Document:

EXHIBIT 10.2

                             STOCKHOLDERS AGREEMENT

     STOCKHOLDERS AGREEMENT (the "AGREEMENT"), dated as of June 15, 2005, (the
"EXECUTION DATE") by and among Defense Industries International, Inc., a
corporation organized under the laws of the State of Nevada, USA with its
principal executive offices at 8 Brussels Street Sderot, P.O. Box 779, Ashkelon
78101, Israel (the "COMPANY"), Joseph Postbinder ("POSTBINDER"), and the
Company's stockholders listed on EXHIBIT A attached hereto (each a "BUYER" and
collectively the "BUYERS").

     WHEREAS:

     A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue to the Buyers up to 3,283,658 but no
less than 1,915,467 shares of common stock, each with a par value of $0.0001 per
share, of the Company (the "COMMON STOCK") and Warrants (the "WARRANTS") for the
purchase of 425,000 and 202,500 shares of Common Stock, each with a par value of
$0.0001 per share, of the Company; and.

     B. The Company has agreed to provide the Buyers with certain rights
including registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, (collectively, the "1933 ACT"), and
applicable state securities laws.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:

     1.   DEFINITIONS.

As used in this Agreement, the following terms shall have the following
meanings:

     a. "BUSINESS DAY" means any day other than Saturday, Sunday or any other
day on which commercial banks in the City of Tel Aviv and / or New York are
authorized or required by law to remain closed.

     b. "INVESTOR" means any one of the Buyers or any transferee or assignee
thereof to whom any of the Buyers assigns his/its rights under this Agreement
and who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9.

     c. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

     d. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.

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     e. "REGISTRABLE SECURITIES" means any Shares and any other securities
issued by the Company to the Buyers in respect of the Shares by means of
exchange, reclassification, dividend, distribution, split-up, combination,
subdivision, recapitalization, merger, spin-off, reorganization, or otherwise.

     f. "REGISTRATION STATEMENT" means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.

     g. "RULE 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous or delayed basis.

     h. "SEC" means the United States Securities and Exchange Commission.

     i. "SHARES" means the Common Stock issued to the Buyers under the
Securities Purchase Agreement and any Warrant Shares acquired by any Investor
under the terms of the Warrants.

     j. "WARRANT SHARES" means shares of Common Stock acquired by the Investors
pursuant to the exercise of the Warrants.

     Capitalized terms used herein and not otherwise defined herein shall have
     the respective meanings set forth in the Securities Purchase Agreement.

     2.   REGISTRATION.

          a. DEMAND REGISTRATION. Within 90 days of the Execution Date (the
     "Filing DEADLINE"), the Company shall prepare and file with the SEC a
     Registration Statement on Form S-3 covering the resale of all of the
     Registrable Securities. In the event that Form S-3 is unavailable for such
     a registration, the Company shall use such other form as is available for
     such a registration, subject to the provisions of Section 2(c). The
     Registration Statement prepared pursuant hereto shall register for resale
     the number of shares of Common Stock equal to the number of Registrable
     Securities. The Company shall use its best efforts to have the Registration
     Statement declared effective by the SEC as soon as practicable, but in no
     event later than the date which is 180 days after the Execution Date (the
     "EFFECTIVENESS DEADLINE").

          b. LEGAL COUNSEL. Subject to Section 5 hereof, the Buyers shall have
     the right to select one legal counsel to review and comment on such
     Registration Statement or any registration pursuant to this Section 2
     ("LEGAL COUNSEL"), which shall be Yigal Arnon & Co. or such other counsel
     as thereafter designated by the holders of at least a majority of the
     Registrable Securities. The Company and Legal Counsel shall reasonably
     cooperate with each other in performing the Company's obligations under
     this Agreement.

          c. ELIGIBILITY/INELIGIBILITY FOR FORM S-3. The Company represents and
     warrants that it is eligible to register the resale of Registrable
     Securities on a registration statement on Form S-3 under the 1933 Act, and
     that the Company is not aware of any fact or circumstances (including
     without limitation any required approvals or waivers or any circumstances
     that may delay or prevent the obtaining of accountant's consents) that
     would prohibit or delay the preparation and filing of a registration
     statement on Form S-3 with respect to the Registrable Securities. The
     Company shall file all reports required to be filed by the Company with the
     SEC in a timely manner so as to maintain or, if applicable, regain its
     eligibility for the use of Form S-3. In the event that Form S-3 is not
     available for the registration of the resale of Registrable Securities
     hereunder, the Company shall (i) register the resale of the Registrable
     Securities on another appropriate form reasonably acceptable to the holders
     of at least a majority of the Registrable Securities and (ii) undertake to
     register the Registrable Securities on Form S-3 as soon as such form is
     available, provided that the Company shall maintain the effectiveness of
     the Registration Statement then in effect until such time as a Registration
     Statement on Form S-3 covering the Registrable Securities has been declared
     effective by the SEC.

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          d. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event that the
     number of shares available under a Registration Statement filed pursuant to
     Section 2(a) is insufficient to cover all of the Registrable Securities
     required to be covered by such Registration Statement, the Company shall
     amend the applicable Registration Statement, or file a new Registration
     Statement (on the short form available therefor, if applicable), or both,
     so as to cover at least the total number of Registrable Securities as of
     the trading day immediately preceding the date of the filing of such
     amendment or new Registration Statement. The Company shall use its best
     efforts to cause such amendment and/or new Registration Statement to become
     effective as soon as practicable following the filing thereof.

          e. EFFECT OF FAILURE TO MAINTAIN EFFECTIVENESS OF REGISTRATION
     STATEMENT. If on any day after such Registration Statement has been
     declared effective by the SEC, sales of all of the Registrable Securities
     required to be included on such Registration Statement cannot be made
     (other than during an Allowable Grace Period (as defined in Section 3(m))
     pursuant to such Registration Statement (including, without limitation,
     because of a failure to keep such Registration Statement effective, to
     disclose such information as is necessary for sales to be made pursuant to
     such Registration Statement or to register a sufficient number of Common
     Stock) then, as sole and exclusive relief for the damages to any holder by
     reason of any such delay in or reduction of its ability to sell the
     underlying Common Stock, the Company shall pay to each holder of
     Registrable Securities relating to such Registration Statement an amount in
     cash as liquidated damages and not as a penalty, equal to 5% (five percent)
     per calendar month or portion thereof of the aggregate purchase price paid
     by the Investor for the Shares. The payments to which a holder shall be
     entitled pursuant to this Section 2(e) are referred to herein as
     "REGISTRATION FAILURE PAYMENTS". Registration Failure Payments shall be
     paid on the earlier of (I) the last day of the calendar month during which
     such Registration Failure Payments are incurred and (II) the third Business
     Day after the event or failure giving rise to the Registration Failure
     Payments is cured. The maximum amount of cash Registration Failure Payments
     payable hereunder shall be $300,000. In the event the Company fails to make
     Registration Failure Payments in a timely manner, such Registration Failure
     Payments shall bear interest at the rate of 1.5% per month (prorated for
     partial months) until paid in full.

