Document:

EMPLOYMENT AGREEMENT

      THIS  AGREEMENT  ("Agreement")  is  signed  on the 15th day of May,  2005,
effective as of the 1st day of January,  2005,  and is entered into by and among
Electric Fuel (E.F.L.) Ltd., an Israeli  corporation  (the  "Company"),  and Mr.
Steven Esses (the "Executive").

      WHEREAS,  the Company  wishes to employ the  Executive,  and the Executive
wishes to be employed by the Company,  on the terms and  conditions  hereinafter
set forth;

      NOW,  THEREFORE,  in  consideration  of the  respective  agreements of the
parties contained herein, the parties agree as follows:

1.    Term.

The term of the  Executive's  employment  under this Agreement  shall be for the
period  commencing  on January 1, 2005,  and ending on  December  31,  2006 (the
"Initial  Term"),  provided,  however,  that the term of this Agreement shall be
automatically  extended  for  additional  terms of two (2) years each (each,  an
"Additional  Term") upon the end of the Initial Term and each  Additional  Term,
unless either the  Executive or the Company  shall have given written  notice to
the other at least  ninety  days (90) days prior  thereto  that the term of this
Agreement  shall not be so extended (a  "Non-Renewal").  The  provisions of this
Agreement   shall  apply  to  the   relationship   between  the  parties  hereto
retroactively  as if this  Agreement  were  signed  on the  commencement  of the
Initial Term.

2.    Employment.

(a)   The  Executive  shall be employed as Executive  Vice  President  and Chief
      Operating Officer of the Company.  The Executive shall perform the duties,
      undertake  the  responsibilities  and exercise the  authority  customarily
      performed,  undertaken  and  exercised  by persons  situated  in a similar
      executive capacity in Israeli subsidiaries of publicly-held  corporations.
      The  Executive  shall  exercise his  authority in a reasonable  manner and
      shall report to the Chief Executive Officer of the Company (the "CEO").

(b)   Excluding  periods of vacation and sick leave to which the Executive shall
      be entitled,  the Executive agrees to devote the attention and time to the
      businesses   and  affairs  of  the  Company   required  to  discharge  the
      responsibilities   assigned  to  the  Executive  hereunder.   The  Company
      acknowledges  that the  Executive  is a director  of  multiple  non-profit
      organizations. In addition, the Company acknowledges that the Executive is
      involved in certain investment  activities which,  together with the above
      mentioned  positions,  will  consume a portion  of his time.  The  Company
      consents to these other  positions and  activities so long as these do not
      interfere in any material manner with the  Executive's  performance of his
      duties hereunder and do not constitute a violation of Section 8 hereof.

(c)   While the  Executive  is employed by the  Company  hereunder,  the Company
      shall use its best  efforts  to cause the  Executive  to be elected to the
      Board of  Directors  of the  Company  (the  "Board")  and on the  board of
      directors of such of the Company's  Israeli  subsidiaries as the CEO shall
      determine, as a member of such Board(s).

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(d)   The Company will use its reasonable best efforts to obtain, and to keep in
      place at all times  that the  Executive  is a  director  or officer of the
      Company,  a directors and officers liability policy covering the Executive
      in an amount and otherwise containing terms and conditions consistent with
      past practices.

(e)   The  Executive  agrees to serve on the Board and on the board of directors
      of such Israeli subsidiaries of the Company as the CEO may request.

(f)   The Executive shall be required to travel on a periodic basis.  Air travel
      shall be business class.

3.    Base Salary, Bonus and Financial Planning Allowance.

(a)   Base  Salary.  The  Company  agrees  to pay or  cause  to be  paid  to the
      Executive,  for his services to the Company, during the first year of this
      Agreement a base salary at the rate of US $5,000 per month, or such larger
      amount  as the  Compensation  Committee  of the Board  (the  "Compensation
      Committee) may in its sole discretion  determine  following a review which
      shall be conducted by the CEO and the Compensation  Committee by not later
      than  March  31  of  each  year,   such  larger   amount  to  take  effect
      retroactively   to  the  January  1  immediately   preceding  such  review
      (hereinafter referred to as the "Base Salary").  Such Base Salary shall be
      payable in equal monthly installments.

(b)   Bonus. The Company will pay or cause to be paid to the Executive a signing
      bonus of up to  $100,000,  payable  at the end of each  fiscal  quarter in
      eight equal quarterly installments of $12,500 each during the term of this
      Agreement,  with each such payment being contingent on the Executive being
      employed by the Company on the scheduled payment date.  Additionally,  the
      Company  agrees  to pay or  cause  to be  paid  to the  Executive  on each
      anniversary of this Agreement or as soon  thereafter as may be possible in
      order to determine the relevant  results of the Company,  an annual bonus,
      as follows:

            (i) If, as of such anniversary,  the Company shall have attained 90%
      of the Company's Budgeted Number (as defined below) for the year preceding
      such  anniversary,  then  Executive's  bonus  shall  be  equal  to  25% of
      Executive's  gross  annual  Base  Salary  as then in  effect  for the year
      preceding such anniversary;

            (ii) If, as of such  anniversary,  the Company  shall have  attained
      120% of the  Company's  Budgeted  Number (as  defined  below) for the year
      preceding such  anniversary,  then Executive's bonus shall be equal to 75%
      of  Executive's  gross  annual  Base Salary as then in effect for the year
      preceding such anniversary;

            (iii) If, as of such  anniversary,  the Company  shall have attained
      more than 90% but less  than 120% of the  Company's  Budgeted  Number  (as
      defined below), then Executive's bonus shall be calculated as follows:

                  B = (S x 25%) + (N-90)/30 x (S x 50%)

                  Where:

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                  B = The amount of Executive's annual bonus, as a percentage of
                  Executive's gross annual Base Salary; and

                  N = The  percentage of the Budgeted  Number (as defined below)
                  that was attained by the Company in the immediately  preceding
                  fiscal  year;  provided,  however,  that N is more than 90 and
                  less than 120;

                  S = Executive's gross annual Base Salary;

      provided,  however, that the Executive shall be entitled in each year to a
      minimum bonus of 20% of his salary.

