Document:

Exhibit 4.5

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

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

                              W I T N E S S E T H:
                               - - - - - - - - - -

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

         WHEREAS, the Debtors executed and delivered to the Secured Parties a
security agreement, dated the date hereof (the "Security Agreement", and
together with this Agreement, the "Security Agreements"), for the benefit of the
Secured Parties and to grant to them a security interest in certain property of
the Debtors to secure the prompt payment, performance and discharge in full of
all of the Parent's obligations under the Debentures and related transaction
documents; and

         WHEREAS, it is contemplated that the Secured Parties shall be granted
(i) a first priority, perfected security interest in the Parent Collateral (as
defined below) and (ii) a second priority security interest in the IES
Collateral (as defined below), and that the Collateral (as defined below) will
secure all of the outstanding Obligations on a pro rata basis.

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

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

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

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

              (c) "Collateral" the Parent Collateral and the IES Collateral.

              (d) "Copyrights" means any and all of Debtors' (i) copyrights in
computer software owned by the Company, including any revisions and derivative
works, whether registered or not and whether or not the same also constitutes a
trade secret, now or hereafter existing, created, acquired or held, including,
without limitation, those set forth on Exhibit A attached hereto and (ii)
copyrights, copyright applications, copyright registration and like protections
in each work of authorship and any derivative work thereof, including computer
programs, that is created by the Debtors, whether published or unpublished and
whether or not the same also constitutes a trade secret, and all copyright
licenses now or hereafter existing, created, acquired or held by the Debtors,
including, without limitation, those registrations and applications set forth on
Exhibit A attached hereto.

              (e) "IES Collateral" means all right, title and interest in and to
all of Trademarks, Patents, Copyrights, domain names and other general
intangible property of IES, all trade secrets, intellectual property rights in
IES' computer software and computer software products, design rights which may
be available, owned or licensed to IES, all income, royalties, damages and
payments now or hereafter due and/or payable under any of the foregoing or with
respect to any of the foregoing of IES' rights to proceeds arising from any and
all claims for damages by way of past, present and future infringement of any
Collateral with the right but not the obligation to sue on behalf of and collect
such damages for said use or infringement of the Copyrights, Patents or
Trademarks, and IES' rights with respect to licenses granted by IES to third
parties or licensed to IES to use any of the Copyrights, domain names, Patents
or Trademarks, and all license fees and royalties due to IES arising from such
use to the extent permitted by such license or rights, all of which are now or
hereafter existing, created, acquired or held. The term "IES Collateral" shall
include all of the foregoing items, whether presently owned or existing or
hereafter acquired or coming into existence, all of IES' additions and
accessions thereto, all of IES' substitutions and replacements thereof, and all
of IES' proceeds, products and accounts thereof, including without limitation
all proceeds from the licensing or sale or other transfer of Collateral and of
insurance covering the same and of any tort claims in connection therewith.

              (f) "Parent Collateral" means all of the following hereafter
acquired or coming into existence as a result of an Acquisition: all of the
Parent's right, title and interest in and to all of Trademarks, Patents,
Copyrights, domain names and other general intangible property of the Parent,
all Parent's trade secrets, Parent's intellectual property rights in Parent's
computer software and Parent's computer software products, design rights which
may be available, owned or licensed to the Parent, all income, royalties,
damages and payments now or hereafter due and/or payable under any of the
foregoing or with respect to any of the foregoing Parent's rights to proceeds
arising from any and all claims for damages by way of past, present and future
infringement of any Collateral with the right but not the obligation to sue on
behalf of and collect such damages for said use or infringement of the
Copyrights, Patents or Trademarks, and Parent's rights with respect to licenses
granted by Parent to third parties or licensed to Parent

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to use any of the Copyrights, domain names, Patents or Trademarks, and all
license fees and royalties due to the Parent arising from such use to the extent
permitted by such license or rights, all of which are now or hereafter existing,
created, acquired or held. The term "Parent Collateral" shall include all of the
foregoing items, all of Parent's additions and accessions thereto, all of
Parent's substitutions and replacements thereof, and all of Parent's proceeds,
products and accounts thereof, including without limitation all proceeds from
the licensing or sale or other transfer of Collateral and of insurance covering
the same and of any tort claims in connection therewith.

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

              (h) "Patents" means all of the Debtors' patents, patent
applications, patent licenses, letters patent and like protections of the United
States or any other country, including, without limitation, improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, all of which are now or hereafter existing,
created, acquired or held and including, without limitation, those registrations
and applications set forth on Exhibit B attached hereto and all goodwill
associated with or symbolized by any of the foregoing.

              (i) "Trademarks" means any Debtor trademark or service mark right,
whether or not registered, Debtors' applications to register and registrations
of the same and like protections, any trademark or service mark licenses and the
entire goodwill of the business of the Debtors connected with or symbolized by
such trademarks or service marks, including all renewals thereof all of which
are now or hereafter existing, created, acquired or held, including, without
limitation, those registrations and applications set forth on Exhibit C attached
hereto all goodwill associated with or symbolized by any of the foregoing.

