Document:

Exhibit 4.5
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                                                               EXECUTION VERSION

                               SECURITY AGREEMENT

      SECURITY  AGREEMENT,  dated as of September 29, 2005, by and among Arotech
Corporation,  a Delaware  corporation  (f/k/a  Electric Fuel  Corporation)  (the
"Parent"),  and the  undersigned  subsidiaries of the Parent (each a "Guarantor"
and collectively, the "Guarantors" and together with the Parent, each a "Debtor"
and  collectively,  the "Debtors" and the secured parties  signatory  hereto and
their  respective   successors  and  assigns  (each,  a  "Secured  Party",   and
collectively, the "Secured Parties").

                              W I T N E S S E T H:

      WHEREAS,  pursuant to the Securities  Purchase  Agreement,  dated the date
hereof by and among the  Parent  and the  Secured  Parties  named  therein  (the
"Purchase  Agreement"),  the Secured  Parties  have  agreed to  purchase  Senior
Secured  Convertible Notes, par value $0.01 per share (the "Notes") and warrants
(as described in the Purchase  Agreement)  (the 'Warrants" and together with the
Notes, the "Securities");

      WHEREAS,  it is a  condition  precedent  to the Buyers  entering  into the
Securities  Purchase  Agreement  that (i) the  Parent  shall have  executed  and
delivered to the Secured  Parties this Agreement  providing for the grant to the
Secured  Parties of a security  interest in the  Collateral  (as defined  below)
owned by the  Parent  to  secure  all of the  Parent  's  obligations  under the
Purchase  Agreement  and the  Notes,  and  (ii)  each  of IDS  and  IES  (each a
"Guarantor"  and  collectively,   the  "Guarantors")  shall  have  executed  and
delivered  to the Secured  Parties the  "Guaranty"  (as  defined  therein)  with
respect to the  obligations  of the Parent under the Purchase  Agreement and the
Notes (as  amended,  restated  or  otherwise  modified  from  time to time,  the
"Guaranty"),  and this Agreement  providing for the grant to the Secured Parties
of a security interest in the respective Collateral (as defined herein) owned by
each of Guarantors to secure its obligations under the Guaranty; and

      WHEREAS, in order to induce the Secured Parties to enter into the Purchase
Agreement, the Debtors wish to grant to the Secured Parties to secure the prompt
payment, performance and discharge in full of all of the Obligations (as defined
below)  (a) a first  priority,  perfected  security  interest  in the First Lien
Collateral and (b) a second priority,  perfected security interest in the Second
Lien Collateral junior only to the first priority security interest,  granted to
certain  investors  (the "First  Investors")  pursuant to a Security  Agreement,
dated as of September 30, 2003, among the Parent, its subsidiaries party thereto
and the First  Investors,  with  respect to the  security  interest  (the "First
Investors' Security Interest") granted to the First Investors in such Collateral
(as defined below); and

      WHEREAS,  each  of the  Guarantors  has  determined  that  the  execution,
delivery and performance of this Agreement and the Guaranty  directly  benefits,
and are in the best interest of the Parent and the Guarantors; and

<PAGE>

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

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

      (c) "Additional Subsidiaries" means any Subsidiary other than the Original
Subsidiaries.

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

      (e)  "Collateral"  means  collectively,  the First Lien Collateral and the
Second Lien Collateral.

      (f) "First  Investors'  Security  Agreement" means the Security  Agreement
dated  as  of  September  30,  2003  made  by  the  Debtors  and  certain  other
Subsidiaries of the Parent in favor of the First Investors.

      (g) "First Lien Collateral" means  collectively,  all personal property of
each Debtor other than the Second Lien Collateral,  wherever located and whether
now or hereafter existing and whether now owned or hereafter acquired,  of every
kind and description, tangible or intangible, including, without limitation, the
following:

            (i) all Accounts;

            (ii) all Chattel Paper (whether tangible or electronic);

            (iii) the Commercial Tort Claims specified on Schedule 1(g) hereto;

                                      -2-
<PAGE>

            (iv) all Deposit  Accounts,  all cash,  and all other  property from
      time  to time  deposited  therein  and  the  monies  and  property  in the
      possession  or  under  the  control  of  the  Agent  or any  Buyer  or any
      affiliate,  representative,  agent or  correspondent  of the  Agent or any
      Buyer;

            (v) all Documents;

            (vi) all Equipment;

            (vii) all Fixtures;