For the purposes of this Section 3(b), the Budgeted Number shall be the budgeted
results of the  Company as agreed by the Board  prior to the end of each  fiscal
year for the fiscal year designated in such budget,  and may include targets for
any or all of the following  factors:  (i) revenues;  (ii) cash flow,  and (iii)
EBITDA. In the event that some but not all targets are reached, the Compensation
Committee  shall made a  determination  as to what  percentage  of the  Budgeted
Number was attained.

(c)   Stock Options. The Executive will receive annual stock option bonus grants
      for  options  to  purchase  the  common  stock  of  the  Company's  parent
      corporation,  Arotech Corporation ("Arotech"), in amounts to be determined
      based  on  the   recommendation  of  the  CEO  and  the  decision  of  the
      Compensation Committee of Arotech.  Notwithstanding  anything in any stock
      option grant to the contrary,  all stock options  granted to the Executive
      shall be exercisable after  termination of the Executive's  employment for
      any reason other than for Cause (as  hereinafter  defined) for a period of
      time equal to the term by which  Arotech  director  options are  generally
      extended upon a director of Arotech leaving Arotech's Board of Directors.

(d)   Tax Planning  Reimbursement.  The Company shall pay Executive an amount of
      up to $10,000 on the first  anniversary of this Agreement and up to $7,500
      on each  subsequent  anniversary  of this  Agreement to cover  Executive's
      legal, tax and financial planning expenses,  against invoices or receipts.
      Any amounts not used in a given year shall roll over to future years,  but
      amounts unused at notice of  termination  of this Agreement  shall expire.
      Legal  expenses  may not be used to  finance  legal  advice or  litigation
      against the interests of the Company.

4.    Employee Benefits.

The Executive shall be entitled to the following benefits:

(a)   Life and  Disability  Insurance.  The  Company  will  pay to an  insurance
      company of the  Executive's  choice,  as premiums for life and  disability
      insurance  for the  Executive,  an amount  equal to 13.33% of each monthly
      payment  of the Base  Salary  together  with 2.5% of the Base  Salary  for
      disability,  and will deduct from each monthly  payment of the Base Salary
      and pay to such  insurance  company an amount  equal to 5% of each monthly
      payment  of the  Base  Salary,  which  shall  constitute  the  Executive's
      contribution  to such premiums.  Upon the  termination of the  Executive's
      employment  with  the  Company  for  whatever  reason,  including  without
      limitation termination for Cause or the resignation by the Executive,  the
      right to  receive  the life and  disability  insurance  benefits  shall be
      automatically  assigned to the Executive.  At the Executive's  option,  in
      lieu of providing life and disability insurance, the Company shall pay the
      amount it would  otherwise pay for such insurance to the trust referred to
      in Section 7(b)(ii) hereof.

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(b)   Education  Fund.  The Company will  contribute to an education fund of the
      Executive's  choice an amount equal to 7.5% of each monthly payment of the
      Base Salary,  and will deduct from each monthly payment of the Base Salary
      and contribute to such  education fund an additional  amount equal to 2.5%
      of each such monthly payment of the Base Salary. Additionally, the Company
      will pay a supplementary amount to the education fund in the amount of 20%
      of the Base Salary.  Upon the  termination of the  Executive's  employment
      with  the  Company  for  whatever  reason,  including  without  limitation
      termination  for Cause or the  resignation by the Executive,  the right to
      receive  any amounts in such fund shall be  automatically  assigned to the
      Executive.  All education fund  contributions or imputed income made under
      this Section in excess of the statutory  exemption  shall be  tax-effected
      such that the  amount  of  contribution  net of any taxes and  withholding
      (including such amounts in respect of payments  pursuant to this sentence)
      equals the percentages specified herein.

(c)   Vacation.  The Executive  shall be entitled to an annual  vacation at full
      pay equal to 24 work days.  Vacation days may be  accumulated  and may, at
      the Executive's  option or automatically  upon  termination,  be converted
      into cash  payments in an amount  equal to the  proportionate  part of the
      Base  Salary  for such  days;  provided,  however,  that if the  Executive
      accumulates more than two (2) times his then current annual entitlement of
      vacation days, such excess shall be automatically converted into the right
      to receive  such a cash  payment in respect of such  excess.  Payments  to
      which the  Executive  is entitled  pursuant to this  Section 4(c) shall be
      made promptly after the Executive's request therefor.

(d)   Sick Leave.  The Executive shall be entitled to a maximum  aggregate of 30
      days of fully paid sick leave, accruing at the rate of 2.5 days per month;
      provided,  however, that the Executive shall not be entitled to sick leave
      payment to the extent he is already covered by manager's  insurance.  Sick
      leave may be accumulated and may, at the Executive's  option, be converted
      into cash  payments in an amount  equal to the  proportionate  part of the
      Base  Salary for such days.  Payments to which the  Executive  is entitled
      pursuant to this Section 4(d) shall be made promptly after the Executive's
      request therefor.

(e)   Automobile.  Every three years,  the Company  shall make a new  automobile
      available  to the  Executive  during  the  term  of this  Agreement.  Such
      automobile  shall be of a high quality  comparable  to, but not less than,
      that of a current  (2003,  with  respect to the Initial  Term) model Honda
      Accord, Volkswagen Passat or Audi A4, and shall be subject to the approval
      of the Executive,  which shall not be unreasonably withheld. The Executive
      shall be entitled to use the  automobile  for his  personal  and  business
      needs, so long as he does not allow anyone who would not be covered by the
      Company's  insurance  to drive it. The Company  shall pay all  expenses of
      maintaining and operating the automobile.  All expense  reimbursements  or
      imputed income made under this Section shall be tax-effected such that the
      amount of  reimbursement  received by the  Executive  net of any taxes and
      withholdings  (including  such amounts in respect of payments  pursuant to
      this sentence) equals the expense incurred.

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(f)   Benefit  Plans.  The  Executive  shall be entitled to  participate  in all
      incentive,  bonus,  benefit or other similar plans offered by the Company,
      including   without   limitation  the  Company's  2004  Stock  Option  and
      Restricted  Stock Purchase Plan, in accordance  with the terms thereof and
      as determined by the Board from time to time.

