Exhibit 4.1


    Exhibit
      4.1

     

    AMENDMENT
      AGREEMENT 

     

    AMENDMENT
      AGREEMENT
      (the
“Agreement”),
      dated
      as of March [__], 2006, by and between Arotech Corporation, a Delaware
      corporation (the “Company”),
      and
      [NAME OF INVESTOR] (the “Investor”).

     

    WHEREAS:

     

    A.
        The
      Investor is the holder of, inter
      alia,
      warrants to purchase shares of the Company’s Common Stock par value $0.01 per
      share (the “Common
      Stock”)
      as set
      forth in Schedule
      1
      attached
      hereto (collectively, the “Existing
      Warrants”).

     

    B.
        The
      Company and the Investor desire to enter into this Agreement, pursuant to which
      upon satisfaction of certain conditions, among other things, (x) the Company
      will (i) adjust the exercise price of the Existing Warrants to $0.40 (the
“Adjusted
      Exercise Price”),
      (ii)
      issue warrants (the “Replacement
      Warrants”),
      in
      the form attached hereto as Exhibit
      A,
      to
      acquire up to [________]1
      shares
      (the “Replacement
      Warrants Shares”)
      of
      Common Stock on the terms and conditions set forth in Exhibit
      A;
      and (y)
      the Investor will exercise the Existing Warrants at the Adjusted Exercise
      Price.

     

    C.
        The
      proceeds from the Investor’s exercise of the Existing Warrants will be deposited
      in an interest-bearing Cash Collateral Account (as defined below) to secure
      the
      Company’s obligations to repay the 8% Convertible Debenture due September 30,
      2006 in the original principal amount of $[__________] issued to Investor (the
      “Debenture”).

     

    D.
        The
      parties hereto desire that the Replacement Warrants Shares be covered by
      registration rights terms substantially identical, mutatis
      mutandis,
      to
      those set forth in the Registration Rights Agreement, dated
      as
      of September 29, 2005, by and among the Company and certain investors thereto
      (the “Registration
      Rights Agreement”).

     

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

     

    	1  	
            ADJUSTMENT
              OF EXERCISE PRICE AND ISSUANCE OF REPLACEMENT WARRANTS.

          


     

    (a)  Issuance
      of Replacement Warrants.
      Subject
      to satisfaction (or waiver) of the conditions set forth in Sections 4, (i)
      the
      Company shall at the Closing (as defined below), (I) adjust the exercise price
      of the Existing Warrants to the Adjusted Exercise Price and (II) issue to the
      Investor the Replacement Warrants and (ii) the Investor shall exercise the
      Existing Warrants at the Adjusted Exercise Price (the “Closing”).

     

    (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 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.

     

     

    1 40%
      of
      the number of Existing Warrants being re-priced as listed on Schedule
      1.

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (c)  Form
      of Payment.
      On the
      Closing Date, the Investor shall pay an amount equal to the aggregate exercise
      price of the Existing Warrants at the Adjusted Exercise Price (the “Exercise
      Amount”)
      by
      wire transfer of immediately available funds in accordance with the Company’s
      written wire instructions into the Cash Collateral Account. 

     

    	2  	
            REPRESENTATIONS
              AND WARRANTIES.

          


     

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

     

    (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.

     

    (c)  For
      purposes of Sections 2(a) and 2(b) hereto, (i)
      the
      term “Securities” and “Warrant” shall mean the Replacement Warrant, (ii) the
      term “Warrant Shares” shall mean the Replacement Warrants Shares; (iii) all
      references to the “Agreement”, the “Registration Rights Agreement”, the
“Security Agreements” and the “Transaction Documents” shall mean this Agreement,
      and (iv) all references to the “Notes”, “Conversion Shares”, “Letter of Credit”,
      shall be deemed deleted. 

     

    	3  	
            CERTAIN
              COVENANTS AND AGREEMENTS.

          


     

    (a)  Cash
      Collateral Account. On
      or
      prior to the Closing, the Company shall establish with a bank acceptable to
      the
      Investor (the “Cash
      Collateral Bank”)
      a
      deposit account (together with all monies on deposit in such deposit account
      and
      all certificates and instruments, if any, representing or evidencing such
      deposit account, the “Cash
      Collateral Account”),
      and
      shall cause the Cash Collateral Bank to execute and deliver such customary
      agreements and instruments necessary to grant to the Investor a first priority
      perfected security interest in the amounts on deposit in the Cash Collateral
      Account to secure the obligations under the Debenture, in form and substance
      reasonably satisfactory to the Investor. The Company agrees that it shall not
      permit the Cash Collateral Account to be subject to any lien, pledge, charge,
      security interest or other encumbrance other than as provided in the immediately
      preceding sentence. The funds in the Cash Collateral Account shall be
      distributed to the Investor on September 30, 2006.