            (viii) all General Intangibles (including,  without limitation,  all
      Payment Intangibles);

            (ix) all Goods;

            (x) all Instruments (including, without limitation, Promissory Notes
      and each certificated Security);

            (xi) all Inventory;

            (xii) all Investment Property;

            (xiii) all Copyrights, Patents and Trademarks, and all Licenses;

            (xiv) all Letter-of-Credit Rights;

            (xv) all Supporting Obligations;

            (xvi) all other  tangible and  intangible  personal  property of the
      Debtor  (whether or not  subject to the Article 9 of the UCC),  including,
      without  limitation,  all bank  and  other  accounts  and all cash and all
      investments therein, all proceeds, products, offspring, accessions, rents,
      profits, income, benefits, substitutions and replacements of and to any of
      the  property of the Debtor  described  in the  preceding  clauses of this
      Section 2  (including,  without  limitation,  any  proceeds  of  insurance
      thereon and all causes of action,  claims and  warranties now or hereafter
      held by the Debtor in respect of any of the items listed  above),  and all
      books,  correspondence,   files  and  other  Records,  including,  without
      limitation,  all tapes, desks, cards, Software, data and computer programs
      in the  possession  or under the control of the Debtor or any other Person
      from time to time  acting  for the  Debtor  that at any time  evidence  or
      contain  information  relating  to any of the  property  described  in the
      preceding clauses of this Section 2 or are otherwise  necessary or helpful
      in the collection or realization thereof; and

            (xvii)  all  Proceeds,  including  all  Cash  Proceeds  and  Noncash
      Proceeds, and products of any and all of the foregoing Collateral;

            (xviii) in each case  howsoever  the Debtor's  interest  therein may
      arise  or  appear  (whether  by  ownership,  security  interest,  claim or
      otherwise).

                                      -3-
<PAGE>

      (h) "First Lien  Pledged  Shares"  means all of the all  present,  and all
future,  issued and  outstanding  shares of capital  stock,  or other  equity or
investment securities of, or partnership, membership, or joint venture interests
in, each Original  Subsidiary  and each  Additional  Subsidiary,  other than the
Second Lien  Pledged  Shares,  whether now owned or  hereafter  acquired by such
Debtor and whether or not  evidenced or  represented  by any stock  certificate,
certificated  security  or other  instrument,  together  with  the  certificates
representing such equity interests, all options and other rights, contractual or
otherwise,   in  respect  thereof  and  all  dividends,   distributions,   cash,
instruments,  investment  property and any other  property  (including,  but not
limited to, any stock dividend and any  distribution  in connection with a stock
split)  from time to time  received,  receivable  or  otherwise  distributed  in
respect  of or in  exchange  for any or all of the  foregoing  and all  cash and
noncash proceeds thereof;

            (i)  all  present  and  future  increases,  profits,   combinations,
      reclassifications, and substitutes and replacements for all or part of the
      foregoing Collateral heretofore described;

            (ii) all investment property, financial assets, securities,  capital
      stock,  other equity interests,  stock options and commodity  contracts of
      such  Debtor,  all notes,  debentures,  bonds,  promissory  notes or other
      evidences of indebtedness  payable or owing to such Debtor,  and all other
      assets  now or  hereafter  received  or  receivable  with  respect  to the
      foregoing;

            (iii) all securities  entitlements  of such Debtor in any and all of
      the foregoing; and

            (iv) all proceeds (including proceeds of proceeds) of any and all of
      the foregoing;

in each  case,  whether  now owned or  hereafter  acquired  by such  Debtor  and
howsoever  its  interest  therein  may arise or appear  (whether  by  ownership,
security interest, Lien, claim or otherwise).

      (i) "First Lien Stock  Collateral"  means the Subsidiary  Stock Collateral
other than the Second Lien Stock Collateral.

      (j) "First Purchase  Agreement" means the Securities  Purchase  Agreements
dated as of September 30, 2003, by and among the Parent and the First Investors.

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

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

                                       -4-
<PAGE>

            (ii) All Inventory of IES; and

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

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

            (v) All IES Pledged Shares; and

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

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

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

                                      -5-
<PAGE>

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

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

      (p)  "Obligations"  means  all  of the  Debtors'  obligations  under  this
Agreement,  the IP Security Agreement,  the Guaranty, the Purchase Agreement and
the Notes 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.

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

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

                                      -6-
<PAGE>

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

            (ii) All Inventory of the Parent; and

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

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

            (v) All Parent Pledged Shares.

