrants to the Buyer that:

         3.1 ORGANIZATION.  The Company is a corporation duly organized, validly
existing and in good standing  under the laws of the State of California and has
all requisite corporate power and authority to own and lease its properties,  to
carry on its business as presently conducted and as proposed to be conducted and
to carry out the transactions  contemplated  hereby.  The Company is not, by the
manner  in which it  conducts  its  business  or owns or  leases  its  property,
required to be  qualified as a foreign  corporation  to do business in any other
jurisdictions.  The  Disclosure  Schedules  contain true,  complete and accurate
copies of the Organizational Documents of the Company.

         3.2  ORGANIZATIONAL  DOCUMENTS;  CORPORATE  RECORDS.  The  Company  has
heretofore  made  available  to the Buyer a  complete  and  correct  copy of its
Organizational Documents, each as amended to date. Such Organizational Documents
are in full force and effect.  The Company is not in violation of any  provision
of its  Organizational  Documents.  The minute books of the Company,  which have
heretofore  been made available in their  entirety to the Buyer,  contain in all
material  respects  true and correct  records of all  meetings  held or true and
complete  records of all other  corporate  actions  taken at any time by written
consent  or  otherwise  by its  shareholders  or  Board of  Directors  or by any
committee of the Board of Directors.

         3.3      CAPITALIZATION.

                  3.3.1 The authorized  capital stock of the Company consists of
         seventy-five  thousand  (75,000) shares of the Company Common Stock. As
         of the date  hereof and as of the  Closing  Date and the  Closing,  one
         hundred  thirteen  (113) shares of the Company  Common Stock are issued
         and  outstanding,  all of which are duly  authorized,  validly  issued,
         fully  paid,  nonassessable  and  free of  preemptive  rights,  with no
         personal liability attaching to the ownership thereof.

                  3.3.2 Except as set forth in Schedule 3.3.2,  (i) there are no
         outstanding  subscriptions,  options,  warrants,  calls,  preemptive or
         other rights, agreements,  arrangements or commitments of any character
         relating  to the issued or  unissued  capital  stock of the  Company or
         obligating the Company to issue or sell any shares of capital stock of,
         or other  equity  interests  in,  the  Company  and (ii)  there  are no
         outstanding  contractual  obligations  of the  Company  to  repurchase,
         redeem or  otherwise  acquire any shares of capital  stock of, or other


                                      -10-
<PAGE>

         equity  interests  in, the Company or to provide  funds to, or make any
         investment (in the form of a loan,  capital  contribution or otherwise)
         in, any other entity.

         3.4  OWNERSHIP OF COMPANY  COMMON  STOCK.  All of the shares of Company
Common  Stock are held of record and  beneficially  by the  Shareholder,  in the
amount set forth opposite the  Shareholder's  name on the signature page hereof,
free and clear of all Liens of any  nature  whatsoever,  and no other  shares of
Company  Common  Stock are  issued or  outstanding.  All of the shares of Common
Stock are duly  authorized,  validly  issued in compliance  with all  applicable
laws,  and are fully paid and  nonassessable  and free of  preemptive or similar
rights created by statute,  the Organizational  Documents of the Company, or any
other agreement to which the Company is a party or by which it is bound.

         3.5      AUTHORITY.
                  ---------
                  3.5.1 The Shareholder has the requisite legal capacity,  power
         and authority to enter into and to perform his  obligations  under this
         Agreement  and this  Agreement  has been duly and validly  executed and
         delivered  by the  Shareholder  and  constitutes  the valid and binding
         obligation of the Shareholder,  enforceable  against the Shareholder in
         accordance with its terms, except as such enforceability may be limited
         by bankruptcy, insolvency, reorganization, moratorium and other similar
         laws of  general  applicability  relating  to or  affecting  creditors'
         rights  generally  and by the  application  of  general  principles  of
         equity.

                  3.5.2 The Company has full  corporate  power and authority (i)
         to execute and deliver this Agreement;  (ii) to perform its obligations
         under  this  Agreement  and  (iii)  to  consummate   the   transactions
         contemplated  by this  Agreement.  The  execution  and delivery of this
         Agreement and the consummation of the transactions  contemplated hereby
         have been duly and  validly  approved  by the  Board of  Directors  and
         shareholders of the Company and no other corporate or other proceedings
         on the part of the Company are  necessary to approve this  Agreement or
         to consummate the transactions  contemplated hereby. This Agreement has
         been  duly and  validly  executed  and  delivered  by the  Company  and
         constitutes valid and binding  obligations of the Company,  enforceable
         against  the  Company  in  accordance  with its  terms,  except as such
         enforceability    may   be   limited   by    bankruptcy,    insolvency,
         reorganization,   moratorium   and  other   similar   laws  of  general
         applicability  relating to or affecting creditors' rights generally and
         by the application of general principles of equity.

         3.6      NO CONFLICT.

                  3.6.1  Except  as  provided  in  Schedule  3.6,   neither  the
         execution,  delivery and  performance of this Agreement by the Company,
         nor the  consummation by the Company of the  transactions  contemplated
         hereby or thereby,  nor compliance by the Company with any of the terms
         or provisions  hereof or thereof,  will (i) conflict  with,  violate or
         result in a breach of any provision of the Organizational  Documents of
         the Company,  (ii) conflict with,  violate or result in a breach of any


                                      -11-
<PAGE>

         statute,  code,  ordinance,  rule,  regulation,  order, writ, judgment,
         injunction  or  decree  applicable  to the  Company,  or by  which  any
         property  or  asset of the  Company  is  bound  or  affected,  or (iii)
         conflict  with,  violate or result in a breach of any  provisions of or
         the loss of any  benefit  under,  constitute  a  default  (or an event,
         which,  with  notice  or lapse of time,  or both,  would  constitute  a
         default) under, or, except as set forth in Schedule 3.6, give to others
         any right of termination,  amendment,  acceleration or cancellation of,
         or result in the creation of a lien, pledge, security interest,  charge
         or other  encumbrance on any property or asset of the Company  pursuant
         to any of the  terms,  conditions  or  provisions  of any  note,  bond,
         mortgage,   indenture,  deed  of  trust,  contract,  agreement,  lease,
         license,  permit,  franchise or other instrument or obligation to which
         the Company is a party, or by which the Company is bound or affected.

                  3.6.2  Except  as  provided  in  Schedule  3.6,   neither  the
         execution,   delivery  nor   performance   of  this  Agreement  by  the
         Shareholder  nor  the  consummation  of the  transactions  contemplated
         hereby,  nor  compliance by the  Shareholder  with any of the terms and
         conditions  hereof,  will (i) conflict  with,  violate or result in the
         breach  of  any  provision  of  any  statute,  code,  ordinance,  rule,
         regulation,  order, writ, judgment,  injunction or decree applicable to
         the Company or to the  Shareholder or by which the Company Common Stock
         held by the  Shareholder  is bound or affected or (ii)  conflict  with,
         violate or result in the breach of any  provision of or any loss of any
         benefit under, constitute a default (or an event, which, with notice of
         lapse of time or both,  will  constitute a default)  under or result in
         the creation of a Lien, pledge, security interest,  charge or any other
         encumbrance  on any  Company  Common  Stock  owned by the  Shareholder,
         pursuant to any of the terms,  conditions  or  provisions  of any note,
         bond, mortgage,  indenture, deed of trust, contract,  agreement, lease,
         license,  permit,  franchise or other instrument or other obligation to
         which the Shareholder is party.

                  3.6.3  Except  as  provided  in  Schedule  3.6,   neither  the
         execution, delivery and performance of this Agreement by the Company or
         the Shareholder, nor the consummation by the Company or the Shareholder
         of the transactions  contemplated hereby, nor compliance by the Company
         or the  Shareholder  with any of the  terms  or  provisions  hereof  or
         thereof,  will result the  cancellation  or termination of, or give any
         party the right to cancel,  modify or amend: (i) any security clearance
         held by the Company, the Shareholder or any employee of the Company and
         used or useful in  connection  with its business or (ii) any  agreement
         for  the  sale  of  materials,   products,   services  or  supplies  or
         qualification  authorizing or permitting the Company to sell materials,
         products, services or supplies or qualification to any person.

         3.7 CONSENTS  AND  APPROVALS.  Except as provided in Schedule  3.7, the
execution,  delivery  and  performance  of this  Agreement by the Company or the
Shareholder does not require any consent, approval,  authorization or permit of,
or filing with or notification to, any Governmental  Authority or with any third
party.  Neither the Company nor the  Shareholder  is aware of any reason why the
approvals, consents and waivers referred to herein should not be obtained.


                                      -12-
<PAGE>

         3.8 ABSENCE OF CERTAIN PAYMENTS. Neither the Company, nor any director,
officer,  agent,  employee or other person acting on behalf of the Company,  has
used any funds of the Company for unlawful contributions,  gifts,  entertainment
or other unlawful expenses relating to political activity, or made any direct or
indirect unlawful  payments to government  officials or employees from corporate
funds,  or  established  or  maintained  any unlawful or  unrecorded  funds,  or
violated any  provisions  of the Foreign  Corrupt  Practices  Act of 1977 or any
rules or regulations promulgated thereunder.