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

         2. Grant of Security Interest.

         (a) As an inducement for the Secured Parties to enter into the Purchase
Agreement and to secure the complete and timely payment, performance and
discharge in full, as the case may be, of all of the Obligations, each of the
Debtors hereby, unconditionally and irrevocably, pledges, grants and
hypothecates to the Agent for itself and for the benefit of each of

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the Secured Parties, a perfected, first priority security interest in, a first
lien upon and a right of set-off against all of the Debtors' right, title and
interest of whatsoever kind and nature in and to the Parent Collateral (the
"First Priority Security Interest").

              (b) As an inducement for the Secured Parties to enter into the
Purchase Agreement and to secure the complete and timely payment, performance
and discharge in full, as the case may be, of all of the Obligations, each of
the Debtors hereby, unconditionally and irrevocably, pledges, grants and
hypothecates to the Agent for itself and for the benefit of each of the Secured
Parties, a continuing second priority security interest in, and second lien upon
and a right of set-off against all of the Debtors' right, title and interest of
whatsoever kind and nature in and to the IES Collateral (the "Second Priority
Security Interest", and together with the First Priority Security Interest, the
"Security Interests"), junior only to the first priority security interest (the
"First Investors' Security Interest") in the Parent Collateral in favor of
certain investors (the "First Investors") pursuant to that certain IP Security
Agreement (the "First Investors' Security Agreement"), dated December 31, 2002,
by and among the Parent, its subsidiaries parties thereto and the First
Investors.

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

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

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

              (c) Exhibit A sets forth a true and complete list of all Debtors'
registrations and applications for Copyrights in existence as of the date of
this Agreement. Exhibit B sets forth a true and complete list of all Debtors'
registrations and applications for Patents that have been filed as of the date
of this Agreement. Exhibit C sets forth a true and complete list of all Debtors'
registrations and applications for Trademarks filed as of the date of this
Agreement. The Debtors shall, within ten (10) days of obtaining knowledge
thereof, advise

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the Secured Parties in writing of any change in the composition of the
Collateral, including, without limitation, any subsequent ownership rights of
the Debtors in or to any Copyrights, Patents or Trademarks.

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

              (e) Each Debtor shall at all times maintain its books of account
and records relating to the Collateral at its principal place of business and
may not relocate such books of account and records unless it delivers to the
Secured Parties at least 30 days prior to such relocation (i) written notice of
such relocation and the new location thereof (which must be within the United
States) and (ii) evidence that appropriate financing statements and other
necessary documents have been filed and recorded and other steps have been taken
to perfect the Security Interests to create in favor of the Secured Parties a
valid, perfected and continuing first priority liens in the Parent Collateral
and a valid and continuing second priority lien in the IES Collateral
subordinate only to the First Investors' Security Interest. The principal place
of business of the Debtors is located at the address set forth in Schedule A
hereto, and will not be moved without notice to each Secured Party.

              (f) This Agreement creates in favor of the Secured Parties a valid
security interest in the Collateral, including the Collateral listed on the
Exhibits hereto, securing the payment and satisfaction of the Obligations, and,
upon making the filings described in the immediately following sentence, (i) a
perfected first priority interest in the Parent Collateral that is senior to all
existing and hereinafter created security interests and (ii) a second priority
security interest in the IES Collateral that is senior to all existing and
hereinafter created security interests except for the First Investors' Security
Interest. Except for (x) the filing of this Agreement with the United States
Patent and Trademark Office with respect to the Patents and Trademarks and the
filing of this Agreement with the United States Copyrights Office with respect
to the Copyrights, and (y) the filing of financing statements on Form UCC-1
under the UCC with the jurisdictions indicated in Schedule A, attached hereto,
no authorization or approval of or filing with or notice to any governmental
authority or regulatory body is required either (i) for the grant by the Debtors
of, or the effectiveness of, the Security Interests granted hereby or for the
execution, delivery and performance of this Agreement by the Debtors or (ii) for
the perfection of or exercise by the Secured Parties of its rights and remedies
hereunder. The Debtors acknowledge and agree that a copy of this Agreement (or
instruments executed and delivered pursuant hereto) will be filed and recorded
with each of the United States Patent and Trademark Office and the United States
Copyrights Office with respect to the Patents, Trademarks and Copyrights that
are now or hereafter in existence.

<PAGE>

              (g) The Debtors acknowledge and agree that on the date of
execution of this Agreement, the Secured Parties will: (i) file one or more
financing statements under the UCC with respect to the Security Interests for
filing with the jurisdictions indicated on Schedule A, attached hereto and in
such other jurisdictions the Secured Parties may deem necessary and (ii) one or
more executed recordation sheets relating to the filing and recording of this
Agreement with each of the United States Patent and Trademark Office and the
United States Copyrights Office with respect to the Patents, Trademarks and
Copyrights that are now in existence.

