EXHIBIT 4.2




                                FORM OF DEBENTURE

NEITHER THESE  SECURITIES NOR THE SECURITIES  ISSUABLE UPON  CONVERSION OF THESE
SECURITIES HAVE BEEN  REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
THE  SECURITIES  COMMISSION  OF ANY STATE IN  RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
SECURITIES  LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH  EFFECT,  THE  SUBSTANCE  OF WHICH SHALL BE  REASONABLY  ACCEPTABLE  TO THE
COMPANY.  THESE  SECURITIES AND THE  SECURITIES  ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                                         ORIGINAL ISSUE DATE: SEPTEMBER 30, 2003

No. [ ]                                                                   $[ ]

                               AROTECH CORPORATION
             8% SECURED CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 2006

            THIS  DEBENTURE  is one of a series of duly  authorized  and  issued
debentures of AROTECH  CORPORATION,  a corporation  organized  under the laws of
Delaware (the "COMPANY"),  designated as its 8% Secured  Convertible  Debentures
due September 30, 2006 in the aggregate principal amount of up to Eleven Million
Dollars ($11,000,000) (collectively, the "DEBENTURES").

         FOR  VALUE  RECEIVED,  the  Company  promises  to pay to the  order  of
[SMITHFIELD  FIDUCIARY  LLC]  or  its  registered  assigns  (the  "HOLDER")  the
principal sum of [ ] Dollars ($[ ]) and any additional  sums due pursuant to the
terms hereof,  on September 30, 2006, or such earlier date as the Debentures are
required or permitted to be repaid as provided  hereunder (the "MATURITY DATE"),
and to pay interest to the Holder on the principal  amount of this  Debenture in
accordance  with  the  provisions  hereof.  This  Debenture  is  subject  to the
following additional provisions.

         1.  Definitions.  In addition to the terms  defined  elsewhere  in this
Debenture,  capitalized  terms that are not otherwise  defined herein shall have
the meanings given to such terms in the Securities  Purchase  Agreement dated as
of September  30, 2003 to which the Company and the original  Holder are parties
(the "PURCHASE Agreement").

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         "AFFILIATE" means any Person that,  directly or indirectly  through one
or more intermediaries,  controls or is controlled by or is under common control
with a Person,  as such terms are used in and construed under Rule 144 under the
Securities Act.

         "BANKRUPTCY  EVENT" means any of the following events:  (a) the Company
or any  subsidiary  thereof  commences  a case or  other  proceeding  under  any
bankruptcy, reorganization,  arrangement, adjustment of debt, relief of debtors,
dissolution,  insolvency  or  Liquidation  or  similar  law of any  jurisdiction
relating  to the  Company  or any  subsidiary  thereof;  (b) there is  commenced
against the Company or any subsidiary  thereof any such case or proceeding  that
is not  dismissed  within 60 days  after  commencement;  (c) the  Company or any
subsidiary  thereof is adjudicated  insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company
or any subsidiary  thereof  suffers any appointment of any custodian or the like
for it or any substantial  part of its property that is not discharged or stayed
within  60 days;  (e) the  Company  or any  subsidiary  thereof  makes a general
assignment  for the  benefit of  creditors;  (f) the  Company or any  subsidiary
thereof  fails to pay,  or states  that it is unable to pay or is unable to pay,
its debts  generally  as they  become  due;  (g) the  Company or any  subsidiary
thereof calls a meeting of its creditors with a view to arranging a composition,
adjustment or  restructuring  of its debts; or (h) the Company or any subsidiary
thereof,  by any act or failure to act,  expressly  indicates  its  consent  to,
approval of or  acquiescence  in any of the  foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.

         "BLOOMBERG"  means  Bloomberg  Financial  L.P.  (or  its  successor  to
reporting stock prices).

         "BUSINESS DAY" means any day except Saturday,  Sunday and any day which
shall be a legal holiday or a day on which banking  institutions in the State of
New York are  authorized  or  required  by law or other  governmental  action to
close.

         "CLOSING PRICE" means,  for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Trading Market, the closing bid price per share of the Common Stock
for such date (or the nearest  preceding  date if there is no such price on such
date) on the Trading  Market on which the Common Stock is then listed or quoted;
(b) if the Common Stock is not then listed or quoted on an Trading Market and if
prices for the  Common  Stock are then  quoted on the OTC  Bulletin  Board,  the
closing  bid price per share of the Common  Stock for such date (or the  nearest
preceding  date if there  is no such  price  on such  date) on the OTC  Bulletin
Board; (c) if the Common Stock is not then listed or quoted on an Trading Market
or the OTC Bulletin  Board and if prices for the Common Stock are then  reported
in the "Pink  Sheets"  published by the Pink Sheets LLC  (formerly  the National
Quotation Bureau  Incorporated) (or a similar  organization or agency succeeding
to its  functions of reporting  prices),  the most recent bid price per share of
the Common Stock so reported;  or (d) in all other cases,  the fair market value
of a share of Common Stock as determined by an independent appraiser selected in
good faith by the Holder.

         "COMMISSION" means the Securities and Exchange Commission.


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         "COMMON  STOCK" means the Company's  Common  Stock,  $.01 par value per
share, and stock of any other class into which such shares may be reclassified.

         "COMPANY  REDEMPTION  PRICE"  means  the  sum  of (i)  the  outstanding
principal  amount of this Debenture  plus (ii) all other  amounts,  interest and
liquidated damages due in respect of this Debentures.

         "CONVERSION  DATE" is the date  specified  in a  Conversion  Notice  to
effect conversions of Debentures under Section 5(a), which date may not be prior
to (i)  January 1, 2004 and (ii) the date the Holder  delivers  such  Conversion
Notice.  If no  Conversion  Date is specified in a Conversion  Notice,  then the
Conversion  Date for such  notice  shall be the date that such  notice is deemed
delivered hereunder.

         "CONVERSION  PRICE" means  [INSERT IN INITIAL  DEBENTURES  ONLY:  $1.15
(subject to adjustment in accordance  with Section  5(d))][INSERT  IN ADDITIONAL
DEBENTURES ONLY: $1.45 (subject to adjustment in accordance with Section 5(d))].

         "DISTRIBUTION"  means,  with respect to any Person,  the declaration or
payment of any dividends by such Person, or the purchase, redemption, retirement
or other  acquisition  for value of any of its capital stock or other equity now
or hereafter  outstanding,  or the making of any  distribution  of assets to its
stockholders  as such whether in cash,  assets or in obligations of such Person,
or the  allocation  or other  setting  apart of any sum for the  payment  of any
dividend or  distribution  on, or for the  purchase,  redemption,  retirement or
other acquisition of any shares of its capital stock, or the making of any other
distribution  by  reduction  of capital or otherwise in respect of any shares of
its capital stock.

         "EFFECTIVE  DATE"  means the date that the  Registration  Statement  is
first declared effective by the Securities and Exchange Commission.

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "EQUITY  CONDITIONS"  means,  with  respect to a specified  issuance of
Common Stock, that each of the following conditions is satisfied: (i) the number
of authorized  but unissued and otherwise  unreserved  shares of Common Stock is
sufficient  for such  issuance;  (ii) such shares of Common Stock are registered
for resale by the Holder pursuant to an effective  registration  statement,  and
the  prospectus  thereunder  is  available  for use by the  Holder  to sell such
shares, or all such shares may be sold by the Holder without volume restrictions
pursuant to Rule 144(k)  under the  Securities  Act;  (iii) the Common  Stock is
listed or quoted (and is not  suspended  from  trading) on a Trading  Market and
such shares of Common Stock are approved for listing on such Trading Market upon
issuance;  (iv) such issuance  would be permitted in full without  violating the
rules or  regulations  of the Trading  Market on which such shares are listed or
quoted;  (v) no  Bankruptcy  Event has  occurred;  (vii) the  Company  is not in
default with respect to any obligation  hereunder or under any other Transaction
Document;  or (ix) no Event of Default  nor any event  that with the  passage of
time and  without  being cured would  constitute  an Event of Default  which has
occurred and not been cured.