     

    (b)  Stockholder
      Approval.
      The
      Company shall provide each stockholder entitled to vote at a special or annual
      meeting of stockholders of the Company (the “Stockholder
      Meeting”),
      which
      shall be promptly called and held not later than June 30, 2006 (the
“Stockholder
      Meeting Deadline”),
      a
      proxy statement, substantially in the form which shall have been previously
      reviewed by the Investor and Schulte Roth & Zabel LLP (which review shall be
      completed within five (5) Business Days of such counsel’s receipt of the proxy
      statement and such review requirement shall be waived if such counsel has not
      completed its review within such five (5) Business Day period), soliciting
      each
      such stockholder’s affirmative vote at the Stockholder Meeting for approval of
      resolutions providing for the Company’s issuance of all of the
      Replacement Warrants and the Replacement Warrants Shares issuable upon the
      exercise thereof

     

     

    
      
        
          - 2
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

     in
      accordance with applicable law and the rules and regulations of the Principal
      Market (such
      affirmative
      approval being referred to herein as the “Stockholder
      Approval”),
      and
      the Company shall use its reasonable best efforts to solicit its stockholders’
approval of such resolutions and to cause the Board of Directors of the Company
      to recommend to the stockholders that they approve such resolutions. The Company
      shall be obligated to use its reasonable best efforts to obtain the Stockholder
      Approval by the Stockholder Meeting Deadline. If, despite the Company’s
      reasonable best efforts the Stockholder Approval is not obtained on or prior
      to
      the Stockholder Meeting Deadline, the Company shall cause an additional
      Stockholder Meeting to be held every four (4) months thereafter until such
      Stockholder Approval is obtained or the Notes are no longer outstanding. As
      used
      herein, “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    (c)  Registration
      Rights.
      Promptly after the Closing Date, the Company shall file a new registration
      statement, with the Replacement Warrants Shares
      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:

     

    (i)  “Registrable
      Securities”
shall
      mean (i) the Replacement Warrants Shares and (ii) any shares of capital stock
      issued or issuable with respect to the Replacement Warrants Shares or the
      Replacement Warrants as a result of any stock split, stock dividend,
      recapitalization, exchange or similar event or otherwise, without regard to
      any
      limitations on exercise of the Replacement Warrants.

     

    (ii)  All
      references to “Conversion Shares” and “Notes” shall be deemed
      deleted.

     

    (iii)  “Effectiveness
      Date”
shall
      mean with respect to the Registration Statement required to be filed thereunder
      relating to the Replacement Warrants Shares, the earlier of (1) (i) in the
      event
      that the Registration Statement is not subject to a full review by the SEC,
      60
      days after the Closing Date or (ii) in the event that the Registration Statement
      is subject to a full review by the SEC, 90 days after the Closing Date, and
      (2)
      the fifth Business Day following the date on which the Company is notified
      by
      the SEC that such Registration Statement will not be reviewed or is no longer
      subject to further review and comments.

     

    (iv)  “Filing
      Date”
shall
      mean with respect to the Registration Statement required to be filed hereunder
      relating to the Warrant Shares, the 15th day following the earlier of (i) the
      date on which the Company’s annual report on Form 10-K for the year ended
      December 31, 2005 is required to be filed (after any extensions under Rule
      12b-25 under the Securities Exchange Act of 1934, as amended) or (ii) the date
      on which the Company’s annual report on Form 10-K for the year ended December
      31, 2005 is filed.

     

     

    
      
        
          - 3
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

    (v)  The
      “aggregate principal amount of Notes, then held by such Holder” referenced in
      Section 2(b)(x) and 2(b)(y) of the Registration Rights Agreement shall be
      replaced with the “Exercise Amount.”

     

    (vi)  In
      no
      event shall the aggregate amount of liquidated damages payable by the Company
      pursuant to Section 2(b) exceed 10% of the Exercise Amount. 