         3.9  COMPLIANCE.  The Company has secured and  maintained  all material
licenses,  franchises,  permits or authorizations  for the lawful conduct of its
business.  The Company has in all material  respects complied with and is not in
material conflict with, or in default or material violation of, (i) any statute,
code, ordinance,  law, rule,  regulation,  order, writ, judgment,  injunction or
decree,  published  policies  and  guidelines  of  any  Governmental  Authority,
applicable  to the  Company or by which any  property or asset of the Company is
bound or affected or (ii) any note, bond,  mortgage,  indenture,  deed of trust,
contract,  agreement,  lease, license,  permit, franchise or other instrument or
obligation  to which  the  Company  is a party or by which  the  Company  or any
property or asset of the Company is bound or affected.

         3.10     TAXES AND TAX MATTERS.

                  3.10.1 The Company has filed all Tax Returns  that it has been
         required  to file  since  January 1, 1999.  All such Tax  Returns  were
         correct and complete in all  respects.  All such Tax Returns were filed
         on the  basis  that  the  Company  was an  electing  corporation  under
         Subchapter S of the Code. All Taxes owed by the Company with respect to
         its income  (whether  or not shown on any Tax  Return)  have been paid.
         Except for taxes  payable  with respect to the  Company's  operation in
         2004  that  are  not  yet  due  and  payable,  all  Taxes  owed  by the
         Shareholder  with respect to the income of the Company  (whether or not
         shown on any Tax Return) have been paid.  The Company is not  currently
         the  beneficiary  of any extension of time within which to file any Tax
         Return.  The  Company  is not  required  to  file  Tax  Returns  in any
         jurisdiction where the Company does not file Tax Returns.  There are no
         Liens on any of the assets of the Company that arose in connection with
         any failure (or alleged failure) to pay any Tax.

                  3.10.2 The Company has withheld and paid all Taxes required to
         be withheld or paid by the Company in  connection  with amounts paid or
         owing to any employee, independent contractor,  creditor,  shareholder,
         or other third party.

                  3.10.3  There  is no  dispute  or  claim  concerning  any  Tax
         Liability of the Company  either (i) claimed or raised by any authority
         in writing or (ii) as to which any of the Company and the directors and
         officers (and employees responsible for Tax matters) of the Company has
         knowledge based upon personal contact with any agent of such authority.
         The Company has delivered to the Buyer  correct and complete  copies of
         all federal  income Tax Returns  filed by the Company  since January 1,
         1999, none of which have been the subject of any  examination  reports,
         or statements of deficiencies.


                                      -13-
<PAGE>

                  3.10.4 The Company  has not waived any statute of  limitations
         in respect of Taxes or agreed to any  extension of time with respect to
         a Tax assessment or deficiency.

                  3.10.5  The  Company  elected  as of 1972 to report  its taxes
         under  Subchapter S of the Code and such election  remains in effect as
         of the date of this agreement.

         3.11 ASSETS.  The Company has good and  marketable  title to all of the
assets it  purports  to own,  and owns all of such  assets free and clear of any
Liens,  other  than  (i)  statutory  liens  securing  current  taxes  and  other
obligations that are not yet delinquent,  (ii) minor  imperfections of title and
encumbrances  that do not materially  detract from or interfere with the present
use or value of such  properties and (iii) liens disclosed in Schedule 3.11. The
assets that the Company owns are all of the assets  necessary  for the continued
conduct of the Company's  business in the manner in which it has heretofore been
conducted.  The Company  does not have any leased  property  (real or  personal)
except as disclosed in Schedule 3.11.

         3.12 CONDITION OF ASSETS.  All of the assets of the Company,  including
any assets held under  leases or  licenses,  will be in the same  condition  and
repair as of the date of this Agreement, ordinary wear and tear excepted.

         3.13  EQUITY  INVESTMENTS.  Except as set forth in Schedule  3.13,  the
Company does not currently own any capital stock or other proprietary  interest,
directly or indirectly,  in any corporation,  association,  trust,  partnership,
joint venture or other entity.

         3.14 FINANCIAL STATEMENTS. The balance sheets and related statements of
operations  and cash flows of the Company (the "COMPANY  FINANCIAL  STATEMENTS")
prepared  by the  Shareholder's  Accountant  as of and  for  the  periods  ended
December  31,  2003 and 2002,  and the  internally  prepared  balance  sheet and
related  statement of  operations  of the Company as of and for the period ended
March 31,  2004 (the  "INTERIM  FINANCIAL  STATEMENTS"),  that are  included  as
Exhibit 3.14 fairly present in all material  respects the financial  position of
the Company as at such dates and the results of its  operations  for the periods
then  ended,  subject  to,  in the  case of the  Interim  Financial  Statements,
adjustments  required in the normal  course for the three months ended March 31,
2004.  Since the date of the  Interim  Financial  Statements,  there has been no
Material  Adverse  Change.  To the knowledge of the  Shareholder  based upon his
general  familiarity  with the financial  condition and results of operations of
the  Company  and upon his review of the  preliminary  drafts of the  internally
prepared balance sheet and related  statement of operations of the Company as of
and for the  nine-month  period ended March 31, 2004,  the  unaudited  financial
statements of the Company for that nine-month period,  consistently applied from
period to period, will reflect EBIT of not less than $4,500,000 and net worth as
of March 31, 2004 of not less than $6,000,000, except that it is understood that
the net worth as reflected in the financial  statements  shall be reduced by (a)
approximately  $1.3 million for  valuation  of molds,  and (b) sums paid between
January 1, 2004 and March 31, 2004 in respect of the Shareholder's  Subchapter S
Tax Liabilities.  Since March 31, 2004, the Company has made no distributions to
the Shareholder, except for taxes.


                                      -14-
<PAGE>

         3.15  ABSENCE OF  UNDISCLOSED  LIABILITIES.  Except as set forth in the
Company  Financial  Statements,  the  Company has no  liabilities  of any nature
(matured  or  unmatured,  accrued,  fixed  or  contingent,   including,  without
limitation,  any  liabilities  for unpaid taxes),  except as have accrued in the
ordinary course of business from the date of the Interim Financial Statements to
the date of this Agreement and to the Closing Date.

         3.16  ABSENCE  OF  CERTAIN  CHANGES  OR  EVENTS.  Since the date of the
Interim Financial Statements,  except as set forth in Schedule 3.16, the Company
has conducted its business only in the ordinary course and in manners consistent
with past  practice  and there has not been (i)  either  individually  or in the
aggregate,  any change or effect that is or would be  materially  adverse to the
business, assets,  liabilities,  financial condition or results of operations of
the Company,  (ii) any material damage,  destruction or loss with respect to any
property  or asset of the  Company,  (iii)  any  change  by the  Company  in its
accounting  methods,  principles  or practices,  other than changes  required by
applicable law or GAAP or regulatory accounting as concurred in by the Company's
independent  accountants,  (iv) any entry by the  Company  into any  contract or
commitment of more than $25,000, (v) any material liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise and whether due or to
become  due),  including  without  limiting  the  generality  of the  foregoing,
liabilities as guarantor  under any guarantees or liabilities  for taxes,  other
than in the ordinary course of business consistent with past practice,  (vi) any
mortgage,  pledge, lien or lease of any assets,  tangible or intangible,  of the
Company  with a  value  in  excess  of  $25,000  in  the  aggregate,  (vii)  any
acquisition or disposition of any assets or properties  having a value in excess
of $25,000,  or any contract for any such  acquisition  or  disposition  entered
into, or (viii) any lease of real or personal  property entered into, other than
in the ordinary course of business consistent with past practice.

         3.17 NO BONUSES OR OTHER  PAYMENTS TO EMPLOYEES,  DIRECTORS,  OFFICERS.
Since  December  31, 2003,  except in the ordinary  course of business or as set
forth in Schedule  3.17, the Company has not (i) paid or agreed to pay any bonus
or any other increase in the  compensation  payable or to become payable or (ii)
granted or agreed to grant any bonus,  severance or termination  pay, or entered
into any contract or  arrangement  to grant any bonus,  severance or termination
pay, to any director, officer or employee of the Company. Except as set forth in
Schedule 3.17, the Company has made no severance or similar commitment to any of
its employees.  Without limiting the generality of the preceding sentences,  the
Company has not paid or agreed to pay any  payments  that would  result,  either
individually or in aggregate,  in the payment of an "excess  parachute  payment"
within  the  meaning of Section  208G of the Code or that would  result,  either
individually  or in the  aggregate,  in  payments  that  would be  nondeductible
pursuant to Section 162(m) of the Code.

