ex4_3.htm


    
      

    

    Exhibit
4.3

     

    


      [FORM
OF WARRANT]

       

      NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

       

      


      AROTECH
CORPORATION

      


      Warrant
To Purchase Common Stock

      


      Warrant
No.:    _________                                                                                                                                      

      Number of
Shares of Common Stock:
[496,652][33,482][27,902]

      Date of
Issuance: August 14, 2008 ("Issuance Date")

      


      AROTECH
CORPORATION, a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [HIGHBRIDGE INTERNATIONAL LLC] [CRANSHIRE CAPITAL L.P.]
[IROQUOIS MASTER FUND LTD.], the registered holder hereof or its permitted
assigns (the "Holder"),
is entitled, subject to the terms set forth below, to purchase from the Company,
at the Exercise Price (as defined below) then in effect, at any time or times on
or after the date hereof (the "Initial Exercise Date"), but
not after 11:59 p.m., New York time, on the Expiration Date (as defined below),
[FOUR HUNDRED NINETY SIX THOUSAND SIX HUNDRED FIFTY TWO (496,652)] [THIRTY THREE
THOUSAND FOUR HUNDRED EIGHTY TWO (33,652)][TWENTY SEVEN THOUSAND NINE HUNDRED
AND TWO (27,902)] fully paid nonassessable shares of Common Stock (as defined
below) (the "Warrant
Shares").  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section
17.  This Warrant (including all Warrants issued in exchange, transfer
or replacement hereof, the "Warrants") is one of the
Warrants to purchase Common Stock (the "SPA Warrants") issued pursuant
to Section 1 of that certain Securities Purchase Agreement, dated as of August
14, 2008 (the "Subscription
Date"), by and among the Company and the investors (the "Buyers") referred to therein
(the "Securities Purchase
Agreement").

       

      
        
           


        

        
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      1.      EXERCISE OF
WARRANT.

       

      (a)  Mechanics of
Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(g)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery of a written notice, in the form
attached hereto as Exhibit A (the "Exercise Notice"), of the
Holder's election to exercise this Warrant to the Company and (ii) (A) payment
to the Company of an amount equal to the applicable Exercise Price multiplied by
the number of Warrant Shares as to which this Warrant is being exercised (the
"Aggregate Exercise
Price") in cash or by wire transfer of immediately available funds or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)).  The Holder shall not
be required to deliver the original Warrant in order to effect an exercise
hereunder.  Execution and delivery of the Exercise Notice with respect
to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares.  On or
before the first (1st)
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the "Exercise
Delivery Documents"), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company's transfer agent (the "Transfer
Agent").  On or before the third (3rd)
Business Day following the date on which the Company has received all of the
Exercise Delivery Documents (the "Share Delivery Date"), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and dispatch by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the Company's share register in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise which certificates shall not
bear any restrictive legends if this Warrant is exercised pursuant to a Cashless
Exercise or if a registration statement covering the resale of the Warrant
Shares is effective.  Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account or the date of delivery of the certificates evidencing
such Warrant Shares as the case may be.  If this Warrant is submitted
in connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised.  No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole number.  The
Company shall pay any and all taxes which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this
Warrant.

       

      
        
           


        

        
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      (b)  Exercise
Price.  For purposes of this Warrant, "Exercise Price" means $2.25,
subject to adjustment as provided herein.

       