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

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

      (u) "Permitted Liens" shall have the meaning provided in the Notes.

      (v) "Pledged Shares" means  collectively the First Lien Pledged Shares and
the Second Lien Pledged Shares.

                                      -7-
<PAGE>

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

      (x) "Second Lien Pledged Shares" means collectively the IES Pledged Shares
and the Parent Pledged Shares.

      (y) "Second Lien Subsidiary Stock  Collateral" means (i) all the shares of
capital stock of each of the Original  Subsidiaries;  (ii) all additional shares
of the  Original  Subsidiaries  from time to time  acquired by the Parent in any
manner  provided,  however,  that to the extent any such Original  Subsidiary is
organized  or formed  under the laws of a  jurisdiction  other  than the  United
States of  America,  a pledge of the  shares  of common  stock of such  Original
Subsidiary  will be limited to sixty-six  percent  (66%) of the shares of common
stock of such  Original  Subsidiary;  (iii) the  certificates  representing  the
shares referred to in clauses (i) and (ii) above; and (iv) subject to Section 4,
all  dividends,  cash,  instruments,  options,  rights  and  other  property  or
proceeds,  from time to time  received,  receivable or otherwise  distributed or
distributable in respect of or in exchange for any or all of the shares referred
to in clauses (i) and (ii) above.

      (z)  "Second  Lien  Stock  Collateral"  means  collectively  the MAC Stock
Collateral,  the  IES/IDS/MDT  Stock  Collateral and the Second lien  Subsidiary
Stock Collateral.

      (aa)  "Security  Interests"  means  collectively,   the  First  Investor's
Security  Interest  and the  security  interest  granted to the Secured  Parties
hereunder.

      (bb)  "Stock  Collateral"  means   collectively,   the  First  Lien  Stock
Collateral and the Second Lien Stock Collateral.

      (cc)  "Subsidiary" of a Person means a corporation,  partnership,  limited
liability  company,  or other entity in which that Person directly or indirectly
owns or controls  the shares of Stock  having  ordinary  voting power to elect a
majority of the board of directors  (or appoint  other  comparable  managers) of
such corporation, partnership, limited liability company, or other entity.

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

      (ee) "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.

                                      -8-
<PAGE>

      2. Grant of Security Interest. As an inducement for the Secured Parties to
enter  into the  Purchase  Agreement,  and to secure  the  complete  and  timely
payment,  performance  and  discharge  in full of the  Obligations,  each of the
Debtors  hereby,   unconditionally   and   irrevocably,   pledges,   grants  and
hypothecates  to the Agent for the benefit of the Secured  Parties a  continuing
security  interest  in and lien upon and a right of set-off  against  all of the
Debtors'  right,  title and interest of whatsoever kind and nature in and to the
Collateral,  junior only to the First Investor's Security Interest in the Second
Lien Collateral (the "First Investors' Security Interest") and Permitted Liens.

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

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

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

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

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

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

                                      -9-
<PAGE>

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

      (e) Each  Debtor  shall at all times  maintain  its books of  account  and
records  relating to the  Collateral at its principal  place of business and its
Collateral at the locations set forth on Schedule A attached  hereto and may not
relocate  such books of account  and records or  tangible  Collateral  unless it
delivers  to each  of the  Secured  Parties  at  least  30  days  prior  to such
relocation written notice of such relocation and the new location thereof (which
must be within the United  States).  The principal  place of business of each of
the Debtors is located at the  address set forth in Schedule A hereto,  and will
not be moved without notice to each Secured Party.

      (f)  This  Agreement  creates  in  favor of the  Secured  Parties  a valid
security interest in the Collateral securing the payment and satisfaction of the
Obligations and, upon making the filings  described in Section 3(g), a perfected
security interest in the Parent Collateral, the IES Collateral and the MAC Stock
Collateral  in  which  a  security  interest  may be  perfected  by UCC  filings
("Article 9  Collateral"),  which  security  interest  shall have the respective
priorities  set forth in clause  (e) above.  Except for the filing of  financing
statements  pursuant to the UCC with the proper filing and recording agencies in
the jurisdictions  indicated on Schedule B, attached hereto, no authorization or
approval of or filing with or notice to any governmental authority or regulatory
body  is  required  either  (i)  for  the  grant  by  the  Debtors  of,  or  the
effectiveness  of, the Security  Interests  granted hereby or for the execution,
delivery  and  performance  of this  Agreement  by the  Debtors  or (ii) for the
perfection (as to Article 9 Collateral) of or exercise by the Secured Parties of
their rights and remedies hereunder.