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<PAGE>

         "EVENT  OF  DEFAULT"  means  the  occurrence  of any one or more of the
following  events  (whatever  the reason and  whether it shall be  voluntary  or
involuntary or effected by operation of law or pursuant to any judgment,  decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

                  (i) any  default in the  payment of  principal  or  liquidated
damages in  respect  of any  Debentures,  as and when the same  becomes  due and
payable  (whether by acceleration or otherwise) or any default in the payment of
interest in respect of any Debentures, within five Trading Days of when the same
becomes due and payable;

                  (ii) the  Company  or any  Subsidiary  defaults  in any of its
obligations under any other debenture or any mortgage, credit agreement or other
facility,  indenture  agreement,  factoring  agreement or other instrument under
which there may be issued,  or by which there may be secured or  evidenced,  any
Indebtedness,  whether such Indebtedness now exists or is hereafter created, and
such default  results in such  Indebtedness  becoming or being  declared due and
payable prior to the date on which it would otherwise become due and payable;

                  (iii) a Bankruptcy Event;

                  (iv)  the  Company  shall  fail  for  any  reason  to  deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions  hereof prior to the fifth Trading Day after the
Conversion Date or the Company shall provide notice to any Holder,  including by
way of public  announcement,  at any time,  of its  intention not to comply with
requests for conversion of Debentures in accordance with the terms hereof;

                  (v) the  Company  shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In within seven days after notice  therefor
is delivered  hereunder or shall fail to pay any liquidated damages due pursuant
to the  Transaction  Documents  within seven days of the date of the request for
such payment;

                  (vi) the Company  shall fail to have  available  a  sufficient
number of  authorized  and  unreserved  shares of Common  Stock to issue to such
Holder upon a conversion hereunder;

                  (vii) a Fundamental Transaction with respect to the Company or
its subsidiaries;

                  (viii) the Registration Statement shall not have been declared
effective  by the  Commission  on or prior to the 120th  day after the  Original
Issue Date;

                  (ix)  during  the  Effectiveness  Period  (as  defined  in the
Registration Rights Agreement),  the effectiveness of the Registration Statement
lapses for any reason or the Holder shall not be permitted to resell Registrable
Securities  (as  defined  in  the  Registration   Rights  Agreement)  under  the
Registration  Statement,  in either case, for more than five consecutive Trading
Days or an  aggregate  of eight  Trading  Days  (which  need not be  consecutive
Trading Days);


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<PAGE>

                  (x) an Event (as defined in the Registration Rights Agreement)
shall  not  have  been  cured to the  satisfaction  of the  Holder  prior to the
expiration  of ten days  from the Event  Date (as  defined  in the  Registration
Rights Agreement) relating thereto (other than an Event resulting from a failure
of a  Registration  Statement to be declared  effective by the  Commission on or
prior to the 120th day after the Original Issue Date,  which shall be covered by
clause (viii) above);

                  (xi) the  Company  defaults in the timely  performance  of any
other obligation under the Transaction Documents (including, without limitation,
any of the Security Agreements and pursuant to Sections 2.2(c) and 2.2(d) of the
Purchase  Agreement)  and such  default  continues  uncured for a period of five
Trading  Days after the date on which  written  notice of such  default is first
given to the  Company by the Holder (it being  understood  that no prior  notice
need be given in the case of a default  that cannot  reasonably  be cured within
five  Trading Days or for  defaults  pursuant to Section  2.2(c) of the Purchase
Agreement); and

                  (xii) the Company or any Subsidiary  takes (or agrees to take)
any Restricted Action in violation of this Debenture.

         "FUNDAMENTAL  TRANSACTION" means any (i) merger or consolidation of the
Company with or into another Person,  (ii) any sale of more than one-half of the
assets  of the  Company  (on an as valued  basis) in one or a series of  related
transactions,  (iii) any tender offer or exchange  offer (whether by the Company
or another  Person)  pursuant to which  holders of Common Stock are permitted to
tender or exchange their shares for other securities,  cash or property, or (iv)
any  reclassification  of the  Common  Stock or any  compulsory  share  exchange
pursuant to which the Common Stock is  effectively  converted  into or exchanged
for other securities, cash or property.

         "INDEBTEDNESS"  shall mean the principal  amount of,  premium,  if any,
profit  participation,  if any, and accrued and unpaid interest on and all other
amounts and costs payable in respect of (a) indebtedness for money borrowed from
others; (b) indebtedness guaranteed,  directly or indirectly,  in any manner, or
in  effect  guaranteed,  directly  or  indirectly,  in  any  manner  through  an
agreement,  contingent or otherwise,  to supply funds to, or in any other manner
invest in the debtor,  or to purchase  indebtedness,  or to purchase and pay for
property if not  delivered or pay for services if not  performed,  primarily for
the purpose of enabling  the debtor to make  payment of the  indebtedness  or to
assure the owners of the indebtedness against loss; (c) all indebtedness secured
by any mortgage,  lien, pledge,  charge or other encumbrance upon property owned
by the Company; (d) all indebtedness of such person created or arising under any
conditional  sale,  lease  (intended  primarily as a financing  device) or other
title retention or security  agreement with respect to property  acquired by the
Company  even though the rights and  remedies  of the  seller,  lessor or lender
under  such  agreement  or lease in the event of a  default  may be  limited  to
repossession  or  sale of  such  property;  and  (e)  renewals,  extensions  and
refundings of any such indebtedness.

         "INITIAL ISSUANCE DATE" means September 30, 2003.


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         "INTEREST  PAYMENT DATE" means each of March 31, June 30,  September 30
and  December  31,  except if such date is not a Trading Day, in which case such
Interest Payment Date shall be the next succeeding Trading Day.
         "INTEREST  SHARES"  means  shares of Common Stock issued or issuable in
payment of accrued interest under Section 2.

         "LIEN" means any lien  (statutory  or  otherwise),  security  interest,
mortgage,  deed of trust,  priority,  pledge,  charge,  conditional  sale, title
retention  agreement,  financing lease or other  encumbrance or similar right of
others, or any agreement to give any of the foregoing.

         "LIQUIDATION"  means for any Person,  any  liquidation,  dissolution or
winding-up of such Person, whether voluntary or involuntary, by operation or law
or otherwise.

         "MANDATORY  PREPAYMENT  AMOUNT" for any Debentures  shall equal the sum
of: (i) the greater of (A) the principal amount of Debentures to be prepaid and,
if applicable,  the  Reinstated  Principal (to the extent the Holder returns the
Underlying  Shares subject to such Reinstated  Principal),  plus all accrued and
unpaid  interest  thereon,  and (B) the  principal  amount of  Debentures  to be
prepaid and, if applicable,  the Reinstated  Principal (to the extent the Holder
returns the Underlying  Shares subject to such Reinstated  Principal),  plus all
accrued and unpaid  interest  thereon,  divided by the  Conversion  Price on the
Trading Day  immediately  preceding  (x) the date of the Event of Default or (y)
the date the  Mandatory  Prepayment  Amount is paid in full,  whichever is less,
multiplied  by the Closing  Price on (x) the date of the Event of Default or (y)
the date the Mandatory  Prepayment Amount is paid in full, whichever is greater,
and (ii) all other  amounts,  costs,  expenses  and  liquidated  damages  due in
respect of such Debentures.