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

              (i) The Debtors shall at all times maintain the liens and Security
Interests provided for hereunder as valid liens and security interests in the
Collateral in favor of each of the Secured Parties to ensure that such liens and
Security Interests are and remain senior to all not existing and hereafter
created security interests and liens. The Collateral will be kept free of all
liens, security interest, claims and encumbrances whatsoever, except for the
First Investors' Security Interest. Each Debtor hereby agrees to defend the same
against any and all persons. Each Debtor shall safeguard and protect all
Collateral for the account of the Secured Parties. At the request of the Agent
and/or Secured Parties, the Debtors will sign and deliver to the Secured Parties
at any time or from time to time one or more financing statements pursuant to
the UCC in form reasonably satisfactory to the Secured Parties and will pay the
cost of filing the same in all public offices wherever filing is, or is deemed
by the Secured Parties to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, the Debtors shall pay all fees, taxes and other amounts necessary to
maintain the Collateral and the Security Interests hereunder, and the Debtors
shall obtain and furnish to the Secured Parties from time to time, upon demand,
such releases and/or subordinations of claims and liens which may be required to
maintain the priority of the Security Interests hereunder.

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

              (k) Each Debtor shall, within ten (10) days of obtaining knowledge
thereof, advise the Agent, in sufficient detail, of any substantial change in
the Collateral, and of the occurrence of any event which would have a material
adverse effect on the value of the Collateral or on the Secured Parties'
security interest therein.

              (l) The Debtors shall permit the Secured Parties and its
representatives and agents upon reasonable prior notice to inspect the
Collateral at any time

<PAGE>

during normal business hours, and to make copies of records pertaining to the
Collateral as may be requested by the Secured Parties from time to time.

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

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

              (o) Each Debtor shall not use or permit any Collateral to be used
unlawfully or in violation of any provision of this Agreement or any applicable
statute, regulation or ordinance or any policy of insurance covering the
Collateral where violation is reasonably likely to have a material adverse
effect on the Secured Parties' rights in the Collateral or Secured Parties'
ability to foreclose on the Collateral.

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

              (q) Each Debtor shall notify the Agent of any change in such
Debtor's name, identity, chief place of business, chief executive office or
residence within 5 days of such change.

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

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

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

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

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

         5. Duty To Hold In Trust. Upon the occurrence and during the
continuation of any Event of Default, the Debtors shall, upon receipt by it of
any revenue, income or other sums subject to the Security Interests, whether
payable pursuant to the Debentures or otherwise, or of any check, draft, note,
trade acceptance or other instrument evidencing an obligation to pay any such
sum, hold the same in trust for the Secured Parties and shall forthwith endorse

<PAGE>

and transfer any such sums or instruments, or both, to the Secured Parties for
application to the satisfaction of the Obligations.

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

              (a) The Agent shall have the right to take possession of all
tangible manifestations or embodiments of the Collateral and, for that purpose,
enter, with the aid and assistance of any person, any premises where the
Collateral, or any part thereof, is or may be placed and remove the same, and
the Debtors shall assemble the Collateral and make it available to the Agent at
places which the Agent shall reasonably select, whether at the Debtors' premises
or elsewhere.

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

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

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

              (e) The Agent may, in order to implement the assignment, license,
sale or other disposition of any of the Collateral pursuant to this Section,
pursuant to the authority provided for in Section 12, execute and deliver on
behalf of the Debtors one or more instruments of assignment of the Collateral in
form suitable for filing, recording or registration in any jurisdictions as the
Secured Parties may determine advisable.

<PAGE>

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

              (g) Agent may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Secured Parties and that Secured Parties
have a security interest therein and Agent may direct any or all accounts
debtors to make payment of Accounts directly to Secured Parties, (ii) extend the
time of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all Accounts
or other obligations included in the Collateral and thereby discharge or release
the account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Agent shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Agent may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Agent's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Secured Parties and are payable
directly and only to Secured Parties and the Debtors shall deliver to Agent such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Agent may require.

         7. Applications of Proceeds. The proceeds of any such sale, lease,
license or other disposition of the Collateral hereunder shall be applied
provided that any apportionment and application under this Section 7 shall be
subject to any apportionment among the First Investors of the proceeds of the
IES Collateral under the First Investors' Security Agreements (i) first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, (ii) to the
reasonable attorneys' fees and expenses incurred by the Agent and/or Secured
Parties in enforcing its rights hereunder and in connection with collecting,
storing and disposing of the Collateral, (iii) to satisfaction of the
Obligations, and (iv) to the payment of any other amounts required by applicable
law, after which the Secured Parties shall pay to the Debtors any surplus
proceeds. If, upon the sale, license or other disposition of the Collateral, the
proceeds thereof are insufficient to pay all amounts to which the Secured
Parties are legally entitled, the Debtors will be liable for the deficiency,
together with interest thereon, at the rate of 12% per annum or the lesser
amount permitted by applicable law (the "Default Rate"), and the reasonable fees
of any attorneys employed by the Agent and/or Secured Parties to collect such
deficiency. To the extent permitted by applicable law, each Debtor waives all
claims, damages and demands against the Secured Parties arising out of the
repossession, removal, retention or sale of the Collateral, unless due to the
gross negligence or willful misconduct of the Agent and/or Secured Parties.