         3.18 ABSENCE OF LITIGATION.  Neither the Company nor the Shareholder is
a party to any, nor are there any pending, or to the knowledge of the Company or
the Shareholder,  threatened  legal,  administrative,  arbitral or other claims,
actions,  proceedings  or  investigations  of any material  nature,  against the
Company  or any  property  or  asset of the  Company,  before  any  Governmental
Authority  and no facts  or  circumstances  have  come to the  Company's  or the
Shareholder's  attention  which have caused it to believe that a material claim,
action,  proceeding  or  investigation  against or affecting  the Company  could
reasonably be expected to occur.  Neither the Company, nor any property or asset
of the Company,  is subject to any order, writ,  judgment,  injunction,  decree,


                                      -15-
<PAGE>

determination  or award which  restricts its ability to conduct  business in any
area in which it presently does business or has or could  reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.

         3.19  EMPLOYEE  BENEFITS.  Attached  as Exhibit  3.19 is the  Company's
"Employee Manual" detailing the employee benefits established by the Company for
its  employees.  Except as set forth in  Schedule  3.19,  the  Company  does not
currently   maintain  any  pension,   profit   sharing,   retirement,   deferred
compensation, welfare, insurance, disability, bonus, vacation pay, severance pay
or other similar plans, programs or agreements, or any personnel policy, whether
reduced to writing or not,  relating to any persons  employed by the Company (as
defined for purposes of Section  414(b),  (c) and (m) of the Code, a "PLAN") and
has no  liability  under  ERISA or any other law or  regulation  relating to any
Plans. The Company has never been obligated to contribute to any "multi-employer
plan," as defined in Section 3(37) of ERISA.

         3.20 WORK STOPPAGES.  No work stoppage involving the Company is pending
or, to the knowledge of the Company, threatened. The Company is not involved in,
or, to the  knowledge  of the  Company,  threatened  with or  affected  by,  any
dispute, arbitration,  lawsuit or administrative proceeding relating to labor or
employment  matters  which might  reasonably  be expected  to  interfere  in any
material  respect with the  respective  business  activities of the Company.  No
employees  of the  Company  are  represented  by any labor  union,  and,  to the
knowledge of the Company,  no labor union is attempting to organize employees of
the Company.

         3.21     INTELLECTUAL PROPERTY RIGHTS.

                  3.21.1 The Marks that are listed in Schedule 3.21 are the only
         trademarks, service marks, trade names, trade dress and copyrights used
         or proposed to be used by the Company in its business. To the Company's
         knowledge,  the Company is the sole and exclusive  owner of such Marks,
         free and clear of all Liens and the use by the Buyer of such Marks will
         not infringe upon any trademark,  service mark, trade name, trade dress
         or copyright belonging to any other Person.

                  3.21.2 The Patents  that are listed in  Schedule  3.21 are the
         only  patents and patents  applications  used or proposed to be used by
         the Company in its business. To the Company's knowledge, the Company is
         the sole and exclusive  owner of such Patents and patent  applications,
         free and clear of all  Liens  and the use by the Buyer of such  Patents
         will not infringe  upon any patent or patent  application  belonging to
         any other Person.

                  3.21.3  The  Company  has  not   misappropriated  any  of  the
         Intellectual  Property  from any third Person and the Company has taken
         all reasonable  security  measures to protect and maintain the secrecy,
         confidentiality  and value of any  Intellectual  Property  owned by the
         Company and used in its business.

                  3.21.4 No other Person has any right, title or interest in any
         Patent, Trade Secret or Mark, which has arisen out of the activities by
         the Company or on behalf of the Company by any of its current or former
         officers, directors, employees,  consultants or agents or any holder of
         securities of the Company.


                                      -16-
<PAGE>

         3.22 PROPRIETARY  INFORMATION OF THIRD PARTIES. To the knowledge of the
Company,  no third party has claimed that the Company or any person  employed by
or otherwise providing services to the Company has (i) violated any of the terms
or  conditions  of his or her  employment,  non-competition,  non-disclosure  or
inventions agreement with such third party, (ii) disclosed or utilized any trade
secret of such third party or (iii)  interfered in the  employment  relationship
between such third party and any of its present or former employees.

         3.23 ENVIRONMENTAL LIABILITY. Except as disclosed in Schedule 3.23, the
Company is in full  compliance with all  Environmental  Laws (as defined below).
There is no  litigation  or other  proceeding  seeking to impose,  or that could
reasonably  result in the  imposition  on the Company of any  liability  arising
under  any of the  Environmental  Laws,  pending  or,  to the  knowledge  of the
Company, threatened or unasserted but considered probable of assertion and which
if  asserted  would have at least a  reasonable  probability  of an  unfavorable
outcome  against the  Company;  the Company  does not have any  knowledge of any
reason for any such potential  litigation  that would impose any such liability;
and the Company is not subject to any agreement,  order,  judgment,  decree,  or
memorandum  by or with any  Governmental  Authority or third party  imposing any
such  liability.  For the purposes of this  Agreement,  the term  "Environmental
Laws" shall mean any  Federal,  state or local law or  ordinance  or  regulation
pertaining  to the  protection  of human health or the  environment,  including,
without limitation, the Comprehensive Environmental Response,  Compensation, and
Liability  Act, 42 U.S.C.  Sections  9601, et seq.,  the Emergency  Planning and
Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq.

         3.24 COMPETING INTERESTS. Except as set forth in Schedule 3.24, neither
the Company, nor any director or officer of the Company, or any immediate family
member of any of the foregoing (i) owns, directly or indirectly,  an interest in
any entity  that is a  competitor,  customer  or supplier of the Company or that
otherwise has material business dealings with the Company or (ii) is a party to,
or otherwise has any direct or indirect  interest  opposed to the Company under,
any agreement or other  business  relationship  or  arrangement  material to the
Company,  provided  that the  foregoing  will not  apply  to any  investment  in
publicly  traded  securities  constituting  less than Three  Percent (3%) of the
outstanding securities in such class

         3.25 NO GOVERNMENTAL CONSENT OR APPROVAL REQUIRED.  Except as set forth
in  Schedule  3.7,  no  authorization,  consent,  approval  or other  order  of,
declaration to, or filing with, any  Governmental  Authority or body is required
for or in  connection  with  the  valid  and  lawful  authorization,  execution,
delivery and performance by the Company of this Agreement.

         3.26     INVESTMENT  BANKER.   Except for  Oppenheimer & Co.,  Inc., no
broker,  finder or investment banker, is entitled to any brokerage,  finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.

         3.27 COMPETING INTERESTS. Neither the Shareholder, nor or any immediate
family  member of any of the  foregoing  (i) owns,  directly or  indirectly,  an
interest in any entity that is a competitor, customer or supplier of the Company
or that otherwise has material  business  dealings with the Company or (ii) is a
party to, or  otherwise  has any  direct or  indirect  interest  opposed  to the


                                      -17-
<PAGE>

Company  under,  any agreement or other  business  relationship  or  arrangement
material  to the  Company,  provided  that the  foregoing  will not apply to any
investment in publicly traded  securities  constituting  less than three percent
(3%) of the outstanding securities in such class.

         3.28 DISCLOSURE.  No  representation  or warranty of the Company or the
Shareholder  contained  in this  Agreement,  and no  statement  contained in any
Schedule,  certificate, list or other writing furnished to the Buyer pursuant to
the  provisions  hereof,  contains  or will  contain any untrue  statement  of a
material fact or omits or will omit to state a material fact  necessary in order
to make the statements herein or therein, in light of the circumstances in which
they are made, not  misleading.  No  information  believed by the Company or the
Shareholder to be material to the  Purchase/Sale  and which is necessary to make
the  representations  and warranties  herein  contained,  taken as a whole,  not
misleading,  to the  knowledge  of the  Company  or the  Shareholder,  has  been
withheld from, or has not been delivered in writing to, the Buyer.

                                   ARTICLE IV

                     REPRESENTATIONS AND WARRANTIES OF BUYER

         The Buyer  represents  and warrants to the Company and the  Shareholder
that, except as set forth in the  appropriately  numbered  Disclosure  Schedules
delivered by the Buyer to the Company and the Shareholder:

         4.1  ORGANIZATION.  The Buyer is a corporation duly organized,  validly
existing  and in good  standing  under the laws of the State of Delaware and has
all requisite corporate power and authority to own and lease its properties,  to
carry on its business as presently conducted and as proposed to be conducted and
to carry out the transactions contemplated hereby.

         4.2 AUTHORITY.  The Buyer has full corporate power and authority (i) to
execute and deliver all documents to be executed by the Buyer in connection with
or  pursuant  to this  Agreement;  (ii) to perform  its  obligations  under this
Agreement  and  (iii)  to  consummate  the  transactions  contemplated  by  this
Agreement.  The execution and delivery of this Agreement and the consummation of
the transactions  contemplated hereby have been duly and validly approved by the
Board of Directors of the Buyer and no other  corporate  proceedings on the part
of the Buyer are  necessary  to approve  this  Agreement  or to  consummate  the
transactions  contemplated  hereby.  This  Agreement  has been duly and  validly
executed and delivered by the Buyer and constitute valid and binding obligations
of the Buyer,  enforceable against the Buyer in accordance with their respective
terms, except as such  enforceability may be limited by bankruptcy,  insolvency,
reorganization,  moratorium  and other  similar  laws of  general  applicability
relating to or affecting  creditors'  rights generally and by the application of
general principles of equity.