         "ORIGINAL  ISSUE  DATE"  means the date of the first  issuance  of this
Debenture  regardless of the number of transfers of any particular Debenture and
regardless  of the number of  certificates  which may be issued to evidence such
Debenture.

         "OUTSTANDING  DEBENTURES"  means the Company's  outstanding  9% Secured
Convertible Debentures due June 30, 2005.

         "PERSON"  means  an  individual  or  corporation,  partnership,  trust,
incorporated or  unincorporated  association,  joint venture,  limited liability
company,  joint stock company,  government (or an agency or subdivision thereof)
or other entity of any kind.

         "PROCEEDING" means an action, claim, suit,  investigation or proceeding
(including,  without limitation, an investigation or partial proceeding, such as
a deposition),  whether commenced or threatened  concerning the  interpretation,
enforcement  or  defense  of any  transaction  contemplated  by any  Transaction
Document  (whether  brought  against a party hereto or such parties  affiliates,
directors, officers, employees or agents).

         "PROPERTY" means any interest in any kind of property or asset, whether
real,  personal or mixed, and whether tangible or intangible,  of the Company or
any of its subsidiaries, now or hereinafter acquired.


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<PAGE>

         "REGISTRATION   RIGHTS   AGREEMENT"  means  the   Registration   Rights
Agreement,  dated as of the Initial  Issuance Date, to which the Company and the
original Holders are parties, as amended,  modified or supplemented from time to
time in accordance with its terms.

         "REGISTRATION  STATEMENT"  means a registration  statement  meeting the
requirements of the  Registration  Rights  Agreement and covering the resale of,
among other things, all Underlying Shares by the Holders,  who shall be named as
"selling stockholders" thereunder.

         "REINSTATED   PRINCIPAL"  means  the  principal  amount  of  Debentures
converted  during the ten Trading  Days  preceding  the  delivery of an Event of
Default  Notice,  for  which  the  Company  issued  or was  obligated  to  issue
Underlying Shares to the Holder.

         "RESTRICTED  ACTIONS"  means  the  taking  by  Company  or  any  of its
subsidiaries of any of the following actions:

                  (i) create, incur, assume or suffer to exist any Indebtedness,
other  than  Indebtedness  reflected  in the  Company's  most  recent  quarterly
financial statement that has been filed with the Commission prior to the Initial
Issuance  Date or  Indebtedness  incurred  in the  ordinary  course of  business
consistent with past practice and not in excess of $100,000;  provided, however,
that EF Battery Corporation, a Subsidiary of the Company, may incur Indebtedness
in an amount not to exceed  $1,000,000  in the  aggregate  to be used  solely in
connection  with the  operation of the zinc air battery  business,  which amount
will be only secured by the assets of EF Battery Corporation;

                  (ii) create,  incur,  assume or suffer to exist any  guaranty,
provided,  that the  Company  may suffer to exist any  existing  guaranties  for
obligations of  Subsidiaries  that it had entered into in the ordinary course of
business consistent with past practice;

                  (iii) create,  incur, assume or suffer to exist any Lien, upon
or with respect to any interest in Property,  except for Liens  disclosed in the
Purchase  Agreement or for Liens pursuant to the Debentures,  or the Outstanding
Debentures or for Liens incurred in connection  with the settlement  with Yehuda
Harats regarding assets of Electric Fuel (E.F.L.) Ltd.;

                  (iv) create,  incur,  assume or suffer to exist any obligation
as lessee for the rental or hire of any Property,  except leases existing on the
Initial Issuance Date, and any extensions, supplements or renewals thereof;

                  (v) make any loan or advance to any Person or any  purchase or
other acquisition of any capital stock, assets,  obligations or other securities
of any  Person,  or  any  capital  contribution  to,  investment  in,  or  other
acquisition of any interest in, any Person;

                  (vi) make any  Distribution,  except that any  Subsidiary  may
make Distributions to the Company;

                  (vii) make any capital expenditures, in any single or a series
of related transactions, during any year, exceeding $150,000;


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                  (viii) sell, lease,  assign,  transfer or otherwise dispose of
any  of its  now  owned  or  hereafter  acquired  Property  (including,  without
limitation,  shares  of  stock  and  Indebtedness,   receivables  and  leasehold
interests),  except in the  ordinary  course of  business  consistent  with past
practices;

                  (ix) sell, lease,  assign or otherwise dispose of any Property
to any  Affiliate;  (a) merge into or  consolidate  with or  purchase or acquire
Property from any Affiliate; or (b) enter into any other transaction directly or
indirectly  with  or for  the  benefit  of  any  Affiliate  (including,  without
limitation, guaranties and assumption of obligations of any Affiliate); provided
that;  any Affiliate who is an  individual  may serve as a director,  officer or
employee  of the  Company  or any  subsidiary  thereof  and  receive  reasonable
compensation for his or her services in such capacity;

                  (x)  merge or  consolidate  with,  or sell,  assign,  lease or
otherwise  dispose  of  (whether  in one  transaction  or in a series of related
transactions)  all or  substantially  all of its  assets  (whether  now owned or
hereafter  acquired) to, any Person,  or acquire all or substantially all of the
assets or the  business of any Person (or enter into any  agreement to do any of
the foregoing);

                  (xi) take any  action  that  would  permit  the  sale,  lease,
assignment, transfer or other disposition by MDT Armor Corporation of any of its
assets other than in the ordinary course of business;

                  (xii)   take  any  action  or   otherwise   allow  EF  Battery
Corporation to conduct  Acquisitions (as defined in the Security  Agreement) for
an amount in excess of $1,000,000 in the aggregate; or

                  (xiii)  enter into any  agreement  with  respect to any of the
foregoing provisions (i) through (xii).

         "SECURITIES ACT" means the Securities Act of 1933, as amended.

         "SECURITY  AGREEMENTS" means (i) the Security  Agreement (as defined in
the Purchase  Agreement) and (ii) the Intellectual  Property Security  Agreement
(as defined in the Purchase Agreement).

         "TRADING DAY" means (i) a day on which the Common Stock is traded on an
Trading Market,  or (ii) if the Common Stock is not listed on an Trading Market,
a day on which the Common  Stock is traded in the over the  counter  market,  as
reported by the OTC Bulletin  Board,  or (iii) if the Common Stock is not quoted
on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over
the counter market as reported by the National Quotation Bureau Incorporated (or
any  similar  organization  or agency  succeeding  its  functions  of  reporting
prices);  provided,  that in the event  that the  Common  Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a
Business Day.


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         "TRADING  MARKET" means whichever of the New York Stock  Exchange,  the
American  Stock  Exchange,  the Nasdaq  National  Market or The Nasdaq  SmallCap
Market  on which  the  Common  Stock is then  listed  or  quoted  on the date in
question.

         "TRANSACTION  DOCUMENTS"  shall  have  the  meaning  set  forth  in the
Purchase Agreement.

         "UNDERLYING SHARES" means, collectively, the Common Stock issuable upon
conversion  of this  Debenture and the Interest  Shares in  accordance  with the
terms hereof.

         "VWAP"  means,  with  respect to any date of  determination,  the daily
volume weighted  average price (as reported by Bloomberg using the VAP function)
of the Common Stock on such date of determination,  or if there is no such price
on such date of  determination,  then the daily volume weighted average price on
the date nearest preceding such date.