5.    Expenses.

The Executive shall be entitled to receive prompt  reimbursement of all expenses
reasonably  incurred by him in  connection  with the  performance  of his duties
hereunder.  Without limiting the generality of the foregoing,  the Company shall
pay all of the  Executive's  expenses in the use of Internet and  telephones for
the Company's businesses. The Executive shall be entitled to receive room, board
and travel  reimbursement in connection with the performance of his duties other
than at the  principal  executive  office of the Company,  as is  customary  for
senior executives of publicly-held  companies.  All expense  reimbursements made
under this Section shall be tax-effected  such that the amount of  reimbursement
received by the  Executive  net of any taxes and  withholdings  (including  such
amounts in respect of  payments  pursuant to this  sentence)  equals the expense
incurred.

6.    Termination.

The Executive's  employment  hereunder shall and/or may be terminated  under the
following circumstances:

(a)   Death. This Agreement shall terminate upon the death of the Executive.

(b)   Disability.  The Company may terminate the  Executive's  employment  after
      having  established  the  Executive's  Disability.  For  purposes  of this
      Agreement, "Disability" means a physical or mental infirmity which impairs
      the  Executive's  ability to  substantially  perform his duties under this
      Agreement  which continues for a period of at least one hundred and eighty
      (180) consecutive days.

(c)   Cause. The Company may terminate the Executive's employment for Cause. For
      purposes  of this  Agreement,  termination  for  "Cause"  shall  mean  and
      include:  (i)  conviction  for fraud,  crimes of moral  turpitude or other
      conduct  which  reflects on the Company in a material and adverse  manner;
      (ii) a willful  failure  to carry  out a  material  directive  of the CEO,
      provided that such  directive  concerned  matters  within the scope of the
      Executive's  duties, was in conformity with Sections 2(a) and 2(b) hereof,
      would not give the Executive  Good Reason to terminate  this Agreement and
      was capable of being reasonably and lawfully  performed;  (iii) conviction
      in a court of  competent  jurisdiction  for  embezzlement  of funds of the
      Company;  and (iv)  reckless  or  willful  misconduct  that is  materially
      harmful  to the  Company;  provided,  however,  that the  Company  may not
      terminate  the  Executive  for Cause unless they have given the  Executive
      written  notice  of the  basis for the  proposed  termination  ("Company's
      Notice of Termination").

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(d)   Good  Reason.  The  Executive  may  terminate  his  employment  under this
      Agreement for Good Reason.  For purposes of this Agreement,  "Good Reason"
      shall mean the occurrence of any of the events or conditions  described in
      subsections (i) through (vi) hereof:

      (i)   a  change  (1)  in  the  Executive's  status,   title,  position  or
            responsibilities  which,  in the  Executive's  reasonable  judgment,
            represents a reduction or demotion in the Executive's status, title,
            position or responsibilities as in effect immediately prior thereto,
            or (2) in the primary  location from which the Executive  shall have
            conducted his business  activities  during the 60 days prior to such
            change;

      (ii)  a reduction in the Executive's Base Salary;

      (iii) the  failure  by  the  Company  to  continue  the   Executive  as  a
            participant  in any material  compensation  or benefit plan in which
            the other vice  presidents of the Company are  participating  unless
            agreed to by the Executive;

      (iv)  the  insolvency or the filing (by any party,  including the Company)
            of a petition for the winding-up of the Company;

      (v)   any  material  breach  by the  Company  of  any  provision  of  this
            Agreement;

      (vi)  any purported termination of the Executive's employment for Cause by
            the Company  which does not comply with the terms of Section 6(c) of
            this Agreement;

      provided,  however,  that the Executive  may not terminate his  employment
      under this  Agreement  for Good Reason unless he has given the Company (i)
      written  notice of the basis for the  proposed  termination  not more than
      thirty (30) days after the Executive has obtained  knowledge of such basis
      ("Executive's Notice of Termination") and (ii) a period of at least thirty
      (30) days after the Company's receipt of such notice in which to cure such
      basis.

(e)   Change in Control.  The Executive may terminate this Agreement if there is
      a "Change  in  Control."  For  purposes  of this  Agreement,  a "Change in
      Control" shall mean any of the following events:

      (i)   the acquisition  (other than from the Company in any public offering
            or private  placement  of equity or  equivalent  securities)  by any
            person or entity of beneficial  ownership of thirty percent (30%) or
            more of the combined voting power of the Company's then  outstanding
            voting securities; or

      (ii)  individuals who, as of January 1, 2004, were members of the Board of
            the  Company  (the  "Original  Board"),  together  with  individuals
            approved by a vote of at least  two-thirds  (2/3) of the individuals
            who were members of the Original Board and are then still members of
            the Board of the  Company,  cease for any  reason to  constitute  at
            least one-third (1/3) of the Board of the Company; or

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      (iii) approval by the shareholders of the Company of a complete winding-up
            of the Company or an agreement for the sale or other  disposition of
            all or substantially all of the assets of the Company.

      The  Executive  shall  give  to  the  Company  an  Executive's  Notice  of
      Termination if the Executive  desires to terminate his employment  because
      there has been a Change in  Control,  such  notice to specify  the date of
      such termination  which shall be not less than thirty (30) days after such
      notice is received by the Company.  Any such notice,  to be effective with
      respect  to any  Change  in  Control,  must be sent no later  than six (6)
      months after such Change in Control.

(f)   Termination  Date, Etc.  "Termination  Date" shall mean in the case of the
      Executive's  death,  his date of death,  or in all other  cases,  the date
      specified in the Notice of Termination subject to the following:

      (i)   if the Executive's employment is terminated by the Company for Cause
            or due to Disability,  the date specified in the Company's Notice of
            Termination  shall be at least  thirty  (30)  days from the date the
            Notice of Termination  is given to the  Executive,  provided that in
            the case of Disability the Executive  shall not have returned to the
            full-time  performance  of his duties during such period of at least
            thirty (30) days;

      (ii)  if the  Executive's  employment  is terminated  for Good Reason,  or
            because  there has been a Change in Control,  the  Termination  Date
            specified in the Executive's Notice of Termination shall not be more
            than  sixty  (60) days from the date the  Notice of  Termination  is
            given to the Company.

(g)   Retirement.  At any time during the period beginning (i) 150 days prior to
      his 65th birthday  ("Retirement")  or (ii) from 150 days prior to his 55th
      birthday until 150 days prior to his 65th birthday  ("Early  Retirement"),
      the Executive  may retire from his positions  with the Companies by giving
      to the Companies  written  Notice of Retirement  specifying the Retirement
      Date,  which Retirement Date shall be at least one hundred and fifty (150)
      days from the date of such Notice of Retirement.