     3.   RELATED OBLIGATIONS.

     At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(c) or 2(d), the Company will use best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
parties shall have the following obligations:

          a. The Company shall submit to the SEC, within ten (10) Business Days
     after the Company learns that no review of a particular Registration
     Statement will be made by the staff of the SEC or that the staff has no
     further comments on a particular Registration Statement, as the case may
     be, a request for acceleration of effectiveness of such Registration
     Statement to a time and date not later than 48 hours after the submission
     of such request. The Company shall take all reasonable measures to keep
     each Registration Statement effective pursuant to Rule 415 at all times
     until the earlier of (i) the date as of which the Investors may sell all of
     the Registrable Securities covered by such Registration Statement without
     restriction pursuant to Rule 144(k) (or any successor thereto) promulgated
     under the 1933 Act or (ii) the date on which the Investors shall have sold
     all of the Registrable Securities covered by such Registration Statement
     (the "REGISTRATION PERIOD"). If the initial Registration Statement is not
     filed on Form S-3, the Company shall, as soon as it is eligible to do so,
     file a new Registration Statement on Form S-3 to permit sales of the
     Registrable Securities pursuant to Rule 429 under the 1933 Act; and the
     Company shall use its best efforts to cause such Registration Statement to
     become effective as soon as possible. The Company shall ensure that each
     Registration Statement (including any amendments or supplements thereto and
     prospectuses contained therein) (i) shall comply in all material respects
     with the requirements of the 1933 Act and the rules and regulations of the
     SEC promulgated thereunder and (ii) shall not contain any untrue statement
     of a material fact or omit to state a material fact required to be stated
     therein, or necessary to make the statements therein (in the case of
     prospectuses, in the light of the circumstances in which they were made)
     not misleading.

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          b. The Company shall prepare and file with the SEC such amendments
     (including post-effective amendments) and supplements to a Registration
     Statement and the prospectus used in connection with such Registration
     Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
     under the 1933 Act, as may be necessary to keep such Registration Statement
     effective at all times during the Registration Period, and, during such
     period, comply with the provisions of the 1933 Act with respect to the
     disposition of all Registrable Securities of the Company covered by such
     Registration Statement until such time as all of such Registrable
     Securities shall have been disposed of in accordance with the intended
     methods of disposition by the seller or sellers thereof as set forth in
     such Registration Statement. In the case of amendments and supplements to a
     Registration Statement which are required to be filed pursuant to this
     Agreement (including pursuant to this Section 3(b)) by reason of the
     Company filing a report on Form 8-K, Form 10-KSB or any analogous report
     under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
     Company shall have incorporated such report by reference into such
     Registration Statement, if applicable, or shall file such amendments or
     supplements with the SEC on the same day on which the 1934 Act report is
     filed which created the requirement for the Company to amend or supplement
     such Registration Statement.

          c. The Company shall permit Legal Counsel to review and comment upon
     (i) a Registration Statement prior to its filing with the SEC and (ii) all
     amendments and supplements to all Registration Statements (except for
     Annual Reports on Form 10-KSB, and Reports on Form 8-K or 10-KSB and any
     similar or successor reports) within a reasonable number of days prior to
     their filing with the SEC. The Company shall furnish to Legal Counsel,
     without charge, (i) upon Legal Counsel's request, copies of any
     correspondence from the SEC or the staff of the SEC to the Company or its
     representatives relating to any Registration Statement, and (ii) upon the
     effectiveness of any Registration Statement, one copy of the prospectus
     included in such Registration Statement and all amendments and supplements
     thereto. The Company shall reasonably cooperate with Legal Counsel in
     performing the Company's obligations pursuant to this Section 3.

          d. The Company shall furnish to each holder of Registrable Securities
     whose Registrable Securities are included in any Registration Statement,
     without charge, upon the effectiveness of any Registration Statement, one
     copy of the prospectus included in such Registration Statement and all
     amendments and supplements thereto and such other documents, including
     copies of any preliminary or final prospectus, as such holder may
     reasonably request from time to time in order to facilitate the disposition
     of the Registrable Securities owned by such Investor.

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          e. The Company shall use its best efforts to (i) register and qualify
     the Registrable Securities covered by any Registration Statement under such
     other securities or "blue sky" laws of all applicable jurisdictions in the
     United States, including but not limited to such jurisdictions in the
     United States as each Investor who holds Registrable Securities being
     offered reasonably requests unless there is an exemption from registration
     and qualification, (ii) prepare and file in those jurisdictions, such
     amendments (including post-effective amendments) and supplements to such
     registrations and qualifications as may be necessary to maintain the
     effectiveness thereof during the Registration Period, (iii) take such other
     actions as may be necessary to maintain such registrations and
     qualifications in effect at all times during the Registration Period, and
     (iv) take all other actions reasonably necessary or advisable to qualify
     the Registrable Securities for resale in such jurisdictions, PROVIDED,
     HOWEVER, that the Company shall not be required in connection therewith or
     as a condition thereto to (A) qualify to do business in any jurisdiction
     where it would not otherwise be required to qualify but for this Section
     3(e), (B) subject itself to general taxation in any such jurisdiction, (C)
     file a general consent to service of process in any such jurisdiction, or
     (D) make any change in its certificate of incorporation or bylaws, which in
     each case the Board of Directors of the Company determines to be contrary
     to the best interests of the Company and its stockholders.

          f. The Company shall notify Legal Counsel and each Investor in writing
     of the happening of any event, as promptly as practicable after becoming
     aware of such event, as a result of which the prospectus included in a
     Registration Statement, as then in effect, includes an untrue statement of
     a material fact or omission to state a material fact required to be stated
     therein or necessary to make the statements therein, in the light of the
     circumstances under which they were made, not misleading (provided that in
     no event shall such notice contain any material, nonpublic information),
     and, subject to Section 3(r), promptly prepare a supplement or amendment to
     such Registration Statement to correct such untrue statement or omission,
     and deliver a copy of such supplement or amendment to Legal Counsel and
     each Investor. The Company shall also promptly notify Legal Counsel and
     each Investor in writing (i) when a prospectus or any prospectus supplement
     or post-effective amendment has been filed, and when a Registration
     Statement or any post-effective amendment has become effective
     (notification of such effectiveness shall be delivered to Legal Counsel and
     each Investor by facsimile on the same day of such effectiveness and by
     overnight mail), (ii) of any request by the SEC for amendments or
     supplements to a Registration Statement or related prospectus or related
     information, and (iii) of the Company's reasonable determination that a
     post-effective amendment to a Registration Statement would be appropriate.

          g. The Company shall use best efforts to prevent the issuance of any
     stop order or other suspension of effectiveness of a Registration
     Statement, or the suspension of the qualification of any of the Registrable
     Securities for sale in any jurisdiction and, if such an order or suspension
     is issued, to obtain the withdrawal of such order or suspension at the
     earliest possible moment and to notify Legal Counsel and each Investor who
     holds Registrable Securities being sold of the issuance of such order and
     the resolution thereof or its receipt of actual notice of the initiation or
     threat of any proceeding for such purpose.

          h. Each party shall hold in confidence and not make any disclosure of
     information concerning the other party provided by the other party unless
     (i) disclosure of such information is necessary to comply with federal or
     state securities laws, (ii) the disclosure of such information is necessary
     to avoid or correct a misstatement or omission in any Registration
     Statement, (iii) the release of such information is ordered pursuant to a
     subpoena or other final, non-appealable order from a court or governmental
     body of competent jurisdiction, or (iv) such information has been made
     generally available to the public other than by disclosure in violation of
     this Agreement or any other agreement. Each party agrees that it shall,
     upon learning that disclosure of such information concerning another party
     is sought in or by a court or governmental body of competent jurisdiction
     or through other means, give prompt written notice to such other party and
     allow such other party, at its expense, to undertake appropriate action to
     prevent disclosure of, or to obtain a protective order for, such
     information.