         2. Interest.

                  (a) The  Company  shall  pay  interest  to the  Holder  on the
aggregate  unconverted and then  outstanding  principal amount of this Debenture
(including any interest added to such principal in accordance  with this Section
2) at the rate of 8% per annum, payable in arrears on each Interest Payment Date
and on the Maturity  Date.  Interest  shall be payable on each Interest  Payment
Date,  to the  Holder,  in cash or, at the option of the  Company,  in shares of
Common Stock (the  "INTEREST  SHARES")  provided that the interest which accrued
during any  period  shall be  payable  in  Interest  Shares if, and only if, the
Company delivers written notice of such election ("INTEREST ELECTION NOTICE") to
the Holder at least 10 Trading Days prior to the Interest Payment Date (each, an
"INTEREST  ELECTION  DATE").  Interest to be paid on an Interest Payment Date in
Interest  Shares  shall  be paid in a number  of  Interest  Shares  equal to the
quotient  obtained  by  dividing  the  amount  of  such  interest  by 90% of the
arithmetic average of the VWAP for each of the five (5) Trading Days immediately
preceding  (but not  including)  the Interest  Payment Date.  Interest  shall be
calculated  on the basis of a 360 day year and shall accrue daily  commencing on
the  Original  Issue  Date  (regardless  of  the  number  of  transfers  of  the
Debentures).  If any Interest Shares are to be paid on an Interest Payment Date,
then the Company shall (X) issue and deliver on the applicable  Interest Payment
Date,  to such  address as  specified by the Holder in writing to the Company at
least two  Business  Days  prior to the  applicable  Interest  Payment  Date,  a
certificate,  registered  in the name of the  Holder  or its  designee,  for the
number of Interest Shares to which the Holder shall be entitled, or (Y) provided
that the Company's transfer agent (the "TRANSFER AGENT") is participating in the
Depository Trust Company ("DTC") Fast Automated  Securities Transfer Program and
such  Interest  Shares do not require the  placement of any legends  restricting
transfer of such Interest  Shares,  upon the request of the Holder,  credit such
aggregate number of Interest Shares to which the Holder shall be entitled to the
Holder's  or its  designee's  balance  account  with  DTC  through  its  Deposit
Withdrawal Agent Commission System.  Notwithstanding the foregoing,  the Company
shall not be entitled to pay  interest in Interest  Shares and shall be required
to pay such interest in cash on the applicable  Interest Payment Date if (w) the
Equity  Conditions are not satisfied with respect to the Interest Shares on each
day during the period  beginning on the  applicable  Interest  Election Date and
ending on and including the applicable Interest Payment Date, or (y) the Company
has not obtained the Stockholder Approval (as defined in the Purchase Agreement)


                                     - 9 -
<PAGE>

prior to the Interest  Election  Date.  The Company  shall pay any and all taxes
that may be payable  with  respect to the  issuance  and  delivery  of  Interest
Shares.

                  (b) If the Company fails for any reason to pay interest on the
Interest  Payment Date, the Holder may (but shall not be required to) treat such
interest as if it had been added to the principal amount of this Debenture as of
such Interest Payment Date.

                  (c) Any interest to be paid  hereunder that is not paid on the
Interest  Payment Date and not added to the  principal  amount of the  Debenture
shall  continue  to accrue  and shall  entail a late fee,  which must be paid in
cash,  at the rate of 12% per annum or the lesser rate  permitted by  applicable
law (such fees to accrue  daily,  from the date such  interest is due  hereunder
through and including the date of payment).

         3.   Registration  of  Debentures.   The  Company  shall  register  the
Debentures  upon records to be  maintained  by the Company for that purpose (the
"DEBENTURE  REGISTER")  in the name of each record  holder  thereof from time to
time. The Company may deem and treat the registered  Holder of this Debenture as
the  absolute  owner  hereof  for the  purpose of any  conversion  hereof or any
payment of interest hereon, and for all other purposes,  absent actual notice to
the contrary.

         4. Registration of Transfers and Exchanges.  The Company shall register
the transfer of any portion of this  Debenture in the  Debenture  Register  upon
surrender  of this  Debenture to the Company at its address for notice set forth
herein.   Upon  any  such  registration  or  transfer,   a  new  debenture,   in
substantially  the  form of this  Debenture  (any  such  new  debenture,  a "NEW
DEBENTURE"),  evidencing the portion of this  Debenture so transferred  shall be
issued to the transferee and a New Debenture evidencing the remaining portion of
this Debenture not so transferred,  if any, shall be issued to the  transferring
Holder.  The acceptance of the New Debenture by the transferee  thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations of
a holder of a Debenture.  This Debenture is exchangeable  for an equal aggregate
principal  amount  of  Debentures  of  different  authorized  denominations,  as
requested by the Holder  surrendering  the same. No service  charge or other fee
will be  imposed  in  connection  with  any such  registration  of  transfer  or
exchange.  Transfers of this Debenture and the Underlying Shares are governed by
Section 4.1 of the Purchase Agreement.

         5. Conversion.

                  (a) At the  Option of the  Holder.  All or any  portion of the
principal amount of this Debenture then  outstanding  (together with all accrued
but unpaid interest  thereon) shall be convertible into Common Stock (subject to
the limitations set forth in Section 5(b)), at the option of the Holder,  at any
time and from time to time from and after the  January  1, 2004.  Holders  shall
effect  conversions  under this  Section 5(a) by  delivering  the Company with a
written notice in the form attached hereto as Exhibit A (a "CONVERSION  NOTICE")
together  with a  schedule  in the  form of  Schedule  1  attached  hereto  (the
"CONVERSION  SCHEDULE").  The  number of  Underlying  Shares  issuable  upon any
conversion  hereunder  shall (subject to the  limitations of Section 5(b)) equal
the outstanding  principal amount of this Debenture (plus all accrued but unpaid
interest thereon) to be converted divided by the Conversion Price.


                                     - 10 -
<PAGE>

                  (b) Certain Conversion Restrictions.

                      (i) Notwithstanding  anything  to the  contrary  contained
herein,  the number of shares of Common  Stock that may be  acquired by a Holder
upon any  conversion  of Debentures  (or  otherwise in respect  hereof) shall be
limited to the extent  necessary to insure that,  following such  conversion (or
other  issuance),  the total number of shares of Common Stock then  beneficially
owned by such Holder and its affiliates  and any other Persons whose  beneficial
ownership of shares of Common Stock would be  aggregated  with such Holder's for
purposes of Section  13(d) of the Exchange  Act,  does not exceed  4.999% of the
total number of issued and  outstanding  shares of Common Stock  (including  for
such  purpose the shares of Common Stock  issuable  upon such  conversion).  For
purposes of the foregoing  sentence,  the  aggregate  number of shares of Common
Stock  beneficially owned by such Holder and its affiliates shall exclude shares
of Common Stock which would be issuable upon (i)  conversion  of the  remaining,
unconverted portion of the principal amount of this Debenture beneficially owned
by such  Holder  and its  affiliates  and (ii)  exercise  or  conversion  of the
unexercised  or  unconverted  portion  of any other  securities  of the  Company
beneficially  owned  by such  Holder  and  its  affiliates  (including,  without
limitation,  any  convertible  notes,  convertible  preferred stock or warrants)
subject to a limitation on conversion  or exercise  analogous to the  limitation
contained herein. Except as set forth in the preceding sentence, for purposes of
this  paragraph,  beneficial  ownership  shall be determined in accordance  with
Section  13(d) of the  Exchange  Act and the rules and  regulations  promulgated
thereunder.  This  provision  shall not  restrict the number of shares of Common
Stock which a Holder may receive or  beneficially  own in order to determine the
amount of securities or other  consideration that such Holder may receive in the
event  of a  merger,  sale or other  business  combination  or  reclassification
involving the Company as contemplated herein.