         4.3 NO CONFLICT.  Neither the  execution,  delivery and  performance of
this  Agreement  by  the  Buyer,  nor  the  consummation  by  the  Buyer  of the
transactions  contemplated  hereby,  nor compliance by the Buyer with any of the
terms or  provisions  hereof,  will (i)  conflict  with,  violate or result in a
breach of any  provision  of the  Organizational  Documents  of the Buyer,  (ii)
conflict with,  violate or result in a breach of any statute,  code,  ordinance,
rule, regulation,  order, writ, judgment, injunction or decree applicable to the
Buyer,  or by which any property or asset of the Buyer is bound or affected,  or
(iii) conflict  with,  violate or result in a breach of any provisions of or the


                                      -18-
<PAGE>

loss of any benefit under, constitute a default (or an event, which, with notice
or lapse of time, or both,  would constitute a default) under, or give to others
any right of termination,  amendment, acceleration or cancellation of, or result
in  the  creation  of  a  Lien,  pledge,  security  interest,  charge  or  other
encumbrance  on any property or asset of the Buyer pursuant to any of the terms,
conditions or provisions of any note, bond, mortgage,  indenture, deed of trust,
contract,  agreement,  lease, license,  permit, franchise or other instrument or
obligation  to which  the  Buyer is a party,  or by which  the Buyer is bound or
affected.

         4.4 CONSENTS AND APPROVALS. The execution,  delivery and performance of
this   Agreement  by  the  Buyer  does  not  require  any   consent,   approval,
authorization  or permit of, or filing with or notification to any  Governmental
Authority or with any third party,  except for filings with the  Securities  and
Exchange  Commission and the Nasdaq Stock Market.  The Buyer is not aware of any
reason why the  approvals,  consents  and  waivers of  Governmental  Authorities
referred to herein should not be obtained.

         4.5  DISCLOSURE.  No  representation  or  warranty  contained  in  this
Agreement,  and no statement  contained in any  Schedule,  certificate,  list or
other  writing  furnished  to the  Company or the  Shareholder  pursuant  to the
provisions  hereof,  contains or will contain any untrue statement of a material
fact or omits or will omit to state a material  fact  necessary in order to make
the statements  herein or therein,  in light of the  circumstances in which they
are made, not misleading. No information believed by the Buyer to be material to
the  Purchase/Sale  and  which  is  necessary  to make the  representations  and
warranties herein contained,  taken as a whole, not misleading, to the knowledge
of the Buyer,  has been withheld  from, or has not been delivered in writing to,
the Company.

                                    ARTICLE V

                            COVENANTS OF THE PARTIES

         5.1  LEGAL  CONDITIONS  TO  PURCHASE/SALE.   Each  of  the  Buyer,  the
Shareholder  and the Company shall use his or its  commercially  reasonable best
efforts  (i) to take,  or cause to be taken,  all actions  necessary,  proper or
advisable to comply promptly with all legal requirements which may be imposed on
such party with respect to the Purchase/Sale  and, subject to the conditions set
forth  in  Article  V,  to  consummate  the  transactions  contemplated  by this
Agreement and the Escrow Agreement and (ii) to obtain (and to cooperate with the
other party to obtain) any consent, authorization,  order or approval of, or any
exemption  by, any  Governmental  Authority  and any other  third party which is
required to be  obtained  in  connection  with the  Purchase/Sale  and the other
transactions contemplated by this Agreement.

         5.2  ADDITIONAL  AGREEMENTS.  In case at any time after the Closing any
further  action is  necessary  or  desirable  to carry out the  purposes of this
Agreement,  or to vest the Buyer with full title to the  Company  Common  Stock,
each  party to this  Agreement  shall take all such  necessary  action as may be
reasonably requested by the Buyer.

         5.3 ORDINARY COURSE  OPERATIONS.  From the date of this Agreement until
the  Closing,  the  Shareholder  shall cause the Company to conduct its business
only in the ordinary  course and in a manner  consistent  with prior  practices.
Without  limiting  the  generality  of the  foregoing,  from  the  date  of this


                                      -19-
<PAGE>

Agreement until the Closing,  the Shareholder shall not and shall not permit the
Company to directly or  indirectly:  (i) issue any new shares of Company  Common
Stock,  cause or permit any sale,  assignment,  transfer  or  conveyance  of any
outstanding Company Common Stock, or sell, assign, transfer or convey any of the
Company's  assets  (other than sales of its products in the  ordinary  course of
business);  (ii) solicit any offers for, respond to any unsolicited  offers for,
or enter into or conduct any negotiations in respect of any of the foregoing; or
(iii) in any way assist or encourage any person in connection  with any proposed
acquisition of any Company Common Stock or any assets of the Company (other than
sales  of  its  products  in  the  ordinary  course  of  business).   The  Buyer
acknowledges  that the Company,  prior to the Closing,  will  authorize  and pay
salaries to the  Shareholder  in the ordinary  course and will authorize and pay
distributions to the Shareholder of an amount  reasonably  estimated to fund the
Subchapter S Tax  Liabilities of the  Shareholder  for the income of the Company
for 2003 and 2004,  on the dates,  in the  amounts and in respect of the periods
set forth in Schedule 5.3 hereto.  The Shareholder  agrees that from the date of
this  Agreement to the Closing,  the  Shareholder  shall not cause or permit the
Company to make any  payments  to the  Shareholder  other than  salaries  in the
ordinary  course,  distributions  to fund the liabilities of the Shareholder for
taxes with  respect to the  Company's  taxable  income and  expense  and similar
reimbursements in the ordinary course.

         5.4 POST-CLOSING TAX MATTERS. The following provisions shall govern the
allocation  of  responsibility  as  between  the Buyer and the  Shareholder  for
certain tax matters following the Closing Date:

                  5.4.1 The  Shareholder  shall  prepare or cause to be prepared
         and file or cause to be filed all Tax  Returns  for the Company for the
         years ended  December  31,  2003 and 2004 and all periods  ending on or
         prior to such dates that are filed  after the Closing  Date.  The Buyer
         shall provide the Shareholder  with all access  reasonably  required to
         the financial  records of the Company to prepare such Tax Returns.  The
         Shareholder  shall  permit the Buyer to review and approve of each such
         Tax Return described in the preceding  sentence prior to filing,  which
         approval shall not be unreasonably withheld or delayed. The Shareholder
         confirms  that the amounts  specified in Schedule 5.3 have prior to the
         date  of  this  Agreement  been  distributed  by  the  Company  to  the
         Shareholder to fund the Shareholder's Subchapter S Tax Liabilities with
         respect to the income  realized  by the  Company in 2003 and 2004.  The
         Shareholder agrees that any further  distributions that are made to him
         by the Company  from the date of this  Agreement to the Closing will be
         limited  to  the  amounts  that  the  Shareholder   estimates  will  be
         necessary,  when added to the amounts  described  in  Schedule  5.3, to
         fully fund the  Shareholder's  Subchapter S Tax  Liabilities for all of
         the  taxable  income  realized  by the  Company for the full year ended
         December  31, 2003 and for the period from  January 1, 2004 through and
         including the Closing Date. If, based upon the Tax Returns prepared for
         the Company by the  Shareholder and approved by the Buyer for the years
         2003 and 2004, the amounts  payable by the  Shareholder as Subchapter S
         Tax  Liabilities  for the years 2003 and 2004 are more or less than the
         sum of all distributions made by the Company to the Shareholder to fund
         such  Subchapter  S  Liabilities,  then (i) if the amounts  distributed
         exceed  such  Subchapter  S  Liabilities,  then the  Shareholder  shall


                                      -20-
<PAGE>

         immediately  refund  such excess to the Company and (ii) if the amounts
         distributed  are less  than such  Subchapter  S  Liabilities,  then the
         Company shall immediately make a distribution of such deficiency to the
         Shareholder.  In  either  instance,  the  amount  paid  by  or  to  the
         Shareholder shall be recorded as a correcting adjustment to the amounts
         distributed by the Company to the Shareholder, while he continued to be
         the holder of the  Company  Common  Stock.  Any dispute  regarding  the
         computation  of the  Subchapter S Tax  Liabilities  of the  Shareholder
         shall be resolved in the manner  described in Section 11.1.  The amount
         payable  under this Section  shall be in addition to all other  amounts
         payable by the Buyer under this Agreement. Except as expressly provided
         in this Section,  the Shareholder  shall be solely  responsible for the
         payment of Taxes due under such Tax  Returns  (whether  or not shown in
         those Tax  Returns)  and shall  indemnify  and hold the Company and the
         Buyer  harmless  from any  liability  for any income Taxes payable with
         respect to the income  realized  by the  Company  prior to the  Closing
         Date.  The  Shareholder  shall be  responsible  for the payment of 2004
         Taxes only on the Company  income earned and computed up to the Closing
         Date.