      (c)  Company's Failure to Timely
Deliver Shares.  Subject to Section 1(g), if the Company shall
fail for any reason or for no reason within three Business Days of the of
receipt of the Exercise Delivery Documents, a certificate for the number of
shares of Common Stock to which the Holder is entitled and register such shares
of Common Stock on the Company's share register or to credit the Holder's
balance account with DTC for such number of shares of Common Stock to which the
Holder is entitled upon the Holder's exercise of this Warrant, and if after such
third (3rd) Business Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares that the Holder anticipated receiving from the
Company (a "Buy-In"),
then the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point
the Company's obligation to deliver such certificate (and to issue such shares
of Common Stock) or credit such Holder's balance account with DTC shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock or credit
such Holder's balance account with DTC and pay cash to the Holder in an amount
equal to the excess (if any) of the Buy-In Price over the product of (A) such
number of shares of Common Stock, times (B) the Closing Sale Price on the date
of the event giving rise to the Company’s obligation to deliver such
certificate.  Subject to Section 1(g), if the Company shall fail for
any reason or for no reason within three (3) Business Days of the of receipt of
the Exercise Delivery Documents, a certificate for the number of shares of
Common Stock to which the Holder is entitled and register such shares of Common
Stock on the Company's share register or to credit the Holder's balance account
with DTC for such number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise of this Warrant, then the Holder will have
the right to rescind such exercise.

       

      (d)  Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if at any time following the earlier
of the (i) Initial Effectiveness Deadline and (ii) the Initial Effectiveness
Date (each as defined in the Registration Rights Agreement) the Registration
Statement (as defined in the Registration Rights Agreement) covering the Warrant
Shares that are the subject of the Exercise Notice (the "Unavailable Warrant Shares")
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "Cashless
Exercise"):

       

      Net Number = (A x B) - (A x
C)

        


       
B

       

      For purposes of the foregoing
formula:

       

      
        
           


        

        
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      A= the
total number of shares with respect to which this Warrant is then being
exercised.

       

      B= the
average of the Closing Sale Prices of the shares of Common Stock (as reported by
Bloomberg) for the five (5) consecutive Trading Days ending on the date
immediately preceding the date of the Exercise Notice.

       

      
        C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.

      

      


      (e)  Absolute and Unconditional
Obligation.  The Company’s obligations to issue and deliver
Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, 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.  Nothing herein shall limit the
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity, including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely deliver
certificates representing Warrant Shares upon exercise of the Warrant as
required pursuant to the terms hereof.

       

      (f)   Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.

       

      (g)  Limitations on
Exercises

       

      (i)           Beneficial
Ownership.  The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with
such Person's affiliates) would beneficially own in excess of 4.99% (the "Maximum Percentage") of the
shares of Common Stock outstanding immediately after giving effect to such
exercise.  For purposes of the foregoing sentence, the aggregate
number of shares of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person 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 Person and its affiliates (including,
without limitation, any convertible notes, convertible debentures, 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 calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended.  For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the Company's
most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission, as the case may be, (2) a
more recent public announcement by the Company or (3) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one Business Day confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the SPA Securities and the SPA Warrants, by
the Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.  By written notice to
the Company, the Holder may increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(x) any such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (y) any such increase or
decrease will apply only to the Holder and not to any other holder of SPA
Warrants.  The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 1(g)(i) to correct this paragraph (or any portion hereof) which may
be defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.

       

      
        
           


        

        
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      (ii)           Principal Market
Regulation.  The Company shall not be obligated to issue any
shares of Common Stock upon exercise of this Warrant if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon exercise of this Warrant (including, as applicable,
any shares of Common Stock issued upon conversion of the SPA Securities) without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "Exchange
Cap"), except that such limitation shall not apply in the event that the
Company obtains the approval of its stockholders as required by the applicable
rules of the Principal Market for issuances of shares of Common Stock in excess
of such amount.  Until such approval is obtained, no Buyer shall be
issued, upon exercise or conversion, as applicable, of any SPA Warrants or SPA
Securities, 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 total
number of shares of Common Stock underlying the SPA Warrants issued to such
Buyer pursuant to the Securities Purchase Agreement on the Subscription Date and
the denominator of which is the aggregate number of shares of Common Stock
underlying all the Warrants issued to the Buyers pursuant to the Securities
Purchase Agreement on the Subscription Date (with respect to each Buyer, the
"Exchange Cap
Allocation").  In the event that any Buyer shall sell or
otherwise transfer any of such Buyer's SPA Warrants, the transferee shall be
allocated a pro rata portion of such Buyer'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 to such
transferee.  In the event that any holder of SPA Warrants shall
exercise all of such holder's SPA Warrants 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
SPA Warrants on a pro rata basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such holder.