                      (ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon  conversion of this Debenture
if the  issuance  of such  shares of Common  Stock  would  exceed that number of
shares of Common  Stock  which the  Company  may issue  upon  conversion  of the
Debentures  without  breaching  the  Company's  obligations  under  the rules or
regulations  of the  Trading  Market  (the  "EXCHANGE  CAP"),  except  that such
limitation  shall  not apply in the  event  that the  Company  (A)  obtains  the
approval of its  stockholders as required by the applicable rules of the Trading
Market for  issuances  of Common Stock in excess of such amount or (B) obtains a
written  opinion from outside  counsel to the Company that such  approval is not
required,  which opinion shall be reasonably  satisfactory to the Holder.  Until
such  approval or written  opinion is obtained,  no purchaser of the  Debentures
pursuant to the Purchase  Agreement  (the  "PURCHASERS")  shall be issued,  upon
conversion of  Debentures,  shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction,  the numerator of which is
the principal  amount of  Debentures  issued to such  Purchaser  pursuant to the
Purchase  Agreement on the Initial Issuance Date and the denominator of which is
the  aggregate  principal  amount of all  Debentures  issued  to the  Purchasers
pursuant to the Purchase Agreement on the Initial Issuance Date (with respect to
each Purchaser, the "EXCHANGE CAP ALLOCATION").  In the event that any Purchaser
shall  sell or  otherwise  transfer  any of  such  Purchaser's  Debentures,  the
transferee  shall be allocated a pro rata portion of such  Purchaser's  Exchange
Cap Allocation,  and the  restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation  allocated


                                     - 11 -
<PAGE>

to such transferee. In the event that any holder of Debentures shall convert all
of such holder's  Debentures  into a number of shares of Common Stock which,  in
the  aggregate,  is less than such holder's  Exchange Cap  Allocation,  then the
difference  between  such  holder's  Exchange Cap  Allocation  and the number of
shares of Common Stock actually  issued to such holder shall be allocated to the
respective  Exchange Cap Allocations of the remaining holders of Debentures on a
pro rata basis in proportion to the aggregate principal amount of the Debentures
then held by each such holder.

                  (c) Mechanics of Conversion.

                      (i) By the third Trading Day after each  Conversion  Date,
the Company  shall issue or cause to be issued and cause to be  delivered  to or
upon the written order of the Holder and in such name or names as the Holder may
designate a certificate for the Underlying  Shares issuable upon such conversion
which,  unless  required  by  the  Purchase  Agreement,  shall  be  free  of all
restrictive  legends.  The Holder,  or any Person so designated by the Holder to
receive Underlying  Shares,  shall be deemed to have become the holder of record
of such Underlying  Shares as of the Conversion Date. If the Company's  transfer
agent is eligible to participate in The Depositary Trust Company DWAC system and
no  legends  are  required  to be  included  on  the  certificates  representing
Underlying  Shares pursuant to the Purchase  Agreement,  the Company shall, upon
request  of the  Holder,  use its best  efforts  to  deliver  Underlying  Shares
hereunder  electronically  through  The  Depository  Trust  Company  or  another
established clearing corporation performing similar functions.

                      (ii) To effect conversions hereunder, the Holder shall not
be  required  to  physically  surrender  this  Debenture  unless  the  aggregate
principal  amount  represented  by such Debenture is being  converted,  in which
event, the Holder shall deliver such Debenture promptly to the Company (it being
understood  that such  delivery is not a condition  precedent  to the  Company's
obligations  to deliver  Underlying  Shares upon such  conversion).  Conversions
hereunder  shall have the effect of lowering the  outstanding  principal  amount
represented by such  Debenture in an amount equal to the applicable  conversion,
which  shall be  evidenced  by  entries  set  forth in the  Conversion  Schedule
attached as Schedule I, which will be maintained by the Company and the Holder.

                      (iii) The Company's  obligations   to  issue  and  deliver
Underlying Shares upon conversion of this Debenture in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
the  Holder to enforce  the same,  any  waiver or  consent  with  respect to any
provision hereof,  the recovery of any judgment against any Person or any action
to enforce the same,  or any setoff,  counterclaim,  recoupment,  limitation  or
termination,  or any breach or alleged  breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other Person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with the issuance of such Underlying Shares.

                      (iv) If  by the third  Trading Day after a Conversion Date
the  Company  fails to  deliver  to the Holder  such  Underlying  Shares in such
amounts and in the manner  required  pursuant to Section  5(a),  then the Holder
will have the right to rescind such conversion.


                                     - 12 -
<PAGE>

                      (v) If by the third  Trading Day  after  a Conversion Date
the  Company  fails to  deliver  to the Holder  such  Underlying  Shares in such
amounts and in the manner  required  pursuant to this Section 5(c), and if after
such third Trading Day the Holder  purchases (in an open market  transaction  or
otherwise)  shares of Common Stock to deliver in  satisfaction of a sale by such
Holder of the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "BUY-IN"),  then the Company shall:  (A) pay in cash to the Holder
(in addition to any  remedies  available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the  shares of Common  Stock so  purchased  exceeds  (y) the  amount
obtained by multiplying (1) the aggregate  number of Underlying  Shares that the
Company was required to deliver to the Holder in connection  with the conversion
at issue by (2) the Closing Price at the time of the  obligation  giving rise to
such purchase  obligation and (B) at the option of the Holder,  either reinstate
the principal  amount of Debentures and equivalent  number of Underlying  Shares
for which such  conversion  was not timely  honored or deliver to the Holder the
number of shares of Common  Stock that would  have been  issued had the  Company
timely  complied with its conversion  and delivery  obligations  hereunder.  For
example,  if the Holder purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with  respect to an attempted  conversion  of
Debentures with a market price on the date of conversion totaling $10,000, under
clause (A) of the immediately preceding sentence,  the Company shall be required
to pay the Holder  $1,000.  The Holder shall provide the Company  written notice
indicating the amounts payable to the Holder in respect of the Buy-In.

                  (d) Adjustments to Conversion  Price.  The Conversion Price in
effect from time to time shall be subject to adjustment in accordance  with this
Section 5(d):

                      (i) Stock  Dividends  and Splits. If  the  Company, at any
time while any  Debentures  are  outstanding,  (i) pays a stock  dividend on its
shares of Common Stock or otherwise makes a distribution on any class of capital
stock that is payable in shares of Common  Stock,  (ii)  subdivides  outstanding
shares  of  Common  Stock  into a larger  number of  shares,  or (iii)  combines
outstanding shares of Common Stock into a smaller number of shares, then in each
such case the  Conversion  Price shall be  multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding  immediately
before such event and of which the denominator  shall be the number of shares of
Common Stock  outstanding  immediately  after such event.  Any  adjustment  made
pursuant to clause (i) of this  paragraph  shall  become  effective  immediately
after the record date for the determination of stockholders  entitled to receive
such dividend or  distribution,  and any  adjustment  pursuant to clause (ii) or
(iii) of this paragraph shall become effective  immediately  after the effective
date of such subdivision or combination.

                      (ii) Additional Distributions. If the Company, at any time
while any Debentures are outstanding,  shall distribute to all holders of shares
of Common Stock (and not to Holders)  evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security,  then in each such
case the  Conversion  Price at which the principal  amount of  Debentures  shall
thereafter be  convertible  shall be determined by  multiplying  the  Conversion
Price in effect  immediately prior to the record date fixed for determination of
stockholders  entitled to receive such  distribution  by a fraction of which the
denominator  shall  be  the  Closing  Price  determined  as of the  record  date
mentioned  above, and of which the numerator shall be such Closing Price on such


                                     - 13 -
<PAGE>

record date less the then fair  market  value at such record date of the portion
of such assets or evidence of  indebtedness  so  distributed  applicable  to one
outstanding  share of Common  Stock as  determined  by the Board of Directors in
good faith.  In either case the  adjustments  shall be  described in a statement
provided to the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment  shall be made whenever any such  distribution is made and shall
become effective immediately after the record date mentioned above.