7.    Compensation upon Termination.

Upon termination of the Executive's employment hereunder, the Executive shall be
entitled to the following benefits:

(a)   If the Executive's employment is terminated by the Company for Cause or if
      the Executive's  employment is terminated by the Executive other than with
      either Good  Reason,  because  there has been a Change in Control,  due to
      Non-Renewal,  or due to Retirement or Early  Retirement,  then the Company
      shall pay the  Executive  all  amounts  of Base  Salary  and the  employee
      benefits  specified  in  clauses  (a),  (b) and (c) of  Section  4 of this
      Agreement earned or accrued hereunder through the Termination Date but not
      paid as of the Termination Date (collectively, "Accrued Compensation").

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(b)   If the  Executive's  employment by the Company shall be terminated (1) due
      to Disability,  (2) by the Executive for Good Reason, (3) by the Executive
      because there has been a Change in Control,  (4) by the Executive's death,
      (5) due to Non-Renewal or (6) due to Retirement or Early Retirement,  then
      the Executive shall be entitled to the additional benefits provided below:

      (i)   the Company shall pay the  Executive  (a) all Accrued  Compensation,
            (b) a bonus at a rate of the  higher  of (i)  20%,  or (ii) the rate
            that  would  otherwise  be payable  pursuant  to the  provisions  of
            Section  3(b)  above  for the year in  which  the  Termination  Date
            occurs,  of  Executive's  annual Base  Salary as of the  Termination
            Date,  pro rated  based on the  number  of days in such  year  which
            occurred prior to the Termination Date, and (c) the amounts referred
            to in Sections  4(d) and (e) above,  to the extent earned or accrued
            hereunder  through  the  Termination  Date  but  unpaid  as  of  the
            Termination Date;

      (ii)  the Company shall pay into a trust to be  established  pursuant to a
            separate trust  agreement (the "Trust") as termination  pay (in lieu
            of any amounts  payable as  severance  under law) and in lieu of any
            further  salary  for  periods  subsequent  to the  Termination  Date
            (except as provided in Section 7(b)(i) above),  a total of $330,000;
            provided,  however, that if the Executive's employment is terminated
            by reason of a Change of Control or a change in the primary location
            from  which  the  Executive   shall  have   conducted  his  business
            activities during the 60 days prior to such change,  the termination
            payment  pursuant  to this  clause  (y) shall be an amount  equal to
            twice the amount that would  otherwise be payable.  Termination  pay
            will vest and be funded into the Trust in three  equal  installments
            as provided in Section 7(b)(iv) below.

      (iii) for a period  of time  equal to (1)  twelve  months,  in the case of
            Termination due to Disability, Good Reason, a Change in Control, the
            Executive's death, or Non-Renewal, or (2) twenty-four months, in the
            case of  Termination  due to  Early  Retirement,  or (3)  thirty-six
            months,  in the case of Termination  due to Retirement,  the Company
            shall at its  expense  continue on behalf of the  Executive  and his
            dependents and beneficiaries all of the benefits,  including without
            limitation  automobile  (only  in the  case of  Retirement  or Early
            Retirement),   manager's  insurance,  life  insurance,   disability,
            medical,  dental  and  hospitalization  benefits,  which  were being
            provided to the Executive at the time Notice of Termination is given
            (or, if the Executive  terminates  his employment for Good Reason or
            because a Change in Control has occurred,  the benefits  provided to
            the  Executive  at the time  immediately  preceding  when  such Good
            Reason arose or such Change in Control occurred,  if greater,  or if
            such benefits are being provided after the  Executive's  death,  the
            date of his death), provided that the Company's obligation hereunder
            with  respect  to the  foregoing  benefits  shall be  limited to the
            extent that the Executive  obtains any such  benefits  pursuant to a
            subsequent employer's benefit plans.

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      (iv)  The  termination  pay will be funded  into the Trust in three  equal
            installments, each in an amount in cash equal to $110,000. The first
            installment  will  be  paid  into  the  Trust  on  signing  of  this
            Agreement,  the  second  by  December  31,  2005,  and the  third by
            December 31, 2006.

      (v)   In the event of a  termination  due to Change of Control or a change
            in  the  primary  location  from  which  the  Executive  shall  have
            conducted his business  activities  during the 60 days prior to such
            change,  all of the Executive's  stock options,  whether or not they
            have yet vested,  shall immediately vest and shall be extended for a
            period of the later of (x) the expiration date thereof,  and (y) the
            second  anniversary of such Change of Control or change in location.
            In the event of  termination  due to any  other  reason  except  for
            Termination  for Cause,  the Executive's  then-vested  stock options
            shall be extended for a period of the earlier of (x) the  expiration
            date thereof, and (y) two years after such termination.

      Such  sums  are  intended  to be in place  of and not in  addition  to any
      severance sums due to the Executive by operation of law, and any such sums
      paid to the Executive as a result of statutory or other legal requirements
      shall be deducted from the sums above. Such sums are not intended to be in
      lieu of amounts payable pursuant to any separate  agreements  entered into
      contemporaneously with or subsequent to the date of this Agreement.

      As a condition to receiving the payments  described in this Section 7, the
      Executive  shall  execute and deliver to the Company a release in the form
      attached hereto as Exhibit A.

8.    Confidentiality; Proprietary Rights; Competitive Activity.

(a)   Confidentiality.   Executive   recognizes   and   acknowledges   that  the
      technology,   developments,   designs,  inventions,   improvements,  data,
      methods,  trade  secrets and works of  authorship  which the Company owns,
      plans  or  develops,  including  without  limitation  the  specifications,
      documentation  and other  information  relating to the Company's  zinc-air
      battery  systems,  and businesses and equipment  related  thereto (in each
      case  whether  for  their  own  use  or  for  use by  their  clients)  are
      confidential  and  are  the  property  of  the  Company.   Executive  also
      recognizes that the Company's technology,  customer lists, supplier lists,
      proposals  and  procedures  are  confidential  and are the property of the
      Company.  Executive  further  recognizes and acknowledges that in order to
      enable the Company to perform services for its clients,  those clients may
      furnish to the Company confidential  information concerning their business
      affairs,  property,  methods  of  operation  or other  data.  All of these
      materials  and  information  will be  referred  to below  as  "Proprietary
      Information";  provided,  however, that such information shall not include
      any  information  known generally to the public (other than as a result of
      unauthorized disclosure by the Executive).