      
        
           


        

        
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      (h)  Insufficient Authorized
Shares.  If at any time while any of the Warrants remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 130% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of the Warrants then
outstanding  (the "Required Reserve Amount") (an
"Authorized Share
Failure"), then the Company shall immediately take all action necessary
to increase the Company's authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for the
Warrants then outstanding.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders' approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.

       

       

      2.      ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

       

      (a)  Adjustment upon Issuance of
Shares of Common Stock.  If and whenever on or after the
Subscription Date and on or prior to the two (2) year anniversary of the Initial
Effective Date (as defined in the Registration Rights Agreement), the Company
issues or sells, or in accordance with this Section 2(a) is deemed to have
issued or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the Company, but
excluding shares of Common Stock issued or sold or deemed to have been issued or
sold by the Company in connection with any Excluded Security) for a
consideration per share (the "Applicable Price") less than a
price equal to the Exercise Price in effect immediately prior to such issue or
sale (the foregoing a "Dilutive
Issuance"), then immediately after such Dilutive Issuance the Exercise
Price then in effect shall be reduced to the Applicable Price with respect to a
portion of the total number of Warrant Shares underlying this Warrant, with the
portion of the total number of Warrant Shares underlying this Warrant that is
subject to the adjusted Exercise Price to be determined by multiplying (i) the
total number of Warrant Shares underlying this Warrant whose Exercise Price is
greater than the Applicable Price by (ii) the Adjustment Fraction (as defined in
the SPA Securities) as determined under the SPA Securities.  The
adjustment of the Exercise Price under this Section 2(a) allows for multiple
Exercise Prices to be applicable under this Warrant.  Further
adjustments shall be made successively for successive Dilutive Issuances with
adjustments to the Exercise Price affecting portions of the Warrant with the
highest Exercise Price first and then successively to the portions of the
Warrant with the lowest Exercise Price.  For purposes of determining
the adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

       

      
        
           


        

        
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      (i)           Issuance of
Options.  If the Company in any manner grants any Options and
the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share.  For
purposes of this Section 2(a)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option.  No further adjustment
of the Exercise Price or number of Warrant Shares shall be made upon the actual
issuance of such shares of Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities.

       

      (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section 2(a)(ii), the "lowest price
per share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible
Security.  No further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(a), no further adjustment of the
Exercise Price or number of Warrant Shares shall be made by reason of such issue
or sale.

       

      (iii)           Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the
Exercise Price and the number of Warrant Shares in effect at the time of such
increase or decrease shall be adjusted to the Exercise Price and the number of
Warrant Shares which would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased purchase price,
additional consideration or increased or decreased conversion rate, as the case
may be, at the time initially granted, issued or sold.  For purposes
of this Section 2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease.  No
adjustment pursuant to this Section 2(a) shall be made if such adjustment would
result in an increase of the Exercise Price then in effect or a decrease in the
number of Warrant Shares.

       

      
        
           


        

        
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      (iv)           Calculation of Consideration
Received.  In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction, (x) the Options will be deemed to have been issued for a
value determined by use of the Black Scholes Option Pricing Model (the "Option Value") and (y) the
other securities issued or sold in such integrated transaction shall be deemed
to have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value.  If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount received by the Company therefor.  If any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount of
consideration received by the Company will be the Closing Sale Price of such
securities on the date of receipt.  If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be.  The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the Required
Holders.  If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five (5) Business Days
after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders.  The determination
of such appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the
Company.

