CONVERSION
      AGREEMENT 

     

    CONVERSION
      AGREEMENT
      (the
“Agreement”),
      dated
      as of April 7, 2006, by and between Arotech Corporation, a Delaware corporation
      (the “Company”),
      and
      [________________________] (the “Investor”).

     

    WHEREAS:

     

    A.
        The
      Company, the Investor and certain other investors (the “Other
      Investors”
and,
      collectively with the Investor, the “Investors”),
      have
      entered into that certain Securities Purchase Agreement, dated as of September
      29, 2005 (the “Securities
      Purchase Agreement”),
      pursuant to which, among other things, the Investors purchased from the Company
      (i) an aggregate of $17,500,000 principal amount of senior secured convertible
      notes of the Company (the “Notes”),
      convertible into shares of the Company’s Common Stock, par value $0.01 per share
      (the “Common
      Stock”),
      at a
      conversion price of $1.00 per share, in accordance with the terms of the Notes
      and (ii) the warrant (the “Warrants”)
      to
      acquire Common Stock set forth opposite the Investors’ names on the Schedule of
      Buyers to the Securities Purchase Agreement.

     

    B.
        Contemporaneously
      with the execution and delivery of the Securities Purchase Agreement, the
      Company and the Investors entered into a Registration Rights Agreement, dated
      as
      of September 29, 2005 (the “Registration
      Rights Agreement”),
      pursuant to which the Company agreed to provide certain registration rights
      with
      respect to the Registrable Securities (as defined in the Registration Rights
      Agreement) under the Securities Act of 1933, as amended (the “1933
      Act”),
      and
      the rules and regulations promulgated thereunder, and applicable state
      securities laws.

     

    C.
        The
      Company and the Investor desire to enter into this Agreement, pursuant to which
      upon satisfaction of certain conditions, among other things, (i) the Investor
      will convert $[___________] outstanding principal amount (the 6 days of accrued
      and unpaid interest on such principal amount shall be paid on June 30, 2006
      (such amount, the “Interest
      Amount”))
      on
      such principal amount through the date of conversion (the “Conversion
      Amount”)
      of the
      Investor’s Notes pursuant to Section 3(a) of the Note at a conversion price of
      $0.40 per share and (ii) the Investor agrees to defer (x) the Installment Amount
      (as such term is defined in the Notes) due on May 31, 2006 to July 31, 2006
      (the
“May
      Deferral”),
      and
      (y) if there is a full review of the Registration Statement (as defined in
      Section 3(b)) by the SEC and the Registration Statement is not declared
      effective by July 31, 2006, the Installment Amount due on July 31, 2006 (not
      including the May Deferral) to September 30, 2006.

     

    D.
        Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings ascribed to them in the Securities Purchase Agreement.

     

    NOW,
      THEREFORE,
      the
      Company and the Investor hereby agree as follows:

     

    
      	1.
                	
              CONVERSION
                OF NOTES.

            


    

     

    (a)
        Conversion
      of Notes.
      Subject
      to satisfaction (or waiver) of the conditions set forth in Sections 4 and 5,
      the
      Investor shall at the Closing (as defined below), convert the Conversion Amount
      at a conversion price of $0.40 per share and the Company shall issue to such
      Investor [__________] shares of Common Stock (“Conversion
      Common Stock”)
      in
      accordance with the terms of the Notes (the “Closing”).
      Such
      Conversion Amount shall eliminate or reduce the Installment Amounts beginning
      with the last Installment amount due under Section 8 of the Notes.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (b)
        Closing
      Date.
      The
      date and time of the Closing (the “Closing
      Date”)
      shall
      be 10:00 a.m., New York Time, on the date of satisfaction (or waiver) of the
      conditions to the Closing set forth in Sections 4 and 5 below (or such later
      date as is mutually agreed to by the Company and the Investor). The Closing
      shall occur on the Closing Date at the offices of Schulte Roth & Zabel LLP,
      919 Third Avenue, New York, New York 10022. 

     

    
      	2.
                	