                  5.4.2 The Buyer shall cause the Company to prepare or cause to
         be  prepared  and file or cause to be  filed  all Tax  Returns  for the
         Company for all periods ending after the Closing Date.

                  5.4.3 If  requested by the Buyer by written  notice  delivered
         within 180 days following the Closing Date, the Buyer, the Company and,
         if required,  the  Shareholder  shall sign and file Form 8023 providing
         for an election  under  Section  338(h)(10) of the Code with respect to
         the  transactions  contemplated  by this Agreement and the  Shareholder
         shall cooperate in good faith with Buyer in making that election.  As a
         condition to the agreement and cooperation of the Shareholder in making
         the  election  under  Section  338(h)(10),  Buyer  agrees  to  promptly
         reimburse  Shareholder for all additional  federal and state income tax
         incurred by Shareholder (or the Company prior to the Closing Date) as a
         result  of  making  that  election.  The  Shareholder  shall  cause the
         Shareholder's  Accountant,  as soon as  reasonably  possible  after the
         Shareholder  receives the written  request from the Buyer  regarding an
         election  under  338(h)(10),  to prepare  and to provide to the Buyer a
         written  determination  of all such  additional  taxes and such  amount
         shall be payable by the Buyer to the  Shareholder not later than twenty
         (20) days  before  such taxes will be payable by the  Shareholder.  Any
         dispute   regarding  the  computation  of  the  taxes  payable  by  the
         Shareholder as a result of the election under Section  338(h)(10) shall
         resolved in the manner  described in Section 10.1.  The amount  payable
         under this Section shall be in addition to all other amounts payable by
         the Buyer under this Agreement.

                  5.4.4 Buyer,  the Company and the Shareholder  shall cooperate
         fully, as and to the extent reasonably requested by the other party, in
         connection with the filing of Tax Returns  pursuant to this Section and
         any audit,  litigation or other proceeding with respect to Taxes,  with
         the  Shareholder  having the right and  responsibility  to conduct  and
         resolve (and to indemnify  the Buyer and the Company from any liability
         with  respect  to) the audit of any returns  filed  pursuant to Section


                                      -21-
<PAGE>

         5.4.1 and with the Buyer having the right and responsibility to conduct
         and resolve (and to indemnify the  Shareholder  from any liability with
         respect to) the audit of any returns filed  pursuant to Section  5.4.2.
         Such  cooperation  shall  include  the  retention  and  (upon the other
         party's  request) the  provision of records and  information  which are
         reasonably  relevant to any such audit,  litigation or other proceeding
         and  making  employees  available  on a  mutually  convenient  basis to
         provide additional information and explanation of any material provided
         hereunder.  The  Company  and the  Shareholder  agree (i) to retain all
         books and records with respect to tax matters  pertinent to the Company
         relating to any tax period  beginning before the Closing Date until the
         expiration of the statute of limitations  (and, to the extent  notified
         by Buyer, any extensions thereof) of the respective tax periods, and to
         abide by all record retention  agreements  entered into with any taxing
         authority,  and (ii) to give the other party reasonable  written notice
         prior to  transferring,  destroying  or  discarding  any such books and
         records  and,  if the other  party so  requests,  the  Company  and the
         Shareholder,  as the case may be,  shall  allow the other party to take
         possession of such books and records.

                  5.4.5  All   transfer,   documentary,   sales,   use,   stamp,
         registration and other such Taxes and fees (including any penalties and
         interest) incurred in connection with this Agreement shall be paid when
         due by the  Person  to whom or which  such  Taxes  are  assessed  under
         applicable law and each Person will, at such Person's own expense, file
         all necessary Tax Returns and other  documentation  with respect to all
         such transfer,  documentary,  sales, use, stamp, registration and other
         Taxes and fees,  and, if required by applicable  law, all other Persons
         will,  and will cause its  affiliates  to, join in the execution of any
         such Tax Returns and other documentation.

         5.5 POST-CLOSING  INSURANCE  COVERAGE.  The Shareholder,  Buyer and the
Company  agree  that  at all  times  after  the  Closing  Date,  and  until  the
Shareholder is paid all amounts due under this  Agreement  (and/or until any and
all  disputes  are fully and  finally  resolved  between  the  parties as to the
amounts  to be  paid to  Shareholder),  the  Company  shall  maintain  insurance
coverages in the same types and amounts as are presently being maintained by the
Company, as of the date of this Agreement.

                                   ARTICLE VI

                              CONDITIONS TO CLOSING

         6.1  CONDITIONS  TO   OBLIGATIONS   OF  ALL  PARTIES.   The  respective
obligations  of  each  party  under  this  Agreement  shall  be  subject  to the
fulfillment  at or prior to the  Closing of the  following  conditions,  none of
which may be waived:

                  6.1.1 No  order,  injunction  or  decree  (whether  temporary,
         preliminary  or  permanent)  issued by  federal  or state  governmental
         authority  or other agency or  commission  or federal or state court of
         competent   jurisdiction   or  other  legal  restraint  or  prohibition
         preventing the  consummation of the  Purchase/Sale  or any of the other


                                      -22-
<PAGE>

         transactions  contemplated  by this Agreement shall be in effect and no
         proceeding  initiated  by  any  governmental  entity  seeking  an  such
         injunction,  decree,  restraint  or  prohibition  shall be pending.  No
         statute,  rule,  regulation,   order,  injunction  or  decree  (whether
         temporary,  preliminary or permanent) shall have been enacted, entered,
         promulgated or enforced by any federal or state governmental  authority
         or other  agency or  commission  or federal or state court of competent
         jurisdiction,   which   prohibits,   restricts  or  makes  illegal  the
         consummation  of the  Purchase/Sale  or any of the  other  transactions
         contemplated by this Agreement.

                  6.1.2 Any filings with and notifications to, and all approvals
         and authorizations of, third parties  (including,  without  limitation,
         governmental entities and authorities) required for the consummation of
         the transactions contemplated by this Agreement shall have been made or
         obtained and all such  approvals  and  authorizations  (the  "REQUISITE
         REGULATORY  APPROVALS")  obtained shall be effective and shall not have
         been suspended,  revoked or stayed by action of any governmental entity
         or authority.

         6.2  CONDITIONS TO  OBLIGATIONS  OF THE BUYER.  The  obligations of the
Buyer  under this  Agreement  are,  at the  option of the Buyer,  subject to the
fulfillment of all of the following conditions on the dates specified below:

                  6.2.1 The Company and the Shareholder  shall have demonstrated
         to the  Buyer's  satisfaction  that (i)  during the  nine-month  period
         ending March 31, 2004, the Company shall have had EBIT of not less than
         $4,500,000; (ii) during the nine-month period ending June 30, 2004, the
         Company  shall have had EBIT of not less than  $6,000,000;  (iii) as of
         March  31,  2004,  the  Company's  net  worth  shall  not be less  than
         $6,000,000,  except that it is understood  that the net worth reflected
         as in the financial  statements  shall be reduced by (a)  approximately
         $1.3 million for valuation of molds,  and (b) sums paid between January
         1,  2004  and  March  31,   2004  in  respect  of   Subchapter   S  tax
         distributions,  and (iv) since March 31, 2004  through  March 31, 2004,
         the Company has been operated in the ordinary  course  consistent  with
         past practice.

                  6.2.2 Since January 1, 2004, there shall not have occurred any
         distributions  to  the  shareholders  of the  Company  other  than  the
         distributions set forth in Schedule 5.4.1 hereto.

                  6.2.3 As of the Closing, the Company shall not, in the Buyer's
         sole judgment, have suffered any Material Adverse Change.

                  6.2.4 As of the Closing,  the Shareholder shall have delivered
         to the Buyer a written notice confirming that each of the conditions to
         the  Shareholder's  obligations under this Agreement that are specified
         in Section 6.3 have been satisfied or waived by the Shareholder.


                                      -23-
<PAGE>

                  6.2.5  As of the  Closing,  each  of the  representations  and
         warranties of the  Shareholder  and the Company in this Agreement shall
         be true and correct in all  material  respects,  in each case as of the
         date of this Agreement,  as applicable,  and (except to the extent such
         representations  and warranties  speak as of an earlier date) as of the
         Closing.

                  6.2.6 On or  prior to the  Closing,  the  Shareholder  and the
         Company shall have performed in all material  respects all  obligations
         and complied in all material  respects with all agreements or covenants
         of the  Shareholder and the Company to be performed or complied with by
         the  Shareholder  or the Company at or prior to the Closing  under this
         Agreement.

                  6.2.7 On or prior  to the  Closing,  the  Company  shall  have
         entered into  employment  agreements in the forms of Exhibits  6.2.7(a)
         and 6.2.7(b) with the following Persons to continue to perform services
         for the Company  following the Closing Date: (i) Arthur G. Schreiber as
         a part-time  employee for a term of two years; and (ii) John R. Nehmens
         as a full-time employee for a term of five years.