       

      (v)           Record
Date.  If the Company takes a record of the holders of shares
of Common Stock for the purpose of entitling them (A) to receive a dividend
or other distribution payable in shares of Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase shares of Common
Stock, Options or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

       

      
        
           


        

        
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      (b)           Adjustment upon Subdivision
or Combination of Common Stock.  If the Company at any time on
or after the Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased.  If the
Company at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased.  Any
adjustment under this Section 2(a) shall become effective at the close of
business on the date the subdivision or combination becomes
effective.

       

      (c)           Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of share appreciation rights,
phantom share rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.

       

      (d)           Voluntary Adjustment By
Company. The Company may at any time during the term of this Warrant
reduce the then current Exercise Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company. 

       

      3.      RIGHTS UPON DISTRIBUTION OF
ASSETS.  If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case:

       

      (a)           any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of
Common Stock on the trading day immediately preceding such record date;
and

       

      
        
           


        

        
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      (b)           the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided
that in the event that the Distribution is of shares of Common Stock (or common
stock) ("Other Shares of Common
Stock") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).

       

      4.      PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

       

      (a)  Purchase
Rights.  In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

       

      (b)  Fundamental
Transactions.

       

      (1)           The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section (4)(b) pursuant to written agreements in
form and substance reasonably satisfactory to the Required Holders and approved
by the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Warrants in exchange for such Warrants a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation, an
adjusted exercise price equal to the value for the shares of Common Stock
reflected by the terms of such Fundamental Transaction, and exercisable for a
corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and satisfactory to the Required Holders and
(ii) the Successor Entity (including its Parent Entity) is a publicly
traded corporation whose common stock is quoted on or listed for trading on an
Eligible Market.  Upon the occurrence of any Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Warrant
referring to the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such
Successor Entity had been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental Transaction, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of the publicly traded common stock (or its
equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Warrant been converted immediately prior to
such Fundamental Transaction, as adjusted in accordance with the provisions of
this Warrant.  In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the shares of the Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise
of the Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or
other purchase or subscription rights) which the Holder would have been entitled
to receive upon the happening of such Fundamental Transaction had the Warrant
been exercised immediately prior to such Fundamental
Transaction.  Provision made pursuant to the preceding sentence shall
be in a form and substance reasonably satisfactory to the Required
Holders.  The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the exercise of this
Warrant.

       

      
        
           


        

        
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      (2)           Notwithstanding
the provisions of Section 4(b)(1), the Company shall have the right to require
that the Holder waive the requirements of Section 4(b)(1) (the "Waiver") in exchange for a
payment of cash in an amount equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such Fundamental Transaction,
with the Waiver becoming effective, and this Warrant cancelled, concurrently
with such payment of such cash amount (the "Fundamental Transaction
Amount") to the Holder on the Fundamental Transaction Closing
Date.  Notwithstanding anything to the contrary in this Section 4(b),
but subject to Section 1(f), until such time that the Holder receives the
Fundamental Transaction Amount (at which point this Warrant shall be cancelled),
this Warrant may be exercised, in whole or in part, by the Holder (x) prior to
the Fundamental Transaction Closing Date, into Common Stock pursuant to Section
1, or (y) upon (which may be expressly conditioned upon the closing of the
Fundamental Transaction) or after the Fundamental Transaction Closing Date, into
any such shares of stock, securities, cash, assets or any other property
whatsoever (including warrants or other purchase or subscription rights, if
applicable) which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had the Warrant been exercised
immediately prior to such Fundamental Transaction Closing Date.

       

      
        
           


        

        
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      5.      NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the
Holder.  Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

       

      6.      WARRANT HOLDER NOT DEEMED A
STOCKHOLDER.  Except as otherwise specifically provided herein,
the Holder, solely in such Person's capacity as a holder of this Warrant, shall
not be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person's capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.  Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

       

      7.      REISSUANCE OF
WARRANTS.

       

      (a)  Transfer of
Warrant.  If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

       

      
        
           


        

        
          - 12
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      (b)  Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

       

      (c)  Exchangeable for Multiple
Warrants.  This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Warrant
or Warrants (in accordance with Section 7(d)) representing in the aggregate the
right to purchase the number of Warrant Shares then underlying this Warrant, and
each such new Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such surrender;
provided, however, that no Warrants for fractional shares of Common Stock shall
be given.