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          i. The Company shall use commercially reasonable efforts either to (i)
     cause all of the Registrable Securities covered by a Registration Statement
     to be listed on each securities exchange on which securities of the same
     class or series issued by the Company are then listed, if any, if the
     listing of such Registrable Securities is then permitted under the rules of
     such exchange, or (ii) secure designation and quotation of all of the
     Registrable Securities covered by a Registration Statement on the Nasdaq
     National Market if securities of the same class or series issued by the
     Company are then listed on the Nasdaq National Market if the listing of
     such Registrable Securities is then permitted under the rules of the Nasdaq
     National Market, or (iii) if the preceding clauses (i) and (ii) are
     inapplicable, to secure the inclusion for quotation on The Nasdaq SmallCap
     Market or Over The Counter quotation system for such Registrable Securities
     and, without limiting the generality of the foregoing, to use its
     commercially reasonable efforts to arrange for at least one market maker to
     register with the National Association of Securities Dealers, Inc. ("NASD")
     as such with respect to such Registrable Securities. The Company shall pay
     all fees and expenses in connection with satisfying its obligation under
     this Section 3(i) to the extent permitted by the rules of the exchange or
     market involved.

          j. The Company shall cooperate with the Investors who hold Registrable
     Securities being offered and, to the extent applicable, facilitate the
     timely preparation and delivery of certificates representing the
     Registrable Securities to be offered pursuant to a Registration Statement
     and enable such certificates to be in such denominations or amounts, as the
     case may be, as the Investors may reasonably request and registered in such
     names as the Investors may request.

          k. The Company shall use its best efforts to cause the Registrable
     Securities covered by a Registration Statement to be registered with or
     approved by such other governmental agencies or authorities as may be
     necessary to consummate the disposition of such Registrable Securities.

          l. The Company shall make generally available to its security holders
     as soon as practical, but not later than as required under applicable
     securities laws, an earnings statement (in form complying with, and in the
     manner provided by, the provisions of Rule 158 under the 1933 Act) covering
     a twelve-month period beginning not later than the first day of the
     Company's fiscal quarter next following the effective date of a
     Registration Statement. The financial statements of the Company included in
     a Registration Statement or incorporated by reference therein will comply
     as to form in all material respects with applicable accounting requirements
     and the published rules and regulations of the SEC applicable with respect
     thereto.

          m. The Company shall otherwise use its best efforts to comply with all
     applicable federal and state securities laws and all applicable rules and
     regulations of the SEC in connection with any registration hereunder. The
     Company shall use its best efforts to provide a transfer agent and
     registrar for all such Registrable Securities not later than the effective
     date of such Registration Statement.

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          n. Notwithstanding anything to the contrary herein, at any time after
     the Registration Statement has been declared effective by the SEC and for
     as long as the Investors own in the aggregate at least 5% of the
     outstanding shares of Common Stock of the Company, the Company may delay
     the disclosure of material, non-public information concerning the Company
     the disclosure of which at the time is not, in the good faith opinion of
     the Board of Directors of the Company and its counsel, in the best interest
     of the Company and, in the opinion of counsel to the Company, otherwise
     required (a "GRACE PERIOD"); provided, that the Company shall promptly (i)
     notify the Investors in writing of the existence of material, non-public
     information giving rise to a Grace Period (provided that in each notice the
     Company will not disclose the content of such material, non-public
     information to the Investors) and the date on which the Grace Period will
     begin, and (ii) notify the Investors in writing of the date on which the
     Grace Period ends; and, provided further, that no Grace Period shall exceed
     five (5) consecutive days and during any three hundred sixty five (365) day
     period such Grace Periods shall not exceed an aggregate of twenty (20) days
     and the first day of any Grace Period must be at least two (2) trading days
     after the last day of any prior Grace Period (each, an "ALLOWABLE GRACE
     PERIOD"). For purposes of determining the length of a Grace Period above,
     the Grace Period shall begin on and include the date the Investors receive
     the notice referred to in clause (i) and shall end on and include the later
     of the date the Investors receive the notice referred to in clause (ii) and
     the date referred to in such notice. The provisions of Section 3(g) hereof
     shall not be applicable during the period of any Allowable Grace Period.
     Upon expiration of the Grace Period, the Company shall again be bound by
     the first sentence of Section 3(f) with respect to the information giving
     rise thereto unless such material, non-public information is no longer
     applicable. Notwithstanding anything to the contrary, the Company shall
     cause its transfer agent to deliver unlegended Ordinary Shares to a
     transferee of an Investor in accordance with the terms of the Securities
     Purchase Agreement in connection with any sale of Registrable Securities
     with respect to which an Investor has entered into a contract for sale, and
     delivered a copy of the prospectus included as part of the applicable
     Registration Statement, prior to the Investor's receipt of the notice of a
     Grace Period and for which the Investor has not yet settled.

     4.   OBLIGATIONS OF THE INVESTORS.

          a. At least five (5) Business Days prior to the first anticipated
     filing date of a Registration Statement, the Company shall notify each
     Investor in writing of the information the Company requires from each such
     Investor if such Investor elects to have any of such Investor's Registrable
     Securities included in such Registration Statement. It shall be a condition
     precedent to the obligations of the Company to complete the registration
     pursuant to this Agreement with respect to the Registrable Securities of a
     particular Investor that such Investor shall furnish to the Company such
     information regarding itself, the Registrable Securities held by it and the
     intended method of disposition of the Registrable Securities held by it as
     shall be reasonably required to effect the effectiveness of the
     registration of such Registrable Securities and shall execute such
     documents in connection with such registration as the Company may
     reasonably request.

          b. Each Investor, by such Investor's acceptance of the Registrable
     Securities, agrees to cooperate with the Company as reasonably requested by
     the Company in connection with the preparation and filing of any
     Registration Statement hereunder, unless such Investor has notified the
     Company in writing of such Investor's election to exclude all of such
     Investor's Registrable Securities from such Registration Statement.

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          c. Each Investor agrees that, upon receipt of any notice from the
     Company of the happening of any event of the kind described in Section 3(g)
     or the first sentence of 3(f), such Investor will immediately discontinue
     disposition of Registrable Securities pursuant to any Registration
     Statement(s) covering such Registrable Securities until such Investor's
     receipt of the copies of the supplemented or amended prospectus
     contemplated by Section 3(g) or the first sentence of 3(f) or receipt of
     notice that no supplement or amendment is required. Notwithstanding
     anything to the contrary, the Company shall cause its transfer agent to
     deliver unlegended Ordinary Shares to a transferee of an Investor in
     accordance with the terms of the Securities Purchase Agreement in
     connection with any sale of Registrable Securities with respect to which an
     Investor has entered into a contract for sale prior to the Investor's
     receipt of a notice from the Company of the happening of any event of the
     kind described in Section 3(g) or the first sentence of 3(f) and for which
     the Investor has not yet settled, provided that the Investor has confirmed
     in writing to the Company that it has delivered the prospectus included in
     the Registration Statement, as the same may have been supplemented by the
     Company, to any Person to whom such Buyer is transferring any of the
     Registrable Securities.

          d. Without derogating from Section 1(f)(i) to the Securities Purchase
     Agreement, for a period of 12 calendar months (the "RESTRICTED PERIOD")
     from the date that a Registration Statement on Form S-3 covering the
     Registrable Securities has been declared effective by the SEC (the
     "EFFECTIVE DATE"), the Investors hereby agrees not to sell or otherwise
     dispose of in any way in the public markets pursuant to the Prospectus
     which is a part of the S-3 or in accordance with Rule 144 under the
     Securities Act (a "PUBLIC SALE"), all or any part of or any interest in the
     Registrable Securities in excess of 900,000 (nine hundred thousand) shares
     of Common Stock, SUBJECT to the following additional restriction: during
     the first two calendar months from the Effective Date, the Investors acting
     collectively hereby agree not to sell in Public Sales more than 70,000
     (seventy thousand) shares of Common Stock of the Company per months.