         8. Costs and Expenses. The Debtors agree to pay all out-of-pocket fees,
costs and expenses incurred in connection with any filing required hereunder,
including, without

<PAGE>

limitation, any financing statements, continuation statements, partial releases
and/or termination statements related thereto or any expenses of any searches
reasonably required by the Agent. The Debtors shall also pay all other claims
and charges which in the reasonable opinion of the Agent and/or Secured Parties
might prejudice, imperil or otherwise affect the Collateral or the Security
Interests therein. The Debtors will also, upon demand, pay to the Agent and/or
Secured Parties the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
the Agent and/or Secured Parties may incur in connection with (i) the
enforcement of this Agreement, (ii) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Collateral, or (iii)
the exercise or enforcement of any of the rights of the Secured Parties under
the Debentures. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Debentures and shall bear interest at the Default Rate.

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

         10. Security Interests Absolute. All rights of the Secured Parties and
all Obligations of the Debtors hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures, the Security Agreement or any agreement entered into in
connection with the foregoing, or any portion hereof or thereof; (b) any change
in the time, manner or place of payment or performance of, or in any other term
of, all or any of the Obligations, or any other amendment or waiver of or any
consent to any departure from the Debentures, the Security Agreement or any
other agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Collateral, or any release or amendment
or waiver of or consent to departure from any other collateral for, or any
guaranty, or any other security, for all or any of the Obligations; (d) any
action by the Secured Parties to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to the Debtors, or a discharge of all
or any part of the Security Interests granted hereby. Until the Obligations
shall have been paid and performed in full, the rights of the Secured Parties
shall continue even if the Obligations are barred for any reason, including,
without limitation, the running of the statute of limitations or bankruptcy.
Each Debtor expressly waives presentment, protest, notice of protest, demand,
notice of nonpayment and demand for performance. In the event that at any time
any transfer of any Collateral or any payment received by the Secured Parties
hereunder shall be deemed by final order of a court of competent jurisdiction to
have been a voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or shall be deemed to be otherwise due to
any party other than the Secured Parties, then, in any such event, the Debtors'
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof. Each Debtor

<PAGE>

waives all right to require the Secured Parties to proceed against any other
person or to apply any Collateral which the Secured Parties may hold at any
time, or to marshal assets, or to pursue any other remedy. Each Debtor waives
any defense arising by reason of the application of the statute of limitations
to any obligation secured hereby.

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

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

              (b) On a continuing basis, each Debtor will make, execute,
acknowledge, deliver, file and record, as the case may be, with the proper
filing and recording places in any jurisdiction, including, without limitation,
the jurisdictions indicated on Schedule A, attached hereto, all such
instruments, including appropriate financing and continuation statements and
collateral agreements and filings with the United States Patent and Trademark
Office and the United States Copyrights Office, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by the
Secured Parties, to perfect the Security Interests granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Secured Parties the grant or perfection of the
Security Interests in all the Collateral.

              (c) Each Debtor hereby irrevocably appoints the Secured Parties as
such Debtors' attorney-in-fact, with full authority in the place and stead of
such Debtor and in the name of such Debtor, from time to time in the Secured
Parties' discretion, to take any action and

<PAGE>

to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including:

                  (i) To modify, in its sole discretion, this Agreement without
         first obtaining the Debtors' approval of or signature to such
         modification by amending Exhibit A, Exhibit B and Exhibit C, hereof, as
         appropriate, to include reference to any right, title or interest in
         any Copyrights, Patents or Trademarks acquired by the Debtors after the
         execution hereof or to delete any reference to any right, title or
         interest in any Copyrights, Patents or Trademarks in which the Debtors
         no longer has or claims any right, title or interest; and

                  (ii) To file, in its sole discretion, one or more financing or
         continuation statements and amendments thereto, relative to any of the
         Collateral without the signature of the Debtors where permitted by law.

         13. Agent.

              (a) Actions The Agent shall at all times act upon and in
accordance with written instructions received from a Majority-in-Interest (as
defined in Section 16) time to time. The Agent shall be deemed to be authorized
on behalf of each Secured Party to act on behalf of such Secured Party under
this Agreement and the Security Agreement and, in the absence of written
instructions from a Majority-in-Interest (with respect to which the Agent agrees
that it will, subject to the last two sentences of this Section, comply, except
as otherwise advised by counsel), to exercise such powers hereunder and
thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof, together with such powers as may be reasonably
incidental thereto. The Agent shall have no duty to ascertain or inquire as to
the performance or observance of any of the terms of this Agreement or Security
Agreement by the Debtors. By accepting their Debentures, each Secured Party
shall be deemed to have agreed to indemnify the Agent (which agreement shall
survive any termination of such Secured Party's percentage), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may at any time be imposed on, incurred by, or asserted against
the Agent in any way relating to or arising out of this Agreement, the
Debentures and the Security Agreement, including the reimbursement of the Agent
for all out-of-pocket expenses (including attorneys' fees) incurred by the Agent
hereunder or in connection herewith or in enforcing the Obligations of the
Debtors under this Agreement, the Debentures or the Security Agreement, in all
cases as to which the Agent is not reimbursed by the Debtors; provided that no
Secured Party shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements determined by a court of competent jurisdiction
in a final proceeding to have resulted solely from the Agent's gross negligence
or willful misconduct. The Agent shall not be required to take any action
hereunder, under the Debentures or under Security Agreement, or to prosecute or
defend any suit in respect of this Agreement or under the Debentures or under
the Security Agreement, unless the Agent is indemnified to its reasonable
satisfaction by the Secured Parties against loss, costs, liability and expense.
If any indemnity in favor of the Agent shall become impaired, it may call for
additional indemnity and cease to do the acts indemnified against until such
additional indemnity is given.