       

      (d)  Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.

       

      8.      NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefore.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately upon any
adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) promptly after the date
on which the Company establishes a record date (A) with respect to any dividend
or distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

       

      9.      AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders;
provided that no such action may increase the exercise price of any SPA Warrant
or decrease the number of shares or class of stock obtainable upon exercise of
any SPA Warrant without the written consent of the Holder.  No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.

       

      
        
           


        

        
          - 13
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      10.    GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accor­dance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant 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.

       

      11.    CONSTRUCTION;
HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any person
as the drafter hereof.  The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.

       

      12.    DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder.  If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within two (2) Business Days
submit via facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder  or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant.  The Company
shall cause at its expense the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations.  Such investment
bank's or accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.

       

      13.    REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant and the other Transaction Documents, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the right of the Holder right to pursue actual
damages for any failure by the Company to comply with the terms of this
Warrant.  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holder of this Warrant shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being
required.

       

      14.    TRANSFER.

       

      
        
           


        

        
          - 14
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      (a)  This
Warrant may be offered for sale, sold, transferred or assigned in compliance
with the Federal and state securities laws without the consent of the
Company.

       

      (b)  Except
as provided in Section 2(h) of the Securities Purchase Agreement, the Company
may cause the legend set forth on the first page of this Warrant to be set forth
on each Warrant, and a similar legend on any security issued or issuable upon
exercise of this Warrant, unless counsel for the Company is of the opinion as to
any such security that such legend is unnecessary.

       

      15.   
PAYMENT OF
TAXES.  The Company will pay any documentary stamp taxes
attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Holder in respect of which such shares are issued,
and in such case, the Company shall not be required to issue or deliver any
certificate for Warrant Shares or any Warrant until the person requesting the
same has paid to the Company the amount of such tax or has established to the
Company’s reasonable satisfaction that such tax has been paid.  The
Holder shall be responsible for income taxes due under federal, state or other
law, if any such tax is due.

       

      16.    FORCED
EXERCISE.

       

      (a)  At
any time after the eighteen (18) month anniversary of the Issuance Date (the
"Eligibility Date"), the
Company may, no later than ten (10) Trading Days after the applicable Forced
Exercise Measuring Period (as defined below), deliver a notice to the Holder (a
"Forced Exercise Notice"
and the date such notice is received by the Holder, the "Forced Exercise Notice Date"),
of its irrevocable election to require the exercise of all, or any portion, of
this Warrant (such required exercise amount, the "Forced Exercise
Number").  The date of such forced exercise shall be the tenth
(10th) Trading Day following the Forced Exercise Notice Date (the "Forced Exercise
Date").  The Company may only deliver a Forced Exercise Notice,
and the forced exercise thereunder may only occur on the Forced Exercise Date,
if each of the following shall be true: (i) there is currently no Equity
Conditions Failure (unless the Holder has waived such Equity Conditions Failure)
and (ii) prior to the Forced Exercise Notice Date (A) the arithmetic average of
the Weighted Average Price shall equal or exceed $3.38 (subject to adjustment
for any stock dividend, stock split, stock combination or other similar
transaction which occur after the Issuance Date) for twenty (20) Trading Days in
any thirty (30) consecutive Trading Day period occurring after the Eligibility
Date (the "Forced Exercise
Measuring Period") and (B) the 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 100,000.  If any of the foregoing
conditions shall cease to be satisfied at any time during the required period,
then the Forced Exercise Notice shall be null and void, ab
initio.  Notwithstanding the foregoing, nothing in this subsection
shall prevent the Holder from exercising this Warrant, in whole or part, prior
to the Forced Exercise Date.  The Company covenants and agrees that it
will honor all Exercise Notices tendered from the time of delivery of the Forced
Exercise Notice through the Forced Exercise Date.