     5.   EXPENSES OF REGISTRATION.

     All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company shall be paid by the Company.

     6.   INDEMNIFICATION.

     Subject to the provisions of sub-section (f) below, in the event any
Registrable Securities are included in a Registration Statement under this
Agreement:

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          a. The Company will, and hereby does, indemnify, hold harmless and
     defend each Investor, the directors, officers, members, partners, and
     employees thereof (each, an "INDEMNIFIED Person"), against any losses,
     claims, damages, liabilities, judgments, fines, penalties, charges, costs,
     reasonable attorneys' fees, amounts paid in settlement or expenses, joint
     or several (collectively, "CLAIMS") incurred in investigating, preparing or
     defending any action, claim, suit, inquiry, proceeding, investigation or
     appeal taken from the foregoing by or before any court or governmental,
     administrative or other regulatory agency, body or the SEC, whether pending
     or threatened, whether or not an indemnified party is or may be a party
     thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject
     insofar as such Claims (or actions or proceedings, whether commenced or
     threatened, in respect thereof) arise out of or are based upon: (i) any
     untrue statement or alleged untrue statement of a material fact in a
     Registration Statement or any post-effective amendment thereto or in any
     filing made in connection with the qualification of the offering under the
     securities or other "blue sky" laws of any jurisdiction in which the Common
     Stock are offered, or the omission or alleged omission to state a material
     fact required to be stated therein or necessary to make the statements
     therein not misleading, (ii) any untrue statement or alleged untrue
     statement of a material fact contained in any preliminary prospectus if
     used prior to the effective date of such Registration Statement, or
     contained in the final prospectus (as amended or supplemented, if the
     Company files any amendment thereof or supplement thereto with the SEC) or
     the omission or alleged omission to state therein any material fact
     necessary to make the statements made therein, in the light of the
     circumstances under which the statements therein were made, not misleading,
     (iii) any violation or alleged violation by the Company of the 1933 Act,
     the 1934 Act, any other law, including, without limitation, any state
     securities law, or any rule or regulation thereunder relating to the offer
     or sale of the Registrable Securities pursuant to a Registration Statement
     or (iv) any material violation of this Agreement (the matters in the
     foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS").
     Subject to Section 6(c), the Company shall reimburse the Indemnified
     Persons, promptly as such expenses are incurred and are due and payable,
     for any legal fees or other reasonable expenses incurred by them in
     connection with investigating or defending any such Claim. Notwithstanding
     anything to the contrary contained herein, the indemnification agreement
     contained in this Section 6(a): (i) shall not apply to a Claim by an
     Indemnified Person arising out of or based solely upon a Violation which
     occurs in reliance upon and in conformity with information furnished to the
     Company in writing by such Indemnified Person for such Indemnified Person
     expressly for use in connection with the preparation of the Registration
     Statement or any such amendment thereof or supplement thereto, if such
     prospectus was timely made available by the Company pursuant to Section
     3(d); (ii) with respect to any preliminary prospectus, shall not inure to
     the benefit of any such Person from whom the Person asserting any such
     Claim purchased the Registrable Securities that are the subject thereof (or
     to the benefit of any Person controlling such Person) if the untrue
     statement or omission of material fact contained in the preliminary
     prospectus was corrected in the prospectus, as then amended or
     supplemented, if such prospectus was timely made available by the Company
     pursuant to Section 3(d), and the Indemnified Person was promptly advised
     in writing not to use the incorrect prospectus prior to the use giving rise
     to a violation and such Indemnified Person, notwithstanding such advice,
     used it or failed to deliver the correct prospectus as required by the 1933
     Act and such correct prospectus was timely made available pursuant to
     Section 3(d); (iii) shall not be available to the extent such Claim is
     based on a failure of the Investor to deliver or to cause to be delivered
     the prospectus made available by the Company, including a corrected
     prospectus, if such prospectus or corrected prospectus was timely made
     available by the Company pursuant to Section 3(d); and (iv) shall not apply
     to amounts paid in settlement of any Claim if such settlement is effected
     without the prior written consent of the Company, which consent shall not
     be unreasonably withheld or delayed. Such indemnity shall remain in full
     force and effect regardless of any investigation made by or on behalf of
     the Indemnified Person and shall survive the transfer of the Registrable
     Securities by the Investors pursuant to Section 9.

          b. In connection with any Registration Statement in which an Investor
     is participating, each such Investor agrees to severally and not jointly
     indemnify, hold harmless and defend, to the same extent and in the same
     manner as is set forth in Section 6(a), the Company, each of its directors,
     employees and each of its officers and each Person, if any, who controls
     the Company within the meaning of the 1933 Act or the 1934 Act (each, an
     "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any
     of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
     insofar as such Claim or Indemnified Damages arise out of or are based upon
     any Violation, in each case to the extent, and only to the extent, that
     such Violation occurs in reliance upon and in conformity with information
     furnished to the Company in writing by such Investor expressly for use in
     connection with such Registration Statement; and, subject to Section 6(c),
     such Investor will reimburse any legal or other expenses reasonably
     incurred by an Indemnified Party in connection with investigating or
     defending any such Claim; provided, however, that the indemnity agreement
     contained in this Section 6(b) and the agreement with respect to
     contribution contained in Section 7 shall not apply to amounts paid in
     settlement of any Claim if such settlement is effected without the prior
     written consent of such Investor, which consent shall not be unreasonably
     withheld or delayed. In no event will the aggregate liability of any
     Investor exceed the amount of the net proceeds received by such Investor
     upon the sale of the Registrable Securities pursuant to such Registration
     Statement. Such indemnity shall remain in full force and effect regardless
     of any investigation made by or on behalf of such Indemnified Party and
     shall survive the transfer of the Registrable Securities by the Investors
     pursuant to Section 9. Notwithstanding anything to the contrary contained
     herein, the indemnification agreement contained in this Section 6(b) with
     respect to any preliminary prospectus shall not inure to the benefit of any
     Indemnified Party if the untrue statement or omission of material fact
     contained in the preliminary prospectus was corrected on a timely basis in
     the prospectus, as then amended or supplemented.

                                        9
<PAGE>

          c. If any Proceeding shall be brought or asserted against any Person
     entitled to indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified
     Party shall promptly notify the Person from whom indemnity is sought (the
     "INDEMNIFYING PARTY") in writing, and the Indemnifying Party shall have the
     right to assume the defense thereof, including the employment of counsel
     reasonably satisfactory to the Indemnified Party and the payment of all
     fees and expenses incurred in connection with defense thereof; provided,
     that the failure of any Indemnified Party to give such notice shall not
     relieve the Indemnifying Party of its obligations or liabilities pursuant
     to this Agreement, except (and only) to the extent that such failure shall
     have materially prejudiced the Indemnifying Party's ability to defend such
     action.

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

          d. The indemnification required by this Section 6 shall be made by
     periodic payments of the amount thereof during the course of the
     investigation or defense, as and when bills are received or Indemnified
     Damages are incurred.

          e. The indemnity agreements contained herein shall be in addition to
     (i) any cause of action or similar right of the Indemnified Party or
     Indemnified Person against the indemnifying party or others, and (ii) any
     liabilities the indemnifying party may be subject to pursuant to the law.