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

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

                                      -10-
<PAGE>

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

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

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

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

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

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

                                      -11-
<PAGE>

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

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

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

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

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

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

      4. Voting Rights; Dividends; Etc.

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

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

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

                                      -12-
<PAGE>

                  (1)  dividends  paid or payable  other than in cash in respect
of,  and  instruments  and other  property  received,  receivable  or  otherwise
distributed in respect of, or in exchange for, any Stock  Collateral and Pledged
Shares;

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

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

      all of which shall be, and all of which shall be  forthwith  delivered  to
the Secured  Parties to hold as pledged  shares,  provided  that,  such delivery
shall not be required  with respect to the Second Lien Stock  Collateral  or any
Pledged  Shares so long as these are  subject to the First  Investors'  Security
Interest, and shall, if received by the any Debtor, be received in trust for the
benefit of the Secured  Parties,  be segregated from the other property or funds
of the  Debtors,  and be  forthwith  delivered  to Agent for the  benefit of the
Secured  Parties as  pledged  shares in the same form as so  received  (with any
necessary  endorsement).  Upon  termination  of the  First  Investors'  Security
Interest, the Debtors will take all steps necessary to cause the First Investors
to return any of the Second Lien Stock  Collateral or Second Lien Pledged Shares
held by the First  Investors  to the Debtors and  promptly  upon  receipt by the
Debtors deliver these to the Agent to for the benefit of the Secured Parties.

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

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

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

                                      -13-
<PAGE>

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

            (iii) All  dividends  which are received by the Debtors  contrary to
      the provisions of paragraph (ii) of this Section 4(b) shall be received in
      trust for the benefit of the Secured  Parties,  shall be  segregated  from
      other funds of the Debtors and shall be forthwith paid over to the Secured
      Parties  as  Pledged  Shares  in the same  form as so  received  (with any
      necessary endorsement).

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

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

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

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

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

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

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

                                      -14-
<PAGE>

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

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

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

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

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

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

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

                                      -15-
<PAGE>

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

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

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

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

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

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

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

                                      -16-
<PAGE>

      (c) In the event of a direct conflict  between the priority  provisions of
this  Section 8 and  other  provisions  contained  in any  other  Securities  or
documents executed in connection with the Securities, it is the intention of the
parties  hereto that such priority  provisions in such  documents  shall be read
together and construed,  to the fullest extent  possible,  to be in concert with
each other. In the event of any actual,  irreconcilable  conflict that cannot be
resolved as aforesaid,  the terms and provisions of this Section 8 shall control
and govern.

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

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

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

                                      -17-
<PAGE>

      12. Term of Agreement.  This  Agreement and the Security  Interests  shall
terminate on the date on which all payments under the Securities  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 and Agent,  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  and take all  other  actions
requested by Debtors  which are  reasonably  necessary to terminate  the Secured
Parties'  security interest in the Collateral and return any Collateral in their
possession or control.

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

                                      -18-
<PAGE>

      (b) On a continuing  basis, each Debtor will make,  execute,  acknowledge,
deliver,  file and  record,  as the case may be,  with  the  proper  filing  and
recording  agencies in any  jurisdiction,  including,  without  limitation,  the
jurisdictions  indicated on Schedule B, attached hereto,  all such  instruments,
and take all such action as may reasonably be deemed necessary or advisable,  or
as  reasonably  requested  by the  Secured  Parties,  to  perfect  the  Security
Interests  granted  hereunder and otherwise to carry out the intent and purposes
of this  Agreement,  or for assuring and  confirming to the Secured  Parties the
grant or perfection of Security  Interests in all the  Collateral  under the UCC
having the priority set forth in this Agreement.  In furtherance  thereof,  each
Debtor hereby irrevocably  authorizes Agent at any time and from time to time to
file in any UCC filing office any initial  financing  statements  and amendments
thereto  that (A) indicate  the  Collateral  (1) as all assets of such Debtor or
words of similar effect, regardless of whether any particular asset comprised in
the  Collateral  falls  within  the  scope  of  Article  9 of the  UCC  or  such
jurisdiction,  or (2) as  being  of an equal  or  lesser  scope or with  greater
detail, and (B) contain any other information required by part 5 of Article 9 of
the UCC  for the  sufficiency  or  filing  office  acceptance  of any  financing
statement or amendment,  including  (1) whether such Debtor is an  organization,
the type of organization  and any organization  identification  number issued to
such  Debtor,  and (2) in the case of a financing  statement  filed as a fixture
filing or indicating Collateral as as-extracted  collateral or timber to be cut,
a sufficient  description of real property to which the Collateral relates. Each
Debtor agrees to furnish any such  information  to Agent  promptly upon request.
Each Debtor also ratifies its  authorization  for Agent to have filed in any UCC
filing office any initial  financing  statements or amendments  thereto if filed
prior to the date hereof.