(b)   Non-Disclosure.  Executive agrees that, except as directed by the Company,
      and in the ordinary course of the Company's  business,  Executive will not
      during Executive's employment with the Company and thereafter, disclose to
      any person or entity or use,  directly or indirectly for  Executive's  own
      benefit or the benefit of others, any Proprietary  Information,  or permit
      any person to examine or make copies of any documents which may contain or
      be derived  from  Proprietary  Information;  provided,  however,  that the
      Executive's  duties  under this  Section  8(b) shall not extend to (i) any
      disclosure  that may be required by law in connection with any judicial or
      administrative  proceeding or inquiry or (ii) any disclosure  which may be
      reasonably  required  in  connection  with any actions or  proceedings  to
      enforce the Executive's rights under this Agreement. Executive agrees that
      the  provisions of this  paragraph  shall survive the  termination of this
      Agreement and Executive's employment by the Company.

                                     - 9 -
<PAGE>

(c)   Competitive Activity. The Executive undertakes not, directly or indirectly
      (whether as owner,  partner,  consultant,  employee or  otherwise)  at any
      time,  during and for twelve  (12)  months  following  termination  of his
      employment  with the Company,  to engage in or contribute his knowledge to
      any  work or  activity  that  involves  a  product,  process,  service  or
      development  which is then directly (in any material  manner)  competitive
      with any business that the Company has  conducted  during the term of this
      Agreement or any extension  hereof on which the  Executive  worked or with
      respect to which the Executive had access to Proprietary Information while
      with the Company.  Notwithstanding  the foregoing,  the Executive shall be
      permitted to engage in the aforementioned proposed work or activity if the
      Company  furnishes  him with written  consent to that effect  signed by an
      authorized officer of the Company.

(d)   No  Solicitation.  During the period  specified in 8(c) hereof,  Executive
      will not solicit or  encourage  any customer or supplier of the Company or
      of any group,  division or  subsidiary  of the Company,  to terminate  its
      relationship  with the Company or any such group,  division or subsidiary,
      and Executive will not, directly or indirectly,  recruit or otherwise seek
      to induce any  employee  of the  Company or any such  group,  division  or
      subsidiary  to terminate  his or her  employment  or violate any agreement
      with or duty to the Company or any such group, division or subsidiary.

(e)   Equitable  Relief.  The Executive  agrees that  violations of the material
      covenants  in this Section 8 will cause the Company  irreparable  injuries
      and  agrees  that the  Company  may  enforce  said  covenants  by  seeking
      injunctive or other  equitable  relief (in addition to any other  remedies
      the  Company  may have at law for  damages or  otherwise)  from a court of
      competent  jurisdiction.  In the event such court declares these covenants
      to be too  broad  to be  specifically  enforced,  the  covenants  shall be
      enforced  to the  largest  extent as may be  allowed by such court for the
      Company's  protection.  Executive  further  agrees  that no  breach by the
      Company of, or other  failure by the Company  under this  Agreement  shall
      relieve the  Executive of any  obligations  under  Sections  8(a) and 8(b)
      hereof.

9.    Successors and Assigns.

(a)   This Agreement shall be binding upon and shall inure to the benefit of the
      Company,  its  successors  and assigns and the Company  shall  require any
      successor  or  assign  to  expressly  assume  and  agree to  perform  this
      Agreement in the same manner and to the same extent that the Company would
      be required to perform it if no such  succession or  assignment  had taken
      place. The term the "Company" as used herein shall include such successors
      and assigns. The term "successors and assigns" as used herein shall mean a
      corporation or other entity acquiring all or substantially  all the assets
      and  business  of  the  Company  (including  this  Agreement)  whether  by
      operations of law or otherwise.

                                     - 10 -
<PAGE>

(b)   Neither  this  Agreement  nor any  right or  interest  hereunder  shall be
      assignable or transferable by the Executive,  his  beneficiaries  or legal
      representatives,   except  by  will  or  by  the  laws  of   descent   and
      distribution.  This  Agreement  shall  inure  to  the  benefit  of  and be
      enforceable by the Executive's legal personal representative.

(c)   Nothing to the contrary in the  foregoing  notwithstanding,  the Executive
      may assign this Agreement to any company of which he is a "control person"
      within the meaning of the Securities Exchange Act of 1934, provided,  that
      the  Executive  shall  continue to be  obligated to fulfill the duties set
      forth in Section 2 above, and provided,  further, that the Executive shall
      continue  to be bound by the terms  and  provisions  of  Section 8 of this
      Agreement notwithstanding any such assignment.

10.   Notice.

For the  purposes  of this  Agreement,  notices  and  all  other  communications
provided  for in the  Agreement  shall be in writing and shall be deemed to have
been duly given when personally  delivered or sent by registered  mail,  postage
prepaid,  addressed to the respective addresses set forth below or last given by
each party to the other. All notices and communications  shall be deemed to have
been  received on the date of  delivery  thereof or on the eighth  business  day
after the mailing  thereof,  except  that  notice of change of address  shall be
effective only upon receipt.

The initial  addresses of the parties for purposes of this Agreement shall be as
follows:

         The Company:           Electric Fuel (E.F.L.) Ltd.
                                One HaSolela Street, Western Industrial Park
                                Beit Shemesh 99000, Israel

         The Executive:         Steven Esses
                                P.O. Box 1307
                                Efrat, Israel

11.   Miscellaneous.

No provision of this Agreement may be modified, waived or discharged unless such
waiver,  modification  or  discharge  is agreed to in writing  and signed by the
Executive  and the Company.  No waiver by either party hereto at any time of any
breach by the other  party  hereto of, or  compliance  with,  any  condition  or
provision of this  Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent  time. No agreement or  representations,  oral or otherwise,
express or implied,  with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.