<PAGE>

              (b) Exculpation. Neither the Agent nor any of its directors,
officers, partners, members, shareholders, employees or agents shall be liable
to any Secured Party for any action taken or omitted to be taken by it under
this Agreement, the Debentures or the Security Agreement, or in connection
herewith or therewith, except for its own willful misconduct or gross negligence
or be responsible for the consequences of any error in judgment. Neither the
Agent nor any of its directors, officers, partners, members, shareholders,
employees or agents has any fiduciary relationship with any Secured Party by
virtue of this Agreement or the Security Agreement. The Agent shall not be
responsible to any Secured Party for any recitals, statements, representations
or warranties herein or in any certificate or other document delivered in
connection herewith or for the authorization, execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, or
sufficiency this Agreement, the Debentures or the Security Agreement, the
financial condition of the Debtors or the condition or value of any of the
Collateral, or be required to make any inquiry concerning either the performance
or observance of any of the terms, provisions or conditions of this Agreement,
the Debentures or the Security Agreement, the financial condition of the Debtors
or the existence or possible existence of any default or event of default. The
Agent shall be entitled to rely upon advice of counsel concerning legal matters
and upon any notice, consent, certificate, statement or writing which it
believes to be genuine and to have presented by a proper person.

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

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

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

<PAGE>

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

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

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

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

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

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

         16. Actions by Secured Parties. Any action required or permitted
hereunder to be taken by or on behalf of the Secured Parties shall, for such
action to be valid, require the approval of the Majority-in-Interest prior to
the taking of such action. If the consent, approval or disapproval of the
Secured Parties is required or permitted pursuant to this Agreement, such
consent, approval or disapproval shall only be valid if given by the
Majority-in-Interest. "Majority-in-Interest" means the Secured Party or Secured
Parties (as the case may be) holding

<PAGE>

in excess of a majority of the outstanding aggregate principal amount under the
Debentures, determined on a cumulative basis.

         17. Miscellaneous. (a) No course of dealing between the Debtors and the
Secured Parties, nor any failure to exercise, nor any delay in exercising, on
the part of the Secured Parties, any right, power or privilege hereunder, under
the Debentures or under the Security Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.

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

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

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

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

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

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

              (h) This Agreement shall be construed in accordance with the laws
of the State of New York, except to the extent the validity, perfection or
enforcement of a security interest hereunder in respect of any particular
Collateral which are governed by a jurisdiction other than the State of New York
in which case such law shall govern. Each of the parties hereto

<PAGE>

irrevocably submits to the exclusive jurisdiction of any New York State or
United States Federal court sitting in New York county over any action or
proceeding arising out of or relating to this Agreement, and the parties hereto
hereby irrevocably agree that all claims in respect of such action or proceeding
may be heard and determined in such New York State or Federal court. The parties
hereto agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. The parties hereto further waive any
objection to venue in the State of New York and any objection to an action or
proceeding in the State of New York on the basis of forum non convenient. If
either party shall commence an action or a proceeding to enforce any provisions
of this Agreement, then the prevailing party in such action or proceeding shall
be reimbursed by the other party for its attorney's fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

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

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

                              * * * * * * * * * * *

<PAGE>

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

                         Arotech Corporation

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

                         I.E.S. DEFENSE SERVICES, INC.

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

                         IES INTERACTIVE TRAINING, INC.

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

<PAGE>

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

                               SMITHFIELD FIDUCIARY LLC

                               By:_____________________________________
                               Name:
                               Title:

                               Address for Notice:

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

                               With a copy to:

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

<PAGE>

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

                                OMICRON MASTER TRUST

                                By:_____________________________________
                                Name:
                                Title:

                                Address for Notice:

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

<PAGE>

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

                           PORTSIDE GROWTH AND OPPORTUNITY FUND

                           By:______________________________
                           Name:
                           Title:

                           Address for Notice:

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

<PAGE>

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

                                    MAINFIELD ENTERPRISES INC.

                                    By:_____________________________________
                                    Name:
                                    Title:

                                    Address for Notice:

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

<PAGE>

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

                                  CRANSHIRE CAPITAL L.P.

                                  By:_____________________________________
                                  Name:
                                  Title:

                                  Address for Notice:

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

<PAGE>

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

                              CLEVELAND OVERSEAS LTD.