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

      14. Agent.

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

                                      -19-
<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  Securities  or  the IP  Security  Agreement,  or in  connection
herewith or therewith, except for its own willful misconduct or gross negligence
or be responsible  for the  consequences  of any error in judgment.  Neither the
Agent  nor any of its  directors,  officers,  partners,  members,  shareholders,
employees or agents has any  fiduciary  relationship  with any Secured  Party by
virtue of this  Agreement or the IP Security  Agreement.  The Agent shall not be
responsible to any Secured Party for any recitals,  statements,  representations
or  warranties  herein or in any  certificate  or other  document  delivered  in
connection  herewith  or  for  the  authorization,   execution,   effectiveness,
genuineness,   validity,   enforceability,    perfection,   collectibility,   or
sufficiency  this Agreement,  the Securities or the IP Security  Agreement,  the
financial  condition  of the  Debtors  or the  condition  or value of any of the
Collateral, or be required to make any inquiry concerning either the performance
or observance of any of the terms,  provisions or conditions of this  Agreement,
the  Securities or the IP Security  Agreement,  the  financial  condition of the
Debtors  or the  existence  or  possible  existence  of any  default or event of
default.  The Agent shall be entitled to rely upon advice of counsel  concerning
legal matters and upon any notice,  consent,  certificate,  statement or writing
which it believes to be genuine and to have presented by a proper person.

      (c)  Obligations  Held by the Agent.  The Agent shall have the same rights
and powers with respect to any Securities  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.

                                      -20-
<PAGE>

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

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

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

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

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

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

                                      -21-
<PAGE>

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

      18. Miscellaneous.

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

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

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

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

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

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

                                      -22-
<PAGE>

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

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

                                      -23-
<PAGE>

      (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.

                              * * * * * * * * * * *

                                      -24-
<PAGE>

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

                                       AROTECH CORPORATION

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

                                       IES INTERACTIVE TRAINING, INC.

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

                                       ARMOUR OF AMERICA, INCORPORATED

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

                                       ELECTRIC FUEL BATTERY
                                       CORPORATION

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

                                       FAAC INCORPORATED

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

<PAGE>

                                       MDT ARMOR CORPORATION

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

<PAGE>

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

                                       SMITHFIELD FIDUCIARY LLC

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

                                       Address for Notice:

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

                                       With a copy to:

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

<PAGE>

                                       PORTSIDE GROWTH AND OPPORTUNITY FUND

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

<PAGE>

                                       OMICRON MASTER TRUST

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

<PAGE>

                                       CRANSHIRE CAPITAL L.P.

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

<PAGE>

                                       IROQUOIS MASTER FUND LTD.

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:Exhibit 4.6
                                                                     -----------

                                                               EXECUTION VERSION
                                                               -----------------

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT
                    ----------------------------------------

      INTELLECTUAL PROPERTY SECURITY AGREEMENT,  dated as of September 29, 2005,
by and among Arotech  Corporation,  a Delaware  corporation (f/k/a Electric Fuel
Corporation)  (the "Parent"),  I.E.S.  Defense  Services,  Inc.  ("IDS") and IES
Interactive  Training,  Inc. ("IES" and,  together with IDS and the Parent,  the
"Debtors") and the secured parties  signatory  hereto (each, a "Secured  Party",
and collectively, the "Secured Parties").