       

      
        
           


        

        
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      (b)  Pro Rata
Requirement.  If the Company elects to cause a forced exercise
of all or any portion of this Warrant pursuant to Section 16(a), then it must
simultaneously take the similar action, pro rata, with respect to all other SPA
Warrants and the Forced Exercise Number for each holder of SPA Warrants must be
equal to such holder's Forced Exercise Allocation Percentage multiplied by the
aggregate of all Forced Exercise Numbers which the Company elects pursuant to
Section 16(a) of all SPA Warrants.  The "Forced Exercise Allocation
Percentage" for any holder of SPA Warrants shall mean a fraction, the
numerator of which is the number of Warrant shares initially issued to such
holder on the Issuance Date and the denominator of which is the sum of the
aggregate number of Warrant Shares issuable upon exercise of all the SPA
Warrants.  In the event that the initial holder of any such SPA
Warrants shall sell or otherwise transfer any of such holder's SPA Warrants, the
transferee shall be allocated a pro rata portion of such holder's Forced
Exercise Allocation Percentage.  The Forced Exercise Notice shall
state (I)  the aggregate Forced Exercise Numbers of all SPA Warrants
which the Company has elected to forced to be exercised from all of the holders
of SPA Warrants pursuant to Section 16(a) and (II) each holder's Forced Exercise
Number that the Company has elected to force to be exercised pursuant to Section
16(a).

       

      


      17.    CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

       

      (a)  "Black Scholes Value" means the value of this
Warrant obtained from the "OV" function on Bloomberg using (i) a price per share
of Common Stock equal to the greater of (A) the arithmetic average of the
Weighted Average Price of the Common Stock for the five Trading Days immediately
preceding the date of consummation of the applicable Fundamental Transaction and
(B) the Weighted Average Price of the Common Stock for the Trading Day
immediately preceding the date of consummation of the applicable Fundamental
Transaction, (ii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the remaining term of this Warrant as of the date of
consummation of the Fundamental Transaction and (iii) an expected volatility
equal to the greater of 60% and the 100 day volatility obtained from the HVT
function on Bloomberg determined as of the Trading Day immediately following the
public announcement of the applicable Fundamental Transaction.

       

      (b) "Bloomberg" means Bloomberg
Financial Markets.

       

      (c)  "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.

       

      (d) 
"Closing Bid Price" and
"Closing Sale Price"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.).  If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder.  If the Company and the Holder are unable
to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 12.  All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

       

      
        
           


        

        
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      (e)  "Common Stock" means
(i) the Company's shares of Common Stock, $0.01 par value per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

       

      (f)   "Convertible Securities" means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.

       

      (g) "Eligible Market" means the
Principal Market, the American Stock Exchange, The New York Stock Exchange,
Inc., The NASDAQ Capital Market, The NASDAQ Global Select Market or the OTC
Bulletin Board.

       