                                       10
<PAGE>

          f. Notwithstanding the abovementioned:

               A. The Company shall not be required to indemnify the Indemnified
          Person with respect to any losses, liabilities, obligations and
          damages unless and only to the extent that the aggregate amount of all
          such losses, liabilities, obligations and damages incurred by all
          Indemnitees exceeds $60,000.

               B. The Company shall not, under any circumstances, be liable to
          the Indemnified Person (as a whole) for losses, liabilities,
          obligations and damages pursuant to this Section to the extent that
          such losses, liabilities, obligations and damages exceed, the
          aggregate purchase price for the Purchased Shares paid by the Buyers
          together with interest of 10% per annum, compounded annually, plus any
          reasonable expenses (including reasonable legal expenses) incurred by
          the Indemnified Person.

PROVIDED, HOWEVER, that the limitations specified in subsections A and B above
shall not apply in any and all events for fraud, gross negligence, intentional
conductor willful misconduct.

     7.   CONTRIBUTION.

     To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that no Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation.

     8.   REPORTS UNDER THE 1934 ACT.

     With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:

          a. provide each Investor, with a written statement by the Company that
     it has complied with the reporting requirements of Rule 144, the 1933 Act
     and the 1934 Act.;

          b. make and keep public information available, as those terms are
     understood and defined in Rule 144;

          c. file with the SEC in a timely manner all reports and other
     documents required of the Company under the 1934 Act so long as the Company
     remains subject to such requirements and the filing of such reports and
     other documents is required for compliance with the public information
     provisions of Rule 144(c); and

                                       11
<PAGE>

          d. furnish or make available to each Investor so long as such
     Investors as a group own at least 2.5% of the outstanding common shares of
     the Company, promptly upon request, (i) a copy of the most recent annual
     report of the Company and such other reports and documents so filed by the
     Company, and (ii) such other information as may be reasonably requested to
     permit the Investors to sell such securities pursuant to Rule 144 without
     registration.

     9.   ASSIGNMENT OF REGISTRATION RIGHTS.

     The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement and applicable securities laws.

     10.  AMENDMENT OF REGISTRATION RIGHTS.

     Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the
Investors who then hold the majority of the Registrable Securities.
Notwithstanding the above, the provisions of this Agreement may be amended by
the Company (without the Investors consent) after the lapse of 5 (five) years
from the Execution Date. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.

     11. FINANCIAL REPORTING. For as long as the Investors holds together at
least 2.5% of the issued and outstanding Common Stock of the Company, the
Company will furnish to the Investors the following reports:

          a. Copies of all filings made by the Company under the Securities Act
     or the Exchange Act with the U.S. Securities and Exchange Commission.

          b. An annual operating plan and budget (for the years 2006 and on) of
     the Company, by no later than March 31st of the year covered by such plan.

          c. A detailed monthly financial projections for the immediately
     ensuing year, by no later than March 31st of that year.

                                       12
<PAGE>

     12.  MISCELLANEOUS.

          a. A Person is deemed to be a holder of Registrable Securities
     whenever such Person owns or is deemed to own of record such Registrable
     Securities. If the Company receives conflicting instructions, notices or
     elections from two or more Persons with respect to the same Registrable
     Securities, the Company shall act upon the basis of instructions, notice or
     election received from the record owner of such Registrable Securities.

          b. Any notices, consents, waivers or other communications required or
     permitted to be given under the terms of this Agreement must be in writing
     and will be deemed to have been delivered: (i) upon receipt, when delivered
     personally; (ii) upon receipt, when sent by facsimile (provided
     confirmation of transmission is mechanically or electronically generated
     and kept on file by the sending party); or (iii) one Business Day after
     deposit with a nationally recognized overnight delivery service, in each
     case properly addressed to the party to receive the same. The addresses and
     facsimile numbers for such communications shall be:

                        If to the Company:

                                 Defense Industries International, Inc.
                                 Atten: Mr. Yossi Postbinder
                                 8 Brussels St. Sderot
                                 Israel
                                 Telephone:       +972-[______________]
                                 Facsimile:       +972-[______________]

                        Copy to:

                                 Efrati, Galili & Co.

                                 Atten:  Yakir Menashe

                                 6 Wissotsky St., Tel Aviv

                                 Israel

                        If to Buyers: As specified in Exhibit A attached hereto.

                        Copy to:

                                 Yigal Arnon & Co
                                 1 Azrieli Center
                                 Atten:  Daniel Marcovic
                                 Tel Aviv 67021
                                 Israel
                                 Telephone:       +972 3 608 7777
                                 Fax:             +972 3 608 7713
                                 Attention:       Daniel Marcovic, Adv.

If to the Buyers, to their address and facsimile number set forth on the EXHIBIT
A to this Agreement, or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

                                       13
<PAGE>

Any document shall be deemed to have been duly served if marked for the
attention of the agent at its address (as set out above) or such other address
in the United States as may be notified to the party wishing to serve the
document and delivered in accordance with the notice provisions set forth in
this Section 11(b).

          c. Failure of any party to exercise any right or remedy under this
     Agreement or otherwise, or delay by a party in exercising such right or
     remedy, shall not operate as a waiver thereof.

          d. All questions concerning the construction, validity, enforcement
     and interpretation of this Agreement shall be governed by the internal laws
     of the New York, without giving effect to any choice of law or conflict of
     law provision or rule that would cause the application of the laws of any
     jurisdictions other than the State of New York. Each party hereby
     irrevocably submits to the exclusive jurisdiction of the courts of the City
     of New York, for the adjudication of any dispute hereunder or in connection
     herewith or with any transaction contemplated hereby or discussed herein,
     and hereby irrevocably waives, and agrees not to assert in any suit, action
     or proceeding, any claim that it is not personally subject to the
     jurisdiction of any such court, that such suit, action or proceeding is
     brought in an inconvenient forum or that the venue of such suit, action or
     proceeding is improper. Each party hereby irrevocably waives personal
     service of process and consents to process being served in any such suit,
     action or proceeding by mailing a copy thereof to such party at the address
     for such notices to it under this Agreement and agrees that such service
     shall constitute good and sufficient service of process and notice thereof.
     Nothing contained herein shall be deemed to limit in any way any right to
     serve process in any manner permitted by law. If any provision of this
     Agreement shall be invalid or unenforceable in any jurisdiction, such
     invalidity or unenforceability shall not affect the validity or
     enforceability of the remainder of this Agreement in that jurisdiction or
     the validity or enforceability of any provision of this Agreement in any
     other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
     HAVE, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
     HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
     HEREBY.

          e. Subject to the requirements of Section 8, this Agreement shall
     inure to the benefit of and be binding upon the permitted successors and
     assigns of each of the parties hereto.

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

          g. This Agreement may be executed in identical counterparts, each of
     which shall be deemed an original but all of which shall constitute one and
     the same agreement. This Agreement, once executed by a party, may be
     delivered to the other party hereto by facsimile transmission of a copy of
     this Agreement bearing the signature of the party so delivering this
     Agreement.

                                       14
<PAGE>

          h. Each party shall do and perform, or cause to be done and performed,
     all such further acts and things, and shall execute and deliver all such
     other agreements, certificates, instruments and documents, as any other
     party may reasonably request in order to carry out the intent and
     accomplish the purposes of this Agreement and the consummation of the
     transactions contemplated hereby.

          i. This Agreement is intended for the benefit of the parties hereto
     and their respective permitted successors and assigns, and is not for the
     benefit of, nor may any provision hereof be enforced by, any other Person.

                                       15
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Stockholders Rights
Agreement to be duly executed as of the date first written above.

COMPANY:

DEFENSE INDUSTRIES INTERNATIONAL, INC.