                              W I T N E S S E T H:

      WHEREAS,  pursuant to the Securities  Purchase  Agreement,  dated the date
hereof by and among the Parent and the  investors  named  therein (the  "Secured
Parties")  (the  "Purchase  Agreement"),  the  Secured  Parties  have  agreed to
purchase  Senior  Secured  Convertible  Notes,  par value  $0.01 per share  (the
"Notes") and warrants (as described in the Purchase  Agreement)  (the `Warrants"
and together with the Notes, the "Securities");

      WHEREAS,  each of IDS and IES (each a "Guarantor"  and  collectively,  the
"Guarantors")  shall have  executed and  delivered to the  Collateral  Agent the
"Guaranty"  (as defined  therein) with respect to the  obligations of the Parent
under the  Purchase  Agreement  and the  Securities  (as  amended,  restated  or
otherwise modified from time to time, the "Guaranty")

      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  Notes  and  related  transaction
documents and the Guarantor's obligations under the Guaranty; and

      WHEREAS,  it is  contemplated  that the Secured Parties shall be granted a
second priority security interest in the Collateral (as defined below) to 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.

<PAGE>

            (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,  the IES Collateral and the
IDS 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) "IDS Collateral"  means all right,  title and interest in and to
all  of  Trademarks,   Patents,  Copyrights,  domain  names  and  other  general
intangible property of IDS, all trade secrets,  intellectual  property rights in
IDS' computer software and computer software  products,  design rights which may
be  available,  owned or licensed to IDS,  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 IDS' 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 IDS'  rights with  respect to licenses  granted by IDS to third
parties or licensed to IDS to use any of the Copyrights,  domain names,  Patents
or  Trademarks,  and all license fees and royalties due to IDS 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 "IDS Collateral" shall
include  all of the  foregoing  items,  whether  presently  owned or existing or
hereafter  acquired  or  coming  into  existence,  all  of  IDS'  additions  and
accessions thereto, all of IDS' substitutions and replacements  thereof, and all
of IDS' 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) "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.

<PAGE>

            (g)  "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 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.

            (h) "Obligations"  means all of the Debtors'  obligations under this
Agreement,  the  Guaranty,  the Notes,  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.

            (i)   "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.

<PAGE>

            (j)  "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.

            (k)  "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 the Secured
Parties,  a perfected,  second 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 Collateral"),  junior only to the first
priority security interest (the "First  Investors'  Security  Interest") in such
Collateral in favor of certain  investors  (the "First  Investors")  pursuant to
that certain IP Security Agreement (the "First Investors' Security  Agreement"),
dated  September 30, 2003,  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 and
(iii) Permitted  Liens 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) and Permitted Liens.

<PAGE>

            (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 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  written  notice  of such
relocation  and the new  location  thereof  (which  must be  within  the  United
States).  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,  a
perfected  second  priority  interest  in the  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 and  Permitted  Liens.  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.

<PAGE>

            (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  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 Note) under
the Note;

      (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.

<PAGE>

      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 Securities or otherwise,  or of any check,  draft, note, trade acceptance
or other instrument  evidencing an obligation to pay any such sum, hold the same
in trust for the Secured  Parties and shall  forthwith  endorse and transfer any
such sums or instruments, or both, to the Secured Parties for application 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 Securities 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 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.

<PAGE>

      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   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  Securities.  Until so paid,  any fees  payable
hereunder  shall be added to the principal  amount of the  Securities  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 Securities 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  Securities,  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  Securities,  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 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.

<PAGE>

      11. Term of Agreement.  This  Agreement and the Security  Interests  shall
terminate on the date on which all payments under the Securities  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
Securities  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.

<PAGE>

      (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 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  Securities,  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  Securities 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 Securities 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 Securities or under Security  Agreement,  or to prosecute or defend any suit
in respect  of this  Agreement  or under the  Securities  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  Securities  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  Securities  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 Securities 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 Notes 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 in excess of a majority of the outstanding  aggregate  principal
amount under the Securities, determined on a cumulative basis.

<PAGE>

      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  Securities  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 Securities,  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.

<PAGE>

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

                                       IES INTERACTIVE TRAINING, INC.

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

                                       ARMOUR OF AMERICA, INCORPORATED

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

                                       ELECTRIC FUEL BATTERY
                                       CORPORATION

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

<PAGE>

                                       FAAC INCORPORATED

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

                                       MDT ARMOR CORPORATION

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:
                                       Address:        [_______________________]
                                                       [_______________________]

<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>

                                       PORTSIDE GROWTH AND
                                          OPPORTUNITY FUND

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

<PAGE>

                                       OMICRON MASTER TRUST

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

<PAGE>

                                       CRANSHIRE CAPITAL L.P.

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

<PAGE>

                                       IROQUOIS MASTER FUND LTD.

                                       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.

                                             [INSERT INVESTORS' SIGNATURE PAGES]

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