12.   Governing Law; Arbitration; Venue.

This  Agreement  shall be governed by and  construed  and enforced in accordance
with the laws of Israel without  application of any conflicts of laws principles
which would cause the application of the domestic  substantive laws of any other
jurisdiction.  All disputes  under this Agreement that cannot be resolved by the
parties shall be submitted to arbitration under the rules and regulations of the
Israel  Institute  of  Commercial  Arbitration.  Either  party may  invoke  this
paragraph  after  providing 30 (thirty) days written  notice to the other party.
All costs of  arbitration  shall be divided  equally  between the  parties.  The
arbitrator(s)  shall award to the prevailing party, if any, as determined by the
arbitrator(s),  all of its costs and fees. "Costs and Fees" means all reasonable
pre-award   expenses   of   the   arbitration,   including   arbitration   fees,
administrative fees, travel expenses, out-of-pocket expenses such as copying and
telephone,  court costs,  witness fees and  reasonable  attorneys'  fees. In the
event  that  notwithstanding  the  foregoing   arbitration  provision  there  is
nevertheless litigation in respect of this Agreement,  each of the Executive and
the Company hereby irrevocably waives any objection it may now or hereafter have
to the  laying  of  venue  in the  courts  of  the  State  of  Israel,  City  of
Tel-Aviv-Yafo,  for any  legal  suit or  action  instituted  by any party to the
Agreement against any other with respect to the subject matter hereof.

                                     - 11 -
<PAGE>

13.   Severability.

The provisions of this Agreement shall be deemed  severable,  and the invalidity
or   unenforceability  of  any  provision  shall  not  affect  the  validity  or
enforceability of the other provisions hereof.

14.   Entire Agreement.

This Agreement  constitutes the entire agreement  between the parties hereto and
supersedes  all  prior  agreements,  understandings  and  arrangements,  oral or
written,  between the parties  hereto with respect to the subject  matter hereof
including.

15.   Registration Rights.

      (a)   If  the  Company  at  any  time  proposes  to  register  any  of its
            securities under the Securities Act of 1933, as from time to time in
            effect (together with the rules and regulations  thereunder,  all as
            from time to time in  effect,  the  "Securities  Act"),  for its own
            account or for the  account of any  holder of its  securities,  on a
            form which would permit  registration of Common Stock of the Company
            at the  time  held or  obtainable  upon  the  exercise  of  options,
            warrants or rights, or the conversion of convertible securities,  at
            the time held by the Executive ("Registrable Securities"),  for sale
            to the public under the  Securities  Act, the Company will each such
            time give notice to the  Executive  of its  intention to do so. Such
            notice shall describe such  securities and specify the form,  manner
            and  other  relevant  aspects  of such  proposed  registration.  The
            Executive may, by written  response  delivered to the Company within
            15 days after the giving of any such  notice,  request that all or a
            specified  part of the  Registrable  Securities  be included in such
            registration.  the Company  will  thereupon  use its best efforts as
            part of its filing of such form to effect the registration under the
            Securities Act of all Registrable  Securities  which the Company has
            been so  requested  to  register  by the  Executive,  to the  extent
            required to permit the  disposition (in accordance with the intended
            methods thereof as aforesaid) of the Registrable Securities to be so
            registered.

      (b)   The Executive may, by notice to the Company  specifying the intended
            method or methods of disposition, given at any time and from time to
            time after the Company has registered any shares of its Common Stock
            under the  Securities  Act,  request  that the  Company  effect  the
            registration  under the Securities Act of all or a specified part of
            the  Registrable  Securities;  provided,  however,  that the Company
            shall not be  required  to effect a  registration  pursuant  to this
            Section 15(b) unless such registration may be effected on a Form S-3
            (or any successor or similar Form); and provided, further, that each
            registration  pursuant to this Section 15(b) shall cover a number of
            Registrable Shares equal to not less than 2% of the aggregate number
            of shares of the Company Common Stock then outstanding.  the Company
            will  then  use its best  efforts  to  effect  the  registration  as
            promptly as practicable  under the Securities Act of the Registrable
            Securities  which the Company has been  requested to register by the
            Executive pursuant to the Section 15(b).

                                     - 12 -
<PAGE>

(c)   Notwithstanding  the  provisions  of  Section  15(b),  in the  event  that
      Executive has requested  pursuant to Section 15(b) that the Company effect
      a registration  of securities,  and (i) the CEO of the Company  determines
      that it  would  be  seriously  detrimental  to the  Company  to  effect  a
      registration  pursuant  to Section  15(b),  or (ii) the CEO of the Company
      determines  in  good  faith  that  (A) the  Company  is in  possession  of
      material,  non-public  information  concerning  an  acquisition,   merger,
      recapitalization,   consolidation,   reorganization   or  other   material
      transaction  by or of the  Company or  concerning  pending  or  threatened
      litigation and (B)  disclosure of such  information  would  jeopardize any
      such  transaction or litigation or otherwise  materially harm the Company,
      then the Company shall promptly notify  Executive of the occurrence of any
      of the events  described in the  foregoing  clauses (i) or (ii).  Upon the
      occurrence  of any of the events  described in clauses (i) or (ii) hereof,
      the  Company  shall be  allowed  to  defer a  registration  of  securities
      pursuant to Section  15(b)  above,  and if a  registration  statement  had
      already  been  filed at such  time,  Executive  shall not  dispose  of his
      Registrable  Securities under such  registration  statement until it is so
      advised in writing by the  Company  that the  registration  of  securities
      under 15(b) may be effected or resumed. Notwithstanding the foregoing, any
      such deferment or  prohibition  on disposition  shall not be in effect for
      more than 90 days in any 12 months period.

(d)   The  Company  shall  not  be  obligated  to  effect  any  registration  of
      Registrable  Securities  under  Section  15(a)  hereof  incidental  to the
      registration  of  any  of  its  securities  in  connection  with  mergers,
      acquisitions, exchange offers, dividend reinvestment plans or stock option
      or other employee benefit plans.

(e)   The  Company  hereby  agrees  to pay,  or  cause to be  paid,  all  legal,
      accounting,  printing and other expenses (other than the fees and expenses
      of the Executive's own counsel and other than  underwriting  discounts and
      commissions attributable to the Registrable Securities) in connection with
      each registration of Registrable Securities pursuant to this Section 15.