By: /s/ Joseph Postbinder
--------------------------
Name: /s/ Joseph Postbinder
Title: Chief Executive Officer
MR. JOSEPH POSTBINDER

By: /s/ Joseph Postbinder

                                                BUYERS:

                                                _______________________________

                                                Gov Financial Holdings Ltd.

                                                By: /s/ Avshalom Hershcovich
                                                ----------------------------
                                                By: /s/ Michal Aharoni
                                                ----------------------------

                                                _______________________________
                                                Multi Concept (Consultants) Ltd.

                                                By: /s/ Shmuel Even
                                                -------------------

                                                _______________________________
                                                Ruth Creative Business Ltd

                                                By: /s/ Boaz Ben Rush
                                                ---------------------

                                                /s/ Avshalom Hershcovich
                                                ------------------------
                                                Avshalom Hershcovich

                                       16EXHIBIT 10.3

                                                          EXHIBIT F
                                                          to Securities Purchase
                                                          Agreement

                                ESCROW AGREEMENT

     ESCROW AGREEMENT dated as of June 15, 2005, Defense Industries
International, Inc., a corporation organized under the laws of the State of
Nevada, USA with its principal executive offices at 8 Brussels St. Sderot, P.O.
Box 779, Ashkelon 78101, Israel (the "COMPANY"), and the buyers listed in
Exhibit A of the Securities Purchase Agreement dated as of June 15, 2005, (the
"BUYERS") and Carter Ledyard & Milburn LLP, as escrow agent (the "ESCROW
AGENT").

     WHEREAS, the Company and the Buyers have entered into a Securities Purchase
Agreement dated as of June 15, 2005 (the "PURCHASE AGREEMENT"); and

     WHEREAS, the Purchase Agreement provides, among other things, for the
issuance to the Buyers of (i) 1,833,334 shares of common stock of the Company,
$0.0001 par value each (the "COMMON STOCK") (the "PURCHASED SHARES"); (ii)
1,368,191 shares of Common Stock (the "MAXIMUM PROTECTION SHARES", as defined in
the Purchase Agreement); and (iii) 82,133 shares of Common Stock (the
"Transaction Shares", as defined in the Purchase Agreement); and

     WHEREAS, the Purchase Agreement provides for the payment, at the Execution
Date (as defined in the Purchase Agreement), by the Buyers, of $1,100,000, or
the Purchase Price (as defined in the Purchase Agreement), to the Escrow Agent,
to be held by the Escrow Agent in accordance with the terms and conditions of
this Agreement; and

     WHEREAS, the Purchase Agreement provides for the issuance, at the Execution
Date, by the Company of: (a) 3,283,658 shares of Common Stock of the Company
(the "SHARES"); and (b) the Warrants and the Transaction Warrants (as defined in
the Purchase Agreement), to the Escrow Agent, to be held by the Escrow Agent in
accordance with the terms and conditions of this Agreement; and

     WHEREAS, the Escrow Agent is willing to hold such funds, Shares, Warrants
and Transaction Warrants in accordance with the terms and conditions of this
Agreement;

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties agree as follows:

     1. APPOINTMENT OF ESCROW AGENT. The Company and the Buyers hereby appoints
Carter Ledyard & Milburn LLP as escrow agent in accordance with the terms and
conditions set forth herein, and the Escrow Agent hereby accepts such
appointment.

                                        1
<PAGE>

     2. RECEIPT OF ESCROW FUND, SHARES, WARRANTS AND TRANSACTION WARRANTS.

          2.1 The Escrow Agent hereby acknowledges receipt of cash in the amount
     of $1,100,000 (the "ESCROW FUND"), the Shares, Warrants and Transaction
     Warrants and agrees to hold the Escrow Fund, the Shares the Warrants and
     the Transaction Warrants in accordance with the terms and conditions of
     this Agreement.

          2.2 The Escrow Agent will hold the Escrow Fund in a special account
     established for the benefit of the Company and the Buyers.

     3. DISTRIBUTION OF ESCROW FUND, SHARES AND WARRANTS.

          3.1 If on the 180th day from the Execution Date, the Escrow Agent has
     not received from the Company and the Buyers a notice confirming the
     registration of the Shares and the Warrant Shares (as defined in the
     Purchase Agreement), (collectively, the "REGISTRABLE SECURITIES"), then, on
     the seventh business day thereafter, the remainder of the Purchase Price
     will be returned by the Escrow Agent to the Buyers, and the Shares, the
     Warrants, the Transaction Warrants and any interest yield with regards to
     the Purchase Price held by the Escrow Agent will be transferred to the
     Company.

          3.2 Notwithstanding the above, in the event that the Escrow Agent has
     not received from the Company and the Buyers a written notice confirming
     the registration of the Registrable Securities within 180 days from the
     Execution Date, within 5 business days from the end of such 180-day period
     (the "Buyers' Option"), the Buyers may notify the Escrow Agent in writing
     (with a copy to the Company) that they wish to acquire the Purchased Shares
     and the Warrants. In such event the Escrow Agent shall transfer the
     remainder of the Purchase Price and any interest yield with regards to the
     Purchase Price to the Company and shall transfer the Purchased Shares, the
     Warrants the Transaction Shares and the Transaction Warrants to the Buyers.

          3.3 In the event that before the elapse of 180 days from the Execution
     Date the Escrow Agent receives from the Company and the Buyers a written
     notice confirming the effectiveness of the registration statement
     registering the Registrable Securities, the Escrow Agent will forward,
     within 3 business days, the Purchased Shares, the Warrants the Transaction
     Shares and the Transaction Warrants from Escrow to the Buyers and the
     Purchase Price and any interest yield with regards to the Purchase Price,
     will be delivered to the Company. In such event the Maximum Protection
     Shares will remain in Escrow for the purpose of the Price Protection, as
     specified in Section 3.4 below and in the Purchase Agreement.

          3.4 In the event that on the one year anniversary of the Execution
     Date (the "First Anniversary") the Share Price will have declined below
     $0.60, the Escrow Agent will transfer to each of the Buyers from the shares
     of Common Stock held in escrow additional shares of Common Stock (the
     "PROTECTION SHARES") which number shall be equal to:

                                        2
<PAGE>

          ($0.60 less the Share Price (which shall not be less than $0.35))
          times the remaining number of Shares held by each of the Buyers at the
          First Anniversary), divided by the Share's Price.

          For the purposes of this Agreement, the "Share Price" shall mean the
          average last price of the Common Stock of the Company on the Over the
          Counter Bulletin Board (the "OTCBB") as reported by the OTCBB at the
          end of each such trading day during the 30 trading days prior to the
          First Anniversary.

          On the same date, the Escrow Agent shall return to the Company all the
     remaining Shares held by it, if any.