                      (iii) Calculations. All calculations under this  Section 5
shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. The number of shares of Common Stock outstanding at any given time shall
not include  shares owned or held by or for the account of the Company,  and the
disposition  of any such shares shall be  considered  an issue or sale of Common
Stock.

                      (iv) Notice of Adjustments. Whenever  the Conversion Price
is adjusted pursuant to the terms hereof the Company shall promptly mail to each
Holder,  a notice setting forth the Conversion  Price after such  adjustment and
setting forth a brief statement of the facts requiring such adjustment.

                  (e)  Certain   Fundamental   Transactions.   In  case  of  any
Fundamental  Transaction,  a  Holder  shall  have  the  right  to do  any of the
following:  (1)  convert  its  Debentures  into the  shares  of stock  and other
securities, cash and property receivable upon or deemed to be held by holders of
shares of Common Stock  following such  Fundamental  Transaction and such Holder
shall be entitled upon such  Fundamental  Transaction  to receive such amount of
securities,  cash and  property  as the  shares of Common  Stock into which such
Debentures  could  have been  converted  immediately  prior to such  Fundamental
Transaction would have been entitled,  or (2)(x) require the surviving entity to
issue  debentures in such principal  amount equal to the principal amount of the
Debentures held by such Holder prior to such Fundamental  Transaction,  plus all
other amounts owing thereon,  which newly issued debentures shall have identical
terms to the terms of the  Debentures and shall be entitled to all of the rights
and privileges of a Holder set forth herein and the agreements pursuant to which
the  prepayment  was issued,  and (y)  simultaneously  with the issuance of such
convertible  debentures  shall have the right to convert  such  shares only into
shares of stock and  other  securities,  cash and  property  receivable  upon or
deemed  to be  held  by  holders  of  shares  of  Common  Stock  following  such
Fundamental  Transaction  (the conversion  price applicable for the newly issued
convertible  debentures  shall be based upon the amount of securities,  cash and
property  that each share of Common  Stock  would  receive  in such  Fundamental
Transaction  and the  Conversion  Price  stated  herein) or (3) at the  Holder's
option and request,  any  successor  to the Company or surviving  entity in such
Fundamental  Transaction  shall  either pay to the Holder the greater of (A) the
outstanding  principal  amount of the  Debentures  held by such  Holder plus all
accrued  and  unpaid  interest  thereon,  and (B) the  principal  amount  of the
Debenture  held by such Holder,  plus all accrued and unpaid  interest  thereon,
divided by the Conversion Price on the Trading Day immediately preceding (x) the
date of prior to such  Fundamental  Transaction  or (y) the date the  amount set
forth in this  section is paid in full,  whichever  is less,  multiplied  by the
Closing Price on (x) the date of the Fundamental Transaction or (y) the date the
amount set forth in this  section is paid in full,  whichever  is  greater.  Any
Fundamental  Transaction  shall  include  such terms so as  continue to give the
Holders the right to receive the securities, cash and


                                     - 14 -
<PAGE>

property set forth in this Section upon any  conversion or redemption  following
such event.  This provision shall similarly apply to successive such Fundamental
Transactions. The rights set forth herein shall not alter the rights of a Holder
set forth elsewhere in this Debenture; provided, that a Holder may only exercise
the rights set forth  herein with  respect to a single event giving rise to such
rights.

                  (f)  Reclassifications;   Share  Exchanges.  In  case  of  any
reclassification of the shares of Common Stock, or any compulsory share exchange
pursuant  to  which  the  shares  of  Common  Stock  are  converted  into  other
securities,  cash or property,  the Holders of the Debentures  then  outstanding
shall have the right  thereafter  to convert such shares only into the shares of
stock and other  securities,  cash and property  receivable upon or deemed to be
held by holders of shares of Common Stock  following  such  reclassification  or
share  exchange,  and the Holders  shall be entitled  upon such event to receive
such amount of securities,  cash or property as a holder of the number of shares
of Common Stock of the Company into which such shares of  Debentures  could have
been  converted  immediately  prior to such  reclassification  or share exchange
would have been entitled.  This provision  shall  similarly  apply to successive
reclassifications or share exchanges.

                  (g)  Notice of  Corporate  Events.  If (a) the  Company  shall
declare a dividend  (or any other  distribution)  on the Common  Stock,  (b) the
Company shall declare a special nonrecurring cash dividend on or a redemption of
the Common Stock, (c) the Company shall authorize the granting to all holders of
Common  Stock  rights or warrants  to  subscribe  for or purchase  any shares of
capital  stock  of  any  class  or of  any  rights,  (d)  the  approval  of  any
stockholders of the Company shall be required in connection with any Fundamental
Transaction,  or (e) the Company shall  authorize  the voluntary or  involuntary
dissolution,  liquidation or winding up of the affairs of the Company,  then the
Company  shall file a press  release or Current  Report on Form 8-K to  disclose
such  occurrence  and notify the Holders at their last  addresses  as they shall
appear upon the stock books of the Company,  at least 20 calendar  days prior to
the applicable record or effective date hereinafter  specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such  dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the  holders of Common  Stock of record to be  entitled  to
such  dividend,  distributions,   redemption,  rights  or  warrants  are  to  be
determined or (y) the date on which any such Fundamental Transaction is expected
to become  effective  or  close,  and the date as of which it is  expected  that
holders of Common  Stock of record  shall be entitled to exchange  their  Common
Stock  for  securities,  cash  or  other  property  deliverable  upon  any  such
Fundamental Transaction.

                  (h) Reservation of Common Stock. The Company covenants that it
will at all times reserve and keep  available out of its authorized and unissued
shares of Common Stock  solely for the purpose of issuance  upon  conversion  of
Debentures,  each as herein provided,  free from preemptive  rights or any other
actual  contingent  purchase rights of persons other than the Holders,  not less
than  such  number  of shares  of  Common  Stock as shall be  issuable  upon the
conversion  of all  outstanding  principal  amount of  Debentures.  The  Company
covenants that all shares of Common Stock that shall be so issuable shall,  upon
issue,   be  duly  and  validly   authorized  and  issued  and  fully  paid  and
nonassessable.


                                     - 15 -
<PAGE>

                  (i) Fractional Shares. Upon a conversion hereunder the Company
shall not be required  to issue stock  certificates  representing  fractions  of
shares of Common Stock, but may if otherwise  permitted,  make a cash payment in
respect  of any final  fraction  of a share  based on the  Closing  Price on the
applicable Conversion Date. If any fraction of an Underlying Share would, except
for the provisions of this Section, be issuable upon a conversion hereunder, the
Company shall pay an amount in cash equal to the Conversion  Price multiplied by
such fraction.

                  (j) Stamp Taxes. The issuance of certificates for Common Stock
on conversion of principal amount of this Debenture shall be made without charge
to the Holders  thereof for any  documentary  stamp or similar taxes that may be
payable in respect of the issue or delivery of such  certificate,  provided that
the Company  shall not be required to pay any tax that may be payable in respect
of any transfer  involved in the  issuance and delivery of any such  certificate
upon  conversion  in a name other than that of the Holder of such  Debentures so
converted.

