IES Files $3 Million Suit against Arotech Corp -- Formally Known as Electric Fuel Corp -- and Its Officers Robert Ehrlich and Yehuda Harats.

Business Editors/Legal Writers

TEL AVIV, Israel--(BUSINESS WIRE)--Oct. 29, 2003

I.E.S. Group (TASE:IES) announced today that it has filed a nearly $3 million suit in the Tel Aviv District Court, Israel, against Arotech Corp (Nasdaq:ARTX) (formally known as Electric Fuel Corp), Mr. Robert Ehrlich, who serves as Arotech's CEO, President, CFO and Chairman of the Board of Directors, and Mr. Yehuda Harats, who served, at the time that the initial agreements between the parties were executed (in August 2002), as Arotech's President and CEO. Mr. Harats later resigned and filed his own suit against Arotech.

IES Group's lawsuit alleges that following execution of the initial agreements by the parties, the IES Group discovered that Defendants have deliberately and systematically breached a substantial and decisive portion of the undertakings and the representations made by them in their agreements with Plaintiffs and on which Plaintiffs relied at the time they entered into such agreements with Defendants.

The lawsuit states that in August 2002, the IES Group sold its interactive use-of-force training systems operations (which operates out of Littleton, Colorado), to the Arotech Group in consideration for $4.8 million in cash and promissory notes and 3.25 million shares of Electric Fuel. The lawsuit alleges that these shares were not registered for trading until 9 months following the date by which Arotech was obligated to register such shares. It is also alleged that Arotech has breached its undertaking to register a pledge on the shares of companies within the Arotech Group in order to secure the payment of $1.8 million out of the consideration.

The lawsuit further alleges that, upon Arotech's release of its financial statements for the nine-month period ended on September 30, 2002, IES realized that Arotech breached its undertaking in respect of the truthfulness of the representations it made to IES. The figures in Arotech's financial statements were materially and adversely changed, due to matters that were concealed from Plaintiffs, and caused a sharp decline in Arotech's shareholders equity and a 70% drop in its available cash reserves.

The lawsuit further alleges that, in light of Arotech's failure to comply with its obligations, including, among things, the obligations to provide the pledges required in the agreements and to timely register the shares, Plaintiffs were forced to enter into two additional agreements with defendants in December 2002 in order to minimize their damages. The lawsuit asserts that these agreements have also been breached by the Defendants.

Therefore, the IES Group has requested a judgment against Defendants in the amount of approximately $3 million in damages, incurred by the IES Group as a result of Arotech's alleged breaches of its undertakings pursuant to the August 2002 and December 2002 agreements.

From July 2002 to June 2003, Arotech incurred a loss of nearly $16.4 million, and its aggregated losses totaled nearly $104 million. During the said period, Arotech had a negative operating cash flow.