                  6.2.8  On or  prior  to the  Closing,  the  Buyer  shall  have
         received the opinion of M. Neil Cummings, Esq., dated as of the Closing
         Date, with respect to the matters set forth in Exhibit 6.2.8.

                  6.2.9  As of the  Closing,  none of the  Requisite  Regulatory
         Approvals  shall  impose any term,  condition or  restriction  upon the
         Buyer or any of its subsidiaries  that the Buyer reasonably  determines
         would  materially  impair  the value of the  Company to the Buyer or be
         materially burdensome (a "BURDENSOME CONDITION").

                  6.2.10  As  of  the  Closing,  neither  the  Company  nor  any
         Shareholder shall have taken any action or made any payments that would
         result,  either individually or in the aggregate,  in the payment of an
         "excess  parachute  payment"  within the meaning of Section 280G of the
         Code or that would result, either individually or in the aggregate,  in
         payments that would be nondeductible  pursuant to Section 162(m) of the
         Code.

         6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE  SHAREHOLDER.  The
obligations of the Company and the Shareholder  under this Agreement are, at the
option of the Company and the Shareholder, subject to the fulfillment or written
waiver by the  Shareholder  of all of the following  conditions on or before the
dates specified below:

                  6.3.1 As of the Closing, the Buyer shall have delivered to the
         Shareholder a written notice  confirming that each of the conditions to
         the Buyer's  obligations  under this  Agreement  that are  specified in
         Section 6.2 have been satisfied or waived by the Buyer.


                                      -24-
<PAGE>

                  6.3.2  As of the  Closing,  each  of the  representations  and
         warranties of the Buyer in this Agreement  shall be true and correct in
         all material respects as of the date of this Agreement,  as applicable,
         and (except to the extent such  representations and warranties speak as
         of an earlier date) as of the Closing.

                  6.3.3  On or  prior  to the  Closing,  the  Buyer  shall  have
         performed in all material  respects all obligations and complied in all
         material respects with all of the respective agreements or covenants to
         be performed  or complied  with by the Buyer at or prior to the Closing
         under this Agreement.

                  6.3.4 On or prior to the Closing,  the Shareholder  shall have
         received the opinion of Yaakov  Har-Oz,  Esq.,  dated as of the Closing
         Date, with respect to the matters set forth in Exhibit 6.3.4.

                  6.3.5 On or prior to the Closing, the Buyer shall have entered
         into  employment  agreements  with the Persons  listed in Section 6.2.7
         upon  terms  and  conditions   acceptable  to  such  Persons  and  such
         agreements shall be in full force and effect.

                  6.3.6.  As of the Closing,  none of the  Requisite  Regulatory
         Approvals shall impose any Burdensome Condition upon the Shareholder.

                                   ARTICLE VII

                                   THE CLOSING

         7.1 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the  Purchase/Sale  (the  "CLOSING")  will take place at 9:00 a.m. on
July 30, 2004, or at such other date as is mutually  approved by the Company and
the Buyer (the  "CLOSING  DATE"),  at the offices of the Buyer in New York,  New
York,  or at such  other  time and place as the Buyer  and the  Shareholder  may
otherwise agree in writing.  The Buyer's refusal to close on or prior to July 30
shall not  constitute a breach of this  Agreement,  provided  that for each week
past  July 30 that  the  Buyer  does not  close,  the  Buyer  shall  deposit  an
additional  $125,000 with the Escrow Agent, with such sums (the "Additional Down
Payment") to be added to the Escrow  Consideration and deducted from the Closing
Cash  Consideration.  Refusal by or failure of Buyer to close by August 16, 2004
shall constitute a breach of this Agreement and shall entitle the Shareholder to
receive the Down Payment and the Additional  Down Payment in accordance with the
terms of the Escrow Agreement.

         7.2 DELIVERIES AT CLOSING.  Subject to  satisfaction  of the conditions
precedent set forth in this  Agreement,  at the Closing the parties will deliver
the following:

                  7.2.1 The Buyer shall pay to the  Shareholder by wire transfer
         of funds,  to an account to be specified by the  Shareholder in writing
         and  transmitted  to the Buyer as set forth in Section  11.3  hereof at
         least two (2) business days prior to the Closing Date, the Closing Cash
         Consideration specified in Section 2.3.2.


                                      -25-
<PAGE>

                  7.2.2 The Buyer shall pay to the Escrow Agent by wire transfer
         of funds,  to an account to be specified by the Escrow Agent in writing
         and  transmitted  to the Buyer as set forth in Section  11.3  hereof at
         least two (2)  business  days  prior to the  Closing  Date,  the Escrow
         Consideration specified in Section 2.3.3.

                  7.2.3 The parties shall exchange all other  documents that the
         Company or the Buyer may reasonably request be delivered at the Closing
         so as effectively to consummate the transactions contemplated hereby.

                                  ARTICLE VIII

                                 INDEMNIFICATION

         8.1  INDEMNIFICATION OF THE BUYER.  Subject to the limitations in other
Sections of this Article VIII,  the  Shareholder  will  indemnify and hold Buyer
harmless  from  any and all  Liabilities,  obligations,  claims,  contingencies,
damages,  costs and expenses,  including all court costs and reasonable attorney
fees  (collectively,  "LOSSES"),  that Buyer suffers or incurs as a result of or
relating to:

                  8.1.1 The breach of any  material  representation  or warranty
         made by the Company or the  Shareholder  in this  Agreement or pursuant
         hereto; or

                  8.1.2 The breach of any material  covenant or agreement of the
         Company or the Shareholder under this Agreement.

The sole and exclusive  recourse of the Buyer for any Losses within the scope of
this  Section  8.1  shall  be  to  seek  and  secure  indemnification  from  the
Shareholder in accordance with the terms of this Article VIII.

         8.2  INDEMNIFICATION OF THE SHAREHOLDER.  Subject to the limitations in
other  Sections of this  Article  VIII,  the Buyer will  indemnify  and hold the
Shareholder  harmless  from any and all  Losses  (as  defined  above),  that any
Shareholder suffers or incurs as a result of or relating to:

                  8.2.1 The breach of any representation or warranty made by the
         Buyer in this Agreement or pursuant hereto; or

                  8.2.2 The breach of any  covenant  or  agreement  of the Buyer
         under this Agreement.

The sole and  exclusive  recourse of the  Shareholder  for any Losses within the
scope of this Section 8.2 shall be to seek and secure  indemnification  from the
Buyer in accordance with the terms of this Article VIII.

         8.3 SURVIVAL OF INDEMNIFICATION PROVISIONS. The rights of the Buyer and
the Shareholder to  indemnification  under this Article VIII (each, as such, and
"INDEMNIFIED  PARTY") will survive the execution and delivery of this  Agreement
and the consummation of the transactions contemplated, subject to the limitation
that the right of any  Indemnified  Party to indemnity  for any Claim under this
Article  VIII shall  terminate  twenty-four  (24) months  after the Closing Date


                                      -26-
<PAGE>

unless,  on or before such date,  the  Indemnified  Party has  delivered  to the
Indemnifying  Party an  Indemnity  Notice with respect to that Claim in the time
and manner specified in Section 8.4.

         8.4  NOTICE OF CLAIM.  The  Indemnified  Parties  entitled  to  receive
indemnification  under this Article VIII agree to give prompt written notice (an
"INDEMNITY  NOTICE") to the party or parties from whom or which  indemnification
is sought (the "INDEMNIFYING  PARTIES") upon the occurrence of any indemnifiable
Loss  or the  assertion  of any  claim  or the  commencement  of any  action  or
proceeding  in respect of which such a Loss may  reasonably be expected to occur
(a  "CLAIM").  Such  Indemnity  Notice will  include a reference to the event or
events forming the basis of such Loss or Claim and the amount  involved,  unless
such amount is uncertain or contingent,  in which event the Indemnified  Parties
will give a later written notice when the amount becomes fixed.