      (h)  "Equity Conditions"
means:  (i) on each day during the period beginning twenty (20)
Trading Days prior to the applicable date of determination and ending on and
including the applicable date of determination (each, an "Equity Conditions Measuring
Period"), either (x) the Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale of
all Registrable Securities required to be covered thereby in accordance with the
terms of the Registration Rights Agreement and no Event (as defined in the
Registration Rights Agreement) shall have occurred and be continuing or (y) all
shares of Common Stock issuable upon conversion of the SPA Securities, and upon
cashless exercise of the SPA Warrants shall be eligible for sale pursuant to
Rule 144 without restriction or limitation including without the requirement to
be subject to Rule 144(c)(1) and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation on an
Eligible Market and shall not have been suspended from trading on such exchange
or market (other than suspensions of not more than two (2) days and occurring
prior to the applicable date of determination due to business announcements by
the Company) nor shall delisting or suspension by such exchange or market been
threatened or pending either (A) in writing by such exchange or market (other
than a notice from the Principal Market to the effect that the common stock does
not satisfy Nasdaq Marketplace Rule 4310(c)(4) (the "Minimum Bid Price Rule"), and
that in accordance with the rules of the Principal Market, the Company will be
provided 180 calendar days to regain compliance with the Minimum Bid Price Rule
or be delisted from the Principal Market) or (B) by falling below the minimum
listing maintenance requirements of all such Eligible Markets; (iii) during the
one (1) year period ending on and including the date immediately preceding the
applicable date of determination, the Company shall have delivered Conversion
Shares upon conversion of the SPA Securities to the holders on a timely basis as
set forth in Section 3(c)(ii) of the SPA Securities and upon exercise of the SPA
Warrants to the Holders on a timely basis as set forth in Section 1(a) hereof;
(iv) any applicable shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating Section
1(g) hereof and the rules or regulations of the Principal Market; (v) during the
Equity Conditions Measuring Period, the Company shall not have failed to timely
make any payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document; (vi) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction which
has not been abandoned, terminated or consummated or (B) an Event of Default (as
defined in the SPA Securities) or an event that with the passage of time or
giving of notice would constitute an Event of Default; (vii) the Company shall
have no knowledge of any fact that would cause (x) the Registration Statements
required pursuant to the Registration Rights Agreement not to be effective and
available for the resale of all remaining Registrable Securities in accordance
with the terms of the Registration Rights Agreement or (y) any shares of Common
Stock issuable upon conversion of the SPA Securities and upon cashless exercise
of the Warrants not to be eligible for sale pursuant to Rule 144 without
restriction or limitation including without the requirement to be subject to
Rule 144(c)(1) and without the need for registration under any applicable
federal or state securities laws; (viii) the Stockholder Approval (as defined in
the Securities Purchase Agreement) shall have been obtained; and (ix) the
Company otherwise shall have been in material compliance with and shall not have
materially breached any provision, covenant, representation or warranty of any
Transaction Document.

       

      
        
           


        

        
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      (i)  
"Equity Conditions
Failure" means that during the period commencing on the first (1st)
Trading Day of the Forced Exercise Measuring Period through the Forced Exercise
Date, the Equity Conditions have not been satisfied (or waived in writing by the
Holder).

       

      (j)   "Expiration Date" means the
date that is thirty-six (36) months after the Issuance Date or, if such date
falls on a day other than a Business Day or on which trading does not take place
on the Principal Market (a "Holiday"), the next date that
is not a Holiday.

       

      (k)  "Fundamental Transaction" means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person or Persons, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow another
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock or (vi) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate Common Stock of the
Company.

       

      
        
           


        

        
          - 18
-

          
            

          

        

        
           


        

      


      (l)   "Options" means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

       

      (m)  "Parent Entity" of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

       

      (n)  "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

       

      (o)  "Principal Market" means The
NASDAQ Global Market.

       

      (p)  "Registration Rights Agreement"
means that certain registration rights agreement by and among the Company and
the Buyers.

       

      (q)  "Required Holders" means the
holders of the SPA Warrants representing at least a majority of shares of Common
Stock underlying the SPA Warrants then outstanding.

       

      (r)   "SPA Securities" means the
Notes issued pursuant to the Securities Purchase Agreement.

       

      (s)  "Successor Entity" means the
Person, which may be the Company, (or, if so elected by the Required Holders,
the Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Required Holders, the Parent
Entity) with which such Fundamental Transaction shall have been entered
into.

       

      (t)   "Trading Day" means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded; provided that "Trading Day" shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York
time).

       

      
        
           


        

        
          - 19
-

          
            

          

        

        
           


        

      


      (u)  "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
time (or such other time as the Principal Market publicly announces is the
official close of trading) as reported by Bloomberg through its "Volume at
Price" functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York Time (or such other time as such market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
time (or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted
Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 12.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
other similar transaction during the applicable calculation period.