          3.5 During the 180 days period from the Execution Date, the Company
     may draw up to $550,000 from the Escrow Fund for the purpose of purchasing
     fixed assets as set forth in EXHIBIT H of the Purchase Agreement, according
     to the sole discretion of the Board of Directors of the Company (the "MONEY
     FOR THE M&A PURPOSE"). Upon written notice from the Company to the Escrow
     Agent with a copy to the Buyers, the Escrow Agent shall deliver to the
     Company an amount specified in such notice, provided that prior to the
     transfer of any of such funds the M&A Condition (as defined below) was
     fulfilled. In the event that the Company will draw funds from the Escrow,
     the following shall apply:

               (a) As a condition to the delivery of the Money for the M&A
          Purpose by the Escrow Agent to the Company (the "M&A CONDITION"), the
          Company shall execute a first-ranking fixed pledge agreement and all
          pledge registration documents (as needed) in favor of the Buyers (to
          be registered by the Company in the US and, to the extent possible, in
          Israel as soon as possible after the purchase of the assets) with
          respect to all assets purchased by the Company in consideration for
          the Money for the M&A Purpose, provided that such assets will be free
          and clear from of all mortgage, pledge, hypothecation, assignment,
          encumbrance, lien (statutory or other) or preference, option, proxies,
          rights or other security interest of any kind or nature whatsoever
          (the "PLEDGE" and the "PLEDGED ASSETS"). The creation and registration
          of the Pledge will be made pursuant to a pledge agreement, to be
          executed by the parties as a condition of the release of the Money for
          the M&A Purpose, in such form that is satisfactory to the parties (the
          "PLEDGE AGREEMENT"). If the Purchase Price, including interest, shall
          be returned to the Buyers in accordance with sub-section 1(c) above,
          then within 7 business days from the end of 180 days from the
          Execution Date, the Company shall return the Money for the M&A Purpose
          to the Buyers.

     4. EXCULPATION AND INDEMNIFICATION OF ESCROW AGENT.

          4.1 The Escrow Agent shall have no duties or responsibilities other
     than those expressly set forth herein. The Escrow Agent shall have no duty
     to enforce any obligation of any person to make any payment or delivery, or
     to direct or cause any payment or delivery to be made, or to enforce any
     obligation of any person To perform any other act. The Escrow Agent shall
     be under no liability to the Company or to the Buyers or to anyone else by
     reason of any failure on the part of any party hereto or any maker,
     guarantor, endorser or other signatory of any document or any other person
     to perform such person's obligations under any such document. The Escrow
     Agent shall have no duty to invest any of the funds received by it pursuant
     to this Escrow Agreement.

                                        3
<PAGE>

          4.2 The Escrow Agent shall not be liable to the Company or to the
     Buyers or to anyone else for any action taken or omitted by it, or any
     action suffered by it to be taken or omitted, in good faith and in the
     exercise of its own best judgment. The Escrow Agent may rely conclusively
     and shall be protected in acting upon any order, notice, demand,
     certificate, opinion or advice of counsel (including counsel chosen by the
     Escrow Agent), statement, instrument, report or other paper or document
     (not only as to its due execution and the validity and effectiveness of its
     provisions, but also as to the truth and acceptability of any information
     therein contained), which is believed by the Escrow Agent to be genuine and
     to be signed or presented by the proper person or persons. The Escrow Agent
     shall not be bound by any notice or demand, or any waiver, modification,
     termination or rescission of this Agreement or the Purchase Agreement or
     any of the terms thereof, unless evidenced by a writing executed by each of
     the parties hereto.

          4.3 The Escrow Agent shall not be responsible for the sufficiency or
     accuracy of the form of, or the execution, validity, value or genuineness
     of, any document or property received, held or delivered by it hereunder,
     or of any signature or endorsement thereon, or for any lack of endorsement
     thereon, or for any description therein; nor shall the Escrow Agent be
     responsible or liable to the Company or to the Buyers or to anyone else in
     any respect on account of the identity, authority or rights of the persons
     executing or delivering or purporting to execute or deliver any document or
     property or this Agreement. The Escrow Agent shall have no responsibility
     with respect to the use or application of any funds or other property paid
     or delivered by the Escrow Agent pursuant to the provisions hereof.

          4.4 The Escrow Agent shall have the right to assume in the absence of
     written notice to the contrary from the proper person or persons that a
     fact or an event by reason of which an action would or might be taken by
     the Escrow Agent does not exist or has not occurred, without incurring
     liability to the other parties hereto or to anyone else for any action
     taken or omitted, or any action suffered by it to be taken or omitted, in
     good faith and in the exercise of its own best judgment, in reliance upon
     such assumption.

          4.5 To the extent that the Escrow Agent becomes liable for the payment
     of taxes, including withholding taxes, for any payment made hereunder, the
     Escrow Agent shall so notify to the Company and the Buyers and may
     thereafter pay such taxes. The Escrow Agent may withhold from any payment
     of monies held by it hereunder such amount as the Escrow Agent estimates to
     be sufficient to provide for the payment of such taxes not yet paid, and
     may use the sum withheld for that purpose. The Escrow Agent shall be
     indemnified and held harmless against any liability for taxes and for any
     penalties or interest in respect of taxes, in the manner provided in
     Section 4.6.

                                        4
<PAGE>

          4.6 Without prejudice from Section 7 below, the Escrow Agent will be
     indemnified and held harmless by the Company and the Buyers, jointly and
     severally, from and against any and all expenses, including reasonable
     counsel fees and disbursements, or loss suffered by the Escrow Agent in
     connection with any action, suit or other proceeding involving any claim,
     or in connection with any claim or demand, which in any way, directly or
     indirectly, arises out of or relates to this Agreement, the Purchase
     Agreement, the services of the Escrow Agent hereunder and the monies or
     other property held by it hereunder, EXCEPT AS SET FORTH IN SECTION 4.2
     ABOVE. The Escrow Agent shall have a lien for the amount of any such
     expenses or loss on the monies and other property held by it hereunder and
     shall be entitled to reimburse itself from such monies or property for the
     amount of any such expense or loss. Promptly after the receipt by the
     Escrow Agent or notice of any demand or claim or the commencement of any
     action, suit or proceeding, the Escrow Agent shall, if a claim in respect
     thereof is to be made against the Company or the Buyers, notify the Company
     and the Buyers, thereof in writing, but the failure by the Escrow Agent to
     give such notice shall not relieve the Company or the Buyers, jointly and
     severally, as the case may be, from any liability which the Company or the
     Buyers, jointly and severally, may have to the Escrow Agent hereunder.
     Notwithstanding any obligation to make payments and deliveries hereunder
     and subject to Section 7 below, the Escrow Agent may retain and hold for
     such time as it deems necessary such amount of monies or property as it
     shall, from time to time, in its REASONABLE discretion, deem sufficient to
     indemnify itself for any such loss or expense and for any amounts due it
     under Section 7, provided however that prior to the effect of any such
     action the Escrow Agent shall so notify the Company and the Buyers in
     writing.

          4.8 For the purposes hereof, the term "expense or loss" shall include
     all amounts paid or payable to satisfy any claim, demand or liability, or
     in settlement of any claim, demand, action, suit or proceeding settled with
     the express written consent of the Agent, and all costs and expenses,
     including, but not limited to, reasonable counsel fees and disbursements,
     paid or incurred in investigating or defending against any such claim,
     demand, action, suit or proceeding.

     5. TERMINATION OF AGREEMENT AND RESIGNATION OF ESCROW AGENT.

          5.1 This Escrow Agreement shall terminate on the final disposition of
     the monies and property held in escrow hereunder (the "ESCROW PERIOD"),
     provided that the rights of the Escrow Agent and the obligations of the
     Company and the Buyers under Sections 4 and 7 shall survive the termination
     hereof.

          5.2 The Escrow Agent may resign at any time and be discharged from its
     duties as Escrow Agent hereunder by giving the Company and the Buyers at
     least 30 days' notice thereof. As soon as practicable after its
     resignation, the Escrow Agent shall turn over to a successor escrow agent
     appointed by the Company and the Buyers all monies and property held
     hereunder (less such amount as the Escrow Agent is entitled to retain
     pursuant to Section 7) upon presentation of the document appointing the new
     escrow agent and its acceptance thereof. If no new Escrow Agent is so
     appointed within the 60-day period following such notice of resignation,
     the Escrow Agent may deposit the aforesaid monies and property with any
     court of competent jurisdiction that the Escrow Agent deems appropriate.
     The Escrow Agent shall promptly give the Company and the Buyers notice of
     any such deposit and court.