                              By:_________________________________
                              Name:
                              Title:

                              Address for Notice:

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

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

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

                              Facsimile No.:    (___) ___-____
                              Telephone No.: (___) ___-____
                              Attention:  _________________

<PAGE>

                                    EXHIBIT A

                                   Copyrights

                               Registration          Registration
Description                       Number                 Date
------------------ ----------------------------- -----------------------

<PAGE>

                                    EXHIBIT B

                                     Patents

                               Registration          Registration
Description                       Number                 Date
------------------ ----------------------------- -----------------------

<PAGE>

                                    EXHIBIT C

                                   Trademarks

                               Registration          Registration
Description                       Number                 Date
------------------ ----------------------------- -----------------------

<PAGE>

                                   SCHEDULE A

Jurisdictions:Exhibit 4.6

                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (this "Agreement") is made and
entered into as of September 30, 2003, by and among Arotech Corporation, a
Delaware corporation (the "Company"), and the investors signatory hereto (each a
"Purchaser" and collectively, the "Purchasers").

         This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").

         The Company and the Purchasers hereby agree as follows:

         1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:

         "Debenture" means the 8% secured convertible debentures issued or
issuable to the Purchasers under the Purchase Agreement.

         "Effective Date" means with respect to any Registration Statement, the
date that such Registration Statement is first declared effective by the
Commission.

         "Effectiveness Date" means, (a) with respect to the Registration
Statement required to be filed hereunder relating to the Initial Debentures and
Initial Warrants, the earlier of (1) the 120th day following the Initial Closing
Date, and (2) the fifth Trading Day following the date on which the Company is
notified by the Commission that such Registration Statement will not be reviewed
or is no longer subject to further review and comments, (b) with respect to the
Registration Statement required to be filed hereunder relating to Additional
Debentures and Additional Warrants, the earlier of (1) the 120th day following
the applicable Additional Closing Date, and (2) the fifth Trading Day following
the date on which the Company is notified by the Commission that such
Registration Statement will not be reviewed or is no longer subject to further
review and comments, and (c) with respect to any additional Registration
Statements that may be required pursuant to Section 2(c), the 90th day following
the date on which the Company first knows, or reasonably should have known, that
such additional Registration Statement is required under such Section.

         "Effectiveness Period" shall have the meaning set forth in Section
2(a).

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Filing Date" means (i) with respect to the Registration Statement
required to be filed hereunder relating to the Initial Debentures and Initial
Warrants, the 60th day following the Initial Closing Date, (ii) with respect to
a Registration Statement required to be filed hereunder relating to any
Additional Debentures and Additional Warrants, the 60th day following the
earlier of (x) each Additional Closing Date at which an aggregate of at least
$750,000 in principal amount of Additional Debentures are purchased by one or
more Purchasers or their successors or

<PAGE>

assigns or after which there is an aggregate of at least $750,000 in principal
amount of Additional Debentures that have purchased by one or more Purchasers or
their successors or assigns that have not had their related Registrable
Securities previously registered hereunder or (y) such time after any Additional
Debentures are purchased that no additional Additional Debentures are available
or are permitted to be purchased pursuant to the Purchase Agreement, and (iii),
with respect to any additional Registration Statements that may be required
pursuant to Section 2(c), the 30th day following the date on which the Company
first knows, or reasonably should have known that such additional Registration
Statement is required under such Section.

                  "Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.

                  "Indemnified Party" shall have the meaning set forth in
Section 5(c).

                  "Indemnifying Party" shall have the meaning set forth in
Section 5(c).

                  "Losses" shall have the meaning set forth in Section 5(a).

                  "New Warrants" shall have the meaning set forth in the
Warrants.

                  "Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

                  "Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

                  "Registrable Securities" means (i) the Underlying Shares, and
(ii) the shares of Common Stock issuable upon exercise of the Warrants in case
relating to the Debentures and Warrants previously sold at an applicable
Closing.

                  "Registration Statement" means any registration statement
required to be filed hereunder and any additional registration statements
contemplated by Section 2(c), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.

                  "Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

                                      -2-
<PAGE>

         "Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

         "Rule 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Underlying Shares" means the shares of Common Stock issuable upon
conversion in full of the Debentures, including the shares of Common Stock
issued and issuable in respect of interest on the Debentures.

         "Special Counsel" means Schulte Roth & Zabel LLP.

         "Warrants" means (i) the Warrants issued or issuable under the Purchase
Agreement, and (ii) any New Warrants issuable under the Warrants.

         2. Registration.

         (a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a Registration Statement covering the resale of all
previously unregistered Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. Each Registration Statement shall be on
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (except if
otherwise directed by the Holders) the "Plan of Distribution" substantially in
the form attached hereto as Annex A. The Company shall use its best efforts to
cause each Registration Statement to be declared effective under the Securities
Act but in no event later than Effectiveness Date, and shall use its best
efforts to keep each Registration Statement continuously effective under the
Securities Act until the date which is two years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "Effectiveness Period").