         8.5 THIRD PARTY  CLAIMS.  If a claim or demand by a third party is made
against an  Indemnified  Party,  and if such  Indemnified  Party intends to seek
indemnity  with  respect  thereto  under  this  Article  VIII or under any other
provisions of this Agreement  providing for  indemnification,  such  Indemnified
Party shall  promptly  deliver an  Indemnity  Notice to the  Indemnifying  Party
setting forth such claims in reasonable  detail.  The  Indemnifying  Party shall
have thirty  (30) days after  delivery of such  Indemnity  Notice to  undertake,
conduct and control, through counsel of its own choosing and at its own expense,
the settlement or defense  thereof,  and the  Indemnified  Party shall cooperate
with it in connection  therewith;  provided that the Indemnifying  Party may not
undertake,   conduct  and  control  such   settlement  or  defense  without  the
Indemnified Party's consent unless:

                  8.5.1 The  Indemnifying  Party  acknowledges  in  writing  its
         obligation to indemnify the  Indemnified  Party for any Losses relating
         thereto;

                  8.5.2 The Indemnifying Party provides  reasonable  evidence to
         the  Indemnified   Party  of  its  financial  ability  to  satisfy  its
         indemnification obligations;

                  8.5.3 The suit,  action,  claim,  liability or obligation does
         not seek to impose any  liability or  obligation  upon the  Indemnified
         Party other than for money damages;

                  8.5.4 The suit,  action,  claim,  liability or obligation does
         not relate to the Indemnified Party's customer,  supplier, employee, or
         sales  representative  relationships or otherwise implicate the ongoing
         operation of the Indemnified Party's business;

                  8.5.5 If the Indemnifying  Party has assumed the defense,  the
         Indemnified  Party may  participate  in any such  settlement or defense
         through  counsel  chosen by such  Indemnified  Party,  and the fees and
         expenses  of such  counsel  shall be borne  by such  Indemnified  Party
         unless (i) the employment  thereof has been specifically  authorized by
         the  Indemnifying  Party in  writing,  (ii) there  exists a conflict of
         interest  between  the  interests  of the  Indemnified  Party  and  the
         Indemnifying  Party  or  (iii)  the  Indemnifying  Party  has  after  a
         reasonable time failed to assume such defense and employ counsel;


                                      -27-
<PAGE>

                  8.5.6 If the Indemnifying Party has assumed the defense,  then
         so long as the  Indemnifying  Party is reasonably  contesting  any such
         claim in good faith, the Indemnified  Party shall not pay or settle any
         such claim  without  the  written  consent of the  Indemnifying  Party.
         Notwithstanding  the foregoing,  the  Indemnified  Party shall have the
         right to pay or  settle  any such  claim  without  the  consent  of the
         Indemnifying  Party;  provided,  that in such event it shall  waive any
         right to indemnity therefor by the Indemnifying Party.

                  8.5.7  If  the   Indemnifying   Party   does  not  notify  the
         Indemnified Party within thirty (30) days after the date of delivery of
         the  Indemnity  Notice that it elects to  undertake  the defense of the
         claim or is otherwise  not  permitted to assume such defense  under the
         terms hereof,  the  Indemnified  Party shall have the right to contest,
         settle or compromise the claim but shall not thereby waive any right to
         indemnity  therefor pursuant to this Agreement.  The Indemnifying Party
         shall not, except with the consent of the Indemnified Party, enter into
         any settlement that does not include as an  unconditional  term thereof
         the  giving  by the  person  or  persons  asserting  such  claim to all
         indemnified  parties an  unconditional  release from all liability with
         respect to such claim or consent to entry of any judgment.

         8.6.  LIMITATION  OF LIABILITY  OF  SHAREHOLDER.  The  liability of the
Shareholder with respect to any Loss shall be limited as follows:

                  8.6.1 The Shareholder  shall be required to indemnify and hold
         harmless  the  Buyer  with  respect  to  Losses  only if and  after the
         aggregate amount of all such Losses of Buyer exceed $250,000,  at which
         point Shareholder will be liable for all Losses in excess of $50,000.

                  8.6.2  Except  for  Losses  resulting  from the  breach by the
         Shareholder  of any of the  post-closing  covenants in Sections 5.2 and
         5.4, the  liability of the  Shareholder  for Losses shall be limited to
         (i) twenty  percent  (20%) of the Closing Cash  Consideration  that has
         been paid by the Buyer to the  Shareholder for the Company Common Stock
         for Losses  resulting from claims that were first  asserted  during the
         period from the Closing to June 30, 2005, and (ii) ten percent (10%) of
         the Closing Cash  Consideration  that has been paid by the Buyer to the
         Shareholder  for the Company  Common  Stock for Losses  resulting  from
         claims that were first asserted  during the period from July 1, 2005 to
         June  30,  2006.  There  shall  be no  limit  on the  liability  of the
         Shareholder for Losses  resulting from the breach by the Shareholder of
         any of the post-closing covenants in Sections 5.2 and 5.4.

                  8.6.3 Any  insurance  payments or proceeds  obtained by or for
         the benefit of the Company for the Losses described in Paragraphs 8.6.1
         and 8.6.2,  above,  shall be  credited  against  any  liability  of the


                                      -28-
<PAGE>

         Shareholder  with  respect  to  any  Loss(es),  and  the  Shareholder's
         liability,  if any,  under this  Paragraph  8.6 shall be reduced by the
         amount of any such insurance proceeds.

         8.7      LIMITATION OF  LIABILITIES  OF  THE  BUYER.  The liability  of
the Buyer with respect to any Losses shall be limited as follows:

                  8.7.1  The  Buyer  shall be  required  to  indemnify  and hold
         harmless the  Shareholders  with  respect to Losses  (other than Losses
         resulting  from a  breach  by the  Buyer of its  commitment  to pay the
         Purchase  Price as required  pursuant to Section 2.3) only if and after
         the  aggregate  amount of all such  Losses of the  Shareholders  exceed
         $250,000,  at which point Buyer will be liable for all Losses in excess
         of $50,000.

                  8.7.2 Except for Losses resulting from the breach by the Buyer
         of any of the post-closing  covenants in Sections 2.3, 2.5, 5.1,5.2 and
         5.4, the cumulative  aggregate  liability of the Buyer shall be limited
         to $1,000,000.

                                   ARTICLE IX

                            TERMINATION AND EXPENSES

         9.1 TERMINATION. This Agreement may be terminated and the Purchase/Sale
and the other  transactions  contemplated  by this Agreement may be abandoned at
any time  prior to the  Closing,  notwithstanding  any  requisite  approval  and
adoption of this Agreement and the  transactions  contemplated in this Agreement
by the  Board  of  Directors  of the  Buyer  and  the  Board  of  Directors  and
Shareholder of the Company:

                  9.1.1 By mutual written  consent duly authorized by the Boards
         of Directors of the Buyer and the Company;

                  9.1.2 By either the Buyer or the  Shareholder  if the  Closing
         shall not have  occurred  on or before July 30, 2004 or such later date
         as may be  provided  in Section  7.1 or as the  parties may have agreed
         upon in writing;  provided,  however,  that the right to terminate this
         Agreement  under this Section 9.1.2 shall not be available to any party
         whose failure to fulfill any material  obligation  under this Agreement
         has been the cause of, or  resulted  in, the  failure of the Closing to
         occur on or before such date; or

                  9.1.3 By either the Buyer or the  Shareholder  (provided  that
         the   terminating   party  is  not  then  in  material  breach  of  any
         representation, warranty, covenant or other agreement contained herein)
         if  there   shall   have  been  a   material   breach  of  any  of  the
         representations  or warranties  set forth in this Agreement on the part
         of the other party, which breach by its nature cannot be cured prior to
         the earlier of the Closing or within thirty (30) days following receipt
         by the breaching  party of written notice of such breach from the other
         party hereto.


                                      -29-
<PAGE>

         9.2      EFFECT OF TERMINATION; EXPENSES.

                  9.2.1  In the  event  of the  termination  of  this  Agreement
         pursuant to Section 9.1, this Agreement shall forthwith terminate,  and
         there shall be no liability on the part of any party hereto,  except as
         otherwise provided below.

                  9.2.2 If this  Agreement  is  terminated  as a  result  of any
         uncured breach of any material  provision of this Agreement,  then, the
         non-breaching  party  shall have the right to seek and secure  recovery
         from the  breaching  party for (i) all  damages  permitted  or required
         under  applicable  law  as  a  result  of  such  breach  and  (ii)  all
         out-of-pocket  costs  and  expenses  (but in no event in an  amount  in
         excess of $50,000),  including, without limitation, the reasonable fees
         and expenses of lawyers,  accountants and investment bankers,  incurred
         by such  other  party  in  connection  with the  entering  into of this
         Agreement  and  the  carrying  out of any  and  all  acts  contemplated
         hereunder.

                  9.2.3 In addition  to and not instead of the amounts  referred
         to in Section 9.2.2 above, and except as otherwise  provided in Section
         9.2.4 below,  if the Buyer fails to proceed to a Closing for any reason
         or for no reason,  including  without  limitation  for the  reasons set
         forth  in  Sections  6.1  or 6.2  hereto,  the  Down  Payment  and  any
         Additional Down Payment will be forfeited to the  Shareholder,  and the
         Escrow Agent will promptly transfer the Down Payment and any Additional
         Down Payment to the Shareholder.

                  9.2.4 In addition  to and not instead of the amounts  referred
         to in Section 9.2.2 above,  if the  Shareholder  or the Company fail to
         proceed to a Closing for any reason or for no reason, including without
         limitation for the reasons set forth in Sections 6.1 or 6.3 hereto,  or
         if the  Buyer  fails to  proceed  to a  Closing  for  reasons  of Force
         Majeure,  the Down  Payment and any  Additional  Down  Payment  will be
         returned to the Buyer, and Escrow Agent will promptly transfer the Down
         Payment and any Additional Down Payment to the Buyer.