                                        5
<PAGE>

     6. FORM OF PAYMENTS BY ESCROW AGENT.

          6.1 Any payments by the Escrow Agent to the Company or the Buyers or
     to persons other than the Company or the Buyers pursuant to the terms of
     this Agreement shall be made by check or wire transfer to the bank accounts
     of the Company and the Buyers, as the case may be, the details of which are
     provided in Exhibit A, attached hereto, payable to the order of each
     respective person.

          6.2 All amounts referred to herein are expressed in United States
     Dollars and all payments by the Escrow Agent shall be made in such dollars.

     7. COMPENSATION OF ESCROW AGENT. Notwithstanding anything else to the
contrary herein, for services rendered, the Escrow Agent shall be compensated by
the Company on an hourly basis for the number of hours spent by the Escrow Agent
in performing its duties pursuant to this Escrow Agreement at its standard
hourly rates. The Escrow Agent shall also be entitled to reimbursement from the
Company for all expenses paid or incurred by it in the administration of its
duties hereunder, including, but not limited to, all counsel, advisors' and
Escrow's Agents' fees and disbursements and all reasonable taxes or other
governmental charges. In the event that the Buyers shall assume any payments or
expenses to the Escrow Agent, the Company shall indemnify the Buyers immediately
for all such payments and expenses.

     8. NOTICES. All notices, provided for herein shall be in writing, shall be
delivered by hand or by first-class mail, shall be deemed given when received
and shall be addressed to the parties hereto at their respective addresses
listed below or to such other persons or addresses as the relevant party shall
designate as to itself from time to time in writing delivered in like manner.

         If to the Company:                Defense Industries International Inc.
                                           Attn: Mr. Yossi Postbinder
                                           8 Brussels St. Sderot, Israel

         Copy to:                          Efrati, Galili & Co.
                                           Attn: Yakir Menashe, Adv.
                                           6 Wissotsky St., Tel Aviv, Israel

         If to Buyers:                     As specified in Exhibit A.

         Copy to:                          Yigal Arnon & Co.
                                           Attn: Daniel Marcovic, Adv.
                                           1 Azrieli Center, Tel Aviv, Israel

                                        6
<PAGE>

         If to the Agent:                  Carter, Ledyard & Milburn
                                           2 Wall Street
                                           New York, New York 10005
                                           Attention:  Steven J. Glusband, Esq.
                                           Tel. # (212) 238-8605
                                           Fax # (212) 732-3232

     9. FURTHER ASSURANCES: From time to time on and after the date hereof, the
Company and the Buyers shall deliver or cause to be delivered to the Escrow
Agent such further documents and instruments and shall do and cause to be done
such further acts as the Escrow Agent shall reasonably request (it being
understood that the Escrow Agent shall have no obligation to make any such
request) to carry out more effectively the provisions and purposes of this
Agreement, to evidence compliance herewith or to assure itself that it is
protected in acting hereunder.

     10. CONSENT TO SERVICE OF PROCESS. The Company, the Buyers and the Escrow
Agent hereby irrevocably consents to the jurisdiction of the courts of the State
of New York and of any federal court located in such State in connection with
any action, suit or other proceeding arising out of or relating to this
Agreement or the Purchase Agreement or any action taken or omitted hereunder,
and waives personal service of any summons, complaint or other process and
agrees that the service thereof may be made by certified mail, registered mail
or by overnight courier providing evidence of delivery, directed to the Company
or the Buyers OR THE ESCROW AGENT at its address for purposes of notices
hereunder.

     11. MISCELLANEOUS.

          11.1 If for any reason the escrow deposit is not received by the
     Escrow Agent as contemplated herein, the Company shall reimburse the Escrow
     Agent for all expenses, including reasonable counsel fees and
     disbursements, paid or incurred by it in making preparations for providing
     the services contemplated hereby.

          11.2 This Agreement shall be construed without regard to any
     presumption or other rule requiring construction against the party causing
     such instrument to be drafted. The terms "hereby", "hereof", "hereto",
     "hereunder" and any similar terms, as used in this Agreement, refer to the
     Agreement in its entirety and not only to the particular portion of this
     Agreement where the term is used. The word "person" shall mean any natural
     person, partnership, company, corporation, limited liability company,
     limited partnership, government and any other form of business or legal
     entity. All words or terms used in this Agreement, regardless of the number
     or gender in which they are used, shall be deemed to include any other
     number and any other gender as the context may require. This Agreement
     shall not be admissible in evidence to construe the provisions of any prior
     agreement.

                                        7
<PAGE>

          11.3 This Agreement and the rights and obligations hereunder of the
     Company and the Buyers, may be assigned by the Company and the Buyers only
     to a successor to the Company's or the Buyers entire business. This
     Agreement and the rights and obligations hereunder of the Escrow Agent may
     be assigned by the Escrow Agent only to a successor to its entire business.
     This Agreement shall be binding upon and inure to the benefit of each
     party's respective successors, heirs and permitted assigns. No other person
     shall acquire or have any rights under or by virtue of this Agreement. This
     Agreement may not be changed orally or modified, amended or supplemented
     without an express written agreement executed by the Escrow Agent, the
     Company and the Buyers. This Agreement is intended to be for the sole
     benefit of the parties hereto, and (subject to the provisions of this
     Section 11.3) their respective successors, heirs and assigns, and none of
     the provisions of this Agreement are intended to be, nor shall they be
     construed to be, for the benefit of any third person.

          11.4 This Agreement shall be governed by and construed in accordance
     with the internal laws of the State of New York. The parties hereto agree
     and consent that the state and federal courts located in New York County,
     New York shall have exclusive jurisdiction over any dispute, claim, action,
     suit or proceeding relating to this Agreement and over the parties in
     connection with such dispute, claim, action, suit or proceeding. The
     representations and warranties contained in this Agreement shall survive
     the execution and delivery hereof and any investigations made by any party.
     The headings in this Agreement are for purposes of reference only and shall
     not limit or otherwise affect any of the terms hereof.

     12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signature of all of the parties reflected hereon as the signatures.

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the day and year first above written.

                                          CARTER LEDYARD & MILBURN LLP

                                          By: /S/ Steven J. Glusband
                                          --------------------------
                                          Name: /S/ Steven J. Glusband
                                          Title: Partner

                                          DEFENSE INDUSTRIES INTERNATIONAL, INC.

                                          By: S/ Joseph Postbinder
                                          ------------------------
                                          Name:
                                          Title:

                                          THE BUYERS

                                          Gov Financial Holdings Ltd.

                                          By: /S/ Avshalom Hershcovich
                                          ----------------------------
                                          By: /s/ Michal Aharoni
                                          ----------------------------

                                          Multi Concept (Consultants), Ltd.

                                          By: /S/ Shmuel Even
                                          -------------------

                                        8
<PAGE>

                                          Ruth Creative Business Ltd

                                          By:/S/ Boaz Ben Rush
                                          --------------------

                                          Avshalom Hershcovich

                                          /S/ Avshalom Hershcovich
                                          ------------------------

                                        9
<PAGE>

                                                                       EXHIBIT A

   NAME                                   ADDRESS

   Gov Financial Holdings Ltd., Company   27 Yoav St. Tel-Aviv, 69081, Israel
   No. 513663310
                                          46 Zeira St., Tel Aviv, Israel
   Avshalom Hershcovich

   Multi Concept (Consultants), Ltd.      56 Oren St. Oranit 44813, Israel.
   Company No.
   512835000

                                       10

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