              REPRESENTATIONS
                AND WARRANTIES

            


    

     

    (a)
        Company
      Bring Down.
      The
      Company represents and warrants to the Investor:

     

    (i)  
      as set
      forth in Section 3 (other than Section 3(z) thereto) of the Securities Purchase
      Agreement dated September 29, 2005, by and among the Company and certain
      investors thereto (the “Securities
      Purchase Agreement”)
      as if
      such representations and warranties were made as of the date hereof and set
      forth in their entirety in this Agreement, including without limitation the
      schedules referenced therein; and

     

    (ii)  that
      the
      shares of the
      Conversion Common Stock are covered by the existing registration
      statement (File No. 333-129713), which is effective for resale of the shares
      of
      Conversion Common Stock.

     

    (b)
        Investor
      Bring Down.
      The
      Investor hereby represents and warrants, as to itself only, as set forth in
      Section 2 (other than Section 2(l) thereto) of the Securities Purchase Agreement
      as if such representations and warranties were made as of the date hereof and
      set forth in their entirety in this Agreement. 

     

    
      	3.
                	
              CERTAIN
                COVENANTS AND AGREEMENTS

            


    

     

    (a)
        Deferral
      of Installment Amount.
      The
      Investor agrees to (x) the May Deferral and (y) if there is a full review of
      the
      Registration Statement by the SEC and the Registration Statement is not declared
      effective prior to July 31, 2006, defer the Installment Amount due on July
      31,
      2006 (not including the May Deferral) to September 30, 2006. Such deferral
      of
      the Installment Amount due on July 31, 2006 to September 30, 2006, if any,
      shall
      not constitute a deferral of the Installment Amount due on September 30, 2006
      to
      a later Installment Date, and the Investor agrees that the deferrals of
      Installment Amounts under this Section 3(a) shall not be deemed an Event of
      Default (as such term is defined in the Notes). 

     

    (b)
        Registration
      Rights.
      Promptly after the Closing Date, the Company shall file a new registration
      statement (the “Registration
      Statement”),
      with
      the Conversion Shares and Warrant Shares that are issued or issuable under
      the
      Notes and the Warrants and not otherwise covered by the existing registration
      statement (File No. 333-129713) or the Amendment Agreements entered into between
      the Company and the Buyers in February and March of 2006 being treated as
“Registrable Securities” in accordance with, and being governed by, identical
      terms to the Registration Rights Agreement, which provisions and terms should
      be
      applicable hereto mutatis
      mutandis,
      as if
      the Company and the Investor had executed such Registration Rights Agreement,
      and as if the Investors were party thereto, as of the Closing Date; provided,
      however,
      that
“Filing
      Date”
      means
      with respect to the Registration Statement required to be filed hereunder
      relating to the Registrable Securities, the 15th
      day
      following the Closing Date and “Effectiveness
      Date”
means
      with respect to the Registration Statement required to be filed hereunder
      relating to the Registrable Securities, the earlier of (i) August 31, 2006,
      and
      (ii) the third Trading Day following the date on which the Company is notified
      by the SEC that the Registration Statement will not be reviewed or is no longer
      subject to further review and comments.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

       

    

    (c)
        Disclosure
      of Transactions and Other Material Information.
      Between
      4:00 p.m. and 5:30 p.m., New York Time, on the
      date
      hereof, the Company shall file a Current Report on Form 8-K describing this
      Agreement and by any documents relating to the issuance of Conversion Common
      Stock in the form required by the 1934 Act, and attaching the material
      transaction documents (including, without limitation, this Agreement) as
      exhibits to such filing (including all attachments, the “8-K
      Filing”,
      and
      the description and attachments, the “8-K
      Materials”).
      The
      Company shall otherwise release to the public any other material non-public
      information of which the Company is aware that the Investor has knowledge by
      9:30 am, New York Time, April 10, 2006. From
      and
      after the filing of the 8-K Filing with the SEC, the Investors shall not be
      in
      possession of any material, nonpublic information received from the Company,
      any
      of its Subsidiaries or any of its respective officers, directors, employees
      or
      agents, that is not disclosed in the 8-K Filing. The
      Company shall not, and shall cause each of its Subsidiaries and its and each
      of
      their respective officers, directors, employees and agents, not to, provide
      the
      Investor with any material nonpublic information regarding the Company or any
      of
      its Subsidiaries from and after the filing of the 8-K Filing with the SEC
      without the express written consent of such Investor. Subject to the foregoing,
      neither the Company nor the Investor shall issue any press releases or any
      other
      public statements with respect to the transactions contemplated hereby;
provided,
      however,
      that
      the Company shall be entitled, without the prior approval of the Investor,
      to
      make any press release or other public disclosure with respect to such
      transactions (i) in substantial conformity with the 8-K Filing and
      contemporaneously therewith and (ii) as is required by applicable law and
      regulations, including the applicable rules and regulations of the Trading
      Market (provided that in the case of clause (i) the Investor shall be
      consulted by the Company in connection with any such press release or other
      public disclosure prior to its release).