         (b) If: (i) any Registration Statement is not filed on or prior to the
Filing Date (if the Company files such Registration Statement without affording
the Holder the opportunity to review and comment on the same as required by
Section 3(a) hereof, the Company shall not be deemed to have satisfied this
clause (i)), or (ii) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act,
within five Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that a Registration Statement
will not be "reviewed," or not subject to further review, or (iii) the Company
fails to respond to any comments made by the Commission within ten Trading Days
after the receipt of such comments (or 15 Trading Days with respect to comments
regarding solely to accounting matters), or (iv) after its Effective Date,

                                      -3-
<PAGE>

such Registration Statement ceases to be effective and available to the Holders
thereunder as to all Registrable Securities to which it is required to relate
(whether upon the delivery of an Advice pursuant to Section 6(d) or otherwise)
at any time prior to the expiration of its Effectiveness Period without being
succeeded within fifteen Trading Days by an amendment to such Registration
Statement or by a subsequent Registration Statement filed with and declared
effective by the Commission, or (v) an amendment to a Registration Statement is
not filed by the Company with the Commission within fifteen Trading Days of the
Commission's notifying the Company that such amendment is required in order for
such Registration Statement to be declared effective, or (vi) the Common Stock
is not listed or quoted, or is suspended from trading on the Nasdaq National
Market or another Trading Market for a period of three Trading Days (which need
not be consecutive Trading Days), or (vii) the conversion or exercise rights of
the Holders pursuant to the Debentures or Warrants, as the case may be, are
suspended for any reason, or (viii) any Registration Statement shall not be
declared effective by the Commission on or prior to the applicable Effectiveness
Date (any such failure or breach being referred to as an "Event," and for
purposes of clause (i), (vii) or (viii) the date on which such Event occurs, or
for purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such ten day-period is
exceeded, of for purposes of clauses (iv) or (v) the date which such fifteen
Trading Day-period is exceeded, or for purposes of clause (vi) the date on which
such three Trading Day period is exceeded, being referred to as "Event Date"),
then, in addition to any other rights available to the Holders: (x) on each such
Event Date the Company shall pay to each Holder an amount in cash, as liquidated
damages and not as a penalty, equal to 1% of the aggregate purchase price paid
by such Holder pursuant to the Purchase Agreement; and (y) on the first monthly
anniversary of each such Event Date thereof (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to each Holder an amount in cash, as liquidated damages and not as a
penalty, equal to 1.5% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement and (z) on each monthly anniversary
thereafter of each such Event Date thereof (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to each Holder an amount in cash, as liquidated damages and not as a
penalty, equal to 2% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement. If the Company fails to pay any liquidated
damages pursuant to this Section in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 18% per annum (or
such lesser maximum amount that is permitted to be paid by applicable law) to
the Holder, accruing daily from the date such liquidated damages are due until
such amounts, plus all such interest thereon, are paid in full. The liquidated
damages pursuant to the terms hereof shall apply on a pro rata basis for any
portion of a month prior to the cure of an Event.

         (c) Notwithstanding anything herein to the contrary, the Company shall
prepare and file a supplement to the appropriate Registration Statement (if
permitted for such purpose under the Securities Act) within 5 Trading Days
following the issuance of a New Warrant, or (if such supplement is not permitted
for such purposes under the Securities Act), a new Registration Statement within
15 Trading Days following the issuance of a New Warrant.

         3. Registration Procedures

                                      -4-
<PAGE>

         In connection with the Company's registration obligations hereunder,
the Company shall:

         (a) Not less than two Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall, (i) furnish to the Holders and their Special Counsel
copies of all such documents proposed to be filed (including documents
incorporated or deemed incorporated by reference, to the extent that such
documents are not available on EDGAR) which documents will be subject to the
review of such Holders and their Special Counsel, and (ii) cause its officers
and directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities and their Special Counsel shall
reasonably object in good faith.

         (b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible, and in any event within ten days, to any
comments received from the Commission with respect to the Registration Statement
or any amendment thereto and, as promptly as reasonably possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.

         (c) Notify the Holders of Registrable Securities to be sold and their
Special Counsel as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than three Trading Days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one Trading Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any

                                      -5-
<PAGE>

Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in the Registration Statement ineligible for
inclusion therein or any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

         (d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

         (e) Furnish to each Holder and their Special Counsel, without charge,
at least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

         (f) Promptly deliver to each Holder and their Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.

         (g) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
their Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.

         (h) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the

                                      -6-
<PAGE>

Purchase Agreement, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
Holders may request.

         (i) Upon the occurrence of any event contemplated by Section 3(c)(v),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

         (j) Comply with all applicable rules and regulations of the Commission.

         (k) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if requested by the Commission, the
controlling person thereof, and any other information about such Holder required
to be included in the Registration Statement pursuant to the rules and
regulations of the Commission.

         4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with Nasdaq National Market or any other Trading Market, and
(B) in compliance with applicable state securities or Blue Sky laws), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the holders of a majority of
the Registrable Securities included in the Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and $10,000 for the fees and disbursements of Special
Counsel (which amount shall be paid to the Special Counsel concurrent with the
initial delivery of the Registration Statement to the Holders and their Special
Counsel pursuant to Section 3(a) hereof), (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
Expenses of any Registration Statement abandoned prior to the effectiveness
thereof due to the request of the Holders shall be borne by the Holders.

         5. Indemnification

                                      -7-
<PAGE>

         (a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
reasonable costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holders have approved Annex A hereto for this
purpose) or (2) in the case of an occurrence of an event of the type specified
in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section 6(d). The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement.