                  (k) Notices.  Any and all notices or other  communications  or
deliveries to be provided by the Holders,  including,  without  limitation,  any
Holder  Conversion  Notice,  shall be in writing and  delivered  personally,  by
facsimile  or  sent  by  a  nationally  recognized  overnight  courier  service,
addressed  to the  attention  of the  Chief  Executive  Officer  of the  Company
addressed to Arotech Corporation,  632 Broadway, Suite 1200, New York, NY 10012,
fax:  (646)  654-2187,  with a copy to Electric Fuel (E.F.L.) Ltd., One HaSolela
Street, POB 641, Western Industrial Park, Beit Shemesh 99000, Israel,  Facsimile
No.:  011-972-2-990-6688,  Attn.:  General Counsel,  or to such other address or
facsimile  number as shall be  specified  in  writing  by the  Company  for such
purpose.  Any and all  notices  or  other  communications  or  deliveries  to be
provided by the Company hereunder shall be in writing and delivered  personally,
by facsimile  or sent by a  nationally  recognized  overnight  courier  service,
addressed to each Holder at the  facsimile  telephone  number or address of such
Holder appearing on the books of the Company,  or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries  hereunder shall be deemed given and
effective  on the  earliest of (i) the date of  transmission,  if such notice or
communication  is delivered  via  facsimile at the  facsimile  telephone  number
specified  in this  Section  prior  to  6:30  p.m.  (New  York  City  time)(with
confirmation of transmission),  (ii) the date after the date of transmission, if
such  notice or  communication  is  delivered  via  facsimile  at the  facsimile
telephone  number  specified in this Section later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m.  (New York City time) on such date
(with confirmation of transmission), (iii) upon receipt, if sent by a nationally
recognized  overnight courier service,  or (iv) upon actual receipt by the party
to whom such notice is required to be given.

         [INSERT  IN  ADDITIONAL  DEBENTURES  ONLY:  (l) This  Debenture  Deemed
Outstanding.  If during  the  period  beginning  on and  including  the  Initial
Issuance Date and ending on the date  immediately  preceding the Original  Issue
Date, the Company  entered into, or in accordance with this Section 5 would have
been deemed to have entered into (had this  Debenture  been  outstanding at such
time),  any of the events set forth in this  Section 5, then solely for purposes
of determining any adjustment or rights under this Section 5 as a result of such
event or deemed event,  this Debenture shall be deemed to have been  outstanding
at the time of each such event or deemed event.]


                                     - 16 -
<PAGE>

         6. Prepayment.

                  (a) Upon Event of Default.  Upon the  occurrence of a Event of
Default,  each  Holder  shall  (in  addition  to all  other  rights  it may have
hereunder or under  applicable  law),  have the right,  exercisable  at the sole
option of such  Holder,  and by delivery  of a written  notice to the Company to
require the Company (an "EVENT OF DEFAULT NOTICE") to prepay all or a portion of
the Debentures then held by such Holder and, at the option of the Holder, all or
a portion of the  Reinstated  Principal,  for an amount,  in cash,  equal to the
Mandatory  Prepayment Amount.  The Mandatory  Prepayment Amount shall be due and
payable within five Trading Days of the date of the Event of Default Notice. For
purposes of this Section,  any principal amount of Debentures shall be deemed to
be  outstanding  until such date as the Holder  shall have  received  Underlying
Shares  upon a  conversion  (or  attempted  conversion)  thereof  that meets the
requirements hereof.  Notwithstanding  anything herein to the contrary, upon the
occurrence  of a Bankruptcy  Event,  all  outstanding  principal and accrued but
unpaid  interest on this Debenture shall  immediately  become due and payable in
full in cash,  without any further  action by the Holder,  and the Company shall
immediately be obligated to pay the Mandatory Prepayment Amount pursuant to this
paragraph as if the Holder had delivered a Event of Default  Notice  immediately
prior to the  occurrence  of any such  Event of  Default.  The  Holder  need not
provide and the Company hereby waives any presentment,  demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period  enforce any and all of its rights and remedies  hereunder  and all
other remedies  available to it under  applicable  law. Such  declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment  shall affect any subsequent  Event of Default or impair
any right consequent thereon.

                  (b) At Company's  Option.  At any time after the date which is
15 months after the applicable  Effective Date, the Company may deliver a notice
to the Holder  (an  "OPTIONAL  PREPAYMENT  NOTICE"  and the date such  notice is
received  by  the  Holder,  the  "OPTIONAL   PREPAYMENT  NOTICE  DATE")  of  its
irrevocable election to prepay all, or any portion, of the then aggregate amount
outstanding  under  this  Debenture  (such  elected   prepayment   amount,   the
"PREPAYMENT  AMOUNT"),  for an amount, in cash, equal to the Company  Redemption
Price. The Company Redemption Price payable pursuant to this Section 6(b) is due
in full on the tenth Trading Day following the Optional  Prepayment  Notice Date
(the  "OPTIONAL  PREPAYMENT  DATE").  The Company  may only  deliver an Optional
Prepayment Notice, and the optional prepayment  thereunder may only occur on the
Optional  Prepayment  Date,  if each of the  following  shall be  true:  (i) the
Company shall have duly honored all  conversions  and  redemptions  scheduled to
occur or  occurring  by virtue of one or more  Conversion  Notices  prior to the
Optional  Prepayment  Notice Date and the  Optional  Prepayment  Date,  (ii) the
Equity  Conditions  shall have been  satisfied  at all times  from the  Optional
Prepayment  Notice Date to the Optional  Prepayment Date, and (iii) prior to the
Optional  Prepayment  Notice  Date (A) the VWAP shall  equal or exceed  $1.75/1/
(subject to adjustment for any stock dividend, stock split, stock combination or
other  similar  transaction  which occur after the  Initial  Issuance  Date) for
twenty (20) trading days in any thirty (30) consecutive trading period occurring
after the fifteen month anniversary of the applicable Effective Date, (B) the


--------
/1/   In the case of Additional Debentures, $1.95.

                                     - 17 -
<PAGE>

volume in number of shares  traded  on  fifteen  (15)  trading  days out of such
twenty (20)  trading  period  referred to in Clause (A) is greater  than 250,000
(excluding  block trades of 20,000  shares or more),  and (C) during such twenty
(20) days the applicable Registration Statement shall have been effective at all
times  and  there  shall  not have  been any  Event of  Defaults.  If any of the
foregoing conditions shall cease to be satisfied at any time during the required
period, or if the Company shall fail to pay the Company Redemption Price in full
on the Optional  Prepayment Date, then the Optional  Prepayment  Notice shall be
null and void,  ab  initio,  and the  Company  may not  deliver  any  subsequent
Optional  Prepayment  Notices.  The  Holder  may  convert  any  portion  of this
Debenture  prior to the Optional  Prepayment  Date.  The Company  covenants  and
agrees  that it will  honor all  Conversion  Notices  tendered  from the time of
delivery of the Optional Prepayment Notice through the Optional Prepayment Date.

                  (c) Pro Rata Prepayment Requirement.  If the Company elects to
cause a prepayment of all or any portion of this  Debenture  pursuant to Section
6(b),  then it must  simultaneously  take the similar action with respect to all
Debentures and the Prepayment Amount for each holder of Debentures must be equal
to such holder's Prepayment Allocation Percentage multiplied by the aggregate of
all Prepayment  Amounts which the Company  elects to prepay  pursuant to Section
6(b) of all Debentures. The "PREPAYMENT ALLOCATION PERCENTAGE" for any holder of
Debentures shall mean a fraction, the numerator of which is the principal amount
of the  Debentures  initially  purchased by such holder on the Initial  Issuance
Date and the denominator of which is the sum of the aggregate  principal  amount
of all Debentures  purchased by all holders on the Initial Issuance Date. In the
event that the initial holder of any Debentures shall sell or otherwise transfer
any of such holder's  Debentures,  the transferee  shall be allocated a pro rata
portion  of  such  holder's  Prepayment  Allocation  Percentage.   The  Optional
Prepayment  Notice  shall  state (I) the  aggregate  Prepayment  Amounts  of all
Debentures  which the  Company  has elected to prepay from all of the holders of
the Debentures pursuant to Section 6(b) and (II) each holder's Prepayment Amount
that the Company has elected to prepay pursuant to Section 6(b).