                                    ARTICLE X

                                   ARBITRATION

         10.1  COMPUTATION OF THE PURCHASE  PRICE.  If either party disputes the
amount of the  Escrow  Consideration  payable  to the  Shareholder  pursuant  to
Section 2.4, or the amount of the Earnout Consideration pursuant to Section 2.5,
then such party  shall  deliver  to the other a written  notice  describing  the
dispute  which  shall  include a  detailed  description  of the  reasons  and/or
computations  relevant  to the  dispute,  and a demand  for a revised  amount of
Escrow or Earn-Out  Consideration (the "Dispute Notice"). If the party receiving
the Dispute Notice does not within fifteen (15) days after receiving the Dispute
Notice  deliver to the other party a notice of objection to the Dispute  Notice,
which shall include a detailed  description of the reasons  and/or  computations
for the objection  ("Objection to Dispute  Notice"),  then the revised amount of
Escrow or Earn-Out  Consideration set forth in the Dispute Notice shall be final
and binding on both Buyer and Shareholder.  If an Objection to Dispute Notice is
timely delivered to the other party,  then resolution of the issues set forth in
the Dispute Notice and Objection to Dispute Notice shall be submitted to binding
arbitration,  in accordance  with the provisions of Paragraph  10.2,  below.  In


                                      -30-
<PAGE>

connection  with any  Arbitration  proceedings  commenced  to  resolve  any such
dispute, the burden of proof shall be on the party who prepared the Objection to
Dispute Notice.

         10.2  ARBITRATION.  Except as provided in Section  10.1 with respect to
dispute over the  computation  of the Purchase  Price,  any dispute  between the
Buyer and the  Shareholder  with respect to this Agreement,  including,  without
limitation, any dispute regarding computation of the Purchase Price or any Claim
for  indemnity  under  Article  VIII,  must  be  submitted  to and  resolved  by
arbitration  through the American  Arbitration  Association (the  "ASSOCIATION")
within one hundred  twenty  (120) days of either  party  serving the other party
with a written demand for Arbitration. The arbitration will be conducted through
the offices of the  Association in New York, New York. The  arbitration  will be
implemented  under the rules and  procedures of the  Association  for commercial
disputes.  The decision of the arbitrator(s) will be conclusive and binding upon
the  Buyer and the  Shareholder  and will not be  subject  to any  challenge  or
appeal.  The  decision of the  arbitrator  will be  enforceable  by either party
through the order of any court of competent  jurisdiction.  The prevailing party
in any  Arbitration  proceedings  shall be entitled  to recover  its  reasonable
attorneys' fees, arbitration costs and other direct expenses.

                                   ARTICLE XI

                                  MISCELLANEOUS

         11.1 INTEREST ON LATE  PAYMENTS.  If any amount payable by any party is
not paid on or before its due date,  including,  without limitation,  any amount
determined to be payable based under the procedure  specified in this Agreement,
then the party  obligated  for that payment  shall be obligated to pay such past
due  amount,  plus  interest on such amount at the rate of 7% per annum from the
date such amount should have been paid pursuant to the  applicable  provision of
this Agreement to the date of payment.

         11.2 ASSIGNMENT.  Except as provided below,  neither this Agreement nor
any of the rights,  interests or obligations  hereunder shall be assigned by any
of the parties  hereto  (whether by operation of law or  otherwise)  without the
prior written consent of the other parties.  Subject to the preceding  sentence,
this Agreement will be binding upon,  inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.

         11.3  NOTICES.  All  notices,   requests,  claims,  demands  and  other
communications  hereunder  shall be in writing  and shall be given (and shall be
deemed to have been duly given upon  receipt) by  delivery in person,  by email,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective  parties at the following  addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 11.3):


                                      -31-
<PAGE>

         If to the Company, to:

                           Armour of America, Incorporated
                           P.O. Box 1405
                           Beverly Hills, California 90213
                           Attention:  Arthur G. Schreiber and John R. Nehmens
                           Telephone:  (310) 532-0690
                           Fax:        (310) 532-8696
                           E-mail:    aoa@mindspring.com/jnehmens@mindspring.com

                  With a copy to:

                           Yaakov Har-Oz, Esq.
                           Vice President and General Counsel
                           Arotech Corporation
                           250 West 57th Street - Suite 310
                           New York, New York 10107
                           Telephone:  011-972-2-990-6623
                           Fax:        011-972-2-990-6688
                           E-mail:     yaakovh@arotech.com

                  If to the Shareholder:

                           Arthur G. Schreiber
                           211 South Spalding Drive
                           Beverly Hills, California 90212
                           Telephone:  (310) 277-3577
                           Fax:        (310) 277-7957
                           E-mail:     aoa@mindspring.com

                  With a copy to:

                           M. Neil Cummings, Esq.
                           11150 Olympic Boulevard - Suite 1050
                           Los Angeles, California 90064
                           Telephone:  (310) 914-1849
                           Fax:        (310) 914-1853
                           E-mail:     mncassoc@aol.com


                                      -32-
<PAGE>

                  If to Buyer, to:

                           Arotech Corporation
                           250 West 57th Street - Suite 310
                           New York, New York 10107
                           Attention:  Chairman and CEO
                           Telephone:  (212) 258-3222
                           Fax:        (212) 258-3281
                           E-mail:     ehrlich@arotech.com

                  With a copy to:

                           Yaakov Har-Oz, Esq.
                           Vice President and General Counsel
                           Arotech Corporation
                           250 West 57th Street - Suite 310
                           New York, New York 10107
                           Telephone:  011-972-2-990-6623
                           Fax:        011-972-2-990-6688
                           E-mail:     yaakovh@arotech.com

or at such other address for a party as shall be specified by like notice.

         11.4 EXPENSES.  Subject to the provisions of Section 9.2.2,  each party
hereto  shall  pay  its  own  expenses  in  connection  with  the   transactions
contemplated hereby, whether or not they are completed;  provided, however, that
the  Shareholder  shall be required to reimburse the Company for (i) any fees or
other  expenses  payable by the Company to Oppenheimer & Co., Inc., for services
rendered in connection with the transactions  contemplated by this Agreement and
(ii) any expenses  incurred by the Company in connection  with the  transactions
contemplated  by this  Agreement.  In the  event of any  conflict  between  this
provision and the  indemnification or termination  provisions of this Agreement,
the  indemnification  or  termination  provisions,  as the  case  may be,  shall
control.

         11.5   PUBLICITY.   The  parties  will  consult  with  respect  to  the
appropriate  public  disclosure  to be made  with  respect  to the  transactions
contemplated  hereby, and will make no such disclosure without reasonable notice
to the other party prior to such disclosure.  Notwithstanding the foregoing, the
Company  understands  that the  federal  securities  laws and  applicable  stock
exchange  listing  agreements  require  Buyer  to make  certain  disclosures  of
material  events.  Buyer will  consult  with the Company  before  providing  any
information  about  this  Agreement  or the  Company  in  accordance  with  such
requirements.

         11.6  PARTIES IN  INTEREST.  This  Agreement  shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied,  is intended  to or shall  confer upon any other  person any
right,  benefit  or remedy of any nature  whatsoever  under or by reason of this
Agreement.


                                      -33-
<PAGE>

         11.7 GOVERNING LAW AND DISPUTES.  This Agreement  shall be governed by,
and construed and enforced in accordance with, the internal laws of the State of
Delaware,  without giving effect to its conflict of laws rules thereof. Disputes
under this  Agreement  are to be  resolved  through  arbitration  as provided in
Article X above.  Any dispute with respect to the validity or  applicability  of
the  arbitration  provisions of this Agreement or any other dispute that for any
reason shall be claimed not to be subject to the arbitration  provisions of this
Agreement shall be litigated  exclusively in the state or federal courts sitting
in Wilmington,  Delaware, and each of the parties hereby irrevocably consents to
the  exclusive  jurisdiction  of such courts and waives and agrees not to assert
any objection to the jurisdiction or convenience thereof.

         11.8  COUNTERPARTS.  This  Agreement may be executed in two (2) or more
counterparts,  all of which shall be considered  one (1) and the same  agreement
and shall become effective when two (2) or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.

         11.9 ENTIRE AGREEMENT.  This Agreement constitutes the entire agreement
among  the  parties  hereto  with  respect  to the  subject  matter  hereof  and
supersedes all prior  agreements and  understandings,  whether  written or oral,
among the parties, or any of them, in connection with such subject matter.

         IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written.


COMPANY:                                   ARMOUR OF AMERICA, INCORPORATED



                                       By:
                                           ---------------------------------
                                           Arthur G. Schreiber, President


BUYER:                                     AROTECH CORPORATION



                                       By:
                                           ---------------------------------
                                           Robert S. Ehrlich, Chairman and CEO


SHAREHOLDER:


                                           ---------------------------------
                                           ARTHUR G. SCHREIBER (113 shares)



                                      -34-