     

    (d)
        Payment
      of Interest Amount.
      The
      Company agrees to pay the Interest Amount on June 30, 2006.

     

    (e)
        Trading.
      The
      Investor covenants that neither it nor any of its affiliates or any Person
      acting on its or its affiliates’ behalf or pursuant to any understanding with
      such Investor or its affiliates will engage, directly or indirectly, in any
      transactions in the securities of the Company prior to the date the transactions
      contemplated by this Agreement are publicly disclosed. 

     

    (f)
        Reduction
      of Letter of Credit.
      On or
      after the payment of the Installment Amounts due on May 31, 2006 and July 31,
      2006 and the effectiveness of the Registration Statement required to be filed
      under Section 3(b) of this Agreement, the Investor agrees to reasonably
      cooperate with the Company, at the Company’s expense, to allow the face amount
      of Letter of Credit to be reduced by an amount equal to $1,130,000.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

       

    

    (g)
        Fees
      and Expenses.
      [At the
      Closing, the Company shall reimburse the Investor for its reasonable legal
      and
      due diligence fees and expenses in connection with the preparation and
      negotiation of this Agreement and the related documents by paying such amount
      to
      Schulte Roth & Zabel LLP; provided, that such amount shall not exceed
      $15,000 (the “Investor
      Counsel Expense”).
      ]
      Except as otherwise set forth in this Agreement or pursuant to the registration
      rights pursuant to Section 3(c) hereof, each party shall pay the fees and
      expenses of its advisers, counsel, accountants and other experts, if any, and
      all other expenses incurred by such party incident to the negotiation,
      preparation, execution, delivery and performance of this Agreement.


     

    
      	4.
                	
              COMPANY’S
                CLOSING DELIVERIES.

            


    

     

    (a)  At
      the
      Closing, the Company shall deliver or cause to be delivered to the Investor
      the
      following:

     

    (i) The
      Conversion Common Stock registered in the name of the Investor.

     

    (ii)  A
      certificate, executed by the Chief Executive Officer of the Company, dated
      as of
      the Closing Date, to the effect that the Company shall have taken all corporate
      action and obtained all governmental, regulatory or third party consents and
      approvals, if any, necessary for the issuance of the Conversion Common
      Stock.

     

    (iii)  An
      amount
      in United States dollars and in immediately available funds, by wire transfer
      to
      an account designated in writing by the Investor for such purpose, equal to
      the
      Investor Counsel Expense.

     

    (iv)  Such
      other documents relating to the transactions contemplated by this Agreement
      as
      the Investor or its counsel may reasonably request.

     

    (b)
        At
      the
      Closing, All of the Equity Conditions (as such term is defined under the Notes)
      other than clause (i)(x) and (i)(y) thereof shall have been
      satisfied.

     

    
      	5.
                	
              MISCELLANEOUS.

            


    

     

    (a)
        Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdictions) 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 non-exclusive
      jurisdiction of the state and federal courts sitting in The City of New York,
      Borough of Manhattan, for the adjudication of any dispute hereunder or in
      connection herewith or with any transaction contemplated hereby or discussed
      herein, 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.
      EACH
      PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
      HEREBY. 

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

       

    

    (b)
        Counterparts.
      This
      Agreement may be executed in one or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    (c)
        Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d)
        Severability.
      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.