(f)   In connection with each registration of Registrable Securities pursuant to
      this  Section  15,  the  Company  and the  Executive  will enter into such
      agreements,  containing  such terms and  conditions,  as are  customary in
      connection  with public  offerings,  such  agreements to contain,  without
      limitation,  customary  indemnification  provisions,  representations  and
      warranties and opinions and other  documents to be delivered in connection
      therewith, and to be, if requested, with underwriters.

(g)   The  provisions  of this  Section  15 shall be  subject  to any  agreement
      entered into by the Company,  in good faith,  with any  underwriter of the
      Company's  securities or any person or entity  providing  financing to the
      Company, in each case containing reasonable limitations on the Executive's
      rights and the Company's obligations hereunder.

                                     - 13 -
<PAGE>

(h)   The  provisions  of this Section 15 shall survive the  termination  of the
      other provisions of this Agreement. The rights of the Executive under this
      Section 16 are  assignable,  in whole or in part,  by the Executive to any
      person  or other  entity  acquiring  securities  of the  Company  from the
      Executive.

(i)   Notwithstanding  anything in the foregoing to the contrary,  the Executive
      shall  not  demand  a  registration  during  the  180  days  following  an
      underwritten public offering of the Common Stock of the Company.

(j)   Without the prior written consent of the underwriters  managing any public
      offering,  for a period  beginning  ten  days  immediately  preceding  the
      effective date of any  registration  statement  filed by the Company under
      the Securities  Act of 1933, as amended,  and ending on the earlier of (i)
      180 days after the effective date of such registration  statement and (ii)
      the end of the shortest period generally applicable to any "affiliate" (as
      defined in the Securities Act of 1933, as amended) of the Company who is a
      selling  shareholder  pursuant to such  registration  statement  or who is
      otherwise subject to a lockup provision,  the Executive  (whether or not a
      selling  shareholder  pursuant to such  registration  statement) shall not
      sell or otherwise  transfer any securities of the Company except  pursuant
      to such registration statement.

      IN WITNESS  WHEREOF,  the Company has caused this Agreement to be executed
by its duly authorized  officer and the Executive has executed this Agreement as
of the day and year first above written.

ELECTRIC FUEL (E.F.L.) LTD.

By:
   -------------------------------     -----------------------------------------
     Name:                                         STEVEN ESSES
     Title:

                                     - 14 -
<PAGE>

                                                                       Exhibit A

                             FORM OF MUTUAL RELEASE

      This  mutual  release  is  executed  and  delivered  by  and  between  the
undersigned  employee  of  Arotech  Corporation,  a  Delaware  corporation  (the
"Company") and the undersigned's  successors,  assigns,  executors,  estates and
personal representatives  (collectively,  the "Executive"), on the one hand, and
the Company and its affiliates,  agents,  successors and assigns  (collectively,
the  "Company"),  on the other hand. For and in  consideration  of the Executive
receiving the compensation  referred to in Section 7 of the Employment Agreement
effective as of January 1, 2005 and other good and valuable  consideration,  the
adequacy and receipt of which are hereby  acknowledged  by the Executive and the
Company,  the Executive  hereby  remises,  releases and forever  discharges  the
Company,  and the Company hereby  remises,  releases and forever  discharges the
Executive,  of and from any and all  manner of  action  and  actions,  cause and
causes of actions,  suits,  debts,  dues, sums of money,  accounts,  reckonings,
bonds,  bills,  covenants,  contracts,  controversies,  executions,  claims  and
demands of any kind and nature whatsoever in law or in equity, known or unknown,
against the other party which ever existed prior to the date hereof, or may ever
have on and after the date hereof with respect to matters arising,  and dealings
with the other party  occurring,  prior to the date hereof;  provided,  however,
that nothing  contained  herein shall be construed to release the Executive from
any  obligations  to the Company  pursuant to the  Employment  Agreement  nor to
release the Company from any of its obligations to the Executive pursuant to the
Employment Agreement.

         IN WITNESS WHEREOF, the Executive and the Company have each caused this
Release to be executed as of ______________________.

ELECTRIC FUEL (E.F.L.) LTD.

By:
   -------------------------------     -----------------------------------------
     Name:                                         STEVEN ESSES
     Title:Exhibit 10.1

     ALAN G. JORDAN                                        TIM L. CARR
      2772 HOLYOKE                                   4158 GLEN EAGLES COURT
ANN ARBOR, MICHIGAN 48103                       WEBSTER TOWNSHIP, MICHIGAN 48130

                                 April 10, 2005

Arotech Corporation
250 West 57th Street
Suite 310
New York, New York 10107

Attention:  Robert S. Ehrlich
            Chairman, President and CEO

                 Re: Stock Purchase/Sale Agreement

Gentlemen:

      Reference is made to the Stock Purchase and Sale  Agreement  dated January
7, 2004 (the "Agreement") by and among ourselves (the  "Shareholders"),  Arotech
Corporation,  a  Delaware  corporation  ("Arotech"),  and FAAC  Incorporated,  a
Michigan  corporation  ("FAAC").  All  capitalized  terms used and not otherwise
defined herein shall have the meanings  ascribed to such terms in the Agreement.
This letter supersedes the letter between us dated February 15, 2005.

      This will  confirm our  agreement to your request that we modify the terms
of the  Agreement to provide that,  notwithstanding  anything to the contrary in
the Agreement or in the Restated Security Agreement dated February 19, 2004 (the
"Security  Agreement")  between and among Arotech,  FAAC, and the  Shareholders,
payment of the 2004 Earnout Consideration shall be made by Arotech as follows:

            1.    On or prior to March 31, 2005,  Arotech  will  transfer to the
                  Shareholders all right and title to the Debt  Instruments,  as
                  defined  in  and  serving  as  security   under  the  Security
                  Agreement  and being held  pursuant  to the terms of an Escrow
                  Agreement  dated  February 19, 2004 between and among Arotech,
                  the  Shareholders  and HSBC Bank USA or, at Arotech's  option,
                  Arotech will deliver to the  Shareholders a cashier's check or
                  wire  transfer  of  immediately  available  funds in an amount
                  equal to the principal plus accrued  interest then outstanding
                  under those Debt Instruments.