      


       

      [Signature
Page Follows]


      
        
           


        

        
          - 20
-

          
            

          

        

        
           


        

      


      IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

      


      


      
        	 
      	
                AROTECH
      CORPORATION

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	
                Name:

              
	 
      	
                Title:

              


      

       


      
        
           


        

        
          
          

          
            

          

        

        
           


        

      


      EXHIBIT
I

      


      EXERCISE
NOTICE

       

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

       

      AROTECH
CORPORATION

       

      The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock ("Warrant Shares") of Arotech
Corporation, a Delaware corporation (the "Company"), evidenced by the
attached Warrant to Purchase Common Stock (the "Warrant").  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

      


      1.           Form
of Exercise Price.  The Holder intends that payment of the Exercise
Price shall be made as:

      


      
        	
                 
      

              	
                ____________

              	
                a
      "Cash
      Exercise" with respect to _________________ Warrant Shares;
      and/or

              


      

      


      
        	
                 
      

              	
                ____________

              	
                a
      "Cashless
      Exercise" with respect to _______________ Warrant
      Shares.

              


      

      


      2.           Payment
of Exercise Price.  In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.

      


       

      3.           Delivery
of Warrant Shares.  Please issue the Warrant Shares in the following
name and to the following address:

      


      
        	
                Issue
      to:

              	 
      


      

       

      
        	
                Facsimile
      Number:

              	 
      


      

       

      
        	
                Authorization:

              	 
      


      

       

      
        	
                Account
      Number:

              	 
      
	
                (if
      electronic book entry transfer)

              


      

       

      
        	
                Transaction
      Code Number:

              	 
      
	
                (if
      electronic book entry transfer)

              


      

      


       

      To the
extent the foregoing exercise is for less than the full number of Warrant Shares
issuable pursuant to the Warrant, a replacement Warrant representing the
remainder of the Warrant Shares issuable (and otherwise of like form, tenor and
effect) shall be delivered to holder.

       

      The
undersigned confirms the continuing validity of, and reaffirms as of the date
hereof, the representations and warranties set forth in [Section 2(b) through
(j)] of the Securities Purchase Agreement, dated as of August 14, 2008, by and
among the Company and the Buyers named therein.

       

      The
undersigned agrees to comply with the prospectus delivery requirements (to the
extent applicable) under the applicable securities laws in connection with any
transfer of the aforesaid Warrant Shares.

       

      Date:
_______________ __, ______


      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

      


      
        	 
      	 
      
	
                Name
      of Registered Holder

              	 
      
	 
      	 
      	 
      
	
                By:

              	 
      	 
      
	
                Name:

              	 
      	 
      
	
                Title:

              	 
      	 
      


      


      
        
           


        

        
          
          

          
            

          

        

        
           


        

      


      ACKNOWLEDGMENT

       

      The
Company hereby acknowledges this Exercise Notice and hereby directs American
Stock Transfer & Trust Co. to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated August 14,
2008 from the Company and acknowledged and agreed to by American Stock Transfer
& Trust Co.

      


      
        	 
      	
                AROTECH
      CORPORATION

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	 
      	
                Name:

              
	 
      	 
      	
                Title:

              


      


      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

      


      FORM OF
ASSIGNMENT

      


       

      [To be
completed and signed only upon transfer of Warrant]

      


       

      FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to
purchase  ____________ shares of Common Stock of Arotech Corporation
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Arotech Corporation with full power of
substitution in the premises.

       

      
        	
                Dated: __ ,
      _____

              	
                _______________________________________

              
	 
      	 
      
	 
      	
                (Signature
      must conform in all respects to name of Holder as specified on the face of
      the Warrant)

              
	 	 
	 
      	

                _______________________________________

              
	 	 
	 
      	
                Address
      of Transferee

              
	 
      	 
      
	 
      	

                _______________________________________

              
	 
      	 
      
	 
      	

                _______________________________________

              
	 	 
	
                In
      the presence of:

              	 
      
	
                ______________