     

    (e)
        Entire
      Agreement; Effect on Prior Agreements; Amendments.
      This
      Agreement, the documents referenced herein and any agreements entered into
      on
      the date hereof in connection with the transactions contemplated by this
      Agreement supersede all other prior oral or written agreements between the
      Investors, the Company, their affiliates and Persons acting on their behalf
      with
      respect to the matters discussed herein, and this Agreement and the instruments
      referenced herein contain the entire understanding of the parties with respect
      to the matters covered herein and therein and, except as specifically set forth
      herein or therein, neither the Company nor any Investor makes any
      representation, warranty, covenant or undertaking with respect to such matters.
      No provision of this Agreement may be amended or waived other than by an
      instrument in writing signed by the party against whom enforcement is sought.
      The Company has not, directly or indirectly, made any agreements with any of
      the
      Investors relating to the terms or conditions of the transactions contemplated
      hereby except as set forth or referenced herein as amended or cancelled by
      this
      Agreement.

     

    (f)
        Notices.
      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 an overnight courier service,
      in
      each case properly addressed to the party to receive the same. The addresses
      and
      facsimile numbers for such communications shall be:

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

       

    

    If
      to the
      Company:

     

    
      	 	Arotech Corporation	 
	 	1229 Oak Valley Drive	 
	 	Ann Arbor, Michigan 48108	 
	 	Facsimile No.: (734) 761-5368	 
	 	Telephone No.: (800) 281-0356	 
	 	Attention: 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
                
	 	
                Telephone:

              	
                011-972-2-990-6623

              
	 	
                Facsimile:

              	
                011-972-2-990-6688

              
	 	Attention: 	
                General
                  Counsel

              


      

    

     

    If
      to the
      Investor:

     

    
      
        	 	[     ]
	 	[     ]
	 	[     ]
	 	
                Attention:

              	
                [   ]

              
	 	
                Facsimile
                  No.:

              	
                [   ]

              
	 	Telephone No.:	
                [   ]

              


      

    

     

    
      With
        a
        copy to:

    

     

    
      
        	 	Schulte Roth & Zabel
                LLP
	 	919 Third Avenue
	 	New York, New York
                10022
	 	
                Attention:

              	
                 (734)
                  761-5368

              
	 	
                Facsimile
                  No.:

              	
                 (800)
                  281-0356

              
	 	Attention: 	
                Eleazer
                  Klein, Esq.

              


      

    

     

    
       

    

    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 at least 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 an overnight courier service shall be rebuttable evidence of
      personal service, receipt by facsimile or receipt from an overnight courier
      service in accordance with clause (i), (ii) or (iii) above,
      respectively.

     

    (g)
        Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

       

    

    (h)     
      No
      Third Party Beneficiaries.
      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.

     

    (i)   Survival.
      The
      representations and warranties of the Company and the Investors contained
      herein, and the agreements and covenants set forth herein, shall survive the
      Closing.

     

    (j)
        Further
      Assurances.
      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 the 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.

     

    (k)      
      No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    (l)
        Remedies.
      The
      Investors shall have all rights and remedies which such holders have been
      granted at any time under any other agreement or contract and all of the rights
      which such holders have under any law. Any Person having any rights under any
      provision of this Agreement shall be entitled to enforce such rights
      specifically (without posting a bond or other security), to recover damages
      by
      reason of any breach of any provision of this Agreement and to exercise all
      other rights granted by law. Furthermore, the Company recognizes that in the
      event that it fails to perform, observe, or discharge any or all of its
      obligations under this Agreement, any remedy at law may prove to be inadequate
      relief to the Investor. The Company therefore agrees that the Investor shall
      be
      entitled to seek temporary and permanent injunctive relief in any such case
      without the necessity of proving actual damages and without posting a bond
      or
      other security.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    


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

     

    
      	 	 	 
	 	AROTECH
              CORPORATION
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title:


    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE OF INVESTOR FOLLOWS]

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

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

     

    
      	 	 	 
	 	[____________________________________]
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title:


    

     

     

    
      
        
        

      

      
        -9-