         (b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon: (x) such Holder's failure
to comply with the prospectus delivery requirements of the Securities Act or (y)
any untrue statement of a material fact contained in any Registration Statement,
any Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by

                                      -8-
<PAGE>

such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (1) such untrue statements or
omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement (it being understood that the Holders have approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (2) in the case of an occurrence of an event of the type
specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice contemplated in Section 6(d). In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

         (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

         An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

         All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to

                                      -9-
<PAGE>

indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

         (d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

         The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

         The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

         6. Miscellaneous

         (a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

                                      -10-
<PAGE>

         (b) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
Except as and to the extent specified in Schedule 6(b) hereto, the Company has
not previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person which have not been fully
satisfied.

         (c) Compliance. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable to
it in connection with sales of Registrable Securities pursuant to the
Registration Statement.

         (d) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(c), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

         (e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.

         (f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of all of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of certain Holders
and that does not directly or indirectly affect the rights of other Holders may
be given by Holders of at least a majority of the Registrable Securities to
which such waiver or consent relates, provided,

                                      -11-
<PAGE>

that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

         (g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:

                  If to the Company:       Arotech Corporation
                                           632 Broadway, Suite 1200
                                           New York, NY 10012
                                           Facsimile No.: (646) 654-2187
                                           Telephone No.:  (646) 654-2107
                                           Attn:  Chief Executive Officer

                  With a copy to:          Electric Fuel (E.F.L.) Ltd.
                                           One HaSolela Street, POB 641
                                           Western Industrial Park
                                           Beit Shemesh 99000, Israel
                                           Facsimile No.: 011-972-2-990-6688
                                           Telephone No.:  011-972-2-990-6623
                                           Attn.:  General Counsel

                  If to a Purchaser:        To the address set
                                            forth under such Purchaser's name on
                                            the signature pages hereto.

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

                  If to any other Person who is then the registered Holder:

                                            To the address of such Holder as it
                                            appears in the stock transfer books
                                            of the Company

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

                                      -12-
<PAGE>

         (h) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.

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

         (j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof. Each party
agrees that all legal Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Agreement), and hereby irrevocably waives, and agrees
not to assert in any suit, action or Proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or Proceeding is has been commenced in an improper or inconvenient forum. Each
party hereto (including its affiliates, agents, officers, directors and
employees) hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal Proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence an action or Proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
Proceeding shall be reimbursed by the other party for its attorney's fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or Proceeding.

         (k) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

         (l) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.

                                      -13-
<PAGE>

         (m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

         (n) Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder are several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGES FOLLOW]

                                      -14-
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                  AROTECH CORPORATION

                                  By:_________________________________

                                  Name:
                                  Title:

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGES OF PURCHASERS FOLLOW]

                                      -15-
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                SMITHFIELD FIDUCIARY LLC

                                By:_____________________________________
                                Name:
                                Title:

                                Address for Notice:

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

                                With a copy to:

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

                                      -16-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.

                                        OMICRON MASTER TRUST

                                        By:_____________________________________
                                        Name:
                                        Title:

                                        Address for Notice:

                                        c/o Omicron Capital L.P.
                                        810 Seventh Avenue
                                        39th Floor
                                        New York, New York 10019
                                        Attention:  Olivier Morali
                                        Facsimile:  (212) 803-5269
                                        Telephone:  (212) 803-5262

                                      -17-
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                            PORTSIDE GROWTH AND OPPORTUNITY FUND

                                            By:______________________________
                                            Name:
                                            Title:

                                            Address for Notice:

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

                                      -18-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.

                                     MAINFIELD ENTERPRISES INC.

                                     By:_____________________________________
                                     Name:
                                     Title:

                                     Address for Notice:

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

                                      -19-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.

                                      CRANSHIRE CAPITAL L.P.

                                      By:_____________________________________
                                      Name:
                                      Title:

                                      Address for Notice:

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

                                      -20-
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                     CLEVELAND OVERSEAS LTD.

                                     By:_________________________________
                                     Name:
                                     Title:

                                     Address for Notice:

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

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

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

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

<PAGE>

                                                                         Annex A

                              Plan of Distribution

         The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:

o        ordinary brokerage transactions and transactions in which the
         broker-dealer solicits purchasers;

o        block trades in which the broker-dealer will attempt to sell the shares
         as agent but may position and resell a portion of the block as
         principal to facilitate the transaction;

o        purchases by a broker-dealer as principal and resale by the
         broker-dealer for its account;

o        an exchange distribution in accordance with the rules of the applicable
         exchange;

o        privately negotiated transactions;

o        short sales;

o        broker-dealers may agree with the Selling Stockholders to sell a
         specified number of such shares at a stipulated price per share;

o        a combination of any such methods of sale; and

o        any other method permitted pursuant to applicable law.

         The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

         Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

         The selling stockholder may from time to time pledge or grant a
security interest in some or all of the Shares or common stock or Warrant owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of common stock
from time to time under this prospectus, or under an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.

<PAGE>

         The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

         The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholders have
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.

         The Company is required to pay all fees and expenses incident to the
registration of the shares and up to $10,000 of the fees and disbursements of
Special Counsel. The Company has agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.

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