         7. Ranking.  This Debenture ranks junior to the Outstanding  Debentures
and pari passu to all other  Debentures now or hereafter  issued pursuant to the
Transaction Documents.  Other than as set forth in Section 8, no Indebtedness of
the  Company  is senior to this  Debenture  in right of  payment,  whether  with
respect of interest, damages or upon Liquidation or dissolution or otherwise.

         8. Secured  Obligations.  The payment  obligations under this Debenture
are secured pursuant to the Security Agreements.  This Debenture will be secured
by (i) a first priority,  perfected  security interest in the stock of MDT Armor
Corporation  and any future assets acquired by or on behalf of the Company in an
Acquisition  (as defined in the  Security  Agreements),  (ii) a second  priority
security interest in the assets of IES Interactive  Training,  Inc. and stock of
other subsidiaries  directly or indirectly owned by the Company (other than that
of IES  Interactive  Training,  Inc.  and M.D.T.  Protective  Industries  Ltd.),
subordinate only to the security interest in favor of the holders of Outstanding
Debentures and (iii) a third priority  security  interest in the stock of M.D.T.
Protective  Industries Ltd., IES Interactive  Training,  Inc. and I.E.S. Defense
Services,  Inc.,  subordinate  only to the  security  interest  in  favor of the


                                     - 18 -
<PAGE>

holders  of  Outstanding  Debentures  and the  security  interest  in favor  IES
Electronics pursuant to the IES Security Agreement.

         9. Restricted  Actions.  The Company shall not and shall not permit any
of its  Subsidiaries  to take any  Restricted  Action  without the prior written
consent of the holders of the Debentures.

         10. Miscellaneous.

                  (a) This  Debenture  shall be binding on the  Company  and its
successors  and assigns  and inure to the  benefit of the Holder  hereto and its
respective successors and assigns. This Debenture may be amended only in writing
signed by the Company and the Holder and their successors and assigns.

                  (b) Nothing in this  Debenture  shall be  construed to give to
any Person other than the Company and the Holder any legal or  equitable  right,
remedy or cause under this Debenture.

                  (c)  All  questions  concerning  the  construction,  validity,
enforcement  and  interpretation  of this  Debenture  shall be  governed  by and
construed and enforced in accordance  with the internal laws of the State of New
York,  without regard to the principles of conflict of laws thereof.  Each party
agrees that all  Proceedings  shall be  commenced  exclusively  in the state and
federal courts  sitting in The City of New York,  Borough of Manhattan (the "NEW
YORK  COURTS").  Each party hereto hereby  irrevocably  submits to the exclusive
jurisdiction of the New York Courts for any proceeding,  and hereby  irrevocably
waives,  and  agrees not to assert in any  Proceeding,  any claim that it is not
personally  subject to the jurisdiction of any New York Court or that a New York
Court is an  inconvenient  forum for such  Proceeding.  Each party hereto hereby
irrevocably  waives  personal  service of process and consents to process  being
served in any such  Proceeding  by  mailing a copy  thereof  via  registered  or
certified  mail or overnight  delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this  Debenture 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  hereto  hereby
irrevocably  waives,  to the fullest extent permitted by applicable law, any and
all  right to trial by jury in any  legal  Proceeding.  If  either  party  shall
commence a Proceeding,  then the prevailing  party in such  Proceeding  shall be
reimbursed  by the other  party  for its  attorney's  fees and  other  costs and
expenses  incurred with the  investigation,  preparation and prosecution of such
Proceeding.

                  (d) The  headings  herein  are for  convenience  only,  do not
constitute a part of this  Debenture  and shall not be deemed to limit or affect
any of the provisions hereof.

                  (e)  In  case  any  one or  more  of the  provisions  of  this
Debenture  shall be invalid or  unenforceable  in any respect,  the validity and
enforceability of the remaining terms and provisions of this Debenture shall not
in any way be affected or impaired  thereby and the parties will attempt in good
faith  to  agree  upon a  valid  and  enforceable  provision  which  shall  be a


                                     - 19 -
<PAGE>

commercially  reasonable  substitute  therefor,  and  upon  so  agreeing,  shall
incorporate such substitute provision in this Debenture.

                  (f) No  provision of this  Debenture  may be waived or amended
except in a  written  instrument  signed,  in the case of an  amendment,  by the
Company and the Holder or, or, in the case of a waiver, by the Holder. No waiver
of any default with respect to any  provision,  condition or requirement of this
Debenture shall be deemed to be a continuing waiver in the future or a waiver of
any  subsequent  default  or a  waiver  of any  other  provision,  condition  or
requirement  hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

                  (g) If it shall be found that any interest due hereunder shall
violate  applicable  laws governing  usury,  the applicable rate of interest due
hereunder shall be reduced to the maximum  permitted rate of interest under such
law.

                  (h)  Except  pursuant  to the  terms  of this  Debenture,  the
outstanding  principal  amount  and  interest  under this  Debenture  may not be
prepaid by the Company without the prior written consent of the Holder.


                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGE FOLLOWS]




                                     - 20 -
<PAGE>



         IN WITNESS  WHEREOF,  the Company has caused this  Debenture to be duly
executed by a duly authorized officer as of the Original Issue Date.

                                    AROTECH CORPORATION


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












                                     - 21 -
<PAGE>





                                    EXHIBIT A

                               AROTECH CORPORATION
                                CONVERSION NOTICE

 TO BE EXECUTED BY THE REGISTERED HOLDER TO CONVERT THIS NOTE INTO COMMON STOCK

         Reference  is  made  to  the  8%  Secured  Convertible  Debenture  (the
"DEBENTURE")  issued to the undersigned by Arotech  Corporation (the "COMPANY").
In accordance with and pursuant to the Debenture,  the undersigned hereby elects
to convert the principal of the Debenture  indicated below into shares of common
stock,  par value $.01 per share, of the Company (the "COMPANY COMMON STOCK") as
of the date specified below.

         Date of Conversion:
                            ----------------------------------------------------

         Aggregate Principal Amount to be converted:

Please confirm the following information:

         Conversion Price:
                          ------------------------------------------------------

         Number of shares of Company Common Stock to be issued:

Please issue the Company Common Stock into which the Note is being  converted in
the following name and to the following address:

         Issue to:
                  --------------------------------------------------------------

                  --------------------------------------------------------------

                  --------------------------------------------------------------


         Facsimile Number:
                          ------------------------------------------------------

         Authorization:
                       ---------------------------------------------------------

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

Dated:
      --------------------------------------------------------------------------

         Account Number:
                        --------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                 -----------------------------------------------
           (if electronic book entry transfer)



<PAGE>



                                   SCHEDULE 1

                               CONVERSION SCHEDULE

         8% Secured  Convertible  Debenture,  due  September  30,  2006,  in the
         aggregate  principal amount of $_______ issued by Arotech  Corporation.
         This  Conversion  Schedule  reflects  conversions  made under the above
         referenced Debenture.

         Dated: September 30, 2003

<TABLE>
<CAPTION>
---------------------------- ---------------------------- --------------------- ---------------------- --------------------
Date of Conversion           Amount of Conversion         Aggregate Principal   Applicable             Mandatory
                                                          Amount Remaining      Conversion Price       Prepayment Amount
                                                          Subsequent to
                                                          Conversion
---------------------------- ---------------------------- --------------------- ---------------------- --------------------
<S>                          <C>                          <C>                   <C>                    <C>

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------

---------------------------- ---------------------------- --------------------- ---------------------- --------------------
</TABLE>