     

    (d)  Disclosure
      of Transactions and Other Material Information.
      On or
      before 8:30 a.m., New York Time, on the
      first
      Business Day following the date hereof, the Company shall file a Current Report
      on Form 8-K describing the terms of the transactions contemplated by this
      Agreement and by any documents relating to the issuance of the Replacement
      Warrants in the form required by the Securities Exchange Act of 1934, as
      amended, and attaching the material transaction documents (including, without
      limitation, this Agreement and the form of the Replacement Warrants) as exhibits
      to such filing (including all attachments, the “8-K
      Filing”,
      and
      the description and attachments, the “8-K
      Materials”).
      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 (as such term is defined in the Securities Purchase Agreement) (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).

     

    (e)  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 (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. The Company
      shall pay all stamp and other non-income taxes and duties levied in connection
      with the issuance (but not the exercise) of the Replacement
      Warrants.

     

    	4  	
            COMPANY’S
              CLOSING DELIVERIES.

          


     

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

     

     

     

    
      
        
          - 4
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

    (b).  The
      Replacement Warrants registered in the name of the Investor, pursuant to which
      the Investor shall have the right to acquire the Replacement Warrants
      Shares.

     

    (i)  The
      legal
      opinion of Company Counsel, in agreed form, addressed to the
      Investor.

     

    (ii)  The
      Company shall use its best efforts to have delivered to the Investor within
      five
      business days after the Closing Date a letter from the Company’s transfer agent
      acknowledging that the Irrevocable Transfer Agent Instructions delivered to
      the
      transfer agent on September 29, 2005, shall also apply to the shares of common
      stock underlying the Replacement Warrants.

     

    (iii)  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 Replacement
      Warrant.

     

    (iv)  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.

     

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

     

    	5  	
            INVESTOR’S
              CLOSING DELIVERIES.

          


     

    (a)  At
      the
      Closing, the Investor shall deliver or cause to be delivered to the Company
      in
      United States dollars and in immediately available funds, by wire transfer
      to
      the Cash Collateral Account, an amount equal to the Exercise Amount.
Notwithstanding
      the foregoing, the Company agrees that the Investor shall not be required to
      deliver or caused to be delivered to the Company an amount equal to the Exercise
      Amount until promptly after the Company delivers an account control agreement
      in
      form and substance reasonably satisfactory to the Investor pursuant to Section
      3(a) of this Agreement.

     

    	6  	
            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. 

     

     

    
      
        
          - 5
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

    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. 

     

    (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 other than by an instrument in
      writing signed by signed by the party against whom enforcement is sought. No
      provision hereof may be 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:

     

     

     

    
      
        
          - 6
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

     

      
If
      to the
      Company:

     

                        Arotech
      Corporation

                        354
      Industry
      Drive

                        Auburn,
      Alabama
      36830

                        Facsimile
      No.: (334)
      502-9001

                        Telephone
      No.: (334)
      502-3008

                        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:

     

    To
      the
      address set forth under the Investor’s name on the signature page
      hereof

     

    With
      a copy to:

     

        
Schulte
      Roth
& Zabel LLP

                        919
      Third
      Avenue

                        New
      York, New York
      10022

                        Facsimile
      No.: (212)
      593-5955

                        Telephone
      No.: (212)
      756-2376

                        Attention:
      Eleazer
      Klein, Esq.

     

    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 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, including any assignees of the
      Replacement Warrants.

     

    (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.

     

     

     

    
      
        
          - 7
            -

        

      

      

        
          

        

      

      

      

    

    
       

    

    (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.

     

    


    
      
        
          - 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.

     

    AROTECH
      CORPORATION

     

    By:             

                            Name:

                            Title:

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

     

    SIGNATURE
      PAGE OF INVESTOR FOLLOWS]

     


    
      
        -
          9
-

         

      

      
         

        
          

        

      

      
         

      

    


    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.

     

    [NAME
      OF INVESTOR]

     

    By:_____________________________________

    Name:

    Title:

    


    Address
      for Notice:

    


    


    


    


    


    


    



    
      
        
           

        

         

      

      
         

        
          

        

      

      
         

        
          


        

      

    



    EXHIBITS

     

    Exhibit
      A
      - Form
      of
      Replacement Warrant

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    SCHEDULE
      1

     

    List
      of Existing Warrants

     

    


    
      	
              Holder

            	
              Date

              Exercisable

            	
              Expiration
                Date

            	
              Number

            	
              Original

              Price

            	
              New

              Price