            2.    As soon as Arotech has filed its Form 10-K for 2004, but in no
                  event later than April 30, 2005 (the "Issuance Date"), Arotech
                  will issue in the name of the Shareholders and deliver to CIBC
                  Israel,  a subsidiary  of CIBC World  Markets (the  "Broker"),
                  that number of registered  shares of Arotech Common Stock (the
                  "Shares")  having a value,  based  upon the  lowest of the bid
                  price  in the  previous  20  days  immediately  preceding  the
                  Issuance Date, of $10,000,000  (which is approximately 125% of
                  the amount that Arotech and the Shareholders  estimate will be
                  the remaining balance of the 2004 Earnout  Consideration after
                  application of the amount  specified in Paragraph  1(but in no
                  event will  Arotech be obligated  to issue  additional  shares
                  which,  when  combined  with the Shares and the Closing  Stock
                  Consideration,  will  constitute  more  than 20% of  Arotech's
                  issued  and  outstanding  common  stock on the date the Shares
                  were issued)) for sale or  distribution in accordance with the
                  procedures hereafter described.

            3.    Immediately  following the Issuance Date, the Buyer will cause
                  the Broker to initiate and thereafter  implement as rapidly as
                  possible the sale, in one or more transactions, of that number
                  of the Shares as will be required to generate  net proceeds to
                  the  Shareholders  (after all fees to the Broker and all other
                  transactional  expenses) of the remaining  balance of the 2004
                  Earnout   Consideration   after   application  of  the  amount

<PAGE>

Arotech Corporation
April 10, 2005
Page 2

                  specified in Paragraph 1, plus (as provided in the  Agreement)
                  interest on that  remaining t 12 12 balance from April 1, 2005
                  until  paid at the rate of 12% per  annum  (collectively,  the
                  "Earnout   Balance")  and,  within  three  (3)  business  days
                  following each such sale, to disburse such net proceeds to the
                  Shareholders  by  wire  transfer  to an  account  or  accounts
                  designated by the Shareholders.  In implementing  those sales,
                  the  Broker  shall  operate  with  the  primary  objective  to
                  generate  net  proceeds  equal  to  the  Earnout  Balance  for
                  distribution to the  Shareholders  on or before  September 30,
                  2005 and, to the extent  (but only to the  extent)  consistent
                  with that primary objective, to maximize the average price per
                  share at which  the  Shares  are sold.  Unless at the  written
                  directive  of the  Shareholders,  no sales of  Shares  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
                  Shares.

            4.    If as  of  September  30,  2005,  the  Shareholders  have  not
                  received   full   payment   of  the   Earnout   Balance   from
                  distributions  of cumulative  net proceeds of the sales of the
                  Shares, then the following shall apply:

                           (a) If, based upon the lowest of the bid price in the
                  20 days immediately preceding September 30, 2005, the market
                  value of the Shares then held by the Broker for sale is less
                  than 125% of the Earnout Balance not yet paid as of that date,
                  then Arotech, on October 3, 2005, shall issue in the name of
                  the Shareholders and deliver to the Broker that number of
                  additional registered shares of Arotech Common Stock as will
                  be required to achieve that percentage (but in no event will
                  Arotech be obligated to issue additional shares which, when
                  combined with the Shares and the Closing Stock Consideration,
                  will constitute more than 20% of Arotech's issued and
                  outstanding common stock on the date the Shares were issued);
                  and

                           (b) The Shareholders shall have the right, as of or
                  at any time after October 3, 2005, (i) to direct the Broker to
                  sell the Shares at whatever prices are offered in the market
                  and the Shareholders approve and (ii) if the Shareholders so
                  elect, by written notice (the "Notice") delivered to the
                  Broker and Arotech, to require that the Broker release and
                  deliver to the Shareholders on or before the fifth (5th)
                  business day following the date of delivery of the Notice any
                  remaining net proceeds from the prior sales of the Shares and
                  any remaining Shares that had not yet been sold as of the date
                  the Notice was delivered so that the Shareholders can directly
                  implement the sale of the Shares.

5.                If, at any time prior to March 31, 2006, the Shareholders
                  receive full payment of the Earnout Balance from distributions
                  of cumulative net proceeds of the sales of the Shares, then
                  (a) any net proceeds of such sales in excess of the Earnout
                  Balance shall be delivered to the Buyer and (b) any Shares
                  remaining unsold after such full payment shall be delivered to
                  the Buyer.

            6.    If as of March 31, 2006,  the  Shareholders  have not received
                  full  payment of the Earnout  Balance  from  distributions  of
                  cumulative  net proceeds of the sales of the Shares,  then the
                  Shareholders  shall have the right, as of or at any time after
                  that  date,  by  written  demand  delivered  to the Buyer (the
                  "Demand"),  to require that the Buyer,  on or before the tenth
                  (10th)  business  day  following  the date of delivery of that
                  Demand,  pay to the  Shareholders by a cashier's check or wire
                  transfer of  immediately  available  funds an amount  equal to
                  Earnout Balance and,  following  receipt of such payment,  the
                  Shareholders  will  waive  all  rights  to any  remaining  net
                  proceeds  from  the  prior  sales  of  the  Shares  and to any
                  remaining Shares, if any, that had not yet been sold as of the
                  date such payment and any  remaining  net proceeds and Shares,
                  if any, shall be delivered to the Buyer.

<PAGE>

Arotech Corporation
April 10, 2005
Page 3

            7.    Until paid,  the 2004 Earnout  Consideration  will continue to
                  bear  interest at the rate  specified in Section  2.4.1 of the
                  Agreement.

            8.    Unless  and until the 2004  Earnout  Consideration  is paid in
                  full,  the  provisions  for  security  for that payment in the
                  Security Agreement will remain in full force and effect.

            Except as expressly  stated above,  all provisions of the Agreement,
as originally signed and previously amended, remain in full force and effect.

            If the  foregoing  is  acceptable  to you,  kindly sign in the place
provided for your signature  below,  whereupon this letter will become a binding
amendment to the Agreement, the Security Agreement and the Escrow Agreement.

                                            Sincerely,

                                            Alan G. Jordan

                                            Tim L. Carr

ACCEPTED AND AGREED:

AROTECH CORPORATION

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

ACCEPTED AND AGREED:

FAAC INCORPORATED

By:
    ----------------------------------------------
     Alan G. Jordan
     Chairman and CEO

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